VGP NV (VGP) Earnings Call Transcript & Summary

Welcome to the VGP's conference call. Today's call is being recorded and will be hosted by Mr. Jan Van Geet, CEO; Mr. [ Pete Van Geet ], CFO; Mr. Martijn Vlutters, Business Development; and [indiscernible], IR Manager. Mr. Jan Van Geet, please go ahead.

Good morning, everybody on the call, and welcome to our presentation of our full year results for VGP over 2021. I think you can see our presentation now. I will immediately go to the highlights of last year. So last year, we leased out a record 1,350,000 square meter of new lease agreements, which have been signed and that resulted in a record net profit of EUR 650.1 million, a 75% increase year-on-year. We had a very strong business growth across the portfolio, and we added also some new countries. So as I already said, we signed a new rental income of EUR 79.7 million but which is versus EUR 45.2 million for the year before, a 76% increase. And of that 70 -- more than EUR 74 million was actually incremental. We had a record 1,478,000 square meters under construction at the year-end, 1.7x the level of December 2020, which represent 50 buildings and EUR 93.9 million in additional annual rent was fully built and let, of which already approximately EUR 80 million has been signed or 83.8%, which was pre-let as of December 2021. Our land bank itself expanded to almost 11 million square meters, an increase of 43% year-on-year, which represents -- on which we can construct almost 5 million, a little bit more than 5 million square meter of future lettable area. Nearly 40% of all of our development projects acquired in 2021 are brownfield sites. We really acquired some really nice ones. I already talked before in Bilbao about La Laval, the construction side, but we also bought a new land plot in Nuremberg at the end of the year, which is leased to Siemens as an office site, which we're going to convert into in the future into a last-mile logistics center, and many others which we have bought over the last year and which are now under option. We delivered a record of 652,000 square meter, which represents 26 projects or EUR 32 million of annualized committed leases, which was virtually fully let, and we expect a record delivery this year as very big projects like Munich, Laatzen are going to be delivered to our tenants in the course of this year. So it will be substantially more than 1 million square meters to be delivered this year, which will also be virtually for the let. We started operations in France, Serbia and Greece. And in the meantime, in the first weeks of January, we also signed agreements with new country managers for both Sweden and Denmark. And our country management for Serbia has acquired the first or signed a first land plot also in Croatia. The year-end gearing ratio reduced to 29.8% as we did capital increase in November, which was very successfully subscribed. I'm going to Page 4. If you look at the ongoing strong financial performance, and we have the total portfolio value increased with almost EUR 2 billion or 50% growth from 2020 to 2021 and stands now at EUR 5.75 billion, and that's including the joint ventures at the 100%. We have a really strong growth in committed annualized rental income. It almost looks like an e-commerce company, but we grew with 38.3% in rental growth, contracted rental growth, which comes from exceptional demand in the markets. We see a lot of our competitors also did very well, but it's also an expression of the excellent land positions which we have, and you will later on see in the presentation, our weighted average lease term, besides the fact that we -- despite the fact that we have become more 1 year older, has actually gone up and the portfolio has become older, but the new leases have compensated more than that. The net profit result is really supported by strong predominantly pre-let new construction activity and of course, by the continued yield compression. We are going to do -- this year, we're going to -- we plan to do a number of closings with Allianz, and we already agreed on the first closing, which is due to happen in 14 days and 2 weeks from now on the 15th of March. And I can already say with confidence that the pricing which we have agreed there is substantially better than what is in the numbers on the December 31, 2021. So we -- and there is still a yield compression in the market compared to our numbers from the end of the year. We intend to propose to our shareholders' meeting the distribution of a gross dividend of a EUR 149.6 million or EUR 6.85 per share as we have a really strong balance sheet. All of our CapEx needs are well covered now. We also issued a bond, as you know, in the beginning of the year, I think the timing for that was really very good, EUR 1 billion, which was substantially oversubscribed. And so we aim to propose this distribution of dividend at the shareholder meeting. If you look at our ESG achievements and highlights of VGP in 2021. So, on the carbon footprint, Scope 1 and 2 reductions, which we've already announced, we are on track to achieve net carbon neutrality by 2025 and the 50% gross reduction by 2030. We have now, for all VGP offices wind energy in place through a PPA contract, which we signed with [ Choke Energy ], and it's using the energy of one of our own solar installations, which we have on our roofs in Manhagen. It started on the January 1, 2022. We're also looking in the carbon footprint Scope 3 reduction. We are engaging very intensively with tenants on self-consumption of renewable energy. As energy prices are surging everywhere, it's easier now to promote our on-roof installations, which we are enhanced fast in building out. We aim to align our portfolio's performance with the goals of the Paris Agreement. VGP renewable energy, it's got now 74.7 megawatt peak installed under construction and around 74.5 megawatts peak in the pipeline. And we aim to install to multiply our installed capacity by 2x by 2025 to 300 megawatt peak. On our rooms, we've identified that we can install in total almost 1 gigawatt peak to be, to -- actually at what we have now under -- in ownership. We are supporting our tenants in the switch to green drive chain technologies. Yes, we -- our green building certification. Actually, already 54.3% of the portfolio is certified green. We are aiming for BREEAM excellent or DGNB goals for all new builds, which we started up after January 2022 before it was DGNB Very Good. And DGNB is silver and BREEAM Very Good, so we enhanced that also. On the building/cycle management, we have several pilot projects of DGNB KlimaPositiv life cycle certification underway, which has to be done in close cooperation with our tenants because it's also evaluating the energy consumption of the tenant side. And EBRD joined research, we are doing a joint research with the EBRD on circular materials. On Page 6, on governance, we reimplemented the principal 319 of the Belgian code of governance by appointing a company secretary, [indiscernible], which shifts to that position. We updated our charter and various policies and guidelines to demonstrate the higher standards of business conduct and integrity. You can find it back on our website. We are trying to do a lot for diversity and talent management. Our Board continues its divested to leave 60% female board members. We have a lot of new training and development initiatives, which are being implemented, and we conduct also an inaugural annual group employee satisfaction survey, which the first results are coming in now and are very promising. On the VGP foundation side, we are especially focusing on social welfare and above all on biodiversity with 19 environmental, mostly biodiversity related projects, thanks to the cooperation with NABO, 5 cultural projects and 5 social projects supported thus far. We have already made 7 million commitments available until 2021, and we have booked a provision inside our result of EUR 5 million to be committed for 2022 once it's approved by our shareholders in our shareholders' meeting. On Climate Change Management, we are evaluating our carbon risk real estate monitor 2050 pathway, analysis for portfolio compliance on the best offer basis. And ESG disclosure, we try to disclose every time more for GE compliance. We have the annual CDP and Crest submission, and we have an initial Sustainalytics score, and we plan to initiate MSCI, and S&P Global CSA score in 2022. On the operational performance, 2021 saw an absolute record in leasing activity, and I am -- I founded this company. I passed it in 1998. And when we started [indiscernible] it took us 3 years to lease it out, and that was our biggest park at the time in the Czech Republic, our first major park. And that was after 3 years' time, EUR 22 million of rental income, which we then sold and it was a very big transaction in 2010. While this year, we already have 400 tenants, our committed annualized leases are -- rose to EUR 256.1 million from EUR 105.2 million. So last year, we signed and renewed almost 4x on [ Opportunita ], EUR 79.7 million in 2021, of which EUR 74.6 million were new incremental leases. And I think that speaks for itself that the land bank is really very well positioned. And for sure, if you look at the next -- the slides to come, it's also you will see the volt has gone up also. The portfolio is growing really fast. If you look at Page #9. So the compounded annual growth rate is around 40% from '17 until '21. And the joint venture are really functioning very well. The last year, we had all the small closings because regarding full expansion models. But this year, we have a lot of closing plant, it should enable us to recycle the capital, which we need to fulfill our CapEx needs for the year 2022 and beyond. And the investment portfolio has grown to 5.746. That's including 100% of the joint venture assets, of course, which is up 49.5% of 50% almost. And Western Europe represents 76% of our total portfolio as of December '21 and 75% of our operating EBITDA, including the joint ventures that share over the full year 2021. And if you look at the investment portfolio breakdown by country, you will see that Germany is 56%, and it's really the absolute majority of our investments. And -- but the other countries, if you look at the KPI projections for this year and what they are aiming to sign, they will relatively grow a lot faster now in size and the Germans do because countries like Spain, Italy, Bratislava, Slovakia, Romania are also due to grow a lot this year. If you look at our investment portfolio breakdown by status, then we have 3.4 million delivered. We have EUR 1.5 billion under construction, a little bit more than million EUR 1.5 billion of construction and EUR 565 million of development land, which is sitting at acquisition costs roughly on our balance sheet. I go to Slide number 11, our portfolio, and that is the slide which I already talked about. Our portfolio is actually fully let on a long-term basis. What we -- last year and what came these agreements, which came to examination were immediately replaced by other lease agreements, and we see a very nice growth of rental income because the new rental contracts which are in place have all higher rental prices than the previous ones. And if you look at the occupancy evolution, you see that we are actually in our own portfolio at 99.3% and in the joint venture portfolio at 99.4%. Internally, we don't make a difference. It's only the bookkeeping, which keep it different. But for us, as a team, it is one big portfolio. The weighted average lease term of the portfolio, and as I already said, despite the fact that we are all 1 year older, it grew. So the combined weighted average lease time has actually increased year-on-year from 8.5% to 8.6% years, and that is thanks to the contribution of our own, of course, mostly portfolio, which grew to 10.2 years. We signed a lot of very long leases last year, some 20 years from 15 years, and it's really a reflection of the high degree of tenant investments in our buildings and the excellent locations of our parks. If you look at Page #12, the -- we really have a nice blue-chip customer base. And the biggest tenants are Krauss Maffei in the first place. It has actually gone down from 19% the year before to 10.9%, thanks to the big growth. And the top 10 clients account for 37% of our total income, but they are spread over a lot of lease agreements. So Krauss Maffei is 3 lease agreements, Amazon is 4, Zalando is 2, maybe 3, the third one is coming. Rheynos Logistics, it's 6 lease agreements, driver logistics, it's 4 different buildings, et cetera. So it's not always just one building and one tenant. If you look at the tenant portfolio by breakdown by industry segments, we see that e-commerce is continuously growing. We also are doing more and more last mile logistics. The logistics itself, but we don't have a lot of third-party logistics. It's mostly end users from 38.6% and a very important one for us, certainly for the land acquisition is light industrial activities, which still forms one third of our total portfolio. In 2021, we delivered 26 buildings, which represented 652,000 square meters, which was a new record for us. That represents EUR 32 million of rental income through 47 tenant contracts. And I'm going through the customers in town Edeka was in Laatzen Konux. Edeka is on food and food retail and Konus is really e-commerce. MediaMarktSaturn in Gottingen and [ YOLO ], it's nonfood logistics, it's the end user. We delivered the building for Continental in Bratislava, 53,000 square meters and we delivered the building for PAC in Madrid, which is e-commerce-related, Radio Popular in Porto, which is a local retailer. We delivered to Ag Transport in Nijmegen, which is a third-party logistics, [indiscernible] production and then [indiscernible] in Zaragosa, Schenker in Brussels, and Jost in Erfurt. A couple of the examples which we have Jost is also [indiscernible] and most of these contracts also really very long-term [indiscernible] terms. If you look at Page 14, then you also see what we have under construction a couple of buildings out of that. At December '21 50 buildings are under construction, representing a record of almost 1.5 million square meters, as I said, 1.7x the level of December 2020, and we foresee to roughly start up between 1 million and 1.5 million square meters this year. We will see how well the market goes. It equates to EUR 93.9 million of new lease contracts when everything would be pre-let. As I already said, it was 83.8% pre-let at the end of the year. And Western Europe represents 75% of the portfolio under construction, which will change throughout the year as we will see more and more going up in new countries in which we are active, including Greece. And I think we will start about our building increase maybe at the end. If you look at the land bank, then -- which is a very important parameter for us because it is the definition of our future growth, of course, we have 6.3 million square meter of development potential embedded in our land bank. We started the year with 5.5 million square meters last year. We deployed almost 50% of that, 47% to more than 2.5 million square meters in 2021. We acquired 4 million square meters in 2021. We have another EUR 4 million of committed and we -- our KPI for this year is roughly to acquire not very far away from 5 million square meter between 4 million and 5 million square meters. And we signed the letters of intent of almost 3 million square meters, so things in which we are doing due diligence. So that the total land bank, the bill of a brand then goes to 13.8 million square meters overall. If you look at the geographic breakdown, you see that it is slightly equally spread with Germany and the Netherlands having the 2 biggest positions. But Spain is growing very fast. Italy is growing very fast, which is not in the graph here, but it's growing very fast. And the total land bank of 10 of 11 million square meters equipped now to develop a potential of 5 million square meters. I'm going to give the word to my brother Pete, our new CFO, who is going to give you an overview of the financial performance in detail of 2021.

Thank you, Jan. I'm on Page 17 of the income statement of the VGP Group, and I suggest I go from top to bottom ones -- we had a net rental income increase from $8.3 million to $15.4 million. On a look-through basis, if you look at the Mittejoint ventures, we had EUR 70.7 million, which was a EUR 15.4 million year-over-year growth. And we had a joint venture management income increase from 14.7 million to $21.3 million. And that actually the 21.3% exits out of 2 fees. It's EUR 14 million that we charge for the assets based on the gross asset value of the joint venture portfolio and EUR 7 million in development fee, both increased well in comparison to last year, and we're expecting to increase further on a recurring basis in the future as my brother already mentioned, we will do additional closings in the next -- in 2022 and 2023, which should increase this management fee income. A substantial part of our profit contribution of EUR 650 million is obviously the net valuation gains on our investment property, which increased from EUR 366 million to EUR 610.3 million. This is actually part unrealized part realized. The realized part was on the minor transactions that were done last year with the joint venture. It contributed about EUR 11 million and the EUR 600 million is unrealized and it comes from one a yield compression. But on the other hand, the large volume of buildings that have started up and being evaluated for the first time in 2021. The administration expenses, they increased from 29 million to EUR 52.1 million. A major part here is obviously one of the growth of the team, but also the provisions that have been booked for the LTIP incentive program, which amounted to EUR 16 million and take up a large part with variance between 2020 and 2021. Our share in the net profit from JVs amounted to EUR 186.7 million, a strong increase versus EUR 63.3 million last year. Also, on the next slide, you will see the operational EBITDA. But obviously, the joint ventures also profited from a yield revaluation, which then finally ended up in our P&L and a final contribution of EUR 187 million. The other expenses, they refer to the provision of the foundation, which my brother explained before and still needs to be ratified, but it's EUR 5 million that has been foreseen now. So we end up with an operating profit of EUR 777 million versus EUR 419.4 million last year. Then we still have the net financial results. On the one hand, we have the financial income of EUR 3.3 million. These are interest on loans that were given to the joint venture companies and our financial expense amounts to EUR 25 million, which has an increase versus last year, but also our debt on the balance sheet has increased. That results finally in a profit before tax of EUR 764 million and a tax deduction of EUR 114 million, which is mainly a deferred tax liability based on the net valuation gains that have been booked on the portfolio. If we go to the next slide, you can see the income statement by segment, which I was referring to already. It's the 3 blocks where we -- how we look at the business. It's the investment side, it's the development side and it's the property and asset management side. Maybe I start from the right, the Property and Asset Management, that's the joint venture management fee income, which was 21.3% as I explained on the previous slide, for which we have administration expenses of EUR 7 million and a profitable EBITDA contribution of EUR 14.3 million, which increased quite significantly versus 2020. And based on all of the closings that we are intending to do in the upcoming period, we expect this EBITDA to grow further. If you look at the development side, this is really the development of VGP and all the buildings that we're developing before they have been sold or handed over to the joint venture. There, we have realized a net valuation gain of EUR 593 million, and we have an administration expense of $38.4 million, resulting in an EBITDA of EUR 552 million, an increase versus the EUR 342.5 million last year. The total CapEx spend was also EUR 743 million in 2021, also higher than the previous year, as already explained. On the investment side, so VGP has some buildings still on its own balance sheet, which brought a gross rental income of 17.6% or a net rental income of EUR 17.4 million. We have administration expenses of EUR 4.3 million allocated to the investment and split over investment and development. And we have our share in the operating profit of the joint ventures, which is EUR 54.3 million, and this operating profit is excluding the revaluation result in the joint ventures. So in this way, we end up with a EUR 67.5 million EBITDA in our investment segment versus 55.5 million last year. We also received EUR 21 million distributions from the joint ventures. -- partly was dividend, partly was repayments of loans, but we consider both as a cash profit distribution. If we go to the next slide, on Slide 19, then we have the asset side of our balance sheet, which had a strong increase. We went from EUR 2.2 billion of total assets to EUR 3.9 billion, with a strong growth on the investment properties, as you can see from 920 million to EUR 1.8 billion, maybe to be seen a little bit in conjunction with the disposal group held for sale, which went from EUR 102 million to EUR 501 million. So in total, we have over EUR 2 billion of assets on our balance sheet, of which we have anticipated closings in the next quarter, which have already been recognized as house for sale, amongst others. The big growth obviously comes from, as I already explained a bit, we had a first-time valuation effect on our -- on the strong volume of new buildings that have been started up or under construction. This was already approximately EUR 900 million, going from EUR 920 million to EUR 1.8 billion. We had some revaluation effects on existing properties that we had already of last year and also the remaining construction that were being completed such increase in asset value that in total was EUR 287 million. And then you have some other investments done in land and some new assets for which the down payments have been done by the end of the year still. Our investment in joint ventures increased from $655 million to EUR 858 million. Essentially, that is the profit contribution that we book in our consolidation of EUR 187 million, plus some new investments that we have done in new joint ventures. Amongst others, it's one in Spain. There is one in Netherlands still that is ongoing, and there is a new one in Germany, but that has no real effect yet in 2021. The noncurrent receivables, they are more or less stable, but there was also a booking from noncurrent to current of EUR 67 million. Basically, those are the receivables and they are listed there, I think, on the slide here that we have on our joint ventures and where we are financing construction and development. The other noncurrent assets, it's mainly our IFRS 16 office leases as well as our investments in the renewable energy, which have a total talent value of about EUR 26 million. At the moment it was an investment of EUR 13 million, but there is about EUR 38 million of committed investments in our renewable energy, as my brother already explained. Our trade and other receivables, they also grew, but they are mainly referring to, one, the increased rental income to VAT receivables that we have on the construction and three, the EUR 67 million noncurrent receivable that we moved to current receivable as we expect to close mention this year one of the joint ventures with Allianz. Our cash ended up almost the same as last year, EUR 222 million. And as such, we had total assets of EUR 3.9 billion. We go to the next slide and have a look at our liabilities side. Essentially, we have a growth of our shareholders' equity of EUR 1.3 billion to EUR 2.2 billion. That's in between. That is the EUR 300 million of capital increase that was the profit contribution of EUR 650 million and a dividend payout of EUR 75 million. And on our liability side, it's pretty straightforward. We had -- we have raised a bond -- a green bond in the first half of 2021 of EUR 600 million. Post balance sheet, we did another dual tranche bond issue of EUR 1 billion, one has a EUR 500 million as a 5-year maturity and the other EUR 500 million as an 8-year maturity. And our proportionally consolidated loan-to-value is at 46.2%, coming from above 50% last year, and our gearing is at 29.8% in 2021 healthy ratio, I think. I think it's back to my brother.

Yes. Thank you Pete. So on Page 22, summary and outlook. We had a very strong financial and operating results over 2021. We really have a very healthy business environment at the moment despite the uncertainties and of the market. It's -- there is a lot of demand and we have done a very nice business performance across the portfolio last year and achieved many new milestones. We have expanded our land bank with some trophy new positions, really nice ones and we are currently looking into a lot of other new ones started from Serbia and Greece. We have expanded our joint venture with Allianz last year. We did the fourth one. We replaced actually the first one, Randgold and we are currently negotiating with Allianz also the possibility to make from the 10-year holdings, maybe a perpetual one or to at least prolong them for 10 years. And then we are aiming to pay out a sustainable competitive dividend. The proposal is to pay a dividend of EUR 6.85 per share. And if you look, that's really in line with -- it's really in line with what we have done before. If you compare it to pro rata, the profit which we have made, then we are -- it's a logical -- I think it's a logical and to what we are aiming at. On the outlook side, we see a lot of client demand and there is really a shortage of supply of grade A logistics. Some of the markets are really completely dry at the moment. There is nothing to be rented anymore. Prague is at 0.2%. In Italy, the market is at below 2% vacancy at the time. In Spain, it's a bit higher, but it's all very old buildings and the new buildings in Barcelona, there is really no vacancy at all nothing. We've also leased out a lot. We also have very low vacancies in Germany, in most of the German cities, there is nothing available. So there is a very good underlying fundamentals are remaining very supportive. We will have a significant capital expenditure and we anticipate that interested capital expenditure due to predominantly pre-let construction pipeline, which is actually fully covered now by available cash sources. We spent in 2021 a CapEx of EUR 743 million, which will be considerably higher in 2022, but the significant cash balance, which is expected to be recycled from the joint venture closing in 2022, plus the bond we have issued and should be more than enough covering our CapEx expenditure and we need some room for new acquisitions in land plots, which come up. On the longer term, I think that what positions us really very strong is, of course, the land bank, which I always say, but it's also the fact that we have invested so much in our team. We now really have the technological know-how in-house to produce really very peculiar buildings, which are -- the tenant demand is getting more and more of the buildings. I mean the building in itself, it stays a standardized shed, but if you look at the inside robotization, automatization and everything which comes with it, we can deliver it, we can design it without needing the help of a general contractor. It is one of the strong things of VGP. We can do such things more and more international. We are using German teams in Slovakia. We were using Spanish teams all over the group to exchange our knowledge. And I think that the fundamentals of our business are really strong, and we are looking with -- that's also why we are looking with confidence forward. There is, of course, the inflationary pressure. But at the moment, our margins are intact. It is a fact that there is an inflationary pressure, but we see the rental prices have risen also. The yields remain very low and very stable. And therefore, we are looking forward with confidence in the future. And also, it has to be said, all of our rental contracts are indexed to the consumer prices indexes. So we should be able -- we have already a growth of roughly EUR 4 million through the portfolio of the existing rental agreements this year. And despite the fact that there are some caps in side and there are some void years in the beginning, all of the rental agreements or devices are really indexed to the inflation. I think that's it for our presentation. There -- we will have some questions now. So I would leave the room for our presentator to hand us through the first question.

Operator, you can open the line for questions.

[Operator Instructions] Our first question today comes from Pieter Runneboom of Kempen.

Congrats with these great results. Couple of questions from my side and the first one is on land prices. Going to Prologis, these have almost doubled in Netherlands and Germany last year. Do you also witness this and what's the impact of this on a development case?

Yes. The land prices are getting up higher everywhere. And this is a trend which is already -- which we see already over the last 5 years, every year, there is a substantial increase in rental -- in land prices. Now, VGP is working already for a very long time at its land bank. You've seen the numbers of what we have in our portfolio. And it's true that when the land price goes up, we always see also a very big increase in the rental price, which is related to that region. And the better, the less availability in the market, the higher the land price will become. We also pay now substantially more than we did before. But if you look at our numbers, you still see that our margins are relatively intact. So thanks to the compression in yield to the higher rental price we've been able to mitigate this increase in land price and also the inflation in the construction cost, okay?

Very clear. And another question on indexation. You just mentioned that we capture inflation most of it. Typically in Germany, we see these hurdles. Could you maybe give some color on that? Do you also have these hurdles in Germany and how much of inflation you expect to capture there?

Yes. We have almost no contracts which are saying that it first needs to increase with 10% before you can reach our 30 basis points or 60 basis points. We -- our caps are mostly around if we cap it -- if it's already capped. So it's -- in Germany, we do the for broker price index. So it's a German indexation. That's almost everywhere. The German will always want as a broker price index. All the other contracts that we have, they are linked to the CPI, the Consumer Price Index, the harmonized EU consumer price index. And if we accept the cap, then it's -- the lowest one which we've ever accepted is 2.5%, and mostly, there are 3% or 3.5% caps. There is nothing else in, the only thing which we now and then do is for the first year or for the first and the second year, we void the we don't index in the longer lease agreements. But after the second year, there is every year a price review. And that is 99% of all our lease agreements...

Our next question today comes from Sander Bunck of Barclays.

Two questions from my side. The first one is if you could elaborate a bit further about the potential contribution from the solar panels. I believe you expect some pretty large increase in terms of the revenue stream in the next couple of years. Could you just say like how much is that revenue stream today and how much do you expect that to be, say, in a couple of years out?

Yes. Hi, Sander, it's Martin here. So our -- it's basically ramping up and obviously the actual returns are a bit delayed vis a vis the investments that we make. So if we look at the yields that we agree on the projects, it's similar to the yields that we achieved on our development projects for the warehouses, often even better. If you look at what we have received today, I think it's just over EUR 1 million in terms of cash return that we got, but that is still to grow as more projects become online and start to generate revenues. Is that clear?

So just to confirm, so for FY '21, the contribution was roughly EUR 1 million. Is that...

Yes, I think that was 1.2 billion. And as Pete mentioned earlier, the commitments are obviously growing. So we've -- I think we have EUR 24 million on balance sheet today. We have committed actually 38 million and that amount is, I think, already closer to EUR 50 million as of to date. So it's -- we're making investments in solar panels in many of the VGP parks.

And with our yields, I would say, are substantially higher than the yields of our buildings. If we look at it, Martijn is a bit prudent. I wouldn't invest in it if it would be the same as in our buildings that we have a substantially higher return on our cost. But it's -- we have been ramping up a lot of things. So last year, most of what we had was under construction, and it's being installed. So it's going to contribute already a lot more in this year looking forward a lot on the cost.

Can you just give a roughly a base on the -- can you just -- based on the EUR 50 million that you're looking to invest alongside the fact that there is a bit of a delay in what you've invested so far, like, where would that $1 million grow to on a stabilized basis?

I think the average is 9%, 10% yield on the things that is where we would be looking at.

Okay. So anywhere between $5 million and $10 million in total.

Yes. No, anywhere around EUR 5 million, it would be in total on the EUR 50 million base of investment, yes.

And the other question I had was on kind of your current pipeline, I mean, I think you mentioned in the statement that FY '22 is going to be a record year in terms of like how much CapEx you're looking to spend. Can I just check how much of the development profits have already been recognized in FY '21 in terms of like percentage of CapEx spend? And how much do you -- from what's currently going on, how much is still to be recognized?

Well, everything which is under construction is, of course, recognized in 2021 at a value add is under IFRS, we have to recognize the profit –– yes, we have around EUR 600 million remaining construction costs on the portfolio, which is under construction today. That is what is about it. And the profit on that part has been recognized in our 2021 thing. So if there is no more yield compression coming forward, if the yields would remain the same, what would be contributing is everything which we start up in 2022, which will be more than 1 million square meters, we think, because we have already a large part of that already commitment, pre-let, which we need to start up. So that will be contributing to it. But what is under construction today, the bulk of it is already recognized in our numbers in 2021. Yes.

Yes, I appreciate that. So most of it is recognized, but I believe that always the assumptions around that were relatively conservative. So mainly just checking if there was -- yes, if you were to -- if they were to complete, is there much left still within the stuff that is being under construction today?

Wait and see.

We will now take a question from Frederic Renard of Kepler Cheuvreux.

Just want to push on the development and delivery. What are your assumptions regarding how much square meter you would be able to deliver in 2022. And you were mentioning maybe starting more than 1 million square meter in 2022. I was not wondering to know if you think that you could at least maintain the same level of our set under construction from 2021 in 2022. And then maybe a question on the land bank. Did I get well that you are targeting to grow the land bank by roughly EUR 5 million this year. This is your KPI?

Yes. Okay. So this year, we have -- it's always a little bit difficult to pin a fixed number on it because -- some of the customers which we have, they are constantly changing the scope of what they want to do in the buildings. And then we have CVOs, Contract Variation Orders, which shift to delivery times a little bit. But we aim to deliver -- so we aim to deliver more than 1 million square meter and that is mainly due because of the fact that we have a lot of big developments which are under construction, which are going to be delivered this year. Munich is a big one, which is 300,000 square meters to be delivered or the remaining part of Munich has been 250,000 square meters to be delivered. In LatAm, we have a very big one, which is under construction and while we are going to deliver across [indiscernible]. And there is a couple of others. So it's -- 1 million square meters is certain, absolutely certain the minimum. It will be even closer to 1.5 million, but I can't pinpoint it completely because there are many deliveries planned for November and December. And as I said, it can spill over into 2023. I -- and if we look at the construction, so we have, at the moment, roughly EUR 13 million of new rental agreements in negotiation for which we have signed LOIs and contract, cost reimbursement agreements, which we think that we could finalize and together with what we are -- what we have planned to start up, we think that we could maintain the level of buildings on the construction throughout 2022, despite the big delivery. So despite the fact that they are going to deliver 1 million to 1.5 million square meters, we expect at the year-end, we will roughly be at the same size of under construction inside of VGP. And I hope that we will be or I trust that we will be very close to the same pre-let KPI that we have, which is around 80%. We are at 83.8% at the year-end. And looking forward, there is so much demand that we are confident that we are able to maintain that. And on the land bank, you also asked, it is our -- our KPI is to sign -- is to acquire really acquire close to 5 million square meters, which is virtually sitting completely in the pipeline. Again, that is subject to -- maybe there will something come in like that came in last year -- last minute, the Nuremberg acquisition, which was a very big one. But if everything goes as planned and again there can be a delay because it's dependent -- you know that we buy all the land subject to the permit, so the permitting process is not something which we can completely control. We have time delays for that. It sometimes can be that it shifts to next year. But yes, roughly 5 million square meter is what we would like to acquire. And it's across all the countries. And as there is more and more countries contributing to it, we also -- if we want to keep on growing, and it's very scalable in our business as we see. And it's multiple that every year, we are going to -- we have to replenish the land bank with every year a little bit a bigger number.

Okay. That's clear. Maybe just 2 questions. On the dividend, you massively lifted it. You have the shipping capacity obviously to do so. Can we assume that it will be a minimum for 2022 onwards, considering what you just mentioned that you would be probably able to maintain the same pace of construction activities. And in parallel, you have more and more recurring cash flows coming from the JV. So is it fair to assume that it should be higher than 6.55% going forward.

That's a good question. I have no crystal ball. No, you can't assume that we had an exceptional year, 2021 was really an exceptional year. You have seen it in all the numbers, such an increase. We wanted to give the dividend in line with our -- with the dividend, which we did the last year. If I look at -- we just adapted it to pro rata the profits and pro rata the shareholders, which are inside. But I cannot promise you that it will be, again, the same. It will all be dependent on the market environment, the growth rate of the company, et cetera. This year, we are so well financed now and so good on track that -- and we are very confident with the new closing of Allianz, which we have just agreed that we have decided that we could pay out this dividend.

So do I understand well that it would be tougher at some point then?

Well, I have no crystal ball. I don't know. I cannot predict the future that I can't, we will see. But I'll do my best.

Okay. And last question on EPRA index inclusion, I mean are you [indiscernible]?

On EPRA I don't know. For me, it's a black box for EPRA things. I would say because they say we don't have enough assets in Western Europe. I don't know, 75% of my assets are standing in Western Europe. I calculate it differently than they do. I think I calculate square meters and the rental income, which stands in Western Europe and Western Europe, I define as Germany, the Netherlands, Spain, Italy and Portugal and all the rest is from the Eastern Europe. And still we can't match our view on where our assets part, sorry, I am totally lost in EPRA. I hope they will include it at one point, but apparently, yes, we have a different calculator.

So you have no further updates on result we got from them?

No.

No, I don't. No, we don't have any additional comment.

We will now take our next question from Vivien Maquet of Degroof Petercam.

Just a follow-up question for me, as most has been answered. On the pipeline, if I'm understanding it correctly, you expect too much, I would say, deliveries with new development, keeping, I would say, the pattern of construction at the same level. Just wondering from the leases you signed in 2021, especially the strong in H2. Is everything already launched into the pipeline or is there still some projects still to be launched after a year in December that is not yet reflected. I assume this will come on top of the EUR 30 million of letter of intent that you already signed. Just wondering how much is already fully signed that we can expect to be launched this year?

Well, of what we signed last year, there are a number of buildings, which we didn't start up yet, which we are just projecting now and which are build-to-suits, which we have to start up in the course of the first or the second quarter. I can tell you the detail, I think I have it. So if you look at deliveries, so within 1 year, at the rental income, within 1 year, we expected EUR 50.6 million of the rental income increased the rental income will come inside of the portfolio inside of this year and will be delivered this year. We'll start generating rental income in this year. And in one – so -- and then in the next year, another EUR 14.8 million will start of generating income. But it doesn't really say whether we already started OPS and no but that -- so deliveries this year, the bulk of the deliveries will be it will start income generating from this year on 50.69 million, yes. And then we are growing very fast going forward. We already signed EUR 6.6 million, I think, new rental income this year, and there is every week now coming new lease agreements on a couple of big ones in the pipeline. So I think going forward there is –– yes, we are confident that at the year end of this year, we will roughly be at the same size of buildings under construction than we have now and what we have now, the bulk of that is going to be completed throughout the year.

Okay. It's clear. And then a second one on Park Munich. Just wondering how is it valued now? Is it fair value or will it only be occurred at delivery, meaning that any yield compression during the construction is not yet reflected in the asset to the value?

No. The -- it is explained in the notes also to our numbers. VGP Park Munich is valued at the sales price, which we agreed with Allianz. So there obviously is at the moment, if we would let it value, there would be an incremental value, but we opted because we thought the most fair reflection is as long as we didn't catch it in the value at which we sold it. That is what it's worth in our books. That's what we're spending in. And we will reevaluate once it is delivered. So normally for the first time, it will be valued at the year-end of this year.

We have one more question. The question comes from Saravana Bala of RBC.

I only have a couple left to ask. First one, are you still confident in fully passing to build cost inflation in all of your geographies or are there some regions where you think it may be a bit tougher? And what can you do to help mitigate cost inflation through the year and if it persists or perhaps what gets worse? That's my first question.

Yes, it's a good one and it's a difficult one to answer. And I think VGP is best placed to mitigate everything possible, but we cannot escape the general trend. Of course, there is an inflation in the prices and it is substantial, I have to say. We have tried to raise our rental prices and everywhere, so we are offering. But the market is the market, the market we picked what the prices are and we can -- we don't have a monopole, -- so it is always you are in a market environment where you need to compete. If I look at the moment, if I look over 2021, where we saw a substantial increase already in the construction prices and I think we've had the bulk of it. We had really the bulk of it, then that is already reflected in our numbers at the end of 2021 because all of the buildings, which are under construction, normally, we purchase it for the very biggest part immediately at the beginning. So we know we have a balance sheet which we make on our projects. We have -- we split it up in all the components. We buy it in and then we know also we are binding contracts with all of our contractors and we know what the price is going to be. So if I look now at my margins going forward, they remain relatively stable. So -- and it's -- of course, it's changing from market to market. We are also going in Spain, where we until now work with general contractors. This year will be the first year while we completely switched to our own construction site, like we do everywhere else. We've been enhancing our team. We've been training them to be able to do that. And we will start splitting up our buildings in all its components and do ourselves also the coordination on site and not through a general contractor anymore. Also in Italy, we're going to do that. So the only country actually where we still will be working with general contractors in the Netherlands. At the moment, it's the only one which will remain the Netherlands and Portugal. That's the only market which will remain with the general contractor. That's what we try to do to mitigate all of that and we'll see going forward. But at the moment, what we have inside of the 2021 numbers, it's really all which is under construction. We also have set what is the CapEx remaining on the building, which we have foreseen and that is a number of which we are very sure that it is sufficient to build out our buildings. Does that answer your question?

Yes. No, no, that's very helpful. And then just one final question I had is can you give an idea on roughly how much reversion potential there is in your portfolio at year-end?

There is almost nothing it's residual. We have, I think, less than 2% of lease agreements which come to maturity or to expiry in this year potentially. And I think that most of the tenants will use the right to just prolong because if they want to go and move in this market to another place, it will always be more expensive than to stay in the existing space. So there is almost none.

There are currently no further questions on the phone lines. I would now like to hand the call back over to your host for any additional remarks.

Maybe there is a question from Wim Lewi on KBC Securities. If you could detail the split of the net valuation gain on the development portfolio in yield compression and development gains. I think the other part of the question I think has already answered. But if you look at it, we have EUR 610 million of net valuation gains in our P&L. And the vast majority of EUR 11 million of that was realized. You can find it back in our notes later on. But the majority of the EUR 600 million remaining is actually the development gain. The revaluation gain versus previous years is a minor part of it. So development gain in the new [indiscernible] which has been [indiscernible]. So we had EUR 900 million approximately of new assets on buildings them and there was a development gain on the majority of the EUR 600 million has been. Okay. And there is one more question we can see here from Green Street. It says, which I would like to answer over the medium term, would you consider expanding the services you offer your tenants beyond the 4 walls, for example, to include equipment related to storage, moving goods around the warehouse and IT and software solutions. It's -- and we are already doing it in part today because we are offering everybody wind energy and we're trying to enhance that a lot by installing solar panels, and we are doing geothermical solutions for the heating, et cetera. Going forward in the future, I think VGP should and widen its offer and do offer more services. But I'm not sure whether that would have to be racking systems or storage systems because it's -- at the moment, it's all diverse and diversified and everybody needs something else, and that's not standardized at all. I'm not sure that we should do it today. But you can never say no. I think that we see the company which tries to look in the future and tries to evolve with its market and that if technology changes, we will change and we will have to. So we're very open-minded about it, but it's not a plan for tomorrow. It's -- as I said, now the first focus of them is energy-related trying to find new solutions for our customers, which is then decentralized and locally produced on the spot. I think that answers the question, I hope at least. So there are no more questions as far as we can see. So I thank you all for being on the call. And if there is anything else, you can always give us a call to Martijn or [indiscernible] or me or Pete, whatever you want to ask. I will be happy to answer your questions in a phone call. Thank you.

This concludes today's call. Thank you for your participation. You may now disconnect.