Warehouses De Pauw SA (WDP) Earnings Call Transcript & Summary

Good afternoon Team WDP, at home or in one of our offices. Good morning to our friends in the U.S., good afternoon, Europe, good evening, Asia. Welcome, everybody, at the live stream of the full year results of WDP over 2021. Just one practical thing, we are open for all your questions, but put them in the chat box during the presentation, and we will answer them afterwards one by one. Thank you. So mission 2021 accomplished, ready for growth and made for future. '21 was again a very good year for us, and we could secure, again, EUR 500 million of new investments. And this gives us at the end, a portfolio today of EUR 6 billion, and above that, a development pipeline of almost EUR 600 million. And so we could reach our target of EUR 1.1 EPRA earnings per share, a growth by 10% towards last year. And based on this, we can give you a new outlook of, again, another EUR 0.10 extra, which brings us by the end of the year at an EPRA earnings per share of EUR 1.2. An important is that we could reach that goal by securing only 75% of the target portfolio growth, so we did more, faster and at a better yield. All this brings us, like mentioned, at the portfolio of EUR 6 billion. We wanted and based on the outlook, we can say that our long-term targets are within reach, and we will be able to realize them 1 year earlier than initially foreseen. So time for new plans based on the future of logistics and the importance of the supply chain for every company. And we brought this together in a visionary picture, a visionary DC that you can see here. And in all our plans, for the first time, we will do more than only external growth. The first 20 years of WDP, our growth was driven by external growth. And now, we can add extras to this external growth, so up to external growth plus. There is, like already some years, the structural growth of our business based on industry drivers that we all know. But now we can add 2 other drivers, 2 new engines of growth, our -- the hidden value of our existing portfolio and also climate as an opportunity. And we never went for growth for growth, but profitable growth. And this makes that we can grow our earnings per share from EUR 1 in 2020 to EUR 1.5 in '25, so 50% in 5 years' time. And in the meantime, our portfolio will grow further up to EUR 8 billion. And indeed, there are now the new drivers. But the most important stays external growth based on all the structural drivers of our business. And of course, we will capitalize on our existing regions, the BENELUX and Romania, but we are also broadening towards an EU footprint by further deployment in Germany and France. And above this external growth, we will get value from our existing portfolio by unlocking all the potential through extra services, upgrades, sustainability measures and so on. And above that, we see climate as an opportunity. Thanks to our new climate action plan. And especially energy, we see energy as a new business within the energy transformation where we think that buildings, and especially distribution centers, will have a very important role. Just to remember once, our real long-term success drivers were always focus, culture, clients, and alignment. And this gives us already 20 years of profitable growth mentioned in one ERPA earnings per share. And so we realized the last 10 years, an average growth of our earnings per share of 8%. And by this plan, we can continue to do so for the next 4 years with the same 8%. But now, Alexander will first comment on the market insights.

Thank you, Joost, and good afternoon, everyone. Let's briefly discuss the current state of the market and its outlook. 2021 was yet another great year for logistics, real estate. When we look at the strength of Europe's economic recovery but also the strength of the logistics market, both were reflected in very strong take-up and investment activities. When we look at demand, we see it ranging all the way from last mile up to larger scale logistics. When we look at the demand momentum coupled with growing scarcity, limited availability of land but also supply/demand imbalances, we saw vacancy rates dropping to new lows mostly remarkable in Romania, but also well noted in Belgium where we reached sub-1%. Mostly in regions where supply has fallen very sharply over the past 12 months, we now see pressure being added to these ERVs. The momentum was also well maintained in the investment market, but also the yield dropped to new lows. All in all, we can conclude that the logistics market is well -- in well strength. And with the strong demand, we see that the position that WDP has today, we're very well positioned to capture the new growth in the market as well. That being said, we see more restricted zoning and growing scarcity which is becoming a challenge, which urges us to become more intelligent on sourcing, but also make more utilization of our existing portfolio. When we look now on the demand drivers that will support the external growth in our portfolio, we can, broadly speaking, say that they remained relatively unchanged, given that they are structural of nature. Clearly, there are nuances in the regions in which we're active, but all in all, it's mostly sector-driven. Whether we talk about omni-channel in automation, supply chain resilience or sustainable developments, this all bring more complexity to the table, but all these trends are well experienced in our portfolio, something that you also will comment on right now.

Thank you Alexander. And indeed, in our activity, let's say, that's a report of everything that Alexander said, and there, we can show in reality all those trends. Of course, we always say that we don't buy anything, and then you always do something. And in the end, we bought for EUR 170 million up at a very decent yield. And not only existing buildings, but also new plant reserves, but I'll come back on that later. But if you look then into detail in our projects, well, we again have executed a lot of projects that we made and we finished almost 400,000 square meters of new projects across our different areas. And let's say, it were all kinds of the projects we see in the market. There was food, food e-commerce, pharma, retail, e-commerce, so let's say, a little bit of everything in all our regions. So well spread and indeed, almost 400,000 square meters and with a CapEx of EUR 300 million. But indeed, above the things we realized, we have already more than the double of square meters under construction also well spread over the different regions, and we have almost 900 square meters under construction or that pipeline that I mentioned of EUR 600 million. And this at the same yield of the one realized already, so the basis of our growth. But above all those projects and all those square meters that we are constructing now, we still have a very nice land bank, the real development potential. And much more than just the land bank we have, we can also continuously replenish it. Indeed, we had a land bank of EUR 100 million last year, but we could add another EUR 100 million, which we could use almost directly full in -- within new projects, and so -- and we could keep. And this year, even enlarge our land bank from EUR 100 million up to, when everything is realized, more than EUR 170 million, which gives us a building potential of 1.5 million square meters that we can build with this land bank. But the most important element are the dynamics. The fact that it's not only EUR 100 million who stays there, but that we can, within a year, add land for direct development. The valuation, well, I think it's still very conservative, and we still are so -- no doubt, even with a very nice portfolio revaluation, our valuations are still conservative. Based, of course, a very high qualitative portfolio on strategic logistics corridors with more than 50% of them are suitable for urban logistics. Occupancy rate stays very high. I would say, it's only frictional emptiness. It's a full house, and more than half of all the leases that are maturing this year are already extended, so there also a very good base. And our client bases with the sum, of course, still are the most important client or tenant. It stays very diversified and not only on a client level, but also on an industry level. But today, we are not only speaking about the short-term future but also about the real long-term future. The one who really -- where we really have to care about by launching a new climate action plan. A new climate action plan. We worked already a long time at our ESG journey. First, we worked and we start working on the S and G. And we said, in the meantime, we are preparing the real thing, the E where -- and of course, I think every ESG road map has to end and has in the heart of it, a climate action plan, and that we prepared last year. And so we can now say that we can be and we will be net 0 by 2050. And we have already a long history and sustainability. We started with our solar panels in 2007. And based on that step by step, we went further. And now, let's say, we really have a structured long-term climate action plan that goes up to 2050. A climate action plan made for future and based on 3 important tracks; WDP Energy, WDP Decarb Plus and WDP Green. Alexander will explain all the details of that plan.

Thank you, Joost. So as Joost mentioned, we aim to become net 0 throughout our complete value chain, meaning Scope 1, 2 and 3 by 2050. And we have set up 3 main tracks with very clear and ambitious objectives in order to become net 0 by 2050. And the first track relates to energy. And the objective of this track is to become the green energy solutions provider of our clients by leveraging our existing know-how, but also adding on with more innovation. We know that in the EU, for example, 40% approximately of the buildings of the energy consumption is derived from buildings. And given the EU climate ambitions, we know it's a challenge, but also an opportunity for WDP to show its green leadership and contribute to the energy transition. And for that reason, we have chosen to upscale our renewable energy capacity by creating 250-megawatt peaks of renewable energy capacity of solar panel capacity by 2025. We do not just stop at the energy production. We also want to have 100% of green energy procured by -- of our clients of those contracts that we have under control. And furthermore, we will focus also on energy efficiency. We want to have 100% of our entire portfolio to be equipped with LED lighting by 2030, making use of all the space that we would have in and around our warehouses to generate energy and link it to microgrid systems, and that resource systems would make our warehouses the actual solar power station of the future. And to add on, you must know that when we look at the basis and the foundation of our climate action plan, it's based on data. Data that we derive from our energy monitoring system, which measures all the utilities that we have in our warehouses of our clients, meaning, the water, gas and electricity. And we start laying that out already in 2018, and we gathered the data for nearly 3 years, which was the foundation of our climate action plan. And given the importance and the value add, we decided to enter into a strategic partnership with nanoGrid, the energy public company. When we continue with the second track, WDP Decarb, the main objective is to decarbonize our entire value chain, our Scope 1, 2 and 3. We do not just stop at our own corporate activities, being our Scope 1 and 2. We know what the impact is of our development activities on the environment. And for that reason, we have set up a very ambitious and transparent and genuine road map in decarbonizing our entire value chain. Transparent because we set targets for our Scope 1, 2, but also our Scope 3. It's ambitious because we aim to become net 0 well before 2050 for Scope 1 and 2, but also partly Scope 3. And genuine because we know what the impact is of our upstream development activities, and we will work on that to reach it and obtain net 0 by 2050 as well. To give just one more example. When we look at the right graph upward, we see the evolution of our Scope 1 and 2 emissions over the past years and our outlook. As we said, we want to become Scope 1, 2 net 0 for our own corporate activities by 2025 and for our car park by 2030. And just to give you an example, we already started stepping away from fossil fuels in 2016 and 2017. We continued to further invest in green procurement in order to become net 0 by '25 already for our corporate offices. And then finally, to continue on the third track, which is green, there we want to implement and we want to integrate sustainability in the development, the operations but also financing of our company and the group on the long term. And there, we have rolled out an entire business case where we can maximize our efforts in terms of green financing, but also related to reporting and other standards. And for that, we want to have the TCFD recommendations implemented already by 2024 in the annual report of 2023. Aside from that, we also want to have 75% of our entire property portfolio to be certified between certificates. Next to that, we also want to have 75% of our debt to be green. And in order to achieve these ambitious targets, we must both invest in our existing portfolio. But aside from that, also on our new developments. And one of the key actions that we will make is to certify all new developments going forward as of now with BREEAM Very Good as a minimum. And finally, we will also participate into the CDP in 2022. And to give you a bit more insight in how extensive our research was, we will show you this graph. Basically, we want to indicate that we did not only look at the climate footprint, which are the main 6 GHG emissions. We went beyond that and we integrated the environmental footprint, where we also focus on the human life, soil, marine, land and water pollution, which was way more extensive. And then on this slide, this is actually where all our data and analysis comes together. We have calculated our entire carbon footprint for the year 2020, and we had some very remarkable insights. The first of all was when we look at our own corporate activities, Scope 1 and 2, we realized that it was just less than 1% of our total carbon footprint. Another remarkable insight was that more than 65% of the entire carbon footprint relates to our upstream Scope 3 emissions. And the third one is at approximately 1/3, 35% of the emissions relates to the downstream Scope 3 of our clients' energy use. And that's why we decided to implement a net 0 strategy in which we maximize our efforts, focusing not only on Scope 1, 2 and Scope 3 downstream but also on our upstream activities by 2050. And this is a brief road map on how we will decarbonize our Scope 3 emissions by 2050. For scope 3 upstream emissions, we will maximize our efforts by investing more in sustainable materials, in circular materials and more circular PV panels. Aside from that, we will continuously invest and explore new technologies. For Scope 3 downstream emissions to become net 0 by 2040, we will further integrate and invest into the green energy procurement, energy efficiency solutions for our clients, of course. Aside from that, we will upscale the renewable energy capacity. And finally, we will further integrate electrification of our warehouses. And all in all, and that's a major difference that we want to make, is that we will maximize our efforts. And finally, we will participate to carbon removal rather than just offsetting our CO2 emissions. And with that being said, I will hand over the word back to Mick for the comments on the financial results.

Thank you Joost and Alexander, and also welcome from my side. So let me walk you through the performance of last year. And for those who like large numbers, we generated EUR 1 billion of profits last year. Now, of course, this is accounting profits, so we need to actually look at the underlying components. And these were, first of all, the most important one, underlying recurring cash earnings or EPRA earnings with just over EUR 200 million, which was up 10% on a per share basis at EUR 1.10. And these results are most importantly, very broad-based by all our teams and countries. Main driver, of course, has been and will be for the next years, the steady stream of development completions, which were all delivered on time and on budget by our teams. And also next to that, on an organic basis, we had like-for-like rental growth of 1.4%, which was driven 1.1% by indexation and 0.3% by a slightly higher occupancy rate and a flat reversion rate. So that's -- that last point, that means that all contracts with the break got rolled over at the same conditions and track the higher inflation. Do we see upward pressure rising and see growing potential for positive rental spreads? Although we expect also to -- for this to happen, only gradual, considering the existing contracts that are obviously in place. And also, what we have to point out is that we do plus 10% on a per share basis. But actually, that includes EUR 350 million of equity raise. So with the average share count also plus 5%, so that makes the results look very strong, although it was partially helped by some couple of non-recurring items as well. And also note that the plus 10% is in line with the guidance, but with the upgraded guidance in the middle of the year where we went from plus 7% to plus 10%. And the difference versus our original guidance relates to the fact that we had a consistently high occupancy rate, some acquisitions and also, no doubtful that there's provision. So a very strong rent collection rates and very strong and paying client base. And obviously, what's most striking in these numbers is obviously that we had the revaluation of EUR 850 million for the full year, which is a revaluation of the portfolio of plus 17%. And when we look at the components, that actually breaks down as follows: we had for 60% downward yield shift in the portfolio; for 20% ERV uplifts in the portfolio; and for the remaining 20% that is related to project development gains. And to give you some more colors on the drivers behind that, yield shift was 80 basis points downward, ERV uplift was plus 3%, and the average gain -- latent capital gain of -- for project development surplus upon completion was 40%. And that is also, of course, the main driver behind the 40% growth in our NAV we saw last year. And just as a general comment as well, and I do acknowledge that most of you know this, that these results and also our guidance incorporate a provision should we not be able to maintain our REIT status in the Netherlands due to the uncertainty, and this had an impact of EUR 4 million in the EPRA earnings and EUR 100 million of deferred tax liability in the portfolio results. Then when we take a look at our balance sheet, I think there, we invested, again, as promised, over EUR 400 million. And also very importantly, we talk a lot about the revaluation of the portfolio, but that was funded mostly by new -- real new equity and the plus EUR 400 million CapEx was funded by, as mentioned, EUR 350 million of equity through the ABB at the start of the year, contributions in kind, stock dividend and retained earnings. So meaning that we stick to our principle of having a very stable and solid capital structure. And that, in combination with the strong revaluation of the portfolio which is still conservative, as Jose mentioned, when compared to current market yields. These make, obviously, our metrics look very strong. And above all, our balance sheet also remains very liquid. I think here, that summarizes it very well on this slide on the metrics, you can see for yourself with LTV now firmly below 40%. And above all, our net debt-to-EBITDA adjusted around 8x, which is where we want it to be and our most important solvency metric, and that is indeed the result of this policy of having finance -- of financing our growth on a 50-50 debt equity mix in a very consistent way. Also in terms of liquidity, there all is well and under control. And with more than EUR 750 million of undrawn credit facilities, we can cover, at least until the end of '23, all committed capital expenditure and upcoming refinancings. So there, the baseline is actually unchanged, a well-funded balance sheet and ready for further growth. And within this growth, as mentioned by Alexander, we also seek to issue even more green loans as we will implement a policy to maximize the green certification of our assets. Then, perhaps, looking a bit at the cost of funding itself. Our cost of debt declined towards 1.8% by year-end based on good coverage metrics. And here, it's important to mention that our income, our earnings is inflation-linked. On the revenue side, there's very well inflation-linked. And our cost base, mainly the interest expenses, are protected for rising rates due to a high hedge ratio. And I think, more than ever, we can say that due to the growing scarcity of our product, meaning our land positions and our buildings, we are more than ever protected for a rise in inflation. And then looking at the longer-term perspective, you can see our LTV declines as the portfolio got revalued, and we consistently financed on a 50-50 debt equity mix. So that actually means that, as mentioned to you before, we have not leveraged on portfolio revaluations. And to maintain a real stability in our capital structure, we look at the left-hand chart, our net debt-to-EBITDA, which actually hasn't moved in the last 10 years. And I think that also shows and demonstrates the consistency with which we manage the capital structure likewise, as we have a strict discipline in allocating capital as well to profitable projects. Then moving further on the outlook there. What the outlook of -- on -- for 2022 is concerned, we guide for another rise of EUR 0.10 towards EUR 1.20, so that's a rise of plus 9% year on year based on the same drivers of course and the development completions and also with a higher inflation level, a higher level of indexation of the contracts. And this figure is also robust as it is mainly driven by projects delivered end last year in 2021 because we had a very steady stream of project deliveries in Q4 '21, and the projects that are currently in the pipeline will mostly contribute in full as from 2023. So I think that's it on financing and outlook, and we would like to revert now and start the Q&A session. Alexander?

Thank you, Mick. If you have any further questions, please put them in the chat. And as a first set of questions from Frederic Renard from Kepler Cheuvreux. The first one is on the acquisitions that we made over the past year, the EUR 173 million CapEx. If we could give any additional comments on the EUR 102 million that remains to be accrued in the balance sheet?

It's a combination of land that will be purchased and some sale and leasebacks that are being scheduled. It's a combination, Frederic.

And on the outlook for 2022, could we communicate on the level of indexation expectations that we have?

Yes. There actually -- so perhaps first, how are our contracts structured. Our contracts are CPI-linked. And we have, let's say, 70% has no cap and 30% has a cap, let's say, between 3% and 4%. Which means that up till 3%, we fully capture inflation, and above it, let's say, 4%, 5%, then we can capture around 90% of inflation. And when you look at the actual level of indexation, on average, combination of '21, '22 for the contracts, index is 4.0%, we should be able to capture contractually 3.5%. But in the accounts in '22 in the guidance, it is at 2.5%, and so that compares to the 3.5% which we will capture. But the only difference is the timing aspect.

And can we also give more indication on the rental uplifts that we made from the renegotiations of the 54% out of the 14% leases maturing in 2022?

For '21, most of them got just rolled over at the same conditions. And here, for the ones for '22, we had a couple of them with an uplift already. It's about EUR 500,000. But do note that we cannot automatically do it for every contract. Our teams are aware of this. We look at it -- it needs to be market-based. We have also -- and it's also data-driven. But do note that, we especially add it in the presentation that we see in the medium term rental upside potential. But with a commercial approach, we do not have, let's say, like in the U.K., automatic 5-year market rent reviews. It's indexed as a break. Then when we want to renegotiate the entire contract, then we need to cancel the contract, and that's a bit aggressive and not our approach. But whenever there is a potential for discussion with the client, we will do and have this discussion. That's why we mentioned we see the potential. It is growing. So the estimated rental values are increasing and going now above our contractual rents. And we expect this spread to increase, and that increases the potential in the medium term, but it will grow gradually.

And also with a time difference, because if you negotiate something today, it can be that it is only applicable next year.

And then we have a few set of questions on the new growth plan. First of all, what is the yield on cost that we target in both Western Europe and Romania?

It's 5% for Western Europe development yields and 7% in Romania.

And aside from the regions that we currently target, anything new on the radar?

Well, we will enlarge, like we said, our core business and our core countries stays the BENELUX and Romania. But we will now actively broadening our activities towards Germany and deeper into France. And we have set -- we have an existing portfolio in France, but we will go deeper in France. And also, we did our first project in Germany, and we will also focus on Germany further.

And maybe to continue on the growth expectations, so in the projected 8% CAGR of EPRA EPS, can we give more color on the indexation that is included?

Yes, for -- so for '22, we took the 3.5% which will come then with a lag, partially in '22, '23 at a 3.5%. And for the other years, we took the 5-year EU inflation swap of 2%. And we -- in the business plan, we take a total like-for-like rental growth on average of 2.5%. So which is 2% inflation and 50 bps rent reversion, about EUR 1 million. The latter is...

And on the external growth, the EUR 2 billion that we targeted, can we give more color on the regions that we're going to target or quantify it?

Well, there is no specific quantification on the regions. So we will, let's say, we look at every profitable good project with a right ERR wherever it is in our region. And so we will -- it has never been that we really want to say that's so many there or only there, let's say. So we will do -- we will go for the good and profitable projects wherever they are.

And when it comes to the reshoring trend, do we already feel the impact of companies moving or reshoring from Asia all the way to Europe?

Well, reshoring of production because that's the real reshoring, that is indeed, that's not happening so fast. But we see people and clients of us thinking about it. It's, of course, not so easy, but for small things, it happens already. And we see it -- let's say, we see it sometimes for pharmaceutical things, for high value-add productions, we see people thinking about that. Or even for other more normal production, but then they are looking more eastwards than into Western Europe.

And maybe just to continue on the future development and the yields on costs. What about the development margins? What are expectations on that front?

Well, last year, in '21, the development margins were around 40%. In the meantime, obviously, yields have dropped and development -- as market yields have dropped, development yields have dropped too, that's why we also take this new assumption of 5% and 7% in our business plan. For the moment, development margins are still intact because stabilized yields have dropped too. But there, yes, building costs are rising, too. Sometimes you can feed it through to the tenant depending on how strong your cards are with the land position. But do know that there is a very strong competition as well. So there is pressure on development margins as well even though that in the short term, they are rather stable. But in absolute terms, the yields have come down.

And with regards to the portfolio of WDP, do we think that -- or do we believe that we will see less big box exits on warehouses and a shift towards urban warehouses?

Let's say we do it all, like we invest everywhere in our region. We do them both. And in our region, where, let's say, we have a very high, dense population. And we have a, let's say, a region of more big agglomerations instead of big cities, you can say, like, more than 50% of our warehouses are suited for urban logistics. But let's say, we will focus on all kind of logistics. On the big boxes, on urban logistics and on all the others. We go, really, we just do logistics, but within logistics, we go for everything.

And with the land availability decreasing over time, especially most popular destinations, do we believe that we should shift into new regions, whether that be in the Netherlands more to the north?

Well, we -- let's say, we are in the Netherlands, we are almost everywhere active. We even go above Zwolle. Let's say that today, Groningen in this almost our -- the limits. But yes, if there are good things, we can go higher. But indeed, by adding Germany and going in not only the BENELUX but by adding Germany and deeper into France, we think that there are more than enough possibilities within the current portfolio.

Now we would also add that that's also one of the reasons why we did not go to, let's say, 5 to 10 more countries because it makes no sense to have in each country. Only, let's say, EUR 200 million, you need to really have a platform, be a genuine player. And also do not forget the importance and the value of building those clusters in our market because this will give us, in the medium term also, more pricing power by having a lot of buildings in one region. And the more challenging it would get to grow -- to secure land and to grow, then the more valuable your existing portfolio gets. So it works -- it goes hand in hand.

And also by being deeper in the market, you can also make more puzzles and doing added value investments. So it has also a big advantage of being, let's say, not everywhere active, but being deeper into the markets where you are.

And maybe to continue on the location of our property assets. How many of our logistics platforms are located along cargo railway airlines?

Well, 20% of the portfolio is really dedicated on multi-modal sites. But let's say that the majority of our buildings is in the neighborhood of multi-modal sites. And so you don't need to be always on site, but in the neighborhood of. And that also, thanks to our high dense network of all kind of terminals, we can, let's say, they are very close to one or another terminal.

And then we have another question from Derek Peters on our land bank. Can we fully exploit the land bank when countries increasingly impose limits on CO2 emissions and our local authorities prefer more employment?

Well, it is indeed -- it is more difficult. Land is becoming more scarce, but there are also better and high qualitative projects where indeed the added value, I think, just -- there is -- it are not just boxes anymore where they just shuffle with some goods. Now, it are more and more high-tech buildings, and they are really the heart of every business. So the importance of our distribution centers is getting more and more important, and so the investments are higher. And so you can also then go to the local authorities. And so with better projects, which are just so much more than just some boxes within a big box.

And another question on the Romanian portfolio. What are expectations on the construction costs in Romania, and would the potential inflation in construction cost limit the growth potential that we see in the market?

Of course, there is -- also construction costs are higher in Romania, but I would say at the same level as here in Western Europe. There are no other elements, and it is the same -- of the same cost -- higher costs of our Romanian products towards construction costs in Western Europe. And so there are -- indeed, these are not limits on our growth. On the contrary, I would say, Romania. It is, I'd say, a very stable country. It's more stable every day. It had a good growth perspective, and so there are not so many warehouses yet. The region, Romania is as big as the BENELUX. In the BENELUX, you have 50 million square meters of warehouses. In Romania, only 5 million square meters, so -- and indeed, economy is not so far yet. But that is indeed a very good basis for further growth. Together with our clients and the knowledge we have there, there are no limits on the growth today.

And then another follow-up question from Alvaro from BNP on how can we further unlock value in the existing portfolio and how we will do it? And to follow up, how do we believe whether or not our portfolio is still undervalued?

Started -- I think, yes, indeed, we have -- when land becomes more scarce than your existing portfolio of the one who owns land and buildings, that's getting a higher value. And indeed, we are not only a developer but also an investor. We have a very nice standing portfolio of 6 million square meters of buildings, and that you can use now together with your clients when there is no new land available to upgrade it, to make it better. And indeed, we have already questions for that from different clients. Last year, we had totally, let's say, 3 clients who ask them, can we make a project together to make our building better and upgrade them? Okay. Finally, it was not the big amount, it was almost EUR 10 million, but we could hire the effective rent with 10%. ERVs went up with 10%, and we could get a revaluation of 25% after the investment. So that are small investments, but that are, for me, proves that you can indeed, together with your clients, upgrade further your building. And all the climate action plan requests of our clients will also create their demand to make it better together with the clients.

Yes. And I would also add to how will we further unlock value within the existing portfolio there. We have a screening in our portfolio, too, and we believe that there is at least EUR 100 million of redevelopment -- profitable redevelopment CapEx we can do within the existing portfolio. And like Joost mentioned, also in the energy space, we can add more hardware, let's say, to our buildings by even increasing more the solar capacity footprint, adding batteries, adding the infrastructure for electric vehicle charging. Now it is only, let's say, passenger cars then small vans. But when the trucks will come, that will be another ball game. And so buildings will need to get better and better equipped and that provides opportunities to invest and get more out of the existing buildings. And then the second part of the question was how do you compare to market yields? Well, our portfolio is currently valued at an EPRA net initial yield of 4.7%. But let's say, excluding Romania first 4.3%, that screens towards market yield -- market prime yields of between 3% and 3.5%, so that's still screens conservatively. And in Romania, the portfolio is valued at just over 7% EPRA net initial yield, but there, there is no real benchmark because there is no investment market. There's only a couple of large developer investors for buy-and-hold development who are active.

And then we have another question of [indiscernible] from KBC Securities. In order to get more feasibility on the structural growth of e-commerce, how comfortable are we beyond 2023, given that e-commerce stocks lately have been quite volatile?

Well, there are studies from CBRE that says that only for e-commerce between now and '25, we will need another 30 million square meters of warehouses only for e-commerce. Of course, probably, this will also, let's say, diminish some classical retail warehouses. But indeed, there is still a structural growth of need of e-commerce space in Europe the coming year up to '25.

And then another question from Ina. The Romanian portfolio has posted a positive fair value change in this year. Please elaborate on what you see in the market in terms of demand and investment transactions.

We can only say that there are no real -- there is no investment market. It's not institutionalized. But there is also nothing coming on the market. And what -- based on what we see and here is that if something would come on the market tomorrow that it would, at least, be sub-7% yields and that...

Both we and CDP, we just own. We just do buy and hold both, so...

And therefore, the EUR 30 million revaluation you saw in the portfolio was some development gains and a 25 basis point yield shift are limited, but there is no benchmark, there are no transactions. But the risk premium versus Western Europe is obviously extremely high.

And how do we assess the supply situations in our core markets? Are we concerned in any specific region in terms of speculative developments?

No. The market is demanding enough, and now we see no problems in any specific region or subregion.

And could we give more visibility on our land reserves, whether that should decrease again? And can we deploy more land?

Well, if we could -- if we can, we will do it and we have done it last year. We increased it by 50%. If we can do a bit more then we would be happy to do that, of course. We have very strong people and boots on the ground who fight to secure land positions. And above all, who are very knowledgeable on getting the permits because that it will increasingly be a barrier to entry for some players because it's getting more complex. But I think it's -- and if it increases a bit further, it would still be minimal versus our overall balance sheet of EUR 6 billion, but do not forget the main focus should be on the dynamics of the land reserves. Like Joost explained how we can increase it, yes. But -- you know that we have increased it by over EUR 100 million. We have more than doubled it throughout the year, but we were also successful, our leasing teams, in leasing it out and converting it almost immediately into a project. So that means that we are also very efficient in the turnover of projects and deploying capital. And that also, in a way, explains our profitability.

And therefore, an existing portfolio with the existing clients is also very important because it is with those clients that you can go. And when they want a new project, then you can go to local authorities and ask for land. Not just for speculative land or just by saying, I want to buy it and I will do a project. No, you can go and say, I want to do a project with this or this client in this sector. And then let's say, you get much more chance to get a piece of land, and so that's also important. But that -- those projects and that fact, you never see in our land bank because at the moment it comes in, it goes directly into project.

Yes. And to add further on that, it's not about putting a check or money on the table, it's about having an industrial project with a client where you can -- and then you can buy the land.

One of the best examples of the last 2 years was Lokeren for the biggest chocolate box in the world. Well, indeed, there, the land was foreseen and was dedicated for Barry Callebaut, but you had and you needed to do to be able to get the project and then you could get the land. Nobody could buy it without having Barry Callebaut.

And maybe to follow up on that question. Do we see any major difference in the permitting process between France and BENELUX?

Not really. It's a little bit longer and you have a combination of your building permit and your exportation permit, but that you have more and more in Belgium too, and in Netherlands. So there, no, there is no real -- can take a little bit longer, but we don't see a real difference.

And then a question from [indiscernible]. Whether we see any possibilities to start investing in infrastructure, such as water purification or larger-scale wind mill projects, for example?

Let's say, we look at everything that is logistics-related infrastructure. It has to have a link with our core activity because, do not forget our company's purpose, we help our clients grow within the heart of their supply chain, so we provide a home to their supply chain. So it's linked to infrastructure for logistics, yes, then we can look at it.

Another question from Michael Slater on the projected 8% EPS CAGR versus the previous growth plan. EPS CAGR is higher. Can we give some insight on to what extent it comes from? More developments or inflation or other income?

Well, if we would have made -- what we did is we were nearing the -- we were close to achieving, within the short term, the targets of the old plan. And then we sat around the table and we thought, okay, how can we still add value for our clients and shareholders in a growingly competitive environment and how can we add new drivers as well so that we are ready for the long term and not only think about the next 2, 3 years? And then we said, okay, there is this secular structural demand drivers, and these are there to stay, like Joost explained. And this will account for around 75% of the compound annual growth rate of 8%. So they give a basis of 6%, and we had another layer of 2% growth per year. So 25% of the growth will come from these drivers like-for-like rental growth and the energy space.

And then we have another question from Francesca from ING. With regards to our new developments and cost inflation, how has it evolved over the past year, both cost inflation as well as lead times in development?

But I think we can say that on average, construction costs went up with 20%.

10%, 15% now.

10%, 15% now. Sometimes, let's say, max 20.%.

10%, 15% versus pre-COVID.

Yes. Yes. Pre-COVID, but then towards the real downside, within COVID, 20%. But let's say that now it's stabilizing on that high level. And so as from now, you can calculate it into your projects. But indeed, besides the cost inflation, there is also indeed the lead time in the construction. There is no -- let's say, we were able to deliver all the projects -- or almost all the projects together with our clients in time until now. But for new projects, there we have to take into account a longer realization period.

And also to give you some color on that. In the past, it was, let's say, as soon as we secure the land 6 months for permitting, 9 months for construction, and this 9 months has now become between 12 and 15 months. So you could see a net effect of 3 to 6 months related to supply chain issues like mainly for the raw materials and capacity constraints with the construction companies. But there, we have the benefit, too, of working already for many years with -- in partnerships with the main construction companies in all the countries of activities.

And then we have another question with regards to our plans in Germany. To what extent would it contribute by 2025? And can we give a general update on how plans are going?

Well, a general update. I think we made that general update at the end of last year where we said that we could pre-let our first project fully before ending the construction. So let's say, we planted our flag and we realized a real profitable, very nice project. And in the meantime, we also hired a business development manager who will start the first of March. And so then, let's say, with first existing building and a first development, the men can start and go into Germany and really start deploying further our activities there.

And then a follow-up. Do we expect a major difference in development yields in Germany compared to the BENELUX?

Not in the development yields. Investment yields or, let's say, and also there, investment yields are the same or the market is as liquid or even a little bit more liquid than the Netherlands, but it's the same environment as the Netherlands.

And then we have another question from Gerald on the nitrogen policy in the Netherlands. Would that potentially negatively affect growth ambitions or our EPS forecasting by 2025?

No.

Then we have covered most questions. Unless anyone has any other remaining questions, please put it in the chat. We have just 1 other question with regards to the like-for-like rental levels. As indicated, it's moving very slowly. But what are we seeing in terms of market rent evolutions?

Yes, what we see it's very scattered. It depends really on the micro market, but we're seeing in some locations, at least plus 10%. And that is also the levels -- the uplift we saw in these couple of renegotiations we had like we mentioned.

And we have no further questions.

Well, then let's say, we could keep our promise to get it into 1 hour. And then I have to say thank you all for listening to us and listening to our live stream where we commented on '21. And more important, about the future, we are ready for further growth, external growth, internal growth covered by climate opportunities. Thank you all very much, and have a nice weekend.