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

We are gathered here for our 2023 results. A year where we were able to create value again in very challenging times. And even more important, we feel confident for what lies ahead. Welcome, everybody. 2023, a year again of strong earnings growth, we were able to realize 12% earnings growth in our EPRA earnings per share from 1.25 to 1.40, 8% operationally and 4% thanks to a one-off. Above this, we realized I think, the perfect balance sheet for the future with a loan-to-value of 34% and even more important and a debt-to-EBITDA of 6.4%. And I think above that, there has never been so many value in our balance sheet, with a basic portfolio of almost NOK 7 billion and which is fully led. And above that, an investment portfolio and a pipeline of more than EUR 600 million of developments, acquisitions and energy projects who were in execution. And if we bring this into our '22-'25 plan, and we look first to our leading indicator, annualized income, then you can see that we did a real fantastic work. In only 2 years, we could bring the annualized income from $300 million to $400 million, which is 30% more in 2 years' time. And in the same time, we could bring down our net debt to EBITDA from 8% to 6.4%, so minus 1.5%. And this, of course, brings us in a good WDP habit, we can give a fantastic new guidance on which Mick will come back later. But this brings indeed, again, 1 year in advance, we can reach our targets, but even with a much lower and a much better balance sheet. So into a good WDP habit, we can bring new plans. And if we look back, in the past, we can see that we indeed always work with our growth plans, depending on the moment in time where we had to concentrate on internal growth, the Netherlands, consolidating our Benelux platform and so on. This one was based on external growth. Plus, we thought we could continue to do external growth and preparing ourselves for the future. But after 2 months, the world changed, and we had to adapt our plans, change our teams and prepare us for a new macroeconomic environment. But we did it. And we delivered again based on our long-term key drivers. And so we are ready for a new growth plan, [Blend] 27. [Blend] 27 is based on combining multiple drivers and multiple markets. We will blend knowledge, teams, regions, altogether based on, of course, robust structural demand drivers. If there would be no demand, we cannot grow. So we still see demand in our environment. And our growth is based on a strong fundamental financial position and strict capital discipline. And within that frame of demand and a good balance sheet we can grow by doing developments, acquisitions, we can capture internal growth and we try to help our clients by decarbonizing their supply chain, all this within our European ambition. So team WDP is fully adopted and ready to blend. And of course, we will have to raise the bar. We raised the bar from EUR 1.25 billion to EUR 1.50 billion in '25 to EUR 1.7 billion in '27. Then I give now the word to Alexander to explain how we will reach this EUR 1.7 billion in '27 too by blending.

Now let us discuss the building blocks that support our ambitious EPS growth target. To start, we continue to build on the structural demand drivers that support our ambition for external growth. Even though we know that these structural demand drivers have remained relatively unchanged. They are of structural nature. And while there are regional nuances, it's important to know that demand is sector-driven and it's coming from a very wide variety of opportunities. To start, when you look at the outbound demand, we have experienced a significant growth of e-commerce during and post-pandemic. And now this growth rate is coming back to a more normal space but still, we see retailers as well as logistics players continuing to invest in their omnichannel business strategy given that the speedy delivery, but also stock control is pivotal and critical in the success of your business strategy. At the inbound side, we have been seeing very unexpected market events, and these have challenged the resilience and the effectiveness of supply chains. Think about, for example, COVID, the Suez Canal blocking but also the congestion at ports and the increased levels of protection and [ sick ] behavior by local nations. And supply chains can react in multiple ways, for example, through location strategies, but also in inventory and stock strategies. Next to that, we also see warehouse automation gaining up traction and importance in demand. For example, you want to increase the effective throughput within the warehouse, but also warehouse automation is being increasingly important as a result of labor scarcity, but also land scarcity. And that brings us to sustainability opportunities where the greenification of the entire supply chain is becoming more than just an option. Both of WDP but also our clients are increasingly faced with legislative changes that come with opportunities. And even though we might experience a cyclical impact given the market that we're in, the underlying market remains fundamentally strong and very healthy. If you just look, for example, to the vacancy rates in Western Europe, there you're at 2.5% vacancy rate. And they picked up slightly, but regionally, you can even see regions with Quasi [no-vacancy]. Even when we look at Romania, we are at vacancy rates that are sub 5% historically strong. Next to that, the strong vacancy or the strong market, you also have land scarcity, which is only building up, but also the reduced level of speculative developments by developers. This is also reducing the risk of oversupply in the short term. And having discussed the ingredients for new demand, we can now load our investment pipeline, both through new developments, but we also see opportunities via acquisitions. And not only in our existing core markets where we are very well positioned to capture demand, but also we will increasingly target the French region but also the German one. And by just having added these two markets to our scope, we have now tripled the total addressable market. And this will help, of course, in expanding or in the ambition of WDP expanding its investment portfolio but also in further bolstering its European ambition. And having discussed, of course, the external opportunities that we see in the portfolio, we must also look at the internal growth opportunities. And we believe that we have a strong total return potential. Just looking by 2025, we will nearly increase our annualized rental income with nearly EUR 60 million income. This is mostly driven by secured developments that are ongoing and acquisitions but also the expected levels of indexation. And next to that, we believe that we can extract a great level of value and potential through the rent-free negotiations that we see on the long term, given that we are 13% under-rented albeit with a very commercial approach. Next to that, we have 1.7 million square meters of land readily available for development. And finally, we also see great potential in the electrification and the decarbonization of our entire supply chain. We're moving away from just storage and distribution to also integrated energy solutions. And to that, and in order to achieve that, we must further increase first the capacity and the infrastructure that we need in place. And this is solar panel, renewable or the renewable energy production. And note that up until last year, we communicated a target of 250-megawatt peaks by 2025. We have now upscaled that to 350-megawatt weeks by 2027. On a side note, however, we must also highlight the fact that the accretion into the P&L will take slightly longer due to, for example, project complexity, such as grid access, but this is compensated by the higher installed capacity target. And having discussed the key building blocks for growth and new opportunities. I will hand over the floor to Mick, who will give a few comments on the financing, of course, of this plan.

Yes. Thank you, Alex, and Joost. I think when it comes to the financial foundation of the company, our position has actually never been as strong as now. Over the last 2 years, we have in a new cycle with substantially higher interest rates further strengthens our balance sheet and available liquidity without actually jeopardizing the EPRA earnings per share growth, but -- and as such, we have positioned the company for further growth, even to such extents that we can today say with these ambitious plans with EUR 1.5 billion cumulative capital expenditure that this is already fully funded because we have the available liquidity. And when we combine it with the expected retained earnings and the recurring stock dividend of combined roughly EUR 700 million over the next 4 years then also in combination with our good solid starting position at an LTV of 34% and a debt-to-EBITDA of 6.4%. And even then leverage will remain very well under control and where we want to be. And I would say what's equally important is that not only do we have the balance sheet capacity and liquidity to grow, but that our existing cash flow is well protected, because we are very well hedged with no meaningful hedge maturities or fixed rate debt maturities until '27. So that effectively means that interest rate reset, which is happening and will happen across the real estate industry will not be a negative driver for our new growth plan, which is obviously very important and when your main KPI is growing cash flow per share. One thing I would like to highlight on this slide is that here you may see that said the hedge ratio is more than 100%, which is -- which may seem a bit peculiar. This is, in fact, just for a temporary technical reason because after the ABB, we -- the capital raising we did end of last year, we took in the money. And obviously, it will be invested throughout this year but gradually, of course, in function of the investment projects and acquisitions we've scheduled. And so temporarily, we reimbursed floating rate loans, which hedges staying in place. And now we will then draw again on these loans to fund those investments and the ratio, the hedge ratio is expected to revert back to 100% by year-end. So that's it on the financial position. We now move over to the last part and that is the outlook for '24. So when we look at the outlook for '24, we can guide for continued growth in our EPRA earnings per share with a 5% rise year-on-year towards EUR 1.47. And I'll explain a couple of the assumptions and drivers behind it. Obviously, the most important one is the strong impact from project completions and also from the acquisitions we've scheduled throughout the year, which we already announced at the occasion of the ABB end of last year. And we have around EUR 500 million of capital expenditure expected in '24, so which will gradually be made profitable. Second thing is obviously also organic growth, which is continuing, but obviously at a lower pace because last year, we have shown in '23, 6% like-for-like growth. Now it will be 3%. That's logic because inflation is coming down. And the 3% is just the average indexation across our geographies of '23 and '24. So last year, indexation of contracts was 3.5%, this year, it will be 2.5%. It's a simple average, it's 3% for '24. Now there is also one technical item I need to point out to is with respect to the capitalization of interest on development projects in essence, because of the fact that we effectively finance them through those project developments through flexible floating rate loans costing around 5% today, but we are only 4%, 5% today in function of your [indiscernible] curve, of course. Of course, we were only capitalizing the average cost of 2%. And this actually started to create a negative carry in our P&L and is, in fact, like creating a disincentive to grow because each project you start generates a negative carry in your P&L, and we will now bring this back in this -- bring this in line with the effective marginal cost, which is the effective cost is the cost that we also always have ever until now, always used to calculate our project development yield. So that gives more consistency in the numbers. And just point that out, very transparent that this step change has an impact year-on-year of EUR 0.30 per share. And final comment, of course, is that you all know that we have extensively communicated on that is that in '24 marks the end of the Dutch REIT status. We will have the final year of benefit from Dutch REIT status for our activities in the Netherlands. And then as from 2025, the government in the Netherlands abolished the real estate regime for the REIT in the Netherlands. So that will have effect as from '25 and is also foreseen in our long-term guidance, of course. So that's it on our growth plans, financing and the short-term outlook, and we'll now hand over to you, actually, for the Q&A and to Alex, who will be our moderator for the Q&A session.

[Operator Instructions] First question is coming from Inna Maslova from the Banque Degroof Petercam.

A couple of questions on my side. Would you perhaps be able to elaborate on the components of growth in terms of what you are targeting from the perspective of developments, acquisitions and also in terms of investments into WDP Energy business?

I think there, on the plan itself, we will give no further detail on the actual composition because the moment we do that, then the day after we enter in another world and then because the world is moving. What we can say is in the EUR 1.5 billion, of which EUR 500 million is related to the existing pipeline is that the message we want to give is that we have good comfort in reaching that -- in the sense that we see on a broad-based opportunities across our activities in developments, in acquisitions and in the energy business. And perhaps for the Energy business, I think there, what we can see in terms of number is that we are on track to realize the EUR 150 million projects cumulative, which we announced end of '22 and at the ABB at that moment for '23 and '24, and that will be a bit more expanded over with another year, but there are in the growth plan around EUR 250 million CapEx schedule still for the Solar and Energy business. And the rest, it will come as opportunities present themselves.

Okay. Clear. Then maybe a follow-up question on the acquisitions. You've mentioned that the environment is becoming more favorable and there could be attractive acquisition targets. Could you perhaps comment a bit more on that on what type of acquisitions and also where you see the market moving mostly? And just as a follow-up on that, the transaction that we've seen in the Port of Ghent in Belgium, which closed the yields of about 5.5%, I believe, would be curious to get your view on where you think this stands?

I think to start with your last question. I think indeed it is, let's say, this -- one of the signs that markets are reopening. And this is, in general, we see step-by-step markets reopening around that level of 5%, depending on, of course, specific items. But -- so there, we feel that let's say, buyer and seller can find each other and get it's a little bit higher, but it's also on concession land but it is a good location, good building, but indeed on concession. And then we see also today, we see more opening in France, for example, we see more possible tenders then for the moment in Germany. Germany is still, let's say, frozen by the NAV discussion, but at a certain moment of time, they will also have to open. But now for the moment, it is more France, but it can change within some months. But I think the most important thing is that we see step by step, let's say, markets reopening and parties coming again to the market. And so that's the reason also why we see more acquisition possibilities in the near future.

That's clear. And just perhaps on the type of sellers where you could start seeing additional acquisition opportunities going forward?

Not specific one kind of -- I think, yes, there are -- let's say, there are a lot of people waiting to do something. Some people who had closed funds, other who have to refinance, other who has too many debt. I think it's not one, let's say, only private equity or people in trouble. No, because, let's say, also the really distressed sellers, they are not there or not there yet. I think one of the reasons is, indeed, that is going still very good in our sector, all the warehouses are rent. So they generate cash flow. And indeed, as long as there is cash flow, and there is no banker most of the time who will, let's say, urge as client to sell. So there is time. And we don't see really opportunities in distressed sales, probably more in people who has to refinance themselves during '24 or even more in '25.

Then we have another question from Frederic from Kepler.

Just a few questions on my side. Mick, you mentioned that 2024, you expect 3% like-for-like rental growth. And if I look in your presentation, you have also 10% of this contract maturing in 2024. And you mentioned a reversion of 13% -- and we understand that you are not able to capture the reversion that you are displaying.

Yes, but it will take some time and there is indeed some reversion in our budget for '24, but it is also partly offset by some temporary vacancies, which we also foresee in our portfolio. So that flattens out, and the remaining part is plus 3%, which is the effect of indexation.

But sometimes there are also, let's say, contracts where only the client can -- that we cannot that -- there is an option on the client side to continue the contract. So then we cannot directly let's say, higher the rents even contractually.

Yes, because also in what you see in the chart in the chart of the lease maturities is everything that comes to a break, a temporary break or a final expiration of the contract, and it's almost only at final expiration if the client does not have another option at his side to prolong that we can have a discussion, a real discussion on the prolongation of the contract at a new rent. So that's why it will take time. You cannot think that we could immediately capture the 13%, but the 13% under-renting also means that we can at least structurally capture inflation and then whenever there are opportunities in contract expiries to sit together with the client, okay, what can we do to increase the rent and it will be a combination of increasing the rent and in combination with investing in the building and continuously upgrading the buildings. But it will -- that will take some time. And on the occupancy, you should not think that it's a big impact. It's just some temporary vacancies in the existing portfolio is less than 50 bps of course, because we are at 98.5% occupancy rate. And in the guidance, it's mentioned that we expect it to be on average above 98% throughout '24.

Okay. That's clear. Maybe a second question. Can you guide us through how you will achieve the growth ambition in France and Germany? It's been always in discussion. You have made limited breakthroughs in those countries. So do you want to accelerate by recruiting more people and maybe the factor impact your operating margin? Or how should we look at that?

Well, indeed, I think it was part of our plan '22, '25, but then the world changed and, let's say, markets were frozen. And then let's say, nothing was for sale at right price. Of course, there were things for sale but not at the right prices. Now we think that markets will reopen the next years, and then we can do and we can grow into those markets. And of course, in the end, we always said that we want at least a portfolio of EUR 250 million and better is EUR 500 million to really start. And then, of course, we will end with local teams in the end when you want to really become and have a real portfolio in a country like we have for the moment in Belgium, in the Netherlands and in Romania, you need local teams. So at a certain time, we will indeed also go for, let's say, two extra local teams, one in France and one in Germany. But therefore, we need first some quantum.

Okay. And then last question on my side. Can you comment on the acquisition you are planning. I appreciate you already gave some insight that the markets will reopen, but your acquisition plan, is it skewed towards Eastern Europe, where you did in the last quarter, a very interesting deal at a double-digit yield years. Is it also skewed to the Western Europe?

We will try to do, let's say, deals and, of course, in our existing markets. But if we can choose, we should like, and we should even better like to do more acquisitions in Germany and in France because there, we are really in a buildup phase while in the Netherlands, Belgium and Romania, we have our existing clients, existing land bank, existing projects. So there we have, let's say, an automatic growth, while this is not the case yet in France and Germany. But of course, when something pass that is interesting, we will, of course, look at it. And if we can, we will also buy it.

Yes, because that's the predominant driver. Is it profitable? And does it fit within the portfolio?

I get dollar rate is around 7% like in development.

Sorry, I didn't hear it.

What did you say?

So the yield that you would be looking for acquisition in 3% to 7%.

In which geographies because today, buying in Western Europe at 7% when yields are quoted at 5%, and there are deals at 5%, that's not possible, no.

Okay. That's where I'm having difficulty then because in the past, you used to do only in-house growth development at an attractive yield. I know you are buying the market actually. And you remember, you said in the past that it's not a strategy that we would like to do buying at the market.

No, no, no. We have always been -- we have, indeed, throughout the history of WDP, we have built ourselves, developed ourselves more than 2/3 of the portfolio as originated from in-house developments. But when you look at throughout the cycles, WDP has always been a net investor. And in function of the cycle and the opportunities, we have always been developing, redeveloping and acquiring. And for example, yes, the last couple of years we said we are out of the market because we are over bit in the market and because money was abundant and prices were very steep, and we said we focus on developments. Now prices have reset and are more reasonable again. And now we also look again at acquisitions, and that has been a long time ago. And are we the market maker to pay the steepest price in the market? No, we have always tried in our acquisitions to do quick smart off-market deals or deals which are a bit more complex or a bit more operational work on. That's how we also look at acquisitions.

And let's say, when the market is at 5%, and we are developing at 7%, acquisitions will be somewhere between -- in that bracket, depending on how strategic, how low the renters are? Is there possibilities to higher the rent? So it's not only about the yield, it's about what is the rent today? Can we hire the rent? Or is it a redevelopment? Or is it, let's say, important for us to get as a critical mass to be able to start in a country. So all those elements will make that, for example, in Western Europe, it will be somewhere between 5% and 7%. And if we can find something at a higher yield, we will, of course, do it but we don't think so. And then in Romania, there, let's say, you have the same 2% margin between 7% and 9%. And there, indeed, we will also -- if there is something passes, we will look at it, but we look at the total picture, but saying that we will only buy at the same level as we do developments, that's not possible. Because then we should need to the development -- and we should only buy.

Then we have next question coming from Steven from ODDO.

Maybe one question. We see a shift from greenfield to Brownfield developments or major redevelopments in the market due to land scarcity. First question, is this also true for you? Second question, could you please elaborate what it means to risks. For example, we see a decrease in the pre-let levels, but does it also increased uncertainty on the yield on cost for development margin, given complex things like this all remediation. And the last question on the subject, you also think you should be compensated for these high risks, if you see that like in a higher development margin going forward, for these types of developments.

Yes, I did. I think the easy greenfield developments are over. Yes, sometimes you still can find a piece of land. I would say, mostly in Western Europe and Romania, we still can find and buy land. But here, just buying greenfield it's almost impossible for everybody, so also for us. And this means indeed that we go for Brownfield developments, one like we mentioned during the ABB in Grimbergen is a brownfield development. We also have indeed old sites who were ready now or in the future for redevelopment. That's the biggest potential in the portfolio we have. So indeed, we will do that. And we always did it. It's -- we do already, let's say, the redevelopment of Grimbergen. It's the first redevelopment of car coke was indeed happened already in '77. So yes, we know how to handle with brownfields and for us, a redevelopment, a brownfield development that has no other risks okay, you have in the beginning a demolition and a pollution risk. But let's say, therefore, exists a lot of specialists in the pollution. And then we work, of course, with an external party. But in general, there are no more for us as being a specialist, there are no really higher risks and redevelopments and brownfields developments. And concerning your question about pre-let, it's not that we changed our strategy. It is just, let's say, due to specific reasons. For example, we got -- sometime we got to be won a tender in Hembergen to do that brownfield redevelopment. Well, we won that deal because we give a good solution for the depollution. And we had to promise that we would do and we would start that project. So we had a construction. We had to start construction based on the tender process. And then -- on the other hand, other things are, if you sometimes, some of our projects are with smaller units like, for example, Princeville Breda that's really for city logistics that are smaller units, well, smaller units, you cannot pre-let those kind of clients. They want to see the buildings. And so those kind of things, you need to pre-let. But for example, Breda, the party, the part which is now under construction and which will be finalized in April is already fully let. And then we will demolish the second part and then we can start renting the last part. And so -- and then a third reason besides obligations to build smaller units or indeed sometimes you do extensions of existing sites. And then those are also, let's say, smaller developments. And then indeed, you have to start sometimes and to do the development and then you can go to the market. But it's not, let's say it's due to specific reasons and not a change in philosophy.

Very clear. And then maybe a last question, a quick one, if I may. Could you please elaborate on which countries have the highest [indiscernible] in Q4. So please split it.

It's mainly driven by Western Europe and predominantly a bit skewed towards the Netherlands.

Then we have another question coming from Marios from SocGen.

My first question was actually related to the pre-letting across the development pipeline, which I think has largely been answered. I just wanted to maybe dive into this a bit deeper and ask what the shift was quarter-on-quarter? Because clearly, there's been a quite a significant drop in that pre-letting. Were there some reconfiguration of some existing developments? Or is it just new developments being added to your pipeline?

It are, let's say, mostly almost all are new developments except one. There is one project where, let's say, the client said finally, okay, I won't continue with this project, and that was due to permitting reasons and, let's say, the duration of getting permits and therefore -- and it was a specific permit for specific projects. But for the rest, I think it are now newly mentioned projects and not a change. So we did not lost tenants, we just did more of those projects with a big added value because, for example, those extensions of existing sites, well, there, let's say, the advantages that we have already the land and that on our out-of-pocket cost, we can realize a nice profitability.

It's just a coincidence for a number of business reasons. And when you look at the projects, as projects in Grimbergen, which you explained with the sole remediation and building obligation, a couple of smaller extensions in the Netherlands on existing sites and then the project in Schiphol, where also the demand is now coming from smaller units and then it's a bit -- the chicken or the egg discussion and then on a portfolio, which is fully let and with construction or development activity declining, we can take that. So it's a coincidence for a number of business reasons. But the philosophy is still to move forward for new projects on a pre-let basis, of course.

Okay. Very clear. Just secondly, we're seeing quite a number of major online retailers cutting their logistics footprint in the U.K. They're operating on leaner stock models. I remember in your Q3 call last year, you mentioned there was a potential lower utilization of your warehouses by your tenants. Just wanted to maybe get an update how you're seeing things trending on the ground, and you could see maybe any space being handed back potentially?

Let's say that there [indiscernible] the situation normalized. I think we are again in a normal market, but with also a structural good demand. But indeed, some specific lines for specific products, some and fast-moving consumer goods, for example, they have given back or they will give back their buildings because there they have to optimize their -- they had the possibility to give back and they had to optimize their rental space. But on the contrary, you also see that sometimes people lose a client, and they don't want to give up their building because they said, yes, if I give up my building, then I lose them forever because WDP, you will relet him. And then I lost my strategic space. And so even sometimes when our client loses, let's say, his client or his client takes less space, they keep the buildings because they are so strategic for them.

Then we have another question coming from Pieter from Kemper.

Then follow-up on Steven's question on the Brownfields. We've seen your peers is CDP, VGP being quite active in [indiscernible] right relatively plus in Germany were at least close that you were also looking at -- or does these type of large Brownfield developments, feature strategy?

Yes, of course, there should also fit in our strategy. But down there, let's say, today, CTP and VGP, they have much bigger teams there. They are already a long time in Germany. They are deeply embedded like we are here in Belgium and the Netherlands. So we are stronger here to find those pieces. And they, of course, are better in their, let's say, home regions, but we are open. And if we can, we will do that in France, in Germany and in the rest of the portfolio.

Okay. It's clear. One question was on the market rents. They were up 6% in the last quarter seems to be -- were the prices a bit late to recognize the rental growth turns here? How should we look at this?

I think you should also look at it like you have seen in the last couple of years with the valuations with the yields that it's always a bit slower to feed into the valuations. Also, for example, last quarter, in Q3, the ERVs were around EUR 55, EUR 56. Now they are at EUR 60 ERVs, but then already, we were seeing this on the ground. So it's gradually feeding what happens on the ground is really feeding through in the valuations, but with a certain lag, we see it's always much faster with our commercial teams on the ground that just a bit a catch-up effect from the reality.

And then we have another question coming from Paul May, Barclays.

Just on the first one, what -- could you know what rate your over hedge swaps are at, please? So as you use the [mortgage] they at?

Yes. Just our -- I think it's not relevant to point out to the -- because we have a macro hedging policy, those swaps are at average -- weighted average swap rate is around 0.6%.

Okay. So as you use them, your all-in cost is about 2.1%, something like that? And why are you capitalizing interest at 4.5%?

Yes. But the thing is that the effective cost from an incremental perspective on the projects is effectively the marginal cost of debt and usage to really see the hedges are really to cover the standing assets, and that is a specific temporary situation that is created through the ABB.

Okay. Moving forward, I assume a fair amount of the EUR 1.5 billion of blend '27 investment will be equity funded. Is that a fair assumption just given your ABB sort of approach over the years -- you're likely to be over hedged for a period of time?

No. Now it's really -- the strategy is really to put those credit facilities to work. We have -- I think the goal was to bring us in a very good starting position that's when the markets -- the investment markets and gradually opening up that we already and have the balance sheet capacity because we sense that with our teams that it is, again, a competitive advantage to be able to do acquisition offers without being subject to finance. As we have the balance sheet capacity for that. And what we wanted to see with this slides is that over this horizon of the plan when we invest the EUR 1.5 billion by end '26 to be then profitable in year '27. That's over this period, the 4-year period, we will already generate EUR 700 million in expected retained earnings and scrip dividends, and the remainder will then be funded through incremental debt. So actually to do this -- with this horizon, there is no further need for an ABB. If tomorrow, we do a large acquisition and faster. Obviously, then we can contemplate on doing another ABB. But for this, we do not need it because we have just done one -- we have credit facilities available and so we have the liquidity available. We have a low starting leverage, and we have the foreseen equity coming in from retained the earnings and scrip.

Very clear. And just a final one is probably combined to -- you mentioned not seeing distressed disposals but likely see more transactions on the back of refinancing requirement over the coming year. And I think you mentioned looking at acquisitions somewhere in Western Europe between 5% and 7%. And would that mean that your existing [indiscernible] results still over value given the majority of sub-5%?

No, absolutely not. So well, indeed, because indeed, our valuation is at, let's say, 5%, but that's also based on a real rent of lower than market trends. And indeed, our reversionary yield is already at 6% or above 6%.

6.2%.

So here our reversionary yield at market rents is at 6.2%. So let's say, this already means that if we buy at market rents, that there we are around that 6%. So it's not that indeed we are, let's say, our valuation is at 5%. We buy at 6%. So we have to adopt it. No, no, there is really already that 1%, driven by our lower rents than market rents.

Okay. So when you're acquiring assets, are you likely to see rental increases on those, you be buying at market? Or just kind of understanding of the various [indiscernible].

But it all depends on the situation and the specific deals...

Yes, it will be a combination that if it's a dry assets, standing assets, good quality then -- but there is no with a long lease. And there is no or limited growth potential, then the yields would be a bit higher versus an assets in which you can capture in a 5-year out some reversionary or sometimes you also buy assets for example, through sale and leasebacks at a bit higher yield because it's mostly land value plus some cash flow and then it's deferred development potential. So it's really whatever is an interesting fit with the portfolio and each individual project or acquisition has its own risk-adjusted return, like we also explained extensively for example, in the examples of the acquisitions related to the ABB, for example.

We are always real estate driven.

And then we have another question coming from Wim Lewi from ABC.

Sorry for that. I've got three questions. One is on the yield expansion and then two on the pipeline. So on the yield expansion, I noticed -- actually, I was a bit surprised there was still quite considerable yield expansion in the fourth quarter. As I look at the partition of the regions, is it -- could you say there's been a catch-up movement in Belgium going on? And how do you see that going on into this year?

On the -- yes, there, what happened is that the values, and that's why we were happy that they reflected what we see on the ground is that they further increased the ERV, but they were also reluctant to, at the same time, show positive revaluations and just also then increase their input yield assumptions. That's what explains the yield expansion in Q4. But with our valuations are now for Western Europe at [Nepra Net] initial yield to what at full occupancy to make it comparable at around 5%, which is where we have seen transactional evidence and that is consistent with the reversionary yield like Joost explained of 6%. So I think that's based on the under renting of 13%. So I think that's also reasonable. And also when you look at values per square meter. I think the portfolio valuation is very reasonable and consistent with a wider macro environment and outlook prospects for the sector.

Okay. Then on the pipeline, I just run through some of the quarters and -- it seems that about 6 projects are shifting out slightly in timing, maybe one or two quarters. Is there any specific reason for that? I was thinking more that the construction companies have more available time? Or is it due to specifics or the weather or...

There is more than construction at the project win. Most of the time, indeed, that happens sometimes. I'd say there are two main reasons for that: permitting reasons. Let's say, when we start the project and we know that we can realize it, we mentioned it in our figures. But sometimes, yes, you don't have a permit yet or you go for a permit together with the client or you have to change the permit. And that takes more time than in the past. And sometimes, you have problems let's say, with the broader community, for your new permits. And besides, let's say, a permitting problem, there is also sometimes the request of clients. We have had some projects where the client said in the beginning, this is what we want. We will do it, for example, fully manually. And even before we started with the construction, they said, how can you stop just for the moment, once can you stop the project because we will automate the project, and we will first -- we want to see the impact of the automation and if we have to change, for example, a project or a client makes an automation in. So it's sometimes driven by permits and sometimes driven by client requests, client changes, client adaptations, but let's say, not by constructors who are working not in time. They work in time.

Okay. And lastly, on -- just specifically for my model, you mentioned and there are some projects that go out into '26 that are mentioned in commercialization. Now I just wanted to know what that means exactly like -- does that also mean that partly of the project is already completed and rented out so that because in my model, I would only put the rental income as soon as it's completed. But yes, some of them are only in '26, that could be an underestimation of the rental income. So I was wondering, are these projects already partly completed? And then being rented out. Is the rental income [generated or not]?

I see what your question is, but what you see on the slide with the projects under development are really the projects that are under construction that are being worked on with their tenant and if there is in whole or partly in commercialization, that means that is the part that is under -- that is not yet pre-let but the project will be finalized on that, be finalized on that planned delivery date. And is all income generating as of then.

But then as we go forward, those numbers will decline. So the CapEx that still has to be spent will decline, but that means that it's been completed and then it's yielding rents.

Yes, once it's completed, then it goes out of the pipeline. And if it's not yet completed, the cost to come of the pipeline will decline. The investment budget will be the same, and then the cost to come will decline as it's expensed over the next few predominantly in the next quarters.

Then we have another question from Francesca from ING.

A little question on the development cost. Do you still see development cost stabilizing? Or is there any [moving] markets?

But let's say, development cost has three main parts: land, construction and interest costs during the project. Land prices are still going up. So if you can find something, you have to pay a lot for it, they still go up. On the other hand, construction costs, they come down. I think today, we can say between, on average, 10% to 15%, they come down. And then the third element, let's say, there, we have seen an interest cost stabilization between 4% and 5% of the interest cost we have to carry during a project.

But just also give you some ballpark figures on the evolution of construction costs over the last couple of years is that pre-COVID, we were -- and I'm just talking about weighted average numbers all in across the portfolio, we were at EUR 550 per square meter pre-COVID, then COVID and in the aftermath of COVID, [indiscernible] very high inflation. We were at EUR 750 million. And as from '24, we should be back at around EUR 650 million. So still high, but more manageable and then it's more manageable, but still challenging to achieve those yield targets. But at least we have -- one of the components is coming our way.

That's fine. And just a second question to be sure if [I understand] -- do you expect the EUR 1.5 billion investments. Do you expect this to be equally distributed over the full year of the plan? Or you may want to accelerate eventually during the first period?

Could you maybe repeat the question, Francesca?

Yes. On the EUR 1.5 billion investments that you announced, is it fair to assume that this is going to be spent [indiscernible] in a manner, it's a EUR 350 million, EUR 400 million every year or you may want to have some flexibility and eventually accelerate investments in the first part of the plan?

Yes, it always depends on opportunities, and it's -- we always say that our growth plans, neither in the investment part or neither in the EPRA earnings per share part or a straight line. We tried to build straight paths, but we don't know what the future will bring, but how we have foreseen it is that we invest the EUR 1.5 billion -- that's EUR 500 million accrues in the balance sheet per year. So the mix of investments in acquisitions projects, energy-related investments and that they accrue 3x EUR 500 million in the balance sheet by end of '26 to have the full year contribution in '27.

Then we have a question from Rob from Green Street.

Just a couple. So the first one on tenant demand generally. I see vacancy rates across Europe and in your portfolio ticking up. We've seen pre-lets have come down. I understand what you said. But is there anything I can read into what is happening with occupying demand? Is it coming off? Or is it -- can you talk to that a little bit, please?

I think like I mentioned at the beginning of our plan and the B of blend is based on a structural good demand for new and existing effort logistics spaces. But indeed, I think we can say that let's say, the market is normalizing. It's not overheated anymore sometimes. We had already relet a building before he became empty, let's say now we have to work again like we had to do before. It is normalizing. And for some projects and some decisions, you see that some delays. It takes sometimes a little bit longer. Since indeed, economy is cooling down. People are sometimes recalculating their business cases. And let's say, you can always stay 6 months longer or 1 year longer in an existing building. So there you see a normalizing factor, but the demand brought over the different sectors in the different countries, stays there. Don't forget that let's say, the supply chain is the heart of every company. And for example, what happens now in the Suez Canal and the Red sea also stresses again that it's not just in time anymore, but just in case, and then you need strategic stocks.

That makes sense. Just a follow-on from that. If tenant demand is normalizing, what gives you the confidence now to kind of step up on the external growth in development compared to the last couple of years where you have been a bit more conservative relative to some of your peers, we can see.

We have been conservative on the fact that we said we don't need to do those investments in order to get to our targets. And we even got our target one year before because we had also other drivers we had faster than foreseen internal growth. We could roll out our energy solutions faster than foreseen. And so we had to, let's say, adapt the profitability of our developments. So we said we don't need it. But in the end, we continued to do developments, acquisitions and we did -- we said we would do EUR 250 million. But in the end, we did EUR 450 million. So let's say, we were prudent on profitability. But let's say, it's not because there was less demand, and I explained why and the fact that we do those developments, even without pre-let being pre-let. This means that we are confident in it. And also, if I say, normalizing, then it is normalizing at a high level.

That's really clear. That makes a lot of sense. Just finally, just one thing, you spoke about Red Sea supply chain disruption. I read it in the papers all the time, a [indiscernible] in Europe. Have you seen anything intangible? Is it coming through? Or how long is this runway yet? Where are we obviously right at the beginning? When should I start [indiscernible] in?

Yes, we see, let's say, indeed, it takes time to come back to bring production back. I think the first and the most easy thing is bringing strategic stock. But now, let's say, we see indeed the first signs of really people who are investigating in Romania, but even in Western Europe to reach store or to stay sure or to stay close and to enlarge productions instead of going away. There we really see now first signs of those projects. But it takes long to take a decision.

And then we have one more final follow-up from Inna.

Yes. Just two very quick questions. You have mentioned that the market is now between 5% and 7% on the acquisition side, and that's where we're starting to see transactions happen and 7% for developments. On that 5%, does that mean you believe that this is where the valuation will stabilize? And the second question is what is your expected LTV by the end of the growth -- blend growth plan in 2027?

Yes. First on the valuations, we obviously don't have a crystal ball because what will -- where will interest rates move. That's, I think, the EUR 1 million question or how fast will they start to drop, I think with the current macroeconomic figures and outlook that the 5% is very reasonable, means still tick up a bit. That could be. But on the other hand, when we look at research forecast ERVs are also expected to grow, for example, in the Netherlands and Western Europe with another 5% this year. So I think any further yield expansion at the current -- in the current environment should be limited and be relatively well absorbed by a synchronous rising ERVs. And also, I point out to the fact that the portfolio in itself is also still 13% under-rented. On the LTV by the end of the growth plan. So now the LTV is 34%. And if we then execute the EUR 1.5 billion, then we should trend back towards 40%.

And then we just have two more questions from the Q&A and then we can wrap it up. A few questions. I'm just going to combine them. It's again on our view on the supply of the market. And or the risk of any overhang. As you also already mentioned, the [indiscernible] is coming up. The market is coming from great to more normalized pace and we're still very strong. But looking at the current development pipelines in our core markets just ballpark figures when you look to Western Europe, typically or the current supply is around 10% of total supply under construction, of which let's say 80% is typically being pre-let at current time. So even if demand would fall to zero, the risk of any supply overhang is limited to 2 percentage points, meaning that the vacancy rate would not increase beyond 4.5%. In Romania, it's slightly different. We're at 4.5%. And in a worst case, vacancy could go up with 3, 4 percentage points as a result of peers that historically have developed on a speculative basis. And then a final question for Joost is, would you consider increasing your Nordic exposure, either indirectly through the stake in Catena or directly by entering the market yourself?

I can give an answer. A very clear answer as the same as I did in the last 2 years. No. Indeed, we are -- very happy with our participation in Catena. It is 10%. We keep it up to 10%, but we are happy with the 10%, and that's the agreement we made with the family, Poso and Backahill. And of course, with -- by being a partner of Catena, we will not go separately on our own in that market.

If you have any concluding remarks?

Thank you. Alexander, Mick. Thank you, everybody, for listening for all those good questions. And I think I can conclude by saying that we WDP, we are ready to blend and I'm sure that our DNA of entrepreneurship and client centricity will make the difference again in our blend '27 project. Thank you for your time. See you soon. Thank you. Bye-bye.