Release Date: July 22, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong operating performance with solid like-for-like rental growth across all asset divisions.
- High occupancy levels in offices, logistics, and shopping centers, with logistics expected to reach nearly full occupancy by year-end.
- Financial performance includes achieving $0.31 of FFO per share, slightly positive versus last year.
- Significant uplift in data center valuations (+13%), compensating for slight value erosion in other asset categories.
- Strong financial position with 35.6% loan-to-value, fixed interest rates, and no uncovered debt maturities until November 2026.
Negative Points
- Office occupancy expected to be flat or slightly negative compared to last year, with a range between 92% and 93%.
- Logistics occupancy slightly down due to a cut-off date effect, though expected to recover by year-end.
- Increased overhead costs due to the ramp-up of the data center division, impacting FFO.
- Delays in data center equipment delivery, affecting revenue timelines and causing potential penalties.
- Potential for further yield expansion in offices, which could negatively impact valuations.
Q & A Highlights
Q: Can you provide an update on the timing and progress of Phase I of the data center project, including any delays and their causes?
A: The delay in Phase I is due to clients facing difficulties in obtaining supplies, particularly GPUs. This has pushed back deployment by about six months. However, the backlog remains unchanged, and we might move bookings into full leases by year-end. Equipment delays, such as generators, have also contributed to the delay.
Q: Are there any penalties for delays in the data center project?
A: Penalties can occur, but we have alternative sources of income to mitigate this. We might decide not to wait for a certain booking and bring in an alternative source of income. The quality of the client is crucial in these decisions.
Q: How is the interest from clients for the data centers, and how many bookings have been converted to leases?
A: Interest from clients is strong, with new companies entering the market. We are selective with clients to ensure long-term relationships. Most bookings are expected to move into full leases during the year, providing income certainty.
Q: How long can you proceed with Phase II without raising equity?
A: We can proceed until year-end. We aim to avoid a cash drag but also want funding certainty as soon as possible to assure clients of our ability to deliver.
Q: Can you provide more details on the valuation of data center assets and potential future uplifts?
A: Data centers are valued using a seven-year discounted cash flow model with conservative exit yields between 6.5% and 6.75%. We expect a significant value uplift, with Phase I alone potentially adding EUR500-600 million in value.
Q: What are the funding options for Phase II of the data center project?
A: We are exploring various funding options but prefer not to speculate. The Board will decide on the best course of action.
Q: What is driving the increase in OpEx non-overheads, and how should we model this going forward?
A: The increase is due to one-off financing costs related to new mortgage loans in Portugal and Spain. This is not expected to be a recurring expense.
Q: Do you expect further margin expansion in asset valuations in the second half of the year?
A: We expect some yield expansion in offices, potentially moving beyond 5%. Shopping centers are stabilizing, and logistics are expected to remain flat. Liquidity is increasing in shopping centers but remains limited in offices and logistics.
Q: How are you balancing occupancy levels and rent levels in the office portfolio?
A: We aim to maintain high occupancy levels while passing on inflation to tenants. This may limit reversionary potential, but we focus on long-term stability.
Q: Are there any plans to sell a significant portion of mature assets in the portfolio?
A: We continue to rotate mature assets and refine our portfolio quality. However, selling large portions of the portfolio is not feasible due to liquidity constraints and the impact on overall value.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
