Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net recurring income increased by 8.4% in the first half of 2024.
- Valuation stabilized due to sound rental growth in central locations.
- Strong balance sheet with stable Loan-to-Value (LTV) and excellent hedging of net debt.
- Significant rental uplifts in both residential (+15%) and office segments (+14%).
- Like-for-like rental growth of 6.3% in H1 2024, showing resilience and capacity to beat indexation trends.
Negative Points
- Investment market volumes down by 57% in H1 2024 compared to H1 2023.
- Negative rental reversion in secondary locations, with some areas seeing declines of up to 10%.
- High tenant incentives in Paris area, sometimes reaching 30%-35% for long-term leases.
- Potential challenges in maintaining high rental growth rates in the future.
- Limited number of quality assets available for sale in the market, affecting acquisition opportunities.
Q & A Highlights
Q: Given the stabilization of asset values, do you have a greater appetite for acquisitions or opportunities?
A: (Benat Ortega, CEO) While the stabilization of valuations is positive, our primary focus remains on investing in our existing assets to enhance NAB and cash flow. We are open to acquisitions but have no specific plans to share at this time. Regarding student housing, we are opportunistic buyers and sellers, maintaining a solid balance sheet to capitalize on opportunities as they arise.
Q: Can you provide guidance on the cost of debt for the next few years?
A: (Benat Ortega, CEO) We have a strong hedging position over the next 4.5 to 5 years, with an average hedging above 90%. This should stabilize our cost of debt, which currently stands at 1.1%. The increase in hedging was mainly due to last year's disposals, which mechanically improved our hedging by reducing the quantum of debt.
Q: Could you comment on your guidance for 2024, especially considering the deliveries in H2?
A: (Benat Ortega, CEO) We maintain our guidance for around 6% growth per share. The disposals made last year were already dilutive in H2, and we had significant deliveries in H2 last year. Despite these base effects, we are confident in achieving our guidance for the end of the year.
Q: What is your view on the investment market, given its muted state in H1?
A: (Benat Ortega, CEO) The investment market remains cautious, with a combination of limited quality products and a small number of buyers. However, we have recently seen more investor interest, particularly in Paris City, where there is a lack of products for sale. Outside Paris, the market is significantly quieter.
Q: How do you view asset disposals, particularly in non-core areas like student housing?
A: (Benat Ortega, CEO) We do not comment on specific disposal plans. Our strategy is to create value across our portfolio and be opportunistic based on investment appetite and expected returns. We have not sold much in the first half, focusing instead on central assets.
Q: What level of profitability do you expect from your operating offices and residential segments?
A: (Benat Ortega, CEO) For operating offices, we achieve rents 20% to 30% above ERV with minimal CapEx. For residential, the profitability is also high but requires more CapEx due to the need to adapt unit sizes. Both segments are expected to deliver strong returns.
Q: Are you seeing any pushback on higher rent levels in Paris City?
A: (Benat Ortega, CEO) Currently, we are achieving significant rent reversions and high rents, even reaching EUR1,200 per square meter per year for some leases. While there is always a limit to rent growth, we have not yet encountered significant pushback.
Q: Can you provide insights on tenant incentives in Paris City and other areas?
A: (Benat Ortega, CEO) Tenant incentives in Paris City are stable or decreasing, especially for shorter leases in operated offices. In the Paris area, incentives can be 30%-35% for long-term leases. Effective rents in Paris have increased by 25% since 2018, while they have decreased by 10% in secondary locations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
