Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- NEPI Rockcastle NV (JSE:NRP, Financial) reported a 13.5% increase in Net Operating Income (NOI) and a 5.6% growth in distributable earnings per share for the first half of 2024.
- The company is expanding its portfolio with significant investments, including an EUR817 million pipeline for new developments, energy projects, and residential projects.
- NEPI Rockcastle NV (JSE:NRP) has a strong balance sheet with a low loan-to-value ratio of 32.2% and a net cost of debt at 2.6%, ensuring financial stability.
- The company is actively managing its portfolio, with 8% of its Gross Leasable Area (GLA) under construction and permitting, expected to be completed by 2026.
- NEPI Rockcastle NV (JSE:NRP) is investing in green energy projects, generating EUR4.1 million in revenue from photovoltaics and planning further investments to cover 100% of its energy consumption in Romania.
Negative Points
- The company faces geopolitical risks due to its operations in Central and Eastern Europe, particularly with the ongoing European crisis.
- Despite strong operational results, the footfall in shopping centers only increased by 1%, indicating potential challenges in attracting more visitors.
- The company is exposed to market risks, with potential fluctuations in property management fees and utility expenses.
- NEPI Rockcastle NV (JSE:NRP) has significant exposure to frontier markets like Bulgaria and Croatia, which could impact its inclusion in certain financial indexes.
- The company is planning substantial investments in new developments and acquisitions, which could strain its financial resources if not managed carefully.
Q & A Highlights
Q: What is your hurdle rate on a yield basis for your developments and acquisitions?
A: For developments, we need a spread to compensate for the development risk. Current cap rates for top-notch assets are around 6.5% to 7%. For developments like Plovdiv, we aim for yields close to double digits. For acquisitions, we ensure they are immediately accretive and deliver value from the start.
Q: Do you intend to manage the energy business internally or outsource it?
A: We intend to manage it internally. We have already built a small team of specialists in the field since 2022. The broader NEPI Rockcastle organization will support functions like bookkeeping.
Q: What makes the current residential developments different from previous ones, and what margins are you expecting?
A: Our previous residential development, Vulcan Residential, was successful with 254 units, 218 sold, and a good return on cost. We expect similar profitability for the new projects in Craiova and Brasov.
Q: How competitive is the acquisition environment, and are the expected acquisitions accretive from the beginning?
A: The acquisition environment is competitive, but we are targeting off-market deals. The expected acquisitions will be immediately accretive, delivering results from the start.
Q: How did the influx of Ukrainian refugees impact your growth, and do you have plans for business expansion in Ukraine post-war?
A: The influx of refugees has had a positive demographic effect, contributing to growth. We currently have no concrete plans for expansion into Ukraine, focusing instead on hoping for peace and stability in the region.
Q: What is the cost of debt for the unsecured debt you are getting now, both for bonds and bank loans?
A: The current yield for our bonds is around 5%. Our average net cost of debt is 2.6%, up from 2.5% last year. We expect this to widen to a maximum of 3% to 3.10% over the next 12 months.
Q: What is your strategy for managing property management fees and utility expenses?
A: We control property management fees internally, minimizing unexpected fluctuations. Utility expenses are decreasing due to our self-produced solar energy, converting costs into revenue.
Q: How do you plan to accommodate Primark's expansion in Eastern Europe?
A: Primark's appetite for expansion is growing, and we are one of their biggest partners. However, we selectively place Primark in locations where the catchment area supports their concept, ensuring it aligns with our leasing strategy.
Q: What is the outlook for the Polish market given recent political changes?
A: The political shift in Poland towards a more pro-European stance has made the country more investable. This has positively impacted the economy, with lower debt costs and a stronger currency, creating a favorable environment for growth.
Q: Can you discuss the impact of the Serbian disposal on your portfolio and potential future disposals?
A: The Serbian disposal at a premium to book value demonstrates our ability to negotiate favorable deals. This sets a positive precedent for future disposals, potentially impacting the valuation of other assets in our portfolio.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
