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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, and welcome to the Cofinimmo Full Year 2022 Results. My name is Caroline, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand over the call to your host, Jean-Pierre Hanin, CEO, to begin today's conference. Thank you.
Thank you. Good morning, ladies and gentlemen, and thank you for being with us for the presentation of Cofinimmo's 2022 full year financial report. My fellow colleagues are with me in this conference, Jean Kotarakos, CFO; Francoise Roels, Chief Corporate Affairs and Secretary General; Yeliz Bicici, COO Offices and Real Estate Development; Sebastien Berden, COO Healthcare; Hanna De Groote Head of ESG; Maxime Goffinet, Head of Treasury; Jonathan Hubert, Head of Control; [ Ellen Grauls ], Head of Investor Relations; and Philippe Etienne, Head of External Communications. . So I'm on Slide 3, and we'd try to go quickly through the presentation to make sure that you guys have enough time for the Q&A. So let's start with the highlight of 2022. Despite an unprecedented macroeconomic context, Cofinimmo has achieved a solid operational performance. The gross rental revenue are up by 8.8%, the occupancy rate is slightly high at 98.7%. And the residual lease length reached 13 years.
The net result from core activities group shares of EUR 222 million shows a 5% increase compared to 2021. We also confirm our gross dividend for the 2022 financial year at EUR 6.20 per share, subject to shareholders' approval at the next Annual General Meeting in May. Last year, we continue our growth in health care real estate in Europe with EUR 547 million of investment. We also closed divestment for EUR [ 144 ] million, mainly in offices and distribution networks. So we can say that we are witnessing the transformation of our portfolio, health care and now accounts now for 70% of it, which is a new milestone.
Cofinimmo also managed efficiently its financial structure. A few examples. Our interest rate risk is hedged at nearly 90% until the end of 2025. Our average cost of debt stays low at 1.2%. We refinanced or set up new financing for more than EUR 1.1 billion. We maintained our debt-to-asset ratio at 45.6% our headroom on committed credit lines amount to EUR 779 million. And all maturities of 2023 were in the meantime, secured. Adapting to the new macroeconomic reality in 2023, we plan more or less EUR 300 million of investment and EUR 300 million of divestment of which more or less EUR 85 million are already signed. This should be neutral on our estimated LTV, stable at 45.6%. Based on that, we contemplate a stable gross dividend at EUR 6.20 per share for the 2023 financial year payable in 2024. Last but not least, on the ESG front, and I'll come back on this later, we continue to be a green leader. 2 days ago, we have been included in the new Bell ESG index by Euronext after being selected as 1 of the top SBTI ESG bond issuers a few weeks ago. We got several new BIM certification for health care real estate, including the first 2 in Germany. While you all know our company profile and strategy, so I will skip immediately to Slide #5 -#8, sorry. The chart on this slide shows the big shift towards health care. In only 5 years, we moved from 45% to 70% of health care real estate in our global portfolio. At the same time, offices went from 34% to 22% and distribution network was reduced by half. As you know, we own properties in 9 European countries as illustrated on Slide #9. End of 2022, 45% of Cofinimmo's total portfolio is located outside of Belgium.
On Slide 10, you can see that EUR 547 million -- that with EUR 547 million, our investment in health care remains solid despite a challenging environment. We also continue the disposal of Cofinimmo I, which are the mass insurance agencies in France. We have already divested around EUR 110 million of this portfolio since the start of the process in 2021, of which more than EUR 50 million in 2022. We should be able to divest the entire portfolio by the end of this year, which only represents 0.3% of the total portfolio at year-end 2022.
On Slide 11, you can witness our accelerated portfolio growth since in 2018 on average, 14% per year. As I said, Cofinimmo plans to continue the expansion in health care real estate. In the meantime, we kept the debt-to-asset ratio under control around 45% far below the legal covenant.
As you know, Cofinimmo has been a pioneer in ESG since 15 years. As 1 of the 20 leading listed company in Belgium, Cofinimur does set the tone in Belgium. This was again illustrated 2 days ago when Cofinimmo was included in the brand-new Bell ESG index launched by Euronext. On the ESG financing side, we have been added to the top BTI. BTI is an acronym for science-based target initiative, 1.5-degree ESG bond issuer by Euronext. We've also been granted several new BRM certificates, including the first 2 in Germany. This show that on the ESG side, we are seen as a very credible player by all stakeholders.
I will skip Slide 13 to 16. So on Slide 17, you see that the COVID-19 polemic in Europe, fortunately, 2022 has been a year where we saw a reduction of the virus infection and a softening of the measure everywhere in Europe. This has proven a relief for all the people active in the health care sector. Cofinimmo market cap was approximately EUR 2.8 billion at the end of '22. The daily liquidity remains sound. You all know how the share price of real estate company evolved in 2022. As a consequence, the share price shows a discount of 23% compared to the IFRS net asset value per share.
Now let's talk about the property portfolio. As shown on Slide 20, the occupancy rate at the end of 2022 improved by 60 basis points to reach 98.7% compared to 98.1% at the end of 2021. In healthcare, the occupancy rate is almost at 100%. In the office segment, the rate has reached 94.2%, coming from 88% at the end of 2017. This is mainly due to the new rental and the disposal of many office buildings in the Brussels centralized area and periphery. We also see on this slide, the top 10 list of our tenant.
I'm on Slide 21 and as shown there, the weighted average registrar lease term is 13 years, so even better than the end of '20 -- the year before. Let's highlight the figure for health care, which stands at 15 years. Slide 22. Compared to last year, gross yields have shown resilience at 5.6%, the same level as 2021. And on average, our net yield still well above 5%.
I invite now Sebastien Berden, our CEO of Healthcare, to take you through the highlights of the healthcare segment.
Thank you, Jean-Pierre, and good morning, everyone. Our continued investments clearly illustrates our mission to consolidate our leadership in healthcare real estate in Europe. As you can see on Slide 24, we are now active in 9 European countries. Last year, we strengthened our diversification in health care asset subsegment, which is a clear differentiator from our peers. On Slide 25 now, where you can see that our investment activity in health care stayed solid in 2022. Despite the macroeconomic challenges, the group invested EUR 547 million in high-quality health care real estate. The fair value of our Healthcare segment now amounts to EUR 4.4 billion, and we own now 300 sites for above 1.7 million square meters. The following slides records all acquisitions that were made throughout 2022 and our acquisitions in the first quarter of 2022 until today.
Let's move to the Slide 26. Out of this list, I'd like to highlight 2 deals. You can see that we have invested no less than 42 health care deals in 7 different countries, but 2 of those were quite peculiar. Allow me to -- The asset of Neo Roku and Vila Batavia. You will we have financed this through a contribution in kind. You will remember that the structuring was down to paying for an asset or a propco with newly issued shares. It does offer the double merit of acquiring an asset and strengthening our shareholders' equity at the same time. So [indiscernible] in the middle of the slide is a premium asset delivered last summer and located at , the fourth largest city in Europe in Belgium. It has a surface of approximately 10,000 square meters and offers 159 beds and represents an investment value of EUR 34 million.
The ESG and energy intensity credentials of this building of this building are very good. We've also worked on this with [ CareIM], which is a well-known operator in Belgium running close to 20 nursing homes all over the country. And we have signed a double lease for 27 years. Villa Batavia is the second pie we did through contribution kind in December. It is also a brand-new facility delivered a couple of months ago. It is located in [indiscernible] and affluent and green neighborhood north of Brussels. It represents also a very good performance on ESG levels. The investment value is above [ EUR 80 million ] for approximately 5,600 square meter and it offers 82 beds for elderly care people. The transaction allows us to reinforce our partnership with Orelia, a leading Belgian operator running more than 15 nursing homes in Belgium. Orelia has a management that benefits from more than 40 years of experience in running and developing care facilities in different countries.
I will now pass the floor to my colleague, Yeliz who will highlight some projects in her geographies.
Thank you, Sebastien, and hello to everyone. Let me continue by highlighting some transactions in Germany. As you can see on Slide 27, we completed the development of a highly sustainable and innovative health care site in [indiscernible]. This is the first of a larger pipeline of 9 assets in the North Line West [ Sadia ] region, totaling 1,200 units for over EUR 270 million and with deliveries planned in 2023 and 2024. As was announced at end of 2020, this marks an exclusive partnership with a local and experienced developer. This first project in Uli has around 120 beds and is leased to Sonalee Group with a double-net lease of 25 years. In terms of EEG, and this is valid for the entire pipeline, -- the project aims the highest standards in terms of quality and energy intensity with a targeted energy label of 60% lower than the benchmark. In the same city of Uli, we acquired a nursing and care home operated by SunesLeben Grupo as well and with the 25 years double net lease counting 80 bps and representing an investment of EUR 8 million. moving south now to Spain on Slide 28. In 2022, we were very active and continue to expand our footprint in the Spanish health care landscape. We now have 31 properties in operation, 14 ongoing development projects and 2 land reserves there. to name the 2 achievements. In Madrid, we acquired the nursing and care home operated by Emera Espania and ticking all the boxes, a prime location in Central Madrid with 113 beds, a triple net lease of 12 years, welcoming a new operator to our portfolio and a sustainable building with an energy label A. And then in the region of Andalusia, we are building a state-of-the-art nursing and care home in the city of Marina -- we're aiming for a brilliant excellent label for this very modern building, which will be delivered by end of 2024. The -- the building with 180 units and an investment of EUR 12 million will be operated by Grupo reps with a 30 year triple net lease. And finally, we go to Finland to Jovan -- after the successful delivery and immediate full occupancy of a first brand-new nursing and care home with 57 beds, operator [indiscernible] Lona Group asked us to build an extension to this residence with an additional fixed bets and based on a double net lease of 20 years. Both assets represent a total investment of EUR 17 million and have a low energy intensity label A. We can now move on to Slide 32 for the breakdown of our distribution networks, which is now mostly comprised of the Pubstone portfolio. Our 2 portfolios, Pubstone and Cofinimur, represent at end December 2022, a fair value of EUR 500 million. Both networks together cover 330,000 square meters and count now 939 assets. Let me remind you that for Topstone, we have a long-term contract with a solid tenant, which is the brewer AB InBev, both in Belgium and in the Netherlands. On Slide 33, an update on the other part of the distribution network, which is COFINImuC. It is composed of insurance agencies of French insurer mass and almost entirely sold. At this day, 253 assets have already been sold or are in the process of being sold. This represents a fair value of almost EUR 110 million. The remaining assets are worth around EUR 2 million. Let's now talk about the office segment as of Slide 35 -- the fair value of the office segment represents EUR 1.4 billion at end 2022, and counts 57 sites or 450,000 square meters. On Slide 36, you can see on the map and the bar chart that our strategy is to create value through capital recycling, upgrading and rebalancing portfolio towards Brussels Central Business District. We are also speeding up the divestments in the decentralized or peripheral regions. In total, since 2018 and up to end 2022, we sold for approximately EUR 200 million in those areas, most of them above the latest fair value.
The following slides give a chronological update and this -- on this, and I will highlight only 2 or 3 transactions. We can skip Slides 37 and 38. And then on Slide 39. We see the divestment of 3 office buildings in the decentralized area of Brussels for EUR 52 million. On Slide 41 now, the divestments of the Omega Court building amounting to EUR 28 million above fair value.
On Slide 42, you see the future acquisition of the 89 building in the heart of the CBD. We've done this deal in order to optimize future redevelopment towards a new sustainable flagship.
And then moving to Slide 43. At the very end of 2022, we signed and closed the divestment of 3 office buildings in Brussels periphery, Basel decentralized and to approximately EUR 43 million above fair value. So you see a lot of achievements and many more to come. I will now hand over to Jean Kotarakos, our CFO, for the financial results.
Thank you, Yeliz. I will now go through the financial results. Let me begin with the overall portfolio. We can see on Slide 45, the gross rental revenue grew almost 9% year-on-year. This represents a like-for-like rental growth of 4.5%, mainly driven by new lettings, renegotiations and indexation.
On Slide 6, we see that the net result from collectivity, the EPRA earnings reached EUR 222 million, up 5% compared to 2021. This gives us an EPS of EUR 6.95 per share, higher than the outlook and including the effect of divestments and capital increases totaling EUR 0.85 per share. It was EUR 0.59 for the dilution and EUR 0.26 per share for the divestments. After having commented, the net result from collectivities, let's have a look at the other items that bring us to the IFRS net results on Slide 7. The financial instruments net income of [ EUR 270 million ] is mainly due to the fair valuation of the hedging instruments, in line with the change of future interest rates on the financial markets over the period. These are noncash items. The result on the portfolio amounts to EUR 44 million versus EUR 7 million in 2022. The net reserve group share stands at EUR 483 million or EUR 5.09 per share versus EUR 260 million 1 year earlier.
Regarding our balance sheet structure on Slide 48, there are no surprises. The total assets over passed EUR 6.8 billion and 91% of it are investment properties at fair value. They are financed by EUR 3.6 billion of equity and EUR 3 billion of financial and nonfinancial debts.
On Slide 49, we analyze the change of the debt to asset ratio between end 2021, where it was 44.2% and the 31st of December 2022, where it was $45.6 million. The slightly higher ratio year-on-year comes primarily from the investment properties -- sorry, from the investments in investment properties, plus 4.6%. The dividend paid out, plus 2.8% and other balance sheet items was 0.7%, offset by divestments, minus 1.2%, write-backs in mark-to-market, minus 0.6%. The net result from collectivities, minus 3.3% and capital increases minus 1.7%. So the divestments that are already signed with me the debt-to-asset ratio decreased by approximately another 1%.
On Slide 15 and depending on the APA concept, you find the most relevant you can see that the NAV is somewhere between EUR 116 million and EUR 118 million -- sorry, Europe share -- that's enough per share. I can comment here on the evolution of the IFRS NAV between end 2021 and 2022, where it stood at EUR 12 per share versus EU 74 to the, meaning, in fact that it increased by 7%. There are 3 main drivers behind this increase. First, the deduction of the 2021 dividend in Q2 of EUR 6. Secondly, the impact of the 4 capital increases of the period being the contributions in kind of May, the optional dividend of June and the 2 confirmation at the end of December. The net impact of these 4 capital increases in the IFRS NAV is new. Third, we need to account for the accumulation of the results for the period, which generates a positive impact of approx EUR 15 per share. Hence, if we summarize, we had an IFR NAV of about EUR 102 per share at year-end less EUR 6 for the dividend, plus EUR 15 of actuation of profit, which means about EUR 111 at the end of the period.
Let's have a look now at what we did on the financing side as of Slide 52. With EUR 140 million of equity rate to contribution in a introductional dividend, we see that this kind of equity issuance were possible despite the macroeconomic environment. On the debt capital markets in early January 2022, we issued the success, a new sustainable benchmark bond of EUR 500 million that was oversubscribed 2.5x at a rate of 1% on 6 years conditions we were conditioned where 1 can only dream of today. Our SSP credit rating was confirmed in March 2022 as long -- for the long term, BBB with a stable outlook.
As what our financing activity in 2022 is concerned, we can only conclude that we've been very busy, as you can see here on Slide 54, all in all, we added or refinance for around EUR 1.1 billion of financing in 2022. As a consequence, we have now more than EUR 2.5 billion in sustainable financing under the form of several instruments, including a sustainable commercial paper program.
Slide 56 gives a detailed analysis of the debt increment we use, highlighting the ongoing access to diversified funding sources, among converse relation with 20 leading banks. Moving to Slide 57. The average debt maturity amounts to 5 years -- at the same time, the average cost of debt has only slightly increased in line with the budget at 1.2% in 2022 versus 1.1% in 2021.
On Slide 58, we can see that we have no maturity left in 2023 and that the debt maturities are well spread. At end of December 2022, the headroom on the committed credit lines is about EUR 779 million. Return to Slide 55. And on the hedging side, we see that more than 90% of the group's current debt is either fixed or hedged until 2025. This percentage is even at 100% in Q3.
And now I'll pass the word to Jean-Pierre for the highlights on our investment budget and the outlook for 2018.
Thank you, Jean. On Slide 61, you will find the breakdown of our initial 2023 investment budget as we publish it in our press release this morning. As you can see here in the pie chart, we plan investment of EUR 300 million gross of which the lion's share will go to health care real estate. Most of this amount arises from the execution of the ongoing development project shown under the heading committed. The amount for offices and distribution network are mostly CapEx related Important to note that we also foresee to accelerate our divestment for which we target EUR 300 million. This implies that the net investment would then be nil and be neutral on the debt-to-asset ratio based on the budgeted assumption. This gives us, as shown on Slide 62, a portfolio outlook for 2023 of circa EUR 6.4 billion. . Let's now have a look at the outlook for 2023 on Slide 63. Taking into account the investment estimate just described, our outlook for 2023 stand at EUR 6.95 per share at the level of the net current result from core activities for the year 2023. This include the pro rata temporary dilutive effect of the capital increase carried out last year in 2022 estimated at EUR 0.18 per share and also the effect of the divestment carried out in 2022 and the ones budgeted in 2023 estimated at EUR 0.28 per share. For your convenience, we also added a line showing the expected denominator for the computation of the 2023 EPS. Those figures allow us to contemplate a gross dividend of EUR 6.20 per share for 2023, stable compared to 2022. We want to thank you all for your attention, and we are here now to answer your questions.
[Operator Instructions] We will take the first question from the line of Celine Huynh from Barclays.
I just have 1 question, please. Can you talk about your hedging policy for this year and how you're seeing cost of debt evolving in '23, '24 from the 1.2% currently.
I'll give the word to Jean for this question. .
The hedging policy is to the stated policy is to hedge at least 50%. But you see that in practice, we are 1,200% for the year 2023 and around 90% for the year afterwards. So that's a very safe hedging policy based on the hedging that we have already accumulated in the year before. So a very interesting interest rate and you have the full disclosure in the annual report with all the lines of the portfolio. Yes. And thanks to that, the interest rate, the average cost of debt is expected to slightly increase in the budget for 2023 and to marginally increase the year afterwards as it was already the case in the previous estimation that we commented here last year. So we know that the cost of debt is slightly increasing year-on-year.
So can you give us a number? .
I haven't said the number. it's slightly higher than the $1.2 billion, slightly higher than the EUR 1.2 million.
And Jean, can you say a word about refinancing at the moment, if you were to go to a bank currently, how would the cost of that look like only?
Refinancing, as you have heard earlier, we made new -- we added new lines or refinance line for EUR 1.1 billion in 2023 -- 2022, sorry. So which means that we -- besides the bond of early January, we also set up a new syndicated loan and a lot of refinancing in addition. And we can see that the average condition are really comparable to the 1 of the year before. That being said, you should also take into account the fact that banking financing is much cheaper than the quotation that you will see on the Bloomberg, for example, for the bond. So the bond is not -- the quotation of the bond is not a proxy for new banking credit lines. And so now if we had to add a new line for the long term, we should be somewhere above 100 bps depending on the duration and the bank.
So in a nutshell, no refinancing need with the current perimeter in '23. And if we had to add bank financing, we still have it at very attractive conditions. .
We will take the next question from the line of Veronique from Kempen.
A few questions from my side. Maybe to start off, if you could give an update on your view towards operator health. Yesterday, we saw a press release from our closing also 2 homes of Cofinimmo. So I was curious to get -- if we could get an update or a view on that, please?
Yes. Well, of course, the topic in Brussels and in Belgium is something we are discussing with them for several weeks, and they officially finally inform the market, I would say, and their employee only yesterday. It's basically following the decision which was taken already back in September, you remember that the new management has announced new strategic priorities. So for us, it's only 2 homes basically, it's part of the strategy. And you know that we have EUR 300 million of divestment for this year. So there is, of course, many different topics in there. More globally, going beyond ORPEA, and I would say that on ORPEA, the biggest news is the entry of the CDC and the other insurance companies that are part of the consortium to basically enter into the equity ORPEA, which was, of course, a big relief for many people accept the current shareholders, of course, which are basically completely diluted. So ORPEA will go on.
On globally the operators, where it's clear that there is a concentration of end of with a low occupancy, high energy cost and indexation. Now on indexation, the big topic for them is not that much the rental, but it's staff because, as you know, staff represents 60% of -- on average on the cost of an operator. So basically, those who were a bit aggressive in terms of greenfield or an acquisition are a bit suffering. And it's mainly due to the fact as well that the COVID supporting schemes have all phased out. So clearly, since a few months, it's probably for certain of these operators a bit challenging. And of course, we are in a lengthy discussion with some of them -- and they are -- they have planned.
We discussed that with them. And it's not because you have suddenly an announcement of an operator, which at the end of the day, take the decision to fight for bankruptcy that is not something we were not known before. And the ongoing divestment process of certain of these assets started already since a while. It's only a few. And basically, there is nothing more than what has already been disclosed in our press release. that basically is worth to notice at this time.
Okay. That's helpful. And Jean, on those disposals, you targeted around EUR 300 million. You already signed some in the market. How do you see the market at this point in time? And also in terms of valuations, so the yield for offices came down 30 bps year-on-year, which was quite surprising by view, but your values only went up 2.4% like-for-like. Is that -- does that mean that ERVs in the office -- in your office portfolio are coming down at the moment?
Well, first, a comment when you look at 2022, many people were projecting that would be impossible for us to sell our target at EUR 140 million. And you see that we have been able to do it at fair value. So at least that was for 2022, which was already quite a challenging year. Now if you look at offices, if you some offices, they are still during this first quarter in the CBD transaction that are made at yields that are very close to precrisis. So I'm not being naive. I know that they will be here and there some challenge and some yield adjustment. But I think I don't have any crystal ball, so I can either take my very pessimistic head and say, look, it would be dramatic and will be really a big challenge or I prefer to be pragmatic and to continue on the same trajectory that we have done last year, knowing that the work we have done during the last 4 years by repositioning our portfolio to the CBD is paying out today because, as you know, and it's something which is not specific to Belgium.
When you look at the office market across Europe, the CBD markets are resisting quite well. And I will remember that in the CBD, we are in the best area, which is the Leopold District which is clearly the prime area of the CBD. And the occupancy, by the way, in the Leopold District is also going up. So yes, it's not easy, yes, it's challenging, but I think we should also not forget the reality that basically we have some flexibility with our portfolio to basically pick up the asset we consider that are liquid because, for example, they can be repurposed in residential or because we received non-solicited offer that we consider attractive because there are still money looking to be deployed in the -- in this segment, either by local developer for residential purposes or by family offices that still wants to expand in the real estate?
Okay. That's clear. And for the amount, the EUR 300 million, so you will be sort of like net 0 investor. LTV expected to be stable, but taking no negative revaluation into account. Should you perhaps do more? Or are you thinking about a scrip dividend or more contributions -- well, you're not investing that much but contributions in kind. Do you maybe take the LTV down a little bit further?
It could be. But we had to pick up a number for the budget. What is important is that we want to be a net zero investor. So the divestment could go up as well it need be. And contribution in kind are indeed a bit special deals because basically, come up after more of the time, very long discussion. So it's very difficult to predict the timing or even the feasibility, but it's clear that the fuel contribution in kind, we have made last year clearly had a favorable effect on our.
We will take the next question from the line Steven Boumans from ABN AMRO.
I've got several separated questions. The first 1 is what is the average residual lease term for the French portfolio. And what can we expect from renewals in terms of leasing spreads and our CapEx needs for funds First?
Well, it's something we negotiate with our French operators. But you know that if the contract is coming close to the end, then discussions are ongoing for renewal. There is nothing different, frankly speaking, compared to the last years with a big -- so it's an ongoing process. It's all portfolio outside of Belgium, but you know that in France, the lease term are limited by low and much lower than here in Belgium. So I would say it's business as usual and no difference compared to the 2 previous years.
Okay, clear. Then I have a question on the investment markets because where you're still doing some investments. I saw in Belgium, there was also due in Q4 for a 4.5% yield that seems quite sharp to me. Could you please elaborate right that's a good deal? And furthermore, what you expect in terms of yields in the different countries that you are active?
Yes. Well, those transactions are basically prime assets in terms of quality of real estate localization. And it also reflect the market yield, and we have basically asked to several stores to double check that for prime asset of this type Basically, it was fully in line with the market yield. Now the fact that in contribution in kind, of course, is the advantage of everybody, including the other shareholders. And I think that's why it was positively perceived by the various observer.
Now if I look at Europe, yields have to move, clearly, but the situation is very different from 1 country to the other. I think the most severe movement will probably come from the U.K. and from the Nordic countries, the U.K. for reasons that are specific to the U.K. And you know in what situation the U.K. economy is, which, of course, has an impact on local financing. So -- and I think if you look at the various reports of the U.K. real estate companies, you see clearly a move on the yield in these countries, which is clearly visible. In the Nordic countries, these countries have been living at very aggressive yield for a while. And that's why in Sweden and Finland for at least non-prime assets, you will see some serious yield expansion for the prime, it will a bit less, but still the market was leaving. I remember still in '21, you had deals well below 4% on this market.
Okay, clear. And it also implies for -- let's say, we see some acquisitions in Q1 or Q2, you expect them to be only slightly higher yields than what you report today for the Continental Europe.
Well, it depends highly on the type of assets in the country. And don't forget that the indexation is also has, of course, an impact not to be disregarded because you cannot just forecast get expansion without forecasting the indexation, which is, of course, always applicable.
Okay, clear. And last question is on ERVs. Are they fully reflective in the lost valuation? Or is that not fully reflected in the terminal valuation, for example?
So could you repeat the question?
On valuations, is the effect of indexation and inflation fully reflected in the ERVs already? Or is that lagging a bit? So maybe not in the terminal value?
No, it's lagging behind. So do not increase as fast as the contractual rent.
We will take the next question from line of Francesca Ferragina from ING.
I have a few. The first one is related to the guidance. Can you explicit the organic growth that is implied in the full year indication. Can you hear me?
Yes, yes, yes. We are just taking the right page in the slide, we will direct you then.
Francesca, what is precisely your question because we looked at the outlook, okay? And the precise question is?
Yes. Looking at the guidance, what is the organic growth that is implied in this number?
Well, it depends what you call organic growth. What you see on Page 63 is that in the EUR 6.95 per share of EPS that you announced for next year, you have the impact of the disposal for EUR 0.28 negative. The impact of the dilution for EUR 0.18. And if you deduct that, you will find the number lying EPS of EUR 7.41 per share. And this includes what I would call the organic growth, which is just indexation improvement of the occupancy rate and so on. And then the acquisition that we have foreseen and which is, I would say, the normal trend for a company like Cofinimmo. And so that is EUR 0.46 per share.
And maybe a couple of questions on the disposal. First one is if you are keen to sell also some health care properties. And second, if you can make a comment and update about the partnership for the office portfolio?
Yes. So in the EUR 300 million, there are a few health care properties that are in there, yes, but the big chunk is offices. And regarding the partnership, I will just basically repeat what I said at the beginning of last year, given of the current macroeconomic context, we want to keep our full freedom in deciding which offices we want to divest. And you've seen that we already started last year, and of course, this year will be more important. So to keep this full flexibility and freedom and have a partner at the same time with by definition with whom we would have to discuss, agree, convene, board meeting and so on. To basically agree on the list of offices to basically divest, it will delay us significantly, and we would lose agility. And that's why, for the time being, the focus is more on keeping this agility, while, of course, once the context and the dust will have settled we will then, of course, consider more seriously the opening of the equity.
Okay. That's fair. And [indiscernible] argument on the tenant, can you elaborate a bit about the discussion you have with tenants when looking at 2023. Do you have any pushback on indexation, or have you seen any difference in the payment behavior so far? Can you give some more color on this?
Yes. Well, the indexation went well as you can see in 2022. And you see that the peak of inflation seems to be behind us. So basically, there is no -- not a general context of continuous concern about the indexation. Yes, it's still high. But I would say, financing are high and what is very important for the operators is the authorization that they are received to increase the daily rate at a nursing home. And you see that many region of countries have allowed exceptionally operators to raise the daily rate more than once a year. Now it depends from one region to the others. But you see that basically, they are able to increase their income as well. And that's reflected also in many local newspapers that basically the daily rate of nursing home are going up, like many other prices. So the capability of this operator to basically increase the daily rate, which is happening more and more now is, of course, a big relief for them.
We will take the next question from line of Herman Van Der Loos from Bank of Degroof Petercam.
After all these questions, I still have a lot left. First of all, to be clear, the disposals in offices that you are planning, it concerns disposals like now. It's not -- we are not talking about the disposal of a chunk of Cofinimmo offices.
No, we are talking about asset by asset. So indeed, it's not of the entity itself.
Okay. Okay. And you confirm your stance that you are not in a hurry and you wait better times to sell minorities taking Cofinimmo offices?
Well, let me maybe nuance in this. If someone would be interested to take a trend, we will always listen, but we are not I would say, focusing on this, a dual track would still be possible. But given the ambition we have in terms of divestment, we want to make sure that we keep full flexibility. Now if the 2 are compatible, why not. But so far, we consider that basically time is of the essence. So that's why I react a little bit when you say we are not in a hurry. We are in hurry every day for what we are doing, but we remain open. But for us, the priority is to keep our agility and our flexibility.
Okay. Then on Slide 63, if I depart from '23 underlying and then I see there is a negative impact of dilution. You're talking about dilution of past capital increases. So you don't expect any capital increase or optional dividend this year, right?
Indeed, it's only the dilution of the capital increase that we have made in 2022.
And for the sub dividend of this year, Herman, because you know that it's something we only decide a few days or weeks before May. So it's something which is always done every year depending on where we are at that time and the market condition and so on.
Okay. I understand. We see the impact of the dilution. We see the impact of the disposals, but I understand that most of the acquisitions planned for health care are already committed or a very, very, very small part is hypothetical. Do I have to understand that these acquisitions in health care are going to be done at the end of the year or that they are already included in the underlying because I don't see any impact actually dilution, disposable, but no positive impact from acquisitions? Or is it already included in 2023 underlying?
It's in the underlying. You can say, you can consider that it will be spread over the year because it will mainly arise from the delivery of the projects that are already ongoing. And so you have the full list of the projects with the bids that are foreseen for the delivery. So you can modelize that quite precisely, I think.
Okay. Okay. Fair enough. And then on Orpea, I'm sorry to come back with that bear with me. My question is Orpea to be very, very, very practical. You are affected by 2 nursing homes. You are -- I understand that you are willing to sell them. Are you going to get a termination fee for Orpea. So you're not trying to have a new an operator, you're trying to sell it and you get a big attenuation fee. And could you tell us how much if any...
There are ironclad contract on these assets. So if Orpea wants to stop their business there, it's their decision, but our business is to make sure that the contract is respected.
Think about 6 months termination fee or 1-year termination fee or?
No, no. There is -- why are we talking about termination fee? I mean there is nothing in the contract. It's basically a long-term contract.
Okay. So you have to negotiate...
Well, they will have to negotiate. I'm not in a negotiation mood.
Okay. I understand. So you say I have iron contract, so I wait for them to come and they didn't?
It's a unilateral decision on their side to do this in part of a global plan and so on. So look, we always -- we are in business to do business and to make sure that we have a win-win situation. But if you have a counterparty, you're taking a unitary decision, where, first, you see and you have a contract, and that's basically the other party has to make an attractive proposition. But just saying stop the business, fine, but as long as you pay the rent.
Okay. And in the disposals, the 2 assets of paying versus where you are in this part of disposals, I guess.
Well, these 2 assets, if there is no final agreement with [indiscernible] because I do not exclude there would be final agreement because basically -- and you know that our colleagues in Brussels have 5 assets. They come up with something, but who knows at the end, these 7 assets will effectively be closed. So before talking about settings, they can be part of the EUR 300 million, but let's see what happens at the end.
Could you tell us what is the underlying occupancy of [indiscernible]
Sorry, can you say it again?
What is the underlying occupancy of [indiscernible]
I don't have it on my heart, but the [indiscernible] is an asset which is very well located. [indiscernible] is a business which is ongoing for a while. I don't have the occupancy here available. But I don't think that the occupancy is a topic of negotiation because, as you know, we are not responsible for the occupancy of the assets. So for me, whatever it is, it's not part of the discussion.
Okay. And then my last question, do you confirm what kind -- could you have some flavor on the profitability of operators. Could you tell us if most operators can cover rents with EBITDA, 1.5, 1.6, 1.8 or do you know some operators in your portfolio that are struggling? Or you are happy with the health care operators in your portfolio?
Well, it's, of course, when we look at globally operators, there is no large or big topic. We know a few houses that in terms of the post-COVID time, and we are talking some types of house that have been just opened before the COVID a bit struggling. So basically, it's something we follow carefully, but no large and hot topic.
We will take the next question from Markus Kulessa from Bank of America.
Just as a follow-up on the last -- just last question. Can you give maybe your average rent to EBITDA over the whole of your portfolio? And then confirm or not if the 2022 rent to EBITDA is going to improve in '23 with the price increases your operators are passing through or it's going to stay stable?
So basically, the average effort rate, of course, depends from 1 country to the other. But usually, if I take global figures from the whole portfolio, and around 60%. I'm not sure I -- is it -- because I was listening to your question and thinking at the same time. Did I answer to your question, or there was a second question in your question?
Yes. Second question if rate of your tenants, what do you take? What this ratio exactly just to bring it to rent to EBITDA?
The rent to EBITDA is approximately 55% to 60% all over the portfolio. However, it can be quite different from country to country.
Yes, of course. I wanted the average. And is it going to improve? Or do you see it's -- or maybe it's too short -- if it's going to improve in '23, thanks to the price increases? Or is it just going to stay stable?
'21 was, of course, a difficult year because of COVID. So '21 was a bit down compared to previous years. So we expect that it will improve.
Okay. Then on the -- you talked a lot already on the acquisition. So I just wanted to know the yield the net yields you're signing the office disposals, maybe the EUR 85 million already signed? And then also the yield on cost on average roughly on the EUR 300 million investments for 2023.
Well, most of the office we are selling are for redevelopment purposes. So the yield might be quite different from one situation to the other. If you look at the net yield of our portfolio is in one of the slides, I think it's 5.2% for the offices globally. Now we are setting a bit more outside of the CBD than in the CBD, where yield a bit higher. But I think you can take the 5.2% as average for the portfolio, and we have not computed for the EUR 300 million, what would be exactly the yield on cost because we do not consider it -- we don't consider this EUR 300 million as one portfolio. It's basically filled in by many different assets from different segments as well. So for us, it's not relevant to have 1 yield for this EUR 300 million.
Okay. Just to get an idea if you're developing or getting the projects in at 4.5 or 4, and then maybe we end up March 5 to see if potentially.
Well, the yield on cost -- well, coming back on the offices, the average yield of the portfolio is 5.2%. You know that the yield in the CBDs are much lower which means that if you divest outside of the CBD, yields are clearly well above 5.2% and closer to 7%, I would say, on average. In terms of development, we are not redeveloping ourselves. Office, we do that from time to time, but I would say one object every 3 years. So for the global Cofinimmo, the total impact is not really important. What the buyer is doing is relevant to us because if we know that they are redeveloping an asset in a ready purposes. We know the type of margin they can expect. And of course, we use this in our negotiation for the price of the assets to be sold.
Yes. Okay. I was already on your development pipeline on your EUR 300 million investments what the yield there would be versus...
I think the yield also differ from one country to the other. So I don't have an average yield, but...
You mean the development pipeline that is still already...
Yes, the EUR 300 million, yes.
Yes, the average is around 5%, but that has been said several times before.
Has not changed, yes, around 5%, yes.
Okay. And then the last question, just, did you look at the Deutsche Wohnen portfolio in Germany? And maybe to -- would it yes.
We look at everything in the market. So -- and we never comment on any specific one. But to the best of my knowledge, it's still on the market.
Okay. And was it -- is it better quality than your existing stock, so at the right price could be interesting? Or is it just not interesting or maybe...
I would tell you those who cannot afford or kind of buy the old thing that is scrap. Those who are looking at it seeing that prime quality, and I would tell you there is a lot of things different in this portfolio. So you have quality-wise, certain sub portfolio that are clearly not at our standards and there are others that closer to our standard. So it's a mix of very different sub portfolio which reflects basically what Deutsche Wohnen has done over several years. They had already divested, as you may know, certain problematic portfolio. So it's a wide mix, I would say.
Okay. And you just said it's still in the market? Because yesterday, Aedifica said it's put on hold.
Maybe they have better information than us. It means that they were in there. But my knowledge, it's still on the market. I've not seen any announcement that it was off. And the operators, the -- the sale of the 2 operators might be, that I've heard strong rumors that they were not trying anymore to sell the 2 operators. I don't remember exactly the name of the second one. But -- so I think the best is to ask [indiscernible]
We will take the next question from Edoardo Gili from Green Street.
First question I have is on the revaluation over Q4. It sounds like you had a negative revaluation unless I'm mistaken. I was wondering if you could give some color around perhaps country by country breakdown or just maybe a high-level information on which country saw a different revaluation evolution.
Yes, you can look at the breakdown in the press release, and so the table is provided, I don't remember on what page, but it's given by segment and subsegment. So you see that health care is positive for the full year, but slightly less than what it was at end of Q3. For the office same story, and for the distribution network, it's slightly negative while it was very, very slightly positive at the end of Q3. Now if you look at differences, I think that the main item is the U.K. where you see an increase of the cap rate, which is clear coming from the market. And I would say that all the rest is more linked to specific items because we do a review with the independent value worth item by item. And you also have the impact of the Netherlands where you have an increase of the real estate transfer taxes as from the 1st of January and that accounted for EUR 30 million of devaluation of the Dutch assets between Q3 and Q4 because we took the hit in the accounts of Q4 and not in the accounts of Q1 2023. So there too, in the Netherlands, you see a big difference compared to Q3.
Understood. And in terms of the debt to assets ratio, which currently is at 46%, obviously, it's a wide range between 46% and your covenants at 65%. I was wondering what type of LTV are you comfortable with over the rest of the year? I know you're underwriting a similar LTV for 2023, but is it 50%, which would be a ceiling or higher than that?
Anyway, the policy is to be around 45%, and that's a loss for some flexibility, of course, above or below 45%, but there is no plan to deviate from that policy of around 45%.
And I think the fact that we are targeting to being Net zero investors, I think, shows that clearly, it's an important topic, and we are managing on an almost daily basis and not being a net investors, I think, is already hinting at what we target of doing.
Understood. So you're basically implying that you're expecting the like-for-like revaluation is not going to be negative throughout the year.
Well, there would be some yield expansion. Let's not be naive. But I think on the health care side, of course, we are helped with strong index cash flow and low risk. So if you look back, I know it's not a proxy, but the financial crisis 2008, there has been almost zero yield expansion. I don't know, you cannot compare, but I think nobody expect that this asset class except in the U.K. will and maybe in the Nordics to be consistent with what I said, you can expect a significant move. And on the distribution, I think we basically exited the most risky portfolio, which was the mass portfolio, very risky portfolio for that angle because we're talking about basement of buildings all over France and 250 different locations, including some village and so on. So they're very happy to have done this divestment timely before this crisis. The pubs portfolio long-term contract and so on with solid indexation. So not much to say there. And in the offices, as you can witness from the different European markets, the CBDs are resisting quite well, where it's most challenging is basically the second and third tier markets. Well, in Belgium, it's being a small country, you are in Brussels or outside of Brussels, we don't have second, third or fourth year market. But you see that we have exited a lot in there also quite fast and before this crisis.
Understood. That's very clear. Just in terms of your care home portfolio in Brussels, and this is not an Orpea question, but I think the local regulators also perhaps stepping into kind of fix some of the occupancy issues and maybe oversupply as well. I'm just wondering, what could be the impact on your portfolio? And also, what is your view for the next 5 years of the Brussels market?
Yes. Well, in terms of demography, there is nothing to expect during the next 5 years. Secondly, the decree of the authorities to basically take back the license for empty beds is to the best of my knowledge being challenged by the association of operators. And third, the decision of Orpea is, of course, shutting down 7 homes in Brussels is, of course, probably a relief for the other operators because if they indeed execute and pay the bill, well, basically, it means that there will be less vacancy on the Brussels market. So I think our understanding from this association of nursing home in Brussels that their lawyers are quite confident that they will succeed in course to have this decree being removed, which, by the way, is a bit of a cynical approach of the authorities because they are basically enacting this or publishing the decrease just at the end of the COVID, where everybody knows that they have been suffering and where also there has been admissions stopped by the authorities. So it's a very political move that is being challenged. So we'll see.
Understood.
If I can add just one small element. The decree only applies to the private segment, which, of course, is very discriminatory. And that's why we -- the association of private nursing home operators think they have a good case to challenge the decree.
Understood. And my last question is around profitability for operators, perhaps in Brussels across your portfolio, but I'm also curious about Spain and Italy, where I think this data is not as clear as some other countries I think you mentioned earlier 55% to 60% effort rate, but if you have a little bit more color on profitability of those -- of your operators in the specific geographic segments.
Well, we don't have a country where we are especially concerned by the profitability of operators. I think, indeed, during the COVID time, the occupancy in Spain was low compared to other countries because there has been a lot of bashing against private operators. Now this is also the country where there is the biggest lack of infrastructure and what we understand from at least all operators there is that basically the occupancy is moving up. So they are confident that they should go back to the pre-COVID time, thanks to this huge lack of infrastructure, which is quite typical on the market in Spain. And you as well that our Spanish portfolio is a big chunk of it are brand-new assets. So in terms of basically quality because we are still making a lot of development there we are talking about high-quality building.
And anything on Italy specifically?
No. I think Italy in terms of growth globally and something which has nothing to do with the current macroeconomic context, but in Italy, the growth is slow because to build a new asset, you get the license to operate after having erected the building and not before. And a few province are changing this now, but not many, which means that there is a big slowdown already before the COVID of the new building there. So the growth in Italy, I don't expect it to be very vivid in the coming years.
And I also remind you that we are located in the area of Milan. So we have concentrated around Milan and around Venice. So obviously, excellent locations as well.
Okay. Understood. But you don't have a high-level figure around effort rate for these 2 countries nor Brussels specifically, correct?
No, no.
We will take the next question from line of [ Lynn Hautekeete ] from KBC Securities.
First question is on the offices. I think 2 months ago, you gave guidance on the divestment of EUR 200 million in 2023. And now you give EUR 300 million. The difference does it come from higher expectations on yield expansion? Or are you just more confident on the market?
No, it's a purely budget process. Sorry to be sometimes a bit practical, but the EUR 200 million was given before Christmas. And we were, I would say, at that time, starting or analysis and the EUR 300 million is just a result of finalizing the process. And there is, as I said, the big chunk is offices, but there are also a few other assets in there from other segments. So it's not that we were convinced that it would be EUR 200 million and not more. It's just that basically, we have -- we kept appraising the market about our process. And I think we said EUR 200 million. And then we said in January, we knew that it would be more than EUR 200 million, but we did not finalize yet or budget and now it has been done, but it's nothing more than that.
Okay. Clear. And then are you talking to buyers who are looking to re-purpose to residential estate or to redevelop the newer offices without mentioning name.
Yes, these are, I would say, the usual suspect, but we have also -- we received unsolicited offers from people who basically want to keep the asset as an office. So of course, the most important for us is to know what type of buyer we are talking to because, of course, the price is different, whether we know that the assets can or will be re-purposed in something else because we know exactly what is the margin that a buyer can do on redevelopment. And of course, we incorporate this into the price because we won a chunk of this margin.
Could you put a percentage on that, maybe to see how many buyers are interested in re-purposing?
Well, I can just give you an example of past transaction, but if I look at 2 assets we have divested during the second semester last year. We had 15 bidders on one and 17 on the others. And both of them were to be re-purposed as a private apartment.
Yes. Okay. Another one I had was on the German operators, [indiscernible]. I was wondering if you're still collecting any rents -- of rents. And if not, if you have banking guarantees and for how many months?
Well, basically, the -- we already took for 2022 a write-down of EUR 1 million. And for '23, we have budgeted some months without rents, but discussions are moving well. So it's -- we took quite a conservative approach in our budget on this.
Okay. Clear...
But I remember that it's a very, very small percentage of our global portfolio.
Okay. And then another one I had is on the operating margin. It went down a little bit in 2020, presumably due to an increase in personnel expenses and inflation. How do you see 2023?
Well, when we basically [ purse ] our operators, as I said before, I hear a big relief from them that they can increase their daily rate because I think it was -- in certain countries, there is even question of a special identification for energy costs. So that's something that also may happen. But basically, you feel that the first priority of the operators as it was before the COVID is to find skilled staff people. So cost is, of course, something to manage. But as long as they can pass on the increase to the customer by increasing their daily rate, which most of the countries showed a lot of flexibility on that flexibility on that. The biggest priorities remain to find skilled people because, let's face it, the COVID period has not been very attractive marketing tool to have people joining the health care industry at large. And you know that in hospital having nurse and so on is also a big issue. In many hospitals, you have certain services that have been shut down because of the lack of personnel.
And what about the margin of Cofinimmo, the operating result portfolio, the operating margin has gone down a little bit. What do you expect in 2023?
Yes, in the budget, we have a higher margin than that we have shown in the press release of yesterday for 2022, oh, this morning, sorry. So an improving operating margin for Cofinimmo, yes.
Okay, clear. And then maybe the last one. There is oversupply in Brussels that could be diminished with [indiscernible] leaving the market? Do you see regional clusters of oversupply in other markets?
Well, I think the Brussels has to do a lot with a plateau in demography. We're basically in 10 years from now, you will see again a need for more beds. We don't have, in our geographies where we are present today a comparable scenario that we see with oversupply of beds.
We will take the last question from the line Frederic Renard from Kepler Cheuvreux.
I have only 1 question following on the questions that have been raised so far. Just on the outlook I'm wondering your current cost of debt is an average 1.2%. You have a high share of commercial papers in the market. I'm just wondering where do you see that cost evolving entering into 2023? And what do you have for your budget?
It's -- I think, as Jean hinted earlier, it's a bit higher than 1.2%, but not that much. So we're still well below 2%.
Still well below 2%.
Yes.
There's no further question at this time.
Okay. Anyway, I think that most of you know us pretty well, so don't hesitate to reach us, should you need any further clarification. And in the meantime, thank you for your attention and always happy to exchange with you about your views also on the market or on the industry. Thank you.
Thank you for joining today's call. You may now disconnect.