VGP Cash generation through rent and new JV partners
In this update, we untangle the underlying development gains from the yield expansion onslaught over 2H22. The 2H22 development gain per sqm on new projects was hit by a severe construction cost spike after June. Although this trend has completely reversed to levels below the start of the war, the impact was felt over 2H22. At the same time, VGP sharply reduced its development pipeline from 891k sqm over 2H21 to around 275k sqm over 2H22. The 65 bps yield expansion on its own investments incl. pipeline wiped out our estimate of 120m in unrealised development gains and 87m of realised gains into a 97m net valuation loss. The valuation experts increased the owned VGP portfolio yield from 4.64% to 5.29%. That was a brutal reversion from a 7bps yield compression over 1H22.VGP announced it is about to close new JV-partners for different asset sales at better yields than 5.29% without more specific details. After the 300m capital increase and capex reduction, VGP is well positioned to negotiate portfolio exits to fuel its further growth. We have reduced our IFRS and estimated EPRA EPS for FY23 and also shifted the dividend expectations out by a year. We have reduced our Target by approx. 7% from 150 to 140 and maintain a Buy as we believe the market is under-estimating the cash generation potential over the LT.
VGP NV is a Belgium-based real estate development company that constructs and develops industrial real estate and ancillary offices, which are rented out to clients on long term lease contracts. The Company operates in three business segments: the Development activities segment is focused on the identification and acquisition of the land and development of the infrastructure, the design of buildings, the coordination of architectural and engineering aspects, the administration to obtain the necessary permits, the tendering and coordination of the construction works, including site management, and the facility management of the real estate portfolio; the Property Management and Leasing services segment is responsible for managing the operation of the buildings, and the Facilities Management services segment is responsible for managing the operation of the buildings and performs all actions, such as maintenance services, waste management services and maintenance greenery, among others.
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