VGP FIRST LOOK : 1H23 Results, focus on cash returns
The statement focuses on the cash generation potential from the announced JV plan with DEKA Immobilien for 20 buildings in Germany. The first closing is expected to recycle 450m by 3Q23 at a yield of 4.8%. That is better the reported yield of the German portfolio at 4.9%. We believe the full completion will come before FY24 at the same conditions and recycle 700m in net cash (1.1bn portfolio). The set-up is similar to the previous Allianz JV via 50/50 partnerships that are equity accounted for and also financed by vendor loans (at 30% LTV). We like the focus on the cash return potential in the statement as this should put any fears on leverage or future pipeline financing to bed.VGP reported 1H23 operating profit (Prop. consolidated) of 70.2m vs our expectation of 69.5m. The IFRS figures were impacted by 27bps of yield expansion on its owned portfolio (from 5.29% To 5.56% at FY22) and a 40.7m valuation loss on the JV (50%). We believe most of that yield expansion is situated over 1Q23 and has stabilised now. The NTA per share declined as a result 2.7% to 82.1 vs. 84.4 at FY22-end. The development pipeline is slightly ahead of our expectation at 732k sqm vs. 714k sqm expected. (Conf.Call at 10h30 CET)
Investment case : Logistic warehouse demand remains robust in most area's including their German home market. The indexation of rents thanks to inflation should compensates a large part of the yield compression as excess inventory is worked off in certain regions. Neither do we see much risk to the dividend payments as the rental income is not affected by FV adjustments and should cover a relatively stable dividend policy. Over the longer term, we believe that logistics development players benefit from fundamental trends driving demand for logistics assets (e-commerce, nearshoring and increased storage needs) as Europe needs to rebuild its independence from other continents. We believe VGP is well positioned to take advantage of these trends given the company's strong management, its large land bank and continued cooperation with Allianz, DEKA or potential other JV partners.
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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