Operator: Hello, everyone, and thank you for joining the CTP Q3 2026 results webcast. My name is Lucy, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2 to remove yourself from the question queue. If you have joined via the webcast, you can ask a text question via the Q&A tab. It is now my pleasure to hand over to Remon Vos, CEO, to begin. Please go ahead when you are ready.
Remon Vos: Good morning, everyone. It is me speaking from our Prague office at CTP here. Happy to report good, strong first 9 months of the year. We have seen lots of leasing compared to same period 2025, approximately 23% up year-on-year. That has been good with different clients taking space in different locations. Poland has done quite good with take-up from existing clients, but also from some of the Asian companies we work with. We have seen bigger deals of 100,000 square meter in our projects along the German border.
Remon Vos: We have seen in Hungary, Lenovo. We have also seen in the Czech Republic along the Prague-Plzeň corridor, where we have been able to do deals with companies involved in the pharmaceutical industry, but also other logistics, 3PL, and other industries. Romania, Bucharest, have seen significant take-up and deals done, which is good so far. Spread around the region.
Remon Vos: So far, the different changes and things happening have been good for the region, good for CTP. We have been able to benefit from this, as we can see in the amount of take-up on a year-by-year basis. The drivers, what these company do, many involved in manufacturing, and then CEE is a good place. It is cost-effective, business smart. Other is related to consumer spending. We also see supply chain move to the region as we have seen before, but also we see that companies professionalize.
Remon Vos: They become more maybe lean and mean or different mindset. Some companies still move away manufacturing or activity from Western Europe to Central Europe. The same happens with companies moving in from Asia. All kind of different industries. We spoke about it before, free time, fashion, pet, but also semiconductor industry.
Remon Vos: Others are the new car industry, the Tesla factory in Berlin doing quite well. We have companies supplied to that, but of course, also we have a lot of automotive industry in the region. The new automotive I mean, so the EV, electric vehicles, which BMW, Debrecen, but also some of the Asian companies who have been active, the Koreans in the region, but also other car makers, which is also part of our business and the clients we work for are involved in somehow.
Remon Vos: So very much a mix of locals, but also multinationals involved in a variety of different industries. As you remember from our rent roll, we are not overexposed to any company in particular. I think our biggest tenant is good for 2% of our total rent roll. Talking about our existing clients, that is also where most of the business comes from.
Remon Vos: Approximately two-thirds of all the leases we do, we have done with existing clients. We are actively hunting for new clients, for companies to connect to and actively chasing and doing lead generation, which is quite successful so far. In numbers, 90% of our clients, we have been able to agree renewals or retention, if you like. Our clients are good, healthy, strong companies. 99.3% pay their rent mostly on time, and together it is more than 1,700 different companies who we work with.
Remon Vos: The integrated business models, our CTPark concept has worked well over the past decades, and we continue to extend our parks. We also continue to improve and provide different facilities and amenities on site. Energy has been important and remains a focus point to make sure that we do have the right amount of energy on site.
Remon Vos: With regards to the energy business, we do not only make sure that we have enough energy on site, but also we look after distribution of energy within the business parks. We store energy in our parks with BESS, but also we create energy sometimes with the rooftop solar plants, and that is good. I wanted to talk to you about the different businesses and activities we have at CTP N.V., as we do talk about operator developer, whereby obviously the operator looks after the income producing, developer is the in-house construction company.
Remon Vos: With regards to the operator, that means around EUR 450 million of free cash on a 95% occupancy. We are working on increasing occupancy. With regards to developer, we have around 1.7 million square meter of buildings under construction. So far delivered this year, 561,000 square meter.
Remon Vos: The 561,000 square meter is around 10% yield on cost, and we will continue to complete more properties during the course of this year. Once we have the 1.7 million square meter complete, that will produce an additional income of approximately EUR 130 million. With regards to the growth engine, I can maybe sometimes we refer to it as a third activity, the expansion growing with tenants in other markets, which we have done successfully over the past decades.
Remon Vos: One example is Poland, where we entered in 2022, where we have a portfolio of approximately 1.3 million square meter now income producing and growing. Other examples are Italy, where we recently entered, and we have been able to complete this year 166,000 square meter, and that is located south of Milan, and there is a lot of pipeline in Italy.
Remon Vos: Also south of Italy, between Rome and Naples, where we have opportunities, but also in Padova, in the north, where we have started construction. It is a new project. Also, happy to report that we are making good progress in Vietnam. In Asia, we see opportunities there to work for existing clients, and we have two sites secured, and we are working on growing more and doing more. I mentioned energy in our parks, and there is definitely opportunity to grow that business.
Remon Vos: As we learn from the pilot projects we have done in Germany so far, in Wuppertal, for example, which we agreed to allocate another EUR 20 million, and we will also continue with the projects we have in Mülheim and Düsseldorf to make sure that the energy concept will also be implemented in those new developments.
Remon Vos: What else I can report on is the progress we are making here at CTP N.V. to become a better company as the focus has been on bigger very much. For us, having reached now this level and getting prepared for the next growth, we want to make sure that we become a better, stronger, more efficient, more effective company, so we can do the same amount of work with less people. That was what we are working on hard. That includes leadership change.
Remon Vos: That includes also getting new software, new systems, new processes in place, which will make us more competitive and will then support our future and growth plans. I will hand over to Maarten, and I am available to answer any of your questions later on. Thank you.
Maarten Otte: Turning to the financial highlights. Portfolio like-for-like rent growth came in at 4.8% for the first nine months, driven by continued rent reversion capture and indexation, illustrating our capability to grow our top line consistently. Occupancy remains stable at 93%, with a WAULT up at 6.3 years and client retention at 93%. The target is to increase our occupancy level. Gross rental income increased by 12.5% year-on-year to EUR 632 million. Net rental income increased by 12.8% to EUR 690 million, maintaining an NRI margin of 98%. Annualized rental income reached EUR 871 million. Together with EUR 130 million of potential annual rent from the 1.7 million square meters we have under construction today, we have clear visibility of our target of over EUR 1 billion rental income in 2027.
Maarten Otte: This rental income generates a strong free cash flow of over EUR 450 million to reinvest in our business and is the basis for our self-funded growth. Our company's specific adjusted EPRA earnings increased by 9.8% year-on-year to EUR 365 million. This translates into EUR 0.75 per share, an increase of 7.4% year-on-year. We remain on track to deliver our full year 2026 company specific adjusted EPRA EPS guidance of EUR 1.01 to EUR 1.03 per share. Now looking at the valuation results. For the Q1 and Q3 results, only the IPuD are revalued. In the third quarter, our revaluation results was EUR 139 million, bringing the nine-month net valuation results to EUR 56 million.
Maarten Otte: Year to date, we have a +EUR 250 million revaluation coming from our developments, with leasing and construction progress, more than offsetting the -EUR 150 million revaluation in the standing portfolio in the first half. For the year-end, we expect stable yields and stable ERVs. Gross asset value reached EUR 19.4 billion, up 9.8% year-on-year. EPRA NTA per share increased to EUR 20.78, up 4% year-on-year. In terms of capital allocation, our focus is to complete the pipeline we have under construction, with limited land bank acquisitions, which are mainly in our growth markets, as in the core markets we have sufficient land. We also announced a share buyback program of up to EUR 100 million over a 12-month period.
Maarten Otte: At the current level of discount to EPRA NTA, we see repurchasing our own shares as an attractive capital allocation opportunity. Execution will be gradual and disciplined, with limited impact on leverage. We continue to execute on our strategy with disciplined tenant-led expansion, leveraging our existing international client relationships, and applying the build-to-own model that has been so successful in Europe, growing our recurring cash flow, delivering sector-leading profitable developments, and compounding long-term shareholder value. Now I hand over to Richard.
Richard Wilkinson: Turning to our balance sheet and liquidity. In the first 9 months, we have raised and refinanced EUR 2.2 billion of debt, demonstrating our continued exceptional access to capital markets and disciplined liability management. In August, we issued a new EUR 500 million 3-year green bond at a spread of just 65 basis points and a coupon of 3.625%. The order book reached EUR 2 billion, 4 times oversubscribed. This was very attractive funding, particularly in the current interest rate environment.
Richard Wilkinson: The shorter tenor was a deliberate choice, supported by the extension of our EUR 500 million syndicated term loan earlier this year from 2029 to 2032. Our liquidity remains strong at EUR 2.1 billion, comprising EUR 400 million of cash and EUR 1.7 billion of available committed revolving credit facilities. We continue to rebalance our capital structure towards unsecured funding.
Richard Wilkinson: Currently at 72%, we have a medium-term target of around 80%. We have no remaining maturities in 2026. Our next bond maturity of EUR 500 million is in February of 2027. This is our last bond maturity until June 2029. This conservative liquidity structure provides substantial flexibility and a comfortable position in a higher for longer interest rate environment. Importantly, 99% of our debt is fixed or hedged, with an average maturity of 4 and a half years. Our average cost of debt is 3.3%, and most of the repricing of our historic low coupon debt is now behind us, as bonds issued before March 2022 represent only 16% of our total debt stack. We therefore expect only a limited increase in our average cost of debt, even if market rates remain elevated.
Richard Wilkinson: Turning to our key credit metrics, our loan to value stood at 46.6%, slightly above our 40% to 45% target range. Our normalized net debt to EBITDA decreased to 9.5x, and our interest coverage ratio remained at 2 and a half times, comfortably above covenant levels. Over time, our growing recurring cash flow and profitable development, combined with disciplined capital allocation, will bring leverage back within our target range. We do not rely on asset disposals or additional equity to fund our current development pipeline.
Richard Wilkinson: As completed projects start generating rent, they support both interest coverage and the de-leveraging of our balance sheet. Our growth remains underpinned by the growing cash flow from our standing portfolio and our healthy development pipeline, where we target a 10% yield on cost. We remain focused on growing income, improving our credit metrics, and delivering long-term shareholder value.
Richard Wilkinson: Thank you for your attention. We now welcome your questions.
Operator: Thank you. If you would like to ask a question, you may do so by pressing star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2 to remove yourself from the question queue. If you have joined via the webcast, you can ask a text question via the Q&A tab. When preparing to ask your question, please.
[Analyst 1]: Hi. Good morning. Thank you for taking my questions. On the share buyback, I appreciate that your view is driven by the wide gap to intrinsic value. At the same time, leverage is still a discussed topic, and you already said that LTV is going to move back towards your target over time. I think at the CMD, you also mentioned that you are open to selling a couple of standing assets where there is little value creation left for you. This, I suppose, would also help addressing leverage while supporting the share buyback. I am curious, how far are you in identifying these assets?
Maarten Otte: Hi, John. It is Maarten speaking.
Maarten Otte: Can you hear me?
Operator: Mute.
Maarten Otte: I am mute. Sorry for the echo. On the question regarding the assets, we have a clear view, of course, on our assets because we are reviewing them, and our account management teams are reviewing them on a yearly basis. We are now also working, for example, on our budget for next year. So we are going through the assets that we are having. Where is the value creation potential in terms of development? Where are the leases coming up for expiry, and can we basically get that reversion potential? That is a normal process which we do on a yearly basis actually, or even more frequently as we look into the assets. But that does not mean that we, of course. We are open to the idea of selling some of the drier assets.
Maarten Otte: But at this stage, we have nothing planned, as we are basically using also the cash flow to reinvest in our business, and we are comfortable with where the leverage is today. We will go at it as we go. But we know, of course, what our assets are and where is the opportunity. We also get inbound, of course, from some parties on some of our assets. That shows that there is liquidity in the market, that shows there is value. And we will execute them when we think the time is right. Okay, that is fair. And on the quarterly leasing numbers, I suppose it suggests a bit of a softening in the month, which you already mentioned before, I think.
[Analyst 1]: I appreciate that quarterly numbers can be quite volatile, but looking forward at your leasing pipeline, should we expect an acceleration in leasing momentum already in the, say, the next three to six months, or is this something more for next year?
Remon Vos: Well, we have done so far good Q1, Q2, you saw that, and if you add everything together, we are still 22% plus. It is not bad. It is better than it was last year. Typically, yes, indeed, Q3 is a bit slower in terms of take-up and getting things signed, maybe also because of holiday season. But normally Q4 is more active when it comes to closing and signing leases, and we are optimistic for when it comes to closing leases. We continue to see an increasing demand. If you look at the amount of proposals we do, that is much more than a year ago. Also in Germany, by the way, there also we see more demand. We believe that these requirements will turn into deals indeed. Yes.
Remon Vos: We believe the trend will continue, and maybe it is a 30% plus by year-end, let us see, compared to previous period last year.
Richard Wilkinson: Yeah, John, I would say if you look at the comparison 2025 to 2024, we were 8% up this time on a year ago this time last year, and this year we are 23% up. We do think that we see strong leasing, as Remon said. Yeah, one quarter can be a little weaker, but overall, there is ongoing strong leasing demand.
[Analyst 1]: Yeah, that is fair. Given that you said that 30% up by year-end could be possible, it just sounds like Q4 could be another quite a strong quarter, if I understand that correctly.
[Analyst 2]: What is it? EUR 56 million versus EUR 28 million in H1, while the development pipeline came down. Can you explain whether you changed the accounting approach here, or what happened? My first question.
Richard Wilkinson: Yeah. There is no change in the accounting approach. What you see is that as projects approach completion, which is what was happening in Q3, and then as we do more of the construction, the amount of interest that we are capitalizing goes up because the amount of money that we have invested in the IPuD increases.
[Analyst 2]: Okay. That is clear. Then, on the yield on costs, that came down. Could you please elaborate why that is, and provide the yield on costs for your most important countries and how they changed?
Richard Wilkinson: That is to do with the country mix. We target to get above 10% or 10% across the whole portfolio. We were a little bit higher in the first half of the year based on the countries where the deliveries came. In Q3, 2 of the larger deliveries were in Italy, where we know we do not get the 10%. So we are happy that we did 561,000 square meters at 10% yield on cost so far this year. We expect to be at the 10% across all of the deliveries for the year. Yeah. Overall markets have not really changed. We cannot get 10% in Germany, we cannot get 10% in Italy, we cannot get 10% in Poland. We can get 10% or better in most of our other markets.
[Analyst 2]: Okay, clear. So to be clear, for your biggest countries for your delivery pipeline, yield on costs have been flat?
Richard Wilkinson: Yeah. We don't see those really increasing, but we don't see them declining either.
Maarten Otte: You also see that even in the yield on cost, if you look to the pipeline, that remains stable. It's country mix and which quarter you deliver which assets. If you look to the pipeline, that will remain also at 10%. So the 1.7 million square meter remaining we have.
[Analyst 2]: Okay. Clear there. Last one, the EUR 150 million devaluations on standing assets. Could you please break that down in ERV and yields, and also the changes of the key countries there and what we can expect in Q4? You basically already said that should be broadly flat, right?
Maarten Otte: So, if you look to the valuation of the standing, that is the H1 figures you are referring to. Because in the Q3, we only do the revaluation of the IPuD. So what you see is that we are now getting to a positive revaluation result of EUR 56 million in year to date, Q3, which is driven by the positive revaluation we took in the third quarter of nearly EUR 150 million on the IPuD. The standing revaluations happened at the H1, where we, of course, discussed among others, Romania.
[Analyst 2]: Yeah. Oh, yeah. Clear. Sorry for that. Clear. So for H2, you already guided flat ERVs, flat yields broadly.
Maarten Otte: Correct.
[Analyst 2]: For H2. Okay. That is it for me. Very clear. Thank you.
Operator: Thank you. The next question comes from Marius Dybbro of Bernstein. Your line is now open. Please go ahead.
Marius Dybbro: Hi. Good morning. Thank you for taking my question. Just one from my side. You've been targeting a return to double-digit EPS growth. If you think of the pace of the growth we see in this year and the fact that some of that is being supported by capitalized interest, does that double-digit pace return next year, given you have some refinancing to consider? Or does that get pushed further down the line? Thank you.
Richard Wilkinson: No, I think we said in the press statement that we expect to get back to double digit going forward. I think, if you look at what drives that, on the revenue side, it's the growth in the portfolio, it's the indexation of rents also, improvement in occupancy, which is something that we want to get over the next 12, 18, 24 months. Regarding the funding cost, we showed you at the Capital Markets Day, we've basically taken all of the hit in terms of higher interest costs. There's only a very marginal change in the average cost of our funding.
Richard Wilkinson: The one bond that we have to repay in February of next year. We then don't have another bond to repay until the middle of 2029. So, compared to the peer group, we're in a uniquely positive position there.
Marius Dybbro: Thank you. That also factors in a slightly lower pace of that development that you're now targeting for this year and potentially for next year as well. If you can comment on that.
Richard Wilkinson: Look, if we deliver at the lower end of our target, we'll come in just under 10% growth year on year. We're doing that at 10% yield on cost. So that's going to increase our rental income next year very nicely.
Marius Dybbro: Okay. Very clear. Thank you very much.
Richard Wilkinson: So you have to figure that there is always a delay, Marius, between when we deliver. All our deliveries this year will produce nothing in 2026, effectively, and they will only start producing in 2027.
Marius Dybbro: Okay. Excellent. Thank you.
Operator: Thank you. The next question comes from Lynn Bordqut of KBC Securities. Your line is now open. Please go ahead.
Lynn Bordqut: Hi. Good morning, everyone. I have a question on your pre-let level. You were at 55% in Q3. Usually, you are a bit higher by Q3, more in the 65% region. From the earlier question, you are already quite bullish on Q4, and I think you should already have also the figures of October. Just to be sure, do you already see the actual acceleration in the October figures of the take-up?
Richard Wilkinson: Yeah, I think, Remon.
Remon Vos: I think, thanks for that. No, I can also take it. When Richard said 30% average per year, I thought maybe 30% of Q4 compared to Q4 last year. Anyway, let us see what we can do. We are cooking deals, yes, and we are hopeful that we get things signed. I will obviously not now go into details with regards to the I cannot, and I will not with regards to October. So far, it looks positive and good. This is in line. As you know, we are building. That is what we do. We adjust to demand and supply, and we react to that. We have been very enthusiastic over the past couple of years, and we tripled in terms of lettable areas since the listing. Now sometimes we think, well, we have a lot of stuff on the construction.
Remon Vos: We accelerate if we see demand, we slow down, and that all has to do also with finding the right balance on the occupancy. We have been around 93%, would be nice to be 95%, maybe north of 95%. That is what we are doing, and that is mostly for, obviously, if you have a custom build or a pre-lease, that is a bit different. Leasing is on the way. As I said, the numbers do not lie, so we do 22% more. I think indeed, we are going to do more Q4 this year than we did last. That is what I think from looking at the different negotiations we are having. That should result in a higher occupancy going forward into next year and during next year, 2027. I think that is a fair statement.
Lynn Bordqut: Okay.
Remon Vos: Richard? Yeah.
Lynn Bordqut: Okay.
Richard Wilkinson: I was just going to say that overall, we continue to see strong leasing demands, just what you said.
Remon Vos: Yes.
Lynn Bordqut: Okay. The 55% that you are reporting right now does not necessarily mean that Q4 deliveries will be at the lower edge of the 80% to 90% pre-let range?
Remon Vos: No. We are always going to target higher if we can.
Lynn Bordqut: Okay. That makes sense. Thank you so much.
Operator: Thank you. The next question comes from Jonathan Kownator of Goldman Sachs. Your line is now open. Please go ahead.
Jonathan Kownator: Good morning. Thank you for taking my questions. Just follow up on some of these questions and the point that you just made, Remon, about you reacting to demand out there and occupancy. It is really the first time you are seeing the, I think, the pipeline coming down, the construction from 2 million to 1.7 million. So why is that ultimately a sign of lower confidence in the market going forward, or is it just a strategy to increase your occupancy toward this higher level, and perhaps slightly pausing on the development process or just slowing down the pace for a moment?
Remon Vos: Yeah. I think like that. So it is like any company. You react to the market, you adjust to the market as good as you can. We have been super enthusiastic over the past years with building a lot of space, and we have delivered a lot of space. Then also you need to consider your yield on cost targets, no? Because if there is a lot of space out there, we are market leaders in most of the markets where we operate. I think it is important to balance. It is not good that there is too much space on the market, and that because of that, brings prices down. If that happens, then we cannot hit our yield on cost. We like to see a bit more rental growth. So there is also reasons why less supply is not necessarily a bad thing or maybe slow down a little bit. Yeah.
Remon Vos: Focus on becoming a better company. Do not rush into new projects too much. Be a bit cautious and careful. That is what at the leadership here at CTP N.V., but also in the different countries, is a bit of how we look at it at the moment. That is one. I think the other point is, as you know, the German portfolio, in Mülheim, we are going full speed. Other locations like Düsseldorf, even if we would want to build, we cannot because we are waiting for zoning and permitting. Similar thing goes for Brno, where we have been able to acquire more land. But there also we are in the pre-construction, so in the development, design, and permitting phase. That is a bit of indeed, as you said, that is how we read the market, how we think about the market.
Remon Vos: You have seen on the Capital Markets Day event when we had also some of our clients come over also to give you guys a bit of a flavor and feel for what are drivers, where does demand come from. Good. But it is easy to accelerate, let us put it that way. If we feel tomorrow like, "Okay, let us go for 2 million," it is a lot of work and headache and stuff, but I think the organization is also capable of doing that. We can always do that.
Maarten Otte: It is also timing. For example, in October, we bought a new site in Serbia, just north of Belgrade, very good location in the city which we directly started. You might have seen
Maarten Otte: the press release as well.
Jonathan Kownator: Yeah.
Maarten Otte: So it is always those timing movements over the quarter. In Q3, we had the nice deliveries in Italy. In Q4, we start a new project in Italy. That is not yet in the 1.7.
Jonathan Kownator: Okay. Yeah, no, that is fair. Perhaps one other question. I think you highlighted there is some good results in Germany from leasing perspective. How is occupancy progressing in Germany? Are you able to increase that level closer to the rest of the group?
Remon Vos: Well, if we speak about Germany, we talk about two different business lines, right? We have the Deutsche Industrie, the portfolio we acquired, and then we have the new build. Maybe to start with Deutsche Industrie, there is some good take-up. We have spent money on refurbishment. We had a budget of EUR 12 million for this year. We have not been able to spend all of that. I think we are now around EUR 6 million, and by year-end, we will probably be around EUR 8 million. That is important because the Deutsche Industrie portfolio will perform better if we invest in refurbishment. So that is one thing. So we are positive in the means that we know the portfolio inside out and we continue to lease it out, but in order to get rental growth, we will have to invest in some modernization and other things.
Remon Vos: Other projects within the Deutsche Industrie portfolio have been demolished. One is in Wolfratshausen, in the south of Germany, a good location where we are going to do a new development. That maybe brings me to the next activity within Germany. There is a new pipeline. Those are the sites in Krefeld with the SBUs, the small business units, but Mülheim as well as Wuppertal and Rostock. That is now coming to the market. For example, Krefeld also, Rostock as well as Wuppertal, there we see some take-up. So far that is positive, and in line with our expectations. More will come to the market. It will be complete next year in 2027. That also includes, obviously, the Mülheim project, which we talked about.
Remon Vos: In the meantime, there are some other companies, which will be part of the Mülheim project, and we have been able to sign some leases for Wuppertal and for the new build, what we call Highlands. Overall, good progress. If we talk about demand, definitely in Germany, we have seen more demand over the past months compared to the same period a year ago.
Jonathan Kownator: Okay. Thanks. Thank you.
Operator: Thank you. The next question comes from Vivien Maquet of Degroof Petercam. Your line is now open. Please go ahead.
Vivien Maquet: Yes, good morning. Maybe a quick follow-up question, on the capitalized interest element. So you will confirm the EPRA EPS guidance, including this. Just wondering now that there is only one quarter left, could you maybe quantify it, on an earning per share, the impact of capitalized interest? You initially guided for EUR 0.09 per share. I think that going the pace that we have seen of booking, which would more end up around EUR 0.12. Any chance you can quantify that so we can fix that and just see what the underlying is moving?
Richard Wilkinson: Yeah, I think we will, Maarten.
Maarten Otte: Yeah. It might be slightly on the higher end, but let me confirm the exact figure to you, and I will drop an email.
Vivien Maquet: Okay. Thank you. I understand that from the comments of Remon that you cannot comment on the leasing negotiation. But, if I am looking into what needs to be signed in order to reach the lower end of the delivery guidance while keeping the pre-let around 80% to 90%, it means roughly 200,000 square meter of lease to be signed, in project to be delivered by year-end. Just wondering, in that volume, how much are related to especially large, space, like, I do not know, 30,000 or 40,000 plus? Just wanting to understand to what extent the meeting that target depends on a few re-signing or not. I do not know if you can comment on that, it would be great. Thanks.
Maarten Otte: Yeah, it always does. There are always a few bigger leases in there. That is normal. Average leasing size is somewhere between 10,000 and 15,000 square meter. But there are always a few big ones, and we need to work hard to get those. But that is normal. That is each and every quarter. Some of the big ones we do not get, some of the big ones we get, and that overall gives us the confidence on what Remon earlier referred to.
Richard Wilkinson: Q4, right? Spoke to us too.
Remon Vos: Yeah.
Richard Wilkinson: Great. Thank you.
Operator: Thank you. The next question comes from Paul May of Barclays. Your line is now open. Please go ahead.
Paul May: Hi, guys. Thanks for the questions. I think there are three from me. On the first one, capitalized interest, just wondering if you could just remind me. Apologies, I am relatively new to the name. What is the policy on capitalized interest in terms of the rate? Do you capitalize that and what it is you capitalize on? Is it land or is it just work in progress in terms of the things under development? We can move to my other questions.
Richard Wilkinson: It is the average cost of debt that we are having. The 3.3% at the moment. That, I would say, is a conservative method. The marginal cost of debt, as you know, is slightly higher. But what we capitalize on is indeed the work in progress and the land where we have the planning permit and we started the infrastructure.
Paul May: Perfect. Similarly, again, just a definition thing. On the normalized net debt to EBITDA, because obviously your standard net debt to EBITDA is significantly higher. Just wondering what the calculation is on the normalized, and what is the target for reducing that? You mentioned obviously LTV, but net debt to EBITDA is a greater focus of investors these days. Just wondering if you have a target on reducing that as well.
Richard Wilkinson: Yeah. The adjustments in the net debt to EBITDA, basically we annualize the rent on the completions for the past 12 months. Then we add the rent for the completions that we expect within the next 12 months on the income side. On the debt side, if we need to borrow more money to complete the buildings, we add that to the amount of debt. In terms of how do we improve that? We improve that euro by euro every time we invest at 10% yield on cost, because investing at 10% yield on cost is investing at net debt on to EBITDA of somewhere around 6.5, versus our current ratio of 9.5. That would reduce.
Richard Wilkinson: As we grow with investing in a 10% yield on cost, we are improving our cash flow credit metrics, both the net debt to EBITDA and the ICR.
Paul May: On that future net debt to EBITDA on developments, just obviously in terms of yield on cost, if it is debt funded, it is 10 times net debt to EBITDA, roughly. Just wondering what is the assumption on the equity side of things? Is that free cash pre-dividend, or is it free cash post-dividend on the equity side, just to understand how you are calculating that 6.5?
Richard Wilkinson: I think, yeah, we can share with you the calculation. We have had it in most of the presentations. We had it in the last one for the Capital Markets Day, so we can share that with you directly.
Paul May: Yeah, apologies. Me being rude on my side. Then just one on.
Richard Wilkinson: No, no. Do not worry. But we have a presentation. It is easier if we just share it with you. Yeah.
Paul May: Yeah. No, perfect. Then just on the operational side, just we've been seeing some pre-letting going down and down and down sort of each of the reporting periods and pre-let at completion also slightly ticking down. I appreciate it's still within the targets. At what point does that become a concern? Is this something that is likely to continue going down, or is it you're going to cut back materially on development in order to support those numbers? Just wonder what the thought process is from your side. Are you happy at the current levels where they are or not?
Richard Wilkinson: Yeah. They're not wildly out. We've been at similar levels. Sorry, Remon. Go on. You want to go?
Remon Vos: Yeah, we can go. I can go. I'm not going to build anything if leasing it. So yeah, that's it.
Paul May: Okay.
Remon Vos: So-
Paul May: Cool. Thanks very much.
Remon Vos: Yeah.
Remon Vos: And we have grown beyond the. But I can send, Edwin sends to that. We have grown beyond any other, what we ever presented in the prospectus back in 2021, for example. You see zero recognition or appreciation for that in the share price. No, we are not growing. If we do not want to grow, we do not grow, and we do not see a need to grow. We have a lot of land. We sit on it. It costs money. There will be one day when we develop it, or we sell it off, or we do something else with it. That is what we do. And we will come back to you with the numbers of what we have been able to achieve.
Paul May: Perfect. Thank you very much.
Operator: Thank you. The next question comes from Pierre Cloët of Jefferies. Your line is now open. Please go ahead.
Pierre Cloët: Yes, thank you. Good morning. Two quick follow-up, on my side. Just coming back on expected deliveries for this year. Just a clarification. So you are aiming for the low end of the range, and you gave a target around 1.5 million square meters during the CMD. Is this 1.5 million already obsolete, do you think? And should we have in mind a figure closer to 1.4 million for this year? And Remon, you mentioned during the CMD that there are risks, obviously, on the market as always. But do you see a greater risk now than a month ago?
Richard Wilkinson: Yeah. So in terms of the delivery, the EUR 1.4 is the right orientation.
Pierre Cloët: All right. Understood. Clear. The second one is for 2027. How should we view, again, the delivery target given the drop of square meter under construction since this quarter? Do you expect the pipeline to rebuild materially over the coming quarters? Consequently, should we expect a decline of capitalized interest next year?
Remon Vos: We will give guidance at the full year. We always do. When we have the full year figures, and we show you how much we have delivered, we will give guidance for next year, both in terms of deliveries and where we are coming in terms of earnings. You know what our priorities are, increasing the occupancy. With that, of course, as we said before, we will try to grow as much as possible given the supply and demand.
Pierre Cloët: Okay. Just for me to understand, how much time does it take you to rebuild the square meter under construction? Because I imagine that if you are basically pushing towards the end of the year to deliver more square meters, then we should expect also square under construction to not materially improve. Consequently, we should also expect potentially capitalized interest to decline next year, right?
Remon Vos: If there is less under construction, yes, capitalized interest will be lower. Clear. But like I said, we will give guidance at the full year where we stand, then we take it from there.
Pierre Cloët: Okay.
Remon Vos: Next question.
Pierre Cloët: Thank you.
Maarten Otte: As Remon said earlier, we can accelerate quite quickly. We have a lot of projects that we could start if we wanted to.
Pierre Cloët: Can you quantify that? You can give us a broad range, but just in terms of quantification.
Maarten Otte: Yeah. We can take the pipeline back up significantly above 2 million tomorrow if we want to, but we don't, because we don't think that it is consistent with what we've said earlier in the call. Yeah.
Pierre Cloët: Okay.
Maarten Otte: We have the ability to go a lot quicker, very fast if we want to.
Pierre Cloët: Okay.
Operator: Thank you. The next question comes from Edoardo Gili of Green Street. Your line is now open. Please go ahead.
Edoardo Gili: Hi, Remon. Good morning. One quick question on my side on potential disposals, which I am glad to hear that you are potentially exploring. How do you think about prioritizing your book values versus the potential urgency to selling assets considering where your share price is? How attached are you to your book values, considering also that it could impact your LTV if you were to dispose of assets? Thank you.
Remon Vos: There is no urgency. We will do like always, really careful execute on our strategy.
Edoardo Gili: Okay. Thank you.
Operator: Thank you. The next question comes from Greg Simpson of BNP Paribas. Your line is now open. Please go ahead.
Greg Simpson: Yeah, morning. Firstly, on technical, I'm sorry. The release this morning says you delivered 561,000 square meters, adding EUR 23 million of contracted annual rental income. The H1 release said 245,000 at EUR 21 million rental income. It just looks like the deliveries this quarter only add EUR 2 million of contracted rent. Just wanted to check if I'm missing anything. Secondly, just wanted to check in on the latest in Vietnam, how client conversations and progress on the sites are going. Thank you.
Remon Vos: Yeah. Let me come back to you on the rental. I think there's a mistake there. On Vietnam, since the Capital Markets Day event and also since the announcement last year, September 2025, we are making good progress in Vietnam when it comes to preparing the sites with design and permitting. We plan to start construction works either later in Q4 or early in Q1 2027. Those will be pilot projects, right? So where we want to go with some of our existing clients is demand-driven, as we talked about, some pre-leases. That's what we are working on, and then there may be opportunities to accelerate. Let's see.
Remon Vos: We are looking at the market as we've done when looking at other markets previously, how to best enter and become part of the logistics or industrial property market in Vietnam or in Asia. Also, as you know, I guess, well, it doesn't matter, but we also see demand coming from China for our European portfolio being active in Asia with our acquisition and our land acquisitions in Vietnam. That brings obviously closer to Asian and Chinese clients so that being here, being more active here, helps us also to get connected to Chinese Asian companies who are planning to set up business in Europe for Europe, and that's part of where growth comes from. We remember one of our clients at the panel discussion the other day in Warsaw. That's happening, and so far so good.
Remon Vos: It's not just being in Vietnam for our existing clients to develop, but also a side effect of being in Vietnam, in Asia, closer to Chinese or other Asian companies who think of going to Europe and that we now connect to them and extend our ecosystem and client base. With that, so overall positive, and I'm happy that we've and the progress we've made so far.
Greg Simpson: Makes sense. Thanks.
Operator: Thank you. The next question comes from Neeraj Kumar of Barclays. Your line is now open. Please go ahead.
Neeraj Kumar: Morning, everyone. A quick one from my side. You have a EUR 500 million bond maturing in February next year. Just wanted to get thoughts on how you plan to refinance it. Is it going to be through the bond market or bank market? I appreciate you have credit facilities, but I guess you are not going to use that to repay the bond.
Maarten Otte: We have not decided yet, Neeraj. We will see where we are later on. But we have access to both markets, so we will see which one we think is more attractive. As of now, we would need to go to the markets to raise money in advance of them.
Neeraj Kumar: Got it. Let me rephrase it the other way around. The margins I am seeing on the screen is around 150 handle for 5, 6 year bond. Is that something you are seeing in the bank debt market as well, or that is materially different?
Maarten Otte: No, bank market would be cheaper than that.
Neeraj Kumar: Got it. Thank you.
Operator: Thank you. Moving on to the next questions. The first is from George Velikov of ICM Investment Management, who asks, "Maarten mentioned that you expect both ERVs and valuation yields to stay relatively stable until the end of the year. Have you observed any movement in cap rates in your key CEE countries and the Czech Republic more specifically since Q1 this year?
Maarten Otte: No, we haven't. Actually, if you look to the yields that are published by the brokers, you saw they lowered the yield in the Czech Republic. I don't expect that to happen in our portfolio. We don't want to push valuations, but that's also where our belief comes from, stable yields, in the H2.
Operator: Thank you. The second from George. "You have continued to be very active in terms of leasing activity in Romania since Q2 with several large deals since. Have they validated your revised estimate of ERVs for the Romanian market, and should we expect no further downgrades to the ERVs for your Romanian portfolio?
Remon Vos: That's fair. Yes. I would honestly think that we would adjust a little bit upwards the ERVs. Anyway, let's see how we can close. We came down with some of the target rental prices because we wanted also to hit occupancy, and we felt that maybe a bit lower, we could fill up buildings sooner and quicker and secure some business. I think maybe a bit of oversupply vacancy will go away over time, and then, 1 or 2 quarters, maybe a bit into mid next year. Anyway, and then I can see that we can maybe think of increasing. If also not, smaller units can get maybe a higher price in the big box, maybe it is a bit more under pressure when it comes to rental prices. Yes, do not expect to come down further.
Remon Vos: I would rather believe that we would be able over the next, say, 6 months to go up, maybe sooner.
Operator: Thank you. The next is from Eustace DeGeorges of Willow Grove, who asks, "Would you be open to increasing the buyback and proceeding faster with the existing program, should the share price discount to EPRA NTA remain at this historic greater than 35% level for Q4 2026/Q1 2027?
Maarten Otte: Yeah, we think at this share price level, it is an attractive opportunity. We are, of course, bound by the liquidity in the share. We act under the safe harbor rules of MAR. So there is a limit to what we can buy on a daily basis. But at this level, it is clearly attractive.
Operator: Thank you. At this time, we have another question from Peter Crisson, who asks, "Do you think to come to other markets like Denmark, Croatia, or France?
Remon Vos: No, we are not. We are always monitoring different opportunities in markets, but the focus is on, for sure in Europe, on what we have in terms of locations and countries and lands and projects. I think there is not now an urgency or a need or an opportunity to go elsewhere at this moment.
Operator: Thank you. This concludes our Q&A session, so I would like to hand back to the management team for final remarks.
Maarten Otte: Yes. We would like to thank everyone for their attention and their questions today. Wish you all a good day. Thank you very much.
