Recalibration to further drive organic income growth
- FY23 DPU of 15.693 Ects in line with our projections; attractive yield of more than 11%
- Absence of income from the divestments has been partially offset by organic income growth
- Leverage has been maintained relatively well at c.40%, despite revaluation losses
- Maintain BUY with TP unchanged at EUR2.00
FY23 revenues and NPI at EUR216.5m and EUR134.3m. FY23 revenues and NPI experienced a decline of 2.5% and 1.8%, respectively, primarily attributable to divestments totaling around EUR237m since FY22. In FY23 alone, EUR196.5m in divestments contributed to this decline. The absence of income from Maxima – which is undergoing redevelopment, the EUR55m project is expected to be completed in FY25 – further impacted results, accounting for an impact of c.EUR2.6m in FY23. However, on a like-for-like basis (excluding divestments), NPI would have seen an increase of approximately 4.1%, driven by improved portfolio occupancies and positive rent reversions.
FY23 DPU of 15.693 Ects is in line with projections. FY23 DPU was in line with our projections, suggesting a current yield exceeding 11.1%. The DPU experienced a y-o-y decline of c.8.7%, attributed to divestments, redevelopments, increased financing costs (up 32.8% y-o-y), and the absence of capital distribution top-ups. Divestments contributed to a 0.65 Ects decrease, while the lack of income from redevelopments resulted in a 0.68 Ects decline. Higher financing costs accounted for a further 1.458 Ects decrease, and the absence of capital distribution top-ups led to a 0.365 Ects decline. Excluding the impact of these disruptions to earnings, the DPU would have only declined by around 4.1%, partially offset by higher rents.
Looking forward, we anticipate that the EUR196.5m in divestments completed in FY23 will have a temporary impact on DPU. Despite the proceeds being primarily allocated to loan repayment and into AEI and rejuvenation projects, the timing differences in the completion of significant rejuvenation projects (e.g., Nervesa 21, Maxima, etc.) are expected to result in a near-term drag on earnings. The completion and stabilisation of these assets are crucial to reversing this impact and contributing positively to the overall earnings trajectory. Our revised projections estimates that DPU will return to growth trajectory in FY25 when the Maxima redevelopment is completed.
Portfolio valuations declined c.1.5% over the past six months. Overall portfolio valuations have decreased by approximately 1.5% since June 2023, with a y-o-y decline of about 3.0%. The Light Industrial & Logistics (L/L) portfolio continues to exhibit a valuation uplift of around 1.4% in 2H23, following a 0.8% increase in the first half, primarily driven by higher rents. Valuations for the L/L portfolio reported an improvement, while only the UK and Germany portfolios saw a slight decline due mainly to the depreciation of the GBP against the EUR, and a c.40bps expansion in cap rates for Germany assets. Valuations of office and the other portfolios reported a decline of 4.6% in the 2H23, adding to the 3.9% decline in the first half. Revaluation losses were primarily attributed to 20-40bps cap rate expansions and more negative views in Poland and Finland.
Overall, CERT’s portfolio reported a c.90-100bps expansion in FY23. However, higher rents and the valuers’ expectations of further rental growth have helped to partially offset some of the valuation declines, preventing an even wider dip in valuations.
