CTP, Continental Europe’s largest owner, developer and manager of high quality industrial and logistics real estate by gross lettable area (GLA), reported strong like-for-like rental growth of 4.8 percent in the first quarter, across its investment portfolio in European markets.
Net rental income rose 37 percent to €107.2 million in the first three months of 2022, compared with €78.1 million in the same period of last year. For projects under construction at the period end, CTP’s market-leading yield-on-cost was a solid 10.2 percent. The Group’s owned investment property portfolio grew to 9.3 million sqm of GLA following the integration of Deutsche Industrie REIT-AG into CTP’s consolidated financial and operational metrics in February 2022.
Remon Vos, CEO said: “We entered 2022 focused on capitalising on the significant expansion momentum the Group achieved last year but are now closely monitoring for any impact arising from the accelerating macroeconomic headwinds and the war in Ukraine. To date, CTP has not experienced any material effects following Russia’s invasion on 24 February, however, the conflict has compounded construction supply chain disruptions that arose during the pandemic and ignited inflation to the highest levels in decades. We have been largely able to mitigate rising costs thanks to our in-house construction team, centralised procurement capabilities and ability to offset inflationary pressures through increased rents both on new developments and within our standing portfolio. Looking forward, we remain confident the European industrial and logistics sector will continue to benefit from positive tailwinds as occupiers seek to enhance the resilience of their regional and national supply chains, through nearshoring operations as well as maintaining higher levels of stocks close to their main markets, which will underpin demand for space. This durable demand for high-quality assets from a diverse range of occupiers, combined with historically low vacancy rates in supply-constrained markets, is now translating into meaningful rental growth across the CTP portfolio. Equally, we believe the European industrial and logistics sector continues to offer significant development potential, with structurally higher rates of long-term economic growth projected for our core CEE markets in particular.”
Disciplined and profitable growth of CTP’s pan-European portfolio CTP’s highly profitable development programme continued in line with expectations in Q1 and remains well-positioned to capitalise on the strong occupational demand and low vacancy rates within the Group’s core markets. Progress in the first quarter of 2022 includes:
• New construction projects totalling 233,000 sqm commenced (31 Mar 2021: 374,000 sqm), taking the total projects under construction as of 31 March 2022 to 1,144,000 sqm, of which 44 percent are pre-let securing €29 million of contracted rent.
• Completion of 47,000 sqm of high-quality developments (31 Mar 2021: 34,000 sqm) of which 68 percent are pre-let, securing c.€4 million of contracted rent.
• For the total projects under construction at the period end, yield-on-cost remained strong at 10.2 percent despite increased construction costs, exceeding the Group’s target of over 10 percent (31 Mar 2021: 11.5 percent).
• Some 2.8 million sqm of landbank secured, almost all via options, increasing the Group’s total landbank to an industry-leading 20.3 million sqm (31 Dec 2021: 17.8 million sqm), offering the development potential to almost double our current portfolio.
Proactively protecting and enhancing both income and capital value
Through its long-standing client relationships and proactive approach to managing its investment portfolio, the Group continues to maintain strong operational performance and portfolio metrics including:
• Low vacancy rates of 6 percent (31 Dec 2021: 6 percent) and high client retention rates of 95 percent (31 Dec 2021: 92 percent).
• An attractive portfolio WAULT of 6.3 years (31 December 2021: 6.0 years).
• Sustained rent collection levels with 98 percent of payments being received before falling due (31 Dec 2021: 98 percent).
• Capturing the reversionary potential inherent in the investment portfolio with 4.8 percent like-for-like rental growth recorded in Group’s investment portfolio, across both new lettings and lease regears.
Placing ESG at the core of what we do In line with its ESG aspirations, CTP continues to seek to deliver meaningful value for all stakeholders. Strategic priorities for 2022 include the build-out of its solar capacity, bolstering its ‘carbon-negative’ operations and improving its transparency and disclosure by enhancing sustainability performance reporting and obtaining key ESG ratings.
Key ESG initiatives commencing in Q1 2022 include:
• The construction of solar power plants across the entire Hungarian portfolio, with the first phase of four buildings at CTPark Budapest West (Biatorbágy), Dunaharaszti and CTPark Budapest East (Üllő). Each of these plants which become operational in 2022, covers an area of 9,000 sqm and can generate c.500 kWp power. Further plants will be developed with a capacity totalling up to 3,000 kWp this year.
• Ongoing S&P CSA and ESG evaluation and GRESB assessment, as well as preparing for the external quality assurance as required by the commencement of the EU’s Corporate Sustainability Reporting Directive (CSRD).
• Ongoing commitment to provide financial and operational support to help the humanitarian effort following the Russian invasion of Ukraine in February. To date, the Group has made a financial donation to the UN Refugee Agency (UNHCR), as well as provided vacant warehouse space to local relief agencies for humanitarian supplies at its parks in Hungary, Romania, Slovakia and the Czech Republic.
Robust balance sheet and strong liquidity position
In line with its proactive and prudent approach, the Group benefits from a solid liquidity position to fund its growth ambitions, with a fixed cost of debt and conservative repayment profile. On 20 January 2022, CTP closed a €700 million four-year green bond under its eight billion EMTN programme, and simultaneously successfully tendered €168 million in bonds of its 2025 Series. The pricing of the annual coupon in January’s four-year tranche was fixed at 0.875 percent. As of the 31 March 2022 the Group’s:
• Net Loan-to-Value is 44.1 percent (31 Dec 2021: 42.8 percent).
• Average debt maturity stands at 6.0 years (31 Dec 2021: 6.2 years), with an Average Cost of Debt of 1.2 percent, down from 1.19 percent at the 31 December 2021, of which 99.5 percent of fixed/hedged.
• Interest Coverage Ratio (ICR) of 4.4 times.
• Cash position of €1.14 billion (31 Dec 2021: €892.8 million)
Integrating Deutsche Industrie REIT-AG into CTP Germany
On 3 February 2022, CTP NV announced the completion of the takeover and delisting offer for Deutsche Industrie REIT-AG (now named Deutsche Industrie Grundbesitz AG, ‘DIG’). This acquisition, which includes 90 assets (representing 1.7 million sqm of GLA), provides the Group with immediate scale in Europe’s largest economy. DIG is being integrated into CTP Germany and CTP’s wider pan-European operating platform and brings a unique platform for both new and brownfield development as well as a significant opportunity to drive value through proactive asset management. Notable operational progress made during the two months since the takeover includes:
• The appointment of two Regional Development Directors who starts on 1 June and 1 July 2022, along with CTP Germany’s Regional Construction Director, ensure the Group is on track to have recruited a team of 25 by the end of FY 2022, and a team of 50 by end FY 2023. The Berlin, Dusseldorf and the southern German office are on schedule to be opened during H2 2022.
• The immediate implementation of CTP Germany’s four-pillar portfolio strategy of ‘hold and maintain’; ‘hold and invest’; ‘hold and convert’ and ‘sell’. In particular, the proactive management of the portfolio to unlock significant value through improving occupancy levels and capturing rental growth is gaining momentum with a total of 22,000 sqm of net lettings secured reducing vacancy by over 1 percent.
• Like-for-like rental growth across the German portfolio of 2.8 percent was recorded for Q1 2022.
• Capitalising on the significant tenant-led development and redevelopment opportunity that exists in and around the existing portfolio footprint, focusing predominately on last-mile and urban logistics assets. Sites for new projects with GLA of c.200,000 sqm, with the potential to deliver €14 million of contracted rent, have been identified, with the start of construction anticipated within the next 18 months.