Warehouses De Pauw SA (WDP) Earnings Call Transcript & Summary

Good morning, everybody. You see here in front of you, and again, a very happy man. It's not so long ago and only a week ago, we have presented a unique future project for us and for our sector. And first of all, I want to thank you all, all the stakeholders for the full support we get for this unique project. Everybody supports this deal, and this is very convincing for us. So thank you all for the support and with -- everyone with who we -- by who we discussed this unique project last week altogether. But besides that, it is very well, and I'm also very happy that we can show today that in between, the operations continued even when, let's say, group management is working on a strategic project, our operations continued to work on the priorities we give them at the beginning of this year. This shows that we are really growing as a company and that we are ready for the future because we can really say they delivered as foreseen on occupancy, on new projects, on acquisitions, and we did what we had to do. And if we look into detail on the countries, well, for example, in the Netherlands, we delivered 2 very, very nice products for [indiscernible] and showing scarcity of land, we started a new redevelopment on the same location in Wehl for Kuehne + Nagel, Kuehne + Nagel, who is already 50 years active in that region and just across the Mars factory, the biggest production of Mars in Europe. Well, there, we started together to redevelop locally because indeed, there are no new land positions available. In Belgium, we did a cross-border development with Seafrigo and our French new client. In France, even without ARGAN, we were really growing and up to maturity with a vision of a EUR 1 billion portfolio. And those -- that growth was based on cross-border relationships, DHL, Kawneer growing further together with Seafrigo. Romania, there, we extended with existing clients, and we could also attract a new industry client like Siemens. And above all those fantastic new value-adding projects and developments, acquisitions, we also did asset rotations for more than 100 million. That's clearly a new driver. Some of you ask why now? Well, because we are big enough to do it. We can do that without pressure on the short-term EPS. And besides concentrating on the operational priorities, we also started with the new building blocks for 2030. We onboarded Spain and Italy. Country managers are in place and helped from the group, they are now making their [ hands] . In the beginning of the autumn, they will come to us and say, look, this is how the country looks like, this is the competition, and this is how WDP can make the difference there, so preparing for '27. And Germany, Germany is really ready for take off now. You will see soon. And above that, adding and onboarding the new countries, we also could realize a new land bank in core Western Europe for 500,000 square meters for EUR 100 million. And it is still growing. So future development potential everywhere in core Western Europe. And all of this, within our EUR 500 million envelope per year. So we can manage it all within our plan and extend 2030 projects. And at the demand level, well, there, we can really say that it normalized. Situation normalized, but yes, still [ accept ] the more cyclical element, the macroeconomical stock buildup that we all waited for in the beginning of the year, but that is postponed due to the war in the Middle East. And indeed -- but besides that, we see really different activities. For example, in North of France, Libercourt, there was a building emptied by an FMCG client. Well, but another new 3PL came to us and said, look, I only use part of the site, but I see different tenders, I see possibilities and give me the chance to fill it up by the end of the year. And in the meantime, half of the building is relet and he is looking for new tenders and new clients. New cross docks, meaning that e-commerce is further growing. We see our clients looking for cross docks. SMEs are active. So we really can say now that our clients accepted volatility as the new normal, and they all make strategic decisions again. But yes, and we all have to wait for an economic recovery to have, let's say, our normal, most easy, simple business, but we always say the best has yet to come. So all in all, the figures, they are what they need to be convincing [ gray ] all the news you got until the beginning of July and last week. So yes, we are happy with the fact that we could realize a unique step forward on our European platform and that the operations continued so that we can really grow further altogether in the different countries up to the EUR 20 billion platform. Then it's now time for Q&A and your questions.

Good morning, everyone. So we're open for the Q&A. [Operator Instructions] And the first question is coming from Wim from KBC Securities.

My question is really on the impact of the deal and maybe as we are building our models for, let's say, the next 2, 3 years on '27. And I also asked this question on the previous call where you answered, okay, the '27 EPS outlook of EUR 1.70, which was part of the plan '27 will have a minimal impact. Now what I'm struggling with a little bit is how will you account for, let's say, the costs of the integration? And mainly we are wondering, according to IFRS rules, an all share deal, which is after the EUR 11 is typically expensed in IFRS. Just want to know if that's correct or whether you will capitalize those costs.

Yes, we will -- you will -- indeed, it's a business combination and then -- but it will remain the same because if you capitalize then in the -- on a simple portfolio deal, then it will also be charged in the end through the portfolio results. And indeed, those expenses on the transaction costs will be expensed via P&L, but you can filter them out based on the rules of the EPRA earnings.

Okay. Okay. So we're trying to figure out, as you said in the past, plan '27 will be a 6% CAGR. So we're starting from EUR 160 million for this year. Can you give any quantitative impact on -- if you say '28 will have 3% additional growth, can we then just very easily say then next year will be a 3% growth rather than a 6%? Does that make sense?

I think the basis is what we say is that you still have the guidance of our former plan before it was extended and that's the EUR 1.70. We say we do the deal somewhere in '27. And then after the first full year of operation in '28, it will be 3% EPS accretive. Why do we need that time? Because we do not know exactly when it will close the deal. We also need some time to capture the synergies. It takes some time. And then when we have -- and we are confident in that we can capture that EUR 10 million synergies and that -- by the end of next year so that we can go into '28 with the deal mechanics and with the synergies of EUR 10 million and arriving at the 3% EPS accretion based on top of our stand-alone business plan.

But don't calculate already extra earnings per share for '27. It is not a big integration, but it needs time and we need to be able to integrate the teams and the financial integration. So for us, it's about '28. And in '27, we have to work on the deal.

Just a small follow-up, if I may. Just on the timing, if I get it right, the EUR 11 coupon will be paid after the approval of both Boards, but then before the completion. But then once that date is fixed, you will have -- I think there's a relationship to the EUR 250 million portfolio sale of the old ARGAN portfolio. Is there any explanation you can give how you're going to kind of bridge that? Is there additional financing needed? Because obviously, you cannot sell the EUR 250 million at the same time. Any comments that you could give on how you can sort it?

ARGAN has the resources to distribute the exceptional dividend, and it will come from their resources prior to closing. And in the end, yes, we will then take that over in the combined group. But there is no issue whatsoever in terms of resources, liquidity, et cetera. They have sufficient liquidity. We have sufficient liquidity. So we are -- and together, we are even stronger and we are also reinforcing our own resources. And the EUR 250 million has nothing to do -- disposals have nothing to do with liquidity or needing the resources. No, it's just because we want to do a capital structure neutral deal where we say, okay, we do this transaction. Mechanically, it increases a bit the leverage, but we want it to come down again with this around plus 1% LTV and plus 0.3% in net debt to EBITDA, which is broadly neutral. And therefore, we say we will give ourselves the time to then dispose from the group. We will not start selling ARGAN assets all of a sudden from the group, EUR 250 million disposals to be executed by the end of next year.

And to be clear, it will not be, let's say, almost forced sales out of the ARGAN portfolio before the closing. No, it will be until the end of '27 out of the total portfolio. Also, we give ourselves, let's say, as from now, 1.5 years to realize it in the total portfolio. So it's about 2% on the total portfolio by the end of '27. So even after the distribution of that exceptional dividend.

Francesca, you are next.

I have two. The first one is related to the write-off that I see a little bit in France, in Germany, and in Luxembourg. Can you elaborate a little bit on this? And it is fair to expect that, I mean, H2 will be more or less flattish? And also, can you talk about what you experienced in Romania lately because yesterday, another company posted some write-off, talking about more -- and higher competition. That's the first question. The second question is...

One by one, Francesca.

You go ahead.

Yes. On the slight negative portfolio results, which was almost flattish, but in France, it was related to the building that became partially empty, which Joost referred to, and we expect that to recover that slight valuation decrease as we further lease up the building. In Luxembourg, it was also slightly negative in Germany because of shortening -- simply the shortening of leases was quite limited overall. And indeed, our expectation is for flattish portfolio results indeed. And then for Romania, we have on there, we have the discussion with the valuators and with our teams over there in June, July, and we actually concluded that the valuations in our Romania portfolio are quite robust on all their components as well in ERV and in yields. And for example, on ERV, we haven't seen a massive increase in our ERVs in the Romanian portfolio. They gradually increased over time. And let's say, we are -- we don't give incentives, so the rent is what you see is the cash rent. So there is no differential between the facial rent of a contract and the economic rent. And you can also see that confirmed by our EPRA net initial yield, which is the same as the top-up net initial yields. So there, we feel comfortable. And in Romania, we haven't seen a big change in competition. It's like in any other markets.

I think we can say that Romania is a stable country with stable rents, stable valuation and, let's say, a normal, stable competition. And on the other hand, if there would be more competition to come, that would be a good message and good news, okay? We can live with it. We can live with more competition like we have here in Western Europe and more competition means that there is more activity, that there is more liquidity and that should give them also, let's say, better valuations. But for the moment, there is no more competition, but we see some parties looking to Romania. But for the moment, there is not more competition than, let's say, 6 months ago. So for us, stable market, good projects, and nothing changed.

Yes, and supported also by a very good land position with the necessary infrastructure so that we can really have a good offering towards prospective clients for development projects on which we focus over there.

And then the second question is on the demand. I mean, I think that your message is very positive and very clear as well. But just looking at the lettings that you have done so far, how much is small tenants, mid, small unit and how much is bigger tenants, big boxes? Can you give a sense?

There are -- it's a little bit, let's say, it's also depending on the region, Francesca. For example, in Belgium, there are almost no big boxes available. There was somebody looking for a bigger -- but he could not found it. So he is now looking for, let's say, eventually 2 or 3 places. In other countries, there are some. So it's depending on, I would say, the regions. But yes, we see them, but sometimes they are also not available directly. So there are no big boxes available in Belgium, in France from there. There is, let's say, a bigger stock of big boxes. So there, you have them, but their demand is also faster, bigger. So...

But I will also add, yes, last year, we said it was predominantly coming from the smaller units up to 10,000 square meter. And now as from this year, we can really say it's more balanced again. And there are also, again, more tenders going on for bigger services.

Yes, that's right.

[indiscernible], you are next.

I got 2 quick questions, if I may. Could you indicate what was the lease renewal rate in the letting activities in the first half? And what you expect for the remaining leases expiring for the second half? And second question, the increase in property charges in the second -- in the first half, is the increase by 11% a function of the larger portfolio size or were there any specific reasons in some countries?

On the lease renewal rate there, we look at it for the full year and for the full year, we expect it to be around 90% normalized, roughly around 90%, what we expect for the full year. And in the increase in property charges, nothing very specific, a bit seasonal. And let's say, all the property charges and the G&A expenses you see are in tune with our full year budget and with also our view that we can maintain the 90% minimum operating margin, EBITDA margin.

Pierre-Emmanuel, you are up next.

Actually, I have 2 follow-up questions. The first one is on the ARGAN integration. I understand that you want to exercise one option on the land that they have close to Lyon in France. Just trying to understand, do you intend to capitalize interest on the acquired land bank, especially on this one, so the Lyon land plot? And is it part of the financial synergies of EUR 10 million that you expect?

No, because it hasn't been bought yet. It's -- that's a good thing in -- they have limited land in their balance sheet for -- mainly for extensions, and that's limited. And there, for these assets -- for this project, which you are referring to, it's an optional land. But obviously, if we purchase that land and start to work on a project, then obviously, we will capitalize the interest on that. And no, it's not in the synergies.

But only we will capitalize like we do it in our...

We keep our policy, [indiscernible] policy.

And what could be the amount of this capitalized interest?

That's simply a function of the volume of land you buy in the future. It's like our own portfolio as well. When we buy land, we do a project, we start capitalizing interest on it, the introduction of the CapEx.

And for the rest of the 750,000 square meters, are you intending to capitalize interest for the rest where there is no land option but already owned by ARGAN?

If we start to work on it, yes. But that's very limited. It's a very limited amount. It's not making the difference, it's only perhaps EUR 1 million...

The second one is on the 2027 expiries. So just to have a bit of color here. So approximately 10% of your portfolio is due to renewal in 2027. Have you already received any termination notices from the tenants so far?

No, not specific.

Not specifically, no.