Warehouses de Pauw NV
XBRU:WDP
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Warehouses de Pauw NV
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Good afternoon, everybody on this Friday afternoon. We try to keep it efficient and interesting, so I will do a general short introduction and then we are open for all your questions. And I would say, put your questions in the chat already or by hand raise after the intro and Alexander will be our moderator this afternoon.
And also please put yourself on mute so that everybody can hear good what we all wanted to say without being disturbed by other noise.
So thank you all for attending this meeting this afternoon. And I think we can say that we presented this morning a very strong set of results. And not only that, also a higher outlook, 25% (sic) [ 15% ] growth in earnings per share in 2 year from EUR 1 in 2020 to EUR 1.25 in '22. And above this, we also have a unique profitable and secured pipeline in execution of EUR 700 million, which is good for 1 million square meters.
All of this is supported by a solid and liquid balance sheet.
Of course, you will see very nice WDP, but this is the past, and we have to look forward. That's true. But based on those figures and with this balance sheet, we can say that we are ready for the new macroeconomic environment. And of course, all this is only possible, thanks to the more than ever crucial supply chain for every company, from industrials to e-commerce. Everybody is investigating and investing in his supply chain. This is really the basis of everything.
I think we can say that in the more than 20 years, I'm active -- in the logistics sector, our sector has never done and never been so good, thanks to a very stable demand and scarcity of land and new projects. And this makes that we can start by saying that we can at least structurally capture inflation.
And more in general, now -- and this is new, we can create value with the existing portfolio and in our developments. For example, in the existing portfolio, we can capture inflation, for example, on the -- and to our Brussels access, top rents are between EUR 46, EUR 48 per square meter per year. So with inflation, they go now to EUR 52 per square meter per year.
And indeed, let's say, people have to accept it, they don't dispute with us about this because there are -- and see, there is no vacancy in the sector. There are no alternatives, only, let's say, 2 alternatives, one towards enter a new development at EUR 60 and one towards Brussels a new developments at EUR 70. So then, indeed, so we can capture inflation.
And when a building becomes empty we can relet it at higher prices. To give you an example of last week in the Roncq, North of France, I would say not really the most young and the best part of our portfolio, but it's a development of 20 years ago.
There was a tenant inside. The tenant said, yes, I have not enough business. I can't afford and I can't pay the rent anymore. At the end of May, beginning of June, we made an agreement with him that he could stop this rental contract by the first of September. And I would say until a year ago, we would have been pleased that we could relet it by the end of the year at the same price.
Well, today, this building is already relet and not at EUR 38, but at EUR 44 per square meter per year.
And so in general, there is less frictional vacancy because we can rerent faster and even more square meters.
Besides the existing portfolio, there are also our developments. And there, I think I have also a very nice example to show what happened the last year. In Solar, we have made 3 developments the last year of around 20,000 square meters.
In the summer of last year, we made the first deal of 20,000 square meters at EUR 50 per square meter with a yield -- a development yield of 5.5. Then during spring '22 and let's say, what we mentioned as the 6 difficult months because we were negotiating and the world changed, the cost of construction went up. There, we said, yes, after so many months of negotiations, we have to share the pain. And there, we could finalize with a rental contract at EUR 65 and a development yield of 5.25.
And now 2 weeks ago, we could sign another new development at EUR 70 per square meter per year and again, a development yield of 5.5. So we could, let's say, integrate the new elements of our cost into our developments and sell it to our clients.
But more in general, there is a very broad and healthy demand. During COVID, indeed, it was, let's say, driven by the outbound omni-channel, e-commerce, pharma, but it was all concentrated on the outbound logistics. And now it's not only the outbound logistics anymore, but we added as a demand driver inbound logistics. Since indeed, the inbound supply chain is also really disrupted, the globalization came to an end and changed into continentalization.
So everybody is keeping stocks for continent I would say, during COVID, cash lost king, now stock is king and everybody and certainly all the industrial companies, they are really making strategic stocks in order to be able to deliver their clients.
And for the first time, I think we can say that we believe at least in a partially not, of course, everything, but we believe are partially reshoring and absolutely, I would say, in stay shoring. Yes, certain production are added value production. We will come back to Europe, probably not to Western Europe, but more to Central Eastern Europe.
But also, we see that people are enlarging their production, are investing in their production instead of it, let's say, bringing it away. We see that -- we see investments and productions here and enlargements in those investments, which needs of course warehouses.
So -- and it's indeed over all the sectors. Every company has to invest and need space from industrials to e-commerce. And I would say, yes, the future will we go into a recession. We don't know. Nobody knows, I think the macro climate changed. But I can say that, I'd say, at a formal recession into the financial crisis, then we filled our warehouses during the recession. And now they are already full before the recession.
And recession means, in any case, less sales and extra stock. This has a general intro on our figures that you all have been able to look at and then I would say we are now open, Alexander for the questions of everybody.
[Operator Instructions] We have the first question from Frederic Renard from Kepler Cheuvreux.
Thank you for the short introduction, which is very insightful. I have 3 questions, which I prepared. First, on the optional dividend that you didn't make. In the past, you always communicated to the fact that you always wanted to finance 50-50 debt equity or growth plan. How does the fact that you didn't do a scrip dividend, maybe accelerate the needs for new equity?
Yes, I think that doesn't change a lot because in the meantime, the dividends -- the impact from the optional dividends was estimated in our budget at EUR 50 million, and we did EUR 50 million of contributions in current and we did also -- we sold one of the 3 hedges we have also for EUR 50 million. So that's to protect the USPP as to lower the interest rate, but we received already the cash and we are in terms of balance sheet metrics, perfectly within our range, and we will fund the business plan globally throughout the years as communicated.
Okay. Great. And maybe next question on Germany. Maybe from an external point of view, it feels that you are struggling to build a good position. And we know that Germany is key for the future of your growth plan. The question would be, well, is it the case?
And the second question would be, are you going to hire any new maybe manager there in order to grow in Germany, considering that you are now on your own, if I can express myself on that, without VIB?
Well, I think there, indeed, it was, let's say, during COVID, it was difficult because we had no body. And then after COVID, we wanted to start. And then there was, let's say, DIC coming in into the joint venture and disrupting our joint venture.
And this way, let's say, also, I would say, the last difficult 6 months, but we were able to close the joint venture and take it over. And let's say, today, we have a very nice starting portfolio round -- of around EUR 100 million. And we have 2 commercial guys hired -- who were hired, let's say, already last year, but who started this year.
And also we can -- let's say, we have the business, and we changed it -- we changed WVI into WDP Deutsch loans. And so we can really start now. It is also, let's say, fully integrated in our business like the office in Romania or the office in the Netherlands.
And now we can do -- let's say, we can invest, we can do it in our way. And also, let's say, we are not limited anymore to North side of Australia, we can do whatever we want in the WDP with -- in Germany. So we are now, let's say, really ready to start.
Okay. So you see a very positive opportunity?
Yes.
And the last question, maybe just a general question on the investment market today. Well, rates have been going to the roof in June. Now it's getting a bit more quieter. How can it play for valuation?
And how -- what do you hear today on the ground regarding potential disposals, regarding the evolution of yields because I know that rental growth is there, but I'm just curious on if you hear anything on the compression?
What we see is that on the ground is that the [ primes ] of the markets, meaning which was at the start of the year, between 3% and 3.5% prime yield that this has moved up towards 3.5% to 4%, really the prime of the market, but on the other hand, there is still a lot of interest from logistics real estate. And because of the growth opportunities, you get immediately high inflation linked trends. You get rising [ ERVs ], we have embedded growth potential and there are also a lot of buyers still out there with equity as well.
The next question from Arlene from [indiscernible].
Yes. Am I -- can you hear me all right?
Yes.
All right. All right. Well, first, Joost, I would like to ask a bit about the example you gave on Solar. So there you go from a rent per square meter from EUR 50 to EUR 70. So that's a 40% increase in a short period of time. And then you just manage the same yield. Is that -- and I saw there was this new project, which will be completed in the fourth quarter of '24, is that construction cost increases? Is that maybe also related to the kind of the project? Because I think, you mentioned that it's an e-commerce project so that you have -- I calculate something like EUR 1,200 a square meter for the last project. Is that anything you can explain or...
Let's say, when you cannot change it into prices per square meter because it's not all -- it was not all 20,000 exactly. But it's not that it is specific. It are, let's say, 3 general boxes of around 20,000 square meters.
And but we -- yes, indeed, I think we can -- we are able to enter all the new elements, the land price went up, and then the construction price went up. And we could -- and so -- and also, let's say, our cost of capital will go up. So there, we will take it all into account.
And so we were able to, let's say, to integrate it in our costs.
Yes, I think the main issue, which we wanted to convey is that, like we said during the Q1 figures that the first 2 quarters of this year was a real struggle for our operational and the business development teams to get these deals done because they were initiated the negotiations and all the calculations with the old numbers of last year.
And now we are entering into a new reality where we can integrate everything at a new reality, meaning market value of the land, not necessarily the purchase price, but land at market value, higher construction prices and also higher rents to protect our yields.
And also what we're trying to do is to add as much as possible in our new developments also an inflation-linked clause during the development period so that we can start also already for the first invoice with an index trend to protect the time value of the money deployed.
Okay. So if I understand it correctly. So for a project which then finish or complete in the fourth quarter of '24, that yield is like almost set in stone. It's not like if prices move higher or maybe even move lower, that, that would change your profitability?
No, we can again lock in the construction products.
No, this is -- let's say, based on the new prices we set to the client, okay, we want to do the project, but prices went up. And okay, this is our total cost. And based on that cost, let's say, we want today this profitability. And so we could, let's say, prove and our clients accepted the fact that land becomes more expensive and construction prices went more expensive.
And indeed, I think the new thing over the last weeks really is that, I would say, April, June, we could even not get any fixed price anymore and then it was always with at least partially an open end.
And now construction firms, you see that the pipeline is coming down that certain material costs are coming down. And again, they want to -- but this is really brand new. They want to give us fixed prices again. And this is for us, let's say, so we can say that the portfolio and the construction costs are secured because our, let's say, counterparts want to give us fixed prices again.
Okay. Yes. That's totally clear. Just one more follow-on. You spoke about the shift from outbound logistics towards inbound logistics. Can you give an example of that, just to understand that trends a bit better?
Well, I'd say during COVID, it was only multichannel, omni-channel, everybody look to the e-commerce. And today, let's say, it is not only that changing element, the e-commerce, who was, of course, new -- no, the expansion was fantastic during COVID, and we added to the outbound omni-channel.
We added the food logistics that did not exist before COVID, during COVID, we started to use that. And now you see that all those supermarkets are investing in their food e-commerce. But besides this, it is indeed also -- although it is not only that e-commerce anymore, it is a more general.
For example, in the Netherlands, we have a project where, indeed, an industrial company producing in the Netherlands is enlarging this production. And due to that fact, they have to move the logistic part, they had, let's say, production and logistics in one building. They want to double the production locally. And so they have to move the logistic outside of that building.
And that's one thing besides this. I think every company today is looking -- and is indeed looking, okay, I need stock, I need stock close to me so that I can produce. And so they rent extra warehouses because there is need for extra warehouses. And they are also looking, okay, where can I, let's say, add value and bring production is probably a big word, but added value activities more closely to my markets also because of the fact that at that moment, transport costs become lower.
And I can -- an example of one of the big [indiscernible] in Antwerp, who said, yes, we have a lot of square meters. And there is always one who is empty because it's our oldest one, well, even this one is now rented. So that because -- just for -- in a port, it's just for basic stock placements.
Also, if I may, just one last short one because you mentioned the food logistics that came up during COVID. Are you then implying that after COVID, these initiatives are cooling down although we see certain people or companies like Jumbo being very aggressive on that. Is that -- has that slowed down or...
We see -- no, all the supermarket chains are really investing heavily in food e-commerce. And we are for the mall. We just finished the new one of Colruyt, the Collect & Go that they mentioned in their interview in June. So this is a big center we opened.
We had a small one in Belgium, that was doubled. And for the moment, we are in the Netherlands constructing 2 food e-commerce center for one of the big players.
So no, really, they are -- let's say, every supermarket or food chain, is now really investing one way or the other in food e-commerce.
Peter from Magento. The floor is yours.
I got a couple of questions. First of all, on the pipeline. So there's like a EUR 700 million ongoing projects. If I look on the -- to the cost here, I get to EUR 44 per square meter rent. The speed is a bit low, especially in the light of your statements that you can pass on the construction cost inflation. Could you maybe elaborate a bit on this.
I think that's its own market to market.
No, it's not market.
It's market-based, but it's also the pipeline which you see right now is a combination of the pipeline we had at the start of the year with projects negotiate also a lot still and then projects being delivered and then new ones entering. So it's, in fact, a whole combination. So there, it's correct.
With the rents of our market or market level.
Okay. Yes. And we have [indiscernible], especially in the light of those numbers you just mentioned, they felt a bit low. So -- but we can see those numbers going later on in the future pipeline. That's correct?
Yes, yes, that will increase as we move on absolutely.
On that example to relettings in France, it's a big jump in like-for-like rental growth. If you see an example like this, are you also willing to say, proactively chase higher rents, so maybe even terminate contracts, try to get to a lower retention ratio to get the like-for-like rental growth up even more?
Then you know, okay, let's say, as from an outside that you can say, okay, kick out all your clients and ask go for new ones for at a higher price. But there, let's say, there are 2 elements. If you, let's say, stop a contract and say, go out you are legally binded to the contracts you made. You cannot -- and in a lot of cases, the client can originate, but we cannot do that.
And the basic of our business and our growth is also driven on existing clients and 50% of our growth is driven with existing clients. If we kick existing clients out just to get a little bit higher rent, yes, this will then also, let's say, give in the long term, a negative effect on our philosophy and our way of growing.
But when a contract comes to an end and they want to, and we can relet it, then we can do it. But just -- and also above that, Peter, when you kick a client out, the chance that, let's say, the building is that you have frictional vacancy and that the building is not relet directly always, then you lose also a lot of money.
And so I think a permanent occupancy of your building is still the best guarantee for your operational results.
And I think also that we will now have the best of both worlds because of the inflation levels, we have a full house in our portfolio. And throughout '22 and '23, we combined with current inflation forecast, we will be able to pass through 10% cumulatively indexation through the contracts for the entire portfolio with full impact visible in '24.
No, that's clear. So just Mick, on that one. So I guess you cannot just terminate the contract, kick the client out, the tenant out. But if the tenant -- if you can also choose to not prolong a contract?
They are mostly protected that they -- we cannot keep them out.
In the Netherlands.
At the break, but we can do it, the contract -- so it's automatically terminated at the end of the term. Then you cannot...
And in the Netherlands, Peter, where I said 50% of our portfolio is -- there is that tenant protection and the business disarming and even when you kick a client out and he has no alternative, he just stays in and he says, "I stay, and you can go to court" and they will, let's say, almost always, when you just put them out and they don't find an alternative, they just stay and then you have nothing. They stay as long as they want and you have no contract, no timings.
So with tenant protection system legally in the Netherlands, it's not easy to do it. And I wish you a lot of success.
In the end, we need to talk and know that our teams, they are well instructed on what to do, and they are fit with data on ERV. So yes.
No, that's clear. I'm aware of that. So last one on that one. So what is your current retention ratio?
Yes. For -- this year, we are only in the middle of the year, of course, already 80% of our contracts are renewed and our retention rate over the last 10 years has been 90% and we foresee to remain stable.
At least stable.
Inna from Petercam.
Just a couple of questions to follow up on the discussion regarding the development pipeline. You have mentioned now that indeed, the tide is turning a bit in favor of securing developments or the construction costs at the same level. Do you still expect a target yield on cost for your Western European developments to be at 5% or is there a chance that it will go below that and 7% for Romania under the current development plan?
Yes, we can confirm that.
We can confirm. So in our business plan, which we initiated at the start of the year, we took the assumption of 5% development deals in Western Europe, 7% in Romania. We acknowledge that in the first half of this year, because of the issues and challenges I mentioned and explained by yours -- it was very difficult, but we arrived on target somewhere a bit above, somewhere a bit below, but it was a real struggle, but we have all the investments we secured as the new developments in the context of the new business plan of that perfectly on the 5.5% average -- weighted average target.
But now for the new projects, as from Q3, we target -- we can target again really for all projects, the minimum 5% and the minimum 7% because everybody is now well awake in the new reality with the new parameters of today.
Okay, clear. And perhaps also on the contract renewals, you have previously mentioned that you would be looking to get a reversion of roughly 50 basis points this year. Could you perhaps give us a bit of color on what has happened in Q2? Because I appreciate in Q1, there was no evidence of reversion yet and whether you expect it to still be the case for the rest of the year?
Yes, indeed, what we said in -- what we took as the hypothesis in the context of our business plan is that we took into consideration EUR 1 million of reversions per year, that's around 50 bps treating annual reversions and we are on track to realize that, but that will impact, of course, as from '23 and support what you see in the like-for-like rental growth of 3% in H1 that is fully driven by indexation.
And because, yes, these contracts are negotiated and the impact will come later. But this is on track.
That's a big problem, you can also give now some explanation about like-for-like?
Yes, on like-for-like. So that will further accelerate. So we have in Q1, 2%, Q2, 4% each on average 3% and for the full year of '22 because of the inflation increasing throughout the year. We expect like-for-like for '22 to be around 4% or a bit above.
And how much of that...
It's going a little bit slower with us because, let's say, therefore, we can -- we are very grateful for the Netherlands, but the inflation system in the Netherlands is, let's say, going slower. It's a legal system. And let's say we are -- it's always with a quarter delay and 50% of our portfolio is in the Netherlands.
So let's say, our inflation is coming slower but will take longer or coming into the like-for-like than some of our colleagues.
Okay. Very clear, Joost. And perhaps an additional question on indexation in Belgium. Just to confirm, you have no caps on leases or any rollover let's say, caps with the rollover potential in the coming years should inflation subside?
Yes, what we said last time and that is still the case globally throughout the entire portfolio, the meaningful WDP Group. We have 7 -- all contracts are CPI-linked. 70% are full upwards and 30% have a cap of between 3% and 4%. That means that now with inflation -- spot inflation is a bit higher I acknowledge, but inflation forecasts are for the average for '22.
So on average, plus 8%, and we can capture contractually because of that 6.5%.
Okay. Understood. And just last question from my side. In terms of the one-off impact. To date, it is EUR 4 million. What would you expect in the second half of the year?
Again, EUR 4 million.
Another EUR 4 million.
Yes, like we announced is also in our budget, which is disclosed in the annual report, and it relates to a couple of fees for -- related to tenants that specific. It's a bit a higher amount because of things that come together. It's a bit of coincidence but is included as well.
Steven from ODDO.
Some follow-up questions on questions that have been asked earlier. First, you mentioned the 5% and 7% yield on cost. Previously, you said that could a proof to be temporary. Do you think the 5% and 7% could go up in the next year? Or will this be a structural level for the yield and cost for developments?
Yes. This is the 5% and 7%. We never said it would be temporary. It's the assumption we took into the business plan throughout the period, '22, '25. And of course, we will try to do better, but we live in a challenging world to which rising land prices, high construction costs and also a lot of competition, but I think the fact that we -- in this kind of environment, we were able to secure these yields for the projects year-to-date says a lot about the capacity of the -- of our teams and then fighting to achieve a good return for the projects.
For what we do see is that the environment has changed is that over the last 6 months, it was a real struggle to get that, to be honest, but we managed to do it somewhere a bit below, and we needed to make some concessions between land or construction [ comping ] and tenants. So we're a bit above.
And now we say we believe that in the new operating reality, we can achieve the minimum of fund at a minimum of 5% and 7%. And we try to do also be better by protecting ourselves also with inflation linked clause during the development period.
Okay. Fully clear. Then second question on land price developments. Could you please tell me where you think land prices will -- would you expect them to do for the next half year or year in the different geographies that you are active? Would it mean geographies...
That's let's say, that's a difficult one because even in a region, it can -- there can be a lot of differences. But let's say that prices went up. And today, I would say there is -- even today, there is still an upward pressure, depending on, let's say, the region and how hot the region is, but everywhere, prices, there is still a price pressure.
Okay. But is that, for example, in the main Dutch regions going up like 5% or 10% for a year or is it more?
Yeah, the last couple of years, it was 10%, 15%, 15%. Yes, it was higher. Now I think that's a reasonable -- a reasonable assumption.
Okay. Clear. And my last question is a follow-up on the caps. You mentioned that 30% has caps. How does it work for new contracts? Are new contract terms different? Like do you see that 30% may be going to 0?
With our standard rental contract is obviously without the cap but now on the cap of 3%, 4%, we will not accept because inflation is running at a higher level and also lead term inflation forecast for next year or higher -- can be occasionally but it depends on the contract and the global transaction, but we try to avoid it, obviously, because it's our job also to protect us as much as possible for inflation because that. On the other hand, we need to have this hedge because of our funding costs, which is also going up in the longer term, for the short term and for the medium term, we are very well protected, but we also need to be -- to manage the company that we are as good as possible an inflationary hedge for our investors.
Then we have another question from [indiscernible].
I had maybe a broader, more general question on the financial model. So it's been a very successful model, let's say, past 8 years. Where you were having a very fast pace of expanding the asset base with sustained compression and so on. So meaning very fast NAV growth, meaning premium to NAV, meaning you could issue equity at a premium to keep this kind of virtuous circle going and so on. It's been very powerful driver of your value creations.
And my question is the following, depending on what the, let's say, new parameters of the environment do in the balance of interest rates, inflation and so on. If we would be in a scenario where asset value would not accommodate this, let's say, financial model to the same extent, how would you rebalance it, if at all, just to see how you're thinking about that?
First of all, the first part is -- my answer is that whatever the premium or discount to NAV should be that is up to you to decide. So that's -- we do not comment on the share price or the valuation. But -- we believe that our model can -- on the way of funding the company on the funding mix, debt equity and our stable net debt to EBITDA is we believe that is something, and that's what we always strive to do is that we do it through the cycle. We do it through the cycle.
It's not that because today, the cost of capital has moved up but for debt and for equity, that's all of a sudden, we should change our model.
I think the cost of capital in absolute terms has gone up -- but we are a net investor through the cycle, and we believe that we can generate money for our shareholders to be profitable and do accretive investments also throughout the cycle. So that means that also that on a relative basis, we need to keep our cost of capital as low as possible to be competitive and to be profitable.
So in that sense, we do not see any specific changes to our funding model, which is based on a through the cycle model.
Okay. But just to clarify, if there was no premium, you would still issue to NAV, would still issue equity? Or it's for you a prerequisite that there should be -- you should avoid dilution as much as possible by having...
If at that moment, we believe we can create value? Yes. But let us answer the question when the situation is there. It's now rather a hypothetical question. Then we need to look at all factors, whether it's good for the company and its shareholders and whether we can create value.
Next question is from [indiscernible].
A small question, how do you see the cost of debt evolving? First one.
Second one, can you give an update on the partnership with Catena? Do you work together? And in what way, please?
Cost of debt evolution. So on an organic basis, we are very, very well protected. So there, we have 92% of the debt hedged for 7 years. And also, we are still at the hedge ratio of 80% by '26. So we have limited maturities there in terms of the hedges that would need to be reset at higher base.
So there we are well protected. We only have a limited impact, of course, of the floating rate debt and let's say, there we could go up by, let's say, limited 2025 bps on an organic basis. for the new cost of funding, the marginal cost of funding, obviously, that has gone up.
And now again, we were talking about 7-year swap rates of around 1.5%. So including bank spread or spread you will end up at 2.5% to 3% to date. But for the first EUR 500 million debt in the future, we still have a pre-hedge not for the credit spread, of course, but for the base rate component, we have another 3 hedge, which we secured in January, which is at the [ rest ] of that moment to prolong as long as possible the increase in our marginal cost of funding, to postpone it as long as possible.
I think concerning Catena, yes, there, let's say, we just started. I became a Board member at the end of April. And so I joined already 2 Board meetings at Catena, and you'd have to ask them if they are positive or not.
But let's say, the teams will meet each other at the end of the summer after holidays, and then we will really start to look how we can -- how -- let's say, to look in detail how we can create value for each other further.
But we still believe in it, and we think it's -- and we both are sure, let's say, Joost and I are really very affirmative that we can create value together.
Okay. And then last question. Looking to your good figures, you can presume that everything goes well. But they take to look to the macro evolution, GDP figures, inflation, gas prices, we can think that we will have a very hard vendor. How are you looking at this situation today?
The energy crisis are more in general.
Energy prices, impact of the gas prices, impact of inflation -- how do you look to the second half of the year and also beginning of '23, will things go still good smoothly? Or are things going? Will things be harder for you to do business?
But I think I said in the beginning that we already for -- to cope with the new macroeconomic environment, we can capture inflation. We will, let's say, also with our solar panels, and we will help our clients with their energy -- with their energy problem, let's say, it is also an opportunity to build out further our new business line, WDP Energy from Energy as a Business, which is, of course, still, let's say, small, but it's an opportunity which came much faster than initially foreseen.
And so we think we will be, let's say, able and we feel ready to cope with the problems who are eventually coming outside.
Yes. But what you're stating is [ Mark ] is also true for any company, of course. And of course, that's a risk for us, but for our sector and for all companies out there that is the extremely volatile and unpredictable macro environment. But I think it is key.
That's why we always repeat that also when the sun is shining and everything is running smoothly that we need to stay alert and that we need to stay well positioned to navigate harder times.
For example, to cope with economic recession, higher interest rates or a change in credit cycle, but we believe that we are ready to navigate through that.
[indiscernible]
Thank you, Alexander. Hello, Mick, Joost and [indiscernible], I have 3 questions. In the past, we always heard that when it came to the logistics players, they could not afford high rents in Belgium because of the high labor costs. In the Netherlands, labor costs were a little bit lower. So there, they could afford some higher rents.
But now, is it possible they get squeezed because, okay, rents are increasing, labor costs are increasing, just like for building companies and they are squeezed with fixed contracts. Is there a risk -- or what can you say about that?
Well, it depends on, let's say, if it's a 3PL logistic company or an end user, an end user there for [indiscernible] is part of their business. Okay, they have a kind of a supply chain cost. And there, let's say, the rent is still a slow part and a low part. Rent is, on average between 5% and 10% of the total supply chain cost. And I think there, the challenges are more at the level of transport costs and labor costs, less at the level of the rental costs.
And on 3PL contracts, there, it depends on how their contracts are made with their end clients. But okay, even, let's say, when it was not foreseen, yes, today, we live in a world that -- nobody accepted and expected even not 6 months ago, let's say, national banks said that inflation would be temporarily.
So then yes, everybody has to sit around the table with his counterparts, and they have to find solutions. But there, for the moment, we don't see any problems from, let's say, the rental side. As part of the supply chain cost. I think it's more on labor and transport.
All right. And then, okay, Mick just talked about the higher financing costs. So when I'm looking at the corporate bond market, so things have done a lot, they are much worse over there when you see now that single A or BBB companies are big caps have to pay or the yields at their bonds are at 3.5%, even 4%, it will make it difficult for them to finance yields in logistics, other kind of real estate at 3.5%, 4% or even 5%.
I also saw that some smaller company in Germany is getting probably some trouble in the refinancing as the costs have gone up.
What can you say about that because bank financing is relatively cheap, we can say. But if you have to rely on the bond market, it could be a little bit more difficult. Okay. You're talking about equity financed buyers are still in the market that is nice. They are not really hurt. But on the other hand, you have some more vulnerable players.
So maybe that could help you in purchasing some things or maybe getting less competition, but also maybe higher market yields as a consequence.
That remark is true in the sense that, yes, the quotations on the -- in the bond market are extremely high, then also because of that not that many issuances or not because there is a lot of fee in the bond market. And I think there is -- we do not need to come right now. We're going to have big bond issuance to the market. That's already a positive thing.
We also believe that there is still a lot of liquidity out there and that are up today also sufficient alternatives to fund ourselves, but it is true that if you only rely on the bond market today, that it will be difficult. But today, it can be closed because of pricing in -- I don't know, I don't have a crystal ball, but I don't know when at some point, it will reopen.
And again, alternatives and we -- more liquidity and we have also alternatives.
We have EUR 1 billion of free credit lines today. So let's say, we are -- we have a very liquid and we can see, depending on where markets are open or not.
Okay. But it was not related to VGP. It's more the general environment because that could have an impact on market yields.
And then I have a final small question, a bit local question on the solar panels. You know that the Flemish government wants to intervene probably you have already prepared for defense, Joost?
Mick?
Yes, so for all people and the closer to explain that a bit. So there, the Flemish government is looking at canceling the green certificates that we received and other market participants to receive for projects that were -- in solar projects that were inaugurated between 2008 and 2012, which at that moment were realized on the premise of having a support scheme through certificates for 20 years, about for which that is now still a remaining period of 7 years and Flemish government will introduce a proposal to cancel the future support, so not retroactively, but the future support for these schemes as from '24, so the last remaining 6 years for us, that is -- that is something they will likely -- so they are preparing a legislative proposal, which will afterwards need to go to the Council of States for review. And we are exploring what the legal options we have.
And for the record, in terms of exposure, it is based on '22 figures. It is the 2% of our revenue and 3% of extra earnings. That's all I can say. Obviously, on that, I cannot speculate on things that are not yet there, but it will most likely commence -- it has been in the media, and they are preparing it and we are looking at our options.
We have a next question from an unknown U.K. number.
No unknown U.K.
Then we'll go to the next question from [ Proto Vero ].
Yes. I just have a quick question regarding the replenishing of land reserves you're talking about. So is it safe to say that this is primarily happening in Romania, given the Section 8 table that you're putting forward?
And I also appreciate the commentary on the markets. Just regarding Romania, how do you see the yields and maybe if you could offer some color on the types of products that you're looking into? Is it primarily last mile? Just an open question.
In general, we are, let's say, looking at open for all projects, if it's, let's say, linked to a warehouse, then we are open it, let's say, really basic stock to high tech to e-commerce. There we are, let's say, if it is about distribution centers, we are generally open.
And all the sectors are active today here and in Romania. In Romania, too, there, we see, let's say, a lot of healthy demand. Also, let's say, it's unhappily, of course, due to what happened in -- or what's happening in Ukraine and Russia. We see more investments than last year in Romania, and we see people, let's say, changing investments that we have planned for Ukraine and Russia that come now to Romania.
So we are very positive about Romania and the possibilities we have there. And yes, we can still do their very nice profitable projects.
And the first part was on the replenishment of the land reserves.
It is I would say, not only in Romania, it's partly in Romania, where we were able to buy some adjacent land to existing sites. But also in Belgium and also in the Netherlands, we try, let's say, everywhere where we can find good land for logistics, we go for it.
And then we have another 2 open questions in the chat. The first one has been covered. I was from [indiscernible] on the green certificate. So we'll now cover that one again.
And then we have another question from Bas Dijkhuizen on the Dutch real estate market. So what is the WDP view on the Dutch logistics market, taking into account several constraints in moving parts such as the box in discussion, the [Foreign Language] which are the shortage of access to the grid and construction price inflation. Can WDP give any color on our plans in the Netherlands going further into the second half of this year?
Yes. But, indeed, let's say, it is, you can say, more difficult today in the Netherlands than some years ago. But let's say, there, we have a very stable and very good fundamentals. We have a very nice portfolio in the Netherlands with a lot of opportunities inside the portfolio to redevelop Brownfield.
So there is a lot of opportunities and that we can create value with existing portfolio.
And besides this, even when it's more difficult, we can still find land for projects, okay, less easy than before. And let's say, when there are more restrictions, the existing portfolio gets a higher value.
There is indeed one thing. That's the connection to the grid in certain areas. This is a specific problem in the Netherlands today. And let's say, this is something which -- where we have to look at, we are negotiating with the energy companies and the grid operators, and that's a difficult point today in certain areas -- but let's say, we did not lost any project due to that.
But indeed, it's a point of attention, and it's something that, let's say, we are now as from the moment that we see a land we directly look is there a connection, get the connection, is there a problem? And do we have to start negotiating with the grid operators. That is indeed a point of attention, which come, which is new and without let's say, it is not -- it is a normal part of our business. And we still see a lot of possibilities to grow further even in a more difficult environment.
Like you can see the [ young ] project, okay? It was an old project. More than 30 years old, 40,000 square meter, well, on that land, we could with the same tenant in the same client, we could make not a refurbishment from an old 30,000 square meter building. Now we could build a 2-layer ultra-modern production and logistics side on 2 levels of 90,000 square meters together with the client.
So that is to show one of those opportunities in the portfolio. So we stay still very confident about the Netherlands. And yes, we will stay and continue our investments in the Netherlands. Don't worry.
And that's it for the questions, Joost, if you have any concluding remarks.
No. Thank you all, and I think we will leave you to go into weekend into this mid-summer moment between July and August. And I would say, go on holiday, enjoy the summer.
WDP is going well and even more important, the logistics sector, the supply chain sector is going well, and we are ready to invest further in the supply chain of our clients together with our clients. Thank you.
Thank you all.
Thank you.