Warehouses De Pauw NV (OTCPK:WDPSF) Q3 2021 Earnings Conference Call October 20, 2021 9:00 AM ET
Company Participants
Joost Uwents – Co-Chief Executive Officer
Mickaël Van Den Hauwe – Chief Financial Officer and Risk Manager
Joke Cordeels – Investor Relations
Tony De Pauw – Chief Executive Officer
Conference Call Participants
Paul May – Barclays
Frédéric Renard – Kepler
Joost Uwents
Good morning or good afternoon, everybody. Welcome to the WDP Q3 update of our results. We first ask indeed to stay on mute. We'll do first the presentation and then after that you can ask your questions by raising your hand and/or putting your questions in the chat box.
But indeed, we will keep it short since, I think, most of the things are clear, and it is only a quarterly update, and so that we can be open for all your questions. I think we can say that we are really full steam ahead towards our short-term and long-term strategic goals. We have a full house 99% occupancy rate, and even everybody still paid the bill. And our portfolio is growing further to the expected EUR 6 billion in the end of our investment scheme. And indeed, within this investment scheme, we are today fully in line with our plan of EUR 100 million per quarter. And so already for this year, again, and this quarter, again, we realized another EUR 100 million of new projects, which brings us in total up the EUR 1.3 billion, so still EUR 700 million to go to realize our strategic goal of a portfolio of EUR 6 billion and earnings per share in 2024 after realizing the projects of at least EUR 1.25.
So, there we can say that we can indeed confirm and that we go full ahead towards our goals based on, of course, all the existing industry drivers that we explained already a lot of times. And also based on our, let's say, our ESG journey that we are also permanently focusing on. So, this together with our projects which are all running, we did acquisitions, we both land, we executed for let's say 1000 square meters of buildings already this year. And indeed, we still have 800,000 more than 800,000 square meters under construction in the different countries and the different regions. So, the pipeline is still there. It's a very profitable pipeline and indeed there, let's say using this; we can continue the growth further on the next years.
And one important element is at Slide 17, the land bank. Indeed, if you just look, then you see, okay, the land bank stayed the same, but give us fully or almost fully replenished. We could put new lands and additional lands that we use again. So, we – its safe [Technical Difficulty].
Okay. Sorry for this interruption out of number. But I think important there is that we could fully replenish. It's not the same land bank anymore. It's a fully replenished new land bank. So, it stayed at the same level, but let's say, new land bank instead of the beginning of this year.
If we then look further on the portfolio valuation, there, Mick will give you all the details and the explanation. I think for the rest our portfolio stays of the same quality, like we explained last time, there is a lot of potential and 50% is suited for urban logistics, like I mentioned, the occupancy rate is still the same. And I think we can say that all the leases are renewed for this year. So there too, we can focus on 2022.
And so, I can say, operationally, we are fully in line and steaming towards our strategic goals, but there are – let's say some things to tell about the portfolio and the financials.
So I give the word to Mick for all the details.
Mickaël Van Den Hauwe
Thank you, Joost and welcome also from my side, when we look at the nine month results in terms of EPRA earnings, when we make the bridge from the Q2 results, there were no specific items in this Q3 results. So I would say the plus 10% performance year-on-year is fully in tune with the full year guidance of EUR 1.10, which we upgraded to that level at the Q2 results. And these results are again, broad based driven by all our teams and countries. The main driver stays of course, external growth through the steady steam of project development completions, which are that's very important, which were delivered on time and on budget and with the center of gravity in terms of project development completion this year, being in Q3 and Q4.
Now next to that, organic rental growth was at 1.4%, 1.1% indexation, 0.3% occupancy rate. And the reversion rate on the contracts was flat, meaning that all contracts with a break got rolled over at the same conditions and perfectly tracking at least inflation, though we see there upward pressure rising going into the next years, I would say. Second, next to EPRA earnings on the portfolio results, there we had another strong revaluation EUR 600 million in total for the year. So year-to-date nine months plus 12% on an underlying basis, spread a bit across the three quarters.
And when we take a more detailed look at the components of these results, this portfolio results, 65% of the portfolio results is driven by yield shift with 60 basis points, downward yield shift in the portfolio. Given obviously the continued pressure on market yields and that resulted in an EPRA net initial yield now being at 4.9%.
Secondly, 15% of the portfolio results is composed of an uplift in the ERV. The ERV across the portfolio saw an average uplift of 2% at the rental values across the portfolio, but what does that mean on an underlying basis. On an underlying line basis, this 2% on average is driven by selective uplifts of; let’s say 5% to 10%, mainly in Belgium and the Netherlands in locations where there is scarcity at play.
And in fact, this is also in tune with what we see with our commercial leasing teams when we have positions of buildings that’s all vacant, then we can renew them at on average plus 10%. However, yes, so that's a sign of a rental growth, but note that this is still limited because our portfolio obviously is almost fully let today. And then a third block of the portfolio results composing 20% of the portfolio results where the project development gains obviously, and these were driven by an average gain margin on development completions of 35% year-to-date.
So that's on the results itself. And when we take a look at the slides on the balance sheet, there, we continue to invest around EUR 100 million per quarter. And this year, we will have funded including EUR 75 million in Q4 and due to retained earnings and another contribution in kind, which we realized early October, we will have funded around at EUR 350 million through equity and not through revaluations of course, but through ABB contributions in kind, stock dividends and retained earnings.
So in that context, with funding almost our investments in 2021 through equity, in that context, the EPRA earnings per share rise of plus 10% for this year is especially strong. And what it does additionally is that all our balance sheet metrics stay particularly strong and above all, our balance sheet remains very liquid as well with a lot of undrawn credit facilities covering all our capital allocation commitments and refinancings, upcoming refinancing for the next 15 to 18 months.
And next to that, it's also reassuring that as Joost mentioned, our clients continue to pay very well actually, solid 99% rents collected over nine months. We already mentioned at the Q2 mark that all the COVID-induced payments rescheduled and we had last year were already recovered. And as far as the rents for October for the monthly rents or for Q4 for the quarterly rents is concerned, we have already received 85%. So their payments continue to be good and follow a regular pattern.
What I would then say to conclude is then on the – as far as the outlook is concerned, I believe that with the nine months results now behind us and very good that the full year guidance is now within reach. And as Joost mentioned, we are now able to fully focus on 2022 and the further execution of the growth plan.
So there, I would say this wraps it up in terms of our part to give you a general overview and business update, and we are now open to all your questions. Perhaps Alexander, can you manage – you can ask the questions.
Question-and-Answer Session
A - Joke Cordeels
Paul [Barclays]? Sorry that was me, there was a bit of an echo there.
Paul May
Okay. Sorry, apologies, guys. Just a couple of quick ones from me. You obviously highlighted seeing quite strong rental growth re-leasing, I think a number of your peers, whether that’s U.S.-based or European-based or U.K.-based sort of all highlighting that stronger rental growth. It seems that we are seeing that rental growth coming through probably faster than you may have expected in sort of recent updates. Is that fair to say?
And just wondered how much the valuers have reflected that reversionary potential within the portfolio? Or are they still very much looking at things from a in-place rent point of view, which obviously remains slightly muted, as you say, given the lease structures?
Mickaël Van Den Hauwe
Okay. Shall we take this one-by-one please?
Paul May
Yes, one-by-one.
Mickaël Van Den Hauwe
First, in terms of rental growth, I think there, our view has not changed in the sense that we mentioned last couple of quarters that since mid-2019, we can track at least inflation. So we do not need to give back any inflation when there is a rental break, and that what we currently see is that we currently see a growing discrepancy between in-place rent contractual rents and ERVs, which are rising and that we see this rising further, but the fact of the matter is that can you capture this immediately? No. We have been growing the portfolio at around 10% per year over the last couple of years with leases of 10 years.
So we have our obligations for our tenants. So we have a long tenor. And indeed, for the next year, there are contracts maturing. And we believe as this difference arises and we will be able to, for our next plan or in the next cycle to capture this rental growth, and we are also preparing our teams commercially for that. And as this is starting right now. This is at play in discussions, of course, with tenants, but it’s – we’re seeing it at least, firstly, units that’s for vacant. So there, we can easily renew them at a higher rate.
Now as far as the second part of that question is concerned, how much of that got reflected in the valuations that's 2% because we got – it’s not across the board that they are already reflecting this. They are often based on in-place rents and wanting to see more evidence. But we are also providing more and more market evidence through our systems with better data and data intelligence, providing them with better insights from the direct markets, which is also then beneficial for our valuations. But for this year-to-date, the effect of that was plus 2% of the ERV.
Paul May
Thank you. And on that, I suppose looking at the portfolio as a whole, what proportion of your rental contracts are on
Joost Uwents
Strategic goals. We have a full house, 99%. And everybody still pays the bills.
Mickaël Van Den Hauwe
There’s somebody not at mute. Sorry for this.
Paul May
Yes.
Mickaël Van Den Hauwe
Please Paul, over to you.
Paul May
Sorry. Sorry. Can you hear me, okay?
Mickaël Van Den Hauwe
Yes, yes, yes.
Paul May
Yes. Great. Sorry, I was just asking what proportion of your rental agreements are up for renewal in the next two to three years? So ahead of…
Mickaël Van Den Hauwe
It's on average 10% per year.
Joost Uwents
Yes. And it’s on Slide 22. There you see the details.
Paul May
Okay. Thank you. Sorry, final one for me. Romanian yields remaining relatively flat over forever almost. And I appreciate the rationale behind this. Some of your peers sort of highlighting that there’s been sort of evidence that those yields have been compressing. Just wondered what your thoughts were there I appreciate it’s obviously not necessarily a main focus for you in terms of that yield compression. I just wondered what your thoughts were on the direct market?
Mickaël Van Den Hauwe
Yes, indeed, on the Romanian yields, they have been indeed largely flat. The only thing that happened in the – at the start of the year in Q1 is that the there was, for the first time, a downward yield shift in the valuations of yes, only 25 basis points after all these years. That is in Romania that happened this year. And now the valuation yields applied by the appraisers in Romania are between 7 and 8, depending on the duration of the contract. Now everybody knows that this is only, let’s say, I would say, a sort of fictitious yield because there is no transaction market. And…
Joost Uwents
We don’t sell to CTP and CTP doesn’t sell to us directly.
Mickaël Van Den Hauwe
So if tomorrow there would be a market transaction we are sure it would be sub-7%. There have been a couple of deals that were on the market, and it would have been below 7%. But in the end, they didn’t go through at all the reasons for strategic reasons of that of those sellers. But it’s due to a lack of liquidity in the market.
Paul May
Perfect. Thank you very much.
Joke Cordeels
Frédéric from Kepler.
Frédéric Renard
Hi. Can you hear me, okay?
Joke Cordeels
Yes.
Frédéric Renard
And maybe first question for next year would be a comment on your part on the rising price materials that we see currently in Europe. And how is it affecting the business as from now?
Mickaël Van Den Hauwe
So what we currently see, Frédéric, is that first of all, on the existing pipeline there that is prices have been largely fixed and locked in on the existing pipeline and timing to what is at play is that for the new projects, yes, indeed, construction prices have went up even up to 25%. And that is that’s plus 25% is versus last year, and let’s say its plus 15% versus pre-COVID. So that effect will still endure during the course of 2022, and it is mainly because of supply chain bottlenecks, mainly in the raw materials, but also due to capacity constraints with the suppliers.
That’s one component in terms of price inflation and there is also a component of timing there where we used to say, let’s say, rounded figures for an average project six months as from the moment you have the land, six months for the building permit, plus nine months of building time, that nine months has now become 12 months.
Frédéric Renard
Okay, thank you. And maybe just to come back on the price inflation you see for materials. Are you accordingly able to reflect that increase to the rental level? So it’s a bit linked to the question of Paul previously.
Mickaël Van Den Hauwe
Of course, we try to feed it through in the rent levels. Sometimes you can, because, for example, you have the land available, sometimes it’s more difficult when there is a lot of competition, then it’s even better to stay at the market-based rental level rather than going open book with the clients and be market-based. But at this normally, yes, prices, you would say, rental prices at that moment should be hired across the board.
But what is don’t play in this effect is the fact that yields are very low. And when there’s a lot of competition and also for development and the stabilized yields continue to be lower than development yields dropped to even though – and that’s – even though, yes, development yields are lower too, but cost of capital is lower too, and development margins are more or less intact because stabilized yields are lower too. So that is, in fact, a big many effects at the same time.
Frédéric Renard
Okay. That’s fair. Maybe just a follow-up on inflation and if I take just the inflation lines from what the Eurozone that were published this morning. Would it be a fair statement to say that thanks to the CPI cost, which is embedded in your contract, as from next year, it’s highly likely that your rental growth – organic rental growth only coming from indexation will top the 2%?
Mickaël Van Den Hauwe
Based on the current inflation levels at which the contracts are being indexed today across the entire portfolio of WDP, the indexation for next year will be 1.9% on a weighted average basis versus 1.1% today in this year.
Frédéric Renard
Okay. For 2022, we…
Mickaël Van Den Hauwe
For 2022, it will be 1.9% versus 1.1% this year.
Joost Uwents
What you say is right, correct.
Frédéric Renard
And maybe last question on my side. Any idea when we will have any – well, any update on the FBI statute in the nails? Do you see some kind of advancement in the process of discussion?
Joost Uwents
We still need a government in the Netherlands, but we first need a government.
Mickaël Van Den Hauwe
But the finance cabinet in the Netherlands has ordered an external study through a consultant to evaluate the best rate regime and that is expected by the end of Q1 next year, but then there will need to be a government in place and also willing to make this political decision. So we believe that the earliest you could expect something is at what they call [indiscernible] in the Netherlands in mid September when they announced the new fiscal measures for the year thereafter. But it's not in our control of course.
Frédéric Renard
Okay. Thank you very much for the answers.
Joke Cordeels
Peter.
Unidentified Analyst
Yes. Thank you team. I also had a follow-up question on Paul’s question on the rental growth. You just be willing to accept some higher vacancy to capture a part of this higher rental growth. And in other words, just preparing off your teams for the rental growth initiative might be a bit more aggressive in terms of negotiations.
Joost Uwents
Yes. But they need to become empty, let's say, you have your contracts with your clients and your long-term relationship with your clients. So that's the long-term, and that goes first. Of course, you can negotiate. But when they are in their contracts, you cannot just kick them out.
Unidentified Analyst
Yes. But if a contract ends at the enter period.
Joost Uwents
Then you can negotiate and at the end of a contract, indeed, you can negotiate. But there is a difference between rollovers of a break of a contract and the end of a contract. And in, let's say, in one that is just a break, then you can just say, yes or no. You stay in or you stay out or you go out in the end of a contract when you have to renew a contract, then you have, let's say, a better legal position to negotiate. You can just say yes or no.
Unidentified Analyst
Yes. And so in the end, now the teams might become a bit more aggressive and this might -- could even lead to some higher vacancy, would you be willing to accept some higher vacancy there? Maybe, say, net contract we want 10% higher rents or walk away?
Joost Uwents
That's always a difficult one since we are there for the long-term, and we want to create value, let's say, together with our clients. And then just saying to somebody you have to go out so that I can rent it to somebody else at a higher price. That's a very difficult one, which is, let's say, against our feeling of working together of doing repeat business with our existing clients in the long-term, but we will fairly negotiate and look if the prices are really let's say, not adapted to the market, then we will negotiate. But always, let's say, with that long-term spirit that's always been the spirit of WDP.
Unidentified Analyst
Understood. That's very clear. On the land bank, it's quite impressive that you've replenished the whole land bank, specifically in the current market. Could you maybe give some additional color on how difficult it is replenish this impact as I believe there's a lot of competition out there for this land?
Joost Uwents
This is very difficult. But let's say, we have two ways of replenishing. We have, let's say, the external way by just buying new land or new brownfields or let's say, also a part of our -- every year, a part of our existing portfolio, there, we have a part of redevelopments that are also in one of the slides. And when those redevelopments become free, then we can redevelop and then let's say, they go into the land bank. And so this land bank is free – is a free land bank, not rented. But let's say we have an internal channel and an external channel. And indeed, it's today, let's say, the most difficult part of our job is replenishing the land bank. But indeed, until now, it is still feasible, but indeed, it is getting more difficult every day.
Unidentified Analyst
Thanks. And maybe a final question. Tony said last week that there's only one Greenfield be left in the Netherlands somewhere in the 10%. On the other hand, I hear from agents that they say there's still a lot of spec development out there. What is your feeling on the pipeline of new assets in the Netherlands?
Joost Uwents
There is more than one speculative development. There are a lot of speculative developments everywhere from different parties from small developments to big developments. I think I can say no that there is too much, but there is everywhere a little bit speculative developments. They are not all pre-let on the contrary. No, that's not true.
Mickaël Van Den Hauwe
But not to the extent that it is worrying today because it's being observed.
Unidentified Analyst
Okay. Thanks. Those are my questions.
Joke Cordeels
Alberto.
Unidentified Analyst
Hello, can you hear me?
Joost Uwents
Yeah.
Unidentified Analyst
A few quick questions. On your rental uplift, when relating, you said that you can, in some places, capture up to 10% versus the passing rent, how much CapEx do you need to put on the warehouse once it is bacon to get that uplift?
Tony De Pauw
No, it’s just, what I mentioned is that for in 2021 for the contracts, which has a break that they were rolled over at the same conditions and perfectly track inflation. I mentioned that when we have some vacancy, when we have some vacancies at that moment, we can capture a spread of around 10% when it comes to for example…
Mickaël Van Den Hauwe
Without any CapEx, just existing building, existing building improves, we bought three years ago, a building with the idea of renting it out up EUR 38, today, let’s say there was still a part of that building became empty. And we said, and we did, we re-rented it at EUR 42 instead of EUR 38, but without any investments. So, we did not need to invest anything. We had just the existing buildings that we could now rent at EUR 42 instead of EUR 38 three years ago.
Tony De Pauw
But there’s also more and more the case is that we see that in the future, we can extract more value from the existing portfolio, as for example redevelopments or renovations or model upgrades become more profitable. Because for example, we announced that that the Q2 results, we have three assets in the Belgian portfolio around 60,000 square meters, which we could have upgrade for EUR 8 million, some real nice renovations and sustainability upgrades. And we could increase the rent and the ERV with 12%, then go to 25% revaluation of the assets. So that’s also that’s for us, these are signs that due to the scarcity, which is growing, that the existing portfolio gets more valuable. And that’s also in the past, it was difficult to extract more value from the existing portfolio. And now we are seeing the first signs of this and trying to capture that to the maximum extent possible.
Unidentified Analyst
Okay. So, no that is great. So there are some cases where that uplift can be achieved, CapEx free, but in some cases I just have – you have to put EUR 8 million or you have to do something on the asset, on the warehouse. So it is not always automatic that once you have a vacant warehouse, you can put that unit at market level without lethal investment I guess.
Tony De Pauw
The general cases that we have zero to no CapEx for capturing the uplift. The question is, do we at that moment when there is some vacancy, want to make an uplift in the technical and sustainability aspects of the building, and then do you do it all at once and try to capture most of the maximum extent of the value?
Unidentified Analyst
Okay. So there’s some value that can be only unlocked with CapEx otherwise, we cannot be unlock?
Tony De Pauw
Yes.
Unidentified Analyst
Okay, fine. And then the second question is on your Slide 17 that is great. How you replenish the land bank. I wonder what is the ideal size in terms of fair value for your land bank going forward. And also something interesting that is happening in the market is while construction or construction margin is kept constant land prices are going up. You are at some extent our developer. So, have you thought in selling land and benefit from the strong pricing, because in the end construction cost, it is constant, but land prices are going up and also as a way of making or generating value for your shareholders?
Tony De Pauw
Why should we do this? Why should we sell land and giving our competitors a possibility to do a nice development? So that’s we want to do by ourselves and the value. Yeah. I captured the value within the portfolio.
Unidentified Analyst
The value, sorry, if I’m wrong, the value it is kept constant as you have quite well explained, construction costs and land prices are on the rise. And their construction margin is kept constant just because yields are compressing. So in the end, who is winning right now is land owners are the ones benefiting right now of having land. That’s why maybe going a little bit riskier in terms of zoning Brownfield planning is a way of also in three, four years making higher returns. That’s why I was wondering if it is a great idea to sell a land when pricing is so strong.
Tony De Pauw
Yes, we don’t think so, because that we lose our – then we can’t grow anymore. The land bank, we can just take some short term margin, but we lose our growth pattern.
Unidentified Analyst
Okay. And in terms of ideal size, what would be the – if you could choose what sort of yes, size in terms of land bank would you have to own right now.
Tony De Pauw
Well, let’s say three years ago, we also – we already doubled that at that moment from $50 million to $100 million and today, it’s above a $100 million, but first of all, it’s the replenishment rate that’s the most important thing, because as the slide indicates, we will in one year have replenishes. So that also means that we are successful in leaving it out. But we will be okay, which with $200 million as well, it would still be relatively low if it would be a 4% or 5% of the entire portfolio, but it’s always a balance of searching lands and then leasing it out. Of course, owning land is in this market a strong feature, but having the teams and the boots on the ground to continuously replenish it and get your hold of the permit as well.
Joost Uwents
We develop them too fast, so we cannot let the land bank growth.
Unidentified Analyst
Okay. That is a good quote. Last one. Maybe it's to financial, but what should we expect from your 2022 business plan in terms of earnings growth? Should we expect an acceleration from the 15% more or less you are achieving right now year-on-year? Or do you expect on your business plan and the developments are going to start generating income in 2022 kind of a slowdown or even going up just to see how well we are versus reality?
Mickaël Van Den Hauwe
Well, there, we can only say that we do not give intermediate guidance of the next year. We always give guidance for the year ahead, and that is still – we are still in 2021. And so for 2022, we will communicate on the full year results. And the long-term guidance in 2024 is at least EUR 125 million.
Joost Uwents
Frederic tried this already in August, even there the same thing. Isn't that Frederic?
Unidentified Analyst
Yes, indeed. Fair enough. I just want to know an acceleration or some sort of as low down, but its fine. Thank you guys.
Joke Cordeels
Thank you. Steven, go ahead.
Unidentified Analyst
Hi, thank you. I got a question you read a lot about politician advertisers that want to limit the issuance of land and permits for large-scale warehouses. Could you please comment on your recent discussions with local federal government regarding this and if this has an impact on your strategy for example?
Joost Uwents
Well, let's say it's a discussion that is already going on since one or two years in the Netherlands, they discuss about the planning of the country, which is a good thing. And now we have the idea of there was built too much. Do we have to continue this? Do we have to use our land better since we need more houses? I think it's a good discussion just saying that, indeed, we have – that they think or the advice is that we should stop with all the logistic developments I think this is not a good idea since indeed, are today logistic real estate and the supply chain at the heart of every business.
I think, 20 years ago, countries or regions try to attract an automotive production side in order to get technology clusters. They also try to attract headquarters because this would bring profits, I think now when you are able as a region to attract distribution centers, you get also clusters of technology around that. And also in headquarters are sometimes even now moving towards the distribution centers. So do we need, let's say, as a whole region in Western Europe, I think about the future use of land. Yes, but smartly. And yes, we have to be careful about land usage, but just saying let's stop. I think there should not be a good point.
But on the other hand, if that happens, then say then the owners of land, they will be at a good size because then you will not be able to develop any more in the extreme case, but then – and the one who owns the land like we do, they will have profit because their land will become more expensive and then you will be able to do more on existing land. So for us, as being a developer and an investor, let's say, we can profit of both like a good Dutch football or set out now they will have good deal.
Unidentified Analyst
That's very clear, especially with the football quote, it always helps. Second question, last question. As you mentioned that the valuation increases were especially due to a small part in specific areas in Belgium, I thought you said – could you please say which areas these are and going forward, which specific areas you think valuations will increase most?
Mickaël Van Den Hauwe
But that was mainly a comment on not the valuations were across the board in terms of the yield shift. It was rather the – so that was the main components almost two-thirds, 55% of the revaluation. So that's across the board with stronger in Belgium and the Netherlands, of course, and the ERV uplift of 2%. On average across the portfolio was driven by 5% to 10% uplift in the market rental value of specific locations in Belgium and the Netherlands, when there is scarcity becoming at place. Like example in Belgium, I'm thinking about at Zellik, where you cannot expand industries room. There really that you cannot buy any lands anymore. So it was for the ERV specific regions, but the reevaluation across let's say on average across the board necessarily.
Unidentified Analyst
Okay. And so you mentioned Zellik, which other areas do you see the most ERV increased?
Joost Uwents
Different points and then really it's nothing...
Mickaël Van Den Hauwe
It's simply in micro-market. And it's more difficult...
Joost Uwents
…specific micro-markets, or even in industry zones, it's even not – it's not the North of Brussels, it's a Zellik for example, and that's one city. It's really micro.
Unidentified Analyst
Okay. Clear. Thanks very much.
Joke Cordeels
And we have a final question from Andreas.
Unidentified Analyst
Just a question there. You said logistics distribution is now a key part of the business. Do you see any tendencies of home sharing, i.e., when you – when big mass [indiscernible] want to place a new factory, et cetera; they are more likely to do that in Europe or than – and did you see that, do you think that those factories will be placed in Romania, where you have a lot of assets? Or are they more likely to be Germany, et cetera? Thank you.
Joost Uwents
I think you cannot replace a factory or a production unit, let's say, within some months. So – but I think that the global efficient worldwide supply chain has been disrupted and not once, but three times last year or this year. At first, COVID then a small boat in a channel that ever given, and then also, as the floating water flooding was not only here in Europe, but also in China. So there has been 3 times a disruption in the global supply chain.
So yes, companies are now really strategically thinking about their, let's say, the in-sourcing points. They are rethinking their strategies. And that can be, that's the most easy, just making a more strategic stock that you can realize rather fast are even reshoring. But indeed, reshoring our factories that's not so simple. And then absolutely here in our crowded Western Europe, where we don't even want a distribution center should we then want a production unit near our houses. But there, let's say Central and Eastern and, for example, Romania could be a good place for reshoring of production units, but let's say, we see people thinking about it, but not yet realizing. But the general trend is indeed from just in time to just in case.
Unidentified Analyst
That's right. And there is a lot of space in Sweden for factories or distribution centers. You're more than welcome to place them here. Final question on the…
Joost Uwents
Yes. They're not only, of course, that labor to heavy need also, not only land but labor.
Unidentified Analyst
Just a final question. Germany, the yield there is higher at 5.7% versus 4.9% in you only have EUR 12 million invested in Germany. I was just wondering if that is just for you and your assets, but I mean your assets have zero percent vacancy rates, so it seems greater than risk. Or is Germany just higher yields? Does it make sense to me, but I just wondered...
Joost Uwents
That's not Germany had the same yields, but is just, let's say, the moment now, it's only, let's say, in the existing portfolio. There is only one project, project, a small project we bought 1.5 year ago in Bottrop, for 10,000 square, an older let's say urban building that will be a future redevelopment in the future. And then the big project in Gelsenkirchen is still under construction, so that's still at cost and not other yield. So let's say, the German figures are not yet reflecting a portfolio. It’s only the start. And I think there more in general, in Germany, we can say, WDP was not affected by corona except a little bit in Germany. We could not go and travel there.
The German friends of the south could not travel to North Rhine-Westphalia, and we had no local boots on the ground like we have in Romania and in the Netherlands. So, we had no local people to continue there. So, let’s say – so it was very difficult to grow and to invest further there the crisis crave a little bit too early for us. But we could continue with our first project. We will finalize the first part by the end of the year. And let’s say we have a good view that we will be able to rent it. And then we can, let’s say we are now since we can travel again, we can meet, I met Martin already again, different times. We have had even physical board meeting here in Wolverton together. So, let’s say, now we can really start again in Germany.
Unidentified Analyst
Wonderful. Well, we are very happy shareholders. Thank you so much for all the hard work you do for us. Thank you.
Tony De Pauw
Thank you.
Joke Cordeels
And then Marc Eeckhout, do you still have a question?
Marc Eeckhout
Yes. Hello, my question you just answered on Germany, a second one, the last investment was next to the highway and very important place local. Are there still investments coming next to the highways? Is there as a kind of new strategy or is it bad because you are already a partner, the DPG and asset?
Tony De Pauw
Yes, this is – let’s say we are always interested in sites say good located sites for logistics or sites near or almost near. Let’s say that the highways, so we don’t want to pass even the best village we don’t want to pass. So, we want any need space near the exits of the highways, but indeed local involves and more specific driven by repeat business with DPG, where let’s say we bought two, three years ago from them, their old headquarters in Copenhagen. And now let’s say we could do on the same basis repeat business with them in a local and of course this was one, which was perfectly fit for us.
Marc Eeckhout
Okay. Thank you for your answer.
Joke Cordeels
And then Michail, do you still have a question?
Unidentified Analyst
Yes, I do, gentlemen, thank you for taking my question. Just with regards to your pipeline and your ability to do additional developments. Just wondering if you could talk a little bit about the constraints that you might have on being able to accelerate it, whether it’s, risk management, you don’t want to have too much development on the balance sheet at one time, is it a financial situation? Is it tenant demand or is it just approval of building permissions and things like that? Thank you.
Tony De Pauw
I think it’s not that we don’t want to do more developments. So there is not a – it’s not a capacity problem. And there’s, let’s say driven by some project are taking a little bit longer since you need more time for permits. And so, but let’s say it’s driven by mostly by our clients. We go for the lands, we buy land, we replenish the land bank, and we for permits and then we wait for a client and I think it’s really client driven and land, they are we need to find land. We have some clients who wants to do or want to enlarge with us or do even new business, but we don’t find the land. I think the most, the limiting factor is land for doing more.
Unidentified Analyst
Okay.
Tony De Pauw
Yes. Okay. So then we still can ask if there is still somebody else who wants to ask us a question, if not we looked in the meantime also in the chat box and there are no questions in the chat box that I would say that’s still somebody who wants to ask a last question at the moment now, and otherwise we can stop here. And we thank you for listening to us, and we hope to see you soon and indeed at least with the publication of our annual results. [Ends Abruptly]
