How does WDP try to create value with its liabilities, too? Through balanced financial management, whereby the matching principle of linking the issuance of capital to specific real estate investments is central. It is a starting point that adds a lot of value to a company.
Since the crisis in 2009, WDP has invested a cumulative amount of €2 billion into expanding its portfolio. 45% of this is financed using new, own capital via the issuance of new shares and the remaining 55% is financed with debts. This allows WDP to achieve its objective of keeping the level of debt at 55% and thus keep its capital structure intact. This way, the company can keep growing, but the (financial) risk isn’t increased
Strict capital discipline
The matching principle entails that WDP is subject to incredibly strict capital discipline. Not just issuing new shares or contract debts because the market conditions are attractive or to build a war chest, but to have a balanced policy where capital is only collected when it can be invested in projects that offer added value to the company and the customer. In a different case, should the profit per share drop, should the financial KPIs deteriorate, and should WDP be able to get the (perverse) incentive to quickly reinvest the collected money in projects that potentially do not offer any added value to the company, its customers, and its shareholders.
Naturally, WDP has a strong liquidity buffer in place to always be able to meet its obligations. But just like it is gradually expanding its portfolio on the assets side, it is doing the same on the liabilities side, i.e. new financing tranche by tranche and synchronised with new investments. That requires more energy focused on the frequent financing transactions and the various structures, but does optimise the cost of the newly collected capital (both own capital and debts).
Need a few examples? In 2018, WDP announced several new building projects that were financed through new shares by means of the ongoing optional dividend in May. Earlier that year, a retail green obligation was issued right after the same volume in newly pre-leased projects was announced. And a recent purchase in September 2017 (read more about it here) was financed with newly issued shares, underlaid by a profitable asset.
Major financial strength
This working method may seem obvious, but precisely by working as strictly as possible, the costs for the capital are kept as low as possible. This creates healthy profits for the company measured as the spread between the profit on assets and the average weighted cost of the capital, due to which an increase in the profit per share can be achieved. By strictly financing, WDP can offer its customers competitive project and rental terms and conditions.
This way, the customer’s and shareholder’s interests come together. The fact that this doesn’t have to be a contradiction in terms is interwoven in WDP’s philosophy. Focusing on the customer, and creating a long-term relationship with them, is also good for the shareholders. The continuous growth combined with strict capital discipline also ensures a solid track record and strong trust from financiers, shareholders, and customers. Business can only be sustainable when the interests of all stakeholders are taken into account.