The real estate specialist WDP is a listed company operating in several sectors and a leader on the Belgian and Dutch storage space rental market. WDP in fact caters for all sectors involved in logistics and storage. The share in the fruit and vegetables sector is about 10% No less than €120 million worth of projects had already been completed in all sectors by late June. WDP has expanded to the tune of €1 billion within the space of five years and has set its sights on the same growth target for the next five years.
How long have you been operating in the fruit and vegetables sector?
Officially since 2007. It all started with Univeg, which is part of Greenyard Foods. We had known each other for quite a while and already had discussions in the past. Against the background of a Univeg growth path they suddenly had to mobilise capital within a very short space of time and got in touch with us. The deal was quickly hammered out, because we already knew each other. Every day, we learn as we go along in the sector, and mainly because of the client contact we remain abreast of any developments.
Was this a sector WDP already had its eye on?
Not particularly, not enough to say we were desperate to operate in the fruit and vegetables sector. We did know various key players and areas where companies were established, such as Sint-Katelijne-Waver. But the word ‘Barendrecht’ still meant nothing to us. We stumbled into this owing to the contact with Univeg, not only at the Sint-Katelijne-Waver site but also at Bakker Barendrecht in the Netherlands. This way we ended up in ‘the heart of the fruit and vegetables sector’.”
…and you then came in contact with The Greenery?
The way we became acquainted with The Greenery may be compared to the Univeg story. We had already made contact in 2009 but no deal was achieved until a few years later. This is not always the usual course of events but this happened in the same way twice 'coincidentally'. This is obviously a sector that requires a heavy level of investment nowadays. From that point of view there is no coincidence because you do realise the sector is becoming more and more demanding in various areas, such as food safety, refrigeration and ripening.
How relevant is logistics for the fruit and vegetables sector?
Logistics for the fruit and vegetables sector has undergone a rapid transformation in recent years, while the number of investments has risen. These are, moreover, sizeable amounts: a deepfreeze warehouse frequently costs twice as much as a standard one. This is why there is a greater tendency to seek a partner in this area. The sector is also attracting more and more attention from retailers. They realise customers prefer their fruit and vegetables fresh and to buy their own. That is why supermarkets and discounters are making more and more efforts for their fresh food departments. Some choose to go it alone, while others look for a partner. I believe that the example of a Bakker Barendrecht, for instance, is now a successful one, which AH is now also applying in other segments. Generally speaking, I think that an increasing number of companies are undertaking shelf management for 'their' component. The general trend is for them to make a difference with their fresh food department. Consequently, fruit and vegetables to a great extent.
What impact does the consumer have on this logistical process?
‘Instant gratification’, the hot issue now is consumers always being anxious to have everything immediately, straight away. This means the supermarket products they look for have to be immediately edible or of the convenience variety when purchased What is more, customers often shop for smaller quantities. You don’t notice it in the store environment but the underlying logistical process has changed immensely. Everything has to be fresher and delivered more frequently, so logistics and stock management are more complicated than in the past. Items such as ripening and processing used to be more of a matter for final customers, whereas it is now the responsibility of fruit and vegetable businesses. Convenience produce calls for other systems, facilities and transport so that the logistical process continues to be increasingly relevant. You used to see a head of lettuce in the supermarket but now you have bags of chopped lettuce – one type or various mixtures. These all have to be prepared, packed and transported, which is the task of the fruit and vegetables sector. This can therefore provide retailers with a significant added value. And this is no longer simply a question of demand: Who delivers the cheapest lettuce?
Is WDP set to expand further in the fruit and vegetables sector?
The fruit and vegetables sector is a basic and fairly stable sector. Whatever the crisis people still have to eat. We believe the sector should enjoy a significant status in our portfolio. The proportion of customers in this sector is currently in the region of 10%. Our customers are naturally big ones: Univeg, The Greenery and Staay Food Group. These are the three biggest customers in the sector. Our first aim is not to seek to expand in the fruit and vegetables sector: our focus is on undertaking sound projects. We also have to continue to be careful not to become too big in this sector.
Lots of family-run companies in the fruit and vegetables sector want to manage their own real estate …
If it is their opinion that it is their building and they want to continue to own it, then they have to keep it like that. That is also the case in other sectors. However, it is primarily family companies that still want to own their real estate. Primarily, they are not our target group. But if a company grows so strongly at a certain time that they have to choose between their activities and real estate, that is often when we come into the picture. Growth is dependent upon them focusing on their core business. The sector demanding a higher level of investment makes it difficult to provide funding all in one go so there is sometimes a requirement to switch over sooner to dealing with real estate with the help of a partner. That is a fact. The fruit and vegetables sector has long been a fairly closed world with everyone wishing to own their own property.
Realisations of WDP in the AGF-sector
Why do WDP and the fruit and vegetables sector make a good team?
Operating in a capital-intensive sector, WDP is an organisation that has the financial resources that can be made available in the long term. Companies know that we can join forces with them in building for the future. For example, we are now involved with The Greenery in an entire renovation and new building programme. This is a project covering three or four years. In these kind of cases we conclude long-term contracts. The economic life of cooling equipment, for example, is 15 to 20 years. It is then quite natural for both parties to consider the long term. The fruit and vegetables sector is also only well worth considering and profitable in the long term, so we match up well from that perspective. We also receive funding from our investors to make long-term investments in sustainable and new projects. We want to help seek solutions and grow with the customers, hence WDP can be a worthwhile partner for fruit and vegetables companies.
Are the Dutch and Belgian fruit and vegetables sectors comparable in terms of investments and real estate?
We regard the Netherlands and Belgium as a region. Be it in Lille or Zwolle, we operate where the opportunities arise. We obviously strive to spread our efforts but there is generally more activity in the Netherlands than in Belgium. In the fruit and vegetables sector there is a lot to do in the vicinity of Barendrecht and Westland. There is a lot of activity there which is why we also want to invest there. If ever a tenant were to bow out, the buildings are there to be used again for others. We have extensive infrastructure coverage for renovating buildings. There are old premises in the fruit and vegetables sector and there is a need for renovation. We are eager to play a part in this area Heavy investments have also been made in the case of the Rotterdam Cool Port. There are large concentrations in Belgium, but new buildings are less frequently seen in the Belgian fruit and vegetables sector.
Is the outsourcing of real estate only for major players?
They are generally major players owing to the heavy level of investment required, such as installations and machinery. Outsourcing is only worthwhile with a certain quantity. You see developments where the relevance and added value are shoved to the logistics side by retailers. As a company you have to be big enough to be able cater for this whereupon the decision is sometimes quickly taken to opt for a partner who is specialised in this area.
Is there not a serious risk of focusing just on large companies?
Size is important. We can invest heavily for huge companies such as Greenyard Foods because we ourselves are big. However, we still continue to be sufficiently diversified. It is going to be a flop if you end up saying 'this is actually too much' after hammering out such a deal. These are obviously big investments but, in the final analysis, they represent 'only' 10% of the total. Meanwhile, we are growing in other sectors and segments, while the percentage may be smaller. We have no dogmatic views about this but we never reach 50% in one sector, as that is too risky. A setback such as V&D suddenly going bankrupt is certainly not a welcome message but we can deal with it. Not even our profits outlook is on a downward path. It important for us to be independent and financially strong for our customers. We also have the in-house expertise to be able to cope with specific, large-scale projects.
Does WDP also refuse assignments?
Manufacturing companies in Western Europe are risky. You run huge risks if you decide to build certain production facilities. There have been a lot of closures in the car industry in Belgium in recent years. If you then have production facilities for Ford's suppliers… We are therefore now making a more carefully targeted selection in terms of customers. We do not take on assignments that are really specific, or too risky, or when we have no confidence in the region. I think we do refuse companies on a daily basis.
What happens when a contract expires?
Customers obviously always have the opportunity to continue and we are also happy if they do so. We of course have regular discussions with customers to get a sense of what they want. There are lots of opportunities but buildings do not generally remain empty for very long. Our main goal is not to grow but to seek the highest possible occupancy level in the existing portfolio. Some 75 to 80% of our people are involved in maintaining existing contracts.
In which countries do you operate?
In the Benelux region, Northern France and we are also involved in a joint venture in Romania. We went to Romania in 2008. During the crisis the momentum was lost to some extent but we are now gradually participating in an increasing number of splendid projects, in particular with car manufacturing companies. In terms of manufacturing Romania is a like a European China.
Do you also see opportunities in other countries?
Up to now we have had enough opportunities for growth in the countries where we are already operating. We have managed to grow by a further 1 billion and that may be feasible in the Netherlands, Belgium, Northern France and Romania. Suppose that one of our customers wants to move into a country where we do not have a presence then that becomes a bit of a problem. What use is one building in one country? We therefore cannot offer the service they expect from us and why should we look elsewhere when we have so many opportunities here?
What is the competition like in the real estate sector?
More intense than in the past. Back then, local funding was a possibility. Dutch organisations did not have any funding. Generally speaking, there was little interest in logistics real estate in the wake of the crisis. Now with the fall in interest rates there is in any case more interest in real estate, and specifically in logistics. This is because of problems in the offices, which are needed less these days. As for the retail sector, where is that going next? And logistics is the new trendy sector. We do not have to contend with any real competition in the fruit and vegetables sector but we do in the logistics sector. One of our competing colleagues is Montea, which is involved in similar activities. The company is smaller: they have about 500 million and we 2 billion in the real estate portfolio. There are not many companies that are so deeply involved in the fruit and vegetables sector as we are. It has obviously always been a closed universe and major stakeholders have long been reluctant to invest in refrigeration. Because is it was too specific and not reusable. A deepfreeze warehouse is after all very risky but we dared to take this leap.
What have been the main changes since you started with WDP?
I started working here in 1999 and was appointed CEO in 2010. We as a company have experienced a twofold level of growth during those years. It used to be mainly conventional warehouses but now they are more specific: ranging from a container terminal in the Zwolle region to a fully automated deepfreeze warehouse for a industrial bakers' group. Refrigerated warehouses have also been added for pharmaceuticals and food. The reusability and subsequent rentability of deepfreeze and refrigerated warehouses is, however, a more difficult step. The major advantages are the experience gained and the conclusion of long-term contracts.
Did you suffer a lot from the crisis?
We had some difficult years but thanks to our diversification we managed to get through it quite well. It was mainly a difficult time in terms of finance. Real estate is after all equal to debt and without debt we cannot be profitable. There was not always certainty about loans from banks, for example. Banks were always a certainty up until the crisis. When the crisis started they started looking at the small print, trying all manner of things not to offer or withdraw credit or to increase margins.
Has the current European situation had much of an impact on the real estate sector?
Not up to now. We have just made a review: we have very few companies that are really heavily or completely dependent on the United Kingdom. Nor do we have any properties there. The banks are coming under pressure again and this could result in higher debt charges Conversely, interest rates will probably remain lower for longer, which is always good news for the real estate sector. That redresses the balance, so there is still no risk at present as far as that is concerned. I do think international investors will probably invest even more outside Europe because Europe does not really have any plan. In the final analysis, this affects consumer confidence, which is never a good thing.
What do you think is the biggest challenge?
An unstable Europe. Brexit is creating uncertainty and this in turn is responsible for less consumer confidence. That leads to less consumer demand in the end. That is a major challenge for us as well. When things are not going well in Europe, the outlook is bleak for logistics. We are a supplier in the logistics sector. If consumer demand collapses and confidence disappears, everything underlying this also loses momentum. We also lose momentum. That is the most serious macro-economic danger for us. A tenant may go bankrupt but fortunately we are diversified enough to ensure the risk has a limited impact.
And the biggest opportunity?
We want to continue adopting a profile as an added value partner for the logistics sector. There are still lots of opportunities to continue developing as a specialist player in this sector and region. We are also convinced we make a difference as a result of planning together with the customer as a flexible long-term partner.
Published earlier on agf.nl