Warehouses De Pauw Targets Self-Funded Earnings Growth

Warehouses De Pauw SCA ((BE:WDP)) has held its Q4 earnings call. Read on for the main highlights of the call.

Warehouses De Pauw (WDP) delivered a confident and largely upbeat earnings call, underlining resilient operations, disciplined capital allocation and a clear growth roadmap to 2030. Management pointed to solid FY25 results with growing earnings, very high occupancy and strong leasing activity, all backed by an A3 credit rating and a well‑defined self‑funded investment pipeline. While acknowledging investor worries around leverage, debt repricing and a higher implied cost of equity versus peers, WDP reiterated its ambition for double‑digit total returns and highlighted its energy strategy as a structural earnings driver, framing the overall outlook as constructive despite a more normalized market environment.

Strong Earnings Momentum with 7% Underlying EPS Growth

WDP reported FY25 EPS of €1.53, reflecting underlying year‑on‑year growth of 7%, underscoring the resilience of its logistics portfolio in a tougher rate environment. Management attributed this performance to a combination of consistent rental income growth, disciplined cost control and successful execution of its development and investment program. The company’s ability to grow earnings in the mid‑single digits despite higher financing costs was presented as evidence that its business model can deliver steady compounding returns through the cycle.

Near-Full Occupancy and Solid Leasing Support Cash Flows

Operationally, WDP’s portfolio remains very tight, with occupancy at 97.7% and more than 550,000 sqm of new leases signed in 2025. The normalized retention rate sits around 90%, implying roughly 10% tenant turnover but still demonstrating strong tenant stickiness. Management guided for occupancy to remain above 97% in 2026, suggesting that cash flow visibility stays high. This high occupancy and leasing momentum are central to WDP’s confidence in its earnings trajectory and underpin its ability to fund growth internally.

Robust Balance Sheet Anchored by A3 Credit Rating

The company’s portfolio is valued at roughly €9 billion, with loan‑to‑value at about 40% and net debt to EBITDA around 7.5x–8x. Crucially, WDP highlighted its Moody’s A3 rating as placing it in the top tier of European real estate peers, helping to secure access to funding on competitive terms. Management positioned the balance sheet as strong enough to support the investment pipeline and growth targets, while still acknowledging that leverage is at the higher end of comfort for some equity investors.

Active Investment Program and €700 Million Pipeline

On the growth side, WDP secured €600 million of new investments at a net initial yield of 6.8%, a level that looks attractive relative to its cost of capital. The investment pipeline has expanded to around €700 million, with similar expected yields, providing solid visibility on future income growth as projects are completed and leased. Management emphasized disciplined capital deployment and return thresholds, aiming to lock in accretive deals and maintain a focus on quality assets in strong micro‑locations.

Clear EPS Targets Through 2030

Management laid out a detailed earnings roadmap, guiding EPRA EPS to €1.60 in 2026 (around 5% growth versus 2025’s €1.53) and reconfirming a €1.70 target for 2027. Longer term, the BLEND&EXTEND2030 plan aims for at least €2 of EPRA EPS by 2030, implying an average growth rate of roughly 6% per year. These targets are backed by the existing portfolio, the identified pipeline and assumptions of moderate like‑for‑like rental growth, together signaling continued compounding of earnings rather than a one‑off rebound.

Self-Funded CapEx as a Strategic Choice

A key strategic message was WDP’s preference for a self‑funded growth model. The plan assumes €500 million of CapEx per year, fully funded internally without large equity raises. This is supported by recurring equity strengthening of around €250–300 million annually, coming from retained earnings of roughly €100 million, a stock dividend of about €125 million and contributions in kind in the €50 million range. Management argued that this approach preserves shareholder value in light of the company’s higher cost of equity, while still allowing meaningful portfolio expansion.

Energy Platform Positioned as a New Growth Engine

WDP is increasingly framing its energy investments as a strategic pillar of future earnings. Roughly <10% of annual CapEx, or about €40 million per year, is earmarked for energy projects, with the goal of reaching 350 MWp of installed solar capacity by 2027. Energy revenues are expected to roughly double to about €50 million by 2030, supported by attractive internal rates of return—around 8–15% for solar and close to 15% for batteries. Management argued that the energy platform both enhances returns on existing assets and creates a differentiated, higher‑margin revenue stream alongside traditional rent.

Ambition for Double-Digit Total Shareholder Returns

The company reiterated its ambition to deliver at least 10% total shareholder returns per year, combining NAV growth and dividends. This target is built on an assumption of a minimum portfolio revaluation just above 1% per annum and a recurring cash return on equity of roughly 7–8%. Management stressed that these assumptions are intentionally conservative, particularly on valuation uplift, and that execution on the investment pipeline and energy platform could provide upside, while acknowledging that higher interest rates remain an important swing factor.

Leverage and Debt Repricing: Managed but in Focus

Leverage and funding costs were key points of investor questioning. With net debt to EBITDA around 7.5x–8x and LTV at about 40%, some investors expressed concern that leverage has drifted higher. Management pointed to the A3 rating as validation of balance sheet strength but conceded that future debt costs will likely rise, assuming Euribor moves from about 2% today toward below 3% by 2030 and swaps increase from 2.5% to 3%. This implies ongoing pressure on interest expenses, making disciplined capital allocation and accretive investment returns even more critical.

Higher Cost of Equity and Reluctance to Issue Shares

Another theme was WDP’s relatively high implied cost of equity compared with peers. With an earnings yield near 7% and a P/E around 14, versus sector peers trading closer to 17x and names like Catena implying an earnings yield near 5.5%, management argued that issuing large amounts of new equity today would not be attractive for existing shareholders. As a result, WDP is cautious on external equity and will only consider it for clearly accretive opportunities, reinforcing its focus on self‑funding while acknowledging that this limits flexibility compared with peers that have tapped equity markets.

Market Normalization and Controlled Vacancy

Management noted that logistics demand is normalizing from the pandemic boom, with market vacancy stabilizing around 4.5–5% at the country level, though micro‑locations can be tighter. WDP’s assumptions for 2026 include a 50‑basis‑point reduction in frictional vacancy on a like‑for‑like basis, indicating continued confidence in asset quality and location. Like‑for‑like rental growth is projected at around 2% in 2026, driven by indexation just under 2%, about 50 bps of rent reversion and a negative 50 bps effect from occupancy friction.

Permitting Delays and Execution Risk in Development

Operational and permitting delays emerged as a key execution risk in the development pipeline. Management cited examples in France, including Dunkerque and Le Havre, where permitting timelines can stretch over multiple years. In one case, an environmental investigation related to bird habitats significantly extended the permitting process. These types of delays can push back project start dates and revenue recognition, adding uncertainty to the timing, though not necessarily the quality, of WDP’s pipeline.

Occupancy and Lease Renewal Exposure

Despite high occupancy levels, WDP acknowledged renewal risk as leases roll over. With retention normalized around 90%, the company expects roughly 10% of tenants to churn each year. For tenants with break options in 2026, about two‑thirds had already prolonged their leases at the time of the call, while around one‑third remained unresolved, leaving some visibility gap. Management presented this as manageable within the broader context of strong tenant demand for quality logistics space, but investors will be watching renewal progress closely.

Capital Allocation Flexibility Under Investor Scrutiny

Investors pressed management on its preference for internal funding and cautious stance on equity issuance, especially as some peers have raised fresh capital to accelerate growth or de‑lever. WDP’s leadership reiterated that they will not commit to equity issuance unless it is clearly accretive, arguing that raising capital at today’s valuation could dilute returns. This disciplined approach was framed as shareholder‑friendly, but it also means that balance sheet optimization and growth must be carefully balanced against higher financing costs and existing leverage.

Accounting Treatment of Energy Assets Sparks Debate

There was also discussion around how energy assets—mainly solar and battery installations—are treated in WDP’s accounts. Questions focused on depreciation assumptions, useful life and how these assets influence leverage and debt/EBITDA metrics. Management clarified that energy assets appear on the balance sheet and their contribution is included in EPRA earnings, but acknowledged ongoing debate among investors regarding the most appropriate way to reflect these long‑duration, infrastructure‑like assets in financial ratios. This accounting discussion matters because it shapes perceptions of both leverage and the quality of earnings growth from the energy platform.

Guidance Reaffirms Steady Growth and Self-Funded Expansion

Looking ahead, WDP reaffirmed guidance of €1.60 EPRA EPS for 2026, roughly 5% growth over 2025, along with a €1.70 target for 2027 and at least €2 by 2030, implying about 6% annual growth on average. These projections are underpinned by a portfolio expected to grow from about €9 billion to over €10 billion, occupancy guidance above 97%, retention near 90% and more than half a million square meters of new leases already achieved in 2025. The plan assumes €600 million of secured investments at a 6.8% yield, a €700 million pipeline on similar terms, €500 million of annual CapEx fully funded internally and recurring equity strengthening of €250–300 million per year. Management also expects like‑for‑like rental growth of about 2% in 2026, minimum portfolio revaluations of around 1% per year, stable LTV around 40% with net debt/EBITDA at 7.5x–8x and energy revenues to scale toward roughly €50 million by 2030, collectively supporting targeted double‑digit total returns.

In summary, WDP’s earnings call painted a picture of a logistics landlord with strong fundamentals, a visible growth pipeline and a clearly articulated strategy to compound earnings through 2030, largely funded from internal resources. The company’s high occupancy, disciplined investments and growing energy platform support management’s confidence in delivering double‑digit total returns, even as they navigate higher funding costs, elevated leverage and a more normalized demand backdrop. For investors, the story hinges on WDP’s ability to execute on its pipeline, manage refinancing and maintain its A3 balance sheet strength while proving that its cautious stance on equity and its energy investments translate into sustainable, shareholder‑friendly growth.