29 June 2016

Using vendor leasing to capture new markets

While vendor leasing is becoming more common for financing new machinery, it can also be put to innovative use. A recent deal closed with WDP illustrates how the creative use of vendor leasing can open up untapped opportunities for new growth.

As far as success in achieving growth is concerned, WDP is an impressive example of best practice. This BE-REIT (GVV/SIR) has focused on a niche of the real estate market: warehouses, mainly in the Benelux where it is the market leader. WDP’s plan for growth for 2013-2016: to expand their real estate portfolio to 2 billion euros and to increase the earnings per share to €5 per share. “In 2015, we reached our objectives a whole year in advance. One of the several reasons for this success was getting repeat business with our existing clients, who wanted to work with us on new real estate projects”, says Mickaël Van den Hauwe, CFO of the company in this video interview. The company subsequently put forward a new ambitious growth plan for the next 5 years.

Using vendor leasing to secure new deals

As a pure player in logistics real estate, WDP invests in a broad range of warehouse solutions. Although building standards are becoming more stringent, at the same time the clients themselves are ready to invest fairly substantial amounts in the infrastructure inside buildings, such as automation and other equipment. They need to do this in order to improve their supply chain. Today, everyone recognizes that these technological advances are a game changer. For one specific project, the client wanted WDP to invest in both the real estate and the internal infrastructure. “We worked out with WDP a one-stop-shop to offer to their client”, explains Pieter De Jaeck, Manager Corporate Lease at ING. The Vendor Lease team provided an off-balance-sheet financing solution for the equipment through a tailor-made vendor leasing product that met the requirements of both ING and its client WDP.

From machinery to warehouse equipement

Traditionally, vendor leasing is used mostly by IT and equipment vendors who use leasing intentionally as a leverage not just to boost their sales but also to control the second-hand market. “Put simply, WDP built the warehouse and fitted it with the equipment we needed. We bought this equipment from them, and paid them the fair value calculated as the Net Present Value of the monthly rents for the equipment. WDP then rents out the equipped warehouse to its client, and pays ING the monthly instalments from the leasing contract. At the end of the leasing period, the equipment is fully paid for and WDP becomes its owner”, Pieter De Jaeck explains. “Of course, the deal is more complicated than that, given the technicity of the automation equipment involved. But the important thing is that WDP was able to achieve a successful development project for this new client, thereby ensuring growth and opening up the possibility of other deals like this one in the future.”

New growth opportunities for ING Lease

By helping a new client grow, ING Lease has also developed ideas for new markets. “We were already doing real estate leasing. Even if this WDP deal was about the equipment rather than the building itself, it made us aware of potential demand for real estate vendor lease. Developers can use the vendor leasing solution to help new clients with the financing of their new offices or industrial buildings, thereby boosting both their own growth and ours”, says Pieter De Jaeck. “As a matter of fact, there seems to be a positive response from the market.”