LondonMetric Property Plc

Great morning, ladies and gentlemen, and welcome to London Metrics' half-year results presentation. It's very rare that we're in such salubrious accommodation as this. I hope it's rent-free. It's an office building, it must be. sorry cheap shot okay that's the tick tick derwent off right go down the list in a minute right so normal line up this morning I'm going to give you a quick overview I'm going to hog all the good numbers pass over to Martin he'll do a deep dive for you then I'll come back to talk about our activity and the make up of the portfolio and our outlook for the periods ahead and then we'll open it up to Q&A. And we have our team in the front row, which actually now includes Carl, which is good. So any really difficult questions are going his way. And then hopefully we'll be all wrapped up by about 11. So... OK. So... We retain our position, in our opinion, as the UK's triple... or leading triple net income REIT. Our objective is to continue to own mission critical assets across the winning sectors of real estate. I'll come on to talk about this a little bit later because it is a theme throughout the presentation. We want to make the right macro calls. Logistics is our strongest exposure, partly because it gives us the best rental growth. So that's back up at 54%. And then we have our hospitality entertainment, which is dominated by our hotels and our theme parks at just under 50%. 18%, and then our convenience retail assets at 14%. So those are our three key areas, with healthcare making up the fourth. As a result, our objective must be to grow our income. That's what we are. We are a triple net income compounding business. And our net rental income, as you can see in front of you, is up 15%. Again, we'll come on to talk about that in a little bit more detail. And that has obviously allowed us to progress our dividend. We announced this morning a Q2 dividend of 3.05 pence, which gives us 6.1 for the period, which is up 7% on where it was last year. And obviously, we expect that to continue. We are well on track for our 11th year of dividend growth. We also operate the lowest cost platform in the sector, with the sector leading at per cost ratio down from, I think, 7.8 at the full year to 7.7. And despite Martin's objections, we obviously think that that should fall lower in the coming periods. The portfolio is focused on reliable, repetitive and growing income. It's a strapline that we've now used for many, many years. It doesn't need to change. And that is supported by, again, 5.2% light flag annualised rental growth, and that's largely been driven by two things. Uplifts on rent review, you can see there 18% is our average uplift. Open market was at 24%. Our open market logistics was 27%. And then our leasing and re-gears delivered another 24% above previous passing. So that's what, you put all those together, that's how we deliver that 5.2% annualised income growth. In the period, this translated into 10 million of additional rental income. And again, we'll come on and talk about, we've got a good slide on this later on in the presentation. We have a further 28 million. million that we expect to collect over the next 18 months from rent reviews and lease renewals. We expect that and hope that will be higher because it doesn't include asset management initiatives and it doesn't include the leasing up of vacant space that we currently have in the portfolio. The total property return, you see it there at 3.3%. We come on to talk about that in a little bit more detail later on in my second stint. So turning then to the financial highlights, EPRA earnings were up at 148.6 million. That's driven by a 15% increase in our net rental income. You see there on the right-hand side. That has driven an increase in our earnings per share at 6.7 pence, up slightly on where it was this time last year. But equally important, it's 28% higher than where it was in September 23. So we've seen a 28% increase over the last two years in our EPRA earnings. And that has allowed us, as I touched on on the earlier slide, to increase our half-year dividend to 6.1 pence. Again, that's up 7% in the year. It's actually up 27% over the two years. Total accounting return for the period, 4.1%. If I exclude the huge banking fees that we paid in our various M&A transactions, if you strip those out, it's at 3.3%. Portfolio value is up 22% to £7.4 billion. relatively flat at per NTA, up on where it was a year ago, flat on where it was in March at 199.5 pence. And our LTV is up marginally at 35%, and that reflects the £200 million cash component of the urban logistics acquisition that we completed on earlier in the summer. And we feel pretty comfortable with that. It may go up, it may go down. That will be dependent upon opportunities that we see by and large in the investment market. And then just, again, to steal one of Martin's slides, the dividend, I should say, you can see there, 111% covered with a full cash cover as well. So on that note, I'll pass over to Martin, and then I'll come back to take you through the portfolio.

All right. OK, so morning. So there's nothing here he hasn't covered. So I'm going to do it anyway. So following an intense period of M&A activity and asset recycling, we've delivered very significant earnings growth and dividend progression. Pleased to report net rental income is £221.2 million, an increase of 14.6% over last year. The acquisitions of Highcroft and Urban Logistics, which contributed only for four and three months respectively, and other acquisitions during the period have added £27.6 million of additional rent. We've also added £6.6 million of additional rent from our existing properties and developments. We lost £12.2 million of rent from asset disposals during the period. Our rent collection remains exceptionally strong. We've collected 99.5% of rents due. Our gross to net income leakage remains very low at 1.5%. Our administrative overhead for the period is £14.6 million. And our EPRA cost ratio continues to be sector-leading at 7.7%, I think reflecting operational synergies and the culture of cost control. The increase in overheads in the period... is almost exclusively headcount and remuneration costs. Our headcount is now 54, up from 48 at the year end. That's a combination of former urban logistics employees, but also new recruits that we've made to ensure that we have the right level of resource and the right skills for the enlarged business. Our net finance costs have increased to £59.7 million compared to £45.4 million last year. That's an increase of 31.5%. This was due to the additional £484 million of debt from our corporate acquisitions. That came in at an average cost of 4.26%, which compared to LNP's cost of debt at that time of 4%. We've also run a higher drawn debt balance during the period. So despite the increase in financing costs, that tight cost control on top of revenue growth, income growth, has driven our EPRA earnings to £148.6 million. was 6.7 pence per share, an increase of 9.7% over last year, and supports the increase to the dividend, which I think Andrew only mentioned actually three times, for the period to 6.1 pence per share, providing very strong 100% dividend cover and, importantly, full cash cover. So our trading performance has been strong, with the portfolio valuations increasing by £29.1 million, allowing us to report IFRS profits of £130.3 million. This actually reflects a reduction on IFRS profits compared to last year, but it does include the full impact of M&A acquisition costs and goodwill impairment in the period. So there's been further significant change to the balance sheet this period, as it reflects our most recent M&A. The acquisition of Highcroft added £81 million of investment property to the balance sheet, and the acquisition of Urban Logistics a further £1.14 billion. to bring the total value of the portfolio to £7.4 billion. In addition to our M&A activity, our active asset recycling has delivered £125 million of other acquisition, development and capital expenditure, partly offsetting the divestment of £155 million of non-core assets. This, together with our revaluation uplift of £29.1 million, has contributed to the increased portfolio value. Gross debt, which I'll come on to in a moment, is £2.8 billion and the cash balance is £206 million. The other net liability position at the period is £116 million. Rents paid in advance accounting for £78 million worth of that amount. In summary, therefore, our EPRA net tangible assets at the year end were £4.67 billion, or £199.5 per share, producing a 4.1% total accounting return after adjusting for those M&A costs and goodwill impairment. So, as I've said, our gross debt balance is now £2.8 billion. The increase is partly the result of our M&A activity through which we acquired £484 million of new secured debt balance facilities and also other new facilities entered into during the period, which I'll come on to on the next slide. Our debt maturity now stands at 4.2 years compared with 4.7 years at the year end. We expect to maintain that level of debt maturity by the year end despite the passing of a further six months as we launch into our public bond programme. Our average cost of debt is 4.1% compared to 4% at the year end, and we do not expect our finance costs to increase materially as we manage debt maturities over the next three years. Our net debt to EBITDA stands at 6.9 times, which is trending downwards as our earnings increase and is comfortably within our upper limit of 8.5 times. Our policy continues to be to limit our exposure to interest rate volatility and by entering into hedging and fixed rate arrangements. We acquired 140 million of interest rate swaps through the urban logistics acquisition at an average cost of 3.2%. We continue to be well protected against adverse movements in interest rates, and at the period end, our drawn debt was 94% hedged. As a result of the £205 million cash component to the acquisition of urban logistics, our LTV is now at 35.1% compared to 32.7% at the year end. Looking further forward, we'll continue to manage our debt arrangements to ensure that refinancing risk is mitigated and that we're able to take advantage of our increased scale and credit rating to diversify our funding sources. We strengthened our financial position in the period by completing two new unsecured revolving credit facilities totaling £350 million with new lenders at margins below our existing comparable facilities. We completed a new three-year unsecured term loan of £180 million at an even tighter margin and we entered into a new £150 million US private placement as a credit spread ahead of any other private placement by any European REIT in the last three years. That amount was drawn post-period end. And since that period end, we've entered into further facility for £50 million with a new lender at a margin of 125 basis points. Crucially, I think this new well-priced liquidity has allowed us to repay On maturity, facilities post-period end with AIG, LNG and Canada Life, which bore fixed rate pricing materially more expensive than our new debt facilities and was therefore earnings enhancing. Additionally, we repaid the most expensive tranche of our urban logistics debt of £57.3 million, which was costing us 6.17%. As I said in the summer, our successful credit rating now allows us to plan for possible future debt capital markets activity in the form of a public bond issue to cover debt maturities in finance years 2027, 2028 and 2029. We are preparing for such an issue and expect to be active imminently. Our contracted rent roll at the period end now stands at £421.1 million with the inclusion of rent on the Highcroft and Urban Logistics acquisitions. Additional rent of £9.8 million in the period was generated from active asset management, rent reviews and re-gears. Looking further forward, reversion within the LNP portfolio and the newly acquired Urban Logistics portfolio is expected to add £28 million of contracted rent. The rent roll will increase as a result to £450 million. This is, I think, a conservative view of growth post-period end, as it takes no account of that active asset management initiatives and initiatives not yet executed and the letting of vacant properties. This generation of significant earnings growth supports our confidence that we will continue to be able to grow our earnings and our well-covered dividend. With this in mind, we have increased our quarterly dividend payments, as Andrew said, for HY26 to 3.05 pence per quarter, an increase of 7% on HY25. And then finally, just that look back at the last 11 years now, during which we've been able to increase earnings per share more than threefold. We're in our 11th year of dividend progression with excellent dividend cover and significantly ahead of the growth in CPI. Our total property return is strong, an 11-year CAGR of 10%, a very material outperformance against the MSCI or Properties Index. Our total shareholder return, driven both by share price appreciation and dividend progression, equates to a compound annual growth rate of 10%. On that note, I'll hand back to Andrew.

Okay, thanks, Martin. Right. So this is a look at how the portfolio sits today. £7.4 billion split really against those four key sectors that I touched on in my opening remarks. Logistic now up from 46% to 54%. Our largest investment, as you can see there, at about £4 billion. And that is driving and delivering the strongest rental growth. And we see that continuing over the next few years through rent reviews and lease renewals. Hotels and leisure remain a key beneficiary of the shift in discretionary spending. And in the period, we've continued to add new premiering investments through a sale and lease back transaction with Whitbread. And hopefully we have more to come. Our convenience investments is very much around the grocery sector. We're Aldi, we're Lidl, we're M&S, we're Waitrose, we're Home Bargains, a bit of B&M sort of thing. We're not the big supermarkets. And that we see delivers great, great solid income with around about 3% rental growth to come. In healthcare, we're working with Ramsey on initiatives that will improve the profitability and the desirability of our private hospitals. And both from their perspective and for ours, and we're hopeful, that we'll be able to talk about that shortly. But overall, as you can see from the numbers there on the right-hand side, it remains reversionary and on track, as Martin showed you on his last but one slide, to deliver further increases in rent over the coming years. That 3.3% number that you see there at the bottom of the column is effectively the CAGR of the 18% on the rent reviews and the lease renewals that I touched on in our opening slide. We actually see that accelerating a little bit over the next couple of years. And that will be as much around reversions as around how many reviews are coming through and where they sit. So, investment activity, the macro environment remains uncertain. We still believe that interest rates are the yardstick by which all investments need to be assessed. Current swap rates, they move around. I mean, I think they peaked this year at 412. And I think about this time last week, they were down at 357, which was very exciting. And then all of a sudden, we're up about 15, I think we're 373 today. I mean, it just it creates uncertainty and that without a doubt impacts on liquidity, particularly on the larger lot sizes. I mean, we put in here, you know, 20 million is a number and we could bring it down a little bit. We could move it up a bit. But 20 million is what we think above that. We think that it gets more difficult because it does require. some debt buyers. However, we are enjoying much, much more success, greater liquidity in the smaller lot sizes. We've sold year to date 212 million pound of assets, average lot size of 6 million. So that's an awful lot of transactions. I think it's 36 transactions in the period. And we are dealing with a completely different array of buyers. There's a lot of owner-occupiers, family offices, small property companies, local authority pension funds. And we are transacting in a wide range of assets. Pubs, hotels, garden centres, children's nurseries, food stores, DIY stores, warehouses, waste disposal facilities. I mean, we've got them all. We have got them all. So we are seeing an unbelievably wide church of buyers and probably as wide a type of buyer that I've witnessed in a long time. I mean, I meant I made a comment the other day in the board meeting. I think we we've done and transacted on more sales to owner occupiers in the last three years than I've done in my previous 30. OK, so it's a different market. And the small lot sizes that we have is a massive strength for us. On the acquisition side, obviously that £1.4 billion that we've done year to date has been in the winning sectors that are going to deliver us the best income growth. It's obviously been dominated, as Martin's touched on earlier, with the two M&A transactions. And not surprisingly, it is about reinforcing our logistics, our hotel, our convenience retail and roadside, which are continuing to offer up, we think, superior rental growth prospects. And then the opportunities are coming from really four or five. We cut this, you know, we changed how we cut this really. It is saying a lease backs. I referenced the Whitbread transaction that we did earlier in the year. Development fundings, you know, we enjoy development fundings. A lot of developers are short of money and we're only too happy to help them, providing it's in our winning sectors. And it's predominantly been logistics and grocery food as we continue to strengthen our partnership with some of our key operators like Marks & Spencers. And then the pension fund industry is going through a dramatic shift, moving from DB to DC. That is throwing up portfolios. A lot of corporate pension funds are coming out of direct real estate, and that is throwing up an awful lot. And it's not hardly a week goes by that you might read something in one of the papers or one of the sites, React or Coast or whoever, suggesting that so-and-so is selling their properties either in whole or a or in part. I mean, Santander recently has been in the news. St. James's Place has been in the news. And we're seeing opportunities from that. I mean, we announced on Tuesday the acquisition of two assets from a Columbia Threadneedle portfolio that was probably sparked either through expiry or redemptions. And so we hunt there pretty aggressively. And obviously, The fourth one, which obviously I can't talk about, is other opportunities that we might see in the listed sector through additional M&A. So our M&A activity, so we've done four public takeovers over the last two years. That has added £4.4 billion worth of assets. But more importantly, it's added £267 million worth of new rental income. And it's been a source... It's obviously given us great scale, but it's also given us a great improvement to our earnings. We have, as we regularly update the market on, successfully exited a lot of the non-core and some of the weaker assets. I mean, over those two years, we've sold £372 million worth of these assets. That's 8% of the assets that we've actually acquired by value, largely in line with our acquisition prices. Some are up, some are down, but I think we're virtually bang on at the moment and I'd like to say that that was an incredible skill. I suspect there's a bit of luck in there as well. As you can see, out of the 465 assets that we've acquired, we've actually sold the smaller ones, which we sold out of 89 of those. I mean, I'm not going to go through the individual companies that we've acquired and the progress we made because it's there for you to read just as well. But, you know, the fact of the matter is the core assets that attracted us to these businesses in the first place are delivering for us. You know, rental uplift is 12 million since acquisition. And again... This goes into that £28 million I talked about over the next 18 months. 17 of it is arguably going to come through from some of the acquisitions that we've made over the last two years. So that's the rub of why we like these companies. We see them being pregnant with rental growth and maybe the property market or indeed the equity market hasn't valued that potential growth maybe as accurately as maybe we think we might have done. So we run an occupier-led business model. It helps frame our buy, hold and sell decisions. But as well as buying, choosing the right sectors and buying the best assets in those sectors, we also actively manage our income granularity. Over the last... six months, our top 10 occupiers are down from 38% to 33%. Our top three occupiers are down from 27% to 22%. We obviously want to own the right space, and we want it let on the right terms in the right location. But one of our key things under this occupier-led business model is occupier contentment. We're very close to our customers. We want to do more deals with them. We want them to be happy. Our test is that we, particularly at the operational side of the businesses, so things like the theme parks, the hospitals and the hotels, we are targeting a rent EBITDA ratio of 2x. OK, that's a magic number because that then ensures not only contentment, but it also gives us much better asset liquidity. And we see that I should say pub market, the pubs as well, by the way, would fall into that as well. And that gives us the comfort of income durability. So, you know, we look at something like that 2x test and we expect all of our investments to hit that. And if they don't hit that, we will have looked or have executed or are looking at exits. So, you know, if I look around there, if I take Merlin as an example, that's a business that will hit our targets in the UK. It's a business that has strong sponsor support. It was a take private, for those of you old enough to remember it, for about £6 billion by the Lego family, or Kirkby, which is its name, the Christensen family. Blackstone, CPPIB of Canada, and the Wellcome Trust. It's also a business that has significant freehold properties. I think 50% of their earnings that Merlin report worldwide comes from freehold assets. And so, therefore, it is what we consider to be an asset-backed business model. They recently sold 29 of their Lego Discovery Centers back to the Christensen family for $200 million. So they have these various levers when they need to raise money. UK profitability in 2025 is running ahead of 2024. And we have the added comfort in this business that we have the top operating company. And let's remember, we are talking here about a worldwide business that is the second largest entertainment firm in the world after Disney, I think. There might be other people who claim to be that, but we think they're the second largest. So asset management, I think I've probably touched on most of these key numbers, like flag income growth, high occupancy. 67% of the income enjoys contractual rental growth, which gives us great comfort to support the numbers that Martin had in his slide, the 28 million that we've already touched on. And then interesting, I think in some ways, if you said to me, you've got one slide to take away, this is my favorite slide. because this is what it's all about. This is what proves whether or not we've made the right investments in the right sectors and bought the right buildings. Rent reviews over the period gave us an uplift of 18%. Our urban... Reviews are up 22. Urban open market was up 27, which is what I referred to before. And then lettings and re-gears, you know, again, this is the ultimate test of the desirability of your buildings. You know, the fact you're able, you know, tenant can occupy contentment. People don't re-gear buildings if they don't want to be in them or if they're not happy. And on average, those re-gears have been struck at 24% above previous passing rent. We have some vacancy. We inherited a little bit of vacancy under the urban logistics acquisition. and we're working through that, either through leasing or through disposals. But that obviously – we're at 98.1. Personally, I think that's a little bit low. We need to be targeting 99-plus. Ideally, I'd have 100, quite frankly, or maybe just that. So the asset management team have certainly contributed and helped drive that annualised like-for-like income growth of over 5%. So when I think about the outlook – I'm not actually sure, but I'm pretty confident that this slide actually might have been exactly the same six months ago, so it just shows. Well, I'm really moved on, is it? So macro events will continue to dominate investor sentiment. You know, I've talked about the gilt and the swap rates always influencing the property investor markets. I say always. It wasn't always the case, but it certainly feels like it's been the case for the last few years. However, we do think the consumer is in good shape. Savings ratios are good. Employment is good. Wage growth is good. And, you know, interest rate cuts and a decelerating rate of inflation that we got yesterday, was it, I think? Maybe the day before. We'll continue to improve confidence. We just be nice if we got a little bit more confidence coming out of number 11 Downing Street. And I think but we are in quite good shape. You know, there are times when I probably stood up here and I've taken questions on credit card debt or unemployment rates or low wage growth. I don't think those apply here today. And by the way, I think we're in a very different situation to America today. I'll expand on that later if anybody's interested. In the real estate sector, I think there are structural cracks between the winners and losers. I think for us, we're looking for organic rental growth, contractual rental growth without capex. There are lots of sectors that are talking about high headline rents, but those have been bought through improved building qualities and facilities. tenant incentives. I'm talking about organic rental growth here. That's what you get in a rent review. That's what's great about a rent review. Lots of people talk about ERVs, but ERV doesn't pay the dividend. Cash does. Rental growth does. And we're seeing why we want to be in logistics, because we're still collecting that inbuilt reversions. It's coming through. It's like a helicopter chucking cash at you. I mean, it's just a wonderful, wonderful feeling. And we think that our scale, as Martin and I have already touched on, continues to improve our efficiencies and supports our triple net income strategy. We expect to see further consolidation in listed markets, with or without us. We think it will take place. Without a doubt, the structural shifts in the institutional pension fund market is throwing up opportunities, and we would be disappointed if we weren't a beneficiary of that over the coming period. And that we expect, as a result of all of that, we expect further income growth, we expect further earnings growth, and we expect further dividend progression. We are well on our way to our objective for dividend aristocracy. Only another 14 years, okay? And I expect to be here for it. So on that note, thank you very much for the last 33 minutes of listening to us. And obviously, questions either in the room or on the phones would be very welcome. Ladies first. Vanessa.

Hello. Good morning and thank you for the presentation. Vanessa Guy from J.P. Morgan. I'm having a look at your slide 13 where you show your four main core subsectors in real estate. It's been a moving target in terms of your buy, hold and sell targets. And my question is, over the next six to 12 months, is there anything that stands out that you want to streamline probably and grow in another subsector? Anything that you have as an internal target? And are there any other sectors that are not there that you're interested in and possibly trying to build up?

Okay. So the first thing is I never give the guys and girls the targets because they have a habit of hitting them and they hit them quickly. So, you know, our logistics has moved up to over 50%. If it went to 60, that would be because we found some great opportunities. If it went to 50, it's because we found some opportunities to sell at amazing prices to people who coveted our assets more than us. Entertainment and leisure at 18, that's down from 21% at the beginning of the year. I could see us buying some more. We like the budget hotel market. You know, we've been selling out of some of the smaller travel lodges. It's a market we actually understand pretty well with brilliant relationships with both Travelodge and Whipbread. We'd like to maybe add a little bit more into that bucket. Convenience retail is great. But, you know, our ambitions there are only hampered by the lack of opportunities. You know, most of the investments we make there are fundings or our own developments. I mean, I think we're on site at the moment with four or five M&S Simply Foods across the portfolio. And obviously that will nibble up that, push that percentage up a little bit. And healthcare, Martin's repaid the debt, the secure debt on the hospital assets. We're working through some asset management work with Ramsey. Let's say we have a fantastic relationship with them. That might improve liquidity and desirability. We'll have to see. It seems to be a hot topic at the moment, that sector. But we don't have any targets. And just in terms of new sectors that you touched on there, Vanessa, what these we try and keep. I mean, I'm colorblind, so we can't do very many more colors. But within these colors, within these sectors, there are subsectors. So in logistics, there's mega regional and urban entertainment and leisure. There's the theme parks and there are the hotels. In convenience, there is the discounters, the drive through restaurants. I mean, we own 77 drive through restaurants. Chances are one of you is shopping or buying goods in one of our drive-thrus all the time, OK? But that's inconvenience, as well as our Aldi, Lidl's, M&S's and Waitress. Healthcare is essentially the hospitals. So there are nuances. And actually, some of those subsectors move at slightly different paces. You know, we're getting... We're getting good rental growth, for example. We get better rental growth arguably out of DIY at the moment than we might be getting out of GM. We're getting better rental growth maybe in urban than we might be getting out of regional. So even within those colours, the subsectors move at different speeds. Anna? Anna?

Thank you. Ana Escalante from Morgan Stanley. So my question is regarding logistics market rental growth. It's true that we're coming from very strong years and that market rental growth has decelerated a bit. Do you think that that's just the normal digestion of those previous super strong years? Or do you think we are starting to see some affordability issues here and there? Another way to ask the question is, at what point we can start seeing rents being too high or resulting affordable for some? Or shall we expect that urban logistics rental growth to reaccelerate next year?

Great question. Again, it goes back to the answer I gave before around different parts of that logistics market moving at different speeds. We certainly see urban the strongest, and that is simply a demand supply issue, except in London. Come on to talk about that, because I think that was your second part of one of your first question. So urban feels good. You know, that's for us that obviously urban is defined by geography, but we also define it by size. So we'd be 100,000 square feet down. We feel OK. Regional we define as 100 and a bit up to about 350 ish, give or take. That market definitely has supply opportunities. that's been delivered on a spec basis. I mean, there are people out there that do do spec developments, which I don't understand, but anyway, they do. And also maybe a pullback on demand of capital capital commitments and whatever with an uncertain economic environment going forward mega's fine as well because mega tends to be pre-let and built a suit so there's not a lot of i mean there's some people who i admire enormously who go off and build a million square feet spec i mean you've got to have i mean that is ballsy but good luck to them and i hope they do well um so i think it's okay but there is a bit in the middle that that where i think net absorption needs to increase what i would say and this applies not just to logistics but it also applies to We're seeing it very, very directly in our convenience retailers as well. We can't get developments to stack up. It's really difficult to get developments to stack up. And that suggests rents have to push up. But that might take a year or two to fold through whilst the net absorption – I mean, I think we had the biggest take-up, didn't we, guys, in the last – big take-up in the last six months – London is tougher for us. Even in urban, it's tougher. I think there's more of an affordability issue in London than there is anywhere else. But it's had dramatic rental growth, so it's not surprising. I take the view that most things revert to the mean over a period of time, and that's what I suspect London's doing. London will still enjoy a great supply-side dynamic, but maybe the demand side at the current rents is a bit soft. I mean, I think our flagship sale probably about a year, nine months ago, ten months ago, we sold a warehouse that we bought in Parsons Green, which for those of you who know Fulham, there's not a lot of warehouses in Parsons Green. And we ended up, we were going to let it originally to a dark kitchen. Thought getting planning for the dark kitchen was going to be a bit tricky. You know, as little mopeds going up and down the streets was not going to be overly popular with the finite residents of Fulham. And we ended up letting it to a leisure operator who put in a fantastic facility for both adults and children alike and did an incredible fit out. And we ended up selling it, I think, for just over £1,000 a foot. I think it was about £1,060 a foot, which is probably about what this building's worth. But that rent was £50. So that would be trickier. Yeah. Sorry. Max. Max, behind you.

Great, thank you. It's Max Nemo from Deutsche Numis. Just a higher level question, kind of related. I was speaking to Martin before about kind of economies of scale versus opportunities of scale. And just in terms of cost efficiencies on one side, as you said, about the 7.7% to average cost ratio, but also the ability to kind of move the needle at the other end. And I guess my question is around if you're still doing deals around that sort of 6 million quid lot size.

We're not buying six.

OK, but if the lot size still remains relatively small, are you not effectively working the team harder and everyone having to run faster to kind of keep going at the same pace?

Definitely a lot. We're not a charity. No, look, our average lot size on acquisitions would be significantly higher than that. In fact, you would actually argue today. a very strong case that the arbitrage available in the direct market is to sell the smaller assets at six for very good pricing and reinvest them at 50, where the air is a bit thinner and the competition is less, and therefore you get a slightly better deal. But don't forget, you know, what we're buying is not high operational assets. I mean, Will bought a portfolio of Premier Inns a few months back, let on 30-year leases. I mean, he'll probably be the only one who's seen them. You know, I have no intention of, you know, I don't have to worry about them. I mean, they're going to compound beautifully over the next, you know, the next 5, 10, 15 years. It's going to be wonderful. But that doesn't need a huge amount of skill. I

That makes sense. Thank you. And maybe just a kind of a follow-up. You talked about the sort of four to five opportunities that you have. In fact, there are four that are on the screen there. Maybe if we park M&A to one side, given there aren't as many businesses left for that now. But... I guess just the opportunity set, how would you kind of rank them? It sounds like there's a lot that could come out of these sort of pension funds, but there's perhaps a bit of a learning situation needed for them in terms of what their NAVs are and how that kind of unlocks. Maybe just if you could rank them in terms of how you're thinking about them.

Well, one and two are amazing. You know, so sailing leasebacks and development fundings are amazing because those are the those opportunities. Effectively, you've got brand new leases and those are very often scenarios, situations where you can influence the lease, not just the rent, but the rent review clauses and the term. So those are fantastic. We like those, but we're obviously not in control of how many of those opportunities will present themselves. I mean, we're working on a big same lease back at the moment. We're working on a development funding at the moment with one of our key customers. And we are absolutely, in development fundings, we want to be the occupier's partner of choice. We want the occupier to say to the developer, can you fund this through another metric? I mean, that's really what we want them to say. And we had an example of that in the period. Fund expiries and pension liquidations, you know, Darren deals with this. They're coming. There is a value issue to your point, but, and there's also a timing issue. You know, when are they coming? You know, managers are not, They seem to be more willing to drip things out and keep the fee train running for a bit longer than literally, you know, come up against a hard deadline. But look, you've got to be in it. We're buying tickets. We're doing a lot of talking on it. You know, we've, you know, we'll executed the, you know, those assets that we announced on Tuesday from, you know, well, and we've got a few others that we're working through. But it is coming. I mean, you've seen, I think Lone Star did the St. James's Place event. portfolio didn't they last week um and then so and it's either the and then also the strategies that these managers employ is different um sometimes it's being most often it's being led by the by the investors putting in redemption notices so they if you might have a reluctant manager and then there's whether or not they do the whole lot or whether or not they chop it up you know, into sectors to try and get maybe a slightly better price. Again, I mean, the whole thing about real estate is you're never in control. We don't sit there, go press a screen. I know what we want to buy, but it's not on the screen. You know, it doesn't appear on a screen like it might do in the equity markets. And so I think, look, I would, I mean, I do love one and two. I mean, I do love one and two and three is going to be pricing dependent and four we won't talk about. Great, thank you.

It's Matt Saphira from Peel Hunt. Martin, you're looking like you need a question. I really don't. You sure? I think you talked about or you showed earlier on the debt maturity profile. You've obviously got a current cost of debt that's below the market rate. Yeah, I think you also mentioned that you don't expect your financing costs to go up. So can you just talk us through how you get to that conclusion given the maturity profile and the cost?

Yeah, absolutely. So we have a series of refinancings coming at us. And when you look at our debt stack, it's too weighted in favor of our relationship banks, and there's not enough bond debt on it. We've done various private placements. We've never done a public bond. When we got our credit rating earlier in the year, that was the precursor to a public bond. We will do a series of those coming up. When you then look at what happens to our financing costs, you stop paying commitment fees on undrawn RCFs. and you stop paying the fair value amortization on the debt we've acquired through M&A. And that is a lot. So if your interest rate may nudge up, or your amortization of your costs of putting the debt in place may nudge up, but the compensating fact that you don't have those other two components of your finance charge means it is almost exactly flat. going forward over the next three or four years. So our cost of debt could go from 4.1 to 4.3, but the number you see in the income statement for finance costs won't change.

He's just saying that the lending banks have just been robbing us. Steve, you want that?

You weren't going to get away with it, were you?

Good morning. Good morning.

It's Suraj Goyal from Green Street. Just a quick question on e-commerce. So I just want to understand what your base case forecast is for 2030 and beyond and how that sort of reconciles with the recent normalization that we've seen. you know also with sort of return policy changes for a lot of e-commerce players etc and then you know what that would look like in terms of long-term rental growth

Let's stand up here just in case my mic's not working. We form our strategy and sector investments is based off evolving consumer behavior. UK penetration into online shopping is excellent. I mean, we're world class. But it doesn't stop. I mean, it's a bit like when retailers used to say to me, or retail owners used to say, oh, we've rebased the rents. It's as if it stops. But there is an ongoing generation that actually enjoy the delivery of online shopping rather than the destinations that maybe my parents might have enjoyed more so. So we still think it'll continue. We think that it will continue. that it needs to get more efficient. And we're seeing operators increasingly putting more money into automation in order to make that work because there's no point having it. It has to be profitable. I'm not convinced that that influences our investments in urban logistics as much as it might in mega. But we still think it's a trend that as we move through generations and my children become the key shopper, the idea for them of wanting to go to St. David's or wherever it might be, whichever shopping center it is, it just doesn't exist. They want to buy online. So I think it's an attractive tale. You might argue that the bigger jumps are behind us, but we still expect it to grow. I think food is different. I think food is different. And that is probably, I mean, obviously jumped from about seven to 15 during COVID. And then it's come back. I think it's settled about 11, depending on which grocery you talk to. And that's different. But we are seeing, you know, we are absolutely seeing those operators investing in their facilities, particularly cold facilities. So we're building a cold facility for M&S down in Avonmouth in Bristol. So we think it will continue to grow. We think it's supportive. But also what we'll also expect is that the occupiers will want more efficient facilities. Their network needs to get more efficient if they're going to be able to use that to drive profitability. It wasn't that long ago when I could have stood up here and people talk about online shopping, but nobody makes any money doing it. Actually, I haven't had that question for a while because I used to just redirect them to the next report and accounts actually to see how profitable it actually was. Thank you.

Morning, Eleanor from Barclays. The exposure to your largest tenants has been coming down partly as a result of your acquisition activity elsewhere. Are you happy with the current top three concentration? I see it's below 2019 levels. Or if not, are you looking to accelerate reduction or happy to carry on diluting over time?

So, thanks Eleanor. Look, I was asked actually on a call, a press call earlier about what are your tests on tenant exposure. So the hard deck was always 10, although we did take that up to about 11 and a bit a few years back when Primark was our largest customer. And then we ended up selling one of the big facilities and bringing it back down again. So 10 is a hard deck. I think, you know, we would like to improve. I would like us to improve our granularity so that nobody's more than five. And we will look to do that over the coming years. But this is what happens, isn't it? You know, when you buy portfolios or you buy companies, you know, sometimes it's not all perfect because if it was, somebody else probably would have taken them out before you. But, you know, and again, so therefore, you know, there will be a sell down. And we're already making progress on that. So it's a combination of that. Obviously, as we've improved, increased the size of the business, that has brought some of the concentrations down a bit as well. But income granularities, as I said on this, is an important part of our business model. But understand, an occupier contentment overrides all of this. So, yeah, I'd absolutely expect it to stretch a bit. You know, when we announced the... about 20 months ago now that we announced the deal with LXI, we were going to be the proud owners of 146 travel lodges. And that really bothered me. And I now think we have 63 travel lodges. So there are levers that we will pull.

Thanks. It's Tom Musson on Berenberg. And actually just following up on Max's earlier point on the opportunity set. If we think about Europe, you might argue that you can access a lower cost of capital in some European countries. And now with your scale and with the triple net lease business model, that could be value accretive for the right opportunity. I just wonder how outwardly looking you now are when it comes to what's next.

Good question. I think that we would look at Europe as not a country. We would look at Europe as a combination. And so if we are to look at investing outside of the United Kingdom, I mean, we have a facility at the moment. We have Hyder Park in Germany. We would probably identify two or three countries where we could predict and have a clear view of consumer behavior. Also, we would feel more comfortable if we were to go into another country with an existing customer. I'm not going to name any names. So there would be a few tests first, Tom, but I wouldn't say that we're actively looking. We get European opportunities put through to us. I mean, the big opportunity in some ways from an equity perspective is that there isn't really a triple net champion in the European markets. So that's the equity opportunity for us, which we're quite aware of. And, you know, we do get a lot of incoming from some investors as to why don't you do it? Because then it would give us that European triple net exposure. But the lease structures, the REIT regimes in these countries has to be friendly.

to us as well um like i said we're obviously learning a little bit more about germany now than we would have done five years ago um but but you know i wouldn't expect an announcement that we're just about to make a big acquisition in in june if you go back your 20 months to when we acquired lxi we would undoubtedly have said that we will sell hyder the german theme park but the truth is hyder throws off great income we put some euro debt against it there's a natural hedge and it's cheap And your view can evolve, can't it? It's a terrific asset, and perhaps the market's not right to sell it into today, so we don't.

Helpful, thank you. I did used to say that Europe was for holidays. Stop saying that. Any other questions?

Okay, so we've got a question from the webcast today from Andrew Saunders from Sure Capital. Now you've been able to get under the hood of the ULR asset. What are your thoughts and what are your plans for the Melton Mulberry?

Thank you, Andrew. Look, I think Urban was a well-run REIT. Okay, let's say that. It was a well-run company. We're very pleased with what we've inherited. There are undoubtedly assets that we wouldn't have bought, but I've no doubt if the situations have been reversed, they might have thought that there are assets that we've bought that they don't particularly like. So that happens. It's what we call beauty is in the eye of the beholder. Otherwise, we'd all be wearing grey gilets and light blue shirts. Look, Melbourne Burberry is a difficult one at lots of levels. We're on it. We fortunately allocated a price on the way in that would allow us to get out without losing our shirts and trousers. But yeah, I mean, the acquisition price was elevated. The tenant, obviously, longevity was not what was probably originally anticipated. But we'll deal with it and we'll move on and the money will be reinvested. I mean, at the moment, it's not in any of our forecasts. So if we do either let it or sell it, that will be money or income that comes in that isn't in our 28 million pounds that we're hoping to collect over the next 18 months. So that would be on top of that. But listen, all portfolios have some problem children, like families.

Thank you for that. And that's all the time we've got for questions. So I'll hand back to you, Andrew, for closing remarks.

Thanks. Well, OK, that's great. We are literally just the right side of an hour. So thank you ever so much for your questions, your time and your comments. So thanks. Have a great day.