LondonMetric Property Plc (LMP) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to LondonMetric's full year results presentation for the period ending the 31st of March 2001 (sic) [ 2021 ]. It's obviously not quite business as usual. And so you're going to hear from me on the highlights. And then I'm going to pass over to Martin, who will take you through the financial review, before then I'll come back and talk through the property performance and then my thoughts on our outlook for the period ahead, before then opening up for Q&A when Martin and I will be joined by a number of our other colleagues, who will hopefully do our very best to answer your questions. So turning to the first slide on Page 3 for those who've got it in front of you and the key highlights. Our portfolio continues to be framed by the macro trends that we're seeing in the wider world and how these are impacting the real estate sector. The trends are undoubtedly beginning -- being accelerated by the COVID pandemic and the various lockdowns that we've all had to endure. That has, as many of you already know, accelerated the demand for logistics assets and also convenience grocery. Our urban logistics exposure, following our revaluation but also our investment activity over the period, now amounts to over 40% of the portfolio, up to just over GBP 1 billion, and I'll come on to talk about that in obviously more detail later on in the presentation, with our total logistics investments now accounting for 72% of the enlarged portfolio. Our income-led approach has delivered continued operational outperformance with the net rental income up at GBP 123 million, that's up 6% on the period. And that's helped deliver a total property return over the last 12 months of 13.4%, comfortably outstripping the IPD or property index at 1.2%. Our focus on growing our like-for-like income has helped deliver like-for-like growth of 3.1%, aided by settlement of outstanding rent reviews during the period at 10% above previous passing. Interestingly, and I'll come on to talk about it later, but our open market rent reviews have been settled on average at 17% above previous passing. And as -- our continued disciplined approach to capital allocation has led to over GBP 400 million of investment activity, GBP 245 million worth of acquisitions in our preferred sectors and GBP 159 million worth of disposals of noncore, aging and mature assets. And again, I'll dig deeper into those later on in the presentation. Over the period, we've also strengthened our balance sheet with GBP 780 million of new debt facilities, which helped reduce our average blended cost of debt down from 2.9% to 2.5%, but equally importantly has extended its maturity by another 4 years. During the period, we also successfully raised, I'm very grateful for it, GBP 120 million of the fresh equity, proving that capital tends to go to where it is treated correctly. Martin will obviously talk about this in a bit more detail in his slides. Turning the page then to the financial highlights on Page 4. It's a relatively self-explanatory. So I'll go through this relatively quickly. As I said earlier, net rental income is up 6.4% to GBP 123.3 million. That has helped drive our earnings together with reduced financing costs, up 15% to GBP 85.6 million and an earnings -- EPRA earnings per share at 9.52p, up 3%. That has allowed us to announce this morning another -- a final dividend of 2.35p, bringing the total dividend for the year to 8.65p. That's a 4.2% increase in last year. We also announced this morning our intention and hope to increase our first quarterly dividend for the current financial year, up 4.8% from 2.1p to an expected 2.2p. And our revaluation gain of GBP 173.7 million has helped us announce this morning a net tangible assets of 190.3p per share, up 12% on this time last year and an acceleration, as most of you will have already noticed from our half 1. So on that note, I'll pass over to Martin, who will take you into a bit more detail on the financial numbers. Thanks. Martin?

Thanks, Andrew. Good morning. So despite the challenges posed by COVID over the last year, our financial results are strong. As Andrew has said, we've delivered both earnings growth and NAV progression. I'm pleased to report that our focus on reliable, repetitive and growing income has delivered net rental income of GBP 123.3 million, an increase of 6.4% over last year. This is driven by a full year's contribution from the Mucklow portfolio, which was acquired in June 2019 and, therefore, last year only contributed for 9 months. That net rental income is supported by our exceptionally strong rent collection statistics in the year. We've collected 98.1% of rents due. Only 0.8% of rent remains unpaid or has been forgiven, and 1.1% has been subject to asset management initiatives. GBP 1.5 million of rent is subject to deferred payment arrangements, all of which are being honored. Of the unpaid rent, the majority relates to a single property where we are securing vacant possession for a new letting to Lidl. We consider these levels of rent collection reflect the strength of our occupier relationships and our focus on strong credits in the right sectors in strong trading locations. Our administrative overhead for the year has reduced margin lead to GBP 15.8 million compared with GBP 15.9 million last year. That's despite absorbing a full year of enlarged group costs, evidence of the cost savings we've delivered since the Mucklow acquisition. We continue to monitor our operational costs closely, and our EPRA cost ratio has reduced by 60 basis points in the year to a sector-leading 13.6%. As a consequence of our financing activity in the year, our net finance costs are GBP 22.5 million. That's a decrease of more than 13.8% over last year. These significant cost savings on top of our rental income growth have driven our EPRA profit to GBP 85.6 million or 9.52p per share, which supports the 4.2% increase in our dividend for the year to 8.65p per share and provides a very strong 110% dividend cover. This strong profit growth on top of the very strong valuation gain in the year of GBP 173.7 million allows us to report an overall profit for the year of GBP 257.3 million. This is a 400% increase over last year, even after adjusting for the Mucklow goodwill and acquisition costs. Turning now to the balance sheet. The portfolio valuation of GBP 2.59 billion is an increase of 10% compared to last year. The increase in value is despite disposals of GBP 159 million, which were more than offset by acquisitions of GBP 245 million plus development expenditure and capital expenditure. But the main contributory factor is the valuation uplift of GBP 173.7 million, which Andrew will come on to talk about later, particularly with regard to our logistics portfolio. As at the year-end, we had GBP 54.6 million of cash in our balance sheet and GBP 877 million of debt. In the year, as Andrew said, we successfully raised new equity of GBP 120 million through a placing which was significantly oversubscribed and which was utilized quickly, further strengthening our London urban logistics with the acquisition of an Ocado facility, and with the Waitrose sale and leaseback portfolio, which Andrew will also talk about later. Our net liability position at the year-end is GBP 34.4 million, the major component of which, as in previous years, is rent received in advance. In summary, our EPRA net tangible assets at the year-end were more than GBP 1.73 billion or 190.3p per share, a significant increase of 11.7% over last year's 170.3p per share. The increase in net tangible assets in the year, together with the dividend paid, resulted in a total accounting return of 16.7%. We have been active in the year and in the period since the year-end in managing our capital structure. Gross debt has decreased by GBP 98 million as proceeds from disposal and our equity raise exceeded property acquisitions. And consequently, our LTV has fallen to 32%. The equity raise also funded the acquisition program, allowing for subsequent disposals to be deferred and, therefore, our income maximized. Post year-end, we have entered into a new GBP 380 million private debt placement, which was upsized from an original GBP 150 million due to demand and keen pricing. The placement has a blended maturity of 11.1 years and a coupon of 2.27%. The placement includes a GBP 50 million tranche that is subject to a green use of proceeds framework, which also gives us a margin benefit. Spend will be allocated to buildings which have high sustainability standards, including BREEAM Excellent or Very Good and EPC A and B ratings for new developments and major refurbishments. Alongside the placement, we entered into 2 new revolving credit facilities with 3- and 5-year terms for GBP 225 million and GBP 175 million, respectively, which also incorporate green frameworks, including EPC ratings, renewable installations and BREEAM Very Good developments. As a consequence of the refinancings, our debt maturity has increased from 4.7 years to 8.2 years, and we are 83% hedged against future interest rate rises. At the start of the year, we canceled GBP 350 million of interest rate swaps to take advantage of low interest rates at that time. Consequently, our current cost of debt has fallen to 2.5%, a decrease from 2.9% at this time last year. And our marginal cost of debt, as we draw down further unused facilities, is now only 1.3%. Looking back at our debt metrics, they show a continual improvement. Our loan-to-value sits comfortably towards the lower end of our range. The cost of debt and the debt maturity are at all-time highs. The combination of strong income growth and interest cost reduction has driven our interest cover ratio from 4.3x at the year-end to 5.5x, similarly, an all-time high. Our contracted rent roll is now forecast to grow to GBP 135.9 million. This includes adjustment to our current reported net rental income to account for a busy post period end, which adds GBP 2.2 million to the rent roll, and for income on acquisitions in the pipeline of GBP 4.6 million. Our development and asset management pipeline will add a further GBP 4.8 million to the rent roll. This rent roll of GBP 135.9 million, net of interest and overhead, currently, it's a little less than GBP 40 million, will generate earnings over time of GBP 100 million. That's approaching 11p per share. This significant level of growth in our rent roll supports our confidence that we will continue to be able to grow our earnings substantially and, therefore, progress our dividend, which, as Andrew has said, we expect to increase for Q1 to 2.2p compared with Q1 last year, which was at 2.1p per share. And finally, a brief look back, which puts the increase in rent roll into context and clearly demonstrates that since our merger way back in 2013, we have been able to more than double net rental income and earnings per share. We have doubled our total property return, and our total shareholder return has trebled through share price appreciation and dividend returns, assuming for reinvestment. This equates to a 15% compound annual growth rate. And on that note, I'll hand back to Andrew.

Thanks, Martin. So then a deep dive into the portfolio and its performances over the period on Page -- Slide 13. So portfolio has now grown to GBP 2.6 billion. And as I said earlier, our investments continue to be framed by the macro trends and their likely impact on the real estate sector. Distribution investments now account for 72% of the overall portfolio with our long income investments accounting for 24%. The biggest change since last year has been an increase in our urban logistics portfolio, which is now up at 40.5%, up from 35.4% 12 months ago. We've also seen a reduction in our retail park exposure through, I mean, arguably valuation, a slight valuation for, but also some sales that we've made during the period. And we've also halved our exposure to our noncore office and residential assets through various sales during the period, which I'll come on to talk about later, down from 2.6% a year ago to 1.3% today. So then turning to the right-hand side of the slide and looking at some of the numbers. Our total return model, as you can see, continues to embrace the attractive contribution that we get from a secure and growing income stream. The standout performance has been from our logistics investments, with our urban portfolio leading the way with a total return of just over 20%, regional dealing -- delivering a return of 17.3% and our 3 remaining mega investments delivering a total property return of 14.8%. Our long income grocery/roadside and triple net retail and trade have enjoyed attractive total returns of 10.6% and 12%, respectively. And they've enjoyed 25 and 30 basis points of yield compression. Our leisure investments have been our worst-performing sector. There are 5 similar investments suffering outward yield shift of 150 basis points, and that's led to a 13.8% negative total return. And our remaining retail parks have put in a resilient performance. And despite absorbing 30 basis points outward yield shift, the strong income that we -- that these assets generated has allowed us to deliver a positive total property return of 3.8%. So turning over the page to looking at our 3 subsectors within our distribution portfolio. As many of you already know, there's been a record take-up of space over the last 12 months, something around about 43 million square feet, with a strong demand-supply dynamics leading to good rental growth. Urban logistics remains our strongest conviction call. And as I've already said, the portfolio now amounts to over GBP 1 billion across 102 assets. The portfolio delivered a total property return of 20% as a result of 34 basis points of yield compression and rent review settlements coming in 15% above previous passing rents. Our 11 regional assets currently valued at GBP 484 million delivered a total property return of 17%, again, courtesy of 23 basis points of yield compression and 19% uplifts on the rent review settlements that we managed to execute during the year. And our 3 remaining mega logistics investments currently valued at just over GBP 350 million, rent reviews came in at 1.5% above -- per annum, an 8% uplift on previous passing, assuming a 5-yearly rent review cycle. And the assets are currently valued at 3.8%, which continues to fare very favorably with recent market pricing for these sorts of investments. Turning then to our long income portfolio. Currently valued at GBP 635 million, enjoys 100% occupancy, long weighted average unexpired lease term of 14 years, valued off an attractive 5.4% net initial yield with 63% of the income subject to contractual rental uplifts. Our Grocery & Roadside investments, they continue to be dominated by our investments with Aldi, Lidl, Co-op and now more recently, as Martin has mentioned, our Waitrose investments, courtesy of the sale and leaseback that we executed with the company back in the summer. This part of the portfolio has delivered a strong total property return of 10.6%. And this is primarily due to net excellent credits, long index leases and improving customer trends to convenience grocery. The triple net retail portfolio also enjoyed a strong 12 months return with a 10% total property return as it benefits from 100% occupancy and exposures to the discounters, the home and electrical retailers, all of whom have had a very strong COVID period. The portfolio also enjoys a very high net initial yield at 6.5%. And our trade and DIY investments has been the best-performing part of our long income portfolio with a total property return of 14.1%. As most of you know, this subsector has proved very COVID resilient and has been supported by the stay-at-home economy. After all, the more time we spent in our homes, the more money that we spend on our homes. And as I've already flagged, leisure was our worst-performing subsector with a negative total return of 15.8% (sic) [ 13.8% ], primarily due to the 5 Odeon cinemas that we continue to hold. Obviously, we're hopeful of a strong reopening and with current trading feedback, is showing that turnover is currently trending at around about 70% to 80% of 2019. But there is an encouraging film slate to come for the remainder of this year. Turning then to our acquisitions over the period, including post period end, amounting to GBP 313 million. And this activity continues to support our conviction calls into urban logistics and long-let grocery income. All the acquisitions are characterized by strong geographies, long leases, investments into modern buildings and lettings to very good credits. Invested GBP 187 million in the urban logistics sector and GBP 136 million in long income, again, dominated by the GBP 63 million of investments into the 5 Waitrose sale and leaseback assets. Turning to Slide 17, our disposals. GBP 181 million worth of disposals across the various subsectors, crystalizing a profit on cost of 16.5%. The decisions to sell these assets, despite some of them sitting in our favorite subsectors, are influenced by shortening WAULTs, weakening credits, aging buildings and obviously our desire to exit noncore sectors. We were particularly pleased to sell another 3 office buildings as well as trimming some of our DIY exposure. We've now sold 12 assets from the original Mucklow portfolio, which accounts to about 15% of the portfolio that we acquired, totaling GBP 61.5 million. And these assets have generated a return over our ownership of 10.6%. Looking at our development activity over the last 12 months. This has been dominated by our 2 big schemes, in Tyseley in Birmingham and at Bedford. Over the period, we successfully pre-let 120,000 square foot state-of-the-art, last-mile logistics facility to Amazon on a new 15-year lease, secured a rent of GBP 1.6 million, which crystallizes a yield on cost of 6%. This obviously compares very favorably to what we think the end investment will be valued at, which we estimate somewhere close to between 3% and 3.5%. The facility will operate, as I say, as a last-mile facility to support a fully electric delivery fleet for Amazon serving the Birmingham [ combination ]. At Bedford, after successfully completing and letting Phase 1, we've now practically completed the 172,000 square foot Unit 2, which I'm pleased to say is now under offer, GBP 1.3 million per annum, crystallizing a yield on cost of 7.3%. The building will be delivered alongside the Amazon with a BREEAM Excellent rating. And we're also now on site building out our 350,000 square foot Unit 1 and are actively engaged with an occupier on this space. Again, the building will be delivered with a BREEAM Excellent rating. Looking back on our Bedford development, we now -- we will shortly have completed 5 buildings on site. Overall, the development will have delivered a yield on cost of 7.5%, which is comfortably above our original underwrite of 7%. We will have secured rents of GBP 5.2 million per annum, again, above the GBP 4.6 million underwrite, courtesy of average rents of GBP 7.30 a square foot versus the GBP 6.60 that we expected when we made the original commitment. Looking forward, we now have about GBP 100 million worth of forward commitment in solicitor's hands, which we obviously hope to update you on over the coming months that will secure roughly a new rent flow of just over GBP 4 million. Turning then to the activity across the portfolio. The asset management activity that we've executed in the period, 173 occupier deals generating GBP 5.3 million of additional income and generating the 3.1% like-for-like income growth that I referenced earlier. Over 100 lettings and regears, securing GBP 3.8 million of additional rent on average lease lengths of over 13 years. 72 rent reviews have been settled, securing another GBP 1.5 million, on average, at 10% ahead of previous passing. And as I mentioned on the first slide, the open market rent reviews have been settled on average at 17% ahead of previous passing. And as you can see from the chart on the bottom right-hand part of this page -- slide, the standout performance has come from the settlement of our open market rent reviews across our urban and regional assets, which have averaged 22% above previous passing. I'm also -- I can also mention that actually, post period end, we've settled a rent review on an urban warehouse down in Croydon, where the uplift actually has been settled at 88% above previous passing. I would actually suggest that, that is the exception, not necessarily the rule. So turning then to our outlook. We're continuing to see an acceleration of trends, many of which have already been in the system for some time. This is leading to rapid changes in how we work, shop and socialize as many temporary behaviors become more permanent. The fact is structural trends are as important today as they were pre-vaccine. Polarization of sector performances is widening. And as you can see there on the chart on the right-hand side, the spread between the winners and losers over the last 5 years has widened dramatically. Sheds and breads are the standout performers. Shopping centers are continuing to see value erosion as rents continue to fall dramatically. However, retail parks are proving more resilient, especially the bulky parks, where discounters, home and DIY retailers have had a much stronger trading environment. And the office outlook remains uncertain and increasingly more difficult to predict as work from home disrupts office occupancy. However, that said, we continue to believe that the macro environment that we now all operate in, 0 interest rates, negligible bond deals and lower dividend, is very supportive for the right real estate. And the low interest rate environment continues to support demand for long and strong income. And so finally, looking forward, we increasingly expect the macro themes to win out and hoping, as some management teams are, that the world's returns to 2019 is no longer a strategy. The tectonic plates have shifted. The demographic tsunami will increase the demand for income, and the migration from low-yielding securities to alternatives will, we believe, rise. Our conviction calls will remain logistics and long income, and we've repositioned our balance sheet to ensure that we're well placed to take advantage of the new opportunities. We continue to pride ourselves on the process, the discipline and the rationality that we approach to our decision-making. And after all, we are shareholders first and employees second. And we continue to focus on generating reliable, repetitive and growing income from real estate. And the long-term focus on this income growth is what will ensure that we maintain a covered and progressive dividend, conscious that income compounding is an excellent bedrock for attractive total returns. On that note, ladies and gentlemen, thank you for your time this morning. And we will turn to Q&As, see if we've got any.

[Operator Instructions] And we will now take our first question. It comes from Sander Bunck of Barclays.

A couple of questions from my side. I guess acknowledging definitely that the exposure to retail parks at the moment is relatively low. But just wondering if you can give kind of your views on that market given the experience and kind of what you're seeing there at the moment? Because views appear to be becoming more constructive, pricing appears to be bottoming out. And kind of how would you think about it also potentially for yourselves going forward?

Sander, I'll take that. Look, I think the retail warehouse market is polarizing as well, to be honest with you. I think that you're seeing resilience amongst the bulky goods and parks, where the retailer is obviously enjoying a much more favorable trading environment than the general merchandise and the fashion operators are. It's also a subset to that where the rents never drank as much Kool-Aid as they did in the shopping park market. So I mean, if we are going to look to reenter that market, it would be very much at the smaller end of the scale with lower rents and, as I say, dominant of bulky goods retailers, DIY, home, electrical and the discounters. I think the shopping parks, which, as you know, I've been heavily involved in my career, I think that there's still rental repricing to take place. I think that -- as I said before, we took rents up to quite high levels. And I don't think they fully reset yet. So we keep our eyes wide open. I -- and it's fair to say, I think we're as qualified as any other team to assess these opportunities rationally. But we haven't seen anything yet that causes us any deal envy.

Okay. And just kind of following on from that to the next question. How are you currently viewing pricing of the urban warehouse markets? And are you at the moment -- is it still -- I think you mentioned it will still be the highest conviction you currently have. But as pricing compares to compressing, and for example, something like retail parks and the smaller scale units, lower rent levels probably come at higher yields, how are you currently finding that balance between the 2 of them?

Yes. Look, I think you should -- I think it's wise to remember that highly rated assets are not necessarily expensive. But to be honest with you, I think neither a lowly rated one's necessarily cheap. I mean, the people who tend to tell you that they're cheap are those -- the people who are holding them and telling you that the yields are going to compress, and they're going to hit some very attractive IRRs. But if you look at the settlements of our rent reviews across urban logistics, if you're buying off cap rates around 4% and you're getting 3%, 4%, 5% rental growth per annum, I mean, that's a great place to be. The problem with some of these retail assets, like I said, you've got to be very careful. I mean there are a number out there that they still need to reset. There's CapEx issues. There's credit issues. And there's the right pricing. There's a number of people -- I said to somebody the other day over lunch, there's a number of companies out there holding melting ice cubes.

Right. And then obviously, like if the starting yield is 4%, then that is one thing. But I guess that some of the transactions, I think, plays out closer to kind of the 3% level in some instances. Is that also still -- if that generates the same level of rent growth, would that still be seen as attractive? Or does -- is higher rent growth required in that instance?

Yes. You need higher rate growth, Sander. I think when you get down to 3%, it's much more difficult because you're getting very, very close then to your cost of debt. So I mean, mentally, I've probably got a 3.5% cutoff in my head because I think to have conviction that you're going to deliver reliable rental growth of 5% plus, I mean, that takes a stretch of the imagination that probably is above my pay grade.

That's very fair. And one very last one, a bit of a technical one. I was just wondering, I'm looking at your EPC rating with A to C. Currently, your accounts -- I think 74% of the portfolio has that rating. I was wondering what is the -- how much is rated A and B?

54%. Do you get that?

Sorry, should I repeat?

Yes. Yes. No, no. Did you hear me? I said 54%, Sander, I think.

54%. Okay. Perfect. That's great.

But it's on the rise. And actually, to be fair, it's one of the reasons I mentioned in my presentation, we do think about this when we're selling assets. We think about aging buildings and ones that we can't turn around. But similarly, we're not put off buying buildings that aren't in A or B simply because we think we're very good at recycling these buildings and bringing them back into fit-for-purpose status. It's one of the -- I think it's one of the skill sets that we possess.

Maybe I missed it, but do you have any specific targets in that respect for the next decade?

Higher.

Sander, this is Martin. So you'll have seen on the refinancings we've done, they've both got green frameworks. And they've got targets attaching to them for EPC ratings, for BREEAM Very Good or Excellent and for renewable installations. And so those targets have all been predicated on the targets we already had in the business. So we're going to be looking over the next 12 months to get that 74% up a little bit, not by very much. We'll be aiming for something like 75% of that. We'll be looking to do 2 or 3 solar installations, and we've put the new zero carbon framework in place in 2021. So that's looking for us to be net zero by 2023. We'll continue to reduce emissions from developments, which will be fully net zero by 2030. So there's a whole series of targets within the business, which go down as far as attaching ESG targets on our employees and the Board.

Our next question comes from Christopher Fremantle of Morgan Stanley.

I had 2 questions, one, a detailed one and one, a more general one. The detailed one was just on the development pipeline, and maybe I missed it or have missed it in the appendix. But can you just give some idea of how much value creation is left to crystallize in your committed developments? I know you've talked about a yield on cost. But clearly, some of that value creation may already be within your NAV. So a little bit of detail on that, please. And then...

Is that the simple ask? Chris, do you want me to do that first?

Yes, please.

Yes. So we have about GBP 20 million still left to go of value that we haven't taken in the journey. When we started the journey, we haven't arrived at it.

Yes. Okay. That's helpful. And then secondly, I just wanted you -- to ask a little bit more on yield compression on logistics. I mean you've clearly seen a sort of tidal wave of compression here, which has been a great tailwind for you, obviously. Do you have any view on whether that is likely to slow now that sort of bond yields are starting to stabilize and perhaps even rise? And after what you've seen, I mean, particularly at the mega end of the market now that yields are below 4%, can you just give any flavor for how you think that -- whether you think there's more tailwind to come in the terms of yield compression or whether it's more just a rental growth story here?

Look, I think the two go hand in hand, I'm afraid. I mean, I know people would like to ask about yields first, but you can't give really an opinion on yields without understanding the trajectory of the income. I think you've seen mega yields trend down to roundabout 3.5%, which was the reference I made earlier about our current valuation that I thought still compared favorably to recent market pricing. You've seen a few print lower than that over the last couple of months. I think organic rental growth in the mega market is less than it is in the urban market. I think that -- we still expect good yield compression in the urban sector but predicated in locations and on buildings where there's going to be superior rental growth. I could see our urban portfolio closer to 4%, but that will be predicated on our expectation of being able to deliver at least 3% per annum rental growth. I think the two go hand in hand. And I think, though, also, it will -- that -- delivering that rental growth will become increasingly more geographically polarized. I think it's much easier to deliver rental growth around London. If you look at the chart that I put up on page, what page is it, 19, I didn't put the Croydon one in for post period end because it would have made the chart -- the scale a bit difficult. But the Southeast has delivered better rental growth than other parts of the U.K. So I think just taking yield compression in isolation and linking it to bond yields, I'm not sure I buy that. In the same way, by the way, when bond yields went down to close to 0, real estate yields never breached 3%. So I'm not sure that correlation is quite as secure as some people would like it to be or it has been historically. Is that okay?

Helpful.

Our next question comes from Sebastian Isola of Peel Hunt.

I was just wondering, given what you said about the sort of 3.5% design that whether you might look to take advantage of the strong market, particularly at the sort of mega rent, given the net initial yield of that sort of portfolio?

Well, I'm not about to tell you what we're about to sell. But I think Page 17 highlights the fact that our emotional attachment to assets is relatively light. And if we have assets that the market's pricing at yields which -- where we think the implied levels of rental growth are unlikely to be delivered, they will be sold. It's that easy. I mean making the decision to sell those urban logistic assets over the period, in some ways, was quite difficult because I didn't have to explain to people why we sold urban logistics assets. But the simple reason was we didn't think that we could deliver the rental growth that the cap rate was implying. It's very straightforward.

[Operator Instructions]

So I actually had a couple of questions come here...

It appears we have no further questions. I'd like to hand the call back to Andrew.

Okay. Thank you. So I've had 2 questions come in via e-mail. First one from -- actually, we'll go ladies first. First one from Miranda at Panmure Gordon. Can I provide or can we provide a bit more detail on the recent investments into dark kitchens? Is this a growth area? Central London -- central locations required, I assume it is hard finding these assets? Look, I mean, I'm not going to go into great detail because I really don't want to share my thoughts with any of our competitors, to be frank. So it's going to be relatively -- I'm going to bat this straight bat. We have seen a growth in online penetration for shopping, and that is extended across effectively the whole of the general merchandise sector. We have seen a massive take-up in online grocery shopping over the last months. 6.5 million new shoppers are using online platforms to buy their groceries, and you've seen penetration double to roughly 15%. We think that the food industry, the takeaway industry, we think it's going to go through a similar radical expansion and that we partnered up with a very good operator. And we will continue to mine that opportunity. I think that finding opportunities is not easy, but that's what we're paid for. Investments are not supposed to be easy. They're really not. I mean if they're easy, anybody could do them. And then a question from James Carswell at Peel Hunt. Given the competitive investment market, is now a good time to be looking at development opportunities? Are there opportunities to develop on existing assets where site coverage is low? So yes, look, I think greenfield, brownfield developments are more difficult. Valentine and his team have sourced, I say, highlighted a pipeline of roughly GBP 100 million of fundings and forward commitments that we're working on at the moment, which is great. I think that people get very excited about certain development pipelines. I think we are very geographically obsessed. And there are certain parts of the United Kingdom that we want to be in, but there's a lot more that we don't want to be in. So buying land in just to have a pipeline is something that we don't spend much time looking at. I think the recycling of some of our building -- existing buildings with low-density coverage is something that we're very focused on. We have about GBP 100 million across 9 assets that we're thinking about -- we're looking at repurposing. And that's something that is actively ongoing. And it has the added benefit, as Martin touched on, actually, in answer to Sander's question, on improving EPC ratings and what have you. So that's where we are at the moment. But we're certainly not buying -- we're not going to be buying a land bank just in the wrong part of the United Kingdom just to say that we've got a land bank. That's it. We don't seem to have any more questions. So all it leaves me to do is to thank you, ladies and gentlemen, for your time and your interest this morning, and have a good day. Thank you very much. I'm off to get my second jab and then celebrate my 25th wedding anniversary. So have a good day.