LondonMetric Property Plc (LMP) Earnings Call Transcript & Summary

Welcome, ladies and gentlemen. It feels like it's been a long time since I stood in a room with this many people. Hope none of us are going to be regret it. So I would say usual batting order. I'm not sure what usual looks like these days. So anyway, welcome to LondonMetric's half year results for the period ending the 30th of September. So I'm going to give you just a quick overview of the key highlights. A few macro themes, which I'll come on to and pick up later on in the presentation. Together with a highlight on some of the numbers, and I'll try and get out as many of the numbers so that Martin can wiz through his slides. And then I'll come back, give you a review of the property portfolio. Then coming on to share our thoughts about the outlook for the sector and also our chosen subsectors. And then we'll open it up to Q&A. We'll start with the room first, and if there's anybody on the line, then we'll take their questions afterwards. So key highlights. A number of this will be -- you'll be very aware of. Our portfolio continues to benefit from the macro trends. They're certainly supportive of our conviction calls into logistics and long income assets. And we are seeing a favorable demand-supply dynamic, which continues to generate rental growth. And again, I'll come on to talk about that in a moment. Portfolio now up at GBP 3 billion. And again, I'll come up to talk about the revaluation and the various subsector performances later on. So total property return, as you can see there, 10.4%, comfortably ahead of our industry benchmark, with 74% of the portfolio now coming from the logistics market, which you can imagine is obviously the favorite subsector. Like-for-like income growth, 3%. Again, I'll talk about where that's come from later. But good rent reviews. I mean, I always like to focus on rent reviews. I think they are -- they indicate the underlying health of your asset. They are -- at the end of the day, yields are supposed to reflect the security and the reliability of your income, but the rent reviews also give you an indication of what the trajectory of that income is going to look like, and that is what should be encapsulated in your yields. So the rent review settlements are particularly heartening over this period. And again, we'll break down that where it's come from later on in the presentation. Disciplined capital allocation. You can see there year-to-date acquisitions twice as much as disposals. We are coming to the end of our sales process of either non-core assets or coming out of non-core sectors. And that's why you're seeing that -- the number of acquisitions actually outstripping the disposals that we've made in the period. And that is the backdrop to the announcement we made this morning to look to raise GBP 175 million of fresh equity. And that is really to take advantage of a pipeline of opportunities, all of which we have in assisted hands and which we hope to execute on over the next 3 to 6 weeks. I know it's quite common that people talk about 3 to 6 months, but ours is live and very, very real. And that is a pipeline that totals around GBP 280 million, largely in the logistics sector. And like I said, we're confident of concluding on most of those by Christmas. So financial highlights, again, these numbers are relatively self-explanatory. The earnings is up 4.5%, GBP 44.2 million. Earnings per share, up at just under 4.9p, up 2.5%. The dividend, we announced another quarterly dividend of 2.2p to give 4.4p for the half year. We would expect another 2.2p for Q3 and then an increase for the final quarterly dividend at the end of the year. Our NTA or NAV is up to 213.4p, an increase of 12.1% courtesy of the GBP 207 million valuation gain that you see there, and that's 18 basis points of yield compression. Again, I'll come on to break that down later, which all in all, dividend and NAV progression gives you the total accounting return of 14.5%. On that note, I'll pass over to Martin, and then I'll come back to talk you through the property review and our thoughts on the outlook for the sector. Thank you.

Thanks, Andrew. Some of -- an investor said on the call yesterday, you must be raising capital, Martin's wearing a tie. It's very good to be back actually. So as Andrew said, we've delivered both earnings and dividend growth and significant NTA progression. I'm pleased to report that we've delivered net rental income of GBP 63.5 million, an increase of 3.6% over last year supported by another very strong rent collection performance with 99.5% of rents due in the period having been collected. Our administrative overhead for the period is broadly consistent at GBP 8.2 million compared with GBP 8 million last year. And as we continue to monitor our operational costs closely, our EPRA cost ratio has reduced by 50 basis points since last year to a low of 13.2%. And our gross to net property cost leakage remains consistently, extremely low at 1.3%. Our finance costs at GBP 12 million, an increase of GBP 0.7 million over last year, primarily due to carrying higher average debt balances over the period. Our rental income growth and attention to controlling costs has driven our EPRA profit to GBP 44.2 million or 4.87p per share. That supports the increase to our dividend for the period to date to 4.4p, which is an increase of 4.8% and provides very strong 111% dividend cover. This profit growth on top of an extremely strong valuation gain in the period of GBP 207.3 million, allows us to report an overall profit for the period of GBP 254.1 million. For the same period last year, we reported a profit of GBP 85.1 million. That represents a trebling of our overall profit in the period compared to last year. Turning to the balance sheet. Portfolio valuation is GBP 2.97 billion, I'll call that GBP 3 billion, an increase of GBP 382 million or 14.8% on the year end. During the period and post period end, we invested over GBP 300 million into distribution and long income assets and divested 11 assets ahead of book value in the period. And post period end, we'll complete the disposal of the T1 Primark shared at Thrapston to bring our total disposals to nearly GBP 170 million. But the main contributing factor to the increase in the value of the portfolio is the valuation uplift of GBP 207 million. The strength of the market driving a yield compression of 18 basis points, which Andrew will analyze a bit more later. As at the period end, we had GBP 76.4 million of cash on the balance sheet and GBP 1.07 billion of debt. The net liability position at the period end is GBP 29.5 million, a major component of that, which as it always is, is rents received in advance. So in summary, our EPRA net tangible assets at the period end were almost GBP 1.95 billion or 213.4p per share, a significant increase of 12.1% over the year-end at per NTA of 190.3p per share. The increase in NTA in the period, together with the dividend paid, has resulted in a total accounting return of 14.5%. The GBP 1.07 billion of debt on our balance sheet at the period end is a significant increase since the year-end. We've been pretty active in the period managing our debt structure. We completed 3 new debt facilities in the period, totaling GBP 780 million, comprising a GBP 380 million private debt placement, part of which is a green tranche, which allocates spend to building with high sustainability standards and 2 revolving credit facilities totaling GBP 400 million, subject to green frameworks with targets for EPC ratings, renewable installations and bring on very good developments. These new facilities replaced existing short-dated facilities and have enabled us to increase our debt maturity from 4.2 years at the year-end to 7.2 years and maintain a low average cost of debt of 2.5%. Our loan-to-value at the period end, net of the deferred proceeds from the sale of Primark is 31%. That will rise to 35% as we fund our committed deals and the future investment pipeline alongside today's equity raise. Since the period end, we've also entered into a new GBP 150 million unsecured debt facility to increase our short-term headroom and allow us to accelerate that investment pipeline that's been set out today. This slide shows the combination of that strong income growth, and controlled costs has driven strong debt metrics. The cost of debt remains at an all-time low and our debt maturity and interest cover ratios are strong. And finally, just again, that loan-to-value of 31%, I think provides the opportunity for further gearing to on top of this morning's equity raise. And finally, looking at our contracted income moving forward. Our contracted income at the period end was growing to GBP 130.5 million. We're forecasting a 15% growth in that number to GBP 150 million as we account for the busy post period end, which reduces our contracted rent roll in respect of lost income on sales of GBP 4.3 million, but is offset by income on acquisitions, which generated incremental rent in the period annually of GBP 6 million. And then a further GBP 5.7 million will accrue from contracted rent generated from the letting up of our near-term developments, particularly Bedford, and we've announced the final letting of Bedford today. Investments which we currently have under offer will generate a further GBP 11 million of annual rent roll. And that significant level of growth to GBP 150 million, even though I don't build in very much rent growth, and after deducting interest costs and overhead, we'll generate distributable earnings in excess of GBP 100 million or in excess of 10p per share, and that supports our confidence that we'll continue to be able to progress the dividend from the 8.65p per share it was last year. On that, back to Andrew.

Thanks, Martin. So a deeper dive then into the portfolio. As you can see that total value at just under GBP 3 billion was characterized by virtual full occupancy, 99%. 60% of the income benefits from contractual uplifts. As you can see, 72% has EPC ratings of A to C, I'll come on to talk about that later in the presentation. So total property return of 10.4%, capital growth of 7.9% with not surprisingly a standout performance from our urban logistics portfolio, delivering a total return of 13.4%, followed closely with our regional portfolio, delivering an 11.4% total return. Our mega and long income benefited again also from yield shift as well as some rental growth and some rent reviews, which we'll touch on in a moment, with 8.3% and 8.4% total returns respectively. We did however absorb further valuation decline in our 4 remaining cinemas. Absent that, the long income total return would have been actually 9.2%. But we do need to encourage more of you to get back to the cinema sooner rather than later. And hopefully, we'll see -- we will recover some of those outward yield shifts as we travel through 2022. In much the same way that we've actually seen yields on some of the triple-net retail come in quite materially over the last 6 months as people have realized that not all retailing is actually bad. And that's evidenced by the 130 basis point yield shift that we've actually benefited from in our remaining retail parks, which also does include the sale of Kirkstall which was sold for 18% above I think previous passing -- the March valuation. Albeit, our non-core assets exposure now is down at -- which is retail parts and offices, is now down at 3.1%, down from 4.1% 6 months ago. So going further into the portfolio, breakdown here of the distribution assets. This sector continues to enjoy excellent demand-supply dynamics, record low vacancies, 1.5%. It's often said in the real estate industry that you start to see proper rental growth when vacancy drops below 5%. We're at 1.5%. So it's not that surprising that we're capturing some reversions. And interesting, I think there's a CBRE report out yesterday, it said office vacancies had hit 9%, which probably explains why that's a more challenged subsector. Demand is benefiting from growth in e-commerce and also rising onshoring as more and more occupiers consider just in case logistics strategies and move away from just in time. So urban logistics remains our strongest conviction core. The portfolio now exceeding GBP 1.25 billion, 112 assets, net initial yield there of 3.9% and enjoying strong rent review settlements, I'll come on to talk about that in a bit more detail, 20%. Followed closely in the performance metrics by our regional assets, totaling GBP 570 million today, 12 assets, again, similar yield, slightly longer lease length, and again, strong rental performances. And then our mega, GBP 374 million invested in 3 mega assets, again, a tighter yield, but you benefit from a longer lease and arguably more secure credits with rent reviews benefiting, there's a fixed rent reviews that delivered an 8% uplift over a 5 yearly period. We're trying to give you a lot more color on our long income -- the makeup of our long income. We split it now effectively into 3 key subsectors; grocery, triple-net retail, Trade & DIY. Value of GBP 685 million, 100% let, weighted average unexpired term of 14 years, 49% is located in London on the Southeast, valued off a net initial yield, as you can see, at 5.1% and delivered a total property return of 8.4%. We expect further yield compression in this sector. It's benefited over the last 6, 8 months, as more and more investors have woken up to the attractive security and compounding elements that these sort of assets can give you. It's dominated, as I say, by our exposure to grocery, convenience, grocery market where you see a yield 4.5%, 16 years with nearly 90% of your rent contracted. I mean, what's there not to like in a world of very, very low bond rates and an environment of rising inflation. I mean, why wouldn't you like it? And this is also a sector that we think continues to benefit from omnichannel, both in terms of how we shop, but also how they use the buildings and increasingly using them for online fulfillment. Our triple-net retail is largely exposed to the essential retailers, the discount retailers and home. So that would be the people like the B&Ms, it would be people like DFS and Dunelm, some terrific businesses that have had a great COVID. I mean, I know I probably shouldn't say it like that, but they have really benefited from that. Again, net initial yield there is 6%, 10 years. This subsector has benefited from renewed investor demand for retail parks. And so we've seen a 50 basis point compression over the period. And that's why this was actually the standout performer within the long income portfolio with a total property return there of 15%. And then finally, Trade & DIY. It's a market we like. It's a market that's been incredibly COVID-resilient and certainly benefiting from the work-from-home economy. As I've said previously, the more time we spend at home, the more money we seem to want to spend on our homes, and that doesn't show too many signs of abating. So moving then on to the investment activity. We've given you these high-level numbers already in the presentation. GBP 305 million acquisitions year-to-date, dominated by GBP 256 million invested in the logistics sector. And then an upscaling of the quality of assets that we own within long income with GBP 49 million worth of acquisitions in grocery and triple-net retail. The disposals were dominated effectively, as Martin already said, the sale of our Primark distribution -- one of our Primark distribution warehouses, but the one in Thrapston as opposed to one Islip for GBP 102 million. And again, the trading out of some triple-net income and grocery assets where we've taken advantage of renewed investor demand to come out of some poor geographies, and we probably won't go into that because we might want to sell a few more. But that's what would be characterized. That's why we would have made that trade out of poor geographies into stronger areas in the South London and Southeast. But also then you can see there GBP 36 million of sales out of the retail park and office portfolio, dominated by the GBP 25 million sale of Kirkstall retail park. And I'm also pleased to announce that we've actually long last made the final sale of our residential -- from our residential portfolio, 542 flats later. And please don't ask me how they performed. And I would just mention again, just for context because it is relevant to some of the pipeline opportunities that we're looking at, at the moment. We've actually now sold 11 of the former [ metro ] assets for close to GBP 60 million. So that's roughly 15% of the portfolio that we acquired, and we continue to make some progress. But that gives us confidence that there is good liquidity in the market even for what we consider to be non-core assets, and that's something that we'll continue to cut through. Portfolio activity, 76 deals generating close to GBP 4 million worth of additional income. 38 lettings, GBP 3 million long weighted average on expired lease terms. And as Martin has already referenced, I'm pleased to announce this morning that we've pre-let now our speculative warehouse unit in Bedford, 355,000 square feet. We've letted at GBP 8 a foot on a new 25-year lease with inflation-linked rent reviews going forward. And to give you some context, I mean, when we bought Bedford and we were doing our underwrites, we would have -- we were assuming a GBP 6.25 a foot rent. And we would have been assuming a 15-year lease, maybe with a 10-year break, maybe not. And so that would have been what we consider to be our conservative underwrite. So the letting today from Mark and his team is welcome news for lots of reasons, not just from a valuation perspective, but also from the fact that it's going to generate another GBP 2.9 million worth of income from PC. So that's great news. And then what I think is the most interesting slide actually in this whole pack is the rent review charts; going back to my earlier comments about rent reviews, underscoring the health of your investments. So they generated another GBP 1 million or GBP 900,000 worth of rent, ahead of -- 13% on average ahead of passing. Quite a large gap there between the contractual uplifts in open market. That could narrow in a period of heightened inflation as we capture the CPI and RPI reviews over the next couple of years. I think our caps are such that even if CPI and RPI run at 4%, 5% or even maybe a little bit higher, we won't touch -- we won't hit the caps for the next couple of years. If we're running at inflation a lot higher than that, then we've got other things to think about. So we would expect that gap to narrow a little bit. I mean, hopefully, it doesn't because it means that the open market settlements are even higher. But the standout in this is the average open market rent reviews that we've achieved on our urban logistics portfolio, 25%, which is bang in line with what I would guide. People ask me about rental growth. And I would say, in mega, it's 1% to 2%, maybe a bit more now, maybe 1% to 2.5%. In regional, I would be around about 3% to 5%. And in urban kind of 4% to 6%. And what I would just touch on again is one of the themes that we have within the business on an operational level is when we look at the settlements, and I don't just mean 6 month period, it's quite a short period to measure stuff, but if we go back further, we look at settlements that we've been achieving in urban logistics rent reviews and regional rent reviews. The quality locations have generally outperformed our underwrites because we always settle and we go back to see what did we think we were going to get on acquisition. So it was a very, very good test. We go back and we look at Valentine's investment acquisition summary and say, what do we estimate? And there are times that we've gone in at low yields. We've held our nose and thought, let's just go for this one. But the rent reviews have generally come out above our underwrites. Where we've maybe gone a little bit off pitch in locations and be lured in by the attraction of maybe a higher coupon at day one, we've had to work a lot harder. I mean, I'll be absolutely honest with you, we had to work a little bit harder than we would have imagined. And they've come in at or maybe even below our underwrite. So that 25%, just -- I mean, this is to give you an idea of the reviews, and this is just this period, but that comment goes for previous periods as well. I mean, we've got now data that goes back 3 years. When I look at that 25% and say, well, what were the bookends on this? Well, the worst performer was 7.5%. And we underwrote that one. That was a small unit of [indiscernible]. We would have underwritten that. It would have been a 5% cap on the way in. We'd have underwritten that at about a 2%, we would expected 10%, we got 7.5%. On the other end, we settle a rent review in Croydon at 88% above previous passing. Now I think it's pretty fair to assume that the investment team did not come to me with an expectation that we were going to get an 88% uplift, because if they did, they'd probably not still around, but that's surprised on the up. So that's the sort of things that we're learning about. Not all warehouses are going to deliver the growth that some of the yields imply, which is why we have a much greater geographical focus today. I mean, it's not even a focus, an obsession today, and Valentine can talk to you about investment deals that are being done today at 2% to 3%, and you go wow. But if you're going to double your rent and then go some, then you can get your head around it. But that's what we're seeing. If my word settlement is 7.5% up, I mean, that's a first wall problem. So then moving on to development activity, I've touched on the letting at Bedford, which would have dominated that -- the direct development. And again, crystallizes a yield on cost of 7.8%, which has been terrific. That's the last of 5 units that we've developed there, and we do truly have a unique development at Bedford. And then secondly, we've got a small retail trust that we're building down in Weymouth. Phase 1 has already been completed, which was a 20-year lease to Aldi. Phase 2 will be made up of a B&M and Dunelm Costa and drive-thru and a drive-thru McDonald's. And then Phase 3 will be let to a relatively well-known general merchandise and food retailer, and that will generate a yield on Costa of around about 6.6%. Development commitments, we announced on Monday, the acquisition of a 296,000 square foot warehouse just outside Ipswich, which is within the Felixstowe Freeport area, let to an e-commerce operator. And we have under offer another 300,000 square foot of cold storage facility, which will be a full funding starting in the new year and dripping through, and that forms part of our pipeline of opportunities that accompany the planned equity raise. Our urban development portfolio is gathering momentum. You can see there are 5 schemes that we've now secured. Predominantly, the focus here would be in London, in a North Circular, give or take, Zone 2, which is great. And then subsequent to that, we have another 3 schemes under offer in Luton, Malo and Enfield, totaling about GBP 31 million where we're looking at -- we're coming in -- we're buying obsolete buildings. We're buying really, really poor buildings here. EPC, Ds and Es, and in some cases, maybe not even rated. But we're going to do some fantastic things with them. And that is a good area for us, and we think that that will grow going forward. And it gives us good entry into fantastic geographies that we couldn't otherwise compete with. We can't pay 2% in Park Royal, doesn't make sense for us. It might do for other people, but this is a way of getting entry into those phenomenal locations. And as you know, we've teamed up with a dark kitchen operator, but also we're working with the QCommerce guys, whether it's GetThere, whether it's Gorilla, whether or not it's Zapp, those sort of things. There were new businesses that are being invented all of the time. And I think that owning this sort of prime real estate certainly close to London is just -- it's a one-way street. So the environmental focus, our strategy does support a low-carbon approach. We operate a very operationally-light portfolio, and our assets have low carbon intensity. And I think that our proactive asset management activity supports our ability to take buildings. And like I said, they may be obsolete, they may be quasi-redundant and bring them back. Not through demolition, but through refurbishment. That's got to be more effective. I think we are fantastic stewards of these underappreciated and underinvested assets. We have the energy. We have the desire. We have the skill set. We have the capital to do that. And I think that our proactive engagement with our occupiers, we often refer to them as our customers, allows us to work with them for us all to achieve a reduction in the carbon emissions. And so just to give you a flavor of sort of assets that form part of our urban refurbishment program portfolio to date, we've got this one in Streatham. It's a picture -- that's the before and after. I mean, that is dramatic. That is literally -- I mean, somebody said to me yesterday, it's amazing what gray paint can do to you. It's a little bit more than that. There were new doors, shutters, windows and a roof. And again, you can see there, we acquired that with an EPC D to E at purchase, and now we've got a B. The CapEx on this was heavy, but that was more than supported by the fact that we were taking the rents up to GBP 27 a foot. I mean, I don't -- I'm actually not even sure with ERV before at. It's not as high as 20. So there's -- the marginal CapEx here has rewarded us handsomely. And we end up then owning some really good assets in Streatham off a cap rate of 4.75 yield on cost, which today it starts with the 3, I mean it's just how low, I don't know. We won't be testing it, let's put it that way, in the market. And then Bicester is a building that we've taken back from a 3PL operator at expiry, purchase EPC C. We've upgraded it. You can see the GBP 5.80 of CapEx a foot to an A. We haven't got a discussions with 4 people at the moment, and they have the option of going to A+, which will be net-zero carbon, and that will cost an extra GBP 2.10, but we would expect that additional CapEx to be reflected in a slightly higher rent. And that's the difference between this asset class and others. We see this as accretive CapEx, not necessarily defensive CapEx. And as you can see there, we're going to be -- this was previously DPD. DPD previously paying us GBP 6.40 a foot. Our ERV on this day is GBP 8 post-refurb. So we are getting a return for our CapEx. And like I said, that makes it very different maybe to the office sector or the shopping center sector when it comes to these things. So finally last slide before we open up for Q&A. I think the macro environment is highly supportive of the right real estate against the backdrop of low interest rates, change in consumer behavior, and like I said before, rising inflation. COVID has undoubtedly changed an awful lot of things in our lives; how we work, how we integrate with people, how we shop. And a number of legacy habits have been disrupted. Short-term habits have become increasingly more permanent. We think the polarization across the real estate sectors is continuing. I'm not sure it's increasing, but it's continuing. There's a wide gap between the winners and losers. We think sheds and breads to the standout performers. Retail parks are emerging as click-and-collect grows in popularity. And I like -- I don't -- by the way, I don't believe all retail parks are great. I think they're all -- I think you have to be careful in size and rental levels, together with also the tenant mix. We're much happier being in the DIY discount electrical home sector than we are being in department stores and apparel. We think that's got more -- that feels more exposed to disruption for online. Shopping centers will continue to see rental declines well below sustainable levels. I've never met a retailer who says to me, I'm going to stop. I'm not negotiate any further because I've got to a sustainable rent. It just doesn't happen. Those sort of comments tend to come out of people who own a lot of shopping centers. And then the office outlook remains uncertain and increasingly difficult to predict. I'm not an expert in offices, but fortunately, we don't have too many. So overall, we think that we believe market dynamics continue to support our strategy. And our all-weather portfolio is continuing to generate reliable, repetitive and growing income. And that's the backdrop of our investment thoughts because that's what we believe is how you grow asset values, yield shift is great as well, but growing income is even better. And that is what we'll continue to support our covered and progressive dividend, which is the bedrock to all successful investing. And on that note, thank you for your attention and your time this morning. And if you do have any questions, then I have a terrific team of people who are going to answer them for you. So thank you.

I was going to ask you about inflation linking, but you sort of answered that question. So perhaps a couple of more sort of strategic questions. One was on retail to logistics conversion. That's been on the sort of too difficult pile for most people in most markets for a while, but the gap presumably continues to close, does it? Interested in your thoughts on that whether that there is a -- whether there is an emerging opportunity that looking at your GBP 27.50 for sheds prompts that question? And then the other question was just on rent growth, obviously, some fantastic numbers. Normally trough vacancy equals peak rent growth. I mean, do you think we are at or close to peak rent growth? Does it matter? I mean, maybe it doesn't matter. But again, interested in your thoughts on the longevity of rent growth?

Two good questions. I'll start. I think, look, the conversion from retail parks into logistics, it's unbelievably geographically tight. You're virtually talking North Circular, South Circular, maybe M25, if you're fortunate enough to find a retail park that didn't drink the Kool-Aid during the [indiscernible]. I mean, you can take Becton. I mean, I used this phrase before Mark took the rents at pretty high levels, so I won't use that word again. But we were up at GBP 45, and our rents in Becton and logistics rents are not going to be up there for a while. That's before we talk about Costa conversion and all of that. Our GBP 27.50 is in Streatham. I mean, there's not too many retail parks last time I drove through Streatham. So I think it's just -- you've got to be unbelievably focused on geography. It does slightly support my thoughts as well on other things because it's still an expensive conversion. I think there are other areas where you can look at other land. I think the business park sector is interesting. It's pretty unloved by almost everybody. And whether or not -- that's right. Maybe that's why you should badge the portfolios. So some of that could be interesting. And again, and then I just maybe move out from North-South Circular out to the M25 where you've got some redundant offices. I mean, Patrick, very much the godfather, the business part market. If you go back to Aztec West, which I actually did my thesis on in college, it started off as a logistics park, and then it became -- it was gentrified into a business park and 2 stories and 3 stories and whatever. But I think the rents at Aztec are probably the same today as they were when Raymond and Patrick were building it, just didn't move. And we sold the business, we sold the park -- a building there recently which we inherited through a month, and it was a building we didn't like on acquisition. And when we sold it, it didn't disappoint. I mean, in fact, it excelled. I mean, it truly was terrible. And so -- but you could see that going back. You could see Aztec going back from -- actually, it needs to be stronger than Aztec West. From a logistics, Aztec is not strong enough. But you could look at Reading would be a good location. South Hamilton wouldn't be bad. Birmingham would be okay. So that's -- in some ways, that would be more interesting. So yes, [indiscernible]. In terms of rental growth, I mean, I think that 1.5% vacancy generates rental growth, does it matter? I didn't feel that it matters that much to occupiers at the moment. I do come from a school where affordability became an issue in retail parts back in the Northeast. I mean, getting GBP 65 in leads out of town regional park that was a bit squeaky. So I didn't feel that we don't have any examples where I could say to you settle rent if you're in the tenant set which mean you have to leave at the moment. I mean, what was interesting, Valentine and I were talking yesterday about an opportunity -- and Mark, so 3 of us were talking about an opportunity in Speke on a warehouse where we've got a building let to 3PL, an automotive PL. And we're getting GBP 5.40, GBP 5.50 a foot. And we've been offered an opportunity to fund the unit next door, which has been pre-let to Sainsbury's for GBP 7.50. I mean, 7.50 in Speke? So what does Bedford look like by comparison? GBP 7.50 looks okay for Sainsbury's. They're certainly happy, they're signing it, they signed it.

GBP 7.75, they're signing a similar lease in Preston.

You're saying it's more about affordability being signed...

It's mission critical. I mean, if we look at what's important to an operator, in retail it might be staff rent. When you look at who occupies your warehouse, it could be staff, transport, power. So look, you all probably noticed with our disposal activity when we might feel things are getting a bit choppy, but we feel pretty good. We feel pretty good.

Yes. I think, for example, the transaction that we've got in Ipswich, which we announced at the beginning of the week, that's an RPI-linked review, but we also have a 5 yearly open market catch up as well. Now initially, we were to -- when I looked at that deal, which we agreed on in May, last May this year, wasn't -- the rent -- would we go and get the open market catch up? I feel more positive about the open market catch-up now than I do probably even the RPI, because rents are moving so fast?

Okay. So we see no questions -- no more in the room, none on the lines. So thank you very much, ladies and gentlemen. Thank you for your time. Thank you for your interest. And thank you, Chris, for your questions.