LondonMetric Property Plc (LMP) Earnings Call Transcript & Summary

Okay. Good morning, ladies and gentlemen, and welcome to LondonMetric's full year results for the year ending end of March 2022. Great to see so many people here in person, and we very much appreciate this. As usual, I'm joined onstage by my colleagues. And you'll hear later from Martin and hopefully from Mark and Valentine once we open it up to Q&A. As you can see, if Martin can't answer the questions on finance, we've got a second Finance Director on the far left for some reason. I'm not quite sure if that's succession planning or not, but let's hope it's not for a number of reasons, which I'd rather not go into. So I'm going to start, I'll give you an overview -- headline numbers and probably get all the good ones out of the way and then before passing over to Martin, who will take you through the more mundane numbers. And then I'll come back and talk you through the valuation, the makeup of the portfolio, and for us, more importantly, our thoughts on the market on the period ahead, both on a market -- our market perspective and also the wider real estate market before then opening it up to Q&A. So let's make sure that he knows how to work this. Okay. So an overview after what has obviously been a pretty strong period for us. And as I said to a number of people this morning, these results aren't -- didn't just materialize in the last 12 months, they are a courtesy of a number of years of planning as we pivoted the portfolio towards what we consider to be the winning sectors within real estate. And it's those macro trends that continue to shape our portfolio composition and our thoughts around allocating shareholder money into real estate. And I think that where we sit today, 75% of the portfolio is in logistics, 22% and a bit is in long income. I think that we are very much on the right side of some of those structural changes. And no doubt we can dive deeper into those during the Q&A session. The sector calls have delivered some strong performances. As you can see there, total property return of 28% with logistics being the standout performer at 31%, and again I'll dive deeper into that later on in the presentation, and our long income strategy delivering a total property return of 19%. For many years, we've been focusing on income, its strength and reliability and growth. And that's something that is incredibly important to us. Our contracted rental income, as you can see there on the right-hand side, is up 15% over the period. And that's helped us generate like-for-like income growth of 5.4%. I'll come on to talk about rent reviews later. I think these are often overlooked for me. They are a fantastic insight into the desirability of your real estate. And I think this is going to be increasingly important going forward. And we are confident that we have a portfolio that is capable of capturing those reversions. You can see there our ERV growth in logistics at 14% is reversion that we will -- we expect to collect over the coming periods. Our disciplined capital allocation, we run LondonMetric with what I call an ownership culture that ensures that the hugely successful equity raised at the end of last year, GBP 175 million, which was oversubscribed many times, has been invested successfully as opposed to spent irrationally. And that I think has further strengthened the portfolio. GBP 575 million was invested in our two strongest conviction calls over the period. And we disposed of GBP 208 million. And again, I'll go into that later in the presentation. We've also done post period end transactions. You can see there GBP 43 million of acquisitions of net initial yield of 4.5%, rising to 5%. And then a number of post period end disposals, GBP 86 million. So turning to the numbers. As I said, I'll probably focus on all the good ones, leave Martin to deal with the rest. So as I said, net rental income is up 8%, GBP 133 million; earnings, GBP 93.5 million, up 9.2%; earnings per share, up 5.5%, just a smidgen over 10p a share, which has allowed us to announce this morning a final dividend of 2.65p bringing a total dividend for the year of 9.25p per share, up just under 7% on the year and 109% covered. Our NAV or NTA, as we now refer to it, is up 37.2%, courtesy of a revaluation gain of GBP 632 million, which was generated by a 10% increase in ERVs and a 61 basis point movement, inward movement in yields. And again, I'll go through that in more detail later on in the presentation. And that, together with our -- that increase, together with our dividend, has allowed us to report a total accounting return of 41.9%, which is, as you can see, comfortably ahead of our 3-year average of just over 21%. So on that note, I will pass over to Martin, who can take us through the finances in a bit more detail.

It's not often I'm speechless when I walk up here. Morning. Okay. Thank you, Andrew. So in a period of great uncertainty, now whether that's COVID-related or macroeconomic, I think we've produced a really strong set of financial results, significant earnings growth and NAV progression. Pleased to report that our net rental income of GBP 133.1 million is an increase of 7.9% over last year and an increase of 42% over the last 3 years. We've added significant income from lettings and rent reviews from completed developments becoming income-producing and from additional income from net acquisitions, which totaled in excess of GBP 10 million. Net rental income is again exceptionally well supported by our rent collection statistics in the year. We've collected 99.5% of rents due in the year. We think these levels of rent collection continue to reflect the strength of our occupier relationships and our focus on strong credits in the right sectors in strong trading locations. So there, our administrative overhead has increased marginally from GBP 15.8 million to GBP 16.1 million. We continue to monitor our operational costs really closely. And our EPRA cost ratio has reduced by 110 basis points in the year to 12.5%, which I think is one of the leading performances in the sector. As a consequence of our financing activity in the year, our net finance cost is GBP 24.7 million. That's an increase of GBP 2.2 million in the year, primarily due to holding a higher average debt balance in the year. The average interest rate payable over the year has broadly remained in line with the previous year. That focus on cost control on top of our net rental income growth has driven our EPRA profit to GBP 93.5 million or 10.04p per share. That supports the 6.9% increase to our dividend for the year to 9.25p and provides really strong 109% dividend cover. The strong profit growth on top of the unprecedented valuation gain in the year of GBP 632 million allow us to report an overall profit for the year of GBP 734.5 million. Turning now to the balance sheet. The portfolio has grown by over GBP 1 billion in the year. The valuation of GBP 3.6 billion is an increase of 39% over last year. Disposals in the year with a book value of GBP 184 million were more than offset by acquisitions of GBP 457 million. But the main contributory factor to the valuation increase is that revaluation uplift of GBP 632 million. Gross debt at the year-end is GBP 1.05 billion. That's an increase of GBP 177 million over the last year but represents an LTV of only 28.8%, given that significant increase in our portfolio valuation. In November, as Andrew said, we successfully raised new equity of GBP 175 million through a placing that was substantially oversubscribed and which was utilized within 3 months, including the further strengthening of our London urban logistics portfolio with the acquisition of the Savills IM Income & Growth Fund for GBP 122 million. Net liability position at the year-end is GBP 39.4 million, the main component of which, as in previous years, is rent received in advance. In summary, therefore, before I come on to talk about the debt arrangements, our EPRA net tangible assets at the year-end were GBP 2.56 billion or 261.1p per share, a significant increase of 37.2% over last year's GBP 190.3p per share. The increase in the NTA, as Andrew said, together with the dividend paid, resulted in total accounting return of 41.9%. We were very active in the year in managing our capital structure. As you can see, we completed GBP 930 million of debt financings in the year, which included the new GBP 380 million private debt placement, which was upsized from an original GBP 150 million due to the level of demand and extremely keen pricing. The finances in -- the refinancings, including a new short-term facility of GBP 150 million. That was completed in November and that was part of the funding for the Savills acquisition. Our debt maturity has increased with those refinancings from 4.2 years to 6.5 years. And we're now 71% hedged against future interest rate rises. Our current cost of debt is 2.6%. And our marginal cost of debt is 1.8%. And we have unutilized facilities at that rate of GBP 245 million. Our total headroom, including our cash is a shade under GBP 300 million. Our interest cover is 5.2x. And we have excellent cover on all of our banking covenants. Conscious of the likelihood of rising interest rates in the foreseeable future, our only debt repayment this year of GBP 50 million -- is GBP 50 million of our shortest term facilities. And we would intend to meet that repayment by the proceeds of asset sales, which given where yields are, is likely to be earnings-accretive. But looking further forward into the second half of FY '24, we have further refinancings of the remainder of our shortest term facility, together with the shortest tranche of our very first private placement. If we look at the current incremental cost of those refinancings, assuming SONIA at 2%, we think that would cost us about GBP 2 million per annum, so manageable. So our contracted rent roll is now GBP 143.3 million. That's a 15% increase on last year. And we would forecast that to grow to GBP 151.1 million. I've adjusted that reported net rental income to account for the busy post period end. So whilst net divestments have deducted GBP 2 million off the rent roll, our development and asset management pipeline adds a further GBP 9.8 million to the rent roll. So the forecast rent roll of GBP 151.1 million, net of interest and overhead, which are currently running a little in excess of GBP 40 million, would generate earnings over the foreseeable future of more than GBP 100 million. That's approaching 11p per share. And I think that significant level of growth in our rent roll supports the confidence that we have that we will continue to be able to grow our earnings substantially and therefore progress our dividend. And we'd expect the dividend in Q1 for FY '23 to increase by 4.5% to 2.3p per share. And finally, a brief look-back, which puts the increase in the rent roll into context and clearly demonstrates that since our merger, which was way back in 2013, we have been able to more than double net rental income and earnings per share. We have trebled our total property return. And our total shareholder return has increased fourfold through share price appreciation and dividend returns. That equates to an almost 17% compound annual growth rate. And on that note, I'll hand back to Andrew.

Thanks, Martin. So right, deeper dive into the real estate portfolio. As you heard us say, so that's valued at the end of March, GBP 3.6 billion. That's up GBP 1 billion on this time last year. And as you can see from the pie chart, dominated by our exposure to the three subsectors of the distribution and logistics market. Occupancy is high, lease lengths are long and 61% of the portfolio, benefiting from guaranteed rental uplifts. We'll talk about that in a bit more detail later on. Standout performance was from urban and regional portfolios, which is probably not surprisingly, where you can see there on the far right-hand side of the table, I'm conscious of a lot of numbers here, so the dotted dash lines are supposed to guide you to the right, at 33.3% and 34%, respectively, driven by ERV growth but also some yield compression as you can see there and also an acceleration of performance actually in H2 over H1. Strong performance is also from our three mega warehouse investments and also our long income at 20.7% and 19%, respectively. I would just point out that actually the 58 basis points compression that we enjoyed in our long income was actually after absorbing 49 basis point outward movement on our four remaining cinema investments. So it wasn't a case of all boats rising on that demand for long income. But it undoubtedly has been an incredibly strong sector and remains so, as evidenced by some of our post period end disposals. And the standout performance in many ways was the 36.4% total return that our remaining retail parks enjoyed. I suspect there's no ERV growth on those, but courtesy are at 223 basis points of compression as investors, I suppose, returned to that subsector and as others have reported. So as Martin and I have already said, so overall, it was a 61 basis points of compression. It was 10% uplift in ERVs, delivering a full year capital value appreciation of 22.9%, which, as you can see with income, gave us a 28.2% total property return. So looking at distribution. The portfolio is valued at GBP 2.7 billion, 98% occupied and enjoys long weighted average unexpired lease terms. Urban is our strongest conviction call. It's also our largest exposure at GBP 1.6 billion, 127 assets. And probably one of the most important numbers on this slide is the fact that we think it's let at a very affordable GBP 7.50 a square foot. And as I mentioned earlier is we think it's got a lot of reversion there, which we hope to capture through the review process. Over the year, we settled 37 rent reviews across our urban logistics portfolio, on average, at 20% above previous passing. I'll come on to talk about that in a bit more detail later, I have a slide on rent reviews, given how keenly I focus on them. Our regional portfolio put in a very, very strong performance. It's now valued at GBP 681 million across 13 assets and again let at GBP 6.70 a foot. If you put that into context, in the period, we let our 320,000-square foot unit at Bedford at GBP 8 a foot, so kind of gives you an indication of where we think regional rents could get to. And I'm not -- and by the way, I'm not capping it out at GBP 8, I'm just telling you where I think the market is today. And that portfolio is currently 17% reversionary. We carried out 3 rent reviews in the period. They were actually all indexed. So there's no open market rent reviews on that, which delivered 16% above previous passing. We have 3 assets in our mega logistics portfolio valued at GBP 425 million. And as you can see there, let for a very long period of time, 18 years weighted average unexpired lease term. One rent review in the period is a fixed uplift. And that delivered an 8% uplift on previous passing, assuming a 5-yearly review cycle. So our long income portfolio, as I said, delivered a strong return over the period with a property return of 19%, value today at GBP 800 million, continues to enjoy very long unexpired lease terms, 14 years it's fully let. 68% of the rent is indexed. And over the period, we carried out 44 rent reviews here that delivered a 13.1% uplift, guaranteed uplift in rents. And increasingly, the focus here is very much on the grocery and the road side. We continue to see strong demand. In many ways, alongside some of our logistics assets, we take a lot of incoming on the assets within this portfolio, which is why you've probably seen us being more active on the sell side, more reach at post period end than we might have been on the buy side. And we're always open to that. Investment activity, just a little bit breakdown on the GBP 575 million of acquisitions that we undertook in the year. Martin has touched on the biggest asset acquisition, which was the portfolio that we acquired from Savills Investment Management, so GBP 432 million of our logistics investments, GBP 143 million of long income. Post period end, we've acquired another GBP 43 million off a net initial yield of 5%. Our GBP 208 million of disposals was dominated by the sale of one of our mega shared to let to Primark, up in Thrapston, for GBP 102 million off a net initial yield of 4.1%. As I said, we have reacted to approaches we've received from investors for some of our long income assets, both during the period, and as you can see, they're also post period end. We also sold -- continue to sell non-core offices. Residential, we're now out of, but also one of our largest retail park, which was sold in the summer up at Kirkstall in Leeds. And on average, our sales post period end, as I think was announced this morning, have transacted at an average of 14% above the March '22 valuation. So we're still seeing quite good liquidity for a number of our assets. So our asset management, which is a big source of rental growth for us, it delivered 77 lettings but also the regears delivered GBP 8.5 million of additional rent. And as you can see, our obsession with long leases, they will -- those transactions took place on an average weighted unexpired term of 16 years. We have very, very low late vacancy. I think it's 192,000 square feet of vacancy in the portfolio. But the pie chart is -- I put the pie chart in really to try to illustrate that the demand is good, but it's also broad and deep. And I think that when you look at some of those names, some won't actually be that familiar to you, some will. But we are seeing demand. And I made comments in my statement about where that is all coming from. It is -- there are online retailers, my 1st Years is an online retailer. But it's also coming from -- you can see, there's some dark kitchen lettings that we did in the period, packaging businesses, grocery, pharmaceutical, logistics, trade, discount retail. So there's a wide spectrum of demand across both our logistics and our long income convenience retail assets. And that's underscored in many ways by the fact that we only have 192,000 square feet vacant at the moment. The rent reviews, I think this gives you a terrific snapshot into the suitability and the desirability of our real estate. I, for many years, thought rent reviews give you a fantastic window into how your assets are going to perform going forward and also the sustainability and the durability of your yield. The fact of the matter is yields are supposed to reflect the security, the longevity but also importantly, the trajectory of your rents as opposed to pure weight of money chasing a particular sector. 89 rent reviews in the period added GBP 2 million to our rent roll. The contractual uplifts came through it. And those are various, CPI, RPI, fixed uplifts, but on average, delivered a 12.6% uplift on previous passing rents. The open market delivered close to 19%. And we probably -- we actually expect that 19% to improve over the current year as 2016 rental evidence gets replaced by 2021 rental evidence. So if you look at it, we have 20 reviews live today. And at the moment, it looks like they're going to deliver uplifts of, let's call it, 25% to make the math easy for me and our two finance directors. So it feels pretty good. Because 2021 evidence is higher than 2016 evidence. So this isn't a snapshot for 1 particular year, it's just -- it's how the review cycle works. So at the moment, on track to deliver uplifts of around about 25%, 26%, which would indicate that the 4% per annum is going to rise to 5% per annum. And that's how we feel today, okay? We signed a rent review yesterday, just to give you a flavor. So I'll come on to talk about it in a minute. We signed a rent review yesterday down in Basildon, where -- with a 3PL. The rent went up 45%. I mean, that's a big number, so don't put 9% in all your numbers, please. But it's happening. It's happening, it's real. If you look at the urban settlements over the period, the average in urban was 22%. That's a wide range in there. We can talk -- I mean, actually it doesn't include our settlement yesterday. But during the period, it ranges from -- there was an 88% uplift in Croydon and there was a 46% uplift in Halesowen and there was a 29% uplift in Hemel. But the counter to that is there was a 7% uplift in Merry Hill and 7% in Diss. So it's a wide range. So our job is to find a few more Croydons and Halesowen and Hemel Hempsteads and maybe a few less Mary Hills and whatever. So it's a wide range. But it's good. As I said earlier, we didn't have any open market in regional and our mega -- our three mega warehouses don't have -- are all for contractual uplifts. And then as you can see there, our long income predominantly benefits from fixed uplifts. But actually, if you look at it, if you look at the chart on the bottom, the line graph, our urban ERVs is running way ahead of where we think RPI and CPI is. And it comes back to a comment I made earlier, we have 61% of the portfolio with contractual uplifts. Yes, there are parts of the portfolio I wish it was 0. Particularly, you wouldn't want to fix uplifting Croydon, Halesowen or Hemel Hempstead, would you? So it is a broad spread. But if you were, settlements are up 7%. That's more than countered by some of the other settlements that we're getting across the portfolio. And as I say, we expect that trajectory to improve going forward. Our development activity. We're investing GBP 148 million across 6 schemes, all of which will be delivered this year, and Martin referred to it earlier, will add nearly GBP 7 million to our rent roll, 4 logistic schemes and 2 long income. 95% has been pre-let, average lease terms of over 20 years and the average yield on cost of 4.5%. We've given you a snapshot of where they are. Ipswich is logistics, as you can see, Leicester is logistics, where we're prefunding two buildings, one of which is let, one of which we'll take letting risk on. And then down in Weymouth, we're building a small long income retail park, which is let to -- pre-let to McDonald's, Costa, B&M and Dunelm. We've already -- the Phase 1 is already completed, which is an Aldi. And Phase 3 will have seen us introduce a GM food offer, subject to planning, which will, as you can see, all in all, deliver a yield on cost there of over 6.5%. So upgrading our portfolio. We continue to help us improve our environmental metrics, which increasingly shape our thoughts. We believe that we have very, very strong stewards of underinvested assets. We won't shy away from buying what are considered to be poor energy-efficient buildings because we have the energy, we have the desirability, we have the skill set and the capital to improve those. I mean, I know in other sectors, people consider this to be upgrading buildings to meet A, B, C credentials, but predominantly A and B, to be a defensive maintenance CapEx issue for us. We consider it to be a -- we think it actually to be accretive CapEx. For example, we've given a couple of here of urban warehouses that we bought. I mean, I'd love to show you what Streatham looked like before we refurbished it. But I'm actually amazed it got an EPC D, to be frank, looking at it. But anyway, on a good day, having a pre-refurbishment ERV of GBP 15 a foot, we invested GBP 38 a foot on it and we've letted up now at an average -- I think actually -- I thought the average rents were actually a little bit higher than that. But anyway, let's call it GBP 25. So we secured GBP 10 of additional income for investing GBP 38. I mean, we'll do that every day of the week. I mean, that would be much better use if we could find enough of those opportunities than just buying investments in the market and paying the Chancellor a lot of stamp duty. Again, in Tottenham, we took an empty building with a poor EPC rating, or poorish C, and improved it to an A courtesy of GBP 50 of CapEx. But actually, we took -- we bought it with an underlying ERV of GBP 18. We've added, call it, GBP 4.50 to that. So GBP 50, to add GBP 4.50 again, a smidgen over 9% return on your marginal CapEx, again what's wrong with that? And that's now under offer as well. And across the rest of the portfolio, we've considered to add solar capability and also EV charging across the portfolio. And we have a framework agreement, which you can see there with Motor Fuel Group, that covers an initial six sites but is capable of being rolled out further down the line as well. And you see that, I'm not sure we've touched on this already yet, but our EPC ratings across the portfolio improved from 74% A to C last year, 85% today. So just looking at the outlook. We'll start with the logistics market, and then we move on to the wider real estate market. Our outlook is increasingly framed by our occupational experiences in lettings, rent reviews in particular. We think the demand-supply tension across the whole logistics market, mega, regional and urban, is strong. And we think demand is high, broad and deep. However, we are a bit more size and geographically focused today than we might have been 3 or 4 years ago. I think that it's not just the case of getting on the logistics train or any logistics train, I think you have to think more carefully about which carriage you want to go into and which seat you want to place your bets on. Because I -- and I've said this many years, nobody listened to me actually, but not all warehousing is great in the same way that not all retail is bad. I've said that for many years. And I think in some ways, the last 12 months have highlighted our thoughts on that. Some of these statistics you already know because they're printed by -- these are CBRE statistics. We've had record logistics investments over last year. But that's continued into Q1. This year, as you can see, take-up is pretty strong. I mean, I think take-up is really good, 10 million in Q1 across 41 deals, that's a doubling of where we were a year ago. And supply, I mean, it's -- in logistics, certainly in regional and urban, it's hard to turn on the tap. I think it's a little bit easier in mega. But still, you've got vacancy here of 1.6%. I've said before, I think the U.K. might run out of warehouse space. I think we're getting closer to that. I mean, the fact of the matter is a lot of commentators will say, "Look, rental growth starts when vacancy drops below 10%." I'm actually not as bullish as that. I think rental growth starts when vacancy drops below 5%. This sector is well below 5%. And you might get a bit more supply coming through in certain subsectors, but there's demand. There is demand. And so as a result, we expect our rents to progress certainly across our urban and regional portfolios. And they will absolutely lead the way. And as I said earlier, in the rent reviews, 4% settlements on average per annum last year, we expect that to increase. And we are hopeful. We don't know, we're only 2 months in. We're hopeful that, that will rise during the course of the current financial year to nearer 5%. So looking at the outlook. We think that the macro environment is still supportive of the right real estate. We think it can not only provide a comfortable margin over your cost of debt, even if they are increasing, but also deliver growth at least equal to the elevated levels of RPI and CPI. And that was the point of putting that line graph in the rent review slide earlier on in the presentation. As I've said before, we think COVID has accelerated many changes in our behavior, how we live and work and shop. But also, we are living increasingly with geopolitical events that disrupt the supply of goods. We think that localization and just-in-case strategies are becoming more relevant than globalization and just-in-time. And we think that is good for the warehouse sector. That said, we think that polarization of performances will continue, maybe not quite as wide as it was over the course of 2021. Like I said, we think distribution is still the standout sector to be in. In retail, we prefer parks over centers -- for parks from -- we probably prefer them from an omnichannel rental perspective. I think my comments on centers are well reported, so we don't need to go into that. And as far as offices are concerned, we think that the outlook is uncertain. And so therefore, when it's uncertain, it's harder to predict returns. Plus we're not very good at it either, so we won't be investing in offices. That's why it's comfortable. And I think that the market dynamics continue to support our strategy of trying to pick the winning sectors and then focusing on owning the best assets in the best geographies that will deliver that income and income growth. I think our all-weather portfolio has done well. We came through unprecedented periods of lockdown with -- in great shape. We continue to collect our income. We continue to pay an increased dividend. And it's something that we hold very, very close to our wallets and hearts. And we think it's that strategy of collecting, compounding and compressing, which will allow us to continue to focus on not only a covered, but a well covered, but also a progressive dividend for the periods ahead. So on that note, I'd like to thank you for your time and ask whether or not we've -- whether or not we can -- there are any questions in the room and then I'll come to the phone lines later. So thank you. Miranda?

Miranda Cockburn for Panmure. A couple of questions. Firstly, you mentioned reversion of 17%. Was that just on the regional? What's the sort of reversion over the whole of the distribution...

14%.

14%. And then the other thing was just on the long income. Just looking at your graph on Page 17, you've got the contractual at 16% and market at 5%. So does that imply at all that there's any over-renting potentially coming through in that long income piece?

No. I'd say most of the indexation in that will be in our grocery and road-type piece, which I think is pretty under-rented. I think convenience grocery looks a better bet than big supermarkets, which are definitely over-rented. They're massively over-rented supermarkets. The rents are just too high. So I would think most of that. Whereas in general merchandising, I don't -- I can't think of any GM retailer, Martin might have come up with one, I can't think of any, who agree to indexation. It tends to be roadside drive-throughs. I think our quick fits are probably on indexation. I know all of our grocery stores are on indexation. And the reason why the open market is only 5% is because there's still not a lot of tension in the retail space, even in the better bits. But you've got a duty coupon.

Yes. And then just one other question, just in terms of the upgrading that you've done, do you think that tenants are that discerning in terms of the EPC ratio? Or is it just because you're refurbishing the assets generally that you're getting the uplift? Or do you think it's because of that EPC move?

Well, I would say that the behavior of our tenants is difficult to be uniform about it. You could be amazed some household names who just have no interest. But look, we're future-proofing. Those tenants will own the building, probably longer than those tenants might be in it. So we're future-proofing it. And if you're getting marginal returns on cost of either 20%, I think, on the one or 25%, whatever it looks like, or 9% on the other, then we're in good shape. As one property director said to me, "You put a new roof on, you might not like the cost, but it's going to last you 50 years."

It's James from Peel Hunt. I think Martin mentioned you're going to repay some short-term debt and that will be funded from disposals and will actually be accretive. I mean, given that point, I mean, what gives you the confidence that now is not the time to be you're a net seller across the board? And then on disposals, I mean, over the last couple of years, you've reduced exposure to the big-box market. I think you've only got a few huge assets left. Should we expect that to continue to be reducing down? Or are you pretty happy with those last few assets?

We've never married an asset. We have no intention. Every asset has a number, okay? And somebody is offering us a number that we think is going to exceed our own return expectations over the next few years, and we'll sell it. We've sold more post period end than we've invested. And that will continue. I mean, I'm always amazed when we tot up the numbers of buying and selling that we've done in the year or how we get to some of these numbers, I mean, I don't know where they came from. But in the same way that shareholders don't marry our shares, we don't marry our assets. Yes, big box is a job for us. It's a fantastic lease lens, great credit, very low energy. It doesn't take an awful lot to collect rent off those tenants. And we get index-linked or fixed uplifts across the piece. But at the same time, we sold a big Primark warehouse at the beginning of the year -- at the beginning of the calendar year. And we're open. That's what happens. And by the way, I'm not going to tell you which ones we're going to sell out. I mean, there are too many chief execs have signaled their intentions to the wider public and then to find out that executing it becomes more difficult.

Peter, Green Street. Can we get a little bit of color on -- as you're underwriting new deals today versus, say, February 1, what are you sort of changing in terms of either your rent growth expectations or exit cap rates? Just a little bit of delta over the last 3 months, that would be interesting, high level. And then maybe second question, on the occupational front, obviously -- or perhaps Amazon doesn't drive incremental ERV, but it is a sort of big occupier at the margin. And they've been doing a lot of leasing. So if they slow down, how does it just change the overall dynamics of the market?

I'll take the second question first. So Amazon, they are the high priest and have been. I think that their slowdown, which by the way, I think is more U.S.-centric, but I think it would be naive for people to think that the U.K. is immune from some of those decisions. It took 24 years to build Amazon and their floor plate. And in the last 2 years, they've doubled it to react to an unprecedented environment. So it's not a great surprise. It shouldn't be a great surprise that they go, "Look, we're going to pause this for a bit. And actually, we've got a little bit too much space and we'll do -- we'll be open to subletting a bit of our space in the U.S. for 1 to 2 years." 1 to 2 years, that's their statement, not mine. I think their slowdown, which if it comes in the U.K., will be predominantly around the RDCs. So we're talking, give or take, 300, 400 and up. They're not as big a player in urban. I mean, they're just not because their requirements for urban are just quite bespoke. We've got one urban facility, so we can speak from experience, double decker, van parking with full EV charging. You don't -- their urban requirements aren't -- you don't just pick it off the shelf. So you might have -- they might have -- if it's going to have an impact, and it'd be naive to think it will have 0 impact, I think it's in the bigger end of the market. That would be my take. Mark, is that fair?

Yes, I think in the last 2 years, we've seen pretty unprecedented demand out there. 50 million square feet has been taken off for both over the last 2 years and which we think Amazon have taken probably about 10 million. So even taking out of that 10 million, you're still at 40 million square feet, which is still well above the long-term average, which we'd reason about 27 million, 28 million square feet a year.

I think also, it's interesting to note that in Q1, the 10 million square foot of take-up that occurred in the market, which was almost a record for a quarter, Amazon took no space in Q1.

And that's my broad and deep piece. Again, I'm not saying we're immune. If people at the market is not immune to it, it has to be. But again, I -- and also, I mean, we do have a slide, I hope, on looking at Amazon warehouse capacity, their sort of square footage relative to -- some of this you will have -- people would have seen. You're nodding, so you've definitely seen it, on per capita and also sales versus the square footage -- warehouse square footage that they have in the United Kingdom relative to some of the regions in the U.S. The U.K. does screen quite well, which is why my comments, I think it's more U.S.-centric. Going back to the first part of your question, what's different in underwriting? I think the deal flow since the 1st of Feb for -- I mean, actually, it's not the 1st of Feb, we could go back to the 1st of Feb 2019 or whatever, it's very much urban-focused. It's very much focused around London, South East, the widest point. And for us, yield compression, we don't run an IRR with yield compression, okay? All of our assessments are based on rental growth, refill costs, where do we think the rent is going to go to. It's all about the rent for us. I don't think the rental picture for us around urban London has changed an awful lot since the 1st of February 2022. I'd also say one of the other things people ought to think about is that the liquidity of that asset class. It's not just the big platforms that acquire it. We've assembled the portfolio. Yes, we have bought portfolios. We have bought companies to add to that. But most of the assets that we own in urban have been what Valentine and I often refer to as rifle shots. For those cricket fans amongst you, we're happy to knock out of singles. We're not sitting back there saying, "Well, it's got a minimum deal size of GBP 50 million, a minimum deal size of GBP 100 million." We're not sitting back waiting for the flat pitch. So I don't think there's a lot changed on that. So I think our underwriting is okay. Sander?

Sander from Barclays. A couple of questions. Firstly, basically following up a bit on Peter's question on values, I mean, obviously, since March 31, you've signed quite a few deals significantly ahead of book. Shall we just take that as a market for the first half of this year?

Look, I mean, I think we have desirable assets. I think that the -- I think there's a good investment market out there. We're running through a number of deals in [indiscernible] hands. I think recent pricing will have -- and Valentine can add some color to this, has encouraged a number of platforms to think about whether or not they want to monetize early business plans that were forecast to take 5, 6, 7 years to reach, may have been achieved in 3. So should we test the market for that? So I do think you'll see a slowdown in deal flow over the summer. I mean, somebody said to me the other day, "It feels like summer will start in June rather than July this year." But I think that certainly for -- if we were liquidating some of -- or monetizing some of our urban warehouses, I think we'll be in pretty good shape. And by the way, we will do.

And just in terms of a read-across for the remainder of your portfolio that you're keen to hold on to, like what are your valuers seeing?

Well, the valuers have obviously -- they obviously like our portfolio nearly as much as we do. And I think -- I mean, taking a cue for looking forward from a valuer is probably dangerous. Unfortunately, their job is to look backwards. And as one member of the audience says, they do spend a lot of time looking at the rearview mirror. Market feels pretty good. We're in the market all the time, both buying and selling. And we have a portfolio of multi-lets out there. We have a couple of individual urban warehouse opportunities that we're seeing where the market wants to price it. And we feel pretty good. And if the price isn't there, we're happy to -- we'll hold it.

Just to be clear, currently, there is a lot of product out in the market. But there are also -- there is a wall of money as well looking to invest. I mean, it's just -- there's a little bit a standoff, I think. But if you take, say, something like our DHL in Reading, which we sold for 3.5% to 2%, just over GBP 60 million, there were 6 bids well above the asking price, which was 4.5%. And the top bid was only GBP 125,000 ahead. So it's not just -- it wasn't just one solo flight going for the top bid. There was good, deep demand. And I think it might slow up a little bit. But those guys have still got a little way too money to get into the market.

Sure. And kind of ties into the second question I had is on you've been awfully busy transacting assets this year, a lot of buying, a lot of selling. How are you thinking about that in terms of net volume?

Less. Yes. Honestly, I get e-mails from the chance for thanking me for the stamp duty contribution this year. Please say less.

Well, on the other hand, you could argue like, look, I mean, if the market is slowing that there is maybe a bit less appetite from buyers that actually that could be -- given where LTV is, could be a good moment to strike. So how should we think about that going into FY '23 about...

Less. Until such time as we see something. And when we see something like nobody could have predicted that we were going to be able to buy a mixed portfolio of predominantly urban warehouses in, when was it, November or December from a fund that was winding up. I mean, we just don't have that sort of visibility. But when it did, we reacted to it. And we -- unfortunately, our shareholders were incredibly supportive of it, and we will do the same again but less.

Less it's ever been. You make the right property decision. And when I look at some of the sales, and I think my good -- the loss of income. But then you look at the quantitative investment, divestment we've just reported, it is extraordinarily how Valentine has been able to replace that lost income to buy more. So if it's the right thing to do to sell, we will sell. But we have confidence that we'll be able to redeploy the proceeds.

Okay. So a bit more this year is what I got. The last question I had, just outside of the Amazon comments, but just more generally speaking, in your conversations with tenants, how did they feel about life? Because obviously, there's a lot of macro uncertainty going on. Are they asking to expand as they were 6 months ago? Or are they kind of taking a step back and saying, "Look, yes, we will expand, but maybe not now, we have time, we can do it in 6 to 12 months' time as well"? Just kind of your feeling on that.

I think it's different for each sector. I think it's -- I think you've heard the comments from ours, but there are lots of people trying to pay catch-up to Amazon. You've heard some comments. And even within 3PL, we could give you a different answer, between DHL and DPD. But you've got new industries. You can talk about dark kitchens. You can talk about e-commerce. Businesses need more capacity to onshore. You've got people needing more efficient warehouse space to get the economics to work. The numbers from M&S yesterday, we want to close town centers, we will have a retail part. But look, what happened to their online business. They need better space. I mean, we're having an interesting conversation with M&S on our situation at the moment. I mean, they're not taking less space in warehouse, I can assure you. So it's different. But it's forever been thus. I was talking to somebody this morning, he was talking about, "Are you worried about affordability in rents?" Well, it depends where you are. Mark and I have lived through an unbelievable period in out-of-town retail warehousing, where we were doubling rents and stuff. And it made it unaffordable for Carpetright. But it was okay for Next. They have different business models. They have different margins that they work off. They have different entities that they work off. Businesses are different. I mean, without a doubt, we're seeing a gentrification of occupiers, certainly in urban. I mean, your MOT service station or your collision operator is going to get replaced by, I don't know, a dark kitchen or a Qcom or a Getir or a Gorilla or, I don't know, a microbrewery or something. I mean, it's just getting better. And each of those business has different margins. So their ability to pay more changes. You go to look at the railway -- cycle around London and look at the railway arches, I mean, it used to be full of tire suppliers and MOTs. And now it's cheese shops and wine shops. I mean, it looks so much better.

[indiscernible] a couple of weeks ago. And they occupy over 20 million square feet, of which they probably own about 4 million or 5 million themselves, so they're playing both sides, both the tenant and landlord. And we always ask the question about affordability. And actually, it was the last thing on his mind. He's obviously very conscious of cost. But for him, it was about having the most -- it's about having a fleet, which is the most efficient that he could find in terms of his lorries. He's predominantly a 3PL operator. So rent actually just was not an issue for him. He will continue to grow his business and he will continue to take more space.

Just on that, I mean, I won't name who it is. But the reason why Mark met him is we wanted to take his surrender. We wanted to take his unit back because he's got a long lease on an RPI-linked rent in the clause. And we would like to take this unit back. And we were offering -- we could have offered him 8-figures.

It's not even about affordability, it's more about the fact -- well, or are they just saying like, look, is the expansion basically as full on as it was in 2021? Or is it a bit of a slowdown?

So it depends on what you did in 2019 and '20. We lived through an unprecedented period. I mean, let's be absolutely clear. I think this is the first time I'm standing up in 2 years or 3 years. But it was unprecedented. Amazon absolutely went full throttle. So guess what, they come back again. And if you didn't go full throttle, then it's different. I was with the retailer yesterday, outdoor retailer yesterday, talking about, "Is there anything we can do together?" We want more shops. It's different across the piece.And that's the breadth that I tried to highlight in my pie chart. But I think with that, we've exhausted the room. Is there any calls online, please?

[Operator Instructions]

Excellent. Right. All it means is to thank you for your time and your interest, and have a good day. And we'll hang around for a bit longer. So if there are any questions that you didn't want to embarrass ourselves within the -- in the wider forum, then we'll happy to take them. So thank you very much. Have a good day.