Schroder European Real Estate Investment Trust Plc (SERE) Earnings Call Transcript & Summary

Right. As it's 9:00, I think we'll get started. So thank you, everybody, for joining us this morning for the Schroder European Real Estate Investment Trust Half Year Results Presentation. My name is James Lowe. I led [indiscernible] Sales of Schroders Investment Trust business. Very pleased to be joined on the call by 2 others. So that's Jeff O'Dwyer, Fund Manager of the Trust; and also Rick Murphy, who is the Fund Accountant, who will also be presenting. Just before we get into it this morning, there is a Q&A function on your screen. So if you would like to ask the guys some questions, then please do go into that function and ask questions. I'll ask them as we go along or at the end of the presentation. And just one last thing before I hand over to Jeff. Jeff sadly had a small accident on the weekend, cricket-related accident, which now means his leg has to be fully raised. So he won't be on video. He doesn't mind being on video. We just thought it wasn't practical this time around. So with that excellent introduction, I'll hand you over to Jeff. Jeff?

Thanks, James. Yes, it hasn't been the most ideal prep. But anyway, we'll get through this. As James said, I'm Jeff O'Dwyer. I'm the Fund Manager of the European REIT. And today, we're going to walk you through the 6 months results of the Schroder European Real Estate Investment Trust for the period ending 31st March. I'm also joined by Rick Murphy. And Rick is the Finance Manager, and Rick will take you through the financials in detail in a minute. I'll sort of walk through just a general overview. As I touched on, Rick will do the sort of the finance, and then he'll sort of hand back to me, and I'll sort of talk you through the portfolio a bit around asset management, where we've had some successes. And then I'll try and give you some direction on where we see growth going forward and some of the things that we're working on with the portfolio to try and grow value and income. James, you want to go to that slide. I think it's a good sort of overview slides. And just really to reiterate sort of how pleased we've been with how the portfolio has performed during the pandemic. And we think really this has been a testament to not only the diversification that we have, but also the original asset selection, that sort of winning city focus. And then also working with sort of our local sort of management and expertise that we have on the ground in those cities. And then what's become even more clear over the pandemic is really our relationship with occupiers. And I'll touch a little bit more on that through the presentation later. One of the big positives here is that we've -- the real sort of growth and strong sort of rent collection stats, which have now got to 94% for the last quarter, coupled with the valuation resilience that we've seen, and also with the strong balance sheet that we've got. And we've also seen sort of improving sort of economic sentiment and obviously, the rollout of the vaccine. The Board and management have elected to reinstate the pre-COVID dividend, which is EUR 0.0185 per share. The other big news today is that the Board has announced an intention to declare 2 special dividends of EUR 0.0475 per share over the next 12 months, and I'll elaborate a little bit more on that in a minute. And really, the main focus for that special dividend announcement is really to give shareholders an ability to participate in the exceptional profit that we've achieved in Boulogne-Billancourt and the business plan that we have there, and also to reward those shareholders. We are conscious that we have cut the dividend through the pandemic and is really to reward those shareholders that have been patient and had a reduction in their distributions. Just touching on the NAV performance over the period. Obviously, it's fallen marginally over the 6 months. This has primarily been due to the write-down in civil, and Rick will touch on that a little bit more in a minute. But we've now written that down to 0. In terms of 12-month NAV total return, that's at a handsome sort of 12% obviously, assisted mainly by the Boulogne-Billancourt refurbishment and sort of regearing forward sale that I've mentioned. The company is in a very strong financial position with modest leverage and approximately EUR 60 million of cash available for new investments and earnings enhancing initiatives. If you look at today's share price, and we're hoping that today's announcement will sort of flow through to some positive increase in share price, but even based on sort of where we're trading this morning at around GBP 1, the reinstated sort of dividend of the EUR 0.0185 annualized gives you about a 6.5% dividend yield, which is highly attractive. And we think this is even sort of more attractive given the diversified nature of the portfolio and the exposure that we have in cities such as Berlin, Stuttgart, Frankfurt, Hamburg and Paris. And obviously, with these cities, we expect them to grow and come out of the pandemic quite strongly and that, coupled with the individual asset attributes that I'll touch on later, we see stronger growth as we move out of the pandemic. Our focus remains to grow the company and certainly by looking to add attractive income generating investments in that sort of growth city and region mindset. And obviously, this will add further diversification. And really the focus is to increase that dividend cover from sustainable income. I'll now hand over to Rick.

Yes. Thanks, Jeff, and good morning, everybody. So turning to the financial highlights and summary for the 6 months ended 31st of March 2021, and beginning with the balance sheet and cash. The main item over the 6-month periods and from a finance perspective is that we've now sold the Paris Boulogne-Billancourt asset. And in December 2020, we transferred the legal cycle of that asset to [indiscernible], and in return received a first cash tranche of just under EUR 53 million. As a consequence, our cash position has gone up over the 6 months from EUR 18 million to about EUR 58 million. And it's that EUR 58 million, which forms the capital to be redeployed for further investments and opportunities and the pipeline, which Jeff will talk through later in the presentation. From a performance perspective, total return of minus 0.4% over the period. That's been negatively impacted by us writing down the exposure and investments in Seville. However, we've seen a strong net performance of 12.6% for the rolling 12-month period, and that's been driven last autumn by the successful asset management initiatives achieved with regard to Paris Boulogne-Billancourt. With regard to our Seville shopping center, we've only got 1 shopping center within the portfolio. And we've now written down our investment equity and exposure to that asset to nil. As at the financial year end of September, Seville accounted for just under 4% of group NAV. So now that's 0. Clearly shopping centers and fashion retail have faced challenges over the course of the pandemic. So we've taken a prudent decision now effectively to write down that equity to nil. From a debt perspective, gross LTV of 29%, 11% net of cash. That 11% is obviously helps by that very strong cash holding that we currently have. And that's well within our net LTV cap for the fund of 35%. We have a blended all-in interest rates of 1.4%. And also we have no near-term refinancings in the second half of 2021 or 2022. From an earnings perspective, EUR 2.8 million was our earnings. Alten, who were the sitting tenants in Paris Boulogne-Billancourt vacated in autumn. They're paying us around EUR 2.4 million, EUR 2.5 million of income per annum. So we lost around EUR 1.2 million in the interim period. And as a consequence, we've seen our dividend cover full to 61%. However, to date with regard to Paris BB, we've crystallized the capital profits of around EUR 23 million, and it's that cash which is used to support the dividends effectively whilst that refurbishment takes place whilst Alten has located and as new assets are acquired in the future. And finally, as Jeff mentioned, we're very pleased to announce that the pre-COVID dividend of EUR 0.0185 per share has been reinstated. That means that dividends declared for the 6 months will be EUR 0.0342 per share. So the December 2020 dividend was 85% of the pre-COVID rate. And the March 2021 dividend, as mentioned, will go back to that full 100% amount. Turning to the NAV table. So here, we can just see a bridge between the starting NAV of EUR 201.8 million and a closing NAV of EUR 197.1 million. So looking at those first 2 lines, the 10.3% and the 4.7%, effectively that's our net capital growth of the asset base of EUR 5.6 million. Paris BB has broadly equalized. So before we sold it, the valuation growth over the period equated to the capital expenditure, which is invested. But looking at some of those separate assets in the top line, just to draw out, so we've seen good valuation growth at Hamburg as a consequence of successful leasing activity during the period. Our industrial assets, so Venray in the Netherlands, [indiscernible] Rumilly in France have also done well in that top line. And interestingly, Berlin is a DIY retail asset and with the pandemic and people being at home, that's also performed well in the portfolio, and then some smaller capital uplift with regard to Stuttgart and Hutton. With regards to Paris BB, as mentioned, we've now sold the asset. We've now moved into the refurbishment phase. If the -- as and when the refurbishment is delivered to costs and plan, there's a further EUR 6 million of NAV pretax to come through. And this will come through potentially later this year, but more likely in the first half of 2022. The development completes in Q2 2022. So at the moment. we're tracking effectively future cash receipts, milestones with regards to the building and its completion and effectively the sort of -- overall sort of risk of that development. So as of 31st of March, only around 10% of the total expenditure being incurred, and there is still relatively in the infancy of that project. As mentioned, as that nears completion over the next 12 months, we'll start to bring through that pretax profit of that EUR 6 million. With regards to Seville JV. So as touched upon, we've seen EUR 5.6 million net capital growth for the direct assets, but that has been offset by Seville of EUR 8.2 million. That's now fully written down as mentioned. So now our exposure to our only shopping center from a net downside perspective is nil. EPRA earnings are EUR 2.8 million. Noncash capital items of EUR 0.9 million. That's deferred tax, which runs off that top line and with regard to assets such as Hamburg, Venray, Stuttgart and Houston. And dividends paid to investors over the 6 months of EUR 4 million. So that was the June and the September quarterly dividends paid out as EUR 0.139 and EUR 0.157 per share, respectively. Turning to the summary balance sheet on the next slide. The shape of the company balance sheet has actually changed quite a lot over the 6 months. Investment properties has gone up by EUR 5.7 million, so that's just valuation growth. But asset held for sale as at the financial year-end, under IFRS, we've shown Paris BB as an asset held for sale of EUR 65.2 million. That fair value has actually gone up to EUR 69.8 million when we sold the assets and transferred that legal title EUR 69.8 million was the value of assets in December. And as that dates as a consequence now, we're no longer showing that asset held for sale in our group balance sheet. Likewise, our exposure to Seville, which was around EUR 8 million, obviously that's ticked up a little bit with a little bit more interest. And since then about GBP 8 million as of September, now that's been fully written down to nil, as you can see in this slide. Cash is obviously, Jeff touched upon, as we've now received that first tranche in or just under EUR 53 million. We've got EUR 19.6 million, which is due from the purchaser. So we deem -- we had a deemed sale price of EUR 69.8 million. Having received in that EUR 52.9 million, we've got EUR 16.9 due to us from the purchaser with regards to sale and EUR 2.7 million of deemed development revenue, which they're committed to pay to the funds as well to get us that EUR 19.6 million. And then a small net current asset position now and also no new debt we can see in the 6-month period, so EUR 68.4 million has been brought forward and carry forward. So all in all, NAV of EUR 197.1 million, and in euros cents per share terms, that's [ EUR 147.4 ]; and in sterling terms, [ GBP 125 ]. Turning to the next slide and debt. So as touched upon, a gross LTV expense to 9% net LTV at 11%. We've got 7 loans within the portfolio, 6 directly held in that top block at the table. Our earliest maturities kick in 2023, which is Rumilly and that's actually our smallest loan that we actually hold. And with regards to our current covenant position, our directly held assets, it's pretty healthy. So you can see that in the LTV column, there's a range of 24% to 37% headroom. And in ICR, even healthy at 29% to 86% headroom. With regard to Seville, as mentioned, we've now written down the equity and net investment to nil. We've been in a cash track on that investments for a little while now. And with regards to the LTV, we are expecting a potential breach in the summer. But the key point here is that, that loan is recourse to the group. So having written down the equity and with the loan being on the course, there's no wider impacts to any group entity within the series group. And then just turning to the summary income statement. So here, we just got a bridge of EPRA earnings. So we can see that on a like-for-like basis, EUR 4.3 million was our EPRA earnings for March 2020 and EUR 2.8 million for this 6-month period. The main driver in the fall, as touched upon, is effectively Alten, the sitting tenants in Paris BB. Post their vacation in autumn of 2020, we've now lost at EUR 1.2 million circa revenues for that 6-month period. And we see the dividend cover has fallen from [ 116 to 61 ] and there's 2 main pits there. Known if we lost that Paris income as a result of the sale and then subsequent refurbishments, but also in that right hand column, as we went into the first lockdown and as COVID hit, we reduced the 31st of March 2020 dividend to 50%. And the equivalent dividend this time as mentioned, we've reinstated to 100%. So they are the 2 main drivers for the like-for-like dividend cover for over 6 months. And I'll now pass back to Jeff to talk through future dividends and the portfolio.

Thanks, Rick. Just some of the rationale as to why we've had the comfort and the Board had the comfort to reinstate the dividend back to the EUR 0.0185. Obviously, we've seen sort of strong and improving rent collection. So at the early part of the pandemic, we were at sort of mid-80s and that's steadily increased now to the last quarter being around 94%, and actually that's carried through to the last couple of months. So really positive on that front. We've had some good asset management success mainly in sort of leasing Hamburg. This has been an interesting office asset that on start of the pandemic, we had about 4 floors that were vacant. We've leased all those floors. So a really good example of an asset that is well located and actually off sort of sustainable rents and that's been in demand. Good valuation resilience. So I know we've talked about sort of Seville in the sort of the problem trial that we have with that, but the rest of the portfolio has performed exceptionally well. If you take away Seville, we've actually seen about 3% valuation growth net of CapEx over the interim period, so a really positive result led largely by the industrial portion of the portfolio. Obviously, the Paris Boulogne-Billancourt profit that we went through, and then also just in general, the improving sort of vaccine rollout and sentiment. So that's behind the growth back to the pre-COVID dividend. But also just to announce, obviously, the intention of the Board to release around EUR 13 million of cash to investors via 2 special dividends and that will occur over the next 12 months in terms of around EUR 0.0475 per share being declared. James, you'd like to go to the next slide just to -- sorry, this is let you sort of go through this on your own in terms of discrete performance. But just running through to strategy. Obviously, when we set our stall out at the start of '15, it was all around sort of the Winning Cities and Growth Cities. We still believe that that's the right theme, and we'll continue with that. obviously, the short term will largely depend on how quickly the pandemic and its variance are brought under control. We're seeing some positivity there. And obviously, consensus is correct. We think that we'll start to see some stronger growth through the end of '21, start of '22, and the cities will certainly recover quickly. Obviously, the advantages of cities, obviously, the -- for us, they're knowledge-based economies, they're strong transport connections, is very good universities, enhanced infrastructure, leisure, cultural activities, and these will all continue to attract highly skilled workers and obviously, businesses and then tourism. And in general, we expect larger cities will grow anywhere between 20% and 40% faster than their domestic economies. James, next slide. So obviously, the Winning City or Growth City strategy is more of a macro approach. The other parts of the strategy that we adhere to is really -- one of the key things has been diversification, and we -- the strategy is going to continue to be diversified, and using our local expertise to identify investments in submarkets that are going to benefit from either supply constraints, where there's going to be improvements in infrastructure, where there's competing demands for uses and really where rents are affordable and sustainable. And that's really been the micro part of the strategy. So that, coupled with the macro of picking the right city and then picking the right submarket and having those teams on the ground to pick those markets is what has been a key part of our success to date. Now that's delivered, on average, around the 10% annual real estate return over the last 3 years, which I think is exceptional. And also the pandemic, I think that's worth noting that pandemic has really highlighted the need for local expertise and having people on the ground in the countries to source product and also to manage the investments accordingly. Secondly, obviously, ESG and really working through ESG improvements. We know we've got to do a lot more in relation to this, and we're actively working with the Board to improve our benchmark ratings. At the end of last year, we were able to increase our GRESB rating to 3 Green Stars, which is great. Obviously, we're working on disclosures around the SFDR rules and in particular, reviewing each asset and its pathway to net zero, where hopefully, over the next sort of 6 months, we'll be able to come out with some more detail around that, but that's what the teams are very focused on the moment. And a really good example of that really is Paris, the Boulogne-Billancourt office investment, where we've invested in that to take what was an inefficient Grade C building, turning it into a Grade A BREEAM rated asset, and this has resulted in strong tenant commitment and also strong investor demand, which is what really led us to enter into that forward sale and crystallize the profit that we've touched on. Third part of the strategy and what we've sort of seen this sort of increase during the pandemic is really this focus on operational excellence and a hospitality mindset. We continue to work with our tenants and get a lot closer to their businesses and really collaborating with them around sort of data, operational performance, flexibility and ways that we can sort of actively work on sustainability objectives together. Fourth point, obviously, with the sale of Boulogne-Billancourt, the company is a very strong position, not only being able to now sort of look at reshaping the portfolio, and we can strengthen allocations to growth sectors, particularly on the industrial side. We can look at slightly smaller lot sizes. And I think that's something we've been open about trying to sort of give a bit more diversification and not sort of have larger assets. We're a little bit more exposed. And a really good example of that is the recent announcement that we made with the logistics asset in where we've signed and we will look to complete that in August. And obviously, really, the focus is to replace that lost income that Rick touched on with autumn departing, and we'll do that through reinvesting in sustainable income, which will help improve the dividend cover back to 100%. And then finally, with sort of a strong balance sheet, the intention is not to deviate away from our target gearing level, which we have a cap at 35%. If anything, we're going to continue to run the company with some headroom against that. And really the overall aspirations have been to grow the vehicle once we've closed this discount. James, next slide. Obviously, a key part of our success to date has really been the balanced portfolio and the diversification that we've got, and we think this has been helpful during the pandemic. We've had some good success at the real estate level. Obviously, ungeared property returns over the interim period have been about 2.4% for the 12 months, have been just under 14%. And for the 3 years it has been around that 10% that I touched on earlier, which we think is a fantastic return performance. You can see that over the last 6 months, we've had some good success in the Winning Cities, particularly on the office side in Hamburg and Stuttgart, where we've leased some vacancy in Hamburg, and we've actually seen some good rental growth in those 2 markets. Both those markets have record low levels of vacancy rate. Now there's a slide later in the deck that I'll talk through on that. And then in terms of the industrial side, I don't think it's a surprise to many on this call that we've seen good valuation growth here. And obviously, the exposure that we have, which leading into the pandemic was around 20% with the increase in the acquisition of Nantes, that will take you to about 22%. So we're really satisfied and ideally, we'd like to sort of increase that exposure a little bit more. But we've been a beneficiary of that growth that we've had on the industrial sector. And then finally, on the retail side, and I've given a couple of presentations over the last sort of 3 months around this and to really, I guess, stress that not all retail should be tarnished with the 1 brush. And here's an example here. And for me, this is the best asset in the portfolio. And those that have heard me speak before about the European REITs, I get excited about the Berlin asset purely because we're sitting on 4 hectares of land and the opportunity here to utilize that land to a higher and better use, although it's retail today and although we're enjoying the income side and have Hornbach, which is one of the leading DIY specialists. The big play here for us is to use that -- utilize that site to a higher and better use. And you can see here there's medium-density residential that surrounds us. And we'll continue to see good valuation growth out of that asset. The other retail asset that we have, which has performed well and been a beneficiary of the pandemic has been the small grocery asset that we have in Frankfurt leased to Lidl. Again, is right for further sort of asset management and tinkering, and we see sort of stronger growth with that going forward. And really, it's Seville that I touched on earlier, that's the problem child. And as Rick mentioned, we've now written that down to zero -- that to nil. And there really is -- because it's nonrecourse debt, there is no further exposure and there's no intention of us to allocate further capital to that. James, can you go to the next slide, just to sort of focus a little bit more on the portfolio. And obviously, our continued focus has been on France and Germany, where we have the strongest teams on the ground and where -- obviously, they're the most liquid markets in Europe. We've got about 60% allocation to those 2 regions. We're well diversified across the sectors, roughly 30% in offices; 20% industrial, which is slightly increasing; 20% in retail. And we have the sort of the mixed allocation to the data center office building in the Netherlands, and then the remainder in cash that we're looking to redeploy. Good occupancy at around 95%, average unexpired lease term of just under 5 years. And you can see that just from a valuation sense that the strong sort of growth that we've seen, particularly in the industrial portion of the portfolio, and that overall, excluding Seville, we've seen that 3% increase over the 6 months. Obviously, Seville is the main decline and obviously, with the continued headwinds, this has prompted the decision to write that value down to nil. Next slide, James. Just to talk through, obviously, rent collection, key part of the story for us and one of the reasons for being able to increase that dividend or reinstate that dividend. Obviously, having the diversified portfolio across the different sectors and tenants has assisted in the strong rent collection. For the 6 months ending March 2021, we achieved around 92% rent collection. And for the last quarter, it's been at 94%, and that 94% has continued for the last couple of months. We've experienced close to 100% collection across the office, the data center, the DIY, the grocery and the industrial and it's really only the Seville where we've had about 50% rent collection there. Obviously, the shopping center has been the hardest hit, resulting in some rent freeze and some discounts in lieu of some extra term on waivers of breaks that we've been able to achieve. And it's particularly difficult given the center was forced to operate under restricted trading hours. And the timing for the sort of full reopening and return of consumer confidence will largely dictate our ability to revert back to 100% rent collection for this asset, but we don't really see this happening until sort of mid-2022. James, next slide. Just sort of slight sort of update on this and where we are with Paris and the refurbishment. It's a key asset management initiative that we have to manage, the contractual requirements that we have, not only with Alten, but with the buyer. And we -- really, the key takeaway here is that we continue to remain on target in terms of cost and program, and completion is expected for the Q2 2022. Next slide, James, just to focus a little bit more on growth going forward and just to touch on some of the work that we've done during the interim. We've concluded 5 new leases and regears. We've generated about a 4% increase in that annualized income for that space at a blended sort of term of just over 4 years. Obviously, the main sort of leasing that has been a floor that we did in Saint-Cloud, which we did at a rent at about 12% above previous. And I think the other sort of big positive is that despite sort of concerns around the use of office, we've achieved full occupation in the Hamburg investment. And really this success highlights the continued demand for well-located offices in mixed-use locations that are accessible and affordable. And in Seville, although it's been challenging, we've actually been able to expand the supermarket there, the Mercadona supermarket. And although leasing current sort of vacant space will remain challenging, it's probably likely that we'll see an increase in vacancy over the 6 to 9 months, just given the continued fallout of the pandemic. So going forward, where do we see growth? And obviously, leasing is probably more the shorter term and leasing that vacant space that we've got in Saint-Cloud and Seville. We see some asset management upside in remixing in Frankfurt. We're working with Lidl at the moment about looking to expand their offer, looking at sort of possibly working with a couple of smaller tenants in there. Longer-term, strategy potentially add some residential there. Although not approved for that at the moment, that's something that we're working with local authorities around. The KPN, the Apeldoorn data center, continued good discussions with KPN there. I see this as a mini Boulogne-Billancourt in terms of a regear, refurbish type story. So that's probably more medium term. We've still got 6 years left on that lease. So we've got time. But positive thing there is we're having really, really strong discussions with KPN. And then obviously, longer term, it's more around the Berlin and what we can do there. And we've started to initiate discussions with the local authorities there to try and use that site to a higher density. And obviously, that general theme that I touched on earlier from a micro point of view, where we're looking at infrastructure improvements, there's a number of the assets that will benefit from that. And the 2 best examples are Saint-Cloud and in Stuttgart, where we've got sort of major transport improvements happening there. And in the case of Saint-Cloud, we've got the Grand Prix train connection coming outside that building. James, next slide, just to sort of touch on a little bit around sort of lease expiry profile and how we do sort of regularly speak with our tenants and try and derisk and smooth this. Obviously, that's been evidenced by the regear that we did with Alten in Paris. Looking to implement a similar strategy with KPN, which is the light green in 2026. And then obviously, the light blue there is Hornbach. We're relaxed about whether Hornbach stay or go. They do have 3-, 5-year options. It's highly like that they will stay just given how they perform from this particular unit. If they were to leave, I think that would be enhancing for us just given the earlier sort of opportunity to utilize that site to a higher degree. A little bit of comment on inflation. That's probably something that has raised its head with the element of sort of QE and sort of pent-up savings that are in place. And we're starting to see a tinkering or increasing in, in inflation across Europe. We're not concerned about that. We think that will come back down and remain above targets of that sort of 2% level that the ECB have targeted. But just to sort of reinforce that the European leases that we have are typically annually indexed to CPI. So there is a natural hedge there that goes with any inflationary concerns. James, next slide, just on markets and just to sort of give you a quick sort of whistle stop. We've seen sort of strong progress across Europe over the last month in the rollout of the vaccine, particularly in the Netherlands, Belgium, Germany and Spain. Obviously, there's still concerns similar to what the U.K. is facing here with variance and the impact that this may have on delaying growth. But expectations are that we'll see sort of stronger growth towards the end of the year and early part of '22. Obviously, across markets. It's really been the industrial sector that's continuing to blossom. We've seen prime yields falling to sort of sub 3% now. Take-ups, very, very strong. Obviously, the e-commerce and sort of an industrial sector looking to onshore and sort of the change in, in how they're storing goods and storing a lot more goods rather than just-in-time management process. We still don't think we're going to see the level of rental growth that justifies that sort of yield profile of sub-3%. But there's obviously a lot of investors out there that do think that. Just on the retail side. It's disparate. I touched on before about sort of grocery being a beneficiary. I've sort of put DIY in that side as well. We're seeing a bit of a resurgence in maybe sort of stand-alone, sort of retail parks. And it really is the shopping center side that will continue to face sort of massive headwinds and not only sort of occupancy, but rents falling heavily and investor demand sort of nonexistent, except for sort of opportunistic repositioning type opportunities. Office sector. I think probably one word to sort of sum this at the moment. It's sort of poised and although sort of occupied demand has fallen, the larger decisions for the bigger corporates have been deferred. And really the optimal sort of use of space is yet to be made. And we sort of continue to see sort of the larger occupiers that are changing their mind on offices, and they've actually built them publicly come out and commented on the return to the office and the benefits that offices have in terms of that collaboration and productivity. But we do, I think, fundamentally believe that the better quality offices are those that sort of have a data relevant wellness elements and that are accessible, that will probably remain more relevant and see stronger rental growth going forward. Just on investment products. I think it's -- certainly over the 6 months, our experience is that investment volumes have obviously been down. There's no real distress there. So landlords and banks have been behaving -- particularly banks been behaving and not pushing any distress. I think as we -- and our expectations are we -- as we come out of and see more positivity around the sort of vaccine rollout and sentiment improving, we'll see a bit more product and possibly also banks actually taking a bit of a harder view with any loans that have defaulted. And we may see some owner occupiers bringing up some capital as well. So I think we will see a bit more product throughout the course of '21 and early part of '22. James, next slide, just to sort of give you a bit of a sense of the 3 sort of office submarkets that we have exposure to. Obviously, in the Southern in Paris, with the Saint-Cloud building there, that submarket has seen a little bit of vacancy sort of increase. It's still performed very well. I mean there is parts of Paris, particularly the outer France where vacancy rates have increased significantly. But one of the sort of positives that we have with the Saint-Cloud investment that we've got in the portfolio is we're leased off rents of low EUR 200 a meter, so still a very strong discount and affordable level compared to where prime rents are in the city center and also where prime rents are in this submarket. And both, obviously, Hamburg and Stuttgart, that I touched on earlier, they're at sort of record low levels of vacancy rates, and it really is pleasing to see sort of vacancy has fallen again during the pandemic, particularly Stuttgart. And you cannot get any space at all and that's helping with that sort of valuation growth that we're starting to see through in ERV growth for those 2 assets. So we think having exposure to those 2 cities has been very positive, and you can understand why we've leased the 4 floors during the pandemic in Hamburg because there's not a huge amount of availability. James, just finally, just to sort of wrap up in terms of a summary and just to reiterate some of the key things. And I think one of the main things for us is that really we -- the European REIT offers a unique proposition. It's the only sort of U.K. and South African listed -- publicly listed vehicle that provides Continental European exposure to a diversified real estate portfolio. Obviously, our strategy has been around the Winning Cities, but it's also been around using our teams and expertise to create value, and Paris Boulogne-Billancourt is the best example of that strategy and really is proving how we can deliver on that. The portfolio at sort of 12 assets with a 13th asset in to come is high quality. It's located in Growth Cities and regions across those jurisdictions where we have strong teams. Very strong balance sheet. We got EUR 60 million of available cash to invest in earnings enhancing initiatives and new investments. Gearing is modest. It's low cost. And we'll continue to manage with sort of sub-35% gearing. The diversification, I think, has been a real benefit for the pandemic as experience for the rent collection that we have there, where we've now achieved sort of 94% occupancy, is around 95%. That will probably come under a little bit of pressure over the next sort of 3 months. But overall, that's allowed us to increase that dividend that is really the key news of today, and also to come out with the intention to distribute and give shareholders that ability to participate in the profit from Boulogne-Billancourt. So that's where we are today. We're very proud of the portfolio that we've put together, and we believe we're well positioned to grow and deliver on that dividend and really get that dividend cover back to 100% as we reinvest that capital that we have in Growth Cities and regions. So I'll stop there, James, and happy to answer any questions.

Great. Thanks, Jeff. [Operator Instructions] So Jeff, the first question, you mentioned in the presentation that we've now got a significant amount of cash ready to go. Could you just give a bit more information about what you're looking at the moment? And where you think you might be looking to deploy?

Yes. So James, I did touch on sort of diversification as being one of the sort of key things we're looking to do here and really at 12 investments. That's hardly a sort of diversified portfolio. So it would be nice to do some slightly smaller lot sizes. We've come out with the signing of Nantes, which is a fantastic sort of logistics investment. If we could do another couple of those, that would be helpful. We're looking at an interesting alternative asset at the moment at around sort of high -- sort of single millions. We are looking at a small portfolio of urban logistics as well. So that's side of trying to add maybe our weighting to growth sectors like industrial data tech related. That's something we're focused on and also that sort of smaller lot size around that EUR 10 million ideally. But really, that really is what we're looking to do, but not deviating away from that Winning City, Growth City story and working with the teams that we have on the ground.

Great. And just a question about the inflation-linked leases that you mentioned. Just to confirm, are all the leases in the portfolio still inflation-linked annually?

Yes. The only nuance is in Germany, where a lot of the leases in Germany, you have to wait for the hurdle. So what typically happens is there is that -- the hurdle is a CPI hurdle. But you've got to wait until reaches 10% and then you generally get that full increase. So the rest of the leases that we have across the portfolio, whether it be in Spain, whether it be in the Netherlands, whether it be in France, it's annual indexation, and it's just Germany where that's that slight nuance. A lot of the new regears that we're doing in Germany, we're trying to implement annual indexation rather than having that hurdle. But yes, there is an element of hedging that we have or protection, I should say, that we have with the underlying rent review process.

And just a question around Seville here, someone on the line. So we mentioned that Seville is now valued at 0 in the books and may be a situation where it breaks its LTV covenant. What does that actually mean for the Seville asset? Is it a case we hand back the keys at that point and sort of talking about it? Or is there any sort of recovery of value that could be seen?