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

Thank you very much indeed for joining us this morning for the Schroder European Real Estate Investment Trust Interim Results Webinar. My name is James Lowe, I look after sales for the Schroder Investment Trust business. I'm very pleased to be joined on the line this morning by two members of the team. So we've got Jeff O'Dwyer, who's the Fund Manager of the Trust; and Rick Murphy, who's the Finance Manager for the trust also. Just before we get into the presentation, a couple of bits of housekeeping from my side. So if you'd like to ask the team a question, please do so; on the right of your screen, there should be a Q&A tab; and I'll ask them at the end of the presentation. You can also download a copy of the presentation. I'm told if you go on to the links on the right-hand side of your screen, you also have a link there to the website where we'll shortly have a full copy of the results that you can access. That's all from me. I'll see you for the Q&A, but with that, over to Jeff and Rick, Jeff?

Thanks, James. Yes, my name is Jeff O'Dwyer. I'm the fund manager, as James introduced. I'm joined by Rick Murphy, who's the Finance Manager. Good morning. Thanks for joining us this morning. It's the interim results that we're presenting on today for the Schroder European Real Estate Investment Trust as a 6-month period ending March 31. The intention is, I'll sort of run through an overview. I'll then hand over to Rick to sort of run through the financials. And then I'll sort of talk you through the portfolio, the strategy and how we're sort of dealing with these sort of headwinds and risks that we're recently facing. Over the period, the portfolio has performed exceptionally well. Really happy with the results, NAV total return of 5.5%, driven largely by asset management and valuation growth across not only industrial, but also some of the select offices and the DIY asset that we have in the portfolio. NAV stands at just under EUR 200 million at EUR 199.1 million, Slide 4, mainly due to the first special dividend that we paid to unitholders at the start of the year and that sort of offset that valuation growth that I touched on. Looking forward, with these results, and given the sort of the resilience of the portfolio, the fact that we have no Eastern European exposure, the very strong sort of rent collection numbers, which are at 100%, the strong balance sheet, and really the income characteristics of the portfolio, it's given the Board and management comfort to again announce the same dividend, quarterly dividend of EUR 0.185 per share. Together with the second special dividend that we also gave some guidance on over the last sort of 12 months that we would be returning some capital to unitholders on the back of that asset management and profit that we've made out of the Paris Boulogne-Billancourt refurbishment. So really, that's in total about EUR 13 million that we've delivered back to investors in terms of special dividends. And we always said that we would share in that upside as a result of that business plan that we've delivered. I'll talk a bit more detail around that asset because it is a fantastic example and really the best example of our asset management expertise and how we can manage risk, how we can improve sustainability, and ultimately how we create shareholder value going forward. Obviously, the focus now is to try and replace that lost income, and we've been looking at some new investments at the moment. We've recently done a couple of transactions, one in Venray in the Netherlands, and then we've signed and committed to a car showroom in Cannes, and I'll talk more detail on that particular asset later. Obviously, the company is in a very strong financial position, where we have around EUR 50 million of capital, including some gearing to redeploy, and that will help not only in terms of move the dividend cover back to 100%, but also help without further diversification. Just thinking about sort of share price today, and obviously, we are trading at around a 20% discount. If you annualize that quarterly dividend that we've announced and have been paying for the last quarters, you're getting roughly a 6% dividend yield, that's not including the special dividends that I've touched on. So we think that's highly attractive, particularly given the cities and the diversification that we have. If you think about the cities that we're invested in, whether it be Paris, Berlin, Frankfurt, Stuttgart, Hamburg, these are all sort of Tier 1 cities and where we have sort of strong positions in those cities from a micro point of view. I guess the other point, and we've sort of been talking more around inflation and really one of the real benefits of European real estate investing is that our leases are annually indexed. So again, that's a real positive that will start to come through with the income side. particularly as we start to face sort of stronger geopolitical and economic risks as we go forward over the next sort of 12 months. So obviously, the focus is really to try and add new investments. I touched on really trying to grow the income and generating investments in those sort of continued focus on growth cities and regions, which is the real main strategy of the trust and obviously providing further diversification and maintaining that attractive dividend cover from sustainable income. So I'll hand over to Rick now to talk through the financials.

Thanks, Jeff, and good morning, everybody. So looking at the financial highlights for the 6-month interim period, and beginning first of all with the cash position. It's very pleasing to be able to say now that 31st of March 2022, the fund had received just over 3/4 of the net EUR 100 million sale proceeds on the sale of Paris Boulogne-Billancourt. And it's that that's driven the approximate EUR 50 million of investment capacity available to the fund for future income enhancing acquisitions across 2022 and into 2023. From a dividend pay perspective, EUR 0.845 per share was paid out to investors over the 6-month period. That includes EUR 0.475 per share first special dividend off the back of that Paris BB forward sale and asset management success together with two standard EUR 0.185 per share interim dividends also paid to investors in the period. As Jeff has touched upon, again, very pleasing to say that 100% rent collection across the portfolio, excluding the Seville asset. And likewise, strong IFRS earnings of EUR 10.9 million. We can see in the brackets there that in the prior interim periods, there was a small loss. That was driven by the write-off of the Seville equity. So all of that came through the fund's NAV in the prior year's interims and now you can see us getting back to strong IFRS earnings again. From a performance perspective, NAV total return of 5.5% and 9.3% over the rolling 12 months. And LTV net of cash of just 18%. Moving to the NAV movement slide. So here, we can see the NAV bridge between the EUR 199.5 million as at the 1st of October 2021 and the closing NAV of EUR 199.1 million, so in euro cents per share terms, a movement of EUR 1.492 down to EUR 1.488, and in percentage terms, a small fall of 0.3% in the NAV over the 6-month period. Beginning with the unrealized gains in the top line, so EUR 8.3 million were the unrealized gains across the 6 months. And we can see on the top line that's predominantly driven by the German assets, so Hamburg, Berlin, Stuttgart, and Frankfurt, together in part with the French industrial and logistics assets in Pleudihen, Rumilly, and Nantes. In addition to that, there were small transaction costs and capital expenditure invested across the 6 months, EUR 0.2 million, respectively. We've taken a further EUR 1.4 million of the Boulogne-Billancourt's development profit. So in the prior year's year-end results, we've taken 25%, and these results, we've taken a further 25%. So 50% of that total available is now being recognized as the fund's NAV to date. With regard to Seville, as mentioned, we've already written down all of the equity investments in the prior interim, so no movement with regards to the asset in the fund's NAV for the 6 months. EPRA earnings of EUR 2.5 million. Noncash capital items of EUR 0.9 million. That's predominantly deferred tax of those strong valuation gains, in particular, in Germany. And then dividends paid of EUR 11.3 million, so that's special dividend paid at EUR 0.475 per share together with two standard ordinary dividends of EUR 0.185 per share in the 6 months. Turning to the income statement. Here, we can see on a like-for-like basis, the EPRA earnings have fallen slightly. So EUR 2.8 million were the EPRA earnings for the 31st of March 2021, and EUR 2.5 million for the 31st of March 2022. The main movement here is that whilst rental income has gone up partly due to acquisitions in Nantes and Venray II in the Netherlands, we actually had higher property expenses, in particular, historic service charge costs, which have run through the numbers this 6-month period, which has led to dividend cover of 50% for the 6 months and 63%, excluding exceptional items. And as Jeff mentioned, as those Paris BB proceeds are reinvested, the intention is to get back to full dividend coverage in 2023. And then just on the debt financing side. So we can see on the top line, LTV net of cash of 18%, 28% gross of cash, so very healthy. And in the table on the right-hand side, and those far two columns, we can see that the covenant headroom, both with regard to LTV and ICR, is strong for all loans, so six of those seven loans are Seville. The Seville loan has been in breach and in cash trap now for quite some time. That loan is nonrecourse to the group. And as mentioned, that investment is already fully written down to nil. So no further impacts to future NAV. And just finally on this slide, with regard to refinancings in 2023, we can see on the bottom line that the first refinancing maturity date is the Rumilly loan. This is actually our smallest loan in the portfolio of EUR 3.7 million, and that matures in April 2023. And then the next loan is the Hamburg/Stuttgart one, which is June 2023. So just over a year's time. And it's pleasing to say that very good progress has already been made with different lenders with regards to refinancing that loan intended over this summer.

Just on the dividend, I won't go into too much detail on this slide. It's fairly self-explanatory, but I guess one of the real positives has been we're pretty quick to reinstate the dividend as we went through the pandemic. And I think investors were highly appreciative of that. I guess the other big advantage, and this is one of the nuances of real estate is, where you are making a decent profit and extraordinary profit, you have that capacity to distribute that as a special dividend, and we have taken the opportunity to do that, both in terms of paying that first special dividend in January and then announcing the second today. So really the focus now shifts to how do we move that dividend cover back to 100%. As Rick touched on before, we're at early 60s. We've still got some capital to redeploy and really the direction of the dividend covered getting back to 100% is going to be towards the end of 2023, as we redeploy that capital and as we also lease some of the vacancy that we have in the portfolio, and I'll touch on that in a bit more detail in a minute. Just in terms of discrete performance, and you can sort of take this way and read on your own, but I guess a couple of the key points out of this is really how the share price has improved pretty substantially over the year. Obviously, a year ago, there were still concerns around sort of diversified vehicles and really being out of favor. I think that sort of changed to a degree. We did see some much stronger sort of share price growth up until a couple of months ago, where we did close that discount to around 7% or 8%. So that's widened a little bit now, obviously, with these geopolitical risks and inflation concerns and sort of general recession question marks, but we still have delivered some pretty strong returns to shareholders. And if you look at sort of NAV total return over the last couple of years, it's been highly positive. And on a 3-year basis, we're certainly around sort of high single digit, which as a diversified vehicle has been very attractive. So just thinking through the strategy, not a lot has changed. And really, we've centered the strategy along a number of sort of key themes that we've sort of outlined here. Obviously, the first is being diversified. We're going to remain centered on having a diversified portfolio. And really, the key here is using our local expertise that we have on the ground, in the markets. Not only can they help sort of identify sort of growth cities and regions, but also they're identifying submarkets in those cities that will benefit from transport infrastructure changes that are in supply-constrained areas, where there's competing demands for users and fundamentally buying buildings that are at least of affordable and sustainable rents. And you'll get that sense as I talk through the portfolio later, and that's going to set us up very well as we deal with some of these headwinds, particularly the affordability that we're coming off. We're not the buyer of the best asset on the best street, but we're buying fundamentally good accommodation in accessible locations in strong cities. And this real strategy has been a key part of how we've been able to deliver that double-digit real estate profile over the last 3 years on average. So really, really strong success that we have shown there. I guess the other really key focus now is actually having that local team and having that expertise on the ground, in particular, that multi-sector expertise is very important. And I had previously touched on, with the market, the acquisition that Schroder PLC made in the Netherlands, where we bought a very strong investment management team, a best-in-class investment management team through a company called Cairn Real Estate. That's now been rebranded Schroder's and that gives us fantastic exposure to that market, which adds to the existing exposure that we had in France and Germany. So those three markets are very much key markets for the European REIT going forward. Obviously, the second point is really around ESG and what we're doing across the portfolio and looking to sort of improve on either criteria at the time of certifications, working with our tenants around their understanding and what they can do. We've also been investing in sort of improving some of the sort of plant and equipment in some of the assets, looking at particularly in Germany having 100% renewable energy adopted there and starting to use a lot more sort of smart meters across the portfolio, so we can actually monitor and understand where we can sort of control and improve sort of electricity and gas. I'm obviously working with the Board about trying to improve our ratings at the moment. We are sort of three green star rating from a GRESB point of view. We're looking to try and move that to four and in general just move our benchmark raising disclosed in accordance with sort of SFTR rules, and obviously, starting to review every asset from a net zero carbon perspective and what we need to do to try and keep these and improve the carbon output for each asset. The best example of what I often use here is really the asset that we have in Paris, where we have taken a what was a Grade C fairly tired building. By investing in that, we've turned that into a Grade A BREEAM rated excellent building. And on the back of that, we have the tenant commit to a long-term lease. We moved the rents accordingly to cater for that investment. And then we've also seen, on the investment side, a very strong disposal price, and that's what's locked in that profit for the trust and allowed us to make that distribution that we've touched on. In terms of third sort of focus is really on the operational mindset and really hospitality. Obviously, continuing to get closer to our tenants in the pandemic has driven that and really understanding the businesses and collaborating on data, on operational performance and flexibility in ways that we can achieve sort of collectively sustainability objectives. Fourthly, obviously, we're in a pretty strong position from a balance sheet point of view and that sale allowed us to now look at sort of tinkering the portfolio and looking to redeploy that capital out of the sale, looking at some slightly smaller lot sizes to improve that diversification. We've recently sort of committed to the car showroom in Cannes. I'll talk a bit more detail in a bit more on that, but those type of assets where, again, slightly alternative and giving us a bit more diversification, and obviously, that strong income profile is what key and really goes to moving that dividend cover that I touched on before. And then finally, just really we'll continue to run the vehicle with a fairly modest LTV and strong balance sheet we might be moving. Obviously, we have a target maximum LTV of 35%. At the moment, we're at around 28%, but we won't be moving that capacity, but as I said, really having that ability to redeploy that capital in what has been a fairly quickly changing market, we think there will be better buying opportunities, and hopefully, we can capitalize on any discount and dislocation that occurs in the market. Next on the portfolio. Obviously, you can see here, very strong income focus and the diversification that we have. We set our store out to focus on France and Germany, where we have our strongest teams on the ground. They're obviously the most liquid markets as well. We've got about 70% exposure in those 2 jurisdictions, and the rest really is in the Netherlands. Diversification in terms of offices that are at around 35%, Our DIY grocery exposure at around 17%, and then our logistics, industrial exposure at around 1/4 of the portfolio. And the rest is in cash and the alternative assets that we have in the Netherlands with the mixed use data center. Unexpired lease profile of around 5 years, and I think that's becoming increasingly of value. Obviously, income being and will continue to be a stronger part of total return going forward. And you can also sort of see here the valuation growth and success that we've had over the 6 months here and not just focused on industrial, but some of those select offices as we've been able to lease some of the space, particularly in Hamburg and that has culminated in that strong sort of valuation growth. So yes, very pleased with how we're set up and how we can deal with some of the pressures that we have going forward. Just on total return, I think I've touched on this and just really how we have sort of delivered at the asset level. And I think moving forward, the real key point here is that income will be a stronger proportion of total return and probably represent somewhere between sort of 80%, 85% of total return going forward. I don't expect to see the same capital growth that we have seen over the next few years just given those headwinds that we're talking through at the moment, but certainly, income will represent a stronger portion. Again, a slide that you may have seen in the past, just to sort of highlight that it's not just industrial that have delivered in terms of returns over the period. Again, having success in some offices. We have got two examples here where we did a bit sort of high single-digit returns over that 6-month period, and certainly, teen returns on average on a 3-year basis. That's pretty fantastic given that we have been dealing with the pandemic and obviously more recent sort of headwinds as well. But having buildings that are located in accessible areas and the least of affordable rents, I think, is a key part for success on offices. Obviously, on the industrial side, we've seen yields sort of being pushed down. We've definitely seen a floor in terms of where yields have got to, but now it's more about rental growth for logistics. And then on the retail side, we've got a fantastic success here, which for me, I've always sort of said this is probably one of the best assets in the portfolio. But really, we're sitting on 4 hectares of land in a growing part of Berlin, so we'll continue to see sort of good success here. And although this sort of delivers a very strong income profile that leads to a fantastic covenant to fall back, the longer-term play here is to utilize that site to a higher and better use. Just in terms of rent collection, obviously, moved sort of quite strongly through sort of 100% or just to slightly under 100% rent collection in early part of the pandemic, we were at around 95%. So I think for a diversified vehicle, I don't know of any other trust out there that has delivered such strong rent collection numbers. We've got no assistance being given to any of our occupiers at the moment. So really strong position that we're in, and we're achieving, collecting rents in accordance with our contracts. So really positive result to be presenting on. So just to sort of finalize, in talking about sort of Boulogne-Billancourt, and this is the best example of asset management that we can do and really is a big sort of tick and plus to our team on the ground. We delivered this not only in terms of the construction contract, but also the new lease and planning when the pandemic just started to kick off. Really good example of how we can improve the sustainability in the profile and really the certification of all this. So as I touched on before, taking a Grade C fairly tired building and turning it into a Grade A BREEAM rated excellent building. That's exactly what the tenant wanted and now have made this their headquarter location. It's a public listed company called Alten. And on the back of that, we moved the rents. And therefore, we also felt it was the right time to enter into a fixed sale, and that helped us fund the redevelopment as well. We've now concluded the work on that, and we've done this in accordance with program and costs. So really, really positive to say that, particularly given some of the headwinds that the team has been dealing with, and that's what's allowed us to deliver that fantastic development profit and also then sharing that with unit holders through these special dividends that Rick has touched on earlier. So going forward, where do we see some growth, and what can we do with some of the investments going forward? Obviously, more sort of short term is some of that vacancy that we have, in particular, in the Paris office building that we have in Saint-Cloud, opportunity there to deliver around sort of EUR 500,000 in income. We're working on it with a couple of tenants at the moment about derisking that and some tenants in there about potentially expanding, also working with a service office operator about taking a floor, which I think would be a great offer not only for what we own in this broader complex, but also for the overall condominium that is there. Metromar, we're in discussions about sort of moving this on. And we've been sort of actively managing this to improve vibrancy and prepare it for sale. And then obviously, as I touched on before with Boulogne Billancourt just concluding the refurbishment there, which we've now done and handed over. Medium term is sort of slightly sort of tinkering of the Frankfurt asset and looking to expand the Lidl, really strong grocery-anchored retail asset in a very strong urban location in Frankfurt. So again, we're having really positive dialogue with Lidl and a couple of other sort of smaller tenants there and about moving that tenancy mix around. And then longer term, I touched on earlier about, well, how do we look at sort of submarkets that will benefit from transport infrastructure changes. And there's a couple of examples here, one particularly in Stuttgart where we are located very near the main train station, which is undergoing significant redevelopment to cater for fast trains not only to the airport, but also to Greater Germany and beyond. Equally in Saint-Cloud, there's a new station coming outside that building as part of the Grand Paris. So we expect to see good rental growth on the back of that. And then also the data center that we have in Apeldoorn in the Netherlands, discussions with KPN. Really, the focus here is to then sort of improve the profile of that. It is an asset that is relatively tired, would need some investment. And obviously, we are in discussions with KPN about whether we would make that investment and improve the sustainability, which is a common theme that KPN would like to see us do. But we would only do that if we can organize a regear. So for me, it's sort of a mini Boulogne Billancourt, obviously at a smaller scale, but that's sort of part of the strategy, and we've still got sort of 4 years left on that lease, so a little bit of time. So that's the preliminary discussions that we're having with KPN at the moment. And then longer term, it's around that sort of Hornbach, Berlin asset that I touched on before. On the bottom right, you can see there, surrounding the asset is sort of mixed density residential and offices. So really, really strong play here about how we can use that site to a higher and better use. Just on the inflationary side, I think, obviously, we're all concerned about what's happening and how quickly this has moved. We are starting to see obviously, rates increasing on the back of this. But one of the real positives about European leases is that we have annual indexation clauses. So we are capturing this growth and have some element of hedge on the income side. And you can see here that different sort of countries are moving in different levels, but we do foresee that actually inflation returning sort of post 2024 back to around that sort of 2% level. And I think the other sort of key point here is a lot of our leases or most of our leases are leases of affordable rents. So when we are sort of looking to implement this indexation, we're not sort of moving the needle too much in terms of value from an income point of view for our occupiers. Just to sort of talk through on how we're sort of looking at new investments, we issued an announcement a couple of months ago around committing to an exciting car showroom in Cannes, a very strong growth region, a very wealthy part of France. This is an area that you can't replicate. It's the main arterial road that leads from the motorway down to Cannes. There's an agglomeration of car showrooms of around 22. We've got the best site. It's one of the things we very quickly identified. We've got about 200 meters of frontage to that main arterial road. It's leased to fit. We sit next door to Lamborghini and Ferrari. We're off relatively modest rents here as well. So we bought this up at a net industry yield of around 5.5%. We've got sort of an independent value from an ERV point of view that suggests that the rents -- there's a bit of reversionary in this to take it to around 6.4%. So this is the type of investment obviously at around EUR 8 million that will help with a bit more diversification, and we'll be looking to close on this deal in the next couple of weeks. And then longer term, so happy to take the income, but actually longer term, thinking about, well, what is the alternate use to this, and surrounding us behind this site is medium-density residential, also thinking through just general last mile distribution, because it is sort of in its proximity to that main arterial road and the motorway and obviously a very densely populated part of Cannes as well. So there's a lot to talk about this and the team has done very well to secure this, and we're actively looking at new investments to see how we can add and further diversify and obviously move that dividend cover back to that 100% that I touched on before. Just on markets. And I think some of these slides are slightly outdated in terms of forecast, but obviously, we are -- and it's clear that we're operating in a very different environment to where we were 6 months ago. If you think about, or certainly, when I think about 6 months ago, the main risks were probably centered on COVID and ESG. Obviously, those two risks are still there, but we're now sort of facing not only sort of, I guess, war in sort of Russia, Ukraine, but facing concerns around recession, inflation, construction costs, and really stagflation. And so there's sort of 5 or 6 risks that we're all sort of dealing with and really the ultimate impact on what's happening on the interest rate side as well, which I think is very, very clear. So there's a lot happening. I think we are positioned to deal with those risks. Yes, I think -- and I touched on earlier that really looking forward the valuation growth that we've seen in the past, it's unlikely that we'll see that. I think we will see sort of growth on the income side, but we may see yields start to move out a little bit, and hence, income becoming a much stronger part of that total return story. Just on the office side, I think one of the big benefits of Europe is that the office markets were in a healthy position. We didn't see that oversupply. Banks were very prudent in terms of not lending on speculative development. So I think that's been very helpful for where we sit today and vacancy rates being much more in check. And actually, the next slide sort of covers that in a little bit more detail about where we are located. If you think about our two German assets, one is in the city part of Hamburg. This is an area that has held up exceptionally well during the pandemic and vacancy rates have actually fallen. This is the asset that we have here. A really interesting story where leading into the pandemic, we had five vacant office floors. We leased every one of those floors during the pandemic. And really, the main sort of focus of that or benefit of that has been that we are in an affordable and accessible location. So we're leased off of sort of rents here of around sort of EUR 12.50 to EUR 14, which relative to where prime rents are in that city submarket at low EUR 20s and prime rents in the city center, which is one stop away at sort of low EUR 30s, you can see that occupiers like to be here because it is accessible and have sort of more back office. It's very well diversified. We've got about six tenants in there now, so a really strong story, and again, goes to the heart of that affordability comment that I made earlier on. Same within Stuttgart. Again, government is the main tenant in this building. leased off around sort of EUR 14 per square meter per month. Again, rents in the city center nearly double that, and again, an area where we're going to benefit from transport infrastructure improvement. So Stuttgart has the lowest level of vacancy of any city across Europe. So a really strong position and happy to have this exposure that we have here. And again, I see that rental growth coming forward and really delivering some strong returns over the next few years. And then in Paris, yes, vacancy rates have increased a little bit here, but we're coming off again, rents that are a substantial discount to where sort of prime rents are not only in the submarket we're in, which is in the southern band, but also relative to the city center, where rents are at sort of EUR 900 a meter, and we're coming in France of sort of low EUR 200. So much more affordable and again, thinking through that indexation, once you're applying, whether it be sort of 5%, 6%, 7% inflation, it's a bit more palatable for occupiers coming off rents at EUR 200 rather than coming off rents of EUR 900, so much more affordable to deal with that sort of indexation that will come through. So just in summary, look, it's a very unique proposition that we have. We're the only listed vehicle in the U.K. and South Africa that delivers Western European exposure on a diversified basis. I think we've done exceptionally well with the portfolio that we have put together. Thinking through sort of that dividend, and if you annualize that current quarterly dividend of current share price today, getting around a 6% dividend yield, and that's without the special dividends that I touched on and being further enhanced. We've got significant firepower to move forward and try and add further diversification and move that dividend cover back to 100%. Obviously, we're in and have been and haven't deviated away from that strategy of being in the fastest-growing cities and regions, and that's, pleased to say that 100% of the portfolio continues to remain in higher-growth regions. We're on track in terms of successfully delivering on that asset management, whether it be Boulogne-Billancourt, whether it be in terms of, say, the Frankfurt investment or trying to lease some of the vacant space, or discussions with some of the key tenants that we have, and having a very strong team on the ground and that I touched on earlier too that we're introducing the Cannes team in the Netherlands, so we are going to see much stronger deal flow through them and an ability to manage the Dutch portfolio in a much stronger way, having that multi-sector expertise through that team. And they also have that sort of hospitality operational mindset as well and being very close to our tenants. And that's how we see we can outperform and drive income and maintain our tenants. I think that's becoming key as well. And then once you have a tenant, trying to work with them about making sure that they stay and don't give the opportunity to move. So I think we're well positioned to deal with the headwinds that we're facing at the moment and really income is key, and I think we're sort of overall very pleased with what we have with the portfolio and how we can deliver on returns going forward. So I'll stop there. Happy to answer any questions, if there's any through. James?

Yes. Thanks, Jeff, and thanks, Rick. And thank you everyone for sending your questions. If you do have another question that comes to mind as we're going through this, then do send it in. Jeff, you've just spoken there quite a lot around speaking to your tenants in a lot of detail, but one of the questions that's come through has been, how are tenants feeling on the ground? And what is their propensity to withstand the current economic pressure that we're seeing and also the inflation increases we're going to see coming through the leases?

Yes. Look, I think in terms of the portfolio over the last few months, we've had no requests from tenants for assistance. I think early pandemic, we had a bit of sort of help where we gave a bit of help to a couple of tenants who very quickly repaid that rent. Obviously, I'm not talking about Metromar. It's a very, very different proposition being a secondary shopping center, but this, in terms of looking at the rest of the portfolio across the offices, the logistics, the light industrial, the DIY, and the grocery, we are at 100% rent collection, and we've had no requests for assistance. If you think about the underlying occupiers, it's very strong. I mean, we've got a cross-section of publicly listed companies, whether that be with KPN or Hornbach. We've got government exposure. We've got some strong logistics and industrial companies as well. We've got some pharmaceuticals, some insurance. So these are all sectors that have corporately performed very well. And again, we're coming off low rents, so I'm not expecting any of our tenants to sort of put their hand up and say, well, look, we don't have the capacity to pay with this indexation that we started to move forward.

Just as a follow-up question to that, another question has just come through around. If you are looking at lease renewals, do you think there will be downward pressure there on sort of rental values with the deteriorating economic conditions we're seeing?

I don't necessarily believe that's the case. It sort of comes back to where we're located as well. And if you think about we are in supply-constrained areas, that's what's helping keeping up the ERV. So even though we've got a situation probably more where the consumers are under a bit more pressure and those sort of occupiers that are more consumer-led, really, it's going to be driven by sort of market rent. And as I've touched on before, in some of those -- from an office point of view, some of those submarkets have record low levels of vacancy. On the logistics side, I mean, there is a bit of spare capacity. What we are seeing as well on the logistics side is that businesses are storing goods for a lot longer. So although these logistics companies sort of run a pretty tight business in terms of margins, what they're sort of changing their business to actually storing goods for longer. So there actually clients are sort of a lot more sticky, so they have actually a stronger capacity to pay as well. And again, coming back to this point, a lot of our leases on the logistics side are leased of modest rents. And I use Venray as an example, where we're leased of sort of low EUR 40 per meter per annum, prime logistics rents in that area now are sort of EUR 55. So there's a significant discount. And at the end of the day, it's a water type storage facility and a number of their tenants sort of lock up their goods for some time. So there's not a lot of sort of change on their sort of underlying tender or contracts that they have. So I think we're pretty well placed in terms of being able to deliver on that existing rent and also some of that growth that I touched on, particularly in some of the submarkets where vacancy rates are at record low levels.

Just moving on to new investments now. There's been a couple of questions that come in around the future investment plans. I know you sort of went through in some detail during the presentation, but could you just give a bit more color on the types of investments that are coming across your desk? And also, again, sort of a question around the macro backdrop. Is that having an impact on the investment opportunities you're seeing currently and valuations?

Yes. Look, and I think I've probably touched on this before when I presented and I certainly presented to the Board that it's been frustrating that we haven't actually seen the level of deal flow. I mean, pricing has been pretty aggressive for the last 18 months, and we've been willing to sort of not participate. Yes, we see a lot of deals, but we're also conscious of what is sense, we are investment managers rather than spending capital. So I think sort of where we've now moved to actually having circa EUR 50 million to redeploy now, I do believe we're going to see a lot more opportunity that's going to be probably some of those existing owners that are looking to refinance loans that, say, at the end of their 5-year term, they're going to be facing sort of increase in interest rates and they're going to be facing probably a tightening of availability of debt for them. So we're not going to get the same level of LTV. So I think with that, there may come certainly more -- a lot of people, a lot of investors looking at sort of moving assets on. And I think having that EUR 50 million that we've got, I do expect to see more capacity and more opportunity than what we have seen in the past. So I'm regularly dealing and working with our guys on the ground, whether it be in Germany, France, or the Netherlands, and just starting to see a bit more deal flow, particularly in the Netherlands. And I think that's been one of the big benefits about the Schroder Plc buying that business that we have there and having circa 30 investment professionals on the ground, being able to see and source product will be key for us in terms of deploying that EUR 50 million.

Just following on with a question on dividend cover. And there's been a couple of these. Could you just provide a bit more information as to the pathway to that full coverage? I know you mentioned in the presentation, it will be likely in 2023 that we'll achieve full cover. And can you just confirm that -- someone just asked for some clarification as to whether that 2023 date is where we will be 100% covered by sort of net recurring rental income. Can you just...

Yes. That's correct. I mean I don't have a slide, and we don't really give direction on dividend. But what I can say, well, yes, our forecasts are that we get to 100% dividend cover by the end of '23. And obviously, it's linked to how we redeploy that EUR 50 million and obviously, some of the rental growth that we start to see through and also leasing some of that vacant space that we have in Saint-Cloud. So yes, the focus is -- and we're probably slightly behind the curve in terms of redeploying that sale proceeds. But I think actually sitting here today, I'm actually pleased that we are where we are because of what's happened to markets over the last sort of 6 to 8 weeks. It's very different. And I do think we will see a bit more opportunity at a slightly better pricing and having that dry powder, I think, will be helpful. And again, being patient, I think, has been the right thing. And that's why the move -- or getting to 100% dividend cover has been deferred.