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

Good morning, ladies and gentlemen, and welcome to the Schroder European Real Estate Investment Trust Half Year Results. My name is James Lowe, I work in the Schroder Capital Sales team. I'm very pleased to be joined in the studio here in London this morning by Jeff O'Dwyer, Portfolio Manager of the European REIT. Now just before we get started, and I'll hand you over to Jeff for the presentation. A couple of housekeeping pieces. If you'd like to ask us a question as we go along, please do so via the Q&A tab. That should be somewhere on your screen now. You can also now download a copy of the presentation if you want to follow along with us in more detail. And for even more detail, you can now download a copy of the half year results. There's also a separate RNS that's been announced this morning that we'll talk to you shortly. But with that, I'll hand you over to Jeff for the presentation.

Great. Thanks, James, and good morning, everyone. Thanks for joining us this morning. Yes, Jeff O'Dwyer, I'm the Fund Manager of the Schroder European Real Estate Investment Trust, here this morning to announce an important strategic change for the company, together with the half year results for the period ending 31 March '26. Many of you would have picked up this morning that the Board and the investment manager have announced our intention subject to shareholder approval to propose an orderly wind down of the company and return capital to shareholders. Let me start with a little bit of context. The portfolio itself has performed exceptionally well since our IPO in 2015. We've delivered in excess of GBP 80 million back to shareholders since that period. However, the company's relatively small size and limited liquidity has consistently weighed on the share price, resulting in a prolonged 40% discount to NAV. Over recent years, it's become increasingly clear that investors have favored larger listed vehicles, particularly those vehicles that offer better diversification, better cost economies and better liquidity. Against this backdrop and despite reviewing sort of multiple options with the Board and in particular, with the new Chairman, Phil Redding, the manager and the Board believe that an orderly wind down is in the best interest of shareholders. We are very conscious of the market backdrop and the challenges that we face. So this will be an orderly phased process. We'll sell assets gradually. And in particular, we'll be focusing on the asset management initiatives in order to not only maximize price, but also liquidity for these assets. We think we're really well placed to manage this process, particularly given we've got the teams on the ground and the specialization on the ground. We've got really strong contacts with not only the broking community but also with occupiers, investors across our markets. And at this stage, we think the process will take up to 3 years to implement. Obviously, during the period, and we know that dividend is a pretty key component for investors. We'll continue to pay dividend throughout the process. And as we sell assets, those disposal proceeds will be used to repay debt and then return capital to shareholders. And in terms of next steps, Obviously, we'll be presenting a shareholder circular with a view to getting investors to vote on the change of the strategy and the Articles of Association, and then we'll convene a general meeting, and that's likely to be for in the middle of August, but we'll update investors in due course. I'll give a little bit more color throughout the presentation around our asset management and around our disposal approach as we go through the presentation. And obviously, as I touched on earlier, we're announcing, together with this, the half year results. And just to sort of give you a little bit of color in terms of a summary around those results, we're announcing the continuation of the quarterly dividend for this quarter, which is EUR 0.0148 per share. So therefore, giving EUR 0.0296 for the 6 months to that 31 March 2026. This is a dividend cover of 93%, which is pretty similar to that, that we had at the same time last year. We've continued to maintain a very strong balance sheet, obviously, retaining that cash and then also having a modest LTV of around 27%. NAV total return for the period, 0.7%, mainly, and I'll come in a bit more detail in a minute, but mainly driven by not only the income side, but we obviously lost a little bit of value, and I'll go into more detail, particularly around the office side where we've lost a bit of value. And then the update on the French tax, we continue to dispute this with the French tax authorities. We continue to ring-fence this capital. So we're in a position to deal with this if it wasn't to go our way. But obviously, we continue to have external advice where we shouldn't provide for this amount, and we believe our position is positive around this. Just running through the NAV bridge, we had to make a prior period adjustment. This has to do with historical service charge and some CapEx. And then together with that sort of valuation adjustment that I touched on, we've had some positives in terms of some of the regearing that we've done particularly in Rumilly and Stuttgart where we're seeing values increase on the back of that. But equally, we've had some negatives in terms of some vacancy that has occurred in Alkmaar and Cannes. We've announced that in RNS over the last few months, but that's balanced in order in terms of that positive and negative, resulting in a fall of about EUR 1.4 million and then obviously, some CapEx, and primarily resulting with investment in Stuttgart to go with that lease regear that we did. And obviously, with EPRA earnings and the dividend cancelling out that, we end up with a final NAV of -- sorry, EUR 151.3 million for the period ending 31. That results to about EUR 1.152 per share, which is around GBP 1 when you look at the conversion today. In terms of summary of income, as you know, comparing this to the same period 12 months ago, we sold the Frankfurt asset. We've also lost a bit of income with the Alkmaar tenancy, but notwithstanding income remaining fairly robust, obviously, benefiting from the inflationary impact, positive impact that we've had. Operating expenses have come down primarily due to some of the leasing that we've done in Saint-Cloud. Investment management fees obviously falling on the back of valuations falling. And I guess the other sort of point here is where we've been dealing with sort of interest rate increases. It's not a surprise that the financing costs have increased on the back of that. And obviously, by moving the cash position and ring-fencing and putting in place that bank guarantee for the French tax, we've lost our ability to sort of earn sort of an interest rate on that cash. So hence, the interest that it has received has fallen as a result. Obviously, the net effect is that we have a dividend cover of around 93%. And that's primarily -- the fact that we're not at 100% is primarily due to the fact that we sold the Frankfurt asset, and we've lost the Alkmaar income. And as we lease that up, we expect to move that back to 100% cover. Continuation of the quarterly dividend. And obviously, that's something that we've done since we adjusted that dividend back in 2023. And that dividend obviously has remained flat, but if you annualize that dividend relative to today's share price, you're getting north of an 8% dividend yield and obviously, that 40% discount that I touched on, given where the share price is today. So what have we done in terms of over the period? And obviously, our focus has been in terms of how do we look at and asset manage to create shareholder returns. I touched on those 2 significant lease regears that we did, one in Germany with regearing the State of State of Baden-Württemberg in Stuttgart, and then also extending the lease with the Nestlé on Rumilly. Obviously, we've driven rents by between 18% and 20%. So really positive. Obviously, we're moving our attention to how we're managing the vacancy and some of the regears that we have going forward. The KPN situation. I've got a slide later that I'll go in a bit more detail, but we are continuing to work with the municipality about advancing planning, and that should flow through to a positive impact on value and liquidity. We're still thinking through sustainability. We did those sustainability audits a couple of years ago and the initiatives that come out of that, we're looking to implement as we regear leases and make investments that create a return against that capital that we deploy. And obviously, we've spent a lot of time with the Board, and particularly, with Phil Redding that I touched on, where we've been reviewing lots of options of what do we do with the company. But at the end of the day, it's fallen on the fact that we believe that the best interest for shareholders is to move to that managed wind down. Just on the portfolio. Many of you have seen this slide before. Obviously, that's fairly diversified. That is 14 assets, but one of the real positives that we are in that sort of sub EUR 30 million lot size. When we set our stall out, we really focused on 3 key things. One was to be invested in cities that would grow faster than their domestic economies. And that's faster from a GDP and employment perspective and a population perspective. Obviously, some of the key cities here being sort of Hamburg, Stuttgart and Paris, and then some really strong logistics exposure as well. And obviously, also the Berlin exposure that we have from a retail perspective. So that's the diversification. We've got about 34% exposure to offices, roughly the same in industrial, and circa sort of 12% in retail and the rest in alternatives. Just to sort of add a little bit more flavor on the Apeldoorn position, and we've been running a dual strategy here. And not only have we been trying to sort of find a replacement tenant for KPN, but we've also been working with the municipality. There's really strong interest from them to try and support how we can look at alternate use. And you can see this photo here, obviously, it probably presents a little bit stronger without getting ahead of ourselves. That's a potential design, and that's something in terms of we're trying to work with the municipality about getting this level of scale that would obviously have a positive impact in terms of value. We're starting to get some interest from developers to take this site. It's a big site. It's 3.5 hectares. It's currently valued by Savills, the independent valuers at around EUR 10.8 million. That includes the remaining income of around EUR 2.4 million. I've said before that I feel pretty confident that we'll outperform once we sell this asset, that number. So pretty confident that we'll do better than that. But certainly, the shift here has moved away from finding a replacement tenant to now actually looking at alternate use given the discussions that we've had with the municipality. And in that regard, we're looking to work with an adviser to start marketing this asset. Ideally, we'll get a little bit more planning support before we formally market this, and that would allow developers to really price an element of floor space with a bit more certainty. In terms of other asset management and what we're thinking about to sort of tie in with the strategy that we've come out with today. Obviously, we've been successful with Stuttgart and Rumilly. We need to finish off the works that we've committed to there. Obviously, Cannes, this is one where we've had Stellantis, who are looking to depart in September. But interestingly, there's an alternate use angle for this. And again, when we think about some of these assets that we've -- the strategy that we have, we've really looked at not only about in-place income, but what do we do with these assets and investing in areas where there's competing demands for users, and Cannes is a very good example of that. And we're starting to get some interest here not only from sort of showroom, car showroom operators, but also from grocery and also from self-storage. So that's in terms of thinking about alternative use, that's an angle that we're thinking through. Alkmaar, we continue to work on marketing that to find a new tenant equally. We're starting to think through, are there owner occupiers out there that may take this. And then other regears that we have throughout the portfolio, obviously, to a smaller extent, Utrecht, working with the main tenant, TSC there, about seeing how we can move them to full occupation. And then sort of longer term, thinking through the [indiscernible] regear, trying to bring forward the Rennes regear as well, although that's sort of -- the expiry there is 2030. But trying to see how we can bring through some of these items now where we can create better value and liquidity. And obviously, as I touched on before earlier, using our teams on the ground where we have that strong local expertise and specialism to create this value. Just on -- without going in more detail, these are sort of the main leases that we're focused on at the moment, and this is a move or a graph in terms of some of those regears that we have coming forward and how we're thinking as investment managers to bring those forward and derisk this expiry and trying, I guess, to create some of that value now and then sell with that longer-term income that plays in with a lot of investor demand at the moment. Just on investor demand, I think it's important to sort of set the scene, and I know when I last spoke on this seat back in December, we were very much more positive about the sector as to where we were. We had a lot more confidence around sentiment, we started to see a little bit more investor demand. I mean as -- like a lot of investors, a lot of that positivity was taken away with the recent sort of Middle East impact. And for real estate, we really have had that momentum checked. And you can see on the left-hand side that investment volumes have really fallen off for Q1, we're off circa 20% to 40% depending on which region relative to the same period of last year. Now one of the positives is that what we're seeing is that the demand that is happening is at the smaller lot sizes. And thankfully, that's been our focus. We've always really set our stall out to be focused on the sub EUR 30 million lot size, and that is where most of the exposure or the transaction evidence is happening for the last quarter with basically 80% of the deals have been in that sort of sub EUR 30 million lot size. Just trying to then flow that into how is our portfolio valued across the different sectors and trying to give you a bit of a steer around where liquidity is at the moment. If you think about the industrial side, it has always been a very, I guess, focused and really highly demanded sector across Europe. We've seen good rental growth. That's coming off a little bit, but notwithstanding we're valued here of a net initial yield of around 6%. That also actually has been diluted due to the Alkmaar vacancy. But that's still a very decent premium to where the 10-year risk-free rate is and around -- if you take the average across the 3 jurisdictions, you're about 3.4%. And interestingly, since I last spoke back in December, the risk-free rate has increased by about 70 basis points. So overall, we've still got a decent premium of around 3.7% relative to that risk-free rate. If you take out the Apeldoorn asset, which is a bit of an outlier, given it's overvalued and the fact that lease is coming to an end, that premium to the risk-free rate is around 2.6%, which is still a decent number. On the office side, and I think this is probably the area where we're flagging. There's been a bit of a shift in terms of demand, and there's not a lot of transaction activity across Europe for offices, particularly for secondary offices. And that's where the values are having a little bit more of a challenge to try and price that particular sector. And hence, the point around liquidity being a weak demand, and I'll come on a bit later, and I'll talk a bit more detail about the 3 offices that we have. Retail, we've got the DIY asset in Berlin, continue to be positive about that, given the long-term income and the fact that we're sitting on 4 hectares of land in a capital city that is undersupplied from a residential point of view. The alternative asset is the KPN that I touched on where we're now moving to more of a land value approach and then obviously, the car showroom and the demand that we're starting to see across multiple uses that gives us some confidence around being able to dispose of all that. So the takeaway here is that we're really positive that we're sitting in sort of lot sizes that are sub EUR 30 million. There continues to be strong demand from an industrial in the living sector and in particular, select retail and also across health care and then actually offices where we're seeing much more polarization. I don't think this will be any surprise to those on this webinar that we're seeing very much a 2-tier approach here where prime continues to see really strong rental growth and good demand. And that's actually the secondary offices where there really is very much a struggle to price that at the moment, particularly given the challenges around how do you sort of price and occupy demand, how do you price where construction costs are going and that sort of exit value given investors' appetite for offices at the moment is relatively weak. So just a continuation on the office side and honing in, and that occupier comment that I made. We sort of compared here the 12 months where we were last year and sort of how you can see here where vacancy rates have changed in the submarkets that we're invested. So if you think about the Southern Bend in Paris, where our Saint-Cloud asset is. We're starting to see vacancy rates sort of increase now into that sort of higher teens. Notwithstanding, we're seeing good rental growth from a prime perspective, but certainly secondary is suffering. And I've commented before about the office asset that we have. We leased off rents here of low EUR 200 a meter. We invested in this asset because of the transport infrastructure that was going to be improved here. That's been delayed now to 2030. We've had some good positivity in terms of leasing up this building, but notwithstanding we're in a submarket where vacancy is increasing. So that's one of the challenges and the backdrop that we have in terms of managing this particular asset. Thankfully in Hamburg and Stuttgart, the vacancy levels are not to the same degree. And I've said before that Stuttgart is one of the strongest office markets and has the record lowest level of vacancy in the whole of Europe, and that is testament obviously to how we've been able to regear the state of Baden-Württemberg and start to see some rental growth there. And equally, in Hamburg, although vacancy is starting to creep up a little bit, rents are still relatively low. Prime rents obviously increasing. And to put it into perspective, we're leased off sort of rents of around EUR 14 per square meter per month. So still a bit of a discount to where prime is, but notwithstanding, we're very much conscious that there still is some occupier headwinds in terms of maintaining that full occupation that we have both in Hamburg and Stuttgart. And I guess, overall, just how do the valuers reflect this risk and how does that flow through to how values are presented from a NAV perspective. Obviously, across the portfolio, we have the benefit in Europe here of annual indexation. That's very different to the U.K. where it's typically 5 yearly to market. And as we've seen sort of inflation starting to increase across the regions. So we're looking at sort of mid-2s over the next couple of years. The rents will continue to grow on the back of that. We're trying to move leases, particularly in Germany, where we've had this hurdle and had to wait for the compounding of inflation before you get your increase. We're trying to move leases as we've done with the State of Baden-Württemberg to annual indexation. So that's a key part of our asset management play to try and bring forward that growth in a stronger fashion. Just on debt, I know I commented that, overall, we've been a modest user of leverage across the portfolio at the moment, gearing levels that are around sort of 27%. You see here that we do have some refinancing to do this month. Positive that we are about to sign an extension with the existing lender. This is on the Berlin DIY asset. So that will extend that lease. That will also obviously allow us to implement the new strategy whether we have. And given this asset is a long-term lease to one of Berlin's leading -- sorry, one of Germany's leading DIY specialists in Hornbach, we think there's going to be strong demand for this particular asset when we look to sell that, sort of extending that debt for just over a year ties in well with that strategy. And as I touched on, as we sell assets, we'll be looking to redeploy or deploy that capital into repaying that debt. And together with obviously making distributions back to shareholders at the right time. Obviously, this is all subject to getting investor approval when we go to the general meeting. It's obviously sort of priorities, and the shift has really much been to this new strategy now. And obviously, we need to take that to the shareholders in order to commence that orderly wind down. We've got 14 investments in some really strong parts of the European market. So we're confident in the majority of the portfolio in our ability to sell those. Obviously, we are conscious of the market backdrop and the challenges that I've talked about. Hence, that sort of 2- to 3-year period in order to allow us to implement the asset management initiatives that we have to maximize that value and liquidity. Obviously, income continues to be the priority and regearing those leases that I talked about earlier. Obviously, those proceeds will be used to repay debt before we make distributions and very much looking to the Board is looking to continue paying a dividend to shareholders given how important, particularly for private investors and wealth managers that are a key part of our register. And obviously, maintain our investment trust status. But I think in terms of that sort of 2 to 3 years, and I know for some investors that may see a longer period to be implementing this strategy. But I think we are conscious and the Board is conscious of that market backdrop that we're working behind. Obviously, we're starting to see a little bit of positivity in some of the discussions around the Middle East. Obviously, that's not completely certain, and it will take a little bit of a period before that rolls through and then also before investors start to think through redeploying capital. Obviously, we know where rates are in obviously, recent increases across -- sort of from the ECB, and really once we start seeing rates to stabilize, that will give investors a little bit more confidence to come back and enter the real estate sector and obviously start to see investment volumes start to increase again and give valuers and us a bit more confidence around value and liquidity. We'll be making announcements and updating shareholders throughout the process. And obviously, the next point will be to sort of get the circular out to you and the changes to the articles in order to facilitate this change in strategy and then convene that at general meeting which, at the moment, will probably likely be for the middle of August. So I'll stop there. There's probably a lot that to digest. There's quite a bit of material that James touched on that we've announced that's been downloaded. There's probably some questions that are coming in, and happy to answer those, James. Thank you.

Brilliant. Thanks, Jeff, and thank you, everyone, for sending in your questions. As Jeff said, we've had quite a few come in. If you'd like to keep sending them, please do. I'll ask Jeff as we go through. Jeff, maybe just picking up on a couple of the key themes. One that's coming out is, and you've just mentioned it there is the time line for disposals. I think 2 to 3 years, Jeff, is what you've guided to in the RNS. A couple of questions here about what influences that time line? Is that a set time line that you're working towards? Or is that -- could it be shorter? Could it be longer? How are you thinking about it?

I think we've always been transparent, James, with investors and being realistic here and sort of understanding the backdrop that we are disposing into. It's challenging. Now there are certain assets that we've got much more confidence that they're much more liquid and we'll sell at really strong pricing and relatively quickly. But we're conscious that there's some assets that we have to do more asset management on that will not only improve or maintain value, but actually improve the liquidity. And I think you've probably picked up that the office side is probably the one sector. That's not just what we're facing, but the whole sort of global sort of investor allocation to offices that there is questions around where values are, and values are sort of having difficulty because there's not that evidence in terms of transactions to give them a very clear view around value. There probably is and there is from an occupier point of view at the prime end. But if you think about sort of that secondary, it's a much harder and valuers are really valuing on sentiment. So that's probably the area where we need to do more asset management and prepare those assets, those offices for sale and hence, why that sort of 2- to 3-year period to implement. We're obviously conscious also we've got the French tax that we're managing as well, and that sort of gives us time to manage that and to not be put into a position where we need to be doing something there. So I think that's appropriate to set that time line of 2 to 3 years to do not be seen as a force for seller and actually manage that asset management that we have in our mind.

Brilliant. And so the obvious follow-up question there is then what are the assets you think you can sell more quickly and start returning capital to shareholders? I appreciate you might not be able to give specifics here. It might be commercially sensitive information, but can you share any?

Yes. I mean I don't -- I mean I think we -- as I said, we're very transparent in the information that we've given investors. And you can sort of think, well, actually, some of the asset management that we've already done, Berlin is a really good example where there's probably not more -- not a lot more that we can do there, where you've got long income to Hornbach. You're sitting on sort of 4 hectares in a capital city. I would like to think there's quite a number of investors that would want to be looking at that particular asset. So that's a good example. Rumilly is another one where we've done the lease regear with Nestlé. We're just finishing off the works that we need to do there. So there's -- that's probably right for selling earlier. Similarly, we have a smaller logistics asset in the Netherlands in Houten. Again, fantastic covenant in there, really strong location. That's one that certainly would expect to see demand. So those sort of industrial, the alternatives, obviously, you talked about Apeldoorn as well. We continue to have the good discussions that we have within municipality towards the end of this year. And if we get the, obviously, the support from investors for this strategy, that's another one where I would actually expect that, that's an asset there that we could sell sort of sooner rather than later and tap into the demand that we're getting from developers.

And again, sort of another follow-up question here that's coming through around the disposal strategy. We've outlined here in the presentation and in the announcements around the intention to sell specific assets over time. The question refers to what -- did we also discuss whole portfolio sale? What's the pros and cons of both?

Yes, we did. We went through, and that's one of the options that I sort of talked about that I've been working with the Board and in particular, with Phil Redding. He's offered his experience and how relevant he is, given he's sort of come -- recently come from running Tritax Eurobox and being through this process. So yes, heavily debated. And one of those options was, well, look, is there an ability to sell the overall portfolio. And yes, there is, and there would be demand, but we think that the pricing in terms of the capital is there to take the portfolio is much more opportunistic private equity and their cost of capital at the moment is much higher. And therefore, the price would be not comparable to what we believe and the Board believes that we could achieve by selling individual assets or grouping a couple of assets together and going through an orderly managed wind-down over that 2- to 3-year period.

Makes sense. There's a question here, which I think we're probably not going to be able to give guidance on because it's specifics around whether you think that you'll be able to achieve NAV in these sales. And I don't think you're going to be forecasting potential NAV and distribution at this point, it's too early. But just maybe give a feel for how you're thinking about generating value and how shareholders should expect this process to look from the values that you achieved?

Yes. I mean I think the valuers are still getting their heads around the Middle East and backdrop that we're dealing with at the moment. So I think it's probably fair that some of these values will come out with June values soon that some of these values will, particularly for offices, will come off a bit. And that's probably the one sector, being a diversified investor, that's the one sector where there is that question mark just given there's not that evidence for the valuers to work on. So yes, we need to be actively and we are. If you take Saint-Cloud as a good example where we've reduced the vacancy there from sort of high teens to down to about 9%. So continuing to work with our local asset management teams on the ground and our advisers there, our relationships that we have with occupiers in that building to not only obviously maintain and sort of regear those leases, but try and move that vacancy down a bit more. Obviously, the slide earlier that I touched on is that the context of where that asset sits. It's in a submarket where vacancy is now 16%. So we're outperforming with vacancy here. But that's all going to flow through to, not necessarily value creation, but certainly, in our mind, improving the liquidity for the asset. And that's obviously our biggest asset in the portfolio. So I think that is one asset that will probably take a little bit longer to sell. Equally, Stuttgart, we've done the regear with the State of Baden-Württemberg. There's another tenant in there that wants to commit. So we're in the process of regearing that lease to time with the State of Baden-Württemberg. So once we've done that, that's certainly an asset that we could sell sooner. Hamburg is fully leased. We'll be looking to regear that multi-tenanted structure that we have there and then look to sell that. But again, that's probably going to be sort of an 18-month to 2-year period. And really, the other assets is as we regear as we finish off some of the works that we want to do and present those assets in the best possible light for a sale. I mean the smaller asset, this is an interesting debate, just to share with everyone that the asset that we have in [indiscernible] interesting at the moment is the device we're getting, there seems to be a bit of demand from investors to actually step in and take the leasing risk because of their view on where market rents can go. So actually, that may be one where we think, well, actually, let's not hang around and regear that lease in 18 months to 2 years' time. But actually, let's -- if we're getting the right pricing, we might actually think about selling that earlier. So they are the things that we're weighing up, and I've been working with the teams and getting their input and we're all on board around how do we maximize value and liquidity to now implement this strategy. The Board has also been out to see the assets, have taken Phil to see all the -- nearly all of the assets. So he's got a really strong understanding of what we're looking to do here and the strategy that we're looking to implement to tie in with this managed wind-down.

And also another good question here around how you're thinking about managing CapEx versus distributions versus overall cash management during this wind-down period?

Yes. So I sort of opened up, and we've been, I guess, a manager of the sort of the corporate pretty prudently and we've retained sort of that capital, took a EUR 25 million. And obviously, as you sell assets, we'll use some of those proceeds if we need to be investing in the assets to manage that CapEx program. To be honest, the CapEx program is not enormous. It's not as though we're going and doing a redevelopment of KPN to do a residential construction. We're not changing the use like we did many years ago, that successful repositioning that we did in Paris, where we took a EUR 40 million office building, invested EUR 30 million and sold it for EUR 100 million. We're not doing that. There's no other assets that are there to do this. I mean we may think about, so the asset that we have in Cannes whereby if we continue to see demand from a self-storage point of view, we may think about it could make sense to invest a couple of million to change the use of that, bring in an operator and sort of sell with that in place. But equally, we'll weigh that up with, actually, do we sell now to a potentially a self-storage specialist if we get the right pricing. So they're the type of things that we will manage and obviously conscious of what capital that we have and that goes into our decision-making. But very much as we sell assets, we'll be conscious of what capital do we need. And if we don't need that, obviously, that will be used to repay or prepay debt or distribute back to shareholders.

Makes sense. We've answered quite a lot of questions here around the proposal around wind-down, which is obviously expected given that news coming out just this morning. If we haven't answered all your questions on that, please do bear with us. I'll come back to some of them if you think we have missed something, please do send it through, and I'll make sure I ask Jeff before we finish. But there's just a couple of other areas that I just want to touch on because they are coming up, a couple of questions around French tax. Just is there anything that you could give to shareholders around the time line that you're expecting on that?

Yes. Look, it's before the French sort of early start of the litigation process. There's a -- and without sort of naming other listed vehicles that are facing the same challenge, there is another large listed company that is a lot further ahead than us whereby that could create some news. So we're waiting for what impact that has. I think the positive here is that we've ring-fenced the capital for that in the event that it wasn't to go our way. Obviously, all our advice is that we shouldn't be providing for this because we have a robust structure and we have abided to the [ SEC ] requirements from a tax perspective. So I can't give any more color other than we continue to dispute this. But certainly, as we get more information, we'll advise the shareholders. But certainly, I would like to think over the 3 years that we'll be in a position to manage that.

Great. Thanks for the extra detail. Just a quick question from one of our listeners here on KPN and just around how income is going to be impacted when KPN vacates and potential dividend payments around that?

Yes. We've been very, very clear for some time about the KPN position i.e., they represent 20% of our income. So it was always going to have an impact on our dividend cover and potentially dividends. So certainly, the Board, and I've made a comment in here, the Board intention is to continue paying a dividend through this process. We're not sort of giving any direction on what that dividend is. And obviously, that dividend will change as we sort of return capital to shareholders over that period as well. But what may happen is that the dividend cover losing KPN may fall if the Board were wanting to continue with the same dividend. And that's -- you don't have to be a genius to sort of work that out. But obviously, the position slightly changes where if you are selling assets, you can and you will have that capital to be able to pay a dividend going forward. Together with the income that we have from the remaining portfolio and obviously touch income being key and how we're regearing leases and obviously inflation benefits that we have that, that's sort of helping sort of grow our earnings as well. So I can't give any more specifics around what the dividend will be. But all I can say is that the dividend cover will naturally fall as a result of losing KPN.

Just one macro question that's come through here that's important to touch on because I think it takes back into sort of the conversation around making sales and disposals in the portfolio. The question actually refers to the slide you showed, volumes coming off around 20% to 40%, I think you said. What needs to happen for that to start to turn around again? Obviously, it has implications for the disposal strategy and values that can be achieved going forward? What's your general feeling and thoughts around what needs to happen?

Yes, I think, I mean, I think -- and we talk about, obviously, there's a lot within sort of real estate here and with our investment committee. And I think a lot of the institutional and a lot of investors are sort of sitting on their hands at the moment. And if you think about actually alternative risk-free returns are pretty positive. So on a risk-adjusted basis, it sort of makes sense for investors to be sitting in yields or appropriate sort of sovereign risk. So naturally, if rates start to come back and fall again, the focus is then going to come back. Well, actually, real estate is looking attractive again. And you can see here the premium. And I'll talk about the 2.6% rather than 3.7% because that includes the KPN. But at 2.6%, that's still an attractive premium to where the risk-free rate is. And if we start to see that falling, and as you know, here, it's increased 70 basis points since I last sat on this sofa 6 months ago. So if that starts to fall again, that premium will head back to sort of 300 basis points. Now historically, real estate is traditionally at the prime end being sort of around 200 basis points. So I think we are sort of valued at a reasonable premium. And I think what needs to happen, we start to see rates falling. We start to see growth coming back. Obviously, we need some of these geopolitical risks to abate to give investors a bit more confidence to come back into the real estate market. So they are the sort of 3 or 4 things that we're thinking through that would have a positive impact. Obviously, we're at the smaller end in terms of encroaching on private investors, sort of family offices, propcos. Equally, there are probably vehicles that aren't heavily levered. So the interest rate point probably not to the same degree. So it probably lends itself more to all how do they think about sort of alternate use on some of these assets? How do they think about transport infrastructure changes or competing demands for users? Saint-Cloud is a really good point where the transport infrastructure won't come for until 2030 now. So we're selling to an investor that will benefit from that. So they're the type of things that are much more micro related to that sort of asset that will probably have a bigger impact on value and liquidity as well. But I think from a macro point of view, those 3 or 4 points that I touched on being around just sort of general geopolitical risk impact on interest rates, obviously, where inflation goes and obviously, our leases provide a natural hedge for that, but also just general economic growth. And also from an office point of view, how occupiers start to return back to offices, and we're starting to see sort of that slowly where businesses are appreciating and understanding well actually having teams in the office, it creates much more productivity. And that will sort of have a positive impact on the occupation markets for offices.

Brilliant. So I'm taking you full circle now back towards the announcement around the wind-down. One of the questions that's just come through is around manager incentivization through that period, just particularly thinking about alignment of the manager to shareholders through the sales process. Can you give a bit of color on that?

Yes. So we've made a comment in the announcement that we are in discussions with the Board around changing our investment management to align us in a more appropriate way with this new strategy, and that includes aligning sort of senior management team as well. And that's something that will be detailed in the circular for investors to vote on.

Brilliant. So we'll keep an eye out for that. Maybe just chance for 2 final questions because we're coming up to time. If you have any other questions, send them in now and I can try and fit them in. This is actually just a more specific question around the Apeldoorn site. Just a point being made around the quality of the housing around the Apeldoorn site looks to be sort of maybe lower quality. So how are developers thinking about price, quality of the potential accommodation that could go in there?

Yes. I mean it's -- I don't think it's fair to say that it's low quality, I mean it's some fantastic new resi development sort of 500 meters away, across the street is some lower quality. It's medium density, lower quality, yes, but within the greater surrounds, there's some really nice across a range of low density, high density residential. It's actually a really nice neighborhood now. Some of the master planning that the municipality has and this has actually come from that is there's a sort of waterway that they're really keen to try and develop from the city center towards where our site is to promote residential and high-density residential living and obviously, with that a cross-section of services as well. So this is something that the municipality is very keen for this site to be rezoned to cater for this. And hence, why we've, I guess, flipped our focus to work with them, and we see better value in that now from an underlying land value perspective. So obviously, I think this photo probably present it in a really positive way. Whether we get to that or whether a developer gets to that, it's still subject to planning, but that sort of just gives you an indication of the potential scale that could go on this 3.5 hectares. So yes, I don't think the comment to sort of say it's low quality residential is fair because there is so much sort of newer development, both from a single sort of residential through to medium-density housing within sort of 500 meters at the site.

Brilliant. And so maybe just a final question here, just a couple of similar questions coming through around when first capital distributions might be expected?

Yes, it's too early to give you any indication on that. And that's obviously going to be dependent on the sale process as well. So that's something, as I touched on, we will be updating shareholders as we go through the process. But it's a bit early for me to comment on that specifically.

Brilliant. Well, that's all the questions. So hopefully, we got through all of your individual questions. Thank you very much for sending those in. And that's all we've got time for this morning. So that just leads me to say thank you to Jeff for the presentation and answering the questions. And thank you very much to our listeners and shareholders who have dialed in this morning, and thank you very much for your input and questions. We really do appreciate your support for the trust and the questions this morning. So please do keep an eye out on the announcements going forward, there's obviously going to be a circular. There's lots more detail to dive into in the annual report. But that leads me to say thank you for joining and speak again very soon, I'm sure. Goodbye.