SEGRO Plc (SGRO) Earnings Call Transcript & Summary

Okay. Good morning, everybody. Welcome to SEGRO's Half Year 2024 Results Presentation. Thank you for taking the time to join us here in the room or indeed online. What we're going to do as usual, I'm going to make a few opening remarks, and we'll go into the main presentation, and then we'll finish with Q&A. First thing said is that SEGRO has performed well during the first 6 months of 2024. We've continued to follow our clear and consistent strategy, which is delivering strong current year performance whilst ensuring that we are set up for continued success in the future, particularly as market conditions start to pick up again. Firstly, we've maintained our focus on operational excellence and our teams have been really sweating the assets, successfully capturing reversion and carrying out asset management initiatives to drive new rental levels. This activity has helped us to deliver a strong performance in new rent signings and an excellent uplift in like-for-like net rental income. Secondly, we've continued to invest for growth, both through executing on our profitable development program and taking the opportunity in these less competitive investment markets to buy some attractive assets, leveraging the strength of our operating platform and local network. We've maintained our disciplined approach to capital allocation by crystallizing value and attractive profits through selling carefully chosen assets to motivated buyers. And then thirdly, our balance sheet, strengthened by the equity placing in February, is in great shape and provides us with plenty of firepower to invest at a point in the cycle when having access to capital is a competitive advantage. We've also continued to work hard on our responsible SEGRO priorities, which we'll touch on at various points through the presentation, and of course, we'll provide a more fulsome update with year-end results. So now into the main presentation, which has got 4 sections. I'll start by providing some context about the overall market environment, Soumen will take you through the financials, I'll then talk about how we are driving rents and returns through our asset management and development activities and why we are increasingly excited about the opportunities ahead with SEGRO well set for further profitable growth. So let's start by looking at the markets. We've discussed these long-term structural drivers of performance in past presentations. And of course, we also went into quite a bit of detail in a number of them at the recent Capital Markets Day. So I don't intend to go through them in a lot of detail today. But just to say, they remain very much intact. And as e-commerce penetration continues to grow, the digital economy expands, global supply chain pressures cause yet more near and friendshoring, major cities continue to grow at a faster rate than the wider economy and businesses invest to improve their sustainability credentials, we expect these powerful tailwinds to continue driving demand for well-located and modern industrial and logistics space. Meanwhile, we know that competition from other users of brownfield land and tight green belt planning restrictions will severely limit the availability of land in most of our chosen markets, which will keep competitive supply in check and maintain upward pressure on rents. Market data is just starting to emerge for the first half of 2024. We don't yet have it for Europe as a whole. But you can see that the U.K. after a relatively quiet 2023 has started to recover. Overall, logistics take-up for the half was similar to pre-pandemic averages at about 15 million square feet, but with the second quarter showing a noticeable improvement on the first quarter. An anecdotal feedback from leasing agents and our teams on the ground is that inquiry levels are showing early signs of picking up again. On the right-hand chart, you can see that the amount of speculative space under construction, having peaked at the beginning of 2023, has now fallen sharply. And alongside the improving take-up picture, this suggests that vacancy rates are also likely to peak soon and should start to fall going into 2025, which bodes well for future rental growth. What's not covered in this data is the southeastern urban markets, where most buildings are much smaller than 100,000 square feet, so they're not picked up by most agents. Here, we've seen good occupier demand across several of our submarkets, particularly, I'd say, in Slough and Heathrow. We expect this to also strengthen in the coming months as businesses benefit from an improving macro environment and the new government's pro-growth policies. I suspect, the Continental European data, when it's available, will show a broadly similar trend to the U.K. with reducing new supply in most markets. Vacancy rates being close to their peak, but still low by historical standards. And I expect the recovery in U.K. occupier sentiment seen in recent weeks will, in due course, flow across to the continent in the months ahead and going into 2025. So I'd say standing back and looking at all of that, I'd say overall, it feels like we're operating in a pretty normal market environment, one that we really got used to for most of the last 10 years, certainly prior to the pandemic. And it's market environment is really supportive of what we're trying to do. It will support SEGRO's ability in particular to drive rental growth and attractive levels of development. But if the general industrial and logistics picture is normal, the data center market is absolutely flying, as hyperscalers and co-locators scramble to take space to keep up with the exponential growth in digital data. The so-called FLAP-D market has doubled in size since 2018 and is forecast to continue growing at a similar rate, with second-tier markets like Madrid, Milan and Warsaw also benefiting. Our artificial intelligence will turbocharge this demand, and a large part of it is likely to continue to focus on the existing and emerging availability zones where SEGRO has a sizable opportunity. And then moving on to investment markets, and this is Europe-wide data. These are also showing signs of normalizing with inflation on the way down and rate cuts hopefully just around the corner. Investment volumes in the first half have been closer to pre-pandemic levels, although there's some way to go before liquidity fully returns. And generally, I'd say there's still a reluctance or there has been, on the part of vendors to bring assets to the market, and there's certainly very little forced selling. But there are buyers out there, and for the right product, multiple bidders are now appearing with prices starting to firm up. As we know, industrial and logistics continues to be one of the favored asset classes due to the attractive fundamentals, and I suspect this positive sentiment to build further as the macro environment improves and rates do come down. So in summary then, we believe that the market dynamics for us are attractive and improving. So let me now hand over to Soumen, who's going to take you through the financials.

Thank you, David. Good morning, everybody. So I'm going to take you through the financial performance for the first half of the year. So starting on Page 10. So here's a summary of the key financial metrics for the first half of '24. Now the figures reflect much of what David has already spoken about. Firstly, strong leasing performance leading to higher earnings and dividends; secondly, improving sentiment in the investment markets, which have led to an inflection point in our valuations; and thirdly, the impact of our equity raise, which hasn't diluted EPS, but has reduced loan-to-value. So adjusted profit before tax is up 15% year-on-year to GBP 227 million. Now some of that increase is due to the interest benefit from the new capital that we raised in February, and that's offset by the higher number of shares in issue. So adjusted earnings per share is up just 6.9% to 17p. We're recommending an interim dividend of 9.1p, that's up almost 5%, and that follows our usual policy of setting the interim dividend at 1/3 of the previous full dividend. The portfolio valuation is flat and it's still valued at GBP 17.8 billion. Although we've seen a small 1.8% fall in NAV per share to 891p, and that's really due to the impact of the equity raise and also some FX movements. Balance sheet is in very good shape with loan-to-value down now to 30%, providing considerable opportunity for further growth. Moving on now to Slide 11, and this is the usual slide that looks at net rental income growth, the key driver of earnings growth. Now the first half of 2024 saw strong growth in our net rent, up GBP 20 million, that's up 7%. Now as in recent periods, there were 2 big main contributors to that growth. The first is, rents from our standing portfolio. Now those grew GBP 14 million, with like-for-like growth of 5.3%, driven by the capture of reversion in the U.K. by indexation on the continent; and secondly, development completions added GBP 15 million during the period. Now those 2 factors are embedded reversion in the portfolio and our development pipeline mean that they will continue to drive strong growth in our rental income in the years to come. Just a quick word on the last remaining bars on this page. Investment activity resulted in a net loss of GBP 4 million, and most of the other GBP 5 million is down to FX movements. Turning now to the income statement on Slide 12. So you can see in the table here that top line growth in the rental income is feeding down to the bottom line. Adjusted profit before tax grew almost 15% to GBP 227 million, and EPS was up 7%, as I just mentioned, to 17p. Now February's equity placing was broadly neutral for EPS, as the impact of the new shares was broadly offset by lower interest costs, a reduction of GBP 14 million in the year -- or year-on-year. A couple of other things just to note on this slide. Firstly, capitalized interest was GBP 34 million for the first half, and we expect it to be around GBP 65 million for the full year. And on costs, you see the cost ratio remains about stable at around 20%. Turning now to the portfolio valuation. So here on Slide 13, you can see that we've shown how the valuation movements have evolved over the past couple of years. Now the big declines of 2022 have now given way to a fairly flat performance with the portfolio still valued at GBP 17.8 billion. Indeed, the U.K. appears to have reached an inflection point with an increase modest of 0.9%. Whilst the continent saw a further small decline of 1.4%, which suggests that asset values there are bottoming out and will likely follow the U.K. trajectory, albeit with a bit of a lag. On Slide 14 now, a bit more detail on the valuation. And you can see the group portfolio yield remained at 5.3%. U.K. yields were flat at 5.2%. And ERV on the continent, we saw some small shifts with other markets such as France, flat. ERV growth across the group was 1.4%, which on an annualized basis, is within the range of expectations for our medium-term ERV growth, and it's in line with the average growth we saw in the pre-pandemic period. Just to note that, we have changed our disclosure to reflect our new operating structure, which has established in the U.K. and the continent as our 2 main operating units. As a result of that, we're now showing information here and in the property book at a country level, not on the previous regional business unit basis. Lastly now for me on the balance sheet on Page 15, and this remains in great shape, and it provides us with significant liquidity to continue to invest for growth through our profitable development pipeline. Loan-to-value has reduced to 13%. Our credit rating is now stable at A-, which continues to be a differentiator versus the vast majority of the real estate universe, which is mostly rated around the BBB area. Net debt to EBITDA has reduced significantly from 10.4x to 8.5x as EBITDA has grown and net debt has been reduced by the equity placing and by disposals. The average cost of debt has fallen to 2.7% of repaid-off some of our most expensive short-term bank debt. And now just in terms of capital allocation, looking ahead, if you look at the bottom right-hand corner. We're now expecting CapEx spend of around GBP 500 million for the year as a whole, including GBP 150 million on infrastructure. Now that reduction is due to signing fewer pre-lets in the past 6 months, particularly the continent, which has resulted us in delaying the expected start date for some of our projects, and David will come on to talk about that in a moment. We continue on the [indiscernible] side, we expect around 1% to 2% per annum on average. Now 2024 is likely to exceed that as we've already disposed of GBP 400 million of assets so far, and we have a further GBP 200 million currently under offer. So to sum up on the financial side, by continuing to invest in the business to capture occupier demand, we've delivered earnings growth of 7% during the first half of 2024, driven by reversion and indexation within the existing portfolio, alongside development to add new rent. Now that has allowed us to grow the interim dividend by almost 5%. The portfolio valuation is flat with encouraging signs that U.K. has turned and has inflected and continent is now bottoming out. And the balance sheet remains in great shape with plenty of capacity to invest in future growth. And with that, I'll hand you back to David.

Okay. Thanks very much, Soumen. So what I'm now going to do is look at the main drivers of our operational results and, in particular, how we're securing profitable growth from proactive asset management and development. So our customer-facing teams have had a really busy and successful 6-month period, particularly, I'd say, our asset managers. We've secured GBP 48 million of new or increased rent in the first half of the year, making it, if you look at the chart, our third best half year ever. You can see that development, the red part of the bars, is contributing less to this number than it has for some of the recent periods, and this is due to a lower volume of pre-let development signings as occupiers have certainly been taking longer to commit to significant capital projects, plus there's an element of some of our larger sites requiring significant upfront infrastructure work before they can be released for the construction of buildings. That said, we've signed GBP 18.5 million worth of development commitments in this period, a pickup actually from the second half of last year. And this included GBP 17 million of pre-lets, including 2 large projects in our U.K. National Markets portfolio. And the pipeline of inquiries for the next 12 months-or-so looks really strong at this juncture. On the other hand, we are securing significant rental increases on rent reviews, indexation and from the re-leasing of our existing space. So capturing that embedded reversion that's already being stored up in the portfolio. That's the pink-shaded part of the bars, you can see. And it reflects 215 deals in the period and a further 488 indexed or fixed uplift. So a lot of activity. As well as the rent reviews, we've had some great successes with asset management initiatives. HD Walter and Electronic Theater Controls, ETC, if you like, are both existing customers whose businesses are growing. We've worked with them closely to support their expansion, moving them into larger, recently refurbished premises with superior sustainability features, which will also help them to reduce their operating costs. We've also welcomed some new customers such as Kolak Snack Foods, who took a recently refurbished unit in Premier Park in London, helping to drive rents on the estate above GBP 30 per square foot and providing further evidence to support upcoming rent reviews. Overall, our asset managers have been able to capture GBP 15 million worth of embedded rent reversion during the first 6 months of the year. The U.K. once again achieved a particularly substantial set of uplifts, averaging 36% across all settled rent reviews and lease renewals, with our teams making great strides in capturing the 5 years of accumulated rental growth. And on the Continent, where rents are indexed annually and so reversion doesn't build up to the same extent, we've achieved a very good 7% uplift. On the right-hand side, you can see that customer retention has increased to 87% and vacancy remains within our target range and little change from year-end, which once again demonstrates that customers are prepared to pay these higher rents to stay in the well-located, modern and sustainable space that we provide that enables them to operate their businesses most efficiently. And this gives us great confidence in our ability to capture the remaining reversionary potential in the portfolio, which stands at GBP 133 million or 20% as of the end of June. The timing of lease events means that we have GBP 76 million of reversion available to capture between now and the end of 2026, which we, therefore, will expect -- we therefore expect, will continue to drive continued strong like-for-like rental growth in the coming years. So I'll now turn to our development program, which is also helping to drive income growth and has significant potential as we look ahead. We completed 13 projects in the first half of the year, which added 270,000 square meters of new space and GBP 27 million of headline rent, of which almost 80% is currently leased, delivering an attractive return with a yield on cost of 7%. All of our completions were rated at least BREEAM Very Good with 96% of them being Excellent. Highlights amongst the completed projects included our first multilevel development in West London, V-Park Grand Union. This innovative first-of-its-kind scheme was built in partnership with the Barclay Group, who brought forward a neighboring residential scheme on land that we had sold them a few years ago. It sits right next to the North Circular Ring Road and provides workshops and studio type space accessed via cargo lifts with shared amenities such as a roof terrace and meeting rooms. Early levels of interest have been encouraging. We've already got our first customer signed up, which is a robotics business. We completed our 31st data center in Slough, a 3-storey dark shell let to Virtus, one of our existing customers. In Barcelona, we completed a 40,000 square meter pre-let for publisher Penguin Random House, who will be using the space, surprisingly, to store and distribute books across the whole of the Iberian Peninsula. The project includes a sizable solar installation and an air source heat pump which, along with other features, helped to achieve a BREEAM Excellent rating with the potential of this to be upgraded to Outstanding. And then finally, just to highlight that our urban growth and our ambitions are not limited to London and Paris. We've completed here the development of our urban estate in Zeran, in Warsaw with the last-mile distribution facility delivered through dto FedEx. So if we look ahead, we have a tremendous opportunity for more development with very attractive margins. The combination of continued and likely strengthening occupier demand, a reduction in speculative starts across most markets, further rental growth and flat and, in some cases, declining construction costs creates very favorable conditions for development. And we have a superb land bank, which puts us in a great place to be able to exploit that potential. We currently have developments with GBP 49 million of associated rent already under construction or in advanced pre-let negotiations with a further GBP 402 million of potential rent on our land bank, much of which can be delivered in the near term. The yield on total development costs, which factors in land, all build costs, notional financing charges is likely to be in the 7% to 8% range, whilst the yield on new money is around 10%. So this still makes it a very profitable place for us to deploy capital into. Within the land bank, we have a particularly significant opportunity to capitalize on the strong demand for data centers, which is a European market that we expect to grow very significantly in the years ahead. We have a total opportunity set in data centers equivalent to GBP 200 million of rent based upon the power shell model. Roughly half of this is included within our land bank data on the previous slide, the rest of it relates to redevelopment sites of existing assets, mostly in Slough and is not, therefore, included in that development pipeline data. As we covered at the Capital Markets Day, our data center strategy will continue to focus on our existing urban markets, meeting demand in core locations and availability zones, driven by cloud and inference AI. And our preferred execution model is the dark or powered shell model where we can generate a very attractive 8% to 12% yield on cost, depending on the land price at the point of commencement. But we are considering all options for the sites in our pipeline on a case-by-case basis, and this may include the sale of powered land when appropriate value can be captured upfront, as has already happened this year. And we've not ruled out building fully fitted data centers in certain circumstances. Turning now to capital deployment. As I mentioned in my opening remarks, we've continued to invest for growth, but we remain very disciplined in the allocation of our capital. During the first 6 months of the year, we invested a further GBP 211 million into our development program, GBP 52 million of which was for infrastructure and the remainder was on the construction of buildings. We've also been actively looking to acquire high-quality standing assets, recognizing that at present, there is less competition for prime assets than we've seen for a number of years. We purchased 3 highly reversionary assets in the Netherlands, an attractive and very competitive logistics market where we'd be looking to build scale for some time. And we expect further opportunities to emerge in the coming months. Finally, whilst we believe market pricing is at or close to the bottom of the cycle, we've continued to take an agile and targeted approach to capital recycling, crystallizing value by disposing of assets to motivated purchases, including, for example, 2 assets suitable for data center development, 1 with near-term potential, the other 1 with much longer-term potential, where the pricing available to us was particularly attractive. These sales have been replaced by other opportunities in our data center pipeline, which serves to demonstrate that the opportunity set is constantly evolving. So let's now pull together our view of the future and tell you why SEGRO is primed for further growth. We have an irreplaceable portfolio of modern and sustainable assets concentrated in Europe's most attractive, supply constrained urban markets and major logistics hubs. A 1/3 of our portfolio at share is represented by high-quality logistics assets. The other 2/3 are urban assets, including almost 10% being data centers. And as I've described, we also have a fantastic land bank, which will support growth in all 3 of these attractive asset categories. Our market-leading operating platform with people on the ground in all of our key markets is a source of competitive advantage, consistently driving performance from our assets, executing the development program and finding new opportunities for growth. The prime nature of our asset base also attracts a high-quality customer base. The 3 biggest customer segments we serve, 3PLs, retailers and manufacturers, would, of course, be found in many other big-box logistics portfolios. However, the urban element of our portfolio enables us to attract a much wider and more diverse customer set involved in providing essential last-mile and many high-value-adding goods and services to growing urban populations and the evolving business sectors that serve them. Supported by the structural tailwinds discussed earlier, we believe this diversity and richness of customer base will provide us with resilience, ongoing high occupancy and further above-average rental growth. So if I bring all of that together, this is an update of the usual chart, which sets out our pathway or our bridge from today's passing rents to almost GBP 1.5 billion, which is achievable over the coming years, all based on today's market rents and before taking account of any further acquisitions or disposals. So if I briefly walk you through it, you can see, on the left-hand side, GBP 662 million is the current cash passing rent as of the end of June. The burn-off of rent-free periods, leasing up of vacant space and capturing of reversion -- the existing reversion offers another GBP 249 million or a 38% uplift. The current and near-term development program will add another GBP 49 million, and there's a further GBP 402 million associated with the land already under our ownership and an extra GBP 95 million associated with our optioned land. In terms of the time frame for delivery, we showed you with our full year results that if we take the reversion that we're likely to capture over the next 3 years and the development projects that are likely to come through in the same time period, we expect about more than 50% to our current rent roll by the end of 2026, and the remainder will flow through over the next decade. Of course, there's further upside that's missing from this chart in the form of redevelopment and refurbishment of existing assets. And also, of course, the ERVs, we haven't assumed any ERV growth in this chart, which we continue to expect to grow and compound in-line with our unchanged medium-term guidance of 2% to 4% in logistics and 3% to 6% in urban markets. So to summarize, occupier markets remain attractive. They're helped by a number of long-term structural drivers, limited new supply and, we think, an improving macroeconomic environment. Investment markets appear to be at a point of inflection with good prospects for a recovery in transaction volumes and pricing levels from here. So we think it's a good time for investment into the industrial and logistics market in Europe. And SEGRO is well placed to grow both from the capture of the baked-in rent reversion and from attractive development margins on our terrific land bank. And that concludes the presentation for today. So thank you all for your attention. We're going to move to questions. I'm going to join Soumen. We'll start by taking questions in the room, and then we'll open up to the webcast and the conference line. [Operator Instructions].

So who would like to go first? Ben?

Ben Richford from Bernstein. You just mentioned around the pre-leasing demand slowing. Could you give us a little more color on that and whether that's something of concern, please?

Yes. When I think about pre-lets, particularly things like data centers and the big logistics pre-lets, they tend to be a bit lumpy, and they tend to come a bit like buses. So there are 2 things, I would say: one is, we know that market take-up was lower during 2023. It started poorly in the first quarter of this year, but has certainly been picking up. A lot of the projects we're talking about, customers are working on them for years. They're not an isolated building, they're usually part of a much bigger integrated strategic logistics program. And it's not surprising in the last 12 or 18 months, a number of occupiers have been -- I wouldn't say been putting the foot on the brake, but they've certainly not been pushing the accelerator in concluding some of those discussions as roughly as they were doing, for example, during the pandemic when there was a particular scramble. So overall, I'd say the market environment is fine. It looks like it's picking up again. If we look at -- I mean, we obviously shared data in terms of what we've actually signed up and we talk about what's in the near-term pipeline, but what we don't give a lot of data on because it's so fluid is the book of inquiries and the negotiations that we have ongoing. What I can say is, we have an absolutely fantastic book of opportunities that we are working on currently. It doesn't mean to say they're all going to come through or they're all going to come through this year. But if you look at the scale and the size of the things we're working on now relative to where we were, say, a year ago, it looks really encouraging. But these things are a little bit like buses, they come in 2s and 3s and then you have a bit of a gap. But overall, I think if you look at the overall plan and look at what's happening to the macro, I think it's looking pretty promising going forward.

Callum Marley from Kolytics. Just looking at how fast you're able to grow the company during the last cycle through the external growth strategy and the rise of e-commerce and then comparing that where we are today, potentially heading into a new cycle, which you mentioned with different driving forces, so data and the adoption of AI, how much appetite do you have to grow the data center portion of your business above what you've already stated, whether that's through M&A, acquisition of campuses or anything else?

Yes, no, it's a good question. I mean, more broadly, we're not here to grow the company, per se. We're here to deliver returns. So it's all about can we deploy capital profitably and deliver attractive returns for investors. Particularly within the data center space, we've got this amazing book of opportunities, and there's no doubt there's a huge amount of demand. And what we've been doing over the last couple of years, in particular, is using our knowledge and understanding of that space that we gained in Slough and our customer relationships to do a really thorough audit of all our existing sites across Europe, but also looking for sites that we can acquire preferably as industrial sites for industrial land values and then convert them to data centers. So we've got this big book of opportunity, a lot of development activity to do there. And I'm sure they will come through because it's such a strong sector. That's probably enough for us for now to focus on. We will continue to look for other sites and continue to look for other opportunities. But I think if you look at the book of opportunities ahead of us, that's going to keep us really busy and engaged and productive for quite a while to come.

It's Sam King from BNP Exane. Just one question on leasing. New rents signed up GBP 48 million during the period, which I appreciate is a very strong result, but implies a bit of a slowdown in Q2. Should we read anything into that or is that just a function of the expiry profile?

Well, I for a long time, regretted having to report quarterly data for a business that is incredibly long term. I was talking about some of the trends and how particularly pre-lets come in, in a lumpy fashion. So no, I mean, actually, what I would say is what we're reporting on the ground, what we're seeing and what agents are reporting more generally is actually Q2 is stronger and is picking up. So I think the first quarter generally was slower and tougher to get people to put their names on a signature apart from a couple of pre-lets, where they've been working on them for quite a long time with us. The general occupier market feels like it's better in Q2 and better in June and July, than it was at the beginning of the quarter. so lets hope that continues to strengthen [indiscernible] if the macro is more positive and particularly in the U.K. with a, as I said earlier, pro-growth new government, that may be a bit of a stimulus for people that have been waiting to put pen to paper. But we've seen good levels of inquiries, good leases being signed throughout the period, but particularly towards the end of the quarter.

Zachary Gauge from UBS. A question on ERV growth. So for the U.K., I think you came in at 1.5% for the first half of the year. That compares to 2.6% for southeast industrial and 2% for distribution warehouses on the MSCI monthly. Can you just touch on maybe why you think you came in a little bit below that? And then just going forward, obviously, annualized that would put you at 2.8%, that's sort of right at the bottom end of your guidance. Do you see this as sort of the trough for ERVs this year and next year will be stronger for ERV growth or are we in sort of a period of more like sort of 2% to 3% growth rather than 3% to 4% to 5%?

I mean if you -- first thing to comment on MSCI monthly. We've never felt that it's a really good data set because it tends to have a lot more secondary and regional stuff where we don't think it represents the same long-term opportunity. But in a short-term period, it can have points of outperformance, particularly I think a lot of those rents are coming from a very low base. So I wouldn't read too much into that. What we said about the rental growth is that we had an amazing run, '21-'22 and even '23 was pretty good. The average ERV growth across our whole portfolio for the 5 years leading up to 2020 was 2.95%. And we've been very consistent with what we think the long-term sustainable rental growth is for our type of portfolio. We say 2% to 4% for logistics, 3% to 6% for urban, and we see no reason to change that. So we -- as Soumen said in his bit of the presentation, we're sort of on the first 6 months basis, we're in line with our range. I take your point, it's towards the lower end of the range. But just look at what we've grown rents by in the last 3 years, it's hardly surprising, particularly given the macro that the amount of rental growth or the rate of growth in some of these markets that have been particularly strong for a few years, has a bit of a pause and a slightly lower rate. We covered a lot of it at the Capital Markets Day. We really believe, particularly in the urban product that we've got, and that's because the businesses that need to be in places like London and Paris are high-value adding. They are the generally very profitable businesses, and they need that space and they have to be there to serve their customer base and can afford to pay those higher rents. So whether it's troughs -- rental growth troughs this year, next year, I don't know. But I think the long-term prognosis, we still have absolute conviction over.

Max Nimmo at Deutsche Numis. Maybe just a high-level question, you talked about kind of pro-growth government coming in. Just anything you've heard since they've come into power that you're particularly positive on, I'm thinking around things like power infrastructure and things that you need for that data center portfolio? Is there anything that you've kind of picked up so far?

Yes, I mean, we're still very much a headline level. We're waiting, like a lot of people are, for the detailed announcements, but certainly all the conversations we had with them in the run-up to the election and all the things they put in their manifesto were the kind of things we wanted to hear. They absolutely get that they need to get the economy growing. They know they need to solve the housing crisis. They're very keen on driving the green agenda. So all those things that lead into new policies on planning reform, which they're talking about, and that hopefully something will be announced pretty soon on that. They're talking about enabling and enhancing green infrastructure, which is something that we're very keen on, getting grid access to take power out and to export energy is very important to us. So their whole bunch of things that we think if they deliver what they say they're going to deliver, it should be pretty encouraging and definitely should be a stimulus to occupier activity and to do some things that we want to do. Miranda?

Miranda Cockburn from Berenberg. Just a quick question on incentives. Have you seen any change in incentives, so you having to give more rent-free way when you're negotiating the pre-lets?

The only market where we've seen a bit of -- a bit more incentive actually in the last 6 months, I'd say, would be Poland. Poland is -- I referenced in the Continent European markets, across Europe, the market data isn't particularly strong right now. We're waiting for it to come in. But the only market where I think -- there are 2 submarkets actually where there's a bit more vacancy, not in our portfolio, but in the broader market, we're in great shape, is Poland, some of the regional markets in Poland, where there's been a bit more construction activity, spec development, and that's put a bit of pressure on vacancy rates and as a consequence, incentives have picked up there. We're seeing that flow through a little bit in some of the deals, the renewals and re-leasing we're doing. And then Madrid is the market -- is the other one where there seems to be a lot of -- the Madrid right in the middle of the country, there's a lot of land around it, and the city expands and there's been more spec development that goes on there. Again, not really affecting us. We're very fully, if not, fully occupied. We've got a very low vacancy in Poland, but there's a bit more pressure around the rental level in Poland. Although actually, ERVs were up 3%, as it was our strongest market in our particular locations in Poland. There's -- it's one certainly we're keeping an eye on. Okay. Right, let's go -- are we going to phone line? Phone line first.

[Operator Instructions] The first question from the phone is from Paul May from Barclays.

Just wanted to know if you look at the first half, your investment volume has slowed materially on a net basis, and just wondering what do you think will motivate owners to sell assets at attractive pricing and enable your profitable investment moving forwards? Earlier in the presentation, you mentioned there were increased bid processes and then later on, you said there were reduced bid processes or less competitive to prime assets, so trying to square-up those 2 things [indiscernible] how can you accelerate that investments moving forwards?

Yes, Paul, I mean, I don't think I was contradicting myself. What I was saying is, broadly, we're coming out of a market environment where there has been a lot less activity, a lot less buyers and indeed sellers in the investment market place, which, of course, is why prices have softened over the last couple of years. And in that context, that's why we feel it's a good time to be investing and looking for opportunities. But I also did say that the sentiment in the investment market is starting to pick up because people are beginning to see -- well, people have seen the end of the rise in interest rates, inflation is coming under control and the next move is likely to be downwards and that's encouraging more people to be active. But our job with our platform and our portfolio and our contacts and our network is actually to get out there and find opportunities that avoid us being killed in the rush. I don't think, despite the improvement in the sentiment, we're seeing anything like the volume of bidding and activity that was there in, say, '21 and early parts of '22. What I'm saying is there's a bit more activity going on. There are more bidders emerging, but it's quite nuanced and it's very asset-specific. And in particular, at our end of the market, the really prime part of the market, that's where there's less investment activity. A lot of the investors are looking for value-add and higher-risk, higher-return assets than we would typically want to own. So I think both of those concepts can sit side by side, Paul, and our job is to navigate our way through. And that's why having the additional capital that we raised in February is a very good thing to have at this point in the cycle.

Just following on from that, how do you see or what do you see will motivate sellers to accelerate your ability to invest moving forward?

Well, I mean the market is a huge market. And of course, there are many different motivations that different sellers have. It might be because they've invested in their, and they've hit their return requirements, it may be because they have a refinancing coming up, it may be that at the end of their fund life a whole bunch of different reasons. So it's hard to put your finger on any one particular reason. But it's a big market that will become more liquid and one that we think we will be able to find some attractive opportunities in.

The next question from the phone is from Pieter Runneboom with Kempen.

Looking at your pipeline, which is currently at around 400,000 square meters under construction or constructed, which is similar to 6 months ago. This compared to this number be around 700,000 square meters per year in 2019 over up to '22. Can you maybe little bit elaborate a bit do you expect this number to land in the coming years?

I mean without putting a particular time frame on, I don't see any reason why we can't achieve the similar levels of development, construction activity that we've had in recent years. We talked about there's a bit less activity going on right now, but the list of inquiries and opportunities looks really encouraging. So I think unless there's something you want to add, Soumen, on a long-run basis, we're happy that where we've been in recent years is where we can be going forwards. But it's always, of course, going to be influenced by do we have the right sites available at the right time? And are the occupiers there to sign the deals, which we think there will be. Okay. I think we're done on calls. Claire has got one on the web.

Actually 2 now, I've just had another one come through. One finance question for you, Soumen. You haven't come to the above market since '22, any plan to access the market in the short term? And if so, what currency? What do you think?

Good question. The reality is, as we talked about in the presentation, we've got -- the balance sheet is in very good shape, but also very liquid. We've got over GBP 2 billion of cash and available facilities. As per our analysis, we're probably not coming to the bond market in a hurry. But we're pleased that the credit rate has been reaffirmed at A-. And I think when we come to do so, I hope we'd get a good reception. It's good to see the kind of spreads have been pretty tight through the last few months and, obviously, kind of long rates have seemed to have found a level.

Thank you. And then a question on development. Given the significant fall in spec development in Europe, would you be looking to do some spec in the region or do you prefer looking into stabilize asset acquisitions instead?

Okay. So we have always been mostly pre-let led with our development program, we'll build-to-suit. We like to de-risk them, particularly on the large logistics parks, but we're always open and looking for the opportunity to do some additional spec quite often alongside a pre-let. So that's likely to be our continued approach. And of course, in urban markets, it's not really a pre-let led market. So if you look at most of the developments of the urban schemes, they've been speculative. So we'll continue to want to do that. But the thing with our balance sheet is I don't see it as an either/or. I think we can do development, largely pre-let and some spec, and we can look to carry out some investment opportunities. So they both, at this point in the cycle, we think they both represent an attractive risk-return profile.

Thank you. No further calls from the call or the webcast.

Thank you, Claire. And thank you, everybody. Thanks for joining. Hope you have a good day. And for those of you that come and, and have a holiday, have a great summer.