Sirius Real Estate Limited (SRE) Earnings Call Transcript & Summary

Hello and welcome to the Sirius Real Estate's full year results. [Operator Instructions] Just to remind you, this conference is being recorded. If you have any technical issues viewing the slides, they are also available on the Sirius websites. Today, I am pleased to present Andrew Coombs, CEO; and Alistair Marks, CFO. Please begin your meeting.

Good morning, everyone, and welcome to today's presentation of Sirius Real Estate's End of Year Results for the period ending March 2020. My name is Andrew Coombs, I'm the Chief Executive Officer for the group; and I'm joined this morning by Alistair Marks, who is our Chief Financial Officer for the grocer. Together, we will take you through this morning's presentation. But let me start by reminding you all that Sirius is a German-focused, on-balance sheet owner and operator of German mixed-use light industrial business parks on the edge of 2 German towns. And if we turn to Page 3, you can see the highlights for the period we're talking about. However, given the events of the last few months, March 2020 now seems a long time ago. And what Alistair and I would like to do this morning is first update you all in terms of these final results. And then before summarizing and taking your questions, I would like to give you a further short update in terms of COVID-19 in Germany and the company's management of that crisis. But let's first start with the highlights of last year. And looking at the first bullet point on Page 3, you can see that we achieved a total profit before tax of EUR 110.8 million. About 50% of this came from P&L earnings, with the other half coming from increased property values. And in terms of those increased property values, 2/3 of that increase in valuation has come from our improvement in net operating income and the other 1/3 has come from shifting yield. And some of that shift in yield has been achieved because we've improved the occupancies within the portfolio. And Alistair will take you through that in more detail as we go through this presentation. In terms of the like-for-like rent roll, we have been able to increase that by in excess of 6%. And 2/3 of that has come from rental income, with the other 1/3 coming from occupancy. We turn to funds from operations, which is the main driver of our dividend payment. As you can see, we've been able to improve FFO by 15%, despite this being a year whereby we recycled nearly EUR 200 million of capital. You can see what that does is take our FFO to just under EUR 56 million. And you'll remember that in May of last year at our Capital Markets Day, we explained that our objective over the next 3 to 5 years is to build that funds from operations line to EUR 100 million. We, obviously, have a long way to go on that, but as you can see, we've started to make progress on it in this first year. We were able to increase the dividend by 6.3% year-on-year, which is almost exactly the same increase that we experienced in the previous year. As you can see that the like-for-like book value increased by just under 10%, with the total portfolio now being worth 1.1862 billion. But let's not forget, we also manage the Titanium joint venture, which has a value of EUR 225 million. And we also manage properties for other people, one in particular in Munich, which we sold some 4 years ago. And if you put all of that together, what Sirius is actually doing is Sirius is managing and running EUR 1.5 billion of German real estate, just under EUR 1.2 billion of which it owns outright on its own balance sheet. In terms of the mature assets, we disposed, including Weilimdorf, which we disposed of for EUR 10 million 1 day after the end of the period, of nearly EUR 200 million of assets in the period. We were also able to acquire a further GBP 120 million. And as you'll see when we go through the presentation, we basically sold at about 5.7%, we basically purchased at 5.7%. But the difference is we've sold with less than 10% vacancy, and we've purchased with 26% opportunity. And this in a post crisis -- post-COVID crisis world is going to be even more significant because that 26% of vacancy in those newly acquired assets is effectively a blank canvas that Sirius can use to redevelop and build out the inside of properties that we bought according to the demand that we see on the edge of German towns as we come out of the COVID-19 crisis. And Alistair has, as usual, managed to make progress with new banking facilities. Not only has he lowered our average cost of debt to below 1.5%, but he's also been successful in taking out the first unsecured debt facility for the company in the form of a EUR 50 million Schuldschein. So without further ado, I would ask you to turn to Page 4, and I'll hand over to Alistair to take you through the financials.

Thanks, Andrew. And as Andrew mentioned, we've had another good year as far as profit is concerned, more than EUR 100 million, EUR 110.8 million to be precise. This is a slight drop from the prior year. And the main reason for the difference is, as you can see on Page 4 of the presentation, is the surplus from the revaluation of the portfolio where we've had quite a substantial increase this year, and we've also had some good like-for-like rental growth. The yield compression that we've seen this year was slightly below last year, which is the main reason for the difference in the revaluation surplus. And I think if it wasn't for COVID-19, I think if you looked at what the valuers would have valued the portfolio at outside of that, we probably would have had a similar uplift as the prior year. But still almost EUR 60 million profit on the revaluation, net of the Capex, we think it's still a pretty good result. If you look at the FFO and the real operating profit of the business, as Andrew also mentioned, we had close to EUR 56 million FFO, which is about a 15% increase from the prior year. And looking at it purely at the asset level, we've seen almost an EUR 8 million increase in net operating income. And I think the key thing to note on that, which we're very pleased about as well, is that almost 90% of that increase in net operating income has come from organic growth, whereas only about 10% has come from acquisitive growth. And even though we've had about EUR 100 million of acquisitions last year and about EUR 120 million of acquisitions this year, the fact that we sold the EUR 168 million of assets into the JV early on in the year has offset the gains we've got from acquisitions. Hence, the bulk of that increase in net operating income has come from organic growth. The like-for-like rental growth last year, the like-for-like rental growth this year and also further improvements on the service charge recovery has come through. As far as overheads are concerned, you can see they are relatively stable with prior years, but the bank interest has come down. And we will go into the banking in a bit more detail at the back end of this slide, but we have seen a reduction in bank interest again this year. Before we actually move into the per share, I'd just like to highlight the adjusting items of EUR 11 million, which is a bit higher than the prior year. The bulk of the adjusting items relates to the restructuring we had to do, to do the JV transaction. So around about EUR 9 million has come from that, and there's about EUR 2 million that have accrued for share awards. But the bulk of that is coming from the restructuring. And as you'll see in this presentation, that has involved recycling of equity into new acquisitions and has also involved restructuring of the debt, both of which will have a pretty substantial impact on our profits going forward. If we flip over the page to Page 5, we can see the earnings per share slide. And what we'll see is that our earnings per share is about EUR 0.0955 per share this year, which is almost about 13% on our starting NAV, which is quite a decent profit for the year. 56% of that has come from FFO and the other 44% is coming mainly from valuation increases. And you can see our FFO per share of EUR 0.0541 was about 13%, up EUR 0.048 that we reported last year. Similarly, adjusted earnings after tax of EUR 0.0524 is 14% above last year, and our EPRA earnings is about 21% above last year. That translates to a 6% increase in the dividend. And the reason the dividend hasn't increased in line with earnings is because we've moved back to a 65% payout ratio in the second half of the year, 67% in the first half whereas last year, we paid out 70% and the year before, we paid out 75%. So even though we've had this increase in dividend, that has come on the back of a lower payout ratio. If we flip over the page to Page 6, and in these times, I think the balance sheet is probably more important than what it has been in the past. And the key thing I'd like to extract from this slide is to show you the strength of our balance sheet. And I think there's 4 key things to focus on in really determining the strength of our balance sheet. The first is the LTV. So our gross debt of EUR 486 million, which nets down to EUR 480 million when you take off the capitalized financing cost is around about 41% LTV, but when you take into consideration the free cash, that comes down to about 32.8% LTV. So under 33% net LTV, we think is quite a strong position to navigate through the next few years. But the second key point to note on that is that net LTV is based on a gross valuation yield of 7.6%. And we haven't seen much movements in yield or transactions happening at higher prices than what they were pre-COVID. So we still think that, that 7.6% gross yield is still quite conservative compared to what transactions are taking place in the market at the moment. So net LTV of 32% based on a 7.6% gross valuation, we think is quite a good position to be. The third key point to mention on the balance sheet is that we've got close to EUR 100 million of free cash ready for use into acquisitions or for whatever we would like to use it for. In addition to that, we've got another EUR 30 million of undrawn facilities, which will come through in the next month or so. So EUR 130-odd million of free cash is probably the most we've ever had in our history. And the timing of having that on our balance sheet works out very well considering the situation we're at the moment. And the last key point I'd like to point out on the balance sheet is that we've now got 12 unencumbered assets, almost EUR 120 million of value in 12 assets sitting there unencumbered, which we have got plenty of headroom in our covenants. But as we've seen in the past, it's always nice to have some unencumbered assets on the balance sheet because that gives us a lot of extra security in good times and in bad. So I think with those 4 key points, you can see that we are sitting with a very, very strong balance sheet position and that will put us in a good position to take advantage of opportunities when they hopefully arise when we get through the COVID situation. On a NAV per share basis, you can see we have, on the back of the valuations and the good profit results, had close to a 9% increase in all of our NAV per shares, the NAV per share, the adjusted NAV per share and the EPRA NAV per share. And as I said, a lot of that is coming through from the valuations. If we flip over the page, what we've done this year around is we thought we would disclose the Titanium balance sheet as well. A lot of people are asking how that actually looks, and you can see how that when combined with Sirius looks on Page 22 -- sorry, not Page 22, Page 7.

Page 7.

7, yes. And what I would point out on here is that we've got around about EUR 83 million of debt in the Titanium venture and about EUR 200 million -- just under EUR 230 million of property in the Titanium venture. So the LTV on the Titanium venture still remains quite conservative. And there is that new asset that we've bought, which we have bought unencumbered at this point in time. So the net asset value has increased slightly in the period. There has been a slight increase in valuation of those assets, but that is also quite a strong balance sheet within the Titanium venture. Flipping over to Page 8, on the NAV growth per share. What you can see here is the building blocks between the starting NAV and the ending NAV. And I think the key things I'd highlight here is that the 2 earning elements of the year, the recurring profit after tax of EUR 0.052 per share and the surplus on revaluation of EUR 0.0575 per share, the 2 of those come to EUR 0.1095. So what we will report is a 13.1% total shareholder return but if you add just those 2 elements, that's almost 15% in the year. The only reason the total shareholder return is 13% and not 15% is because of those restructuring costs that we incurred in order to do all of the JV transaction and the restructuring of the bank debt, which, as I mentioned to you before, will have some good benefits going forward. But for all intents and purposes, it has been almost another 15% total shareholder return from an earnings perspective this year, which is, I think, about the fifth or sixth year in a row that we've achieved that. And our ending adjusted NAV per share at almost EUR 0.82 on is pretty much in line with where the marker was expecting us to get to at the end of this year. So in order to sort of go through the benefits of that recycling and that, I'll pass over to Andrew now to talk about the disposals and acquisitions.

Alistair, thank you. I'm just turning to Page 9. And what you can see on Page 9 is the disposals in the period, EUR 178.1 million as well as the disposal of Weilimdorf, just outside Stuttgart, which is an asset that we bought 3 or 4 years ago for about EUR 5 million, and as you can see, we've sold it for EUR 10 million. We sold it because we think that it may become challenged going forward. The major tenant in there is Porsche. Porsche are involved in mid and back-office activities rather than manufacturing in that site. But we think that exiting it at this point gives us a good return on our equity and reduces our dependency on the automotive sector. And then if you look at the remainder of the assets, those are the assets that were seeded into Titanium. You'll remember the value of those assets was circa EUR 140 million, and we sold them for just under EUR 180 million. And you can see that all of that blends to about 90% occupancy, i.e., there's less than 10% opportunity in those assets. And you can see that we've been selling those assets at blended 5.7%. If you go across the page to Page 10, you see what we've been doing with the equity that it's released. And again, you can see, if you look at the top table, that we've been buying at 5.7%, but we've been buying with 26%, 27% vacancy. And it's kind of strange, a lot of property companies go out there and they want to go and buy stable income and then reengineer it on paper. Of course, as you've seen, we can reengineer the banking and lending and all sorts of other things. But what we really want to do is we want to go out and buy typically somewhere between about 25% and 40% vacancy. Because we see the use of our platform as a way of creating much, much more value by taking vacancy and actually looking directly into the marketplace with our direct line of sight in terms of our marketing teams and the way that we operate to understand what local demand looks like. And then actually build out that vacancy to reflect that local demand so that we can develop critical masses of property within specific locations and use the products that we deploy into those properties to yield much higher returns from the property than was the case when we went out and bought them. So the question that you might ask is, why are you buying 100% occupied property in Neuruppin. Well, Neuruppin is in Berlin, between Berlin and Hamburg. It's on a autobahn link, which is being developed at the moment, and we think that, that will lead to a lot of expansion in the area. Specifically, the anchor tenant in that site is a tenant that is a market leader in injection molding, producing plastic bins for Europe and for the U.S., and they need to expand. And we're already talking to them about purchasing the land adjacent to the site and developing some very, very simple buildings so that we can turn that site that's 100% occupied into a much bigger site that's already pre-let, that gives us the opportunity to bind that tenant in for a longer period of time and substantially increase the net operating income that we're getting. If you look at, for example, the site in Bochum II, 100% occupied. But you'll remember, last year, we bought Bochum I. Bochum II is the site that is immediately next door. By buying Bochum II and combining the 2, the marriage value of the 2, the synergies are particularly good. They're particularly good because ThyssenKrupp is the single occupier of Bochum II. And by putting the 2 together, what we do is we acquire ThyssenKrupp and their covenant for the Bochum I site. And we're also able to expand ThyssenKrupp into some of the vacant space in Bochum I. So there's lots and lots of different tactics that are being used here and some of them are more obvious than others. If you look at it as buying Buxtehude, which is the former head office of Bacardi and Hamburg, and you look at buying that at a cost per square meter, cap rate per square meter of just under EUR 300, that is substantially less than that property is actually worth. But there is a strategy with each of these properties. And when you put that strategy together, what it's all about is it's about buying vacancy and using our platform to substantially increase the yield that those properties provide based upon our ability to look directly into the market and build according to demand. If we go across the page to Page 11, what we can see is the Titanium portfolio, and you can see now this is made up of 6 assets at just under EUR 230 million. And you can see where those assets are located. And the Sirius platform is very well able to manage these assets with very little additional effort because of the location of our existing assets and portfolio. If you go across to Page 12, that portfolio is reflected. So you can see that the green area is the area around Frankfurt where we have 14 properties, and they make up 25% of our rent roll. The area below it is Stuttgart where we have 7 properties, and they make up 15% of the rent roll. Whereas if you look at the red area above where Bochum II is, Bochum II is the 11th site to go into that region. And we refer to that as the Düsseldorf region, and it makes up only 12% of our rent roll. So building assets like Bochum into that region is important to try and get that region up to the kind of level that we see in places like Stuttgart. Equally well, if you look at Neuruppin, around the Berlin area, Berlin and Cologne, each account for about 10% of the rent roll. So again, these are areas that we're looking to increase our critical mass and get the operational efficiencies and the local pricing power within those regions. And if you look at the bottom, the 3 dots in the bottom right, Hallbergmoos, which is an asset in the Munich area. Munich is a very fully priced region at the moment. It is difficult to buy a property at sensible prices in Munich, but we are keen to try and bulk up some of our presence in Munich. You can see there are 3 sites there that we own. We have another site which we manage as an operating and management agreement for somebody else. And if you go across the page to Page 13, you can see how the remainder of the acquisitions fit into the map. So you can see Buxtehude in Hamburg, the former Bacardi head office. You can see Teningen in the bottom left-hand corner, which is a border play. So we have about 7 sites now that are on the border of Germany, and what they reflect is our ability to take advantage of 2 markets in 2 countries for the price of buying only 1 property. But geographically, what we're really looking at doing here is we're looking at building nodes of critical mass around the 7 major cities in Germany as well as getting into border plays in places like Teningen, Saarbrücken, Aachen, Mahlsdorf. So slightly different tactics in each case, but a very disciplined plan in both cases. We go across to Page 14, you can see the rental income analysis, and you can see the majority of the arrows in terms of change are going up. If you look at the first arrow that goes down, it's occupancy. Now we're in the business of buying vacancy, so we want to make that occupancy go down. And you can see that the occupancy has gone down from 86.1% to 85.3%. But look at the line above the like-for-like occupancy, look at what we do once we own the property. The like-for-like occupancy is going up by nearly 2%, and that's really the business that we're in. We're in the business of buying vacancy to make overall occupancy go down. And then in terms of like-for-like, building that vacancy out according to demand in the market to improve the yield of the property, so that we can effectively go again in that virtuous circle of making sure that we can access vacancy at low rates and convert it into occupancy at much higher rates. And if you look at that in terms of a volume basis, the next arrow that goes down is the new lettings because this year, we've sold 162,000 square meters of new lettings versus 170,000 square meters in the previous year, so that's just under 5% down on volume. And the reality of that is we struggled with our sales conversion in August of last year and in March of this year. When I say struggled, what I mean is, instead of getting to just under 15% overall sales conversion, we traded at just under 10%. And we mustn't forget the 10% sales conversion is a ratio that most companies would be extremely pleased with. Sirius, for a number of years now, has been aiming for a 15% sales conversion. The reality is that in 2 months of the period, we were less successful than we hoped. However, that is still enough new lettings to make sure that we have a positive impact on our like-for-like occupancy. And if we then look at the next number that goes down, it's the new letting rate per square meter at EUR 6.55 per square meter per month compared to EUR 6.79 per square meter per month a year before. This number is a bit of a red herring because it's very dependent on mix. If you are selling more offices at EUR 12 a square meter and less storage space at EUR 6 a square meter, then your mix is totally different to you selling in the opposite way. What is relevant is the relationship between that EUR 6.65 and the EUR 5.85 move out ratio because that is what affects your underlying numbers. If you are selling at nearly EUR 1 higher than people are leaving you at, that is a positive dynamic. And what I would put to you is that whilst we were selling at a lower rate per square meter due to mix, the relationship between new lettings and move-outs was actually far more healthy this year than it was the previous year. If we go across the page, we can see that analyzed through this bar chart. And as you can see, the move-ins, EUR 4.4 million plus EUR 9.4 million, a total of just under EUR 14 million, far outweighed the move-outs of just under EUR 11 million. What you could also see is the proportion of move-ins that were driven off the back of CapEx and refurbishment of space is about 1/3 of the total move-ins. So 1/3 of the total move-ins is effectively dependent on our ability to deploy CapEx and to change the space into high-yielding space. The other 2/3 is pretty much business as usual, a lick of paint, swap people in, swap them out, make sure they pay higher rates, but no big capital investment. You can see the uplifts from existing tenants was about EUR 1.7 million. Overall, we got increased pricing in the year of about EUR 3 million. So you can see about half of it is coming from contractual uplifts. The other half is good asset management, moving people around space, decanting them, good reason for people to change the part of the estate they occupy, and in doing so, receive additional value and pay a higher price per square meter. And as you can see, at the end, we finished off with a run rate of just over EUR 90 million. And I think at that point, let me hand over to Alistair, who's going to take you from Page 16 and talk to you about valuation.

Okay. Thanks, Andrew. So on this slide, what you'll see is we separated the like-for-like portfolio and the acquisition portfolio. And if you look at the like-for-like portfolio, you can see that the valuations there have increased from EUR 973 million, up to EUR 1.069 billion. And 2/3 of that increase has come from that 6.1% like-for-like rental growth and about 1/3 has come from yield shift. But more importantly, I think if you can see where the portfolio has actually ended, it's still valued at a gross yield of 7.6%, which is around about 26 basis points lower than the prior year. But still, as I mentioned to you before, still quite conservative compared to where the market is trading at the moment. On the acquisitions, you can see that in total, we paid a purchase price of EUR 112 million for the acquisitions. As Andrew mentioned before, that was EUR 120 million if you include the total acquisition costs yet that's been valued at March 20 at EUR 117 million. So there has been an uplift in the valuation compared to what we've actually paid for the assets' purchase price, and it has recovered most of those acquisition costs but still, it's a little bit below the EUR 120 million that we actually paid. But again, valued on a gross yield of about 7.7%. So it is indicative of the fact that we have bought quite well in the period. Flipping over the page to Page 17. What we'd like to highlight on this page is on the first 2 tables of this chart, it compares the like-for-like movements in the portfolio in the period. And the last table on this shows the whole portfolio, including acquisitions that we've got at the end of the period. And also it does split between the value add and the mature assets. So if you look at the like-for-like movement in the period, starting with the value-add assets, value-add assets are pretty much where all of the occupancy increases have come from. So you can see the occupancy is there. It increased from about 79% to over 82% in the period, and that has resulted in about a 12% increase in the valuation of the value-add assets on the back of about 8.4% increase in the like-for-like rent roll. So there has been about 20 basis points yield compression there, but the bulk of the 12% increase in valuation on the value-add assets has come from the rental growth in the period. And obviously, the bulk of the CapEx that we've done with the CapEx program has been focused on those assets. Flipping to the mature assets in the period, you can see that there is about a 7% increase in the valuation of those, and that has come on the back of about a 3% increase in the rent roll. But the bulk of that increase in the rent roll is coming from indexations on the existing tenants, plus an uplift when tenants leave and we put in new tenants at a higher rate. So most of the value add is coming from churning tenants on the mature portfolio, whereas on the value-add portfolio, most of the value add is coming from investing into the portfolio, building up the occupancies and improving the rates per square meter. If you look at where we've ended up in the year, you can see that the value-add portfolio is now about 57% of the whole portfolio and the mature is only 43%, and that's because of the acquisitions that we bought this year. We've bought a number of assets that possess those value-add attributes. And you can see that the total blended occupancy of the value-add portfolio is now 80% and the gross yield of that portfolio is around about 8%. So looking forward, most of the valuation uplifts and most of the income uplifts are going to come from that value-add portfolio and most of that is going to be focused on the 194,000 square meters of vacancy within that portfolio. And if you sort of think about potentially what could come from that, the CapEx programs that I'll take you through shortly are focused on about 102,000 square meters of that 193,000 square meters of vacancy. We're looking to invest about EUR 28 million into that space, and we want to get around about EUR 7 million to EUR 7.5 million from that over the next 2 to 3 years. So on the back of that EUR 28 million investment, we're expecting a recurring rental growth of about EUR 7 million per year, probably going to get a couple of million euros improvement on service charge recovery on the back of that as well. And I would expect around about EUR 100 million of valuation to come from that. So there is still quite a bit to go on the portfolio from the CapEx programs but also, we will look to do more recycling. We will look to potentially sell more mature assets and buy more assets with value-add potential as well. So flipping over to Page 18, you can see the vacancy illustrated on this page, and that 102,000 square meters of space, of suboptimal space, which is going through the CapEx program, is highlighted at the top of the table, 70,000 of which is going through the CapEx program, but 32,000 is space, suboptimal space, which was let at a very low rate, which we've received back in the last year, which we will look to invest into and significantly improve. So in addition to the CapEx on the vacancy that we acquired, we are now looking to really enhance the value of existing space and really try and push out the reversion on that space, particularly the space which is substantially under-rented within the portfolio. So we will see more of that coming through over the next couple of years as well because we think that will actually generate some good returns for shareholders. Structural vacancy across the whole portfolio is still around about 2%. We may look at some of the space in that to develop over the next couple of years, but still 2% is very, very low for this asset class and much, much lower than what most of our competitors would see as structural vacancy. And all in all, if you look at what we've actually got rented compared to what's available, we are still running at about 93% to 94% occupancy on space that is available to let, i.e., space that's not structural vacancy or going through the CapEx program, and that's about the rate that we would like to run at. So theoretically, when we develop the CapEx program, we should be able to increase the occupancy of the whole portfolio up to about 92% to 93%. But I doubt we will ever get there because we will continue to recycle mature assets to bring in more value-add assets with vacancy to top-up these CapEx programs. And that is pretty much the business model which we expect to continue on over the next few years. Flipping over to Page 19, just to prove what we've actually done on the CapEx program to date. The original CapEx programs, for all intents and purposes, is pretty much complete. There's still a small amount of space that's going through refurbishment and that's just waiting on permissions, which is why that hasn't completed as yet. But the kind of returns we make from the CapEx programs, just to refresh everyone's memories, is investing around about EUR 24 million into 200,000 square meters with almost EUR 13 million of rent on the back of that investment, which is around about a 52% rent return on cost. In addition to that, as I've always mentioned, we've got probably about EUR 3 million to EUR 4 million improvements on the service charge recoveries as well. And I'd be surprised if the valuation improvements haven't been EUR 150 million to EUR 170 million on the back of this investment. So the returns we get from the CapEx programs are pretty substantial. And flipping over to Page 20, you can see what's essentially left. So this is the new acquisitions CapEx program. This is the vacancy on all of the acquisitions that we've acquired over the last few years. And there are 100,000 of the 170,000 square meters we've identified here that have completed. And we have fully developed almost 50,000 in the period, investing around about EUR 9 million into that space and improving the rent roll by about EUR 3.6 million, but there's still a substantial amount to go. So there's still almost just over 67,000 square meters of space that's going through this program. We're looking to invest another EUR 18 million into this, and we expect to get more than EUR 5 million rent roll on the back of this investment. And as I mentioned to you, the valuation improvement should be quite substantial. And we think it's actually going to be even more on the new acquisitions CapEx program compared to the original CapEx because the investment is much more heavy-duty into the new acquisitions vacancy at around about EUR 250 square meter, whereas on the original CapEx program, we're investing about EUR 120 square meter. So we are really developing a lot of really poor condition space into much higher quality space, which naturally will have a much higher impact on the valuations from this program. Flipping over to Page 21 and just to sort of talk a little bit about the opportunity within the acquisitions. As Andrew mentioned before, we have acquired EUR 120 million of assets this year. And if you look on this slide, we wanted to sort of highlight the kind of returns we expect to make from these over the next 3 years. And if you look at the breakdown of this, we have acquired assets with about EUR 6.8 million starting NOI. That was on the back of about 74% occupancy, and we invested EUR 50 million of equity and almost EUR 70 million of debt, that debt coming from the increasing of the banking facilities, which I will go through shortly. But about EUR 50 million of equity has gone into these assets. We're looking to invest around about EUR 20 million into this portfolio. And on the back of that, we expect occupancy to increase to about 93%, and that should increase our NOI up to just under EUR 11 million. And that, in turn, capitalizing that income at around about 6.5% should increase the value to just over EUR 160 million. So on the back of that EUR 50 million investment, we're looking to make about EUR 27 million operating profit, which is profit from the asset level less the interest, the bank interest on the debt. We're looking to get about EUR 43 million valuation increase on the back of EUR 20 million of CapEx. So again, we're making close to EUR 50 million profit on EUR 50 million of equity invested. So despite the fact that the market is much tighter, yields are tighter, there's more competition for these type of assets, we have to look a bit harder to find the assets, but we're still finding assets that are making the kind of equity returns that we used to in the past. Slightly below some of the stuff we've bought previously, but still pretty attractive if you look at almost EUR 50 million profit from EUR 50 million equity invested. Moving over to Page 22 on the banking transactions. We've ailed on this slide all of the transactions that have happened and the movement in the bank facilities in the period. And what I would highlight on here is, firstly, we've repaid about EUR 80 million of debt on the back of the Titanium JV transaction. We've taken out a new EUR 150 million extension on the Berlin Hyp facility, and we had to move one asset from the K-Bonds facility into this security pool to be able to get that EUR 150 million. We've also drawn down another EUR 40 million on the PBB facility that we financed against the Alzenau asset. And as we mentioned before, we've completed our first unsecured Schuldschein transaction, of which we've drawn down EUR 30 million so far and EUR 20 million will be drawn down in July. But what all of that means is that our debt has increased from EUR 386 million up to EUR 486 million, so around about EUR 100 million extra debt but the interest rate has dropped from 2% to 1.49%. And more importantly, the interest bill has dropped from EUR 7.7 million down to EUR 7.2 million. So an additional EUR 100 million of debt, but the interest bill has actually reduced by close to EUR 0.5 million. And if you consider that, the extra debt is going to assets that start off earning us close to 6% and has lots of value-add opportunity. The combination of this debt restructuring plus the asset recycling is going to be pretty substantial on our FFO growth over the next few years and one of the key building blocks to get to that EUR 100 million FFO number that Andrew mentioned before. So this debt restructuring has actually proven to be very, very beneficial for us going forward. And as I mentioned to you before, most importantly, there's still EUR 120 million of unencumbered assets, and our interest cover is now around about 11x. So flipping over to Page 23, you can see exactly how that debt looks as a snapshot at the end of the period, EUR 486 million of debt outstanding, 32.8% net LTV, 41% gross LTV, 1.5% interest rate, 11x interest cover with still 3.4 years left to go on the debt facilities and 12 unencumbered assets. So I think, all in all, the restructuring has been quite positive, and we're in a very good position as far as our banking is concerned. And I'll flip over to Andrew to take us through the current situation and conclude.

Thanks, Alistair. So I'm looking at Page 24, the post year-end COVID-19 update. And the first point I'd want to draw your attention to is the 98.8% of normal working pattern relating to our cash collections. That means that we're just under 99% of normality, it does not mean that we're collecting 99% of our cash. But what it means is that we're collecting between 94% and 95% of our cash, between 94% and 95% of our cash, which is around about 99% of normality. But please don't forget, when we talk about that, we're talking about what we invoice on the 1st of the month and what we've collected by the last day of the month. So most property companies, as you know, are invoicing the week before the quarter or the month before the month they collect. We invoice in the month and collect in the month. So already, we're quite tight on our cash collection. And we continue to work very hard on cash collection throughout this period, and we are pleased with the results that we're achieving. We are having to work very hard to do it. We're not just sitting there waiting for people to pay. We've got about 1/3 of our workforce, even when they were working from home, constantly talking to customers, constantly chasing payment. Unlike most German companies. And for those of you who visited us in Berlin and met our cash collections team, you'll no doubt remember this, we don't do the normal German thing, which is if people don't pay us, contracts out to a lawyer to go and talk to them. We actually do it ourselves. And we've got various different sort of escalation points from the local manager right the way through to the head office specialist teams. But the business that we are in is a business that requires disciplined cash collection, and that has really come into focus during this last few months. And what we've been able to do is turn up the emphasis on that to maintain normality. So we are doing what we would do anyway, we're just doing it a lot more intensively in this period of crisis. In terms of inquiries, inquiries are at normal levels. The mix of inquiries changed because the demand has changed in the marketplace. There's more demand for storage now. There is more demand for small offices. There's less demand for big offices. But because we attract 90% of our new tenant leads ourselves through our own online efforts, we're able to see that change in trend in the market well before commercial agents come back to work and actually work out what's happening. And we've always tried to trade at 50% of our maximum capacity. So the way I test our marketing is, I go to Kreme, who heads up marketing, and on a regular basis, I say, "Right, I want you to get me for the next week, an inquiry run rate of over 2,000 inquiries." And she can then do that. She can tell me how much it costs. But by doing that, what she's telling me is that if 50% of the demand dropped out of the market, we understand the cost of turning the marketing efforts up to maintain the inquiry rate. And that's been proved throughout this period. We've altered the way in which we market. We've changed some of our tactics. We've turned the dials up. But we've actually not had a great deal of difficulty in maintaining the inquiry flow. We've had to do things differently to do it, but we've been able to maintain that inquiry flow. And as you can see, in terms of the sales, in May, we sold 11,000 square meters of new tenants. In April, it was just over 8,000. In March, it was 10,500. So the average over that 3-month period is just slightly under 10,000 square meters of new sales, which is not unusual for a quarter. It wouldn't be our best quarter, but it certainly wouldn't be our worst quarter. So it feels to me like we've been able to maintain, I would say, 85% plus of our normal sales rate. The reason that we haven't got to 100% is we are finding closure a little bit more difficult in this environment than we do normally. We're doing a lot of viewings as virtual viewings rather than face-to-face viewings. But we are -- since the 11th of last month, we are doing face-to-face viewings again, but we're also having to blend that with some new tenants who actually want to do virtual viewings, and that's affecting our sales process. So if there is a change, it's a change in the rate at which we're closing out viewings and turning them into tenants. The majority of our staff are now back at work. We do still have people who are homeworking. In head office, we are flip flopping in some departments. Some workers will be at work today, and then they'll switch around and work from home tomorrow. But we're finding a new normal, and we're pretty close to what we think is going to be normal for the next certainly 4, 5 months. One of the really important points I want to get over to everybody about COVID-19 is we see it in very distinct phases, and we are moving from the first phase now to the second phase. The second phase was -- sorry, the first phase is the government subsidy phase. People are being told -- or were being told, "Don't go to work, and the German government will pay your wages and they will help you." The back-to-work phase is the phase that we are beginning to see now. And this is a different phase with a different dynamic because in this phase, people have to stop taking some of the subsidy and they have to open their doors. But when they open their doors, they are not going to be operating at the same levels they were operating precrisis. So in some ways, phase 1 was easier because they took the government's money and they gave it to the landlord. Phase 2 is harder because now they have to use their own money to back themselves and to support their belief that their business will ramp up to a stage whereby they can cover the rent without depleting their capital reserves. And that's the phase that we're in at the moment. And when our debt collection teams are talking to people, what we're talking about a lot more now is, "Okay. Let's take a little bit of the deposit. Let's talk about a payment plan over the next 10 months." Whereas before, the conversation was, "Hang on a second, you're taking this money from the German state. The reason they're paying it to you is so that you can pay your suppliers. Your key supplier is your landlord. We need the money." The conversation is now different. Now what does that mean? What it probably means is the updates that you will see from us over the next couple of months, we'll still say that we're 98% to normality, but the way we will get to that 98% of normality is likely to be 85% cash being paid on time and probably 15% payment plans over the next 10 months. And what that probably means is that we invoice EUR 14 million a month, there is probably a 3-month period, June, July and August, whereby we're probably putting about 10% of the payments onto payment plans. In total, there's probably about EUR 4.5 million there that instead of us getting the cash now, the cash goes on a 10-month payment plan. And by the time we get to the end of the financial year, we've probably got between EUR 1 million and EUR 2 million of those deferred payments being collected next financial year rather than this financial year. Now we think that is entirely manageable, and we have a plan to manage it, and we're in the process of executing it. But I want to make it clear to you because if we go from 98% of normality being cash now to 98% of normality being a mixture of payment, plans and cash collection, that is not an accident. It's not unforeseen. It's something that we are actively working on at the moment. The shape of phase 2, back to work, in terms of cash collection will be different from the shape of phase 1, government subsidy. If I go across the page to the conclusion, Page 25. I think what you can all see is we have a strong balance sheet. In fact, we have the strongest balance sheet that we have ever had in my 10-year tenure as CEO of this company. We have a net LTV of less than 33%. We have strong earnings growth, and we can see how we can sustain that strong earnings growth. We're in a good position with the vacancy that we've bought and the blank canvas that it offers in terms of us being able to soak up demand and build product that is directly relevant to the post-COVID demand. We have the inquiries and the ability to capture that demand, that direct line of sight into the marketplace. We are producing good organic growth, way, way, above inflation, and we believe we can continue to produce strong inflation-beating organic growth. And we're growing the Titanium joint venture. So not new, we seeded property in there. But in March, we also went out and bought the first joint venture asset that has never been owned by Sirius that has actually been bought into the joint venture. And both AXA and Sirius are keen to continue that growth going forward. Phase 2 will be different from Phase 1, but we have a plan. And we believe with good disciplined execution, we can get through that plan, and we can deliver good growth and good earnings in this forthcoming year. Thank you very much, indeed. All that remains for Alistair and I to do now is ask for any questions you may have.

[Operator Instructions] And we have our first question coming through. That's from the line of Matthew Saperia of Peel Hunt.

Two very quick questions, if I may. The first one, I'd be interested to know a bit more detail about Hilden, the first acquisition in the Titanium joint venture. And does that give us some idea of the type of asset that you might be looking to buy in the joint venture going forward? And then the second question, it concerns sustainability. It's something, obviously, that's increasingly important. And I was just wondering, given the nature of your portfolio, how you're tackling that and what initiatives you're putting in place?

Matt, thank you for that. Alistair, maybe I can ask you to answer the Hilden question, but perhaps I can start by addressing Matt's question around sustainability. And if I think about everything, ESG, so the sort of all-encompassing subject. And let's not forget, part of our announcement this morning is that we've appointed 2 new female members to our nonexec Board in the shape of Caroline Britton with extensive auditing experience from Deloitte; and of course, Kelly Cleveland, who's got nearly 10 years’ experience at British Land. So we have not only increased the diversity of our Board, but as a FTSE 250 company, we have made 2 very important governance-related appointments, which I think will substantially strengthen our Board going forward. But in terms of the E and the S, we actually have a 10-page presentation, which I'm not planning to take anybody through right now. But when we conduct one-to-one presentations with institutions, we do very much intend to take them through that. And suffice it to say that we have broadened the remit of the Ethics Committee to become the Social and Ethics Committee, a committee that I chair, a committee that deals with the E and the S of ESG. And that is reflected in the operating company by a similar team of people that is led by Kremena Wissel, who has put together with the SRE Board Committee, a full strategy and plan, which is the presentation that we will be making in the one-to-one engagements with the institutional investors. That said, if anybody on this call would like to go into the detail of that, I'd be very happy to take them through it, not in this call but outside of it. And please, if you could contact the relevant broker, we can set up a time and do that. But ESG is very much in our minds. The key deliverable within ESG for us is around making sure that we deliver energy to our tenants and use energy ourselves from renewable sources. And the details of that are in the presentation, but we are looking for over 90% of energy delivered from renewable resources by next year. And let's not forget, Sirius is in the business of taking buildings that are anything from 30 years to over 100 years old and extending their life and their economic purpose. And if you look at what that does to a carbon footprint, the carbon footprint of building new buildings and increasing urban sprawl is quite substantial. Sirius is in the business of doing the direct opposite, which is extending the life, both physically and economically, of buildings that would otherwise be demolished and rebuilt, and the carbon footprint involved in rebuilding them is quite substantial. But let me not go into that now because that's in the presentation. Alistair, can you address the points about Hilden, please?

So Hilden is a very high-quality asset. It's located right next to Düsseldorf. And the reason it fits the JV and not us is partly because of the quality of the asset, partly because of the purchase price that is paid and also the ticket size. So the typical JV asset is going to be a large sort of EUR 50 million type asset. It's going to be asset which is normally going to be relatively stable. In this case, there is some vacancy in the asset. But generally, it's going to be a high-quality, safer asset, which doesn't make the kind of returns that we would expect within the Sirius portfolio. And the vacancy in this Hilden asset is good quality vacancy, which does come with a value, hence, why we've purchased this at an EPRA net yield of 4.7%. But there is still some opportunity within that vacancy to get increased returns from this asset, particularly in the offices because the mix of this asset is around about 40% good quality offices and about 60% good quality warehouses. So it's a much higher quality, much newer build. But that vacancy does have a lot of value and that vacancy isn't the typical value that we would put through our CapEx program. Hence, the total returns from this asset is probably going to be around about 10%, whereas within the Sirius portfolio, we would generally look at 15% for the stuff that we would underwrite. Hence, it's why this fits better within the JV where it's not the same sort of development as we would put through Sirius, but we can still make decent returns for the JV. And our percentage of this, when you top it up with the management fees, we'll get close to that 15% on our equity. That's the reason why this fits better within the JV than it does within the Sirius. But it is a much newer, much higher quality asset than the typical stuff that we would put through Sirius, hence, the returns are a bit lower.

Our next question comes from the line of Kai Klose of Berenberg.

I've got 3 quick questions, if I may. The first one is on Page 4 of the presentation on the EUR 2.4 million income from the Titanium JV. How do you read the EUR 2.4 million? Is it kind of an asset or property management fee? Or is it also a participation in the JV's success? May -- elaborate a bit more of the nature of that income and also looking forward, how that split may change? Second question would be on Page 24 of the presentation where you give some details on the recent renewals. For April-May, EUR 6.8 million of rents [ renew ]. And looking forward for the remainder of the year or for the coming months, could you indicate are there any larger leases coming up? Or in general, what is the lease renewal rate and lease profile for this year? And the third question would be, just in general, on the portfolio split. If I understood you correctly, you're looking to the mature assets in a way maybe to realize the capital gains. Could we also expect maybe to do some disposals or a transfer into your fund, similar to the seed portfolio in the last year?

Okay. So right, so I'll take the first question. Andrew, if you want to take the next one?

Yes.

So starting with the Titanium venture. There's effectively 2 lines that relates to the Titanium venture in the P&L, one is the EUR 2.4 million at the top. And then down at the bottom, there's the EUR 1.2 million, which is the share of profit from associates, not included in FFO. The EUR 2.4 million is effectively our share of the profit from those assets plus the management fees that we actually get. And in the last year, we had those for a total of 8 months. So that's our 8 months' earning on those assets within the JV. And that is coming through a combination of fees and share of profit, which I won't go into the details behind that, but that's effectively what it actually is. The EUR 1.2 million below is the increase in NAV, predominantly coming from valuation increases in the portfolio. So going forward, and obviously, with the Hilden asset, that should increase the profits going forward. But we would expect to still get our 35% share of the profits from those assets. We would still expect to make just over EUR 1 million net fees from that as well going forward. And obviously, valuations as well, if that goes up, we'll get a share of that as well. But the reason we sold the assets into the JV is that we think that the valuation improvements going forward are going to be relatively modest, but the income on our equity is going to be the bulk of what we actually earn from the JV plus the fees. Does that answer your question, Kai?

Yes. It does. Just quickly, when you mentioned, it is -- the EUR 2.4 million is a split or is a combination of the share of profits as including management fees. Could you give a rough split, how much it was coming from fees and how much was share of profit?

Yes. So it's roughly about EUR 700,000 would be net fees, so the fees less the actual costs associated with them. And the rest will be the share of profits.

There are no further questions on the line at this time.

Sorry, would you like me to finish? I think Kai's got a further 2 points to his question.

Apologies, sir. Please go ahead.

Kai, I think what you're really driving at is have we got any extraordinary move-outs that we're aware of this year, and I think the answer to that is probably no. But I think what I would say is, typically, our move-outs are between 150,000 and 200,000 square meters a year. So 150,000 would be a good year, 200,000 is not so good but it has happened. So we're not sitting here thinking we've got major tenants that we're expecting to move out. But what we are expecting is in excess of 150,000 square meters of move out over the next 12 months. And Alistair, I don't know if there's anything you'd add to that, but would you be broadly in agreement with that?

Yes. I think in the last couple of years, we've had big move-outs in the first quarter. We don't have that this year, but there are a couple of others in acquisition sites that we know of that are coming through as well. But that sounds about right, is what you've said.

Okay. All right. Kai, does that answer your points?

Yes, certainly.

[Operator Instructions] Okay. That seems to be the final question. So I'll hand back to our speakers for the closing comments.

I'd just like to say thank you very much indeed to everybody for both their time and attention this morning and also their support of shareholders throughout this crisis. Thank you very much, indeed.