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

Good morning, everyone, and welcome to today's presentation of Sirius Real Estate's end of year results for the period ending March '21. 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; and Kreme Wissel, the company's Chief Marketing and Impact Officer. Together, we will take you through this morning's presentation. If you could please turn to Page 3. Let me start by reminding you all that Sirius is a German-focused, on balance sheet, best-in-class owner and operator of German mixed-use light industrial business parks. Our parks are on the edge of key German towns. We are not a REIT, and we now operate over EUR 1.7 billion of German real estate. As you can see on Page 4, Germany has several large autonomous markets. We talk about leveling up in the U.K. Germany, to a certain extent, is already leveled up. The country has a very well-diversified economy across some key industry sectors, including automotive, energy, environmental, consumer and of course, chemical and medical. The country has a very strong SME market, often referred to as the German Mittelstand. And what we're seeing is we're seeing high levels of investment into Germany, because from a European perspective, Germany is considered to be a particularly resilient economy. And of course, the mixed-use light industrial is an asset class that is becoming recognized as even more resilient than people would have considered it to be prior to the pandemic. And therefore, German light industrial is becoming a particularly attractive asset class to both institutions and also private equity. You can see on Page 4, in terms of the COVID-19 resilience, there's a number of points around Germany that are significantly different from the U.K. and certain other European countries, including the system of 16 federal states. Vaccination is picking up now in Germany with over 40% of adults having received at least 1 vaccination and nearly 20% being fully vaccinated. If we can now turn to Page 5, maybe I can take you through the highlights before handing over to Alistair, who will take you through the financials. Well, of course, the first and foremost highlight is that our profit before tax for the period concerned is EUR 163.7 million. That is up from just over EUR 110 million in the previous period. So what we're seeing is an increase in profits of just under 48%. I'm delighted to tell you after many years of talking about Sirius being capable of producing double-digit returns all the way through the cycle, that despite the challenges of the last 12 months, Sirius has produced a total accounting return of 19.5%. This is now the seventh year that we've produced double-digit total accounting returns, and the average returns over that 7-year period are just over 16%. You've heard me talk a lot about our FFO, our goal and ambition of EUR 100 million. That ambition remains on track, and I'm pleased to tell you that in this period, we have increased FFO by 9.3% to just under EUR 61 million, so we are progressing within that journey. I'm also happy, both as your CEO and also as a shareholder, to announce the 14th consecutive period of an increased dividend. The increase in the dividends being announced today is a 10% increase, and it takes the dividend to EUR 0.0198 and against the comparison in the 2020 year same period of EUR 0.018. We continue to see organic and acquisitive growth. Again, for over 5 years, you've seen increases in rent roll of more than 5%, in this case, a 5.2% increase. Valuations have increased by 11.5%. And despite the pandemic, we have managed in the period to go out and acquire just over EUR 125 million of new property. As I said at the beginning of the pandemic, we will lead in this period with the joint venture, and that's exactly what we've done with EUR 80 million of those acquisitions being for the Titanium joint venture and the remainder being for our own balance sheet. As you know, we've maintained high levels of cash collection throughout the last year, 98.2%. We have, through our own efforts, increased our inquiry levels by over 18%, and that has been the way in which we have used our platform, the marketing area of the platform, specifically to capture more inquiries over this period because sales conversion has been more challenging than it was before the COVID period. Normally, our sales conversion is 14%. In this period, it's been 13%. We could see this happening, and this is exactly why we worked hard to attract an 18% increase in inquiries because we knew we would have to do that to hit our sales budgets and make sure that we maintained our returns, our occupancy and, of course, our increase in rate per square meter. So those are the highlights. Let me now hand you over to Alistair, who will start with Page 6, and take you through the income statement. Thank you.

Thank you, Andrew. As Andrew mentioned, I think the profit number of EUR 163.7 million, a 48% increase over last year, is probably one of the highlights of the income statement. It is a pretty phenomenal result given the circumstances that we've had to face this year. But you will see that a lot of that increase has come from the valuation increase, the net increase of EUR 103.9 million over and above the CapEx that we've invested this year. However, if you look at the FFO of EUR 60.9 million that we're reporting, that is still around about EUR 1.1 million more than what the consensus forecast was for this year. So we've been able to exceed the FFO forecast, yet the impact from acquisitions in this year is probably less than what analysts have actually factored in for us because we've had fairly minimal impact from acquisitions because they were acquired more towards the back end of the year. So most of that FFO growth, obviously driven by the 10.3% increase in net operating income has come from organic growth rather than contributions from acquisitions, because even the acquisition from last year, the EUR 120 million that we completed last year, were largely offset by the fact that we sold 65% of those assets into the joint venture. So most of that 10.3% increase in NOI this year has come from the fact that we've been able to increase organically our rent roll by 5.2% this year on top of the 6.1% last year. So being able to achieve a more than 5% increase, again, given the circumstances, we think is quite an exceptional result. If you look at the costs that we've incurred this year, so corporate overheads are around about EUR 2 million more than what they were in the prior year. Most of that comes from the fact that we've got about a EUR 2 million provision against the uncollected rents and service charge costs or service charge income in the period. We don't expect that the full EUR 2 million will become a bad debt expense, but we decided to be prudent at this stage and accrue against most of the uncollected rent. As far as the interest and the tax is concerned, you will see that the current tax has increased by about EUR 800,000 from the prior year. A lot of that increase has come as a result of the change in some tax legislation that affects us from 1st of January 2021. That's coming from the BEPS initiative. We have done a bit of restructuring, and we believe that the impact of that change in legislation going forward will be no more than about EUR 3 million per year, so we should be able to absorb that quite comfortably within our FFO. And all of that results in about a 9.3% increase in the FFO compared to last year. If we flip over the page and look at the per share metrics. You can see that total earnings per share of EUR 0.1416 is also around about 48% above the EUR 0.0955 we reported last year. From an FFO perspective, EUR 0.0584 compares to about EUR 0.0541 last year. And I think more importantly, if you look at that FFO per share compared to the current share price, it is still -- the share price is still less than 20x our FFO per share, which we think is quite conservatively valued considering some of the other valuations of property companies out there at the moment. That EUR 0.0584 per share FFO translates to about a EUR 0.038 per share dividend, EUR 0.0198 coming in the second half. That is based on 65% payout ratio this year. Last year, we paid out 0.0357 for the year, that was slightly more than 65% because we increased the payout ratio in the first half of last year to accommodate the JV transaction. So again, we continue to increase our dividend per share. If you flip over the page on the balance sheet. I think the key thing here is seeing the EUR 161 million increase in our property valuations. EUR 136 million of that is coming from an increase in valuation where you will see later on in this presentation that we are now valued at a 7.2% gross yield. The net acquisitions impact was about EUR 25 million to EUR 35 million of acquisitions and EUR 10 million of disposals. You also see that our investment in associates, which is our investment in the joint venture has increased by about EUR 11 million. We have injected about EUR 5 million into the JV, and that is to acquire the Augsburg asset because the bulk of that new acquisition was covered by the fact that we did a new banking facility with Helaba against both the Augsburg asset and one unencumbered asset within the joint venture. So EUR 5 million of cash has gone into the joint venture, and there's been about a EUR 6 million increase in our share of the valuation of those assets within the joint venture. You'll see that we've got EUR 66 million of free cash on the -- or EUR 65 million of cash on the balance sheet, of which around about EUR 50 million is free. The Essen asset you see, that we've completed on 1st of April, was actually prepaid before the end of the year. So that's not coming from that free cash. So going forward, we've got about EUR 10 million of free cash ready to invest into acquisitions, and that will cover the Öhringen asset, which we notarized fairly recently. So thereafter, any further acquisitions will require new debt or capital. From an LTV point of view, EUR 468 million is our debt outstanding, that's a net LTV of 31.4%, which is still well below the 40% target that we have within the company, and all that translates to about EUR 125 million increase in our net assets from EUR 801 million, up to EUR 926 million. And on a per share basis, all of the metrics, adjusted NAV per share, normal NAV per share and EPRA NAV per share, are all around about 15% up from last year. Moving over the page. On Page 9 you'll see the breakup of the increase in the NAV per share. And I think the key things are the EUR 0.0557 per share recurring profit after tax, the EUR 0.099 per share that's coming from the valuations, and we've also got the EUR 0.0021 per share, which is effectively the increase in the valuations within the joint venture. So the sum of those 3 are close to -- are just under the 20% total accounting return number that Andrew mentioned at the start of this presentation. So again, a lot of this is coming from the income, the recurring income. But obviously, in this period, we've had some good valuation increases, which we'll talk about more in the presentation as we go through it. So from that point of view, I'll pass over to Kreme for the next slide, to go through our ESG.

Thank you, Alistair. So we are on Page 10. So let me take you through our ESG approach and key areas during the last financial year. So our sustainable strategy of maintaining and refurbishing existing buildings means that we can help minimize the urban sprawl and contribute to protecting the urban land. So in Sirius, by recycling existing properties, we conserve resources and minimize the use of materials and energy required to construct new ones. So we take a very considered approach to our future practices and processes to deliver long-term sustainable value and focus on a set of key areas. These are reduction of carbon emissions, alongside modernization and refurbishment of buildings; business ethics and governance; transparency and stakeholder engagement; and employee well-being and training. All of this is undertaken to deliver actions in a timely manner and to focus resources in a way which is cost-effective and commercially practical. We had a year of strong progress developing our environmental, social and governance strategy, undertaking a huge ESG materiality assessment in quarter 3, involving the Board, shareholders, tenants, employees and suppliers, and reflecting the findings then in our new strategy. We analyzed and published for first time, Scope 1 and 2 of ESG emissions reporting full year 2021, introduced Scope 3 missions examining potential for net zero within our strategy of maintaining and refurbishing existing buildings. So what you can see is the majority of our ESG emissions are classified as Scope 3 from the operational use of our properties by tenants across our sites, representing over 90% of our total emissions. So we concentrate our efforts there and to successfully continue the way of decarbonization in this area. So from January 2021, we supply energy to the portfolio sourced from 100% certified green electricity sources, which massively has improved the Scope 3 emissions. We have also started implementing the recommendation of the Task Force on Climate-related Financial Disclosures, and our progress and actions were recognized for a third year with an MSCI upgrade in November from A to AA. So as you can see, we are building our plans in line with our business model, and I'll be reporting more detail in the future, and an extensive report is to be found also in the Annual Report 2021. And now back to Andrew.

Kreme, thank you. So if we look at the organic growth rental income analysis on Page 11, I think the place to start is that 5.2% like-for-like rent roll increase. As you can see, that is made up about 1/3 from increase in occupancy with the other 2/3 coming from the increase in rates per square meter. You can see we've moved that rate per square meter in the last year from EUR 5.96 per square meter per month to EUR 6.17. We continue to drive price despite the pandemic, despite the conditions of the last few years. And as you know, we have a number of things at our disposal in order to do this, not just the fact that our sites are manned and the service and the value that we deliver to our customers. But also the point that we can use in CapEx change the mix of space and convert low-grade space into high-yielding space. What we're also able to do is, through the renewal of tenants and through our dynamic asset management, we are able to move people around the portfolio, and in doing so, to deliver increased value to them. And in exchange for that, increase the price per square meter they pay. So despite the pandemic, despite the conditions of the last year or so, we remain confident that we continue to grow not only just the occupancy, but in particular, the rate per square meter that underlines the portfolio as a whole. And this is something that is fairly unique to Sirius. You won't find many property companies that can drive occupancy and price at the same time, despite the market conditions that we've seen over the last year or so. So what that also plays to is the move out rate of EUR 6.39 versus the new letting rate of EUR 6.79. This is a very, very important dynamic because it's not actually the underlying rate per square meter that matters when you drive price. What matters when you drive price is the price of people who are leaving and the ability for you to replace them with higher-paying tenants, and that's what you are seeing in the EUR 6.39 move out rate versus the new letting rate of EUR 6.79. In terms of move outs, they were down a little bit. You can see there's about 20,000 square meters less move outs than previous year. I think it's probably fair to say that where the pandemic has changed the dynamic slightly is people who may have moved out if COVID hadn't happened, would have probably stuck around for a little bit longer. And we are going to be watching that very, very carefully to make sure that if we do see a hiatus of post-COVID move outs, it's expected, and it's well managed, and we can absorb that properly. If we go across to Page 12. We look at the organic growth rental movement. You can see there that we moved from EUR 90.3 million to EUR 97.2 million. The disposal is the disposal of [ Friedrichsdorf ] that happened at the beginning of the period. You can see that EUR 10.3 million of move outs, which you can see the -- between the uplifts on existing tenants and the move ins, we have more than compensated for the effect of the move outs. And you can see there's the starting effect of some of those acquisitions, of course, as more of the notarized acquisitions close and as we develop and asset manage those acquisitions, that will grow the rent roll going forward even further. If you turn to Page 13, perhaps I could hand back to Alistair.

Okay. So looking at the CapEx program and what we highlight on this slide is our CapEx program on suboptimal space, which we've actually acquired over the last 6 years. So most of this space is effectively structural vacancy that we've acquired when we've acquired our assets through our acquisition program over the previous years. It does not include space that we've been given back recently, which is going through an upgrade, which we report outside of this CapEx program. And if you look at what we've actually completed on this during the period, you will see that we've completed 532,000 square meters in the period, which is probably about the highest we've ever completed in a 12-month period. We've invested a further EUR 9.9 million into this CapEx program. So we've now invested EUR 55.5 million in total, and our rent -- rents that we've achieved from this space has increased by EUR 2.7 million, up to about EUR 22.4 million to date. And you'll see the occupancy level of this space is now 75%, and that is because a lot of that 53,000 square meters of space that's refurbished in the period is actually only just getting into the marketing and being advertised for letting at the moment. So we expect that occupancy to increase fairly quickly over the next 12 months. And if you look at what's still to come from this CapEx program, there's still about 15,600 square meters, which is going through the program. We're looking to invest just under EUR 7 million into this further, and we expect another EUR 2.6 million to come from this, assuming we get to around about an 80% occupancy on this space, which is effectively what we budget for. If we can get that to 85% which I wouldn't be surprised if we can achieve that, then that EUR 2.6 million is more like EUR 4 million. And then on top of that, there's around about 23,000 square meters in our vacancy at the moment which isn't included in this CapEx program, which is also going through an upgrade because this is a space that we've received back recently, where we're looking to spend between EUR 5 million and EUR 5.5 million into, to get just under EUR 2 million extra rent from over the next years as well. So the old CapEx program, EUR 2.6 million up to maybe EUR 4 million coming from that, depending on what occupancy level we get to, and another EUR 2 million coming from the upgraded space, will fuel a lot of our growth over the next 1 to 2 years, we believe. If you move over the page to Page 14. You'll see this is the metrics of our valuation increases this year. So looking at the table at the top, we've had a EUR 136 million increase in our valuation. Around about half of that has come from the 5.1% like-for-like rental growth in the period. And the other half has come from the 42 basis points of yield compression we've seen in the period. What I would point out on that yield compression is that a lot of that has come on the back of the fact that we've been able to show quite a bit of resilience and improvements as far as how we've been able to increase the rents and manage the portfolio throughout this COVID situation. And I think the valuers have got a lot of comfort: A, with the asset class; and b, the way we actually manage the assets such that they've been able to give us this 42 basis points of yield compression in the period. But if you look at the transactions that are happening in the market, we are continuing to see yields in logistics and industrial assets decline in the period. So that 7.2%, we believe, is still relatively defensive compared to where transactions are occurring in the market as well. And that is kind of reflected in the fact that if you look at the acquisitions table down below, you'll see that our purchase price for the acquisitions was EUR 33.2 million, yet our valuation is very close to the total acquisition costs, including all of the ancillary costs that we incur on top of the acquisition. So we have been able to get an uplift on the acquisitions pretty much immediately, indicating that we are buying these acquisitions at very, very good prices. If you flip over the page, you'll see our usual slide that analyzes our movements in the valuations in the period. So the top 2 tables indicate the like-for-like movement in the period, and the bottom table reflects our position, including acquisitions at the end of the period. And just looking at the movement in the period, I think the key things to note here is that both value-add and mature assets have seen rental growth in the period. So we've seen about 6.6% like-for-like rental growth from the value add and around about 3% on the mature portfolio. But the key thing to note the difference is that the value-add increase has come from the fact that occupancies have increased from 80% to just under 83%, whereas on the mature portfolio, the occupancies have stayed relatively flat. That indicates that whilst a lot of the opportunity going forward will come from that value-add opportunity -- the value-add portfolio, it doesn't mean that the mature assets will actually not contribute to rental growth in the future. And we're actually pushing a lot of that rental growth: a, from pushing indexations; but also a lot of this upgrading of space when we get it back is happening within the mature portfolio. So we will continue to push rental growth, valuation and growth: a, from looking at getting some reversions realized on renewal; but also looking at upgrading -- constantly looking at upgrading space whenever we get it back. So we are active on both value-add and the mature portfolio. And if you look at where we sit at the end of the period, you can see that around about 59% of the portfolio, EUR 795 million is now value-add and around about 41% is mature. And you will notice that the yields that the value-add portfolio is valued at is roughly about 100 basis points higher than the mature portfolio. And that is indicative of the stability, and I guess, the way the valuers see the mature portfolio compared to the value add. So if you look forward, looking at the vacancy, most of that 172,000 square meters in the value-add portfolio, a lot of that is going through the CapEx program, but a lot of that we expect to ramp up over the next 2 to 3 years. But when we actually do, do that and more of those value-add assets move into the mature category, we should also not only see increases in rent and increases in valuation coming on the back of those rental increases, but we should see the yields actually come closer to the 6.6% over time as well. So there is still quite a bit of value to come and also income to come from both the value-add and mature portfolio going forward. If you flip over the page and see how we see that impacting our FFO EUR 100 million ambition, you can see our reported FFO of EUR 60.9 million. If you take in the full year impact of the acquisitions that have completed so far, that's an additional EUR 2.8 million that will come from that. The CapEx programs that I've talked to you about, both on the suboptimal space, but also the upgrading space, we expect to contribute about EUR 4.3 million over the next 3 years. Other vacancy, which is sitting in our vacancy, we expect to let up over the next few years, will contribute around about EUR 3.7 million. And we're getting about EUR 1.8 million of uplifts per year. So if you look at this over the next 3 years and add in another EUR 6 million of asset management initiatives, which is generally coming from service charge recovery improvements, other revenue streams we're looking to increase as well as increasing the income that we're generating from the joint venture, that should get us over the next 3 to 3.5 years to just over an EUR 80 million FFO run rate. And in order to get to that EUR 100 million ambition, we probably need around about another EUR 300 million to EUR 400 million of assets. And how we fund those EUR 300 million to EUR 400 million of assets, whether it's debt, equity, combination of the 2, I guess will be determined as to how quickly we actually deploy that capital. The sooner we deploy it, the more likely we would need equity. The later we deploy it, the more likely we use more debt. But we still think that all of that will be quite accretive to the FFO per share over the next 3 to 4 years, and we expect that to increase quite well in line with this. Flipping over the page. You'll see our acquisitions, and I'll pass it back to Andrew to discuss these.

Thanks, Alistair. So as you can see, the 4 assets, Norderstedt in Hamburg, Nuremberg, Mannheim near Frankfurt, and Fellbach in Stuttgart, have delivered EUR 2.4 million of additional NOI. But if you then look at Essen and Öhringen near Stuttgart, these are the assets where the opportunity is. And these assets are 36 -- sorry, these assets are where the vacancy is, and these are assets are what blends the whole set of acquisitions to 32% vacancy. So what you can see is the approach that we've taken for many years which is a blended collection of assets, some of which deliver NOI immediately and some of which are far more opportunistic and will help to fuel the organic growth program of the future. You can see in addition to this, we've also purchased Augsburg, for the Titanium joint venture. Augsburg is just northwest of Munich, so it's just on the edge of Bavaria. We are particularly pleased about having acquired this asset. We did so off market. And as you know, it has taken the value of the joint venture to around EUR 325 million. So what I would say about these acquisitions is all of them took place in the final quarter of the year. The approach that we really took to this period is we were quite cautious for the first 3 quarters. Then we executed in the final quarter. And when we executed in the final quarter, we led with the joint venture and our balance sheet followed. As Alistair has explained, although Augsburg is an EUR 80 million asset, and although we own 1/3 of it, we had to contribute a total of EUR 5 million of cash in order to make that acquisition. So as you can see, it's a way of us being able to increase the joint venture this way in which we can acquire with the -- with AXA as partners, but it's also a way that really limits the cash contribution that we had to make in order to realize not just the Titanium acquisition, but the acquisitions overall on our own balance sheet as well. So across the Page 18, Alistair, I think banking is probably yours, isn't it?

Yes, I can take that one. So on the banking, you'll see that we've been able to reduce the bank borrowings by about EUR 14 million in the full year. That is the net effect of drawing down the last EUR 20 million on our first unsecured line, which completed early on in this year. And we've also repaid our Berlin -- sorry, our [ buy in LB ] debt to the tune of EUR 23 million in the period rather than refinancing that. And in addition, obviously, we have around about EUR 10 million to EUR 11 million of scheduled amortization, which is repaying the debt each year. So net-net, that has reduced our debt by about EUR 14 million in the period, and our net LTV is now down to 31.4%, with our average interest rate staying about the same. And you'll also see that our interest covers from both NOI and EBITDA level have increased quite a bit in the period. And I think the important thing to note is with our weighted average debt expiry dropping to about EUR 2.7 million with us repaying the [ buy in LB ] debt and still having around about EUR 19 million of unencumbered assets on the balance sheet and you'll also see that we've had a BBB flat rating from Fitch in the period, we have got quite a bit of flexibility as to how we can restructure our capital and our debt in particular. So we are looking at ways of doing that, and that is something that we've been speaking about for the last few years. But we are in a pretty good position to strike on anything on that front at this point in time, given where we are with our debt at the moment. So I think all this is still pretty good as far as the debt is concerned, and our optionality obviously is also increasing. And I'll pass over to Andrew to conclude.

Thank you, Alistair. So as you can see, the highlight is the EUR 167.3 million profit before tax, together with the seventh consecutive year of double-digit returns. In this case, 19.5%. I think we've evidenced the power of the platform, evidenced in particular by our ability to increase the inquiry levels, and therefore, to be able to continue to maintain and increase both occupancy and average rate per square meter. Again, you see us increasing the like-for-like rent roll by more than 6%, and you also see us being able to complete the job all the way through to cash collection. Our FFO growth story continues, and that is reflected also by the increase in dividend, which, of course, is driven by the FFO growth. We've seen uplifts in valuation. We've seen that the platform can continue to grow acquisitively, albeit that we change our balance slightly and in these challenging times, lead with the joint venture rather than our own core balance sheet. The balance sheet is strong with an LTV of less than 32% and net LTV of less than 32% and nearly EUR 50 million of unrestricted cash on the balance sheet. ESG is an extremely important area to us. That's one of the reasons why we've appointed Kreme Wissel this year to the role of Impact Officer. You can see that our efforts have, to a degree, been rewarded in an increase in the MSCI status to AA. We still have a very long way to go on a continuing journey, and we think that it remains extremely important that we continue to engage with shareholders where ESG is concerned. And very, very importantly, we understand commercially within our business how to drive the ESG agenda. In terms of Germany, by the end of last month, nearly 45% of the German population received at least 1 vaccination, with nearly 20% being fully vaccinated. Cases of COVID-19 in Germany continue to decline, and it looks likely that the brake restrictions that were applied by the German state earlier this year, are likely to be lifted by the end of June. The German economy is forecast to grow by 3.5% this year and a further 4% next year. And German manufacturers continue to explore the benefits of shorter supply chains and further onshoring. The chatter from our large customers is all about how they can bring things back to Europe. At the moment, there is a shortage of containers to put things in so they can be shipped. The effect of the blockage of the Suez Canal is still being felt in supply chains. There are numerous things going on, including COVID, that are leading manufacturers to the conclusion that they need to onshore. This bodes very well for Sirius because, of course, to do that, people need more industrial space, and we are obviously in the business of supplying that. So we think that Sirius has demonstrated the resilience and strength of its business platform. We think that the increased speed of the vaccine rollout within Germany, and in particular, the point that people are looking at more onshoring in the coming months and coming years, bode very well. And in summary, that strong platform, good balance sheet, accelerating vaccine rollout means that Sirius is, in our opinion, well positioned to continue its story of growth long into the future. Thank you very much indeed. All that remains to do now is to answer any questions that you may have.

Okay. Richard, just confirm you've got the questions there?

Yes. We've got a couple of questions. First of all, from Miranda Cockburn, Panmure Gordon. So on Page 50 of the presentation, which is back in the Appendix, you provided a breakdown of lease escalations. Can you talk through this in more detail and explain whether this has changed much in recent years? And how new leases are generally structured today?

Alistair, do you want to take that? Or do you want me to handle it?

No, I can take that. This is something that's always evolving. Because generally, when we acquire assets, we often have no escalation clauses or very limited escalation clauses in contracts. So upon renewal, we're always insisting -- and upon new leases, we're always insisting on putting in these types of clauses. So whilst the numbers are looking quite good at this point in time, they haven't always been as good as this. This is something that is actually improving constantly every year whenever we have tenants up for renewal or when we have the churn that Andrew mentioned about. When exiting tenants leave and new tenants come in, we're always looking to put uplifts indexations within the contracts.

Thank you. Okay. So the next -- well, we have 3 questions here from Matthew Saperia at Peel Hunt, so I'll do this individually. Can you just talk about how the platform was able to dial up the inquiry levels over the year? And if the monthly run rate of circa 1,500 is sustainable? Do you think you have taken market share from competitors?

Kreme, would you like to answer that one? Or would you prefer me to take it?

Sure. I can answer the question on the inquiries. So basically, the answer is, it has not been -- the market has been the platform. So what we have done is for years and years, we have been exploring what are the aspirations of different customers for different products. So once COVID-19 hit the, I'll say, planet, we turn into what are the concerns of the customers in the different target groups. So basically, we start addressing the concerns in every single market in terms of self-storage, what is going to happen and what is happening in terms of logistics, following supply chains across the planet and following delays, addressing storage issues and the same with office, offering our kind of a physical appeal of the properties to the changing situation. So it has been a lot of work and a lot of more -- of activity that happened in the last year, and that's how we basically manage to increase the number of inquiries.

And Kreme, I think it would also be fair to say, correct me if I'm wrong, that what we've been doing for many years now is we've been working out what the maximum capacity of inquiries is that we can generate. And then typically, prior to COVID, we've been basically operating at 50% of that level. And our thinking around that was, if there was ever a very difficult period and half of the market went flat, we could still effectively double our efforts to get to full capacity and maintain our inquiry flow. Now COVID has been a great test of that. And what you've actually seen is you've seen Kreme's area tune up those marketing dials to be able to increase the number of inquiries by almost 1/5. And it was necessary for us to do that because sales conversion dropped and the only way of maintaining occupancy and yield was to have enough inquiries for the sales force despite lower conversion rates to still produce the same end output of sales. So what you're seeing here is a strategy that was put in place over 3 years ago to mitigate risk. You're seeing it being tried and tested over the last 12 months, and I think you can see what it results in.

Andrew, I think you may have kind of covered this already, but the second question is you mentioned the conversion rate declined to 13%. Was this just a function of the fact that you were able to drive, I mean, an increasing inquiries? Or were there other factors at play? And what will you do to drive this back to historic levels -- to or above historic levels?

So it's 13% for the year, but averages tend not to tell you very much. What actually happened is when COVID hit hard, the sales conversion ratio in an individual month dropped to circa 10%, and that was the initial shock of the pandemic hitting. And then what happened is over the course of the year, we used tactics, including virtual viewings, to restore sales conversion back up to a run rate of about 14%. But of course, when you look at it as an average throughout the year, it still comes out at sort of 13%. So I'd put it to you that we're already back up at the 14% run rate. And what actually happened is the conversion rate was disturbed for a couple of months due to the initial shock of the pandemic. But what I will tell you is our internal target is 15%, and our internal target has been 15% for some time now. And what we're really focused on is using the individual sales tactics to drive to that 15% conversion. And things like virtual viewings, which have come out of an improvement in our processes as a result of COVID, are certainly things that will help on that mission to get to 15%.

Okay. Thank you. And although you saw 42 bps of cap rate compression, it seems that the market is still tighter than the 6.5% net yield. What are you seeing in the market? And how are you able to compete on acquisitions?