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

Good morning, everybody, and welcome to today's presentation of the Sirius Real Estate Group Half Year Results for the period ending September 31, 2023. My name is Andrew Coombs. I'm the Chief Executive Officer of the Sirius Group, and I'm joined this morning by Chris Bowman, who is the Group Chief Financial Officer of Sirius Real Estate. Together, we will take you through this morning's presentation. However, if I could start by reminding you all that Sirius now operates in both the German and U.K. markets under the brands of Sirius in Germany and BizSpace in the U.K. Maybe we can start by turning to Page 3 of this morning's presentation. As you know, we are an on balance sheet, best-in-class owner and operator of mixed use light industrial business parks on the edge of key towns in Germany and the U.K. The group currently operates over EUR 2 billion of property, 85% of which is wholly owned by the Sirius Group. In Germany, we have 69 sites, which are clustered around the edges of the 7 major cities. And in the U.K., we have 70 sites on the edge of major cities. In total, we have over 9,000 tenants. In Germany, that accounts for a rent roll that is now in excess of EUR 125 million. And in the U.K., it accounts for a rent roll that I'm pleased to tell you for the first time in the company's history is now more than GBP 50 million. We've owned the U.K. business BizSpace for almost exactly 2 years. And in that 2 years, we delivered a 21% increase in the top line rent roll. Maybe now we can turn to Page 5 and look at the highlights. So I'm delighted to tell you that we deliver in this set of results a 0.6% increase in adjusted NAV. We'll look at that in more detail as we go through the presentation. But whilst it might seem a small incremental increase, given the current economic outlook. I'm absolutely delighted to see that the group valuations are going up as it down. This has been driven largely by a 7.7% increase in like-for-like rent roll, which has led to just under 17% increase in EPRA earnings per share. And that is why I can announce this morning, a EUR 0.03 dividend which represents an 11.1% increase on the dividend payment same period previous year. And I think you'll all remember that Sirius has a very, very well-covered dividend because of our policy of paying out 65% as dividend and retaining the other 35% to invest back into the business and the properties to fuel our organic growth program which typically gives a 25% return on investment. Maybe I can at this point, hand over to Chris, who's going to start with Page 6 and take you through the income statement.

Thank you, Andrew. Good morning, everybody, and I'm delighted to be here for my first set of results. So Page 6, there's some highlights there from the P&L. Just running down them obviously, headline numbers, very strong underlying trading. The rental level, 13% increase. There is some reallocation there service charge costs. So just to preempt questions that are likely to come further on at the end of this meeting. There has not been significant change in terms of service charge costs. It's just a reallocation on the U.K. side, particularly as we've got under the skin of the U.K. business. So the rental income on the U.K. business was slightly understated last year due to some costs being in there, which we've cleansed this year. So this year's number there on the rental income and service charge irrecoverable number is a much cleaner number and more reflective of what you'll see going forward. So I would point you to the NOI and the FFO as being a sort of a fair reflection of the underlying trading, by the 9% increase, very pleased with that 9% increase in the FFO from EUR 48.5 million to EUR 53 million this year. You'll see bank interest has gone down slightly that bank interest number is a net number. So we've obviously had the benefit of having some cash, which we've been depositing principally in money market funds and generating some return so hence, the bank interest number going slightly down, you will see that bank interest numbers start to tick up from the beginning of the next calendar year when the new refinancings come into place with Berlin Hyp and Deutsche PBB so we'll come on and talk about that later, but that takes the -- takes the underlying cost of debt to 2.1% on average. And then the only other thing I would just highlight is, last year, there was a benefit on the tax line from a one-off repayment of tax -- sorry, a one-off over accrual of tax related to the BizSpace acquisition. So again, the tax number for this year is more reflective of what you'll see going forwards. And that then hence, drives the outperformance of the adjusted PBT level of 20%. So as I say, headline number, 9% increase in NOI and FFO. Running on to Page 7, the waterfall taking you down from the NOI number, EUR 0.0711 per share. We've covered much of this already on a sort of overall basis on the previous page, but overheads are relatively stable. You come in and see EUR 0.182 per share. Interest I've talked about already, and that's the FFO number on a per share basis, EUR 4.54 takes you all the way down, very little adjustments to get you from the adjusted earnings, our adjusted earnings through to the EPRA earnings number. And then obviously, the payout ratio, which has been slightly tweaked give you EUR 0.03 per share at 66% as a rounding essentially to give us a round number this year. Running on to Page 8. On the balance sheet, Andrew touched on and we'll come and talk about values. We have continued to defend our values on the balance sheet. So I'm actually pleased to say that the balance sheet is -- I struggle to pick out any exciting variables here. It's been incredibly steady. So valuations have held with the investment properties. The bank loans on the liability side is really the only movement of any materiality that was -- we repaid a Schuldschein loan that came up for maturity in the summer. We had the opportunity to refinance it. But at the time, we do not need that capital. So we took the opportunity to pay it down EUR 20 million. That brings you down to an overall net, let's just talk in EPRA numbers, EUR 108.51 per share. EPRA NAV, that's up slightly, about 0.5% from the EUR 108.11 million in March. And on the next slide, you can see the waterfall, Page 9 of that move from EUR 108.11 all the way through to EUR 108.51 million, just highlight the valuation gain and deficit in Germany and U.K. That's purely the numbers that go through the effectively the P&L and doesn't include the CapEx that's been capitalized, which then essentially pushes you net between the 2 into a positive territory. And so the absolute numbers in Germany, there was a EUR 13 million increase in value in the U.K. There was a EUR 6.3 million decrease in value. So overall, slightly up. Page 10. I'll just sort of on the liability side of the balance sheet, obviously, our financings, we have no significant refinancing until June 2026, which is when our bond comes up for renewal. The -- as I say, we paid down that small Schuldschein this year. We also refinanced the Berlin Hyp and PBB loans. So in round numbers, if you think of 1/3 of our balance sheet financing being secured lending and 2/3 being the unsecured bonds, effectively, that 1/3 has been refinanced now out till 2030. And as I say, when that -- when those refinancings take effect over the next couple of months from 1st of January, you'll have a blended cost of debt at 2.1%. Average debt expiry 4.2 years and interest cover incredibly strong at 8.6x and the net debt/EBITDA at 6.9x. Net LTV, 40.8%. We can't talk in any detail about the other events going on in the capital raise this morning, but clearly, that will have an impact on bringing that LTV quite significantly down. And I will hand back over to Andrew now to talk in some detail about each of the geographies.

Just looking at Page 11 covers the organic growth in Germany. And you can see, firstly, that we've been operating on flat occupancy, which then makes it very, very easy to look at the change in rent roll at 7% and understand that, that 7% is coming primarily from price. If you then look at the new lettings, we're bringing people in at EUR 9.30 per square meter per month, which is an increase on last year, which was at EUR 8.63. So we've gone from EUR 8.63 to EUR 9.30. And then people are moving out at EUR 7.67 per square meter per month compared to the EUR 9.30 per square meter per month that we're bringing them in at. Be careful because that's not purely priced. There will be some mix in there as well. But I think you can see that the German business is being driven by our ability to use our platform to increase price. And we're able to do that far in excess of inflation. Remember, inflation is coming off more quickly in Germany, certainly up until very recently than was the case in the U.K. So what you're really seeing here is pricing power. You're seeing the pricing power of the portfolio. And there will be a time whereby we will switch to occupancy. But at the moment, without losing any space, what we are very, very simply doing at this point in the cycle is we're exercising pricing power. If you go across to Page 12, you can see one of the reasons we can do that is because of our ability to captured demand in the form of inquiries. Remember, 90% of these inquiries come from our own efforts, not from local agents. And that's one of the reasons why with the help of our call center and our processes within Germany we're able to get 6 out of 10 people who inquire to step over the doorstep and actually view. That's an incredibly powerful statistic. You won't find many businesses that have got anything like that kind of quality of inquiry whereby they can get 6 out of 10 people to actually turn up and engage with your staff in the form of reviewing. That leads to a 12.3% conversion into sales. And that ratio is from the inquiry, not from the viewing. It's from the inquiry all the way through to the sale. We have an internal target of 15%, which there have been certain months we've achieved. But as you can see, we're still quite away from 15% sales conversion in Germany. And in a way, that's good because it gives us something to focus on rather than celebrating that we're above 10%, it issues a management challenge in order to force ourselves to try and improve our processes to get to that 15% goal. And by the way, when we get to 15%, the target will be 20%. If we go across to Page 13, you look at the like-for-like valuation movement. What you can see here is a 10 bps yield expansion in Germany from a gross yield of 7.3% to a gross yield of 7.4%. You can see that what we've done in terms of the increase in revenues, is we've allowed for effectively a EUR 36 million increase in the value of the German estate. However, the yield shift has eradicated EUR 15.7 million of that. So net-net, we've got just under EUR 20 million of benefit that we get after yield expansion for the increased revenues. If you go across to Page 14, I think it's really the table in the bottom left-hand corner that's useful here because it starts to break down the book value plus the EUR 11.2 million of CapEx that's been spent as well as the net of disposals and acquisitions, which is a net negative of GBP 7.3 million, and it reconciles you back to that book value of EUR 1.693 billion. We then go across to Page 15, which is a bit more interesting. What it does is it shows you that 2/3 of our portfolio is in the value-added area. And that's really, really important because that's our runway for organic growth. So that 270,000 square meters of vacant space in the value-added area, that is basically our runway for change. It's our runway for investment. It's where we get our 25% plus returns. And of course, the goal in doing that is to take the value-added gross yield from 7.7% down to 6.8%. And in doing so to make sure that we lift the occupancy from 78.8% to 95%. We also believe that, that will result in an uplift in capital value partly because of the increase in average rate per square meter, but also because of the occupancy. So really moving that value-added line into the mature line does a lot of things. Firstly, we need to increase that occupancy. Secondly, we need to increase the rent. By doing so, sorry, we need to increase the rate per square meter. By doing so, we should see that yield tighten in spite of what happens in the market, we're talking about yield compression, not because of the market. We're talking about yield compression that's within our gift because what we do is we increase the occupancy, which improves the gross to net leakage which means the property is worth more under German discounted cash flow valuations over a 7-year period. This is business as usual for Sirius, but what you should be comforted by is we have a 270,000 square meter runway to do this. If I was sitting here talking to you about a 25,000 or 30,000 square meter runway, you should worry because that means our organic growth would stall. Lots of people would be happy because we'd be at 95% occupancy, but I wouldn't because we would have lost our momentum. That 270,000 square meters, the fact that we're more fueled on value-add than we are mature is absolutely essential to the 2-, 3-year returns that we can produce as a business. Finally, if we go across to Page 16, I say finally, finally on Germany. You can see that this organic growth program is something we've been doing for a while, nearly 10 years now. In that 10 years, we've invested just under EUR 74 million of CapEx. The majority of it has been self-funded by the 35% of our FFO that we keep back to reinvest. What that EUR 73.8 million has done is it's given us a EUR 27.6 million rental improvement so that's a 37% ROI. So as you can see, talking about minimum 25% ROI on the organic growth program is where things start. What we're saying is for financial year '24, the year that we're in, is we're targeting 35% ROI on that organic growth program. You can also see that when we look at new acquisitions, we look for that space, that vacant space that can attract a minimum 25% return on investment from that FFO that is reinvested back into the organic growth program. So if we go across to 17, we moved from Germany into the U.K. And again, if you look at the U.K., not only who we've broken through the GBP 50 million rent roll for the first time but that also represents a 9% change of less than 1% increase in occupancy. If we go across to the move-in and the move-out ratio, what you will see is people are moving out at GBP 18, they're moving in at GBP 16.5. There is a lot of mix in that. And because the U.K. business is smaller than the German business, these numbers are far more susceptible to change as a result of mix. What I would draw your attention to is the 9% increase in rent roll of less than 1% increase in occupancy. There is only 2 places that can be coming from, that is mix and price. It is coming predominantly from price. We go across to Page 18. You can see that the viewings ratio of 26.2% is nowhere near where it is in Germany. Now this is partly due to market difference but it's also because even though we've -- BizSpace has been part of the Sirius Group for 2 years now, we are not all the way through realizing the synergies and benefits of bringing the 2 businesses together. So we would expect that inquiry to viewing ratio over the course of time to continue to increase, and the conversion ratio target in the U.K. is 10%. And when we get to 10%, it will be 15%. We have set a number of new benchmarks in the U.K. over the last 6 months. We've had a record sales month in September of GBP 1.5 million. We've broken the GBP 50 million rent roll barrier. There are a number of other things we've done. And in the future, we'll be looking to break some more barriers where these sales metrics are concerned. If we go across to Page 19, what we can see is we can see a fairly simple waterfall chart that shows the GBP 3.6 million uplift in price on existing tenants and most importantly, breaking through that barrier of GBP 50 million. As we go across to Page 20, and we start looking at valuations, you can see that what's happened in the U.K. is we've experienced a net yield shift of 40 bps. And what that meant was that the value increase on the increased rental accounted for GBP 24 million of value, but the yield shift that 40 bps accounted for GBP 35 million. So we did not keep our head above water in the U.K. The yield expansion outstripped the ability for our income to compensate for change in values. However, when you put Germany and the U.K. together, we are successful in our strategy of making sure at group level, we generate enough income to overcome the yield expansion. If we then go across to 21. The U.K. continues to be on a drive for higher rate. Since this space became part of the Sirius Group, we have driven rate by 25% and we will continue to do so. So we're looking for occupancy stability, and we're still in a primarily price-driven set of initiatives. If you look at going forward, we have sold non-core assets, including Camberwell and Ipswich. We will be selling others, probably Cardiff and some other sites. But I suspect that although BizSpace has bought 5 new assets in the last 2 weeks. So we've completed on 3 in London as well as Liverpool and Barnsley. I would suspect that over the next 6 to 12 months, you will see a balance of both sales and acquisitions in the U.K. business. And on that note, maybe I can hand over to Chris, who's going to take you through the recycling.

Yes. Thanks, Andrew. So Slide 22, asset recycling. This is something that Sirius has obviously been very active and very focused on throughout the last 10 years and continues to be so. Just starting at the top of the page is the disposals. Bottom of the page is the acquisitions. You'll see that we will continue to be active on the disposal side throughout the last 18 months, most recently and most notably with the disposal Maintal 1 for EUR 40.1 million earlier this month. That was a sale at 6% gross yield. I think typically, that's -- to the extent there is a typical that in our mind is kind of where you can typically see us be selling. I would highlight that in Germany, the sales process is quite a long process not only the sort of negotiation process tends to be a little bit slower, but also then the notarization to completion process tends to be slower as well. And that's relevant for the other activities we are up to this morning on the capital raising front because that creates a lag in the realization side. So Maintal, we should receive proceeds for by the end of this financial year. And then on the acquisition side, you'll see that we had been relatively quiet up until the last 2 months. I think I would describe that as our own -- a reflection of our own sort of expectations on value had shifted, i.e., being alive to our own cost of capital requirements and our own hurdle returns and the market sellers not having been at that point up until the last couple of months. So what we're now seeing is we're seeing vendors coming to us essentially. So our expectations of double-digit returns on our business plans are very much -- have very much been in place since 12 months ago but now really vendors' expectations on price are really only coming out to our level recently. And that, again, comes down to reasons for the other activities we're up to this morning in terms of capital raising because I think the opportunities we're seeing right now can't keep up with -- the asset recycling cost keep up with the opportunities we're seeing on the acquisitions front. In terms of our acquisition strategy, what are we looking for? Well, there's no significant shift in that. In Germany, typically, sites are larger. So Germany, multi-let industrial and business parks, just over on Slide 23, typically EUR 10 million to EUR 50 million site value and the Sirius mentality that we want. We want vacancy, we want an under rent, we want server charge leakage, things that our platform can go to work on. So -- and those types of assets which have what I -- what the market would perceive as wrinkles, but which are fundamentally really good quality assets, those types of assets are the ones which you need a platform for and hence, in a market such as this, there tends to be less competition for because some of the institutional capital has -- do not have their own platform is not looking -- I'm not looking at those assets as keenly. In the U.K., again, we're focused again on more of the same, multi-let industrial studios, workspaces, and you'll see recently we've been very active there, in particular, most recently, Liverpool, Barnsley and the North London portfolio. All of those assets have opportunity, be it under rent, be it an occupancy, a vacancy, which we can attack, which we're very confident with our platform of being able to do. Site values in the U.K. tend to be a little bit smaller, the GBP 5 million to GBP 25 million site value, relatively higher gross yields, but again, with work to do and less competition. We are always looking for corporate opportunities to scale up. Nothing at this time that I think you'll be seeing in the short term, but obviously, we are very much an ambitious group, and we will continue to look at corporate opportunities as they arise. Over the slide on to Page 24. Where does all of that growth strategy, how does that all fit into financial metrics going forward? Well, at the beginning of this financial year, Andrew had set out a target in the medium term for a move to EUR 115 million FFO. This was the -- this again is what was presented earlier this year. So more of the same. Again, if we end up being successful in our other endeavors this morning, then this will move up further. But the breakdown in terms of how we get to that EUR 115 million to then start offsetting some of the increased cost of debt, which I've put in there the increase to 2.1% lending cost of debt. All of these activities are in our own gift to control. So the pricing initiatives, the CapEx initiatives, letting up vacant space, all of these things over a 3-year horizon, now already 6 months through, we remain very, very confident of being able to achieve these within that 3 years. And some of those numbers around the rent roll growth, particularly returns on CapEx leave us very, very confident that these are achievable within the 3 years. So overall, just slight 25% is sort of capturing all of that sort of financial metrics and just a reminder that the cash generation leaves us very strong in being able to pay out 65% FFO dividend payout ratio, hence, 1.5x covered. We reinvest the remaining cash that we generate into our CapEx programs, typically generating 25% to 35% ROI on those. The organic growth that we're generating on the underlying portfolio is offsetting the yield shift. And that medium-term target of EUR 115 million is part of a bigger corporate ambition to get to EUR 150 million. And the acquisition pipeline that we're seeing continues to grow, as I say, the opportunities are coming to us and coming to us in terms of valuation and value expectations and that leaves us very confident going forward.

And as we've announced, I'm delighted that this EUR 0.03 dividend that we're announcing to be paid in January is now the 20th consecutive increasing dividend that this company has paid. If you look at the chart behind me, you can see that. The first dividend back in the second half of in 2014, now 20 consecutive times. I'm sure there are other companies. But given what we've seen in COVID, I'm not sure there are as many companies that have not only consistently paid a dividend but have consistently paid an ever-increasing dividend. And we remain committed to that strategy of progressive dividend. And you can see one of the reasons why we're able to do that is bottom left-hand corner, the like-for-like rent roll increase. You can see now consistently at 7.7%. But I'd get you to consider the March '16, '17, '18, '19, we were operating in environments that were sub-2% inflationary environments. This business model has proved time and time again that whether inflation is high or whether inflation is low, we are capable of being able to develop our revenues in excess of the inflationary effect. And I think all of this is testament to the strong platform as well as the principles of the business model, the concept of paying a very well-covered and sustainable dividend while still being able to self-fund the reinvestment of money that we as a management team have gone out to create the reinvestment of that money back into the properties for 25% minimum return on investment. This is why this business model is so strong. This is why it works all the way through the cycle. Behind me is evidence of that fact. If we go to Page 27. In summary, we have, as just explained, managed to achieve a 7.7% increase in like-for-like rent roll that means our FFO growth in this period year-on-year has been just under 10%. What I'm particularly pleased to talk about is our net debt-to-EBITDA ratio. You may have seen the ratings agencies note and reassessment and reconfirmation of our BBB status. They were extremely impressed that last year, they observed a 9x net debt-to-EBITDA ratio, and they were surprised to back into our business a few months ago and discovered that the net debt-to-EBITDA ratio had reduced down to less than 7x. So from 9.1x to 6.9x, the rating agencies were extremely surprised to see that much progress in such a short period of time. As Chris has said, we have no major refinancings until the middle of '26. And most importantly, the market is now turning. There is less competition for assets that have vacancy. You have bankers now turning around to clients that they believe offer risk going forward. And that doesn't necessarily mean risk in the property, that might be risk in the way the property is run. What that means is that the standoff in the market for the last 12 months between buyers' expectations and sellers' expectations have started to unlock, that doesn't mean the whole of the market is devaluing. What it means is a very small percentage of people who are more risky to bankers next year have started to reassess their pricing expectation. And that is unlocking the market, and that is causing the market to move. And as you've seen with some of what's been done recently, Sirius is making sure it's on the front foot. We're making sure that we're awake and that we're first to market and able to grasp the opportunities more readily and more quickly than many other companies around us. So thank you for listening this morning. Maybe Chris and I can now help answer any questions you may have.

Tim Leckie from Panmure Gordon. Just on the FFO ambition, the midterm guidance or pathway the EUR 4 million overhead expense increase, is that largely inflation? Or is that an expansion of the platform?

Yes. So bear in mind, these numbers are essentially aggregate numbers over 3 years. So it's not -- that isn't EUR 4 million a year, EUR 4 million over 3 years. So -- if you go and look at our RNS this morning, you'll see the overhead number is essentially flat. So we've kept a lid on overheads very effectively this year. I think that EUR 4 million is eminently achievable over the next 2.5 years as well. So yes, it is an inflationary assumption. We are set up to -- we're set up for growth already as a business. So we have the capacity operationally to deal with the growth ambition as well already there.

And since I'm on that slide, I don't know whether you can answer, but the interest expense, EUR 8 million over the same time period. Are you able to talk about what sort of long-term equilibrium senior debt costs you've put into that? Or is that something you'd rather not?

Well, that EUR 8 million is a reflection of going from 1.4% to 2.1%. So that's the shift on the secured lending having been refinanced. So that factors that in. It does not factor in the 2 bonds. Obviously, the first bond coming up for refinancing in June '26. If I was to assume current debt cost at the moment, then that would be -- the first one would be roughly EUR 15 million. Now clearly, this is a very conservative growth ambition. And all of our growth ambition is -- well, one of our key tenets of our growth ambition is to outrun that increase in the cost of debt for the EUR 15 million. Now that's on the current interest rates. If yield curve continues to go down and flatten then I think that's probably hopefully a max, but we still got 2.5 years to address that. But I'd just highlight that used to delve down into our bonds, for instance, at the moment, and they're currently trading at about 6% to 6.5% yield to maturity compare that to our secured lending refinancing, which we've been doing around 4.5%, 4.25% to 4.5% so there is quite a spread there and an option to refinance through secured lending markets to start bringing that EUR 15 million down. So I see that as a worst case scenario.

Because I asked 2 cost questions. I better ask a revenue question as well. It's a pretty challenging environment in Germany the last 12 months or so, you've seen those results. I think you mentioned on the slide and really that's the question, the growth numbers on 24, you said there's a strong element of being conservative in those numbers as well.

I mean if you think about it, that's an aggregate number over 3 years, for instance, on the pricing in Germany of EUR 7 million, then effectively, we're only factoring in sort of 3% a year, less than 3% a year on pricing there, whereas we've been achieving 7% increase in like-for-like rent roll.

And you've got today's acquisitions potentially to go?

Well, this will be revised if we...

So at this point, this is before anything that comes from today?

Yes. So we will move this number -- this entire forecast up if today's events complete successfully, et cetera, and we have additional capital to get to work. So this did not assume any fundraising whatsoever. This was just pure organic.

James from Peel Hunt. And I appreciate you probably can't talk about the pipeline too much. But I mean, is it worth just talk a bit about the recent acquisitions. I think the North London portfolio, you're particularly excited by some of the opportunities and also just how that opportunity came about. I mean, Andrew, you talked a bit about being able to act quickly and whether that played a part in kind of securing those assets.

Yes. So look, when Sirius became involved with BizSpace, through BizSpace we did a number of things. We launched a by your neighbor campaign where we created a database of everybody who's next door to us and we began a dialogue with them. We look to all sorts of things, including funds in the U.K. that owned industrial property. We've had a number of interactions with those funds, which with the exception most recent one have been unsuccessful. We've been described as sort of difficult people with unrealistic expectations. But we have continued to liaise with those funds. As part of our strategy, now was it a strategy that we thought 50% of our property is going to come from close-ended funds in the U.K. and, no. It was more a strategy of -- we need to engage at this level to understand what's going on in the market. These people are buyers and sellers of property. They affect the market. If I'm really honest with you 18 months ago, I didn't really think we'd ever be buying any property off them because they're people who have very tightly wound yields on their property, and we tend to buy high-yielding property. But life's full of unexpected things. And we're engaging with one specific fund. And as recently as the last 3 or 4 months, we sensed that there was a deal to be done that was the kind of deal that we might like to do. We weren't the only people in the running but the 2 other people are in the running, represented offshore money, Middle Eastern money. And we saw the opportunity to be able to present in our own balance sheet with the cash in the bank and be able to say to the seller, look, speed matters to you. And do you really want to be dealing with parties that have got to get the money into the country at the moment? Or would you prefer to just deal with Sirius in a very simple way. And within 28 days, we'll complete and we did. But that's quite opportunistic on the one hand. It requires the capital to be readily available. One of the key advantages, the capital is already available and it's in the country. And of course, the other thing is it requires a lot of hard work and if you'll excuse my expression kissing a lot of frogs before you find a prince. And we've certainly kissed a lot of frogs in the last 18 months but it's been worthwhile. As a result of it, the actual purchase price with our acquisition cost was EUR 33.5 million on property that had been sold by Workspace some 4, 5 years previously for EUR 52 million. The returns on that are pretty good. We're buying at about 8%, just under, but we have plans for a revisionary yield of between 10% and 11%. Now at that kind of rate, you can put money to work without lending because lending is your enemy at the moment. We don't want to take on any more lending. Lending is your enemy. And we're very, very fortunate to be operating in a market whereby we can generate double-digit revisionary yields because it means that you can afford to put fresh equity to work without blending it with debt. And I don't think people have quite realized how strong a position that would put a company like Sirius in. When others have to continue to sit on their hands, because they haven't got enough equity. They can't make lending work. They can't blend the 2. Sirius has found a model whereby equity only works.

Miranda from Berenberg. Just -- can you give us a little bit more of a feel of what you're seeing in terms of the occupational market. Obviously, a lot of your tenants, SME tenants, are you seeing any kind of weakness, it's not obviously reflected in any numbers. But anecdotally, are there any areas of the market that you're more concerned about? Or are you quite comfortable?

So let me tell you the factors that we thought to look for and then maybe I can tell you what we're seeing. Having been through a few recessions, including the GFC, we've got a little bit of experience of knowing what happens first. And normally, the first thing that happens is with big corporates, their decision-making slows really, really quickly. I can remember in 2008, having Northern Rock on my forecast and my boss saying, there's a sub-prime crisis coming from the States. And I sort of said sub-prime -- what is sub-prime all about. 2 months later, Northern Rock, were nowhere to be seen and everybody knew what sub-prime was. But my first experience back then was Northern Rock should have come in 3 weeks ago. They've delayed their decision for a month. They've delayed into -- now they don't exist in the form they were, and they're completely off the forecast. So we look for this elongated decision-making in the blue chips. We are not seeing that. The next thing we tend to see is at the other end of the scale, payments from core SMEs. So first thing happens is decision-making slows down in the big companies. Second thing that happens is you start to see defaults in kind of the medium-range SME market, and then you start to see it hit your inquiries. And it's normally sort of about a 4- to 8-week. It takes like 6 months for that to unravel. You see 6 to 8 weeks of decision-making, then you start to see payments become a little bit of a problem. And it's only after that, that the inquiry volume starts to come down. If I want to really, really look and try and find a problem, if you paid me to be the bearer of bad news and say, even if it's not there, go and find it, the only sign I can find is in Germany in terms of not non-payments, but the amount of times something fails and you have to contact someone and say, your direct debit hasn't been collected. The competing pieces that they go, I'm sorry, and they pay it. So it's not reflected in nonpayment. It's reflected in the manual intervention to collect payments. And what I'm talking about is in about one in 20 cases now, we have to manually intervene to collect payment, whereas 3 years ago before COVID, it was like one in 100. Yes. It's not something that I believe is material. It's not something that I believe is any real sign. But if you want to say, don't make the judgment, go find me some contrary evidence, that's the contrary evidence. Our inquiry flows are strong. The balance of inquiries is good. Conversion ratios are not going down. Pricing is not under threat. Despite everything that is coming down, into the local markets, we are not seeing any signs of any real distress. Now that doesn't mean we won't do at some point of future. But right here and now, there is no evidence of that.

That's great. And just one other question. Just in terms of the U.K. and again, I appreciate you might not say much on this, but acquisitions, would you be looking more sort of at the industrial side, more offices, studios. Is there any particular area where you think there's better value?

Industrial. I think right now and you come back to a banker's view on risk. Everyone assumes in property, it's all about the risk on the property. It isn't. At this point in the cycle, it's about the risk in how the properties run. So therefore, you can have a very good property but if someone is running off a low capital base, if the operation is small and very dependent on third parties, they are at a much greater risk than an average property being run by a large platform that can produce consistent results all the way through the cycle. And people who own industrial property, unless they own it in scale, People who own industrial property are -- unless they are a large organization, in my opinion, going to be quite challenged on their lending going forward.

That was an interesting comment there. If you had to find something, would you say that's something that you've installed through the corporate culture, at Sirius? Let's go out and find the problems. What are the worst case, that's sort of the details. Can you speak more on that?

So look, we talk a lot about contrary evidence in the way that we talk as a management team. Very easy to see what you want to see. I mean, Chris and I have already started using the term. It's great being on the road talking to shareholders, but we've got to get back to reality. Because look at this, what do we do? We sit here and we tell you why we think we've got everything right. That's not how we run the business. The way we run the business is we go back and we say, what are we doing wrong? One of the terms I use is let's listen for dogs not barking. What I mean by that is when there's silence and there shouldn't be, there's something wrong and the point is, no matter how good do you think things are, go and turn the telescope the other way around and say what if. And that's how strong management teams ride out the storm. They ride out the storm because before it gets there, they're already prepared for the fact that it's coming. That's the difference between complacency and humility. And that's why we hedged our gas prices. That's why we've built our business model with some cover in it. That's why we do a lot of things in our business. They won't make us the most profit at that one specific point in time, but they will help us deliver our ambition to produce double-digit returns for shareholders all the way through the cycle. So we're a bit different where that's concerned, bit pessimistic, some might say, a bit depressing to work with, but a bit safer.

Thanks. A few questions that have come through on the webcast. So the first is from [indiscernible], 35% of FFO was retained. Is this then used to do asset recycling and improvements of the existing portfolio? Or does any part of this go towards acquisitions?

No, it's retained for the organic growth program, where we invest CapEx in order to get a minimum 25% return on investment.

Okay. The next one is from Nicolas Lyle at STANLIB. Could you kindly provide some observations on the current appetite for Sirius' mature assets by the Titanium JV? How has that evolved in 2023 and your expectations for 2024?

I think it's possibly more about our expectations rather than Titanium. Look, I think if we -- and we are selling our mature assets, so Maintal's a good example most recently. I think we need to sell them into the open market and prove the value. I am sure that if we were to talk to our joint venture partners, they would be interested in buying some of our mature assets. They've already bought 5 of them when we sold them a seed portfolio at the beginning of the JV. But I think I need to be able to look to shareholders in the eye and say, we've got the best price for our assets. And we're currently selling in the open market, our assets for a 14% premium to book. I'm not sure that our partners would buy them at 14% premium to book. So I think the answer probably is that we are looking for the buyers who will pay the highest price. And I think we'd probably find those buyers in the open market rather than in partnership.

The next one is from Peter Yu in Wellington, which I think you've kind of covered a lot of, but I'll ask anyway, just in case anything you want to add given the softening German economy and now with U.K. exposure versus when you went through the GFC with 100% Germany portfolio, how do you see the portfolio's potential resilience if we face economic growth challenges in 2024 given the short Walt, especially in the U.K.

So look, a really good question, whether it's '24, '25, '26, whenever I've said I'm going to be around for the next 7 years unless someone gets rid of me in the next 7 years, we are going to face this so we better be prepared for it. I think you've got to start looking at 2 things: your underlying customer base. So in the case of the K, that is probably smaller SMEs than is the case with the Mittelstand in Germany. And I think you've got to look at your property as well. You've got to look at your property from a flexibility perspective. So how much of your space can you pivot quickly when demand changes in the marketplace? For Sirius, that's about 15% to 20% in Germany. In the U.K., it's less about pivoting space. It's more about the health of the SME. And I'm pleased to tell you that if I look at the U.K., where you're right, the lease length is shorter. Most of our small customers on average would save more money by getting rid of a part-time member of staff or minimum wage than they would are not paying their rent. Most of our tenants can -- if they got in problems with the rent, take their credit card out and pay the rent well within the limits on their credit cards. So what I'm really saying is in the U.K., it's de minimis enough for us to be able to recruit enough tenants, small tenants to be able to stay abreast of the economic conditions. In Germany, it's slightly different. In Germany, the Mittelstand will get hit eventually. When it does, it's about our ability to pivot space towards demand in the market. which, by the way, is exactly what you saw us do in COVID. Now I know COVID was different. It was a state-subsidized crisis. But what you saw in the office segment as an example, during COVID in Germany is you saw demand drop off quite rapidly. But what you saw was you saw demand for storage increased substantially and we were able to pivot quite a lot of our space away from office that we couldn't fill immediately across to storage, which we fill very quickly, and that was one of the reasons why we could improve our revenues during the COVID years.

Okay. We've got a question from Kai Klose, Berenberg. 2 questions actually that are -- one is, we had slightly lower volume of net lettings in Germany compared to move-outs as shown on Page 11. Would you expect a positive volume of move-ins for the full year? And on Page 17, how do you expect move-in rates in the U.K. to develop compared to move-out rates?

So yes, I would expect positive. I mean you've got sort of 4,000 difference. It's not really material. It's about 0.5% of occupancy, and it's primarily a timing issue. So I'm not particularly worried about that. Particularly when you look at 0% change in occupancy, 7% uplift in the rent roll, I would expect it to be positive at year-end. If we look at Page 17, U.K., the question is -- what second half of that question?

How do you expect move-in rates in the U.K. to develop compared to move-out rates?

So again, this is mix, and this is all about anticipating the mix of sales in the last 6 months. I would expect that, that gap would narrow quite considerably. Ideally, that move-ins would be higher than move-outs. But I wouldn't be overly worried about that because, again, I draw your attention to the rent roll 9% increase of less than 1% increase in occupancy. So U.K. is far more sensitive to mix than Germany.

Okay. Thanks, Andrew. The last question I've got is from Andre von Rohr, B&I Capital. What is your view on property values within your markets over the next 6 to 12 months?

So the guidance that we're getting from our valuers is that it's leveling out in Germany, i.e., when we're saying, look, how much expansion should we expect in the next valuations? The response that we're getting is possibly none. When we asked the same question about the U.K. valuations, the response we're getting is you should expect more yield expansion. So if I wanted to be super positive about this, I'd say that perhaps in Germany, we're going to hit static yields in the U.K. we have to accept yields are going to continue to expand. Having said that, at a yield of 13%, I mean, I don't know how much further we can expand, but we'll be prepared for it. We'll be ready for it. And if there's less expansion in Germany, we'll be better equipped to outrun it.

Thanks. That's all we've got for the webcast. Any more in the room, otherwise, I think we can close.

Ladies and gentlemen, thank you very much indeed. Really appreciate your time. Thank you.