Warehouse REIT plc (WHR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. It's Andrew Bird speaking, and thank you for the introduction. I think people are joining both by webcast and conference call. If anyone can't see the investor presentation, I would just mention that it's in PDF format on the Warehouse REIT website, and you will be able to access it from there and follow the presentation as we take you through. So I would just look at the highlights of the company before I hand over to Peter Greenslade to take us through the financial aspects, and then thereafter Paul Makin will discuss the valuation performance and the asset management, which will take us into some case studies before I conclude on the market and the outlook for the company. So if we turn from the front page, the agenda, let's just move on to Page 3. Before I summarize the key highlights, I suspect actually that you all want to know most about is what's been happening over the last 8 weeks since lockdown. I think the best way to illustrate the activity is to give you a handful of recent case studies, and this just illustrates how busy we've been. So to start in Newmarket, we have a Warehouse leased to Tristel. In fact, it's their HQ. For those of you not familiar with the company, they specialize in hospital cleaning. In fact, after each patient vacates the operating theater, the nurses tend to refer to a complete Tristel clean to satisfy the necessary hygiene standards. So they're very much in demand at the present moment in time. At the beginning of this year, we agreed a new 10-year lease with the company, including a provision to build a Warehouse extension. COVID-19 has accelerated the tenant's requirement for the additional space. Sticking with the medical theme, since lockdown, we've leased space to the NHS Foundation Trust in Leeds. Initially, the trust wanted short-term space, but now this has morphed into a longer-term lease, which has been signed. In Banbury, 3 units are let to Cleenol, who make hand sanitizer. And understandably, they've been working extra shifts to meet demand. In Warrington, we are progressing a lease renewal with Iron Mountain for document storage space, which is critical to serve their largest customer, the NHS. Turning to the e-commerce theme. As you drive around the M25 and other motorways, you will have seen the green logo of Victorian Plumbing on many of the advertising holdings. With its HQ in Merseyside, the company has a huge online success story selling bathroom fittings. We own one of their 2 warehouses in Skelmersdale, just off the M6 motorway, where they are desperate for more space. Our largest 2 warehouses are both let to John Lewis partnership in Brackmills, Northampton. During April, John Lewis partnership had been trading at 8% of the normal total turnover from just their online presence. In other words, without any retail stores open, sales have only dropped to 20%, illustrating just how much their distribution warehouses will contribute to the future profitability of the company. Again, in Banbury, we let space to SH Jones, a wholesale and retail wine merchant. Their leisure trade is dead, but their online presence, trading is slow, achieved 3 months of pre-COVID turnover in just 2 days in early April. So as [indiscernible] roles, I think we all know that everybody was also buying alcohol. Their success has continued, and we've let them an additional 10,000 square feet in May, doubling their existing accommodation to facilitate social distancing, whilst continuing to grow turnover. After raising GBP 76.5 million of capital in April last year, we deliberately invested in a pipeline of acquisitions to increase our exposure to e-commerce. For example, the Echelon portfolio, acquired from an open-ended fund, gave us exposure to Direct Wines, voted Europe's best online wine offer. We have -- and they, too, have experienced strong growth through the lockdown. The Amazon warehouse in Theale came in the same package, the world's largest company now accounts for 4.5% of our rent roll, a figure that we'd be happy to see grow. So moving back to the detail on Slide 3. We think we bought well, successfully deploying the capital and associated debt ahead of plan, buying a total of 120 assets at a blended yield of 7%. The acquisitions were immediately accretive, enhancing earnings per share during the period. And not only improving the quality of the income, evidenced by the rent collection statistics, but also extending this duration of that income with an increased WAULT, whilst continuing to grow the focus on the e-commerce market. Whilst we were busy raising capital and deploying funds, the Tilstone team remained focused on the day-to-day asset management. We completed 75 new lettings in the year and 98 lease renewals, just over 2 a week. Our occupiers have shown a confidence in their requirements, committing to longer leases at higher rents. This level of occupier activity has been reflected in the March 2020 rent collection statistics of 94% as at the end of last week. Not surprisingly, against the backdrop of strong occupational demand, total occupancy has also increased to 93.4%. And Paul will provide some more detail as we move on to the Property section. The portfolio valuation, as completed by CBRE, stands at GBP 450.5 million, a like-for-like increase of 2.6% in the period. Moving on to the financial highlights. The valuation effect through to an EPRA NAV per share of 109.5p, which was impacted by the April share issue and costs associated with deploying the new capital. Including dividends paid during the period, the total accounting return was 5.4% in the year. Earnings per share were up, just over 2%, at 6.5p, despite a number of the acquisitions only completing days before the end of the first half. So looking forward, we'll have the full benefit of these earnings in the current year, which, as we said at the time, will be earnings accretive, and never has that been more relevant. With increased earnings during the year, the Board increased the target dividend by 3.3% for the whole year, from 6p to 6.2p, which we will achieve with the fourth quarter dividend payable at the beginning of July. We're also happy to confirm that we'll continue to target a total dividend per share of 6.2p for the year ending 31st March 2021. This reflects the positive activity in our portfolio and the wider market. It's also been a busy period for refurbishment projects, committing a total of GBP 3.5 million CapEx, slightly ahead of the previous averages, but in line with forecast, generating double-digit valuation uplifts with more to come as lettings complete. The final point I'd like to highlight is the disposal of non-core assets, largely completed in the last quarter, realizing GBP 16.7 million at an 8.3% premium to book value. 12 months ago, we referenced housekeeping disposals. We will continue to review what we might classify as the bottom 5% to 10% of the portfolio using disposals to continue to enhance the quality of the retained assets. Now moving on to Slide 4. We would specifically like to review the impact of COVID-19. The structural changes coming about pre-COVID have only been accelerated by the lockdown. And I'd like to take you through a few highlights. Online sales in April accounted for 30.7% of market share as against 19% a year earlier, and recorded an 18% jump as against the March '20 numbers. Over 40% of our occupiers now have an online presence. Ever shortening of delivery times will further increase demand for less mile warehouses. All of our warehouses are within 2.5 miles of a town center, city center or major transport infrastructure. Social distancing work patterns will increase demand for more warehouse space. For example, an e-commerce fulfillment company has just taken more space in Brackmills in Northampton to meet growing customer demand and to specifically facilitate social distancing amongst its workforce. Interestingly, the tenant paid GBP 1 per square foot more than John Lewis paid to us on the same estate. On shoring and near shoring of supply chain logistics will increase demand for warehouse space. Cushman & Wakefield research recently suggested that demand for increased resilience of supply chain logistics will lead to companies increasing their inventories by 5% to 10%, which in turn would create a demand for an additional 200 million square feet in the U.K. alone. This is the equivalent to 2.5 years of average annual take up and would be far exceed the available space. So again, more pressure on demand for existing space. Again, Cushman's, on the 13th of May, reported warehouse requirements of 55 million square feet in total, of which they identified 31 million square feet as being very active. And interestingly, 19.4 million square feet of new requirements had been registered in the previous 7 weeks, of which 7 million square feet is under offer and 5 million square feet has been let since the beginning of the lockdown. In conclusion, the market is active, and we are well placed to benefit. Turning to Page 5, please. Our strategy is clear, to focus on the ownership of warehouses suitable for last mile e-commerce use with active asset management opportunities. Our buildings are close to town centers and major transport infrastructure. We'll continue to look to enhance the quality of the income streams of the top 10 tenants now accounting for 28.4% of the income or having the highest of 5 AGMV government rating. So demand for space continues and rents are going -- growing. Yet we're still able to acquire assets for less than the cost of replacement. We're talking about -- we've talked about an economic moat constraining supply, yet many of the consequences of the COVID-19 pandemic will lead, we think, to a demand for ever more space. Therefore, we're excited to have a pipeline of opportunities, which can continue to grow shareholder returns. And I'll now hand over to Peter Greenslade on Page 6, please.

Good morning, everybody. For those of you following remotely, I confirm that we are now on Slide 6, and I promise not to spend as much time on the next 5 slides as Andrew has taken on the first 3. The financial highlights show the results for the year to March 2020, and reflect the positive impact of asset management on the like-for-like portfolio, together with the successful deployment of the proceeds from the raise in April 2019. The raise produced net proceeds of GBP 75 million, and together with debt, enabled the REIT to buy GBP 135 million of assets in the year, with GBP 125 million being invested by September 2019. This swift deployment meant that we were able to cover dividends of 3p per share in the first half year, with the benefit of being fully invested, raised the target of the year from 6p to 6.2p for dividends. The run rate of earnings per share increased from 1.5p per quarter in the first half to 1.7p per quarter in the second half. Turning to the results for the year. We produced IFRS profit after tax of GBP 20.7 million and adjusted earnings of GBP 15.6 million. These adjusted earnings were 48% ahead of the previous year. And in pence per share terms were 6.5p. EPRA earnings per share were 6.3p, significantly ahead of the prior year of 5.1p. Dividends paid and payable for the year at 6.2p, up 3.3% on that page for the year to March 2019. As Andrew has already said, the portfolio was valued at GBP 450.5 million, and LTV came in at 40.2%, slightly ahead of our target range of 30% to 40%. This will be actively managed back below 40% in the half year to September 2020. IFRS and EPRA NAV were both 109.5p at March 2020. I will talk a little later of the NAV bridge on Slide 9. If we move on to Slide 7, this looks at the adjusted earnings in more detail. To remind you, adjusted earnings of the IFRS earnings adjusted for realized profits on the disposal of assets, we made a GBP 900,000 profit, unrealized gains on revaluation, they were up GBP 5.1 million, and then offset by accelerated debt amortization of GBP 0.4 million and moving our hedging position of GBP 0.2 million and the cost of the postponed raise of GBP 0.4 million, each of those are obviously millions, those numbers. In the year, gross rental income increased 37% to GBP 29.4 million, whilst operating costs increased 25% to GBP 7.9 million, resulting in operating profit increasing to GBP 21.5 million from GBP 15.2 million the previous year or 41% ahead. Financial costs increased 27% to GBP 5.9 million in the year reflecting the increased debt associated with the deployment of the raise. Overall adjusted earnings per share rose 48% in the year to GBP 15.6 million or 6.5p. I will refer to debt a little more on Slide 10. The cost ratio fell from 29.4% to 27.1% year-on-year, and the ongoing charge ratio remains at 1.9%. Moving on to Slide 8. This shows the balance sheet with IFRS and EPRA now, both at GBP 263.1 million, up 44% on the previous year. Net borrowings are up GBP 58.9 million to GBP 181 million. That's GBP 186.5 million of debt, net of GBP 5.5 million of cash in the balance sheet at the end of March. And the increase in debt reflects that deployed alongside the GBP 75 million of net proceeds raised in April 2019. Other net liabilities increased GBP 3.4 million to GBP 6.4 million, but GBP 4.5 million of this movement relates to deferred consideration for the Echelon portfolio acquired in September 2019. EPRA and IFRS now stand at 109.5p at the year-end. Moving on to Slide 9. This shows the IFRS and EPRA NAV bridge. Our NAV was diluted 2.8p due to the issue of 74 million more shares from the raise that completed in April last year and by 4p from the acquisition costs associated with the investments made. Now with an enhanced 6.5p of our adjusted earnings, enhanced 6.2p by property revaluation and 0.4p by the profit on disposal of assets, we then paid dividends in the year of 6.1p. So moving on to Slide 10. This just outlines our strong financial position. In particular, I would draw your attention to the fact that we have a debt facility in place of GBP 220 million, which does not mature until January 2025, and has GBP 33.5 million of headroom. We also have an accordion in place for a further GBP 80 million. Our banking covenants of LTV and interest cover are comfortably met. The new debt facility at LIBOR plus 2% is some 14 bps cheaper than the old facility. We have committed capital expenditure, which is currently low, and will remain low until there is greater clarity on outlook. And to sum up, I would say that we are in a strong position to further grow off the back of the year with underlying growth in earnings per share and dividends. And with that, I'll hand you to Paul for Slide 11.

Thank you, Peter. There's a lot of data on Slide 11, but there are a couple of facts I'd just like to pull out. First of all, as Andrew and Peter both said, the portfolio valuation came in at GBP 450.5 million. This is being a like-for-like uplift of 2.5%. And also for me, the fact that the average rent continues to be below GBP 5.50 per square foot. This is a low base from which we can expect ongoing rental growth. And yet the net initial yield is high as 6.3%, rising to just 7% reversionary yield. So according to values, this provides us 19% in-built reversion. But remembering, this is before any future rental growth that we're seeing through shortage of stock and increased demand. And also, bearing in mind our consistent record of outperforming the value of ERV, something I'd like to come back to a little bit later. The other statistics are the capital value per square foot of GBP 73. Andrew referred to this, this is still below the replacement cost. Our portfolio for fire insurance valuation is valued at over GBP 100 per square foot, which means that there's still form this effective mote and an effective barrier against any new meaningful supply coming in on stream to meet the increasing occupier demand. With the portfolio increasing from size from GBP 300 million to GBP 450 million, this just generates GBP 30.4 million annual contracted rent. It has seen a market increase in scale, and with it has come an increase in the weighted average unexpired lease term, supported by all the good asset management work being done. We've increased the WAULT from 4.6 years to 5.2 years as at the 31st of March, yet again, more than beating the natural reduction from the inflection of time. Enhanced by active year of buying quality and selling the weakest in non-core assets, the potential offered by the low passing rent only gets stronger in our opinion. And with the value assessed -- that assessing the ERV at GBP 33.4 million, this is an increase of over 2% on a like-for-like basis. The 2019 Warehouse acquisitions and targeted disposals on Page 12 gave Warehouse REIT the opportunity to increase the weighting of the portfolio in the warehouse storage and distribution. As you can see, it's gone from 71% to 82%. We've also increased the weighting in the Midlands. As said, we continue to focus on areas experienced the strongest occupational demand. Although the contracted rents increased from GBP 21.6 million to GBP 30.4 million, the number of assets within the portfolio has actually reduced, and as has the number of tenants. This has come from a deliberate policy to sell some of the estates comprising very small, almost workshop type units, where asset management plans have been executed, and the quality of the income is less robust. And we think this strategy has been very relevant given current COVID-19 lockdown circumstances. So just having look at some of the disposals on Page 13. In the second half of the period, we sold 12 smaller non-core assets for a combined GBP 16.7 million. This is an 8.3% premium for the March 2019 valuation. To just give you a couple of examples and the photos reflect, we sold a warehouse leased to [ Farm Foods ] in Bangor. We sold 4 smaller office buildings, which were all two-story buildings on Business Park, but still categorized as non-core. We sold 2 warehouses at a premium through owner occupiers. And we sold 2 multi-let estates in Warrington by owner occupiers. So -- apologies, with 2 multi-estates in Warrington, both having workshop sized units, many less than 1,000 square foot each, and let on short sub 2-year leases. So in preparation for the year -- in preparation for sale this year, our Tilstone asset management team have done 36 lettings and lease renewals across the 67 units within these 2 assets alone. This increased the WAULT, increased the occupancy and led to a successful sale at the total price of GBP 5.95 million, reflecting an 18% increase on the March 2019 valuation. This sale essentially will remain focused on the sale of assets deemed non-core and those which no longer fit the investment strategy, something we talked to as the housekeeping. Now turning to Page 14. I'd just like to talk about some of the acquisitions. As Andrew has referenced, we were fully deployed with the capital within 6 months of the April '19 equity raise. The GBP 120 million of new acquisitions prior to the end of September generated a blended net initial yield of 7%. And with the asset management opportunity still to come, the largest transaction, as you can see, with the Echelon portfolio, this completed at the end of September. So we only benefited from the earnings in the second half of the year. But in the second half of the year, we completed another acquisition, known as Midpoint in Cheshire, being a multi-let estate close to the M6 motorway. Well we've had some early wins already, including letting of one vacant unit ahead of business plan, signing a new 10-year lease, the day before the general election. This is a great example of how this occupational market has continued to thrive despite political uncertainties. And the letting will provide good evidence and is already starting to drive rents forward across the estate. We also made one acquisition since the end of the year, being a multi-let estate in Knowsley, which is on the outskirts of Liverpool, close to an existing property, which has already performed well for the REIT. Knowsley Business Park has 5 units, averaging of just over GBP 5 per square foot, and in our opinion, represents good value at 7.1% net initial yield and less than GBP 72 per square foot capital value. Just focusing a little bit further on Page 15 on the Echelon portfolio. Some of you may remember this transaction that we've talked to, it was 8 assets in strong locations, such as Reading, Gloucester and Leicester. That's a good tenant, such as Amazon, Iron Mountain and Direct Wines and Sytner. The portfolio as a whole totaled GBP 70 million with a day 1 net initial yield of 7%, and the weighted average unexpired term was 5.3 years. But this does actually mask one occupier, which was on a very short lease, which provides us some strong opportunity. And I'd just like to touch on that for a second with a case study on Page 16. The short leases on 106,000 square feet of well specified warehouse in Warrington and a strong M6 metro location, close to conurbation, and is let to Iron Mountain. And this was leased, due to expire in February this year. So as with all transactions, an important part of the due diligence is inspecting the units internally and speaking to the occupier. Iron Mountain are a global business specializing in the storage and managing of documents, they have approximately 1,500 facilities across the world in over 90 million square feet in 50 countries. So in Warrington, they've actually installed 5 levels of mezzanines, and they store over 2 million document boxes. And so we identified this as a key location for them, and they serve the MOD, the legal professionals of both Liverpool and Manchester. And the largest occupier client is the NHS. And -- but the passing rent was only GBP 4.59. So we've engaged already with the occupier of the lease renewal, and they've served a Section 25 notice requesting a new lease. And negotiations are well underway, and we hope to be able to increase the rent and the WAULT. And we also look forward to developing the relationship with the occupier, seeing if we can satisfy the wider U.K. requirements. So talking about our other occupiers, we've done some analysis about which sector they sit in on Page 17. And so as at the end of March, we actually held 95 assets with 560 tenants. Interestingly, 28% of the rents collected from the top 10 occupiers and 85% from the top 100. So our largest 5 occupiers include John Lewis, Amazon, Direct Wines, and the next 5, none of them are paying more than 2% of our total rent roll, and this then includes the likes of Iron Mountain, which I've mentioned, Howdens, Liberty Aluminum and Emerson. And so in terms of sector spread, the chart on Page 17, it shows that 39% of our occupiers trade using accounting codes in the Wholesale & Trade Distribution. It's quite interesting to see that on the right-hand side amongst the logos, Amazon sits in the Services & Utilities. So if you actually add that Amazon to the Other, we're at circa 45% in the Wholesale & Trade Distribution. We're at a good spread amongst the other sectors. Included in some of our other occupiers, Andrew has mentioned Victoria Plumbing distribution on behalf of Boots distribution, John Lewis and Laithwaite's Wine, again, Gloucester being an online delivery for Direct Wines, again, having a very busy time over these times when people are on lockdown. Turning to Page 18, looking at the occupancy and rents. As I'm sure you're aware by now, a key part of our management philosophy is getting to know and understanding our occupiers. Considering COVID-19, this never before has been more important, and it's also very beneficial. It's helped with our rent collection. And as Andrew said, we're currently at 94%. And we're working with the remaining tenants, and we're confident these relationships will help sustain this going forward. Interestingly, 78% of our portfolio is multi-let estates, providing a diversity of risk and creating asset management opportunities, like I discussed at Middlewhich. The majority of our tenants are trading, with around half of those selling to the public through an online sales distribution channel. Current occupancy is at 93.4%. But we're actively refurbishing 2%. And with another -- those other units under offer, our actual effective vacancy is only 3.5%, showing the strength in the market. And it's below our long-term target of 5%. Through all the active asset management acquisitions, we've increased the WAULT from 4.6 years to 5.2, something we would look to continue. And in fact, during the lockdown in April 2020, less than 50% of our units were open and trading. But this number has grown, and we estimate that currently around 76% of our income is actually open and trading, which bodes well for our June quarter rent collection. Turning to Page 19, just to elaborate a few more of the statistics that Andrew mentioned in the introduction in terms of the performance during the year. As you can see, we've carried out 75 new lettings during the year, generating GBP 1.8 million of rent. And we continue to perform -- outperform values ERV by over 8%. And we've also carried out 98 lease renewals, securing GBP 3 million worth of rent, reflecting almost a 20% increase in the passing rent. And that includes the lease renewal with Lynx Business Park to Tristel, which Andrew mentioned, but also a new 10-year lease with Boots and Alliance Healthcare for 10 years. We're seeing a 42% increase ahead of the previous rent. In terms of the -- turning to Page 20, seeing the track record. We've talked about our outperformance, which we're very proud of, and we can see that new lettings have averaged 9% ahead of ERV, consistently on average, and lease renewals have averaged 16% ahead of the previous rent. So the most recent period is pretty much in line with that. Vacancy continues to fall, and our retention rates are strong across the portfolio. And we're pleased with the prospects for further asset management opportunities going forward. And just to give one further example case study before I pass back to Andrew, I just wanted to talk through an asset in Witney, which others -- people have -- might have heard us talk about before. But as you know, Witney is a popular overspill of Oxford. It's just on the A40. When we bought this at IPO, the asset was 12 units, comprising 112,000 square foot. And at the time, the average rent was GBP 5.20 [ cost per feet ]. But of those 112,000 square feet, 70,000 of the units were actually let to the Fabulous Bakin Boys, who had already gone under and had been brought out of receivership by Daelmans. But unfortunately, Daelmans couldn't turn the business around, and they looked to try and sublet the building. And we were working with them and in discussions with them, and we managed to agree a surrender of the remaining lease commitments during the year. So we secured control during the summer and with the surrender premium, that covered our rent liability until earlier this year and also some of the refurbishment costs. We've almost completed the refurbishment. And we're looking to secure an interest in rents between GBP 7.25 and GBP 7.75. Remembering that the past rent before on this unit was GBP 5.2. That's quite a movement. And we're also working with the other occupiers on the estate to see if we can relocate them into this refurbished unit, therefore, releasing an asset to be able to refurbish and enhance the overall performance. And we've got interest -- strong interest in that from one of the country's leading trade operators, who are also looking to take advantage of the underutilized carpark. So with that, I'll pass back to Andrew for the market overlook.

Just before I go into the market, it's actually very interesting that one of the companies, looking at this space in Witney is -- manufactures the protein to use in the COVID antibody tests. So being near Oxford and the research that's going on in the pharmaceutical industry, here we are Witney, seeing some of that supply. It is also interesting to see how the smaller tenants have been very entrepreneurial through these times. We have a printer and one of the smaller units who prints menus for Virgin Atlantic. Well, of course, that demand has fallen away, but that business is now printing menus for HelloFresh. And that customer is a new account, and they've successfully managed to replace the business. So it's a -- times have changed. It is times of change, but people are being way entrepreneurial in their approach. So moving on to Page 22, please, market outlook. The 2 pie charts at the top continue to show that Online Retail and the associated 3PL sectors have moved to dominate occupier take up over the last 10 years. And we see the percentages going forward only continuing to grow. The graph on the bottom right -- sorry, bottom left continues to evidence that the industrial sector is outperforming in terms of rental growth. Looking at the solid line, the All Property index has been weighed down by Retail and now maybe also weighed down by hotel, leisure, student and possibly offices. So we continue to see the warehouse sector is outperforming in terms of real estate other subsectors. And you can see from the information we're giving you that the supply demand imbalance is still very much in favor of the landlords. So bottom right, major cities are seeing constrained supply. And as Paul has told us, we're not seeing any new development. It's interesting just to look at the investment market. What's happening since lockdown? Bad news for the agency brokers. The investment volumes have substantially fallen off. But interesting to see how those deals, which are being transacted, continue to hold strong prices. Now we have seen a number of transactions reliant upon bank debt have paused. Will they fall out altogether or will they get picked up? We're watching with interest. I think the characteristic, though, is that for those funds that need to sell, the only liquid stock in a mixed portfolio is the warehouse industrial sector. So we will see prime stock coming to the markets, we think, in the next 2, 3 months, which wouldn't otherwise have been offered for sale. And this is because the warehouse sector is offering liquidity where other stocks -- other subsectors are really suffering through the current COVID-19 lockdown. Just moving on to Page 23, if you will. Portfolio with strong income and capital growth. So we really like the assets that we've acquired in great economically relevant locations and fit-for-purpose buildings. So by CBRE's assessment, we have a potential to increase income by 19% from the existing portfolio without any further rental growth. And that will feed through directly to the earnings per share. And this is evidenced by the slide on the top right, with rent free periods, portfolio reversion and letting of vacant space, all contributing. In addition, we'll also have some wins from a handful of opportunities where planning permissions will enhance value. And finally, on the bottom of this page, bottom right, the graph shows the breakdown of the WAULT. Currently, we have 4.1% of our income holding over. 40% of this category is down to one occupier. Only yesterday, I signed our half of the lease, which we -- with the expectation of completing the documentation later this week for a new 10-year term. Over the next 12 months, 5.4% of our income falls due for renewal, providing the opportunity to move rents to match ERV, or as we would contend, according to our track record, we will exceed the evaluer's ERV. So moving on to the final slide on Page 24. To wrap up, the challenges of COVID-19 have brought us only closer to our tenants, demanding and understanding -- demanding an up-to-date understanding of their businesses. We have spoken to all of them. There will be some failures, but we believe each will be more than offset by opportunities as we move through the year. We see no reason to think our strategy needs to change, and we back our judgment with management continuing to hold 8% of the REIT with no one having sold any shares since the IPO. REITs are, by definition, focused on the distribution of income to shareholders. As a management team, we set ourselves a target of ensuring that we are well placed to maintain those dividends. Thank you very much. We're very happy to take any questions.

[Operator Instructions] The first question is from the line of Julian Livingston-Booth from RBC.

Just 2 quick questions, if I may. The first is you mentioned that 76%, I think, of your warehouses are open, giving you confidence over the June rent collection. Can you add any color? Do you expect June rent collections to be easier or to be harder than March? And then maybe the second question. Just in terms of the vacancy related to refurbishments. Do you expect that to maybe go up or go down over the coming year?

Andrew speaking. If I can take the first question and maybe Paul will take the second. We -- June collection rents, we are already starting to talk to all of our tenants about the June collection. We are seeing increased occupancy the whole time, and we expect much more occupancy coming through in the next 2 weeks. We think that there will be probably a higher percentage of rents that we're prepared to accept on a monthly basis, just managing people's cash flow through this lockdown. But with monthly rents, and actually knowing, we've actually got some June rents in already, would you believe it? So given this insight into how people are trading and what they're doing, we think the June collection will be in line with March, albeit that some of the rents may be -- well, additional rents may be paid on a monthly basis. And we're happy to facilitate that during these particular -- obviously, extreme periods. Paul, would you just like to take the second part of the question?

Yes. No. Thank you. The -- in terms of the -- looking forward, Andrew touched on Page 23 of the slide, if you look forward in the next year, about 5.4% of the rent roll has an expiry. And again -- but our retention rates are strong at 70% to 80% depending on -- including reletting or not. But -- so we're comfortable with where we sit. COVID, of course, we're aware of what's going on. There is always a number of occupiers who can no longer afford the space, get into difficulty. We'll be working with those to try and relet the space. But we talk to our asset managers regularly, and we're working daily with them and working with the occupiers, but we've been -- it's interesting to hear the level of new inquiries that are coming through. Even at the smaller end, entrepreneurs starting, perhaps they are fed up with working in their garage, and want some space to be able to come out to. But -- so we're feeling positive about the assets that we've refurbished. We've already spent the majority of that capital expenditure. We spent GBP 3.5 million. So we've got the benefit of that coming down the barrel. And we were expecting sort of a normal year next year in terms of vacancies.

If anything, next year is CapEx forecast of GBP 1 million as we enter the year, which is less -- significantly less than our standard forecast. So it's a number that we can switch off if we think we should have to defend the strategy, but I think more focused on letting what we've already refurbished last year.

The next question is from Matt Saperia from Peel Hunt.

A very quick question from me. I was just interested to hear if you could add some more color to the comments around the potential pipeline of opportunities that you've seen in the market, the GBP 350 million. And I'd be particularly interested to know what type of vendors you're engaged with in that pipeline, please.

Matt, thanks for your question. So pipeline is looking at 2 things. We -- I think everyone will be aware that we had a roadshow in March with a view to raising capital, which we adjourned as a result of the COVID-19 lockdown. So we had at that time, and not the similar pipeline, and specifically 2 corporate deals in those opportunities of U.K. portfolios. So those transactions are both still with us, and we think we can execute both on slightly enhanced terms. We are also looking at the e-commerce home model with a real focus. So we have slightly orientated the pipeline because we want to buy more e-commerce [indiscernible] income. We can only see the trends that have been paying out over the last 2 months getting stronger and staying with us. And it's amazing the number of people, I mean, our friends, their grandparents, are all online. It's been a real change. And I think the convenience is with us forever. So the affordability of these warehouses for the successful e-commerce solutions looks very favorable, and therefore, rental growth should outperform. In terms of vendors, there are a number of open-ended funds in lockdown. They need to realize income yet again. And what's liquid given in their mixed portfolio, whereas the warehouse industrial sector. And I think there's an interesting point there, Matt. Historically, if we track investment volumes over the last 5 years, we've had a track record of buying when volume falls off due to political uncertainty. We've had Brexit. We've had a change of government. Now we've got COVID. It does create a buy opportunity when you have uncertainty. And we remember, back in 2016, when we were coming where it was the referendum vote on Brexit. Absolutely, capital markets froze for 6 to 8 weeks. Yet, Paul and I had 6 lettings going on in the portfolio. This is pre-IPO. Not one of those lettings faulted. So again, we see the strength of occupational demand aside of capital markets. And so we don't think prices will completely come our way. But what we absolutely do think is the quality of the assets that we might not otherwise be able to access will be there, and we are excited by what's in the pipeline and the opportunities that we can deliver.

[Operator Instructions] As we have no further questions here, I will now hand back to Andrew to answer the questions which come through on the webcast.

Thank you. So I have one question from Mike Foster of Hardman. You've asked about the difficult building size on the acquisition pipeline. So whilst our estates are typically 100,000 to 150,000 square feet, our average size of unit is just around 10,000 square feet in the present portfolio. In the pipeline, that size average is nearer to -- well, the units between 25,000 and 50,000 square feet, with more towards the upper end of that size range. So it is fair to say that in the pipeline, we will expect to buy slightly larger units, but remaining focused on urban warehouses close to conurbations. The second question comes from Colette at Numis. You've asked to give some color around pricing of the pipeline. I think you would have probably seen the information that we published last time back in March, which we were looking at a blended net initial yield of 6% with opportunities to add value. So we remain focused on quality. And you should take the last guidance around pricing and pipeline as something of a takeaway for the current opportunities. And remember that we remain focused on buying quality income and looking for security of our dividends going forward. Hopefully, that is helpful. I have no further questions from the web.