Warehouse REIT plc (WHR) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the presentation of the half year results for the 6 months period to the end of September 2022 for Warehouse REIT. My name is Andrew Bird, Managing Director of Tilstone Partners, the REIT's investment adviser. And today, I'm joined by Paul Makin, Investment Director, who will speak to the portfolio evaluation and some of the asset management initiatives; and Peter Greenslade, our Finance Director, who will present the financial numbers. I'll conclude the presentation in good time to provide ample opportunity for questions. First, a little introduction. On the 19th of September this year, the Warehouse REIT celebrated its fifth birthday as a listed company, a significant milestone for management, but there was little time to celebrate. Inflationary pressures and rising cost of debt have resulted in reduced volumes in all real estate investment markets and downward pressure on values. Once again, as with the pandemic, the economic relevance of our portfolio will be tested. In the opinion of management, given the current level of ongoing asset management activity post period, the REIT is well placed to outperform. Let's have a look at the numbers. So I'm going to go through the key highlights, some market statistics before I hand over to Paul. The property fundamentals of the warehouse sector remain favorable. Occupational demand is resilient against the backdrop of acute shortage availability. In the 6 months period to the end of September, like-for-like contracted rents grew 2.4%, a material uplift on 0.8% 12 months earlier and bringing the annual uplift to 4.7%. Despite the growth, average events across the investment portfolio still remain at just GBP 5.77 per square foot against an ERV of GBP 6.35 per square foot. It's very affordable space. The 567 occupiers provide a robust income, demonstrated by our ongoing strong rent collection. Asset management efforts in the period have secured GBP 3.3 million of contracted rent. In July, the Strategic Planning Board of Cheshire's Council unanimously approved the planning application for a further 1 million square feet of warehouse space at our site in Crewe, more about that later. On the financial side, the CBRE valuation of just over GBP 1 billion equated to an NTA per share GBP 153.3p, resulting in a loan-to-value just over 32%. And importantly, approximately 75% of the debt is hedged by way of 2 additional caps. Today, we declare a dividend of 1.6p, making a total of 3.2p per share in the period and in line with our full year target of 6.4p per share. So looking at the market. Demand for warehouse space remains strong, fueled by structural trends. Starting with the graph on the top left. Supply/demand imbalance of available U.K. warehouse space continues. Q3, the final bar on the chart, recorded nearly 9 million square feet to take up 15% above the long-term average. There was a width and breadth to the occupational demand, continuing to be driven by e-commerce, showing the upward trend on the graph on the top right, as well as the fallout of a trend of deglobalization resulting in more and more onshoring, reshoring, as companies look to build resilience. Looking at the graph on the bottom left. In October, last month, Savills reported that vacancy remains structurally low at just 3.3%, considerably less than the average since 2015, which would have been 5.9%. There was just 23 million square feet expected development under construction, 14% is already under offer. Savills looked at the long-term average annual take-up and suggest there was less than 9 months of equivalent warehouse supply in the U.K. And this drops to just 5 months if you adopt the take-up rates for the last 3 years. In the last couple of weeks, since Savills reported those numbers, in other words, there have been a number of transactions in the market. 250,000 square feet let in Bristol, 131,000 square feet in Preston, 170,000 square feet in Wellingborough, 630,000 square feet in Yorkshire. The vacancy rate has fallen further, putting more pressure on occupiers searching for space. There're just 2 points I want to highlight from this slide. Why is there so much demand? Rents remain affordable, especially in the regions. In real term, rents have remained static for 4 decades, London being the exception, and have failed to keep pace with both RPI and earnings growth indices. So why? We might ask ourselves. And our contention is that historically, markets have always had an element of vacancy which has suppressed rental growth. Today, the market has experienced a prolonged period of undersupply relative to demand, with forecasters such as Realfor predicting rents will grow a further 25% by 2026. Is this realistic? Leading supply chain consultants Hatmill examined the total cost stack for a parcel delivery company. They concluded that a 12% rent increase would only add a 1 percentage point to total operating costs. And in our own experience, in a recent survey of our tenants, it was interesting to note that rent did not appear as a key cost concern. So how does the macro warehouse trend coupled with the new economic circumstances impact on our short- to medium-term strategy? Our #1 focus is to grow the rental income. We have positioned the portfolio to benefit from an in-built reversionary uplift in excess of GBP 9 million, an equivalent of just over 2p of earnings per share with, as Paul will explain, lease expiries and rent reviews alone, potentially generating nearly 1p of earnings per share over the next 2, 2.5 years. We've moved to protect the overall cost base on the company's debt by putting in place 2 interest rate caps protecting GBP 230 million of debt, which Peter will talk to shortly. A number of smaller disposals have been completed. Others have exchanged. And [indiscernible] generate over GBP 25 million and we will continue to target further sales to a point where circa 90% of outstanding debt is hedged. We believe a combination of rising rents, reduced debt will secure a fully covered progressive dividend from the year ending -- sorry, for the year ending March 2024. And I'll now hand over to Paul to take us through the corporate portfolio.

Thank you, Andrew. In summary, the half year to the end of September has seen significant economic headwinds impacting on capital markets which have been reflected in our valuations. However, we have seen continued experience and -- we continue to experience a strong occupational market, which I'm pleased to say we've been successful in capturing through our asset management. And these 2 points, which I'd like to quickly cover this morning. First of all, looking at valuation. And I know there's a lot of numbers on this slide, I'm just going to pull out a few key ones. At first glance, it might look as if not much has changed. The total valuation is around GBP 1 billion. The weighted average unexpired lease term is still 5.5 years. However, this masks material valuation impacts, some acquisitions and disposals and also strong asset management activity. Therefore, it's only when we look to the like-for-like valuation movement that we start to see the impact. And that's a decline of GBP 70 million, being a 7% deep decline. It's something I will cover on the next slide. Capturing the continued strong occupational market, as Andrew has highlighted, through our asset management, we've maintained a wealth of 5.5 years. This has been helped by the fact that all our new leases averaged over 8 years WAULT. We've increased the contracted rent from GBP 44 million to GBP 47 million. That's a like-for-like increase of 2.4% or 4.7% to the 12 months to the date. And yet the contracted rent is still only GBP 5.77, the affordability point that Andrew has mentioned. We've also had to deliver an increase in rental value, with the value as being -- a view being that this increase from GBP 51.5 million to GBP 56 million. Again, a like-for-like ERV growth of 3.2% during the 6 months being over 6% annualized. This, therefore, means there's a GBP 9 million in-built reversion, giving a reversionary yield of 5.7%. And at an average of GBP 6.35 per square foot, in my mind, this deal feels conservative, especially if we consistently outperform value as ERV. Coming back to this like-for-like valuation movement. We thought it would be useful to actually set out the analysis of this, both on a capital value and absolute on the left-hand side and also the basis points yield outward movement in the valuation yields. The left-hand side breaks back the GBP 70 million like-for-like valuation movement in the period. And on the right-hand side shows the 41 basis point decompression. What is clear is that the largest valuation impact has been in the regional distribution and last mile sections. And this is because these sectors are generally longer income, stronger covenants and lower yielding. And so we felt the impact greater from the increasing in the debt-free rate -- the risk-free rate. It's just worth noting from the valuation point of view that the first half of our accounting year was definitely a game of 2 halves. In the first half, we saw -- we continued to see valuations rise and yields fall. But in the second half, we saw a quick turnaround with yields increasing and valuations falling. And therefore, it's fair to say that this is the net position you're seeing here, and it would be a lot more dramatic if we've taken it from the peak mid period. Despite the turbulence in the occupational -- in the capital markets, as we've said, we've not seen a drop in the activity in the occupational markets. The team continues to manage circa 2 transactions a week, which is 50 over the half year, securing GBP 3.3 million worth of contracted rent, contributing like-for-like rental growth of 2.4% for the half year and 4.7% for the full year, as I've said. In doing so, we've managed 20 new lettings, creating GBP 1.3 million worth of income, over 10% ahead of the March 2022 ERV. We've renewed 15 leases at over 13% above the previous passing rent. And of special note this time, I'd like to draw the attention to the rent review activity which we're managing, where we've managed 15 transactions, creating an additional GBP 300,000 per year. This is a 23% uplift on the previous passing rent. Our vacancy at the year at the September stood at effectively 4.7%, as we can see from the bottom right-hand corner. Whilst we saw a marginal increase over the previous period, we were confident that this was a point in time, and we've been proved correct, because I'm pleased to say that post period end, the occupational market has remained robust and since we've managed to complete a further 8 leasing transactions and agreed terms on some key vacancy, which combined will create GBP 1 million worth of contracted rent and effectively bring the vacancy down to only 3.7% on the bottom right-hand side. This slide represents the key message that we wanted to make. The portfolio is highly reversionary. The ERV being close to GBP 56 million compares to today's contracted rent of only GBP 47 million. There's therefore GBP 9 million worth of in-built reversion. And this is based on value as ERV. And again, we'd like to prove that we outperform value as ERV. The main focus, as always, is letting the vacant space. And as we can see, by letting the vacant space alone, we can increase our contracted rent by GBP 4 million. And in terms of the other GBP 5 million of reversion, the graph on the bottom left-hand side charts this over time where the lease events are forthcoming. And as we can see, over the next 2.5 years, there's a potential to increase by about GBP 4 million the contracted rent. And again, this assumes value as ERV and no rental growth in the graph. So again, we consider this to be conservative. Before I pass back to Andrew, I'd just like to quickly cover 2 case studies. The first of these is Gateway Park in Birmingham, arguably one of the best industrial estates in the Midlands and the only one that has direct access onto Birmingham Airport apron. And in fact, as you can see in the middle of the screen, we actually own the cargo for handling facility for the airport, a very rare commodity. We all like to buy good quality estates in good locations with vacancy. And on acquisition, the passing rent for this estate was GBP 6.33 per square foot with a 22% effective vacancy. And I'm pleased to say that the estate is now fully let, with the average passing rent of GBP 7.26. That's a 15% rental growth over 2 years. And looking forward, based on the value as ERV at GBP 8.33 per square foot, there's still another 15% reversion to go for. And we're confident about performing this, especially in the latest letting to an electric bike and scooter company, the rent was 18% above the March '22 ERV. As part of the exercise to get the building fully let, we worked closely with occupiers. This is a bit of a game of musical chairs. One occupier, we've actually moved twice to satisfy their expansion plans. And I'm glad to say that by the -- and we had to move other occupiers around at the same time. And I'm glad to say when the music stopped, everyone had a chair and they were not empty. As with all the estates, we looked to value-enhancing opportunities as well, the lazy acres that you've heard us talk about before. In this instance, we saw the car park in the middle of the estate as this possibility. And through reorganizing the car parking, we've actually created a plot of land, which we could now further expand into, being the orange in the middle of the screen. And we've managed to secure planning for 7,000 square foot, which can increase our income by over GBP 80,000. And lastly, I'd just like to quickly touch on one of the assets that we've just bought. This is Bradwell Abbey in Milton Keynes. We've been actively looking for another asset in Milton Keynes to join our existing holding. Why is this? Well, we've targeted Milton Keynes because it not only is the fastest-growing city in the country, but it is also center to the Oxford/Cambridge Arc, being one of our key conviction growth areas. We were very pleased to secure this off-market and provides a rare opportunity to buy an unbroken 335,000 square foot estate with 69 units. And with the vendor not being a specialist industrial manager, the estate has been starved of CapEx for the last few years and therefore rightful opportunity. And due to our other holdings in the city, we knew that the rents there were soft. The passing average rent was GBP 7.80 per square foot, comparing to GBP 18 per square foot on alternative comparable schemes in the city. We exchanged contracts in April, and we managed to secure a delayed completion until the end of June so that we could hit the ground running with our asset management. I'm very pleased to say we've managed this with the hard work of the team, and we've made good progress. And hot off the press, I'm glad to say that we've actually just agreed terms on Unit 16, which appears in the photograph, above ERV. And we've also just agreed a lease renewal over GBP 13 per square foot elsewhere on the estate. And we look forward to reporting further progress at the full year. Pass it over to Andrew.

[indiscernible] musical chairs. As part of our asset management, we continue to look at the pipeline of opportunities for acquisition, but also potential sales. In the period, we made 2 opportunistic purchases, Bradwell Abbey that Paul has just taken us through the rationale and a much smaller asset being Rose Trees Farmhouse. It's strategically located, about a 1 acre plot adjacent to the Radway Green, Crewe phase 2 development access. And by bringing it into the site, it gives great potential to increase efficiency and density of the overall development. But we're also looking at the hold and sell analysis. We've been making some disposals of what we term the noncore, smaller assets, historically we've talked about housekeeping. In the period, we exchanged -- sorry, we completed the sale of 2 assets. We exchanged on the sale of 7 other assets, which have subsequently completed. In aggregate, achieving GBP 18.8 million ahead of the March 2022 valuation of GBP 18.6 million. So obviously, ahead of that valuation number before the downward pressure at September. Two further assets have subsequently exchanged post period, and we will look at further disposals to reduce the gearing, especially of the non-income or lower-yielding assets. I said we'd come back to Crewe. For those less familiar with the company, Radway is a prime logistics development opportunity located 1.5 miles from Junction 16 of the M6 motorway. The REIT has assembled 112 acres shown edged blue on the graph and across 4 separate transactions with deferred payment terms on circa 25% of the consideration until September 2024. In the period, as I said in the highlights, the Council Strategic Planning Board approved the application for a further 1 million square feet. The aerial CGI on the slide is indicative, but it does show 1 standout larger unit. This is potentially 800,000 square feet in 1 building. No other site in the northwest of England can accommodate the unit of this size and yet there is potential demand. The recent consent for Phase 2 now brings the overall approval to just over 1.8 million square feet. Working with Panattoni, Europe's largest logistics developer in their capacity as development manager, we are currently clearing the pre-commencement planning conditions on Phase 1 and obtaining contractors' tender returns to enable infrastructure works to commence calendar Q1 of 2023. We continue to review all the strategic options for the project whilst we caught occupier interest. We see the 2 going hand-in-hand. Whilst clearing planning conditions and undertaking infrastructure work only continues to grow value, let me be clear we will not risk shareholders' capital on speculative development. I'll now pass over to Peter to take us through the financial numbers.

Thank you, Andrew. I don't propose going through the results line by line but aim to pull out the salient numbers and ratios. If you have any specific questions, we'll be only too happy to answer them at the end. On this slide, you'll see that IFRS profit before tax fell to a loss of GBP 46 million, down from a gain of GBP 86 million in the half year to September '21. We had operational earnings before revaluation of GBP 11 million and a GBP 16 million gain on the value of our interest rate caps, but these were offset by a GBP 73 million loss on revaluation of the REIT's assets during the period as yields softened. Adjusted and EPRA earnings per share were 2.8p and 2.6p for the half year, down from 3.1p for the comparative period with the main driver being interest costs, which were GBP 2.3 million higher half year on half year, and when adjusted for acquisitions contributed approximately 0.3p of the difference. The investment management fee accounted for further 0.2p of difference as this was paid on the March 2022 valuation, but this will correct in the second half when it is rebased to the lower September valuation. We have maintained our dividend in line with our target level of at least 6.4p for the year. And for half year, we'll pay a total of 3.2p. Although this is not fully covered, we are confident that we can manage the short-term increase in the cost of capital due to our visibility of the improving returns from the reversion in the portfolio. The valuation decrease, together with assets acquired in the period, meant that we had a portfolio valued at just over GBP 1 billion at the end of September, and this produced an EPRA NTA of 153.3p down from the 173.8p at the end of March. Loan-to-value increased to 32.3% at the period end, and this increase over the period was driven by the recent acquisition of Bradwell Abbey, which you just heard about it from Paul, for GBP 62 million by the fall in the valuation. This will reduce when the cash from the recently completed disposals is taken into account and will fall further as we continue to review and dispose of noncore, non-income-producing assets. I'd just like to remind you all that this is below our self-imposed cap of 35% and that our strategy is to manage it lower in the coming months. We will exercise discipline on the allocation of capital until we see markets stabilizing. On the slide, you'll see that the rental income for the half year was up by GBP 0.7 million to GBP 23.3 million and reflects the impact of acquisitions together with like-for-like rental growth of 2.4%. Property costs have reduced $300,000 despite the portfolio increasing in size and despite slightly higher vacancy costs in the period. But our net finance costs are up 69% half year on half year and this is driven principally by debt increasing GBP 73 million to GBP 336 million to fund the acquisition of Bradwell Abbey, for the land of Radway and for CapEx. Our weighted average cost of debt was low a year ago at 2.1%, but increased to 2.8% during this period on average. This meant that the total interest cost increased GBP 2.4 million half year on half year. The EPRA cost ratio and ongoing charges ratios remained broadly flat at 27.6% and 1.3%. Our balance sheet remains strong and has net assets of GBP 679 million, down from the GBP 739 million reported in March, with the movement driven almost exclusively by the net GBP 73 million revaluation deficit. Net borrowings of GBP 325 million, this represents GBP 182 million of term loan and RCF of GBP 154 million, offset by cash held. Our other net liabilities are up from the March year-end, and the balance is largely represented by the fair value of our interest rate caps, which is stripped out for EPRA NTA. Our EPRA NTA bridge is from the 173p at the end of March to the 153p as at the end of September. The largest impact, of course, is the GBP 73 million or 17.3p net revaluation deficit. There were earnings of 2.6p, but these were exceeded by 3.3p of dividends paid, and there was 2.5p driven by the acquisition of the interest rate caps. In terms of our financing, I think it's just worth dealing with that head on. We are 75% hedged at the end of September. We took out GBP 200 million of caps at 1.5% for 3 years, GBP 100 million for 3 years and GBP 100 million for 5 years in the summer. We have 2 further caps that we already had in place both for GBP 30 million, one at 1.5% and one at 1.75%. One of those actually expires this month, the other rolls for another year. The average cost of debt, as I've already said, in the period was 2.8%. But what we can't escape is the fact that in September, that rose to 3.6%. And that 3.6% is actually the level that our GBP 230 million of caps, caps us out at. So we are only exposed to debt above GBP 230 million for the next year. Uncapped debt is currently costing us, as of the last interest rate increase, 5%. And to counter this impact and as already stated, we will look to reduce debt in the short-term to a level whereby our debt is materially totally hedged. Our current debt profile is one of a facility of GBP 345 million, that is to January 2025 with an option to extend for further 2 years. We are, however, looking to extend this even further and are in discussions with our supportive banks to do this over the coming months. And before I hand back to Andrew, it's just worth looking at the debt waterfall, which shows the cash track from March 2022, where we had GBP 271 million of debt, how it rises to GBP 336 million at the half year, largely due to Bradwell Abbey, as I've already said. And at this level of GBP 336 million is very much a high watermark in our debt, and we intend to manage it lower over the coming months. Recent disposals have already reduced that to GBP 322 million and we intend to reduce this so that is materially covered by our interest rate hedges at 1.5%. Andrew?

Thank you, Peter. Sustainability is now not only an important KPI, but threads its way throughout the whole business. We measure our strategic approach with reference to the 4 pillars that we're showing you on the slide. Number one, we're creating a resilient portfolio. The EPC ratings continuing to improve, and we're well in place to be C or above by the 2027 legislation deadline. And now we look to commit to the Net Zero Carbon pathway, which we expect to be able to announce a date by year-end. Number two, reducing our footprint. Already, green tariffs account for 88% of the company's energy suppliers. Number three, supporting our occupiers. As I say, it takes two to tango. And for a successful tenant engagement, that's important. And we're delighted that our endeavors are increasingly being welcomed, probably something to do with the increasing power costs. And number four, responsible business foundations. Whilst we're pleased to have achieved the EPRA Sustainability Best Practice Recommendations Gold Award for the second year running, we are also completing the GAAP analysis for the task force on climate-related financial disclosures and have completed the GRESB readiness assessment. So great progress being made on a number of fronts. The infographic at the right-hand portion of the slide, simply, I think, captures the various processes that frame our strategy. I just very quickly wanted to share this next slide with you. For me, is putting into practice all the endeavors. And it's an image taken from the Bradwell Abbey, Milton Keynes acquisition business plan, and the sustainability enhancing amenities will be part of the refurbishment package. We can go through them later if need be, but it's just a taste of how it really is feeding into the business itself. And finally, I'd like to wrap up on the outlook before we go into questions and answers. In summary, we are well placed for the future. We continue to benefit from strong structural drivers of the sector. Our tenants range from space exploration companies to local SMEs, for which the industrial sector is the essential part of their business infrastructure. In short, we benefit from rental growth of 4.7% over the last 12 months, which has matched market forecasts, which continue to predict 25% further growth by 2026, too. We're coming off low average rent of just GBP 5.77, yet the estate is in strong economically vibrant locations. And according to CBRE, there was an existing in-built portfolio reversion of over GBP 9 million. And you'll all be aware that we have a track record of exceeding the value as ERV. And importantly, as Peter has mentioned, we are circa 75% hedged on our debt. Our strategic objective is clear. We are confident we can manage our short-term increase in cost of capital because we have visibility on the improved returns from our reversions. May we thank the Warehouse REIT forward for their continued support and direction. And I know Peter and Paul would like to join me in recording our thanks to each member of the Tilstone team who worked hard over the period. It's very much appreciated. Finally, on the 19th of September this year, the company shares were admitted to the FTSE 250, All Share and the EPRA Global Real Estate Index Series. Perhaps that was the best way we were able to celebrate office birthday as a listed company. Thank you very much for your time, and we're delighted to take questions.

James.

It's James Carswell from Peel Hunt. Maybe just on the disposals that you talked about you're looking to see going forward. I mean, can you give a bit more color as to what they are? I think you mentioned the lower, in some cases, non-income-producing assets. Is that sites are kind of empty? Is that land that might be once upon a time a development opportunity?

So there will be a range of different disposals. We are obviously looking at various KPIs. So as the headwinds around the potential recession in the economy kick in, we're obviously looking at tenant covenant confidence around income. So historically, we've had a view that some of the smaller units have smaller companies, weaker covenants and now for less robust resilience to their cash flows. So that was partly framing some of the disposal strategy. We are obviously equally mindful that in our drive for earnings, low-yielding assets present a disposal opportunity. But equally, we're not in the position of -- we won't undersell best performing total return opportunities. So I think it will be a combination of the 2. Paul, do you want to add?

Yes. And I think we're about maximizing returns to shareholders. So if we have a vacant unit, sometimes because there is still a massive shortage of supply in the market and a very small supply of freehold owner-occupier potential for tenants and some of our tenants are sitting on a lot of cash still, and so we are seeing quite strong interest on a vacant basis to buy our buildings by our tenants, at which point we can see better returns.

And then maybe just one on the valuation. I think I might say it looks like the multi-let assets performed slightly better on percentage basis anyway than the single let units. And [indiscernible] to start the higher starting yields? Or is there something else driving that slight outperformance there?

Yes. I think in the market -- as we said, it was a game of 2 halves. In the second quarter, our half year performance, we have seen a turnaround. The fastest turnaround we saw was in the prime longer income, lower yielding stock, especially if it's paid to CPI without the opportunity to the open market. We don't have much of our stock but our last mile and our regional distribution sort of got caught up in that. We're still confident with the assets, they play a good part for us as a balanced portfolio. But then you look at the yields that when our reversionary yields across the piece and especially on our multi-lets and we feel more comfortable that there's enough tolerance between there and debt cost.

Tom Horne from Berenberg. I wondered if you wouldn't mind just elaborating on some of the interest that you might be sort of seeing on Radway Green. And obviously, just sort of mindful of the fact that -- if you did garner some interest, the development cost of that is quite significant on our numbers that would sort of take you above your sort of targeted gearing policy. So if you could just sort of touch on those 2 points, that would be appreciated.

Tom, I think there's about 3 questions in that. So we've yet to formally launch the marketing of the site. But despite that, we have had potential occupier interest. I'm just thinking range of sizes, 100,000 square feet, 300,000 square feet, 500,000 square feet. So good interest, proximity to the motorway and labor force being common themes for occupiers. I think what is the other piece of the occupational strategy that's interesting is that if you take a competitive analysis of alternative schemes in the Northwest, there was only 1 other unit in Crewe. One of those companies that I alluded to in terms of their inquiry, we think, will actually go to this other building, which will be complete in Q1 next year, which will mean that there is no other space in Crewe itself. But then if you look at the wider Northwest region and you look at the available stock, the list reads, under offer, under offer, under offer, terms agreed. So the acute shortage is really live and well in terms of opportunities for tenants. So demand is coming from both e-commerce and more logistics and more general occupiers. So the other half of your question turns to construction costs. We've tendered the infrastructure work. Last week, tender returns came back. They were marginally inside budget. So we now move to a phase of value engineering the tender returns. So we are encouraged by that progress. Anecdotally, it's interesting to hear from Panattoni that they're now receiving approaches from contractors looking for work, which is a very different position from where they were 12 months ago when every QS in the land was telling you not to tender any work because there was too much around and you wouldn't get a decent tender return. So that landscape seems to be materially changing. So you then ask a third question about gearing and cost of construction. So clearly, we still have all options available to us. We're clear as to our approach to debt in the wider portfolio. Our Radway options extend from: one, we can sell the site; two, we can join a partner in looking for somebody else to fund the construction; or three, we could forward fund any individual unit on the back of a pre-let. So we're in the fortunate position that we don't yet need to commit to any of those single strategies. We think it's important to continue to grow the value through completing the pre-commencement planning conditions and putting in the infrastructure, which we'll look to do Q1 next year.

It's Justin Bell from Numis. Just a question on the investment market. Are there any kind of conclusion you can give us as to where you're seeing pricing currently? Obviously, your yield shift was between 20 and 60 basis points for the last mile in the last 6 months, but a lot was happening at the end of September and obviously we had some moves in October as well. Can you give us any clues as to where you're seeing direction of travel, absolute levels of yield.

The crystal ball. Thank you for the question. I'll start, then I'll hand over to Paul. I think it's really interesting watching. We have to judge our market against the risk-free rate of return. The September valuation, clearly, gilt rates had moved markedly since when it's comforting for us all, I think, to see them moving back in. And if they are [ 3.8 or they are about ] at the moment, interesting to note that our reversionary yield is 5.7%. So there's a 200 bps arbitrage. So whilst the market is dominated by the gilt in the short-term because of the uncertainties that we've all read about, ultimately, our view is these yields will be driven by the propensity for rental growth. And we can't think of another real estate sector where the imbalance between demand and supply is so strong and where rental growth, say, per Realfor, 25% by 2026 is a realistic proposition. And for that, that must hold tension in the yields as we go forward. Now just now, clearly, there are 1 or 2 forced sellers, and there are opportunistic buyers. Quantum of debt is restricted. It's interesting how people comment, their banks probably don't need to put any more capital out this year. Come January, we'll probably have a new landscape that will have new business targets to achieve. So just now, we probably have a hiatus in the market where for sellers need liquidation, opportunistic buyers looking for discounts. But I think there's an awful lot of existing owners who will not be sellers at this price. Paul, do you want to add anything?

No, I'd just like to reiterate the point that I was saying is that the valuation movements that we showed there were actually over the whole period. The actual movements that we'll have seen are much larger than that because the value -- our valuation in March, valuations are always a little bit historic because you need to look back for evidence. And so the trajection of travel will have. So the fall will be much bigger than we've seen on there already. But there will be some more, but I think, I'll reiterate Andrew's point.

[ Andrew Sr. ], private investor, private REIT investor really. I've got 3 questions, if you can bear with me. The first one is I have a concern about the time match between your hedging and your interest rate protection and the fact that historically you've always gone for fairly long leases. And what I'd ideally like to see, Peter, next time would be some kind of like a cash flow focus which showed how that was going to move forward over the next few quarters. Because we're in a new situation here, it seems. We've had an easy ride for a long time. And now certainly, there's all this interest rate change. And it's really hard for me to figure out the net effect of all the things that you've reported on. So maybe you could actually just talk a little bit more to that as to whether you see a situation arising in the next few years where your profitability will be radically affected, adversely affected, because of those 2 factors working against each other. I hope that's reasonably clear. The other thing is in the REIT set, there are quite a lot of specialists, as you know. There's Industrials that does multi-let industrials only. There's Urban Logistics that does last mile. There's Tritax that does only big box. Now I noticed that actually your mix now is over 60% multi-let industrials, which is a bit of a surprise to me in the sense that I'd always thought of you as a logistics outfit. And I just wonder where you see the company heading in terms of the mix over the next couple of years and whether you will become a specialist like the others or you want to have a more balanced approach. And the last question is, I know this has been a very challenging and very difficult half year for the reasons that have already been explained. But do you see yourself being able to go back to your historic stated target of 10% total annual -- accounting return?

Thank you, [ Andrew ]. Three useful questions, which almost say there's one each first. But, Peter, why don't you take us through the hedging first?

Yes. So I was saying earlier, we've taken this summer 2 hedges out, 2 very large hedges out for 3 years and 5 years. We are looking to extend our facilities with our banks. Our banks are very, very supportive of us. And what we want to do is have a staggered maturities. And as a relatively new company, it's very difficult to start off on day 1 with any sort of staggering of those maturities. We're talking to banks at the moment. We're talking to other debt providers with longer terms of fixed debt. The rates available, they were horrible a month or 2 ago. They are more reasonable now. And so the whole object is to achieve extended, blended, staggered maturities over time. We're absolutely not there yet, but our strategy is to achieve that and to try and lock in the best rates we can so that Andrew and Paul, in particular, can then work with the reversion and drive the assets to be accretive to those rates.

Paul, multi-let specialists. We actually started in 100% multi-let. Just address the question.

Yes, I think 2 sides of the question. First of all, on the ground, we look through the lens of the occupier. And it's great to be able to have conversations with an occupier, not just about a 10,000 square feet unit, 3,000 square feet unit, 5,000 square feet unit. But at the same time, over the same cup of tea, you can actually say how's your regional space going? Do you need a bigger space? And so the likes of Crewe really do open doors for us. And we have the same conversation. And remembering that the big boxes on the motorway that you all see, the same people also need a local delivery van depot right next to the houses. And for us to be able to have across the piece is important to us. So we do have the rough philosophy of a third big box, third mid-box, third smaller box. But across the piece is the ethos that we get from the asset management side of multi-let. Because to be able to have some mid boxes and some small boxes on the same estate means that we can have the musical chairs that I talked about. We have the opportunity to be able to take occupiers and not lose them and take them all the way up. And it gives us great pride. I think when we've actually taken someone, we've taken a relative risk on a new occupier, they put a rent deposit down on a small unit, they can take 3,000 square foot. And then before we know, they're taking a 30,000 square foot and they're also talking about a regional distribution.