Warehouse REIT plc (WHR) Earnings Call Transcript & Summary

Good morning, and welcome to the Warehouse REIT's full year presentation for the 12 months to March 24. I'm Simon Hope, Joint Managing Director of Tilstone Partners, and Co-Founder of the Warehouse REIT. I'm joined this morning by Paul Makin, our Investment and Property Director; and Peter Greenslade, our Finance Director. We'll follow the usual running order. I will cover the highlights of the period and provide an overview of our markets. Then Paul will talk through the portfolio performance, and Peter will present the numbers. I'll wrap up with the conclusion, and we'll leave plenty of time for Q&A. I'd like to start with strategy. A year ago, we set out 4 strategic goals for our business. Today, I'm pleased to report that we're fully delivered on 2 of those, have made good progress on the third, thereby underpinning our final goal, which is, of course, rebuilding the dividend cover. First, capturing reversion. Our markets have proved resilient, and we are focused on a scarce asset class. So we've added GBP 3 million worth of rent, increasing our total rent roll to GBP 44.6 million. Secondly, capital recycling. We sold over GBP 50 million worth of assets in the financial year, crystallizing a profit on sale of GBP 5.5 million and adding 1.3p to earnings per share. That brings total sales since our deleveraging plan was announced to GBP 165 million. Importantly, we have sold no flagship assets. Our sales program has followed classic portfolio management lines and focused on properties where we have delivered our asset management plan. That includes GBP 5 million worth of retail warehousing or noncore single assets like Barlborough Links in Chesterfield. The GBP 60 million worth of sales announced yesterday were all single-let assets, and that increases our multi-let weighting to 78%. Over half of that 78% is in 5 major estates. Third, Radway Green. We announced our intention to release capital from this development in November. Negotiations are well advanced, and we look forward to updating the market in due course. This sale effectively completes our deleveraging plan. This good progress has enabled us to turn our mind to acquisitions, and you will have seen this morning that we've bought a retail warehouse estate in Tamworth on a very attractive yield. We're delighted with that, and I'll talk more about that at the end of the presentation. And finally, dividend coverage, that has improved some basis points to 75%, but we are 95% cover on a cash basis, including profits on sales. Turning now to Slide 6 and the highlights. We are again pleased to be reporting a like-for-like uplift on the investment portfolio of 2.6%, driven by ERV growth of 7.7%. The portfolio as a whole was up 2%, supporting an increase in our NAV per share to 124.4p. We have maintained our leasing momentum with over 100 lease events in the year, nearly 30% ahead of prior rents. And we've increased our operating profits by nearly 9% with a combination of high occupancy and good cost control, further reducing the EPRA cost ratio. Earnings continue to be impacted by SONIA. However, we have comprehensively refinanced and increased our hedging to GBP 250 million. So we will now be able to operate with a lower cost of debt going forward. I'd now like to talk about our attractive occupational markets, which have supported this strong performance. Across the wider logistics market, take-up is returning to its more normalized levels pre-COVID. In the mid-box space, which includes multi-let, take-up has, in any case, been far less volatile in recent years, reflecting a more balanced spread of demand and in particular, a lower contribution from e-commerce. This diversity is an important advantage of making our asset class more resilient through the cycle. At the same time, speculative development has notably slowed. A combination of high and scarce development finance and higher construction costs means that speculative development is very low across all size bands. For multi-let space, there is just 3.4 million square feet under construction, and that is equivalent to just 1 month supply. Together, these drivers support total returns over the longer term, which are forecast to be significantly ahead of other real estate asset classes. On this slide, I've set out some of the reasons why we believe that the Warehouse REIT is particularly well positioned. First, ours are scarce assets with significant economic barriers to supply. Our reinstatement cost of between GBP 116 million and GBP 130 million compares to a total capital value of just GBP 93 per square foot. That means that the land is in c. So it's impossible to replicate these assets for less than the worth. That constrained supply, which is supportive of rental growth. What you can see on this slide is that our assets are relatively affordable. Market rents in the Southeast are about GBP 12.50 for multi-box. That compares to an average rent on our multi-let space of GBP 6.12 and the locations are excellent. To give you a few examples. Bradwell Abbey and Granby Industrial Estate are in Milton Keynes, the fastest-growing city in the U.K. or one of. On the M1, the spine of the industrial market, on the Midlands border and just half an hour outside London. Gateway Birmingham is on the edge apron of Birmingham Airport, a major logistics hub. And Boulevard Industrial Park adjoins Jaguar Land Rover and AstraZeneca's vaccine unit in the Northwest, half an hour from Liverpool and the Freeport. This affordability makes us particularly attractive in the current environment, but it also means that we have plenty of scope to drive rents forward. What the chart on the right shows is that rental growth is forecast to be the strongest in our highest conviction locations. On that note, I'll hand over to Paul to provide you with a review of the portfolio.

Thank you, Simon. To start with, I'd just like to highlight some of the key numbers. The value of the portfolio now stands at GBP 810 million, and as Simon said, that's only GBP 93.50 per square foot and benefited from a like-for-like valuation uplift of 2%. Contracted rent at GBP 44.6 million and portfolio ERV of GBP 53.5 million are pretty much unchanged, which is an excellent performance given the volume of disposals during the year and demonstrates our strong like-for-like performance, which we'll come back to in a moment. ERV growth, in particular, has been exceptional, and so that today, our portfolio is 13% reversionary compared to 11% a year ago. Looking at the valuation in a bit more detail. The value of the investment portfolio was up 2.6% like-for-like. That was driven by a strong performance from our multi-let assets, which comprises 72% of the portfolio at year-end. They were up 3.1%, ERV growth was strong at 7.2%, and we saw yields stabilize in line with the market. Our largest single-let saw good ERV growth at 10%, which is positive, but values were down slightly over the year due to outward yield movement of circa 50 basis points, reflecting the longer time it takes to capture the reversion. This is a subsector that we're actively reducing our exposure to. They were a sensible strategic play in the COVID years. But today, we have performance from our multi-let industrial and retail warehousing, where the supply-demand dynamics are more favorable. Our disposal plan has reflected that. So following recent sales announcement -- announced yesterday, the portfolio is now 78% multi-let. Some asset diversification is helpful, though, and our ownership of these assets has enabled us to strengthen some key occupier relationships. Smaller single-let assets are only 11% of the investment portfolio, but they have performed well, driven by a couple of outstanding asset management deals, and they've proved great for liquidity. The value of our developments, principally Radway Green crew were down 2.9% like-for-like, largely as a result of macro factors, but our ongoing asset management and planning success has helped to mitigate that. Overall, the investment portfolio is now valued at a net initial yield of 5.7% with a reversionary yield of 6.8%. And remember, these are based on value as ERV, which we continue to be pleased to outperform. And as set out by Simon, we also continue to believe that our portfolio is highly affordable for occupiers, and this can be demonstrated with the average rent being only GBP 6 per square foot compared to an ERV of GBP 7 per square foot. Turning to our active asset management. Thanks to the hard work of our asset management team, we've maintained our leasing momentum, completing 103 lease events, covering 1.5 million square foot of space. That's tantalizingly close to 2 a week and a little bit up on last year. We've also maintained the quality of the deals. On average, deals are 29% ahead of the prior rents, driving 5.1% increase in like-for-like contracted rents, generating GBP 3 million worth of additional contracted rent. Some of the standout deals include a new letting technology business at Widnes, adding GBP 325,000 of contracted rent, 50% ahead of the prior rent on that unit. And rent reviews like Asda at Howley Park in Leeds, Tristel at Lynx Business Park in Newmarket, both around GBP 300,000 a year, circa 30% ahead of the prior rents. This activity has delivered ERV growth of 7.7%. That's exceeded even our own expectations, but we'd probably expect that to normalize this year. Turning to Slide 13. This sets how we drive rental growth and why the multi-let model is effective. The range of unit sizes means our space suits the life cycle of an occupier and the frequency of lease events means we can access reversion faster. This applies to both industrial warehouses as well as retail warehousing assets. It's worth noting that less than 10% of our leases are index-linked, which means we can actually access the reversion. Big box leases often capped and collared. And so even if the asset is highly reversionary, you have to wait much longer to capture it. We've also deliberately selected assets with low obsolescence. That means that CapEx needed to maintain a market standard is comparatively low. And at high occupancy levels, there is very limited leakage. Combined, this approach is driving up rental growth of some 30%. And here, you can see some of our flagship assets where, for example, at Bradwell Abbey in Milton Keynes, we have 69 units ranging from 1,000 to 15,000 square foot. And at Gateway Park Birmingham Airport, we have 31 units ranging from 1,000 to 60,000 square feet. We can, therefore, accommodate a wide range of businesses at every stage of their development. Let me give you a quick example. At Delta Court, Doncaster, we have 7 units comprising nearly 60,000 square foot. We recently refurbished 2 units. It cost just under GBP 12 per square foot to do a full redecoration, including LED lighting. Through leasing activity during the year, we've added GBP 1.20 per square foot to the rents, taking them to an average of GBP 7 per square foot. That's 22% ahead of the ERV, raising the rental tone across the estate. And importantly, we were able to accommodate the growth of Tembe, a trade and DIY distributor, who have effectively doubled their size requirement with us for the second time to now 21,000 square foot. And almost simultaneously, we've added Edmonson Electrical, U.K.'s largest electrical wholesaler, into their previous unit. So a great case study of why multi-let works. Wrapping this up into a portfolio view, you can see that on Slide 15 that the full reversionary potential of the portfolio is now GBP 7 million. That's up from GBP 5.8 million a year ago despite the asset sales that Simon's talked about. GBP 4.8 million of that is from our multi-let assets. GBP 3.7 million is therefore technically available now or coming in the year ahead. But a lot of it only becomes available at the end of the year when the lease events happens, and so we don't expect to capture it all this year, but it is there to be captured. Also, if occupiers do leave the portfolio, we usually refurbish the space so it may take a couple of extra months before we can relet it. But actually, our retention rate is pretty high at 76%, and that's fairly consistent year-on-year. So our occupiers are overwhelmingly choosing to stay with us. As well as our ability to grow rents, it's also really important to ensure that our rental streams are robust and resilient, particularly in the current environment. The diversity of our occupier base, which is one of the key benefits of a multi-let estate gives us a lot of comfort in this respect. As well as big corporates such as DHL, Sainsbury's and the NHS, we have a number of successful local businesses and they're not necessarily that small. In fact, 74% of our occupiers have a turnover over GBP 10 million a year and nearly 90% of our occupiers have a turnover over GBP 1 million a year. We also closely look at the credit quality. Our team regularly cross-reference credit score information from Dun & Bradstreet with occupiers' rental payment history to create a risk report, which alerts us early to any red flags. And looking at our rent collection, I'm pleased to say that we've collected over 99% of the rent for the year. I'd just like to wrap up with sustainability. Improving our EPC performance is a big part of that. And here, we're making good progress. 67% of the portfolio is now EPC A to C, increased -- increasing from 60% at the start of the year, and we've more than doubled the amount of A and B rated space to 26%. We typically refurbish at lease events, which makes sense financially and is less disruptive for our occupiers. We aim to spend 0.75% of GAV per annum on CapEx and roughly 20% of that is EPC-related, which should comfortably cover the cost of taking the whole portfolio to B by 2030. We also reduced our Scope 1 and 2 emissions. And this year, we've reported Scope 3 emissions for the first time. We've continued to support our occupiers. For example, the new cafe and site office at Bradwell Abbey in Milton Keynes has been a great success. This year, we will focus on opportunities to add value to our properties, for example, by PV cells and more EV charging points, but these will be targeted interventions. And as ever, we will keep a sharp eye on our costs. And on that note, I'll hand over to Peter to take you through the finances.

Thank you very much, Paul. The full detail of our results are in the RNS and in our annual accounts, which are on the website. In this presentation, I want to pull out the salient numbers and ratios. And if you have any specific questions, I'll be only too happy to answer them at the end. On Slide 19, you'll see that EPRA NTA increased to 124.4p from 122.6p at March a year ago. This was largely driven by like-for-like valuation growth of 2% and is validated by the profit on disposal of assets sold in the year of GBP 5.5 million above March '23 valuation. Adjusted earnings were 4.8p, up from 4.7p a year ago. This reflects lower property and operating costs year-on-year, which more than offset net interest cost, which was GBP 2.6 million higher. The dividend for the year was maintained at 6.4p and 75% covered by adjusted earnings, but this increases to 95% when the profit from disposals in the year is included. This means that the dividend was virtually cash covered. The EPRA total cost ratio closed the year at 24.4%, which is 6.4% lower than a year ago due to lower property and operating costs with revenue only marginally below last year. Total accounting returns of 6.7% in the year was amongst the strongest in the sector and compares to a negative 25.7% a year ago. This reflects the higher NTA and the dividend paid of 6.4p. The disposal program has enabled us to reduce debt and including post-balance sheet sales and the Tamworth acquisition, when completed, means that we will have nearly GBP 50 million of headroom on our GBP 320 million facility and debt will fall further when the Radway disposal completes. When you look at the financials in a little more detail, you'll see that headline IFRS profit of GBP 34.3 million is markedly improved on the GBP 182.9 million loss a year ago. Adjusted EBITDA was GBP 35 million, up from GBP 32.2 million a year ago. Rental income was 1.7% lower, reflecting revenue loss from disposed properties, but this was offset by higher rents and one-off dilapidation income, GBP 1.1 million higher year-on-year and combined with lower property and operating costs to give EBITDA GBP 2.8 million up year-on-year. EPRA earnings are depressed by EPRA's interpretation of interest income from hedging with our hedging producing GBP 8.2 million of income against GBP 2 million a year ago, this created the lower EPRA earnings year-on-year. The adjusted earnings, which include that interest income, therefore, fully reflect our performance with earnings growing to 4.8p from 4.7p. I've already referenced the cost ratio at 24.4%, and the ongoing charges ratio was virtually flat at 1.4%. Slide 21, we show how we track earnings of 4.7p in March '23 to 4.8p this year. The bridge shows net rental income slightly lower and finance costs slightly higher, both offset by lower property and admin costs, but importantly, earnings increased to 6.1p when profit on disposals is included. This 95% cash covers the dividend to March '24, and we continue to move forwards towards full dividend coverage in '25 via 4 key areas. Capturing the reversion with every GBP 1 -- GBP 1 million of new rent, adding 0.25p of earnings, focusing on cost control and occupancy, continuing to look at assets and nonearning assets, which could be earnings enhancing if sold and seeking to acquire where returns are accretive to earnings, both independently and with partners where appropriate and at the same time, keeping debt at close to fully hedged levels. On Slide 22, we look at the NTA bridge from 122.6p to 124.4p, with a movement predominantly driven by the 3.5p revaluation increase, offset by the cost of interest rate caps and the accelerated borrowing costs resulting from the July '23 refinancing to produce NTA 1.8p higher year-on-year. Looking at the balance sheet and the debt, we have materially improved our robustness through the interest rate caps in place and the asset disposal program. Drawn debt was GBP 284 million in March with headroom of GBP 36 million, where this increases to GBP 85 million when the proceeds of post-balance sheet disposals are included. This reduction will temporarily reverse to fund Tamworth at the end of July before lowering again from the proceeds of Radway. In the year, we refinanced our bank debt with a new GBP 320 million facility to July 2028, with a plus 1 plus 1 and a favorable 2.2% margin. In addition, we replaced interest rate caps of GBP 30 million, which expired with GBP 50 million of caps at 2%. This means that we have GBP 250 million of hedged debt at a blended cost of 3.8%, with GBP 100 million expiring in '25, GBP 50 million in '26 million and a further GBP 100 million in '27. In terms of the weighted average cost of debt, the graph on the bottom left of this slide shows the impact of higher rates since 2021. The hedging has helped enormously, and we closed the year at a blended cost of debt of 4.2%. And as we reduced debt to 100% hedged, this will fall further to 3.8%. We also continue to comfortably meet our banking covenants with an interest cover ratio of 3.1 against a 1.5 minimum. And our LTV at the year-end of 33.1% is against a maximum of 60%. Simon?

Thanks, Peter. So as Peter has set out and you can see here, we have materially reduced our net debt through GBP 165 million worth of asset sales. Prior to this morning's acquisition, we have effectively reduced net debt to GBP 235 million, below our hedging limit. That's increased following the Tamworth acquisition, but we're still over 90% hedged, and we have one further sale pending in Radway, as you know. This means we have more flexibility to explore value-accretive acquisitions. The Ventura Retail Park is a really exciting opportunity. These don't come along very often, so we reacted quickly to secure it. It's less than 0.5 hours drive from Birmingham in the Midlands, so a high conviction location for us. We see Ventura as a seed investment in a joint venture fund. And that structure of that fund will be beneficial to shareholders, by which I mean any fees would flow directly to the Warehouse REIT. Before we look at the acquisition in detail, I wanted to set out why we like the retail warehousing market. The principal difference between multi-let retail and multi-let industrial warehousing is that in retail, the customer comes to you. But there's a high degree of overlap, and we would like to express the similarities, both in terms of the occupier lineup and the way in which they are using the space. For example, back in October, we took some of you to Bradwell Abbey estate, where you saw the Habitat showroom in the Sainsbury's store and the Superbike unit, both essentially consumer-facing. In both sectors, vacancy is low. For retail warehousing, that's around 6%. But if you exclude the longer-term vacancy, by which I mean being vacant for more than 3 years, availability is closer to 3%, which is a level that will drive rental growth. That's because, like multi-let industrial, retail warehousing assets are scarce items. There's very little development, so supply is pretty static. And a reminder that currently multi-let development is equivalent to just 1 month supply and 3.4 million square feet. Second, rents have rebased. The impact of online retail has played out, so those that are left operate successful models, which combine both online and physical retail. And the retail park format is the one that is most compatible with that. Rents and service charges are cheaper than say a shopping center. And with parking widely available, they're well suited to click and collect. That's reflected in the rent. From 2016 to 2020, rents fell by around 30%, but they've now rebased to a more sustainable level. So we're starting to see rental growth. We also think that the market is materially mispricing this asset. Yields are in the 7s, which compares to yields in the 4% to 5% for equivalent industrial space. That's a differential of over 40% in pricing terms. On Slide 27, here, I've set out the rationale for the Tamworth acquisition. This is a truly unique asset. It's a top 20 shopping park with an excellent occupier lineup. It's part of a wider retail cluster, including M&S, Asda, which are both great footfall drivers. We've bought it on a highly attractive yield, making earnings accretive from day 1. It's also a sector we, as a team, know well. I have spent 20 years of my agency career assembling retail warehouse portfolios for the likes of Pillar and the Hercules Property Unit Trust, British Land and Land Securities. And we have the knowledge and industry context to source attractive transactions, which play well to our experience and complement our portfolio. So we may well look to make further acquisitions in this space, but only in a fund structure, as I've said, we will not be gearing up our own balance sheet. We've worked hard to get our debt under control, and we'll continue to be very disciplined in terms of capital allocation. And importantly, our strategic focus is still very much on multi-let industrials, remaining as strong as ever. So to wrap up, our markets are strong and coupled with our active asset management that will support rental growth in the coming year. We have an excellent portfolio of well-located assets with significant reversionary potential. We've made huge strides this year, getting our balance sheet into good shape, and we now have the flexibility to undertake acquisitions which improve our dividend cover, which remains our absolute focus going forward. Thank you. I'd now like to turn the meeting over to questions.

[ Andrew Singer ], long-term shareholder. When I started with you quite some years ago, you were very much warehouses in all 3 levels. Then last year, it seemed to be that you're focusing on what you call multi-let warehouses, which I didn't really fully understand. And now you're focusing on multi-let industrial, but your latest acquisition has shifted you into retail warehouses. So I'm a bit confused about your focus. I mean the advantage of a focus can be seen by the progress of industrials REITs, which was brought, as you know, by Blackstones. They were really good at focusing entirely 100% on multi-let industrials. And one of the benefits of that was they had a really focused customer relations management software, which meant that they converted a huge number of their interest into actual lets because they had lots to offer in one single market. Now you could become an opportunistic REIT. There are those in the market, and that's fine. But at the moment, I'm confused about your focus and where you're going. And what I want is a focus of some sort. I don't really care what it is as long as you're convinced by it and you convince me. But at the moment, it doesn't seem that way.

Let me try and un-confuse you. So if you look at -- in terms of the evolution of warehouse space, originally, retail warehouse units, as they're termed, were linked to industrial rents. You can pretty much do anything in a shed. We've got hospitals in the sheds. We've got trade units in terms of tool stations. We've got Sainsbury's performing their Habitat online format, Milton Keynes. Now good architecture is timeless. I can take you to new town estates such as Bradwell Abbey, where what we're about is providing space that suits the cycle of a business from nursery to SME to last mile to bigger boxes. And in that format, we've transitioned from a number of [indiscernible] units, which have been e-commerce weighted, so such as Amazons, such as Victorian Plumbings, et cetera, et cetera. which were perfect for us during the pandemic. They were pandemic-proof. What we're seeing now is actually the market is moving somewhat away from the weighting towards e-commerce. It's not going away, but the growth has definitely slowed. It's very difficult to mechanize returns. So it's fine in terms of technology driving distribution of products to customers, but Amazon have openly said a high percentage of their returns go to landfill. We have consciously moved with the times and liquidated a number of our Amazon holdings. And we are transferring it into what we see as a focused play in a natural segment here in terms of multi-let warehouse retail market. It's still vehicle-borne. And as we summarized earlier on, the only real difference between our traditional multi-letter estate at Bradwell Abbey and Tamworth is that the customer comes to you. The value set is a 40% differential from something like Bradwell Abbey, yes, to Tamworth. We have got a pipeline of similar assets. The likelihood is that we will have a -- no more than a 20% weighting in this fund, okay? The returns on capital are compelling. The characteristics of the sector, which naturally evolved from traditional warehousing just as compelling as the mid-box market, 0 development, unbelievably low vacancy levels. Any market where vacancies are less than 5%, the rents grow and they grow very strongly. Look at whoever's tables you want to look at, CBRE, Savills, Jones Lang, the rental growth levels in the upper segment, rack-rented are between 5% and 7%. That's very similar to the multi-box market. So we look at it from a different angle, yes. We think it is very complementary. And given that we've got 7% of the stock, yes, our feet are in the fire. So I'm hoping you're going to stay with us.

Andy Rees, Deutsche Numis. A couple, if I may. On the Retail Park acquisition, I was wondering if you could sort of say how that opportunity came about, sort of give a bit more color on sort of the vendor and their motivations and sort of whether it's indicative of sort of wider opportunities. Obviously, you mentioned sort of contacts in the retail park space. And then secondly, on kind of on the core multi-let industrial estates portfolio. Obviously, we've seen some really strong sort of leasing successes and rental reversion capture. I was wondering, I think I saw sort of tenant retention at break or expiry sort of staying fairly consistent. I'm wondering if the sort of the rent freeze that you're having to give has sort of evolved at all over the past year or so if you could add any color on that?

So I'll take the first element, and then I'm going to pass the ball to Paul to take the second. In terms of the retail warehouse market, 200 million square feet, fixed number of parks, a hierarchy in terms of regional, subregional smaller clusters, et cetera, et cetera. This -- the Tamworth, Ventura has been built by a family, brothers and farther above. They've owned it for a long time. They wanted to take some liquidity. This is about succession planning, inheritance planning. Our markets, as you probably well know, are not screen-based. They're very much relationship-based. And we're, as a team and me, particularly, are plugged into that agency community. So we knew that they tried to sell it last year. Things have improved. There's more visibility. These rents are reset. And buyers always think they can do better. They're not -- these are good people, but they haven't run it as part of a portfolio. And the optic that we liked a lot are the sales densities have picked up immeasurably post COVID. So when you look at the effort ratio in terms of rent, service charge rates, service charges are way lower in an open warehouse than they are [ sort of in enclosed ] situation. You've got some very, very strong trading patterns here. We've got the benefit of anchors, which extend the catchment, so the marble-arch-sized M&S, an Asda, a Decathlon, a very strong Primark, a super strong Next, Boots. You've got some sales patterns here of over GBP 500 a foot, which is compelling. Define regional, you're extending your catchment, 20%, 30% of your catchment is coming from beyond the 20-minute drive time. It would be in the top 20 in the U.K., if not the top 10. And at 7.4%, these things pre-COVID in the best times traded in the 3s. That's a phenomenal difference. And we think it's got a future in terms of providing products to customers. It's just a different element, a different approach. So we do have a pipeline. We do have a plan. I do have the ability to get overexcited. So I need to just restrain a bit.

Thank you for the questions. Turning to the asset management side. The team are busy. They work hard and we've got good occupier relationships. And I think the quality of the deal has been maintained. So we're still doing 2 a week, and we're still doing above ERVs. And we're seeing that continue. We took a straw poll from the team yesterday just to see how we're getting on with the occupiers. And whilst inquiry levels might be down, the quality of the inquiries is up, so less tire kickers, basically. And in terms of the average incentive, it hasn't gone up. We're seeing the rents come up. We are seeing the benefit of the refurbishments that we do. We always look, as a lease event, as an opportunity to do a refurbishment. We have the 0.75% of gap that we talk about, which we've had since IPO has been our standard business plan assumption, and it's been maintained to be correct. But that capital expenditure makes the warehouse space ready to go. And especially at the smaller unit sizes, occupiers don't want to have to wait, and they don't want to have to use their vision of what a unit might look like. You paint the floors, you paint the floor, the door works, the lighting works and you put a nice kitchen and if it's required in the corner in office, the occupiers respond to that, and they like the space that we provide. And also -- and I think the case in point, the larger estates where we actually have on-site presence, like at Milton Keynes, it's great when an occupier actually comes around, knocks on the door and says, I've just seen a board has gone up on that unit. Can we going to have a look at it? I could do with the expansion space? And it's that occupier relationship is the key.

It's Matt Saperia from Peel Hunt. Two questions. First one, will Tilstone need to take on additional resource to manage the retail warehouses or do you already have that skill sets in-house?

For Ventura, we can manage that. In delivering upon the expansion and the joint venture, we're not going to buy anything else until that's signed or Radway sold. So that's absolute red line for us. Looking forward, we do have our eyes on people. So yes, we -- if we deliver on the plan, which we're aiming to, we will expand the team.

Simon. And second question actually on Radway Green. Could you perhaps elaborate on where you are in terms of discussions and perhaps the potential structures that you're entertaining in terms of the monetization? And following on from that, is there any other derisking that you need to do? And I'm thinking perhaps about some sort of pre-letting before you monetize?

So our sales program has gone very well. So we have got the luxury of time in terms of taking liquidity around Radway. We've created that liquidity, and Andrew has been working on that exclusively around. We have got full environment agency approval, which is very important for a brownfield site in terms of hotspots and bunding. And we've put an amount out of infrastructure capital in there to make this shovel-ready as it is ready for a vertical build. We've got accurate and tested build costs, which have come down quite meaningfully. The other thing, and this is all important with any form of development at the moment, is we have got power. So we've got power to the first phase and then the second phase comes on back end of '25, beginning of '26, but we've paid our money, and we've secured those power lines in there. So what do we have? We have a cassette of development that's ready to play. Having created that liquidity, there are 3 major parties that we're negotiating with. And we're literally day by day going through a variety of structures to extract best value for our shareholders. It could come in the form of an outright sale. I think it's most likely to be a phase sale. And it could be we take a small stake in it. It could be that we get some performance fees at the back end. What do I know? The outlook for the Northwest is very strong. In fact, we can't pinpoint a stronger geography in the U.K. There are a number of major requirements for space from between 200,000 feet to 1 million square feet. This is the only site in the Northwest that our team can pinpoint to do 1 million square foot on the second phase. The further value to be extracted in terms of the expansion of planning, a bit more expansion of land. So it's fit and ready to play. To be prudent, I think you should say allow last 6 months, I'm pretty confident it will be quicker, but I am conscious of the fact that it's taken us some time to create this liquidity around the environment agency and the power, but we have got there.

It's James from Peel Hunt. Just maybe a follow-on in terms of the strong kind of rents for growth and the retention rate. Are you seeing any kind of pushback in terms of tenant affordability? Are you seeing the kind of tenant lineup changing as rents increase? Or is that just not an issue at all?