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SEGRO Plc (SEGXF) Q4 2022 Earnings Call Transcript

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SEGRO Plc (OTCPK:SEGXF) Q4 2022 Results Conference Call February 17, 2023 1:00 AM ET

Company Participants

David Sleath - CEO

Soumen Das - CFO

Andy Gulliford - COO

Claire Mogford - Head, IR

Conference Call Participants

Hemant Kotak - Kolytics

Osmaan Malik - UBS

Peter Papadakos - Green Street

Marc Mozzi - Bank of America

Max Nimmo - Numis

Paul May - Barclays

Pieter Runneboom - Kempen

Aaron Guy - Citi

David Sleath

Well, bully morning, everybody, and invited to our afloat twelvemonth 2022 results presentation. Thank you very overmuch for taking nan clip to subordinate it present successful personification or, indeed, online. As usual, I’m going to make a fewer opening remarks, and past we’ll dive into nan not-inconsiderable item of nan presentation.

Now overmuch of nan statement a twelvemonth agone was astir nan transitory aliases structural quality of inflation. And our overriding presumption was 1 of continuing momentum successful some occupational and finance markets. And what a quality a twelvemonth makes. So warfare successful Ukraine, continuing lockdowns, wide labour shortages and nan consequential proviso broadside tightening caused ostentation to spike and gave cardinal bankers nan opportunity to put an extremity to nan era of free money.

With rates rising and a costs of superior reset taking spot done nan 2nd half of nan year, existent property finance markets much aliases little crushed to a halt. Most buyers and sellers decided to beryllium it retired and hold and spot what happened. And arsenic a result, prices drifted downwards successful hunt of a caller level.

Clearly, SEGRO has not been immune to each of those pressures. But contempt each of this, location is overmuch for america to beryllium pleased and proud astir successful 2022. Occupier markets stayed very strong, pinch take-up almost matching nan grounds 2021 levels. We delivered immoderate fantabulous operating results from our own portfolio, and we’ve made immoderate terrific advancement pinch our Responsible SEGRO commitments.

These results are erstwhile again nan merchandise of our clear and accordant strategy. Our disciplined attack to superior allocation has created one-off, if not nan champion portfolios of business and logistics assets successful Europe, focused connected markets pinch nan astir charismatic fundamentals. Asset prices and, successful particular, spot yields are driven by macro factors and are intelligibly extracurricular our control. But nan value of our portfolio is nan logic why we were capable to present 11% maturation successful ERV during 2022, which helped to mitigate nan effects of nan important marketplace output description , frankincense limiting our H2 valuation diminution to 17% and 11% wide for nan year.

Operationally, we generated immoderate awesome results, a grounds level of caller rent signed, important reversion seizure and beardown like-for-like maturation -- maturation successful like-for-like rental income. And contempt nan marketplace turmoil, we’ve continued to deploy superior into our highly profitable improvement programme arsenic good arsenic acquiring immoderate exceptional caller sites, which will supply further opportunities successful nan future.

This has been imaginable acknowledgment to having nan correct superior structure, which has been further enhanced by a engaged twelvemonth of financing, leaving america pinch humble leverage, very important liquidity, a debased and almost wholly fixed costs of indebtedness and a very agelong indebtedness maturity profile. Meanwhile, we proceed to put successful nan early of our business done our Responsible SEGRO commitments. And we’ll person meaningful advancement to study to you connected these, which I’ll travel connected to later successful nan presentation.

As we look ahead, we’re emotion optimistic, notwithstanding uncertainty astir nan macroeconomic environment. Occupational markets stay successful very bully shape, pinch encouraging levels of leasing and caller inquiries occurring successful nan caller year. The wellness of our very divers occupier guidelines is good. Most of our customers are coping good pinch accrued costs pressures, and our watch database remains small.

Long-term structural tailwinds proceed to thrust request for storage space, and these trends are overmuch broader and much enduring than nan near-term behaviour of immoderate azygous occupier or, indeed, nan adjacent quarter’s GDP. Vacancy rates are besides debased crossed each our markets, and we expect them to stay truthful pinch caller speculative proviso apt to decrease. All of this points to continued rental maturation and profitable improvement activity.

As I said astatine nan half twelvemonth results backmost successful July, I judge our portfolio is successful nan champion style it’s ever been in. We spent nan past decade cautiously creating a super-strong, modern and well-located pan-European portfolio that will execute done nan cycle. 2/3 of it is successful nan astir supply-constrained municipality markets, and 1/3 consists of high-quality logistics parks situated successful premier locations on awesome proscription corridors.

We person an exceptional onshore bank, providing america pinch early maturation potential. And our market-leading operating level pinch group connected nan crushed successful each nan cardinal markets helped america to respond quickly to changing marketplace environments and prehend opportunities that travel along.

Our customer guidelines is highly diversified, pinch nary azygous sanction aliases manufacture conception dominating. The immense mostly of our buildings are highly elastic and adaptable to galore different uses. The sheer diverseness of occupiers, nan wide assortment of uses our buildings are put to and nan move quality of nan marketplace are underappreciated by many, peculiarly successful our biggest municipality markets. Our acquisition is that wherever we find ample numbers of group and businesses clustered together successful a awesome city, there’s ever going to beryllium request for abstraction from immoderate number of caller aliases existing occupiers. And nan bigger nan city, nan much diverseness and dynamism that we see.

So now connected to nan main assemblage of nan presentation. Soumen will screen our resilient financial performance. Andy will past explicate nan beardown operating metrics. I’ll item nan advancement we’ve made pinch Responsible SEGRO and past move to nan outlook for nan business. So Soumen, complete to you.

Soumen Das

Thank you, David. Good morning, everybody. So David highlighted nan resilience of our business arsenic a consequence of that semipermanent and accordant strategy, and I’ll talk you done now really that’s translated into our financial capacity done 2022.

So starting connected Slide 8. This descent shows you nan cardinal financial metrics for afloat twelvemonth 2022. Adjusted profit earlier taxation is up 8.4% year-on-year to £386 million. Adjusted EPS is up 6.5% to 31p. Excluding nan effect of nan sub-performance fee, which I’ll talk astir successful a moment, nan EPS maturation complaint would person been 10.7%.

The afloat twelvemonth dividend has been group astatine 26.3p, reflecting that net growth. The portfolio is weighted astatine £17.9 billion, a alteration of 11%, which has led to a 15% autumn successful NAV per stock to 966p. But contempt that fall, nan equilibrium expanse continues to beryllium strong, pinch loan-to-value astatine conscionable 32%.

Now connected Slide 9. As we’ve done connected erstwhile years, it’s important to put nan azygous twelvemonth capacity into immoderate longer-term context. Now this descent shows you nan business has delivered very accordant and charismatic returns complete a number of years. Through nan cycle, we cannot power yields, but we tin thrust capacity done our finance decisions successful our portfolio and nan operational activities to summation rental income.

So you tin spot that passing rent has grown 13% per annum since 2016, and that’s led to CAGRs connected net and connected dividends per stock of 9%. And NAV per stock has shown a very charismatic CAGR of 12% since 2016. This is highly strong, accordant and compounding financial performance. And arsenic Andy and David will talk about, we judge location is still a batch much to come.

Now moving to Slide 10, and this is nan accustomed descent that looks astatine our nett rental income growth, which is nan cardinal driver of earnings. Net rental income grew £83 cardinal successful nan twelvemonth to £522 million, an summation of 19% year-on-year. And location are 3 main contributors to that growth. Firstly, rent connected nan opinionated portfolio grew £28 million. Now this continues a inclination that we highlighted successful nan first half, which is our portfolio is very good placed to seizure rental maturation successful this existent higher inflationary environment.

The like-for-like maturation complaint for nan group was 6.7%, nan highest we’ve ever reported, benefiting from precocious levels of reversion successful nan U.K. and indexation connected nan continent.

The 2nd large facet for nan summation successful nett rent are improvement completions, which added £43 million.

And thirdly, finance activity besides has had a worldly effect resulting from activity complete nan past 18 months. Acquisitions, chiefly of income-producing sites for early redevelopment, added £33 cardinal to nett rent, which is offset by £14 cardinal owed to disposal.

Turning now to nan remainder of nan income statement. So Slide 11 looks astatine nan cardinal lines of nan income statement. And you tin spot successful nan array that nan maturation successful rental income, which I’ve conscionable talked about, feeds done to increasing profitability. However, you tin each spot nan finance costs person accrued during nan twelvemonth from £40 cardinal to £74 million. That is owed to higher rates, chiefly connected our caller debt, though location is immoderate partial offset done capitalized interest, which is higher.

We’ll proceed to spot nan effect of nan higher liking rates done 2023. Now arsenic a result, adjusted profit earlier taxation grew 8% to £386 million, and EPS was up 7% to 31p.

Now a speedy recap connected nan SELP capacity fee. Now you’ll callback that we’re perchance owed a interest from our associated venture, SELP, astatine nan 10-year anniversary, which is this October 2023. Now nan calculation is very delicate to valuation movements arsenic it’s based connected nan excess return complete a guidelines level IRR. Now sitting present today, fixed nan level of marketplace volatility, it is intolerable to cognize what nan interest will beryllium travel October. But we are required by accounting standards to make a judgement astatine each accounting date.

So we’re adopting a blimpish attack by not recognizing immoderate interest successful relationship for 2022.

Now that does mean that we’ve reversed nan nett interest of £21 million, which we recognized astatine June fixed nan valuation diminution since then. Now this will proceed to beryllium a matter of judgement astatine nan June reporting date, until this is confirmed successful October.

Turning adjacent to nan portfolio valuation. We’re connected to Slide 12. So 2022 was a twelvemonth of 2 halves: nan very beardown affirmative momentum from 2021 carried into nan early portion of ‘22; and nan finance marketplace was very progressive for nan first fewer months of nan year. However, nan uncertainty and nan volatility successful nan superior markets inevitably spilled into nan spot finance market, reducing to trim -- starring to reduced liquidity successful nan 2nd half.

Now whilst we’ve not seen immoderate distress, location were surely immoderate motivated sellers who had to transact successful very bladed markets. The values have, therefore, had to workout greater judgement arsenic location has been constricted comparable grounds of transactions involving premier portfolios held by well-capitalized owners specified arsenic us. So we worth nan portfolio arsenic astatine 31 December astatine £17.9 billion. That’s a alteration of 11% complete nan full of 2022.

For nan activity successful nan 2nd half of ‘22 was down 16.6%, and that’s shown connected nan bottommost statement of nan slide. We don’t yet person nan scale information for Europe, but we person outperformed our U.K. benchmark, demonstrating nan resilience of our portfolio owed to each of nan portfolio and nan plus guidance activity that we undertake. The valuation autumn successful nan 2nd half was £3.6 billion. And I was saying a mates of slides ago, it’s important to support this successful context.

That autumn comes aft a valuation summation of £6.7 cardinal successful nan 2.5 years since nan opening of 2020.

Now connected Slide 13, you tin spot really nan valuation assumptions person evolved. The valuation autumn has been wholly yield-driven, a 100-basis-point output displacement upwards whether you measurement it from December ‘21 aliases June ‘22, arsenic yields were reasonably unchangeable successful nan first half of past year. But connected nan different hand, rental maturation was very strong, 1 of nan strongest years we’ve ever reported astatine 10.9%.

Now rents moved up successful each market. Poland saw 1 of nan largest moves, illustrating nan effect of continued occupational request erstwhile mixed pinch overmuch little levels of caller supply. The opposition betwixt yields and rent demonstrates really nan valuation movements person been wholly driven by nan costs of superior reset. The fundamentals of our business, which are driven complete nan agelong word by nan request for abstraction from our customer guidelines against historically debased vacancy levels, stay very healthy.

And if you presume semipermanent rental maturation rates successful nan scope of 3% to 6%, successful statement pinch our emblematic guidance, past that 4.8% spot output will connection unlevered IRRs of 8% to 10%, which we would propose are very charismatic successful a semipermanent context.

So now moving connected to financing and connected Slide 14. We are very progressive successful nan indebtedness markets past year, raising backing for our investments successful nan further profitable development, either done CapEx aliases replenishing our onshore bank. We’re capable to clip our deals successful what was a very volatile twelvemonth successful nan superior markets utilizing nan karma play to dip into nan marketplace pinch our largest azygous transaction, a EUR 1.2 cardinal rumor successful March. We usage aggregate markets to diversify our funding. We’re progressive crossed bond, slope and U.S. backstage placement marketplace and successful euros and successful sterling.

We issued 2 modestly sized agelong deals, nan U.S. backstage placements and nan sterling bond, which raised conscionable complete £500 cardinal betwixt them of 19-year money, but that allows america to prime and take maturities astatine nan short to mean term, which for nan bulk of our backing activity. And overall, our bonds successful our backstage placements supply an mean 10-year money astatine an mean complaint of 2.8%.

And connected apical of that, we put successful spot immoderate further capacity moving pinch our existing and immoderate caller banking relationships. And nan chart connected nan right-hand broadside shows you that nan backing was utilized chiefly to money our finance activity pinch a mini magnitude needed for refinancing, and our liquidity has grown to complete £2 billion. We tin usage this some to money our normal levels of CapEx, which we expect to beryllium supra £600 cardinal this year, but besides to springiness america firepower if nan finance marketplace throws up caller opportunity.

Moving to Slide 15. And it’s worthy emphasizing that we person 1 of nan longest and astir divers indebtedness structures successful nan assemblage arsenic a consequence of that backing activity. Average indebtedness maturity is conscionable nether 9 years, precisely nan aforesaid arsenic it was a twelvemonth ago. The chart illustrates that we person indebtedness stretching retired to 2042, and nan maturities are good dispersed retired complete nan adjacent 20 years.

There are nary worldly indebtedness maturities astatine nan SEGRO level until 2026, truthful we person nary refinancing needs. 95% of our indebtedness is fixed aliases capped, and 2/3 of those caps are successful nan money. And that provides very patient protection against immoderate further rises successful short-term rates.

And truthful bringing that together to summarize our financial position connected Slide 16. We person an highly robust and liquid equilibrium sheet, and we are 1 of nan very fewer existent property companies globally pinch a azygous A in installments rating. Despite nan higher mean costs of debt, our liking screen is 4.5x.

Our attack to equilibrium expanse guidance mirrors our portfolio management. We’re a semipermanent investor successful what are cyclical markets. So we request to negociate leverage for some nan up and nan down cycles to guarantee we person nan capacity to put successful nan business connected a accordant basis. You tin spot connected nan chart really we kept our indebtedness to worth debased complete nan past fewer years. And arsenic a result, contempt nan valuation for, our indebtedness to worth is still only 32%, and our values would person to almost halve from present earlier we deed immoderate gearing covenants.

So turning to Slide 17 and summing up connected nan financial slide. By continuing to put successful nan business to seizure nan occupier demand, we delivered net maturation of 7% done 2022, driven by reversion and indexation wrong nan existing portfolio, alongside improvement activity to adhd caller rent. We’ve accrued nan dividend by 8%, reflecting those operating results, a payout ratio of 85%. Our portfolio valuation fell 11% with, nan costs of superior reset causing yields to emergence but partially offset by nan rental maturation connected our resilient premier portfolio. And our equilibrium expanse remains beardown to proceed to money our early growth.

And pinch that, I’ll manus you complete to Andy.

Andy Gulliford

Thanks, Soumen, and bully morning, everyone. Soumen has outlined nan resilience of our financial results. I’m going to return you done our operating capacity and supply immoderate colour connected nan request we’re seeing from our customers.

As David mentioned successful his introduction, occupier markets person continued to beryllium favorable passim 2022. And we’ve seen strong, wide and heavy request crossed our portfolio. This supportive backdrop, on pinch nan progressive plus guidance of our portfolio, helped america to motion a grounds £98 cardinal of caller rent successful 2022, a ample summation connected ‘21, a twelvemonth that we thought would beryllium difficult to beat.

As you tin spot from nan chart, caller rent connected existing abstraction contributed very powerfully this year, £31 cardinal versus £15 cardinal successful ‘21. The contractual index-linked uplifts that we person connected almost half nan portfolio and nan seizure of reversion connected our U.K. unfastened marketplace rent reviews were some very significant.

In addition, we had different bully twelvemonth signing leases connected caller space. We contracted £41 cardinal of pre-lets to beryllium delivered complete nan adjacent 2 years. Some were to existing customers for illustration Virtus connected nan trading estate, and others were wholly caller to nan portfolio specified arsenic Bosch and Maersk, nan second being attracted to nan precocious connectivity offered by our strategical obstruction interchange astatine East Midlands Gateway.

We besides saw precocious request for our precocious completed speculative space. Letting activity astatine Hayes and Tottenham, nan latter, our caller municipality estate, only completed successful nan last 4th of nan year, was matched connected nan continent wrong municipality schemes successful Paris and Frankfurt.

Demand continues to beryllium very diverse. The logos connected nan correct item that. Notably, location was a definite taxable of customers looking to amended their proviso concatenation ratio and build successful much resilience. We saw accrued take-up from manufacturers but besides from 3PLs servicing some those manufacturers and retailers. It takes respective years for proviso chains to beryllium reconfigured, and this is different illustration of a semipermanent driver of occupier request that we’ve been talking astir for a while now.

Turning now to Slide 20. The progressive guidance of our portfolio continues to present beardown operating metrics. Returning again to caller rent from existing assets, you tin spot from nan floor plan connected nan near that a ample contributor was nan 23% mean uplift connected rent reviews and lease renewals. That was 28% successful nan U.K. owed to nan 5-year reappraisal building and 2% from Continental Europe wherever we use from yearly index-linked leases.

Our retention complaint stayed precocious astatine 76%. We do proceed to return backmost immoderate abstraction erstwhile nan opportunity occurs to move rents guardant and seizure that reversionary potential. Our letting occurrence meant that occupancy stayed precocious astatine 96%, which is astatine nan precocious extremity of our target vacancy of 4% to 6%. And conscionable to note, overmuch of that vacancy is speculatively developed abstraction we completed very precocious and expect to fto successful ‘23.

Moving now to our improvement program. We completed good complete 600,000 quadrate meters of caller abstraction during 2022. This equates to £46 cardinal of imaginable header rent, pinch 80% already leased astatine year-end. We managed our building partners intimately to guarantee materials and labour shortages, coupled pinch immoderate proviso concatenation disruption, did not unduly effect our program.

While costs increased, we were capable to support our separator done accrued rents. The output connected costs astatine 7.4% shows improvement remains highly accretive erstwhile good controlled. It’s besides worthy noting that this output is higher than we presented for our existent improvement programme this clip past year. We outperformed by beating nan rental levels utilized successful our underwriting assumptions. And contempt finance output description knowledgeable during nan year, we still returned a very charismatic profit connected costs for nan developments.

All of nan improvement completions were rated BREEAM very bully aliases higher, our certification target erstwhile we started nan projects connected site. 68% are already aliases expected to beryllium BREEAM fantabulous aliases higher. And pinch nan preamble of our new, moreover much eager targets, we expect this number to increase. Specifically for nan strategy successful Tottenham, we’re not alert of an business improvement successful London that has achieved a higher BREEAM score.

Slide 22 shows immoderate of our improvement completions. 2/3 of nan programme was big-box warehousing, including our first portion astatine nan high-tech nutrient field SmartParc successful Derby for HelloFresh arsenic good arsenic 1 of nan past units astatine East Midlands Gateway for CEVA.

On nan continent, we completed 380,000 quadrate meters of big-box space, pinch immoderate peculiarly sizable pre-let schemes for manufacturers Alstom and Stanley Black & Decker. And arsenic mentioned earlier, we besides completed highly successful speculative schemes successful nan supply-constrained markets, municipality markets of Frankfurt, Paris and London, and added different multilevel information halfway connected nan Slough Trading Estate pre-let to Iron Mountain.

Net finance during 2022 totaled £1.3 cardinal and continued to prioritize our highly profitable improvement program. We spent £638 cardinal connected improvement CapEx and a further £149 cardinal connected infrastructure, chiefly astatine our Midlands big-box schemes. These infrastructure useful are now nearing completion, truthful that walk will beryllium little going forward. We estimate astir £100 cardinal successful 2023.

We besides spent £451 cardinal connected onshore fresh for development, and that included a cracking tract adjacent to our successful strategy adjacent Berlin Airport, which will let america to much than double nan size of nan full park, and besides a number of land connected nan continent which person imaginable for information halfway development.

We invested different £261 cardinal into income-producing land, which includes estates for redevelopment successful supply-constrained markets specified arsenic London and Düsseldorf. We besides acquired a number of smaller investments that neighbored existing ownerships, which supply longer-term plus guidance and redevelopment potential.

Turning to disposals. We sold £367 cardinal of assets, and that included a high-specification portion we built for Zalando successful Verona, which crystallized profit during nan beardown finance marketplace of nan early portion of nan year; immoderate smaller, stand-alone warehouses successful noncore locations connected nan continent; and an Italian portfolio, which we transferred to our associated venture, SELP.

We will proceed to beryllium disciplined successful our attack to superior finance during nan coming year. We’ve adjusted our hurdle rates to relationship for nan higher liking complaint situation to guarantee we deploy superior profitably. We will besides proceed pinch selective disposals to recycle superior erstwhile marketplace conditions and suitable pricing allows.

And pinch that, I’ll manus you backmost to David.

David Sleath

Okay. Thanks to Andy and Soumen. On now to nan adjacent section, which is astir our advancement pinch Responsible SEGRO. It’s now been 2 years since we told you astir our ESG framework, which has 3 clear attraction areas. These are nan areas that will thief to unafraid nan early of SEGRO.

They’re nan areas that matter to america arsenic a business, to our group and our different stakeholders and nan areas wherever we felt we could make nan astir meaningful impact. And I’m delighted by nan momentum that we’ve already achieved successful a comparatively short gait of clip and peculiarly by nan thrust and nan determination pinch which everybody astatine SEGRO is embracing and approaching these commitments.

There were immoderate very important achievements pinch our low-carbon maturation strategy successful 2022. We’re 1 of very fewer successful our assemblage taking work for our customers’ emissions wrong our net-zero c commitments. Key to this is having bully visibility of those emissions and past helping to power their reduction.

During 2022, we improved visibility by 14% and now tin spot what’s going connected successful 2/3 of our full portfolio. This will beryllium driven higher arsenic we progressively present greenish lease clauses to caller contracts. We accrued our star capacity crossed nan portfolio by 34% successful nan year, which is helping our customers to trim their emissions. We’re now installing panels and person been for a while connected each our caller developments. But now we person an progressive programme to retrofit them to existing buildings, and 1 specified strategy successful nan Netherlands this twelvemonth added a monolithic 6 megawatts of capacity successful 2022.

What’s 6 megawatts? Roughly nan balanced of powering 1,500 homes. So it’s a large investment. On development, we’ve reduced nan mean embodied c strength of our caller projects by 10%. That’s been helped by elaborate life rhythm assessments and nan usage of low-carbon materials successful nan building process.

Last year, we talked to you astir nan model for our Community Investment Plans, which are focused connected providing training and employment opportunities for section people, creating opportunities for section businesses to go progressive successful our proviso concatenation and improving nan beingness situation successful and astir our estates.

This year, I’m proud to show you that we’ve launched 10 of these plans crossed nan group. And they’re already opening to build momentum and starting to create existent outcomes that are changing nan lives of group who unrecorded successful nan communities astir our estates. Not only are these plans inspiring, engaging our ain teams, but we’ve started involving our customers and suppliers successful these programs and person recovered important alignment and engagement pinch them, which is yet going to amended nan result of our ain initiatives galore times over.

And I’m besides pleased to opportunity we’ve go a afloat accredited protagonist of nan U.K. Living Wage Foundation and are making awesome advancement successful ensuring that everybody successful our proviso concatenation receives astatine slightest nan existent surviving wage.

And past finally, connected this piece, let’s talk astir nurturing talent, which is astir apt 1 of nan hardest areas successful which to effect alteration successful nan short word but 1 of nan astir meaningful successful position of nan early of SEGRO. The spot of our operating level and nan ongoing occurrence of our business relies connected our expertise to attract, create and clasp high-quality group pinch divers perspectives and backgrounds. We talked past twelvemonth astir achieving nationalist equality modular legalization correct crossed nan group, and during 2022, we’ve improved processes and put successful spot a number of actions to reside nan NES’ recommendations for really we tin foster an moreover much divers and inclusive workforce.

So for example, we’ve changed our recruitment process astir gradual intake. We’ve taken portion successful nan 10,000 Black Interns scheme. We’ve undertaken further D&I consciousness training crossed nan business, and we’ve launched a caller guidance academy.

These and various different initiatives, nary doubt, contributed to our achieving a apical quartile 91% engagement people successful our latest worker survey. But we admit this is only nan start, and we person a agelong measurement still to go, but encouraging advancement pinch Responsible SEGRO nonetheless.

So now let’s talk astir nan outlook. It’s rather evident to america that these semipermanent structural themes are continuing to thrust request contempt nan weakness successful nan world macroeconomic environment. Every week, location are headlines astir 1 peculiar online retailer. But arsenic we said successful nan past, location are galore others still playing catch-up successful nan integer world and generating request for space. There are besides galore retailers, manufacturers and distributors who are investing for resilience and amended proviso concatenation efficiency, and Andy referred to a mates of examples that we’ve seen this year.

Urban organization maturation will proceed to thrust request from caller and existing uses and will limit nan readiness of caller business supply. And pressures astir sustainability arsenic good arsenic higher substance costs will proceed to thrust occupiers to want modern, low-carbon and really well-located buildings. So successful 2023, we’re continuing to spot very bully liking successful caller and existing abstraction from a wide assortment of occupiers, and we expect this to continue, frankincense fueling much rental maturation and profitable development.

But moreover without further rental maturation or, indeed, caller developments, we person £130 cardinal of reversionary imaginable successful nan portfolio. That’s accrued by almost 50% contempt securing £28 cardinal of rental uplifts successful 2022. As you tin spot from nan right-hand side, nan mostly of this tin beryllium captured successful nan adjacent 2 years. We’ve sewage nan U.K., which is taxable to nan accustomed 5-yearly rent reappraisal clauses. And connected nan continent, arsenic Andy touched connected earlier, we’re benefiting from yearly indexation uplifts, truthful almost automatically.

But you tin spot there’s £44 cardinal of reversion to play for successful 2023 alone, which includes £16 cardinal of negotiations carried complete from 2022. With those structural tailwinds and a favorable supply-demand move successful each our markets, we proceed to expect further rental growth. We’ve maintained our medium-term maturation -- rental maturation guidelines arsenic we judge that complete time, nan grounds levels of rental maturation we’ve seen during nan pandemic and much precocious will mean person to these longer-term averages. But arsenic Soumen said earlier, putting those maturation rates connected apical of existent finance yields, we think, offers an charismatic unlevered return.

On apical of nan existing portfolio, we besides person tremendous imaginable to thrust profitable maturation from our exceptional slope of onshore and redevelopment assets. This comes pinch nan use of sizeable optionality owed to nan comparatively short building periods, meaning that we tin easy set our superior expenditure up aliases down according to marketplace conditions pinch our penchant continuing to beryllium biased towards pre-leased improvement projects.

We saw important costs ostentation during 2022. But sloppy of this, we’ve been capable to support our expected improvement yields arsenic a consequence of higher rents. So nan improvement programme continues to beryllium a profitable root of apical statement growth, still offering 150 to 200 ground constituent separator complete nan valuation output of completed projects. And for onshore already connected nan equilibrium sheet, there’s a very appealing output connected caller -- of output -- appealing output connected caller CapEx of 10% aliases much connected astir projects.

So nan maturation imaginable embedded successful our existing business looks thing for illustration this. And you tin spot we’ve got, starting connected nan left, £587 cardinal of existent rate passing rents. We expect to summation that by £297 cardinal aliases 51% by capturing nan existing reversionary imaginable successful our existing portfolio and by completing nan existent and near-term improvement projects.

From nan erstwhile slide, you tin activity retired that we request to put only £506 cardinal of further superior to entree that first chunk of growth, which is mostly baked in. Then we’ve sewage different £446 cardinal of opportunity connected nan remaining onshore slope and connected optioned onshore and onshore nether contract. So nan wide imaginable we person now is for £1.3 cardinal of rate passing rents, which is 20% higher than past December’s fig arsenic a consequence of our onshore purchases and ERV growth.

Of course, each of these figures will summation further arsenic ostentation will thrust further indexation uplifts, and ERVs will proceed to rise. Furthermore, we person not included nan further uplift from redeveloping and intensifying existing income-producing finance assets, of which we person several.

So fto maine summarize our position connected nan outlook, and I’ll commencement by conscionable making a mates of comments astir nan finance marketplace because rather clearly, location was a disconnect betwixt finance markets and occupier markets during nan 2nd half of 2022.

In position of nan finance market, nan commencement of 2023 has seen immoderate encouraging early signs of accrued activity, helped nary uncertainty by a small little volatility successful superior markets. Liquidity appears to beryllium returning to our assemblage arsenic galore investors for illustration america clasp their condemnation successful nan semipermanent fundamentals and spot existent pricing levels arsenic an charismatic introduction point. And I expect this will summation momentum arsenic and erstwhile nan way of liking rates becomes much evident complete nan coming months.

Occupier markets proceed to beryllium encouraging. There’s been small grounds truthful acold of immoderate business- aliases consumer-led slowdown. And connected nan contrary, arsenic I said earlier, 2023 has gone disconnected to a affirmative commencement pinch a bully level of caller inquiries and leasing deals. We deliberation nan structural tailwinds will proceed to supply beardown support. We expect speculative proviso to reduce. So nan supply-demand equilibrium should stay favorable moreover if location were to beryllium immoderate slowdown successful take-up.

Our modern portfolio, which is very sustainable and successful premier locations, is ideally placed to seizure further rental maturation whilst our onshore slope offers america nan expertise to present a batch of development-led maturation connected apical of that pinch an charismatic return connected investment. So each of these things, alongside our market-leading pan-European operating level and nan beardown equilibrium expanse Soumen talked astir earlier, combine, we think, to supply a unsocial competitory advantage which bodes good for 2023 and beyond.

So to recap, we’ve shown a resilient financial capacity successful 2022 successful nan look of rather bonzer macroeconomic pressures. The simplification successful plus values and NAV caused by nan costs of superior reset has been mitigated by our rental growth. We’ve delivered a beardown operating consequence pinch a grounds level of caller rent commitments and awesome like-for-like rental growth. We proceed to put successful nan early of our business and are making meaningful advancement pinch our Responsible SEGRO commitments. And 2023 has started well, some successful position of occupier and finance markets.

So we do stay assured successful nan outlook for our business. So convey you for your attention. We’ll now move to questions. We’ll, arsenic usual, return questions from nan room first, and past we’ll unfastened up nan webcast and nan convention line. So we’ve sewage a mates of mics roving around. Who would for illustration to spell first?

Question-and-Answer Session

A - David Sleath

Hemant?

Hemant Kotak

Hemant Kotak from Kolytics. Very bully results considering nan circumstances. Just a mates of questions successful position of nan past fewer slides that you presented. So what type of economical situation are you expecting? Because you’re evidently saying that request is expected to enactment robust.

What is nan economical climate? And what is nan consequence to that position basically? And past nan different broadside is you’re saying request is beardown but besides that proviso -- you estimate that proviso is apt to travel down. What is nan consequence to that arsenic well, please?

David Sleath

Yes. Well, bully questions there. I gave up a agelong clip agone trying to foretell nan economical situation aliases so what’s going to hap to finance yields. I deliberation nan constituent we’ve tried to make, and we’ve alluded to it successful nan presentation, is we’re mounting nan business up pinch sizeable optionality. We tin set people and velocity according to really nan marketplace evolves from here.

We do think, arsenic we’ve said repeatedly, we’ve sewage immoderate very beardown structural drivers. So we deliberation actually, successful position of occupier demand, that will proceed to beryllium affirmative moreover if location is simply a broader macro-driven slowdown, but it would beryllium crazy to propose that it will beryllium wholly immune. But astatine nan moment, occupier request is looking rather good, and we dream that will proceed done nan year. But moreover if it does, you saw nan descent connected vacancy rates. Vacancy rates are truthful debased everywhere. And pinch elevated building costs, higher financing costs, I guess, much uncertainty successful position of wherever do -- what nan finance yields, a batch of developers will struggle to get their backing packages successful place.

So our anticipation is location will beryllium little building starts successful -- surely of a speculative nature, successful 2023. So moreover if location were to beryllium a slower occupational environment, we deliberation that nan supply-demand hostility is going to stay intact. So who knows? I deliberation nan 1 point I would opportunity astir nan macro situation is it’s much uncertain than it has been for a while. It surely started much positively successful 2023, but it’s acold excessively early to reason that we’ve sewage clarity astir really things are going to play retired for nan remainder of nan year.

Hemant Kotak

A mates of much speedy ones. So 1 connected nan -- effectively, nan maturation rates, what are you -- you’re expecting reasonably beardown maturation rates that you’re expected to proceed moreover successful a downturn because of nan deficiency of supply.

David Sleath

Yes, we have. We’ve fixed you are range. I mean you’re talking astir nan ERV maturation rates. We’ve fixed a range. We -- I astir apt regret nan first clip we put this descent up, but it must person been astir 5 aliases 6 years ago. But we gave a scope of maturation rates. It’s adjacent to opportunity that successful nan past fewer years, we’ve massively outperformed those maturation rates, and we’ve somewhat nudged up our guidance. But our view, it’s a range. Our position is immoderate 1 peculiar reporting play we could beryllium supra aliases beneath and surely very guidance successful that range. But we’re beautiful comfortable that is simply a sensible medium-term scope of rental maturation that we should expect successful this assemblage because we do deliberation location are structural demands that will thrust nan request for space. And we do deliberation because of very constricted onshore availability, almost nonexistent onshore readiness successful municipality centers, very, very tight readying power complete cultivation onshore almost everyplace now and highly slow readying processes that nan expertise of nan proviso to pat successful astir markets beryllium turned connected importantly is very limited. So we do constituent to continuing ongoing rental growth, possibly not astatine rather nan level we’ve seen for nan past 2 years.

Hemant Kotak

And nan divergence that you’re seeing betwixt nan U.K. and nan continent, obviously, that’s been going connected for a number of years. That’s pushing, I conjecture -- particularly erstwhile you facet successful nan business rates successful nan U.K., that’s pushing nan divergence moreover wider. How agelong tin that proceed for arsenic a -- conscionable generally? I mean that’s speaking to, obviously, nan onshore readiness point, I think, you talked to.

David Sleath

Yes. I mean, Andy, whether you want to adhd your position connected this. But...

Andy Gulliford

Yes, erstwhile you opportunity that -- I mean we’re perfectly delighted pinch nan level of rental maturation successful some nan U.K. and nan continent and besides successful our big-box portfolio arsenic good arsenic our municipality portfolio. In fact, this time, our big-box portfolio has outperformed connected rental growth. The municipality portfolio, we don’t spot that arsenic a midterm situation, Hemant, because arsenic David said, municipality land, municipality sites are moreover much restricted and there’s a batch of demand. So expect that rental maturation connected nan municipality schemes will beryllium stronger than large box. But it’s an absolute nightmare to get proviso into nan market, to beryllium frank. And that’s -- I’ve ne'er seen vacancy rates nan measurement they are. And erstwhile you effort and effort and get thing done planning, arsenic David said, it gets really hard. Local authorities are sadly under-resourced, underfinanced. It takes an tremendous magnitude of time. So conscionable really don’t spot immoderate proviso coming done successful nan adjacent term. So I’m very assured astir those rates moving into nan future.

Hemant Kotak

Okay. Just 1 past mobility connected pinch -- for Soumen, if that’s okay. Sorry to -- connected SELP, conscionable connected nan interest structure. I cognize it’s impossible, arsenic you said, to forecast what it is. But tin you conscionable talk astir nan sensitivities, please, a small spot astir nan mechanics of that, please?

Soumen Das

Sure. Look, nan interest arsenic calculated astatine 31% of values would beryllium EUR 160 million, of which our stock would beryllium 50%, truthful EUR 80 million. But nan measurement nan interest is system is to opportunity it’s calculated arsenic nan excess return complete a guidelines IRR. And therefore, it’s highly delicate to wherever valuations land. And sitting present today, looking guardant from here, we person very, very volatile marketplace conditions. So a 10% move up aliases down would move that interest astir £140 cardinal to [£50 million] up aliases down.

Now frankly, it will beryllium what it will be. We’re required, arsenic I say, nether accounting standards to person to make a judgment. Our judgement is it’s very difficult pinch immoderate assurance to put a number successful nan accounts. And therefore, we’ve ducked it and person not put immoderate number successful nan accounts. And we’ll spot wherever we are travel October.

David Sleath

Okay. The next, Osmaan?

Osmaan Malik

Osmaan Malik from UBS. One of your early slides is really interesting. You showed nan semipermanent maturation complaint successful rental income, which is simply a very beardown CAGR, I think, 13%, and semipermanent maturation complaint successful immoderate of nan different metrics. The rumor is it begs nan mobility why net maturation complete that play hasn’t kept up pinch nan rental growth. I was conscionable wondering if you could springiness america your thoughts astir that, and this is contempt a play wherever liking rates person travel down rather significantly. And I deliberation looking forward, should we expect that narration to flip now?

Soumen Das

Yes, of course. So nan graphs connected those semipermanent CAGRs connected -- truthful Page 7 aliases 8 wherever it was. The -- truthful rental maturation has grown because that’s a gross figure. And our rents person grown done a substance of that like-for-like growth, which has been ace beardown successful nan past mates of years, but peculiarly done nan improvement growth. And now you’ll beryllium alert that complete nan past fewer years, we’ve besides raised a reasonable magnitude of equity arsenic portion of our wide backing structure.

So therefore, net growth, net per stock maturation and dividend per stock maturation has really -- therefore, it’s been somewhat diluted by nan caller shares successful issue. That’s why nan 13% you spot successful nan rent -- nan passing rental growth, that being a gross number and nan per stock number being 4% beneath that.

Osmaan Malik

Yes. I conjecture -- but looking forward, should we expect that now to flip around? Are we astatine a constituent wherever we tin commencement to spot further net maturation to adjacent that gap?

Soumen Das

Look, it depends -- we’ve expanded broadly a lot. Equity has been a constituent of that. Today, we beryllium present coming pinch a 30% equilibrium sheet, tons of liquidity. We tin proceed to money what we person successful beforehand of us. If there’s a headwind astatine all, it’s evidently nan costs of capital.

Interest rates are higher going forward. So nan marginal costs of indebtedness connected our caller borrowings is higher than it would -- than it has been historically. So -- but connected nan flip side, we’re capturing acold greater like-for-like rental income growth, which costs nary superior astatine each than we ever person done astatine all.

So wherever each of that marries up, I’m not really sure. But I deliberation our expertise to nutrient bully patient levels of net and dividend maturation guardant from here, I think, remains reasonably intact based connected nan occupier request that David and Andy person talked about.

Osmaan Malik

And sorry, don’t get maine wrong, nan figures are impressive. It’s conscionable an absorbing spread that will unfastened up.

Peter Papadakos

Peter from Green Street. One for Andy. There are much emerging regulatory risks. So successful France, for example, there’s a chat astir star panels connected apical of car parks, moreover connected smaller sites. Barcelona has conscionable benignant of said, nary acheronian stores and benignant of trying to prohibition B2C logistics sites successful nan city.

Can you chat a small spot astir what different emerging regulatory risks you spot successful your business? That’s 1 question. And past conscionable 1 connected nan finance market. I cognize it’s a small spot theoretical, but if you had to waste GBP/EUR 1 cardinal of 10 assets versus 10 assets astatine 100 cardinal each, is location a portfolio discount today?

David Sleath

Okay. Right. Take nan first one?

Andy Gulliford

Yes. So you’re right, cities mostly are becoming a batch keener to spot greenish ways of transporting goods, but we spot that arsenic a existent opportunity for us. Number one, nan locations of our sites and our assets are cleanable to trim carrier miles, truthful to beryllium adjacent in. Clearly, if you’re a agelong measurement retired coming in, carrier miles are overmuch less. And we’re doing a batch of activity connected renewables and EV charging, and we’re moving pinch our customers really intimately to make EV nan method of proscription astir cities.

And I deliberation that’s nan measurement that it will go. So we spot astir apt consolidation adjacent to cities pinch EV vehicles coming retired of those consolidation centers, and that plays really perfectly to our onshore slope and our existing estates.

On your PV point, I’m going to remark much generally, it’s really much difficult than it should beryllium to get PV connected roofs. I mean we’ve sewage these beautiful level roofs, and we want to get PV up there. The biggest benignant of regulatory trouble is really doing an offtake to nan grid and grids nationally not really being fresh to receive. They’ve been fresh to nonstop out. And truthful it’s rather difficult work.

So we were perfectly delighted successful nan Netherlands successful Tilburg, to get that immense array connected an existing asset, a PPA to customer and an offtake to grid, and that’s what we’re moving on. But it surprises maine astatine times that governments and municipalities are not arsenic welcoming, if you like, of greenish initiatives and nan bureaucracy to get those greenish initiatives successful play is rather hard. But we’re moving astatine it, and we’re getting there.

David Sleath

The finance marketplace 1 is rather difficult to really show correct now. I mean we made nan remark that nan 2nd half of past year, location was very small liquidity. I deliberation Soumen alluded to, location were a fewer benignant of motivated sellers, but astir well-capitalized owners and astir of nan assemblage is rather good capitalized. We’re conscionable sitting connected their hands. So location were a fewer transactions that happened successful nan second portion of past year, but there, apparently, were very, very fewer bidders for those.

In this year, it’s still early days, but nan early months and early weeks of 2023, location does look to beryllium a batch much investor liking successful putting superior to work. Quite a number of parties we’ve heard of looking to transact connected transactions. Now erstwhile you spell from a marketplace that has very small liquidity to 1 erstwhile liquidity is returning, I would expect that liquidity to return successful smaller batch sizes. I don’t deliberation -- I mightiness beryllium wholly wrong, I don’t deliberation you’ll spot galore very large portfolios waste and acquisition successful nan early months of this recovery, if I tin telephone it that. And certainly, astir of nan deals that we are seeing retired location are comparatively mini batch sizes.

So I deliberation bidding would beryllium stronger connected those smaller batch sizes, nan £100 cardinal type portfolio alternatively of £1 billion, if personification was to put that successful nan marketplace correct now. But who knows?

Marc?

Marc Mozzi

Marc Mozzi from Bank of America. Following up connected this mobility astir nan finance market, let’s move it nan different measurement around. What would beryllium nan output spread aliases spot consequence premium you would beryllium happy to use connected immoderate risk-free complaint for you to put successful 1 of your -- successful nan building -- successful a logistic building correct now successful nan market?

David Sleath

Well, I mean I deliberation we, some Soumen and I, touched connected it that we look astatine existent yields, finance yields, and we look astatine nan rental maturation that we deliberation is achievable. And I deliberation there’s reasonably bully worth location now. The only rumor is we’ve sewage to make immoderate choices and our peculiar privilege correct now is to deploy much superior into our improvement program, peculiarly connected onshore that we’ve already sewage connected nan equilibrium expanse because we made this constituent that we’re getting a 10% positive output connected nan remaining capital.

So we deliberation that correct now, there’s bully value. But having said that, we cognize that location is still macroeconomic uncertainty. We don’t rather cognize nan people of liking rates and nan broader environment. So we will beryllium seeing really it goes and taking due steps, but nan value of assets that we person successful our business and nan value of assets that we would want to buy, they don’t thin to waste and acquisition very often. So I deliberation you’ll astir apt spot america putting much of our superior to activity successful improvement for a small while yet.

Marc Mozzi

Okay. If I understand you correctly, past your marginal costs of indebtedness adjacent much aliases little nan spot output you person successful your book. That sounds to beryllium a adjacent worth for you.

David Sleath

It’s -- I’m not judge adjacent worth is nan connection I would use. I would opportunity it looks comparatively charismatic proposition if you judge you tin get rental maturation from nan underlying assets.

Soumen Das

Yes, tin I conscionable travel up connected that? I mean a very wise man I utilized to activity for 1 clip said, spot yields are a usability of tons of things. The simplistic 1 is group conscionable comparison it to nan risk-free rate. But nan reality is it’s astir -- we support talking astir it, it’s nan IRR. It’s nan full return.

And if you tin present nan levels of rental maturation connected nan assets that we judge that are available, backmost to those, semipermanent structural trends, past it’s little astir what nan first output is connected those assets, and it’s overmuch much astir what they’re wide successful full is. And those 8% to 10% would look to beryllium attractive. And that’s what we would judge that nan assets successful our portfolio should present from here.

Marc Mozzi

Makes sense. As we person a clear visibility connected apical statement growth, now you person group up your -- and fixed your equilibrium expanse pinch nary maturity by 2026, what benignant of EPS maturation should we expect for 2023? I’m not asking you for a circumstantial number, but is it mid-single digit, precocious azygous digit, double digit? What benignant of thief tin you supply america pinch here?

Soumen Das

Thanks, Marc. To beryllium honest, we -- conscionable arsenic we don’t really look to forecast spot yields, we don’t really springiness guidance connected nan net growth. What we’re trying to do is springiness you nan various components and past fto each of you successful nan room and connected nan telephone exemplary it up for yourself. Look, you’ve sewage various factors. You’ve sewage very bully beardown like-for-like rental growth, which nan reversion successful nan indexation will proceed for nan -- to beryllium connected nan second arsenic ostentation stays high. You’ve sewage improvement income, which will travel through, and you’ve sewage nan output and costs numbers done there.

So that’s a very adjuvant tailwind. The -- arsenic I mentioned earlier, liking rates are higher, and our nett indebtedness levels are higher. So that is simply a higher costs there. So if you took a look astatine that successful nan round, I deliberation you’ll get bully levels of net maturation this year. What bully looks like, I think, is successful nan eyes of nan beholder.

Marc Mozzi

Makes sense. And a last mobility for me, which is what benignant of ERV maturation you delivered successful H2? Have you done nan mathematics for your ERV maturation successful H2? Because we person nan yearly number, which is 11-ish, 10.9%. Do you cognize what is nan number conscionable for H2 connected a sequential basis?

Soumen Das

If I -- I’ll cheque connected back. But broadly speaking, that 10.9% splits astir benignant of 6.5% to 7% successful nan first half and 4.5% to 5% successful nan 2nd half.

David Sleath

Okay. There is simply a descent successful nan appendices that gives that.

Max Nimmo

Max Nimmo from Numis. Just picking up connected nan onshore banking and nan onshore marketplace and talking astir nan proviso constraints, and admit really overmuch of nan onshore slope you already person there. But connected caller onshore that you’re looking to onshore slope now, what are nan discussions location successful position of pricing? And really reflective is that of nan wide alteration successful values that we’ve seen astatine a benignant of -- astatine a portfolio level? Has that been reflected effectively?

Andy Gulliford

In nan market, generally, Max?

Max Nimmo

Yes.

Andy Gulliford

Yes. To beryllium honest, I deliberation nan word is value find astatine nan infinitesimal connected nan finance market, arsenic David was talking about, and that applies to nan onshore marketplace really arsenic well. I deliberation onshore owners astir apt haven’t travel to position pinch yields and capitalization rates conscionable yet, and buyers are obviously, pinch financing costs and those benignant of issues, opinionated disconnected a small bit. So location isn’t a peculiarly progressive onshore marketplace conscionable astatine nan moment. So we’ll spot arsenic that moves forward. But clearly, onshore values will travel down if yields person moved out. That’s nan trend. But I can’t opportunity there’s tons of -- it’s a spot for illustration nan finance market, there’s not tons of grounds retired location astatine nan moment.

Soumen Das

And conscionable to add, Max, conscionable going backmost to your -- connected that number, nan 6-month ERV maturation was 5.9% successful nan first half of ‘22, and nan afloat twelvemonth was 10.9%. So 5% was successful nan 2nd half.

David Sleath

Okay. Any much successful nan room? If not, I deliberation we mightiness person -- we person a mates of questions connected nan telephone lines. Okay. So let’s spell to nan lines.

Operator

[Operator Instructions] Our first mobility for coming comes from Paul May of Barclays.

Paul May

Apologies I couldn’t beryllium there, sewage a spot of a cold. Just wondering your thoughts moving forward, truthful obviously, LTV’s ticked up a bit. I understand that nan [given] values person travel down, I think, somewhat supra wherever you’re benignant of targeting. Leverage astir apt increases further done improvement activity. Obviously, weighted mean costs of indebtedness moving up, arsenic you say, marginal cost, not materially different to nan spot yield.

Just wondering really you’re reasoning astir various backing sources moving guardant and really you expect to proceed to grow nan business. I mean there’s a lawsuit to beryllium made, arsenic you’ve said, that things are arguably looking charismatic from an finance perspective. Could this beryllium an opportunity to turn much aggressively complete nan adjacent fewer years?

David Sleath

Thanks for nan question, and acknowledgment for not bringing your acold into nan room. Soumen, why don’t you make immoderate comments connected that?

Soumen Das

Yes. Of course, look, David and Andy person outlined nan lawsuit for nan occupier and nan continued finance successful it. We deliberation we’ve sewage a awesome onshore bank, connected that. As I said successful my portion of nan presentation, nan attack to our equilibrium expanse is simply a semipermanent one. It’s astir making judge -- you utilized nan word, David, optionality.

It’s astir ensuring we person optionality astatine each points of nan cycle. Now values person travel off, but our indebtedness to worth is only 32%. We were successful a position to raise important measurement of caller superior done past year. And truthful we beryllium connected £2 cardinal worthy of liquidity. So we tin proceed to money nan improvement CapEx that we person successful beforehand of america this twelvemonth and adjacent and going forward.

Now having said each that, we’ve besides not been awkward successful nan past benignant of 6 aliases 7 years to benignant of make nan lawsuit to shareholders if we deliberation there’s nan opportunity to accelerate returns whether that’s by doing more, whether that’s by doing things quicker aliases whether -- because thing caller comes on that we haven’t yet seen. And if we deliberation that that’s a possibility, past of course, equity is simply a constituent of imaginable capital.

But arsenic Marc rightly pointed out, wherever spot yields person gone away, liking rates person gone, I mean, actually, nan trade-off betwixt trading assets and issuing equity aliases raising indebtedness is overmuch finer equilibrium than it was -- it has been successful erstwhile years. So those are nan things successful our armory. But frankly and fundamentally, this has sewage to beryllium opportunity-driven. And we tin do what we request to do pinch nan superior guidelines that we person today. That’s precisely why we raised nan capital, what, 3 years ago. But say, if we tin do more, we’ll, of course, look to do more, and we’ll activity retired nan due measurement of backing that.

Paul May

Just to -- conscionable a travel up connected that. Do you person nan superior to beryllium capable to put if nan opportunity were to travel up? Because you opportunity large portfolios aren’t connected nan marketplace astatine nan moment, but I deliberation they could beryllium fixed wherever yields person sewage to, fixed wherever return expectations are comparative to wherever they were, fixed a number of nan backstage equity investors person made a batch of money. So you could beryllium successful an opportunity to invest, and they could beryllium rather ample portfolios astatine immoderate constituent complete nan adjacent 12, 18 months. Do you person nan capacity coming to beryllium capable to return advantage of those?

And would you happily spot your leverage summation materially and past backfill nan equity finance arsenic needed? Or would you request to do equity up of immoderate large acquisition opportunities?

Soumen Das

I conjecture we’re talking astir hypotheticals, Paul, immoderate I’m benignant of going to springiness you a somewhat unhelpful answer. It benignant of depends connected what nan conditions are astatine nan time, and it depends connected what nan opportunity is. If we consciousness location is opportunity bubbling and if we consciousness nan marketplace conditions are right, past would we see preemptively backing to make judge we had nan occurrence successful spot and nan superior building successful spot to go? Potentially. If it was a ample azygous acquisition, we could raise nan superior concurrently pinch nan acquisition process.

So successful a sense, I’m afraid, it benignant of depends. But it does support coming backmost to, well, nan opportunity, and also, nan level of consequence that we’re consenting to return connected our equilibrium expanse will depend, frankly, connected wherever nan outlook for nan marketplace and nan macro outlook peculiarly looks like, which, arsenic David rightly said earlier, it would beryllium foolhardy for america to estimate connected sitting present today.

David Sleath

I deliberation to what nan politicians say, I’m not ruling thing out.

Peter Papadakos

I’m sorry, conscionable nan past one. Did you constitute down your onshore values astatine each successful nan 2nd half?

David Sleath

Did we constitute our onshore values down? Yes, we did. We did constitute our onshore values down. It was a comparatively humble write-down, I think, 12%. I mean astir of our onshore has been bought complete rather a agelong play of clip astatine beautiful charismatic prices.

So location has been a write-down successful it. And frankly, it relates to nan much caller acquisitions, which were much afloat priced. None of which, however, we regret. They’re awesome sites, and they will execute successful nan agelong run. But erstwhile yields move, that’s nan impact. Thank you, Paul. Do we person immoderate much questions?

Operator

Our adjacent mobility comes from Pieter Runneboom of Kempen.

Pieter Runneboom

What are your thoughts connected nan nett debt-to-EBITDA level? This number moved up to astir 11x connected our numbers. Do you judge this is sustainable and particularly arsenic nan marginal costs of indebtedness is now adjacent to a valuation jaws?

Soumen Das

Yes. So look, Pieter, our nett indebtedness to EBITDA is -- well, it depends connected what guidelines you calculate. We thin to do a look-forward calculation based connected nan pre-let income we’ve sewage contracted, truthful it’s nearer 10. But I deliberation galore of you successful nan room person heard maine opportunity earlier that nan reality, location is nary azygous bully measurement of leverage. Loan to worth is pro-cyclical, and obviously, nan V is difficult to measurement astatine a definite constituent successful time.

The problem I person pinch nett indebtedness to EBITDA is that it penalizes, well, improvement and it penalizes premier assets because pinch nan aforesaid level of leverage, your secondary asset, which commands a higher yield, will person a amended nett debt-to-EBITDA ratio than nan premier assets. And I’m not really judge that’s really correct either. So an liking cover, arsenic I mentioned during nan presentation, contempt nan higher levels of liking rate, our liking screen is 4.5x. Our rental income tin autumn 80% earlier we deed covenants.

So fundamentally, nan level of leverage that we transportation is simply a matter of judgement triangulating each nan different measures that we person location to get astatine a judgement call. And our judgement coming is really that benignant of 32% indebtedness to value, fixed what we person successful beforehand of us, is wholly due because it gives america that optionality and gives america successful position of what we mightiness want to do whilst giving america nan resilience that we really want arsenic a business.

Pieter Runneboom

That’s very helpful. Another question, connected discussions pinch nan U.K. tenants. So you tin summation rents by astir 50%. We besides spot these tenants are facing expanding business rates, debased economical growth, higher margins are nether pressure.

Would you springiness these tenants immoderate breathing room? Or are you pushing rents to nan adjacent for these guys to, say, nan ERV levels, which we spot successful your report?

Andy Gulliford

Well, we intelligibly person nan very champion banal and nan very champion locations. So we are looking for premium rents, and we want that rental progression arsenic we’ve talked astir successful our position today. So we are pushing forward. Clearly, there’s immoderate macro headwinds. And arsenic you say, successful nan U.K., there’s business rates arsenic well, which unhelpful. But from an affordability perspective, rent and business rates are a very mini proportionality of wide occupational costs if you return successful carrier and labor. So if you request to beryllium successful nan champion accommodation successful nan champion locations to service your customers and get employees, past you will request to salary those rents. And they would typically beryllium benignant of 5% to possibly 12%, 15% of full occupational costs. So we do deliberation moreover pinch immoderate of nan macro headwinds, location is room to support moving rents guardant successful statement pinch our midterm forecasts. So we’re assured astir that.

Clearly, we activity pinch customers. Some astatine nan smaller extremity will astir apt look immoderate difficulties, and we’ll activity pinch them connected that. I person to say, we saw successful nan pandemic, they were hugely resilient. And our insolvency levels are very small. Our bad indebtedness levels are very small. Our rent postulation levels are very high. So we’re pleased pinch nan measurement things guidelines astatine nan moment.

David Sleath

I deliberation Pieter is gone. Any much questions, anybody?

Operator

Our adjacent mobility comes from Craig Fenech [ph] from Kepler Cheuvreux.

Unidentified Analyst

Yes, conscionable 2 questions arsenic a follow-up for me. Could you remark connected nan deceleration of rental maturation successful nan U.K. successful position of some ERV and like-for-like successful H2 versus H1? And past we look astatine LTV and nett indebtedness to EBITDA but besides spot that your ICR ratio is presently down from 7 to 4x. Do you person a position connected wherever it is going for 2023 and what would beryllium nan mean costs of indebtedness successful 2023?

David Sleath

Okay. Soumen, do you want to prime up?

Soumen Das

Just connected nan second one, of course.

David Sleath

The second 1 first.

Soumen Das

Yes. So look, our costs of debt, arsenic David was saying, is now -- is what I said arsenic well. It’s 95% fixed aliases capped, and 2/3 of our caps person kicked in. So there’s very [rental] small sensitivity successful position of nan in-place indebtedness and nan liking costs astir it. New debt, marginal indebtedness today, well, look, immoderate companies will quote you their revolvers.

The reality is we’re a semipermanent business, truthful you request to really look astatine your 10-year indebtedness looks for illustration because that’s really what you’re going to put successful spot agelong term. And that’s astir apt successful nan area of 3.5% for euros and 4.5% for sterling, springiness aliases take. So that will -- nan income that we’re putting connected will much than screen that. So I consciousness beautiful comfortable pinch wherever our liking covers are.

David Sleath

In position of -- yes, rental maturation first half versus 2nd half, I mean, whether Andy wants to comment, but I don’t thin to publication overmuch to it -- overmuch into that different than they were some astatine nan very precocious extremity compared to our normalized expectations. So we said to you, we don’t expect to spot nan exceptional levels of rental maturation that we’ve had successful nan past mates of years being sustained forever. But we’ve said this galore times before, I wouldn’t publication excessively overmuch anyhow into 1 peculiar quarter, 6-monthly play aliases moreover sometimes a year. It conscionable depends connected what peculiar banal you’ve got, whether you’ve sewage caller leases that tin group caller rental levels.

So I’m acrophobic it travel -- they’ll beryllium for illustration buses, rental maturation -- rent-setting transactions travel sometimes nary for a while, and past you get 2 aliases 3 successful a hurry. So I wouldn’t publication overmuch into it astatine all.

Andy Gulliford

Often down to nan mix.

Operator

Just 1 much mobility presently from Aaron Guy of Citi.

Aaron Guy

Just a speedy question. I cognize there’s been a fewer connected nan superior building and deployment of capital. But conscionable to get a small spot much benignant of clarity connected really you mightiness benignant of deploy superior complete nan adjacent year. We’re successful nan value find benignant of phase, I guess, downwards successful assets, and we’ve each been successful markets wherever nan plus values person fallen 40%, 50% before. But really should we deliberation astir nan deployment of superior into your improvement pipeline versus opportunities that are coming up nan market? Is nan first 6 months of this twelvemonth benignant of a value find shape aliases conscionable benignant of still nan sidelines and watch and conscionable do pre-lets and benignant of sensible improvement and past possibly ramp up immoderate acquisitions successful nan backmost half of nan twelvemonth into 2024? Or is -- do you deliberation nan worth diminution is mostly done, and actually, you mightiness bring guardant immoderate opportunities that you’re seeing? Just trying to benignant of get a small spot much item astir what investors should beryllium putting successful their models for nan superior allocation.

David Sleath

I deliberation we benignant of alluded to nan reply of various points connected immoderate of nan different questions. But I -- our position is that first of all, location are very fewer assets and portfolios that waste and acquisition that would lucifer our high-quality threshold. So we’re not expecting to person a full oversea of opportunities anyway. We do deliberation we’ve sewage a very attractive, profitable opportunity to deploy superior into our existing onshore slope and, indeed, topping up nan onshore slope successful a fewer cases. So that will beryllium our first priority. But we’re decidedly keeping eyes unfastened for what’s happening successful nan finance market. And if thing of liking came along, we would look astatine it. But frankly, who knows really nan twelvemonth is going to play out? So we talked astir having optionality. We’ve sewage a beardown equilibrium sheet.

We don’t person to do anything, negociate our assets well, deploy superior good into nan improvement pipeline and support our eyes unfastened for different opportunities that whitethorn travel along, and we’ll accommodate accordingly. Okay. I deliberation -- aliases we’ve sewage a mates of much questions coming.

Claire Mogford

Two speedy questions from nan webcast. We’ve covered immoderate of them, truthful I won’t repetition them. But nan 2 that we haven’t covered: Are you readying to grow to immoderate different Eastern European countries fixed nan successful communicative successful Poland?

David Sleath

Not for nan clip being. We’ve sewage plentifulness to do successful our existing markets, and that will beryllium our focus.

Claire Mogford

Perfect. And nan last question, pinch nan improvement pipeline ambitions, could we spot LTV, excluding immoderate valuation movements, astatine 40% by nan extremity of nan year?

Soumen Das

It depends. It comes backmost to nan full mobility arsenic to benignant of backing and nan various operation of components that we have. Look, I’ve seen, complete nan past years, a number of analysts trying to return nan entirety of what is really a multiyear, 5-year improvement programme and propulsion successful £3 cardinal of CapEx and spot what it does to our indebtedness to value. The world doesn’t activity for illustration that. The reality is, I support saying, we’ve kept our leverage debased for nan past mates of years to springiness ourselves nan opportunity to support doing what we request to do astatine immoderate fixed constituent successful time.

So we person nan capacity to beryllium capable to money that £600 million, hopefully more, CapEx done nan people of this twelvemonth and into adjacent twelvemonth arsenic well. But if nan opportunity group grows, past we’ll look astatine really we money it to nan operation of levers that we have.

Claire Mogford

That’s each nan questions.

David Sleath

Very good. Right. Well, convey you each very overmuch for your attraction and for sticking pinch us, and person a bully time and a awesome weekend. Bye for now.

Editor: Naga



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