Grainger plc (GRI) Earnings Call Transcript

Good morning, everyone, and welcome to Grainger's half year results. Rob and I are here this morning to tell you about another strong performance. Now these are our results for the period September 2022 to March 2023. A period of economic uncertainty in which, once again, Grainger has proved to be resilient and is poised to deliver exceptional growth. We're in a strong position. We have an excellent portfolio, and we're in a position to take advantage of the increasing demand for renting in the U.K. So the agenda this morning is that I will take you through the highlights, the strong growth driven by letting momentum and why our business has an excellent outlook. Our CFO, Rob Hudson, will take you through our financial results, the strength of our balance sheet, the resilience in our valuations and how we've secured and derisked the funding of our committed pipeline and how this will translate into the doubling of our earnings. And at this time, Rob is also going to cover our progress on REIT conversion and ESG financial integration and how this is going to give more clarity about the progress we're making. And then I'll give you some insights into why our market is different from many real estate sectors and is outperforming. And I'm also going to cover our portfolio, our new launches, how we are leveraging technology with data analytics to drive our customer brands. And they will have an opportunity for Q&A with members of the Grainger senior leadership team here this morning. In this first half, we've delivered a strong performance. Our net rental income is up 12%. Our like-for-like rental growth is 6.8%, and that's broadly in line with wage inflation. Our occupancy is high across our portfolio between 98% and 99%. And despite rising costs, we have maintained our stabilized growth to net at 25.5%. Our retention is high at 62.3%, and these strong results have been driven by the quality of our operating platform, including our leasing and property management teams enabled by the investment we made in our Connect technology, allowing us to serve our customers better, driving rental growth, retention and occupancy. We have 9,737 operational rental homes, and we have 5,406 homes in our secured pipeline. So let me start by drawing your attention to the last box on this slide. EPRA NTA is at GBP 310 per share. It is up around 2% from this time last year and only 2% down on September 2022. The continuing strong performance in our operations has offset the majority of the outward yield movement in our valuations and net rental income is up 12% to GBP 48 million in the first 6 months. Dividend per share is up 10%, reflecting strong rental income performance, and our adjusted earnings are up 2%. And despite all of the commentary about the market, we've delivered GBP 25.2 million in sales profits. We have a strong balance sheet, and we've refinanced all of our debt this time last year, and we fixed it for 6 years, so we have no significant refinancings, and we have 4 years of growth derisked, funded and locked in. We have a record number of homes being delivered in the remainder of this calendar year. Then this is going to add up to a significant step-up in our rental income in 2024. And in addition, we now have a critical mass, which is developing a strong consumer brand across our portfolio, and it's leading to customer retention of 62%. Throughout the pandemic, I said this is a resilient business in a resilient sector. And during this economic turmoil, we've evidenced once again that this is the case. And it's also a growth business. The investment case for U.K. residential is strong, and we've delivered exceptional leasing. So new LAPS are up 8.2% whilst renewals are at 6.1% as we reward customer loyalty. We have a good pipeline in progress so that 7 schemes completing in the second half of this year and 4 sites secured and land acquired within our TFL joint venture. We've maintained our sales momentum despite the vagaries of the housing market with GBP 74 million of sales in H1, and we've continued with our asset recycling program, accelerating the disposal of our noncore assets. Our business is underpinned by strong structural drivers and a strong balance sheet. The structural drivers are the increasing demand for renting at a time when supply is shrinking. The market for good quality rental homes has rarely been stronger and Grainger is in a good position to benefit. And this is leading to accelerated rental growth. And as a reminder, this sector has always exhibited lower volatility than most commercial real estate sectors. We're in a strong financial position, and Rob will talk more about this in a moment. Our debt costs are fixed in the mid-3s for the next 6 years, and costs are also fixed for our committed pipeline, which is just under GBP 1 billion, and we have a strong operational cash flows to fund our future pipeline. So let's have a look at that pipeline. Our operational portfolio is GBP 835 million in regulated properties and GBP 2.3 billion in PRS. Our committed pipeline on-site is 3,397 new homes, but we've also secured a further 2,000 homes in London, Sheffield and Exeter, and we have 624 new homes in planning and legal. In the first half, we started on site at just over 1,000 homes in Bristol, Oxford and South wall, and that's adjacent to the new Elizabeth line tube station. And we commenced enabling works on a further 1,470 of our 2,000 homes that are in our secured but not committed pipeline. We will maintain our growth in income for 2024 and beyond, and Rob will describe the impact that this has and how we are going to double our earnings. We have an excellent outlook. And the reason for this is not just the strength of demand in our sector, but that the risks facing many areas of real estate globally are risks that we are managing well. So let's just look at these. Rising interest rates, we fixed our debt at low levels for 6 years. And as we scale, our credit rating will improve over time. Rental growth. Our rental growth is sustainable. We're aligned to wage inflation and our homes are mid-market, and we understand our customers' affordability. Pipeline delivery, it's certain funded and our construction costs are fixed. Our pipeline gives us scale, and that's going to make us even more efficient. Political backdrop. We live in a nation without rent control and yet we still have supply shortages. We have worked with this government in their plans to improve the rental experience and help shape rent reform, which we are well placed to respond to. And our reputation as a landlord of scale is giving us strong political access and engagement across all political parties. The supply side of new rental homes is important to the U.K. economy. And our balance sheet, we have significant headroom in our financial covenants, and we're currently operating below our target range at 36% LTV. Valuations, we have seen 35 to 40 basis point outward yield movement over 9 months, and we've delivered relatively low valuation volatility. And this is backed by strong investor demand and good rental growth and cost management, offsetting outward yield movement. So we have a great pipeline delivering just at the right time. We're a growth business and a resilient sector. And so I'll just summarize the highlights. We've delivered a strong operational performance with 12% income growth and 10% growth in dividend. We have a strong balance sheet with an LTV at 36%. Our cost of debt is fixed for 6 years. Our committed pipeline is fully funded, and we've delivered resilience in our valuations, but by transactional evidence, strong rental growth, offsetting outward yield movement. And there is a positive outlook for the sector in which Grainger is the market leader. The structural imbalance in the market for good quality rental homes will drive further performance. And our earnings are set to double as we deliver our pipeline. And this is why we have an excellent outlook. So I'm now going to hand over to Rob, who will take you through the financials.

Thank you, Helen, and good morning, everybody. So today, I'm going to cover off the key financial highlights for the period, and I'll also provide you with some color over the results, which remains strong. I'll also outline how despite the changing environment, we have strong growth locked in over the medium term in both our net rents and our earnings, which is set double. Our committed pipeline is funded. Our development costs are fixed and our debt costs are hedged. Our balance sheet and liquidity remain in a strong position, and we've got the flexibility to manage our debt through disposals as we reinvest into our pipeline. So turning to the financial highlights. We've continued to deliver an excellent operational performance over the period. Net rents increased by 12%, reflecting the strong lease-up of our launches over the last 12 months, an acceleration of like-for-like rental growth to 6.8% and our record levels of occupancy. Adjusted earnings were up 2% with our sales proving resilient despite midmarkets uncertainty. The interim dividend per share is also up 10%, reflecting our strong underlying performance. This has proven to be a resilient sector and valuations have remained robust despite the challenging macro backdrop, down 1.3% overall with 4.1% ERV growth on the PRS portfolio, largely offsetting the 25 basis points of outward yield shift. As a result, our IFRS profit before tax dipped to GBP 5.7 million. However, due to the scale of our portfolio, our NTA of 310p was down only 2%. Net debt rose to GBP 1.4 billion, in line with planned investments into our committed pipeline schemes, 7 of which will complete later this year. This saw LTV increased to 36% with cost of debt remaining low at 3.2% given our strong hedging profile. Turning now to the income statement in more detail. Our like-for-like rental growth of 6.8% was split between regs growth at 5.8% and PRS at 6.9%, with new labs delivering 8.2% and renewals at 6.1%. Stabilized gross to net remained flat at 25.5% as we continue to focus on cost efficiency. Revenue from sales remained in line with the prior year proceeds at GBP 74 million. However, profits were lower, reflecting the mix of vacant and investment sales. Sales pricing remained robust with sales in the period only 2.2% below September valuations, outperforming the wider housing market indices. With an 8.5% regs reversion rate, our vacant sales pipeline looks in good shape for the second half. Overheads increased by 5%, largely driven by a 5% pay increase across our workforce, and this was in addition to the cost of living payment that we made last year. EPRA earnings are becoming of increased focus as our rents become a larger component of total income, and we've delivered good growth -- so focusing on the moving parts of our net rental income. The primary drivers of our 12% growth were the leasing of our pipeline launches over the last 12 months, which added GBP 2.5 million in the half, Like-for-like rental growth accelerated to a record 6.8%, closely following the national average wage growth of 6.6% and adding a further GBP 3.9 million. We have a record number of deliveries in the remainder of 2023 with 7 schemes completing. Given the timing of these launches, the lease that will largely benefit FY '24 and FY '25. With this, I'd expect a similar level of net rent in the second half. The correlation between residential rents, wage growth and inflation provides a good natural hedge in times of inflation and interest rate uncertainty. While higher inflation puts pressure on both interest rates and real estate yields for us, it also drives stronger rental growth. And this dynamic was evident in our half year valuation, where 6-month ERV growth of 4.1% was enough to largely offset the around 25 basis points of outward yield shift that we saw across our portfolio. Looking across our portfolio, we saw a stronger performance in regional PRS, which experienced less yield shift of 20 basis points. That compares to 30 basis points in the London and the Southeast portfolio. Our [ Apprente ] has held up well and now stands at GBP 310 per share. While not included in our NTA, the mark-to-market asset of our fixed rate debt currently stands at GBP 15 per share, demonstrating the benefits of our strong level of hedging for the next 6 years. As a reminder, NTA also excludes our reversionary surplus, which amounts to GBP 29 per share as well as our investments in technology and the value of our scalable operating platform, and this will bring significant operating leverage and net margin improvements as our pipeline continues to deliver. This chart shows the key movements in NTA over the year. The valuation decline of 1.3% equated to a 6p NTA impact in the 6-month period. This saw NCA decline by a modest 2% to GBP 310 per share. However, this still represents 2% growth in NTA over the last 12 months, demonstrating the resilient growth characteristics of our portfolio. Net debt increased to GBP 1.4 billion in the half as we invested GBP 187 million into our committed pipeline in line with plan. This investment was partly offset by GBP 74 million of sales proceeds split GBP 30 million from vacant sales and GBP 44 million from asset recycling. We expect half 2 investments to be broadly in line with the first half. From FY '24, we expect to see the current committed pipeline investment to be largely offset by the operational cash flows and disposals, resulting in a broadly stable level of net debt. We're always very focused on delivering our growth strategy from a foundation of real financial strength, and I'm pleased to say our balance sheet remains in great shape with LTV at 36%. We have very strong liquidity with over GBP 0.5 billion of headroom from cash and available facilities. Our exposure to interest rates is minimized through our 96% hedge position with a maturity of 6 years with rates locked in to the mid-3% over the medium term, and this gives us near full protection against rising rates over the period. Refinancing risk is also minimal, with no significant debt maturities until 2027, and we also don't need to raise any new debt. It's our policy that we never commit to any of our pipeline schemes without the funding already in place. Our current headroom of GBP 527 million more than covers our committed pipeline CapEx of GBP 343 million. With GBP 140 million to be invested in the second half, we'd expect our current committed CapEx to drop significantly by the end of this year. We expect our LTV to operate at the lower end of our stated 40% to 45% target range over time. And a reminder, our target range is prudently set because at that level, we can withstand a major fall of nearly 50% in values and still operate within our covenants. We're very mindful of the volatility in interest rates and debt markets, but our low-risk approach to balance sheet management and the liquidity of our asset base means we retain the ability to flex our capital structure as we see fit. And it's also worth noting that LTV excludes a reversionary surplus of GBP 217 million, and that reduces LTV by 2% to 34%. And -- all of the hard work of recent years of securing our investment pipeline will be transformative to our net rent and earnings over the next few years. Net rents will increase by 1.7x over to GBP 142 million as we deliver our committed pipeline. Our committed pipeline is all the funding already in place with interest rates locked in and construction costs fixed. Given the investments in our Connect technology and the high degree of operating leverage and net margin improvement this delivers, our business continues to benefit from scale. And this will see our op earnings more than double over the same period. The opportunities in secured not committed and planning and legals give us the potential to increase net rents by further GBP 32 million, which would double our rents. Our medium-term outlook of an 8% total return post the delivery of the committed pipeline remains unchanged, assuming constant yields. As net rental income grows, so will the dividend as our policy is to distribute 50% of our net rents. As our pipeline delivers, our sizable growth in net rent is a natural progression for our business to convert into a REIT. This will remove any corporation tax on the PRS income and grow our returns by over 50 basis points per annum. Just a reminder, there's no conversion charge to become a REIT, and most of our preparation work is being done in-house at minimal cost. There are a number of moving parts to balance when assessing the optimal timing of conversion. This includes the level of corporation tax and also capital allowances, which currently reduce the tax burden. Whilst we're already very close to meeting the 75% REIT asset test, it's the 75% of profits test, which is our focus, given the large profitability of our regulated tenancy sales. So we see the optimal current timing for conversion is 2.5 years, and we're well underway in positioning the business to deliver this transition. Our strategy will remain unchanged as a REIT. We will continue to be able to sell our remaining rigs and our ability to develop build-to-rent assets will be unaffected. Whilst the REITs will be required to distribute 90% of our property income in practice, this will align with our current projected dividend levels at conversion as our dividend policy was always designed with becoming a REIT in mind. We continue to progress and develop our ESG reporting and financial integration, adopting a data different approach, which informs our strategy and our business planning. We're focusing on measurements and reporting with our Scope 3 baseline measurement well underway and the successful rollout of our customer emission measurement strategy earlier this year. We've established a baseline for embodied carbon in our development activities, and this enables us to drive performance in this area. Our net zero reduction plans are being integrated into business planning and target setting. And as part of this, we're establishing an ambitious new target to reduce embodied carbon in development by 40% by 2030. And it's important to note this reduction is before any further benefits of offsetting. So to summarize, our liquidity and our balance sheet are strong, giving us the flexibility through disposals to manage our debt as we reinvest into our committed pipeline. We've continued to deliver a very strong operational performance, and we've seen our momentum further strengthen in the period with rental growth increasing to 12%. With this, our dividend per share is up 10%. Our valuation has proven to be resilient, demonstrating the strong demand for and low volatility of our asset class combined with strong ERV growth. We're on track to deliver a transformation to our rent into our earnings with a doubling of our EPRA earnings underpinned by our committed pipeline, our above-average rental growth and our low fixed debt costs. This earnings growth is a major component of our medium-term total return target of 8%, which remains unchanged, assuming constant yields. And with that, I'll now hand you back to Helen.

Thank you, Rob. So let me move on to our market and the data supporting the resilience of our sector. I'll also give you some insights into our short-term and long-term pipeline, including our joint venture with TFL and how technology and data insights are helping us build the Grainger brand. Grainger leads in a resilient sector with an excellent market outlook, and we're well positioned to take advantage of this because of our high-quality portfolio and our pipeline. Now in a moment, I'm going to give you a few key data sets to support this. It's worthwhile saying that the long-term structural supply constraints in our housing market are endemic. The demand for good homes is noncyclical. Demand for good rental homes is consistent. The main competition for build to rent is the smaller landlords, and they have a less attractive business case than us. And this is reducing the supply of the small private landlord. And this acute supply and demand imbalance is stretched further by very strong occupational markets, which have grown stronger as people have deferred home ownership. And we've also seen an increase in migration into the U.K. significantly post COVID. And there is a strong indication and prediction of good rental growth for the next 5 years. And we've positioned our portfolio in the mid-market pricing, which is affordable to many of our core demographic. And we've selected locations where the strong investment fundamentals give high potential for rental growth. We've also aimed the majority of our homes in urban locations, appealing to young professional demographic, and this is the demographic with the greatest affordability. The underlying housing shortage is across all tenures. So here's a few statistics. On the top left of this slide, the number of major residential developments being granted planning permission has been trending down for many years. And in 2022, it hit the lowest number on record. Now this is likely to act as a break on housing development for a number of years, even if all these houses get built. Demand for our rental product comes from people rather than business and the number of people in employment in the U.K. has been sticky compared to volatile business investment. Now this has supported customer demand and their ability to pay. And this also differentiates us from many B2B real estate sectors. Data from ONS and CBRE demonstrates that the extent to which employment resilience translates into rental growth and this noncyclical rental growth differentiates us from commercial rental values. This occupational strength also converts into a resilience on the value side of our investment returns, and that's as we've seen in the first half. So what are the reasons to believe that this positive market outlook will continue? Well, according to Zoopla, which is top left data, private rental demand is running at 50% above the 5-year average. While the stock of homes to rent is tracking 33% below the 5-year average. Now this is a fact many will recognize a small landlords leave the sector supply is falling. And although total pay and inflation have risen strongly in the pandemic, during the pandemic, there was a pause in rental growth. So rents do have some way to go and remain affordable. Net long-term migration into the U.K. has bounced back strongly since the pandemic, and it's helping to drive demand for renting most notably in London. And all of this suggests that rental growth will be strong in the coming years, and night Frank is estimating growth of 20% in London over the next 5 years and 18% growth in the U.K. as a whole. And we have positioned Grainger to benefit from this growing and resilient sector. Our strategy is to focus on well-connected urban locations, and this means that our customer base is dominated by the 25- to 34-year-old -- and data from [indiscernible] housing survey shows that this segment has the strongest affordability profile across all age groups, and this is reflected in the fact that on average, our customers typically spend 29% of their household income on rent. And our customers benefit from the fact that we deliver highly energy-efficient homes, meaning that their total cost of occupation is significantly lower. Our successful performance and our success in sourcing has come from our commitment to a research-led approach to investing. We use data and insights to understand where we want to build and what we want to build. And this is our usual slide, and London is still remaining our strongest city, and I'm pleased to say that in the first half, we started another London scheme at Southall adjacent to the Crossrail station. And we have 2 new schemes on site beside Argo in Kellingtown, and that's reinforcing our East London cluster. And in a moment, I'll tell you about the progress that we've been making on our TFL portfolio. In the regions, we started on site in Bristol and Oxford, and these are 2 very strong key target cities for us. We continue to build scale in these cities, and this cluster strategy enables us to create different homes within the city and also drives operational efficiencies, which enables us to leverage our brand locally and nationally. Those schemes outlined in boxes are on site right now. That's 13 schemes 3,339 homes. And so to our TFL partnership, we've made strong progress this year in our partnership, which we call Connected Living London. As a reminder, the structure is a long-term partnership. It's 51% Grainger and 49% TFL, and it's got an initial ambition to build 3,000 rental homes at well-located transport interchange nodes, primarily around tube stations. And there'll be high-quality, affordable homes and around 40% of them will be for truly affordable. Now in this first half, we've acquired the land for 4 of the schemes, and we've commenced enabling works on site whilst we finalize design and procurement. This portfolio adds to an already exciting new pipeline of opportunities on site. Now these must be some of the best connected sites in London. And despite the commentary around the challenges of securing planning permissions in London over the last 12 months or so, we've secured 6 major planning consents totaling 1,915 homes, including in our other joint venture with the London Borough of Lucien. And this represents a good proportion of all the planning consents achieved in London and demonstrates our expertise at bringing forward complex sites and also it demonstrates our ability to work well in partnership. Altogether, we've secured 20 high-quality build-to-rent schemes, 13 of which are well on the way to construction and 7 of which complete this year. Now we're always looking to the future to understand how people want to live and to drive efficiency of performance. A few years ago, we spoke a lot about the investment we were making in technology. Alongside this was our decision to invest in data and our growing portfolio, which as our portfolio grows, it provides us a lot more data and therefore gives us greater data back to insights to drive our decision-making. Now our data and analytics team and the work they've been doing and they enabled Grainger to be the finalist in the British Data Awards across all sectors in the U.K. So that's alongside companies such as Specsavers and Tata Steel. Now the award ceremony is this evening. So we've got our fingers crossed, particularly as last night, we were voted as a residential landlord of the year. So they've got to come home with another award. So data is incredibly valuable in our leadership of the sector. Just 4 examples here of how we use it. So with our customers, we're looking to maximize customer lifetime value, what sort of customers we target, revenue generation, lead management, marketing and rental growth. In our product, our ambition is to deliver the best customer-centric designed homes and service. And we're focusing on gathering data to inform building specification and proptech. We ask our customers to give us feedback at key moments in their journey, and we collect this data to inform our product and service design, and this reduces our cost and increases our satisfaction. We use data analytics in our procurement and supply chain, and that's to maximize procurement benefits and supply chain efficiency. But it also collects data right down to the granular level, at the component level of building. So for example, which whitegoods performed the best. And in our commitment to Net Zero, we're using data to inform, drive and accelerate our net zero ambitions. So utilizing Net Zero in dashboards and decision-making and performance tracking and all of this demonstrates our integrated decision-making approach. And we are now growing scale within our business, and that scale is enabling us to brand Grainger lifestyle and to engage more with residents through that. We're building longer-term communities, which strengthens customer loyalty and retention and attracts customers through our brand and reputation. And we're supporting our residents in living sustainably and minimizing their environmental impact and reducing their costs. And we're celebrating our people and the great work they do. Everyone in Grainger is trained in customer service and in supporting the Grainger brand. And this benefits customer attraction, occupancy, rental growth and importantly, customer satisfaction. I've spoken about how we're a resilient business, but we're also a responsible business. Our people tell us that they enjoy working for a leading responsible business. And at Grainger, there is a strong emphasis on people, the environment and the social impact that we make. We're creating a supply of homes in a country with a housing shortage. And we're improving housing standards and making sure they're safe and secure and investing well beyond the legislative requirements of building safety. We're supporting their affordability by building energy-efficient mid-market homes, and we're targeting high levels of customer satisfaction and achieving it. We're creating communities with a high level of retention. On average, our customers stay with us for almost 3 years, and we're supporting them in giving back locally with our community engagement schemes. We have our Grainger to trust portfolio, which is providing around 1,000 affordable homes to lower income and key workers, and these are fully integrated into our PRS and build-to-rent communities, and this is supporting both local communities and our development pipeline. So in summary, Grainger is in a strong position. And here are just 8 reasons we feel confident for the future. Our growth is secured. Our balance sheet is strong. Our valuations and our investment market is strong. We benefit from rental growth and our pricing is closely linked to wage inflation. We operate in a market with good supply and demand dynamics, and our product is affordable and the regulatory landscape is favoring us over smaller landlords. The opportunity to increase our market share is fast, and we have the platform to deliver. The outlook for Grainger is excellent and as we continue to deliver for customers and our shareholders. Thank you.

So I'd now like to invite you to ask questions. I'm going to be joined by Rob Hudson, our CFO; Mike Keaveney, our Director of Land and Development; and Eliza Pattinson, our Director of Operations and Asset Management. And of course, we've got other senior members of the Grainger team in the room. Anyone listening in, you can submit questions through the webcast. And while people are getting up, I'll just point out that this is a picture of our latest scheme, Minima Square in Milton Keynes, and we're holding Capital Markets Day next month there. So do let Kurt know if you are able to join us on that. So who's going to ask the first question? Miranda?

Just a quick question on acquisitions. You've obviously got plenty going on in the existing pipeline, but are you seeing any acquisition opportunities at the moment?

Yes. Great question. I think one of the things that I've said about the sector is resilient. One of the sort of downside of that is we're not seeing any distress in the sector. So the -- we're not seeing any sort of people offloading. I think people recognize that this sector has been so resilient. This is a bit of their portfolio, they hold on to that stabilized acquisitions. One of the opportunities we do see coming forward is that some of the house builders are bringing forward a component of build to run alongside their normal housing numbers. And of course, we do have a suburban portfolio. So we're keeping an eye on that as well. But at the moment, it still remains a really tight acquisition market.

It's Matt Saperia from Peel Hunt. I think Rob talked about investment sales. I was just wondering if you could elaborate on what it is you've sold and looking forward, how much of the operational portfolio perhaps don't want to own into the medium term?

Yes. So we've sold some of our smaller assets. And I think people have been quite surprised. So these are the smaller 12 to 20 units sort of style assets. They're usually sub GBP 5 million scale. I always reflect on the fact people say to me, why is that market proven to be resilient. And I guess if you were a small investor looking to invest in real estate, would you take a small block of flat so over a shopper or a small office building. And so that's why they've proven to be resilient. And we have a process every year where we rank all of our -- we do at ICR actually. We rank all of our portfolio in terms of investment returns and then we cut off the tail so that we're always improving our portfolio. So it tends to be the smaller assets. There was one component in there that we did sell, which was the remaining land that we owned at 7 sisters. We sold that, and that's exiting from that particular development. So that was quite a significant sale but unusual. Do you want to add anything, Rob?

You've summarized it well. It's been an equal mix of recycling through the tenants and sales of regs and older PRS and the exit of that development.

Celine Huynh from Barclays. First question on the valuation of your portfolio. There was a 25-year expansion in H1, and you always kind of soft guided to 50 bps. So does that mean there's 25 to come in H2? And do you think that's enough given current financing rate and how base rates have evolved? And the second question, probably just one more for Rob. On your LTV target of 40% to 45%. I understand that by year-end, you should be closer to 40%. Do you think that this target is still fit for where we are in the property cycle.

Okay. I'm glad you asked that question because it would clarify. The number that I used was 35 to 40 bps, which is the movement we've already seen. The portfolio before this valuation that we've just seen in March was valued in September within days of the sort of [indiscernible] sort of fiscal event. And so what we've -- so we did take about a 10 bps outward yield movement in September. So I'm bunching the 2, the 35 to 40 together. The -- I think one of the things that's perhaps forgotten about this sector is that we all get quite obsessed with tagging real estate values to 5-year swap rates or whatever. But actually, the segment that we work in, you can look over the longer term has always been lower yielding even in areas of high inflation in terms of the yields have always stayed low. There is one key issue that will protect this and that is the level of demand for the sector is very, very high, and the rental growth that we're seeing in the sector and the sort of people that own residential build-to-rent means that I don't think we're going to see the same degree of yield movement as you would see in other sectors. And as we've seen in the first half, the ability for rental growth to compensate for outward yield movements is strong. So I'd encourage you to look over the longer term, which is actually that residential yields ex at a lot less of volatility even in times of volatile interest rates.