Sirius Real Estate Limited (SRE) Earnings Call Transcript

Good morning, everyone, and welcome to today's presentation of Sirius Real Estate's end of year results for the period ended March 2022. My name is Andrew Coombs. I'm the Chief Executive Officer for the Sirius Group, and I'm joined this morning by Diarmuid Kelly who is Chief Financial Officer for the Sirius Group. Together, we will take you through this morning's presentation. If I could start by asking you to turn to Page 3 and remind you that Sirius now operates in both the German and U.K. markets. We are an on-balance sheet, best-in-class owner and operator of mixed-use light industrial business parks on the edge of key towns in Germany and the U.K. The group currently operates nearly EUR 2.5 billion of property, EUR 2.1 billion, of which is wholly owned by the group. And as you can see from Page 4, Germany is experiencing high levels of employment, higher than those of 2019 prior to the crisis. The German SME sector remains strong. And at Sirius, we are seeing increasing inquiry levels from the German Mittelstand, the SME sector. Moving to Page 5. In the U.K., we're seeing rising demand in areas in the north of England, where there is an increasing trend of localization. For example, in Manchester, we're seeing strong increases in demand, which are leading in some cases to double-digit increases in pricing. But let's move to Page 6 and look at the key highlights for the group as a whole. Firstly, I am pleased to confirm to you that Sirius continues to trade in line with expectations. These highlights are underpinned by another strong operational performance from the company. That is highlighted by the 20% total accounting return that has been achieved for the period. This is now the eighth year in a row of double-digit returns from Sirius. In fact, if you look the last 8 years, you will see the average compound return over that period is in excess of 17%. And therefore, this year's 20% against that compound average of 17% is, we believe, a strong performance. But not only do we have a strong accounting return, we have translated that into a 16.1% increase in the dividend that we paid to shareholders. And as you can see, that has been achieved by a 22.5% increase in the FFO, which is driven in Germany by 6.4% increase in like-for-like rent roll; and in the U.K., in the first 4.5 months of ownership of this space, a 7.6% increase in the like-for-like rent roll. One of the questions I was asked when we announced the BizSpace deal last year was, does this mean that opportunities are reducing in Germany? Well, not only have we got ahead and purchased more than 10 sites at over EUR 200 million in Germany, we've also progressed the joint venture by a further EUR 79 million. So this means that, that EUR 280 million of acquisitions, 2/3 for our own balance sheet, 1/3 of the JV, is one of the strongest acquisitive years that Sirius has experienced in Germany. And I think and hope that, that probably demonstrates that there is still plenty of opportunity in Germany. Last year was transformational, not only in the move into the U.K., but in particular, in not 1 but 2 corporate bond issuances. What that means is that right now, 75% of Sirius' debt is corporate debt at a blended average of 1.46% fixed interest, which will see us through until the middle of 2026. So not only was it transformational in terms of getting into corporate debt for the first time, but we actually doubled up on that initial issuance. And we did it in quite a timely manner. And what that means is as interest rates go up, as the corporate market or bond market gets more difficult, we are insulated from those effects in 75% of our debt until the middle of 2026. Maybe you can now turn to Page 7, and Diarmuid perhaps I can hand over to you to talk about the income statement.

Thank you, Andrew. So focusing on operational profit as represented by FFO. We've seen a 22% increase or EUR 13.7 million from EUR 60.9 million at March '21 to EUR 74.6 million by March 2022. There are 2 main drivers of this growth. There's the 4.5-month contribution from BizSpace in the U.K., which accounts for about 1/3 of that growth with the remaining 2/3 coming from organic growth within Germany, which itself was underpinned by a 6.4% like-for-like rent roll growth. Sirius starts the year with a group rent roll of EUR 167.1 million. That -- though strong like-for-like growth in terms of rental supported a 9.4% and a 10.6% increase in like-for-like valuations, which contributed to a total valuation gain for the year of EUR 146.5 million, which was more than sufficient to absorb the goodwill write-off in relation to BizSpace and the one-off costs relating to the issuances of the bond and the BizSpace deal itself. Profit before tax amounted to just under EUR 170 million, an increase of 3% for the same period in March 2021. Moving across the page to Slide #8. We are pleased to see that we've punched through the EUR 100 million FFO line and having EUR 11.02 NOI per share figure, which compares favorably to the EUR 8.76 for March 2021. In terms of FFO, we have EUR 0.679, which again compares well to the EUR 0.584 for the prior year. And based on a 65% payout ratio, we have a EUR 0.441 dividend for the full year, which comprises an H1 dividend of EUR 0.204 with an H2 dividend of EUR 0.237, which is a 16% increase year-on-year. In terms of balance sheet across the page, we are pleased to see that we've got EUR 1.2 billion of net assets, up from EUR 926.8 million at March 2021. And we're pleased to see that we've got a 16% growth in all NAV per share metrics with EPRA NTA per share moving from EUR 0.9229 to EUR 1.0728. You'll see looking up the page that we now own EUR 2.1 billion worth of property across both the German and U.K. market. That significant growth between March '21 and March '22 or EUR 741 million, representing the impact of the acquisition of BizSpace, the acquisitions with it -- within the year just under EUR 150 million worth of valuation gain and EUR 23 million of CapEx investment. In terms of total debt, you'll see that we've transitioned from EUR 468 million of March 2021 to EUR 981.5 million at March 2022. And what we're seeing there is that net effect of the 2 corporate bond issuances and amounting to EUR 700 million, along with scheduled amortization and approximately EUR 170 million of secured debt repayments. Moving across the page on the per share figures I think what we're seeing here is the movement from the adjusted NAV opening position of EUR 93.79 to the closing position of EUR 108.51 and increase just under EUR 0.15. As you can see, there was a EUR 0.37 contribution from BizSpace that relates to the 4.5 months, but perhaps the most telling metrics related to the operating performance in Germany, as evidenced by the recurring profit after tax of EUR 0.583 and a valuation gain of EUR 0.912, which combined gave us a EUR 0.1495 return, which is almost a 16% return on the opening NAV from the perspective of the German organization. And on that, I'll hand back to Andrew to discuss ESG.

Thank you, Diarmuid. We've made significant progress in our ESG program, which is based on an understanding of the future financial materiality to our business. Our environmental strategy aims to decarbonize our operations, minimize our emissions from the refurbishment and construction of our assets; and finally, to explore the potential to increase our on-site renewable energy generation. As a first step on our group net 0 emissions pathway, we will achieve net 0 for our Scope 1 and Scope 2 emissions in Germany this year. We will do that in part by moving our head office in Berlin to a different location within an ESG gold-related building. Going forward, we are looking to include Scope 3 emissions and the BizSpace portfolio. Our biodiversity program is making a difference to our business, to our properties and to our tenants. Our people and tenants are central to our success, and we've increased our levels of engagement with over 85% of all employees participating in our employee survey and nearly 2,000 of our tenants taking part in the tenant survey. And we now have just over 30% of all employees in Germany as shareholders in the company. Turning to Page 12. We have begun successful ESG integration of BizSpace into the group. And we commenced a detailed review of EPCs across the portfolio in the U.K. We will be publishing our first stand-alone ESG report outlining our ESG framework and strategy later in the year. And as you can see from Page 12, we have maintained our AA MSCI rating. We have become involved in the GRESB Public Disclosure. We are also ranked in Sustainalytics. And I'm pleased to tell you that later in the year, we plan to disclose to CDP. Furthermore, in Titanium, our joint venture, we are undergoing a full BREEAM assessment, and we're awaiting those results. So we have quite a lot going on in terms of ESG. We are delighted that we will get to net 0 on Scope 1 and 2 this year, and we look forward to making further progress on Scope 3. If we go across to Page 13. The first area I'd draw your attention to is the move-out rate at EUR 6.67 per square meter per month compared to the new letting rate of EUR 7.72. This is a metric that I always draw people's attention to. It's a metric that I drive people mad within the business on a daily basis. And particularly now, it's a very important metric because as we move to an environment of increasing levels of inflation, the churn that we experienced in our portfolio needs to be one that drives up pricing. This is part of our pricing power strategy. And it's very, very important that we benefit as a company from churn by making sure that we are replacing outgoing tenants at much higher rates than we are replacing tenants who leave. And as you can see, the difference between the 2 was EUR 6.39 to EUR 6.79, it's now much stronger at EUR 6.67 and EUR 7.72. And that's no accident. That's been driven by the tactics over the previous month. And this is an example of how we can drive pricing. One of the key benefits of our platform. of the way in which we market, the way in which we sell, the way in which we communicate with our tenants, this is now in an inflationary environment where some of those benefits within the platform really comes to fruition in terms of return to shareholders. You can see in the process, what we've done has driven the rate per square meter by 5.3%, driven it up on a like-for-like basis from EUR 6.17 to EUR 6.50. Don't be fooled by the occupancy reduction. The occupancy has reduced because what we've done is we've actively gone out and purchased vacancy. We've actually gone out and purchased sites that are roughly 1/3 vacant because that is the runway that is the ammunition for us to be able to improve our numbers going forward. That is the opportunity for us to be able to deploy capital into suboptimal space, where we can get those high 25% to 40% returns on the investment. So the reason the occupancy has gone down is because we've driven it down by selling some of our mature sites in the past, but more recently recycling that capital into stuff that's got more vacancy. More vacancy, we can actively manage and apply our platform and our capital to. And let's not forget that in this year, we have raised the rent roll by just under 18%. We go across to Page 14. I see inflationary -- and I'm going to say opportunity because I think if you have a platform where you can actively manage in this environment, and if you've had the foresight to plan for it, it can be an opportunity. But there are 2 sides of the opportunity: one is what you do with the price that you sell to your customers with. And I've covered that a little bit on the previous slide. I'll talk about it again in a few slides' time, but also [indiscernible] costs. And Sirius has been waiting for many years for inflation to pick up because it's inevitable that, that would happen at some stage. And it's important that we are properly prepared both on the cost control side and also on the marketing and sales side. So as an example, just 18 months ago, we locked pricing on certain things in until December '23. December '23 is very much the bound -- the point that we're looking to. How can we get as much security on cost out to December '23 because we think by then, the inflationary landscape will have shown itself, i.e., it will either be constant at a certain level or it would have peaked and it will be coming down. But we very much doubt that by December '23, things will be as uncertain as they are today. So the plan here is to try and get Sirius certainty until December '23, so that we can manage our cost base through that period. And of course, I've already talked about the debt, significant advantage in us insulating in 75% of our debt from future interest rate rises until 2026. But outside of that, we've also got long-standing national agreements with key suppliers in Germany, where we've locked pricing in until December '23. We're using our increased bulk purchasing power to improve efficiencies. Our largest customer continues to buy gas and electricity of Sirius because despite them being a very large manufacturer, they recognize that they can access those utilities at a lower price through Sirius than they would be themselves. We have several forward purchasing agreements in Germany and the U.K. that underpin the strategy of locking prices in until 2023. We have long-established local agreements with suppliers in individual federal states in Germany. And again, we're looking to secure pricing until 2023. And we also use what we call the pricing quick pro quo with our customers, where we say, look, we'll pay you faster but in return for faster payments, what we want to see is we're going to see lower prices. And we will assure you that we will continue to pay you faster, but you need to assure us that you will continue to maintain around the increased price. So we see this very much as 2 sides, the sales and marketing side, but also the purchasing and cost control side. We're addressing both. We've been waiting for this to happen. The reason we locked prices in 18 months ago is because we were looking to mitigate risk and indeed seize the opportunity as inflation kicks in. And it should be an opportunity because if we can maintain our costs, yet still push our prices up, we should actually see a period of opportunity for Sirius in this environment. We go across to Page 15, you can see the rent roll movement. And again, as -- continue to talk about pricing power, because I'd like to draw your attention to the GBP 2.9 million of uplifts on existing tenants and the other move-ins at 11.4%. That EUR 2.9 million is broken down in 3 ways. Firstly, 40% of it is indexed, so that is derisked for inflation; 25% of it is churn. So that benefits us if we can continue to see tenants leave at somewhere in the region of EUR 6.67 and we bring new tenants in at EUR 7.72. The risk that lease managing is 35% remainder, which we call uplifts. And we would get an inflationary increase of some of those, but not all of those. So we think on that 35%, we get about 50% of inflation going forward, which is why we use the other move-ins tactic because the other move-in tactic is all about using that difference between EUR 6.67 that they're leaving at and EUR 7.72, they're coming in at to make up the difference that we lose on that 35% of uncontracted uplifts. So we have thought about this very deeply. We've been doing this for a long time, which is why traditionally, we've been achieving a 5% pricing uplift in sub 2% inflationary environments. And we are not faced by inflation. We see inflation as an opportunity for the company to be able to demonstrate the power of its platform going forward and potentially to seize a short-term opportunity before what we actually do is level out at more consistent numbers in an ongoing inflationary environment. We go across to Page 16, we look at acquisitions. You can see we've managed to access plenty of opportunity on the acquisition side, not just for our core balance sheet, but also with the asset Dusseldorf -- sorry, with the Titanium asset, in Augsburg, it's EUR 79.9 million. And you can see with 63% occupancy on the core balance sheet, what we're doing is we're going out and buy 37% vacancy. So what we've done is we've gone out and bought nearly 120,000 square meters of vacant opportunity that we can put into our organic growth program. You look at the 4.5% net yield, but remember, that is on assets that are nearly 40% vacant. When you get those to 85% occupancy and you reverse the numbers, you will see that that's the equivalent of buying at a yield north of 70%. You look at assets like Ohringen, as an example, which we bought at 0% occupancy back in August '21. I sit here today, pleased to tell you that, that is now 90% occupied. And there are other examples in Oberhausen and some of the other assets. But suffice it to say that what we are doing is we continue to grow asset by asset in Germany. We continue to access good opportunity, and we have made progress in those opportunities since we have gone out and acquired them. Could I ask you to turn to Page 17, and Diarmuid, could I please hand over to you.

Thank you, Andrew. So this slide deals with just the 10 on-balance sheet acquisitions within the year to March 2022. And what we're showing here is how we expect to generate EUR 109 million profit on an equity investment of EUR 110 million, whilst maintaining the gross yield. So what you will see here, you'll see the opening occupancy of 63%, and you can see that we expect to be able to increase that to something approaching 90% over that 3-year term. You will see that, that obviously has a knock-on effect in terms of rent roll, which increases from EUR 12.3 million to EUR 19.6 million. Interestingly, what you will see is a 100% increase in terms of NOI from EUR 8.9 million to EUR 17.6 million, which to [indiscernible] in fact, we can close down the service charge leakage as we increase occupancy also. What that does is, over a 3-year term, we can see that we will generate EUR 38.2 million NOI. We think the valuation gain will be in the region of EUR 100 million, and we'll need to invest about EUR 31 million to get there. So that's circa EUR 109 million profit on the equity investment of EUR 110 million over that 3-year term. Moving across the page -- to Slide #18, which deals with the like-for-like valuation. The gross yield has reduced by 20 basis points from 7.2% at March 2021 to 7.0% at March 2022. Moving on to the portfolio valuation split. What we're looking at here just relates to the assets in Germany, and I'll draw your attention down to the bottom paragraph, and I think the main point to pull out of here is that we have increased the percentage of value-add assets from about 60% to about 70%, such that we now have over EUR 1.1 billion worth of value-add assets. That obviously shows us where the opportunity lies moving forward. And if you cast your eyes over to the right-hand side, you will see that within those value-add sites, we have over 260,000 square meters of vacant space. Moving forward, the plan clearly is to increase that occupancy from 80.5% to something north of 90%, which we expect to have a positive impact on both capital value which, as a result of which you'd expect to see that gross yield differential between the value add and mature sites narrow down. In terms of CapEx investment programs over the slide on Page 20, I think we've got 2 specific points here. On that top side, I think we're really talking about evidence. So what we're saying is since we've started the CapEx programs in 2014, we have transformed over 380,000 square meters of vacant space. We have invested EUR 58.6 million into that space, and that space is generating at March 2022, EUR 24.3 million annualized rent roll. In terms of what's going to happen moving forward? Well, this is all about execution. Thus far, we have about 64,000 square meters of suboptimal vacant space. And we think that space needs an investment of approximately EUR 17 million, which we would expect, therefore, generate EUR 4.5 million additional annualized rent roll. Andrew, do you want to talk about BizSpace?

Yes. Thank you. So as everybody knows, we moved into the U.K. market with the acquisition of BizSpace in November of last year. As you can see, since we've done that, we've managed to increase the book value by just over 10%. We've managed to increase the rent roll from just under EUR 42 million per annum to just over EUR 45 million. And you can see that there will also be increased momentum on the net operating income. Occupancy is now up, just below 91%. And the rate per square foot blended is at GBP 11.69. But if I was to isolate just the industrial element, we're at around about GBP 5.75 per square foot level on the industrial piece. If you go across to 22, you can see the rent roll movement. And what I would draw your attention to is the uplift on existing tenants. And the fact that we've shown the capability to be able to move price very, very quickly here in the U.K. for lots of the reasons that we've talked about previously within the existing platform that's now being extended across the U.K. If we go across to 23, it's always pleasing to prove a little bit of value, and we've done that certainly in the case of Camberwell. Camberwell is an asset that when we bought the business was valued at GBP 8.25 million, we've valued it up to -- or our value is valued at up to just below GBP 12 million in these recent valuations. And I'm pleased to tell you that we've exchanged to sell at GBP 16 million. Clearly, a 2% net yield, Sirius and BizSpace are not vehicles that are geared up to be able to hold assets at those tight yields. There's always the risk that things might move out and they might reverse. So always best to recycle capital as quickly as possible when you're faced in those situations. so you can go deploy it and get it working much harder somewhere in the north of England. And whilst I wouldn't pretend that there are millions of these in the BizSpace portfolio, there are probably another 1 or 2 like this. And we would like to realize value on at least another 1 of these in the next 6 to 8 months. So a really, really good example of the underlying value still to be released in that BizSpace portfolio, but it's also a very good opportunity for the group to be able to release that capital, move it up to the north of England and get it working a lot harder than it is seeing somewhere like Camberwell. If you go across Page 24, would you update on the EUR 100 million FFO ambition?

Certainly. Thank you, Andrew. So this was a plan that we had shared approximately 3 years ago when the FFO run rate was just under EUR 50 million. So as you can see on the left-hand side, the reported FFO from March 2022 has grown to EUR 74.6 million. When we then factor in the full year contribution from acquisitions in Germany and also the full year effect from the BizSpace acquisition, we are sitting at a March 2022 run rate of in and around EUR 90 million FFO. What that means is it means that, that EUR 100 million target is very much within sight. And we think that we could reach that 9% increase from that [indiscernible] circa EUR 90 million number to EUR 100 million in the short term. How we expect to get there is approximately EUR 3.5 million contribution coming from Germany. We think there's a EUR 4 million pricing opportunity split broadly evenly between Germany and the U.K. and then with maybe EUR 1 million worth of contribution from other initiatives, I think we can land at that EUR 100 million number within the short term. And then I'll hand back to Andrew who's going to outline the medium- to longer-term plan.

So I'm a big believer in -- you've got to keep moving forward. And businesses are in business to grow, particularly for the public markets. So what Diarmuid's just taken you through is the point that we're not at EUR 100 million yet, but we've got the things in place and in play to get there. I call that operational momentum. And what really Diarmuid's saying is that we are confident we have the operational momentum to achieve that EUR 100 million goal in the short term. So it's really important that rather than getting there, pausing, celebrating, becoming arrogant and thinking about what we do next, that before we get there, we think about where we're going next, and we start that journey so we can continue the momentum rather than stall. And that's what this slide is really all about. This slide is about daring to think beyond EUR 100 million, even though EUR 100 million hasn't yet been achieved, but in the confidence that EUR 100 million will be upon us within the short term. And really, what we're saying is the net bound in the journey is from EUR 100 million to EUR 150 million, and that would be a medium to long-term ambition. Just like 3 years ago, the journey from EUR 48 million FFO, which is where we were when we announced the EUR 100 million, was very much an ambition. And in that journey from EUR 100 million to EUR 150 million, there is EUR 30 million, which we don't know how to solve. But we can see how EUR 20 million does get sold in the medium to long term. We can see that we now have enough vacant space and enough capital to invest to get a EUR 4.6 million uplift in the FFO. We can see how we can let up and churn space to achieve further EUR 1.2 million. And I hasten to add, this is outside of that journey to EUR 100 million. So beyond that, we've identified space that represents these columns that shows us how we successfully embark from EUR 100 million to EUR 120 million. And I want to draw your attention to the pricing in Germany and pricing in the U.K. because EUR 5.4 million and EUR 9.3 million, EUR 10.7 million, yes, that's half of the journey from EUR 100 million to the EUR 120 million. So let's just examine that for a second because in Germany at the moment, we're achieving EUR 2.9 million of pricing uplift. So that EUR 5.4 million is against current performance, less than 2 years of pricing uplift, probably a little bit conservative. If you look at the U.K., EUR 5.3 million. Well, that sounds a bit ambitious because the German business is twice the size of the U.K. business, but similar increase is in pricing. I think what we've demonstrated over the first 4.5 months of ownership is that the ability to raise pricing in the U.K. is as strong, if not stronger, than Germany. Now the question mark you might put above that is how sustainable is it? And the answer is, we believe that we can get just over EUR 5 million of pricing uplift. We don't know that for a fact. So if there is risk here, the risk we think is in the U.K., if we hit the ceiling on pricing earlier than we would expect, maybe there's a couple of million of risk in there. But we think that, that can be outweighed by the performance in Germany if we encounter that. And then, of course, we've got a number of other asset management initiatives. So that's what we are planning to do to punch that EUR 100 million and get on to EUR 120 million. You then have the strategic question about what happens with the other EUR 30 million. Well, we -- that's management's task. That's what we will work out as we go through the next 2 to 3 years. And clearly, the questions around how much of that's in the U.K.? How much of that is in Germany? How much of that is organic? And how much of that is acquisitive? And all I'd say to that is that we will continue to grow asset by asset in Germany as we have been very successful at doing for a number of years now. We see the U.K. market more as a consolidation play. In Germany, we are buying asset by asset, lot sizes between EUR 10 million and EUR 20 million. In the U.K., the average lot size would be EUR 4 million to EUR 5 million. So clearly, the ability to grow is in part determined by the size of the assets you buy. We do not like portfolios. We don't like portfolios because there's good in portfolios, but people always put bad in there as well. We like asset by asset. In Germany, it's asset by asset. Of course, we'll buy asset in the U.K. It won't move the needle a lot. Progress in the U.K. is through corporate acquisitions. It's through consolidation of the market, that's the way forward that we see in the U.K. If we go across to Page 26, Diarmuid, could you please cover the financing?

Certainly. So what we're seeing here is the movement from an organization that was heavily financed by secured debt to one as of March 2022, that is 75% unsecured debt. So how we got there was the receipt of an investment-grade credit rating back in May 2021. And then we issued our first corporate bond amounting to EUR 400 million in June, that was for a 5-year term at a fixed interest rate of 1.125%. That was followed up in November with a EUR 300 million issuance for 7 years at 1.75%. So what that does is that has increased our total debt figure from EUR 472 million to EUR 995 million, which throws off a net LTV of 41.6% as of March 2022. And I think what's really important to note here is that is that the number of and the book value of unencumbered assets has increased from 19 at March '21 to 127 at March '22, which means that we have over EUR 1.6 billion worth of unencumbered properties, which gives us a huge amount of flexibility in terms of how we run the organization moving forward. As a result, we've also managed to reduce our average cost of debt down 10 1.4% whilst increasing the weighted average debt expiry from 2.7 years to 4.3. And on that, I'll hand over to Andrew to summarize.

Thank you, Diarmuid. So we've achieved a 20% total accounting return. And very importantly, we've increased the dividend by 16%. We've seen 6.4% increase in like-for-like rent roll in Germany and 7.6% in a 4.5-month period in the U.K. FFO growth has been just over 22%. We have unrestricted cash on the balance sheet of just over EUR 127 million. In this period, we issued 2 bonds totaling EUR 700 million. We think that was transformational for both the business and the balance sheet. As a result of that, we have unencumbered assets of around EUR 1.6 billion. We deployed EUR 201.9 million of our own capital to buying assets in Germany, and we also acquired a EUR 79.9 million asset for the joint venture. We did, of course, acquire the BizSpace business in November of last year. And as you can see, we continue to embed ESG throughout the business, we will be this year net 0 on Scope 1 and 2. That is partly due to us biting the bullet and moving our head office operations in Berlin. We go across to Page 28, and we look at the outlook. We are pursuing a strategy of forward purchasing and locking in prices to try and get certainty on our costs to 2023. We believe the business is protected to a certain extent about 75% by the corporate bond issuances, which lock interest in for the next 4.3 years. We have been acquisitively quite strong in this period, but we've not yet seen the full effects of those acquisitions in a complete financial year, and we look forward to that in the year concluding March '23. We are actively looking at further opportunities in both the U.K. and the German market. We believe that future evolving macroeconomic trends we need to keep a very, very close eye on what's happening in the world. You saw how we did that where COVID was concerned. You've seen how we've done that in terms of locking prices in the utilities. We continue to plan for the worst. We continue to expect the unexpected, but we continue to then operate in a way where we can optimize returns for our shareholders. And we believe that we have a good landscape to do that going forward despite everything that's happening in the world around us. Can I thank each and every one of you for taking the time to listen this morning and just remind you that we now move into a Q&A session, and please feel free to submit questions online. So Diarmuid and I can help wherever we can. Thank you.

Okay. Our first question comes from Matt Saperia Peel Hunt. He says, we talked about the growth strategy for Germany and the U.K. Could we elaborate on the desire to consolidate in the U.K. and specifically how big you think the opportunity is? What advantages do you have over others? And furthermore, do you have a view on the balance of the business going forwards between U.K. and Germany? Do you want start, Andrew? And ask if you -- it's quite a lot there. So if you need a reminder?

Matt, thank you very much, indeed. I think we have 2 key advantages. The first advantage is our cost of debt and cost of capital. Remember, we've got over EUR 100 million of firepower sitting on the balance sheet at the moment. So we've worked long and hard to get into that position. We need to be very disciplined in terms of how we use it. But there is definitely an advantage there. But you wouldn't necessarily expect an operator to have you -- maybe expect other types of buyers to have that, but not necessarily an operator. But we also have another advantage. We have a very strong platform, which means not only can we assess the opportunity, we can realize the opportunity. So we can see opportunities that other people wouldn't be able to get to. And once we've seen them, we can execute on them. So I'll take a silly example in Germany, if I look at service charge reconciliation, where we have our own internal teams. And as you know, we have the strongest record of reconciling and getting back service charging any operator of scale in Germany. We can put our own internal teams into an acquisition before we acquire it during due diligence, and we can understand what opportunity is there, and we can understand to what extent overrate is being traded off on service charge. Other people can't see that because they're using external parties to reconcile that. And those external parties won't get involved to the same degree in due diligence. And even if they could see it, they haven't got internal teams that can actually deliver that. There are many other examples, both in the U.K. and also in Germany. But in summary, the advantages are around the cost of capital, cost of borrowing and then the operational advantages of being able to identify and assess those opportunities and then furthermore deliver on them once you're under ownership. If I look at balance, my job, I think, primarily is to allocate capital to opportunities and get the proper risk-adjusted return for shareholders. So if I was to sit here and say we've got an equation, it's x percentage in Germany, x percentage in the U.K., I would be preventing myself from being able to apply the capital into the places whereby we can get the right risk-adjusted returns at the right point around the cycle. So whilst I can tell you that Sirius will remain predominantly German, and whilst I can tell you that we want to continually be getting back to roughly sort of up to 1/3 U.K. sort of 2/3 Germany. What I can't tell you is that, that won't flex from time to time. In the same way as we flex our dividend policy up to 75% when we're recycling and down to 65% under normality, maybe you'll see the balance between the U.K. and Germany flex from time to time. And if you think about that, that's logical because what I'm saying is that we will grow asset by asset in Germany, but corporate consolidation is much more likely in the U.K. And by nature of that statement, you would expect the U.K. balance to maybe go up for a period of time until the German asset by asset activity has diluted it. So what I would say is I think we do have significant advantage. What I would say is that actually diversification into the U.K. with events in Europe and the Ukraine has actually, in retrospect, appeared to be a reasonably timely move. And there will be some flexing of the balance from time to time. But what we want to continually get back to is this 2/3 German presence. Matt, I'm not sure if you can talk because you might be online, but I hope that answers your question, which -- is there anything that I haven't covered in that?

No, I think you've covered it all. So the next question is from Anton De Goede with Coronation. Please mention how you will approach funding of acquisitions if the share price moves below NAV and the LTV remains above 40%?

Okay. Sorry, it's Anton De Goede. And so, Anton thank you very much, indeed, for that question. Let's talk first about funding point. Anton, I'm a shareholder, Sirius is the biggest piece of wealth I've got in my life. I have absolutely no intention in the near term of raising money at below NAV. So that is a personal comment for me as a shareholder rather than a statement on behalf of the Sirius Board. But I would be very, very upset as a shareholder personally to see this company looking for money at below NAV, given where it has been and given where it is today. Having said that, I think things have changed since November when we last raised money at GBP 1.31 despite me going in and buying shares thereafter at GBP 1.41. The world is different. The cost of capital is different. So I don't think we can expect to necessarily be where we were in November of last year, were we over the next 5 or 6 months to be thinking about anything. So we've got to be realistic. But realistic needs to be at some form of premium. It certainly doesn't need to be looking as desperate as having to place shares at below NAV. Let's turn to the LTV point. We remain committed to being less than 40% LTV under normal circumstances. And what you will see is that we have gone up to 45% LTV in November in order to buy BizSpace. And if you look at where we are today with these results, you can see that we've returned that LTV to just short of 42% at a net level of 41.6%. And I'd like to think that when I'm talking to you in 6 months' time, all being equal, we would see that down below the mark, and we would have achieved that in part through recycling and also through increasing the net operating income and seeing that net operating income being appropriately valued. But what I would say is, as you saw with BizSpace, when we look at corporate acquisitions, we have the appetite to operate in the 40% to 45% LTV corridor, provided we are confident of being able to return on that LTV down to below 40% within an 18-month period. So I'm sorry, those are very long answers, but I hope it gives you comfort that you are not likely to see us going out and raising money at below NAV. And certainly, we do continue to want to operate below 40%. But for certain significant opportunities at corporate level, we are prepared to operate in that 40% to 45% corridor provided we are confident about managing back down to below 40% within 18 months. Richard, have I answered all of Anton's questions there?