Sirius Real Estate Ltd

LSE:SRE

Earnings Call Analysis

Earnings Call Transcript 2020-Q2

[Alistair Brian Marks, CFO & Director]

[Audio Gap]That $0.80 adjusted [indiscernible] per share.That 8% increase, as mentioned before, is mainly driven by the valuation increases. And if you look at the actual investment properties, they have actually come down by almost EUR 70 million, and that's because the acquisitions of EUR 22 million and the valuation uplift of EUR 70 million has been more than offset by the fact that we sold EUR 160 million of assets into the joint venture. And that joint venture interest is completely out of those investment properties, and you can see that sitting is EUR 26.3 million as a pure investment in the equity in that. And that joint venture now, since it's actually going into those assets, are now geared at 50% within that joint venture.The current loan balance is EUR 339 million, which represents about a 32% LTV. And if you look at the pro forma after those EUR 122 million of acquisitions we've got in the second half and the extra EUR 115 million debt, we can see that LTV going from that 32% to around about 37% to 38% come the end of the year, but still below that 40% threshold. But more importantly, if you look at from an FFO perspective, our run rate after the JV transaction and what's happened in the first half is roughly around about EUR 48 million. If you put in those transactions on top of that, we can see our FFO run rate getting up to sort of mid-50s. So that's sort of around about EUR 0.055 per share FFO yield, and then we're expecting more organic growth to come through in the second half. So last year, we saw a 6 -- a 7% like-for-like rent increase for the full year, and that was more back ended because we were relatively flat in the first half and most of that came through in the second half. Our expectations maybe not get to 7% this year, but it will be similar, sort of thin where we've stayed fairly flat in the first half, but the pipeline, the new deals in the second half, are looking quite encouraging. So we're hoping that will come on top of this acquisition and new debt activity in the second half as well. If you flip over the page to look at the NAV on a per share basis. I think the key things to note here are that the recurring profit after tax of 2.45, plus the EUR 0.0565 on the increase in NAV represents around about 11% total shareholder return on a NAV basis for the first 6 months, 11% in 6 months. That comes down to 9% because of the adjusting items, which, as I mentioned to you before, are predominantly related to the JV. But 11% in 6 months, pure operating is probably one of the best 6 months we've ever had. And as you can see, we're still at EUR 0.80 NAV per share. So with that growth coming in the second half, we are well on track to have another year of more than 15% total shareholder return on a NAV basis, which will make it the fifth year in a row that we've actually achieved that.

[Andrew Coombs, CEO & Executive Director]

Thank you, Alistair. So just looking at Page 8. I referred previously to the EUR 170 million of firepower. And as you can see, this is made up from EUR 10 million of asset recycling, the EUR 70 million from the Titanium joint venture with AXA Investment Managers and EUR 90 million from the Berlin Hyp loan extension at the interest rate of 0.9%. In terms of what we've done so far, if you look to the left, you can see that the EUR 21.9 million and the EUR 64.6 million adds up to EUR 86.5 million of acquisitions that have been notarized, and in some cases, the EUR 21.9 million completed. But suffice it to say, that EUR 86.5 million is roughly half of the EUR 170 million firepower, which is already committed. Now bearing in mind, we didn't complete the Titanium joint venture until July, and bearing in mind that we only drew down the Berlin Hyp extension in October. And in terms of the asset recycling, that EUR 10 million, although it's notarized, it's not due to complete until the end of March, yet already we sit here in November. And actually, over half of those funds have been committed. In terms of the acquisitions in addition to that, the exclusivity, that will take us up from EUR 86.5 million to over EUR 150 million of equity in terms of what -- sorry, just over EUR 150 million of equity that we would put to work. So the way that we're looking at this is we've got less than EUR 20 million of firepower that we are really not sure of what to do with yet, and we think we will have that issue solved in the next few weeks. The danger here, as you see, EUR 170 million, you think there's an awful lot of firepower. Actually, we are pretty close to understanding where that firepower is going to go. It may well take another 6 months to get to a point whereby we complete those transactions. But in terms of allocation and understanding the home for that equity, we are fairly well advanced. And if you can see or if you look at what we've done already, Teningen, which is completed, is entering into a new market, Freiburg, where we plan to buy additional sites and improve our critical mass. Buxtehude is very interested in Hamburg. It's actually the former headquarters of the Bacardi organization in Germany, and we are already talking to Amazon about taking some of the space in that site. We took it over when it was 100% vacant. Bochum II, Bochum is between Dortmund and Essen. You remember we bought the first Bochum site earlier in the year, and we've been successful in churning out Pilkington glass, the anchor tenant, and replacing Pilkington with some other tenants that are paying higher rates. But what we've done with Bochum II is we bought the office building attached to the site. That office building has ThyssenKrupp as the anchor tenant, and this is a simple case of being able to buy 2 adjacent sites and putting them together. And once we do that, we get the marriage value of ThyssenKrupp as well as the new tenants that we put into the original Bochum site. Alzenau is near Frankfurt. And as you can see, it's one of the biggest sites that we have bought on our own at EUR 44.4 million. One of the reasons why we're able to now access these higher value sites is because of our association with AXA and because people are willing to bring off-market deals to us of this size because they have confidence that we can execute on those deals without lengthy public processes. Hallbergmoos in Munich is an asset that we've most recently notarized. That, we think, is an undermanaged, poorly rented asset with significant vacancy, and what we intend to do is to change that quite quickly. So if you go across the page to Page 9, we can see some of the more detailed numbers on this, but basically, what you're looking at here is Sirius having bought 1/3 vacancy. So of all the sites you see on this page, the total blended vacancy is 33%. And this is excellent news because this fuels our engine for the future. This is all about making sure that we fuel our organic growth program and our ability to deploy CapEx in the future on suboptimal space where, as you know, we can get some 30%-plus returns. In terms of Hallbergmoos, we think that it's a fragmented site that's been mismanaged and is under-rented. And one of the opportunities that we see is to be able to secure new incoming full vacancy and to do so in a market like Munich where we know there's high liquidity and where we know yields continue to come in quite quickly. If we go across the page to look a little bit more detail in terms of what these sites look like. Bochum II is an office site. If you look at the bottom of the picture, the building on the left at the bottom, that is the Bochum II site. If you look at everything else to the right and above, that's our Bochum I site. As you can see, the building literally adjoins what we already own. If you look at Hallbergmoos on the right in Munich, that is predominantly office. If you look at the 3 other sites, Teningen, Buxtehude and Alzenau, these are more light industrial-type sites, less office and more light industrial. And you can see from the map on the right that these sites geographically are extremely well spread. We're buying Buxtehude in Hamburg in the north, right the way down to Hallbergmoos in Munich in the south. So geographically, it's pretty well spread, but what we're buying fits generally with the critical mass and the nodes that we've been building now around the 7 cities and some of the border place.In terms of the organic growth rental income analysis, you can see a lot of positive numbers here. Most notably, if I look at the new letting rate per square meter compared to the move out rate per square meter, you will see that we've got tenants moving out in this period at EUR 5.47 per square meter per month, and we're moving people in at EUR 6.41 per square meter per month. That is in contrast to where we were 6 months ago where, as you can see, the move out rate at EUR 6.88 versus EUR 6.79, people were moving out in the higher value. As we explained at the time, this was a short-term mix issue, and it's been corrected in this period. And provided we continue to bring people in at nearly EUR 1 more than they're moving out. Clearly, the like-for-like rent per square meter will tick up. And if you look at the progress that we've made, the progress in this period is that the like-for-like rate per square meter has moved from EUR 5.83 up to EUR 5.92, a 1.6% increase. And very shortly, we believe that we will be north of EUR 6 per square meter. For a business that some 6 years ago was on an average of just over EUR 4 per square meter, I think that helps to illustrate the opportunity that exists in this asset class. Because we are buying real estate at such a highly discounted rate in comparison to its replacement cost, the headroom to improve the rate per square meter is quite considerable. And despite us going from just over EUR 4 to a place whereby we're close to EUR 6, bearing in mind that we're still accessing real estate at half of the replacement cost. There is still plenty of room to continue to increase the rate per square meter.You can see that the like-for-like rent roll has increased marginally by just under 1%. As Alistair explained, this is very much again with 2 halves, and the first half has been about blocking, tackling and defending. We are in a period up until September whereby although we bought sites in the past where we know people are moving out and although we replaced those move-outs with new contracts, this period to September is the period where those people actually moved out. We had to turn the space around, and move the new people in. So that has created a drag in terms of the progress in this first half. But now what we've got in the second half is with low move-outs and with high sales rate, we've got the opportunity to make sure that we expand by a lot more than 0.9% over the coming 6 months. In terms of just building that in blocks, here, you can see in that move-outs, that 6.2 represents 94,000 square meters of move-outs. That is unusually high. It's about 12,000, 13,000 square meters higher than we would normally expect, and it's largely driven by sites like Saarbrucken and sites like Bochum where we know that people were going to move out and they have done. But now we have replaced them physically on the ground. We've got the opportunity in the second half to experience much lower move-outs and to couple that with the high sales rate. In the first half of this year, we sold 80,000 square meters of new tenants. If we repeat that in the second half, but with low move-outs of less than 60,000 square meters, we'll experience quite reasonable growth in the second half. You can see that the Titanium joint venture reduced the rental by EUR 11.3 million in the period. And of course, that's one of the large factors together with the move-outs that's taken us down to EUR 78.5 million. But we believe it now gives us a good stable platform to move forward on over the next 6 months and to achieve similar growth figures to the growth figures that we saw in last financial year. If we go across to Page 13, what we are seeing is we're seeing 47 bps of yield compression at gross level. This is something that Sirius hasn't always seen in the past, but what we are seeing is, in a period of fairly flat rental growth, we're seeing our valuers bring the gross yields in by 47 bps. We still believe that this is relatively conservative, but we think that it's consistent not just with the market, but with the rates that we've been selling at, and we're delighted to see that 47 bps yield compression.In terms of the bottom table, it's worth noting that, that table is really relevant to just 3 assets, the 3 assets that you see on Page 9. So I don't think we should draw too many conclusions from that. The really important table is that 47 bps movement of gross yields in terms of the existing portfolio. Alistair?

[Alistair Brian Marks, CFO & Director]

So on to Slide 14. What we try and show here is try and analyze the like-for-like movement in the year as well as sort of position exactly where we've actually got to at the end of the period with the table below. So the first 2 tables show the like-for-like movement and the bottom table shows exactly where we've actually got to come 30th of September this year. Looking at the like-for-like movement. What we've seen historically is that most of the organic growth in the rental income comes from the value-add portfolio and the mature portfolio remains fairly stable. What you see in this period is that both the value-add portfolio and the mature portfolio have increased by about 5.5% to 6% in value, yet both have only had about 1% rental growth. And the reason for that is that the value-add portfolio is where those large move-outs are situated within. So those move-outs effectively reduced the increase in rent from the value-add portfolio down to 1%, whereas typically we've seen around about 10% per year from that value-add portfolio. And if you look at how that translates to the portfolio at the end of the period, so flipping from the middle table to the table below, the difference between the 2 is that we've added in the EUR 22 million of acquisitions as well as 3 value-add assets have now been converted into mature assets in the period. And if you look at how that stands at the end of September, we're now at around about 55% mature assets and 45% value-add assets. And the gross yield of those 2 categories is 7.8% gross yield on the value add and 7.1% on the mature portfolio. And we think that 7.1% is more reflective of where the market would be valuing assets once they become mature. And just to see how we can actually get there with the value add, the key thing in the value add is that 193,000 square meters of vacant space as per usual. So to get that value-add portfolio to 90% occupancy, that's letting up around about 120,000 square meters of that 193,000, of which 80,000 of that, 2/3 of 120,000 letting up is coming from the CapEx program and 40,000 will come just from general lettings. But if we are able to achieve those 120,000 square meters of new lettings, that will add around about EUR 9 million of rental income on to the portfolio. And if we cap that income on the value add at the 7.1%, again, this isn't a forecast, this is just a mathematical equation, that will add about EUR 170 million on to the valuation. So even though we've seen a lot of growth over the last few years, we've seen yields come in to 7.4% on the gross basis across the whole portfolio, there still remains quite a bit of value-add opportunity within the portfolio, predominantly in the value-add section.Flipping over the page to the vacant space. We can see that we've got now 17% vacancy across the whole portfolio, of which 6% of that is going through the CapEx program. So I mentioned the 80,000 square meters coming through that, that is pretty much everything at the top of the table. What has changed a bit from the past is that we've now got 9% vacancy of what's actually lettable down the very bottom. Typically, we've been running at about 6% to 7% on that number. So there's a little bit of extra vacancy, and that's vacancy that's come from these large move-outs that we've talked about in the first half. So in the past, where most of the value has come from the CapEx program remaining, we've actually got a bit in the existing space that's ready to let as well this time around. But in total, as I've said, investing around about EUR 20 million to get an extra EUR 9 million, EUR 170 million valuation, that's pretty much what's left in the vacancy. And flipping over the page to see exactly how we're going to extract this stuff from the CapEx. Just looking at the original CapEx program, this is pretty much finished. There are still about 5,500 square meters left in this. The only reason that we haven't completed those is because we've been waiting for missions on that space. But for all intents and purposes, the original CapEx program is pretty much done. And just to sort of reiterate the kind of returns we make from our CapEx program, you can see on the 200,000 square meters that have been completed, we've come in under budget as far as what we've invested. So EUR 24 million has been invested into that 200,000 square meters of space. We're getting EUR 12.2 million recurring rental income every year based on 79% occupancy, so there's still more to come from that. And we're getting about a EUR 5 million benefit on the service charge. So that means a saving around about EUR 2 per square meter. So that space was costing us EUR 2 a square meter when it's vacant. We're now recovering that cost of EUR 5 million, plus we've got EUR 12 million rental income on top of that. And I think we've had a one-off valuation increase of about EUR 160 million from that investment. So if you really want to analyze the returns from that EUR 24 million investment, you're talking EUR 12.2 million rental income every year, EUR 5 million service charge improvement every year and a one-off EUR 160 million on the valuation. So this is a real key part of our program as far as getting the kind of returns we do at the asset level. And if you flip over to the page on new acquisition.

[Andrew Coombs, CEO & Executive Director]

Sorry, Alistair.

[Alistair Brian Marks, CFO & Director]

Yes. We've got 150,000 square meters in new acquisitions of space similar to what we've done in the original CapEx program. We've completed the works on about half of that space, but there's still about half that's undergoing the refurbishment. And what you'll see from the metrics on this is that we're expecting around about EUR 10 million improvement in rental income on the EUR 33 million investment, which is around about 31% compared to the 50% from the original program. But the value-add element of the CapEx program on acquisitions is going to be much higher because if you look at the space that we're actually developing, it's more capital-intensive, and we think we're going to get much more valuation uplift because there's a lot more conversion into offices within this program. So the returns overall will be similar to the original CapEx program, but a little bit more weighted towards valuation over just the income on the actual investment. But there's still quite a bit to go. There's still almost EUR 20 million of investment and another EUR 6.5 million of rental income to come from this as well as the service charge improvements and the value-add elements that we've talked about. So -- and as we buy more assets like Buxtehude and some of the stuff like Hallbergmoos, we're continuing to top up this program and refuel that and keep that going, going forward.Flipping over to Page 18. What we wanted to highlight here is that we've always talked about as far as returns on acquisitions of getting close to doubling the equity over a 5-year period and trying to roll that out over 3 years, which is what we've done in the past. But if you look at the returns on the acquisitions that -- the EUR 22 million of acquisitions we've completed and the EUR 65 million acquisitions notarized, the EUR 87 million of acquisitions this year, you can see that we will invest around about EUR 42 million of equity into these and about EUR 45 million is coming from the bank. So our return on that EUR 42 million is very much around increasing the occupancy from 67% up to close to 90% and increasing the NOI from EUR 4.6 million up to just under EUR 8 million. And we believe that valuations will go up to just under EUR 120 million on the back of that. So if you look at the returns on our EUR 42 million over the first 3 years, we're talking about -- around about EUR 15 million net operating profit and around about a EUR 32 million valuation increase. And we're going to invest around about EUR 11 million of CapEx to do that. So in total, just over EUR 35 million of profit on a EUR 42 million investment. So it's not quite doubling the equity over 3 years. But over 5 years, we will definitely bridge that and get that kind of return over 5 years on these acquisitions. So it just pays to be selective because if you look at all of the acquisition opportunities out there, there aren't that many that we look at, that will make these kind of returns, which is why we're buying about 5 to 8 assets from about 800 opportunities. So investing that time to actually make sure that we can buy assets that can make these kind of yields will pay dividends for us going forward.Flipping over to Page 19 on the banking. The first slide, I just wanted to show you what the impacts of the JV transaction on the debt, plus adding in that new EUR 115 million facility from Berlin Hyp will look like. So at the start of the period, we can see we had about EUR 386 million worth of debt. We've repaid around about EUR 80 million of debt as a result of doing the JV transaction. And in addition to that, we've drawn down about EUR 33 million from a PBB facility, and we've agreed that EUR 115 million Berlin Hyp extension. So net-net, we will actually increase our borrowing by just under EUR 70 million and will reduce our interest bill by just under EUR 1 million. Increase by EUR 70 million, reduce by almost EUR 1 million, and we'll end up with an interest rate of under 1.5%. So this is actually quite accretive as far as our earnings are concerned. And particularly when we're investing that extra money into assets, which are yielding sort of 6% to 7%, this is going to be quite accretive on our FFO going forward.And just flipping over the page to see how it looks. You can see from March '19 to September '19, we have had that reduction of debt as far as what's actually reported because we haven't drawn down the EUR 115 million Berlin Hyp facility. But interest has come down from 2% down to 1.7%, but interest cover is now up to almost 12 -- was 12.2% times -- 12.2x, sorry. So having 12.2x interest cover has got to be one of the highest in the sector. But if you look at how that translates to doing all the pro forma after we've done this Berlin Hyp facility, I think the key things to note is that LTVs will go up. I don't think it will go to that 39.4% number that we've got here because we haven't got the full firepower as far as acquisitions are concerned, so I'm thinking more sort of 37%, 38%, that's where we'll get to. Interest cover will come down slightly, but the key thing to note is that our unencumbered assets are going to increase to more than EUR 170 million. So where we have a slight reduction in interest cover, having these unencumbered asset is pretty significant from a risk point of view as far as our company is concerned. So I think having a slightly higher LTV with more unencumbered assets, but still in excess of 11x interest cover, will leave our banking position in a pretty good state.

[Andrew Coombs, CEO & Executive Director]

Thank you, Alistair. If I can just conclude. What we're saying is that we're on track with 9% total shareholder return in this first half for the fifth consecutive year of 15%-plus total accounting return. In terms of financing, as you can see, Alistair has done an amazing job there in terms of extending lending and reducing overall average cost of debt, most recently with that facility at less than 1% all-in interest. You can see that the organic annualized rent roll growth has been positive despite it being a first half that's been very much about defending. We've talked about the issues with the move-outs. We knew about the move-outs. But operationally, this is the period we turn those around. And despite that, we've managed to achieve positive organic rent roll growth. We've seen 50 bps yield compression in terms of the portfolio. We've seen the completion of the Titanium joint venture transaction with AXA Investment Managers leading to net proceeds of EUR 70 million for reinvestment into new assets. We've seen some progress in terms of asset recycling. We've seen additional lending progress. And most importantly, we've seen progress in terms of understanding where EUR 150 million of the EUR 170 million firepower is actually going to go.We have a very strong lettings and acquisitions pipeline for the second half of the financial year, and we believe that we can achieve similar rent roll growth to that of last year as a result of performance in the second half. And most notably, we're paying an interim dividend of EUR 1.77, but this is based on a 67% payout ratio, which means we are over 1.5x covered. And I think that probably makes us one of the best covered dividends in the sector.Ladies and gentlemen, thank you very much indeed. Perhaps now I could take questions from the audience in the room. And then after that, maybe move to any questions on the phone.

[Matthew Saperia, Analyst]

It's Matthew Saperia from Peel Hunt. I'll ask 2 questions, Andrew. First one, can you remind me of the criteria for assets to go into the Titanium joint venture? And as a follow-on, are you looking at assets to go into that joint venture, i.e., looking at assets [indiscernible] excluding the profit? And the second question was around the asset class in the market. Clearly, it looks like, given the yield compression, you're seeing the pricing is strengthening. Is that the case from all assets, including the sort of micro risk assets that you typically provide?

[Andrew Coombs, CEO & Executive Director]

Okay. So let's talk about the first question. The criteria really is around what we want to do with the joint venture, how that is fundamentally different from what we want to do on our core balance sheet. On our core balance sheet, we want to buy assets, as you can see, with about 30% vacancy, assets that we can fundamentally reposition. And typically, we have been buying assets that are less than EUR 30 million. Now what we want to do in the JV is we want to buy assets that are more stable, typically with around about 10% vacancy from 30% vacancy. And we want to buy assets that are typically larger in value than the assets that we would typically buy. So ideally, EUR 45 million plus assets. It's quite interesting, Alzenau is EUR 44 million, and it's probably one of the biggest assets that we bought onto our own balance sheet in this acquisition space. But really, what we're looking for in the JV is stuff that is much less vacant, but is higher value. Now that's where we really need a joint venture partner's help in terms of being able to move quickly on a transaction and having the equity readily available. So hopefully, that answers the first question, which is the joint venture is about bigger assets and it's about dryer assets. And our core balance sheet is about more opportunistic assets, typically at less than EUR 45 million. In terms of the price tension in the marketplace, there is no doubt that yields are continuing to come in. It's sort of quite interesting. If you look at [indiscernible] a couple of years ago, that was a landmark transaction. They yield of something around 7%. If you look at what we've been doing with the joint venture assets and what some of our competitors have been doing with some of the larger portfolios, 6% to 6.2% seems to be the historic new high point. But what's really interesting is there's lots of chatter and discussion in the marketplace about mid-5s. Seeing that sometimes in the market, you see something go from 7% to 6%, and the conversation gets stuck at 6%. We're yet to see transactions go through at 5.5%, but there's a lot of chatter, a lot of discussion, a lot of sort of ambition around 5.5%. And to me, that feels like this market's still got quite a lot of legs. It feels to me like the momentum is still continuing. Now fortunately, Sirius with its platform of 260 people in 60 different locations has got the expertise and the manpower to be able to look at about 100 properties to buy 1 or 2. And because of that, we're able to continue purchasing, and that's to the 7% to 8% level. And of course, we are insulated now that Alistair is able to access debt at more like 1% instead of 2%. Even if we had to buy at 6% to 7%, we're still able -- to be able to maintain our spread.But in answer to your question, it is more competitive. We are having to work harder. But we do believe that with the capability of our platform, we can continue to maintain the spread between the points at which we're purchasing and the points at which we're accessing debt.One last answer because I haven't fully answered your question. Have we got anything in the joint venture pipeline? Yes, we have. No, it's not included in the numbers that we have quoted. I don't particularly want to start giving out numbers for joint venture because we're in partnership with somebody else, and I'm not sure they would actually want us to talk about it. But in answer to your question, the pipeline and the numbers you see is not boosted by joint venture targets. There is a separate pipeline and there are assets in that. And in due course, you'll see the result of that.

[Unknown Analyst]

Two questions. You bought a number of office properties. Communicate to us the kind of exposure for offices. And looking into your portfolio start to [indiscernible] maximum level of offices -- of pure offices you want to have? And the second question would be on the debt [indiscernible] a motivation rate for the refinancing and a number of [indiscernible] has increased and what significant change [indiscernible].

[Andrew Coombs, CEO & Executive Director]

If I take the offices one, do you want to take that one?

[Alistair Brian Marks, CFO & Director]

Yes.

[Andrew Coombs, CEO & Executive Director]

Okay. Thank you. Now if you look at this portfolio 6, 7 years ago, you would see that about 24% of the total space was office. Today, you'll see something more like 36%, 37%. So there's no doubt about it. We have repositioned things so that the mix is slanted more towards office than it perhaps was 5, 6 years ago. We are, however, unlike industrial specialists. And because of that, I don't ever see us being in a situation whereby more than 50% of our space is office space. But I could potentially from time to time see us breaking into the 40%-something office, but it will be fluid because Sirius is not about creating a static portfolio and sitting on it. It's about taking assets, repositioning them, holding some and recycling others. So I would anticipate that we would probably operate between 35% and 45% office, and we would continue to recycle the portfolio in the way that we do. But your point's a really good one. We have changed the mix, and we believe that has had a positive effect on the overall value and returns from this portfolio. Do you want to talk about the banking, Alistair?

[Alistair Brian Marks, CFO & Director]

Yes. The amortization is going to stay at around about EUR 10 million per year. The new facility of EUR 115 million comes with amort of 1.25%. So that's a bit lower than the usual 2% to 2.5% that we have on other facilities. But I was thinking around about EUR 10 million.

[James Carswell, Analyst]

James from Peel Hunt. I'm just wondering [indiscernible]. I mean this is clearly a question much around the German economy. But it sounds like you're [indiscernible] still very positive [indiscernible] take space. And I guess as a follow-up also. Are you seeing any I guess bankrupt summary? And second, are you seeing any trends in terms of this [indiscernible] industries that are taking lots of space or maybe [indiscernible] last 6 months or so? Or is it the same picture as 6 months ago?

[Andrew Coombs, CEO & Executive Director]

So firstly, we're not seeing any negative trends at all in terms of our tenant demand nor are we seeing any negative trends in terms of the length of time it takes people to make decisions because we measure 2 things, 2 early indicators. One is the physical volume of inquiries. But the other is, in our existing customer base, the average number of days that it takes to make a decision in relation to the value of that decision, because in a downturn, we actually see 2 things happen. We see overall the inquiries go down, but what we also see, particularly at the upper end of our customer base, is we see decision-making go out. Now we're not seeing either of those 2 indicators. What we are seeing in the German economy is we're seeing lots and lots of negative noises coming from the automotive industry. And it's actually interesting. I know you probably all heard the news about Elon Musk opening the Tesla factory in Berlin. It's quite interesting that rather than opening that factory in Munich or Stuttgart where traditionally you've got automotive manufacturing, he's decided to bring it to Berlin. It's interesting because of what it says about Berlin and the way that you can access talent internationally in Berlin. But it's also interesting in terms of what it says about why he didn't want to put it right in the middle of the automotive industry in Munich or Stuttgart. But that is where we are seeing the negative signs. And 2 years ago, Sirius made a strategic decision not to take on any sites that had automotive manufacturing in cyber. We do have automotive customers, but those customers were involved in research and development of driverless cars, fuel cell technology, battery power because we see all these things linked to the future, and we're happy to have customers who are focusing on the future. But we see automotive manufacturing in this kind of real estate for manufacturers who don't own the real estate as quite a big problem for the future, and that's why we wish to avoid it. So I think the answer to the question is, specifically, where we're concerned, we are not seeing any negative. Generally, in the economy, the issue we think is the automotive industry.Okay. Thank you very much indeed. Are there any questions from people on the phone line?

[Operator]

[Operator Instructions] And as there are no questions on the phone, I'll hand it back to you, Andrew.

[Andrew Coombs, CEO & Executive Director]

Okay. Ladies and gentlemen, thank you very much indeed for your time and attention this morning. That concludes the presentation. Thank you.