LondonMetric Full Year Results for the Year Ended 31 March 2014 - - PDF document

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Company: LondonMetric Conference Title: Full Year Results for the Year Ended 31st March 2014 Moderator: Andrew Jones Date: Tuesday 3rd June 2014 Patrick Vaughan: Good morning everybody, thank you very much for coming. A year ago I came to you and presented to you the case for our merger with a slightly complicated set of figures resulting from part year consolidations and we set out a number of objectives which were ambitious but needed to be achieved during our first year in the new business. I’m here to tell you that I’m delighted that we’re back a year later to say these objectives have been achieved. We have moved to new premises so the business is under one roof and that was achieved without a loss

• f momentum. There is a tremendous sense of can-do pervading the office and without a doubt

the merger is working. I said to everybody last night that they’d done a fantastic job of working the year with a huge volume of sales and acquisitions that we’ve made and I said you’re going to have to do better this year. We have achieved the cost savings we promised and at the beginning of the year we set out an ambitious programme to reorganise the portfolio along very clear strategic lines in line with our customer strength and as you see in the coming presentation an enormous amount of work has been done to that end with nearly £1 billion of purchases and sales concluded. The average lease length has been extended despite the passing of a year; vacancies have fallen usefully; and yields have stood their ground despite the hardening in the market. We said we would look at a run rate of repetitive income that would cover our dividend and as we reached our year end we have achieved that target. We are not fixated on that target because we consider opportunity for purchase and disposals are made for the right reasons, but having achieved it, it is also our

• bjective in the coming year to improve on the overall position and to move forward. I would

like to thank my executive team that has worked so hard during the year and I will now hand

• ver to our Chief Executive Andrew Jones and his team who will take you through our
• presentation. Thank you.

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Andrew Jones: Thanks Patrick and good morning to you all. To start off with the financial highlights, as you can see in front of you the EPRA NAV coming in at 121p, it’s up 12p from the 109p that we reported this time last year and that is largely driven by the £95 million increase in our valuation, up 8.5% on a capital return basis which has delivered a reported profit of £125 million which as you can see is a marked improvement on the numbers 12 months ago. EPRA profit has come in at £26.4 million, 20% higher than it was last year; earnings up at 4.2p which have

• bviously been affected by the intense portfolio activity that Patrick touched on earlier. We

announced today a final dividend at 3.5p which gives us 7p for the year in line with where we were last year. The implications of not only the valuation but also the intense portfolio activity have been that the LTV has fallen to 32% and actually today post the activity in the period end has actually risen slightly to 34%. Turning now to the operational highlights, portfolio valuation coming in at £1.22 billion, that’s

• bviously reflecting the changes but also the valuation uplift. Interesting that 80% of this

portfolio has been acquired in the last three years and over 92% in the last four years. Strong total property return at 17%, 360 basis points higher than our various IPD benchmarks. Mark will go through the details of that and the breakdown further in the presentation but we did

• utperform in our two core sectors of distribution and retail; and as Patrick has already

mentioned the top yield is at 6.4%, 10bps higher than it was last year despite absorbing 60 basis points of yield compression which was a mixture of asset management activity but also market shift and that is effectively as a result of the attractive acquisitions and the low yielding disposals that we’ve made during the year. Annualised income is up £10.2 million to £72 million, a 16% increase that will continue to grow through baked-in contracted income that we’ve already signed particularly on the Islip development in Northamptonshire which again Mark will talk through later in the presentation. Our occupier transactions have helped deliver like-for-like rental growth at 3.4% and a marked increase in our development pipeline largely accounting for that million square foot development that we’ve pre-let in Islip. So just to remind you, this is a slide of our investment strategy, it’s a slide that you’ve seen certainly at the half year and also 12 months ago. The three silos that we continue to look at real

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estate at are income, asset management and short cycle development particularly in our two core subsectors of retail with a strong bias to out of town and distribution with a strong bias to

• ur retail occupiers. The market as you know and as you’ve read has continued to strengthen

which means making further accretive acquisitions in the income column will be more challenging than it would have a year ago and obviously more challenging than it would have been two years ago; and as a result if we look forward we will continue to focus on it but we believe we will see more activity in the asset management and the short cycle development silos and you will have read this morning that we successfully concluded the sale of our Marks & Spencers development at Berkhamsted which delivered us a profit on cost of over 60% over a 14 month timeframe and it’s pleasing to be able to put a picture in the middle far right box of the CGI of our proposed new million square foot development which we will start on site in Islip later in the summer. Portfolio highlights, we have already touched on the nearly £1 billion of investment activity that we executed over the year. Our share of that is £974 million, £406 million of acquisitions, 74% of these were off-market, 50% of them came from bank or motivated vendors and as you can see the yield arbitrage between what we’ve been buying and what we’ve been selling on a blended basis is 320 basis points. This has not come at the expense of shorter or indeed riskier income and we’ve managed to increase the weighted average lengths as a result of our portfolio repositioning by over three years. Our 48 occupier transactions – and again Mark will touch on it later – has allowed us to increase our occupancy by over 5% and the weighted average lease length across the portfolio has increased by over a year despite as Patrick says the passage of time. Looking at where we are in the cycle today we think income growth is going to become much more important to capital value progression over the coming few years and I will come on to talk about it in a bit more detail later, but just to show you where we’ve got to, this time last year we had a contracted rent role at £62.5 million. Our occupier transaction to that is £6.5 million and the portfolio repositioning of selling low yielding, buying higher yielding has added £3.7 million, so that gives us the £72.7 million that we refer to in the announcements this

• morning. The £5.3 million reflects the pre-let income on the Islip development where we expect

to PC in the summer of next year. We announced this morning some further portfolio sales and

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acquisitions – that will have a short term negative impact on our rental income of £1.4 million but it just does prove as Patrick touched on earlier that we will make the right property

• decisions. Income growth is a big focus of ours but we will continue to override that by the right

property decisions, but as you can see that £1.4 million declilne is more than offset by the lettings that we have in legals and the eventual let-up of the two floors in Carter Lane which again we will touch on later, so ignoring any further reinvestment or divestment, that takes our contracted rental run rate up to just under £79 million. The result of this activity means that 86% of our portfolio is now considered to be within our core sectors, 44% in out of town and 28% in distribution. The 28% in distribution will rise to 36% upon the completion of our Islip development and as you can see as a result the sales of our residential portfolio – both the wholly owned and also the initial sales that we started to make at Moore House have reduced our residential and our office component down to 14%. We will continue to divest our residential portfolio and we will as you’ve seen this morning continue to sell out of assets within our core portfolio where we believe that the business plans will have already been achieved. A bit more colour now on the acquisitions we made over the period, we actually contracted on three portfolio acquisitions over the last 12 months – a DFS joint venture with Pimco; an Odeon portfolio of sale and leasebacks from Terra Firma; and a Wickes portfolio from Aberdeen. I think what drives the theme through all of these acquisitions has been the fact that we had deep

• ccupier relationships with these tenants and that enabled us to work out the occupier

contentment across this portfolio. The yield arbitrage as you can see at the bottom of those silos has been attractive and as you’ll have read this morning we have continued to sell out of some

• f the weaker assets within those portfolios at substantially better yields than our entry price.

On average we’ve delivered a yield arbitrage of just over 120 basis points – I would probably just caveat that we didn’t consider the sale in Oxford to be one of the weaker properties but it was just a price that we thought was too good to resist. In the distribution sector we stood here a year ago saying that we had an objective to increase

• ur exposure to the distribution sector and particularly those let to our retail customers. As you

can see 7 out of 10 of those acquisitions that we contracted on during the year have been let to

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• retailers. £200 million worth of acquisitions off attractive yields and long let income. They still
• ffer the opportunity to do further lease re-gears and Mark will come on to talk about some

that we’ve accomplished so far this year and highlight or indicate some of the ones that we have in lawyers’ hands. In the retail market £49 million worth again off attractive mid-7 yields, slightly shorter lease lengths but still well over eight years and again these offer the opportunity to re-gear, to refurbish and to extend. Nearly £400 million of commercial disposals off average yields of 5.5% and post period end as we announced this morning, nearly £34 million off yields of 5.6% including our recently completed development at Berkhamsted off an initial yield of 3.9% rising to 4.5% upon the letting of the vacant unit. This underscores the strength of demand in the market for well-let income and I will come on to talk about that in a bit more detail later. The residential team have had a very, very busy period. They have sold over the period 363 different individual units and these were all sold individually. There was no one block that went to a Hong Kong investor or another one that went to a Singapore investor. These were all individual sales. £167 million during the period, £18 million post period end and that has released for us £129 million worth of equity which would have been yielding us roughly 2%. As you can see we sold out at Clerkenwell, Stockwell and Highbury; we have three units left at Battersea which will release on top of that £129 million a further £2.7 million of equity which will allow us to reinvest into those two core sectors that I went through earlier. Our Moore House joint venture which we own a 40% stake of in partnership with our Middle Eastern friends and our Canadian institution, we started a patient sell-down of that asset. We sold 10 units, we have 5 under offer. To date it has released £4 million of equity and there’s £48 million of current valuations still to go and that process will continue in tandem with the progress that is being made on the adjoining site at Chelsea Barracks. On that note I will pass on to Mark who will take us through the asset management and development activity.

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Mark Stirling: Good morning, thanks Andrew. So you’ve heard from Andrew how busy Valentine has been with his team, successfully repositioning the portfolio. We have had a similarly busy year with our occupiers working the assets and concluding nearly a deal a week through new lettings, re-gears and rent reviews. Holding desirable real estate can still command long term commitments from our tenants and the 30 new lettings have been concluded at average lease lengths of nearly 20 years. As you’ll know typically on the high street this is generally 5-10 years. Today only 4% of our income expires within the next five years Our affordable rents across the portfolio have also allowed us to secure rents at over 3% above valuers’ ERVs where transactions have taken place That has delivered nearly £12 million of new

• income. Across the retail portfolio the deals have delivered over 7% growth above valuers’ ERVs.

The momentum across the portfolio continues, we’ve got 13 transactions in lawyers’ hands with

• ccupancy across the retail portfolio at over 99% but we continue to find good demand from
• ur retail occupiers with a reduction in incentives becoming an increasing feature across the

retail warehouse market on schemes let off affordable rents which underscores our view on rental growth going forward. We continue to work with our key occupiers across the portfolio and these six transactions with four different occupiers now have leases nearly 10 years longer post the re-gear, but the real key here for us is that the market yields on each asset are now between 100 and 200 basis points better than our yield on costs, so for example we’d expect the market to value the WH Smiths in Birmingham and the Travis Perkins in Northampton at nearer 6% and the Wickes in Oxford was subsequently sold at 5.3% with a yield on cost at 6.6% following a lease extension to 25 years. To prove that re-gears are not exclusive to our retail assets, the average unexpired lease term at

• ur office building in Marlow has been extended by 60% to eight years by expanding the
• ccupation of our largest tenant Allergan – makers of Botox for those who don’t know them –

into nearly two thirds of the building.

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We’ve made some great progress during the year across the development portfolio. These three were completed and they have delivered a return of between 100 and 350 basis points between the yield on costs and the valuation or sale yield. Berkhamsted, the sale is under 4% for a 20 year lease to M&S reflecting the strength of the capital markets and the desire for long income from good covenants in attractive locations. This is a great example of a short cycle development within 15 months from acquisition to sale where we secured the site in competition with 20 bidders, concluded the pre-let, undertook the refurb and sold the completed investments onto a third party. In the City next to St. Paul’s at Carter Lane our first tenant MFS has taken occupation following completion of the refurbishment and we are well advanced in discussions to let the remaining space on the ground and first floor and that represents just over a quarter of the projected rent. In the current market, prime real estate in Central London, we anticipate that valuation yields

• n this asset will continue to improve beyond the 4.8% in the coming months.

At Bishop Auckland – that’s in the North East for those of you who don’t venture outside of London too often – we’ve only got 6,000 square feet left to let and Home Bargains are the most recent retailer to commence trading well above expectations. On Phase 1 we know from Next that they are turning over twice the level anticipated at the time they took the lease. Andrew has touched on Islip a couple of times already. We’ve secured one of the largest ever pre-lets of a distribution centre to a top 20 retailer with whom we’ve known for a long time. They are happy to sign a long lease of 25 years with annual fixed uplifts of 1.5% as we are building over a million square feet, with multiple mezzanines which means they are effectively

• ccupying nearly 2 million square feet of space. We are anticipating further strengthening of the

cap rate here given activity elsewhere in the market and in particular the rumoured funding of a large Waitrose distribution shed in Milton Keynes at 4.7%. So this may not be the prettiest picture you’ve seen during the results season but I suspect it’s the largest site currently under construction of one building and let to a single occupier. To try and give you a sense of scale, the building is a third of a mile long and covers about 50% of the site so we reckon it would take Mo Farah about one minute 20 seconds to run from one end to the other.

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We continue to have a real appetite for short cycle, limited risk development opportunities, in particular where we’re working with our retail partners or where we can deliver returns of between 100 and 200 basis points between yield on costs and the exit yield. We have already covered the first four, so briefly on Leeds, we’ve now agreed terms with a preferred contractor and expect to start on site in the early autumn with a 12 month build programme. At St. Austell in Cornwall we are evaluating parts of the scheme and we are likely to resubmit with an amended planning application later this year. At Derby we just exchanged contacts to conditionally acquire land where we’ve agreed terms with one of our preferred partners Marks & Spencers to take a pre-let on half the site where we hope to achieve the same levels of return we’ve just experienced in Berkhamsted. Finally on Swindon we’re in detailed discussions with Oak Furniture to extend their distribution centre by 50% to nearly half a million square feet in response to a significant growth in their business over the last 12 months. On valuations, as you can see the outperformance of IPD has been significant at over 350 basis points, our core holdings focusing on our retailer led relationships have delivered the largest relative returns at over 18% on retail, an outperformance of 800 basis points; and over 25% on distribution and outperformance of over 900 basis points. Offices have also outperformed on a total return by nearly 300 basis points and our resi portfolio continues to shrink, as Andrew has already outlined, as we continue our patient sell-down of units. Where does the valuation surplus of just under £100 million come from? Management activity has delivered just under half of this through a combination of adding new space and leasing

• activity. This has benefited the portfolio through extending and improving the quality of the

income stream which has delivered an asset management yield shift of 27 basis points. The balance of the uplift has been driven by a very strong investment market particularly across our chosen core sectors in both retail and distribution and it’s also worth adding as you’ll have read this morning that a further distribution property now benefits from fixed rental uplifts which continue to deliver in-built rental growth across the portfolio.

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I will now hand over to Martin to take you through the financial results. Martin McGann: Good morning. If Valentine has been very busy and Mark has been very busy, we have been very busy too in the Finance team. I’ very pleased to present the first full year of results for the enlarged post-merger group and it’s nice to be able to present a full year but I’ve given you the comparisons to the statutory position last year and also to a pro forma position that I gave you last year, so the statutory comparison is clearly 10 months of London & Stamford and two months of the enlarged group and the pro forma 2013 was just a look at what the group would have looked like had it drifted in total for last year, so I think financially it has been a very successful year. The reported profit of £125.3 million as Mark has just said, a key component of that was the increase in the valuation. We’ve also had a £20 million increase in

• ur net rental income which has been predicated on the acquisitions we made immediately post

merger, so the Primark acquisition and the Saturn acquisition; and also the full year impact of the Metric assets coming onto the balance sheet and looking on the debit side, we’ve lost income on Carter Lane during the year whilst we’ve been refurbishing it. Our share of joint venture income has fallen in the year, now our commitment to joint venture remains strong but we sold the Piccolo distribution portfolio which we had held in joint venture with Green Park very early in the year, so we lost a full year’s impact of that and we didn’t invest in the Pimco joint venture on DFS until the end of the year, so we got very little contribution from that, so I would expect to see the share of JV income next year start to pick up again including the management fee though not to the sort of level that you’d see in the 2013 column which was predicated on the Meadowhall joint venture and also includes the performance fee that we’ve generated from that joint venture. I think on administrative costs we had a good result. We looked to cut out a significant amount of costs from the combined overhead of the two pre-merged firms which came to £15.6 million, so we’ve taken £2.1 million out of that. We’ve also expensed some development costs which we could have chosen to put on the balance sheet of about £300,000, so I think we’ve more or less got to where we’d hoped to get to. I will come on to net financing costs when we talk about the debt position and then below the profit line of £26.4 million which represents 4.2p so that’s an 8% increase in the year. We have the impact of valuation movements, the £113 million is the total of the valuation movement so including Mark’s £96 million but also some benefit from derivative movements in the year and the profit on disposal of some properties in the year as well. I’m delighted to say that under the

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exceptional cost line of £14 million this year, that includes the total amortisation now of everything that came onto the balance sheet as a result of the internalisation of London & Stamford management, so we actually accelerated the amortisation of the Green Park joint venture just to clear the books very much to the delight of our auditor who is sitting at the back and seems very happy about that. Andrew has spoken a lot about income rising and picking up on that theme and the impact that the rising rent role has on our distributable earnings and therefore our dividend cover is shown

• n this slide. Our position at the beginning of the year was distributable earnings of £26.4

million on an annualised basis, clearly we lost significant income from the disposal programme but the net effect of the yield arbitrage on what we bought compared with what we sold was £7.5 million to the distributable earnings line and that together with the lettings we made at Carter Lane and the contracted rent role we have at the Islip development which Mark has spoken about gets us to the £44 million and it’s £44 million that gives us a 100% dividend cover

• n an annualised basis.

Then looking forward, in terms of the lettings we’re currently working on at Carter Lane, to get Carter Lane fully let will give us another £1.5 million and really just taking as a firepower number the cash we have on the balance sheet and attributing a cash on cash yield to that of around 9% drives our distributable earnings up towards over £50 million and towards £53 million and I think when we get to that sort of number. Just taking the REIT requirement to distribute 90% of your earnings, you can start to see that there’s some potential for dividend growth to flow through. Turning to the balance sheet, the balance sheet I think tells a strong story and a story of very intense investment and divestment activity in the year. Our net assets now stand at £755.9 million or 121p compared to 109p last year. I will take you through the components of

• that. Our property portfolio now stands at £1.03 billion. If you add to that our share of our joint

venture assets that gets up to £1.22 billion. Our joint venture as I spoke about earlier has dropped in the year but it has been…the addition of Pimco has put another £50 million into that and interestingly the line ‘other net assets’ actually includes part of our Pimco investment, that’s purely an accounting issue. We have £78.4 million of cash on the balance sheet and bank debt of

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£415.5 million which equates to a loan to value of 32% at the end of the year and I will come on to talk about the bank debt in a moment. We had four property completions accrued at the year end so that accounts for around the £78 million of property completions accrual: the M&S at Sheffield and Oak Furniture Land, Superdrug and the Islip development were all accrued at the year end. So in terms of the movement in the NAV from the 109p to 121p, our EPRA earnings of 4.2p which is clearly less than 7p dividend we’ve paid, so that 2.8p effectively overdistribution is

• ffset to some degree by a penny on the profit on disposal of assets and the NAV is also reduced

by the acceleration of the amortisation of our intangibles which is the 1.9p which won’t reappear in future years but clearly the NAV is supported very strongly by a fantastic asset performance which has added 15.3p to the NAV to give us 121p. On the banking side we’ve had an incredibly busy year both in terms of supporting Valentine’s investment programme but also his divestment programme, so we have been repaying debt at a rate of knots as well as drawing new facilities. Two big refinancings in the year, one was Helaba

• n the distribution portfolio of around £140 million and a similarly sized portfolio with RBS to

finance our retail portfolio, those are both five year facilities and that contributed to an extension of our debt maturity out from three years this time last year which turns out was too low, we’re now at 3.7 years although we have extended an RBS revolving facility just yesterday taking that back out to five years, so that will also help our maturity and at a reduced margin as

• well. I’m not sure any of the RBS team are in the room but thank you very much. So our debt

facilities have moved from the year end because they’ve been quite active since the year end, so that £473 million is now £469 million. We have undrawn debt facilities now of £80 million which are revolving facilities and have taken our gearing up to 35% as of now. There are costs of debt in the year of slightly cheaper than 12 months ago at 3.9% but our marginal cost of debt, so the next drawdowns we make because they’re coming out of the cheap revolvers will actually be

• nly at 3.7% and our hedging now is at 85% and that together with the slightly longer debt

maturity just gives us some comfort I think against the risk of increasing interest rates. I think

• verall on the debt side I’m just quite pleased that the panel of lenders we have has now

extended quite nicely from those who have been traditional lenders to the sector and to us to include a number of alternative lenders, Standard Life and Met Life amongst others.

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Andrew Jones: Thanks Martin. So here’s a slide on our thoughts on the investment market, you must have seen one or two of these over the last couple of weeks. I suspect our perspective won’t differ enormously but we will probably have our own unique slant on it. Liquidity has returned to most parts of the UK market. Twelve months ago we would have said that most investment activity was focused around the South East and the M25. I think since probably September was when we started to see institutional demand move out of side of that geographical area and we have as you’ll have read taken advantage of that to sell off some of our more mature assets to UK institutions. There has been a huge weight of money coming into UK real estate driven initially by USPE but followed quite quickly afterwards by UK institutions, so it’s interesting that I would suggest that of all the sales that we’ve made in the year, the £500 million plus sales, I would suggest that half of those will have gone to UK institutions and the other half would have gone to high net worth individuals and private equity. They have undoubtedly been driving and I would say that there are some pockets of the UK where liquidity hasn’t yet returned but that is undoubtedly today the minority rather than the majority. UK institutional focus is very much on long, well-let income and as they by and large want ten year plus income, they want good tenancies and little vacancy. We see that’s set to continue and that is I suppose proved by the number of requests that both Valentine and I get virtually on a daily basis: would you be interested in selling this? That is where we are today. Good secondary continues to outperform prime on both an income obviously but also in the last 12 months on a capital basis. In prime retail you’ve seen yields move in from 5.25% in March 2014 to 5% today. Today you might suggest that it has gone even further, but good secondary retail has probably moved in 100 basis points. If you look at the CBRE yield sheets you’d see that good secondary retailers have come in from 8% to 7% and I suspect if we were doing a valuation at the end of June the number would probably start with a 6. To date valuations have been driven by this yield compression but we think that going forward and as those of you who have read my quote this morning, we don’t believe that yield compression is a button that you can press forever and therefore we think that going forward we think that the rental trajectory will become a more important component of valuation growth both on the upside and the

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• downside. Huge parts of the UK market are still heavily over-rented and they are unlikely to be

the early beneficiary as rents start to move upwards. The occupier market, as Mark has intonated on his comments on the asset management activity, the world is recovering. Unemployment is at a five year low, consumer spending is very, very healthy and as a result retailer performances continue to improve. We’ve seen a healthy flow of new retailer IPOs, careful not to call it a tsunami but there’s nothing like a retailer IPO to motivate them to take more shots. As I said six months ago I’ve never seen an IPO succeed on a contraction model and those are retailers with whom we will have done a number of transactions with over the year. As a result we think that rental trajectories are now firmly positive – that doesn’t necessarily translate into income trajectory particularly for the more mature assets which we consider to be still quite heavily rented. Turning now to distribution space, retailers are continuing to polarise their distribution space and that is underscored by the fact that our occupier at Islip will decant from three of their existing buildings into that building as part of their attempts to get their distribution space fit for purpose, so the trend is towards less but similarly to more sophisticated space and sophistication comes in two forms. It comes in size and height, so we are building buildings today that are twice as high as the ones we might have been building ten years ago. Our million square feet as Mark said will have three floors of mezzanine in it, not full cover but still it will be designed so that the operator can actually put in three additional floors of mezzanine, but the additional sophistication comes from automation which I’m pleased to say is a cost that we don’t have to bear, certainly not entirely anyway. The implication for us of the automation is that it means that retailers are looking to write that cost off over a longer period of time and that is why 20, 25 and 30 year leases in this space are common and this is what makes it a rarefied territory in the property market. Retailer demand for new space, Savills estimate that retailers will need 50 million square feet of new space over the next five years – that is a 21% increase on the previous five. Quite a lot of that will be the build to suits as we are carrying out, some of it will be top-up space and I think it’s becoming increasingly evidence certainly from the retailers that we liaise with that an efficient supply chain network and an infrastructure is an important ingredient to gaining

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customer loyalty and if you look at those who are doing it extremely well: Argos, Next, John Lewis, Amazon, we consider these operators to have an infrastructure network that is fit for purpose and when you say you’re going to deliver next day – you’d better deliver next day because the consumer is becoming ever more demanding. Same day delivery, next day delivery. You have to feed the consumer’s need for instant gratification and that means having an infrastructure that can do that. So before I open the floor up to questions just a quick overview of how we see the world going

• forward. The investment market is stronger as we all know. The yield compression supports that

theory but we still think there’s a large amount of irrational pricing out there. We seldom come across people doing really dumb things which as the owner of £1.2 billion worth of property is a scenario that we look forward to one day, but by and large I can understand why somebody pays 4.5% for a 20 year lease in Berkhamsted to M&S. I wouldn’t pay for it but they have different return criteria to us, but it’s still rational. Our strategy is very clear. We continue to look at real estate through these three lenses: income, asset management, short cycle development and we will do that in our core sectors. As Patrick has already touched on dividend cover is a focus but not our ultimate driver. We are a total return business. We buy, we buy well and hopefully we sell even better. As I touched on earlier we think that income growth will become an increasing component of capital return going forward. We think that capital appreciation that comes through growing rent is a more sustainable element than just continuing market yield compression and that is why one of the themes of this presentation has been our income growth over the next 12-24 months and ultimately our focus in our core sectors is that we continue to want to be the partner of choice for our retailers. It is not a coincidence that our top 20 retailer at Islip chose to partner with us. It is no coincidence that we signed a pre-letting with Marks & Spencers at Berkhamsted before we bought the building. It’s not a coincidence that Marks & Spencers approached us to partner with them at Derby and we have to do more of that. We would like to do as much as we possibly can, but putting the customer at the heart of our strategy will continue to yield us results that we think will be ahead of the market. So on that note thank you for listening and I’m very happy to open up the floor to questions.