British Land Company PLC

Thank you. Good morning, everyone. I'm David Walker, Head of Investor Relations at BritishTand, and I'm here on the line today with Chris Grigg, Chief Executive, Simon Carter, our CFO, and Darren Richards, our Head of Real Estate. Before I hand you over to Chris, could I remind those of you joining us by phone that the slides for today's presentation are available to download at BritishTand.com, and you are able to register questions on the conference call at any time during the presentation. For those of you listening through the website, the slides will appear automatically and you can submit written questions via the website and I'll read those out following our prepared remarks. With that, I'll hand you over to Chris.

Thank you, David. Good morning, everybody. As you know, after nearly 12 years, I'm stepping down as CEO of British Land today. It's been an honour to lead this company, to work with so many talented individuals, not least on projects which have literally changed the face of London. The things we've done to reshape and reposition the business over the course of a decade have also been fundamental to our ability to navigate the impact of COVID-19. There are a few key things I'd point to. The quality of our assets, the clarity of our strategy, our focus on operational excellence and the needs of our customers, as well as our strong balance sheet. I'd like to talk through these points in a bit more detail First, the quality of our assets. We've delivered fantastic buildings, including the Cheese Grater, 100 Liverpool Street and Clarges. We've transformed places like Paddington, as you can see here, and Broadgate, of course. This has created tangible value for our shareholders, as well as delivering real benefits for our customers and communities. But we've done all of this while keeping our financial discipline and significantly reducing leverage to a low in the mid-20s in 2018, compared to more than 50% when I joined in 2009. That's meant we've been able to absorb valuation losses on the retail side of our business. But remember, we also have no requirement to refinance until 2024. We have a clear strategy. Our focus on mixed-use campuses is a real differentiator. Because it presents opportunities over time, the product is attractive to our customers, but campuses also allow us to change the mix of uses and type of occupiers so we can react to growth. Again, Broadgate is a great example. Our operational capabilities are simply best in class, from developing world-class buildings and keeping them full to enhancing our environments through placemaking. Our ability to manage our spaces safely and securely has never been more important. We are among the first in our industry to really focus on the customer and to make data central to that. Our insights and the relationships we build will be valuable as we navigate the changing dynamics in our markets. And last, our culture. This isn't something we usually talk about at a results press but I absolutely believe it's one of British Land's real strengths. We're more diverse and inclusive than we were a decade ago. We're innovative and we're flexible. We have a breadth and depth of skill set that goes beyond developing and managing buildings, important as that is, in sustainability, in technology, in marketing, and of course in finance. And we're truly aligned to our purpose, places people prefer. The fact that the board selected someone from within that British land to succeed me is also a strong testament to our culture. Simon was a standout candidate with both an internal and external perspective, both on our business and across the sector. So he offered the right mix of continuity and fresh ideas. I know he's also very clear on the challenges and opportunities that lie ahead. Finally, I'd like to say thank you to all of you. It's been a real pleasure working together. I wish all of you the best of luck and hope to see many of you again in more normal times. I'll speak to you in the Q&A, but for the last time, I'll hand over to Simon for the financials.

Thank you, Chris. Good morning, everyone. The rest of today's presentation will be in three parts. Firstly, what will be my last job as CFO. I'll take you through the financials. Then Darren will talk about our operational performance, putting this in the context of our markets. And then in my first job as CEO, I'll set out my priorities for the business, which are designed to make the most of our competitive edge. Before we do any of that, however, I'd like to take this opportunity to thank Chris. At a personal level, for the guidance and support he has provided me over the last 12 years. but most importantly for the great business built under his leadership. He leaves the business of his world position to navigate the current environment and for more significant shareholder value going forward. I know the board and the rest of the British land team would also like me to pass on their thanks and best wishes for the future. Turning to the results for the six months to September. EPS is down 35%. primarily due to increased provisioning for rental receivables, as well as the impacts of CVAs and admins. EPRA net tangible asset value reduced 10% to £6.93. That's due to a decrease in our portfolio valuation of 7% as a result of a 15% decline in retail and a 3% decline in all. Our financial position remains strong. LTV is 35.7%, up just 170 basis points in the half year. We have access to 1 million of undrawn facilities and cash, significant covenant headroom, and no requirement to refinance until 2024. Following our announcement in October that we intended to resume dividends, our interim dividend will be 8.4p. Based on our new policy of paying out 80% of our underlying EPS, payment will be made in February 2021. Looking at the movements in EPS, capital activity added 0.2p. COVID delayed recognition of development income at 100 Liverpool Street. However, this scheme has now reached practical completion and 1 Triton Square is scheduled to complete in April. With the addition of Norton Fulgate to our committed development programme, we expect recently completed and committed developments will add a further 4.4p to annualised EPS, valued on top of 1.3p already delivered from our post-referendum programme. The impact of COVID-19 has clearly been significant. CVAs and admins in retail resulted in a negative like-for-like of 0.6p. Provisions for outstanding rent service charges and deferrals led to a 5p reduction in EPS. I'll set out details of our approach to provisioning later. Finance and administrative cost savings added 0.8p. The underlying tax charge reduced EPS by one pence, reflecting the temporary suspension of the dividend. This will result in a shortfall in our redistributions, creating a corporation tax liability equivalent to the withholding tax on the shortfall. Turning to net rents, let me draw out some key points. Like-for-like decline in retail was 10%. Of the $13 million reduction in retail income, $6 million relates to the impact of CBH in that period, with the remaining $7 million the result of declining ERVs, longer volume reduced car parking income over the closure period. Like-for-like growth in offices was 4% driven by letting activity at 1FA and 338 Euston Road. Provisions for outstanding rents and service charge income reduced net rents by 31 million. We provided 13 million against deferred rents and provisioning for tenant incentives increased by 2 million. Developments contributed Bishop's Gate, partially offset by expiries of one broad gate ahead of redevelopment. Moving to rent collection. For those customers materially impacted by COVID, we're making good progress in agreeing pragmatic and equitable solutions for the period of closure. These include monthly payments, deferrals and partial concessions, typically in return for more favorable lease terms. The concessions fall away if rent is not paid to Since our announcement in early October, our September collection rates have continued to improve. The table shows our collection stats for rents due between 29 September and 10 November. As of 10 November we have collected 77% and 62% across our retail assets. Tables for March and June rents are set out in the appendix. The impact of provisioning has been significant, as you can see from this slide. We take a systematic approach based on both ageing profile and credit quality. In the first subtotal, you can see that as at the 30th of September, 96 million of rents were outstanding. 37 million has been provided against these balances, resulting in a PLL charge in the period of 27 million, with the balance recognised Turning to service charges, £22 million was outstanding at our period end, of which £7 million has been provided, with an earnings impact of £5 million every year. For rent deferrals, which primarily relate to the March quarter, £25 million is held as accrued income on the balance sheet. We have provided £13 million against this. These balances will fall due over the next five quarters. We agreed 5 million of rent concessions in the period. Under the accounting standards, rent concessions are spread over the term of the lease to the first break. Consequently, the impact in the period is immaterial. Finally, it's important to note that following period end, we've collected a further 34 million of outstanding rents and 12 million of service charge. After taking this into account, we have 60% provided for 70% of the service charge. Slide 9 sets out the income statement. With COVID net rents, there was a 1 million decrease in fees and other income. Our consistent focus on cost control resulted in a further 7% reduction in admin expenses. As we announced in October, given improved visibility on the performance of our portfolio during COVID and to satisfy our REIT obligations, we are resuming the dividend. Dividends will now be paid semi-annually rather than quarterly, announced at the time of our interim all-year results, with payments made to shareholders in February and August. Dividends will be paid at a fixed percentage of 80% of underlying earnings per share, based on the most recently completed six-month period. will automatically flex in line with earnings, reflecting the impact of development completions, acquisitions, disposals and trading conditions as they change over time. Crucially, it maximises our strategic and financial flexibility as we take this business forward. Back to the balance sheet. Following the adoption of EPRA's new measures of net asset value, We will now use net tangible assets as our primary measure. Further detail of the new metrics and reconciliations in old reporting measures are set out in the appendices. The reduction in net tangible assets was driven by reduced property valuation, partially offset by undistributed underlying profit and the gain on property disposals made during the period. Darren will cover the valuation moves The strength of our debt metrics continues to be one of our key competitive advantages, and here we're really benefiting from the work we've done over many years. This has been recognised by Fitch, who affirmed our single-A unsecured rating in August. We have undrawn facilities and cash of $1 billion. In the last six months, we've repaid our $350 million conversion. Taking into account committed capex and future debt maturities, we don't have to raise any finance until 2024. Our LTV is 35.7%, up just 170 basis points since May. That's despite the valuation flaws we've seen. And this has been more than offset by post-period asset sales of $430 million. Financing activity and our use of caps has kept our weighted average interest rate lower 2.5%, and delivered 5 million in savings in the period. With no income or interest cover covenants on British Land's unsecured debt, we continue to have significant headroom, and we could withstand the falling asset values across the portfolio of 42% before taking any mitigating action. Our financial resilience is key in the current environment, allowing us to navigate confidently through the uncertainty of COVID, whilst remaining agile to take advantage of opportunities within our portfolio and in the wider market. And on that note, I'll hand over to Darren, who will provide an operational update on our portfolio.

Thanks, Simon, and good morning. I'm going to give you an update on valuations, leasing, and our approach to the occupational markets, starting with valuation. Overall values are down 7% in the period. Offices have decreased by 3%, driven by a yield expansion of 8 basis points, with ERVs very marginally up. Recent activity in the investment markets more than supports these values. This includes our own. As you will have seen this morning, we announced the sale of Plages. Retail is down 15%, reflecting 33 basis point outward yield shift and an ERV decline of 11%. What's interesting here is the divergence in values between shopping centres down 18% and retail parks down 13%. For parks, there's more transactional evidence and early signs that the pace of rental decline may be slowing. Overall, however, we expect continued downwards pressure on rents, given the considerable challenges faced by retailers. That's partly evidenced by the number of CBAs and administrations. 16 more of our occupiers entered CVA or administration in the half, accounting for 80 units. Only 13 of those closed, but we saw an £11.6 million reduction in annualised rents as a result. Finally, the value of Canada water has decreased by 6%, reflecting a fall in value of the existing use, which is predominantly retail, and a small increase in forecast construction costs, which we expect to unwind upon the drawdown of the headleafs by the end of the year. Let me turn to the office market. Here, our leasing activity covered 130,000 square feet. Half of this was long-term leasing at 9% ahead of ERV. Now, obviously, we're operating in a very subdued market. We're encouraged by the conversations we're having at the moment. We're under offer on 310,000 square feet and in discussions on a further 360,000 square feet, some being potential pre-lets. So even in this environment, we have customers looking through the uncertainty for the best space. This includes Storey, where leasing activity has also been resilient, 30,000 square feet left in the year, and there's a good pipeline in negotiation with levels of interest increasing. Occupancy sits just under 80% following a number of expected lease events, and importantly, rent collection was effectively 100%. I want to put this activity in the context of the wider London market. As you know, take-up is understandably significantly down. But it's important to recognise there's strong cyclical factors at play here. So short-term decisions on new space are being postponed. For some occupiers, this means extending their current terms, as we've done in our own portfolio. For others, it means releasing space onto the market, which has driven second-hand availability to its highest level since 2004. That's 74% of the total. Of course, COVID will shift how people think about workspace. A shift that was already underway and will now evolve much more rapidly, meaning that businesses will want to get the very best out of the office space they take to attract and retain talent, to enhance collaboration and culture, and to interact with their customers. In addition to increased requirements of flexibility, technology, and sustainability, that's the kind of best-in-class space and service we will continue to deliver and will be in demand And yet the supply of new quality space is becoming even more constrained. CBRE estimate the amount of new space proposed by 2023 has contracted by 33% since COVID started. This combination of demand for best space and reducing supply, together with the continued appeal of London, is why since the crisis began, we've responded to around a million square feet of RFPs from businesses looking for new high quality space in three to four years' time. In the short term, however, we do expect the leasing market to be challenging, and this will undoubtedly impact rental levels. Of course, we won't be immune to this, but we will be aided by the strength and diversity of our occupied base, that's demonstrated by our rent collection stats for September at 97%, the high occupancy across our portfolio, including our developments, which apart from Norton Fulgate, which we committed to today, are almost fully let, and most importantly, the fact that 82% of our space is on our campuses, where we can offer customers safe, controlled environments, public spaces, shops, restaurants, and amenities for their people, and the flexibility to add space and services with us going forward. That's of real value to occupiers, particularly in a post-COVID world. This isn't something we're doing reactively. This is absolutely central to how we've developed this proposition over the years and why we think we're well-placed to outperform over the longer term, despite the challenges we face today. So now let's look at retail. For reasons you'll all know, the market continues to be exceptionally tough. In the six months, we signed 160,000 square feet of long-term deals, on average 8% below ERV. However, we have a large number of deals under offer, over 495,000 square feet. That's £9 million of rent. Deals broadly at levels reflected in our September ERVs. And many of these were being agreed during lockdown, which reflects the nature of our portfolio, the fact our customers want to consolidate or expand with us, but also our approach. We've had a very clear focus on keeping our portfolio full and being pragmatic about rebasing rents where it makes sense to generate more sustainable cash flows and drive continued operational performance. This is one of the reasons why we've now collected 69% of June quarter rent and 62% for September. These increases come from wrapping these discussions into wider conversations on re-deals and new deals, and leverages an experienced team who use data and relationships to understand and work with our customers. This includes listening to those customers wanting leases with turnover provisions. Over 20% of our retail leases already have a turnover element, normally combined with a base rent, And this is much the same level as it was five years ago. More customers may want to look at this structure going forward, but the point is it's not a new concept for us. Now let's look at footfall and sales. The whole portfolio is clearly ahead of benchmark, with footfall 17% ahead and sales 14% ahead. Today, all our assets are open. As are 42% of our stores. That's more than double than in the first lockdown. as those retailers providing click and collect are open, in addition to essential stores. And this makes a big difference given the fact that nearly half our retail assets are parks, well suited to click and collect, and which have seen good performance during COVID. In fact, pre-second lockdown, we were within 10% of last year's sales on open stores on our parks. That's not really a surprise. These are open-air schemes with easy access, facilitating mission-based shopping. But we think the preference of retail parks will endure beyond COVID. They're more flexible and cost-effective to reconfigure and cheaper to run operationally. This means they're more affordable and profitable for retailers with lower total occupational cost ratios, which we think are now heading towards sustainable levels of 10% to 12%. And their proximity to main arterial routes means they play an important role in customer fulfillment. As well as Click and Collect, they facilitate returns. And retailers are increasingly using them to support their logistics networks. Some of the reasons why you've seen retailers like Next and M&S publicly talk about the relative strengths of this sub-sector. And also why there's been more activity in the investment market, where there's increased appetite for assets with a logistics potential, but also where values are supported by more sustainable cash flows, underpinning the approach to leasing I set out earlier. I'd like to leave you with a couple of case studies which demonstrate at these kind of assets. Milton Keynes, where we have 50,000 square feet of new deals under offer, including 20,000 square feet to a well-known discount food retailer for a new 15-year term at September ERVs. And Nottingham, where we've nearly 30,000 square feet of deals under offer for 10-year terms, again at ERV. And where this year, we opened a new 60,000 square foot M&S. The majority of this space came back to us through CVAs or administrations over the past couple of years. Both parks have seen ERVs rebased since peak by over 20% to the point where we can now transact on multiple lettings. Both will soon be 100% full and both will have average forecast total occupational costs of sub 12%. Two great examples which demonstrate the strength of the assets and our approach to deliver more sustainable rents long term. Thanks, and back over to you, Simon.

Thanks, Darren. So what's our competitive edge, and how do we make the most of it? Returning to BL in 2018, I was struck by the strength and depth of expertise right across the business, from asset management and property management to development, finance, investments, and technology. This best-in-class, fully integrated capability, combined with our proven track records to innovate and work with partners, is a real competitor. And that's before factoring in our unique mixed-use campuses, attractive development pipeline, and long-term commitment to ESG. It's clear to me that when we combine all these elements, we deliver the best value for our shareholders. Let me give you a few examples. Development. In the last 10 years, office developments have generated 1.8 billion profits. That's through iconic buildings like Leavenhall, Five Broadgate, and Cargis. and some of the smartest, most sustainable space in London. Paddington is a great example of all our skills at work. We acquired it in 2030, we invested in the public realm, developed new space, added story and really capitalised on its canal-side location with cafes, bars and restaurants. As a result, it has outperformed IPD by 100 basis points per annum over the last five years. And only a few weeks ago, we received planning for Five Kingdom Street, adding more potential and new optionality. Retail is clearly tough at the moment, but that's where our deep asset management capability really comes to the fore. As you've heard from Darren, our assets are outperforming operationally, and we've collected more rent than others. Our range of capabilities also enables us to innovate at base. You've seen that story, where we rapidly built a market-leading business from standing start in 18 months. It was similar at Cardius, which was an opportunistic purchase, and we quickly developed the expertise to deliver super prime residential. The scheme has delivered more than $200 million in profit, which we've now locked in with the sale of the offices and retail. Broadgate is another example of our innovative and nimble approach. Coming out of the GFC, many thought the challenges facing financial services would adversely impact the performance of this asset. But in a short space of time, we successfully repositioned the campus to attract a new type of occupier. This involved embracing the vibrancy of nearby shortage and special fields, creating great places to eat and drink, developing high quality sustainable buildings and enhancing the public realm. This ability to innovate will be key to our future success. Another important strength is the way we work in partnership with the likes of GIC, Oxford Property and Lodges. Partnerships give us access to new opportunities, enhance returns, mitigate risk and support investment in our platform. These are the key things that British Land does really well. They play to our broader purpose, places people prefer. And when we focus on them, we deliver most value. Building on these strengths, I want to talk about my priorities for the business. You can see them on the slide. Realising the potential of mixed use. Progressing value-accreted development. Addressing the challenges in retail. All linked via active capital recycling. I'll go through these in turn, starting with mixed use. And the excuse of specialism will remain at the core of what we do. It complements our skill set. It's what our customers and their people increasingly want. And it gives us the ability to tilt our offer to the sectors with the best fundamentals. We've seen that at Broadgate. We will look to do the same elsewhere. Recents Place is a good example. It's proximity to the knowledge quarter, open to over 100 academic, cultural, scientific and media organisations. Positions us well to benefit from the expected strong demand from life science occupiers. And at Canada Water we have an amazing opportunity. Our permission is flexible within built optionality. That's deliberate and means we can change the mix to respond to demand through the cycle. This brings me to my next priority, progressing value-accrued development. We have 8 million square foot of opportunities within our portfolio. Options we've created over the last few years are low cost. The majority are income producing. We can progress them rapidly when it makes sense. This combination of optionality and flexibility is key. And most are in and around our campuses, so it's another way we can further enhance our core business. Importantly, we're building more sustainably than ever before. You'll remember I set out our 2030 sustainability strategy in May. That included the commitment to be net zero by 2030, and to halve embodied carbon in our developments. Norton Fulgate is a great example of that. Embodied carbon is low at 540 kilograms per metre squared, and it's operationally efficient. Increasingly, that's what our occupiers are looking for. It's also fantastically located adjacent to our Broadgate campus. but clearly distinct and reflective of its Shoreditch home. So it's exactly the sort of space that will succeed going forward. And we have further opportunities in our pipeline. That brings me to Canada Water. Here we were delighted to achieve planning earlier in the year. We expect to draw down the headleafs We've successfully overcome the JR process and maintained momentum by commencing enabling works for Phase 1. So, market conditions permitting, we're in a position to place the main build contracts in the spring. We're looking at a range of uses and we're delighted that Teddy, the university's partnership, will be delivering their engineering curriculum from the print works. As you can imagine, given the unique nature of the project, we've been approached by many investors we will look to capitalize on this by kicking off a formal process to bring in high-quality partners. Turning now to retail, here we're combining a very active asset management approach, as Darren explained, with a clear plan to recycle capital as well as mixed-use and under-business. We're prioritizing security of cash flow over rental time, so we're accepting lower rents where that makes sense. In a low interest rate environment, that underpins value and liquidity, positioning us well to deliver on our plan. We've seen that continue to sell assets, and we've been smart in our approach. By carving out the Tesco's at Peteborough, Milton Keynes, the remainder sits on a yield of around 9%. That should be attractive in any environment. Just last week, we did the same again at Beaumont Leeds in Leicester. It's another example of the innovation I talked about earlier. We will continue to be disciplined and deliver best value for shareholders. Alternative and additional user are another avenue we are pursuing to generate value in retail. It will not work in all locations, but our initial assessment is that we have more than a million square foot of retail space in surrounding lands, which we could convert into nearly two and a half million square foot of logistics, residential and office space. A good example is the surrounding land at Meadowhall. That's 440,000 square foot we think could be repurposed as logistics. We have a similar opportunity at Teesside. So these projects are at the very early stage and we wouldn't expect to do all of them ourselves. Some will work well in partnership, others may be better sold, but the progress we're making helps to underpin value giving rents for these two classes are beginning to cross over in certain locations. Underpinning all this is the way we manage our capital. Since the start of the pandemic, we've executed on more than 450 million retail disposals. We're under offer on more, and we're progressing opportunities to realise value from our standalone offices. You've seen us do that today with the sailors. We will look to maintain this momentum to crystallise value for mature assets and those that don't align to our core focus and needs. We decide to use the opportunities in our portfolio and across the market. We'll maintain our balance sheet and financial strength. It's fundamental to how we run our business because it means we can progress development at a time when others are unable to do so. And finally, we look to capitalise on our strong reputation, partnering with others to recycle cans. Before I wrap up, I'd like to say a few words on the outlook. No one knows the extent and duration of the pandemic. But as we stand here today, our view is that in offices, occupational markets will remain tough in the short term. As you've heard from Darren, occupiers are displaying decisions where they can, and the supply of great space is up. So the market forecast is for prime rains to be down by 5-10%. The supply of new space on the other hand will remain constrained. That's where we're seeing the strongest demand. This increased polarisation towards modern, high quality and sustainable space is one clear outcome from the pandemic. It's what we're delivering so we'd expect our portfolio to It's encouraging that the investment market seems to be taking a long view. Large prime London buildings are currently changing hands within 5% of pre-COVID pricing. Because investors believe in the long-term appeal of these assets and in London's future as a global city. And in a low interest rate environment, with yields comparing well to other European cities, they like the income. In retail, rents will continue to fall. We're expecting a further decline of 10% to 15%. Based on recent betting activity, we think rents will stabilise first on retail parks and only later on shopping centres. And we expect this to be replicated in the investment market. Already we're seeing appetite returns at retail parks, but we think it could take longer for liquidity to return to shopping centres and for asset values to stabilise. So let me leave you with a reminder of our four key priorities. Realising the potential of our mixed-use assets. Progressing value accretive development like Canada Water. Addressing the challenges in retail to increase liquidity. All linked by more active capital recycling. We'll be smart in our approach, we'll act at pace and already we're delivering in each of these areas. Underpinning all this is our financial strength and the key ingredients I talked about earlier. Our best-in-class platform, our ability to innovate and to work in partnership, our unique campuses and attractive development pipeline, and our long-term commitment to sustainability. Thank you. We're happy to take any questions. Now I'll hand over to David for the questions.

Thanks, Simon. Okay, before we move on to questions, because we are doing this by conference call and over the web today, can I please just ask a couple of things. Firstly, if you could please limit your questions to a maximum of two at a time, that just ensures we don't miss anything. Clearly, though, if you have any follow-ups, we'd be more than happy to save those as well. And secondly, please do bear with us if there are any slight delays or pauses as we go through the Q&A that could well be caused by the conference call's lines or delays on the webcast. I think first let me hand you back over to Katie for questions from the phones before I take any questions we've had online.

Ladies and gentlemen, if you'd like to ask a question during today's call, you can do so by pressing star 1 on your telephone keypad now. If you change your mind, please press star followed by 2. Our first question is from Sander Bunk from Barclays. Your line is now open. Please go ahead.

Hi, good morning, team. Two questions from me, please. The first one is actually on the HUD group, and I believe there is an imminent fault where there's going to be a decision whether to extend or wind down the JV. Can you just share some thoughts here on what you expect to be doing over the next couple of months? And the second one is, and it's a broader question, but you mentioned that you expect forecast for prime rents to fall by five to 10%. Do you have also any idea of secondary rents? And is it fair to assume that kind of values in your mind follow that path? Or do you actually believe that there could be some yield compression at the other end to kind of mitigate some of those value drops And that kind of ties in to a slight follow-up question in terms of how are you thinking about your development, the 8 million square foot development pipeline in that regard. Thank you.

Hi, Sander. Thank you for those questions. I think there were three there, so I'll run through those. On the first question related to the HACA group, you're right, there's a an extension boat in February. We clearly have external investors in that vehicle, so it's probably not right for me to reveal our intentions, but what I would say is clearly we've seen the relative outperformance of parks. They've performed well in terms of footfall and sales. A lot of our leasing activity looking forward is on those parks. So they're an important part of our portfolio going forward. On your second question, which I think was around the London office market and the outlook for rents, I'll give an initial view and then maybe hand across to Darren to add a bit of colour to that if that's okay. On the rent, we've said prime rent forecasts at the moment are down, say, 5% to 10% over the next 12 to 18 months. As I flagged in my prepared remarks, we think that our portfolio will do better than that because we think for the type of space that we're delivering, particularly new space, that's where the demand is and is likely to be a bit of a pinch point there. But I think you were right with your assessment that, for secondary space, because we are seeing quite a lot of it go on to the market, as Darren flagged, that we could see more softness there. And then linking all that together by years, I think, at the prime end, you may see years moving in the opposite direction to offset those rental declines. As we said, the investment market remains strong. We've seen transactions take place. at all around pandemic pricing. And clearly with clients today, you know, we've sold an asset 7% above book value. I don't know, Darren, if you want to expand on that.

Yeah, sure. As Simon said, in terms of the secondary market, there has been a huge release of space 74% now secondary, highest level since 2004. So to put that in perspective, that's over 19 million in terms of total availability. So there's a lot of secondary space. And the vast majority of it is 10,000, 20,000 square foot plates, unrefurbished. So a much different type of quality. which we think is going to be a big advantage.

Thanks, Darren. Okay, thanks very much. And I think the last question was around the 80-minute square foot development pipeline. Is that right?

Yeah, how that expectation ties into that, yeah.

Right, well, I think it's all linked to the point that Darren was making around supply of new safe being constrained, and that's what's given us the confidence to commit to Norton, Folgate, Today this is going to be a great scheme and I think it will be delivered right into where we think there will be a pinch point.

That's great. Thanks very much guys.

Our next question comes from Colm Lauder from Goodbody. Your line is now open. Please go ahead.

Good morning everyone and thanks for taking my question. Just one question from my side and I was wondering if you could share a little bit more detail on some of your disposals, and particularly on the retail side. I see you just noting in the results commentary that you'd achieved an average premium to book value, or at least a last valuation of 6.7% across those sales. And I was curious to understand in terms of what sort of breakdowns you could share across various elements of those disposals. So obviously there was quite sizable grocery-led assets sold in terms of the Tesco's and Sainsbury's, plus a mix of B&Q's. And I was wondering what sort of light you can shed on the premiums between those property types or discounts. Is this a situation, given the liquidity within the grocery-led investment market, that the Tesco's, et cetera, has achieved quite significant premiums and perhaps the B&Q's have been at a discount?

Good morning, Tom. Thank you for that question. Happy to share a bit of detail there. Actually, across the disposals, they were all effectively sold at premiums to book value and quite similar premiums from memory, 5% to 10%, and that's across both the B&Qs and the Superstore disposals.

Okay, very good. Thank you. I would want to... Just to follow up on that, while you're digging into this area, it's worth kind of pointing out that those residual valuations that we're left with once we've disposed of the food stalls on these parks, and one of them in the case study I gave, means that you're chucking off, in effect, in excess of 9% initial yields on the residual park you're left with. compared to yields in the early sevens that we've got in our valuations. So we think that's evidence as well in itself.

Okay, that's helpful. Thank you very much.

Ladies and gentlemen, as a reminder to ask any further questions, please press star followed by one on your telephone keypad now.

Thanks. We've got a few online, so perhaps we'll take these in the meantime. First here is from Miranda Coburn at Pamuel Gordon. Morning, Miranda. I think this is for Darren. Can you give the range of rent per square foot on your retail park portfolio and what percentage of retail park tenants are fashion versus discounters, et cetera?

Well, good morning. I'll take those two in reverse order. In terms of the broad spectrum, of our retail occupiers are in the fashion space. We don't break out specifically for discounters. We won't be able to get a figure to you, but we generally tend to put those under general merchandise or in the food store categories, which combined are about 20% of our portfolio. In terms of the spread on rents, It can be anything on our retail parks from £15 a square foot all the way up to £60 to £70 a square foot. But that's in the minority and that tends to be on the very, very small units of 1,000 square feet, for example, where we've been quite successful recently carving up and driving those economics. The average for the portfolio will probably tell you a lot, which is in the kind of early 20s. And we've already seen, since peak, 2017, 2018, about 25% decrease in those VLPs to the point where we can now transact on the volumes that we're presenting this morning.

Thanks Darren. Question from Robbie Duncan at Umis. Hi Robbie, thanks for this. Alternate use for retail space is often viewed as something of a holy grail. but usually current valuations preclude this type of activity. How much further valuation downside do you think there is in order to facilitate these conversions? Simon.

Good morning Robbie and thank you for that question. On the alternative use, importantly it's also additional use for us. As I indicated, we've done a scoping exercise across a million square foot of retail and surrounding land, we think we can deliver about 2.5 million of alternative and additional use. That's based on what we believe is viable today. So on some of the assets, the values are at a place where we can deliver, we believe, those developments profitably. And then on other parts, it's actually where we've got surplus land. And so that allows us to drive economics going forward. And I think as rents fall, and we think they will continue to fall in retail, that will create opportunity for further conversion, I think. But it is very early days in terms of the exercise we've carried out.

Thank you. I think we've got further calls from the telephone that we could take, and I do have a couple more online as well. But Katie, shall we flip to the calls for the next question?

Okay, so our next question comes from Jonathan Kanata from Goldman Sachs. Jonathan, your line is now open.

Thank you. Good morning. Thank you for taking my question. Just one really on further disposals. I mean, you've been obviously successful selling both in retail and offices. Can you help us understand how much you can sell further over the next few months, not misleading? full guidance, but obviously you're saying that the individual ex-campus offices could be for sale, if I'm not mistaken, there's a bit of a billion of that, and in retail, do you have further opportunities, like further carve-outs of super stores or any other opportunities in that respect? Thank you.

Thanks, Jonathan. In terms of pace of disposal, I was very pleased with the pace over this period, 675 million since April. Obviously, future pace will depend on the economic environment, but it's reassuring that we've managed to do that over a period that included lockdowns. The opportunities that we have and where we'll be focused is, as I said, standalone offices. Where those are drier, we can recycle the proceeds into development. That would make a lot of sense for strong as we said today. Then in retail we do have a few more super stores around the portfolio but the focus will increasingly be on some of the smaller multinets and it feels as though the market is beginning to come back for those retail parks based on that improving occupational outlook.

Okay, and out of the individual offices, ex-campuses, how much of the B&O, so would you say, mature and drier?

Six to 700 million of the standalone offices would probably fall into that count.

All right, thank you. Thanks, Jonathan. Question from Andrew Gill. Could you comment further on the valuation movements in city offices? In particular, were these impacted by lower occupancy levels and high exposures of flexible office? And then a second question again on Hercules. Have any covenant cures been required for HUD?

In terms of, I'll take the question on the valuations first on the city offices. We haven't seen any disruption in terms of our valuation levels as a result of COVID. I think that's backed up by the transactional activity that you've seen, including our own. So I think that's all we can really say there.

And on HUT and Covenants, as you may have seen in the period, we refinanced one of the HUT facilities at 200 million, extended it. We have had a few covenant injections that we've made to stay within the covenants of one of our facilities, but HUD has had the liquidity to be able to do that. And as we sit today, the LTV across the two facilities, one is at 55% and another one is at 65%.

Thanks. Question from Marcus Fairmudge at BMO. Morning Marcus. If your retail lettings were below ERV, why did the valuers not adjust ERVs to the market rents you achieved? And secondly, what percentage of new lettings have a turnover element and how does this work? Are internet purchases and returns to store excluded from the turnover data? I guess both of those for Darren.

Yes, and very fair questions. Just to be clear, in terms of our ARVs and the deals, the deals that we've done during the half, the 160,000 square feet I cited, that have been done at 8% below ARV, those are versus our March numbers. And the deals that I'm citing in terms of our under-offer, the nearly half a million square feet, those are being done on average at the level That's the comparison there. So in terms of all of the deals we're talking about, in effect, they are reflected broadly in our September ERVs. Just turning to turnover, how turnovers normally work for us, as I said in my prepared comments, is there's an element there, and these normally work by having a base rent that's normally set at about 80% of the ERV, and then a turnover top-up. The calculations will vary. You're absolutely right in pointing out internet returns. Looking forward and having the correct kind of clauses to represent a kind of omnichannel world, then that's going to need to be factored in. Some of the older turnover leases, clauses that we've got, haven't got internet returns factored into them. That's just by virtue of when they were signed.

Thank you. Question from Claire Schumann at M&G. Regarding your conversion to alternative or additional uses of 2.5 million square foot, what will be the cost implications for this and how do you propose to fund it?

Hi Claire. In relation to the question around costings, as I said it is early days and alternative uses don't have full costings today. Of the two and a half million square foot, over a million and a half square foot is in logistics, so the cost consequences are relatively modest, would easily be fundable within the context of the group's resources and if you think we've made significant progress on disposals and we would look to recycle that capital with then residential and office components and potentially for some of the residential we may do that in partnership with others and some of the assets we may actually sell capturing the value from getting planning and then someone else would deliver it so it would be a mixture of funding but all very deliverables in the context of British Land Balance Sheets

A couple more online. One from Peter Papadakis from Green Street. Morning, Peter. Current ERVs for shopping centres averaging 26.40 per square foot. Are you implying that ERVs will bottom at around 22.50 per square foot, i.e. 10-15% lower? And on that basis, what will be the trough occupancy cost ratio average for the shopping centre portfolio based on 2019 turnover sales? Darren, I think one for you.

Yeah, sure. Good morning, Peter. In terms of our forward guidance and taking average rents, yes, your calculation would be correct broadly. In terms of where the look forward and occupational cost ratios is concerned, we've got an average currently taking off passing of over 14% of the portfolio. Shopping centres, traditionally higher, typically things like super regionals, places like Meadowhall, big covered centres, they tend to have higher service charges so that drives that, also higher rents but they're driving higher volumes. If you look forward and take out things like Meadowhall and on the basis that we don't have a lot of covered centres, you've got to remember we've only got four covered schemes in our whole portfolio out of about 45 schemes. Then our occupancy cost ratio moves to around 12.5% for our shopping centres and down to between 10% and 11% for our retail parks. Again, there is a clear deferential there and that's going back to the points I was raising earlier in terms of affordability of that sub-sector.

Great, thanks Darren. One more from Thomas from Clearance Capital. Could you please split out the like-for-like revaluation on your campus offices versus non-campus offices? And then a second question, what LTV ratio would you be uncomfortable with?

Hi, Thomas. In relation to your first question, I don't have a split to hand between the campuses and the non-campuses, but the two drivers of the like-for-like were wanting to re-admire you. and 338 Euston Road, which are both on our campuses. So the bulk of it would have come from the campuses in this period. And then in relation to your second question around what LTV levels we're comfortable with. Firstly, we're very comfortable with the level today. You've seen it tick up a little bit with the valuation declines that we've seen. That's been mitigated by disposals we've made in the period. But also, post-period ends, we've disposed of £430 million of the period so we have a range that we're comfortable with staying below 40% feels the right place to be in the current environment but whenever we think about leverage we have always factored in the possibility that values will change so if values do fall that doesn't necessarily mean that we have less capacity Thank you that's all the questions we have online and on the phone so I'll hand you back to Simon for a quick wrap up Thank you, David. Well, thanks everyone for your time today and for your questions. That was a really useful session. Really looking forward to seeing many of you on the roadshow over the coming days, albeit it will be virtually, and introducing David in his new role as interim CFO.