British Land Company PLC

It's great to be able to share with you such a strong set of financials today. In terms of running order, we'll follow the normal format. Bhavesh will take you through our financial performance. Darren will come back with an operational update. And I'll wrap up with progress on strategy and the outlook for our key markets. But before we do any of that, I just wanted to share some of the highlights. It's a year ago today that we set out a new strategy for the business, a strategy that was designed to play to our competitive strengths in development and active management. across our campuses, retail parks, and London Urban Logistics. And I'm really delighted with the progress we've made. We're on site with 1.7 million square feet of campus development. We've made 1.2 billion of disposals, recycling into our retail parks, and a 1.3 billion urban logistics development pipeline with much higher return prospects. This progress together with our strong operational performance is reflected in our numbers. Values are up 7%, driving a total accounting return of 15%. Our experience over the last 12 months gives us even greater conviction in our strategy. COVID has been a catalyst for businesses to re-evaluate what they want from their workspace. Their conclusion, better space. Better space that allows them to collaborate, innovate, and be more productive. This is increasing demand for Prime, which remains in very short supply, especially as the development pipeline is being pushed out. Our unique campus proposition capitalizes on this market dynamic. That's why we've had our busiest leasing period in 10 years. Retail parks have emerged as the preferred format for many retailers due to the affordability of space and their suitability for multi-channel retail. As we forecast a year ago, rents have stabilized, and this is driving strong yield compression with values up over 20%. In urban logistics, demand goes from strength to strength, propelled by e-commerce and same-day delivery. Yet there's a chronic shortage of space, This is a great opportunity for us to use our edge in London planning and complex development to deliver new space via repurposing assets and intensification. All this is against a backdrop where investors are increasing their allocations to real estate as they rotate out of bonds. More on this later, but now I'll hand over to Bhavesh, who will take you through the financials. Over to you, Bhavesh.

Thank you, Simon. Good morning and thank you for joining us. I'll start with an overview of our financial results for the year to March, followed by an outline of how we think about returns and our framework for capital allocation to enable delivery of our strategy. We've delivered a very strong performance with impressive results across all our key metrics. Underlying profit was £251 million, up 25%. Primarily, this is driven by rent collection, now back to normalized levels, and significantly reducing the impact of provisions for rental debtors. Net tangible asset value increased 12.2% to 727 pence per share. The key movement was an increase in our portfolio valuation of 6.8%. Darren will explain how our strategic focus on campus developments, retail parks, and urban logistics is driving this. Along with the dividend paid in the year, we delivered a total accounting return of 14.8%. Our active approach to capital recycling has further strengthened our financial position. Post our year-end, pro forma LTV falls to 28.4%, following our announced sale of a 75% interest in Paddington Central to GIC. We will pay a final dividend in July of 11.6 pence per share, with a total dividend for the year of 21.92 pence per share. Our headline net rental income is up £62 million or 17% in the year. As you can see on the left-hand side, the key driver of net rental income growth is materially lower provisions for debtors and tenant incentives, which contributed £91 million to net rents versus last year. This reflects our strong progress on rent collection. As a result of continuous engagement with our customers over the last two years, collection rates are nearing pre-pandemic levels. We've now collected 97% of FY22 rents, and for the March quarter, collection rates are already at 96%. Further detail is disclosed in the appendices. Our rental income is also impacted by active capital recycling in line with our strategy. Over the last 24 months, we've successfully disposed of £2.4 billion of assets, reinvesting the proceeds into our value-accretive development pipeline and returns-focused acquisitions. We can already see the benefit of our recent acquisitions with a £28 million increase to net rents. The £8 million decrease from developments reflects Euston Tower moving into vacant possession ahead of redevelopment. And looking forward, our committed pipeline will deliver a further £60 million of rents once fully let. The impact of CVAs and admins was £8 million. This largely relates to the full year impact of various retail CVAs that occurred during the middle of 2020. Overall, like-for-like net rents are flat. However, last year included 3 million pounds of surrender premium. We're pleased with the underlying health of our business, which you can see when we disaggregate the moving parts within like-for-like net rents. Through our active approach to asset management, we've delivered like-for-like net rental growth across our strategic focus areas. On campuses, like-for-like growth was up 2.5% or 4 million pounds. This was due to our significant letting activity, including Monzo at Broadwalk House, Braes at Exchange House, and strong leasing across our storey flexible offer. We've also seen like-for-like growth across our retail parks, up 6% or £3 million. This is due to significant leasing in the period, and over the year, retail park occupancy has increased 270 basis points to 97.4%. For shopping centres, like-for-like net rents declined by 6%, reflecting deals rebasing to market levels. albeit we are starting to see signs of stabilization in values and an improving outlook. Darren will cover shortly key leasing activity across our segments. Turning now to our income statement. Our rental income growth helped increase profits to £251 million, up 25%. Administrative expenses were £89 million in the period. The increase from the prior year reflects a non-cash accelerated depreciation of IT assets, investment in our people and capabilities, and higher variable pay reflective of the strong performance in the year. Cost control is something we are and will continue to be focused on, and it's important to note that our new Canada Water and Paddington joint ventures will earn additional fee income, partially offsetting the cost base, and will be reflected in the next financial year. Net finance costs were largely down at £102 million due to financing activity, which I will detail later on. Underlying earnings per share is 27.4 pence, up 45.7%, which results in a dividend of 21.92 pence per share. As usual, we've included a guidance slide in the appendices, including specific detail on the impact of the new Paddington Joint Venture. Turning now to our balance sheet. The 12.2% increase in NTA was primarily due to significant property revaluations, as well as the impact of profits in excess of dividends paid. Our focus is on driving total returns, and when including the interim dividend, we have delivered a total accounting return of 14.8% in the year. The significant progress we've made against our strategy has driven this return's performance. I've laid out the key components on this slide. 2.1% is attributable to active asset management across our campuses, which includes our leasing activity across our newly refurbished buildings and our recently completed buildings at 100 Liverpool Street and 1 Triton Square. 1.8% relates to the progress we've made on developments, achieving a £37 million uplift at one broad gate after successfully pre-letting all of the office space. 5.7% from the value play in retail parks, where we identified the opportunity last year, subsequently deployed incremental capital, and have now benefited from significant yield compression in the year. And finally, 1.4% from capital recycling, where we crystallized value in Canada water through our new 50-50 joint venture with Australian Super and benefited from a significant uplift in our retained investment. We see active capital recycling as an important way to drive returns over the medium term. Since April 2021, we've sold 1.2 billion pounds of assets, crystallizing value and releasing capital that we can then recycle into higher returning growth opportunities, which we expect will deliver IRRs of around 10 to 15%. That's balanced by our standing investments where returns and risk are typically lower. Overall, we target the total property return of our portfolio to be around 7-8% through the cycle. Around 50% of this will be income, with the rest roughly split between capital uplift on the standing portfolio and development profits from our pipeline. breaking each component down. This reflects a roughly 4% yielding portfolio where we are today. We have been successful in delivering development profits, generating nearly £2 billion over the last 10 years. And looking ahead across our full development pipeline, we have a further £2 billion of potential profit to come. Simon will talk more on this later. This leaves around 2% of annual capital uplift on our standing investment, which we believe is achievable, particularly in the current inflationary environment. With our business being focused on total returns, I thought it would be helpful to lay out our financial framework for returns targets going forward. Overall, our ambition is to deliver total accounting returns of around eight to 10% through the cycle. As I set out on the previous slide, this will be delivered through a total property return of around 7% to 8% from our portfolio. We expect admin costs net of the fee income we generate from joint ventures to equate to 0.5% to 0.7%. We will continue to maintain a strong balance sheet and keep our LTV in the 30s, with the impact of leverage net of finance costs adding a further 1.5% to 2% to returns. Overall, this should deliver a total accounting return around 8% to 10% across the cycle. On this slide, I've outlined four considerations we think about when making decisions on how we allocate capital to deliver our strategy. We own a truly unique and extensive development pipeline. This covers over 11 million square feet of value or creative opportunities spanning over the near and medium term. Beyond our development pipeline, we also look for asset acquisition opportunities with strong fundamentals where we can utilize our capabilities in planning, complex development, and repositioning. This is exactly what you've seen us do this year, amassing an urban logistics development pipeline of 1.3 billion pounds. The strength of our balance sheet is one of our key competitive advantages and provide capacity to invest. Our debt facilities are flexible and provide capacity to invest in our development pipeline and that quickly when opportunities arise. The final pillar is shareholder distributions. Our dividend policy of 80% of underlying EPS provides clarity and strategic flexibility and underpins our capital allocation framework. We aim to invest first and foremost in our own business, in both development and acquisition opportunities, but we always consider capital returns as an option available to us. As you all know, cost inflation has rapidly accelerated in the past few months, and forecasting inflation is difficult with the elevated macro uncertainty. We remain very attentive to these headwinds, and I want to spend a moment on how we are thinking about inflation in our business. Our internal view is that construction cost inflation will be around 8 to 10% this year. This is due to key commodity inputs in construction, such as steel, cement, and labour. Looking further ahead, we expect commodity prices to remain elevated, albeit the rate of increase will ease, and we expect capacity in the construction industry to expand as some development projects are deferred or cancelled. We expect construction cost inflation will moderate to around 4% to 5% over the next 12 to 18 months. For our committed pipeline, we have fixed around 91% of our cost, protecting us from near-term inflationary headwinds. For our near-term campus developments, all of which are central London-based, higher land values mean that returns from London development are more insulated from cost inflation. Looking across our pipeline for our near-term campus developments, taking into account our view of construction cost inflation going forward, we anticipate IRRs of around 10 to 12%. If construction costs were to exceed our current view, an additional 5% increase in costs would only need an additional 3% increase in rents to hold returns at our base case, which we think is achievable across our best-in-class development pipeline. I'd like to touch on progress we've made on our pathway to being net zero. Over the year, we've completed 29 net-zero audits across the portfolio conducted by third-party consultants. As we said last November, the cost to retrofit the portfolio equates to around £100 million, spread across the eight-year period to 2030. Of this, around two-thirds will be funded through the service charge or by occupiers directly. In addition, we now have detailed asset-level plans for the works that are needed. These are typically low-cost interventions which deliver improvements in energy efficiency, and in the context of rising energy prices, they become more and more attractive. The payback period is very short, typically only a few years, and Darren's going to bring this to life shortly with a few examples. The strength of our debt metrics is a key competitive advantage. Our balance sheet has benefited from our disciplined approach to capital recycling. And as a result, following our 75% sale of Paddington Central, our LTV decreases to 28.4% on a pro forma basis. Our weighted average interest rate is 2.9% in line with last March. We have a balanced approach to interest rate management, and following the Paddington sale, our debt is 79% hedged over the next five years. For the coming year, we are fully hedged through our use of interest rate swaps and caps. The strike rates on our caps are set at levels which help limit the P&L impact or further rate rises. So in summary, we've delivered a great set of results driven by delivering against our strategy, significant property valuation uplifts, and our progress on rent collection. We have a clear and ambitious target for future returns underpinned by a disciplined and rigorous capital allocation framework. And we have a strong financial position that enables future growth by progressing developments and acquiring new opportunities. But it also gives us the resilience to navigate through an uncertain macro environment. I'll now hand over to Darren, who will provide an operations and market update.

Good morning, everyone. I'm going to give you an update on valuations, leasing activity, and some insight in how we're seeing the markets. Let me start with valuations. This year, our portfolio delivered an uplift of 6.8%. Campuses are up by 5.4%, driven by yield shift of 11 basis points. ERVs are shown as flat here, but there was a change in valuation treatment of two buildings at Regent's Place as a result of the MetaDeal. If you adjust for that, underlying ERVs in our office space were up by 1.5%. Canada Water is up by 18%, reflecting progress on Phase 1 and, of course, the new joint venture. And retail and fulfilment is up by 10%. That's been driven by an exceptional performance from retail parks, which are up by 21%. In fact, 13 of our 34 parks saw increases of over 30%. We've seen some ERV decline overall, but the rents on mid-sized parks have now stabilised, with over 10 of our parks seeing ERV increases in the second half. Shopping centres are down 6%. ERVs have reduced and yields have expanded, but in both cases the rate of change is decelerating. And over logistics is up by 5.4%, excluding the impact of purchasers' costs. we've seen ERV growth of 6.3%, reflecting the continued strength of logistics within the M25. As a result of these valuation movements and our recent capital markets activity, including the recent Paddington sale, on this slide, we've set out what our portfolio looks like today. Campuses are 64% of the portfolio, which includes our 8.6 million square feet of committed and pipeline developments. Retail and fulfillment is a third of the portfolio, of which retail parks now represent 67%. And urban logistics is 3% as of today, but the pipeline we've assembled has a gross development value of 1.3 billion. That's equivalent to over 12% of the group. Now, this has been a great year for campus leasing. At 1.7 million square feet, volumes are our highest for 10 years, representing 67 million pounds of rent. And pricing's also been strong. On average, these deals were done at 5.4% ahead of ERV. We continue to make great leasing progress on our developments, where we're de-risking our pipeline and achieving higher than target rental levels. At our most recent completion here at 100 Liverpool Street, we've now let the last remaining floor. At 1 Broadgate, we're already fully let or under option four years ahead of PC. Next up is Norton Fulgate, where I'm pleased to say we are under offer on at least 100,000 square feet, which represents a third of the scheme. and we're already having encouraging initial conversations at Canada Water and 2FA. We think this volume of activity demonstrates the increasing gravitational pull towards our campuses and everything they offer our customers, which has only been highlighted by COVID. We represent 2.5% of London stock, and yet our activity represents 15% of total central London leasing volume. Let me walk you through some of the key leasing activity to give you some detail. Here at one Broadgate. Here at Broadgate number one is now fully left as I mentioned. But there's been activity right across the campus. We've completed deals with Braes at Exchange House, Maven Securities at 155 Bishopsgate and Hudson River at 100 Liverpool Street to name a few. We've also had great success adding to our F&B offer. with all nine new F&B units on track to be let by the autumn, with some exciting new names, including Revolve, where world-class chefs take residence for allocated periods of time. At Regent's Place, we continue to see activity which establishes the campus as a true innovation hub. Meta has doubled their footprint to 635,000 square feet, having previously upsized with us on multiple separate occasions. And we brought in new innovation businesses like Babylon Health and Fabric Nano, who will operate lab space, something we'll look to do more of. Finally, at Paddington, continuing the themes of innovation and long-term relationships, we've upsized Vertex Pharmaceuticals for the third time across two buildings. Looking at the wider market, take-up's been increasing back towards normal levels. While overall vacancy now stands at circa 8%, Over 70% of that continues to be older secondary space. Prime availability is much lower at under 4%. And the undersupply of new quality space is set to become even more pronounced, which Simon will cover in a moment. Now, quality is a very general term that encompasses a range of factors. I just want to pick out one aspect which is increasingly important, and that's floor plate size. Smaller floor plates dominate the availability metrics and it's where occupiers have a very attractive alternative in the form of serviced or flex solutions. However, flex operators themselves prefer to work with larger floor plates as these are more economic to subdivide and operate. Assuming historic take-up norms, it would take two and a half years to clear the market of older, smaller floor plates compared to only 10 months for new 20,000 square foot floor plates. and those historic norms don't reflect changing customer preferences. As you can see, the BL portfolio compares very favourably on this basis, with only 5% of our space less than 10,000 square feet. Turning to Story, our flexible workspace offer, this is an essential part of our campus proposition, helping us to attract growing businesses to our space, with larger customers also valuing the meeting room and conference facilities we provide. Storys had a very strong year, with nearly 190,000 square feet of space let during the period. Here at 100 Liverpool Street, we're now fully let on all 43,000 square feet, having launched only a year ago. And we've already pre-let the 23,000 square feet of space we're launching at 155 Bishopsgate. As a result, occupancy is up to nearly 90%. Another key competitive strength is the delivery of sustainable space. As you've heard from Bhavesh, we've already conducted net zero audits across all our major assets, where we've worked alongside external consultants, and have already started work on identified interventions we can make across the portfolio to deliver on our net zero targets. Today, 70% of our portfolio is A to C rated, as opposed to the 55% we reported in September. This is principally due to recertifications based upon our most recent activity. But our plans go far beyond the requirements of EPC ratings, which we see as a minimum. So we thought it would be helpful to give you some clarity on what exactly these plans look like, taking an office building as an example. On the slide you can see Exchange House at Broadgate. This is a building where our retrofitting plans are already well advanced. The total cost of the plan for this building is two and a half million pounds, less than 1% of the building's value, with the key items being heat pumps and LED lights, which isn't unusual for an office building. Our 2030 target is to reduce operational energy by 25%. At Exchange House, we've pretty much achieved that already through interventions to date, and we're close to a B rating. But our modeling suggests that when all of the work is done, it will deliver a 50% reduction in operational energy, well beyond our target. We would expect broadly two-thirds of the cost to be funded through the service charge or the occupier directly. That's because replacement costs for central building facilities, like boilers, is a standard service charge item. So the incremental cost over what would have been done anyway is very limited. Furthermore, our occupiers will be responsible for costs within their own demise. For example, LED lighting, which is a relatively straightforward upgrade. All this makes financial sense for our customers with a payback period of around five years. And that's before we apply any increase in energy prices. And it also aligns with our own net zero targets. Turning to retail and fulfillment. As with offices, this has been an incredibly strong year with leasing volumes the highest in 10 years. An overall 2.8% ahead of previous ERV, taking occupancy to 96.3%. Retail parks account for 60% of deal volume, and we're on average 5.9% ahead of March ERV. This has driven occupancy on parks to 97.4%, up 270 basis points over the year. As you can see, they're also outperforming on footfall and sales. For our shopping centres, the lower footfall is made up by basket size. So overall, we're pretty much back to pre-pandemic levels. And at the moment, we're seeing no sign of a slowdown. In April, for example, sales in our parks were 4% ahead of pre-pandemic levels. For retail parks, we've seen some very strong performance over the year, and the fundamentals here remain compelling. Affordability metrics are very positive, with OCRs of around 10%. In fact, based upon ERVs, this drops to under 8%, and again to 7% post the upcoming rates revaluation. We're seeing continued good demand from more online resilient businesses like Aldi and Lidl, and discounters like Primark and B&M. In fact, we also estimate that around half our existing customers are looking to expand, with another 40% happy with their current footprint. We believe this focus on efficient, affordable space on parks will only strengthen in a more inflationary environment. And the supply dynamics are favourable also. It's worth remembering that parks account for less than 10% of the UK retail market. And on the ground, there's typically fewer units than in a shopping centre. And as the largest owner and operator in the UK, we've got the scale and expertise to leverage these demand supply fundamentals. Turning to shopping centres, here we think we're approaching an inflection point. Yields were reflectively flat in the second half, following years of expansion, with ERV declines moderating. We're even executing some deals ahead of ERV now. At the same time, investor interest is picking up. So for the best centres, like Meadowhall, we think we could see yield compression driving attractive medium-term returns. In the meantime, our plan here is to drive value through intensive asset management, improving occupancy, stabilising cash flows, just as we did on retail parks. Finally, let me turn to urban logistics. The market fundamentals here remain highly compelling for well-located logistics schemes within the M25, which is our core strategic focus. In London, demand for same or next day delivery is growing rapidly, with real pressure for more centrally located facilities. But supply of this type of space is incredibly tight. Vacancy in the southeast is just 1.5%. with only 38 million square feet of available space compared to an annual take-up of 8 million square feet. And in London, these dynamics are particularly acute. This supply shortage is what's underpinned the rental growth we've seen in the period and looks to continue for a number of years, with forecasts averaging excess of 5% per annum. So to wrap up, operationally, this is our strongest year in a decade. That's because we're in the right parts of the market. Campuses, where the focus is on quality, retail parks, which are affordable, and urban logistics in London, which is underpinned by very strong demand supply fundamentals. Thank you, and now I'll hand you back over to Simon.