British Land Company PLC

Good morning, everyone. Thank you for joining us for our half year results. Today we'll follow the normal running order. So Bhavesh will take you through our financial performance. Darren will provide an operational update and I'll come back on strategy and outlook. But before we do any of that, I just wanted to take a step back. It's probably fair to say that the economic environment has changed quite a lot since we were last here in May. And against this tougher backdrop, It's really pleasing to see how well the business has performed operationally. That's down to a number of things, but two stand out. First, we're clearly benefiting from our focus on markets with pricing power. You will hear about the favourable supply and demand dynamics across our chosen areas. That's our campuses, retail parks and London Urban Logistics. Second, it's due to good execution of the value-add strategy, and that's right across the business. So I want to take this moment to thank the team for delivering that really strong performance. Now, let's just take a quick look at the headlines. Earnings and dividend are both up 12%. Our leasing performance was very strong, and as a result, occupancy across the portfolio is high at 97%. Clearly, interest rates have moved materially in the last six months. The five-year swap is now 4%, compared to 2% in May. Investors are naturally demanding a higher return from their investments, and real estate's not immune from that. There was a 17 basis point outward yield shift in the half, which was partly offset by ERV growth. The combined effect is that valuations are down 3%. We have a very strong financial position, which we improved with 1 billion of well-timed disposals. This puts us in a good place to take advantage of the opportunities that are emerging given the current dislocations in capital markets. But more of that in a moment. I'll now hand over to Bhavesh. He'll take you through the financial performance.

Thank you, Simon. Good morning and thank you for joining us. Over the next few slides, I'll provide an overview of our financial performance in the first half. We have delivered strong earnings growth and our balance sheet remains resilient. Underlying profit was £136 million, up 13%, driven by strong like-for-like rental growth, a tight control on costs, and the benefit of recently completed developments. Net tangible asset value was 695 pence per share, down 4.4%. The key movement was a decrease in our portfolio valuation of 3%. This reflects yield expansion across the portfolio as a result of rising market rates. Our well-timed disposals have further strengthened our financial position. LTV has decreased 220 basis points to 30.7%. We have access to £2 billion of available facilities and cash. And importantly, based on our current commitments, we have no requirement to refinance until late 2025. We will pay an interim dividend in January of 11.6 pence per share, an increase of 12%, reflecting our improved EPS and in line with our dividend policy. Our headline net rental income is up 17 million pounds or 8% in the period. Net divestment reduced net rents by 1 million pounds. This primarily reflects the disposal of a 75% interest in Paddington Central offset by the impact of acquisitions that we made last year. The 10 million pound increase from development reflects the practical completion of one Triton Square last year and a rates rebate for Euston Tower, following its D rating ahead of development. Provisions for debtor and tenant incentives have normalized and added £1 million to net rents. Including the impact of historic CVAs and admins, like-for-like net rents have grown by £7 million. Good operational performance across our portfolio has driven strong rental growth, which you can see when we disaggregate the moving parts within like-for-like net rents. On campuses, like-for-like growth was up 9.2% or £7 million. This was driven by strong letting activity across our storey spaces with 100 Liverpool Street and Orsman Road now fully let. As well as the impact of rent reviews with Dentsu at 10 Triton and Meta at 10 Brock Street. We've also seen like-for-like growth across our retail parks up 2.2% or £1 million This is due to continued strong leasing and occupancy increasing to 97.5%. For shopping centers, like-for-like net rents declined by 4%, reflecting deals rebasing to market levels. The prior period growth was the result of car park income rebounding following lockdown restrictions lifting. Darren will cover key leasing activity across our segment shortly. Turning now to our income statement. Starting at the top of the table, Gross rental income increased by 4.1%. Rent collection rates have returned to pre-pandemic levels, significantly reducing property outgoing expenses. As a result, net rental income grew by 8.1%, and our net to gross rent margin returned to a normalized level. Fees and other income increased by £4 million, with our new Canada Water and Paddington Joint Ventures generating additional fee income. Administrative expenses were flat in the period at £44 million as a result of our strong focus on cost control, and we were pleased to have reduced our APRA cost ratio by 650 basis points to 19.7%. Net finance costs were up £5 million in the period to £56 million. The increase is the result of rising market rates, but we expect the impact of future rate rises to be limited as we are fully hedged for the next 12 months. I'll explain our details on our financing activity later on. Underlying earnings per share is 14.5 pence, up 12.4%, which results in a dividend of 11.6 pence per share. As usual, we've included a guidance slide in the appendices. Turning now to our balance sheet. The decrease in NTA to 695 pence was primarily due to property revaluations. This was offset by the impact of profits in excess of dividends paid. Our total property return was impacted by yield expansion, notably for our lower yielding assets, where the impact of rising interest rates has been most acute. Importantly, our actions have helped mitigate this impact. Active asset management and ERV growth added 1.2%. This includes leasing activity across our standing portfolio. For example, the significant renewals to Meta at 10 Brock Street and Credit Agricole at Broadwalk House. And particularly strong ERV growth across our urban logistics assets, up 17% in the period. In addition, that rental income added 2% to returns. including the impact of leverage, this resulted in the total accounting return of minus 2.8% in the period. While total accounting return reduced in the period last year, we delivered a return of plus 14.8%, and so we're still targeting 8% to 10% through the cycle. At year end, I outlined our capital allocation framework. This detailed the four key considerations we think about when making decisions on how we allocate capital to deliver our strategy. With more uncertainty around us, I wanted to share our view on the framework in the context of the current macroeconomic environment. We have an extensive and attractive offices and logistics development pipeline. And as we look ahead, we will be thoughtful about committing to new projects. We will require clear visibility of rent and an attractive yield on cost for the development. We are patient and we will be disciplined in deploying capital into future acquisitions. but we do expect that the current environment will present attractive opportunities. Our balance sheet is in a strong position, so we have the resilience to weather market conditions and the liquidity for selective investment. Our growing dividend reflects our strong operating performance in the half. We have a high-quality and de-risked committed development program, which we've continued to make good progress on. When fully let, the combined projects will deliver £62 million of rents, and we've already pre-let 34% of this. We have £570 million of costs to come, of which 92% is fixed, protecting us from near-term inflationary headwinds. And overall, our committed program is delivering an attractive IRR of 10%. At year end, we outlined our expectation of construction cost inflation and we reiterate this guidance today. We expect construction cost inflation to be around 8% to 10% and expect it to moderate to around 4% to 5% next year. We're already seeing capacity come back into the construction industry as some development projects have been deferred or cancelled. So we could see inflation moderate lower and quicker than this guidance, but we continue to take a cautious approach with our appraisal inputs. In our development pipeline, there are no impending decisions to be made over the next year. And as we think about future decisions, we'll judge them against our strict internal returns and yield on cost hurdles, and seek to de-risk projects through pre-letting space. Our disciplined approach to capital recycling has further strengthened our balance sheet, which is a key competitive advantage, particularly with the volatility and uncertainty that we're seeing in the wider market. Following the 75% sale of Paddington Central, our LTV improved 220 basis points to 30.7%. Our total quantum indebtedness has reached a near 10-year low, and we have £2 billion of undrawn facilities and cash, giving us ample firepower to take advantage of any investment opportunities that may arise. Importantly, based on our current commitments and these facilities, we have no requirement to refinance until late 2025. Our weighted average interest rate is 3.5%, a 60 basis point increase since March. This increase is primarily the result of repaying our lower cost revolving credit facilities with the proceeds from the Paddington transaction. There was also an impact from rising market rates, but importantly, the strike rates on our caps are set at levels that are now below Sonia. And together with our use of interest rate swaps, we are fully hedged for the next year. Over the next five years, on average, and with a gradually declining profile, we are 77% hedged on our projected debt. And finally, we have no income or interest cover covenants on British Lands unsecured debt. We continue to have significant valuation headroom, and we can withstand the fallen asset values across the portfolio of 48% before taking any mitigating actions. We maintain good long-term relationships with debt providers. across different markets, and have continued to raise finance on good terms. This includes a £515 million five-year loan for the Paddington Joint Venture, secured on its assets. For British Land, in October, we signed a £100 million RCF with a five-year initial term and ESG-linked provisions. And earlier this month, we signed a new £150 million ESG-linked RCF, also on a five-year initial term. So in summary, through our actions, we have delivered strong earnings growth in the half. Our actions have further strengthened our balance sheet, giving us the resilience to navigate through an uncertain macroeconomic environment. And lastly, we have the discipline and the firepower to take advantage of any market opportunity that may arise. I'll now hand over to Darren, who will provide an operations and market update.

Thank you, Bhavesh. Good morning, everyone. I'm going to give you an update on our leasing activity and some insights into how we're seeing the markets. But first, I'll take you through our valuations. Overall, we've seen a valuation decline of 3%. This was due to yield expansion of 17 basis points across the portfolio, a reflection of the challenges of the macro environment and rising interest rates. This has been partially offset by rental growth, driven by our asset management activity, resulting in an uplift in ERVs of 1.2%. The valuation of our campuses was down by 2.7%, following outward yield movement of 18 basis points. However, rental growth of 1.6% has reduced the impact on values. In retail and fulfilment, we've seen a decline of 3.6%. But in retail parks, we've had rental growth for the first time since 2018, something we said would be coming through. Building on our leasing performance over the past year or so and the strength of our assets and the sub-sector. We also saw rental growth in London urban logistics of 16.7%, principally driven by our Wembley asset, where rents have moved on significantly since acquisition. But it's also a reflection of very strong fundamentals across the market, which, as I'll come back to shortly, look set to remain in place for a significant period of time. So despite the macroeconomic backdrop, we've had rental growth across all of our key target markets. Let's start with campuses. At the full year, I reported the strongest leasing volumes we've seen for 10 years. Six months later, I can say we've seen no let up in activity. with transactions on nearly 500,000 square feet of space, rents totalling £25 million and as an average of over 18% above ERV, demonstrating the continued demand for best-in-class office space and our campus proposition. In fact, we've seen a noticeable uptick in levels of interest since the summer and we have a further 310,000 square feet of space under offer. The occupancy in storey is now 96%, up from 86% in March, following 114,000 square feet of leasing activity. With only a couple of units to let, we're now effectively full, which puts us in a really strong position going forward. And we're looking at opportunities on our campuses to expand the overall footprint. We've added a further 23,000 square feet of space at 155 Bishopsgate, for example, which is already pre-let. and we've had continued success leasing our committed developments. Hot off the press, I'm pleased to say that yesterday we exchanged on our first major letting at Norton Folgate to legal firm Reed Smith for their UK headquarters on space of up to 126,800 square feet. Norton Folgate is a collection of best-in-class buildings, all electric with low embodied carbon, with amenities and excellent transport communications, meaning it acts as a mini campus. And as with our other development lettings, we've been able to achieve rents a premium to our underwrite, which bodes well for the rest of our pipeline, where we've got a number of active conversations ongoing for pre-lets. So now more than ever, the campus model is really resonating with occupiers. We can see that in the successful leasing of our existing portfolio, our developments and of storey. as well as occupiers recommitting to space with extended terms, such as Credit Agricole and 120,000 square feet at Broadgate and Meta on 150,000 square feet at Regent's Place. Campuses are also attracting the next generation of innovation occupiers. We're creating 60,000 square feet of lab space at Regent's Place, leveraging its position within the knowledge quarter At 338 Euston Road, we've already concluded our first lab letting to Relation Therapeutics, a business pioneering machine learning for drug development. And we have a number of further active discussions with lab-based occupiers here and at Canada Water, where we're under offer for lab space at our new modular campus and at the Priestley Centre in Guildford. Turning to the wider market, we're continuing to see the preference for quality drive demand, The vacancy metrics remain dominated by poorer quality second-hand space, which accounts for over 70% of the total. And it's taking longer to lease, if it's leasing at all, with the average time second-hand stock stays on the market now doubling to over two years. However, this is in stark contrast to the prime end of the market, which is behaving much differently. And I just wanted to pick out some interesting market data to evidence this. New or newly refurbished space represents just 1.5% of total London stock. Of the 3 million square feet under offer, 72% is new or newly refurbished space. The speed new developments on average reach the 75% lease threshold has inverted to pre rather than post PZ for the first time in 20 years. And finally, we've recently seen a significant increase in the quantum of new leasing in excess of the prime rental tone this combined with our campus proposition under underpins our confidence in the space british land owns and creates now obviously sustainability is an increasingly important driver and we continue to make good progress towards our net zero targets 52 of our campus space is now a to b rated up from 46 at the year end in march As you know, we've mapped out a programme of interventions to help our portfolio to net zero by 2030. Over the next few years, we'll continue to systematically work our way through the portfolio, often linking the timing of these interventions with planned leasing events. And we remain comfortable with an estimated figure of around £100 million to do this, broadly split 50-50 between offices and retail. In offices, we expect air source heat pumps and LED lighting to be roughly 70% of that cost. Total investment to date is £8.4 million, of which we've contributed about 15%, with the rest covered by service charge or the occupiers directly. Exchange House, which I used as a case study the full year, is a good example of this. Our interventions have already moved an E rating to a B. So we're pleased with our progress to date and remain confident in our plan and our approach. So let's move to retail. As with our campuses, the record levels of leasing we reported the full year have been maintained for the past six months. We've completed over 1 million square feet of leasing at rents on average 10% above ERV. And the momentum is continuing with 770,000 square feet of space under offer at an average of 18% above ERV. That's driven a further uptick in overall occupancy on retail parks up to 97.5%. Given the chain of lease expiries, there's obviously always a number of units in play at any given time, so you never actually reach 100%. Therefore, occupancy is as high as it's ever realistically able to be. One of the reasons we've been leasing consistently above ERV for the past 18 months. Now, of course, mindful of the prevailing economic conditions and pressures on the UK consumer, but we continue to think that the retail park format is well placed in this environment. with low occupational cost ratios of about 10% and a structural preference for the format from a range of retailers. Omni-channel operators who like the increased efficiency from the fusion with online, such as Next, M&S and Zara, as well as discount retailers who value the convenience of the format, like Aldi, The Range and Primark. This has allowed us to widen and strengthen our occupational base. We now have an Aldi or a Lidl on a third of our retail park assets, for example, And we think this puts us in a really good position going forwards. For our shopping centres, we're really pleased with the progress on our leasing. We've closed deals on nearly half a million square feet at 15% above ERV. Occupancy is up to 94.5%. And we have a further 260,000 square feet under offer at an average of 27% above ERV. This reflects good levels of demand for smaller units in particular, combined with significant reductions in ERV over the past few years. As a result, we can see those ERV declines starting to plateau. Yields have remained stable over the period at circa 7.5%, and therefore we continue to think our centres will generate attractive income-driven returns. Now let's look at urban logistics. And here the fundamentals we've talked about before remain very strong, even in a more uncertain economic environment. Take-up in London year-to-date is already above the levels seen in 2019 and 20, and in the 100,000 square foot market, demand is around three times available stock, with total availability standing at only 2%. For inner London, it's tighter than that, at less than half a percent. These fundamentals are driving strong rental growth, projected to be around 4% to 5% over the next five years. Simon will talk you through our strategy in a moment, but the key takeaway here is that we'll be delivering into a market which is incredibly supply constrained. Now, before I wrap up, let me talk for a moment about the social side of our sustainability framework. Our strategy is to work with local communities to address key issues where we can make the biggest difference. Right now, the rising cost of living is obviously the biggest concern for people, so we've put together a £200,000 package of support to cover strategic advice and local initiatives, such as supporting food banks and providing warm spaces. Another great example is at Paddington, where we supported the Ukrainian Institute Language School by providing space for them to teach a basic qualification in English. More than 250 people have benefited, and a second course is already underway. Initiatives such as this are obviously really important to communities and examples of how closely we work with them. So to wrap up, all sectors of our business are performing well occupationally and we're driving ERV growth across our key markets. Our campus proposition is continuing to deliver as Occupy's focus on best-in-class space. Retail parks are operationally resilient and the best place format in this environment And the fundamentals in London urban logistics remain very compelling. Now I'll hand you back over to Simon for an update on strategy.

Thanks, Darren. As you've just heard, the business is performing really well operationally. We're clearly benefiting from our decision to focus on markets with pricing power and affordable rents. You might recall I shared this slide with you in May. setting out the demand and supply fundamentals of our key markets. Truly first-class workspace is hard to find. This is enabling us to move rents up at our campuses where we've leased space 18% ahead of ERV and those ERVs have increased 1.6% in the half. Our retail parks enjoy broad and growing demand from retailers However, parks represent just 10% of UK retail, and our vacancy is low at 2.5%. This has enabled us to lease space 6% ahead of ERV, and ERVs are now rising for the first time in four years. In London urban logistics, there is a severe imbalance between demand and supply. Rents have grown very strongly in recent years, And we believe they'll continue to do so, given the significant cost savings operators can realise by having the right facilities in the right locations. So based on what we're seeing today, there are good prospects for continued rental growth across the portfolio. How are we making the most of these favourable fundamentals? Well, our focus is on value add situations. where we use our deep asset management and development skills to create places both our customers and investors prefer. Driving returns organically like this is increasingly important in the current climate. Once we've delivered the business plan on an asset, it often makes sense to sell in order to recycle capital into higher returning developments and repositioning opportunities. Over the last 12 months, we've allocated capital smartly. At both Paddington and Canada Water, we locked in profits on existing investments at attractive pricing and largely paused reinvestment when we sensed capital markets were on the turn. At Paddington, we sold a 75% stake just below book value, crystallising a return of 9% per annum since acquisition. At Canada Water, we realised most of our original investment when we sold 50%. And sharing the capex with our partner, Australian Super, allows us to build out more quickly. Over the next 18 months, we expect the dislocation in capital markets to throw up some attractive opportunities, but we will retain our discipline on risk and returns. So let's look at each of our markets in a little more detail, starting with the campuses. Over the last 18 months, we have seen very strong demand for our net zero developments and we expect this to continue as businesses focus on the best, most sustainable space. Our committed development programme of 1.7 million square feet is 40% pre-let now and 92% of our costs are fixed. We expect to deliver our schemes into a market with very little new supplies, you can see. And in recent months, rents for the best new space have grown rapidly. This will help us capture higher rents than we underwrote on the remaining space, increasing our yield on cost. We have a very attractive campus development pipeline of over 7 million square feet. And around 80% of that is consented. As you heard from Beve, regarding development return hurdles and risk mitigation. We have significant optionality in this pipeline with our carrying value low at £180 a square foot. We typically pre-let one third of our developments before committing. And we're progressing planning, design, demolition and site mobilisation so that we're well placed to secure these pre-lets. Falling supply means we can target higher rents. Whilst it's too early to draw firm conclusions, we are beginning to see tender prices come down for some parts of the development process such as demolition and site preparation. I've said before that our campus model is ideally placed to capture the strong demand from life sciences and innovation businesses in the Golden Triangle. These businesses like to cluster near centres of academic excellence. This is driving very strong demand in Oxford, Cambridge and London's knowledge quarter, but supply is constrained. For example, there is no lab space available in Cambridge today, but there's 1.2 million square feet of demand. These fundamentals have not escaped the notice of other investors, But we've been able to make good progress by focusing on off market situations, opportunities in our own portfolio and large scale regeneration projects where our place making skills give us an edge. In Cambridge, we're working with the biomedical campus on a master plan to match the world class research that takes place there. We've extended our ownership of the Peterhouse Technology Park by acquiring a four acre plot with planning for a 90,000 square foot scheme. At Regent's Place, we're delivering three floors of lab space, with the first floor now let to relation therapeutics, as you heard from Darren. And at Canada Water, we have 50,000 square foot of demand for the 33,000 square foot modular labs we'll deliver next year. There are clear strategic benefits from establishing an innovation cluster at Canada Water. Turning now to retail parks. As Darren explained, retail parks are now the preferred format for many retailers because of affordable rents and their suitability for multi-channel retail. M&S recently highlighted that multi-channel customers spend four times more than single channel customers and stores touch 65% of their online orders. In the last 18 months, we believe the structural outlook for parks has improved for a couple of reasons. Online appears to be returning to pre-pandemic trends, as you can see in the chart. And retailers are pushing more of this online activity through the store by increasing delivery charges and introducing payments for postal returns. This means that Click and Collect is now the fastest growing fulfilment channel for online. with parks capturing a disproportionate share. At the same time, retail parks are very affordable. With the cost of living pressures, value retailers are expending aggressively on our parks, and this is making parks more resilient. If the general weakness in the investment market spills over into the retail park market, we will look to exploit this. In urban logistics, we're using our expertise in London development to deliver new space in a market where supply is highly constrained. Generally, we're doing this by repurposing assets like car parks and retail parks, or by increasing density in existing locations via multi-storey. We're targeting two distinct segments of the market. First, central London last mile solutions. And second, larger facilities in Greater London. For this purpose, we define Central London as Zone 1 and edge of Zone 1. This is a nascent market where occupiers are willing to pay a premium for locations not previously available to them. We've acquired two new sites for multi-storey just off the Old Kent Road, in addition to the Finsbury Square car park. and we intend to submit planning for a logistics facility of 127,000 square feet under 5 Kingdom Street at Paddington. These solutions are increasingly sought after as they reduce journey times and use low carbon transport such as electric vehicles and cargo bikes. The Greater London market for larger facilities also has strong fundamentals. There is currently just one warehouse over 200,000 square feet available. So we're working up planning for multi-storey at Enfield, Wembley and Thorpe. During the first half, yields on logistics increased. However, we still expect to deliver attractive returns from our developments as we underwrote outward yield shift and rents are growing more strongly than we anticipated. The investment market is definitely less competitive now, and we think there'll be good opportunities to acquire attractive sites. Turning now to the outlook for our markets, it probably won't surprise you if I say forecasting is very difficult at the moment, particularly forming a view on the yields. These will be heavily influenced by where medium-term interest rates settle, which is hard to call. We do think yields will continue to move out, But based on what we're currently seeing, we believe the impact on values will be cushioned by rental growth in our markets. On our campuses, we're forecasting rental growth of 2-4%, higher for new space. Retail parks have returned to ERV growth, and we think this will continue at around 1-3%. In logistics, supply remains very constrained and demands robust, so rental growth of 4% to 5% seems likely. So, in summary, we've delivered a good operational performance and momentum is continuing into the second half. We continue to make good progress implementing the strategy and we're navigating the macroeconomic environment well. With a strong balance sheet and robust liquidity, we're well positioned for the future. Thank you for your time. We're now happy to take any questions and Professor Darren will join me on the stage. We've got people on the lines and also coming over the webcast, but maybe if we start with questions in the room first. Osman, you've got your hand up straight away.

Morning, and thank you for the update. Osmo Malik from UBS. A couple of questions. One is, the last set of results you gave was a £2 billion potential development profit number. I appreciate it's difficult to make forecasting, as you just said. Where is your current thinking on that number? And I guess also the timing, because the timing may have moved as well. The second question, I'll just push them out and you can answer them in turn, would be on the London office market, I think you've got quite an exposure to tech through Meta. I just wonder whether... you are seeing any slowdown or are you concerned by the job losses that's going through that sector at the moment? Thank you.

Sure. So on the development profit, based on the metrics that went into our valuations, the development profit number is still 2 billion. As we've guided to, we think yields will move out. But we're seeing a couple of other things move in the opposite direction, particularly on the rental growth side of the equation. You've seen the deals we've got under offer. And in the last couple of months, for new space in London, really high-quality new space, rents have probably increased 5% to 10%, which is very helpful. And then, as Bhavesh guided to, on the construction cost side, we've underwritten increases in construction costs of... about 10% this year and 4% to 5% next year. But I think there is a chance that surprise is on the downside in terms of lower cost inflation. So with those, we think we'll be able to grind up the yield on cost to meet those increases in yields and still deliver attractive profits on the development programme. On timing, we've got a natural pause at the moment. So our current programme is 1.7 million square feet. That's well underway. with the high-debris of pre-lets, and then we had a sort of 12-month period before we make the next major commitment, which is likely to be to Finsbury Avenue, and as I said in my comments, we're going with site mobilisation, demolition there, and we'll do the basement works, and normally we look to secure a pre-let, so one-third of the building, something like that, and then we'd likely push ahead with it, but we'll assess where yields are and where our yield on cost is at that point in time. And then on your question on tech, maybe if I answer initially and hand over to Darren to expand. Look, I think tech is going to take up less space in the immediate period. We do believe that the innovation industries and we put technology as part of that are going to continue to grow in the medium term. But I think you will see less take-up from tech. But we're seeing that being filled by other customers, really excited by what's happening in the life sciences space. And obviously, you've seen a deal announced today with Reed Smith and then another deal in the market. Darren, I don't know if you want to expand.

Yeah, I mean, you mainly covered it. I mean, regards Meta specifically, we've just extended them at Regent's Place, as we said in the presentation. You know, half a building. We've pushed that out until nearly 2030 now. So that's, you know, while all of this has been going on, as Simon said, we'll watch the tech sector. Let's see what happens there. But we've got a huge volume of activity elsewhere. We just announced Reed Smith. We've got a building opposite here that's now fully pre-let. So we're seeing lots of demand coming from other types of occupiers. So we're still confident in what we can achieve.

Hello. Good morning. I think you clearly outlined your balance sheet position. It's very strong. Where are you targeting medium term LTV? And you talk about the fact that you've got A lot of buying power should opportunities present themselves. I'm just trying to work through the mechanics. If you're at 31% LTV today, which is a strong position, and you're substantially hedged, which again is a strong position, if values fall, which is being indicated not just by yourselves but by others as well, If they fall by 10%, you're about 35% before you spent money on CapEx. So where do you take the LTV piece and how are the opportunities there?

Morning, Hemant. So Bhavesh will talk you through. We've always adopted a counter-cyclical approach to leverage. So you've seen us bring leverage down quite materially. Lots of disposals over the last four years, a billion in the last 12 months, which has created capacity in the business. But a key engine of growth for a business is recycling. We will continue to recycle capital. We find assets, we develop them, we reposition them, we lease them well, exactly the type of product that investors want to earn. and then we reinvest in those properties. But Vesh, if you want to talk through the LTV approach.

Yeah, just, well, Simon said it's a counter-cyclical approach, so we don't adjust our approach because of changes in values. Very comfortable with where we are today on LTV, and that positions as well for as we look ahead in terms of where we want to deploy capital. um we also look at other measures so total quantum debt which i talked about is at its lowest level in 10 years we look at net debt to ebitda so that's around eight and has been consistently below or at eight for the last couple of years and then we focus really our discipline on recycling so we've sold well we sold around four billion over the last five years we continue to focus on dry mature assets where we feel there's nothing more value for us to add we'll sell it And you saw us do that with Paddington this year. We'll take some of those proceeds and recycle into parts of the market where we think we can drive a better return. And we'll continue with that discipline going forward.

So you have been proactive. There's been no question about that. My question is... a 10% decline takes you to about 35% LTV. Where are you prepared to take that to? Because when you're in the midst of declines, you don't know what's coming. So I'm just trying to understand that. Just the mechanics of it, please.

Yeah, I would be comfortable in the mid-30s. As I said, the mechanics of what we're doing, we'll continue to look to dispose of at the right price, dry or mature assets, and use some of that to recycle in to areas where we can get a better return. And you've seen us do that in the first half of this year. We've got commitments on our existing developments, which we'll continue to push through. Okay.

And then in terms of disposals what areas are you looking at to potentially dispose because you've highlighted in your portfolio that you are in some strong areas and medium term obviously we've got a downturn potentially coming in a recession but medium term you're well positioned so what areas would you like to sell and will the market be there when you're looking to sell?

The main areas we'll look at are some of our more mature London office assets. To my earlier point, we've created some great space. It's leased really well, but it's then a bit dry for us, but really in demand by investors. Yes, you'll probably achieve a lower price today than you might have done six months ago, but equally, you'll invest at much better pricing, and those will be opportunities where we can use our skills to drive value. you know we really describe it as an all-weather strategy you know in the current climate a value-add strategy is absolutely the right one to pursue thank you there's a question oh sorry you're next definitely Matt thanks morning it's Matt Sapir from Peel Hunt two quick questions if I may the first one on on story obviously a very good period for

I was just wondering what had happened to pricing over the same period. And also, I think you alluded to potential expansion across campuses. I think, could you just perhaps talk about where you think you can grow that across either the existing portfolio or indeed whether you'll look at external growth opportunities? And then the second question, going back to the near-term development pipeline, I think, Simon, you talked about a 5% to 10% pop-in ERVs recently. I suspect that the pipeline of future space is likely to get tighter in the near term. The conversations that you're having with tenants on that near-term pipeline, do they reflect potentially even stronger ERVs than the ones that we're probably thinking about at this moment in time?

Sure, thank you.

Darren, do you want to take those?

Yeah, sure. So we'll start with Story. Our Our occupancy is sky high now. As I said in my prepared remarks, we're pretty much full. We've got a couple of units to go, but that's full as far as we're concerned. We've extended the footprint by 23,000 square feet. There's some more opportunities to do that in the portfolio. We'll look at it. It's still only about 5% of our space. When our occupancy was down, and this was during COVID, and that's an understandable time for our occupancy to be slightly down, then we took our pricing down to get ourselves back up to the kind of numbers we're at now, but we're in a position now where we can start moving the pricing ahead. I think the other thing is the model was based on a 90% occupancy and we're at 96% at the moment and climbing, so that's held our economics. As far as our confidence on the development pipeline is concerned, we're not making assertions here, we're just reflecting what we can see on the ground. We're coming off the back of 10-year high leasing levels, which has continued into this half at significant chunks above ELV, 18% above ELV for the half. One broad gate, which we're currently on site, as most people have seen on the way in this morning, fully pre-let before we even touched the building on demolition. Norton Fulgate, which we did last night. So that's taken 100,000 square feet out of that 300,000 square feet under offer number I gave you earlier. As far as the offices are concerned, we're 44% pre-let now. So that's great activity. We've got another 200,000 square feet left under offer at about 4% above ELV. And sitting behind that, we've got another 600,000 square feet in active negotiations. So we're just looking at that landscape and the quality of the product we've got and what's incoming and hence the kind of numbers that we're putting on our projections. And we're cautious about this, but I think that we can be confident going forward given all of that activity and the fact that the market's got incredibly low levels of vacancy for Prime and people are switching the cranes off.

Max, do you... I think most of my questions have probably been answered there already, and maybe you kind of alluded to it a little bit at the end there in terms of where you see the redeployment of those opportunities, where probably the biggest dislocations are at this point. Is it fair to say that it is in that urban logistics space, or equally could it be in the retail parks where obviously things have shifted a bit again there?

I think it could be in both to answer your question. What we're beginning to see is a little bit of distress from the funds facing redemptions. It's too early to see anything from the banks and then there's motivated sellers as well and this is a more positive story for the vendors concerned because what we've seen is pension funds with the big increase in interest rates, their liabilities have shrunk and many of those have moved into surplus And they're looking now to lock in those surpluses, move to buy out. So they're moving from growth assets, equities, real estate. But they're pretty motivated sellers. And so we're seeing opportunities in the retail park space. And we're well positioned to underwrite those. But as I said, we will remain disciplined on that. Returns, we're probably not at the bottom yet in terms of those, but if we can buy assets that yields that fully reflect the increase in interest rates and buy significantly below replacement cost, that's pretty interesting for us. And then on the urban logistics, I think there will be opportunities to buy some sites where we can really put some good density on them. There's only a limited number of sites that you can really do good multi-story on, but we will look in that direction. Zone 1 space, which will be vertical warehouses with elevators or lifts for effectively moving goods around, and then multi-storey with ramps in the sort of greater London area. But they will be our key areas, I'd say. But also in the innovation space in the Golden Triangle, you saw us buy the next phase of the Peterhouse Technology Park in the period. Any other questions in the room? No, OK, maybe if we could go to the lines.

Thank you. If you have joined us via the telephone lines today and would like to ask a question, you can press Star 1 on your telephone keypad. If you'd like to withdraw your question, you may press Star 2. Please ensure you're unmuted locally when asking your question. Our first question comes from Sandra Bunk from Barclays. Sandra, your line is now open.

Hi, good morning, team, and thanks very much for that. Just one question from myself, please, and it's on the retail parts. I see there, or I read that there's roughly almost 800,000 square foot of retail and fulfillment lease in the pipeline, and at least they're expected to sign 18% of the ERV, which sounds very encouraging. Can you give some color on how to think about this level? Is this a real kind of comparing that headline versus headline, or is it just for incentives? um and how our value was expected to be looking at this because i think in the first half um value was only reflected roughly a one percent increase in ervs um and this looks very significantly stronger than that so just some color on that please yeah yeah sure um good morning um

Well, look, as far as retail is concerned, I'm delighted to be answering questions about the strength and performance for the half, particularly in shopping centres, by the way. For retail parks, we're kind of on line with where we've been tracking for the past 18 months. At the financial year end, we said we were up 6% on ERVs. We've done about the same again this time around. The big turnaround and what is changing the numbers above that is for shopping centres. And I think that's a reflection of two things. We've had a really good strategy. We've kept occupancy high. We've got a great team. We've got great relationships with retailers. So that's really helped us. But the other thing is the LVs were hammered, probably to a disproportionate element over the past few years. And there's probably been a bit of overcorrection there. So what we're seeing is a bit of pullback from that. I'm obviously not predicting that that's going to be the run rate for the next few years. That would be exceptional. We'll give it our best shot. I think the question on valuations in terms of forward movement of rents really is around a proportion. So there's always a bit of a lag with valuers when you create the evidence to when it feeds through. If you look at our shopping centre evidence, I think we're talking about something like we've done deals this half and about 5% of our space. So it is going to take a while for this to feed through, just like it did for retail parks. We were doing deals significantly ahead of ERV before it translated into the real rental growth that we see coming through the valuations right now. So that lag of effects and where valuations have been pulled to really explains the proportion that we're overachieving in terms of our leasing. But as I say, we're delighted with the six months.

And just to make sure, in the 18%, There is no one-off, so no special kind of leases in there.

There's always a spread. It's actually quite a widespread, particularly on shopping centres, by the way. But no, it's pretty consistent, actually. There's not like a couple of deals there that are particularly taking it up, if that's what you're picking away at.

Great. Thank you very much. Appreciate it.

Any other questions on the line?

Thank you. As a reminder... If you'd like to ask a question, that's star one on your telephone keypad.

No other questions on the line then?

Okay. I don't know the questions on the line, so I'll hand it to yourselves for any further remarks.

Great. Thank you. I think we're just going to go to the webcast. Have we got any questions on that, Jo?

Yeah. So from Tom Muffin at Goldman Sachs, it looks like GIC's option on Five Kingdom Street has now lapsed. Can you give any colour on why they didn't exercise? Was it asset-specific or market sentiment?

Morning Tom, it's probably not appropriate for me to comment on GIC's motivations for letting the option lapse but what I can say is when we undertook the transaction we deliberately kept more of Five Kingdom Street because it was the highest returning part of the scheme, got a really good development scheme there and then we've just added to that recently with the box where we're out for public consultation. So this is going to be one of the best logistics facilities in central London. I think it's going to be unique. It's going to allow for green vehicles, so electric vehicles, cargo bikes, and it's going to reduce mileage. So we think that will command some really good logistics. and we have an existing consent above ground for the offices. So that's looking like a very profitable scheme for us. So net-net, the option lapsing is a good thing for BL returns, and so we're very comfortable with the position. I don't know if there's any other questions, Jo.

From Miranda Coburn at Pamirs. You highlight recent debt facilities. Can you give us an indication of their pricing?

On to you, Bhavesh.

Yeah, so the marginal cost on our sort of credit facilities is Sonia plus 60 basis points. And the two new transactions are broadly aligned with what we've done historically.

From Mike Pru, earlier in the year you estimated a gross development value in the logistics business of a billion. Is the number the same? And if it's changed, how and why, please?

Hi Mike. So I think at half year we were at £1.3 billion and it's now increased to £1.5 billion and that reflects two things. The box that I just described at Paddington, but also an acquisition that we made off the old Kent Road in the period for multi-storey. So those are the two drivers. So we're at about £1.5 billion GDV today.

From Paul Gorry at PMO, can we get some additional colour on the weighted average interest rate from 2.93.5 despite being fully hedged?

Yes, as I talked about in the prepared remarks, it's a function of our hedging. So the fact that we are fully hedged doesn't mean we're fully fixed. So we use interest rate swaps and caps, and then some of those roll off and other ones come on at different pricing. We also replayed our low-cost RCFs through the Paddington transaction. So as we paid that back down, that lifted up the weighted average interest rate cost.

And we're now fully, our caps are all in the money. So Sonia's above those cap rates. They were at about 1% those caps. So that's one of the drivers, but it's primarily repaying the cheap bank facilities.

And the last that I have from Claire Domain at Resolution Capital, have office tenant incentives increased? And if so, by how much?

Darren, do you want to take that one?

No, I mean, genuinely no. And that's just a function of demand supply tension and the very low levels of prime kit and reflection of the quality of what we have.

That's it. OK, if there aren't any more questions in the room, I think that concludes the meeting. So thank you very much for your time.