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.