British Land Company PLC

Well good morning everyone and welcome back to 100 Liverpool Street. One of the advantages of doing our results here is you get to see first hand how some of our major developments are progressing. Just six months ago we were here, one broad gate was a hole in the ground. Six months on we're now at level 12 on the core and hopefully you'll all agree that broad gate's really buzzing this morning. We'll follow the usual running order. Bhavesh will take you through our financial results. Darren will provide an operational update and I'll wrap up with the strategy and the outlook. But before we do that, I just wanted to go through the headlines. Clearly, the macro environment has been quite challenging and volatile over the last 12 months. Despite this, our operational performance has been strong. Underlying profit is up 7%, driven by like-for-like rental growth of 6%, additional fee income and a tight grip on the cost base. The dramatic rise in interest rates that we saw during the year increased investors' return requirements. This impacted virtually all asset values. The property was not immune and we saw our portfolio value decline 12%, reflecting a 71 basis point outward yield shift. We outperformed the MSCI benchmark by over 300 basis points, reflecting our sector choices and that operational performance. The macro environment remains hard to call, but in the last few months we've seen upward yield pressure ease and there are early signs of compression for retail parks. We're in good financial shape, benefiting from 750 million of well-timed disposals. We have 1.8 billion of liquidity, a low net debt to EBITDA of 8.4 times, a loan to value ratio of 36%, and we continue to actively recycle capital. Today you will hear three key themes in our presentation. We're executing well both strategically and operationally. We're benefiting from our focus on markets with strong fundamentals where we have pricing power. And we can drive significant value by recycling out of mature assets, building out our development pipeline and enhancing our leading position in retail parks. But more of that in a moment. Now I'll hand over to Bhavesh, who will take you through the financial results.

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 for the year to March. We delivered strong underlying profit growth of 7% in the year, driven by like-for-like net rental growth up 6% year-on-year. And we've kept a strong focus on cost management, evidenced by a significant reduction of our upper cost ratio, improving 610 basis points to 19.5%. We generated earnings per share of 28.3 pence, up by 5%. In line with our dividend policy of paying 80% of underlying EPS, we will pay a final dividend in July of 11.04 pence per share, resulting in a full-year dividend of 22.64 pence. This is a 3% increase on the prior year. Net tangible asset value was 588 pence per share, down 19.5%. The key movement was a decrease in our portfolio valuation of 12.3%. This reflects yield expansion across the portfolio as a result of rising market rates. Encouragingly, we are seeing upward yield pressure easing, and Darren will provide further details shortly. The valuation decline in the year had an impact on LTV, increasing 310 basis points to 36%. Our net debt to EBITDA remains low at 6.4 times on a group basis and 8.4 times on a proportionally consolidated basis, down 1.5 and 1.3 times respectively. The reduction in net debt to EBITDA is a result of strong earnings growth, our well-timed disposals, which further strengthen our financial position. Our headline net rental income is up 21 million pounds or 5% in the year. Net divestment reduced net rents by £13 million, mostly due to the disposal of a 75% interest in Paddington Central, offset by the impact of acquisitions. The £13 million increase in net rents from developments reflects the practical completion of One Triton Square last year and a rates rebate from Euston Tower, following its de-rating ahead of future developments. The impact of historic CVAs, admins, and provisions for debtors have normalized with a net nil impact in the year. We've also delivered strong like-for-like net rents in the year, increasing by 21 million pounds. Let me now take you through the drivers of this. On campuses, like-for-like growth was up 6.5% or 11 million pounds. This was driven by strong lighting activity across our newly refurbished space, including braids at Exchange House and rent reviews with Dentsu at 10 Triton and Meta at 10 Brock Street. Strong lighting activity across Story has also added to campus rental growth this year. In retail parks, Like for Like growth was 6.2%, or seven million pounds in the year. Retail parks continue to be the preferred format for a wide range of retailers, and our occupancy has increased further from already high levels, and we are now 99% full. For shopping centers, Like for Like net rents increased by 2.6%, reflecting good operational performance and improving occupancy. Let me now turn to our income statement, starting with the top line. The strong like-for-like growth that I just spoke to fully offset the impact of the Paddington disposal, and as a result, gross rental income is flat. Rent collection rates have returned to pre-pandemic levels, reducing property outgoing expenses. Combined, these resulted in net rental income growing by 4.9%, and our net to gross rent margin has normalized. Fees and other income increased by five million pounds with our new Canada Water and Paddington Joint Ventures generating additional fee income. Administrative expenses were held flat year on year at 89 million pounds. Our tight grip on costs alongside a normalization of property expenses and higher JV fee income mean we have reduced our upper cost ratio by 610 basis points to 19.5%. Net finance costs were up 9 million in the period to 111 million pounds. The increase is mostly due to rising market rates, but we expect the impact of future rate rises to be limited as we're 97% hedged for the next 12 months. I'll explain details of our financing activity later on. Underlying earnings per share is 28.3 pence, up 4.8%, resulting in a full year dividend of 22.64 pence per share. The growth in the dividend is lower than EPS growth, reflecting the new accounting guidance on rental concessions, which impacted the prior year. We expect earnings to be broadly flat this year with development income to benefit in future years. We've included a new guidance slide in our appendices which outlines the component parts of our guidance. Turning now to our balance sheet. Net tangible assets decreased 19.5% to 588 pence. This was primarily due to property revaluations, which reflect the impact of rising market interest rates and the repricing of all real estate assets, with our portfolio yield expanding 71 basis points. When including dividends paid in the period, total accounting return was minus 16.3%. I wanted to remind you of our capital allocation framework in the context of the current macroeconomic environment. We have an attractive campus and logistics development pipeline. And as we look ahead, we will continue to be thoughtful about committing to new projects. We'll require clear visibility on rent and an attractive yield on cost for the development. We remain selective and disciplined in deploying capital into future acquisitions. We were net sellers during the last 12 months. Our balance sheet remains strong, we have significant liquidity, and we monitor a number of key metrics, which I'll cover in detail shortly. Finally, our growing dividend reflects the strong operating performance of our business across the year. Our development pipeline is a key driver of long-term value creation, and we expect development profits to come of 1.7 billion pounds. This is lower than the £2 billion that we reported last year as a result of yields moving out in the period. The impact of yield expansion on profit to come has been partially absorbed by lower site values, and we've worked hard to enhance our schemes by improving massing and identifying cost efficiencies. In line with our expectations, construction cost inflation peaked in FY23, and we expect it to moderate to around 3-4% in FY24. In our appraisals, the growth in rents fully offset the increase in construction costs. Let me provide some color on our high quality development pipeline. We've made great progress on our London urban logistics pipeline, submitting five planning consents in the last six months, and most recently receiving approval for the box at Paddington, which we believe will be one of the best, most sustainable last mile logistics facilities in central London. Canada water phase one is well underway. We've brought to market the founding our 35 story built to sell residential building And we've just kicked off our first major sales campaign and so far. It's been very successful achieving an attractive 1250 pounds per square foot on reservations and exchanges to date Last month, we also unveiled our future vision for the Printworks building. This will include 158,000 square feet of workspace called the Grand Press, and subject to planning, a unique cultural venue in the heart of the Canada Water Master Plan. On our other campuses, alongside delivering best-in-class offices, we have an exciting pipeline of lab and innovation space, a key driver of growth, and something Simon will cover in detail later on. Turning now to our balance sheet, which I'm pleased to say remains in a strong position, despite the market volatility over the past year. We monitor three key balance sheet metrics, absolute levels of debt, net debt to EBITDA, and loan to value. Through our disposals and strong earnings growth in the year, we reduced our quantum of debt by around 300 million pounds. Net debt to EBITDA on a group and proportionally consolidated basis have improved to 6.4 and 8.4 times respectively. Despite lower debt, LTV over the period has increased as values have decreased, and so consequently LTV has risen to 36%. We actively recycle capital to ensure our debt metrics remain in the right range. You saw us do this with the sale of Paddington, which crystallized total property returns of 9% per annum over its life, and we remain disciplined in terms of acquisitions. Most recently, we've acquired 150 million pounds of retail parks at an attractive blended yield of 8.1%. Over the next 12 months, you can expect us to continue to actively recycle capital. We maintain good long-term relationships with debt providers across different markets. In the year, we've continued to raise finance on good terms with margins in line with our in-place facilities. We've completed 1.4 billion pounds of financing in the year. Notably, 875 million of this was in the second half. In our joint ventures, we raised £665 million. This includes a £150 million green loan facility completed in March 2023 to support the development of Canada Water Phase 1. And earlier in the year, we completed a £515 million loan in our new Paddington joint venture with GIC. And for British land, we completed 475 million of RCFs with new and existing banks, a mix of new facilities and extensions. At March, our weighted average interest rate was 3.5%. Our debt is 97% hedged over the next year. And on average, over the next five years with a gradually declining profile, we have interest rate hedging on 76% of our projected debt. And as of March, we had 1.8 billion pounds of undrawn facilities. And based on our current commitments, the group has no requirement to refinance until early 2026. So in summary, we've delivered another year of solid earnings growth. We have a strong balance sheet and excellent liquidity. And lastly, we have a high-quality development pipeline that we expect will deliver significant future returns. Thank you. I'll now hand 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 activity in our key markets. But first, let me take you through our valuations. Overall, we've seen a valuation decline of 12.3%. This was due to yield expansion of 71 basis points across the portfolio, reflecting challenges in 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 ELVs of 2.8%. The valuation of our campuses was down 13.1%, following outward yield movement of 70 basis points. However, rents grew by 2.6%, following our positive leasing activity, which I'll come back to in a moment. Of course, the movement in exit yields is magnified on development site values, which were down 15% in the year. But as you heard from Bhavesh, there is still significant profit to come on these schemes. In retail and London urban logistics, we've seen a decline of 10.9%. In retail parks, we previously said that our activity would start to drive rental growth. And that's coming through now at the upper end of our guidance range at 2.8%. London Urban Logistics are down 24.2%. The increase in yields on our logistics assets was 187 basis points. However, because we were conservative in our development appraisals on acquisition, the exit yields used for our GDVs have only moved around 75 basis points. This, combined with the fact that we've seen very strong rental growth in London of 29.4% over the year, means we're still expecting attractive returns from our development pipeline. So despite the tough macroeconomic backdrop, we've seen rental growth across all of our key target markets. Now the capital markets have obviously been through a period of significant uncertainty with yields needing to reflect the movement in interest rates. There was speculation last year on how long this would take to feed through to our valuations, but we've seen a relatively rapid expansion across all sectors of between 75 and 100 basis points. This can be seen in the overview of agents' prime yields shown in the table on the slide, which corresponds to what's come through in the MSCI data and also what we're seeing in the market at the moment. For retail parks, there's been a very noticeable uptick in activity, with competition in the market continuing since the year end, meaning that we're currently witnessing a compression in yields. In London offices, there's been less transactional activity. However, following the significant repricing, there are recent signs of increasing investor interest. But it's important to note that the structural evolution we've seen in offices since COVID is very much at the forefront of investors' minds, with their focus on high-quality buildings with strong sustainability credentials. Now, obviously, we need to see this interest turn to activity over the next few months for there to be more clarity on pricing levels. But what I can say is that the occupational picture, as always, will be an important factor in terms of market confidence. And here we're seeing some very good levels of activity. We've seen strong leasing volumes across our portfolio with deals on over a million square feet on rents totalling £68.4 million at an average of 11% ahead of ERV and 18% above passing rent. We also have a further 106,000 square feet under offer at 8.6% ahead of ERV, demonstrating the continued demand for best-in-class office space and our campus proposition. Storey occupancy is at 93%, following 146,000 square feet of leasing activity, combined with a very strong 76% retention rate. And we've had continued leasing success at our developments. We've already let 65% of 3 Sheldon Square at Paddington to Virgin Media O2, building on our successful leasing of over a third of the office space at Norton Folgate to Reed Smith. This supports what we've seen across the London market with continued evidence of the bifurcation of best-in-class and secondary office space. The latest analysis shows that BREEAM certified buildings command a 12% rental premium and a 24 basis point yield premium, showing that quality and sustainability are important characteristics for occupiers and investors alike. And if we look at net absorption rates, as shown by the CoStar analysis on the slide, five star buildings defined as best in class and highly sustainable have strong positive net absorption in contrast to the rest, which has seen negative net absorption since the pandemic. When we drill into this analysis further, we see this trend applies to both the city and the West End, with positive net absorption for five star buildings, showing that the trend here is quality, not geography. This is exactly what we're delivering on our campuses and across our committed development programme of 1.8 million square feet, where we're now 46% pre-let, including the space let at Norton Fulgate, 3 Sheldon Square and here at 1 Broadgate. And we're having very positive discussions on the remaining space, with over a million square feet in negotiations on the committed and near-term pipeline. We're delivering into an increasingly supply-constrained market, where, quite simply, occupiers are prepared to pay for the best. And this underpins our confidence in our development returns going forwards. Now, an exciting part of our strategy is the leveraging of our campus proposition to expand into innovation and life sciences, where we're focusing on delivering best-in-class space within the Golden Triangle of Cambridge, Oxford and London. We think that this is most clearly demonstrated in our plans for Regent's Place. Here we have a 13-acre campus sitting in the heart of London's Knowledge Courser, close to a range of academic and research institutions including UCL, the Wellcome Trust and the Francis Crick Institute. We have an opportunity to deliver 700,000 square feet of lab and innovation space, including exciting plans for Euston Tower and 120,000 square feet of labs within existing buildings. of which half is either completed or on site at 20 Trident Street and 338 Euston Road, where relation therapeutics who work in drug development are already in occupation. This drives good economics for us. Relative to traditional office rents, lab-enabled and fully fitted space commands rental premiums of around 20% and 50% respectively. This is net of the amortisation of additional fit-out costs, which are around £75 per square foot for enabled and £150 per square foot for fully fitted. In addition, there's potential upside with improved yields, enhancing our capital return. Simon will talk more about this part of our strategy in a moment. On sustainability, we continue to make good progress towards our net zero targets. 45% of our standing portfolio is now APC A or B rated, up from 36% last year. In our campus portfolio, we're 50% A or B rated, and our pathway is very much built into our asset management activity as standard. For example, we've already installed heat pumps into five of our buildings, with a further plan for four buildings next year. A great example of our progress is our all-electric refurbishment at 3 Sheldon Square, which includes the installation of air-source heat pumps, reducing operational energy demand by over 40%, a key reason behind Virgin Media's decision. Moving on to retail, we've had another record-breaking year on volumes, with 2.4 million square feet of activity at nearly 19% ahead of ERV. Momentum which is continuing with a further 800,000 square feet under offer at similar premiums to ERV. Much of this is driven by the performance of the retail parks, where we're seeing our activity now start to feed through to rental growth, as I mentioned earlier. And we have a very strong position on the ground, having driven occupancy up to 99%. As you know, we believe retail parks are clearly the winning retail format in the UK. They're affordable for our customers, with very low occupational costs of 9%. They attract a diverse occupier base, appealing to omnichannel and value retailers alike. And they aren't oversupplied, accounting for just 10% of total UK retail footprint. Our experience and market leading position here means that we're very well placed to price new products. We've made another £150 million worth of acquisitions this year at a combined yield of 8%. And also that we've got the ability to do a huge amount of repeat business with retailers, which has been a key factor in driving our occupancy. Let me quickly show you what this actually looks like on the ground. I'll start with the big one, Glasgow Fort. 32 deals this year on 167,000 square feet of space, including deals with Zara, who doubled their footprint. 100% let once we complete our under-offer deals. Speak, Liverpool, 16 deals on 97,000 square feet, 100% let. Chester, eight deals on 24,000 square feet, 100% let. Biggles Wade, which we bought last year, we've done three deals in total. One 10,000 square foot deal this year, meaning we're now 100% let. Walsall, three deals on 20,000 square feet, 100% let. And Giltbrook, Nottingham, seven deals on 89,000 square feet, 100% let. Now with occupancy of 99% overall, obviously I could go on. But hopefully you can see this puts us in a really strong position as we head into FY24. Let me turn to look at London Urban Logistics, where we continue to focus on two key types of product, Zone 1 in the very centre of London and multi-storey within the M25. The fundamentals remain very compelling, with a wider range of occupiers competing to find last-mile solutions. And with a chronic undersupply of modern space across Greater London, vacancy is 2.3%, and in Zone 1 it is only 0.4%. This type of space in these locations drives greater efficiencies for operators, which means rents are affordable, and combined with the low levels of supply, why we continue to see strong rental growth performance. We've made excellent progress in our development pipeline. We have a total of 2.9 million square feet with a GDV of 1.3 billion, and already have 2.1 million square feet of this in planning. including the very recent consent achieved at the Box of Paddington, which Simon will speak more about. We've also submitted planning applications for Verney Road and Mandela Way in Southwark, as well as Thurrock and Enfield, with a further 750,000 square feet of projects where planning submissions are being progressed. And as I said earlier, the fact that we were conservative on exit yields and we continue to see strong rental growth means project returns remain attractive. Before I hand over to Simon, I want to briefly touch on our shopping centres. We've made good progress on our leasing with 990,000 square feet of leasing deals on 18.5% ahead of ERV. Occupancy is 94.1% and we have a further 274,000 square feet under offer at an average of 9.1% ahead of ERV. As you've just heard, we prefer the fundamentals of retail parks and view this element of the portfolio as subscale and non-core. Therefore, we will opportunistically look to sell over time, as and when liquidity returns to the market. In the meantime, we'll continue to drive healthy cash flows and occupancy levels. So to wrap up, all sectors of our business are performing well occupationally, and we're driving ERV growth across all of our key markets. Our campus proposition is continuing to deliver, as businesses focus on best-in-class space. And we leverage the model into life sciences and innovation. Retail parks are the preferred format for retailers, demonstrated by 99% occupancy and rental growth returning. And we're making good progress on the London urban logistics pipeline, where the fundamentals remain very compelling. Now I'll hand you back over to Simon for an update on strategy.

Thank you, Darren. To succeed in real estate, I believe you need to be in markets with favourable fundamentals. Markets where you already have or you can credibly build a market-leading position. This gives you pricing power. So let's talk first about the supply-demand fundamentals in our markets. As you've just heard from Darren, we've been able to grow rents and lease space ahead of ERV in all of them. Post-pandemic, virtually every business is reevaluating what they want from their workspace. They may want slightly less space due to hybrid working, but they're very clearly doubling down on quality, amenity, sustainability, and connectivity to attract and retain talent. There is limited supply of this kind of space, as you know. For example, BREEAM outstanding buildings make up just 5% of the stock. our campuses are benefiting from this favourable dynamic. And they're also ideal for attracting customers from innovation sectors like life sciences, where supply is highly constrained in the Golden Triangle. Retailers are closing in town centres and secondary shopping centres, but they're opening in retail parks. This net absorption of space is causing rents to grow. Our 99% occupancy and deal pipeline suggests this growth will continue. And in urban logistics, you can see that rents have grown very strongly, and we expect them to continue to grow. Why? Because of lack of space and growing demand for priority delivery. Also, the electrified facilities in central locations, like those we're providing at Paddington, significantly reduce transport costs as well as carbon emissions and pollution. So the fundamentals of our chosen markets look attractive. But what does our competitive position look like and how are we planning to strengthen it? We are already the market leader in campuses. We're building on this with our development programme. This includes exceptional schemes such as 1 Broadgate, 2 Finsbury Avenue, 5 Kingdom Street and of course Canada Water. We've made good progress in life sciences and innovation and have a clear ambition to be the leading UK REIT in this space. I'll talk more about our lab pipeline in a moment. In retail parks, we're already the largest owner and operator, and we're taking advantage of the dislocation in capital markets to acquire further assets at attractive pricing. In London Urban Logistics, we've assembled a pipeline of opportunities with an end value of 1.3 billion. Clearly, there are numerous successful operators in the urban logistics space, but very few in our chosen segments. Those are central London, specifically Zone 1, and multi-storey. In Zone 1, we're using our London development expertise to convert assets such as the Finsbury Square car park. Multi-storey is well established in other densely populated cities, but is a nascent market in London. We believe our planning capabilities and expertise delivering complex developments give us an edge in this market. As we deliver on our strategic priorities, the shape of the portfolio will change. We will look to source further retail parks and urban logistics sites at attractive pricing and use our placemaking credentials to unlock campus opportunities in the Oxford Cambridge Arc. On the development and asset management front, we will build out our campus and urban logistics pipeline and increase our weighting to the innovation sectors. This activity will be funded by continuing to sell mature office assets where we've delivered our business plan. We'll also recycle out of non-core assets such as shopping centres when pricing and timing is right. For some time, we've been targeting innovation businesses on our campuses. We believe they will be a key growth driver of the UK economy. We think of innovation in terms of four broad, often overlapping categories, data science, physical science, life science, and sustainability, as you can see on the screen. Today, I'm going to focus on life science, as I know this is an area you're interested in. Let's start by looking at the fundamentals. Part of the opportunity stems from the relative immaturity of the sector in the UK. We are perhaps a decade or more behind the US. For example, space per capita is around three and a half times higher in the US. And scientists' salaries in the US are nearly double those in the Golden Triangle. This makes the UK an attractive place for businesses to locate. Clearly, this sector has not been immune from the recent reduction in venture capital funding. However, the funding is still 22% ahead of pre-COVID levels, and there is a clear upwards trend. These factors, combined with the acute shortage of labs in the Golden Triangle, create the supply-demand imbalance that we look for in our markets. And we have the key ingredients to exploit this. Our campus model is ideal for the clustering and collaboration which is crucial in life sciences. Over the last two years, we've been building the technical and operational capabilities to support these businesses. We also receive invaluable input from our innovation advisory council, which includes leaders in biotech, healthcare, and venture capital. Another key factor is proximity to major research institutions and teaching hospitals. We're benefiting from this at Regent's Place. And speed to market is very important, so being able to convert office space at Regent's Place and deliver modular labs at Canada Water really helps. We will have nearly 200,000 square feet of labs delivered by the end of the year, and this space is already leased or under discussion. Our pipeline extends to 1.9 million square feet, the vast majority in the Golden Triangle. We aim to expand this via some early surrenders of office space at Regent's Place and by using our placemaking skills to unlock opportunities in the Oxford Cambridge Arc. Let's now turn to sustainability. As you can see, our sustainability targets are now grouped under three key pillars. Greener spaces, thriving places and responsible choices. As well as being the right thing to do, our strategy drives commercial advantage. Greener spaces command a rental and yield premium. Thriving places drive customer retention. Responsible choices is a given. We will publish more detail in our sustainability accounts on the 9th of June. But for now, I'd like to share an example of our sustainability strategy in action at Paddington. We've spoken a lot about the transport savings that urban logistics operators can generate from being close to customers, but sustainability is an equally important factor. Minimising carbon emissions and air pollution are key objectives for central government, the Mayor of London and the London boroughs. We were delighted to receive planning earlier this month for our Paddington box under 5 Kingdom Street. This will provide for a fully electrified fleet of 240 cargo bikes. This takes 100 diesel vans off London's roads and reduces carbon emissions by up to 90%. That's a saving equivalent to three times the carbon absorbed by all the trees in Hyde Park. Turning to the outlet. I highlighted in November that forecasting the macro environment is pretty tricky, and I'm not sure it's got much easier. But again, I want to share with you our central case. As you heard from Darren, yield pressure has eased in recent months, and there are early indications of yield compression for retail parks. In terms of rental growth, at our campuses, we continue to benefit from demand gravitating to the best space, and we're sticking with our forecast of two to 4% growth. In retail parks, we are increasing our forecast from 1-3% to 2-4%, supported by high occupancy rates and our deal pipeline. And in urban logistics, we're projecting growth of 4-5% per annum. So in summary, we've delivered a strong operational performance, we're in the right markets, and we can drive significant value by recycling out of mature assets, building out that development pipeline, and enhancing our leading position in retail parks. Thank you for listening. Bhavesh and Darren will now join me on the stage, and we're happy to take any questions. So I think we will have questions in the room on the lines and on the webcast, but let's start with the room. Any questions out there?

Good morning. Just a quick question regarding cost guidance. You're expecting rental growth to be relatively positive this year, finance charges to remain flat. Given your EPR earnings guidance is flat, does that mean we're expecting a jump in costs this year?

Are you talking upper cost ratio or absolute costs?

Absolute costs and administrative costs.

No, we look to drive that to be broadly flat. So you see the guidance on the back. We're still operating in an inflationary environment, but we've had really good bottom-up cost discipline throughout the year, and we'll continue to deploy that day-to-day. Looking forward.

Good morning. Mark from Bank of America. Just wanted to understand what is the difference between your reported LTV at 36 percent and the EPRA LTV at 40 percent, which seems to be full percentage point gap, while for LANDSEC it's only one percentage point gap? Just trying to understand that.

MR. It's just working capital. So the EPRA definition of LTV includes working capital, and that's the only difference.

And that working capital is coming from your development pipeline?

Well, it's a function of our net creditor position. We have people owing us before we pay.

Yeah, but usually it's related to your development business.

Exactly. But it's purely definitional, right? It's just the net working capital position is negative, and that's the math.

Yeah, which is cash. Many of the items in there are non-cash. When you look at the other payables and you go to the back, you'll see a number of items there are non-cash, like deferred income, et cetera. So have a look at the note in the back.

So you're saying it's non-cash?

There's a big element of it that's non-cash, yeah.

So a price taking you on board, non-cash?

Yeah, because it takes other creditors and some of those items in other creditors are non-cash items.

We'll take you through it after Mark, and we're going to walk you through it.

Okay, yeah. I'll have to review my accounting courses. Can you give us a little bit of color on your internal rate return at 15% still stable for your urban logistic business? you have marked down pretty significantly those assets, and I was wondering how you can stick to your 15% number, and if you can give us a breakdown, rough breakdown, between starting point, initial yield, rental growth, is it leveraged or unleveraged, and if there is assumption of a higher terminal value or yield compression in the end. Sure, happy to do so Mark.

So those returns are unlevered IRRs to start with. You've seen the value of the portfolio, so if you think this is effectively development sites, either existing assets that are going to be intensified or they are land that's going to be developed out or other assets that are being converted. So as with developments where we've seen the yields move on the exit values or terminal values, that's had a multiplied effect on the land value so crudely our land values are down about 60 million but if you look at the development profit to come it's about 350 million across those schemes so there's still a lot of return and the reason why those returns still look so healthy is that when we bought those sites we assumed yields would move out not by the extent that they have but as Darren had in his presentation yields moving out sort of 75 basis points was our assumption at the time the market was three, three and a quarter and we assumed three and three quarter four percent exit yields but we benefited on the rental growth the rental growth has been much stronger than we underwrote you saw that in the period at thirty percent so that still creates really healthy returns and as I spoke about in my presentation this is a product nascent product zone one in london and multi-story more over the greater london but with the transport savings and the air pollution that can be reduced these are in demand facilities

Hi, thanks. I'm Sam Knott from Kalytics. I just had a question on the direction of movement on LTV. Obviously, that's expanded. Was that an active choice by you because of the acquisitions available, or purely do you view that as being sort of incidental due to property values? And then if you do have acquisitions available, how high are you willing to push that before you think investors will get concerned by the level of LTV?

So we manage LTV through the cycle as you'd expect LTV to move as yields moved, and that's exactly what's happened this year. Our balance sheet's in a strong position. We look at LTV. We look at net debt to EBITDA. We look at absolute net debt, and we're comfortable with where we're at. Manage LTV to a range of 30% to 40%. It will move as yields move because that's the mechanics of the math. You've seen us with LTV below 30%, so last year when we sold Paddington, we were at 28%. It may trickle above 40%, but as long as net debt to EBIT does in a strong position, which it is, we're in a comfortable place. We have sufficient capacity this year to continue on with our committed developments. We've got about 300 million of CapEx to come on our committed developments, and we'll keep momentum on that.

Okay, thanks. And then one point on the retail parks. So you have sort of 99% occupancy, 100% in some areas. Is there a concern that being so highly occupied, you sort of lack flexibility? Have you had any customers come to you wanting more space with an inability to get that? Would it be better perhaps to work at a slightly lower occupancy if you could push rates higher?

Well, it's a high-quality problem. It's the first thing to start off with, high occupancy levels. I should probably remind you, we've always got a peel-off rate of leases expiring. So you never completely stay at 100. You've always got fresh pace coming up. And it's very healthy to be able to say to an occupier, look, we've only got one unit coming up. We haven't got two or three, and that's your only choice. And it's a competitive environment, which is why we're seeing very big numbers versus ERV and why we've upped our guidance on growth.

Any other questions in the audience? No? OK. Oh, sorry, there's one there.

Just a follow-up question on your leverage. Given what you said, you have committed CapEx, and potentially, I mean, we don't know where values are heading, but there could be more downside. What's the strategy in terms of capital allocation? Are you going to be net sellers for the next 12 months, or are you going to continue to look at opportunities if they arise? you know, what's your kind of threshold or limit?

Well, as I, as I said in my prepared remarks, we will look to sell, um, and, yeah, so yes, we will look to be net sellers over the next 12, 12, 12 months or so. We've been exactly as you saw us do in the last 12 months. We bought well in the back half of the year, in a period of market turbulence, we bought around 8% yield. for the first half of the year we sold very well as well with paddington where we sold at a four and a half percent yield so we're net sellers this period we and that discipline if i we think about deploying capital we'll continue to focus on that as we look ahead any other questions in the room no maybe we go to the lines have we got any questions on the lines at all

Of course, thank you. If you'd like to ask a question via the telephone lines, you can press star followed by one on your telephone keypad now. We have our first question from Rob Jones of BNP Paribas. Rob, your line is open. Please go ahead.

Great, thank you. Morning, team. Two questions from me, one following up from Mark's question earlier around the urban logistics portfolio. And potentially it's just a yes-no, which is if you hold all your current assumptions in terms of the returns you're going to generate, for example, rental growth on your urban logistics portfolio, cost to obviously deliver the schemes, et cetera, do you need exit cap rates to be lower than where – urban logistics in that location would be marked today, i.e. do we need individual shifts to get to the 15% IRR? And then the second question was around shopping centres appreciating a relatively small percentage of your portfolio. But Simon, you said, and I quite like this phrase, retailers are closing in shopping centres, opening in retail parks. Now, clearly a big beneficiary of that is British Land. But on page 12, you say we're actively managing our shopping centres, improving occupancy, ERV's up for the first time in five years, page 17, and says solid operating performance. So I guess if we're seeing retailers closing shopping centers, does that mean your vacancy went up during the period? Or actually, is there a bit of a different story there?

Sure, I know. Morning Rob, happy to take both of those. On the urban logistics IRRs, the IRRs that we're quoting and on the three schemes that are in our near-term pipeline, they're a bit higher than the 15%, they're actually at over 20%. That's based on exit yields today. So in London, that's effectively four and a half, four and three quarters today. deliver those returns. And then on the shopping centres, I'm not sure exactly what I said, but what I meant to say was secondary shopping centres is where we're seeing them close at the moment. So we're seeing them move out of the high street, we're seeing secondary shopping centres, retailers move out of those into retail parks and that's certainly helping us. And then we've actually moved occupancy up a little bit in our shopping centre portfolio, not to the same extent as the retail parks, but I think, Darren, we're about 94, 95% on.

94, Meadowhall's 96, the occupancy's holding up pretty well, they're prime. I mean, we're saying non-core, it's 8% of the group, and we've got some very good centres, but it's subscale for us, as we said in the prepared remarks, and we just prefer retail parks. We've got scale there, we're the market leader in terms of volume owned. and that's the direction of travel.

Great, thank you for the clarification. No problem, Rob. Any other questions on the line?

Yes, so our next question comes from Kuen of Kemp & Co. Yeah, your line is open. Please go ahead.

Hi, good morning. Just one question. Stating to be a net seller, that obviously does not preclude you from doing some acquisition. Where do you feel at the moment the best risk first return is in terms of opportunities available?

A great question there. I think there's a number of opportunities that are emerging. As Bhavesh flagged, you saw us deploy into retail parks. At the moment, we think that's probably one of the best uses of capital. If you're getting an 8% net initial yield and you're also likely to have rental growth of 2% to 4%, as we're forecasting, that gives you a very attractive total return. that gets into double digits, and that's before assuming any yield compression. And as Darren flags, we know that space very well and very good at underwriting those deals. So that would be one area. I also flagged in my presentation that at the right pricing at the right time, I think looking at further urban logistics sites, given some of those returns we've got on our own portfolio, that would be of interest to us. And then less capital intensive and more longer term opportunities where we're really leveraging our placemaking capabilities and site assembly as some of those regeneration opportunities like a Canada Water in the Oxford Cambridge Arc. So future Canada Water type schemes, that's where we're looking at the moment.

Thanks.

A quick follow-up, so... Oh, sorry, I think we lost you there. I'll maybe come back.

Were there any other... If you'd like to ask a follow-up, please dial star 1 on your telephone keypad. We do have a question from Tom Musson of Goldman Sachs here. Tom, your line is open. Please proceed.

Hi, morning, team. Thank you. Yeah, if I can just come back to the slide on net absorption between the West End and the city, which is positive for both – for the five-star space, and you sort of mentioned it's less about geography. But the valuation differential, and especially the ERV growth differential between Broadgate and Paddington was quite significant. So just interested in your view on why that is and how you think ERV growth evolves between Broadgate, Paddington or more broadly West End and city campuses from here.

Sure.

Darren, do you want to take that one?

Sure. Thanks, Tom. I mean, the story here, as we were saying on the slide for net absorption, and we're quite happy to share more with you afterwards maybe, is one of quality, and that's why we're saying for absolutely core London, then occupiers who are faced with, if you want 100,000 square feet, you've got a handful of choices in central London, very central London at the moment, across the West End and the City, and that's what we're seeing come through. If you have a look at the rental growth that we've seen over the period, it's very much a moment in time, but there's been more activity in Paddington than we've had at Broadgate over the period, but we are seeing a lot more coming through. As I said in my presentation, we've got a million square feet in negotiation. A big chunk of that is at Broadgate on new developments and the standing portfolio. And we're seeing, as we've seen in the deals that we've done this year, some quite chunky premiums to ERV. So we are expecting that rental growth to come through and stronger next year on the back of those deals, as we've said again in our forward guidance.

And maybe a slight build on that in terms of the rental growth guidance, we've got the two to 4% that and what we report through our ERV growth that does exclude ERV growth on the development pipeline that isn't included in there. So that's worth bearing in mind.

OK, alright, thank you.

Any other questions on the line? If not, I think we had one in the

No questions via the telephone lines.

Thank you. Could we have a microphone over here? Thank you.

Morning. from Barclays. Simon, I just have a question for you. Can you elaborate on your comments on yield expansion easing ahead? Is that based on conversation you're having with and your yield is currently at 5.8. Do you think it's reasonable given current financing conditions?

Thank you. Very good question, thank you for that. Overall, we feel that the portfolio has largely rebased for the higher rate environment. We saw a decent amount of yield shift in this period, 70 basis points, but that felt appropriate to us and obviously it's our valuers who come up with those numbers, but seeing 200 basis points increase in interest rates, you'd expect to see that. But we are seeing that upward yield pressure ease overall. and actually in some pockets of the market the most liquid sectors yields are coming in so certainly in the retail parks that's just based on what we're seeing on the ground today and then in London urban logistics it feels like yields are stable if anything the sentiment and this is something the value is a flagging is stronger for urban logistics and you will have rental growth coming through there so I think that will be good for values and then when we look at our our own portfolio, the campuses as well. A big chunk of our holding today is at Regent's Place and we've obviously got a pretty exciting opportunity in the life science and innovation space there. We're valued at equivalent yields of 5% or there or thereabouts and with the rental growth prospects that feels pretty good. Might see a little bit further softening in the city but we're not envisaging too much more because of what we're seeing on the occupational side. there's a really good demand for quality space and people are paying good rents for that but clearly yields are a little bit sentiment driven so we'll have to see how it evolves but when we look forward over three five year forecasting periods looking at an equivalent yield on the portfolio of five to eight five point eight percent and then with rental growth and we've guided between two and four and one uh two and four percent and four and five percent across our markets that gives you some quite compelling IRRs to look at. Now, I can't remember, do we have a webcast as well for questions can be asked? Is that you, Fran, to go to?

Yeah, so we have two from Nikita May at BlackRock. The first is, what was the all-in rate on the different debt tranches you negotiated over the year? And the second is, can you talk us through your guidance on underlying earnings being flat with costs and cost of debt being flat and rental growth expected to be positive? That's two for you.

Yeah, so the margin on our facilities was around 90 to 100 basis points. So that's around 5% if you look at where Sonya is today. And then in terms of our guidance, I'd point you to page 47 in the appendix. So if I just talk you through that. So gross rental income we think will be low single-digit like-for-like growth. nri margin as i talked about we feel um is return to a normalized level so around 88 to 90 percent um as the question earlier that was asked we'll drive to keep admin costs flat we're still in an inflationary environment so we'll push to keep our costs well under control so we're guiding sort of flat to around plus five but we'll obviously keep our our good rigor on costs there We also benefit from other income, so that's the fees from our joint ventures with Paddington and Canada Water, so we think they'll be around 18 to 20 million. And then from interest costs, as I said, we are 97% hedged over the course of the year, and so we're guiding interest costs around 110 to 115. The slight increase is a function of a mix of our hedging, so some hedging rolls off, others comes on at different strike prices, but we're comfortable with that range of 110 to 115. And don't forget, beyond next year, we also benefit from the earnings we get from our developments that come online.

A question from Hemant Kotak, Colytics. You indicate 8% to 10% equity or accounting returns. As the areas you are expanding in, life sciences and urban logistics, maybe at the upper end or above, where do offices, retail parks fit in to get a blended 8% to 10%? Related to that, what is the unlevered expectation by your major segments?

Quite a detailed question. I'll do my best to answer it. All of the returns that we quote are unlevered because we fund on a corporate basis. So as you say, the returns look very attractive on the urban logistics part of the portfolio. Life sciences should be good given some of those conversions that we can do. And then on the rest of the portfolio for core yields, I would do that maths of where's your equivalent yield? What's your rental growth forecast that we've provided there? But looking at the campuses is obviously the kicker from the development pipeline coming through. Clearly Canada Water is a major regeneration scheme and we've previously guided to low teens returns and that's what we're seeing today based on the higher yields. Those type of returns still come through because of what's happened to rental growth. And then we've got big schemes on each of our other campuses. Two Finsbury Avenue, one Broadgate here, one Appold Street as well. Then when you move to Regents Place as the Euston Tower and at Paddington, Five Kingdom Street, both the logistics box and the office scheme above. So pretty attractive development pipeline that gets us to those kind of returns. And it's a through the cycle. That's what it looks like prospectively. But clearly we've had a big move in yields in this period. So we'll need to make up ground over the next few years. And we believe we can do that when you look at that mix.

And final question from Paul Gorry at Columbia Threadneedle. Is there any additional colour on the West End office valuation decline compared with a peer who reported recently the fall of 11% in H2? Are there any asset-specific moves therein?

Sorry, was that on the West End? West End. Darren, do you want to take that one?

No, we've seen, I'm just trying to think, we've seen 70 basis points across the portfolio and actually the spread between the city and the West End, they were roughly the same. Obviously coming from different places, but as Simon was saying, I think we've ended up in the right place for both markets.

Any other questions? No. If there's none in the room, I think that's us finished. So thank you very much for your time this morning. Look forward to seeing you in the future. Thank you.