British Land Company PLC

Good morning everyone and thank you very much for joining us for our half year results. Well done for battling in against Storm Debbie. We appreciate you coming today. We'll follow the usual running order. Bhavesh will take you through the financials, Darren the operational performance and I'll wrap up on the strategy and the outlook. But before we do that, I just wanted to share the headlines. We're really pleased with the operational performance in this half. We've continued to lease well right across the business with 1.6 million square feet of leasing 12% ahead of ERV. We've also controlled costs well despite inflation and taken together this has led to profit growth of 3%. The macroeconomic and geopolitical backdrop remains uncertain as we know and interest rates have increased since we last reported. As a result, we've seen further outward yield shift of 23 basis points, though this slowed during the period. Importantly, rental growth has accelerated with ERV up more than 3% across all three of our sub markets. This has cushioned the impact on portfolio values, which were down 2.5%. In the near term, movements in interest rates, both up and down, will continue to affect property values, but rental growth is likely to be the dominant driver of medium-term performance. We're now expecting this to be at the top end of our guidance range for each sub-market. And as a reminder, that's 2-4% for campuses. 3-5% for retail parks and 4-5% for London urban logistics. Combined with a net equivalent yield of more than 6% and development upside, that makes for an attractive future return profile. A key theme today is the importance of being in the right sub-markets as bifurcation accelerates. The best parts of London are thriving. Take here at Broadgate, for example. We're at the northeast corner of the City of London, but performance could not be more different from that of the city. Rents are up nearly 4% in the last six months, and vacancy is 3%, compared to 11.5% across the city as a whole. It's a similar picture with our retail parks. They're practically full, compared to vacancy of 14% across the wider retail market. And in London Urban Logistics, there's 2 million square feet of demand that can't be satisfied compared to increasing vacancy for big box. Since we launched our strategy in 2021, our portfolio has been transformed. Campuses, retail parks and London Urban Logistics now represent nearly 90% of our business. More of this later. I'll now hand you over to Bhavesh, who will take you through the financials. Bhavesh, over to you.

Thank you, Simon. And good morning, everyone. Let me take you through our financial results for the first half of the year. We delivered £142 million of underlying profit, representing 3.4% growth in the period. driven by 2% like-for-like net rental growth and a continued tight grip on costs. Earnings per share were up by 3.4% at 15.2 pence, and we'll pay an interim dividend of 12.16 pence per share, up 4.8%. Net tangible assets were down 3.9% at 565 pence per share, The key movement was a 2.5% decrease in the value of our portfolio due to a 23 basis point increase in yields, which is partly offset by strong rental growth. LTV increased marginally to 36.9% as the impact of value declines was cushioned by disposals we executed at good prices and the surrender payment we received at one Triton Square. Group net debt to EBITDA also improved to six times. Let's look at net rental income growth, starting on the left of the slide. Net divestments resulted in a negative £6 million to the combination of our well-timed disposal of a share in our Paddington campus and nearly £150 million of retail parks acquired over the last 18 months. Developments reduced net rents by £5 million due to works commencing on the refurbishment of 3 Sheldon Square at Paddington and a rates rebate for Euston Tower received last year after we derated it for development. Provisions for debtors and tenant incentives were a £9 million benefit. Although our rent collection has returned to pre-pandemic levels, in this half we received a payment from Arcadia due to a strong lease guarantee we had negotiated that allowed us to collect close to 90p on the pound on the sums that were owed to us. We also delivered a 4 million pound increase in like-for-like net rents in the period. Let me now take you through the drivers of this. On campuses, strong leasing, particularly at Broadgate and Paddington, delivered 4.5 million pounds of like-for-like growth. And our campus occupancy now stands at 94%. Lease events can be lumpy, and we saw 4.1 million pounds of campus expiries in the period, mostly at Regents Place, whereas leases have run off. We have chosen to convert some of the space to target innovation and science-based occupiers to drive higher rents in the longer term. Story has also been impacted by the timing of expiries and had negative 2 million of like-for-like income. Due to the timing of expiries at space, we expect to fail in the second half. We're pleased that storey rents continue to be at an average 18% premium over traditional office net effective rents. In retail and London urban logistics, we delivered 6.4 million pounds of like-for-like growth. We continue to see strong leasing, keeping our retail parks full, and filling vacant space in our shopping centres. Darren will take you through our operational performance in more detail shortly. Turning to our income statements, starting with the gross rental income. Like-for-like growth partly offset the impact of the Paddington disposal in July last year. And as a result, gross rental income was down 2.8% in the period. Property operating expenses reduced by 38% as a function of strong occupancy and the impact of collections I mentioned earlier. As a result, our net rental income margin improved by 340 basis points to 93.9%. Fees and other income increased by £2 million, with good activity in our Broadgate and Paddington joint ventures. Administrative expenses were also down half on half at £43 million as a result of our ongoing focus on cost control. I'm pleased that our actions in the half have reduced our EPRA cost ratio to 14.8%. And whilst we have benefited from some one-offs and a half, we still expect our full-year upper cost ratio to improve year on year. Net finance costs were £57 million, up only £1 million. Our hedging provided protection despite significant increased market rates through a mix of fixed-rate debt, swaps, and caps. We were fully hedged in September and 99% hedged for the next six months. Our weighted average interest rate at September was 3.4%. Underlying earnings per share was 15.2 pence, up 3.4%. Our dividend policy is to pay 80% of underlying earnings per share, resulting in an interim dividend of 12.16 pence per share, up 4.8%. This is higher than EPS growth as a result of the rental concession restatement made in the prior period. Moving on to NTA. Property valuation declines, reflecting the impact of rising interest rates on real estate asset yields, the dividend paid, and other movements together reduced NTA by 51p. This was partly offset by underlying profit and the surrender premium we negotiated at one Triton Square. And Darren will provide more detail on that shortly. As a result of these movements, NTA declined by 3.9% to 565 pence, and our total accounting return was a negative 2%. Turning now to our balance sheet, which I'm pleased to say is in good shape. We continue to have excellent liquidity. In September, we had £1.7 billion of undrawn facilities and cash. And based on our current commitments and debt facilities, we have no requirement to refinance until mid-2026. In August, Fitch affirmed all our credit ratings, including senior unsecured at A with stable outlook. We've completed £600 million of financing activity. For British land, we extended £250 million of bank revolving credit facilities in the half. and post-period end raised four new term loans totaling £350 million, all to 2028. The stat, which is unsecured and flexible, continues to support our strategy and has the same financial covenants as all of our unsecured finance, with no interest cover covenants. At September, our headroom to covenants remained significant at 45%. Net debt to EBITDA on a group and proportionally consolidated basis have improved to six and eight times respectively, while LTV was marginally up at 36.9%. Let's look at movements in LTV, where we've kept a tight focus over the period, despite rising market rates, which impacted yields. Our portfolio valuation increased LTV by 140 basis points. Acquisitions and investments in our committed development pipeline together increased LTV by a further 210 basis points. This was largely offset by disposals of the non-core office and data center portfolio and receipt of the one Triton Square surrender premium. And as a result, LTV increased 90 basis points to 36.9%. I wanted to remind you of our capital allocation framework and how we executed our strategy in the period. The resilience of our balance sheet is of utmost importance, and it gives us the flexibility to invest in opportunities as they arise. As I just outlined, we are pleased to have strengthened it into half with the disposals and the surrender receipt, and will continue to actively recycle provided the pricing is right and market conditions permit. We remain selective and disciplined in deploying capital into future acquisitions. We acquired Senate Retail Park for a net initial yield of 8.1%. And we continue to see investment opportunities with strong returns. We also have an attractive development pipeline. In addition to progressing our committed developments, which we expect will deliver 71 million pounds of future rents, we also committed to the Peterhouse expansion in Cambridge. We remain committed to shareholder distributions and have grown the dividend 4.8% in the period to reflect the strong operating performance of our business. Developments are a key driver of our long-term value creation, and we believe we can still make good returns provided we remain disciplined in our approach given the changing economic backdrop. Higher market interest rates have increased exit yields, finance costs, and returns hurdles. We now target IRRs of 12 to 14% on our campuses and mid-teens on our London urban logistics developments. Our development pipeline is focused on super prime campuses and London urban logistics. Both sub-sectors where supply of high quality new space is constrained. As a result for our best games, we are securing higher rents, which combined with a leveling off of construction costs can deliver returns above our hurdles. Let me update you on our development pipeline. On our innovation and life sciences pipeline, as I mentioned earlier, we recently committed to the Peterhouse expansion in Cambridge, where the supply of innovation space is constrained and we're already having encouraging customer conversations for our pre-lets. At Canada Water, phase one of the master plan is on track. We expect the office and residential plots A1 and A2 to be delivered in Q4 2024. and the affordable housing which is pre-sold to the London Borough of Southwark will complete later this year. On our campuses, we are completing the enabling works for 2 Finsbury Avenue and making good progress on pre-let discussions at strong rents where we expect to achieve an IRR in line with our revised hurdle rates. In urban logistics, we anticipate starting on site at The Box at Paddington and Mandela Way, Southwark early next year. DeBox will be one of the best, most sustainable last mile logistics facilities in central London, and Mandela Way will be one of the first of a new generation of multi-story warehouses. We expect them to generate strong IRRs above our mid-teens hurdle. Overall, our development pipeline is well-placed to generate future returns, and our development profit to come is £1.4 billion. Let's now look at our FY24 underlying profit guidance in light of the capital activity we have in the period, starting with gross rental income. The surrender of the lease at 1 Triton Square in September and net divestment in the period will reduce net rents in the second half. However, we expect an improvement in our net rental income margin as a result of the Arcadia payment. We improved our guidance range for administrative expenses as we kept a tight grip on costs. and expect fee income to be in line with our first half performance. Finally, we expect finance costs to reduce slightly as a result of the disposals executed, the surrender premium we negotiated in the half, together with our hedging, which provides protection from further movements in market rates. Overall, we are comfortable with current market expectations for underlying profit. So in summary, we have delivered good earnings growth, We have a resilient balance sheet and excellent liquidity. And we maintain a disciplined approach to capital allocation to drive future returns. Thank you. I'll now hand over to Darren, who will provide an operations and market update.

Thank you, Pivesh. Good morning, everyone. Let me start with valuations. there's been a significantly slower decline than we saw in the second half of last year, with values down by 2.5% overall. This reflects a 23 basis point increase in yields, which was partly offset by 3.2% ERV growth across the portfolio. In campuses, values were down by 4%, with yields moving out 32 basis points. However, we saw rental growth of 3.2%, backed up by strong leasing, which I'll come on to in a moment. Values in retail and London urban logistics have stabilised in the period, as marginal outward yield shift of 12 basis points was offset by very good rental growth, particularly in retail parks, which is in line with our revised upwards guidance. Taking all these movements together, the portfolio net equivalent yield stands at an attractive 6.1%. And we've seen rental growth across the whole portfolio, demonstrating that we're operating in the right parts of the market with the strongest occupational fundamentals. As I said, we've had great leasing performance in our campus portfolio with deals on over 368,000 square feet at 7.5% ahead of ERV. and we've seen a noticeable uptick in demand in the period, with a further 281,000 square feet under offer at 9.7% ahead of ERV, and nearly 1.8 million square feet of negotiations on 1 million square feet of space. At Story, we've done 71,000 square feet of deals in the half, with occupancy currently at 87%. Story remains a well-evolved, high-quality flex offer, which we've been running for over six years now. We're seeing strong levels of interest with opportunities to extend across the portfolio. This activity demonstrates the continued demand for best-in-class workspace and our campus proposition, with occupiers placing huge importance on getting the best space in an accessible location with high-quality amenity and environment. This plays directly to the strength of campuses and why we're consistently reporting strong leasing numbers combined with high levels of occupancy At Broadgate, we've successfully re-let or are under offer on 290,000 square feet of space on a number of newly refurbished buildings across the campus, and occupancy is now at 97%. At Paddington, we're full, and at our development at 3 Sheldon Square, which was already 65% pre-let to Virgin Media O2, we now have a further 27,000 square feet under offer, which will take us to 86% pre-let, and we're still four months away from completion. As you know, we're repositioning Regent's Place as London's premier science campus, so occupancy is lower at the moment as we refurbish space to target both innovation and science occupiers and high levels of rental reversion. And on that note, let me take you through the activity at 1 Triton Square. This is one of two buildings Meta had at Regent's Place. The other is 10 Brock Street, which we recently regeared with them until 2029. We'd known for a while that they didn't intend to occupy One Triton, and therefore had time to work up our own plans. So to be clear, when Meta found an occupier for the whole building, for the remainder of the term, we proactively decided to take back the space, as we knew we had a much better opportunity here. With a highly adaptable shell building, appropriate for story and labs at lower levels, and best-in-class offices above, with significant flexibility to respond to market demand, and do this quickly given the building's already completed. This means we can unlock significantly higher rents, which we think could be in excess of 30% more than Mesa were paying, even higher for labs, and an exciting opportunity to accelerate our science and innovation strategy at Regent's Place, all whilst benefiting from a considerable surrender premium to supercharge the economics. Regence Place is a key part of our push towards innovation and science-based locations. It's worth reminding you of a couple of points here. Firstly, life sciences isn't just about labs, as important as they are. These companies also need HQ space. And life sciences is key, but it's just one of the innovation areas we're targeting. We also have data science and technology, physical sciences, communications, for example, and clean energy and food science, these represent a much bigger universe of companies and areas with huge growth potential. Secondly is just how important it is to sit within the knowledge quarter, surrounded by organisations like UCL, Turing, the Wellcome Trust and the Francis Crick Institute, which is why it's widely recognised as the natural place in London for businesses in these sectors to cluster. The Memorandum of Understanding we recently signed with UCL demonstrates the benefits of this wider ecosystem. It means we can leverage UCL's globally recognised brand and network, allows our occupiers access to their technical services and facilities, and means we're in partnership with an organisation that is a very effective nursery ground for the next generation of occupiers. It's worth remembering, for example, that DeepMind came out of UCL. and we're already benefiting from this, with space under offer to another UCL spin-out. Also, in the past few weeks, we've completed 30,000 square feet of lab conversions, and we're already having conversations with occupiers now that we can show them the space. Outside London, we recently signed a pre-let at the Priestley Centre in Guildford, with LGC, a leading global life science tools company, at 48,000 square feet of lab and office space, one of the largest life sciences deals in the UK this year, and at a premium for rents in the area. This takes the building to over 60% pre-let ahead of practical completion next year. And in Cambridge, as you've heard from Bevesh, We've committed to the 96,000 square foot Peterhouse expansion, the only new office and lab building to be delivered in Cambridge in 2025, and has already attracted strong interest from a mix of businesses. Now, we've also made a lot of great progress towards our sustainability targets, something which is now very much embedded as business as usual. As well as being the right thing to do, this drives commercial advantage, with occupiers wanting the best and most sustainable buildings. In 2022, 36% of the portfolio is A or B rated. That's now 50%, and we're on track to be at circa 60% of the full year. We originally estimated the overall cost to get an A B rating was 100 million, of which two thirds would be recovered through the service charge. By the full year, we will have committed to spend £20 million, of which 70% will be recovered. So we're very comfortably within our forecast number and absolutely confident we'll hit our targets in this area. I should mention in this half we also achieved a Grosby rating of 5 stars and our development scored 99 out of 100, making British Land a global industry leader in this space. Now, let me move on to retail. As we outlined at our Invest Today in September, and as Simon will cover shortly, parks have emerged as the winning retail format, and this sector continues to deliver. We completed 629,000 square feet of leasing activity in the period, at 14.9% ahead of ERV, and we have a further 697,000 square feet under offer, at 19.3% ahead of ERV. Occupancy remains high at 99%. reflecting strong demand from retailers who prefer the format, and which led us to upgrade our ERV growth guidance in September. For shopping centres, leasing activity was 500,000 square feet, at 13.1% ahead of ERV. This activity improved occupancy, which is now at 97%, and for Meadowhall, we're the highest it's been in a decade, following two large deals with Fraser's and Zara. While shopping centres are generating good returns for us, as we've said previously, we prefer the occupational fundamentals of retail parks, where we also have scale and the market-leading position. Therefore, we've identified shopping centres as non-core and intend to exit, but at the right time and obviously at the right price. Turning to logistics, to remind you, we have a pipeline covering 2.9 million square feet with a gross development value of £1.3 billion. These are all state-of-the-art schemes in London targeting last mile occupiers, looking to optimise their distribution networks, lower costs and reduce their carbon footprint by using more e-vehicles. We've made significant progress in the half. The box at Paddington, Mandela Way and Enfield all achieved planning consent. Together they account for 730,000 square feet. In addition, we've submitted plans for the schemes at Verney Road and Thurrock. These two total over 840,000 square feet, so it would take us to over half the pipeline with a planning consent. We continue to expect strong returns on these developments. Rental growth has exceeded our expectations, and we've used our development expertise to increase the density of the schemes we've taken to planning by nearly 15% relative to our underwrite. We've shown the returns here for our upcoming commitments to the Box and Mandela Way. As you can see, these are pretty attractive, even off their original purchase prices. So our business continues to perform extremely well occupationally with very strong leasing progress, 2.7 million square feet exchanged or under offer in six months, all at significant premiums to ERV. Because we're operating in the right areas of the market, innovation in campus space, where we're seeing increasing levels of demand, retail parks, the preferred format for retailers, and London Urban Logistics, where we've made strong progress with our development pipeline. Now I'll hand you back over to Simon for an update on strategy.