Great Portland Estates Plc

Thank you very much for joining us for our interim results presentation. It's great to see you all and we really appreciate the time that you give us. So thank you for coming along. Now, first of all, I'm going to start by summarizing some of the key messages that we'll be giving you over the next 30 or so minutes. And essentially, we have carried on where we left off at the year end, successfully executing on our growth strategy. You'll hear about our strong operational performance so far this year, delivering some excellent leasing well ahead of target and leading us to reiterate our rental value growth guidance We've made further accretive acquisitions and significant sales ahead of book value, and our developers have created more premium spaces timed to deliver into a market that is starved of such quality, meaning that we are well set to deliver both strong income and value growth. So to help us tell this story, we have a full agenda as ever for you this morning. I'll start with a reminder of how we're delivering on our very clear strategy before giving you an update on our market opportunity. I'll then run through our successful six months of acquisitions, sales, and developments before Nick looks at our exciting fully managed growth and our results. And I'll then wrap up with our outlook before opening the floor to you for Q&A. As ever, we have the full executive committee team here to help answer any questions you have. Plus, we also have our newly promoted Rebecca Bradley as Customer Experience Director and Simon Rowley as Flex WorkSpaces Director. And congratulations to them on their appointment. But before we get into all of that, first of all, can I just say, as this is probably Nick's last session before Pastors New, I just wanted to pay tribute to him, to thank him for his exemplary leadership across multiple facets of life at GPE. He's been a great partner to me and I know to many of you and to all of our colleagues at GPE over the past 14 years. And I know you will join me in wishing him well. Nick, thank you. So let's start then with our strategy, and to do so, I want to remind you of our investment case, essentially the six fundamental pillars upon which our strategy is built, and you can see them here. And in approaching each, it's always been about doing what we said we would do. First, prime central London. It's the largest city economy in Europe, it's outperforming the UK overall, and it has decent forecast jobs growth. And so we have been and will continue to be focused on 100% prime locations only. Second, we create and manage premium luxury offices across our HQ and our flex products. It's where the richest seam of customer demand exists and our strong leasing and rents rising supports our position. with space under offer today materially ahead of ERV, and as I'll show you later, even after substantial growth, they're still affordable, especially given the price inelastic nature of many premium customers. Third, contracyclical capital allocation. You'll recognize the chart at the top, raising capital, the green circles, and buying when markets are cheap as was the case in 2009 through 13 and again last year, developing into the inevitable supply crunch before selling completed business plans as markets recover and then returning excess capital to shareholders shown by the pink circles. We've bought well, 390 million, including capex, since our rights issue last year. We're developing some of the best space in town, covering 36% of our book, and we have rotated towards sales as we said we would, more than 290 million sold so far this year, 1.7% above book value, and including One Newman Street, the largest single asset sale in the West End year to date. Fourth, driving innovation, leading the market in the creation of sustainable spaces and in our customer experience offer. We've delivered a world first in our circular economy activities at 30 Duke Street, and our award-winning CX team is helping grow our unique flex offer towards our 1 million square foot target. And all of this activity always with a strong balance sheet and within an LTV range of 10 to 35%. So far this year, we've delivered a record financing, maintaining high liquidity and have kept LTV low at 28%. And sixth, strong EPS and NTA growth, and we're on target to deliver a 10% plus return on equity over the medium term with more than three times earnings per share growth. So then with a strong strategy and supportive fundamentals, we've had another successful period of delivering on our promises. So let's then have a quick look at our half-year results and our outperformance despite the challenging UK economic and political backdrop. Now, as you can see on the chart on the right, our excellent leasing continues. 37.6 million in six months, the same as in the whole of last year, 7% ahead of ERV, leasing faster than underwrite, and with strong appeal to AI-led customers, now up to 23% of fully managed spaces. And we have a further 10.3 million under offer today, a very strong 31% ahead of ERV. Our rental values were up 2.6%, with prime offices up 3.3%, bringing the total to 6.8% over the last 12 months. Our vacancy rate remains within our target range at 6.9%. Our customer retention rate remains high at 76%, well ahead of target. And we've made an attractive acquisition at a discount and sold at a premium. More on these deals later. Now, all of this activity has helped us deliver healthy financial results for the period. Pro forma rent roll up 29%, with our average office rents up almost 10% over the last 12 months. Our valuation was up 1.5% over the first half, with developments up 6.1%. delivering NTA growth of 2% and earnings growth of almost 85%, still with low LTV at 28%. And as we think about what next, we have created a fantastic platform for further growth. Income growth of some 64% by FY27, or more than 140% in the medium term, led by Flex. Big development surpluses of circa 300 million to come, with potential for upside from there. We'll buy more, we'll sell more, and all supported by a London economy that continues to deliver GDP growth ahead of the UK overall. So, significant growth to come. Now, talking of London, let's have a look at our markets. And in short, we expect supportive leasing conditions to continue with best rents to rise further despite the challenging macro backdrop. Now, why do we think this? In short, because supply and demand conditions in London are both supportive and much stronger than the UK picture overall. First, demand for space is strong, driven by jobs growth. As you can see in the blue bars on the right, today there are 500,000 more jobs in London than there were at the time of the Brexit vote in 2016. Oxford Economics expect the number to continue rising by some 200,000 between now and 2030, equating to roughly 20 million square feet of new demand. Second, take up remains robust with 5.1 million square feet signed in half one ahead of the 10 year average. And third, active demand, that's companies looking for space right now, is still way ahead of the long run average. dominated by banking, finance and digital sectors, with the latter responsible for some 40% of UK GDP growth, with AI-led businesses creating jobs in London today. And history shows us that two-thirds of them will only lease prime space. Plus, contrary to many commentators' perception, way more companies today are looking to expand their space take than contract it, 55% versus 14%. Plus, these companies are going to struggle to find that space. They will run into a supply drought that is extreme and shows no signs of abating any time soon. Bottom left, we've updated our forecasts that deliveries shown by the purple bars are very low, and we know that new starts are at lows not seen since 2010. And we think that commentators continue to overestimate deliveries, and CBRE's forecasts are shown here by the pink diamonds. Now either way, if you divide the long-run average take-up of 4.6 million feet per annum into the amount being delivered, we think we will need to build 84% more every year than is currently planned to meet this demand. That's as high a shortfall as we can remember. And it's not as though customers have much choice from existing space. The current Grade A vacancy rate in the core West End is only 0.3%. And so as a result, we think further rental growth is coming, focused on prime spaces and continuing the theme of the chart bottom right, highlighting the very clear bifurcation between the best and the rest that we have seen since 2023. And remember, overall, rents in London remain affordable. In both the city and the West End, they are still only 5% to 8% of the average London business's salary cost. So conditions then that most definitely play to our strengths with our 100% core prime locations, 94% near an Elizabeth Line station. So then, turning to our investment markets, and we think that there is good evidence to back up our view of six months ago that they are now recovering, albeit slowly. Capital values are rising, up 6% in nominal terms since our capital raise last year, shown on the right, driven by rental growth and tight investment supply. Prime yields, shown bottom left, are now either stable or mildly falling. Investment volumes are also up by 63% in H125 compared to last year, and many more larger lots are now trading, as you can see bottom right in the green bars, with 19 deals of over 100 million already traded so far in 25, up from 11 last year, with a further eight currently under offer. Plus, institutions are buying again, accounting for only two of the larger deals done last year, but 10 so far this year, or more than 50%. And with equity demand up since May to 23.5 billion, the multiple of demand to supply at 4.8 times remains steady and relatively supportive to pricing. And so we'll continue using these improving conditions to take more selective acquisitions and sales, crystallizing surpluses and more on this in a minute. So to sum up then with our market outlook, which supports strongly our strategy. For rents, whilst business confidence has weakened since May, healthy demand and a dearth of prime supply has helped us deliver rental value growth in our forecast range that we set out at our finals, as highlighted at the bottom, and so we maintain our expectations for this year overall of growth between 4% and 7%, driven by prime offices up 6% to 10%. Looking at yields, whilst the political backdrop has probably weakened since May, we think improvements in investor confidence and likely lower interest rates could push prime yields in further, especially where rental growth is a real prospect. So given that, let's turn then and look at our investing and developing activities so far this year. And you'll remember this slide from May, and it shows our successful deployment of the capital that we raised last year. We've added to the four deals we told you about back then with the purchase of the gable shown on the far right. So that's five opportunities acquired since May 24, all in line with our disciplined criteria, all in the West End, for a total of £180 million or £390 including capex, and at only £770 per foot and a whopping 57% discount to replacement cost. Three offer fully managed conversions, two offer major HQ repositioning, and each with attractive stabilized yields and ungeared IRRs. From here, more acquisitions. We have two deals in negotiation or under offer, all in the West End. And more sales to build on the 290 million completed so far this year, with a further 150 to 200 million in the near term and 650 to 700 million identified for the medium term. So plenty of opportunity with more to come. So turning then to look at some of the detail and starting with the acquisition of the gable shown in yellow on the map. And it sits in an area of London we know inside out and next to the courtyard, which we bought last year. We paid 18 million or only £409 a foot, some 77% beneath replacement cost and with a current running yield of 6.4% until July 26. We have two possible business plans here. First, a conversion to flex. We're in design and talking to the planners and the economics are attractive with a near 7% yield, but this does rely on vacant possession. And if the government-based customer renews their lease, we'll maintain our low risk running yield of at least 6.4% and probably hold for a future flex conversion. Now, since we saw you last, we've also sold our completed inlet development at 1 Newman Street to a UK institution shown at the bottom of the map. we received 250 million, priced off a 4.48% yield, more than 2,000 pounds a foot, and 1.8% ahead of book value. So a good sale of this completed business plan and showing both that there is liquidity at scale and strong prices for the best assets, and reaffirming our long held commitment to actively recycling capital into the next opportunities for us to drive growth. So talking of growth, let's have a look then at our development program and taken together, we now have 11 schemes with three onsite HQ projects already 71% pre-let and three further flex schemes onsite. Across our four pipeline HQ schemes, we achieved two new planning consents in the past few months. And with the gable purchased, we now have more than 1 million square feet in the program, covering 36% of our book by area and delivering into the deep supply shortage that I referenced earlier. So looking then at our onsite HQ schemes, progress has indeed been good. At 2AS, we're on time to finish in Q1 next year, although the surplus to come has reduced as the valuer has adjusted the cap rate up by 15 basis points. At 30 Duke Street, we signed our pre-let with CD&R, 6.5% ahead of ERV and nearly 12% ahead of the underwrite. As a result, we've captured some significant surplus, but there's more to come as we deliver our expected profit on cost of almost 40%. At Minerva, shown bottom left, we are on time to finish in Q1 27, and although costs are up since May, reducing the forecast profit to circa 15%, we are under offer on about 40% of the space at a substantial premium to ERV, which would drive our returns materially higher. Taken together, total area is up 66%, ERV is 174% higher, 99% of the capex to come is fixed, and we have 65 million of surplus to come of current rents and current yields. They are all prime, with exemplary sustainability credentials, and have strong pre-letting potential for the remainder, with therefore healthy upside to capture. For the next phase of our HQ programme, we have four fantastic schemes, each timed to deliver into the supply drought, with three in the West End next to the Elizabeth Line and one next to London Bridge Station. At Soho Square, we're starting imminently and strip out has begun. At Whittington, we've just received consent for our rooftop pavilion and we're on site with preparatory works for this major refurbishment. We've also finally achieved planning at St. Thomas Yard on the South Bank for an exceptional 184,000 square foot part refurb, part new build project that will be significantly more profitable than our original tower proposals and will be starting here in Q3 next year. And finally, back in the West End, our Chapel Place project is in design with planning discussions ongoing for a submission next summer. So big area and ERV gains and targeting a healthy minimum profit level, all next to major transport hubs and all with strong upside potential. Now, of course, we also have multiple growth opportunities across the rest of our portfolio too. You'll remember this portfolio stack. I've talked about our HQ developments at the top and in the middle sits our active portfolio management assets representing 50% of the book and in many ways the engine room of the business. They are full of opportunity for us to grow rents and values, for example, on-floor refurbishments and their subsequent leasing to generate some £47 million of income, capturing reversions of almost £14 million, restructuring and re-gearing our interests and prepping assets for major repositioning. And this presents us with real upside. Their valuation is undemanding at just over £1,000 a foot, but with limited capex needed. And all of them are in prime locations. And of course, they include our flex assets, covering some 29% of our total book, and where the growth potential is significant, as you'll hear from Nick in a minute. And shown in yellow is the stabilized proportion of the portfolio where we will rotate out of completed business plans at high capital values per foot, potentially releasing more than 800 million of capital to employ for much higher returns towards the top of the stack. So lots then to do for us as we execute our plan to deliver the substantial growth available to us. On which topic, and probably for the last time, over to Nick to dig into our flex options.

Thank you, Toby. Good morning, everyone. I certainly didn't need these when I started 14 years ago. Nor was I talking about our unique and well-established fully managed growth strategy, where we are successfully delivering premium hassle-free spaces for our customers. Our leasing volumes continue to grow with more than a deal a week over the last 12 months, representing nearly 90% of all our sub 5,000 square foot office lettings. Rents are growing strongly too, with these deals securing rents of £37 million and, as shown in purple, regularly achieving more than £250 a foot. As you can see top right, this is driving outsized performance well ahead of our targets. We're generating strong absolute returns, with an average yield on cost of 6.5% and service margin of 35%. And relative to ready to fit, we delivered a 103% rent beat and a 61% 10-year cash flow beat. And we've secured good lease duration too at just under three years. Our fully managed spaces are today generating 50 million pounds of annualized rent. And we're currently managing 25 million of OPEX and other costs across the categories shown in the green bar. So with a gross to net of 50%, our annualised NOI is £25 million or £107 a foot. Once we factor in capex, along with fully managed specific corporate overheads, this results in an annualised net cash return averaging £80 a foot, or 40% higher than the ready-to-fit net rent. So much higher net cash returns than on a traditional basis, and the customer base dominated by corporates, not SMEs. Our retention rate is strong at 75%, well ahead of our 50% underwrite, as our award-winning customer experience team delivers outstanding customer satisfaction. The most common driver for customer non-renewal is needing more space than we can currently provide, as we experienced with our largest departure to date, a fast-growing unicorn status AI business who we'd already moved twice within our portfolio. Pleasingly, we were able to re-let their space within a month at a higher passing rent to Vanta, another high-growth company with AI-led businesses now representing 23% of our fully managed customers. And our recently completed schemes are leasing quickly too. In the heart of Soho, Wardour Street is 100% let within two months of launch, including two pre-let floors. We've secured average rents per foot of £279, with more than a quarter of the space let above £300, together driving a valuation uplift of 10% in the half. Our customers include those we've relocated from adjacent GPE fully managed space, an occupier of a GPE developed HQ building on Broadwick Street, as well as a new customer who decided to double their space take within a month of moving in. And over at Piccadilly, which launched last month, 35% of the space is already let or under offer at an average rent of 296 a foot, although we're breaking through 400 pounds on a smaller space. So with an 11% beat to ERV and healthy interest in the balance of the building, the prospects look strong. So having more than tripled NOI over the last two years and our leasing velocity ahead of target, there's plenty more growth to come from today's £25 million. We'll generate 7 million of additional NOI as we finish leasing up the recent completions. Our three onsite schemes, all in the West End, will deliver a further 12 million, with our pipeline schemes expected to add another 15 million, taking our fully managed NOI to 59 million, so an organic growth uplift of 2.4 times. And as we execute more acquisitions, total NOI would increase to around £90 million if we grow Flex to 1 million square feet. And with more than £19 million of additional service profit, shown in blue, we'll be creating additional value of more than £200 million or more than £200 per foot. So lots more income and value growth to come on top of the strong outperformance we're already delivering with fully managed ERV growth and valuation growth of 11% over the last 12 months. Now a few comments on our overall performance in the half year. we delivered like-for-like value growth of 1.5%, as the best continues to outperform, and EPRA NTA rose 2% to 504 pence per share. As expected, and in line with consensus, EPRA EPS increased 70% to 3.9 pence, and we're paying an interim dividend of 2.9 pence. Our consistent financial strength saw EPRA LTV falling to 28.2% and available liquidity rising to more than £450 million as we transitioned to a net seller and secured our largest ever bank facility. Overall, we generated positive TAR of 3% and 7.5% respectively over the last 6 and 12 months, delivering prime spaces against a backdrop of ERV growth, with more to come as we continue to execute our growth strategy. Our opportunity-rich £3.1 billion portfolio is 83% in offices, where we experienced the strongest value growth of 1.8% and ERV growth of 2.7%, with retail ERVs up 1.9% in the half-year and fully managed rents up 3.5%. And with an overall valuation uplift of 1.5%, developments delivered the strongest performance, up 6.1%, with 30 million of surpluses captured in the half-year valuation. Yields were broadly stable, with our portfolio equivalent yield today at 5.5%, and our reversionary yield at 6.7%, higher still at 8.7% on a share price implied basis. Finally, the best continues to relatively outperform at both an ERV growth level in purple and by valuation shown in green. In particular, our West End properties, representing nearly three quarters of the portfolio, again outperformed with capital growth of 2.9%. And as we continue to allocate capital to drive value growth, our almost 700 million pound CapEx program is predominantly in the West End, combining 290 million to complete our six onsite schemes, shown in black, with approximately 400 million for pipeline schemes in gray. You'll find the usual scheme by scheme detail in the appendices. With a total GDV of £1.8 billion, we'll deliver further surpluses of more than £300 million, based on conservative 10% cumulative rental growth. And you can see by the solid line, more than £125 million should come through within the next 18 months, based on profit release at Scheme PC, although our pre-letting activities typically accelerate these. Plus, there's serious upside potential with further rental growth and some mild prime yield compression taking the surpluses to more than £500 million or 130 pence per share. On the right, our investing and leasing activities will clearly change the portfolio composition, with stabilised properties, shown in yellow, growing from 19% to 55%, all else equal. However, our recycling activities will evolve the portfolio mix further, with prospective sales of around 800 million in the next few years, meaning active portfolio management properties, shown in blue, will again dominate, with Flex also representing around 40% of the office portfolio. In reality, our sales will likely be higher still, given our disciplined capital management, as they were in the last cycle, with more than 3 billion of disposals. Plus, I imagine there'll be some acquisitions too, to replenish the GPE development hopper. Now, we'll also be driving more income growth. Like-for-like rental income was up 5% over the last 12 months, whilst rent roll was up almost 30%, standing at £127 million today following the sale of Newman Street. Over the next 18 months, this builds by more than 80 million, or 64%, and rises to around 30 million in the medium term, an uplift of 142%, including the market rental growth we expect to capture. Of course, some of this uplift will be tempered through sales of stabilised properties, but there's still lots of growth to go for, and we reiterate our guidance for a threefold increase in EPRA EPS over the medium term. Nearer term, we expect EPRA EPS to roughly double to around 10 pence by FY27 as we lease up our on-site development and refurb programme with more growth to come as we deliver our pipeline and capture market rental growth. Once we factor in finance and other costs to deliver this growth, along with our likely earnings accretive sales, we anticipate annual EPRA EPS of 15 to 20 pence in around four years time. As a result, we expect a stable dividend for FY26 with potential DPS growth thereafter. Whilst continuing to invest for growth, we've maintained our financial strength and capacity, including through proactive management of our debt profile. We've recently issued a new five-year, £525 million ESG-linked RCF, allowing us to redeem an early 27 maturing facility and repay a higher margin term loan. We've also extended the maturity of our smaller RCF and Moody's reaffirmed our BAA2 credit rating. When combined with our successful sales activity, LTV today is 28% as we continue to operate within our 10 to 35% through the cycle target range. Interest cover is strong at 15 times, with more than 450 million of liquidity, and we've extended our average debt maturity to almost six years, whilst our weighted average interest rate remains in the fours. Looking ahead, as the bar chart shows, we expect LTV to remain above the midpoint of our through the cycle range as we invest for growth in a rising market. But remember, a couple of big sales can really move the needle and give a significant incremental acquisition capacity. So wrapping up with a positive financial outlook. We expect to deliver further property value and NTA growth in the second half and beyond based on current market outlook and our active business plans. H2 EPS will likely be broadly in line with H1 and the capture of our organic rental growth opportunity will drive significant income and EPRA EPS growth moving forward. With an expected threefold EPS increase supporting our progressive dividend policy. Our through the cycle LTV range and disciplined capital management will be maintained. And through the capture of attractive prime rental growth and the delivery of our development-led growth strategy, we expect FY26 TAR to at least match FY25 as GPE moves towards delivering a 10% plus annual return on equity. And of course, shareholder returns would be higher still should the share price discount narrow. So I'll certainly be holding on to my GPE shares. And whilst I'm not leaving just yet, as Toby said, this will likely be my last set of GPE results. It's, of course, been a privilege to have been part of such an awesome GPE team. And I'm also proud of my contribution to both the strategic evolution of the business and its very special culture. But I'm also departing happy in the knowledge that GPE is in great shape with an exciting growth strategy to deliver for shareholders and customers alike. And as I look around the room with slightly blurry glasses, a massive thanks to all of you for your support, your challenge, and most importantly, your good humor and camaraderie. And given this is the 29th time that I've run through this presentation, I think it merits a very special thanks to both Stevie and to Rich and their teams for the uniquely special work that they put into putting this presentation together. Not only do I know that footnote 13 on page 99 will be accurate, I know that it will be accurate to at least one decimal place. So a massive thanks to you guys for leaving Toby and I to do the easy work of tapping the ball over the line. And as I hand back to you, Toby, I must say it's certainly been fun. You're a good man, a great colleague, and there are many things I will miss at GPE, including your exceptional taste in wine. Over to Toby for the wrap up.

But not, I should add, at this time of day. Thank you, Nick. Very good. Okay, so let's wrap up then with our outlook. And in short, it's all about delivering more growth as we continue doing what we said we would do. We think that our market opportunity is strengthening. London remains Europe's business capital, will outperform the UK economically, and will generate jobs growth, driving healthy demand for space that will collide with a supply drought, meaning rents are and will continue to rise, with the best buildings materially outperforming the rest. As a result, office values are rising, the investment market continues its recovery, with prime yield compression a real possibility. Meanwhile, we are focused fully on executing our growth strategy. First, capturing significant income growth of more than 140% in the medium term. Second, delivering development surpluses of between 180 and 520 million just from our existing program, some 130 pence per share. Third, more acquisitions. And fourth, significant further sales of more than 800 million and always operating only in prime central London, majority West End, 94% near an Elizabeth Line station. So all in all then, GPE is well set. Our operational infrastructure is in place and is delivering, and our deeply experienced team, bound together by our collegiate culture along with our strong balance sheet, will help us generate an attractive return on equity, even more so for shareholders, should our share price continue its re-rating to properly reflect the group's exciting prospects. So GPE is in great shape with all to play for, and we can look forward to capturing our strong potential over the next few years. Now, I know some of you will have questions, maybe even for Nick, last chance. We'll have some microphones running around the room. As I say, we've got the home team to help answer any of those questions that you may have. Who would like to raise something? Any hands? Yes, here at the front. Morning, Tom.

Thank you very much. Yeah, I guess I'll ask the question to Nick. It's Tom Musson from Berenberg, by the way. You talk about the big growth potential in the business, and I think a tripling of EPS probably stands alone in the sector in terms of the growth outlook. If you can achieve that, there's lots of development surplus to come that will drive NAV growth. Fully managed is a big part of that. Nick, I think you've led the charge on. So given the growth prospects, why is now the right time for you to move on from the business? And then I had a couple of follow-ups on a couple of the numbers, if that's all right, afterwards.

Sure. Well, I joined GPE 14 years ago. I thought I'd be here for five years. And I've been here for 14 years. And I absolutely love GPE. Equally, hopefully, as we've articulated, not just in this presentation, but in all the presentations that lead up to this, there is a very clear strategy in place. There is a very clear and strong team in place. I love the sector. I'm just looking for something a little bit different. I think I was talking to one of our advisors who works at a similar business to Savile's. His comment was, you love it because it's very similar to what you're doing now, but it's very different. And so I'm moving to a business that, like GPE, absolutely loves real estate. Unlike GPE, only central London, I'm moving to a global business. moving from a team of 150 to 42,000. And I'm very much, whilst GPE, I'm confident in the EPS growth that it will deliver. Savills is absolutely an EPS business rather than a balance sheet business. So something to keep me energized. But as I said, I will remain very invested in GPE, both financially, but also emotionally. If that's the only question, I'd be delighted to leave it at that.

I did have just a couple on the numbers. The fully managed services income net of fully managed services expenses has just moved from being slightly profitable last year to slightly loss making this year. Can you just help explain that dynamic there? Is that just a reflection of growth? And then the second one was, I think I saw that there was a material sort of £3 million reduction in other property expenses in the APRA P&L from 4.1 down to £1 million. What was driving that? Thank you. Nick, do you want to try the first one?

Yeah. Tom, are you referring to what's actually in the P&L? Yes. Yeah, I mean, so one of the things that we've done this year within our own targets, so you know, we are now incentivized specifically around delivering NOI returns in the P&L. At the moment, they're still lumpy because they're not particularly reflecting a significant amount of the income that we're yet generating. But it also we tend to take a hit up front for the agent fees that were in the broker's fees that were incurring in putting the customers in place. I think you should expect to see the P&L reported NOI will be a little bit volatile as we go through the lease up. of the space, I would hope that over time those margins improve because the cost of customer acquisition will reduce if we don't have a cost of customer acquisition, i.e. we keep customer retention rate high. And that's why I think you should expect to see over time an even bigger focus, particularly on the fully managed side, around customer retention. And as I think I alluded to in the presentation, the single biggest cause for us losing customers out of fully managed is we don't have enough space for them. So that is not the only reason, but it's one of the reasons why we are looking to grow this part of the footprint. I'm looking at Steve here. On the property cost, my guess is probably on empty rates will have been lower over this period. Anything else material to cover?

but it was largely due to empty rates, but we can get into the weeds offline.

Yeah. Thanks very much.

Thanks, Tom. Yeah. Callum Marley from Coalytics. Two questions, one on vacancy and one on artificial intelligence. Is the new vacancy range that you've set of six to seven and a half percent a new target for this period? And then how do you explain the divergence relative to your close peer who has a vacancy of about half that?

Yeah. Thanks, Callum. So if you think, can we just go back to the contracyclical chart right up front, please, Rich? You do not want your portfolio full when everybody else has put their cranes away. You want to be contracyclical in the delivery of space when everybody else has run for cover, especially when there is an 84% shortage of demand against supply. So we actively want our vacancy rate up. So right at the beginning, I talked about being contracyclical in our approach. And that's exactly what we're doing here. We're developing into a serious shortage of supply. And we've now got CEOs from large financial institutions around the world saying London does not have enough space. We've got companies looking six years ahead to try and forward purchase space. We pre-let most of our HQ developments, as you saw with CD&R during this year. And you will have heard this morning that we're under offer on a good chunk of the space down at Minerva. So you want to have vacancy at this point in the cycle, especially with rents rising. Six to seven and a half percent, we're in the range. The single biggest vacancy that we've got in the portfolio at the minute we've just finished, which is our Piccadilly Holdings, where we've just completed the repositioning of that building for fully managed. That's leasing up pretty well. Simon, I'll come to you in a second just for a bit of color on that lease up. But again, great locations, great buildings, rents rising. It's now that you want vacancy. So I would think we would be failing if our vacancy was zero. I want vacancy. So with that point made, just talk a little bit about the colour on how that's going and maybe just what we experienced in the core markets and maybe draw the distinction between the peripheral markets.

Yeah, so Callum, we completed 170 in September, which was about a month after Wardour Street. And some people might have thought, well, why has Wardour Street let faster than 170? One of the principal reasons for that is that Wardour Street was a building that was really easy to understand through construction. So if anyone attended our Capital Markets Day back in February, one of the things I said at the time was, that I thought we would pre-let some of Wardour Street. It wasn't in our underwrite. We don't tend to underwrite pre-lets in fully managed, but we did manage to pre-let two floors in there because it was easy to understand. Conversely, 170 Piccadilly finished a month later. There are 13 units in that building. It's a heavy intervention, as mentioned earlier. It's a grade two listed building. And so it's a much harder building to understand. Nevertheless, once completed, it looks absolutely fantastic. And there are a number of you in the room who have seen it. And that, in turn, has driven some absolutely incredible ERV beats. As you can see, moving through £400 per square foot on some of this building was definitely not in our underwrite. But an average ERV of 296 so far for the deals that we've done. 35% of the building let or under offer, we are really, really confident with the rest of that building. And we are more certain than ever that core locations, prime core locations are where we would like our space to be. There are examples around the market of fully managed space being released in areas where, frankly, the price of a cup of coffee that we make is the same irrespective of where you are in london we want our fully managed buildings to be in these core locations these clusters we are building a much better portfolio of clusters of buildings and that has allowed us to move companies such as we mentioned wonderkind earlier but others around the portfolio that is helping that retention rate Nick mentioned that that is a big focus for the business. We have in just this part of this year done a really good job retaining customers. That's about 70% of the retention rate that we have managed to create. does not involve broker fees. So as Nick mentioned, the cost of doing that business is far less for us. So it's a really important area. That's why the clusters work. The clusters will also work for reducing some of our operational costs as we are able to transfer some of the costs of our customer experience team across a wider portfolio. So I'm really excited. I mean, we've been doing this for about five years now. Looking forward, some of the projects that we've got on site and the team that we've created really gives us a lot of confidence.

Brilliant. Thank you, Simon.

stating that entry level positions in white collar jobs are potentially being displaced by AI. How do you think about that long term, the different scenarios to your jobs growth figures that you publish in which AI adoption materially changes hiring needs and then ultimately the impact?

Yeah, really important question. One that we could spend all week talking about, so we won't do that. But just to give you a couple of thoughts to take away. And Mark, I'll come to you in a second if you wouldn't mind just expanding a bit on the sorts of companies you've seen in the market today in that space. I mean, one view, in fact, we asked AI what AI thought about white-collar jobs in London. And it started with an analysis of white-collar jobs globally. And one version of AI said to us that it thought 90 odd million white collar jobs would be essentially disintermediated by AI, but 185 million would be created globally. Now, they won't all come to London, unfortunately, but it is an interesting debate as to exactly where they do go. And our experience would suggest that by and large, they're going to places with talent, with infrastructure, with magnetism, with great buildings, clearly part of the equation, with universities that are world leading in some of these topics. And it's for that reason that places in and around California and some of the eastern seaboard in the US and the Golden Triangle around London are performing relatively well. It's why 23% of our customer base in Fully Managed is AI led. They're not AI businesses, but they have AI in the description as a heavy part of what they're all about. So I actually think there is an opposite side to this coin that you should take, which is that you should consider it as an opportunity. you should consider this as something that great commerce centres like London are going to capture more of the opportunity than most other locations. Just in terms of demand, what are we actually seeing right now from businesses in that tangentially related?

So as an overview, active demand is about 12.4 million, which is 26% up on this time last year. And of that, TMT is around 15% and of that about 12% is AI-focused companies and 88% is non-AI. Now if you look, Toby's obviously mentioned about the dominance of London in terms of its tech ecosystem, the deep pool of talent, world-class universities and that regulatory environment. There are currently 382 companies that have been founded and HQ'd in London with more than 50 people employed. So it is already quite a mature market. And if you look at AI as a catalyst for demand, there's currently around half a million square feet today of well-established companies. And some of the names that are out there that are either under offer, re-gearing on a short term, either have searches or in negotiation. Names such as OpenAI, obviously ChatGPT, they are currently under off on 100,000 square feet. You've got Databricks, who are looking for 100,000 square feet and rumoured to be in negotiation. Anthropic, who are behind Claude, 50,000 square feet. Palantir, who we know very well, next door to Soho Square, re-gearing on a short term because they can't find what they need. And we're obviously hopeful that we may have further conversations with them next door. Synthesia, which is obviously the AI company that Nick referred to without referring by name, but we took them at 1,500 square feet in Dufours. They grew three times with us and then have moved to a managed facility of 21,000 square feet. So there's quite a lot of names that are out there. And the other thing I would also say in terms of is it a net promoter or a detractor in terms of jobs is If you look at the case study for San Francisco, currently in 2025, there are 5.6 million square feet occupied by AA companies. That's moved up from 2.7 in 2021. And if you look at the prospective job numbers, which is around 50,000 new jobs accretive, then that could lead to about 16 million square feet of new jobs of new requirements up to 2030. So that averages out at about 2.7 million square feet per annum. through to 2030. So we believe, if you look at what's going on in London, what we're seeing in San Francisco, we think that the prospects are positive rather than negative for us.

Not complacent, mind you. And we will always make sure that we are realistic when coming to market with spaces, but we've got some good interest in businesses in that line of work. Okay, where else can we go? Yes, Neil, right at the back. We'll need a microphone, please. Thank you.

Good morning. Neil Green from JP Morgan. Just one question. Given the progress you've already made on disposals and the quite sizable pipeline of disposals that you're earmarking, how do you think about leverage and potentially even excess capital down the line should acquisition opportunities become harder to find, please?

Yeah, good question. Thank you, Neil. So we have a long track record, as you know, of returning when we have not been able to find a more productive use for the capital post-sale. So you can see that from the pink circles in the middle there. And we gave back broadly $600 million to shareholders, having raised $300 million. at the beginning of the cycle last time round. This time round, we've already raised the 300, and let's see what happens. But the same mantra applies. We will give back where it is excess to our needs, and we cannot make an attractive return for shareholders on it. Last time around, it was interesting. A number of shareholders said, well, why don't you hold onto it? Because you might be able to use it, and we don't really want it back. And we said, well, it's frankly, that's your problem, not ours. Our problem is whether we can use it accretively or not. And if we can't, you are going to get it back. And we did share buybacks, we did a capital restructuring, and a capital return. So we've done all variations of it. And we would do them again if we were not able to find enough accretive opportunities to re-employ that capital post-sales. Scale is one reason I hear people arguing for not giving back capital. That is not relevant to us. Return on capital employed is the thing you should look at and we will not simply hold capital for the sake of feeling a bit bigger if you can't use it productively. So shareholders should know that we will give it back if it's excess. If we don't give it back, it's because we felt we've found a great series of opportunities to employ it for an increase of return. Yeah, Max.

Thanks, Maximo at Deutsche Numis. Maybe just kind of follow up question to Neil on that capital recycling point and talking about kind of liquidity at the larger end of the market. And if you can't sell some of those assets, you know, are there other assets you can kind of pull in and out? And perhaps, you know, a theme that we're seeing a little bit at the moment is this sort of disposals below book value, which I think hasn't really been a problem for you guys so far, but just some of your views on that as well.

Okay. If you wouldn't mind coming in, Dan, in a second on how you're seeing the landscape playing out from here. But first up, Max, again, good question. What I think... The correlation I think you need to be clear about is between sales ability, getting that deal done, and quality of asset. And quality isn't just the way it looks. It's where it is, who's in it, what the rental position looks like, what its transport interchange, the hub near it looks like. the public realm immediately around it, dare I say, even its feng shui, right? So this whole idea of the way that building sits and feels matters. Now we've just sold the largest single asset trade in the West End. So we have not encountered a problem with scale. And it was ahead of book value. So that tells you that our valuers are broadly getting right what the market is willing to pay for an asset, as they should. As we go from here, one thing that is very clear is that Hanover Square is in that list of stabilized assets to Aldermanbury. Both buildings where we've essentially will have delivered our business plan. We've got some rent reviews to do, as you know, in Hanover before we consider that. And Wells and Moore is currently in the market. So these are quite big assets, especially 2AS and Hanover. So we'll be testing the outer envelope, I think, of scale when we get there. But we're not there at the minute. So the evolution of the market will be interesting to see. We will not be overly concerned about hitting book value. We will be principally concerned about the forward IRR from the price on offer. And if we do not think that that is sufficiently accreted to shareholders, the opportunity cost is much more powerful. We'll take the money. But given the quality, and I said before, I think Hanover Square is one of the best buildings in Europe, therefore the world. And I mean that. It's an unbelievably good asset. And Wells and Moore is out there testing the market at the minute. And 2AS will be a 20-year lease to Clifford Chance. So off a rent which was struck in 2021, 22, there or thereabouts. So, you know, probably reversionary. So these are great quality assets, and I think they will do well. Dan, just in terms of market dynamic?

Thank you. So I think at the moment the market dynamics are such that we've seen lot sizes start to go up. I think the Newman Street asset we sold a few weeks back, that was the biggest asset in the single asset deal in the West End. through this part of the cycle, and so for several years. So it really sets a marker. And I think you're starting to see, so not only lot sizes, you're starting to see new investors in the market as well. So against that backdrop, the volumes are up too, I think with 63%. On the top left there is the stat that we've quoted. So not only are you selling bigger assets, there's more institutions in the market who are typical buyers of the mature, finished product that we've got, stabilised product that we get at the end of our recycling process. So I think the landscape for sales is very good and definitely improving. So Newman Street set a new benchmark, the likes of Hanover and 2AS, which again are a step up in scale. And as the market evolves, those larger lot sizes You know, they will become digestible by the market. And if you look at, Rich, I think it's page four. If you just look at our cyclical part of the chart that we always look, this is where we want to be buying. these pieces here and that's why we've been conducting such an intensive acquisition strategy over the last 18 months five done one under offer hopefully done by Christmas no pressure Alexa so you know that's we are we are buying exactly the right time and then also you're so we're selling and we're selling those mature stabilized assets as that part of the market and we talked about it six months ago You know, different parts of the market get hot at a different time. At the moment, those core assets have become attractive because those institutions are coming back in, like the stabilised assets. The value-add part of that curve has been hot for a while, but obviously we don't want to be selling into that. That's the product we want to be buying. So have we been going into the market and buying value-add assets in competition with a bunch of other people? Not really. Most of the stuff that we've been doing has been off-market. So if you look at the map of the acquisitions that we've done Two or three have come from the City of London, and those have been one-on-one interactions, not in processes. So, we're seeing that our acquisitions are playing to the curve there. Our disposals are playing to that part of the market that's warming up, and the general landscape is improving such that over the next 12 months, the larger assets such as 2AS – And Hanover will become liquid at the right times.

Rich, can you just jump to slide six? Because one of the things you might be thinking is selling at that point on the curve isn't necessarily the right answer. The reason that there's a complicated bifurcation going on between the best and the rest. Right. If you are slightly off pitch or there's something wrong with your building, you're going to struggle to sell it. which is the sort of stuff that Dan has described we've been buying. But if you look bottom right, the reason we're now willing to sell some of the buildings we are is because we have seen this bifurcation run riot through rents. And those prime rents have really grown. And it's that differential that is now allowing us to sell prime assets at really strong numbers that I don't think was the case even 12 months ago. And that change is quite dramatic.

It's those institutions with a low cost of capital who are buying. And our forward look on those doesn't hit our cost of capital, but it's fine for those buyers. Yeah.

Thank you, Dan. Thank you, Max. Any more for any more? We are just past the hour. Yes, we've got a couple over here. Yeah, Zach.

Zachary Gage from UBS. A couple of questions related to returns, then hopefully quite straightforward one just on EPRA earnings. But firstly, you seem quite bullish on near-term yield compression. I'm just wondering how you reconcile that with the value as moving out the yield on Alderman v. Square by 15 basis points. And I'm sure you've seen the latest MSCI data for the London office market and West End. turning negative in October and flat ERVs for the last two months in the West End. And sort of following on from that, you're looking at your 10% plus ROE medium term target. Can you give any more colour on when you expect that to be realised? And I think at the end of FY25, you guided to more growth to come. It now sounds a little bit like this year is in line with last year, as opposed to necessarily growing from there. And then the straightforward question was, is the tax credit you received included in the EPRA earnings number?

Fabulous question, Zach. I mean, you say I sound a bit more bullish. You sound a bit more bearish. And we will get you to the right place in at some point over the next few years. But putting that aside for a second, Nick, if you could do with the second one and maybe the third and Stevie, you want to do with that. So on on the on the yield point. Well, funny enough, the further they move the yields out, the more bullish we're going to get on compression. especially in an environment where yields are going to be, and we know they're driven by interest rates, and an environment where interest rates are likely to come in. And I mean, I think the issue with that is scale. It's just, you know, it's a big building. It's going to be 400-ish, there or thereabouts, a million pounds. And that's a rare That is a rare part of the market. So that's my challenge for the team when we come to selling that one. But more broadly, we are bullish on prime product for reasons Dan has just described. We think that really good assets in really good locations are gold. They are irreplaceable, by and large. And we're not talking about the peripheral central London markets. We're talking about core 100% prime, which is where we're focused. And that's why, if anything, we've concertinaed even more over the last five years than you would have seen us. I'm not sure we'd buy Whitechapel again. Put it that way. Unless it was unbelievably cheap. It was quite cheap at the time. But I think as those peripheral markets get less relatively attractive to the prospective customer base, we get less interested from an acquisitions perspective on them. But if you are in the core, I've said it before, it's incredibly powerful. We think we'll sell very well because we're leasing very well. So that's the first point.

On the second one... We should go 54%. We were clear that the aspiration around 10% plus TAR... was one for the medium term. We set out the breakdown of that in the appendices. We said at the beginning of this year that we expected this year's TAR to be in line or ahead of where we were last year. We've maintained that. I think it's fair to say it will be my successor who stands up here and talks about a 10% TAR rather than me. But I think that is something, looking at our own business plans, we look like we're set to deliver in FY27-28. In terms of the tax credit, yes, it is in EPRA earnings in accordance with the guidance. That being said, we are not anticipating it has a material impact on the overall numbers. We still stand by the guidance that we gave on EPRA earnings at the beginning of the year, irrespective of that credit. It's a one-off. We don't expect to repeat it. But in accordance with EPRA guidance, you include it.

I think everyone largely understands the prime versus secondary debate, but how much of your portfolio is prime versus secondary? Because presumably you have a prime guidance and an ERV guidance, so it must be some form of blend of the two.

Well, in an ideal world, at this point in the cycle, thinking contracyclically, in an ideal world what you want is raw material that is in some way needing attention in prime locations. That is to me the holy grail. And so what you can see in GPE You can go to the capital stack, please, Rich. Some buildings in yellow, which are reaching the end of their GPE life because we've done all of the things we can to them, and their prospective numbers are not good enough for us. Back to Dan's point about there'll be some institutions out there with a lower cost of capital than us, will be happier holders than us. But the majority of your book, in other words, the blue and above, needs to be prime location, buildings that you can improve. And then you have a business that's really interesting. If you're simply stuffed full of all the yellows and this idea that you just collect income-producing assets that are yellow, you are a proxy to market moves. You are nothing more than a beta story. If you want to be an alpha story that's creating something of value, you go above the yellow and you focus on things that you can do things to to generate rent growth, net area gain, higher quality buildings in great locations. And that's the underlying, which is why we started this presentation with 100% prime central London. So if you look at... I think you could probably argue that Whitechapel is the only building in our book which would not qualify in the 100% prime central London. That's the only one. The rest of them are, and the rest of them will be improved over time, and we will transmission, we'll basically capture growth in the blue section, turn it into a yellow tradable asset, and out she'll go. That's been our model for as long as I can remember, and it feels, if you go back to the cycle one, please, Rich, you know, it feels much more alive today than it did in that really difficult period post-Brexit all the way through Covid, where, frankly, markets we felt should have corrected and didn't because, you know, the monetary response was so aggressive and it took inflation, which was the consequence of, you know, and QE unwind for capital values to come off sufficient for us to get interested again. And so we're back into a really dynamic cycle, which feels like a good place to be. On that note, I think I'm going to draw proceedings to a close. I think we've given plenty of time for Q&A. Thank you very much. Just to wrap up from me then, this story today is all about our excellent leasing, which is all about our excellent positioning and our financial strength. Looking forward with a lot to do over the second half, to your point, but a lot to do over the next few years. And I'm very excited about that, as I hope you are. Thank you all for coming.