Land Securities Group plc

Well, ladies and gentlemen, good morning and welcome to the presentation of Landsec's 2024 full-year results. So, over the last three years, we have been focused on two clear strategic priorities. Firstly, increasing our investment in best-in-class assets where, through our competitive advantages, we can drive long-term growth. And secondly, preserving our balance sheet strength. So, including the sale of the hotel portfolio that we announced last week, we have now sold around 40 assets since late 2020, totalling some £3.1 billion. And the vast majority of these were long-term single-let assets where our ability to add further value was limited. And we've reinvested at accretive returns in a targeted number of our key places, such as Victoria, Piccadilly, Bluewater or Cardiff. And as a result of that, around 80% of our current portfolio is now concentrated in our 12 largest places. And as we continue to invest in shaping and curating these unique multi-let locations, we expect them to drive superior income returns and growth over time. At the same time, our proactive disposals mean that our capital base has remained strong and our 32% LTV is lower than it was two years ago before the rise in interest rates and the correction in real estate values that followed. And this now provides us with significant financial capacity to capitalise on the future growth potential in our pipeline and to acquire high quality assets that will supplement our existing best in class portfolio at an attractive point in the cycle. And this strategic focus remains critical as it has never been more important to own the right real estate. The normalization in cost of capital over the last two years means that value drivers across all of the sector have fundamentally changed. Over much of the prior decade, leveraging up the spread between income yields and ultra low borrowing costs or picking high level sector themes was often enough to drive performance. However, irrespective of sector, there is now a growing distinction between those assets that meet customers' future requirements and can therefore deliver income growth and those that don't. Vacancy across the overall London office market is elevated at 9%. UK retail vacancy is above 10%. And even big box logistics vacancy is now 8%. However, the very best assets in each sector are in short supply and therefore continue to see high occupancy and rental growth, which means it can be very dangerous to look simply at market averages. And the quality of our portfolio is demonstrated in its continued outperformance, as is shown on the charts here. In London, utilisation of our offices is up 18% over the past year, significantly ahead of overall growth in commuter activity. and our occupancy has continued to increase, now at 97.3%, even though overall market occupancy has been falling. Similarly, in retail, our occupancy is up to 95.4% and outperforming the wider UK retail market. And as footfall growth in our locations is well ahead of the UK market, we are seeing more competitive tension as brands focus on fewer, bigger, better stores. We have now seen a clear inflection point in retail rents, and as we are now capturing positive rental uplifts on re-lettings and renewals across both sectors, we expect like-for-like income to continue to grow. At the same time, the outlook for investment markets is improving. Back in late 2022, we said that we expected property values would continue to adjust for some time, as markets would have to align to a new higher rate reality. And this has indeed proven to be the case. And even though we do not anticipate a sharp reduction in long-term rates, the recent relative stabilisation is clearly a positive. Drawn by the historically attractive pricing of good quality income in London and in the best retail destinations, we are starting to see interest emerge from investors who have not been active in these markets for some time. And reflecting this, 60% of our portfolio effectively saw stable values in the second half and yields overall were flat in the final quarter. Absent any macro shocks, we therefore think that the value of high quality assets has largely bottomed out and will start to grow in the foreseeable future as rents continue to grow. And having now sold the vast majority of assets that we said we aimed to sell back in late 2020, our net debt is £1.1 billion lower than it was before the market correction. And given that we're starting to see more signs of interesting acquisition opportunities becoming available, we have the capacity and intent to be a net investor from here. With an attractive 5.7% income return and continued ERV growth, this means that we are well placed to deliver on our 8% to 10% return on equity target. All of this is underpinned by continued strength in our operational performance. We continue to lease space well ahead of ERV. We are capturing positive reversionary potential on re-lettings and lease renewals in London, and for the first time in a number of years, now also in major retail where rents have started to grow, supported by strong growth in both sales and footfall. In mixed use, we secured planning consent for our 1800 homes development at Finchley Road, where we're now starting the first enabling works ahead of a full start on site next year. And we continue to optimise our plans for the rest of our pipeline. So in terms of financial results, EPRA EPS was stable versus last year in line with our guidance, as our strong operational performance with 2.8% growth in like-for-like net rental income and efficiency improvements offset a rise in finance costs. Our dividend is up 2.6%, again in line with our guidance. And at minus 4%, our return on equity improved versus the prior year. Even though the impact of rising bond yields put pressure on valuation yields in the first half of the year in particular and meant our NTA overall was down 8.2%. At the same time, we've reduced our energy intensity by 3.7%, which means we remain firmly on track to reduce this by 52% versus our 2019-20 baseline by 2030. And 49% of our portfolio is now rated EPC A or B, and that's up from 36% a year ago. And that will increase further from 2025 onwards as the benefits from our net zero investment plan begin to come through. So, on to our operational review. Now, although the principal use of the places we create and curate differs across our business, the success of each of them comes back to our three key competitive advantages. The high quality of our portfolio, the strength of our customer relationships, and our ability to unlock complex opportunities. These are valuable and scarce attributes which are essential in sustainable value creation. For example, in working with two of our key customers at New Street Square to decarbonise their office whilst upsizing their space and extending their leases by over 15 years. Or in the completion of three highly complex developments over live tube stations this year, which combined delivered around £240 million of profit. It is these competitive advantages which underpin our ability to continue to drive growth across each of those key places, be they office-led, retail-led or mixed in use. In terms of central London, the market continues to polarise, with customers firmly focused on the space which has the right transport connectivity, the right sustainability credentials and the right amenities. For many employers, space which is lacking these characteristics is now simply no longer an option, almost irrespective of price. We continue to tailor our capital allocation accordingly. For example, with the pipeline that we have created in South Bank, which sits within a few minutes walk of two of London's busiest train stations in an area rich in cultural attractions, and which has the second highest density of bars and restaurants in London after Soho. And our continued presence in Victoria, again, right next to one of London's busiest rail terminals. So even though London office take-up across the market was just over 10% below its long-term average last year, the outlook for demand remains encouraging. And space under offer was close to an all-time high at the end of March. Overall vacancy is elevated at 8.8%, but as the chart on the right shows, this is still mostly a building issue rather than a market issue, as almost 40% of all vacant space sits in just 1% of office buildings. And as the supply of the very best space remains low, this means that rents for this space continue to grow, as we're seeing across our portfolio. Against this backdrop, we continue to reshape our portfolio. We have sold over £2 billion of mature standalone office assets since late 2020 and reinvested into profitable developments, such that our five largest multi-let places now make up 88% of our central London portfolio, all exhibiting high occupancy and strong ERV growth. And we have room to build further on this through future development. The scale and the scarcity of each of these places allows us to continue to curate them and drive further growth. For example, with new leisure concepts in Victoria, a new iconic rooftop restaurant, Piccadilly Lights, or interactive digital media space below the lights. So what are we seeing from our customers? Well, the utilisation of our offices continues to grow, especially mid-week, as you can see in the daily turnstile tap-in data on the left here, up 18% for the year. At the same time, our customers are planning for significantly more space per employee than they did pre-pandemic, as they're designing for more collaboration, meeting or wellbeing space, which continues to translate into sustained demand. Over the past 12 months, we've only had four customers leave and we quickly re-let three of those spaces. And across the 36 new lettings or renewals that we signed, 17 were for customers upsizing, 12 kept the same space that they occupied previously. Only seven customers reduced their overall office footprint, mostly by reducing space elsewhere, as only one customer reduced their floor space with us. With our portfolio virtually full, this strength in demand continues to drive rental growth. And so our leasing performance remains strong. We signed or are in solicitor's hands on £35 million of lettings, on average 6% ahead of ERV, with re-lettings and renewals on average 15% above previous rents. Our occupancy increased further to 97.3%, significantly ahead of the wider market, and less than 1% of our space is available for subletting. On our two retained developments, we delivered around 20% profit on cost, despite the softening of yields, and both were effectively full within four months of completion at rents materially ahead of initial ERVs. And we've recently opened three new MYO locations, adding to the two existing ones, where we saw average occupancy grow from 86% to 93% during the year. All in all, our successful leasing drove 5% ERV growth, which is at the top end of our guidance for the year. And moving now to retail, there continues to be a similar trend of growing demand for the very best destinations. And we continue to shape our portfolio to ensure it is positioned for this. We sold our two smallest retail outlets during the year, and prior to that, increased our investment in Bluewater and St. David's, such that our five largest assets now make up 75% of our retail portfolio. We've continued to invest in our assets over the last couple of years, but we'll be adding to this more meaningfully with a number of new initiatives. These will see us repurpose existing space to create a new F&B destination in the centre of Leeds, new public open space leisure offers in Cardiff, and enhance the visitor experience at Gumwharf Quays. These initiatives will drive further footfall and sales and support the growing demand for space in those locations. What underpins this demand is that for many key brands, the stores they have with us are outperforming their overall sales growth, as we show here on the left. Whilst at the same time, overall online sales are no longer seeing the growth that was present before and during the pandemic, partly as the thin margins in online have been challenged by the marked rise in cost of capital. And this means we continue to benefit from brands' focus on fewer, bigger, better stores. As major retailers such as Inditex and H&M announced they're increasing their investment in the best physical space to improve customer experience alongside their more convenience-led out-of-town or digital channels. The chart in the middle shows that even though several brands are reducing their total number of stores, they have increased the average unit size for their remaining stores by around 20%. Aside from demand from new occupiers, this means that many existing customers want more space or more stores in our destinations. And as there is effectively zero new supply of retail space to meet this growing demand, this is starting to drive competitive tension and rental growth. Our continued investments in our retail team and our data and tech platform continues to support the strength in our operational performance. We have now seen a clear inflection point in income. As for the first time, we are starting to capture positive uplifts on re-lettings and renewals. Now, this was still modest during the year, at plus 1%, but has improved further since then, with deals in solicitors' hands now plus 6% to previous passing rents. We have been leasing space well ahead of ERV for a number of years now, and it continues to do so over the past 12 months. But this shows that rents have now also turned the corner in cash flow terms. Moreover, occupancy increased by 130 basis points and is now effectively back to pre-pandemic levels. ERVs were up a relatively modest 1.4% as valuers' assumptions continue to trail our actual operational performance. Yet to us, the strong growth in cash income is the more relevant measure. So in terms of investment, we continue to invest in our key places in ways that will drive future earnings accretion. We plan to invest more in major retail destinations, such as with the additional stake in Cardiff that we bought just over a year ago. And following a period of very limited transaction activity, we're now seeing clear signs of activity levels starting to pick up. We also plan to invest around £100 million into new initiatives across our key assets over the next three years. We expect both new investment and accretive capex to deliver high single-digit initial income returns. In London, we started two new schemes during the year in Victoria and South Bank, which will deliver highly sustainable space with low embodied carbon into these attractive locations. And we expect these projects to deliver a gross yield on costs in excess of 7% and a yield on the incremental capex we're investing of over 10%. Overall, these opportunities not only provide an attractive return on the new money that we invest, but they often also enhance the return of our existing assets in those locations, either through improved operational flexibility, increased amenities or better services for our existing customers. Beyond this, we have built a substantial pipeline to expand our existing key holdings or to create the next generation of scarce urban places. In London, we have four sites in South Bank which could deliver a further 900,000 square feet of net zero office space in one of the most vibrant parts of town. Two of these projects already have detailed consent and the first could be started later this year once deconstruction of the existing building has completed. We also secured two planning consents during the year for major developments at Liverpool Street in the city and the next phase of New Street Square. The earliest start for these will be 2025 and 2026 respectively. That reflects vacant possession timeframes and both are located in close proximity to Elizabeth line stations. And in mixed use, we have two major near-term opportunities. The first is Finchley Road, Zone 2 of central London, where during the year we secured planning consent for our 1800 homes master plan and a detailed consent for the first 600 of those homes. As planned, we have started the first site enabling works, which subject to further preparatory work, could put us in a position to start the first phase of development in mid 2025. And at Mayfield, next to Piccadilly Station in Manchester, we are working with our partners to optimise the development strategy where we have the option to start the first office late this year, which then unlocks future residential phases. These opportunities add up to a pipeline of £4 billion of highly sustainable space, with our consented schemes currently showing a 40% reduction in embodied carbon. Now, even though all of this can be managed in discrete manageable phases across an extended period, the overall size of this pipeline is more than we would be comfortable undertaking on our own balance sheet. So we are likely to look to supplement our own investment with other complementary sources of capital over time. And that brings me to how we are thinking about capital allocation, risk and returns. So clearly the marked increase in cost of capital has had a significant impact on the prospective returns of the investment opportunities available to us. Major retail looks to offer the best risk-adjusted returns in our universe as income returns remain high and there is clear evidence of rents returning to growth. This is therefore likely to be our key focus in terms of near-term investment activity beyond our two committed developments. Returns from London investment from here also look more attractive than they did two to three years ago, given the increase in yields and continued rental growth for best-in-class space, which bodes well for the return prospects of our portfolio. Returns from future development, be that in London or mixed use, continue to offer a premium to comparable investment assets and, of course, offer the opportunity to deliver modern, high-quality space into a polarised market where demand is concentrated at the top end. Development does, however, entail more risk, and whilst rents continue to grow, margins have been eroded by cost inflation and higher exit yields. We need to ensure that developments offer a sufficient risk premium versus the returns on any assets we might choose to sell from here to fund our investment. As a result, we've been working hard to optimise our pipeline of development projects to ensure that they reflect this new reality. Now, in some cases, this involves revisiting design or specification. For others, it might involve working up less capital, less carbon intensive options by retaining more of the existing buildings and income. In all cases, however, we will only commit capital to new developments where we are happy that the prospective returns on offer justify the increased risk. Now, Vanessa will share more on our thinking here later, and I'll now hand over to her to talk you through our financial results.

Thank you, Mark, and good morning. The wider market conditions improved as the year progressed and our operational performance has remained strong. So given our strong capital structure, this provides us with a positive outlook. So let's start with our financial headlines. In line with our guidance, separate earnings per share was stable versus last year's underlying performance, as growth in like-for-like income and a reduction in overheads offset the impact of higher finance costs. Our dividend is up 2.6% to 39.6 pence. Again, in line with our guidance, and it reflects a dividend cover of 1.27 times. Further yield softening during the first half of the year in particular meant that despite continued ERV growth, our NTA value per share was down 8.2%. Our return on equity was minus 4% and with value starting to stabilise, the outlook for this is now more positive. And moreover, our balance sheet remains strong and pro forma for the hotel portfolio sale and net debt to EBITDA is now low at seven times and our LTV is 32%. So turning to EPRA EPS in more detail. Like for like, gross rental income was up 16 million or 3%, reflecting our strong leasing performance and the quality of our portfolio. Service charge expense increased due to the startup costs of our completed developments. So net rental income was up 11 million. Admin expenses were down 7 million despite high inflation, which I'll cover in a bit more detail shortly. As a result, We had a 4% increase in our operating profit, which offset an £18 million increase in finance costs due to the interest expense on our completed developments and an increase in our average borrowing costs. Our EPRA EPS was stable versus last year's underlying level and that's in line with our guidance. Our net rental income was up 2.8% on a like-for-like basis, and this was supported by positive rental uplifts on re-lettings and renewals, growth in turnover income and higher occupancy. Central London office income was up 1.4%, which was partially offset by lower variable income at Piccadilly Lights following last year's outperformance. Yet this remains a highly valuable asset with income up 9% over the past two years. Major retail was the strongest performer, with like-for-like income up 6.9%, as the over-renting in the portfolio, which had persisted for several years, has now turned to positive reversionary upside. Our subscale and mixed-use assets saw like-for-like income rise 3.1%. Disposals more than outweighed acquisitions, whilst our completed developments only contributed income for part of the year. So as a result, net rental income was up 11 million. And we continue to focus on improving our operating efficiency, as we have done over the last two years. Our overhead costs were down 9% last year, thus reflecting the benefits of our organisational review during the prior year and procurement savings. We expect further cost efficiencies to offset inflation this year, and as we continue to automate and streamline our operating platform, we expect further cost savings beyond that. Over the last two years, we've delivered 21 million of cost efficiencies, which has helped to offset inflation and to reduce costs. But you do not necessarily see the benefits of this when you just look at our upper cost ratio, as this also reflects the impact of our capital allocation decisions. where we have sold mature, low-yielding, high-margin assets, and we've invested in more operational, high-yielding and higher-return assets. Adjusting for this, our upper cost ratio would have been almost three percentage points lower, but our overall income return and our total return on equity would have been lower as well. So, we'll continue to optimise our efficiency, but our main focus remains on driving our overall returns. And turning to our portfolio valuation, the March rise in interest rates during the first half of the year meant that global investment activity has remained subdued. As a result, our valuation yield softened, so despite 3.2% ERV growth from a strong leasing activity, the value of our portfolio was down 6%. The impact of the higher interest rates receded as the year progressed. 60% of our portfolio valuations were stable in the second half. And overall, yields were flat in the final quarter. In central London, ERV growth came out at the top end of our guidance at 5%, but this only partially offset a 46 basis points increase in yields. and the benefit of repositioning our portfolio towards the West End over the last few years is clear, as our West End offices continue to outperform with values virtually stable in the second half. Development values were down 9.9%, which reflects the risk premium for the early stages that these projects are at, yet we remain confident that these schemes will deliver attractive returns once complete. And the valuation of our major retail portfolio was stable over the year and up slightly in the second half, even though valuers assumed ELV growth of 1.4% continues to trail our actual operational performance. Our mixed-use assets were down 14%, which was driven by yield expansion at Media City and a shortening of income on existing retail assets in London and Glasgow. But a revised approach to these schemes should see us rebuild income and value in the future. Across our subscale assets, the value of our hotels, retail parks and retail parks was broadly stable. Yet subdued investor sentiment towards cinemas meant that our leisure assets were down 8.2% despite positive operational performance. Looking forward, the relative stability in interest rates means that values look attractive for assets which can deliver income growth, although we think secondary values will likely have further to fall. Again, we expect ERVs for our London and our major retail assets to grow by a low to mid single digit percentage this year. Our return on equity was minus 4%, whilst our NTA per share was down 8.2% after dividends paid. We continue to target a return on equity of 8% to 10% per annum over time, and that's comprising of a mix of income and capital returns delivered through RV growth and developments. Although fluctuations in valuation yields means that we won't be exactly in that range each individual year as we've seen last year. And the chart on the left shows how each of these components contributed to our return on equity. So in green, you see the return, which is driven by income, rental growth and developments, and the light grey bars and the dotted lines overlay the effect of yield movements. Last year, our return on income, ERV growth and developments was 9.5%, which shows that as yields stabilise, we're in a strong position to deliver on an 8-10% total return. And this outlook remains underpinned by the strength of our capital structure. We maintain our strong investment grade credit rating and our corporate bond spreads are the lowest in the sterling real estate market, giving us a clear competitive advantage. Our 300 million bond issued in March with a coupon of 4.75% and a spread of 103 basis points is a great example of this. On a pro forma basis, our net debt to EBITDA remains low at 7 times and ICR at 4.4 times as we have managed our balance sheet effectively through the recent period of rising interest rates. Including our disposals since the year end, our pro forma LTV is low at 32% and our net debt is down a billion over the past two years. This gives us significant headroom to invest at what we believe is an attractive point in the cycle. As values are starting to stabilise, we would be comfortable to see our LTV increase from here for the right opportunities, although we will remain within our 25% to 40% target range. In terms of our capital allocation, we maintain a clear view on growing our income, total return and portfolio quality. We've sold 625 million of assets since March last year, on average in line with book value. This brings our total disposals since late 2020 to 3.1 billion. So whilst we will continue to recycle assets, our focus is now shifting more towards investment. The illustration on the right shows the interplay of our sources of funding and opportunities to invest. Mark outlined our return expectations earlier, so we plan to invest most of the existing balance sheet capacity following our recent sales in major retail and our committed pipeline. We expect to fund investment into new developments, principally through recycling out of mature and non-core assets. And given the size of the pipeline, we intend to supplement this with other sources of capital over time. So in summary, our high quality portfolio, a strong operational performance and balance sheet capacity means we're well placed to deliver attractive total returns. Our earnings guidance, of course, should be seen in the light of our recent capital recycling. We expect to see like-for-like income growth at a similar level to last year, but how this translates into EPS growth depends on the timing and the quantum of investment activity from here. We have sold significantly more than we acquired over recent months, so with all else equal, this reduces our annualised earnings by around 4%. This is reflected in our guidance that before reinvesting any of the recent sales proceeds into acquisitions, we would expect EPS this year to be slightly below last year's level of 50.1 pence. And for the year to March 2026, we would expect EPS to be slightly above last year's level, reflecting a combination of continued like-for-like income growth and the reinvestment of the majority of our recent sales proceeds. As our dividend cover remains at the upper end of our 1.2 to 1.3 times policy range, we expect dividends to grow by a low single digit percentage again this year. And with that, I'll hand you back to Mark.

Thank you very much, Vanessa. So I will now wrap up with our view on the current environment and what you can expect to see from us in the year ahead. And we'll then move to Q&A. So our actions over the past three years mean that Lansac is well positioned. Our balance sheet provides capacity to invest in what we believe to be an attractive point in the cycle. And our increased focus on best in class places means we're well placed to drive income growth in a world where demand is increasingly concentrated on quality. Reflecting this, we again expect ERVs to grow by a low to mid single digit percentage. We said six months ago that we expected investment activity to pick up in 2024 and for values for the best assets to start to stabilise. And this remains our view today, as the best assets which offer genuine rental growth now offer an attractive risk premium versus real interest rates. Our operational performance remains strong, with growing occupancy, growing rental uplifts on re-lettings and renewals, and growing like-for-like income. Performance drivers in real estate have fundamentally changed as irrespective of sector, asset quality, the ability to curate this will be much more of a differentiating factor than it has been over much of the past decade. Something which plays to the strengths of our portfolio and to our competitive advantages. So, to summarise, whilst uncertainties remain, the overall macro outlook has clearly improved and we continue to build on the positive momentum in executing our strategy. We expect like-for-like income growth to be similar to last year and to deliver further operational efficiencies. And having sold over £600 million of assets since our half-year results, we will focus on reinvesting these proceeds into accretive growth at what we believe is an attractive point in time. We'll continue to optimise the significant potential in our pipeline, yet as the size of this will over time exceed our own balance sheet capacity, we will continue to explore opportunities to access other sources of capital to leverage our platform value, accelerate our overall growth and to enhance our returns. As yields are starting to stabilise, our attractive income return and continued rental growth means we're well placed to deliver attractive returns on equity in the future. And with that, we will now open the floor to Q&A. So, as is usual with the Q&A, I'm going to take questions from the room first. We'll then go to any questions from the conference line, and then we'll finish up with any questions that are posted via the webcast. So, the roving mic will be making its way to you, so just wait for that. There's two questions down in this row here, and I think I saw a question over here after that.