Land Securities Group plc

Well, good morning, everyone. Welcome to the presentation of Landsec's 2024 half year results. More importantly, welcome to 21 Moorfields and welcome to the City of London on a Friday morning. So owning the right real estate has never been more important. Irrespective of sector, there is a clear focus from customers on the best space and as supply of this space is limited, rents are growing. Our success in positioning LandSec for this is reflected in these positive results. Growth in like-for-like net rental income increased to 3.4%. Our return on equity for the six months of September increased to 3.9%. And we are today increasing our EPS guidance for the full year, which also flows through into future years. Our active portfolio repositioning over the past few years means we continue to significantly outperform the wider market. And we expect the trends which underpin this to persist. And we're also capitalizing on the substantial accretive growth potential that we've created. We acquired a £120 million stake in Bluewater at an 8.5% yield in the first half, and are confident of deploying more capital into major retail in the second half. We're on site with two highly sustainable London office developments, which, once completed and let, will deliver a yield on cost of over 7%. And the progress that we've made on our residential pipeline means we now have visibility to investing over one billion pounds into this structural growth sector by 2030. Our strategic focus is paying off. So we're well-placed to grow our already attractive 5.8% income return at NTA and to deliver the eight to 10% annual return on equity that we target over time. This positive outlook is underpinned by our strong operational performance. We continue to lease space ahead of ERV across our portfolio, and we're driving positive reversionary potential on re-lettings and lease renewals, with the reversionary potential in retail in particular continuing to grow. We have also further increased occupancy, which means our London portfolio is now virtually full, whilst occupancy in retail is higher than it was before COVID. In terms of our future pipeline, we have started site preparations at Finchley Road, and we signed a new development agreement at Mayfield, which materially increases the residential component of that site. We also submitted an application for our residential master plan at Lewisham recently. So combined, these three schemes offer the potential to deliver over 6,000 homes over the next decade, with a potential start on site of the first phases in just over a year's time. At the same time, the outlook for investment markets has improved. The sharp rise in inflation and interest rates that resulted in upward pressure on property yields over the prior two years has levelled off. And we've seen a gradual increase in investor interest with selective competition for the best assets across each of our key sectors. The pace of recovery from here may be affected to some extent by long-term rates, but the overall trajectory remains upwards. We said in May that we expected yields to stabilise and values for the best assets to return to growth as rents rise. And that's what's happened over the past six months. Overall yields for our portfolio were stable. So with continued ERV growth, values were up 0.9%. And we had an active period in terms of investment with nearly 700 million pounds of transactions, recycling capital where our ability to add further value was limited through 464 million pounds of disposals. And we reinvested 226 million in a number of our key places, principally in major retail with further progress in retail expected in the second half. Our balance sheet remains strong with a low net debt to EBITDA and a 34.9% loan to value. and we extended our average debt maturity to 10 years. Maintaining our balance sheet strength remains a key priority, but given the attractive time in the cycle and our growing income profile, this does provide room for growth in the near term. All this is reflected in a set of positive results for the first half. Earnings were at the top end of our expectations, with reduction versus last year reflecting lower surrenders, as expected, whilst our focus on like-for-like income growth and cost savings offset the impact of our £0.5 billion of net disposals over the prior 12 months. As we expect the benefits of this to persist, we raise our earnings outlook and now expect EPS this year to be in line with last year and for 2026 to be further ahead of that before any further acquisitions. Our dividend is up 2.2% in line with our guidance and with valuation yield stabilising, our NTA was up 1.4%. At the same time, we continue to reduce our energy intensity by two percentage points. So we remain on track to reduce this by 52% versus our 2019-20 baseline and to do that by 2030. And 52% of our portfolio is now rated EPC A or B. That's up from 49% six months ago. And that will grow further from next year onwards as the benefits of our net zero investment plan start to come through. So on to our operational review. Now, even though the principal use of our places differs across our business, the success of each comes back to our three competitive advantages. The high quality of our portfolio, the strength of our customer relationships, and our ability to unlock complex opportunities. And it's these factors which support our continued outperformance and the future optionality that we've created in our pipeline. And similarly, it's these factors which underpin our ability to drive further growth in income and in value over time, be that in office, retail, or our future residential-led places. In central London, demand for the right assets in the right locations remains robust, as customers remain firmly focused on the most sustainable space with good transport connectivity in locations that benefit from exciting amenity. Supply of this type of space is limited, so as a result, we have seen new record rents in our markets being achieved over the past few months, showing double-digit growth from record rents set only a year ago. The strength of demand is also reflected in overall take-up. Across the last 12 months, Grade A take-up was 14% ahead of the long-term average, even though overall take-up was 6% lower. And the outlook for demand remains positive, with space under offer across the market currently some 40% ahead of the long-term average. And in terms of our customers, we've continued to see further growth in the utilization of our offices. That's up 9% year on year, although the rate of growth will naturally slow as customers begin to get close to full capacity in their space. Meanwhile, customers are planning for more space per person than they did before the pandemic, as they incorporate more collaboration, meeting, or breakout space into their designs. And all this translates into robust demand. Across the 31 leasing deals we signed over the past 12 months, we saw 12 customers take more space, whilst only six took less, and most of them by downsizing space that they had in locations other than ours. We had just three customers leave, and that just totaled space of 20,000 square feet. So, as our portfolio is effectively full, this positive demand continues to drive further rental growth. As a result, our leasing performance remains solid. We signed, or are in the solicitor's hands, on £16 million of lettings, on average 3% ahead of ERV, with re-lettings and renewals on average 7% above previous rents. And we've further increased occupancy now to 97.9%, significantly ahead of the wider London market. We've recently opened four new Mayo locations, adding to our two existing ones. These are currently in lease-up and are now 45% later under offer, with a further 20% in active negotiations. All in all, our successful leasing drove 2.2% ERV growth, which is on track against our guidance of low to mid single digit growth for the full year. So moving to retail, we continue to see strong demand for our space. In deciding where to invest in physical stores, the main focus from brands is on how they access the largest amount of potential retail spend. The chart here on the left shows that the top 1% of all shopping destinations across the UK provide retailers with access to some 30% of all in-store retail spend across the country. That's effectively the same as the bottom 90% of all locations combined. And 95% of the destinations in that top 1% are major shopping centres such as Bluewater, city centres such as Cardiff and Leeds, or outlets, i.e. the major retail destinations where we have focused our strategy. And the fact that about 90% of all UK stores of, for example, Apple or Inditex are located just in this 1% highlights that these are the preferred destination for brands. The chart on the right shows that for the vast majority of brands, stores in major shopping centers and key city centers are by far the most popular. This is where 76% of their stores are. This, of course, is where our assets are. Supported by longer dwell time and a higher footfall, sales densities in key shopping destinations such as ours are materially higher than all other retail formats. That ultimately means they're the main focus for brands. And we continue to see this come through into positive demand for our space as brands continue to focus on fewer, bigger, better stores. The chart on the left shows that even though several brands have been reducing their overall number of stores, the average size of their remaining stores is up by around 20%. And we're capturing the benefits of this with several major new store openings across our portfolio, such as Zara at Trinity, Sephora, Pull & Bear and Bershka at Bluewater, and a number of major new lettings, including deals with Primark to double their space at White Rose in Leeds, JD Sports to move from the High Street in Cardiff into a brand new store in our St David's Centre. And aside from demand for new brands, the combination of existing customers wanting more space or more stores in our destinations continues to drive rental growth, as there is effectively zero new supply to meet this growing demand. And this supports our continued strength in operational performance. Total retail sales were up 2.2%, and although footfall was down slightly, around half of this was due to the timing of Easter, which fell in March this year. And despite some mixed weather in spring, conversations with our customers now suggest that outlook on trading remains very positive. And all this means our occupancy is now ahead of where it was before the pandemic, at 96%, whilst overall lettings were 7% ahead of ERV. Importantly, rental uplifts on re-lettings and renewals are continuing to grow, having turned positive last year, and we expect rent reversions to grow further over time. As major retail accounts for 30% of our rental income, this will have an increasingly significant impact on earnings growth going forward. ERVs were up 1.7% over the first six months, and that's on track versus our full year guidance of low to mid single digit growth. Although value as assessments of ERV continue to trail actual leasing performance by quite some margin. Still, for us, like-for-like income growth is the more relevant measure, and that's where we continue to show robust growth and where the outlook is positive. And all this underpins the attractive returns that we see from further investment in this sector, with day one income yields of 7% to 8% and growing rents in the best locations. Values are roughly half of replacement cost, so we're not going to be seeing any new supply anytime soon. And whilst all assets in real estate need some level of investment over time, maintenance capex for the best retail destinations is low. The chart here on the right shows that we spent around £80 million of capex on our current portfolio over the past five years. That's around £15 million per annum. Around 45% of that spend was accretive, linked directly to leasing deals that resulted in higher rents and tenants upsizing space requirements. A further one third of that spend was defensive, related to repurposing space that was vacated by a number of major retailers that went into administration in the wake of the pandemic, such as Debenhams or Arcadia. But we're now at a point where repurposing former department store space is driving double digit IRRs and delivering rents well ahead of anything department stores ever paid. So that element of defensive spend is firmly behind us. And that leaves us with just over 20% for normal maintenance spend on items that do not drive additional income and which have not been recharged to customers through service charge. At around £4 million per year, this equates to circa 20 basis points of current asset values, which we consider to be relatively minimal. And we intend to invest more in accretive CapEx going forward, as we now have a number of projects, such as those examples on the bottom right, which are expected to deliver IRRs in the mid-teens. And with most of the space already pre-let, a low risk yield on cost of around 10%. And even if we include all of the maintenance CapEx, our overall return on total CapEx is still expected to be around a 10% IRR. In terms of new investment in central London, we're on site with our two schemes, one in Victoria, one in South Bank. Rents for the best space continue to grow, and recently we've seen evidence elsewhere in Victoria of rents well over the £100 per square foot record that we set with our N2 project last year. This bodes well for 30 High, and we're also starting to see pre-let interest emerge for Timber Square. Although we typically assume the majority of our leasing, these are all multi-let assets, will be happening post-completion. And whilst returns on both projects remain healthy, supply chains continue to be impacted to some extent by the effects of the spike in inflation a year or so ago. The cost of competing timber square has gone up by 31 million pounds, partly due to design changes that will drive additional rent, but also due to the insolvency of a subcontractor. So the overall yield on costs for that project is down by circa 10 basis points over the period. And looking ahead, we have a potential future pipeline of over £2 billion, virtually all of which benefits from planning consent. This provides us with attractive optionality, so we'll continue to work on optimising the risk-return projects of that pipeline. In addition, we've made significant progress in terms of growing our residential pipeline, as we've been refocusing our mixed-use activities onto this sector over the past 12 to 18 months. At Finchley Road in Zone 2 of Central London, we're making some small changes to our existing planning consent and have started on-site preparations. So we now expect to start development of the first phase by 2026. At Mayfield, next to Piccadilly Station in Manchester, we have recently agreed a new development strategy with our partners, which effectively provides us with control over the opportunity to deliver 1,700 homes following the delivery of the first office-led phase. This site already benefits from an outline planning consent. And again, the first residential development could start as soon as 2026. And lastly, after substantial local consultation, a few weeks ago, we submitted our master plan for delivery of 2,800 homes in Lewisham, Southeast London. And between those three projects, we now have clear visibility on a pipeline of over 6,000 homes in vibrant, well-connected locations, all of which can be delivered in smaller, discrete phases. That means that CAPEX commitments will be managed and phased, yet overall provides us with the potential to invest over £1 billion by 2030 and £3 billion over the next decade into this structurally supported growth sector at attractive, low double digit, ungeared IRRs. Which brings me to capital allocation and our views on risks and returns. As I mentioned in May, the marked increase in cost of capital has clearly impacted the prospective returns of the investment opportunities available to us. Major retail still offers the best risk-adjusted returns in our markets, as income returns remain high and rents are demonstrably growing. We capitalised on this with the acquisition of a further £120 million stake in Bluewater in the first half, and are confident of deploying more capital in the second half. The outlook for prime London office assets is also more attractive than it was two or three years ago, as rents for the best space continue to grow and yields look attractive in a historic context, albeit lower than in major retail. In terms of new office development, growing rents for prime space have to compensate for an increase in bill costs and exit yields. And whilst development returns still offer a premium against standing assets, there is of course higher risk involved, requiring careful consideration. There is clear support from the new government to unlock urban residential development. And whilst development returns are not dissimilar to offices, the risk profile here is arguably more attractive. Now, the first start of any of our residential schemes will be in early 2026. So given the attractive returns in retail at present, this will be our main focus in terms of investment in the short term. I'll now hand over to Vanessa, who'll talk you through our financial results.

Thank you, Mark, and good morning. Our high quality portfolio continues to attract strong customer demand, which is reflected in our positive financial performance over the first half. So let me take you through the headlines. Gross rental income reduced by 21 million to 302 million, but this was driven solely by our non-core asset sales and a reduction in surrender premiums as like-for-like income was up seven million. I'll explain this in more detail in a moment. Our EPR earnings per share were at the top end of expectations at 25 pence, driven by stronger than expected growth in like-for-like net rental income and further cost efficiencies. As momentum remains positive, we are raising our EPS outlook for the full year, and our interim dividend is up 2.2% in line with our guidance. With continued growth in ERVs and a stabilisation in yields, our portfolio valuation was up slightly, and NTA per share rose 1.4%, which means we delivered a return on equity over the first half of 3.9%. Moreover, our balance sheet remains strong with LTV of 34.9% and net debt to EBITDA of 7.4 times. So turning to EPRA earnings in more detail. Overall, we have been a net seller of half a billion of assets over the past year, which reduced net rental income by 20 million. After a number of years of elevated surrender premiums due to customers right-sizing their space requirements, We expected surrenders this year to reduce, and in the first half, these were down 13 million to 4 million. The impact of disposals and lower surrenders was partly offset by our strong leasing, which drove 7 million growth in like-for-like income. The recovery of bad debts materially improved this year as we have recovered debts that were previously provided for across assets that used to be managed externally and we now manage these in-house. In terms of earnings guidance, we expect this additional debt recovery to offset the fact that we now expect surrenders for the full year to be lower than we previously guided for. Our continued focus on improving efficiency reduced administrative expenses by 10%. We expect admin expenses for the full year to be comfortably below last year and to reduce further in 2026, but I'll come back to this later. Overall, our EPRA cost ratio reduced from 23% to 20.8%. And whilst this will increase very slightly in the second half due to the seasonality, we expect this to remain in the low 20s. Finance costs increased by 3 million, so all of this means that EPRA earnings are at the top end of expectations at 186 million. In terms of like-for-like income, we delivered an increase in growth to 3.4%. We have captured positive uplifts on re-lettings and renewals, and we've increased occupancy by 80 basis points over the year. This was consistent across both key parts of our portfolio, with like-for-like income in London up 5.5% due to the positive growth in offices and a strong performance from Piccadilly Lights. whilst like-for-like income in retail was up 3.1%. Back in May, we said that we expected like-for-like income growth for this year to be similar to last year's 2.8%. But given our strong performance to date, we now expect this to be closer to 4%. Whilst our reported ERVs do not reflect the full upside potential, it is clear that we have now moved to positive reversions, especially in retail. This underpins our future income growth potential, especially as rental values continue to grow. So turning to our portfolio valuation, after two years of yield expansion, valuation yields stabilised over the first half and rental values are up a further 2.1%, driven by successful leasing, which means that our overall portfolio value was up 0.9%. Our central London portfolio was up 0.8%. Yields were virtually stable and ERVs were up 2.2%, which is on track versus our guidance of low to mid single-digit growth for the full year. ERV growth was higher in the city this time at 5.3%, reflecting a number of asset management gains. Our West End assets remain virtually full, and market rents have continued to reach new records recently, which bodes well for the upside in our portfolio. And the valuation of our major retail assets was up 2.8%, reflecting 17 basis points reduction in yields and 1.7% increase in ERVs. Again, on track versus our guidance of low to mid single-digit growth for the full year. Given the high income yield and the fact that major retail assets of our quality require little maintenance capex, total returns remain very attractive, at 6.8% over the first six months. Our mixed use assets were down 3.7% in value, driven by further yield softening in Media City, as regional offices remain behind London in terms of improving investor sentiment. And we also saw some softening in the existing use values in Lewisham, Finchley Road and Glasgow. As Mark explained earlier, the attraction of Lewisham and Finchley Road sits in the significant residential potential. Whilst in Glasgow, we are already seeing strong interest from leading retailers in our plans to reposition the existing centre. As we progress with these plans, we expect valuations for these assets to turn a corner in the next 12 months or so. And following the sale of hotels, our subscale assets are only 8% of our overall portfolio, and values are up 2%. Looking forward, we have started to see investment demand pick up for assets which offer rental growth, as yields look attractive in real terms. And our outlook for ERV growth remains unchanged, which supports our outlook for property values. And this brings me on to our total return on equity, which increased to 3.9% for the first six months. Our income return for the half year was 2.9%, whilst ERV growth delivered a capital return of 1.7%. This was broadly similar to previous periods, but over the last two years, all of this has been offset by adverse yield movements. With yield stabilising over the first half, this chart shows that we are now well-placed to deliver our target return on equity of 8% to 10% per annum, building on our growing income return, which is 5.8% on an annualised basis. At the same time, our capital base remains strong. Our loan to value, net debt to EBITDA and interest cover are all effectively the same as they were in March. Acquisitions and capex have effectively offset the proceeds from disposal since then, partly as the sale of our hotel portfolio included a deferred payment of 50 million on which we receive a 6% coupon. Adjusting for that, our LTV would be 50 basis points lower. We have also strengthened our financial position with the issue of a 350 million 10-year bond at a 4.6% coupon and we refinanced the 2.25 billion of revolving credit facilities at a low average margin of 65 basis points. As a result, we have no need to refinance any debt until 2027 and our average debt maturity is long at 10 years. So given where we are in the cycle, we would be comfortable to see LTV increase slightly towards the high 30s in the short term for the right acquisition opportunities. But we intend to remain within our 25 to 40% target range and any increase from here would only be temporary as we would manage LTV back to the current levels in time. Despite a subdued activity level within the wider investment markets, we have had an active year so far with close to 700 million of transactions. We sold 5% of our portfolio of the first six months, broadly in line with book value, including the sale of our hotel portfolio. We invested 140 million of this into major retail destinations at an average 8% income yield. We expect this to deliver double-digit IRRs, and we are confident in deploying further capital into retail at accretive returns in the second half. Since the half year, we have also taken full control of Media City for a net consideration of 84 million. This involved the surrender of the wrapper leases, but adjusting for the value of this, the transaction was broadly in line with book value. And the acquisition is earnings neutral in the short term, but importantly, it provides us with the ability to implement our plans for the estate, including the future residential potential on the second phase. So in summary, we have had a positive start to the year and now expect like-for-like income growth for this year to be closer to 4%. And now more of this like-for-like income growth will translate to earnings growth due to our successful delivery of sustainable operating efficiencies, which has been our consistent focus over the past few years. You will recall that we have previously talked about how investments into data and technology would improve our efficiency. So I'm pleased to say that we now see the benefits of this coming through. And following the 10% reduction in overheads costs in the first half, we are on track to deliver further savings into the next financial year, as the top right chart shows. So alongside further efficiency improvements, this means that more of our like-for-like income growth will flow through to earnings. And despite half a billion of net disposals over the past year, the combination of higher like for like growth and lower costs means that we now expect our EPS for the full year to be in line with last year's 50.1 pence. This comfortably supports our aim to grow our dividend by a low single digit percentage. And we expect this improvement to continue into future years with EPS for 2026 expected to be ahead of 2025. This increase in guidance is before any potential benefit of future acquisitions. So overall, we are well-placed to deliver attractive return on equity over time. And with that, I'll now hand back to Mark.

Thank you, Vanessa. So I'll now wrap up with our view on the current environment and what you can expect from us in the year ahead before we then move to Q&A. So our decisive portfolio repositioning over the past few years means that Landsec is well placed and it has never been more important to own the right real estate. Whilst geopolitical risks have increased, the general election over the summer here created an element of political stability which has eluded the UK for most of the past decade. We are of course alive to the risk that higher taxes could impact business sentiment, but we're not seeing any signs of this affecting occupational demand at this point. Our reversionary potential is growing as customer demand for the best space remains robust. And we still expect ERVs to grow by a low to mid single digit percentage across our portfolio. Meanwhile, investment market activity has started to pick up as yields have stabilized. Values for the best assets have returned to modest growth, supported by the good availability of credit. We're mindful that changes in long-term interest rates could impact the pace at which momentum continues to build from here, but we're confident that the overall direction of travel is upwards. And we've created significant optionality, especially in residential, and our balance sheet remains strong, creating capacity to invest at an attractive point in the cycle. This means we have created clear growth potential, both in terms of continued like-for-like income growth, as well as in terms of new investment. As such, our strategic focus is delivering, and we expect to continue seeing the benefits of this over the next few years. So to summarize, we continue to build on the positive momentum in executing our strategy. We now expect like-for-like income growth to be higher than we initially envisaged, and our success in improving our operational efficiencies means more of this like-for-like growth drops through to EPS growth. Having sold 5% of our portfolio in the first half of the year, we intend to reimburse further capital in growing our major retail platform in the second half. Major retail now accounts for 30% of group rental income with reversion building. We'll continue to progress the growing residential opportunity in our pipeline. Whilst we look to further optimize our overall return on capital employed and to focus our activities. We expect our attractive 5.8% income return at NTA to grow further as like for like growth and efficiencies drive EPS growth. So with continued rental growth and yield stabilising, we're well-placed to deliver attractive returns on equity. And with that, I will now open for Q&A. As usual, what I'll do is take questions here in the auditorium first, before then going to those joining on the conference facility, and then lastly on the webcast. We've got handheld roving mics, so if I could ask you to raise your hand if you have a question and just wait for a microphone, and I'll start with Paul May down here in the front row.