Land Securities Group plc

Well good morning everyone and welcome to the presentation of Landsec's 2025 full year results. Now I've been saying for some time that owning the right real estate has never been more important and the performance of our portfolio and business over the past 12 months illustrates this point really clearly. Irrespective of sector, there is a clear focus from customers on the best space, and as this remains in short supply, rents are growing. As such, we are confident in how we have repositioned our portfolio over the past four years. The success of this strategy is reflected in our strong operational performance, with high like-for-like income growth across both London and retail, which combined make up 83% of our business. We expect this customer focus on quality to persist. So as the reversionary potential in our portfolio is growing, we expect to deliver continued strong like for like income growth. Over the medium term, this growth will be enhanced by the substantial opportunity that we've created in residential, which benefits from structural demand growth and offers attractive real income returns with rents highly correlated to inflation over time. And it's the attractive mix of these uses which creates successful urban places that can continue to adapt and grow over time. And LandSec's ability to shape these places that gives us our competitive edge. Now, given our actions over the past few years, our outlook for EPS growth in the near term is positive. Executing our strategy, we'll build further on this and deliver material shareholder value by moving to high income, higher income growth and lower cyclicality over time. In the long run, it is income growth that is the main driver of value growth in both equity markets and in real estate. And our primary focus is on delivering sustainable income and EPS growth. For an £11bn REIT like us, materially shifting our portfolio mix takes time. which means we need to think differently about what drives EPS growth near term and what we believe will drive it longer term, as these are not necessarily the same. In the near term, most of our EPS growth will be driven by the assets we own today, not the assets we decide to buy or develop from here. And our portfolio positioning in recent years, our focus on places with real quality and scarcity value, together with our ongoing efficiency savings, mean that the near-term EPS growth outlook is firmly positive. The strategic decisions on development and capital recycling that we make from here are about making sure that in three to five years time, our portfolio mix is such that we are still as confident about its income growth prospects at that point as we are about our current portfolio today. Alongside our assessment of risk, it is these two factors driving sustainable income and EPS growth in the near term and impact on desired portfolio mix in the longer term that are the primary guide for our capital allocation decisions. And each of the strategic implications that we set out in our strategy update in February, shown on the left of this slide, is directly linked to these two objectives. These targets remain underpinned by our aim to retain a strong capital base, with net debt to EBITDA of less than eight times and a loan to value of around the mid-30s. And as we deliver on this strategy, we see the potential to drive around 20% growth in EPS over the next five years, which is after absorbing a roughly 10% EPS headwind from rising interest costs and a finance lease expiry at QAM. As the impact of these headwinds is spread over several years, we expect EPS growth to be relatively linear and for this compounding in EPS to drive further growth in dividends. This positive outlook is underpinned by the continued strength in our operational performance. Our overall like-for-like income growth over the year was up 5%, with uplifts on re-lettings and renewals in retail in London rising to 8%. and we delivered a 100 basis point increase in occupancy to 97.2%. In line with the capital allocation priorities that I set out earlier, we invested over £600 million into two of the very best retail destinations in the UK, Liverpool One and Bluewater, at highly accretive yields. Whilst we sold around £655 million of assets, mostly in subscale sectors where growth is more subdued. In line with the view that we set out a year ago that values for the best assets would return to growth, our portfolio value was up 1.1%. As our successful leasing activity drove 4.2% ERV growth and yields stabilised. And this means that our capital base remains strong and our positive operational momentum has continued into the new year. All this translated into solid financial results. Our EPS was up 0.4%, and that was ahead of our initial guidance, as the impact of our significant disposals early in the year was more than offset by stronger like-for-like growth and cost savings. Our dividend is up 2% in line with our guidance, and NTAP share is up 1.7%, meaning that our overall return on equity was positive at 6.4%. Whilst net debt increased as a result of acquisitions towards the end of the year, post our disposal since the year end, our LTV is now just over 38%, net debt to EBITDA 7.7 times. We expect continued like-for-like income growth and cost savings to more than offset higher finance costs in the year ahead, meaning we expect TPS to grow by 2% to 4% this year, which is well on track against our financial year 2030 potential. So on now to our operational review. Customers remain focused on the best space in each of our key markets. So our high quality London and major retail portfolios continue to outperform. For both, our relative outperformance widened further during the year as markets continued to polarise, as shown here in the first two charts on this slide. With their occupancy in London up to 98% and retail up to 97%, the growing competition for space means rental uplifts continue to rise, in particular for major retail, which now makes up over a third of our income. Capturing this growing reversionary potential is a key driver for our near-term EPS growth. Turning to London in more detail, the positive outlook for rents in the best assets has started to attract new investor demand, which is reflected in a steady pickup in an investment activity, as shown here on the right, albeit from a low base. Still, the strong growth in occupier demand for the very best space, as shown on the left, continued growth in rents, for example, in Victoria, where half of our London offices sit, and the relatively stable political backdrop mean that London offices look relatively attractive in a global context. And as such, we expect a further steady recovery in activity, which supports our plans to start to release around £2bn of capital from FY27 onwards. In our own portfolio, we continue to see growth in utilisation rates. with turnstile tap-ins up 11% over the three months to April compared to the same period last year. And that's even though TFL tube traffic was broadly flat over the same period. Combined with the fact that customers are planning for more space per person to facilitate increased collaboration space, well-being, or other amenities, this means that operational performance has been strong. Like-for-like income is up 6.6%. with uplifts on re-lettings and renewals up 10%. And we signed, or in solicitor's hands, on £24 million of lettings, on average 7% ahead of ERV. This drove 5.2% ERV growth, and that was at the top end of our guidance, and we expect these trends to persist, with broadly similar ERV growth, further like-for-like income growth in the year ahead. And this positive demand also bodes well for our two on-site developments in Victoria and the South Bank. Both are set to complete in the next 12 months, which means that we are delivering into an attractive window. A speculative supply over the next two years is around half of the typical new build take-up. Both schemes are designed to be multi-let, which means that we expect the majority of leasing to happen post-completion. although we are seeing encouraging interest emerge and expect to see some progress in terms of pre-letting in the second half of this year. The exact timing of lease-up will have an influence on FY27 earnings, but overall these schemes should add around £7 million to earnings once fully let, based on current interest rates. In retail, brands continue to focus on the best locations, as these provide the best access to consumer spend. As the chart on the left shows, the top 1% of all UK shopping destinations capture 30% of all in-store retail spend. And so it's no surprise that this 1% is where around 90% of all stores of leading brands such as Apple or Inditex are located. And as the chart in the middle here shows, it is also where around 90% of our own portfolio is focused. The value of these assets is around half of their replacement costs. So new supply is zero. And as sales continue to grow and hence demand for space continues to grow, rents are rising. And this is very clear in our own portfolio performance. Sales and footfall both continue to outperform the wider market. And as a result, rental uplifts continue to trend higher. This resulted in another year of strong operational performance, with like-for-like income up 5.1% and occupancy up 110 basis points. And that means occupancy is now ahead of where it was pre-COVID. We signed £26 million of leases, on average 8% above ERV. And our leasing pipeline is up compared to this time last year. with another £12 million of deals in solicitors' hands, on average 20% ahead of ERV and 10% ahead of previous passing rents. All that drove 4% growth in ERVs across the portfolio, which was comfortably in line with our guidance. And we expect to see similar growth in ERVs this year, with continued growth in like-for-like income as reversion continues to build. So turning now to capital allocations. Now, as I've already said, our primary focus is on delivering sustainable income and EPS growth. And so we base our capital allocation decisions on their impact on income and EPS growth in the near term and on positioning our portfolio mix such that this EPS growth can be sustained longer term. Now, this slide sets out how at a high level the investment opportunities available to us compare on this basis. Major retail is accretive to EPS day one, given its high yield, and we believe it can sustain attractive growth over time for the very best destinations, given that this is where demand is concentrated and new supply is non-existent. This therefore remains our highest conviction call, although there is a limit to the number of assets that fit the bill. We expect our London offices to see good like for like growth in the near term, but in the longer term, supply and demand will likely remain cyclical and there is a cost of keeping up with evolving customer demands. Residential net yields are broadly similar to the net effective income returns in offices after taking account of lease incentives. However, income growth in residential closely tracks inflation and is captured annually. So rotating capital out of office into residential should be broadly EPS neutral day one, but offer higher EPS growth and lower risk over time. In development, the near term benefit to income growth is limited given the time it takes to develop. And hence we will continue to limit our overall development exposure and focus on those projects that provide an attractive margin and move our portfolio mix towards our medium term goals. Now, each of the capital allocation objectives we outlined as part of our strategy update in February link directly to these priorities. On a one to three year view, we aim to invest a further £1bn into best in class retail at yields that are highly accretive with rents that can deliver sustained growth. As we monetise half our capital employed in pre-development assets where income returns are minimal and exit our retail and leisure parks where yields are reasonable but income growth is well below that of major retail. This also underpins our objective to, on a two to five year view, establish a sizeable residential platform where income returns are real given that rents are highly correlated to inflation. and to scale back office-led development by at least half and release £2 billion of capital out of offices to facilitate this. Our investments over the past year are very much aligned to this. We invested over £600 million in two of the top 10 retail destinations in the UK and an average net income return of 7.7% and a low double-digit IRR. Operational momentum in both destinations is strong with, for example, Next tripling their space at Bluewater to over 130,000 square feet and new openings of Sephora, Pull & Bear and Bershka during the year. Whilst at Liverpool One, Uniqlo enjoyed a record new store opening in April and Sephora are set to follow suit next week. At Media City, we have already started to see a turnaround in operational performance now that we have taken full control of the estate. with several new F&B lettings and office lettings well ahead of ERVs. Whilst we now also have full control over the Phase 2 land, which has an allocation for 2,700 new homes. This also formed the basis for our disposals in the past year. We sold just under £500 million of assets during the year, of which 80% was our hotel portfolio. And whilst the yield on this was over 7% and the immediate EPS impact therefore was down, around 70% of that portfolio was over 25 years old and required significant capex to sustain this income. And since the year end, we have sold a further £159 million of assets, including 40% of our residual retail parks, where like-for-like income over the past year was flat, well below therefore the 5.1% income growth that we saw in major retail. Looking ahead, we anticipate further disposals in the near term as we exit further non-core assets and start to reduce our capital employed in pre-development assets. In terms of future developments, our success in planning over the last two years means we now have more projects nearing potential commencement than we have the risk appetite or balance sheet capacity for. With around 730 million of capital employed in pre-development assets, which produces a current income return of around 1%, the holding cost of this is significant. And so we will look to release around half of this capital employed over the next one to three years by exiting those badged other opportunities, such as strategic land, and potentially JVing or exiting some of our office-led projects. We'll be reasonably pragmatic about value, but expect this to improve earnings by around £15 million per annum and add around 25 to 50 basis points to our annual return on equity when taking into account the lower capitalised costs. In terms of new development, we will not start any new office-led schemes until our current projects are substantially de-risked. And as returns on new office development are similar to residential development, but the risks are different, we plan to scale back office-led development by at least half post the completion of our current pipeline. And that's to shift activity towards residential from 2026 onwards. And on that front, we continue to progress the valuable opportunity that we've created across our three key schemes in London and Manchester. each of which benefits from strong transport links and substantial scale in their own right. During the year, we submitted a revised planning application for the first 600 homes at Finchley Road, which already benefits from an outline and part detail consent. And we secured vacant possession and completed demolition of the former home base unit on this site. We also submitted a detailed planning application for the first 879 homes at Mayfield, after agreeing a renegotiation of the development agreement at that site. And we're considering the potential start of a small £150 million office development here, which would unlock the delivery of a further 1,700 homes around the new park that we've already created. Now we expect a planning decision on both schemes over the next six months, and that would pave the way for a potential start on site by late 2026. And that would be around a year ahead of Lewisham, where we submitted an application for an outline and part detail consent for our new 2800 homes master plan in October, with the decision expected in the second half. With a substantial upside in our existing portfolio and pipeline and a clear strategy in terms of capital allocation, we are well placed to deliver sustainable income and EPS growth over time. So with that, I'll now hand you over to Vanessa.

Thank you Mark, and good morning. We have delivered solid financial results for the year. EPRA EPS was ahead of the guidance that we gave this time last year, and that was driven by stronger like-for-like income growth and further reduction in overhead costs. Our dividend is up 2% in line with our guidance and at 1.25 times our dividend cover sits comfortably in the middle of our target range of 1.2 to 1.3 times. Our strong leasing activity drove 4.2% growth in ERVs, which supported a 1.1% uplift in the external valuation of our portfolio and a 1.7% increase in NTA per share. So our return on equity increased to 6.4%. Our strong capital base allowed us to take advantage of the opportunity to invest in rare and high quality and accretive acquisitions, which will further enhance our future income growth. Whilst our borrowings increased as a result, pro forma for disposal since the year end, our LTV is 38.4% and net debt to EBITDA is 7.7 times. So combined with our long debt maturity, our balance sheet remains robust. As our operational momentum remains strong and the outlook is positive, we expect to deliver 2-4% growth in EPS for the year to March 26. So turning to EPRA earnings in more detail. Overall, our net rental income was up £2 million despite a £24 million reduction from the timing difference between our disposals at the start of the year and acquisitions at the end. This was more than offset by the income from new developments which added 12 million and our strong like-for-like income growth which added 23 million. We saw a £14 million reduction in surrender receipts from the elevated level in the prior year, so combined with a £5 million increase in the recovery of bad debts, as a result of bringing the management of certain assets in-house and collecting the cash that we had previously provided for, this meant net rental income was up slightly to £552 million. We also made further progress in reducing our overhead costs, which were down 5% for the year, and we're on track to further reduce this by more than 10% over the next two years. Finance costs increased slightly, and that's reflecting a small increase in the weighted average cost of debt and increase in borrowings following the acquisitions in the second half. Together, these factors drove EPRA earnings up 3 million. And this chart shows how this translates into movements in EPRA earnings per share. Our strong operational performance meant that like for like net rental income growth of 5% was well ahead of our initial guidance of circa 2.8%. Central London was up 6.6% and retail up 5.1% and that's reflecting the strong demand for our high quality assets and our focus on driving operational efficiencies. Mixed use income was up 2.8% whilst our retail and leisure parks were flat. So in total, like for like growth drove a 3.1 pence or 6.2% increase in EPS for the year. Combined with overhead savings, which added 0.5 pence, this more than offset the increase in finance costs And for financial year 25, this was partly offset by the movement in surrender receipts and bad debt recovery that I mentioned earlier. But neither of these are expected to be material factors in the current year. The net impact from investment activity was down 1.1 pence due to the timing differences between our acquisitions and disposals, but this was more than offset by our strong operational performance. So EPS for the year was up slightly to 50.3 pence. As our leasing pipeline remains strong, we expect like-for-like income to grow a further 3% to 4% this year, which underpins our positive outlook for EPS. And this is further enhanced by our continued overhead savings. As I mentioned at our capital markets event in February, we're seeing the benefits from our focus on improving efficiency on our cost base. Following a seven million reduction in financial year 24, overhead costs were down a further four million last year, and that's despite continued inflation. So looking ahead, we're on track to deliver a further reduction of at least 8 million over the next two years as the benefits from our investments in data and technology come through. And combined with further savings on resourcing and procurement, this means that we expect overheads to be below 65 million by 2027. That's down circa 20 million or 23% over four years. So turning to portfolio valuation, our successful leasing drove 4.2% growth in ERVs, which was towards the high end of our guidance. Yields were up marginally and taking account of CapEx movements and the lease expiry at Queen Anne's Mansions, our portfolio value was up 1.1%. In line with our view a year ago that values for the best assets would return to growth. As previously highlighted, the existing leases at Queen Anne's Mansions will expire in late 2026 and late 2028. So as these dates are getting nearer, the NPV of the residual finance lease income decreases. This reduced our overall valuation growth by around 0.5%. And there's a similar impact for the CAPEX that was spent on pre-development assets. as this has not yet been reflected in valuation uplifts. But this capex will reduce significantly over the next few years as we reduce our capital employed in this part of the portfolio. Our central London portfolio was up 1% as ERV growth was strong at 5.2% and yields rose slightly. Developments were up 2.5% and that's due to the growth in ERVs and progress on our two on-site schemes, which complete in about 12 months. The valuation of our major retail assets was up 3.4% with ERV growth rising to 4% and yields compressed 22 basis points and that's largely due to the value that was created from our asset management activity and that's in White Rose in Leeds and St David's in Cardiff. This means retail was again the best performing segment of our portfolio with a 10% total return. So having already invested nearly one billion of capital in this segment over the last three years, we aim to invest a further one billion in retail over the next three years. Our mixed-use assets were down 5% in value for the year, and this partly reflects a reduction in value at Media City in the first half, and partly the pre-development capex that's been incurred at our other mixed-use schemes, as I mentioned earlier. And following the sale of our hotel portfolio, our remaining subscale assets were up slightly. We have sold one fifth of this portfolio since the year end, effectively in line with book value, and we expect to progress further disposals in the near future. We continue to see a steady pickup in investment activity in both London and retail, and the outlook for rental growth for the best assets remains positive. So we expect values for such assets to be well underpinned. The stabilisation in the valuation yields and the strong operational performance meant that our overall return on equity increased to 6.4% for the year. Our income return was 5.8%, whilst valuation growth, excluding the yield movements, contributed 2.1% to our total return on equity. The positive impact of this was partly offset by the fact that we wrote off 22 million of goodwill which arose on the acquisition of the studio's operating business at Media City. This merely represents an accounting policy impact rather than any reduction in value since acquisition. There are also a number of small one-off adjustments in respect of transaction costs, valuation impairment on trading assets and certain property provisions, together totalling £24 million. So overall, our net tangible asset value per share was up 1.7%. Our focus on sustainable income and EPS growth has a number of strategic implications in terms of capital allocation, as Mark set out earlier, which will be attractive to our total return on equity and reduce the cyclicality of our returns over time, adding further to the positive outlook. This remains underpinned by our strong capital base. Our average debt maturity is long at 9.6 years with no need to refinance any debt until 2027. During the year, we strengthened our financial position with the issue of a 350 million 10-year bond at a 4.6% coupon. And we refinanced 2.3 billion of revolving credit facilities, retaining the low margins. At our half-year results, we said that we expected LTV to increase in the short term as we'd look to capitalise on the attractive acquisition opportunities. And this happened with the acquisition of Liverpool 1. But pro forma for disposal since the year end, our LTV is now 38.4% and we expect this to reduce to the mid-30s over time as we anticipate further disposals in the near future. We continue to target net debt to EBITDA of eight times or less. However, we expect to slightly exceed this in the current year as our two on-site developments are nearing full investment but do not produce income until they complete in the next 12 months. This will therefore be temporary and our net debt to EBITDA ratio will reduce again once both schemes elect. In addition, our aim to reduce our capital employed in low and non-yielding pre-development will further reduce our net debt to EBITDA by 0.7 times. Taken together the growing reversion in our existing portfolio, the further reduction in overheads and repositioning of our portfolio should drive circa 30% EPS growth by 2030. Against this, the lease expiries at Queen Anne's Mansions will likely reduce earnings by circa 20 million and based on the current yield curve, finance costs are expected to increase as we refinance maturing debt. The combined impact of this is around five pence per share spread over the next five years. Overall, this means that we see the potential to deliver around 20% EPS growth by 2030, which adds further to our attractive 5.8% income return on NTA. For financial year 26, we expect good progress on this trajectory, as we expect like-for-like rental income growth to support around 2-4% growth in EPS, and with that, continued growth in dividends. With a strong capital base and a clear strategic focus on driving sustainable income and EPS growth, this means we are well placed to drive substantial shareholder value over time. And with that, I'll hand back to Mark.

Thanks, Vanessa. So I'll now wrap up with our view on the current environment, what you can expect from us in the year ahead, and then we'll open for Q&A. So notwithstanding the recent increase in wider economic risk as a result of shifting US trade policy, we are yet to see any impact from this on our business. So our outlook remains positive. Our focus on driving sustainable income and EPS growth over time to drive long-term shareholder value means that our strategic priorities for the next few years are clear. And our decisions over the last few years mean that we're well-placed to continue to capture the growing reversion in our existing portfolio and to drive continued like-for-like income growth over the next three years, whilst we further reduce our cost base. We will also grow our retail platform by a further £1 billion, following our £600 million acquisition of Liverpool One and Blue Water over the last 12 months. As we exit our remaining non-core assets and release significant capital from low or non-yielding pre-development assets. All of which positively impacts earnings and our overall return on equity. Over the next two to five years, we will then start our first residential development projects and begin to reallocate capital from offices to build a £2 billion plus residential platform from 2026 onwards. And this will ensure we build on our positive EPS growth in the near term by shifting our portfolio mix such that this growth can be sustained in the medium to longer term. So to summarise, Landsec today is well placed as a result of the successful execution of our 2020 strategy. At a time where quality has never been more important for customers, we have established a best-in-class office and retail portfolio, both of which are focused on areas of strong customer demand. And we have created a £3 billion residential pipeline, providing a valuable opportunity to grow in this attractive structural growth market. all of which is and will continue to be underpinned by a strong balance sheet. As we move to the next phase of our strategy, the opportunity to build on the success provides clear upside. Our portfolio is 97% full and so ERVs are growing meaningfully. Office rents are already 12% reversionary and ERV growth adds further upside to this. Whilst in retail, uplifts on re-lettings and renewals are now up to 10% on recent deals. In addition, our focus on cost efficiencies will see overhead reduced by a further 10% from here, building on the 13% reduction over the last two years. And our capital recycling will drive further upside in income. All this means we see the potential to drive around 20% growth in EPS by financial year 30, which will drive continued growth in dividends. With an existing income return at NTA of 5.8%, this compound growth in EPS will drive an attractive return on equity. So as we move to higher income, higher income growth and lower cyclicality, delivering our strategy will see us drive significant shareholder value. And with that, we will now open the floor for Q&A. As usual in our Q&A, I'm going to start here in the room. We will have roving handheld mics, so please wait for a mic before asking your question. Once we're through questions in the room, I'll move to the conference call and then finally pick up any remaining unanswered questions via the webcast. So please, any questions from in the room? First question down here.