Land Securities Group plc

This presentation will commence shortly.

Welcome to the presentation of Landsec's 2025 half year results. So we continue to see clear positive momentum across all parts of our business. Our primary focus is on delivering sustainable income and EPS growth and we continue to do so effectively. I've been saying for some time that owning the right real estate has never been more important and our performance over the past six months illustrates this yet again. Following our significant portfolio repositioning over recent years, our best-in-class office and major retail assets now make up over 90% of our income. And driven by the high quality of our market-leading platforms in both sectors, we have again delivered strong like-for-like net rental income growth and positive rental uplifts on re-lettings and renewals across both office and retail. We see no signs that the strong customer demand for high-quality space, which underpins this positive trend, is abating. So this will remain the key driver of near-term income and EPS growth, with further asset rotation and residential expected to enhance this over the longer term. As a result, we are raising both our near-term and medium-term EPS outlook, which means we are well-placed to deliver material shareholder value as we move to higher income, higher income growth and lower cyclicality over time. To deliver our strategy, we set out nine key objectives back in February, and we are on track or ahead of plan on each of these. In the near term, most of our EPS growth will be driven by our current platforms, the assets we own today. So that is what the first five objectives are built on. We continue to capture the growing reversionary potential in our office and retail portfolios, and today raise our guidance for like-for-like income growth for this year to around 4% to 5%. We have also raised our overhead cost savings target, which now implies a saving of more than £10 million against financial year 25 by next financial year. We are on track to deliver half of our three-year target to reduce our capital employed in pre-development assets by £0.3 billion during year one. and we have sold one third of our retail and leisure parks, whilst we are seeing an increasing number of acquisition opportunities in major retail coming to the market over the next 12 to 18 months. Our four longer term objectives are designed to ensure that in three to five years time, our asset mix is such that we are still as confident about this outlook for income growth at that point as we are today. Again, progress on each is positive, as we've sold nearly £300 million of offices over 12 months ahead of plan. We set a clear expectation for our income growth in retail at our recent Capital Markets Day in September. And we have made good planning progress in residential. Still, as returns in retail continue to look most attractive, we do not plan any meaningful new development commitments over the next 12 to 18 months. And that means that our committed development exposure is set to come down to just 200 million by mid-2026. And we expect this to remain meaningfully below the current £1 billion level beyond that. Our sharper focus on sustainable EPS growth as our primary financial objective that we set out earlier this year is providing real clarity of focus and clarity in decision making. and we're seeing the benefits of this across all parts of the business. Across the whole portfolio, we have driven 5.2% growth in like-for-like income, and our occupancy is now at a decade high. We have had a highly active half year in terms of shifting our portfolio mix, with the sale of £644 million of assets, which generated limited or no return, and we're expecting further capital recycling in the second half. Meanwhile, our capital base remains solid, supported by continued growth in rental values. And we are committed to further improve this, as we now target net debt to EBITDA of below seven times within the next two years. That's down from a previous target of below eight times. All of this translated into a positive set of financial results for the half year. Our strong like-for-like income growth and continued overhead cost savings meant that EPS was up 3.2%, whilst our dividend is up 2.2%. NTA per share was down slightly at 1.3%, but principally driven by the sale of nearly £650 million of low returning assets that I mentioned earlier. Aside from the finance lease income on Queen Anne's Mansions, the impact on EPS from these disposals was broadly neutral and the cost to NTA about 1%. Our LTV is now 38.9% and our net debt to EBITDA was up as expected, yet we expect this to come down to below seven times within the next two years as our current developments complete and lease up and future development exposure reduces. whilst we expect LTV to reduce to below 35% over time. Reflecting our positive performance, we raise our outlook for EPS growth for the full year and now expect this to be at the top end of our 2-4% guidance range. This is before the disposal of QAM, which turns the residual finance lease on the asset from a receipt of income across 2025 and 26 into an upfront capital receipt on completion of the sale next month. So, although the amount of cash we receive is effectively the same, this reduces reported earnings for the year by £7 million. In addition, we have also raised the outlook for our financial year 30 EPS potential from around 60 pence to 62 pence, and that's a 20% increase in our earnings growth objective, driven by higher growth in retail income, lower overhead costs and lower development. Any upside from our planned median term investment in residential only becomes meaningful beyond financial year 30. We'll continue to pursue opportunities to further improve on this, but this now implies a compound annual growth in earnings per share of 4% to 4.5%, adding further to our attractive existing income return. So now on to our operational review. Customers unquestionably remain focused on the best space in both office and retail. So driven by our high quality operational platforms, our leasing performance remains market leading and our relative outperformance against the wider market continues to widen. Our occupancy is up to a decade high as our portfolio is effectively full, which is driving growing competition for space. This in turn is driving up rental values, so rental uplifts are rising, principally in retail, and like-for-like income growth is trending higher. Reflecting this, we now expect like-for-like net rental income to grow around 4% to 5% this year, up from our initial guidance of 3% to 4%. And this established trend remains a key driver for our near-term EPS growth. Turning to offices in more detail, we continue to see growth in utilisation rates, with turnstile tap-ins up 11% over the three months to October compared to the same period last year, even though TfL tube traffic was slightly down over the same period. Mirroring the experience we see across our own portfolio, the majority of active demand in the overall London market comes from businesses looking to increase space. So as the availability of high quality office space in locations with the right transport connectivity and attractive amenities is limited, this continues to drive rents higher. And that is not just for brand new developments, but also for existing high quality assets. And we see the evidence of this in our 2.3 million square foot estate in Victoria, which is 100% full, and we are now achieving rents on existing buildings in line with what just two years ago were record rents for a new development. All this is reflected in another set of market-leading operational results. Our office occupancy is now nearly 99%, and that's significantly ahead of the overall London market at 92%. Like-for-like income was up 6.8%, with uplifts on re-lettings and renewals of 6%. And we signed, or are in solicitor's hands, on £19 million of lettings, on average 9% ahead of ERV. This drove 3.1% ERV growth over the six months, which is well on track against our guidance of broadly similar full-year ERV growth to last year's 5%. As our portfolio is now effectively full, capturing this market growth in like-for-like income is increasingly a function of lease events and will therefore be more balanced over time than it has been over the past six months. Yet our growing reversionary potential continues to support a positive outlook for like-for-like rental growth from here. This positive customer demand extends to our near-term office completions. Over the next nine months, we will see four new projects complete, including the repositioning of an existing asset to Myo Flex office space and a small Ford purchase that we agreed back in 2021. Now, in total, we expect these projects to generate around £58 million of net effective, i.e. P&L rent, once let, with an associated incremental £43 million of annualised interest expense. The outlook for FY27 EPS is of course sensitive to the pace of lease up of these schemes. But current engagement with prospective customers is encouraging as we have interest in the form of active negotiations, requests for proposals or live engagement equating to an excess of 100% of space across our nearest term completions. Now, not all of that will translate into actual leasing, but in our FW27 EPS outlook, we currently assume around 40% of the two main schemes to be let by the time they complete, and for all space to be let around 12 months post completion. And we're comfortable that these assumptions reflect those current activity levels. In retail, brands continue to focus on the best locations. as these provide the best access to consumer spend and the highest sales growth. As the chart on the left shows here, the top 1%, 60, of all UK shopping destinations capture some 30% of all in-store retail spend. And so this is where major brands focus their investment with, for example, around 90% of all Apple and Inditex stores in these locations. And it's also where close to 90% of our portfolio is focused. The quality of our assets and our platform is driving superior footfall, which in turn is driving substantially higher sales growth than the wider market. Indeed, whereas overall UK shopping centre retailer sales have increased just 3% over the past few years, sales across our portfolio are up nearly 20%. And the gap in performance continues to widen. And this is why brands want to be in our locations. And as our portfolio is now nearly full, this is why rents continue to grow. And this is clearly reflected in our operational performance. Rental uplifts continue to trend higher, as shown here on the left, whilst occupancy is up 50 basis points year on year to almost 97%. This means that like-for-like income growth remains attractive at 5%, and we expect this to continue. We signed, or in solicitor's hands, on £33 million of leases, on average 10% above ERV, which drove 2.2% growth in ERVs over the six months, comfortably on track with our expectation of similar growth for the full year to last year's 4%. And as we set out on our capital markets event in Liverpool in September, the outlook for future income growth from retail is firmly positive. Building on the unique data and insights that our market-leading UK platform provides, we continue to invest in creating experience-led places. The growth in footfall and sales that this then creates continues to attract leading brands. So alongside enhancing our social eating, dining and leisure offer, this creates an environment and experience which in turn attracts higher footfall, higher sales and so on. Our growth outlook is further enhanced by selective investment in highly accretive smaller capex projects. So combined with growing turnover income and commercialisation income, this is what underpins our target to deliver between 4.5% and 7% compound annual growth in net rental income from our existing retail platform over the next five years. So turning now to capital allocation. We continue to prioritise our capital allocation decisions based on this clear framework. This looks at how our investment decisions contribute to income and EPS growth in the short term and how they shift our portfolio mix such that it can continue to deliver sustainable income and EPS growth for the longer term, underpinned at all times by our commitment to maintain a strong capital base. We continually monitor for any changes in risk and return prospects, but as things stand for the next 12 to 18 months, our priority is further investment into major retail destinations, given the high income returns and attractive income growth on offer. Funded by further rotation out of lower return assets, including London office assets, as we have done over the past six months. and we do not plan to commit any meaningful capital to new development over that period, creating further investment capacity. Based on the clarity that this framework provides, we've had a very active period of capital recycling. Our largest disposal was Queen Anne's Mansions, an asset which generated zero total return despite the high short-term income profile, as the valuation depreciates in line with every rent receipt until the end of the lease. Aside from the impact of turning the residual finance lease income into an upfront capital receipt, as I mentioned earlier, this has essentially no impact on earnings and de-risks the value of the site by transferring planning risk for a change of use to the buyer. We also sold two pre-development assets, which generated a negative income return, as well as four retail parks. Combined, these parks comprised around one third of our portfolio of retail and leisure parks, and whilst they delivered a reasonable income return, income growth has been limited. All in all, this means we have sold nearly £650 million of assets, which generated limited or no return in just six months. This came at a cost to NTA of 1% when comparing sales to March book values, but will enhance our future income and EPS growth prospects. A clear example of our decisions being guided by a focus on EPS growth. We expect to remain active in terms of capital recycling in the second half. Investor interest in London has picked up from its low point, so whilst we already are ahead of plan in terms of office disposals, this provides us with an opportunity to recycle further capital to fund accretive investment in retail, where we are seeing more opportunities come to market, although not all of those will be opportunities for us. We will to some extent be pragmatic on disposal values as our principal focus should be less on NTA per se and more on ensuring that the NTA delivers growing cash flow, growing earnings and growing dividends for our shareholders. So in that respect, the roughly 200 basis points positive yield spread between office and retail coupled with the superior income growth prospects for the latter is meaningful. which is underlined by the excellent track record of the £1bn of retail acquisitions that we've made over the past few years, where in all cases performance is tracking well ahead of our initial underwrite. We expect to see further opportunities like this to add to our market leading platform, so this remains our key focus in the near term. So whilst we do have a number of development projects that we could start in the near future, we currently see more attractive risk-adjusted returns elsewhere. So we're not planning to commit any meaningful capital to this. In London, we very much see the potential for continued rental growth, but as I explained earlier, our existing portfolio is benefiting from this trend as well. So taking into account the differing levels of risk, we see little upside in selling high-quality existing offices to fund the development of new ones. although we do see an opportunity to leverage our skill set by working with third-party capital to bring projects forward. For residential development, the picture is a little more nuanced, partly because it would help shift our portfolio towards the higher income growth and lower cyclicality asset mix that we aim for, but also because we are seeing a shift in public sector policy, which could be supportive to returns. For example, with the recently announced reduction in affordable housing requirements and community infrastructure levy in London, which for our London projects could add between 50 and 75 basis points to our current net yields on cost of around 5%. Our near-term focus here is now on locking in this upside, so the outlook for returns could look different in 12 to 18 months' time. Until then, CapEx spend will be very carefully controlled and very limited. Looking beyond the near term, we plan to move to structurally lower levels of development exposure over time in any event, as having large amounts of capital tied up in development for prolonged periods has a negative impact on our risk profile and on EPS growth, particularly so in a higher cost of capital environment. Part of this is reflected in our objective to release half of our roughly 700 million capital employed in pre-development assets, where we're making very good progress. But we also plan to keep our own exposure to committed development closer to about half of the roughly £1 billion that it has been in the past. This means that our balance sheet will have a greater proportion of income-generating assets in the future, which supports our objective to grow EPS in a sustainable way and means that our cash-based leverage measures will also improve. With that, I will now hand you over to Vanessa.

Thank you, Mark, and good morning. We have had a positive start to the year with strong operational performance. Our occupancy is at a record high, we're leasing well ahead of passing rent, and our like-for-like income growth of 5.2% is well ahead of our four-year guidance. Reflecting this and the continued positive outlook from here, we have raised both our near-term EPS guidance and our medium-term EPS potential. For the half year, our strong like-for-like income growth and further reduction in overhead costs meant EPRA EPS was up 3.2%, supporting a 2.2% increase in the interim dividend. Our portfolio valuation was effectively stable with NTA per share down slightly at 863 pence. This was principally driven by our capital recycling as we sold nearly 650 million of assets which generated limited or no return, which came at a cost to NTA of 1%. Our capital base remains robust with LTV at 38.9%, pro forma for the disposal since the end of September. And our net debt to EBITDA ticked up in line with the guidance that we set out in May, but we target this to reduce to below seven times within the next two years as our current onsite developments complete and they lease up and we move to a structurally lower level of development exposure in the future. Now turning to income and EPRA earnings. Overall, our net rental income was up 15 million, supported by 12 million like-for-like income growth. This increase was despite the fact that the prior half year benefited from £4 million increase in the recovery of previously provided bad debts, principally relating to a few assets where we bought the management in-house. Surrender receipts were low as well at just £3 million, which means almost all of our rental income for the half year was regular recurring income as the benefit of one-off receipts was limited. Our focus on operational efficiency meant our grace to net margin improved by 130 basis points to 87.7% and overhead costs were down 2 million with further reductions to come. Finance costs increased as expected principally relating to the increase in average borrowings following our acquisitions in the second half of last year and a small rise in our weighted average cost of debt. All combined, this meant EPRA earnings were up 6 million or 3.2%. And this slide shows the movements of how this translates into growth in earnings per share. Our high quality office and retail assets continue to benefit from strong customer demand and our strong operating platforms. And combined, these assets make up 90% of our income. In total, like-for-like income growth drove a 1.6 pence or 6.4% increase in earnings per share for the half year. And further overhead savings, which added 0.3 pence, offset the increase in like-for-like finance cost. Year-on-year movements in other items, which include lower surrender receipts and the bad debt recovery, reduced EPS by 0.9 pence. But the overall benefit to EPS from both items is minimal now, and it's unlikely to have a meaningful impact in the future. The net impact from investment activity was also positive with overall EPS up 3.2%. And as I will explain in more detail in a minute, the outlook for EPS from here remains positive. Our continued growth in income is further enhanced by our improving efficiency. Back in February, we set out a target to reduce overhead costs to less than 65 million by financial year 27. But we've now increased our target savings and we expect overhead costs next year to be in the low 60 millions. This reflects the benefits from our investments in data and technology, which I've talked about previously, and a cultural shift in our organisation to sustain efficiency and maintain a structurally lower cost base going forward. We now expect overhead costs next year to be more than 20 million lower than they were in financial year 23. That's despite 9 million increase from wage costs and inflation. So in total, this marks a reduction in costs of over 25%. Turning to portfolio valuation. Our successful leasing drove 2.5% growth in ERVs over the past six months, with 3.1% growth in office and 2.2% in retail. Both well on track versus our guidance for the full year. The positive impact of ERV growth was partly offset by the continued wind down of the valuation of QAM as the asset is nearing the end of its leases, so the NPV of the future income continues to reduce, and an increase in the business rates at Piccadilly Lights. Combined, these two factors reduced our overall portfolio valuation by half a percent. But as we have agreed to sell QAM and the business rates review was the first since 2021, neither are expected to be continuing factors in the future. This means our overall portfolio valuation was effectively stable. Our main focus is ensuring that we turn this value into growing cash flow, growing earnings and growing dividends for shareholders. With that in mind, we said in February that we would be pragmatic about the value in terms of capital recycling. And the last six months have been an example of this. We sold 650 million of assets which generated little or no return, which came at a cost to NTA of 1% when comparing the proceeds to the book value. Ultimately, these disposals materially enhance our future income growth. Yet this is the main reason our NTA was down 1.3%. And this continues to be underpinned by our robust capital structure, which will strengthen further in the near future. Our average debt maturity remains long at 8.9 years, and we have no need to refinance any debt until 2027 at the earliest. I mentioned in May that we expected our net debt to EBITDA to exceed eight times this year, as our two onsite office developments in London are nearing full investment, but they do not produce any income until they complete in the six to nine months' time. Combined with our pre-development assets, this means we currently have around one billion of capital that's invested in assets that do not produce income. So we carry all the debt for this, but none of the EBITDA. As these projects complete and they lease up and we move to a lower level of development exposure in the future, our net debt to EBITDA ratio will naturally fall. So we're now targeting a net debt to EBITDA of below seven times, down from the previous target of below eight times, which we expect to achieve in the next two years. We also expect our LTV to reduce below 35%, down from our current 38.9%. Our financial risk profile will therefore be even lower in the future, which further underpins the attraction of our growing income and EPS. And the positive. The outlook for both of these is positive. So following the strong first half of the year, we have raised our guidance for like-for-like income growth for the full year to circa 4% to 5%, up from our initial guidance of 3% to 4%. Combined with further cost savings, this means we now expect TPS growth at the top end of our 2% to 4% guidance range that we provided in May. This is before the impact of the sale of QAM, which turns the residual finance lease income of this asset into a cash capital receipt on sale. The overall amount of cash that we receive is effectively the same, but as we will now receive the cash when this sale completes next month, rather than as lease income over the rest of 2025 and 26. This reduces EPRA earnings for this year by 7 million. For next year, we expect like-for-like growth and cost savings to continue, yet the exact outturn in terms of EPS is also dependent on the pace at which we lease up our office developments. As Mark outlined earlier, we are seeing good engagement from potential customers, so we assume our two main projects on average to be 40% let by the time that they complete and leased up in full over the 12 months thereafter. On this basis, we currently expect EPS growth for financial year 27 to be broadly similar to financial year 26, again before the impact of QAM, which reduces earnings for financial year 27 by a further 15 million. As the impact on EPS from the sale of QAM beyond financial year 27 is minimal, this means we're on track for our medium-term EPS growth potential that we've outlined. So turning to that in more detail, back in February we set out the potential for EPS to grow by around 20% to 60 pence by financial year 30, including the headwinds of QAM and the higher finance costs. We now raise this outlook to 62 pence, driven by higher income growth in retail, a further reduction in overhead costs, and a move to a lower level of development exposure. So let me just take a moment to explain the movements, the moving parts in a bit more detail. So starting with last year's 50.3 pence, the sale of Quam, which I just explained, had an impact of just under three pence. By far the biggest part of future growth is capturing the growing reversion in our existing portfolio. As you can see from our strong operational performance, we have a good track record of this with 5.2% like-for-like income growth for the first half across the whole portfolio. building on a 5% like-for-like growth that we reported last year. Our office portfolio is 12% reversionary, and our numbers here assume that we deliver like-for-like rental growth of 3% to 4% per annum, which is a more normalised level than over the last six months, given that our office portfolio is now effectively full. At our Capital Markets Day in September, we set out how we target to deliver income growth across our retail portfolio between 4.5% and 7% over the next few years. Where rental uplifts are now up to 14%, turnover income is growing, and we're seeing the benefits of accretive capex. This outlook is based upon the midpoint of this range. The upside from further overhead savings I set out earlier equates to about one and a half pence and we have a good track record of delivering on this too. Our recent acquisitions and disposals, which include Liverpool One and the sale of our retail parks, have a net benefit of around one pence. And as Mark mentioned, we are ahead of plan in terms of our objective to halve our capital employed in low and non-yielding pre-development assets, which will add around 1.5 pence per share from interest cost savings. And the lease up of a new term office completions will add around two pence. The upside from future asset rotation effectively reflects our plans to recycle more capital out of lower return assets and invest a further one billion into major retail destinations. As our planned capital recycling out of offices into residential is broadly EPS neutral on this timeframe and will mostly benefit EPS growth beyond financial year 30. So taking into account the expected rise in finance costs, all this equates to just over 4% annual growth. Delivering sustainable income and EPS growth well over time result in an attractive return on equity. So with a strong capital base and attractive existing income return, we are well placed to drive substantial shareholder value. And with that, I'll hand back to Mark.