Land Securities Group plc

Ladies and gentlemen, good morning and welcome to the presentation of Landsec's 2026 full-year results. Landsec is in excellent shape. Customer demand for our places remains very high and with supply increasingly constrained, occupancy across our portfolio has risen to its highest level in more than two decades. As a result, rental values continue to rise, now at the fastest pace in nearly 20 years. And we have carried this momentum into the new financial year, with one million square foot of active occupier demand across our recent office projects, a record leasing pipeline in retail, and no signs of weakening demand arising from the Middle East situation. This supports continued strong income growth from here, and with that, an acceleration in EPS growth in both the near and medium term. For this year, as we previously guided, we expect reported EPS to be stable due to the impact of last year's sale of Queen Anne's Mansions, offsetting strong underlying growth. But based on our current momentum, we expect EPS for FY28 to grow by a high single-digit percentage. And this means that we remain on track to deliver compound annual growth in EPS of around 5% between now and FY30. which on top of an existing income return NTA of 5.8% implies an attractive low double digit total return annually for shareholders. Our operational performance has shown consistent growth over the last few years, despite the elevated uncertainty in the external macro environment throughout that period. This reflects the uniqueness and resilience of our high-quality portfolio and our market-leading operating platforms, with occupancy rising steadily to now 98%. With our portfolio effectively full, the upward pressure on rents has continued to build, and uplifts in rent on re-lettings and renewals virtually doubled over the past year to 15%. As a result, we delivered 4.6% growth in like-for-like net rental income for the year ahead of our initial guidance and a robust 4% compound annual growth over the last four years. Although the global macro outlook today is once again uncertain, the rapidly growing reversion in our high-quality portfolio means that the potential for future income growth is well underpinned regardless. Over the past few years, we have sought to reinforce this positive portfolio outlook through strategic discipline by actively positioning Landsec for a higher inflation, higher interest rate environment. Our average debt maturity of 8.6 years is now twice as long as the UK REIT sector average, which combined with around 90% fixed rates means our earnings are well protected against volatility in interest rates. We have brought our overhead costs down to their lowest level in 20 years, which means our future income growth flows through to earnings more readily. And our development exposure will be down to just 2% of our portfolio value by the summer, with no plans to add meaningfully to this in the near term. And with just 185 million capex left to spend and no need to refinance any debt until 2028, we are in no way reliant on disposals or new financing to fund any commitments. So alongside a clearer, stronger growth outlook, we have actively now moved the business to a lower risk profile. And all of this is reflected in another set of positive financial results. Driven by our strong like-for-like income growth and a 15% reduction in overhead costs, our 2.2% growth in EPRA earnings was at the top end of our guidance for the year, factoring in the 1.8% impact on EPS from the earlier than planned sale of QAM that was not part of our initial guidance, which gave rise to 2% growth in dividends, Our NTA per share was up 0.9% for the year, 2.2% in the second half, after having absorbed the 1.1% cost to NTA of selling over £700 million of assets, which generated little or no return. Whilst LTV was down slightly to 38.7%, and net debt to EBITDA improved to 8.4 times. And we expect this to reduce to below seven times over the next two years, driven by the lease up of our latest developments and continued like-for-like income growth. Combined with our lower cost base and strategic discipline, this means our ongoing income growth will increasingly flow through to an acceleration in EPS growth. There are two very clear trends that support our positive outlook. Firstly, whether it's in retail, driven by a need to maximise consumer reach efficiently, or in office, with a need to attract and retain the best talent, occupied demand is increasingly concentrated on the very best space. Secondly, with development viabilities under pressure, the supply of space of the right quality is very heavily constrained. And that's why our portfolio occupancy is now at its highest level since 2003 and ERVs are growing at their fastest pace since 2008. Prime commercial real estate is emerging as a clear winner in a tech-enabled world. In retail, the top 1% of retail destinations in the UK provide brands with access to almost one third of all in-store retail spend. Unsurprisingly, therefore, this is where, for example, around 90% of all Apple, Inditex, Uniqlo and Sephora stores are located. And it is where 85% of our portfolio is located. Effective curation of the brands shoppers want drives growing footfall and consumer spend. This in turn results in higher demand for space for brands and so on. Over the past four years, sales in our destinations have grown by around seven times the UK national average, outperforming by a total 19 percentage points over that time. So brands continue to focus on our destinations when it comes to investing in fewer, bigger, better stores. Occupancy rises, rents grow. And with replacement costs around double current values, new supply is and will remain effectively zero. In our offices, it's a similar story. There's roughly 900 million square feet of office space across the UK. So with a 5 million square foot portfolio, we own just half a percent of the UK office market, and not just any half percent. Virtually all of that space is located in the two most highly valued locations in the country, the West End and the city, including Bankside. These locations consistently rank as number one or two of the top destinations in the world for international businesses. as they provide the very best access to and conditions for talent. And even within these highly prized locations, we are significantly outperforming benchmarks, as our occupancy of almost 99% is well ahead of the 93% for central London as a whole. Meanwhile, net new supply is very limited, partly reflecting the well-understood challenges of bill cost inflation and higher interest rates constraining development, but also space being taken offline or repurposed. For example, in Victoria, where around 45% of our London portfolio is located, expected new development supply over the next three years is almost entirely offset by the potential loss of space from offices which are in the process of being converted to alternative uses, such as residential or hotel. As a result, rents for the best locations continue to rise, with recent lettings across our existing Victoria estate now well in excess of £100 a square foot. The ongoing adoption of emerging technologies such as AI is only likely to accelerate consumers' or customers' focus on the very best space. Whilst back office and processing roles are set to reduce, the impact of this in central London is more than offset by the creation of new roles and indeed new businesses enabled by technology. And then there is the demand driven by large businesses concentrating their office space in vibrant business districts as opposed to out-of-town business park locations. A good example of this is our recent major letting at Timber Square to BP, which is consolidating much of its operations from just south of Heathrow into the centre of London. So the drivers of occupied demand in central London, certainly for our assets, are encouragingly diverse. And you can see this in the roughly one million square feet of active demand across our latest developments. Customers more often than not see new technologies as an opportunity to improve productivity and to grow, rather than simply as a trigger to reduce headcount and space requirements. In retail, customers expect the rise of AI and agentic commerce to put even more focus on the value of the physical experience and customer connection as part of a wider unified commerce ecosystem. Brands will need to invest more in their spaces to deliver the right experience, adding further weight to the fewer, bigger, better thesis. And the fact that we opened or exchanged contracts with more leading expansionary brands such as Sephora, Uniqlo, Pull & Bear, Lefty's and other Inditex labels over the past 18 months than any other UK retail platform simply highlights the enduring appeal of our destinations. In an environment that is changing rapidly, our edge is clear. We have two market leading platforms and an irreplaceable portfolio focused firmly at the very top end of the market where customer demand is strongest. Reflecting this, we've had another strong year in terms of operational performance. In retail, rental uplifts continue to trend higher, as shown here on the left, whilst occupancy is up 100 basis points to almost 98%, and that's the highest that it's been since the early 2000s. Growth in like-for-like income rose to 5.5%, and we signed, or enlisted as hands, on 49 million pounds of leases, on average 11% above ERV. This drove an acceleration in ERV growth to 5.8%, and that's comfortably ahead of our initial guidance of similar growth to last year's 4%, and it's the highest rate of growth in over 20 years. This further adds to our future income growth potential. Building on the unique data and insights that our market-leading UK platform provides, we continue to invest in creating experience-led places with a record number of new lettings. That means footfall on our locations is growing well ahead of the UK market average. So we are gaining market share. This drives sales growth that in turn attracts more leading brands, which alongside enhancing our social, eating, dining and leisure offer leads to higher footfall, which then drives higher sales and so on. As a result, we remain confident in our potential to deliver 4.5% to 7% growth in net rental income per year from our existing retail platform over the next few years, driven by capturing the growing reversion in our portfolio, growing turnover rents and commercialisation income, and selective capex investments into highly accretive smaller projects. In office, occupancy is now nearly 99%. Uplifts on re-lettings and renewals increased to 14% compared to 10% for the prior year, and this drove 6% growth in like-for-like income. We signed or are in solicitor's hands on £21 million of lettings, on average 7% ahead of ERV, and this drove 7% growth in rental values, well ahead of our guidance of similar growth to the 5% for the prior year. and the highest level that we've seen in our office portfolio since the EU referendum 2016. Our portfolio is effectively full, yet our reversionary potential has jumped now to a high 17% and the potential income upside on lease events remains clear. This strength in customer demand bodes well for our latest London office completions. and we've made strong progress in terms of leasing since our half-year results. So our three recently completed projects are now 54% let, with interest in the form of negotiations, requests for proposals, or active engagement covering substantially all of the remaining space. ERVs have increased meaningfully, especially so for 30 High, which is due for sectional completion over the summer. With completion nearing, this is now also seeing strong customer engagement, so we expect this to translate into good leasing activity over the next few months. In total, we now expect these projects to generate £63 million of net effective rent once let, with an associated incremental £43 million of annualised interest expense. So based on current momentum, we continue to expect all projects to lease up within around 12 months of completion, consistent with previous guidance, which will drive strong earnings growth for FY28 in particular. So turning now to capital allocation, and we continue to base our capital allocation decisions on this clear framework, which is underpinned by our commitment to retain our strong balance sheet. This framework 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. We constantly monitor for changes in risk and return prospects, yet at this stage, our priorities for the next 12 to 18 months remain broadly unchanged. As such, we will continue to explore opportunities to recycle capital out of lower returning assets, including offices, as we have done over the past year. And we will continue to prioritise investment into retail, given the high income returns and attractive income growth on offer. To create capacity for this, we do not plan to commit any meaningful capital to new development over this period. And that means that our net debt to EBITDA ratio will reduce meaningfully. Based on this framework, we've had an active year in terms of capital recycling. Our largest disposal was Queen Anne's Mansions. This was an asset that generated zero total return despite its high short-term income profile as the valuation depreciated exactly in line with every quarterly rent receipt until the end of the lease, at which point the asset requires substantial redevelopment. Aside from the impact of turning the residual finance lease income into a capital receipt up front, this sale has essentially no impact on earnings and de-risked the remaining value of the site by transferring planning risk for a change of use to the buyer. We also sold two pre-development assets, which were generating a negative income return and would have required over £400 million of capex to build out, as well as four retail parks and two smaller offices in London. All in all, this means that we sold just over £700 million of assets which were generating limited or no return. This came at a cost to NTA of 1.1% when comparing sales proceeds to 2025 book values, and that was reflected in our half-year numbers, but it's in line with the goal of our capital allocation framework. It significantly enhances our future income and EPS growth prospects. As we prioritise investment into retail, we are not planning to commit any meaningful capital to new development over the next 18 months. In London, we expect office rents to continue to grow, but as we have demonstrated over the past year, our existing portfolio is very well placed to capture this growth. So taking into account the materially higher risk involved, we do not believe that returns for new office development offer a sufficient premium versus our high-quality existing portfolio to justify selling existing offices to fund the development of new ones. In residential, we continue to view the long-term demand-supply imbalance as compelling and are drawn to the long-term characteristics of higher inflation-linked income growth and lower cyclicality. Development viability for residential remains challenging, but over the past year we have made substantive, positive progress in improving the viability of our build-to-rent pipeline with proactive public sector support and important enabler, such as the government and GLA's package of acceleration measures for London. We can now see a potential route to viability for the most progressed of our projects, and in the year ahead we'll seek to bottom out whether or not these projects are capable of proceeding. CapEx spend will remain very limited as we do so, and holding costs are low, but we continue to consider the time investment to be worthwhile. If we are able to secure viable returns, lead times are still such that the earliest start dates would be late 2027. So as a result, our committed development exposure will reduce to less than 2% of portfolio value by the summer, down from on average around 1 billion, closer to 10% over the last couple of years. and it will likely stay at this level for the near future. But even over the longer term, it will remain well below where it has been historically as we move to a structurally lower level of capital tied up in development. Supported by the positive outlook for rent and interest rates, investment market activity in both office and retail recovered steadily across 2025 and into the first few months of 2026. It's too early to assess what the longer-term impact of the Middle East conflict on this growing momentum might be, but we are mindful that the renewed uncertainty around interest rates could impact investor decision-making in the near term. It is worth stressing, however, that interest rates are only one factor, and others, such as confidence in rental growth prospects and returns relative to alternative options, are all stronger than they were a year ago. For us, the near-term focus in capital recycling remains unchanged. We will aim to continue to monetize further pre-development assets as these generate zero income return and would require significant CapEx to build out. We will also look to monetize further capital in offices as the potential upside from recycling capital into major retail destinations at around a 200 basis points higher net effective income yield and higher income growth is meaningful. We will, however, be a disciplined seller. and we remain highly selective on quality, price, and capex risks in retail investment, which is why we chose not to progress any opportunities last year. We do, however, have decent visibility on future opportunities which are likely to come to the market over the next year or two. Capital rotation remains an important part of our longer-term strategy, but we are not relying on this to drive growth, as around 80% of our potential EPS growth by FY30 is driven entirely by our existing portfolio and platform. So with that, I will now hand you over to Vanessa.

Thank you, Mark, and good morning. It has been another positive year for Landsat, driven by the quality of our portfolio and strong operational execution. With occupancy and rental growth at record highs, our growing reversion gives us good visibility on future income growth and it leaves us well placed to accelerate EPS growth over the near term. In financial year 26, like-for-like income was up 4.6%, and overheads reduced significantly. As a result, our EPRA EPS increased 2.2%, despite the 1.8% EPS impact from the earlier-than-planned sale of Queen Anne's Mansions. And that supported a 2% increase in the dividend. Portfolio valuation was up 1.2%, with NTA per share up 0.9% for the year and 2.2% in the second half. We also reduced net debt by almost £100 million, taking LTV lower to 38.7% and reducing our net debt to EBITDA to 8.4 times. and with under 200 million of development capex still to come, net debt to EBITDA should reduce meaningfully in the near term as we lease up our new developments. So our balance sheet remains in a strong position. The main driver of that performance was strong like-for-like rental growth, with growth of 4.6%, well ahead of our initial guidance, and it was in line with our revised guidance that we gave in November. Office and retail, which together represent over 90% of our income, both performed strongly with growth of 6% and 5.5% respectively. And occupancy in both portfolios reached new highs, and our focus on efficiency helped us to lift our operating margin by 160 basis points to 87.1%. At the same time, uplifts on re-lettings and renewals virtually doubled to 15%, showing a growing reversion across the portfolio. Customer demand remains strong, and that continues to support further growth. Our office portfolio is now 99% full, so future like-for-like growth in offices will mainly come from capturing the reversion at lease events. So while we expect office growth to moderate a little, in the year ahead we still expect 3-5% like-for-like income growth overall. The second key driver of earnings was a continued reduction in overhead costs. These were down 15% last year to £62 million, well below our guidance of below £70 million. In fact, we have already delivered our financial year 27 target of reducing our overheads to the low 60 millions. And that improvement reflects the investments that we have made in data and technology over the last few years, which are now helping to automate core processes and improve our insights to drive further value. And taken together, overhead costs are down more than 20 million over the last three years, and are now at their lowest level in over 20 years. Looking ahead, we expect overheads to stay in the low 60 millions, with further efficiencies offsetting inflation, which means most of our income, more of our income, will flow through to earnings and dividends. And that earnings growth is also supported by our resilient funding profile. Our 8.6 year average debt maturity is the longest in the UK REIT sector and it's twice as long as the average for the rest of the sector. We also have no need to refinance debt until 2028 and 89% of our debt is fixed or hedged. Our average cost of debt is 3.6%, and this will rise only gradually over time. Because our maturities are so long-dated, we expect average debt costs to stay comfortably below the marginal cost of borrowing well beyond the next decade. And that gives us strong protection from interest rate volatility. You can see the benefit of those three key drivers clearly in this year's EPS Bridge. Like-for-like income growth of 21 million added 2.8 pence to EPS, and 11 million of overhead savings added a further 1.5 pence, more than offsetting the like-for-like increase in finance cost. The year-on-year movements in other items reduced EPS by 1.5 pence, which was driven by two factors. The benefit from the recovery of previously provided bad debts, normalising to 2 million, following an increase in the prior period, while surrender receipts were also minimal at just 4 million. Both items now have only a minimal EPS benefit, so we don't expect a meaningful impact from them in the future. So almost all of this year's income was regular recurring rental income with little benefit from one-off receipts. Regular investment activity had a net impact of 0.3 pence, so EPS was up 4% before the effect of the earlier than planned disposal of QAM. That was at the top end of our initial guidance. Including this disposal, EPS was up 2.2%. The trends behind this strong operational performance remain very much in place, so the near-term outlook for EPS growth is positive. As we guided in November, we expect EPS this year to be stable versus last year, with underlying growth offset by the annualised impact of the QAM sale, which has a 4% impact on EPS. But given the momentum that we have today, we expect EPS growth in the financial year 28 to be in the high single digits. That comes from continuing to capture our growing reversion and from leasing up our recent London office developments. As Mark said, demand for the space is strong and we are already making good leasing progress. We typically assume that developments lease up within a 12-month period of completion, whilst we stop capitalising the interest as soon as the project is complete. And that timing gap between incurring the interest and receiving the full income means we expect a temporary earnings drag from these developments in this financial year of between £6 and £8 million. But this should be more than offset the following year, as these projects are expected to add 20 million to earnings once they're fully let, supporting high single-digit EPS growth in financial year 28. And this is also a key part of the meaningful reduction in net debt to EBITDA that we expect over the next two years. Our current ratio reflects the fact that net debt includes one billion of capital employed in our recent London office developments, but we received virtually no income from these developments last year, as three of them have only recently completed and 30 high is due to complete in the next few months. We're not planning to start any new development in the near future and we're reducing our investment in pre-development assets. So as we continue to capture reversion in our existing portfolio and lease up the developments, we expect net debt to EBITDA to fall below seven times within the next two years without material disposals. The strong capital base this provides is further underpinned by our other balance sheet metrics. Portfolio valuation was up 1.2%, helped by leasing activity that drove 6.4% TRV growth, the highest level in nearly 20 years and comfortably ahead of guidance. Yields were virtually stable, although the benefit of that strong ERV growth was offset by two isolated factors. These were the increase in business rates at Piccadilly Lives, which I mentioned six months ago, and a valuation reduction in office development assets due to higher build costs. Together, these two factors reduced the overall portfolio valuation by 1.1%. And the disposal of around 700 million of assets which generated limited or no returns had a 1.1% cost to NTA in total accounting return, as reflected in our half-year results. Even so, NTA was up 0.9% for the year and 2.2% in the second half. And with net debt down nearly 100 million, LTV reduced to 38.7%. And we recognise that renewed uncertainty around global interest rates could affect investment markets in the near term. But over the long run, income growth drives value growth in real estate. And the record rental growth across our portfolio shows that upside continues to increase. So we remain well-placed to accelerate EPS growth over the next few years. In November, we raised our outlook for potential earnings per share for financial year 30 from 60 to 62 pence, and today we reiterate that outlook. Let me briefly talk through the moving parts. Starting with last year's 51.4 pence, the sale of QAM has a residual EPS impact this year of 2 pence. The largest driver of future EPS growth continues to be capturing the growing reversion in our existing portfolio. Over the last four years, we have delivered 4% compound annual growth in like-for-like net rental income, and over the same period, the reversionary potential in offices has tripled to 17%, and uplifts in retail lettings and renewals have also grown to 15%. So we have clear visibility on delivering our outlook, which assumes around 4% growth in like-for-like income per annum from here. Having now delivered our targeted overhead savings, the second largest contributor is leasing up our current London office developments, which will add around three pence. Our recently completed schemes are already 54% let, with strong interest in the remaining space pushing ERVs higher. So this is another area we have good visibility. Further reducing capital employed in low or non-yielding pre-development assets will add around one pence per share through interest cost savings. Whilst global interest rates have increased since November, the impact on our future earnings growth is largely mitigated by our long-dated maturities and hedging profile, and further offset by the increase in ERV on both our existing portfolio and recent developments. Future asset rotation gives us further upside as we plan to recycle more capital out of lower return assets and invest around £1 billion in major retail destinations. Our planned recycling from offices into residential is broadly EPS neutral over this period, with the EPS benefit coming beyond financial year 30. So we remain well placed to deliver on average 5% EPS growth per year between now and financial year 30. And that is on top of our existing strong income return of 5.8% on MTA. Around 80% of that growth comes from our existing portfolio and platform. So we are not reliant on investment market activity to deliver attractive EPS growth. And as development exposure is coming down, our risk profile is reducing, leaving us well-placed to deliver substantial shareholder value. And with that, I will hand back to Mark.

So thank you, Vanessa. So I'll now wrap up with a summary of what you can expect from us in the year ahead, where we see the differentiation and opportunity for land sec, and then we'll open to Q&A. So over the last few years, we have actively positioned land sec for a higher inflation, higher interest rate environment. The updated strategy that we set out just over a year ago encapsulated this, as it clearly sets out our primary focus as being delivering sustainable income and EPS growth for our shareholders. All our priorities and decisions flow from that, whether that's the decision to materially reduce our development exposure, our proactive approach to reducing overhead costs, or taking advantage of market windows to turn out debt, or indeed repositioning and refining our portfolio. Over the last five years, we sold nearly 4 billion of largely mature assets and reinvested a broadly similar amount in high quality new acquisitions and well-timed developments. This resulted in the two irreplaceable portfolios and best-in-class platforms that we have today. So our focus now is on maximising the potential of these by driving continued like-for-like income growth and leasing up our latest developments. We aim to supplement this by rotating further capital out of offices into retail over time, yet the contribution to EPS growth from this is relatively modest compared to the upside embedded in our existing portfolio. So we will judge, we will time this as we judge market conditions to be most suitable. Meanwhile, our current capital employed in residential is low and focused on high quality opportunities. So we're focused on securing viability for these projects as the longer term fundamentals of this space remain attractive and are worth the effort. CapEx here in the year ahead will be minimal. All this means that our differentiation remains clear. Our primary focus on sustainable income and EPS growth provides absolute clarity across our entire business. And our clear capital allocation framework means we are rational about investment decisions in pursuit of this financial objective as we move to an even stronger capital base. At the same time, customer demand remains high. Our occupancy is up to a two decade high, rents are rising at their fastest pace in nearly 20 years, which adds to our growing reversion and means the upside in terms of future income growth is abundantly clear. And as our overhead costs are now down to a 20-year low, with our savings target hit a year ahead of schedule, this top-line growth will increasingly flow through to an acceleration in EPS growth. Lansac is now positioned with a lower risk profile and a clearer, stronger growth outlook. With an existing income return at NTA of 5.8%, the potential to deliver around 5% EPS growth per year between now and FY30 supports an attractive total return outlook for shareholders. Ladies and gentlemen, thank you very much. I'm now going to open up for Q&A. As usual, we'll start with Q&A here in the room. We have handheld mics, if you could just wait for a mic after you've raised your hand. And then I'll move to questions from anyone attending on the call, and finally, the webcast. So first question is just down here on the right, and then in the middle with Paul at the back there. Three rows back, sorry.