Land Securities Group (LSE:LAND) Q2 2027 Earnings Call

0:00 Ladies and gents, good morning and welcome to the presentation of Landsec's 2026 half-year results. So the past six months have been another period of successful delivery against our strategic objectives. We have further strengthened the quality of our best-in-class portfolio, delivered strong operational results and continued to improve our risk profile. As a result, we have enhanced both our near-term EPS outlook and our medium-term income growth potential. And we have strengthened our sector-leading capital base. Our recent equity issue and major retail acquisitions add further to the high single-digit EPS growth we expect next year and our momentum over the first half has reinforced our potential to deliver compound annual growth in EPS of around 5% through to FY30 with around 90% now derived from our current portfolio and platform.

1:04 On top of an existing income return at NTA of 6%, that means that we remain well placed to deliver an attractive low double digit annual total return for shareholders. Over the last six months, we have continued to enhance our income growth potential. Customer demand remains concentrated on the very best locations and the scarcity of high quality assets like ours coupled with our market leading operating platforms meant that like for like income growth increased to 6.2%. Our recently completed London office developments are now almost full, adding £13 million of annual rent since May. And our capital recycling has contributed too, with a 280 basis point higher yield and materially higher income growth for the £633 million of assets we bought compared to the £338 million we sold.

2:02 As our entire portfolio is virtually full, this continues to apply upward pressure to rents. So our reversionary potential has reached new highs for both office and for retail. Our strategic discipline means our top line income growth will flow through to an acceleration in EPS growth. Our average debt maturity of 8.1 years remains twice as long as the UK REIT sector average so combined with around 90% fixed rates this means that our earnings are protected against volatility in interest rates. We have continued to reduce overhead costs now down 29% in four years to their lowest level in over two decades.

2:47 Thank you very much. Our EPRA EPS was stable in line with our full year guidance as the growth in earnings from our strong operational performance offset the 5% impact of the sale of Queen Anne's Mansions in the second half of last year. Shortly after the period end, we raised £500 million of new equity to fund the £611 million acquisition of Metro Centre and a further stake in Bluewater, two top 10 UK shopping centres.

3:41 and this has improved our FY28 EPS growth and enhanced our medium term income growth outlook. Whilst alongside further disposals, it has helped reduce our LTV to 37.1% and net debt to EBITDA to 7.7 times. And we expect that to reduce comfortably below seven times driven by the lease up of our London office developments and continued like for like growth. So our capital base remains strong. As a result, we expect to deliver high single digit EPS growth next year with sustained growth beyond that, supporting continued growth in dividends. And there continue to be two clear trends that support our positive outlook and both look to have a long way to run.

4:32 Firstly, customer demand remains highly concentrated on the very best space. For offices, this reflects the need to attract and retain the best talent who not only expect a high quality building, but also a great place with exciting amenities and efficient transport connectivity. Our success in creating such places is reflected in the broad range of business demand that we see across our portfolio. For retail, this reflects a need for brands to maximise consumer reach efficiently, which we offer, given that we have 25% more footfall than any other UK retail platform and a consumer reach of nearly one third of the UK population. And secondly, new supply is highly constrained, as development viability has deteriorated in office and remains non-existent in retail.

5:27 and that's why for our portfolio, occupancy remains close to its two decade high and ERVs continue to grow, up 2.9% over the six months. In retail, the distinction between the very best space and the overall market continues to widen. The top 1% of all retail destinations in the UK provide brands with access to almost one third of all in-store retail spend. This is where close to 90% of our portfolio resides and where demand from brands is concentrated. The outcome of this is incredibly clear. Over the past four and a half years, sales growth across our portfolio has outperformed the UK average by some 24 percentage points.

6:16 Curating the destinations consumers want attracts more of the best brands, which in turn drives more footfall, which then drives higher sales, and so on. As such, brands continue to invest in fewer, bigger, better stores in our destinations. And as these are now 98% full, rents are growing. Our retail strategy is not predicated on the strength of the UK consumer. It is all about dominant locations increasing market share. In offices, it's a similar story. We own 5 million square feet of offices, which is half of 1% of the total office space in the UK. Virtually all of this is located in the two most prized office locations in Europe, the West End and the city, including Bankside.

7:08 These are the locations where international business demand is concentrated, as these locations provide the very best access to global talent. As a result, office-based employment in London has grown at roughly 10 times the rate of the rest of the UK over the past four years. And even within these prized locations, we are outperforming as our 98% occupancy is well ahead of central London as a whole. As supply of new space remains modest due to the pressure on development economics, rents in our portfolio continue to rise. In a world which continues to evolve rapidly, our unique edge is clear. We have two best-in-class portfolios, focused firmly at the very top end of the market where customer demand is strongest.

7:58 Both portfolios continue to materially outperform and deliver consistent income growth despite continued macro volatility. Both portfolios are also highly reversionary, with upside against current in-place income reaching new record highs. For office, our reversionary potential has risen now to 20%, whilst for retail, uplifts on re-lettings and renewals have grown to 17%. Combined, these portfolios make up 92% of our income, which shows the high income growth embedded in our business. At the same time, we have two market leading operational platforms which deliver gross to net margins that are around 400 basis points higher than our direct sector peers.

8:46 This reflects the quality and scale of our platforms and means that more of our top line income growth drops down to sustainable growth in earnings. And as I said a moment ago, these key trends look to have a long way to run. So we have had another six months of strong operational performance. In retail, we hit new records across all of our main leasing KPIs. We signed or are in solicitors hands on £29 million of new leases, on average 12% ahead of ERV, a new high. Uplifts on re-lettings and renewals are up to 17%, also a new high. Thank you very much.

9:53 Such as Lefty's, Inditex's latest brand, who just opened their first UK store in Liverpool. Of their first four stores in the UK, three will be in our portfolio. As demand remains robust, we are on track against our target to deliver between 4.5% and 7% growth in income per year from our retail platform by FY30. Thank you. The attraction of the place we have created here is reflected in the fact that retail and F&B sales are up 25% over the past three years.

10:56 Occupancy reduced 90 basis points from the decade high that we reported in March, mostly reflecting lease expiries and our sole asset in Paddington towards the end of the period, but this has already improved since then, and at 98% the portfolio remains virtually full. Uplifts on re-lettings and renewals were 11%, so combined with strong uplifts on rent reviews and growth in MIO income, this resulted in 5.4% growth in like-for-like income. This was ahead of expectation and reversion also continues to grow, with ERVs up 3.4%, tracking ahead of our full-year guidance. Our reversionary potential is up to £50 million, and as customer demand remains strong, we now expect marginally higher like-for-like income growth over the next few years than we had previously envisaged.

11:49 This strength in customer demand also extends to our London office developments. We have made strong progress on leasing since our full year results in May. So our three recently completed projects are now 88% let or under offer. That's up from 54% back in May. Principally leaving us two floors remaining at Timber Square where we are seeing plenty of interest. Completion of our fourth scheme, 30 High, has been delayed by up to six months due to an issue which arose during testing and commissioning. This issue has since been resolved and as we can still start fit out works before the revised completion date the impact on leasing is expected to be limited. And as a result we do not expect this to have a material impact on either total development cost or our filled earnings guidance.

12:41 And 30 High is now 11% under offer with good interest in the remaining space. Overall ERVs increased 4.4% and we continue to expect our projects to lease up within around 12 months of completion. So this will drive strong earnings growth in FY28. Turning now to capital allocation. We've had an active half year with around £1 billion of transactions demonstrating excellent progress against our strategic objectives. Since our strategy update in early 2025, we have now invested around £700 million in major retail, which means we are ahead of plan versus our target to invest £1 billion in three years. And we expect to see further opportunities in the next 12 to 18 months.

13:32 Since our strategy update, we have also sold £1 billion of offices, non-core assets and non-yielding pre-development assets, which means that we're on track against our target to sell around £3 billion of those assets over five years, and that's despite the prolonged slowdown in investment market activity in offices. Still, there continues to be investor demand for the right assets, and we expect to make further selective disposals over the next six to 12 months. Our two main acquisitions were Metro Centre and a further 10% stake in Bluewater, taking our ownership stake there to 74%. Both are top 10 UK shopping centres by sales and offer attractive day one income returns plus significant future growth potential.

14:21 For both, there is also a clear opportunity for us to add more value beyond the attractive in price. At Metro Centre, the efficiency of our operating platform that is offered by our operating platform is expected to add around 40 basis points to the 7.9% income yield in the near term. And we have very clear asset management plans building on experiences elsewhere across the portfolio that will drive further growth from there. Bluewater, simplifying the ownership structure from three to one co-investor improves operational flexibility, improves efficiency and allows us to accelerate our growth plans. With three of the top 10 and eight of the top 30 centres in the UK, our platform offer to brands is unquestionably market leading.

15:09 and these acquisitions are building further on an already strong track record in major retail over recent years. As so far we have delivered 14% income growth and a 15% unlevered IRR across the nearly £1 billion of acquisitions we've made over the past two to five years. This was not just driven by acquiring well but also reflects the improvements that we've delivered since in terms of right sizing store counts, introducing new brands, enhancing shopper appeal and improving margins. All of which we see opportunities for at Metro Centre as well. Since the start of the year we've continued to recycle more capital out of assets which offered lower income and or lower income growth. We have sold a 1970s office building where around one third of the space will be vacated next year. As this will require capex to re-let and a prolonged period of elevated vacancy, the expected income yield on this over the next five years is modest and the five-year income growth below inflation.

16:11 We also sold a pre-development site in the city which generated a negative income return. We are acting as the development manager for the purchaser which generates fee income and allows us to retain and leverage valuable skills and expertise but saves us committing £400 million of balance sheet capital ourselves. And lastly we sold half a dozen smaller assets which offered a decent yield but limited growth. Together these disposals release almost £340 million of capital and marginally improve EPS. We continue to prioritise investment in retail, so we are not planning to commit any meaningful capital to new development over the next 18 months. In London office, the outlook for rental growth remains strong, but as we have demonstrated again today, our existing portfolio is very well placed to capture this.

17:05 Given the much higher risk, returns on new office development in our view do not offer enough of a premium against the returns on our existing offices to justify selling these to fund the development of new ones. In residential the long-term demand supply imbalance is attractive yet development viability remains challenged. We have made good progress on improving viability at Finchley Road having secured an improved planning consent which reduces the level of affordable housing and community infrastructure levy and we continue our constructive engagement with our public sector partners to unlock viability improvements at Mayfield. We are mindful that the external environment continues to evolve so we will continue to invest time in seeking to bottom out whether or not these projects are capable of proceeding but capex spend will remain very limited in the meantime.

17:55 Meanwhile we have decided not to pursue the redevelopment of Lewisham as returns are not sufficiently attractive and the opportunity cost of preserving development optionality was rising. Now that leasing in the existing retail centre is no longer being held back by the potential redevelopment, our focus will be on driving income. If we are able to secure viable returns on our other schemes, lead times are such that the earliest start dates would likely be in 2028. So as a result, our committed development exposure will come down to less than 2% of our portfolio by year end. and this will likely stay at this level in the near future and even over the longer term it will remain well below where it has been historically although we will continue to invest in our existing portfolio to ensure that it remains best in class.

18:45 All this is based on our clear capital allocation framework which 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. Maintaining our strong balance sheet will always remain our first priority and we continually monitor for changes in risk and return prospects yet for now our priorities for the next 12 to 18 months are broadly unchanged. We will aim to monetise more pre-development assets as these generate no income and require significant capex to build out. We will also look to monetise further capital in offices as the upside from recycling capital into major retail destinations at a roughly 200 basis points higher income yield and higher growth is meaningful.

19:36 As retail is clearly the most accretive opportunity for us, this is where we will continue to focus new investment. So with that I will now hand you over to Vanessa.

19:53 Thank you Mark and good morning. Our financial results reflect our strong operational performance and progress against our strategic objectives. Our EPRA EPS was stable in line with our four year guidance with 6.2% like for like income growth and further overhead savings offsetting the impact from the sale of Queen Anne's Mansions. The external valuation of our portfolio was up 0.8% driven by 2.9% growth in ERVs. You'll find more detail on valuation movements in the appendix, but this meant NTA per share was up 1.2% over the half year. And following our £500 million equity raise to fund the acquisitions of Metro Centre and Bluewater shortly after the period end, NTA per share was down 2.2% on a pro forma basis.

20:50 and these transactions improved our near-term EPS growth, increased our medium-term income growth potential and strengthened our balance sheet. As a result our LTV is down to 37.1% and net debt to EBITDA is down to 7.7 times. Together with record reversion across the retail and office portfolios our progress over the last six months has created greater visibility on our future income growth. This will lead to an acceleration in EPS growth in financial year 28 and beyond supporting continued growth in dividends. and our performance over the past six months shows the upside coming through.

21:40 Like for like, net rental income growth increased to 6.2% ahead of our four year guidance and rental uplifts on re-lettings and renewals reached a new high of 16% as we secured strong uplifts on rent reviews in office whilst we also grew turnover rents in retail. and with reversion at new highs there was still significant embedded upside in our portfolio beyond that. And we've also continued to improve our operating margin which was up 100 basis points and is now almost 200 basis points above the target that we set at our strategy update in February last year. That puts our margins around 400 basis points above our direct office and retail peers, showing the value of our platform's quality and scale.

22:36 As a result, we now expect full-year like-for-like net rental income growth to be at the upper end of our guidance, mainly due to higher than expected growth in offices. We do not see any signs of a softening in leasing, so the main reason our like-for-like growth for the half year was higher than this is simply the timing differences over the average 6 and 12 month periods. We've also delivered further overhead efficiencies. Costs were down 9% to 29 million, taking the reduction over the last four years to 29%. and this reflects the sustained benefits of our technology investments over the last few years which support the automation of business processes and unlock revenue opportunities through better data and insights.

23:32 As such, overhead costs remain at their lowest in more than 20 years. We expect overheads to stay around 60 million annually with further savings offsetting inflation so top line income growth will flow through to earnings efficiently. And this earnings growth is supported by a low risk funding profile. Our 8.1 year average debt maturity is the longest in the UK REIT sector at around twice the sector average and almost 90% of our debt is fixed or hedged for a similar period. We don't need to refinance any debt until 2029 and although our average cost of debt of 3.8% will likely rise over time it will stay comfortably below our marginal cost of borrowing well beyond the next decade.

24:28 and despite global bond yields rising since the results in May, the implied impact of higher rates on our expected average interest cost by financial year 30 is less than 20 basis points. This illustrates the resilience of our earnings. And you can see these benefits in EPS for the half year. Like for like income growth of 16 million added 2.2 pence to EPS. 3 million of overhead savings added another half pence and together they more than offset the like-for-like increase in finance costs of 1.1 pence. Year-on-year movements in other items reduced EPS by 0.6 pence as the release of bad debt provisions was lower than last year and the receipt of surrender premiums was also lower, down to just 1 million each.

25:22 So essentially all of our income was recurring rental income with virtually no benefit from one-off receipts. Our underlying investment activity had a net impact of 0.4 pence so EPS was up 5.4% before the impact of the disposal of QAM which is in line with our annual growth outlook to financial year 30. Including QAM, EPS was stable in line with our guidance for the full year. We have reiterated our guidance today with underlying growth in financial year 27 expected to be offset by the 4% full year impact from QAM.

26:08 As I said earlier, we expect like-for-like rental income growth to be at the upper end of our guidance. but the lower benefit from the one-off items that I referred to a minute ago and minor changes to the timing of disposals and development lettings broadly neutralise this. We said last month that our £500 million equity issue and major retail acquisitions would be neutral to EPS this year but accretive in the first year of operation and that remains the case. As such, this will add further to the strong EPS growth that we expect in financial year 28. On top of the upside from leasing our London office developments and continued like for like growth.

26:59 This means we now expect improved high single digit percentage EPS growth in financial year 28 ahead of what we expected in May. We've also strengthened our net debt to EBITDA as well. We view this as a more appropriate measure than LTV as net debt to EBITDA is a true cash on cash measure and it does not rely on inherently subjective valuations. It also takes into account other factors that impact financial risk such as development exposure and associated leasing risk. Following our parts equity funded major retail acquisitions, net debt remains stable at 4.2 billion but net debt to EBITDA has fallen to 7.7 times.

27:50 This still reflects over 400 million investment in 30 high which will complete in a few months and is therefore not generating any EBITDA just yet. However, given the strong lease in progress on our recently completed developments, around 40% of our future benefit from leasing our pipeline shown on this chart is already signed or under offer. Alongside capturing the growing reversion in our portfolio and releasing more capital from non-yielding pre-development assets, this means we're on track to see net debt to EBITDA reduce comfortably below seven times. And as such, our balance sheet remains strong.

28:39 Our delivery against our strategic objectives over the last six months reinforces our EPS growth potential. Despite volatile global interest rates, our progress has increased visibility on delivering 5% compound annual growth in EPS to 62 pence by FY30. And the main driver of this is like-for-like income growth. Over the last six months, the reversionary potential in our portfolio has increased further, so this is up to 20% in offices now. and while uplifts in retail lettings and renewals have grown to 17%. Previously, we assumed around 4% growth in like-for-like income per annum, with retail slightly higher than that and office slightly lower.

29:32 But given the increased reversion that we now expect, slightly higher growth in offices than we previously anticipated, lifting overall growth to around 4-5%. and ERVs on our recent developments have also grown further since May, adding to the earnings upside from leasing them. Our three recently completed projects are now 88% let or under offer, up from 54% in May, so this is another area where visibility has improved. Continuing to reduce capital employed in low and non-yielding pre-development assets will add a further one pence through interest cost savings. While interest rates have risen since May, the impact is mitigated by a long-dated maturities and hedging profile as I explained earlier.

30:26 So the improved outlook for like-for-like income growth and higher expected income from development leasing fully offsets the expected increase in finance costs by financial year 30. In terms of capital recycling, we have delivered around 70% of the target investment into major retail that we outlined previously, so this is a further area where visibility has improved. All of this leaves us well placed to deliver on average 5% annual EPS growth to financial year 30. And with around 90% of our growth coming from our existing portfolio and platform, which was up from 80% six months ago, we are even less reliant on investment market activity to deliver this.

31:17 And with that, I'll hand you back to Mark.

31:27 Thank you, Vanessa. So I will now wrap up with what you can expect from us in the near future and where we see the differentiation and opportunity for LAMSEC before then moving to Q&A. So our primary focus on sustainable income and EPS growth provides absolute clarity. Whilst our strategic progress over the past six months has further improved our positioning for a higher inflation, higher interest rate environment. We have enhanced our portfolio quality, our income growth potential and our capital base, which has improved our risk profile and reinforced our attractive EPS growth outlook. Our focus is on maximising the potential of our high quality office and retail portfolios by driving continued like-for-like income growth and leasing up our latest office developments.

32:19 We will continue to supplement this growth by rotating capital out of offices into retail where we see sufficient upside in doing so. And we will continue to focus on improving efficiency and maintaining our sector leading balance sheet to ensure that this top line growth flows through to earnings efficiently. All this means we have a unique opportunity. We have created an irreplaceable portfolio of the UK's top retail destinations and the most prized office destinations in Europe. And we have built two operational platforms which are demonstrably market leading. Customer demand remains concentrated on the very best assets and supply of these is limited.

33:04 Two trends which are well established and have a long way to run. This means the quality of our income is well underpinned. Growth in like-for-like rents is up, our occupancy remains close to a 20-year high and rental uplifts are growing. As a result, our embedded earnings growth is evident. Our portfolio reversion is up to a new high, our overhead costs are down to a two-decade low and our clear capital allocation framework means that we remain disciplined about our investment decisions. all of which is underpinned by our high financial resilience. With a 6% income return at NTA and high visibility on delivering around 5% per annum EPS growth, given virtually all of this is driven by our existing portfolio and platform, the outlook for attractive total returns for shareholders is clear.

33:59 And with that, I will now open up for questions. Thank you very much.

34:18 Bjorn Zietzman from Panama Liberum. A question on the office investment market. There seems to be a lot of stock coming available for sale over the next few years and the market seems relatively subdued at this stage. How do you expect yields to move going forward and how would that affect your disposal program if yields were to blow out?

34:43 I think the first thing I would say about the office investment market is I think if you'd have asked me at the start of this calendar year what would the office investment market look like if rates were 50 basis points plus higher in nine months or so's time I think I'd have actually been more bearish than what seems to be playing out I think the investment market is still active I think on both sides of the trade people are looking to make deals work that bid offer spread is Thank you very much. but also the rental growth and the embedded reversion in assets is also increasing and you saw in our valuation that that was essentially offset across six months and I would expect that to be broadly similar going forward.

35:43 For our plans we will always look at What's the quality and the earnings we're selling? And what's the price attached to that rent roll? What is the quality of earnings where we feel we can redeploy? And how do those two compare in terms of day one and growth prospects? And that will always determine our decision. So we're not going to slavishly look at a value one way or the other. It'll be a case of can we recycle capital in a way that is earnings accretive and portfolio quality accretive?

36:15 Just to follow up on the ERV growth, how much of that is being driven by an increase in incentives or do you think incentives have been broadly stable over the past few years?

36:26 Absolutely stable. Seeing no shift in incentives at all. So I think everything is going into headline. I think the incentives are you know they have been stable I think they will remain at that level the cost certainly is moving into new space for new occupiers in terms of fitter and everything else are actually pretty elevated so I think in it ordinarily in this type of market you might have expected the incentive package to to tighten but I think just given the costs of moving are where they are I think they're going to be staying around that 20 percent or so level in the new space. Great, we'll just come down to the, perhaps if we do Jonathan first and then we'll come to Tom.

37:07 Thank you Jonathan, Carl Mater, Coleman Sachs. A couple of questions. First one on your EPS growth please. What's the upside or downside to that when you look at your 2030 guidance? Is there a scenario where given the strengths that you see operationally that could be higher or is it all just absorbed by financing costs given also you have pretty decent debt duration here? So that's the first question please.

37:37 I think I shared just earlier that with the elevation in rates from the May to our results today we see about 20 basis points on the average cost of debt because we're quite well hedged, we're pretty well hedged and we've got long duration of debt We don't see, we don't probably feel the impact of those rises as much as maybe some of our peers and you do see therefore that that's quite a minimal amount that comes through and it impacts financial authority but on the plus side what you've seen from us I think over the last year or two is a real focus on driving operating margins, a focus on managing our cost base efficiently to more than offset that impact.

38:23 On top of that we're seeing great reversion coming through and that seems to be increasing so we feel pretty confident in delivering the outlook as it stands today.

38:33 That's what I would just add to that in I stress generic terms is compared to six months ago we've got much clearer visibility on that 62 pence with progress on development pipeline, progress on asset recycling and what has been perhaps an unusually volatile period for rates we've demonstrated our ability to withstand that so I think a lot will depend on the trajectory of rates but we are unquestionably in a lower risk position for that 62p now I was pretty happy with where we were six months ago.

39:06 The second question is around development and preparing for the next cycle of growth to some extent. For both office and residential at this stage, it doesn't seem that the economics are stacking up too much for you. What does need to change for you to be more confident in relaunching growth there? Is it just lower rates or is there a risk that There is effectively too low underwriting of rental growth. It's a big debate right now for anyone that wants to do development. How much rental growth is coming through both in office and residential and how do you see the upside risk there? Thank you.

39:53 You'll appreciate in any development appraisal, whichever sector you're looking at, there are a lot of moving parts within that. But I would say that the one that is probably the biggest impediment, certainly on the residential projects at the moment, is where rates are. You tend to be operating with a lower net yield on cost in residential anyway because of the ability to capture growth annually. It's more of a real return. So I think it's primarily the rate environment. I think we feel pretty comfortable with where the bill cost picture is. I think bill cost inflation which was very significant a year or two ago that's definitely moderated. We're very comfortable and confident on the occupier We've always focused on benchmarking rents for those projects at a sensible level, and we've tended to underwrite rental growth around in line with inflation.

40:41 So it really comes down to our view of the rate environment. I think on the office side, the important thing for us has been to maintain the capability and expertise within our business. I think that's why the deal to sell 55 Broad Street and retain development capability internally was so important being the development manager there. So I think going forward we will continue to be active in development. We won't be putting the level of balance sheet capital to work in development and I would say at the moment I find it difficult to see a situation where the external environment would look such that we felt really ramping up commitment to office development with our balance sheet. certainly with capital partners may be a way of doing it but with our own balance sheet we've said five percent total development is our ceiling on a long-term basis of the portfolio and that we still see residential on a risk adjusted basis as being a better place to deploy capital if we can make it work than than office.

41:40 Since you've issued that strategy obviously rental growth in office I would say it's accelerated right? Yep. So appreciate that's the strategy and you want to stick to that but How did the economics change and what kind of rental growth are you underwriting right now in office to maintain that strategy?

41:56 We're seeing mid-single-digit growth within Office and we made in the comments today that on a like-for-like basis we expect to see a slightly stronger growth than we had previously felt. I think Office has certainly proven to be a little bit stronger than we were expecting. I think that is largely the fact that if I go back 18 months we probably were expecting new supply to be coming more on stream by now in the wider market or more development starts. Elevated rates have kept that down. but our our view around office is always that we we not that we weren't confident in office it's just that we felt We know with existing offices from time to time you get bigger vacancy, you get capex, those things coincide. I think in a REIT that's looking to deliver sustainable growth in income and earnings you need to be careful about having too much of the portfolio embedded in that with that type of exposure. So that's why we want to reduce office exposure and I think our decisions around development need to be seen in that context.

42:51 I mean for any office development now you're having to form a view Not on where rates are today but as you're saying how rents are going to grow and where is the market going to be in four or five years time and I personally find that a difficult thing to underwrite but to make development stack up today I think you would have to be underwriting high single digit rental growth between now and a PC that's four or five years out and that's quite a punchy underwrite and if we do see that we'll capture it as we have done in this period in the existing portfolio so why take the extra risk?

43:27 Good morning, it's Tom Musson at Berenberg. Just on the retail business, there's clearly accelerating income growth coming through now over 6% and you're talking about having confidence in sustained growth and visibility. Today you're also though maintaining the medium term ambition for 4.5% to 7% like for like rental growth, CAGR. What more do you need to see to either tighten that range or feel comfortable lifting the bottom end of that range for guidance and is that something that you considered?

44:02 So I believe our guidance sits in pretty much in the middle of that range, maybe slightly below the midpoint in terms of the range that we assume. Certainly everything we're pointing to suggests that we continue to see the strength of demand and performance in the retail portfolio. There's probably upside risk to that. There's a lot more variable income within there, a lot more turnover rents driving commercialisation income. we've got a series of some of the relatively major capex investments into assets that are likely to start over the next 12 or so months that will be a key part of getting those completed and leased up and contributing to the fy30 picture so it's probably those investments that would we see them start we see the agreements for leasing things in place for those that is going to give us greater confidence on on narrowing that range but I think at 4.5 to 7, the top end of that range is clearly a level of growth that we would be delighted to see come through in a sustained way.

45:01 Maybe a second one. Just in the R&S statement, you mentioned up to £3 billion of assets you expect to come to market over the next couple of years. Can you offer any more colour there? And can I check those are all in the UK? Would you consider non-UK assets?

45:17 They are all in the UK and the UK is where we are focused. They remain very much as we would have talked about in sort of previous results. They're effectively assets that we would judge as being held by people who are not natural long-term owners. Not all of those are going to meet our criteria. As a reminder our criteria is that The assets got to be in a strong catchment. It's got to be dominant in the catchment and we've got to be in full control of running the assets. So those are the criteria. So it's a relatively high bar. We said no to quite a few things over the past six to 12 months. I'm sure we'll say no to some other things coming forward. But if I look at what's in there and what might be coming forward, I think there will be some interesting opportunities, which is why we flagged on a six to 12 month view.

46:04 I think we'll see a little bit more investment which would mean that that remaining sliver in our bar waterfall chart through to FY30 I think in the next 6 to 12 months we should see that effectively come down to zero and all the growth be in assets we own. Thank you. So a couple over this side first and then we'll come over to this side.

46:33 Hi there, it's Paul May from Barclays. I think I've got three questions. What's the potential size of the opportunity in retail? I think since the strategic update that you gave, you've far exceeded your investment target or more or less matched it, if not slightly exceeded it. It sounds like there's a lot more opportunities that are coming over the next few years. What do you see as the potential for you and the total size that you could get to on the investment market?

47:00 So we've got roughly say 250-300 million left to go if you like to hit the target we set ourselves at FEB last year so as you say we're certainly well ahead of that. These things are obviously quite binary that you see in the assets we've really bought have been Liverpool One and Metro they've been two 500 million pound acquisitions so you know that they're significant and there aren't that many of those out there. whether I put this as potential I think in a perfect world I think there might be one or two smaller acquisitions that are perhaps in smaller catchments but have dominant positions and we can bring our platform to bear and if there was an opportunity to buy something else along the size of another metro or Liverpool I think that would be you know that's something we'd be delighted to see so I would say best case is that you might see us put another 750 million and many more.

48:20 The bar is high, but just as a reminder of what Metro delivered and how we would think about anything going forward, any sort of capital investment.

48:40 It was accretive to earnings near term, it was accretive to growth outlook and it was accretive to portfolio quality whilst also strengthening the balance sheet. Those are the things we would look for and of course equity would be something that we would consider but only if that high bar is being cleared. You missed it improves liquidity of the shares as well. That's one for the markets to focus on.

49:03 I also liked your definition, Vanessa, on net debt to EBITDA and why it's more relevant and important than LTV. I don't think I could have written it better myself. I assume the seven times net debt to EBITDA is not a final target, and do you see the potential for this to further reduce towards US peers?

49:23 Well I think we've been pretty clear that actually the I think we said actually six months ago that the seven times wasn't necessarily a target it was more an outcome of the strategy and the decisions we've made around to reduce the capital employed in development and release capital from the sale of some of those development sites so and then on top of that of course a big contributor is the growth the like-for-like growth on our portfolios the growth in that EBITDA So I think we're pretty comfortable that in you know as I pointed out today that to come below seven times is really an outcome of the decisions we've made and it's something that we keep our focus on so I'm clearly a lot happier with it in that position than you know at the higher end.

50:11 and just to put my non-financial perspective on it, I think the way I think about that is we're on track, as we say in the statement, to be comfortably below seven times as an outcome of leasing up the loan program, capture and reversion, et cetera, with the EPS growth potential that we're showing. So if we're a business that's six point something times net debt to EBITDA with an EPS growth prior to 5% per annum, we will need to think very carefully about taking leverage back up It would need to be additive to that return outlook and sufficiently additive to that return outlook to justify taking on the marginal financial risk. So I think it's another high bar. Sorry, I may be using that phrase.

50:52 I think it's an important thing as you say that actually the lower net debt to EBITDA is better for your equity rating, generally speaking, if you look at US peers.

51:08 Hi, good morning. It's Nidhi Rahman from UBS. A couple of questions on the 9% for your 30 EPS visibility. So obviously your version has accelerated quite materially in the past few years and now sits at 20% and 17% respectively for offices and retail. How much sensitivity is there in that 9% visibility on that reversion figure? That's question one. The remaining 10% is the last little bit of capital recycling to do within that so there are no significant

51:48 Lease events where there's sort of significant vacancy risk within the portfolio over that time period, things I think are very well evenly distributed over the period. You've seen that the 20% reversion in office, I think we're highly confident in that and there's a decent chance of seeing that growing given where ERV growth is. There's still time for leasing spreads on retail to expand further before we're lapping growing in place rents. So I think there's a high degree of confidence around that. The cost base is where the cost base needs to be. so the real variables as concerns FY30 that's in there that is that we have the least visibility on it like is exactly what's the impact of rates but we've done as much as we can to mitigate that with the the low risk profile of the debt book that we have.

52:39 And follow up to that on the rates points you mentioned had 12 bits not moved out the way they did during the first half of the year what would that 90% figure have looked like in terms of the visibility you have?

52:53 Slightly higher. We said there's a 20 basis points hit to FY30 earnings as a result of the increase in rates so that is I think going to be roughly eight nine million pounds of earnings so that would be about 1.5% let's say of earnings out there so that probably would have largely closed that 10% gap associated with recycling. Forgive me if off the top of my head maths is wrong but broadly speaking I think that's going to be about right.

53:35 Third question from me. So you mentioned platform efficiencies relating to the Metro Center yield upside. Are they simply overheads from overlapping headcounts or is this a landscape management of the asset where you're applying capex? And if so, how much would that be in order to achieve that?

53:52 So there's no investment required to achieve that 40 basis points. Largely it's property management and asset management services that we undertake in-house and we're not going to be adding headcount to that means effectively the margin that is going to external property managers and asset managers under the previous ownership structure no longer needs to be borne by the asset. So effectively it's just bringing it on to our platform. then we'll see efficiencies longer term and we have a very established network of of contractors providing the a lot of the the sort of frontline property management services I think we would expect to be able to deliver improved performance both in terms of of customer experience but also the costs associated with that that will take a little bit further time where investment is needed to drive returns is the asset management strategy which is effectively reducing the five or so percent vacancy remaining in Metro Centre which is concentrated in a particular part of the centre and where we've got increasingly clear plans supported by brands that we will bring forward I think with good pace but I think we talked about 30 million or so of investment required to deliver what will be quite a significant upside in terms of rental income and Asset Quality.

55:07 Very clear thank you. We just got a question over here.

55:16 Thank you. I wanted to ask two questions. The first one on leasing of your developments, mainly 30 high. If you could talk about levels of interest and if you could remind us what assumptions you have in your 62P guidance and if that's performing in line with your expectations.

55:36 Yeah so it's 11% under offer at the moment and I think if total if we look to active discussions in place across that building I think we're getting somewhere close to 90% where we could point to active interest that would underwrite that lease up. It is a 30-story building so there are quite a lot of I mean there's 27 office floors of and many more. We said for our pipeline in total on average about 12 months after PC.

56:27 We're slightly ahead of that with the three other assets. I think it'll be slightly longer than 12 months given the number of discrete floors and also the logistical challenges of having people come in and fitting out and elevator usage and all of that sort of So complications that need to be managed but within our FY30 assumptions we'd be assuming that to be leased up in line with the net effective ERV that we disclose here which I think is 36 million for the asset. We're very comfortable with that and if we see continued strength and growth in the market there's obviously some potential to capture a little bit more than that as we move through the leasing.

57:08 Thank you and then the second question just on the resi pipeline it's a bit further out but you secured improved planning on the Finchley Road do you think it's likely you can do something similar at Mayfield and when do you need to make those decisions?

57:22 So it's probably worth clarifying the different characteristics of the assets because we're probably operating slightly less with fixed deadlines if you like on the remaining two projects. In Lewisham the reason there was effectively a deadline was because of the opportunity cost associated with leasing. Effectively we were having to turn away People who wanted to invest in and occupy stores for 10 years within the centre because we were trying to keep them vacant to preserve development optionality. When we couldn't see a clear route through it was increasingly clear that we're looking at a few million pounds a year of option of cost of maintaining optionality and we couldn't justify that any further. That's not a case at O2 Finchley Road where we're developing on an effectively cleared site and a surface car park.

58:08 There is a clock ticking with respect to the start dates for the package of acceleration measures but we've got a bit of flexibility with that at the moment. At Mayfield the land is owned in a JV, we're a 50% owner and then should we take development forward we would draw the land down from the JV and be 100% owner. So again, there's not a significant holding cost associated with that. We've been in active discussions with our public sector partners, Manchester City Council, Greater Manchester Combined Authority, for what package of policy measures might be available. They'll be different. I mean, London has different challenges to Manchester, but we're in good shape. Those discussions are making progress. What we're not going to be doing is committing significant capital to any project until we have the requisite certainty on level of returns.

58:56 We're not quite there yet on either of the other two but we're closer than we were six months ago. Thank you. We've got perhaps one more question in the auditorium here and then I will come to the, I know we've got a question on the conference call.

59:13 Great, thank you very much. This is Marius Pastu here from Bernstein. I just have one follow up on the Metro Centre acquisition. So you mentioned around asset management potential and the vacancy that's within that asset. How are rents trending versus market levels within the existing leases? And then do you foresee that growth being linear going forward? Or would there be some required asset management that could see some vacancy and a bit of an income dip before you then start trending up again with that like for like growth?

59:44 Generally speaking at Metro because you've got existing vacancy and the previous owners and asset managers very sensibly concentrated the vacancy in one particular part of the shopping mall so the capex that we've underwritten is effectively dealing with repurposing and reformatting existing vacant space. There might be a little bit of moving brands around within that but I think within the centre that are elsewhere that might move into newly created space. But I think such as when we talk to brands, I mean, as you would expect, we talked to virtually all of the brands that we know well to find out how they were trading at Metro. and particularly how they were trading relative to the Newcastle city centre. That was our principal concern was would we see one or two of the brands that weren't yet in Metro choose instead to be in the city centre.

1:00:33 They're all trading typically 30 to 40% ahead in sales densities terms. So I think where we move people around, we can be confident there'll be a pipeline of demand to come into any vacated space. So I'm not expecting to see any significant sort of drop down in income to deal with vacancy before stepping back up. I'm going to come, I think, onto the conference call. I think Adam, Shaptan, Green Street, I think there's a question, so I'll come to the call. Adam, your line is now open.

1:01:14 Hi Vanessa, thanks for taking the question. Just a quick one on the office life to life and specifically your comment about more tenants staying put, that's obviously a theme across a very tight market. Can you quantify the impact of that? Maybe, I don't know if you have your sort of recent retention rates versus history and also what the impact and so on. How much of a boost does that give to the office life for life?

1:01:58 As you might expect there are a relatively small number of leases that are coming up for renewal or end dates within any period so it will move around a little bit but I would say of late we've been running at around 90% retention and I'd expect to be at quite a positive level going forward just because of the costs associated with fit out that you've alluded to. I think probably the stronger impact on like for like in the six month period was outcomes of rent reviews and I think that's where because there's inherently certainly for inside the act leases there's a more inherent subjectivity to being able to judge exactly where a rent review will be settled given other leasing evidence but when we've had strongest rent review settlements that then provides very helpful evidence across the rest of the portfolio, which obviously in most of our portfolio are co-located in locations of reasonable scale. So I think it's probably what the rent review outturns say for like-for-like is probably the more important factor.

1:03:03 Yeah, okay, makes sense. And just one other quick one on the example of retention and extensions of our tenants. are extending for a couple of years. They are signing new

1:03:22 Again it will very very much be a case-by-case basis but I think if people are taking a decision to stay rather than go I think that the tenor that they're looking at will typically be similar so you'd be looking probably at a because there will be investment requiredly associated in all probability with the stay put decision and that'll be partly investment on the landlord's part partly investment on the tenant's part so I would say a five to ten year extension would not be an unreasonable assumption but it will be case by case. Thank you.

1:03:58 Very good, thank you. I'll just check if I don't believe there are any... There is, there we are. Aaron, sorry I was about to finish. Hi there, sorry Mark, just one last one if I may. Please. Just I'm thinking about growth beyond 2028. The Winston Brent version is embedded both in the office retail portfolios and the rent growth capture and probably the capital value sort of capture that probably results in that. Could you, is there an opportunity to JV with other partners who have much lower costs of capital at this point in order to possibly go on a bit of a buying spree across sectors, including I guess M&A as well, in order to access some of that potential latent value that's sitting in your and other markets?

1:04:55 Is that an opportunity or is that something that maybe JV

1:04:59 I think as things stand at the moment and the growth outlook of course that we should provide to FY30 is based on largely the existing portfolio we would always be open to working with partners to pursue growth but our I think our plan A would typically be to try and find ways to do it ourselves and JV structures I think you know you're always aligned on day one you're not necessarily aligned in year three or year five so we're a little bit cautious about those structures that can seem brilliant on day one but can cause challenges later.

1:05:46 That's not to say we wouldn't do them but it's probably a plan B or a plan C for accessing growth opportunities that we see rather than plan A. Understood and just one quick follow-up if I may, how much how many more sort of years into the future should we continue to model overhead cost reductions?

1:06:11 I think my expectation is they'll be around that sort of 60 million, low 60 millions for a few years because I think our focus is on offsetting inflation with further savings. I think that you can see from the trajectory that we've made and from the fact that we've and you invested quite a lot around technology over recent years that's really helped support that reduction and I think we should just expect some modest savings from here that really offset inflation so it's a long-winded way of saying probably around 60 million it's about right.

1:06:55 Great. I'll just check if there are any further questions on the telephone conference line. We have no further questions. Cool. Very good.

1:07:09 And no questions from the webcast. So, ladies and gents, that concludes this morning's presentation. Thank you for taking the time, both in person and online, to join us. Have a good day.