Land Securities Group Plc (LAND) Earnings Call Transcript & Summary

Good morning, all, and thanks for being here as we present Landsec's results for the 2026 half-year. The past six months mark another period of solid advancement against our strategic objectives. We've further enhanced the caliber of our best-in-class portfolio, delivered robust operational performance, and continued to see our risk profile improve. As a result, we've raised our near-term EPS guidance as well as our medium-term potential for income growth, and we've bolstered a capital base that leads the sector. The stock offering we wrapped up not long ago, along with sizable acquisitions in retail, contributes to the high single-digit EPS growth we expect in the coming year, and the momentum we've seen through the first half has strengthened our ability to deliver compound annual EPS growth of approximately 5% through FY 2030, with roughly 90% of that now originating from the portfolio and platform we already own. Combined with an existing income return at NTA of 6%, this puts us in a strong position to generate an appealing low double-digit yearly total return for shareholders. Over the past six months, we've continued to expand our capacity for income growth. Demand from customers remains focused on the strongest sites, and since top-tier properties such as ours are scarce, together with our operating platforms that lead the market, like-for-like income growth climbed to 6.2%. The London office developments we finished recently are now almost entirely leased, contributing GBP 13 million in yearly rent since May. Capital recycling has also contributed, with a yield 280 basis points higher and substantially stronger income growth on the GBP 633 million of assets we bought compared with the GBP 338 million we sold. Because our portfolio is almost completely occupied, this continues to drive rents higher, meaning reversionary potential has reached record levels in both office and retail. Because we've stayed disciplined strategically, growth in top-line income is going to turn into faster EPS growth. Our debt matures in 8.1 years on average, which remains double the U.K. REIT sector's average, and with roughly 90% of it at fixed rates, earnings are protected against swings in interest rates. We've continued to trim overhead costs, and over four years they've come down 29% to the lowest point in more than twenty years. Development exposure will drop under 2% of portfolio value by year-end, and near term we don't intend to add to it in any meaningful way. Given the decisive steps we've taken, we're positioned well for an environment of higher inflation and higher interest rates. Every one of those points comes through in the numbers we reported. EPRA EPS held steady and matched the full-year guidance we had given, since stronger operating performance generated earnings growth that cancelled out the 5% hit from selling Queen Anne's Mansions during last year's second half. Just after the period closed, we brought in GBP 500 million of fresh equity, which funded the GBP 611 million purchase of Metrocentre plus another interest in Bluewater — both among the U.K.'s top 10 shopping centers — and that move has raised our FY 2028 EPS growth while improving the medium-term outlook for income growth. Together with further disposals, it has also brought our LTV to 37.1% and reduced net debt to EBITDA to 7.7 x. That number should come in well under 7x, helped by lease-up at our London office developments and ongoing like-for-like growth. Our capital base remains solid. As a result, we anticipate high single-digit EPS growth in the coming year, followed by continued growth thereafter, which backs further dividend increases. Two distinct trends keep supporting our positive view, and neither looks close to running out of steam. First, customer demand remains heavily focused on the highest-quality space. For offices, that mirrors the imperative to draw in and keep top talent, who expect a high-caliber building as well as a fantastic location, featuring appealing amenities and efficient transport links. The fact that we’re able to build these kinds of destinations is reflected in the wide variety of business demand throughout our portfolio. On the retail side, it comes down to brands wanting to reach consumers as efficiently as possible — and we can provide that, because our footfall is 25% higher than any other U.K. retail platform and we reach almost 1/3 of the U.K. population. Beyond that, new supply is severely limited, as development viability has worsened in office and is still nonexistent in retail. So for our portfolio, occupancy is holding near a two-decade high and ERVs keep rising, with a 2.9% increase across the six months. In retail, the distance between the top-tier space and the wider market continues to grow. The top 1% of all retail destinations in the U.K. give brands access to almost 1/3 of all in-store retail spend. That is where close to 90% of our portfolio sits and where demand from brands is concentrated. The outcome is incredibly clear. Over the past four and a half years, sales growth across our portfolio has beaten the U.K. average by some 24 percentage points. 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 keep investing in fewer, bigger, better stores in our destinations. As these are now 98% full, rents are growing. The strength of the U.K. consumer isn't what our retail strategy rests on. What it's really about is dominant locations gaining market share. With offices, the story is comparable. We hold 5 million square feet of office space, amounting to half of 1% of all office space across the U.K. Nearly all of it sits in Europe's two most coveted office districts, the West End and the City, Bankside included; those are the places where demand from international business is focused, since they offer the finest access to global talent. Because of this, over the last four years, office-based employment in London has expanded at about 10 times the pace seen across the rest of the U.K. And even inside those sought-after locations, we're beating the market, since our 98% occupancy sits well above Central London overall. With new space in short supply thanks to pressure on development economics, rents across our portfolio keep climbing. In a world that keeps changing fast, our distinctive advantage is obvious. We hold two best-in-class portfolios aimed squarely at the very top of the market, where customer demand is at its strongest. Both portfolios keep materially outperforming and continue to deliver steady income growth in spite of ongoing macro volatility. Both are also strongly reversionary, with upside versus current in-place income hitting fresh record highs; for office, our reversionary potential has now climbed to 20%, while for retail, uplifts on relettings and renewals have reached 17%. Together, these portfolios account for 92% of our income, which demonstrates the strong income growth built into our business. Meanwhile, we have two market-leading operational platforms that produce gross-to-net margins roughly 400 basis points above those of our direct sector peers. That speaks to the quality and scale of our platforms and means a larger share of our top-line income growth flows through to sustainable growth in earnings.

As I noted before, these big trends look like they still have a lot of runway. We've since had another half-year of strong operating performance. In retail, we hit new records on all of our main leasing measures. We have signed, or have in solicitors' hands, GBP 29 million in new leases, averaging 12% above ERV, which is a new high. Reletting and renewal uplifts came in as high as 17%, also a new high. Occupancy ticked up to 97.8%, the best level in over 20 years. As a result, like-for-like net rental income climbed 6.3%, again a new high. This strong performance shows how effectively we've built experience-focused destinations that attract additional shoppers and brands while generating greater sales—take Lefties, Inditex's newest brand, which just launched its inaugural U.K. location in Liverpool. Three of their first four British stores will be situated in properties we own. Since demand continues to be solid, we're still on course toward our target of 4.5% to 7% yearly income growth from our retail platform by FY 2030, powered by seizing the increasing reversion across the portfolio, expanding turnover rents and commercialization income, and making selective CapEx investments in smaller, highly accretive projects. Leasing in the office segment is likewise holding up well. We've either signed or have in solicitors' hands GBP 9 million worth of lettings, coming in at an average of 7% above ERV, and that includes a number of new F&B lettings as we continue to build out the amenity offer in locations like Victoria. The draw of the place we've created here is evident from retail and F&B sales having gone up 25% across the last three years. Occupancy dropped 90 basis points from the decade high we reported in March, mainly reflecting lease expiries towards the end of the period at our only asset in Paddington, although it has already bounced back since then. At 98%, the portfolio is still virtually full. Reletting and renewal increases reached 11%, and combined with robust rent review uplifts and expansion in MYO income, this generated like-for-like income growth of 5.4%. That result exceeded expectations, and reversion continues to rise as well, with ERVs climbing 3.4% and running ahead of our full-year guidance. Reversionary potential is now estimated at as much as GBP 50 million, and since customer demand remains strong, we anticipate slightly greater like-for-like income growth in the coming years than we had earlier assumed; this customer demand strength carries over into our London office developments too. Since our full-year results came out in May, leasing has moved ahead well, and the three projects we finished recently are now either let or under offer at 88%. In May that figure stood at 54%, and the main item still outstanding is two floors at Timber Square, where interest is strong. Our fourth scheme, Thirty High, will now complete up to six months later than planned owing to a problem that came up in testing and commissioning. That issue has been resolved, and since fit-out can proceed before the new completion date, we expect only a modest impact on leasing. As a result, we foresee no material effect on total development cost or on our full-year earnings guidance. At Thirty High, 11% is now under offer, and there is solid interest in what remains. ERVs overall rose 4.4%, and we still anticipate our projects leasing up within roughly 12 months of completion, which will drive strong earnings growth in FY 2028. Moving to capital allocation. It has been a busy half year, with about GBP 1 billion of transactions, showing excellent progress against our strategic objectives. Since the strategy update in early 2025, we have invested roughly GBP 700 million in major retail so far, meaning we are ahead of plan against our target of GBP 1 billion in three years. We expect more opportunities over the next 12 to 1 8 months. Following that strategy update, we've sold off GBP 1 billion in offices, non-core assets, and pre-development assets that weren't producing income. That keeps us on track toward our target of disposing of roughly GBP 3 billion of such assets over five years, even with the investment market for offices remaining slow for an extended period. Still, demand from investors continues for the right properties, and we anticipate more selective sales during the coming 6 to 12 months. Metrocentre and an extra 10% interest in Bluewater were our two main purchases, bringing our stake in Bluewater to 74%. By sales, both sit among the top 10 U.K. shopping centers, and they offer appealing income returns from day one as well as considerable potential for growth ahead. Every one of these assets also presents an obvious opportunity for additional value on top of the appealing entry price. At Metrocentre, the efficiency of the operating platform we provide should contribute approximately 40 basis points to the 7.9% income yield in the near term. Our asset management plans are very clear and draw on experience gained elsewhere in the portfolio, and they will generate further growth from that point. At Bluewater, cutting the ownership structure from three co-investors down to one enhances operational flexibility, boosts efficiency, and enables us to speed up our growth plans. Given that we hold three of the U.K.'s top 10 centers and eight of its top 30, the proposition our platform offers to brands is indisputably the strongest in the market. The following deals add to a solid history we already have in major retail from recent years. So far, across roughly GBP 1 billion of acquisitions completed in the last two to five years, we've produced 14% income growth and a 15% unlevered IRR. That came not just from smart purchasing — it also reflects what we've gained afterward by right-sizing store counts, adding new brands, improving what we offer shoppers, and increasing margins — and at Metrocentre we see chances to do all of those things as well. Since the start of the year, we've continued to redeploy extra capital out of assets that gave us lower income and/or weaker income growth. We disposed of a 1970s office building where roughly 1/3 of the space will be vacated next year. Because reletting it will need CapEx and vacancy is likely to stay elevated for a long stretch, the expected income yield on it across the next five years is modest, and five-year income growth is below inflation. We also sold a pre-development site in the city that had produced a negative income return. For the buyer, we are acting as development manager, which brings in fee income and lets us keep and apply valuable skills and expertise while avoiding a commitment of GBP 400 million of our own balance sheet capital. Finally, we sold half a dozen smaller assets that gave a decent yield but limited growth. Altogether, these disposals free up almost GBP 340 million of capital and improve EPS slightly. Investment in retail remains our priority, so over the next 18 months we do not plan to commit any meaningful capital to new development.

Here in the London office, rental growth prospects are still robust, and as we showed once more today, the portfolio we already hold is positioned very favorably to take advantage of that. Because the risk involved is so much greater, the returns from developing new offices, in our opinion, don't provide a sufficient premium over what our current offices deliver to warrant selling those assets in order to finance building new ones. On the residential side, the long-term mismatch between demand and supply is appealing, yet development viability is still under pressure. We've made solid headway in enhancing viability at Finchley Road, where we obtained an improved planning consent that lowers both the affordable housing requirement and the Community Infrastructure Levy, and we're carrying on with constructive talks with our public sector partners aimed at unlocking viability gains at Mayfield. We're conscious that conditions outside the company keep shifting, so we'll keep devoting time to working out whether these projects can actually go ahead, though in the interim CapEx spending will stay quite constrained. In the meantime, we've chosen not to move forward with redeveloping Lewisham, since the returns aren't attractive enough and the opportunity cost of holding on to development optionality kept climbing. Since leasing at the existing retail center is no longer constrained by the possible redevelopment, our attention will go toward growing income. Should we manage to achieve viable returns on our remaining schemes, lead times mean the soonest start dates would probably fall in 2028. Consequently, our committed development exposure will decline to under 2% of our portfolio by year-end. That figure will probably hold at this level for the near term, and even further out it will stay well under its historical level, even as we keep investing in the portfolio we already own to make sure it stays best in class. Everything here rests on our clear capital allocation framework, which examines how our investment choices add to income and EPS growth over the short term, and how they reshape our portfolio mix so that it can keep producing sustainable income and EPS growth over the longer term. Keeping our balance sheet strong will always come first for us, and we watch continuously for shifts in risk and return prospects. At present, our priorities over the coming 12 to 18 months are largely the same. We'll seek to monetize additional pre-development assets, since these produce no income and need substantial CapEx to build out; we'll also aim to monetize more capital in offices, because the upside from recycling capital into major retail destinations at an income yield roughly 200 basis points higher, along with stronger growth, is significant. Since retail is plainly the most accretive opportunity available to us, that's where we'll keep directing new investment. With that, I'll now pass you over to Vanessa.

Mark, thanks — and good morning, everyone. The numbers we posted show solid operations and real movement on our strategic goals. EPRA EPS came in flat, matching the full-year earnings guidance we had provided, since like-for-like income growth of 6.2% plus further overhead savings absorbed the hit from the Queen Anne's Mansions disposal. Our portfolio's external valuation gained 0.8%, helped by ERV growth of 2.9%. You'll find fuller detail on valuation movements in the appendix, but the upshot was a 1.2% rise in NTA per share over the half year. Following the GBP 500 million equity raise that funded the purchases of Metrocentre and Bluewater just after the period closed, NTA per share declined 2.2% on a pro forma basis; those deals boosted near-term EPS growth, increased our medium-term potential for income growth, and made the balance sheet stronger. Consequently, LTV now stands at 37.1%, while net debt to EBITDA has dropped to 7.7 x. Together with record reversion in the retail and office portfolios, the progress we made over the past six months has given us clearer visibility into future income growth. This will produce faster EPS growth in financial year 2028 and beyond, underpinning continued dividend growth. The last six months have delivered on the upside we expected. Like-for-like net rental income growth climbed to 6.2%, surpassing the guidance we issued for the full year, while rent increases on re-lettings and renewals reached a record 16%, reflecting robust uplifts achieved on office rent reviews alongside growth in retail turnover rents; and with reversion at record levels, our portfolio still holds considerable embedded upside beyond that. We've continued to enhance our operating margin as well — it climbed 100 basis points and is now nearly 200 basis points beyond the target we established during our strategy update last February. That places our margins roughly 400 basis points ahead of our direct office and retail peers, which demonstrates the value of our platform's quality and scale. Consequently, we now anticipate full-year like-for-like net rental income growth to land at the top end of our guidance, driven primarily by stronger-than-expected office growth. We aren't seeing any indication of leasing weakness, so the chief reason like-for-like growth for the half year exceeded that level is simply a matter of timing differences across the average six- and 12-month periods. Additionally, we've achieved more overhead efficiencies. Our costs dropped 9%, reaching GBP 29 million, which brings the total reduction across the past four years to 29%. That comes from the continuing payoff of the technology investments we've made in recent years — they enable automation of business processes and open up revenue opportunities via improved data and insights. Because of this, overhead costs are still the lowest they've been in over 20 years; we anticipate overheads will remain near GBP 60 million per year, with additional savings offsetting inflation, meaning growth in top-line income will convert into earnings efficiently. The earnings growth we're observing is supported by a funding profile that carries low risk. At 8.1 years, our average debt maturity is the longest across the U.K. REIT sector — roughly double what the sector averages — and close to 90% of that debt is either fixed or hedged across a comparable horizon; no debt of ours requires refinancing before 2029. Our average cost of debt sits at 3.8%, and while that will probably climb over time, it should remain comfortably under our marginal borrowing cost well past the coming decade. Even with global bond yields having risen since the May results, the implied effect of higher rates on the average interest cost we expect by financial year 2030 comes to under 20 basis points. That shows how resilient our earnings are. These benefits come through in EPS for the half year. Like-for-like income growth of GBP 16 million contributed GBP 0.022 to EPS, and GBP 3 million of overhead savings contributed a further GBP 0.005, which together more than offset the like-for-like rise in finance costs of GBP 0.011. Movements in other items year on year cut EPS by GBP 0.006, since the release of bad debt provisions came in lower than last year and surrender premiums received were lower too, at just GBP 1 million each. So in essence, the entirety of our income was recurring rental income, with virtually no gain from one-off receipts. When you factor in investment activity at the underlying level, the net effect came to GBP 0.004, and that leaves EPS higher by 5.4% prior to any impact from the QAM disposal — a figure that sits in line with the annual growth we're targeting out through financial year 2030. Once QAM is included, EPS came in flat, which is consistent with the full-year guidance we have; that guidance was reaffirmed today, and we expect underlying growth in financial 2027 to be offset by the 4% full-year impact from QAM. As I said earlier, like-for-like rental income growth should land at the top end of our guidance range. That said, the reduced contribution from the one-off items I mentioned a moment ago, together with some modest changes in the timing of disposals and development lettings, roughly offsets that. During last month's update, we stated that our GBP 500 million equity issue together with the significant retail acquisitions would be EPS neutral in the current year, while adding to earnings in their first full year of operation — and that remains true today. This will add further momentum to the robust EPS growth we forecast for financial year 2028, building on the benefit from leasing our London office developments plus ongoing like-for-like growth. Consequently, for financial year 2028 we now foresee enhanced high single-digit percentage EPS growth, exceeding the level we had anticipated in May. Our net debt to EBITDA has also been strengthened. We consider this a better metric than LTV, since net debt to EBITDA is a genuine cash-on-cash gauge and isn't reliant on valuations that are inherently subjective. It likewise captures other elements that bear on financial risk, including development exposure and the leasing risk tied to it. Following the large retail acquisitions we finished that were funded with equity, net debt stands unchanged at GBP 4.2 billion, although net debt to EBITDA has fallen to 7.7 x. That number still includes over GBP 400 million put into Thirty High, which completes in a few months and therefore is not yet generating any EBITDA. Even so, because leasing has gone so well at the developments we finished recently, about 40% of the future benefit we anticipate from leasing our pipeline—as this chart shows—is already signed or under offer. Along with capturing the rising reversion in our portfolio and releasing additional capital from pre-development assets that aren't yet producing income, this keeps us on course to bring net debt to EBITDA comfortably below 7x. As a result, our balance sheet remains strong. What we have achieved against our strategic objectives during the past six months bolsters our potential for EPS growth. Despite volatile global interest rates, our progress has made the route to 5% compound annual EPS growth—reaching GBP 0.62 by financial year 2030—more visible. The primary engine behind our results is growth in like-for-like income. Over the past half year, reversionary potential across our portfolio has continued to increase, and for offices it has now reached as much as 20%. At the same time, increases achieved on retail lettings and renewals have risen to 17%. Our earlier assumption was like-for-like income growth of roughly 4% per annum, with retail somewhat higher and offices somewhat lower. Given the larger reversion we now foresee and office growth a bit stronger than we had expected, the overall figure moves up to approximately 4%-5%. ERVs on our recent developments have likewise risen further since May, which adds to the earnings upside from leasing them. The trio of developments we finished most recently now stand at 88% leased or with offers in hand — versus 54% back in May — which means we can see more clearly on that front as well. As we keep shrinking the capital tied up in pre-development holdings that generate little or no income, interest-cost savings should contribute another GBP 0.01. Even though rates have risen since May, our long-dated maturities and hedging profile soften the effect, as I said before; therefore the improved prospects for like-for-like income growth plus the higher income we expect from development leasing more than counterbalance the projected increase in finance costs through financial year 2030; regarding capital recycling, we have completed roughly 70% of the major retail investment target we previously outlined, so visibility on that front has also improved. Taken together, all this puts us in a strong position to achieve average yearly EPS growth of 5% through financial year 2030. Roughly ninety percent of our growth now originates from the current portfolio and platform — that figure stood at eighty percent half a year back — so our results hinge considerably less on what happens in the investment markets. On that note, I'll return the floor to Mark.

Thank you, Vanessa. Now I'll close by explaining what to expect from us going forward, plus where we see differentiation and opportunity for Landsec, and after that we'll move to Q&A. Our main focus on sustainable income and EPS growth gives complete clarity, while our strategic progress during the last six months has further strengthened our positioning for an environment of higher inflation and higher interest rates. We have improved the quality of our portfolio, our potential for income growth, and our capital base, which has bettered our risk profile and reinforced our attractive EPS growth outlook. Our emphasis is on getting the most out of our high-quality office and retail portfolios by pushing continued like-for-like income growth and leasing up our newest office developments. We will keep supplementing that growth by rotating capital out of offices and into retail, where we see enough upside in doing so. We will stay focused on becoming more efficient and keeping our sector-leading balance sheet so that this top-line growth converts into earnings efficiently. All of this means we have a unique opportunity. We have assembled an irreplaceable portfolio of the U.K.'s top retail destinations and the most prized office destinations in Europe, and we have built two operational platforms that are demonstrably market-leading. Customer demand is still concentrated on the very best assets, and the supply of those is limited, two well-established trends with a long way to run. This means the quality of our income is well underpinned. Like-for-like rent growth is up, occupancy remains near a 20-year high, and rental uplifts are growing. As a result, our embedded earnings growth is evident. Portfolio reversion has reached a new high, overhead costs have fallen to a two-decade low, and our clear capital allocation framework keeps us disciplined about investment decisions, all underpinned by our high financial resilience; with a 6% income return at NTA and high visibility on delivering EPS growth of around 5% per annum, given virtually all of it is driven by our existing portfolio and platform, the outlook for attractive total returns for shareholders is clear. With that, I'll now open up for questions. Hands are going up very quickly. As usual, we'll take them in the auditorium here first; we'll start just there and then come down to the front row second, and then I'll move to the webcast and the online.

Thank you. Bjorn Zietsman here from Panmure Liberum. I've got a question about the office investment market. It looks like quite a lot of stock is going to come up for sale across the next few years, and at this point the market appears fairly subdued. How do you see yields trending from here, and what impact would that have on your disposal program if yields were to blow out?

Yes, so the first point I'd make regarding the office investment market is this: if you had asked me back at the beginning of this calendar year what that market would look like with rates 50+ basis points higher in roughly nine months' time, I think my view would actually have been more bearish than what appears to be unfolding. The investment market is, I think, still active. On both sides of the trade, people are trying to make deals work. That bid-offer spread is narrowing, so really I feel fairly optimistic about that investment market's ability to keep functioning. The major development, and I think this is concentrated on the best assets, so these remarks relate very specifically to the prime part of the market, is that yes, rates are going up, but at the same time rental growth and the embedded reversion in assets are also rising. And you saw in our valuation that this was essentially offset across six months, and I'd expect that to be broadly similar going forward; for our plans, we will always examine what quality and earnings we're selling, what price is attached to that rent roll, what the quality of earnings is where we feel we can redeploy, and how those two compare in terms of day one and growth prospects? And that will always drive our decision. So we won't slavishly look at a value one way or the other; it'll come down to whether we can recycle capital in a way that is earnings accretive and portfolio quality accretive?

Then a quick follow-up regarding growth in ERV. What portion of that comes from higher incentives, or would you say incentives have stayed broadly flat across the last few years?

Completely flat. We are seeing no movement in incentives whatsoever. I think it all shows up in headline. In my view the incentives are, they are comfortably stable. My belief is they will stay at that level. The cost is definitely shifting toward new space for new occupiers when it comes to fit-out and all the rest, and those are in fact fairly elevated. Normally, I think, in a market like this you would have anticipated the incentive package tightening. But given where relocation costs sit, I think they are going to remain around that 20% level or so in the new space.

Got it. Thanks.

Wonderful. We’ll begin by turning to Jonathan first, if that works, and after that we’ll go to Tom.

Thanks. Jonathan Kownator from Goldman Sachs. I have a couple of questions. The first concerns your EPS growth. When you look at your 2030 guidance, what upside or downside do you see there? Could there be a scenario in which, given the operational strengths you're seeing, that number turns out higher? Or does it all simply get absorbed by financing costs, especially since you also have fairly decent debt duration here? That's my first question, thanks.

Vanessa.

As I mentioned a bit earlier, given the rise in rates between May and today’s results, we’re seeing roughly 20 basis points added to the average cost of debt. Since our hedging position is quite solid—we’re pretty well hedged—and our debt has a long duration, we likely don’t experience the effect of those increases to the same degree some of our peers might. So you can see that the amount flowing through is fairly minimal, and it affects financial authority. But on the positive side, what you’ve observed from us, I believe, across the last year or two, is a genuine emphasis on improving operating margins, an emphasis on running our cost base efficiently enough to more than offset that effect. Beyond that, we’re seeing strong reversion coming through, and it appears to be growing. We feel quite confident about delivering the outlook as it stands today.

So maybe what I’d add there, in generic terms as I stress, is that versus six months back, visibility on that GBP 0.62 is much clearer now, with movement in the development pipeline, movement in asset recycling, and a stretch for rates that has been unusually volatile, perhaps. We’ve shown we can withstand that. A great deal, I think, will hinge on how rates move, but for that GBP 0.62 Now we are unquestionably in a lower-risk position than was the case six months ago, and six months ago I was pretty happy with where we stood.

All right, thanks. My second question concerns, I suppose, development and getting ready for the next growth cycle to some degree. Right now, for office as well as residential, the economics don't appear to stack up much in your favor. What would have to change before you'd feel more confident about restarting growth in those areas? Is it simply lower rates, or could there be a risk that rental growth is effectively being underwritten too low? Everyone who wants to do development is debating this heavily at the moment, how much rental growth is actually coming through, in both office and residential, and how do you view the upside risk there? Thank you.

Yes, well, you'll understand that any development appraisal, no matter which sector you're examining, contains plenty of moving parts. That said, the biggest obstacle, I'd argue, particularly for residential projects right now, is the level of rates. In residential you're generally working with a lower net yield on cost in any case, since you can capture growth each year. It's closer to a real return. Mainly, I'd put it down to the rate environment. We feel fairly comfortable, I'd say, about how build costs look. Build cost inflation, which was substantial a year or two back, has clearly eased. On the occupier market we're very comfortable and confident. Our approach has always been to benchmark rents at a sensible level for those projects, and we've generally underwritten rental growth roughly in line with inflation; ultimately it hinges on our read of the rate environment. On the office side, what has mattered for us is keeping the capability and expertise inside our business. That's precisely why the deal to sell 55 Old Broad Street while retaining development capability in-house mattered so much, since we serve as development manager there. Looking ahead, we'll stay active in development. We won't be committing the same level of balance sheet capital to development. As things stand, I struggle to envisage circumstances in the external environment that would make us feel truly comfortable sharply increasing our balance sheet commitment to office development. Doing it alongside capital partners might be one route, yet with our own balance sheet, we've stated that 5% total development is our long-term ceiling for the portfolio, and on a risk-adjusted basis we still regard residential as a better place to put capital, provided we can make it work, than office.

And ever since you put out that strategy, office rental growth has, I'd say, picked up pace, hasn't it?

Yes.

I get that this is the strategy and you want to stay with it, but how did the economics shift, and what sort of rental growth are you underwriting in office right now to keep that strategy going?

Yeah, so we're seeing mid-single-digit growth in office, and we said in the comments today that on a like-for-like basis certainly, we expect slightly stronger growth than we had felt previously. Office has definitely proven a bit stronger than we were expecting. I think that's largely due to the fact that, if I go back 18 months, we probably expected new supply to be coming on stream more by now in the wider market, or more development starts. Elevated rates have kept that down. Our view on office was always that we... not that we lacked confidence in office, it's just that we felt... we know with existing offices, from time to time, you get bigger vacancy, you get CapEx, and those things coincide. In a REIT looking to deliver sustainable growth in income and earnings, I think you need to be careful about having too much of the portfolio embedded with that type of exposure; that's why we want to reduce office exposure, and I think our decisions around development need to be seen in that context. For any office development now, you have to form a view not on where rates are today, but, as you're saying, how rents will grow and where the market will be in four or five years' time. Personally, I find that a difficult thing to underwrite. To make development stack up today, I think you'd 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. 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?

All right. All right, thanks.

Morning. Tom Musson here from Berenberg. Turning to the retail business, income growth is evidently picking up pace and is now above 6%, and you mention confidence in growth being sustained plus visibility. At the same time, though, today you're keeping the medium-term ambition of a 4.5%-7% like-for-like rental growth CAGR. What else would you need to witness before either narrowing that range or feeling able to raise the bottom end of that guidance, and has that been something you've weighed up?

Our guidance, I'd say, lands fairly close to the middle of that range, perhaps a touch under the midpoint of the range we assume. Everything we're pointing to certainly indicates that if demand strength and performance in the retail portfolio keep showing up as they have, there's likely upside risk there. Within that there's considerably more variable income, considerably more turnover rents propelling commercialization income; we have a set of some of the relatively major CapEx investments into assets that are likely to commence within roughly the next 12 months, and those will be a key element in getting them finished and leased up and adding to the FY 2030 picture. It's probably those investments — once we see them begin, once we see the agreements for lease and suchlike in place for them — that will give us more confidence about narrowing that range. I mean, 4.5%-7%, the top end of that range is plainly a level of growth we'd be delighted to see delivered on a sustained basis.

Perhaps the second one — in the RNS statement you say up to GBP 3 billion of assets should come to market across the next couple of years. Could you give us more detail on that, and can I confirm they're all in the U.K.? Would you look at assets outside the U.K.?

Every one of them is in the U.K., and the U.K. is our focus. They're very much as we'll have discussed at earlier results announcements; effectively, these are assets we'd regard as being held by people who aren't natural long-term owners. Not every one of them will satisfy our criteria. As a reminder, the criteria are that the asset must sit in a strong catchment, must be dominant in that catchment, and we must have full control of running it; those are the criteria; it's a fairly high bar. We've turned down quite a few things over the past 6 to 12 months. I'm sure we'll turn down some other things that come forward. But looking at what's in there and what might come forward, I think some interesting opportunities will emerge, which is why we flagged on a 6 to 12-month view that I think we'll see a bit more investment, which would mean that remaining sliver in our bar, waterfall chart through to FY 2030, I think over the next 6 to 12 months we should see that effectively come down to zero and all the growth be in assets we own.

Thanks a lot.

Let's take a couple from this side first, and after that we'll move to that side.

Hello, this is Paul May calling from Barclays. There are three questions I'd like to raise. How large could the retail opportunity potentially be? From what I recall, since the strategic update you provided, you've gone well beyond your investment target, or at least come close to it, possibly even edged past it. It sounds as though plenty more opportunities are heading your way over the coming few years. How big do you think the potential is for you, and what total size could you reach in the investment market?

We still have approximately, let's say, GBP 250 million to GBP 300 million remaining, so to speak, before reaching the target we set for ourselves in February last year. As you mentioned, we are definitely well ahead of that. These matters are clearly fairly binary. Looking at the assets, what we've actually purchased are Liverpool ONE and Metro; those were two acquisitions of GBP 500 million each. They are substantial, and not many such assets exist out there. If I were to frame this as potential, I believe in an ideal scenario there could be one or two smaller acquisitions, perhaps located in smaller catchments yet holding dominant positions, where we can leverage our platform. Should an opportunity arise to buy something else comparable in size to another Metro or Liverpool, that is something we would be very pleased to see. My view is that in the best case, you might see us commit a further GBP 750 million of investment into the sector. Naturally, we would only proceed if we believed we could fund it while keeping the balance sheet strong. The guidance we're giving, and what we remain comfortable with at this stage, assumes approximately another GBP 250 million of recycling across the next 12 months or so.

All right. On that point, you've become something of a model for funding expansion through equity issuance, even while trading below what people claim—or, in your words, subjective—asset values. I take it equity stays a central source of funding as those retail opportunities you mentioned emerge.

Well, the standards are demanding, but to recall what Metro achieved and how we'd approach any future capital, whatever form it takes, it added to earnings in the near term, it added to the growth outlook, and it added to portfolio quality, while at the same time reinforcing the balance sheet. Those are the qualities we'd be seeking. And naturally, equity is a route we would contemplate, but solely when that demanding standard is met.

You overlooked the fact that it also makes the shares more liquid.

That's something the markets should keep their eye on.

Vanessa, I also liked how you defined net debt to EBITDA and explained why that measure matters more and is more relevant than LTV. I doubt I could have put it better myself. My assumption is that the 7x net debt to EBITDA figure you ended with isn't a final target, and do you think there's room for it to come down further toward U.S. peers?

Well, I believe we've made it quite clear that, in fact, I think we said six months ago that 7x wasn't necessarily a target. It was more a result of the strategy and the choices we've made to lower the capital employed in development and free up capital by selling some of those development sites. Beyond that, naturally, a major factor is growth, the like-for-like growth across our portfolio, so the growth in that EBITDA. I think we're fairly comfortable that, as I mentioned today, getting below 7x really stems from the decisions we've taken, and we continue to keep our focus on it. I'm definitely much happier with it at that level than at the higher end.

To give my own take on the financial side, the way I frame it is that we're on track — as the statement says — to land comfortably below 7x once the development program is leased up, catch-up and reversion come through, and so on, given the EPS growth potential we're showing. If we're a business at six point something times net debt to EBITDA with per-annum EPS growth, we'd have to think very carefully before pushing leverage back up. It would need to add to that return outlook, and add enough to justify taking on the marginal financial risk. I think that's another high bar. Sorry, I keep leaning on that phrase.

A key point you make is that, generally speaking, a lower net debt to EBITDA ratio actually helps your equity rating, if you look at peers in the U.S.

Hi, good morning. This is Nadir Rahman from UBS. I have a couple of questions about the 90% EPS visibility for year 2030. Clearly, your reversion has sped up quite substantially over the past few years, and it now stands at 20% and 17% respectively for offices and retail. On that reversion figure, how much sensitivity does that 90% visibility carry? That is question one.