Hammerson Plc (HMSO) Earnings Call Transcript & Summary

Good morning, everyone, and thanks for joining our 2022 full year results. As usual, I will give you an overview of the year. Himanshu will run you through the numbers, and I will come back and talk about the continued execution of our strategy and what to look for over the next year. Before I start, there are 3 key points I'd like you to take away today. As you will see, this is a very different business from the one I jumped into at the end of 2020. In the last 2 years, we have driven significant change and strengthened our operational grip on the business against a very volatile economic backdrop. Today, we are a better, more agile and more resilient business. Secondly, we have a unique asset footprint in some of the best cities, and are well positioned to benefit from the positive trends we see emerging in the constantly evolving consumer landscape. Third, there is substantial deeper repurposing and development value to unlock in our portfolio. So let's dive into the year that just passed. Let's start with what we said and what we did. We said we would stabilize our core cash flows, and we have done just that by enlightening and reinvigorating our assets, introducing new occupiers, users and concepts. More focus has been put on placemaking and a strategic partnership mindset with occupiers. This is reflected in underlying topline growth of 8%. I am pleased with the 29% underlying growth in NRI as it reflects the constant work of the teams to sharpen operations and minimize voids and irrecoverable outgoings. We also delivered a 60% increase in adjusted earnings. We had our strongest year for leasing since 2018, signing 317 leases, representing GBP 45 million of headline rent, well ahead of previous passing and ahead of ERV. This continues into 2023. We have continued to see a flight to quality from occupiers and consumers, and that is reflected in a tight occupancy at 96%. We said we would optimize that cash flow further by unlocking value on the existing estate. We have completed, and are progressing key repurposing projects while working up other opportunities. We said we would create optionality by hitting key development milestones, and we have. I'll talk to specific examples of all the above later. We said we would generate capital to reduce debt and recycle to the highest returning opportunities. We made GBP 195 million of disposals and remain on track for a further GBP 300 million. This enabled us to reduce debt. Notwithstanding downward revaluations at the end of the year, we have maintained a stable balance sheet. Now over to Himanshu to run you through the numbers.

Thank you, Rita-Rose, and good morning, everyone. Turning to the full year 2022 financial performance. Let's jump right in. The numbers are a testament to the significant progress we have made over the last 2 years. Adjusted NRI was GBP 175 million, and that was after the loss of earnings from the disposal of Silverburn and Victoria Leeds in the first 3 months of the year. On the like-for-like portfolio, GRI grew by 8% as a result of the strong leasing performance and improved occupancy in 2021 and 2022. Like-for-like, NRI was up 29%. This was, of course, in part a function of the lower 2021 opening position from taking COVID-related concessions into that year. But even strict to this, the underlying NRI growth was strong, benefiting both from the growth in the topline and better rent collections with an overall gross to net margin of around 80%. Adjusted earnings were GBP 105 million, benefiting from the improvement in like-for-like NRI, lower admin costs, a reduction in finance costs and a strong recovery in Value Retail. Our total portfolio is valued at GBP 5.1 billion, down on a 5% during the year, which is a function of the disposals and the GBP 282 million revaluation deficit, 96% of which was at the end of the year. Our total return was a minus 0.7% with capital returns of minus 5.8%, somewhat mitigated by the strong income return of 5.3%. Our NTA per share has reduced 11p during the year to 53p. Net debt stands at GBP 1.7 billion, down 4% and our resulting headline LTV is 39%, with LTV on a fully proportional basis at 47%. Turning first to the adjusted earnings walk, starting with the GBP 80.9 million reported earnings for 2021. We see a GBP 15.4 million reduction in the opening balance due to the IASB change in accounting in relation to concessions. More information was provided on this in our release on the 22nd of February. The effect of this was to take COVID-related concessions into the year in which they were granted, and therefore, provides a much cleaner basis for going forward. It also has no impact on our future earnings and cash flow. Our restated earnings were therefore GBP 65.5 million for 2021. From that base, NRI grew by GBP 20.7 million on a net basis. Like-for-like, NRI growth was GBP 32 million, as shown in the call out box. This was from the flow-through of the strong leasing performance in 2021 and the 2022 improved collections. 2022 collections are 95%, and this compares with 90% when we reported this time last year. It's fair to say that after disruptive years of COVID, rent collections have pretty much normalized, and we continue to retain a strong operational grip in this area. Collections for the first quarter of 2023 are already at 90%. The NRI growth in the like-for-like portfolio was offset by an GBP 11 million decline in our development portfolio, which was largely due to the prior effect of surrender premiums. Moving across the page, net finance cost reduced by GBP 17.8 million from the 4% reduction in net debt from the active cash management of cash on balance sheet, to take advantage of higher rates. Our gross administration costs were down GBP 11.9 million as we continue to reset our platform. We have more to do here and more opportunity, a topic I'll turn to in a few moments. I'll also come back to the GBP 11.5 million year-on-year recovery in Value Retail. Finally, there was a loss of NRI of GBP 20.3 million and GBP 3.3 million on property fee income from 2021 and 2022 disposals, which brings home the adjusted earnings walk to a GBP 104.9 million. So turning to Value Retail. This slide shows the continued strong performance from Value Retail with earnings of GBP 27.4 million, a 72% increase year-on-year. Value Retail rents comprise of minimum or base rent and a turnover element, and in some villages, these are principally turnover. Income was further underpinned by inflation-linked clauses in the base rents for the majority of the villages. You see this coming through in strong growth in gross rental income of GBP 51.4 million. Value Retail footfall and brand sales bounce back, approaching 2019 levels. Spend per visit was up 5% on 2019 levels, and this was a result of targeting high net worth domestic customers, an increase in European tourism and the return of some tax-free shoppers, particularly La Vallee and Las Rozas. We anticipate a further recovery in Value Retail in 2023 with the return of the long-haul international traveler. Early indications of sales for 2023 show that international travelers are significantly up year-on-year. Occupier demand for space remains high with 332 leases signed in the year and occupancy at 94%. Collection rates are at a 100%. Strong operational and financial control saw the benefits of GRI drop to the bottom line. With regards to refinancing, Value Retail have completed more than GBP 1 billion of refinancing in 2022, the largest elements of which were the refinancing of La Vallee in the first half, and Bicester Village in the second half, both attractive all-in rates. Finally, we expect Value Retail to return to cash distributions in 2023. Now to look at the gross administration costs, which reduced 17% year-on-year. We took decisive action in 2021 to reset our operating model, and we saw the flow-through of this in 2022. We also saw further headcount reduction down 25%. We perform a root and branch review of all our costs every year, which Rita-Rose will cover in more detail. Today, we've guided that we are targeting a further 20% reduction in gross administration costs, inclusive of inflation by the end of 2024. Turning to valuations. The chart at the top and middle show the changes in yields and rental incomes. Let me first cover yields. Yields for prime shopping centers had been stable since Q2 2021. In the fourth quarter, with a continued sharp increase in inflation and a hawkish stance on interest rates, we saw a market-driven change in values approach to yields, with an outward yield shift in the U.K. of 50 bps, in France of 10 bps and in Ireland of 20 bps. Values also took a more conservative view of ERVs. In the U.K., like-for-like ERVs reduced 3.8% with a more modest 1.6% reduction in France. ERVs in Ireland were marginally up 0.3%. Of the overall decline in valuations, 96% was at year-end. The cumulative valuation effects in each of the territories are shown at the bottom of the chart. In the U.K., we've seen a 330 bps outward movement in net equivalent yields, with valuations down 65% from their peak and ERVs rebased at 36%. You can see the net equivalent ranges from 7.2% to 9.5%. In France and Ireland, we know the values approach looks more to transactional evidence. Again, we have seen an outward yield shift of 80 bps to 4.7%, to 6.4% in France, and a 110 bps to the range of 5.3% to 6% in Ireland. Moving now to the obligatory movement in NTA per share. As the walk shows, NTA per share has reduced 11p during the year. We saw a 2p per share growth from the growth in adjusted earnings, offset by a 6p loss relating to the valuation losses and 7p per share dilution from the scrip. Turning now to the balance sheet. We continue to simplify our portfolio and have generated GBP 195 million of gross proceeds in 2022. Our resulting net debt is 4% lower year-on-year at GBP 1.7 billion. I've already covered the LTV earlier. Gearing is at 68% and is comfortably below our covenant thresholds. We have ample liquidity in undrawn and committed facilities of GBP 1 billion. During the year, we maintained our IG credit rating and both Moody's and Fitch. Both changed their outlook from negative to stable. Looking at our liquidity and debt profile in more detail. On the left-hand side, the total liquidity of GBP 1 billion, comprises GBP 660 million of committed and undrawn facilities and GBP 336 million of cash. The first chart shows the group unsecured debt maturity profile with the secured debt on the right-hand side. Of the unsecured debt, as you can see, there are no maturities in 2023. Of the GBP 113 million of 2024 USPP maturities, this is more than covered by the cash available. The secured debt is held either against Highcross, O'Parinor, as a non-core asset, and Dundrum. On Highcross, we wrote off our equity interest in 2021, and the asset went into receivership in February 2023. Consequently, both the asset and the matching loan will be written down at the half year. On a pro forma basis, the result in 2022 headline LTV will be 38%, and on a fully proportional basis, 46%, while net debt/EBITDA improves to under 10x. O'Parinor is in flight, and we expect to refinance Dundrum in the ordinary course in 2024. Let me now move to my closing slide on 2023 guidance. The starting GRI scrip of 2022 disposals and surrenders is rebased GBP 211 million. We expect to see mid-single-digit growth in GRI in 2023. The key variable will then be timing and exit yield on the targeted GBP 300 million of disposals and the associated loss of fee income that goes against gross admin costs, assuming resulting GRI to NRI margin of 80%. We are targeting a 20% reduction in gross administration costs by 2024. The disposals of GBP 300 million will benefit finance costs, which we expect to be 15% lower. On CapEx, we expect 2023 expenditure of around GBP 110 million, balanced equally between the reinvestment in the core estate on repurposing, placemaking, stewardship and ESG and land acquisitions and promotions. The Board anticipates a return to cash dividends in 2023. To close, like-for-like topline growth, lower costs, a strengthened balance sheet and a positive outlook, which Rita-Rose will cover in more detail. Rita-Rose, over to you.

Thanks, Himanshu. Before I run through the operations from the year, I just want to take a step back and highlight the tangible results delivered over the last 2 years under our familiar strategic pillars shown on the left. We have simplified and focused the portfolio, disposing of GBP 628 million of assets in challenging markets, stabilizing the balance sheet on the way, and generating capital to recycle. I'm really pleased of the rapid progress we have made on the transformation of the platform, particularly during a very critical period of operation delivery. There is more to come. We are creating exceptional spaces and experiences for our occupiers and customers. We have also increased our focus on ESG, which remains at the heart of everything we do. We have redoubled our efforts this year, and now have fully cost net 0 asset plans for all our destinations. We have brought a sharper focus to the development pipeline. We are creating value and optionality by getting on with smaller projects that are integral to our estates and hitting key milestones on the larger ones. We are delivering tangible results across all areas of our strategy. We have a strong grip on the operations backed by disciplined financial management. Let's now dive into a bit more detail in some areas of the strategy and operations such as the platform, leasing and our development opportunities. You will remember the left-hand side of the slide when I explained our vision of change for the organization in early 2021. We took decisive action that year, and in the first half of 2022 to shift from a top-heavy geographically-oriented and siloed organization to a simplified asset-centric operating model. As mentioned, we have reduced head count, but we also prioritized investment in the right talent for the future at all levels. It's about continuing to future-proof the organization. For example, we increased speed of leasing and collections. We consolidated our property management suppliers in the U.K., which formally started in February '23. And we continue to implement more integrated, connected and automated systems to drive further efficiency. This all underpins our 17% cost reduction in '22 and further program for '24. Finally, an agile platform isn't only about how we work internally, but also how our assets are structured, including the partners we select and invest alongside. We were delighted to expand our partnership with CPPIB, forming a new cleaner 50-50 joint venture in Birmingham, following their acquisition of Nuveen stake in the Bullring. We continue to explore simplifying our structures. Let's now talk about leasing. A better, more agile, faster organization underpinned our best leasing performance since 2018. The 317 leases represented GBP 45 million of headline rent, GBP 25 million at our share. That's up 10% like-for-like year-on-year. That's more deals, more value, fewer people on a focused portfolio. Permanent deals were signed 34% above previous passing rent, representing an additional GBP 6 million on the rent roll and 2% above ERV on a net effective basis. Over 1/3 of deals represented renewals with key occupiers and the balance were new lettings, including many expansions and new entrants. The trend for occupiers returning to longer leases also continues with leasing in '22 having a WAULB of 8 years and a WAULT of 9.5 years. Importantly, occupiers are growing and investing with us of new leases around 40% or nearly 44,000 square meters of space involved a new concept and/or a significant upsize to a flagship offering from the occupier approaching 1/4 of renewals representing about 10,000 square meters of space involved wholesale refurbishments by occupiers. Leasing remains diversified, best-in-class, fashion 43%, food and social, 21%, where we are seeing increasing sales, and the balance to non-fashion and services. We engage with the best occupiers strategically and across the portfolio, leveraging the quality of our locations and relationships. I call out Apple regearing 4 locations with us and Inditex taking more space with a broader mix of brands. We leverage our relationships to introduce new international brands to enhance the wider portfolio. For example, we brought watches of Switzerland to Ireland for the first time and Victoria's Secret entering the French market with their first store in Marseille. As I mentioned, we have had a wealth of strong new entrants and concepts this year. A couple I am excited about are: Nike opening 2 new concepts in Bullring and Dundrum, while Gym and Coffee, an online start-up, took permanent space in Ireland following an incubation period. Our leasing in 2022 has also had much greater focus on placemaking selecting the right mix of occupiers to create enticing environments for consumers and occupiers is a part of this. But equally important is the right approach to commercialization and marketing as well as driving footfall and supporting strong leasing. These efforts generated income, up 13% like-for-like. This year, 3 highlights for me on this front were: our sponsorship of the Commonwealth Games with events and pop-ups across the Birmingham estate significantly increased global brand awareness and attracted incremental footfall of 1.8 million. Our supercar weekend in Dundrum, which attracted more than 30% additional footfall and our refreshed and digitized Christmas marketing campaign. This is an area where we have already invested in new talent, and we went again this year, attracting a senior leader in a newly created role who has already brought a greater focus to our efforts. In particular, we shifted our approach from reliance on traditional media to digital channels. You can see on the bottom right, already the improvement in some of our statistics, and this will be a continuous area of focus. Let's now talk about repurposing our spaces to evolve with changing demand and address supply. Repurposing underutilized spaces away from obsolete formats is also essential to creating exceptional places. This year, we completed the repurposing of the former House of Fraser unit in Dundrum to Brown Thomas and Penneys. That's Selfridges and Primark, both upsizing into flagship space with new concepts. This move also enabled us to bring to Dundrum for the first time Dunnes Stores, a brand heavily requested by consumers and the largest retailer in Ireland. Meanwhile, we are progressing at pace the repurposing of the former Debenhams in Bullring to a flagship M&S grocery-led offering and TOCA Social. Importantly, the reactivation of that end of the asset underpinned a flurry of leasing interest. Looking ahead, we have opportunities at The Oracle, Cabot Circus, Westquay and Brent Cross. All this hard work has resulted in robust operational trends. Occupancy remains high, reflecting the flight quality in our portfolio. Rents are at an affordable levels with further benefits to come from the revaluation of business rates in the U.K. On a pro forma basis, OCRs in the U.K. are now in the mid-teens. Footfall improved by 11% through the year in all territories to end the year at about 90% of 2019 levels. Group sales remain above 2019. Our customers are engaged and loyal with increasing spend and dwell times. Importantly, the early trends for 2023 are encouraging. Let me take a moment to walk through our [Audio Gap] these are capital light. Next, in the medium term, we have complementary opportunities on adjacent land. These are about enhancing scale and diversity of the holistic estate. In other words, the whole is more than the sum of its parts. We also have stand-alone opportunities, which are exciting, but are not connected to any existing assets. These tend to be longer term in nature and eventually more capital intense. In the near term, we remain focused on capital-light initiatives to unlock value and create the optionality to take developments forward. This could be by partnering with relevant sectorial expertise or aligned capital on those projects with the highest returns and impact on our retained estate or to seek liquidity. In the meantime, this portfolio delivers a 7% yield. Let me bring this to life with a few examples. In terms of the integral in Birmingham, we have submitted planning for Drum, an amenity-Rich workspace led proposal directly served by the U.K.'s most connected rail station. At The Oracle, we have submitted planning for a residential-led project, Reading Riverside, targeting around 450 apartments. Now turning to complementary. In Ireland, key initial planning permissions have been granted at Dublin Central, and we have commenced discussions with potential operators and occupiers. In the 15 acres of Southern lands at Brent Cross, we are working on activation options in the near term that will generate additional income and attract a broader customer base. Longer term, we are assessing a range of uses. And then, turning to the stand-alones, at Bishopsgate Goodsyard, we have signed the Section 106 agreement, and we expect to complete the remaining land drawdowns in 2023. Let me step back for a moment and talk about why we have been able to deliver the performance we have and what gives us the license for our forward ambitions. Our portfolio performance is, of course, underpinned by our increased operational rigor, but it's also underpinned by our unique city center footprint and the convergence of positive underlying trends. Let's talk about a few. We benefit from 216 million visitors a year, an affluent catchment of over 25 million customers. We have 1,800 occupiers who generate GBP 5 billion of sales each year, notwithstanding the halo, service, brand engagement and experience benefits. We are at the heart of our communities, and we support more than 30,000 full-time jobs. Moreover, our assets are ideally placed to benefit from the convergence of several emerging trends. Let me tell you about them. One, cities remain the engines of economic growth and even in tough times, have the most affluent catchments that are resilient; two, rents and rates have rebased to more affordable levels and the flight to quality continues as both occupiers and customers want fewer, better stores and experiences; three, we are taking a partnership approach with our occupiers to deliver an integrated customer journey regardless of whether it starts online or in-store; four, physical space is about far more than a point of sale and fulfillment. It's about brand engagement, service, advice, marketing, community, events and logistics. So why are we confident we can capitalize on these trends? Well, it's because our portfolio is focused on leading European cities. London, Dublin and Paris are ranked as the 3 cities with the highest potential in Europe. Bristol, Southampton and Birmingham all have more than 50% of their population under 35 years old, and our other cities have over 40%. London and Dublin are projected to have huge growth of living and workspace and high investments from overseas. We have dominant positions in these cities, which will continue to drive strong demand for the best physical space of all users. And you don't just have to take our word for it. You can see on this slide, we are fully aligned with the best-in-class occupiers. So as we look ahead to the next phase of our strategic execution, we think of ourselves as a cities' business. As we complete the reinvigoration of our existing assets and hit further key milestones on our development opportunities, we are increasingly thinking holistically about reinventing our assets. We strive to be the leading owner and asset manager of city center multi-use assets. And as we complete the realignment of the portfolio, we are delivering a stable and diversified income stream, with option value still to unlock in the development portfolio. So clearly, there is a huge amount of opportunity in our portfolio. Let me remind you of our approach to capital allocation. First, in terms of sources of capital, we remain focused on maximizing cash flow, but we also have further disposals to do. Turning to users. As a REIT, our cash flow must underpin a dividend, and the Board anticipates returning to cash in 2023. Second, we will reduce absolute indebtedness and deploy capital commensurate with keeping within the guide rails of an IG credit rating. Next, we prefer organic investment in our existing assets and estates. We remain opportunistic, particularly if there is potential to consolidate our ownership in our core assets and markets. We are total returns focused. We select the best returns for shareholders. We are mindful of our own cost of capital. Naturally, we will consider all options for funding and capital deployment, including debt retirement and distributions for shareholders. In summary, let me remind you, everything we do is underpinned by our strong grip on operations and disciplined financial management. We have simplified and focused the portfolio, generating GBP 628 million from non-core disposals since the start of 2021. We remain confident in delivering a further GBP 300 million this year. We have had our best leasing performance since 2018 and a strong pipeline in front of us. We remain focused on cash. As we diversify and bring in new occupiers, we do not lose sight of the importance of strong covenants. We are getting to our ambition of an agile platform, having already delivered significant realignment and cost savings early, and we expect to deliver 20% more by 2024. As just mentioned, we will continue to be disciplined capital allocators with a total return growth and investor mindset. With that in mind, as we look at the potential of our estates. In the near term, we focus on capital-light integral opportunities to unlock the value and create enhanced optionality. Our commitment to a conservative and resilient capital structure is absolute. The balance sheet is stable and debt reduced, and we have de-risked our pension fund obligations. We have ample liquidity, no immediate refinancing needs and have maintained our IG credit rating. In conclusion, we have had another strong year of progress. While we are very mindful of the still uncertain and volatile backdrop, we are well positioned to deliver another year of robust underlying earnings and cash flow. Going into 2023, we have a strong momentum. Group footfall and sales are both up double-digit year-on-year, while the occupier demand remains strong. We signed 30 deals representing GBP 3 million of headline rent, with a further 90 deals or GBP 15 million in solicitors' hands. In the medium term, we will unlock the value in the portfolio. As we say at Hammerson, more to do, more to come. I thank my colleagues, stakeholders and Board for their support, and I thank you for your attention. Now over to your questions.

[Operator Instructions] We'll just take a short break, ladies and gentlemen. Please stay online. [Break]

Welcome back, ladies and gentlemen. [Operator Instructions] Today's first question is coming from Colm Lauder calling from Goodbody.

Maybe just sort of -- start off on sort of capital management, balance sheet management of GBP 200 million or so of disposals completed last year, and you're guiding towards GBP 300 million disposals for this year 2023. Could you perhaps give us some sort of color in terms of expectations on timings, what might be in train already? And obviously, any detail on assets in particular areas of focus and for those disposals? And that's my first question.

So on your first questions about the disposals program, we are reaffirming, as you saw in the guidance -- our guidance of achieving the GBP 300 million by the end of the year. So I am confident of achieving that target by the end of the year. Obviously, I can't and I won't discuss about the specific transactions or even timing, but we already have some assets in train. As you know, all the assets we have are high quality, including those that are strategically non-core for us, and they are held at sensible valuations that will attract buyers. So we have -- you know we have a strong track record of delivering in challenging times over the last 2 years. So I am very confident -- I would also add that level of confidence goals with the fact that we do have interest at the moment in train. And also bear in mind that we're not forced sellers. So this is not a question of sell at all price, but it's really a carefully planned and executed program for the year. So I remain -- I am confident.

And maybe just on the operational side as well. So obviously, it's encouraging to see such a volume of lease events concluded over the course of the year and also to see sort of overall portfolio, WAULT ticking upwards. And could you perhaps provide some detail in terms of, one, I suppose, how the WAULT of unexpired lease term trends are across each component of the portfolio in terms of U.K., France, Ireland destinations? And is there a divergence in terms of WAULT trends there? And then also on the same sort of point, you -- are you seeing any evolution or further evolution in terms of the leasing types? So again, more traditional lease terms or increased turnover-linked, inflation-linked style structures?

So on the WAULB and the WAULT, it's a general trend that we're seeing across the portfolio. Obviously, France has a bit of a different construct, as you know, 369. But if you look at the U.K. and Ireland, this is representative of the portfolio. And it's also a sign of confidence, and obviously, these occupiers that we're seeing come into the portfolio or renewing or injecting additional capital also. So it goes with that investment, so better long-term income flow. Now the structure of the -- our portfolio is mainly guaranteed rent. So we do have a relatively small portion of turnover rent. And that -- the trends are not changing on that front. We are seeing some structures and some leases. We're starting to be able to talk about, for example, achieving higher -- some inflation earlier or some higher levels of readjustments in rent. So you're starting to see that flow in. Just coming back to the turnover, we have -- it's -- again, it's about 6% of our GRI. And again, that is staying pretty much in line at the moment. I think that pretty much answers your question, Colm. Did I miss anything there?

That's perfect, Rita-Rose.

We'll now go to Max Nimmo calling from Numis.

Maybe just following on from Colm's question on the capital structure side of things, and I appreciate that net debt/EBITDA has come down a decent amount. But just where -- in terms of your thinking, and appreciate it's bit of a moving beast with where valuations are still going, where are you kind of broadly targeting to get leverage in the medium term? And related to that, would you consider selling off some of the longer-term stand-alone projects to maybe accelerate some of that medium-term projects that you have? And then the second question was actually just around the French valuation side of things. I mean, I think the U.K. has clearly been a lot more front-footed in terms of valuing more on sentiment and transactions. Having only seen 20 bps of outward shift in France, should we be expecting this will be much more of a kind of slow bleed in terms of the valuation correction, because risk-free rate has gone up sort of 200 basis points and the rest? So just any kind of comment on the difference really between the 2, that would be great.

So 3 parts to your question. First question is around the leverage. So as you probably saw headline leverage is at 39% and fully consolidated, including the value retail piece at 46%. When you look at that leverage, given where we are in the market at the ultimately close or at the bottom of the market, that leverage is fine. At the same time -- in the sense that we don't see -- I don't see risk to the balance sheet. But at the same time, we fully -- again, we're very committed into a resilient and conservative balance sheet. So yes, we are working to deleverage. And if you do the math of our disposal program, that is GBP 300 billion -- GBP 300 million, you end up at a leverage of 34%, 35%. And I think given where we are, that's a very good place to be. And just remember also that in the fully consolidated side of Life on the Value Retail piece, the leverage is very low. It's nonrecourse loan. So again, there's no -- we don't see risk there. But we do want to manage more value for the shareholders, decrease our financing cost and get to that level of leverage. Now when you say that would you sell some stand-alone projects, as you saw in the presentation, we've evolved our thinking into -- with regards to our development opportunities. And yes, you may see us as we refine the thinking as we scope up the sites and see how we can create maximum value, you could see us doing some disposals on that side. But it's not necessarily embedded into this GBP 300 million program at the moment. In terms of France, I think you pointed out some good points for the U.K. side. Obviously, in the U.K., over the year in 2022, we saw stability just at the very end of the year. 96% of the losses at the very end in Q4, really sentiment-driven. And as you know, we have taken a lot of pain on the portfolio. You look at the U.K., it was 65% downward and 30% in France, ERVs 36% downward in the U.K. So that's -- we're now at 400 basis points of spread -- to the risk-free rate. So the U.K. is -- I think, is in the pretty strong or strong base, I would say, at this point in time, enabling us to look forward positively in terms of -- with all the leasing activity we're seeing in the portfolio, looking forward to returning to value creation. Now if you look at France, first of all, just remember that our portfolio in France is effectively 2 marquee assets, and they're owned 100% totally under our control, so TDP, which is a top 3 asset in France. So it's difficult to reach -- read too much about the broader market because our assets are so specific. So I'm going to talk about our specific exposure here. And I think it's important more and more in the environment that we be specific when we talk about asset valuation. So France is fundamentally a different market to the U.K. It has less retail space per capita. The leases are different, more flexible. Therefore, there's more stable cycles in France. And our ERV, if you look at slide 9 in the presentation, our ERVs haven't really moved in France. So it -- the valuations stand logically within that. So the overwhelming majority of French leases, more than 90% are linked to the government indexation clauses, so capture inflation each year. Our leasing trends in France at the moment are positive. We're leasing 49% above previous passing, and we're achieving over 4% above ERV. So our yields have moved out more than others. If you look at statistics, so they're -- they moved out 30% decline. So -- and again, it's really about those 2 marquee assets that are in the 5s. So if you look at that and the spread we have with the risk-free and as rates normalize, I think that's a reasonable place to be with all these specific points for the French portfolio.

[Operator Instructions] We'll now go to Eleanor Frew, calling from Barclays.

First question on the dividend. Can you give us some sort of guidance on the level of dividend? I understand that's the classifying requirements to mean quite a low payment? And then a second question. You mentioned you're committed to your investment grade rating, but can you give us some sort of color on how you plan to maintain it?

So I'll just very broadly remind a few things on the dividends, and I will pass on to Himanshu to talk a bit more about the IG rating. But just remember that we were committed to a scrip dividend in 2022, and that program has completed, and we have -- we're up-to-date on all our PID and SIC obligations for 2022. And we anticipate satisfying our PID obligations with our cash dividends in -- for 2023 and that final policy will be determined at the half year. But considering the underlying strength of our portfolio, the leasing we have in train -- all the activities we have in train, we're confident with that anticipation. Now Himanshu, do you want to give a bit more color on the IG rating?

Thanks, Rita-Rose. Look, our commitment to maintaining IG rating is absolute. It's central to the strategy and it's central to the way we think about cap structure -- and you'll know that when the rating agencies consider these things, they look at the security and resilience of the income stream. And Rita-Rose talked in her presentation about how that has been rebased. And of course, when you look at metrics, it's the focus on both LTV and net debt/EBITDA. And when you do the math from the reported numbers this morning for the GBP 300 million of disposals, depending on your yield assumptions on those, that gets you to an LTV of around 34%, 35% and net debt/EBITDA of around 8 to 9x. And we think those are good numbers, both in terms of capital structure and in terms of maintaining the IG rating.

We'll now go to Ventsi Iliev calling from Kempen.

Could you please comment on the rationale for suspending the final dividends for 2022?

Well, as I mentioned, maybe that was in the disconnected part. So again, we were committed to a scrip dividend in 2022, and we have -- we are up to date in our PID and SIC obligations, and that program has completed. So now we look at 2023, and we anticipate return to cash dividends.

We do not have any further audio questions at this time ma'am.

Okay. Go ahead.

We have a couple of questions coming from the web. I've grouped them into 3 parts, but we'll go 1 at a time. The first, could you give some more color on the Value Retail refinancing, how that went? Anything we can give in terms of terms? And whether on a forward-looking basis, Himanshu's guidance includes a higher interest cost?

So on the Value Retail piece, the refinancing and -- so Value Retail has indeed achieved about GBP 1 billion of refinancings in 2022. We won't go into the detail of that because it's -- it does involve the partner, but very successful financing, I would say. Himanshu, do you want to add something on the guidance?

Yes. So we've given clear guidance in my guidance slide on financing costs for 2023. Just to remind you, we have no refinancing needs till 2025. And therefore, there's plenty of runway in '24 and '25 as we access the capital markets to give you the guidance at that time. Thanks, Josh.

Next one, and again, it's a number of different questions, but on the theme of the Highcross receivership. So maybe some detail on how that process went, whether it took a significant portion of management time and a recap of the effect it has on the numbers?

Yes. So well, first of all, Highcross is old news, basically because as you remember, last year in 2021, we had addressed the situation in the annual report, very specifically saying there was a default on the loan and that we would engage with banks for discussions, and we wrote off the asset. So what you're seeing today, is just a natural process -- natural evolution of that process. And it's just a -- it's a handover. So I think it's in line with what we want to achieve, and it's also for us, it's a question of capital allocation.

And on the numbers part of that, when you run the math through the -- both the asset and the loan will be written down at the half year. It's a circa 1% benefit to LTV, both headline and FPC and there's a benefit of about 0.5 a turn on net debt/EBITDA.

The third group is coming back to this bit about capital allocation. Specifically, we've talked about disposals or any acquisitions on the agenda for 2023. And when you think about that in the wider context, how do you balance thoughts on the dividend and distribution to shareholders versus reinvestment in the business?

Yes. So in the presentation, we talk about specifically capital allocation at the site on one of the slides just because there's a lot of potential on this portfolio. And one thing we've decided is that we want to invest in our portfolio because it has a lot of organic growth opportunity. So there is a mention in there that capital could go to consolidate ownership in our core assets, core markets, which would obviously increase earnings and ultimately it be a accretive for the company, but also in line with our strategy of city assets. So we will time that appropriately as we go along and as the disposal programs executes. So that is effectively in the plan.

And the last one is, could we give a little bit more color around the targeted cost reduction out to the end of 2024, the constitutes of that and how we'll achieve that?

Yes, sure. So this is a continuation of the work we've been doing. So as I said in the presentation early in 2021, a full root and branch review was done turning every stone in the company, and we've achieved -- we've been able to do that fast enough so that it flow through this year with the 17% cost reduction that is composed of some obviously, headcount reduction, but also a lot of other hard costs in the company that has to do with the revision of our operational model. So Himanshu in his section, talked about the offices in London and Paris that gave us a big cost reduction year-on-year this year. And we have reviewed our complex web of suppliers in the U.K. and simplified that, and that yielded a lot of efficiencies reviewed contracts -- old contracts just cleaning up. So there's been that. And then there's the digital platform. Our technology platform was not efficient. So it was creating enormous work and inefficiency. So that -- we have worked on that and continue to work on that. And obviously, there will be disposals in there. So it's going -- it's continuing that program. So it's a mix of the type of expenses that I just talked about, to get us to that future-proof organization. And bear in mind that we're also in the meantime, hiring also different talents to align us to the new trends and the new expertise we need in the platform. So it's not just about a cost-cutting exercise. It's really a realignment of the platform, solidifying and making the platform more agile, and that's going to continue into '23 and '24 to deliver the additional cost reductions.

We have no further questions online. We haven't covered elsewhere, so I'll hand back for you to close.

Well, thank you very much. Thank you to everybody for being on the line this morning, and we will most certainly meet a lot of you in the next days, and we'll be happy to take any questions over the next weeks. Again, thank you, and see you soon.