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

Ladies and gentlemen, good morning. My name is Mark Allan, Chief Executive of Landsec. And I'm delighted to be welcoming all of you to our 2020 Capital Markets Day. Thank you very much for taking the time to join us. Now over the past 6 months since my appointment as CEO, and as we flagged alongside our full year results in May, we've undertaken a thorough review of our portfolio, our markets and our organization in order to determine our vision and our strategic direction for Landsec. It's testament to the team at Landsec that we've been able to do this while also dealing effectively with the issues and the challenges presented by the ongoing pandemic. Now the analysis and the supporting work behind what you see today has been done almost entirely internally, with just a small amount of targeted external specialist support in specific areas. And we also consulted extensively with other stakeholders, particularly shareholders and customers as part of this strategy process. I personally sought the view of around 30 investors, and I spoke to 40 or so of our customers at CEO or Board level to make sure that I understood their perspectives as we went through this process. And our strategy is all about positioning Landsec for growth. Now today, you'll be hearing from me and a small number of senior colleagues who have been closely involved in the strategy work and who will, of course, also be closely involved in the delivery of our strategy. It has been and it will continue to be very much a team effort. So I will talk you through an overview of our plans before being joined by Marcus Geddes, our Head of Property; David Heaford, our Head of Development, and Colette O'Shea, our Managing Director of Property, who will provide more color on the strategic priorities that we're setting out. I will then share some thoughts regarding culture, capability and organization, which will, of course, be key to successful delivery, before Martin Greenslade, our CFO, will set out what this all means from a numbers perspective. I'll then bring things back together before opening up for Q&A. The presentation element of the session should last approximately 90 minutes, and we will have a short break in the middle. Now I'd like to start by setting out 6 key themes from our review. Now these themes do not set out the strategy itself, but they do underpin it. And as we take you through the presentation, I hope you will see clearly how we have factored them into our thinking. So firstly, the high quality of our Central London portfolio. Now this is something that Landsec is rightly famous for and it embodies the significant value that the Landsec platform has created and can and will continue to create. Besides its quality, its tenant mix and long average unexpired lease term makes it particularly resilient. And despite COVID, the investment market for London offices remains robust, particularly for these types of assets, as evidenced by CPPIB's recent sale of their 50% stake in our Nova JV at a price, a level supportive of book value. And that's perhaps not surprising given the prospect of low, 0 or even negative interest rates, and it should underpin to -- serve to underpin values from here. So the Central London portfolio represents a good source of liquidity over time. And while there are limited opportunities to add value to many of these specific assets individually, there is clear potential to recycle capital out of some of them and reinvest into new growth opportunities in a managed way over time. Which leads me to my second point, talent. There is considerable experience, expertise and capability throughout the Landsec business, and it is this that has driven and will continue to drive value creation. And I am certain we can get even more from this by making sure we have the right culture, one built around empowerment and accountability within the clear strategic framework we are establishing. And thirdly, we have a strong balance sheet, vital, given the challenges that are all -- we're all facing as a result of the pandemic, and very much thanks to Martin's judicious management of our borrowings over the past few years. Now of course, with the pandemic ongoing and other uncertainties still live, we cannot afford to be complacent, but we are starting from a position of strength, low leverage and a liquid portfolio. Fourthly, retail. Now retail is facing clear structural challenges, and these have been accelerated by COVID. But not all retail property is the same. The most striking structural challenge, the rapid emergence of online retail, is limited primarily to regional shopping centers whose business models need to adapt and need to adapt quickly. As of March, these assets represented only 13% of our portfolio, and ours are amongst the very best in the country. But for these assets in particular, we need to be realistic in our outlook and proactive in our approach. We will make better and more timely decisions as a result. And the strength of our wider business gives us the flexibility to approach a reset of this retail with confidence. The remainder of our Retail Portfolio is much less exposed to the Internet. Outlets remain a promising prospect and elsewhere, the repurposing potential of some of our assets is really quite striking. Our fifth key finding is about portfolio mix. Our review has highlighted that there are certain elements that are subscale, where we have little or no competitive advantage, while some structural growth areas are underrepresented. Now this presents an opportunity to refocus the portfolio over time. And finally, of course, we cannot ignore COVID-19. There have been many short-term challenges, and there will continue to be for quite a while yet. And of course, the longer-term implications are still unclear. But out of every crisis emerges opportunity, and this one will be no different. We intend to make sure that Landsec is positioned to make the most of these opportunities, building on some of the virtues that I have already set out. So with respect to COVID, we are managing the near-term challenges proactively and we are focused on positioning the business for the undoubted post-pandemic opportunity. So all this means we are starting from a position of strength. Our team has proven that it can add significant value, and the quality of our portfolio is testament to just that. And we are approaching a time where there could be significant opportunities ahead, both cyclical and structural. Our lower LTV, coupled with the quality, resilience and liquidity of our London portfolio in particular, offers potential to recycle capital into growth opportunities in a managed, proactive way. Now of course, this strategy is not just about the existing Landsec business. I bring my own perspective and my own ideas from my previous roles, previous businesses as well. As many of you will know, I come from real estate businesses with a greater operational focus: student housing, housebuilding, industrial logistics development, businesses that are about a lot more than capital allocation, a lot more than sector calls, businesses where operational risk is there to be embraced and managed, where it can be a significant source of value. Platforms, as these businesses are increasingly called. And businesses where understanding and delivering value for your customers is fundamental to success. Now in my view, Landsec has been too wary of operational risk in the past, and it needs to get much closer to its customers. My previous roles at Unite and St. Modwen have also shown me the importance of a clear, well-defined strategy. It is critical to getting the best out of people through greater empowerment and accountability. And without it, there will always be too many spinning wheels. I think Landsec has lacked this in recent years, and it is what we are setting out today. And finally, culture is as important as strategy, and I don't believe that Landsec's culture has yet got the best out of its people. Too many people describe Landsec as an oil tanker. And to me, that says more about mindset than reality. Landsec employs fewer people than either of my previous businesses and has a more liquid portfolio. So why should it be an oil tanker? I think this has led to too much bureaucracy in the business and an overly cautious approach to decision-making. Now with a clear strategy, you can inject pace and build momentum, try different things, scale up what works, and that is what we intend to be doing. So today, we are setting out a strategy that makes the most of Landsec's strengths and positions the business for growth. It will build on existing areas of competitive advantage. It will position the business to take advantage of long-term macro trends. And it will be built around a clear authentic purpose so that it delivers value not just for shareholders, but for all stakeholders. So what are the long-term macro trends that we need to be aware of? Well, as part of our review, we identified 6 global forces of change that are likely to shape the future and it will be key to understanding the opportunities and the threats that Landsec is likely to encounter in the longer term. Now the first 4 on this page: urbanization, demographic and social change, technologically advanced living and climate change and resource scarcity, of course, have significant societal and economic implications. But they also have the most direct consequences for the built environment. And for that reason, they present a fantastic opportunity for a business that grasps the implications and is prepared to innovate and push boundaries to help shape the future. The last 2, borderless access and shifts in global economic power, have less direct impact on the built environment, but more profound societal and economic implications. They will influence government policy at a national level, flows of capital around the globe, and affect the way in which business as a whole is viewed. Our strategy factors in all of these global forces of change. And of course, these forces are not just future trends. They are here and now. So how are we thinking about things nearer term? Well, on urbanization, the UN estimates that nearly 70% of the world's population will live in urban areas by 2050. That's up from 55% today. The population of London is forecast to reach 10.3 million by 2041, an increase of 1.2 million when compared with 2019. COVID-19 has, of course, put a different complexion on that in the short term, but cities and London specifically, have rebounded from many such crises in the past and will do so again. Remember, many of the biggest leaps in urban development, sanitation, for example, were in direct response to disease. And while COVID has instilled a fear of densely populated areas in the near term, it is also increasingly highlighting people's desire to come together, the challenges and limitations that emerge when they can't and the significant network effects in mixing commerce, arts, science and power in one place. That can sometimes be taken for granted. Cities are always changing, and they will continue to change in a post-COVID world, and this can represent a real opportunity. In thinking about demographic and social change, a global population boom, paired with people living longer and having fewer children, will continue to drive significant demographic shifts. And while COVID-19 has disproportionately impacted certain parts of the population, particularly older people, the long-term trends still seem unlikely to change too much. The digital landscape will continue to disrupt how we live, work, shop and more. And much of this has been accelerated out of necessity as a result of COVID-19. Now the endpoint is unlikely to be much different to what might have prevailed anyway, but we are getting there much more quickly, and this needs to be fully reflected in how we think about our investments and our developments going forward. And climate change and resource scarcity has been a big issue for some time, and the U.K. and Landsec have been amongst the more prominent in their respective peer groups in seeking to tackle it. A prolonged recession might put pressure on investment, but governments are already considering how they might link future fiscal policy and their own environmental commitments. So having talked about long-term macro trends in a bit more detail, I'll now turn to purpose. I've been a big believer in the importance of businesses having a clear purpose for a long time and businesses being able to articulate the value they bring to all of their stakeholders beyond simply providing jobs and paying dividends to pensioners. And this is not about diluting shareholder returns, it is about enhancing the quality of those returns. Businesses that embrace their responsibilities to all of their stakeholders and embed that in their strategy and their business model will attract more customers, attract the right customers. They'll appeal to the best and brightest talent and strengthen their workforce as a result. They will build better, more valuable relationships with suppliers and partners. And they will build deeper and more resilient levels of trust at all levels in society. So our purpose is sustainable places, connecting communities, realizing potential. It captures things that Landsec already understands and does well. But more importantly, it captures things that society and cities in particular will need in future in order to thrive. Landsec has the opportunity to be great at these things and to establish real lasting competitive advantage. So I've covered macro trends and purpose. The third of the 3 key ingredients underpinning our strategy is competitive advantage. Now to some extent, I've touched upon some of this when I set out the key headline findings from our review at the start, but it is worth highlighting them more specifically. Firstly, the quality of our portfolio. The Central London portfolio, in particular, represents a strong foundation from which to build a growth-focused strategy. Its quality, resilience and liquidity will allow us to recycle capital into growth areas over time in a managed way. In Retail, outlets were performing strongly prior to COVID and is showing the strongest signs of recovery now. And while shopping centers are structurally challenged, we do own and manage some of the very best real estate in that space, meaning that we can approach the required reset of Retail with confidence. But too often, a real estate company is viewed simply from the perspective of its assets, and this is far too narrow a view. At Landsec, our track record, our reputation and our relationships have been crucial to our success to date, and they will be even more so in the future. Scale is not automatically an advantage, but it can be and should be for Landsec, the ability to access and deploy capital quickly and cost-effectively, the ability to marry significant skills with our own capital, making it easier to bring forward challenging projects, particularly larger, more complex projects, where competition may be less and maybe more consortium in nature. Our development expertise. Between 2010 and 2017, our last major development cycle, the business delivered GBP 1.5 billion worth of value across the 3.4 million-square-foot program. And while these achievements have been focused primarily in London office, and to some extent, Retail, many of the skills are adaptable and transferable into adjacent sectors. ESG leadership. There were clear signs prior to the pandemic of ESG performance translating directly into occupier appeal, particularly in Central London, and increasingly into potential rent levels. Now despite the near-term disruption to the market, we expect this trend to resume longer term, and our recognized sector leadership is a real source of strength. And it is our people that bring all of this together, our people that can unlock the potential in our portfolio, that can spot new opportunities, that can build strategic relationships, and more. I have been consistently impressed the level of capability within Landsec since I joined. And with a culture based around empowerment and accountability within a clear strategic framework, I know that we can achieve a lot more. So our strategy. In positioning Landsec for growth, we are today setting out 4 strategic priorities that will inform our direction of travel in the years ahead. We will optimize our Central London business, reimagine our Retail business, realize capital from subscale sectors and grow through urban opportunities. Now these priorities will be reflected in how we think about and report performance of the business going forward, and that will start with our interims due next month. You'll hear more about each of these priorities shortly. But first, some introductory comments. What do we mean by optimize our Central London business? Well, firstly, Central London means all of our assets in Central London, not just the office elements. And I've already highlighted the quality, resilience and liquidity of that investment portfolio. And optimize will mean things like greater alignment with growth sectors, growth geographies in the capital, evolving a broader range of propositions for our customers, continued deployment of our development expertise and targeted recycling of capital to fund long-term growth. You'll hear more from Marcus shortly. For our second priority, Retail refers specifically to our regional Retail business, outlets and shopping centers. Reimagine means taking a fundamentally different approach to how we think about the business model, basing our investment and our operational decisions on a realistic view of sustainable rents, rethinking the experience that our centers provide for visitors, building on the successes of the past, not just trying to repeat them, forging stronger, more collaborative and strategic relationships with our retailer customers, focusing on delivering the value that matters to them and coming at things from a win-win perspective, reshaping the size and mix of our retail footprint, and building on the success and appeal of our outlets. Colette will cover this in more detail shortly. Realizing capital from subscale sectors involves recycling capital out of assets where, as the name suggests, we don't have scale and where we have little or no competitive advantage. Leisure, hotels and retail parks are in this category. But we're in no hurry to sell these assets. And when we do, we will do so in a managed way. I'll share more details with you later. And then what do we mean by urban opportunities? Well, I've already talked about how urban environments need to change as the way we live our lives evolves, be that as a result of technology, change in demographics or adapting to a post-COVID world. Now often this debate focuses on specific asset uses or sectors, but there is a larger role to be fulfilled in helping to shape and deliver that change: bringing together development expertise and capital, leveraging reputation and relationships, and doing so in a sustainable way. And Landsec is ideally placed to fulfill that role. You'll hear more from David later. So what will this mean for shareholders? How are we thinking about risk and return? Firstly, Landsec is a business with potential -- proven potential to add significant value through its portfolio and activities. We therefore intend to prioritize delivering above-market total returns through the cycle. Income is, of course, a key component of our property return, and it will still be meaningful, but we do not believe it should be the key driver. As a result, we intend to have a greater focus on delivering true value creation, or in market parlance, alpha. This will mean taking more operational risk, but risks that we understand, and doing so in a managed, proactive way. And this higher level of operating risk will generally require a lower level of financial leverage. And notwithstanding our focus on delivering total return through the cycle, we do operate in a cyclical market. And we must recognize that understanding and responding to the cycle is a key part of generating and protecting value. With the quality of its existing portfolio as an effective source of liquidity to fund growth, a team with an unrivaled track record in creating value in its core markets, and a clear strategy to leverage that strength for a better culture and approached operational risk, we aspire to Landsec delivering market-beating returns through the cycle. Martin will provide more detail on the financial aspects of our strategy later. So with that overview concluded, we will now turn to each of the 4 priorities in more detail. Firstly, optimize our Central London business. And for that, I will now hand over to Marcus Geddes.

Thank you, Mark, and good morning to you. At our Capital Markets Day last September, I talked about the trends driving our London activities. But that does all seem a long time ago now, so here's a reminder. Firstly, the flight to quality office space and an increasing divergence between prime and secondary rent; secondly, a relative shortage in the pipeline of new-build space; and thirdly, growing demand for convenience, flexibility, choice and sustainability; and finally, London's enduring and global appeal to investors and occupiers alike. 13 months on and living with a public health pandemic, these trends are more than just still relevant, they've accelerated, and none more so than sustainability, which is right at the top of the occupier agenda, but has widened to capture employee health and welfare, as business grapples to keep their employees both mentally and physically fit and keep COVID out of their workplaces. Even with Brexit uncertainty and the pandemic legacy to adapt to, we're well placed to take advantage of the opportunities that change will inevitably bring. And over the past 6 months, we've been flat out in our virtual worlds, positioning Landsec to deliver office space and service that connects businesses and enables them to realize their potential. Back to this morning, and as well as a bit more color on the portfolio, I'll share some emerging COVID-led themes we're seeing and some examples about how our London activities are set to contribute to overall business returns. As you can see, we're invested across the core submarkets, with 83% of the value of our assets coming from offices, 11% from Retail and 5% of other, which is almost entirely the screens at Piccadilly Circus. And following the financial crisis in 2008, we recognized the importance of having high-quality product. And we've developed and traded our way to a modern, sustainable, high-quality portfolio. Excluding predevelopment properties, our offices are fully let, with diverse income. And many of our customers headquarter with us, and include top-tier banks, professional services and government. And at 8.1 years in March, we still have one of the longest weighted average unexpired lease terms in the sector, with near-term CapEx requirements low, just 1/3 of the portfolio less than 5 years old. Using a range of weighted measures, we've scored the portfolio against income quality and growth potential. These measures include sector structural support, lease characteristics, COVID risk and performance outlook over the short to medium term. And as you can see, growth potential is on the y-axis and income quality on the x. 2/3 of the portfolio, on the lower right half of the graphic, is robust and underpinned by long creditworthy income, which is vital in these uncertain times. London continues to bear the cost of COVID, with tourists and workers eerily absent, year-on-year footfall is down 60% in the West End. Office occupancy in our portfolio remains low, having climbed back up to 17% in mid-September. But cities are indispensable to human progress, and we're planning beyond but not blind to the impact of COVID, confident that London will benefit from those 6 global forces of change. So looking ahead, we'll be driving performance from 3 key areas. Firstly, from targeted geographies and sectors like Southwark, where we see a lack of high-quality stock and good demand from the tech and life sciences sectors. There's great potential for our 3 schemes, where we have the potential to deliver GBP 0.8 billion across 750,000 square feet. Secondly, through timely and considered development across a further 6 sites that make up the remainder of a 2 million-square-foot pipeline. And thirdly, growth from rebalancing our range of office products towards value-add service and flexibility in response to a changing customer need. Even as it adapts to the current crisis, the Ernst & Young report published in May this year still ranks London at #1, with the highest number of HQs in Europe, 4x more than Paris, the next-highest European city. This is just one of the factors which contributes to our confidence in London's ability to keep its status as a financial hub and global talent, a magnet for talent and capital. So how have investors reacted? With GBP 3.2 billion traded so far, 2020 volumes are down almost 50% on last year and will finish the year down on the 10-year average. The year's had 3 distinct quarters. Q1 was buoyant on the back of the December election, only to be stopped in its tracks in Q2 as the impact of the virus took hold. Q3 saw activity restart in earnest, and we expect this to continue and deliver a strong final quarter. Domestic investors have taken about half the market share. And despite travel restrictions, overseas investors have been active, with several transactions in excess of GBP 100 million completing without the buyer inspecting. Our sale at 7 Soho Square, which completed last Wednesday, saw 43 different parties view, generating 11 well-diligenced and funded written offers and a competitive battle for the contract. And as Mark said just now, we see value as being well-supported by the current low-return environment. And on a relative basis, London looks attractive, with a generous spread to other global cities. Occupational take-up has been thin, with the first 3 quarters down 50% on last year, and we're seeing 5 clear themes. Firstly, tech companies remain active and are committing to space. Google has recently regeared for 10 years on 170,000 square feet, which was subject to a lease event. And Netflix has just acquired 90,000 square feet, tripling their London footprint. Secondly, and perhaps unsurprisingly, some occupiers are buying time and deferring decisions with short-term extensions, and this could lead to a build of latent demand over the next 1 to 3 years. Thirdly, long-term strategic moves continue to be planned. Occupiers looking at options for 2024 and beyond are still active and will sustain pre-let momentum that we've highlighted before. We're seeing this evidenced by a number of city law firms committing to new space at the moment. Fourthly, gray or occupier release space has been the main cause of increasing vacancy rates, up from 3.9% at the beginning of the year to 6.5% at the end of September. This is a common response to extreme uncertainty as business tries to cut overhead. However, with demand targeting the best space, the real cost of subletting that comes from CapEx, voids and incentives is high, so vacancy rates can fall quickly again in a recovering market when space becomes withdrawn. In fact, one of our Victoria-based customers rushed 1 of their 3 20,000-square-foot floors to market in the summer, only to withdraw it at the beginning of this month. Finally, whilst it's still early days, occupiers are seeing their future of a hybrid model that combines the best experiences of physical and digital spaces. Over the past 6 months and many webinars later, this debate has ranged from killing the office off completely, to suggesting we'll be back in 5 days a week. Although some businesses and individuals will fall into both camps, most envisage some sort of balance. Individual employee flexibility may increase, but the office will remain a 5-day operation, a place for collaboration, activity-based and more creative work that enables you to accomplish what you can't when you're sitting at the kitchen table at home. And for a younger workforce, perhaps without appropriate home-working environments, the right space will also be a vital tool for social, cultural, learning and personal development. We've been talking to our customers more than ever over the past 6 months, both at an operational and a strategic level. Firstly, guiding them through lockdown, and more recently, supporting their return to a COVID-secure environment. Secondly, we've undertaken in-depth quantitative and qualitative analysis to give us a data set with which to plan our strategy as we emerge from COVID. This covered 1/5 of our occupier base and a further group of prospective customers who, together, occupy 2.5 million square feet in London. 82% of those we spoke to plan to maintain or increase their footprint. Suggesting fewer visits to the office could be offset by reversing the densification trends of the past decade. 81% said their office space boosts productivity, whilst working-from-home fatigue and mental-health concerns are becoming more common. This insight is giving us the chance to identify, test and evaluate new propositions to ensure they're both customer-centric and commercially driven. Some of these opportunity areas include a dynamic pricing at Myo for small project offices on flexible commitments, or gray-space repurposing, where we can work with a customer if they're thinking about releasing space, and a space-consultancy service to help design layouts and fit-out. Now with occupancies down, it's our ground-floor customers, so dependent on the purses and wallets of office workers, that are struggling. And whilst in a typical office building, that might just be 5% or 6% by value, the right mix of vibrant F&B and amenity is and will continue to be vital to the success of all urban mixed-use places. We're doing what we can to support these customers, but recognize that rents and uses will need to adapt if footfall remains low for a prolonged period. This could be part of an evolving urban delivery model or showrooms, affordable workspaces or, as we've said before, less coffee and more crèche, or less fashion and more fitness. To appeal to prospective customers as well as existing, we've developed a proposition that's underpinned by 3 guiding principles that customers have told us are important to them. Firstly, great working partnerships, which means listening to our customers, understanding their businesses and their perspectives. 78% of our existing customers said they wanted to build a partnership with their landlord. So providing choice and delivering the right product across the lifetime of a lease means our customers are more likely to stay with us. For example, the strength of our partnership with Deutsche Bank formed at Zig Zag was instrumental in attracting them to 21 Moorfields. CDC, an occupier in 123 Victoria Street, has taken overflow space in Myo whilst we plan a longer-term expansion with them. Also, customers have benefited from service charge and operational cost savings that we've passed through during lockdown. Secondly, offering great experiences. We help our customers win the war on talent by supporting and enhancing their employee experience, by things like the Landsec Lounge, first-class cycle facilities and a relevant ground floor offer. This will only get more important, as 88% of our customers have told us they consulted their employees about their needs at their last office move. Finally, creating healthy and sustainable spaces. 86% of our customers said supporting employee well-being was an important feature of their office space. And 69% said they cared about the sustainability of their workplace. Today's talent is increasingly motivated by the social and environmental impacts they have at work. And COVID has strengthened the case for a safe and healthy office. And we've been on that page for some time and make no compromises when it comes to daylight, air and sound quality because we see the value it brings. To put that to the test, we've recently completed the first phase of the WELL Building Institute accreditation for the whole portfolio, which we believe is a first for a property company in the U.K. Unsurprisingly, but reassuringly, early indications rate highly compared to our global peers. Last year, we shared detail on our HQ, Fitted and Myo products. And following further research, we've refreshed the product brands to be more consumer-facing, where HQ has become Blank Canvas and Fitted has become Customised. In its first full year since launch in May last year, Myo at 123 Victoria Street has performed ahead of business plan, supporting new and existing Landsec customers, and we became fully let within 11 months. At Dashwood House, across the road from Liverpool Street Crossrail Station, we're pushing this range of product to work. Dashwood is 150,000 square foot multi-let building, over 17 floors that was let up post refurbishment back in 2010. Now as that leasing cycle ends, about 95,000 square feet has or will be vacated within the next 12 months. We're on-site and excited to be delivering our 3 products, together with new cycle and shower facilities that will complement the Landsec Lounge we opened at the end of last year. Myo Liverpool Street will open in spring next year, bringing 35,000 square feet of fully serviced offices, shared meeting rooms and amenities. We've designed and will operate Myo in accordance with the WELL Building standard. It's on track to achieve a gold accreditation, the first flexible office in the city to do so. And the Customised show floor is being delivered on level 2, with the option to deliver further Customised floors on demand. This product choice puts Dashwood right on track to meet the customer trends I described at the start. Our high-quality assets and a liquid market gives us the opportunity to churn the portfolio harder than we have done in the last 2 or 3 years. By releasing capital, we'll have the flexibility to buy in London, invest in our development pipeline, our products and other sector opportunities, that David will come on to speak to later. To put this into context, between 2010 and 2017, we sold GBP 3.5 billion of London assets and delivered a GBP 1.7 billion speculative office pipeline across 3 million square feet. Meanwhile, we invested almost GBP 0.5 billion into 24 new acquisitions, the majority of these being site assemblies, but more recently included the site on Lavington Street in Southwark at the end of 2018. And we continue to track stock across London that offers us development optionality as well as strategic adjacency. As in the past, developing in core London office markets will continue. It's just part of Landsec's DNA. We're good at it and proud of what great, sustainable development can deliver to all our stakeholders. Site assemblies, design, planning and groundwork hasn't stopped across our pipeline, and we're now just 21 months out from completing 21 Moorfields. We're on-site at The Forge in Southwark and Lucent in the West End. And we'll prioritize delivery based on our view of risk-adjusted returns, and you'll see more detail on this at our interims next month. So in summary, the portfolio is strong and proven its resilience in a tough 2020. Over 2 millennia, London has bounced back from many extreme events and will do so again. Office space work will change, together with some of the supporting amenity. But we're there to partner, with a clear proposition underpinned by choice and flexibility.

Thank you, Marcus. So we'll now turn to our second strategic priority, reimagine retail. Now I mentioned in my introduction earlier that while there are significant structural challenges in retail, not all retail property is the same. For example, our Central London retail physically forms part of our office estate, and from a performance perspective, is much more closely linked to the London economy. Now that, of course, has challenges at the present time, but the structural shift to online retail is much less of a factor. And our suburban London shopping centers are increasingly defined and valued according to their regeneration potential. More on that later. Our pure Retail Portfolio, therefore, essentially comprises our outlets portfolio and our regional shopping centers. And it's these assets that are subject of our reimagine priority. Our outlets business was performing strongly prior to COVID, and we expect it to recover strongly too. Had it not been for the COVID impact in March, outlets would have shown growth in both rents and values in the year to March 2020. The structural changes in Retail are therefore limited largely to our regional shopping centers, only 13% of our portfolio at 31 March 2020. And here, it is clear that rents have further to fall, 20% to 25% relative to March ERVs in our opinion, which would be 35% to 40% from peak. Now taking this realistic view and making our investment and operating decisions accordingly is crucial to putting in place and delivering effective actions. So Colette will now talk you through our plan. And at the end of her section, we will take a 5-minute break.

Thanks, Mark. Good morning, everyone. Stating the obvious, Retail has been challenged over the last 5 years. Historically, stores delivered relatively stable sales performance, which enabled retailers to pay fixed rents over long leases. Now as consumers have greater choice over where they spend their money, the bricks and mortar parts of the chain are proving too expensive. Online brought consumers a far greater range of products and choice that the physical stores could never compete with. Amazon sells more than 12 million products, which increases to 350 million when looking at Amazon Marketplace, whereas a typical shopping center carries around 250,000 products. And yet the property sector continued to view retail property in the same way it's done for decades. And the very traditional landlord-and-tenant relationship became increasingly uncomfortable. It was clear that change was needed, and then COVID struck. The trends accelerated, and what might have taken 5 years happened in 5 months. And we needed to reimagine our portfolio and our relationships with our customers. We needed to look at everything we do and challenge every aspect. To do that, we needed to start a different conversation with our customers. Over the last few months, Mark and I have met over 30 retailers to understand how they see the future and what they need from us. There were some surprises, some great ideas, some challenges and a real desire to collaborate, but more on that in a moment. First, I'm going to describe how we think about our Retail Portfolio. Previously, we had a GBP 4.3 billion portfolio split between shopping centers, outlets, London retail and retail parks. Marcus has taken you through the role Retail plays as part of our service provision for the offices. So where Retail is part of offices, it now sits in that portfolio. We've told you before about the great opportunities we have to develop our suburban London assets into residential-led urban opportunities. And David is going to talk about that. I'm going to focus on our regional shopping centers and outlets, our reimagine portfolio. Remember, they are amongst the most attractive retail assets in the country and they're popular. As lockdown restrictions lifted, people returned. Even without the reopening of leisure attractions such as cinemas, people wanted to shop, as shown by our footfall figures. In August, footfall was -- at our shopping centers was down 34%, while outlets were down 31%, both exceeding the national benchmark by 10%. But we have to reimagine our assets, and we need to act to maximize the contribution they can make. To do this, as Mark said, we set out a program of initiatives to achieve 5 objectives: determine sustainable rents, elevate the consumer experience, create operational excellence and efficiency and new leasing models, maximize our vibrant outlets, and repurpose space to reduce the retail footfall -- the retail footprint and enhance the mix. In arriving at our program, we have 3 guiding principles. The traditional landlord-and-tenant relationship is a thing of the past. We will assume nothing. Research and data will guide our decision-making. The past is no indicator of the future. And thirdly, this is a huge opportunity for us, and we have many of the requisite skills already. As I mentioned earlier, we needed to change the conversation with our customers. We spoke to a huge range of retailers at CEO and Board level across all sectors, public companies, private companies and entrepreneurs, companies with a well-established online presence as well as those at an early stage, retailers both inside and outside the portfolio as well as those brands expanding and contracting. Three major themes shone out from our conversations. There is a role for the physical store, but it needs to work much harder in the omnichannel world. There is a strong willingness to collaborate with us and each other to find solutions. And there's not going to be one solution to fit all needs. So now let me expand on our 5 objectives, starting with sustainable rent. As I said at the start, we're in a world where the occupancy costs of a store, the rent, rates and service charges are too high to support a sustainable future. We've been doing a detailed piece of work looking at what the sustainable rent of the future could look like. Using a combination of reported sales at center level, product category offline spend projections and individual retailers' published accounts, we can calculate the operating profit at store level. Using that P&L, we calculate the rental level, assuming an acceptable level of profitability. Market data and recent transactions are then overlaid to triangulate the affordable rent with existing ERVs. Finally, our view of our customers' market position is used to estimate a sustainable rent level for the store in question. Using this approach, we estimate sustainable rents could be 20% to 25% below March ERVs. This is around 35% to 40% peak to trough and would see occupancy costs move to less than 14% over time. Clearly though, we have thousands of contractual commitments that need to be adhered to, so we see this as a gradual glide path as these contracts end. However, the extent of our research gives us a realistic base on which to make investment decisions so that we can reimagine the portfolio. As confidence in sustainable rents increases, investors will be better able to underwrite rents and values, which could be interesting for cap rates as they come back in and stabilize. Moving on to our second objective, elevating the consumer experience. Our job is very clear, we need to drive a higher spending footfall to the center that will dwell and make frequent visits. To do that, we need to create a push and a pull. The pull is multifaceted. The brand mix needs to be relevant and supported by catchment demographics. We look in detail at the categories that are growing and those that are declining. We look at the demographics of the catchment, and the mix and quantum of retail it can support. With this data, we know which retailers we need as part of our lineup and those we don't. And we know how much retail a center can support. The mix needs to be curated as part of enhancing the consumer experience. This is not just about growth brands. We heard about the need to bring back food stores, supermarkets for basics, food specialists like butchers and bakers as well as independent cafés, artisan foods and markets. We're also looking at innovative ways to use department stores, for example, as marketplaces for online brands and brands that are currently not represented in centers. We also heard about the need to provide more services, such as hair dresses, fitness, GPs, dentists, a theme you've already heard about from Marcus. This is not just about curation, but about bringing communities back into centers. As part of the curation, we need to think how we segment the centers. Historically, they've been zoned by sector. Clothes brands sit together as do shoe brands, cosmetics, F&B, et cetera. One possibility we're evaluating is segmenting the centers by lifestyle and/or market positioning to reflect how our visitors shop. For example, family zones to make for a smoother shopping experience or clearer zone between high street and aspirational brands. All of this is informing our asset plans. Another part of the pull is the frictionless journey through a center. This is all about the environment and facilities. Shopping centers haven't changed much for decades. We're now thinking about whether we need to make physical interventions like creating more outdoor space, taking rooves off, stripping out heating and cooling to change the environment. We also need to find ways to make buildings more efficient to run. There are then the brilliant basics. How easy is it to park? Does it cost? And what are the facilities like? We recently started a piece of work looking at car parks and how they can work much harder. We've been running trials at Gunwharf Quays and Braintree Village, using incentives such as free parking or a complimentary coffee to encourage visits at quieter parts of the shopping day. Marketing needs to change. A lone Peppa Pig in one location fails to maximize the potential. Peppa Pig needs branded jumpers, t-shirts and shoes in the fashion stores, Peppa Pig toys, games, stationery and books in the toy and bookstores, and Peppa Pig sweets, biscuits and cakes in the food stores. The point is that brands fully recognize this is where collaboration and digital marketing is key, and that we need to work as one as our collective reach is so much greater. Going forward, we'll develop concepts based around a single theme that will be rolled out at scale across the centers. This will create synergies between our marketing and that of our customers'. Moving on to our third objective, operating excellence and new leasing models. Service charges are an emotive subject and something we were already looking at pre-COVID. At the start of this year, we've reduced our annual cost by 3% and are targeting a further 3% reduction by April 2021. In addition, in response to COVID-19, we've reduced this year's cost by a further 10%. This is not just about cost-cutting, but about value for money and efficiency. In our current phase of work, we're looking at cleaning and security and maintenance, and how technology can support us in delivering efficiencies without negatively impacting customer experience. Our leasing model discussions have been interesting. Whilst we heard that retailers are committed to the right stores in an omnichannel world, we also heard that there is no one-size-fits-all solution. What we do know is there needs to be greater flexibility, in its broadest sense, from mindsets to leases. We heard that some retailers are committed to investing in substantial fit-outs as part of their offer and brand and need longer leases to amortize costs, while others are interested in a standard white box that they can simply plug into and occupy on a flexible basis. What this means is a move, over time, to more flexible leases, more inclusive leases and more with a turnover element. To plan for this, we started a piece of work to segment our customers by growth potential and relevancy as well as looking at how the store creates value based on their business model and omnichannel maturity. Different lease models will be appropriate for each segment, and we expect to complete this work by the end of the year. Now to our vibrant outlets. Our outlets have performed well and continue to offer income sustainability. They're attuned to shoppers' aspirations and relatively shielded from online competition. The business model is more flexible and relies on mutual value creation. Retailers view them as their most profitable channel and are looking to grow or relocate to top-performing schemes. Many of the other objectives I've talked about will also be implemented across our outlet portfolio, and we're already delivering GBP 14 million of enhancement projects over the next 4 years. I'm now going to pause to show you Gunwharf Quays. [Presentation]

Our final objective is repurposing. This is where we're looking at opportunities to reduce the quantum of retail in one location to increase rental tension as well as introducing new uses such as offices, residential to reinforce the ecosystem. Our approach to sustainable rents improves the viability of these options, and we have the necessary development skills. But it will be an -- incremental and isn't a silver bullet. Ahead of COVID, to support this work, we published a paper in February titled Reimagining empty retail space, explaining why this activity is so important to the economy and that planning regulations are flexible enough to enable it to happen. We then held a number of roundtable discussions with local authorities, central government and other experts. And we're looking at repurposing opportunities in Oxford, Leeds, Cardiff, Bluewater and Glasgow. So in summary, we're working towards sustainable rents which will give us a realistic basis for decision-making, a more collaborative approach to enhancing the consumer experience, segmenting customers as a foundation for a more flexible approach to lease structure, making the most of our vibrant outlets, identifying opportunities to repurpose a portion of the portfolio. What this means is that over the next couple of years, our reimagine portfolio will look and feel different. Lineups will be different. Rent and leasing profiles will be different. Rental income will be derisked. And investors can look to cap rates with confidence. We have a plan, and we're excited about it. We'll now take a 5-minute break. [Break]

Welcome back, everyone, and thank you, Colette. So we'll now resume our Capital Markets Day presentation. And we move to our third strategic priority, which is realize capital from subscale sectors. So we've identified 3 parts of the portfolio that meet our definition of subscale. Namely, they are not currently and are unlikely to become large enough to be a meaningful driver of good performance, and we have little or no clear competitive advantage, either as owner or operator of those assets. Now the sectors in question are leisure, hotels and retail parks. And as at the last year-end, they had a combined valuation of approximately GBP 1.6 billion. Of course, hotels and leisure have been significantly impacted by COVID-19. But we are confident in the long-term prospects of these sectors and that our assets will recover strongly once we emerge from the pandemic. And it is important that I stress, the disposal of hotels and leisure are medium-term objectives. We are under no time pressure at all to realize this capital. Now some retail parks, where an investment market is beginning to reemerge, may be sold sooner, but we will want to be sure of obtaining appropriate value before we do that. And of course, to the extent that there are asset-management initiatives to be delivered across these assets, in the meantime, we will be focused on ensuring that we secure them. So now we come to our fourth and final strategic priority, grow through urban opportunities. I flagged earlier the significant change the built environment is likely to undergo as a result of the 6 global forces of change we identified and I talked through earlier, and the role that we believe exists for developer-investors with track record, scale and development expertise to help shape and lead that change, not to pick specific sectors or asset classes but to bring people together, communities, business, government, providers of capital, to envision and ultimately deliver the urban environments of the future and to do so in a way that is consistent with the U.K. sustainability agenda, not least its 2050 net-zero carbon commitment. There is a very clear need in London, but there is also a clear need in other major regional centers across the U.K. We're not specifically targeting a move into the regions, but we are certainly open to exploring opportunities. And we're not starting this from scratch. We have a deep skill set that can be leveraged, and we already have a number of assets within our portfolio that can provide a blank canvas for new mixed-use communities. David will tell you more.

Thank you, Mark. Good morning, everyone. As Mark said before, our strategy is built on global long-term trends, and we see urban development as a real growth opportunity for Landsec. One of the trends Mark referred to is urbanization. Certainly before COVID-19, cities around the world have been continually expanding as more and more of the world's population live, work and play in major developed areas. Now all countries are still grappling with the pandemic and its short- and long-term consequences, but let's just consider some of the long-term forecast statistics that are out there. You're all very familiar with these types of statistics, but I want to repeat them to highlight their relevance to us. As Mark referenced, 70% of people globally are forecast to be living in urban areas by 2050. Now bringing this closer to home, the number of urban dwellers in England is forecast to rise by approximately 5 million over the next 20 years. And as you heard, that's an additional 1.2 million in London over the same time period. Very simply, all these additional people need somewhere to live and work and play. Now it's really difficult to predict what the world will look like once, hopefully, a vaccine is widely available, and whether the pandemic will have a material impact on the numbers I've just quoted. However, over the long term, we very much believe that cities, and in particular, London, will continue to be the vibrant highly populous places they've always been. As humans, we are social beings, social beings often with short memories. So with the pandemic under control, will we likely see a flood back to the theaters, to the bars and restaurants, and move back to meeting people in 3D, to stopping staring at the screen 8 hours a day? It's exhausting, isn't it? We believe we will. Once the initial lockdown was lifted, you only had to walk the bar-lined streets of Soho. They were full to the brim. The pent-up demand was amazing. Some of the other long-term global trends also need considering for the future of urban areas in the U.K. We know people are living longer, and it's forecast that more than 24% of people living in the U.K. will be aged 65 or older in the next 20 years, and that's up from 18% in 2016. And this next stat stood out to me. Millennials' average age to inherit from their parents' generation is forecast to be 61 years old. And that's if they haven't bled the bank of mom and dad dry before then. Then, of course, there's technology. Technology continues to reshape so many aspects of our lives. Consumers' daily interactions and rituals are becoming more streamlined and frictionless. From voice-activated devices to Internet of Things infrastructure, new tools, new technologies are extending our experience of the world and facilitating new ways of engaging with products and with each other. We're all very suddenly all too familiar with Zoom, Teams and Webex, and you probably have a firm favorite amongst those. Again, to highlight the speed of technology adoption, last year, 2019, the U.K. had over 15 million smart homes, with many homes now having a smart speaker. All of a sudden, it's totally normal to talk to a speaker in the corner of your kitchen or in the corner of your living room, although during lockdown, I found myself asking, "Alexa, what day is it?" Not that the answer made any difference whatsoever. So what does all this mean for urban areas? Well, local convenience may well be increasingly important. Can I get the services I need on the doorstep of my home? Doctors, opticians, food, fitness, workspace. Can I get deliveries in short order, whether I'm at home or not? Who doesn't like the same-day delivery service from Amazon? And the built environment will need to accommodate for all of these demands. These trends really highlight how our cities need to continue to adapt and evolve to meet the demands of a growing population, who are likely to have different ways of living and working. We see urban development as a long-term growth area, both in London and the U.K.'s regional cities. This is a real growth opportunity. So urban opportunities is about balancing the right mix of asset classes in any given area. Our job is to meet that demand and ensure the whole ecosystem thrives together with the existing community and infrastructure. We curate the space at scale, which means we need to find the optimal combination of local convenience with homes, with places to work, with logistics and so on. With a growing population, the demand for residential space is set to continue. And it's likely that residential plays a significant role in mixed-use developments. As we've shared with you previously, we have the potential to deliver up to 7,000 new homes into the market within our existing portfolio alone. That said, a wide range of other asset classes could well feature in mixed-use sites, with a local neighborhood placing greater demands on the built environment. Our job is ensuring this demand is met and the wider urban ecosystem is sustainable over the long term. Curating the entire ecosystem will be vital. Now space curation or placemaking is, of course, something we've been doing at Landsec for many, many years, which I'll highlight for you in a moment. At last year's Capital Markets Day, I shared some of the medium- and long-term opportunities we are already working on, and I'll give you an update on 2 of those in a moment. In addition to the medium- and long-term investments, we now plan to invest a meaningful amount of capital into urban opportunities in the near term. As you heard from Mark, that's capital recycled from elsewhere in the portfolio. This level of investment could be through straightforward acquisition or through joint ventures and large-scale partnerships or through forward funding, or a combination of all of those. This investment will be focused on assets that can deliver returns in the near term, which then integrates well with the medium- to long-term urban-development assets we already have in the portfolio. We won't just consider London. Regional cities also have the potential to offer opportunities. Ultimately, we will balance the overall risk-and-return dynamics of sector, location and scale. Over the next 5 years, we anticipate this area of the business being up to 25% of the Landsec portfolio. Now of course, we are not new to large-scale transformational development. I still find it inspiring to look at before and after shots of Victoria. As you can see here, before, and then afterwards, following over a decade of investment and development, millions of square footage. I remember working in Victoria in the early 2000s. What a drab and dreary office in high street. You all know the transformation we've made in Victoria. But I just picked one part to highlight that journey, it's Nova. Here, the land where Nova now sits, a 5-acre site. Fast forward to today, with over 700,000 square foot across office, residential, convenience retail and leisure. So COVID aside for a moment, fully let offices and all of the 170 residential homes sold, together with a popular leisure destination in its own right. Mixed-use at scale is what we do. But really importantly, the future is likely to be different. Urban logistics, local-level services, convenience retail and leisure. The mix is going to change. And we use data and research to optimize our offer. The point is, we have the transferable skills already in place and in-depth within the business. As I mentioned before, we already have medium- to long-term opportunities in the portfolio. We have over 50 acres across a number of assets that currently house 1.6 million square foot of existing buildings. Alone, these have the potential for up to 5x densification, with a potential for up to 8 million square foot of mixed-use space over time. Now I want to update you on the progress we're making on 2 of these very exciting large-scale urban opportunities, one at Lewisham and one at Finchley Road. Some of you will be very familiar with these areas and perhaps these assets. And normally, right now, we'll be asking you to jump out of your seats, and we'll be taking you on a tour of these assets to really give you a sense of the local community, the connectivity and the scale. Unfortunately, we can't do that today. So instead, we've put a short video together that we hope brings these assets to life. Now I ask you to consider 3 things as you watch the video. Number one, connected. How well-connected both of these sites are to their local transport links and the local infrastructure. Number two, sustainable. From a community perspective, how rich and diverse each community already is, and with the right consideration, there's opportunity to ensure real long-term sustainable development. Number three, potential. Consider the size, the scale of each of our ownerships, but most importantly, the scale of our vision for each. Hope you enjoy the video. [Presentation]

Thank you, David. I mentioned in my opening remarks that culture is as important as strategy. And ensuring we have the right organization, capability and culture will be key to successful execution. Now this is something that was integral to my approach in my previous roles, and it is something that I am very confident we will get right at Landsec. The experience, expertise and capability of our people is one of Landsec's greatest assets. And while we may have some small skills gaps to address as we move into adjacent areas, 95% plus of what we need is already here. And I don't believe we'd been making the most of this prized asset. A lack of clear strategy, and as a result, a lack of empowerment and accountability has, in my view, held the business back in recent years. We are setting out that clear strategy today. And we are already operating with greater levels of empowerment, accountability and cohesion in the business. We are already building momentum, which means the hallmarks of our desired culture are within reach. Some are already well-established, some need nurturing. But over the next 12 to 18 months, I believe we can get to where we need to be: a lean, agile, more nimble organization, not the oil tanker; greater levels of empowerment and accountability within a clear strategic framework; maintaining a long-term perspective; a truly customer-centric business; a culture of continuous improvement; data-led insight and decision-making; and strong strategic partnerships, all of which feeds into our 5 key performance drivers, the things that are really going to help us add value that support our 4 strategic priorities. Development expertise. Now this has been a significant driver of value for the business over many years, and as I've already stressed, is one of our biggest strengths. We will continue to make the most of this and grow this capability in the years ahead. Capital discipline. Now this applies both to the allocation and the sourcing of capital. It is what sits behind our asset recycling plans, focusing our capital in areas where we create value. From a sourcing perspective, we'll be open to working with capital partners on projects or indeed portfolios where the scale or profile of returns is such that we think that makes the most sense for us, provided, of course, that there is strong strategic alignment. Customer-centricity. As I said at the outset of today's presentation, understanding and delivering value for customers is fundamental to success. As Colette flagged earlier, we've spoken to dozens of our retailer customers, in particular, over the past few months. And this showed beyond question, there is a lot more that we can do to better understand their businesses and how we can help them succeed. And there's a lot more that we can do together for our mutual benefit. Data-driven decisions. The ability to capture, interpret and use data to improve business performance remains an area of huge untapped potential for the property sector as a whole. Our business, with strong data foundations, the ability to collect, assess and act upon information quickly, will be inherently more agile. It will understand new markets and new trends more quickly. It can use digital twins to understand the long-term operating and maintenance implications of its portfolio and then work with customers to improve service as a result. It can better understand space utilization and factor that into design. At Landsec, we already collect a huge amount of information. We already employ data scientists. We now need to integrate this more effectively into how we do business. And then finally, ESG leadership. Now this is an area where Landsec scores strongly, and we expect it to become an area of increasing differentiation for businesses as we move forward, a fundamental requirement for customers and partners alike. We'll be building on the excellent momentum that we already have in this area. So culture is as important as strategy. Landsec's people are one of its biggest strengths. And by evolving the culture along these lines, we will ensure that we harness their potential. Now for the last segment before we summarize and wrap up, I will now hand you over to Martin, who will take you through the financial aspects of our strategy.

Thank you, Mark. Good morning, everyone. Now you've heard from the other presenters about where we want to focus our capital, both financial and human, over the coming years. I want to explain some of the financial implications of this strategy. But let me remind you of some of the themes we've discussed. We're a total return business, and that focus is going to remain very clear. Income is a very important part of total return, but it is not the key driver. Sustainable income and income growth are more important than a high yield. We have great talent in the business, and we can take on some more operational risk to generate outperformance or alpha. And with higher operational leverage, you will see a lower financial leverage, but more on that in a moment. And finally, we recognize that there will continue to be cycles, which we will need to understand, both to protect and generate that outperformance. And one further reminder. Our reporting of business segments will change to reflect the new strategic priorities of optimize, reimagine, realize and grow. So you will see us report asset values and performance under the 4 categories of Central London, regional retail, urban opportunities and subscale. Later this morning, we will put up on our website details of how our previous segmental reporting maps across to the new reporting. But let's move on to how we see our capital recycling over the coming years. So here is a broad overview of net investment through to March 2026. Please note, there is deliberately no scale on the left-hand side. And trust me, there is no point getting your ruler out to measure the bars. These are indicative only. Investment and disinvestment will be driven by our strategy and by market opportunity but with an overall higher level of capital rotation. So over this period, I could see us selling out of GBP 4 billion or so of assets and reinvesting a similar amount into our portfolio. Initially, we expect to be net sellers of assets, most probably some London offices, which have high-quality resilient income but more limited asset management opportunities and for which investment demand and pricing is healthy. These disposals, followed over time by some from our subscale segment, will provide the capital for us to invest in our development activity in Central London and our urban opportunities. So early disinvestment, followed by later net investment, but I don't expect net debt to change materially over this period. And should there be any doubt that we can manage this level of capital rotation, let me remind you that over the past decade, we funded our entire development program and new acquisitions by selling assets we owned as we followed our net debt-neutral approach to balance sheet management. So what are the financial -- what are the implications for financial leverage? To start with, I think it's important to recognize that the dynamics in our existing markets are changing, particularly in retail and leisure. As lease structures change with more turnover leases and shorter lease lengths, our operational exposure or operational gearing increases. In addition, we're looking to increase our capital recycling out of some of our lower-growth, lower-risk assets into those with higher return prospects, including, but not limited to, development opportunities. Now these 2 factors will increase our operational leverage, which we will counterbalance with somewhat lower financial leverage. Our last published approach to financial leverage was a core LTV range of 35% to 45% with plus or minus 10% at either end of the cycle. Now while we've been operating towards the very bottom end of this range in recent years, with the increased operating leverage I've just referred to, we're now resetting that range lower at 25% to 40% LTV with plus or minus 5% depending on the cycle. Now these aren't rigid ranges, and there may be times when we operate outside them. But the general principle of increased operational leverage but somewhat lower financial leverage is an important one. So let's now look at the implications for returns and our dividend. By recycling capital more aggressively and positioning the business towards growth sectors, we will boost total returns over time with a slightly higher component from capital growth. Clearly, in the short term, earnings will be impacted by COVID and disposals. In the medium term, our earnings will reflect a post-COVID recovery and the asset mix within the business as this strategy is implemented. As we let you know in July, we intend to reinstate dividend payments after our interims at a level which reflects current underlying earnings, and that connection with underlying earnings will remain as it has done but not rigidly so. Instead, our dividends are likely to be 1.2x to 1.3x covered by underlying earnings so an approximate payout range of 75% to 85%. Again, these are not rigid ranges. As underlying earnings change over time, dividends will reflect that, but we will retain the ability to smooth dividend progression rather than be tied in any 1 year to earnings volatility. This is in line with how we have approached our dividend over the course of the last decade. So let me now summarize. Our focus is on delivering above-market total returns over the cycle, and we expect to do that with a greater emphasis on generating alpha through higher operational leverage. And to compensate for that higher operational leverage, our financial leverage is likely to track at a lower rate to where it has been historically. In the short term, our earnings will be impacted by COVID and the disposals we make to give us room to implement that strategy. And our strategy will lead us to owning lower-yielding but higher-growth assets, benefiting both income and dividend growth as well as the rating of our shares. Now let me hand you back to Mark.

Thank you, Martin. So we have today outlined a strategy that is based on recycling capital out of parts of the portfolio where there are limited opportunities for us to add further value, either because in the case of Central London, we have already created significant value; or in the case of subscale sectors, because we have little or no competitive advantage. And then reinvesting that capital into growth areas that make the most of Landsec's existing skill set and proven track record in value creation: central London in a post-COVID world and broader urban opportunities that help deliver the built environment of the future. As Martin showed earlier, the strategy envisages us recycling approximately GBP 4 billion worth of capital over the next few years, and that's equivalent to around 1/3 of our portfolio today. And it will result in a more focused portfolio with greater growth potential in a few years' time, as the charts on this page show. Larger as a result of value creation, with Central London still the largest segment for urban mixed-use opportunities with the attractive return profile they offer, making up nearly 1/4 and a more focused reimagined retail business representing about 1/6, a more focused portfolio with greater growth potential. So we have today set out a vision based on 4 strategic priorities: optimize Central London, reimagine retail, realize capital from subscale sectors and grow urban opportunities, supported by 5 key performance drivers that will be embedded in our culture, our capability and our organization that we believe will deliver significant value to shareholders and all our stakeholders. It's a strategy that makes the most of Landsec's competitive advantage and positions the business to benefit from the considerable opportunities that we believe will emerge post-COVID. It's a strategy that makes the most of a best-in-class Central London portfolio, leveraging its quality, resilience and liquidity to provide a source of capital over time to rotate into growth opportunities, both in Central London and urban opportunities. It's a strategy that makes the most of our track record and the strong relationships built up over time, and it will build on them, customers, supply chain, public sector, potential partner capital. It's a strategy based on a realistic assessment of the challenges faced by retail with a clear plan grounded in reality where we will make better and more timely decisions, build stronger relationships with our retailer customers and ultimately ensure that our shopping centers remain relevant and complement our strong outlets operation. It's a strategy that can place Landsec at the heart of considerable urban regeneration potential across London and major regional centers by making the most of our development capability, opportunities that could be accelerated post-COVID and are only capable of being unlocked by developer investors with a track record, expertise and scale. And it is a strategy that is designed to deliver improved total return to shareholders over time but which will also deliver significant value for all our stakeholders, the foundation of a successful, sustainable business. So this strategy sets out the direction of travel for the business over the next few years as we position Landsec for growth. But what should you expect to see nearer term? Now it is, of course, difficult to be precise at the best of times, and that is doubly the case in times of uncertainty such as those we're facing now. However, we expect to show clear progress in the following areas: our dividend will be reinstated alongside our 2020 interim results next month; we'll see more asset recycling within the Central London portfolio and balanced progress on Central London developments; given the unsettled environment, we will be prioritizing projects with the best risk-adjusted returns; a broader range of office propositions either delivered, developed or tested and clear progress in moving to a new operating model for retail; planning progress across our urban opportunities portfolio and potential growth in that portfolio; and steps to put in place the right culture and organization to support the strategy. So we've covered a lot of ground over the past 90 minutes or so, and I really thank you very much for taking the time to attend and for your attention throughout all of this. I really hope you have found it useful. We're now going to open the presentation to Q&A. We'll take a short break for that, because we'll reconfigure the space here into a socially distanced Q&A setup. But you can ask questions either via the webcast facility or, indeed, via the conference line, and I very much look forward to you in a few minutes' time. Thank you. [Break]

Ladies and gentlemen, welcome back to our Capital Markets Day. We've now moved to the Q&A element of the session. We've got 2 channels through which questions can be answered -- well, asked, I should say first and then hopefully answered from here via the conference call facility and also on the webcast. And what I'm going to do, first of all, is go to the conference call facility to pick up questions from there. So I'll now hand over to the operator of the conference facility.

The first question is from the line of Rob Jones from Exane BNP Paribas.

There's a few from me. I'll get to them all now. So Mark, you mentioned in terms of clear signs of ESG performance translating directly into occupier demand, I wonder if you could give some examples. I think you mentioned London portfolio. Are we actually seeing tenants paying up for sustainable space? Maybe you could quantify that. Secondly, on the disposals of hotels, leisure retail parks, obviously, hotels and leisure, you said more of a medium-term aspiration in terms of timing of disposals. Is the rationale for that purely that you think you can get a price when the market is in less distress than it is today as we see this recovery kind of in a post-COVID world? Thirdly, on the question or point that was made around 78% of tenants wanting a partnership with the landlord. Just keen to understand why implicitly, 22% of tenants don't want a partnership with landlord. And then 2 final questions for Colette. One, in terms of the reduction in retail space, you mentioned that you will kind of repurpose some of the retail square footage in your portfolio to generate more rental tension. I wonder if you've got a figure in terms of quantifying that. And then finally, on the rent declines, obviously, 20%, 25% from March 20 ERVs. It sounds like you've put a lot of effort and detail into that calculation. Clearly, one of the inputs is your assumption in terms of how physical retailer sales change over time. Maybe you can provide a figure in terms of maybe an annualized movement or -- between now and, say, March 2026, what percentage of -- versus, say, I don't know, last year, how that changes, just to get a bit of a figure for your views on the evolution of physical retailer sales as e-commerce continues to rise.

Great. Thank you, Rob. So let me answer the first few of those, and then I'll pass over to Colette for the last 2 with respect to retail. So I think the point with respect to ESG leadership, and that's beginning to translate into something that occupies value, there was a report, I think, very good report from JLL is one I'm thinking of in particular, which was released probably just prior to lockdown, actually, which gave some really good substantive evidence behind that. And I think what that was talking to was the increasingly clear link that employers were seeing between -- an employer seems to be taking its sustainability responsibility seriously and the ability to then attract a better quality of workforce and I think increasingly, client base as a result. So it was that really probably that I was referring to as being the most obvious and most recent evidence. And as I mentioned in my remarks, whilst at the moment, focus is more around navigating the challenges of lockdown and the different regional elements of that, our view is that long term, that sustainability point will continue to be key to employers. And if anything, it may well, indeed, accelerate as they think more deeply about the type of office spacing you need to provide in order to appeal to their desired workforce. With respect to the disposals of subscale sectors and the timing of those, I mean, subscale is one of a couple of areas that we have flagged for as an opportunity to recycle capital. And the timing is not rigid on those, but I think the sequencing that we've indicated today is that we're more likely to recycle capital first out of some of our perhaps slightly drier Central London assets where we've already added significant value. And then over time, we're likely to move to the subscale sectors. Now that isn't rigid, but I think it's a reflection of where we see the strongest demand and strongest pricing in the current market, which you would expect us to seek to take advantage of. And then over time, as the emergence from the pandemic and the impacts of that on the rate of recovery for hotels and leisure in particular becomes clearer, then I would expect the prospective investors in that sector to be able to underwrite things on a much more effective basis, which we would anticipate would lead to stronger pricing. What I did say, and I would stress it again in this answer here, of course, though, is that we are not time bound in any way with respect to these disposals. This is very much a medium-term objective, and we've got to make sure that we get the assets into the right position in terms of asset management initiatives and the like to ensure that we secure best value to then reinvest into the growth areas that we've talked about. And then the third area about the sort of partnership of 78% of -- sorry, 70% to 80% looking for partnership with landlords. I guess we focus on the fact that, that is a very significant majority. And I'm sure wherever it is within the portfolio, you will always have people who may have a view that, look, the property is -- it's just a basic requirement to me. I wasn't that provided by landlords, but lead me alone to then operate it as I see fit. And of course, as we've said, across the retail portfolio, in particular, but I think it applies more widely, there isn't a one-size-fits-all approach. What we as a business need to do and are already doing is get closer to our customers and understand what we need to do to adapt our service, our product over time to best meet what they're looking for. And across the board, that's not going to be a one-size-fits-all solution. It's about tailoring what we do to the different segments of the market that we increasingly better understand. You had 2 retail questions. I think one was with respect to the repurposing of space, and then the second was just a bit more color on the sustainable rent calculation that Colette talked through in the presentation. So I'll pass to Colette now to answer those.

So in terms of the reduction in retail space, it's pretty varied, actually. I mean generally, we're targeting about a reduction of about 30%. But when you look at the urban opportunities that David talked about, we could be seeing reduction of around about 70% of that retail being taken out. Then when you're looking at the individual shopping centers, I would say the range is probably between about 10% and 20%, and it's really depending on the sort of the planning environment, the geography of the city, the population demographics and what we can actually do physically with the various assets on site. So they're quite differing opportunities, whether you're looking at a Cardiff or whether you're looking at a Bluewater and Buchanan galleries. But I think if you sort of say, a rule of thumb, we're thinking about 30%, that's probably there or thereabouts across the whole portfolio. And then in terms of the sort of the sustainable rent calculation, the assessment between the online sales and the physical store, you asked specifically the sort of change there. It's quite difficult to give you a figure around that at the moment because, as we're talking to retailers, clearly, many of them have had to make the stores work that much harder. So we're seeing a shift to their online performance. But equally, what they are saying to us is that it's very, very expensive for them to be running the online operations. So what we've been doing in calculating sustainable rent is that we've actually been looking at each individual store, each individual retailer, making an assessment of the online versus the off-line. We've been looking at their reported accounts, trying to work out what their operating profit is. And then from that, we can work out what the sustainable rent for each of the units is. But equally, then, we have to look at the market dynamics and also really almost a negotiating position that a retailer has because that will also inform. So there's a whole basket of issues that are going into calculating our sustainable rents.

Yes. So there will be, for example, some of the, what I might call, new anchors emerging strong businesses, where if you simply -- the calculation we did might suggest they could afford to pay more rent. We're recognizing that in that situation, that's unlikely to be an outcome in the near term. So we're quite deliberately capping that, and that's factored into the calculation. Rob, I hope that answered those different elements to your question. I'm going to now ask back. I think we have a lot of it.

The next question comes from the line of Christopher Fremantle from Morgan Stanley.

I had 2 questions, one on the retail side and one on the offices side. On the retail side, you talked about the sustainable rents being 20% to 25% lower versus ERV. Can you just -- 2 sort of sub questions, if you like. One, how quickly should we be assuming that, that sort of level is reached in terms of your passing rent? And the second sub question, if you like, is to what extent are you assuming any change in lease terms? So the speed of change and the change in lease terms. And then on the office side, you talked about being aware of the cycle. I think when you talk about it, you suggest you're looking through to the other side of COVID and this working-from-home period. But clearly, there's a cycle implication on office rents and pricing power as well. So my question is how much of an impact do you expect the economic cycle to be having on rents? I presume you do expect an impact, but if you could just be a little bit clearer about what that's going to mean for you, please.

Okay. Thank you, Chris. So with respect to retail and the questions around how quickly we'd expect those sustainable rents to be reached, I think the weighted average lease term on our retail portfolio is somewhere around the 5-year mark. So I guess, you'd expect it, all other things being equal, to the -- an average a little bit longer than that. Of course, you then got to overlay what happens with respect to CVA challenges and the like and business failures. So it's likely to come in from where it would be mathematically calculated. But I would think the majority of that shift is likely to have happened within the next 5-or-so years. And then with respect to different lease terms, I think Colette said in her presentation that what we've heard very clearly from the conversations we've had with CEOs and other Board members of a whole range of different retailers is there isn't a one-size-fits-all approach, but I think we certainly will see an increase in inclusive rents. I think we will see an increase in the proportion of rents that have some level of turnover or performance element to them. We obviously already have that in areas such as outlets, for example, but we're lucky to see an increase. And from a flexibility point of view, I think we're likely to see shorter terms. I think all of which will, to some extent, be offset with a much more collaborative and proactive relationship between us as the operator of shopping centers and the customers that we are working with in terms of our retailers. And from all of those conversations, I didn't hear a single retailer say to us they didn't want to work collaboratively with us or they didn't want to share information. So that's obviously something that's going to take time to evolve and people will try different ways of doing that and find what works over time. But the important thing to me was that I didn't hear a single retailer say, "We don't want to share information with you or work collaboratively with you," which I took as being a significant positive. I think with respect to offices and how much will there be sort of an economic cycle impact, we don't have a precise forecast for that as things stand for reasons that I'm sure you'll understand with respect to really trying to understand the trajectory of recovery coming out of the pandemic and the impact of lockdowns. The most important element of that for our business is thinking about the development program because we have a weighted average unexpired lease term of over 8 years on the investment portfolio. We'll do that as at March. And what we're seeing there is increasingly clear evidence of investors looking for yield and being prepared to look through a cycle towards a lease event that is some number of years out. So the more immediate challenge for us is judging what that will mean for our development programs and the number of sites that we currently have good optionality over. And there, I mentioned in the presentation, Marcus did as well, that we are going to be prioritizing those with the best risk-adjusted return. I think what you can take from that, and we'll give more detail with our interims in a few weeks' time, is that we are not going to be proceeding with all of our developments at this point in time. And those that we do proceed with will have the strongest local demand/supply dynamics. They will have the greatest level of construction risk already derisked within those projects. And I think that for now is where we need to focus our efforts in maintaining the optionality on the remainder of the development program. I think, Chris, I've hopefully answered your questions there as best I can. So if you're happy with that, I'm going to move to the next question on the call.

The next question is from the line of Paul May from Barclays.

Can you hear me okay?

We can, Paul. Thank you.

Just a couple of questions for me. One quick one on retail and a couple on offices. On the retail side, just on values, when are you expecting the rental impact you highlight to be reflected in retail asset values? Do you think that will come with the half year results? And then on offices, the flex on operational exposure you expect in offices, do you see that leading to an increase in the quantum and regularity of CapEx? Do you expect it will have an impact on lease terms in terms of shortening of leases? And as a combination of those, do you think that there will be a sort of a negative impact during the transition to that increased flex operational exposure on values? And then the final one, again, on offices, you highlighted various tenants taking additional space in offices, but there are many looking to reduce space at the current time. What do you expect a structural impact on office demand will be as a result of the pandemic effect but more the hybrid office work-from-home model that you think will be the norm going forward?

Great. Thank you, Paul. So with respect to retail values, I mean, the works that we have focused on thus far has been very much understanding as best we can where we see rents heading. And we see that as probably unsurprisingly as an essential precursor to investors being able to start to underwrite values because at the moment, the real challenge is understanding what's the income that I'm trying to underwrite. So we are certainly going to see ERVs fall over the next couple of valuation dates, whether valuers take the same view of where and how quickly those ERVs forward will remain to be seen, but you should certainly expect to be seeing a meaningful step in that direction across the next reporting date or 2. We've then, of course, got the interesting aspect of the NPV value of what we're effectively identifying as an over rent, both from passing to current ERV and then current ERV to our sustainable rent. And I think going forward, we will be seeking to identify that component as we see it within value to ensure that the value associated with the core sustainable rent is at least broadly identifiable from the disclosures that we make. I think you then asked a question about the move to more sort of flexible offering and customized offering within the office portfolio and what impact we expect that to have with respect to things like CapEx and lease terms. I think it's important to stress, we see these things such as Myo and customize as being an important development in making sure that we offer a range of propositions to appeal to a broader range of potential occupiers. We, of course, need to look at that overall in terms of what it means from a portfolio mix. So we're not going to be lurching in one direction or another, but I think it's important to maintain a degree of optionality and value-add potential within the core portfolio, and that's what we'll be seeking to do. Now I think we've shared in the past some analysis that suggested having taken account of the full view of maintenance CapEx, greater churn of tenants. Within there, the view that the NOI from something like Myo should be in the order of 25% higher than you might get from a core long-let office. And our view is that continues or should continue and should continue to offset the inevitable increase in kind of operational risk associated with that. And I think as we emerge from COVID, and this sort of links to your last question about what will the longer-term demand impact be, I think we're going to see some fascinating conversations. We're already having some of these in the early stages of some of our customers about how they see their office space adapting and evolving going forward. And on one hand, of course, you've got some of the trend that we are going to see a greater level of remote working for a period of time. The level will depend on the role. It will depend on the job. It will depend on the individual. It will depend on the employer. But it will be reasonable to assume there's going to be a higher core level of flexible working. Then conversely against that, I suspect we're going to see a move away from densification, and some of the densification we've seen in recent years, so there's going to be some degree of offset. I think we could see a focus on fewer higher-quality offices. I think the announcement that was publicized this morning around Deloitte's decision to exit certain regional offices is a really interesting one. Deloitte's one of our largest tenants, as you all know, with New Street Square within London. And what we've seen them do over the 10 years is take an extra 15% or so of space from us but double the amount of people based out of that office environment. And perhaps what we'll see going forward now is more people based out of that sort of office environment but on a less frequent basis, and that will offset some of the density challenges. So I think that's how people look at perhaps they may share collaboration, meeting, training-type space with other occupiers to make sure they make the most effective use of their space is going to be an interesting development. But all of this points to and I link it back to the earlier question that Rob asked as well around sustainability. I think all of this links back to a view that the demand is going to be strongest for the most modern, healthy, sustainable, adaptable workplaces that people can effectively create the environment they want to attract, the talent they need to attract. And I would imagine that's going to lead to an acceleration of obsolescence in some of the more secondary, more tired, less flexible workspace around London. And that in time, I would imagine, is going to lead to opportunities from a redevelopment standpoint, whether that's purely office or whether that's some form of mixed-use over time. And that's what I flagged in my presentation about we're managing the near-term COVID impact proactively and effectively but making sure that the business is positioned to take advantage of some of the longer-term trends that we expect to emerge. Paul, I hope I've been able to answer your questions there, and I'm now going to go back to any further calls on the conference dial-in.

The next question is from the line of Osmaan Malik from UBS.

Mark, in your summary, you mentioned you'd be prioritizing projects with the best risk-adjusted returns. I guess presumably, this has always been the case, yet you've got 4 completing pillars. You've got different teams, different personalities. So I'm interested to know to what extent has the approach changed. For example, your investment committee process or any returns hurdles, can you talk us through these processes? Has there been any change? I guess second question is linked to this. You're focusing on market-beating returns through cycle. Could you just be specific on which market? Is there a change here, if you're talking about London versus London? Or you're talking about the whole of the U.K.? If it's the latter, with no logistics representation in your portfolio, can you expect to beat the market in the near term? The third question is on this point on lower ERVs and your answer to a previous question about 5 years to realize this. Does that mean you're expecting your retailers to pay an unsustainable rent for the next 5 years? Or are we effectively going to see some further write-offs for the next few years similar to what we saw this year?

Great. Thanks, Os. So to your question about risk-adjusted returns in the context of the development program and the investment committee process. So as things stand, we have not made any changes to the way our process works internally. And so that would require effectively an executive director sign-off for projects. It involves looking at a range of prospective returns. Of course, our view of the inputs into that will have been updated in the context of the current market. So -- and I'm sure you're right in terms of we would have prioritized the risk-adjusted returns, the best risk-adjusted returns historically. I think what we're flagging here is with the uncertainty around COVID, we feel it would be unwise to commit a significant amount of capital to a development program that requires us to form a view on rental levels and demand on a 2- to 3-year view. And with that in mind, we're, therefore, scaling back the amount of capital that we would put in that particular position from a risk standpoint, so it will be the best risk-adjusted returns looking at construction risk on the projects as they currently stand and our view of current demand across those projects, which will take into account where there may be ongoing discussions with prospective occupiers, discussions we're having with agents across those properties as well. So it's -- I think it's, first and foremost, saying it would be unwise of us to continue to commit significant capital development in the near term whilst there is such an elevated uncertainty in outlook. So we will be scaling that back and prioritizing the best risk-adjusted returns in doing so. I think with respect to then your question about which market, which I think is a fair question, Osmaan. To me, the market is the returns you would get if you were invested in the sectors that we are choosing to focus on, and you were doing so in a way where you weren't then looking for development upside or other asset management initiatives to add value. That's the alpha that we talk about, the increased operating risk, operating leverage that we would expect to deliver improved returns, whether simply -- relative to simply holding assets in those sectors over time. So relative to our current portfolios, then that would be primarily London and then over time, urban mixed-use, but it will be relative to those sectors rather than I think what would be, to some extent, a more arbitrary measure as you flag of just looking against the real estate sector as a whole. So we're not positioning ourselves as simply as an allocator of capital. We're positioning ourselves as a business with a proven track record of adding significant value, and our job is to allocate capital where we think we can add the best value for the risk that we are taking on. And then I think the sustainable rents question and how long will that take and does that mean that we will be asking retailers to pay unsustainable rents in the meantime, I think is a very fair question. We've obviously got an elevated level of CVAs in the current environment that mean it will be difficult to judge exactly whether there will be some acceleration of that, although I think we have a number of examples of where we have worked proactively and collaboratively with tenants to reach deals on existing units on retailers that may then take -- may then go through CVA but with our units already agreed and, therefore, unaffected by that process. So we are certainly prepared to work collaboratively. And I think, as I indicated in my earlier reply, that will bring forward slightly the move to sustainable rents relative to the contractual lease term. But then I think it is really important to stress that we have a whole range of very strong, well-capitalized retailers across our portfolio that have signed up to lease commitments with us, where we both have obligations on both sides. And what I'm not flagging is simply a view that we should be tearing up those leases and those commitments. There will always be a commercial negotiation with those sort of occupiers looking across our whole portfolio, but we're not about to say that leases that have been signed over the last few years at higher rents than have been achieved -- that are being achieved now suddenly means we should be adjusting our rent. So it's going to be a balance of those 2 things over time. And I think the view I gave that it's likely to come through slightly more quickly than the weighted average lease term might suggest is probably the best way to estimate that for now. Osmaan, I hope I've been able to answer your questions effectively there. I'm going to see if there are any other questions online before I move to the webcast.

There are no further phone questions. You may proceed to the web questions.

Perfect. Thank you. So I've got 3 questions I can see initially on the screen here. The first is a question from Peter Papadakos. Is it too early to provide some targeted date throughout years by which time you aim to deliver your strategy? How can investors and analysts best benchmark your stated goals versus your actual performance? So I think the last slide of the presentation today was an attempt by us to demonstrate that the progress we make will be judged by actions and milestones that we achieved, and we set out a number on that final page. Going forward, we will -- within our semiannual reporting, we'll be reporting very clearly what has been going on in each of those 4 strategic objectives in terms of the previous 6 months to a year. And we will also, each time, set out what we feel the priorities in each of those areas are for the next 6 to 12 months. So we'll be doing that as qualitatively as we can through the reporting, and of course, over time, I'd expect the financial reporting and the KPIs associated with that to be much firmer and much clearer. So that reporting will take time to build up but we will be being as transparent as we can with the progress that we see in each of those objectives. We then have a question regarding leverage, which I'll read out and then pass I think to Martin to answer, again, from Peter. Regarding leverage, assuming you take on significantly more operational risk, how far, very roughly, would you be willing to deleverage specifically on a debt-to-EBITDA basis? Martin?

Yes, Peter. So I think the way we try to address this is to look at it through the LTV lens. And obviously, that was clear in terms of the range that we gave you. I don't want to be overly specific on debt to EBITDA because I think you need to take into account other things. I think you need to take into account your interest cover ratio. And you also look at the -- you need to look at the type and the quality of your earnings. So if you've got -- clearly, you can look at some companies where they've had a particular debt to EBITDA. But if the quality of those earnings is not sustainable, then that is very different to the situation where you have earnings with good growth potential. So I'd rather we looked at it in terms of LTV and interest coverage ratio than in just giving you a debt-to-EBITDA ratio of 8x or something. I just don't think that that's particularly helpful in terms of setting a bottom end of the range. And clearly, when you come to certain parts of the cycle, having low leverage is a good thing. And so why would you set a maximum or minimum amount of debt to EBITDA.

Thank you, Martin. So the next couple of questions, I think, essentially asking the same thing. So is it possible to get more details on asset classes captured by urbanization besides residential? Will it include things such as light industrial, logistics, last-mile delivery and the like? I think we have quite deliberately used the term urban opportunities to ensure that we don't narrow our sales down too quickly to what sort of uses might be appropriate. It will very much depend on the individual development, the community in which that is based. But I think we certainly would expect to be looking at things besides residential. And what we didn't want to do today was talk about residential-led mixed-use and are we going to be doing PRS and all these things, because I simply don't think we need to make that decision at this point in time. I think what the skill set we have is in bringing together a whole range of people to envision what that mixed-use community might look like to then navigate the development, the planning process in order to bring that to life. And that will necessarily involve looking at a different range of uses. So I think we are quite deliberately in that sense, starting broadly. And we have flagged, and I think it's reasonable to flag, that we would expect residential to be a significant and leading component of that. But then what type of residential that is and what role we play in that residential element longer term is something that I think we will be able to address at that time and, indeed, don't need to address until that sort of time. The question, have we had any conversations with other major retail landlords regarding the formation of data-sharing partnerships to drive enhanced capability for determining sustainable rents by retailer category. So I think it is something -- we do have discussions with other landlords all the time as you might expect. And of course, there are numerous bodies that act on behalf of landlords across the sector. So we're certainly engaging with all of that. And I wouldn't want to give the impression we are the only people thinking about sustainable rents. But I think we want to make sure that we have our own view, our clear strategy, our clear plan that we want to deliver and then look at how we best integrate and fit into that sector-wide approach once we're clear on that strategy because every center, every relationship will be a little bit different. And we don't want to simplify ourselves trying to apply a single approach across our own centers across our wider portfolio. And then in the long term, once the near-term disposals have been made, does this mean you'll need to continually recycle your urban regeneration projects as well in order to keep the capital returns elevated? In the long term, how do you keep the same total return expectations? So I think it's a very fair question. I mean it's something we will have to look at as the projects progress. I certainly don't envisage us pursuing a large number of mixed-use regeneration projects and retaining 100% ownership of all of those and whether we feel the best way to access those better returns is to bring in partners that are at a project level, whether it's a case of selling off individual phases. If they're residential elements, there may be an opportunity to sell some elements for residential for sale, some elements to perhaps affordable housing partners, some to retain or to sell to PRS. So -- but we will certainly always be focused on total return and ensuring that the overall return that we're delivering is hopefully in line with our aspirations to be above our market, and that we are focusing our capital where we have the greatest value. Then a couple of questions. Is there a point where retail becomes cheap enough that it makes sense to buy shares of shopping centers you don't own, so you have greater potential -- greater control for potential change used to repurposing? And then as part of a new dividend policy, will you offer a scrip dividend to retain greater cash flow for investment? With respect to dividend, we'll give more details on dividend policy and how that translates in terms of what to expect in the near term along our results -- alongside our results in November. And with respect to shopping centers where there may be repurposing potential, I think it's certainly something in the spirit of allocating capital to where we can add the greatest value. If we see shopping centers such as our suburban London shopping centers that could offer medium-term repurposing potential, then that certainly, to me, would meet the definition of urban opportunity. If we saw other opportunities that we were confident were based on the right levels of rent in retail and made the most of our skill set in that space, then we should be open to looking at opportunities there. And I think that's -- again, I'm not trying -- I'm deliberately trying to not be too rigid on capital allocation and what we will or won't do because I think we do need to be prepared to respond to opportunities as we see them. I think there are no further questions from either the conference call or the webcast. I do hope through the Q&A session that we've been able to provide more color for you. As I said at the end of the presentation itself, very much appreciate you taking the time today. I know we have run over a little bit, but it felt important to make sure that we got through the questions that people have been good enough to ask on the call and online. So very much appreciate your attention. Thank you very much for joining us today. Goodbye.

Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.