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

Okay, good morning, everyone, and welcome to the presentation of Landsec's 2023 Full Year Results. When we launched our strategy back in late 2020, it rested on 2 clear and simple principles: to focus our resources where we have genuine competitive advantage, and to maintain a strong balance sheet. Since then, we've done exactly that. As a result, we are in excellent shape, even though global economic and financial market conditions have deteriorated materially over the past year. Inflation and interest rates are up sharply and credit conditions have tightened, which has put pressure on values across every asset class, including property. At our half year results 6 months ago, we said we expected this pressure to continue, which it has. And whilst the political situation has stabilized somewhat since then, interest rates remain volatile, making it difficult to predict where they will eventually settle, although we think it is unlikely that this will be back at the level seen for much of the past decade. And this is important for 2 reasons. Firstly, our strategy was never based on the idea that this ultra low rate environment would persist. And neither are our decisions now based on a hope that interest rates will fall back to those low levels if we wait long enough.

And our determination to offload GBP 1.4 billion of mature offices during the last year highlights that. But second, and most significantly, this fresh reality aligns squarely with the strengths we have been developing since 2020. Back then, finding value was hard in a market where generally somebody else stood ready to borrow more at artificially low rates and therefore pay more — yet that game has ended. So we ought to start seeing more compelling opportunities start to surface. That said, as we noted 6 months ago, we believe the complete effect of elevated interest rates will need some time to filter through the system. Now when it comes to capital allocation, we stay decisive and sharply concentrated on future returns. To date we have disposed of GBP 2.4 billion of assets where our capacity to add further value was constrained. And we have been picky with new investments, concentrating only where a clear chance to create value exists, chiefly in development, in major retail destinations and our mixed-use pipeline. And we have cut financial leverage, with net debt lower, LTV lower and our net debt-to-EBITDA ratio lower. Our strategy is still the correct one, and our 3 key competitive advantages are still our high-quality portfolio, the strength of our customer relationships and our capacity to unlock complex opportunities.

They’ve worked effectively for us during the last year and ought to keep doing so going forward. Because we’ve executed our strategy successfully, we now have a chance to anticipate growth, even as one portion of the broader market will probably be focused on the past in order to address leverage or refinancing problems. Our portfolio sits in an ideal spot to gain from customer demand concentrating on best-in-class space, which leads to better prospects for rental growth. We’ve cut back our exposure in places where returns look weaker and built optionality to put money into opportunities with higher returns. We keep finding ways to unlock complicated situations that add to returns, and we intend to examine possibilities for boosting growth further by drawing on the obvious value of our platform. And our solid capital foundation — with average debt maturity exceeding 10 years and no debt needing refinancing before 2026 — supports the resilience of our returns, since our goal over time is an 8% to 10% return on equity and growth in our appealing earnings and dividend yield. Now, on to operational results. We keep observing a stark gap between occupational demand and what’s taking place in capital markets. In London, we posted another year of robust leasing, which pushed ERV growth further.

We achieved solid returns on assets, even though the outlook for future returns appeared somewhat softer. At present, 60% of our development pipeline is either pre-let or with solicitors, and deals signed over the past 12 months have averaged 11% above ERV. In retail, leasing activity improved noticeably: GBP 38 million of lettings were signed or in solicitors' hands, averaging 9% above ERV, while occupancy rose to 94.3%. We have grown our portfolio at very attractive returns, and retail sales have kept increasing. In mixed-use, we obtained planning consent at O2 Finchley Road for our masterplan of 1,800 homes. Combined with additional progress at Mayfield in Manchester, this means we could now potentially begin work on site at both schemes later in this financial year. On the financial side, underlying EPRA EPS grew 4.4%, placing us toward the top of our guidance range for low to mid-single-digit growth. This reflected our strong operational performance, with like-for-like net rental income up 6%, while our dividend for the year has risen 4.3%. Return on equity and EPRA NTA have plainly been affected by higher bond yields, which pushed valuation yields upward, though our successful disposal program offset that pressure.

Consequently, our LTV fell to 31.7%, and net debt to EBITDA stood at 7x by year-end. Regardless of broader economic circumstances, we continue to believe that delivering in a sustainable way is essential for our success over the long term. On that front, we've achieved additional progress toward our ESG goals. Energy intensity stayed essentially unchanged compared with a year earlier, even though utilization of our portfolio rose relative to the early months after lockdown at the start of last year. We therefore remain on course to cut energy intensity 45% by 2030 against our 2013/'14 baseline. Later this year, we'll begin the first retrofits of air source heat pumps as part of our net 0 investment plan. Had we not disposed of more than GBP 1 billion of mature offices, EPC B or higher-rated offices would already represent roughly 50% of our portfolio. Yet our debt would likewise have been GBP 1 billion larger, which matters more to us. Because of those disposals, EPC A or B rated offices have dipped slightly to 38%, though that figure will climb back to 44% by the summer as our current developments finish, and to more than 50% by 2025 as the first gains from our net 0 investment plan take effect, before rising to 100% ahead of 2030.

We also recently unveiled our fresh Science Based Targets aimed at cutting our emissions, consistent with the new Science Based Targets Initiative, Net-Zero Standard. That happens to be the sole global framework for setting corporate net zero targets that aligns with climate science. This target substantially widens the reach of our carbon reduction ambitions, since it now covers all of our reported Scope 3 emissions and restates our target against a more current 2019/'20 baseline. And lastly, last month we introduced our Landsec Futures Fund, through which we will commit GBP 20 million by 2030 to boost social mobility within the real estate sector and help 30,000 people move toward the world of work. All of this and more guarantees that Landsec stays at the leading edge of driving change across our industry. So with that said, I'll now walk you through each of our key business areas in a bit more detail. So beginning with Central London. Well, we disposed of GBP 1.4 billion of offices over the year, every one of which had been a successful investment for us, delivering an average 10% IRR across the period we held them. But since those assets were fully let to single customers for an average of roughly 20 years, there was little else we could do to add further value.

And since the forward-looking return at the price at which we sold them sat in the mid-single digits, that led us to the decision to sell. What that means is that we have by now disposed of GBP 2.2 billion of offices since late 2020, and virtually all of those were located in the City or Docklands. That has markedly enhanced our prospects for future returns, since it has released capital for reinvestment in our pipeline, and also because 74% of our portfolio now sits in the West End and Southwark. And in those locations we believe rental growth prospects will prove stronger than they are in the City. Now we continue to hold the view that demand overall for conventional office space will decline, owing to more hybrid ways of working, though the effect of that will not be uniform from one location to another. Now we have said before that we anticipated large HQ type space, or areas that give little reason to visit beyond simply work, would see a more significant reduction in space requirements. While we said we expected demand for attractive, energizing, well-connected places to prove much more resilient. Now the chart at the top right of this slide shows how this is starting to play out, with around 75% of all space available for subletting in London situated in the wider city and Canary Wharf submarkets, whilst in the areas where most of our portfolio is concentrated, subletting availability is minimal.

And while we still see some customers taking more space and others taking less, what's clear is that quality has turned into the top decision driver for virtually every one of them. The strength of our leasing, coming off a record year, tells us we're well placed for that. We've signed, or have in solicitors' hands, GBP 48 million of annual rent, averaging 5% above the valuers' assumptions. Occupancy has risen to 95.9%, so our vacancy rate sits at half of what the wider London market shows. And in the West End, our portfolio is essentially 100% occupied. Demand for our Myo flexible product remains strong, with occupancy there now reaching 92%. As a result, we intend to launch 3 new locations in the autumn. And as evidence of how appealing our space is to customers, under 1% of it is currently being marketed for subletting. Our development projects are equally well positioned. The sale of 21 Moorfields in September, timed nicely, crystallized a very healthy 25% profit on cost, and strong leasing activity has continued across our 3 other schemes. Those 3 projects now stand at 60% pre-let or in solicitors' hands, compared with 38% 6 months ago, and the deals done over the past 12 months have averaged roughly 11% above ERV — and even more above the ERV we had expected when we first committed to those projects.

Turning to the outlook, we anticipate that the escalating scarcity of Grade A space is going to push rental values higher for top-quality properties. Consequently, we foresee low to mid-single-digit growth in ERV throughout our London office portfolio during this year, with the West End trending toward the upper end of that range and the City showing more subdued growth. A decline in new development starts has already become apparent across the market, and we anticipate that trend will persist. Accordingly, new supply arriving in 2 years' to 3 years' time will be lower as a result. Because we committed GBP 55 million in the autumn to early works at Portland House and Timber Square, we have been able to keep those projects on program for delivery into a supply-constrained window in late 2025. So with returns appearing attractive, demand staying strong and future supply shrinking, we will shortly be committing to full development of both of those schemes. Turning now to retail, where appetite for the best destinations keeps expanding. That reflects the fact that major brands increasingly view online and physical sales channels as interconnected. And a portion of online sales keeps migrating back to stores, as the pandemic's effect on consumer behavior starts to fade.

To be sure, major retailers like Next and Inditex have lately signaled that online sales probably won't account for as large a portion of their total business as they'd earlier expected, while digital-only players such as Zalando have pivoted away from chasing market share toward boosting profitability. Because of that, we keep watching brands put money into — and sharpen their attention on — a smaller number of larger, superior stores, particularly since running that brick-and-mortar space has become more profitable thanks to the approximately 30% cut in business rates that took effect last month. That keeps producing a clear lift in appetite for space across our destinations. The summary on the right-hand side of this slide shows it well. We count 57 recent or current events in which brands are either taking bigger units, moving into our centers from other spots in the same city, or deepening their ties with us by bringing those brands to new locations. While we anticipate brands will keep trimming store counts, plenty are posting sales growth above average at our centers relative to their wider store estate. So, with inflation pressing margins on both the online and offline sides and consumers reining in spending, we believe the shift toward prime will carry on, since secondary sites stay under pressure.

We're still seeing the payoff from what we've put into making our retail team stronger and from shifting how we work so that the emphasis lands on brand relationships instead of just assets, and brand sales have kept growing, which drove robust leasing growth. Over the year we signed GBP 27 million in lettings — that's 35% higher than last year and, on average, 8% above ERV. Because of that, occupancy rose 110 basis points and now sits at 94.3%. And we really aren't seeing any indication of that trend slowing, even with the continuing worries about the cost of living. Right now we have GBP 11 million of lettings with solicitors, which is 28% above where we were at this point a year ago, and those are averaging 11% over ERV. So overall, we expect retail ERVs to grow in the low to mid-single-digit range over the coming year. The brand relationships we're building, together with the trading insights coming from the ever-larger volume of turnover data we gather, give us an increasingly distinctive view of our prime retail destinations. We've said before that we saw value here, since sales have mostly come back to where they were before the pandemic and leasing keeps building, while values are still down at the depths of peak pandemic distress or peak online penetration levels.

That gap has grown even wider over the past 6 months, as valuations were written down further, driven mostly by sentiment, despite operational performance continuing to show improvement. Now, with subjectivity and valuations elevated, we think the latter serves as a more relevant benchmark, and we keep seeing an attractive opportunity in the future returns available. We showed this quite recently when we acquired the debt secured against the 50% stake in St. David's that n2 formerly owned. We did so through 2 separate transactions with 2 different lenders. And after that, we completed a loan-to-own restructure. All of this enabled us to gain 100% control of the center at a material discount to the latest book value and at an attractive income return of 9.7%. And that looks particularly good given that occupancy has been rising, and we've been leasing space there 10% above ERV over the course of the past year. So now to the third part of our strategy, mixed-use urban neighborhoods. The structural trends supporting our 2020 decision to expand in this space remain in place, whether it's demographic growth driving demand for more homes, urbanization, or the fact that the lines between how people live, work and spend their leisure time are increasingly blurred and will shape the future of cities.

Our long-term pipeline is still substantial, and over the course of the year we have made meaningful headway in moving several key projects forward. At Mayfield in Manchester, we reached a land drawdown agreement with our joint venture partners, and that effectively lets us develop 100% of the first phase of this site on our own, covering roughly 1/3 of the whole project. At Finchley Road, we obtained a resolution to grant planning consent for our masterplan of 1,800 homes. And in Glasgow, we remain on schedule to submit a major planning application before long. All of this means that this part of our business has now reached a stage where it is no longer just about a pipeline, since we could genuinely begin putting our first capital into development later this year. These projects are all highly sustainable. They sit in some of the U.K.'s fastest-growing urban areas, and every one of them is immediately adjacent to major transport infrastructure. So, with the mix of uses and the capacity to meet CapEx commitments, they keep offering a balanced risk profile along with attractive target IRRs in the low to mid-teens. Turning now to our 2 most advanced projects: at Mayfield, we are preparing detailed plans that could let us begin on site late this year with the first 2 office blocks, which will provide 320,000 square feet of highly sustainable space in what is a very attractive location.

The total cost is likely to come in at approximately GBP 150 million, and we anticipate a yield on cost of roughly 8%. A decision regarding timings is expected to be made this autumn. Regarding Finchley Road, we were very pleased to secure a resolution to grant consent for our scheme in late March. As a result, we are now wrapping up the planning process and advancing the detailed designs. Provided this proceeds and we secure vacant possession, enabling works on site could begin near the close of this financial year. Naturally, any choice to commit capital will be taken in light of broader economic and financial market conditions as they stand at that point. Yet in the end, these schemes keep providing meaningful long-term optionality alongside growth potential. With that said, I will pass things over to Vanessa, who will take you through the financial results.

Thank you, Mark, and good morning. Conditions in the market have shifted a great deal over the course of the year, and there is an increasing disconnect between the robust demand from occupiers and the investment market, in which the steep fall in transactions makes current property valuations more subjective. Still, the strength of our business is evident from the quality of our earnings and our solid capital structure. So let me move on to our financial headlines. Our robust operational performance shows up in a 10% rise in gross rental income and EPRA earnings. We gained from a GBP 22 million uplift in surrender premiums, and after adjusting for that, underlying EPRA EPS rose 4.4% to 50.1p. I'm glad to report that this sits near the top of our guidance of low to mid-single-digit growth. Consistent with that, our dividend has risen 4.3% to 38.6p, reflecting dividend cover of 1.3x. Owing to the increases in interest rates, valuation yields went up, and leasing partly offset that effect, driving 3.6% ERV growth. Even so, EPRA NTA per share fell 11.9% to 936p. We have bolstered our balance sheet further through asset disposals and financing activity. Net debt has come down by nearly GBP 1 billion, and LTV has declined to 31.7%.

At year-end, our net debt-to-EBITDA ratio has also come down to 7x. Now, looking more closely at EPRA earnings. Gross rental income rose by GBP 61 million, and 3 factors drove that: higher surrender premiums, which I mentioned earlier, acquisitions that were accretive, and robust like-for-like income growth, which I'll go into more detail on shortly. Direct property expenses held steady. Acquisitions from prior periods pushed direct costs up by GBP 7 million, and that was offset by a GBP 6 million reduction in like-for-like costs, reflecting higher occupancy and savings on costs. Last year, we launched an organizational review aimed at speeding up execution of our strategy and improving both platform scalability and operating efficiency. That helped deliver cost savings, which have offset inflation, and our admin expenses have stayed flat versus last year, consistent with our guidance. Although inflation is still elevated, we expect admin costs to come down slightly in the year ahead, thanks to continued efficiency improvements. And interest expenses went up by GBP 13 million, mainly because of the acquisitions we completed in the prior year, along with a modest rise in variable rates. We expect interest costs to rise slightly this year, reflecting a small increase in the average cost of debt, which is now fully hedged at 2.7%.

That said, the cost ratio came down to 25.2%, and we're still on course to bring it down toward the low 20s over time, mainly thanks to efficiencies from our technology investment and operating model — our operating model review and procurement savings. Gross rental income rose 10% overall and 6% on a like-for-like basis, with positive growth in every segment. In Central London, we achieved 4.2% like-for-like growth from new lettings, along with strong growth in Myo income and Piccadilly Lights. In major retail, like-for-like income increased 1.9%, driven by growth in occupancy and turnover income, partly offset by some negative reversions on historical leases. And this year, we see the significant over renting in leasings in retail reset. So we expect like-for-like growth to pick up the year after. In subscale, the strong recovery in hotels and some leisure upside contributed — resulted in 18.2% growth, and the net impact of our investment activity was GBP 13 million. That mainly reflected the full year impact of prior acquisitions. The GBP 22 million increase in surrender premiums reflects a lease surrender we agreed in Southwark to create a new development opportunity next to the recent scheme at The Forge, and the lease restructure in Deloitte at New Street Square earlier in the year.

That later opened the door for a significant lease regear involving Taylor Wessing at another spot in the estate, plus the successful sale of One New Street Square in January. Now, on portfolio valuation. The sharp rise in interest rates caused property transaction volumes to slow substantially worldwide. In the U.K., you'll see a rapid reset as a consequence, and that happened particularly in the fourth quarter of calendar year 2022. Even with ERV growth in every key segment, this resulted in a 7.7% decline in the value of our property. Our Central London portfolio fell 7.3%, since the rise in yields was partly offset by a 4.7% increase in ERVs. And on top of that -- that landed at the top end of our guidance of low to mid-single-digit ERV growth for the year. ERV growth in the City came entirely from a major lease restructuring at New Street Square, with the associated refurbishment CapEx booked as a cost in the valuation, and once you adjust for that, City ERVs were flat. After our recent disposals, roughly 70% of our Central London portfolio sits in the West End, which has shown itself more resilient than the City. And we anticipate the stronger rental growth outlook for the West End will persist.

Developments dipped a little, with solid ERV growth from recent lettings offset by softer valuation yields. The reported value of our major retail assets fell 6.4%, as valuers shifted yields outward on sentiment with no comparable transactions to reference. That said, from where we sit, the gains we deliver in income and occupancy matter more than sentiment does. In mixed-use, the value of our completed assets at MediaCity held up fairly well. Future mixed-use developments declined, since those are valued on their existing use. And we manage income over the short term so we keep flexibility for our development plans. Among our subscale assets, hotels held up, but leisure dropped 15% in the second half. That mostly reflects the Chapter 11 of Cineworld, which is still operating and paying rent, and its recapitalization since the year-end is clearly a positive. So going forward, while property values have begun to steady in recent months, investment activity is still weak, and we remain mindful of broader market uncertainty; even so, we expect prime assets to get back to growth well ahead of secondary property, where occupational demand is more in question. And we expect major retail destinations to hold up better than the lower-yielding sectors.

Because valuation yields went up, EPRA NTA fell 11.9% over the year. That figure takes in the effect of disposals, which finished GBP 144 million under the March '22 book value, yet locked in a 25% profit on cost and a 10% IRR. Once dividends are counted, total return came to negative 8.3%, again heavily driven by yield shifts. To show what that means, income return on EPRA NTA was 5%, while ERV growth contributed 2.5% and developments contributed 0.8%. That produces a positive return of just over 8% before ERV movements are factored in. Whereas others in the market paused or slowed activity from last summer onward, we have kept pushing our strategy forward to drive future returns. This slide illustrates what our capital decisions have done. We have by now sold GBP 2.4 billion against the GBP 4 billion target we set in late 2020, including GBP 1.4 billion during the past year. We will keep recycling capital further this year, and we stand ready to act on opportunities we expect to emerge in the markets as they adapt to higher interest rates.

As we mentioned back in November, we think the complete impact of higher interest costs will only feed through the system gradually. Our results are supported by a balance sheet that leads our sector, and we strengthened it further over the year. A solid investment-grade credit rating gives us good access to markets, and we hold the tightest corporate bond spread in the sterling real estate market, which hands us a distinct competitive edge. Over the year, net debt came down by GBP 0.9 billion, and we issued a GBP 400 million green bond, lifting our average debt maturity to more than 10 years. As a result, we now sit at 100% hedged. On top of that, we hold GBP 2.4 billion of undrawn facilities, which offers considerable flexibility, and nothing needs refinancing before 2026. Our LTV dropped to 31.7%, though LTV isn't a strong gauge of leverage given how much valuation approaches differ across markets. Even more significant, net debt-to-EBITDA declined to 7x at year-end and stood at 8x on a weighted average basis across the year. That ranks among the lowest in the sector and mirrors the strength of our capital structure along with our earnings profile.

Our balance sheet strength means we're well placed to capitalize on the conditions in the market right now. Let me wrap up with how we see performance going forward. A sector-leading balance sheet plus the considerable headway we've made repositioning the portfolio leaves us set up nicely for growth down the road. From our high-quality retail and our Central London assets, we anticipate solid occupier demand, which should produce ERV growth in the low to mid-single digits over the coming year. We hold a consented pipeline of roughly GBP 4 billion, and we expect that to generate double-digit returns. Alongside our attractive earnings yield, that supports our goal of an 8% to 10% annual return through the cycle. Valuation yields can move in the short term and that isn't something we control. As a result, we probably won't land precisely inside that range in each and every year, but this target is the basis for our decisions. For this year, we anticipate EPRA earnings per share will be broadly stable against last year's underlying 50.1p. That figure includes an impact of about GBP 10 million from the start-up cost of our Myo expansion, the investments in IT and the final over renting in retail resetting. We expect continued growth from operational performance to broadly offset this, as well as the fact that we are likely to stay a net seller of assets in the near term.

And we expect EPS to return to growth the following year. However, we expect dividend growth of a low single-digit percentage per annum, as our current payout is at the lower end of our policy range of 1.2x to 1.3x cover by earnings. There will undoubtedly be some interesting opportunities coming out of the current market dislocation, and given our strong position, we are well placed to benefit from this. With that, I'll hand back to Mark.

Thank you so much, Vanessa. So I'll finish up now by covering our read on the present landscape, what you should expect from us over the coming year, and after that we'll take your questions. So this last year has delivered the sharpest gap between occupier markets and investment markets in my memory. Following 10 years of extraordinary central bank stimulus, interest rates and inflation have climbed sharply, credit conditions have become tighter, and that has produced a significant pullback in investment activity along with downward pressure on asset values, even as demand from customers for the finest assets and the finest locations stays robust and rents keep rising. While nobody can predict where interest rates will ultimately settle, we have set our business up for a higher for longer scenario. In a long-term frame, the artificially low rates of the prior few years looks like the aberration, rather than the adjustment witnessed over the past 12 months. Now, unwinding 10 years of excess liquidity was never going to be a smooth transition. And we are conscious that further risk may sit in the system as the world keeps adapting to a new reality of higher rates. We stated 6 months ago that this adjustment would hurt return on equity in the short term, which, of course, it has.

And although property values have stabilized recently, they’re still at a low level, and as for investment market activity, we do expect prime values to return to growth well before secondary. And this reflects growing recognition among customers, whether in offices or in retail, that space quality is pivotal for attracting key talent or customers, more than ever before. The key ingredients for growth are portfolio quality, balance sheet strength and an ability to unlock opportunities — all areas where Landsec scores highly. So to sum up, markets continue to adjust to a new reality, which means the short-term outlook remains unsettled, but we have built positive momentum in executing our strategy despite these headwinds. As a result, we have a high-quality portfolio that's well positioned for growth, a strong balance sheet that is ready for growth and a skilled team delivering value through our existing assets, but also ready to seize new opportunities, meaning that over the longer term, we will be able to deliver better returns for our shareholders. Our strategy remains the right one, and we will continue to build on the strong momentum in each part of our business. We'll remain decisive in monetizing assets, where we can't add further value, and we expect the balance of disposals from here to shift more from London, towards our subscale sectors.

Looking at the short term, we'll likely be selling more than we purchase at first, and our earnings guidance captures that. We'll also move forward with our 2 near-term developments in London while we keep maximizing optionality across our future pipeline — which might mean beginning first works on site at 2 major mixed-use schemes as well over the next 12 months. A strong balance sheet is something we have, and keeping it that way stays a key priority. That said, we have considerable headroom to invest, but the scale of accretive opportunities in our existing pipeline and throughout the wider market is such that over time it would probably go beyond what our own balance sheet can handle. So we also plan to look into ways of accessing other capital sources to speed up our overall growth and improve our returns. Executing our strategy successfully gives us a high-quality portfolio, well positioned to serve our customers' future demands, which leads to improving growth prospects. And with our strong capital base, we're in a great position to capitalize on opportunities that will undoubtedly come up as the market keeps resetting. The next few years' outlook fits perfectly with the competitive advantages of the new Landsec.

So because of that, we feel good about what lies ahead. Many thanks, everyone. Now I'll begin the Q&A portion. There are 3 places questions could come from in this room, and that's where I'll begin. With luck, a roaming microphone is being brought over. After that, I'll take questions dialing in from the conference call. And finally, any questions submitted through the webcast. So don't hesitate to put your hand up if something comes to mind. The mics are actually in the chairs — my apologies, forgive me, technology. Miranda, would you like to go first?

Yes. Miranda Cockburn here from Panmure. On valuation, I'm just curious: your portfolio's value dropped roughly 5% during the year's second half. That clearly represented a pretty notable outperformance versus the MSCI IPD, which, even excluding industrials, declined by something like 10% to 12%. Could you walk us through the reasoning there? Are we beginning to observe the gap opening up between the stronger and weaker assets when it comes to offices, et cetera, and retail? What's your view on that?