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

Good morning, ladies and gentlemen, and welcome to the presentation of Landsec's 2024 Full Year Results. Over the past three years, we have concentrated on two clear strategic priorities. The first is to increase our investment in best-in-class assets where, through our competitive advantages, we can drive long-term growth. The second is to preserve our balance sheet strength. Including the hotel portfolio sale that we announced last week, we have now sold approximately 40 assets since late 2020, totaling some GBP3.1 billion. The vast majority of these were long-term single-let assets where our ability to add further value was limited. We have reinvested at accretive returns in a targeted number of our key places, such as Victoria, Piccadilly, Bluewater, or Cardiff. As a result, around 80% of our current portfolio is now concentrated in our 12 largest places. As we continue to invest in shaping and curating these unique multi-let locations, we expect them to drive superior income returns and growth over time. At the same time, our proactive disposals mean that our capital base has remained strong, and our 32% LTV is lower than it was two years ago, before the rising interest rates and the correction in real estate values that followed.

So this gives us substantial financial firepower now to seize the growth opportunities ahead in our pipeline and to buy high-quality assets that complement our existing best-in-class portfolio at an appealing moment in the cycle. And that strategic focus stays critical, because owning the right real estate has never mattered more. The normalization in the cost of capital over the past two years means the value drivers right across the sector have changed fundamentally. For much of the previous decade, juicing up the spread between income yields and ultra-low borrowing costs, or selecting high-level sector themes, was frequently sufficient to drive performance. But regardless of sector, a growing distinction now exists between those assets that satisfy customers' future requirements and can thus deliver income growth, and those that cannot. Vacancy across the London office market as a whole sits at an elevated 9%. UK retail vacancy exceeds 10%, and even big-box logistics vacancy now stands at 8%. Yet the very best assets in every sector are in short supply, so they keep posting high occupancy and rental growth — which means looking simply at market averages can be very dangerous. And our portfolio's quality shows in its continued outperformance, as the charts here illustrate.

In London, our office utilization has risen 18% compared with the past year, well ahead of the overall increase in commuter activity. Occupancy at our properties keeps climbing as well, reaching 97.3% now, despite overall market occupancy declining. In a similar vein, retail occupancy has reached 95.4%, beating the broader UK retail market. And since footfall growth at our locations runs well ahead of the UK market, we're seeing more competitive tension as brands concentrate on fewer, bigger, better stores. We've now reached a clear inflection point in retail rents, and with positive rental uplifts being captured on re-lettings and renewals across both sectors, we expect like-for-like income to keep growing. Meanwhile, the outlook for investment markets is getting better. Back in late 2022, we stated our expectation that property values would keep adjusting for some time, since markets would need to align with a new higher rate reality. That has indeed turned out to be the case. And although we don't anticipate a sharp reduction in long-term rates, the recent relative stabilization is plainly a positive. Attracted by the historically attractive pricing of good-quality income in London and in the best retail destinations, we are beginning to see interest emerge from investors who have not been active in these markets for some time.

And because of that, in the second half, 60% of our portfolio essentially held steady in value, while yields across the board were unchanged during the final quarter. So, assuming no macro shocks occur, we believe high-quality assets have mostly reached their floor in value and will begin rising in the foreseeable future as rents keep growing. And now that we've disposed of the great majority of the assets we stated back in late 2020 that we intended to sell, our net debt stands GBP1.1 billion below where it was prior to the market correction. And since we're beginning to see additional indications of appealing acquisition opportunities coming to market, we have both the capacity and the intention to be a net investor going forward. With an appealing 5.7% income return and ongoing ERV growth, that puts us in a strong position to hit our 8% to 10% return on equity target. Continued strength in our operational performance is what supports all of this. We keep leasing space well ahead of ERV. We're capturing positive reversionary potential on re-lettings and lease renewals in London and, for the first time in a number of years, now in major retail as well, where rents have begun to rise, backed by strong growth in both sales and footfall.

On the mixed-use side, we obtained planning approval for our 1,800-home development at Finchley Road, and we're now beginning the first enabling works there before a full start on-site next year; meanwhile, we keep refining our plans for the remainder of our pipeline. Turning to financial results, EPRA EPS held steady compared with last year, matching our guidance, since our strong operational performance — with 2.8% growth in like-for-like net rental income — plus efficiency gains offset higher finance costs. Our dividend has risen 2.6%, also in line with our guidance. And our return-on-equity came in at minus 4%, an improvement on the prior year. That was despite the effect of rising bond yields, which weighed on valuation yields especially in the first-half of the year and left our NTA down 8.2% overall. At the same time, we've cut our energy intensity by 3.7%, so we remain firmly on-track to reduce it by 52% against our 2019/2020 baseline by 2030. And 49% of our portfolio now carries an EPC A or B rating, up from 36% a year ago, and that share will rise further from 2025 onwards as the benefits of our net zero investment plan start to come through.

Now moving to the operational review. Although the main purpose of the spaces we develop and manage varies throughout our company, the performance of every one of them ultimately traces back to our three core competitive strengths: the superior quality of our portfolio, the depth of our customer relationships, and our capacity to unlock complicated opportunities. These attributes are valuable and rare, and they are vital for creating sustainable value. Take, for instance, our work with two key customers at New Street Square to decarbonize their office while they upsize their space and extend their leases by more than 15 years. Or consider the completion this year of three highly complex developments built over live tube stations, which together generated approximately GBP240 million in profit. These competitive strengths are what underpin our capacity to keep driving growth across each of those key places, whether office-let, retail-let or mixed in use. As for Central London, the market is continuing to polarize, with customers squarely focused on space that offers the right transport connectivity, the right sustainability credentials, and the right amenities. For many employers, space lacking these characteristics is now simply not an option, almost regardless of price. We continue to adapt our capital allocation in line with this.

Take the pipeline we've built in South Bank, for instance — it's a matter of minutes on foot from two of London's busiest train stations, sits in an area full of cultural attractions, and has the second-highest concentration of bars and restaurants in London, trailing only Soho. Then there's our ongoing presence in Victoria, once again right beside one of London's busiest rail terminals. So despite London office take-up across the market coming in just over 10% under its long-term average last year, demand prospects are still encouraging, and space under offer stood near an all-time high at the end of March. Overall vacancy is elevated at 8.8%, but as the chart on the right illustrates, this remains largely a building issue rather than a market issue, since almost 40% of all vacant space is concentrated in just 1% of office buildings. And with supply of the very best space still low, rents for that space keep rising, as we're seeing across our portfolio. Against that backdrop, we keep reshaping our portfolio. Since late 2020 we've sold over GBP2 billion of mature standalone office assets and reinvested into profitable developments, so that our five largest multi-let places now represent 88% of our Central London portfolio, all of them showing high occupancy and strong ERV growth.

And there’s room for us to add more through future development. The size and limited availability of every one of these locations lets us keep curating them and push additional growth. For instance, new leisure concepts in Victoria, a new iconic rooftop restaurant at Piccadilly Lights, or an interactive digital media space beneath the Lights. So what are customers showing us? Well, utilization of our offices keeps rising, particularly mid-week, as the daily turnstile tap-in data on the left shows, up 18% for the year. Meanwhile, customers are planning for much more space per employee than before the pandemic, since they’re designing for greater collaboration, meeting, or well-being space, and that keeps translating into sustained demand. Over the past 12 months, just four customers have left, and we re-let three of those spaces quickly. And among the 36 new lettings or renewals we signed, 17 were customers upsizing, while 12 kept the same space they had occupied before. Only seven customers shrank their overall office footprint, mostly by cutting space elsewhere, since just one customer reduced their floor space with us. With our portfolio virtually full, this strength in demand keeps driving rental growth.

Leasing has continued to perform well for us. We signed or have in solicitors' hands GBP35 million of lettings, averaging 6% above ERV, while re-lettings and renewals came in on average 15% above previous rents. Occupancy rose further, reaching 97.3%, well ahead of the broader market, and under 1% of our space is available for subletting. At our two retained developments, we achieved roughly 20% profit on cost even with yields softening, and both were effectively full within four months of completion, at rents materially ahead of initial ERVs. We've also recently opened three new Myo locations, in addition to the two existing ones, where average occupancy grew from 86% to 93% over the year. Overall, strong leasing activity drove 5% ERV growth, placing us at the top end of our guidance for the year. Turning to retail, demand for the very best destinations keeps growing in a similar way, and we continue to shape our portfolio so these assets are positioned for that. During the year we sold our two smallest retail outlets, and before that we increased our investment in Bluewater and St. David's, so that our five largest assets now represent 75% of our retail portfolio.

Over the past couple of years, we have kept putting money into our assets, and now we're going to add to that in a more meaningful way through a series of new initiatives. Through these, we'll repurpose existing space to create a new F&B destination in the center of Leeds, add new public open space leisure office in Cardiff, and improve the visitor experience at Gunwharf Quays. Those initiatives will bring in more footfall and sales and back the rising demand for space at those locations. What underpins that demand is that, for many key brands, the stores they have with us are beating their overall sales growth, as we show here on the left. At the same time, overall online sales are no longer growing the way they did before and during the pandemic, partly because the thin margins in online have been squeezed by the marked rise in cost of capital. That means we keep benefiting from brands focusing on fewer, bigger, better stores. Major retailers such as Inditex and H&M have announced they're stepping up their investment in the best physical space to improve customer experience alongside their more convenience-led out-of-town or digital channels. The chart in the middle shows that even though several brands are cutting their total number of stores, they have raised the average unit size for their remaining stores by around 20%.

Beyond demand from new occupiers, that also means plenty of our existing customers are seeking additional space or additional stores at our destinations. And since there is essentially no new retail space being delivered to satisfy that rising demand, this is beginning to create competitive tension and drive rental growth. Our ongoing investment in our retail team and in our data and tech platform keeps supporting how strong our operational performance is. We have now reached a clear inflection point in income, because for the first time we are beginning to capture positive uplifts on re-lettings and renewals. That was still modest across the year at plus 1%, but it has strengthened further since, with deals sitting with solicitors now at plus 6% against previous passing rents. We have leased space well ahead of ERV for several years and have kept doing so across the past 12 months, but this demonstrates that rents have now turned the corner in cash-flow terms as well. What is more, occupancy rose by 130 basis points and is now essentially back at pre-pandemic levels. ERVs increased by a relatively modest 1.4%, since value assumptions keep trailing our actual operational performance, though for us the strong growth in cash income is the more relevant measure.

When it comes to investment, we keep putting money into our key locations in ways that will generate earnings accretion down the road. We intend to invest more heavily in major retail destinations — for example, through the extra stake in Cardiff that we acquired a little more than 12 months ago. And after a stretch in which transaction activity was very limited, we're now clearly seeing activity levels begin to improve. Over the coming 3 years, we also intend to put roughly GBP100 million into new initiatives across our key assets. We anticipate that both the new investment and accretive CapEx will produce initial income returns in the high single digits. In London, we launched 2 new schemes during the year, in Victoria and South Bank, and these will bring highly sustainable space with low embodied carbon into these attractive locations. We expect those projects to generate a gross yield on costs above 7% and a yield on the incremental CapEx we are committing of more than 10%. Taken together, these opportunities don't just offer an attractive return on the new money we put in — they frequently also lift the return on our existing assets in those locations, whether by improving operational flexibility, adding amenities, or delivering better services to our current customers.

On top of that, we’ve assembled a sizable pipeline aimed at growing our current key holdings or producing the coming generation of scarce urban places. In London, we hold four sites in South Bank, and those could yield another 900,000 square feet of net-zero office space in one of the liveliest parts of town. Detailed consent is already in place for two of these projects, and the first one could get underway later this year, once de-construction of the existing building has been finished. During the year we also obtained two planning consents for major developments at Liverpool Street in the City and for the next phase of New Street Square. The earliest start for those will be 2025 and 2026, respectively, which mirrors vacant possession timeframes, and both sit in close proximity to Elizabeth line stations. And in mixed-use, we have two major near-term opportunities. The first is Finchley Road, Zone 2 of Central London, where during the year we secured planning consent for our 1,800 Homes master plan as well as a detailed consent for the first 600 of those homes. As planned, we have begun the first site enabling works, which, subject to further proprietary work, could put us in a position to start the first phase of development in mid-2025.

And at Mayfield, beside Piccadilly Station in Manchester, we're collaborating with our partners to refine the development strategy, where we hold an option to begin the first office late this year, which would then open up future residential phases. Taken together, these opportunities form a pipeline of GBP4 billion of highly sustainable space, and our consented schemes currently demonstrate a 40% reduction in embodied carbon. And although everything here can be handled in discrete, manageable phases over an extended period, the pipeline's overall size exceeds what we'd be comfortable taking on against our own balance sheet. So over time, we'll likely seek to supplement our own investment with other complementary sources of capital. And that leads me to how we're approaching capital allocation, risk, and returns. So clearly, the marked rise in the cost of capital has significantly affected the prospective returns on the investment opportunities open to us. Major retail appears to provide the best risk-adjusted returns within our universe, since income returns stay high and there's clear evidence that rents are returning to growth. Beyond our two committed developments, this is therefore likely to be our key focus for near-term investment activity.

Looking ahead, London investment returns appear more appealing today compared with two to three years ago. That shift reflects higher yields along with ongoing rental growth for best-in-class space, and it bodes well for what our portfolio can deliver. Future development returns — whether in London or mixed-use — keep offering a premium over comparable investment assets, and of course they give us the chance to bring modern, high-quality space into a polarized market where demand sits concentrated at the top-end. Development does, however, carry more risk, and while rents keep growing, cost inflation and higher exit yields have eroded margins. We need to make sure developments offer a sufficient risk premium versus the returns on any assets we might choose to sell from here to fund our investment. As a result, we've been working hard to optimize our pipeline of development projects so that they reflect this new reality. Now in some cases, this involves revisiting design or specification. For others, it might involve working out less capital, less carbon-intensive options by retaining more of the existing buildings and income. In all cases, however, we will only commit capital to new developments where we are happy that the prospective returns on offer justify the increased risk.

Vanessa will go into more detail on where we stand with that in a moment. For now, I'll pass things over to her so she can walk you through how we did financially.

Thank you, Mark, and good morning. As the year went on, conditions in the broader market got better, and our operational results have stayed solid. With the strong capital structure we have, that gives us an encouraging outlook. Let me begin with the financial headlines. Consistent with our guidance, EPRA earnings per share held steady against last year's underlying performance, since like-for-like income growth and lower overheads made up for the effect of increased finance costs. Our dividend rose 2.6% to 39.6 pence, once again matching our guidance, and it represents dividend cover of 1.27 times. Further yield softening, especially during the first half of the year, meant that even with continued ERV growth, our NTA value per share fell 8.2%. Return on equity came in at minus 4%, and as values begin to stabilize, the outlook here is now more favorable. On top of that, our balance sheet is still strong, and pro-forma for the hotel portfolio sale, our net debt-to-EBITDA now sits low at 7 times, with our LTV at 32%. Now, looking more closely at EPRA EPS. Like-for-like gross rental income increased by GBP16 million, or 3%, which reflects the strength of our leasing performance and the quality of our portfolio.

Service charge costs rose because of startup expenses on developments we've finished. As a result, net rental income came in GBP11 million higher. Administrative costs fell GBP7 million even with high inflation, and I'll get into that in a little more depth soon. Consequently, our operating profit grew 4%, which helped offset an GBP18 million rise in finance costs stemming from interest expense on completed developments along with higher average borrowing costs. EPRA EPS — our EPRA EPS held steady compared with last year's underlying level, and that matches our guidance. Net rental income on a like-for-like basis climbed 2.8%, supported by positive rental uplifts on re-lettings and renewals, growth in turnover income, and higher occupancy. Central London office income rose 1.4%, partly offset by lower variable income at Piccadilly Lights after last year's outperformance. Even so, this remains a highly valuable asset, with income up 9% over the past two years. Major retail was the strongest performer, with like-for-like income up 6.9%. The overrenting in the portfolio, which had persisted for several years, has now turned to positive reversionary upside. Our subscale and mixed-use assets saw like-for-like income rise 3.1%.

Sales of properties exceeded purchases by a wider margin, and the developments we finished generated revenue for only a portion of the year. Consequently, net rental income rose by GBP11 million. We remain focused on enhancing how efficiently we operate, just as we have over the past two years. Our overhead costs fell 9% last year, which mirrors the gains from our organizational review in the prior year along with procurement savings. We anticipate additional cost efficiencies will counter inflation this year, and as we keep automating and streamlining our operating platform, we expect even more cost savings going forward. Across the last two years, we have achieved GBP21 million in cost efficiencies, which has assisted in countering inflation and lowering costs. Yet you do not automatically observe the advantages of this by simply examining our cost ratio. That is because it also captures the effect of our capital allocation choices, through which we have disposed of mature, low-yielding high-margin assets and invested in assets that are more operational, higher-yielding, and higher-return. After adjusting for this, our EPRA cost ratio would have been nearly 3 percentage points lower. However, our overall income return and our total return on equity would have been low too. So we will keep optimizing our efficiency, but our primary focus stays on boosting our overall returns.

Now moving on to how we value the portfolio. During the first six months of the year, interest rates went up in March, and that kept investment activity around the world subdued. Consequently, the yield on our valuations softened. So even with 3.2% ERV growth driven by robust leasing activity, our portfolio's value fell 6%. As the year went on, the effect of those higher interest rates faded, and 60% of our portfolio valuations held steady in the second half. On top of that, yields were unchanged overall in the final quarter. In Central London, ERV growth landed at the top end of our guidance, at 5%, but that only partly made up for a 46 basis points rise in yields. And the advantage of shifting our portfolio toward the West End in recent years is evident. Our West End offices keep outperforming, with values essentially flat in the second half. Development values dropped 9.9%, which mirrors the risk premium attached to the early stages these projects are in. Still, we're confident these schemes will produce attractive returns once finished. And our major retail portfolio's valuation held steady across the year and rose a little in the second half. Although value has assumed, ERV growth of 1.4% keeps lagging behind our actual operational performance.

For our mixed-use properties, values fell 14%, and the reasons were yield expansion at MediaCity plus shorter income duration on retail holdings we already own in London and Glasgow. Still, with a changed strategy for those schemes, we ought to restore both income and value going forward. When it came to our subscale properties, hotels and retail parks held roughly steady in value. Investor appetite for cinemas has been weak, so leisure assets dropped 8.2% even though operations performed well. Going ahead, with interest rates fairly steady, valuations appear appealing for properties capable of generating income growth, though we believe secondary values probably have more downside ahead. Once more, we anticipate ERVs on our London office — on our London and major retail properties — rising by a low-to-mid-single-digit percentage during this year. Return on equity came in at minus 4%, while NTA per share declined 8.2% once dividends were paid. Our ongoing goal is a return on equity of 8% to 10% per annum over time, made up of a combination of income and capital returns, achieved via ERV growth and developments. That said, because valuation yields move around, we won't land precisely inside that range in any given year, as happened last year.

The chart on the left illustrates how each of those components fed into our return on equity. In green, you can see the return, which comes from income, rental growth, and developments, while the light gray bars and dotted lines show the overlay of yield movement effects. Our return on income, ERV growth, and developments was 9.5% last year, which demonstrates that with yields stabilizing, we're well positioned to deliver an 8% to 10% total return. And the strength of our capital structure continues to underpin this outlook. We've maintained our strong investment-grade credit rating, and our corporate bond spreads are the lowest in the sterling real estate market, which gives us a clear competitive advantage. Our GBP300 million bond issued in March, with a coupon of 4.75% and a spread of 103 basis points, is a great example of that. On a pro-forma basis, net debt-to-EBITDA remains low at 7 times and ICR at 4.4 times, as we've managed the balance sheet effectively through the recent period of rising interest rates. Including our disposal since year-end, pro-forma LTV is low at 32%, and net debt is down GBP1 billion over the past two years.

That leaves us with considerable room to put money to work at what we see as an appealing moment in the cycle. With values beginning to steady, we'd be at ease watching our LTV rise from this level when the right opportunities come along. Even so, we stay — we will stay — inside the 25% to 40% target range. On capital allocation, our position is clear: grow income, total return, and portfolio quality. Since March last year we have disposed of GBP625 million in assets, on average at book value. That takes cumulative disposals since late 2020 to GBP3.1 billion. So while recycling of assets will carry on, the emphasis is now tilting further toward investment. The graphic on the right illustrates how our funding sources and investment opportunities interact. Mark set out our return expectations earlier, so we intend to deploy most of the existing balance sheet capacity after our recent sales in major retail and our committed pipeline. Investment in new developments will, we expect, be financed mainly by recycling capital out of mature and non-core assets, and because the pipeline is large, we plan to add other sources of capital to this over time.

To sum things up, our high-quality portfolio, solid operational execution, and balance sheet capacity leave us well-positioned to generate appealing total returns. Naturally, our earnings guidance ought to be viewed in light of the capital recycling we've done recently. We anticipate like-for-like income growth at a level comparable to last year, though the way that feeds through to EPS growth hinges on both the timing and the quantum of investment activity going forward. Over recent months, we have sold considerably more than we acquired. Consequently, with all else equal, that lowers annualized earnings by roughly 4%. This comes through in our guidance that, prior to reinvesting any of the recent sales proceeds into acquisitions, EPS this year would be expected to land slightly below last year's level of 50.1 pence. And for the year to March 2026, we would expect EPS to come in slightly above last year's level, reflecting a combination of continued like-for-like income growth and reinvestment of the majority of our recent sales proceeds. Since our dividend cover remains at the upper end of our 1.2 times to 1.3 times policy range, we expect dividends to grow by a low single-digit percentage once again this year. With that, I'll hand you back to Mark.

Thanks so much, Vanessa. Let me close by sharing how we see the current environment and what to expect from us over the coming year, and after that we'll open it up for Q&A. Because of what we've done across the last three years, Landsec is in a strong position. Our balance sheet gives us the capacity to invest at what we see as an appealing moment in the cycle, and with a sharper focus on best-in-class places, we're well-placed to drive income growth in a world where demand keeps concentrating on quality. With that in mind, we once again expect ERVs to rise by a low-to mid-single-digit percentage. Six months ago we said investment activity would pick up in 2024 and that values for the best assets would begin to stabilize. That view is unchanged today, since the best assets, which deliver genuine rental growth, now offer an attractive risk premium relative to real interest rates. Operationally we remain strong, with occupancy rising, rental uplifts on re-lettings and renewals rising, and like-for-like income rising. The drivers of performance in real estate have changed fundamentally: whatever the sector, asset quality and the ability to curate it will differentiate far more than was the case through much of the past decade, and that plays to the strengths of our portfolio and to our competitive advantages.

To sum things up, although there are still uncertainties, the broader macro picture has plainly gotten better, and we keep building on the good momentum we have in carrying out our strategy. We anticipate like-for-like income growth will be comparable to last year, and that we will achieve additional operational efficiencies. And since we have disposed of more than GBP600 million of assets following our half-year results, our focus will be on putting these proceeds back to work in accretive growth at what we see as an appealing moment in time. We will keep maximizing the considerable potential within our pipeline, but because its scale will eventually go beyond what our own balance sheet can support, we will keep looking at ways to tap other capital sources so as to leverage our platform value, speed up our overall growth and improve our returns. With yields beginning to steady, our appealing income return together with ongoing rental growth leaves us well-positioned to produce appealing returns on equity going forward. And on that note, we will now open the floor to Q&A.

As we normally do during the Q&A, I'll start by taking questions from those here in the room. After that, we'll move to questions coming in on the conference line, and then we'll wrap up with any questions submitted through the webcast. A roving mic is going to be passed around, so please just wait for it to reach you. There are two questions down in this row, and I believe I spotted one over here after those.

Good morning, Sam King here from BNP Exane. Many thanks for the presentation. I have two questions, if I may. First, I wanted to follow up on what you said about retail rents hitting an inflection point and how that relates to market-wide vacancy, which is still above 10%. Are you talking about your own portfolio there, or is that a broader market observation? And thinking about that alongside capital allocation and your remark that future acquisitions will probably lean toward retail. Second, on the valuation breakdown: there's clearly a pattern of declines slowing, but London mixed-use urban stands out, with values down 10% for the year yet 9% in H2. I realize it's a modest slice of the portfolio, but any extra detail on that would be useful. Thank you.

Absolutely. Thank you. Regarding what was said about retail rental growth, this isn't something affecting the whole market, since there is still, fundamentally, an excess of retail floor space in the UK — but it does extend past our own portfolio to any catchment-dominant prime center. I think we included a graph in the slides showing that for a number of the key listed brands, which get a fair amount of visibility on their portfolio plans, that while there's often a cut in the overall store count, what we're observing is a fairly material rise in the size of the stores those brands want to keep. And much of that is driving — it's because they want to be pushing omnichannel and a sort of blending of channels, rather than viewing things fully separately. So what we observe in our assets — and there will be other catchment-dominant assets outside our portfolio seeing the same thing — is that you're beginning now to witness competitive tension for space, where for a particularly suitably sized unit, you've got multiple retailers either looking to expand into it or come into it, and naturally, the moment that tension appears, you then begin to see rental growth.

So that is what our pipeline shows. Yet it will be very much confined to prime retail centers that are catchment dominant. And then I think your question on valuation specifically, the mixed-use urban assets in London, which, as you mentioned, are comparatively modest relative to the whole, but clearly form a segment of the business we want to be putting capital into over time. The crucial factor that tends to occur, especially with mixed-use in London, so you will notice this notably at L2 Finchley Road and to some degree at our Lewisham Center too. But it is that when we seek to shift those assets toward a development opportunity, in-place income inevitably erodes as block dates approach in order to enable development. Now when we underwrite our investment into those developments, we obviously factor that in, but you do record that in each valuation before that, ultimately, if one achieves or underwrites recovering it through the later development phase. Now we did discuss somewhat in the presentation how we are evolving our approach a little for certain of these mixed-use urban sites, and just to expand on that a bit further, clearly development — development costs, development margins, economics have shifted over the last couple of years.

What we've done across every one of our sites is really examine what the correct answer is here — whether to fully take out or tear down the asset and put something entirely new in its place, which carries a pretty large, significant cost, or whether there are alternatives needing less capital and emitting less carbon, where you keep more of what's already there and then aim to build up gradually around it. And I think that's something you'll notice not only from us but throughout the market as a characteristic going forward. It's logical from a carbon standpoint, it's logical from an economic standpoint, but I think it calls for a different skill set than straightforward development, since you have to reason through how the existing asset will evolve and shift and fit together with the new additions.

Appreciate it.

Good morning. This is Ben Richard (ph) from Bernstein. Looking ahead to your capital management over the coming years, you intend to be a buyer again. You have a substantial development pipeline. So how will that be balanced against disposals, or the means to fund them in aggregate?

Right. So there was a graphic — actually not really a graph, more like an image we put on the slide you just looked at — meant to give a broad picture of how we've been approaching sources and uses of funds. At present, we obviously have capacity on the balance sheet, and we've been upfront that acquiring high-quality income via high-quality retail assets strikes us as the best risk-adjusted opportunity available to us today, though we also hold a very appealing long-term pipeline that lets us bring best-in-class, highly sustainable assets to a market that grows more discerning on those fronts. Funding that will really come from two places. There will be additional disposals down the road, but any such disposals would occur after we commit to new development. So what triggers a commitment to new development is confidence in our capacity to complete disposals at the right moment, rather than selling ahead of time. The scale, strength and flexibility of our balance sheet allow us to do that. And we've mentioned as well that, if we wished to pull that pipeline forward entirely at a faster pace, we would then need to add other capital sources on top of our existing balance sheet.

That isn't something we have to do — it's not essential — since we could bring that pipeline forward more gradually, in incremental phases, on our own. Still, we do see an interesting opportunity: by bringing our partners in to pursue scalable strategies, we could potentially speed up delivery of both mixed-use assets in Central London, in the right way.

One more thing, thanks. Regarding Queen Anne's Mansions, it sits in the lease expiries three years out, and there's a large rent roll reduction there. Could you elaborate on that a bit more, please?

Okay, I'll speak broadly about Queen Anne's Mansions, and Vanessa can perhaps provide a few more details on the figures. Queen Anne's Mansions sits in St. James and is presently occupied by the Ministry of Justice, which will leave the space when that lease ends. So we are working through the options for it right now. Because of where it is and because of what kind of asset it is, I think we'd view it as presenting a wide set of possibilities across various sectors — not necessarily just keeping it purely as office — but that is something we need to work through, and meanwhile the valuation naturally captures some of the lease burn-off within it. But Vanessa, is there anything further to add?

It's probably worth pointing to Page 40, where we've actually included a bit more detail on Queen Anne's. Granted, the print is incredibly small, but it does contain a GBP20 million incremental lease incentive, where we effectively fitted out the asset some time ago in that unwind. So really, this is an unwind of that contribution toward that CapEx cost. So you can see there the year in which that unwinds, and you have a GBP20 million impact, which is '26, '27.

I appreciate that a lot.

Thanks. Let’s get the mic down to this question over here, and we’ll take that one back from you after that, then return to the front row for the following question.

Sam Knott from Kolytics here. Thanks for the presentation. On one of the first slides, you noted that positive reversion now exists across both sectors — the two major ones. I was wondering whether you could put a rough number on the uplift you think is achievable on stabilization, and also on hitting those reversionary potentials, and on bottom-line earnings over the coming few years. How does that stack up against the interest and finance cost you anticipate as you sort of review — refinance debts out to, say, '27 and beyond?

Yeah, I'll probably just kind of restate some of the guidance we gave in that. So, regarding how that recapturing of value begins to flow through to the bottom line, we've guided to like-for-like rental growth for the year ahead being similar to what we've just achieved, the 2.8% for this year. We've also said that we see this as being a long-term trend. So I think you could look at growth going beyond that current year. We've also said within earnings that whilst we would expect to see before you make any assumptions for the quantum and timing of reinvestment, the earnings go back a little bit this year, because of disposals before being back above 2024 levels by 2026. So, all things equal that you should see — that we expect to see continued like-for-like growth and through those efficiencies, we'd expect to be able to offset any increase in interest costs.