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

Well, ladies and gentlemen, good morning, and welcome to the presentation of Landsec's 2024 Full Year Results. So over the last 3 years, we've been focused on 2 clear strategic priorities. Firstly, increasing our investment in best-in-class assets where through our competitive advantages, we can drive long-term growth. And secondly, preserving our balance sheet strength. So including the sale of the hotel portfolio that we announced last week, we've now sold around 40 assets since late 2020, totaling some GBP 3.1 billion. And the vast majority of these were long-term single-let assets, where our ability to add further value was limited. And we've reinvested at accretive returns in a targeted number of our key places, such as Victoria, Piccadilly, Bluewater or Cardiff. And as a result of that, around 80% of our current portfolio is now concentrated in our 12 largest places. And 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 2 years ago before the rise in interest rates and the correction in real estate values that followed. And this now provides us with significant financial capacity to capitalize on the future growth potential in our pipeline and to acquire high-quality assets that will supplement our existing best-in-class portfolio at an attractive point in the cycle. And this strategic focus remains critical, as it has never been more important to own the right real estate. The normalization in cost of capital over the last 2 years means that value drivers across all of the sector have fundamentally changed. Over much of the prior decade, leveraging up the spread between income yields and ultra low borrowing costs or picking high-level sector themes was often enough to drive performance. However, irrespective of sector, there is now a growing distinction between those assets that meet customers' future requirements and can, therefore, deliver income growth, and those that don't. Vacancy across the overall London office market is elevated at 9%. U.K. retail vacancy is above 10%, and even big box logistics vacancy is now 8%. However, the very best assets in each sector are in short supply and therefore, continue to see high occupancy and rental growth, which means it can be very dangerous to look simply at market averages. And the quality of our portfolio is demonstrated in its continued outperformance, as is shown on the charts here. In London, utilization of our offices is up 18% over the past year, significantly ahead of overall growth in commuter activity. And our occupancy has continued to increase, now at 97.3%, even though overall market occupancy has been falling. Similarly, in retail, our occupancy is up to 95.4% and outperforming the wider U.K. retail market. And as footfall growth in our locations is well ahead of the U.K. market, we're seeing more competitive tension as brands focus on fewer, bigger, better stores. We've now seen a clear inflection point in retail rents. And as we're now capturing positive rental uplifts on relettings and renewals across both sectors, we expect like-for-like income to continue to grow. At the same time, the outlook for investment markets is improving. Back in late 2022, we said that we expected property values will continue to adjust for some time, as markets would have to align to a new higher rate reality. And this has indeed proven to be the case. And even though we do not anticipate a sharp reduction in long-term rates, the recent relative stabilization is clearly a positive. Drawn by the historically attractive pricing of good quality income in London and in the best retail destinations, we're starting to see interest emerge from investors who have not been active in these markets for some time. And reflecting this, 60% of our portfolio effectively saw stable values in the second half, and yields overall were flat in the final quarter. Absent any macro shocks, we therefore think that the value of high-quality assets has largely bottomed out and will start to grow in the foreseeable future as rents continue to grow. And having now sold the vast majority of assets that we said we aim to sell back in late 2020, our net debt is GBP 1.1 billion lower than it was before the market correction. And given that we're starting to see more signs of interesting acquisition opportunities becoming available, we've the capacity and intent to be a net investor from here. With an attractive 5.7% income return and continued ERV growth, this means that we're well placed to deliver on our 8% to 10% return on equity target. All of this is underpinned by continued strength in our operational performance. We continue to lease space well ahead of ERV. We're capturing positive reversionary potential on relettings and lease renewals in London and for the first time in a number of years, now also in major retail, where rents have started to grow, supported by strong growth in both sales and footfall. In mixed-use, we secured planning consent for our 1,800 homes development at Finchley Road, where we're now starting the first enabling works ahead of a full start on site next year. And we continue to optimize our plans for the rest of our pipeline. So in terms of financial results, EPRA EPS was stable versus last year, in line with our guidance, as our strong operational performance with 2.8% growth in like-for-like net rental income and efficiency improvements offset a rise in finance costs. Our dividend is up 2.6%, again in line with our guidance. And at minus 4%, our return on equity improved versus the prior year. Even though the impact of rising bond yields put pressure on valuation yields in the first half of the year, in particular, and meant our NTA overall, was down 8.2%. At the same time, we've reduced our energy intensity by 3.7%, which means we remain firmly on track to reduce this by 52% versus our 2019/'20 baseline by 2030. And 49% of our portfolio is now rated EPC A or B, and that's up from 36% a year ago. And that will increase further from 2025 onwards as the benefits from our net 0 investment plan begin to come through. So on to our operational review. Now although the principal use of the places we create and curate differs across our business, the success of each of them comes back to our 3 key competitive advantages: the high quality of our portfolio, the strength of our customer relationships and our ability to unlock complex opportunities. These are valuable and scarce attributes, which are essential in sustainable value creation. For example, in working with 2 of our key customers at New Street Square to decarbonize their office whilst upsizing their space and extending their leases by over 15 years. Or in the completion of 3 highly complex developments over live tube stations this year, which combined, delivered around GBP 240 million of profit. It is these competitive advantages which underpin our ability to continue to drive growth across each of those key places, be they office-led, retail-led or mixed in use. In terms of Central London, the market continues to polarize, with customers firmly focused on the space, which has the right transport connectivity, the right sustainability credentials and the right amenities. For many employers, space which is lacking these characteristics is now simply no longer an option, almost irrespective of price. We continue to tailor our capital allocation accordingly. For example, with the pipeline that we've created in South Bank, which sits within a few minute's walk of 2 of London's busiest train stations in an area rich in cultural attractions and which is the second highest density of bars and restaurants in London after Soho. And our continued presence in Victoria, again, right next to one of London's busiest rail terminals. So even though London office take-up across the market was just over 10% below its long-term average last year, the outlook for demand remains encouraging. And space under offer was close to an all-time high at the end of March. Overall vacancy is elevated at 8.8%, but as the chart on the right shows, this is still mostly a building issue rather than a market issue, as almost 40% of all vacant space sits in just 1% of office buildings. And as a supplier, the very best space remains low. This means that rents for this space continue to grow, as we're seeing across our portfolio. Against this backdrop, we continue to reshape our portfolio. We've sold over GBP 2 billion of mature stand-alone office assets since late 2020 and reinvested into profitable developments, such that our 5 largest multi-let places now make up 88% of our Central London portfolio, all exhibiting high occupancy and strong ERV growth. And we've room to build further on this through future development. The scale and the scarcity of each of these places allows us to continue to curate them and drive further growth. For example, with new leisure concepts in Victoria, a new iconic rooftop restaurant in Piccadilly lights, or interactive digital media space below the Lights. So what are we seeing from our customers? While the utilization of our offices continues to grow, especially midweek, as you can see in the daily turnstile tap-in data on the left here, up 18% for the year. At the same time, our customers are planning for significantly more space per employee than they did pre-pandemic, as they're designing for more collaboration, meeting or well-being space, which continues to translate into sustained demand. Over the past 12 months, we've only had 4 customers leave, and we quickly relet 3 of those spaces. And across the 36 new lettings or renewals that we signed, 17 were for customers upsizing, 12 kept the same space that they occupied previously. Only 7 customers reduced their overall office footprint, mostly by reducing space elsewhere, as only 1 customer reduced their floor space with us. With our portfolio virtually full, this strength in demand continues to drive rental growth. And so our leasing performance remains strong. We signed or in solicitor's hands on GBP 35 million of lettings on average 6% ahead of ERV, with relettings and renewals on average, 15% above previous rents. Our occupancy increased further to 97.3%, significantly ahead of the wider market, and less than 1% of our space is available for subletting. On our 2 retained developments, we delivered around 20% profit on cost despite the softening of yields, and both were effectively full within 4 months of completion at rents materially ahead of initial ERVs. And we've recently opened 3 new Myo locations, adding to the 2 existing ones, where we saw average occupancy grow from 86% to 93% during the year. All in all, our successful leasing drove 5% ERV growth, which is at the top end of our guidance for the year. I'm moving now to retail. There continues to be a similar trend of growing demand for the very best destinations, and we continue to shape our portfolio to ensure it is in position for this. We sold our 2 smallest retail outlets during the year, and prior to that, increased our investment in Bluewater and St. David's, such that our 5 largest assets now make up 75% of our retail portfolio. We've continued to invest in our assets over the last couple of years, but we'll be adding to this more meaningfully with a number of new initiatives. These will see us repurpose existing space to create a new F&B destination in the center of Leeds, new public open space, leisure offers in Cardiff and enhance the visitor experience at Gunwharf Quays. These initiatives will drive further footfall and sales and support the growing demand for space in those locations. What underpins this demand is that for many key brands, the stores they have with us are outperforming their overall sales growth, as we show here on the left. Whilst at the same time, overall online sales are no longer seeing the growth that was present before and during the pandemic, partly as the thin margins in online have been challenged by the marked rise in cost of capital. And this means we continue to benefit from brands' focus on fewer, bigger, better stores, as major retailers such as Inditex and H&M announced they're increasing 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 reducing their total number of stores, they've increased the average unit size for their remaining stores by around 20%. Aside from demand from new occupiers, this means that many existing customers want more space or more stores in our destinations. And as there is effectively 0 new supply of retail space to meet this growing demand, this is starting to drive competitive tension and rental growth. Our continued investments in our retail team and our data and tech platform continues to support the strength in our operational performance. We've now seen a clear inflection point in income, as for the first time, we're starting to capture positive uplifts on relettings and renewals. Now this was still modest during the year at plus 1%, but has improved further since then with deals in solicitors' hands now plus 6% to previous passing rents. We've been leasing space well ahead of ERV for a number of years now and have continued to do so over the past 12 months. But this shows that rents have now also turned the corner in cash flow terms. And moreover, occupancy increased by 130 basis points and is now effectively back to pre-pandemic levels. ERVs were up a relatively modest 1.4% as value as assumptions continue to trail our actual operational performance, yet to us, the strong growth in cash income is the more relevant measure. So in terms of investment, we continue to invest in our key places in ways that will drive future earnings accretion. We plan to invest more in major retail destinations, such as with the additional stake in Cardiff that we bought just over a year ago. And following a period of very limited transaction activity, we're now seeing clear signs of activity levels starting to pick up. We also plan to invest around GBP 100 million into new initiatives across our key assets over the next 3 years. We expect both new investment and accretive CapEx to deliver high single-digit initial income returns. In London, we started 2 new schemes during the year in Victoria and South Bank, which will deliver highly sustainable space with low embodied carbon into these attractive locations. And we expect these projects to deliver a gross yield on cost in excess of 7% and a yield on the incremental CapEx we're investing of over 10%. Overall, these opportunities not only provide an attractive return on the new money that we invest, but they often also enhance the return of our existing assets in those locations, either through improved operational flexibility, increased amenities or better services for our existing customers. Beyond this, we've built a substantial pipeline to expand our existing key holdings or to create the next generation of scarce urban places. In London, we've 4 sites in South Bank, which could deliver a further 900,000 square feet of net 0 office space in one of the most vibrant parts of town. Two of these projects already have detailed consent, and the first could be started later this year once the construction of the existing building has completed. We also secured 2 planning consents during the year for major developments at Liverpool Street in the city and the next phase of New Street Square. The earliest start for these will be 2025 and 2026, respectively. That reflects vacant possession time frames, and both are located in close proximity to Elizabeth line stations. And in mixed use, we've 2 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 and a detailed consent for the first 600 of those homes. As planned, we've started 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, next to Piccadilly Station in Manchester, we're working with our partners to optimize the development strategy, where we've the option to start the first office late this year, which then unlocks future residential phases. These opportunities add up to a pipeline of GBP 4 billion of highly sustainable space, with our consented schemes currently showing a 40% reduction in embodied carbon. Now even though all of this can be managed in discrete, manageable phases across an extended period, the overall size of this pipeline is more than we'd be comfortable undertaking on our own balance sheet. So we're likely to look to supplement our own investment with other complementary sources of capital over time. And that brings me to how we're thinking about capital allocation, risk and returns. So clearly, the marked increase in cost of capital has had a significant impact on the prospective returns of the investment opportunities available to us. Major retail looks to offer the best risk-adjusted returns in our universe as income returns remain high, and there is clear evidence of rent returning to growth. This is, therefore, likely to be our key focus in terms of near-term investment activity beyond our 2 committed developments. Returns from London investment from here also look more attractive than they did 2 to 3 years ago, given the increase in yields and continued rental growth for best-in-class space, which bodes well for the return prospects of our portfolio. Returns from future development, be that in London or mixed-use, continue to offer a premium at comparable investment assets and of course, offer the opportunity to deliver modern high-quality space into a polarized market where demand is concentrated at the top end. Development does, however, entail more risk. And whilst rents continue to grow, margins have been eroded by cost inflation and higher exit yields. We need to ensure that developments offer a sufficient risk premium versus the returns on any assets we might choose to sell from here to fund our investment. And as a result, we've been working hard to optimize our pipeline of development projects to ensure that they reflect this new reality. Now in some cases, this involves revisiting design or specification. For others, it might involve working up less capital, less carbon-intensive options by retaining more of the existing buildings and income. In all cases, however, we'll only commit capital to new developments where we're happy that the prospective returns on offer justify the increased risk. Now Vanessa will share more on our thinking here later, and I'll now hand over to her to talk you through our financial results.

Thank you, Mark, and good morning. The wider market conditions improved as the year progressed, and our operational performance has remained strong. So given our strong capital structure, this provides us with a positive outlook. So let's start with our financial headlines. In line with our guidance, EPRA earnings per share was stable versus last year's underlying performance. There's growth in like-for-like income, and a reduction in overheads offset the impact of higher finance costs. Our dividend is up, 2.6% to 39.6p, again, in line with our guidance, and it reflects a dividend cover of 1.27x. Further yield softening due in the first half of the year, in particular, meant that despite continued ERV growth, our NTA value per share was down 8.2%. Our return on equity was minus 4%. And with value starting to stabilize, the outlook for this is now more positive. And moreover, our balance sheet remains strong and pro forma for the hotel portfolio sale. Our net debt-to-EBITDA is now low at 7x, and our LTV is 32%. So turning to EPRA EPS in more detail. Like-for-like gross rental income was up GBP 16 million or 3%, reflecting our strong leasing performance and the quality of our portfolio. Service charge expense increased due to the start-up costs of our completed developments. So net rental income was up, GBP 11 million. Admin expenses were down, GBP 7 million despite high inflation, which I'll cover in a bit more detail shortly. As a result, we had a 4% increase in our operating profit, which offset an GBP 18 million increase in finance costs due to the interest expense on our completed developments and an increase in our average borrowing costs. EPRA EPS -- our EPRA EPS was stable versus last year's underlying level, and that's in line with our guidance. Our net rental income was up, 2.8% on a like-for-like basis, and this was supported by positive rental uplifts on relettings and renewals, growth in turnover income and higher occupancy. Central London office income was up, 1.4%, which was partially offset by lower variable income at Piccadilly Lights, following last year's outperformance. Yet this remains a highly valuable asset, with income up 9% over the past 2 years. Major retail was the strongest performer with a like-for-like income up, 6.9% as the overrenting in the portfolio, which have 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%. Disposals more than outweighed acquisitions, whilst our completed developments only contributed income for part of the year. So as a result, net rental income was up, GBP 11 million. And we continue to focus on improving our operating efficiency, as we've done over the last 2 years. Our overhead costs were down, 9% last year. That's reflecting the benefits of our organizational review during the prior year and procurement savings. We expect further cost efficiencies to offset inflation this year. And as we continue to automate and streamline our operating platform, we expect further cost savings beyond that. Over the last 2 years, we've delivered GBP 21 million of cost efficiencies, which has helped to offset inflation and reduce costs. But you do not necessarily see the benefits of this when you just look at our EPRA cost ratio, as this also reflects the impact of our capital allocation decisions, where we've sold mature low-yielding, yet high-margin assets, and we've invested in more operational, high-yielding and higher return assets. Adjusting for this, our EPRA cost ratio would have been almost 3 percentage points lower. But our overall income return and our total return on equity would have been lower as well. So we'll continue to optimize our efficiency, but our main focus remains on driving our overall returns. And turning to our portfolio valuation. The March rise in interest rates during the first half of the year meant that global investment activity has remained subdued. As a result, our valuation yield softened. So despite 3.2% ERV growth from a strong leasing activity, the value of our portfolio was down, 6%. The impact of the higher interest rates receded as the year progressed. 60% of our portfolio valuations were stable in the second half. And overall, yields were flat in the final quarter. In Central London, ERV growth came out at the top end of our guidance at 5%, but this only partially offset a 46 basis points increase in yields. And the benefit of repositioning our portfolio towards the West End over the last few years is clear, as our West End offices continue to outperform, with values virtually stable in the second half. Development values were down, 9.9%, which reflects the risk premium for the early stages that these projects are at, yet we remain confident that these schemes will deliver attractive returns once complete. And the valuation of our major retail portfolio was stable over the year and up slightly in the second half. Even though value is assumed ERV growth of 1.4%, continues to trail our actual operational performance. Our mixed-use assets were down, 14%, which was driven by yield expansion at MediaCity and a shortening of income on existing retail assets in London and Glasgow. But a revised approach to these schemes should see us rebuild income and value in the future. Across our subscale assets, the value of our hotels, retail parks -- and retail parks was broadly stable. The subdued investor sentiment towards cinemas meant that our leisure assets were down, 8.2% despite positive operational performance. Looking forward, the relative stability in interest rates means that values look attractive for assets, which can deliver income growth, although we think secondary values will likely have further to fall. Again, we expect ERVs for our London office -- for our London and our major retail assets to grow by a low to mid-single-digit percentage this year. Our return on equity was minus 4%, whilst our NTA per share was down 8.2% after dividends paid. We continue to target a return on equity of 8% to 10% per annum over time, and that's comprising of a mix of income and capital returns, delivered ERV growth and developments. Although fluctuations in valuation yields means that we won't be exactly in that range each individual year as we've seen last year. And the chart on the left shows how each of these components contributed to our return on equity. So in green, you see the return, which is driven by income, rental growth and developments, and the light gray bars and the dotted lines overlay the effect of yield movements. Last year, our return on income, ERV growth and developments was 9.5%, which shows that as yields stabilize, we're in a strong position to deliver on an 8% to 10% total return. And this outlook remains underpinned by the strength of our capital structure. We maintain our strong investment-grade credit rating and our corporate bond spreads are the lowest in the sterling real estate market, giving us a clear competitive advantage. Our GBP 300 million bond issued in March with a coupon of 4.75% and a spread of 103 basis points is a great example of this. On a pro forma basis, our net debt-to-EBITDA remains low at 7x and ICR at 4.4x, as we've managed our balance sheet effectively through the recent period of rising interest rates. Including our disposals since the year-end, our pro forma LTV is low at 32%, and our net debt is down GBP 1 billion over the past 2 years. This gives us significant headroom to invest at what we believe is an attractive point in the cycle. As values are starting to stabilize, we'd be comfortable to see our LTV increase from here for the right opportunities, although we remain within -- we'll remain within our 25% to 40% target range. In terms of our capital allocation, we maintain a clear view on growing our income, total return and portfolio quality. We've sold GBP 625 million of assets since March last year, on average, in line with book value. This brings our total disposals since late 2020 to GBP 3.1 billion. So whilst we'll continue to recycle assets, our focus is now shifting more towards investment. The illustration on the right shows the interplay of our sources of funding and opportunities to invest. Mark outlined our return expectations earlier. So we plan to invest most of the existing balance sheet capacity following our recent sales in major retail and our committed pipeline. We expect to fund investment into new developments, principally through recycling out of mature and noncore assets. And given the size of the pipeline, we intend to supplement this with other sources of capital over time. So in summary, our high-quality portfolio, our strong operational performance and balance sheet capacity means we're well placed to deliver attractive total returns. Our earnings guidance, of course, should be seen in the light of our recent capital recycling. We expect to see like-for-like income growth at a similar level to last year. But how this translates into EPS growth depends on the timing and the quantum of investment activity from here. We've sold significantly more than we acquired over recent months. So with all as equal, this reduces our annualized earnings by around 4%. This is reflected in our guidance that before reinvesting any of the recent sales proceeds into acquisitions, we'd expect EPS this year to be slightly below last year's level of 50.1p. And for the year to March 2026, we'd expect EPS to be slightly above last year's level, reflecting a combination of continued like-for-like income growth and the reinvestment of the majority of our recent sales proceeds. As our dividend cover remains at the upper end of our 1.2 to 1.3x policy range, we expect dividends to grow by a low single-digit percentage again this year. And with that, I'll hand you back to Mark.

Thank you very much, Vanessa. So I'll now wrap up with our view on the current environment and what you can expect to see from us in the year ahead, and we'll then move to Q&A. So our actions over the past 3 years mean that Landsec is well positioned. Our balance sheet provides capacity to invest in what we believe to be an attractive point in the cycle. And our increased focus on best-in-class places means we're well placed to drive income growth in a world, where demand is increasingly concentrated on quality. Reflecting this, we again expect ERVs to grow by a low to mid-single-digit percentage. We said 6 months ago that we expected investment activity to pick up in 2024 and for values for the best assets to start to stabilize. And this remains our view today as the best assets, which offer genuine rental growth, now offer an attractive risk premium versus real interest rates. Our operational performance remains strong with growing occupancy, growing rental uplifts on relettings and renewals and growing like-for-like income. Performance drivers in real estate have fundamentally changed, as irrespective of sector, asset quality, the ability to curate this will be much more of a differentiating factor than it has been over much of the past decade, something which plays to the strengths of our portfolio and to our competitive advantages. So to summarize, whilst uncertainties remain, the overall macro outlook has clearly improved, and we continue to build on the positive momentum in executing our strategy. We expect like-for-like income growth to be similar to last year and to deliver further operational efficiencies. And having sold over GBP 600 million of assets since our half year results, we'll focus on reinvesting these proceeds into accretive growth and what we believe is an attractive point in time. We'll continue to optimize a significant potential in our pipeline. Yet as the size of this will over time exceed our own balance sheet capacity, we'll continue to explore opportunities to access other sources of capital to leverage our platform value, accelerate our overall growth and to enhance our returns. As yields are starting to stabilize, our attractive income return and continued rental growth means we're well placed to deliver attractive returns on equity in the future. And with that, we'll now open the floor to Q&A. So as is usual with the Q&A, I'm going to take questions from the room first. We'll then go to any questions from the conference line, and then we'll finish up with any questions that are posted via the webcast. So a roving mic will be making its way to you, so just wait for that. There's 2 questions down in this row here, and I think I saw a question over here after that.

It's Sam King from BNP Exane. Two questions, please. The first is just picking up on your comment on retail rents reaching an inflection point and how that ties to a market-wide vacancy that's still running above 10%. Is that referring to your existing portfolio or more of a market-wide comment? I'm just thinking about this in the context of capital allocation and your comments that future acquisitions are likely to be retail focused. And then the second one is just on the valuation breakdown. Clearly, there's a trend of valuation declines decelerating, but one of the segments that sticks out is London mixed-use urban, where values are down 10% over the year, but 9% in H2. I appreciate it's a small part of the portfolio, but any additional color on that would be helpful.

Sure. Thank you. So with respect to the comments on retail rental growth. It's not a market wide issues because, of course, there's fundamentally still too much retail floor space within the U.K. But it does go beyond our portfolio to any catchment dominant prime center. We included the graph, I think within the slides there that just show a number of the key listed brands who give quite a lot of color on their plans for their portfolios that whilst often, there's a reduction in total number of stores, what we're seeing is quite a material increase in the size of the stores they want to retain. And a lost of that is driving -- is because they want to be driving omnichannel, add sort of a blending of channels rather than looking at things entirely separately. So what we see in our assets, and there will be other catchment dominant assets beyond our portfolio that see the same thing is you're starting now to see competitive tension for space where for a particularly suitably sized unit, you've got multiple retailers either looking to expand into that space or come into that space. And of course, as soon as you start to see that tension, you do then start to see rental growth. And so that's what's reflected within our pipeline. But it is very much going to be limited to catchment dominant prime retail centers. I think then your question about sort of valuation in particular, the mixed-use urban in London, which as you say, is relatively small in terms of overall, but is clearly a part of the business that we want to be investing in over time. The key thing that tends to go on, particularly mixed-use in London. So you'll see that, in particular, the O2 Finchley Road to some extent, our Lewisham Center as well. But is that -- as we look to move those assets towards a development opportunity, there's inevitably an erosion of the in place income towards block dates to facilitate development. Now when we underwrite our investment into those developments, we, of course, take that into account, but you do book that on each valuation before then ultimately, if one achieves our underwrite, recovering that through the subsequent development phase. Now we did talk a little bit within the presentation to evolving our approach slightly to some of these mixed-use urban sites and just to flesh that out slightly further. Clearly, development cost, development margins, economics have moved on over the last couple of years. So what we've done on all of our sites is look at -- actually is the right solution here to completely remove and demolish the asset and replace it with something new, which gives you quite a big significant in cost. Or actually, are there less capital-intensive, less carbon-intensive options where you can retain more of the existing asset and then look to develop incrementally around that. And I think that's something you'll see not just with us but across the market as being a feature going forward. It makes sense from a carbon point of view, it makes sense from an economic point of view, but I think it needs a different skill set to simply development because you've to think through how the existing asset is going to evolve and change and integrate with the new additions.

Ben Richford from Bernstein. Just in terms of your capital management in future years, you've got intention to become a buyer again. You've got a big development pipeline. And just how is that going to be balanced against disposals or the means to fund them in aggregate?

Yes. So we had a graph that we -- or graph probably more of an image that was included within the slide that it just sought to show broadly speaking, how we were thinking about sort of source and application of funds. So we've clearly balance sheet capacity at the moment. And we've been clear that we see buying high-quality income through high-quality retail assets as being the best risk adjusted adoption for us right now. But we do have a very attractive long-term pipeline that gives us the opportunity to deliver best-in-class, highly sustainable assets into a market that's increasingly discerning around those things. So funding that really is going to be a combination of 2 things. It will be further disposals in the future, but those will be disposals that would happen post the point of committing to new development. So the trigger for committing to new development is confidence in our ability to achieve disposals at an appropriate point of time rather than selling in advance. We've the size and strength and flexibility of balance sheet to do that. And we've also talked about if we wanted to fully bring forward that pipeline more rapidly, then we'd need to supplement our existing balance sheet with other sources of capital. That's not something that's critical that we need to do because we could deliver that pipeline more slowly in incremental phases ourselves, but we do think there is an interesting opportunity to potentially accelerate the delivery of both mixed-use and Central London assets in the right way by bringing our partners in to pursue scalable strategies.

And just one other question. Queen Anne's Mansions, it's in the -- lease expires in 3 years out, is a big rent roll down. So could you just explain that further, please?

Yes. So I'll talk in general terms on Queen Anne's, and then Vanessa perhaps can just give you more specifics on the numbers. So Queen Anne's Mansions is in St. James, currently occupied by the Ministry of Justice. And they'll be vacating that space at the end of that lease. So we're currently working through options for that. Given its proximity, given the nature of that asset, I think we'd see that as offerings a whole range of opportunities across different sectors, not necessarily purely retention as office, but that's something we need to work through. But in the meantime, the valuation, of course, reflects a bit of a burn off of the lease within that. But Vanessa, is there anything more to add?

Yes. So probably just worth referencing Page 40, actually, where we put a bit more detailing on Queen Anne's. It's admittedly an incredibly small print. But there is -- it does include a GBP 20 million incremental lease incentive, where we effectively some time ago, fitted out the asset in that unwind. So it's really an unwind of that contribution to that CapEx cost. But you can see the year in which that unwinds, where we've a GBP 20 million impact, which is '26, '27.

Great. If we could -- have we got another mic coming down for a question over here, and we'll grab that one back from you there. And then we'll come back to the front row for next question.

Sam Knott from Kolytics. On one of the early slides, you mentioned that you've got positive reversion across both sectors now, on both major sectors. I was wondering if you could give us sort of number on roughly the uplift you think you can get on stabilization also on reaching those reversionary potentials? And looking at sort of bottom line earnings over the next few years, how does that compare to maybe the interest and finance costs you're expecting as you sort of review -- refinance debt out to say, '27 and beyond?

Yes. So I probably sort of reiterate some of the guidance that we provided within there. So in terms of how that capturing reversion value starts to flow through to the bottom line. We've guided to like-for-like rental growth for the year ahead to be 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 the growth going beyond that current year. We've also said within earnings that whilst you -- we'd 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 I think sort of all things equal with that, you should see that we expect to see continued like-for-like growth. And through that efficiencies, we'd expect to be able to offset the -- any increase in interest costs.

Okay. So even looking at sort of the '27 and '29 bonds, you'd expect increase in net rents to offset that and have growth from '26? Obviously, high level, you're not giving direct guidance, but...

Yes, we don't provide sort of guidance out. I think providing guidance for '25 and '26 is pretty unusual, but we're not going to go further than that. Sorry, there's a question at the front here, just a mic on its way.

Adam Shapton from Green Street. Just one, I guess, a little bit of a follow-up on the previous question. You said before assumptions about redeployment of disposal proceeds in '25. Can you give a bit more color on what we could expect? Are there acquisitions under discussion? Might there be acquisitions of nonincome-producing assets, as I think they were last year? Any -- a bit more guidance you can provide there?

So I certainly can provide a little more color. I'm not sure that necessarily is going to translate to any more guidance, but happy to provide you a little more color. So as we said, we see the biggest opportunity to be acquiring high-quality income, major retail and what we think look at very attractive returns because of having passed that inflection point on rent. So clearly, in making that comment, we've got a formal judgment on our ability to execute in the market, and we're definitely seeing signs of things starting to improve a lot of broken capital structures that have stood in the way of assets that might otherwise have traded in recent years, I think now starting to be addressed. So our focus would most sort of certainly be on that. With respect to sort of when those things land, if I just sort of flip it for a second to the 3 major disposals we've made in the last couple of years, 21 Moorfields, Deloitte and most recently, the hotels, all of those deals took more than 12 months. And all of those deals look different at the end than they did at the start. And so whilst the investment markets are working like that, it's quite difficult for us to provide our guide. Everything just takes longer. Everyone is just a little more slow -- moving more slowly, a little bit more cautious on that. So we've got to reflect that, which is why we've deliberately provided guidance sort of pre-reinvestment so that when we then provide news going forward of that investment, people have got a base position from which to assess the impact.

Okay. And one more if I may. On the introduction of -- or potential introduction of private capital. You sort of made the qualitative comment that the pipeline is larger than you'd be comfortable taking on to balance sheet. Can you -- are you able to quantify that a little more, how do you think about reaching that conclusion? Is it a ratio of developments to operational real estate? Is it a matter of basic balance sheet metrics? Because there's obviously another way you could expand your balance sheet capacity, and that's by issuing equity in a sort of more conventional REIT route rather than introducing private capital. So what -- how do you reach the conclusion that's more than you're comfortable with?

Yes. I'll ask Vanessa just to sort of share how we think about sort of our balance sheet guidance and then perhaps we'll talk more generally about how we're thinking about capital in that context.

Yes. So in terms of when we're looking at our balance sheet from sort of capital operating guidelines, I think I've kind of reiterated a couple of times before that we're focused very much on our 3 core leverage metrics, being LTV, which post the hotel transaction is at 32%. And our target is 25% to 40% to operate within that range. We've got the -- net debt-to-EBITDA is also an important measure because we're looking at the earnings profile. We aim to keep that low below 8x, and we're at 7x, and we've been in that position for a little while. And also interest cover as well, we always aim to be ahead of 3x cover and again, we're around 4.4x, post the hotel. So they're the kind of measures that we use rather than just fixating on one particular area. But again, we'd be looking at that at the moment in its current position, giving us an opportunity which provides around GBP 1 billion of capital that we could reinvest. Of that, we kind of -- we need to allocate some of course, to our committed developments, which are committed CapEx remaining on those schemes, about GBP 400 million. And the rest of that, we'd expect the majority to largely be invested into acquisitions. So some accretive acquisitions.