Earnings Call: H2 2020

May 27, 2020

Good morning, everyone, and welcome to the British Land Full Year Results Call. My name is Seb, and I'll be the operator on your call today. I will now hand the call over to David Walker to begin. Please go ahead, David. Thanks. Good morning, everyone. Thanks for dialing in today. I'm David Walker, Head of Investor Relations at British Land, and I'm on the line today with Chris Grigg, Chief Executive Simon Carter, our CFO and we also have Darren Richards, our Head of Real Estate, on the line. Before I hand you over to Chris, could I just remind those of you joining us by phone that the slides are available to download now at britishland.com? You are able to register questions on the conference call at any time from now during the presentation. For those of you listening through the website, slides will appear automatically and you can submit written questions via the website, which I will read out following our prepared remarks. With that, I will hand you over to Chris. Thank you, David. Good morning, everyone. First, I hope you are all well. We really appreciate you taking the time to dial in in what a highly unusual circumstance. We have planned to be with you in person for today's results. Obviously, that is not possible, but it is certainly our plan for the half year and as usual, we will be speaking with as many of you as we can in the coming days. Before I start, I would like to take a moment to thank our team. COVID-nineteen has presented unprecedented challenges, not just for our business, but for our people. They have had to adapt to new and often challenging working conditions, whether at home, on our campuses or at our retail centres. One of our core values is being smarter together, and when I look across the business, that has been very much in evidence in recent months, and I would like to thank everyone for that. Today, Simon and I will update you on our full year 2020 performance. And while it is still early days, we will also set out some of the ways in which we have been affected by COVID-nineteen, how we are responding and our initial thoughts on what this could mean for us long term. Simon will also set out our ambitious new sustainability targets. They build on the progress we have made over the last ten years and will be critical to the long term performance of our business. We will finish with questions when Darren Richards, who as you know is responsible for the whole real estate portfolio, will be joining. He has got some great insights into what we are seeing on the ground right across the business. Starting with the results, as you know, all of our operations are in The UK, so for the first eleven months of the financial year, we were unaffected by the outbreak. In offices, we leased nearly 950,000 square feet over the year, on average 9% ahead of the RV, to a diverse, high quality range of businesses, including SMBC and BMO. This demonstrates the real strength of our campus proposition. Our developments are nearly 90 pre let, but they are effectively de risked, with £54,000,000 of future rents locked in. They were up nearly 8% in value, contributing to an uplift of 2.3% across our London office portfolio. Strikingly, this included a 5% increase at Broadgate, demonstrating that the transformation we have delivered there is really paying off. As you know, the retail market was very tough, even pre COVID. So, throughout the year, we were pragmatic in our approach to leasing. We leased 1,400,000 square feet of space, that is not far off the previous year, but deals over a year were on average 4% below previous passing rent, because we accepted lower rents to keep the portfolio full and supporting footfall and sales. As a result, occupancy remains high at 96%. Inevitably, valuations have been affected. Ongoing structural challenges were exacerbated at year end by the early effects of COVID-nineteen. So retail was down 26% over the year and our portfolio was down 10% overall. The 6% decline in EPS reflected the impact of £1,000,000,000 net sales of income producing assets as well as the tougher retail market. Turning to COVID-nineteen, how we have been affected so far and our response, clearly the current situation There is very little certainty over how deep or how prolonged the impact will be on economic activity and how people's lives will be affected, near and medium term. But there are certainly lessons to be learnt from past crises, which I and the team have worked through. We realize that fundamental long term changes will emerge and we do expect, based on past experience, that this crisis will accelerate a number of key trends, like the more flexible ways we are all working and the further shift to online retail. Our strategy has been informed by that. It means that the progress we have already made on our campuses to modernise our building, to be more customer focused in our offer, provide additional flexibility through story, position us well for the changes which will inevitably come out of this. Our customers are telling us they need space which is cleaner, healthier and well managed. So at our campuses in particular, our ability to control the environment with the support of our property management team is a real differentiator for us. This strategy has underpinned our leasing space. Here we accounted for 7.5% of Central London leasing with just 2.5% of the stock. Looking forward, we think our approach will continue to deliver. But clearly, retail is more challenging. Here again, we would expect existing trends to accelerate. At the same time, when the full impact of COVID-nineteen becomes apparent and we get a fuller picture of what that means for our business and the sector more generally, it may be that we adapt elements of our strategy or evolve our approach. As we move through this, we really benefit from the work we have done over several years to really strengthen our balance sheet. Our debt remains low with leverage at 34% and we have £1,300,000,000 of undrawn facilities in cash. March, we were pleased to agree a new ESG linked revolving credit facility that we have no need to refinance until 2024. And as you know, we announced a temporary suspension to the dividend. That is despite our financial strength and profits of some 300,000,000 It wasn't a decision the Board took lightly, because we recognized the importance of the dividend to so many of our shareholders, but with so little clarity on the outlook, we felt it prudent to retain the cash within business. So we will look to resume dividends at an appropriate level as soon as we can and Simon will tell you more. Importantly, this decision gave us extra flexibility to support our customers who have been hard hit. Simon will also set out the details of our rent collection and some scenario analysis we have done. The key takeaway is that we have a lot of headroom. We could withstand a further fall in asset values of 45% without taking any mitigating actions to satisfy our debt covenants, though of course we continue to actively manage our liabilities. Our financial strength stands us in very good stead and frankly, that is very different to 02/2009. Turning to the impact we have seen across our portfolio. In retail, all but two of our assets are open, providing access to essential stores such as supermarkets and pharmacies. Overall, that is about 15% of our units. Our campuses are open. Every office building is accessible, but virtually all of the F and B, retail and leisure units remain closed. As you would expect, physical occupancy is very low, though there are a few exceptions. With restrictions starting to ease, we are now in active discussions with customers about returning to work. We initially suspended work at our developments to ensure the safety of the people working there, but we have been working closely with our construction partners and today all our major sites are open, albeit with a smaller workforce, in line with social distancing guidelines. One hundred thirty five Bishopsgate has completed and is being fitted out. Expect 100 Liverpool Street to complete in the autumn and 1 Triton to complete in spring twenty twenty one. Throughout this period, our focus has been on our customers. We have a broad range of occupiers and we recognise their ability to weather this storm will vary, so we have tailored our response accordingly. In March, we released smaller retail food and beverage and leisure customers from their rental obligations for three months. And we allowed others, experiencing financial challenges due to COVID-nineteen, to defer March day rents and spread repayment over six quarters. Simon will give you the detail. In offices, we benefit from a high quality, diverse range of occupiers, so rent collection for the March was 97%. At Storey, we offered all occupiers who needed it three month rent deferrals. Of course, physically getting back to work is now what is on everyone's mind. I will come back to how we are doing that, but central to our response, now in the months ahead, is the British Land Property Management. As I have touched upon, as we transition to a new normal, our ability to manage the whole environment will become more and more important in the months ahead and that is a key competitive advantage. On that note, I will now pass it over to Simon for an update on our financial performance. Simon you, Chris. Good morning everyone. As usual, I will take you through the results for the year to March, but I'll also outline our financial resilience, recent rent collection experience and our assessment of the initial impact of COVID-nineteen on our customer base, wrapping up with the important 2,030 sustainability targets we announced today. Let me start with the results. EPS reduced by 6%, primarily due to sales we have made over the last two years and increased provisioning in light of COVID-nineteen. EPRA NAV is down 14% to 7.74p. That's due to a decrease in our portfolio valuation of 10% as a result of a 26% decline in retail. Offices were up 2.3%. Our financial position remains strong. LTV is 34%. We have access to 1,300,000,000 pounds of undrawn facilities and cash, significant covenant headroom and no requirement to refinance until 2024. Our committed and recently completed developments are now 88% pre let, reducing risk and locking in £54,000,000 future rental income. Costs to come on these developments are less than £80,000,000 a good place to be in the current environment. Looking at the movement in EPS, this is primarily due to net sales of £1,000,000,000 of income producing assets over the last two years, which reduced EPS by 2.5p. We deployed sale proceeds into share buybacks, increasing EPS by 1.1p as well as our value accretive development programme. We expect the committed development programme alone to add 4.2p to annualised EPS. Setting aside the impact of capital activity, the 0.8p reduction in EPS this period is due to increased provisioning in regard to COVID-nineteen, which I will cover in a moment. Cost savings through our financing activities and reduced admin expenses offset the impact of CVAs and admins. Turning to net rents, let me draw out some of the key things. Like for like decline in retail was 5.1%. Pounds 14,000,000 reduction in rental income primarily relates to CVAs and admins across our retail portfolio, the largest impacts being from Debenhams, Arcadia and House of Fraser. Like for like growth in offices was 0.8%, lower than recent years due to expiries at Broadwalk House and 155 Bishopsgate ahead of refurbishments. Broadwalk House is now left to challenger bank Monzo. As a result of COVID-nineteen, we have provided an additional £7,000,000 against tenant incentives. These are non cash charges against balances related to the spreading of historic rent freeze and fixed uplifts. A further £6,000,000 has been provided against trade debtors. It is worth noting that where we offer to defer March rents, these are not debtors at year end and therefore not provided against. Slide 10 sets out the income statement. We have covered net rents. There was an improvement in fees and other income. Our focus on cost control combined with lower variable pay resulted in a 9% reduction in admin expenses. We will remain very focused on the cost base going forward. As you heard from Chris, despite making over £300,000,000 of profits, the dividend has been temporarily suspended. We took this difficult decision to protect the long term value of the business, enabling us to support those customers hardest hit and further strengthen our financial position. As a REIT, the dividend is an important element of shareholder return, so we are focused on resuming dividends at an appropriate level as soon as we can more reliably forecast our cash receipts. For this, we will need to see a significant improvement in rent collection and have more visibility on the post lockdown productivity of our assets, principally how quickly retail customers and office workers return. Turning to the balance sheet, the reduction in NAV was driven by the decline in retail valuations, partially offset by the buyback. Financing activity had a negative impact that delivers future interest cost savings. Last year, EPRA published three replacement measures of net asset value: net tangible assets, net reinvestment value and net disposal value. Going forward, we will publish all three metrics but will use EPRA net tangible assets as our primary measure, which is closest to the current EPRA NAV. The impact of the change is expected to be de minimis. Pro form a calculations are set out in the appendix. Turning to valuation performance. As you know, the valuers have incorporated a material uncertainty clause across all property sectors as at thirty one March. They have confirmed this doesn't mean the valuation cannot be relied upon, but in these current extraordinary circumstances, less certainty can be attached than would normally be the case. Overall, values are down 10%, but offices have increased around 2%, driven by ERV growth of 3.2% in the period. However, retail is down 26%, reflecting 101 basis points outward yield shift and an ERV decline of 11.7%. The value of Canada Water is up nearly 10% this year, reflecting progress on planning. This has decreased from 12% at half year due to a lower existing use value for the retail, so we expect this to unwind on the move to a full development appraisal following formal receipt of planning. Looking at offices in a bit more detail, investment volumes were low in the first half of the year, but following the election result there was a noticeable increase in activity. More recently, while some transactions did complete after the COVID outbreak, a number paused or fell away. Looking forward, before committing additional capital, potential investors are keen to see collection stats for the June day and for the forfeiture moratorium to end. On the occupier side, there is still a lack of high quality supply, so we have seen ERV growth on the standing portfolio. Our developments once again delivered a strong performance. They were up 7.5%. Despite the current context, whilst we expect the market to be softer in the short term, supply of prime is constrained and customers are continuing to look for space early if they have large space requirements. Are under offer on 220,000 square foot and we have responded to nearly 400,000 square foot of RFP since March. On Slide 15, I have set out our retail valuations. Our valuations are as at thirty first March, so our value was adjusted for the early effects of COVID-nineteen, which increased valuation decline by around 6%. Specifically, they assumed a three month rent deduction on all non essential retail, increased voids, additional structural vacancy and moved yields. Consequently, retail parks and shopping centres both declined by 29% on average, with Solus assets holding up better. Generally, investment transaction volumes were very low for multi let assets, albeit at the beginning of the year there was a pickup in retail park activity, reflecting generally lower occupancy costs and CapEx requirements, supported in some cases by potential for change of use. However, the market for multi let assets ground to a halt in the wake of COVID-nineteen. Turning to CVAs and admin. Over the last twelve months, a more robust stance by us and others has reduced the aggressive use of CVAs. We have seen outcomes improving from the perspective of property owners, But clearly, COVID-nineteen has seen more retailers enter distress and we expect further insolvency. Already over the last few months, we have seen the likes of Devonans and Oasis enter administration. Against this tough backdrop, our focus has been on driving operational performance, keeping our centres full with the right type of occupiers. As a result, we have maintained occupancy at 96% and leasing volumes for the year were 1,400,000 square foot. Lettings longer than one year were on average 4% below previous passing rent, with an average lease term of six point seven years and average incentive of ten months. Prior to COVID-nineteen, footfall was only marginally down and we outperformed the national benchmark by some margin. However, the impact of COVID-nineteen began to be felt in the Q4 footfall numbers. You can see on the right hand side footfall figures become less meaningful after lockdown with a reduction of 78%. The picture is very similar for retailer sales, as you can see on the chart on page 19. Turning to rent collection and deferrals. Here our focus was on helping customers most in need. We did this in two key ways. First, we waived rents for the March date for smaller independent businesses, particularly in the F and B retail and leisure sector, who were hardest hit by the lockdown. In total, these waivers amounted to £2,000,000 of rents. Secondly, we offered to defer the March rent for larger businesses, primarily retailers, who experienced significant challenges because of COVID-nineteen. Here, repayment will be spread across six quarters from September 20. We will keep a close eye on the recoverability of these. The table shows our collection stats for rents due between the March 2 and April. As of the May 15, we have collected 68%. That's 43% across our retail assets and 97% in offices. Of the remaining 32%, 25% has been proactively deferred or waived by us, meaning 7% remains outstanding, primarily from stronger retailers. I thought you would be interested in our bottom up initial assessment of the impact of COVID-nineteen on our customers. We have segmented our rent roll into customers whose revenues have been materially impacted by COVID-nineteen and those whose businesses are more insulated. For sectors like leisure, F and B and fashion, the impact has been significant. By contrast, big technology companies, banking, insurance and legal customers have typically fared much better. As you can see, we estimate around half of our rental income is derived from customers in sectors where COVID-nineteen's impact is likely to be higher. The other half is from businesses likely to be more resilient. This picture is supported by our rent collection figures for March, with lower impacted customers paying 93% of rents due. But for those more materially impacted, payment rates are much lower at around 40%. To put these figures in context, income from our lower impacted customers fully covered our operating outgoings last year. We take additional comfort from the fact that over a third of high impact businesses are listed companies with market capitalisations currently in excess of £1,000,000,000 The strength of our debt metrics is a continuing focus and here we are really benefiting from the work we have done over many years. We have undrawn facilities and cash of £1,300,000,000 During the year, we signed a new £450,000,000 ESG facility and extended £925,000,000 of facilities. Taking into account committed CapEx and future debt maturities, we don't have to raise finance until 2024. Our LTV is 34%. Financing activity and our use of caps has reduced our weighted average interest rate to a new low of 2.5%. Importantly, there are no income or interest cover covenants on British Land's unsecured debt. Given our covenant structure across the group, we could withstand a fall in asset values across the portfolio of 45% before taking any mitigating actions. Clearly, this financial resilience is a key advantage in the current environment and it is something we will remain very focused on in the coming months. We will work to maximise rent collection and keep our CapEx and admin expenses under constant review to make sure that we continue to benefit from the robust financial position we have today. Looking further forward, I would like to spend a couple of minutes on the new 2,030 sustainability targets we announced today. As we think about the future of our business, we are increasingly focused on how we can deliver space which is both more sustainable and more inclusive. We have made a lot of progress in this area already and achieved many of the goals we set ourselves five years ago. We've already reduced our carbon intensity by a massive 73%, our energy intensity by 55% and supported more than 1,700 people into jobs. Building on this momentum, I am pleased to announce our 2,030 targets. Taking the environmental side first, our key commitment is to be net zero carbon by twenty first. The main elements of this are for all future developments to be net zero carbon and by 02/1930, all developments will have 50% less embodied carbon. We will also reduce our operational carbon by a further 75%. We are taking a whole life approach, so the overriding principles are to reuse, recycle and resource sustainably. We will only offset as a last resource. Our innovative transition fund incentivises us to reduce embodied carbon while funnelling resources to improve the efficiency of the standing portfolio. We are seeing more and more evidence that sustainable buildings generate higher rents and lease quicker than other prime space. And with more of our customers explicitly committed to reducing their emissions, we think this approach really enhances our offer. Already we are seeing the benefits of that in the conversations we are having. On the social side, we are rolling out our place based approach to community engagement. We will work with our communities, local authorities, customers and suppliers to tackle local issues such as education and employment as we have done so well at Regent Place and Fort Connaire. This approach builds important relationships, making our places more successful. When I think about how quickly and effectively our community team responded to the current crisis, it's clear that we have made some very deep connections. To conclude, sustainability is a key part of our offer and our strategy. It's what our customers want and that means it goes hand in hand with delivering value for our shareholders. We have set ourselves further stretching targets. We have a clear plan to achieve them, which I will set out at our events in a few months' time. On that note, I will hand over to Chris. Thanks Simon. I would just like to echo those comments. At the moment, it is easy to forget that just a few months ago, the scale of the environmental challenge we were facing was front of mind for us all. Of course, it hasn't gone away. What the current situation has done is to remind us of the importance of social impact too. Our plans give equal weight to both. We will continue to update you on our progress. I am now going to talk about the short and longer term implications for our business as we see them, starting with offices. Most of us have now been working from home for more than two months. Many won't have done that before and some will be surprised at just how effective that has been. But much of that is down to our experience of working together in the office. Right now, my conversations with occupiers suggest many people are keen to get back there, though they know this poses real challenges. We are talking to almost every office occupier about the new abnormal claim, what it might look like. For example, occupation will be phased, potentially starting with just a few people. Going forward, slightly prolonged social distancing means we will then see a new normal that has real implications for the day to day running of our places. It is already clear that lifts and lift lobbies are likely to be a pinch point, particularly in high rise buildings. In the discussions we are having, some businesses are talking about staggered hours of operation, others more focus on frequent peak cleans. We set up a number of virtual round tables where we are talking to a range of businesses, occupiers and others, to identify their priorities and concerns and share experiences. Some of our occupiers have global operations. Their insight in countries which are further ahead in this is really helpful. It is another great example of how our scale and our campus networks in particular are a real advantage. As well as these virtual round tables, we surveyed more than 1,000 London office workers on their experience working from home. The vast majority are finding it harder to work effectively as a team and they see the office as an essential part of their company's culture. Things like hiring and training are also much harder to do when people are not physically together. But longer term, we know people will think about how much and what type of space they really need and that is already part of our discussions with them. We are continuing to get enquiries on new and refurbished space, including some very large requirements. We expect demand for a headquarters type space, modern and high quality, will be resilient. On the other hand, the trend towards more home working will definitely continue, which may mean businesses need less backup or back office space, most likely at the expense of smaller, lower quality buildings. In our view, it is important to recognise that here again we are talking about an acceleration of an existing trend. Equally, other trends may reverse. We would expect office densities to fall and hot desking to reduce. People place greater value on having more of their own space. So there are a number of ways this could play out and we would be cautious about drawing material conclusions too early. Much will depend on how safe people feel travelling into London, how effectively we can manage social distance from the office, as well of course as the prospect of a vaccine or cure. The evidence from previous crises, high rise buildings post nineeleven are an example, that when people feel safe again, things can and do move on. In summary, we think people are more confident that they can work from home. At the same time, they are very aware of the benefits that high quality office space can bring for their businesses, customers and their people. So we think polarisation towards modern, high quality space will accelerate. At the same time, supply will remain constrained. This plays to our hub strengths. We have spent more than a decade delivering buildings which accommodate today's flexible working pattern with a real focus on well-being. At our campuses where we control not just the buildings but the spaces in between and through story, Simon has talked to you about our current discussion. But in the short term, given the scale of the uncertainty, we wouldn't be surprised if overall demand for space was a bit softer. Turning now to retail. There is no doubt the current crisis has accelerated the use of online. As one commentator said, for many retail sectors, this is a mass experiment in single channel online retail. I would agree with that and it has clear implications for physical retail. In the short term, and to coin a phrase, shopping will be more mission based. That means people want to buy what they need as efficiently as they can. So even when restrictions are lifted, we would expect dwell times to remain low and leisure operators like bars, restaurants and gyms still face real challenges. Given the impact that the lockdown has had across The UK and the world, it is genuinely hard to predict what recovery will look like. It's likely that some shops may never reopen and the amount of retail space required in The UK will certainly drop. In many ways, this is a change that was always going to take place just over a longer timeframe. This sort of thinking has shaped our retail strategy for some time. We will continue to refine our portfolio focus on assets we think can be successful. One example is well located edge of town retail parks. They are open air so people will be more comfortable visiting and may be the case for example with covered centres and they complement an omni channel offer, facilitating fulfilment from store and click and collect. The plan we announced in November 2018 was to reduce retail to 30 to 35% of our portfolio. Due to relative valuation changes, that is roughly where we are now. That does not mean however that we have achieved our aspirations. We will continue to make sales selectively, but we recognise that will be hard to do for a while at least. So in the short term, given where retail yields are and the lack of liquidity market, in order to maximise value, our focus will be on intensive asset management, on keeping our assets full and exploiting increased demand for in store fulfilment and click and collect. Just to be clear, a vibrant retail and leisure offer is still an important part of our mixed use campuses. Longer term, people will still want places to buy a sandwich or a coffee and as confidence returns, to eat out and to meet friends. But at the moment, just when that will happen is hard to know. As I said, it's early days, but we will remain alert to things as they develop. We are engaging with businesses, the government, local authorities and the BPS, so we are at the forefront of these developments. When the longer term effects for the current situation become clearer, there will likely be elements of our approach that we change. We may accelerate certain initiatives or look at new avenues to create long term value. Before I turn to the outlook, I would like to update you on Canada Water. As you know, we received a resolution to grant planning in September and in February confirmation that the Mayor of London would not be calling in the application for further consideration. We are making good progress, albeit things have slowed with all parties working remotely. But the Section 106 agreement is in an engrossed form and we anticipate signing in the next few weeks. That will trigger the formal grant of planning permission. So we would hope to draw down the head lease over the summer and our earliest possible start date on-site would be the end of this year, but of course there is still a risk to judicial review. The resolution we have covers the Master Plan's detailed consent of the third three buildings. That's about £330,000,000 of spend. The whole Master Plan, we would probably look to take our partners. We are starting to think about that as you would expect, there is no shortage of interested parties. To wrap up, as a business, we are very focused on the day to day, collecting rent, reopening our places as regulation and demand permit, as Simon laid out on ensuring we reinforce our financial position. Looking forward for offices, we think occupational demand will be softer short term, although supply of prime space will remain constrained, development will likely worsen. But longer term, we expect demand for the highest quality, well located and well connected space to be good. Similarly, the London investment market will also be quiet short term, but as confidence returns and people are able to travel, we see the market strengthening again. In retail, the occupier market will remain challenged. Operators will continue to struggle and not all will survive. But longer term, this crisis may help define modern physical retail space, which we think would be a good thing. However, it may take some time for liquidity to return to retail investment. To conclude, our business is financially very strong with a clear strategy, a high quality portfolio and attractive development options we can pursue when the time is right. We benefit from an excellent team, many of whom we met at our Investor Day last year, so we are well positioned not just for the coming months, but for the longer term. On that note, I will hand you back to David. We are happy to take questions. Thank you, Chris. Before we move on to questions, because we are doing this via conference call today, could I ask a couple of things? Firstly, please limit your questions to a maximum of two at a time. That makes sure we don't miss anything. Clearly though, if you have any follow ups, we're happy to take them. Secondly, please do bear with us if there are any slight pauses or delays that may be caused by the conference call lines or webcast as we go through the Q and A. Before I hand you back over to our operator for questions from the line, we do have a few from the website, which I will take initially. So the first is from Robbie Duncan at Numis. Chris referenced that the dividend will be reinstated at an appropriate level when there is better visibility. Is the logical assumption here that it will be reinstated at a lower and more sustainable level than pre COVID, given the significant headwinds on earnings from retail and potential disposals? Sure. Robbie, good to hear from you however remotely as it were. Simon, do you want to take the dividend question? Sure. Hi, Robbie. As we sit today, I think it's quite hard to form a view on the extent and the duration of the crisis and that was one of the reasons we suspended the dividend. But as I said in my prepared remarks, we are very keen to resume the dividend as soon as we have clarity of outlook. We don't have that clarity of outlook yet. As I indicated, we're looking to rent collection and an improvement there. We'll need to see a significant improvement in rent collection. And I think we'll also need to see the productivity of our assets improve. And I think that is where your question was driving at. So I think both in terms of the timing and the level, it's too early to say. But what I would flag is that we are a REIT. REITs distribute need to distribute 90% of their qualifying income from their property rental business. And that's typically translated into payout ratios of 80% to 90%. And you've seen us and others target those kind of payout ratios. So when we have that visibility on timing and quantum, we will resume the dividend. Thanks. Next question from the website is from Parniva from Barclays. Good morning. How much do I understand that the March 2020 valuations take into account COVID-nineteen impact? Simon, you're getting all the questions at the moment. We might as well hand that one straight over to you, I think. Absolutely fine. So yes, the valuations took into account the early impacts of COVID-nineteen. If you think lockdown commenced March 23 and this was a March 31 valuation. And effectively, the valuers in retail moved values by about 6% for COVID. And I set out in my prepared remarks some of the assumptions that they made around that. So as at the March 31, the valuers believed that they reflect the conditions on the ground as they were seeing them. Or not seeing them, I guess, Thank some you. Next up, John Cahill from Stifel. Good morning, John. Could you foresee suspending the dividend even into where you might have to incur corporation tax? Or would this represent a red line such that you would start to redistribute rather than pay corporation tax? I think that's another one for me. So in terms of the dividend, as you know, there's a requirement to distribute 90% of your taxable income. And you need to do so as the legislation currently stands within twelve months of your period end. But we've had very productive conversations with HMRC. They're very sympathetic to the approach we and others have taken to support our businesses, support our customers and people by suspending the dividend. So we're having productive conversations about an extension. And then as you mentioned in your question, there is a fallback if income isn't distributed by the end of an extended period to pay effectively tax on the residual that isn't distributed. And I guess you've got to look at that in the round because if dividends were made, they would be taxed in the hands of our shareholders. So it does feel equitable to the extent there was any income that wasn't distributed that we would pay tax on that. So I wouldn't say it's a red line, but we do envisage that we will get an extension and so it won't be an issue. Thanks. James Parzwell from Peel Hunt. Morning, James. Given the advantages to tenants of flexible leases and given the potential financial struggles of some of the leasehold operators, is now a good time to expand STORE across the portfolio? I think the first thing I would say is we are very pleased with how STORE has been working for us. If you cast your mind to what we said when we first launched it, it was about introducing different sorts of tenants, but also gaining greater experience and flexibility and being able to work with our larger tenants around this topic. It was also from our perspective a very deliberate decision not to become overexposed to the flexible operators themselves. And we're pleased with both aspects of that in retrospect, although we certainly didn't expect exactly this impact. I think going forward, we will look at flexibility as and where it's appropriate. We've kind of touched on that already and we may see requirements for greater flexibility. I think the other thing that we have seen over the last few years however, is that for bigger space demands, by and large people want those leases to be quite lengthy because of the commitments that that requires on the office side in particular. So I think you'll see a combination of things. It's early days as I've already said. We don't today expect huge requirements of extension of story like space. But I suspect there will be some. And as I say, we feel in a good position to offer that. Darren, you're very much seeing discussions on the ground. I don't know if there's anything you'd like to add to that. Yes, sure. Good morning, James. Actually on the ground, even during the COVID crisis, we've seen an uptick in demand for the Storey products. And that's on top of the fact that we've got very high retention rates and expansion rates. Over 80% of people either stay with us or expand with us. There's another 90,000 square feet on top of the current 300,000 square feet in the next phase of the pipeline. So we've expansion space there. And then going forward, one of the benefits, obviously, of having a flexible brand and owning the product is that we've got optionality built in. So if we wanted to convert space going forward into storey products, we've got the ability to do so. Thank you. That's all the questions we've had submitted by the website. So what I will do now is turn it back over to our operator, Seb, who will let us know if there are any questions via the conference call. Seb? Thank you. The first audio question comes from Peter Papabakos from Green Street Advisors. Please go ahead, Peter. Good morning, everyone. Two questions as per David's instructions. Just maybe one on Canada Water. So given that you are talking to potential partners for that scheme, how advanced are those talks? Is it something that we should see in the next twelve months? Or are they sort of at a very preliminary level? And therefore, will you launch potentially some of those first three buildings on your own if they don't come to any don't come to any sort of agreement? And then the second question is just on the office occupancy. There has been a fall year on year. You have had some leases pro form a post period end. What are you thinking in terms of occupancy for the office portfolio by the end of this financial year? Will you try to get back up to where you were twelve months ago, or is that too ambitious? Sure. Let let me take the the the the Canada water question first. First of all, I would say that inevitably the discussion with potential partners are at an early stage. And that, from our perspective, is kind of inevitable given that we don't yet have the final stage of planning done. And as you can imagine, as I said, it's slowed down a bit, so that's to be expected and in no way worrisome from my or our perspective. We had always planned that first stage, that £330,000,000 that I described, we would be perfectly happy doing ourselves. That remains the case, but we would obviously take that judgment. As I said, there's some degree of uncertainty around timing on this thing for all the obvious reasons plus the possible risk of judicial review. It's a big project with what that implies, but we are still very, very excited. On the question around offices, I think I will turn that over to Darren, if I may. Good morning. As we've set out in the release, occupation is actually over 97%. So we've got some space in the portfolio as you would always have when you've got nearly 7,000,000 square feet that's in churn. We're constantly doing that. So I don't think we'd ever be in a position where we've been announcing 100%. So we're relatively fully less. On top of that, as you would have seen, we're nearly 90% less on our development program. We've got a couple of core floors or traditional office floors left at the very top of the buildings on 135 And 100 Liverpool Street. So as far as office occupancy is concerned, then we think we're a relatively resilient place. And particularly where our rental profile sits across the campuses, we've still got average passing rents in the kind of mid-50s and ERVs in the early 60s. So we think we're well positioned there going forwards. Any follow ups, Peter? No, that's fine. Thanks. The next question then comes from Max Nimmo at Kempen Capital. Please go ahead, Max. Good morning, Catherine. Just on the 97% of office rents that have been received, what what is the risk that those office occupiers turn around June saying, we've looked at the press. We see what's happening. What's the worst that can happen if we don't pay rents in in the situation, given the moratorium on evictions, etcetera? And the second question, I'm just on slide 67, and I I totally appreciate this is a very difficult question to answer. But given that COVID is accelerating trends, in terms of where we are now with equivalent yields, what's your gut feel or your base case as to when we get to that stabilization point in terms of yields and just if that has changed. Thanks. That question, was that on retail yields or yields generally or offices? Sorry. I wasn't Sorry. I should say retail retail yields, I should say. Sorry. Thank you. Darren, do you want to just comment on the first part? Yes, sure. Good morning. Well, as you spotted, we're 97% collected for March in offices. We have had some issues, but with only some with some very small operators, particularly those who are associated with things like the travel industry. As Simon has taken you through in the presentation, we've got a pretty strong occupier profile. We have got no conversations going on with any of them in terms of what they're thinking about doing in June. The only conversations we've got going on with them, these are extensive, is helping them return back into the workplaces and get their people back into the office building. So that's all I can really tell you on that. Yeah. Thanks. In terms of equip yields in in in retail, I think it's hard to make any real predictions from here because I think that equivalent yields tend to tell you something when you're in periods of relative stability. And I think it's just hard to know now. A couple of that's why we're talking and where our attention is today is about keeping our places as full as we can, getting the shops open again, collecting rent as and where we can. And we're going to see some big shifts in one sort or another. I think once you gain stability, I think these equivalent yields relative to where interest rates look frankly cheap. But how long it takes before we reach that period of perception that they're cheap, I think could be a lot. Okay. Thank you very much. Sorry. Maybe we have to put a sort of N at the end of our comments, given we're all in different places. We're all being very British and polite about this. Yeah. You're all being very polite about two questions as well. So any follow-up smack at all from you before we move on? No. That's all good. Thanks, guys. No problem. Thank you. Our next question comes from Sander Bunk from Barclays. Please go ahead, Sander. Hi, good morning guys. And also two questions from my side and I'm afraid also for Simon. First one is on a guidance slide. In the last couple of years, you did provide a guidance slide in terms of the kind of the various building blocks we had to take into consideration for the for the next year's earnings. Totally appreciate that today is very difficult to say anything. But based on what you know today, is there already something that you can give us in terms of building blocks where where you think which we should take into account when building our EPS number going forward for next year? That's the first one. And the second question is on and this is a slightly more technical question, but relates to the accounting treatment of kind of rent deferrals and rent waivers. How are you thinking about it going forward? Is that more will you be looking to straight line some of those deferrals or rent waivers? Or will you be taking them as a one off? Or is there a discretion in how you do it? Any further guidance there would be much appreciated. Sandra. Thanks for those questions. On guidance, yes, as you keenly noticed, we removed the slide. I think it probably goes back to my earlier comment around one of the reasons we suspended the dividend was around the sort of lack of clarity on the extent and duration of this crisis. And our ability to forecast within the normal realms of accuracy that businesses have, and you've seen it across all sectors, guidance being withdrawn. So at this present time, we do have guidance withdrawn. But in terms of building blocks, there's some building blocks which are very solid to forecast on. So I think there's good disclosures around our debt. You've got the quantum of debt outstanding. Our weighted average interest rate is 2.5%, a new low. That's going to come down a bit because we're benefiting from the fact that we use caps in our hedging. So we benefit from the base rate going to 10 basis points. And then obviously, you can see the rent roll in the back in the appendices. We've got the contracted rent position as at the period end. And then you would want to overlay some assumptions, which really comes into the second part of your question. So I'll take that around the accounting and how that might work for deferrals. So it's actually an area we've given quite a lot of thought and there was some guidance that came out on the straight lining standard. But effectively, it doesn't change anything from the perspective of lessors. So it's as accounting would have previously stood. So where you've got a deferral, it's not regarded as a modification of the lease. And so effectively, you would, absent any provisioning, recognize the same income you would have recognized previously. So if you think about what we had before the quarter date, we effectively deferred £25,000,000 of rents related to that quarter that would have been due before the March. And we agreed to spread them over six quarters from September 20. So that's when the receivable will come. There was no receivable at period end. So nothing to consider for providing. And then the income effectively would get recognized over the course of FY 2021 and we would think about the recoverability of that income and make necessary provisions to the extent we thought there were any issues during the course of FY 2021. So hopefully, Max, that answers both of your questions, but let me know if you've got any follow-up. Yes. So that's on deferrals. Secondly, how is that for rent waivers? And also lastly, when it comes back to reinstating your dividend, will you be looking at your p and l rental income or p and l EPS, or will you be looking at the actual income that you receive on a cash basis? I. E, in the short, it could actually take slightly longer to rebuild that dividend because the cash impact will initially be higher than the P and L impact? Sorry, Sandro, I missed the first part of the question. I've got the dividend bit, but missed the first part. Just on the waivers, are the waivers being straight lined? Or are they being taken as a one off? Yes. So the waivers, they do qualify where you waive rent, it does qualify as a modification. So they get spread over the term of the lease, just as if you had a rent free on a new lease. But again, you consider about the longer term recoverability on all of those items, but they do get spread. And then on your question around dividend, I think at this current time, normally, there's a very high degree of correlation between cash and P and L. But as you pointed out that going forward, there may be a disconnect as we work through this. But I believe cash is the most important when considering dividends, the operating cash flow. So that's where we would look in the first instance. But the accounting shouldn't be that different from the cash because of what we've described, but there will be an element of difference, as you highlight. That's great. Thanks very much. Thanks, Andrew. While you do that, I have one more question online from Tom at Liberum. Hi, Tom. Related to the earlier question, I guess, can I ask what level you would be a buyer of retail assets, or is there simply no price? I think that in this environment, we have been very clear with respect to our strategy and our strategy is to reduce our exposure to retail. I don't see any current reason to change that approach or that strategy. I have no more questions on the website. And we have no more questions on the line, so I think that's all for today. I'll hand you back over to Chris' line. I would just like to say, first of all, thanks to everybody for dialing in also. As we go through this, we will, of course, keep you updated next time we are due to speak to the market is at our AGM in July. So thanks very much. Have a good day. Ladies and gentlemen, this concludes the call. Thank you all for dialing in. You may now disconnect your lines.