Earnings Call: H2 2017

May 17, 2017

I'm supposed to get the thumbs up from the guys at the back who I now can't see, so just bear with me for a second. Good. Good morning, everybody. Welcome to Broadgate and welcome to Five Broadgate. There's a lot going on here at the moment. If you get a chance, take a look around. We've highlighted some key areas of change in your handouts, which look a bit like that, to show you some of the things that are going on. With that thought, let me turn to our results. As you'll see, it's a good set of numbers. Oh, right. Oh, there he is. Come on. Okay, here. You know. There's nothing like rehearsal and this feels exactly like rehearsal. Where was I? Look, the thing is, these results are part of a bigger picture. They reflect the strong occupier appeal of our real estate, continued investor demand for the places we create, and how we're successfully executing our strategy, building on a resilient business. Lucinda and I will take you through the results and what's driven them. Then I'll set out how we see the market and how we plan to take the business forward. In terms of the results, underlying profits are up 7% to GBP 390 million. Our strong leasing, combined with lower costs, have more than offset the impact of sales. NAV is moderately down for the year at 915p, but up nearly 3% since September. Across the business, we've let 1.7 million sq ft of space, with a further 1 million sq ft under offer or in advanced negotiations. And we've exchanged on 1.5 billion of sales, on average 9% ahead of valuation. Let's start with offices. This year, we exchanged on one of the largest ever sales in London at a great price, and we expect to complete next week. We've also made progress on 1 million sq ft of office lettings, and that's very significant in the context of an 8 million sq ft portfolio. So how have we done this? Three things. We've continued to deliver great buildings. We've again broadened our campus offer, and we've made good progress on new opportunities to create value. Let's look in a bit more detail. The Leadenhall Building is a great example of what we do well. We had the vision to create an iconic building and commit to development in 2010, partnering with Oxford to manage capital and risk exposure. We achieved record rents and a great price on disposal. That's 1.15 billion, an annualized return of 25% since commitment. It's also a great example of how our standalone assets provide liquidity in the portfolio for more opportunistic development and trading. We also completed 7 Clarges Street, where we are 83% let with only one floor to go. In total, we completed almost 300,000 sq ft of lettings in the year ahead of ERV, with a further 700,000 sq ft under offer or in advanced negotiations. It's more than just creating great buildings, though. At our campuses, we're creating great environments too, driven by our understanding of what our customers want. Our research has emphasized the importance of great transport links. Space to work collaboratively is increasingly a requirement. F&B and high-quality outdoor space are also important. This is why our campuses are well-positioned. Paddington Central is a great example. We've upgraded the public realm with more space to relax outside the office buildings themselves. We completed this work in time for the launch of 4 Kingdom Street. We were almost 80% under offer a week after completion on terms ahead of pre-referendum ERVs. The rents we've achieved are over 40% above the best rents back in 2013 when we bought the campus. We're now crystallizing the benefits of our placemaking activity. We even have a basketball court on the roof. We also had existing occupiers recommitting to our campuses during the year. At Regent's Place, for example, we've agreed the removal of Facebook's 2018 break at 10 Brock Street. These are great endorsements of how we're creating places that meet the needs of our occupiers and their employees. We've talked in the past about the optionality that we've created. This year, we've made great progress on the opportunities within the business, positioning us to commit in some cases. The best example of this is at 1 Triton Square at Regent's Place, where we're now under offer for a 310,000-square-foot pre-let. That's all of the office space. We obtained approval from Camden last week and subject to concluding the planning process and finalizing the pre-let, we'll be in a position to start on site in March next year. These kind of deals just don't come along too often in the West End. At 1 Finsbury Avenue, we are exercising our optionality in a different way. Following the referendum, we revisited our development plans. We're now planning a lighter touch refurbishment to bring different kinds of space to Broadgate, and I'll come back to that topic. We also secured 1.5 million square feet of office planning consents, including our option at Blossom Street and at 2 and 3 Finsbury Avenue, just across the way. In places where we're working up our plans or pursuing letting interest before committing, we've been active in agreeing short-term leases to new types of occupiers and creating new uses for our campuses, such as Pergola and Theatre Delicatessen. As you can see, it's been a really busy year. In retail, the story and the approach are similar. We're continuing to reshape the portfolio. We're benefiting from our work to improve our environments, and we're capturing demand from a broader range of occupiers across our regional and local centers. Let me talk you through it, starting with disposals. As we said before, our sales activity is focused on single-let assets. We sold Debenhams on Oxford Street for GBP 400 million, and we sold over GBP 200 million of Superstores, pound shops. Overall, prices were 3% ahead of valuation, representing a yield of 4.3%. That brings retail sales over the last five years to GBP 2.5 billion. And we've invested GBP 1.5 billion in multi-let assets. We've turned over more than half of the retail portfolio in that period. We're also responding to what our customers want by creating quality environments which help us drive performance. Take Tollgate, our local center in Colchester. We invested GBP 6 million enhancing the environment. We reconfigured the car park and improved the public realm, including a new playground. We're now doing deals which crystallize rental growth. The result this year, ERV was up 14%. There are similar stories across the portfolio. We completed 1.3 million square feet of retail lettings in the year, 11% ahead of ERV. That's more space on better terms to a broader range of occupiers than a year ago. In an increasingly tough retail market, where are we seeing this demand? Firstly, we are seeing occupiers upsize at our centers because our space works for them. They are trading profitably, and they see scope to grow sales further. Primark at Meadowhall is a good example. Secondly, we are taking leading brands like Superdry, Wahaca, and Paperchase to new formats and new locations. Several have committed to space they would not have considered before our enhancements. The really exciting bit for me is that we know there are more brands to go for. Whilst our improved knowledge of customer behavior at center level means we can take a very persuasive case to the brands that we are targeting. All this has driven our performance. Sales and footfall were once again well ahead of the market. We see different trends at our regional and local centers because they are targeting different shopper missions. These figures do not include click and collect, where our locals have almost 50% more activity than the national average. The really important bit is that we are converting this activity to rental growth. Across the multi-let portfolio, with both regional and local centers performing well. If you look at the more traditional classifications, you will see that shopping centers and shopping parks are also closely aligned. More details in the appendix. These results again prove it is not just the biggest centers delivering performance, it is about the quality of the environment and meeting customer need. We are conscious of the concern around the structural impact of online, as well as the potential slowdown in consumer spend. We aim to provide space which enables occupiers to trade profitably across a range of channels, and we benchmark the rental growth we achieve against retail sales, including online. As you can see in the graph, it is a strong correlation. This chart also demonstrates the polarization we talk about. You can see how the gap between prime and secondary continues to grow, and we are continuing to outperform prime. Before I hand over to Lucinda, I would like to say a few words on sustainability. We are recognized as industry leaders in this area. It is also a fundamental part of how we deliver strategy. Our view of sustainability is broad. We focus on four areas aligned to our strategic priorities. As you can see, well-being, community, future-proofing, as well as skills and opportunity are what we look at. Let me give you one example. Our research shows that people who feel a strong community association with a retail center visit over 30% more often and are over 50% more likely to recommend. We have got a range of initiatives to strengthen links with those communities. One of the most significant is our partnership with the National Literacy Trust. Over 5,000 children took part in their Young Readers Programme this year across 22 centers, bringing more families and positive connections to our properties. There are further great examples on this slide and across our business. We have also set ourselves challenging targets, such as our aim to reduce energy intensity by 55% over 10 years, reducing carbon emissions and saving costs for us and our occupiers. With that, I will hand over to Lucinda. Thanks, Chris, and good morning, everyone. I am very pleased with the results I am presenting to you this morning, especially in the context of the environment. As usual, I will take you through the numbers and our performance and the drivers of our valuation. I will also talk you through developments. This year's performance reflects the continued execution of our strategy, delivering assets which are appealing to occupiers and customers alike. We have sold well, demonstrating capital discipline. We have increased our financial capacity, so we have even more resilience, and we can create value through our developments. Starting with the financials. Profits are up over 7%. Earnings per share are up 11%. NAV is only marginally down at 915p, with valuations down 1.4% over the year. Valuation gains in the second half have reversed the majority of the downward movement we saw at September. The balance sheet is stronger, with LTV just below 30%. As we announced last May, we have increased the dividend by 3% this year, which gives 29.2p for the full year. Altogether, this delivers a total accounting return of 2.7%. Looking at this in more detail, and starting with rents. Even with the sales we have made, rents are only down by GBP 10 million. Like-for-like growth has contributed GBP 11 million. That is 2% in retail, and the equivalent number in offices is 4.5%. Expiries of properties in our development program reduced rents by GBP 8 million. This includes 100 Liverpool Street, where we are now on site, and 1 Triton Square, where we are under offer with a pre-let. This is more than offset by new income from our recently completed developments, which adds GBP 10 million. Turning now to financing costs. Our actions and decisions have again reduced financing costs. We have brought these down by almost GBP 30 million this year. This is a result of debt transactions we have undertaken over the last two years, as well as the continuing advantage of deciding to run with a higher proportion of variable rate debt. Our liability management, which is NPV positive, reduces NAV by 4p. Currently, of our forecast debt, 60% on average is fixed over the next five years. Bringing this all together, we have increased profits by GBP 27 million this year to GBP 390 million. Part of that increase is due to a reduction in admin costs, down by GBP 8 million. That is a result of lower variable pay and managing down our cost base, all whilst continuing to invest in new capabilities. We expect to maintain this level of admin costs for the coming year. Excuse me. You can see that despite rents being down, profits are up by over 7%. EPS is up by more than profits because the 2012 convertible bond is no longer treated as dilutive. When I look ahead to next year's profits, there are a lot of moving parts. For your models, there is a detailed guidance slide in the appendix, but I would like to highlight a few points to you now. We are letting our completed space well, but we also have lease expiries on space in the development pipeline. At 135 Bishopsgate, we will be receiving a surrender premium from RBS, which will contribute GBP 15 million to underlying profits. Our recent sales will have an impact, too. Altogether, this means that from where we see things today, we are guiding to a small decline in next year's profits, and I note that that is captured in current consensus. This, together with the environment and our target payout range, influenced the board's thinking in looking at the dividend for the forthcoming year, and we're proposing a further 3% increase this year. This reflects confidence in our ability to grow income over the medium term. Let's look now at the valuation performance. The valuations are down 1.4% for the year. Valuations were down 2.8% in the first six months, followed by an upward revaluation of 1.6% in the second half, reflecting better investor demand. Overall, we've seen 15 basis point yield expansion and 1.1% ERV growth. We've got a high quality portfolio with good, secure income and an average lease length of over eight years. It's been a busy year for us. We've contracted over GBP 1.5 billion of sales, including Debenhams, Oxford Street, and our 50% interest in the Leadenhall Building. Our sales were, on average, 9% ahead of pre-referendum valuations, boosting capital returns by 90 basis points. We've taken advantage of an increasingly polarized market, where demand has remained strong for prime assets and secure income streams. There's been less appetite for shorter lease assets and greater risk priced into developments. This is particularly reflected in the fall at Canada Water. Developments, as you can see, were up 1.7% over the year, mainly driven by profit releases as we reach practical completion. If we look at retail in a bit more detail, you can see valuations were down 1.8% over the year. As Chris said, we've seen index-beating ERV growth of 2.4% across the multi-let portfolio. Yields have remained steady for these assets in the second half, with marginal inward yield shift following 22 basis points of expansion in the first half. Long-term secure income with limited active management remains attractive in this market, reflected in the valuation performance of our single-let assets. These movements also include the impact of disposals, lease re-gears, and the offsetting impact of a 5% decline in superstore values. Excuse me. We've continued to make sales of superstores, and they now account for less than GBP 600 million. That's 4% of the whole portfolio. I've given more information on superstores in the appendix. Overall, our retail portfolio has outperformed IPD by 60 basis points on a capital returns basis. Turning now to offices and residential, overall valuations were down slightly at 0.5%. Yield softened by 15 basis points, and ERV growth remains in positive territory. In the West End, our recently completed office developments, including 4 Kingdom Street in Clarges, are now 80% let or under offer, are rents ahead of pre-referendum ERVs. That's on a net effective basis. We've also continued to capture reversion through rent reviews at Regent's Place. The city portfolio was down 0.8%. Within this, we saw dispersion in performance. We agreed the sale of Leadenhall at a price 24% ahead of valuation, and the valuers have recognized most of this uplift at March in advance of completion next week. Five Broadgate, this building, was up 6%, reflecting the 16-year unexpired term, the RPI-linked increases, and rent-free burn-off. On the other hand, properties with short-term income and where we have development plans are down 12%. Overall, our office portfolio has outperformed IPD by 40 basis points on a capital return basis. As you know, residential is a small part of our business. Activity during the year totaled GBP 56 million, and sales were ahead of valuation at Aldgate Place, but followed a reduction in prices of around 10% at The Hempel since September. At Aldgate and Hempel, we reached practical completion on nearly 200 apartments this year, and almost all of those are either sold or reserved. Clarges will reach practical completion later this year, and this makes up most of the GBP 200 million of resi we have left to sell. We will market the remaining apartments after completion. In the meantime, we are encouraged by the continuing interest here, which resulted in a one-off sale ahead of valuation during the year. Bringing this all together, NAV is only marginally down at 915 pence. Here you can see the offsetting valuation impact across the two halves of the year. Our debt metrics go from strength to strength. Loan to value has decreased by 220 basis points to just below 30% at March 31, and that is 27% pro forma for the Leadenhall sale. Our actions have reduced the weighted average interest rate further, by 20 basis points to 3.1%. This year, we have extended GBP 1.4 billion of facilities and arranged a new GBP 100 million bilateral. After completion of Leadenhall sale, we will have GBP 1.8 billion of undrawn facilities with no requirement to refinance until 2021. Developments are one way we create value and grow rents, and we have the financial capacity to take opportunities forward. We will, of course, be disciplined in allocating our capital and thoughtful about risk. I have set out the costs to go on our committed and near-term pipeline on this slide. Looking at our current commitments first, our speculative exposure is below 4%, with remaining investment of just over GBP 200 million, and that is matched by contracted residential receipts. Adding in the near-term pipeline with an additional investment of GBP 340 million would take our speculative exposure to 6%. That is on the basis that we will proceed with 1 Triton Square on a pre-let basis. The ERV of the committed and near-term developments is GBP 64 million, and 40% of this, that is GBP 26 million, is already pre-let or under offer, with pleasing interest on the remaining space. We also have potential in our medium-term pipeline across a range of uses, and we are focused on enhancing our existing assets, which improve returns. Over half of this is income producing with a yield of 3%, principally Canada Water and Eden Walk. We have made good progress in securing planning consents, and Chris has talked about leasing appetite. Our approach will be driven by pre-let interest, and we will be disciplined with capital and risk. Finally, as usual, I would like to talk you through our future income profile. Starting with total contracted rent at GBP 653 million. That is lower than where we were last September due to the sales we have made and expiries on properties moving into our development pipeline. Running down the slide, the impact of transactions completing after the year-end reduces this by GBP 22 million. We are well progressed with the leasing of completed developments, which will add GBP 11 million. We already have GBP 7 million under offer at 4 Kingdom Street. The next three lines show the impact of lease expiries on the near term and medium term developments, which we expect to be offset by the letting of our committed developments. Next, you can see our near-term plans have the capacity to significantly increase rents by GBP 43 million. Although the income from development lettings will take time to come through, with completions phased from 2019 onwards. I put a slide in the appendix showing the year-by-year phasing. You can also see the attraction of the opportunities in our medium term pipeline from the potential additional rent here. To conclude, profits are up, second half valuation is up, leverage is down, and speculative development is modest. That is a good place to be at this time. On that note, I would like to hand you back to Chris. Thank you. Thank you, Lucinda. I am now going to tell you about how we are looking at the market and what you can expect from us next. Before I do that, I just want to remind you of the changes we have been making to reposition the business in recent years. In offices, we shifted the balance towards the West End, largely focused around Crossrail. We have reduced our exposure to banks. In retail, you can see our increasing focus on multi-let assets, where we can best apply our expertise to add value. Overall, as Lucinda said, our LTV has come down significantly, yet profit has risen by over 50% in this seven-year period. All these actions reflect our focus on building a resilient business in a changing world, and the long-term trends which guide our strategy. Looking forward, the picture is a mixed one. The Brexit process has begun, but we all know that we will have to live with uncertainty for some considerable time. The economy has performed well since the vote, but we expect more inflation and increased pressure on disposable income. That is impacting retailers. Of course, London occupiers, particularly the banks, are making contingency plans. There is a wide range of possible outcomes here. We are seeing businesses take longer to commit and being more thorough in assessing options. However, our conversations with occupiers tell us that a large majority continue to believe in London. As these results show, demand for the best space remains across our business, evidencing the polarization we have long talked about. As we have already told you, we have had considerable leasing success, and we have been achieving rents ahead of pre-referendum levels. We got a lot of opportunities already within the portfolio, many of which have been years in the making. We do expect to deploy some further capital, mainly into pre-let developments, which will generate good returns and grow income while keeping overall risk at an appropriate level. Across our campuses, we have up to GBP 400 million of projects that we can expect to commit to when we complete the planning process. That is GBP 200 million at 1 Triton Square, where, as we said, we have planning approval and are under offer on a pre-let for the entire office space. Together, a pre-let and a much bigger building make the risk-adjusted return pretty compelling. At Broadgate, we intend to refurbish 1 Finsbury Avenue and 135 Bishopsgate. This will provide different and complementary space to 100 Liverpool Street, delivered a year earlier. We expect a high return on modest incremental investment of around GBP 90 million. We are already in discussions with occupiers on over half of that space. By 2019, we will have doubled the retail and leisure to 8% of Broadgate, including a cinema and a spectacular rooftop restaurant. There is actually scope for much more. We are also looking to extend the offer at Paddington Central. We have got plans for a boutique hotel at the entrance to the campus. We will submit planning in June, and if successful, we expect to proceed with a GBP 100 million development, but only on a pre-let basis. Again, we are in advanced discussions with a high-quality occupier, operator even. So big progress on our campus visions. We have also got opportunities in retail. We expect a planning decision on our leisure extension at Meadowhall during the summer. We secured planning in the year for our mixed-use regeneration of Eden Walk in the center of Kingston. We have got extension plans at a number of our assets across the portfolio, including Drake Circus in Plymouth. These schemes provide opportunity to create incremental value and grow income. Subject to planning and pre-let discussions, we will be in a position to proceed on a relatively low-risk basis. Development obviously is not the only way, though, of adding value. Attracting new customers has been a big focus for us. One example is how we are responding to the growing number of small and medium-sized businesses who want space in Central London. They often need more flexible space on shorter lease terms. Large businesses are also prepared to pay a premium for greater flexibility for specific projects and teams in particular. These opportunities fit really well at our campuses, but there is more we can do to capture this incremental demand. Next month, we are launching our own flexible workspace offer. We are already fitting out 80,000 square feet across the portfolio, and we intend to roll out this branded proposition across our campuses. Our first letting is just next door at 2 Finsbury Avenue. It is to an existing occupier from Paddington for their digital team. It is 25,000 square feet for two years, and we are providing their fit out and managing the space. It is early days, but this deal has demonstrated to us that we can capture a premium that appropriately rewards us for flexibility and added services. We have got an investor event scheduled for the 21st June at 4 Kingdom Street in Paddington Central, where we will be setting out our plans in a bit more detail. Let me update you also on Canada Water. We are making good progress, and our fourth public consultation period is now underway. This image is from the consultation materials and shows just how close Canada Water is to Central London. There is also a link in your books. We are now targeting submission of a planning application somewhere around the end of this financial year. The earliest we can expect to secure planning is in the second half of 2018, which would mean starting on site in 2019 or thereafter. In the meantime, both the shopping center and the leisure park are producing income. Meanwhile, at the Printworks, we have created London's newest event space. Since opening, it has brought nearly 100,000 visitors to the area. This is helping establish the location as well as generating income. You can see that we have a great deal of opportunity in the portfolio to deploy our capital and expertise, executing our strategy, and generating decent returns while keeping risk at an appropriate level. But all this is subject to a disciplined approach to capital allocation, as Lucinda mentioned. What do I mean by that? We forecast returns for every asset in the portfolio. Excuse me. We benchmark these against appraisals for developments and acquisitions, and indeed, the possibility of a capital return. Our forecasts guide our asset allocation, hence our decisions to sell Debenhams and the Cheese Grater, as well as the superstores. Current hurdle rates for investment are around high single digits for acquisitions and double digits for developments. The board is very focused on putting our capital to best use and assessing this on a regular basis. Today, that means retaining flexibility and the capacity to explore opportunities in and close to our portfolio. We are not proposing a capital return at the current time. If we do not secure planning, or if we do not convert letting interest, or if the market changes significantly, then we will revisit our plans for deploying shareholders' capital. To conclude, the picture is a mixed one. The Brexit process has only just begun, and there are signs, as you know, that this is starting to impact customer behavior. On the other hand, our results show that our space continues to be attractive to occupiers and investors alike, with strong leasing across the portfolio, profitable disposals, and retail operating metrics, which have outperformed once more. How do I explain this combination? In part, it is a result of a stronger U.K. property market than many people predicted, but it is also a function of our strategy, providing space that really fulfills occupier needs and creating buildings that attract investor demand. So whilst the environment is uncertain, we look forward with cautious optimism for our business. Our high-quality portfolio should continue to outperform. Our strong balance sheet provides flexibility, and over time, we can enhance returns by allocating capital to the opportunities that we have created. With that, I will turn it over to questions, invite my colleagues to join me up here. And a little bit of housekeeping, which is, Mike, that there are microphones by your side. I think your left-hand side, I think, roughly. And you pick them up, pull out the thread, and then you have to keep your finger on the button, and that way people can hear. And Mike, you get the first go. Could you just make sure, please, that you just say who you are when people can hear you? Morning, guys. Mike Bessell from Bank of America. Three questions, if I may. One is on future disposals in the London portfolio. Given the campus approach you've got that now is the bulk of your assets, how much more is there to sell? Is the office portion of Clarges a likely candidate in the nearer term now that it's been leased? The second was on last year's 1.7 million square feet of lettings. If I strip out the numbers you've given for the multi-let retail and the offices, it looks like single let retail was about 400,000 square feet leased at ERV. Is that right? How much of that did you continue to hold, or are you selling it as soon as you've regeared those leases? That one's definitely going to Lucinda, but keep going. The last one from me, just on the flex space. Or Charlie, just not me. They can argue about it while you're queue. Yeah. I guess one of the big debates on shorter leases and flexible working space is what impact that has on yields. Can you give us some color on what your valuers have said, how they will be thinking about that? Yeah. Tim, do you want to start with that? Hold on, my arm's aching after all the writing. On the future disposals, I think the first thing is, on Leadenhall, absolutely thrilled. We built an iconic building. We got a fantastic price. If you look at British Land's record, full stop, we're always alive to looking to sell. Over the year, we sold GBP 1.5 billion at 90% above valuation. We're continually, as Chris and Lucinda have said, we're continually looking at how we can be disciplined in our use of capital. In terms of the office portfolio, we still have 25%, 30% of the portfolio in our stand-alone assets, and we like that because it gives us liquidity. In terms of Clarges also, we will continue to look at whether we should hold that or we should sell. What I would say on Clarges is that we've had a fantastic run in terms of the lettings. We're 83% let, but we've still got another floor to go, and we've still got some business to finish in terms of letting that building. It's also worth saying, central West End buildings like that, purpose-built, just don't grow on trees. We have a long-term view as well as a short-term view. Is that okay for question one? Right. Tim, question two. Solus is predominantly Homebase regear. We geared all our Homebase leases, which had 2.5 years unexpired, did a 15-year lease extension, and got slightly above ERV, with RPI indexes. That takes us, I think, to yield. Back to yield. Back to bang. Back to me. Back to Tim. Okay. In terms of flex space, early days, we obviously have a view on how the market will approach valuation. We have also talked to our valuers, and I think that in the short term, we think that it will be value neutral. We would expect the valuers to move the yield out slightly. But equally, as Chris has said, we think that we will get a premium over and above the rent that we would let the building at. So net-net, it is a neutral position. But in the medium term, we are excited about flexible working because we think that it is going to provide, not only a wider appeal to our offices, it is going to create incremental demand, but it also provides a service to our existing occupiers. Many of our existing occupiers are still very happy to take long leases, also want an element of flex space. So net-net, because of the flexible working initiative, we think that we are going to increase demand and we are going to grow rents. If we grow rents, that is going to be positive for valuation in the medium term. Morning, John Cahill from Stifel. Just one question on the retail, please. Referring to slide 79, and the way that you carve up the portfolio. So you have got your multi-let, which has performed very well, particularly lettings versus ERV. I wonder if you could comment on what the lettings were versus previous passing. The second question is that outside of the multi-let, 15% of your rent roll is in the retail other, and that is over-rented. The multi-let is reversionary. So if we consider the chart on slide 14, we can see where you have talked about retail, it is almost always the multi-lets. How would the other have performed versus IPD, please? This is going really well because I get to answer all the questions. I would say before Tim speaks, that we have been pretty clear that we see multi-let as the future for British Land, and we think that is where we can add the most value. I would also say that we have been patient about disposing of the other stuff, and Charlie just touched on it. The benefit of a regear can actually be pretty dramatic. It is not as if we have ever been a kind of forced seller of this product. By the way, which we did, if you look at the performance of the superstores over the period since we started the JV, it has actually been pretty good, but we took a strategic decision to pare them out. With that thought, Tim has the advantage of the booklet in front of them. No, you go if you want. First of all, obviously the like for like in the retail portfolio of 2% includes multi-let and solus. You draw out slide 79, and you can see there the reversion in the multi-let coming through. Overall, across the retail portfolio, multi-let and solus, there was an increase in rent of GBP 12 million on an annualized basis over the year. The numbers I gave against IPD were the whole of the retail portfolio, not just the multi-let. Hope that answers your questions. That is Well, that is the increase of GBP 12 million. Of it. Yeah. Okay. Michael Bird, Exane BNP Paribas. Two questions, and the first one, if I may, on the office portfolio. Clearly there is a good volume of leasing activity. You sort of a number of deals under offer that were sort of talked about at the start of the year. Can you just give us a sense on how pricing is evolving for London office space at the moment, both in terms of headline pricing and also what you are seeing in terms of incentives, are they moving out at all? Yeah, I'll get Tim to comment in detail. I think I would emphasize what we said in terms of the leasing we've done has been ahead of pre-referendum levels by and large, which I think is a testament to quality above everything else. Also clearly on the pre-lets, we're in a position of, if you like, somewhat stronger negotiating position because obviously we don't have to develop. That I think puts us in a good relative position. It's in our minds when we're negotiating with people that they want the sort of space we have. So that's how we think about it. Tim, it's worth In relation to your specific question, we've done 300,000 sq ft in the existing portfolio. On average, that's 1.4% above ERV, and it's on average, ahead of pre-Brexit rents. So, good sample there. Then we've also got just in excess of 450,000 sq ft that's under offer, and part of that is the pre-let at 1 Triton Square. But we've also got over 100,000 sq ft under offer at 4 Kingdom Street. Again, there we're ahead of pre-Brexit rents and we're also ahead of ERV. So at the moment, the rental market for the product that we're providing, and a lot of it's centered around our campus strategy. For the product that we're providing, the demand is still encouraging. Just to be clear, all those comparisons versus the ERV are net effective. Is that right? Yes, they are. Great. I just had one more on sort of I guess the trend in leverage in the balance sheet. Clearly LTV has come down a long way in the past 2 to 3 years at British Land. Clearly there's a balancing act, though, in terms of loss of income versus deleveraging. Where do you feel like you are now? Do you feel like you'd like to see the LTV ratio edge down further from here, or is it sort of more a case of sort of looking to protect income and continue to grow the dividend? Well, look, Lucinda should comment. I would just take you back to the slide in the pack. If you look at this period of time when we've brought leverage down a lot and driven profits a lot, I think that is a balancing act that we've delivered on pretty well. I think it's something as a team we feel particularly proud of. So that's the kind of overall context. Lucinda, I think you might want to comment just on the specifics. 30%. As you know, we're very focused on managing our LTV and not gearing up on yield shift, as we've said for some time. Of course, the LTV is an output of debt and values. The debt is the area we can really control it. That will come down a bit, our debt with the Leadenhall proceeds coming in. We've talked today about some of the developments that we're looking at taking forward. As you know, development spend takes a bit of time to come through. I expect we might find some accretive acquisitions during the year. So when I look at it, I could expect debt levels to be broadly in the same ballpark as they are at 31st of March. Values, people form their own judgments on that. In terms of the profits, I think I've been quite clear in terms of the impact on next year's profits. We're growing the dividend 3% next year, which reflects our confidence in growing medium-term cash flows and income over the medium term. Good morning. Hemant Kotecha from Green Street. One question on retail, please, and one question on offices. The retail one first. I think you've clearly highlighted the environment that we're in at the moment where retail sales are struggling, consumer spending is slowing down, and then the margin pressures that you talk about. Against that backdrop and the fact that you've got a good quality portfolio, where do you see rents for your portfolio going for the next few years? Where are some of the areas where you might expect the weakest performance and the strongest performance? I think sort of two parts, market and us. Market, definitely there are more headwinds now than there were, say, 12 months ago, and for all the reasons that Chris has touched on. I think one of the things that's coming out of that is the polarization we've talked about is just accelerating. I think you'll see that accelerate more over the coming 12 months. I do think that it means over the year that deal volumes will be lower generally, and I would expect to see secondary rents falling quicker than we've seen up to now. I think if you then look at it from our perspective, and for all the reasons Chris has set out, I think we're very confident that the strategy we've set out is delivering because it is reflecting the way that we all shop and the way that retailers are reacting. If you look at the starting point for us, we sort of got 98.5% occupancy. We've got about 300,000 sq ft under offer at the moment ahead of March 2017 valuations. As I say, even for us, I think deal volumes will be less this year, and I think will take longer. We're continuing to outperform on the operational metrics, which is what the retailers want to see from us. Then I think medium-term prospects for rental growth. You'd have seen in one of the charts that Chris put up, our ERV growth is now tracking total sales, sort of in-store and online. We've reestablished that link over the last three years. I think that trend will continue for us, and so a large part of the answer depends where you see total sales going to. I think the only thing I'd add, Hemant, is I've been in this job now eight years. I've looked, but I've yet to see a retailer who wants to pay us more rent. I'm happy to anybody got any suggestions, bring them on. But at the end of the day, we will only get people to pay. By the way, this is true more broadly in the business. We're only going to get people to pay more rent if we can get more total demand. The way we get that, and I was trying to be clear about where that comes from in our retail business, that comes from taking successful brands to more places. That's about making those places more attractive to them and being able to deliver that marketing story to them better. We've had a lot of success. We talked about a few examples. We think there's more to come and people taking bigger space. If we can do those two things, we'll continue to be able to drive that forward. But of course, as Charlie says, we're conscious of the overall environment. Great. Thank you. A question on offices. So obviously, the concern there is office supply. Now we had the Crane survey out, and that's pointing to what's actually in the ground today. Obviously, 2017 is going to be a big year, but thereof, it falls off. New schemes will start, and you've highlighted on page 100 what agents' views are. Just wondered, Tim, what's your view in terms of how much of that potential speculative gets built out? Does it rise as the profile shows there, or does it flatten out because the demand just isn't there because of Brexit negotiations? I suppose, Hemant, there are two things, the bits that I know and the bits that, like you, I'm forecasting or have a view. The bit that I know is that this year, we have done well. We've achieved lettings above pre-Brexit levels, and also we have generated good interest in some of our recently completed developments and some of the developments that we're positioning ourselves to do. So that's the bit that I know. Now, in terms of going forward, I think that supply will increase. I think that that is likely to put pressure on rents across London. But it's picking up the themes that have been consistent through British Land's presentations over the last few years, and the one that Charlie's already mentioned in his answer, there is polarization. What I think will happen is that there will still be encouraging demand. I think that there will be less supply of the good quality, well-located, great environment space. If you're providing that, you're going to be more resilient to the competition. I think that that actually talks to British Land's portfolio. I think that we have had this emphasis on the campus strategy, and I think it provides all those things that occupiers want. So we're, relatively speaking, in a good position. One last follow-through on that. So the profile that is shown, sorry, it is page 93, is that your expectation when you talk about rising supply? Is that what we should expect, just broadly speaking? Yeah I think in the footnote it says it is the earliest possible delivery, and I just wanted to make that distinction. Yeah. We refresh these forecasts every 3 months. What is a clear trend is that promoted schemes always take longer to deliver. I think what is likely is a view. What is likely is that we have already seen a big drop in the deliverable space in 2019, and you referred to that in your question, and that has moved into 2020. I think if people are asking me that question next year, which I am sure somebody will, I think a reasonable proportion of that 2020 will move into 2021. The other thing that we are seeing is we are seeing some schemes not just being deferred, but it feels as though they are being indefinitely deferred. That is what you would expect to happen in a market that is responding to pricing and demand and uncertainty. Good morning. It is David Brockton from Liberum. Can I ask two as well, please? Both on offices. Firstly, in respect of the flexible workspace offer, can you give us a feel as to your early aspiration in terms of scale and rollout there? I take the point on premium rents that you think you can achieve, but others have invested quite a lot of capital in IT and operational infrastructure. Can you just talk about whether you think that could be marginally earnings dilutive as you progress that rollout? That is the first. Appreciate there are a few in there. Yeah. The second one was in respect of 1FA, Finsbury Avenue. If you could just talk about the factors that influenced your decision to go with a lighter touch refurb there, and how that balances with the places people prefer. Thank you. Yeah. Okay. Right. In terms of scale, Chris talked about this in his presentation, we are on site ready to fit out, actually fitting out on 80,000 sq ft. Then we have further plans for another 80,000 sq ft. Again, that is something that we're looking to move forward over the summer. Thereafter, really, it'll depend on how much demand we receive from it to how big it will grow. Having said that, as I said in answering the first question, it is something that we expect to increase demand for our campuses. It is something that we're doing in response to existing occupiers who say they want some flex along with their core space. We are hopeful that it's going to be a business that will grow. It certainly is going to be something that will add to our campus appeal. In terms of the premium rent, one, based on modeling, we think that we can attract a premium rent within the organization and the operational advantages that we have already. Two, Chris talked about the first agreement that we are on the verge of entering into at 2FA, and there again, the premium that we're achieving is a proper premium. Very early days, but it feels logical to me that we can achieve a premium and the early evidence suggests that we will achieve a premium. No material IT investment or people investment to serve that? Well- No. Look, we will make incremental investment. I think we have a couple of big advantages. Bear in mind that most people in this space rent the space. We own the space. I think if you think about it, that has an offsetting benefit, first thing to say. All the money comes to us in the first place. I think the second thing to bear in mind is that we have Broadgate Estates, which does facility property management. We have a second piece of the puzzle, which most other people haven't, and you've actually seen people like Workspace trying to move into that direction. We already have that facility. We already offer a number of technology solutions through Broadgate Estates to various of our own clients as well as ourselves. That piece is in. We will have incremental cost, particularly in the leasing capacity, and there'll be some incremental IT spend. Our own view, okay, is that the advantages that we have, because for example, if you think of some of the operators trying to cram a gym into a relatively small business, we don't have to do that. The whole campus gives us that proposition on a much broader range than other people can give. There will be some incremental costs. We're not trying to dodge that. I think in the early years, I think of it as a somewhat break-even type cash flow business. But I think the opportunity for us to grow, as we say, rents and customers, is really interesting. That's clearing on 1FA? 1FA. Yeah. On 1FA, we have revisited our plans, and we've put an application in for a lighter touch refurb, and we're expecting to get planning consent on that imminently. Basically, our view is that in a post-Brexit referendum world, that we can spend less on the building, we can turn the building around quicker because a lighter refurb is more efficient, and we can still attract the types of office occupiers that we want to attract to Broadgate to broaden the office occupier appeal. Also, we can still achieve all of our placemaking and kind of like for the surveyors here, you look at buildings, and you think of placemaking, but for most folk, placemaking is very much ground floor dominated. We can achieve all our placemaking ambitions within this lighter refurb, which is introducing more interesting retail. As Chris has said, we've also got plans to open up a boutique cinema there. Then finally, if you look at the incremental capital that we spend, because we've worked hard at being efficient in doing the refurbishment, you look at the incremental income that we think that we will generate from spending this money, it's a proper return. I think the only thing I'd add is one of the things has made a real difference for us is taking some of the learnings from one side of the business and applying them in the other. If you get just a few minutes when we finish up here, for those of you in the room, obviously not on the phone, you just take a right as you walk out of the main entrance, have a look at what we're doing in the square, because some of that is very, very low cost. I mean, we've basically taken a bunch of containers, put some wood on the front, and guess what? Actually, that'll have more effect on the proposition and quicker than a more expensive proposition will do. In particular, this ability to make it more permeable, which is a big, big part of our vision for Broadgate. We can get to that quicker. It's a big deal for us. Yes, Mark. Sorry. Sorry. Who remember? Mark, go on. Good morning. Marc Mozzi from Soc Gen as well. I have two questions. One is on the flexible workspace. Is it fair to say that it is twice less human intensive in term of the space required for individual than for a classic tenant? I.e., have in mind that for the financial industry, the requirement is about 10-15 sq m per employee's warehouse. For flexible workspace, it's about 5 sq m. So meaning the demand might be there, but the requirement for new space is going to be significantly less? No, the densities that we are working to are pretty similar. You will have financial services industries where those densities are quite demanding. But generally, the flexible workspace density will be similar to the overall office densities that we work to. I think the other thing, Mark, just to bear in mind, is that if you look at the way First of all, there is a lot going on in terms of how people are using space, quote-unquote, traditionally, as well as in this specific segment. So for example, as you know, we have Facebook on the campus at Regent's Place. If you look at how they are using their space, they are using that space in a very different way than, for example, UBS would be using the space here. All of that is going on anyway. You should see this as distinct, and yet having to work with the grain of what people are talking about. So for example, at Facebook, if you look at what Facebook have done, they have really crammed people together in order to create a space where people can work together, great food offer, all those sorts of things. Talking about averages doesn't really make that much sense, Tim, does it, really, in this context? So that would be my only other observation. The other one is about the London office cycle. We clearly, all of us expect that rental values will decline due to the ongoing speculative supply on the ground as we have seen this morning with the Deloitte survey. Considering the recent transaction we have seen as well, can we imagine that this time around, we would see a cycle where we won't have a yield expansion, but we will have a rental value decline? Is that something you are assuming or discounting or factoring in your forecast? In terms of yields, again, what we've seen in the post-Brexit referendum world is we've seen that actually the demand for investments in London across the world has stayed. The volumes are still pretty high. I got on a plane and sold my wares, and I saw investors across the world. It wasn't just Asian investors, across the world. It still feels as though there are big buckets of institutional and private money that are looking to invest money in London, and they think of London as a safe, smart place to invest. In terms of where yields go, well, where yields go, that will depend on monetary policy. That will depend on alternative investments. It will depend on liquidity. It will depend on rental growth. What I do believe is that I believe that there will be continuing demand for London from an occupier perspective, and I think there will be continuing demand for London from an investment perspective. Anybody else in the room? On the phones? Sounds like we don't have any calls on the phone. It feels therefore, unless I've missed anybody. It's quite a wide auditorium. I don't want to miss anybody. But thank you very much for your attention. If you do have a chance, as I say, take a look around. Thanks a lot.