Earnings Call: H2 2016

May 16, 2016

I take it from the absence of any more people coming in that we are more or less done. Before we get going on the results, first of all, welcome. Thanks everybody for coming. Secondly, if I might, I just draw your attention to our. We do not normally do this, and we do not normally have the opportunity to do this, but just to draw your attention to the Queen's Award for Enterprise, which we just received. It is for five years of hard work in the areas, and I will use the slide rather than anything else. I would like to take the opportunity also here to thank all my colleagues for a lot of hard work over a number of years, because it has been a lot of work. With that, let me turn to the results. I am delighted to report that the business is performing well, and we have delivered another very good set of results. In summary, profits are up by 16% to GBP 363 million. NAV is up by 11% to 919p, and that is despite the stamp duty increase. The results are backed up by good performances across the business. I am particularly pleased with the ERV growth of 5.3%, which alongside strong lettings, added over half a billion to our valuation. I am, of course, conscious of the wider issues, the EU referendum, economic concerns, and where we are in the property cycle. Our central case has not fundamentally changed. Occupationally, the market is in good shape. Lower for longer appears to be the consensus now. In this context, today's cap rates do not look out of line. Equally important, our business is in good shape, reflecting the work we have done in recent years. First, we have built resilience into the company. That gives us real comfort in the face of some uncertainty. Second, we have created optionality in our development pipeline. We are not heavily committed today, but well-positioned for the future. Third, our strategy. We are creating a portfolio well-suited to future as well as current needs. Let me start with resilience. We have concentrated on building resilience into the business for the medium term, taking the view that the cycle will be hard to call in this lower for longer environment. For us, resilience today means our long leases, quality occupiers, and 99% occupancy. It also means a lot newer, modern buildings. We have sold over GBP 1.4 billion of retail over the last three years, investing roughly the same amount in higher quality assets. At the same time, we have paid careful attention to our finances. Our gearing at 32% is moderate and well within our stress limits. Our average debt maturity is over eight years. Our next refinancing date is over four years away, and we have over GBP 1 billion of undrawn facilities. Let me turn now to optionality. Development has made us over GBP 1 billion since 2012. However, our current level of development commitment is modest. In offices, we only have 180,000 sq ft under development, significantly below our peak level. What we have created is a large pipeline going forward, but with optionality built in, meaning we can press the button when the time is right. Our opportunities extend across the portfolio, ranging from Broadgate and Meadowhall through Paddington Central and Eden Walk. Of course, we have now got Canada Water. So lots of potential and optionality right across the business. A good risk manager will tell you that being long the option is a good position in times like these, and we are. Let me turn now to my third point, creating a high-quality portfolio for the future. We've shown you these long-term trends before. We're evolving our strategy in the light of them to ensure that our portfolio remains just as relevant tomorrow as it is today. We want to own places where we can control the broader environment, exploiting our mixed-use expertise to drive long-term performance. That means campuses or campus light in London and principally multi-let assets in retail. We're putting placemaking at the heart of what we do. That's how we create places people prefer, places where people want to work, shop, and eat. This framework, we put it up here, applies to our entire business. It gets driven down to both sides of the business. There's increasing overlap between offices and retail, so the places we're creating are increasingly mixed use. For example, you can expect us to put PRS at Ealing and much more retail into Broadgate. I'll look at retail first. As you know, our strategic focus is on our multi-let assets where we can control the environment. Technology continues to drive change. Of course, internet sales continue to grow, but around 90% of spend still touches physical stores. Consumers expect much more. It's not just about F&B and leisure. Authenticity and connection with local communities are increasingly important. Natural light and open air also make a big difference, so it's not just about indoor environments. Hope you guys can still hear. Convenience and proximity are more important than ever. The majority of spend is pretty local in the U.K. On our assets, the average drive time is under 20 minutes. Even at Meadowhall, average drive time is only 24 minutes. What this means is retailers need a broad network of larger and smaller scale stores, which are fully integrated with their online offer, and these stores need to be in quality environments which are brand consistent. Why is British Land well-positioned in this environment? In short, because we can deliver these stores to retailers. Our multi-let portfolio enables retailers to reach over 60% of the U.K.'s population through a network of regional and local centers, accounting for footfall of around 330 million people. Our places are not only highly accessible, they're also easy to adapt. We are now able to show retailers when they open a store on one of our centers, how it will have a positive impact on their overall sales, not just in store, but also on the internet too. Bear in mind that we're making significant improvements to our portfolio for relatively modest outlays. It may seem counterintuitive, but it turns out that annualized spend in regional and local centers are not as different as you might think, as you can see here, and that's to do with frequency of visit. There are some differences between our regional and local centers around scale and store format, for example. Our approach in terms of management and marketing to retailers needs to be slightly different. In our view, these divisions drive better insights and actions than the old shopping center distinctions. The changes we've made to our reporting reflect this. For ease of comparison, we've also given you the old splits in the appendices. By focusing on both management and marketing, we're attracting a greater range of occupiers across our business, driving greater rental tension and ERV growth. The brands on this slide have opened stores on our portfolio where they have not traditionally taken space. Brands like Primark, FatFace, and Pandora as examples. The work we've been doing is also reflected in our operational metrics. Footfall is up 3%. Once again, that's well ahead of the benchmark. Retailer in-store sales are up 2.4%. Importantly, as you can see, our local centers perform slightly better than the regionals on these measures. We're also outperforming on rental growth. On our multi-let portfolio, ERVs are up 3.4%, and the wider portfolio, including supermarkets, was up 2.4%. That's compared to 1.4% for the broader market. Where we've been investing in refurbishments and extensions, performance has been even stronger. Old Market Hereford is a great example of a local open air scheme that's really delivering. We've been delighted with its performance since we opened it 2 years ago. Its design, quality, and location have attracted some strong brands, including Waitrose, River Island, and Wagamama, and most recently, Jack Wills. It also has a six-screen cinema. ERV growth during the year was nearly 5%. Footfall was ahead by 11.5%, and with a rent to sales ratio of only 8%, we're well-positioned for future growth. Glasgow Fort, as you know, is a large open air regional center. We've expanded it and improved it, focusing a lot on higher quality and better design. Believe it or not, that's what the new car park will look like. We've also increased leisure and F&B. We've attracted seven new occupiers over the last year. By the end of the year, we'll have 20 restaurants. You can see the dramatic impact this has had on performance. Footfall is up nearly 7% this year. For many of our retailers, Glasgow Fort ranks among their best trading locations. Finally, turning to Meadowhall. We're well on track with our GBP 60 million refurbishment. As we announced last week, we are about to begin public consultation on a substantial leisure extension. Here's the concept drawing. As you can see, it's going to be quite something. Let me turn now to offices. Our three campuses account for over 70% of the business. We have a clear view how we can grow and improve all three, helped by better infrastructure, particularly Crossrail, as well as more occupier focus on clustering. We have significant opportunities for development to widen occupier appeal and introduce a broader range of uses, more retail, and F&B in particular. All of this will improve the environment and customer experience, not just for our office occupiers, but the people who live, shop, and relax there. In this context, we will monetize places people prefer through improved rental growth, sustained high occupancy, alongside a more diverse and resilient occupier base. Let's take a look at how this is working at Regent's Place. In many ways, Regent's Place is the model for our campus approach. It has the most diverse occupier base with a heavy TMT contingent, which is really different from 2009. It's been a strong performer with 25% ERV growth over the last 3 years, including 13% this year. We're now agreeing the first rent reviews at 10 and 20 Triton Street with uplifts of over 30%. That's GBP 2.5 million of additional rent with a similar increase to come. These rents compare favorably with our newest office block at Brock Street. We've also got development options. The largest of these is 1 Triton Square, where we've got exciting concept designs and some promising occupier interest. We're unlikely to proceed without pre-let. We're also excited about Broadgate. We've transformed it from a high-quality financial hub into the beginning of a broader-based campus in one of London's best-connected and vibrant locations. Our aim is to soften the corporate image of Broadgate further, design buildings which appeal to a broader range of occupiers, increase and diversify the retail offer, over time adding as much as 400,000 sq ft, as well as significantly improving the public realm. The work we've done at The Circle and the improvements in the surrounding area are already helping, as will the arrival of Crossrail. 100 Liverpool Street is a major development opportunity. It's a building we'd be happy to start on a speculative basis. It will have a significant retail and leisure element, including a rooftop restaurant. Our aim is to agree a building contract this autumn, so we're in a position to start development in early 2017. Paddington Central is at an earlier stage, but it too has significant potential. Our plans to improve the public realm and complete the campus are progressing, and here we've drawn on our experiences at Regent's Place in particular. We're due to top out 4 Kingdom Street this month, and we'll be opening a new co-working space at 2 Kingdom Street shortly. We're also the proud owner of two narrowboats, part of our plan to enliven the public realm. We're also starting to see rents increase, reflecting the work we and others are doing in this area. Our focus on campuses has helped drive our office performance, with our actions contributing 45% of the valuation uplift, almost all coming from ERV growth, which was up almost 10%. This is supported by lettings, which were nearly 6% ahead of ERV, with deals under offer slightly better than this. At the Leadenhall Building, we've continued to set rental highs for the city. We're holding out for rent on the last floor of over GBP 100 a sq ft. We've got a good chance of getting this. Our portfolio is now about 10% reversionary. Rent reviews are now a more important element of driving rental growth, with settling on average 17% ahead of passing rent, with more to come. Overall, our leasing activity added over GBP 14 million of new rent. Finally, a few words on Canada Water. Our long-term aim is to make it a great London campus. As you know, it's led by Roger Madelin. We're still very much in the planning process, and we expect to submit planning in early 2017. In the meantime, though, we earn nearly GBP 8 million of rent per annum, which helps cover near-term costs. Given its scale and because it will be truly mixed use, we'll now report it separately, which we hope you'll find useful. That's the right point to turn it over to Lucinda. Thanks, Chris, and good morning, everyone. I am going to take you through the numbers behind our strong performance. I will show you the drivers of the total returns, where our strategic focus on placemaking is delivering performance. Chris has talked about resilience, so I will draw out for you where you can see this in our numbers, as well as the potential and flexibility we have in the development pipeline. Turning to the highlights, the business is performing well, and we have delivered another good set of results. Profits are up 16%. Earnings per share are up 11%. The reason for the difference, as we have discussed before, is that we are now required to anticipate conversion of the 2012 convertible bond. The dividend, as we announced in May last year, is up 2.5% at GBP 28.36 pence. NAV is up 11% to GBP 919 pence, driven by the valuation up almost 7%. Bringing this together, and with LTV at 32%, this translates to a total accounting return of over 14% for the year. Looking now at profit, this is up GBP 50 million, driven by our actions. In summary, that is strong leasing activity across both our like-for-like portfolio and our developments and our financing activities. All of this means underlying profit stands at GBP 363 million for the year. Our portfolio is practically full and rents are growing. Rental income is up GBP 35 million to GBP 620 million. We have added GBP 23 million through development lettings due to the completion of 5 Broadgate and the letting up at Leadenhall. Like-for-like rents grew by 3.4%, adding GBP 15 million. Offices were up almost 7%. This is due to both the rent reviews in the West End, which Chris has just talked about, as well as the leasing of completed developments that are now in the like-for-like portfolio. Retail like-for-like was 1.4%, excluding the impact of surrender premia, it is 1.8%. This has been achieved despite ongoing asset management initiatives as we upgrade the portfolio. The impact of acquisitions and disposals is a net reduction of GBP 3 million this year. We have bought GBP 330 million and, weighted towards the second half, sold GBP 550 million of income-producing assets. Including CapEx and development spend, investment activity has been balanced overall. I have set this out in more detail in the appendix. We have a further GBP 100 million of mature or non-core retail assets under offer. Turning now to our financing costs. We have reduced our interest charge, and it is now down to GBP 180 million. I am really pleased we brought the weighted average interest rate down from 3.8% a year ago to 3.3% today. We have been busy refinancing at lower margins and lower rates. We have undertaken over GBP 1 billion of refinancing activity this year, including the GBP 350 million zero coupon convertible issued last summer. Our approach to interest rate management has been another factor in reducing interest costs. 60% of debt is fixed on average over the next five years. That is down from 85% three years ago. Together with what we did last year, our financing activity has brought our interest down by GBP 27 million. You can also see that as our development commitment has reduced, we are now capitalizing less interest. Bringing this all together, profits are up 16%. Chris has talked about us getting closer to our customers, and we now manage all assets in-house through our Broadgate Estate subsidiary. So we have changed the way we present it in our numbers. Importantly, there is no impact on underlying profit or our cost ratio. Admin costs are up GBP 6 million, in line with our planned investment in people and technology. We expect that next year's admin costs will be broadly in line with this year's levels. I have set out the various moving parts of the admin cost in the appendix. I have also included the usual profit guidance slide there. As you know, given the stability of our cash flows, we announced the dividend at the beginning of the year. I am pleased to say that we will increase the dividend for the forthcoming financial year by 3% to 29.2 pence. Let us look now at the valuation performance. Our portfolio is evenly split between retail and offices. We have seen further valuation growth across the portfolio. It is up almost 7%, primarily due to strengthening ERV growth of 5.3% and also benefiting from yield compression of 17 basis points. Standing investments are up 6.4%, and developments are up over 9%. Remember, this includes the adverse impact of the 1% increase in stamp duty. You will see that, as Chris mentioned, we are now showing Canada Water separately. Our net equivalent yield stands at 4.7%. That is 5% in retail and 4.4% in offices. We have outperformed IPD on capital returns, 50 basis points ahead, and ERV growth, 130 basis points ahead. As Chris mentioned, resilience for us means long leases with quality occupiers and very high occupancy. So with lettings 7% ahead of ERV on a portfolio with 99% occupancy and a weighted average lease length of nine years, we are well-placed. Let us look at retail in a bit more detail. Valuations are up 2.4% over the year. The underlying performance was the same half on half, excluding the impact of the stamp duty increase. The full-year uplift includes 13 basis points of inward yield movement, and we have benefited from ERV growth of 2.4%. As Chris explained, we are segmenting the portfolio differently now and focusing on multi-lets. These are up in value by 2.8% with ERV growth of 3.4%, 2% of which came in the second half. The strong inward yield shift of 37 basis points seen in department stores and leisure reflects investment demand for income-driven assets. You will see superstores are down just over 2%, with softening yields reflecting continued uncertainty. Over the year, we have sold GBP 122 million, and our investment is now under GBP 800 million. Turning to offices and residential, offices are up over 12%, with performance weighted slightly towards the West End. The second half of the year saw flattening yields with performance driven by ERV growth, which was up almost 10%. Standalone residential is up by almost 6% over the year. Also, you will see that values have softened marginally in the last six months. So bringing this all together, this translates to an NAV, which has increased by almost 11% to 919 pence. That is 932 before the stamp duty change. Adding in the dividend, this gives a total return of over 14%. The valuation surplus is GBP 1 billion. That is 85 pence per share, with offices contributing 68 pence and retail 17 pence. Excuse me. Turning now to our debt metrics. These remain strong. Our loan-to-value stands at 32% today. Pro forma for conversion of the 2012 convertible bond, it is 29%. We have already talked about the weighted average interest rate at 3.3%, and you can see the interest cover now stands at a comfortable three times. The group has undrawn facilities of GBP 1.2 billion, and I'm pleased to say that the group has no requirement to refinance within the next four years. Turning to our developments, our current speculative commitment stands at GBP 530 million today. That's 4% of the portfolio with 100% of costs fixed. It's split equally between offices and residential. Our offices are at Clarges and 4 Kingdom Street, and our residential is predominantly at Clarges. To remind you, Clarges resi has already really delivered for us. We've sold over 50% and generated profits of GBP 80 million. We're planning on marketing the remainder on practical completion when buyers can see the fabulous space and views. Looking forward, Chris has already talked about our plans for 100 Liverpool Street, and we continue our work to ready 1 Triton Square and 1 Finsbury Avenue for development. We've got choices as to the amount of capital we commit and when. We'll make the decision whether to commit to each of our schemes at the appropriate time based on how we see the market and occupier interest, or even better, a pre-let. To remind you, our approach is for less than 10% of the investment portfolio to be in speculative developments. As usual, my final slide looks at income growth over the next five years based off today's market rents. Current cash rent stands at GBP 610 million today and could grow by over GBP 200 million. We've already got GBP 77 million of it contracted. That's over a third. We have GBP 16 million of rent to secure on developments, principally at Clarges and 4 Kingdom Street. Looking at the investment portfolio, excluding near-term developments, the reversion of GBP 47 million is mainly in the office portfolio, which is over 10% reversionary today. Our near-term development pipeline could add a further GBP 69 million. As you know, the three largest schemes have been income-producing investments. For your models, the GBP 24 million of it currently passing income is expected to run off in Q4. I've simply shown the uplift here from today's passing rents. To remind you, all the increases shown here are at today's rents and exclude the medium-term pipeline, which of course includes Canada Water. With that, I'd like to hand you back to Chris. Thanks, Lucinda. As you've heard, we've had a strong year. Of course, it's all eyes forward now. At the half year, I commented on the increased uncertainty in global markets and the potential for political events to be unsettling. Six months on, how do we see these things? Uncertainty has impacted markets. The U.K. economy seems to have slowed, and there are signs that the consumer has become a bit more cautious. Occupationally, demand for space still feels robust. In London, we've got discussions underway with a number of businesses who seem willing to commit further out, reflecting low vacancy rates and a limited supply pipeline while schemes continue to be delayed. In retail, demand for high-quality schemes is good. On our schemes, footfall remains robust, though we have seen some slowdown in like-for-likes retailer sales in the last couple of months. Looking at the investment markets, volumes are down, and yields for more secondary stock do seem to have slipped a little. But there is still strong investor interest in London and the regions, and we are seeing deals which are fully supportive of valuations. As we look forward, it is this combination of solid fundamentals and low interest rates, which is driving our central case. So overall, we remain constructive. Clearly, the referendum brings uncertainty. We do not believe an exit would be positive for London or the broader U.K. economy, but judging the scale of this impact, if it happens, is really hard. One way or another, things will be clearer in a month or so. In any event, what gives us comfort is the three things I talked about at the outset. We have a business with considerable resilience. It is built into it for the medium-term. We can grow our development program in a measured way. The existing portfolio is very well positioned, particularly with respect to the longer-term trends in our industry and the economy. With that, thank you for your attention, and we will turn it over to questions. I will ask my colleagues to join me up front. Could I just remind people that there are quite a few people on the phone, so if you can announce your name, rank, and serial number, that would be helpful. Mike. Morning all. Mike Bessell from Bank of America. Three quick ones from me, please. One for Charlie. On slide 15, the broader market saw footfall down and sales up, i.e., in-store spend per visit increasing, and your trend was sort of slightly the reverse. Is there any particular reason for that? We have benefited from all the work that we have been doing. So I think we have just Sorry, I have completely lost my train of thought for a minute. That's all right. I'll go for it. That's why I always get the opportunity to do it while my colleagues have a little think, because don't forget, they don't get it from the front. I think it's quality of the portfolio, in short. If it's one thing, it's quality of the portfolio. As Charlie says, if you add into that the work we've been doing, and as I said, we've seen particularly strong impact where we've been making investments. So I think it's that quality that's been driving superior performance, and you've seen it for a while now. That was the first question. Although if Charlie now wants to add anything, he's more than welcome. I'll wait for the next. The other two are on offices and coming up to the referendum. Firstly, you've given yourself considerable optionality on the near-term pipeline. Yep. Could you give us an indication of what factors you'll be looking at in particular to decide whether to push ahead with that? Yeah, I will give you a very brief overview, then I will turn it over to Tim, who is, as we speak, writing, I know. Look, I would say that, first of all, we feel that the optionality we have got is very powerful because we think these are very. As I said, 70% of the business is within our campuses. That broader sense of us being able to control and people wanting to pay, if you will, for the environment is quite a big deal for us. I think the second thing is to think about, obviously, we will be looking at the overall tone. We will also be looking in some cases for pre-lets. At this stage, we have got some interesting conversations going on. Tim. Yeah, I think, Mike, first of all, if you look at the office portfolio, it is in good shape because we are pretty full, and we are pleased with what we have got. As Lucinda talked about, our committed development program is going well, and we have been thoughtful about how much risk we have got at this stage. So in essence, we are getting ourselves ready to undertake the near-term development program. There, one of the things that we will take into account, obviously, we will be looking at the occupational market. If you look at the moment at the market, it is a healthy market. You can see that through our rental value growth. I think the other thing is that what is interesting is that we are clearly looking for people to take some pre-lets across our portfolio, and we have got good interest. We have got interest from corporates, we have got interest from TMT, we have got interest from financial services and professional services. So they are the sorts of things that we will be taking into account. I think that on 100 Liverpool Street also, it will be a big step forward for the vision of Broadgate, and we are excited about that. Just coming back to the campus theme, one of the risk factors you mentioned at the beginning of three things, one is where are we in the cycle. How, with three large campuses, do you actually manage your risk profile as the London cycle starts to turn? Does that give you a material disadvantage in sort of ability to sell down and reduce exposure at the right time? The short answer, Mike, is no. I do not think it places us at a disadvantage. The reason I think it does not put us at a disadvantage, there is a risk of too many negatives in here. I think the advantages we gain is this ability to control, is the ability, in particular, to flex for individual occupiers how much space they want and where they want it within our campus, and we have consistently seen that benefit over time. We see it just in the way that we are able to talk both to existing tenants, but also to potentially new tenants who, in this world, are not quite clear where they want to be in three or five or seven years. Some of that advantage is very real and shows itself in occupier demand. I think if you look at our overall business, what our intention has been, has been to put our finances in a strong position whereby, at 32%, as Lucinda said, well within our risk limits, we are comfortable at that level, and we want to run the business at those sorts of levels rather than really working hard to call the cycle, as I said at the outset. We think that is a very hard thing to do in the current environment. We think by working ourself into this position, we can run a medium to long-term business in a very effective way, and that is what we are out to do. Just there, and then we will come across down that one if you Morning. David Prescott from Barclays. Just two questions. First, on retail. It feels like over the last few years, big dominant regional centers has been a lot of people's focus. It feels like today you have presented the case that local can actually be more interesting in terms of lower OCRs and similar sales. Can we expect to see you move more towards that in your portfolio? The short answer, and I will get Charlie to give you some more detail, but the short answer is that we like both, and we think that both have their position in our overall business. That is driven by what the occupiers are telling us and by the way that people in this country shop, which is actually quite local a lot of the time. It is not that we do not believe in big regional domination, if there is such a word, but we do believe that it is this mix. Charlie, you might want to You will be pleased to hear I heard this question, whereas, sorry, Mike, for the first one. It is as Chris said, all the data we collect now, we have a much better insight of how the consumer is shopping. And when we discuss that with the retailers, they have a very similar strategy of a flagship store and then a local store, and it is how you pick up all those different consumer missions. So, as you say, both can be profitable and is making sure that we are clear how an asset is performing in its local environment. But at this point in time, the more interesting acquisition opportunities would be in which one? I think it is literally asset by asset. But what gives us the confidence is that both work, whereas historically, people thought it was all just about big. Now we are seeing that as retailers get more confident about click and collect, about how journeys are interlinked, when you go to shop, you also go to eat, both now work. So we think there is potential in both. Give you a little fact. We are actually now able to show retailers when they open a store in a particular locale how their internet sales are impacted within the catchment area. Again, I do not want to overplay it, but in the sense that I am not saying that regional is dead or anything like that. What I am saying is, that this is driven by the customers and it is driven by what the retailers need. And if I were to look at the change that for us, it has been how we can understand that and actually, I mentioned in my own speech this point about marketing. We can actually now deliver to the retailer quite a fine-grained understanding about what is going on and why and how they can change that. Interesting. Just a second question and more of a big picture one. You talked about how lower for longer seems to be the consensus for rates now, particularly in the U.K. How do you think about U.S. rate rises and the impact that they have on U.K. real estate, especially given the amount of foreign buyers in the market? Blimey. Look, I think that there are a wide range of factors going on. I think what we have definitely seen is from a bunch of foreign buyers, has been focus on exchange rates. I think, if you were to try and sort it all out, which is quite a hard thing to do, as you know, I would say that we saw a period where overseas investors were starting to worry about the strength of sterling, and therefore, value for money in the U.K. I think that's turned around. I suspect that'll be as important as anything else. You've heard Carney pretty clearly say what he thinks is going to happen to interest rates, and I think to a large extent, people will be driven by local rates. Okay, so local rates is the key focus. Yeah. Well, look, it's not like we can control either, right? True. True. Michael Burdex, MB&P Private. Just coming back to this point on optionality in the development pipeline. If you didn't pursue with the near-term development pipeline for any reason, what would you be looking to do with the space that you're expecting to receive back from UBS? Sure. Tim, do you want to just comment on that? Yeah. Okay. First of all, if you look at what our intentions are for 100 Liverpool Street, we are excited about the scheme, and we are getting ourselves into a position to commit to develop. That is our central case, and if you think of some of the benefits that Crossrail will have, and if you also think about the occupational market, that seems to be a reasonable central case. If in the unlikely event we do not progress with it, if you look at our history in the past, we have been very successful at taking buildings back, refurbishing them cost effectively, and then filling them up. I can give you two examples of that. One and 2 Broadgate, which we did probably four years ago, and actually, 4 Broadgate, which was the building that we kept going, which eventually was going to make up the site for 5 Broadgate, the UBS building. Great. I guess that would apply to the other buildings as well, Tim, wouldn't it, in terms of that approach? Yes. Generally, we manage to keep our buildings pretty full. Then just one, if I may, on the balance sheet. You had always been very clear previously that you were not going to gear up into yield shift. It could be that we do not have much more yield shift from here. What is your view on how you manage the balance sheet from here? Should we expect you to be a net seller? Will you be investment neutral as you were last year? Where do you take it from here? Sure. Lucinda may pick up on the detail again, but you should expect us to be broadly in line with what we've been saying for the last 12 months. That is roughly speaking. Bear in mind, it's a big portfolio, so sometimes they were GBP 100 million. But within that caveat, you'd expect us to be selling assets, roughly speaking, to fund either new purchases or development spend. Thanks. Oliver Reeve from Deutsche Bank. Oliver Reeve from Deutsche Bank. Could I ask on demonstrating the impact of a store opening on online sales, just how much visibility you have on that impact and how much data you actually receive from retailers? Or is it more just verbal feedback that you get? Thanks. Well, again, Charlie will give you the detail, but the slightly cute answer, but still the truth, is a bit of both. Sometimes you'll find that retailers are a bit reluctant to give you information. There are ways of finding it out. Sometimes they give you very full disclosure. So it's a bit of both. But Charlie, you might want to comment on the internet stuff in particular. Yeah. The tool that Chris is talking about is a tool that we've developed as an organization where we try and forecast what a retailer's web hits will go up by in the post codes. Then once they've opened up a store, we go back and say to them 3 months later, "What did your web hits go up by?" For the 20 stores that we monitored over the last 6 months, on average, the web hits went up by 55%. So it's showing to people the whole halo effect of in-store and online. Thanks. Lots of questions. Remco Simon from Kempen. You indicated that you see the added value for the business mostly in multi-let assets. Yep. You've got about 2 billion GBP of single-let retail assets. What is the future for those? Sorry. Sorry. Basically, leading on from that, most of your 1.5 billion GBP near-term pipeline is in London. I'm presuming that you're going to sell more in retail and develop in London. Are you comfortable increasing your exposure to London offices at this point in the cycle? Well, first of all, over time, as you know, we were very clear that we wanted to increase our exposure to London, and I think that's something we did pretty successfully over the last few years. I think at this point, as you allude to, this sort of balance feels fine to us. We will end up selling in a measured way our non multi-let. But in many cases, there are better opportunities by waiting a bit than there are by doing it eventually. So don't expect it to be overnight. And that's principally because we think we'll add more value for our shareholders by that measured approach one way or another. Sorry. No, it's all right. No, I was going to say, just add to it. Of the billion of department stores and leisure, most of those have got fixed uplifts. So they're good short-term performers, and then we're still selling some superstores. We sold another superstore on Friday. GBP 64 million, 4.2%. So there's still good demand for those assets. As you say, there's quite a decent proportion of the overall development pipeline is in offices. But look, we've shown an ability to manage those flows too. So don't assume that GBP for GBP it'll be in that order. We're confident in our capacity to balance those things reasonably sensibly. Yeah, go on. Good morning, Hemal Patel from Green Street. Chris, you say that it's difficult to ascertain the impact on, if we vote to leave, and I think most people would agree with that, obviously. But your relative exposure to city and financials is high relative to your peers. Does that cause you concern? Or how do you think about that in terms of in the unlikely event if we were to vote to leave? Sure. We look at all of those exposures in the round specifically. Technically, we've only got a couple of banks in the top 20. So just to put it in perspective. Actually what we've clearly seen, for example, if you look at the Leadenhall Building, you've seen financial sector, but that's an industry that does not regard itself as particularly subject to Europe. If you look at how many sales typically the insurance business does in Europe, it's relatively small, and that relates, of course, to the strong position of some European insurers. So if I look at some of the space, mostly in the financial sector elsewhere, including at Regent's Place, these are exposures that feel like they're global businesses or businesses running domestic business. Our largest single exposure is obviously UBS, which is committed for a long time. Tim, I don't know if there's anything you want to add to that. Yeah, I think, also, if you think about how we've moved the portfolio weighting over the last five years, we're now 60% in the West End. In doing that, the rent that we get from financial services customers has definitely reduced. I think that it's fair to say that when we talk to our customers, it is the financial services that are most cautious and most worried about the EU referendum. But again, if you look at the type of people who are looking to take space across the portfolio, in particular, in terms of pre-lets, as I've said earlier, there's a good mix, including financial services. When you talk to these people, are they worried about the EU referendum? They might have concern, but their overarching ambition is to get a place for their business over the next 10 to 20 years. Do you know what? They still think London's a special place to be. Thank you. Very clear. Just one more, if I may. With regards to Canada Water, how might the impact of a new mayor, what might that be for the affordable element? Clearly, the new mayor's wanting a lot more affordable. Is he likely to get it? Look, I think the reality is that we've seen two mayors who've been very good for London who've come from very different political persuasion. I think one of the things that has driven that is the reality of wanting to continue London's journey as a great city. I think there will be a period where the mayor works out what he can and can't do and what's deliverable. Actually, the early statements that we've heard I found to be very encouraging. Now, we'll see how it goes. But we've always planned that Canada Water, like the rest of our business, has to integrate fully into the community. That's that whole thing we've been talking about in this room amongst other places. About a town center, about an integrated approach, about not just being a dormitory suburb. I think all of those things will go into that mix. But per se, we didn't wake up on the morning afterwards and think that's going to have a huge impact, but we'll see. Thank you. Anybody with a microphone gets to wave twice or something. Yeah, go on. Miranda Cockburn from Stifel. I know residential isn't a large part of your portfolio, but obviously it's quite an important component of your near-term development pipeline. Just wonder if you could run through your three schemes and just give us a bit of an update on sales. Also, I note that at Aldgate, phase two is due to start this year. Is that still likely to take place or could that be postponed at all? Tim? Okay, yeah. Miranda, if you look at the level of sales that we've still got to achieve in the committed residential development program, it's GBP 290 million. So it's your point. It's not big. It's less than 2% of the portfolio. Actually, in the GBP 290 million, we've got GBP 80 million of profit still to come. So we're in a good position. If you look at the three schemes, we've got Clarges, which, let's call that super prime, where we've sold nearly 60% of it. I think that as far as that market is concerned, some of the volumes have fallen. Some of the pricing of some schemes where they're not providing the uber-rich with what they want, the values have fallen. But equally, there are examples where you're getting it right, and these are recent examples, where pricing is still very firm. I believe very much that Clarges is in that camp. I stood on the ninth floor, last week, looking across Green Park across to Buckingham Palace, and you know what? I still think we'll do very well out of Clarges. As Lucinda's already said, it's been a very profitable scheme for us so far. Then, we've got The Hempel, and let's call that prime, where maybe prime the market's between, say, £1,500 and £3,000 a square foot. As I alluded to at the interims, the volumes have gone down, and actually the pricing's gone down there as well. But to, again, put it into perspective, we've got GBP 75 million of sales to do at Hempel. I still think that we will do them better than the underwriting case when we acquired, which was £1,900. The valuation might soften a bit, but in terms of the acquisition, I think that we'll still make money. The third is Aldgate, and let's call Aldgate mainstream. So mainstream may be between £500 and £1,500 a square foot. There, do you know what? The market's still pretty good. In terms of sales at Aldgate, we're achieving the prices that we've set out to achieve. There's no softening of prices. If you look at other schemes, either side of £1,000 a square foot, they still seem to be selling well. So, pleased with that market. Phase two, we're going through the process at the moment of looking at that, looking at the market, looking at the pricing. But I think that generally, residential, especially in the mainstream areas, is something that British Land wants to be in. London seems to have demand that significantly and consistently outstrips supply. Of course, that will put us in a good position for Canada Water. Good morning. Oh. Ben Richford from Credit Suisse. Just a question on superstores. Do you have a sense of what the in-store tenant sales declines are for the very large grocery stores that you own? Can we expect you to exit that sector entirely under a multi-let strategy? Well, in terms of strategy, at the risk of repeating what I said before, the focus of our strategy is on multi-let. Therefore, you should expect that proportion to increase over time, one way and another. In terms of the detail of superstore disposals, that will kind of go on at a sensible pace. Charlie, I do not know what you want to comment on with respect to. It is the one area we get less visibility on, in terms of the rent sales ratios. They will have got poorer over the last couple of years. On the investment side, we are still seeing reasonable demand. With the two sales that we have got under offer, we will be down to about GBP 700 million within the next three months, I would imagine. Thanks. It seems like, looking at some of Tesco's numbers, that the sales are declining for these stores, even including internet fulfillment, which means the in-store must be pretty bad. Yeah. Again, we don't tend to get those figures at that sort of level. Probably not for us to comment on that one. Okay. Thank you. Sure. Okay. Good morning. Marc Mozzi from SocGen. Just one brief question for me. It seems that your dividend proposal for this year is 1% below consensus. Is there any reason for that? I've been looking forward to the opportunity to hand a question over to Lucinda, because she's had little opportunity so far. So at the risk of her killing me afterwards, I will hand that over. I've got a second one for her as well. Well, as you've seen, we've grown the dividend. We've announced in advance we'll be growing the dividend by 3% for the forthcoming year. In settling on the level of the dividend, we look at our long-term view in terms of the profitability of the business. If you remember, we have been saying for some time that we've wanted to get the dividend payout into the mid-80s, and we've now achieved that medium-term ambition. So we're pleased to have done that. As I say, that 3% reflects our long-term ambition to grow the dividend in line with the profits. Just to make sure, in your guidance for rental income in the next five years, you have the impact of UBS leaving its current building? Or do you have a net effect of the new letting and the- On- But you are assuming that it would relate- Yeah the UBS buildings. On the last slide that I put up, what I showed was the uplift that we will get. But there is GBP 24 million of income running off at the end of this forthcoming financial year. We will then, as we have talked about, we have choices in terms of what we choose to do with those assets. And then, of course, I showed the uplift of GBP 69 million being the total amount of the near-term development pipeline, which will be the uplift in rents if we were to develop all of that out. Thank you. There is one back there. Good morning. James Carswell from Peel Hunt. Just a quick one from me on city office yields. I know it is a very small move, but it looks like they have moved out slightly in H2. I am just wondering, is that a market move, or is that you potentially had the pre-development buildings at Broadgate running off? You have done a great job of answering your own question. Okay, thanks. Which I always find reassuring. If you stand up here at the front, it is quite good when that happens, for the record. Tim, if you want to just comment on the detail. James, I am very impressed that you have spotted a full basis point movement in yield. Well done. First of all, it is a bit of a rounding error, and then secondly, as you can imagine, we are on the eve of getting buildings back from UBS on Broadgate. So that accounts for some of the movement in the yield. Then we have had rental value growth in the city, but sometimes the valuers value off an initial yield. So you take your rental value growth, and it just moves the equivalent yield by a fine margin. Okay, thanks. It is a bit arcane, but there we go. Anybody else in the room? If I look at the back, have we got any questions on the Why don't we do that, then? Ladies and gentlemen on the phone lines, if you would like to ask a question, then please press star one on your telephone keypad. It is always the exciting moment for me. The moment. A question has come through. It is from the line of Marcus from BMO. Please go ahead. Good morning, ladies and gents. Meadowhall, the GBP 60 million that you are spending, could you give us a bit more of a breakdown about how that is split between the new part and basically defensive CapEx of the existing scheme? Charlie? Yeah, I do not think we would split it out quite like that. The GBP 60 million is a complete overhaul, so in terms of all fenestrations. We are zoning it in different ways, so it is going to have a very different look and feel to it. I think it is hard to split it out between income and non-income producing activity. Throughout the refurb, we have actually had a very good year. We have done a lot of lettings, 22 lettings above ERV. Again, it has outperformed the market this year. What we did do is we had a relatively small-scale development refurb, just of a few million GBP. What we saw before this, and what we saw that do very clearly, was improve tone, was allow us to attract some occupiers who hadn't historically been at Meadowhall. We expect that impact again, and that sense of having more occupiers who want to come there, driving more rental growth is very much a story right across our business. To be clear, it's impossible to work out what effectively the split between the two and you make no attempt to do so because it's just a collective response to an improving environment, a better shopping experience. Rents are going to rise, but it's difficult to tell a before and after. You would concede that part of this is embedded defensive CapEx that's required by all these aging centers? Look, there's no question that you have to invest in these large centers to make them ever more relevant to the consumer and therefore to the retailer. One of the points that I was making in my speech was this point around the combination that we have of local and regional, and there is that basis when you look at the whole retail portfolio, that we do have this benefit that relatively small amounts in some of our centers can have a big impact. You can drive the combination to be very effective in terms of rental growth and how do I get myself relaxed about that, if that's the right word. How do we get ourselves comfortable? How do we as an executive team get ourselves comfortable? Because we look at history where we've seen investments make a difference. We look at what's going on elsewhere in the world, and we look at what goes on across our portfolios, as well as in the individual buildings. If I look at that and combine that with the ERV growth we've seen over the recent years, the performance we've had in the multi-let, it's that combination that gives us a lot of comfort in the business. Thank you. Last question from me on the same subject. The GBP 300 million extension, the sort of new leisure, is there a loss of income? Is there something on the site now or is this Sorry, I haven't really got up to speed on this. Yeah. Where is that going relative to the rest of the scheme? Then more importantly, yield on cost, just a rough idea or too early for you to say? On the second part first, it's too early to say on the yield on cost. The design as we've got it at the moment is as you come into the main entrance of the scheme, there's some decked car parking, and we're going to redevelop that decked car parking. So we're taking out virtually no existing income to add the extension on. Okay. Thanks, Charlie. Thank you. As a reminder, ladies and gentlemen on the phone lines, it is star one on your keypad if you would like to ask a question. Okey-doke. That looks like everything. Thank you very much indeed for your time. Much appreciated.