Earnings Call: H2 2015

May 14, 2015

Morning, everybody. Welcome. Thanks for coming. I must say, there is something delightfully school boy or school girl-ish that nobody wants to sit in the front row. It's very reassuring. Anyway, look, it's been a good year for the business. We're reporting another set of strong results, with total returns of 25% and a stronger operational performance. Of course, we recognize that the market has been very supportive, but we've continued to outperform on a range of metrics. We've also had a particularly active year. Our leasing has been exceptional, both in value and in volume terms. We've continued to reposition the portfolio. We've bought and sold over GBP 2 billion of real estate. To put this into context, our gross investment activity now totals around GBP 7 billion over the last five years. That's around 80% of the portfolio's value back in 2009. Our London business is twice the size it was five years ago. A number of macro trends are driving our approach and our activity. How technology is transforming the way people work, shop, and live. A growing population and more urban living. The increasing importance of high-quality infrastructure. Sustainability in its broadest context. Last but not least, globalization, not just of capital, but of people, too. These trends are having a big impact on the real estate sector in the U.K. We're positioning the business to be a long-term beneficiary of these trends. We're playing to our strengths and focusing on our areas of competitive advantage. That's how we deliver outperformance. Our areas of investment focus will be familiar to you. We think about creating great environments. In other words, places people prefer. Growing in London and the South East, investing around infrastructure, ensuring our retail business is internet resilient, and leveraging our development skills to deliver value and keep our portfolio modern, all against the background of getting closer to our customers. Canada Water is a great example of an exciting project which touches all of these themes. One of London's largest single regeneration projects, we intend to create a truly mixed-use scheme that will really be something quite special. I'll come back to the project in a bit. We'll follow our usual format today. I'll kick off, Lucinda will follow up with the financials, and I'll wrap up with our usual look forward. Let's start with a quick look at the headlines. Our total accounting return is 25%, as I said. This brings the total over the last two years to nearly 50%. Our NAV is up over 20% over the last 12 months, underpinned by a 12% increase in valuation. Our valuation is well ahead in both sectors, up nearly 8% in retail and 19% in offices. Asset management and development contributed around a third of the uplift. Letting up completed developments was a key factor. Market yield shift contributed around two-thirds of the uplift, where we benefited from our increased weighting in London. It's also important to note that we've continued to outperform the market on both capital and total returns. Arguably more importantly, we've had an exceptional year for leasing in terms of volume, in terms of value, and in terms of diversity of tenant. We've been letting space well ahead of value as expectations, on average 10% ahead of ERVs. Rental growth is another important part of this year's story. Six months ago, I said conditions were getting better. In the London office market, rental growth continued to strengthen. Just as noteworthy has been the improvement we've seen in retail, particularly over the last few months. Our GBP 2.4 billion of investment activity has been bang in line with strategy. Asset sales broadly balanced by acquisition and development spend. As you'll recall from a year ago, that's roughly where we expected to be. Overall, we've increased our exposure to London. We've reduced our standalone superstore exposure to less than 7% of the portfolio. We've disposed of other, more mature retail assets and pre-sold over half the residential units at Clarges. At the same time, we've significantly grown our medium and longer term development pipeline. We've been busy positioning the portfolio for the future while delivering near-term performance. Here, the big news is improving rental growth, supported by strong operating metrics and the ongoing evolution of our portfolio. Managed to turn over two pages there. I think. Did I turn over. Just pause for a second. Page good. Good. Sorry about that, James. Valuations were significantly ahead, up nearly 8%. Total returns were 14%. Performance in the second half was slower than the first. There was limited transactional evidence in prime shopping parks, and superstore valuations softened, reducing the modest gains of the first half. Nevertheless, we still comfortably outperformed all retail returns. Broader retail market fundamentals have improved. Consumers are now benefiting from lower oil prices, as well as economic recovery. Many retailers are doing better. Our leasing volumes have dropped a bit, reflecting the fact that we're nearly full, and the quality and terms are better. We're attracting a broader range of brands. There's been strong demand from fashion and footwear, and continued growth in F&B and leisure. Overall, lettings and renewals were signed nearly 9% above ERV over the course of the year, and our pipeline looks healthy too. Our operating metrics look strong, as you can see here. Retailer sales were ahead by 3.7%. Dwell times and spend are both up. The demographic of our shoppers is improving, and we continue to outperform significantly on footfall. Our mix of assets and shopping parks, in particular, have definitely helped here. You can see the consistent trend in outperformance. As I said, rental growth has become more widespread across our portfolio. For the year, it was 2.5%, the strongest for seven years. We saw rental growth on nearly 60% of our entire retail portfolio. You can see the strengthening trend over time and further improvement in outperformance. IPD here is shown in blue. We are getting this ERV outperformance because we are creating the right places. We are doing this efficiently, not least by investing in our existing assets. We have been building large-scale extensions, adding leisure, as well as food and beverage. These are income producing from day one. We are also investing in relatively simple improvements, like better car parking, landscaping, and Wi-Fi coverage. We are seeing tangible benefits in terms of footfall, dwell time, and consumer spend, and we expect this to flow through into rents over time. Meadowhall is a great example how we are investing profitably to drive rents and values. We recently spent GBP 3 million upgrading our premium retail offer. We are now seeing the benefits in terms of more affluent shoppers. Sales data for the retailers in the refurbished part of the scheme is ahead by 6%. That compares with a 3.6% increase across the whole of Meadowhall. These numbers give us confidence for a more substantial refurbishment, and we are starting that in September. Another great example is Ealing Broadway. We bought it two years ago as an undermanaged asset. We have now acquired the two adjoining ownerships. We have refurbished parts of the center and started to reposition the occupiers. Overall, ERVs are up by 19% since acquisition, and sales are up and accelerating. You will see it continue to evolve, and we have recently submitted planning for a wider refurbishment. Importantly, we continue to reshape the portfolio. Over the year, we transacted nearly GBP 1.5 billion of capital, balanced equally between sales and acquisitions. We are just under GBP 100 million invested in development and other CapEx. We sold GBP 720 million of assets. That includes 28 superstores on an average yield of 4.8%. We also sold some higher yield in retail parks which no longer fit our criteria. We invested around GBP 750 million at an average yield of 5.4%, mainly by increasing our share in assets we already know and like. The Tesco swap was our largest deal. At heart, it is really quite a simple transaction. We sold our share in a portfolio of standalone superstores and took full ownership of a number of multi-let assets with more potential. We also further increased our share in HUT while selling certain assets within HUT, which don't make the grade. Net-net, this will leave us with a larger share of a smaller but higher quality portfolio. To wrap up on retail, you can see an improving trend in rental growth, good operating metrics, a strong uplift on valuations and returns, all underpinned by the constant evolution of our portfolio. Turning to offices, valuations are strongly ahead. Leasing activity has been exceptional. Our campuses have performed well and are attracting new and growing occupiers. We have made good progress on our new developments, and we are seeing strong and broad-based rental growth. All of this has translated into the strongest valuation performance in years. Valuations were up 19%. The second half was slightly stronger than the first, and overall, we outperformed IPD capital returns by 440 basis points. That has been driven by strong yield compression as well as rental growth. This rental growth is now firmly established. ERVs were up 8% over the year, building on the 6% growth in 2014. Turning to leasing, space let and under offer is nearly 1 million sq ft, significantly up on last year. We are also agreeing terms well ahead of valuers' expectations, and that has been really good for performance. Overall lettings were 11% ahead of ERV. Occupancy is now at 98%. What we are really pleased about is the increasing diversity of our tenants. This includes Facebook, IPsoft, GTech, and WeWork in the tech space, alongside significant F&B lettings, mostly at Broadgate. Leadenhall is a great leasing story. Have a look at this slide. This is where we were at the beginning of the year. This is what we have let over the year. This is what we currently have under offer. Finally, we are negotiating on some more space. Patience has clearly been a virtue here. We have a great cast of occupiers, including the building's architects, Rogers Stirk Harbour + Partners. They see it as a great showcase of their capabilities. The building continues to set the highest rents in the city. We have done it four times now, most recently hitting GBP 90 a foot. Of course, this has been great for valuations. The value of the building has gone up 37% over the course of the year. Our London campuses continue to evolve. At Broadgate, we have made further progress in widening occupier appeal. Leasing space at 199 Bishopsgate to WeWork is a good example of this. It is a flexible offer for smaller tech businesses and a brand name, increasingly well-known and powerful right around the world. This also strengthens our links with Hoxton and Shoreditch. We also let space for Central Working. The renovation of Broadgate Circle is another important step forward for the campus. The new F&B offerings are now mainly open. Initial trading has been very good. 5 Broadgate will PC in June, and we heard just this week that we have got planning consent for 100 Liverpool Street. We are also making real progress at Paddington in terms of development, public realm, and new investment. We are on site at 4 Kingdom Street. We are also now busy improving the public realm across the campus, and our acquisition of 1 Sheldon Square increases our exposure. Finally, we are really pleased with progress on renting vacant space. Virtually all of the grey space has been taken up by Microsoft, so the conditions for rental growth are much improved. ERVs are now around GBP 52 a foot, whereas rents in King's Cross, Victoria, and Regent's Place are closer to GBP 70 a foot. Regent's Place itself continues to move forward, notwithstanding the enormous improvements of the last few years. Facebook has taken recently vacated space at 338 Euston Road, nearly doubling the rent there on a net effective basis. They have now got around 150,000 sq ft of space in total. This makes it their largest hub in Europe. The change in the occupier mix at Regent's Place is also enabling us to improve the retail and A3 offerings. Looking forward, we have got nearly 350,000 sq ft of rent reviews next year at 10 and 20 Triton Square. At current rental levels, we would expect an uplift of some GBP 2.5 million a year, which is good. As you know, development has been an important part of our business model. We have delivered more than 3 million sq ft of space. That has generated profit of over GBP 1 billion since 2010 and an IRR of over 30%. Equally important, though, has been our focus on replenishing our development pipeline, which is in good shape, not least because it has been bought at sensible prices and in improving areas, all in line with strategy. The value is currently expect projects on site and in the near term pipeline to generate close to GBP 500 million of profit, with around GBP 330 million still to come. We are generating double-digit IRRs, generating healthy returns for our shareholders. We have built in significant future optionality, allowing us to delay starts if we need to. To wrap up on offices and development, rental growth is now well established. Leasing has been exceptional, and the valuation uplift has been really notable. Finally, development has delivered for us. We expect that to continue. I will hand you over now to Lucinda to take you through the financials. Thanks, Chris, and good morning, everyone. I am going to take you through our performance, focusing on the drivers of our total returns, our approach to risk management, and income growth potential. Starting with the financial results. Profits are up over 5%, principally due to our exceptional leasing activity. As we announced last year, the dividend for the year is up 2.5% at 27.68 pence. NAV is up over 20% to 829 pence, driven by the valuation up over 12%. Bringing this together, and with LTV at 35%, this translates to a total accounting return of 25% for the year. Looking forward to next year, we will increase the dividend by 2.5% to 28.36 pence. That is a quarterly dividend of 7.09. Profits are up GBP 16 million. In summary, that is driven by GBP 16 million from development, GBP 9 million from like-for-like rental growth, and GBP 6 million from liability management activities. Partially offset by a GBP 7 million reduction due to the impact of sales, and GBP 7 million of increased costs. All of this means our underlying profits stand at GBP 313 million for the year. That is up 5.4%. The dividend increase was a little lower at 2.5% as we improve cover. Looking at net rental income in more detail. This is up at GBP 585 million, an increase of GBP 23 million. Development lettings added GBP 22 million, with deals secured 8.5% ahead of ERV. Like-for-like rents grew by 2.3%, adding GBP 9 million, due to improved occupancy across the portfolio, up from 96% to over 98% today. We have been broadly balanced between acquisitions and disposals, but because we completed our disposals earlier in the year, the effect has been to reduce net rental income this year by GBP 9 million. We currently have around GBP 200 million of retail assets on the market or under offer. Turning now to our financing costs. These are GBP 201 million for the year. As developments have completed, the income statement now bears the financing cost, an increase of GBP 6 million in the year. We are pleased with the terms achieved on our liability management activities. We have undertaken over GBP 2 billion of activity, including arranging new group facilities and recouponing debt in joint ventures and funds. We have also reduced the amount of debt held at fixed rates to an average of 64% over the next five years. In total, liability management activities have saved GBP 6 million this year. You will not see the benefit of the GBP 8 million from the Tesco swap as that completed in March. Bringing this all together, profits are up over 5%. Looking down the income statement, you will see that admin costs are up by GBP 7 million. This is due to two factors. Firstly, performance-related pay, as people have achieved their performance targets. Secondly, and as you will hear more from Chris in a moment, we have been investing both in our people and in technology to enhance the capability of the business. We will continue to invest in people and technology, and so I can see costs up by at least this much next year. Also thinking ahead to next year, we will begin accruing income from 5 Broadgate whilst continuing to receive rent at 100 Liverpool Street and Finsbury Avenue. This increases accounting rents by GBP 12 million in the coming financial year. For your models, and as previously mentioned, for the whole of next year, underlying EPS will be diluted for the convertible bond. That means for your earnings calculations, the interest payable on the convertible bond of GBP 6 million needs to be added back, and the number of shares increased by 58 million. Looking at the valuation performance. We have seen strong performance across the portfolio, up 12%, benefiting from yield compression of 48 basis points and ERV growth of 4.6%. Returns were driven by a continuing strong performance from our standing investments, up 11%, and we have had another excellent period for developments, up almost 26%. Our net equivalent yield stands at 4.9% today. That is 5.2% in retail and 4.6% in offices. We have continued to outperform, with capital returns 190 basis points ahead of IPD and ERV growth 130 basis points ahead. Clearly, market movements have been a key driver of our performance. It is also a reflection of our well-timed development program, the quality of our assets and how we manage them, and our sector allocation decisions. You will see we are now almost evenly split between offices and retail. Looking at retail in a bit more detail. Valuations are up 7.5% for the year. The uplift is driven by 47 basis points of inward yield movement, the majority of which came in the first half. Importantly, in the second half, our ERV growth has accelerated, delivering 2.5% over the year, and transactions under discussion support further growth. Shopping parks are up in value by just under 8%, with 3% ERV growth. Shopping centers are up almost 9%, with over 2% ERV growth. You'll see superstores are up just under 2% over the year, with yields softening in the second half, reflecting negative sentiment and increased asset differentiation. Over the year, we've sold GBP 480 million ahead of valuation. As at the half year, I've included additional information on the superstores in the appendix. Turning to the office portfolio, valuations are up almost 19%, with performance broadly balanced between the West End and the City. The City performed slightly more strongly in the second half, up over 11%, boosted by Leadenhall. We've had exceptional ERV growth across the portfolio. The West End is up over 6%, and the City is up almost 11%, boosted by the refurbishment opportunities at Broadgate, which are explicitly reflected in the valuations. Stripping these out, the underlying trend still shows growth of almost 7%. Bringing this all together, this translates to an NAV which has increased over 20% to 829 pence. Adding in the dividend, this gives a total return of 25%. The valuation surplus is GBP 1.6 billion. That's almost GBP 1.50 a share, with offices contributing 92 pence and retail 56 pence. The NAV reflects dilution from the convertible, and you can see the recoupment component of the Tesco swap reduced NAV by three pence. Turning now to our debt metrics. Our loan-to-value stands at 35% today compared to 40% a year ago. Pro forma for the convertible LTV is 32%. Leverage has come down due to market movements and our actions, principally development profits. As you've heard before, our approach to leverage is that we won't gear up when yields shift. As the market's improved, our maximum leverage level has come down a couple of points. Our debt metrics continue to be strong. I'm pleased to say our weighted average interest rate has come down from 4.1% a year ago to 3.8% today. This reflects the impact of our liability management activities, including the new GBP 485 million RCF, agreed in conjunction with the cancellation of over GBP 800 million of facilities and the refinancing of GBP 700 million of debt in joint ventures and funds, as well as the impact of the Tesco swap. As you can see, interest cover stands at 2.6 times, and our average debt maturity is unchanged at 8.7 years. Undrawn facilities stand at GBP 1.2 billion. As you've heard, we've been actively replenishing our development pipeline. Our committed projects, excluding Five Broadgate, stand at around GBP 850 million. Of this, GBP 260 million is offices to let, and the balance is residential. The to-sell amount is significantly lower than 18 months ago, as we successfully pre-sold over half of Clarges during the year. We fixed construction costs at an early stage, and we've already fixed costs on over 85% of the current program. It's worth mentioning that we've seen construction costs increase as contractors reestablish profit margins. Going forward, we're factoring cost growth of 6% per annum in our appraisals. Our near-term pipeline consists of over 1 million square feet of London office space, all of which is adjacent to existing campuses and benefits from washover or optionality. Looking to the medium-term, Chris will talk you through Canada Water shortly. As usual, my final slide looks at income growth over the next five years based off today's rental values. Current cash rent stands at GBP 578 million today, and it could grow by almost GBP 200 million. We've already got half of it contracted. We have GBP 70 million of rent to secure on developments under construction, and our near-term pipeline adds a further GBP 50 million. Just to be clear, the increase shown here is at today's rents. On that note, I'd like to hand you back to Zoe. Thanks, Zoe. Before we take questions, I want to give you a sense of what you can expect from us over the next 12 months and why. Let me set the scene. We're conscious that we've been beneficiaries of very strong markets in recent years. But we've changed both our portfolio and the way we run the business. This is reflected in our outperformance. Compared to five years ago, we're bigger, we're more concentrated in London and the Southeast. Our London office business has risen from around a third to nearly half of the portfolio. Our portfolio itself is much more modern. Within offices, we have more exposure to the West End and large mixed-use campuses. In retail, we're more focused on those multi-let campuses or schemes which are well-positioned for growth in an omni-channel world. We've got a sizable development pipeline reloaded virtually from scratch. Finally, we carry less gearing. These improvements have been driven by our actions and in turn, by those macro trends we identified early on and which I talked about first. As a reminder, to ask a question, please press *1. Expect continuity of approach. We will continue to invest in London and the Southeast, focusing on improving areas with good infrastructure. This will principally be through development, mainly mixed use. Blossom Street, Paddington, and Canada Water are all good examples of this. Retail remains important to us. Our business is improving and outperforming, and we will continue to invest largely via our existing assets. Retail is also subject to disruptive technology and retailer competition. You should expect us to continue selling assets, likely several hundred million GBP in the year ahead. This plays to our second theme, which is disciplined use of capital. Overall, we are likely to be a net disposer of standing investments this year to help pay for developments and to exploit a strong market. My third theme is about further expanding the longer-term capabilities of the business by investing in our people, in technology, getting close to our customers, and providing them with a better service. Canada Water is a great example of everything I have talked about. We have invested well, and now we are bringing all our strengths to bear on one specific part of London. A growing population, high-quality infrastructure, and proximity to both the city and the West End underpin our confidence in the potential here. It is one of London's largest regeneration opportunities. You can see the comparison here with other large projects. Assembling all of this for around GBP 5 million an acre is testament to our capital discipline and our deal skills. Importantly, in conjunction with the other key stakeholders, Southwark, we control 46 acres. Together, we have got big plans for the area. It is a unique opportunity to regenerate a part of London that has been overlooked. We will use our development skills and what we have learned from Broadgate, Paddington, and Regent's Place to create a truly mixed-use scheme that is modern and technology enabled. We will create a new town center for the area, which is integrated with the local community, and we will take advantage of the existing water and green spaces to create a place which is in tune with modern lifestyle. We acquired the last piece of the jigsaw in February, and we are currently in the master planning phase. We will submit planning in 2016. In terms of outlook, our view is pretty much in line with what we said at the half year. Yields have compressed further since then, of course. The political outlook in the U.K. certainly looks clearer than it was a week ago. As ever, some issues remain to be resolved both here and abroad. We continue to expect interest rates to stay low by historical standards, both because inflation is low and because of global concerns around economic growth. Importantly, rents are rising in both parts of our business, and there are good reasons to think that trend will continue. Indeed, the trend in retail is clearer than it was six months ago. Wrapping up, rising rents are good for our business, and we have improved our business over the last few years, so we are better placed. We have benefited from strong markets, but our consistent outperformance shows our work is paying off, and that gives us confidence in our direction of travel. That concludes the formal part of today. We will take questions, obviously. As you know, we have people on the phone, so we will have microphones around the place. But if you could give your name and organization, that would help everybody. And I will ask my colleagues to join us on a strangely darkened stage. Go ahead. Mike, guys, can we just Just wanted to ask a question, a couple of questions. In your statement. Sorry. Hi, Chris. That is great. Hiding at the back. I can't see anything at the back. I apologize. That's all right. Just wanted to check. You mentioned the strong demand for trophy assets, and I just wondered with Leadenhall nearly complete, whether you'd consider selling that. Yeah. Look, I think the main thing to say about Leadenhall is how pleased we are with how the building's gone, and in particular, the letting. That's ahead, and I think there's a good opportunity for further growth and value. Certainly, if you look at some of the values of completed buildings. It's early to have any of that sort of conversation. As I said here before, we always continue to look at each of our assets and think whether they're part of the portfolio or out of the portfolio. As you know, we've been very active. Tim, I don't know if you want to add anything to that. No, I think we are thoroughly pleased. I've been asked questions every two years about the letting of Leadenhall. I can sit here and grin at you all and say I'm thoroughly pleased with it, and we've done everything that we said we'd do. We've still got a bit more to do. We've got 16% to let, and we're looking forward to letting that, and we're thrilled with the building, and we're really, really pleased with our partner, Oxford. Follow-up question. One further question, sorry. Sorry, Keys. Could you give us a little bit more in terms of timescale and how much value creation you see in that project? This is going to sound like a dodge, okay? It's not. It is very early days in this thing. I gave you the timescale, and I think until the master planning phase is completed, and we're through planning, it's really very hard to put numbers on it that are meaningful in any way that I'd be any better than you at. What we know is that typically, one of the big uplifts is when you get planning. As I said, that's likely to be 2016, but that's the kind of way to think about this. We're thrilled about it because of size, scale, where it is, all the things I talked about. But trying to put accurate numbers on that, I think is a bit of a mug's game. Charlie, I don't know if you want to add anything to that. No. Other than, obviously, we are very excited. It's taken sort of four years to piece it all together. If you think of other large regeneration sites around London, and how long they've taken to even get to the planning stage, we think we're going to be a lot quicker than that. Part of the attraction of the site, other than all the infrastructure and elements that Chris talked about, is that it's a site in an area that's been designated by both Southwark and the GLA in March of this year as an opportunity area, and that means an area that will have priority for high-density regeneration. So we've got a local authority in Southwark who are really keen to do something special. Between the two of us, we sort of control all the land. Great. Thank you. Remco Simon, Kempen. Maybe just a slightly bigger picture question on London and disposal. So far, you've been mostly focused on disposing of retail assets. You mentioned that you have got a bit of that stuff in the pipeline as well. At what point do you see London pricing going to a point where you say, "Actually, we might need to take a bit of money off the table here in some of the more mature assets where we've got less upside? The process will be the same as really we've been doing it in retail, which is we look at every asset in the portfolio. We say, what's the forward-looking IRR at the price we could sell it? That's the process we go through. Could I see us disposing of one or two assets in London in the course of the next 12 months? Yeah, sure. There's no strategic reason not to do that if, as I say, that capital discipline approach applies. At the moment, in terms of rents, as I said, we're pretty positive about the rents. But mature assets we will look at with discipline. There's certainly no sense of we've got to hold on here to each and every asset, although for the reasons I've already discussed. Do we continue to like London? Yes, we do. So it's that balanced approach. Again, Tim, I don't know if you want to add anything. Yeah, I think the only thing is that if you look at the results, we continue to buy and sell. If you look at the London residential business, actually, we've sold around GBP 140 million of offices, and we've sold over GBP 370 million of residential. So call that half a billion. We've also made investments in development, and Chris mentioned the fact that we bought Sheldon Square for GBP 200 million. So broadly speaking, this year, the money going in and the money going out of the portfolio in terms of capital has been pretty balanced. I think that going forward, that is more likely to be the case. But I think that the big thing, and that's something that comes from this presentation, is not only this year have we had a good level of rental value growth. I think if you look at the market over the next at least couple of years and probably further than that, I think the outlook for rental growth is positive. I am absolutely convinced that the London business will still manage to perform, but more from rental growth and less from yield shift. Maybe a second question. In your outlook, you mentioned that you foresee lower gearing. Maybe just to clarify, is that just a function of the convertible converting? Secondly, maybe how comfortable are you to let gearing go down further? What is the number that you have in mind? Gearing today, 35%. With the convertible, it is 32%. The issuer call kicks in in September of this year, and then we have choices that we can make as to whether to convert it early, whether to cash settle, or just let it continue to run. In terms of our level of gearing, as you know, we are very conscious of not gearing up on yield shift, but again, comfortable at the level we are at today. Hi there. Osmaan Malik from UBS. Maybe just a follow-up question on Remco's first one on your answer, Chris, that you look at forward IRRs. Could you just give us an idea of where that IRR or your required return is for those assets and maybe also how that has changed over the last couple of years? Yeah. Look, I've said it here before, IRRs are a guide, and you should take them about as seriously as that and no more seriously because at the end of the day, it's only driven by your own estimates of what's going to happen. Therefore, it's most useful as a relative value tool than as an absolute value tool. What we are much more focused on, and bear in mind, with 50% return over 2 years, those forward IRRs have dropped. I mean, it's just mathematical despite growth. What we're really focused on, and we think the tool's most useful, is for ranking the assets and disposing of them. We look right across the portfolio, and we don't say, "Oh, it's a London asset. There's some strategic reason to hold it." It's a pretty disciplined approach. Look, sometimes we'll say, you know what? For that asset, 5 years ain't the right thing because it's actually a longer project, but we try and be very disciplined. What you're really seeing us doing right now is disposing of those assets which are at the lower end, because we think that's what helps. Rather than saying, "Ooh, it's got to have a yield of over X, Y." Because I just think we've seen such big movements. Running a long-term business, you just end up making some odd decisions. But if you keep on working away at the bottom and keep on trying to improve the top, and therefore buying things, it's exactly what Tim said. That's why we've been active. That's what we're doing on retail as well. We're buying those things. Tesco's what? Another great example. Disposing of some assets which we think were pretty dry, and buy into some which we think have been undervalued and we think that Charlie and the team can really boost the performance over time. So that's how we think about it. Thank you. Just a couple more. On Canada Water, very exciting, vast scheme. I think, though, at the beginning of the year, you were expecting planning to go in this year, and now you're saying planning will go in next year. Is there any specific reason for that, or is it just an effect of buying that third part of the site that pieces together the 46 acres? This is fantastic. At this rate, you will be answering all of the questions at the same time. Look, I think anybody else who wants to do that, be my guest, by the way. But in short, by buying that piece in, although we had always been thinking about it overall, it would have been, I think, both naive and silly in terms of long-term value not to go say, basically, "Hold on. What do we now own that is somewhat different, that enables us to take, if you like, a slightly broader brushed approach?" I do not know if you saw the site. It is only in the pack. You can see that that last piece is geographically quite important for the continuity of the site. So what we really said to the team was, we do encourage people to get these things done as quickly as possible. But this just felt like one of those times when it was about, hold on, let us get it right, rather than let us get going. That is what it is all about. I am conscious that 2016 is quite a big window, and we will be anxious to do it sooner rather than later, but for the reasons I have just hopefully made clear, we do not want to rush people. Okay. So final question. Just poring through some of the numbers, I found it really interesting that your city ERV is now actually higher than your West End ERV, which may be slightly counterintuitive. I wonder, is that simply a case of just the location, your slightly less core West End, but your very core city? Or is it more an indication that actually there is quite some significant rental growth to come in the West End for your portfolio? Or both. Yeah, I think it's a mixture. The West End ERV will be heavily influenced by Regent's Place and Paddington. Those ERVs on average are Paddington's just over 51, and Regent's Place is just over 52. Then you'll have what we call the rest of the West End, the Marble Arches, the Victoria Streets, the Portman Squares, that will boost the ERV. The ERV in the City is about Broadgate. As Lucinda said, the ERV that you see is slightly flattered by the fact that it assumes that we spend money on refurbishing those buildings. But the money that we need to spend on refurbishing those buildings is a deduction from the value. I think the ERV in Broadgate is slightly flattered, but the City ERV will also be more than increased by the ERV on Leadenhall. Here you go. Chris, hi. Good morning. Hemant Kotak from Green Street. I know two things are Okay, no problem. I'm really slow. I'm really bad at that. Good morning. Hemant Kotak from Green Street. Three questions for me, please. First on Canada Water. Chris, you mentioned that the site assembly was roughly GBP 5 million an acre, which is about GBP 230 million. If we strip out the value of the shopping park, which is GBP 135 million, and I think it might include the previously owned Surrey Quays Shopping Centre. What's left, and what's the value of the land, please? I'm going to get Charlie to answer that. If he's got a bit of paper there, I'm going to feel really better about that. Just very roughly. Yeah. Just- I mean, it- Is that different from what your inference is? What the valuation is now? The answer is basically, it was four deals which bought three chunks of land. The shopping center we bought, and we bought in two bits, so that is about 24 acres of the 46. Then we bought Harmsworth Quays next door, and now we have just bought the last 9 acres. You are right, Hemant. The total book cost is roughly about GBP 250 million. But we would not divulge too much more because we are in discussions with London Borough of Southwark about regearing our head leases at the moment. So we are in that process as well, which is another thing that we have got to do over the next 12 months. I guess the point I am trying to make is that, so you have got existing assets, operational assets, which have a relatively high value. They are not going to fundamentally change. So actually, the value for your actual land, which you can develop this principally is 7 million square feet, is even lower than that, potentially. Yeah. In the master plan, we will eventually end up redeveloping everything that is on the site, the shopping center, the supermarket, the whole lot over time, but that is a 5 to 10-year project. But Hemant, I think I am not sure if this is the question So, if a large part of the existing assets are income producing, we do not expect to write down the value of those assets because they are income producing. We think that when you look at the cost of assembling it as a whole, and Charlie has talked about this GBP 250 million, GBP 5 million an acre, we think that we can make money on that by developing it. GBP 5 million per acre is great value for money for such a big site so close to London. Is that what you are picking up? Yeah. Yeah, absolutely. Okay. And second question, the GBP 50 million refurbishment for Meadowhall, is that your share? And, what potential rental uplift can you expect from that? Because one of your peers did a pretty material refurbishment at one of their centers, and there was no rental uplift there at all. You are smiling. I cannot think which one you are talking about. First off, Meadowhall is performing really well, so it had a very strong year. So we are pleased with where Meadowhall is today in a pre-refurbishment. Had positive ERV growth, as you heard from Chris, sales growth of 3.7%. So, the GBP 50 million is 100%, so, our share is GBP 25 million. I view it more as investment rather than defensive money. It is slightly complicated on refurbishments because you have obviously already got an income-producing asset. So you are looking at the incremental growth that you think you will get. So just as Chris described on the rest of the portfolio, we have done detailed IRRs, et cetera, and a rough sort of incremental income on the GBP 50 million, we would be targeting sort of 8%-9%. But for us, it's about driving the sales, which are going to make the units more affordable, which then should feed through. I think the Park Lane refurbishment has been a really good sort of test case for us, because for GBP 3 million, we've refurbished two wings. Sales have gone up by 6%, introduced new retailers, and we've done some good lettings. The last thing is, so in this year, we've done about 100,000 sq ft of lettings in Meadowhall, ahead of ERV. Thank you. That's very clear. Just one last question, if I may. Yeah, behind you. Now that the election's behind us, how does that change your view on the prospects for your areas of the property market, please? Yeah. First thing to say is, certainly in the commercial property market, I think one thing we all were, if not surprised by, certainly pleased by, that there wasn't really any sign of slowdown even when we were running into a period of what felt like considerable uncertainty. We know that there was an impact in the resi market. Our sample size is not big enough, but we do know that there appears to have been a pickup of activity in that kind of market, which was kind of blighted is too strong a word, but slowed down by mansion tax speculation and the rest of it. Commercial real estate wasn't really affected, and so I don't expect some bounce from a non-flop myself. We all know, everybody in this room knows that markets dislike uncertainty. Do I think that is generally good for the business more broadly? Yeah, I do. Thank you. Sorry. Just there. Thank you. Sorry. Morning. Michael Burt at Exane BNP Paribas. Couple questions on retail, if I may. The first one is on, I guess the lettings performance in retail. You were 9% ahead of ERVs in terms of your retail lettings, but you've seen rental growth in retail that's less than a third of that amount. Yeah. I was just wondering, is that caution on the part of your valuers or is there something else we should be thinking about? This is, A, a question that Charlie gets to answer, and B, one where we always look around to see whether the valuer's in the room before he finishes, but go on. Do you want to? I think the valuers take quite a cautious approach. Because they're evidence-based, they want to see a lot of evidence. They like to see more than one-off lettings. But the direction of travel gives them more and more comfort. As Chris mentioned, we've seen ERV growth now on a far greater percentage of the portfolio than we have done for the last few years. That's what gives us confidence in Chris's last statement, about sort of the general trend for rental growth for us. Great. The second question was just on the superstore portfolio. Clearly, you've been reducing your exposure there. Are you happy with where it sits now at 7% of the portfolio? I guess the second part of the question is, are there any other conversations going on with Tesco after the property swap deal you've done there already? I think from a risk perspective, we're very comfortable where we are. We will continue to go through the process, which I described more generally. We have a clear view as a management team, and it's actually a view held right across the team, that this thing that we talked about a lot, all of us over the last few years in terms of polarization, has been less important in superstores for a bunch of reasons, we all kind of can get our heads around. I think that ability to be very careful about which you hold and which you don't hold is going to be more individualistic going forward. So, I gave that figure of several hundred million. Would I expect there to be some superstores in there? Yeah, I would. It's just not possible in this business to be too exact about those numbers. We try to be as transparent as we possibly can. We have a very good relationship with Tesco. We'll continue to talk about them. Is that code for there's another deal around the corner? Absolutely not. Correct. Anybody? Yes. Yes. Good morning. Marc Mozzi from Soc Gen. I have only one question. It seems that you are structurally running a higher leverage on some of your peers. You have an ongoing pipeline which should, I do not know, end rather 2018, 2019, potentially 2020 if you commit everything. What makes you more bullish than your main competitor? Do you not think that the potential rate hike next year from the Bank of England could stop the favorable ongoing trend? It always makes me smile because I always think one of the things we know we are going to get asked is our view of the boys across the road, as it were. I always say, I am not here to compare us with Land Securities. That is your job. I will say that one more time. I am not going to make comments about Land Securities or their business. They seem to me to have done a good job over the last few years. Our view remains exactly what I said just now, which is we think that the business is well supported by rental growth in London and that plays your view on supply and in particular, the quality and the location of our real estate. You heard from Tim, the values that we see. If you think of something like Broadgate and the potential to reposition that over the next few years, we feel very good about that. Are interest rates going to rise? Yeah, sure they are going to rise at some stage. What we have seen to date has been a much slower rise than the bears kind of predicted. Do I think that means that rates are never going up? No, I do not. As I have said here, yields have tightened. As Tim said, we will run the business around the expectation of rental growth. You heard Lucinda say we are not going to gear up into yield shift. I think those are the things you should conclude from the way we run this business. Thank you. Sure, Robbie. A few very quick questions from me. It is Robbie Duncan from Numis. First one is, when are we going to see the gap between ERV growth and like-for-like NRI start to narrow across the business, but more specifically in the retail business? It was 100 basis points in the year just gone, but it is a theme we are seeing across the sector that ERVs are moving forward, but it is difficult to capture that in cash. The second question is very straightforward for Tim, which is just what percentage of the development profit on 5 Broadgate is already recognized? I guess just how much is there left in the tank, given the near-term completion of that? I will do the last one because I have got that figure in my mind. Good. We have got GBP 7 million still to come on 5 Broadgate. On the rentals, obviously first we have got to get the rental growth, and then you have got to get the rent reviews. There is always a lag, because it is just the way the rent review process is. If you looked at last year, probably about 75% of the rent reviews that we did had a nil increase. We started to see early signs of some decent arbitration awards go in our favor. I would hope that that trend would improve throughout this year. But obviously, the good thing about getting the rental growth in the ERVs is that comes through on the valuations. Good. Is that clear? Hannah, I think I missed one part of the answer to one of the questions just now, which is this point about where we see the business going forward. There are two points I would make. First, I would just emphasize what I said at the beginning, which is we took our decisions in 2010, which meant that all of our development pipeline was basically going to be worked through. That has made us and our shareholders a lot of money. One thing I feel really proud of that the team has done is to rebuild that. But as I said, there is a lot of optionality in that program, and I think that gives us the best of both worlds in many ways. If you think about just Blossom Street, it is a great location. It is undervalued if you look at all these things. We do have that capacity, and we are running the business with a positive expectation, but we have got that optionality built into it. I think that is reasonably important. And Lucinda has brought the interest rate costs down as well. So we are in a good position. We are not running this business around the expectation of further yield shift. We are running it in the way that hopefully I have made clear over the course of the last spell. Can you hear anything through that? Yes. Yeah. A second stonking set of results, of course, flattered by a very clear strategy. There is no question of any of that. There is some nervousness among investors in the stock market, but not in the real estate market concerning how long this goes on and why. Do you envisage that the decay function, which is almost inevitable, let us look at the London part of the equation anyway, will be gentle this time? This has been such an unparalleled happy experience. These companies are all strong, very strong, all nice. Do you see this at the moment? Are you thinking of this as a gentle decay function? For it is an extremely cyclical industry. It is a cyclical industry, and we try to remind ourselves of that all the time. I do think, let's take the retail part of the business first. I think it is worth reminding ourselves, although this recovery has been going on for a period, we are only just starting to talk about rental growth. From a cycle perspective, it does not really feel that from that perspective, we are particularly extended here. I think that is an important thing. I think our business is cyclical. It is driven a lot by economic performance and on the other side, by the variations in supply. At the moment, we see the U.K. economy in a decent place, both relatively and arguably historically. We see supply in retail being pretty limited, and even in London, being relatively muted by some historical standards. Will there be shocks that we cannot predict? Yeah, that is kind of the definition of shocks. Is there anything in the known unknowns, or whatever he said that day, that makes us think it is all coming to a horrible end? As a team, as a board, no, not at this stage. This is crystal ball stuff, which is why we are not running the business with the expectation of further yield shift. I only ask because, U.K. investors in the stock market, they always fear good results. Gives them- Yeah, indeed. alarmed. Yeah. And the other question is really about Broadgate, because, I'm sorry, I've forgotten now, 100 Liverpool Street. Do you have to share those benefits with UBS or anyone else? Or does that all come to you? What benefits, Keith? As you develop it. Yeah. So we share it with our joint venture partner, GIC. Yeah. But every GBP that British Land puts in, we Okay get a full share of the GBP of that reward. Are there further phases going forward of refurbishment and redevelopment of Broadgate thereafter? Yes, there will be. 100 Liverpool Street is the one that, for want of a better description, had activity and hit the press this week because we got planning there. Thrilled with that. But the one that we are turning our attention to, our aim is to put a planning application in in the summer, is One FA, where UBS are, at Finsbury. So Keith, that will probably be the next phase. To be larger than the existing building? Yes, it is. On 100 Liverpool Street, on a 380,000 sq ft building, we have managed to get a resolution for consent for 515,000. So 135,000 sq ft increase. We have really done that by putting extra floors on and bringing the floor out from the frame. One FA, we will do it a bit more sympathetically because we think that One FA actually is a really good-looking building. We will have an ambition to put a couple of floors on top of that as well. So it will end up being a bigger area. Thank you. Keith, just to give you a bit of comfort on prospects. If you look at where yields are at the moment, on our retail yields, they are still only just at the CBRE 15-year average. If you look at the development pipeline, it is less than 40% of where we were in 2007. For all the reasons Chris said, we feel quite confident about where those numbers are at. I cannot. Oh, sorry. Yes, okay. Alan Carter, Oriol. More for Charlie. Just on coming back to this retail market at the moment, can you give a flavor of roughly the percentage of rent reviews that go to arbitration, are taken to arbitration by you or by the tenant? Also, whether there is a big difference between the disagreement and the arbitration levels within either the shopping center portfolio compared to the retail park portfolio. It is much more retailer and asset specific. Some retailers just put every rent review to arbitration as a matter of course. On the super store portfolio, for example, we have not gone to one arbitration and have had rental uplifts on all the reviews that we have had outstanding. So it is quite specific. We are seeing less going at the moment, so hopefully that is a positive sign. I think that is nothing on the phones. Good. Thanks, everybody. Thank you very much for coming.