Earnings Call: H2 2012

May 21, 2012

Morning, everybody, and thanks for coming. We are announcing a good set of results today. Profit is up by 5%, NAV is up by 4.9%, and our NAV rose in each quarter of the year, despite a marked slowdown in the investment market in the second half of the year, notably in retail. We continue to outperform with total property returns 200 basis points ahead of IPD. Before I go into the detail of the results, I want to talk a little bit about what British Land stands for. As I said before, our vision is to build the best REIT in Europe. What does this mean? Consistent outperformance at the asset level, and over time, a superior return on capital. We believe in that context, that income will be a critical part of total return. But how do we translate vision into the outperformance that I have described? For me, the first stage is a set of priorities. If you like, our guiding lights, the things we keep on coming back to. You have heard them before. Income and capital, the creation of incremental value, controlling costs, and leveraging our scale and financial strength. These are the things we keep on coming back to. What you will see shortly is the way that they feed into our results. Equally important is how British Land translates these priorities both into long-term decisions, because this is a long-term business, but also into short-term action, those things that we do during the course of the year. There are four really important decisions that we have taken. First, we have chosen deliberately to focus on both U.K. retail and London offices. Both have a track record of outperformance, and they work well together. We also choose to focus on more than one subsector. In offices, that means both the West End and the city. In retail, it means a combination of retail parks, superstores, and shopping centers. Together, these segments and these businesses offer a more consistent outperformance with reduced volatility. The security and stability of these income flows also means that we have the capacity to invest in things like development, which offer an interesting and beneficial return over time. Our second decision is around scale. To us, scale is important. In overall terms, it helps us control our costs, and over time tends to lower our cost of capital. But in our key markets, it offers slightly different benefit in terms of expertise, in terms of bargaining power, and in terms of relationships with our occupiers. Our third big decision is around efficient capital structure. It means using debt to enhance our return. Our structure does allow efficient use of leverage, in particular of non-recourse debt. Lucinda will talk about this a little more. Our fourth decision is that high-quality asset management is a critical aspect of our business. But in and of itself, it is not sufficient to generate the superior returns that we ask of ourselves. We need, therefore, to search for incremental return through activities like development, through seeking out smart deals, and also, when the time is right, by recycling capital. So these are the long-term decisions which guide our behavior, our direction, if you like. But the set of priorities I described earlier also inform our short-term action. As I say, they are things that we do during the course of the year. I want to draw your attention now to some of these. First, we have responded to a low-growth environment by sharpening our focus on income. We've boosted the security of income in offices broadly by lease extension. We've driven ERVs forward in retail despite a difficult market. Second, we've made a number of accretive acquisitions over the course of the last couple of years. Drake Circus and Maidenhead are good examples. Third, we've made remarkable progress on our development. As you know, our timing was good, but over the course of the last 12 months or so via pre-lets and by locking in costs, we've made a real difference. Fourth, on the financing side, over the course of the last 12 months, we've raised nearly GBP 2 billion of new finance. At the same time, we've continued to reduce the average cost of our debt. Finally, we've started to recycle capital, and I'll talk about these decisions and these actions, which taken together, have driven our results and driven our outperformance. We have a slightly different lineup this morning. After I finish the overview, Lucinda will take you through the numbers, then Charlie will talk about retail, Tim will talk about offices, and I'll return to give you our outlook for the year. After that, Steve will join us on the platform for questions. Let me turn now to our financial highlights. These are good results in a tougher market. Rental income and profits are both up by more than 5%. Profit for the full year is GBP 269 million. We're also resuming dividend growth, an increase in the quarterly dividend to 6.6 pence. This increase reflects both good results today and our confidence about income going forward. Our balance sheet remains strong, valuations up by 2.6%, NAV up almost 5% because of our gearing, so that we've generated total returns of 9.5%. At property level, we've outperformed on all key measures. Rental values up 2.1% versus 0.5% for the wider market. We've outperformed IPD capital returns by 250 basis points, generated total property returns of 8.3%. That means we're outperforming the market by an impressive 200 basis points. Let me turn now to the drivers of this outperformance. As you can see, more than 40% came from asset management, a third from development, and 25% from yield shift during the course of the year. It's this combination, long-term decisions, short-term actions, which are driving the performance you can see there. Today's results mean that we've now outperformed the market over one, three, and five years from a property perspective, on capital returns, and on total property returns. Let's pause on that graph for a second. Remember, these are per annum numbers, and in the context of the volatility and the changes we've seen over this period, it's a history that we're proud of. I said earlier that we sharpened our income focus. Again, in today's numbers, you can see this effect. Most of the growth has been driven by acquisition. Drake Circus, Mayflower, Maidenhead, and Virgin Active, good examples. These are the acquisitions over 2 years, which are now adding GBP 36 million to income in the year just past. At the same time, we've worked hard on the investment portfolio. Despite a difficult retail environment, the scale and quality of our lettings speaks volumes about how relevant we are to modern retailers. In offices, we achieved over 1 million sq ft of new lettings and lease extensions last year. This is a huge vote of confidence in our existing office portfolio. Overall, these actions added GBP 10 million of new income through the leasing initiatives, an average of 6% ahead of ERV. On top of this sharpened focus on income, we are clearly reaping the rewards of investing in development in central London. We got our timing right, but we have made huge progress during the last year. We fixed most of our costs below the original expectations and successfully pre-let over 1 million square feet to three high-quality occupiers, as you can see, Aon, Debenhams, and UBS. This adds future annual income of GBP 34 million, an evaluation uplift of 18%. You have seen our acquisitions this year. A good example is Virgin Active. We are prepared to look beyond the obvious and bought a high-quality portfolio on an attractive yield. Less than a year later, we sold five of the smaller clubs at an 18% premium to the purchase price. We now have a portfolio of health clubs, which we expect to add to both income and capital performance over time. At the same time, we successfully raised nearly GBP 2 billion of new financing. Quite simply, very few other property companies would be able to achieve this. It is because of our access. It says a lot about the quality and scale of our business and the quality of our finance team. With that, let me hand it over to Lucinda to take you through the financials. Thank you, Chris, and good morning, everyone. I would like to kick off with some high-level observations about the business from my financial perspective. First, this year, through our actions, we further strengthened the longevity and quality of our cash flows with acquisitions and development lettings. Second, an important contributor to how we create value is capital efficiency. As Chris said, we have continued to leverage our scale to arrange GBP 2 billion of finance, all on competitive terms. In today's debt-constrained market, that provides a very real advantage. Lastly, when I take these two together, combined with the real quality of our assets, although we are alert to the short-term challenges, we have confidence in the business for the future. That is why we are increasing the dividend. You have already seen the financial highlights. We have delivered a strong performance with growth in both our income and capital, delivering an accounting return of 9.5%, much the same as a return on equity at 9.6%. So where has the growth come from? I show here the key elements driving the increased underlying profit before tax. The GBP 13 million increase reflects our acquisitions, net of disposals, delivering GBP 24 million. Like-for-like net rental growth at 1.5% across the portfolio generated GBP 7 million. Retail delivered a 0.8% increase, while offices delivered 2.5%. Properties vacated for development, largely at Broadgate, Victoria Street, and Whiteley, resulted in an GBP 8 million profit reduction. Our admin costs are up by GBP 8 million, and I will come back to that in a moment. Looking at the income statement line by line, we increased net rents by GBP 28 million this year through acquisitions and our asset management, and that is an increase of 5.4%. We haven't been immune to tenant failures, and they've cost us GBP 1 million over the year. Occupiers in administration at the year-end were 0.6% of total rent, and they're now 1%, including the recent Clintons administration. Of rent in administration at the year end, we have over half under offer. I said I'd return to admin costs, and these are up against last year, but last year was flattered by the non-vesting of share incentives. We've also invested by deepening our asset management and development teams and enhanced analytical capabilities. Note that the admin costs include the full cost of our development team, as we don't capitalize such costs. In the near term, I anticipate that our cost ratio may increase temporarily whilst we complete developments. We're also investing in our retail marketing capabilities for both our customers and the shopper. The key takeaway is that our overall cost ratio, at 15% of gross rental income, remains efficient and competitive. Turning to the balance sheet. Total properties increased 2.6% in value to GBP 10.3 billion. The pace of growth slowed in the second half. In retail, we've seen positive growth of 0.4% across the U.K. Here, our asset management activities delivered rental value growth, which has offset a small outward yield shift. Our office portfolio properties increased by 5.3%, reflecting the benefit of lettings, lease extensions, and the expiry of rent frees in both the City and West End portfolios. Our office developments contributed an uplift of 17.8%, and that reflects the significant milestones we've achieved over the year. In Europe, incorporated in the other line shown on the slide, we've seen valuations decline by 5.7% overall. Our shopping center development at Zaragoza is now 69% pre-let and under offer and on track to open in the autumn. In all, three-quarters of the overall uplift was generated by our actions, the balance being market yield shift. With the benefit of leverage, this 2.6% uplift translates to a 4.9% increase in the NAV. Size and scale and expertise are becoming increasingly critical in securing access to debt finance. As Chris said, at a time when others struggle to get access to finance, we've arranged GBP 2 billion of finance in seven separate financings involving 26 different lenders, all on competitive terms. This is, I believe, the largest fundraising announced by a U.K. REIT in any year. For British Land, over GBP 1 billion of new financings came from a combination of unsecured bank lending and US private placement, and these provide us with real operational flexibility. The most recent financing involved GBP 200 million of five-year revolving facilities arranged on a bilateral basis, which replaced facilities maturing in 2013. We've arranged a total of GBP 850 million of new debt for HUT in three separate transactions in advance of relevant maturities. This reduces the fund's average interest cost by 125 basis points. The average margin for British Land for all these financings is 160 basis points, reflecting the combination of both unsecured facilities and secured non-recourse loans. At a time of historically low interest rates, this results in an all-up attractive cost of finance. Our balance sheet metrics remain sound. Our proportionally consolidated loan-to-value stands at 45.3%, and a real competitive advantage for us is our group loan to value, which excludes non-recourse borrowings of joint ventures and funds, and is below 30%. The average interest rate reduced from 4.9% to 4.6%, reflecting the benefit of drawing facilities at variable rates. Our average debt maturity is 9.3 years. With our new financings, we've improved the average maturity of our total resources, that is including both drawn and undrawn facilities, by about a year over the year. Let's now look at the debt portfolio of the group. This year, we've improved liquidity of our well-diversified debt portfolio through refinancings. I think this slide shows clearly what I mean by well spread maturities. We have liquid resources of GBP 337 million and available facilities of GBP 1.7 billion, two years out. The GBP 480 million cost to complete developments, net of sales, will be phased over the next three years. This means we have no immediate debt refinancing requirements. Loan-to-value is important for its impact on NAV as well as refinancing risk. Although there may be variability in values in the short term, we're positive about the outlook for values over the medium term. We're comfortable with our 40%-50% target range as we consider the risk as part of the business overall, and our target reflects the combination of the strength of our debt portfolio and the strong operational fundamentals. Our assets benefit from high occupancy, long leases, and a quarter of our leases have inbuilt growth, particularly attractive in a low-growth environment. Our total letting risk over the next three years, by which I mean both lease expiries and our development program, is almost half that of the IPD investment benchmark. Looking ahead, I've shown here the rental growth potential, taking passing rents of GBP 534 million, expiry of rent frees and contracted rental uplifts will add GBP 68 million. Our development pre-lets add GBP 40 million and take contracted rents to GBP 642 million. To remind you, our contracted pre-lets cover the interest cost of the entire development program. Our pre-lets, which are well ahead of schedule, complete later in the program, however, while the speculative principally West End buildings come on stream earlier, starting in 2013. As Tim will discuss, we're seeing reassuring levels of interest at our developments, so we're confident that they'll let well. Our pre-letting success confirms the attractions of the assets, and so given an increasingly supply-constrained market, we're open-minded as to whether to undertake further pre-lets or wait until practical completion. At today's rents, that's a further GBP 49 million of income to come. In total, rent could increase to well over GBP 700 million, and I've shown further details on this in the appendix. Finally, turning now to the dividend. As Chris mentioned, we're increasing the dividend by 1.5% to GBP 0.066 a quarter, starting with the final dividend. So the total dividend is GBP 0.261 for the financial year, and with a dividend of GBP 0.264 for the 2012/13 financial year. This decision reflects our confidence in the quality of our assets, and in particular, in the strength of the contracted cash flows in the medium term, secured by the pre-lets we've achieved. I started this morning with three themes. The quality and longevity of our cash flows. The competitive advantage of our financings and our balance sheet strength at a time when debt is constrained. Our confidence in the future, given the quality of our portfolio and the actions we're taking. Charlie, thank you. Thank you, Lucinda, and good morning, everybody. We're pleased to be reporting another robust year for retail. We've delivered on our objective of outperforming the retail market in what's been a challenging environment. In fact, our rental growth has been 180 basis points ahead of the market, outperforming in each sub-sector. Our 340 lettings and renewals have, on average, been 6.9% ahead of ERV. Our total return of 6.1% has outperformed the reported IPD All Retail Index by 110 basis points. You heard from Chris about the importance of focusing on the right assets and about doing the right things. Our robust performance strengthens our conviction that we've got the right assets, well-suited to the modern retailing environment. Our assets meet consumer needs, making them attractive to both retailers and investors. We also have the right approach, a quality team delivering strong asset management and driving total returns. What's driven our performance over the year? It's the strength and diversity of our retail portfolio, the strength of our asset management initiatives, and our focus on creating the right environment. It's worth noting here that the figures I'm talking about this morning exclude our standalone GBP 320 million leisure portfolio, which performed strongly this year, delivering total returns of 13.4%. It's been a difficult year for retailers. Some retailers continue to report solid returns, but we have seen an increase in number of retailer casualties. What's clear is that the retail landscape continues to change. Polarisation, which we've talked about for the last two years, has become even more marked. We've seen it in retailer trading performance and in the occupational market. As polarisation accelerates and the effects of multichannel retailing become more evident, retailers are voting with their feet. They're aggressively repositioning their portfolios, exercising lease breaks in less desirable locations. Today, there are simply too many shops that are not fit for purpose. With increase in pending lease expiries, which you can see on this chart, our view is that average U.K. retail rents will continue to fall. As you can see, we're benefiting from these trends. This is our seventh consecutive quarter of rental value growth and positive letting activity. In the investment market, it's been a year of two halves. The first half saw capital values rise, but as we suggested at our retail day, they fell in the second half. What is also very clear is the stark reality of secondary values. Even prime has been partially affected by the weaker overall sentiment. There have been very few transactions over GBP 50 million in the last quarter, and those that have happened tend to be more secondary in nature. Today, some investors are still chasing income and not, in our view, having full regard to the rapidly polarizing occupational market. Increasingly, what we're seeing is a partial disconnect between the weaker investment sentiment and the more resilient demand for prime in the occupational markets. We think we'll see some short-term price volatility, but as the occupational market continues to evolve, we believe prime will be the main beneficiary. That puts British Land in a pretty good place. Against this challenging background, our portfolio has performed strongly. We've talked before about the benefits of quality and diversity in our portfolio. The benefits of our structure and stock selection is clearly demonstrated in our performance over the year. We've outperformed capital returns for the retail market as a whole by 120 basis points. All of our sub-sectors have outperformed the All Retail Index, and they've outperformed at a sub-sector level, too. Supermarkets have been the best sector, outperforming the All Retail Index by 190 basis points. The defensive qualities of this asset class remain an integral element to the portfolio's performance. Our largest sub-sector, retail parks, delivered robust returns, outperforming the All Retail Index by 100 basis points. The retail portfolio has produced consistent outperformance over each of the last three years. In an uncertain market, the spread of our diversified assets provides real defensive depth. It allows us to appeal to the broadest range of tenants possible while leveraging retailer contacts across the portfolio. What gives us confidence looking forward is that from an occupational point of view, our outperformance is even more marked. Our 180 basis points ERV outperformance over the year shows that we're providing the space, environment, and services that retailers want at prices they are willing to pay. Our leasing activity demonstrates we are benefiting from occupational trends. Occupancy remains robust at 98.3%, and our administration exposure as a percentage of retail rent was limited to 0.9% at the year-end, rising to 1.6% post Clintons. Our asset managers have been busy. We've concluded 526 income initiatives across 3.8 million square foot of space, with our lettings 6.9% ahead of ERV on average. Leasing activity has been consistent across half one and half two. We've seen continued retailer demand for fashion, for general retail, and for food. The activity has been across a broad spread of retailers. Our letting and renewal activity has been across the full breadth of our assets. We've done 225 transactions in our shopping centers and 115 in our retail parks, in total covering 1 million square foot of space. You'll see that the lettings have been ahead of ERV for each subsector, providing further proof that our assets remain attractive and affordable. On some of our retail parks, we've been achieving rents in excess of GBP 50 per square foot, and we've seen good rental growth at Meadowhall and St. Stephen's Hull. We're also building on existing strong relationships with major retailers. We've signed 109,000 square foot with Next, 65,000 square feet with M&S. H&M have taken 29,000 square feet, and we've recently signed a 60,000 square foot anchor store at Kinnaird with Debenhams. In addition to increasing the retail park presence of traditional high street and fashion names like those I've just mentioned, we've also attracted new players out of town. We've signed the first out-of-town Swarovski and Jack & Jones at Glasgow Fort and the first out-of-town Whole Foods at Cheltenham. The online fashion retailer, Simply Be, has taken physical space out of town for the first time at our park at Teesside. For shoppers, we continue to improve what we offer, which we view as essential future-proofing if we are to attract and retain the best retailers. So we're upgrading the physical environment, and this improves footfall and dwell time. We successfully obtained 62 planning consents. We've completed five superstore extensions totaling 95,000 square feet. We have 142 capital projects underway. We continue with our strong emphasis on upgrading our leisure offer. For example, during the year, we undertook a GBP 7 million refurbishment of the Meadowhall dining quarter. We completed the food court at Bon Accord. We started on site with the cinema development at Glasgow Fort, and we signed 39 food and beverage lettings. We currently have under offer three more cinema prelets. We're also trialing and innovating to enhance our interaction with the consumer, whether it's event programs, digital media, or providing Wi-Fi access. The result is that we are continuing to attract the consumer, as reflected in our strong relative footfall numbers shown here. Today, the retail environment remains challenging. As you can see from the slide, operationally, we will remain in a good place. With 440,000 sq ft under offer, we're seeing continued demand for our assets. Currently, the supply of prime space remains constrained with not much in the pipeline. As a result, we're committed to developing the next generation of assets, both by enhancing our existing portfolio through continued improvement in the environment, such as building out our planning consent at Surrey Quays, and through new development such as Whiteley, where we started on site in September and with already 68% prelet or under offer. We have a total of 1 million sq ft of planning consents, which represents real opportunity to create the sort of incremental value Chris talked about. To conclude, we believe the retail market will remain challenging in the near term. The challenge over the next 12 to 24 months is to grow income when U.K. retail rents on average will fall further. We believe also there will be some short-term variability in performance reflecting sentiment around retail generally. We're not immune and remain alert to short-term difficulties. But we take confidence from our results. In a market that continues to polarize and with a shortage of high-quality space, we believe we have the right assets and we're taking the right actions to deliver outperformance. This is why our portfolio is not only defensively positioned in today's market, but is also well positioned to outperform in the future. I'm going to hand over to Tim. Thank you, Charlie. Good morning, everybody. Let's have a look at what we've been doing in the office business. First of all, we've had a good year. We've generated outperformance with a 7.8% capital return and a total return of 12.1%. This outperformance has flowed from the strategic and operational decisions that we have taken. We've benefited from our strategic focus on London and our decision to put capital into offices early on in the cycle, and we've primarily done that through the GBP 1.2 billion development program. Within our portfolio, the quality of buildings and the service that we offer have also With an annual income of GBP 26 million. On the development side, we've achieved key milestones, and they have helped us significantly contribute towards performance and also de-risk the portfolio. As Chris has already said, we're also creating income for the future with GBP 34 million of prelets. We've invested GBP 240 million this year in the office business, and most of that has been in the development program. On the investment and the development side, our strategy is consistent with our aim of balancing the City and the West End portfolio. You can see from the donut chart, we've got more to come, but already the City and the West End are pretty evenly balanced. The strong platform that we've built means whilst there may be challenges along the way, we feel good about the travel of direction, and we're also confident about the future. As I said, we've had a good year. We've outperformed all the sector and the subsector, and on a capital and total return basis. You can see from the table on a capital return basis, we've outperformed by a decent margin. In the City by 130 basis points, in the West End by 210. The star performers being developments with a capital return of 24.9%. We've continued to grow rents in our investment portfolio with ERV growth of 3.7%. Note, that doesn't include the development prelets. Our 3.7% is marginally lower than the London Index, but if you look at our rental growth over this cycle, we're ahead of that London Index. Going back to value, the majority of capital return at 5.6% came in the first half of the year, and it was boosted by yield shift. In the second half, we had no yield shift, but we still managed to generate a very respectable 2.1% capital return. This means over the full year, again, as shown by the donut chart, that two-thirds of the capital return that we've generated has been through our actions. Let's have a look at what those actions are. Well, we've had a busy year successfully retaining and securing income. We agreed nearly 2.1 million square feet of prelets, lettings, and lease extensions, and that secured GBP 60 million per annum of income. I want to put that success also into some form of context. If you look at what we've been doing over the last two years, we've achieved 2 million square feet of open market lettings. That represents a staggering one-fifth of the total take-up in the London market. We're having more than our fair share of success. All this has helped us keep our occupancy high, our leases long, and it's also reduced our short-term lease expiry. You can see from the slide, it's now down to 4.9%, and I compare that with the London average of 30%. Good example of how our actions are adding to performance is the work that we're doing in revitalizing Broadgate. Not only are we now unconditional on the 5 Broadgate transaction, and that obviously secures UBS as the anchor tenant. But in addition, we've regeared and let another 130,000 square feet. In so doing, we've improved Broadgate's lease expiry profile and also kept the occupancy level high at 97%. We've also recently applied for planning to upgrade Broadgate Circle and to provide nearly 50,000 square feet of modern retail facilities and improved public space. We feel good that that's going to uplift the estate. We're turning our attention to the next phase of rejuvenation, which is likely to be 100 Liverpool Street, and we expect to take this back from UBS in 2016. After allowing for release, a break penalty, and income, the building effectively breaks down to a value of GBP 345 per square foot. Now of that sort of value, and I've shown here with in effect its own Crossrail station on its own doorstep, we think that it's going to offer an exciting opportunity. We're also continuing to transform Regent's Place. With NEQ completing in 2030, that's really the last big piece of the jigsaw in place. We're pleased to have attracted Debenhams to the estate. Like on Leadenhall, we've managed to let the lower floors on long leases, which puts us in a good position to attract premium rents on the higher floors. In this respect, we're also pleased to have recently agreed the 30,000 square feet additional prelet to Debenhams at a rent of GBP 56 per square foot. Now that is an 11% premium to our March 2012 valuation. Of course, it also puts us in a nice position to let the upper floors at big rents. Turning to the development program, we've added nearly GBP 100 million in value during the year. I want to give you the impression of the effort and work that's involved in this, and I've got some examples here. We've tendered 74 construction contracts. We've engaged 47 third-party legal agreements, and most of those are dreaded rights of light. Of course, we've concluded nearly 1.1 million square feet of pre-lets well ahead, as Lucinda said, of investment case. Turning to the pre-lets. UBS, the biggest ever pre-let in the City. Aon, after UBS, the biggest pre-letting last year in the City. Debenhams, the biggest letting in the West End in six years. Now, my mother always told me big is not always beautiful, but in this case it is. The total income to BL is GBP 34 million. The average rent is nearly GBP 55 per square foot, and look at the lease length, 20 years on average. This is all market leading stuff. The development program is bang on track. With the decision to refurbish Victoria Street, we're now committed to 2.3 million square feet. In terms of end value, we have an equal split between the City and the West End, and we have pre-lets of 62% in the City and 26% in the West End. I feel comfortable about the letting risk that we're taking in the West End. Our valuers expect profit to come of GBP 192 million, and that's big bucks even by British Land standards. In addition, even though 83% of the costs are now tendered, our valuers are still allowing a GBP 40 million contingency for cost overruns and unexpected events. We're hopeful that as the development program progresses, that a reasonable part, and I stress a reasonable part, of the GBP 40 million contingency will be released for additional profit. Another way we've been exploiting London's growing status is by increasing investment in residential. We've strong experience in this market with about GBP 600 million either owned or under management, and it's split up of GBP 330 million of BL-owned development-led property and then GBP 300 million portfolio, which we manage on behalf of Northern Trust, and that's not owned by British Land. We take a develop-and-sell approach, and you can see the split is pretty equal between the mixed-use schemes and the residential-led schemes. It's a profitable part of the development program, and if you look at the work that we've been doing on the mixed-use schemes, 70% of the residential is pre-sold and 26% of it is ahead of investment case. Now turning to the market. Let's have a look at what our view of the market is. I suppose in a couple of words, it's pretty positive. Looking at supply, the graph shows the familiar story of relatively limited supply coming on stream. In simple terms, over the next 4 years, there is on average across London 1.5 million sq ft per annum expected to complete. I've shown there the average grade A take up, and that's around 3 million sq ft. In terms of demand, active demand has actually picked up and we're not surprised about this because our experience tells us that, one, there is pent-up demand because occupiers haven't been willing to commit to take new space over the last few years with the economic uncertainties. Two, there's this ever-looming structural demand due to lease expiries. Then three, there's actual growth in demand through the TMT sector. Within our portfolio, we have seen a pickup in occupier interest in the first part of 2012, and a good example of that is Leadenhall. There we have responded to requests for proposals from occupiers that total about 300,000 sq ft. As the present bout of economic nerves passes and failing further economic shocks, I believe occupiers will start to commit and take more space. As a result of all of this, we believe rents will grow. I show here the average of all the agents forecasts, and you can see across London there suggesting rents will grow by about 4% per annum. On the investor side, we meet regularly with a wide range of investors and generally they all seem to accept the growth story that London offers and they also like the liquidity that London offers. So investment demand is relatively buoyant. There's no sense of prime yields weakening, although there is some evidence of yields weakening in either poorer buildings or more secondary locations. So overall, based on the outlook for rents and the investor demand, we think that London is a good place for us to make good relative total returns. So to summarize, we've had a good year and we're confident about the future. We're confident about the future for three reasons. One, the quality of our portfolio. Two, the profit that we expect to get from the development program. Then three, the medium positive outlook for London. On that note, I'll pass you back to Chris. Thanks, Tim. Before I turn it over to questions, I want to talk about two things. First of all, our outlook for the year, and then what you can expect from British Land over the next 12 months or so. Let me start with our outlook. We all know it's tough out there, especially in retail. Consumers are being squeezed, and with them, a whole bunch of retailers. Clinton Cards, for example, was no surprise, but rather was an indication of those pressures. Like you, I imagine, we don't expect any quick turnaround. The U.K. economy will grow slowly at best, and none of us expect any short-term resolution to the euro crisis. In this environment, capital values will continue to be variable. As a result of this, you might expect us to be downbeat about the immediate future. We are careful, but we're absolutely not downbeat. Why is that? Because British Land continues to be well-positioned. Let me explain. First, key market trends favor our business mix. London will continue to outperform the rest of the U.K. property market for the foreseeable future. Polarization will continue, particularly in retail. These are trends that we identified early and have positioned ourselves to take advantage of. You've seen their effect in these results. They will continue to play out. Second, in tougher times, short-term decision-making tends to be particularly important. All boats do not rise on the tide. In asset management, our focus on letting strategy has protected both total rents and ERV. Again, our results underline this effect. Equally, there's plenty more value, as you heard from Tim, to come from our developments. Our pre-lets are great from an income and from a capital value perspective, but they're also a great testament to our buildings and their location. Let me turn now to what you can expect from British Land over the next 12 months. I think there will be more interesting deals out there going forward. We'll also do more retail development. It's an opportunity we're excited about. You can also expect us to do more capital recycling, although it's too early to make any comment on Meadowhall. Finally, we will continue to do the vital basic of asset management and building and letting the development program. In summary then, our results are strong, driven by the decisions taken over the last few years and the actions of the last 12 to 18 months. Those are decisions and actions taken by an experienced management team with real strength in depth. I'd refer you to Charlie's earlier comment. We're defensively positioned today with the opportunity for growth in the future. But we've set ourselves the task of being the best REIT in Europe, and we're totally focused on that task. With that in mind, let me take your question. While the team joins me on what passes for the platform at the front, anyway- Ladies and gentlemen, please press star one to ask a question. and rank and serial number, as it were, before you ask questions that would be useful. I'm hoping, though I cannot see any sign of it yet, that we got some microphones, and we will endeavor to pass them around. It is quite bright up here, so you may need to wave a little bit before I can see who is seeking to ask a question. Okay. Question. At the front. Oh. Good morning. Harm Meijer, JP Morgan Cazenove. Oh, may I start with this one then, Chris. Do you think that the market is generally a bit more bearish on British Land versus its peers? No, is the short answer. That is not what we take from this. We are aware, of course, that there was some underperformance, principally in the last quarter of the last financial year. But since then, we have made some of that back. But overall, when we talk to shareholders, which I think is the critical part of this, then they are, generally speaking, excited about our total returns, about our development program, and about where we see the business going. So no, I do not take that conclusion from it. Okay. You also said no comments on Meadowhall. Does it also mean rumors which are out there that maybe sold below book value, which you want to counter here is Maybe I should just say this overall, but when I said no comment to Meadowhall, that is what I meant. I am not in a position to comment on rumors. So unfortunately, I am not going to say any more to anybody, despite the nice try, which I understand. Last one then. Your outlook, capital values are variable. Can you elaborate a little bit on that? Do you actually mean they will come down in the short term? Is that what we should anticipate? Well, it is exactly what I said. Now, I am going to ask Steve to comment a little bit in a minute. But, you know what it is like, you try and choose these words quite carefully. And from our perspective, it means exactly what I say in terms of the opportunity to go up a bit and down a bit. To you, Steve. Yeah. In an uncertain world, we expect prime to remain firm, particularly in London. Secondaries are going to weaken, but that weakness will increase as you move away from prime. So overall, a good market continuing in London, but some weakness in retail, I guess. Good morning, Hemant Kotak from Green Street. With strong demand in the City office market, is it the right time now to sell some of the trophy assets such as 201 Bishopsgate, Broadgate Tower, and Ropemaker? Thanks, John. You know what our previous chairman thinks. I will ask Tim to comment in a second on the specifics. Generally speaking, as I said earlier on, you can expect more recycling from us. What we certainly see right now is strong demand, particularly, but not only in London, for prime assets. For us, it is a balancing act between today's market and the income that we gain from those assets. As I said on a number of occasions, income will be an important part of total return. Tim, if you want to comment. Yeah. Hemant, we have made a very purposeful, strategic decision to keep the weighting of our office portfolio in London high. If you look at that has been accretive to the performance. Going forward, we are still going to look to keep the weighting high, and obviously, a big part of that is the development program, where we will be investing money. Actually, the outlook, I believe for London, as I have discussed over the next five years, again, is good. Having said that, we will be open-minded to recycling. If we can get the right price for the right asset, then we will be open-minded about it. I think just one small thing to add to that because it is a question we get asked a lot. We have benefited absolutely from holding these assets over the course of the last couple of years. I have heard a lot of people talk about early recycling and the benefit. From my perspective, taking a real decision to hold our assets has been one that has absolutely rewarded us and our shareholders. Good, thank you. With regards to the idea of pent-up demand in city office, in terms of leasing, how is that likely to convert? Are we expected to see more deals, or will it be a case of pushing back decisions and maybe extending leases, as is the case with Cameron McKenna? Yeah. Two things. One, I believe that the demand in the city is there, and it's primarily the structural demand through lease expiries. I think it's going to be almost towards ever thus. There will be some people who will stay, and we've benefited through that through doing lease extensions. There will also be people that want to move. If you look at the pre-lets that we've done with Aon and Debenhams, they're classic examples of people wanting to move. I think that confidence is an important thing, and certainly post-Christmas, we saw a tick-up in people viewing the buildings and asking for RFPs, and that was all very encouraging. We haven't seen any turn down in that since the latest economic bout of uncertainties has hit us. I think that business confidence is important for people to make decisions. Again, if you look at the medium term, I think there's going to be reasonable demand and limited supply. I think in the reasonable term, the market characteristics are moving in our favor. Great. One more, please. With respect to performance benchmarks, how does total shareholder return feature and rank compared to property-level returns, which I've seen the slide for? I'd refer you back to what I said at the outset, which is that from our perspective, what we want to become over time is the best REIT in Europe. To do that, we have to deliver both in terms of at the asset level, in terms of performance, and a good measure of that is outperformance. Then we have to deliver, in my view and our view as a team, return on capital to deliver shareholder return. Of course, in any particular period of time, the return to shareholders will be a function of dividend and of share price performance. In the near term, of course, we have only limited control over what we can do with the share price. Some would say none. If we work at the underlying drivers, if we underlying outperform other people in this business, then over time, it is our view that we will deliver superior return to shareholders. Thank you. Next question. There is one halfway back. Kelly, just down at the back. Thanks. Morning. It is Nick Webb from Exane BNP Paribas. I just wanted to ask about the dividend. We have seen a return to growth in the dividend modestly, but still some way below the rate of growth in earnings. When will you be comfortable enough with your payout ratio so we can see the growth rate of those two things converging? I'll ask Lucinda to comment on the detail in a second. From my perspective, what we try and balance is the various issues at bat. From the board's perspective, from my perspective, obviously the fact that we start with a high payout ratio is an important factor. On top of that, what we wanted to return to was growth of the dividend. For me, those are the two critical aspects of this and the decision at this time. Lucinda, I don't know if you'd like to add something. Well, this is the first increase in the dividend that we've announced since 2008. We've increased, as you quite rightly say, the dividend by 1.5% for the year 2011/12, the financial year just ended. We've also, because of the certainty of our cash flows, in the position to announce our dividend for the coming financial year, that's the 2012/13 financial year. Looking further ahead in terms of our dividend growth, our intention is to be in the position where we're able to continue to grow the dividend. But obviously, we'll look at that at the time, taking into account both how the business has developed and market conditions. Okay, could I ask a second question, please? You've talked a lot about exploiting your scale and financial strength and highlighted the amount of money that you've raised. Do you think the level of acquisitions you managed to do in the last financial year adequately reflects your relative cost of capital advantage versus other players in the market? We're very pleased with the acquisitions we've made over the last couple of years. I think that's the first thing to say. I think the second thing is that what we have worked very hard to do is to keep our financial discipline. What we've seen, and we've talked about it now over 18 months or so, has been that the level of demand for assets has continued, in some ways, to be quite high. What we're actually starting to see now has been, as I said earlier, somewhat more deals starting to come across the radar. I don't know, Steve, if you'd like to comment a little bit on the sorts of deals we're seeing. Yeah. I think the first thing to remark on is that the overall geography that we operate in has changed and has shrunk to some extent. The number of deals that we'd actually want to do is less than perhaps it might have been in similar circumstances in the past. Having said that, the performance of the acquisitions or the investments we've made over the last two years, which amounted to about GBP 882 million, produced a weighted average total return of 7.7% over that period. That's after all of the acquisition costs. And it produced an income return of 6.8%. Overall, we think that's reasonably good progress, and we think there will be more suitable transactions which genuinely add sustainable incremental value over the coming period. Just make no mistake, the decision we took two years or so ago was that the best opportunity was likely to be in London development. That was the decision we took. We took it ahead of other people. We took it in a very targeted way in both the West End and the City, and we continue to make that investment. That is the big decision we took, and as you've seen today, that's the way returns are being driven in particular. So you should see the acquisitions in the context of those two things together. Any more questions? Robbie, sorry. Morning. It's Robbie from Jefferies. Just one quick question on the non-recourse debt. Obviously, there's quite a big spread in loans value on balance sheet and then at the group level. You've commented not just today but several times in the past about the importance of having non-recourse debt. Could you just give a bit more color on, I suppose taking the most bearish case, and it's not one we hold at the moment, but you couldn't default on those loans or let them go, surely, as the second-largest REIT in the U.K. with your credit rating and not see some very negative flow-through consequences, or is that not the way to look at it? Robbie, I'll kick off, and Lucinda may want to comment. But since I've made the comments for longer than Lucinda, maybe I should defend them. From my perspective, it's important to see the way that that non-recourse debt is held. And as you know, the majority of it, virtually all of it, in fact. And in that sense, our ability to take the decision to, if you like, continue to pay in those circumstances is shared with other people. And for us, that was one of the reasons, and we talked about it at the time, why the joint venture arrangements at Meadowhall and at Broadgate have changed the game. And so in the extremist situation that you describe, it is simply not recourse, and that's what it means. And we've been very clear with debt holders throughout that period. In that, as you say, same as us, not the situation we envisage, would we be prepared not to stand behind that debt? In extremis, yes. That's, for me, unequivocally the difference in this situation. To be clear, that's not the situation we expect. As I said, we see some variability. We have a great deal of protection between here and where our covenants spike. Lucinda, I don't know if you want to add anything. Well, I'd simply add, Chris, that, of course, by having non-recourse debt as well as the unsecured and recourse debt to British Land, it gives us access to a wider range of lenders, and that's very important in terms of our diversification of sources of finance. Yes, down at the front. Good morning. It's Nick Lyle here from United First Partners. You've made the point that diversification has delivered strong, consistent returns over the past. I'm just wondering how you're feeling about Europe at the moment. Why not diversify into Europe? I mean, property is a long-term business, after all. Look, 97% of our business is in the U.K. I've made the comment before, that we are not at scale in Europe. It's quite difficult to see in Europe today how we could add competitive advantage, how we could take advantage in a way that's good for shareholders. There's no obvious opportunity that we see today in the European environment right now. The pricing must be pretty good, though. The interesting thing about Europe right now is there is, particularly in Southern Europe, is there's very little transactional evidence, so it's quite hard to judge where pricing actually is. But, we're comfortable where we are. Steve, I don't know if you want to add anything or Yeah, as Chris said, we're subscale. At some point, we're going to have to address that issue. I'm sure you'd agree today probably isn't the right day to do that. Where we're focused at the moment is keeping the occupiers happy. We're 93% occupied in our pref business and 90% in Europe overall. Where we're getting some real traction is at Zaragoza, as you heard earlier from Lucinda, we're 69% let. But with the deals that we've got in discussion, we're up in the 85%-90% range, and we'll be opening later in the year. So overall, our portfolio in Europe represents 2.6 of BL's overall GAV, and we're comfortable with where we are for the present. Thanks. Anybody else? Any question? I can't see anything. Yeah, there are questions at the back. They've turned the lights down there, so it's more by intuition than anything else. Questions from the line. We will now take a question from Steve Bramley-Jackson of Credit Suisse. Lovely. Thank you. Good morning. Hello, Steve. Hello there. Hi, Chris. I just had a couple of questions. I appreciate the fact you might not want to discuss where or where you're not at with the disposal of Meadowhall, but can you give us the year-end valuation inclusive of the yields, please, and how it's actually traveled in the fourth quarter? Charlie, do you want to take that one? Yes. The current valuation is just over GBP 1.49 billion, including the land, which is a yield of 4.9% initial, and after expiry of the rent frees is about 5.2% initial. Okay. The fourth quarter total return was 1.6%. Okay. Do you have an equivalent yield for this? Or is it the same as the adjusted? The equivalent yield is about 5.3%. Okay. On ERV growth, last year, Meadowhall had ERV growth of 180 basis points, and we did something like 46 lettings during the year. Okay. Thank you. I suppose in connection with this, when you talk about the ERV growth within the retail portfolio being up 6.9% over the course of the year, has this driven that stat quite heavily, or can you give us some color as to where that ERV growth has been generated from? The ERV growth has actually been quite consistent across the portfolio. Okay. We have had something like 100 basis points from Sorry, it is 140 basis points outperformance on the retail warehouse portfolio. Strongest ERV growth was actually the superstores for the year. Okay Which was something like 120 basis points. Okay. Thank you. I had a second question, if I may, for Lucinda. Lucinda, you just made mention of the admin costs, I think, going forward, would bear the full 12 months of the development team. Can you give us a sense as to how those admin costs pan out on an annualized basis for this coming financial year? Morning, Steve. Morning. The admin costs have been stable each quarter during the year, but as I said, they were up on the prior year, which benefited from non-vesting of incentives. We do expense in full the cost of our development team, and that has increased a bit over the year, and we expect to keep it at that level. It may increase a little bit over coming periods. I wanted to be very clear that we expense that cost in full through our admin costs. I also pointed out that I can see that the cost ratio may increase a little bit temporarily. But of course, we are very efficient having our cost ratio at 15% of gross rental income. I would just like to be clear about that. That is taking both total property outgoings and total administrative costs, net of the fees we receive for managing those portfolios as a percentage of our gross rents. Okay. So from an admin perspective, reasonably steady year-on-year. Is that right? Is that what we should look at? From an admin perspective, I think the costs may increase a little bit. A lot looking forward. Yeah, I would expect them to go up a bit. Okay. All right. Thank you very much. Thank you very much. Thanks, Steve. Do we have one more question? We will now take a question from Ryan Pattertake with Kempen & Co. Please go ahead. Hi. Good morning. I am wondering with an extra quarter of historical perspective, if you could perhaps elaborate a little bit on how you look at the negative revaluation of Q3 in the retail warehouses segment. It appears to have been just down 10 basis points in Q4 approximately. Is there any additional gleanings you have looking back? Was it just a freakish one-off event? Are you still concerned about that segment? That is the question. I will ask Charlie to make a specific comment. I confess, I was a little surprised at people's reaction. We have said for a while that we expected a bit of volatility, and we have seen that. Typically, in our retail warehouse portfolio, we have tended to lead the market slightly. So in that sense, it was not a big surprise to us. I think maybe it came as a surprise to others. But that would be my observation, and I think we feel pretty much in line. Overall, I am very comfortable with that portfolio. We think it is industry leading in terms of quality, and we think that the work, and Charlie talked about this, the work that we are doing with respect to future-proofing, increasing our investment in leisure, in food and beverage, these are the critical things from our perspective, and they back up the quality that I have been talking to. Charlie, I do not know what you would want to add. No, I think on the retail warehouse market, there has been very, very few trades in the last quarter. There have been no trades over GBP 50 million. The bulk of the assets that have traded have been restrictive planning consents. So 10 basis points is more just value of sentiment rather than based on evidence. Okay, thank you. Can you perhaps add anything to the warehouses versus centers argument, which I know at the retail day last year, you had some extensive remarks about to what extent that is changed or evolved? Sorry, in what respect? In the respect that at the time you elaborated on there perhaps not being so much of a preference for a particular asset class, but rather with respect mainly to quality, to what extent that's evolving. I think the underlying thing is that retailers, from an occupational point of view, differentiate far less between in town and out of town. For them, the units, the space that they take, have to fill a certain set of criteria, which is all about the issues that we talked about, affordability, flexibility, et cetera, particularly as they evolve their strategies in the sort of the multi-channel environment of what they need. I think what's been interesting for us over the course of the whole year is the continued demand from retailers for both in-town and out-of-town space, and the rental growth has been good in both subsectors. Okay. Thank you very much. I'm reliably informed there are no more questions from the phone. Any last questions, looking around the room? No, it looks like we're done. Thank you very much.