Derwent London Stock

Well, good morning, everyone, and welcome to the Derwent London H1 '26 Results Presentation. Today, you will hear from Damian, Emily and me, following which we will be happy to take any questions you may have.

Firstly, some key takeaways. We are delivering against the operational and capital allocation targets we outlined in February, including the buyback. The London occupational market is strong with active demand remaining above supply, driving rental growth across our portfolio. Whilst the investment market is more subdued, impacted by the war in the Middle East, we have sold well in accordance with our targets, and we are pushing ahead with selective West End developments where forecast returns are strong, supported by the positive rental outlook.

Now turning to the key business highlights. We have delivered a very strong operational performance, securing over GBP 30 million of leasing and asset management transactions since the start of the year, and there is more currently under offer. New leases have been signed more than 5% above ERV. Our asset management activities extended leases in higher rents. Our EPRA vacancy rate remains low at 4.4%, and we expect this to reduce further. We have continued to deliver value through development.

Network completed during Q2 with the offices fully pre-let and delivering an ungeared IRR of around 11%. Rents well ahead of our underwrite more than offset the outward movement in market yields during construction. Our next phase of West End development is firmly underway with 4 major projects on site totaling 0.5 million square feet. Supported by rental growth and fixed price construction contracts, we forecast ungeared double-digit IRRs.

Looking at the financials, earnings in H1 were ahead of guidance we gave in February, and we're upgrading our guidance for 2026. We also reiterate guidance for '27 and through to 2030. NTA was down through H1, principally due to the small outward movement in yields following the conflict in the Middle East and the provision at Old Street Quarter, which Damian will provide further details on. In February, we laid out our returns-focused capital allocation framework alongside a series of associated targets.

I'm pleased to say that we are executing these strongly. This year, we have completed or contracted some GBP 280 million of disposals within 3% of book value and more is under offer or is in discussions. This compares well with our targets of GBP 400 million in 2026 and GBP 1 billion over 3 years. This provided financial capacity, and we launched a GBP 50 million share buyback, which is now over halfway through. Further buybacks will be kept under consideration alongside other reinvestment opportunities that may emerge, including potential acquisitions.

On development and building on our success at 25 Baker Street, we committed to 50 Baker Street in Q2, a project we're really excited about given the strength of the occupational market in Maryburn and which we forecast will deliver the highest development return for several years with an ungeared IRR in excess of 12%. I'm confident we have been conservative in our underwriting. Underlying this, our balance sheet is well placed. Leverage remains comfortable and our average interest rate reduced in H1 compared to the second half last year following refinancing activity.

I will now hand over to Damian, who will take you through the financial results and the valuation in more detail.

Thank you, Paul, and good morning, everyone. Firstly, some key takeaways from me. As Paul has said, we've made good progress against the strategic targets set out in February. Disposals have enabled us to commence a GBP 50 million share buyback program in May, while also bringing down our LTV and net debt-to-EBITDA ratios over the last 6 months. First half EPRA earnings were slightly ahead of guidance, and we are upgrading our 2026 full year earnings forecast. We've increased the interim dividend again as in every year since the merger in 2007, and it remains well covered by EPRA earnings.

In relation to EPRA NTA, 2 points to make. First of all, the valuation saw 6 basis points of outward yield shift in the period, and we've also booked an early provision against the Old Street Quarter site, which we expect to acquire in late 2027. Finally, the balance sheet remains strong. Our credit rating was reaffirmed in May, and we have arranged new or extended bank facilities since June. The financial highlights are shown here, and we'll take a look at each of these over the next few minutes. EPRA NTA at the 30th of June was 31.57 per share.

The main reasons for the 2.1% reduction were an overall revaluation deficit after accounting adjustments of 18p per share and the provision booked against Old Street quarter equivalent to 41p. The total accounting return for the period is set out here. The first 3 bars show EPRA earnings, capital growth on the main portfolio, excluding yield movements and development returns seen in the half year. This takes us to a 3.7% total accounting return, indicating how the underlying business performed with neutral yields.

On the right-hand side, we show the positive impact of the buyback in H1, our estimate of the outward yield impact and the Old Street quarter provision. This takes us to the reported minus 0.4%. Now looking at the property valuation drivers. Underlying ERV growth was 2.6%, the highest first half increase in a decade with the West End outperforming the East. This was offset by overall outward yield shift of 6 basis points. But if you adjust for the large letting at Network and the sale of Horseferry House, the movement was effectively 15 basis points.

As already mentioned, the developments did well, up 10.3% over the period. Network reached practical completion in May and its valuation was up strongly, rent achieved being 5% above December ERV. The value has also tightened the investment yield, and we've been able to release some contingency. Other projects on sites were up just over 5%. The balance of the portfolio was down 1.3% on average with the West End and the higher-quality buildings outperforming. Some of our older properties, which were approaching refurbishment or are earmarked for disposal saw greater declines as leases shortened. In addition, investment yields have moved out a bit to some of the larger lot sizes. The yield adjustment we mentioned also impacted our total property return for the first half.

Now on to Old Street. We expect to complete the acquisition of the Old Street site in Q4 2027. The GBP 239 million price was set over 4 years ago in May 2022. And at completion, the site will be valued on a residual value basis and subsequently held at fair value. To date, our balance sheet includes a GBP 3 million deposit paid plus GBP 11.9 million of planning, design and other fees after impairment, all held within prepayments. We regularly consider the expected costs and benefits of the acquisition and the subsequent scheme.

At the 30th of June '26, after updating all the inputs and considering additional strategic delivery options for the site, we booked a provision of GBP 45.8 million. We will update this 6 monthly up to the time of acquisition, at which point it will be offset against any valuation adjustment. By December '25, it was determined that no provision was required.

Now turning to the income statement. As expected, gross rental income was down slightly compared to H1 '25. The positive impact in the period from Network, 25 Baker Street and other lettings was GBP 12.5 million and Networks annualized rental income of GBP 10.7 million after incentives will come through more clearly in the second half. However, we have a larger-than-usual number of projects on site and saw some additional vacancy earlier in the year, including 1 Page Street, which is being marketed for sale. These combined to bring rental income down by GBP 13.6 million compared to H1 '25.

On a like-for-like basis compared to this time last year, gross rent was up 1% and net rent 2.7%. More details in Appendix 3. EPRA earnings for the first half were GBP 54.6 million or 48.7p per share. Actions taken to reduce costs saw property expenditure and admin expenses GBP 1.5 million lower, and we expect admin costs to fall further in the second half. Net finance costs increased due partly to a GBP 2.3 million reduction in capitalized interest. H1 '25 also benefited from convertible bonds with an IFRS rate of 2.3%. These were redeemed in June 2025 and replaced by conventional bonds at 5.25%.

Looking ahead, we now expect EPRA earnings per share for 2026 to be between flat and 3% lower than in 2025. That's a 2% to 3% upgrade from the beginning of the year guidance. Our outlook for earnings up to 2030 has also strengthened slightly, but we've maintained guidance.

The next slide shows where we're allocating capital, including the share buyback. We spent GBP 60 million on projects in H1 and CapEx is expected to accelerate into the second half as the projects get fully into their stride. Development returns are looking interesting, and Emily will explain our expectations here later. The share buyback continues. And after GBP 18.1 million of purchases up to the 30th of June, we have now completed about GBP 34 million in total.

The current program of GBP 50 million should be finished in a few weeks' time with a larger positive impact on NTA and earnings in H2 than in H1. Further buybacks will be considered in the future from surplus capital driven by disposals. The buildup of our portfolio ERV is shown here. This is on a net effective basis. Total rental reversion has increased to GBP 83.3 million from GBP 70.9 million at year-end, but the CapEx required has also increased with the commitment at 50 Baker Street.

Moving on to refinancing highlights. In the first half, GBP 230 million of maturing fixed rate debt was repaid, including the GBP 175 million LMS secured bonds at 6.5%. These have been refinanced with cheaper floating rate bank debt. As a result, the weighted average interest rate that we paid in H1 '26 was 3.9%. That's lower than in H2 '25, but above the first half in '25. Allowing for one further base rate increase this year, we expect our average interest rate to be 3.8% in H2. Since the end of June, we've increased total debt facilities by signing a new GBP 100 million 5-year unsecured revolving credit facility with Handelsbanken and have extended our main GBP 450 million group RCF to July 2030.

Finally for me, our debt summary. Cash and undrawn facilities at the 30th of June were GBP 481 million, but with the new facility in place on a pro forma basis, that's now up to GBP 581 million. Note also that the sale of 90 Whitfield Street is due to complete in a few weeks' time and will reduce borrowings by a net GBP 107 million. All of our debt is now unsecured and 71% was at fixed rates at the 30th of June. With a strongly inverted interest rate curve, we expect to run higher levels of floating rate debt than usual for the time being.

Thank you very much. And now over to Emily.

Thank you, Damon. The fundamentals of the occupier market remains strong. In H1, availability and vacancy reduced with Central London vacancy now below 7% and lower at 5% in the West End. Against this, demand has risen further, now sitting at just under 12 million square feet, supporting strong rental growth, which is now forecast across all London submarkets. Looking a little more closely at demand, it is now at its highest -- second highest level on record with named requirements spanning a broad range of high-quality occupiers across multiple sectors. Professional services and financial occupiers dominate, while tech and AI have become increasingly important, which I will come on to in due course.

Turning to supply. Against the backdrop of reducing availability and a constrained development pipeline in the coming years, there is good reason to be confident of rental growth. Current availability is well below the 10-year average for the first time since Q2 2020 and 33% of the 12 million -- 13.2 million square feet under construction is already pre-let or under offer. West End Grade A vacancy is as low as 1.2%. And as ever, we have good visibility on likely completions between now and the end of the decade, supporting our own pipeline, which we'll come on to later.

AI has been a standout theme in the market this year. H1 AI take-up reached 700,000 square foot, nearly double 2025's full year total with a further 600,000 square foot of active demand in this sector still to be satisfied. London is a beneficiary of this direct demand. When AI companies choose Europe, they choose London. There is no meaningful challenger on the continent, unrivaled talent, deep venture capital and a mature innovation ecosystem. And we see this as a trend that will continue with CBRE currently projecting significant further growth in the sector over the coming years.

Turning now to the investment market on Slide 24, where the picture is much more subdued and volumes are tracking below long-term averages. Q2 sentiment cooled after a strong start to the year, understandable given the global backdrop, but demand for London offices hasn't gone away. Capital is still there, and it's global in nature. GBP 25 billion of equity is targeting London from various geographies. In terms of our own activity across the portfolio, we have been active on sales. We're delivering on the strategy set out in February, GBP 280 million of sales transacted on average 3% below book with a further circa GBP 100 million to come this year.

On acquisitions, we remain disciplined, but ready to act on opportunities that can offer strong returns, maybe value-add or core plus and such opportunities will always be considered within that same framework and against other options, including share buybacks where capital may be deployed. Operationally, looking first at our leasing activity, it's been a strong year. GBP 22 million of new income has transacted year-to-date, 5.1% ahead of ERVs, including the pre-let of network to Databricks.

In addition, we have a further GBP 5.3 million under offer at half year, setting us up for what's likely to be one of our highest years for new income on record. And in terms of activity with our existing occupiers, we have continued to proactively manage our lease expiry and break profile, and this was reflected in a high level of renewals.

Our EPRA vacancy remains low at 4.4% or 3.5% if you exclude 88 to 94 Tottenham Court Road, which is now under offer for sale.

Finally, a reminder of how we strategically position our portfolio. We put proactively shape it to meet London's varied demand because we understand what occupiers want, not just from the space itself, but service and amenity around us as well. London is a global HQ city, and that remains our core business, strong and durable WAULT through long-term lettings to large established businesses. And we do Flex too to mirror the market proportionality.

Flexible space today sits at around 8.5% of our office portfolio, rising to just over 12% if we include third-party operators such as [ Fora ]. And underpinning all of it, HQ and Flex alike is our DL member offer, which the market now understands and clearly values. In respect to Flex more specifically, we expect this to continue to grow to around 15%. As ever, how we deliver Flex as with everything else, is returns and margins focused. For flex and managed space, that means factoring in operational costs as well as the CapEx.

Now moving on to our development pipeline. Just to set the scene on development more broadly. The backdrop has been challenging. outward yield movements combined with a period where construction cost inflation has outweighed rental growth has made some developments harder to justify. Despite that challenging backdrop and not insignificant outward yield shift, we've delivered strong returns on our recent schemes, 25 Baker Street and Network, where rental growth has now been proven. And now the landscape is improving, not necessarily across the board, but for the right developments in the right locations.

Our approach remains disciplined and returns focused, always aligned to our wider capital allocation strategy, where developments can make a genuinely positive contribution to total accounting returns through both development returns and earnings in the medium to long term. Add to that the draft London Plan published earlier this quarter, which paints an improved picture for development in London, alongside progress local authorities who are actively engaged with our sector. The complexities of developments remain, but the case for the right development is building for those that know their marketplace.

We have a strong pipeline, carefully selected. Our major projects comprise 2 redevelopments and 2 refurbishments, offering attractive returns at a combined IRR of 12%, a profit of cost on 18% and a reverse development yield of around 7%. And I'll briefly talk on each. Following on from our success at 25 Baker Street, we are now on site at 50 Baker Street, delivering unique large office floor plates with strong architectural language and a very special and unique rooftop in a submarket where supply is very thin. We're very confident of strong rental growth here.

In terms of the sustainability story as well as the usual top credentials, we are pioneering a U.K. first by transforming concrete from the existing building into structural concrete for the new and are aiming for over 20% of the new building material to be from recycled sources. Holden House is a 133,000 square foot redevelopment behind the retained facade at the southern end of Fitzrovia, bordering Soho and directly opposite the Dean Street entrance to the Elizabeth line at Tottenham Court Road. The scheme includes a beautiful atrium, which supports an innovative servicing strategy, delivering fantastic workspace and again, exemplary green credentials.

Greencoat & Gordon gives new life to these character Victorian warehouse buildings in a submarket traditionally dominated by glass and steel. We can offer something genuinely different here, and we expect to deliver a mix of flex and traditional cat space. Finally, Middlesex House, 50,000 square foot within a refurbished 1930s building, complete with a fantastic new terrace and amenity offer, where we'll be looking to provide a self-contained building of flexible workspace.

In summary, there's a lot to be excited about across these current schemes. We understand that development doesn't work everywhere, but these projects have been selected specifically because they will make a positive contribution to our overall returns, consistent with our wider capital allocation framework. Looking beyond these schemes alongside any disciplined acquisitions over time and other refurbishments in the portfolio, we have further opportunity to maximize value on a number of sites and potential schemes.

We're getting VP of 20 Farringdon next year. This building sits above the Crossrail station at Farringdon, and we are looking to give it a new life, refurbishing the existing building with focus on ground floor and rooftop. Old Street Quarter, you have heard from others on this today, but we have optionality on delivery here, and there will be more to follow on this as we progress through planning. Finally, 230 Black Fries Road, there is scope to get a good planning permission in respect of Bulk and mass with optionality again around delivery.

I shall now hand over to Paul to wrap up.

Thank you very much, Emily. As you've heard, we are performing strongly, delivering against the targets we laid out with our capital allocation framework. Operational momentum is continuing. We are capturing the growing reversion and driving income through our leasing asset management activity. We are active in the investment market, executing a decisive plan to further optimize our already high-quality portfolio. And we're making good progress on 4 West End projects, which all deliver attractive returns and which are well located to benefit from the strong rental growth we are seeing.

Now before allowing for one-off items, the portfolio is on track to generate returns of 7% to 10% per annum over the medium term. The strength of the occupational market gives us confidence to reiterate our ERV guidance of plus 4% to plus 7% this year following a 2.6% growth in H1. we are upgrading our 2026 earnings guidance with H1 better than forecast. The building blocks are in place to deliver 25% to 30% growth in EPRA earnings by 2030.

Earlier this year, I announced my retirement as Chief Executive. And today marks my last set of results after nearly 40 years at Derwent before Jonathan Murphy takes over on the 1st of September. I want to take this opportunity to thank you all for your support and your engagement. I also want to thank the whole of the Derwent team and particularly Damian, Emily and Nigel for their friendship and wise counsel. I know I'm leaving the business in strong hands and look forward to seeing it continue to thrive.

Thank you. We're now happy to take questions from the floor, followed by the webcast. Please, Jonny.

Jonny Coubrough from Deutsche Numis. Can I ask firstly, in terms of the strong rental backdrop, are you seeing any indication of a change in incentives in the face of that improvement?

I think incentives have remained fairly stubborn at around 24 months on 10 years. The large reason for that is the construction cost inflation that we've seen over the cycle, which obviously impacts the tenants as much as us. So actually them holding firm, I see as quite a positive rather than having gone out further in that regard.

Second question would be in terms of Old Street Water. If the modeling assumed 100% chance of disposal, how would that impact the provision?

Well, it's very sensitive. As you sell the scheme without going through the development, you obviously give up development profit. So that would increase the provision. I'm not going to give you an actual number because there are so many other moving parts, but it would be substantially higher than the existing.

And then just the last one in terms of new developments. Do you think contractors are going in much larger contingency into their bids where they offer a fixed price now? And is it challenging to get a fixed price of them?

Let me answer that question firstly. I think being associated with D product is seen as very positive for contractors. We've got a very good relationship with Tier 1 contractors. We've just gone through the process of fixing the price for both Holden and for 50 Baker Street. I would like to be fixed price of contractors as we know well. They're obviously a little bit more cautious about the Middle East, but they know that we pay well, we pay well on time, and we're good to work with.

So we are able to fix without paying a big premium. And we've got some contingency left within the scheme in case there are further issues. But we feel very positive. We've delivered through some very difficult circumstances, make great profits. And hopefully, our contractors will make some money as well.

Any other question? We have Paul.

It's Paul May from Barclays. First one is a bit of a boring one for you, Damian. Can you explain your capitalized interest policy, the rate used? And has anything material changed? How are you going to approach the Old Street quarter? Will you capitalize against the cost or the lower residual value? And will you undertake activities or investment in order to keep capitalized interest artificially high? Or is the plan ultimately that it will reduce as CapEx or development reduces?

That's a very long question. So let me try and answer it. Our policy hasn't changed. And you'll notice that the capitalized interest has actually fallen from H1 '25 to H1 '26 by about GBP 2 million. It's a little higher than we expected when we did the forecast at the beginning of the year, mainly because network completed later. So we capitalized interest for a couple of months longer. We got a little bit less income from network as a result. The net impact was quite small. The policy essentially is unchanged.

I think coming back to Old Street Quarter, when we buy the site, that would be a site -- assume we hold it, that would be a site in which we would capitalize interest on the acquisition cost. So initially, the impact on earnings would be very small. But remember, we capitalize at an average rate, not at a marginal rate. So currently, we're capitalizing at about 4%, 4.5%. That's including all the costs on top of the interest cost. And given the marginal rates are a little bit higher, there'd be a small earnings impact, but relatively small.

Does that answer most of your questions? I think there were...

That's got all of it, I think. You highlighted larger write-downs in weaker assets. How overvalued are some of your assets, would you say on that basis? And was this focused on specific assets that you're looking to dispose of, i.e., did assets earmarked for disposal see larger write-downs than the others?

You got that one?

Yes. I mean I think the bifurcation in the market still exists. So you're certainly seeing the higher development assets seeing better growth. I think in terms of the read across of the whole portfolio, the volumes have been low. Valuation systems are retrospective. To put a number on how far things are over undervalued, obviously, we can't do. But it is -- the important thing is that tail. And in terms of the assets we're selling, we have third-party valuations. They're valued by Frank, and we look at that with them.

I just make the point, as you get towards the end of a lease, the income drops off, values have to take that into account. So you move towards essentially a vacant possession value. It's quite natural to see things like that falling in value. That's really what we're talking about here when we've seen -- we've got shortening leases, some vacancy, that's got an impact on individual property valuation. That's been driving those falls of the tail.

Some of those are opportunities as well for future refurbishments or for others. And if you look at ourselves today through quite difficult in a macro environment, just 3% below book, I think, is a pretty positive story with a range of different properties. But with a portfolio -- any portfolio, you're always going to have some really good winners and occasional a few losers.

Yes, it's just more on the assets earmarked for disposal. We've seen with others that they write those down quite aggressively, then sell in line with book. So I just wondered if that was something that you were doing as well or looking to do whether the valuers were minded to do that to.

I wouldn't say we've done it like that, but a building like Page Street, for example. So this time last year, it was occupied by Burberry. Currently, it's empty. It's on the market. The value has fallen quite a bit, but that's mainly because it's now vacant. But there we go.

Makes sense. Cool. Last one, you highlighted the increased confidence in your FY '30 EPS targets, I assume, driven by stronger operational performance. Given your comments, is it fair to assume you're now towards the top end of the 25% to 30% range? And what would it take for you to increase that target?

Damian, you can also...

Yes. Well, you know I'm usually quite careful with these things. And 2030 is a way away. So our model has strengthened since we last reported. Well, I didn't think it was right to upgrade guidance 4 years in advance. So we're feeling more confident, but we're maintaining guidance. But if you can say -- I can say I'm a little bit more confident even than I was in February, if that helps.

Thank you Paul. Zach?

Zachary Gauge from UBS. A couple of questions. First one, just to wrap up on the EPRA earnings guidance upgrade for 2026. How much of that is driven by the higher capitalized interest versus organic things that we should be thinking about as a run rate into H2? Because obviously, you're originally guiding a 20% increase in H2. Presumably that's now flattened out largely because of the capitalized interest. But please let me know if there's other things to take into account as a run rate into H2?

And the second one is on share buybacks. You did mention that sort of still part of the capital allocation framework going forward. But given the shares are now 2021 versus where they were when you first announced an intention, do you have a level where you think they actually don't make sense given in particular, the P&L you have to sell out for them to make sense is considerably lower than it was 3, 4 months ago?

Do you want to start with the...

Yes, I'll start. On the earnings, I think it's -- there are winners and losers. One of the things that's changed in the second half compared to where we were in February, we were expecting a rate cut later in the year. So our finance costs were a bit lower in H2, which is one of the reasons for the upgrade in February for H2 versus H1. That's gone the other way today. So I'm now expecting in accordance with the market, probably one rate increase. So that has an impact on H2. H1 was quite a bit stronger than we expected.

The capitalized interest really is offset by the later rental network pretty closely. It's really other things around the portfolio and a bit of cost reduction that's driven that increase. So it's basically organic growth in the portfolio, but there has been a shift because of the interest rate change. That's the main difference. But the other point is we've got Pay Street on the market. It's vacant currently. The longer we hold it, the more that hits earnings in H2. So that's a little bit difficult to be sure. We've modeled it on the basis we sell at the end of the period. If we were to sell it a bit earlier, we could perhaps be a bit stronger -- but it depends on individual buildings like that. So I hope that helps.

And do you want to have a look at the...

On the buyback, yes, I mean, the -- it still works at this level. But we're only going to look at buybacks in the future. If we've got surplus capital, then the disposals go very well. We've got surplus capital, we then look at the model, where can we best allocate it. If at that stage, a buyback still makes sense, we will consider one. But I think today, let's finish this one first, and we've got lots of interesting things to spend the money on.

Adam Shapton at Green Street. A quick one on Old Street Quarter. Have you had any approaches to buy the site replanning or buy your option as well?

Obviously, I wouldn't want to reveal anything that's commercially sensitive. We have had some approaches. There's some interesting things. Our focus is getting planning permission. We've got a very interesting scheme working very well with related Argent. So we have been talking to a few people early days because people -- it's a 2.5-acre site in Central London. It's bound to attract certain interest, but we'll let the market know once and if we do anything.

But actually, the focus for the time being is obviously to get the planning permission. We're working very well, Richard P and his team on work with Islington and GLA, and then we will consider how we might derisk. And we've always said it's extremely unlikely we would deliver it ourselves. So we would obviously -- we've got related Argent helping us. We'd obviously look at options to derisk. So we get people knocking our doors quite readily, not just on things like that, but also how we buy this, can we buy that big strength of the portfolio. So we'll let you know when we've got some news.

That's very clear. And then on Flex within the portfolio. So growth -- you're indicating growth to 15% of the portfolio. I think 6 months ago, that was -- the indication was 10% to 15%. I guess if we go back a couple of years, it might have been we're happy at 5 or whatever it is. So that's growing, and I understand that's the way the market is moving. Can you talk a bit about the shape that, that takes? Is that going to be 30% of certain buildings? Or is it going to be entire buildings? And then one technical point on ERVs. When you say that Stephen Street Flex letting that happened in the first half was an 11% beat to ERV. Is that on a flex ERV or a more conventional sort of?

Yes. So I'll answer the second bit first because that's a short answer. Yes, we move our ERVs up as we add the CapEx for the additional CapEx when we're turning it to Flex. So that is against a flex ERV, i.e., it would be a higher beat if it was against the Cat A ERV.

Sort of bigger picture follow-up on that, ERV you talked about for the whole portfolio, is that?

It will be a blend of both Cat A and Flex.

Yes. Okay. So that will naturally move up as well as.

Yes. So going back to your first question in terms of the flex, the growth that we're projecting here is based on growth within our portfolio, i.e., not buying in specifically for that purpose. So as the market moved, we appraise everything under 10,000 square foot now on the basis of both Flex and Cathay. And more often than not, we'll deliver everything under 5,000 square foot almost certainly. And occasionally, we do the larger space takes between 5 to 7. So that growth factors in those units that we know are coming vacant in the coming years of that size effectively.

In terms of what the shape of it looks like, we have now more self-contained buildings, particularly in Fitzrovia, where they are -- they will be fully flexed buildings on the smaller side, but the growth is also -- well, 2 of the schemes we discussed will push some of that growth. So Middlesex House, for example, we were going to deliver 50% flex. We're now probably likely to deliver 100%. And Greencoat House is about 50-50 flex to Cat A depending on where the demand lands. So those 2 are fairly chunky increase, if you like, that are feeding into that number.

The ERVs for those projects?

The ERVs at the moment are appraised on the 50-50 for both. They will probably move as we agreed to sign off the CapEx for more at Middlesex in the next half.

Thank you, Adam. Any other questions in the room? Robbie, have we got any questions on the webcast?

We do. So thank you for that. There's quite a few sort of around the theme. So rather than read the individual questions, what I'm going to do is sort of amalgamate them and combine them. So principally, the main one is around 2 around share buybacks and around Old Street. So broadly speaking, looking at the economics of a buyback as the share price has gone up, can we talk about how we think about the economics of it and then on a risk-adjusted basis relative to, say, the returns on other sources of capital redeployment like development?

Do you want to deal with that?

Yes, I can. I mean we've obviously announced our first buyback. I think that's gone pretty well. I think going forward, there's a balance here between short-term gain. I mean the buybacks even at today's share price are obviously quite accretive to -- but what you give up is the ability to grow earnings. We're talking more and more about earnings in the sector. I think it's been interesting of the questions today.

The important thing for this business is to be really investable. And we're looking at the strong earnings growth through to 2030. That comes from investing in the schemes rather than doing buybacks. So I think at the moment, really, the share buyback issue really only arises when you've got surplus capital, then we were to make additional disposals over and above our expectations today. We then have a decision to make what do we do with the spare capacity, we invested into new acquisitions? Do we do more development? Do we do a buyback. And at the time, we'll look at those things in their entirety, and we'll balance it out.

Great. And then looking at the Old Street quarter provision, you sort of answered -- you gave some good detail earlier on. Is there anything that suggests there's going to be more through the second half?

The provision booked at June is based on our views at June and the judgments we made. If those judgments change, the provision can go up or down. So I think we have to wait and see how we feel -- very much the focus today is getting the planning application. That's the way we can generate the most value whatever we do. So plan for the next 6 months or so, get that planning application in, maximize the value creation.

The provision will largely then come down to how we decide to deliver. How much of this do we do ourselves? How much do we derisk? As Paul has mentioned, we've got people interested in the site. The less we do, the less we can take those development profits ourselves. But then the more CapEx we save and the more we can do perhaps a share buyback with it.

So there's a lot of things to balance here. We can't answer where we'll be in 6 months' time. I'm looking forward to that in 6 months' time. But for the time being, we're comfortable we've made a good start. The focus is very much on the planning application.

And then 2 more technical questions. The first linked to total property return versus the MSCI Central London Index. Is there anything specific that led to the underperformance in the first half? And the second -- sorry, just the second one is on Page Street, the vacation there, is that within the like-for-like GRI performance that we presented?

On to Page Street?

Yes.

Page Street is currently not in the like-for-like. It's been -- we're stripping it out, so it's not available for that, not in the EPRA portfolio.

In terms of the MSCI, it's a good question. And hopefully, you're aware, we do normally comfortably beat the MSCI. We have been in touch with MSCI, as I know others have, and we think this is relating to the data set of this half, where a lot of low-yielding development stock has come into the data set, which we think is slightly distorting the numbers. The MSCI pool has also got a bit smaller, but we think it's relative to that low-yielding stock that that's coming through.

Lovely. And that is all the questions on the webcast. So back to you, Paul.

Well, thank you very much for everyone attending today. Thank you again for all your friendship and support an interesting question over years. I'm going to miss these moments. I will watch Derwent from -- not from afar, but closely, and I'm very confident of good progress. Anyone got any further questions they want to ask later, the team is around. And for those who have not had a holiday yet, don't have a nice break, got lovely weather, enjoy yourself. And thank you again.

Well, good morning, everyone, and welcome to Derwent London's 2025 Full Year Results Presentation. And before moving on to the results, you will see another news this morning and a strong set of a building in Whitfield Street, more to follow.

Now the order of today's presentation is slightly different. As well as, you'll be hearing from Emily and Damian. While Nigel is not on the stage, he is, of course, here for some Q&A.

Now turning to Slide 2. The group's business model and portfolio provide strong foundations on which to build on an exciting and successful future. Our portfolio is strategically positioned with 75% in the West End and 81% within a 10-minute walk of Elizabeth line station. These are London's best performing areas. It is high quality with significant embedded reversion potential, a diverse tenant base and robust vault. Flexibility has always been fundamental to our approach, and we look to continually adapt our portfolio to evolving market conditions to ensure that we are well positioned for future market evolution.

We have an exciting West End focused development pipeline in some of the strongest submarkets, presenting a real opportunity to drive rents and, therefore, returns. Our schemes are designed to meet the full spectrum of occupier demand from the London commands, headquarter space, which serves our core customer base as well as furniture flex product, all delivered to our exacting standards and complemented with high-quality amenity.

We also have good visibility on income growth. Our reversionary potential of GBP 70.9 million will come through into earnings as we continue to lease up and deliver the best phase of next phase of schemes. but we're not standing still. There is substantial opportunity ahead to create further value.

Now turning over. 2025 was a solid year of execution. We completed asset management transactions with rental income of nearly GBP 60 million, a record year. And in the context of a low vacancy rate, we agreed over GBP 11 million of new lettings at rents 10% above ERV. In terms of disposals, we sold GBP 216 million in 2025 and 2026, we're off to a good start. Since the start of the year, we've exchanged contracts of GBP 140 million, including Whitfield Street announced today with a further GBP 140 million under offer, broadly in line with December book values. Proceeds will be redeployed into higher return opportunities, including selective developments, acquisitions and other accretive alternatives. Emily will provide more detail in this shortly.

2026 has started with strong momentum with GBP 1.5 million of new leases completed, and we're under offer with a further GBP 14.4 million, including all of the offices and network. In addition, there is GBP 4.4 million in negotiations.

Slide 4. This momentum provides a momentum -- a springboard for growth. Our market outlook informs our immediate action plan, which is focused on accelerating returns through active portfolio management and disciplined capital allocation. We are now past the inflection point with the outlook characterized by 3 powerful drivers. Firstly, London, which is our market, we have an unrivaled expertise in demonstrating its enduring dominance as a European and -- on the European and global stage. Once again, it is proving its resilience and agility in adapting to change, reinforcing its position as Europe's undisputed business capital.

Secondly, the ongoing strength of the occupational market, supported by high demand and very limited supply. You will hear more on this from Emily in due course, who'll provide further context on this. Finally, improved liquidity in the investment market driven by a return of capital flows both into London and into offices.

Turnover is up with larger lot sizes now transaction. The combination of our proactive execution and positive market dynamic gives us the confidence to increase our 2026 ERV guidance for our portfolio to plus 4% to plus 7%.

I will now hand over to Emily and Damian, who will take you through our immediate strategy and provide more detail on the financial outlook. Thank you.

Thank you, Paul. Looking now at our immediate priorities. Our near-term strategy is clear, firmly focused on returns, position the portfolio to capture the strongest rental growth and capital appreciation opportunities through active portfolio management and disciplined capital allocation with a clear focus on execution and total return on capital. Recycling will accelerate. We plan to dispose of up to GBP 1 billion over the next 3 years and at a faster pace than our historic run rate of GBP 200 million per annum. These disposals will be focused primarily on mature assets where the business plans have been delivered or where prospective returns are lower than alternative opportunities available to us.

Capital redeployment will be disciplined and returns driven. We will systematically assess the relative merits of all options open to us at any one point in time. The foundations of our capital allocation framework will be built on maintaining a strong balance sheet and a net debt-to-EBITDA below 9.5x. Within that framework, we will consider share buybacks alongside selective development where we have confidence in strong returns and strategic acquisitions that support a pipeline for the next decade and contribute to long-term value creation. Overall, our focus is to proactively manage the portfolio to ensure an appropriate risk return profile that delivers both earnings growth and attractive total accounting returns. Damian will cover this in more detail shortly.

So what does this look like in practice? HQ offices will remain our core business, where we continue to have strong conviction. We will also continue to deliver flex and do so at proportionate levels aligned to market demand and in a way that ensures sensible cost ratios and a simplified operational model that is portfolio rather than asset by asset led. As such, our overall flex offering will likely grow to circa 10% to 15% of the portfolio from the current circa 8%. Both our HQ and flex workspace are supported and enhanced by our DL member platform.

Whether we're buying, selling or investing, we will do so within a disciplined risk return framework that balances income resilience and earnings growth with value creation. This may well involve the acquisition of core plus assets in the future as well as the development projects we are well known for. We will selectively develop those office schemes where we have confidence in the medium- to long-term returns. These include Holden House and Middlesex, where we are already on site as well as Greencoat & Gordon and 50 Baker Street, both due to start later this year.

In addition, we will seek to drive value via strategic unlocking and alternative uses on sites, working alongside relevant partners to maximize returns. These include Blue Star House, Old Street Quarter and 230 Blackfriars Road, and we'll touch more on these later.

Finally, we have an established brand and platform, and we believe there's opportunity to leverage this more effectively. This could take the form of development management fees, promotes, partnership structures or other arrangements that are returns accretive.

I'll now hand over to Damian, who will provide more detail on the balance sheet as well as the outlook for earnings and total accounting return.

Thank you, Em, and good morning, everyone. So taking a look at our returns outlook and earnings first.

The 2 large recent projects at Network and 25 Baker Street are now essentially complete. Baker Street provides annualized rent on a net effective basis of about GBP 18 million a year or GBP 22 million headline. Based off ERV at the year-end, Network's annualized rent will be about GBP 11 million or GBP 13.7 million headline, and we expect rental income here to commence around the middle of the year.

Our debt refinancing is complete for now. Our average interest rate increased in June '25, but is now expected to be largely stable through to 2031. Admin expenses were reduced in 2025, and we're targeting further cost savings to come. So with rental values growing and cost inflation easing, we now expect to see another period of earnings growth over the medium term. This feeds into our total accounting return outlook, too, also expected to benefit from improving development surpluses on our carefully chosen schemes and accelerated capital recycling.

We will not lose our well-established financial discipline. That is based on low leverage, a focus on balancing value creation against interest cover and earnings and our 18th consecutive year of increased ordinary dividends.

Now looking at the earnings outlook in more detail. We currently expect 2026 rental income from 25 Baker Street and Network to be about GBP 18 million higher than it was in '25. This will be supported by rent reviews and other new lettings across the portfolio. We've allowed for disposals of about GBP 400 million this year, but the earnings impact is small as the average IFRS rental yield is close to our marginal interest rate.

West End projects, including Holden House and the refurbishment of Middlesex House, will, however, reduce earnings in the short term. There are also additional voids at Page Street, which is being marketed for sale and 50 Baker Street. We're targeting further cuts in admin costs this year. And after disposals and CapEx, we forecast our average debt to fall. However, the refinancing of the convertible bonds in June last year increased our weighted average interest rate by about 50 basis points. We're also expecting about GBP 6 million less interest to be capitalized in 2026 than in '25.

Putting this all together, we therefore expect 2026 earnings to be about 42p to 44p a share in the first half, followed by 52p in the second half. That is 10% ahead of H2 '25. So overall, about 3% to 5% lower than in '25, but rising significantly in H2.

2027 should then see EPRA earnings step up. We estimate that about 5% to 10% growth from the 2025 level or about 15% above '26 levels. And this is as growing rents are captured and we capitalize more interest. And then by 2030, we see earnings rising very substantially. Our models indicate at least 25% to 30% of uplift as rental reversion is captured and income flows from completed projects at Holden House, 50 Baker Street and elsewhere.

Now considering the total accounting return. The 3 main building blocks are shown on this chart: earnings, capital growth and development returns. These are now supplemented by a fourth, a renewed focus on accelerated disposals to provide further options to boost our returns. Earnings first and assuming investment yields in our sector remain stable, 3% or a little more based on NTA is a realistic level. As the NTA grows, so will earnings. Next, capital growth, where we believe 3% to 5% of NAV is a reasonable outlook, allowing for the rental growth we're now seeing, backed by stable investment yields and allowing for a typical 1% or so adjustment for CapEx and voids.

The third aspect is the increasingly attractive development returns, now growing again after being squeezed over recent years. IRRs up to expected letting are now regularly hitting 10% or more for our current and future projects, but rental growth could push these further. Our analysis shows a positive development contribution every year since our first major scheme in 2010.

The final element is to free up capital from the higher disposals mentioned earlier into an improving investment market. This could be for future value creation schemes as well as potential share buybacks should that be more attractive at the time. We've set a GBP 1 billion sales target over the next 3 years, which could provide up to about GBP 250 million of excess capital. That's after allowing for planned schemes and the acquisition of Old Street Quarter in late '27.

So now moving back to our 2025 results and the financial highlights. We show a solid performance for 2025, the net tangible assets up to 3,225p per share and a 5% total accounting return. Gross and net rental income was slightly higher than 2024, but EPRA earnings were affected by lower surrender premiums and higher finance costs after the midyear refinancing. Note also that our trading profits are excluded from the definition of EPRA earnings. Our debt metrics were all very sound, helped by the disposals totaling GBP 216 million and a busy year of refinancing. Finally, the dividend, which has been increased again by 1.2% and remains well covered by EPRA earnings.

Next, the 2.4% uplift in EPRA NTA over the year. After dividends, the group retained 25p per share from earnings, including 8p from disposal profits and other items. The trading profits all came from our 25 Baker Street scheme, the majority from the sale of 24 out of the 41 residential units at George Street. The revaluation surplus in 2025 was equivalent to 51p per share. Of this, 20p or about 40% came from development surpluses. These figures are after slightly higher-than-normal deductions for additional CapEx and voids in 2025, together about 40p per share.

Now the next slide, some additional valuation data. As in 2024, our ERVs grew at about 4% with the West End outperforming. Valuation yields remained stable, helped by the rental growth outlook and moderating central bank rates and inflation. Our topped-up initial yield on an EPRA basis at the year-end was 5.1% and the true equivalent yield was 5.71%. The portfolio remains good value with average topped-up rents around GBP 65 per square foot.

Now EPRA earnings. These are set out here with the 3 main categories: property, admin and finance. Gross rents were up by GBP 3.5 million. And after property costs and impairment, net rental income was slightly higher than 2024 too. However, surrender premiums were GBP 2.5 million lower this year. So overall, net property and other income was GBP 1.7 million down on 2024. As mentioned earlier, we focused on cost efficiencies again in '25 and admin expenses were down by GBP 2.4 million on an EPRA basis despite inflationary cost pressures.

Net finance costs were up significantly in the second half of the year. This is mainly due to the GBP 175 million of convertible bonds, which had an IFRS rate of 2.3%, being refinanced in June with new 7-year bonds at 5.25%. This took our weighted average interest rate up by about 50 basis points over the year. Average debt was also GBP 110 million higher than in '24, though this was partly offset by GBP 2 million -- GBP 2.9 million more capitalized interest. The higher finance costs took EPRA profits down to 98.4p per share. But if we add back the trading profits, which are excluded from EPRA EPS, adjusted EPS was 102.1p.

The next slide shows movements in gross rents. After a delayed completion date, 25 Baker Street contributed GBP 5.4 million in 2025 and the retail units at Soho Place, another GBP 0.9 million. Other lettings and asset management transactions added GBP 7.6 million. GBP 10.2 million of income was lost due to space taken back or becoming vacant. Like-for-like gross rents were up 2.4%, impacted by our EPRA vacancy rate increasing from 3.1% to 4.1% through the year. We incurred GBP 182 million of CapEx in 2025, almost half of which was at Network and 25 Baker Street.

The ungeared IRR up to PC at Baker Street was 11.3%, with network expected to deliver between 8% and 9% and we'll update these figures later in the year. These both represent good returns after significant yield expansion through the life of each project, helped by disciplined cost control and rents almost 20% above original appraisal levels. CapEx in 2026 is expected to be 22% lower at about GBP 142 million. 50 Baker Street is not yet committed, but we do expect it to move ahead in the summer and are particularly optimistic about return prospects here. Emily will take you through these later.

Next, the ERV bridge, which we're now showing on a net effective rent basis to help make earnings forecasting easier. The previous headline rent basis is also shown at the bottom of the chart. Total rental income reversion is now GBP 70.9 million after incentives allowed at 20% and with GBP 216 million of future CapEx. Note that the pure reversion on the right-hand side from reviews and expiries remains at GBP 15.9 million, but this figure is after reclassifying GBP 3.8 million of reversion into the major projects category.

Now refinancing. And as noted earlier, we were busy in June, issuing new unsecured 7-year bonds and redeeming the convertibles. As noted, this caused our weighted average interest rate to rise, giving an average through the year in 2025 of 3.8%, up from 3.3% for the whole of 2024. We expect our spot rates to fall in March 2026 when we repay the 6.5% LMS bonds. This should keep the average for 2026 at around 3.8%, but we believe lower in the second half than in the first. Redeeming those LMS bonds will also mean that by the end of Q1, all of our debt will be unsecured.

At the moment, we're not expecting to issue any more fixed rate debt in 2026, any funding needed most likely coming from bank facilities. However, it's good to know that other debt capital markets remain both liquid and competitive with margins looking increasingly attractive.

Our debt position is summarized on the last slide with all debt ratios and covenants comfortable. Cash and undrawn facilities rising over the year to GBP 627 million. Fitch retained our A- senior unsecured rating last year since when our gearing has fallen. Our borrowings had a weighted average unexpired term of 4.2 years at year-end and net debt to EBITDA was reduced to 9x. We anticipate it falling further through 2026.

Thank you. And now back to Emily.

Before moving to our operational activity, let me set the scene with an overview of the London office market, where we have good reason to be optimistic as we look ahead. Firstly, London itself, where we have the highest concentration of top universities worldwide, providing an unmatched talent base. It is Europe's unicorn capital and #1 VC investment as well as Europe's leading financial center. It also ranks third globally for AI venture capital investment behind only the Bay Area in New York in the U.S. and is Europe's biggest hub for generative AI. We recognize the ongoing debate on this topic, and it will, of course, change how people work.

Overall, we do not believe AI will remove the need for high-quality offices, and we believe London is one of the global cities best positioned to benefit given its depth of talent, innovation and global connectivity. As with any fast-moving driver of change, we will stay close to these developments and be ready to adapt as the opportunity evolves. London's strength is also reflected in sector diverse office demand, underpinned by a broad knowledge-based economy and finance, technology and creative industries all in growth. This global city attracts both blue-chip corporates and high-growth occupiers, and its diversity makes it significantly more resilient through the cycles. London is where global businesses want to be.

And the office occupier market fundamentals are strong. 2025 saw robust activity, 11.4 million square feet of take-up with over 3.5 million square foot under offer. Importantly, 80% of deals over 20,000 square foot were expansionary, signaling genuine business growth. Vacancy remains low and prime vacancy sub-2%. Looking ahead, we expect a significant supply punch, rental growth and lease events working in landlords saver with occupier renewals extending income and rent reviews now delivering good reversion. The occupational market is inflecting positively, and we're well positioned to benefit.

And what are occupiers looking for? Real estate quality matters more than ever, buildings with a rival impact, rich amenity, flexibility and quality, be that retrofit or new build. Location and connectivity, very important, proximity to crossrail, transport more generally, talent and amenity. But critically, all that London has to offer is what makes it a city, which attracts domestic and European businesses and HQs. The scale and depth of industry and skill is unmatched in Europe. We understand these drivers. Our portfolio is built around them, and our forward-look strategy is designed to capture the value they create.

Finally, turning to the investment market. Liquidity is now improving. Investment volumes in 2025 totaled GBP 7.1 billion, a 40% increase on the year previous. Yields have stabilized. The market has inflected and investor confidence is improving, driven by a strong occupier market and supply crunch, as we heard earlier. 2025 also saw the return of the large lot size transactions with double the numbers seen in the year before. This is a trend we're expecting to continue in 2026 as debt costs reduce, boosting overall levered returns.

GBP 23.5 billion of equity is now targeting London, an 18% increase on 2024, and Knight Frank reported in a recent survey that offices are the most targeted sector by investors in 2026. Geopolitical events elsewhere are enhancing London's appeal and its position as global safe haven. All this means that we are expecting a further increase in turnover in 2026 to over GBP 10 billion, and this will contribute positively to our plans for disposals.

Now to our own portfolio activity. We completed GBP 216 million of disposals in 2025, and we exchanged contracts for disposals totaling GBP 145 million in 2026 so far. In addition, we have GBP 135 million under offer and are in discussions on GBP 100 million. These sales support our target of GBP 1 billion of capital recycling into an improving investment market where proceeds can be more effectively redeployed elsewhere into higher return opportunities. In addition, we will continue to selectively hunt for value-creative opportunities to acquire, be that to support medium, long-term value through development or to support income in the nearer term.

Turning to leasing performance. 2025 was a resilient year with GBP 11.3 million of new leases signed, around 10% ahead of ERV. As the chart shows, leasing activity across the standing portfolio has been broadly consistent with long-term averages for a number of years. Excluding pre-let, this highlights the strength of underlying demand for our space. And we've started '26 with strong momentum, GBP 14.4 million under offer, including all of the space at Network as well as the GBP 1.5 million transacted and a further GBP 4.4 million in negotiations. These figures support a strong year ahead for leasing activity.

Turning to Slide 29 and asset management. '25 was a record year for asset management with transactions completed across GBP 59 million of income, almost 30% above our previous peak. More importantly, though, was the quality of what we achieved. Our focus was on capturing reversion, extending income and aligning lease profiles with our longer-term asset strategies. Through early and proactive engagement with occupiers, we were able to structure transactions that balance flexibility with greater income visibility while mitigating void risk and future capital expenditure.

Rent reviews of GBP 37.4 million secured over 7% above previous rents, reflecting the strong rental growth across submarkets and renewals and regears with long-standing occupiers, extended lease lengths and deepened relationships. Transactions such as Adobe at White Collar Factory and Burberry at Horseferry House demonstrate the strength of our occupier partnerships and reflect the positives for us of occupiers taking the stay put option, while major rent reviews at Brunel and 80 Charlotte Street enabled us to capture good reversion. Overall, this was a year where active management translated directly into stronger income security and enhanced reversionary potential. And this will be an important part of business activity as we look ahead in this market.

Moving to developments. At 25 Baker Street, which completed in August 2025, offices were 100% pre-let at 16.5% above appraisal ERV, generating headline rent of GBP 21.7 million and an ungeared IRR of 11.3%. And at Network W1, the offices are now fully under offer. Practical completion of the building is expected within the next week. Full details of the financials on this will be confirmed once transacted in coming weeks. We've maintained good returns on these schemes in spite of significant outward yield shift.

Looking ahead, we have a focused and disciplined development pipeline, which remains a core part of our business model and driver of future returns. We're making good progress on site at Holden House and strip-out works have commenced at Greencoat & Gordon. Both of these schemes are in well-connected locations in submarkets with strong demand and limited supply with completions targeted in 2027 and 2028, respectively.

We're also on site now with the comprehensive refurbishment of Middlesex House, where we're giving new life to this tactful 1930s Art Deco warehouse building in the heart of Fitzrovia. Together, these schemes, 2 of which are traditional refurbishments, represents a substantial value opportunity for the group with double-digit attractive expected returns. And importantly, this growth potential is already within the portfolio, driven by projects under our control, providing clear visibility over future earnings and value creation.

At 50 Baker Street, we're due to commence an exciting new build development later this year. This is a scheme positioned in a submarket with very limited supply, great connectivity and strong growth prospects, which deliver all those things on the occupier wish list, amazing arrival and amenity, large floor plates, flexibility and quality design and architecture, of course. Our base appraisal shows strong returns with rental growth expected to enhance them further given the strength of the Marylebone occupier market as well as the product to be delivered.

Alongside our near-term development pipeline, we also have over 1 million square foot where we are actively exploring alternative primarily living-led uses and strategic partnerships to maximize long-term value creation. At Blue Star House working with an operating partner, planning consent is in place for apart-hotel development scheme. At Old Street Quarter, we are working with related Ardent in a development management capacity for the time being to progress a mixed-use living-led campus. Importantly, the structure of this allows flexibility over delivery, including joint ventures, forward funding or indeed plot sales, allowing us to deploy capital selectively and efficiently.

And at 230 Blackfriars Friday Road, early feasibility work indicates significant residential-led potential with scope to materially increase floor area. Together, these assets provide meaningful optionality to partner, develop directly or realize value through sales.

So in summary, operationally, 2025 has been a strong year, accelerating capital recycling as liquidity improves, resilient leasing activity, record asset management activity, successful delivery and pre-letting of major developments and a disciplined pipeline with attractive expected returns.

Now over to Paul, who will wrap up.

Thank you very much indeed, Emily. Now to outlook on Page 35. As you heard, there is significant activity across the business. We are busy. GBP 140 million of disposals signed since the start of the year with a similar amount under offer and a further GBP 100 million in negotiations. The stage is set for 2026 to be a strong year for leasing. And we're on site of 3 really exciting projects, which we have forecast will deliver an average IRR in excess of 10%.

We have a clear plan for the accretive redeployment of disposal proceeds as we seek to balance near-term income with value creation in the medium term. This includes potential share buybacks. London feels different. The fundamentals are good. The office cycle has really turned a corner. Rents are growing strongly. Investment liquidity has improved markedly with London offices being the most demand sector. There has been a notable pickup in activity. We're seeing more inquiries from potential occupiers and increasingly broad range of investors are knocking on our door. And this is the foundation of our ERV increase for 2026 to plus 4% to plus 7% and our confident financial outlook.

Now a personal reflection. As you know, I've made a decision to retire after 38 years at Derwent. I've been with the business man and boy, and I'm proud of what we have achieved over that time. I'm excited for 2026 and beyond and that the business is well placed with a great team. Thank you. We're now going to take questions from the room and then from those who are joined remotely.

Questions, please.

It's Tom Musson at Berenberg. A question first on the perceived AI risk to tenants. The market is beginning to price some of this in recent share price moves. Interestingly, a lot more in the U.S. Would you expect property valuers to react here, perhaps assuming greater tenant covenant risk or changing assumptions around lease renewal probabilities? Just would be interested if any of this has been part of conversations you've had with them.

Yes. I think, firstly, one of the benefits we obviously have is how close we are to our occupiers and indeed other occupiers in the market. So any area of change like this will always stay close to. I think in terms of the property sector more specifically in the valuation point you read, there's 2 strands to the AI debate at the moment. One is the direct demand versus the indirect impact, if you like.

To date, we're not seeing that reflected negatively by any means in the valuation piece. I think the covenant point is as with any of the other big tech booms we've seen over the cycles. There will obviously be winners and losers in that. And from our perspective, we always take that covenant risk piece very seriously. But on a more general piece in terms of the AI story, I think we feel, as I mentioned, that globally, I think London is somewhere that should really position themselves well for that. But it's something we're going to stay very close to as things evolve.

Second one, you mentioned potential share buybacks in the event of being in a surplus capital position. At what point would you consider yourselves to be in a surplus capital position? Do we wait until you've cleared this year's CapEx requirement, for example, or some of next year's too? Just interested how you think about that.

Look, we have a plan to sell something over GBP 1 billion over the next 3 years. We started off really well this year. We have got some investment going into the portfolio for really accretive developments. But as we build up those resources, I think we should have a good look at that and be open-minded. Damian, do you want to add a bit to that?

Yes. Tom, it's a good question. I think let's get some disposals out of the way. We've made a good start to the year. Personally, I think we need to get sort of 200 plus under our belt before we can seriously look at what we do. We do have Old Street quarter coming up in probably late 2027. So we need to look at that in our forward funding plans as well. So I think the GBP 400 million this year is a good start. We've mentioned there could be up to GBP 250 million of excess capital over the 3 years. That doesn't mean to say we have to wait for 3 years. So I think we will look at this as we go, and we will see how things progress. I don't want to commit to a particular number today, but I hope you can see how we're thinking about this.

That's helpful. Maybe if I could ask one last one, just on the residential sales at 25 Baker Street. I think at the half year, you'd exchanged on 23 of the 41 units today. I think you say you sold 24, so one more. What's the demand like right now for those? And are you having to meaningfully adjust price there to generate interest at this point? And should we address our trading profit expectations for the rest of the units?

I think we started off really well with prices well above our underwrite and there's some very strong prices, particularly for the bigger units, GBP 3,700 a square foot. We've got a little one that's left. They will take a little bit longer time, but they're great flats in great location, but it will take a little bit longer. Damian, do you want to add to that?

Yes. Just one other point to make is that the 2025 result included the cost of all the affordable housing. So from here on, it's essentially profit. Now the market has definitely got slower, and I'm pretty sure we'll see pricing coming off a bit. But we've got quite good headroom here. So confident that at some point, we will see a pickup. A lot of beds for sale. So if anyone is interested, please let us know.

Adam Shapton at Green Street. I had to put my hand down then when Damian bed didn't want to look I was volunteering. Firstly, congratulations, Paul and Nigel, on retirement, let me say that. Before I get into questions. Just a clarification on the GBP 1 billion of disposals number. Is that in addition to what's already exchanged and under offer or...

No, GBP 1 billion includes the figures that we've done this year. So GBP 1 billion over -- we would have done GBP 280 million, I think, as the deals get done. So that's a good start. So we're hoping that we're going to get something close to GBP 400 million this year. So that's the plan.

And just in that context, if I may say 3 years sounds quite conservative to do another GBP 750 million. What's the limiting factor there? I mean you talked about improving market. You quoted Knight Frank on all the equity...

Don't view the GBP 1 billion as a cap. I think what we're looking to do is proactively dispose here mature assets where the business plan is delivered and where we think we can deploy other more accretive opportunities. So it's not a fixed number per se. And depending on the market and where we're at in terms of other opportunities that may move.

So both the number and the time scale might conservative. Is that fair?

We're seeing liquidity improving because obviously big assets are GBP 100-odd million today. Last year, I think they doubled GBP 100 million the year before we difficult. So I think as we see liquidity go up, and if we can get a strong price for those assets, we're going to be realistic and sensible. But I think we want to make sure when we do sell, we sell well and we sell at the right price with the balance sheet in good place. I want to make sure that we do it strategically. Richard and his team are well set up to do that. And I'd say we will accelerate disposals and we see a strong price for something and we can use the money more accretively, we would certainly do that.

Great. Just 2 more. On the flex growth, Emily, you mentioned going from 8% to 10% to 15%. I think I'm right in saying the 8% is a mixture of F&F and third-party operators.

Yes.

So what's the shape of that?

The growth from 8% to 15% is more around our portfolio and what expires within that time frame of a size and location where we think will naturally move to flex. So it's not proposing that we're going out shopping per se for an extra 7% of that stuff. It's more that we're looking at where the sub 10,000 square foot units coming back in the right submarkets and they will likely convert.

Okay. But we should expect to be more your in-house as it were rather than leasing?

We've got a number of refurbishments at the moment, which I think we're ideally placed for that sort of thing.

Okay. And maybe somewhat related to that, on admin costs, you made some good progress. How should we think about a floor of where that could get to in today's money? Given your strategic ambitions, you want to sweat the platform more, where could the...

I think our target for this year is another couple of million. I think at that stage, that feels like it's quite lean. There would have to be quite structural changes before we can go much lower than that. But that's a reasonable target for now.

Callum Marley from Kolytics. A couple of questions. Outlined the new strategy today with disposals and buybacks. But the stock has obviously been trading at a material discount now for a few years, and you've had a while to act on it. Why are you committing to this now?

I think in terms of the strategy, in terms of -- we're looking at all optionality here. So we're disposing, but then obviously focusing on the balance sheet. You've seen track record of development and investment where we're committed and where we want to commit. Obviously, looking at the dividend and as Damian touched on, which you can pick up on the share buybacks come as and when we reach that surplus. So it's looking at the whole picture and that optionality around that, keeping open-minded to that.

I think also the key really is how the investment market is now opening up. we have had 2 years where it's been quite challenging to sell large lot sizes. And as a result, the leverage has crept up a bit. The balance sheet is still strong, but maintaining a strong balance sheet has always been one of our foremost requirements. we now have more options coming open to us as well. So -- and the other thing, of course, is maintaining earnings. And you've got the situation now where the IFRS yield on most of the things we're looking to sell is probably very close to our marginal interest rate. So the earnings impact of disposals is much less than it was, say, 3 or 4 years ago. So I hope that gives you some idea as to how...

I think that's the point with the market opening up more liquidity, give more opportunity to sell and consider what we do with that money. So I think that the market equity has improved a lot.

Got it. And then the 25% earnings growth target, is that built on sustained rental growth? And if so, what's the number?

The rental growth to 2030, essentially, what we're doing is we're building into our models some growing reversion from rental growth of around about 4% per annum. We've also got, I think, expecting increasingly attractive returns from projects like 50 Baker Street and Holden, where the gearing impact as well, it improves those returns still further. You factor that in, about half of the rental growth comes from those 2 projects and about half of it comes from the rest of the portfolio.

So 4% is the...

So roughly 4% per annum is what we're putting in our models going forward, yes.

And if I could just ask on Page 22, just looking at the prime office rents, seem to be flat from 2015 to 2019. What makes you think that '25 to 2030 that is going to be 4% a year going forward?

I think -- firstly, I think there's a pretty tight supply crunch and that demand is pretty good. People are growing. 80% of the deals last year with 20,000 square foot people were growing. Rents do need to increase in order to -- a small proportion of people's outgoing. So I think if people want to be in good locations, they need to pay the right rent for the right location. So I think it is time for landlord to earn a bit more money. So I think we feel pretty positive about it. Last few years, despite the difficult macroeconomics, we've been consistently letting at 10% above ERV. We have strong visibility about inspections and viewings and tenant demand. So I think we feel pretty positive about. London is a place to be. People want to be in town. Emi, do you want to add to that?

Yes. I think the 4%, if you look at the sort of big houses prospects over the next 5 years, that's probably pretty conservative. I think the supply crunch is a big driver at the moment. London has got a supply shortage that we haven't seen before. Part of our repositioning is making sure we're in the right place for that. But I think the 4%, we're pretty comfortable with from a market perspective. And this year, we're in a place where every submarket in London is now projecting growth, whereas before it has been much more spiky following COVID. So you're really seeing that evening out now in terms of a more lateral growth across the city.

Rents have fallen behind other costs quite substantially over the last 5 years. They're now beginning to catch up, and we're seeing our rents growing now at a slightly faster rate than overall cost. But really, that's been squeezed quite a bit over the last 5 years. If you go back to the last big rental cycle, which was sort of 2012 onwards to 2015, our earnings pretty much doubled in that period. And I'm not forecasting a doubling, that would be nice. We'll come back next year, hopefully. But I think our 30% increase feels very realistic given that we are seeing really quite a shift in the dynamics and overdue, I think.

It's Zachary Gauge from UBS. A couple of questions from me. One is on the ERV growth conversion into capital growth during '25. Obviously, 4% ERV growth. I think at the portfolio level, you're only 0.8% on capital growth. Can you touch on why the value was -- aren't giving you the uplift when yields were effectively stable and why you're confident that going forward, that will convert into the 3% to 5% capital growth that you've guided to?

And then the second one, sort of again, picking up on the share buyback point and capital allocation. I noticed that the net debt-to-EBITDA target seems to have shifted slightly from getting it below 9 at the end of this year to now sort of 9.5 going forward. Bearing that in mind and the capacity that gives you, should we sort of see the GBP 250 million of excess capital from the GBP 1 billion of disposals as the high watermark for buybacks? And would that then be sort of flexible depending on where you sit on the net debt-to-EBITDA ratio and obviously doing potentially more disposals than GBP 1 billion.

So Damian, do you want to start with...

I'll start with the second question. So the 9.5 isn't a target. We've currently got it down to 9, I'd prefer it to be lower than that. We're expecting it to be lower by the end of this year. So 9.5 is really where I think we see the upper limit over the next few years. Could there be a bit more available? Yes. I think we need to see how we go on this. We'll update you as we go. But the 9.5 is very much an target.

On the valuation point, I think I mentioned earlier, we've got about 40p a share of additional CapEx and discounting for voids and the time effect of rental growth coming through. That did impact us in 2025. We've looked over the last 10, 15 years. And the average amount by which we see valuations impacted by CapEx and voids is roughly 1% per annum. Last year, it was more like 2%, 2.5%. We have been looking at a number of new schemes to try and grow rents. And I think that was one of the reasons you've seen a bit of a step-up in 2025. But we don't think that is a normal level, and we think it will come back down closer to its 1%.

The only other point to make is that our 3% to 5% is on NTA -- and the -- obviously, the rental growth is on the gross asset value. So there's an impact there as well, which helps.

Sorry, on the GBP 250 million being the top end of buybacks and dependent on additional disposals?

Not a top end at this stage. I mean let's wait and see. I think -- I don't think it's all going to come in one go either. I think we need to get the disposals underway, look at the capital allocation at the time, and we'll take it from there. But -- so 3 years isn't forever either. So let's see where we go.

I think it's going back to the plan we've talked about, Zach, in terms of looking at all of those -- the options available to us alongside one another.

Paul, I think you had your hand up. Yes.

It's Paul May from Barclays. Just 3 questions, I think, for me. You regularly provide the ERV target, but I think through the presentation, I've noticed sort of welcomed increased focus on earnings and cash flow moving forward. Do you think you'll consider providing a like-for-like rental growth target per annum moving forward? I appreciate you said the 4%, but just sort of give some color there in terms of converting ERV growth into actual cash flow would be sort of welcome.

Regarding the disposal of Whitfield Street, obviously, I understand Lone Star is a pretty high cost of capital enterprise. Do you have any indication as to what they're expecting on that site and why they can hit their sort of 20% plus IRR targets versus what you would have expected to achieve on that site?

And then just on the 2030 targets, is it reasonable to assume that that's relatively back-end loaded. There will be a little bit of bumpiness between '27 and '29. And then as those schemes complete, that should come through into 2030?

Well, just touching on Wakefield Street first. I mean, obviously, they will have a fairly -- probably a bit more aggressive view on rental growth. We're very happy with the price. I think a net initial of the price of 5%. [indiscernible] on the 5% is good. bit of vacancy coming up. It's a 20-year-old building. I can't really speak for them as to where they think their returns could be. They're probably reflecting the same thing we are as much as the West End is very tight, rents are growing and a very good location. So they're probably targeting pretty aggressive rental growth. But for us, we think recycling support and getting some more money into the portfolio, we can secure a strong price, which we did, and we're investing elsewhere.

So I think it's all about their view about where rents might grow. We're not renowned for being overly aggressive on where we see rents growth. So I say we're delighted with the start of the year, how much sales we've done, how much we've got under offer. We wish them well with the purchase. I'm sure they'll be delighted with it some time. As I say, we've done -- we've made our money there. It's a 20-year-old building, and we've got plenty of other opportunities to spend the money. Do you want to talk about…

Yes. First of all, on the like-for-like rent, it's an interesting idea. I think we'll certainly consider it. I mean the point to make here is that the rental growth grows the reversion and it takes time for that to be captured into earnings. And so you tend to get this cycle where initially, the like-for-like rents lag behind ERV growth. But at the end of the cycle, they can often outpace it. So we found -- in that period, we mentioned earlier that 5 years when rental growth was very low. For the first 2 or 3 years of that, our like-for-like rents were still growing nicely because they were based on previous reversion. So you get this slightly different timing impact coming on. We'll think about how we might guide to that going forward.

In relation to the earnings, you are right. A lot of the uplift comes from 50 Baker Street and Holden House and others coming through probably in late '29, early '30. So it is quite a step-up in '30. We do think though that there will be some nice solid earnings growth in '28, '29, but it's really then a step up in '30.

Perfect. Sorry, last couple. One, coming back to the initial question on AI. Do you think your portfolio or your tenant base of smaller -- generally smaller tenants, smaller floor rates actually offer some protection in that AI world given it's probably larger entities that are cutting back on some of the graduate recruitment.

Well, short answer, yes. I think very big banks, et cetera, who knows. I think one of London's great benefits is to buy a diverse space. Average -- I think average size of our lettings across our portfolio, about 15,000 square foot. I think that gives quite a lot of resilience with such a range of different occupiers. Emily, do you want to add to that?

I think that covers it most other than to say, obviously, the way we look at our portfolio generally and AI falls into this is to make sure we've got everything to meet that match demand. So the high growth at the lower end, probably in the fitted space growing up to the 50 Baker Street. So I think like any other, I think we'll make sure it's balanced in that way.

I am sorry, just final one linked to that. The 10% to 15% on flex, given that 15,000 square foot sort of average tenant mix, and that's probably skewed by a few large ones and then quite a few even smaller ones. Could flex become a significantly larger part of your portfolio than the 10% to 15%?

At the moment, we think the 15% is probably where it still makes sense from maintaining everything that we have to look at in terms of cost ratios, operational efficiencies and overall net-net returns in terms of extra CapEx and everything else that goes into it. So at the moment, that's where we think we will always continue to kind of mirror the market and make sure we're delivering what we believe the market is. Over the years of flex and all the headlines it's grabbed, it's never really moved much from the sort of 4% to 7% of the total market activity. So it feels -- we're looking at that on all the financial metrics, but also where we think the market is. So -- of course, it could change in the future and we'll adapt as we need to, but that's where we feel it's right at the moment.

I think that's a good point as a percentage of the market. It's relatively small. We got a lower headlines and it's done well. But we also like our headquarters, nice long leases, helps our valuations. Thank you, Paul. Any other questions we've got from the room more? Do we have anyone online on telephone?

First question from the phone comes from the line of Marc Mozzi from Bank of America.

My first question is around how is the Board weighting M&A optionality as a way to boost shareholder returns and addressing the gaps that have been created by the recent senior departures.

I think it's a question around how -- was the question just bear with me that the -- how do we think about perspective of addressing succession matters.

I mean, obviously, we're very focused on our business at the moment. And obviously, I've made a decision that I'm going to retire and there is a process going ahead with finding a successor. So the focus is on the business. There's nothing to report to say about M&A, particularly. Unless we misunderstood your question, Marc, it wasn't a great line.

It was a question. My second question is around effectively given AI-driven derating of New York office stock prices, do you still view share buybacks as the right call in that environment? And the next one related to that is how confident are you in the long-term earnings and total return specifically target that you've provided through 2030?

Well, I think firstly, it's always got to be a balance between buybacks and investment and all the rest of it. And obviously, it's got to be seen as an opportunity at the moment. Damian, do you want to add anything to that?

Yes. I mean the principal things we're trying to do, we're trying to accelerate disposals to give us more options. The first thing we do is maintain a strong balance sheet. The second thing is we invest in our accretive returns for our schemes. After that, we have options. And the AI is one of the many factors we take into account in looking at investment decisions. And we're all trying to work out what it means short term, medium term and long term. For now, though, I think hopefully, our capital allocation outlook is clear, and we will keep our eyes and ears open to see how things move forward. But I'm not sure we can say much more at this stage.

I just wanted to have your thought. And the final question for me is, how much disposals are you assuming in your 2030 target?

2030. So we're assuming about EUR 1 billion in the next 3 years and I think a couple of hundred million a year per annum after that. Is that right, Jennifer?

Yes.

Jennifer does all the modeling, so she knows.

GBP 1.2 billion, GBP 1.3 billion?

About GBP 1.3 billion, GBP 1.4 billion over the 5 years.

We got one more.

The next question comes from the line of Alex Kolsteren from Van Lanschot Kempen.

Two questions on this presentation. So you mentioned EUR 2 million of cost savings target in 2026. What's the reasonable amount to assume for 2027 on top of that?

Yes. So we took about GBP 2.4 million came off our EPRA cost in 2025. We're anticipating a similar level in 2026. I think our models assume inflation after that, but we will be looking to make this business as efficient as we possibly can. So anything we can do after that to reduce costs will be done. There isn't a specific cost target, I think, in the 2027 model at this stage, but that doesn't mean to say we won't look at further efficiencies.

And then one more on the capitalized interest. On Slide 9, you say that the capitalized interest in 2027 is about GBP 8 million higher than in 2026. On Slide 51, where you break down your CapEx pipeline, the 2026 number is GBP 6 million and 2027 number is GBP 8 million. So where does the remaining GBP 6 million increase come from?

Yes. I mean these figures in the back here are for essentially the committed schemes. If you look at the top half of the report. There is -- in the bottom, it says consented 50 Baker Street. That is not yet in the top half of the project because it's not been committed. When it does get committed, and we're assuming it will do, then it will go into the top half, and we'll show you the capitalized interest. So that figure in the outlook includes capitalized interest for 50 Baker Street, the appendix doesn't.

There are 2 questions on the webcast. The first says, while you've mentioned the possibility of share buybacks, are you taking any other active steps to reduce the gap between the current share price and the net asset value?

Well, we're hoping this presentation will help. I mean we're selling, we're letting. We think the market is improving. The fundamentals are good. So actively, we're looking at other options of whether buybacks or something similar. Emily?

That's exactly that. The plan you've heard today is laser-focused on shareholder returns and what we get and where our focus is in that regard.

And then the last question is, within the 2030 guidance, does it take account of a potential share buyback?

No.

That's an easy answer. Thank you, everyone, for today. We're all around if anyone wants to have a chat afterwards, pick up the phone or obviously on tour as well. So thank you for your attending today. I know it's a busy week for everyone, and have a good day. Thank you very much.