Land Securities Group Stock

Very good. Well, ladies and gentlemen, good morning, and welcome to the presentation of Landsec's 2026 Full Year results. Landsec is in excellent shape. Customer demand for our places remains very high and with supply increasingly constrained, occupancy across our portfolio has risen to its highest level in more than 2 decades. As a result, rental values continue to rise, now at the fastest pace in nearly 20 years. And we have carried this momentum into the new financial year with 1 million square foot of active occupier demand across our recent office projects, a record leasing pipeline in retail and no signs of weakening demand arising from the Middle East situation. This supports continued strong income growth from here. And with that, an acceleration in EPS growth in both the near and medium term.

For this year, as we've previously guided, we expect reported EPS to be stable due to the impact of last year's sale of Queen Anne's Mansions, offsetting strong underlying growth. But based on our current momentum, we expect EPS for FY '28 to grow by a high single-digit percentage. And this means that we remain on track to deliver compound annual growth in EPS of around 5% between now and FY '30, which on top of an existing income return NTA of 5.8% implies an attractive low double-digit total return annually to shareholders. Our operational performance has shown consistent growth over the last few years despite the elevated uncertainty in the external macro environment throughout that period.

This reflects the uniqueness and resilience of our high-quality portfolio and our market-leading operating platforms with occupancy rising steadily to now 98%. With our portfolio effectively full, the upward pressure on rents has continued to build and uplifts in rent on relettings and renewals virtually doubled over the past year to 15%. As a result, we delivered 4.6% growth in like-for-like net rental income for the year, ahead of our initial guidance and a robust 4% compound annual growth over the last 4 years. Although the global macro outlook today is once again uncertain, the rapidly growing reversion in our high-quality portfolio means that the potential for future income growth is well underpinned regardless.

Over the past few years, we have sought to reinforce this positive portfolio outlook through strategic discipline by actively positioning Landsec for a higher inflation, higher interest rate environment. Our average debt maturity of 8.6 years is now twice as long as the U.K. REIT sector average, which combined with around 90% fixed rates means our earnings are well protected against volatility in interest rates. We have brought our overhead costs down to their lowest level in 20 years, which means our future income growth flows through to earnings more readily. And our development exposure will be down to just 2% of our portfolio value by the summer with no plans to add meaningfully to this in the near term. And with just GBP 185 million CapEx left to spend and no need to refinance any debt until 2028, we are in no way reliant on disposals or new financing to fund any commitments. So alongside a clearer, stronger growth outlook, we have actively now moved the business to a lower risk profile.

And all of this is reflected in another set of positive financial results, driven by our strong like-for-like income growth and a 15% reduction in overhead costs, our 2.2% growth in EPRA earnings was at the top end of our guidance for the year, factoring in the 1.8% impact on EPS from the earlier than planned sale of Quam that was not part of our initial guidance, which gave rise to 2% growth in dividends. Our NTA per share was up 0.9% for the year, 2.2% in the second half after having absorbed the 1.1% cost to NTA of selling over GBP 700 million of assets, which generated little or no return.

Whilst LTV was down slightly to 38.7% and net debt-to-EBITDA improved to 8.4x. And we expect this to reduce to below 7x over the next 2 years, driven by the lease-up of our latest developments and continued like-for-like income growth. Combined with our lower cost base and strategic discipline, this means our ongoing income growth will increasingly flow through to an acceleration in EPS growth. There are 2 very clear trends that support our positive outlook.

Firstly, whether it's in retail, driven by a need to maximize consumer reach efficiently or in office with a need to attract and retain the best talent, occupier demand is increasingly concentrated on the very best space. Secondly, with development viabilities under pressure, the supply of space of the right quality is very heavily constrained. And that's why our portfolio occupancy is now at its highest level since 2003 and ERVs are growing at their fastest pace since 2008. Prime commercial real estate is emerging as a clear winner in a tech-enabled world. In retail, the top 1% of retail destinations in the U.K. provide brands with access to almost 1/3 of all in-store retail spend.

Unsurprisingly, therefore, this is where, for example, around 90% of all Apple, Inditex, Uniqlo and Sephora stores are located, and it is where 85% of our portfolio is located. Effective curation of the brands shoppers want drives growing footfall and consumer spend. This, in turn, results in higher demand for space from brands and so on. Over the past 4 years, sales in our destinations have grown by around 7x the U.K. national average, outperforming by a total of 19 percentage points over that time. So brands continue to focus on our destinations when it comes to investing in fewer, bigger, better stores.

Occupancy rises, rents grow. And with replacement costs around double current values, new supply is and will remain effectively 0. In our offices, it's a similar story. There's roughly 900 million square feet of office space across the U.K. So with a 5 million square foot portfolio, we own just 0.5% of the U.K. office market and not just any 0.5%. Virtually all of that space is located in the 2 most highly valued locations in the country, the West End and the city, including bank side. These locations consistently rank as #1 or 2 of the top destinations in the world for international businesses as they provide the very best access to and conditions for talent. And even within these highly priced locations, we are significantly outperforming benchmarks as our occupancy of almost 99% is well ahead of the 93% for Central London as a whole. Meanwhile, net new supply is very limited, partly reflecting the well-understood challenges of build cost inflation and higher interest rates constraining development, but also space being taken offline or repurposed. For example, in Victoria, where around 45% of our London portfolio is located, expected new development supply over the next 3 years is almost entirely offset by the potential loss of space from offices which are in the process of being converted to alternative uses, such as residential or hotel. As a result, rents for the best locations continue to rise with recent lettings across our existing Victoria estate now well in excess of GBP 100 per square foot. The ongoing adoption of emerging technologies such as AI is only likely to accelerate consumers or customers focus on the very best space. Whilst back office and processing roles are set to reduce, the impact of this in Central London is more than offset by the creation of new roles and indeed new businesses enabled by technology.

And then there is the demand driven by large businesses concentrating their office space in vibrant business districts as opposed to out-of-town business park locations. A good example of this is our recent major letting at Timber Square to BP, which is consolidating much of its operations from just south of Heathrow into the center of London. So the drivers of occupier demand in Central London, certainly for our assets are encouragingly diverse. And you can see this in the roughly 1 million square feet of active demand across our latest developments. Customers more often than not see new technologies as an opportunity to improve productivity and to grow rather than simply as a trigger to reduce headcount and space requirements. In retail, customers expect the rise of AI and agentic commerce to put even more focus on the value of the physical experience and customer connection as part of a wider unified commerce ecosystem.

Brands will need to invest more in their spaces to deliver the right experience, adding further weight to the fewer, bigger, better thesis. And the fact that we opened or exchanged contracts with more leading expansionary brands such as Sephora, Uniqlo, Pull&Bear, Lefties, and other Inditex labels over the past 18 months than any other U.K. retail platform simply highlights the enduring appeal of our destinations. In an environment that is changing rapidly, our edge is clear.

We have 2 market-leading platforms and an irreplaceable portfolio focused firmly at the very top end of the market where customer demand is strongest. Reflecting this, we've had another strong year in terms of operational performance. In retail, rental uplifts continue to trend higher, as shown here on the left, whilst occupancy is up 100 basis points to almost 98%, and that's the highest that it's been since the early 2000s. Growth in like-for-like income rose to 5.5%, and we signed or had in solicitors' hands GBP 49 million of leases on average 11% above ERV. This drove an acceleration in ERV growth to 5.8%, and that's comfortably ahead of our initial guidance of similar growth for last year's 4% and it's the highest rate of growth in over 20 years.

This further adds to our future income growth potential. Building on the unique data and insights that our market-leading U.K. platform provides, we continue to invest in creating experience-led places with a record number of new lettings. That means footfall in our locations is growing well ahead of the U.K. market average. So we are gaining market share.

This drives sales growth, but in turn attracts more leading brands, which alongside enhancing our social eating, dining and leisure offer leads to higher footfall, which then drives higher sales and so on. As a result, we remain confident in our potential to deliver 4.5% to 7% growth in net rental income per year from our existing retail platform over the next few years, driven by capturing the growing reversion in our portfolio, growing turnover rents and commercialization income and selective CapEx investments into highly accretive smaller projects. In office, occupancy is now nearly 99%.

Uplifts on relettings and renewals increased to 14% compared to 10% for the prior year, and this drove 6% growth in like-for-like income. We signed or were in solicitors' hands on GBP 21 million of lettings on average 7% ahead of ERV, and this drove 7% growth in rental values, well ahead of our guidance of similar growth to the 5% for the prior year and the highest level that we've seen in our office portfolio since the EU referendum 2016. Our portfolio is effectively full, yet our reversionary potential has jumped now to a high 17% and the potential income upside on lease events remains clear. This strength in customer demand bodes well for our latest London office completions.

And we've made strong progress in terms of leasing since our half year results. So our 3 recently completed projects are now 54% let with interest in the form of negotiations, requests for proposals or active engagement covering substantially all of the remaining space. ERVs have increased meaningfully, especially so for 30 High, which is due for sectional completion over the summer. With completion nearing, this is now also seeing strong customer engagement.

So we expect this to translate into good leasing activity over the next few months. In total, we now expect these projects to generate GBP 63 million of net effective rent once let with an associated incremental GBP 43 million of annualized interest expense. So based on current momentum, we continue to expect all projects to lease up within around 12 months of completion, consistent with previous guidance, which will drive strong earnings growth for FY '28 in particular.

So turning now to capital allocation, and we continue to base our capital allocation decisions on this clear framework, which is underpinned by our commitment to retain our strong balance sheet. This framework looks at how our investment decisions contribute to income and EPS growth in the short term and how they shift our portfolio mix such that it can continue to deliver sustainable income and EPS growth for the longer term. We constantly monitor the changes in risk and return prospects, yet at this stage, our priorities for the next 12 to 18 months remain broadly unchanged.

As such, we will continue to explore opportunities to recycle capital out of lower returning assets, including offices as we have done over the past year. And we will continue to prioritize investment into retail, given the high income returns and attractive income growth on offer. To create capacity for this, we do not plan to commit any meaningful capital to new development over this period. And that means that our net debt-to-EBITDA ratio will reduce meaningfully.

Based on this framework, we've had an active year in terms of capital recycling. Our largest disposal was Queen Anne's Mansions. This was an asset that generated zero total return despite its high short-term income profile as the valuation depreciated exactly in line with every quarterly rent receipt until the end of the lease, at which point the asset requires substantial redevelopment. Aside from the impact of turning the residual finance lease income into a capital receipt upfront, this sale has essentially no impact on earnings and derisk the remaining value of the site by transferring planning risk for change of use to the buyer.

We also sold 2 predevelopment assets, which are generating a negative income return and would have required over GBP 400 million of CapEx to build out as well as 4 retail parks and 2 smaller offices in London. All in all, this means that we sold just over GBP 700 million of assets, which were generating limited or no return. This came at a cost to NTA of 1.1% when comparing sales proceeds to 2025 book values, and that was reflected in our half year numbers, but it's in line with the goal of our capital allocation framework. It significantly enhances our future income and EPS growth prospects.

As we prioritize investment into retail, we are not planning to commit any meaningful capital to new development over the next 18 months. In London, we expect office rents to continue to grow. But as we have demonstrated over the past year, our existing portfolio is very well placed to capture this growth. So taking into account the materially higher risk involved, we do not believe that returns for new office development offer a sufficient premium versus our high-quality existing portfolio to justify selling existing offices to fund the development of new ones.

Residential, we continue to view the long-term demand-supply imbalance is compelling and are drawn to the long-term characteristics of higher inflation-linked income growth and lower cyclicality. Development viability for residential remains challenging. But over the past year, we have made substantive positive progress in improving the viability of our build-to-rent pipeline with proactive public sector support an important enabler, such as the government and GLA's package of acceleration measures for London. We can now see a potential route to viability for the most progressed of our projects.

And in the year ahead, we'll seek to bottom out whether or not these projects are capable of proceeding. CapEx spend will remain very limited as we do so and holding costs are low, but we continue to consider the time investment to be worthwhile. If we are able to secure viable returns, lead times are still such that the earliest start date would be late 2027. So as a result, our committed development exposure will reduce to less than 2% of portfolio value by the summer, down from on average around GBP 1 billion, closer to 10% over the last couple of years.

And it will likely stay at this level for the near future. But even over the longer term, it will remain well below where it's been historically as we move to a structurally lower level of capital tied up in development. Supported by the positive outlook for rent and interest rates, investment market activity in both office and retail recovered steadily across 2025 and into the first few months of 2026.

It's too early to assess what the longer-term impact of the Middle East conflict on this growing momentum might be, but we are mindful that the renewed uncertainty around interest rates could impact investor decision-making in the near term. It is worth stressing, however, that interest rates are only one factor and others such as confidence in rental growth prospects and returns relative to alternative options are all stronger than they were a year ago. For us, the near-term focus in capital recycling remains unchanged. We will aim to continue to monetize further predevelopment assets as these generate zero income return and would require significant CapEx to build out. We will also look to monetize further capital in offices as the potential upside from recycling capital into major retail destinations at around 200 basis points higher net effective income yield and higher income growth is meaningful. We will, however, be a disciplined seller. And we remain highly selective on quality, price and CapEx risks in retail investment, which is why we chose not to progress any opportunities last year.

We do, however, have decent visibility on future opportunities, which are likely to come to the market over the next year or 2. Capital rotation remains an important part of our longer-term strategy, but we are not relying on this to drive growth as around 80% of our potential EPS growth by FY '30 is driven entirely by our existing portfolio and platform. So with that, I will now hand you over to Vanessa.

Thank you, Mark, and good morning. It has been another positive year for Landsec, driven by the quality of our portfolio and strong operational execution. With occupancy and rental growth at record highs, our growing reversion gives us good visibility on future income growth, and it leaves us well placed to accelerate EPS growth over the near term. In financial year '26, like-for-like income was up 4.6% and overheads reduced significantly. As a result, our EPRA EPS increased 2.2% despite the 1.8% EPS impact from the earlier than planned sale of Queen Anne's Mansions.

And that supported a 2% increase in the dividend. Portfolio valuation was up 1.2% with NTA per share up 0.9% for the year and 2.2% in the second half. We also reduced net debt by almost GBP 100 million, taking LTV lower to 38.7% and reducing our net debt to EBITDA to 8.4x. And with under GBP 200 million of development CapEx still to come, net debt to EBITDA should reduce meaningfully in the near term as we lease up our new developments. So our balance sheet remains in a strong position. The main driver of that performance was strong like-for-like rental growth with growth of 4.6%, well ahead of our initial guidance, and it was in line with our revised guidance that we gave in November. Office and retail, which together represent over 90% of our income, both performed strongly with growth of 6% and 5.5%, respectively.

And occupancy in both portfolios reached new highs and our focus on efficiency helped us to lift our operating margin by 160 basis points to 87.1%. At the same time, uplifts on relettings and renewals virtually doubled to 15%, showing the growing reversion across the portfolio. Customer demand remains strong, and that continues to support further growth. Our office portfolio is now 99% full. So future like-for-like growth in offices will mainly come from capturing the reversion at lease events. So while we expect office growth to moderate a little, in the year ahead, we still expect 3% to 5% like-for-like income growth overall.

And the second key driver of earnings was the continued reduction in overhead costs. These are down 15% last year to GBP 62 million, well below our guidance of below GBP 70 million. In fact, we have already delivered our financial year '27 target of reducing our overheads to the low GBP 60 million. And that improvement reflects the investments that we have made in data and technology over the last few years, which are now helping to automate core processes and improve our insights to drive further value. And taken together, overhead costs are down more than GBP 20 million over the last 3 years and are now at the lowest level in over 20 years. Looking ahead, we expect overheads to stay in the low GBP 60 million with further efficiencies offsetting inflation, which means most of our income -- more of our income will flow through to earnings and dividends.

And that earnings growth is also supported by our resilient funding profile. Our 8.6-year average debt maturity is the longest in the U.K. REIT sector and it is twice as long as the average for the rest of the sector. We also have no need to refinance debt until 2028 and 89% of our debt is fixed or hedged. Our average cost of debt is 3.6%, and this will rise only gradually over time. Because our maturities are so long dated, we expect average debt costs to stay comfortably below the marginal cost of borrowing well beyond the next decade. And that gives us strong protection from interest rate volatility. You can see the benefit of those 3 key drivers clearly in this year's EPS bridge. Like-for-like income growth of GBP 21 million added 2.8p to EPS and GBP 11 million of overhead savings added a further 1.5p, more than offsetting the like-for-like increase in finance costs.

The year-on-year movements in other items reduced EPS by 1.5p, which was driven by 2 factors. The benefit from the recovery of previously provided bad debts normalizing to GBP 2 million following an increase in the prior period, while surrender receipts were also minimal at just GBP 4 million. Both items now have only a minimal EPS benefit, so we don't expect a meaningful impact from them in the future. So almost all of this year's income was regular recurring rental income with little benefit from one-off receipts. Regular investment activity had a net impact of 0.3p, so EPS was up 4% before the effect of the earlier than planned disposal of QAM. That was at the top end of our initial guidance, including this disposal, EPS was up 2.2%. The trends behind this strong operational performance remain very much in place. So the near-term outlook for EPS growth is positive. As we guided in November, we expect EPS this year to be stable versus last year, with underlying growth offset by the annualized impact of the QAM sale, which has a 4% impact on EPS.

But given the momentum that we have today, we expect EPS growth in the financial year '28 to be in the high single digits. That comes from continuing to capture our growing reversion and from leasing up our recent London office developments. As Mark said, demand for the space is strong, and we are already making good leasing progress. We typically assume that developments lease up within a 12-month period of completion, whilst we stop capitalizing the interest as soon as the project is complete. And that timing gap is between incurring the interest and receiving the full income means we expect a temporary earnings drag from these developments in this financial year of between GBP 6 million and GBP 8 million.

But this should be more than offset the following year as these projects are expected to add GBP 20 million to earnings once they're fully let, supporting high single-digit EPS growth in financial year '28. And this is also a key part of the meaningful reduction in net debt to EBITDA that we expect over the next 2 years. Our current ratio reflects the fact that net debt includes GBP 1 billion of capital employed in our recent London office developments, but we received virtually no income from these developments last year as 3 of them have only recently completed and Thirty High is due to complete in the next few months.

We're not planning to start any new development in the near future, and we're reducing our investment in predevelopment assets. So as we continue to capture reversion in our existing portfolio and lease up the developments, we expect net debt to EBITDA to fall below 7x within the next 2 years without material disposals. The strong capital base this provides is further underpinned by our other balance sheet metrics. Portfolio valuation was up 1.2%, helped by leasing activity that drove 6.4% ERV growth, the highest level in nearly 20 years and comfortably ahead of guidance. Yields were virtually stable, although the benefit of that strong ERV growth was offset by 2 isolated factors.

These were the increase in business rates at Piccadilly Lights, which I mentioned 6 months ago and the valuation reduction in office development assets due to higher build costs. Together, these 2 factors reduced the overall portfolio valuation by 1.1% -- and the disposal of around GBP 700 million of assets, which generated limited or no returns had a 1.1% cost to NTA and total accounting return as reflected in our half year results.

Even so NTA was up 0.9% for the year and 2.2% in the second half. And with net debt down nearly GBP 100 million, LTV reduced to 38.7%. And we recognize that renewed uncertainty around global interest rates could affect investment markets in the near term. But over the long run, income growth drives value growth in real estate and the record rental growth across our portfolio shows that upside continues to increase. So we remain well placed to accelerate EPS growth over the next few years. In November, we raised our outlook for potential earnings per share for financial year ' 30 from 60p to 62p.

And today, we reiterate that outlook. Let me briefly talk through the moving parts. Starting with last year's 51.4p, the sale of CA has a residual EPS impact this year of 2p. The largest driver of future EPS growth continues to be capturing the growing reversion in our existing portfolio. Over the last 4 years, we have delivered 4% compound annual growth in like-for-like net rental income. And over the same period, the reversionary potential in offices has tripled to 17%. And uplifts in retail lettings and renewals have also grown to 15% have clear visibility on delivering our outlook, which assumes around 4% growth in like-for-like income per annum from here. Having now delivered our targeted overhead savings, the second largest contributor is leasing up our current London office developments, which will add around 3p. Our recently completed schemes are already 54% let with strong interest in the remaining space pushing ERVs higher. So this is another area we have good visibility. Further reducing capital employed in low or nonyielding predevelopment assets will add around 1p per share through interest cost savings.

Whilst global interest rates have increased since November, the impact on our future earnings growth is largely mitigated by our long-dated maturities and hedging profile and further offset by the increase in ERV on both our existing portfolio and recent developments. Future asset rotation gives us further upside as we plan to recycle more capital out of lower return assets and invest around GBP 1 billion in major retail destinations.

Our planned recycling from offices into residential is broadly EPS neutral over this period with the EPS benefits coming beyond financial year '30. So we remain well placed to deliver on average 5% EPS growth per year between now and financial year '30, and that is on top of our existing strong income return of 5.8% on NTA. Around 80% of that growth comes from our existing portfolio and platform, so we are not reliant on investment market activity to deliver attractive EPS growth. And as development exposure is coming down, our risk profile is reducing, leaving us well placed to deliver substantial shareholder value. And with that, I will hand back to Mark.

So thank you, Vanessa. So I'll now wrap up with a summary of what you can expect from us in the year ahead, where we see the differentiation and opportunity for Landsec, and then we'll open to Q&A. So over the last few years, we have actively positioned Landsec for a higher inflation, higher interest rate environment.

The updated strategy that we set out just over a year ago encapsulated this as it clearly set out our primary focus as being delivering sustainable income and EPS growth for our shareholders. All our priorities and decisions flow from that, whether that's the decision to materially reduce our development exposure, our proactive approach to reducing overhead costs or taking advantage of market windows to term out debt or indeed repositioning and refining our portfolio. Over the last 5 years, we sold nearly GBP 4 billion of largely mature assets and reinvested a broadly similar amount in high-quality new acquisitions and well-timed developments.

This resulted in the 2 irreplaceable portfolios and best-in-class platforms that we have today. So our focus now is on maximizing the potential of these by driving continued like-for-like income growth and leasing up our latest developments. We aim to supplement this by rotating further capital out of offices into retail over time, yet the contribution to EPS growth from this is relatively modest compared to the upside embedded in our existing portfolio. So we will judge -- we will time this as we judge market conditions to be most suitable. Meanwhile, our current capital employed in residential is low and focused on high-quality opportunities. So we're focused on securing viability for these projects as the longer-term fundamentals of this space remain attractive and are worth the effort. CapEx here in the year ahead will be minimal. All this means that our differentiation remains clear. Our primary focus on sustainable income and EPS growth provides absolute clarity across our entire business.

And our clear capital allocation framework means we are rational about investment decisions in pursuit of this financial objective as we move to an even stronger capital base. At the same time, customer demand remains high. Our occupancy is up to a 2-decade high Rents are rising at the fastest pace in nearly 20 years, which adds to our growing reversion and means the upside in terms of future income growth is abundantly clear. And as our overhead costs are now down to a 20-year low with our savings target hit a year ahead of schedule.

This top line growth will increasingly flow through to an acceleration in EPS growth. Landsec is now positioned with a lower risk profile and a clearer, stronger growth outlook. With an existing income return at NTA of 5.8%, the potential to deliver around 5% EPS growth per year between now and FY '30 supports an attractive total return outlook for shareholders. Ladies and gentlemen, thank you very much. I'm now going to open up for Q&A. As usual, we'll start with Q&A here in the room. We have handheld mics, if you could just wait for a mic if you've raised your hand. And then I'll move to questions from anyone attending on the call and finally, the webcast.

So first question just here on the right and then in the middle with Paul at the back there.

Oliver Woodall from Kolytics. Wondering if you could provide just a bit more color on what needs to change to trigger more attractive risk-adjusted returns in your view for residential developments to become more viable.

Yes. I mean it really boils down to one thing, which is public sector policy support. So if I take the most advanced of our projects, the O2 Centre Finchley Road, which has a detailed planning in place but has a consent with a 35% affordable housing requirement and full community infrastructure levy charges. That project isn't viable on that basis. But we had an announcement from the government and GLA at the back end of last year, consulting on a package of acceleration measures, which were finalized in March of this year for certain projects that can hit a timetable of delivery, which would include Finchley Road, reduces the affordable housing from 35% to 20% and effectively halves the CIL charge.

Those 2 things together, we believe, get that project to a level that would be around a level of -- that we think supports viability. We've got a bottom-up build cost and design to validate that. But as I said in my comments on the call, we're spending very little money on these projects in the next year ahead. And I think the objective has to be to conclude whether or not these projects can get to viability, but it's primarily policy support.

Okay. And just one more. wondering if you could provide any update on conversations relating to the transaction market for major retail assets and any changes there given elevated bond yields and things like that?

Yes.

So I think we commented earlier in the statement that we've got visibility, we think about something in excess of GBP 3 billion worth of prime catchment dominant retail assets that we expect to come to the market over the next 1 to 2 years. The next one that's likely to come forward will be the Metro Center, which could be in the market as soon as this month. I think there is more investor interest in the sector. Clearly, the sort of stats that we've reported today don't go unnoticed. But for the more significant lot sizes where you need to have a combination of access to capital, desire to own assets long term and operational expertise, I think there's much less likely competition around there.

Given that you're talking about yields that are typically starting with a 7% and maybe even starting with an 8, it's much less sensitive in terms of the upfront position to purely rates. And I think the level of growth is something people are getting more comfortable with.

So if we just go to Paul here in the middle, and then there's a couple of back from there.

Paul May from Barclays. Just a couple of questions, 3 actually, 2 are linked. Obviously, you clearly moved away from most valuation-based metrics with EPS instead of AAV being your focus, net debt to EBITDA and sort of LTV seemingly a greater focus for you. But you still focus on ERVs or some might call them elusive rental values. Why are you not reporting on and just focusing on renting and leasing versus previous passing? Usual pushback being that rents on vacant space is an infinite uplift, but surely reporting on an absolute basis would be more relevant for the earnings-based metrics that you have. And then linked to that is TSR, so earnings yield plus earnings growth, not more relevant than earnings yield at NAV plus earnings growth as a focus point for you.

Okay. Was that 3?

That's 2, and then there's another one that's in the...

Okay. Yes. So when we set out the strategy a year ago, I mean, we spent a lot of time thinking about our responsibilities as a management team in terms of creating value for the long term for our shareholders, a sector that's traded pretty much consistently at quite a wide discount to its NTA to its implied value of its underlying assets. focusing on that doesn't seem to be solving the conundrum. And so we focus much more on the quality of our income stream and our ability to grow that income stream sustainably over time. And that's driven everything that's in our strategy.

And that breaks down really into 2 things. the quality of the portfolio and the ability of the portfolio to drive quality income, and you see that today in all of the 20-year highs and the rest of it. But then our business model and our financing, and you can see that in terms of taking cost out of the business. So there's very little leakage now, 55 basis points of overhead as a percentage of value, turned out the debt twice the sector average and not allocating capital to areas that we think are excessively risky relative to what we can get in current assets. So for us, that focus on earnings and earnings growth is absolutely key.

The total accounting return, which includes the sort of valuation movement, yes, we, of course, report that. But for us to deliver value for our shareholders, is how you create value from that portfolio rather than a 6-month to 6-month valuation of what it would theoretically be worth if you theoretically try to sell all those assets individually at the same time into the market. And net debt to EBITDA, sorry, you touched on, it's a cash-on-cash measure.

I think if you look at LTV, you can have 2 businesses with LTV of, say, 35%, one of which has got 20% of this portfolio in development with a lot of risk and one of which has no development. The LTVs would look the same. I argue that the risk profiles of those 2 businesses, theoretical businesses are very different. And so by looking at net debt to EBITDA, we reflect the value or the reduction in risk that is inherent in leasing up a development program and not being dependent on lots of moving parts on development risk looking forward.

And just linking that back to ERV, the sort of -- there's some mention of that, that seems to be the last sort of fallback towards valuation type metrics rather than previous passing and rental uplift on previous passing.

Yes. I think we're sort of halfway there on that, if I want to say on the retail side of the business, we haven't been reporting reversionary potential based on ERVs for some time, largely because what's driving like-for-like growth of things like turnover income, commercialization income, which value has struggled to put a cap rate on and include within an asset value. So there, we are reporting the leasing relative to previous passing and you've seen that move dramatically up to mid-teens now. And we probably had about 3.5 years of market value growth on a portfolio with roughly 5-year average lease term.

So there should be another 18 months of sort of super growth, if you like, in that underlying reversion before things start to lap more encouraging growth numbers. I think in office, it's a slightly different position because you've got much less variable numbers in the office rents.

Obviously, we're virtually full within the portfolio. So by disclosing a true market value of the rents today based on rental evidence typically drawn from our own portfolio, I think that does give a robust indication of what's the gap between what is leased at today and what it would be leased out in the market. And you can then combine with the average lease term, see how that should translate into earnings growth over the next few years. So we're sort of in a sort of halfway there on that, but we think it is a relevant disclosure, particularly on the office side.

And just to the other question on the retail side. I mean, as a result of the Middle East conflict, obviously, higher rates look like they're going to be here to stay for even longer. Do you see potential for some of the retail assets that were on the market that I'm sure you guys were looking at that fell away because the existing owners just thought, well, things are looking good. The operational performance is there, rates were coming down or expected to come down.

That's now changed.

Do you think some of those assets could come back to the market at more realistic pricing for you to be more interested in them again?

I think it's -- so I wouldn't want to stress say that there are a lot of assets that we just thought were priced too expensive, but we are a disciplined buyer. I think we're still expecting to see assets come to the market, as I mentioned, the GBP 3 billion or so that we would see visibility of. But I think it's fair to say they're in the hands of owners that are not natural long-term owners that we'll be looking at what's the best way of crystallizing an exit that gives them value for their investors. They must be looking at execution risk in a higher cost of capital world, and that's going to play into their thinking. I don't -- we've got no evidence today of exactly what's happening on the ground, but I think what you suggest makes sense to me.

Behind one row. Sorry, I'll come to you next, Yes, please.

Yes, sorry. Bjorn Zietsman from Panmure Liberum. Two questions. So you mentioned you're not reporting reversion on the retail portfolio. We calculate it, but how much reversion are you seeing within your retail portfolio? And the second question, just over and above reversion, how much like-for-like rental growth are you assuming to achieve your 2030 EPS targets?

So in terms of what reversion we're seeing on retail, right now, for the year just ended, we were 15% ahead of previous passing. As I mentioned a moment ago, I think there's further ERV growth to go because we've effectively got 3.5 years of growth that we've seen since market rents turn positive to in-place rents.

And so there should be another 18 months before we start lapping with an average lease term of 5 years. We flagged on the retail side an expectation to deliver between 4.5% and 7% like-for-like income growth between now and 2030, a combination of capturing reversion, growing turnover rent, commercialization income, digital media, car charging, events, et cetera, and then a small number of CapEx projects. So -- but that's assuming an ERV growth number that would be in the region of 3% to 4%, so below what we're currently seeing at the moment. And it will be a similar story in terms of the ERV growth expectations on the office portfolio as well.

So I don't think we're making any particularly significant or aggressive assumptions in further market growth from here. If you look at the office portfolio, 17% reversion rate, average lease term of around 6 years. So you sort of got 3% per annum roughly baked in already. I think we will be underwriting around 3% to 4%. And as we've said, ERV growth, we expect to see that grow again at that sort of level for the year ahead.

Adam Shapton from Green Street. One on the retail opportunity set, and you've been very clear about your views of the recent market and the future investment market, how that might fall in your favor. Just a point of clarification for the opportunity set you see, do any of those -- are any of those likely to come with significant near-term CapEx needs to capture your target returns? So is it -- you spend GBP 800 million and maybe there's another GBP 100 million, 50 million on top of that in the near term?

I would say the majority of those will come with decent amounts of CapEx requirements that we would price into our -- relatively near term, I would say, on a 3- to 5-year basis, we will be looking to acquire things and reposition them. So we looked at a couple of assets last year. We didn't foresee a couple of the ones that we chose not to bid on had we felt quite significant maintenance CapEx backlogs.

Think about the sort of CapEx chart you showed, we could imagine sitting here in 2 years' time, you've acquired GBP 600 million to GBP 800 million of retail and there's a CapEx chunk for that on top...

I think the way we would look at that 1 billion in retail, there's GBP 200 million of CapEx on our existing assets. The other GBP 800 million, I think we would be factoring in CapEx as part of that. So we're not going to be spending money and then assume it and then taking on a very significant CapEx liability that we haven't priced in.

And you very sensibly proactively answered the share buybacks question in your statement this morning. And the clear inference from that is that your retail investment opportunities are cheaper than your shares today is your view. Does it follow then that you're open-minded about issuing equity to fund these retail acquisitions to keep at the very least leverage neutral or even a reduction in leverage is shopping centers are cheaper than your stock today?

Yes. So I think if you look at shopping centers, and let's assume there's a yield of somewhere in the mid-7s. If you adjust for leverage, I think that gets you a consistent level of leverage. I think that implies an income return on equity of 9%, which is broadly in line with where the shares trade today. So it's not a significant delta, but provided the right quality of assets are there and the scarcity that is going to underpin longer -- better long-term growth characteristics, we think that's the better use of capital. In terms of raising capital to do something, if it's something that is the right quality of asset and it is growing earnings, then it's certainly something that we would consider. But we're not going to dilute earnings across an existing portfolio for the sake of adding a nice asset.

Zachary Gauge from UBS. A couple of questions along fairly similar themes. Firstly, just sort of mostly on capital allocation. The CMD last February, you sort of said in the next 1- to 3-year plan, you expect to fund GBP 800 million of the shopping centers from disposals. So should we still be thinking that in 2 years' time, there will be an additional GBP 800 million deployed into shopping centers? And related to that, how flexible will you be on pricing on the office disposals given what's happened to government bond yields and the political situation since the end of the reporting period?

And then secondly, just to wrap up on the residential piece. So if I understand correctly, you said you're saying you've got 12 months to get viability working or not working. If it's not working in 12 months, is that sort of the end of residential development and we should be thinking about how else that capital might be deployed for it.

Yes. So let me -- I'll take those in reverse order. And with respect to the recycling, I might ask Vanessa to talk to a bit more specifically what's assumed in our guidance around recycling over the next few years. So with respect to residential, I think we are at a point now where we've got 9,000 units across 4 very high-quality sites. As we've mentioned, viabilities currently are below a level that would make sense for us. But they do all have planning extent in place, and we are on the most progressed of those in active and I think positive constructive engagement with public sector partners, which means I think on those projects, we will know where we can get to in terms of net yields on cost and IRRs over the next 6 to 12 months.

If those numbers don't stack up, we're not going to put capital into those projects. It would be crazy to do so. I think as I stand here today, there is a route through to that viability. And that's why we're investing the time. We do think it's worthwhile, and they're very strong projects, and we think there's the basis of quite significant competitive advantage. But if we can't get the returns to a level that makes sense, you can't have a capital allocation framework as the one we set out and then decide actually we want to get on with these projects over here because we have them for ages.

I think with respect then to the recycling, I think the GBP 800 million is still our objective. And within 2 years, I think perhaps we will, perhaps it will be slightly longer than that given those opportunities. But just with respect to earnings guidance, perhaps Vanessa could give a bit of clarity on what we're assuming.

Yes. So we are starting that allocation as you say, across to financial year '30. And then what we are assuming is sort of splitting the GBP 800 million of investment into new assets roughly around the 3-year period from financial year '28, '29 and 2030. So that's if you assume that. So where we've guided financial year '27, we're not making significant assumptions in the '27 guidance around investment into retail acquisitions. In financial year '28, we're assuming we get 1/3 of that delivered. So that would be around GBP 250 million to GBP 300 million of assumption within our guidance, which equates to probably around GBP 5 million or GBP 6 million of upside on earnings.

So it's not a significant amount in the financial year '28 guidance. But if you look at then the financial year '30 potential that we have, 20% of that growth comes from that allocation. So therefore, you can see that we're showing that 80% remaining actually comes from our own portfolio. So that's the differential between the 2 [indiscernible].

Yields versus office yields that you would potentially move to fund in the current environment?

Excuse me. Yes. So I think that the 150 to 200 basis point spread between a true net effective yield on both sides of the ledger is still the sort of level that we would look at. And just to take that opportunity to stress and remind people about net effective yields. The net effective yield is what goes through our P&L account. It's different from the headline rents on offices because of the typically 20% of incentive that is offered upfront that we spread over the lease term. So typically, the net effective yield on an office is 20% lower than the headline yield that might be quoted on the transaction.

So if you sell at a yield of 6%, you're probably selling at a P&L yield of 5%, whereas in retail, incentives tend to be more like 10% so less significant. Of course, in residential, essentially no incentives at all. I'm not -- sorry, one further question over here. Raise your microphones.

[indiscernible]. I just had one question on use of [indiscernible] commerce and AI in your shopping centers and if you guys are investing in it and what kind of spend you're putting in or thinking about putting in? And just on the back of that, what the experience is for your tenants using that and the end user, which is the consumers?

Yes. I think most of the investment in AI for consumers and more immersive retail environments, that CapEx is in the main coming from the retailers.

I think that's what you're seeing in retailers deciding to sign for much larger stores and then investing within those store fits.

And of course, I don't know exactly where their investment numbers are, but on the basis that if I give the next example in Bluewater, I think that's an 11-year term certain on that lease with a turnover component to the lease as well. They're clearly looking at long periods of time to recoup investment. With ourselves, we're always looking at how we improve and enhance the environment and how we use data and AI to track performance and consumer behaviors and movements within our centers, but it's not a significant level of investment and not something that we have planned for investment at a significant level.

I don't think there are any more questions in the room. Mark, I was going to let you ask a question, but as you've decided you don't want to, that's just fine. So I'm going to go to anyone on the call now.

[operator instructions] There are no questions waiting at this time. Presenters, you may continue.

Great. Thank you. And then I'm just going to go to one question on the webcast, which has come from Mike Prew. How does net effective rent on the BP pre-let at Timber Square compare with the underwrite there's 2 questions. I'll cover that one first.

So that was a little way ahead of the underwrite, probably a mid-single-digit level ahead of what we assumed originally. So the growth in bank side has not been as significant as we've seen in Thirty High, for example, but still very encouraging, of course, with the quality of the occupier there, that's also very additive to overall value. So I think a very positive outturn.

And sorry, I'm just trying to scroll back for you. And then is the residential operating platform still intended to be established organically? Or is it TBA?

I think that will be part of the decisions we make over the next 12 months about the viability of developments. We would need to be confident of what the underlying operating solution was. As I think we've said in past conceptually, I don't think it's necessarily moving to the final answer immediately. It could be that you work with private operators to run things whilst we subscale and then move to something in-house longer term. But that will be a decision alongside the viability of those residential projects over the next year or so.

And then a question from Kempen. Since the acceleration of technologies around AI, have you started to look differently at your office portfolio or change your strategy?

So I think our strategy remains the same within office, the reduction of GBP 2 billion of capital employed by 2030.

That still leaves us with a very significant high-quality office portfolio. As I mentioned in comments during the presentation, we see that as being an accelerant of the concentration of occupier demand on the very best space. I think it's unlikely we'll see any shift in our plans around development, just given the elevated risk we see and the ability of capturing growth within the existing portfolio. So it's not something I expect to see delivering resulting in a change in strategy. It is something which I think underpins a very positive growth outlook for the portfolio.

So I think at that point, that's hopefully covering all the Q&A. I appreciate you've had a lot of you a number of presentations this morning. Thank you very much for taking the time to come along or to dial in. Have a good day.

Welcome to the presentation of Landsec's 2025 Half Year results. So we continue to see clear positive momentum across all parts of our business. Our primary focus is on delivering sustainable income and EPS growth, and we continue to do so effectively. I've been saying for some time that owning the right real estate has never been more important, and our performance over the past 6 months illustrates this yet again.

Following our significant portfolio repositioning over recent years, our best-in-class office and major retail assets now make up over 90% of our income. And driven by the high quality of our market-leading platforms in both sectors, we have again delivered strong like-for-like net rental income growth and positive rental uplifts on relettings and renewals across both office and retail. We see no signs that the strong customer demand for high-quality space, which underpins this positive trend is abating. So this will remain the key driver of near-term income and EPS growth with further asset rotation and residential expected to enhance this over the longer term.

As a result, we are raising both our near-term and medium-term EPS outlook, which means we are well placed to deliver material shareholder value as we move to higher income, higher income growth and lower cyclicality over time. To deliver our strategy, we set out 9 key objectives back in February, and we are on track or ahead of plan on each of these. In the near term, most of our EPS growth will be driven by our current platforms, the assets we own today. So that is what the first 5 objectives are built on.

We continue to capture the growing reversionary potential in our office and retail portfolios and today raise our guidance for like-for-like income growth for this year to around 4% to 5%. We have also raised our overhead cost savings target, which now implies a saving of more than GBP 10 million against financial year '25 by next financial year. We are on track to deliver half of our 3-year target to reduce our capital employed in predevelopment assets by GBP 0.3 billion during year 1. And we have sold 1/3 of our retail and leisure parks, whilst we are seeing an increasing number of acquisition opportunities in major retail coming to the market over the next 12 to 18 months.

Our 4 longer-term objectives are designed to ensure that in 3 to 5 years' time, our asset mix is such that we are still as confident about this outlook for income growth at that point as we are today. Again, progress on each is positive as we've sold nearly GBP 300 million of offices over 12 months ahead of plan. We set a clear expectation for our income growth in retail at our recent Capital Markets Day in September, and we have made good planning progress in residential. Still, as returns in retail continue to look most attractive, we do not plan any meaningful new development commitments over the next 12 to 18 months. And that means that our committed development exposure is set to come down to just GBP 200 million by mid-2026.

And we expect this to remain meaningfully below the current GBP 1 billion level beyond that. Our sharper focus on sustainable EPS growth as our primary financial objective that we set out earlier this year is providing real clarity of focus and clarity in decision-making. And we're seeing the benefits of this across all parts of the business. Across the whole portfolio, we have driven 5.2% growth in like-for-like income, and our occupancy is now at a decade high. We have had a highly active half year in terms of shifting our portfolio mix with the sale of GBP 644 million of assets, which generated limited or no return, and we're expecting further capital recycling in the second half.

Meanwhile, our capital base remains solid, supported by continued growth in rental values. And we are committed to further improve this as we now target net debt to EBITDA of below 7x within the next 2 years. That's down from a previous target of below 8x. All of this translated into a positive set of financial results for the half year. Our strong like-for-like income growth and continued overhead cost savings meant that EPS was up 3.2%, whilst our dividend is up 2.2%. NTA per share was down slightly at 1.3%, but principally driven by the sale of nearly GBP 650 million of low-returning assets that I mentioned earlier. Aside from the finance lease income on Queen Mansions, the impact on EPS from these disposals was broadly neutral and the cost to NTA about 1%.

Our LTV is now 38.9%, and our net debt to EBITDA was up as expected, yet we expect this to come down to below 7x within the next 2 years as our current developments complete and lease up and future development exposure reduces, whilst we expect LTV to reduce to below 35% over time. Reflecting our positive performance, we raised our outlook for EPS growth for the full year and now expect this to be at the top end of our 2% to 4% guidance range. This is before the disposal of QAM, which turns the residual finance lease on the asset from a receipt of income across 2025 and '26 into an upfront capital receipt on completion of the sale next month.

So although the amount of cash we receive is effectively the same, this reduces reported earnings for the year by GBP 7 million. In addition, we have also raised the outlook for our financial year '30 EPS potential from around 60p to 62p, and that's a 20% increase in our earnings growth objective. driven by higher growth in retail income, lower overhead costs and lower development. Any upside from our planned medium-term investment in residential only becomes meaningful beyond financial year '30. We'll continue to pursue opportunities to further improve on this, but this now implies a compound annual growth in earnings per share of 4% to 4.5%, adding further to our attractive existing income return.

So now on to our operational review. Customers unquestionably remain focused on the best space in both office and retail. So driven by our high-quality operational platforms, our leasing performance remains market-leading and our relative outperformance against the wider market continues to widen. Our occupancy is up to a decade high as our portfolio is effectively full, which is driving growing competition for space. This, in turn, is driving up rental values. So rental uplifts are rising, principally in retail and like-for-like income growth is trending higher. Reflecting this, we now expect like-for-like net rental income to grow around 4% to 5% this year, up from our initial guidance of 3% to 4%. And this established trend remains a key driver for our near-term EPS growth.

Turning to offices in more detail. We continue to see growth in utilization rates with turnstile tap-ins up 11% over the 3 months to October compared to the same period last year, even though TFL tube traffic was slightly down over the same period. Mirroring the experience we see across our own portfolio, the majority of active demand in the overall London market comes from businesses looking to increase space. So as the availability of high-quality office space in locations with the right transport connectivity and attractive amenities is limited, this continues to drive rents higher. And that is not just for brand-new developments, but also for existing high-quality assets.

And we see the evidence of this in our 2.3 million square foot estate in Victoria, which is 100% full, and we are now achieving rents on existing buildings in line with what just 2 years ago were record rents for a new development. All this is reflected in another set of market-leading operational results. Our office occupancy is now nearly 99%, and that's significantly ahead of the overall London market at 92%. Like-for-like income was up 6.8% with uplifts on relettings and renewals of 6%.

And we signed or in solicitors' hands on GBP 19 million of lettings on average 9% ahead of ERV. This drove 3.1% ERV growth over the 6 months, which is well on track against our guidance of broadly similar full year ERV growth to last year's 5%. As our portfolio is now effectively full, capturing this market growth in like-for-like income is increasingly a function of lease events and will therefore be more balanced over time than it has been over the past 6 months. Yet our growing reversionary potential continues to support a positive outlook for like-for-like rental growth from here. This positive customer demand extends to our near-term office completions.

Over the next 9 months, we will see 4 new projects complete, including the repositioning of an existing asset to Myo flex office space and a small full purchase that we agreed back in 2021. Now in total, we expect these projects to generate around GBP 58 million of net effective, i.e., P&L rent once let with an associated incremental GBP 43 million of annualized interest expense. The outlook for FY '27 EPS is, of course, sensitive to the pace of lease-up of these schemes, but current engagement with prospective customers is encouraging as we have interest in the form of active negotiations, requests for proposals or live engagement equating to an excess of 100% of space across our nearest term completions.

Now not all of that will translate into actual leasing, but in our FY '27 EPS outlook, we currently assume around 40% of the 2 main schemes to be let by the time they complete and for all space to be let around 12 months post completion. And we are comfortable that these assumptions reflect those current activity levels. In retail, brands continue to focus on the best locations as these provide the best access to consumer spend and the highest sales growth. As the chart on the left shows here, the top 1%, 60 of all U.K. shopping destinations capture some 30% of all in-store retail spend. And so this is where major brands focus their investment with, for example, around 90% of all Apple and Intertek stores in these locations.

And it's also where close to 90% of our portfolio is focused. The quality of our assets and our platform is driving superior footfall, which in turn is driving substantially higher sales growth than the wider market. Indeed, whereas overall U.K. shopping center retailer sales have increased just 3% over the past few years, sales across our portfolio are up nearly 20%, and the gap in performance continues to widen. And this is why brands want to be in our locations. And as our portfolio is now nearly full, this is why rents continue to grow. And this is clearly reflected in our operational performance.

Rental uplifts continue to trend higher, as shown here on the left, whilst occupancy is up 50 basis points year-on-year to almost 97%. This means that like-for-like income growth remains attractive at 5%, and we expect this to continue. We signed or in solicitors' hands on GBP 33 million of leases on average 10% above ERV, which drove 2.2% growth in ERVs over the 6 months, comfortably on track with our expectation of similar growth for the full year to last year's 4%. And as we set out at our Capital Markets event in Liverpool in September, the outlook for future income growth from retail is firmly positive.

Building on the unique data and insights that our market-leading U.K. platform provides, we continue to invest in creating experience-led places. The growth in footfall and sales that this then creates continues to attract leading brands. So alongside enhancing our social eating, dining and leisure offer, this creates an environment and experience, which in turn attracts higher footfall, higher sales and so on. Our growth outlook is further enhanced by selective investment in highly accretive smaller CapEx projects. So combined with growing turnover income and commercialization income, this is what underpins our target to deliver between 4.5% and 7% compound annual growth in net rental income from our existing retail platform over the next 5 years.

So turning now to capital allocation. We continue to prioritize our capital allocation decisions based on this clear framework. This looks at how our investment decisions contribute to income and EPS growth in the short term and how they shift our portfolio mix such that it can continue to deliver sustainable income and EPS growth for the longer term, underpinned at all times by our commitment to maintain a strong capital base. We continually monitor for any changes in risk and return prospects, but as things stand for the next 12 to 18 months, our priority is further investment into major retail destinations given the high income returns and attractive income growth on offer, funded by further rotation out of lower return assets, including London office assets as we have done over the past 6 months.

And we do not plan to commit any meaningful capital to new development over that period, creating further investment capacity. Based on the clarity that this framework provides, we've had a very active period of capital recycling. Our largest disposal was Queen Anne's Mansions, an asset which generated 0 total return despite the high short-term income profile as the valuation depreciates in line with every rent receipt until the end of the lease.

Aside from the impact of turning the residual finance lease income into an upfront capital receipt, as I mentioned earlier, this has essentially no impact on earnings and derisks the value of the site by transferring planning risk for a change of use to the buyer. We also sold 2 predevelopment assets, which generated a negative income return as well as 4 retail parks. Combined, these parks comprised around 1/3 of our portfolio of retail and leisure parks. And whilst they delivered a reasonable income return, income growth has been limited.

All in all, this means we have sold nearly GBP 650 million of assets, which generated limited or no return in just 6 months. This came at a cost to NTA of 1% when comparing sales to March book values, but will enhance our future income and EPS growth prospects, a clear example of our decisions being guided by a focus on EPS growth. We expect to remain active in terms of capital recycling in the second half. Investor interest in London has picked up from its low point.

So whilst we already are ahead of plan in terms of office disposals, this provides us with an opportunity to recycle further capital to fund accretive investment in retail, where we are seeing more opportunities come to market, although not all of those will be opportunities for us. We will, to some extent, be pragmatic on disposal values as our principal focus should be less on NTA per se and more on ensuring that the NTA delivers growing cash flow, growing earnings and growing dividends for our shareholders.

So in that respect, the roughly 200 basis points positive yield spread between office and retail, coupled with the superior income growth prospects for the latter is meaningful, which is underlined by the excellent track record of the GBP 1 billion of retail acquisitions that we've made over the past few years, where in all cases, performance is tracking well ahead of our initial underwrite. We expect to see further opportunities like this to add to our market-leading platform. So this remains our key focus in the near term.

So whilst we do have a number of development projects that we could start in the near future, we currently see more attractive risk-adjusted returns elsewhere. So we're not planning to commit any meaningful capital to this. In London, we very much see the potential for continued rental growth. But as I explained earlier, our existing portfolio is benefiting from this trend as well. So taking into account the differing levels of risk, we see little upside in selling high-quality existing offices to fund the development of new ones. Although we do see an opportunity to leverage our skill set by working with third-party capital to bring projects forward.

For residential development, the picture is a little more nuanced, partly because it would help shift our portfolio towards the higher income growth and lower cyclicality asset mix that we aim for, but also because we are seeing a shift in public sector policy, which could be supportive to returns. For example, with the recently announced reduction in affordable housing requirements and community infrastructure levy in London, which for our London projects could add between 50 and 75 basis points to our current net yields on cost of around 5%. Our near-term focus here is now on locking in this upside.

So the outlook for returns could look different in 12 to 18 months' time. Until then, CapEx spend will be very carefully controlled and very limited. Looking beyond the near term, we plan to move to structurally lower levels of development exposure over time in any event as having large amounts of capital tied up in development for prolonged periods has a negative impact on our risk profile and on EPS growth, particularly so in a higher cost of capital environment.

Part of this is reflected in our objective to release half of our roughly GBP 700 million capital employed in predevelopment assets, where we're making very good progress. But we also plan to keep our own exposure to committed development closer to about half of the roughly GBP 1 billion that it has been in the past. This means that our balance sheet will have a greater proportion of income-generating assets in the future, which supports our objective to grow EPS in a sustainable way and means that our cash-based leverage measures will also improve.

With that, I will now hand you over to Vanessa.

Thank you, Mark, and good morning. We have had a positive start to the year with strong operational performance. Our occupancy is at a record high. We're leasing well ahead of passing rent and our like-for-like income growth of 5.2% is well ahead of our full year guidance. Reflecting this and the continued positive outlook from here, we have raised both our near-term EPS guidance and our medium-term EPS potential. For the half year, our strong like-for-like income growth and further reduction in overhead costs meant EPRA EPS was up 3.2%, supporting a 2.2% increase in the interim dividend.

Our portfolio valuation was effectively stable with NTA per share down slightly at 863p. This was principally driven by our capital recycling as we sold nearly GBP 650 million of assets, which generated limited or no return, which came at a cost to NTA of 1%. Our capital base remains robust with LTV at 38.9% pro forma for the disposal since the end of September. And our net debt-to-EBITDA ticked up in line with the guidance that we set out in May, but we target this to reduce to below 7x within the next 2 years as our current on-site developments complete and they lease up and we move to a structurally lower level of development exposure in the future. Now turning to income and EPRA earnings.

Overall, our net rental income was up GBP 15 million, supported by GBP 12 million like-for-like income growth. This increase was despite the fact that the prior half year benefited from GBP 4 million increase in the recovery of previously provided bad debts, principally relating to a few assets where we bought the management in-house. Surrender receipts were low as well at just GBP 3 million, which means almost all of our rental income for the half year was regular recurring income as the benefit of one-off receipts was limited.

Our focus on operational efficiency meant our gross to net margin improved by 130 basis points to 87.7%. And overhead costs were down GBP 2 million with further reductions to come. Finance costs increased as expected, principally relating to the increase in average borrowings following our acquisitions in the second half of last year and a small rise in our weighted average cost of debt. All combined, this meant EPRA earnings were up GBP 6 million or 3.2%. And this slide shows the movements of how this translates into growth in earnings per share. Our high-quality office and retail assets continue to benefit from strong customer demand and our strong operating platforms. And combined, these assets make up 90% of our income. In total, like-for-like income growth drove a 1.6p or 6.4% increase in earnings per share for the half year.

And further overhead savings, which added 0.3p offset the increase in like-for-like finance costs. Year-on-year movements in other items, which include lower surrender receipts and the bad debt recovery reduced EPS by 0.9p. But the overall benefit to EPS from both items is minimal now and it's unlikely to have a meaningful impact in the future. The net impact from investment activity was also positive with overall EPS up 3.2%. And as I will explain in more detail in a minute, the outlook for EPS from here remains positive.

Our continued growth in income is further enhanced by our improving efficiency. Back in February, we set out a target to reduce overhead costs to less than GBP 65 million by financial year '27. But we've now increased our target savings, and we expect overhead costs next year to be in the low GBP 60 million. This reflects the benefits from our investments in data and technology, which I've talked about previously, and a cultural shift in our organization to sustain efficiency and maintain a structurally lower cost base going forward. We now expect overhead costs next year to be more than GBP 20 million lower than they were in financial year '23. That's despite GBP 9 million increase from wage costs and inflation. So in total, this marks a reduction in costs of over 25%. Turning to portfolio valuation.

Our successful leasing drove 2.5% growth in ERVs over the past 6 months, with 3.1% growth in office and 2.2% in retail, both well on track versus our guidance for the full year. The positive impact of ERV growth was partly offset by the continued wind down of the valuation of QWAM as the asset is nearing the end of its leases, so the NPV of the future income continues to reduce and an increase in the business rates at Piccadilly Lights.

Combined, these 2 factors reduced our overall portfolio valuation by 0.5%. But as we have agreed to sell QAM and the business rates review was the first since 2021, neither are expected to be continuing factors in the future. This means our overall portfolio valuation was effectively stable. Our main focus is ensuring that we turn this value into growing cash flow, growing earnings and growing dividends for shareholders. With that in mind, we said in February that we would be pragmatic about the value in terms of capital recycling. And the last 6 months have been an example of this. We sold GBP 650 million of assets, which generated little or no return, which came at a cost to NTA of 1% when comparing the proceeds to the book value.

Ultimately, these disposals materially enhance our future income growth, yet this is the main reason our NTA was down 1.3%. And this continues to be underpinned by our robust capital structure, which will strengthen further in the near future. Our average debt maturity remains long at 8.9 years, and we have no need to refinance any debt until 2027 at the earliest. I mentioned in May that we expected our net debt-to-EBITDA to exceed 8x this year as our 2 on-site office developments in London are nearing full investment, but they do not produce any income until they complete in the 6 to 9 months' time.

Combined with our predevelopment assets, this means we currently have around GBP 1 billion of capital that's invested in assets that do not produce income. So we carry all the debt for this, but none of the EBITDA. As these projects complete and they lease up and we move to a lower level of development exposure in the future, our net debt-to-EBITDA ratio will naturally fall. So we're now targeting a net debt-to-EBITDA of below 7x, down from the previous target of below 8x, which we expect to achieve in the next 2 years. We also expect our LTV to reduce below 35%, down from our current 38.9%.

Our financial risk profile will, therefore, be even lower in the future, which further underpins the attraction of our growing income and EPS. And the positive, the outlook for both of these is positive. So following the strong first half of the year, we have raised our guidance for like-for-like income growth for the full year to circa 4% to 5%, up from our initial guidance of 3% to 4%. Combined with further cost savings, this means we now expect EPS growth at the top end of our 2% to 4% guidance range that we provided in May. This is before the impact of the sale of QAM, which turns the residual finance lease income of this asset into a cash capital receipt on sale.

The overall amount of cash that we receive is effectively the same, but as we will now receive the cash when the sale completes next month rather than as lease income over the rest of 2025 and '26. This reduces EPRA earnings for this year by GBP 7 million. For next year, we expect like-for-like growth and cost savings to continue, yet the exact outturn in terms of EPS is also dependent on the pace at which we lease up our office developments.

As Mark outlined earlier, we are seeing good engagement from potential customers. So we assume our 2 main projects on average to be 40% let by the time that they complete and leased up in full over the 12 months thereafter. On this basis, we currently expect EPS growth for financial year '27 to be broadly similar to financial year '26, again, before the impact of QAM, which reduces earnings for financial year '27 by a further GBP 15 million. As the impact on EPS from the sale of QAM is beyond financial year '27 is minimal, this means we're on track for our medium-term EPS growth potential that we've outlined. So turning to that in more detail.

Back in February, we set out the potential for EPS to grow by around 20% to 60p by financial year '30, including the headwinds of QAM and the higher finance costs. We now raised this outlook to 62p driven by higher income growth in retail, a further reduction in overhead costs and a move to a lower level of development exposure. So let me just take a moment to explain the movements -- the moving parts in a bit more detail.

So starting with last year's 50.3p. The sale of QAM, which I just explained, had an impact of just under 3p. By far, the biggest part of future growth is capturing the growing reversion in our existing portfolio. As you can see from our strong operational performance, we have a good track record of this with 5.2% like-for-like income growth for the first half across the whole portfolio, building on a 5% like-for-like growth that we reported last year.

Our office portfolio is 12% reversionary, and our numbers here assume that we deliver like-for-like rental growth of 3% to 4% per annum, which is a more normalized level than over the last 6 months, given that our office portfolio is now effectively full. At our Capital Markets Day in September, we set out how we target to deliver income growth across our retail portfolio between 4.5% and 7% over the next few years. where rental uplifts are now up to 14%, turnover income is growing, and we're seeing the benefits of accretive CapEx. This outlook is based upon the midpoint of this range. The upside from further overhead savings I set out earlier equates to about 1.5p, and we have a good track record of delivering on this too.

Our recent acquisitions and disposals, which include Liverpool 1 and the sale of our retail parks have a net benefit of around 1p. And as Mark mentioned, we are ahead of plan in terms of our objective to halve our capital employed in low and non-yielding predevelopment assets, which will add around 1.5p per share from interest cost savings. And the lease-up of our near-term office completions will add around 2p. The upside from future asset rotation effectively reflects our plans to recycle more capital out of lower return assets and invest a further GBP 1 billion into major retail destinations.

As our planned capital recycling out of offices into residential is broadly EPS neutral on this time frame and will mostly benefit EPS growth beyond financial year '30. So taking into account the expected rise in finance costs, all this equates to just over 4% annual growth. Delivering sustainable income and EPS growth will, over time, result in an attractive return on equity. So with a strong capital base and attractive existing income return, we are well placed to drive substantial shareholder value.

And with that, I'll hand back to Mark.

Thanks very much, Vanessa. So I'm now going to wrap up with a summary of what you can expect to see from us in the near future, where we see the differentiation opportunity for Landsec before we then open for Q&A.

So the updated strategy that we set out back in February provides real clarity in terms of our key objectives and our primary target to deliver sustainable income and EPS growth for our shareholders. This means all of our priorities and decisions flow from this, creating a real clarity of focus across the business. For our best-in-class office platform, we are focused on capitalizing on the continued strong customer demand for space, and that's both for our near-term completions as well as across our existing estate. And this is similar to our market-leading retail platform, where we have robust plans to deliver 4.5% to 7% growth in income over the next few years.

As investment activity continues to pick up, we will look to rotate further capital out of offices into retail to capture the superior risk-adjusted returns. Meanwhile, in residential, we are focused on locking in the positive impact of strengthening public policy support as this remains a highly attractive opportunity in the longer term, supported by strong growth fundamentals. So we have now created a clear differentiation in our positioning. We have 2 unquestionably best-in-class irreplaceable portfolios operated by 2 market-leading platforms of real scale and stature.

Our primary focus on sustainable income and EPS growth as our principal performance measure provides absolute clarity across our entire business. And our clear capital allocation framework means that we're clear-eyed and rational about investment decisions in pursuit of our primary financial objective as reflected in our decision to significantly reduce our future development exposure, which underpins our move to an even stronger capital base with a net debt-to-EBITDA below 7x. At the same time, the outlook for income growth remains firmly favorable.

Strong customer demand for the best office and retail space continues to drive ERV growth, and our overall occupancy is at a decade high of 98%. Both our office and retail rents are highly reversionary, underpinning future income growth, which on an earnings level is supported by additional overhead savings. This provides us with the confidence to raise our guidance for FY '26 earnings per share and increase the outlook for our financial year '30 EPS potential, with dividends expected to grow alongside growth in EPS and a strategy which is seeing us move to higher income, higher income growth and lower cyclicality over time, we are well positioned to deliver significant value for shareholders.

Ladies and gentlemen, thank you very much for attending this morning and listening to our presentation. As usual, I'm now going to open for Q&A. We'll start here first in the room here. So please, if you have a question, raise your hand and wait for a microphone. And then we've also got people attending via webcast and conference call, and we'll go to both of those in turn as well.

So a couple of questions here at the front first, and then we'll go to a question at the back in the middle.

It's Marios Pastou here from Bernstein. If I maybe turn to your longer-term plans in residential. I think you've quantified now kind of policy changes that will actually support your development yields within your kind of London schemes, for example. Would that uplift be enough for you to commit to those projects? Or are you looking for more upside potential from other maybe cost savings, for example?

So we've indicated that we think -- and we have to be clear at the moment, what we have is policy announcements from government and GLA together to reduce affordable housing and community infrastructure levy charges. We need to see how those things actually play through in the detail to individual projects.

So -- but the indication we provided is if those land at a project level, that would be 50 to 75 basis points improvement. And that would take us to somewhere in the high 5s as a yield on cost, which for a sector which has got structural growth and annual capturing of rental growth feels a pretty attractive starting point. But it's a decision really for us to look at probably in -- towards the end of 2026 when we have more clarity at a project level, we also have an understanding of what the other opportunities to deploy capital look like and what the relative risks and returns look like. It is unquestionably positive in terms of the direction of travel policy support, but it will be a decision ultimately for later in 2026 when we can look at things with a greater degree of certainty.

Okay. Very clear. And then also just turning to retail. I think you've mentioned again, you're expecting more potential investment opportunities to come to market, and that's where the focus is today and putting capital to work there. It feels also quite crowded with what we're seeing in the market. So are you confident on being able to allocate that capital and at the levels of returns you're previously targeting?

We are in short. There is more capital coming -- starting to look at the market. But I think we have to remember sort of a couple of things. It is a very operational market. I think having relationships with brands, having the operational expertise, having the data around consumer behavior are all critical to be able to successfully operate a shopping center.

One of the reasons we have deliberately targeted that sector is because we have a demonstrable capital advantage. If you look at where we are today, our major retail portfolio has 40% more reach in terms of footfall than the next largest U.K. retail platform, and our plan is to build and grow on that. I think the bigger the lot sizes get, the more difficult it is for some of the other investors might be coming into the space to capitalize that and to underwrite an exit. So I think it's good news.

You've got more investors looking at the sector in terms of validating what we see within it. I don't think it's enough at this stage for us to be overly concerned about capital deployment. But it does mean one of the reasons we think it's a 12- to 18-month window. And one of the reasons we've accelerated office sales to rotate into that window is we don't want to do things over too long a period of time and find that the cap rate is 6.5% rather than 8% when we start to deploy capital.

Jonathan?

Jonathan Kownator, Goldman Sachs. Three questions, if I may. First question is on retail ERV. When are we going to see this grow? You're obviously letting 10% ahead. So how do you think this is going to evolve? First question. Second question, share buybacks were on your allocation charts. How are you thinking about this? Would you need more disposals to do share buybacks? Are you considering those at this stage? And third question, you're obviously willing to redeploy in residential. We've talked about the economics. We've talked about the time frame. Given the long time frame for development as well, would student housing be something that you would consider instead of doing residential development?

Thank you. So just first on retail ERVs. I'll make a comment and then perhaps ask Vanessa just to explain a little bit in the context of valuation. My personal view is that the ERVs that they're putting into valuation metrics are not particularly meaningful on the basis that we see our letting evidence is consistently so far ahead of those ERVs. But I think there's been an issue over recent years of particular lettings being done and then a question of what does that provide rental evidence that can be ascribed to other demises within retail.

And when occupancy was lower and there was a variety of different types of occupier demand, I think there were perhaps reasons to say, well, let's be a little bit more cautious on that. I think when you're 97% full and you're leasing, if you look at in solicitor's hands, double digits ahead, I think the evidence is clearer and clearer.

For us, in terms of our decisions, we look at our leasing evidence, and we look at our leasing pipeline, and we base it on our conversations with retailers. So whether we find that ultimately finding its way into valuations is a sort of secondary point as far as we're concerned, we're looking at the cash on cash and how does it help us grow our earnings.

And is that your impression that that's increasing, so the letting that you're doing is increasingly at better rates?

Yes. Yes. And I think you saw a chart in the chart which shows retailer sales across the portfolio, which I think is really quite striking. At the end of the day, as a retailer, what are you trying to do? You want space that can help you grow your top line and grow your margin.

So to see 19% growth over 3 years across our portfolio in total retail sales compared to a market movement of plus 3%, which is substantially below inflation over that period shows that retailers are focusing on the best locations and so -- and that gap is widening. And so if the gap in terms of sales performance is widening, I think it follows that the room for rental values to grow is also widening.

Is there anything, Vanessa, from a valuation point of view that you'd want to add on that?

I mean, no, I think the leasing stats speak for themselves that when you're leasing 10% ahead of ERV, you've got 2.2% reflected in your valuation. And we continue to lease ahead of ERV and ahead of passing rent. I think that kind of shows that there's -- we've a bit more successful leasing than probably the wider market.

So on to your second question, we've quite deliberately included share buybacks on our capital allocation framework. And you should take from that as it is something that we, as a Board, will continue to actively consider.

You've seen the 2 axis of how we think about how we allocate capital, what does it do to our near-term earnings and how does it help our portfolio mix over time get us to a position that we think can support long-term earnings growth. At the moment, selling out of lower-yielding assets, including offices and deploying into retail is the most accretive use of our capital. We can buy an ungeared yield, which is higher than the implied ungeared yield on our shares. So that will definitely be where we would deploy. I think the second thing is then to make sure that we have a really solid balance sheet.

And so we would always look at that quite cautiously. But I think one of the things you've seen with us today is talk about effectively taking development down to me, as things stand at the moment, if we were just looking at -- if we didn't have those other options, we would look at share buyback as being preferable to development deployment, for example, because it would have the same effect in terms of portfolio mix, but it would have much more benefit on earnings accretion. So it will remain on our framework, but we're very clear as things stand deploying into retail is the most accretive use of our capital.

And how long do you wait? There's obviously a different execution risk in both products, right?

There is a different execution risk. There's also a different scarcity value. No one is building any more of these shopping centers. So if we can add 2 or 3 further locations to what is already the leading platform by quite a margin in the U.K., those chances aren't going to come around again.

So if we were to say, well, let's do something short term in buying our stock and then not have the capital available in 9 months' time to buy an asset, which isn't going to be on the market again for maybe another 10 years, I think that would be a real shame. And then lastly, just on residential, you understand the time frame, you understand the direction of travel on build-to-rent. That's where we think there's opportunity over the medium to long term to leverage our skill set.

We considered student housing as one of a number of living sectors when we looked at our strategy last year before the February announcement. I think it needs real expertise. I think there are some interesting questions about what the long-term growth characteristics of that sector look like. So it's not something that we would plan to deploy capital into. I might just -- if I may, in the interest of the -- oh, I've got my front at the back, sorry. So I know there's a question at the back, we'll go to first. And then I think there are a couple more in the second row here.

[indiscernible]. It might have some overlap to the previous question, but given the 1% pool of retail assets that you said you're interested in shopping in, you mentioned maybe about 30 centers, and you obviously haven't made any acquisitions yet since the CMD in February. If no assets do come to market available at the price or yield that you like, how does that kind of shift your larger strategy in terms of capital deployment?

Yes. I mean I think it's a largely hypothetical question because I think those assets will come forward, and they will come forward at returns that will make sense for us. But the reason we have that capital allocation framework is to make sure that we keep that discipline.

So I think if we got to a position where in that hypothetical scenario, you had earnings accretion that was meaningfully below the alternative of buying our own stock, then we would need to reassess at that point in time. But as things stand, I think you've still got quite a lot of centers that are owned by investors either individually or collectively that are not natural long-term holders of these assets. As liquidity improves, I think one of the benefits that has is it will encourage some of those existing owners to bring assets forward to market that perhaps weren't available to invest in previously. So I think we'll see the market balance out.

As I said to the earlier question, I mean, the operational component of this Plus, I think on some of these assets, the CapEx requirements on some of this, I think they will be, I think, reasons for investors without the real expertise in this sector to be a little bit cautious.

That's clear. And just quickly on the GBP 200 million of accretive CapEx, is there opportunity to increase that slightly in the interim if the opportunities are slightly delayed?

There might be. I think there's also hopefully opportunity to try and deliver the same for less, which will probably be our primary focus if we can get the benefit of the return from that GBP 200 million by only spending GBP 180 million, we'd rather do that. But I think there will always be investment opportunities across the portfolio, but we're really focused on the cash-on-cash yield that we can get from those things. There's a question -- we'll start in the middle of the row and then work that way, if that's okay.

Bjorn Zietsman from Panmure Liberum. You mentioned increasing opportunities in retail for acquisition. Can you give us a sense of the composition of those opportunities? Are they shopping centers, retail parks elsewhere?

Yes. So the comment was intended really to talk about shopping centers, which is the only sort of segment that we would look at. And within that, there will be some that would not be of interest to us. They don't have the dominance in the catchment. They're not in a strong enough catchment. We don't see the opportunity to leverage our platform sufficiently. So it will be the larger and more dominant of those that would be the likely area that we would look towards.

And just on capital recycling, can you give us a sense of on the pace, quantum and timing as well as composition of any disposals?

So it will be capital recycling for the first. So we will use disposals to fund acquisitions. I think that's the first important thing to say. So I think you can judge on the basis that if we're hoping to invest into retail meaningfully on a 12- to 18-month view, that will need to be funded from disposals over a similar time frame. We've said lower-yielding assets, including London offices. So looking at the composition of the portfolio, that will need to involve ongoing disposals of London office assets as we've signaled.

It's Rob Jones from BNP Paribas. This might be a question that's better offline, but we'll try it now to start with.

That sounds like fun.

I was excited when I wrote the question, put it that way. I don't know how you can get to your FY '27 EPS guidance that you published yesterday, which is 53.3p on your website. And the reason why I can't get there, but you'll be able to help me is, for '25, obviously, you did 50.3p. You've then got, let's say, 4% earnings growth for this year to March '26, which adds, say, 2p a share to 52.3p.

I've then got to strip out 0.9p for Queens Anne's Mansions, it gets me to 51.4p roughly for FY '26. I then look forward to FY '27. We've got, as you said, the second impact of Queens Anne's Mansions of GBP 50 million, call that 2p a share. So my 52.3p for March '26 goes to 49 -- sorry, 51.4p goes to 49.4p ex Queens Anne's Mansions in FY '27.

And then you need to obviously then grow income ex Queens Anne's Mansions from that 49.4p to the 53.3p that you've currently got as your analyst consensus on your website, but that's an 8% growth for '27. And let's say we do 4%, does that mean that consensus is 4% too high? Like what have I missed? And I definitely missed something.

I can't imagine why you thought that might be better offline. But perhaps I might as Vanessa just to comment, there might be a couple of sort of big moving parts in that. I mean...

You can come back if you want, honestly.

We wouldn't -- the number wouldn't be out there if we didn't have the component parts as well.

Or analysts are 4% too high. That's the other option.

I just have a -- is anything headlines to...

I'm happy to have a quick -- a bit more detailed offline. But effectively, you've got the continuation of like-for-like growth from leasing performance, cost reductions. We don't have any major refinancing coming through in that year, so a pretty stable position. But there will then be the development completions, which we've had really from now over the next 12 months or so. So we get some -- we're assuming in the bit of leasing performance and then you offset the QAM movement.

So you don't think that 53.3p FY '27 today is too high. Is that any fair?

I'll have a quick look at that, if you like afterwards. I haven't actually seen what you specifically talking about.

John Cahill from Stifel. Just one question, please. As you say, one of your differentiating factors now is your risk profile is vastly reduced from what it once was. Leverage is going to be lower still, reducing the pace of developments. And in isolation, lower risk, of course, is a positive. But there must be a degree to which that slows down the rate at which you get to your 2030 diversified portfolio.

Should we think of this as it's the executive's view that on a risk-adjusted basis, these are the best returns? Or is it that the shareholders via the Board are saying, well, yes, we want you to get where you're going with the resi developments, but actually, we're just going to put the brakes on you a little bit.

Yes. It's very much a -- I mean the capital allocation framework that we set out on the chart there with the exception of adding in share buyback is no different to the capital allocation framework that we set out with the strategy in February. And if you look at the objectives that we set the short term and the long term, the short term included invest GBP 1 billion in retail.

The longer term is rotate office into residential. There's no change to that strategy. I think what we might reflect on post February is that there's a lot of focus on residential and perhaps say we needed to do a better job on explaining the time scales and that we were sharing a 5-year view of how we shift the portfolio mix over time. And that, I think, got conflated with what drives near-term earnings per share guidance.

What we've sought to do since then and particularly with today is show, look, the earnings guidance near term is, of course, driven by today's portfolio. We're very, very happy with the quality of that. We think retail continues to be the best place for us to deploy capital and leverage our expertise. We still think the rotation into residential is the right thing to do, and we still think the time frame for that is medium to long term.

So no change in that respect. I think just trying to be a little bit sharper on what's happening over the next 1 to 2 years, which is -- tends to be -- I may even be giving them a little bit more -- giving markets a little bit more credit, but that tends to be the sort of time frame that markets are more focused on. I think that's what we've sought to do.

I may just pass to Paul, it's convenience, and then we'll come to Tom at the front.

Paul May from Barclays. Three questions from me. Given the losses on disposals on non-income-producing sites, have you proactively written those down in the first half? -- ahead of expected sales further forward? Or should we expect further losses on those as you're being pragmatic? Second one, if recent press comments are correct, sorry, apologies. Are you disappointed having lost out on Merry Hill?

Just get some color there. And then final one, as you know, I applaud the earnings-based strategy. I think it'd be a shame if the market doesn't wake up to it and see the earnings growth potential because I think it brings to question the whole European listed sector. But I just wondered what more do you think you could do to convince people and what pushback do you get from investors on that?

Sure. So Vanessa, the first question around sort of, I suppose, where valuations sit relative to ongoing transaction activity?

Yes. So the disposal losses that we saw in the first half really related the majority of them to some development site sales where we're seeing that developers are really looking for a higher IRR from development activity than probably in the past they have. So I think that it's quite specific to those sort of assets. So we have reflected that through into our valuation for the first half of the September valuation.

So we've been through the discussions that we have, as you would expect, with all the valuers. So we would -- we believe that our valuation now properly reflects what activity we are seeing and experiencing in the market. And we've been pretty active, as you can tell from having sold almost GBP 650 million over that period, we've been pretty active. So I'm sat here pretty confident that our valuation at this point reflects where we see the market position.

And of course, we have reasonable visibility on our own capital recycling plans and are comfortable in that respect as well. Your question on Merry Hill, you won't be surprised, I won't sort of comment on specifics. I guess what I will say is that there are a number of assets, including Merry Hill that are being marketed. And in how we look at those assets, we will look at what's the opportunity to leverage our platform, bring brands in that perhaps aren't there, reposition assets through investment using consumer data to see what might be missing or what might drive performance.

And what do we think the CapEx bill is likely to be in order to affect those changes or to deal with backlog maintenance, which will be a feature on a lot of these assets. So that's what we will always look at. So I think you can be confident that anything we do acquire, we will have answered those questions in the positive, and there will be a decent number of assets we look at that we either won't spend much time on at all because we don't feel that they're right or we might spend a fair bit of time on, but struggle to get ourselves comfortable at the sort of levels others may end up being.

But again, I think we're comfortable we'll get to our capital deployment targets with what we can see on the market at the moment. And then I think with respect to earnings growth and what more can we do. I mean we post our strategy, had a considerable number of meetings, both then and through results cycles and over the summer and into the autumn, we engage regularly with all of our shareholders.

We certainly have had a pretty consistent message back that earnings growth and confidence and credibility in that earnings growth trajectory is what matters most to generalist investors, if that's the right term. Certainly, and you all understand this better than me, but the dynamic of investing in our sector is very different to where it was 10 years ago in terms of specialist versus generalist. I think it is the wider equity markets that we need to be able to talk to in a convincing way of how we are creating value for them.

And I think that's a far more convincing story to be able to point in a quite granular way to how we're growing earnings and how you can form a view as an investor on the deliverability or otherwise of the different components of our earnings bridge to 2030 than pointing to a valuation and an NTA where I think there's -- certainly for investors that look globally, NTA is not necessarily a feature in other markets. So I think we're moving in the right direction. We certainly wouldn't be doing it if we didn't feel that. We've got to then deliver and execute on it. And the more we do that, the more confident market should become.

Sorry. And just on that last bit in terms of that is a bit with Rob's question as well, that consistency of earnings delivery into next year, what would be good to provide comfort for investors that you do have that into next year given the headwinds, as Rob mentioned. But also, are there any acquisitions baked into that FY '27 earnings assumption?

So we put the FY '27 earnings number up there. I think within that, we will assume there's a small amount of recycling based on what we can see today, but not a significant amount in terms of undue reliance on achieving massive amounts of recycling to achieve a number with respect to earnings next year. The biggest sort of sensitivity is the pace of development leasing, and we provided some color in the statement on what a sort of plus/minus 10% on the sort of average occupancy on those assets through the year would do to earnings. And I think that's the one that we're probably most focused on.

Tom, on the front here.

It's Tom Musson at Berenberg. Sorry, I just wonder if I can pin you down slightly on share buybacks. I appreciate what you're saying where you see best use of capital today, but markets are volatile, especially today. I'm just wondering at what share price or perhaps what earnings yield does it suddenly make sense for you to buy back shares? Are we close or still some way away?

We don't have a precise number in mind. I think it would probably be unwise to have that. I would point back to my earlier answer around the scarcity of the alternatives. So I think buying major retail is much less about just a comparison of the spot yield and much more about what does that do to the long-term earnings potential of the business, the quality of the underlying portfolio. So comparing a sort of a spot rate to a genuinely scarce asset, I think, is something that we would be cautious about doing. So at the moment, the cap rates that we believe we can invest in, in major retail would still make that very clearly the right place to deploy capital. And I think there is an opportunity to add some scarce assets to an already market-leading platform on a 12- to 18-month view. That's got to be the right thing to do for the long-term value of the business. Are there any other questions in the room? Otherwise, I'm going to go to the conference call. Okay. So we'll go to the call. I think there are a couple of questions on the call. So let me open up to the operator on the call. Thank you.

Your first telephone question for today comes from the line of Zachary Gauge from UBS.

Can you hear me okay?

I can.

Sorry, I'm not there in person. Yes, just 3 questions for me, hopefully quite quick. Could you disclose what the discount to book was specifically on the GBP 72 million of development site sales that you had in the first 6 months? The second one is on the overall office acquisition. Just interested to see how that fits into your new strategy, particularly around obviously the office holdings and the location being close to South Bank. And lastly, on the current developments, based on my calculations, when you strip out CapEx, Timber Square dropped by about 5% in value over the period. Just interested to see what was driving that. And also, if you could touch on why Thirty High, which 12 months ago was guided to be completing October 2025, now has a June 2026 completion date.

Zach, I've written down your questions, and I've written the first one down so badly, I can't read my writing. Sorry, what was your first question?

The discount to book on the GBP 72 million.

Right. Yes. Yes. Well, look, on the first one, we don't disclose the specific sort of deal by deal of sort of achievements relative to book. I think what Vanessa mentioned earlier with respect to sales is that where we've been selling development sites, there's tended to be in the market a higher IRR requirement than had previously been the case and the valuations are reflecting.

What I would say, though, is things are pretty sensitive, and we've got examples of other sites where we're talking to partners that are quite a different outcome to what we saw in the first half, including ones that would point to positive outcomes relative to book.

So it is very sensitive, but it is a relatively small part of the portfolio that will, I think, be largely sort of taken care of during the current financial year. The overall acquisition dates back to 2021, very good quality assets just delivered within the last month or so, as you'll see from the schedule, good occupier demand. The thinking of that at the time was looking for assets with a good value entry point in terms of price, perhaps slightly different in terms of local amenity playing to what was quite a different occupier dynamic back in sort of COVID era times.

And so we looked at a relatively small acquisition to test that. I think we're pretty happy with the way the occupier demand is shaping up on that particular asset. But as things have moved forward now, we've set out a very clear priorities of where we're looking to allocate capital. And I think you understand where office investment sits in that Thirty High, I'll just talk to briefly and then ask Vanessa just on the Timber Square sort of movement. So Thirty High, yes, I mean, an existing building where the contractors have some challenges within the existing building as a refurb, which has pushed the program back a little bit.

We're indicating around middle of next year, there is a recovery program opportunity, which could outperform that. But it's important for us to set a clear date, particularly as we're starting to see quite significant incoming occupier demand, and there's quite short lead times on the sort of people that are looking to take, say, 10,000, 11,000 square foot floor plates. So we need to have a date that we're very confident committing to for those occupiers. So we've moved that guided completion date back for those reasons.

And then Timber Square.

Yes. So Timber Square as an asset, actually, the valuation because it's pretty close to completion was -- has transitioned to a cost to complete basis. So looking at the end asset with the cost to go. And then it's then therefore, valued at the moment as an asset that's 100% vacant because we haven't actually signed any of the leases at this stage. So as we go throughout the remainder of the next 6 months until that completes on the basis we're expecting to lease that asset, we'll get to a position whereby the yield will shift to reflect that as a leased asset rather than a vacant office with cost to go. So it's just a nuance in the way that the valuations on developments transition over the life of development.

So a point in time factor.

Yes. So it's not necessarily any change to any major assumptions on that front.

Is that okay, Zach?

Yes.

I think we may have at least one more question on the conference call.

The next question comes from the line of Adam Shapton from Green Street.

Just one from me on the thinking around residential development returns. I know you had 1 or 2 questions on that already. But I'm going to preface the question by saying I realize there's political dimensions to the communication on this, but hopefully, we can put that to one side. If I look back to the February Capital Markets Day, you were pointing to net yield on cost of 5%, 10% to 12% IRR and described that as attractive. Today, swap rates are a little lower, your share price is broadly the same, and you're saying a 5% net yield cost is not sufficient. Could you explain why that stance has changed or correct me if my sort of February inference was wrong or I'm not comparing apples to apples. And then more broadly, can you explain how you think about what would be a sufficient yield on cost or IRR for you to commit more capital to resi in the medium term?

Yes, certainly. So I think 6 months on looking at what's happened across the wider market, not just residential, and I would include our development sales and what people are looking for an office development, et cetera, to the earlier question within this.

I think our view on IRRs will probably be point to something a little bit higher than 10% to 12% being where we need to be. I think we would also take a slightly more cautious view on exit cap rates, which, of course, has a fairly sensitive impact on IRRs. So we're now suggesting, and as I stressed earlier, this is subject to all of this flowing through to the actual projects in detail. So it needs to be very heavily caveated. But at a headline level, the reduction in affordable, the reduction in sale looks like it could add 50 to 75 basis points.

That would take us into the high 5s on a yield on cost basis, which with sensible cap rate assumptions, I think, delivers a better -- a decent increase on that 10% to 12% guide on IRR. So I think where we are now, and I think this would also be consistent with a lot of the shareholder discussions we had post strategy is pointing to a need for IRRs to be higher than that 10% to 12% range yields on cost, which we think, frankly, is the most important measure because that's what ultimately is going to flow through to our earnings and earnings growth longer term, high 5s feels a more sensible level at which to be seeking to underwrite these.

Okay. Understood. And then just on those -- on the additional yield that might come from the policy changes, you would -- is your expectation or your hope that those become permanent rather than temporary or of time-limited measures, which I think is what we're looking at the moment.

I mean, at the moment, they're positioned as acceleration measures. One would hope that if those acceleration measures achieve the desired acceleration, there's a better chance of them being come permanent than if they don't. Certainly, from our point of view, without those changes, we'd have been unable to take any residential projects forward.

Other questions on the conference call line.

The next question comes from the line of Paul Gory from CTI.

Can you hear me okay?

We can.

Yes, just a quick follow-on from Rob Jones' question. I'm looking at Slide 28 and basically, the FY '27 outlook for earnings looks flat against FY '26. So I'm just trying to understand, is that correct? Is that the right interpretation? -- flat year-on-year '27 versus '26?

Is that before the QAM adjustments?

That's after the QAM.

After the QAM. Sorry, I haven't got it in front of me.

I'm just looking at the -- sorry, yes, it's like purple bars, the deep purple taking QAM fully into account. It looks like is flat year-on-year from Vanessa's comments. It sounded flat year-on-year.

Take out the finance lease -- if you take the finance lease income from QAM out because that basically we're receiving that as a cash receipt in the next month as opposed to through the finance lease income that comes through in those 2 years. So if you look at the underlying portfolio, how that performs, that will be the growth -- the guidance we've given is the 2% to 4%.

And then if you net out the QAM, that's where it is, which I think goes back to Rob's point earlier, when I just had a quick look. I think what's happened is since we've announced the sale of QAM, not all of the analysts out there have adjusted for the impact of QAM, even though the announcement we were quite specific on the impact over those financial years. So I think that's where the difference is to the roll-up of the consensus that sits out there.

So with all the moving parts, when you actually look at the reported, it would be flat, whether you look at the underlying performance of the portfolio, it would be the 2% to 4%.

Any more conference call questions? No, I think we're -- we've either cut them off or are any more questions. So we'll head to the webcast. A couple of -- a few questions coming down on the webcast. So first, with the business plan seemingly on track was the credit rating downgrade a surprise and our corrective measures called for from Mike Prew. So Vanessa, just on credit.

Yes, happy to talk about that. We had a Fitch rating that was reflecting of last financial year's position. That rating was reflecting the -- following the acquisition of Liverpool One, our debt was slightly higher as we talked about in our results being slightly higher. But it's worth noting that S&P have just reaffirmed their rating, I think a couple of weeks ago of AA rating, so still a very high investment-grade rating. And overall, we still have one of the -- we are the highest -- have the highest investment-grade rating in the sector.

So there's no need for necessarily corrective measures our plan that we have in place at the moment, as we talked about with net debt to EBITDA improving and naturally improving positions us well and our capital operating guidelines position us well and commensurate with high investment-grade rating. So our plans for the future put us in a good position.

Thank you. Then a couple of questions from Alan Clifford.

So on future London office development, talked about partnering with third parties to leverage platform. What capacity do you have for this? And how capital light is this likely to be? So I mean, we have, at the moment, following the 2 development site disposals that we've already made, we have 2 further city-based assets plus an additional one in the South Bank, all of which are well advanced in terms of being able to commit capital to and where we are in active discussions on how we best take those projects forward. That's what gives us the confidence to make reference within the statement here to opportunities to work with third-party capital.

If you take that in alongside our comment within the results to not planning to commit any significant capital to development ourselves on a 12- to 18-month view, I think you can infer from that, that these would be very capital-light options should we choose to take them forward. And then with regard to the wait-and-see comment on resi, how does this impact progress on the currently owned schemes with planning consent.

So that has no bearing at all on what we need to do on those, such as the detail required to take forward schemes from a resolution to grant planning plus deal with the additional requirements of the building safety regulator whilst finalizing detailed designs but more moving on site. even if we wanted to go as fast as we possibly could on those residential projects, it would be mid-'27 with a following wind before we could put a spade in the ground on any of those. So at the moment, there is no bearing.

So that gives us the opportunity without spending significant amounts of capital because we've got the consents in place to now work through the viability of those projects by mid next year to then be able to make the decisions I talked about across the second half of 2026 without having any bearing on the delivery time lines of the projects we're looking at. And I think that is the last of the questions.

So all that leaves me to do is to thank you all for taking the time to either attend here in person or to dial into the call, and we look forward to further discussions with you over the coming few days and weeks. Thank you very much.

This presentation has now ended.