Earnings Transcript for BLND.L - Q4 Fiscal Year 2022

Simon Carter: Good morning and welcome back to 100 Liverpool Street. It's great to be able to share with you such a strong set of financials today. In terms of running order, we'll follow the normal format. Bhavesh will take you through our financial performance; Darren will come back with an operational update; and I'll wrap-up with progress on the strategy and the outlook for our key markets, but before we do any of that, I just wanted to share some of the highlights. It's a year ago today that we set out a new strategy for the business. A strategy that was designed to play to our competitive strengths in development and active management across our Campuses, Retail Parks, and London Urban Logistics. And I'm really delighted with the progress we've made. We're onsite with 1.7 million square feet at Campus development. We've made 1.2 billion of disposals, recycling into our Retail Parks, and a 1.3 billion urban logistics development pipeline with much higher return prospects. This progress together with our strong operational performance is reflected in our numbers. Values are up 7% driving a total accounting return of 15%. Our experience over the last 12 months gives us even greater conviction in our strategy. COVID has been a catalyst for businesses to reevaluate what they want from their workspace. Their conclusion, better space, better space, that allows them to collaborate, innovate and be more productive. This is increasing demand for prime, which remains in very short supply, especially as the development pipeline is being pushed out. Our unique Campus proposition capitalize on this market dynamic. That's why we've had our busiest leasing period in 10 years. Retail Parks have emerged as the preferred format for many retailers, due to the affordability of space, and their suitability for multi-channel retail. As we forecast a year ago, rents have stabilized and this is driving strong yield compression with values up over 20%. In Urban Logistics, demand goes from strength to strength, propelled by e-commerce and same day delivery, yet, there's a chronic shortage of space. This is a great opportunity for us to use our edge in London planning and complex development. To deliver new space via repurposing assets and intensification. All this is against a backdrop where investors are increasing their allocations to real estate as they rotate out of bonds. More on this later, but now I'll hand over to Bhavesh, who will take you through the financials. Over to you, Bhavesh.

Bhavesh Mistry: Thank you, Simon. Good morning and thank you for joining us. I'll start with an overview of our financial results for the year to March, followed by an outline of how we think about returns, and our framework for capital allocation to enable delivery of our strategy. We've delivered a very strong performance with impressive results across all our key metrics. Underlying profit was £251 million, up 25%, primarily this is driven by rent collection now back to normalized levels, and significantly reducing the impact of provisions for rental debtors. Net tangible asset value increased 12.2% to 727p per share. The key movement was an increase in our portfolio valuation of 6.8%. Darren will explain how our strategic focus on Campus developments, Retail Parks, and Urban Logistics is driving this. Along with the dividend paid in the year, we delivered a total accounting return of 14.8%. Our active approach to capital recycling has further strengthened our financial position. Post our year-end, pro forma LTV falls to 28.4% following our announced sale of a 75% interest in Paddington Central to GIC. We will pay a final dividend in July of 11.6p per share with a total dividend for the year of 21.92p per share. Our headline net rental income is up £62 million or 17% in the year. As you can see on the left hand side, the key driver of net rental income growth is materially lower provisions for debtors and tenant incentives, which contributed £91 to net rents versus last year. This reflects our strong progress on rent collection. As a result of continuous engagement with our customers over the last two years, collection rates are nearing pre-pandemic levels. We've now collected 97% of FY 2022 rents and for the March quarter, collection rates are already at 96%. Further detail is disclosed in the appendices. Our rental income is also impacted by active capital recycling in-line with our strategy. Over the last 24 months, we've successfully disposed of £2.4 billion of assets, reinvesting the proceeds into our value accretive development pipeline and returns focused acquisitions. We can already see the benefit of our recent acquisitions with a £28 million increase to net rents. The £8 million decrease from developments reflects Houston tower moving into vacant possession ahead of redevelopment. And looking forward, our committed pipeline will deliver a further £60 of rents once fully let. The impact of CVAs & admins was £8 million. This largely relates to the full-year impact of various retail CVAs that occurred during the middle of 2020. Overall, like for like net rents are flat. However, last year included £3 million of surrender premium. We're pleased with the underlying health of our business, which you can see when we disaggregate the moving parts within like for like net rents. Through our active approach to asset management, we've delivered like for like net rental growth across our strategic focus areas. On Campuses, like for like growth was up 2.5% or £4 million. This was due to our significant letting activity, including at Monzo at Broadwalk House, Braze at Exchange House, and strong leasing across our Storey flexible offer. We've also seen like for like growth across our Retail Parks, up 6% or £3 million. This is due to significant leasing in the period. And over the year, Retail Park occupancy has increased 270 basis points to 97.4%. For shopping centers, like for like net rents declined by 6%, reflecting deals rebasing to market levels. Albeit, we are starting to see signs of stabilization in values and an improving outlook. Darren will cover shortly key leasing activity across our segments. Turning now to our income statement. Our rental income growth helped increase profits to £251 million, up 25%. Administrative expenses were £89 million in the period. The increase from the prior year reflects a non-cash accelerated depreciation of IT assets, investment in our people and capabilities, and higher variable pay reflective of the strong performance in the year. Cost control is something we are and will continue to be focused on and it's important to note that our new Canada Water and Paddington joint ventures will earn additional fee income, partially offsetting the cost base and will be reflected in the next financial year. Net finance costs were largely down at £102 million, due to financing activity, which I will detail later on. Underlying earnings per share is 27.4p up 45.7%, which results in a dividend of 21.92p per share. As usual, we've included a guidance slide in the appendices, including specific detail on the impact of the new Paddington joint venture. Turning now to our balance sheet. The 12.2% increase in NTA was primarily due to significant property revaluations, as well as the impact of profits in excess of dividends paid. Our focus is on driving total returns, and when including the interim dividend, we have delivered a total accounting return of 14.8% in the year. The significant progress we've made against our strategy has driven this returns performance. I've laid out the key components on this slide. 2.1% is attributable to active asset management across our Campuses, which includes our leasing activity across our newly refurbished buildings and our recently completed buildings at 100 Liverpool Street and 1 Triton Square. 1.8% relates to the progress we've made on developments, achieving a £37 million uplift at 1 Broadgate after successfully pre-letting all of the office space. 5.7% from the value play in Retail Parks, where we identified the opportunity last year, subsequently deployed incremental capital, and have now benefited from significant yield compression in the year. And finally, 1.4% from capital recycling where we crystallize value in Canada Water through our new 50/50 joint venture with AustralianSuper and benefited from a significant uplift in our retained investment. We see active capital recycling as an important way to drive returns over the medium-term. Since April 2021, we've sold £1.2 billion of assets, crystalizing value and releasing capital that we can then recycle into higher returning growth opportunities, which we expect will deliver IRRs of around 10% to 15%. That's balanced by our standing investments where returns and risk are typically lower. Overall, we target the total property return of our portfolio to be around 7% to 8% through the cycle. Around 50% of this will be income, but the rest roughly split between capital uplift on the standing portfolio and development profits from our pipeline. Breaking each component down, this reflects a roughly 4% yielding portfolio where we are today. We have been successful in delivering development profits generating nearly £2 billion over the last 10 years. And looking ahead across our full development pipeline, we have a further £2 billion of potential profit to come. Simon will talk more on this later. This leaves around 2% of annual capital uplift on our standing investment, which we believe is achievable, particularly in the current inflationary environment. With our business being focused on total returns, I thought it would be helpful to lay out our financial framework for our returns targets going forward. Overall, our ambition is to deliver total accounting returns of around 8% to 10% through the cycle. As I said out on the previous slide, this will be delivered through a total property return of around 7% to 8% from our portfolio. We expect admin costs, net of the fee income we generate from joint ventures to equate to 0.5% to 0.7%. We will continue to maintain a strong balance sheet and keep our LTV in the 30s with the impact of leverage net of finance costs adding a further 1.5% to 2.0% to returns. Overall, this should deliver a total accounting return around 8% to 10% across the cycle. On this slide, I've outlined four considerations we think about when making decisions on how we allocate capital to deliver our strategy. We are on a truly unique and extensive development pipeline. This covers over 11 million square feet of value accretive opportunities, spanning over the near and medium-term. Beyond our development pipeline, we also look for asset acquisition opportunities with strong fundamentals where we can utilize our capabilities in planning, complex development, and repositioning. This is exactly what you've seen us do this year, [amounting an] [ph] urban logistics development pipeline of £1.3 billion. The strength of our balance sheet is one of our key competitive advantages. And provide capacity to invest – sorry, our debt facilities are flexible and provide capacity to invest in our development pipeline and not quickly when opportunities arise. The final pillar is shareholder distributions. Our dividend policy of 80% of underlying EPS provides clarity and strategic flexibility and underpins our capital allocation framework. We aim to invest first and foremost in our own business in both development and acquisition opportunities, but we always consider capital returns as an option available to us. As you all know, cost inflation has rapidly accelerated in the past few months and forecasting inflation is difficult with the elevated macro uncertainty. We remain very attentive to these headwinds. And I want to spend a moment on how we are thinking about inflation in our business. Our internal view is that construction cost inflation will be around 8% to 10% this year. This is due to key commodity inputs in construction such as steel, cement, and labor. Looking further ahead, we expect commodity prices to remain elevated, albeit the rate of increase will ease and we expect capacity in the construction industry to expand as some development projects are deferred or canceled. We expect construction cost inflation will moderate to around 4% to 5% over the next 12 months to 18 months. For our committed pipeline, we have fixed around 91% of our cost, protecting us from near-term inflationary headwinds. For our near-term campus developments, all of which are Central London based, higher land values mean that returns from London development are more insulated from cost inflation. Looking across our pipeline for our near-term Campus developments, taking into account our view of construction cost inflation going forward, we anticipate IRRs of around 10% to 12%. If construction costs would exceed our current view, an additional 5% increase in costs would only need an additional 3% increase in rents to hold returns at our base case, which we think is achievable across our best-in-class development pipeline. I'd like to touch on progress we made on our pathway to being net zero. Over the year, we've completed 29 net zero audits across the portfolio conducted by third-party consultants. As we said last November, the cost to retrofit the portfolio equates to around £100 million spread across the eight year period to 2030. Of this, around two-thirds will be funded through the service charge or by occupiers directly. In addition, we now have detailed asset level plans for the works that are needed. These are typically low cost interventions, which deliver improvements in energy efficiency, and in the context of rising energy prices, they become more and more attractive. The payback period is very short, typically only a few years and Darren is going to bring this to life shortly with a few examples. The strength of our debt metrics is a key competitive advantage. Our balance sheet has benefited from our disciplined approach to capital recycling. As a result, following our 75% sale of Paddington Central, our LTV decreases to 28.4% on a pro forma basis. Our weighted average interest rate is 2.9% in-line with last March. We have a balanced approach to interest rate management and following the Paddington sale, our debt is 79% hedged over the next five years. For the coming year, we are fully hedge through use of interest rate swaps and caps. The strike rates on our caps are set at levels, which help limit the P&L impact of further rate rises. So, in summary, we've delivered a great set of results, driven by delivering against our strategy, significant property valuation uplifts and our progress on rent collection. We have a clear and ambitious target for future returns, underpinned by disciplined and rigorous capital allocation framework. And we have a strong financial position that enables future growth by progressing developments and acquiring new opportunities, but it also gives us the resilience to navigate through an uncertain macro environment. I'll now hand over to Darren, who'll will provide an operations and market update.

Darren Richards: Good morning, everyone. I'm going to give you an update on valuations, leasing activity, and some insights and how we're seeing the markets. Let me start with valuations. This year our portfolio delivered an uplift 6.8%. Campuses are up by 5.4%, driven by yield shift of 11 basis points. ERV’s are shown as flat here, but there was a change in valuation treatment of two buildings at Regent’s Place as a result of the Meta deal. If you adjust for that, underlying ERV’s and our office space we’re up by 1.5%. Canada Water is up by 18%, reflecting progress on Phase 1 and of course, the new joint venture. And retailer and fulfillment is up by 10%. That's been driven by an exceptional performance in Retail Parks, which were up by 21%. In fact, 13 of our 34 parks saw increases of over 30%. We've seen some ERV decline overall, but the rents on midsize parks have now stabilized with over 10 of our parks seeing ERV increases in the second half. Shopping centers are down 6%. ERV’s have reduced and the yields have expanded, but in both cases, the rate of change is decelerating. And Urban Logistics is up by 5.4%, excluding the impact of purchases costs. We've seen ERV growth of 6.3%, reflecting the continued strength of logistics within the M25. As a result of these valuation movements and our recent capital markets activity, including the recent Paddington sale, on this slide, we've set out what our portfolio looks like today. Campuses is 64% of the portfolio, which includes our 8.6 million square feet of committed and pipeline developments. Retail & Fulfilment is a third of the portfolio of which Retail Parks now represent 67%. And Urban Logistics is 3% as of today, but the pipeline we've assembled has a gross development value of 1.3 billion that's equivalent to over 12% of the group. Now, this has been a great year for Campus leasing. At 1.7 million square feet, volumes are our highest for 10 years, representing £67 million of rent, and pricing has also been strong. On average these deals were done at 5.4% ahead of ERV. We continue to make great leasing progress on our developments, where we're de-risking our pipeline and achieving higher than target rental levels, as our most recent completion here at 100 Liverpool Street, we've now let the last remaining [flow] [ph]. At 1 Broadgate, we're already fully less or under option four years ahead of PC. Next up is Norton Folgate, where I'm pleased to say we are under off or on at least 100,000 square feet, which represents a third of the scheme. And we're already having encouraging initial conversations at Canada Water and 2FA. We think this volume of activity demonstrates the increasing gravitational pull towards our Campuses and everything they offer our customers, which has only been highlighted by COVID. We represent 2.5% of London Stock and yet our activity represents 15% of total Central London leasing volume. Let me walk you through some of the key leasing activity to give you some detail. Here at 1 Broadgate – here at Broadgate, number one is now fully less, as I mentioned, but there's been activity right across the campus. We've completed deals with Braze at Exchange House, Maven Securities at 155 Bishopsgate, Hudson River at 100 Liverpool Street to name a few. We've also had great success adding to our F&B offer. With all nine new F&B units on track to be led by the [Norton] [ph] with some exciting new names, including Revolve where world-class chefs take residents for allocated periods of time. At Regents Place, we continue to see activity, which establishes the Campus as a true innovation hub. Meta has doubled their footprint to 635,000 square feet, having previously [upside] [ph] with us on some multiple separate occasions. And we've brought in new innovation businesses like Babylon Health and Fabricnano who will operate lab space, something we’ll look to do more of. Finally at Paddington, continuing the themes of innovation and long-term relationships, we've upsized Vertex Pharmaceuticals for the third time across two buildings. Looking at the wider market, take ups been increasing back towards normal levels. While overall vacancy now stands at [38%], over 70% of that continues to be older secondary space. Prime availability is much lower at under 4% and the under supply of new quality space is set to become even more pronounced, which Simon will cover in a moment. Now, quality are very general term that encompasses a range of factors. I just want to pick out one aspect, which is increasingly important and that's floorplate size. Smaller floorplates dominate the availability metrics, and it's where occupies a very attractive alternative in the form of serviced or flex solutions. However, flex operators themselves prefer to work with larger floorplates as these are more economics to sub-divide and operate. Assuming historic take-up norms, it would take 2.5 years to clear the market of older smaller floorplates, compared to only 10 months for new 20,000 square foot floorplates. And those historic norms don't reflect change in customer preferences. As you can see, the BL portfolio compares very favorably on this basis with only 5% of our space less than 10,000 square feet. Turning to Storey, our flexible works workspace offer. This is an essential part of our Campus proposition, helping us to attract growing businesses to our space with larger customers also valuing the meeting room and conference facilities we provide. Storey has had a very strong year with nearly 190,000 square feet of space [let] [ph] during the period. Here at 100 Liverpool Street, we're now fully let on all 43,000 square feet, having launched only a year ago. And we've already pre-let the 23,000 square feet of space, we're launching at 155 Bishopsgate. As a result, occupancy is up to nearly 90%. Another key competitive strength is the delivery of sustainable space. As you've heard from Bhavesh, we've already conducted net zero audits across all our major assets, where we've worked alongside external consultants, and have already started work and identified interventions we can make across the portfolio to deliver on our net zero targets. Today, 70% of our portfolio is A-C rated as opposed to the 55% we reported in September. This is principally due to re-certifications based upon our most recent activity. But our plans go far beyond the requirements of EPC ratings, which we see as a minimum. So, we thought it'd be helpful to give you some clarity and what exactly these plans look like taking an office building as an example. On the slide, you can see Exchange House at Broadgate. This is a building where our retrofitting plans are already well advanced. The total cost of the plan for this building is £2.5 million, less than 1% of the building's value, with the key items being heat pumps and LED lights, which isn't unusual for an office building. Our 2030 target is to reduce operational energy by 25% at Exchange House. We've pretty much achieved that already through interventions to date, and we're close to a B rating. But our modeling suggest, when all of the work is done, it will deliver a 50% reduction in operational energy well beyond our target. We would expect broadly two-thirds of the cost to be funded through the service charge or the occupied directly. That's because replacement cost for central building facilities like boilers is a standard service charge item. So the incremental cost over what would have been done anyway is very limited. Furthermore, our occupies will be responsible for cost within their own demise. For example, LED lighting, which is a relatively straightforward upgrade. All this makes financial sense for our customers with a payback period of around five years. And that's before we apply any increase in energy prices, and it also aligns with our own net zero targets. Turning to Retail & Fulfilment. As with offices, this has been an incredibly strong year with leasing volumes, the highest in 10 years. And overall, 2.8% ahead of previous ERV, taking occupancy to 96.3%. Retail Parks account for 60% of deal volume and we're on average 5.9% ahead of March ERV. This is driven occupancy on Park to 97.4%, up 270 basis points over the year. As you can see, they're also outperforming on footfall and sales. For our shopping centers, the lower footfall is made up by basket size. So, overall, we're pretty much back to pre-pandemic levels. And at the moment, we're seeing no sign of a slowdown. In April, for example, sales in our Parks were 4% ahead of pre-pandemic levels. For Retail Parks, we've seen some very strong performance over the year and the fundamentals here remain compelling. Affordability metrics are very positive with OCRs of around 10%. In fact, based upon ERVs, this drops to under 8%, and again to 7% post the upcoming rates revaluation. We're seeing continuing good demand from more online resilient businesses like Aldi and Lidl and discounters like Primark and B&M. In fact, we also estimate have to make that around half our existing customers are looking to expand, with another 40% happy with our current footprint. We believe this focus on efficient, affordable space on parks will only strengthen in a more inflationary environment. And the supply dynamics are favorable also, it's worth remembering that parks account for less than 10% of the UK Retail market. And on the ground, there's typically fewer units than in the shopping center, and is the largest owner and operator in the UK, we've got the scale and expertise to leverage these demand supply fundamentals. Turning to shopping centers, here we think we're approaching an inflection point. Yields were reflectively flat in the second half following years of expansion. With ERV declines moderating, we're even executing some deals ahead of ERV now. At the same time, investor interest is picking up. So, for the best centers like medical, we think we could see yield compression driving attractive medium-term returns. In the meantime, our plan here is to drive value through intensive asset management, improving occupancy, stabilizing cash flows, just as we did on Retail Parks. Finally, let me turn to Urban Logistics. The market fundamentals here remain highly compelling for well-located logistics schemes within the M25, which is our core strategic focus. In London, demand for same or next day delivery is growing rapidly with real pressure for more centrally located facilities, but supply of this type of space is incredibly tight. Vacancy in the Southeast is just 1.5% with only 38 million square feet of available space, compared to an annual take up of 8 million square feet. And in London, these dynamics are particularly acute. This supply shortage is what's underpinned the rental growth we've seen in the period and looks to continue for a number of years with forecast average in excess of 5% per annum. So, to wrap-up, operationally, this is our strongest year in a decade. That's because we're in the right parts of the market. Campuses, where the focus is on quality, Retail Parks which are affordable, and Urban Logistics in London, which is underpinned by very strong demand supply fundamentals. Thank you, and I will hand you back over to Simon.

Simon Carter: Thanks Darren. Before I look at our strategic progress, I just want to take a step back and talk about how international investors are increasing allocations to real estate as they rotate out of bonds. This rotation reflects concern that capital invested in bonds will be eroded by rising inflation and interest rates. Real estate is seen as a much better inflation hedge. And investors are targeting the UK and London in particular. As real estate becomes more operationally demanding, these big investors want to co-invest alongside world-class partners. And we're a partner of choice. As you can see from our recent capital activity at Paddington and Canada Water. Investors want exposure to sub-markets with the kind of pricing power and affordable rents we have across our Campuses, Retail Parks, and London Urban Logistics. That's why investor demand is ahead of the five-year average in each of our chosen areas. As you heard from Darren, in London offices, there is a strong gravitational pull to the best space, which is in shortest supply. Rents feel very affordable at current levels at around 10% of salary cost. This dynamic is reflected in the strong leasing at our Campuses 5.4% ahead of ERV. A growing number of retailers prefer Retail Parks, because rents are affordable. This is key given pressure on retailer margins. And consumers are now switching to the types of value retailers found on our parks as they face higher living costs. However, parks represent just 10% of the UK retail market and our vacancy is low at 2.6%. This has enabled us to lease space 5.9% ahead of ERV. I probably don't need to say much about pricing power and Urban Logistics, but it's worth touching on affordability. Even though rents have grown rapidly and they'll continue to do so, they actually remain very affordable at around 6% of total distribution costs. And as fuel costs rise, it's easy to see why operators will pay a premium for the best located and most efficient facilities. The strategy I set out last May highlighted how we drive returns by focusing on growth and value opportunities where we leverage our competitive strengths to deliver places both our customers and investors prefer. Strong investor demand for the places we create enables us to recycle capital at premium pricing into higher returning opportunities. We can deliver sustained performance by combining this approach with our diversified model, which allows us to hunt where the best returns can be found. So, let me demonstrate how we have created value over the last 12 months with a few examples starting with innovation campuses. You heard from Darren and how well our campuses are performing. This is not just because we own the right real estate. Our active management and development capabilities are equally important. The Campus proposition requires the successful combination of skills across place making, facilities management, leasing and refurbishing space. This is why the likes of GIC and AustralianSuper choose to partner with us. Turning to development, we have attractive opportunities across all our Campuses. 1 Broadgate and 2 Finsbury Avenue here at Broadgate; Houston Tower at Regions place in the knowledge quarter, and 5 Kingdom Street at Paddington, and of course there’s Canada Water. These will all be net zero carbon developments and embodied carbon on them is around 630 kilograms of CO2 per square meter. That's ahead of our glide path to our 2030 target of 500. We're forecasting IRRs of 10% to 12% across the committed program of 1.7 million square feet with 250 million of profit to come. There is then our 7 million square feet pipeline where we're expecting similar IRRs and profit of around 1.3 billion. A key driver of this profit will be Canada Water. Here we're delighted to have a new JV with AustralianSuper, which enables us to accelerate delivery, increase returns, and mitigate risk. This will be one of the most sustainable schemes in London. We're targeting BREEAM Outstanding on all the office buildings. And our plans include 12 acres of new open space. We're forecasting development returns in the low teens. For British Land, these returns will be enhanced by our asset management and development management fees. And we also have scope to earn additional performance fees. As you heard from Bhavesh, our strong relationship with contractors and the fact that we maintain development momentum throughout COVID means we were able to lock in costs early on our committed program. Others are finding it more challenging to place bill contracts and as a result are pushing schemes back. This together with that gravitation to prime increases our confidence in the rent and returns we will deliver. This is British Land’s competitive advantage at play. As you know, we believe knowledge and innovation businesses will be key drivers of the UK economy. Our Campus model is well suited to facilitate the growth of these businesses. You only have to look at the examples Darren gave. Meta at Regent Place, Vertex at Paddington. In Oxford and Cambridge, knowledge-based businesses are really struggling to find space, which is driving strong rental growth. We're therefore sourcing development led opportunities in these markets, where our track record and those capabilities make us an attractive partner for many landowners. We're pleased with our acquisition of the ARM headquarters on The Peterhouse Technology Park, where the significant reverse and re-potential are longer-term development upside. Similarly, we acquired two buildings on the Surrey Research Park, which leads on satellite technology and gaming. We're underway with the refurbishment at the first building, The Priestley Centre where we're delivering lab enabled space. A key part of our business model is to recycle out at more mature assets in order to crystallize the returns, we've delivered with development and asset active management skills. We're delighted to extend our successful relationship with GIC by forming a second JV within the Paddington. The repositioning and development we've delivered at Paddington over the last seven years, has generated an attractive return of 9% per annum unlevered. We're selling down 75% of the majority of the assets to GIC, have joint control and will earn attractive development and asset management fees. We also retain at least 50% of Kingdom Street, 5 Kingdom Street where there is development upside. Turning now to Retail Parks. Here we identified the value opportunity early. Expecting rents to stabilize and yields to compress. So, we invested 400 million and have delivered a stellar performance with values up 21%. As the largest owner and operator of Retail Parks, we have a distinct advantage when it comes to assessing the trading performance of potential acquisitions. In addition, we're often able to line up lettings ahead of completing on deals. As you heard from Darren, we've driven occupancy up 270 basis points over the last 12 months. And in this regard, portfolio deals have been really important. And that's a clear benefit of our scale, expertise, and relationships. As you know, the last element of our strategy is urban logistics development in London. Here we're creating new space by repurposing assets such as the Finsbury Square Car Park or the Thurrock Shopping Park, and we're intensifying by delivering multi-storey in places like Wembley and Enfield. The strategy really plays to our strengths in London planning and delivering complex developments. We're also using our leading position and sustainability to maximize energy efficiency, reduce vehicle movements, and provide infrastructure for electric vehicles. In the last 12 months, we've sourced an Urban Logistics pipeline with an end development value of 1.3 billion and attractive returns of around 15% per annum. We assumed rental growth of around 5% a year in our under rights. Encouragingly, market rents have already reached these levels on most of our schemes. We're also assuming exit yields of around 4%, compared to sub 3% today. Since we set out our strategy, we've made great progress and we continue to maintain this momentum. This slide sets out what you should expect next. Increasing our scale in the golden triangle, further pre-lets, progressing the development pipeline, sourcing and advancing urban logistics opportunities, and delivering on our net zero pathway. Of course, we'll also continue to actively recycle capital. Turning to the outlook across our markets. We're very conscious as greater macroeconomic and geopolitical uncertainty, than at the start of the year. This makes forecasting more difficult, but it's clear that inflation is elevated and will remain so for longer than previously expected. This is causing investors to allocate more capital to real estate, which is positive for the subs sectors with pricing power. In this [vein] [ph], we expect our Campuses to continue to outperform as demand gravitates to quality, and the development pipeline is delayed. We think rental growth of around 1% to 3% feels right and there is scope for some further yield compression. At our Retail Parks, we expect rents to be stable overall, with potential for growth across smaller schemes, and given more international investors are targeting this space, further yield compression is likely. In Urban Logistics, we anticipate rental growth of around 5% or more given the chronic shortage of space together with stable yields. That's an attractive backdrop for delivering new space via [Enfield development] [ph]. So in summary, we've delivered a strong financial and operational performance and made good progress on strategy. We're focused on attractive sectors with pricing power and affordable rents, and we're well placed to deliver sustained outperformance given our first class capabilities, attractive development pipeline, and active recycling of capital. Thank you for your time. And Bhavesh and Darren and are going join me on the stage and we're very happy to take any questions.

A - Simon Carter: To start with, we will go to the floor, then we will take any questions that come in over the webcast and then to the lines. Are there any questions on the floor? I think we've got a microphone, and if you could just give your name, which firm you're from, probably that would be great.

Unidentified Analyst: Thanks. Yes, [Robert] [ph] from BNP Paribas. Three questions from my side. Just on the committed pipeline you said 60 million of income to come from there, is that the incremental income versus the income from the assets in their previous guides or is that total income just from that committed pipeline? Secondly, you say construction cost to moderate 4% to 5% in the next 18 months. I think that's quite positive. Why is that, your view? And then thirdly, in terms of your EPRA cost ratio, you should remind us what it was as a full-year and whether you have a medium-term target? I presume it is still above pre-pandemic levels at the moment?

Simon Carter: Sure, no. Thank you for those Rob. I will endeavor to answer the first question there. So, the 60 million of income is the total income from those buildings, but don't forget Canada Water, we're developing effectively the first phase on bare land today. So, that's all accretive and also the leases have run down on the other properties like 1 Broadgate Norton Folgate was a new scheme for us as well and I think Bhavesh if you want to pick up on the 4% to 5% in the EPRA cost ratio?

Bhavesh Mistry: Yes. So, when we think about inflation we look at, sort of the granular inputs regularly. So, steel, labor, timber those things. So, we try to look at what are the components of what drive construction of a building. And try to look at some of the lead metrics on where inflation trends are headed. As I said in my prepared remarks, we think that some supply will come out of the marketplace or release some pressure and then then prices will moderate, but there's something we continuously look at because we are looking forward and taking our best [educated view] [ph]. EPRA cost ratio is around 26%, that will come down next year. As I said in my remarks, our cost ratio this year is driven by the one-off accelerated depreciation of IT assets or around £3 million. We've got the first full-year of lease depreciation at York House. So we now lease that space, which is our head office. And then we’ve also reflected variable pay reflective of the company performance in the year, but we have good cost discipline in the business. This is the first year I've gone through the budget. So, you really get a chance to go through at a granular year level bottom up, but has allowed me get a pretty good grip on things and bringing some of my discipline rigor from my prior life into how we think about cost here. As I said again in my remarks, you got the full-year affect at Paddington and Canada Water joint venture fees that will come through next year, so that will bring the ratio down.

Unidentified Analyst: Good morning. [Marc Mozzi] [ph] from Bank of America. Can I ask you a question around what is your right now marginal cost of funding, debt from a banking side and from a debt capital market side? That would be my first question. And the second one is, how do you think current high inflation high rates, recession looming may potentially impact your guidance discussed about the cost and just making sure that it is up, this guidance, from 3.5% in H1 now to 4% to 5%? Just to make sure that's correct. And how do you think your guidance can be revised in the current, let's call it a stagflation? Thank you. Is this what you are assessing right now or not?

Simon Carter: Sure. No. I'll take the second question and Bhavesh if you take the marginal cost of debt.

Bhavesh Mistry: Yeah. So, marginal cost of borrowing is SONIA plus around 60 basis points, taking into counter existing bank facilities. If we were to do new capital market term debt it would be around 3.5%.

Simon Carter: And then I think Mark from the question, the 8% to 10% cost inflation we're predicting for the next 12 months and then the 4% to 5%, 12 months to 18 months out, you're asking, does that reflect what we're seeing on the ground today, it does absolutely. So, obviously inflation is very elevated, hence the 8 to 10, but as Bhavesh mentioned earlier, the 4 to 5 reflects commodity prices continuing to increase, but increasing at a lower level, same with energy costs, but importantly, what we think is happening on the ground is people are pushing back development schemes. So, we're going to see more capacity in the construction industry, which will moderate some of that cost inflation, but 4 to 5 on an ongoing basis is quite elevated inflation for construction cost. And as you saw, even if it's surprises on the upside, we think that we can generate the rents, the higher rents that are needed to offset that, particularly given our focus on London where land is a big component of total cost.

Unidentified Analyst: [Indiscernible]

Simon Carter: This is based on what we're seeing today, the current levels of inflation, current levels of interest rates.

Unidentified Analyst: I meant on the rental growth on yield assumption, the guidance [you're providing] [ph]?

Simon Carter: It’s assuming elevated inflation in the UK that you're seeing today and then some kind of moderating in-line with the economic forecast you'll be seeing coming out of houses, it's not – is very much based on the, sort of assumptions that's on the street today as opposed to a much more elevated for view you. And of course we would change those assumptions if we went into a scenario of lower growth [Technical Difficulty].

Unidentified Analyst: [Technical Difficulty] shopping centers. And then secondly, obviously, there was a big opportunity in the valuation of Retail Parks two years ago, and you are, sort of hinting that some of the similar circumstances we're beginning to build in shopping centers, and I wonder if that's told us something looking forward.

Simon Carter: Sure. No. Morning. Maybe if I answer second one. We are seeing similar themes coming. So, 18 months ago, we saw that yields on Retail Parks were 8%, but we were seeing rents stabilize and yields of 8% for high quality Retail Parks felt too high for stabilized rents. And as you heard from Darren, we're seeing those rents begin to stabilize on the shopping centers, yields are about 8%. So, for the best centers, we are seeing quite a similar dynamic. We still think on a look forward basis, the structural factors make the Retail Parks and the likelihood of growth more appealing. Darren I don't know if you want to take the first question?

Darren Richards: Yes. It's obviously linked. The comparator to the 8% for example that we've got, if you look at Retail Park ERVs, it’s roughly 12% for shopping centers. And that's partly helped by the fact the rents have come off, a bit more than 30%, but the trading is very good. So, if you take someone like Meta, who you're getting that, those kind of fundamentals coming back. We got occupancy back up to 96%, start to get some tension on the grounds. So that's why we think that we're starting to see this stabilization effect occur.

Unidentified Analyst: And sort of final question so far, there's not be a very much external capital that's come into shopping centers yet and it's been mainly people who already own them shuffling their ownership around, do you think it's likely that we see more capital coming in?

Darren Richards: The keyword there is, yes. You haven't seen it through the metrics, the volumes that are coming through, but as usual in the market, you hear investors talking about is the fact they're looking at it before you see transactional evidence. That's what we're seeing at the moment. People picking up the phone a bit more talking about it. Thinking it's an opportunity there. You’re buying in at 7%, 8%. If you think you can get a bit of yield compression 100 basis points say in the next two or three years, you're going to be delivering double digit IRRs and that's what's attracting people, including us.

Unidentified Analyst: Thank you.

Sander Bunck: Good morning. Sander Bunck from Barclays. Two questions from my side. Firstly, on your capital rotation strategy, just kind of trying to understand how much of, kind of dry assets are still left within the portfolio that you would be willing to sell? Also considering the fact that your LTV is now 28% obviously. So, that's the first one. And the second one is, you mentioned a few times in the presentation about potential for the yield compression, but do you think there is a risk in maybe some – only some part of the markets that actually, there is going to be yield expansion. I mean, you alluded to the fact that your 10-year money will be 3.5% versus dry assets now yielding 4%, shouldn't there be a higher spread between those two things?

Simon Carter: So, on capital rotation, going back to maybe the presentation, we’re constantly using our skills to create those assets that are in demand by investors, So, you should expect us to continue to recycle capital. Looking forward to this year, the obvious places where we're going to do that is probably more of the mature office assets and that capital is then going into the development program. So, I'm not going to give you a figure, but directionally that's what to expect. And then on the question of yields, the forecast we provided are based on today's market rates that are out there. Clearly, if rates go higher, that has a consequence, but there is quite a big cushion today. We focus a lot on the real yields relative to property yields. Real [indiscernible] yields are negative by about 2%, so you've got this kind of 700 basis point cushion. And as we sit today with corporate bond yields 3.0, 3.5 property yielding 4 or 5 with the, you know, not a perfect inflation hedge that we would accept, but if you're in those markets with pricing power, you will get rental growth. And that then is a compelling mix and those investors, and you've seen them with our own capital activity they are allocating capital away from bonds into real estate. And so, given where we sit today, we think that is supportive of yields, but as I say, it's based on interest rate forecasts today.

Sander Bunck: Sure. Okay. Thank you. And just slightly following up from the first question, I totally appreciate you don't want to give a figure on how much you're looking to dispose, but just for our understanding, how much of the office portfolio at the moment is, kind of pretty dry? I mean, assuming that you're not going to dispose obviously everything, but are we talking 1 billion to 2 billion or more or less or what are we looking at?

Simon Carter: It's probably towards the bottom end of that range you've just given. If you think of what we've got, Regions Place, wonderful opportunity given what we're seeing in the innovation space, particularly with life sciences there. So, we see this really good returns to drive there. We've obviously just done a capital transaction on Paddington and we have a partner at Broadgate and lots of development upside. So, I think that give you probably the moving parts.

Sander Bunck: Sure. Thank you.

Simon Carter: Right. If there aren't any more questions in the room, perhaps we go to the webcast. Are there any questions on the webcast?

Jo Waddingham: Yeah. First is from [Andrew Gale] [ph] at Jefferies. Would you consider sub-funds like unit trusts or opening joint ventures further to attract external capital to take advantage of the movement from bonds into real estate to enhance returns?

Simon Carter: Thanks, Andrew for that question. Yeah, we would think about those kinds of structures. We've been very successful as I mentioned with the big institutional [sovereign and wealth] [ph] funds. They're looking for the kind of skill sets the British Land have, they wanted to deploy a lot of capital and they like the quality of the assets we have, but we will remain open minded how we introduce capital into assets when we’re looking to recycling, you know we recycle that way, but we also recycle by just selling assets outright into the market. Jo, any other questions?

Jo Waddingham: Yes. One for Mike [indiscernible] with Jefferies. How much of your income is subject to RPI or CPI rental taxation and how those assets performed this year?

Simon Carter: Darren, do you want to take that one?

Darren Richards: It's a very small proportion of our rent. We can probably follow with the exact number, but it's tiny market. So, it's not really relevant in the context of the group.

Jo Waddingham: Last one from [indiscernible], are there any – could you give us a flavor, the sort of acquisitions you might be targeting and what you earned?

Simon Carter: Yes, no, happy to do so. So on the acquisition front and deploying capital, the – and obvious way we're deploying capital into our – is into our development program. If you think about that gravitation to the best space that we're seeing, we've got some wonderful sides. Great opportunity at Canada Water. So there's capital allocated there, but we will make selective acquisitions. You should expect us to continue to acquire sites for Urban Logistic given the returns we're seeing on the assets we've already bought and we will likely buy some other assets in that golden triangle that I described that can be Campuses for the future. They will be the likely areas. Anymore, Jo?

Jo Waddingham : That's all.

Simon Carter: Great. If we just go to the lines to wrap-up any questions on the lines, just one question by the looks of it.

Operator: We have a question from [indiscernible]. Your line is open.

Unidentified Analyst: Hi. Can you hear me okay?

Simon Carter: Yeah, we can just about, a bit crackly, we could hear you.

Unidentified Analyst: Okay. Let me know if it doesn't come through okay. Basically I had a question on the outlook for earnings and specifically whether you're expecting to be able to demonstrate earnings growth given the disposal of having consensual and as for next year, I’m just tying into that the impact of positioning was obviously the main driver of the earnings this year, can you give us maybe hard to guide on provisioning? I appreciate, but can you give us any indication of materiality of how that might impact the P&L next year and tying to the earnings [indiscernible] point? Thank you.

Bhavesh Mistry: Thanks for your question. Look, we've got a number of moving parts. We've set out some guidance on the appendix on Page 66. The principal items are capital activity and recycling. So, you'll see the full-year effect of Paddington flush through next year, but be broadly offset by positive like for likes. Our Paddington transaction releases proceeds that we can invest in our committed pipeline and as you heard me say in our prepared remarks, that will deliver around 60 million of ERV in that committed pipeline, a third of which is already pre-let or under offer. If you look further ahead, we've got further, sort of £75 million of ERV insight from our near-term developments. And then provisioning. So, as I said, really back to pre-pandemic levels in terms of collection, So, we're about 85% provided for at the 31st of March. This is largely debtors that are aged related to amounts billed during COVID where recovery is a little bit uncertain, but we're comfortable with this level of provisioning given some of the macro uncertainties. We have a dedicated team that, sort of chases down to collect every penny and we continue to focus on that. So, comfortable to go round from a provisioning perspective.

Unidentified Analyst: Okay. So, just as a brief follow. What you're saying is, provisioning is effectively unlikely to be a large – and it's unlikely to be a large step forward next year because most of it's provided already, is that correct?1

Simon Carter: That's correct.

Unidentified Analyst: Okay. Thank you.

Simon Carter: Thanks Paul. Any other questions on the lines. We've got one more on the webcast by the looks of it?

Jo Waddingham: Yes. From [Maria, Green Street] [ph]. Where would you like LTV to stabilize? Now that you’ve brought it down with the sale of Paddington?

Simon Carter: Look, the first thing, I think is a real positive given the LTV that we're at given the more uncertain environment that we’re all operating in. As we've said before, I'll continue to reiterate, we are comfortable with LTVs in the 30s. We do have opportunity to deploy capital. So, we've got 500 million of cost to come across our committed pipeline. And as Simon talked about, we'll continue to screen the market for attractive returning logistics opportunities, but we've got LTV in the 30s, as we’ve done before.

Simon Carter: I think that is all our questions, unless there’s any more in the room. So, thank you very much for joining us today. Great questions and look forward to seeing many of you on the road show or at the conferences that are on over the next couple of weeks. Thank you for your time.