Earnings Transcript for LAND.L - Q2 Fiscal Year 2024

Mark Allan: Good morning, everyone. Welcome to the presentation of Landsecs' 2023 half year results. Now it's been 3 years since we launched our new strategy based on 2 clear and simple principles

Vanessa Simms: Thank you, Mark. And good morning. So let me start with the financial headlines. Gross rental income and EPRA EPS were broadly stable over the first half. Our strong operating performance offset the impacts of last year's disposal and an increase in finance costs, in line with our full year guidance that I set out in May. And our interim dividend is up 3.4%, again in line with our guidance. As a result of the further rise in interest rates, valuation yields increased, although the impact of this was partly offset by strong leasing, which drove 2.5% ERV growth. This means our total return on equity over the first half was minus 2.4%, which is an improvement on the first and the second half of last year. Whilst EPRA NTA per share was down 4.6%. And despite this, our balance sheet remained strong. LTV increased to 34%, but our overall net debt is 16% lower than it was just over a year ago. And net debt-to-EBITDA is low at 7.2x. Turning to EPRA earnings in more detail. Although gross rental income was down slightly, this was up GBP 5 million on a like-for-like basis. Net rental income was up GBP 4 million, and I'll explain this movement in more detail shortly. You may recall that, last year, we undertook an organizational review to accelerate the execution of our strategy and to improve our platform scalability and operating efficiency. I'm pleased to say that, as a result of this and despite the U.K.'s elevated inflation, our costs have reduced, which means our EPRA-cost ratio improved by just over 3 percentage points to 23%. And our operating profit was up 3%. This offsets the increase in finance costs, as previously capitalized interest is now expensed following the completion of our developments, plus the impact of higher variable rates. And taking account of both of these items, we expect interest expense to increase slightly again in the second half. Overall, EPRA EPS is in line with our full year guidance of stable earnings per share versus last year's underlying level of 50.1p. Net rental income was up 2.8% on a like-for-like basis. And this was primarily due to the strong growth across our major retail portfolio, which was up 9.9%. In Central London, like-for-like income in offices was up slightly, although this was offset by a reduction in variable income in our London retail and other assets. Major retail performance was driven by growth in variable and turnover income and a significant improvement in operating costs. 6 months ago, I said that we expected the remaining negative reversions in retail to reset over this year. And in the first half, we have now seen rental uplifts on renewals in retail turn positive at 2% ahead of parting rent; and that's following a sustained period of downward correction. Our subscale assets continued to perform well, with like-for-like income up 3.9%. Income loss from our low-yielding London office disposals last year was effectively offset by the additional income from our selective acquisitions, principally St David's in Cardiff. And income from our development assets was down slightly, but this will pick up in the second half now that our recent London pipeline has completed and it will become income producing. Surrender receipts in the first half were down slightly, but our expectation for the full year is that surrenders are broadly in line with our underlying level of the last 2 years. So turning to the portfolio valuation. The further rise in interest rates since the start of the year and then the global investment activity remains subdued. We have seen yields move out further as a result, so despite positive ERV growth across every segment, the value of our portfolio reduced by 3.6%. Our Central London portfolio was down 4.5%, as the increase in yields was partly offset by a 3.3% increase in ERVs. This is comfortably on track versus our full year guidance of low to mid-single-digit ERV growth. As Mark mentioned earlier, we've repositioned our London portfolio over the past few years to the West End and the benefit of that decision is clear. Similar to last year, West End values were again more resilient, delivering a significantly higher ERV growth. And we expect this trend to continue in the near future. Our London retail and other assets proved resilient too, although developments were down 4.9% as the upside from our successful leasing was offset by softer valuation yields. The valuation of our major retail assets was relatively stable, as a small softening in yields was virtually offset by ERV growth of 1.4%, again on track versus the full year guidance of low to mid-single-digit growth. Including income, this means that our major retail portfolio, following its outperformance in the prior year, again delivered a higher -- highest total return. And this reflects the resilience that's provided by the high yields in the current interest rate environment and improved operational outlook. Our mixed-use assets were down 6.2%, which was driven by yield expansion; and for future developments, a shorter duration of income ahead of redevelopment. Across our subscale assets, valuations were broadly stable. Within this, hotels were up slightly, whilst the valuation of our leisure assets started to stabilize following the successful recapitalization of Cineworld. Looking forward. The current subdued investment activity could result in some further yield expansion. However, with interest rates beginning to stabilize, we expect investment activity to pick up in 2024; and the values for the best assets, which offer genuine rental growth, to start to stabilize, while secondary values will likely continue to fall. Moving on to total return on equity, which improved versus last year to minus 2.4%; and NTA per share, which was down 4.6% after dividends paid. We target a return on equity of 8% to 10% per annum over time. And that's driven by returns, income returns, and capital growth from both rental growth and developments. Short-term fluctuations in valuation yields means that we won't be exactly in this range each individual year, but this is what we base our medium-term decisions on. The chart on the left shows you the components of our return on equity. In blue, you see the return on equity which is driven by income, rental growth and developments. The light gray bars and the dotted lines then overlay the effect of yield movements. For the 6 months to September, our return on -- from income rental growth and developments was 5.9%, which is up meaningfully versus last year. We obviously still have the impact of yield movements, so the overall return in the first half was minus 2.4%. This shows that when yield stabilize, we should be in a strong position to deliver on our 8% to 10% annual return target. To deliver sustainable returns, we remain focused on capital discipline and managing our balance sheet throughout the cycle. We maintain a clear view on risk and returns when it comes to allocating capital, as we have over the last 3 years. Year-to-date, we have sold GBP 85 million, on average 6% ahead of the March book values. Disposals over the last 3 years total GBP 2.5 billion, including GBP 1.4 billion last year. Most of this comprised mature single-let city offices that Mark mentioned. So our focus in terms of capital recycling is now largely on the subscale sectors, which we aim to progress in the next 6 months. We continue to focus our investments where we have a clear competitive advantage, attractive opportunities in our existing pipeline such as the London -- the 2 London schemes that we've just started offer yield on incremental spend of 12%. In addition, the best retail destinations offer a combination of high single-digit income yields plus the prospective rental growth, and so can offer attractive total returns. This all remains underpinned by our sector-leading balance sheet. We maintain our strong investment-grade credit rating. And our corporate bond spreads are the lowest in the sterling real estate market, giving us a clear competitive advantage in terms of cost of capital. Net debt increased slightly during the period, but it remained GBP 655 million lower than it did 18 months ago. The timely issue of our green bond in March means that average debt maturity remains over 9 years and with over GBP 2 billion of undrawn facility, we have no need to refinance any debt until 2026. When we launched our strategy in 2020, we set out an LTV range of 25% to 40% to allow for the movements of market cycles. Recently we have been operating in the low 30s, recognizing that yields were at or close to cyclical lows. Through our proactive portfolio recycling, we have maintained LTV at this level, but valuations are now some way off cyclical lows, so we will be comfortable with LTV moving upwards a little from here, particularly for the right investment opportunity. However, we have consistently stated that maintaining a strong balance sheet is paramount and LTV is only one metric. Looking at our other core leverage measures. Net debt-to-EBITDA remained virtually stable at 7.2x. And ICR reduced marginally to 4.2x. These are both amongst the strongest ratios in the sector. And longer term, we aim to keep them below 8x and above 3x, respectively. As such, our strong balance sheet continues to provide flexibility to take advantage of new opportunities as they arise. So to summarize. Our strong capital base and significant repositioning over the past 3 years means we are well positioned for growth. We maintain the guidance we set out back in May on rental value growth. And we reiterate our guidance that we expect EPRA EPS this year to be broadly stable versus last year's underlying 50.1p before returning to growth in the next year. As our dividend cover remains at the higher end of our 1.2x to 1.3x target, we continue to expect dividends to grow by a low single-digit percentage per year over this period. And with that, I'll hand back to Mark.

Mark Allan: Thank you, Vanessa. So I'll now wrap up with our view on the current environment, what you can expect from us in the year ahead. And then we'll open for Q&A. So our decisive action over the prior 2.5 years in selling GBP 2.5 billion of mature assets means that we started the current financial year knowing that we could focus on driving operational performance and preparing for future growth opportunities rather than having to worry about leverage or refinancing risks. This is reflected in our strong operational results as demand for our best-in-class space remained robust and occupancy and rents continued to grow. And this remains a key focus for us going forward as we continue to actively reshape our portfolio and build on our improving organic growth prospects and our key competitive advantages. Now given the further rise in interest rates since the start of this year, global investment activity remained subdued, but assuming that the recent stabilization in rates persists, we expect these activity levels to pick up next year. And for the best assets which offer genuine rental growth and therefore a healthy risk premium against real interest rates, this would suggest valuations will start to stabilize for those assets in 2024, although assets where the sustainability of income is questionable will likely continue to see values fall. We remain mindful of the potential risks of unwinding a decade of unprecedented monetary stimulus and the impact higher-for-longer interest rates could have on both businesses and consumers, so in this new market reality, portfolio quality and balance sheet strength remain paramount, both aspects where Landsec scores highly given the successful execution of our strategy. So as we look forward to the next 12 months, we expect occupier demand for our best-in-class assets to remain resilient even as economic headwinds are likely to persist. And the quality of our portfolio, the strength of our customer relationships and ability to unlock complex opportunities will continue to be a key source of competitive advantage, creating value and delivering growth. We've been successful in reshaping our portfolio to suit market conditions in recent years. And while in the first 6 months of this year, in a very quiet investment market, we were less active in this regard, we nonetheless fully intend to resume this reshaping over the next 6 to 12 months, continuing to focus where we have genuine and sustainable competitive advantage and to pick up on our second key principle of sustainable value creation to maintain our strong balance sheet. The market is moving back to a situation where businesses have to create value and investors will be rewarded accordingly. The era of free money, the so-called carry trade, is firmly behind us. Having positioned the business effectively for such an environment, we therefore remain excited about the opportunities ahead. And with that, we will now open for Q&A, so I'm going to go for questions in the room, first, before then going to the call and the webcast, in that order. And for those of you here in the room, microphones are in -- probably in the back of the seat in front of you. You just need to press and hold the button whilst you're speaking. So let me open to questions in the room. So Maxwell Nimmo, okay, hi, thank you.

Maxwell Nimmo: Max Nimmo of Numis. I just want to double check I understood one thing correctly on kind of LTV at -- we're at towards cyclical lows. And therefore, if you see some opportunities, you'd be quite comfortable going above sort of 35%. Is that with a view for a short period of time? Or is that actually, if we believe we're at cyclical lows in terms of value actually, we might be quite comfortable being -- extending that 30% to 35% range for a longer period of time and potentially being up towards 40%, maybe even above, if you have conviction that we are there in terms of yields, et cetera?

Vanessa Simms: So I think, as I stated earlier, that we are in a position where we believe we're -- kind of those cyclical lows are behind us in terms of valuation yields. So we do have that stated range of 25% to 40% LTV. And that really was there to allow -- stated back in 2020, but it was there to allow for the movements in the cycle, so we always plan to operate within that 30% to 35%. And we have been there in the recent years. And in the near-term, we -- I would just say that we would be comfortable with a slight increase from there if there was -- if it really provided the opportunity because there is a capacity there for a good opportunity for us, but I think, in the longer-term, we would also look to progress asset disposals and continue to recycle assets, so we -- I wouldn't expect us to be operating above 35% for a particularly long period of time. It would just be that it's there for the flexibility. And I think I always do comment as well, which you're probably familiar with, that I think we have to also look at other leverage metrics rather than just being hung up on one that is quite highly aligned to valuation. So I think you have to look at it in balance with ICR and net debt-to-EBITDA as well, which again are in good place.

Mark Allan: I might just add a couple of things to that, less on the leverage, more just how we think about things sort of more broadly. So I think there are 2 things that give us confidence to be able to start going after new opportunities in the market in a measured way. Leverage capacity is one, and Vanessa has talked to that. The other is good levels of liquidity in our subscale portfolio. So if you look at that subscale portfolio, it's about GBP 1.5 billion of assets split broadly equally into 1/3 of retail parks, hotels and leisure parks. And of those three, I would say it's only leisure parks where liquidity currently is constrained, so there's GBP 1 billion of assets in sectors where we're seeing activity, where debt is available. They're great-quality assets. It's just we don't feel we've got competitive advantage in our reason for selling. So it's a combination of those factors that will give us the chance to manage. The second point I was then just going to make is, well, what are the opportunities. And as well that will describe what I would see us looking to invest in over the next 6, 12, 18 months will be scarce opportunities at great prices. This isn't just a case of going out and spending for the sake of it. It really is looking at where are the scarce opportunities that we're unlikely to see again, and that's what we're positioning the business for.

Maxwell Nimmo: Great. And just one follow-up, if I could, just on the outlets side of things. Just wanted to kind of perhaps get a little bit more color there in terms of what's happening with valuations in terms of ERV growth that's coming through. Is that to do with the variable component in there and the way the valuers look at that? Probably I would have expected a bit more recovery there, but perhaps there's more to it.

Mark Allan: Yes. I mean the operational performance of outlets is probably still the strongest part of our retail portfolio, the valuation performance less so. And it is, as you say, a function of how much credit will valuers give to future variable income. We continue to see it come through very strongly, so I think we would expect to see [indiscernible] performance there. A question behind.

Sam Knott: It's Sam Knott from Kolytics. Just one on the earnings guidance. You've guided to sort of flat with last year on EPRA EPS, which implies a significant drop in sequential EPS for H2. What's the sort of driver behind that? Is it just the finance costs or the disposals coming through? Or help me understand the decrease there.

Vanessa Simms: Thanks, Sam. In terms of the earnings guidance, we've guided to being around 50.1p EPS for this year, with growth going forwards. There's probably a number of different factors in the second half, but one of them would be that we -- in the first half, we have had surrenders broadly aligned, which were quite high, if you remember last year, in line with last year. But we don't really have visibility of any particular surrenders coming through in the second half. So if you look at H1, we have had surrender premiums coming through in H1, just -- I think it's just under [ GBP 17 million ]. So that kind of means that it's slightly distorted. So I think, if you then look at that as a H1-H2 comparison, that will help with that position.

Mark Allan: Great. I know we have a question from the conference call, but before I go to the call, I'll just see if there are any further questions in the room. We've got just one at the front. Thank you.

Samuel King: It's Sam King from Stifel. Just one question, please, on vacancy. I'm picking up on your comments that that's very much a building-specific issue in the market at the moment, just interested how that applies to your portfolio and specifically looking at city vacancy that's 8% at the moment. Do you have that same issue of concentration and vacancy, or is that more of an even split with what you have at the moment?

Mark Allan: We've probably got a couple of buildings within the portfolio where we've had sort of space come back recently. Or lease-up has been a little bit slower than it would have been in a stronger market. So we're still carrying slightly higher levels of vacancy at Dashwood, where we completed a refurb last year and gradually leasing up floors. We've had some floors back at Aldersgate house which we are more likely to hold for redevelopment probably and conversion over time to a Myo or customized-type offer. So we've got sort of pockets of vacancy in those locations and which I would say are more that do have sort of building-specific factors to them, but if I contrast that, a very strong performance in New Street Square, which is arguably sort of Midtown, we've done a lot of deals there moving -- occupies around within different buildings, using the vacant space that we've taken back from Deloitte to [ Hillhouse's decount ] space and swing space to be able to upgrade buildings. And so we've maintained virtually full occupancy there. One New Change, a large asset in the also western edge of the city, at the end of the period, we were fully let at One New Change, having successfully let space that had come back relatively quickly and converting some space to Myo. So yes, I think it does sort of -- there will always been building-specific issues, but I think the -- when we look at the chart that we showed earlier, I think that's much more about some of the large corporate headquarter space which is probably getting towards a point of obsolescence now and will be very difficult to re-let, which is not a function of our portfolio. And behind. Thank you.

Robert Jones: It's Rob Jones from BNP Paribas. I'm looking at Page 23. And on there, obviously, on the left-hand side chart, it's got the total return on equity graph for the last kind of 5, 6 reporting periods. Vanessa, you rightly pointed out that, in a world where we move to yield shift or [ out-yield ] shift being done, the -- clearly the component part in terms of the yield impacts having been negative in the last 3 reporting periods won't be in existence anymore. And therefore, the focus both from yourselves and the investors, I guess, going forwards will purely be on to what extent can we -- extent can you drive ERV growth. And can you drive development pipeline activity contribution to that total return on equity, and, of course, the income return? When I look at the last few data points, you obviously haven't achieved, even excluding any yield shift, that 8% to 10% medium-term target. To get to 8% to 10%, going forwards, what are the -- what's the component that you expect to wrap up substantially? Is it the return on your developments from a capital return perspective? Is it an expectation of further acceleration in ERV growth as the market polarizes towards the best-in-class assets and you own those best-in-class assets? Or maybe something else that I'm missing.

Mark Allan: Yes, Ven?

Vanessa Simms: So I think that, when you look over the course of that period, we've done an awful lot of portfolio recycling in line with our capital allocation strategy. So you've seen the shift in those components over that period of time. And so I think it's therefore we really start to see some of those benefits coming through in last financial year. So when you look at last financial year, we were just at the 8.1% of -- in terms of total return. And I think then, if you look at the first half of this year, you can see that for a 6-month period that total is 5.9%. Now I appreciate development returns fluctuate, depending on that cycle, but I think that shows with the net initial yield that we have across our portfolio that we're pretty well positioned going forwards with the way we've allocated capital.

Mark Allan: But the -- And sorry. I haven't got the chart in front of me, so I'm going broadly. I'll talk thematically rather than precise numbers, but if you look at the 3 half year bars in there, I think one of the things we said back in 2020 was we need to be more proactive in recycling capital and get capital deployed into areas where we can create value. That means taking more risk. And if you look at the 3 half year bars from '21, '22, '23, you can see how that started to come through in driving more rental growth and also in driving development returns. So if you were to annualize the last sort of two 6-year periods, I think we're sort of comfortably within or arguably slightly above that 8% to 10% range.

Robert Jones: And then the other quick one was in the statement this morning there was a comment about a 10% improvement, I think, in maybe office attendance either within your portfolio or the market figure as a whole.

Mark Allan: Yes.

Robert Jones: I wasn't sure whether, a, was that 10% increase or 10 percentage points increase. And secondly, do you have the numbers in terms of where it's come and where we are at now and where -- how that compares to pre-pandemic levels?

Mark Allan: Yes. So the number that -- there are sort of 2 numbers that were included in the presentation. So there's a 22% increase on the same 6 months last year, so as a percentage on that base from the first 6 months of last year. 10% was the number compared to the second half of last year, so just 6 months ago. And so that trend is kind of continuing on an upward trajectory. It comes from the turnstile data, so it's broadly speaking 25,000 people based across the Landsec portfolio within London. What we don't have, unfortunately, is the same level of data because people just weren't looking at it in the same way back before COVID. What we have looked at before is where is occupancy tracking relative to theoretical design capacity. And we think that, prior to the pandemic, on average, people were occupying probably to around 80% of theoretical design capacity. And that's probably running at the moment in -- somewhere in the high 60s. And one of the things I mentioned in the presentation earlier was that the people planning for more space per capita going forward, so I think that's -- you're seeing that, broadly speaking, play out. So we will see utilization continue to grow from here. I think employers and employees are definitely continuing to adjust and find the working patterns that work effectively, but with that increase in space per capita and the constraint on new supply of best-in-class space, I think that those things combine that give us confidence in the outlook for demand generally. And then Romney just in front. Thanks.

Romney Fox: Romney from Aberdeen. I noticed your second best-performing segment by value was shopping centers, which given the high income return must make that pretty juicy. [indiscernible] it's 2 years since you increased the stake at Bluewater, obviously a bit more recently on consolidating the ownership of Cardiff. Are you able to sort of throw any numbers at us that would say sort of that that's been a sort of roaring success such that we should be very excited about further opportunities in that space? I don't mean those 2 assets but more generally. You've obviously mentioned a few things today. And I'll mention the second question is what are the preconditions, if any, in terms of sort of ownership. Does it need to be majority ownership? Do you want to be the operator, et cetera?

Mark Allan: Sure. So I won't give you precise numbers on Bluewater and Cardiff but just to directionally explain what's happening. We bought Bluewater just over 2 years ago, from memory, at about an 8.25% initial yield, a little bit of negative reversion to go through but not significant. Occupancy has materially head since then, leasing ahead of ERVs. And that will be one of the assets where we're now starting to see renewals ahead of passing, so I think there we've bought it at a true yield that maybe was a touch under 8% if you adjust for reversions. And we then are delivering growth from that. So I think that's performed very well and will continue to perform well from here. Cardiff, I think, was -- is probably even stronger on the basis that the implied yield there through the deal we did with the lenders to our previous JV partner meant we effectively bought that at a 10% yield. And again, occupancy is increasing. Rents are growing there, so I think that will show a stronger return again. Now that was a particular sort of special purchaser type situation, in a way, given lenders who weren't long-term owners of that 50%, the other 50%, of the asset. So as we've said, it is a sector we definitely think is interesting, but it -- this isn't about -- there's not dozens of assets out there that we think fit the bill for us. You're looking at a handful. And to your question about what would the criteria be, this is all about applying our retail platform and our relationships with brands, our ability to leverage the whole portfolio. And so we will be looking to make sure that -- whatever position we were to hold, that we had adequate management control. And obviously we've got to think about that from a liquidity standpoint longer term as well. All right, I'm not seeing any further hands raised in the room, so I think we may have 1 or 2 questions on the conference call, so I'll go to the conference call now and then pick up a couple of webcast questions after that.

Operator: [Operator Instructions] The first question is from May, Paul with Barclays.

Paul May: Just wanted to ask on the confidence around the transaction market opening up next year. It's obviously quite a brave thing to say. I think many people have predicted transaction markets opening up over the last 18 months and that's been proven to be incorrect, so I just wondered what the confidence is there because ultimately it's the thing that is needed for the sector or for everything to start functioning again. And I think that my fear is that, that only happens if values come down. I can't see buyers increasing bid prices given alternative returns elsewhere, making current real estate returns unattractive given where yields are today, but any more color on that would be great.

Mark Allan: Great. Well, thanks, Paul. Well, if it's of any sort of reassurance, we definitely said 12 months ago that we felt that this was going to be a 12- to 18-month sort of period of correction largely because it takes reality. It takes longer to bite than people might like. And so there's a couple of things I think we're basing our judgment on, and I stress it is a judgment. Firstly, I think we feel more sanguine than we did 6 to 12 months ago about the potential for significant refinancing risk leading to distressed sales. And that's largely having done quite a lot of work looking at lending on commercial real estate, how much gets refinanced each year, which we think is probably in the range of GBP 30 billion to GBP 35 billion; how much we think could be refinanced in today's markets. And we think there's a gap probably of around GBP 5 billion, GBP 6 billion a year that needs to be refinanced in a slightly different way, but then when I look at the capital that has been raised and is targeting the market and people talking about the attractive credit returns that they're seeing, I think, for the best assets, there's going to be sufficient capital for those to be refinanced in a relatively orderly way over the next couple of years. So I don't see, as things stand, a wave of distress coming to the market quickly. I think the other things we'd see -- we're starting to see some signs, smaller lot sizes in certain sectors of credit availability starting to improve but, I think, from a very low base, but I think I'm also very aware of capital globally that is currently sat on the sidelines. The U.K. remains an attractive location globally despite all the challenges that we may look at for ourselves. There are plenty of other paces globally that have far bigger challenges than we do. And that capital, I think, is waiting for a degree of stability in rates, longer-term rates in particular, outlook for inflation, to be able to underwrite things such as exit cap rates. And I think, if we have a period of stability on rates or relative stability on rates, that is what's going to start to underpin some of that confidence. So certainly not predicting a sudden surge in transactional activity. What we're pointing to is an improvement in liquidity for the best assets and, as a result of that, the prospective value starting to stabilize for those best assets during 2024.

Paul May: I mean, is it possible just to follow up on that, just on a couple of points you made in terms of the credit availability? I mean we understand that credit availability from the private market, as you've sort of highlighted, is very costly, so while it's available, it may not be attractive, so may not necessarily, [ the gap ] may still lead to sales coming through. I think we heard from one of your peers, at their Q3 results -- or Q3 trading update, that they're seeing banks becoming more active in terms of enforcing or pushing through disposal requirements or equity requirements. And there's limited equity looking at the space at the moment, so just wondered why you're seeing things slightly differently than to what they're seeing. I mean that was specifically London offices that -- so maybe it's slightly different in terms of what you're targeting. And then I think, finally, where do you see the sort of best opportunities? Is next year going to be a year where you move to be a net acquirer of real estate? And how do you plan on funding that given, yes, your LTV is attractive but you don't necessarily want to massively gear up, I suspect, into that? So how do you see the ability to finance those acquisition opportunities, which you think will be coming through?

Mark Allan: Well, let me take the second one, first, Paul. I think there are -- sort of I think I mentioned a moment earlier sort of 2 things that give us confidence, at the right time, in being able to pursue opportunities. The first is a degree of balance sheet capacity and, as Vanessa indicated, a comfort with LTV moving up a little bit over the short-term for the right opportunities, which as I mentioned that we would see as being truly scarce opportunities at great prices, but it's also the liquidity of our subscale portfolio, retail parks and hotels in particular, where there is activity within the market. There is credit available within the market. We are seeing transactions happen. And so it's a combination of those 2 things that would give us the confidence to move. Now whether that sees us to a net buyer will, of course, depend on the maths of how much of the subscale we sell relative to as and when we choose to invest, so I wouldn't offer a precise guidance on net seller versus net buyer. Because we've got activity on both sides of the ledger and we don't try and be too clever in timing and sequencing all of those things. And I think your point on credit availability -- on credit terms, credit availability earlier, I think, is a perfectly valid point. What I'm not saying is we're certainly going to see banks all turn positive. I think there are pockets of credit availability for the best assets where people are comfortable on growth. And we think that will improve, but each lender, whether it's bank, private credit markets, will have their own view, will have their own position. And they will take a different view relative to recapping existing assets versus underwriting new assets, so yes, it's not going to be a smooth ride from here, but I think 2024 will be a better environment for that than 2023 has been.

Operator: Next question from the telephone is from [indiscernible] with Kempen.

Unknown Analyst: Two from my side. First one, on capital recycling. As you mentioned, you intend to continue that. And you already alluded to the subscale segments, but what other types of assets are you willing to sell?

Mark Allan: Great. So it will be virtually all of our focus over the next 12 to 18 months will shift as planned to the subscale portfolio. I think we have -- when we talked about our targets back in 2020, we had GBP 4 billion in total, GBP 2.5 billion of mature London office assets. Well, we've done GBP 2.2 billion of that, so in due course, there are 1 or 2 London assets that we would see as being mature and that we would likely sell, but that would be a market that we want to see return and which we don't anticipate we're likely to sell from that part of the portfolio over the next 12 months. But in the retail parks and the hotel space in particular, there is liquidity. And I think you should expect to see activity from us in those areas, but that's very consistent with the strategy we laid out back in 2020. Are there any other questions on the conference call? I don't think so, so I'll just go to questions, 2 questions, we have on the webcast. So firstly, from [ Guillame Langelier ]. Could you be interested in acquiring further U.K. retail assets such as destination shopping centers if, for example, a large listed portfolio was earmarked for sale? So I think what we've said earlier is we're very much looking at individual assets and catchment-dominant shopping centers that perform in line with our portfolio. So we will look very much at things asset by asset. We're not going to be trying to look at doing large, grand, headline-grabbing deals of portfolios listed private or otherwise. And then a second question, 3 parts to this; and probably for you, Vanessa. Just could we give a bit more color or quantify the improvements in operating margins? What is our current and projected cost of debt given that we have a relatively long time until the next maturity? And then what are our financing plans for the next 6 to 12 months?

Vanessa Simms: So I think probably the best way to look at the operating margins is from what we just talked to, is looking at more of an operating profit; as well as EPRA earnings, which we saw increase by 3% over the period. And in part, that's been through like-for-like rents will increases but also for margins. So we saw growth -- we saw gross rental income on a like-for-like basis, which was up by GBP 5 million, and the net rental income was up by GBP 6 million. And that is a bit of a combination across the different sectors of the portfolio. But the main area where we saw sort of cost benefits coming through is the approach we're taking across the retail portfolio. So I think the individual different details are detailed out in the back of the [indiscernible]. So hopefully, that helps just to quantify some of those movements. In terms of the current and projected cost of debt, it's probably worth noting that we do have quite a significant portfolio of long-dated debt. So we've got quite that supports, obviously, the maturity profile going out ahead of 9 years. And that long-dated debt sort of locks us into the tractor grades. And that combination with maintaining a premium credit rating has also really supported our position, which gives us a good competitive advantage. Now I quote in the results, a weighted average cost of debt, which includes all the fees. So it's an all-in cost of debt rather than just interest costs or margins. And we saw that increase a little bit this year up to 3.3% as a weighted average. And there's a couple of reasons that contributed to that. One was that we issued a green bond back in March, so right at the end of last financial year, and that was issued at an all-in coupon of 4.875%. But if you look at that on a total all-in cost basis, it's much close to 5%, and that increased our weighted average by about 20 basis points. And then in addition to that, we had some exposure to the variable rate in the first half of this year, we didn't fully rehedge some of the maturities that came through in the first half because we were -- we've won some flexibility around disposal proceeds and not incurring cost to exit them. So we had a little bit of exposure in the first half. I think it was on average around GBP 250 million of exposure to the floating rate, which was a bit higher towards 6% over the course of the first half. So all in all, those contributed a little bit to our weighted average cost of debt increase. And if I look forward, we don't really need to refinance our debt facilities until 2026, given GBP 2 billion of headroom. But we do have good market access, and I keep my eye quite closely to the market. As we saw last year, we were opportunistic in issuing the green bond and locked into a good rate on that, but if I sort of think forward, I would -- I think, if we look forward beyond the next 2 to 3 years when we come to refinancing some of our short-term debt as well, obviously it's very much about rate dependent at that time, but I would expect to see cost of debt trending a little bit upwards from here. So maybe in 2 or 3 years time, we could see ourselves closer to that 3.5% to 4% range.

Mark Allan: Great. Thank you, Vanessa. 2 other brief questions I'll answer. So a question about Myo, particularly given we've acquired during the period a site at Kings Cross. Targeting mid-teens IRR, what level of occupancy do we underwrite to achieve that return hurdle? So we would assume and underwrite for Myo, an occupancy through the cycle of 90%. And at that level, we're getting somewhere north of a 20%, 25% premium to the sort of [indiscernible] equivalent. So as I mentioned earlier, our Myo sites currently are running at 97% occupancy, so quite a way ahead of that underwriting. And they've been pretty consistently well ahead of that 90% threshold. And then what progress has there been in finding complementary sources of capital to help execute on the medium-term growth strategy? So we have certainly articulated that as a business we see a greater range of opportunities for us in our current pipeline than we could or would fund ourselves with our own balance sheet. And therefore, there is the opportunity we see over time to bring in strategically aligned private capital to pursue scalable strategies rather than funding individual assets. That's something we continue to assess, again, pretty proactively at the moment. And plenty of discussions ongoing that might lead to progress in that in due course, but the important thing to understand is that is not something that is required in order to deliver our targets. That would be something to enable us to accelerate growth beyond what we currently have set out to date. Ladies and gentlemen, that concludes the questions through on the webcast as well, so it just leaves me to thank you all for attending or dialing in, listening in on the webcast today. And wish you all a good onward journey and rest of the day. Thank you.