Earnings Transcript for LAND.L - Q4 Fiscal Year 2020

Mark Allan: Good morning, everyone, and welcome to Landsec's results presentation for the year to March 2020. The presentation is obviously being held fully virtually for the first time for reasons that I know you will all appreciate. And this is a prerecorded presentation, largely to minimize the risk of technology-related interruptions. But there will be a live Q&A session at the end. So thank you for joining us, and I do hope that you and your loved ones are all well and have managed to adapt to the highly unusual circumstances we all find ourselves in. These are, of course, my first results as CEO of Landsec, having joined exactly 4 weeks ago today. And whilst I joined after the year had ended, there has perhaps never been a time when the results and activity of the previous financial year have been out of date quite so quickly. So today, you will hear about the key elements to our performance for last year, but we will also seek to suss out the impact of COVID-19, both financially and operationally. And that's the impact on these results and on what it might mean looking forward. But before I hand over to Martin and then Colette, I wanted to share some brief reflections on Landsec 4 weeks in. Firstly, strength and resilience. I think you can understand the huge amount about people and about organizations when you see how they respond to a crisis. I joined Landsec around 3 weeks into lockdown, and it was already clear that teams across the business had quickly got to grips with the emerging new reality, and we're working proactively and collaboratively, both with each other and with customers and partners to ensure as effective a response as possible. If I take that, together with the quality of our portfolio and our significant financial resources, it means that we have entered this crisis from a position of relative strength. Secondly, leadership and sustainability. Landsec has been known for quite some time as a leader in tackling climate change. But what has been particularly striking to me is just how thoughtfully and responsibly Landsec has acted in response to the current crisis. This is sustainability in its wider sense, acting responsibly for all stakeholders. It's something I believe in passionately, and it's an area where Landsec can and will continue to lead the way. And finally, opportunity. While it may seem odd to talk about opportunity at such a challenging time for all of us, arguably, this sort of experience makes it easier to contemplate change and bold action. As an incoming CEO in an organization with such significant resources at hand, that can act as a powerful backdrop against which to consider our long-term strategic direction. I'll return to those talks later, but we'll now hand you over to Martin, and then Colette.

Martin Greenslade: Thank you, Mark, and good morning, everyone. What an extraordinary end to the financial year it's been. With the current backdrop of COVID-19, it's easy to overlook almost everything that has happened during the year before lockdown. So I will try, where possible, to separate out the impact of COVID-19 on our results. But overall, we have a resilient balance sheet and the financial capacity to see us through an extended lockdown and slow consumer recovery. But let's start by putting the year in context. What I've set out on this slide is the market environment up until the middle of March and then what happened in the very final part of our financial year. Before COVID-19, the office market was in good health, particularly after the general election, and yield compression was widely expected to come through the so-called Boris fans. Our portfolio was virtually full. Our flexible offerings, that's Myo and Fitted, they had let well, and we were making good progress on our developments. Similarly, our leisure and hotel assets were virtually full, although there were headwinds in the F&B market. Cinema attendance was up and Piccadilly lights was performing ahead of expectations. In retail, the picture was more mixed. Outlets and London retail were performing relatively well in a difficult market, while regional retail and retail parks continue to be more impacted by the trading environment. The onset of COVID-19 has had a significant impact on all our sectors. We have kept our office assets open, but the level of usage is well below 10%. Our development program has been delayed as our contractors adapt to implementing social distancing on site. Our leisure and hotel assets were generally closed with turnover-related rental income severely impacted. In retail, shopping centers remain open for essential trading only and footfall all but disappeared. So let's look at our financial summary. Revenue profit for the year was £414 million. That is down from £442 million last year, largely due to a provision we made at the year-end in respect of next year's rent. I'm going to explain this charge in more detail later, but without it, revenue profit was down £5 million from last year at £437 million. The valuation deficit was £1, 179 million, leading to a loss before tax of £837 million. Adjusted diluted EPS, which is based on revenue profit and so includes the provision related to next year's rent, that was 55.9p, down 6.4% from last year. Without that provision, adjusted diluted EPS would have been 59p. As we announced recently, we are using EPRA NTA as our preferred measure of net asset value. EPRA NTA per share was 1192p. That is down 11.6% or 156p since last March. And finally, the dividend. As you know, due to the unprecedented market uncertainty, we chose to cancel the third interim dividend. With the outlook still uncertain and June rent collection likely to be worse, we felt it was too soon to propose a final dividend. We are very well aware of the importance of dividends to our shareholders, and we will look to start paying dividends again as soon as it is appropriate to do so. The REIT regulations require us to pay a certain level of dividends each year, failing which we would need to pay a tax charge, which is based on any shortfall. It is our preference not to pay such a charge but to pay the dividends instead, which would mean a distribution by the 31st of March 2021, of a minimum of £78 million or 10.5p per share. Let's now look at how revenue profit changed from last year. So starting with last year's revenue profit of £442 million. Net rental income was down £12 million, and more on that in a minute. Net indirect expenses were £4 million lower, that is mainly due to lower staff costs, and we benefited from £3 million of reduced financing costs. Together, this resulted in a revenue profit decline of £5 million to £437 million before a provision of £23 million related to next year's rent. Let me briefly explain this provision. As you know from our announcement on the 2nd of April, the collection of our 25th March quarter day rent was good in office, but significantly lower than normal in retail and specialists. Now accounting standards require us to assess whether our year-end debtors are recoverable. And based on our collection rate and an assessment of the outstanding debtors, we have provided £24 million, of which £23 million relates to next year as we invoice in advance, with a £1 million difference relating to the last few days of March. I would love to take that £23 million charge against the deferred income creditor, which sits on our balance sheet, but I'm afraid that is not allowed. The full charge has to be taken this year. And so we've pulled it out separately in our results as it specifically relates to next year's rent. So let's briefly look at net rental income. Office like-for-like net rental income was up £7 million, largely on the back of lettings at Myo and the full year impact of lettings at Nova. Like-for-like net rental income in retail was down £10 million or 3.9%, with over half of that related to CVAs and administrations, with the balance being a combination of increased voids, temporary lettings and associated legal fees. In specialists, like-for-like net rental income declined by £1 million. But this was a combination of improved short-term lettings at Piccadilly Lights, offset by difficulties in F&B and lower turnover rent as a result of COVID-19 in March. Across retail and specialists, the impact of park and hotel income. The decline in net rental income at our developments is principally at Lucent and Portland House. Looking ahead, Portland House was almost entirely vacated at the end of March. So £11 million of net rental income we recognized this year will disappear next year, and there are likely to be some related void costs. In acquisitions and sales, we had costs associated with voids at Lavington Street and a loss of income following the sale of Poole Retail Park. And finally, we have the £23 million of provisions related to next year's rent. Now let's move on to valuations. Before I cover the individual asset classes, I thought it would be helpful to explain how CBRE have approached COVID-19 in their valuations. Now in general, there has been no change to ERVs, but the valuation has been adjusted through capital deductions and yield shifts. The impact on offices has been limited. Some potential yield compression has not been applied and void periods have been increased. But this has negligible impact on our valuations, given our very high occupancy. On all developments, CBRE have assumed a 6-month delay to practical completion. In retail, there has been a deduction in value equivalent to 3 months of rent, 6 months for London retail as well as yield shifts of between 15 and 50 basis points. In Specialist, there has been a similar yield shift, but with different amounts applied to different leisure occupiers. So for example, 25 basis points yield shift for restaurants and 50 basis points for cinemas. Hotels have had their occupancy slashed in year 1, and the discount rate increased by 25 basis points. So what does all this amount to? The total valuation decline was 8.8% or £1,179 million, all of which occurred in retail and leisure. Approximately 1/3 valuation decline was due to COVID-19 factors at the year-end. Overall, Office was up by 1.1%, with investment properties up 1.7% and developments down 3.1%. Of the retail sectors, outlets were down the least at 10.3% lower with over half of that decline due to COVID-19. London Retail saw a decline of 15%, but a wide range, from no decline in some of the retail below our office assets, to down 27% at South side. Regional retail was down 27.6% or 22.1% pre-COVID-19, with very similar movements on individual shopping centers as equivalent yields moved out to between 6% and 7.25% and ERVs reduced. There was a similar impact in retail parks, which were off 25.5%. And finally, our Specialist segment. Here, leisure and hotels were down 10.9% with a little over half of the decline due to COVID-19. And Other, principally Piccadilly Lights, was up 1.3% on the back of higher rental prospects. So turning now to our financial position. At the year-end, we had adjusted net debt of £3,926 million. That is up £189 million over the year due to expenditure on our development program. Within our adjusted net debt, we have almost £1.4 billion of cash. That is because in late March, we drew down on our bank facilities to cover the £977 million outstanding on our short-term commercial paper program and to provide a liquidity buffer. As a result of the higher drawings on our bank facilities, our cost of debt fell to 1.8% at the year-end from 2.7% last year. However, our cost of net debt, taking into account our cash balance, was 2.4%. Group LTV rose to 30.7% from 27.1% a year ago, partly due to the increase in net debt, but largely due to the fall in property values. We have no bond maturities in the next 3 years and after allowing for the repayment of commercial paper, we still have a further £1.2 billion of cash and available bank facilities. We can draw those facilities up to an LTV of 80% and above an ICR of 1.45x, giving us capacity for a further fall in values of 59% or reduction in security group EBITDA of around 80% or £412 million. More details on our debt facilities can be in the appendices. So let me look ahead and summarize. COVID-19 has had a huge impact on the business over the past 2 months. In these results, it's increased our valuation deficit by around £380 million, it's reduced net income by £5 million, and we've provided £23 million in respect of next year's rent. In the coming year, our income will naturally be impacted by the ability of occupiers to pay, which we've recognized by setting up our £80 million rent relief fund. It is clearly very difficult to predict the level of rent collection we will achieve in June, but it is likely to be lower than March. Now that said, we have a diversified portfolio with a strong occupier lineup in office. Within our office portfolio, a large proportion of the income comes from our top 10 customers. And our office income exposure is weighted towards sectors which are largely expected to be resilient to the impact of COVID-19. There will be a reduction in turnover-related rent, which amounted to around £38 million in 2019-'20. And as I mentioned earlier, we will receive negligible income on Portland House. We have a very flexible development program with a year-end CapEx commitment of around £340 million, of which around 1/3 is expected to be spent in the next 6 months and that is assuming sites remain open and efficient. But above all, we have a robust balance sheet with considerable liquidity to fund our capital commitments and to withstand a prolonged reduction in rental income. Now let me hand you over to Colette.

Colette O'Shea: Thanks, Martin, and hello, everyone. We all know the last few months have been like nothing we've seen before. It's meant taking difficult decisions to protect our people, customers and partners to preserve the strongly possible future for them and us. There's no rulebook for times like these, but I will say this

Mark Allan: Thank you, Colette, and thank you, Martin. So as we begin to wrap up the presentation, I'd now like to pull together what you've heard from us about COVID-19 and how we're thinking about it, what it might mean for us in the months and years ahead. As things stand, it is clear we're facing a mixed but significant impact across our portfolio, but that we are doing so from our position of strength. While it won't be immune, our London office portfolio is the most resilient part of our business with a powerful combination of secure income from a strong tenant base and a modern, adaptable estate. And as a sector, London offices entered the crisis with a tight occupational market and yields some way above those in comparable global cities, both of which should offer some protection. In retail, we have a top-quality portfolio that was comfortably outperforming sales and footfall benchmarks coming into the crisis. We've acted swiftly and decisively in dealing with an effective full closure of our estate and are committed to do our bit and to work collaboratively with our customers and partners, as evidenced by our £80 million rent relief fund, while being very focused on ensuring that we maintain the right balance between protecting income and value and on supporting customers in need. Specialist is the most impacted part of our portfolio with a higher exposure to leisure and F&B and hotels on turnover rents. Again, partnership and collaborations have underpinned our approach so far and will continue to do so. And finally, as you've heard from Martin, from a financial perspective, we have an LTV of just over 30%, and cash and facility headroom of around £1.2 billion. From here, the next few months will be all about working collaboratively towards the new normal. We still don't know exactly what the path out of lockdown will look like or how long that path will be, but a few things are becoming increasingly clear. All parts of our portfolio will be affected by ongoing social distancing restrictions for a considerable time yet. Office usage will remain significantly below capacity as we and occupiers grapple with the challenge of moving people into, out of and around our buildings safely. Shopping centers are likely to be similarly restricted for a considerable time, severely affecting footfall and in-store sales. Retail parks and outlets, where there is more outside space, should be slightly less affected but will still take time to recover. In our Specialist portfolio, with its higher exposure to leisure and F&B is likely to be affected for the longest time, and its longer-term recovery will also depend on public attitudes to crowded spaces even after restrictions are lifted. All of this means the asks from occupiers in terms of support are likely to continue for some time. Our relationship with our customers goes well beyond the simple contractual one, but it is contractual. With this backdrop, we will continue to work with all our customers to find solutions that strike the right balance between protecting income and value and offering targeted support. We are firmly of the view that this approach will ultimately deliver the best outcome for our shareholders. As things stand, we expect June collection rates to be quite some way below March particularly as customers have little incentive to pay on time, and landlords have few options to oblige them to. This, however, is still too early to predict what this will mean for rental income for the year as a whole. From a valuation perspective, we expect retail and specialist values to weaken further during the year to March '21 with the outlook for London offices more nuanced but unlikely to be immune. With such elevated levels of uncertainty, it is a significant positive for us to have optionality across our specialist development program for approximately the next 6 months. This should enable us to adapt our approach so that it is best suited to the new normal. And in moving to the new normal, we're developing 3 potential scenarios for the next 12 to 18 months of varying degrees of severity, and we'll be using these to guide our decision-making in the months ahead. This is work in progress, but we'll help ensure that we are well-prepared for a range of potential outcomes. And finally, once lockdown restrictions are fully lifted, it will be vital that we seek to understand and respond proactively to what could be profound long-term impacts. For retail, COVID-19 has arguably only served to accelerate pre-existing structural trends. What might have played out over the 5 years before may now take less than 12 months. It seems prudent therefore to plan for more business failures, higher vacancy rates and more downward pressure on rents. And as you've heard from Colette, at some locations, repurposing will also play an increasingly important role. The London offices trends towards more agile and flexible working and healthier, more adaptable workplaces that are likely to accelerate. The move towards higher occupational densities will perhaps slow or reverse. Either way, obsolescence and older stock seems likely to increase. Of course, we cannot pretend to know with any certainty what the long-term outcomes will be. But what is critical is that we seek to anticipate and act on them, seeing them as opportunities while being alive to the risks. Which is why returning to my opening remarks this is in many ways an ideal opportunity to step back and consider our long-term strategic direction. And that is exactly what we will be doing, not only from a COVID-19 perspective, but more broadly, seeking to position the business to benefit from long-term trends, while also building on the heritage and existing capabilities of Landsec. It would, of course, be unwise for me to be too precise about time frames for this to work in the current environment, but we expect to be in a position to share these outcomes in the autumn. And finally, returning to my other opening remarks, leadership and sustainability. Our collaborative approach to working with our customers and our rapid and significant support to charities and the communities we work with and in all demonstrate our authentic approach to responsible business. And long after the COVID-19 crisis has passed, climate change will still be the defining challenge over the next 2 decades. With a commitment to being net zero carbon by 2030, Landsec continues to lead the way. And this approach will help ensure that Landsec is here for the long term, and it's only possible because of our strength and resilience. From the very high-quality of our portfolio, to the depth of capability within our workforce, and our significant financial capacity, I'm confident that Landsec is approaching the future from a position of strength.

Operator: [Operator Instructions]. Your first telephone question today is from Peter Papadakos from Green Street Advisors.

Peter Papadakos: I have three questions, if possible. One is just on the pipeline flexibility that you talk about for the next 6 months. What happens after 6 months? So can you elaborate a little bit in terms of what you would need to pursue after 6 months in terms of your committed CapEx? Then a related question, just coming back to sources and uses of funds. So could you elaborate a little bit on how much CapEx or other commitments you would have by the end of this year or at least sort of, if possible, by the middle of next year? And how do you fund those commitments? I guess a third question, which is more of a big picture question. Insofar as thinking about capital allocation, how closely are you going to tie that to your cost of capital? In other words, if you continue to trade at big discounts to your reported AMB, is the capital allocation going to be tilted much more towards shrinking the company as opposed to maintaining the current asset level?

Mark Allan: Thank you, Peter. So three questions there, and I think there is probably one for each of us. So I'll ask Colette first to talk about the pipeline flexibility and how things evolve beyond the 6 months you've referred to. Martin can talk about how our CapEx commitments might evolve over a 6- to 12-month time frame. And perhaps I'll talk to capital allocation. So Colette?

Colette O'Shea: Yes. In terms of the pipeline, we have a lot of flexibility at the moment. We will do to potentially commit £0.5 billion by now. That's currently £340 million. And since March, we've committed to £33 million. And what that's doing is enabling us to maintain the build to grade works, continue the detailed design and start procuring long lead items. And as I said, that takes us to the 6 months. Beyond that, we then have a lot of flexibility. We could progress all the schemes we could progress, 1 of them, two of them. And we could also continue to progress them with another sort of bite-sized chunk approach for yet another 6 months. So there's a lot of flexibility that we have built in by the way that we've procured the projects.

Martin Greenslade: Just to put some color on the numbers. So £340 million is the commitment to date and we expect around 1/3 of that out over the next 6 months. Then if we were to commit to everything that we're -- which is in the program, so Sumner Street, Nova East and Lucent, and please bear in mind what Colette has just said, that would add another £250 million of CapEx commitment. And then we have further flexibility to add, should we so wish to both Portland and Lavington, and that would be another £500 million. Again, that is something that we can decide on way down in the future. So back to the original question, £340 million of commitment at the moment. And the vast majority of that -- the overwhelming majority of that, over £270 million is on 21 Moor.

Mark Allan: Thanks, Martin. I mean, so from my perspective, the flexibility and the optionality and the development program is a really significant strength for us at the moment. It does give us the opportunity to then decide where we go, how we adapt, if we adapt that program to suit our emerging understanding of a post-COVID-19 world. To your broader question around capital allocation and what we will take into account within that and particularly around cost of capital. And I think this is a response that would go really to anything to do with our review of strategy. There is absolutely nothing ruled in or ruled out of that. I think we are going into this very much with an open mine, prepared to be bold, radically if necessary, within our thinking, although not necessarily assuming that we have to have a radical solution to things. So we're not ruling anything in or out within that. I think it's a case of trying to position things for sectors and opportunities that we think have got structural support for the long term. But we, of course, have to ground that in where we are today, where our existing capabilities lie, where our existing portfolio is and find an appropriately deliverable, executable way of marrying those two things together to deliver something that is appropriately compelling for the long term.

Operator: Next question is from Jonathan Kownator from Goldman Sachs.

Jonathan Kownator: I have two questions, if I may, one on retail and one in office. And perhaps starting the office, obviously, the collection rate has been quite resilient so far. You commented that you're expecting weaker rent collection for June. Does that include office as well? And perhaps within the question, how is the flexibility playing a role? Is -- are tenants in the more slightly flexible part taking the opportunity to leave the year at the same time, they are seeing more demand for the flexible part? So that's the first question. And the second question on retail. You mentioned store closures as part of the discussions. Perhaps, can you elaborate a bit more on that? And also highlight whether some retailers are considering store closures before actually opening back stores as part of their reopening plans. And how wide is this is solution considered today?

Mark Allan: Thank you, Jonathan. I'll provide a brief comment around our views on collection rates and how they might supply across the portfolio. And then perhaps I'll ask Colette to give you more detail on how our flexible offering is playing a role and then a bit more color on the comments around store closures and how that might fit into retailers' wider estate strategies. Our comment on collection rates for June being likely to be some way worse than March. I guess, it's primarily focused on the retail and specialist sector where the pain is most significant. And it is obviously also a statement we make in light of the government announcement that has put a moratorium on enforcement action. We do have a very strong tenant base on the office side whose businesses are in the main less impacted directly by COVID. So we think less than 10% of the portfolio, for example, is let to tenants that have an obvious exposure to COVID-19. But it is difficult for us to judge at this stage the extent to which that moratorium, which applies to all occupiers, might play out within the office sector. So it's going to be more about retail and specialist, but we could see some leakage of that into the office portfolio. Colette?

Colette O'Shea: Yes. So on the flexible offering, I mean, the way that our offering is being used is a lot by our own customers. And then by other businesses that are looking for leases of between sort of 1 and 3 years. And clearly, as part of our future thinking in terms of the way that people will occupy space, I think the flexible proposition will really probably play a part. And this is why we're looking to expand it into Dashwood House and through the development program. And the main point for us is that the office portfolio is very, very resilient, and we've got a lot of levers that we can pull and the flexible is one part of the -- one of the levers that we can actually pull. And then in terms of store closures, I mean the whole thing that we're hearing from our retailers is really an acceleration of all the themes that we've been hearing over the last couple of years. The point now is that there is an acceleration. So business, retailers have been talking about store closures, the point now is they want to accelerate those closures. Whether they actually don't open stores as part of the reopening, I mean that's yet to be seen. But clearly, we are in sort of close dialogue to understand what their thinking is, which a lot of it at the moment is focused on opening and the closing really is taking cost out of their businesses.

Jonathan Kownator: Any perhaps more specific exchanges into -- on average, when retailers are considering closures, how much should they stay back? Are they considering to close? Any more color perhaps on that?

Colette O'Shea: Not at the moment because it really -- it's varying by sector. So the responses are really quite different, whether you're talking to the F&B type of businesses, whether you're talking to retail -- the fashion retailers or indeed, talking to department stores. So it's too early to say at the moment.

Mark Allan: Jonathan, does that answer your question sufficiently?

Jonathan Kownator: Yes. Look, I mean obviously, it's a complicated environment, and I understand a lot of the discussions are -- is still ongoing. Obviously, any anecdotical evidence is -- would be obviously helpful, but it maybe a bit too early for that.

Mark Allan: Yes. I mean you'll appreciate we can't comment on individual cases. I think the reference to store closures was very much about pointing to the significance of this. In the eyes of the occupiers, they are thinking pretty broadly and pretty rapidly. As we said, to a large extent, we see this as being an acceleration of trends that were underway anyway. And I think that's the principle with which we approach all of this.

Jonathan Kownator: And how the retailers have find out to -- 1 question -- are the retailers already in negotiation to set new level of rents for various estates. And obviously, there's a short-term answer, but there's obviously longer-term questions around the level of rents that retailers can sustain in an environment where data advances are likely to remain permanently impaired, at least for a while. Have those discussions been happening already or is it still too early?

Mark Allan: I mean in terms of outcomes to that, still too early. But as you would imagine, both us and retailers certainly have a close eye on what we think the sustainable position for the portfolio is going forward. And the approach has to be one of trying to work in partnership to move in that direction. So recognizing that we are in a position where we've got leases that are signed, obligations that are in place today. And so where we're trying to provide support, we're trying to do that in a targeted way more towards the most exposed sectors and the smaller, more independent, less financially secure businesses.

Jonathan Kownator: Okay. And any thoughts about what this long-term relationship may be or partnership may be? Is it turnover rent or anything else that we need to think about?

Mark Allan: Similar answer, I think, to one of the questions earlier. I think that to us, we're thinking pretty broadly about that, but there seems to be little point in either side being overly wedded to 1 particular outcome. I think we've got to look at this collaboratively and find something that works to our benefit and to the occupiers benefit. Because I mean ultimately, this is all about working together, not looking at real estate as being purely a fixed income play. So I think we will think broadly, but we've got to look at how we move towards whatever that new normal is rather than suddenly try and to get there overnight.

Operator: Next question is from the line of Rob Jones from Exane BNP Paribas.

Rob Jones: Just a couple of quick ones, one on offices and one on the dividend distribution going forward. So all offices, obviously, there's a big debate there going on at the moment in terms of -- on the one hand, we're expecting lower occupation density. You talk about that as well. And obviously, in the last few years, we've seen densities go up by kind of 10%, 15% in the last 5 years, albeit that hasn't had a negative impact on positive like-for-like rental growth. But on the other hand, you're also seeing kind of more flexible working and people working from home more. I just wanted to hear your thoughts around the extent to which those kind of two opposing factors will play out within your portfolio? And then secondly, and obviously, actually, you talked about the fact that your offices can respond to change. You've developed the offices with adaptability in mind. Wondered if you could give us kind of example of that? And then I guess a question for Martin. So on the divined of March 2021, currently, you need to pay £78 million to kind of fulfill your REIT requirements. But obviously, discussions are ongoing with HMRC with a view, I presume, to kind of suspending those requirements in the near term, given the ongoing impact from COVID. Is your base case that you will be paying the £78 million or is your base case that an agreement will be made with HMRC and therefore, you will not be making that £78 million payment?

Mark Allan: Great. Thanks, Rob. I might just take those in reverse order. Because I think, Martin, you can clarify that dividend point relatively quickly. And then I'll ask Colette to talk to the densities question.

Martin Greenslade: Yes. And Rob, I mean we would love to pay the dividend rather than to agree with HMRC that we don't need to. The key thing is that our dividend, we need to bring that back on at an appropriate pace relative to the underlying rental receipts and our revenue profit. Dividend is very important to -- it's an important component of return to shareholders. So we absolutely want to get back to paying dividends as soon as possible.

Colette O'Shea: So on the office question. I mean clearly, there's an awful lot of results to be thinking about at the moment. And one of the best sources of our information is going to be from our end customers. And clearly, that dialogue is starting. We've obviously experienced a period of time when offices have been very densely occupied, which has been a real benefit for businesses because they have been looking at rather than a rent per square foot, a cost per head. I think clearly, in terms of the space take, if we imagined a world where at its extreme, we go back to cellular offices, but then there's a proportion of people working at home and probably a bit of flex mixed into that as well, then arguably, the space take could be similar. Now clearly, what the impact on rents is sort of unknown at the moment because what we will increasingly see, we talked as you know, in the past about this divergence between the secondhand space and the high-quality space. And I think with people coming back into work, they're going to be looking for healthy buildings or start to want to enter healthy buildings. And I think the need for really first-class office space is going to increase. So our sort of expectation overlaid on the dynamics of how people use space is that we're going to see an increase now in obsolescence and the quantum of secondhand space will increase. And therefore, we're going to see an increasing demand for the higher-end space. So you've got to sort of overlay that with how people might -- the quantum of square footage people might want. In terms of tangible examples, if you think about an office, you're going to have WCs, you've got to have air handling, you've got to have lifting capacity. We've all been working in open plan buildings that have got the controls in the right places, lifts in the right places, WCs. Again, at its extreme, if we go back to putting cellular offices in, we can lift and shift and move our equipment around so that it is relatively easy to then actually create completely cellular floor plates. And I think it's one of the things we've talked to you about in the past is how adaptable the buildings are, and this is because we really invest in the specifications. So we can cater with whatever type of layout changes emerge in response to this.

Operator: [Operator Instructions]. The next question is from the line of Marc Mozzi from Bank of America.

Marc Mozzi: I have two questions. The first one is, I do appreciate it's a bit early to talk about this, but I'd like to get a sense of what has been the outcome, as of now, of your first discussions with your valuers on how they will assess ERVs going forward? And that's particularly in retail on [indiscernible]. How they are only continue to increase yield to take on broader risk of prolonged reduction rent collection? Or are we going to have to address the level of ERVs in a different way? That's my first question now. The second one is, given some of your retailers -- and that's a follow-up on Jonathan's question -- did some of your retailers already requested for some rent reduction? And if that's the case, what sort of reduction are they considering? Is it 10%, 20%, 30%? And could you give us a sense of how many of them, in terms of percentage of your overall rent base, are we talking about for those potential renegotiation?

Mark Allan: Great. Thank you, Marc. Just to clarify on your question about ERV, are you asking specifically in the context of the current COVID-19 situation and how the value has approached valuation for the next quarter, next half year?

Marc Mozzi: Yes, of course, it's COVID-19. But also -- yes, if your rent collection is going to be, as you said, reduced for prolonged period of time, how is it going to affect this? Because potentially, we're going to have a recovery at some point. But during that period of time, how we ensure [indiscernible].

Mark Allan: Okay. Martin, do you want to talk to the values approach and what we know, if anything, of where they go from here?

Martin Greenslade: Yes. So I can't obviously complete to predict what CBRE are going to do and how they're going to value properties going forward. But let me just give you a little bit of color. I mean, clearly, what value has to do, it has to put itself in the -- it's looking for transactional evidence. At the year-end, there was pressure, significant transactional evidence of transactions occurring in a post COVID-19 world. So what they have done is they said, "Look, there's no evidence of rental value movement at the 31st of March." So what they have done instead is they have made they've recognized clearly that income is going to be impacted, and they've adjusted that as a capital amount from the valuation and pushed out yields by saying, "Look, if you were a buyer and put yourself in the buyer's shoes, you would demand a lower price or a higher yield for the asset because of the future uncertainty around rents that COVID is creating?" So they've both taken a capital reduction and 4 rent-free periods, effectively. And they pushed the yields out. I don't know how they're going to respond to that. What I can tell you is that they don't guess future ERVs. They don't say, "Project ahead and say, in 6 months' time, ERVs will be that." They tend to adjust that through the yield. And the second point is that on certain assets, where they are much more turnover-based, like our hotels, they have got a phasing-in approach of how they see that rent coming back. So we didn't -- just a blanket of 7 months of no rent. It is actually staged in on a very low percentage occupancy and then bringing it through. So on turnover-related leases, they are more likely to have a sculpted approach to the future because they have to do that, put themselves in the mind of the buyer. And I suspect that will change as the circumstances unfold and they get greater visibility of what's going on.

Mark Allan: Thanks, Martin. Perhaps I'll offer a few thoughts on the approach from retailers to rent and negotiation. Me at the moment, there are no obvious trends in terms of everyone asking for essentially the same thing. It does very much vary from business to business, and that will vary depending on their particular circumstances. But it would also vary depending on the kind of particular characters and approach and how aggressive or otherwise some occupiers want to be within their approach. So requests, and they are requests, we have to stress that at this point, will range from rent holidays, perhaps for a quarter, and deferrals of rent moving to monthly payments, moving to turnover rents. But there's no discernible kind of theme or particular sort of favorite resolution, if you like, that we see occupiers going forward, it does very much vary. In terms of our approach and how that plays out within our retailer lineup. Just to give a bit more color to what our lineup looks like, if you were to rank our occupiers according to the amount of rent they pay us across multiple units, roughly 1/3 of our rent roll comes from our top 25 customers. And those would almost all be -- well, they will all be the well-known national names that you will recognize, typically coming from a strong background in terms of financial position, et cetera. And there, a discussion between us and them is going to range across the entire estate, and there will be gives and takes across that, given that we will have our own plans and aspirations on certain assets. So it isn't going to be simply just a one-dimensional approach to a rent reduction or otherwise, there are other levers to look at pulling. So these are reasonably complex discussions, but you're talking about a 1/3 of rent roll amongst 25 customers. So it is a manageable number of ongoing discussions. You then got about another 1/3 or so of the rent roll that comes from numbers 25 to 100 on that list, within in the middle, and then you've got a very long tail of around 500-or-so occupiers where there's a much smaller rent obligation. And the £80 million rent relief funds that we announced, we would expect to be more focused towards that longer tail of smaller, often independent operators that have fewer financial resources to fall back on. The ones in the middle will have -- typically have multiple units with us. So it will be some element of some broad-ranging discussion, but that's also the sector where there will be some of the names that people will know that maybe under more stress because they've got larger estates without the financial support behind. So there is likely to be some exposure in terms of rent reductions within that sector. To put in some sense of scale, I mean, we clearly can, as I said during the presentation, forecast what this means at this stage. But just to put some context to some of the numbers we've already talked about, the provision that we made, the £24 million against essentially the March end-quarter date, that equates to about 30% of the rent roll that was due at that point in time. So as a judgment of how much rent is at risk from that quarter, I think that's really the only reference point that we can offer specifically. And then the £80 million fund that we announced, which we didn't -- something that's reflected in the accounts, but is an indication of the scale of issue we expect to see through COVID. Obviously, we'll go well beyond 1 quarter, but that is effectively equivalent to a quarter's rent in the retail and specialist portfolio. So difficult to give any more color or detail than that, but hopefully that gives you a bit of context about how we're trying to think about exposure within the retail rent roll. I believe we currently have no further questions on the conference call, but we do have some questions that have come in on the webcast facility. There are 3 questions there. So I will just read those questions out and ask either -- ask myself or ask my colleagues to answer them. So the first is probably for you, Martin, it's quite a specific question about £141 million due on the 1st of April 2020. Is that pre-COVID-19 rent due or has there been any adjustments, such as moving rents monthly from quarterly following the lockdown?

Martin Greenslade: So that £141 million figure is on Table 6 in the financial review. What that relates to is all of the amounts due from all of our occupiers, office, retail and specialty, and that was due on both the 25th of March and the 1st of April. Those 2 added together give you £141 million. I know it may seem bizarre that we have debtors from the 1st of April in the balance sheet, but we do. None of that relates to where we have agreed to defer the amounts due on the 25th of March so the quarterly payments, none of that relates to deferrals. So if there was an occupier in there who had asked and we had agreed to defer rental for them to pay it over 3 months, then it would still be showing as an outstanding. Anything they haven't paid would be showing as outstanding. So it is not -- it does not include any deferred amount. And so the amounts due on the 1st of April were always due on the 1st of April.

Mark Allan: Okay. Thank you, Martin. Second question relates to the reopening of workspace and COVID Secure space following the issue of -- the issuance of the government's guidance, question about whether we envisage reopening Landsec's offices as well as other centers around the country. And Colette, I might just ask you to talk briefly to that one.

Colette O'Shea: Yes. So post Sunday, we had a number of conversations with some of our big office occupiers. And whilst the buildings are all currently open and they have a skeleton staff in, the feedback we're getting at the moment is most of them are not really going to reconsider coming back into the buildings until the -- after the 1st of June. So that's really the current status.

Mark Allan: Great. Thank you. And then the last question from the webcast relates to relative performance to MSCI, particularly on retail. I know, Martin, MSCI is a bit of a black box as regards to understanding exactly what's in there to judge our performance more precisely against it. But could you just offer some thoughts as to why there may have been such an underperformance of our portfolio, particularly given that the in-store sales and footfall outperformed their respective benchmark?

Martin Greenslade: That's almost more of a black hole than a black box, virtually nothing ever comes out of it again. So we put in our numbers and we get told what our performance is. We don't know what it is that forces the delta. So we're only left to guesswork these numbers came out last week. What we imagine it is, is that there are smaller lot sizes in retail and therefore, they are more likely to be local, convenience-led retailing. And therefore, potentially, that is easy to assess the individual units, their rent, and it may have a greater degree of essential retailing, such as food and therefore, be seen as -- which would be the more resilient end of the retail spectrum, particularly with the COVID-19 hat on it. So that's all I can offer. I'm afraid that is just our guesswork as to why our performance is different to MSCI.

Mark Allan: Thank you, Martin. There are no further questions from the webcast. I'll just return to the operator now to see if there are any further questions from the conference call.

Operator: There are no for telephone questions that have been registered. So if you would like to make any closing comments, please go ahead.

Mark Allan: Okay. Thank you very much. Well, ladies and gentlemen, thank you very much for taking the time to dial-in and to follow the presentation this morning. I know you'll appreciate in the current environment the amount of work that would've gone on from teams within the business and further afield to get these numbers together in a pretty testy environment, which I'm certainly very appreciative of. But I do hope you've found that informative and useful. Look forward to catching up with all of you in due course in the months ahead. In the meantime, wishing that you all stay well. Thank you very much.

Operator: Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant day. Goodbye.