Earnings Transcript for LAND.L - Q4 Fiscal Year 2021

Mark Allan: Good morning, ladies and gentlemen, and welcome to the Live Virtual Presentation of Landsec's Results for the year to March 2021. Now over the course of the next hour, you will hear from Martin and from me about the financial and operational performance of the business, our views on our key markets and our plans for the future. And there will be an opportunity for Q&A. Now this is, of course, Martin's final set of results as CFO of Landsec after more than 15 years. And I know that I speak on behalf of the whole business in thanking him for a significant contribution over that time and in wishing him the very best for the future. Any review of the past 12 months has to be dominated by the COVID-19 pandemic. The devastating impact it has had on individuals, families and communities all over the world, the dreadful loss of life, the unprecedented steps that governments have had to take to mitigate a health catastrophe and the profound economic and social consequences of those measures, much of which will be playing out for years to come. Against that background, our job was to ensure that Landsec remained able to meet the needs of all its stakeholders, both now and in the future. From day one, that meant prioritizing the safety of our employees and anyone visiting or spending time in a Landsec property. But it also meant focusing on the potential long-term implications of the pandemic, taking preemptive action where appropriate and not losing sites of other challenges and other opportunities. As a result of the proactive measures we took last year, Landsec is emerging from the pandemic in a fundamentally strong position. The business is poised for the recovery and following our strategy review, has a strategy that positions the business for long-term growth. Financially, we remain in very good health. The disposal of £630 million of assets with little or – little remaining value add potential at very good prices protected our balance sheet and kick-started the £4 billion capital recycling program that underpins our strategy. Our largest market, Central London offices proved remarkably resilient, particularly from an investment perspective. The retail and F&B sectors were hit very hard, accelerating painful structural shifts that were already underway. The financial impact has been severe, but this has also accelerated other related trends that now offer the chance for a much needed reset of the retail property landscape. And despite the headlines being dominated by COVID, the defining challenge of our time, the climate crisis has not gone away. The UK has sought to take an ambitious global leadership position in tackling the challenge, and we have continued to lead the real estate sector, making good progress with our own net-zero ambitions. Now turning to each of those things in a little more detail. As I mentioned a moment ago, our job throughout the pandemic was to ensure that Landsec remained able to deliver for all its stakeholders, both now and longer-term. From the outset, we were focused on doing everything we could to ensure that Landsec emerged from the pandemic in a strong position as possible. We concentrated on three things. Firstly, supporting our customers, employees and communities. We launched our £80 million customer support fund at the very start of the year, aimed at supporting those of our occupiers most in need. We move quickly to increase support to our local community charity partners, funded partly by Board Directors, and we worked hard to support our employees through enhanced communications and a variety of health and wellbeing initiatives. No staff were furloughed. Secondly, we worked closely with our supply chain partners to manage and minimize the disruption caused by COVID preventative measures. Importantly, at our development sites, we were able to take steps to minimize any program impact, and we also worked collaboratively to preserve optionality on our development program for as long as possible. This ensured that significant capital commitments were able to be deferred until the level of uncertainty had reduced somewhat. And thirdly, we focused on maintaining financial strength and flexibility. We entered the pandemic with a strong balance sheet and we took decisive early action on asset disposals, which preserved this position and means that we are well placed to pursue opportunities from here. As a result of these actions, we are emerging from the pandemic with stronger customer and partner relationships and a healthy balance sheet. We were also able to reinstate our dividend during the year, albeit at the lower level, reflective of earnings. We launched our new strategy in October last year. It is built around a core purpose, sustainable places, connecting communities, realizing potential, and features four strategic priorities; optimize Central London, reimagine retail, grow through urban opportunities and realize capital from subscale sectors. Core to the strategy are a number of fundamental principles. Firstly, that we should focus our efforts on creating value for all our stakeholders for the long-term. For shareholders, this means focusing on delivering attractive total returns. Income is a key component of that return, but should not be the key driver. Secondly, to deliver attractive total returns, we need to focus on areas where we have attainable and sustainable competitive advantage. In particular, this means making the most of the considerable experience, expertise and capability within our business. And thirdly, we need to better match our capability and expertise with our invested capital. This is what sits behind our plan to sell £4 billion of assets over the next few years where we feel there is little opportunity to add further value. Assets in subscale sectors, leisure, hotels and retail parks, where we have little or no competitive advantage and some of our long-let prime Central London assets that are highly prized and priced by more defensive capital. We made very good progress in the year with disposals of £630 million and are planning a similar level of sales in the current year. And with an improving outlook, we are increasingly focused on the redeployment of those proceeds. When we launched our strategy last year, alongside our existing Central London development program, we identified further value add Central London acquisitions and mixed use regeneration projects as areas likely to offer good opportunities for reinvestment with both benefiting from clear long-term trends in support. That remains the case. And to this, we may soon add prime retail where attractive opportunities could begin to emerge over the next year or so following the very substantial valuation declines of recent years. The experience, expertise and capability of Landsec's people is one of its most important assets. And I'm fortunate to have an executive team alongside me of Colette O'Shea, as COO; Vanessa Simms, who recently joined as a CFO Designate just two weeks ago. Now we do have skills gaps in a small number of areas in the business that we are working quickly to fill, but Landsec's people remain a key advantage. But as I said when we announced our new strategy, if we are to get the most out of our people, then we need to foster the right culture. Culture is as important as strategy and we are working hard to increase levels of empowerment, accountability, agility and pace. We made some organizational changes in late 2020 to help start this process of change. Although remote working, of course, has limited the speed with which cultural shift can take effect. As we now begin to return to the workplace, I expect things to speed up. The resilience of the prime London office investment market throughout the pandemic was one of the more positive aspects of the past year. Although investment levels were around half the long-term average, this was largely a function of logistical challenges, such as restrictions over site inspections and international travel, slowing things down. Yields especially for long-let prime assets held up well as the relative value of London offices in a global context provided support, and we expect this theme to continue in 2021. Resilience in occupational markets took the form of strong rent collection and only modest declines in ERVs despite physical utilization levels being below 10% for most of the year and take up over the period being at the lowest level since records began. Vacancy across the market increased significantly and now stands at just under 9%. But three quarters of this space is second-hand, where we expect demand to be limited. Grade A space where we expect demand to be strongest, accounts for only 2% vacancy across the market and perspective new supply remains relatively constrained. Looking forward and given the overall level of vacancy, we expect some rental weakness in the year ahead, but concentrated in secondary space in line with the vacancy itself. And importantly, there are now clear signs of life returning to the London offices that have stood empty or largely empty since March of last year. Based on a survey of nearly 150 of our office occupiers, we are expecting physical occupancy levels across our portfolio to return to about a third of pre-COVID levels following the most recent round of restrictions that were lifted just yesterday. And this should increase to around 60% after full restrictions are lifted currently scheduled for June 21. And it will rise steadily from there over the following few months. And pre-let interest is returning with a number of large requirements that were placed on hold having now either converted or having been reactivated. And viewing activity is rising. Anecdotally, average weekly viewings for Knight Frank in April and May, for example, are running double the level they were between June 2020 and March this year. It is of course, very early days, but we are cautiously optimistic. One of the areas occupying economists’ time during the pandemic was then trying to judge the extent to which pent-up consumer demand would build providing the basis for a significant spending boost once restrictions are eased. The data is supportive. According to the ONS, the household savings ratio has been running at 2x to 3x its long run trend level since the first lockdown was imposed. And early indications on the ground are also encouraging. In the three weeks from the April 12, reopening in England, shopping center retail sales were up approximately 5% on the same period in 2019 pre-COVID. Outlets were up 14%. We expect to see a similarly strong response in leisure and F&B as restrictions are lifted in full. Clearly, one of the most striking consequences of the pandemic was how dramatically it accelerated existing structural trends in retail, particularly the channel shift to online. The financial consequences for shopping center rents and values has been severe. Vacancy across the market is very high at 17% and will likely rise further from here. ERVs are fallen around a third from their peak in little more than four years. Values are down nearly two thirds with outward yield movements compounding the rent declines. But arguably this acceleration now provides the basis of a fundamental a much needed reset for the retail property market a much sooner than would otherwise have been the case. Online channel share has risen rapidly, and although will fall back from 2020 levels as we emerged from the pandemic, it will remain the primary growth channel for some time yet. But physical retail is not dead, although it clearly needs to evolve in order to remain relevant. It needs to be complementary to online, offer something that can't easily be replicated online or both. Outlets are an excellent example. Importantly, we believe the prime shopping center rents are now approaching sustainable levels, the level at which retailers can make money at store level, even allowing for further channel shift. In an era where many retailers are opting for fewer larger stores in prime locations, this could set the scene for flight to prime among occupiers. So yes, market vacancy is very high and will rise further from here. Yes, CapEx will be required to support the necessary evolution of prime shopping centers. Yes, there will be more short-term pain within solvency events likely to remain at elevated levels in the year ahead. And yes, today's weaker shopping centers will become tomorrow's urban regeneration projects. But in a world where prime shopping center rents have now fallen more than a third where prime equivalent yields were approaching 8% compared to yields in the hot sectors starting with a three, attractive opportunities will begin to emerge. We have an established retail platform, strong brand partner relationships, asset management and development skill sets, and a strong balance sheet. That combination puts us in a unique position to capitalize. Now COVID has clearly been the defining challenge of the past year, climate change will be the defining challenge of the next two decades. We set out to lead the sector in this area a number of years ago. In 2016, we became the first commercial real estate company in the world to set a science-based carbon reduction target. And in 2019, we were the first UK REIT to align our science-based target with a one and a half degree global warming scenario, a key step in our commitment to become a net-zero carbon business by 2030. Our progress to date has been encouraging, reductions of 55% and 43% in carbon emissions and energy intensity respectively versus our 2013/2014 baseline, material reductions in embodied carbon through design development at each of our new projects. On our first net-zero carbon development at The Forge in Southwark, but much remains to be done. As always, the earliest gains are typically the easiest, the later ones, the more challenging. Targeted investment in new ideas and innovation will be required, but we are fully committed and we have good momentum. And subject to AGM approval of our new remuneration policy, these net-zero targets will be baked into our remuneration plans in a meaningful way, influencing both short-term and long-term variable pay. We are deadly serious about our net-zero and wider ESG ambitions. And I will now hand you over to Martin.

Martin Greenslade: Thank you, Mark, and good morning, everyone. This has been an extraordinary year by any measure. The pandemic has had a significant impact on our business, particularly in the retail, leisure and hotel sectors. And our offices have seen low levels of physical occupancy for most of the past year. Nevertheless, our business remains in a resilient position. We've maintained a strong balance sheet with gearing at a reasonable level, and we have the financial capacity to fund the investment plans of our new strategy. So let's start with the financial summary. Revenue profit for the year was £251 million, that is down from £414 million last year, almost entirely due to the impact of COVID on net rental income, and more on that in a moment. The valuation deficit was £1.646 billion leading to a loss before tax of £1.393 billion. Adjusted diluted EPS, which is based on revenue profit was 33.9p that is down 39.4% from last year. EPRA NTA per share was 985p, down 17.4% or 207p since last March. And finally, the dividend, we reinstated our dividend after our half yearly results, wrapping both our Q1 and Q2 dividends into a single payment of 12 pence per share on January 4. Our Q3 dividend of 6 pence per share was paid on the March 30, 2021, bringing our distribution to £133 million. Now this more than satisfied the £84 million that we needed to pay to meet our REIT obligation. And the final dividend will be 9 pence per share, bringing the total for the year to 27 pence per share, and that is 1.25x covered by earnings. Let's now look at how revenue profit changed from last year. So our revenue profit of £251 million was down £163 million versus last year. And this was primarily due to the movement in net rental income, partly offset by savings in net finance costs. It's no surprise that most, but not all of this movement was due to COVID. Gross rental income was £94 million lower, largely due to lower turnover-related income from Accor and top ups down £34 million. It was a £22 million impact from CVAs and administrations, lower car park income, which was down £15 million. And there was no income on Portland House, so down £9 million, and there was a £7 million reduction from the net impact of sales and acquisitions. Now of that £94 million reduction in gross rental income, approximately 70% relates to the impact of COVID. Net service charge was broadly unchanged and net direct property expenditure was £11 million lower. That was largely due to cost savings as a result of COVID, for example, on car parking operations and marketing. The £94 million reduction or increase in our bad and doubtful debts reflects our expectation of the recoverability of outstanding rent and lease incentives, and more on that in a moment. Net indirect expenses were £6 million higher, and that's mainly due to small increases in uncapitalized development-related expenditure and professional and consultancy fees. And finally, net finance expense was £21 million lower as a result of reductions in interest payable following debt management exercises carried out last year and lower base rates this year, plus an increase in interest capitalized on our developments. Now, just before I leave this slide, I want to point out that included in this year's net rental income was £16 million from properties that were sold during the year, that is principally 1 & 2 New Ludgate. So let's now look at rent collection and the bad debt provision. Now I've set out here the collection rates for net rent for the period from March 25, 2020 to March 24, 2021, and the rates for the March 25, 2021 quarter day. So starting with that March 25, 2021 quarter day, which remember is more heavily weighted towards office rents because of the number of retailers who pay monthly. Now, here we've now collected 81% of the net rent due, and that equates to £82 million with £19 million outstanding. For the period from the March 25, 2020 to the March 24, 2021, we collected 86%, and this equates to £554 million with £89 million outstanding. Now as Mark said, collection rates for offices remained high, but retail and our subscale sectors were lower, reflecting the challenges these businesses faced during the year. As you know, we acted quickly to establish an £80 million customer support fund in early April 2020 to support our customers who are most in need. To date, £42 million has been allocated to customers as concessions. Although, we do expect this to rise as the end of the rent moratorium encourages those who haven't paid rent to reach agreement on how outstanding amounts are resolved. We have also supported our customers in other ways where appropriate, so moving to monthly rents and deferring payments. So let's take a look at our bad debt provisions. So our total bad debt provision was £127 million, which was an increase of £94 million over last year. Here's the £42 million related to occupiers where we have agreed concessions out of our customer support fund. We've provided a further £58 million against outstanding rents and £40 million for service charges, including our share of the joint ventures charges, and we've also provided £13 million for tenant lease incentives, bringing the total to a £127 million. Now let me just put our bad debt provisioning into context to give you a view on the level of prudence and our numbers. We have made provisions against approximately 38% of this year's total retail, leisure and F&B rental income. That equates to around 4.5 months worth of rent for all rent in this category. If you then strip out rents where we believe no provision or concession is necessary, for example, essential retail, the level of provision increases to closer to 60% of rents during this category or seven months. So let's now look at valuations. So the March 31, our combined portfolio was valued at £10.8 billion and the total valuation decline was 13.7% or £1.646 billion. Just before I discuss our valuation by segment, I wanted to give you some general comment on how the valuers of approached this valuation. The uncertainty clause is gone except for hotels and the formulaic approach to deducting three or six months rent from the valuation has also gone. Instead, there is a specific deduction from capital values to reflect any agreed future rent concessions, where there is no agreement then CBRE are reflecting the following. There's six months rent deduction for retail and F&B in London and outside Central London, it’s three months for retail, six months for F&B and nine months for cinemas. For outlets and hotels that are turnover-related, CBRE have assumed that turnover rebuilds over one-year for outlets and three years for hotels. So turning now to each segment of our combined portfolio in turn. Our Central London segment was valued at £7.3 billion in March, that's down 6.5% versus last year. It's our largest segment and it represents 68% of the portfolio. Offices in total declined 4.1% with our developments down a similar amount. Rental values were down 1.9% with equivalent yields broadly unchanged. It's worth pointing out, however, that the two larger office disposals we made this year, namely, 7 Soho Square and 1 & 2 New Ludgate, they were both sold above their March 2020 valuations by 4% and 1%, respectively. London retail was particularly impacted by the pandemic due to low levels of office footfall and tourism. Values here were down 26% with rental values down a similar amount and an outward yield shift to equivalent yield shift to 4.5%. The other Central London sector mainly consists of Piccadilly Lights where values declined by 1%. Now this is down to the short-term income where the yield has been moved out marginally, and there's a slightly longer stepped recovery assumed in the valuation. Our regional retail segment was valued at £1.8 billion, down 31.4%. Regional shopping centers saw values declined by 38.2% as rental values declined by 21.5% and equivalent yields moved out by a 140 basis points to 7.6%. The range of valuation declines for shopping centers was actually quite tight between 35% and 43% down with the equivalent yield range now 6.5% to 9.5%. Outlets were better, but far from immune down 18.5%. With a lower proportion of a Central Retail, the periods of lockdown resulted in limited trading at these assets impacting turnover top ups. Nevertheless, there is an inherent attractiveness of this retail segment as evidenced by the bounce backs post-lockdowns. Outlet equivalent yields moved out 60 basis points to 75 basis points with yields on F&B generally moving out 100 basis points with higher yields being applied to tenants at risk and vacant units. Our urban opportunities segment comprises five retail assets in suburban London, and it represents around 3% of the portfolio. Now these assets have a relatively high level of essential retail, and this is reflected in their valuation performance down 23.3%. Our subscale sectors in total declined by 16.4%. Leisure was down 23% with rental values down 7.1% and equivalent yields moving out 118 basis points. Due to the impact of COVID on our turnover rents, our hotels were down 13.4% over the 12 months, but in line with half year values. And finally, retail parks were down 10.1%. Now this is a sector which has performed more strongly over the past year due to the open-end nature of these assets and where investor demand has clearly reappeared. It is worth saying that there is a very large range in yields between our schemes, you’ve got equivalent yields from 5.1% to 8.7% and you've got initial yields from 4.7% to 11.4%. And that reflects the nature and the strength of the various occupier basis. Now moving on to committed CapEx. We have full committed office developments, that's 21 more fields loosened The Forge and n2 plus the related Wardour Street. Outstanding committed CapEx on these schemes totals £523 million over the next four years. In addition, we'll spend £32 million on demolition at Timber Square and £12 million on finalizing preparatory works at Portland House. Once these works are complete, we will have the option to continue or pause either or both of these schemes as appropriate. Now with £35 million of committed CapEx at Castle Lane trading property, our total committed CapEx is £602 million. As we've said before, we will fund this CapEx through disposals, but as you'll see from the next slide, we are well on the way to achieving this from the net disposals we've made this year. So let's look at our financing position in more detail. At the year-end, we had adjusted net debt of £3.489 billion, that's down £437 million over the year principally due to our disposals of 7 Soho Square and 1 & 2 New Ludgate, but it's partly offset by investment into our development pipeline and the acquisition of 55 Old Broad Street. Group LTV rose to 32.2% from 30.7% a year-ago, which was entirely due to the fall in our property values. Our weighted average cost of net debt was 2.2%, that is down from 2.4% last year. And in terms of facilities, apart from £10 million in September, 2023, our next bond maturity is not until February 2024, and we currently have £1.6 billion of available undrawn bank facilities. So let me look ahead and summarize. The next year will be characterized by the recovery from our third and hopefully final lockdown, and what the new norm will then looks like. From a financial perspective, we have made significant provisions this year for rent concessions and bad debt. We believe these to be prudent and sufficient to cover likely rent concessions and the impact of CVAs and business failures on the recoverability of outstanding rent. However, time will tell. The reopening of the economy, the end of furlough and the cessation of the rent moratorium will all play a part. We are certainly seeing greater engagement from occupiers, particularly where we've not yet agreed and documented rent concessions. And as the economy reopens, we expect to see a gradual recovery in activity-related income, such as our hotel rents and car parking charges, and of course, a reduction in bad debt provisions. We will continue to maintain a sound balance sheet, recycling capital in advance of redeployment, but with plenty of firepower for opportunities that emerge. Now, let me hand you back to Mark.

Mark Allan: Thank you, Martin. To take you through our operational update, I am going to use our strategic priorities as a framework, starting with optimize Central London. Our Central London portfolio is characterized by its quality, liquidity and resilience. It's the largest part of our portfolio by some margin at a combined value of £7.3 billion and represents nearly 70% of our portfolio by value. So this quality, resilience and liquidity feeds through to the wider portfolio in a meaningful way. The chart on the top right of this page shows the historic liquidity in our Central London portfolio. £3.7 billion of disposals over the past 10 years equivalent to approximately 5% of this part of the portfolio per annum. As you know, we are close to £2 billion of further Central London disposals planned over the next few years, asset recycling rates are planned to increase from here. One of the aims of this increased portfolio recycling is to boost the level of optionality in the Central London portfolio, opportunities for us to create value by applying our expertise and matching our capabilities and our invested capital more effectively. We are beginning to make progress with over 15% of the combined portfolio now either under development or intended for development. This will drop next year when 21 more fields reaches practical completion, creating headroom for us to pursue more opportunities while still managing risk very effectively. So with that as a backdrop, what do we mean by optimize Central London? Well, firstly, it means a focus on creating value by focusing on things we are good at, development, building resilience and relentless customer focus. And secondly, it means realizing that value through disciplined capital recycling, being prepared to sell certain assets when there are a few value add opportunities remaining, and to sell those assets to investors who value the prime defensive characteristics that we have established more highly than we or equity capital markets are able to. We have £1.2 billion committed development program with further projects either ready or earmarked for development of roughly the same again. 57% of the program is pre-let and the anticipated average yield on cost is around 5.5%. This compares to around 4% for prime investment yields, so a healthy margin, but for a fair amount of risk. So these achievable yields show how competitive the market is and the vital importance of expertise and track record. So how do we create value through development last year? Well, firstly, we worked with our contractor partners to minimize the program impact arising from COVID restrictions. Our sites were closed for now more than 10 days before being reopened in a COVID secure manner. Social distancing restrictions did reduce labor onsite at 21 more fields, pushing anticipated PC that backed by around three months to July, 2022, but there are other sites, which were more focused on less labor intensive activities, such as groundwork’s or foundations programs were largely unaffected. Secondly, we preserved optionality in the program for as long as possible. Instead of signing up to full design and build contracts, we procured smaller packages that allowed us to properly assess market conditions before making large capital commitments and around £500 million of capital was protected in this way. Following a full review of our near-term developments, we then committed to the build out of The Forge in Southwark and Lucent, Piccadilly Circus in September before adding n2 formally Nova East in Victoria in early 2021. We judged these developments to offer the best risk adjusted returns based on a detailed review of remaining construction risks and likely demand and supply dynamics in each submarket. Strip out works, and therefore the rating have been completed at Portland House in Victoria, but we elected to defer the commencement of major works to fit better with the delivery of n2 into the same submarket. The relative sizes n2 at around 170,000 square feet, Portland House at 400,000 square feet was an important factor in this sequencing. In Southwark, we secured planning permission at Timber Square, another net-zero development. Demolition works will commence shortly with the decision on delivery timing to be taken over the next few months. And we acquired 55 Old Broad Street in December for £87 million. It sits on the corner of Old Broad Street and London Wall adjacent to our existing Dashwood asset. It could be capable of redevelopment from 2025, offer significant potential for increased height and massing and has considerable synergy value with Dashwood itself. While they are unlikely to be built out together, design development across both sites can be progressed in a complimentary way to deliver a better combined outcome that would be achievable individually. All of that means that our development program now looks like this. The top four projects in the table are our committed developments. Timber Square and Portland House are consented and ready for development, but are not yet committed as I explained a moment ago. Our development pipeline is in a fundamentally strong position and our focus over the next 12 to 18 months is fivefold. Timely completion of the committed pipeline to budget progress on lettings. Each location is compelling in its own right. There is very limited new supply coming on in any of the relevant sub-markets certainly of comparable quality. And each of our development scores highly in terms of the sustainability, adaptability and wellbeing credentials that are so important to our target occupiers. And we have a number of active discussions ongoing. Our other priorities are then about keeping momentum in the pipeline and boosting optionality, planning consent at Red Lion Court, decisions on delivery timings at Portland and Timber Square, targeted acquisitions. And our acquisitions will be targeted at situations where we believe strongly that Landsec is particularly well paced to create value and the strategic fit is strong. Now I've used the word resilience a lot in the context of Central London, but quite deliberately. There is value in resilience, and a lot of our expertise is in creating that resilience by focusing relentlessly on what our customers want. And there were some great illustrations of this from across our Central London business. For example, across the portfolio as a whole, we are in live discussions at the moment with occupiers, customers occupying in total over 1 million square feet about rightsizing their space requirements. And this is not simply a function of upcoming lease events, its being driven by strategic partnerships with our occupiers and a proactive approach to delivering the right solutions for them. In Victoria, specifically, we are currently in active discussions with seven occupiers across 300,000 square foot of space in five buildings to rightsize their respective footprints. And those requirements range from a 40% upsize to a 20% downsize. And the outcome will be stronger customer relationships, regeared leases, a more diverse product mix and reduced vacancy across the estate, resilience grounded in customer focus. In development, the net-zero credentials of our projects are incredibly important in terms of resilience and incredibly important to our customers. More and more occupiers are establishing their own net-zero targets. Sustainability credentials are increasingly critical to hiring the right caliber of people. Carbon taxes are surely only a matter of time. And all of this is feeding into occupier decisions. Our leadership position here is real and it is vital and it will be one of the foundations in building resilience from here. There's been a lot of focus on net-zero development with very positive progress, but there is plenty to do in the standing portfolio, too. This year, we're pursuing the well building standard accreditation across the entire portfolio, which recognizes our holistic and integrated approach to health and wellbeing. And we're also bringing forward a series of initiatives designed to boost energy efficiency in our existing estate, a lot of which can only be achieved by working in close partnership with occupiers. Having a range of propositions and price points is another important feature of resilience and customer focus. We have now delivered our second Myo project at Dashwood as well as more of our customized product, and we have clear plans to scale up both offers further. Deliverable opportunities within the existing estate would allow us to grow Myo from 70,000 square foot also currently to around 300,000 square foot within five years before new acquisitions are factored in. Our customized proposition, which includes an on-demand offer deliverable to occupiers within 12 weeks could grow to around 450,000 square foot, and both of these adds to the investment we've already made in Landsec Lounges across the portfolio. Having a range of flexible products and drop in offers across the city will be vital to meeting the varying need of customers in the ecosystem that will increasingly support the workplace of the future. And we believe the impact for office space in the future will be twofold and somewhat paradoxical. Firstly, the increased value and benefits to businesses and employees have greater flexibility in how and where work is conducted. Secondly, the unquestionable value that a healthy, connected, flexible and sustainable workplace will play in sustaining the culture and talent the businesses need to realize their potential. We said at our Capital Markets Day in October that a hybrid model was likely to emerge. And research by Leesman suggests those with the best office space wanted to be their primary place of work. Landlords and indeed buildings that can offer their customers an engaging and relevant ecosystem of products and amenity mix will be the most successful in attracting occupiers. This is likely to include a network of headquarters, flexible offices, meeting and project spaces and home. This is the context within which our optimize Central London strategic objective will be delivered. Strategic partnerships, curated experiences and healthy and sustainable spaces. So now turning to retail. In a year, which featured three lockdowns, a myriad of different restrictions in between and the moratorium on enforcement action throughout. Now Martin has already flagged the severe impact this has had on rents and values and the operational statistics are also sobering. Footfall down around two-thirds versus prior year, like-for-like sales down 14% in outlets, 31% in regional shopping centers. 58 brands or 360 separate units entered CVA or administration with £29 million of rent impacted as a result. This number of insolvency events is about 3x the level of the previous year and the level of rent impact has also risen, now close to half of previous passing rent. Voids in the like-for-like portfolio are 7.5% with a further 6% of units in administration. And relative to the wider retail market, vacancy in prime locations has risen slightly more quickly due to the amount of prevailing fashion and department store space. Persistent vacancy, however, is somewhat lower. And it's reasonable to assume the CVAs and administrations will remain at elevated levels for the year ahead. The businesses that were struggling before the pandemic continue to do so afterwards. Arguably, however, these factors are now largely reflected in valuations. The picture since reopening is a more encouraging one. Of course, it would be foolish to draw too many conclusions at this early stage, particularly with the pent-up demand factors still to subside and government support still tapering, but it does demonstrate fundamental underlying demand. Now to remove the distorting effect of different dates and restrictions in Wales and Scotland, we've set out here headline trading stats across our English assets for the three weeks after reopening on April 12. Overall, like-for-like retail sales were up 8.2% versus the equivalent three-week period in 2019, which included the Easter weekend. If we add in F&B, which could only offer takeaway or outdoor table service, overall sales were still up 3.7%. Outlets have been particularly strong. With like-for-like retail sales plus 14% versus 2019 and total like-for-like sales including F&B plus 10%. We expect a similarly strong response as restrictions are lifted further with all of our retail, F&B and leisure destinations set to benefit. People's desire to get out and do things together is undeniable. And there also appears to be a consensus emerging on how to lift the rent moratorium in a managed way, a combination of decoupling arrears and ongoing obligations, a beefed up code of conduct and a backstop of binding arbitration seems to offer a sensible way forward. And Landsec has been instrumental in helping build this consensus. So in summary, too early to draw conclusions on retail prospects from here, but early signs are broadly encouraging. Now I mentioned in my opening remarks that the rapid acceleration of painful structural trends could begin to offer the basis of a much needed reset for physical retail. I think there are four key themes that together conform the basis of this reset. Firstly, retail winners are looking for fewer larger stores as part of their omni-channel strategy. Now the most striking example within our portfolio of this has been Zara, who, over the course of the past year, renewed their lease at White Rose in Leeds, signed new leases at One New Change in London, St. David's in Cardiff and doubled the size of their store at Bluewater, around 100,000 square foot of space in all. Decathlon has opened a new 35,000 square foot store at Trinity Leeds and we have a number of other active discussions ongoing across the portfolio. Importantly, these lettings also provide support for our own view of sustainable rents and other key trends such as closer operational alignment with brand partners. The second key trend, building on the first is the potential for a flight to prime. We estimate that surplus retail space could be as much as 25% of the current market within five years. Vacancy is already 17%, but this isn't going to fall evenly with every shopping center or retail park a quarter empty. Occupiers will be looking for space that can enhance their omnichannel offer, attracting customers by providing the right level of broad appeal and experience. And Trinity Leeds is a very good example of this. Based on payment provider data, today, it accounts for 19% of retail space in Leeds City Center, but has a 35% share of relevant category spend. Of course, flight to prime is something that's been mentioned more than once in recent years, but this isn't now simply about expecting retailers to pay more for the prime space in the hope that it boosts brand awareness and sales more broadly. With rents approaching sustainable levels, supporting sensible store level profitability, this is becoming a much more straightforward business decision for brands. The third trend is a greater focus on experiences. The most relevant example of this in our portfolio is our outlets. The outlets experience is simply not replicable online. Destination days out with family and friends, shopping a variety of brands with a great value offer in a relaxed and welcoming environment. The leisure offer too will be another important element of experience, such as the 80,000 square foot multidimensional offer that Gravity Leisure are creating for us in Wandsworth. This will drive much greater appeal and footfall than the dated retail offer it replaces. But we do need to be careful about assuming these things as some sort of panacea. Leisure offers can become victims of changing tastes and CapEx needs careful underwriting. But done properly with the right partner, they can be an important aspect of creating the right balance of brands and attractions in centers. And the final trend is greater operational alignment with brand partners. Developing propositions, be they product-related or leasing constructs that promote collaboration, sharing data and insights. Turnover based leases are one element of this, and we're seeing a sharp rise in the number of these. Increased operational risk is a reality, but it's something that can be embraced and treated as an opportunity. So looking forward, our reimagine retail strategy is focused on creating value in three ways that reflect those trends and are real time experience. Deep brand partner relationships, we can only be successful if our customers are. Tailored guest experiences, integrating seamlessly with the physical and digital propositions of our partners, reducing the friction of our guests shopping and leisure missions and improving our ability to measure, predict and influence shopper behavior and asset management expertise, ensuring that our interventions are appropriate, targeted and sustainable. Landsec has an established retail platform, strong brand partner relationships, asset management and development expertise and a strong balance sheet, and that puts us in a great position to capitalize on opportunities that arise. Before I wrap up and move to Q&A, I'd like to spend a few minutes on our remaining two strategic priorities. Growth through urban opportunities and realize capital from subscale sectors. I'd like firstly to be a little more precise about what we mean by an urban opportunity. Ongoing societal changes are already having and will continue to have a profound impacts on our build environment, rendering elements of it obsolete and in need of regeneration. What replaces it will need to be much more flexible and adaptable. The lines between uses are becoming increasingly blurred. And this regeneration needs to be delivered in a truly sustainable and net-zero way. Urban opportunities are essentially mixed use multi-phase regeneration projects, and we see them as an attractive source of growth and one where Landsec can leverage its skills, track record and scale. The appeal of these projects is threefold. One, they offer real placemaking potential and done well, placemaking can create real value, drive long-term appeal and long-term growth. Two, although they tend to be large and complex and therefore beyond the capabilities of most developers, they are multi-phase. This means that capital allocation and risk management can be approached in a staged way. Strategies can be adapted as delivery of the project evolves. And three, they offer balanced returns throughout their life, a blend of income, development profit and rental growth. This is what we will be looking for in any new acquisitions, but of course, we already have five projects in our portfolio. All suburban London shopping centers where alternative use values and site intensification potential aid by ability. The most advanced is the O2 shopping center on Finchley Road, North London. Now I know that we've talked about this project before, but it is an opportunity which illustrates the appeal of these mixed use multi-phase projects very well. From a placemaking perspective, it's in an established part of London that already benefits from strong transport links. Our vision connects Finchley Road and West Hampstead through three distinct character areas, a new commercial Town Square, a quieter, but connected residential neighborhood and a new social and community hub anchored by a new linear park, potentially 1,900 new homes, 150,000 square foot of commercial uses and 2.6 hectares of new public open space, all of which will help underpin value and growth for the long-term. From a phasing point of view, the project will be delivered incrementally over a number of years. Overall investment across all phases might be in the region of £800 million to £900 million, but broken down into manageable chunks. Capital commitments and risk can therefore be effectively managed. From a returns point of view, there is existing income from the shopping center and while leasing strategies will need careful management, this income will not be disrupted in the early phases of development. Planning gains, development profit, new income and growth can therefore all begin to accrue before any existing income is lost, a balanced return profile in a single project over the long-term. And we're targeting submission of a planning application at O2 during the current financial year. And lastly, a brief word on our plans to realize capital from our subscale sectors, leisure hotels and retail parks. £1.3 billion of assets in total, following an aggregate 16.4% decline in values across the pandemic affected year. Our intention is to dispose of these assets and it's rooted in a view that we have neither sufficient scale nor competitive advantage in any of these sectors. However, we are, of course, focused on securing best value for these assets and do not feel generally that that would be the case, if we were to sell them in the near-term. Each of these portfolios were severely impacted by COVID, particularly leisure and hotels, and each is well placed therefore to benefit materially from the strong consumption and recovery we expect to see over the next 12 to 18 months. Disposal of these assets is therefore most likely to be on a two to three-year timescale. Although, we may take the opportunity to dispose off one or two retail parks nearer-term to take advantage of the strengthening the investment market in that subsector. I said at the outset of the presentation, that Landsec is poised for the recovery with a strategy that positions it for long-term growth. So what can you expect to see from us over the next 12 to 18 months? Well, firstly, ongoing capital recycling. Asset sales from our Central London portfolio, reinvestment into our development program and new investment in our target areas of our value add Central London opportunities, mixed use multi-phase regeneration and potentially prime retail. Secondly, the results of working collaboratively and strategically with our customers, an increasingly diverse and flexible range of offers in London, for example, new concepts within our shopping centers, innovative deals with major occupiers. Thirdly, tangible progress on our ESG targets, particularly net-zero carbon. And finally, clear signs that we're getting our culture right, greater empowerment, more accountability, faster pace and increased agility. The past 12 months have been challenging for everyone, but we have a clear strategy and improving outlook and momentum is beginning to build, poised for recovery with a strategy that positions Landsec for long-term growth. Ladies and gentlemen, thank you very much for attending and paying attention to the presentation over the last hour. I'm now going to open up for a Q&A session. So I think I'm going to hand initially to the moderator on the dial-in conference line and we'll take our first few questions.

Operator: The Q&A session is now open to telephone participants. [Operator Instructions] And the first question comes from the line of Max Nimmo of Kempen. Please go ahead.

Maxwell Nimmo: Good morning. Thanks for the presentation. Just on the potential opportunities you're seeing in the prime retail space coming forward. Do I assume that, that's obviously mostly in the kind of destination shopping center market? Would we be expecting some of the – in the larger asset space, would you be looking at the likes of the stake in Bluewater, which you don't own, which is rumored to be coming back to the market? And secondly, just on the kind of high court news yesterday about landlords not being kind of treated fairly in CVAs, which is something we've all been kind of talking about for some time. Is it right that we've kind of come around a corner on that? Do you think that's going to have an impact on the amount of retailers, which are going to look to do CVAs in the future? Thanks.

Mark Allan: Great. Thank you, Max. So taking your first question about where we might look to reinvest within retail if we see appropriate opportunities. I think you're absolutely right. It is the destination type locations. If you heard that the four trends identified within the presentation around retailers focusing on fewer larger stores, potential for a flight to prime working more closely with brands, for example. I think all of that points to a view that we're going to see a concentration in occupancy around those destination locations and as a result, a likely more rapid obsolescence of some of the less prime locations. So in terms of investing purely for retail for the future, we're making most of our retail platform is likely to be those types of destination centers. And as you alluded to, we obviously have a range of different ways that we could achieve that, and that could include looking at stakes and assets that we currently have an interest in, but not a 100% ownership stake. So that will be one of a number of options that we would take into consideration, but no more precise strategy around exactly where we might choose to invest than that. I think then with respect to the question on CVAs. I think there is been a few findings over the last week or so, which in headline terms to be quite dangerous as set the headlines. We're currently digesting the detail of some of the judgments within that to understand the extent to which case law moving forward is going to be impacted by these findings. But I think there is two broad comments I would make. I think the first is, as I said in the presentation, we have an increasing confidence that the ERVs in valuations are now approaching sustainable levels and CVAs administrations per se don't affect those sustainable levels. So to me, the more important question strategically for us is how confident are we in those sustainable rents and how close are we to those levels. CVAs and the like then effectively impact the speed with which we move from where we are to those sustainable levels. But of course, if we feel that landlords as a class of creditor are being kind of unfairly targeted for treatment, then we will continue to protect our position as we have done in a number of cases over the past 12 months as others have done. But we will be selective and targeted in where we choose to challenge. But we will always look to protect our interests and those of our shareholders. But ultimately this is about how quickly do we get to sustainable rents. And as I mentioned, we're expecting to see CVAs administrations over the course of the next 12 months remain at the sort of elevated levels that we've seen over the previous 12 months. Martin, if there's anything you want to add on CVAs, particularly beyond those general comments.

Martin Greenslade: No.

Mark Allan: Okay. Thank you. Hopefully, Max, that certainly answers your questions.

Maxwell Nimmo: Great. Thank you.

Operator: The next question is from the line of Rob Jones of Exane. Please go ahead.

Robert Jones: Hi. Good morning, team. Just three for me. One on office rightsizing, one on capital value question on West End versus City, another one on retail ERV. So firstly, on rightsizing, I appreciate the detail in terms of the requirements up 40% to down 20% on the discussions that you're having with tenants at the moment on that 1 million square feet. But maybe you could give a broader picture in terms of either, a, the average that you are seeing so far in terms of that increase or decrease? Or maybe more interestingly, the expectation in terms of how you think that plays out over the next couple of years? Do you think we could be, for example, down 10% on average in terms of people cutting their space requirements? And I guess in relation to that, given that tenants are coming to you and you're being also proactive on your side in terms of engaging those discussions, do you think there's – it's reasonable to argue that landlords are not necessarily protected by expired lease terms on their portfolio, i.e., none of those discussions will be accelerated in terms of office requirements going forwards? And then the second one around capital values. Can you give us a split in terms of your either West End versus City or West End versus City versus south of the river capital value movement for the year? That would be interesting. And then finally, on ERVs, you mentioned there's potential for ERVs on your portfolio to maybe trend lower that you might have set out last September, I think you said down 15% from September 20 to trough. But you seem to be indicating that we could be worse than that. A, do you have a view in terms of how much worse in the near-term? And B, you're obviously saying that you're expecting that to recover because you're saying it's sound is using in the near-term, but what is the driver for the recovery, given that you're obviously also correctly highlighting the online retail penetration growth continues to be the biggest driver from a UK retail perspective? Thanks very much.

Mark Allan: Great. Thanks there. So I’ll talk to the rightsizing examples and what we're seeing there in a little bit more detail. I’ll ask Martin to comment on the capital value splits in London, and then I'll come on lastly then to talk about your question around retail ERVs. So I think with respect to what we're seeing and discussions we're having with the occupiers across the London, I think that the first thing to stress is that this is obviously still early days. What we have seen though over the last two to three months really as soon as the Prime Minister set out the roadmap for reopening towards the end of February was much greater traction with our customers in being clear about the speed with which we are planning to return. And I gave some headline data on that during the presentation, but also starting to get their heads around what their longer-term space requirements were. Now, I talk specifically to a Victoria example within the presentation itself. And I think that's a really good one because we have critical mass and scale within Victoria across multiple properties. And I think that's why I made the points about resilience being so important because this isn't just simply about whether one individual occupier wants to reduce their footprint or increase their footprint, it’s about the ability to bring all of that together and deliver solutions for each of those occupiers by taking an integrated approach to how we manage those. So there's about 300,000 square foot in total there of space, assuming they all conclude the way they are expected to that would result in a net – a marginal net increase in the space take from those occupiers. From a rental value point of view, it is supportive, possibly slightly positive to the ERVs that are reflected in the valuations at March. So I think what we're seeing there is good evidence of high quality space and being in demand and occupiers having differing requirements depending on their sector, depending on their business. I think wider across the portfolio, what does that mean? Well, I mentioned 1 million square feet in total where we're talking, and I think you've touched on whether there was the landlords losing negotiating power here, and was there something potentially equivalent to CVA and retail, which takes away the power of landlords to negotiate. I mean, we don't see any evidence of that whatsoever. The other dialogue that we're having in addition to Victoria, are all about proactive ongoing dialogue with occupiers. It's not people coming and saying we want to shrink space. I've been party myself to two different discussions over the past two weeks. One with an existing occupier in the legal sector that is looking to maintain or possibly increase space that wants to look at options for having sort of flexible elements to that space requirement. And they're looking at modernizing their space because it was fitted out 10, 15 years ago. Another prospective occupier, who's very clear that their space requirement doesn't change as a result of remote working, but they're very focused on the quality of space that's being provided. So I think every, every business is different. We are seeing some opportunities where we maybe able to help occupiers who are looking to reduce footprint, consolidate in a proactive way so that you don't get void stranded in individual parts of individual assets. But we can actually consolidate and create a single vacant possession within older properties themselves might be an opportunity for redevelopment. So there, I think, you've got the potential for a win-win situation where you've got occupiers condensed. If they're looking for that in slightly smaller space, you've got extended lease terms and renegotiated leases and value creation from that and you've got potential development opportunity coming from that as well. So we don't have an overall view at this stage of what's going to happen to space requirements in London in totality. I think it will vary by sector-by-sector, but we are seeing very clear evidence of the value of having scale and the value of having those deep strategic relationships with occupiers. Martin is there anything to add in terms of capital values between West End and the like?

Martin Greenslade: So if we look at the capital values and what I'm going to do is I'm going to do it for the whole portfolio, but split into those areas. But remember, we've got developments which make quite a big swing. So I'll try to explain where that makes a bit of a swing. So if you look at the different office movements, then the West End was down 4.8%, City was down 1.9%, but if you strip out 2021, more fields – remember we don't have that many assets in the city. Then actually as the values were down 7.5% and that's because of the work we've been doing at Dashwood house that hasn't been fully reflected in valuation yet. So you can see the gap there, depending on whether you're including our developments or not. And then Midtown was down 2.7% and Southwark was down 4.8%. So that splits out the valuation movement on offices.

Mark Allan: Thanks, Martin. And then your third question about retail ERVs, and I think this also picks up a question on the webcast as well. So you're right that we indicated back at the time of our interims that our view was a 35% to 40% decline, peak-to-trough with about 15% further to go. And we've seen more of that recognized over the second half. To explain that the methodology within that, we collect a lot of trading data, sales data, improving actually all the time. We're getting more and more data as we're entering into new leases and more operational alignment with brand partners, but we get a lot of sales data across our centers. And we're looking by retailer, by unit or by category. We are building P&Ls to effectively look at the profitability of stores or centers category-by-category. We then look at typical operating costs overhead and the like, and try to look for total occupancy costs as a ratio within all of that, rent rates and service charge. And we're really solving for something in the low-teens, and it was probably – pre-pandemic around peak, it was probably in the low-20s. Obviously, there's a range either side of both of those numbers. And that's the number that now feels as they were getting much closer. And as we're now signing new leases, and I referred to a number of examples within the portfolio over the past six to 12 months, as we're getting visibility of sales, projections and expectations from very experienced successful global brands, it's giving us more and more confidence in our fundamental underlying model. And there is some assumption within there or further channel shift longer term. So we would still expect to see broadly speaking overall within those numbers. And it will vary from category-to-category, but by something like a – a further 10% move to online relative to offline as a proportion of sales in very broad terms. So again, still early days, but we are definitely seeing evidence to give us some increasing confidence in our sustainable rent analysis. I hope that answers those questions sufficiently for you.

Operator: And the next question is from Chris Fremantle of Morgan Stanley. Please go ahead.

Christopher Fremantle: Hi. Good morning. Just two questions from my side. The first is you mentioned on the disposals that you were anticipating selling one or two retail parks. Are they the high yielding ones that you were talking about or the lower yielding ones? And if so, why? And then just on the CapEx programs that you've talked about in the next few schemes, you've elaborated on. I appreciate we can all do our own calculations. But can you just help us to approximate the level of value creation that you would expect from those activities that you've committed to in over the shorter-term assuming market values don't change materially, just so we can put it into context of the other sources of value creation, the earnings, et cetera. But just an idea of how much value creation you're really aiming for over the next few years? That would be helpful, please.

Mark Allan: Great. Thanks, Chris. So I think disposals on the retail parks was really intended to flag that they are likely to be sold piecemeal rather than there’s portfolio over a period of time. And there is some clearly invested demand returning within that space that we in selected opportunities may take – it may take the opportunity to take advantage of that. I don't think we have a specific prioritized sequence within which we're looking to make those disposals. It was more signaling that you shouldn't be surprised to see one or two retail parks sold over the next year or so. So I can't be any more specific than that, Chris, I'm afraid at this stage. And with respect to the mixed use CapEx, what I wanted to try and bring to life today was to show using O2, eventually roads a particular example is just the appeal of the returns profile of projects, where we can make a single investment in terms of acquiring or owning an asset, but then deliver balanced returns over the life of a project. So that's an example that starts initially with existing income, but then as we get planning, we'd expect to see some planning gains with delivered the first phases of development. You'd expect to see development profits, and then assuming that's residential. And if we were to choose to hold that, then you'd start seeing income go through. And if we get the placemaking rights and improve the appeal of the area that will help drive values and drive growth. So you get a balance of income development, profit on rental growth, hopefully over multiple years. And to me that makes it quite an appealing type of project to invest in rather than having to go and find acquisitions all the time to try and give you the portfolio effects you're looking for the balance sheet level. In terms of value creation, how we think about returns. I mean, the right way to think about returns on those projects would be on an IRR basis. And we will be looking for those to be towards the top-end of the range of options that we would look at. So if I was to take out sort of market movements, I think we will be looking at IRRs there of somewhere in the high single-digit to low double-digit sort of range. So towards the top-end of what we'd expected an asset level, the sort of things that we have at the moment. But it will obviously depend on from project-to-project and the specific dynamics at play. But hopefully, that gives you a bit of a sense of what we're looking for on those particular projects.

Operator: And the next question comes from the line of Oliver Carruthers of Goldman Sachs. Please go ahead.

Oliver Carruthers: Hi, good morning. Thanks for the presentation. Firstly, picking up on your earlier point on ERVs bottoming out for prime shopping centers. Can you share with us those retail assumptions in your centers in terms of sales growth on a stabilized post-COVID basis that you're seeing or assuming perhaps relative to 2019 levels? Is this just an extrapolation of the kind of plus 5% initial reopening sales data you've seen? Or is there more here? Second question, can you give us a little bit more color on the redeployment side of your new strategy, particularly on the timing around acquiring new regeneration projects or any value add opportunities in the context of the £4 billion you intend to sell? And any color on the level of competition you're seeing for investing in these new schemes? Thank you very much.

Mark Allan: Sure. Thanks, Oliver. So with respect to the sustainable rent calculation, I mean that the sustainable rent work that we've undertaken predated that the pandemic, and it's really based on a view that the physical retail share of overall retail spend is going to be shrinking. And then looking at, if you make certain assumptions on where assets – where occupiers are likely to concentrate in terms of taking space. What are the characteristics of those winning centers going forward. So it isn't based on assumption that we're going to see growth in retail spend offline from it. Indeed, it assumes a further shift to online, but it assumes that the vacancy which we estimate is going to be 25% of the overall market within five years is going to be increasingly concentrated in non-prime locations because the rents in prime locations have now dropped to such a level that when you overlay our assumptions on channel mix, retailers are making money in those prime locations in a way that may not have been the case before the pandemic where the – some of the argument for those higher rents was about needing to be in that location to ensure that your brand was relevant and taking appropriate market share. I think that assumption has gone. So I think this is quite a sensible and cautious assumption. It's not baking in assumptions that we're going to see growth from here. It's more saying that the risk and reward balance feels to us as though it has shifted in prime shopping centers. Now that we are at a level where we feel we can underwrite rents and the yields, which these assets are valued, offers a very reasonable risk premium to other options for where we might invest capital. And then with respect to timing on redeployments, and obviously there isn't any news within our results today of new investment beyond the 55 Old Broad Street acquisition we made before Christmas. I said one of our key objectives were getting more optionality into Central London. We also flagged mixed use multi-phase urban regeneration schemes and potentially prime retail as areas that we would look to redeploy capital into. And we've indicated that disposal levels will be around the same level for the current financial year in all likelihood as they were for the last year focused in Central London. So as and when we have specific news around redeployment, we will of course share that. But we are very focused on getting this capital recycling completed over the next two to three – or certainly significant momentum in the capital recycling program over the next two to three years. But I'm afraid I can't be any more specific on that. We don't yet. We don't have quite deliberately a precise view of exactly what percentage of the balance sheet or the portfolio we want in each individual sector. We are looking at more and more opportunities, and we are judging the risk adjusted returns available to us across those three different sectors of those three Central London is by far the most competitive market. And I don't think that will come as any great surprise. Prime retail I would expect to be the least competitive market. Mixed-use urban regeneration somewhere in the middle.

Oliver Carruthers: Okay. That's clear. Thank you. But on the first point, so you're assuming a lose out in terms of physical versus online share. But you're also, if I'm correct, assuming a decline in absolute physical sales relative to 2019 in your assumption that ERVs are bottoming out?

Mark Allan: That is correct.

Oliver Carruthers: Okay. Got it. Thank you.

Operator: Your next question is from the line of Paul May of Barclays. Please go ahead.

Paul May: Hi, everyone. Hi, can you hear me? Just four questions for me, a couple of specific ones, a couple more general ones. You mentioned about the vacancy increase in London office. But is it also worth looking at the availability of space, which is near record levels. And as far as we understand, that's mainly in Grade A as opposed to the vacancy, which is, as you mentioned, is mainly in secondary. Just wonder whether you had any comments on that and the impact of that? I think linked to that is the expected rent declines that you've got in offices or that you expect in offices. Admittedly, you mentioned this would be more in secondary space. And lower quality space, but just wondered if you feel that prime rents would also see some downward pressure given that availability of space. And then sort of what levels of decline would you be expecting? And would this be on top of the already decline that we've seen in net effective rents as incentives have increased by I think, around about 5%, 6% over the last year. And then more specific ones, the proposed developments, I noticed were down 12% over the year in terms of valuation. How much of this write-down is in order to make sort of future IRRs look more attractive? Or is there an expectation that that's just a write-off and is not sort of a way to make the future look better? And then finally, LTV, you're currently around at 32%. You mentioned having capital to redeploy. Just wondering what quantum of capital do you feel do you have to redeploy particularly given the commitment to the developments today and the risk potentially, you may say there's no risk, but there is potentially to future London office values if rents were to decline moving forward? Thank you very much.

Mark Allan: Great. Thank you, Paul. So I'll cover the first couple of questions there around the London office market, our experience, and what we feel that tells us in terms of expectations on rents. I'll ask Martin to talk about the movement in development, valuations, and perhaps also just to flesh out a bit more about our thinking on LTV ranges as well. So with respect to market vacancy in London, I think we – within our statement in the presentation set out view that we think market vacancy is running at 8.9%. So which ordinarily would be a sign for quite significant concern in previous cycles that we're about to see a very substantial downward correction in rents. But the key difference between where we are today and where we've been in previous cycles is that that vacancy is very much concentrated and nearly 80% of that vacancy is in second-hand and secondary space, where when we've done a pretty detailed review of what's on the market, and you look at the combination of size of footprints available, you look at the CapEx that maybe required to reconfigure space. And you look at the unexpired lease terms, I think it's fair to assume there's a pretty meaningful proportion of that secondary and second-hand space, which is probably are questionable in terms of its letability. I think you've then got the added level on top of that, which plays more to the argument around bifurcation between demand for prime grade A space with all of the sustainability, flexibility and health and wellbeing credentials that are increasingly important that are either not present or virtually impossible to retrofit into some of the secondary space. So I think we continue to feel that bifurcation of demand is going to be reality. We're not going to see any real tangible evidence of that until later this year as we start to see occupancy levels return to something approaching normal. But all of the dialogue we're having with our current occupiers is supporting that kind of view. Now with respect to how does that play into rental values? I think it would be unwise for us to assume that with that level of vacancy, that that is all going to be rental declines in secondary, and there's going to be no impact on prime. I think it's reasonable to seeing that in looking to maintain occupancy or let space within prime space, you could see a bit of an increase in incentives to maintain that. And so we would expect to see some –potentially see some modest declines in ERVs within London. But we're talking single-digits and we've probably seen some of that come through already in the March numbers. If I was to take purely our experience today with the people that we're talking to, and I touched on this in the context of Victoria. Our discussions are supportive to or potentially slightly ahead of current ERVs, but I would rather not extrapolate that and say, therefore, we're expecting to see rental growth in totality because those overall market dynamics are such that I think it would be unwise to assume there won't be some weakness. So mid-single digit, perhaps within Central London more severe within secondary space, which in itself, I think will create some acquisition redevelopment opportunities for us over the next year or two. Martin, do you want to just talk to what's happened on development value.

Martin Greenslade: Sure. I think it was a specific question about proposed developments. I'm just going to add in one that's come on the screen as well, which says, can you quantify the level of rental write-down on proposed developments, which drove the value write-down seen in the year? Can you split it between the office or amenity elements? That's from Robbie Duncan. Robbie, thanks for that easy one. So just looking at proposed development. Proposed developments were down, and let me explain with proposed developments, what tends to happen. First and foremost, proposed developments aren't yet buttoned down in terms of absolute floor area and costs. So we don't get those yet. But the valuers are working off our early estimates. And they will be looking at how those move period on period. And so when we look at what's happened to the valuation on proposed development, it's going to be a number of factors that's changed and caused that write-down. Plus, remember, it's geared because you've got a smaller value here compared to the gross development value at the end. So any change in the gross development value has a larger impact on the site value effectively that's in our books. So what are the things that have changed? One of the things that has changed is the retail rents. Were broadly on the top floors, and by the way, our proposed developments are the forge or used to be called Lavington Street and Portland House. So the rents there have changed the best at the very top space has probably come in by about £5 a square foot of Portland and then coming down the building towards the top just below the £5 reduction, there is some £2.50 reduction. If you look at that, that accounts for around 20% of the valuation decline on Portland. At Lavington, there isn't a reduction in rents, but both schemes will reflect the slight movement in incentives when you're looking at what the end value is. But also the floor areas have changed to a degree. The costs have varied. And I have to say that never do we get full credit for the work that we do on proposed developments in terms of stripping them out or demolition, there is always this factor. So we're not doing it to try and make the end development have a good return. It's just a natural way in which the valuation process occurs when we're spending cash very early on it often doesn't get the recognition in terms of the valuation in our books. And finally, yes, there was a small outward yield movement on the retail element of Portland House. But that has a very small component. So as I say, around 20% of Portland House is related to office change in terms of rent. The rest is to do with costs and the like. And then finally, LTV. LTV at 32%. I think the question was around really what capacity do you have to invest from that level of LTV. I think where it pains to point out that the likelihood is that we will continue to sell in advance of redeployment, and so you can expect to see disposals with net debt not appreciably increasing unless there's a fantastic opportunity out there that we really want to go for. Generally, I'd expect our net debt to be around the current levels, if not lower depending on the disposal program. And 32%, it sits very comfortably in our sort of 25% to 40% range that we outlined back at the Capital Markets Day last year.

Paul May: Okay. Thank you, Martin.

Mark Allan: Do we have any more questions on the conference line?

Operator: There are currently no questions.

Mark Allan: Okay. I'll move then to a couple of questions we have remaining from the webcast. So the first from Thomas at Clearance Capital. In a world where consumers and politicians are increasingly focusing on sustainability, do you believe there is much of a future for fast fashion? Which I think is absolutely a fair question. Certainly, there's been a lot of media coverage at different times over recent years of what happens to the level of returns for online with some of the fast fashion brands where it simply isn't economic to repackage and resell return. So I think we are going to see more and more of a focus in this area. It is becoming more of a focus in the dialogue we're having with retailers. Certainly, the large, more successful global names are increasingly focused on their own sustainability credentials. And I think the Landsec track record in that space therefore puts us in a strong position to be able to help them, when it comes to looking at the sustainability and net-zero aspects of their physical real estate. So it's certainly going to have an impact on the future is probably a part of the market that is expanded more rapidly than it will do from here. And I think that's something we've taken into consideration, into account when we've looked at the future of our centers and our judgment on sustainable rents. And then a question from Marcus Phayre-Mudge about level of pre-let required to start Portland House and others. So I think for our view of the remaining, so we've got two projects that are effectively ready to go, Portland House is one and then Timber Square in Southwark is the other. I think we really going to be looking for letting evidence across the portfolio as a whole, rather than for pre-lets, specifically on these individual developments. So Portland, we did take a conscious decision to pause the commencement of the major works there because it's 400,000 square foot of space. We have into the remaining development on the Nova Island ready to go as well at 170,000 square foot. And our view was it was better to start there, see what demand and traction there was for that product, and then form a judgment on Portland House in that context. So I would imagine it will be delivered around 12 months after n2 would be our current thinking, which means probably recommencement of works within another six or so months. At Timber Square, we simply don't yet need to make a decision. We've let a development contracts and demolition will start towards the end of this month, so we can make a decision in late summer, early autumn and we'll take full advantage of that time to judge what's going on in the market overall. But having committed to demolition, our current plan intention would be to continue with development assuming we don't see any significant negative new information around demand overall. And a question from Chris Spearing. Regarding O2, would this be something you'd undertake with full ownership, we’ll be seeking a partner? And if a JV is likely would the partner be selected for specialist skills, capital or both? Which is a great question. I think fundamentally I would be open to working with a partner, whether it was on an individual project or on a group of projects, if there was very clear strategic alignment between ourselves and our partner. Now, whether that strategic alignment is as a result of having effectively a private capital that is relying on our expertise or whether we feel there are skills gaps that we could hopefully augment by bringing another partner in, I think we need to do more work to decide, but we are certainly open to working in partnership in either of those examples, Chris, that you've put within the question. But we're not at a point at this stage where we need to make a call either way. I wouldn't expect to see news on us working with a partner or something like O2, ahead of securing planning. So it's unlikely to be near-term news in that sense. And I'm being told there are no further questions on either the webcast or the conference call. So ladies and gentlemen, I think that concludes this morning's presentation and Q&A. Thank you very much for taking the time to attend. Have a good day.