Land Securities Group H2 2025 Earnings Report

Land Securities Group EPS Results

• Actual EPS: GBX 50.30
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Land Securities Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Land Securities Group Announcement Details

• Quarter: H2 2025
• Date: 5/16/2025
• Time: Before Market Opens
• Conference Call Date: Friday, May 16, 2025
• Conference Call Time: 4:00AM ET

At Landsec, we build and invest in buildings, spaces and partnerships to create sustainable places, connect communities and realise potential. We are one of the largest real estate companies in Europe, with a £12 billion portfolio of retail, leisure, workspace and residential hubs. Landsec is shaping a better future by leading our industry on environmental and social sustainability while delivering value for our shareholders, great experiences for our guests and positive change for our communities.

Land Securities Group H2 2025 Earnings Call Transcript

Presentation

[Mark Allan, CEO & Executive Director at Land Securities Group]

Well, good morning, everyone, and welcome to the presentation of Landsec's twenty twenty five full year results. And I've been saying for some time that owning the right real estate has never been more important. And the performance of our portfolio and business over the past twelve months illustrates this point really clearly. Irrespective of sector, there is a clear focus from customers on the best space. And as this remains in short supply, rents are growing.

[Mark Allan, CEO & Executive Director at Land Securities Group]

As such, we are confident in how we have repositioned our portfolio over the past four years. The success of this strategy is reflected in our strong operational performance with high like for like income growth across both London and retail, which combined make up 83% of our business. We expect this customer focus on quality to persist. So as the reversionary potential in our portfolio is growing, we expect to continue deliver continued strong like for like income growth. Over the medium term, this growth will be enhanced by the substantial opportunity that we have created in residential, which benefits from structural demand growth and offers attractive real income returns with rents highly correlated to inflation over time.

[Mark Allan, CEO & Executive Director at Land Securities Group]

And it's the attractive attractive mix of these uses which create successful urban places that can continue to adapt and grow over time. And Landsec's ability to shape these places that gives us our competitive edge. Now given our actions over the past few years, our outlook for EPS growth in the near term is positive. Executing our strategy will build further on this and deliver material shareholder value by moving to high income, high income growth, and lower cyclicality over time. In the long run, it is income growth that is the main driver of value growth in both equity markets and in real estate.

[Mark Allan, CEO & Executive Director at Land Securities Group]

And our primary focus is on delivering sustainable income and EPS growth. For an £11,000,000,000 REIT like us, materially shifting our portfolio mix takes time, which means we need to think differently about what drives EPS growth near term and what we believe will drive it longer term, as these are not necessarily the same. In the near term, most of our EPS growth will be driven by the assets we own today, not the assets we decide to buy or develop from here. And our portfolio positioning in recent years, our focus on places with real quality and scarcity value, together with our ongoing efficiency savings, mean that the near term EPS growth outlook is firmly positive. The strategic decisions on development and capital recycling that we make from here are about making sure that in three to five years' time, our portfolio mix is such that we are still as confident about its income growth prospects at that point as we are about our current portfolio today.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Alongside our assessment of risk, it is these two factors driving sustainable income and EPS growth in the near term and impact on desired portfolio mix in the longer term that are the primary guide for our capital allocation decisions. And each of the strategic implications that we set out at our strategy update in February, shown on the left of this slide, is directly linked to these two objectives. These targets remain underpinned by our aim to retain a strong capital base with net debt to EBITDA of less than eight times and a loan to value of around the mid thirties. And as we deliver on this strategy, we see the potential to drive around 20% growth in EPS over the next five years, which is after absorbing a roughly 10% EPS headwind from rising interest costs and a finance lease expiry at QAM. As the impact of these headwinds is spread over several years, we expect EPS growth to be relatively linear and for this compounding in EPS to drive further growth in dividends.

[Mark Allan, CEO & Executive Director at Land Securities Group]

This positive outlook is underpinned by the continued strength in our operational performance. Our overall like for like income growth over the year was up 5%, with uplifts on re lettings and renewals in Retail and London rising to eight percent. And we delivered a 100 basis point increase in occupancy to 97.2%. In line with the capital allocation priorities that I set out earlier, we invested over £600,000,000 into two of the very best retail destinations in The UK, Liverpool One and Bluewater, at highly accretive yields. Whilst we sold around £655,000,000 of assets, mostly in subscale sectors where growth is more subdued.

[Mark Allan, CEO & Executive Director at Land Securities Group]

In line with the view that we set out a year ago that values for the best assets would return to growth, our portfolio value was up 1.1%. As our successful leasing activity drove 4.2% ERV growth and yields stabilized. And this means that our capital base remains strong, and our positive operational momentum has continued into the New Year. All this translated into solid financial results. Our EPS was up 0.4% and that was ahead of our initial guidance as the impact of our significant disposals early in the year was more than offset by stronger like for like growth and cost savings.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Our dividend is up 2% in line with our guidance. And NTA per share is up 1.7%, meaning that our overall return on equity was positive at 6.4%. Whilst net debt increased as a result of acquisitions towards the end of the year, post our disposal since the year end, our LTV is now just over 38%, net debt to EBITDA 7.7 times. We expect continued like for like income growth and cost savings to more than offset higher finance costs in the year ahead, meaning we expect EPS to grow by 2% to 4% this year, which is well on track against our financial year 02/1930 potential. So on now to our operational review.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Customers remained focused on the best space in each of our key markets. So our high quality London and major retail portfolios continue to outperform. For both, our relative outperformance widened further during the year as markets continued to polarize, as shown here in the first two charts on this slide. With our occupancy in London up to 98% and retail up to 97%, the growing competition for space means rental uplifts continue to rise, in particular for major retail, which now makes up over a third of our income. Capturing this growing reversionary potential is a key driver for our near term EPS growth.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Turning to London in more detail, the positive outlook for rents in the best assets has started to attract new investor demand, which is reflected in a steady pickup in investment activity as shown here on the right, albeit from a low base. Still, the strong growth in occupier demand for the very best space, as shown on the left, continued growth in rents, for example, in Victoria, where half of our London offices sit, and the relatively stable political backdrop mean that London offices look relatively attractive in a global context. And as such, we expect a further steady recovery in activity, which supports our plans to start to release around £2,000,000,000 of capital from FY '20 '20 '7 onwards. In our own portfolio, we continue to see growth in utilization rates with turnstile tap ins up 11% over the three months to April compared to the same period last year. And that's even though TFL tube traffic was broadly flat over the same period.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Combined with the fact that customers are planning for more space per person to facilitate increased collaboration space, well-being or other amenities, this means our operational performance has been strong. Like for like income is up 6.6%, with uplifts on re lettings and renewals up 10%. And we signed or in solicitors' hands on £24,000,000 of lettings on average 7% ahead of ERV. This drove 5.2% ERV growth and that was at the top end of our guidance, and we expect these trends to persist with broadly similar ERV growth, further like for like income growth in the year ahead. And this positive demand also bodes well for our two on-site developments in Victoria and the South Bank.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Both are set to complete in the next twelve months, which means that we are delivering into an attractive window, A speculative supply over the next two years is around half of the typical new build take up. Both schemes are designed to be multi let, which means that we expect the majority of leasing to happen post completion. Although we are seeing encouraging interest emerge and expect to see some progress in terms of pre letting in the second half of this year. The exact timing of lease up will have an influence on FY 2027 earnings, but overall, these schemes should add around £7,000,000 to earnings once fully let based on current interest rates. In retail, brands continue to focus on the best locations as these provide the best access to consumer spend.

[Mark Allan, CEO & Executive Director at Land Securities Group]

As the chart on the left shows, the top 1% of all UK shopping destinations capture 30% of all in store retail spend. And so it's no surprise that this 1% is where around 90% of all stores of leading brands such as Apple or Inditex are located. And as the chart in the middle here shows, it is also where around 90% of our own portfolio is focused. The value of these assets is around half of their replacement costs, so new supply is zero. And as sales continue to grow and hence demand for space continues to grow, rents are rising.

[Mark Allan, CEO & Executive Director at Land Securities Group]

And this is very clear in our own portfolio performance. Sales and footfall both continue to outperform the wider market, and as a result, uplifts continue to trend higher. This resulted in another year of strong operational performance with like for like income up 5.1% and occupancy up a 10 basis points. And that means occupancy is now ahead of where it was pre COVID. We signed twenty six million pounds of leases on average 8% above ERV.

[Mark Allan, CEO & Executive Director at Land Securities Group]

And our leasing pipeline is up compared to this time last year with another £12,000,000 of deals in solicitors' hands, on average 20% ahead of ERV and 10% ahead of previous passing rents. All that drove 4% growth in ERVs across the portfolio, which was comfortably in line with our guidance. And we expect to see similar growth in ERVs this year, with continued growth in like for like income as reversion continues to build. So turning now to capital allocation. Now as I've already said, our primary focus is on delivering sustainable income and EPS growth.

[Mark Allan, CEO & Executive Director at Land Securities Group]

And so we base our capital allocation decisions on their impact on income and EPS growth in the near term and on positioning our portfolio mix such that this EPS growth can be sustained longer term. Now this slide sets out how at a high level the investment opportunities available to us compare on this basis. Major retail is accretive to EPS day one given its high yield, and we believe it can sustain attractive growth over time for the very best destinations, given that this is where demand is concentrated and new supply is nonexistent. This therefore remains our highest conviction call, although there is a limit to the number of assets that fit the bill. We expect our London offices to see good like for like growth in the near term, but in the longer term, supply and demand will likely remain cyclical and there is a cost of keeping up with evolving customer demands.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Residential net yields are broadly similar to the net effective income returns in offices after taking account of lease incentives. However, income growth in residential closely, tracks inflation and is captured annually. So rotating capital out of office into residential should be broadly EPS neutral day one, but offer higher EPS growth and lower risk over time. In development, the near term benefit to income growth is limited given the time it takes to develop. Hence, we will continue to limit our overall development exposure and focus on those projects that provide an attractive margin and move our portfolio mix towards our medium term goals.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Now each of the capital allocation objectives we outlined as part of our strategy update in February link directly to these priorities. On a one to three year view, we aim to invest a further £1,000,000,000 into best in class retail at yields that are highly accretive with rents that can deliver sustained growth. As we monetize half our capital employed in predevelopment assets where income returns are minimal and exit our retail and leisure parks where yields are reasonable but income growth is well below that of major retail. This also underpins our objective to, on a two to five year view, establish a sizable residential platform where income returns are real given rents are highly correlated to inflation. And to scale back office led development by at least half and release £2,000,000,000 of capital out of offices to facilitate this.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Our investments over the past year are very much aligned to this. We invested over £600,000,000 in two of the top 10 retail destinations in The UK at an average net income return of 7.7% and a low double digit IRR. Operational momentum in both destinations is strong with, for example, NEXT tripling their space at Bluewater to over 130,000 square feet and new openings of Sephora, Pull and Bear and Bershka during the year. Whilst at Liverpool One, Uniqlo enjoyed a record new store opening in April and Sephora are set to follow suit next week. At Media City, we have already started to see a turnaround in operational performance now that we have taken full control of the estate, with several new F and B lettings and office lettings well ahead of ERVs.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Whilst we now also have full control over the Phase two land, which has an allocation for 2,700 new homes. This also formed the basis for our disposals in the past year. We sold just under £500,000,000 of assets during the year, of which 80% was our hotel portfolio. And whilst the yield on this was over 7% and the immediate EPS impact therefore was down, around 70% of that portfolio was over 25 years old and required significant CapEx to sustain this income. And since the year end, we have sold a further £159,000,000 of assets, including 40% of our residual retail parks, where like for like income over the past year was flat, well below therefore the 5.1% income growth that we saw in major retail.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Looking ahead, we anticipate further disposals in the near term as we exit further non core assets and start to reduce our capital employed in predevelopment assets. In terms of future developments, our success in planning over the last two years means we now have more projects nearing potential commencement than we have the risk appetite or balance sheet capacity for. With around £730,000,000 of capital employed in predevelopment assets, which produces a current income return of around 1%, the holding cost of this is significant. And so we will look to release around half of this capital employed over the next one to three years by exiting those badged other opportunities such as strategic land and potentially JV ing or exiting some of our office led projects. We'll be reasonably pragmatic about value, but expect this to improve earnings by around £15,000,000 per annum and add around 25 to 50 basis points to our annual return on equity when taking into account the lower capitalized costs.

[Mark Allan, CEO & Executive Director at Land Securities Group]

In terms of new development, we will not start any new office led schemes until our current projects are substantially derisked. And as returns on new office development are similar to residential development, but the risks are different, we plan to scale back office led development by at least half post the completion of our current pipeline. And that's to shift activity towards residential from 2026 onwards. And on that front, we continue to progress the valuable opportunity that we've created across our three key schemes in London and Manchester, each of which benefits from strong transport links and substantial scale in their own rights. During the year, we submitted a revised planning application for the first six hundred homes at Finchley Road, which already benefits from an outline and part detailed consent.

[Mark Allan, CEO & Executive Director at Land Securities Group]

And we secured vacant possession and completed demolition of the former home base unit on this site. We also submitted a detailed planning application for the first eight seventy nine homes at Mayfield after agreeing a renegotiation of the development agreement at that site. And we're considering the potential start of a small £150,000,000 office development here, which would unlock the delivery of a further 1,700 homes around the new park that we've already created. Now we expect a planning decision on both schemes over the next six months, and that would pave the way for a potential start on-site by late twenty twenty six. And that would be around a year ahead of Lewisham, where we submitted an application for an outline and part detailed consent for our new 2,800 Homes Master Plan in October, with a decision expected in the second half.

[Mark Allan, CEO & Executive Director at Land Securities Group]

With a substantial upside in our existing portfolio and pipeline and a clear strategy in terms of capital allocation, we are well placed to deliver sustainable income and EPS growth over time. So with that, I'll now hand you over to Vanessa.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

Thank you, Mark, and good morning. We have delivered solid financial results for the year. EPRA EPS was ahead of the guidance that we gave this time last year, and that was driven by stronger like for like income growth and further reduction in overhead costs. Our dividend is up 2% in line with our guidance. And at 1.25 times, our dividend cover sits comfortably in the middle of our target range of 1.2 to 1.3 times.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

Our strong leasing activity drove 4.2% growth in ERVs, which supported a 1.1% uplift in the external valuation of our portfolio and a 1.7% increase in NPA per share. So our return on equity increased to 6.4. Our strong capital base allowed us to take advantage of the opportunity to invest in rare and highly high quality and accretive acquisitions, which will give will further enhance our future income growth. Whilst our borrowings increased as a result, pro form a for disposals since year end, our LTV is 38.4% and net debt to EBITDA is 7.7 times. So combined with our long debt maturity, our balance sheet remains robust.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

As our operational momentum remains strong and the outlook is positive, we expect to deliver 2% to 4% growth in EPS for the year to March 26. So turning to EPRA earnings in more detail. Overall, our net rental income was up £2,000,000 despite a £24,000,000 reduction from the timing difference between our disposals at the start of the year and acquisitions at the end. This was more than offset by the income from new developments, added 12,000,000 and our strong like for like income growth, which added £23,000,000 We saw a £14,000,000 reduction in surrender receipts from the elevated level in the prior year, so combined with a £5,000,000 increase in the recovery of bad debts as a result of bringing the management to certain assets in house and collecting the cash that we had previously provided for, this meant net rental income was up slightly to $552,000,000 We also made further progress in reducing our overhead costs, which were down 5% for the year and we're on track to further reduce this by more than 10% over the next two years. Finance costs increased slightly and that's reflecting a small increase in the weighted average cost of debt and increase in borrowings following the acquisitions in the second half.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

Together, these factors drove EPRA earnings up £3,000,000 And this chart shows how this translates into movements in EPRA earnings per share. Our strong operational performance meant that like for like net rental income growth of 5% was well ahead of our initial guidance of circa 2.8%. Central London was up 6.6% and Retail up 5.1% and reflecting the that's reflecting the strong demand for our high quality assets and our focus on driving operational efficiencies. Mixed use income was up 2.8%, whilst our retail and leisure parks were flat. So in total, like for like growth drove a 3.1p or 6.2% increase in EPS for the year.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

Combined with overhead savings, added 0.5p, this more than offset the increase in finance costs. And for financial year 2025, this was partly offset by the movement in surrender receipts and bad debt recovery that I mentioned earlier, but neither of these are expected to be material factors in the current year. The net impact from investment activity was down 1.1p due to the timing differences between our acquisitions and disposals, but this more than offset was more than offset by our strong operational performance. So EPS for the year was up slightly to 50.3p. As our leasing pipeline remains strong, we expect like for like income to grow a further 3% to 4% this year, which underpins our positive outlook for EPS.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

And this is further enhanced by our continued overhead savings. As I mentioned at our Capital Markets event in February, we're seeing the benefits from our focus on improving efficiency on our cost base. Following a £7,000,000 reduction in financial year '20 '20 '4, overhead costs were down a further £4,000,000 last year and that's despite continued inflation. So looking ahead, we're on track to deliver a further reduction of at least £8,000,000 over the next two years as the benefits from our investments in data and technology come through. And combined with further savings on resourcing and procurement, this means that we expect overheads to be below £65,000,000 by 2027, thus down circa twenty million pounds or 23% over four years.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

So turning to portfolio valuation. Our successful leasing drove 4.2% growth in ERVs, which was towards the high end of our guidance. Yields were up marginally and taking account of CapEx movements and the lease expiry at Queen Anne's Mansions, our portfolio value was up 1.1%, in line with our view a year ago that values for the best assets would return to growth. As previously highlighted, the existing leases at Queen Anne's Mansions will expire in late twenty twenty six and late twenty twenty eight. So as these dates are getting nearer, the NPV of the residual finance lease income decreases.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

This reduces our this reduced our overall valuation growth by around 0.5%. And there's a similar impact for the CapEx that was spent on predevelopment assets as this has not yet been reflected in valuation uplifts, But this CapEx will reduce significantly over the next few years as we reduce our capital employed in this part of the portfolio. Our Central London portfolio was up 1% as ERV growth was strong at 5.2% and yields rose slightly. Developments were up 2.5% and that's due to the growth in ERVs and progress on our two on-site schemes, which complete in about twelve months. The valuation of our major retail assets was up 3.4% with ERV growth rising to 4% and yields compressed 22 basis points.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

And that's largely due to the value that was created from our asset management activity and that's in White Rose in Leeds and St. David's in Cardiff. This means Retail was again the best performing segment of our portfolio with a 10% total return. So having already invested nearly £1,000,000,000 of capital in this segment over the last three years, we aim to invest a further £1,000,000,000 in Retail over the next three years. Our mixed use assets were down 5% in value for the year and this partly reflects a reduction in value at Media City in the first half and partly the pre development CapEx that's been incurred at our other mixed use schemes as I mentioned earlier.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

And following the sale of our hotel portfolio, our remaining subscale assets were up slightly. We have sold one fifth of this portfolio since the year end, effectively in line with book value, and we expect to progress further disposals in the near future. We continue to see a steady pickup in investment activity in both London and Retail and the outlook for rental growth for the best assets remains positive. So we expect values for such assets to be well underpinned. The stabilization in the valuation yields and the strong operational performance meant that our overall return on equity increased to 6.4% for the year.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

Our income return was 5.8%, whilst valuation growth excluding the yield movements contributed 2.1% to our total return on equity. The positive impact of this was partly offset by the fact that we wrote off £22,000,000 of goodwill, which arose on the acquisition of the Studios operating business at Media City. This merely represents an accounting policy impact rather than any reduction in value since acquisition. There were also a number of small one off adjustments in respect of transaction costs, valuation impairment on trading assets and certain property provisions together totaling 24,000,000 So overall, our net tangible asset value per share was up 1.7%. Our focus on sustainable income and EPS growth has a number of strategic implications in terms of capital allocation, as Mark set out earlier, which will be attractive to our total return on equity and to reduce the cyclicality of our returns over time, adding further to the positive outlook.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

This remains underpinned by our strong capital base. Our average debt maturity is long at nine point six years with no need to refinance any debt until 2027. During the year, we strengthened our financial position with the issue of a £350,000,000 10 year bond at a 4.6% coupon. And we refinanced £2,300,000,000 of revolving credit facilities retaining the low margins. At our half year results, we said that we expected LTV to increase in the short term as we'd look to capitalize on the attractive acquisition opportunities.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

And this happened with the acquisition of Liverpool One. But pro form a for disposals since year end, our LTV is now 38.4% and we expect this to reduce to the mid-30s over time as we anticipate further disposals in the near future. We continue to target net debt to EBITDA of eight times or less. However, we expect to slightly exceed this in the current year as our two on-site developments are nearing full investment, but do not produce income until they complete in the next twelve months. This will therefore be temporary, and our net debt to EBITDA ratio will reduce again once both schemes elect.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

In addition, our aim to reduce our capital employed in low and non yielding predevelopment will further reduce our net debt to EBITDA by 0.7 times. Taken together, the growing reversion in our existing portfolio, the further reduction in overheads and repositioning of our portfolio should drive circa 30% EPS growth by 2,030. Against this, the lease expiries at Queen Anne's Mansions will likely reduce earnings by circa 20,000,000 And based on the current yield curve, finance costs are expected to increase as we refinance maturing debt. This the combined impact of this is around 5p per share spread over the next five years. Overall, this means that we see the potential to deliver around 20% EPS growth by 2,030, which adds further to our attractive 5.8% income return on NTA.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

For financial year 2026, we expect good progress on this trajectory as we expect like for like rental income growth to support around 2% to 4% growth in EPS and with that continued growth in dividends. With a strong capital base and a clear strategic focus on driving sustainable income and EPS growth, this means we are well placed to drive substantial shareholder value over time. And with that, I'll hand back to Mark.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Thanks, Vanessa. So I'll now wrap up with our view on the current environment, what you can expect from us in the year ahead, and then we'll open for Q and A. So notwithstanding the recent increase in wider economic risk as a result of shifting U. S. Trade policy, we are yet to see any impact from this on our business.

[Mark Allan, CEO & Executive Director at Land Securities Group]

So our outlook remains positive. Our focus on driving sustainable income and EPS growth over time to drive long term shareholder value means that our strategic priorities for the next few years are clear. And our decisions over the last few years mean that we're well placed to continue to capture the growing reversion in our existing portfolio and to drive continued like for like income growth over the next three years, whilst we further reduce our cost base. We will also grow our retail platform by a further £1,000,000,000 following our £600,000,000 acquisition of Liverpool One and Bluewater over the last twelve months as we exit our remaining non core assets and release significant capital from low or non yielding predevelopment assets, all of which positively impacts earnings and our overall return on equity. Over the next two to five years, we will then start our first residential development projects and begin to reallocate capital from offices to build a £2,000,000,000 plus residential platform from 2026 onwards.

[Mark Allan, CEO & Executive Director at Land Securities Group]

And this will ensure we build on our positive EPS growth in the near term by shifting our portfolio mix such that this growth can be sustained in the medium to longer term. So to summarize, Landsec today is well placed as a result of the successful execution of our 2020 strategy. At a time where quality has never been more important for customers, we have established a best in class office and retail portfolio, both of which are focused on areas of strong customer demand. And we have created a £3,000,000,000 residential pipeline, providing a valuable opportunity to grow in this attractive structural growth market. All of which is and will continue to be underpinned by a strong balance sheet.

[Mark Allan, CEO & Executive Director at Land Securities Group]

As we move to the next phase of our strategy, the opportunity to build on the success provides clear upside. Our portfolio is 97% full and so ERVs are growing meaningfully. Office rents are already 12% reversionary and ERV growth adds further upside to this. Whilst in retail, uplifts on re lettings and renewals are now up to 10% on recent deals. In addition, our focus on cost efficiencies will see overhead reduced by a further 10% from here, building on the 13% reduction over the last two years.

[Mark Allan, CEO & Executive Director at Land Securities Group]

And our capital recycling will drive further upside in income. All this means we see the potential to drive around 20% growth in EPS by financial year '30, which will drive continued growth in dividends. With an existing income return at NTA of 5.8, this compound growth in EPS will drive an attractive return on equity. So as we move to higher income, higher income growth and lower cyclicality, delivering our strategy will see us drive significant shareholder value. And with that, we will now open the floor for Q and A.

[Mark Allan, CEO & Executive Director at Land Securities Group]

As usual in our Q and A, I'm going to start here in the room. We will have roving handheld mics, so please wait for a mic before asking your question. Once we're through questions in the room, I'll move to the conference call and then finally pick up any remaining unanswered questions via the webcast. So please any questions from in the room? First question down here.

[Sam Knott, Equity Analyst at Kolytics]

Thanks for the presentation. This is Sam Knott from Colytics. First of all, on your 2,030 sort of target, I appreciate that it's a long way out and this is potential rather than strict guidance. What do you need to sort of hit that 60p target? And what do you currently see as the major risks to not getting to that point?

[Mark Allan, CEO & Executive Director at Land Securities Group]

Yes. So I think that the key thing says the vast majority of that growth between now and 02/1930 is based on the portfolio we own today. So that is capturing the reversion in the office portfolio, so 12% reversion as things stand and likely to grow and capturing rental growth within the retail portfolio, whereas we've mentioned we're now seeing leases ahead of previous passing double digit, and that's a growth rate that's accelerating. We've then got the cost efficiencies. We've got very good visibility to the cost efficiencies.

[Mark Allan, CEO & Executive Director at Land Securities Group]

A lot of that is technology enabled from the systems that we successfully implemented at the end of last year. So that's the vast majority. I would say towards the back end of the period, there's some aspect of capital recycling would deliver an element of that. And that capital recycling will we do assume within that, that there will be a gradual steady recovery in investor demand for office assets to allow us to facilitate that rotation. But the vast majority of that is about executing on growth in today's portfolio.

[Sam Knott, Equity Analyst at Kolytics]

That's clear. Thanks. And then just on your residential development, so you quote returns between sort of 12% to 13%. What is the development yield that underlies that? And how does that compare to maybe a stabilized yield in the same markets?

[Mark Allan, CEO & Executive Director at Land Securities Group]

Yes. So the first thing I would say is these are projects that we're looking to start at the earliest or late twenty twenty six. So we don't have absolutely fixed numbers today as you would expect. But we will be looking on a net basis, so net of all operating costs, a yield on cost that's going to be somewhere in the low 5s, high 4s to low 5s depending on London versus Manchester within the pipeline. Stabilized yields, I mean, we're starting to see a bit more transactional activity in the market.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Depending on where those assets are, they tend to be valued at the moment of somewhere in the region of 4.5% to 4.75% depending on exact location. You've got factors such as the quality of the products and clearly what you're delivering in a new development pipeline in the context of a new building safety environment of dual staircases and all these things mean I don't think they're necessarily quite apples and apples comparisons. But the most important feature for us is how strong the correlation of rental growth is to inflation. And you've got such strong political support to see houses being delivered to be see residential units being delivered, particularly in brownfield locations. So for us that we see that political support ultimately easing the path to delivering viable projects in those brownfield locations playing into what is unquestionably strong demand for residential.

[Sam Knott, Equity Analyst at Kolytics]

That's great.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Thank you. Thank you. Zach, just here at the front.

[Zachary Gauge, Equity Research Analyst at UBS Group]

Thanks. Good morning, everyone. It's Zachary Gage from UBS. A couple of questions from me. Firstly, on the construction developments, unless I misheard you, Vanessa, I think you said they were completing about twelve months' time.

[Zachary Gauge, Equity Research Analyst at UBS Group]

At the half year results, I had 30 high completing October 25 and Timber Square completing December 25. So has there been any shift in the expected completion date on those assets? The second one on the return on equity, sort of 6.4% for the year, obviously still a little bit below the eight to 10% sort of guidance that you gave assuming stable yields, which they largely were. Appreciate there were the caveats that the J curve on developments, Queen Anne Mansions and the goodwill write down this year. But going forward to sort of next year, assuming we have stable yields again hypothetically, is there any other potential headwinds that would mean that we wouldn't be at the eight to 10% that you sort of guide to?

[Mark Allan, CEO & Executive Director at Land Securities Group]

Sure. So your second question, I'll pass to probably Vanessa in a moment. Just to talk on the under construction developments. So we're expecting to see those complete around the end of this financial year. We talked at Timber Square of seeing some slippage and cost overrun at the half year, and there's been no further deterioration on the cost side.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Exact completion dates and leasing in this final sort of twelve months of development, a little bit of flexibility around that. But so there's probably been some slippage from when the projects were initially committed to. But in terms of completion over the next twelve months, that's something that we're comfortable with. And as I mentioned in my comments, we expect to get into the pre letting window for those projects really in the second half of this year. They're multi let projects, 30 high in particular is effectively 27 office floors of 10,000 square feet each, highest building in the West End with unrivaled views.

[Mark Allan, CEO & Executive Director at Land Securities Group]

We're going to get the best pricing for that by waiting until the product is more complete, so people can see and imagine themselves in that space. And that type of occupier tends to have shorter lead times. Timber Square, slightly bigger floor plates, that's probably going to see pre let demand a little bit sooner. And that's the one I think we would expect to sort of start to get traction on in the second half of the year. Just on the then on the ROE guidance and some of the one offs that we have identified this year and likelihood of what we might see in the year ahead.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

So I think as we've as I mentioned, I think we're in a position now where we see that the yields are in a stable position from a valuation perspective. So I think we're in a good position now with around 5.8% income return on NTA and also seeing ERV growth coming through and expecting that to be again in a similar broadly similar to what we've had this year with low to mid single digit growth. We're in a position to deliver a good return on equity going forward. The adjustments that we referenced in the presentation around one off costs in terms of development, the write down on QAM and the other write down on the goodwill, etcetera, was really a one off situation. So we don't see those reoccurring.

[Vanessa Simms, CFO & Executive Director at Land Securities Group]

So that puts us in a good position that we should be able to in a good position to deliver our target return of 8% to 10% going forward from here.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Thank you, Zach. You don't mind handing the microphone back to Max.

[Max Nimmo, Director - Real Estate Equity Research at Deutsche Numis]

Thanks very much. Max Nemo, Deutsche Numis. Just if you could talk a little bit about the retail investment market. There's obviously been a lot of focus on the pivot towards resi, but just kind of interested to see how that's kind of evolving. And have you looked at many more opportunities since Liverpool?

[Max Nimmo, Director - Real Estate Equity Research at Deutsche Numis]

One has a lot come across your desk. I appreciate you're going to be very selective in going to be looking at. But just with regards to that sort of £1,000,000,000 over the next three years, should we think about that as possibly one asset, maybe two? Is that the way to think about it?

[Mark Allan, CEO & Executive Director at Land Securities Group]

Yes. So the £1,000,000,000 that we've indicated over the next three years is roughly GBP 200,000,000 is accretive CapEx into the existing portfolio and that will be selectively expanding space and expanding the rent roll, so delivering a very clear return upside. And that sort of development is viable with rents growing when you're effectively adding to existing retail space rather than needing to put all of the sort of fundamental base in to build from. The development is clearly not viable for any new shopping centers nor is it likely to be viable anytime soon, which is one of the really important things that underpins our sort of investment thesis. That chart that we've shared a couple of times now and was again in the presentation here of the top 1% of destinations, account effect effectively having access to 30% of all in store spend.

[Mark Allan, CEO & Executive Director at Land Securities Group]

That's the other side of the investment thesis for us. And so that's where we are looking. So to put that in context, that 6,000 destinations at CACI tracking that data, that is 60 locations is the top 1%. Then all shopping centers, that's going to have Bond Street, Regent Street, etcetera, those locations in there. But it roughly equates to the top 30 shopping centers in The UK.

[Mark Allan, CEO & Executive Director at Land Securities Group]

So that's effectively where we are looking to add to our portfolio. We know that a number of those are, held in capital structure that are unlikely to be the right long term structures and long term earnings going forward. That's likely to offer the best opportunity to invest. I would say the other GBP 800,000,000 is probably assuming probably two acquisitions over the next three or so years. Investment market more widely, there's certainly more coming forward in shopping centers.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Most of the stuff that's coming forward at the moment is at the smaller end and is not stuff that I would see us being naturally interested in. But we would expect to see over the next sort of two to three years more opportunity at that sort of top 30 end of the market. I mean, Liverpool as a transaction took roughly eighteen months, I think, from sort of beginning to end. So you get decent visibility of what's coming through. Great.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Thank you. Thank you, Max.

[Paul May, Director at Barclays]

Hi, Paul May from Barclays. Just a couple from me. First one, on the strategy, a lot of it is the office selling and the residential investment, which as you mentioned doesn't necessarily generate much income differential. And we're probably looking at a ten year plus before you start to get the real income growth being a beneficiary. Just wondered, have you or did you consider selling those schemes given the strong operating performance you mentioned in the office portfolio and the retail portfolio versus that risk of execution of selling and investing in residential?

[Paul May, Director at Barclays]

Why not just sell those residential schemes? And what's the issue there? And I'll do the second one in a minute.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Okay. So I'll take that one first. So exactly how we capitalize those three I mean those three projects together are roughly £4,000,000,000 to £5,000,000,000 of investment. And so I don't think we necessarily sat here today saying we're going to put £4,000,000,000 to £5,000,000,000 of our balance sheet, which is kind of half getting off half the portfolio into those three projects. So at some point going forward, we're likely to be looking to bring other forms of capital into those.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Exactly when and how we bring that capital in and the extent to which it might participate in some aspects of development or it may be taking out stabilized assets. I think those are things that we will consider and still need to consider. And we have to look at ultimately when we nail down the build cost, we're absolutely clear on the rents and the operating costs in these projects. We have to be absolutely confident that the return we're going to make on those justifies the shift across to that. So what we're signaling very clearly is an expectation that will be the case, but not an absolute commitment that we're going to press ahead with those projects sort of come what may.

[Mark Allan, CEO & Executive Director at Land Securities Group]

What, however, makes residential developments for Build to Rent in principle so attractive is the political support to see homes built in urban locations, the very significant shortage in housing, the very significant correlation with inflation over many decades. We think that combination of factors is a relatively rare confluence of things that will support us positively on those projects. And so selling them now and continuing to focus on something that is retail where we've got very clear long term confidence in the sector, office where we can see very clearly short term, but on a medium to longer term judging where supply is, being able to consistently capture uplift through the lease model within The UK, those are all things which we think are quite challenging to translate into a consistent sustainable EPS growth story in a way that residential isn't. Residential very clearly aligns to that. And as our focus is, EPS growth, income growth and demonstrating the sustainability of that for the long term, that's what underpins the steady rotation towards Residential on a five year view.

[Paul May, Director at Barclays]

Feeds quite nicely to my second question around the, I suppose, the impact on the shares today, I think, coming from that slight miss on the NTA that we talked about on the one offs that have come through versus the strong operating results that you highlight and outlook for earnings growth, which must be quite frustrating for you seeing because that's what you want to focus on and yet the market doesn't seem to want to. At what point do you just drop reporting NTA?

[Mark Allan, CEO & Executive Director at Land Securities Group]

I think it's rather difficult in the context of accounting standards and against price It's very possible. For us to do that. Look, we've said NTA is not irrelevant. I mean you've got to be clear what the underlying value of your assets are and it should be a function of the ability of those assets to generate cash flows and returns over the long term. They're just valued with a different investment market in mind, is much less liquid than the real estate market, which I think often contributes to the differential between the two.

[Mark Allan, CEO & Executive Director at Land Securities Group]

But whether it's real estate or whether it's equities for the long term, if you take away some of the variability in multiples, it's income growth longer term that drives value. At the end of the day, we are managing a business for the long term. We're confident that, that long term strategy is what's going to deliver value. And what we can't do is be unduly swayed by how a market might respond to things from one sort of year to the next. There's a very high degree of conviction and confidence increasingly from investors and questions about why can't we invest more into retail.

[Mark Allan, CEO & Executive Director at Land Securities Group]

That's very different to the questions we were getting from the same investors two years ago about why would you do anything in retail. And I think it's a decent illustration of we've got to be confident in what we're doing with our business and be prepared to say clearly what we're trying to do so investors can judge for themselves ultimately their view on the strategic view that we try to set out clearly.

[Paul May, Director at Barclays]

Perfect. Thank you.

[Mark Allan, CEO & Executive Director at Land Securities Group]

I don't think there are any further questions in the room. So I'm going to open it up to the conference call now to see if there are any further questions to pick up from anyone who has dialed in this morning.

[Adam Shapton, European Research Analyst at Green Street Advisors, LLC]

Adam Chapin from Green Street. Please go ahead. Good morning, Mark and team. Thanks for the presentation. Just one on disposals.

[Adam Shapton, European Research Analyst at Green Street Advisors, LLC]

I'm just wondering if you can comment on what sort of response you've had from the market at large since you publicly stated your sort of intentions and willingness to dispose of those assets in February and whether any sort of interest that you've received is more about full sales or interest in in JV on some of those assets? Just just trying to get a sense of, you if if if the right offer comes along, should we see some of these disposals happen more quickly than than some of your your commentary may be implied so far.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Yeah. Thank you. So so perhaps I'll provide a little bit of sort of general comment on what we're seeing happening in the investment market, and in particular, the sort of the London investment market. And then I'll try and put a bit more color around the conversations discussions that we've had post our strategy announcement in February. So as I mentioned in my remarks, we're seeing a steady, it's not spectacular, but it's a steady return of investor interest into the market.

[Mark Allan, CEO & Executive Director at Land Securities Group]

I think there's a whole range of different factors behind that. But the one that underpins it the most is there is an increasing level of conviction and confidence in the underlying occupier markets and the ability to underwrite rental growth for best in class office assets. There are still question marks of course about what's the right cap rate and where are rates going, which I think will act as a that will be a key factor in how quickly we see further activity recover from here. But where the demand is strongest at the moment really, think two areas. Firstly, private equity style investment, is more at the value add end of the spectrum as you would expect.

[Mark Allan, CEO & Executive Director at Land Securities Group]

That does fit pretty well with our intention to reduce the capital employed in non yielding or low yielding assets because those tend to be development opportunities. And there was a lot of activity in that end of the market. So the response we've seen from the market to those opportunities, think, has been a positive one. But as you alluded to in your question, there's quite a wide range of ways in which people want to participate. So whether that's to put capital in and work alongside Landsec, whether that's to do that themselves.

[Mark Allan, CEO & Executive Director at Land Securities Group]

So that's I think the things we need to work through. But unquestionably, the demand at that end of the market, I think, is pretty healthy. The other interest, of course, that we've seen across the wider market activity we've seen is at the very prime end and probably the Norge deals with Grosvenor and Shaftesbury are good examples. I think there is an increasing number of global investors with a very long term investment horizons that see this as an opportunity to acquire truly scarce assets in Central London at an attractive point in the cycle. Now we have assets within our own portfolio that I think will also fit that sort of liquidity as well.

[Mark Allan, CEO & Executive Director at Land Securities Group]

So we're not looking to rush quickly into disposals, certainly that end of the spectrum, but we've got to make sure that our strategy to sell can be adapted to where liquidity is in the market at any particular point in time. There isn't a lot of core capital around at the moment. I think that will start to come back, is starting to come back, but that's still very low. Now Toby does a much better job than I do on on going through all of the numbers that sit behind investment liquidity. But if you look at the the most recent sort of CBRE global equities study, which looks at capital that is targeting the London office market at current pricing.

[Mark Allan, CEO & Executive Director at Land Securities Group]

I think that peaked in 2021 at around GBP 44,000,000,000. It troughed in around this time last year, I think down at GBP 19,000,000,000. And most recently, I think that's now reported as something in the order of GBP 21,500,000,000.0. So it's off of the trough, it's improving steadily and that's very much aligned with what we're seeing. The last point I would then make, which is just a bit more color for ourselves is that when you stand up as a business and talk about what you're trying to do strategically and what you might be wanting to sell, etcetera, or what you're wanting to buy, perhaps unsurprisingly, that tends to generate a significant amount of inbound inquiries.

[Mark Allan, CEO & Executive Director at Land Securities Group]

And a lot of that can lead to interesting opportunities and options that we or others might not have thought of. So I think it's an important part of stimulating recovery in the investment market.

[Adam Shapton, European Research Analyst at Green Street Advisors, LLC]

Thank you. Maybe just one more follow-up with that. Okay. Does the timing or the nature of those disposals have much impact on your overheads? So, you know, it's a JV rather than a clean sale, for example.

[Adam Shapton, European Research Analyst at Green Street Advisors, LLC]

Is that could a sort of surprise on timing or structure impact what you're guiding in terms of overhead progression?

[Mark Allan, CEO & Executive Director at Land Securities Group]

Not with respect to the income statement because that's not overhead that's dealing with development activity. So the guidance we provided on the reduction in cost through the P and L, through the EPRA earnings number, that is not presupposing any particular set level of development activity. That's all about efficiencies within the wider central overhead functions of the business off the back of primarily the technology investment that we've successfully made and implemented.

[Adam Shapton, European Research Analyst at Green Street Advisors, LLC]

Okay. Thank you.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Thank you. Any other conference call questions?

[Sam Knott, Equity Analyst at Kolytics]

No further questions.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Perfect. So I'm going to go to questions from the webcast. First one from Mike Prouh concerning EPRA cost ratio. So we expressed the view that the EPRA cost ratio isn't important in isolation. Why is that?

[Mark Allan, CEO & Executive Director at Land Securities Group]

As surely it's a cost component trickling down to earnings and dividend paying capacity. I'll take this one if I may. So the first thing I would say is that for the avoidance of doubt, cost and efficiency is incredibly important in a business and we are laser like focused on that. The best way I can talk about why we say the cost ratio itself in isolation, is not so important is I'll give you examples across our shopping center portfolio of car parks. We could lease a car park to a third party operator who would deal with everything and get £1,000,000 a year of income, and a cost ratio of effectively zero.

[Mark Allan, CEO & Executive Director at Land Securities Group]

Or we can run them ourselves, get £1,500,000 of revenue in, spend £200,000 running it and have a cost ratio of 15% to 20%, but make £300,000 more income at the bottom line. And that is more dividend paying capacity and more earnings. So that's what we mean when we distinguish between the operating cost ratio and the importance of cost and efficiency. And you can scale that up to operational businesses such as shopping centers, residential going forward. The cost ratio will always be higher than a sort of net lease model, but it gives the opportunity to drive higher earnings and higher growth through operational execution over time.

[Mark Allan, CEO & Executive Director at Land Securities Group]

And then the second question from Marcus Fairmudge, did we bid on Aberdeen's ownership at Brent Cross? We did not. Obviously, that's a very long standing joint venture interest between Aberdeen and Hammerson, and I know Hammerson responded recently to press speculation on it. Those types of interests, of course, tend to have a very narrow market and tend to lead to transactions taking place between partners as we've done very successfully in increasing our stakes at Bluewater and Cardiff. No further questions on the webcast.

[Mark Allan, CEO & Executive Director at Land Securities Group]

And we've covered the questions in the room on the conference call. So all that leaves me to do is to thank you very much for taking the time to attend our results presentation this morning and wish you all a good day and weekend when it comes. Thank you.

[Operator]

This presentation has now ended.

Participants

Executives

• Mark Allan, CEO & Executive Director
• Vanessa Simms, CFO & Executive Director

Analysts

• Sam Knott, Equity Analyst at Kolytics
• Zachary Gauge, Equity Research Analyst at UBS Group
• Max Nimmo, Director - Real Estate Equity Research at Deutsche Numis
• Paul May, Director at Barclays
• Adam Shapton, European Research Analyst at Green Street Advisors, LLC