Land Securities Group (LSE:LAND) — Landsec – the investment case

0:01 Good morning, ladies and gentlemen, and welcome to the LAND SECURITIES GROUP PLC investor presentation. Questions are encouraged. They can be submitted at any time via the q and a tab that's just situated on the right hand corner of your screen. Please just simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company can review all questions submitted today and will publish our responses where it's appropriate to do so on the Investor Meet company platform. Before we begin, we would just like to submit the following poll. And if you could give that your kind attention, I'm sure the company would be most grateful. And I would now like to hand you over to chief executive officer, Mark Allen. Mark, good morning, sir. Jake, thank you very much. And, ladies and gentlemen, let me add my welcome to you, and thank you for taking the time to to join us this morning. I'll start, just with a very brief introduction as to to who LAND SECURITIES for those that that perhaps are not familiar. But, we we are simply the the the largest UK focused REIT real estate investment trust, with a very high quality portfolio of assets focused really on two sectors, a prime Central London office portfolio and then a major retail destination shopping mall portfolio.

1:14 In total, that portfolio valued independently as of today at around £11,000,000,000. Business has been around for, over eighty years. It's been a constituent of the FTSE hundred, since the FTSE hundred was established in '19, in the nineteen eighties, and we take that legacy and that track record extremely seriously. It's reflected in our credit rating. We carry the highest rating of any real estate investment trust in The UK, a double a rating, and that really tells you two things. The quality of the underlying cash flows of the business are very strong, and we are able to access financing quickly and cost effectively, which particularly given the, environment for higher interest rates we find ourselves in at the moment, is extremely important.

2:00 We're a very cash generative business from that portfolio, and that supports a high dividend yield, over 6% currently. And we have a very clear growth outlook through until 2030 where we would expect to see that earnings and dividend grow by around 5% per annum, all in all implying an attractive double digit total return. I we'll just look at those numbers very briefly in a little bit more detail. So looking firstly at our earnings yield. So this is the cash flow, the FFO from our portfolio lessor of the operating costs and servicing our debt financing. That's a 7.7% earnings yield based on the numbers we reported to the end of March twenty six. We pay out 80% of that earnings in the form of a cash dividend twice yearly, meaning there's a 6.2% dividend yield as things stand today, but with growth potential beyond that. So from a 51.4p per share reported last year through to a guidance of around 62p per share by 2030.

3:07 And that growth in earnings supports consistent growth in dividend, and we show here on the chart, the consistent growth in our dividend over the last five or so years. And with the growth in earnings, we would expect to see a similar level of growth supported within the dividend. So what is it that underpins that sustainable and growing income stream? Well, it really boils down to to two things. Firstly, the quality of our portfolio enabling us to deliver consistent above inflation growth in rents. And then secondly, the efficiency and discipline around our platform operations as a business, ensuring that that growth in cash flow flows through to the bottom line that investors see in the form of ultimately at dividends.

3:54 So the rental income growth is all about having those two best in class portfolios that I mentioned in Central London and our major retail portfolio. And we have, like for like, net rental income expectations for the year ahead of mid single digits, and we're expecting over the medium term retail in particular to benefit from a very strong focus on the very best locations amongst retailers and shoppers with growth there of four and a half to 7% between now and 2030. So a really strong outlook, and I'll come in in a moment to to explore those themes in a bit more detail, but a very clear, and strong outlook for rental growth and importantly, one that has not in any way been over the last few months by the disruption that we've seen across The Middle East.

4:43 Perhaps more importantly for us, I think, given there are other REITs, of course, listed on the stock exchange, How we ensure that value at a a portfolio level flows through to value for shareholders is incredibly important. And there are really three things that I would point to, each of which I will come to in a little bit more detail. Firstly, it's about how you finance your business to make sure that you don't have significant refinancing risk in the business, that you have a cost effective and robust long term, ultimately, bond proof balance sheet. We have the longest average debt maturity in our sector, 8.6. So we can see fluctuations in swap rates from day to day, week to week. But, ultimately, we've got an average debt maturity of eight point six years. That's twice the sector average.

5:32 90% of that cost is fixed for a similar period of time, and we borrow currently at around 5% with an average in place cost of debt of 3.6%. So, that's the most cost effective, debt financing, within the REIT sector. Secondly, we make sure that our business is really cost effective, so a lot of the rental income doesn't get, diluted in paying for the operating cost, the overhead of the business. We've now, over the last, few years, taken about 26% out of our overhead base. It's now operating at a twenty year low in nominal terms. So the last time our overhead was as low as it is now was back in 2006, and a lot of that's been around technology investment to streamline the business. And then finally, we focus on ensuring that we allocate capital to prioritize growth in earnings.

6:21 And in particular, at the moment, that means that we have very little development exposure because of the elevated risk in development and the long period of time that we have to wait for development assets to become income generating. As I mentioned, I will go through each of those, in a little bit more detail now. So with respect to the portfolio, a few images, on the page here just to describe those two best in class portfolios that I mentioned. So on the left are office led places. Virtually all Central London has some really iconic assets within there. So top left, you'll see Bickley Lights, the famous screens at Bickley Circus. We own not only the screens, but the entire island site that are fronted by those screens, which is a combination of about 40% screens, 40% offices, and 20% retail and leisure, but an incredibly iconic sort of world famous asset.

7:16 We then have two very significant estates, so assets where we own multiple buildings in the same locations. Our Victoria Estate, which is where I am, where our head offices are based, immediately in front of Victoria Station, incredibly well connected across the rest of London and providing super high quality, city quality assets in a West End location with incredibly high demand as a result. And then New Street Square, which is located, in the city, very close to, the Farringdon Elizabeth Line Station. Again, we own multiple assets there, multilept to different occupiers, with a very strong following amongst the legal and professional services professions. And then a a further example, one new change. So this is, again, a a very large asset located in the city, immediately adjacent as you can make out from the photo there to St Paul's and a consistently high occupancy, in demand, very well known city asset.

8:17 And then on the retail side of the business retail led places, these are catchment dominant shopping centers, the likes of Liverpool 1, which is effectively the city center of Liverpool, Bluewater in Kent. Those two are both top five assets in The UK in terms of where consumers spend their money. Also, St David's, which is in the center of Cardiff, and Gumwolf Quays, which is the number three outlet within The UK located on the coast within Portsmouth. 50% of the portfolio by income is in the office portfolio, 41% in retail. So it's a roughly fifty fifty split with strong growth growth prospects for both of those. In total, around $626,130,000,000 of income being generated every year from a very diverse and blue chip client base.

9:13 Behind both of those, there are then two really important trends that are stronger than I think they've ever been in our sector. And I've I've worked in the real estate sector leading different businesses as CEO of other listed real estate businesses for over twenty years, and I've never seen a market where there has been such strong support for rental growth in existing assets. And the reason for that is these two key trends. Firstly, for different reasons, there is a real concentration of occupier demand, of customer demand into the very best locations. So for London offices, that's all about being located to major transport links, having high sustainability credentials in terms of energy performance and and carbon emissions, and having high levels of immunity both within and around the building. And that's all about being able to attract and retain for the longer term the right quality of and caliber of talent of the staff within your business.

10:10 And that is only becoming more and more important, and London is a globally relevant city, remains a globally relevant city in particular for attracting and retaining the right caliber of talent. But then on the retail side, it's arguably even more acute. Retailers in response to changes in their model, and more online retail are now focusing on having a really strong physical retail presence, but fewer stores, bigger stores and better stores, but only in the very best locations. As a result of that, we are seeing consumer spend increasingly concentrated into those very best locations. And our portfolio, both portfolios are ideally suited and quite deliberately ideally suited to tap into those demand trends.

10:56 But somewhat unusually, although the demand trends are so strong, the market is such that supply is very it's very difficult for supply to respond. So in the retail world, because of the big correction we saw in retail in the in the period running up to and and and through COVID, values fell quite significantly. Even though rents are now growing strongly, values have been rebased to a much lower level. And so if you wanted to build a shopping center today, it would cost you over twice what it would be worth. So clearly, no one is building any new shopping centers. So that retailer demand is concentrated entirely into existing assets. And although you can still build London build London offices, it's very challenging to do so.

11:42 Construction costs over the last few years have increased by over 40%. Interest rates are higher. That means that the values are under a little bit of pressure. Development margins are tighter. And so development can only really work if you believe in very significant rental growth. And if there is going to be very significant rental growth, we're capturing that growth within existing assets without having to take development risk. And these are trends that are certainly in the case of retail for the next decade. We're not going to see anything new supplied. In the case of office, certainly for at least the next five years, and that's why we're so confident in providing earnings guidance that goes out as far as 2030. So I mentioned the the concentration of of retail, retailer investment onto fewer, bigger, better stores. The charts on the left hand side of this page demonstrates that, I think, more effectively than anything.

12:34 This is using data from a business called CACI. It's a consumer data business, and they track where consumers in The UK spend their money. And they're using information from payment providers, the credit card, debit card providers, anonymized, of course, as to where people spend their money. There are 6,000 different individual locations that they track within that data. And what this is showing is the top 1% of locations by number, the top 60 locations, have access to nearly a third of all UK consumers. So across the course of a year, nearly a third of UK consumers spend some money in one of only 60 locations. And that is where our portfolio is located. Nearly 90% of our portfolio is in that top 1%. And if you were to look at, say, Apple or Uniqlo or the Inditex brands such as Zara, they are almost entirely in that same top 1%.

13:33 So that concentration is incredibly unusual. I cannot think of another sector of the real estate world and really of the of the economy where spend is so concentrated in such a very small segment of the overall market. And that then supports what you see in the middle chart here, which is looking at consumer spending. So, of course, UK consumer has been under some pressure for a number of years now with with rising interest rates and cost of living pressures. And the dark blue line at the bottom here shows over the last few years what The UK consumer has spent in shopping centers across The UK in total, plus 3% in nominal terms. So in real terms, a decline because inflation will have run well ahead of that. But for our portfolio, and we know this because most of our retailers have an element of turnover linked to their rent, so they have to provide us with data on a weekly basis, a plus 22% growth over that same period. And you can see the gap between those lines is widening and is likely to widen further from here.

14:36 And then on the right, we just show you the indicative cost of building a new shopping center compared to where it would be valued. And clearly, would be a very loss making venture to try and build something new today, hence why there are no new centers. We own seven of the top 30 shopping centers by spend, all in that top 1% within The UK. 40% more consumer reach by spending and by footfall than the next largest retail platform within The UK. And it's a similar story in offices. You you may read or hear about what's the future of the office AI is gonna remove office jobs, etcetera. And, of course, there is there is some truth to the fact that the way AI has adopted us with so many technologies is gonna affect how society operates, how we work. But the chart on the left here shows you the total office space across The UK in totality is about 900,000,000 square feet.

15:33 We own of that, around 5,000,000 square feet, so a very tiny proportion, and it is entirely located in that very top slice of Central London as I mentioned earlier. And Central London, just use a couple of stats in the middle here from from different independent surveys looking at global competitiveness and global appeal to investors employers of London as a city, and it consistently ranks first or second globally, in terms of access to talent and ability, therefore, to grow and scale your business. There are more unicorns, those billion pound businesses, you know, created out of startups in a short period of time, more unicorns in The UK than any other economy with the exception of The US and China. And on a per capita basis, we rank number one in that same table. So it's an incredibly appealing long term location for people to invest and to employ.

16:31 And it's not just a case of then developers struggling to make new development stack up, we're also seeing space come out of the market, and this is because buildings get towards the end of a useful life. They don't have the right energy performance characteristics. They can't hit the right sustainability criteria that is so important to occupiers. And so that space is taken out of commission and often repurposed. And the numbers I refer to on the right here, 2,100,000 square feet of new space coming into our market in Victoria here over the next five years compares to a loss of stock over a similar period of 1,700,000 square feet. And a lot of that is office previous office space that's been converted to either residential or hotel space. So not quite as stark as the retail story, but still a very compelling story that underpins a very positive medium term rental growth outlook, all of which translates into record levels of leasing and ongoing demand.

17:32 The chart on the left here is just a snapshot that we took with our results back here in May of current active demand. We have two our final two office developments in London. One is just completed and is already, nearly 60% let. The other will complete, later this year. We're actually talking to about occupiers. And what this chart is showing you just how diverse that occupier base that we're talking to, that active leasing demand is. So whether that's, from utilities and energy. So for example, we have just signed BP to their new global headquarters, on the South Bank, whether it's AI and technology. And we've opened a building recently in Kings Cross immediately adjacent to OpenAI's new headquarters, and that's dominated now by AI startups within the leasing, financial services, particularly here in Victoria. It's a very popular location for fund managers, asset managers that find Mayfair prohibitively expensive and compromised in terms of the type of space, but want to be in a West End location, not in the city because it more suits their clients and business model. And then we've got defense, fintech, consumer goods, etcetera. And on the retail side, just a snapshot of the brands that we have leased with, have deals currently in our pipeline, a number of the Inditex brands there, such as Pull and Bear, Leftys and Stradivarius, Uniqlo.

18:55 These are international brands that are scaling within The UK, but they only want to be in the very best locations. And we are, for the case of Uniqlo, in the case of Inditex, we are their largest landlord, their largest partner within The UK and deal with more of their new openings than anyone else. And all of that leads to consistent growth upward pressure in rents. So we're 98% occupancy. That's a two decade high. The last time occupancy was at level was 2006. It means rents are growing at their fastest pace for very nearly two decades. 2008 was the last time we saw rents growing at the pace they are now. In office, the difference between our market rents, if we were to lease all our space today and the in place rent with the the leases that are in place is 17%.

19:49 We capture that reversion by reletting about a sixth of the portfolio every year, so that's 17%. If we get no further growth in market rents, that supports 3% per annum of growth. We expect the market to continue to grow, so that leads to our guidance of 4% to 5% in total. In retail, it's 15, and we tend to relet space in retail every five years, but we also capture rental growth annually through the turnover growth and the turnover element of leases. So 15% is the current spread between new lettings and in place rent, and that spread, I think, will widen further. And that supports compounding growth in like for like rental income across the portfolio on a look forward basis. So having talked about the trends that support the portfolio and how well positioned our portfolio is for those trends, The second element that I talked about was so important in making sure that that value transfers through to value that shareholders see is about our platform.

20:52 And we have very actively positioned our business over the last three to four years for a higher inflation, higher rate environment. We don't know and didn't know exactly what was going to drive that higher inflation, higher rate environment and recent developments globally would show just how uncertain that environment is and therefore how important it is to have a lower risk posture. But these three charts here really capture what I mean by that lower risk posture. And in every case, we benchmark incredibly well, often the best within The UK REIT sector. So firstly, on the left, I mentioned this in headline terms earlier, our average debt maturity. So, an eight point six year average maturity for our in place debt today. We primarily borrow in the bond markets. We benefit from that double a rating I mentioned earlier. We also have access, of course, to bank lines. But at eight point six years, that's exactly double the average debt maturity for The UK real estate sector.

21:50 We have 90% of that debt is is fixed or hedged so that the cost doesn't move, and that is for an average eight point nine years. So our sector is always seen as being a proxy for interest rates and being exposed to interest rates. But in terms of our income generation, we're really well protected because we haven't got to worry a huge amount about swap rates fluctuating because we've got big refinancing requirements over the next few years. We are double the sector average. We've then worked really hard over the last few years to reduce our central cost base. We've had a lot of technology investment. We've streamlined our organization in terms of management layers. We've worked really hard on procurement to drive down procured costs.

22:35 And we now have an overhead level running at 62,000,000 for last year. It will stay around the 60,000,000 level per annum going forward. And the best way to think about that is how does that compare to the size of the portfolio? Well, that is about 55%, so about half or 1% of the value of the total portfolio. For many of the smaller REITs in our sector, that equivalent ratio will be well over 1%, and that will be off of yields of the portfolio that will often be let lower than our yields. So it means there's a lot more dilution of the income that goes to shareholders as a result of that cost base. So we benchmark very effectively. We would be within the top three within The UK of measuring cost efficiency on that basis, And we will keep it within that level and seek further improvements from here by offsetting ongoing inflationary growth through continually finding efficiencies, and technology investment has been a big catalyst of that.

23:34 And then finally, development exposure down to a very low level, historically low level for us, less than 2% of the portfolio by the summer. The reason that's so important is every every pound of capital you have tied up in development is a pound of capital that is not generating rental income today and therefore not able to deliver growth in income today. And so we have quite deliberately, in response to a higher rate environment, chosen to reduce our development exposure. We will keep it below 5% in any event for the long term. But at this current level, certainly then through until the end of twenty seven at the earliest, it will be less than 2% of the portfolio. And that's an example of being very, very disciplined in how we allocate our capital. I think it's incredibly important for management teams to be able to explain to the people that own the business how we make decisions about stewarding their capital.

24:29 And what this chart is showing here is how we think about our own decisions for where we invest capital. And on the on the y axis, the left hand side, we will always consider primarily what does it do to our near term growth in earnings per share that supports the dividend per share? And then on the x axis, to make sure we're also thinking longer term, how does this impact on our portfolio mix for the longer term so we can be confident in the growth prospects of the portfolio in five years' time as confident then as we are about the current portfolio today. So with all of these quadrants, the place to be is in the top right, and you can see that the most attractive opportunity we see is retail investment. And over the last few years, we've invested £1,000,000,000 in growing our retail platform, and we have a strategic objective to invest a further £1,000,000,000 through primarily through new acquisition, buying other shopping centers, major catchment dominant shopping centers, and adding them to our portfolio.

25:30 And that is more accretive than buying our own shares, and it's really the only opportunity right now where if you adjust for the leverage, so it's a consistent return on equity rather than return on assets, it's the only opportunity which is very clearly accretive to buying our own shares. As a REIT, we pay out all of our income every year in the form of a dividend. So we don't generate surplus capital to to buy back shares, but it is an important reference point to judge what else we're doing with our capital, how does that compare to buying more of our own business, in a sense. And you can see that our judgment for the outlook for office development in particular, as I mentioned earlier, is much lower. It ultimately doesn't support near term income growth because it's capital tied up for for four to five years in, by definition, nonyielding activity.

26:20 But also for the longer term, we would like to see more capital invested in retail and more capital invested in built to rent in residential, which is another opportunity that we have in the very sort of incubator stages at the moment within our business. And so we are looking deliberately to reduce office development, as I showed on the previous slide. But also, ultimately, we will look to realize some capital from the office portfolio. You can see office investment also is on the left hand side of the chart here and use that cash to reinvest in retail. And we've done that most recently through, selling close to £3,000,000,000 of offices between 2021 and 2023 and doing that very effectively. We then sold a further £250,000,000 of offices last year, and we've used that capital amongst other things to acquire Liverpool One, which we did in late twenty four for £500,000,000.

27:11 We've increased our stake in Bluewater. We now own nearly 70% of that asset compared to 30 a few years ago. We bought out a JV partner in Cardiff, so we now have 100% of that asset. So we've been using this framework for quite some time, and it will continue to guide how we make our decisions. And of course, ultimately, behind all of this, we also need to make sure that we don't stretch the balance sheet, that we make sure we're always in control of our own destiny. And so as we continue to execute on our capital allocation and lease up our current portfolio, we'll keep our leverage nice and low, and we'll move to a net debt to EBITDA ratio of below 7x, currently running at around 8x, which again benchmarks very well compared to the wider sector. So finally, bringing all those things together, I said at the outset that we had an outlook for earnings growth between now and 2030 of around 5% per annum. Let me just bring together the different component parts of that into this earnings bridge here.

28:12 So starting on the left hand side, we've got our reported audited earnings per share from the year to March 26 at 51.4p per share. Last year, I mentioned the office disposal we made earlier, is a business was an asset called QAM, Queen Anne's Mansions. It's the headquarters of the Ministry of Justice currently, so let's say the government. But that lease was to expire over the next two to three years. And rather than redevelop the asset, we chose to sell that asset early. As a result of that, we've lost some income, the last few years of income that we would have received under the lease. And so we're showing a a slight step backwards this year as the earnings in the year to March 27 will not have the benefit of that income. However, we're more than offsetting that as we go forward through capturing reversions. So the difference between the market rents of leasing our space today and the in place rent that we'll be replacing.

29:05 So you can see both office and retail capturing out of a reversion is by far the most significant driver of growth. We then have two office developments, one that's just completed that's close to 60% leased and another one that completes later this year that we'll be leasing up over the course of the next twelve or so months. And that will be pure earnings upside because we're not reinvesting that capital into new development activity. We're going to see that capital start generating income that it isn't currently generating at the moment. We then have a small number of nonyielding predevelopment sites, five sites. We've sold three already, including one a few weeks ago, a development site in the city, and we have two others that we will sell. Those assets aren't generating income. So simply by selling those sites to other developers and using the proceeds to reduce borrowing, we are enhancing earnings.

29:58 Of course, we then need to think about we're in a higher interest rate environment. We need to acknowledge that as we refinance over the next few years, over that eight point six year average, we will be borrowing at a higher rate than we are currently, and we have fully reflected that in our forecast. So this uses the forward interest rate curve as implied by the markets. That's really current as of today, so it reflects all of the elevated borrowing costs associated with Iran in particular. And then finally, I mentioned we were planning to put a further £1,000,000,000 into retail and pay for that through recycling capital out of the office portfolio. There's about a 200 basis point difference in the income that we can achieve on retail compared to the offices that we will be selling. So on £1,000,000,000 of asset rotation, there's about a £20,000,000 upside to our earnings.

30:53 That's the only part of this bridge which is not driven by today's portfolio. So even if we did no recycling at all, you would still see 4% per annum growth from that very attractive initial earnings yield of 7.7%, dividend yield of 6.2%. So in terms of the investment case for LAND SECURITIES, a business which has truly irreplaceable scarce assets that are driving well above inflation rental growth with very supportive trends through until the end of this decade, a low risk platform, low cost base, very resilient long term debt in place and a low risk disciplined approach to capital allocation, supporting a growth in an already attractive earnings yield over the next few years.

31:45 I'll stop at that point and now hand back to Jake. Thank you. Perfect, Mark. That's great. And thank you very much indeed for your presentation this morning. Ladies and gentlemen, please do continue to submit your questions just by using the Q and A tab that's situated on the right hand corner of your screen. But just while Mark takes a few moments to review those questions that have been submitted already, just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q and A, can all be accessed via your investor dashboard. Mark, as you can see there, we have received a number of questions throughout your presentation this morning, and thank you to all of those on the call for taking the time to submit their questions. But if I may just hand back to you to read out those questions and give your responses where it's appropriate to do so. And if I pick up from you at the end, that'd be great. Thank you. Great. Thank you, Jake. Yes. So first question here, first couple of questions really are focusing on the retail market. So firstly, a question about who are the sellers of shopping centers. So we've said we want to invest £1,000,000,000 in acquiring new assets to add to our current portfolio. Who are the sellers of those centers? And will there be enough opportunity for us to get that billion pound deployed?

32:52 So one of the key things that that happened particularly during COVID was that a number of owners of shopping centers got into real financial difficulty. A number of those businesses failed, and those assets ended up in the hands of their lenders. And they are still, in many cases, in the hands of those lenders or people who have bought the debt from those lenders. They are clearly not the right long term owners of those assets. They don't want to in the long term. They own them because the they they were the debt holder, and they ended up having to enforce their security. A number of those assets have started to be sold. I mentioned we bought a a JV partner, Edin Carter, for example. That was from a a a failed JV partner where we bought the the debt from the lenders on that 50%. But we're also currently at moment the metro center in the Northeast, for example, which was again part of what was a business called Into. That's been marketed currently 500,000,000.

33:45 There are a number of other assets around as well, all in that top 1% that I mentioned in credit credit report for us. We would only be shopping in that top 1%. There's probably about £3,000,000,000 worth of assets that we could see opportunities to acquire over the next two to three years that we expect to come to the market. Of our billion, about 200,000,000 is expected to be CapEx into our existing assets, so accretive activity that's gonna have a very strong return on investment. So we're looking through acquisition to invest about 800,000,000 in total. So out of that 3,000,000,000 or so, around 25% that we would need to successfully secure. And the the competition at the moment because you need to know how to operate these assets, you need to have the relationship with the brands, you need to have the the the strong balance sheet, the access to capital.

34:35 The competition amongst others to acquire these assets is still at the moment very constrained. So a good level of confidence that we'll be able to execute that part of the rotation. And then a question about consumer confidence and and how does that impact the retail business. I showed a chart on one of the pages just showing how much consumer spending in our centers was outpacing the wider market, plus 22% over the last few years compared to a market at plus three. And that's really the most important thing to understand about our retail business. Our thesis is not that we expect consumer spending to be particularly strong. We don't. But it is that we expect that consumer spending to increasingly be concentrated in fewer, fewer locations, brands to concentrate their investment into those very best locations, driving more footfall, more concentration of consumer spend, and so on. So we get that virtuous circle benefit.

35:29 And that you but you have to have a platform of scale. It has to be in that top 1% of locations I mentioned earlier. Our portfolio very much is located there. Our next question then talks about the other side of the capital recycling, so selling office buildings. Clearly, it's been a challenging investment market. So so what is the current state of the office investment market? And I would say that the the state of the investment market for selling assets at the moment is the market is functioning but fragile. Investment markets are always going to be susceptible to to what's going on in debt markets, where are interest rates, what's the availability of debt finance. The availability of debt finance is very, very good. Banks are very happily happy lending into the the real estate market. But because interest rates, gilt rates are much higher, the spread between the all in cost of borrowing and the and the yield on the assets is much tighter than it would have been, say, four or five years ago, and that has led to a reduction in investment activity.

36:32 But investors in much the same way as occupiers are focused on the very best assets. They want to be confident that the income they're buying is quality income. It can grow, and it can be there for the long term. And so the market is functioning, and I expect as we see a bit more normalization and stability in wider capital markets, we'll see that continue that activity continue to grow steadily. But we've been actively selling office assets throughout all of this period. We've continually been able to find buyers and find buyers at sensible, prices. And I'm confident going forward that we'll continue to be able to do that. But we're not a full seller, and we will be very disciplined on price. If we can't find the right buyer or the right price for our office assets, we're not simply going to sell because we've said we want to.

37:19 We will hold on to the assets and wait for the right buyer, the right market conditions. Next question is also office related more on the occupier side. A lot of comment in the press about AI at the moment. What's our view on potential impact on our market? So I did touch on this a little bit briefly earlier in in some of my remarks. So I think we certainly expect to see, as you do with so many new technologies, a change in the nature of of of jobs and roles over time. But but we are seeing examples now of that creating as many new businesses and new roles as it may be displacing others. And particularly in Central London where where there is that concentration of investment and employment because of that, it it's positioned as a as a global hub for talent.

38:06 Actually, at the moment, we're seeing it being a clear net beneficiary because you've got so many of these new AI businesses looking to open and scale their businesses here within London. We're actually a little bit cautious about not wanting to have too much of our rent roll in any particular sector, whether that's AI or others. So we always look to be very diversified, but it is providing really healthy demand for new occupiers. And then we also talk to our existing occupiers to understand how they're looking to use AI and how they expect that to impact their businesses. And I mentioned we have a lot of law firms and professional services firms as customers across our portfolio. And they're often talked about as as businesses where AI could be displacing graduate recruitment, for example.

38:54 And what they're all telling us and what we're seeing them all doing is not changing the the number of people they employ or the amount of office space they require, but they are looking at changing the nature of the role. So there's if you're a consultant, there's a huge number of new roles now helping your clients deal with AI in their business. Those are new roles. You may end up with with fewer people in more frontline consulting roles that can be done early stage career roles that might be more AI enabled now, but that's being more than offset by the new roles that are being created. So overall, I would say over the next five years, I would see it as being a very clear net benefit. Longer term, I think it the the much bigger driver is going to be what happens on supply of new office space. And as I mentioned earlier, that remains very, very constrained.

39:46 A question about any plans to invest outside of The UK. We don't have any plans as things stand to invest outside of The UK. The trends I talk about, I think, may well be true outside of The UK, but The UK is the market we know inside out. We've been operating it as a business, for for over eighty years. Obviously, we've not been doing it for over eighty years, but all of the team here are very experienced with with decades' worth of experience. We know these sectors inside out, and we're able to turn that into very effective decision making, capital allocation and operating discipline. Question about our current gearing levels and are we happy with our current levels of financial gearing. So I mentioned earlier, I think the primary measure that we look at for gearing is net debt to EBITDA. So what is the level of net debt compared to our the cash that we generate every year from our portfolio?

40:40 That's currently running about eight times. But as we lease up our development pipeline and capture more growth in the existing portfolio, that moves to below seven times. The other measure that is often used in our sector is loan to value. I think it's a bit misleading because, it's, you know, it's not as though any business could suddenly sell its entire portfolio and and would know exactly what the value is, whereas those cash on cash measures of net debt to EBITDA are much more real time. You can measure them from one year to the next. But our LTV is currently around 38%. We look to keep it in a range of of 25 to 40 or our sort of bookends. It's trending towards 35% over the next one to two years at the moment. As I mentioned earlier, I guess the most important measure of this is what do rating agencies think. We have a AA rating. It's the highest rating by quite a margin of any borrower within The UK REIT sector.

41:34 Does the change in Prime Minister result in any risks or opportunities? Clearly, it's not particularly helpful for business to have such a rotation of political leadership. What we really would like to see is more stability and more focus on on economic growth. We do as it happens now, assuming he is appointed next week, Andy Burnham. We do know him incredibly well. We're a big investor in Manchester. We've worked with him very closely over recent years. And I think, ultimately, from an opportunity point of view, he is still gonna be very focused on growth as as as Keir Starmer and and Rachel Reeves have been over recent years. They found it difficult to generate growth. I think he does talk about devolution in particular as being a driver of growth.

42:21 We'll see what happens. But, ultimately, if you have truly irreplaceable assets, if the economy is not going particularly well, people are not building any new assets or very few new assets, then economic activity gravitates to the best quality assets. And so I think actually, in a funny way, political uncertainty, particularly as we've got our position our business positioned for in a lower risk posture, I think actually, we're we're we're able to to weather whatever really the economy or politics throws at us. Regarding our target, 62p per share of earnings by 2030, how much buffer do we have for noise like refinancing? And there's a good amount buffer within that. Clearly, we're going to put a number out there, we're not going to put out something which is incredibly stretching. We've got a program internally that we call 30 by 30, which is 30% growth in earnings by that time, which compares to the £0.62 would imply 25% growth over that period. So we've got other levers we're looking at whether we can pull that would give us buffer above that. But also, most importantly, as I mentioned earlier, within the refinancing, we have taken the forward interest rate curve.

43:30 So we have taken the and these are very, very high levels of bond yields that we would be refinancing into as others would be. We have taken that market position. Dividend growth, will it be broadly in line with EPS? I think broadly speaking, it will be in line. Certainly, will be growing, the growth in earnings. Whether it grows exactly in line will depend on what other investment opportunities there are for that small amount of roughly 20% of earnings that are not distributed every year by dividend. But certainly, you can expect to see the dividend growing steadily underpinned by the quality of cash flows that I mentioned earlier. Can we update on expected acquisition yields relative to office disposal yields? Yes. So with respect to recycling into retail, the retail yields at the moment on a sort of a true what we would call net effective basis, so taking account of incentives you have to offer to occupiers in the forms of rent freeze or capital contributions, that that yield is probably running at seven and a half to 8%.

44:31 The equivalent yield on offices is probably at the moment for the right quality of offices is gonna be somewhere in the region of five and a half to six. So net of the rent freeze and the other incentives that you provide. That's that's the that's the income that goes into our p and l account. That's the income that supports the earnings numbers that we report. So there's about a 200 basis point delta between the two. So if we're successful in selling a billion of office assets at those sorts of yields and reinvesting that into retail, that's about a £20,000,000 pickup. And as I did mention earlier, I think of the two sectors, the growth outlook for retail is one that I think we feel arguably has got more legs. I think it'll run for longer. With our shares trading at a discount to NTA, under what circumstances would buybacks become more attractive than retail acquisitions?

45:21 So I showed that capital allocation framework earlier. For us, the judgment is earnings per share and what does it do to our EPS yield. If if you own shares in LAND SEC, I think, obviously, the NTA is is is a is an interesting sort of, you know, relevant number to an extent, but but you're not as shareholders really able to get your hands on that value. It's not as though you can suddenly own the asset and choose to sell the assets. So the way that investors and you look at The US REIT market, which is far larger and and growing more strongly than The UK market, it's all about FFO or earnings per share and FFO multiples. So for us at the moment, if we if I use those same yields I mentioned a moment ago, if we can buy a a retail asset at a an ungeared yield of seven and a half to 8%, If we borrow at roughly a third of that as debt and the rest of it we fund from equity, so on a leverage neutral basis to where the balance sheet is today, that equates to probably about a 9% yield on the cash flows that we're buying for a really high quality scarce retail asset that enhances the quality of our portfolio.

46:25 That compares to if we were to buy our shares today, a 7.7% yield. Clearly, we were able to buy if prices reset on shopping centers and values escalate rapidly and the yield is below that 7.7, then it's a much more finely balanced decision. But at the moment, there's quite a healthy 100 basis point plus premium for buying the right quality of retail. And the quality is incredibly important. We wouldn't just go and buy something high yielding because it can be high yielding just because it's a poor quality asset. In the case of retail, it's high yielding because there's not a lot of investors and operators that are able to to buy and operate those assets effectively. They're very complex, and that's what's reflected in the yield. So because we have the platform, we can we can tap into that. So we will continue to publish that capital allocation framework.

47:15 And in terms of us putting our money where our mouth is or indeed not putting our money where our mouth is, you can see how we have switched off development as being a very clear example of not wanting to deploy capital into situations where actually it would be better for us to buy our own stock. Next question. The qualia of a high interest rate environment is that less development activity takes place. So presumably, the outlook for rental growth is commensurately higher, perhaps until a tipping point is reached, whereby the economics then support renewed building activity. And I think that that is absolutely right. And, I think for for retail, that tipping point is a very, very long way away. You would need, you know, just to get to building something where it's worth what it would cost you, you'd need to see values double from where they are today.

48:06 And, of course, you then want to be be compensated for the additional risk you're taking with development. So you're probably gonna need to see values grow by a 150% from where they are today, and I really cannot see that happening, you know, certainly for the next decade and probably well beyond that. In office, I think we will perhaps reach that that tipping point, but we know at the moment because of the planning pipeline, we can see with real clarity how much new space is gonna be delivered. We know it's very constrained by our historic standards as far as 2030. The earliest it could turn would be new supply arriving then in 2031. That would need rates to be lower than they are today and meaningfully lower than they are today, driving lower inflation by the end of this calendar year.

48:52 That feels a little way off to me, to be honest with you. I think if we start to see five year swap rates at three and a half percent rather than four and a half percent, I think the numbers start to stack up a little bit more. But in the meantime, you're absolutely right. There's gonna be quite significant support for rental growth. We are guiding market rental growth in in offices of, three to 5%, on top of an existing reversion of 17%, which itself is 3% growth already baked into the numbers through historic growth that's already happened. We're expecting a bit more growth on top of that. Our guidance in retail is 4.5% to 7%, so a little stronger partly because we're able to capture rental growth annually through our participation in turnover rents.

49:39 And is there anything else that we can do to reduce the discount to NAV? Do I think that M and A has a role to play in this regard? Any comments, on sector consolidation? So I think the for us, I mean, closing the discount to to NAV, I'm not gonna focus particularly too much on the NAV, discount per se. But if I ask the question a slightly different way, focusing on a stronger rating, so a higher rating multiple, which all else equal, do the same thing. For us, it has to be on execution. The more we execute on what we say we can do, the more we're able to rotate capital into those high yielding opportunities, keep our cost base constrained, keep the financing, the balance sheet in strong shape, I think we'll see a continued improvement in the multiple.

50:26 At the moment, we're at a 7.7% dividend yield and 4% to 5% growth, and that's where we're now roughly a sort of 12.513 times multiple. I see no reason why a business with this quality of income stream and that growth outlook shouldn't be rated on 15 to 16 times earnings, I think, would be more typical. And I think as more investors become comfortable and aware of the value on offer in our sector and in LAND SEC, in particular, I think that will help drive some of that narrowing. But consolidation, there are a lot of subscale businesses within our sector where you get a lot of cost leakage, and they can only access shorter term debt, that debt is more expensive. All of that really dilutes the portfolio level returns before shareholders get any return. And I think that is gonna be a challenge for those businesses.

51:19 I'm sure that that will act as a catalyst for further consolidation. Whether we participate in that would depend on the strategic alignment of any opportunities and ensuring that anything we chose to do would continue to be accretive to our earnings per share today and the growth trajectory. I think that's got us through all of the questions. I didn't skip any, so there there are no unanswered questions, on there. So and thank you, ladies and gentlemen, for your time. I'll now hand back finally, to Jake. Perfect, Mark. That's great. And thank you very much indeed for addressing all of those questions that came in from investors this morning. And of course, if there are any further questions that do come through, we'll make these available to you immediately after the presentation has ended. But, Mark, perhaps before really now, just looking to redirect those on the call to provide you with their feedback, which I know is particularly important to yourself and to the company. If I could please just ask you for a few closing comments just to wrap up with, that'd be great.

52:17 Yeah. Well, firstly, thank you again for for taking the time. This is the the first time, I think, that that that LAND SECURITIES has presented on on on this platform, and, hopefully, we'd be the first first of many. We've done that really because we we think the investment case is really, really clear, a a very attractive existing earnings yield supported by super high quality portfolio, a really efficient platform providing a very attractive growth outlook that I think is being increasingly well appreciated by the wider market. But thank you again for your time. Perfect, Mark. That's great. And thank you once again for updating investors this morning. Could I please ask investors not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback in order the management team can only better understand your views and expectations?

53:03 This won't take a few moments to complete, but I'm sure it'll be greatly valued by the company. On behalf of the management team of LAND SECURITIES GROUP PLC, we would like to thank you for attending today's presentation. That now concludes today's session. So good afternoon to you all.