Half Year 2017 Land Securities Group PLC Earnings Call

LAND.L - Land Securities Group PLC
Half Year 2017 Land Securities Group PLC Earnings Call
Nov 15, 2016 / 09:00AM GMT 

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Corporate Participants
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   *  Robert Noel
      Land Securities Group plc - Chief Executive
   *  Martin Greenslade
      Land Securities Group plc - CFO
   *  Colette O'Shea
      Land Securities Group plc - MD, London
   *  Scott Parsons
      Land Securities Group plc - MD, Retail Portfolio

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Conference Call Participants
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   *  Hemant Kotak
      Green Street Advisors - Analyst
   *  Remco Simon
      Kempen & Co - Analyst
   *  Robbie Duncan
      Numis Securities - Analyst
   *  David Prescott
      Barclays - Analyst
   *  David Brockton
      Liberum - Analyst
   *  Michael Burt
      Exane BNP Paribas - Analyst
   *  Oliver Reiff
      Deutsche Bank Research - Analyst

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Presentation
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 Robert Noel,  Land Securities Group plc - Chief Executive   [1]
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 Right, I think we'll get going. Good morning, everyone. A very warm welcome to our interim results presentation. Before I say anything, I'm going to say thank you to UBS for hosting us in this magnificent new auditorium. I do hope you're enjoying your Ferrari leather seats.

 When we met over the road in May, we talked about how we've been positioning the business for uncertainty ahead. Since May 2014, we have shared with you our aim to get to the end of this calendar year with no developments on site which are not substantially pre-let, a longer weighted average unexpired lease term in London offices, a first-class retail portfolio and lower financial gearing.

 We've been focused on three main things: first of all, preparing for what we thought would be an inflection point between the balance of occupational supply and demand in the London office market at some point in 2017; transforming our retail portfolio while markets were not so discerning; and in the second half of last year, reducing debt.

 Back in May, the business community was still pretty confident that the UK would vote to remain within the EU, but here we are six months later with a change of government and a change in rhetoric, set to invoke Article 50 within the next 94 days. And over the pond, a property developer with a mixed track record takes charge in 42 working days. So business in general finds itself in unchartered territory.

 It remains far too early to tell what the long-term effect on our market will be. That will depend on a huge range of factors, not least when and how our terms of trade within and out with the EU are settled. But the short-term effect has seen a shift in sentiment, and we are very well prepared for this.

 In London, take-up, as we said in the statement, is hesitant, the vacancy rate is rising, so the negotiating position is changing, as you heard from Marcus at our Investor Day in September. However, on the other hand, development commitments may be delayed.

 In the investment market, while volumes are down, there is still a huge amount of capital targeted at London.

 In retail, the consumer was seemingly less bothered over the summer, but now appears to be under increasing pressure. And the polarizing of the best estimations versus the rest, that convinced us to transform our portfolio over the last three years, continues at pace.

 So all the work we did to strengthen the business puts us where we wanted to be today and firmly on the front foot for tomorrow. And our relative performance at the property level continues.

 You've seen this chart before. It's now updated, it shows our ungeared total property return since March 2010 in green, against our key benchmark, the IPD quarterly universe, in blue. During this time, we've delivered a strong performance at the property level.

 The pink line shows our total business return over the period, that's rising net asset value per share plus dividend, and we have achieved this whilst slowly halving loan to value from 44% in March 2010, to 22% in March this year.

 And we have achieved this position while growing our dividend each year. Since 2010, we've increased our total dividend by 25%, and we retain good dividend cover.

 And so now, as the valuation market curve turns down, our world-class portfolio, combined with historically low financial and operational gearing, leaves us really well protected.

 As I said, we approach the current market environment on the front foot. The next phase of our plan will be reinvestment in the pipeline for the future. We're in no hurry, but we can move very swiftly when we see opportunity.

 So let me now hand over to Martin to take you through the results in detail, before we have updates from both Colette and Scott.

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 Martin Greenslade,  Land Securities Group plc - CFO   [2]
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 Thank you, Rob. Morning, everyone. Set against a market backdrop of falling property values, our results reflect the quality and resilience of the assets that we have chosen to own. While our values are down slightly, underlying earnings are up and gearing remains low.

 So let me begin with our headline numbers. Over the last six months, we posted a loss before tax of GBP95 million; that's on the back of a GBP259.6 million valuation deficit. Our adjusted diluted net assets per share were GBP14.08; that's a decrease of 1.8% or 26p since March. Revenue profit for the six months was GBP192.5 million; that is up 4.5% on the same period last year. Adjusted diluted earnings per share were up 4.7% to 24.3p. And our dividend was 17.9p for the six months; that is up 9.8%.

 Now, the percentage increase in the first-half dividend is simply a reflection of last year's increase in the total dividend and that was driven by a significant rise in the final dividend. So the percentage increase here should not be viewed as a forecast growth rate for this year. But that said, we will continue with our aim of growing the dividend in a sustainable manner.

 So turning now to more detail on revenue profit. This slide sets out the main components of our revenue profit on a proportionate basis. Revenue profit increased by GBP8.3 million to GBP192.5 million. However, net rental income actually decreased by GBP6.7 million due to disposals and I'll cover this in more detail in a moment.

 The drivers behind the increase in revenue profit were lower indirect costs and a significant reduction in net interest expense. The GBP3.7 million reduction in indirect costs was mainly due to lower staff costs, driven by lower headcount and lower share-based payments.

 Net interest costs decreased by GBP12.2 million and this was due to lower average debt and the impact of the bond buyback we completed in March.

 Now I'm going to cover net rental income in more detail. On this slide, I've set out the changes in net rental income. I've split those between London and retail.

 Overall, net rental income decreased by GBP6.7 million, but that is made up of a GBP2 million increase in London and an GBP8.7 million reduction in retail.

 So like-for-like net rental income was up GBP5 million, with the majority of the increase in retail. The increase was due in part to higher turnover income at Gunwharf Quays, White Rose and our Accor hotels. London's net rental income growth is largely due to new lettings and the settlement of a number of rent reviews.

 The development program, that saw net rental income increase by GBP6.8 million, with significant contributions coming through from the Zig Zag Building and 20 Eastbourne Terrace. Completed developments increased rents by GBP7.9 million; that is largely due to 1 & 2 New Ludgate and 62 Buckingham Gate.

 And finally, disposals. The impact of our disposal activity last year and that was particularly in the second half, that resulted in a decline in rents of some GBP25.7 million. And the main impact was from the sale of our retail parks in Gateshead, Derby and Dundee, and the disposal of Thomas More Square and Holborn Gate in London.

 So let's now look at the valuation. The value of our combined portfolio at September 30 was GBP14.4 billion. We reported a valuation deficit of GBP259.6 million; that represents an overall reduction of 1.8%. And within this number, the retail and London performances were similar. Retail saw values down by 1.9% and London by 1.8%.

 The vast majority of the fall in values came from the like-for-like portfolio. And here, we saw yields move out by 11 basis points; and rental values grew by 0.6%. The rental value growth was predominantly in our shopping centers and Central London shops, while London office rental values were unchanged.

 Our completed developments, those were down in value by 1.7%. And here, 62 Buckingham Gate and 20 Fenchurch Street saw outward yield movements of around 10 basis points. The development program saw values rise by 2.3%, and that is due to construction risk reducing, particularly at Nova and Eastbourne Terrace.

 So let's now turn to our net debt, and how that's changed. So on this slide, last year's adjusted net debt is in pink, with the year to date in blue. And you can see that our adjusted net debt rose only slightly over the period, from GBP3.2 billion at March to GBP3.3 billion at September.

 You can also see the impact of our net selling in the second half of last year, with net debt falling by GBP800 million over this period.

 Now, alongside the bond redemption in March, the reduction in net debt is a major factor behind why our net interest expense was over GBP12 million lower in this six months versus the same period last year.

 So turning to financing. The GBP74 million increase in our adjusted net debt, and the small fall in the value of our assets, together, that led to a 0.6 percentage point increase in our LTV to 22.6%.

 The average maturity of our debt is nine years, with a weighted average cost of 4.7%, down from 4.9% at March. And as you can see, we've nearly GBP1.5 billion of cash and available facilities.

 So let me summarize. The business is in good shape. Our capital recycling in recent years means we have a portfolio of high-quality, resilient assets.

 Our approach to managing gearing through the cycle, as well as the disposals we made in the second half last year, that means that we enter the current uncertainty with low financial leverage. And despite those disposals, revenue profit is up on the same period last year.

 Now, with news of the London portfolio, let me hand you over to Colette.

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 Colette O'Shea,  Land Securities Group plc - MD, London   [3]
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 Thank you, Martin. Now to London, where we've been working hard to transform the portfolio into one that's well prepared for whatever lies ahead and I'm proud of what we've achieved. At 10.1 years, we've a long office lease term; 81% of the portfolio's less than 10 years old; and we've a diverse customer base.

 As I said at the Investor Conference in September, our focus is now on: one, letting the last 13% of the development program; two, extracting reversion from the portfolio; three, anticipating our customers' changing needs; and four, restocking the portfolio with new product.

 Before updating you on the London Portfolio, I'll talk about our view of the market. Take-up was already slowing last year and is now below the 10-year average. There was an uptick in the last quarter, but the year-on-year movement is down.

 We're monitoring closely the volume of development intentions that slip and estimate that approximately 5 million square feet has moved out to 2020 and beyond.

 What's interesting is that while our supply estimates have fallen, compared to our view in March, the fall wasn't as great as might have been expected.

 We're seeing three factors adding to supply: firstly, spacing release from occupier moves; secondly, occupiers releasing surplus space; and thirdly, residential schemes switching to offices. The vacancy rate is rising.

 This shift in the supply and demand dynamics means that occupiers will have more choice. This is likely to put pressure on negotiating terms and ultimately, future rental values. There are slides in the appendix showing the detail.

 In the investment market, trading volumes were falling pre the Brexit vote and by Q3, was 34% below the same period in 2015. Those assets that have traded are generally high-quality buildings in core locations with longer income streams.

 The good news is that these more resilient assets mirror our portfolio, reflecting our relative valuation performance in London, as you've heard from Martin.

 We anticipate a different outlook for short let, more risky assets. Whilst there's been limited transactional evidence, as schemes and CapEx are put on hold, the market is re-evaluating risk and therefore pricing.

 However, what this means for us is opportunities in the future. And no, we can't say when that will be, but when we can, we'll let you know.

 So that's the market context. So what about our performance? Martin's talked about our valuations, so I'll update you on the London activity that delivered that performance.

 Since March, we've let or have in solicitors' hands one-third of the space we had available on an average lease term of 12 years. This leaves only 13% of the 3 million square feet left to let.

 In the City, we've completed our developments and I'm delighted to tell you we're full. With an average rent of GBP64 a square foot, an average lease term of 18 years and an average rent free of 8.7 months for every five years, we've exceeded our underwriting.

 Over in the West End where our focus is Nova, we're now 41% pre-let or in solicitors' hands, with an average office lease term of 15 years. The first phases have completed and retailers and office occupiers are fitting out.

 We've a great customer line-up, a great product, the flexibility to meet future customer needs and have created an outstanding destination. We're staying at the top of customer shortlists.

 Residential at Kings Gate and Nova pretty much conclude our development activities. Whilst the market is challenging, GBP100 million exposure represents only 1% of the London portfolio.

 Since March, we've sold GBP14.7 million of apartments at an average price of GBP1,900 per square foot.

 As I said at the start, we're focused on capturing reversion in the portfolio. Given its heightened importance in the current environment, it's worth repeating that our WAULT is now reassuring 10.1 years.

 Voids remain low at 3.9% rising from 2.9% in March, primarily due to 10 Eastbourne Terrace, Portland House, and at Piccadilly Lights, we're continuing to work towards vacant possession in January 2017.

 We've completed GBP8 million of investment lettings and GBP20 million of rent reviews.

 As I said before, we're all over our assets and I'll now update you on progress in some of the buildings I talked about in May.

 Let's start with Dashwood House, where 86% of the income was up for review by March this year. Well, we've completed those reviews and increased the passing rent by 26%.

 At One New Change, 87% of the rent is due to be reviewed over the next two years. We've already reviewed 60%, maintained the office rents that we achieved at the very peak of the last cycle and the most recent office review increased passing rent by 7%. The retail reviews have increased rent by 25%.

 At Cardinal Place, I told you were celebrating our 10th anniversary, which means we are in the second review cycle, with GBP12 million subject to review in the next 15 months.

 Again, we're under way. We re-geared Wellington Management's leases in 2013, adding five years. We've now settled their December 2015 review, increasing the passing rent by 19% providing good evidence for the other reviews.

 Rather like the growth story of TripAdvisor in Soho Square that we told you about at the Investor Conference, at 140 Aldersgate Street, we've completed the second upsize for Mount Anvil, who've taken unrefurbished space at GBP57.50, quadrupling their floor space since they moved into the building in 2009.

 While we've been doing all this, we've had a clear eye to the future. We've started restocking the pipeline, working on over 1 million square feet of new development, with flexibility on timing as these were effectively land purchases.

 And we have an appetite for more. As I said at the Investor Conference, on the buying side we know what we want and we're tracking over GBP2 billion of assets.

 I can't tell you exactly when the next major acquisition will be, but we're happy to be patient until we find what's right for us. What I can tell you is that when we do, we can move very quickly.

 So in summary, we have a high-quality, well-let portfolio. We're focused on letting our remaining space and capturing reversion. We're focused on deepening our understanding of our customers' needs now and in the future and we're focused on restocking the portfolio with more product.

 I'll now hand over to Scott.

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 Scott Parsons,  Land Securities Group plc - MD, Retail Portfolio   [4]
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 Thanks, Colette. Good morning, everyone. Now, given your reference to a new American President and given my accent, I just want to remind you all that I'm Canadian. (laughter)

 Now, Rob has been clear about where we, as a business, wanted to get to at this point in the cycle and since I became MD of our retail business, I've spoken a lot about our strategy to improve the quality and the resilience of our portfolio in a very fast-changing retail environment.

 Now, in a strong market, a shift to quality might get a mixed reaction. But in an uncertain market like the current one, having implemented that strategy pays off and gives us confidence, and our results today clearly demonstrate why.

 A couple of minutes ago, Martin spoke about our valuations. So let me kick off by spending a minute on our relative performance.

 Here's how our portfolio's performed over the first six months of the financial year, a 0.8% total return. Now let's compare that to how IPD and the market at large has performed. Overall, our modern high-quality portfolio has outperformed the market by 240 basis points.

 While our shopping centers outperformed and our retail parks were in line with the benchmark, our GBP1.5 billion of leisure and hotels produced the strongest returns, with valuations marginally up.

 And speaking of hotel valuations, since September 30, we've exchanged contracts to sell four of the seven Accor Hotels where breaks were served. Now, remember that the income on the remaining 22 hotels in the portfolio is secured until 2031, and remember too that I've said in the past that our hotels are underpinned by vacant possession values that are higher than their investment values.

 Well, the proof of the pudding is in the sale proceeds, and the four hotels we've sold transacted at vacant possession values, and that equates to about 10% ahead of March book values.

 And it's not just on the valuation front where we've achieved good relative performance. Let's take a look at our footfall and our sales. Footfall in our centers was down 1.1% reflecting the trend of shoppers making fewer big shopping trips. People may be shopping online, but social creatures that we are, the right experience in the right destination draws people in, and our centers outperformed the national benchmark by 110 basis points.

 And in fact, if we exclude White Rose, where development of leisure extension has blocked an entrance and impacted footfall figures, our overall footfall would be flat.

 Moving onto sales. Now, weather for the retailers is like leaves on the line for the train; it's too hot, too cold, too wet, too dry. But it's the best assets that weather the storm. And our same-center sales were up 0.8%, outperforming the benchmark for bricks and mortar same-center sales by 260 basis points, and even outperforming the benchmark for total retail sales including online.

 This demonstrates how a relentless active management can grow sales, even in a challenging retail environment. And our same-store sales also outperformed the benchmark.

 Now, with sales and footfall figures outperforming the market at large, our occupancy remains strong. Overall, our voids and administrations are low. At 2.1%, our like-for-like voids were broadly unchanged over the period, and our retail parks, our leisure and our hotels remain pretty much full.

 The slight upwards movement in shopping center units in administration is driven by BHS at White Rose and at Trinity, where we've exchanged contracts with Next to upsize into the BHS space at White Rose, and have two major upsizes teed up to fill their space at Trinity.

 Investment and development letting activity has been consistent and strong throughout the first half of the financial year. Across the investment portfolio, we've exchanged 65 lettings, equating to GBP7.1 million in rent per annum.

 And on the development side, our leisure extension at White Rose is rapidly taking shape, on time and on budget, delivering a new IMAX cinema and six new restaurants, all of which are pre-let or in solicitors' hands.

 And at Bluewater, we're aiming to start on site shortly to convert the former Glow event space into an expanded, state-of-the-art cinema, a top performer in the country, plus three new restaurants and a new leisure unit.

 And at Westgate, with a year to go until opening, we're now more than 50% let, with a further 14% in solicitors' hands. On the main level, all units but six are spoken for. And up on the roof, we've secured an absolutely brilliant line up of restaurants to sit alongside the new Curzon Cinema.

 Now, I'm really looking forward to welcoming you all to Westgate for our next Investor Day, so that you'll be able to see for yourselves why we're so confident and so excited about this vibrant and stunning new destination.

 And speaking of confidence, with our high-quality portfolio of destination assets, there are always opportunities to grow net rental income through rigorous asset management. And as always, we've been busy with re-gears, renewals, reconfigurations, rent reviews, key retailer upsizes and tenant mix plays.

 At Gunwharf Quays, Oliver Sweeney, Under Armour, Coach, Jigsaw and Guess are adding to our already fantastic lineup of brands. And we've secured planning for two additional units in the scheme.

 In Glasgow, we opened StreetDots, Scotland's first indoor street food concept, at Buchanan Galleries. Progress at Bluewater continues apace, with eight new openings during the period, H&M's new 40,000 square foot flagship store, unveiled this month and discussions underway with eight retailers about upsizing their space in the center.

 Across our retail park and leisure portfolios, we're continuing to grow income through small but impactful development-led opportunities. At Westwood Cross, we acquired an adjacent site and secured planning for four additional restaurants, all of which are pre-let or in solicitors' hands.

 And the refurbishment and reconfiguration of Fountain Park in Edinburgh is progressing well, and is now 100% let or in solicitors' hands.

 Overall, our efforts have driven an increase in like-for-like net rental income of 2.1% in the first half of the financial year.

 So, in an uncertain market, it's the strongest assets that perform best, with voids low and occupier interest high. But our performance is not just because of our assets; it's because of our exceptionally strong team and their passion for our customers and their experience, their passion for growing net rental income and for delivering a constant flow of asset management wins.

 Thanks very much and I'll hand you back to Rob.

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 Robert Noel,  Land Securities Group plc - Chief Executive   [5]
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 Thanks very much, Scott. So, before we handover to you for questions, I'd just like to share our outlook for the next six months. In London offices, we expect net effective rental values to weaken. This is because the negotiating position is changing due to the uncertain environment for business. Headline rents may or may not be particularly impacted, but the lease terms are getting shorter again and incentives are ticking up.

 However, the supply outlook may change if development intentions are not converted into development commitments, but it's too early to tell right now; there were likely be many twists and turns in the months ahead.

 As ever, we will watch the supply landscape like a hawk; remember this is what gave us the conviction to kick start development in 2010. Even in the nadirs of the market in 1992, 2002 and 2009, take-up was never much more than 75% of the long-term average.

 And we'll remain fully committed to London; it is a deep and liquid market and will remain one of the world's key cities, whether or not we are part of the single market. 9 million people and growing, will always fit-for-purpose space to live, work and play.

 In retail, well-socialized price increases would be difficult for the consumer and therefore, difficult for retailers. However, we believe our strong destinations will continue to serve us well, as you've just heard from Scott, and we're pleased with our current position, having sold our secondary assets during 2014 and 2015. If we can add to what we have, we will, as we are doing in Oxford.

 Retailers' models continue to change and without a tail of secondary centers, our destinations put us right at the heart of this change; great brands, great catering, great connectivity, great front of house, because everything is about experience.

 Now, I think it is unlikely standing here today that we will be big spenders in the second half, but if history is any guide to the future, then uncertainty will bring opportunity and we are fully prepared. This is exactly where we wanted to get the business at this point.

 So we'll now hand over to you for questions. Apart from sitting in your Ferrari leather seats, either to your left or right, there will be a microphone in a little slot. And if you pull it out, there's a button on it, and if you press the button, you'll be able to ask the question, but please don't do it all at the same time, we haven't worked out what happens.

 If you could state your name and your company so we've got it for the record for the playback that we'll put on the web later on this afternoon.

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Questions and Answers
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 Robert Noel,  Land Securities Group plc - Chief Executive   [1]
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 Who's going to go first? Hands up. Hemant?

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 Hemant Kotak,  Green Street Advisors - Analyst   [2]
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 Hemant Kotak, Green Street Advisors. Thank you for the presentation and the market guidance. Just a little bit more on London offices, please. Can you just help us understand the deals that you've closed since the referendum, where have they come out relative to ERVs on a net effective basis? And perhaps if you can just extend that in terms of what you're seeing in pipeline deals as well, please?

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 Robert Noel,  Land Securities Group plc - Chief Executive   [3]
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 Sure. Well, I mean no better person to answer that than Colette rather than me, so I'll hand over to Colette.

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 Colette O'Shea,  Land Securities Group plc - MD, London   [4]
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 Yes, I think it's fair to say that post-Brexit, what we're seeing is people pushing us quite hard now on the rent freeze. I think as I mentioned at the Investor Conference, actually, we've done pretty well in a number of the deals where we moved out the rent frees, but we also managed to get fixed uplifts at reviews. I would say, to give you --

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Operator   [5]
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 (Operator Instructions).

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 Colette O'Shea,  Land Securities Group plc - MD, London   [6]
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 Looking forward.

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 Hemant Kotak,  Green Street Advisors - Analyst   [7]
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 Thank you that's very clear. And then just maybe one question on retail if I may. There seems to be a dichotomy in terms of the same-center performance and the same-store performance.

 The same-store performance was relatively weak at negative 1.7% and that was close to the national average. Can you just help us understand, Scott, maybe, about why that's underperforming so much? And if perhaps that's a more relevant measure for retailers on an individual basis?

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 Scott Parsons,  Land Securities Group plc - MD, Retail Portfolio   [8]
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 Just to be a little bit pedantic, we still are outperforming on a same-store basis as well, but it's only by 40 basis points. More and more sales are moving online, you can't get away from that. So like-for-like same-store sales essentially reflected a do-nothing scenario, whereas same-center sales reflect the value that can be added through active management.

 So that's where the skills of my team come into play. They can continue to grow sales and grow net rental income through reconfigurations, rent reviews, some of the active management plays that I referred to in the presentation.

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 Hemant Kotak,  Green Street Advisors - Analyst   [9]
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 Okay that's great, thank you. And just one quick follow-on from that. So that's top-line sales. Do you worry about margin pressure as well? Because there's a few compounding issues in terms of the national living wage that's coming through, business rates potentially and the weaker pound, where that could be a problem for retailer margins as well.

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 Scott Parsons,  Land Securities Group plc - MD, Retail Portfolio   [10]
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 For the time being, our affordability remains very strong. But we do talk to our tenants on a daily basis, really focused on the issues facing our customers and we'll keep watch.

 From discussions I've had, national living wage, most of our occupiers are hoping not to have to pass the full impact of that on, on to the consumer. And for my portfolio, at least, with the rates revaluation, the impact was relatively small. It was just over 1%.

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 Robert Noel,  Land Securities Group plc - Chief Executive   [11]
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 Remco?

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 Remco Simon,  Kempen & Co - Analyst   [12]
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 Remco Simon, Kempen. Question, I appreciate you can't say when you might get back into the markets because who knows what's going to happen in terms of timing. But what are the indicators that you look for that would make you feel more comfortable to get back into the market? Is that simply asset prices coming down? Is that leasing indicators looking up? What are the indicators, rather than the timing that you look for in terms of your positioning?

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 Robert Noel,  Land Securities Group plc - Chief Executive   [13]
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 Well, I think it's a great question that's very difficult to answer. We are very clear on what we want to buy. We're not going to tell you what we're going to buy. We're just going to go and buy it and then we'll tell you when we've bought it.

 I think, as I say, the other thing is it's unlikely that it's going to be in the near term. So in the second half of this year, I think it's unlikely we're going to be buying in scale.

 But think about the makeup of our current portfolio. We have world-class assets let on long leases. We think there will be opportunity within the more risky sector. That plays into our skills for repositioning and redeveloping buildings.

 And we look at all sorts of metrics: capital value per square foot; what we can get on the site; what the leasing negotiating position is between landlord and tenant looking out into the future, as we deliver the product that we buy to build or buy to own.

 So, as ever, when markets are slightly disrupted, buying becomes easier. It's been very difficult for us to buy over the last couple of years. It continues to be difficult for us to buy but we think that will ease up and we're ready for it.

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 Remco Simon,  Kempen & Co - Analyst   [14]
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 Fair enough. And in terms of the positioning of the business, you mentioned you're ready for if the supply outlook starts to change, you've got a flexibility in your pipeline. But the current pipeline you've got lined up is about just over 1 million square foot. And if I recall correctly, in 2010, your potential pipeline was about 4 million square foot. Is that the kind of size that you would look to steer the business to again over the next couple of years?

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 Robert Noel,  Land Securities Group plc - Chief Executive   [15]
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 Yes, it's a great question. Just to put it into context, the 1.2 million square feet in the pipeline that we have is equivalent to what we've done in Victoria over the last three years. I think it was 3 million square feet we built in London, of which we didn't own all of it. And, of course, what we weren't in a position to do last time round was to buy sites. We already own the sites.

 So I see a position where we can buy more sites over the next few years and build that pipeline further.

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 Remco Simon,  Kempen & Co - Analyst   [16]
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 Thank you.

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 Robbie Duncan,  Numis Securities - Analyst   [17]
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 Robbie Duncan, Numis. Just one question from me. Sticking with the theme of buying sites or buying assets, sorry to carry on about this, but obviously, just shy of 23% loan to value today that's one of the things you've been really focused on.

 Well done getting it down from 44% in 2010. But where would you be prepared to push loan to value? So assuming flat capital values, so I appreciate that's the unknown here, but how much would you be prepared to push that loan to value if there were opportunities that presented themselves? Thank you.

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 Robert Noel,  Land Securities Group plc - Chief Executive   [18]
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 So we've been giving pretty clear guidance in the past about our gearing levels. In normal market conditions, we would expect to operate between 35% and 45% LTV. Remember, because we are large, it is takes us more time to move, so we have to move early.

 As you rightly say, Robbie, we don't know where values are going over the next 12 months. They could go up, they could go down. If you know what's happening out there, then please tell me, I'm all ears. We just don't know. We have to be prepared for this uncertainty.

 I think the general direction of gearing for property companies will be slightly lower in the future than it has been in the past. And that's principally because we are far more operationally geared as businesses now.

 Information flows are more rapid. Capital flows are more rapid. So market moves, they're slightly more volatile, so that points to low levels of gearing. But if we thought we were at the bottom of a pricing cycle, there's no reason why we shouldn't push the gearing quite hard. And so that gives us quite a lot of flexibility. Martin, I don't know whether you want to add to that?

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 Martin Greenslade,  Land Securities Group plc - CFO   [19]
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 We'd be more than happy to take it back up to the sort of levels you've seen before, into the 40%s would be fine. And that's a huge amount of firepower. It's a phenomenal amount of assets you could buy because, obviously, as you increase the loan to do that acquisition, you also increase the V on the bottom of that. So you're talking billions. I think it will be a case of opportunities rather than limitations from LTV.

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 David Prescott,  Barclays - Analyst   [20]
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 David Prescott, Barclays. As you say, there's a huge amount of uncertainty about where values can go from here, and you're definitely well positioned to take advantage. Are there opportunities?

 In the event that we do have a relatively flat market for the next couple of years, will there still be opportunities for you to take? And how would you adapt your business model to a not particularly cyclical flattish market?

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 Robert Noel,  Land Securities Group plc - Chief Executive   [21]
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 Well if we have got a relatively flat market for the next two years, then I'm delighted to be in the position that we're in as well at the moment, because no amount of gearing really helps you in a flat market. It's only in a rising market that it really helps you.

 We simply don't know. We've positioned the business so that the business can thrive in whatever gets thrown at us. If we knew what was going to happen, we'd position the business from a position of knowledge. We don't.

 So the one thing I would say is that we operate in two very, very big and very liquid markets, particularly in London where the REITs play a relatively small part.

 So if the world does go risk off, that will always throw up opportunities. Or rather, I will re-phrase that; if history is any guide to the future, it will always throw up opportunities. But looking into the future, we simply don't know. We're just relaxed about where we're positioned at the moment.

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 David Prescott,  Barclays - Analyst   [22]
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 But there could be opportunities in a flat market, one-off things that you would be happy to do or --

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 Robert Noel,  Land Securities Group plc - Chief Executive   [23]
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 So I've been doing this for 30 years and in every year, in January, people say what are you going to do this year? And every year, we find things to do, whether it's going up or down. So I'm pretty relaxed.

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 David Prescott,  Barclays - Analyst   [24]
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 Okay, thanks.

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 David Brockton,  Liberum - Analyst   [25]
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 David Brockton, Liberum. Two questions please. Firstly, can I just come back to the retail footfall numbers and the same-store numbers? Was the gradual decline there consistent through the period, or is it on a worsening trajectory? That's the first question.

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 Scott Parsons,  Land Securities Group plc - MD, Retail Portfolio   [26]
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 The figures go through to September 30, and they really represent a post-Brexit shock to the figures, so there was a dip in reaction to that, and they've actually bounced back in October.

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 David Brockton,  Liberum - Analyst   [27]
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 Okay, thank you. That's very useful. And then a second one is a very specific one. In respect of Moorfields, what is the earliest possible start time on that in relation to your relationship with TfL there? Thank you.

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 Colette O'Shea,  Land Securities Group plc - MD, London   [28]
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 I think, as we've said before, on Moorfields what we're doing is we're doing things incrementally so that we're getting ourselves ready.

 So, at the moment, as you've probably seen, we're currently demolishing it. We've got all our approvals in place with LUL so we're ready that we could actually start piling in January next year. And what we will probably do is take it to grade and then see what the market's doing at that stage.

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 David Brockton,  Liberum - Analyst   [29]
------------------------------
 Thank you.

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 Michael Burt,  Exane BNP Paribas - Analyst   [30]
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 Michael Burt, Exane BNP Paribas. You've obviously worked very hard to increase the average lease length in your office portfolio. Do you think the forward-look IRRs on those sort of prime London office assets in your portfolio still justify you remaining a holder? And I ask that question just bearing in mind that it appears that some of your REIT peers may be looking to sell crown jewel assets in the London office portfolios.

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 Robert Noel,  Land Securities Group plc - Chief Executive   [31]
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 Yes, well just on what the REIT peers are doing, you'll have to talk to the REIT peers about. And as we'll always say, no asset in our portfolio is sacrosanct. If you want us to sell everything, then the shareholders need to tell us to sell everything, but we've got a business to run.

 What we've been doing over the last couple of years is very clearly been on a trajectory to increase our weighted average unexpired lease terms, particularly in London, because we know London is a pretty -- can get a bit bouncy at times, and at those times, you want to be battened down because the opportunity comes within the short-let buildings.

 So we've used really good market conditions over the last two years to sell the buildings that we think are most at risk of a market correction, if there was a market correction, whether that market correction comes or not; and then hold those assets which are actually less at risk in the event of a market correction.

 As I say, we have a business to run. We have a dividend to pay and we've positioned the business so it is as resilient as we can get it at a point where the world is becoming slightly jittery.

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 Oliver Reiff,  Deutsche Bank Research - Analyst   [32]
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 Oliver Reiff, Deutsche Bank. Could I ask one question on your longer-term debt maturities, as they draw closer, when or if it becomes economical to refinance?

 And then also, if there are any other offsetting impacts that would allow that sort of activity to be NAV positive going forward as well. Thank you.

------------------------------
 Martin Greenslade,  Land Securities Group plc - CFO   [33]
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 Our cost of debt is something that we look at all the time. We look at opportunities to do that. And I'm not going to say anything more than general terms around that, but we did something in March and driving down our cost of debt is important to us.

 But -- so let me just put something in context for you. Had we not made those GBP800 million of sales in the second half of last year, our weighted average cost of debt would be -- so if you inflated it back up and you added GBP800 million more of debt today, our weighted average cost of debt would be around 4%.

 So the question that we have to ask ourselves is actually, what is the key metric you're trying to drive to? Is it right to have reduced your gearing, or is your weighted average cost of debt the key thing you're going to get hung up about? And I think, actually, driving down your interest bill and driving down your gearing is more important than driving down that one metric.

 So yes, we do look at it and yes obviously over time, there are going to be opportunities to refinance those as they come up to maturity. But I think we have to see it in the context of what we're trying to do with the business.

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 Robert Noel,  Land Securities Group plc - Chief Executive   [34]
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 Sorry, there's one more. I thought I had. So maybe not. I don't think we've got anything online. So, with that, 09:55 AM, I think we'll bring it to a close.

 Thank you very much. Thank you, UBS, for hosting us. And we look forward to seeing you in May when the weather will be warmer no doubt.

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Operator   [35]
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 This presentation has now ended.




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