Overview

The past 12 months have been volatile in terms of the economic and political landscape. Although more recently the outlook for the UK economy is improving, sentiment remains fragile. Against this backdrop, our business is performing well operationally. We leased 3.4m sq ft of space, 15.1% ahead of ERV and portfolio occupancy is high at 96.7%.

‍

In line with our strategy, we continue to actively recycle capital. We made disposals of £746m mainly from the sale of 75% of the majority of Paddington Central crystallising total property returns of 9% p.a. Acquisitions of £203m increased our exposure to retail parks, life sciences and London urban logistics.Higher interest rates have had an impact on property yields. As a result, the value of our portfolio declined by 12.3%, and our total accounting return was negative 16.3% for the year. Whilst we remain mindful of ongoing macro-economic challenges, the upward yield pressure appears to be easing and there are early signs of compression for retail parks.

‍

Ultimately, value in real estate is created over the medium to long term. We like to invest in supply constrained segments with pricing power, where we can be market leaders and leverage our competitive strengths to generate attractive returns. We already lead in campuses, where we continue to see strong demand for best in class space and are increasing our focus on life sciences and innovation sectors. We are consolidating our position as the largest owner operator of retail parks where scale is an advantage and we are building a unique portfolio of centrally located and highly sustainable urban logistics schemes in London.

‍

We have high quality assets, a best in class platform, a strong balance sheet, and through both development and capital recycling we continue to see significant opportunities for future value creation.

‍

‍

‍

STRATEGY AND BUSINESS MODEL

‍

We invest in supply constrained segments with pricing power, where we can be market leaders and leverage our competitive strengths to generate attractive returns.

‍

Our competitive strengths are:

‍

‍Portfolio of high quality assets

Our portfolio of campuses is mainly located in London, a truly global city which appeals to a broad range of businesses. We are the largest owner and operator
of retail parks in the UK and we are building a unique portfolio of centrally located and highly sustainable urban logistics schemes in London.

‍

Best in class platform

We have a long-standing team with deep experience across the real estate value chain from design, planning, development and construction through to asset and property management.

‍

London expertise

The depth of our relationships with planning authorities, contractors and other stakeholders in London, combined with our extensive construction experience gives us an unparalleled ability to unlock value through development.

‍

Sustainability

From FY21 new developments have been net zero carbon, and we target BREEAM Outstanding and EPC A. We forge strong relationships with local communities and authorities and have a good track record of creating opportunities for employment at our places.

‍

Partnerships with investors

We have strong relationships with sovereign wealth funds such as Norges and GIC as well as large pension funds likeAustralianSuper and Allianz which give us an important ability to crystalise value through asset sales and joint ventures.

‍

Financial strength and discipline

We have a strong balance sheet, use leverage appropriately and we have a disciplined approach to capital allocation to deliver returns through the property cycle.

‍

‍

Our strategy and business model

We have a diversified approach and invest in schemes where we can leverage our competitive strengths to create value. We are developers and asset managers with a value-add strategy and
our medium-term objective is to deliver a total accounting return (TAR) of 8-10% through the cycle.

Our aim is to create value for all our stakeholders and our approach is as follows:

‍

‍

‍

We like to focus on strategic themes that have strong fundamentals.

‍

‍

Developments on our campuses

‍

Our campus model offers our customers high quality sustainable workspace with great transport infrastructure, beautiful public realm, world class retail and engaging amenities. In addition, it provides our customers with flexibility and allows for clustering of complementary businesses.

‍

Best in class sustainable offices‍

We continue to see strong demand for modern, sustainable offices on our campuses. Occupiers are looking for the best space for their business to help them attract and retain staff in a competitive jobs market while at the same time helping them meet their net-zero goals. Furthermore, at around 10% of salary costs, rents are affordable. Costar research shows that net absorption rates of new best in class buildings has been strongly positive in the past 5 years in both the City and the West End. As a result, given the low vacancy rates, rents for modern sustainable buildings are showing strong growth based on recent transactions.

‍

We are seeing this come through in the strong demand for our developments. We have a 8.9m sq ft development pipeline to deliver best-in-class sustainable buildings on our campuses. We target a BREEAM1 outstanding certification in our developments and JLL research2 shows that offices with a BREEAM certification have an average c.12% premium on rents and an average capital value premium of c.20%. ‍

‍

Life Sciences and innovation ‍

We are increasingly focussed on delivering new space for customers in high growth life sciences and innovation sectors in London and across the Golden Triangle (London, Oxford and Cambridge) where supply is constrained. Our campus at Regents Place, in the centre of the Knowledge Quarter in London, is uniquely positioned to unlock exciting growth opportunities in this segment given the importance of proximity to research and education organisations. Canada Water has the potential to be another significant innovation cluster, while our acquisition of Peterhouse Technology Park, and the land adjacent to it, is our first campus in Cambridge.

‍

Retail parks account for less than 10% of the UK’s total retail space and there is limited new supply expected, given the market price per sq ft is below replacement cost and it is difficult to obtain planning consent. Given this lack of new supply, the growing customer demand is driving high occupancy rates, especially in the best locations, reflected in the 98.8% occupancy of our retail park portfolio.

‍

We like the retail park format and will continue to look for acquisition opportunities where we can create value by leveraging our scale and our expertise in asset management. Most of our leasing deals are with national retailers who are increasing their presence in the best located retail parks while at the same time reducing their exposure to the high street and secondary shopping centres. We have actively targeted a broad range of customers including general retailers, grocers, discounters and value retailers to increase the resiliency of our occupier base. ‍

‍

London Urban Logistics ‍

There is an acute shortage of logistics space within London’s M25. Demand is strong due to the long term growth of e-commerce combined with rising consumer expectations for priority delivery, and as a result, vacancy in Greater London is 2.3% and 0.4% in Zone 1. This acute supply-demand imbalance underpins the attractiveness of this market segment.

‍

We have a development led approach and our pipeline has a gross development value of £1.3bn. Our strategy is to deliver best in class, environmentally sustainable multistorey and Zone 1 last mile urban logistics schemes that will appeal to a range of occupiers. Last mile logistics solutions that allow the use of e-bikes for delivery to the end customer have up to 90% lower carbon emissions, are 1.6x faster than vans in traffic and support the net zero objectives of local authorities. ‍

‍

‍

FY23 Results

‍

Financial performance ‍

Our focus on sectors with strong occupational fundamentals drove 5.9% like-for-like net rental growth. This growth combined with a firm grip on costs and increased fee income, partly offset by higher financing costs, resulted in Underlying Profit growth of 6.9%.

Underlying EPS was 28.3p, up by 4.8%, as strong Underlying Profit growth was partly offset by the impact of a tax credit in the prior year. In line with our dividend policy of paying 80% of Underlying EPS the proposed full year dividend is 22.64p, a 3.3% increase. The growth in the dividend is lower than Underlying EPS growth due to the £4m impact of the rental concession restatement in the prior year. ‍

‍

Lettings ‍

We maintained strong leasing momentum this year and leased 3.4m sq ft, 15.1% ahead of ERV, and as a result, the occupancy across our portfolio is high at 96.7%.

By the end of the year we will have delivered 190,000 sq ft of lab enabled buildings across the portfolio and our total pipeline will deliver 1.9m sq ft over the next 7 years.

In addition, we have recently established an Innovation Advisory Council to support our growth in this area and advise on customer requirements, provide insight on future trends, help the business build connections and underwrite new acquisitions.‍

‍

Retail Parks

Retail parks are retailers’ preferred format, as they are large and compatible with the way people shop, supporting retailers’ omni-channel strategy, allowing for click and collect, ship from store and in-store returns. Importantly, they are affordable and have an occupancy cost ratio of 9%.