Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Strong performance across the business with stable yields and valuations returning to growth.
- High occupancy levels and continued sales growth reported by customers.
- Significant rental growth and enhanced portfolio quality through strategic acquisitions.
- Increased ERV by 3.2% like-for-like and valuation growth by 1.4% like-for-like.
- Strong balance sheet with significant liquidity and reduced finance costs.
Negative Points
- ERV overall remains below pre-pandemic levels, with retail ERVs 15% lower.
- High administration costs, although progress has been made in reducing them.
- Net debt remains high at GBP1.5 billion, resulting in a loan-to-value ratio of 30%.
- Continued pressure on yields due to market uncertainties and interest rate movements.
- Limited capital commitments and the need for ongoing refinancing activities.
Q & A Highlights
Q: James Carswell from Peel Hunt. Yes, really strong rental growth. I guess, when we look at the kind of medium-term returns you set out on the last slide at the Capital Markets Day, the 1 piece that's missing, yields kind of continue to move out. So you haven't quite met the total property return. I'm just wondering, what are your thoughts looking ahead. I mean, when you look at your yield, I'm pretty sure there's lots of uncertainty. There's not lease interest rates. But sat here today, does it feel like the yield is about right? Do you think it's gone too far? Or do you think it's got further to go out?
A: Ian Hawksworth - Chief Executive Officer, Executive Director. Look, I think they're at the wider range that one would have seen historically in the West End. If you look at the equivalent yield on the commercial element of the portfolio, it's now at 4.6%. And so, all we can do is deliver the evidence for the independent valuers. So it's really about growing rents. But I would hope that if rents do continue to grow in the way that we're seeing at the moment, that should translate into valuation growth.
Q: Miranda Cockburn from Berenberg. Could you just give us a little bit of an update on Lillie Square? Just really what your sort of plans are for that remaining investment? And then also, I don't know, you probably can't add anything on Longmartin, just whether or not there's any update there?
A: Ian Hawksworth - Chief Executive Officer, Executive Director. Yes, I mean, Lillie is a small part of the portfolio, but the various phases that we've completed are either sold or they've been let, so there's little bit more land to come forward over time. But effectively the project's actually been received very well. So it's now a question of just running it through to a conclusion.
A: Michelle McGrath - Executive Director. Yes. Longmartin, look, again, it's a relatively small part of our portfolio, but as you'll be aware, the -- our JV partner there had the ability to exercise a change of control, which they've elected to consider, and we're in ongoing negotiations and discussions with them at the moment.
Q: Max Nimmo at Deutsche Numis. Just a quick one. On the 5-year unsecured term loan, could you give a bit more color on that in terms of some of the terms there? And, obviously, you've done quite a good job in terms of smoothing out the maturity profile. What's the kind of next hurdles that you see and what you're looking to do?
A: Situl Jobanputra - Chief Financial Officer, Executive Director. Thanks, Max. Yes. The -- very pleased to have got the 5-year unsecured loan done on essentially the same terms as the 3-year loan that we announced at the end of last year. So that was done with one bank with similar covenant package and a spread inside 200 basis points. But the important thing is, it's 5-year maturity with extension options. In terms of the rest of the maturity profile, we have extended out the initial maturity on that GBP350 million loan as well. So that's gone from December '26 to December '27. So our weighted average now is around 5 years. Next on the agenda really in terms of refinancing activity is the 2026 and beyond maturities. So we have time for those. We also have liquidity, remember, of around GBP500 million. So I think now it's really kind of carefully shaping the capital structure for the next number of years and making sure that we kind of maintain balance sheet strength and flexibility. The encouraging thing, just 1 point to add, is that, all of those markets that we're in and that we talk to, whether it's the unsecured or the secured bank market, the insurance market, PP market, they are all receptive towards lending to this asset class and to our estates. So that's very encouraging.
Q: James Carswell from Peel Hunt. Ask another one. Just on the rental term, and you highlighted across the portfolio, you've got a pretty big range of kind of rental tones from GBP1,000 per square foot down to pretty affordable for the West End. And just in terms of rental growth, are you seeing any kind of -- any parts in terms of that tone performing particularly strongly or potentially weekly? Or is it pretty uniform in terms of growth across the price points?
A: Michelle McGrath - Executive Director. Thanks, James. You're right, there is quite a broad spread across the entire portfolio. I think one of the things I'd highlight, which has actually probably been a feature in particular for the last 12 months is just how well spread the rental growth has been and it has been across all of our portfolios, but also at every single sort of use level. So -- and again, if we look at the pipeline, which is really what we're focused on, what the forward pipeline looks like, that also backs that up as well. So we feel pretty well set for the second half and beyond.
A: Ian Hawksworth - Chief Executive Officer, Executive Director. I think just to add to that, I've sort of been involved in the West End for quite a long time now and it's the most active market I've seen across all components of where we're at. And what's really encouraging is the amount of new tenants that are coming into the portfolio from the categories that are more productive than some of the historical categories. And we're now seeing also that translate into existing customers upsizing. So it's a very strong market.
Q: Aaron Guy from Citi. Just a couple of quick questions. One, if you can give any sort of color on anything that you've seen on occupancy cost ratios, rent to sales, whichever way you want to sort of look at it? Just in terms of extracting sort of future cash flow growth, particularly out of those retail rents that remain sort of below the pre-pandemic sort of level. So just any sort of color you can give on any sort of acceleration we might sort of see in those rents from tenant turnover increasing relative to rents?
A: Ian Hawksworth - Chief Executive Officer, Executive Director. Yes. Do you want to say what you're seeing?
A: Michelle McGrath - Executive Director. Yes. Thanks, Aaron. Just to give you a bit of color on what we're seeing on the ground. So I'd say that if you look at sort of the range of leasing activity that we've seen, what we've really been focused on is really our target categories and focusing on concepts that are high marginal, are capable of achieving higher densities. And where we're putting those sorts of concepts in, we're seeing that really resonate with the consumer, and as a result, you're seeing the densities come in through the stores themselves. So we're seeing an improvement gradually as we're working through our portfolio. But generally speaking, I
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
