Land Securities Group plc

Ladies and gentlemen, good morning. Welcome to the live webcast of Landsec's 2020/'21 interim results.

Now this morning's presentation will follow the usual structure, although for reliability purposes, in this second lockdown, certain elements are prerecorded. So I will provide an overview of the results for the period and the key themes affecting our market before Martin takes you through the financial review and Colette covers the portfolio.

Martin's and Colette segments have been prerecorded. Then following brief remarks on outlook and the summary, we will open up for a live Q&A, where both Martin and Colette will join me on the line.

Now when we delivered our full year results on the 12th of May, I was 4 weeks into my new role, we were all 7 weeks into our first lockdown. Nonessential retail was still 5 weeks away from reopening, the hospitality sector still 8 weeks away.

As we now deliver our interim results 6 months later, we are in the first week of a second national lockdown. Nonessential retail and hospitality are again closed, having been open for no more than 21 and 18 weeks, respectively, between lockdowns.

So it has been an extraordinary 6 months. But I believe we can begin to take some positives from our experience and the situation we find ourselves in.

The business and more importantly, the people in it have demonstrated beyond question, their ability to respond effectively to a crisis. Our approach throughout has been and remains to be realistic, proactive and to act responsibly.

Despite the significant challenges of the past 6 months, the business remains in a fundamentally strong position, particularly financially, with a low 33% loan-to-value ratio and good portfolio liquidity. London has come back from many crisis over the centuries and even now remains an attractive location for investors, underlining the importance of our Central London portfolio and its quality, resilience, and liquidity.

As a result of this fundamentally strong position, we are pleased to be reinstating our dividend alongside these results. And we can also begin to look beyond COVID to medium- and longer-term opportunities that we expect to emerge.

Increased obsolescence of older offices and major mixed-use/regeneration are 2 areas where Landsec is particularly well placed to create value. And all of this, of course, is reflected in our new strategy, which was launched at our Capital Markets Day 3 weeks ago.

I mentioned that our approach to managing the impact of COVID has been to be realistic, proactive and to act responsibly. Let me give you a little more color.

Firstly, the safety of everyone working in or visiting one of our properties has been and continues to be our #1 priority. We implemented COVID secure plans for our entire portfolio with the first lockdown, and we've adapted them with care, as restrictions have changed.

Secondly, there is no question in my mind that our relationships with our customers have been strengthened by the need for us to collaborate. And this will set us up well for the future.

Whether that is through the launch of our GBP 80 million customer support fund, the sensible dialogue regarding rent concessions or deferrals, all the way in which we have helped office and retail occupiers alike with their own COVID secure measures, our collaborative approach has without doubt been a positive feature of COVID. On development, we said at our full year results that we were being careful to preserve optionality in our development program, so that we didn't overcommit capital in an unsettled market.

We maintain that position throughout the first half and have now elected to progress through to completion, the 2 speculative projects where we judge the prospective risk-adjusted returns to be the most attractive. This is in addition to our ongoing pre-let project at 21 Moorfields and means that our committed development program now extends to around 850,000 square feet with a total development cost of around GBP 950 million, 67% of which is pre-let.

The remainder of our near-term development projects will now be paused and held in the state of readiness to recommence as the market outlook becomes more settled. As you will hear from Martin, our balance sheet is strong, and our finances continue to be prudently managed.

And this extends to our assessment of bad and doubtful debts for provisioning purposes, where we have taken an appropriately cautious approach. And we have not needed to access any government assistance at all.

Our proactive, responsible approach has helped to ensure that despite the, in many cases, extreme impact of COVID, Landsec remains in a fundamentally strong position. Maintaining a net debt-neutral approach over the period means that despite valuation weakness, our loan-to-value is still low at only 33%.

And we continue to have a portfolio that offers good levels of liquidity. Our Central London assets, in particular, have characteristics, modern, sustainable spaces, great locations, strong tenants and long lease terms that continue to appeal to investors globally.

Our sale of 7 Soho Square at 4% ahead of March book value was a great example of this. And our focus on sustainability continues to be recognized.

For example, we were ranked third amongst the FTSE 100 by EcoAct for our ambitious net 0 strategy and our sustainability reporting. And as you'll hear from Colette, our leadership in this area is creating value and resilience in the portfolio.

We also have a number of medium-term mixed use regeneration opportunities in our portfolio, in particular, suburban London shopping centers that offer significant value-accretive repurposing potential. And the business's strengths go beyond financial and portfolio considerations.

Track record, reputation and relationships are a key feature of sustainable business success. We have continued to guard ours closely.

And as I set out at our recent Capital Markets Day, the experience, expertise and capability of Landsec's people is one of its greatest assets, a strength that we intend to make the most of by ensuring that we foster a culture of empowerment and accountability. The combined effects of these strengths means that we can begin to look beyond the near-term effects of COVID to the medium and longer-term opportunities that we expect to emerge after the pandemic.

Of course, we are still in unsettled times, but the path out of the pandemic through mass testing, more effective treatment and ultimately, a vaccine is much clearer than it has been. So it is important that we balance managing the near-term challenges effectively with ensuring that the business is properly positioned for new opportunities.

And there are 2 areas in particular where Landsec is well placed to create considerable value. Firstly, in Central London offices, it is clear that the way in which people will use office space after the pandemic will change.

Occupiers are thinking more deeply about the role of the office in their organization and their culture. But what is increasingly clear is that older office buildings will struggle to adapt to a post-COVID world where sustainability, adaptability and resilience are going to be crucial, whether as a result of physical constraints, such as lift or air handling capacity or the more esoteric qualities, such as health, well-being or sustainability credentials that are increasingly important to a modern workforce.

And secondly, urban mixed-use regeneration. What society needs from its built environment is changing, in some cases, rapidly.

And with sustainability targets, such as carbon net 0 by 2050, the required change can't be delivered in the way it might have been in the past. There is a clear opportunity for an organization, such as Landsec to play a lead role in helping shape that change.

Of course, to make the most of these opportunities, we need to have the requisite resources, both financial and human. And in that respect, as I've already shown, we are in a great place.

Low LTV, a Central London portfolio characterized by quality, resilience and liquidity, a hard-earned track record, reputation and network of valuable relationships and the capability, expertise and experience of our people. So having shared those key themes, I'll now share some color on how we're thinking about our core markets.

Firstly, Central London. Unsurprisingly, COVID had a significant impact on both occupier markets and investment markets.

On the occupational side, office take up over the 6 months was only 2.2 million square feet, around 1/3 of the long-term average. And availability of space has increased, pushing the vacancy rate up to 6.5%, and the very low levels of physical occupancy has also had a significant negative impact on footfall and sales in Central London retail and F&B, which is yet to recover.

And in previous directions, where higher vacancy has led to significant downward movements in rents, they have tended to be preceded by periods of strong rental growth and a high level of speculative supply in response. As the top graph on the right-hand side shows, what we have seen in recent years is a demand and supply that have been more in balance, coupled with the flight to quality, meaning that while there could be some rental weakness in the near term, we can afford to feel more sanguine about its scale for the best space.

This is borne out by some interesting statistics that we think will have an important bearing on how the occupier market develops from here. Of the total available space, only 26% is Grade A.

The increase in availability is largely attributable to secondhand space, much of it tenant release. You can see this on the lower graph.

Nearly half of space under construction is already pre-let. And 48% of total take-up in the 6 months was new space, well above the long-term average of 39%.

On the investment side, activity dropped very significantly in the second quarter of 2020 before beginning to recover in the third quarter. The fourth quarter has started strongly with some significant transactions exchanging or competing.

And so we see 3 key themes affecting Central London office market over the next few years. Firstly, sustained investor demand for quality led assets led to financially strong occupiers on long leases, the type of asset that typifies much of the Landsec portfolio, with demand supported by the low interest rate environment globally and the relative value of London compared to other global cities.

Secondly, a bifurcation in demand from occupiers with older secondary stock becoming obsolete more rapidly a more modern, adaptable COVID-secure workspaces being in greater demand. And this has 2 benefits for Landsec: one, it underpins demand for quality workspace and by extension values for our core portfolio; and two, the accelerated obsolescence of older stock could increase redevelopment opportunities across the wider market over time And the third theme is a potentially rapid evolution in how the workspace of the future is configured, utilized and let by landlords and occupiers.

An even greater range of propositions is likely to emerge over the next few years. And Landsec, with its strong track record and reputation is well placed to take a leading role in this.

Turning now to Retail. It's well understood that COVID has accelerated the structural trends that were already underway, particularly the shift to online retail.

The key question for us is what does that mean for the prospects of our assets in our portfolio in terms of both rent and value. well, for our outlets, we continue to see clear signs of the resilience of the model to online penetration.

People heading to our outlets for the day, intending to spend but looking for inspiration, making a day of it and enjoying the experience, all very difficult to replicate online. In the weeks prior to the second lockdown, outlets sale would have shown both rental and value growth had it not been for the very late impact of COVID.

And the assets are not over rented due to the turnover nature of the leases. So the 2 principal challenges faced by shopping centers do not apply to outlets, and we expect them to recover strongly after the pandemic.

For shopping centers, the clear feedback from the CEOs of the 40 or so conversations we have had with occupiers, large and small, is that there is a clear role for the physical store in an omni-channel world, but there will be fewer stores with destination malls favored. But with the permanent change [indiscernible] and even in prime rolls there is likely to be surplus space that will need to be repurposed.

As referenced in our Capital Markets Day, we estimate the ERVs need to fall 35% to 40% from their 2017/'18 peak to reach that sustainable level. And relative to September ERVs, this means around a further 15% fall.

And 10% to 20% of our retail floor space is likely to be repurposed over time. The investment market for shopping centers, of course, remains stalled, primarily as a result of difficulties in underwriting sustainable rent levels and the perception of forced or motivated sellers in the market, including as a result of intu's administration.

The sale of intu Trafford Centre by the administrator is a transaction that's being watched particularly closely. And this clearing the market, perhaps during 2021, will be key to price discovery.

So having taken you through the key themes from our announcement today, let me hand over to Martin and then Colette to take you through the details.

Thank you, Mark, and good morning, everyone. Over the last 6 months, both we and our customers have had to adapt and respond to the challenges presented by COVID-19.

The virus has impacted all parts of our business, but in different ways and to different extents. I will highlight where the impact was most significant, but it is important to recognize that we continue to have a resilient balance sheet and significant financial capacity.

We have a strategy to position Landsec for growth and the balance sheet to support it and take advantage of the opportunities, which will inevitably arise, as we emerge from the pandemic. First, a summary of our performance.

Revenue profit for the 6 months was GBP 115 million. That is down GBP 110 million or 49% compared with the prior period.

This was due to the impact of COVID-19 across our portfolio. I will explain this movement in more detail shortly.

Values were down 7.7% or GBP 945 million over the 6 months, leading to a loss before tax of GBP 835 million. Adjusted diluted EPS, which is based on revenue profit, that was also down 49% at 15.5p.

EPRA NTA per share was GBP 10.79, that is down 9.5% or 113p since last March. And we're paying a dividend of 12p in respect of the half year, but more on that in a minute.

Let's now look at how revenue profit changed compared with the prior period. Now as you can see from this chart, the GBP 110 million reduction in revenue profit was entirely due to a GBP 118 million reduction in net rental income.

Almost all of this decline was due to COVID, as I'll explain in a minute. We saw a GBP 39 million reduction in gross rental income, resulting from lower turnover related income, principally from our hotels, down GBP 13 million, lower car park income, down GBP 7 million, a loss of GBP 5 million of income from Portland House, which was vacated for redevelopment at the end of March 2020.

Now that is the only entirely non-COVID item. There was a GBP 3 million reduction in short-term income.

That is principally at Piccadilly Lights, and around GBP 7 million occurred from the impact of CVAs and administrations. Net service charge costs were flat, excluding provisions for nonpayment.

But the main driver behind the decline in net rental income was an GBP 85 million increase in bad debt provisions. Now I'm going to cover this in more detail in a moment.

Net direct property expenditure was GBP 6 million lower than the prior period. And that is due to COVID-related reductions and delays in expenditure as well as a GBP 4 million provision release on the termination of one of our final Landflex leases.

Net indirect expenses were GBP 2 million higher, as the prior period benefited from a higher provision release related to share-based payments. Net finance expense was GBP 10 million lower due to the liability management activity undertaken last year, lower prevailing interest rates and higher capitalized interest at our committed developments.

So turning now to our bad debt provisions. On this slide, I've broken down the GBP 87 million charge in the period against revenue profit.

In early April, we announced our GBP 80 million customer support fund. To support those customers most in need, with a particular focus on supporting F&B occupiers and small and medium-sized businesses.

Now to date, we've agreed and documented GBP 20 million of concessions. And this may seem like a small proportion of the fund but in the absence of a meaningful way to enforce rent collection, it is difficult to reach agreement and document concessions when occupiers can withhold rent without consequences.

On top of the agreed rent concessions, this period, we've provided a further GBP 45 million against outstanding rents and GBP 12 million for service charges. And we've also provided GBP 10 million for tenant lease incentives.

So together, that makes up the GBP 87 million charge to revenue profit in the period. Now let me give you some context to our provisions.

If we look at the level of provisions, we've just taken against rents recognized in this half yearly accounting period, then those provisions represent around 45% of all retail and leisure rent due for this six months. And if you look at our balance sheet, of the total amount of rent, which remains outstanding, around 75% is covered by a doubtful debt provision.

I wanted to give you that context so that you can appreciate and judge for yourselves the level of caution in our approach. As things stand, we do not believe that we will need to increase the level of our customer support fund.

However, our provisioning recognizes the level of rents that remain due, that enforcement remains difficult, the challenge of a second, hopefully, shorter lockdown and that we will see further CVAs, which may compromise outstanding rent. For completeness on this slide, on the right-hand side, I've broken down the GBP 87 million P&L charge by segment.

And remember, these are the new segments we outlined at the Capital Markets Day. So turning now to rent collection.

Now different companies will have different approaches to recognizing rent and making provisions. I've explained our approach to provisions.

And here's how our rent collection is progressing. The first column represents all rent due in respect of this half year.

So that's the March and June quarter days and all monthly rents from April to September. The second column is simply the September quarter day collections.

While the total collection percentages look similar, you should be aware that the September quarter day numbers only cover those paying rents on a quarterly basis. And in practice, many retailers and F&B operators have long since moved to monthly rents.

So in the September numbers, office represents around 62% of the total rent due, while it represents only 41% of the first column. As you can see, office rents continue to be paid, while the impact of withheld rents in retail and leisure is visible in all other segments, where the percentage of rent paid is generally between 50% and 75%.

And let me be clear on one further point. Companies can improve their collection statistics by deferring the rent due to a later period, so it isn't yet payable and still recognize that rent as income in the period to which it relates.

Now in our numbers, deferrals account for less than 2% of the rent due. So moving from income to valuation.

At 30th of September, our combined portfolio was valued at GBP 11.8 billion. The total valuation decline was 7.7% or GBP 945 million.

Now let me start by explaining how the valuers have reflected ongoing COVID-related rent payment concerns in the valuations. In Central London, the valuers have assumed a future 6-month rent concession at the 30th of September for retail and F&B, except where there is a revised agreement in place with the occupier.

Outside Central London, retail has a 3-month concession applied and leisure activities, including F&B, have six months. Outlets and hotels are valued off increasing turnover assumptions with no additional concessions.

Now the total impact of this in our valuation is GBP 72 million at 30th of September, and it is completely independent of the rent provisions that we're carrying. Now turning to the individual segments and starting with the Central London portfolio.

Our Central London segment represents 67% of our assets. And it was valued at GBP 7.9 billion in September, that is down 3.8% from March.

Offices were down 2.3%, with a like-for-like portfolio down 1.9%. Now within this, like-for-like rental values were down 1% with negligible change to equivalent yields.

Our developments, they were down 3.9%, with proposed developments so that Portland House and Timber Square, down 9.4%, and the assets in our development program, down 1.2%. London Retail, that's mainly the retail below our office buildings and that has felt the impact of the significant reduction in office and tourist footfall and values here were down 16.7%, with rental values down by 16.5% and yields moving out 12 basis points.

Other Central London is principally Piccadilly Lights, where the value was broadly unchanged with an increase in the valuation of the 3 medium-term arrangements, offsetting lower income from the short-term arrangements. Regional retail, which comprises our shopping centers and outlets, was valued at GBP 2.1 billion, and that represents 18% of our combined portfolio.

Regional retail fell in value by 16.4%, with shopping centers down 20.4% and outlets, down 8.8%. Rental values for shopping centers were down 14.4%, with a net equivalent yield moving out 42 basis points to 6.6%, and the contractual net initial yield now at 7%.

Within shopping centers, the equivalent yield spread is from 6.3% for Bluewater, 6.9% initial to 6.9% for Buchanan Galleries, 9.5% initial. Outlet saw rental values only fall by 1.3%, while equivalent yields moved out 38 basis points to 6.3%.

So urban opportunities, which currently only represents 4% of our portfolio. Well, here, we saw values fall 9.8%, as rental values fell 5.8% and and equivalent yields moved out to 5.3%.

Within this category, the largest fall was at south side down 20%, which is more in line with regional shopping centers, while the smallest decline was at West 12, down 4.7%. And finally, subscale, which represents 11% of the portfolio.

Here, values were down 12.4% overall. Leisure assets were down 15.3%, with rental values down 3.9% and equivalent yields moving out 70 basis points to 70 -- to 7.1%.

Our hotel portfolio was marked down 13.1%, with rental values down a similar amount, with those hotels that are most dependent on the travel industry seeing the greatest valuation declines. Retail parks fell in value by 7.3% with rental values down 6.1% and equivalent yields moving out 16 basis points to 7.6%.

So let's move from valuation to our financing position. Over the course of the 6 months, our adjusted net debt was little changed, up GBP 14 million at GBP 3.94 billion.

And group LTV was 33.2%. However, this doesn't allow for the disposal proceeds from the sale of Soho Square, which had exchanged at the 30th of September and has been treated as sold.

Now including the disposal proceeds from Soho Square, pro forma adjusted net debt was GBP 3.86 billion and pro forma group LTV was 32.5%. Our average cost of net debt is 2.1%.

Our next bond maturity is in September 2023, and it's only GBP 10 million, while none of our revolving credit facilities matures before 2024 at the earliest. So all of this means our cash and available facilities of GBP 1.2 billion are readily available to deploy for opportunities into the medium term.

And moving on to dividends. In July, we said that we would reinstate our dividend with our interims.

And that is what we have done today, at a level which reflects current underlying earnings. As we did not pay a Q1 dividend, we are wrapping both our Q1 and Q2 dividend into a single dividend of 12p per share, which will be paid on the 4th of January 2021.

We intend to pay a Q3 dividend at the end of March, with the amount to be confirmed in early 2021, followed by a final dividend in July. Now depending on market circumstances at the time, the final dividend proposed is likely to see dividends for the year be 1.2x to 1.3x covered by underlying earnings, so an approximate payout range of 75% to 85%.

And this is in line with what we said at our Capital Markets Day last month. So let me wrap up.

We have taken what we believe to be a cautious approach to providing for unpaid rent. But time will tell.

The retail and leisure sectors remain challenged and the current lockdown does not help. Against that backdrop, it is helpful that the London office market -- the London office investment market continues to provide liquidity, so that we can remain disciplined in our approach to funding capital investment through disposals.

And our balance sheet has been resilient in the face of the pandemic, and we retain plenty of liquidity to manage future uncertainty and fund accretive opportunities. Now on that note, let me hand you over to Colette.

Thanks, Martin, and good morning, everyone. This is indeed the most extraordinary of times.

Not surprisingly, our performance has been challenged, particularly in retail. But this doesn't tell the whole story, and we've also had successes in the last 6 months.

Notably, we've got closer to our customers, working to get them back up and running after the first lockdown, managing this lockdown, helping them with their lease obligations as well as navigating the ever-changing government guidance. Also, as we told you at the Capital Markets Day, we're talking to them as we think about how to optimize our Central London portfolio and how to reimagine our retail portfolio.

I'm going to go through our operational activities as they now sit, Central London, regional retail, subscale and urban opportunities. But as it's only a few weeks since the Capital Markets Day, I'm going to focus on Central London and regional retail.

So here are the headline numbers. In London, we're 98% let, we've delivered GBP 1.4 million of lettings with GBP 6.2 million in solicitor's hands.

We've completed GBP 7.2 million of rent reviews at 1.2% above the passing rent. We've [renegotiated] GBP 3.2 million of income in response to COVID.

Our office WAULT is 8 years, one of the longest in the sector. And we're taking advantage of the flexibility we built into the development program to manage capital expenditure and optimize delivery into the market.

In our regional retail portfolio, the shopping centers stayed open during locked down for essential retail, and all assets were ready for reopening on the 15th of June. We then managed the capacity issues created by social distancing and the varied restrictions across the U.K.

before returning to lockdown. Since reopening, footfall across the portfolio was in line with the benchmark.

Sales were down less, but worse than the benchmark. However, the figures hike significant variations between locations and assets, as government guidance change and people adapted their shopping patterns.

More on this later. In subscale, our retail and leisure parks traded throughout the first lockdown for Central Retail and takeaway food.

After the 15th of June, we saw greater opening before local then national restrictions returned. In the hotel portfolio, 21 hotels reopened and 2 remain closed.

However, our rent has been significantly impacted by the turnover nature of the leases. In Urban opportunities, our suburban London assets continue to trade for essential retail during lockdown and fully reopened after the initial restrictions were lifted.

They benefited as people work from home. And of course, we continue to progress our development plans for 8 million square feet of mixed-use space across the assets.

So that's the headlines. Now let me go through what we've been up to.

Of course, safety is the priority we've worked hard to make sure we comply with all government regulations and guidelines. This has involved more signage, more security, more cleaning, more communication and importantly, working with our customers, store managers, facility managers, property managers, MDs and CEOs.

What's been great is the positive feedback we've had from our proactive leadership. Discussions around rents and leases have dominated the last 6 months, and our GBP 80 million support fund is being put to good use as we work with hundreds of customers, primarily in retail, leisure and F&B.

This slide shows how the rent roll of those 600 customers is split. We systematically work through each group, starting with the top 30, who represent over 1/3 of the rent roll and have now granted GBP 20 million of concessions that have a long way to go.

Martin has covered the impact of CVA. So all I'll say is that where there are a legitimate tool to help a business in the stress we'll work with that business and have run so on many occasions, where we don't believe this is the case, we won't.

So let's look at our Central London portfolio. The quality of our portfolio and our customer-centric approach have stood us in good stead this year.

We remain 98% let, and our customer profile has protected our income. However, uncertainty is causing many businesses to postpone big decisions, whilst others have had their moves delayed.

A likely outcome of this will be pent-up demand for more longer-term solutions in 2 to 3 years' time. This fits well with our development pipeline, which I'll talk about in a minute.

This situation has created mutually beneficial opportunities. We've renegotiated 6 leases covering 58,000 square feet, extending lease terms by an average of 9 months with GBP 3.2 million of income secured.

Not surprisingly, our letting activity is down in the first half to GBP 1.4 million, with a further GBP 6.2 million in solicitor's hands. But that's primarily due to having little available space.

Over the summer, though, we did see a growing interest in pre-let for high-quality, healthy and sustainable spaces. Our extensive research, coupled with customer conversations is giving us insight into how businesses are thinking about their future office use.

In May, I talked about the new scripts being written for offices. And here are some of the trends that are driving our activity.

Let's start with the impact of the first lockdown. Our average occupancy in October was 15%.

But within that, there were variations across the portfolio. Fro example, Nova was around 25%, Eastbourne Terrace only 10%.

When we drill into these figures, it's clear that portfolio splits into 2: banking, financial and professional services, who'll have more people in the office, in contrast to the creative, tech, media and government sectors who have less. All our customers cited government guidance, transport and a lack of collaboration space as the challenges they face in office utilization.

As you'd expect, we're staying in close contact with everyone as we plan to gear up again in December. Then there are the longest term themes, the mood music has changed.

Early on, people were focused on the benefits of home working, today, the commentary is more balanced towards hybrid models. People are realizing the impact of working from home reaches far wider than simply not being in the office, from mental health, productivity to broader concerns about the economy.

So the right office space is being recognized as one with a healthy environment, which enables collaboration, creativity and personal development. Our offices need to tick those boxes.

People are being occupied at lower densifications and with more open space. With a laser focus on a healthy environment and sustainability, low carbon material in the fixtures and fittings, low energy consumption, great air quality are no longer nice to have, they're fundamental to attract customers and employees.

We've been working on this for a long time, and our early adoption will ensure long-term resilient value. And as we talked about at the Capital Markets Day, we're working towards achieving a well certified portfolio.

We need to create more flexibility. For example, customers could combine a Blank Canvas core with additional pay-as-you-go space at Myo, where we're now trialing daily rates.

More customers are seeking our expertise to design, deliver and manage their offices, allowing them to focus on their core business. We're doing this through our customized product.

We're putting all this into practice at Dashwood, our 158,000 square foot building opposite Liverpool Street Crossrail Station. I'm now going to describe how we juggle moving parts to create a win-win for us and our customers.

We were due to get vacant possession of floors 9 to 12, which were earmarked as our first Myo product in the city, but one customer of 3 floors found a new home was delayed by 9 months and needed to stay longer. We wanted to help but this created a problem for Myo as we needed 4 contiguous floors.

Another customer was marketing for 8, which gave us an alternative option for the 4 contiguous floors. So in return for a premium, we agreed an extension with the first customer, a surrender with the second, and we got 4 contiguous floors, a win-win for all.

We started work, and we'll return to the other floors when they're vacant next year. This gives us the opportunity to offer Blank Canvas, Customised and Myo in the building in addition to Landsec Lounge.

Let me talk for a moment about the retail that sits on the ground floors. This has been hardest hit with the low office and tourist footfall in the streets of London.

Whilst it only represents 6% by value, the mix of amenity, services and place-making it brings is vital to London's living and working ecosystem, but the nature of this need has changed. As we said at the Capital Markets Day, we need less coffee, more crèche, but that's just the start.

Do they become collaboration spaces, affordable workspaces or collection points for online retailers, it's an opportunity for us to turn a problem into a new solution. Now turning to our development pipeline.

We've explained before how we've managed it into bite-size chunks, giving us the ability to stop all schemes, except 21 Moorfields at various stages. This is a major advantage given the pandemic.

Pre pandemic, we have 1.4 million square feet across 5 office schemes in the city, West End and Southwark with delivery dates between March '22 and February '23. We took advantage of the inbuilt optionality to take stock and reassess the relative risk and rewards with a range of factors in mind, such as costs, future demand, the product, location, size of project and construction complexity.

As a result, we decided to progress 2 speculative schemes, delivering 284,000 square feet with a commitment of GBP 381 million. The 2 schemes are Lucent, Piccadilly Lights and The Forge in Southwark.

But let me start with 21 Moorfields. Extraordinarily work only stopped for 2 weeks, allowing the contractor to replan and resequence activities in the new COVID world.

By investing in new welfare facilities and adopting different working practices, they've been operating at around 75% capacity since August. Completion is forecasted for June 2022, only 4 months behind program, and we're proactively working with the contractor to mitigate any further delay even with the current conditions.

Before I go into the detail of our speculative schemes, it's worth touching on how our thinking and planning have evolved in this new world. We're procuring contracts differently, inserting notices to proceed at key milestones, allowing us to maintain control over the level of activity on site, expenditure and the timing of delivery as we navigate these uncertain times.

We've adapted our designs with a heightened focus on health, well-being and flexibility, as you'd expect. Few examples of this, the touchless access throughout, more collaboration and creative spaces as well as more private work areas, lower densification, more divisibility, more staircases to support lifting capacity, and we're planning alternative uses for retail space.

Now to Lucent, the 144,000 square foot scheme behind Piccadilly Lights. There's nowhere else like him, and there's no office space quite like it in the area.

Floorplates range from 3,000 to 25,000 square feet with plenty of flexibility to divide them into smaller units. We completed significant parts of the basement piling works amazingly ahead of program, helped no doubt by the sudden traffic free streets of early lockdown.

We're now gearing up to enter into a main contract with delivery in December 2022. The Forge is our 2 building, 140,000 square foot scheme in Southwark, with floor plates ranging from 3,000 to 15,000 square feet.

It's a new location for our Myo and customized products and like Lucent, is unique product for its location. The substructure works will complete in December, and the kit-of-parts trial has delivered time and cost efficiencies and will be used to deliver the project.

We're actively pursuing pre-let discussions for both Lucent and The Forge. We've added Castle Lane to our program.

This was previously a hostel bought to provide affordable housing unit to satisfy our planning commitments in Victoria. The scheme will provide 88 units of affordable housing, which have been presold to Notting Hill Genesis, the project will complete in April 2023.

Whilst these are the 4 schemes we're progressing, we haven't [down tools] on the remainder. And Nova East now called n2, work continues on-site to complete the core and we'll continue with procurement and design development.

With minimal cost, this enables us to be ready to gear up in less than 6 months. The Portland House, we now have planning concerns and are continuing predevelopment activity, securing vacant possession and stripping out the building, which will complete early next year.

We'll then pause and reassess market conditions but don't anticipate further capital commitment for 12 months. At Timber Square, the building is still occupied, and we submitted a planning application for a 380,000 square foot scheme and hope to secure consent in December.

Again, we're continuing the predevelopment activities. At Red Lion Court, we're hoping to submit an application early next year for 237,000 square feet.

In the meantime, we have Lloyds in there on a lease until June 2022. So what this all means is that we'll complete 21 Moorfields and Castle Lane, which are both de-risked, and we're committing GBP 381 million to 2 speculative schemes, delivering 284,000 square feet between June and December 2022.

And we're spending smaller sums to continue predevelopment activities, giving us optionality on when we want to step up a gear. Now on to investment.

As you heard from Mark, the investment market stalled as the pandemic took hold, but activity has recovered in the last few months, with increased demand for well let prime buildings. Soho Square, which had just 3 years of income, was sold for GBP 78 million at a yield of 4%, which was 4.3% above the March book value.

We anticipate that despite this lockdown, interest will continue. So far, investment volumes for Q4 are ahead of Q3 with even more currently under offer.

This momentum is good news for our portfolio. Whilst we don't have anything more specific to tell you today, it's keeping us busy.

Now let's look at our regional retail portfolio, which, as a reminder, encompasses our shopping centers and outlets. I've already spoken about reopening and closing assets and rent collections.

What I'd like to talk about now is sales and footfall and the work we're doing to reimagine our portfolio for the future. Since reopening footfall across the portfolio is broadly in line with the benchmark at minus 39%.

Overall sales performance is below the benchmark at minus 26% compared to a benchmark of minus 12%. And this hides significant variations between individual assets and, in general, a much stronger sales performance at the outlet.

The outlets bounces back well. Footfall was down 34% on last year, but sales were only down 17%, demonstrating a much higher basket size and people shopping with a purpose.

We saw a similar pattern at the shopping centers, where footfall was down 41% and sales only 32%. But the performance between assets varied due to their location.

And significantly the varying restrictions across the U.K. before this lockdown, 3 of our 6 shopping centers were already operating under tighter local restrictions.

And now to progress on the 5 reimagine retail objectives that I shared with you at the Capital Markets Day, starting with determining sustainable rents. We formed a view across the shopping centers of the long-term sustainable ERV, which are on average, 15% below September's ERVs, representing declines of 35% to 40% peak to trough.

Existing lease commitments mean this won't lead to an overnight change, but it will provide us with a foundation to make informed investment and leasing decisions, all of which will help us evolve the mix and future repurposing opportunities. Next, elevating the consumer experience.

Retailers have told us that to drive footfall, we need to change the push and the pull. The push is now about collaboration, pooling our marketing and digital resource with that of every retailer increasing our collective reach.

The pull is about changing the mix. The mix needs to relate to the catchment demographics and be balanced towards growing sectors and relevant retail, which will see more convenience offers.

This approach is more in line with the outlet model with active brand churn responding to consumer demand. we can use our outlet experience and relationships to build a similar approach at the shopping centers.

Our first step has been to segment our customers by relevancy and growth potential, which are on track to complete by December. We'll then use this data to inform targeted leasing strategies for each shopping center.

The third objective is creating operational excellence and new leasing models. Another clear theme emerging from our conversations is the need to change the leasing model but it's clear there isn't a one size fits all solution.

We're looking at a variety of models, which are aligned to the different customer segments, and again, due to the existing lease commitments, this will take time, but we expect to start trial some ideas very soon. We're on track to achieve a 4% saving in service charges, in addition to the 8% savings we've already made as a result of COVID.

And as you'd expect, we're looking at this again. As well as these immediate savings, we're continuing to look at options to deliver services more efficiently to help reduce operational costs.

Now to maximizing our vibrant outlets. The outlets have performed well, demonstrating their ongoing appeal to customers and resilience to greater online penetration.

We've continued to develop the mix completing GBP 0.7 million of lettings to new brands, such as Under Armour, Fiorelli and the Perfume Shop. We've made good progress on our enhancement works at Braintree Village and Clarks Village, where we spent GBP 2.5 million on enhancements to the public areas to create a more appealing environment as well as work to the stores to make it easier to rotate brands.

Even now they're closed, this work will continue. Finally, our fifth objective, repurposing retail space.

This is to reduce the quantum of retail to create competitive tension and introduce new uses, such as offices and residential into the ecosystem. We've created a master planning framework to ensure we have a consistent approach to determining the repurposing potential of each asset, drawing on macroeconomic, consumer, sector and market-specific data to make our decisions.

We're working towards having master plans for the 6 shopping centers by the end of the financial year. So in summary, the half year in extraordinary times impacted our like-for-like performance but accelerated changes in how we operate.

Our Central London office portfolio is full, and we're adapting our products for the future. Our ground floor retail is challenged, but is vital to London's living and working ecosystem and will change.

We've adjusted our development pipeline, taking advantage of the inbuilt flexibility to manage costs and delivery. We're making progress on our 5 reimagine retail objectives.

Once again, we've helped our customers transition into the new lockdown. But this time, there were no surprises, and we're ready to reopen again on the 3rd of December.

Of course, there are challenges, but there are also opportunities. We know what we've got to do, and we have a clear plan.

I'll now hand you back to Mark.

Thank you, Colette, and thank you, Martin. I will now spend a few minutes wrapping up this morning's presentation before opening up for Q&A.

[Operator Instructions] So I'd like to start my wrap up by taking you back to our strategy, launched at our Capital Markets Day 3 weeks ago, a strategy that positions Landsec for growth, a strategy built around 4 strategic priorities: optimize Central London, reimagine retail, realize capital from subscale sectors and grow through urban opportunities, a strategy that envisages a greater level of asset recycling, around GBP 4 billion of sales over the next few years, focused on assets where we have already added significant value that can now be crystallized and on parts of our portfolio where we are subscale with little or no competitive advantage. And then reinvesting the proceeds in areas that have strong growth characteristics, both cyclical and structural and where we can make the most of Landsec's competitive advantage.

It's a strategy that makes the most of a best-in-class Central London portfolio, leveraging its quality, resilience and liquidity to provide a source of capital over time to rotate into higher growth areas, both in Central London and Urban opportunities. It's a strategy that makes the most of our track record and the strong relationships built up over time, and it will build on them further, customers, supply chain, public sector, potential partner capital.

It's a strategy based on a realistic assessment of the challenges faced by retail, with a clear plan grounded in that reality, where we will make better and more timely decisions, build stronger relationships with our retailer customers and ultimately ensure that our shopping centers remain relevant and complement our strong outlets operation. It's a strategy that can place Landsec at the heart of considerable urban regeneration potential across London and major regional centers by making the most of our development capability, opportunities that could be accelerated post COVID and are only capable of being unlocked by developer investors with a track record, expertise and scale.

And it's a strategy designed to deliver improved total returns for shareholders over time. At our Capital Markets Day 3 weeks ago, I concluded by setting out what you can expect to see from Landsec over the next 12 months as we deliver on our strategy.

And I thought it was worth setting that out again in the context of these interim results. We'll continue to preserve our financial strength, so that we can capitalize fully on the opportunities that we believe will emerge post COVID.

You'll see more asset recycling, initially, in our Central London portfolio, taking advantage of strong investor demand and realizing significant value creation. We'll be progressing our development pipeline in a measured way.

The 2 speculative projects that offer the best risk-adjusted returns as well as our ongoing pre-let developments, most notably 21 Moorfields. We'll be broadening the range of office propositions we offer, as Colette showed with a Dashwood example.

You will see progress to a new operating model for Retail, one that positions Landsec effectively for the changing retail landscape. We'll be progressing our urban opportunities portfolio, particularly planning on our current portfolio of projects, but possibly also through new acquisitions.

And we will be taking steps to put in place the right culture and organization to support delivery of our strategy. So as I said at the outset, an extraordinary 6 months, bookended by lockdowns.

But there are reasons to be positive. We have managed the impact of COVID-19 proactively and responsibly and continue to do so.

Our operational resilience and customer relationships, in particular, are stronger as a result. And part of that approach has been to preserve financial strength and flexibility.

Our business fundamentals remain strong. The quality, resilience and liquidity of our Central London portfolio is a particular strength.

And because of that, we can begin to look beyond the pandemic to the medium and longer-term opportunities we believe will emerge, accelerated obsolescence of older London offices and the need for major mixed-use regeneration being the 2 most prominent, which, in many ways, makes it a good time to have launched our new strategy, a strategy that positions Landsec for growth. Ladies and gentlemen, thank you for your time and attention this morning.

As promised, I will now open the call for questions. I will go first to the conference line to pick any questions up there and then to the webcast facility for any questions submitted through that.

Thank you.

Just -- you mentioned Trafford Centre and the potential for that to transact. I was just quite interested to get your view on whether you think the values will look at that as an arm's length transaction, depending on who gets it.

And there's obviously been some very low ball offers rumored around there. So I just want to understand your view on what that kind of read across could be like for your portfolio?

And secondly, on the outlets business, I'm just trying to marry up what you're saying about it being a robust sector. Yet, we're still seeing yields pushing out sort of 38 basis points, values down 9%.

Is that because of the way the values are approaching the risk to turnover rents? And could you maybe comment on the GBP 0.7 million of new lettings, where they are versus passing rent?

Thank you, Max. So what other -- I'll offer a few thoughts on Trafford Center and also values.

And then perhaps I'll ask Martin to add any comments around valuation specifically and Colette to talk about the new lettings that you mentioned. So I think the reason we mentioned Trafford Center as an important transaction, I think, is primarily because of -- as an asset type, I think it would be seen as being one of the strongest assets in the shopping center -- the regional shopping center space.

So I think it has relevant parallels across the Bluewater. But you raised a very valid point that because of the relatively complex nature of the transaction and the fact that you can't decouple the asset itself from the capital structure that buyers will inherit, I think that does make it more difficult to get a read across.

But really, in the absence of really any other transactions to speak of, I think it is something that will be looked at quite closely. And I think over time, we will get a little bit more clarity over how people, how prospective bidders and buyers are looking at the sustainable rent line within that as opposed to an immediate initial R&D equivalent yield because I think that, as we've flagged at our Capital Markets Day and, again this morning, I think getting a handle on that sustainable rent is the first thing that needs to happen in order for markets to then start to get confidence in valuation.

Because if you look at the sort of cap rates that we have included in our results today on retail, compare them to other sectors, they clearly look pretty generous. The flip side is, of course, it's difficult at the moment to understand and really pinpoint what rent it is that you're capitalizing in that yield.

So I think that's where there could be interesting evidence that will come through over time, but you are right to flag that because of the capital structure complexities of the Trafford Center, yes, it isn't going to be the perfect piece of valuation evidence. But I think, nonetheless, it will be an important reference point.

I think with regards to outlets and values and why we've seen a decline there, I'll ask Martin in a moment to comment more specifically on how the valuers have approached things. But I think there probably is a degree of caution in that approach.

And probably a view about the wider retail sector being under pressure, therefore, in relative terms, does there need to be some reflection with our outlets. What I will reiterate is the positives that we see within our outlets portfolio and why we have sought within our strategy at the Capital Markets Day and again today to decouple the way that we look at this performance compared to wider retail.

So in advance of the second lockdown, I mentioned within 10% of prior year sales on a like-for-like basis despite capacity constraints, we would have seen growth to March 2020, had it not been for COVID hitting in the last couple of weeks. And I think what sits behind that is that you've got a portfolio of assets where there is much closer collaborative working relationship between us as the outlet operator and the store managers who tend to operate with a degree more autonomy than they do in full price outlets for a lot of the retail occupiers there.

Turnover leases, so you end up with leases that are -- that they can't be over rented, a more proactive management to move occupiers around from smaller, larger stores and vice versa depending on trading performance. So more active asset management linked to that.

The real estate itself is not particularly complex or tends not to be particularly complex. So you don't necessarily have that large maintenance CapEx bill, to think about.

And as I mentioned in the presentation, not overly exposed to Internet retail because of the difficulties in replicating the experience of visiting outlets online. Martin, can I ask you to add any comments, particularly around how the valuers have approached the outlets values?

And then I'll ask Colette to talk about the new lettings.

Sure, Max. Listen, I think it's a very fair question.

And let me give you just a color on one particular one because, clearly, the largest asset within that outlet portfolio is Gunwharf Quays.And the main driver of the valuation decline is actually the F&B there. So there's a reasonable amount of food and beverage at that scheme because of its location.

And what we've seen there is it's the F&B that's been moved out around 50 basis points, Gunwharf has just been -- the yield has been moved out by 10 basis points for the outlet stores. So that's the main reason why it looks like the outlets are slightly weaker than the associated commentary, there is also then this reduction related to turnover.

So for example, the valuers on Gunwharf have said, okay, for September to December, we're going to see turnover rents down by 15%, and then we're going to bring that back up to a normal steady state by the end of our financial year, by the end of March. So that's broadly how they've approached the valuation of outlets.

Hopefully, that gives you a bit of color as to why the valuation decline is a little bit greater than you might expect. And probably I should hand you over to Colette there.

Yes. Just to pick up your query about the GBP 0.7 million of new lettings.

I think the main point to make there is that these are obviously based on a turnover arrangement. What I can say is the turnover arrangements are broadly consistent with the passing arrangements.

And as we sort of said in the presentation, it's about getting the mix right and the sales, which are what going to drive the rent ultimately from those lettings, only fell just under 17% in the half. So it's been a lot about getting the mix right as well as getting the terms right.

And I'll hand you back to Mark.

I have 3 questions. And the first one will be about what is the overall cash impact of your 77% rent collection over the first 6 months?

When you do combine bad debt for GBP 85 million plus what has been put into client receivables. Can we have a sense of how much impact this has had on your net debt, please?

Okay. What I'll say briefly is the most important thing is that the dividend we've declared is effectively covered by operating cash flow, having accounted for all of those cash collection rates and the other things you mentioned.

But Martin, is there anything more specific that you can add?

Yes. So just in terms of the actual cash delta, it's around GBP 100 million that -- yes -- no, sorry, it's -- if I just look at the -- if I just look at the 9 months, so if we ignore the September quarter day, it's GBP 83 million of cash that we haven't received.

And to date, the amount that we haven't received from the September quarter is GBP 24 million. So if you put those 2 together, it's a little over GBP 100 million of cash not received that is due to us.

Okay. So the increase in your receivables by GBP 110 million in your balance sheet does not reflect an increase of client receivable there.

It's only GBP 20 million out of this GBP 100 million. Well, we can...

Yes. Well maybe we'll pick up later, but there are a number of things in the receivables figure.

And it's relatively complicated. So maybe we'll pick it up later.

Yes. My second question would be very much about your capital recycling target of GBP 4 billion.

Do you have any size order of what will be acquisition and what would be disposals? Because if I just look at what you might want to do in terms of refocusing your portfolio, we've got GBP 1 billion in subscale businesses, GBP 2 billion in regional retail, that's GBP 3 billion, should we say that we have GBP 1 billion of acquisition targeted in front of this?

Yes. So the capital recycling target that we set out at the Capital Markets Day was around GBP 4 billion over the next few years, so over the next 5 or so years.

We flagged subscale, as you mentioned, with no immediate urgency or desire to sell from there, but just signaling an intention in the medium term, particularly once trading is recovered from -- in the hotels and Leisure assets in particular to exit from there because of the lack of scale and relative lack of competitive advantage. And we also signaled an intention to recycle out of Central London offices, and particularly those assets where there is evidently strong investor demand, long let quality tenants, modern assets with long lease terms, where we've created significant value but can add relatively little more to those specific assets and then recycle back into what we flagged really as 2 opportunities.

Central London, where we expect there to be more obsolescence and more rapid obsolescence in some of the secondary office property around the city that could offer redevelopment potential over time that we're well positioned for and obviously have a great track record in. And then the mixed-use regeneration, the urban opportunities, which I think plays increasingly well to the build back better agenda that we're starting to hear more about from government.

Now the precise level of recycling there and the rate at which that happens and exactly where we choose to invest, I think will become clearer over time. We do certainly see acquisition opportunities in both of those growth areas that we would expect to see some news flow on over the next 12 or so months.

We've set a net debt -- well, sorry, set an LTV target of 25% to 40%, recognizing the need to be at lower financial leverage to offset operational leverage. So it's difficult to provide precise elements at the moment.

We will be recycling out of Central London before we recycle out of subscale sectors. And then where we choose to invest will depend on the progress of planning consents on our current urban opportunities program and the rate at which new opportunities either in urban region or in Central London present themselves.

Hopefully, that gives you a bit of color Marc.

Yes, it does. It does.

And the final one, it's a small detail, but we spend a transaction on one of your assets at -- which is 50% of your Nova building, and it's 4.6% yield. How that yield compared -- will compare, sorry, to your book value at March '20, just to get a sense on how much value of this asset has moved over the past couple of months?

Yes. So I'll ask Martin in a moment to comment on the the specifics of comparing that to the March valuation.

Obviously, the Nova transaction itself, which was something which was contemplated prior to COVID, I think the fact that it came back and has been transacted with the same purchaser, I think still subject to their shareholder approval, but it's exchanged, I think that's a significant positive showing the resilience of the market. In terms of looking at book value, of course, we will value 100% of the asset.

So there will be some differential for a 50% stake rather than a 100% stake. And of course, the -- conversely, the investment was into a corporate vehicle rather than the asset level.

So broadly speaking, I think we can assume those 2 effectively net each other off. But Martin, perhaps you might just offer a more specific view on that.

Yes. I believe that the transaction was at around a 5% discount to our March book value.

I'm just -- I don't have the number right in front of me for the amount that Nova was written down. But it was -- but the values will adjust for the fact that there was -- that the stake -- that our ownership includes the asset management of the assets.

So it won't have come down by the full 5%. I'll look at it and let you know.

Just a question on your Retail. Can you just comment now on what -- the peak current decline that you have now seen in your shopping center valuations, if you have that number to hand?

And to -- secondly, to what extent you believe your Retail valuations already reflect the 15% further decline in ERVs that you're talking about and that you say is necessary? And I suppose a final to that, do you think we're now through the worst of the value declines -- the valuation declines in retail?

So just if you could comment on those 3 items, please?

Sure. Thank you, Chris.

Let me comment on the second two, and then I'll ask Martin just to see whether we have the information on the shopping centers peak to now movement. So I think with respect to our ERVs, our ERV projections on sustainable rents, the 15% we mentioned reflected in values, it's difficult to be precise.

Of course, my judgment would be that they are partially reflected. And I make that comment really when you look at the equivalent and initial yields compared to other sectors that have seen quite significant rerating and the fact that there is a challenge in underwriting sustainable rents.

I think if you believed a sustainable rent and there was clear credible evidence to support it, I don't believe investors would be looking for a yield in the mid- to high 60s for multi-let assets with -- that have got good footfall and good ongoing demand. So I suspect they are at least partially reflected, but it's difficult, of course, to be precise.

Conversely, the valuations are also going to be reflecting the current contractual arrangements, the passing rent. So there is going to be a degree of burn-off of that over rent over a period of time.

And of course, the rate at which that happens will depend on how we see CVAs or other things play out beyond the end of the pandemic, presuming at some point, the moratorium itself is suspending. And of course, there's a degree of judgment to be applied there.

So I think -- I that would say, we still expect to see some -- there's still reasons to believe there will be some further downward movement. I think in the current situation, offering a view on whether we've seen the worst or not, I think would be probably a little bit rash of me, so I will duck that one, Chris, if you don't mind.

I'm going to see Martin, if we got a number for the peak to current on shopping centers?

No, I feel like a bit statue sitting here, [indiscernible] quickly work things out, but I'm afraid I don't have a peak to now movement. And just one other -- sorry, just one other bit of color that I will give is that, I mean, clearly, the valuers have to take into account the spot ERV.

They can't take into account the future ERV in the numbers. The only way they can do that is in the same way that a buyer would through the yield number.

So the ERV -- a further ERV change will come through into valuations. But as Mark said, the key question is what's the yield.

I think, Chris, just -- and we'll try and get you that number separately. But I can't do the reverse compounding in my head, but the 20% decline over this 6 months, I think, followed an 18% or so movement over the second half of last year.

I think that's when the bulk of the movements have been booked. So I'm sure there was some element prior to that, that at least gives you a sense of what's happened over the last 12 months anyway.

Right. We've got -- I think the peak to trough is around 25% to 30%, but we'll try and be a bit more specific to you.

May I just sneak in one further the question, which is about your London office disposals. I appreciate it's difficult for you to talk about the sales that haven't yet completed, despite some being reported or rumored in the trade press.

Can you just at least confirm how many assets do you have, just to give us a flavor of the quantum of sales that are either in the market or going through the process of disposal right now?

As you say, Chris, we don't comment on the specifics. We flagged GBP 4 billion in recycling in total, signaling around GBP 1.5 billion of that to come from subscale type sector.

So I think that gives you around GBP 2.5 billion that we had earmarked from Central London. I think the rate at which that happens will depend on how we see investor interest and, of course, how we see the opportunities to redeploy.

The other factor we take into account is making sure that we keep our leverage nice and conservative so that we can capitalize on further opportunities. So I can't give you a number of what we expect to sell over the next 6 or so months.

But we are active. And I think we're, in broad terms, as we've said in this statement here, encouraged by the depth of investor interest for that type of product.

A quick question following on really from Chris's around the sustainable rents. Could you just remind us of the methodology that you've used to get to those sustainable rent numbers?

And then thinking about the 15% for -- from September's ERVs. Can you talk about the range and potentially, whether there's any sort of differences across different asset types or geographies?

Sure. Thanks, Matt.

So I'll offer just a few comments on the methodology, and then I'll check whether Colette has anything she'd like to add to it. With respect to your question on the range, I mean, there is a bit of a range either side of what we've indicated in terms of 15, but it's not a significant spread.

So I don't think there's anything sort of particularly significant to be aware of within that. The methodology that we've applied to sustainable rents has really it's been to look at the trading performance of our occupiers across each of our assets and by extension, form a view of what the P&L for those occupiers and those segments of the wider sort of occupier market look like, look at margins, look at other operating costs and then look at total operating -- total occupational cost as part of that.

And then we've made some assessment of channel mix and to what extent from the data that we see, do we expect there to be further shift to online and what pressure that may put on the P&L of the physical store. We then look to solve effectively for a total occupational cost, including service charge and rates, insurance as well as rent in the low teens.

And what we've also done, just a further sort of extra level, I think, of prudence in our approach is, we recognize that in some cases, that calculation for stronger occupiers is going to point to the potential for an increase in rents. Where that is the outcome we have kept at current ERVs, recognizing that the negotiating strength.

And I referenced it in some of my remarks about new anchors. The negotiating position is obviously somewhat different.

So it would be unwise to factor that into our calculations. Colette, is there anything that you would want to add to those comments I've made?

No, Mark, that's completely it.

Mark, can I just come in and just give the answer on the shopping centers.

Yes. Yes.

We've -- on valuations, peak to trough, we've taken around 25 -- just over to 25%, maybe up to 30% ERV decline. Total valuation decline with yield shift as well is in the high 40s to low 50% declines depending on the asset.

So around 50% is the decline, maybe a touch higher for some assets.

Thank you, Matt. Hopefully, that gives you some more color on the sustainable rent.

Okay. Thank you very much.

So I'm looking at a couple of questions from Steve Bramley-Jackson on the webcast. So the first is, do we think as a result of the '08, '09 crisis and now the COVID pandemic, there are grounds for leading REITs in the U.K.

such as ourselves to lobby for a reduction in the payout ratio of REITs. I mean it's not something that we have given too much sort of time and thought to.

I think, though, both 2008, '09 and today point to a couple of, for me, very important things that we've tried to reflect on our strategy. The first is the importance of managing leverage effectively.

And I think the net debt-neutral approach that Martin has overseen over the last number of years has contributed very significantly to the fundamentally strong position that I referenced earlier in my remarks. I think there is definitely a risk there.

Too much focus on income could lead to over distribution or holding on to assets for longer than might be strategically the right thing to do. So my second point then we also picked up in our strategy is the importance of focusing on total return and recognizing that we are a business which is positioned to add value and to create value, and that's really where we should have our capital tied up.

So no specific comment on the -- reducing the payout ratio, but hopefully some helpful context on how we think about that in the wider context of managing our business for returns and capital structure. Second question also from Steve.

Are we expecting a number of tenants occupying larger HQ buildings to downsize at or feasible ahead of lease events? I think it's too early days.

I mean, to really offer any firm views on that. A couple of, I guess, pieces of perhaps interesting evidence we continue to be in very close dialogue with Deutsche Bank with respect to 21 Moorfields.

Now they, of course, still have the scope to look at reconfiguring space or reusing it differently because of the ongoing build program. I'm pleased to say there's been little or no change from them.

So they -- in looking at their very substantial headquarters into which they were effectively consolidating the same size of workforce from a total, I think, of around 750,000 square feet into around 560,000 square feet at 21 Moorfields, I think that still seems very much their expectation. I think we have seen some evidence.

We referenced our secondhand space and tenant release as part of the market trends generally. We have seen elements of that within our own portfolio.

Interestingly, we've also seen tenant release space put on to the market and actually withdrawn from the market. And one of the things we didn't touch on too much earlier is the extent to which tenant release space ultimately might actually be withdrawn from the market.

And therefore, actually, that current level of vacancy being dominated by secondhand space could actually be artificially inflated in the short term because of the lack of suitability and perhaps short-term nature of the way in which tenants have responded in putting space on the market. Question from Andrew Gill.

Are we seeing a wide spread of valuation trends in London office between Grade A long-let assets and secondhand space, do we expect to see an acceleration of declines in secondhand space with availability increasing more rapidly? I mean I think that's the general theme of what we expect to see.

It's very early days in terms of transactional evidence, and I'd like to be able to point to concrete evidence of that at the moment. And because of -- from a portfolio point of view, our portfolio is, of course, dominated by the long let, high-quality assets.

We don't have valuation evidence of our own that shows how the values have approached those types of assets. But certainly, we are aware of and you would expect us to be relevant to be looking at some opportunities where there are older secondary offices where perhaps there could be an acceleration through to redevelopment.

Potential. And as we flagged, we see that as being a medium-term opportunity.

A question from Oliver Carruthers, a bit more color on dividend policy going forward. Does this interim level of 12p or 24p annualized, represent the trough level under the newly announced total return oriented to business plan, how should we think about the targeted progression of this dividend in the medium term, given you intend to recycle GBP 4 billion of capital over the next 5 years.

So, of course, the reinstatement of dividend was as signaled at the Capital Markets Day. The level that we have pitched that out is at the more cautious end of the cover ratio that we covered at 1.2 to 1.3x.

So it's around 1.3x cover of the first half actual earnings. So that's how that size has been arrived at.

It's not intended in any way to revise some signal of where we see things going forward. I think in terms of where dividend may go from here, we referenced and Martin went through in some detail, and I will ask him to add some comments in a moment that the in period impact of COVID, the bad debt provisions, the like-for-like impact to gross rents because of the turnover related elements of parts of the portfolio, there's a strong argument that a substantial proportion of that will recover very quickly post pandemic.

So of course, it's then down to how you judge the rate at which we emerge from the pandemic, which of course, is not something that we're able to to shed any light on. And then, of course, as you flagged, there will be some capital recycling.

So our intention when we launched or reestablished the dividend and talked about our policy at the Capital Markets Day, was to make sure that we had flexibility within the dividend policy to progress asset recycling to pursue high levels of total return and the cover range and the fact that we have not talked specifically around progressive dividend policies is intended to give us just that. Martin, is there anything that you'd like to add to my comments?

Just to remind people that, obviously, there was a reduction both in gross rental income. So hotels, car parks, turnover top-ups and outlets and the like, which, as you state, one would expect to rebound back post pandemic.

And that is obviously, much more than likely to outweigh continued pressure around rents. And then it will be a matter of the bad debt provisions as well because as those come off, clearly, that was a major impact on the reduction, the -- just under 50% reduction in revenue profit.

And clearly, revenue profit is the driver here.

Great. Thank you, Martin.

I'm being told that there are no further questions on either the conference call or the webcast. So it just leads me to say thank you very much for your time and attention this morning.

I do hope you have found the presentation and the Q&A helpful. Of course, we are at your disposal for any further questions that you may want to send our way.

But on our note, I'll end the webcast this morning. Thank you very much, and have a good day.