Good morning, everyone. Thank you for joining us for the half-year results. It covers quite a busy period for the company. It started back in April with the pre-let to Citadel. We then had the sale of a stake in Meadowhall, or our stake in Meadowhall, a series of retail park acquisitions, and wrapped up in October with the placing. A busy period. But before we get into that, I did just want to say a thank you to Bhavesh, who's here today. He steps down as our CFO today. He's made a very significant contribution to the business over the last three and a half years. I think in particular, there are three areas where he's really excelled: cost control, balance sheet management, and capital allocation.
Bhavesh, I've really enjoyed working with you, and I know the rest of the team have, and we wish you all the best at Kingfisher. As you know, David Walker becomes our new CFO today. David's here in the front row. He's very well equipped to pick up the reins from Bhavesh. Many of you know him from his time as interim CFO and Head of Investor Relations, and more recently, he's been our Chief Operating Officer and has executed brilliantly against the mandate to make the British Land boat go faster. I know he's looking forward to seeing many of you on the road over the next couple of weeks. And then next to David is Kelly Cleveland. Kelly has been our Head of Investment for the last eight years, so central to all of the capital activity, particularly over the last 12, 18 months
Kelly is taking on a broader role from Darren that now encompasses Head of Investment and H ead of Real Estate. We're combining our asset management, our leasing, and our investment, and that's going to enable us to drive further outperformance from the business. So, before I hand over to Bhavesh, I just thought I'd share my thoughts on the first half. The operational momentum of the last couple of years really continues. We've leased well across the business. Ahead of ERV, which combined with our cost discipline and successful asset management, means we've been able to grow underlying earnings, and that's despite significant development activity. And that development activity is going to be a key driver of future earnings growth. And then in retail parks, we're seeing the best occupational markets in over a decade. Retailers are competing for space as they look to expand out of town.
With occupancy at 99%, this drove ERV growth of 3.7% in the half. The fundamentals are also very compelling for developing new headquarters space, particularly in the City, where we estimate a 5 million sq ft shortfall of new space under construction. As a result, super prime rents have grown around another 10% since the Citadel deal back in April. We've continued to deploy capital into these markets, investing over GBP 700 million into retail parks and committing to develop 2 Finsbury Avenue, where you may have seen on the way in the core on the east core is already at level 25. We now have 1.8 million sq ft of best-in-class workspace delivering over the next three years into a supply-constrained market. Over the last four years, we've radically reshaped our business via GBP 3.7 billion of capital activity.
This includes disposals of GBP 2.1 billion of mature offices and shopping centers at an average yield of 5%, the acquisition of GBP 1.1 billion of retail parks at a yield north of 7%, and the assembly of a 1.9 million sq ft urban logistics development pipeline. So today, 93% of the portfolio is in our preferred sectors. With that, I'll hand over to Bhavesh to go through the financials for the last time.
Thank you, Simon. Good morning, everyone. I'll take you through our financial results for the first half of the year, much of which you'll be familiar with following our trading update in early October. We delivered GBP 143 million of underlying profit in the half, up by 1%, despite our decision to take several properties into development and the surrender of One Triton Square lease last September. Earnings per share was up by 1% at GBP 0.153 and we will pay a dividend of GBP 0.1224 per share. Net tangible assets were up 1% at GBP 5.67 per share, supported by an increase in property valuation. We've been active in the period with disposals, acquisitions, and developments. As a result, pro forma LTV increased to 50 basis points to 37.8%, and pro forma group net debt to EBITDA stands at 7.4x .
Let me now walk you through our income statement, starting with gross rental income, which was down 3% due to the disposal of Meadowhall in July 2024, the surrender of One Triton Square last September, offset by surrender premium receipts in the period, which I'll touch on shortly. We were pleased to have acted quickly to redeploy the Meadowhall sale proceeds into retail parks by the end of the half. These parks will be earnings accretive and, on an annualized basis, have fully offset the earnings dilution from the sale. Property operating expenses increased by GBP 5 million in the period versus the prior year, which had benefited from a one-off collection from Arcadia. Our net rental income margin remained strong at 91.6%. Fees and other income increased to GBP 13 million. We now recognize the full fee for managing Meadowhall.
Administrative expenses decreased to GBP 41 million, and I'm pleased our EPRA cost ratio now stands at 15.3%. Net finance costs were down GBP 10 million due to the timing of GBP 456 million of net disposals completed over the last 18 months to September, offset by ongoing spend on our committed development pipeline. Our hedging continues to protect us from higher market rates, and our weighted average interest rate at September was 3.5%. Underlying earnings per share was GBP 0.153, up 1%, and our dividend is GBP 0.1224 per share, up 1%. Let's now look at earnings per share growth in more detail, starting on the left of this slide. Sales and purchases increased EPS by GBP 0.004 as the disposals of non-core and mature assets were offset by finance cost savings from the joint venture formation at One Triton Square.
Although developments are a long-term driver of EPS growth, they reduced EPS in the period by GBP 0.012 as we moved One Triton Square, One Appold Street, and floors at Broadgate Tower into our development pipeline. This was offset by good leasing progress at our newest schemes, Norton Folgate, which is now over 50% let or under offer, and Three Sheldon Square, Paddington, which is over 90% let or under offer. Surrender premium receipts added GBP 0.009 to underlying EPS following our active asset management in the period, where we took back floors at 155 Bishopsgate and 20 Triton Street, enabling us to capture positive reversion we are seeing in the market. Encouragingly, 88% of this space is already let or in negotiations at rents significantly ahead of previous passing rent. It includes 77,000 sq ft let to Akin Gump in the period at 155 Bishopsgate.
Provisions for debtors and tenant incentives reduced EPS by GBP 0.006 . This reflects the impact of the Arcadia payment we benefited from in the prior period. Like-for-like growth added GBP 0.005 to EPS. These movements together delivered a first half EPS of GBP 0.153 per share. For the full year, we're increasing our earnings per share guidance from GBP 0.279 to GBP 0.281 to reflect the impact of the successful equity placing and retail park portfolio acquisition, and you can find our usual guidance slides in the appendices to the presentation. We are pleased to deliver positive like-for-like growth across the portfolio in the half, and we expect strong performance to continue across our sectors. On our campuses, like-for-like growth was 3.8%. Strong leasing ahead of ERV across all three of our London campuses drove this performance, where occupancy currently stands at 97%.
Retail and London urban logistics delivered 2% like-for-like growth in the half. Our parks have performed particularly strongly in this period. With occupiers continuing to expand into the format, our retail park occupancy remains at 99%. On London urban logistics, we continue to maintain full occupancy on the standing investments. Keeping a firm grip on our costs is an important lever underpinning our earnings growth. Our EPRA cost ratio has reduced from 25.6% in 2022 to 15.3% today. We have remained disciplined on administrative expenses despite the recent inflationary environment, grown fee income through our existing and new joint venture partnerships, while an improvement in rent collection post-COVID has resulted in a strong net rental income margin, and going forward, tightly managing our cost ratio is something that I know David will continue to focus on. Moving on to NTA.
Property valuations were marginally up in the first half of the year, adding GBP 0.01 to NTA. Strong retail park performance, where values increased 5%, offset moderate declines in campuses and London urban logistics. Kelly will provide further detail on our valuations later. Underlying profit less the dividend paid increased NTA by GBP 0.4 , which ended the period at GBP 5.67 . Our total accounting return in the period was a positive 2.8%. Turning now to our balance sheet, which I'm pleased to say is in good shape and has allowed us to seize opportunities that we see in the market. I'll start with our key debt metrics on the right hand of the slide. Post-period end, we completed an equity placing and retail park portfolio acquisition, as well as a further GBP 86 million of disposals. Pro forma net debt stands at GBP 3.5 billion .
LTV is 37.8%, and net debt to EBITDA on a group and proportionally consolidated basis are 7.4x and 8.6x , respectively. We front-loaded acquisitions given inflecting markets and expect to continue to recycle capital out of non-core or mature assets. We continue to have excellent liquidity with GBP 1.6 billion of undrawn facilities in cash. Based on our current commitments in these facilities, there's no requirement to refinance until early 2027. We've completed close to GBP 1.4 billion of financing activity in the year to date. This included GBP 930 million of new unsecured RCFs and the extension of GBP 450 million of term loans and RCFs. The new finance raised included a GBP 730 million syndicated RCF with a group of 14 banks in October, which replaces a GBP 525 million RCF maturing in May 2025.
This is in addition to nearly GBP 1 billion of financing activity completed in the previous six months. In July, following their annual review, Fitch affirmed all our credit ratings, including senior unsecured at A with stable outlook, which we've held since 2018. You're familiar with our capital allocation framework, against which we've executed well in the period. The resilience of our balance sheet is of utmost importance, and it gives us the flexibility to invest in opportunities as they arise. We were pleased to have executed the disposal of non-core and mature assets earlier this year. We acted with pace to redeploy these proceeds into retail parks at an attractive 7% net equivalent yield, protecting earnings and growing our retail park portfolio, which now stands at 32% of our gross asset value. We also have an attractive development pipeline.
In the period, we committed to 2 Finsbury Avenue on signing the pre-let with Citadel, representing one-third of the building, and more recently, we committed to the science and technology development at One Triton Square, which is expected to deliver an IRR of over 30%. We remain selective and disciplined in deploying capital into future acquisitions and developments. The retail parks acquired with the proceeds of the GBP 301 million equity placing are expected to deliver double-digit ungeared IRRs, given the attractive yield and strong rental growth prospects, and are immediately accretive to earnings. On an annualized basis, this transaction will increase underlying EPS by GBP 0.004 or 1.6%. The placing price was at a 3.6% discount to the undisturbed share price and a 26% discount to the September 2024 NTA, reducing NTA per share by GBP 0.11 .
Given the strong returns we're seeing in this sector, we expect to mitigate this dilution over time. The transaction will also improve net debt to EBITDA by 0.3x on both a group and a proportionally consolidated basis. We're very pleased with the overall demand for the placing. We're very focused on growing our business and our earnings. Like-for-like is a key driver of earnings growth and is supported by the strong supply-demand fundamentals in our markets. Leasing our development pipeline is another key lever of earnings progression, and the demand for our best-in-class space continues to remain strong in this area and is expected to deliver around GBP 0.045 pence of EPS to FY 2029. We'll also continue to recycle capital into opportunities that can integrate into the existing British Land Platform at minimal incremental cost, as you saw us execute with the earnings accretive retail park portfolio purchase in October.
This earnings growth, along with potential capital growth, supports our target of an 8%-10% total accounting returns through the cycle. In this half, we've delivered positive earnings growth and been disciplined and decisive with capital allocation. We're confident in the future levers of growth in this business. This is the last set of results I'll be delivering for British Land, and I'd like to say how much I've enjoyed working with you all. As I hand over to David, I'd like to wish him and the British Land team all the best for the future. I'll now hand over to Kelly for our leasing and investment update.
Thank you, Bhavesh, and good morning, everyone. I'll start today with valuations, which are marginally up for the portfolio overall. On our campuses, ERV was within guidance, up 1.7% for the first half.
Values are down 1.7% due to outward yield shift of 12 basis points, but the investment market recognizes the strength of the occupational market, and liquidity is returning in larger lot sizes. The value of our retail park portfolio is up 5%. That's due to inward yield shift of 22 basis points and strong ERV growth of 3.7%, exceeding our full-year guidance on an annualized basis. In London urban logistics, values were slightly down, and ERV growth was 0.3% in the half. This is lower than you've seen recently due to a lack of lease events across the small standing investment portfolio. We're pleased that we've delivered ERV growth of 15% per annum over the last three years. Leasing performance on our campuses is a reflection of strong demand across the market for best-in-class office space in core locations.
While overall take-up in the quarter was down 8% on the 10-year average, it was 8% ahead for space in core central London. Forward-looking indicators are also positive. Space under offer in the City is 25% ahead of the 10-year average, and active demand across central London is 34% above average, 13 million sq ft, as you can see on the right, so a really strong picture on the demand side. On the supply side, vacancy continues to diverge between the best and the rest. For new or refurbished space in core central London, it's just 1.7% compared to 11% overall for the rest of central London, and you can see on the right-hand chart, the actual amounts of vacant new space in the City and West End is very low. This is reflected in our excellent leasing performance with deals on nearly 960,000 sq ft, 8.3% ahead of ERV.
This includes the Citadel pre-let at 2 Finsbury Avenue, A&O Shearman taking up their option space at One Broadgate, and Akin Gump at 155 Bishopsgate on floors we had taken back earlier in the year. High demand continued into the second half with a further 296,000 sq ft under offer at 1.4% ahead of ERV. This lower premium reflects a long-term lease to a strong covenant with annual CPI uplifts. We also have 1.7 million sq ft of active negotiations at very strong rents on just 0.9 million sq ft of space. Storey is a key component of our campus offer, and in the first half, we've done 20 deals on 77,000 sq ft with occupancy above our 90% target. Sustainability is a focus for the entire portfolio, and it gives us real competitive advantage on our campuses.
The proportion of our total portfolio with A or B-rated EPCs has increased from 36% in 2022 to 64% today. We've spent a total of GBP 19 million to achieve this, of which 60% is recovered, so we're well within our original target of GBP 100 million. We also retained our five-star GRESB sustainability rating, outperforming last year's scores for both standing investments and developments. Moving on to retail, retail parks continue to go from strength to strength. We completed over 300,000 sq ft of leasing in the half, 7.4% ahead of ERV, and we have a further 430,000 sq ft under offer, 7.3% ahead of ERV. We have significant demand from retailers expanding their footprint, including discounters such as Aldi and Lidl, fashion retailers such as Primark and JD Sports, and leading omnichannel retailers such as M&S and Next. We remain virtually full.
We have 99% occupancy and had just 24 vacant units out of over 1,000 at the end of September. Three-quarters of these are now under offer or in negotiation. Retail is not without its covenant risks, but when retailers do go out of favor, we're able to get the space reoccupied in short order. Carpetright, which went into administration in July, is a great example. All the units are already assigned under offer or in negotiation. Since we launched our strategy to buy retail parks, we've deployed GBP 1.1 billion at a yield of 7.1%. These acquisitions reflect our real competitive edge when it comes to underwriting and executing deals in this space. This comes down to our scale. We are the largest owner and operator of retail parks. They now account for 32% of our portfolio, up from 15% in 2021.
Provided we continue to see these returns, this weighting will increase. Turning now to logistics, we've built a pipeline of seven schemes covering 1.9 million sq ft with a gross development value of GBP 1.3 billion. Logistics vacancy in London remains low, especially for Zone 1 and 2 ultra urban logistics, where it's just 0.2%. The sequencing of our schemes means that the first opportunities we'll deliver are located in these zones, starting with Mandela Way and Verney Road in Southwark, which Simon will talk about shortly. We're also working at planning submission at Finsbury Square Car Park and considering a range of users and occupiers at The Box in Paddington. Our other schemes at Thurrock and Wembley have longer-term development potential. So to conclude, yields are stabilizing, and we're driving strong ERV growth across the portfolio.
We benefit from tight supply in high-demand sectors, and we continue to deploy capital into higher-returning retail parks and world-class developments. With that, I'll hand back to Simon.
Thanks, Kelly. I'm just going to provide a brief update on strategy, and I'll start with the campuses. As you know, our campuses are rich in amenities, and they sit at major transport nodes. So they're in the sweet spot of demand for best-in-class workspace. This is reflected in our very high customer retention rates, above-market rental growth, and high office utilization. Office utilization has returned to pre-pandemic levels in the middle of the week. You heard from Kelly about the mismatch between the demand and supply of new space. This is most acute for headquarters workspace, which is mainly what we provide on our campuses. If you take the City, for example, over the next four years, based on a historic take-up, we expect around 9 million sq ft of demand for new and refurbished space. But supply looks like it will be less than 4 million sq ft.
So as you can see on the slide, a shortfall of 5 million sq ft. It's obvious what this means. Rents are growing quickly, especially at the super prime end of the market, buildings like One Broadgate or 2 Finsbury Avenue. For product like this, rents have risen north of 10% since the Citadel deal. It's worth flagging here that our reported ERV growth excludes our developments. As you can see from the slide, Cushman & Wakefield are predicting further rental growth of around eight% per annum. This makes complete sense given the level of interest we have in One Appold Street, which is about twice the amount of space available. With this kind of dynamic, we're pleased to be delivering almost two million sq ft of high-quality space into the market over the next three years.
This slide shows we've maintained momentum on our developments, and that's despite the challenges posed by COVID, supply chain disruption, and inflation. I think it's striking that these are not computer-generated images. They're photos of our sites and newly delivered schemes. And here's a photo of Canada Water. The placemaking is really beginning to take shape here. A new dock and striking boardwalk opened at the beginning of the month. And our 50,000 sq ft cultural hub opens in the spring, operated by the team that brought London the Printworks. We're seeing the pace of residential sales increase at The Founding, which completes in the middle of next year, with 44 units sold at an average of GBP 1,250 per sq ft, ahead of business plan levels.
Workspaces at The Dock Shed and Three Deal Porters also complete around the same time, and we're seeing good level of viewings and live negotiations. We expect to benefit at Canada Water from the shortfall of new space in core central London, which is causing demand to ripple out to adjacent markets. After a couple of years of subdued activity, take-up of new space in these markets has increased 67% this year, and some big deals have recently gone under offer. You may recall the Canada Water consent provides significant flexibility over the mix of uses we can deliver, enabling us to flex our plans for market conditions. The development economics are shifting in favor of residential, so the next phases will probably include more of this, and as you can see, we have significant scope to dial up the residential component.
We'll probably partner or sell some plots to house builders and student developers to benefit from their lower-cost delivery models and to bring forward cash flow. A key focus on our campuses is science and technology. London is the leading city in Europe for artificial intelligence, not far behind Boston. The bulk of activity in AI is happening in the Knowledge Quarter, as businesses cluster around UCL and Imperial College's world-renowned computer science departments. These businesses operate across a range of sectors, from life sciences to health tech to digital marketing. But the common theme is the use of AI to accelerate innovation or productivity. McKinsey estimate that AI provides an opportunity for pharma companies to generate 60 billion-80 billion in additional value each year. In the last 12 months, we've agreed deals with 14 AI businesses, including three unicorns.
We've made good progress with our science and tech pipeline. We've committed to deliver a world-class innovation building at One Triton Square in partnership with Royal London Asset Management. We're fitting out 30,000 sq ft of labs at 20 Triton Street with the Francis Crick Institute. We're on track to deliver the Optic in Cambridge early next year and are under offer on all the space at good rents. We've submitted planning for a 235,000 sq ft scheme on the Botley Road in Oxford. Moving now to retail. As you just heard from Kelly, we've been acquiring more retail parks. That's because we really like the occupational fundamentals. We're seeing the strongest occupational market in over a decade. The affordability, accessibility, and adaptability of these parks means a wide range of retailers are competing for space, as you can see on the slide.
The increase in retailers' costs due to the budget is likely to accelerate the shift from the high street and secondary shopping centres to this cost-efficient format. And we have very high occupancy across the portfolio at 99%. There's been virtually no new supply over the last 10 years, and it seems unlikely the picture will change given the restrictive planning regime for out of town and values below replacement cost. It's worth noting that retail parks make up just 8% of U.K. retail. So these strong occupational fundamentals, combined with attractive yields, limited capital expenditure requirements, and liquid lot sizes, make retail parks a conviction sector for us. Now let's look at logistics. As you heard earlier, the fundamentals of London remain very compelling, particularly in Zones 1 and 2. Our Mandela Way scheme in Southwark tops out later this month and completes in June.
It really is a first-of-its-kind facility. It's set across four floors, serviced by five goods lifts large enough for a forklift, and has three separate cargo bike lifts with ample loading space at ground level. The scheme launched to the market in October, and while it's early days, interest has been very broad. It isn't just logistics companies that want this kind of space in central London. Last month, we also received planning from Southwark for a sister scheme nearby in Verney Road. So five out of seven schemes in the pipeline now have consent. Turning now to the outlook. There was clearly market volatility around the recent budget and U.S. election. But overall, the U.K. macro backdrop feels supportive. The base rate's declining, albeit perhaps more slowly than expected earlier in the year. Unemployment remains low, and real wages are growing.
Together with the strong occupational fundamentals you've heard about today, this gives us confidence in our guidance of 3%-5% rental growth across our portfolio. Assuming medium-term interest rates do not increase materially from here, we expect investment markets to continue to improve. We're already seeing good activity in retail parks, and we expect it to pick up for larger offices as the investment market responds to the very strong occupational market for best-in-class. As we continue to implement our strategy successfully, our priorities remain the same. On our campuses, we'll continue to recycle out of mature assets into super prime developments, bringing in partners on these developments to accelerate delivery and share risk. We also plan to increase our exposure to science and tech, given the growth trajectory of this sector.
We will grow our retail park business if we can continue to invest at attractive yields and below replacement cost. And in urban logistics, it's all about building out our attractive development pipeline and sourcing future opportunities. So to conclude, we're in markets with favorable supply-demand dynamics. We create additional value through our development and asset management capabilities. And with a portfolio yield over 6%, strong rental growth prospects, and development upside, we're well placed to deliver attractive returns looking forward. Thank you very much for listening. Bhavesh and Kelly will now join me on stage, and we're happy to take any questions. So we've got a hand up already straightaway. Rob, over to you. I think the microphone on its way.
Good morning, team. It's Rob Jones from BNP Paribas. Just two quick ones. Kelly, Thurrock, you talked about, obviously, in the London urban logistics portfolio, you stated it's got longer-term development potential. It's a consented scheme, five of the seven are. Why longer-term development potential and not short-term development potential? Maybe that's a question linked to capital allocation for Bhavesh potentially as well. And then Simon, you talked about the potential to sell or likely to sell some of the Canada Water, resi land to U.K. house builders or other potential options to accelerate some of the cash flows for yourself. Do you have an estimate for the potential land, say, pricing as a percentage of GDV that you could potentially achieve? Thanks.
Shall I take that first one, that last one first on Canada Water? Not at this stage, probably not going to share a level, but we are seeing a quite active market, particularly from student developers at the moment. They're looking to deploy capital. It's been a very successful student location and also, as you know, a wider residential location. So yeah, land values look pretty favorable at the moment, certainly ahead of where we would be on a book value basis.
Kelly, do you want to answer this one?
Yep, sure. Thurrock, it's an alternative use play. It's a retail park, so we have the optionality about what we do with it. We're working through numbers and options, and we have the flexibility of timing there as well.
Morning, everyone. It's Zachary Gauge from UBS. So a couple of related questions from me. Firstly, on the total accounting return, you sort of came in at 2.8%. You're targeting 8%-10%, so still a little bit below that, but we've got yields flat, ERVs growing, top end of guidance. So obviously, the missing piece is the development part, which is negative rather than positive. I guess the question is, what do you need to see in the market for the developments to start to add accretive value towards your total accounting return target? And the second question, more in terms of capital allocation, I don't think you gave a total return number for your shopping centers, but they're yielding 8.1%, 2.5% ERV growth, and rental compression, I'm guessing it's double digit.
Do you still intend to recycle that capital out of shopping centers, given the relatively attractive low-risk returns and into your development pipeline, or could you foresee yourself holding onto those assets while they continue to be earnings accretive?
Sure. No, thank you, Zach. On the Total Accounting Return, as you say, 2.8%, just below the range that we're looking for. Really annualized, it gets into the range, but we would expect, looking forward, that returns will increase from here. This has been stable yields. We've seen the rental growth come through. I think that rental growth will continue to come through strongly. If you think where we are at the halfway point, 2.5%, we're guiding to 3%-5%, and with stable yields, that's going to start getting us towards the top end of our range. You asked a specific question around development. We saw the development values marginally down. That was due to the pipeline, actually, and the run-off of income on that pipeline as buildings get ready for development.
So, buildings like Broadgate Tower, which will show very strong returns at the moment, that's well into sort of double digits, mid-digits in terms of IRRs, very good profit on cost. And actually, on the on-site developments, they were positive return, particularly strong from the schemes that we've committed to since the adjustment in interest rates at the likes of 2 Finsbury Avenue. So I really do believe they're going to be quite a nice sort of cherry on the top of the growth that you'll get from the yield, the ERV growth, and then you've got the developments on top of that. So yeah, that would be the answer there. And was there a second question? Sorry.
Capital allocation and selling out of shopping centers, given the returns?
Yeah, on the shopping centers, you're right. They're performing well at the moment. Yields are broadly stable. You're collecting the income there. No rush to recycle out of those. Longer term will likely do so. As you know, we've got a preference for the retail parks in the longer term. It's just a tighter market occupationally. Capital expenditures lower and then more liquid as assets, but very happy with the performance of those shopping centers at this point, and a number of our shopping centers have lower CapEx requirements, so for example, our Bath shopping center is an open-air scheme, and that really does have a much lower level of capital expenditure associated with it. I've got one question over here.
Hi, thanks for the presentation. It's Sam Knott from Kolytics. Just two quick ones. So firstly, on the EPRA cost ratio, it's obviously come down a lot. Just want to understand, are there any one-off items in there, or is that 15% level really something you'd target going forward? And then secondly, on the retail placing, just trying to understand when you were looking at different funding sources, given that you're trading at a discount, it's still potentially accretive, but how you compared that to maybe selling more of your mature assets. What was the reason for going for the placing there?
I'll start with the EPRA Cost Ratio. We're pleased with what we've done and where we're at. As I said in my speech, we talk about administrative expenses, and we continue to keep a grip of that. David's all over it already. Our fees, and we benefit from fees from our joint venture relationships. You'll expect us to continue to keep a good, close firm grip on that. It's a good driver of earnings, and earnings matter for us.
And then I'll pick up the one on funding sources, as you say, for the retail parks. That made a lot of sense. Looking forward, it will really be about earnings accretion. So probably the next source of funding for retail parks will be recycling out of capital. That's more likely in the short term. But if we see good opportunities and we can get good earnings accretion, it is something we would look at again in the future.
Good morning, Adam Shapton from Green Street. I guess related to the previous question, could you just talk about the outlook for net investment? So there's lots of opportunity. Obviously, we've talked about the scalable platform and retail parks. We can see the development pipeline committed in near-term and medium-term. But you're also talking about selling mature assets. You're also talking about JVs, obviously non-core sales. And the way most people are talking about the cycle would expect a reasonable amount of net investment. But how does that look? And I guess also how that would relate to admin expenses, if you think about that scaled to the gross asset value rather than as an EPRA cost ratio. What's the outlook there on whatever timescale you feel comfortable saying?
Picking up your second part of your question, there is certainly the case that the platform is very scalable. We saw that with the recent retail park acquisition and placing. There was no incremental marginal cost or very, very limited marginal cost of operating another GBP 440 million of assets. And so that's one of the drivers of EPRA Cost Ratio going down. We do think in time British Land will be a bigger business, and we'll continue to leverage the strength for that platform. We do that in a number of ways today. That's through growth, net investment, as you described, but also by bringing in partners. We earn fees there. We share risk. We increase our returns. So that's a very compelling proposition as well. At the moment, in the short term, focused on capital recycling, I think that's just good management of the portfolio.
If we're selling assets and we're selling them at lower prospective returns than where we're reinvesting, that's good, and as we know, real estate has an element of depreciation and obsolescence, and I think you do need to be active in that regard, and we will continue to do that, but as I say, look, I think the right opportunities are there. We can deliver earnings accretion in our strategic areas where we think there's very compelling fundamentals occupationally, then, look, we'll absolutely look to grow the business.
Just one follow-up on the placing. I don't know to what extent you can comment on this, but is it fair to say that your experience was that the market was prepared to support an earnings accretive retail park story with yields above your implied yield today? But if you went out and said, "We want GBP 500 million to fund 2 Finsbury or whatever it might be," there's less appetite for that amongst your shareholders and potential new shareholders?
It's an interesting question. I mean, it's sort of a little bit of subjectivity around it, but as you say, there was certainly very strong support for what we did. There's the earnings accretion, and as we said, there's a bit of NAV dilution day one, but we're investing in a sector with some very strong return outlook, and we expect to eat into that NAV dilution very quickly. I think, not speaking for my investors, but I suspect on developments, it would be all about the yield on cost you could deliver, and there's certainly very strong support for us to continue to invest in developments like 2FA that's 7.7% gross yield on cost, pre-let basis with very strong follow-on demand. That feels like a good use of capital as well.
It's certainly, obviously, an easier story and a better story when you get the earnings accretion right from day one. I think we all like that, and that's why we really liked what we did.
Hi, morning. Thanks for the presentation, Max Nimmo from Deutsche Numis. Just a quick follow-up, I guess, related to the whole kind of capital allocation. retail parks are a third of the portfolio now. Given the outlook, where would you feel comfortable kind of taking that to? And maybe just talk in terms of the context of your kind of view on where urban logistics can get to now as an overall proportion, and should we still expect campuses to be the majority of what you will do? Thanks.
Kelly, do you want to pick up on the retail park point?
Yeah, sure. With the retail parks, we'll continue scaling out. We'll continue buying as long as we see value there. The size of the market is not so much the limiting factor as pricing, making sure we get the pricing and the returns that we need. So we're carrying on there. It's a more competitive market than when we set out on the strategy in 2021. So we're hunting where it's a bit less crowded. That will tend to be bigger lot size assets where others are put off by the need for debt or asset management, and we actively want the asset management. So we'll keep going so long as the returns work and use our competitive advantages to keep buying.
On the urban logistics, obviously today the portfolio is very small because it's sites for build-out. It's a development pipeline. Built-out, I think it's something like GBP 1.3 billion, so crudely 15% of the portfolio. I think we'll continue to grow that very much as Kelly said. On the retail parks, it comes down to returns. If we can find the sites that will deliver IRRs, we target crudely sort of 15% and above on the urban logistics schemes. If we can hit those, we'll keep going on that front.
Morning, Jonathan Kownator, Goldman Sachs . What is the status of your discussions with large stakeholders, both in the context of any potential disposals of large-scale assets, obviously some of the recently completed developments, perhaps JVs, but also JVs in terms of investments for development, amongst others? Are there more appetites in the market?
I'd definitely say there's very good appetite for the sort of best-in-class stock that we're creating. And Kelly will build on this. In the investment market, you've seen demand for development opportunities, value-add opportunities, and it's now beginning to, again, sort of ripple out to more core assets. We've seen some players come into the market. I'm not going to be specific on the items we're looking at, but as we've sort of strongly hinted, we will continue to recycle, bring in partners, and we expect to see activity over the next six to 12 months. And I think there's good appetite for the type of schemes we're delivering. Really, the investment market is following what's happening in the occupational market.
It's obviously been very, very quiet to date, but I think it's very clear to everyone now that the rent is growing very strongly for the best product, whereas if you think 24 months ago, people didn't have that visibility. Kelly, I don't know if you want to add on what we've seen in terms of core money coming back.
Yeah, exactly as Simon says, it's a definite change in terms of the willingness of the investor group to underwrite the kind of rental growth that we're seeing, the rents we're seeing, but also future rental growth. That's a real change, in my view, from, say, 12 months ago, which is a good thing. And yeah, we're starting to see the buyer pool increase as well, so going beyond private equity into more institutional core type money.
As a follow-up, does that mean that the people you're talking to are seeing activity? I mean, some of these had said previously they wanted to reduce allocation to office, essentially, that they were overexposed. So does that mean that they're rethinking those allocations, or is it from players that just don't have so much exposure to begin with?
It's a mixture, actually. I think some of the core capital Kelly's mentioning, these are people that have always been active in the office market, and now there's more visibility on rates and the occupational outlook. They're putting their foot down again. I have seen private equity's quite interesting. It wasn't so long ago. I was probably 18 months ago speaking to the head of Europe of big private equity, and they're like, "We're probably not going to invest in offices for the foreseeable future." And now they're quite actively targeting offices, and we've seen that across the piece. It's more the value-add opportunities, the brown to greens, the development projects, but they are underwriting some pretty strong rental growth there. And then I think those people that were actively exiting, sometimes that's for the denominator effect. That's sort of stabilized now.
But I think occupational market always drives the investment market, and that's good at the moment. Look, rates will move up and down, and that might mean it takes a bit longer to come through. But if we have these kind of occupational markets, investment demand's going to be back, I think.
Thank you.
Morning, Céline Soo-Huynh from Barclays. Can I ask a question for David Walker, if possible?
Yeah, you can. We'll give him a mic. You didn't know you'd be answering a question this morning, did you?
Hi, David. Simon reminded us, Bhavesh is known for cost control, balance sheet control, and I would say driving this company through a property downturn. As you step into your new role as a CFO and values have stabilized or seem to have stabilized, what do you think your priority could be different from Bhavesh's? Thank you.
Sure, no problem. I think as Bhavesh alluded to, that's something I've been focused on too. I've been the COO for the last three and a half years, and prior to that, interim CFO. So I have worked really very closely with Simon, Bhavesh, and the rest of the team on delivering a lot of that. So expect more of the same in short.
Any other questions in the room? Oh, second question or third question.
Sorry, just one quick follow-up. Rob Jones, BNP Paribas. On our slide 21, which talks about the strong operational momentum across campuses, the space under-offer obviously was only 1.4% ahead of ERV versus 8% for the leasing activity during the period. You touched on, I guess, potentially a lease that was done below ERV, but I wonder if we strip that out, maybe the balance would be maybe more in line with the eight during the period. And secondly, linked to that, of the 1.7 million sq ft in negotiations, of the part of that that maybe is in, say, advanced negotiations, and therefore you've got a rental tone as part of that discussion, I wonder if that's now looking closer to the 8% ahead of ERVs versus more like the one.
I guess the point is, should we see this as not a trend in terms of a slowing of the rate of core investing?
Yeah, you shouldn't see it as a trend, but Kelly will explain.
Yeah. In terms of the under-offers, as you say, that's due to one lease. It's not below ERV, but it's very close to ERV, so that drags it down a little bit. There is a lot of momentum in the office leasing market, and the under-offers have been in play for a little bit longer than the advanced negotiations. So there is an element where the 1.7 million sq ft in negotiations has more up-to-date rental tone, but it is certainly supportive of rental growth.
Second question's now all around. That's good.
Hopefully, just a quick one. You sort of talked earlier about buying more retail parks, particularly of scale, where you get a competitive advantage. Obviously, your LTV is at 37.8%, so there's not a huge amount of wiggle room, assuming 40% is sort of the high watermark for that. You've obviously got a sizable CapEx pipeline as well. Would you have a situation whereas the market's moving quite quickly, you get a large portfolio that you particularly like, would you push the LTV above 40% to execute that in lieu of disposals coming through later, or is that 40% set in stone and you really would prefer not to breach that?
It's a range. We like to stay within that range, and that's what you've seen us do pretty successfully over the last two, three years. We do have some disposals in hand, so if there are those opportunities in the retail park space, I think we would be able to take advantage of those. I don't know, Bhavesh, if you'd add anything?
I don't know exactly that. We've been very active in recycling capital. You've seen us do it post-period end, where we had another nearly GBP 90 million of disposals, and it's a very active part of what we do. And we try to balance both where we deploy, but also where we recycle. And the balance sheet has been well managed over a difficult period, and we've kept within the 30%-40%, trying to keep our net debt to EBITDA below eight, and we're still within those parameters. We'll continue to sort of navigate our business to those parameters.
Hi, Tim Leckie, Panmure Liberum. Since you guys are very clearly believing in the strength of the Prime London office rental market, can you make some comments, please, on how that might impact your pre-letting strategy?
Are you willing to get more tougher with tenants, push the negotiations further to completion to capture that? And then a follow-up, what's it mean for the rest of the portfolio? You'll have some newer stuff, some older stuff. Can you talk to us about how you're seeing re-lettings? Are they being dragged up? Are you seeing growth elsewhere, or is it just that top-tier stuff?
Morning, Tim. You can ask some more questions like that. Yeah, absolutely. I mean, this is about this conversation is on 2 Finsbury Avenue, and as an organization, we're seeing that rents are moving up, and we're looking to capitalize that, and there is a question about how quickly you lease the space, given that trajectory we've shown, and we do think it will continue given that shortfall. To some extent, you've got to take a balanced risk management approach, and getting a large pre-let at a rent ahead of ERV is normally a pretty good thing, and we don't try to game it too much, but it certainly feels like it's a market that's moving in our favor, which is a good thing to do.
And then you asked about the other buildings, and Kelly, I don't know if you want to touch on where we've been upgrading space, and we're doing well. Secondhand space that's upgraded is getting good rents.
Sure, yeah. We're finding that the rental tone that's coming through from new developments is we're also seeing that with refurbishments. We've got some good discussions in hand, and things are progressing nicely.
I came from what to what? We need some more concrete numbers, if possible. Is it 60-70? Is it 70-90? We need these rents to move on from that low yield. I think more concrete you can we can.
Yeah, I mean, we've seen on one deal in particular. It involved a bit of CapEx to go into it because the demand is strongest at the top. These are buildings that have been occupied for 25, 30 years, so some capital expenditure to go into it. But when you factor in the value and the capital expenditure, you're getting good returns, and you're seeing rents move on materially. So might have been GBP 60 rents that have been there for a while, and you're moving them on to the 80s. And actually, that's a pretty good return profile and a bit beyond that. It really does come down to what we've focused on, campuses. We've got that amenity, the transport, all the key ingredients. So if you can deliver the very high-quality product, then you can get paid well for it.
But you're picking out a little bit of something that we are very cognizant of. There is depreciation and obsolescence in offices, and you need to be careful that once you've developed, you exit at the appropriate point, or you're very confident that you can get very good returns at the end of a 15- or 20-year lease. So something we spend a lot of time thinking about and why we've been more active capital recyclers over the last sort of three or four years.
Any other questions? Oh, one more.
Are you able to comment on the level of CapEx that you had to spend on that lease?
Yeah, on that deal, it was about GBP 300 a sq ft of CapEx. And that includes what you would have spent on Cat A as well. So your Cat A would have been sort of 80 to 90 typically, so there's a little bit more beyond that. And we're often taking the opportunity to upgrade end-of-trip facilities, sustainability credentials.
Great. I don't know if we've got any questions on the line at all or on the webcast.
Yes. To ask a question, please press star one followed by your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We have a question from Ventsi Iliev of Kempen. Ventsi, please go ahead.
Hi, good morning. Thank you for the presentation. Two quick questions from my side. On the retail parks, of course, you're signing ahead of ERV, but are you now also signing ahead of previous passing rents? And second, on Norton Folgate, of course, it's only been recently delivered, but the pre-let is at 50%. Could you just highlight how negotiations are going and just overall demand? And are you just picking rents, or? Yeah, that's it. Thanks.
Sure. No, thank you for those questions. I'll take the first one on retail parks. So in the period, we were still a little bit behind previous passing rent. I think it was sort of 6%, that kind of order of magnitude. But what we have seen is if you go back, we started this period maybe two, three years ago with a 20% overrent. And actually, despite that, we've managed to generate like-for-like growth in each period. That was initially growing occupancy, and now we're seeing that that overrent is basically burnt through. So looking forward, we will be doing more and more deals above previous passing rent. It's a bit lumpy. Sometimes there's an old legacy lease that you've got where it might be 20%-30% overrented because it hasn't come up for renewal for a long time, but the market is certainly moving positively there.
And then, Kelly, if you want to pick up on Norton Folgate.
Yeah, sure. Norton Folgate, we're 50% let. You're used to seeing us 97% let at PC, but that's a very different void profile. That's for big floor plates, big buildings. And with Norton Folgate, nobody's going to sign up to a 10,000 sq ft letting three years in advance of PC. It's just a different void profile. We're well within our void assumptions. And as you say, we just finished fitting at the beginning of summer. Viewings are ramping up, and we have five deals in hand at the moment for the kind of occupiers that want to see and feel, get in and see what they're. And see the space. So that's why we're seeing things ramp up now that we've fitted it out.
If anyone has five minutes after this, go and have a look across the road. The scheme looks really, really good. We're really pleased with it, so it looks wonderful. Any other questions on the line at all?
We currently have no further questions on the conference line.
Any webcast questions, Lizzie?
Yes, two questions. The first is from Miranda Cockburn at Berenberg. Can you talk a little bit more about your Homebase exposure?
Yeah, very happy to do that. Kelly, do you want to take that one?
Sure. So Homebases, we had six at the start of the period. We sold four in the period before the administration ahead of book value, and at sub-6% equivalent yields. And we sold those to retailers, which is demonstrative of the depth of demand from retailers for the formats. That leaves us with two. One, we have agreed a lease with somebody else to take the space. And then the other, we are in conversation with a number of different occupiers on it. So we're pretty pleased with where we've landed on the Homebases.
Thank you. And two questions from Bjorn Zietsman at Panmure Liberum. Do you think retailer affordability is likely to come under pressure with the rise in employer NI and business rates? And sort of linked to that, many larger retailers are now warning of this pressure to operating profits. Does this reverse the positive ERV trend you are seeing in parks?
We don't think it does. I mentioned it briefly in my prepared remarks. I think it comes down to the format, the retail park format, the affordability of the space. We've seen this shift from less efficient formats, so that's the high street, it's secondary shopping centers, and you're seeing them move to retail parks. And what we're seeing, and Kelly's just given a prime example, that's a very, very recent example, retailers taking space, buying units ahead of potentially an administration where they might be able to get hold of the unit for a new store. So the market is very, very tight. I mean, obviously, retailers have got an additional cost, and it's a headwind for them. But if the incremental store delivers incremental profits, that's something that can offset that.
So I think as long as we see OCRs in the right place, we're 9%, and we see incremental stores adding to profit, that's a good place to be, and I think is supportive of the theme. So we remain with our ERV guidance of 3%-5%. Any other questions, Lizzie, or was that it?
That's it.
Great. Okay. Well, thank you, everyone, for your time. Really appreciate you coming along. See some of your room.