Good morning, everyone, and thank you very much for joining us for our half year results. Well done for battling in against Storm Debie. We appreciate you coming today. We'll follow the usual running order. Bhavesh will take you through the financials, Darren, the operational performance, and I'll wrap up on the strategy and the outlook. But before we do that, I just wanted to share the headlines. We're really pleased with the operational performance in this half. We've continued to lease well right across the business, with 1.6 million sq ft of leasing, 12% ahead of ERV. We've also controlled costs well despite inflation, and taken together, this has led to profit growth of 3%. The macroeconomic and geopolitical backdrop remains uncertain, as we know, and interest rates have increased since we last reported.
As a result, we've seen further outward yield shift of 23 basis points, though this slowed during the period. Importantly, rental growth has accelerated, with ERV up more than 3% across all three of our sub-markets. This has cushioned the impact on portfolio values, which were down 2.5%. In the near term, movements in interest rates, both up and down, will continue to affect property values, but rental growth is likely to be the dominant driver of medium-term performance. We're now expecting this to be at the top end of our guidance range for each sub-market, and as a reminder, that's 2%-4% for campuses, 3%-5% for retail parks, and 4%-5% for London urban logistics. Combined with a net equivalent yield of more than 6% and development upside, that makes for an attractive future return profile.
A key theme today is the importance of being in the right sub-markets as bifurcation accelerates. The best parts of London are thriving. Take here at Broadgate, for example. We're at the northeast corner of the City of London, but performance could not be more different from that of the city. Rents are up nearly 4% in the last six months, and vacancy is 3%, compared to 11.5% across the city as a whole. It's a similar picture with our retail parks. They're practically full, compared to vacancy of 14% across the wider retail market. And in London urban logistics, there's 2 million sq ft of demand that can't be satisfied, compared to increasing vacancy for big box. Since we launched our strategy in 2021, our portfolio has been transformed.
Campuses, retail parks, and London urban logistics now represent nearly 90% of our business. More of this later. I'll now hand you over to Bhavesh, who will take you through the financials. Bhavesh, over to you.
Thank you, Simon, and good morning, everyone. Let me take you through our financial results for the first half of the year. We delivered GBP 142 million of underlying profit, representing 3.4% growth in the period, driven by 2% like-for-like net rental growth and a continued tight grip on costs. Earnings per share were up by 3.4% at GBP 0.152, and we'll pay an interim dividend of GBP 0.1216 per share, up 4.8%. Net tangible assets were down 3.9% at GBP 5.65 per share. The key movement was a 2.5% decrease in the value of our portfolio due to a 23 basis point increase in yields, which was partly offset by strong rental growth.
LTV increased marginally to 36.9%, as the impact of value declines was cushioned by disposals we executed at good prices and the surrender payment we received at One Triton Square. Group net debt to EBITDA also improved to 6x. Let's look at net rental income growth, starting on the left of the slide. Net divestments resulted in a -GBP 6 million through the combination of our well-timed disposal of a share in our Paddington campus and nearly GBP 150 million of retail parks acquired over the last 18 months. Developments reduced net rents by GBP 5 million due to works commencing on the refurbishment of Three Sheldon Square at Paddington and a rates rebate for Euston Tower received last year after we de-rated it for development. Provisions for debtors and tenant incentives were a GBP 9 million benefit.
Although our rent collection has returned to pre-pandemic levels, in this half, we received a payment from Arcadia due to a strong lease guarantee we had negotiated that allowed us to collect close to 90p on the pound on the sums that were owed to us. We also delivered a GBP 4 million increase in like-for-like net rents in the period. Let me now take you through the drivers of this. On campuses, strong leasing, particularly at Broadgate and Paddington, delivered GBP 4.5 million of like-for-like growth, and our campus occupancy now stands at 94%.
Lease events can be lumpy, and we saw GBP 4.1 million of campus expiries in the period, mostly at Regent's Place, whereas leases have run off, we have chosen to convert some of the space to target innovation and science-based occupiers to drive higher rents in the longer term. Storey has also been impacted by the timing of expiries and had GBP -2 million of like-for-like income due to the timing of expiries at space we expect to fill in the second half. We're pleased that Storey rents continue to be at an average 18% premium over traditional office net effective rents. In retail and London urban logistics, we delivered GBP 6.4 million of like-for-like growth. We continue to see strong leasing, keeping our retail parks full and filling vacant space in our shopping centers.
Darren will take .ou through our operational performance in more detail shortly. Turning to our income statement, starting with the gross rental income. Like-for-like growth partly offset the impact of the Paddington disposal in July last year, and as a result, gross rental income was down 2.8% in the period. Property operating expenses reduced by 38% as a function of strong occupancy and the impact of collections I mentioned earlier. As a result, our net rental income margin improved by 340 basis points to 93.9%. Fees and other income increased by GBP 2 million, with good activity in our Broadgate and Paddington joint ventures. Administrative expenses were also down half on half at GBP 43 million as a result of our ongoing focus on cost control.
I'm pleased that our actions in the half have reduced our EPRA cost ratio to 14.8%, and whilst we have benefited from some one-offs in the half, we still expect our full-year EPRA cost ratio to improve year-over-year. Net finance costs were GBP 57 million, up only GBP 1 million. Our hedging provided protection despite significant increased market rates through a mix of fixed rate debt, swaps, and caps. We were fully hedged at September and 99% hedged for the next six months. Our weighted average interest rate at September was 3.4%. Underlying earnings per share was 15.2 pence, up 3.4%. Our dividend policy is to pay 80% of underlying earnings per share, resulting in an interim dividend of 12.16 pence per share, up 4.8%.
This is higher than EPS growth as a result of the rental concession restatement made in the prior period. Moving on to NTA. Property valuation declines, reflecting the impact of rising interest rates on real estate asset yields, the dividend paid and other movements together reduced NTA by 51p. This was partly offset by underlying profit and the surrender premium we negotiated at One Triton Square, and Darren will provide more detail on that shortly. As a result of these movements, NTA declined by 3.9% to 565 pence, and our total accounting return was -2%. Turning now to our balance sheet, which I'm pleased to say is in good shape. We continue to have excellent liquidity.
At September, we had GBP 1.7 billion of undrawn facilities and cash, and based on our current commitments and debt facilities, we have no requirement to refinance until mid-2026. In August, Fitch affirmed all our credit ratings, including senior unsecured at A, with stable outlook. We've completed GBP 600 million of financing activity. For British Land, we extended GBP 250 million of bank revolving credit facilities in the half, and post-period end, raised four new term loans totaling GBP 350 million, all to 2028. This debt, which is unsecured and flexible, continues to support our strategy and has the same financial covenants as all of our unsecured finance, with no interest cover covenants. At September, our headroom to covenants remained significant at 45%.
Net debt to EBITDA on a group and proportionally consolidated basis have improved to six and eight times, respectively, while LTV was marginally up at 36.9%. Let's look at movements in LTV, where we've kept a tight focus over the period, despite rising market rates which impacted yields. Our portfolio valuation increased LTV by 140 basis points. Acquisitions and investments in our committed development pipeline together increased LTV by a further 210 basis points. This was largely offset by disposals of the non-core office and data center portfolio and receipt of the One Triton Square surrender premium. As a result, LTV increased 90 basis points to 36.9%. I wanted to remind you of our capital allocation framework and how we executed our strategy 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. As I just outlined, we are pleased to have strengthened it in the half with the disposals and the surrender receipt, and we'll continue to actively recycle, provided the pricing is right and market conditions permit. We remain selective and disciplined in deploying capital into future acquisitions. We acquired Thanet Retail Park for a net initial yield of 8.1%, and we continue to seek investment opportunities with strong returns. We also have an attractive development pipeline. In addition to progressing our committed developments, which we expect will deliver GBP 71 million of future rents, we also committed to the Peterhouse expansion in Cambridge....
We remain committed to shareholder distributions and have grown the dividend 4.8% in the period to reflect the strong operating performance of our business. Developments are a key driver of our long-term value creation, and we believe we can still make good returns, provided we remain disciplined in our approach, given the changing economic backdrop. Higher market interest rates have increased exit yields, finance costs, and returns hurdles. We now target IRRs of 12%-14% on our campuses and mid-teens on our London urban logistics developments. Our development pipeline is focused on Super prime campuses and London urban logistics, both subsectors where supply of high-quality new space is constrained. As a result, for our best schemes, we are securing higher rents, which, combined with a leveling off of construction costs, can deliver returns above our hurdles.
Let me update you on our development pipeline. On our innovation and life sciences pipeline, as I mentioned earlier, we recently committed to the Peterhouse expansion in Cambridge, where the supply of innovation space is constrained, and we're already having encouraging customer conversations for our pre-let. At Canada Water, phase one of the master plan is on track. We expect the office and residential plots, A1 and A2, to be delivered in Q4 2024, and the affordable housing, which is pre-sold to the London Borough of Southwark, will complete later this year. On our campuses, we are completing the enabling works for 2 Finsbury Avenue and making good progress on pre-let discussions at strong rents, where we expect to achieve an IRR in line with our revised hurdle rates.
In urban logistics, we anticipate starting on site at the Box at Paddington and Mandela Way, Southwark, early next year. The Box will be one of the best, most sustainable last-mile logistics facilities in central London, and Mandela Way will be one of the first of a new generation of multi-story warehouses. We expect them to generate strong IRRs above our mid-teens hurdle. Overall, our development pipeline is well-placed to generate future returns, and our development profit to come is GBP 1.4 billion. Let's now look at our FY 2024 underlying profit guidance in light of the capital activity we had in the period, starting with gross rental income. The surrender of the lease at One Triton Square in September and net divestment in the period will reduce net rents in the second half.
However, we expect an improvement in our net rental income margin as a result of the Arcadia payment. We improved our guidance range for administrative expenses as we kept a tight grip on costs and expect fee income to be in line with our first half performance. Finally, we expect finance costs to reduce slightly as a result of the disposals executed, the surrender premium we negotiated in the half, together with our hedging, which provides protection from further movements in market rates. Overall, we are comfortable with current market expectations for underlying profit. So in summary, we have delivered good earnings growth, we have a resilient balance sheet and excellent liquidity, and we maintain a disciplined approach to capital allocation to drive future returns. Thank you. I'll now hand over to Darren, who'll provide an operations and market update.
Thank you, Bhavesh. Good morning, everyone. Let me start with valuations. There's been a significantly slower decline than we saw in the second half of last year, with values down by 2.5% overall. This reflects a 23 basis point increase in yields, which was partly offset by 3.2% ERV growth across the portfolio. In campuses, values were down by 4%, with yields moving out 32 basis points. However, we saw rent growth of 3.2%, backed up by strong leasing, which I'll come onto in a moment. Values in Retail and London Urban Logistics have stabilized in the period, as marginal outward yield shift of 12 basis points was offset by very good rental growth, particularly in Retail Parks, which is in line with our revised upwards guidance.
Taking all these movements together, the portfolio net equivalent yield stands at an attractive 6.1%, and we've seen rental growth across the whole portfolio, demonstrating that we're operating in the right parts of the market with the strongest occupational fundamentals. As I said, we've had great leasing performance in our campus portfolio, with deals on over 368,000 sq ft at 7.5% ahead of ERV. We've seen a noticeable uptick in demand in the period, with a further 281,000 sq ft under offer at 9.7% ahead of ERV, and nearly 1.8 million sq ft of negotiations on 1 million sq ft of space. At Storey, we've done 71,000 sq ft of deals in the half, with occupancy currently at 87%.
Storey remains a well-evolved, high-quality flex offer, which we've been running for over six years now. We're seeing strong levels of interest, with opportunities to extend across the portfolio. This activity demonstrates the continued demand for best-in-class workspace and our campus proposition, with occupiers placing huge importance on getting the best space in an accessible location with high-quality amenity and environment. This plays directly to the strength of campuses and why we're consistently reporting strong leasing numbers combined with high levels of occupancy. At Broadgate, we've successfully relet or are under offer on 290,000 sq ft of space on a number of newly refurbished buildings across the campus, and occupancy is now at 97%.
At Paddington, we're full, and at our development at Three Sheldon Square, which was already 65% prelet to Virgin Media O2, we now have a further 27,000 sq ft under offer, which will take us to 86% prelet, and we're still four months away from completion. As you know, we're repositioning Regent's Place as London's premier science campus, so occupancy is lower at the moment as we refurbish space to target both innovation and science occupiers and higher levels of rental reversion. And on that note, let me take you through the activity at One Triton Square. This is one of two buildings Meta had at Regent's Place. The other is Ten Brock Street, which we recently regeared with them until 2029. We'd known for a while that they didn't intend to occupy One Triton and therefore had time to work up our own plans.
So to be clear, when Meta found an occupier for the whole building for the remainder of the term, we proactively decided to take back the space, as we knew we had a much better opportunity here. With a highly adaptable shell building appropriate for Storey and labs at lower levels and best-in-class offices above, with significant flexibility to respond to market demand and do this quickly, given the building's already completed. This means we can unlock significantly higher rents, which we think could be in excess of 30% more than Meta were paying, even higher for labs, and an exciting opportunity to accelerate our science and innovation strategy at Regent's Place, all whilst benefiting from a considerable surrender premium to supercharge the economics. Regent's Place is a key part of our push towards innovation and science-based locations. It's worth reminding you of a couple of points here.
Firstly, life sciences isn't just about labs, as important as they are. These companies also need HQ space. And life sciences is key, but it's just one of the innovation areas we're targeting. We also have data science and technology, physical sciences, communications, for example, and clean energy and food science. These represent a much bigger universe of companies and areas with huge growth potential. Secondly, is just how important it is to sit within the Knowledge Quarter, surrounded by organizations like UCL, Turing, the Wellcome Trust, and the Francis Crick Institute, which is why it's widely recognized as the natural place in London for businesses in these sectors to cluster. The memorandum of understanding we recently signed with UCL demonstrates the benefits of this wider ecosystem.
It means we can leverage UCL's globally recognized brand and network, allows our occupiers access to their technical services and facilities, and means we're in partnership with an organization that is a very effective nursery ground for the next generation of occupiers. It's worth remembering, for example, that DeepMind came out of UCL, and we're already benefiting from this with space under offer to another UCL spin-out. Also, in the past few weeks, we've completed 30,000 sq ft of lab conversions, and we're already having conversations with occupiers now that we can show them the space.
Outside London, we recently signed a prelet to the Priestley Centre in Guildford with LGC, a leading global life science tools company, at 48,000 sq ft of lab and office space, one of the largest life sciences deals in the UK this year and at a premium for rents in the area. This takes the building to over 60% prelet ahead of practical completion next year. In Cambridge, as you've heard from Bhavesh, we've committed to the 96,000 sq ft Peterhouse expansion, the only new office and lab building to be delivered in Cambridge in 2025 and has already attracted strong interest from a mix of businesses. Now, we've also made a lot of great progress towards our sustainability targets, something which is now very much embedded as business as usual.
As well as being the right thing to do, this drives commercial advantage, with occupiers wanting the best and most sustainable buildings. In 2022, 36% of the portfolio was A or B rated. That's now 50%, and we're on track to be at circa 60% at the full year. We originally estimated the overall cost to get an A/B rating was GBP 100 million, of which two-thirds would be recovered through the service charge. By the full year, we will have committed to spend GBP 20 million, of which 70% will be recovered. We're very comfortably within our forecast number and absolutely confident we'll hit our targets in this area. I should mention, in this half, we also achieved a GRESB rating of five stars, and our development scored 99 out of 100, making British Land a global industry leader in this space.
Now, let me move on to retail. As outlined to our investors today in September, and as Simon will cover shortly, parks have a winning retail 620 ahead of ERV. 697,000 sq ft under offer at 19.3% ahead of ERV. 9 million sq ft with a gross development value of GBP 1.3 billion. These are all state-of-the-art schemes in London, targeting last mile occupiers looking to optimize their distribution networks, lower costs, and reduce their carbon footprint by using more e-vehicles. We've made significant progress in the half. The Box at Paddington, Mandela Way, and Enfield all achieved planning consent. Together, they account for 730,000 sq ft. In addition, we've submitted plans for the schemes at Verney Road and Thurrock.
These two total over 840,000 sq ft, so would take us to over half the pipeline with a planning consent. We continue to expect strong returns on these developments. Rental growth has exceeded our expectations, and we've used our development expertise to increase the density of the schemes we've taken to planning by nearly 15% relative to our underwrite. We've shown the returns here for our upcoming commitments to The Box and Mandela Way. As you can see, these look pretty attractive, even off their original purchase prices. So our business continues to perform extremely well occupationally, with very strong leasing progress, 2.7 million sq ft exchanged or under offer in six months, all at significant premiums to ERV.
Because we're operating in the right areas of the market, innovation and campus space, where we're seeing increasing levels of demand, retail parks, the preferred format for retailers, and London urban logistics, where we've made strong progress with our development pipeline. Now I'll hand you back over to Simon for an update on strategy.
Great. Thank you, Darren. I highlighted earlier that bifurcation is accelerating in our markets. So let me explain what's driving this, starting with London offices. Early in the pandemic, we formed the view that businesses would need less, but better workspace. Less, as they embrace hybrid working. Better, to reflect new ways of working and to attract and retain talent in a very competitive job market. So what does better look like? Let's start with location. Occupiers are gravitating to key transport hubs to make it quicker for their employees to get in. That's because, on average, those employees now live further from central London, given rising housing costs and the increased flexibility offered by hybrid working. And these employees want to work in an exciting part of town where there are good bars, restaurants, coffee shops, and retail.
Sustainability has moved up everyone's agenda, which is driving businesses to reduce the carbon footprint of their real estate. We all want to work in a building that promotes well-being, with good natural light, ventilation, and outdoor space, and we all want to feel part of a wider community. Then there's the experience within the building. I don't love the expression, but there's a definite trend to hotelify workspace, with shared spaces feeling more like a hotel or your home. In this building, for example, the fit-out was designed by a leading hotel specialist, Universal Design Studio. More people are cycling to work or exercising during the working day. That's why at One Broadgate, we have provision for 1,000 bikes together with ample shower facilities. And businesses increasingly want flexibility beyond standard workspace. This includes bookable meeting rooms, additional collaboration space, or the use of an auditorium.
Our campuses are in the sweet spot of this demand. It's no coincidence that headquarters, where the trend to upgrade is strongest, represent 80% of our space. All of this is playing out in the market dynamics. The best of London is thriving. The mini budget last year reduced take up in the first three quarters of this year, which was 25% below the 10-year average. But the forward-looking indicators are positive. Space under offer is 8% above the 10-year average, and active demand is 27% higher. You can see on the graph on the right that demand from banking and finance is especially strong, which is benefiting the city as well as the West End. This improving picture is reflected in our own leasing activity, where we have 1.8 million sq ft under negotiation. Quality is clearly in demand.
You can see this in the high proportion of take-up for new buildings, which has reached 71%. Cushman & Wakefield are now talking of a three-tier market: super prime, prime, and secondary. Super prime is the top 10% of prime buildings evaluated against a criteria which includes proximity to major transport hubs, access to cafes and bars, amenity and sustainability credentials, as well as the quality of the building. You can see on the graph that rents and the premiums for these buildings in the city have grown significantly and are expected to grow further. Nowhere is this more evident than here at Broadgate. We're currently right above Liverpool Street Station, which probably has the best connectivity of anywhere in London.... We're just 35 minutes from Heathrow and less than 10 minutes from London's Knowledge Quarter. We're clearly in an exciting part of town.
We benefit hugely from the location at the intersection of London's financial center with the artisan quarter of Spitalfields, the creative district of Shoreditch, the Old Street Tech Belt, plus the Barbican is just a stone's throw away. If you add to the mix the public realm, amenity, and large efficient floor plates, you can see why Broadgate has such broad customer appeal. Where else would you find global leaders in investment banking sitting alongside advertising, property, law, asset management, brokerage, technology, and fintech? The result is that Broadgate is achieving significantly higher rents and lower vacancy than the rest of the city. A good way to see this growth we're delivering is to look at the graph on the right. This shows the progression of rents on pre-lets at our three most recent developments. Let's now turn to retail, and more specifically, retail parks.
As we've said before, and you've just heard from Darren, retail parks have become the preferred format for many retailers. The space is very affordable. Rents have reduced, business rates rebased, service charges have always been low, and sales are well above pre-pandemic levels. The occupancy cost ratio of our parks is now 9%, which is down from 18% in 2016. Parks are an ideal format for a broad range of occupiers. They're located on major arterial roads with ample free car parking, and the stores are large steel boxes, which can be easily adapted. That's why we've seen significant incremental demand coming from discounters, essential retail, and multi-channel specialists. The restrictive planning regime means we're very unlikely to see much new supply.
Taking all this together, it's no surprise that parks have enjoyed net store openings since 2016, in contrast to significant closures on the high street and in shopping centers. We're now 99% occupied across the portfolio. These favorable occupational fundamentals, combined with limited capital expenditure, liquid lot sizes, and the ability to buy below replacement cost, make parks a good investment. We're the leading owner and operator and have invested over GBP 400 million since 2021. This is a period in which parks were the best performing sector of MSCI, and we outperformed by 270 basis points. We plan to grow our exposure further, given net equivalent yields of 6%-7% and forecast rental growth of 3%-5% per annum. Darren covered the significant progress we've made on London urban logistics. We really like the fundamentals here.
E-commerce growth drives the entire logistics market, but there are additional tailwinds in London last mile. These include rising expectations about the speed and convenience of deliveries, as well as more stringent requirements for low carbon, low pollution deliveries. Operators can also make substantial savings by being closer to their customers. Added to this, the vacancy is very low in central London at just 0.4%, so demand dramatically exceeds supply. As a result, rents have grown more strongly than the wider logistics market, and we expect them to continue to do so. We've assembled a pipeline with an end value of GBP 1.3 billion. As you know, our approach is to deliver new space via repurposing and densification. Multi-story is well established in other densely populated cities, but it's a nascent market in London.
We believe our planning capabilities and ability to deliver complex developments give us an edge, and as you heard from Darren, we're making good progress. During the first half, we received planning consent for the 3 schemes shown in bold on the slide. Turning now to the outlook. We're clearly operating against a backdrop of considerable macro and geopolitical uncertainty, and over the last 18 months, yields have been closely tied to market interest rates, and this is likely to continue for a while. But assuming we're near a peak in base rates, we expect rental growth to become the dominant driver of medium-term performance. We have better visibility on rental growth than yield movement.
Based on our experience in the first half, together with the occupational strength of our sub-markets, we expect to be at the top end of our previously guided ranges for campuses, retail parks, and London urban logistics. So to wrap up, the strong occupational momentum of the last 18 months continues unabated. That's a testament to the capability of our people and the quality of our portfolio. Bifurcation is very evident, and we're benefiting from this in all our submarkets. That's translating into accelerating rental growth, which, combined with a portfolio yield over 6% and development upside, provides an attractive return profile going forward. Thank you for listening. We're now happy to take any questions, as ever, and Darren and Bhavesh will join me on stage.
So I think we've got some microphones in the room, so perhaps if we have questions in the room, and then we'll go to the lines and the webcast. Who's got the first question? Hand's gone up over there.
Hi, Sander Bunck from Barclays. Thanks for the presentation. And just two quickly, if I can. So on your slides, you noted that sort of retail parks are at 150 basis points yield. They're 150 basis points higher than campuses, and they've also got higher growth in the near future. Do you expect that difference in growth to continue? And if so, sort of what, if anything, makes campuses look attractive, if they're lower yield and lower growth in the medium term?
Sure. And was there a second question there as well?
Yes. I was just gonna ask on the costs, the EPRA cost ratio, if you could sort of point out the main moving parts there, and how much of that is short-term one-offs, how much is long-term? Where you expect that to stabilize? Will it be at that 15, or will it go back up a bit?
Sure. No, happy to take those, Sam. I'll take the first one, Bhavesh, if you do-
Yeah.
EPRA cost ratio. So in terms of retail parks, yes, you're right, we've got high occupancy, and we've seen rents grow strongly in the period, which does make for very attractive returns. But also in our campus business as well, we saw rental growth over 3%, and we expect to be at the top end of that growth range of 2%-4%. Yes, they're a bit lower yielding, but when you factor all that together, you get attractive returns. And, and also, if you think what we've been doing in our campuses, a big part of the return story is the developments, where we see double-digit IRRs in the teens. We've been recycling out of the more mature office assets and putting it into development.
So when you do the combination of the investment and development returns, you get attractive returns ahead of our cost of capital, like we're able to do in the retail park acquisitions as well. Bhavesh, on EPRA?
Yeah. So Sam, I'm really pleased with the EPRA cost ratio performance this half. You know, we did benefit from a one-off payment that I referred to, but that aside, we kept a good grip on our admin expenses. We also benefited from fee income. So for the full year, as I guided to you, you will see an improvement. We expect to see an improvement from last year's full-year EPRA cost ratio.
Any other questions in the room? Oh.
Morning, it's Matt Saperia from Peel Hunt. You talked about the negotiations on 1.8 million sq ft of space, but only on 1 million sq ft of space. That doesn't really make sense, but you know what I mean. How does that relationship sit in a historic context? Is that an extreme relative number, or is that pretty normal for you in terms of the negotiations versus the quantum of space? And if it is extreme, what do you think that means for potential pricing going forward? And given that relationship, does it mean that tenants are likely to probably sign up sooner rather than later for some of that space?
Thanks, Matt. That sounds like one for Darren.
It is, it's, as you've noted, on top of the deals that we've done in the half and on top of the under offers, that is a big number, 1.8 million. The 1 million is just, it's just to demonstrate that it is over quite a wide base of space, but also, obviously, we're looking at almost, you know, 2-for-1 in terms of demand. So really strong metrics. We have been at those kind of numbers before, historically. It's not the first time we've been there, particularly when we've got more exciting development coming through the portfolio. But what it really means for us looking forward, is we're very confident with that rental growth range we've just given you.
Any other questions? I think there was another hand that went up. Rob in the front there.
Yeah, morning, team, thanks. 3, 1 on Meta, 1 on 2FA, and thirdly, on asset values. On Meta, I thought optically for BL, like a sensational deal, but I wonder if you could give us a bit more of your thinking in terms of, the timeframe you're looking at to, a, decide on the route you want to go down, whether it is, splitting space up or whether it's going down life sciences route, and how you think about that. You know, ultimately, I guess, an element of the return that you make from the meta trade will be driven by the speed at which you can create an income-generating space again, and thus maximize the benefit of the surrender you've received. The second one on, 2FA, you said positive progress on pre-letting discussions. What does positive progress mean?
Is that multiple parties we're talking to? Like, how do I get confident that positive progress is a legitimate comment, I guess. And then just final on asset values. It's great to see asset value declines slowing. I wonder, you also highlighted something at the end, that you know, you have clearly greater confidence on your forecasting ability around ERVs and around occupier market evolution than you do on asset values. So I also read into your comments today that you're effectively saying that you think asset values will continue to slow and, you know, hopefully get to a point in the near term, assuming that rates don't increase further, where yield expansion stops, or at least is fully offset by ERV growth.
I guess, what gives you the confidence to say that, given you've rightly made the point that you've got a clearer crystal ball when it comes to occupier markets than it does to yields?
Sure. No, that's, three great, great questions. Darren, do you want to pick up on Meta? Yeah.
Yep, sure. So as I said in the prepared remarks, we had... It was a good deal for British Land. We had a choice there. We could either take a rent of effectively GBP 70 a sq ft, and by the way, that was set about 5 years ago, so it's an old rent. And then we've got a building which we think is capable, on a blended basis, of over GBP 100 of ERV, and then we get GBP 150 million to help the economics with it as well. So, it's something we obviously considered very carefully, but very strong occupational fundamentals surrounding Regent's Place as well. So in terms of what we'll do next, just to give you a bit more clarity, we're probably gonna have-- we'll have a period now, that, as I said, we've had a good run-up for this.
It wasn't exactly a surprise for us, so ready to hit the ground running. We're looking at this for about 18 months in terms of the fit-out for the building. We're already having conversations with people, which is underpinning our confidence on the rents there. 18 months versus the fact that we've got effectively seven years back from Meta, so we're comfortable in the prospects for it, the timing, and the amount of cover that we've got via the surrender premium.
Great. And 2FA, so look, we're not gonna go into details of customer conversations, but you can see from the previous answer to the question around the amount of demand for the space we've got, we have multiple conversations ongoing there, and yeah, we'll watch this space. Basically, that's the confidence I can give you there. And then, on asset values and yields, yeah, look, we don't control interest rates, we don't control sentiment, but ultimately, what is gonna drive returns is occupational fundamentals, and they feel really good across our three markets at the moment. We've got high occupancy, growing rents, and that will come through into values. And in this period, as you highlighted, last year, we saw much more yield shift because that was the big spike in interest rates and less rental growth.
This has been accelerating rental growth, and in two of our three sectors, the parks and the London Urban Logistics, it fully offset, and it offset more than it did in the previous period in the campuses. So that's what, that's what we control, where our product and the markets we're in.
Morning, it's Zachary Gauge from UBS. Two questions, if I may. The first, obviously some very impressive numbers in terms of leasing ahead of ERV. ERVs, of course, don't include incentives, so if you could just touch on what sort of incentives were necessary to achieve those levels ahead of ERV. The second one, on liquidity. Obviously, a lot of your assets, particularly in the campus space and shopping center space are very large. Very few buyers in the current market have the sort of equity required to buy those without using leverage. So going forward, I guess if property yields don't continue to move out, or if interest rates don't continue to move in, then leverage for those sorts of assets remains sort of accretive.
Who would potentially the buyers be that could come in at those very large lot sizes without leverage?
Sure. No, happy to, to take those up. So on our ERVs, those are always net effective, so they do take into account incentives, in there, so, that's fully factored in. And then on liquidity in the market, you're right. The first, nine months of this calendar year, we've seen low liquidity, as I think people were adjusting to the higher rate environment and seeing where those rates might, might top out. Debt is a bit available for the right assets. I think it obviously, as you know, it costs more, but, we've raised finance very competitively in the period, and I think others will as well. The other thing is, on a number of our larger assets, when they're held in joint ventures, the debt tends to be stapled with those assets.
So if we were looking for a purchaser for those, the debt would be able to move across with those assets. But, look, I expect the debt markets to follow the occupational markets, and when you see the occupational strength come through in the right places in the markets, the debt will follow that.
Just to give you some color on incentives, our blend on our office deals was eight years, and the normal rule of thumb is you get 12 months for every 5. So that's a bit better than in line with what to expect there, and obviously, a testament to the quality of the space. In retail, the average deal is about 6 years for a retail park, say, and we're giving away about 9 months rent-free, which, again, is very competitive.
Any more questions in the room? I don't think so. If we've got any questions on the phone lines, we'll take those first.
... If you wish to ask a question on the phone, please press star followed by one on your telephone and wait for your name to be announced. That is star one, if you wish to ask a question. And your first question comes from the line of Pieter Vroom. Your line is open.
Hi, good morning, team. Thanks for taking my questions. I got just a follow-up question on the disposals. So, where do you currently see the best opportunities to dispose assets, in which asset classes and which locations?
Sure. Happy, happy to take that one. Thank you for the question, Peter. On the disposal front, we have been, hopefully, fairly clear. Shopping centers for us are probably non-core going forward. We'll look to recycle capital out of there. But as Darren very carefully said, you know, when the pricing and the timing is right, and then I expect us to continue to sell some of our more mature office assets and recycle that into the development program and parks, that's the way you should think about the moving parts.
Thank you. Very clear.
No more-
There are no further questions on the phone at this time, so I'll hand back.
Okay, do we have questions coming in over the webcast? Yeah.
So we've got two from Adam Shapton. He says, "Please, could you provide some more color on Storey occupancy, given its slight drop year-on-year and since March? You say this is due to expiry timings. Can you give any more color on where this sits today?" And the second question is: Was there any thirtieth of September valuation impact from One Triton Square?
Sure. Darren, do you want to take the first one on Storey?
Yes, Storey is doing very well, as I said. Occupancy is 87%. Our target for Storey, just given the nature of it, you're never gonna be 100% full because it's short term lease space, is 90%, so we're just off that. And at the cutoff in any period, you're bound to have some fluctuations around that number, and that's all that's happening. We've got a lot of incoming, as I said, and we're looking to extend the format across all three campuses at the moment, so we're pretty confident there.
Great. And then there was a question on valuation impact of One Triton, and yes, that was factored into the valuation. So we obviously received the surrender premium in the period. And you can see that in our capital column, but the valuation is now on a vacant possession basis for that property, reflecting the fact that the lease has been surrendered at the 30th of September.
Mike Prew, Jefferies. Do the valuers accurately capture the ERVs, which you seem to be able to beat substantially and consistently? And the second part is, are office tenant leasing inducements stable, and where is the overrenting in the portfolio?
Okay.
Darren, do you want to take the one on valuation and reflection of ERV growth?
Well, I can... morning, Mike. I think, I mean, I'll, I'll use-- I think that you're asking for the whole portfolio there. The value is obviously, we'll take the evidence that we'll provide them in a period, as you know. In retail, we are able to consistently beat them. I think the main thing that plays through here, again, is we're only dealing with a small portion of the portfolio at any period of time. So for example, that 600,000 sq ft that we've done in our parks is really only about 7% of the floor space. So if you imagine that's 7% of a retail park, you've got over 90% of it where you haven't had that evidence come through, and sometimes it is on different unit sizes.
So the value is we're able to beat them on the deals that we're doing, but you don't get the complete benefit of washover. We do think that's starting to come through, though. We have the 4% rental growth for, just for the half. So we are starting to get washover benefits, and obviously, we think we can start closing these gaps pretty quickly.
Yeah, and as a trend, you can see that, we were beating the valuers' rents for a couple of years now, quite materially, and that's started to be picked up in our ERV growth. So I think what you're alluding to there, Mike, is beginning to come through. One of the reasons, alongside the very high occupancy, we feel comfortable with our ERV growth forecast and being at the top end of those. And then there was a question around the offices and the incentives. And effectively, the incentives that we're giving, particularly on the developments, have remained pretty static. We tend to do a little bit less than 20% incentives, and so for a 10-year lease, that's a couple of years. For a 15-year lease, it's three years, or a little bit less than that.
On the overrent, Darren?
For the office portfolio?
Yeah, because we don't really have-
We don't.
-overrent. No.
We don't. It's a reversionary portfolio, and you can see that's coming through the yields.
So overall, across the whole portfolio, we've got a positive reversion. And there's a little bit of negative reversion on the retail parks and the shopping centers that we've spoken about previously, but that's more than offset by the positive reversion we're seeing in offices. And also, because we're leasing space ahead of ERV in retail, we're really eating into that negative reversion when you do comparisons to previous passing rent. Any other questions?
A slight follow-up to that from Daniela Lungu for Centaur Investors. If ERVs are net effective, would you be able to give some color as to what the headline rents and incentives did over the period? Meaning, if ERVs are up 3%, does that mean headline is up 3% and incentives stable, or headline stable and incentives down?
Yeah, it's more headline up and incentives pretty stable.
Yeah
... as per my sort of earlier answer, we're seeing pretty much those 20% incentives in the office or a little bit below that.
Yeah.
No more questions anymore in the room? No. Great! Well, thank you very much for joining us this morning. We really appreciate you coming along, and we'll see you in six months' time. Thanks a lot.