Okay, good morning, everyone, and welcome to our half year results presentation. I'd like to start with how we view our current position. Today, we believe that our occupational market is in the best position it has been for at least five years. Our portfolio is performing well, delivering another period of positive leasing, our highest occupancy since 2009, and a very high tenant retention rate. Capital markets do remain disrupted from high interest rates, but retail is one of commercial real estate's top performers, and NewRiver has once again outperformed the wider retail real estate market. Our balance sheet is arguably one of the strongest in the listed real estate sector, with one of the lowest LTVs and net debt to EBITDA ratios.
We have one of the best interest cover ratios and one of the highest portfolio yield spreads to the ten-year gilt. All of this means we are in the strongest position we have been for five years. That said, we are not complacent, as we have much more to achieve. We saw active demand for space in our portfolio, leading to excellent leasing performance with our highest ever occupancy. These operational metrics delivered underlying funds from operations of GBP 12.3 million, and a half year dividend of GBP 0.034 per share, 118% covered. As it has consistently done over the last five years, our portfolio has outperformed its MSCI benchmark on a total return, partly due to its inherent high income component. The like-for-like valuation movement of -2% was concentrated in just one asset in our regeneration portfolio.
Our LTV improved further to 29.5%, supported by a strong operational performance, resulting in excellent cash generation as we ended the year with GBP 138 million of cash, up from GBP 111 million in March. And this means our balance sheet is in great shape as we have no drawn debt maturity until 2028, and all of our interest costs are fixed. Finally, we are committed to delivering our ESG strategy and are making good progress, especially relating to a reduction in energy consumption. Taking all of this into account, we believe we are well-positioned to deliver consistent growth. And now we'll move to a review of our marketplace. Despite high inflation and interest rates, the UK consumer continues to be more resilient than many had feared and continues to spend.
The value of retail sales has increased and is significantly above pre-pandemic levels, and this is largely to be expected due to inflation. But encouragingly, the volume of retail sales has also recovered. This is supported by very low rates of unemployment, excess consumer savings, and rising wages, which have led to an increase in consumer confidence. Now, clearly, consumers are not immune to the cost of living squeeze, and so consumers have been adapting some of their behavior. We've seen a trend of consumers focusing on value by shopping around and downtrading to lower priced grocery, and our portfolio is ideally positioned in that regard. Looking ahead, living standards are set to rise, with wages growing faster than inflation, and this should underpin consumer spending into 2024.
We believe that our occupational market is in the best position it has been for at least five years, and there are four key reasons for this. Firstly, as we highlighted on the previous slide, the consumer has proven to be resilient, leading to good spending, which retailers are benefiting from. Secondly, so much corporate restructuring in retail has already taken place, removing the weakest retailers and excess competition from the marketplace.
Thirdly, over the last 10 years, most retailers have focused on profit and delivering operational efficiencies, not just volume growth, including extensive work in portfolio repositioning. And a great example of that is what M&S are doing. And finally, omnichannel retailers are winning further market share of online sales from pure play retailers through fully integrating their online channel with their last mile store network.
This demonstrates the true value of the physical store, and we expect that trend to continue. The real estate markets continue to be impacted by high interest rates, albeit market data suggests value declines are moderating. But it's also the case that transactional volumes are at historically low levels. Retail real estate continues to be more insulated, given the significant yield premium to the ten-year gilt, and NewRiver portfolio even more so, as our portfolio yield premium is 450 basis points higher than the ten-year gilt. And as you can see on the slide, we continue to significantly outperform MSCI all property and all retail indices over the last 6 and 12 months. We believe this is due to our long-held view of the importance of income, our portfolio positioning, better liquidity, and the quality of our asset management.
Transactional activity in the commercial real estate sector is at historic lows, and therefore, it's important to have a portfolio aligned to the available liquidity. For shopping centers, year-to-date, the average transaction size was GBP 24 million versus the 10-year average of GBP 50 million. Indeed, there's been only one true open market shopping center transacted this year at above GBP 100 million. Our portfolio is more aligned to the market liquidity, as our average portfolio size is GBP 18 million. Retail park liquidity is better than shopping centers, albeit transactional volumes are down this year following two strong years. Again, size matters as transactions are concentrated between GBP 15 million-GBP 25 million, and for context, the average lot size of our retail park portfolio is GBP 15 million.
Given that our portfolio is more aligned to the available liquidity, we've been able to complete GBP 31 million of sales in the period. We consistently expressed our confidence in our portfolio, and the last six months was no exception, with an increase in occupancy, tenant retention, and a strong leasing performance. As an example, from April 2020 to September 2023, long-term leasing transactions secured GBP 17.9 million of annual rent, equating to a 10-year annual compound growth rate of just -0.2%. Now, given the disruption within the retail sector over the last 10 years, from the growth of online and COVID, our leasing performance over the last three and a half years really demonstrates the underlying resilience in our rental cash flows.
Of course, it also helps that we have a market-leading asset management platform, which you need in the highly operational sector that retail real estate has become. Moving now to our valuations. The performance, which again outperformed the MSCI, experienced a like-for-like movement of minus 2%. Our core shopping centers and retail parks delivered positive capital returns. We've now had five financial reporting periods of broadly stable valuations in our core shopping centers and retail parks. Our regeneration portfolio experienced minus 7.9% valuation movement as a result of inflation impacting development costs and the recent slowdown in the housing market. Our workout portfolio, which only accounts for a modest part of our total portfolio, was broadly stable and a significant improvement from the last 12 months.
We've always held the view that income returns over the long term are the key driver of total returns, and given our high portfolio yield, you can see the importance of that income return in our long-term total return outperformance relative to MSCI. We take our role as the custodian of assets within the community very seriously, and we believe that we are on track with our pathway to Net Zero and are fully compliant with current MEES legislation. Highlights in the first half include a significant reduction in gas and electricity, which has been driven by several factors, including our ongoing installation program of LED lighting. Our progress continues to be recognized with an improved GRESB score and by retaining our gold assessment by EPRA.
What is particularly pleasing is that GRESB rated NewRiver first out of 1,013 European real estate companies for management, which means that we're performing particularly well for implementing comprehensive risk management, stakeholder engagement, and governance. The energy our occupiers consume accounts for almost 90% of our total carbon emissions. These are emissions over which we have limited control, but we continue to develop our engagement to support alignment between our climate ambitions and those of our occupiers. And so we're pleased to report that 60% of our total lettable floor space is occupied by retailers that have already publicly set emission reduction targets, and we expect that to increase over the coming years. And with that, I'm now going to hand over to Will, who will take you through the financial results.
Thanks, Allan, and good morning, everyone. It's my pleasure to be taking you through our half year results today, starting with our key balance sheet and debt metrics. You can see from this slide that our financial position has improved further from the already strong position we reported six months ago. With our key debt metrics, net debt to EBITDA, LTV, and interest cover, all improved during the first half, and all at or close to the best levels we've ever reported. Cash has increased again to GBP 138 million, which improves to GBP 238 million when you include our undrawn revolving credit facility, and I'll have more on that in a moment. This position is supported by our low and attractive cost of drawn debt, which is fixed at 3.5%.
Because we have no maturity on drawn debt until 2028, that'll remain the case for a number of years to come. Next, our revolving credit facility, which, as we were pleased to announce separately last week, we've recently extended from August 2024 to November 2026, and further to November 2028, if we're successful in securing bank consent on our 2 + 1 options. At the same time, we've reduced the facility size from GBP 125 million to GBP 100 million, while also reducing the margin, and so too, the annual cost. Although not currently drawn, having the RCF available to us gives valuable access to additional liquidity. We currently have access to up to GBP 238 million of cash and liquidity, and subject to bank consent, an additional GBP 50 million of accordion too.
It also demonstrates the support for NewRiver in the credit markets and ensures that we've maintained continued access to multiple sources of funding. Lastly, I'd like to thank Barclays, HSBC, NatWest, and Santander for their long-term and continued support of our business, which we see as a great endorsement of the strength of our operations and financial position, our best-in-class asset management platform, and our well-positioned portfolio. I'll now spend a moment covering our financial policies, which form a key component of our approach to financial risk management. On the left of the slide, you can see our reported position versus our policy, which shows that we're comfortably in compliance across the board.
I'll pick up dividends separately later on, but the charts on the right of the slide show that the position across our four debt-related financial policies is the strongest it's been since 2018, and even further back than that in most cases, which we believe is a great place to be in the current market, and a great position from which to grow. Moving on to look at loan-to-value in a bit more detail, and starting with the key drivers of the movement this time. You can see that the disposal of Napier, the joint venture we established with Bravo back in 2019, is the key driver of the reduction from 33.9% six months ago to 29.5 now. Offset slightly by the modest 2% valuation decline seen in the first half, which was concentrated on our regeneration portfolio.
Importantly, our core shopping centers and retail parks delivered another period of stability, and we continued to outperform the MSCI benchmark. Then lastly, the final driver of the first-half reduction was UFFO retained after paying the full year dividend. Next, LTV guidance from here. Over the last 18 months, we've consistently said that we would not rush to redeploy to our 40% guidance level, and that in the near term, we intended to keep some headroom to that level and to operate with higher cash holdings, given the uncertain macro outlook. Looking back, we believe that this was the right call and has been a key contributor to the position of strength we're able to report today. The difference now is that with an LTV of just under 30%, we're currently in a position to allocate capital whilst also keeping headroom to the 40% LTV level.
In recent months, we've certainly seen an increase in the number of acquisition opportunities that could offer the types of compelling returns we've targeted delivering to shareholders. These opportunities have often been linked to liquidity events, be they market refinancings or fund redemptions, as we highlighted would be the case six months ago. In addition, we've recently begun the search for a new capital partner, where we can boost our asset level returns with management fees. Pending deployment, with the base rate at 5.25%, we're currently earning just over a 5% return on the majority of our cash. So it still made a meaningful contribution to UFFO in the first half. We've made the decision to pass this contribution straight through to shareholders by topping up the dividend, which I'll cover in more detail shortly.
But before that, UFFO, which has reduced from GBP 13.6 million in the first half of last year to GBP 12.3 million this year. The key drivers of this movement, including disposals, are shown clearly in the bridge on the left-hand side of the slide. But in summary, once one-off COVID-related credits in the prior period are factored in, principally the final collection of COVID rental arrears and the settlement of a COVID insurance claim, the business has continued to deliver positive operational performance. I'll have more on net property income in a moment, but regarding the other UFFO line items, admin costs have reduced by 12% over the last two years, and are down by GBP 0.2 million, or 4% half-on-half, despite inflation, reflecting the positive impact of our ongoing cost savings initiatives.
Other income relates to COVID income disruption insurance settlements, and has reduced by GBP 1 million, half-on-half. Because as I've just mentioned, last year, we received GBP 1.4 million relating to our car park income, and during the first half of this year, we received GBP 0.4 million relating to commercialization income. Lastly, net finance costs, which have benefited from the income we're currently generating on our cash balances, now over 5% on the majority of our holdings. Next, more on net property income. And you can see that after adjusting for the GBP 54 million of disposals completed this and last year, NPI has reduced modestly from GBP 23.8 million to GBP 23 million. And that the key driver of this reduction is the release of rent provisions in the first half of the prior year.
This is because over the last 2 years, we've been successful in continuing to collect COVID rent arrears. These arrears were significantly provided against during the pandemic, and due to the success we've had in collecting the arrears subsequently, we've been able to release the provisions, resulting in credits to the income statement, including in the first half of the prior year, by which time rent collections for COVID arrears were finalized. So we saw no further benefit from these provision releases in the second half of last year, and we've seen no further benefit in the first half of this year, which is why you can see a reduction on the slide. Next, like-for-like income, which is broadly flat, and importantly, was modestly positive across all subsectors other than workout, which we've targeted exiting by the end of this financial year.
Lastly, asset management fees from our capital partnerships, which have increased by GBP 0.5 million or over 70% from the first half of the prior year, underpinned by the new M&G Asset Management mandate, which started in the final quarter of the prior year. Asset management fee income is currently on track to reach an annualized GBP 2.5 million in the current financial year. And as we've already communicated, Capital Partnerships is a part of the business we've targeted growing further from here. Next, the dividend. As you'll be aware, we pay dividends twice per annum, announced within our half and full year results, and based on 80% of the UFFO reported for the most recently completed six-month period, with the ability to top up the dividend payout from the 80% base level at the full year.
At the moment, and as I explained in my earlier balance sheet slides, we recognize that we're in a very strong financial position, with significant cash and liquidity, LTV within headroom to guidance, and a low cost of debt that's fixed until 2028. We're now starting to see compelling capital allocation opportunities emerge, and the strength of our position means we'll be able to move quickly to access these opportunities. But we also believe that our shareholders' patience should be rewarded while we wait to deploy. So we've decided to temporarily flex our half-year dividend payout upwards by paying out 100% of the interest income earned on our cash holdings during the first half. Number one, on the left-hand side of the slide, shows that interest income contributed 0.8 pence per share to UFFO in H1.
As highlighted by numbers two and three on the slide, the entire 0.8 pence per share is being paid out as dividend this time. This increases the H1 dividend from 3.2 pence per share per our policy, to 3.4 pence per share, and increases the payout ratio for H1 to 85% from our 80% base level. By doing this, we're able to reward our shareholders with an enhanced dividend yield as we await the compelling investment opportunities we expect to materialize in the near term, with a dividend that remains comfortably covered by UFFO. Subject to deployment progress in H2, our intention would be to top up again at the full year. Lastly from me, I'd like to expand on the key areas we expect to contribute to UFFO growth from here.
On the left-hand side of the slide, we start with the 4 pence per share of H1 UFFO we've reported today. We then annualize this, removing the impact of items that benefited the first half of FY 2024, but will not benefit the second half. Being completed disposals, principally Napier, and one-off dating back to COVID, such as the income disruption insurance proceeds received during the first half. And to add in items that will benefit the second half of FY 2024 more than the first half, mainly a full year of income earned on our current levels of surplus cash, which gives us 7.7 pence per share as a start point. We then add in the returns we expect as we complete our workout disposal and turnaround strategy, highlighted as number one on the slide.
Through the disposal of 4 workout assets and recycling the capital from those disposals into repositioning the remaining 5 workout assets, which will then join our core portfolio with a net contribution of a further 0.2 pence per share of additional, and importantly, sustainable income. Next, our capital partnerships, a revenue stream we're actively expanding at the moment, and which generates recurring asset management fee income, highlighted as number 2 on the slide. We had success in the final quarter of last year, signing a key new mandate with M&G Real Estate, which has already been expanded twice during the current year, with the addition of 2 further assets, and which, alongside our other mandates, means we're on track to achieve annualized fee income of GBP 2.5 million by the end of FY 2024.
That's the lower end of the medium-term target range, which we announced back in 2019. We're confident that we have the capacity to leverage our market-leading asset management platform further to deliver on the second GBP 2.5 million of our target, which is the GBP 0.008 shown on the slide. Next, number three, capital deployment. We're very focused on deploying into the right opportunities with sufficiently attractive returns, and we've included an illustrative GBP 0.011 per share as an indication of the incremental benefit over and above the returns we're currently generating on our cash as we deploy.
We're confident we can grow UFFO from these building blocks and more besides, and you can see some examples of further growth drivers as number four on the slide, such as like-for-like rental income growth, which we saw in FY 2023, and again in the first half in our core portfolio, which in the future could feed into valuation growth, which would in turn increase our deployment capacity. We also have the potential for further capital recycling out of lower-yielding assets and into higher-yielding assets. Thank you all for listening. I'll now hand you back to Allan.
Thanks, Will. Moving now to a review of our portfolio. Our core shopping centers are long-term holds for us due to their reliable cash flows. We've seen active demand for space reflected in an occupancy of 98% and a tenant retention rate of 99%, and 3.5 years of leasing transactions exceeding ERVs. Our core shopping centers are valued off a net initial yield of 9.5%, and given the security and quality of the underlying cash flows, it is no surprise that they have significantly outperformed MSCI on a 1-, 3-, and 5-year period. On a total return, the last six months, our performance was 440 basis points. Our retail park portfolio has had another year of delivering strong operating metrics, with occupancy at 98% and a tenant retention rate of 100%.
We continue to see strong occupational demand for our retail parks, which are highly compatible with omni-channel retailing, and so the tight supply in our portfolio means that we expect to deliver consistent rental growth. Our retail park portfolio significantly outperformed MSCI on a total return by 150 basis points, reflecting our consistently higher income return and more stable valuation performance.
We're seeking to deliver capital growth in our regeneration portfolio by securing planning consents on the redevelopment of surplus retail space, principally for residential, then selling to residential developers, as we have done previously in Cowley and Penge. Our three projects are at different stages in the development cycle, with planning consent secured at Burgess Hill, and where the asset is currently under offer to a residential developer. At Grays, we have just submitted a formal planning application for 850 residential units.
We hope to receive a planning consent early summer 2024, following which the asset can be sold to a residential developer. Finally, in Bexleyheath in London, which comprises a standalone shopping center anchored by Marks & Spencer, and a retail park anchored by Sainsbury's, we are making good progress with our master plan, working with the council, who are supportive, to deliver up to 700 residential units on the surface car park adjacent to the shopping center.
Moving now to workout, which represents 11% of our total portfolio and comprises nine assets with an average value of just GBP 7 million. Our strategy is to exit from workout, which we're seeking to achieve through a combination of disposals and implementation of turnaround strategies to deliver long-term rental and capital sustainability.
This year, we are targeting four disposals, with values ranging from GBP 2 million to GBP 6 million, and completion of five turnaround strategies, for which we are making excellent progress. So far, we've exchanged contracts on one of our targeted disposals, and a further center is under offer. The two remaining centers will be sold in Q4.
The largest asset in our workout portfolio is in Cardiff, which accounts for 31% of workout. We've been making good progress and are close to signing a major letting to a multi-entertainment operator for over 100,000 sq ft, which will transform this asset and, importantly, be accretive to both income and value. Given the progress in the first half, we remain on track to exit our workout portfolio.
Our capital partnership activities are expanding, with fee income up 71% since this time last year, and are focused on three areas. Firstly, in the institutional sector, where we were appointed by M&G Real Estate to asset manage a retail portfolio comprising 16 retail parks and one shopping center. That was then extended in April to include an additional shopping center, and more recently, the mandate has been extended again to include a large Southeast retail park. Secondly, in the private equity sector with Bravo, in which we co-invest. Currently, this joint venture comprises one retail park and one shopping center. In the first half, we successfully completed the sale of two retail parks in Scotland. Importantly, we're on track to receive a financial performance promote once the final two assets are sold.
Finally, in the public sector with Canterbury City Council, where we asset manage two shopping centers and were recently appointed as their development manager to relocate the council's offices to their shopping center. We now manage more than GBP 750 million of assets and over GBP 60 million of annual rent on behalf of our partners, and the potential for us to increase our capital partnership activities is significant, given our unique position in the marketplace and our strong track record of outperformance. We're actively pursuing a new partner to operate in the retail park sector, the investment case for which we believe is significant. More recently, private equity and public sector investors have expressed an interest in partnering with NewRiver to focus on U.K. shopping centers.
Through the decisive actions that we have taken over the last two years, including deliberately building up our cash reserves, today, we find ourselves in the best position for five years. That said, we have much more to achieve.
Our operating results over the last two years demonstrate the underlying resilience in our portfolio and platform, and we expect that to continue as we move through next year. While being alert to the wider macro risks, we are confident of our prospects, driven by a laser focus on delivering growth in our portfolio, expanding our capital partnerships, and spending our available capital wisely. Our clear growth potential is underpinned by a highly experienced and motivated team, and a balance sheet that is arguably one of the strongest in the listed real estate sector. Thank you.
I think we're gonna move to Q&A, and we'll start with questions from the floor, followed by webcast questions. We should have some roving microphones in the room, and for the benefit of those that are dialing in, could you please introduce yourself before asking your question? Start with John.
John Sheridan, Liberum. So I've got three questions, if that's okay. The first one is around the balance sheet and the LTV guidance and the targets. The second one is on capital partners, and the third on admin costs. So in terms of the balance sheet, you set very clear metrics as far as the market is concerned to understand that. Obviously, those numbers were set when the world was a slightly different place, and interest rates were a lot lower than they currently are. So I just wondered if you had thought about those in that context, and from what you've said, it sounds as if you're looking more on the acquisition front, which will obviously increase those LTVs. So that was my first question.
The second one on capital partners would be: Is the existing capital partnership platform enough to cope with another capital partner, or would you need to add some more costs to that? And then my final question on admin costs is, obviously, you set a big reduction cost two and a half years ago, which I think the bulk has now come through. Is there any further to come from that?
Well, let's just touch on the balance sheet. I might just sort of kick off first, Will, and then you can come in on that. You know, we're confident around the strength of our balance sheet. It's not just about LTV, notwithstanding, we probably have one of the lowest LTVs in the listed real estate sector, but our net debt to EBITDA ratio is the lowest. Our interest cover ratio is over five times, and we've seen our valuation, portfolio valuation performance has actually, you know, on a relative basis, has been very good. Importantly, the majority of our portfolio in our core shopping center and retail parks, you know, delivered capital returns over the last period.
So we feel confident that, we're approaching a time where, you know, we can really consider, deploying capital into opportunities that are gonna deliver, you know, very compelling, returns, and we're starting to see those opportunities, emerge. Anything to add there, Will? In terms of expanding, capital partnerships, you know, as we grow that business, we will obviously have to bring some resource in to support the growth of capital partnerships, but we'll do that in the right way. We, as a business, would be very, very confident of being able to attract high-quality talent to support our growth ambitions in, capital partnerships. You may, John, have seen that, earlier on in the summer, New River was, voted by the Sunday Times to be one of the top 100 companies to work for.
So it's an organization where we will always be able to attract the right type of, talent to support the future growth of the business. Do you wanna add anything on that, Will, and cost? Maybe-
I just want to pick up the admin cost-
Yeah
-question, John. So you're absolutely right. Two years ago, we set an ambitious reduction target. I'm pleased to say that our costs are down 12% over the last two years, 4% year-on-year. We've made some big cost savings, moving offices, for example. We've made some savings in professional services, et cetera. Obviously, the inflation environment at the moment is elevated, so it's more challenging now to make further cost reductions from this point. But we've identified further savings that we would like to target, and some ambitious savings. So I would like to think that we can maintain our costs at this level and perhaps even make some further reductions from here. But we're really pleased with that 12% reduction over the last two years.
Can you pull up the mic? We've got a question from Andrew. Andrew?
Yeah. Thank you. Andrew Saunders, Shore Capital. Just looking at your level of service charge recovery, looks like you've had a big win in the first half, obviously, helped by occupancy improving. I just wondered, to what extent can that improve further, given, I suppose, at record occupancy, you're probably not gonna see a huge amount of upside in that moving forward?
Do you wanna pick up that question, Will?
Yeah, I think we've I mean, we've targeted service charge and just general void costs as an area, for us to make some savings. You're absolutely right. The fact that the occupancy is at a record level, now 98%, has really helped us. But over and above that, you know, we've been looking at our service charge budgets, et cetera, over a number of years, and making savings where we can. So, you know, we're pleased with the, with the reductions to date, and again, like admin costs, we will challenge ourselves going forward to make further reductions where we can.
Question here.
Thank you. Clive Black from Shore Capital. You both talked about the macro environment and, clearly, your prudence has worked out well. How do you foresee that macro in terms of your attitude to deploying capital and in terms of that deployment, the competitive environment for assets that you're experiencing at the moment? Thank you.
Well, I mean, you're probably more of an expert on the macro environment than we are, Clive, but, you know, from the data that we look at, you know, it's clear that, you know, the consumer has held, t he consumer position has held up well, supported by low levels of unemployment, quite high job vacancies, excess consumer savings, and now, wages are growing faster than inflation, which should lead to a rise in living standards, which we hope will be a useful underpin, you know, for the consumer into next year. And that's very important because, we're reliant on our shoppers spending the money in the shops. That benefits the retailers, and ultimately, what's good for retailers, our retail tenants will be, you know, good for us.
In terms of the capital real estate markets, it does feel like many commentators are saying that the interest rate may have reached its sort of peak. And that may start to moderate. Who knows when, but maybe at some point next year. We've seen some swap rates come down. We've seen mortgage rates come down a bit, so I think, I think that's, you know, positive. That said, you know, in, in. When it comes to opportunities, transaction volumes are really low. What that, I think, partly indicates there is a difference between what sellers are expecting and what buyers are prepared.
So that sort of spread, I think, will continue to narrow into next year, and we're just so ideally positioned to, you know, capitalize on that, find the right opportunities to deliver double-digit annual returns with a sensible risk profile. And of course, it was to be expected. You know, every year, real estate loans get refinanced, but they're being refinanced into a much higher interest rate environment, and that creates liquidity events, and we're positioned with a lot of liquidity to take advantage of that. Equally, higher interest rates has impacted some institutional funds, particularly through redemptions. And again, you know, we're ideally positioned to take advantage of that. So we believe we've been right to be patient, take our time, build up our cash reserves.
You know, we do have that position now, where we can, you know, actively take advantage of that. The key for us is making sure that we spend our capital super wisely, and we're determined to do that.
Yusuf Samad, private investor. Allan, could you comment on what your valuation outlook might be? We've seen a slight, t here's been a big drop in that regeneration portfolio, so you've taken that. Yields are maybe peaking, coming down, cap rates coming down, so and the macro environment seems healthy enough. What would you expect to continue to slide downwards or steady steady, especially in that regeneration or workout portfolio? Do you think the inflation impacts will continue?
Yeah, it's a really good question. It's always difficult to predict the future, especially when it, you know, comes to, you know, valuations because there are so many external influences that are very, very difficult to forecast. You know, things like wars, massive geopolitical tensions, I mean, all of that type of thing can have an impact on capital markets. But really, from what we're seeing, we've now had, you know, a couple of periods for where our core portfolio, our core shopping centers and retail parks, are providing real stability in our valuations, and we're taking a lot of confidence in that.
That's partly reflected that our portfolio yield spread to the ten-year gilt is one of the highest in the commercial real estate market, and that provides us with real insulation, and we're confident that should continue, particularly, you know, as we can move through into next year and deliver some, you know, rental growth on a consistent basis. The valuation decline in regen was really to be expected. Inflation has impacted development costs, so construction costs have increased, materials have increased, labor costs for construction, construction workers have increased, and of course, the development finance costs have gone up. But we're seeing inflation starting to moderate and come down. I think that is gonna be supportive around our regeneration portfolio. We're seeing that the commentary in the market is that interest rates may have peaked.
I think that will be supportive around our regeneration portfolio, and although the housing market has sort of slowed down in the last six months, at the end of the day, the U.K. has a structural issue around the supply of new houses nowhere near matching the demand for new houses. So, it's still going to be a growth sector. So we feel confident ultimately that our regeneration portfolio will deliver for the business. I think that's all the questions from the floor, Lucy. Do we have any questions?
Great.
On the webcast?
We've got two questions that have been submitted from the webcast. So the first one is from Matty Allen at Paradice Capital: What yield projection do you see for your capital deployment, and do you have any negotiations on the table just now?
Hi, Matty. Yeah, we tend to look at everything on a sort of IRR basis, which obviously the yield is a component, but it's all about, you know, what that rental cash flow is going to deliver, you know, in the future and whether an asset can deliver capital growth. So we look at everything on an IRR basis, and we're looking to deploy our capital to deliver attractive double-digit annualized returns with a high income component, but also capital growth. And that's how we tend to sort of look at that, and we then weigh that up across all the other options we have in terms of capital allocation.
Great, thank you. The second question is from John Wright, who asks: What are the key variables, either macroeconomic or otherwise, that will serve as a trigger for New River to deploy capital more aggressively?
It's really determined on the opportunity. As we stand today, do we have the confidence to deploy capital? Yes, we do. But we want to ensure that we are deploying our capital into opportunities that are gonna deliver very compelling returns with a low-risk profile. And as and when we find those opportunities, which are starting to emerge, we're confident enough to deploy our capital into that type of opportunity.
Great, thank you. There's no more questions on the webcast, so that concludes the Q&A, so I'll hand back to Allan to close.
Okay. Well, thank you, Lucy. Thank you all for joining us this morning. Will and I will be around for a short while, so if you'd like to have any further conversations, please come and have a chat to us. Thank you.
This presentation has now-