British Land Company PLC (BLND) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the British Land Half Year Results Call. My name is Katie, and I'll be coordinating your call today. [Operator Instructions] I will now hand you over to your host, David Walker, to begin today's conference. Please go ahead.

Thank you. Good morning, everyone. I'm David Walker, Head of Investor Relations at British Land. And I'm here on the line today with Chris Grigg, Chief Executive; Simon Carter, our CFO; and Darren Richards, our Head of Real Estate. Before I hand you over to Chris, could I remind those of you joining us by phone that the slides for today's presentation are available to download at britishland.com. And you are able to register questions on the conference call at any time during the presentation. For those of you listening through the website, the slides will appear automatically, and you can submit written questions via the website, and I'll read those out following our prepared remarks. With that, I'll hand you over to Chris.

Thank you, David. Good morning, everybody. As you know, after nearly 12 years, I'm stepping down as CEO of British Land today. It's been an honor to lead this company, to work with so many talented individuals, not least on projects which have literally changed the face of London. The things we've done to reshape and reposition the business, over the course of a decade, have also been fundamental to our ability to navigate the impact of COVID-19. There are a few key things I'd point to: the quality of our assets, the clarity of our strategy, our focus on operational excellence and the needs of our customers as well as our strong balance sheet. I'd like to talk through these points in a bit more detail. First, the quality of our assets. We've delivered fantastic buildings, including The Cheese Grater, 100 Liverpool Street and Clarges. We've transformed places like Paddington, as you can see here, and Broadgate, of course. This has created tangible value for our shareholders as well as delivering real benefits for our customers and communities. But we've done all of this while keeping our financial discipline and significantly reducing leverage to a low in the mid-20s in 2018 compared to more than 50% when I joined in 2009. And that's meant we've been able to absorb valuation losses on the retail side of our business. But remember, we also have no requirement to refinance until 2024. We have a clear strategy. Our focus on mixed use campuses is a real differentiator because it presents opportunities over time. The product is attractive to our customers, but campuses also allow us to change the mix of uses and type of occupiers so we can react to growth. Again, Broadgate is a great example. Our operational capabilities are simply best-in-class from developing world-class buildings and keeping them full to enhancing our environment through place making. Our ability to manage our spaces safely and securely has never been more important. We are among the first in our industry to really focus on the customer and to make data essential to that. Our insights and the relationships we built will be valuable as we navigate the changing dynamics in our markets. And last, our culture. This isn't something we'd usually talk about at the results presentation, but I absolutely believe it's one of British Land's real strengths. We're more diverse and inclusive than we were a decade ago. We're innovative, and we're flexible. We have a breadth and depth of skill set that goes beyond developing and managing buildings important as that is, in sustainability, in technology, in marketing and, of course, in finance. And we're truly aligned to our purpose, places people prefer. The fact that the Board selected someone from within British Land to succeed me is also a strong testament to our culture. Simon was a standout candidate with both an internal and external perspective, both on our business and across the sector. So we offered the right mix of continuity and fresh ideas. I know it's also very clear on the challenges and opportunities that lie ahead. Finally, I'd like to say thank you to all of you. It's been a real pleasure working together. I wish all of you the best of luck, and hope to see many of you again in more normal times. I'll speak to you in the Q&A. But for the last time, I'll hand over to Simon for the financials.

Thank you, Chris. Good morning, everyone. The rest of today's presentation will be in 3 parts. Firstly, what will be my last job as CFO, I'll take you through the financials. Then Darren will talk about our operational performance, putting this in the context of our markets. And then my first job as CEO, I'll set out my priorities to the business, which are designed to make the most of our competitive edge. Before we do any of that, however, I'd like to take this opportunity to thank Chris, at a personal level, for the guidance and support he has provided me over the last 12 years, but most importantly, the great business built under his leadership. He leaves a business that is well positioned to navigate the current environment and deliver significant shareholder value going forward. I know the Board and the rest of the British Land team would also like me to pass on their thanks and best wishes for the future. Turning to the results for the 6 months to September. EPS is down 35%, primarily due to increased provisioning for rental receivables as well as the impact of CVAs and admins. EPRA net tangible asset value reduced 10% to GBP 6.93. That's due to a decrease in our portfolio valuation of 7% as a result of a 15% decline in Retail and a 3% decline in Offices. Our financial position remains strong. LTV is 35.7%, up just 170 basis points in the half year. We have accessed GBP 1 billion of undrawn facilities and cash, significant covenant headroom and no requirement to refinance until 2024. Following our announcement in October that we intended to receive dividends, our interim dividend will be 8.4p. Based on our new policy, we're paying out 80% of underlying EPS. Payment will be made in February 2021. Looking at the movements in EPS. Capital activity added 0.2p. COVID delayed recognition of development income at 100 Liverpool Street. However, this scheme has now reached practical completion. And 1 Triton Square is scheduled to complete in April. With the addition of Norton Folgate to our committed development program, we expect recently completed and committed developments will add a further 4.4p to annualized EPS. That is on top of 1.3p already delivered from our post referendum program. The impact of COVID-19 has clearly been significant. CVAs and admins in Retail resulted in a negative like-for-like of 0.6p. Provisions for outstanding rent, service charges and deferrals led to a 5p reduction in EPS. I'll set out details of our approach to provisioning later. Finance and administrative cost savings added 0.8p. The underlying tax charge reduced EPS by 1p, reflecting the temporary suspension of the dividend. This will result in a shortfall in our REIT distributions, creating a corporation tax liability equivalent to the withholding tax on the shortfall. Turning to net rents. Let me draw out some key points. Like-for-like decline in Retail was 10%. Of the GBP 13 million reduction in Retail, GBP 6 million relates to the impact of CVAs and admins, with the remaining GBP 7 million the result of decline in ERVs, longer void areas and reduced car parking income over the closure period. Like-for-like growth in Offices was 4%, driven by letting activity of 1 FA and 338 Euston Road. Provisions for outstanding rents and service charge income reduced net rents by GBP 31 million. We provided GBP 13 million against deferred rents and provisioning for tenant incentives increased by GBP 2 million. Developments contributed a further GBP 3 million, following the practical completion of 135 Bishopsgate, partially offset by expiries of 1 Broadgate ahead of redevelopment. Moving to rent collection. For those customers materially impacted by COVID, we're making good progress in a great pragmatic and equitable solutions for a period of closure. These include monthly payments, deferrals and partial concessions, typically a return to more favorable lease terms. The concessions fall away if rent is not paid going forward. Since our announcement in early October, our September collection rates continued to improve. The table shows our collection stats for rents due between the 29th of September and 10th of November. As at the 10th of November, we have collected 77%, that's 97% in Offices and 62% across our Retail assets. Tables for March and June intervention are set out in the appendix. The impact of provisioning has been significant, as you can see from this slide. We take a systematic approach based on both aging profile and credit quality. In the first subtotal, you can see that as at the 30th of September, GBP 96 million of rents were outstanding. GBP 37 million has been provided against these balances, resulting in a P&L charge in the period of GBP 27 million, with the balance recognized in prior periods. Turning to service charges. GBP 22 million was outstanding at our period end, of which GBP 7 million has been provided, with an earnings impact of GBP 5 million. The rental deferrals, which primarily relate to the March quarter, GBP 25 million is held as accrued income on the balance sheet. We have provided GBP 13 million against this. These balances will fall due over the next 5 quarters. We agreed GBP 5 million of rent concessions in the period. Under the accounting standards, rent concessions are spread over the term of the lease to first break. Constantly, the impact in the period is immaterial. Finally, it's important to note that the following period end, we've collected a further GBP 34 million of outstanding rents and GBP 12 million of service charge. After taking this into account, we are 60% provided for outstanding rents and 70% for service charge. Slide 9 sets out the income statement. We've covered net rents. There was a GBP 1 million decrease in fess and other income. Our consistent focus on cost control resulted in a further 7% reduction in admin expenses. As we announced in October, given improved visibility on the performance of our portfolio during COVID and to satisfy our REIT obligations, we are resuming the dividend. Dividends will now be paid semi annually rather than quarterly. Announced at the time by interim full year results with payments made to shareholders in February and August. Dividends will be paid at a fixed percentage of 80% of underlying earnings per share based on the most recently completed 6-month period. This policy ensures dividends will automatically flex in line with earnings, reflecting the impact of development completions, acquisitions, disposals, and trading conditions as they change over time. Crucially, it maximizes our strategic and financial flexibility to take this business forward. Turning to the balance sheet. Following the adoption of EPRA's new measures of net asset value, we will now use net tangible assets as our primary measure. Further detail of the new metrics and reconciliations to the old reporting measures are set out in the appendices. The reduction in net tangible assets was driven by reduced property valuation, partially offset by undistributed underlying profit and the gain on property disposals made during the period. Darren will cover the valuation moves in a moment. The strength of our debt metrics continues to be one of our key competitive advantages. And here, we're really benefiting from the work we've done over many years. This has been recognized by Fitch, who affirmed our A unsecured credit rating in August. We have undrawn facilities in cash of GBP 1 billion. In the last 6 months, we've repaid our GBP 350 million convertible bond and extended GBP 650 million facilities. Taking into account to make CapEx and future debt maturities, we don't have to raise any finance until 2024. Our LTV is 35.7%, up just 170 basis points since May. That's despite the valuation falls we've seen. This has been more than offset by post period asset sales of GBP 430 million. Financing activity and our use of caps has kept our weighted average interest rate low at 2.5% and delivered GBP 5 million of savings in the period. With no income or interest cover covenants on British land unsecured debt, we continue to have significant headroom. And we could withstand a fall in asset values across the portfolio of 42% before taking any mitigating action. Our financial resilience is key in the current environment, allowing us to navigate confidently through the uncertainty of COVID, whilst remaining agile to take advantage of opportunities within our portfolio and in the wider market. And on that note, I'll hand over to Darren, who will provide an operational update on our portfolio.

Thanks, Simon, and good morning. I'm going to give you an update on valuations, leasing and our approach to the occupational markets, starting with valuation. Overall, values are down 7% in the period. Offices have decreased by 3%, driven by yield expansion of 8 basis points, with ERVs very marginally up. Recent activity in the investment markets more than supports these values. This includes our own. As you would have seen this morning, we announced the sale of Clarges. Retail is down 15%, reflecting 33 basis point outward yield shift and an ERV decline of 11%. What's interesting here is the divergence in values between shopping centers down 18% and retail parks down 13%. For parks, there's more transactional evidence and early signs that the pace of rental decline may be slowing. Overall, however, we expect continued downwards pressure on rents, given the considerable challenges faced by retailers. That's partly evidenced by the number of CVAs and administrations. 16 more of our occupiers entered CVA or administration in the half, accounting for 80 units. Only 13 of those closed, but we saw an GBP 11.6 million reduction in annualized rents as a result. Finally, the value of Canada Water has decreased by 6%, reflecting a fall in value of the existing use, which is predominantly Retail and a small increase in forecast construction costs which we expect to unwind upon the drawdown of the head lease by the end of the year. Let me turn to the Office market. Here, our leasing activity covered 130,000 square feet, half of this was long-term leasing at 9% ahead of ERV. Now obviously, we're operating in a very subdued market. But we're encouraged by the conversations we're having at the moment. We're under offer on 310,000 square feet and in discussions on a further 360,000 square feet, some being potential pre-lets. So even in this environment, we have customers looking through the uncertainty for the best space. This includes story where leasing activity has also been resilient, 30,000 square feet let in the year, and there's a good pipeline in negotiation with levels of interest increasing. Occupancy sits just under 80%, following a number of expected lease events, and importantly, rent collection was effectively 100%. I want to put this activity in the context of the wider London market. As you know, take up is understandably significantly down, but it's important to recognize the strong cyclical factors at play here. So short-term decisions on new space are being postponed. For some occupiers, this means extending their current terms as we've done in our own portfolio. For others, it means releasing space onto the market, which has driven secondhand availability to its highest level since 2004, that's 74% of the total. Of course, COVID will shift how people think about workspace, a shift that was already underway and will now evolve much more rapidly. Meaning that businesses will want to get the very best out of the office space they take to attract and retain talent, to enhance collaboration and culture and to interact with their customers, in addition to increased requirements of flexibility, technology and sustainability. That's the kind of best-in-class space and service we will continue to deliver and will be in demand. And yet, the supply of new quality space is becoming even more constrained. CBRE estimate the amount of use space proposed by 2023 has contracted by 33% since COVID started. This combination of demand for best space and reducing supply together with the continued appeal of London is why since the crisis began, we've responded to around 1 million square feet of RFPs from businesses looking for new high-quality space in 3 to 4 years' time. In the short term, however, we do expect the leasing market to be challenging, and this will undoubtedly impact rental levels. Of course, we won't be immune to this. But we will be aided by the strength and diversity of our occupier base that's demonstrated by our rent collection stats for September at 97%; the high occupancy across our portfolio, including our developments, which apart from Norton Folgate, which we committed to today, are almost fully let; and most importantly, the fact that 82% of our space is on our campuses, where we can offer customers safe, controlled environments, public spaces, shops, restaurants and amenities for their people and the flexibility to add space and services with us going forward. That's of real value to occupiers, particularly in a post-COVID world. This isn't something we're doing reactively, this is absolutely central to how we develop this proposition over the years and why we think we're well placed to outperform over the longer term despite the challenges we face today. So now let's look at Retail. For reasons you all know, the market continues to be exceptionally tough. In the 6 months, we signed 160,000 square feet of long-term deals, on average 8% below ERV. However, we have a large number of deals under offer, over 495,000 square feet, that's GBP 9 million of rent. Deals broadly at levels reflected in our September ERVs. And many of these were being agreed during lockdown, which reflects the nature of our portfolio, the fact that our customers want to consolidate or expand with us, but also our approach. We've had a very clear focus on keeping our portfolio full and being pragmatic about rebasing rents where it makes sense to generate more sustainable cash flows and drive continued operational outperformance. This is one of the reasons why we've now collected 69% of June quarter rent and 62% of September. These increases come from wrapping these discussions into wider conversations on Retails and new deals, and leverages an experienced team who use data and relationships to understand and work with our customers. This includes listening to those customers wanting leases return over provisions. Over 20% of our retail leases already have a turnover element, normally combined with the base rent, and it is much the same level as it was 5 years ago. More customers may want to look at this structure going forward, but the point is, it's not a new concept for us. Now let's look at footfall and sales. The whole portfolio is clearly ahead of benchmark with footfall 17% ahead and sales 14% ahead. Today, all our assets are open, as are 42% of our stores, that's more than double than in the first lockdown as those retailers providing click and collect are open in addition to essential stores. And this makes a big difference given the fact that nearly half our retail assets are parks well suited to click and collect and which have seen good performance during COVID. In fact, pre-second lockdown, we were within 10% of last year's sales on open stores on our parks. That's not really a surprise. These are open add schemes with easy access, facilitating mission-based shopping. But we think the preference of retail parks will endure beyond COVID. They're more flexible and cost-effective to reconfigure and cheaper to run operationally. This means they're more affordable and profitable for retailers with lower total occupational cost ratios, which we think are now heading towards sustainable levels of 10% to 12%. And their proximity to main arterial routes means they play an important role in customer fulfillment as well as click and collect, they facilitate returns, and retailers are increasingly using them to support their logistics networks. Some of the reasons why you've seen retailers like Next and M&S publicly talk about the relative strengths of this subsector. And also, while there's been more activity in the investment market, where there's increased appetite for assets with logistics potential, but also where values are supported by more sustainable cash flows underpinning the approach to leasing I set out earlier. I'd like to leave you with a couple of case studies, which demonstrates our approach at these kind of assets. Milton Keynes, where we have 50,000 square feet of new deals under offer, including 20,000 square feet to a well-known discount food retailer for a new 15-year term at September ERVs. And Nottingham, where with nearly 30,000 square feet of deals under offer for 10-year terms, again, at ERV. And where this year, we opened a new 60,000 square foot M&S. The majority of this space came back to us through CVAs or administrations over the past couple of years. Both parks have seen ERVs rebased since peak by over 20% to the point where we can now transact on multiple lettings. Both will soon be 100% full, and both will have average forecast total occupational cost of sub-12%. Two great examples, which demonstrate the strength of the assets and our approach to deliver more sustainable rents long term. Thanks, and back over to you, Simon.

Thanks, Darren. So what's our competitive edge and how do we make the most of it? Returning to be over 2018, I was struck by the strengthened depth of expertise right across the business from asset management and property management, development, finance, investments and technology. We have best-in-class, fully integrated capability, combined with our proven track record to innovate and work with partners, it's a real competitive advantage. And that's before factoring in our unique mixed use campuses, attractive development pipeline and long-term commitment to ESG. It's clear to me that when we combine all these elements, we deliver the best value for our shareholders. Let me give you a few examples. Development. In the last 10 years, office developments generated GBP 1.8 billion of profits. That's through iconic buildings like Leadenhall, 5 Broadgate and Clarges, and some of the smartest, most sustainable space in London. Paddington is a great example of all our skills at work. We acquired it in 2013. We invested in the public realm, developed new space, added storey and really capitalized on its canal side location with cafés, bars and restaurants. As a result, it outperformed IPD by 100 basis points per annum over the last 5 years. And only a few weeks ago, we received planning for 5 Kingdom Street, adding more potential and more optionality. Retail is clearly tough at the moment. But that's where our deep asset management capability really comes to the fore. As you've heard from Darren, our assets are outperforming operationally. We've collected more rent than others. Our range of capabilities also enables us to innovate at pace. You've seen that at storey where we rapidly built a market-leading business in standing start in 18 months. It was similar at Clarges, which was an opportunistic purchase, and we quickly developed the expertise to deliver super prime residential. The scheme has delivered more than GBP 200 million in profit, which we've now locked in with the sale of the Offices and Retail. Broadgate is another example of our innovative and nimble approach. Coming out of the GFC, many thought the challenges facing financial services would adversely impact the performance of this asset. But in a short space of time, we successfully repositioned the campus to attract a new type of occupiers. This involves embracing the vibrancy of nearby shortage in special fields, creating great places to eat and drink, developing high-quality and sustainable buildings and enhancing the public realm. This ability to innovate will be key to our future success. Another important strength is the way we work in partnership with the likes of GIC, Oxford Property launch. Partnerships give us access to new opportunities, enhance returns, mitigate risk and support investments in our platform. These are the key things what that does really well. They play to our broader purpose, places people prefer. And when we focus on them, we deliver most value. Building on these strengths, I want to talk about my priorities for the business. You can see them on the slide. Realizing the potential of mixed use, progressing value-accretive development, addressing the challenges in Retail, all led by active capital recycling. I'll go through these in turn, starting with mixed use. Our mixed use especially will remain at the core of what we do. It complements our skill set. It's what our customers and their people increasingly want. And it gives us the ability to tilt our offer to the sectors with the best fundamentals. We've seen that at Broadgate, where we look to do the same elsewhere. Regent's Place is a good example. It's proximity to the Knowledge Quarter home to over 100 academic, cultural, scientific, media organizations, positions us well to benefit from the expected strong demand in life science business. And at Canada Water, we have an amazing opportunity. Our permission is flexible within build optionality. At deliberate, it means we can change the mix to respond to demand through the cycle. This brings to my next priority, progressing value-accretive development. We have 8 million square foot of opportunities within our portfolio. Options we've created over the last few years at low cost. The majority are income producing. We can progress them rapidly when it makes sense. This combination of optionality and flexibility is key. And most are in and around our campuses, so it's another way to further enhance our core business. Importantly, we're building more sustainably than ever before. You'll remember, I set out our 2030 sustainability strategy in May. Our included commitment to be net 0 by 2030 and to half embodied carbon in our developments. Norton Folgate is a great example of that. Embodied carbon is low at 540 kilograms per meter squared, and it's operationally efficient. Increasingly, that's what our occupiers are looking for. It's also fantastically located adjacent to our Broadgate campus, but clearly distinct and reflected with Shoreditch home. So it's exactly the sort of space that will succeed going forward. And we have further opportunities in our pipeline. That brings me to Canada Water. Here, we were delighted to achieve planning earlier in the year. We expect to draw down the headlease before Christmas. We've successfully overcome the JR process and maintain momentum by commencing enabling works for phase 1. So market conditions permitting, we're in a position to place build contracts in spring. We're looking at a range of uses, and we're delighted that TEDI, the university's partnership will be delivering their engineering curriculum from the [ different works. ] As you can imagine, given the unique nature of the project, we've been approached by many investors. And when COVID restrictions allow, we will look to capitalize on this by kicking off formal process to bring in high-quality parks. Turning now to Retail. Here, we're combining a very active asset management approach, as Darren explained, with a clear plan to recycle capital into our mixed use London business. We're prioritizing securities cash flow over rental time, so we're accepting lower rents where that makes sense. In a low interest rate environment, a underpinned value and liquidity positioning us well to deliver on our plan. You've seen us continue to sell assets, and we've been smart in our approach. By carving out the Tescos, Peterborough and Milton Keynes remain to sit on a yield of around 9%. That should be attractive in any environment. And just last week, we did the same again at Beaumont Leys [indiscernible]. It's another example of the innovation I've talked about earlier. We will continue to be disciplined to deliver best value for shareholders. Alternative and additional use are another avenue we are pursuing to generate value in Retail. It will not work in all locations, but our initial assessment is that we have more than 1 million square foot of retail space in surrounding land, which we could convert into nearly 2.5 million square foot of logistics, residential and office space. A good example is the surrounding land Meadowhall. That's 440,000 square foot, we think could be repurposed as logistics. We have a similar opportunity at Teesside. So these projects are at a very early stage. We won't expect to do all of them ourselves. Some will work well in partnership. Others may be better sold, but the progress we're making helps to underpin value. Additionally, we would explore the logistics opportunities at retail parks, given rents for these 2 classes are beginning to cross over in certain locations. Underpin a little bit is the way we manage our capital. Since the start of the pandemic, we've executed more than GBP 450 million of retail disposals, we're under offer or more, and we are progressing opportunities to realize value from our stand-alone offices. You've seen us do that today [indiscernible]. We will look to maintain this momentum to crystallize value from mature assets and those that don't aligned to our core focus on mixed use recycling these opportunities in our portfolio and across the market. We'll maintain our balance sheet and financial strength. It's fundamental to how we run our business because it means we can progress development at a time when others are unable to do so. And finally, we'll look to capitalize on our strong reputation, partnering with others to recycle capital. Before I wrap up, I'd like to say a few words on the outlook. No one knows the extent and duration of the pandemic. But as we stand here today, our view is that in offices, occupational markets were we have tough in short term. As you've heard from Darren, occupiers are postponing decisions where they can, and the supply of grey space is up. So the market forecasts the prime rents to be down by 5% to 10%. The supply of new space on the other hand will remain constrained. That's where we're seeing the strongest demand. This increased polarization towards modern, high-quality and sustainable space is one clear outcome from the pandemic. It's what we're delivering, so we'd expect our portfolio to outperform. It's encouraging that the investment market seems to be taking the long view. Large prime London buildings are currently changing hands within 5% of pre-COVID pricing because investors believe in the long-term appeal of these assets and in London's future as a global city. And in a low interest rate environment, with yield comparing well to other European cities, there might be income. In Retail, rents will continue to fall. We're expecting a further decline of 10% to 15%. Based on recent letting activity, we think rents will stabilize first on retail parks and then later on shopping centers. And we expect this to be replicated in the investment markets. Already we're seeing appetite return for retail parks, but we think it could take longer for liquidity to return to shopping centers and for asset values to stabilize. So let me leave you with a reminder of our 4 key priorities: realizing the potential of our mixed-use assets, progressing value-accretive development like Canada Water, addressing the challenges in retail to improve liquidity, all linked by more active capital recycling. We'll be smart in our approach, innovate at pace, and already we're delivering in each of these areas. Underpinning all this is our financial strength and the key ingredients I talked about earlier, our best-in-class platform, our ability to innovate and to work in partnership, our unique campuses and attractive development pipeline and a long-term commitment to sustainability. Thank you. We're happy to take any questions. Now I'll hand over to David for the questions.

Thanks, Simon. Okay. Before we move on to questions, because we are doing this by conference call and over the web today, can I please just ask a couple of things. [Operator Instructions] I think, first, let me hand you back over to Katie for questions from the phones before I take any questions we've had online.

[Operator Instructions] Our first question is from Sander Bunck from Barclays.

Two questions from me, please. The first one is actually on the HUT Group. And I believe there is an imminent folks where there's going to be a decision whether to extend or wind down the JV. Can you just share some thoughts here on what you expect to be doing here over the next couple of months? And the second one is -- and I kind of -- it's a broader question, but you mentioned that you expect forecast for prime rents to fall by 5% to 10%. Do you have also any idea of secondary rents? And is it fair to assume that kind of values in your mind, follow that path? Or do you actually believe that there could be some yield compression on the other hand to kind of mitigate some of those value drops? And that kind of plays in to a slight follow-up question in terms of how are you thinking about your development, the 8 million square foot development pipeline in that regard?

Sander, thank you for those questions. I'll -- I think there were 3 there. So I'll run through those. On the first question related to the HUT Group, you're right, there's an extension vote in February. We clearly have external investors in that vehicle. So it's probably not right for me to reveal our intentions. But what I would say is, clearly, we've seen the relative outperformance of parks. They performed well in terms of footfall and sales. A lot of our leasing activity looking forward is on those parks. So they're an important part of our portfolio going forward and some of the best parks are in HUT. On your second question, which I think was around the London Office market and the outlook for the rents. I'll give an initial view and then maybe hand across to Darren to add a bit of color to that, if that's okay. So on the rents here, we've said prime rent forecasts at the moment are down, say, 5% to 10% over the next 12 to 18 months. As I flagged in my prepared remarks, we think that our portfolio will do better than that because we think for the type of space that we're delivering, particularly new space, that's where the demand is and there's likely to be a bit of a pinch point there. But I think you're right with your assessment that the secondary space because we are seeing quite a lot of it go on to the market, as Darren flagged, that we could see more softness there. And then linking all that together via yield, I think at the prime end, you may see yields moving in the opposite direction to offset those rental declines, as we said, the investment market remains strong. We've seen transactions take place at or around pandemic pricing. And clearly, with crisis today, we've sold an asset 7% above book value. I don't know, Darren, if you want to expand on that.

Yes. Sure. As Simon said, in terms of the secondary market, that has been a huge release of space, 74% now secondary, highest level since 2004, to put that in perspective that's over GBP 19 million in terms of total availability. So it's a lot of secondary space. And the vast majority of it is 10,000, 20,000 square foot floor plates, unrefurbished. So a much different type of quality to the asset in terms of floor plates we are going to be marketing. And I would remind you as well, a lot of these assets -- a lot of these floor plates available, not on campuses, which we think is going to be a big advantage.

Thanks, Darren. And then, Sander, I think the last question was around the 8 million square foot development pipeline. Is that right?

So yes, how that expectation ties into that, yes?

Right. Well, I think it's all linked to the point that Darren was making around supply of new space being constrained, and that's what's giving us the confidence to commit to Norton Folgate today. This is going to be a great scheme, I think if we delivered right into where we think that will be a pinch point.

Our next question comes from Colm Lauder from Goodbody.

Just 1 question from my side. And I was wondering if you could share a little bit more detail on some of your disposals and particularly on the Retail side, just noting in the results commentary that you'd achieved an average premium to book value or at least the last valuation of 6.7% across those sales. And I was curious to understand in terms of what sort of breakdown you could share across various elements of those disposals. So obviously, there was quite sizable grocery-led assets sold in terms of the Tescos and Sainsbury's plus a mix of B&Qs. And I was wondering what sort of light you can shed on the premiums between those property types or discounts? Is this a situation given the liquidity within the grocery-led investment market that the Tescos, et cetera, has achieved quite significant premiums and perhaps the B&Qs have been at a discount?

Colm, thank you for that question. Happy to share a bit of detail there. Actually across the disposals, they were all effectively sold premiums to book value and quite similar premiums from memory, 5% to 10%, and that's across both the B&Qs and the superstore disposals.

And I would -- Colm, just a follow-up on that. While you're digging into this area, it's worth kind of pointing out that those residual valuations that we're left with, once we've disposed to the food stores on these parks and one of them in the case study I gave means that you're chucking off in effect in excess of 9% initial yields on the residual part you're left with compared to yields in the early 7s that we've got in our valuation. So we think that's evidence as well in itself.

[Operator Instructions]

Thanks. We've got a few onlines, so perhaps we'll take these in the meantime. First here is from Miranda Cockburn of Panmure Gordon. I think this is for Darren. Can you give the range of rent per square foot on your retail park portfolio? And what percentage of retail park tenants or fashion versus discounters, et cetera?

Well, I'll take those 2 in reverse order. In terms of the broad spread and on the sectors, we've got about roughly 25% of our retail occupiers are in the kind of fashion space. We don't break out specifically for discounters. We might be able to get a figure to you. We generally tend to put those under general merchandise or in the food store categories, which combined are about 20% of our portfolio. In terms of the spread on rents, it can be anything on our retail parks from GBP 15 a square foot all the way up to GBP 60 to GBP 70 a square foot. But that's in the minority. That tends to be on a very, very small unit of a 1,000 square feet, for example, where we're quite successful recently carving up and driving those economics. The average for the portfolio will probably tell you a lot, which is in the kind of early 20s. And we've already seen since peak 2017, 2018, about 25% decrease in those ERVs to the point where we can now transact on the volumes that we're presenting this morning.