NewRiver REIT plc (NRR) Earnings Call Transcript & Summary

Good morning, everybody, and welcome to our full year results. As usual, I will start with an overview of last year, and then Mark will take you through our financial results, followed by the operating performance of Hawthorn. I will then finish with the retail operating performance and our outlook for FY '22. Since I spoke to you in November, we have continued to prioritize the safety and well-being of our staff, occupiers and pub partners whilst tackling the ongoing challenges posed by COVID. The dedication and hard work of my colleagues at NewRiver and Hawthorn ensured that we successfully navigated this period. The key priorities we have successfully delivered on have been: supporting our stakeholders across the business through extensive engagement to mitigate the impact of COVID; enhancing our cash and liquidity position through a laser focus on rent collection, tight control on CapEx and a targeted disposal program; ensuring strong leasing to support occupancy, rents and valuations and completion of a full strategic review to ensure the long-term resilience of our portfolio. Additionally, we have continued to prioritize our ESG strategy, formalizing our net zero carbon pathway and offering enhanced support to our local communities and charity partner, the Trussell Trust. Following the year-end, we also announced our intention to divest of our Hawthorn community pub business to significantly improve our financial strength. In recognition of the improving macro environment, our best-in-class operating platform and enhanced liquidity, the board has approved the reinstatement of the dividend. COVID has inevitably had a significant impact on our financial performance, particularly in our pub business, which was closed for much of the year, and this was reflected in the reduction in our underlying funds from operations to GBP 11.5 million. Our portfolio value declined by 13.6%, which, while significantly less than our peers, has driven the reduction in our net tangible assets per share to 151p from 201p last year and has edged up our LTV to 50.6% at year-end. That said, we saw an improvement in our valuation performance in the second half of the year with our retail park portfolio, in particular, returning to capital growth. I will cover our valuation movements in more detail later in the presentation. At the outset of the pandemic, we moved decisively to protect our cash and liquidity position by drawing down on our RCF, accelerating our disposal strategy, reducing nonessential capital expenditure and suspending dividend payments. We successfully reached our disposals target, completing over GBP 81 million of sales during the year, which helped to offset our LTV increase. We continue to dispose noncore assets. So far in FY '22, we have GBP 79 million of assets exchanged or under offer. And these disposals, in combination with the Hawthorn transaction, will deliver a material reduction to our LTV. We closed the year with increased liquidity of GBP 199 million, up from GBP 127 million at the start of the period. Our full year operational performance has been strong, demonstrated by the metrics on the right of this slide. Rent collection in our retail portfolio has been remarkably robust, which, combined with our disposal program, has contributed to our improved cash position. One of the main aspects of our stakeholder engagement program involved proactive and fair discussions with occupiers across our estate. We negotiated over 300 rental payment agreements with those occupiers affected by restrictions, which supported an overall retail rent collection rate for the year of 93%. Leasing momentum has been particularly strong over the year, with volumes up over 70% compared to the prior year and transacted in line with ERVs and only slightly below previous passing rent. This strong leasing performance reflects our focus on convenience assets, our affordable space and the high level of essential retail within our portfolio. As a result of our high volume of leasing activity, our occupancy rate increased to almost 96%. Our community pub performance has been excellent since we reopened on the 12th of April, mirroring the bounce-back we witnessed on reopening last July. The support we have offered our pub partners has also led to a high occupancy rate of 98% and ensured a swift recovery. Finally, our strong operational performance, unsecured balance sheet and improving market backdrop has led to the board's decision to reinstate the dividend. Based on 80% of UFFO, this translates to a full year dividend of 3p per share. We have 3 main operational objectives for the year, one of which was protecting our retail and pub revenues. We achieved this through robust rent collection on the retail side, supported by our affordable rents and our portfolio's focus on local convenience and essential retail. Approximately 66% of our occupiers remained open throughout the year. Our community pubs were only open for 17 weeks of the year, and this had a significant impact on their financial performance. That said, we used the period of enforced lockdowns to invest in improving the outside space and amenities of our pubs. 86% of pubs had new investment in the first half. And across the full year, we invested almost GBP 8 million in making sure that our pubs were ready to welcome back customers on reopening. As a result, our pubs have bounced back very quickly following reopening on the 12th of April. Our capital partnership with BRAVO, another key focus area, continued to expand during the year with the acquisition of our retail park in Sprucefield and of The Moor in Sheffield. In total, the BRAVO Capital partnership holds assets of GBP 193 million, of which NewRiver share is GBP 44 million. Our annualized asset management mandate income now stands at GBP 1.3 million. Finally, we achieved our disposal targets set at the start of the year and disposed of GBP 81 million of assets. We have a further GBP 79 million of asset sales exchanged or under offer. These remaining disposals will contribute to a further reduction in our LTV. Whilst NewRiver's portfolio has proved so far to be more resilient than the wider market, particularly during the pandemic period, consumer behavior is evolving and the future is one of significant change. With that in mind, we have completed a comprehensive strategic review of our portfolio, which provides us with a clear view of what resilient retail needs to look like. Delivering our strategy is in 3 parts. We will divest ourselves of our community pub business in order to reset our LTV and provide the firepower to reshape our retail portfolio. We will sell our noncore retail assets and recycle the resulting capital into resilient retail. And we will transform our regeneration assets to create long-term value by jointly working with sector specialists and appropriate capital partners. Our clear strategic aim is that by 2025, assets in our portfolio will display only the characteristics of resilient retail, transforming NewRiver into a more agile business delivering attractive returns to shareholders. We look forward to providing more details regarding our retail strategy at our Capital Markets Day in September. As I mentioned earlier, we're very pleased to announce the reinstatement of our dividend, which we recognize is of great importance to our shareholders and a strong endorsement of the board's confidence in the company. Under our new policy, we will, from today, be paying out 80% of UFFO as dividends to shareholders, thereby linking dividends directly to UFFO. This new policy will ensure that our dividend reflects underlying trading conditions and will enable NewRiver to make appropriate capital and operational decisions to reflect the best interest and long-term future of the business. In accordance with this new policy, we have today announced a dividend for FY '21 of 3p per share. Going forward, we will pay dividends twice per annum, announced with our half and full year results, and based on the UFFO reported for the most recently completed 6 months. And where required, we will top up the dividend at the full year to ensure compliance with the REIT rules, meaning the blended payout may be a little higher than the 80% headline. As well as recognizing the importance of a sustainable dividend, we remain committed to strengthening our ESG credentials. We are proud that our assets and operations located in the heart of communities could offer some support during a year of extreme uncertainty and hardship for many. Some of the initiatives we undertook this year include security teams delivering shopping to those shielding, pubs converting into pop-up village shops and temporary units being used as vaccination centers to support the NHS. We made further progress during the year and agreed our 3-step net-zero carbon target. Transitioning to a low-carbon model helps to manage our portfolio's exposure to climate risks and ensure the long-term resilience of our business and wider community. Our approach focuses primarily on reducing the energy demand across our properties and increasing procurement of renewable energy. We will provide further details on our net zero carbon pathway and its impact on our operating model and capital allocation decisions later this year. Now I'd like to hand you over to Mark to take you through the finance review and the business review for Hawthorn.

Thank you, Allan. Good morning, everybody. I'd like to start this morning by talking you through our key financial highlights for the full year. Over the last 12 months, our #1 financial priority has been to maximize our cash and liquidity position. We have done this with success, and this is a key factor in being able to reinstate our dividend, which we announced this morning. Starting with our cash and liquidity position. We successfully ended the year with almost GBP 200 million of unencumbered cash and undrawn facilities, which is an increase from just under GBP 130 million at the start of the financial year. This is principally due to our actions, disposal of over GBP 80 million of noncore assets during the year, in line with the target we set ourselves in June 2020, and due to our portfolio position with our focus on essential retail, providing mitigation for the fact that our pubs were not able to trade properly for much of the financial year. Our balance sheet remains fully unsecured. This has been crucial during the year in providing the operational flexibility and covenant-light structure to navigate our way through the last 12 months. Our LTV is above our policy, driven by the valuation decline we've experienced during COVID, but it's still significantly below our financial covenants, and we have good headroom. We've managed to mitigate the valuation decline impact through disposals. We've also taken the proactive decision to divest of our community pub business and on the 14th of April, announced we were considering an IPO. This will have a beneficial impact on our LTV in the future. Finally, we've announced the resumption of our dividend, a decision supported by our improved cash and liquidity position and our confidence looking forward. We have remained profitable during the year, and our dividend policy will be linked to UFFO to ensure that we will not be in an overpayment position in the future and remain REIT-compliant. Now on to the financials, starting with underlying funds from operations. In a year of enormous disruption, we remain profitable, generating underlying funds from operations of GBP 11.5 million compared to GBP 52.1 million last year. This was largely due to a reduction in gross revenue as a result of COVID restrictions and lockdowns, in particular, lost income from the closure of our community pubs for much of the year and associated support we gave to our pub partners and operators. Other income of GBP 7.2 million includes insurance proceeds, dilapidation payments and the receipt of GBP 3.7 million of grants in respect of our operator-managed pubs. Administrative expenses have increased due to investment made into our pub operating platform in support of acquisitions made in FY '20 and due to increased compliance costs as a result of COVID. Net finance costs increased from GBP 22 million in the prior year to GBP 23.7 million this year due to a conservative decision to draw additional RCF at the beginning of the pandemic to hold as cash. Lastly, due to the ongoing uncertainty caused by COVID, we took the right decision to suspend the dividend in March 2020, but we have today announced a reinstated dividend of 3p per share and a new dividend policy linked to UFFO. Looking now in a bit more detail at our net property income. This bridge shows the key movements across our retail portfolio with net property income reduced from GBP 68.4 million to GBP 47.2 million during the year. Like-for-like rental income declined by GBP 3.4 million with around half of this impact due to CVAs and administrations that occurred in the prior year, principally Bonmarché, Mothercare, Clintons and Monsoon. The next item is CVAs and administrations that occurred during FY '21, which reduced net property income by a further GBP 2.4 million, principally related to New Look and Peacocks. We increased our provision in relation to retail rents and service charge by GBP 5.6 million, reflecting amounts that we deem unlikely to be received as a result of COVID. This means that around 50% of our retail trade debtor balance was provided against at the year-end. This is a conservative approach. A further GBP 1.6 million relates to lease modifications, for example, where we have offered a rent-free period to our retailers as part of a COVID-related negotiation, often in return of a settlement of arrears or removal of upcoming tenant breaks. Car park and commercialization income has declined by GBP 5.6 million, just under 60%, reflecting reduced footfall across town and city centers during the national lockdown periods experienced through the year. Additional income from acquisitions of GBP 2.1 million related to a full year of revenue from assets acquired in our joint venture relationship with BRAVO and the acquisition of Sprucefield Retail Park in FY '20. This is offset by the GBP 2.2 million of lost income as a result of our disposal program in FY '20 and FY '21. Finally, the GBP 0.3 million in asset management fee income reflects our focus on our asset management platform by managing assets in joint ventures. This is an area we have grown in the year. We expect to see continued growth in the future, not least thanks to the acquisition of The Moor in Sheffield in the BRAVO JV, which we completed post year-end. Turning now to our community pub portfolio, where net property income reduced from GBP 24.5 million last year to just GBP 1 million this year. As you can see from this chart, the vast majority of this decline was because of the mandatory closure of our pub portfolio from March 2020 for a good proportion of the financial year. It's easy to forget, but in England, where the vast majority of our pubs are located, we experienced 7 months of national lockdowns, including 4 in the second half, 2 months of the tiered system again in the second half and only 3 months of normal trading over the summer. We were only able to trade for 17 weeks. And looking at the impact of COVID-19 further, the lost income from the closure of our pubs reduced income by GBP 14.6 million. A further GBP 8.7 million was spent on support packages, including rent relief for our pub partners to ensure they were in the best possible position to reopen, and a further GBP 0.4 million was incurred in the destruction of beer. Without question, it has been a challenging year for Hawthorn, but I'm pleased to be able to say that, in spite of the disruption to trade, Hawthorn was cash flow positive in the year, including completed disposals and the exit from our managed pub estate. And when we were able to trade, the pubs did bounce back strongly. And we are seeing that again post balance sheet, particularly now that our pubs were able to trade indoors and outdoors. Turning now to our balance sheet, which remains fully unsecured with all assets unencumbered. Our unsecured balance sheet is one of our key strengths as a business, and the uncertainty caused by COVID has proved this more so than ever. Our balance sheet provides us with significant flexibility, headroom and the ability to navigate these very challenging market conditions. Our EPRA net tangible assets per share reduced from 201p at 31st March 2020 to 151p per share at 31st March 2021, due principally to 13.6% like-for-like decline in portfolio valuation. And Allan will talk about that in more detail shortly. Thanks to our strong progress in rebuilding our revenues, increasing our cash position materially and our selective disposal program, loan-to-value increased to 50.6% from 47.1% at the start of the financial year, with the increase due to property revaluations, offset and mitigated by our actions as we successfully completed GBP 81 million of disposals. Finally, the company ended the year with an even stronger cash and liquidity position than at 31st March 2020, with GBP 199 million of cash and undrawn RCF and including GBP 154 million of unrestricted cash and further available credit facilities. We are also making good progress with a clear plan to bring our loan-to-value back down towards 40%. Turning to our LTV, which has increased from 47.1% at the start of the year to 50.6% at the end of the financial year. You can see valuation decline was the main reason for the increase, adding 280 basis points in the second half of the year, following the 410 basis points in the first half. We were able to mitigate over half of the decline through our successful disposal program, which reduced LTV by 350 basis points. So we end the year with an LTV ahead of our policy and guidance, but we do have a clear plan with a high degree of confidence on the pub and retail side of the business. Putting our LTV in the context of our debt covenants, although at 50.6% is above our policy, we do still have a significant covenant headroom, and our unsecured structure allows us great flexibility. Our successful disposal program also helped us to significantly reduce net debt from GBP 564 million to GBP 493 million at the year-end with further noncore disposals underway. This table provides some further detail on our spot covenant headroom. And you can see we are able to absorb significant further reductions in portfolio valuation and net property income before approaching our covenant levels. Our scenario analysis shows more stability in future valuations and returning net property income. This is before factoring in further disposals we plan to complete in the short term. And lastly on this slide, it was also very pleasing that Fitch reaffirmed their investment-grade rating in the period at BBB+ with a stable outlook. Our income collection stats, capital structure and retail portfolio differentiation with exposure to essential goods and services were key factors in determining this successful outcome. Finally, on the balance sheet. This slide demonstrates our strong maturity profile and the flexibility that our debt maturity provides to the company, with no refinancing events until August 2023 and beyond and our GBP 300 million unsecured corporate bond not due for repayment until 2028. Over the past year, we've maintained a continuous dialogue with our lenders, and I'd like to take the opportunity to thank them all for their tremendous support during this challenging period. At no time when we had to see covenant waivers on our balance sheet facilities, and we've maintained a strong relationship with all of our banks. In the coming months and in light of the disposals we currently have under consideration, we will continue this strong engagement with our banks as we consider our debt requirements going forward and maintaining our investment-grade rating. Now I would just like to provide an operational update on Hawthorn, our community pub business, where our pubs have only been able to open and trade for 17 weeks of the year and have been subject to significant restrictions on trading capacity even when open and trading. We bounced back strongly last July, and I'm pleased to report that we've seen a similar good recovery following the easing of restrictions on the 12th of April. Over 90% of our pubs are now open, and the investments we made in our pubs during the lockdowns are already paying off, as evidenced by recent performance and customer feedback. The divestment we announced in April has generated significant interest. It has certainly been keeping us busy, and this is a testament to the strength of our platform and our team, the growth potential, strong balance sheet and the quality of our pub partners across our estate. Throughout an incredibly challenging year for the sector as a whole, our main priorities have been to protect our people and support our pub partners across our leased and tenanted and operator-managed estates and to protect Hawthorn's financial position to enable a swift recovery on reopening. We offered substantial support to our partners, making rent concessions and helping them access government support grants. I would note that the furlough money we claimed during lockdown was repaid to HMRC in light of our resilient performance. We also invested GBP 8 million in improving our pubs, and our business development managers were constantly on hand to provide practical advice regarding the reopening process. Despite a challenging market, we made 45 individual noncore pub disposals and 2 convenience store disposals, generating GBP 13.8 million of cash proceeds and demonstrating the liquidity of our assets. Our disposal strategy has successfully delivered on our aim to exit our fully managed business, and post year-end, we deployed some of the proceeds into acquiring 14 high-quality community pubs from Everards. In terms of recovery, over 60% of our pubs reopened on the 12th of April, and this has increased to over 90% today. And since reopening on the 12th of April, our leased and tenanted pubs are trading at 98% of volumes versus the same period in 2019, and our operator managed sales are at 83%. Partner relationships are key to our future success, and we have generated enormous goodwill over the last 12 to 18 months. And this can be measured. And the dedication and talent of the Hawthorn team was recognized in the results of KAM Media's February 2021 Licensee Index, the leading operator sentiment tracker from the U.K. licensed and tenanted pub sector. Hawthorn's overall rating in this index, 8.5 out of 10, was the highest of all national pub companies. In the area of COVID-related support specifically, Hawthorn scored 9.2 out of 10, again, the highest among the national pub companies. The strength of our relationships with our tenants has been independently endorsed by the index, and I'm very proud of our high ranking. Now to finish with a couple of case studies, firstly, a leased and tenanted example. This is the Old Spa Inn in Derby, which is a community pub in a suburban location. It was an underperforming lease and tenanted pub, generating only GBP 9,000 of EBITDA. Following a GBP 72,000 investment, both inside and outside, where we've created over 100 new covers, we expect to take EBITDA to a minimum of GBP 37,000. But we have a fantastic partner here. And since reopening on the 12th of April, I actually visited the pub on that day, performance data suggests we will do much better than this, and at least GBP 50,000 of EBITDA is achievable. This has all been done off an original acquisition price of GBP 151,000. And finally, on the operator-managed side. The Brown Cow in Gateacre, Liverpool, another suburban location, is a great example of how we can generate superior returns. The pub was acquired for GBP 180,000. It was previously under managed and underinvested. And we took the bold decision to invest GBP 275,000, and we got great partners in to run this as operator-managed. Based on estimated sales of GBP 7,000 a week, we believe EBITDA from this pub will be north of GBP 100,000 per annum. And since opening on the 17th of May, sales have been very strong and well ahead of forecast of between GBP 10,000 to GBP 14,000 per week. And it's the flexibility of our business model and being able to convert a high-potential pub to operator-managed that enables us to maximize our returns. And on that positive note, it's my pleasure to hand you back to Allan.

Thanks, Mark. Our portfolio positioning and occupier profile has clearly been a great benefit during the pandemic period. Our portfolio is focused on local convenience and essential retail. And for many years, we have deliberately limited our exposure to mid-market fashion, department stores and casual dining, those sectors which have been most impacted during the pandemic. Alongside our portfolio positioning, the diversification across our portfolio has insulated us from the impact of CVAs and administrations, and our affordable sustainable rents have supported our high rent collection, leasing and occupancy metrics. Our rent collection has been market-leading with a blended retail cash collection rate of 86% across all 4 quarters, which rises to 93%, including rent either deferred or subject to regear. We achieved this despite the U.K. government's moratorium on enforcement action being in place for the entire year. Our excellent rent collection is testament to our strong, long-standing relationships with occupiers. It also reflects the local and essential retail focus of our occupiers, many of whom have been able to operate throughout the pandemic. Rent collection for the first quarter of FY '22 currently stands at 85%, tracking ahead of the same point last year. Now I'd like to turn to our leasing activity, where we had a remarkably active year, completing almost 1.2 million square feet of new lettings and renewals across our retail portfolio, up over 70% from last year and thus securing GBP 6.5 million of annualized rent. Our high volume of leasing activity has contributed to an increase in our occupancy rate to almost 96% and demonstrates the enduring appeal of our retail assets to those occupiers for whom a physical store is of critical importance. We completed several leasing transactions with B&M in the year and agreed further leases with many occupiers, including Homebase, Marks & Spencer, Wren Kitchens, The Works and Costa Coffee. Interestingly, during the third quarter, Next opened one of its first collection and return pods in our retail park in Dumfries, demonstrating the increasing importance of retail parks for Click and Collect. Importantly, long-term leasing deals were in line with values ERVs and only 3% behind previous passing rent. We saw progressive improvements in leasing pricing achieved in the final 2 quarters of the year. This is a significant achievement during a tough year for asset owners and retailers alike. Reassuringly, our ERVs show clear signs of stabilizing, and this helps to explain why our valuations outperformed the wider market. During the year, we secured over 436,000 square feet of planning consent despite the considerable planning delays and disruption caused by COVID. Some of the key projects include Burgess Hill, where in September 2020 the council approved our revised planning application for our mixed-use regeneration project, increasing the residential provision and reducing retail space. In Wallsend, planning consent was granted in February for the development of a new medical center. The land is now under offer to a primary care property specialist, and the center is expected to open next year. At Newton Mearns, we secured planning consent for a 10,000 square foot extension to accommodate a gym operator. In Dewsbury, we have signed an agreement to lease with Aldi to occupy 19,000 square feet unit, following planning consent in March, and we intend to start on site in late summer. We're also accelerating our preplanning pipeline with residential health and leisure projects at Grays, Fareham and Witham. Moving now to capital allocation, where our primary focus was on our disposal target. We achieved this at good pricing levels and enhanced our cash and liquidity position as a result. Disposals were concentrated on assets where we have successfully completed our business plans, or where we sold into our capital partnership with BRAVO. The success of our disposal program highlights the inherent liquidity in our portfolio as a result of the lower-than-average capital sizes. Our investment priorities during the year were focused on our disposal program, and acquisition activity was -- I don't know -- sorry, I'm starting on this one.

Slide 29?

Yes. Okay. Moving now to capital allocation, where our primary focus was on our disposal target. We achieved this at good pricing levels and enhanced our cash and liquidity position as a result. Disposals were concentrated on assets where we had successfully completed our business plans or where we sold into our capital partnership with BRAVO. The success of our disposal program highlights the inherent liquidity in our portfolio as a result of the lower-than-average capital sizes. Our investment priorities during the year were focused on our disposal program. And as such, acquisition activity was therefore rightly limited. However, our successful capital partnership strategy allowed us to take advantage of market dynamics, while limiting balance sheet exposure. And in February, we exchanged on a 10% interest in The Moor Sheffield as part of a GBP 41 million acquisition by BRAVO. In relation to capital expenditure, we exercised a prudent approach, investing nearly GBP 5.3 million across our retail assets. Value-accretive projects included the construction of drive-thrus for Burger King and Costa in Barry, which will improve footfall and dwell time; the creation of a new larger B&M store in Blackbird through amalgamating 2 unoccupied units and landlord works in Newport and Hull, which enabled subsequent lettings to Food Warehouse and B&M. Turning now to the key valuation movements during the year. Valuations across the retail sector have been impacted by COVID, with yield expansion and ERV declines being the main driver. We have not been immune to COVID-related factors, but our portfolio has significantly outperformed the sector as measured by MSCI, which is a reflection of our portfolio focused on a central local-based retail, the superior liquidity that we have in our portfolio and that the alternative use value is now higher than our retail values. Our valuation performance also improved in the second half, supporting our view that our valuations are now close to stabilizing. Pleasingly, retail parks have returned to capital growth in the second half, reflecting increased liquidity in that sector. Our core shopping center portfolio saw a valuation decline of 18% during the period. This was attributable to 89 basis points of yield expansion. And although the value has marked down the ERVs by 9.9% for the year, the decline in the second half was significantly lower. Our core shopping center portfolio is now valued off an attractive equivalent yield of 9.3%. And with very high occupancy and retention rates, we are confident that our values are close to stabilizing. Regeneration shopping centers experienced a lower rate of valuation decline, owing to the portfolio's significant alternative use value, especially for residential. The Work Out Shopping Center portfolio, which represents only 13% of our gross assets, experienced a 26.2% valuation decline. This decline was mainly market-driven by equivalent yields expanding by 206 basis points to 13.2% as ERVs were broadly stable, supported by elevated leasing activity. We remain committed to reducing our exposure to these work out assets through disposals and repositioning and are confident of making substantial progress this year. For a number of years, we've been tracking the alternative use value for our retail assets, which for our portfolio is mainly residential. As at the 31st of March, the AUV of our retail portfolio is GBP 767 million, which, for the first time, exceeds our retail values by 6%. Clearly, this partly reflects a reduction in our retail values, but also the increase in regional house prices. Our pub values have held up well. And despite the significant disruption to the pub sector, reported just 8.5% of valuation decline. This reflects their community aspect and lack of exposure to city center locations, which have been most impacted by the abrupt shift to working from home. Our operating performance over the last year has reinforced our belief in the underlying strength of our portfolio and platform. We closed the year in a stronger cash position with actions already undertaken to further reduce our LTV. The economic outlook is improving, driven by an anticipated sharp rise in consumer spending, and liquidity is returning to the investment market. Our valuation performance in the second half gives us confidence that our values are starting to stabilize and our recent leasing volumes and pricing further support this. We're excited by the growth opportunities that our relationship with BRAVO presents, and we're exploring ways to strengthen this in the future. With the benefit of an improving market backdrop, a strong and flexible balance sheet and the insights gained from our recent strategic review, we have entered the new financial year with genuine optimism. Thank you. [Audio Gap]

And then I'll bring in Mark for your second question. As you're aware, in early April, we announced our plans to divest our pub business. And we said at the time that we would look at all options, including an IPO. The board and the executive team have been actively engaged in the process. We're very focused on delivering the best value for our shareholders. But I suppose it won't come as a surprise, Sander, that for regulatory reasons we can't really comment on valuation or timing. But what I can say is that we're pleased with the progress that we're making during this process. Mark, do you want to pick up?

Yes, my pleasure. Sander, it's Mark here. Just picking up on your second question, as you rightfully pointed out, it is a difficult question to answer for all the obvious reasons. I guess the points I would make is, in FY '21, for reasons that Allan and I set out this morning, has been challenging from an income perspective and from an earnings perspective, but we have remained profitable. Clearly, we would expect to see recovery in income and returning profitability in FY '22, the next financial year that you're referring to. There will be one key determining factors to what earnings look like under that base case. And in many ways, that's probably linked back to your first question, which Allan has obviously already addressed, and that would be the timing of a Hawthorn transaction because that will naturally have an impact on the earnings for the next 12 months. But Allan's gave an update there, I think, on progress that's been made. And at the appropriate time, we can obviously give updated guidance where we're able to on future income and earnings going forward. So I hope you understand that that's probably all I can really say at this moment.

We've had a couple of questions come in from Guillaume at Columbia Threadneedle. So the first question is, can you talk about your credit metrics versus Fitch's ratings thresholds, especially given how your ICR and leverage have fallen? And the second question from Guillaume is, given the likely strong cash flow rebound of the Hawthorn pub estate, what sort of valuation multiple would the disposal of Hawthorn be accretive or dilutive for credit metrics?

Guillaume, thanks for those questions. Mark here again. Yes, just on the first point, you'll have spotted no doubt from the statement this morning that Fitch reaffirmed our unsecured credit rating during the second half with a stable outlook, which clearly we're very pleased with. We always sit down with the team at Fitch at the time of results, and that meeting is upon us currently. In terms of the specifics of your question, our interest cover ratio, in spite of the challenges of the last 12 months, is still strong at over 2x. I think it's 2.3x of interest cover. Now compared to where we were a year previous at 4.8%, there's quite a bit to do to get back to that level. We're very focused on LTV. As you know, Fitch, as you also will appreciate, I know this, are less focused on LTV when they do their rating on us and other companies in the sector and look more closely at the ratio of net debt to EBITDA. I think it's important to point out that our net debt has reduced during the year by GBP 70 million. That's a real positive where we've seen net debt go from GBP 563 million to GBP 493 million. That's a clear statement that we're making here following the good progress that we've made with cash flow and liquidity over the last 12 months. Without going into too much detail on the mechanics of the Fitch rating, they would start to consider the outlook of our rating in the event that net debt EBITDA were to be higher than 8x on a look-forward basis. But do bear in mind that the actions that we are taking, we're very much on the front foot with Hawthorn and other things that net debt is going to come down as a consequence of the decisive actions in the next 12 months. So that's really, I think, the answer to that question. So one second -- the first question was again? Sorry.

The multiple.

So the multiple on the valuation?

Given the likely strong cash flow rebound of Hawthorn pub estate, at what sort of valuation multiple will the disposal of Hawthorn be accretive or dilutive for credit metrics?

Yes. I mean I'll come back to what Allan has already said this morning that we're obviously not in a position to comment on any valuation multiples. And at the appropriate time, we'll update the market on not just the timing of that transaction, but the impact on earnings and credit metrics.

Thanks, Guillaume. Hopefully, that addresses your question satisfactory this morning.

Okay. Next, we've got a number of questions from Tom, Liberum. So we will take those questions one at a time. So to what extent do you think ERVs have settled in retail?

Tom. Well, I can only really comment about NewRiver's retail portfolio. And we took a lot of reassurance over the last financial year around our leasing performance, where I mentioned earlier that we had transacted about 1.2 million square feet of leasing deals, which was up 70% on the previous financial year. And we were able to achieve those leasing transactions at a modest premium to March 2020 ERVs. And we did actually see progressive improvement as we move through the financial year, particularly in the final 2 quarters. So our own view is that our ERVs are close to stabilizing within our retail portfolio. And I think that's reflective of our portfolio positioning that we're focused on local convenience and essential. That's where the demand from occupiers is looking to go. And of course, our rents have always been affordable. We've always placed a high degree of importance around affordability. And I think that's why we have done very well on leasing. And that's reflected in the pricing relative to ERVs.

Okay. So on leasing, are the longer-term leasing deals completed? Are they at retail parks or shopping centers mostly?

Well, we saw good activity right across our portfolio, Tom. But in terms of the split between retail parks and shopping centers, it was around 65% in shopping centers and 35% in retail parks.

Okay. Can you give an indication on pricing on the FY '22 disposals under offer relative to the latest book value?

Well, the disposals that we've either exchanged or are under offer, Tom, are in line with our March '21 book values. And we are looking to continue with the sale of our noncore assets. We're seeing improved liquidity coming into the market, particularly in retail parks, but we're also seeing signs of increasing liquidity in shopping centers, which we feel will be supportive around achieving our disposal objectives this year.