NewRiver REIT plc (NRR) Earnings Call Transcript & Summary

Okay. Right. Well, good morning, everyone, and welcome to our Full Year Results Presentation. Before we go through our presentation, let me start by saying that over the years, we have carefully positioned our portfolio for the evolving consumer and retail trends where a physical store is vital. As a result, we have delivered another excellent operational performance and a significant total return outperformance versus our relative MSCI benchmarks. Arguably, we now have one of the strongest balance sheets in our sector with a low LTV, one of the lowest net debt-to-EBITDA ratios and one of the highest portfolio yield spreads. And finally, we have genuine growth options, including deployment of capital and the expansion of our very successful capital partnership strategy. So let's move on to our presentation. We ended our financial year in a strong position, having delivered a resilient set of operating and financial results in what was a challenging macroeconomic environment while simultaneously continue to execute our strategy. We've seen an improving market backdrop despite rapidly increasing interest rates in response to elevated inflation. The occupational markets have held up well with rental tension returning. And this is underpinned by a U.K. consumer who has proved to be more resilient than financial markets we're expecting. We saw active demand for space in our portfolio with a strong leasing performance, high tenant retention, our highest occupancy for 5 years and another period of leasing terms ahead of ERV. These operational metrics delivered a 26% increase in retail underlying funds from operations to GBP 25.8 million, delivering a full year dividend of 6.7p per share, 125% covered. Whilst the MSCI All Property and All Retail indices delivered minus 16% and minus 13% capital returns, our portfolio outperformed its retail benchmark by 660 basis points and 1,020 basis points on a total return due to the inherent high income component that we have. The like-for-like valuation movement of minus 5.9% was predominantly contained in our Regeneration portfolio impacted by inflation on estimated development costs. Our LTV improved further to 33.9%, supported by strong operational performance, resulting in excellent cash generation as we ended the year with GBP 111 million of cash, up from GBP 88 million last year. And this means our balance sheet is in great shape as we have no drawn debt maturity till 2028, and all of our interest costs are fixed. Finally, we are committed to delivering our ESG strategy and are making good progress. And that was one of the key reasons why M&G Real Estate chose NewRiver to manage a large retail portfolio on their behalf. Despite inflation peaking in October '22 and the rapid increase in interest rates, the U.K. consumer has proved to be more resilient than many people had feared. Very low rates of unemployment, excess consumer savings, rising wages and broadly stable house prices have led to an increase in consumer confidence. The value of retail sales has increased and is significantly above pre-pandemic levels. This is largely to be expected due to inflation, but encouragingly, the volume of retail sales has also recovered. Now clearly, consumers are not immune to the cost of living squeeze. And therefore, it is not surprising that consumers have been adapting some of their behavior. We've seen a growing trend of consumers purchasing more affordable versions of expensive equivalent products, downtrading to lower-priced grocery and seeking value options when eating out. And our portfolio is ideally positioned in that regard. Looking ahead, with an expectation of further easing in inflation to 5% by the end of 2023, real income is set to become positive in the second half of the year, underpinned by a strong labor market, and we expect living standards to rise by the end of 2024. As we said last year, the retail occupational market is, in our view, fitter, leaner and more agile than it has been for many years, and this has clearly shown in a significant reduction in tenant failures. That said, online pure-play operators have been more challenged by high inflation, squeezing already tight margins and consumers returning to the physical store. And this has led to an increase in pure-play distress. Consumers want to purchase goods when, where and how they choose. And omnichannel operator successfully cater for this with a physical store remaining very much at the core of the consumer journey, and our portfolio provides for this. Positive retailer sentiment is reflected in reduced vacancy rates over the last 12 months and an improving rental performance. Today, Retail Parks have a vacancy rate lower than industrial at circa 5%, which should drive future rental growth. As we highlighted in our half year results, the reduction in business rates from April 2023 will lower occupational costs and support rental levels. And whilst retailers still face cost challenges with higher wages and elevated energy costs, overall cost pressures should ease this year, supported by a reduction in supply chain costs. Within the wider capital markets, we've seen a decline in capital values driven predominantly by the recalibration of property yields to the increase in gilt rates. For retail, the impact of yield expansion has been less pronounced as current retail yields provide a significant premium to gilt rates. You can see on the chart, those sectors which did not provide a significant risk premium were the most impacted. NewRiver's yield portfolio premium is 200 basis points higher than the MSCI All Retail and 510 basis points higher than the 10-year gilt. And this is one of the reasons why we have outperformed in a volatile capital market. We have consistently expressed our confidence in our portfolio. And last year was no exception with an increase in occupancy, tenant retention and a strong leasing performance. As an example, from April 2020 to March '23, long-term leasing transaction secured GBP 15.4 million of annual rent equating to a 10-year compound annual growth rate of just minus 0.4%. Now given the extent of disruption within the retail sector over the last 10 years from the growth of online and COVID, our leasing performance over the last 3 years demonstrates the underlying resilience we have 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 valuation performance, which significantly outperformed MSCI experienced a like-for-like valuation movement of minus 5.9%. Our core Shopping Centers and Retail Parks delivered capital returns of minus 0.7% and minus 3.2%. We've now had 4 financial reporting periods of broadly stable valuations in our core Shopping Centers and Retail Parks. Our Regeneration portfolio experienced minus 14.1% valuation movement as a result of high inflation and rising interest rates on estimated development costs. Our Work Out portfolio, which only accounts for 11% of our total portfolio recorded minus 7.8% of capital return and which was in line with MSCI. 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 total return outperformance relative to the MSCI. Last year, our Retail Parks delivered a total return outperformance of 1,170 basis points. And our Shopping Centers, including Work Out and our Regeneration assets outperformed by 680 basis points. Over a 1-year, 3-year and 5-year period, our portfolio has consistently outperformed on income, capital and total returns, and we expect that to continue. We take our role as the custodians of assets within the community very seriously. And I'm delighted to report progress in the delivery of our ESG strategy as recognized by both GRESB and EPRA. In addition, we are fully MEES compliant. Achieving Net Zero within the retail sector very much relies upon mutual action between real estate owners and occupiers. The energy 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 57% of our lettable floor space is occupied by retailers that have already set emissions 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 financials.

Thanks, Allan, and good morning, everyone. It's my pleasure to be taking you through our full year results today, starting with the financial highlights. And we've delivered a strong recovery in underlying earnings this year with UFFO increasing to GBP 25.8 million compared to GBP 20.5 million last year, which is the retail comp stripping out the contribution from Hawthorn prior to its disposal. Because our dividend policy is linked to UFFO, this has led to an improvement in the fully covered dividend delivered by the retail portfolio, which has increased to 6.7p per share from 5.3p per share last year, excluding the Pubs. And importantly, it's comfortably covered by UFFO per share of 8.3p. Turning to the balance sheet, where our asset valuations were not immune from the disruption seen in the investment in credit markets in the second half of the year, which means NTA per share reduced to 121p from 132p at the half year and 134p a year ago, albeit we did still outperform the market by a significant margin. And despite the backdrop, we still achieved our Work Out disposal target during the second half, ensuring that we ended the year with LTV at just under 34%, in line with the positions reported 6 and 12 months ago before the valuation disruption and driven by a reduction in net debt and an increase in cash reserves from GBP 88 million a year ago to GBP 111 million at the year-end. Our other key debt metrics such as interest cover and net debt-to-EBITDA have also improved during the year. And alongside the fact that our cost of drawn debt is fixed and we have no refinancing requirement until 2028 means that we ended the year in an even stronger position than we started, which we believe is a considerable achievement in this environment. I have more on the balance sheet later on. But first, I'd like to look at UFFO. Alongside the UFFO statement, this slide shows a bridge from the prior year, which illustrates clearly that once adjusting for the contribution from the Pubs last year, retail UFFO has improved significantly year-on-year from GBP 20.5 million to GBP 25.8 million and factoring in retail disposals that all component parts of UFFO have contributed to the increase. I'll have more on net property income in a moment. But before that, I'd like to walk you through the other drivers of the UFFO improvement. Starting with other income, which you can see added GBP 1.4 million. This relates entirely to the settlement of an income disruption claim relating to COVID on our car park income, and it occurred during the first national lockdown between March and June 2020. Our work on cost reduction, both admin and finance costs added over GBP 5 million, with admin costs reflecting the impact of our cost-saving initiatives, not least the relocation of our head office, which we completed during the first half of the year, and with finance costs benefiting from the debt reduction exercise completed last year as well as the income we're currently generating on our cash balances. Next, NPI, which after factoring in the impact of the GBP 100 million of retail disposals completed this and last year has increased from GBP 48.1 million last year to GBP 50.5 million this year. You can see that like-for-like income was up by GBP 1.2 million or 2.9%, significantly representing a return to growth for the first time since 2018. And importantly, growth was strongest in our core Shopping Center and Retail Park assets, which we see is forming the backbone of our portfolio over the long term. Next, rent and service charge provisions, where we've seen a modest benefit this year due to further improvement in rent collection rates year-on-year now normalized at 98% in FY '23. And we've also continued to collect historical COVID arrears, meaning the blended rate for FY '21 and FY '22 has now increased to 95%. Lastly, car park and commercialization income, which has been steadily improving over the last 18 months and is now back up to 80% of pre-pandemic levels, recovering a further GBP 1.3 million of income during the year. Before moving on to the dividend, I'd like to break UFFO per share down into its constituent elements to look at the status and direction of travel of each. Starting with income, which, as I've just shown, the underlying trend is continued recovery post COVID, then admin costs, which have already reduced. And although it will be challenging in this environment where we've targeted further savings. And finally, finance costs, which have also reduced and very importantly, a fixed for the next 5 years. All of which means our retail UFFO is rebuilding, which flows directly into our dividend. Because under our dividend policy, we paid 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 6-month period. In the prior year, we declared a total dividend per share of 7.4p, which included a 2.1p contribution from Hawthorn prior to its disposal and a dividend from the retail business of 5.3p. And today, we've declared a second half dividend of 3.2p per share payable in early August. Along with the dividend we declared in our half year results, that takes the total fully covered dividend for this financial year to 6.7p, which based on our average share price over the last month represents a fully covered dividend yield of 8%. Moving on to the balance sheet and starting with a snapshot of our key balance sheet and debt metrics. This slide shows clearly the continued and indeed improved strength of our position today despite the impact we saw on our valuations from the market disruption in the second half as reflected in the reduction in NTA per share shown in the top left of the slide, with LTV, interest cover and cash holdings all improved year-on-year, and net debt-to-EBITDA improving half-on-half. This position is supported by our low and attractive cost of debt, which is fixed at 3.5%. And given we have no maturity undrawn debt until 2028, that will remain the case for the next 5 years. On top of that, we also have a market-leading yield gap position, being the difference between the net initial yield of our portfolio, [ IER ] income and our cost of debt, as you can see on this slide, which shows that we have the highest yield spread when compared to our listed real estate peers, thanks mainly to our high and sustainable income yield. And importantly, given the elevated interest rate environment we're now in, which is putting pressure on near-term refinancings, the fact that our debt is fixed for 5 years means that we expect this to remain a strength going forward. Next, our financial policies, which form a key part of NewRiver's approach to financial risk management. You can see clearly that we've maintained significant headroom across all of our policies during the year, so that our position has improved since the last time we reported, with interest cover continuing to trend up and net debt-to-EBITDA now particularly strong and the lowest amongst our listed peers, thanks to our high and sustainable income yield and our conservative net debt position. And these aspects were recognized by Fitch, along with our sustainable dividend policy and resilient portfolio characteristics when they reaffirm NewRiver's investment-grade credit rating in December at BBB with a stable outlook and BBB+ on the bond itself. These ratings have now been maintained since the corporate bond was issued 5 years ago, which we see as a real endorsement of the continued strength of our business. Next, LTV. And you can see that our LTV position has reduced slightly during the year despite valuations, because the achievement of our Work Out disposal target has offset the adverse effect of the 5.9% valuation decline. And UFFO retained after paying dividends and covering investment into our portfolio has driven the overall reduction during the year from 34.1% to 33.9%, which leads me on to LTV guidance and capital allocation. To remind you, a year ago, with LTV at 34%, we 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. We repeated this guidance 6 months ago when we presented the half year results with LTV also at 34%, noting that we wanted to understand more about the potential impact of market disruption on valuations before making any allocation decisions. Looking back at the events of the last 6 and 12 months, we believe that this was the right call and has been a key contributor to the position of strength we're now able to report. So [ we're visiting ] this now. While we remain confident in the strength of NewRiver's position, and we've demonstrated the resilience of our underlying cash flows in the current environment, we see no reason to change our near-term guidance at the moment. So we intend to keep headroom to the 40% level in the near-term. The big difference today is that the base rate is now 4.5% compared to 1% a year ago and 3% at the half year. So we're earning -- so we're now earning just over a 4% return on the majority of our cash. Therefore, it's still making a meaningful contribution to UFFO and the dividend. The rate we're achieving is likely to go up in the near-term as current deposits roll off and we renew at higher rates and also in the event that the base rate increases further from here. And in the meantime, by holding cash, we retain maximum flexibility. So any capital allocations we make have to offer particularly compelling returns over and above what we're achieving on our cash at the moment. We'll, of course, continue to monitor the market very carefully because there could well be opportunities for us as increasing finance costs feed into upcoming market refinancings. But today, our message is clear. We're in a strong and flexible position, and we will be highly disciplined when it comes to capital allocation. Lastly from me, I'd like to expand on the key areas we expect to contribute to UFFO growth looking ahead. You can see on the left-hand side of the slide that we take the 8.3p per share of UFFO we've reported today, which we then adjust to remove the impact of items that benefited FY '23, but will not benefit FY '24, being completed disposals and one-offs dating back to COVID, such as the GBP 1.4 million of disruption insurance proceeds received during the year. And to add in items that will benefit FY '24 more than FY '23, namely a full year of income from the M&G asset management mandate and a full year of income earned on our surplus cash, which gives us 7.7p per share as a start point. We then add in further cost savings, which we've not yet unlocked, highlighted as #1 on the slide. That's principally the further admin cost savings we've targeted on top of the GBP 0.9 million we've unlocked over the last 1.5 years, which will be more challenging given the inflationary environment we're now in, but which will remain an area of focus for us. Next, income recovery, which is a measure of our success in recovering the income disruption we experienced back in FY '21. We've made good progress during FY '22 and FY '23, which means that the remaining impact to recover now stands at 1.2p per share, down from just over 2p per share at the start of the year. We're confident we can make further inroads as we look ahead and encouraged by the like-for-like growth we've seen this year. But alongside that, we're actively expanding other revenue streams such as our capital partnerships, where we've had success during the year in signing a new and exciting mandate with M&G Real Estate, which has already been expanded post year-end. Finally, number three, capital deployment. As I've just communicated, we will not rush to redeploy to the 40% level in the near-term. But we've included an illustrative 0.7p per share as an indication of the incremental benefit over and above the returns we're currently generating on our cash as and when we decide to deploy. Thank you all for listening. I'll now hand you back to Allan.

Thanks, Will. So we're going to now move 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%, retention rate of 90% and 3 years of leasing transactions exceeding valuer ERVs. Our core Shopping Centers are valued off a net initial yield of 9.6%. And given the security of the underlying cash flows, it is no surprise that they have significantly outperformed MSCI on a 1-year, 3-year and 5-year period. On a total return, last year's outperformance was 1,540 basis points. Now these centers located in Northern Ireland, Scotland and England are the largest of our core Shopping Centers with a combined value of GBP 117 million, located in the center of their communities with short travel times ranging from 9 minutes to 13 minutes. The key to the success of these assets is the high-quality anchor stores, including Marks & Spencers, Primark, Next, Dunnes and Asda, but also the right balance between supply and demand. As a result, these assets have high occupancy and retention rates and very efficient gross to net ratios. Our Retail Park portfolio has had another good year of delivering strong operating metrics, with occupancy at 98% and a retention rate of 100%. We continue to see strong occupational demand for our Retail Parks, which are highly compatible with omnichannel retailing. And given the tight supply in our portfolio, they should deliver future consistent rental growth. Our Retail Park portfolio has significantly outperformed MSCI on a total return by 1,170 basis points, reflecting our consistently higher income return and more stable valuation performance. All of our Retail Parks are anchored by or adjacent to food retailers and the 3 Retail Parks featured on this slide benefit from a range of high-quality food retailers, including Aldi, Tesco, Sainsbury's and [ Food Warehouse ]. The high frequency of customer visits, the free surface car parking and the range of omnichannel operators means that these assets are delivering resilient operating metrics, with occupancy ranging from 91% to 100%, high retention rates and highly efficient gross to net ratios. With affordable rents ranging from GBP 10.60 per square foot to GBP 12.90 per square foot, supported by low service charges, the long-term compound annual growth rate has ranged from minus 0.9% to plus 1.4%, demonstrating the reliable rental cash flows that these assets provide. We're seeking to deliver capital growth in our Regeneration portfolio by redeveloping surplus retail space principally for residential. Across our 3 projects, we're working on the delivery of over 1,700 residential units, providing a mix of build-to-rent, build-to-sell and affordable units. These are not projects that we would ever develop out ourselves, but we can create value by securing planning consent and then selling to residential developers as we did in the previous year in Cowley and in Penge. Our 3 projects are at different stages in the development cycle with planning consent secured at Burgess Hill and where we are finalizing key anchor lettings prior to selling the residential site. At Grays, we have completed the pre-planning process, which will facilitate a major planning application later this year. And finally, in Bexleyheath London, we are making good progress with our master plan working closely with the council who are supported to deliver up to 700 residential units. Moving now to our Work Out, which represents 11% of our portfolio, a reduction from the previous year of 14% and which outperformed MSCI on a total return by 590 basis points. Our strategy is to exit from Work Out, which we are seeking to achieve through a combination of disposals and the implementation of turnaround strategies to deliver long-term rental and capital sustainability. This year, we are targeting 4 disposals with an average value of GBP 5 million and the completion of 5 turnaround strategies for which we are making excellent progress. And in the meantime, we benefit from an attractive income return. The turnaround strategies that we're deploying include intensive asset management as we are doing in Paisley, where we are taking advantage of the significant displacement of tenants from the proposed demolition of another center in that town to a complete repositioning as we are doing in Cardiff. In Cardiff, our plans are to repurpose this once retail-dominated center to leisure. And we are in advanced negotiations with a leading competitive social leisure operator to lease approximately 100,000 square feet, which will be both transformational and accretive. Our capital partnership activities, which are expanding are focused on 3 areas. In the institutional sector, where we were appointed by M&G Real Estate to asset manage a retail portfolio comprising 16 Retail Parks and 1 Shopping Center, and when -- and which was then extended in April to include an additional Shopping Center, In the private equity sector with BRAVO in which we coinvest. Currently, this joint venture comprises 3 Retail Parks and 1 Shopping Center. And finally, in the public sector with Canterbury City Council, where we asset manage 2 Shopping Centers and were recently appointed as development manager to relocate the council's offices to their center. We now manage in excess of GBP 500 million of assets and over GBP 50 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 are, therefore, on track to deliver recurring fee income of between GBP 3 million and GBP 5 million by the end of 2024. Our operating and financial results over the last 2 years demonstrate the underlying resilience in our portfolio and platform, and we expect that to continue into our new financial year. Given the high current occupancy in our Retail Parks and our core Shopping Centers at 98%, we believe that the prospects for future rental growth are now encouraging, which should be supportive of future capital returns and another year of MSCI outperformance. We're in an excellent position with a strong balance sheet that is not exposed in the medium-term to rising interest rates. We have significant capital available to deploy and opportunities to expand our capital partnerships, all of which should deliver future earnings and NAV growth. It is for those reasons that we remain confident of our ability to deliver our medium-term objective of a consistent 10% total accounting return. Thank you. I think we're now going to move to Q&A. We're going to start with questions from the floor, followed by webcast questions. I think we've got some roving microphones. And for the benefit of those that have dialed in, could you please introduce yourself before asking your question? And I think we're going to start with Yusuf.

My question is on the capital allocation GBP 111 million of cash, and you've highlighted 3 areas you could invest in. Could you give more color on what you'll be looking at in terms of investing in direct market opportunities that you might see immediately? And then how much -- how likely is the share buyback? And how much do you think proportions that might go off the GBP 111 million into those things?

Well, we will be investing in our portfolio this year, but that is normal business activities for us. And the investment that we'll be putting into our portfolio will be accretive. We are constantly monitoring opportunities in the direct real estate market. Our sort of view is that given that cash and liquidity has real value in sort of times like we have today and the fact that we're earning 4% interest, which is likely to increase with forthcoming increases by the Bank of England and the base rates that if we were to deploy capital into the direct real estate market, we need to find opportunities that are going to deliver very compelling returns. We think there will be opportunities during the course of the year to be able to do that, particularly as we've seen interest rates rise rapidly and with the likelihood of refinancing that needs to be done in the marketplace that we believe will create some opportunities for a company like NewRiver that has a lot of liquidity available. Buyback is also a very credible option. It doesn't have to necessarily be one or the other option. We could certainly look at our combination of options of a buyback as well as an investment in the direct real estate market and investing into our own portfolio. Will, do you want to add anything to that?

I would just add, Allan, that we've been clear that we want to keep headroom to our 40% LTV guidance today. And therefore, when we're talking about future allocation, really, I think future allocation at this point would be funded from disposals that we make from this point forward, so that we can keep headroom to our LTV guidance after having made that deployment.

Yes. Just touching on your ESG criteria, can you tell us what proportion of the portfolio at the moment is EPC or [ BAO ]? And of the assets that you expect to own long-term, what sort of CapEx do you think needs to be invested there to get them up to the 2027 legislation?

Well, I think in this morning's RNS, Andrew, we've got full disclosure around our EPC data. I think the big difference for retail versus sale offices where the owners of office buildings are 100% responsible for the cost of being able to decarbonize their buildings because they're responsible for the lighting and the heating system and the fit-out that they provide their tenants. In retail, it is very different because each of our tenants has a different fit-out, they use different materials, many of them have different heating and lighting systems, food retailers run refrigeration. And so the responsibility for those costs very much lie with the tenants. And that's why, as I said, we have limited control on that. But what we're very encouraged about is seeing that increasing number of our tenants committing to reducing their carbon emissions.

Eleanor Frew from Barclays here. 2 questions from me. So on your planned Work Out disposals, can you give us a bit of color on what you're seeing in the market, how are interest levels, what kind of buyers, et cetera? And then with your last update, you gave quite a comprehensive tenant affordability review. Can you give us a bit of an update on that, what you're seeing from retailers, any signs of distress?

Yes. In terms of the Shopping Centers, we've seen a steady increase in liquidity into the market, which is really encouraging. Most of the buy-side activity importantly is financing their acquisitions with cash. So the retail sector has not been particularly reliant on the debt markets over the last sort of 2 years to 3 years. We've seen a range of buyers from private property companies, high net worth family offices that have been investing, council still invest, and we've seen some private equity activity. We're seeing much stronger levels of liquidity in the Retail Park sector, both in terms of institutional capital, and as some of you may know, there's a very large U.S. REIT that has been highly active in the market over the last 2 years, acquiring Retail Parks. So it's encouraging that liquidity is coming through, and I think that is reflective of the fact that the fundamentals within the retail real estate sector are improving from an occupational perspective. And of course, retail offers a very attractive spread to other areas of the real estate market and indeed to gilt rates. And I think that we expect that liquidity to improve. And in terms of our tenant profile, yes, there is some data in our presentation that shows the probability of tenant failure. It's incredibly low. I think it's something like 0.9% for the next sort of 2 years. So we do track that on a quarterly basis. What we're very encouraged about our occupational market is that, as I said in the presentation, the sector is definitely a lot more fitter and leaner. There's a lot of restructuring has already taken place. And where you're seeing distress in the market is not with retailers that run a physical store network, it's in the online. It's pure-play online retail where you've seen more failures over the last sort of 12 months. And interestingly, some of those failures have been acquired by omnichannel retailers. So for us, the clear winner over the last 12 months in a high inflation, high interest rate environment has been omnichannel retailers and retailers that run physical store networks. John?

John Mozley, Liberum. Just one question, I think, probably for Will, actually. [ We were ] at the Capital Markets Day 18 months ago, 2 years ago, now you set out a very clear cost savings program. You obviously had a lot of that come through this year and the previous year. Is there much left to go from that now? And is that a kind of a finished step that you've now reached a level for or could there be another range of cost savings after that?

Yes. Thanks, John. So back in September '21 at the Capital Markets Day, we set out cost savings in 2 areas: admin costs and finance costs. We said we wanted to save finance cost by reducing our amount of debt, which we did. We'd repaid GBP 335 million of debt in the prior year. That reduced our finance costs by GBP 7 million. We saw half of that benefit in the second half of the previous year and the remainder come through this half -- in the first half of this year, sorry. On admin costs, we've reduced admin costs from GBP 12 million. That was our baseline position back in FY '21. Last year, they were GBP 11.7 million, this year, GBP 11.1 million. So we've made really good progress, not least by moving just around the corner from where we're presenting today. So we've sort of slightly downsized and made a really good saving there. Looking forward, obviously, in the market that we're in now, it is more challenging to save costs. Inflation is running in the double-digits as we all know. But we have a target still in mind, and we have areas where we will be focusing in terms of cost savings. And there are some cost savings that we've made in the second half of the year we're reporting, that will start to come through in [ FY '24 ].

Great. Well, if there's no more questions from the floor, I think we'll take some webcast questions, Lucy.

Great. We've got the first question in from Clive Black at Shore Capital. With respect to your capital partnerships, do you foresee opportunities across your 3 strands or is it to be focused on any one of the 3? And then second question, also you're starting to see evidence of debt distressed retail assets that pose investment opportunities coming on to the radar?

Clive, thank you for your question. We do see a significant opportunity in those 3 areas: public sector, private equity and the institutional market. And this is going to be a key focus for us moving forward over the next sort of couple of years. And as I said in the presentation, we are on track to be delivering recurring fee income of between GBP 3 million to GBP 5 million by the end of 2024. And we'll be achieving that in a very capital-light way, which is a key point to make. In terms of the debt distress, as of yet, we're not seeing that coming through. But the rapid rise of interest rates that we've seen over the 12 months, sort of 18 months, it does take time to feed through into the market. And we think the probability of opportunities where through refinancing may create some distress in the market and particularly with our position having significant amounts of liquidity, that could be a really good opportunity for us to deploy capital to deliver very compelling returns over and above what we're currently receiving by maintaining our cash position on deposit.

Great. Linked to capital partnerships, again, a question from Mark Bentley at ShareSoc. Have you needed to increase the size of the team to support the capital partnerships expansion?

We have modestly. So taking on the new mandate that we did at the end of last year, we have taken on a couple of more people. But in terms of the additional cost, it's well within the fee income that we can generate. So it's a highly profitable way for us to deliver revenue growth. And as we expand out that portfolio, our capital partnership activities, that may require some selective recruitment. And we'd be very confident of being able to attract the very best talent in the marketplace. I don't know if you saw, but we were included within the Sunday Times Best Companies to Work For, and that's partly reflective of the culture we have. It's a great place to work. So we're very confident being able to attract top quality talent to support our strategy going forward.

Second question from Mark Bentley again. How much CapEx will be required for our turnaround activities in '24?

It's going to be about over GBP 10 million. Our current projections is that is going to deliver a double-digit unlevered return. So it's going to be very accretive going forward to the business. And as I said, the 5 turnaround strategies is all about positioning those assets to be able to deliver long-term rental and capital sustainability.

Okay. There's a few other questions, but they've broadly been covered by questions from the floor. So that conclude the questions.

Has that concluded? Okay. Well, thank you, everyone, for joining us. Will and I are going to be around for a short while. So if you'd like to have any further conversations, do approach us. But thank you very much for taking the time to come in and listen to our results presentation.