REG - Shaftesbury Capital - Investor event and trading update

Shaftesbury CapitalAnnouncement

27/11/2023 07:00

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RNS Number : 6727U  Shaftesbury Capital PLC  27 November 2023

Press Release

27 November 2023

Investor event and trading update

Shaftesbury Capital PLC ("Shaftesbury Capital") today publishes a trading
update ahead of its inaugural Investor Event, to be held at 10:30am (UK time)
at The Royal Opera House, Covent Garden at which the senior management team
will provide an insight into Shaftesbury Capital's unique, irreplaceable
portfolio and its plans for growth. The presentation materials will be made
available on the Group's website later today. This announcement includes
unaudited financial information in relation to the period from 1 July 2023 to
15 November 2023 ('the period').

Ian Hawksworth, Chief Executive, commented:

"Our excellent performance has continued into the second half, with a strong
start to the Christmas trading period. The West End is one of the most vibrant
global destinations with an unrivalled concentration of entertainment and
cultural attractions. Footfall remains high and customer sales are tracking 12
per cent ahead of last year. There is excellent leasing momentum across all
uses with 220 leasing transactions signed so far in the second half, at rents
on average six per cent ahead of June 2023 ERV and a strong leasing pipeline.

Despite the uncertain macroeconomic backdrop, our prime West End portfolio
continues to demonstrate its resilience and appeal. Backed by our strong
balance sheet, we look forward with confidence with a focus on delivering
further growth and attractive returns as the leading central London mixed-use
REIT."

Summary

·      High footfall across our prime portfolio in the West End with a
strong start to the Christmas trading period, customers reporting sales in
aggregate 12 per cent above 2022 levels and 16 per cent above 2019 levels

·      Sustained demand across all uses; leasing activity in H2
totalling 220 transactions representing £15.6 million of rent, six per cent
ahead of 30 June 2023 ERV

·      Year to date, 440 leasing transactions were completed,
representing £30.2 million of rent, nine per cent ahead of 31 December 2022
ERV and introducing 50 new retail and hospitality brands and concepts

·      Vacancy remains low: 2.2 per cent of ERV available to let (30
June 2023: 2.5 per cent)

·      Continued excellent progress on integration, cost savings running
ahead of initial target and additional opportunities being identified

·      £82 million of asset disposals completed, 12 per cent ahead of
June 2023 valuation, with five per cent of total portfolio value initially
identified to be recycled

·      Robust balance sheet with access to approximately £500 million
of liquidity(1) and EPRA LTV(1) of 30 per cent (30 June 2023: 31 per cent)

1 Pro forma liquidity and EPRA LTV based on debt and cash balance as at 30
September 2023 and 30 June 2023 property valuation (adjusted for disposals)

Medium-term outlook

The West End's large working population and residential community provide a
regular, daily customer base for its retail, hospitality and leisure
businesses. Together with an exceptional number of domestic and international
visitors, this brings a seven day-a-week trading environment. In turn, this
drives sustained customer demand in a market with constrained supply of
commercial space, providing the fundamentals for long-term rental growth.

·      Our focus is on rental growth, cost control and cash conversion
 

-       We are targeting rental growth of 5-7 per cent per annum on
average over the medium-term

-       With stable cap rates, this would result in average total
property returns of 7-9 per cent and total accounting returns of 8-10 per
cent

-       These return targets are intended to indicate overall direction
in the medium term; outcomes for shorter reporting periods will be highly
dependent on activity levels and prevailing market conditions. Components of
the portfolio will have different return profiles

·      We are continuing to target efficiencies and additional
opportunities as we move beyond the initial stage of integration following
completion of the merger in March 2023. With a focus on the total amount of
property and overhead costs, as well as their relativity to gross income, we
are targeting a significant reduction in the EPRA cost ratio towards 30 per
cent over the medium-term

·      We will maintain significant liquidity through the next
refinancing cycle, and seek to manage the absolute level of finance costs to
deliver efficient conversion of income to earnings and a progressive dividend
profile

·      As part of our programme to invest in our portfolio, including
sustainability enhancements, it is expected that annual capital expenditure
will on average represent approximately one per cent of portfolio value

·      Five per cent of total portfolio value is expected to be recycled
initially, including the £82 million of asset disposals completed to date

Excellent leasing momentum across all uses

There has been consistently high footfall across our prime portfolio in the
West End with a strong start to the Christmas trading period, and customers
reporting sales in aggregate 12 per cent above 2022 levels and 16 per cent
above 2019 levels. Covent Garden and Carnaby hosted successful Christmas
lights switch-on events in early November, marking the start of a programme of
festive events and shopping evenings. Covent Garden has a number of brand
activations across the Piazza including Marc Jacobs and Sézane, while the
vibrant Carnaby Universe Christmas campaign offers a series of events
throughout the period, as well as our important charity partner, Choose Love.

Excellent leasing momentum continues with 220 leasing transactions signed so
far in the second half of the year, at rents six per cent ahead of June 2023
ERV with a continued strong leasing pipeline.

These leasing transactions comprise:

·      76 commercial lettings and renewals: £9.6 million of rent, seven
per cent above 30 June 2023 ERV; and

·      144 residential lettings and renewals: £6.0 million of rent, 10
per cent above previous passing rents.

440 leasing transactions have been completed so far in 2023 representing
£30.2 million of contracted income, nine per cent ahead of December 2022 ERV.
Further details are set out in appendix 1 to this announcement.

 

Leasing transactions concluded from 1 July 2023 to 15 November 2023

 Use                          Transactions    New contracted rent  % above

                                              (£m)                 June 23 ERV
 Retail                       40              5.5                  5
 Hospitality & leisure        12              1.8                  14
 Offices                      24              2.3                  5
 Residential                  144             6.0                  4
 Total                        220             15.6                 6

In addition, 22 commercial rent reviews were concluded, representing £7.0
million of passing rent, 13 per cent ahead of previous passing rents.

We continue to strengthen the customer line-up across the portfolio with a
flurry of new openings including luxury brands Hublot, Messika and
Girard-Perregaux in Covent Garden's Royal Opera House Arcade. Performance wear
brand Hoka opened its new London flagship store on James Street while
Balibaris, the international menswear label, opened its first European retail
location on Floral Street. UK debut stores in Seven Dials include independent
womenswear brand Odd Muse and British jeweller Missoma. Award-winning cult
make-up concept Sculpted by Aimee opened its new UK flagship on Foubert's
Place, Carnaby while eyewear brand Oakley is the latest opening on Carnaby
Street joining premium outerwear concept Jott.

Our hospitality offer continues to evolve with the opening of Italian pasta
concept Notto on Henrietta Street, Covent Garden and Bébé Bob in Soho,
located opposite its sibling flagship restaurant Bob Bob Ricard. Filippino
concept Donia opened on the upper floor of Kingly Court, Carnaby while one of
China's leading pastry brands, Master Bao is set to open in Chinatown.

Demand for high quality, well-fitted office space with amenity value and
excellent environmental credentials remains robust across the West End with
recent lettings commanding a rental tone of approximately £100 per square
foot. There is sustained demand for our residential portfolio comprising 710
apartments, with rental transactions over the period 10 per cent higher than
previous passing rents, and negligible vacancy.

With strong occupier demand and leasing activity through the period, vacancy
remains low. EPRA vacancy (including units under offer) was 5.1 per cent of
portfolio ERV (30 June 2023: 5.9 per cent), of which 2.9 per cent was under
offer and 2.2 per cent was available to let (30 June 2023: 2.5 per cent).

Active capital recycling

Since 1 July 2023, we have completed the sale of five properties for gross
proceeds of £82 million, 12 per cent ahead of the 30 June 2023 valuation
(before sale costs). The five properties had an ERV of £5.5 million. A number
of acquisition opportunities are under review.

Over the medium-term, we expect approximately one per cent of portfolio value
to be invested per annum in refurbishment, asset management and repositioning
opportunities, including actions to improve energy performance. This year,
£30 million capital expenditure has been incurred to date, and capital
commitments amount to £27 million. The ERV of space under refurbishment
amounts to £13.5 million across 196,000 square feet, representing 5.9 per
cent of portfolio ERV (30 June 2023: 6.7 per cent). Further details are set
out in appendix 1.

Strong financial profile

We continue to maintain a strong balance sheet with a focus on resilience,
flexibility and efficiency. There is significant headroom against debt
covenants and access to liquidity of approximately £500 million comprising
approximately £200 million of cash and £300 million of undrawn facilities.
Group net debt was £1.5 billion, representing an EPRA loan-to-value ratio of
30 per cent based on 30 June 2023 property valuations (adjusted for
disposals).

In August 2023, a £200 million 10-year secured loan was signed with Aviva
Investors. The proceeds of the loan were used to repay part of the £576
million unsecured facility reducing it to £376 million, maturing in December
2024. We are in advanced discussions regarding a new medium-term bank loan,
details of which will be announced in due course.

All of the Group's drawn debt is at fixed rates or currently has interest rate
protection in place. This caps SONIA exposure at an average of 2.7 per cent on
£500 million of notional value to December 2023 and £350 million of notional
value capped at 2.3 per cent to December 2024. The weighted average maturity
of drawn debt is five years, and the weighted average cost of debt is 4.2 per
cent, which reduces to an effective cash cost of 3.3 per cent after taking
into account interest income on cash deposits and the benefit of interest rate
hedging.

Sustainability and environmental stewardship

As a long-term, experienced and responsible investor, sustainability has
always been an important aspect of delivering our strategy.  We are committed
to reducing the impact of our operations on the environment, whilst engagement
and collaboration with our wide range of stakeholders is integral to our
strategy and values.

We adopt a "low-carbon, retrofit first" approach to future-proofing our
heritage buildings, minimising additional embodied carbon and air pollution
which comes from demolition and construction, whilst improving their energy
performance at modest financial outlay. We estimate the cost of sustainability
improvements, included in our capex estimates, is on average approximately 0.1
per cent of portfolio value annually. 78 per cent of our portfolio by ERV now
has EPC ratings of A-C, and we target a minimum rating of B on all new
refurbishment projects.

We are committed to be Net Zero Carbon in our own operations (scope 1 & 2
emissions) by 2025, and across the whole business (scopes 1, 2 &3
emissions) by 2030. The combined pathway will be published on our website in
due course.

 

Appendix 1

Leasing activity from 1 January 2023 to 15 November 2023

·      162 commercial lettings and renewals: £19.5 million of rent, 11
per cent above 31 December 2022 ERV

·      278 residential lettings and renewals: £10.7 million of rent, 11
per cent above previous passing rents

 

 Use                          Transactions    New contracted rent  % above

                                              (£m)                 Dec 22 ERV
 Retail                       75              10.1                 11
 Hospitality & leisure        30              3.5                  13
 Offices                      57              5.9                  8
 Residential                  278             10.7                 6
 Total                        440             30.2                 9

In addition, 63 commercial rent reviews have been concluded, totalling £14.7
million, 9.6 per cent ahead of previous passing rents.

 

Under offer

 Use                        % of portfolio ERV  ERV (£m)     Area

                                                             ('000 sq. ft.)
 Retail                     0.2                 0.4          6
 Hospitality & leisure      0.6                 1.3          13
 Offices                    2.0                 4.4          49
 Residential                0.1                 0.2          3
 Total                      2.9                 6.3          71

 

Available-to-let space

 Use                        % of portfolio ERV  ERV (£m)     Area

                                                             ('000 sq. ft.)
 Retail                     0.7                 1.5          19
 Hospitality & leisure      0.6                 1.4          18
 Offices                    0.8                 1.7          23
 Residential                0.1                 0.3          5
 Total                      2.2                 4.9(1)       65

1.                    Includes 14 units let on a temporary
basis (ERV: £2.1 million).

 

Under refurbishment

 Use                        % of portfolio ERV  ERV       Area

                                                (£m)      ('000 sq. ft.)
 Retail                     1.1                 2.5       22
 Hospitality & leisure      1.6                 3.8       70
 Offices                    2.7                 6.1       82
 Residential                0.5                 1.1       22
 Total                      5.9                 13.5      196

 

Appendix 2

2023 asset disposals to date

 

·      19 - 25 Long Acre & 28-29 Floral Street (Leasehold interest)

·      158 - 159 Drury Lane

·      Walter House, 418-422 Strand (Leasehold interest)

·      61 Old Compton Street

·      103 Charing Cross Road

 

 

Enquiries:

 Shaftesbury Capital PLC                                                               +44 (0)20 3214 9150
 Ian Hawksworth             Chief Executive
 Situl Jobanputra           Chief Financial Officer
 Sarah Corbett              Director of Commercial Finance and Investor Relations

 

Media enquiries:

 UK: Hudson Sandler      Michael Sandler       +44 (0)20 7796 4133

 UK: RMS Partners        Simon Courtenay       +44 (0)20 3735 6551
 SA: Instinctif          Frederic Cornet       +27 (0)11 447 3030

About Shaftesbury Capital

Shaftesbury Capital PLC ("Shaftesbury Capital") is the leading central London
mixed-use REIT and is a constituent of the FTSE-250 Index. Our property
portfolio, valued at £4.9 billion at June 2023, extends to 2.9 million square
feet of lettable space across the most vibrant areas of London's West End.
With a diverse mix of restaurants, cafés, bars, shops, residential and
offices, our destinations include the high footfall, thriving neighbourhoods
of Covent Garden, Carnaby, Soho and Chinatown, together with holdings in
Fitzrovia. Our properties are close to the main West End Underground stations
and transport hubs for the Elizabeth Line. Shaftesbury Capital shares are
listed on the London Stock Exchange (primary) and the Johannesburg Stock
Exchange (secondary).

Our purpose

Investing to create thriving destinations in London's West End where people
enjoy visiting, working, and living.

 

Forward-looking statements

This press release contains "forward-looking statements" regarding the belief
or current expectations of Shaftesbury Capital PLC, its Directors and other
members of its senior management about Shaftesbury Capital PLC's businesses,
financial performance and results of operations. These forward-looking
statements are not guarantees of future performance. Rather, they are based on
current views and assumptions and involve known and unknown risks,
uncertainties and other factors, many of which are outside the control of
Shaftesbury Capital PLC and are difficult to predict, that may cause actual
results, performance or developments to differ materially from any future
results, performance or developments expressed or implied by the
forward-looking statements. These forward-looking statements speak only as at
the date of this press release. Except as required by applicable law,
Shaftesbury Capital PLC makes no representation or warranty in relation to
them and expressly disclaims any obligation to update or revise any
forward-looking statements contained herein to reflect any change in
Shaftesbury Capital PLC's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based. The
information contained in this press release does not purport to be
comprehensive and has not been independently verified.

Any information contained in this press release on the price at which shares
or other securities in Shaftesbury Capital PLC have been bought or sold in the
past, or on the yield on such shares or other securities, should not be relied
upon as a guide to future performance. No statement in this press release is
intended to be a profit forecast and no statement in this press release should
be interpreted to mean that earnings per share of Shaftesbury Capital PLC for
the current or future financial years would necessarily match or exceed the
historical published earnings per share of Shaftesbury Capital PLC.

Certain industry and market data contained in this press release has come from
third party sources. Third party publications, studies and surveys generally
state that the data contained therein have been obtained from sources believed
to be reliable, but that there is no guarantee of accuracy or completeness of
such data

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