Company Announcements

Shaftesbury PLC

Trading update

Economic activity significantly impacted by lockdowns and pandemic containment measures

Outlook more positive with social restrictions expected to be relaxed

Shaftesbury PLC, the Real Estate Investment Trust that owns a 16-acre portfolio in the heart of London's West End, today announces a trading update for the period 1 October 2020 to 24 February 2021. The announcement is being issued prior to the Company's Annual General Meeting, which is being held later today.

Summary

·  Continuing government measures to control the Covid-19 pandemic are having a significant impact on economic activity and consumer spending patterns.

·    All hospitality and non-essential retail businesses have only been able to trade for seven of the past 21 weeks, with their capacity limited by social-distancing requirements and much-reduced footfall; trading in the important peak festive period restricted to just three weeks.

·    Key stages of a relaxation of pandemic restrictions announced; current indications are that hospitality and retail businesses should be able to reopen in the spring, followed by a tapering of social restrictions through to late June.

·    Rent collection at 19 February 2021:

-  45% of rent collected for the quarter to 31 December 2020.

-  36% of January 2021 rents collected to date.

·    Early signs of improving occupier interest.

·    Vacancy at 31 January 2021:

-  EPRA vacancy: 10.8% of ERV (30.9.20: 10.2%), of which 2.8% was under offer; after leasing activity, the net vacancy increase is largely due to scheme completions.

-  Scheme and refurbishment vacancy: 9.5% of ERV (30.9.20: 10.1%).

·    Acquisitions: two buildings in Covent Garden acquired for £5.6 million.
 

·    Finance:

-  Available liquidity at 31 December 2020: £358.2 million.

-  Interest cover covenant waiver extension agreed to January 2022 in respect of the Longmartin joint venture term loan. ICR waivers now in place ranging from July 2021 to January 2022.

Brian Bickell, Chief Executive, commented:

"The relaxation of pandemic restrictions will herald the revival of the West End's economy in the months ahead, with a gradual return of local and domestic footfall and the reopening of hospitality businesses, shops and its world-renowned cultural and leisure attractions.

Our strategy of supporting the survival and reopening of our existing hospitality and retail businesses is aimed at ensuring our locations will be animated, interesting and welcoming for returning customers. Our portfolio is located in the heart of the most vibrant part of London and we are optimistic that the appeal of our carefully-curated destinations will drive the return of footfall and trading." 

24 February 2021

For further information:

Shaftesbury PLC LEI: 213800N7LHKFNTDKAT98

Background

Throughout the period since 1 October 2020, continuing government measures to control the Covid-19 pandemic have had a significant impact on economic activity and consumer spending patterns across the UK, and particularly in footfall-reliant city centres. In London's West End, all hospitality businesses and non-essential retail have only been able to trade for seven of the 21 weeks covered by this update, and, even then,  their capacity has been limited by social-distancing requirements and much-reduced footfall due to the absence of office workers and tourists. The important ten-week peak trading period from November through Christmas and the New Year was restricted to just three weeks.

The national lockdown in place since early January 2021, and the Government's successful mass vaccination programme, are bringing a welcome reduction in infection rates and hospitalisations, particularly in London and the South East. Against this improving backdrop, on 22 February 2021, the Government announced the key stages of a relaxation of pandemic restrictions and current indications are that hospitality and retail businesses should be able to reopen in the spring, followed by a tapering of social restrictions. Whilst the pace of return to more-normal patterns of life and business activity will be dictated by the priority to protect public health, the current indication is that all legal restrictions on social contact could be removed by 21 June 2021.  

We expect this more-positive outlook to herald the revival of the West End's economy in the months ahead, with a gradual return of local and domestic footfall and the reopening of hospitality businesses, shops and its world-renowned cultural and leisure attractions.

Our response

From the beginning of the pandemic last March, our priority has been to support our occupiers and local communities through the unprecedented challenges and upheaval they are facing.

Our 600+ shops, restaurants, cafés and pubs, as well as those office occupiers which are closely connected to such businesses, have now suffered almost 12 months of significant disruption, inevitably undermining their financial position. We have supplemented government support measures with rent concessions and restructured leases to provide occupiers with the confidence to emerge from lockdown and build turnover as footfall recovers. We expect to continue our support until the recovery is firmly established, tapering as conditions improve.  

As previously reported, from 1 October 2020, we now offer most commercial occupiers the option to move permanently to monthly payment of rent and service charge to ease the cash flow burden of traditional quarterly payments in advance. Working with other owners and stakeholder groups, we continue to lobby for the continuation of Government financial support for businesses affected by lockdown measures, including the extension of the business rates holiday and furlough scheme, as well as reduced VAT for hospitality businesses, which will be essential until there is a sustained return to normal levels of activity and trading.

We are continuing to provide financial and other support to local community organisations including those addressing issues faced by young people in our communities, mental health and wellbeing.

Recovery and our preparations

Our focus has always been on high-footfall West End locations, noted for their mid-market offer, which draw a substantial proportion of their customer base from the large local working population, Londoners and domestic visitors. Our experience at the end of the national lockdowns in early July and December was that the initial footfall recovery was particularly noticeable in areas close to Oxford Street and Regent Street, the West End's major shopping streets and across Carnaby, Soho and Leicester Square, its major dining and leisure destinations.

International business and leisure travel have seen a dramatic worldwide reduction during the pandemic, which has particularly affected London, one of the world's leading global destinations. Current expectations are that UK inbound visitor levels will not start to improve until late 2022 and that volumes may not return to pre-pandemic levels until 2025/6. 

We are optimistic that, as restrictions are relaxed in the coming months, and the local office population and domestic leisure visitors begin to return, the appeal of our carefully-curated destinations in the best locations will drive the return of footfall and trading. Our strategy of supporting the survival and reopening of our existing hospitality and retail businesses is aimed at ensuring our locations will be animated, interesting and welcoming for returning customers. Our active social media programme, which during the current lockdown continues to promote our locations and support our occupiers, will play an important role in the recovery phase.

Westminster City Council's recovery strategy includes investment in public realm and reviewing policies to simplify the planning and licencing process. It is also relaunching its al fresco dining scheme to provide more outside seating through to September, which will be beneficial for our hospitality occupiers, particularly while social distancing measures remain in place.

We are part of a group of West End organisations working with London & Partners, the Mayor of London's promotional organisation, to promote the West End to potential overseas occupiers and deliver marketing plans aimed at encouraging Londoners and UK domestic visitors to return to the West End. As soon as appropriate, these plans will be expanded to target international visitors.

Rent collection

For the quarter to 31 December 2020, we have collected 45% of contracted rents to date, with 35% waived and 20% outstanding, a collection level which was broadly similar to the two previous quarters, adjusted to remove the impact of drawings from occupier rent deposits. To 19 February 2021, we have collected 36% of January rents, with 48% waived, reflecting increased support for occupiers during the current lockdown and their significant loss of trade since November.

Data at 19 February 2021

The eventual recovery of amounts deferred and outstanding will depend on the timing and pace of the post-pandemic recovery, which will determine tenants' ability to return to normal levels of trading and their financial capacity to meet these commitments.

In the Longmartin joint venture, at 19 February 2021, 78% of rent for the quarter to December 2020, and 66% of rents for the quarter to March 2021, had been collected. The higher relative collection rate, compared with that for the wholly-owned portfolio, mainly reflects the higher proportion of office rental income from its portfolio.

Occupier demand and vacancy

Over recent months we have seen an increase in occupier interest, particularly from restaurateurs who are looking to open into recovering footfall later in 2021 once they have completed their fit out. For these, we are typically agreeing slightly longer rent-free periods and some stepped rents to assist their cash flows through the recovery period.

Whilst retail demand remains subdued, we are receiving enquiries from retailers attracted by our relatively small and affordable space and historically busy streets. They are generally seeking shorter, flexible leases, with an element of risk-sharing in the early years of a lease. These are likely to become common features of leasing discussions while West End retail vacancy is at historically high levels.

With continuing government advice for employees to work from home, there has been an increase in the number of vacant small office suites. However, we are currently seeing occupier interest and expect our flexible and affordable office space to continue to attract demand as the workforce returns to the West End.

Residential leasing volumes are holding up and vacancy has stabilised, although over the past year the availability of apartments to let in the West End has increased, which is resulting in a softening of rents. However, given the long-term structural shortage of accommodation in the West End, we are confident that residential space in our areas will remain popular as the recovery gets underway.

EPRA vacancy has increased by 0.6% to 10.8% of total ERV over the period and, at 31 January 2021, extended to 226,000 sq. ft. of commercial and residential space. The net increase, after newly vacated space and lettings, is largely due to scheme completions during the period. Of the total, 2.8% was under offer at 31 January 2021.

EPRA vacancy at 31 January 2021

1.    ERV at 30 September 2020

Available-to-let vacancy totalled £11.0 million, representing 8.0% of ERV. This comprised eleven restaurants and cafés (ERV £1.9 million), seven large and seventeen small shops (combined ERV: £2.8 million), 42 office suites across 47,100 sq. ft. (ERV: £3.1 million) and 119 apartments (ERV: £3.2 million).

Space with a rental value of £3.9 million (2.8% of ERV) was under offer. This included eleven restaurants and cafés (ERV: £1.4 million), nine shops (ERV: £1.2 million), five office suites (10,600 sq. ft.; ERV: £0.8 million) and seventeen apartments (ERV: £0.5 million).

Looking ahead, EPRA vacancy may increase in the near term through a combination of the completion of schemes currently in progress, lease expiries, occupier defaults and subdued leasing demand. Our continued tenant support until such time as the recovery is firmly established will be important in mitigating this risk and we believe the location, nature and relatively-affordability of the space we offer will be attractive to prospective occupiers.

At 31 January 2021, our 50% share of the ERV of Longmartin's vacant space was £0.9 million (30.9.2020: £1.0 million).

Asset management

At 31 January 2021, space held for, or under, refurbishment in the wholly-owned portfolio extended to 190,000 sq. ft., and represented 9.5% of total ERV, down 0.6% since 30 September 2020 following the completion of schemes. 

Space held for or undergoing refurbishment at 31 January 2021

1.    ERV at 30 September 2020

Our 77,000 sq. ft. mixed-use scheme at 72 Broadwick Street is progressing. Whilst Covid-19 restrictions have caused some disruption to site activity since the New Year, we expect the scheme to complete in phases from summer 2021.

At 31 January 2021, other schemes extended to 113,000 sq. ft. (30.9.20: 123,000 sq. ft.), including space handed back since the start of the pandemic, which we are now refurbishing. Most of the schemes in progress are expected to complete in the coming twelve months and, unless pre-let, will add to EPRA vacancy.

Our 50% share of the ERV of Longmartin's space under refurbishment at 31 January 2021 was £0.5 million (30.9.2020: £0.1 million).

Acquisitions

Since 1 October 2020, we have added to our existing ownership clusters, acquiring two buildings in Covent Garden for £5.6 million, including costs.

In light of the protracted lockdown, we have suspended discussions with the vendor of the leasehold of 90/104 Berwick Street. Whilst this acquisition remains of interest, there is no certainty a transaction will be concluded.

Finance

At 31 December 2020, net debt was £701.6 million (30.9.20: £692.6 million, pro-forma for the November 2020 equity issue and subsequent refinancing activity). Available liquidity totalled £358.2 million, comprising £258.2 million of cash and an undrawn revolving credit facility amounting to £100 million.

We have the benefit of interest cover covenant waivers in respect of our term loans and revolving credit facility ranging from July 2021 to January 2022.  We continue to comply with the interest cover covenants in our two public bonds. The Longmartin board has now agreed an interest cover covenant waiver extension to January 2022 with the provider of its £120 million secured term loan.

Notes for editors

Shaftesbury is a Real Estate Investment Trust which invests exclusively in the liveliest parts of London's West End. Focused on food, beverage, retail and leisure, our portfolio is clustered mainly in Carnaby, Seven Dials and Chinatown, but also includes substantial ownerships in East and West Covent Garden, Soho and Fitzrovia.

Extending to 16 acres, the portfolio comprises 1.1 million sq. ft of restaurants, cafés, pubs and shops, 0.4 million sq. ft. of offices and 0.4m sq. ft. of apartments¹. All our properties are close to the main West End Underground stations, and within ten minutes' walk of the two West End transport hubs for the Elizabeth Line, at Tottenham Court Road and Bond Street.

In addition, we have a 50% interest in the Longmartin joint venture, which has a long leasehold interest, extending to 1.9 acres, in St Martin's Courtyard in Covent Garden.

1.     Area excludes apartments which are effectively sold-off on long leases

Our purpose

Our purpose is to curate vibrant and thriving villages in the heart of London's West End. Our proven management strategy is to create and foster distinctive, attractive and prosperous locations. We have an experienced management team focused on delivering our long-term strategic objectives, ultimately to deliver a positive, long-lasting contribution to the West End.

Our values

We have five core values that are fundamental to our behaviour, decision making and the delivery both of our purpose and strategic objectives: being human in how we operate, original in how we nurture talent and think, community minded in our approach to the West End, being responsible and long term in our approach to everything.

Since 2015, we have supported the UN Global Compact principles of sustainability and, in 2019, we integrated the UN Sustainable Development Goals into our sustainability strategy. We have long been committed to operating in a sustainable way. At the core of our sustainability strategy is reusing and improving, rather than redeveloping buildings. In doing so, we extend the useful economic lives of these buildings while preserving the West End's rich heritage for future generations.

Forward-looking statements

This document, the latest Annual Report and Shaftesbury's website may contain certain "forward-looking statements" with respect to Shaftesbury PLC (the Company) and the Group's financial condition, results of its operations and business, and certain plans, strategy, objectives, goals and expectations with respect to these items and the economies and markets in which the Group operates. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "anticipates", "aims", "due", "could", "may", "should", "expects", "believes", "intends", "plans", "targets", "goal" or "estimates" or, in each case, their negative or other variations or comparable terminology.

Forward-looking statements are not guarantees of future performance. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Many of these assumptions, risks and uncertainties relate to factors that are beyond the Group's ability to control or estimate precisely. There are a number of such factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements.

Any forward-looking statements made by, or on behalf of, Shaftesbury PLC speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Except as required by its legal or statutory obligations, Shaftesbury PLC does not undertake to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

Information contained in this document relating to Shaftesbury PLC or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance. Nothing contained in this document, the latest Annual Report or Shaftesbury's website should be construed as a profit forecast or an invitation to deal in the securities of the Company.

Ends