Source - LSE Regulatory
RNS Number : 3666J
Shaftesbury PLC
23 August 2021
 

Shaftesbury PLC

Trading update

 

Significant reduction in vacancy as

West End footfall and trading recover, and operating environment improves

 

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 April 2021 to 20 August 2021.

 

Summary

 

·    West End footfall and trading recovering and operating environment improving:

 

- So far, weekly West End footfall has recovered to 50%-60% of pre-pandemic levels as Londoners, domestic day trippers and staycation visitors have returned in growing numbers.

- Return of the West End's exceptionally large office-based working population anticipated from early autumn.

- Our hospitality and leisure occupiers continue to enjoy a strong recovery in trading levels with visitors focussing their attention on dining, leisure and socialising.

- Our retailers are reporting improving trade, particularly at weekends.

·    Continuing recovery in occupier demand across all uses; significant reduction in vacancy:
 

- Increased occupancy across all uses:

- Available-to-let vacancy at 31 July 2021 down to 4.6% (31.3.21: 8.4%). Encouraging pace at which space continues to go under offer.

- Further decrease to 4.1% by 13 August 2021, reflecting continuing leasing momentum.

- Hospitality and leisure demand improved over the period, reflecting confidence in the long-term prospects for our West End locations.

- Healthy occupier interest for our shops, including online retailers looking for physical space in our areas to provide consumer experience, interaction and engagement and further enhance their brand identity.

- Office enquiries, viewings and lettings continue at a steady pace as occupiers prepare for the return of their workforces and look to improve the quality of their workspace. Assemble, our fully fitted option, is proving particularly popular, especially with smaller businesses.

- Marked and sustained increase in demand for our apartments from a broad range of occupiers; rents have now stabilised.

- Letting terms are generally in line with ERVs and our expectations, but there is a greater degree of short-term income uncertainty in those retail leases which have a significant element of turnover-related rent.

·    Rent collection recovering and expected to improve further now pandemic restrictions have been relaxed:

 

- Amounts collected to date:

- Three months to 31 December 2020: 49% of contracted rent; 78% of rent billed (after allowing for rent waivers granted).

- Three months to 31 March 2021: 40% of contracted rent, despite continued trading restrictions; 77% of rent billed.

- Three months to 30 June 2021: 51% of contracted rent; 73% of rent billed.

- July 2021: 55% of contracted rent; 62% of rent billed; confident that further collections will be made over the coming month.

 ·    Investing in our buildings:
 

- Continuing proactive asset management to improve our buildings to adapt to changing occupier requirements, enhance environmental performance and augment long-term income prospects.

- Reconfiguring some larger shops, reflecting the acceleration of retailer demand for smaller, more affordable space to showcase their brands.

- Further progress on 72 Broadwick Street:

- Retail and restaurant space handed over (ERV: £0.5m).

- Final completion anticipated early in 2022.

·    Acquisitions and disposals:
 

- Disposal of one non-core building in Soho for £5.3 million, 11% ahead of valuation at 31 March 2021. Further disposals of a limited number of buildings no longer core to our long-term strategy being considered.

- Contracted acquisitions of two buildings, adjoining existing ownerships in Seven Dials, for a combined £12.0 million (plus purchase costs).

·    Strong financial base:

 

- Available liquidity at 30 June 2021: £330.7 million.

- £134.8m term loan interest cover covenant waiver extension agreed from July 2021 to January 2022.

 

 

Brian Bickell, Chief Executive, commented:

 

"I'm pleased to report positive momentum in recent months, with footfall and trading recovering, an improving operating environment and significantly reduced vacancy across our villages. West End footfall has, to date, recovered to 50-60% of pre-pandemic levels, as Londoners, domestic day trippers and staycation visitors return in growing numbers. We expect that early autumn will see a return of the West End's exceptionally large office-based working population, which has always been an important contributor to our local weekday economy.

 

The long-term curation we bring to our central, bustling villages, with its focus on differentiated, mid-market choices targeted primarily at a domestic audience, continues to attract both visitors and new occupiers. The progress we have seen towards a return to normal patterns of activity over the period, and improving medium-term prospects, have been catalysts for a strong recovery in confidence and leasing activity, both for commercial and residential accommodation across our locations.

 

The momentum of the last four months is providing a sound platform for the continuing revival of the West End in the important months ahead, leading up to Christmas and into the New Year, and the prospects for a return to pre-pandemic patterns of life and activity."

  

 

23 August 2021

For further information:

Shaftesbury PLC 020 7333 8118

Brian Bickell, Chief Executive

Chris Ward, Finance Director

RMS Partners 020 3735 6551

Simon Courtenay

MHP Communications 020 3128 8193

Shaftesbury@mhpc.com

Oliver Hughes/Rachel Farrington

Shaftesbury PLC LEI: 213800N7LHKFNTDKAT98
 

 

Introduction

 

The period since 1 April 2021 has seen the phased lifting of most of the Government's pandemic-related restrictions and recovering footfall and trading across the West End. From 19 July 2021, hospitality and retail businesses, along with hotels, theatres, cinemas, nightlife and visitor attractions have been able to trade at their pre-pandemic capacity for the first time since March 2020.

 

The progress we have seen towards a return to normal patterns of activity over the period, and improving medium term prospects, have been catalysts for a strong recovery in confidence and leasing activity, both for commercial and residential accommodation across our locations. The momentum of the last four months is providing a sound platform for the continuing revival of the West End in the important months ahead, leading up to Christmas and into the New Year, and the prospects for a return to pre-pandemic patterns of life and activity.    

 

West End footfall and trading recovering and operating environment improving

 

So far, West End footfall has recovered to 50%-60% of pre-pandemic levels, as Londoners, domestic day trippers and staycation visitors have returned in growing numbers. The long-term curation we bring to our central, bustling locations, with its focus on differentiated, mid-market choices targeted primarily at a domestic audience, continues to underpin the enduring appeal of our villages.

 

The West End's exceptionally large office-based working population has always been an important contributor to our local weekday economy. The one-month delay in the Government's advice regarding "return to the office", finally announced in July 2021, has held back the anticipated recovery in weekday footfall, but we expect that early autumn will see a return of the office workforce.

 

International travel continues to be affected by pandemic control measures and UK inbound tourism has yet to see a significant recovery. As traveller confidence returns, current expectations are for an initial recovery in short-haul visitors from next year, followed by long haul traffic from 2023.

 

Our hospitality and leisure occupiers, which represent around 40% of our current rent roll, continue to enjoy a strong recovery in trading levels. The al fresco dining schemes implemented by Westminster and Camden councils have played a valuable role in re-animating streets following the protracted lockdowns, as well as providing additional outdoor trading capacity. Although the schemes are temporary, we already have permanent consents for an extensive number of seats across our carefully managed, pedestrianised areas, and the success of the al fresco schemes may enable us to increase that capacity where local conditions allow. For all hospitality businesses, staffing issues remain, until recently exacerbated by periods of self-isolation following "track and trace" notifications, which in some cases have resulted in temporary closures.

 

For retail, representing circa 30% of our rent roll, trading has, to date, shown encouraging signs of improvement albeit less buoyant than in the hospitality sector. Although West End footfall is growing, visitors have been focussing their attention on dining, leisure and socialising, and weekday shopping behaviour has been weather dependent. Many of our retailers are currently reporting better trade, particularly at weekends, as well as improved customer conversion rates with consumers shopping with a more defined sense of purpose. Anecdotally, youth fashion brands in our locations are gaining customers following the closure of shops on Oxford Street and Regent Street.

 

Continuing recovery in occupier demand across all uses; significant reduction in vacancy

 

The recovery in occupier demand reported in our interim results has continued, resulting in a significant decrease in vacancy, and the pace at which space continues to go under offer is encouraging.  At 31 July 2021, available-to-let vacancy was 4.6% of portfolio ERV, down from 8.4% at 31 March 2021, and included a recently completed retail unit at our 72 Broadwick Street scheme. With leasing momentum continuing since 31 July 2021, this had decreased to 4.1% by 13 August 2021.

 

Whilst letting terms are generally in line with ERVs and our expectations, there is a greater degree of short-term income uncertainty in those retail leases which include a significant element of turnover-related rent.

 

 

Available-to-let vacancy at 31 July 2021

 

 

Hospitality
and leisure

Retail

Offices

Residential

Total

31.3.21

Available

 

 

 

 

 

 

ERV (£m)

0.8

1.6

1.8

1.6

5.8

10.4

% of portfolio ERV

0.6%

1.2%

1.3%

1.2%

4.3%

7.8%

Temporary lettings

 

 

 

 

 

 

ERV (£m)

-

0.4

-

-

0.4

0.7

% of portfolio ERV

-

0.3%

-

-

0.3%

0.6%

Total

 

 

 

 

 

 

ERV (£m)

0.8

2.0

1.8

1.6

6.2

11.1

% of portfolio ERV

0.6%

1.5%

1.3%

1.2%

4.6%

8.4%

 

Demand for hospitality and leisure space has improved since our interim results, reflecting occupier confidence in the long-term prospects for our West End locations. Interest is dominated by independents and, encouragingly, some existing occupiers are seeking additional sites with us and the best sites are attracting multiple bids.

 

We have a healthy level of new retail enquiries for the small and relatively affordable space in our streets, although, currently, leases generally remain shorter and usually include an element of turnover-based rent. Demand is from a broad mix of independent brands or concepts, together with established domestic and international retailers, who are now choosing our areas as their base in central London, showing confidence in our curated villages where they can trade alongside like-minded retailers. More and more, these brands have strong social responsibility ethics, which resonate with our target consumer. With the online market becoming congested and more costly for retailers, we are seeing good interest from online businesses looking for physical space in our areas to provide consumer experience, interaction and engagement and further enhance their brand identity.

 

Vacant space across our upper floors accounts for 55% of available-to-let vacancy, despite offices and residential representing around only 30% of our rent roll. At 31 July 2021, available vacant space across these uses was 2.5% of portfolio ERV, down from 5.3% at 31 March 2021 following a busy period of leasing activity.

 

It is noticeable that businesses are now re-evaluating their office space requirements, remaining keen to maintain a West End base, planning for the return of their workforces, and looking to improve the quality of their workspace. Assemble, our fully fitted option, is proving particularly popular, especially with smaller businesses, as the trend towards greater flexibility, speed of occupation and collaboration in office working practices accelerates. Consequently, office enquiries and viewings continue at a steady pace. At 31 July 2021, we had 32 office suites available across 29,000 sq. ft. (31.3.2021: 50 suites across 62,000 sq. ft.).

 

Over the period, there has been a marked and sustained increase in demand for our apartments from a broad range of occupiers, materially reducing our vacancy levels. At 31 July 2021, we had 65 available apartments, down from 123 at 31 March 2021. After a market-wide adjustment in rental levels since the start of the pandemic, rents have now stabilised.

 

Space under offer

 

At 31 July 2021, space under offer extended to 97,000 sq. ft. (31.3.2021: 67,000 sq. ft.) and represented 4.9% of portfolio ERV, up 1.4% since 31 March 2021.

 

Space under offer at 31 July 2021

 

 

Hospitality
and leisure

Retail

Offices

Residential

Total

31.3.21

ERV (£m)

2.4

1.9

1.4

0.8

6.5

4.7

% of portfolio ERV

1.8%

1.4%

1.1%

0.6%

4.9%

3.5%

 

We remain confident that the locations, size and relative affordability of our space, together with our widely recognised strategy of supporting our occupiers, from a flexible leasing approach to the consistent curation of our areas, will continue to be important both to retaining current tenants as well as attracting new businesses.  

 

Rent collection improving

 

Since 1 April 2021, we have seen a gradual improvement in rent collection rates.

 

Rent collection % to date

 

 

3 months to 31 December 2020

3 months to 31 March 2021

3 months to 30 June 2021

July 2021

% of contracted rent

49%

40%

51%

55%

% of rent billed (after waivers granted to occupiers)

78%

77%

73%

62%

 

We have now collected 45% of contracted rent for the six months to 31 March 2021, up from 43% reported in our interim statements. After allowing for rent waivers granted to occupiers, we have collected 78% of amounts billed.

 

For the three months to 30 June 2021, which included periods of total or partial lockdowns, to date, we have collected 51% of contracted rent and 73% of amounts billed.

 

To date, we have collected 55% of July's contracted rent and 62% of amounts billed, and we are confident that further collections will be made over the coming month.

 

We expect the collection rate will improve further now that pandemic restrictions have been relaxed, albeit, as previously reported, it is likely that tapering occupier rental support will continue on a case-by-case basis, reflecting improving trading conditions but recognising the winding down of government business support measures in the months ahead.  

 

Investing in our buildings

 

We continue to improve and repurpose our buildings to adapt to ever-changing occupier requirements, enhance environmental performance and augment our portfolio's long-term income prospects. The reconfiguration of some of our larger shops continues, reflecting the acceleration of retailer demand for smaller, more affordable space to showcase their brands. Where space is released, we introduce alternative uses, taking advantage of recent changes in planning regulations where possible.

 

72 Broadwick Street: ERV £5.2 million; 3.9% of ERV (31.3.2021: 4.3%)

 

 

 

 

 

 

 

 

Hospitality and leisure

£m

Retail

£m

Offices

£m

Residential

£m

Total

£m

% of total ERV

Scheme ERV at 31 March 2021

3.3

0.3

1.6

0.5

5.7

4.3%

Space completed and handed over:

 

 

 

 

 

 

Retail1

-

(0.3)

-

-

(0.3)

 

Restaurant2

(0.2)

-

-

-

(0.2)

 

Space to now be let as offices3

(0.6)

-

0.6

-

-

 

Scheme ERV at 31 July 2021

2.5

-

2.2

0.5

5.2

3.9%

 

 

 

 

 

 

 

Pre-let

2.5

-

-

-

2.5

1.9%

Available to let once completed

-

-

2.2

0.5

2.7

2.0%

                   

1.   Let on temporary basis while development of adjoining space continues. Now included in available-to-let vacancy

2.   Now included in space under offer

3.   Having secured dual use planning consents over certain parts of the building, we have now reclassified 9,500 sq. ft. of space from hospitality and leisure to offices.

 

Further progress has been made as this scheme approaches completion. Since 1 April 2021, retail and restaurant space with an ERV of £0.5 million has been handed over. The remainder of the scheme will complete in phases over the coming months, although with legacy pandemic issues, including labour and materials shortages, we currently anticipate final completion will now be in early 2022.

 

The hospitality and leisure space is pre-let to Equinox, an American fitness and lifestyle brand, with handover expected in the New Year and we already have early interest in the office accommodation. Once complete, we will market the fifteen new apartments for rent and are currently evaluating a furnished offering.

 

Other schemes: ERV £6.3 million; 4.8% of ERV (31.3.2021: 4.8% of ERV)

 

At 31 July 2021, other space held for, or under refurbishment extended to 104,000 sq. ft. with an ERV of £6.3 million, of which 6,000 sq. ft. (ERV: £0.4 million) was let on a short-term basis pending commencement of works. Schemes comprised 20,000 sq. ft. of hospitality and leisure space, 17,000 sq. ft. of retail, 54,000 sq. ft. of office accommodation and 19 apartments. Of the total, hospitality and office space extending to 11,000 sq. ft. (ERV £0.6 million) was under offer.

 

Acquisitions and disposals

 

As previously reported, in April 2021, we completed the disposal of one non-core building in Soho for £5.3 million, 11% ahead of valuation at 31 March 2021. Further disposals of a limited number of buildings no longer core to our long-term strategy are being considered.

 

In Seven Dials, we have acquired one building and contracted to purchase another, for a combined £12.0 million plus acquisition costs. Adjoining existing ownerships, both add to this important asset cluster and offer medium-term asset management opportunities.

 

We are aware of other buildings potentially becoming available in our areas which would add to the long-term value of our established ownership clusters.

 

Strong financial base

 

At 30 June 2021, net debt was £729.1 million (31.3.21: £722.6 million). Available liquidity totalled £330.7 million, comprising £230.7 million of cash and an undrawn revolving credit facility amounting to £100 million.

 

Since 1 April 2021, we have extended the interest cover covenant waiver in respect of our £134.8 million term loan to January 2022. Our nearest term ICR waiver maturity, relating to our undrawn £100 million revolving facility, is in October 2021. In the event we require an extension to this waiver and it is either not granted, or is subject to restrictions we find unacceptable, our liquidity position would allow us to part cancel or terminate the facility ahead of its contractual maturity.

 

Notes for editors

 

Shaftesbury is a Real Estate Investment Trust which invests exclusively in the liveliest parts of London's West End. Focused on hospitality and retail, 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 apartments. 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.

 

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

The core values that are fundamental to our behaviour, decision making and the delivery both of our purpose and strategic objectives are: 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.

 

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.

 

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