TIDMSHB
RNS Number : 6299I
Shaftesbury PLC
15 December 2020
SHAFTESBURY 2020 FULL YEAR RESULTS
Positioning the business, financially and operationally,
to return to long-term prosperity and growth
Shaftesbury PLC, the Real Estate Investment Trust that owns a
16-acre portfolio in the heart of London's West End, today
announces its results for the year ended 30 September 2020.
Brian Bickell, Chief Executive, commented:
"Rarely in history has the world seen such widespread disruption
to normal patterns of life. Only now are we seeing the first
positive signs that conditions will begin to improve in the year
ahead.
The pandemic has had a significant impact on our performance,
particularly during the second half of the financial year,
depriving our hospitality and retail occupiers of footfall and
trade and resulting in reduced rent collections, increased vacancy,
reduced occupier demand and a fall in property valuations. Our key
priority has been, and continues to be, supporting our occupiers
through this period of disruption.
The economies of London and the West End have a long history of
structural resilience, having weathered many episodes of challenge
and uncertainty. Their unique features, which come from a culture
of constant evolution across a broad-based economy, attracting
talent, creativity, innovation and investment from across the
world, will hasten their recovery and reinforce their enduring
appeal to businesses, visitors and residents alike. The long-term
prospects for our portfolio, located in the busiest and liveliest
parts of the West End, are underpinned by these valuable qualities,
together with the experience, innovation and enthusiasm of our
team.
Although near-term challenges will be with us throughout 2021, I
am confident we are well placed, both financially and
operationally, to return to long-term prosperity and growth as the
current global and local pandemic disruption recedes into history.
"
Highlights
Covid-19: supporting occupiers and collaborating with other
stakeholders
-- Maintaining occupancy across our portfolio, wherever
possible, to position for sustained recovery over the medium- and
long-term.
-- Continuing to provide operational and tailored financial
support for occupiers in the form of rent waivers, drawing on
rental deposits, payment plans and lease restructuring.
-- Collected 53% of contracted rent for six months to 30
September 2020; 34% deferred or waived and 13% outstanding
-- Moved permanently to monthly rents in advance for most
commercial tenants from October 2020.
-- Increased collaboration with neighbouring estates and
stakeholders on operational matters and marketing to encourage
visitors to return to the West End when safe to do so.
-- The Government has announced that London and parts of the
Home Counties will be moving to Tier 3 restrictions, beginning from
16 December until further notice. As a result, all hospitality
businesses will close other than for takeaway or home delivery
services and non-essential travel into or out of the Tier 3 area is
discouraged.
Impact of Covid-19 on net property income and earnings, vacancy
and property values
-- Net property income down 24.2% to GBP74.3m (2019: GBP98.0m)
largely due to consequences of the pandemic including:
- 3.5% like-for-like decrease in rental income
- Charges for expected credit losses and impairments of GBP21.9m
-- Loss after tax: GBP699.5m (2019: profit of GBP26.0m).
Decrease primarily due to revaluation deficits in the current
year
-- EPRA earnings(1) : GBP29.4m, down 46.2% (2019: GBP54.6m).
-- EPRA NAV(1) : GBP7.43, down 24.3% (2019: GBP9.82)
-- EPRA vacancy: 10.2%, up 6.5 percentage points (2019:
3.7%)
-- The Board has announced previously that it would not propose
an interim or a final dividend.
- Intention is to resume dividend payments as soon as the Board
considers prudent, maintaining its policy of sustainable dividend
growth over the long term.
- The pace of the post-pandemic income recovery and our REIT PID
obligations, will be key factors in the Board's near-term decisions
on declaring dividends.
Valuation declines due to near-term income uncertainty, fall in
occupier demand and increasing vacancy across the West End
Wholly-owned portfolio valuation: GBP3.1bn (down 18.3%)(2) ;
revaluation deficit of GBP698.5m
-- Equivalent yield increased 48 basis points to 3.95%
reflecting current economic and operational uncertainties: (2019:
3.47%).
-- Portfolio ERV down 6.6%(2) to GBP140.3m (2019: GBP149.7m) as
West End vacancy increased and ongoing social-distancing measures
reduced near-term occupier demand.
-- Deduction for valuers' estimates of near-term loss of rental
income due to continuing tenant support and lower occupancy
-- Residential values fell between 7.5% and 10%, reflecting
increased near-term availability of space to let in the West
End
-- Portfolio reversionary potential: GBP30.4m, 27.7% above
annualised current income, the largest components of which relate
to vacant space (GBP14.4m) and refurbishment schemes expected to
complete in the coming year (GBP14.3m).
Longmartin joint venture valuation(3) : GBP175m (down 16.9%)(3)
; revaluation deficit of GBP35.8m(3)
-- 40.1% decline in Long Acre retail space over the year; 17.4%
decline in restaurant and leisure space.
-- Equivalent yield: 4.11%; up 17 basis points (2019:
3.94%).
-- ERV: GBP8.8m, down GBP1.2m.
Leasing and vacancy: activity since February declined sharply
due to Covid-19
-- Leasing activity below normal levels but now seeing
encouraging levels of enquiries .
-- Leasing transactions with a rental value of GBP23.6m,
completed during the year (2019: GBP33.5m).
- Commercial letting volume in six months to September 2020: GBP2.1m down 77% on H1.
-- EPRA vacancy: 10.2%, up 6.5 percentage points (2019: 3.7%);
the majority since the start of the pandemic.
Refurbishment, reconfiguration and repurposing of space:
continuing to adapt to evolving demand
-- Redevelopment and refurbishment schemes across 200,000 sq.
ft. Capital expenditure: GBP34.8m.
-- ERV of space under refurbishment at 30 September 2020:
GBP14.3m, 10.1% of portfolio ERV (2019: 10.4%).
-- 72 Broadwick Street: 48% of commercial space, by ERV,
conditionally pre-let; pre-let of office space did not proceed;
scheme completing in phases during the FY 2021, total ERV
GBP5.9m.
-- Other schemes with an ERV of GBP5.1m are expected to complete
by spring 2021.
Acquisitions
-- Acquired three buildings in Carnaby and Soho for GBP13.3m.
One building acquired in Seven Dials for GBP2.8m since year
end.
-- 90-104 Berwick Street: scheme now completed but vendor failed
to meet contractual obligations; further discussions continuing but
outcome not certain.
-- Covid-19 near-term uncertainties may present opportunities to
add to our portfolio, but short-term priority to preserve liquidity
until conditions stabilise.
Finance:
Position at 30 September 2020:
-- LTV(1,4) : 31.5% (2019: 23.9%); increase due to declining
property valuations.
-- Available liquidity (after commitments): GBP166.8m; but
reliant on ICR covenant waivers to deal with near-term period of
lower rent collections and increasing vacancy.
-- Declining property values elevating LTV risk.
-- Weighted average maturity of debt: 8.3 years (2019: 9.3
years); earliest maturity GBP125m facility in May 2022
Equity issue in November 2020 to maintain strong financial base
and prudent level of liquidity and to position for return to
long-term growth as pandemic recedes
-- 76.75m new shares issued at GBP4.00 per share; net proceeds
GBP294.4m.
-- Cancelled GBP125m facility due to expire in May 2022
- removing near-term refinancing risk
- releasing GBP252m of charged properties giving us greater remaining LTV headroom
- eliminating GBP0.8m pa commitment cost
-- Repaid GBP100m facility; but available to redraw subject to
complying with covenants
Pro forma position at 30 September 2020
-- LTV 22.1%; available liquidity (after commitments) of
GBP336.2m to fund forecast revenue and cash outflows to September
2022.
-- Weighted average maturity of debt: 9.0 years; earliest
maturity now 2023 (GBP100m).
-- Income covenant waiver extensions now agreed on term loans
and revolving credit facility to between July 2021 and January
2022.
Sustainability
-- Central to our strategy is the sustainable re-use of existing
buildings, repurposing and enhancing their environmental
impact.
-- Community support through donations, time and in-kind
donation of space amounted to GBP866,000.
- Includes Covid-19 Community Fund provided GBP310,000 financial
and in-kind support to local groups addressing urgent needs in
Westminster and Camden through the pandemic; supported by 20%
waiver of Board remuneration from April to July.
Outlook
-- Pandemic control measures likely for much of 2021 but impact
reducing as conditions improve.
-- Gradual sustained return of local and domestic footfall as
confidence returns.
-- Priority to maintain occupancy and street-level
activation.
-- Continuing financial and operational support for occupiers
but tapering as trading recovers.
-- Confident the West End and Shaftesbury's portfolio will
return to long-term prosperity and growth as the current global and
local pandemic disruption recedes.
Statement of Comprehensive Income 2020 2019 Change
----------------------------------- ------- -------- ----- --------
Reported results
Net property income GBPm 74.3 98.0 (24.2)%
(Loss)/profit after tax GBPm (699.5) 26.0
Basic earnings per share Pence (227.5) 8.5
Total dividends for the year Pence - 17.7
----------------------------------- ------- -------- ----- --------
EPRA results(1)
Earnings GBPm 29.4 54.6 (46.2)%
Earnings per share Pence 9.6 17.8 (46.1)%
----------------------------------- ------- -------- ----- --------
Balance Sheet
Net assets GBPm 2,281 3,007 (24.2)%
Net asset value per share(1) GBP 7.42 9.78 (24.1)%
EPRA(1)
Net assets GBPm 2,290 3,021 (24.2)%
Net asset value per share GBP 7.43 9.82 (24.3)%
Total Accounting Return % (23.4)% 0.8%
----------------------------------- ------- -------- ----- --------
15 December 2020
1. Alternative performance measure ("APM"). The Group uses a
number of measures to assess and explain its performance, some of
which are considered to be APMs as they are not defined under IFRS.
See below.
2. Like-for-like
3. Our 50% share
4. Based on net debt
For further information:
Shaftesbury PLC 020 7333 8118 RMS Partners 020 3735 6551
Brian Bickell, Chief Executive Simon Courtenay 07958 754273
Chris Ward, Finance Director
MHP Communications 020 3128 8100
Oliver Hughes 020 3128 8622
Reg Hoare 020 3128 8793
Shaftesbury PLC LEI : 213800N7LHKFNTDKAT98
See Glossary of terms below.
The person responsible for arranging the release of this
announcement is Desna Martin, Company Secretary.
There will be a presentation to equity analysts via webcast at
9.30 am on Tuesday 15 December 2020, which can be accessed via the
following link: https://brrmedia.news/tv356 or the Group's website
www.shaftesbury.co.uk . A recording of the webcast will be
available via these links later in the day. The presentation
document is available on the Group's website.
Bondholders
For bondholders, there will be a credit update conference call
at 3.00 pm on Tuesday 15 December 2020. Those wishing to
participate in the call should obtain an access code ahead of the
call by contacting Stuart Bell on 020 3542 3921 or
stuart.bell@idcm.eu.com
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 611 restaurants,
cafés, pubs and shops, extending to 1.1 million sq. ft., 0.4
million sq. ft. of offices and 624 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
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
Chief Executive's Statement
Rarely in history has the world seen such widespread disruption
to normal patterns of life, which came without warning from the
beginning of 2020. In the UK, since 2016, Brexit and its political
ramifications dominated the national agenda but the result of the
December 2019 general election brought certainty and early signs of
a return of business and consumer confidence. However, this was
short-lived, as concerns regarding the Covid-19 virus grew rapidly,
and governments around the world introduced measures never before
seen in peacetime to address the pandemic. Only now are we seeing
the first positive signs that the crisis could recede in the year
ahead. However, the social and economic consequences of the
disruption we have all experienced this year will be important
factors in the pace of recovery in the months and years ahead.
Impact of the Covid-19 pandemic on London's West End
At the heart of one of the world's great cities, the West End's
long record of success reflects its domestic and global appeal to
businesses, visitors and residents. In normal times, its
flourishing commercial and leisure economy draws over 200 million
visits annually, which supports its rich and unrivalled offer of
cultural and historic attractions, hospitality choices and
shopping. The bedrock of this footfall are Londoners, its huge
working population, and daily domestic leisure visitors.
Measures to contain the pandemic continue to have a material
effect on normally busy city centres around the world. Since March,
there has been a material and sustained reduction in the West End's
economy as a result of measures imposed to contain the spread of
Covid-19 infections as a consequence of:
-- Advice to avoid unnecessary travel and use of public
transport;
-- For office-based workers, recommendation to avoid commuting
and work from home wherever possible;
-- Closure of non-essential retail and all hospitality from late
March until the end of June, and again throughout November;
capacity constraints when open to maintain social distancing;
-- Continuing closure of theatres, bars and clubs, which has
severely curtailed the West End's renowned evening and night-time
economy; and
-- A collapse in international leisure and business travel due
to border control restrictions around the world.
Businesses across the West End which, either directly or
indirectly, rely on its usually-predicable, exceptional daily
levels of visitors and spending have seen their income and cash
flow severely affected by this pandemic-related disruption,
resulting in growing levels of vacancy and a significant reduction
in demand for space due to uncertainty of the timing of a return to
normalised conditions.
A large proportion of our 624 apartments are let to people from
overseas, who come to London to work or study. Inevitably, as
pandemic uncertainties grew, many chose for personal reasons to
vacate and quickly return to their countries of origin.
Shaftesbury's response to this unprecedented situation
In our long-term management strategy for our villages, we have
always recognised our responsibility to our commercial occupiers to
ensure the trading environments we curate, and the support we
offer, provide the conditions for their businesses to flourish. We
are also conscious of our responsibilities to our residential
tenants and a wide range of local stakeholders.
As soon as we saw the early, rapid impact of the pandemic in
Chinatown, it became clear that we should offer occupiers across
our locations, particularly those reliant on daily footfall,
financial and other assistance to enable them to weather a
prolonged period of business disruption and through the gradual
return to more-normal trading. Similarly, we would support our
residential tenants, including those from overseas who wished to
return home or were affected by reduction or loss of employment
income, as a result of the pandemic.
Extensive engagement with our commercial occupiers has focused
on providing financial assistance tailored to their particular
circumstances to give them the confidence to resume trading as and
when conditions permit. This has principally been though rent
waivers or deferrals, drawing on rent deposits and, where
appropriate, restructuring and extending leases to provide greater
certainty of occupation. We waived residential tenants' notice
periods if they needed to vacate early, or provided rental support
where appropriate.
The safety of those who work in, visit or live in our locations
has been paramount. Working with our occupiers, we have implemented
social distancing protocols across our buildings and public streets
and spaces, including provision of outdoor seating, enhanced
cleaning, hand sanitiser stations, signage and advice on Covid-safe
operating procedures.
Inevitably, our usual programme of events and activities to
promote our locations and our occupiers' businesses has been
affected by Government restrictions on public gatherings. We have
refocused our marketing activities to use social media channels to
maintain public engagement with our areas and occupiers, and
provide information and advice on changing Government guidance.
Impact of the pandemic on this year's financial performance
The first half of the financial year saw relatively normal
operating conditions, with the pattern of rent collection and
expenditure largely unaffected. However, there was a noticeable
decline in new lettings and enquiries from mid-February as pandemic
concerns grew and business confidence declined.
From March onwards, collections of rents and service charges
have been materially affected by occupiers' loss of trading and
income. Despite Government financial assistance, and our own
continuing initiatives to support occupiers, we are seeing an
increase in business failures, and the handing back of space not
only in our portfolio, but across the West End.
The uncertain near-term outlook is affecting the prospects of
collecting arrears and increasing the risk of tenant insolvency,
leading to a high level of charges for expected credit losses and
impairment of lease incentive and deferred letting balances
totalling GBP21.9 million at the year end.
As a consequence of the unprecedented operating conditions
throughout the second half, net property income fell to GBP74.3
million, a reduction of GBP23.7 million compared with last year.
After a revaluation deficit of GBP698.5 million, the loss after tax
was GBP699.5 million (2019: profit: GBP26.0 million). EPRA
earnings, which exclude revaluation gains and losses, declined to
GBP29.4 million compared with GBP54.6 million in 2019.
Over the year, our portfolio valuation decreased on a
like-for-like basis by 18.3% to GBP3.1 billion. This decline
reflects the expected loss of income until operating conditions
recover, an increase in vacancy across the West End, particularly
of retail and hospitality space, and subdued demand for space,
which together are affecting the near-term outlook for rental
levels and investor demand. The valuation decreases in both our
wholly-owned portfolio and the Longmartin joint venture were the
main drivers in net assets declining by GBP726.6 million to
GBP2,280.6 million. At 30 September 2020, EPRA NAV was GBP7.43 per
share, down 24.3% over the year (2019: GBP9.82 per share).
Steps we have taken to maintain the financial resilience of the
business
The Board has always followed a prudent, forward-looking
approach to ensuring the Group maintains a resilient financial
structure, with an appropriate mix of equity and debt to minimise
risk and support its long-term strategy.
Since April, with much-reduced income collection and growing
vacancy, our focus has been to conserve liquidity, reducing
non-essential expenditure, placing a moratorium on new schemes and
acquisitions, other than by exception. In addition, the Board took
the difficult decision to suspend dividends in respect of the
current financial year, with the intention of resuming
distributions as soon as there is a sustained recovery in rental
income to more-normal levels, whilst always complying with our REIT
PID obligations . We have continued open and constructive
discussions with our banks, term loan providers and bondholders to
keep them appraised of operational conditions and the impact of
Covid-19 disruption on their security. Where required, we have
continued to agree waivers of income-related covenants.
Anticipating the consequences of a protracted period of
pandemic-related disruption and recovery, and the potential
near-term implications for revenue and property values, in October
2020 the Board announced a fully-underwritten equity issue to raise
GBP297 million before costs, together with an open offer to raise a
further GBP10 million. Completed in November, the issue was
well-supported and raised GBP294.4 million net of costs which has
reduced our leverage and refinancing and asset-related covenant
risks, as well as providing working capital to fund forecast
operating losses and capital expenditure until macro and local
conditions stabilise and business confidence returns.
Supporting our team through the pandemic
An important factor in Shaftesbury's long-term success has been
the experience, local knowledge and commitment of our team, and an
open culture with a clear set of values which guide behaviours
across the business. Covid-19 disruption, and the priority of
ensuring the safety of our people, has meant we have been unable to
be physically together as a team since late March. Technology has
enabled the business to continue to operate, and we have found ways
to maintain close contact even while working remotely in this far
from ideal situation. In particular, we have addressed wellbeing
and stress issues, which arise in such unprecedented and uncertain
times, and when valued, spontaneous face-to-face interaction
between colleagues has been much reduced.
Being away from the office for an extended period has allowed us
to rethink our internal structure and procedures and review our
people reward arrangements, staff resource requirements and ways to
build more flexibility into our working routine, in anticipation of
returning to the office.
Sustainability priorities
Although Covid-19 issues have dominated our lives this year, we
have not lost sight of the importance of advancing our initiatives
to further reduce the environmental impacts of our business
operations, including action to address the global climate change
emergency, and ensuring our support for local communities responds
to the particular challenges they have faced this year.
Our approach to the sustainable re-use of existing buildings,
through repurposing and improving their environmental performance,
is a fundamental aspect of our strategy. We have now set ambitious
targets for reducing our own direct carbon emissions and will be
announcing Science Based Targets and a net zero carbon target in
2021. Air quality, greening, freight and waste consolidation and
working with our occupiers to help address their environmental
challenges and opportunities, will continue to be priorities in the
year ahead.
During the pandemic, together with neighbouring owners, we have
worked with Westminster and Camden councils to support the recovery
of local hospitality businesses with the provision of outdoor
seating to supplement their trading. This initiative has involved
pavement widening and partial road closures, which have been
generally well received, and have demonstrated how carefully
managed, permanent public realm measures can improve the local
environment for both residents and visitors.
Collaborating with our occupiers, neighbours and other
stakeholders is integral to our approach. Based in Carnaby,
"working above the shop", provides us with first-hand knowledge of
local issues and opportunities. The Board was conscious at the
outset of the March lockdown that communities around us, especially
young people, would face particular challenges. We established a
Covid-19 Community Fund, supported by waivers of 20% of Board
remuneration from April to July, which has provided financial and
in-kind support of over GBP310,000 to support local groups
addressing urgent needs across Westminster and Camden. Together
with our other donations, time and in-kind donations of space, our
community support this year amounted to GBP866,000.
Positioning the business for recovery
In the years to come, 2020 may be remembered as "The Covid-19
year which changed the world". The extent of disruption the
pandemic is having on the institutions of government, businesses
and communities is challenging accepted certainties and norms, with
long-term financial and other ramifications which are only now
beginning to become apparent. We are already seeing an acceleration
of pre-pandemic trends in retail, spending habits, working
practices and, perhaps, most importantly, how the priorities and
aspirations of the younger generation are changing.
Embracing change and innovation have always been part of
Shaftesbury's DNA. Our skills and approach in repurposing our
buildings to adapt to trends in occupier demand, curating our
locations to meet the ever-changing expectations of businesses and
the millions who visit, and collaborating with a wide range of
stakeholders, will enable us to navigate a fast-moving operating
environment. We are preparing further changes in the year ahead to
ensure we have the skill sets, data and agility to deliver the
continual evolution of our business model and operational
strategy.
In the year ahead, the widespread distribution of effective
vaccines will bring a gradual return of confidence and activity
across the West End and, a recovery in domestic footfall and
spending to our villages. At the present time, it is not possible
to predict at what point conditions will improve but it is likely
social distancing and other restrictions, with the risk of further
lockdowns, will continue into the spring and possibly early summer,
putting further financial strain on many of our occupiers. The
overhang of unusually high vacancy across the West End will take
time to be absorbed, but the particular appeal of our
carefully-curated locations, our innovative mid-market offer,
modest rents and flexible leasing terms, will be an important
advantage for us. Once stability has returned, we will consider
strategic acquisitions to our portfolio, and selective disposals of
buildings no longer considered core to our long-term strategy.
The direct and immediate impact of restrictions to control the
pandemic are being seen in cities across the country and much of
the world. However, the economies of London and the West End have a
long history of structural resilience, having weathered many
episodes of challenges and uncertainties. Their unique features,
which come from a culture of constant evolution across a
broad-based economy, attracting talent, creativity, innovation and
investment from across the world, will hasten their recovery and
reinforce their enduring appeal to businesses, visitors and
residents alike. The long term prospects for our portfolio, located
in the busiest and liveliest parts of the West End, are underpinned
by these valuable qualities, together with the experience,
innovation and enthusiasm our team bring to its management.
Although near-term challenges will be with us throughout 2021, I
am confident we are well placed, both financially and
operationally, to return to long-term prosperity and growth as the
current global and local pandemic disruption recedes into
history.
Brian Bickell
14 December 2020
Covid-19: impact and response
Impact on West End footfall and trading
The success and prosperity of the West End is based on its huge,
seven-days-a-week footfall comprising its large working population,
residents and domestic and international visitors.
Inevitably, the Covid-19 pandemic and Government-imposed social
distancing measures have had, and continue to have, a material
adverse effect on normal patterns of footfall, activity and
business in the West End.
From early February, growing reports regarding the rapid spread
of the Covid-19 virus began to impact leasing activity, with a
number of negotiations put on hold or terminated. From early March
there was a noticeable decline in visitor numbers and spending,
both in the West End generally and our locations. The Government
formally announced a lockdown on 23 March, although in the West End
most activity had already ceased.
Following the first national lockdown, footfall began to build
over the summer months, reaching around 50% of pre-Covid levels.
This was particularly noticeable in the vicinity of Oxford Street
and Regent Street, the West End's major shopping streets, and
Carnaby, Soho and Leicester Square, its major dining and leisure
destinations. In Seven Dials, after a slower start, footfall
patterns recovered in line with these locations.
As Government restrictions tightened from mid-September,
footfall decreased again and then largely evaporated during the
second lockdown in November. Together with restrictions on hours of
trade and social distancing, this had a very challenging impact on
all consumer-facing, footfall-reliant businesses, which are
inevitably cash-flow sensitive. Consequently, this has presented
material operational and financial challenges for our occupiers,
particularly those in our restaurants, cafés, pubs and shops.
Office occupiers, particularly those with direct or indirect
exposure to consumer-facing businesses, and residential tenants
have also been affected, but to a lesser extent.
In turn, these challenges have affected occupiers' ability to
meet both rental and other lease obligations or remain solvent. For
us, there have been a number of consequential outcomes:
-- Rent collections have been significantly below normal levels.
For the second half of our financial year, cash collections
represented 53% of contracted income.
-- Reduced net property income as a result of rental income
write-offs, impairment charges and additional costs, either due to
increased vacancy or tenants' inability to pay for service charge
expenditure. Net property income for the year was GBP74.3 million,
down 24.2% year-on-year.
-- The amount of vacant space across the West End, in general,
and in our portfolio, has increased significantly. At 30 September
2020, wholly-owned EPRA vacancy was 10.2%, compared with a 10-year
pre-Covid average of 2.9%. By 30 November 2020, it had risen to
12.0%.
-- Occupational demand has slowed, with operators often not
prepared to commit to leases until there is better visibility on
the timing of the return to more-normal footfall and trading. The
rental value of commercial leasing activity in the second half of
our financial year was GBP4.8 million, compared with GBP16.9
million during the same period last year. Of the total, rent
reviews accounted for GBP2.7 million.
-- The change in the balance between supply of, and demand for,
space has led to pressure on rental levels. Together with general
uncertainty, this has resulted in an 18.3% like-for-like decrease
in the valuation of our wholly-owned portfolio in the year, most of
which occurred since pandemic concerns first materialised.
-- With more competition for occupiers, we are now having to
incur more capital expenditure on our vacant food, beverage and
retail units to maximise their letting prospects.
The Government has announced that London and parts of the Home
Counties will be moving to Tier 3 restrictions, beginning from 16
December 2020 until further notice. As a result, all hospitality
businesses will close other than for takeaway or home delivery
services and non-essential travel into or out of the Tier 3 area is
discouraged.
Preserving long-term value by supporting tenants and maintaining
occupancy
A key aspect of our strategic response has been to help our
occupiers through this challenging period by providing financial
and other practical support, alongside the Government's various
initiatives such as the Coronavirus Business Interruption Loan
scheme, business rates relief, furloughing employees, temporary VAT
reductions and the "Eat Out to Help Out" scheme. Maintaining
occupancy across our portfolio, wherever possible, will position
Shaftesbury for sustained recovery over the medium and long-term,
as the post-pandemic recovery progresses.
Our financial support predominantly has come through a
combination of:
-- part waivers of contracted rents;
-- drawing on rental deposits, which we have not required to be
replenished;
-- agreeing payment plans structured over a period which
reflects a gradual return to more normal trading; and
-- restructuring and/or extending leases, to provide greater
certainty for occupiers.
The eventual recovery of amounts deferred and outstanding will
depend on tenants' ability to meet these commitments. The future
viability of their businesses will be influenced by
pandemic-related factors including further Government measures
which could adversely affect trading conditions and the pace at
which footfall and spending recovers.
From 1 October 2020, we have offered most commercial occupiers
the option to pay rent and service charges monthly rather than
quarterly in advance, in order to help align our revenue collection
with occupiers' cash flows.
Food and beverage, leisure and retail
After an extended period of closure, most of our restaurants,
cafés, pubs and shops reopened over the summer. They have adapted
their operations to ensure effective social distancing measures are
in place, and many have adopted revised trading hours to reflect
footfall patterns. Food and beverage businesses have benefited from
the use of outdoor seating, especially in our permanently
pedestrianised streets and courtyards in Carnaby and Chinatown, as
well as in streets where Westminster City Council granted temporary
road closures and time-limited permissions to use external seating.
The temporary closure by Camden Council of streets around Seven
Dials outside servicing hours is presenting the opportunity to
trial a traffic-reduction scheme. With the second UK lockdown in
November 2020, virtually all our food, beverage and retail premises
closed, other than for takeaway service, although these are now
back open and trading.
Despite the improvement in footfall during the summer, many of
the Group's occupiers, particularly retailers, continued to report
considerably lower turnover than in normal conditions. The
sustained return to the healthy trading volumes across the West End
will depend on Government decisions on social distancing measures
in light of the future course of the pandemic, a recovery of
confidence in the use of public transport and a return to working
in offices rather than from home. We have continued our dialogue
with occupiers to agree bespoke packages of rental and other
measures to support their recovery, including rent payment plans,
waivers, deferrals, lease restructuring, service charge reductions
and marketing initiatives.
In view of the uncertainty surrounding the timing of the return
to more normal footfall and trading conditions in the West End and
continuing government restrictions, we extended our support
arrangements to the end of 2020, and, for the period of the second
lockdown, we provided further rent waivers. Now that London is to
enter Tier 3 restrictions from 16 December 2020, we anticipate that
further measures to support our occupiers will be required as
trading conditions will be severely impacted during the important
period leading up to Christmas and over the New Year, having
already been disrupted by the second lockdown. The extent of any
continuing measures of support will depend on the duration of these
restrictions, as well as the prospects for the first half of 2021
and beyond.
Offices
Many of our office occupiers are SMEs operating in the media,
creative, fashion and technology sectors, and which often have
direct or indirect exposure to businesses which themselves have
been affected significantly by the pandemic, such as those in
retail, food and beverage, and the performing arts. Despite this,
rent collections have been significantly less affected than from
our retail, food and beverage tenants and, accordingly, limited
concessions have been granted on a case-by-case basis. However, we
have experienced an increase in leases not being renewed, leading
to growing office vacancy.
Residential
Typically, our 624 apartments are occupied by those seeking a
base in the West End for either work or study, and are particularly
popular with younger people from overseas. As a result of the first
lockdown restrictions, many tenants chose to return home, leaving
flats unoccupied. With the continuing uncertainty, many chose not
to return to the UK for the time being and vacated permanently. In
these circumstances, the Group waived any commitments under their
tenancy agreements. Where appropriate, the Group is offering
support to residential tenants to assist them in meeting their
rental commitments.
Longmartin
Similar support has been granted by the Longmartin board to its
food, beverage and retail occupiers, on a case-by-case basis.
Addressing financing risk
The adverse operating conditions impacted our financing
arrangements with interest cover covenants under pressure, reduced
loan-to-value headroom, an expectation that near-term liquidity
needs would have to be funded by undrawn revolving facilities, upon
which we were reliant on covenant waivers and increased refinancing
risk. With financing risk elevated beyond the Board's tolerance, in
November 2020, we increased our capital by GBP294.4 million, net of
expenses, through an equity issue to ensure we maintain a strong
financial base, are positioned to return to long-term growth as
pandemic issues recede and, should conditions improve, have
capacity for portfolio investment.
Looking ahead to recovery
Recovery in footfall and business confidence will be dictated by
the course of the pandemic in the short and medium term, and the
consequential restrictions imposed by the UK and other governments.
The advent of effective vaccines will boost confidence once widely
available and hopefully quicken the recovery, although, at this
stage, it is too soon to predict the timing of the return of
confidence and footfall.
The pace of recovery in our villages will depend on:
-- The end of tier 3 restrictions in London and surrounding
areas;
-- how quickly West End visitor volumes recover;
-- the alleviation of social distancing measures;
-- a recovery in public transport usage in and out of the West
End, in light of the need to maintain social distancing;
-- a return to more-normal levels of daily office workers in the
West End;
-- a resumption and recovery in international business travel
and tourism to the West End; and
-- the relaxation on restrictions which prevent or discourage
leisure visits to the West End's visitor attractions, such as
theatres, cinemas, galleries, museums and historical sites.
With continuing operational uncertainty for our occupiers, we
expect EPRA vacancy across our portfolio to increase in the short
term, which, along with availability of space across the West End,
will continue to put near-term pressure on rental levels and
valuations. However, as footfall builds and confidence recovers,
occupier demand and vacancy will return to more normal levels. We
are already seeing enquiries for space in our locations, but
reflecting current market conditions, many potential occupiers are
currently looking for a higher specification of landlord fit out
and greater leasing flexibility.
We firmly believe that our support for tenants, through good
times and bad, is a key part of our brand and our values, and will
attract occupier demand in our carefully-curated, lively
locations.
Portfolio valuation report
Covid-19 has had a significant impact on our valuations this
year. Reduced footfall, consequential occupier operational and
financial challenges, increased vacancy across the West End, and
other uncertainties have resulted in pressure on rental values and
increased yields. The 18.3% valuation decrease in the wholly-owned
portfolio has largely occurred since the beginning of March
2020.
Presentation of Longmartin joint venture information
Our property interests are a combination of the wholly-owned
portfolio and a 50% share of property held in the Longmartin joint
venture. The financial statements, prepared under IFRS, include our
interest in this joint venture as one-line items in the Income
Statement and Balance Sheet.
In previous years, our narrative has presented the combined
portfolio valuation analysis and the finance position on a
proportionally consolidated basis. However, we now consider that it
is appropriate to separately report Longmartin's activity,
valuation and capital structure. We believe this presentation
provides a clearer analysis and is consistent with the financial
statements.
Wholly-owned portfolio
At 30 September 2020, our portfolio was valued at GBP3.1
billion. On a like-for-like basis, the valuation declined by 18.3%,
principally due to uncertainties resulting from Covid-19. After
allowing for capital expenditure, the revaluation deficit was
GBP698.5 million.
Whilst we saw some improvement in both the occupational and
investment markets following the UK general election in December
2019, this started to decline from early February 2020 amid growing
Covid-19 fears. Since then, Government restrictions have had a
material effect on trading conditions for all consumer-facing,
footfall-reliant businesses, which are inevitably cash-flow
sensitive, leading to near-term uncertainty, lower occupier demand,
pressure on rents and increased vacancy.
Wholly-owned portfolio valuation
Annualised
current
Topped-up
Valuation net initial Equivalent
Valuation income ERV growth(1) yield yield
GBPm GBPm GBPm % % % Change(2)
-------------- --------- ---------- ----- ---------- ------------ ---------- ---------
Carnaby 1 , 212.3 41.7 58.0 ( 17. 0)% 3 .1% 4. 2% +54bps
Covent Garden 840.8 28.8 35.4 ( 19. 5)% 3 .0% 3. 6% +34bps
Chinatown 700.6 24.7 30.1 ( 17. 8)% 3 .2% 3. 8% +43bps
Soho 258.7 10.4 11.3 ( 21. 2)% 3 .6% 3. 8% +39bps
Fitzrovia 125.0 4. 3 5. 5 ( 18. 5)% 2 .9% 3. 8% +37bps
--------- ---------- ----- ---------- ------------ ---------- ---------
3,137.4 109.9 140.3 (18.3)% 3.1% 3.9% +48bps
--------- ---------- ----- ---------- ------------ ---------- ---------
2019 3,784.2 117.1 149.7 3.5%
-------------- --------- ---------- ----- ---------- ------------ ---------- ---------
1. Like-for-like. Alternative performance measure. See
below.
2. Expressed in basis points.
The valuation decline during the year was driven by an increase
in the portfolio equivalent yield of 48 basis points to 3.95%
(2019: 3.47%), reflecting:
-- Increased valuation yields applied to food, beverage, leisure
and retail uses, and selected offices. Reducing values by around
GBP371 million, this reflected investor sentiment given Covid-19
economic uncertainties;
-- a reduction of 6.6% in ERVs across the portfolio, equating to
a decrease in valuation of approximately GBP195 million. This was
largely driven by increased vacancy levels across the West End and
reduced near-term occupier demand, which are consequences of
operational challenges arising from the pandemic;
-- a reduction in the valuation of our apartments of between
7.5% and 10%, equating to approximately GBP48 million. This
reflected increased near-term availability of residential space for
rent in the West End which has led to more buy-to-let investor
caution with an associated increase in required returns to reflect
current uncertainty; and
-- the valuer's estimate of the short-term income impact of
rental support likely to be granted to occupiers as a result of the
pandemic and reduced occupancy, equating to a valuation decrease of
approximately GBP57 million.
Cushman & Wakefield, independent valuer of our wholly-owned
portfolio, has continued to note that:
-- Our portfolio is unusual in its substantial number of
predominantly restaurant, leisure and retail properties in
adjacent, or adjoining, locations in London's West End; and
-- there is a long record of strong occupier demand for these
uses in this location and, as a result, high occupancy levels,
which underpin the long-term prospects for rental growth.
Consequently, they have reiterated to the Board that some
prospective purchasers may recognise the rare and compelling
opportunity to acquire, in a single transaction, substantial parts
of the portfolio, or the portfolio in its entirety. Such parties
may consider a combination of some, or all, parts of the portfolio
to have a greater value than currently reflected in the valuation
included in these results, which has been prepared in accordance
with RICS guidelines.
Covid-19 impact on contracted rental income and ERV
Our strategy has delivered sustained growth in annualised
current income and rental values over many years. However, since
early March 2020, Covid-19 has had a negative impact on both.
Annualised current income
During the year, annualised current income fell by 6.1% to
GBP109.9 million (2019: GBP117.1 million). On a like-for-like
basis, before the impact of acquisitions in the year, the decline
was 6.4%. This decrease occurred since 31 March 2020, when
annualised current income totalled GBP117.7 million, and largely
reflects increased EPRA vacancy.
ERV
A key output from our strategy is long-term growth in rents and
ERVs. Through our leasing activity, previously assessed rental
potential is typically converted into contracted rents, whilst
establishing new rental levels, which provide evidence both for
future leasing negotiations and for the valuers when assessing
ERVs. Typically, our portfolio's reversionary potential is
converted into contracted rent over three to five years.
Over the ten years to 30 September 2019, the wholly-owned
portfolio delivered like-for-like compound annual growth in ERV of
4.7%. However, this year, the portfolio's ERV decreased on a
like-for-like basis by 6.6% to GBP140.3 million (2019: GBP149.7
million), reflecting pressure on rents as a result of higher
availability of space across the West End together with ongoing
operational and financial challenges faced by our occupiers. This
was particularly the case for retail and food, beverage and
leisure, where ERVs declined on average by 10.7% and 6.9%
respectively. Office ERVs declined by 1.7%.
At 30 September, the portfolio's ERV was 27.7% above annualised
current income. The components of the reversion are set out in the
table below. Typically, our portfolio has a long history of being
under rented. However, following the decrease in ERVs in the year,
our valuers estimate that our let accommodation is currently
over-rented by GBP2.5 million in total. Depending on the path and
pace of recovery, further pressure on ERVs would increase the
over-rented element of our portfolio until such time as vacant
space across the West End has been absorbed.
Reversion components
Total
GBPm
-------------------------- ------
Contracted income 4.2
EPRA vacancy 14.4
Asset management schemes 14.3
Over-rented leases (2.5)
--------------------------- ------
30.4
-------------------------- ------
Longmartin valuation
In the narrative below, all figures (except areas) represent our
50% share.
During the year Longmartin's long leasehold property decreased
on a like-for-like basis by 16.9% from GBP209 million to GBP175
million. The revaluation deficit, after capital expenditure, was
GBP35.8 million, following a 12.0% decline in ERVs to GBP8.8
million (2019: GBP10 million) and an increase in equivalent yield
of 17 basis points to 4.11% (2019: 3.94%). At 30 September 2020,
annualised current income was GBP6.2 million, down 17.3% during the
year (2019: GBP7.5 million).
The valuation decline was driven by retail and food &
beverage, which decreased by 40.1%, and 17.4% respectively.
Retail
Retail values decreased on a like-for-like basis during the year
by 40.1% to GBP41.9 million (2019: GBP70.0 million). In contrast to
the Group's wholly-owned shops, Longmartin's retail space
predominantly comprises large units on Long Acre, a street with
relatively high overall rents, for which occupier demand continues
to decline. Together with general uncertainty and further pressure
on rents as a result of Covid-19, this has led to an increase in
Long Acre retail equivalent yields of 50 basis points during the
year, and further reductions in ERVs.
Food & beverage
During the year, the valuation of Longmartin's food &
beverage accommodation decreased by 17.4% from GBP38.1 million to
GBP31.5 million. This decrease was driven by an increase in
equivalent yield of 51 basis points and a decrease in ERV,
recognising existing vacant space in St Martin's Courtyard,
following a scheme to create three restaurants, and disruption to
the supply and demand balance caused by near-term food and beverage
vacancy in the immediate surrounding area as a result of
Covid-19.
Residential and offices
The valuation of Longmartin's apartments decreased by 6.5% to
GBP28.1 million (2019: GBP30.1 million), reflecting a near-term
increase in the availability of space and slowing of the investment
market. The offices valuation increased by 3.7% to GBP73.5 million
(2019: GBP70.9 million) following ERV growth of 3.2% and equivalent
yield compression of two basis points to 4.21% (30 September 2019:
4.23%).
Valuation outlook
We expect that the valuation of both the wholly-owned portfolio
and Longmartin's property are likely to experience downward
pressure in the near term. This is predominantly due to the growing
availability of space across the West End and the continued impact
of Covid-19 containment measures affecting trading conditions for
retail, food, beverage and leisure businesses, with the risk of
further declines if the current market outlook worsens. The pace of
pandemic recovery will be important in the extent and duration of
downward pressure on valuations.
Portfolio activity report
Following a largely "business as usual" first half of our
financial year, the Covid-19 pandemic had a significant impact on
our business during the second half, resulting in reduced rent
collections, increased vacancy and reduced occupier demand.
Rent collection
Our key priority has been, and continues to be, supporting our
occupiers through the period of pandemic disruption. A significant
element of this support has been through rent concessions, often by
way of waivers, deferrals and introduction of further lease
flexibility including short-term turnover-related rents. In some
cases, our concessions have provided the opportunity to restructure
leases. Furthermore, we have drawn on tenant rent deposits to part
settle their arrears and are not requiring these deposits to be
topped-up.
In order to provide certainty for our food, beverage and retail
businesses, our discussions and agreements with them initially
focused on the six months to 30 September 2020. From 1 October
2020, we commenced providing commercial occupiers with the option
to pay rent and service charges monthly rather than quarterly in
advance, in order to help align our revenue collection with their
cash flows. With England entering a second national lockdown on 5
November 2020, rent collections since 30 September 2020 have been
further reduced and additional waivers have been granted.
Contracted rent and rent collection since the first UK Covid-19
lockdown(1)
6 months to 30 September 2 months to 30 November
2020 2020
-------------------------- -------------------------
GBPm % GBPm %
----------------- -------------- ---------- -------------- ---------
Collected 30.3 53% 6. 9 37%
Deferred 5. 2 9% - -
Waived 14.3 25% 7. 4 40%
Outstanding 7. 3 13% 4. 3 23%
-------------- ---------- -------------- ---------
Total contracted 57.1 18.6
----------------- -------------- ---------- -------------- ---------
1. As at 30 November 2020
By 30 November 2020, we had collected 53% of contracted rent for
the six months to 30 September 2020, of which drawings against rent
deposits accounted for GBP6.8 million (12% of contracted rent). At
30 September 2020, we continued to hold rent deposits totalling
GBP14.3 million (2019: GBP20.7 million). 34% of contracted rent had
been waived or deferred and 13% remained outstanding.
Rent collections for the two months to 30 November 2020, a
period which included the second lockdown, were 37%, of which rent
deposits accounted for GBP0.2 million (1% of contracted rent). 40%
of rent has been waived and 23% remained outstanding.
The eventual recovery of amounts deferred or outstanding will
depend on tenants' ability to meet these commitments. This will be
influenced by pandemic-related factors which continue to affect the
future viability of their businesses.
Rent collection rates have varied by use, with residential and
office collections being higher than those for food, beverage and
retail businesses which inevitably are more footfall reliant.
Rent collection since the first UK Covid-19 lockdown by
use(1)
6 months to 30 September 2 months to 30 November
2020 2020
------------------------------- -------------------------------
Rent collected % of contracted Rent collected % of contracted
GBPm rent GBPm rent
----------------- -------------- --------------- -------------- ---------------
Food, beverage &
leisure 7.4 33% 1.5 19%
Retail 9.5 54% 1.8 31%
Offices 7.5 79% 2.1 70%
Residential 5.9 83% 1.5 88%
-------------- --------------- -------------- ---------------
Total contracted 30.3 53% 6.9 37%
----------------- -------------- --------------- -------------- ---------------
1. As at 30 November 2020
Looking ahead, our rental and service charge support is likely
to continue through 2021, with our occupiers having reduced income
in the important period leading up to Christmas and into the New
Year, which traditionally has provided them with liquidity buffers
to withstand the normally slower quarter to March. The eventual
return to more-normal rent collection levels will be highly
correlated to the recovery in footfall.
Leasing and occupier demand
The decisive outcome of the December 2019 general election, and
clarity regarding the UK's exit from the EU, brought welcome signs
of an improvement in business confidence and investment, as well as
consumer activity. Our occupiers reported good footfall and
spending in our locations in the important trading period over
Christmas and the New Year, and in the early weeks of 2020,
enquiries to lease space grew, and the availability of potential
acquisitions picked up.
From early February 2020, growing reports regarding the rapid
spread of the Covid-19 virus began to impact leasing activity and
lower leasing volumes have continued since March 2020.
During the year, we concluded leasing transactions with a rental
value of GBP23.6 million, 30% lower than the volume in 2019. The
decrease in commercial letting activity was particularly noticeable
in the second half of the financial year.
Letting activity during the year
2020 2019
------------------- --------------
H1 H2
GBPm GBPm GBPm GBPm Change
---------------------- ----- ----- ----- ----- -------
Commercial
Lettings and renewals 9. 3 2. 1 11.4 15.6 ( 27)%
Rent reviews 3. 5 2. 7 6.2 10.6 ( 42)%
----- ----- ----- ----- -------
12.8 4. 8 17.6 26.2 ( 33)%
Residential 2. 2 3. 8 6.0 7. 3 ( 18)%
----- ----- ----- ----- -------
15.0 8. 6 23.6 33.5 ( 30)%
---------------------- ----- ----- ----- ----- -------
The uncertain outlook for the national economy and consumer
spending is having a significant impact on business confidence and
investment, which is unlikely to improve materially until pandemic
concerns abate. Retailers, particularly those exposed to structural
changes in shopping habits nationally and internationally, which
were clearly evident before the onset of the pandemic, have been
accelerating their review of space requirements, both in terms of
location and size of shops. Similarly, over-extended food and
beverage chains continue to retrench their operations to focus only
on the most profitable locations and sites.
We have seen encouraging letting interest in recent weeks, with
potential occupiers attracted by the curation of our normally
buoyant and prosperous villages, with relatively affordable rents.
Generally, businesses remain cautious in taking on rental and
capital expenditure commitments and occupiers are looking for
greater flexibility when entering into new leases, including rent
suspension in the event of further lockdowns. In the case of food,
beverage, leisure and retail premises, a higher specification of
landlords' basic fit out, rather than taking space in shell
condition, is becoming standard market practice. We are now
providing fully fitted-out space in some of our office schemes. We
expect the demand for further lease flexibility to be prevalent
until the West End fully recovers from the pandemic.
Occupancy
Although the West End has a long-term availability/demand
imbalance, we have seen a decline in portfolio occupancy during the
year. Compared with the 10-year pre-Covid-19 average of 2.9%, EPRA
vacancy rose to 10.2% during the year, with the majority of the
increase since March 2020.
Affecting all uses, this was largely due to the impact of the
Covid-19 pandemic, including the significant reduction in letting
activity since February 2020, completion of refurbishment schemes,
space handed back by commercial tenants and an exceptional increase
in vacant apartments.
Tenant insolvencies since the lockdown in March 2020 accounted
for approximately 2% of ERV.
EPRA vacancy at 30 September 2020
% of total
ERV
--------------- --------------
Food, beverage
and leisure Shops Offices Residential Total 2020 2019
GBPm GBPm GBPm GBPm GBPm % %
------------------ --------------- ------ -------- ------------ ------ ------ ------
1.8
Under offer 0.9 0.4 0.2 0.2 1.7 1.1% %
Available-to-let 2.6 4.1 2.3 3.7 12.7 9.1% 1.9 %
--------------- ------ -------- ------------ ------ ------ ------
3.5 4.5 2.5 3.9 14.4 10.2% 3.7%
--------------- ------ -------- ------------ ------ ------ ------
2019 1.4 3.2 0.8 0.1 5.5
Area ('000 sq.
ft.)
2020 47 45 40 72 204
2019 16 46 12 1 75
------------------ --------------- ------ -------- ------------ ------ ------ ------
Commercial vacancy
At 30 September 2020, commercial EPRA vacancy comprised:
-- 22 restaurants and cafés (47,000 sq. ft.): total ERV of
GBP3.5 million;
-- 35 shops (45,000 sq. ft.): total ERV of GBP4.5 million;
- 9 were larger shops (ERV > GBP150,000): total ERV of GBP2.7 million; and,
- 26 were smaller shops: total ERV of GBP1.8 million; and
-- 45 office suites (40,000 sq. ft.): total ERV of GBP2.5
million.
Residential vacancy
Residential vacancy, which prior to the pandemic had typically
been minimal, was unusually high at 137 apartments with an ERV of
GBP3.9 million at 30 September 2020. This large increase in the
second half of our financial year was mainly due to occupiers from
overseas returning home when Government restrictions were
introduced, and the collapse in demand from long-stay international
business and leisure travellers.
Across the West End, many landlords who would usually let their
flats short-term or let to serviced apartment operators have been
attempting to find long-term tenants. This has resulted in a
near-term increase in availability of apartments to let, causing
downward pressure on rents. Given the long-term structural shortage
of accommodation in the West End, we believe that this is a
short-term challenge in respect of our residential portfolio.
Occupancy outlook
By 30 November 2020, EPRA vacancy had risen further to 12% of
ERV. We expect near-term EPRA vacancy to increase through a
combination of occupiers suffering further operational and
financial challenges, occupier demand remaining subdued until there
is a sustained recovery in footfall, spending and business
confidence, and the completion of schemes currently in progress.
This will, inevitably, weigh on near-term rental levels across the
West End. However, we are confident that our historically popular
areas will continue to be destinations of choice for potential
occupiers as recovery gets underway.
Refurbishment, reconfiguration and redevelopment schemes
Capital expenditure during the year totalled GBP34.8 million,
representing 1.1% of wholly-owned portfolio value. This included
our project at 72 Broadwick Street, Carnaby.
At 30 September 2020, vacant space held for, or under,
refurbishment extended to 200,000 sq. ft., and represented 10.1% of
total ERV, down from 10.4% a year ago.
Space held for or undergoing refurbishment at 30 September
2020
% of total
ERV
--------------- --------------
Food, beverage
and leisure Shops Offices Residential Total 2020 2019
GBPm GBPm GBPm GBPm GBPm % %
---------------- --------------- ------ -------- ------------ ------ ------ ------
72 Broadwick
Street 3. 4 0. 4 1. 5 0. 6 5. 9 4.1% 4. 1%
Other schemes 1. 1 1. 8 4. 7 0. 8 8. 4 6.0% 6. 3%
--------------- ------ -------- ------------ ------ ------ ------
4.5 2.2 6.2 1.4 14.3 10.1% 10.4%
--------------- ------ -------- ------------ ------ ------ ------
2019 5.4 2.8 5.5 1.8 15.5
Area ('000 sq.
ft.)
2020 63 22 85 30 200
2019 73 27 77 36 213
---------------- --------------- ------ -------- ------------ ------ ------ ------
72 Broadwick Street, Carnaby
Works continue on our 77,000 sq. ft. mixed-use scheme to:
-- Introduce new retail, restaurant and leisure uses;
-- relocate the office and residential entrances to allow
activation of the commercial frontage on Broadwick Street;
-- extend and refurbish the remaining office space; and
-- reconstruct the residential accommodation, increasing the
number of apartments from eleven to fifteen.
Of the repurposed and upgraded commercial accommodation, 48% by
ERV is conditionally pre-let to Equinox, an American fitness and
lifestyle brand. The office space is no longer under offer.
Whilst site activity was suspended in March and April, due to
lockdown restrictions, good progress is being made. The estimated
overall scheme cost is now GBP35.7 million, of which GBP14.3
million had been incurred by 30 September 2020. We currently
anticipate completion in phases from Summer 2021.
Other schemes
At 30 September 2020, we had 57 other schemes underway,
extending to 123,000 sq. ft. and with an ERV of GBP8.4 million
(6.0% of ERV). These included 17,000 sq. ft. of food and beverage
space, 19,000 sq. ft. of retail, 67,500 sq. ft. of office
accommodation and 32 apartments.
Projects with an ERV of GBP5.1 million are anticipated to
complete by 31 March 2021, and are likely to increase near-term
EPRA vacancy, although will provide a useful contribution to income
and earnings over the medium term.
Largest other schemes by cost
Estimated cost Cost to complete Estimated
Scheme Description GBPm GBPm completion
----------------------- ---------------------------------------------- -------------- ---------------- -----------
Creation of retail unit;
50 Marshall Street, refurbishment/extension
Carnaby of office space 5. 1 0. 7 Q1 2021
----------------------- ---------------------------------------------- -------------- ---------------- -----------
Reconfiguration and extension
to provide new flagship restaurant
45/49 Charing space and five apartments
Cross Road, Chinatown at this gateway to Chinatown 4. 0 0. 2 Q1 2021
----------------------- ---------------------------------------------- -------------- ---------------- -----------
16-20 Short's
Gardens, Seven Office reconfiguration and
Dials refurbishment 2. 2 0. 4 Q2 2021
----------------------- ---------------------------------------------- -------------- ---------------- -----------
Public realm improvements
London Borough of Camden's works to improve the northern
entrance to Seven Dials on Shaftesbury Avenue are now substantially
complete. This now provides a crossing directly on the main walking
route between Seven Dials and Tottenham Court Road station, which
should increase footfall into Monmouth Street and Neal Street once
the Elizabeth Line opens.
Improvements to Rupert Street, south of Shaftesbury Avenue, have
now completed, doubling pavement space and providing the
opportunity for al fresco dining.
In Seven Dials, a Covid-related trial by Camden Council has
removed all traffic from Seven Dials from 10am until 6pm, and will
be in place until September 2021, after which a permanent traffic
reduction scheme could be put in place, subject to public
consultation.
We have commenced working on the concept designs for the space
to the side of 72 Broadwick Street, with a view to removing traffic
and providing a new public space with flexible seating and greening
at this important entrance into Carnaby.
We continue discussions with both Westminster City Council and
the London Borough of Camden on how our food and beverage
businesses can access more outdoor space, particularly in light of
social distancing measures.
Looking ahead to the coming year
At any one time, we have schemes at various stages, from initial
ideas, seeking planning approval, awaiting vacant possession or
under construction. Over recent years, we have often sought to
secure vacant possession of space where we could improve long-term
income prospects through reconfiguration and change of use schemes.
Until the operating environment improves, we will focus on
protecting existing income and preserving liquidity and new schemes
will only be considered where there is a compelling case.
Most of our current schemes will complete in 2021. In line with
our strategy, we will continue to reconfigure buildings to meet
changing occupier demands. This is particularly so for shops where
we anticipate further downsizing of our bigger units, where
appropriate, and, where space is released, introducing other
uses.
With growing food, beverage and retail vacancy across the wider
West End, it is likely that availability of space to let will
exceed occupier demand for some time after the pandemic recovery
starts. Whilst we believe our areas will continue to be seen as
"best in class", in the short term, we expect to have to invest in
elements of fit out in our vacant units to maximise their letting
prospects.
Longmartin asset management
In the following narrative, all figures (except areas) represent
our 50% share.
For the six months to 30 September 2020, 81% of contracted rent
has been collected to date. 16% has been waived and 3% remains
outstanding. For the quarter to December 2020, 70% of rent has been
collected so far. The higher relative collection rate, compared
with that for the wholly-owned portfolio, mainly reflects the
higher proportion of offices and larger international retail in
Longmartin.
During the year, lettings and rent reviews with a rental value
of GBP1.6 million were concluded (2019: GBP1.4 million).
At 30 September 2020, the ERV of Longmartin's vacant space was
GBP1.1 million (2019: GBP0.9 million) and there was space with an
ERV of GBP0.1 million under refurbishment. Capital expenditure in
the year was GBP1.6 million.
Acquisitions and disposals
Adding to our portfolio
During the year we added to our existing and emerging clusters
in Carnaby and Soho, acquiring three buildings for GBP13.3
million:
-- A dilapidated, mixed-use building fronting Kingly Street and
Kingly Court in Carnaby, which had been in the same ownership since
1982. We have sought to acquire this property ever since our
purchase of the Carnaby Estate in 1997. Plans are already being
progressed for a refurbishment and reconfiguration scheme extending
to two adjoining buildings; and
-- two freeholds in Berwick Street which adjoin existing
ownerships and will offer the opportunity, in time, to reconfigure
or add space.
With the West End's broad-based economy, global appeal and
resilience, existing private owners are traditionally reluctant to
sell other than in periods of uncertainty or financial pressure.
The unprecedented operational disruption to West End footfall,
trading, demand for space and occupancy resulting from
pandemic-related measures, is beginning to unsettle current owners.
This may present a rare opportunity to acquire key strategic
additions to our ownership clusters.
Since 30 September 2020, we have acquired a building in Seven
Dials for GBP2.8 million.
90-104 Berwick Street
In 2017, we conditionally agreed to acquire this development in
Soho. The vendor failed to meet contractual obligations to complete
the sale to us by 30 April 2020. The scheme achieved practical
completion in October. We continue discussions with the vendor, but
a decision on acquiring this building will not be made until a
number of important pre-purchase conditions have been fulfilled to
our satisfaction.
Financial results
The Covid-19 pandemic has had a material negative impact on our
results this year, due to occupier operational and financial
distress, increased vacancy, lower rent collections, charges for
expected credit losses and impairment, and investment property
valuation deficits.
Presentation of financial information
As is usual practice in our sector, we produce alternative
measures for certain indicators, including earnings, earnings per
share and NAV, making adjustments set out by EPRA in its Best
Practices Recommendations. These recommendations are designed to
make the financial statements of public real estate companies more
comparable across Europe, enhancing the transparency and coherence
of the sector. These measures are reconciled to IFRS in note 21 to
the financial statements.
Further details on APMs used, and how they reconcile to IFRS,
are set out below.
Accounting for Covid-19 support provided to occupiers
The support we are providing to occupiers as a result of the
Covid-19 pandemic is largely in the form of deferrals and/or
waivers of rent and lease modifications. The accounting treatment
depends on the type of support granted and often results in a
mis-match between EPRA earnings and cash flows:
-- Rent deferrals: income is recognised as normal and the
deferred rent receivable balance is assessed for impairment.
-- Rent waivers: the cost of rent waivers is deferred over the
remaining term of the lease, in much the same way as a lease
incentive. Any deferred cost is then assessed for impairment. The
deferred cost balance, after amortisation or impairment, is
deducted from the valuation of investment properties and, so, is
initially charged to revaluation gains or losses. As the balance is
amortised or impaired, there is a charge against revenue and an
equal credit to revaluation gains or losses.
Where a lease is modified, e.g. extended, in exchange for a rent
waiver, the cost of the waiver is spread over the revised lease
term.
The financial statements include significant provisions for
expected credit losses in respect of trade receivables and
impairments of balances such as lease incentives and deferred
letting costs. In assessing the provisions, we consider a number of
factors including ongoing operational and financial challenges
being experienced by tenants which reduce their ability to pay back
arrears, including amounts deferred, and increase the risk of
tenant default. Given the materiality of the charges for these
provisions in the current year, they are presented separately on
the face of the Income Statement.
Income statement
2020 2019 Change
GBPm GBPm GBPm
---------------------------------------- -------- -------- ----------
Rental income 114.4 117.3 ( 2. 9 )
Service charge income 10.1 9.6 0.5
-------- -------- ----------
Revenue 124.5 126.9 (2.4)
Charges for expected credit losses
and impairments (21.9) - ( 21. 9)
Service charge expenses (10.1) (9.6) (0.5)
Other property charges (18.2) ( 19. 3) 1. 1
-------- -------- ----------
Net property income 74.3 98.0 ( 23. 7)
Administrative expenses (14.4) ( 15. 2) 0. 8
Valuation deficits and disposal profits (698.2) ( 12. 5) (685.7)
-------- -------- ----------
Operating profit (638.3) 70.3 ( 708. 6)
Net finance costs (31.8) ( 30. 5) ( 1. 3 )
Share of Longmartin post-tax loss (29.4) ( 13. 8) ( 15. 6)
-------- -------- ----------
Profit before tax (699.5) 26.0 ( 725. 5)
Tax - - -
-------- -------- ----------
Reported earnings for the year (699.5) 26.0 ( 725. 5)
-------- -------- ----------
Basic earnings per share (227.5)p 8. 5p ( 236. 0)p
EPRA earnings(1) 29.4 54.6 ( 25. 2)
EPRA earnings per share(1) 9.6p 17.8p ( 8. 2 )p
---------------------------------------- -------- -------- ----------
1. Alternative performance measure.
The loss after tax for the year was GBP699.5 million, compared
with a profit in 2019 of GBP26.0 million. The year-on-year change
was largely due to consequences of the Covid-19 pandemic and
included:
-- a revaluation deficit, net of disposal profits, of GBP698.2
million (2019: deficit of GBP12.5 million);
-- charges for expected credit losses and charges for
impairments totalling GBP21.9 million (2019: nil); and
-- an increase in our share of the post-tax losses from the
Longmartin joint venture, predominantly due to an increased
investment property revaluation deficit in the year, our share of
which was GBP35.8 million (2019: GBP19.2 million).
Revenue
During the year, rental income, before the impact of charges for
expected credit losses and impairments, was GBP114.4 million (2019:
GBP117.3 million), and included accrued income from lease
incentives of GBP11.9 million (2019: GBP2.3 million). The increase
in accrued income is a result of accounting for waivers of rent
during the period.
In the first half of the financial year, our rental income
(including accrued income) increased by 2.2% compared with the
corresponding period in 2019. However, in the second half of the
year, rental income decreased by 7.2%, compared with 2019, largely
due to increased vacancy and rent waivers granted to tenants as a
result of Covid-19.
Rental income
2020 2019
GBPm GBPm %
---------------------------- ----- ----- -----
6 months ended 31 March 59.9 58.6 +2.2%
6 months ended 30 September 54.5 58.7 -7.2%
---------------------------- ----- ----- -----
114.4 117.3 -2.5%
---------------------------- ----- ----- -----
For the full year, the like-for-like decrease in rental income,
excluding the impact of acquisitions, was GBP4.1 million
(-3.5%).
After service charge income of GBP10.1 million (2019: GBP9.6
million), revenue decreased by GBP2.4 million to GBP124.5 million
(2019: GBP126.9 million).
Expected credit losses on trade receivables
Rent collections were significantly reduced during the second
half of our financial year. Given the uncertain trading outlook for
many of our food, beverage and retail tenants, and the higher risk
of occupier default, provisions have been made against amounts
owing which have either been deferred as part of our Covid-19
occupier support package or remain unpaid without an agreed waiver.
The charge to the Income Statement during the year was GBP13.0
million.
Impairment charges
The Income Statement includes a GBP8.9 million charge for
impairments in respect of lease incentives, rent waivers and
deferred letting costs (2019: GBPnil). These reflect our assessment
of the likelihood of future tenant default or failure, considering
ongoing pandemic-related operational challenges.
Property charges and net property income
Property charges, excluding recoverable service charge costs,
were GBP18.2 million, down 5.7% during the year (2019: GBP19.3
million). The decrease was due to reduced letting and marketing
activity, partly offset by higher irrecoverable property operating
costs, including those as a result of increased vacancy levels.
Net property income for the year was GBP74.3 million, down
GBP23.7 million compared with the previous year (2019: GBP98.0
million).
Administrative expenses
Administrative expenses, totalling GBP14.4 million, were GBP0.8
million lower than in the previous year (2019: GBP15.2
million).
Employee costs were GBP1.8 million lower at GBP8.2 million
(2019: GBP10.0 million). This decrease was largely due to executive
directors not receiving an annual bonus, together with all
directors waiving 20% of salary, pension contributions and fees for
four months in the year. These savings were partly offset by
additional employee costs as a result of higher headcount and the
2019 annual pay review.
Excluding employee costs, administrative costs were GBP6.2
million, GBP1.0 million higher than for the previous year (2019:
GBP5.2 million), reflecting increases in audit and professional
fees, insurance costs and irrecoverable VAT together with donations
made from our Covid-19 Community Fund.
Valuation deficit and disposal profits
Our wholly-owned portfolio's revaluation deficit was GBP698.5
million (2019: deficit of GBP15.3 million). This represented a
like-for-like valuation decrease of 18.3%, largely due to
uncertainties as a result of Covid-19, leading to lower rent
collections, increased vacancy, reduced rental values and an
outward movement in yields.
Residential long leasehold tenure extensions granted during the
year generated a disposal profit of GBP0.3 million.
Net finance costs
Net finance costs increased by GBP1.3 million to GBP31.8 million
(2019: GBP30.5 million), largely due to drawings against our
revolving credit facilities in March 2020, as part of a prudent
approach to cash management and liquidity risk.
Finance income decreased by GBP0.3 million to GBP0.7 million
(2019: GBP1.0 million) due to a combination of lower cash balances
and reduced market interest rates.
Share of Longmartin post-tax loss
Revaluation deficits resulted in the Longmartin joint venture
reporting post-tax losses in both 2020 and 2019. Our share of the
revaluation deficit in 2020 was GBP35.8 million (2019: GBP19.2
million). Excluding these revaluation losses, and the related
deferred tax credits totalling GBP5.1 million (2019: GBP3.1
million), our share of EPRA earnings from Longmartin decreased by
GBP1.0 million to GBP1.3 million (2019: GBP2.3 million) largely due
to lower net property income following charges for expected credit
losses and impairments, of which our share was GBP0.6 million.
Tax
As a REIT, the Group's activities are largely exempt from
corporation tax and, as a result, there is no tax charge in the
year (2019: GBPnil).
As with most businesses, we do collect and pay other taxes and
levies e.g. payroll taxes, VAT, stamp duty land tax, business
rates, and withholding tax on Property Income Distributions. During
the year, the total amount paid in respect of these taxes amounted
to GBP13.3 million (2019: GBP23.5 million). In addition, our share
of taxes, including corporation tax, levied on, or collected by,
Longmartin was GBP1.0 million (2019: GBP1.6 million). The decrease
in taxes paid is largely due to reduced output VAT, following the
decrease in rent collections from commercial tenants in the second
half of the financial year.
EPRA earnings
EPRA earnings are a measure of the level of underlying operating
results and an indication of the extent to which dividends are
supported by recurring earnings. In our case, EPRA earnings exclude
portfolio valuation movements, profits on disposal of investment
properties, and deferred tax arising in the Longmartin joint
venture.
In the year ended 30 September 2020, EPRA earnings decreased by
46.2% to GBP29.4 million (2019: GBP54.6 million), of which GBP25.3
million was earned in the first half of the financial year. EPRA
earnings in the second half were impacted significantly by the
pandemic, which has resulted in reduced rental income and charges
for expected credit losses and impairments. EPRA earnings per share
amounted to 9.6p, 46.1% lower than the previous year (2019:
17.8p).
EPRA Earnings(1) GBPm
---------------------- ------
2019 54.6
Movements:
Rental income (2.9)
Expected credit losses (13.0)
Impairment charges (8.9)
Property costs 1.1
------
Net property income (23.7)
Admin costs 0.8
Net finance cost (1.3)
Longmartin (1.0)
Total movement (25.2)
------
2020 29.4
---------------------- ------
1. Alternative performance measure.
Dividends
Following the outbreak of Covid-19, the Board announced on 24
March 2020 that, in view of the likely reduction in rent
collections and, in turn, adjusted EPRA earnings, it had taken the
decision not to declare an interim dividend in order to preserve
liquidity. A further announcement was made on 25 September 2020
that no final dividend would be declared in respect of the year
ended 30 September 2020.
The Board intends to resume dividend payments as soon as it
considers prudent, maintaining its policy of sustainable dividend
growth over the long-term. The pace of the post-pandemic income
recovery and our REIT PID obligations, will be key factors in the
Board's near-term decisions on declaring dividends.
Balance Sheet
2020 2019
GBPm GBPm
---------------------------- ------- ---------
Investment properties 3,115.5 3 , 765.9
Investment in joint venture 96.8 127.6
Net debt (987.0) ( 905. 8)
Other net assets 55.3 19.5
------- ---------
Net assets 2,280.6 3 , 007.2
------- ---------
EPRA NAV per share(1) GBP7.43 GBP9.82
Total accounting return(1) (23.4)% 0. 8%
---------------------------- ------- ---------
1. Alternative performance measure.
At 30 September 2020, net assets were GBP2,280.6 million,
GBP726.6 million lower over the year (2019: GBP3,007.2 million).
This decrease was largely due to the loss after tax of GBP699.5
million, and the dividend paid in respect of the previous year,
amounting to GBP27.8 million.
Other net assets have increased by GBP35.8 million to GBP55.3
million (2019: GBP19.5m), largely due to a decrease in deferred
income following our decision to offer most commercial tenants the
ability to be invoiced monthly, rather than quarterly in advance
from 1 October 2020, together with deposits made in respect of
interest cover covenant waivers amounting to GBP8.7 million.
EPRA NAV
EPRA NAV makes adjustments to reported NAV to provide a measure
of the fair value of net assets on a long-term basis. Assets and
liabilities which are not expected to crystallise in normal
circumstances are excluded. In our case, the calculation excludes
deferred tax related to property valuation surpluses and deficits
in the Longmartin joint venture.
Total accounting return measures shareholder value creation,
taking into account the movement in EPRA NAV together with
dividends paid.
EPRA NAV per share decreased during the year by GBP2.39 (24.3%)
to GBP7.43 (2019: GBP9.82), principally due to the revaluation
deficits, both in the wholly-owned portfolio and Longmartin.
Together, these reduced EPRA NAV by GBP2.40 per share. EPRA
earnings of 9.6p per share were offset by the payment of the final
dividend for the previous year (9.0p per share).
EPRA NAV per share(1) Pence per share
--------------------- ---------------
2019 982
EPRA earnings 10
Dividends (9)
Revaluation movements (240)
2020 743
--------------------- ---------------
1. Alternative performance measure.
New EPRA net asset measures
In October 2019, EPRA introduced three new measures of net asset
value:
Net Reinstatement Value (NRV)
This measures the value of net assets on a long-term basis,
assuming no disposals. Assets and liabilities that are not expected
to crystallise in normal circumstances, such as deferred taxes on
property valuation surpluses, are excluded. It is a reflection of
what would be needed to recreate the company. Consequently,
purchasers' costs which have been deducted in arriving at the fair
value of investment properties are added back.
Net Tangible Assets (NTA)
This recognises that companies buy and sell assets and therefore
takes into account deferred tax liabilities on sales, unless there
is no intention to sell in the long run.
Net Disposal Value (NDV)
This represents the value of net tangible assets, assuming an
orderly sale of the business' assets, achieving fair values as
reported in the Balance Sheet. It includes deductions for
liabilities that would crystallise in this scenario, including
deferred tax and the difference between the fair value and carrying
value of financial liabilities.
At 30 September 2020, these metrics were:
-- NRV: GBP8.16 (2019: GBP10.71)
-- NTA: GBP7.43 (2019: GBP9.82)
-- NDV: GBP7.29 (2019: GBP9.47)
Currently, for us, EPRA NTA equates to EPRA NAV and EPRA NDV
equates to EPRA NNNAV. From the coming financial year, we will
commence reporting on these new measures rather than EPRA NAV, with
EPRA NTA becoming our main metric.
Cash flows and net debt
Net debt increased by GBP81.2 million to GBP987.0 million (2019:
GBP905.8 million). The major cash flows were:
-- Net cash generated from operating activities: GBP2.5 million
(2019: GBP50.6 million). The decrease was predominantly due to
lower rent collections in respect of both rents due during the year
and rents billed in advance at the end of the year, following the
move to monthly invoicing from 1 October 2020.
-- Net cash used in investing activities: GBP55.9 million (2019:
GBP62.4 million). The main cash flows were net investment in the
portfolio amounting to GBP44.2 million, deposits lodged with
lenders in connection with securing interest cover waivers,
totalling GBP8.7 million, and GBP2.9 million net cash outflow to
the Longmartin Joint Venture.
-- Net cash inflow from financing activities: GBP72.2 million
(2019: cash outflow GBP52.7 million), comprising net drawings
against the revolving credit facilities amounting to GBP100
million, less dividends paid totalling GBP27.8 million (2019:
GBP52.9 million).
Movement in net debt GBPm
------------------------------ -----
2019 net debt 905.8
Operating cash inflow (2.5)
Dividends 27.8
Net portfolio investment 44.2
Interest waiver deposits 8.7
Net cash flow with Longmartin 2.9
Other 0.1
2020 net debt 987.0
------------------------------ -----
Financing
Recognising our financing risk had increased as a result of
reduced rent collections and low visibility over near-term income,
in November 2020, we issued equity to ensure we maintain a strong
financial base, are positioned to return to long-term growth as
pandemic issues recede and, should conditions improve, have
capacity for portfolio investment.
Position at 30 September 2020
At 30 September 2020, net debt was GBP987.0 million (2019:
GBP905.8 million) and our loan-to-value ratio had increased to
31.5% (2019: 23.9%), largely due to the decline in the portfolio's
valuation in the year. Available resources totalled GBP197.8
million, comprising GBP72.8 million of cash and undrawn revolving
credit facilities amounting to GBP125 million. Committed capital
expenditure, to be funded from these resources, totalled GBP31.0
million.
Equity issue
The pandemic has had a significant impact on our operating cash
flows and has elevated our financing risks:
-- with reduced rent collections and increased vacancy
continuing to put pressure on the interest cover (ICR) covenants in
our debt arrangements, we are currently reliant on ICR waivers from
our revolving credit facility and term loan providers;
-- decreased valuations have elevated our near-term
loan-to-value risks; and
-- refinancing risk is growing with low visibility on near-term
income and the consequential implications for valuations.
Since March 2020, our strategy has been to preserve liquidity,
with a moratorium on non-essential expenditure, new schemes and
acquisitions, other than by exception, and the decisions to not pay
dividends for 2020. Given the uncertainty over income levels, in
March 2020, we drew GBP150 million against our revolving credit
facilities, as part of a prudent approach to cash management. By 30
September 2020, we had repaid GBP50 million of these drawings.
Having assessed our financial position in light of the
implications of the Covid-19 pandemic, on 22 October 2020, we
announced details of an issue of equity with gross proceeds of
GBP307 million, comprising GBP297 million by way of a firm placing,
placing and open offer, and GBP10 million by way of an offer for
subscription. The purpose of the equity issue was to ensure we
maintain a strong financial base, are positioned to return to
long-term growth as pandemic issues recede and, should conditions
improve, have capacity for portfolio investment.
Following approval by shareholders of certain resolutions to
execute the transaction, on 18 November 2020, we issued 76.75
million shares, representing approximately 25% of our issued share
capital, at GBP4 per share. After issue costs, the net proceeds
were GBP294.4 million.
Use of net proceeds
GBPm
-------------------------------------------- ----
Managing financing risks
Repay RCF drawings 100
Potential cash deposits to remedy term loan
ICR covenants 12
Liquidity maintenance
Fund potential operating cash out flows 45
Capital expenditure in 2021 and 2022 65
Maintain prudent level of liquidity(1) 63
General corporate purposes 9
-------------------------------------------- ----
Net proceeds 294
-------------------------------------------- ----
1. But should conditions improve, provide some capacity for portfolio investment
Managing financing risks
Revolving credit facilities
Following the completion of equity issue, we cancelled our
GBP125 million revolving credit facility, which was undrawn and had
a contractual maturity in May 2022. In doing so, we benefited
from:
-- removing of the risks associated with expected requests for
further interest cover waivers until the contracted expiry of the
facility and the need to either renew or refinance this facility
during a period of uncertainty regarding near-term income, cash
flows, property valuations and, consequently, lenders' appetite to
provide new credit;
-- releasing GBP252 million of charged properties into our pool
of uncharged assets; and
-- eliminating the GBP0.8m p.a. commitment cost of this
facility.
Furthermore, we have now repaid GBP100 million of drawings
against our remaining revolving credit facility, which remains
available to be re-drawn, provided that we remain compliant with
all requirements in the loan agreement, including the financial
covenants. Whilst undrawn, the annualised interest saving is
estimated at GBP1.0 million. Since the equity raise, we have
secured an extension to this facility's interest cover covenant
waiver from January 2021 to October 2021.
In the event that we require further waivers which either are
not granted, or are subject to restrictions we find unacceptable,
the liquidity provided by the equity issue would allow us to part
cancel or terminate the facility ahead of its contractual
maturity.
Term loans
In the absence of interest cover covenant waivers from the
providers of our term loans, we can remedy interest cover ratio
shortfalls with cash deposits, although there are restrictions on
the number of times these remedies can be used, and would be
subject to available liquidity. For the equity issue, we estimated
that up to GBP12 million of liquidity would be required for ICR
cash cures during the working capital statement period.
Since the equity raise, we have secured an extension to the ICR
covenant in our GBP250 million term loans to January 2022, reducing
the likelihood or scale of cash cures being required in the future.
In consideration for this extension, we placed a further GBP4.4
million on deposit with the lender for the duration of the
waiver.
The ICR waivers we now have in place for our term loans are set
out below:
Facility amount ICR waiver
GBP134.8m July 2021
GBP250m Jan 2022
Bonds
At 30 September 2020, we remained compliant with the terms of
the financial covenants under our bonds. However, given the
uncertain outlook, we continue to monitor the covenants and will
take appropriate action if required.
Loan-to-value risk
Our individual debt arrangements have specifically charged
assets as security, although the relative amounts of collateral
charged, compared with the amount of each facility, are not
uniform. At 30 September 2020, our pool of unsecured properties
were valued at GBP434 million. Following the termination of our
GBP125 million revolving credit facility, this pool has increased,
on a pro-forma basis at 30 September 2020, to GBP686 million,
providing further loan-to-value covenant headroom across our
remaining borrowing arrangements.
Impact of the equity issue on cash and liquidity
Impact on Impact on
cash liquidity
GBPm GBPm
----------------------------- ---------- ----------
Cash 72.8 72.8
Undrawn facilities - 125.0
----------------------------- ---------- ----------
30 September 2020 position 72.8 197.8
Net proceeds 294.4 294.4
Repay RCF drawings (100.0) -
Terminate GBP125m RCF - (125.0)
ICR related deposits(1) (12.0) (12.0)
2021 operating cash flows(1) (45.0) (45.0)
Capital expenditure(1) (65.0) (65.0)
----------------------------- ---------- ----------
Pro forma balance 145.2 245.2
Comprising:
Cash 145.2 145.2
Undrawn facilities - 100.0
----------------------------- ---------- ----------
1. In the reasonable worst case scenario for the working capital statement in the prospectus
On a pro forma basis, adjusting for the net proceeds of the
equity issue, the termination of the GBP125 million revolving
credit facility and repayment of drawings under the GBP100 million
revolving credit facility, at 30 September, net debt was GBP692.6
million, we had GBP367.2 million of available resources and our
loan-to-value ratio was 22.1%.
Liquidity maintenance
The equity issue allows us to maintain a prudent level of
liquidity. At 30 September 2020, we had available resources of
GBP197.8 million. Following the equity issue, and allowing for the
termination of our GBP125 million revolving credit facility, this
increased on a pro-forma basis to GBP367.2 million.
Given the ongoing impact of the pandemic, we expect:
-- a cash outflow from operating activities in the coming year,
reflecting ongoing reduced rent collections, increased vacancy and
consequential increases in costs, set against a fixed finance cost
base. In the reasonable worst-case scenario, prepared for the
equity issue prospectus, this cash outflow was estimated at
approximately GBP45 million for the year ending 30 September
2021.
-- capital expenditure over the coming two financial years of
approximately GBP65 million, which includes capital commitments at
30 September 2020 of GBP31.0 million, new schemes and the estimated
cost of refurbishing vacant space to maximise its letting
prospects, given the increase in vacancy across the wider-West End,
which has increased competition for occupiers.
The equity raise provided funds to ensure that our liquidity
does not fall below levels we consider appropriate, after taking
into account these estimated cash outflows.
We will maintain our usual disciplined approach to acquisitions.
Until such time as current trading conditions improve sufficiently,
we shall continue to prioritise a prudent approach to maintaining
liquidity. However, by exception, should rare opportunities arise
to secure particular, long-sought acquisitions in our core or
emerging ownership clusters, which will provide valuable long-term
compound benefits, we will consider deploying available liquidity.
However, while the lack of visibility over our near-term income as
a result of Covid-19 persists and we remain reliant on interest
cover covenant waivers across our debt facilities, we will look to
replace the liquidity used for acquisitions with selected disposals
of assets no longer considered core to our long-term strategic
objectives.
LIBOR replacement
LIBOR, the London Inter Bank Offer Rate interest rate benchmark
is expected to be discontinued after the end of 2021. In its place,
a replacement 'risk free' rate, the Sterling Overnight Index
Average (SONIA) will be used. There are two fundamental differences
between LIBOR and SONIA:
-- LIBOR is an annualised forward-looking term rate, with
several different tenors available ranging from one day to 12
months but SONIA is only available as an overnight borrowing rate.
LIBOR is fixed in advance for a given term, meaning the interest
amount can be calculated at the beginning of the interest period
while SONIA will be compounded in arrears and therefore will not be
precisely known until the end of the period.
-- SONIA generally provides lower rates than LIBOR (which
includes a banking sector risk or liquidity premium). Inevitably,
this rate difference will be priced into debt instruments in
another way in future.
LIBOR is only used in our remaining GBP100 million revolving
credit facility. Whilst the agreement does not have provisions to
deal with this change, we will work with the providers of this
facility to prepare for a smooth transition in readiness for the
cessation of LIBOR.
Financing summary
The table below shows the position at 30 September 2020 as
reported in the financial statements and pro forma for the net
proceeds of the equity issue, the termination of the GBP125 million
revolving credit facility and repayment of drawings under the
GBP100 million revolving credit facility. It excludes our
proportional share of Longmartin's non-recourse net debt.
2020 2020
Reported Pro-forma 2019
GBPm GBPm GBPm(5)
--------------------------------------- --------- ---------- --------
Resources
Cash 72.8 267.2 54.0
Undrawn floating rate facilities
(GBPm) 125.0 100.0 225.0
--------- ---------- --------
Available resources 197.8 367.2 279.0
Commitments(7) (31.0) ( 31. 0) ( 82. 4)
--------- ---------- --------
Uncommitted resources 166.8 336.2 196.6
--------------------------------------- --------- ---------- --------
Debt stats
Net debt 987.0 692.6 905.8
Loan-to-value(1,2) 31.5% 22.1% 23.9%
Gearing(1,2,4) 43.1% 26.8% 30.0%
Interest cover(1,3) 1.9x N/A 2. 7x
% drawn debt fixed 91% 100% 100%
Blended cost of debt(1,6) 2.9% 3. 1% 3. 2%
Marginal cost of undrawn floating
rate facilities 0.7% 1. 0% 1. 6%
Weighted average maturity (years) 8.3 9.0 9.3
--------------------------------------- --------- ---------- --------
Sources of finance (fully drawn basis)
Bonds 49% 54% 49%
Term loans 32% 36% 32%
Revolving credit facilities 19% 10% 19%
--------------------------------------- --------- ---------- --------
1. Alternative performance measure.
2. Based on net debt.
3. Ratio of operating profit before investment property
disposals and valuation movements to net finance costs.
4. Based on EPRA net assets.
5. Comparatives restated to reflect that we are no longer
presenting finance ratios including our joint venture on a
proportionally consolidated basis
6. Including non-utilisation fees on undrawn bank facilities.
7. Capital commitments at 30 September 2020.
Debt maturity profile
Year of maturity Facility type Total facility
GBPm
------------------ ------------------------------ ---------------
2022 Revolving credit facility(1) 125
2023 Revolving credit facility(2) 100
2027 Bonds 290
2029 Term loan 135
2030 Term loan 130
2031 Bonds 285
2035 Term loan 120
------------------ ------------------------------ ---------------
1. Undrawn at 30 September 2020 and terminated since
2. Drawn at 30 September 2020 but repaid since
Longmartin finance
The figures below represent our 50% share.
The Longmartin joint venture has a GBP60 million fixed-rate term
loan maturing in 2026, which is non-recourse to Shaftesbury.
At 30 September 2020, Longmartin's net debt was GBP57.9 million,
representing a loan-to-value ratio of 33.1%, up from 28.4% in 2019
due to the property valuation decrease in the year.
An ICR waiver to April 2021 has been agreed with Longmartin's
lender and we are now discussing a potential extension.
Group statement of comprehensive income
For the year ended 30 September 2020
2020 2019
Notes GBPm GBPm
---------------------------------------------------- ----- -------- --------
Revenue 124.5 126.9
Expected credit losses (13.0) -
Impairment charges (8.9) -
Property charges (28.3) ( 28. 9)
-------- --------
Net property income 5 74.3 98.0
Administrative expenses 6 (14.4) ( 15. 2)
-------- --------
Operating profit before investment property
disposals and valuation movements 59.9 82.8
Profit on disposal of investment properties 7 0.3 2. 8
Net revaluation deficit on investment properties 10 (698.5) ( 15. 3)
-------- --------
Operating (loss)/profit (638.3) 70.3
Finance income 0.7 1. 0
Finance costs 8 (32.5) ( 31. 5)
Share of post-tax loss from joint venture 12 (29.4) ( 13. 8)
-------- --------
(Loss)/profit before tax (699.5) 26.0
Tax charge for the year 9 - -
-------- --------
(Loss)/profit and total comprehensive (loss)/income
for the year (699.5) 26.0
-------- --------
(Loss)/earnings per share: 21
Basic and diluted (227.5)p 8. 5p
---------------------------------------------------- ----- -------- --------
Group balance sheet
As at 30 September 2020
2020 2019
Notes GBPm GBPm
------------------------------ ----- ------- ---------
Non-current assets
Investment properties 10 3,115.5 3 , 765.9
Accrued income 11 16.3 13.1
Investment in joint venture 12 96.8 127.6
Property, plant and equipment 1.2 1. 4
Other receivables 14 3.7 3. 7
------- ---------
3,233.5 3 , 911.7
Current assets
Trade and other receivables 13 45.0 35.1
Cash and cash equivalents 14 72.8 54.0
------- ---------
Total assets 3,351.3 4 , 000.8
------- ---------
Current liabilities
Trade and other payables 15 19.7 43.8
Non-current liabilities
Borrowings 16 1,051.0 949.8
------- ---------
Total liabilities 1,070.7 993.6
------- ---------
Net assets 2,280.6 3 , 007.2
------- ---------
Equity
Share capital 18 76.9 76.9
Share premium 378.6 378.6
Share-based payments reserve 1.3 1. 3
Retained earnings 1,823.8 2 , 550.4
------- ---------
Total equity 2,280.6 3 , 007.2
------------------------------ ----- ------- ---------
Group cash flow statement
For the year ended 30 September 2020
2020 2019
Notes GBPm GBPm
--------------------------------------------- ----- ------ --------
Operating activities
Cash generated from operating activities 20 33.5 79.8
Interest received 0.4 1. 0
Interest paid (31.4) ( 30. 2)
------ --------
Net cash from operating activities 2.5 50.6
------ --------
Investing activities
Investment property acquisitions (13.3) ( 47. 2)
Investment property disposals 7 0.3 14.3
Capital expenditure on investment properties (31.2) ( 28. 2)
Purchase of property, plant and equipment (0.1) ( 0. 5 )
Increase in cash held in restricted accounts 14 (8.7) -
Dividends received from joint venture 1.4 2. 5
Increase in loans to joint venture (4.3) ( 3. 3 )
------ --------
Net cash used in investing activities (55.9) ( 62. 4)
------ --------
Financing activities
Proceeds from exercise of share options - 0. 2
Proceeds from borrowings 16 150.0 -
Repayment of borrowings 16 (50.0) -
Equity dividends paid 19 (27.8) ( 52. 9)
------ --------
Net cash from/(used in) financing activities 72.2 ( 52. 7)
------ --------
Net change in cash and cash equivalents 18.8 ( 64. 5)
Cash and cash equivalents at the beginning
of the year 14 54.0 118.5
------ --------
Cash and cash equivalents at the end of
the year 14 72.8 54.0
--------------------------------------------- ----- ------ --------
Group statement of changes in equity
For the year ended 30 September 2020
Share-based
Share Share payments Retained Total
capital premium reserve earnings equity
Notes GBPm GBPm GBPm GBPm GBPm
------------------------------- ----- -------- -------- ----------- --------- ---------
Group
At 1 October 2019 76.9 378.6 1.3 2,550.4 3,007.2
Loss and total comprehensive
loss for the year - - - (699.5) (699.5)
Dividends paid 19 - - - (27.8) (27.8)
Share-based payments - - 0.7 - 0.7
Release on exercise of share
options - - (0.7) 0.7 -
-------- -------- ----------- --------- ---------
At 30 September 2020 76.9 378.6 1.3 1,823.8 2,280.6
-------- -------- ----------- --------- ---------
At 1 October 2018 76.8 378.4 1. 2 2 , 576.6 3 , 033.0
Profit and total comprehensive
income for the year - - - 26.0 26.0
( 52. ( 52.
Dividends paid 19 - - - 9) 9)
( 0. 1
Exercise of share options 18 0. 1 0. 2 - ) 0. 2
Share-based payments - - 0. 9 - 0. 9
Release on exercise of share ( 0. 8
options - - ) 0. 8 -
-------- -------- ----------- --------- ---------
At 30 September 2019 76.9 378.6 1. 3 2 , 550.4 3 , 007.2
------------------------------- ----- -------- -------- ----------- --------- ---------
Notes to the financial statements
For the year ended 30 September 2020
1. Basis of preparation
The preliminary announcement does not constitute full financial
statements.
The results for the year ended 30 September 2020 included in
this preliminary announcement are extracted from the audited
financial statements for the year ended 30 September 2020, which
were approved by the directors on 14 December 2020. The auditor's
report on those financial statements was unqualified and did not
include a statement under Section 498(2) or 498(3) of the 2006
Companies Act.
The 2020 Annual Report is expected to be posted to shareholders
and available on the Group's website in January 2021. It will be
considered at the Annual General Meeting to be held on 25 February
2021. The financial statements for the year ended 30 September 2020
have not yet been delivered to the Registrar of Companies.
The auditor's report on the financial statements for the year
ended 30 September 2019 was unqualified and did not include a
statement under Section 498(2) or 498(3) of the 2006 Companies Act.
The financial statements for the year ended 30 September 2019 have
been delivered to the Registrar of Companies.
Going concern
Given the significant uncertainties resulting from the impact of
Covid-19 on the economic environment in which the Group operates,
the directors have placed a particular focus on the appropriateness
of adopting the going concern basis in preparing the consolidated
financial statements for the year ended 30 September 2020. See
Covid-19: impact and response above.
In October 2020, having assessed the Group's financial position
in light of the implications of the Covid-19 pandemic for its
short- and medium-term prospects, the Board determined that it was
in the long-term interests of the Group to raise equity to ensure
the Group maintains a strong financial base and is positioned to
return to long-term growth as pandemic issues recede.
On 22 October 2020, the Board announced its intention to issue
up to 76.75 million shares by means of a Firm Placing, a Placing
and Open Offer and an Offer for Subscription. The equity issue was
approved by an Extraordinary General Meeting of the Company on 17
November 2020 and 76.75 million shares were admitted for trading
the following day. Net proceeds from the equity raise were GBP294.4
million. See Financing above.
The Group's going concern assessment covers the period from the
date of authorisation of these consolidated financial statements to
31 March 2022 (the "going concern period"), and takes into account
its liquidity, committed expenditure, and likely ongoing levels of
costs.
In preparing the assessment of going concern, the Board has
considered a severe but plausible downside scenario, which assumes
continued low levels of rent collection, increased vacancy,
existing capital commitments are satisfied and there are no
acquisitions or disposals. It also assumed surplus unsecured
property is charged to individual loans and factored in decreases
in property values of up to 40%.
The Group anticipates that Government Covid-19 containment
measures will continue to adversely affect its occupiers' ability
to trade through to spring 2021 and that footfall may not recover
to pre-pandemic levels within the going concern period.
These continued restrictions are expected to lead to continued
reduced levels of rent collection and increased EPRA vacancy
throughout the going concern period as well as declining estimated
rental values and asset values.
As a consequence, under the downside scenario, it is likely that
the Group will not meet interest cover covenants throughout the
whole of the going concern period. However, on all drawn debt
facilities it has either secured waivers or has cure rights:
-- The Group has secured interest cover waivers from its two
term loan lenders for periods ending July 2021 and January 2022
respectively. The facilities have cash cure rights for all testing
dates in the going concern period not covered by existing waivers
and the Group anticipates sufficient available cash to make any
necessary deposits.
-- The Group was compliant with its mortgage bonds' interest
cover covenants at 30 September 2020 and expects to remain
compliant during the going concern period. Should it be required,
the Group has the ability to top-up the charged asset pool with
additional assets with sufficient contractual income from its pool
of unsecured properties.
-- Since 30 September 2020, the Group has cancelled its shortest
maturity revolving credit facility (GBP125 million, maturing May
2022) and has repaid all drawings under its remaining revolving
credit facility (GBP100 million, maturing February 2023). In its
downside scenario, the Group forecasts that it will have sufficient
cash throughout the going concern period, such that it does not
anticipate being reliant on the undrawn facility for liquidity and
could cancel it if interest cover covenant waivers were not
available.
There are no debt maturities until February 2023. See Financing
above.
At 30 September 2020, the Group's loan-to-value ratio was 31.5%.
Pro forma for the receipt of the proceeds of the equity raise this
falls to 22.1%. The Group's individual debt arrangements have
specifically charged assets as security, although the relative
amounts of collateral against each arrangement are not uniform.
However, as part of the Group's finance strategy, it has a pool of
unsecured properties which can be used to top-up debt security
pools, if necessary, to comply with loan-to-value covenants. The
cancellation of the GBP125 million revolving credit facility has
released additional assets to this pool. Through charging these
unsecured properties, the Group estimates that it could withstand a
41% decrease in valuations before reaching the limit of its
loan-to-value covenants. If it were to cancel the remaining
revolving credit facility and release its assets to be charged
against other loans, this tolerance would increase to 48%.
Under the Group's severe but plausible downside scenario, the
Group has sufficient liquidity for the going concern period
assuming that values do not decline beyond the tolerance levels
noted above. The Board, therefore, has a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the going concern period. On this basis, the Board
has continued to adopt the going concern basis in preparing the
consolidated financial statements.
2. Changes in accounting policies
The accounting policies and methods of computation used are
consistent with those of the previous financial year, with the
exception of new standards and amendments to standards, which
became effective in the financial year.
New standards adopted during the year
The following standards and amendments to existing standards
were relevant to the Group, adopted from 1 October 2019, and did
not have a significant impact on the financial statements:
-- IFRS 9 (amendment) - Prepayment features with negative
compensation
-- IAS 28 (amendment) - Long-term interest in associates and
joint ventures
-- Annual Improvements 2015-2017
IFRS 16 - Leases (effective from 1 October 2019)
The Group and Company adopted IFRS 16 on 1 October 2019, using
the modified retrospective approach. Comparatives for the 2019
financial year have not been restated. For operating leases in
excess of one year, this standard requires lessees to recognise a
right-of-use asset and a related lease liability representing the
obligation to make lease payments. The right-of-use asset is
assessed for impairment annually and is amortised on a
straight-line basis. The lease liability is amortised using the
effective interest method.
As the Group is primarily a lessor, this standard had no
significant impact on the Group financial statements.
The Company leases its head office accommodation from a
subsidiary company. As a result, the Company has recognised a
right-of-use asset and lease liability, which were both initially
measured at GBP4.6 million, being the present value of the GBP5.5
million remaining lease payments, discounted at a rate of 3.75%, at
1 October 2019.
The impact on the Company Balance Sheet on transition at 1
October 2019 is shown below:
At 1 Oct 2019 At 30 Sept 2020
(GBPm) (GBPm)
------------------------------------------------- ------------- ---------------
Property, plant & equipment (right-of-use
asset) 4.6 4.2
Current trade & other payables (lease liability) 0.4 0.4
Non-current trade & other payables (lease
liability) 4.2 3.8
------------------------------------------------- ------------- -------------------
The right-of-use asset was initially measured at an amount equal
to the lease liability. As a result, there was no impact on opening
retained earnings at 1 October 2019.
In applying IFRS 16 for the first time, the Group and Company
have used the following practical expedient permitted by the
standard:
-- Exclusion of initial direct costs for the measurement of the
right-of-use asset.
Whilst judgement and estimates were required in the initial
adoption of IFRS 16, these were not considered significant.
Standards relevant to the Group but not yet effective
The following amendments to existing standards were relevant to
the Group, are not yet effective, and have not been adopted early.
They are not expected to have a significant impact on the financial
statements:
-- IFRS 9, IAS 39 and IFRS 7 (amendments) - Interest rate
benchmark reform
-- IAS 1 and IAS 8 (amendments) - Definition of material
-- IFRS 3 (amendment) - Definition of a business
-- IFRS 16 (amendment) - Covid-19 related rent concessions
3. Significant judgements, assumptions and key estimates
The preparation of the financial statements in accordance with
IFRS requires the directors to make judgements and estimates about
the carrying amounts of assets and liabilities, in applying the
Group's accounting policies. The judgements and estimates are based
on historical experience and other relevant factors, including
expectations of future events, and are reviewed on a continual
basis. Although the estimates are made using the directors' best
knowledge of the amount, event or actions, actual results may
differ from the original estimates.
Significant areas of estimation uncertainty
Investment property valuation
The investment property portfolio is valued by independent third
party valuers. Cushman & Wakefield value the properties owned
by the Group, and Knight Frank LLP value the properties owned by
the Longmartin joint venture.
Valuations are inherently subjective due to, among other
factors, the individual nature of each property, its location and
the expected future rental income. As a result, the valuations the
Group places on its property portfolio require estimates to be
made, including, but not limited to, market yields, ERVs, void
periods and, currently, the likely short-term impact of rent
concessions. These estimates are based on assumptions made by the
valuers. The most significant assumptions are those in respect of
market yields and ERVs, which are summarised in the Basis of
Valuation below and are in accordance with the RICS Valuation -
Global Standards. Given the inherent subjectivity, the valuations
are subject to a degree of uncertainty and are made on the basis of
assumptions which may not prove to be accurate, particularly in
periods of volatility or low transaction flow in the commercial
property market. This may mean that the value of the Group's
properties differs from their valuation reported in the financial
statements, which could have a material effect on the Group's
financial position.
Given market disruption as a result of the onset of the Covid-19
pandemic, the valuation reports at 31 March 2020 included
statements highlighting a material valuation uncertainty, which was
consistent with market practice and not specific to the Group. By
30 September 2020, the valuers had removed the material uncertainty
clauses from their valuation reports.
In recognition of the potential for market conditions to move
rapidly in response to changes in the control, or future spread, of
Covid-19, the external valuers have highlighted the importance of
the valuation date in their reports. It is their view that, as at
the valuation date, transaction volumes and other relevant evidence
had returned to levels where an adequate quantum of market evidence
existed upon which to base opinions of value. Accordingly, and for
the avoidance of doubt, the valuations at 30 September 2020 were
not subject to 'material valuation uncertainty'.
Further information on the approach taken by the valuers in
valuing the portfolio and a sensitivity analysis on equivalent
yields and ERV, which are the most significant assumptions
impacting the fair values, is set out in note 10 to the financial
statements.
Provisions for expected credit losses on rent receivables,
impairment of lease incentives and prepaid letting expenses
During the year, tenant default risk has increased with
occupiers suffering operational and financial challenges as a
result of the pandemic. The Group has supported its occupiers
through a package of measures including deferrals and waivers of
rent obligations. Rent collections have been significantly below
normal levels. See Covid-19: impact and response above, and the
Portfolio activity report above. In preparing the financial
statements, estimates are made in assessing expected credit losses
in respect of rent receivables, lease incentives and prepaid
letting expenses. In normal circumstances, these estimates draw on
historical information, such as recent payment history. However, in
the current market with greater uncertainty, the focus is more on
forecast information, taking into account expectations about
trading levels, footfall and tenants' ability to pay rental arrears
and, with respect to lease incentives and prepaid letting expenses,
whether it is likely tenants will serve out the remainder of the
contractual terms of their leases. In assessing provisions, the
Group identifies risk factors associated with each use (food and
beverage, retail, office and residential).
The Group assesses the likely recovery of rent receivables for
potential provisions, which are estimated using a forward-looking
expected credit loss model for each receivable from an occupier. In
determining the provision, the Group considers both recent payment
history and future expectations of occupiers' ability to pay or
possible default in order to recognise a lifetime expected credit
loss allowance.
Where the credit loss relates to revenue already recognised in
the Income Statement, the expected credit loss allowance is
recognised in the Income Statement. Expected credit losses
totalling GBP13.0 million were charged to the Income Statement in
the year (2019: GBPnil).
Accrued income from lease incentives and prepaid letting
expenses are subject to impairment review at each period end. In
determining the impairment provision, the Group reviews leases on
an individual basis, making a provision based on an expected credit
loss model, using information available about the likelihood of a
lease terminating earlier than the date of contractual break or
expiry.
The provision for expected credit loss in the year has increased
to GBP14.3 million, reflecting the increased credit risk (see note
13). The provisions against lease incentives and prepaid letting
expenses have increased to GBP8.2 million (see note 11) and GBP0.7
million respectively.
The directors did not make any significant judgements in the
preparation of these financial statements, which is consistent with
the prior year.
The two key estimates made in the current year financial
statements are investment property valuation and the provision for
expected credit losses for rent receivables and the impairment of
lease incentives and prepaid letting expenses. The estimate for
provisions was not a key estimate in the prior year, because the
provision for credit losses and impairment was not material.
4. Segmental information
IFRS 8 requires operating segments to be reported in a manner
consistent with the internal financial reporting reviewed by the
chief operating decision maker. The chief operating decision maker
of the Group is the Board. The Board is responsible for reviewing
the Group's internal reporting in order to assess performance.
The information reviewed by the Board is prepared on a basis
consistent with these financial statements. That is, the
information is provided at a Group level and includes both the IFRS
reported results and EPRA measures (see below for an explanation on
the EPRA measures used in these financial statements).
The Group's properties are all located in London's West End, and
are all of a similar type. The properties are typically mixed-use
buildings with restaurants, leisure and retail on the lower floors
and small offices and apartments on the upper floors. As the
properties share similar economic characteristics we consider them
to be one operating segment. As such, no segmental information is
presented.
5. Net property income
2020 2019
GBPm GBPm
------------------------------------------- ------ --------
Rental income (excluding lease incentives) 102.5 115.0
Adjustment for lease incentives 11.9 2. 3
------ --------
Rental income 114.4 117.3
Service charge income 10.1 9. 6
------ --------
Revenue 124.5 126.9
Expected credit losses (13.0) -
Impairment charges (8.9) -
------ --------
102.6 126.9
Service charge expenses (10.1) ( 9. 6 )
Other property charges (18.2) ( 19. 3)
------ --------
Property charges (28.3) ( 28. 9)
------ --------
74.3 98.0
------------------------------------------- ------ --------
Impairment charges of GBP8.9 million (2019: GBPnil) include
GBP8.2 million (2019: GBPnil) for tenant lease incentive balances
and GBP0.7 million (2019: GBPnil) for prepaid letting expense
balances.
Property charges include GBP1.7 million (2019: GBP2.0 million)
in respect of investment properties that were vacant during the
year.
6. Administrative expenses
2020 2019
GBPm GBPm
-------------------------------------------------- ----- --------
Employee costs 8.2 10.0
Depreciation 0.3 0. 4
Other head office costs 6.0 4. 9
----- --------
14.5 15.3
Less: administrative fees received from the joint
venture (0.1) ( 0. 1 )
14.4 15.2
-------------------------------------------------- ----- --------
2020 2019
Employee costs (including the directors) GBPm GBPm
----------------------------------------- ----- -----
Wages and salaries 6.3 7. 2
Social security costs 0.3 0. 9
Other pension costs 0.3 0. 4
Equity-settled remuneration 1.3 1. 5
----- -----
8.2 10.0
----------------------------------------- ----- -----
Included within equity-settled remuneration is a charge of
GBP1.0 million (2019: GBP1.2 million) for the LTIP and SAYE
schemes.
7. Profit on disposal of investment properties
2020 2019
GBPm GBPm
--------------------------- ----- --------
Net sale proceeds 0.3 14.3
Book value at date of sale - ( 11. 5)
----- --------
0.3 2. 8
--------------------------- ----- --------
Disposal profits in 2020 relate to residential long leasehold
tenure extensions granted in the year.
8. Finance costs
2020 2019
GBPm GBPm
------------------------ ----- -----
Mortgage bond interest 13.9 13.9
Bank and other interest 17.4 16.4
Issue cost amortisation 1.2 1. 2
----- -----
32.5 31.5
------------------------ ----- -----
9. Tax charge for the year
The Group's wholly-owned business is subject to taxation as a
REIT. Under the REIT regime, income from its rental business
(calculated by reference to tax rather than accounting rules) and
chargeable gains from the sale of its investment properties are
exempt from corporation tax.
10. Investment properties
2020 2019
GBPm GBPm
--------------------------------------------------- ------- ---------
At 1 October 3,765.9 3 , 714.8
Acquisitions 13.3 47.0
Disposals - ( 11. 5)
Refurbishment and other capital expenditure 34.8 30.9
Net revaluation deficit on investment properties (698.5) ( 15. 3)
------- ---------
Book value at 30 September 3,115.5 3 , 765.9
--------------------------------------------------- ------- ---------
Fair value at 30 September:
Properties valued by Cushman & Wakefield 3,137.4 3 , 784.2
Lease incentives and costs included in receivables (21.9) ( 18. 3)
------- ---------
Book value at 30 September 3,115.5 3 , 765.9
--------------------------------------------------- ------- ---------
The investment properties valuation comprises:
2020 2019
GBPm GBPm
--------------------- ------- ---------
Freehold properties 2,929.0 3 , 531.2
Leasehold properties 208.4 253.0
------- ---------
3,137.4 3 , 784.2
--------------------- ------- ---------
Investment properties were valued at 30 September 2020 by
professionally qualified external valuers. The Group's wholly-owned
portfolio is valued by Cushman & Wakefield, members of the
Royal Institution of Chartered Surveyors (RICS).
All properties were valued on the basis of fair value and
highest and best use, in accordance with IFRS 13 and the RICS
Valuation - Global Standards, which incorporate the International
Valuation Standards and the Valuation UK National Supplement (the
"RICS Red Book") edition current at the valuation date. When
considering a property's highest and best use, the valuer considers
its actual and potential uses which are physically, legally and
financially viable. Where the highest and best use differs from the
existing use, the valuer considers the use a market participant
would have in mind when formulating the price it would bid and
reflects the cost and likelihood of achieving that use.
The fair value of the Group's investment properties has
primarily been determined using a market approach, which provides
an indication of value by comparing the subject asset with similar
assets for which price information is available. The external
valuer uses information provided by the Group, such as tenancy
information and capital expenditure expectations. In deriving fair
value, the valuer also makes a series of assumptions, using
professional judgement and market observations. The key assumptions
are the equivalent yields and estimated future rental income
(ERVs), as set out in the Basis of Valuation below. Equivalent
yields are based on current market prices, depending on, inter
alia, the location and use of the properties. ERVs are calculated
using a number of factors which include current rental income,
market comparatives and occupancy levels. Whilst there is market
evidence for these inputs, and recent transaction prices for
similar properties, there is still a significant element of
estimation and judgement. As a result of adjustments made by the
valuers to market observable data, these significant inputs are
deemed unobservable.
Since the key inputs to the valuation are unobservable, the
Group considers all its investment properties fall within Level 3
of the fair value hierarchy in IFRS 13. The Group's policy is to
recognise transfers between hierarchy levels as at the date of the
event or change in circumstances that caused the transfer. There
have been no transfers during the year (2019: none).
The major inputs to the external valuation are reviewed by the
senior management team. In addition, the valuer meets with the
external auditor and the Audit Committee.
Fees were agreed at fixed amounts in advance of the valuations
being carried out. During the year, Cushman & Wakefield acted
as letting agents for Shaftesbury Covent Garden Limited and
Shaftesbury CL Limited, and provided other advice to Shaftesbury
PLC. Non-valuation fees represented 34% of total fees for the
valuation of the Group's investment properties. Fees payable by the
Group to Cushman & Wakefield do not constitute a significant
part of their fee income.
Sensitivity analysis
As noted in the significant judgements, assumptions and key
estimates section above, the valuation of the Group's property
portfolio is inherently subjective. As a result, the valuations the
Group places on its property portfolio are subject to a degree of
uncertainty and are made on the basis of assumptions which may not
prove to be accurate, particularly in periods of volatility or low
transaction flow in the commercial property market.
Cushman & Wakefield included the following statement in
their report at 30 September 2020:
"The outbreak of Covid-19, declared by the World Health
Organisation as a "Global Pandemic" on the 11th March 2020, has and
continues to impact many aspects of daily life and the global
economy - with some real estate markets having experienced lower
levels of transactional activity and liquidity. Travel restrictions
have been implemented by many countries and "lockdowns" applied to
varying degrees. Local lockdowns are being deployed as necessary,
significant further outbreaks have emerged in parts of the UK and a
"second wave" is now widely considered to be taking place in many
countries in Europe.
"The pandemic and the measures taken to tackle Covid-19 continue
to affect economies and real estate markets globally. Nevertheless,
as at the valuation date property markets are mostly functioning,
with transaction volumes and other relevant evidence returning to
levels where an adequate quantum of market evidence exists upon
which to base opinions of value. Accordingly, and for the avoidance
of doubt, our valuation is not reported as being subject to
'material valuation uncertainty' as defined by VPS 3 and VPGA 10 of
the RICS Valuation - Global Standards.
"For the avoidance of doubt this explanatory note has been
included to ensure transparency and to provide further insight as
to the market context under which the valuation opinion was
prepared. In recognition of the potential for market conditions to
move rapidly in response to changes in the control or future spread
of Covid-19 we highlight the importance of the valuation date."
The Group's properties are all located in London's West End and
are virtually all multi-use buildings, usually configured with
commercial uses on the lower floors and office and/or residential
uses on the upper floors. Cushman & Wakefield value properties
in their entirety and not by use. Consequently, the sensitivity
analysis below has been performed on the Group's portfolio as a
whole. The sensitivity analysis has been expanded this year,
widening the movement in ERV's and yields, given the increased
level of estimation uncertainty.
Change in ERV
---------------------------------------------
-25% -20% -15% -10% -5% +5%
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------ ------ ------ ------ ------ -----
(Decrease)/increase in the ( 681. ( 548. ( 415. ( 282. ( 148.
fair value 5) 3) 2) 2) 7) 126.2
--------------------------- ------ ------ ------ ------ ------ -----
Change in Yield
----------------------------------------------
-0.25% +0.25% +0.5% +0.75% +1.0% +1.25%
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------ ------ ------ ------ ------ ------
Increase/(decrease) in the ( 199. ( 379. ( 538. ( 680. ( 808.
fair value 236.0 6) 4) 3) 5) 2)
--------------------------- ------ ------ ------ ------ ------ ------
These key unobservable inputs are inter-dependent. All other
factors being equal, a higher equivalent yield would lead to a
decrease in the valuation of a property, and an increase in the ERV
would increase the capital value, and vice versa.
At 30 September 2020, the Group had capital commitments of
GBP31.0 million (2019: GBP82.4 million). This included GBP31.0
million relating to future capital expenditure for the enhancement
of the Group's investment properties (2019: GBP43.4 million). At 30
September 2019, it also included GBP39.0 million relating to the
forward purchase of a long leasehold interest. The vendor failed to
meet its obligations to complete the sale and at 30 September 2020,
we were no longer contractually committed. See above for a
discussion of the Group's property activity during the year.
Details of the restrictions on the Group's investment properties
are set out in note 16.
11. Accrued income
2020 2019
GBPm GBPm
---------------------------------------------- ----- --------
Accrued income in respect of lease incentives 20.6 16.1
Less: included in trade and other receivables
(note 13) (4.3) ( 3. 0 )
----- --------
16.3 13.1
---------------------------------------------- ----- --------
At 30 September 2020, the Group held impairment provisions
totalling GBP8.2 million (2019: GBPnil) against lease incentive
balances. See note 3 for further information.
12. Investment in joint venture
2020 2019
GBPm GBPm
--------------------------- ------ --------
Group
At 1 October 127.6 143.9
Share of losses (29.4) ( 13. 8)
Dividends received (1.4) ( 2. 5 )
------ --------
Book value at 30 September 96.8 127.6
--------------------------- ------ --------
At 30 September 2020, the joint venture had capital commitments
of GBP0.1 million (2019: GBP5.2 million) relating to future capital
expenditure for the enhancement of its investment properties, of
which, 50% relates to the Group.
The summarised Statement of Comprehensive Income and Balance
Sheet used for consolidation purposes are presented below:
2020 2019
GBPm GBPm
------------------------------------------------------ ------ --------
Statement of Comprehensive Income
Rental income 15.3 15.0
Service charge income 1.9 1. 8
------ --------
Revenue 17.2 16.8
Expected credit losses (0.4) -
Impairment charges (0.8) -
------ --------
16.0 16.8
------ --------
Other property charges (2.9) ( 2. 2 )
Service charge expenses (1.9) ( 1. 8 )
------ --------
Property charges (4.8) ( 4. 0 )
------ --------
Net property income 11.2 12.8
Administrative expenses (0.3) ( 0. 2 )
------ --------
Operating profit before investment property valuation
movements 10.9 12.6
Net revaluation deficit on investment properties (71.7) ( 38. 5)
------ --------
Operating loss (60.8) ( 25. 9)
Finance costs (7.3) ( 6. 8 )
------ --------
Loss before tax (68.1) ( 32. 7)
------ --------
Current tax (0.9) ( 1. 2 )
Deferred tax 10.2 6. 3
------ --------
Tax credit for the year 9.3 5. 1
------ --------
Loss and total comprehensive loss for the year (58.8) ( 27. 6)
------ --------
Loss attributable to the Group (29.4) ( 13. 8)
------------------------------------------------------ ------ --------
2020 2019
GBPm GBPm
------------------------------------- ----- -----
Balance Sheet
Non-current assets
Investment properties at book value 358.0 426.3
Accrued income 1.8 1. 7
Other receivables 1.3 1. 3
----- -----
361.1 429.3
Cash and cash equivalents 4.3 1. 2
Other current assets 5.7 4. 1
----- -----
Total assets 371.1 434.6
----- -----
Current liabilities 30.0 21.7
Non-current liabilities
Secured term loan 120.0 120.0
Other non-current liabilities 27.5 37.7
----- -----
Total liabilities 177.5 179.4
----- -----
Net assets 193.6 255.2
----- -----
Net assets attributable to the Group 96.8 127.6
------------------------------------- ----- -----
13. Trade and other receivables
2020 2019
GBPm GBPm
---------------------------------------------- ------ --------
Trade receivables 26.0 18.3
Provision for expected credit losses (14.3) ( 1. 5 )
------ --------
11.7 16.8
Accrued income in respect of lease incentives
(note 11) 4.3 3. 0
Amounts due from joint venture 11.8 7. 2
Other taxation 2.9 -
Prepayments 1.9 7. 6
Other receivables 12.4 0. 5
------ --------
45.0 35.1
---------------------------------------------- ------ --------
Trade receivables represent amounts due from tenants. Within
this balance is GBP3.6 million (2019: GBP3.4 million) owed for
service charges.
Cash deposits totalling GBP14.3 million (2019: GBP20.7 million)
were held against tenants' rent payment obligations. The deposits
are held in bank accounts administered by the Group's managing
agents and are not included within the Group Balance Sheet.
14. Cash and cash equivalents
2020 2019
GBPm GBPm
------------------------------------------------- ----- -----
Cash at bank 72.8 54.0
----- -----
Restricted cash (included in other receivables):
Non-current other receivables 3.7 3. 7
Current other receivables 8.7 -
----- -----
12.4 3. 7
------------------------------------------------- ----- -----
Restricted cash relates to cash held on deposit as security for
certain secured term loans and secured bank facilities, and where
there are certain conditions restricting their use.
15. Trade and other payables
2020 2019
GBPm GBPm
-------------------------------------------------- ----- -----
Deferred rental income 3.4 23.0
Accruals and deferred service charge income 1.1 5. 1
----- -----
4.5 28.1
Trade payables and accruals in respect of capital
expenditure 4.8 3. 5
Other taxation and social security 0.5 2. 9
Other payables and accruals 9.9 9. 3
----- -----
19.7 43.8
-------------------------------------------------- ----- -----
All deferred service charge income of the prior year was
recognised as income in the current year.
16. Borrowings
2020 2019
------------------------------ -----------------------------
Nominal Unamortised Book Nominal Unamortised Book
value issue costs value value issue costs value
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ ------- ------------ ------- ------- ------------ ------
Mortgage bonds 575.0 (4.4) 570.6 575.0 ( 4. 9 ) 570.1
( 1. 3
Secured bank facilities 100.0 (1.0) 99.0 - ( 1. 3 ) )
Secured term loans 384.8 (3.4) 381.4 384.8 ( 3. 8 ) 381.0
------- ------------ ------- ------- ------------ ------
Total Group borrowings 1,059.8 (8.8) 1,051.0 959.8 ( 10. 0) 949.8
------------------------ ------- ------------ ------- ------- ------------ ------
Details of the Group's current financial position are discussed
above.
The Group's borrowings are secured by fixed charges over certain
investment properties held by subsidiaries, with a carrying value
of GBP2,697.9 million (2019: GBP3,088.9 million), and by floating
charges over the assets of the Company and/or certain subsidiaries.
To the extent there is a fixed charge over a property, consent is
needed from the relevant lender for the fixed charge to be removed,
for example, in the case of a disposal of that property.
There are currently no restrictions on the remittance of income
from investment properties.
Net debt reconciliation
Cash flows
----------------- ---------
Non-cash
1.10.2019 Inflows Outflows items 30.9.2020
GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- ------- -------- --------- ---------
Non-current borrowings
Mortgage bonds 575.0 - - - 575.0
Secured bank facilities - 150.0 (50.0) - 100.0
Secured term loans 384.8 - - - 384.8
Loan issue costs (10.0) - - 1.2 (8.8)
--------- ------- -------- --------- ---------
949.8 150.0 (50.0) 1.2 1,051.0
Loan issue costs(1) 10.0 - - (1.2) 8.8
Cash & cash equivalents (note
14) (54.0) (185.6) 166.8 - (72.8)
--------- ------- -------- --------- ---------
Net debt at 30 September 2020 905.8 (35.6) 116.8 - 987.0
------------------------------ --------- ------- -------- --------- ---------
Cash flows
----------------- ---------
Non-cash
1.10.2018 Inflows Outflows items 30.9.2019
GBPm GBPm GBPm GBPm GBPm
------------------------------ --------- ------- -------- --------- ---------
Non-current borrowings
Mortgage bonds 575.0 - - - 575.0
Secured term loans 384.8 - - - 384.8
Loan issue costs (11.2) - - 1.2 (10.0)
--------- ------- -------- --------- ---------
948.6 - - 1.2 949.8
Loan issue costs(1) 11.2 - - (1.2) 10.0
Cash & cash equivalents (note
14) (118.5) (97.8) 162.3 - (54.0)
--------- ------- -------- --------- ---------
Net debt at 30 September 2019 841.3 (97.8) 162.3 - 905.8
------------------------------ --------- ------- -------- --------- ---------
1. Lo an issue costs are eliminated in the calculation of net debt.
Availability and maturity of borrowings
2020 2019
--------------------------- -------------------------
Committed Drawn Undrawn Committed Drawn Undrawn
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------- --------- ------- ------- --------- ----- -------
Repayable between 1 and
5 years 225.0 100.0 125.0 225.0 - 225.0
Repayable between 5 and
10 years 554.8 554.8 - 424.8 424.8 -
Repayable after 10 years 405.0 405.0 - 535.0 535.0 -
--------- ------- ------- --------- ----- -------
1,184.8 1,059.8 125.0 1 , 184.8 959.8 225.0
------------------------- --------- ------- ------- --------- ----- -------
Interest rate profile of interest bearing borrowings
2020 2019
--------------- ---------------
Debt Interest Debt Interest
GBPm rate GBPm rate
------------------------------------------ ----- -------- ----- --------
Secured bank facilities 100.0 1.66% - -
Secured term loans 384.8 3.85% 384.8 3. 85%
Mortgage bonds 2027 290.0 2.35% 290.0 2. 35%
Mortgage bonds 2031 285.0 2.49% 285.0 2. 49%
-------- --------
Weighted average cost of drawn borrowings 2.87% 2. 99%
------------------------------------------ ----- -------- ----- --------
The Group also incurs non-utilisation fees on undrawn
facilities. At 30 September 2020, the weighted average charge on
the undrawn facilities of GBP125.0 million (2019: GBP225.0 million)
for the Group was 0.68% (2019: 0.66%).
The weighted average credit margin on the Group's secured bank
facilities was 1.46% (2019: 1.46%).
17. Financial instruments
The Group's mortgage bonds and secured term loans are held at
amortised cost in the Balance Sheet. The fair value of these
financial instruments is GBP988.9 million (2019: GBP1,042.9
million). The difference between the fair value and the book value
is not recognised in the reported results for the year. The fair
values have been calculated based on a discounted cash flow model
using the relevant reference gilt and appropriate market spread.
The valuation technique falls within Level 2 of the fair value
hierarchy in IFRS 13.
The fair values of the Group's cash and cash equivalents, and
those financial instruments included within trade and other
receivables, interest bearing borrowings (excluding the mortgage
bonds and the secured term loans), and trade and other payables are
not materially different from the values at which they are carried
in the financial statements.
18. Share capital
2020 2019
number number 2020 2019
million million GBPm GBPm
-------------------------------------- -------- -------- ----- -----
Allotted and fully paid (ordinary 25p
shares)
At 1 October 307.4 307.3 76.9 76.8
Exercise of share options - 0. 1 - 0. 1
-------- -------- ----- -----
At 30 September 307.4 307.4 76.9 76.9
-------------------------------------- -------- -------- ----- -----
See note 23 for information on the equity raise completed post
year end.
19. Dividends
Pence per share
------------------
2020 2019
PID Ordinary GBPm GBPm
----------------------------- ------- --------- ----- -----
Final dividend for:
Year ended 30 September 2019 5. 25p 3. 75p 27.8 -
Year ended 30 September 2018 - 8. 5p - 26.2
Interim dividend for:
Year ended 30 September 2019 8. 7p - - 26.7
----- -----
Dividends paid in the year 27.8 52.9
----------------------------- ------- --------- ----- -----
The Board announced on 25 September 2020 that no final dividend
would be declared in respect of the year ended 30 September 2020.
The Board intends to resume dividend payments as soon as it
considers prudent, maintaining its policy of sustainable dividend
growth over the long-term. The pace of the post-pandemic income
recovery and our REIT PID obligations, will be key factors in the
Board's near-term decisions on declaring dividends.
20. Cash flows from operating activities
2020 2019
Operating activities GBPm GBPm
--------------------------------------------------- ------- --------
Profit before tax (699.5) 26.0
Adjusted for:
Lease incentives recognised (3.7) ( 2. 3 )
Share-based payments 0.7 0. 9
Depreciation (note 6) 0.3 0. 4
Net revaluation deficit on investment properties
(note 10) 698.5 15.3
Profit on disposal of investment properties (note
7) (0.3) ( 2. 8 )
Net finance costs 31.8 30.5
Share of post-tax loss from joint venture (note
12) 29.4 13.8
------- --------
Cash flows from operations before changes in
working capital 57.2 81.8
Changes in working capital:
Change in trade and other receivables 1.5 ( 4. 1 )
Change in trade and other payables (25.2) 2. 1
------- --------
Cash generated from/(used in) operating activities 33.5 79.8
--------------------------------------------------- ------- --------
See note 16 for the cash flow movement in net debt.
21. Performance measures
Earnings per share
2020 2019
------------------------------------- -------------------------------------
Loss Number Loss Profit Number Earnings
after tax of shares(1) per share after tax of shares(1) per share
GBPm million pence GBPm million pence
------------------------- ---------- ------------- ---------- ---------- ------------- ----------
Basic (699.5) 307.4 (227.5) 26.0 307.4 8. 5
Dilutive effect of share
options - - - - 0. 2 -
---------- ------------- ---------- ---------- ------------- ----------
Diluted (699.5) 307.4 (227.5) 26.0 307.6 8. 5
------------------------- ---------- ------------- ---------- ---------- ------------- ----------
1. Weighted average
For the year ended 30 September 2020, potential ordinary shares
are excluded from the weighted average diluted number of shares
when calculating IFRS diluted loss per share because they are not
dilutive.
EPRA earnings per share
The calculations below are in accordance with the EPRA Best
Practice Recommendations.
2020 2019
------------------------------------- -------------------------------------
Profit Number Earnings Profit Number Earnings
after tax of shares(1) per share after tax of shares(1) per share
GBPm million pence GBPm million pence
---------------------------------- ---------- ------------- ---------- ---------- ------------- ----------
Basic (699.5) 307.4 (227.5) 26.0 307.4 8. 5
EPRA adjustments:
Net revaluation deficit
on investment properties
(note 10) 698.5 227.2 15.3 5. 0
Profit on disposal of
investment properties ( 2. 8 ( 0. 9
(note 7) (0.3) (0.1) ) )
Adjustments in respect
of the joint venture:
Investment property valuation
deficit 35.8 11.6 19.2 6. 2
( 3. 1 ( 1. 0
Deferred tax (5.1) (1.6) ) )
---------- ------------- ---------- ---------- ------------- ----------
EPRA earnings 29.4 307.4 9.6 54.6 307.4 17.8
---------------------------------- ---------- ------------- ---------- ---------- ------------- ----------
1. Weighted average
Like-for-like rental growth
2020 2019
GBPm GBPm
------------------------------------------------ ------ --------
Rental income in current year 114.4 117.3
Adjusted for impact of:
Impact of acquisitions (1.7) ( 2. 5 )
Impact of disposals - -
------ --------
Like-for-like rental income in current year (A) 112.7 114.8
------ --------
Rental income in previous year 117.3 112.8
Adjusted for impact of:
Impact of acquisitions (0.5) ( 3. 0 )
Impact of disposals - ( 0. 4 )
------ --------
Like-for-like rental income in previous year
(B) 116.8 109.4
------ --------
Like-for like (decline)/growth in rental income
(A/B-1) (3.5%) 4. 9%
------------------------------------------------ ------ --------
Adjusted EPRA earnings per share
2020 2019
------------------------------------- -------------------------------------
Profit Number Earnings Profit Number Earnings
after tax of shares(1) per share after tax of shares(1) per share
GBPm million pence GBPm million pence
------------------------- ---------- ------------- ---------- ---------- ------------- ----------
EPRA earnings 29.4 307.4 9.6 54.6 307.4 17.8
Charge for share options
(note 6) 1.0 0.3 1. 2 0. 4
---------- ------------- ---------- ---------- ------------- ----------
Adjusted EPRA earnings 30.4 307.4 9.9 55.8 307.4 18.2
------------------------- ---------- ------------- ---------- ---------- ------------- ----------
1. Weighted average
Net asset value per share
2020 2019
--------------------------------- ---------------------------------
Number Net asset Number Net asset
Net of ordinary value per Net of ordinary value per
assets shares share assets shares share
GBPm million GBP GBPm million GBP
------------------------- ------- ------------ ---------- ------- ------------ ----------
Basic 2,280.6 307.4 7.42 3,007.2 307.4 9.78
Dilutive effect of share
options 0.7 0.6 0.5 0.3
------- ------------ ---------- ------- ------------ ----------
Diluted 2,281.3 308.0 7.41 3,007.7 307.7 9.77
------------------------- ------- ------------ ---------- ------- ------------ ----------
In October 2019, EPRA introduced three new measures of net asset
value in its Best Practices Recommendations: EPRA Net Reinstatement
Value (NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal
Value (NDV). These are effective from 1 October 2020 but have been
presented below with a comparison to the current measures, EPRA NAV
and EPRA NNNAV.
2020
-----------------------------------------------------
Existing measures New measures
-------------------- -------------------------------
EPRA EPRA EPRA EPRA
NAV EPRA NNNAV NRV NTA NDV
GBPm GBPm GBPm GBPm GBP
------------------------------------ -------- ---------- --------- --------- ---------
IFRS net assets 2,280.6 2,280.6 2,280.6 2,280.6 2,280.6
Dilutive effect of share options(1) 0.7 0.7 0.7 0.7 0.7
Deferred tax(2) 8.5 - 8.5 8.5 -
Difference between fair value
and carrying value of debt:
Secured term loans(3) - (48.0) - - (48.0)
Mortgage bonds - 11.4 - - 11. 4
Investment property purchasers'
costs - - 222.5 - -
-------- ---------- --------- --------- ---------
Total 2,289.8 2,244.7 2 , 512.3 2 , 289.8 2 , 244.7
-------- ---------- --------- --------- ---------
Number of diluted shares (million) 308.0 308.0 308.0 308.0 308.0
Diluted net assets per share (GBP) 7.43 7.29 8. 16 7. 43 7. 29
------------------------------------ -------- ---------- --------- --------- ---------
2019
-----------------------------------------------------
Existing measures New measures
-------------------- -------------------------------
EPRA EPRA EPRA EPRA
NAV EPRA NNNAV NRV NTA NDV
GBPm GBPm GBPm GBPm GBPm
------------------------------------ -------- ---------- --------- --------- ---------
IFRS net assets 3,007.2 3,007.2 3 , 007.2 3 , 007.2 3 , 007.2
Dilutive effect of share options(1) 0.5 0.5 0. 5 0. 5 0. 5
Deferred tax(2) 13.6 - 13.6 13.6 -
Difference between fair value
and carrying value of debt:
( 75.
Secured term loans(3) - (75.8) - - 8)
( 17.
Mortgage bonds - (17.9) - - 9)
Investment property purchasers'
costs - - 272.9 - -
-------- ---------- --------- --------- ---------
Total 3,021.3 2,914.0 3 , 294.2 3 , 021.3 2 , 914.0
-------- ---------- --------- --------- ---------
Number of diluted shares (million) 307.7 307.7 307.7 307.7 307.7
Diluted net assets per share (GBP) 9.82 9.47 10.71 9. 82 9. 47
------------------------------------ -------- ---------- --------- --------- ---------
1. Increase in shareholders' equity, which would arise on the
exercise of share options.
2. Our 50% share of deferred tax in the joint venture.
3. Includes the wholly-owned Group's secured term loans and our
50% share of secured term loans in the joint venture.
Total accounting return (TAR)
2020 2019
pence pence
--------------------------- ------- --------
Opening EPRA NAV (A) 982.0 991.0
Closing EPRA NAV 743.0 982.0
------- --------
Decrease in the year (239.0) ( 9. 0 )
Dividends paid in the year 9.0 17.2
------- --------
TAR (B) (230.0) 8. 2
------- --------
TAR % (B/A) (23.4)% 0. 8%
--------------------------- ------- --------
Financing ratios
2020 2019
GBPm GBPm
------------------------------------------------------ ------- ---------
Loan-to-value and gearing
Nominal value of debt 1,059.8 959.8
Cash and cash equivalents (72.8) ( 54. 0)
------- ---------
Net debt (A) 987.0 905.8
------- ---------
Fair value of investment properties (B) 3,137.4 3 , 784.2
Loan-to-value (A/B) 31.5% 23.9%
EPRA net assets (C) 2,289.8 3 , 021.3
Gearing (A/C) 43.1% 30.0%
Interest cover
Operating profit before investment property disposals
and valuation movements (A) 59.9 82.8
Finance costs 32.5 31.5
Finance income (0.7) ( 1. 0 )
------- ---------
Net finance costs (B) 31.8 30.5
------- ---------
Interest cover (A/B) 1.9x 2. 7x
------- ---------
Cost of debt
Blended cost of drawn borrowings 2.9% 3. 0%
Commitment fees on undrawn secured bank facilities 0.7% 0. 7%
Blended cost of debt 2.9% 3. 2%
------------------------------------------------------ ------- ---------
We are no longer presenting financing ratios including our joint
venture on a proportionally consolidated basis. We now consider
that it is appropriate to separately report the joint venture's
activity, valuation and capital structure. We believe this
presentation provides a clearer analysis and is consistent with the
financial statements. Consequently, gearing and loan-to-value
ratios have been restated at 30 September 2019.
See below for explanations on why we use these performance
measures.
22. Related party transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note.
Transactions during the year between the Company and its joint
venture, which have not been eliminated on consolidation are
disclosed below. Amounts due from the joint venture are disclosed
in note 13.
2020 2019
GBPm GBPm
------------------------------- ----- -----
Administrative fees receivable 0.1 0. 1
Dividends receivable 1.4 2. 5
Interest receivable 0.4 0. 3
------------------------------- ----- -----
23. Post Balance Sheet events
On 22 October 2020, the Company announced details of an issue of
equity with gross proceeds of GBP307.0 million, comprising GBP297.0
million by way of a firm placing, placing and open offer, and
GBP10.0 million by way of an offer for subscription. The purpose of
the equity issue was to ensure the Group maintains a strong
financial base, is positioned to return to long-term growth as
pandemic issues recede and, should conditions improve, has capacity
for portfolio investment.
On 18 November 2020, the Company issued 76.75 million shares,
representing approximately 25% of its issued share capital, at GBP4
per share. After issue costs of GBP12.6 million, the net proceeds
were GBP294.4 million. Issue costs which were contingent on
completion of the equity issuance were not provided for at 30
September 2020. Following the share issue, the Company's issued
share capital was 384,167,537.
In respect of the equity issue, Capital & Counties
Properties PLC ("Capco") and Norges Bank were related parties of
Shaftesbury PLC for the purposes of the Listing Rules and
participated in the equity issue in respect of 16,250,000 and
19,245,032 shares respectively, for a total consideration of
approximately GBP65 million and GBP77 million respectively. In
respect of Capco, this transaction was disclosed via the Regulatory
News Service on 22 October 2020, in accordance with LR11.1.10R. In
respect of Norges, the issue of shares was a transaction of
sufficient size to require shareholder approval under chapter 11 of
the Listing Rules as announced via the Regulatory News Service on
22 October 2020. This approval was granted at the Extraordinary
General Meeting on 17 November 2020. Shaftesbury PLC received
written confirmation from its sponsor that the terms of the
transactions were fair and reasonable as far as Shaftesbury PLC's
shareholders were concerned.
On 27 November 2020, the Group cancelled its GBP125.0 million
revolving credit facility, which was undrawn. On 27 November 2020,
the Group repaid GBP100.0 million of drawings against its remaining
revolving credit facility, which remains available to be re-drawn,
provided the Group remains compliant with all requirements in the
loan agreement, including the financial covenants. On 20 November
2020, the Group secured an extension to the interest cover covenant
waiver in respect of this facility from January 2021 to October
2021. In consideration for this extension, the Group placed a
further GBP1.0 million on deposit with the lender for the duration
of the waiver.
On 19 November 2020, the Group secured an extension to the
interest cover covenant waiver in respect of its GBP250.0 million
term loan from April 2021 to January 2022. In consideration for
this extension, the Group placed a further GBP4.4 million on
deposit with the lender for the duration of the waiver.
On 14 December 2020, in response to rising Covid-19 infection
rates, the Government announced that London and parts of the Home
Counties would be moving to Tier 3 restrictions, beginning from 16
December until further notice. This will have an adverse impact on
both our hospitality and retail occupiers' ability to trade and
will therefore likely have an adverse impact on near-term rent
collection.
24. Annual General Meeting
The 2021 Annual General Meeting will be held via webcast on 25
February 2021 at 11:00 am.
Directors' responsibilities in respect of the financial statements
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with the
applicable set of accounting standards, give a true and fair view
of the assets, liabilities, financial position and profit or loss
of the Company and the undertakings included in the consolidation
taken as a whole; and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company and the undertakings included in the consolidation taken as
a whole, together with a description of the principal risks and
uncertainties that they face. We consider the annual report and
financial statements, taken as a whole, are fair, balanced and
understandable and provide the information necessary for
shareholders to assess the Company's position and performance,
business model and strategy.
The contents of this announcement, including the responsibility
statement above, have been extracted from the annual report and
accounts for the year ended 30 September 2020, which will be
available on publication at www.shaftesbury.co.uk . Accordingly,
this responsibility statement makes reference to the financial
statements of the Company and the Group and the relevant narrative
appearing in that annual report and accounts rather than the
contents of this announcement.
On behalf of the Board
Brian Bickell Chris Ward
Chief Executive Finance Director
Alternative Performance Measures (APMs)
The Group has applied the European Securities and Markets
Authority (ESMA) guidelines on alternative performance measures in
these annual results. An APM is a financial measure of historical
or future financial performance, position or cash flows of the
Group which is not a measure defined or specified in IFRS.
Set out below is a summary of APMs used in these annual results.
EPRA performance measures are a set of standard disclosures for the
property industry, as defined by EPRA in its Best Practices
Recommendations.
APM Nearest IFRS measure Explanation and reconciliation
---------------------- ------------------------------ ------------------------------
EPRA earnings and Profit and total comprehensive Note 21 and Financial results
earnings per share income for the period (above)
Basic earnings per
share
---------------------- ------------------------------ ------------------------------
Adjusted EPRA earnings Profit and total comprehensive Note 21 and Financial results
per share income for the period (above)
---------------------- ------------------------------ ------------------------------
Like-for-like growth Revenue Note 21 and Financial results
in rental income (above)
---------------------- ------------------------------ ------------------------------
Net asset value per Net assets attributable Note 21 and Financial results
share to shareholders (above)
---------------------- ------------------------------ ------------------------------
Diluted net asset Net assets attributable Note 21
value per share to shareholders
---------------------- ------------------------------ ------------------------------
EPRA net assets and Net assets Note 21 and Financial results
NAV (above)
---------------------- ------------------------------ ------------------------------
EPRA NTA Net assets Note 21 and Financial results
(above)
---------------------- ------------------------------ ------------------------------
EPRA NDV Net assets Note 21 and Financial results
(above)
---------------------- ------------------------------ ------------------------------
EPRA NRV Net assets Note 21 and Financial results
(above)
---------------------- ------------------------------ ------------------------------
Total Accounting N/A Note 21 and Financial results
Return (above)
---------------------- ------------------------------ ------------------------------
Valuation growth Net surplus on revaluation Valuation (above)
of investment properties
---------------------- ------------------------------ ------------------------------
Net debt Borrowings less cash Note 16 and Cash flows and net
and cash equivalents debt (above)
---------------------- ------------------------------ ------------------------------
Loan-to-value N/A Note 21 and Financing (above)
---------------------- ------------------------------ ------------------------------
Gearing N/A Note 21 and Financing (above)
---------------------- ------------------------------ ------------------------------
Blended cost of debt N/A Note 21 and Financing (above)
---------------------- ------------------------------ ------------------------------
Interest cover N/A Note 21 and Financing (above)
---------------------- ------------------------------ ------------------------------
Where this report uses like-for-like comparisons, these are
defined within the Glossary. Note that Adjusted EPRA earnings per
share had been described as Adjusted earnings per share in previous
years. Since it had always been based on EPRA earnings per share,
we have changed its description this year to make it more
clear.
Portfolio analysis
Wholly Longmartin
At 30 September Covent owned joint
2020 Note Carnaby Garden Chinatown Soho Fitzrovia portfolio venture(1)
--------------------- ---- --------- ------- --------- ----- --------- ---------- -----------
Portfolio
Fair value (GBPm) 1 1 , 212.3 840.8 700.6 258.7 125.0 3 , 137.4 175.0
% of total fair
value 37% 25% 21% 8% 4% 95% 5%
Current income
(GBPm) 2 41.7 28.8 24.7 10.4 4. 3 109.9 6. 2
ERV (GBPm) 3 58.0 35.4 30.1 11.3 5. 5 140.3 8. 8
--------------------- ---- --------- ------- --------- ----- --------- ---------- -----------
Food, beverage
and leisure
Number 70 96 91 35 25 317 10
Area - sq. ft. 169 201 209 65 52 696 46
% of current income 4 24% 44% 66% 42% 60% 41% 7%
% of ERV 4 24% 37% 62% 39% 48% 37% 18%
Average unexpired
lease length -
years 5 8 7 9 9 6 8 14
--------------------- ---- --------- ------- --------- ----- --------- ---------- -----------
Shops
Number 99 99 49 38 9 294 20
Area - sq. ft. 173 131 82 45 15 446 64
% of current income 4 44% 27% 18% 29% 17% 31% 29%
% of ERV 4 38% 29% 20% 26% 16% 30% 26%
Average unexpired
lease length -
years 5 3 4 4 3 3 3 2
--------------------- ---- --------- ------- --------- ----- --------- ---------- -----------
Offices
Area - sq. ft. 274 89 25 41 10 439 102
% of current income 4 27% 11% 4% 15% 4% 16% 47%
% of ERV 4 32% 15% 4% 19% 8% 20% 42%
Average unexpired
lease length -
years 5 3 3 3 1 1 2 4
--------------------- ---- --------- ------- --------- ----- --------- ---------- -----------
Residential
Number 117 222 159 70 56 624 75
Area - sq. ft. 68 137 103 37 27 372 55
% of current passing
rent 4 5% 18% 12% 14% 19% 12% 17%
% of ERV 4 6% 19% 14% 16% 28% 13% 14%
--------------------- ---- --------- ------- --------- ----- --------- ---------- -----------
1: Shaftesbury Group's 50% share
Basis of valuation
Wholly Longmartin
At 30 September Covent owned joint
2020 Note Carnaby Garden Chinatown Soho Fitzrovia portfolio venture
------------------- ---- --------- --------- --------- --------- --------- ---------- ----------
Portfolio
Overall initial
yield 7 3. 0% 3. 0% 3. 1% 3. 5% 2. 9% 3. 0% 2. 8%
Topped-up initial
yield 8 3. 1% 3. 0% 3. 2% 3. 6% 2. 9% 3. 1% 3. 8%
Equivalent yield 9 4. 2% 3. 6% 3. 8% 3. 8% 3. 8% 3. 9% 4. 1%
------------------- ---- --------- --------- --------- --------- --------- ---------- ----------
Restaurants
Tone of equivalent 10 4. 0% 3. 8% 4. 0% 3. 9% 3. 8% 4. 3% -
yields - 4.5% - 4.4% - 4.5% - 4.2% - 4.2% 4.8%
Tone of ERVs - 10 GBP120 GBP55 GBP250 GBP110 GBP85 GBP70 -
GBP per sq. ft. - GBP145 - GBP175 - GBP400 - GBP135 - GBP120 GBP265
(ZA)
------------------- ---- --------- --------- --------- --------- --------- ---------- ----------
Retail
Tone of equivalent 10 4. 0% 3. 5% 4. 0% 4. 0% 3. 9% 4. 3% -
yields - 4.3% - 4.3% - 4.5% - 4.7% - 4.8% 4.8%
Tone of ERVs - 10 GBP120 GBP85 GBP150 GBP145 GBP100 GBP94 -
ITZA GBP per sq. - GBP500 - GBP325 - GBP365 - GBP290 - GBP200 GBP450
ft.
------------------- ---- --------- --------- --------- --------- --------- ---------- ----------
Office
Tone of equivalent 4. 3% 4. 0% 4. 5% 4. 5% 4. 0% -
yields 10 - 4.5% - 4.5% - 4.8% 4. 5% - 4.7% 4.5%
Tone of ERVs - 10 GBP58 GBP40 GBP40 GBP45 GBP40 GBP63 -
GBP per sq. ft. - GBP90 - GBP68 - GBP65 - GBP73 - GBP63 GBP80
------------------- ---- --------- --------- --------- --------- --------- ---------- ----------
Residential
Average ERVs - 10 GBP51 GBP50 GBP42 GBP48 GBP56 GBP43
GBP per sq. ft.
per annum
------------------- ---- --------- --------- --------- --------- --------- ---------- ----------
Portfolio analysis
Notes
1. The fair values at 30 September 2020 (the "valuation date")
shown in respect of the individual villages are, in each case, the
aggregate of the fair values of several different property
interests located within close proximity which, for the purpose of
this analysis, are combined to create each village. The different
interests within each village were not valued as a single lot.
2. Current income includes total annualised actual and
'estimated income' reserved by leases. No rent is attributed to
leases which were subject to rent-free periods at the valuation
date. Current income does not reflect any ground rents, head rents
nor rent charges and estimated irrecoverable outgoings at the
valuation date. 'Estimated income' refers to gross estimated rental
values in respect of rent reviews outstanding at the valuation date
and, where appropriate, ERV in respect of lease renewals
outstanding at the valuation date where the fair value reflects
terms for a renewed lease.
3. ERV is the respective valuers' opinion of the rental value of
the properties, or parts thereof, reflecting the terms of the
relevant leases or, if appropriate, the fact that certain of the
properties, or parts thereof, have been valued on the basis of
vacant possession and the assumed grant of a new lease. Where
appropriate, ERV assumes completion of developments which are
reflected in the valuations. ERV does not reflect any ground rents,
head rents nor rent charges and estimated irrecoverable
outgoings.
4. The percentage of current income and the percentage of ERV in
each of the use sectors are expressed as a percentage of total
income and total ERV for each village.
5. Average unexpired lease length has been calculated by
weighting the leases in terms of current rent reserved under the
relevant leases and, where relevant, by reference to tenants'
options to determine leases in advance of expiry through effluxion
of time.
6. Where mixed uses occur within single leases, for the purpose
of this analysis, the majority use by rental value has been
adopted.
7. The initial yield is the net initial income at the valuation
date expressed as a percentage of the gross valuation. Yields
reflect net income after deduction of any ground rents, head rents
and rent charges and estimated irrecoverable outgoings at the
valuation date.
8. The topped-up initial yield, ignoring contractual rent-free
periods, has been calculated as if the contracted rent is payable
from the valuation date and as if any future stepped rental uplifts
under leases had occurred.
9. Equivalent yield is the internal rate of return, being the
discount rate which needs to be applied to the expected flow of
income so that the total amount of income so discounted at this
rate equals the capital outlay at values current as of the
valuation date. The equivalent yield shown for each village has
been calculated by merging together the cash flows and fair values
of each of the different interests within each village and
represents the average equivalent yield attributable to each
village from this approach.
10. The tone of rental values and yields is the range of rental
values or yields attributed to the majority of the properties.
11. All commercial floor areas are net lettable. All residential floor areas are gross internal.
12. For presentation purposes some percentages have been rounded to the nearest integer.
13. The analysis includes accommodation which is awaiting, or
undergoing, refurbishment or development and is not available for
occupation at the date of valuation.
Debt covenants
Set out below is a high-level summary of the financial covenants
in our debt agreements. It does not describe every detail in the
agreements.
Interest cover
Frequency
of testing Summary of measure Min Comments
---------------------------- ----------- -------------------------- ------- -----------------------------
Bonds Half yearly Net property income 1. 15x Calculation is based
of specifically secured on the annualised income
assets, adjusted to accruing at the testing
exclude certain costs, date, or due to accrue
to gross interest payable within three months.
under the bonds.
Security top-up (or purchase
and cancel sufficient
bonds) to 1.25x required
if ICR falls below 1.15x
---------------------------- ----------- -------------------------- ------- -----------------------------
Term loans Quarterly Net property income 1. 4x - 3-month backward looking
of specifically secured 1.5x test based on actual
assets, adjusted to receipts. 12-month projected
exclude certain costs, test. Cure rights available.
to gross interest payable
under the loans. Waivers until July 2021
(GBP134.8m term loan)
and January 2022 (GBP250m
term loan)
---------------------------- ----------- -------------------------- ------- -----------------------------
Revolving credit facility(1) Quarterly Consolidated net rental 1. 5x Based on Group half year
income plus dividends and full year reported
from the joint venture information, and management
to consolidated net accounts in the interim
interest. quarters.
Waiver until October
2021
---------------------------- ----------- -------------------------- ------- -----------------------------
1. Ignoring our GBP125m facility which was terminated in November 2020.
Loan-to-value
Frequency
of testing Summary of measure Max Comments
---------------------------- ----------- ----------------------------- --------- ----------------------------
Bonds Half yearly Nominal value of bonds 66.67% Security top-up (or purchase
to valuation of specifically and cancel sufficient
secured assets. bonds) to 60.0% required
if LTV exceeds 66.67%.
---------------------------- ----------- ----------------------------- --------- ----------------------------
Term loans Quarterly Debt to valuation of 60% - 70% Cure rights available.
specifically secured Cash waterfall applies
assets. if LTV > 65%.
---------------------------- ----------- ----------------------------- --------- ----------------------------
Revolving credit facility(1) Quarterly Amounts drawn to valuation 66.67% Cure rights available.
of specifically secured Draw stop at 50% during
assets. term of ICR waiver.
---------------------------- ----------- ----------------------------- --------- ----------------------------
1. Ignoring our GBP125m facility which was terminated in November 2020.
The revolving credit facility also contains a group gearing
covenant, where the ratio of consolidated borrowings to
consolidated tangible net worth cannot exceed 1.75x.
Longmartin Term loan
Frequency
of testing Summary of measure Max Comments
-------------- ----------- -------------------------- ----- -----------------------------
Interest cover Quarterly Net property income 1. 3x 3-month backward looking
of specifically secured test based on actual
assets, adjusted to receipts. 12-month projected
exclude certain costs, test. Cure rights available
to gross interest payable Waiver to April 2021
under the loan.
-------------- ----------- -------------------------- ----- -----------------------------
Loan-to-value Quarterly Debt to valuation of 60% Cure rights available.
specifically secured
assets.
-------------- ----------- -------------------------- ----- -----------------------------
Risk management
Risk tolerance and management is embedded across the business,
with the tone and culture set by the Board. Our near-term risk
landscape has changed this year, with the pandemic presenting a
number of issues. Navigating these challenges and being able to
adapt to a rapidly-changing set of circumstances to manage risk has
been key.
Context
We invest exclusively in the heart of London's West End,
concentrating on establishing ownership clusters in iconic,
high-footfall locations. This investment strategy has delivered
long-term success for the Group and whilst the Covid-19 pandemic
has disrupted performance this year, we expect a return to growth
once the effects of the pandemic have, in all significant respects,
receded. Inevitably, the pandemic and social distancing policies
have had a major impact on the West End and the Group's near-term
risk landscape during the year, which the Risk Committee has
considered in preparing this report.
Important factors in considering risk across the Group
include:
-- An experienced executive and senior leadership team, with an
average tenure of over 14 years, and an in-depth knowledge of our
business and the West End property market. We are based in one
location, close to all our holdings;
-- The nature of our portfolio does not expose us to risks
inherent in material speculative development schemes;
-- Our diverse tenant base limits exposure to any single
occupier;
-- Our Balance Sheet is managed on a conservative basis with
moderate leverage, long-term finance, a spread of loan maturities,
and with the majority of interest costs fixed;
-- A culture which encourages open dialogue within the whole
team and with our wide range of external advisors;
-- A simple group structure; and
-- A governance framework which includes clearly defined
responsibilities and limits of authority.
The Board's attitude to risk is embedded in the business, with
the Strategy and Operations Executive, which includes executive
directors, closely involved in all aspects of the business and
significant decisions. The whole Board approves capital, debt and
non-routine transactions above a relatively low specified
level.
Incentive targets and benefits are set to achieve the Group's
purpose, long-term strategic objectives and near-term priorities,
whilst encouraging decisions to be made on the basis of long-term
benefit, rather than short-term gain.
Risk appetite
Inevitably, investing in one location presents an inherent
geographic concentration risk and there are certain external
factors which we cannot control. However, in executing our
management strategy, we seek to minimise exposure to operational,
reputational and financial risks, recognising that our appetite to
risk varies across different elements of our strategy.
Our appetite for development risk has reduced while near-term
income and vacancy uncertainty persists. Currently, we are
prioritising income and liquidity preservation over actively
securing vacant possession of space for reconfiguration and
refurbishment schemes. At the same time, our appetite for tenant
risk has increased, recognising high vacancy levels across the West
End, and consequently more competition for occupiers.
Monitoring and managing risk
Our risk management and control framework is shown in the
diagram below. It enables us to effectively identify, evaluate and
manage our principal and emerging risks.
Roles and responsibilities in managing our risk and controls
framework are summarised below. Risk is considered as follows:
Informal consideration
-- Daily at an operational level by senior management;
-- Weekly at executive director meetings; and
-- Monthly at Strategy and Operations Executive meetings.
Formal consideration
-- Bi-annually (or as needed) by the Risk Committee.
The Board has overall responsibility for risk management and the
systems of internal control. Such systems are designed to manage,
rather than eliminate, the risks faced by the business and can
provide only reasonable, not absolute, assurance against material
misstatement or loss.
On a day-to-day basis, risks are addressed as they arise and,
where significant, are discussed more widely with the Strategy and
Operations Executive. Issues that have arisen and how risks have
changed are key inputs to the Risk Committee.
The day-to-day management of the Group's portfolio is outsourced
to two managing agents. The Group monitors their performance and
has established financial and operational controls to ensure that
each maintains an acceptable level of service and provides reliable
financial and operational information. The managing agents share
their internal control assessments with the Group.
The Risk Committee meets twice a year, or more frequently as
needed, and reports to the Audit Committee and Board.
Assessing risk and internal controls
Significant risks and mitigating controls are detailed in the
risk register.
Risks are considered in terms of the likelihood of occurrence
and their potential impact on the business. In assessing impact, a
number of criteria are considered including the effect on our
strategic objectives, operational or financial matters, our
reputation, stakeholder relationships, health and safety,
sustainability and regulatory issues. Risks are assessed on both
gross (assuming no controls are in place) and residual (after
mitigation) bases.
To the extent that significant risks, failings or control
weaknesses arise, appropriate action is taken to rectify the issue
and implement controls to mitigate further occurrences. Such
occurrences are reported to the Audit Committee.
The Group's processes and procedures to identify, assess, and
manage its principal risks and uncertainties were in place
throughout the year and remained in place up to the date of the
approval of the Annual Report.
Assurance
Whilst we do not have a formal internal audit function, the Risk
Committee oversees the provision of assurance on controls to the
Audit Committee. Normally, this comprises a rolling program of
external reviews on processes and the effectiveness of controls,
supplemented with controls testing by management. Results of the
reviews and recommendations are reported to the Audit Committee,
and followed up by the Risk Committee. This year, the effectiveness
of key controls was reviewed by management. Recognising the
challenges that remote working would present, the programme of
external reviews was paused, although we plan to recommence this in
the coming year.
Principal Risks and Uncertainties
Risk landscape
With our strategy of investing in one location, the risk of an
event which prevents or deters people coming to the West End has
long been on our risk register. The prosperity of the West End is
based on high footfall volumes, seven days-a-week. In normal times,
it is estimated that it attracts over 200 million visits annually,
comprising Londoners, a working population of over 750,000 and
exceptional numbers of domestic and international tourists. The
Covid-19 pandemic has had a major impact on the West End and all
aspects of our business, elevating a number of principal risks and
presenting new challenges.
With the pace and scale of the impact of Covid-19, we have had
to mobilise, assess, plan and respond to the multitude of
challenges. Throughout the period since March, the Strategy and
Operations Executive has met regularly to consider a rapidly
evolving range of topics including occupiers, our people,
communities, day-to-day operations, finance, IT, communications,
liaison with our neighbours and local authorities, regulations and
recovery. The Board has also met regularly during this period and
has received updates from management.
In November 2020, the Group strengthened its Balance Sheet
through an equity raise, which has reduced its financing risk.
However, while Government restrictions remain in place, operational
risk remains high.
Principal strategic risks and uncertainties
The Board has carried out a robust assessment of the principal
and emerging risks and uncertainties which might prevent the Group
achieving its strategic objectives. These risks and uncertainties,
their mitigation and the evolution of risk during the year are set
out below.
Significantly reduced footfall, together with restrictions on
opening hours and social distancing measures have presented our
occupiers with tough operational and financial challenges. For us,
this has resulted in reduced rent collections, increased costs, a
slowdown in occupier demand, increasing vacancy, pressure on rental
values, decreased valuations and increased financing risks. Given
the interdependence of many of our risks, exacerbated by the
significant decline in footfall this year, we have included the
impact of Covid-19 in the individual risk analyses, rather than
disclose it as a separate risk.
Macroeconomic factors
Potential causes
-- Macroeconomic shocks or events.
-- Uncertainty on trading and other relationships with the EU
from 1 January 2021:
- Short-term disruption to the UK economy.
- Upward cost pressures.
- Supply chain disruption.
-- Longer-term Covid-19 impacts:
- Higher inflation.
- Taxation increases.
- Recessionary environment.
- Higher unemployment
Consequences
-- Lower consumer confidence/spending.
-- Reduced visitor numbers.
-- Reduced business confidence and investment.
-- Brexit-related occupier supply chain disruption and higher
import costs.
-- Reduced tenant profitability/increased occupier financial
distress/tenant default.
-- Reduced occupier demand.
-- Higher vacancy.
-- Downward pressure on rents.
-- Reduced rental income and declining earnings.
-- Reduced ERV, capital values and NAV (amplified by
gearing).
-- Risk of loan covenant breaches.
Commentary
-- We focus on locations and uses which historically have proved
to be economically resilient.
-- We actively promote our areas to drive footfall.
-- Covid-19 has resulted in increased macroeconomic risk.
-- Operational impact, this year, has been significant and will
continue through the recovery period.
-- Longer-term economic pressures may temper occupier
profitability.
-- We review our capital structure and debt covenants
regularly.
-- Our equity raise in November 2020 has ensured our financial
base remains strong.
Decline in the UK real estate market
Potential causes
-- Changes to political landscape.
-- Increasing bond yields and cost of finance.
-- Reduced availability of capital and finance.
-- Lower relative attractiveness of property compared with other
asset classes.
-- Changing overseas investor perception of UK real estate.
-- Covid-19 accelerating structural changes in retail and office
sectors.
Consequences
-- Reduced property values.
-- Decrease in NAV (amplified by gearing).
-- Risk of loan covenant breaches.
-- Ability to raise new debt funding curtailed.
Commentary
-- We focus on assets, locations and uses where, in normal
conditions, there is a structural imbalance between availability of
space and demand.
-- We regularly review investment market conditions including
bi-annual external valuations.
-- Our wholly-owned portfolio declined by 18.3% during the
year.
-- Further pressure on yields and ERVs is likely in the near
term, predominantly due to surplus vacancy across the West End and
the continued impact of Covid-19 containment measures affecting our
occupiers' trading conditions, with the risk of further declines if
the current market outlook worsens.
-- Increased competition for occupiers is likely to increase
near-term capital expenditure requirements.
-- An effective vaccination programme, low finance rates, and
relative affordability of London real estate for overseas investors
could provide yield support.
-- Reconfiguration of our buildings is important to respond to
changing occupier demand.
-- We operate with conservative levels of leverage, with a
spread of both sources of finance and loan maturities. Quarterly
forecasts include covenant headroom review.
-- We maintain a pool of uncharged assets to top up security
held by lenders, if required. Our equity raise in November 2020 and
subsequent cancellation of a revolving credit facility has
increased our LTV covenant headroom.
Changes in regulatory environment
Potential causes
-- Unfavourable changes to national or local planning and
licensing policies.
-- Tenants acting outside of planning/licensing consents.
-- Growing complexity and level of sustainability
regulation.
-- Increased stakeholder focus on ESG.
-- Regulation/guidance in respect of social distancing both
within our portfolio and in connection with domestic and
international travel for the duration of the pandemic.
Consequences
-- Ability to maximise the growth prospects of our assets
restricted.
-- Reduced tenant profitability/increased occupier financial
distress.
-- Reduced occupier demand.
-- Increased costs.
-- Reduced earnings.
-- Decrease in property values and NAV (amplified by
gearing).
-- Reduction of spending/footfall in our areas.
Commentary
-- All our properties are in the boroughs of Westminster and
Camden: changes to local policies may limit our ability to maximise
the long-term potential of our portfolio.
-- We ensure our properties are operated in compliance with
local and national regulations.
-- We use specialist advisors on planning and licensing and make
representations on proposed policy changes, to ensure our views and
experience are considered.
-- Tenant compliance with planning consents and licences is
regularly monitored.
-- The Town and Country Planning (Use Classes) (Amendment)
Regulations 2020, effective from September 2020, provide
flexibility to change uses of commercial, business and service
accommodation, eg between retail and restaurants. Whilst this could
increase the supply of certain uses, eg restaurants, in the West
End over the longer-term, subject to other planning and licensing
regulations being met, it also presents opportunities to evolve the
use mix in our portfolio.
-- Increasing national regulation, including corporate social
responsibility targets and obligations raise costs and, in
extremis, could limit the ability to maximise values and
income.
-- Head of Sustainability recruited to develop our long-term
sustainability strategy and our already extensive community
engagement.
-- Sustainability targets are included in remuneration,
including for each refurbishment or reconfiguration scheme
appraisal.
-- Social distancing regulation continues to impact our
occupiers' ability to trade.
Reduction in spending and/or footfall in our areas
Potential causes
-- Pandemics.
-- Macro economic conditions including recession, declining
disposable income, unemployment etc.
-- Fall in the popularity of the West End and particularly our
areas leading to decreasing visitor numbers.
-- Changes in consumer tastes, habits and spending power.
-- Terrorism or the threat of terrorism.
-- Competing destinations.
-- Possibility that Covid-19 induces permanent structural
changes in frequency of visits and spending behaviour.
-- UK plans to end tax-free shopping for overseas visitors.
Consequences
-- Lower sales densities.
-- Reduced tenant profitability/increased occupier financial
distress/tenant default.
-- Reduced occupier demand.
-- Higher vacancy.
-- Reduced rental income and declining earnings.
-- Reduced ERV, capital values and NAV (amplified by
gearing).
-- Risk of loan covenant breaches.
Commentary
-- Footfall and customer spending are important ingredients for
the success of our restaurant, leisure and re tail tenants.
-- Key aspects of our management strategy are to: ensure our
areas maintain a distinct identity; seek out new concepts, brands
and ideas to keep our areas vibrant and appealing; and actively
promote our areas.Board regularly monitors performance and
prospects.
-- The pandemic, social distancing regulations and Government
advice to work from home have dramatically reduced footfall.
-- The new "normal" following Covid-19, including how people
choose to work and shop, could reduce footfall and spending in the
medium to long term. A significant proportion of our customer base
is local workers and Londoners, and we expect footfall and spending
to improve once the return to offices commences, although flexible
home working may change the daily pattern of footfall. We will
continue to adapt our portfolio to meet occupier requirements.
-- Whilst being invested in one area is a risk, our ownership
clusters are also a strength and an opportunity, allowing us to
adopt a holistic curation of our villages.
-- Public transport is important in making our areas more
accessible to a wide range of visitors. Whilst delayed, the
Elizabeth Line is now scheduled to open in 2022. This line is
expected to bring an additional 1.5 million people within 45
minutes of the West End.
-- It is too early to tell if or how the pandemic will impact
long-term international travel patterns, particularly in the
long-haul sector. The UK's plans to end tax-free shopping for
overseas visitors, making it the only EU country to do so, could
further impact overseas visits to the UK and the amount spent by
international tourists. However, the impact on our areas is
expected to be less significant due to our focus on local workers,
Londoners and domestic tourists, and our mid-market offer.
-- Changing leasing structure landscape (e.g. more flexibility
for occupiers and risk sharing) may lead to volatility in income
and earnings.
Significant increase in tenant default/failure
Potential causes
-- Decline in turnover (see Reduction in spending and/or
footfall in our areas).
-- Increasing cost base and supply chain disruption (see
macroeconomic factors).
-- Occupiers with limited Balance Sheet capacity are less likely
to sustain a prolonged period of operational losses.
-- Wind down of Government Covid-19 support, including business
rates relief which ceases at the end of March 2021.
-- Possibility that Covid-19 induces permanent structural
changes in frequency of visits and spending behaviour.
-- Economic headwinds including recession, declining disposable
income, unemployment.
Consequences
-- Lower sales densities, reduced tenant profitability.
-- Reduced income and earnings.
-- Increased vacancy and related costs.
-- Frictional cost of re-letting.
-- Reduced ERV, capital values and NAV (amplified by
gearing).
-- Risk of loan covenant breaches.
Commentary
-- This risk has increased substantially this year, and
continues to rise.
-- Tenant trading monitored regularly by the Operations
Committee
-- Whilst the rent from any single tenant is not material - the
top ten tenants represent less than 10% of our rent roll - many of
our tenants are small, independent businesses, which have suffered
significant operational and financial distress throughout the
pandemic. Many have used debt to cover shortfalls. The longer
Government restrictions persist, the greater the risk that their
businesses become unviable.
-- In normal times, occupier demand exceeds availability of
space in our areas. Therefore, covenant has not been a major factor
in when selecting tenants. Rather, we favour interesting concepts
which help bring footfall to our villages. Currently, vacancy
across the wider West End has led to available space exceeding
demand, although we believe the supply and demand balance will
revert once pandemic issues have receded and available space is
absorbed.
-- Our support through rent concessions has been critical to
support our restaurant, retail and leisure occupiers in this
challenging period. Despite this, we have seen a number of failures
and tenants not wishing to renew at expiry.
-- We continue to lobby Government on our tenants' behalf and
provide marketing support.
-- Tenant deposits held against unpaid rent obligations at 30
September 2020: GBP14.3 million.
We are unable to adapt to tenant demands/shifts in market offer
by competitors, or we fail to anticipate changes in rental
growth
Potential causes
-- Rapidly changing occupier requirements.
-- Structural changes in consumer behaviour and spending.
-- Occupiers becoming increasingly cost conscious leading
to:
- reduced space requirements and consequential lower
occupational costs, including investment in fit-out; and
- an increased reluctance to contribute fully towards building
service charge and insurance costs.
-- Increased vacancy across the West End.
-- Shaftesbury tenant proposition becomes uncompetitive.
-- Flexible working could change office requirements.
Consequences
-- Reduced income and earnings.
-- Increased vacancy and related costs.
-- Increased irrecoverable expenditure.
-- Additional capital expenditure required to compete on fit-out
standards.
-- Pressure on ERV, leading to decline in capital values and NAV
(amplified by gearing).
-- Risk of loan covenant breaches.
Commentary
-- The wholly-owned portfolio's ERV declined on a like-for-like
basis by 6.6% in the year. We expect further pressure on rental
values until a sustained recovery is underway and vacancy levels
begin to subside.
-- The current imbalance between availability of space in the
West End and occupier demand is resulting in tenants and potential
tenants being more demanding, especially given the competition for
occupiers. We are having to spend more on unit fit outs to maximise
letting prospects and more lettings are on an inclusive basis,
where service charge and insurance costs are not necessarily fully
recoverable.
-- However, occupiers are still focusing on the quality of the
location. Through the holistic curation of our villages, we have
competitive advantage, compared with owners of single buildings in
streets with fragmented ownerships.
-- Our portfolio of mostly smaller mixed-use buildings provides
considerable management flexibility to adapt our accommodation to
meet space requirements, an important factor with the current trend
towards smaller-sized units where occupiers can retain a physical
brand and product touch point for their customers.
-- We typically seek innovative, mid-market concepts and brands
for our villages. As footfall builds in the pandemic aftermath, the
range of rental tones and unit sizes we can offer across our
villages, together with our relatively affordable rents and
approach to leasing flexibility will be more important than
ever.
Financing risk
Potential causes
-- Reduction in income or values as a result of other principal
risks.
-- Changing lease structure landscape to more flexible leases
and/or risk sharing.
Consequences
-- Loan covenant breaches or reliance on waivers from
lenders.
-- Insufficient liquidity to meet obligations.
-- Ability to raise new finance or refinance existing debt may
be impaired.
-- Forced disposal of properties.
Commentary
-- We review our capital structure and debt covenants regularly;
quarterly forecasts include covenant headroom review.
-- We maintain a pool of uncharged assets to top up security
held by lenders, if required.
-- We adopt a prudent approach to our capital structure to
minimise financing risk. However, the prolonged period of reduced
rent collections during the pandemic put stress on our debt
covenants and the ability to refinance debt that was maturing in
the near-term.
-- Our equity raise in November 2020 ensured that we maintain a
strong equity base and are positioned to return to long-term growth
as pandemic issues recede.
-- The pandemic continues to put pressure on net property
income. However, throughout our viability assessment period, we
currently expect to meet interest cover covenants in our debt
facilities, either through secured waivers or by utilising cure
mechanisms.
-- Our pool of unsecured properties has been bolstered through
the release of security following the termination of an undrawn
revolving credit facility, providing further headroom in our
loan-to-value covenants.
Climate risk
Commentary
We recognise that climate change and the transition to a low
carbon economy will present significant long-term risks and
opportunities for our business. Failure to identify and mitigate
risks could lead to disruption to our operations, damage to our
reputation, and inhibit our ability to attract visitors and
occupiers, which ultimately could lead to a reduction in the value
of our portfolio. We are continuing to de-carbonise our portfolio
and will incur additional costs in the low energy refurbishment of
buildings.
Our key risk indicators are: energy and carbon emissions, waste
consumption, EPC ratings and green building certification.
Our mitigation actions include:
-- Our Sustainability Committee has oversight of climate related
risks. The Committee is chaired by our CEO and led by our Head of
Sustainability.
-- The Sustainability Committee reports to both the Risk
Committee, where climate change is a specific risk, and the
Board.
-- We are setting science-based targets for carbon emissions
reductions and will develop a long term net zero carbon target.
-- We have a clear sustainability policy and Action Plan that
sets out our targets to reduce carbon emissions across our
operations.
-- Our refurbishment strategy, which addresses about 10% of the
portfolio a year, increases energy efficiency and sets minimum
expectations for EPCs and green building standards.
-- We have third party verification of our carbon reporting.
-- We implemented a five-year biodiversity strategy in 2016 with
the objective to achieve a 10% year-on-year increase in quantity of
biodiversity features across our estate.
Shareholder information
Corporate Timetable
Financial Calendar
---------------------------------------- ------------------
Annual General Meeting and AGM statement 25 February 2021
---------------------------------------- ------------------
2020 half year results May 2021
---------------------------------------- ------------------
Dividends and bond interest
---------------------------------------- ------------------
Bond interest 31 March and
30 September 2021
---------------------------------------- ------------------
The timing of the next dividend payment is to be determined.
Shareholder enquiries
All enquiries relating to holdings of shares or bonds in
Shaftesbury PLC, including notification of change of address,
queries regarding dividends and interest payments, or the loss of a
certificate, should be addressed to the Company's registrar.
Contact details for the registrar are outlined below.
All enquiries relating to the capital raise announced on 22
October 2020, or any other enquiry that requires the attention of
the Company, should be sent to
Investor.Relations@Shaftesbury.co.uk
Company Website
The Company has a corporate website, which maintains a digital
version of the most recent Annual Report and financial statements,
as well as other information. Other information includes
announcements made by the Company and the current share price of
the Company. The site can be found at www.shaftesbury.co.uk
Effect of REIT status on payment of dividends
As a REIT, we do not pay UK corporation tax in respect of rental
profits and chargeable gains relating to our property rental
business. However, we are required to distribute at least 90% of
the qualifying income (broadly calculated using the UK tax rules)
as a PID.
Certain categories of shareholder may be able to receive the PID
element of their dividends gross, without deduction of withholding
tax. Categories which may claim this exemption include: UK
companies, charities, local authorities, UK pension schemes and
managers of PEPs, ISAs and Child Trust Funds.
Further information and the forms for completion to apply for
PIDs to be paid gross are available on our website or from the
registrar.
Where we pay an ordinary dividend this will be treated in the
same way as dividends from non-REIT companies. As announced in the
Trading Statement of 25 September 2020, the Board has not
recommended a final dividend.
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex, BN99 6DA
Telephone 0371 384 2294 (International +44 121 415 7047). Lines
open 8.30am to 5.30pm, Monday to Friday (excluding public holidays
in England and Wales).
Equiniti can also be contacted by email. Emails should be sent
to customer@equiniti.com
Shareholder accounts may be accessed online through
www.shareview.co.uk. This gives secure access to account
information instructions. There is also a Shareview dealing service
which is a simple and convenient way to buy or sell shares in the
Company.
Secretary and registered office
Desna Martin, FCA
22 Ganton Street
Carnaby
London W1F 7FD
Glossary of terms
Adjusted EPRA earnings
EPRA earnings adjusted to add back the non-cash accounting
charge for equity-settled remuneration.
Alternative Performance Measure (APM)
A financial measure of historical or future financial
performance, position or cash flows of the Group which is not a
measure defined or specified in IFRS.
Annualised current income
Total annualised actual and 'estimated income' reserved by
leases at a valuation date. No rent is attributed to leases which
were subject to rent-free periods at that date. It does not reflect
any ground rents, head rents nor rent charges and estimated
irrecoverable outgoings at the valuation date. 'Estimated income'
refers to gross ERVs in respect of rent reviews outstanding at the
valuation date and, where appropriate, ERV in respect of lease
renewals outstanding at the valuation date where the fair value
reflects terms for a renewed lease.
Like-for-like growth in annualised current income is the change
during a period, adjusted to remove the impact of acquisitions and
disposals, expressed as a percentage of annualised current income
at the start of the period.
Best Practices Recommendations (BPR)
Standards set out by EPRA to provide comparable reporting
between investment property companies.
Blended cost of debt
Weighted average cost of drawn borrowings, plus non-utilisation
fees on undrawn borrowings.
Carbon emissions
In the context of this report this is shorthand for greenhouse
gas emissions.
Compound Annual Growth Rate (CAGR)
The year-on-year growth rate of an investment over a specified
period of time.
Diluted net asset value per share
Net asset value per share taking into account the dilutive
effect of potential vesting of share options.
Energy Performance Certificate (EPC)
An asset rating setting out how energy efficient a building is,
rated by its carbon dioxide emission on a scale of A to G, with A
being the most energy efficient.
EPRA
European Public Real Estate Association.
EPRA adjustments
Standard adjustments to calculate EPRA measures, in accordance
with its BPR.
EPRA cost ratio
Total costs as a percentage of gross rental income.
EPRA earnings
The level of recurring income arising from core operational
activities. It excludes all items which are not relevant to the
underlying and recurring portfolio performance.
EPRA earnings per share
EPRA earnings divided by the weighted average number of shares
in issue during a reporting period.
EPRA net assets
Net assets adjusted for items that are not expected to
crystallise in normal circumstances, such as deferred tax on
property valuation surpluses. It includes additional equity if all
vested share options were exercised.
EPRA Net Disposal Value (NDV)
The value of net tangible assets, assuming an orderly sale of
the business' assets, achieving fair values as reported in the
Balance Sheet. It includes deductions for liabilities that would
crystallise in this scenario, including deferred tax and the
difference between the fair value and carrying value of financial
liabilities. When presented as a per share figure, it takes into
account the potentially dilutive effect of outstanding options
granted over ordinary shares.
EPRA Net Reinstatement Value (NRV)
The value of net assets on a long-term basis, assuming no
disposals. Assets and liabilities that are not expected to
crystallise in normal circumstances, such as deferred taxes on
property valuation surpluses, are excluded. It is a reflection of
what would be needed to recreate the company. Purchasers' costs
which have been deducted in arriving at the fair value of
investment properties are added back. When presented as a per share
figure, it takes into account the potentially dilutive effect of
outstanding options granted over ordinary shares.
EPRA Net Tangible Assets (NTA)
A measure of net assets which recognises that companies buy and
sell assets and therefore takes into account deferred tax
liabilities on sales, unless there is no intention to sell in the
long run. When presented as a per share figure, it takes into
account the potentially dilutive effect of outstanding options
granted over ordinary shares.
EPRA NAV
EPRA net assets per share, including the potentially dilutive
effect of outstanding options granted over ordinary shares.
EPRA NNNAV
EPRA NAV amended to include the fair value of financial
instruments and debt.
EPRA sBPR
EPRA Best Practice Recommendations on Sustainability
Reporting.
EPRA triple net assets
EPRA net assets amended to include the fair value of financial
instruments and debt.
EPRA vacancy
The rental value of vacant property available (excluding
property which is held for, or undergoing, refurbishment),
expressed as a percentage of ERV of the total portfolio.
Equivalent yield
Equivalent yield is the internal rate of return from an
investment property, based on the gross outlays for the purchase of
a property (including purchase costs), reflecting reversions to
current market rent, and such items as voids and non-recoverable
expenditure but disregarding potential changes in market rents.
ESG
Environment, Social and Governance.
ESOS
Energy Savings Opportunity Scheme.
Estimated Rental Value (ERV)
The market rental value of properties, estimated by the Group's
Valuers. Like-for-like ERV growth is the change in ERV during a
period, adjusted to remove the impact of acquisitions and
disposals, expressed as a percentage of ERV at the start of the
period.
Fair value
The amount at which an asset or liability could be exchanged
between two knowledgeable, willing and unconnected parties in an
arm's length transaction at the valuation date.
FCA
Financial Conduct Authority.
Gearing
Nominal value of Group borrowings expressed as a percentage of
EPRA net assets.
IFRS
International Financial Reporting Standards.
Initial yield
The net initial income at the valuation date expressed as a
percentage of the gross valuation. Yields reflect net income after
deduction of any ground rents, head rents and rent charges and
estimated irrecoverable outgoings at the valuation date.
Interest cover ratio (ICR)
Operating profit before investment property disposals and
valuation movements, divided by finance costs net of finance
income.
Internal Rate of Return (IRR)
The rate of return that if used as a discount rate and applied
to the projected cash flows that would result in a net present
value of zero.
Leasing activity
The rental value secured across the wholly-owned property
portfolio of the Group from lettings, rent reviews and lease
renewals during a period.
Like-for-like growth in rental income
The increase in rental income during an accounting period,
adjusted to remove the impact of acquisitions, disposals and
changes as a result of larger refurbishment schemes, expressed as a
percentage of rents receivable in the corresponding previous
accounting period.
Loan-to-value (LTV)
Net debt expressed as a percentage of the fair value of property
assets.
London Inter-Bank Offered Rate (LIBOR)
Average rate of interest used in lending between banks on the
London interbank market, which is used as a reference for setting
interest rates on other loans.
Long Term Incentive Plan (LTIP)
An arrangement under which an employee is awarded options in the
Company at nil cost, subject to a period of continued employment
and the attainment of performance targets over a three-year vesting
period.
Net asset value (NAV)
Equity shareholders' funds divided by the number of ordinary
shares at the Balance Sheet date.
Net debt
The nominal value of the Group's borrowings less cash and cash
equivalents.
Net initial yield
Net initial income at the date of valuation expressed as a
percentage of the gross valuation. Yields reflect net income after
deduction of any ground rents, head rents, rent charges and
estimated irrecoverable outgoings.
Net Zero Carbon
When relevant GHG emissions attributable to operations of the
business are minimised and outstanding emissions are balanced by
removing an equivalent amount from the atmosphere.
Property Income Distribution (PID)
A PID is a distribution by a REIT to its shareholders paid out
of qualifying profits. A REIT is required to distribute at least
90% of its qualifying profits as a PID to its shareholders.
Real Estate Investment Trust (REIT)
A REIT is a tax designation for an entity or group investing in
real estate that reduces or eliminates corporation tax on rental
profits and chargeable gains relating to the rental business,
providing certain criteria obligations set out in tax legislation
are met.
Reversionary potential
The amount by which ERV exceeds annualised current income,
measured at a valuation date.
Science Based Targets
A carbon emissions target that it is in line with the scale of
reductions determined to be required to prevent the worst effects
of climate change.
SDG
UN Sustainable Development Goals.
Sharesave or SAYE (Save-As-You-Earn)
A savings-related share option scheme. Employees are granted
options to acquire shares at the end of a three or five-year
vesting period using savings accumulated through salary
sacrifice.
SONIA
The Sterling Overnight Index Average. A benchmark "risk free"
rate used by the banking sector in pricing debt instruments. SONIA
will replace LIBOR in 2021.
Topped-up net initial yield
Net initial yield at the valuation date as if the contracted
rent in respect of leases which are subject to contractual rent
free periods is payable from the valuation date and as if any
future stepped rental uplifts under leases had occurred.
Total Accounting Return (TAR)
The change in EPRA NAV per ordinary share plus dividends paid
per ordinary share during the period of calculation, expressed as a
percentage of the EPRA NAV per share at the beginning of the
period.
Underlying EPRA vacancy
The rental value of available to let vacant property (excluding
property which is held for, or undergoing, refurbishment and EPRA
vacancy due to exceptional larger refurbishment schemes) expressed
as a percentage of ERV of the Group's wholly-owned property
portfolio. It is measured at the reporting date and, when reported
for a reporting period, it is presented as the quarterly average
during that period.
Valuation growth/decline
The valuation movement and realised surpluses or deficits
arising from the Group's investment property portfolio expressed as
a percentage return on the valuation at the beginning of the period
adjusted, on a time weighted basis, for acquisitions, disposals and
capital expenditure. When measured on a like-for-like basis, the
calculation excludes those properties acquired or sold during the
period.
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