Okay, everybody, well, thanks for waiting. Good morning. Thank you very much for coming. Welcome to our interim results presentation. Joined today by our ExCo, Situl, Michelle, and Andrew. Usual format, I'm gonna start with a brief overview. Situl will then go through the financial review, and then I'll talk through the portfolio, and we'll finish with a summary and hopefully some questions. So we're very pleased to report strong performance across the business. Having set clear priorities, we are delivering on strategy. Conditions across the West End's occupational and investment markets have been improving for some time now, and this is reflected in more stable yields, and valuations have returned to growth. We're leasing well ahead of ERV, delivering rental growth and enhanced valuations.
Footfall across our West End portfolio is strong, with high occupancy levels and customers reporting continued sales growth. We're converting the portfolio's reversionary potential into contracted income and have completed the sale of properties ahead of valuation and reinvested in target acquisitions, enhancing the quality of the portfolio. Against an improving market backdrop, we're confident that we can deliver our medium-term growth targets and are well positioned to take advantage of market opportunities. Shaftesbury Capital owns an impossible to replicate portfolio. It's located in some of the most iconic destinations across London's West End, Covent Garden, Carnaby, Soho, and Chinatown. The GBP 4.8 billion portfolio comprises 2.7 million sq ft of lettable space across 640 predominantly freehold buildings with approximately 2,000 individual units. The portfolio is well-balanced by value with 34% retail, 34% hospitality, and 32% in the upper floors, offering high-quality office and residential uses.
Our properties are located in the heart of the West End's entertainment and cultural attractions, are now benefiting from the Elizabeth line, which has enhanced connectivity for visitors, shoppers, workers, and tourists. The West End has an unrivaled variety of cultural attractions, attracting approximately 200 million domestic and international visitors every year. The portfolio is now benefiting from strong international tourism numbers this summer, and you'll have noticed that Heathrow Airport recently reported its busiest day ever for passenger numbers. Just turning to results, ERV is up 3.2% like-for-like to GBP 241 million. The valuations increased by 1.4% like-for-like to GBP 4.8 billion, driven by ERV growth. NTA increased by 1.6% to GBP 1.934 per share, and the total accounting return for the period was 2.5%. Cash rents increased by 3.9%.
There's been continued progress on cost efficiencies, and we have a strong balance sheet and access to significant liquidity. Underlying earnings for the period were 1.9 pence per share, and the board has declared an interim dividend of 1.7 pence per share. The performance over the period demonstrates the exceptional qualities of the portfolio, delivering growth in cash rents, dividends, ERV, and valuation. Situl will now present the financial review.
Thanks, Ian. Good morning, everyone. As you've heard, there has been strong performance and progress in the first half. Starting with the income statement, as a reminder, the first half of 2023 reflects completion of the merger during that period. Gross rents in the first half were GBP 98.8 million, reflecting the impact of disposals and strong letting and asset management activity. In aggregate, commercial lettings and renewals were 8% ahead of ERV and 18% ahead of previous passing rents. Residential deals were 7% ahead. Underlying net rental income of GBP 80.7 million includes the effect of net disposals during the period, as well as the full effect of asset sales in H2. Administration costs were GBP 20.1 million, showing good progress against the second half of last year. The EPRA cost ratio is 38%, which compares with over 50% at the time of the merger.
We continue to work towards reducing this to 30%, which will be achieved through income growth and further efficiencies. Finance costs were reduced to GBP 27.9 million, reflecting the effect of investment, refinancing, and hedging. We will focus on managing the absolute level of finance costs to ensure efficient conversion of income to earnings. Underlying earnings increased to GBP 34.2 million, equivalent to GBP 0.019 per share. Taking into account progression in cash generation and underlying earnings, we've increased the first half dividend to GBP 0.017 per share, compared with GBP 0.015 per share in the first half of last year. The main points on rents, as you can see on this slide, are the contracted income is up, there is significant income growth to come, ERV has increased, and we are letting ahead of ERV.
In terms of the detail, annualized income has increased to GBP 196.5 million, up 3.9% over the first half, demonstrating continued strong momentum. ERV was up 3.2% like for like over the period. Pricing across over 200 leasing transactions was at a 7% premium to ERV. There is a high degree of visibility on growing income through rent freeze, falling into running income over the coming months, units under offer, and pre-letting of space currently under refurbishment. So turning to the balance sheet, the valuation of the wholly owned portfolio at GBP 4.8 billion was up 1.4% like for like. Net debt was broadly unchanged at GBP 1.5 billion, resulting in loan-to-value of 30%.
EPRA NTA increased from 190 - 193 pence per share, driven primarily by the valuation movement. The main driver for the increase in property valuations was ERV growth of 3.2%. The equivalent yield moved up slightly to 4.4%, which equates to 4.6% on the commercial portfolio, excluding residential. Our leasing activity has driven further growth in ERV, and we've seen consistent sales growth for our customers. However, ERV overall remains below pre-pandemic levels, notably, retail ERVs are 15% lower. Overall, average ERV for the portfolio is GBP 88 per sq ft, making the tone of rents affordable for our customers, relative to sales productivity, and given the attractiveness and immunity value of our highly sought-after locations.
Valuations at GBP 1,764 per sq ft remain attractive against historic benchmarks, particularly given limited supply of new space. We maintain a strong balance sheet with access to significant liquidity, limited capital commitments, diversified source of funding, and robust credit metrics, which will be enhanced with income growth. The running average cash cost of debt is 4%, or 3.3%, taking into account interest income and hedging. Finance costs are well protected against interest rate movements, with caps and collars in place in 2020, 2024, and 2025. With 30% loan-to-value and 2.9x interest cover, there is significant headroom against debt covenants. Building on the refinancing activity last year, we have completed the first extension on the GBP 350 million loan, taking its maturity to December 2027. In addition, we have put in place a new unsecured loan of GBP 75 million for five years.
GBP 95 million of debt maturing in the second half will be repaid with group liquidity. We have access to a number of different source of capital, and we will continue to evolve the capital structure as we refinance medium-term debt maturities. The main movements in cash during the period were driven by operating items, the full year dividend payment, net investment inflows, and financing and other items. We maintain access to significant liquidity through cash and undrawn facilities, totaling GBP 484 million, net of debt repayments.
So to summarize, there has been good progress overall in the first half, and we will continue to focus on our priorities. Firstly, meaningful rental growth with a medium-term target of 5%-7%. Second, efficiencies in property and overhead costs, working towards an EPRA cost ratio of 30%. Third, progression in underlying earnings and dividend distributions. Four, investing in and further enhancing the portfolio. Five, maintaining balance sheet strength and flexibility. With that, I will now hand over to Ian.
Thanks, Situl. The occupational market in the West End continues to improve. Michelle's team has had a great deal of leasing success across the portfolio, with continued ERV growth over the past 18 months. This slide shows some of the new brands introduced, and these range from independent to global concepts. These are attracted by the seven days a week footfall and trading environment. Overall, in the period, 217 new leasing transactions completed, which represents GBP 28 million of contracted rent. This was actually 7% ahead of December 2023 ERV and approximately 16% ahead of previous passing rents. We're very pleased with our activity, and it's translating now into rental and, pleasingly valuation growth. Portfolio vacancy is low, with just 2.7% available to let.
There is positive momentum, going into the second half, and this is underpinned by, strong tenant demand. We're seeing very strong leasing market for retail and positive, trading conditions across the portfolio. Our focus is on highly productive categories, and we're seeing good performance within premium concepts, health and wellness, and performance wear. The increased scale and depth of the portfolio now provides opportunities for customers to expand and to move around. In fact, over 20 customers have upsized or taken additional units across the portfolio, and these include, Charlotte Tilbury, Arc'teryx, Axel Arigato, and Finisterre, among many others. As we implement strategy to unify the Covent Garden district, we're seeing the benefit of incorporating Seven Dials and the Opera Quarter as part of one destination through leasing, asset management, and marketing.
We've been able to make significant changes in Seven Dials at pace, which is reinforcing consumer interest in the wider Covent Garden area, and contributed to delivering ERV growth of 4% in the period. We're building on the strong brand lineup in Soho and beginning to evolve the offer on Carnaby Street, with several new retail brands signed or under offer. As you can see here, we have a wide range of rents in terms of Zone A, from GBP 200- GBP 1,000 sq ft Zone A, and they appeal to multiple types of occupiers. We target brands across the price spectrum and market our locations to enhance sales densities and the overall consumer offer.
Average Zone A rents increased by 4% to GBP 480 per sq ft during the period, and the portfolio is well-positioned to deliver longer-term, sustainable rental growth, with the weighted average rents more than 50% below the prime central London average. You'll find further information on this in the appendix. There's good demand from casual to premium hospitality concepts for dining, and we continue to maintain high occupancy with less than 1% of the portfolio available to let. During the period, we introduced a number of new concepts to Covent Garden, and we continue to progress the lineup at Kingly Court, where we've redeveloped two flagship units into one across two floors, creating a larger destinational dining opportunity. We're pleased to have introduced al fresco dining to Carnaby Street at the gateway to Kingly Court, which we anticipate will improve overall dwell times. And in Chinatown, through active.
Through an active approach, we've introduced more variety to the area, increasing the Pan Asian offering at a range of price points, which is delivering rental growth. The vibrancy of our locations is generating strong office leasing interest. Carnaby and Covent Garden are capturing this demand. They offer high amenity value and excellent environmental credentials. We're currently on site with a number of refurbishments, including The Floral and 22 Ganton Street, which will be delivered later this year. Approximately 50% of the office refurbishments are pre-let or under offer, at average rents in excess of GBP 100 per sq ft. The residential portfolio continues to perform well, with interest from a broad range of customers. During the first half, demand has strengthened, with competitive bidding and minimal voids. To date, 118 leasing transactions have occurred, with rents achieved 7% ahead of previous passing.
We're actively investing in our three core locations, Covent Garden, Carnaby, Soho, and Chinatown, and there are a number of asset management and refurbishment initiatives underway and in the pipeline. The investment market in which we operate has been active now for some time, with transactions demonstrating demand for high-quality, prime central London real estate. We are well progressed on capital recycling activity, with proceeds of GBP 216 million realized at a premium to valuation, and GBP 86 million reinvested in target acquisitions, enhancing the quality of our exceptional portfolio. Against an improving market backdrop, we're looking at opportunities to expand, which will add to our growth prospects. Our sustainability strategy is designed to minimize the environmental impact of the business. We aim to future-proof our largely heritage properties, creating sustainable and vibrant places where people enjoy visiting, working, and living.
We're committed to becoming net zero by 2030, and we continue to reuse, renew, and improve our properties to enhance energy performance credentials. 65% of the portfolio now has EPC ratings of A or B, an increase of 9 percentage points in the period. We're also committed to supporting the communities in the West End, and we've recently embarked on a review of our community investment strategy to closer understand stakeholder needs in order to support the vibrant communities and make our places thrive. So in summary, we've made an excellent start to the year. Our clear strategy is delivering rental income and value growth. Footfall is high, with continued customer sales growth, and there's limited vacancy. There are excellent levels of activity, a strong leasing pipeline, and a number of customers upsizing across the portfolio. We expect continued performance with rents and valuation, which are well underpinned.
We aim to deliver excellent service to our customers while progressing towards an effective and efficient cost base, and through strategic investment, we'll continue to enhance the quality of our exceptional portfolio and are looking at opportunities to expand, adding to growth prospects. Our performance reaffirms our confidence in our targets of 5%-7% rental growth and 8%-10% total accounting return over the medium term.
With a knowledgeable and ambitious team, Shaftesbury Capital is positioned to grow rents, values, earnings, and dividends, and realize the long-term potential of our real estate as the leading central London mixed-use REIT. That concludes the formal presentation. We'll now move to Q&A. For those of you that are on the wires, if you let the operators know, and they'll come to us. Perhaps we start with questions from the floor, though. Be grateful if you could just mention your name and also the company you represent. Thank you very much. James? I seem to have the table with the leg in it.
Morning, it's James Carswell from Peel Hunt. Yeah, really strong rental growth. I guess, when we look at the kind of medium-term returns that you had set out on the last slide at the capital markets day, the one piece that's missing, yields kind of continue to move out, so you haven't quite met the search property return. I'm just wondering, what are your thoughts looking ahead? I mean, when you look at your yield, I appreciate there's lots of uncertainties, not least interest rates, but sat here today, does it feel like the yield is about right? Do you think it's gone too far, or do you think it's got further to go out?
Look, I think they're at the wider range that one would have seen historically in the West End. If you look at the equivalent yield for, on the commercial element of the portfolio, it's now at 4.6%. And, you know, so all we can do is deliver the evidence for the independent valuers, so it's really about growing rents. But I would hope that if rents do continue to grow in the way that we're seeing at the moment, that should translate into valuation growth.
Thanks.
Miranda Cockburn from Berenberg. Could you just give us a little bit of an update on Lillie Square? Just really what your sort of plans are for that remaining investment. And then also, I don't know, you probably can't add anything on Longmartin, just whether or not there's any update there.
Yeah, I mean, Lillie's a small part of the portfolio, but the various phases that we've completed are either sold or they've been let. So there's a little bit more land to come forward over time, but effectively the project's actually been received very well, so it's now a question of just running it through to a conclusion. Do you want to talk about Longmartin?
Yeah, Longmartin, look, again, it's a relatively small part of our portfolio, but, as you'll be aware, the, our JV partner there had the ability to exercise a change of control, which they've elected to consider, and we're in ongoing negotiations and discussions with them at the moment.
Hi, Max Nimmo at Deutsche Bank. Just a quick one. On the five-year unsecured term loan, could you give a bit more color on that in terms of some of the terms there? And obviously, you've done quite a good job in terms of smoothing out the maturity profile. What's the kind of next hurdles as you see it and what you're looking to do? Thanks.
Thanks, Max. Yeah, very pleased to have got the five-year unsecured loan done on essentially the same terms as the three-year loan that we announced at the end of last year. So, that was, it was done with one bank, with similar covenant package, and a spread inside 200 basis points. But the important thing is it's a five-year maturity with extension options. In terms of the rest of the maturity profile, we have extended out the initial maturity on that GBP 350 million loan as well. So that's gone from December 2026 to December 2027. So our weighted average now is around five years.
Next on the agenda, really in terms of refinancing activity, is the 2026 and beyond maturities, so, you know, we have time for those. We also have liquidity, remember, of around GBP 500 million. So I think now it's really kind of carefully shaping the capital structure for the next number of years and making sure that we kind of maintain balance sheet strength and flexibility. But you know, the encouraging thing, just one point to add, is that all of those markets that we're in and that we talk to, whether it's the unsecured or the secured bank market, the insurance market, PP market, they are all receptive towards lending to this asset class and to our stakes. That's very encouraging.
Any more questions from yeah, James, you have a follow-up?
Ask another one. Just on the rent term, and you highlighted across the portfolio, you've got a pretty big range of kind of rental terms from GBP 1,000 per sq ft, down to pretty affordable for the West End. Just in terms of rental growth, are you seeing any, yeah, kind of any parts in terms of that tone performing particularly strongly or, or, or potentially weakly, or is it pretty uniform in terms of growth across the price points?
Thanks, James. You're right, there is quite a broad spread across the entire portfolio. I think one of the things I'd highlight, which has actually probably been a feature in particular for the last 12 months, is just how well spread the rent, rental growth has been. And it has been across all of our portfolios, but also at every single sort of use level. So, you know, and again, if we look at the pipeline, which is really what we're focused on, what the forward pipeline looks like, that also backs that up as well. So we feel pretty well set for the second half and beyond.
Great. Thanks.
I think just to add to that, you know, I've sort of been involved in the West End for quite a long time now, and it's, it's the most active market I've seen across all components of where we're at. And what's really encouraging is the amount of new tenants that are coming into the portfolio from the categories that are more productive than some of the historical categories. And we're now seeing also that translate into existing customers upsizing, you know, so it's a very strong market. Any further questions from the room? No. Any on the wires?
If you would like to ask a question on the phone lines, please press star one on your telephone keypad, and please ensure your line is unmuted locally, as you'll be advised when to ask your question. Our first question comes from the line of Aaron Guy from Citi. Please go ahead.
Yeah, morning, everyone. Just a couple of quick questions. One, if you can give any sort of color on anything that you've seen on occupancy cost ratios, rent to sales, whichever way you wanna sort of look at it. Just in terms of extracting sort of future cash flow growth, particularly out of those retail rents that remain sort of below the pre-pandemic sort of level. So just any sort of color you can give on, you know, any sort of acceleration we might sort of see in those rents from tenant turnover increasing relative to rents?
Yeah. Do you want to say.
Um, yeah.
Say what, what you're seeing?
Thanks, Aaron. Just to give you a bit of color on what we're seeing on the ground, so I'd say that, if you look at sort of the sort of range of leasing activity that we've seen, what we've really been focused on is really our target categories, and focusing on concepts that are higher margin or are capable of achieving higher densities. And where we're putting those sorts of concepts in, we're seeing that really resonate with the consumer, and as a result, you're seeing the densities come in through the stores themselves. So we're seeing an improvement gradually as we're working through our portfolio.
But generally speaking, I mean, you'll know from our, from our Covent Garden asset, for example, where we've taken densities over the last sort of 10 to, I think, 10 - 12 years, from the sort of low hundreds into the thousands, where we've seen pretty good progression in those densities. And we look to deploy a very similar approach in the productivity and the focus on productivity, and the way brands and the ground floor uses resonate with the consumer across the rest of the portfolio. But generally speaking, I would say if you look at the ground operating metrics that all support all of those trends, they've actually all been pretty positive all throughout the year. And by that, I mean things like footfall, things like sales, which have all been trending positively.
Do you wanna follow up on conversion?
Sure. Thanks
Rent into income?
Yeah, Aaron, maybe I'll just follow up as well. The other thing that hopefully came out in the presentation and the materials is that, as well as ERV growth, which is evident and has been evident for the last few periods, really encouraged to see the increase in contracted income, which is a proxy for turning that rental growth into cash, and then turning that cash into earnings. And you've started to see some of that coming through in the earnings trajectory and dividend progression. So, you know, very important to kind of follow that line all the way through.
Yeah, and I think just as a follow-up from Aaron, I think, you know, you'll notice from the materials that the average rents are actually quite affordable in the context of central London. So we see good opportunity for growth. And actually, the retail ERVs are still well below where they were pre-COVID. So I think we're about 15% behind, so we do expect, you know, to see the excellent trading performance that Michelle is referring to across a wide range of the portfolio translating to rental and ERV growth.
Perfect. Thanks for that. Just one sort of follow-up on the comment you made in the release around the opportunities to expand. I mean, should we be thinking about that in terms of just sort of more incremental, sort of, acquisitions, sort of adding infilling around the portfolio, or are you sensing anything sort of, you know, bigger might be coming to the market?
Well, we are seeing, you know, properties begin to come to the market. You know, we're ambitious in the locations that we are most invested in, and, you know, particularly Carnaby, Soho, and Covent Garden. And we're really pleased that we've been able to rotate some of the capital out of Fitzrovia back into Covent Garden with James Street, which I think will be a great investment. You know, so it's more of those sort of opportunities that we'd like to exploit over the coming 1-5 years. But there's so much opportunity within the existing 640 properties that, you know, we'd like to get capital to work within those properties to enhance returns. So there's a lot to do, and I think we're very well positioned with the market backdrop as it's developing in central London and the quality of the balance sheet.
Understood. Thank you.
We currently have no questions in the queue. As one last reminder, please press star one if you would like to ask a question.
Okay. Any burning questions from the room or. That's very efficient, 30 minutes. Thank you very much for your attention. Let you get back to what you're doing. Really appreciate you coming, and we'll see you at the year end, or if not before, you're very welcome to the portfolio. There's a lot of sporting activity in the piazza at the moment. If you'd like to see the Olympics, there's a very large screen, and I'm told that there's all sorts of beverages available for consumption. So if you can find a spot, you're very welcome. Thank you very much.