Good morning. Welcome to our annual results presentation. It's great to be with you today in person after two years of virtual presentations. Thank you very much for joining us. The agenda today is fairly straightforward. I'm gonna give you a brief introduction and an overview. Sid will then present the financial review, and Michelle will update on Covent Garden. I'll then finish with a summary and an outlook, and then we'll take questions from the room and from on the phone as well. Just to remind you, Capital is one of Central London's largest REITs, with a portfolio of unique investments valued at GBP 2.4 billion. Our strategy focuses on value creation opportunities to generate long-term superior returns from investing in prime Central London real estate.
Our principal asset is the landmark Covent Garden estate, representing over 70% of our total portfolio. In addition, Capco has a 25% interest in Shaftesbury PLC, which is the owner of the mixed-use portfolio of over 600 buildings, many of which are adjacent to the Covent Garden portfolio. Capco's actions, commitment, and creativity during the pandemic have positioned the company strongly for recovery and are now generating positive results. Proactive support of our strong customer line-up resulted in high occupancy throughout the COVID period. Last summer, we indicated that we felt that the worst of the pandemic had passed. I'm pleased to report that Covent Garden has had a strong second half of 2021. Despite the backdrop of the Omicron variant, consumers continued to be attracted to the estate in the run-up to Christmas.
There was strong footfall and spend, with customer sales for the second half of the year nearing pre-pandemic levels, demonstrating the enduring appeal of Covent Garden as a prime destination. Our targeted categories, including premium and luxury, are among the best performing, and through a successful leasing strategy and promotional activities, Covent Garden is positioned as the West End's most vibrant destination. Covent Garden's strong fundamentals and attractiveness have generated excellent levels of leasing activity, resulting in valuation growth in the second half of the year. Backed by our strong balance sheet, creative and experienced management team, we're confident in the long-term growth prospects of our West End investments. Just turning to results. Covent Garden valuation increased by 4.6% like for like in the second half of the year to GBP 1.7 billion.
Overall total property value decreased marginally over the year to GBP 1.8 billion. The main contributors to Covent Garden's improvement were ERV growth, inward yield movement, as well as the loss of near-term income assumption reducing to nil. Our investment in Shaftesbury is up GBP 95 million since acquisition, or around 19%. EPRA NTA was stable for the year at 212 pence per share, and we continue to maintain a strong balance sheet with low gearing and high liquidity. Underlying net rental income increased by 20% and administration costs reduced by 20%. As a result, underlying earnings are 0.5 pence per share, and I'm pleased to say that the directors propose a final dividend of 1 penny a share, giving a total dividend for the year of 1.5 pence per share.
Our detailed pathway to achieve net zero carbon by 2030 was published during the year, with clear actions and timelines on how this will be achieved. Our investment strategy is focused on incremental refurbishment activities, where we continue to improve the energy efficiency and therefore EPC ratings across our properties. Currently, two-thirds of our units have an EPC rating of A to C, and we will continue to enhance the efficiency as properties become available for refurbishment. Encouraging a dynamic, inclusive, and diverse corporate culture is very important to us, and during the year, we concluded an employee survey and are pleased with the results which demonstrated positive employee engagement. We remain focused on responsible stewardship, investing in high-quality public realm, improving air quality in the area, and providing support for the wider Covent Garden community.
As we enter 2022, the market is stabilizing, and this brings a number of growth opportunities. We're focused on driving sustained rental income and value growth, and we have a consistent strategy to introduce high-quality brands with an emphasis on productivity. We can see the benefit of our leasing strategy as overall customer sales are approaching 2019 levels with premium and luxury outperforming. From our experience, successful omnichannel retail in prime locations tends to attract the highest sales density, which in turn can sustain the highest rents. The estate is gaining momentum with target audiences, and this has been achieved in a period with limited international travel, which has been offset by a significant rise in the number of domestic tourists and Londoners. This domestic demand and expected return of international footfall gives us confidence for further rental growth.
There are plenty of opportunities for us to invest in our estate, and we're on site with a number of asset management initiatives which will accelerate growth. In addition, we're tracking potential acquisitions in the area to expand our footprint. We're very pleased with our investment in Shaftesbury, which has generated significant returns to date. We'll look to maximize the economic and strategic value of this investment, which we feel was made at an attractive entry point. As sustainability continues to grow in prominence for the consumer, and this together with our creative asset management, will be an important area for us in generating competitive advantage in the years ahead. I'll now hand over to Situl for the financial review.
Thank you, Ian, and good morning, everyone. I'll take you through the financial highlights of 2021, starting with the income statement, moving on to the balance sheet, cash movements, and our capital structure. Underlying net rental income has increased by 20%, driven by improving operating conditions for our customers. Rent collection has improved from 69% in the first half to over 80% in the second half and more than 90% for the current quarter. The other areas which have had a significant impact on reported NRI during the pandemic period have moderated in 2021, namely expected credit losses and the non-cash cost of COVID support. There has been a substantial rebasing of administration costs as the group has been simplified, including a reduction of 20% in 2021. Inflation, particularly in people costs, will result in upward pressure on the cost base in 2022.
The evolution of finance costs reflects an increased level of gross debt following the Shaftesbury investment, as well as high levels of liquidity over the last two years. The cash components of the income statement charge is approximately GBP 26 million, and initiatives to reduce interest costs are in progress and will continue to be an area of focus. Overall, underlying profit for the year was GBP 4.1 million. We are proposing a final dividend of 1p per share, half of which will be in the form of a PID. This chart shows the transition from gross income on the left through to the contracted position and estimated rental value on the right. The individual bars reflect market movements, changes in the portfolio, and asset management initiatives.
In general, ERV would be expected to be captured as income over the course of a typical lease cycle of five years. Gross income has fallen from GBP 61.8 million in June to GBP 57.4 million, largely as a result of disposals and tenant movements. Leasing activity in the second half is reflected in the rent free and step rents bar. The majority of this will move into gross income over the course of 2022. Contracted income, which includes units under offer, increased to GBP 72.4 million. Year-end NAV of GBP 76 million compares with GBP 101 million at the end of 2019 when adjusted for asset sales. Turning to the balance sheet, the combination of revaluation and other movements has resulted in NTA being stable over the year, having increased by 13 pence per share in the second half.
At the year-end, EPRA net assets were GBP 1.8 billion or 212 pence per share. The valuation of Covent Garden increased by 4.6% over the second half, while Lillie Square decreased by a further 5%. Net debt was reduced to GBP 599 million, resulting in group leverage of 24%, and Covent Garden loan to value was 15%. The valuation of Covent Garden was broadly flat over the year on a like-for-like basis. The ERV uplift of 3% since the half year reflects improved sentiment and leasing activity. The equivalent yield moved in slightly, reflecting a more positive investment market. As market conditions normalize, the valuer has removed the assumption around loss of near-term income.
Our investment in Shaftesbury was acquired at an average price of 517 pence per share and is held at the year-end price of 615 pence, up 8% over the year. Dividend income of GBP 2.3 million was received in July 2021, and a further GBP 3.9 million has been received post year-end. As a reminder, we have two financings related to the investment. Firstly, a GBP 275 million exchangeable bond, which has a conversion price for parts of our holding at 723.5 pence per share. The bond matures in 2026 and enables the company to satisfy any exchange through Shaftesbury shares, cash, or a combination of the two. Secondly, there is a secured loan of GBP 125 million maturing in December 2023.
This chart summarizes the main movements in cash over the year. Disposal proceeds amounted to GBP 133 million through asset sales at Covent Garden, completions at Lillie Square, and receipt of the final payments for Earls Court. Financing activity related to repayments of the Covent Garden and Lillie Square bank facilities. Taking into account other movements, including CapEx and operating items, there was access to cash and undrawn facilities of over GBP 650 million. We have maintained significant financial flexibility throughout the period, with limited capital commitments and access to ample liquidity. Activity in 2021 included an early refinancing of the Covent Garden RCF which has been reduced to GBP 300 million. In view of heightened volatility and uncertainty over the last two years, we have run a defensive balance sheet with a high level of cash and therefore increased gross debt.
As market conditions normalize, we will keep our capital structure positioning under close review. We have decided to prepay certain private placement notes at an estimated cost of GBP 81 million. These notes are due to mature in 2024 and 2026 and carry a relatively high coupon. Together with the RCF refinancing, this will result in annual interest cost savings of over GBP 3.5 million. Through a combination of our debt structure and hedging arrangements, interest costs are well protected against movements in rates. To summarize, as operating metrics continue to improve and through our leasing and asset management initiatives, rental income is set for recovery and growth over time. We will continue to focus on capital management and cost efficiency. Together, these levers will enable the dividend profile to be progressed in line with growth in underlying earnings.
The second half saw a turning point in valuation metrics after a period of significant adjustment through 2020 and the early part of 2021. At the year-end, ERV was considerably lower and yields higher than pre-pandemic levels. We will maintain a strong balance sheet, reducing gross debt and financing costs in the near term whilst positioning the group to act on growth and investment opportunities. I will now hand over to Michelle.
Thank you, Situl, and good morning, everyone. At Covent Garden, we've been focused on positioning the portfolio for recovery and growth. While market and trading conditions have been interrupted due to the pandemic, active asset management of our estate and our hands-on approach to leasing has resulted in strong levels of activity and an overall vibrant, thriving destination. 60 leasing transactions were completed representing GBP 11 million of contracted income. Rents for the second half of the year were 0.6% ahead of ERV, which has resulted in a valuation uplift for H2. We are commencing a number of refurbishments which will unlock value and are tracking a number of potential acquisitions. During the period, we have disposed of GBP 95 million of non-strategic properties. Vacancy has remained consistent at around 3%, and new store openings have been a strong feature over the year.
Working closely with stakeholders, we have secured enhanced pedestrianization on target streets and al fresco covers across the estate. Footfall and spend continue to improve, nearing 2019 levels. As we recover from the pandemic, retail and F&B demand continues to polarize towards the best locations. We've aimed to maximize the attractiveness of Covent Garden through strong curation and brand positioning, which underline tenant performance. Increasingly, characteristics like pedestrianization and al fresco, which enhance the overall trading environment, are requirements of occupiers taking space. Owning your customer is increasingly important. Locations which can demonstrate that they have a consumer audience of scale that they can directly speak to, influence, and analyze are at an advantage long term. Capco has been an early adopter of digital, investing across its major digital channels, speaking directly to our target consumers.
We have regard to productivity by store and brand, which has enabled us to have trading data for the majority of our customers. This provides invaluable insights to consumer trends and performance. All of this works together to inform our leasing and investment decision-making. Brands are looking for locations that provide them with options around growing their presence, adapting their concepts, and altering uses as appropriate. Our scale and concentrated ownership and collaborative approach enables flexibility, enabling businesses to upsize and evolve on the estate. Doing business as sustainably as possible is no longer a nice to have, and brands are choosing landlords that share their environmental values. Green leases are now standard in our business, and we are working with our customers on how we can support them to improve their carbon footprint on our estate by influencing behaviors.
These leases include obligations to collaborate on energy efficiency and environmental performance, as well as data sharing. Along with our own greening, air quality initiatives, and investment in our heritage assets, we are committed to our net zero carbon goals. Having reduced by 26% since pre-pandemic, rents are now recovering with 3% growth in the second half. We have a vision for every street and a plan for every asset, and as we bring forward new leasing and asset management initiatives, these will drive rental and income growth over time. It's been an active year for leasing, with 60 transactions representing GBP 11 million of income, completing 5% below December 2020 ERV. Deals in the second half of the year were 0.6% ahead of June 2021 ERV and in line with 2019 passing rent.
We have started the year with a healthy pipeline of GBP 3.8 million under offer, which on average is currently tracking slightly ahead of December 2021 ERV. Our retail and F&B strategy centers around being able to shop and dine at every level, London firsts, and unique experiences. We are clear on which categories and brands we wish to introduce, such as luxury, differentiated F&B, digitally native and sustainable, to name a few. We are confident in our customer mix, with retail representing around 50% and F&B 25% of the portfolio at ERV. As you can see from this slide, and notwithstanding a challenging retail and F&B market, Covent Garden's lineup gets better and better. Signings include luxury brands TAG and Tudor, and Uniqlo has agreed terms, and we will combine Carriage Hall on Floral Street with two units on Long Acre, creating their new London flagship.
Following Glossier's pop-up, the digitally native beauty concept has opened their first London flagship store. Reformation, another digital brand with a focus on sustainability, has also joined and is currently fitting out. Ave Mario, 3 Henrietta Street, and Mrs Riot have opened new restaurants on the estate. Covent Garden continues to attract London-first concepts, including Rails, Lisa Eldridge, and Ghlam. The Gentlemen Baristas and Kick Game were introduced to the estate on shorter term arrangements in 2020 and have since converted to longer-term leases. Experimental Group has expanded and is set to open a new late-night concept on The Piazza. There are a number of projects on site which are progressing well, including office refurbishments at 35 King Street, where leasing has commenced, and 5 to 6 Henrietta Street, which will come to market later this year. We are also in design and planning on a number of new schemes.
These include two office to F&B conversions, a flagship F&B townhouse, and an office refurbishment. These capital projects represent 70,000 sq ft and approximately GBP 30 million of CapEx over the next two years. These select investments will unlock value while improving our buildings, adapting them to changing requirements, and enhancing their environmental performance. We also continue to look at other larger repositioning opportunities across the estate. Further to an assessment of forward returns, a number of non-strategic assets were sold, totaling GBP 95 million of proceeds, the most recent of which was a long-let hotel on Bedford Street, disposed at 5% ahead of June 2021 valuation. Our strong balance sheet means we are well positioned to act on investment opportunities as they arise. We are tracking the investment market closely and observe more assets coming forward, and where appropriate, we will look to acquire. In summary, we are confident in our plans and priorities over the coming year as we focus on implementing our asset and investment strategy, converting our pipeline and positioning the Covent Garden estate to maximize its value potential for all stakeholders. I will now hand you back to Ian. Thank you.
Okay, thanks very much, Michelle. Just looking ahead and taking stock, I think the early action that we've taken has positioned the business strongly to benefit from the recovery which is taking place. Our successful implementation of leasing, public realm, and marketing initiatives has delivered this opportunity for growth, and we're very pleased with the levels of leasing activity and improving market indicators, which have contributed to the valuation uplift in the second half. With our strong customer line up and demand growing for the best locations, Covent Garden is well-positioned for further rental growth. While there are prevailing economic headwinds, patterns of activity are beginning to normalize, which will drive growth in the West End economy. Capco has access to substantial liquidity, and we will be looking to take advantage of investment opportunities as they arise.
As long-term responsible owners of the Covent Garden estate, we're committed to implementing our ESG strategy, particularly achieving net zero carbon by 2030. I think through our long-term vision, entrepreneurial culture, and strong balance sheet, we position the business for recovery and growth. We look ahead with confidence to continued progress in 2022 to generate long-term returns for shareholders from our unique portfolio of West End investments. That concludes the formal presentation. Thank you very much for your attention. We'll now move to questions from the room. For those of you that are on the wires, please let the operator know if you'd like to ask a question, and we'll come to you in due course. Who'd like to go first? Good morning.
Good morning. Yeah. Max Nimmo, Numis. Just two quick questions if I can, please. You talk about potential acquisitions and more stock potentially coming to the market. I was just kind of interested to get your view on what's kind of the driver of that. Has it been EPC-driven? Is it something to do with post-pandemic in terms of sellers coming to the market? Second question was on Lillie Square. We've obviously seen a bit of a recovery in the rest of the portfolio. Lillie Square is obviously still seeing some value decline. Just like a little bit more color around that and how you see that kind of progressing. Thanks.
Sure. Well, Lillie Square, we actually sold quite a number of units last year at pretty decent prices. There is some inventory left there which mainly relates to one block of properties that hasn't actually been released fully for sale yet. We'll be getting to that with the JV partner through the course of this year. As far as properties that are available or might come to the market in the Covent Garden area, you know, it's a very tightly held market there. Historically, we've bought from generally private companies in recent years, and we've always had a view that by buying those properties, we could change the nature of the tenancy in there and advance rents, perhaps beyond where others might see them going.
Normally, I think when you've had an inflection like we've had over the last two years, people inevitably change their thinking and change their strategy. You know, we're maintaining our strategy because we think that will create the best value for our shareholders over time. We can see that now translating into rents and ERVs. I think there will be a number of properties that, well, we're certainly running the rule over a few at the moment, which, you know, some have been target properties for many years. Whether they come to market, I don't know. There is movement. The other thing that's happening in Covent Garden, which is slightly different, I think, from previous years in which we've been invested in the area, which is now nearly 15 years since we first made the initial investment.
You know, there are other people putting money into the area, so there's actually quite a lot of development going on. Whether it's office space, hotel space, whether it's occupiers. You'll have seen the Guinness investment in Old Brewers' Yard. You know, so there's a lot going on in the area, which means it's a vibrant market, and I think that will provide opportunities for us. The immediate use of capital, though, is probably investing in our existing buildings. There are several properties that we have not actioned the refurbishment of during the COVID, and we'll get to that this year. We'll get to you next, Oz.
Thanks. Morning. It's Matthew Saperia from Peel Hunt. I've got two questions as well. The first one on slide 11, the ERV bridge, I noticed you put the 2019 ERV of like GBP 100 and odd million on there.
Yeah.
Is that a number that you've got in your mind as a target as to where you think you can get it back to, and what does the journey look like, if that is the case?
Yeah. Well, look, I think there's no reason why we won't get back there. Certainly the evidence from the sales densities that we're seeing across the estate in aggregate would justify those sort of levels of rents. If you remember in 2019, we were actually looking to grow rents at that point. Certainly the introduction of the higher value categories is certainly demonstrating that that's the potential. I think the adjusted number for sales would be about GBP 100 million, something in that order. We're 25% below that, roughly, on ERV at the moment. There's a long way to go just by, you know, doing what we've been doing successfully over the last 10 years or so. I think it will accelerate as a result of these new categories that Michelle was talking about, 'cause they are trading very well.
Thank you. On pedestrianization and al fresco, you've done really well in pedestrianizing permanently, obviously bringing in the 1,000 al fresco dining spaces. Is there more opportunity across the estate to roll that out further? Thinking about the West End more generally, other people have not fared so well in getting those dining spaces sort of in, put in permanently. Do you see that as a competitive advantage now for the estate?
Do you wanna take that one?
Sure. Thanks, Matt. You're right. Look, it's been a strong feature of the recovery for us, having the ability to spill out beyond what's already there has been very valuable. I think, you know, one of the themes I mentioned is that when people are now thinking about the sort of space that they want, they're thinking about the environment more holistically, and things like pedestrianization and al fresco really feed into their thinking, whether you're a hospitality brand or a retailer. We're really positive with what's been achieved. In terms of whether we can do more, I think you've got to get the balance right with all of these things. There are a few areas of the estate where we certainly see opportunities to maybe incrementally add more, but really overall, the benefit has been very positive for the estate.
Os, the microphone is heading your way.
Thanks. Osman Malik, UBS. The ERV guidance question was just answered. The other one I had was if you could give us a sense of the competitive tension on any units in particular, just to give us a sense of, say, now versus pre-pandemic, how many people are bidding against each other, to give us a bit more color on the potential for rental growth, essentially.
I mean, Michelle can give you the color on that. I mean, what we're trying to do strategically is make sure that our vacancy was limited. Where we have had vacancy, we've been very focused on getting the right brands. You'll see that the brands that we're bringing in are commensurate with that long-term strategy of high-value retailers, good quality restaurateurs in the categories that Michelle outlined earlier. That's definitely paid dividends, because we've only got a handful of units left really at the moment. There's a pipeline of stuff that will come through. There's competitive tension really on, not every unit, but certainly the prime units. I'd say they're well sought at the moment.
Yeah. I think that's right. You've covered it there. Over the course of the year, the leasing activity has been pretty well spread out. As we headed into the second half, we could see a tightening of pricing demand, and generally some of those market dynamics starting to settle down. That was evidenced through the deals that we've done in the second half, which we're tracking slightly ahead of ERV. There's competitive tension on pretty much all of our units, but the way we think about it is you've got to be quite targeted alongside that as well. You know, there are a few examples I've given, the likes of Glossier, the likes of Reformation. These have been target brands where we've looked to unlock opportunities for them.
Thank you.
Morning.
Morning. It's James Carswell from Peel Hunt. I'll ask two as well, given everyone else is asking two. The first one, just in terms of the route back to the ERV and hopefully going beyond what you were pre-pandemic, I mean, when we look at the split of the portfolio in terms of the split in retail and leisure, the estate has evolved massively over decades and decades. Sitting here today, when you look forward over the next five to 10 years, how do you think that split changes going forward? Do you think we'll get more food and beverage, for example, because we now have the al fresco, or do you think those splits are roughly where you expect the estate to stay?
Well, we're very comfortable with the sort of generic split, as it were, between the categories that we've got. What we've constantly sought to do, though, is scale up the layers of productivity within those retailers. I can't tell you what retailer will be hot in 30 years' time. If I could, then I probably wouldn't be sitting here today. The reality is that we've always been slightly ahead of the curve. So Michelle was talking about digitally native brands. You know, they've been taking space really for the last two years. Last three years, really. We've been targeting them for the last five or six years.
They're now seeing that because of the way we present the estate and the way we work with our customer, you know, they can see that there's a benefit for them of coming to Covent Garden over other locations, to the point where, you know, I won't embarrass Michelle with specific names of companies, but we have had customers that have said, "We only want to be in London if we can be at Covent Garden, and we only want to be at Covent Garden if we can be in a particular unit." Now, that's five years of hard work. The same with luxury.
You know, when I set out ten years ago with the strategy, it was to try and demonstrate to the luxury goods industry that actually their consumer is present in London and is present in Covent Garden, and that really has been the case through COVID. We have seen, you know, Londoners rediscover Covent Garden, really, and some of our highest sales densities are related to that luxury component. The same applies with F&B. You know, we started off many years ago with, you know, relatively mid-market offer, if I can call it that, and we've gradually scrolled up through the quality. It's not every price point is high, but the quality of what we offer really is quite consistent today, and you're seeing that now with some of the highest turnover figures really that you'll get in F&B in London.
It's about doing more of the same. What the trend is in 30 years, I don't know. You know, for sure, you know, Covent Garden's been there since 1600 and something. It's evolved over time. It's definitely evolved over the last 50 years or so, and it will continue to do so. Our job is to make sure we're ahead of that and trying to put on a great show for the consumer.
Absolutely. Second question, just on international tourists, and you touched on the fact that as they return, that's another potential driver of rental growth.
Yeah.
Can you talk a little bit about, again, pre-COVID, where international sales were as a proportion of s ales? And also, where are we today in terms of, do you have any sense of footfall? You know, what percentage?
We've not got the figures from last week. I mean, last week was very busy, but we don't know the distribution of that. I mean, generally, I'd say that international tourism is still significantly below where we would normally expect it to be. Historically, it's been anything between 30% and 40% of footfall, depending on, you know, when we've sampled it, and it's very spread around the world. We were underrepresented from the Far East. We've been very successful in attracting sort of the Middle East consumer into Covent Garden, and we've done very well with North America, and Europe's been quite consistent for us. So it's been quite broad. What we noticed pre the pandemic is that, you know, the amount of spend coming from that international tourist was slightly higher than domestic tourist.
That's obviously changed because we've got slightly different domestic consumer today. It'll be interesting to see. I mean, obviously, you know, Londoners are gonna start traveling as well, so there'll be some positives and some negatives. You know, I think generally we're in good shape for that return of tourism, and there's lots of statistics that you'll be more familiar with about when people think that's gonna get back to normal. I think the latest one was a Colliers report on spend in the West End suggesting that, you know, it'll be above where it was in 2019 in the next few years. We're certainly seeing them coming back, aren't we? We got any questions on the phones? Just, whilst people are thinking. I can't see the operator.
As a reminder, if you would like to ask a question on the conference call today, please do so by pressing star followed by one on your telephone keypads now. We have our first question from Paul May from Barclays. Paul, your line is open.
Hi, guys. Sorry, jumping in for Sandra, who's on various other calls. Just a couple of quick ones from me following the trend of two questions. Operating cash flow still remaining negative. Obviously, earnings still very low. Appreciate last year was a recovery year, and this year's going to be more of one. Do you anticipate Capco moving to a sort of strongly positive cash flow situation, or is it still gonna be very much around capital growth from here? And then I can ask the second one after that.
Hi, Paul. It's Situl. Thank you for the question. You're right. The operating cash flow position for the last year or two has been what it's been for very obvious reasons, I think. We make the comments we do about rental growth and that translating into earnings and translating into dividends in line with earnings because the net cash drop-through from rental growth should be quite high. It's high, i t's quite highly operationally leveraged. You've seen kind of the messaging on costs, both at a property level and admin and also actually financing. The other lever I suppose is the Shaftesbury dividend, which you've seen come back over, you know, over 2021, and we've had another dividend early in 2022. We were talking earlier, if you wind back to two years ago, I think we sat in this room or a room on this floor, and we were looking ahead to kind of rental growth and dividend growth from that point. I think t he dynamics and the characteristics are quite similar in the sense that with different starting point, but where you can see rental growth, rental conditions beginning to normalize, rental growth starting to come through, that has for us quite a marked effect on net cash flow and underlying earnings per share.
Thank you very much. Actually, two more, apologies. The sales improvement that we've seen obviously relative to footfall, sort of sales per footfall, has been quite consistent across all retail destinations, I think, if I remember correctly, pretty much across Europe. Just wondering, do you think that's something that's sustainable, or do you believe that sales per footfall recovery is simply a case of we've come out of a pandemic, everyone was effectively home imprisoned for a long period of time, they wanna go out, they wanna spend, but actually then there's a normalization of that? I appreciate that might be replaced by international tourism coming back. Just wondering what your thoughts were on there, o r do you think we're at a new normal in terms of people spending more per footfall?
Thanks, Paul. It's Michelle here. You're right. There's an element of revenge spend that I think has been present over the last couple of years in certain categories. I think if we look at just what we're seeing on our estate, we've seen a consistent trend of that, of sales over-indexing relative to footfall. I think there are sort of two things at play here. The first is that, you know, we don't necessarily have the international tourists here today, but the domestic consumer and the London consumer has, I think they've rediscovered Covent Garden, quite frankly. You know, we're seeing that reflected in both the feedback that we're getting from retailers, but also in the demand that we're seeing on the ground in terms of leasing activity.
People can see that actually this is a place that is resonating and is performing very well relative to other locations. That's the first thing. The other comment I would make is I think the overall offer has improved so much over the last few years that it resonates in general as a very, very strong place in its own right to come and spend your time and your money. I think those two things stand us in very good stead. You know, this is all without really office occupation being at full steam and also without the international tourists. We're very positive that as those two things recover, Covent Garden is very well set within that recovery.
Super stuff. Then, sorry, just a final quick one. The net over renting you highlight the GBP 2.5 million, is that just simply a timing thing that you expect, effectively ERV is wrong, basically at the year-end, and you see ERV growth coming through that will offset that net over renting? It's a sort of a point in time rather than a potential thought for rent decline moving forward.
Well, I mean, the important thing is the rents are being paid, so the reversion dates are obviously some time away. Therefore, we would expect this to be temporary as rents improve over the coming period. I'm gonna be slightly careful to say because our value is in the roof and it's their assessment of ERV, not ours. I think what we can see in the deals that are sort of under offer and being done is that we're already progressing rents above ERV in the first period of this year. I think it will be a temporary phenomenon.
Fantastic. Thank you very much.
Any more questions?
Our next question comes from Rob Jones from Green Street. Rob, your line is open.
Good morning, gents. Apologies I can't be in the room today. Couple of questions. First one on sales densities versus pre-pandemic and some of the segments. Can you give a bit of color where you are, for example, with F&B versus pre-pandemic, luxury, maybe fashion?
Michelle?
Hi, Rob. It's Michelle. Definitely not a gent. Look, certain categories. As we've highlighted, there are certainly certain categories that are performing very well. Some of those have actually over-indexed relative to 2019. I don't wanna necessarily go through every single category and tell you where sales are relative to historic levels. But there are a few star performers for us. One of those has been luxury and premium, and the other has been high-quality hospitality. I don't think, you know, that those are not necessarily just themes that have come out from the pandemic. These have been very specific areas of focus for us over the last decade, in fact, which is to move up the quality curve, both in terms of retail, and F&B, and that's being reflected in the sales numbers that we're seeing on the ground.
Fantastic. Thanks, Michelle. Just on the next question is on occupier profitability. D o you feel like you've weeded out any of the weak tenants that you had? How is the liquidity situation for all of your occupiers? Are we back to, you know, 19 levels here?
I'm not sure I'd describe it quite like that. I mean, there's always companies that are more successful than others. What we tried to do over the last two years is to support the whole customer line-up. We've had actually very few failures, and I think we can see from the data that we're receiving is that on the estate, they're beginning to trade more positively than they were over the last couple of years. As this year develops, we'd expect that trading to continue to improve. You can see their ability to pay has also improved with the rent figures. You know, we still bill quarterly in advance, and as you'll see from the statement, we're well over 90% for the first quarter of this year, which I think is very positive news.
Brilliant. It is. Thank you.
Okay, I think that's it. Anybody, any burning questions from the room? Good morning.
Thanks. Morning, John Cahill from Stifel. Just one quick one. I suspect, around the estate, you know ultimate ownership much better than the land registry. Is there anyone, without naming any names, who is ultimately Russian and might all of a sudden want to sell?
Russian to sell or Russian by nationality? There's certainly nobody Russian to sell at the moment. We're not aware of anything of that nature. Obviously, we carry out the normal checks, etc. , when we're selling things to people. The vast majority of people that we bought from over the last 10 or 15 years have been domestic individuals, actually, and pension funds. We bought a lot of real estate from pension funds through 2012 through 2016, you know, where the lot sizes were probably a little bit too small for them, and the active asset management that you have to do to really reposition these buildings is probably not part of their overall strategy. Most of those have actually, you know, we've acquired most of those units, so it's really a number of private individuals. I think the last two buildings we bought pre-pandemic were both UK p rivate property companies.
Thanks.
Anybody else? Great. Well, look, I really appreciate you coming. Hopefully, we'll all be sitting together again in the summer. We'd love to see you all down on the estate. If you are coming down, just please let us know and we're happy to show you around things. Many thanks. Have a good day.