Morning, everybody. Thank you very much for joining us today. We know it's a very busy day for a lot of you, but a warm welcome from all of us to Shaftesbury Capital's Annual Results Presentation. I'm sure you've had time now to read the release out this morning, but we're all delighted to report very strong results for 2024, with an increase in rents, values, income, and dividend. So we're going to follow the normal agenda this morning. I'll make a few opening remarks, a little bit of an overview. Situl will then take you through the financial review, and then I'll provide a little bit more detail on the portfolio activity during 2024, and then we'll finish with a summary and outlook. Michelle's joined for the Q&A.
We would normally have Andrew Price with us as well, but unfortunately, he's not very well today, so it's just the three of us. I'd also like to welcome Madeleine Cosgrave, one of our new non-execs who's with us this morning. So please feel free to ask as many questions as you like, either at the end of the presentation or afterwards. So we've got a clear strategy, and it's delivering strong results. So those priorities that we set for the business have delivered excellent operational performance through 2024, with rental income and valuation growth. Footfall across our prime West End portfolio is high, with continued improvements in customer sales. Obviously, the macroeconomic issues that you're all aware of have impacted things, but conditions across the West End's occupational market remain very buoyant, and this is reflected in the stable valuation yields.
The team is successfully leasing, well ahead of ERV, with excellent levels of activity, limited vacancy, and a strong pipeline of potential transactions. We're converting the portfolio's reversionary potential into contracted income, and we've also completed the sale of a number of properties whilst reinvesting in target acquisitions, which is enhancing the quality of our portfolio. We're confident we can deliver our medium-term growth targets, and we're well positioned to take advantage of market opportunities. So the clear strategy, and I think a talented team, are delivering strong results, and I'd like to take this opportunity just to thank everybody that works with us for their commitment and hard work during 2024. The valuation increased 4.5%, like- for- like, to GBP 5 billion, and that's driven by a 7.7% improvement in ERV, which has been offset marginally by an outward yield movement of 13 basis points.
NTA increased 5.2% to GBP 2 per share, and the total accounting return for the year was 7%. We've got a strong balance sheet and access to significant liquidity. Pleasingly, cash rents increased by 8%, and there's been continued progress on cost efficiencies, with underlying earnings up 16%. The board has proposed a final dividend of GBP 0.018 per share, which brings the total dividend for the year to GBP 0.035 per share, so the performance over the year does demonstrate the exceptional qualities of the portfolio, delivering growth in cash rents, dividends, ERV, and valuation, so I'll hand over to Situl to take you through the numbers.
Thanks, Ian. Good morning, everyone. As you've heard, there has been good progress against our priorities centered around rental growth, cost control, capital discipline, and maintaining a strong balance sheet. So starting with the income statement, as a reminder, 2023 numbers reflect completion of the merger partway through the year. Gross rents have increased by 5.7% like- for- like to GBP 205 million, reflecting a successful period of leasing and asset management activity. In aggregate, commercial lettings and renewals were 11% ahead of ERV and 18% ahead of previous passing rents. Residential leasing was 7% ahead. Underlying net rental income for the year was GBP 167.1 million. Admin costs compared with pro forma 2023 have been reduced to GBP 39 million. This reflects significant synergies since the merger and the opportunity for further efficiencies over time. We've previously indicated a target to reduce the EPRA cost ratio towards 30%.
There has been further progress in 2024, with the ratio falling to 37% compared with over 50% at the time of the merger. Finance costs were GBP 57.2 million based on average net debt for the year of GBP 1.5 billion. Like for like growth in income, cost savings, and stable finance costs have resulted in a 16% increase in underlying earnings to GBP 73 million or GBP 0.04 per share. Taking into account progression in cash generation and underlying earnings, we have increased the dividend to GBP 0.035 per share compared with GBP 0.0315 pence last year. Annualized income has increased by 8% like- for- like to GBP 203 million, demonstrating strong momentum and cash conversion. Pricing across 473 leasing transactions was at a 9% premium to ERV. This has contributed to ERV growing to GBP 251 million, as shown on the right-hand side of this chart.
As you can also see, there's a high degree of visibility on income growth through the conversion of rent freeze and the letting up of space. So turning now to the balance sheet, property valuations were GBP 5 billion, up 4.5% like- for- like. Net debt at year-end was £1.4 billion, resulting in EPRA loan-to-value of 27%. EPRA NTA was up 5% over the year from GBP 1.9 to GBP 2 per share, driven primarily by the valuation movement. The main driver for the increase in property valuations was ERV growth of 7.7%. The H2 component of this was 4.7%. The equivalent yield moved out by 13 basis points, 2/3 of which was in the first half. The topped-up net initial yield is now close to 4%, and the equivalent yield on the commercial portfolio is 4.6%.
Valuations remain well underpinned on a per square foot basis, particularly given limited supply of new space. Average ERV for the portfolio is GBP 92 per sq ft, making the tone of rents affordable for our customers. Our leasing activity has driven ERV progression, and it's encouraging to see consistent sales growth for our customers. ERV overall is now slightly ahead of pre-pandemic levels in nominal terms. Retail ERVs were up strongly and are now 6% below 2019 levels. We maintain a strong balance sheet with access to significant liquidity, limited capital commitments, diversified sources of funding, and robust credit metrics. The running average cash cost of debt is 3.7%. Interest rate hedging is in place until the end of 2025, and the net debt-to-EBITDA ratio has reduced from 13.9x to 10.9 x, and there is significant headroom against debt covenants.
During the year, we completed a range of financing activity, including a new five-year unsecured term loan of GBP 75 million, repayment of GBP 95 million of private placements, and extension of our unsecured facilities taking their maturities to 2027 and 2028. Priorities over the coming period will include refinancing plans for medium-term maturities and consideration of longer-term options to evolve our capital structure. The main movements in cash during the year were driven by operating items, dividends, net investment inflows, and debt repayments. This resulted in cash of GBP 110 million and access to undrawn committed facilities of GBP 450 million at year-end. So to summarise, there's been good progress overall with meaningful growth in rental income, earnings, dividends, property valuations, and net tangible assets. We will continue to focus on our priorities: rental growth, further efficiencies, earnings progression, investing in the portfolio, and a strong balance sheet.
With that, I will hand back to Ian.
I just thought I'd start by a quick reminder about what we own and sort of what we think is an impossible-to-replicate portfolio. It's located in addresses you know well, some of the most iconic locations in the West End: Covent Garden, Carnaby Soho, and Chinatown. It's about GBP 5 billion worth of property, comprises 2.7 million sq ft of lettable space in 635 mainly freehold buildings, something like 1,900 individual lettable units. The West End market has delivered attractive, predictable growth over multiple cycles, and it sort of demonstrates its resilience as well as its long-term growth potential. So these are vibrant, high-footfall destinations close to the West End's major transportation hubs, including the Elizabeth Line and two of the stations, which has enhanced overall footfall into central London and the West End significantly. I think we're now at something like 220 million individual rides on the Elizabeth Line.
Portfolio is benefiting from the increase in international arrivals and tourists. Arrivals at London's Heathrow Airport are back to where they were pre-COVID, and there's an encouraging forward-looking booking pattern for the West End. It's a very well-balanced portfolio: 36% retail, 33% hospitality, and 31% in the upper floors, which generally offer high-quality office and residential accommodation. We have a wide range of occupiers, and we have a wide range of income streams, and there's a diversified mix of unit sizes and rental zones across the portfolio, which attract a wide range of demand. As we've mentioned, occupational demand continues to be strong. It tends to prioritise the best locations. We've achieved leasing success right throughout the portfolio with continued ERV growth. This slide demonstrates some of the new brands introduced. They range from independent to global operators.
They're attracted by the seven days a week trading environment and the high levels of footfall that we generate. In 2024, 473 new leasing transactions completed. That represented just under GBP 50 million of contracted rent. That was 9% ahead of the December 2023 ERV and 14% ahead of the previous passing rents. Vacancies very low at 2.6% available for let. And the team's active and creative approach, which is informed by a deep knowledge of what's happening in the West End, does position Shaftesbury Capital to deliver rental growth through converting the portfolio's reversionary potential into contracted income. Looking at retail, we've recorded very strong demand, positive trading conditions. We've enhanced that data environment and are proactively using the insights that we gain to support leasing decisions and to identify opportunities across the portfolio. We tend to focus on highly productive categories.
We're seeing particularly good performance in luxury, in lifestyle, and in accessories. And I think with the increased scale and depth that the portfolio now provides, we're seeing opportunities for customers to expand, take additional stores, and to move around. Approximately 30 customers have upsized or taken additional units across the portfolio recently. These include brands such as Charlotte Tilbury, Swatch, and Barbour. At Covent Garden, we're seeing the benefit of a unified district, marketing it as one direction, a single leasing platform, single asset management platform, and a coherent marketing strategy, and that's generated interest and openings from 33 new brands introduced last year. There's been very good progress evolving the offer on and around Carnaby Street, and we've had 21 signings during the year. And all of this has contributed to 11% retail ERV growth across the portfolio in 2024.
Having said that, portfolio average retail Zone A rents, although they increased to GBP 530 sq ft with particularly strong performance on our prime streets, there is a very broad offer of GBP 220 sq ft- GBP 1,200 sq ft Zone A, so we appeal to a very wide range of occupiers, so I think we're well positioned to deliver those long-term sustainable growth in rents, and actually the average rents across the portfolio are more than 50% below overall prime Central London rents. The majority of our customers are reporting good trading levels, with sales up 3% year-on-year in 2024, and we had a really strong Christmas. Footfall in the last quarter was up 6.6% compared to 2023. F&B portfolio continues to attract good demand across the spectrum from premium to casual concepts. Operators are attracted to our prime locations.
We're home to 394 food and beverage outlets, and as always, there's been a small number of failures. However, the strong leasing demand has resulted in available space being filled quickly. There's been a number of openings across Covent Garden, and we continue to progress the lineup as we reposition Kingly Court, which offers sort of larger destinational dining, and in Chinatown, we continue to introduce more variety, and that's increased the Pan-Asian offer, and that's at a range of price points, so across the portfolio, 39 new lettings and renewals signed at 14.8% ahead of the December 2023 ERV. The vibrancy of our locations and the quality of accommodation that we offer is generating leasing demand for our office accommodation. The Carnaby and Covent Garden portfolios have high amenity value and excellent environmental credentials.
During the year, rents in excess of GBP 120 per sq ft were achieved on that prime space, which contributed to growth in overall annualized gross income, particularly from Carnaby and Soho. Residential portfolios continue to perform well. Our character of all period buildings with a modern specification continue to appeal to a broad range of customers. During the year, nearly 300 leasing transactions completed, with rents achieved 7% ahead of previous passing. We're seeing investment opportunities across our three core locations, with current asset management and refurbishment initiatives representing about 5% of ERV, and they're expected to be delivered over the next 12 - 18 months. We also realized GBP 247 million from property disposals at an overall premium to book value, with GBP 86 million reinvested in target acquisitions, which is enhancing the quality of the portfolio.
In addition, we completed the sale of a 50% interest in Longmartin to our partner for GBP 94 million. There's a broad pool of investors attracted to prime West End real estate, where investment provides the prospect of high occupancy, good demand for space, and reliable growth in long-term cash flows. We're committed to reducing carbon. We've reset our net zero carbon target to 2040 to align with the Science Based Targets initiative, having achieved accreditation at the start of this year. We reuse, renew, and improve our buildings to enhance energy performance credentials. 70% of the portfolio now has EPC ratings of A or B. That's an increase of 14% in the year. And during 2024, we also reviewed our community investment strategy to closer align with the needs of our stakeholders and to support those vibrant communities that contribute to making our places thrive.
In summary, 2024 was an excellent year, and 2025 has started well. Despite the macroeconomic concerns, the West End continues to perform strongly. Footfall is high. Our customers report sales growth, and there is limited vacancy. There's an excellent level of activity across the portfolio and a strong leasing pipeline. West End real estate continues to attract capital, and we see opportunities for investment and expansion within and alongside our portfolio, adding to growth prospects. Shaftesbury Capital's irreplaceable portfolio is anticipated to deliver sustained income and value growth. The quality of our portfolio, our active approach, and the positive market fundamentals of the West End give us confidence in our guidance of 5%-7% rental growth, which, with stable yields, we expect to deliver total accounting returns of 8%-10% over the medium term.
And backed by our strong financial position, we're well positioned to grow and to take advantage of opportunities in the West End. So that concludes the formal remarks. We'll open up for questions. For those of you that have dialed in, please let the operators know that you'd like to ask a question. If you could also, from the room, mention who you are and who you represent, that would be very helpful for the record, but perhaps we can invite the room to open the questions. Thank you. There we go. Max.
Thanks very much for the presentation. It's Max Nimmo, Deutsche Numis. Just on the, you talked a bit about the efficiencies of the business. I think you're at sort of 82% gross to net now. Sounds like you've made most of the gains you're going to make on the sort of admin cost side of things. So should we assume that to get from sort of the 37% EPRA cost ratio down to 30%, a lot of that is going to come from that sort of gross to net? And can you kind of give us an idea of what kind of things you can do in that space to kind of improve that? Thanks.
Yeah, sure. Should I take that? I mean, Andrew would normally answer that question because he's running the ops for the portfolio, but we're nearly two years into the merger now, so we've learned a lot. We have a lot of real estate. We have a lot of occupiers. We can make a clear decision now as to how we want to focus our resources and how we want to work with our business partners to deliver the standards that we feel are necessary for our occupiers. Interestingly, we've got a customer survey live at the moment, which will help us also prioritize what really our occupiers want from us.
So I think you'll see much greater efficiencies be derived from the way we run the portfolio, and they can be passed on through to our occupiers and also through to our own non-recoverable costs. So I think that's a positive trend over the coming years. There's always more you can do on organization and operational efficiencies. Obviously, we're using a better technology platform today, and we do think that further efficiencies will accrue from that. So yeah, two years on, we're really pleased with the savings that we made. We're well ahead of the savings that we suggested we thought were available at the time of merger, but there's more to come, and we're working hard towards achieving those 30% EPRA cost ratios. Thank you.
Hi. Oli Woodall from Kolytics. Thank you for the presentation. Just a question on tenant health. So rental growth has obviously been super strong, especially in retail and food and beverage, and vacancies have come down across the portfolio. Just how confident are you can carry this on going forwards? Are you hearing any concerns from the tenants, in particular regarding the NI contribution increases and other changes from the budget due to come in April?
Should I take that one? Thank you for the question. It's a good question. Look, when we look at the feedback we're getting from customers and we look at the pipeline that we're currently managing, we're really encouraged by that. Look, we're only sort of eight weeks into the year, and that pipeline is strong, and it's consistent with the guidance that we've given out. With respect to the sort of ground-based operating metrics that you're referring to, things like footfall, sales, densities, all of those things are trending upwards, and that ultimately is what's giving confidence to building that pipeline, which we're going to work very, very hard on to convert into deals and ultimately income.
In respect of other occupancy cost pressures, things like the budget, we'll have to wait and see how some of those things come through, but it's quite interesting when you speak to customers themselves, really what they're looking for are the best locations, access to the best quality customers, good quality footfall, good marketing platforms, and they're focused on their growth strategies.
Morning. It's Zachary Gauge from UBS. First, I think congratulations on what I thought were a very strong set of results. Obviously, beat your ERV guidance, but the market doesn't seem to be reacting to it. Shares are obviously down today. You're trading at a discount of 39%. How sustainable is this as a listed entity if you continue to deliver this strong performance, but the discount doesn't widen? And as a follow-on, if you don't see the discount narrow over the coming years, but the performance continues to be strong, would you consider share buybacks in the context that the assets are clearly performing well and not getting the credit for it in the equity market?
Yeah, look, I mean, we're focused on just delivering growth in the operating portfolio at the moment and allocating capital successfully, and I think we've demonstrated that across the last two years since the merger. Income is considerably up. ERVs are growing. Valuation yields seem to be getting back towards they were on the sort of the long-term 30-year trend. So we think the portfolio is very healthy, and we'll just focus on making sure that we're driving our margins, driving that growth in ERV, converting that into net underlying income and getting that in the hands of the shareholders. We have rotated quite a bit of capital, as you know, and we've been quite careful in how we've allocated that. We're really pleased with the purchase that we made on James Street.
If you notice on James Street from the chart, the Zone A's are getting back towards where they were pre-COVID, actually. So I think that was a good buy, and we bought one or two other things in around Carnaby Street, and we do feel that Carnaby Street has a significant growth potential based on the research that we're doing. But obviously, in the longer term, we have to take account of all those other market factors that you know well that are coming to bear on the sector. When we look at capital allocation, things like share buybacks are always on the agenda for the board, but really we want to grow the business in terms of underlying income and get that income in the hands of the shareholders over the coming years. There's one behind you, as they say.
There it is. Thanks. It's Matt Saperia from Peel Hunt. Well done on the numbers.
Thank you.
A quick question from me. I think, Ian, you talked about the repositioning at Kingly Court. Seven Dials has obviously undergone a lot of tenant changes as well. Are there any other particular parts of the portfolio where there's going to be a focus sort of in the year ahead around sort of repositionings?
I mean, we focus on all of it, as you know, and you're right. We have taken a very close look at places like Kingly Court and Seven Dials. I think the momentum in Seven Dials has been very strong, and I think when you look at the holistic proposition of Covent Garden, it's undoubtedly captured the imagination of, I think, both the occupier and the consumer, and you've seen a lot of leasing activity take place there, and encouragingly, we've seen a lot of the store openings be concentrated around that area, and that's translating into improved density, so we know that that strategy is coming to life, and it's coming to life quite well. Kingly Court is progressing quite positively.
We know that there's the potential to broaden out the offer there and broaden out the average check size there and convert customers more readily, and you've seen that in some of the leasing activity that has taken place there. So the likes of Goldies and more recently ALTA, and of course, when those are all fully open, we look forward to seeing you all there. More broadly, of course, there's things like Carnaby Street itself, and we've spoken to you a bit about the opportunity that that presents. We've signed half a dozen or so new brands on that street, and it's been quite interesting as we've seen the stores gradually open. We're seeing the densities tick up as that takes place.
So we've had a good start there, but there's definitely more to come in terms of the evolution of not only Covent Garden and Kingly, but also the Carnaby Soho area.
Hi, good morning. It's Thomas at HSBC. Just one quick one, really, on the under-rented reversionary potential in the portfolio, GBP 10.1 million. That's up from GBP 8.1 million in the year. Just wonder what the phasing of that looks like over the next few years and how much does that sort of shape the trajectory of like-for-like rent growth going forward?
Sure. Yeah, look, I think generally on that chart, Tom, the way I think about it is that in a normal cycle, it should be possible to capture all of those areas on a 3-5 year cycle, and I think that would be the case. I think we've got something like 23% up this year, high teens next year, so that's fairly typical. And of course, as well as scheduled lease events, there are times when we intervene and accelerate change as well. So that's the sort of timetable, and of course, that bar should increase over time as we continue to grow ERV.
Have we got anybody on the phones or just looking at the team at the back?
If you'd like to ask a question from your phone, please press star one on your keypad, and please ensure your lines are unmuted locally as you'll be prompted when to ask your question.
Okay.
There are no questions from the phone line, so I'll hand back over to you.
It's always my favorite moment of the presentation. Would anybody else like to ask anything? Yeah, Mike. You don't need to introduce yourself, Mike, obviously.
Do you mind us not being?
You better have a microphone just in case there is anybody on the lines. Yeah, sorry.
Have you given us the all-up estimated rental value across the portfolio? Prior to that, have you merged the two businesses? What was the sort of blue skies ERV for the combined businesses? And that sort of leads on to net debt to EBITDA. I mean, do you feel you have to rectify that ratio, or is it appropriate for the business as is? And then one last question to spread them around a bit. A lot of activity with Norwegian money in the West End. Is there a read across the portfolio? Is that perhaps something to do with read across the rest of the discount which seems excessive for your stock at the moment?
Yeah, let me take that one first, actually, because there's actually quite a lot of activity in the West End at the moment. I think there's a little bit of a trend at the moment for long-term capital to want to be in the ownership of the best quality assets. And it's not just happening in central London. It's happening elsewhere as well. But you saw recently the transaction on Bond Street, I think actually was announced yesterday or the day before, where Prada have bought one of their own stores there at pretty attractive pricing from a landlord's perspective. And that follows on a whole chain of transactions that have happened. And obviously, the one that you refer to in the private market in Mayfair as well is a good indication of where that capital is looking.
We've found for our type of assets that there's considerable demand, and it's demand that's sort of multi-generational, if you like, whereas I think there has been less demand in the more traditional volume markets of the office market. So yeah, I think there'll be more, Mike. I think there's money wanting to get invested, and it does highlight that the per square foot read through at our share price, I think it's GBP 1,300 and something square foot, is pretty much land value. So if we look at where the overall values are at sort of approaching GBP 1,900 sq ft, that's not dissimilar to parts of the estate being where they were pre-COVID. And actually, on an ERV basis, I think we're marginally ahead, aren't we?
Yeah, we're 3% ahead in nominal terms without taking into account inflation, and there are parts of that which are lagging, as we said. Retail is still 6% behind.
Do you want to do the EBITDA?
Net d ebt- to- EBITDA. Yeah, look, you'll have seen very good progress this year down from 13.9 to 10.9, so it's great to see that, and that's really driven primarily by EBITDA growth. So top-line growth translating into EBITDA. The way we think about this, and we've disclosed it as part of one of our metrics, and I think that's the key. It's one of the metrics that we look at in the context of our capital structure alongside LTV, ICR, diversity, covenant headroom, all of those things.
So look, we'd be disappointed if that wasn't in single figures in pretty short order, so that's our next target, but it is one of many, and I think the other point which we've spoken about before is in the context of this portfolio, it has a very high degree of long-term resilience and a long track record of income growth. So we think it's very, and it's granular, and it's liquid. So we think from a credit perspective, it's very attractive.
So just one last one. It's granular, liquid, diverse, mixed use, and then you're very corporate bond friendly. So why aren't you going for a credit rating initial corporate bond?
Yeah, look, we're in the fortunate position at the moment where we have a lot of financial flexibility, no maturities this year, some maturities over the next couple of years, and I think we've demonstrated over the last couple of years that lots of markets are open to us. I think over time, that is also a market we will explore.
Great, thank you.
Anybody else? Okay, well, I'm sure you've got a lot to do today. So thank you very much for coming. As I say, we're really pleased with the results. Year started well, so we'll look forward to reporting back to you later in the year, but if you've got any questions, please do give any one of us a call later. Thanks very much.