11th Feb 2009 07:00
SHAFTESBURY PLC
INTERIM MANAGEMENT STATEMENT FOR THE PERIOD
1 OCTOBER 2008 TO 31 JANUARY 2009
Since the recession of the early 1990s, our strategy has been to invest only in the liveliest and most central districts of London's West End. Our wholly owned portfolio now includes around 470 shops, restaurants, bars and clubs. These uses represent over 70% of our current income and a growing proportion of our estimated future rents. The upper floors of our buildings include over 400,000 sq. ft. of offices as well as 280 apartments.
In contrast to the widely published reports of a national decline in consumer spending and high profile failures in the retail and leisure sectors, shops and restaurants in our well-located villages continue to trade well. We are also experiencing healthy demand from prospective tenants who recognise the attractive trading opportunities in our exceptional locations.
The West End has always attracted substantial numbers of overseas visitors, and continues to do so. Their retail and leisure expenditure are important elements of the local economy in this unique area. This year, the weakness of Sterling is bringing more visitors from the Euro zone and should also increase the volume of domestic visitors to the West End, as travel to overseas destinations has become relatively more expensive.
The schedule below summarises progress we have made letting wholly owned commercial space since 30 September 2008.
Analysis of wholly owned vacant commercial space at 31 January 2009
|
Estimated Rental Value |
Shops £'000 |
Restaurants and leisure £'000 |
Offices £'000 |
Total £'000 |
||||
|
31.1.2009 |
30.9.2008 |
31.1.2009 |
30.9.2008 |
31.1.2009 |
30.9.2008 |
31.1.2009 |
30.9.2008 |
|
|
Under refurbishment |
301 |
780 |
200 |
35 |
625 |
394 |
1,126 |
1,209 |
|
Ready to let |
558 |
429 |
- |
200 |
420 |
477 |
978 |
1,106 |
|
Under offer |
120 |
573 |
87 |
275 |
162 |
165 |
369 |
1,106 |
|
TOTAL |
979 |
1,782 |
287 |
510 |
1,207 |
1,035 |
2,473 |
3,328 |
|
Number of units |
22 |
22 |
2 |
2 |
32 |
33 |
- |
- |
|
Area - sq. ft. |
23,000 |
31,000 |
8,500 |
12,000 |
36,000 |
28,000 |
67,500 |
71,000 |
Demand for our larger shops remains healthy. We have only two large units vacant and to let, with a total rental value of £210,000 per annum, and one of these is under offer. Of the other 20 shop vacancies, eight are currently being refurbished. They are all small units with rental values below £50,000 per annum. Only two of our restaurants are vacant, of which one is under offer and the other subject to proposed refurbishment.
We are actively seeking vacant possession of larger shops and also of restaurants where we know that we can re-let to improve our tenant mix and rents, even though this may reduce income in the short term. To date we have not seen any fall in the rental values of our shops and restaurants.
As expected, office rental values are now declining and incentives to tenants are increasing. Office vacancies have increased in the four months since our year end by 8,000 sq. ft. to 36,000 sq. ft., with a current estimated rental value of £1.2 million.
Our portfolio, which is spread over a large number of buildings, offers great flexibility for change of use. For example, 11,000 sq. ft. of our 36,000 sq. ft. of vacant office space is currently the subject of planning applications to convert to other less cyclical uses, particularly residential.
Lettings of apartments remain healthy, although the rental values of our few larger units of two and three bedrooms have reduced. We are currently creating 24 new flats and have made planning applications for another eight.
St. Martin's Courtyard, the largest element of our 50% Joint Venture with The Mercers' Company, is a mixed use project in Covent Garden, close to Leicester Square and its busy Underground Station. Since the year end, building contracts have been placed for the whole scheme, which will create 25 shops, five restaurants, four office buildings with a total area of 69,000 sq. ft. and 37 apartments. Completion will occur in phases from the end of 2009 until September 2010.
To date we have completed retail lettings in this scheme totalling £1.15 million and tenants are either trading or fitting out. We have good interest to pre-let shops and restaurants. Although negotiations for the pre-letting of 21,000 sq. ft of retail space which we announced in November 2008 have now been terminated, we have resumed detailed discussions with other retailers who have shown interest in this location. We have active negotiations to pre-let the three restaurants fronting Upper St. Martin's Lane which are now under construction. Marketing of the shops and two restaurants within the central courtyard will commence later this year once building works are further advanced.
Although values of commercial property as a whole have fallen rapidly over recent months, the supply of suitable freeholds with potential for us within London's West End has remained very limited for a longer period than we had expected. Since 30 September 2008 we have purchased five freeholds at a total cost of £8.5 million, all of which directly complement our existing investments. Despite a lack of supply to date, we do expect to see an increase in availability in our core locations in the coming months.
Finance
At the end of January 2009, our bank borrowings stood at £473 million, against committed facilities of £600 million. The weighted average cost of our bank debt, including margin and taking into account interest rate hedging, was 4.73%. Including our long term Debenture debt, our overall cost of borrowings was 5.1%, which compares with 6.1% at 30 September 2008.
Almost a quarter of our current bank debt is unhedged. This portion of our debt is benefitting from the current low interest rate environment, with the cost of these funds including margin currently below 2.5%. Such low rates are very beneficial in financing acquisitions, particularly as properties we buy often have low initial yields.
Currently £360 million of our floating rate bank debt is covered by long term interest rate hedges, at a weighted average rate of 4.70% (before margin). The average maturity of these hedging agreements is 24 years. Recent dramatic reductions in short and long term interest rates will mean that the mark-to-market valuations of these long term hedges will show significant non-cash deficits in our Income Statement until such time as interest rates move back to their long term averages.
Outlook
The general economic environment remains challenging and we expect to see an increase in vacancies in the coming months. However we believe that the unique characteristics of the West End will mean that the space we provide in our well-located villages, with its predominance of retail, restaurant and residential uses, will continue to be in demand even in these difficult times. We are confident that our portfolio will prove to be more resilient than others in its valuation, stability of current income and prospects for growth when conditions improve.
Contacts:
Shaftesbury PLC - 020 7333 8118
Jonathan S Lane - Chief Executive
Brian Bickell - Finance Director
City Profile - 020 7448 3244
Simon Courtenay
William Attwell
Forward-looking statements
This document includes statements which are forward-looking in nature. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Shaftesbury PLC to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.
Ends.
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