Shaftesbury Capital PLC (SHC) Earnings Call Transcript & Summary

If everyone's set, let's begin. I realize your schedules are extremely full today and this whole week, so we truly appreciate your joining us this morning for our third set of annual results. We're genuinely delighted with how this year turned out. It's been another outstanding year of progress and performance. I believe we're delivering the growth we promised we would. This morning's agenda is pretty simple. I'll walk you through a brief overview of the results, then Situl will take you through the financial review, after which I'll bring you up to date on what's happening in the portfolio, and we'll wrap up with a summary and outlook plus some Q&A. As I mentioned, it's been another highly successful year with strong performance: rents, values, income, and dividends all increased, while we strengthened our financial position and created meaningful optionality for the group. Macroeconomic challenges and geopolitical risks have, of course, been widely covered. That said, I'm happy to report that conditions throughout the West End remain very active. Positive trends in footfall and sales continue across our prime portfolio, and the team is delivering leasing well ahead of ERV, with excellent activity levels, limited vacancy, and a robust pipeline. We were also pleased during the year to have established a long-term partnership on Covent Garden with the Norwegian sovereign wealth fund, which underscores the fundamental value and appeal of our portfolio.

We keep growing: more than £100 million has gone into acquisitions and capital expenditure, and several properties are being reviewed right now. Our liquidity has improved, so we're in a good position to seize opportunities in the market. As one of the biggest property owners in London's West End, we have a significant part to play in shaping how the area develops over the long term. The West End's outstanding cultural, retail, and entertainment offer keeps drawing visitors, which strengthens its standing as a top destination for experience-led travel. Record international arrivals at London airports are benefiting the portfolio, hotel occupancy is still strong, and the Elizabeth Line keeps widening the catchment for visitors and workers alike. Shaftesbury Capital's irreplaceable collection of properties right in the middle of the West End delivers high occupancy, low capital requirements, and dependable, growing, long-term cash flows. On to the results: valuation rose 6.6% like-for-like to £5.4 billion. That was driven by a 6% increase in ERV and a small 2 basis point inward yield movement. Total accounting return and total property return came in at 9.1% and 10.1%, which is in line with our medium-term targets. Rental growth continues to be delivered, up by 6%, and we keep making every effort to improve customer service while achieving meaningful cost savings.

We saw underlying earnings rise 12%, and the board is proposing a final dividend of 2.1 pence per share. That takes the total dividend to 4 pence per share — a 14% increase for the year. Our balance sheet is very strong, and we have access to significant liquidity with low leverage. Overall, I think the performance shows the exceptional qualities of the portfolio, delivering growth in cash rents, dividends, ERV, and valuation. I'll now hand over to Situl for the financial review.

Thanks, Ian, and good morning, everyone. As you've heard, 2025 delivered positive financial performance, with growth in rental income, earnings, dividends, valuations, and net tangible assets. On top of that, we've strengthened the balance sheet and improved the group's financial flexibility. Beginning with the income statement, the key points are that across the year rental income grew 6%, earnings came in 12% higher, and the dividend has been raised by 14%. We're focusing here on group share figures, meaning Covent Garden is included at 75% following the transaction with Norges Bank. Since that deal closed partway through the year, slide 43 in the appendix summarises how it affects year-on-year comparisons. Adjusting for that, gross rents rose 5.9% like-for-like to £195.6 million, which reflects a successful year of leasing and asset management. Taken together, lettings and renewals came in 10% ahead of ERV and 14% above previous passing rents. Management fees from Covent Garden for Q2 to Q4 make up the other income of £3 million. Administration costs of £41 million reflect a higher share option charge, which rose by nearly £5 million versus last year. Excluding that, costs were effectively 8% lower. Despite upward pressures, we're targeting further reductions in the absolute level of cash costs over the next 2 years.

Throughout the year, net debt came down substantially thanks to the cash received from the Covent Garden deal. Consequently, our finance costs dropped by nearly 30%, landing at £41.4 million. In the coming year, £400 million of debt reaching maturity will be refinanced or repaid by us. That said, assuming borrowing stays around present levels, our aim is for finance costs to remain broadly flat in aggregate. Taken together, all these factors produced a 12% rise in underlying earnings, which reached £81.9 million — equal to 4.5 pence per share. With the proposed final dividend standing at 2.1 pence per share, the total dividend for the year comes to 4p, a 14% year-on-year increase. Leasing activity helped push ERV up 6.2% during the year, to £270 million. The chart shows a meaningful opportunity to grow passing rents, given the 26% uplift as you move from annualized gross income on the left across to current market rents on the right. Embedded reversion exists within our portfolio, and we have good visibility on the potential for income growth at each of our locations. That includes close to £16 million of income that is either contracted or tied to rent-free periods, most of which will turn into running income across the next 12 months.

Moving on to the balance sheet now — the market value of properties under management rose 6.6% to £5.4 billion. Net debt on a group share basis has come down from £1.4 billion to £0.8 billion, with loan-to-value at 17%. NTA rose 7% over the year to 215 pence per share, mainly as a result of the valuation movement. Rental growth was the principal factor behind the increase in property valuations, with ERV higher across every sector and across all of our estates, and retail and Carnaby Soho putting in the strongest performance. Yields shifted slightly, by 2 basis points, to 4.43% overall, and the commercial portfolio is valued at an equivalent yield of 4.6%. Our assets remain attractive and affordable for our customers, with the portfolio's average ERV below £100 per square foot and customer sales well ahead of 2019 levels, running ahead of ERVs. The balance sheet is strongly positioned, with low leverage and access to substantial liquidity. With loan-to-value below 20% and the EBITDA multiple below 7 times, we have the flexibility to deploy capital toward growing the business by investing in existing assets and new opportunities. In October 2025, we signed a new 5-year loan facility of £300 million for Covent Garden.

The maturity on the group's remaining banking facilities — £450 million of undrawn firepower in total — has now been pushed out to 2029 and 2030. We also used the chance to bring down margins on those facilities, so they sit more in line with today's market conditions and with the group's stronger position. Some of the money raised from the Covent Garden partnership went toward lowering gross debt, and we're set up to repay the £275 million of exchangeable bonds that come due at the end of March '26. Alongside the new financing, the extensions, and the repricing, we've shielded finance costs from interest rate moves by capping £300 million of SONIA exposure at 3% for this year. We'll keep reviewing financing opportunities and make the most of the group's attractive credit profile. In summary, financial performance has been strong and we've gained greater flexibility. Total accounting and property returns of 9% and 10% were delivered in 2025, helped by growth in ERV and cash rents, which — together with cost management — has driven good progression in our key financial metrics. Our focus will stay on the priority areas: earnings and dividend growth, deploying capital accretively, and balance sheet strength and flexibility.

So with that, I’ll turn things back over to Ian.

Much appreciated, Situl. I’ll give you some detail on the portfolio and a bit of colour around it. The portfolio we hold cannot be replicated. It sits in several of the most iconic destinations throughout London’s West End: Covent Garden, Carnaby Soho, and Chinatown. This £5.4 billion portfolio under management consists of 2.8 million square feet of lettable space spread over 640 buildings that are predominantly freehold, with roughly 1,900 individual lettable units. Broadly speaking, the portfolio is one-third retail, one-third F&B, and the balance sits in the upper floors, which provide office and residential accommodation. A diverse occupational mix and a variety of income streams are offered by the portfolio, with a range of unit sizes and rental tones. The best locations remain the priority for occupational demand. On many of our streets, availability is now at near record lows, and that underpins competitive pricing. Across the portfolio, leasing success has been delivered alongside continued ERV growth. Some of the new brands brought in are shown on this slide; they are drawn by the 7-days-a-week footfall and trading environment. 434 leasing transactions were completed during the year, representing nearly £40 million of contracted rent. Those deals were struck at an average of about 10% ahead of December ’24 ERV and 14% ahead of previous passing rents.

Vacancy stands at just 2.6%. With an active, creative strategy grounded in deep West End expertise, Shaftesbury Capital is well placed to keep driving rental growth. Leasing in retail is showing very strong conditions. Demand from tenants is very positive, and trading conditions are good. Over recent months, we've brought a number of new brands to Carnaby Street as we improve the customer mix there. Charlotte Tilbury opened a new flagship store, and Sephora and ADICTED will be joining them shortly over the coming months. Covent Garden keeps drawing new high-quality brands, among them Nespresso and BYREDO, which came in during the course of the year. All of this has helped produce 10.4% retail valuation growth across the portfolio. We're home to approximately 400 food and beverage outlets. Operators are drawn to the vibrant, pedestrian-friendly, well-managed estates. Several signings have taken place across Covent Garden, including Buns in Floral Court, Harry's Restaurant and Bar on the piazza, and Bavette in Neal's Yard. Demand for the Soho portfolio remains strong, with several new concepts introduced, including Padella and The Shaston Arms. In Chinatown, we've brought in more variety, expanding the pan-Asian offering at a range of price points.

Throughout the portfolio, we signed 37 new lettings and renewals, which came in 15.7% ahead of the December 2024 ERV. Leasing demand for office space keeps being drawn in by our vibrant locations and the quality of the accommodation. High amenity value and excellent environmental credentials are what the Carnaby and Covent Garden portfolios offer. We keep seeing customers move from other parts of central London, as employers recognize how much location and amenity value matter for attracting and retaining talent. The residential portfolio is still performing well. Over the year, 285 transactions were completed, with rents achieved roughly 4% ahead of previous passing rents. Through capital initiatives at our 640 properties, we have the ability to add value. Asset management and refurbishment activities in our pipeline represent 4.2% of ERV, and delivery is expected over the coming 12 to 18 months. The scale of our holdings also helps us shape not just the buildings but the spaces around them, and we're working with local stakeholders to enhance the public realm across our destinations, making them greener and more enjoyable for everybody. The public realm on Henrietta Street in Covent Garden is currently being transformed, and we're also undertaking early engagement on improvements to Carnaby Street to enhance the visitor experience whilst preserving the area's unique character.

We keep rotating capital and thereby enhancing the quality of our outstanding portfolio. During this year, we sold £12 million in assets and put £80 million into targeted acquisitions. As I noted before, several properties are currently under review. Situl referred to our bringing sovereign capital into Covent Garden this year, and partnering with NBIM makes use of our operational know-how and property portfolio, opening up investment and expansion opportunities. Strong fundamentals underpin our growth prospects. Over the long term, the West End market has produced appealing, predictable growth, with rental growth annualized at roughly 4% per annum. Our portfolio has beaten that, delivering nearly 7% ERV growth since 2010. Consistently high occupancy supports this, along with the scarcity value of the West End, where limited new supply keeps driving demand. One strength of the portfolio is its adaptable mixed-use character, which lets us evolve space as demand changes and, importantly, do so with comparatively low capex requirements. Aggregated ownership benefits us, enabling us to improve the public realm and shape our places, backed by a data-led approach to customers and marketing. Lastly, we actively manage the portfolio via capital rotation, concentrating investment on our chosen assets and lifting performance through refurbishment initiatives.

All in all, these elements produce steady rental expansion and valuation improvement over the long run. I want to pause briefly and express appreciation to everyone who contributed — our customers, our partners, and our highly seasoned team — for turning in this robust performance in 2025. A few of our senior leadership colleagues have joined us here today, and if you didn't run into them over coffee, I hope you'll get the chance to meet them afterward. To sum up, it's been a successful year, and we've gotten off to a very good start in 2026. Clearly, the economy presents a number of challenges, yet the West End keeps delivering, with strong footfall, growth in customer sales, and minimal vacancy. Activity levels are excellent and our leasing pipeline is strong. We feel confident about our outlook and our targets: rental growth of 5% to 7%, a total property return of 7% to 9%, and a total accounting return of 8% to 10%. By actively managing our prime West End portfolio and leveraging the strength of our operating platform, we remain focused on sustained long-term growth in rental income, value, earnings, and dividends. With our strong balance sheet behind us, we're well placed to grow and to seize market opportunities. That brings the presentation to a close. We'll now move to Q&A.

If you're joining by phone, please inform the operator that you wish to pose a question, and we'll get to you. Should anyone in the room care to get things started, that would be wonderful. Max.

Good morning, this is Max Nimmo from Deutsche Numis. Thanks for the presentation. I've got a couple of questions, if that's alright. First, on Carnaby — the ERV growth there was exceptionally strong. Do you think that's likely to keep going as it sort of catches up with some of the other villages in your portfolio, kind of picking that low-hanging fruit? Should we expect that to be the strongest growth in the near term? Then second, just on kind of firepower given where you are, 17% LTV today — obviously I fully acknowledge you're trying to manage the interest cost for the business — but how do you see that, and the relationship with Norges, and what that does for their ambition to grow as well. Thanks.