Shaftesbury Capital PLC (SHC) Earnings Call Transcript & Summary

Good morning once more, and thank you very much for being with us today at the presentation of our interim results. We're very pleased to report strong results for the first half, with growth delivered across all key metrics. Here's the agenda for this morning: I'll begin with an overview, then Situl will take you through the financial review, after which I'll give an update on portfolio activity, and we'll close with a summary and outlook. It's been a successful period, with strong performance delivered through an increase in rents, values, income, and dividend. Despite the well-documented and uncertain geopolitical and macroeconomic environment, I'm pleased to say the West End continues to show its strength, and our portfolio is well-positioned to outperform. Across our prime portfolio, we continue to see positive trends in footfall and customer sales growth. The team, many of whom are here today, is successfully achieving significant leasing spreads, with excellent levels of activity, limited vacancy, and a strong pipeline of transactions. We continue to invest in our portfolio through capital expenditure and acquisitions, and we also disposed of a non-core asset, Lillie Square, during the period. We have a strong balance sheet with access to substantial liquidity and are well-positioned to take advantage of market opportunities.

Now, moving to the headline results for the first half of the year: total property value rose 3.4% like-for-like, reaching £5.6 billion. This was underpinned by a 3.8% uplift in ERV. EPRA NTA was up 3.9%, at 223 pence per share. That gave us a total property return of 5%, which is well ahead of the MSCI index at 2.6%. Total accounting return came in at 4.9%. We kept delivering rental growth and operational efficiencies while working to improve customer service. Underlying earnings as a whole grew by 8%, and the board has declared an interim dividend of 2.2 pence per share, an increase of 16%. I believe this performance shows the exceptional qualities of the portfolio, delivering growth in rents, dividend, ERV, and valuation. As one of the biggest property owners in London's West End, we have an important role in shaping the areas where we operate and their long-term future. Visitors keep being drawn to the West End's exceptional cultural, retail, and entertainment offering. Roughly 70% of footfall comes from domestic UK visitors. Londoners make up around 45%, visitors from elsewhere in the UK add a further 25%, and international visitors to the capital contribute the remaining approximately 30%, which creates a diverse, very resilient customer base that supports consistent trading performance.

We've observed that spending, basket sizes, and trading productivity overall keep getting better, and more frequent visits of longer duration are backing this up, which shows how strongly people are engaging with our destinations. Strong fundamentals underpin the prospects for rental growth. Occupancy is still very high, new space supply is constrained, and that keeps generating scarcity value. Over the long term, the West End market has produced fairly predictable growth, with rental growth running at roughly 4% per annum on an annualized basis. Since 2010, our portfolio has achieved ERV growth of close to 7% per annum. West End retail yields have been remarkably consistent too, averaging about 4% across many cycles, which again shows its appeal as well as its defensive qualities over the long term. As I say, even with that backdrop, investment yields across our portfolio — mostly small lot-sized freehold properties — stay very resilient. A broad pool of domestic and international investors keeps being drawn to the West End real estate market, especially for those smaller lot sizes, which form a very active part of the marketplace. With that, I'll hand over to Situl, who will take you through the financial review.

Thanks, Ian, and good morning, everyone. As you've seen, the first half has brought continued progress toward our medium-term targets, along with further growth in earnings, valuations, and net tangible assets. Our strong balance sheet puts us in a good position for investment, expansion, and growth. Beginning with the income statement, top-line growth reflects a successful period of leasing and asset management. Gross rents of £97.3 million are effectively up 4%, adjusting for the establishment of the Covent Garden partnership in April 2025. In aggregate, commercial lettings and renewals came in 5% ahead of ERV and 25% ahead of previous passing rents. Property costs reflect some inflation and a small increase in the expected credit loss, offset by operational efficiencies. Administration costs of £20.8 million include the effect of an increased share option charge and ongoing savings. Continued income growth and operational efficiencies are targeted over future periods. Net finance costs have been reduced to £17.5 million, reflecting lower levels of drawn debt. All of these movements taken together produced an 8% increase in underlying earnings to £44 million, or 2.4 pence per share. We've raised the interim dividend to 2.2 pence. There's been further growth in passing and market rents, with embedded reversion in the portfolio and good visibility on income growth.

ERVs rose throughout the portfolio, delivering a 3.8% gain since December to more than £280 million. The biggest contributors to passing rent growth in the period were retail and Covent Garden. Vacancy stays low, with less than 3% of the portfolio available to let. As the chart shows, there is scope to grow rental income substantially while ERV growth continues as well. That will come via a mix of contracted income and rent-frees turning into running income, completed refurbishments, and capturing ERV through the ordinary leasing cycle. Moving to the balance sheet, higher property valuations were the primary driver of NTA growth. Portfolio market value has risen 3.4% to £5.6 billion, or £4.9 billion on a group share basis. Total property return for the period came in at 5%, beating the MSCI UK property index. Net debt stands a little below £800 million, with loan-to-value at 16%. NTA per share is up 3.9% since December to 223 pence, and NRV per share has reached 241 pence. Rental values have climbed across the portfolio, with retail and F&B — roughly 70% of it — the standout contributors. The equivalent yield held steady at 4.6% for the commercial portfolio.

Our estates remain really appealing to our customers, and with average rental tones at roughly £100 per square foot, they show solid affordability and leave ample room to grow. The balance sheet sits in a strong position, with low leverage, access to considerable liquidity, and substantial headroom against covenants. With loan-to-value at 16% and net debt-to-EBITDA of under 6.5 times, there's meaningful flexibility to deploy capital. The bulk of our drawn debt carries fixed rates. The interest rate protection we have in place will be supplemented by additional hedging for future years. A few other debt points: first, we've cut gross debt by using cash to repay the exchangeable bonds and the Lillie Square proceeds to pay down bank facilities. Second, we've lengthened the maturity profile, most recently on the Covent Garden RCF. Third, debt margins have kept improving, with our latest facility completed at 90 basis points for an initial term of 5 years. After repayment of the private placement loan notes maturing later this year, the group will have access to over £800 million of liquidity. We're very well-placed to invest in our portfolio and will keep reviewing financing opportunities, taking advantage of the group's attractive credit profile.

So to wrap up, the first half delivered a solid financial showing, and our flexibility has improved. H1's total accounting return came in at 4.9%, powered by rental growth along with disciplined management of costs and capital. Our priority areas remain where our attention stays: making progress on earnings and dividends, putting capital to work accretively, and keeping the balance sheet both strong and flexible. With that, I'll hand things back to Ian.

Thanks, Situl. Let me give a quick recap of the portfolio. I think you're familiar with what we hold, but this is a portfolio that can't really be replicated. It sits in some of the West End's most iconic destinations. Obviously Covent Garden, Carnaby, Soho, and Chinatown. We have £5.6 billion of value under management today, made up of 2.8 million square feet of lettable space across 640 buildings that are predominantly freehold. Inside that, there are roughly 1,900 individual units. Excuse me. Broadly speaking, the portfolio is one-third retail, one-third food and beverage, with the remainder in the upper floors, which provide office and residential accommodation. All in all, the portfolio delivers a very diverse occupier mix, a range of income streams, and a range of unit sizes and rental tones. As you'll have seen, occupational demand remains strong, and it favors the best locations, not only in London but around the world. Availability on many of our streets is now close to record lows, and that is underpinning competitive pricing. Portfolio vacancy stood at 2.6% at the mid-year, and clearly there has been progress since then, with this slide showing some of the new brands and renewals that took place during the period. Altogether, 226 leasing transactions were completed.

That came to £23 million in contracted rent, which is roughly 5% above the December '25 ERV and around 18% above the prior passing rents. I believe the long-term advantages of how actively we manage assets and our leasing approach are growing clearer all the time. Being careful about which customers we take on and bringing in high-quality brands has produced higher sales densities, better customer performance, and ongoing rental growth. Across the portfolio since the merger, more than 180 new brands have joined us, and a good number of those newcomers are trading well above the levels of the occupiers they replaced, which underpins sustained rental growth going forward. The team's approach is very hands-on and imaginative. It rests on genuinely deep knowledge of the West End, and I think that leaves the company well placed to keep beating that long-term trend. A little on retail. London is clearly a priority market for retailers. It's seen as a global gateway city. Leasing demand is strong, and that shows up right across the West End, but especially in our locations. Carnaby Street, I'm happy to say, is drawing some leading international brands. A few worth noting are ADDICTED, K-Way?, K-Way. They picked the destination for their UK debuts. Sephora also opened this week, with queues around the block for their first West End store.

Covent Garden, Tiffany — a key customer for us — has renewed its commitment to the estate, and MATIERE PREMIERE opened its first UK store, which has reinforced what we offer in beauty and premium fragrance. POP MART arrived in Chinatown, opening its biggest London store. Taken together, these leasing wins have helped drive a 5.4% rise in retail valuation across the portfolio. Demand for our high-quality food and beverage locations remains very active. Leasing has concentrated largely on founder-led restaurants and international operators making their UK debuts, along with established operators — often already in the portfolio — that are expanding selectively. Consumer preference is shifting more broadly toward high-quality, experience-led dining, and our portfolio is very well-positioned to benefit from this trend. Across Covent Garden and Soho, there have been a number of new openings, including Bavette, Berenjak, Padella, and Vagabond Wines, to name a few, and we're very pleased with how consumers have received them. I think it's the vibrancy of our destinations that keeps attracting strong customer and consumer demand, supporting that very resilient level of leasing activity. Overall, 12 new concepts opened during the period, and any available space has been re-let very quickly, often with multiple bidders.

So only roughly 0.2% of the portfolio is presently available to let. We signed 27 new lettings and renewals, which came in 9% ahead of December 2025 ERV, once more underpinning valuation growth — for the F&B component that figure was about 4%. I think the vibrancy of our locations keeps drawing office occupiers in. It's that lively sense of place, together with the service quality and the accommodation we provide, that goes on generating steady leasing demand. The Carnaby and Covent Garden portfolios carry very high amenity value, and for our smaller period properties we keep offering fully furnished, flexible leasing packages, which appears to be matching what consumers want. Letting across the residential portfolio is going very well. In the period, 116 leasing transactions completed, with rents roughly 2% to 4% ahead of previous passing. Now, the size of our portfolio lets us shape not only the individual buildings but the spaces surrounding our properties too. The pipeline of asset management and refurbishment work we're carrying out at present represents about 5% of ERV, and it will be delivered across the coming 12 months or so. On top of that, we're collaborating with local stakeholders to improve the public realm at a range of destinations, making them more enjoyable for everyone.

To give you an example, the public realm on Henrietta Street in Covent Garden is in the middle of a transformation right now, and we're also carrying out major upgrades at Carnaby Street and Kingly Court so that the visitor experience improves. On top of that, we keep recycling capital where it makes sense. During this year we finished selling off Lillie Square, which is a non-core asset, and we put £31 million into target acquisitions as well as capital expenditure. In fact, we are currently bidding on quite a few properties. As Situl said, we hold substantial liquidity — or have access to substantial liquidity — so we can seize those market opportunities when they come along. To wrap up, we've had a strong first half, and leasing momentum along with operational performance has carried on into the second half of the year. The operating platform we have, together with our experienced team, is what sets Shaftesbury Capital apart, and that is turning active asset management and leasing into earnings and value progression. The West End is a highly attractive market, with strong customer demand, high footfall, sales growth, limited vacancy, and a strong leasing pipeline. We have significant growth potential right across the portfolio, and we continue to deliver on our medium-term rental growth targets. Backed by that strong balance sheet, we're well-positioned to pursue selective expansion opportunities and to capitalize on those market opportunities as they arise.

That brings the formal presentation to a close. I believe we'd like to move on to Q&A. Those of you on the phones, please let the operator know you'd like to ask a question, and we'll get to you. Perhaps we can begin with the room. It would help if you'd state your name when asking a question, and we'll do our best to answer. : Great, thanks. This is Thomas unclear? from Berenberg. Thanks for the presentation. Just one question about leasing spreads. In the last year you were leasing 10% ahead of ERV; so far in 2026, it's 5% ahead. Is the competitive tension as strong today as it has been recently, from what you're seeing? Because I appreciate you're also pointing to somewhat higher credit loss provisions, too. Any colour on where those are showing up would be helpful as well. Thanks. It feels strong. Each six-month stretch differs from the one before it; a lot depends on the character of the real estate actually falling due during that period. We generally take a medium-term view. As it happens, our leasing director is sitting behind you — he and his team handle all the deals — and he's quite happy at the moment.

The data we're seeing does back up the forward view on those rental growth targets of 5% to 7% that we've put out there.

Regarding ECLs, we saw a modest increase during the period, and that really came down to one or two unforeseen failures: a single office tenant in Carnaby. We've used that situation as a chance to reclaim the property — we'll refurbish it and plan to re-let it at higher rents. The second piece is that we've adopted a somewhat more cautious stance regarding our other customers, just at a macro level, but as I mentioned, these are fairly small numbers and nothing material to flag. Cool, thank you. Maybe just a second one — I think on page 33 in the appendix, Carnaby and Soho like-for-like annualized gross income dropped 1.1%, but ERVs there are still climbing almost 4%. I'm just wondering whether you could help explain that. Yeah. No,

Carnaby Street is performing quite strongly, honestly. The southern section of the estate especially makes me happy, since we now have a large group of new brands there: Sephora, as I said, has opened across from ADDICTED. Those stores are doing very well. At the top of the street, Will and his team are bringing in K-Way and several other brands. We're a long way toward changing the street. That ought to get a further boost from the streetscape work you'll see introduced at Kingly and along the street during the year ahead. It's progressing nicely, and I do expect solid rental growth in the years to come. During this year there were a couple of failures, mostly on the office side, that we hadn't really anticipated. Those affected the figures. My view is that the direction for Carnaby Street is extremely positive. Thank you.

Morning. This is James Carswell at Peel Hunt. You spoke somewhat about the acquisition and the sort of growth opportunities you're seeing. Could you provide a bit more detail on what you're observing? Are these more like standard, small bolt-on acquisitions? Are you seeing anything of greater significance? Are there specific parts of the estate where you'd especially like to expand?

Honestly, the West End market is extremely tight and trading is very active. We brought on a new valuer this year, and they've performed really well, but the comparables they've put together demonstrate that for lot sizes under 20 million, and going up to 50 million, competition is fierce. In the places where we're bidding, we're running into several rivals. Our edge, I'd say, is that we can frequently identify where rental growth is going to come from, though typically you're competing at yields tighter than those used for valuation. What really matters is what my colleagues are able to achieve with these properties over the long run. Our existing properties always come first when it comes to capital allocation. Chris currently has several refurbishments underway, and I believe they'll perform very strongly. Most of them are offices, in fact, along with a couple of pubs and some retail, but they will lease very well. Our next priority is acquiring adjacencies, essentially growing the portfolio outward. For example, we've purchased properties near the southern end of Carnaby Street, and we've bought a couple of assets in Golden Square, which we find quite appealing, and right now we're bidding on something in Covent Garden. We aren't trying to buy everything. What we typically look for are assets where we believe we can add value and that will be accretive within a relatively short timeframe.

Extremely competitive, no question. My view is that larger lot sizes rarely become available, yet on the occasions they do, we are in a strong position to take part.

Appreciate the presentation. Ashnaa unclear?, Deutsche Numis. On slide 10, you showed that you have sort of 28% income reversion. I was just wondering if you could talk a bit more about the timeframe you expect to capture this. Secondly, are there certain parts of the estate where you think you can drive rents harder? I think

I'll take the first part, and maybe Situl can walk you through the bridge slide, which kind of lays it out. What really stands out, I think, is that wherever we've had the chance to re-tenant, those units are trading at much higher levels than the previous occupants — frequently well above 100%. That gives us confidence that rental growth will hold up and run above trend. That's genuinely very important, and it's especially noticeable around Seven Dials, where we've brought in, I think, 30 or 40 new brands, Chris, is that right? Over roughly the last 12 to 18 months, they're performing well. Then there's Carnaby Street — on some of these trading densities it really is night and day, isn't it? That should be captured when they come up to revert, which is probably outside the period in which we'll capture the 28 25 million or 28 million, whatever it is. This is about longer-term growth too, and that's really reassuring. Do you want to go through the bridge?