How would Shaftesbury recover from the crisis after London moved into Tier 3 restrictions?

Summary

• Shaftesbury Plc has reported a loss after tax of £699.5 million during FY20.
• The net property income of the Company was plunged by 24.2% to £74.3 million during FY20.
• The Company has collected just 53% of contracted rent for six months ended on 30 September 2020.
• The wholly-owned portfolio valuation was down by 18.3% to £3.1 billion as of 30 September 2020.

Shaftesbury Plc (LON:SHB) is the LSE listed real-estate investment trust. Based on 1-year performance, shares of SHB have generated a return of about negative 44.03%. Shares of SHB were up by close to 5.99% from the last closing price (as on 16 December 2020, before the market close at 10:30 AM GMT).

Shaftesbury Plc is the FTSE 250 listed Company, which is a Real Estate Investment Trust (REIT), that owns around 16-acre portfolio across London’s West End with an objective to deliver long term growth in rental income and shareholder returns. The recent portfolio of the Company is shown below -

(Source: Company presentation)

Real Estate Investment Trust Overview

Real Estate Investment Trust (REITs) are generally used for property development and fresh purchases. The REIT normally owns, operates and finances income-generating real estate. They are giving an opportunity to all categories of investors to own certain portion of real estate which they cannot afford in a normal scenario, and the investors will be rewarded with lucrative returns on their investments in the form of dividend based income. Every REIT has some components of operating expenses including property tax, insurance, maintenance charges and other expenses. REITs usually report rental income from wholly-owned properties in their profit and loss statements. REITs usually invest 75% of their assets in real estate and distribute 90% of profit in the form of a dividend to shareholders.

Operational Highlights (for FY20 ended on 30 September 2020 as on 15 December 2020)

(Source: Company result)

• The valuation has declined for both wholly-owned portfolio and the Longmartin joint venture. The wholly-owned portfolio valuation was down by 18.3% to £3.1 billion due to near term income uncertainty, reduction in demand and increasing vacancy across London.
• The Longmartin joint venture valuation has dropped by 16.9% to £165 million. The Company has seen a reduction of 40.1% in Long Acre retail space during FY20 and 17.4% decline in restaurant and leisure.
• The Company has collected 53% of contracted rent during H2 FY20 ended on 30 September 2020, 34% is deferred or waived, and the remaining 13% is outstanding.
• It has been announced that London will be turning in Tier 3 restrictions starting from 16 December 2020 until further update provided by the government.
• The Company has shifted towards collecting monthly rent in advance, particularly for commercial tenants from October 2020.
• The Company has acquired three buildings for £13.3 million in Carnaby and Soho. The Company has also acquired a building in Seven dials for £7.43 million.

Financial Highlights (for FY20 ended on 30 September 2020 as on 15 December 2020)

(Source: Company result)

• The net property income of the Company was plunged by 24.2% to £74.3 million during FY20 ended on 30 September 2020 due to consequences of Covid-19 pandemic.
• The Company has reported a loss after tax of £699.5 million during FY20 due to revaluation deficits in the current year.
• The EPRA (European Public Real Estate Association) earnings went down by 46.2% to £29.4 million for FY20.
• The EPRA NAV was declined by 24.3% from £9.82 in FY19 to £7.43 in FY20.
• The EPRA vacancy went up by 6.5 percentage points to 10.2% during FY20.
• With regards to its financial position, the Company has witnessed a reduction of 24.2% in net assets to £2.28 billion during FY20.
• The Board has not announced any interim dividend or final dividend during FY20.
• The Loan to Value (LTV) ratio got weakened by 7.6 percentage points to 31.5% due to declining property valuations.
• The Company has available liquidity of £166.8 million as of 30 September 2020.
• The Company has issued 76.75 million new shares at 400 pence per share totalling to £294.4 million.

Recent News

On 15 December 2020, the Company has announced regarding the appointment of Ruth Anderson as a non-executive director with effect from 21 December 2020.

On 17 November 2020, the Company has announced the results of capital placing, the Company has received applications regarding gross proceeds of capital raising in the amount of £307.0 million having £10.0 million raised by Offer for Subscription.

On 16 November 2020, the Company has expressed condolences on the death of Company's founder and former Chairman, Peter Levy.

Share Price Performance Analysis of Shaftesbury Plc

(Source: EODHD/Others, chart created by Kalkine group)

Shares of Shaftesbury Plc were trading at GBX 566.50 and were up by close to 5.99% against the previous closing price as on 16 December 2020, (before the market close at 10:30 AM GMT). SHB’s 52-week High and Low were GBX 947.49 and GBX 407.00, respectively. Shaftesbury Plc had a market capitalization of around £2.05 billion.

Business Outlook

The subdued demand for space and an increase in vacancy across the West End, London are impacting the prospect of rental levels and investor demand. The Company has made it clear that they are expecting a valuation of both the Longmartin joint venture and wholly-owned property to decline in the near term due to high availability of rental space across the west end and the adverse impact of Covid-19 pandemic. Moreover, London has turned into Tier 3 restrictions worsening the situation further.

The Company has highlighted the importance of its pace of recovery in the trading condition of F&B, retail and leisure business and uncertainty revolving around the duration of the pandemic. The EPRA vacancy had grown further to 12% of ERV as of 30 November 2020, and the Company is expecting it to increase further due to several operational headwinds and financial challenges faced by occupiers. However, the Company has shown cautious optimism in its portfolio that business will return to normal levels after the recovery of challenging macroeconomic environment and pandemic situation.