Annual Report 2020 Strategic Report Xxxxx Making a Positive Contribution to London’S West End
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Shaftesbury Annual report 2020 Strategic Report Xxxxx Making a positive contribution to London’s West End Annual Report 2020 Shaftesbury Annual report 2020 Strategic Report Shaftesbury is a Real Estate Investment Trust (REIT) which invests exclusively in the heart of London’s West End. Our 16-acre ownership of c.600 buildings is clustered mainly in Carnaby, Seven Dials and Chinatown, but also includes substantial ownerships in east and west Covent Garden, Soho and Fitzrovia. Our purpose is to curate vibrant and thriving villages, making great places even better for the benefit of our stakeholders. Strategic report Governance Financial statements 1 2020 summary 81 Governance overview 128 Group statement of comprehensive 2 Q+A with the Chief Executive 82 Chairman’s introduction income 6 Covid-19: impact and response 84 Monitoring of culture and engagement 129 Balance sheets 10 Exceptional portfolio in the heart of with employees 130 Cash flow statements London’s West End 85 The role of the Board and its Committees 131 Statements of changes in equity 14 Portfolio uses 86 Principal Board activities in 2019/20 132 Notes to the financial statements 20 Why London’s West End? 90 Division of responsibilities 21 Making great places even better 93 Board evaluation 22 Business model and strategy 94 Nomination committee report Other information 24 Measuring our performance 96 Audit committee report 154 Climate risk and opportunity 27 Sustainability 100 Directors’ remuneration report 156 Alternative Performance Measures (APMs) 29 Environment 103 Remuneration at a glance 158 Portfolio analysis 34 Non-financial information statement 105 Remuneration policy 158 Basis of valuation 35 Stakeholder engagement 106 Annual remuneration report 160 Summary report by the valuers 42 Our people and culture 114 Directors’ report 162 Debt covenants 53 Strategy and Operations Executive 118 Directors’ responsibilities 163 Shareholder information Committee 119 Independent auditor’s report 164 Glossary of terms 54 Our Board 56 Portfolio valuation report 59 Portfolio activity report 63 Financial results 67 Financing 71 Risk management 73 Principal risks and uncertainties 78 Viability statement Iconic villages CARNABY 16.0and 1.9 acres acres owned in COVENT GARDEN joint venture CHINATOWN 1.9mcommercial and sq residential ft space SOHO and 0.3m sq ft in joint venture FITZROVIA c.buildings 600 Mix of uses % of wholly-owned portfolio ERV 37% FOOD, BEVERAGE AND LEISURE 30% RETAIL 20% OFFICES 13% RESIDENTIAL 0.7m sq ft 0.4m sq ft 0.4m sq ft 0.4m sq ft Talented and experienced shaftesbury.co.uk team follow @shaftesburyplc male33% employees39 carnaby.co.uk sevendials.co.uk chinatown.co.uk 9 years thisissoho.co.uk average theyardscoventgarden.co.uk length of service female67% Page 1 What are your reflections Q: on the year? Rarely in history has the world seen such widespread disruption to normal patterns of life, which came without A: warning from the beginning of 2020. In the UK, since 2016 Brexit and its political ramications dominated the national agenda but the result of the December 2019 general election brought certainty and early signs of a return of business and consumer condence. However, this was short-lived, as concerns regarding the Covid-19 virus grew rapidly, and governments around the world introduced measures never before seen in peacetime to address the pandemic. Only now are we seeing the rst positive signs that the crisis could recede in the year ahead. However, the social and economic consequences of the disruption we have all experienced this year will be important factors in the pace of recovery in the months and years ahead. Q+A How has London’s West End been Q: affected by the pandemic? At the heart of one of the world’s great cities, the West End’s with the long record of success reects its domestic and global A: appeal to businesses, visitors and residents. In normal times, its ourishing commercial and leisure economy draws over 200 million visits annually, which supports its rich and unrivalled oer of cultural Chief and historic attractions, hospitality choices and shopping. The bedrock of this footfall are Londoners, its huge working population, and daily domestic leisure visitors. Executive Measures to contain the pandemic continue to have a material eect on normally busy city centres around the world. Since March, there has been a material and sustained reduction in the West End’s economy as Brian Bickell answers a result of measures imposed to contain the spread of Covid-19 questions on our performance infections as a consequence of: • Advice to avoid unnecessary travel and use of public transport; and activities during this • For oce-based workers, recommendation to avoid commuting and challenging year, the evolution work from home wherever possible; • Closure of non-essential retail and all hospitality from late March until the end of June, and again throughout November with capacity of our business and longer-term constraints when open to maintain social distancing; challenges and priorities • Continuing closure of theatres, bars and clubs, which has severely curtailed the West End’s renowned evening and night-time economy; and • A collapse in international leisure and business travel due to border control restrictions around the world. Page 2 Shaftesbury Annual Report 2020 Strategic report Q+A with the Chief Executive Although near-term challenges will be with us throughout “ Strategic report 2021, I am condent we are well placed, both nancially and operationally, to return to long-term prosperity and growth as the current global and local pandemic disruption recedes into history.” Businesses across the West End which, either directly or indirectly, How has this year’s financial performance rely on its usually-predicable, exceptional daily levels of visitors and been affected? spending have seen their income and cash ow severely aected by Q: this pandemic-related disruption, resulting in growing levels of vacancy The rst half of the nancial year saw relatively normal and a signicant reduction in demand for space due to uncertainty operating conditions, with the pattern of rent collection and of the timing of a return to normalised conditions. A: expenditure largely unaected. However, there was a noticeable A large proportion of our 624 apartments are let to people from decline in new lettings and enquiries from mid-February as pandemic overseas, who come to London to work or study. Inevitably, as concerns grew and business condence declined. pandemic uncertainties grew, many chose for personal reasons From March onwards, collections of rents and service charges have to vacate and quickly return to their countries of origin. been materially aected by occupiers’ loss of trading and income. Despite Government nancial assistance, and our own continuing initiatives to support occupiers, we are seeing an increase in business How has Shaftesbury responded to this failures, and the handing back of space not only in our portfolio, but unprecedented situation? across the West End. Q: The uncertain near-term outlook is aecting the prospects of In our long-term management strategy for our villages, we collecting arrears and increasing the risk of tenant insolvency, leading have always recognised our responsibility to our commercial to a high level of charges for expected credit losses and impairment of occupiers to ensure the trading environments we curate, A: lease incentive and deferred letting balances totalling £21.9 million at and the support we oer, provide the conditions for their businesses the year end. to ourish. We are also conscious of our responsibilities to our residential tenants and a wide range of local stakeholders. As a consequence of the unprecedented operating conditions throughout the second half, net property income fell to £74.3 million, As soon as we saw the early, rapid impact of the pandemic in Chinatown, a reduction of £23.7 million compared with last year. After a revaluation it became clear that we should oer occupiers across our locations, decit of £698.5 million, the loss after tax was £699.5 million (2019: prot: particularly those reliant on daily footfall, nancial and other assistance £26.0 million). EPRA earnings, which exclude revaluation gains and to enable them to weather a prolonged period of business disruption losses, declined to £29.4 million compared with £54.6 million in 2019. and through the gradual return to more-normal trading. Similarly, we would support our residential tenants, including those from overseas Over the year, our portfolio valuation decreased on a like-for-like basis who wished to return home or were aected by reduction or loss of by 18.3% to £3.1 billion. This decline reects the expected loss of employment income, as a result of the pandemic. income until operating conditions recover, an increase in vacancy across the West End, particularly of retail and hospitality space, and Extensive engagement with our commercial occupiers has focused on subdued demand for space, which together are aecting the near-term providing nancial assistance tailored to their particular circumstances outlook for rental levels and investor demand. The valuation decreases to give them the condence to resume trading as and when conditions in both our wholly-owned portfolio and the Longmartin joint venture permit. This has principally been through rent waivers or deferrals, were the main drivers in net assets declining by £726.6 million to drawing on rent deposits and, where appropriate, restructuring and £2,280.6 million. At 30 September 2020, EPRA NAV was £7.43 per extending leases to provide greater certainty of occupation. We waived share, down 24.3% over the year (2019: £9.82 per share). residential tenants’ notice periods if they needed to vacate early, or provided rental support where appropriate. The safety of those who work in, visit or live in our locations has been paramount.