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Edited Transcript of CAPCC.L earnings conference call or presentation 9-Mar-21 8:30am GMT

·37 min read

Full Year 2020 Capital & Counties Properties PLC Earnings Call Mar 9, 2021 (Thomson StreetEvents) -- Edited Transcript of Capital & Counties Properties PLC earnings conference call or presentation Tuesday, March 9, 2021 at 8:30:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Ian David Hawksworth Capital & Counties Properties PLC - CEO & Executive Director * Michelle V.A. McGrath Capital & Counties Properties PLC - Executive Director * Situl Jobanputra Capital & Counties Properties PLC - CFO & Executive Director ================================================================================ Conference Call Participants ================================================================================ * Allison Sun Green Street Advisors, LLC, Research Division - Research Associate * James Carswell Peel Hunt LLP, Research Division - Analyst * Maxwell Wilson Nimmo Kempen & Co. N.V., Research Division - Analyst * Michael Prew Jefferies LLC, Research Division - MD & Senior Analyst * Sander Bunck Barclays Bank PLC, Research Division - VP of Real Estate Equity Research ================================================================================ Presentation -------------------------------------------------------------------------------- Ian David Hawksworth, Capital & Counties Properties PLC - CEO & Executive Director [1] -------------------------------------------------------------------------------- Good morning, welcome to Capco's Annual Results Presentation. This is the agenda for today. I'll start with an introduction and overview as well as an update on our sustainability strategy. Situl will present the financial review, and Michelle will update on Covent Garden. I'll then finish with a summary and outlook, followed by questions from analysts. 2020 was a very challenging year. However, our strong financial position enables us to take proactive decisions to protect the long-term value of our Covent Garden estate, take advantage of market opportunities and position the business to return to growth and prosperity. The upcoming easing of restrictions, return of office workers and the reopening of hospitality, retail and leisure activities will lead to a gradual return of domestic footfall. Whilst there are near-term challenges and an uncertain economic outlook, we are optimistic that the enduring appeal of Covent Garden would drive a recovery of footfall and trade over the course of this year and next. I am very proud of the company's response to the COVID-19 crisis and would like to thank all of my colleagues for their commitment and resilience during this year of challenge. Our strategy is focused on supporting our retail, hospitality and leisure tenants to maintain the vibrant consumer offer and support the long-term value of the estate. We've taken the conscious investment decision to create bespoke rental solutions to assist our customers, and our immediate priority is now focused on making sure our customers reopen successfully again. Throughout the year, we've continued to generate new leasing activity, underlining the unique offer of Covent Garden for the occupational market. We've continued to engage with our audiences through multichannel marketing activities and invest in high-quality public realm. The pedestrianization of additional streets and al fresco dining were particularly well received, enhancing the overall customer experience. I'm pleased to report Capco has developed its extensive environmental sustainability and community agenda, supported by a new board committee, and we've committed to achieve net zero carbon by 2030. Over the course of the year, we reshaped the organization and completed the move to our new head office in Covent Garden, which has allowed us to bring efficiencies and further reduce our cost base. Capco is financially strong, enabling the business to withstand the impact of COVID-19 while taking advantage of opportunities commensurate with strategy, including the acquisition of a 25.2% interest in Shaftesbury PLC. Turning to results. Overall, total property value decreased 26% like-for-like to GBP 1.9 billion. NAV declined 28% to 212p per share. Total return for the year was negative 27%. COVID has had a significant impact on income and earnings. Underlying net rental income decreased 30% like-for-like against December 2019, resulting in underlying earnings of negative 0.7p per share. The directors did not propose to pay a dividend in respect to 2020, and we'll recommence dividend payments as soon as it is appropriate. 65 new leases and renewals completed, which Michelle will discuss later in the presentation. Whilst EPRA vacancy has been stable at 3.5%, the disrupted trading environment, combined with a difficult leasing market is anticipated to have a negative impact on occupancy levels over 2021. Capco has undertaken significant investment of financing opportunities this year, raising over GBP 700 million of capital through disposals and new financings. Net debt to gross assets is 28% while the Covent Garden loan-to-value ratio is 19%. At Lillie Square, the valuation reduced 9% like-for-like to GBP 115 million. Construction of Phase 2 completed in June with 94 units handed over by the end of the year. The Covent Garden portfolio decreased in value by 27% like-for-like over the year to GBP 1.8 billion, implying a capital value of GBP 1,600 per square foot. 17% of the reduction was taken in the first half. ERV declined 22% like-for-like to GBP 81 million, 12% of which was in the first half. The 28 basis points expansion in the equivalent yields to 3.91%. The initial yield is now 3.1%. The value assumed a loss of near-term income of GBP 27 million. The majority of the valuation decline was recorded in the retail and F&B portfolio, whilst there was some movement in the office and residential portfolio in the second half. In addition, we completed the sale of the Wellington block for GBP 76.5 million in line with the June valuation. This slide sets our long-term strategy and highlights the strong fundamentals of Covent Garden. Capco has assembled the Covent Garden portfolio over the last 14 years. It comprises 75 predominantly freehold properties, 526 lettable units across 1.1 million square feet of accommodation in a largely pedestrianized, open-air environment in the half of the West End. Covent Garden's scale and concentrated ownership would be incredibly difficult to replicate, making it a scarce and valuable real estate investment. Replacing the consumer at the heart of the business and creative asset management, Capco has created a world-class retail and dining lineup whilst building direct long-term relationships with our customers. Capco works closely with stakeholders to maintain our estate, which is rich in heritage and culture. Our ambitious and creative culture encourages value-creation opportunities whilst maintaining cost discipline. Our strategy is underpinned by a strong capital structure with significant financial flexibility. Capco has developed this extensive environmental sustainability and community agenda supported by a new board committee. We have made a commitment to achieve net zero carbon by 2030. The detailed plan for our heritage estates will be developed later this year. But we have made the commitment today in the knowledge that tackling the challenges of climate change requires action now. Our ESG strategy aligns with UN Sustainable Development Goals as we continue to focus on responsible stewardship, promoting a cleaner, greener estate. In our daily activities, we seek to generate positive outcomes for all stakeholders and the community, upholding high standards of professional ethics and corporate governance whilst encompassing a dynamic, inclusive and diverse corporate culture. Being a good neighbor is important to us. We've refocused our community program to prioritize initiatives and charity partners in Covent Garden, including supporting homelessness, food banks and the elderly as well as hospitality and retail foundations. Our investment strategy focuses on value-creation opportunities to generate long-term, superior returns from investing in Central London. The proceeds from the sale of Earls Court enabled Capco to act swiftly and make a significant investment in Shaftesbury totaling GBP 501 million at an average price of 517p per share. Shaftesbury holds an exceptional mixed-use portfolio, and we're proud to have a 25% interest in over 600 buildings across the West End. It represents a unique opportunity to deploy capital at an attractive entry point with an implied value of approximately GBP 1,200 per square foot. Capco has a strong track record of accretive investments and aggregation of ownerships in the West End. It's intended that opportunities to expand our ownership in the area will be pursued in line with ambitions to grow the business. We have created one of the strongest retail and dining lineups, positioning Covent Garden competitively as a global brand. We were encouraged by the response to various initiatives undertaken in 2020 in promoting the estates, including cultural events and the provision of additional outdoor seating across the pedestrianized environment. When the estate reopened towards the end of 2020, Covent Garden is one of the most vibrant districts in Central London. And we're very much looking forward to the reopening in the coming weeks. However, it will take some time to return to more normalized levels of activity. But there is now a renewed level of optimism and a clear road map for our customers to build trade over the course of this year and next. Our actions in 2020 ensure the business is very well positioned to benefit from the economic recovery. I'll now hand over to Situl for the financial review. -------------------------------------------------------------------------------- Situl Jobanputra, Capital & Counties Properties PLC - CFO & Executive Director [2] -------------------------------------------------------------------------------- Thank you, Ian, and good morning, everyone. 2020 was a challenging but also a very active year for the company. In taking you through the financial review, there is particular emphasis on our investment and financing activities and on the impact of COVID-19 on the reported numbers. (inaudible) consumer and business activity has resulted in rental collection rates being significantly lower than normal levels. As a result, the support being provided to customers, together with this accounting impact, net rental income has fallen significantly. On an underlying basis, the reduction was 29% to GBP 43.6 million. While some additional costs were incurred during the year, we continue to simplify the organization and drive efficiencies, including consolidating our activities into one office building at Covent Garden. This has enabled us to reduce underlying admin cost further to GBP 25 million, and this is on track to achieve our target of GBP 20 million. Group net debt has increased by nearly GBP 270 million, reflecting the Shaftesbury investment and disposal proceeds. During the year, we maintained significant liquidity, in general holding GBP 250 million of cash and short-term deposits. As a result of these activities, finance costs increased to GBP 23.8 million. In total, the underlying loss was GBP 6.2 million or 0.07p per share. We are not proposing a final dividend in respect of 2020. There have been 3 main effects on reported NRI. Firstly, we have seen a reduced level of gross income, together with an increase in irrecoverable cost. Second, there was an increased charge in relation to bad debt, GBP 14 million, which includes tenant failures and a conservative provision against receivables. And third, movement in balance sheet incentives of GBP 27.8 million in total, which are nonunderlying and noncash. These related to impairments resulting from tenant failures and challenging market conditions as well as derecognition of initial direct costs where rental concessions also for the lease modifications under IFRS 16 have been provided. Together, these factors have reduced NRI from GBP 61.2 million in 2019 to GBP 15.8 million or on an underlying basis, GBP 43.6 million. Cost evaluation movement has an 0.80p per share impact on net assets. The independent valuation of Covent Garden reduced by 27% over the year. This was driven primarily by lower ERVs, particularly for retail and SMB, together with cap rate expansion and the value of assumption on loss of near-term income. There was a 9% reduction in the valuation of Lillie Square taking into account CapEx and sales. Net debt increased to GBP 710 million with group leverage at 28%. Within this, Covent Garden net debt was GBP 352 million resulting in a loan-to-value ratio of 19%. At the year-end, EPRA net assets were GBP 1.8 billion or 212p per share. This includes the value of the Shaftesbury investment based on the year-end share price to 569p. Marking this, the Shaftesbury's NPA of 672p would add 12p per share to our net assets. 2020 was particularly impacted in terms of capital and cash management. Disposals generated GBP 330 million through the favorable Wellington block, our share of Lillie Square completions and deferred consideration on Earls Courts. GBP 90 million of the GBP 195 million received on Earls Court was accelerated from November '21 as a result of contractual figures having the net. This fee is the final payment of GBP 15 billion to be received later this year. Financing activities were aligned with the investment of GBP 501 million in Shaftesbury shares during the year. New funding of GBP 400 million was raised in total through an exchangeable bond and a secured loan, which completed in December. There were a number of other movements, including GBP 52 million from operating cash flow. This includes admin, finance and transaction-related costs and is reflective of reduced cash rents received to the most affected period starting March 2020. Most of the rental income for the first quarter of last year was collected in advance in 2019. At year-end, there was cash and access to undrawn facilities totaling GBP 1 billion. Our investments in Shaftesbury comprises 97 million shares acquired across 3 tranches with the majority being completed at 540p and a further amount of 400p through the Shaftesbury capital raising. Investment is held at fair value at each balance sheet date with the year-end share price representing a 15% discount to the last announced NPA. We have completed 2 financings related to the investment, firstly, an exchangeable bond, which raised GBP 275 million at a conversion price for the cost of our holding 719p per share. The bond has a 5-year maturity and enables the company to satisfy any exchange through Shaftesbury shares, cash or a combination of the 2. The loan generated GBP 125 million with a 3-year maturity and provides an efficient source of funding secured against part of the holding. We have ensured through our actions that leverage is maintained at an appropriate level. We have limited capital commitment and access to substantial liquidity. There are no material near-term maturities on drawn debt, and we will look during the course of this year at refinancing of the revolving credit facility, which currently runs to the end of 2022. The key objective has been to maintain appropriate financing metrics at Covent Garden and to ensure that any covenant risks have been addressed. The LTV is low even after sharp valuation movements during 2020, which means that the value could fall by a further 68% before the covenant level is reached. Covenant waivers has been agreed in relation to interest cover through to the end of 2021. Having effectively reinvested the Earls Court proceeds into the Shaftesbury investments, it was also important to ensure a balance of funding across the group, raising GBP 400 million on a relatively attractive terms and further diversifying our sources of capital and the maturity profile. So to summarize, net rental income and valuations have been impacted significantly. However, we have been and continue to be well positioned to provide customers all where appropriate and to position the estate for recovery in footfall, sales and leasing activity. There has been further progress on reducing underlying admin costs, and we remain on track to achieve our target of GBP 20 million. Notwithstanding the impacts of COVID-19 on operations, income and evaluations, we have been able to act at pace and in scale on investments and financing opportunities. This has ensured that the financial position is robust, but also that we are strongly positioned to pursue growth and investment opportunities. With that, I will now hand over to Michelle. -------------------------------------------------------------------------------- Michelle V.A. McGrath, Capital & Counties Properties PLC - Executive Director [3] -------------------------------------------------------------------------------- Thank you, Situl, and good morning, everyone. It has been a destructive year for activity. However, 65 leasing transactions representing GBP 6.2 million of income have been secured. We are encouraged that occupancy of the estate is stable with vacancy low 3.5%. However, the difficult trading and leasing environment is anticipated to have a negative impact on occupancy levels over 2021. During the second half of the year, we completed the disposal of the Wellington block for GBP 76.5 million, in line with June '20 valuation. As Ian mentioned, we took early and decisive action to support those customers most in need and protect the long-term value of the estate, and we continue to engage constructively. An important part of our strategy over the years has been to continue to invest in the overall experience of Covent Garden both for occupiers and visitors. Despite the start-stop nature of trade, our approach resulted in encouraging indicators upon reopening over the course of last year. The Covent Garden valuation declined from GBP 2.6 billion to GBP 1.8 billion in 2020. Estate ERVs reduced by 22%, which was predominantly driven by the retail and F&B portfolio. Of the total valuation decline, retail accounted for GBP 470 million and F&B GBP 175 million. The valuer considered each unit individually. Whilst there is generally a lack of transactional evidence, they've taken into account store site, absolute rents and made yield adjustments reflecting overall market sentiments. As you can see, this year, the average of NAs has reduced significantly to GBP 460 per square foot relative to GBP 900 a square foot for the prime streets, Central London. We took a proactive approach to our customers who are experiencing significant cash flow disruption. Rental support was provided on a case-by-case basis, including monthly rent, deferrals, turnover-linked arrangements and rent-free as appropriate. In particular, for the second half of the year, bespoke solutions linked rental obligations to turnover for qualifying tenants. These have been in exchange for lease enhancements such as extension and insertion of landlord flexibility. The valuer has included a provision of GBP 27 million in respect to the assumed loss of near-term income in the December '20 valuation. These actions maintained our strong tenant lineup during an extraordinary year and positioned Capco well ahead of gradual easing of restrictions. Capco's reopening strategy is focused on providing our businesses and consumers with confidence and competitively positioning the estate against a difficult backdrop. Tenant agreements, safety protocol, a strong al fresco in public realm combined with the proactive and agile marketing strategy led to almost all of the estate open when possible and encouraging indications. Despite the well shared disruptions in travel and office occupation, high levels of conversion and better-than-expected sales reserve as the hyperlocal and London consumers sought to have the best experiences within a strong overall setting. In a fast-changing consumer world, successful destinations are about creating an ecosystem that thrives and how different uses, brands and locations work together to create an attractive environment. Occupiers across all uses are more discerning than ever. And in particular, retail and hospitality value more than just the locations. Our approach focuses on the creation of brand value, the understanding of consumer behavior and trends, and crucially, how these interplay with experience, culture and heritage, all within a sustainable vision for the estate. We believe these skills and priorities will create enduring products and destinations, which the occupier of the future takes its value on over the long term. Against these fundamentals, and notwithstanding challenging leasing conditions, as you can see on this slide, we have been active with new signings. The majority of activity has been second half weighted. Our leasing strategy centers on 4 main areas: targeted categories, brand heat, strong margins and optimized agreements, which allow both parties to prosper. Longer and flexible leases have become less relevant. Capco has welcomed flexibility such as turnover related and shorter leases over the year, which has enabled us to drive change and reposition the estate. Along with the emergence of greener leases, we expect this theme to continue. Such provisions were balanced for the benefit of both landlords and tenants. We remain focused on introducing relevant categories and concepts. Luxury brand Tiffany's has signed a new lease, while Vashi will open its London flagship, both on James Street. NaNas has signed a new long-term lease for restaurant bar overlooking the Piazza. And Gentlemen Baristas has signed a new restaurant cafe on our newly redeveloped townhouse on Henrietta Street. These were both summer pop-ups, which have converted into long-term opportunities. Darjeeling Express also joins the dining lineup, taking the space formally occupied by Carluccio. Arcteryx returned a few weeks ago to open a new store on Long Acre. Here are just a few examples of valuation generated on the estate. Activities included Covent Garden's first outdoor cinema, a series of lifestyle events and a brand partnership with LEGO, all of which were sold out and demonstrated that notwithstanding social distancing, the desire for consumers to connect with high-quality experiences is strong. The sale of the Wellington block will introduce a new high-quality owner occupier through the joint venture between APG and LCP who will undertake comprehensive redevelopment of the island site into a new lifestyle hotel. The vacant asset was sold at approximately GBP 1,100 a square foot, in line with the June '20 valuation. Investment activity has continued in the [floor space]. 3 Henrietta Street, a flagship townhouse, was completed and handed over to the tenant. As has the refurbishment of 2 units with dual frontage between Maiden Lane and Henrietta Street for Big Mamma. Both tenants are now undertaking their own hotel. Total current capital commitments across the Covent Garden estate are very modest at approximately GBP 1 million. We continue to track target investments in the Covent Garden area. Our strong balance sheet means we are well positioned at should these opportunities arise. In summary, the actions taken through 2020 have positioned this part of London strongly and competitively to benefit from a recovery. Short term, we will continue to focus on proactive customer management, enhancement of public realm and brand collaboration with our strong lineup of customers, providing the domestic and hyperlocal market a world-class experience. Our long-term strategy will see us focus on creative asset management and enhancing the strong fundamentals of this unique part of the West End, whilst actively investing in attractive opportunities on or near the estate. Market conditions will remain tough over short term. However, we remain confident that our plans outlined will ensure Covent Garden's resilience and positioning it to prosper over time. I will now hand you back to Ian. Thank you. -------------------------------------------------------------------------------- Ian David Hawksworth, Capital & Counties Properties PLC - CEO & Executive Director [4] -------------------------------------------------------------------------------- Well, it's been an extraordinary year, and I've no doubt that there will be challenges in the near term. Operating conditions remain difficult, which is anticipated to lead to enhanced levels of vacancy and further adjustments in valuation and rental levels. However, our immediate priority is focused on making sure our customers relate them successfully. The return of office workers will help the economy move towards more normal levels of activity. We're cautiously optimistic for the months ahead. There is a clear road map for our retailers and restaurateurs to build trade over the course of this year and next. We will continue to focus on responsible stewardship, implementing our ESG strategy and working to achieve our net zero carbon target by 2030. We continue to seek efficiencies across the business and remain disciplined in the allocation of capital. Our actions in 2020 ensure the business is very well positioned to benefit from the economic recovery. Capco is in a strong financial position with significant financial flexibility. And we're confident in the future of the West End and the long-term value of our unique portfolio of investments. That concludes the formal presentation, and we'll now take questions from analysts. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- We have our first question here from Michael Prew from Jefferies. -------------------------------------------------------------------------------- Michael Prew, Jefferies LLC, Research Division - MD & Senior Analyst [2] -------------------------------------------------------------------------------- In terms of the rather complicated adjustments to the revenue count, there were capital deductions made of GBP 27 million. But am I right in thinking that in the second half of the year, there was a reduction to capital deductions made? And secondly, you mentioned the vacancy rate is truly low at 3.5%. And presumably, a lot of operators who just hang on by their fingertips will see foreclosure as the economy begins to recover. Where do you see the main area of vulnerability within your tenant mix for those foreclosures, please? -------------------------------------------------------------------------------- Ian David Hawksworth, Capital & Counties Properties PLC - CEO & Executive Director [3] -------------------------------------------------------------------------------- Yes. Thanks, Mike. I'll let Situl talk about the valuation adjustments. But just on the vacancy area, we're really pleased to have finished the year with 3.5% vacancy, which is pretty much the same as we were last year. I think what is very interesting as well is that the 65 transactions that we did last year, the majority are long-term tenancies. There's been 1 or 2 that are shorter in nature. We've done maybe half a dozen pop-ups towards the end of the year, which did help the vacancy rate. But they're beginning to convert into long-term tenancies as well now. So reasonably optimistic about the long-term prospects in most of the categories that we're in. And we're beginning to see -- beginning to having more conversations with retailers and restaurateurs. So it's going to be tough. There's no question about it. It's going to take a while for the vacancy around the West End to be absorbed. But starting from that position of 3.5% is a good place for us to try and grow, begin to regrow ERV over time. Situl, do you want to talk about the valuation adjustments? -------------------------------------------------------------------------------- Situl Jobanputra, Capital & Counties Properties PLC - CFO & Executive Director [4] -------------------------------------------------------------------------------- Sure. Mike, you're quite right that a capital deduction in December of GBP 27 million, that compares with the half year number of GBP 31 million. I just note that that's a number of the independent value that comes up with CBRE's assessment based on current market conditions of what an incoming investor or buyer might -- may have an adjustment to the capital value. And you'll be aware that in more normal markets that adjustment should fall away. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- Our next question comes from Max Nimmo from Kempen. -------------------------------------------------------------------------------- Maxwell Wilson Nimmo, Kempen & Co. N.V., Research Division - Analyst [6] -------------------------------------------------------------------------------- Just discussing turnover rents. We see a number of other retail format like shopping centers really struggling to capture everything that comes into touch with the store with regards to kind of click-and-collect, returns, et cetera. How are you guys tackling that? And is that -- is some of that component built into these new long-term leases that you've signed this year? -------------------------------------------------------------------------------- Ian David Hawksworth, Capital & Counties Properties PLC - CEO & Executive Director [7] -------------------------------------------------------------------------------- Max, I'll let Michelle comment on detail. But since we've owned Covent Garden, we've pretty much done every type of lease you can imagine. So our preference has always been to have relatively short flexible leases because we can manage our mix more efficiently. The key for us is to be actively generating footfall and demand to the estate that translates into sales. And we focus really on the more productive categories of retailers and restaurateurs. And therefore, we're quite openminded about whether that's fixed rents or turnover participation. At the end of the day, we're trying to generate activity across the estate. And over the last 10 years, we've been successful in that. And I think as we reopen, we'll rebuild that footfall and those sales. But maybe Michelle can talk about some of the specifics. -------------------------------------------------------------------------------- Michelle V.A. McGrath, Capital & Counties Properties PLC - Executive Director [8] -------------------------------------------------------------------------------- Yes. Sure. I think Ian has covered the key themes there. I think that's right, we're looking to be -- we're very flexible with the leases that we strike on our tenants. We look at a whole host of different provisions that basically enable both sides, both us and the tenant, to thrive and prosper over a period of time. In terms of some of the specifics that you highlighted there, we are looking at ways that we can capture other sources of revenue. For example, some of the leases we've signed, we capture in click-and-collect. So I do think there will be a continuation of some of those themes. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Our next question comes from James Carswell from Peel Hunt. -------------------------------------------------------------------------------- James Carswell, Peel Hunt LLP, Research Division - Analyst [10] -------------------------------------------------------------------------------- And 2 questions for me, please. So firstly, just on your vacancy. So the 3.5%, which seems why -- it's a very impressively low number. Probably much lower than maybe people want to see it and also lower than some of your peers. I'm just wondering what do you think it is that's enabled you to retain your tenants better than some of the other West End landlords? So that's the first question. And then the second, just on investment opportunities. How active are you in looking for any opportunities? And how far beyond the existing kind of Covent Garden estate would you look? -------------------------------------------------------------------------------- Ian David Hawksworth, Capital & Counties Properties PLC - CEO & Executive Director [11] -------------------------------------------------------------------------------- As I said earlier, we're really pleased with 3.5% vacancy. I think to a certain degree, I think the fact that I've been through SARS in Hong Kong in 2003 gave me the sort of impression that we were going to have a very difficult year. So we moved very, very quickly on vacancy. And we did some pragmatic transactions, frankly, to make sure that we had a fantastic lineup for the summer. Footfall built pretty quickly over the summer when we reopened. And again in November, we had some very positive reports from our tenants of trading activity across the estate. And there's a whole bunch of other actions were done to make it an environment that people (inaudible) whether that was the pedestrianization of the al fresco dining. So I think to a degree, it's very proactive management. But also, it's the brand. People want to be at Covent Garden. And they see the long-term opportunity of this part of London, and they are committing in terms of leases, whether that's lease renewals or new transactions. So I think that's probably the main area. Michelle, do you want to comment on some of the specifics? -------------------------------------------------------------------------------- Michelle V.A. McGrath, Capital & Counties Properties PLC - Executive Director [12] -------------------------------------------------------------------------------- No, I think that's right. I think some of those early actions that Ian outlined stood us in very good stead. The leasing market hasn't yet normalized. But the bottom line is that there is demand out there. It's looking for the best possible places. It's looking to places where it feel confident that they get into the recovery. And that's the consistent feedback we've received from the people we've signed. So it's going to take time for the leasing market to normalize. But we're pretty encouraged by both the quantum and also the quality of the people who wants to come to Covent Garden. -------------------------------------------------------------------------------- Ian David Hawksworth, Capital & Counties Properties PLC - CEO & Executive Director [13] -------------------------------------------------------------------------------- Yes. And in terms of the investment market, there's not a lot moving in the immediate marketplace around Covent Garden. We've not really seen properties that meet our return criteria that are more attractive than the investment that we made earlier in the year in [Shaftes]. There seems to be a disconnect still between the direct market and the equities market. There's been 1 or 2 sales on the peripheral of the estate recently, which is showing reasonably good values. And obviously, you'll be aware of the transactions that have happened recently on Bond Street. So there is a market, but it's not -- we're not seeing in the Covent Garden area bargains. Our long-term aspirations, I think we've spoken to you about before, we'd like to own more of what's on the estate. And if there are opportunities to participate in buying properties that we don't already own around the Piazza, then we have the firepower and resources to do that, and we can move very quickly. Obviously, we've made an investment in Shaftes . So we do have an indirect ownership in 25 -- in 600 buildings around the West End. But in terms of direct ownership at the moment, we love Covent Garden. We think it's got tremendous opportunities for the long run. So if there's stuff available, we're there to buy it if it meets our return criteria. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- Our next question comes from Allison Sun from Green Street. -------------------------------------------------------------------------------- Allison Sun, Green Street Advisors, LLC, Research Division - Research Associate [15] -------------------------------------------------------------------------------- I have 3 questions. It will be great if you could answer one by one. So question number one is following up on the vacancy rate. So I appreciate your EPRA vacancy is almost flat year-over-year. But can you just comment a little bit on the physical vacancy? Is that also flat or actually come down quite low when compared with 2019? That's my first question. -------------------------------------------------------------------------------- Ian David Hawksworth, Capital & Counties Properties PLC - CEO & Executive Director [16] -------------------------------------------------------------------------------- Well, they're different units, that we don't have a lot of physical vacancy at the moment. We've got 1 or 2 shops. They're not really in the prime locations. They are the emerging locations that we gradually change sort of the units on -- yes, there's a couple of units on Long Acre, which I think has been well documented. And there's 1 or 2 elsewhere. But around the Piazza, there's really nothing, there's a few small office buildings and a little bit of office floors and there's been a little bit of uptick in residential vacancy, but it's not dramatic. It's very manageable in the context of the overall. -------------------------------------------------------------------------------- Allison Sun, Green Street Advisors, LLC, Research Division - Research Associate [17] -------------------------------------------------------------------------------- Okay. Second question is about the new leases you signed. So can you maybe comment a little bit for the new leases you signed in recent months, if you have any signed in 2021? Are those leases still signed at roughly the same level with the leases you signed back in, let's say, second half of 2020 or June-July 2020? Do you see any changes in terms of the new leasing? -------------------------------------------------------------------------------- Michelle V.A. McGrath, Capital & Counties Properties PLC - Executive Director [18] -------------------------------------------------------------------------------- Look, I think it's an interesting question. The leasing demand that we've seen, we've done 65 deals. Within that, there's about 14 new retail and F&B deals. There's not a huge amount of evidence out there in the London market at the moment. So we're quite encouraged by, like I said, the quantum and the quality of the brands that we've signed. Just to give you a bit of color, I can't go into exact specific deal by deal, but just to give you a bit of color on the deal, what sort of deals and what the structure was. Around half of those were shorter-term animations and top-ups. And so if we're looking at something for the short term, we will typically look at something that's more turnover led, and they tend to actually be reasonably productive. So given the stop-start nature of trade, that was obviously impacted over the course of the year. The other 50% of those deals were done broadly in line with our expectations on a unit-by-unit basis. So the number we put out in general is leases were struck at around 29% below ERV, which is broadly in line with where those leases came out. There is a mix in between all of that, some above, some are in line, some are below. And it's a little bit too early to draw a trend as to what this year will look like. But we're pretty encouraged by the conversations we're having. And we think the pathway notwithstanding the fact that it's going to take some time to recover, but the pathway that's been laid out by the government gives us a pathway to recovery. -------------------------------------------------------------------------------- Allison Sun, Green Street Advisors, LLC, Research Division - Research Associate [19] -------------------------------------------------------------------------------- Okay. Okay. Last question is based on the previous discussion we had with you guys. We understand maybe 1/3 of the footfall for Covent Garden is actually office workers. And I appreciate the Covent Garden can still attract international or domestic visitors. But how do you think of the office workers? Do you expect their footfall to return sooner, or more color on that would be great? -------------------------------------------------------------------------------- Ian David Hawksworth, Capital & Counties Properties PLC - CEO & Executive Director [20] -------------------------------------------------------------------------------- It's important for the overall London economy and the national economy that people get back to the offices. For us, the focus will be marketing towards domestic marketplace over the next 6 to 12 months. And then into the regional -- the regional tourism market, which are really the key areas for us, 60-odd percent of our footfall is really domestic London and tourism from within the U.K. And then the balance is split, 40% long haul and regional. So we'd expect offices begin to fill up as the restrictions are lifted. We think there's a good demand from people wanting to come into London and visit London for social occasions. We can see that within the level of bookings that is happening at the moment in the restaurants in the Covent Garden area. So I think it will be a good opening once the restrictions are lifted, and it will gradually build towards the end of the year. And we're hoping that through next year we'll have a good clear trading period and that the international travel will begin to come back to London in 2022. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- Our next question comes from Sander Bunck from Barclays. -------------------------------------------------------------------------------- Sander Bunck, Barclays Bank PLC, Research Division - VP of Real Estate Equity Research [22] -------------------------------------------------------------------------------- Two questions from me as well. The first one is actually something different. I know that the international tourists are set to lose their tax rebates for a lot of the shopping done in the U.K. Is that something that at the moment is already coming up with discussions with your retailers? And what are they saying about that? And do they potentially think about experiencing some negative impact from that, i.e., if they come into the trip to Europe, they basically just start buying their stuff elsewhere in Europe? That's the first question. And the second one is, obviously, there's a lot of hope at the moment around the reopening trade and I think it's getting back to normal. And I think you're kind of saying towards 2022, you do hope that. Can you give an indication if you and when you believe that over time we'll go back to kind of rental income and ERV levels seen back in 2019? Do you think that, that's still going to happen? Or has this event brought a more permanent impairment to some of the rental levels? Yes, those are my 2 questions. -------------------------------------------------------------------------------- Ian David Hawksworth, Capital & Counties Properties PLC - CEO & Executive Director [23] -------------------------------------------------------------------------------- Very good questions. I'll deal with the second one, and then maybe Michelle can tell you what the customers are saying about the tax position. But I think in the medium to long term, we'll get back to where we were before. And I think we'll see London begin to thrive again. It's a fantastic city. It offers great amenity, both to the domestic consumer and to the international traveler. And my own experience from Hong Kong a long time ago is that things do recover, but they recover -- in fact, I think you'll see that there'll be -- I'm hoping that there'll be a pretty active summer and that, that will build to Christmas. We certainly saw in the buildup to Christmas last year that the trading was very good on the estate even though footfall was somewhat subdued because you didn't have those visitors. So I'm confident in the medium to long term. But we do need a period where there's uninterrupted trading, really. And businesses can plan properly and make the appropriate investments in their brands and in their spaces, create a wonderful environment for the consumer. We've always tried to position Covent Garden to attract those users and those brands that have very strong multichannel activities. And we were seeing and I think we will continue to see the sort of the integration of the digital brands of physical space. And we tried a few things actually during lockdown like Kick Game, things of that nature, which proved to be reasonably successful. So I think locations like Covent Garden will do well because they're high footfall, they're globally renowned and they're relatively small footprint units, which are good places for brands to showcase their retail. And they're wonderful places, people come and enjoy a meal or a night out. And once the offices are back, once the cinemas and the theaters are back open, once people begin to feel confident about traveling, I'm sure we'll get back to long-term growth. And ultimately, your study of economics, but long-term rental growth really is a derivative of GDP inflation and a little bit how well you brand your product. I think that the GDP forecast coming out of the Bank of England is quite positive in the short term and I think in the medium to long term. So I'm sure we'll get back to growth. -------------------------------------------------------------------------------- Michelle V.A. McGrath, Capital & Counties Properties PLC - Executive Director [24] -------------------------------------------------------------------------------- What if I'll just take the second question? You're right, Sander, the tourism tax is not helpful for London. I think it's going to have more of an impact on those areas that are particularly geared towards a very specific type of luxury shopping, where tax refunds are quite an important underpin of trade in those specific areas. If you take someone like Covent Garden, actually, it's a very broad mix of uses. It's a very broad type of consumer. So we don't expect it to have a material impact on the activities here. And you also have to just look at, again, the general appeal of London for the visit. Yes, it's one thing in terms of tourism tax. But actually, there are many other things that attract people to come to London, whether it's the theaters, the arts, the culture, the shopping, the F&B, all the other experience that actually make London a really visitable area. So just to say, it's not helpful in the context of London generally, but those places that are very, very geared to luxury will be more of an impact. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- We currently have no further questions. So I'd like to hand back over to Ian for any closing remarks. -------------------------------------------------------------------------------- Ian David Hawksworth, Capital & Counties Properties PLC - CEO & Executive Director [26] -------------------------------------------------------------------------------- Well, thank you very much for joining us. We look forward to seeing you all down on the estate when we are reopened. Delighted to answer any additional questions that you have as the day goes on, and please feel free to give any of us a call. But thanks for your attention, and have a good day. Thank you.