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Edited Transcript of SHB.L earnings conference call or presentation 27-Nov-18 9:30am GMT

Full Year 2018 Shaftesbury PLC Earnings Presentation

London Dec 13, 2018 (Thomson StreetEvents) -- Edited Transcript of Shaftesbury PLC earnings conference call or presentation Tuesday, November 27, 2018 at 9:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Brian Bickell

Shaftesbury PLC - CEO & Executive Director

* Christopher Peter Alan Ward

Shaftesbury PLC - Finance Director & Executive Director

* Simon John Quayle

Shaftesbury PLC - Property Director & Executive Director

* Thomas James Chisnell Welton

Shaftesbury PLC - Property Director & Executive Director

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Conference Call Participants

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* Benjamin Paul Richford

Crédit Suisse AG, Research Division - Research Analyst

* Christopher Richard Fremantle

Morgan Stanley, Research Division - Executive Director

* David Thomas Brockton

Liberum Capital Limited, Research Division - Research Analyst

* Rob Virdee

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Presentation

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [1]

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Well, good morning, everybody, and welcome to the presentation of Shaftesbury's results for the year ended 30th of September 2018. I'll start off by introducing the team. I suspect you know everybody very well. So starting from the far side, Tom Welton, one of our property directors, he looks after Chinatown and Covent Garden; Simon Quayle, who looks after Carnaby, Fitzrovia and lots of other things that I can't remember at the moment. He does loads of things. And of course, Chris Ward, our Finance Director. So that's the team.

We are doing a first today. You probably all have noticed the recording cameras at the back of the room. So we're having a live video stream rather than just an audio stream for the first time, and you can rest assured that cameras are filming from the back and they won't be filming the audience. So you're not in the limelight. The streaming will continue throughout the Q&A session, but we will not be taking people who have logged in to watch the video streaming. So as with our normal audio presentation, if you'd like to email me, if you're dialing in with any questions, brian.bickell@shaftesbury.co.uk. I'll do my best to respond to those -- any questions by the close of play today.

So today's agenda will be starting off with an introduction from me. Chris will cover results and our financial position. We'll then go through an operational review and wrap up with a summary and outlook and then followed by a Q&A.

Really, just by way of introduction, though, I think you probably all know Shaftesbury very well. But what our results demonstrate is the resilience of this portfolio, the great locations we have within the West End, it's delivering growing earnings, growing NAV, growing dividends, very busy period for acquisitions, probably -- this is actually our busiest of 32 years, so that's quite something. We're going to talk about leasing management activity, but Chris will cover our larger schemes because they're now 84% let or under offer. So there's been a lot of progress since we were here 6 months ago. And we'll talk about a lot of activity across schemes in the portfolio. We've got over GBP 10 million, nearly GBP 11 million of ERV tied up in schemes at the moment, so we've been very busy. And of course, Chris will explain the initiatives we've taken on the financing, which has really dealt with now the last of -- the very last of our legacy debt arrangements.

Of course, you all know the West End very well. We talk about it an awful lot. But just to set the scene, it's good that we remind people of what this is and what this isn't. It is the most incredible location. We've got a huge working population. We've got this influx of visitors throughout the week, in particular, the weekends. Those could be visitors from London, from U.K. domestic or international. So there's huge mix of people coming here, gives us a footfall estimated at over 200 million visits per annum. So this is a hugely important factor that underpins all we do in our shops and restaurants. This is not like any provincial destination you can think of in the U.K. or possibly across Europe. We -- whatever you think about Brexit, we're still going to be the largest city in Western Europe, and the West End sits at the center of that and we sit at the center of the center. So this gives us considerable advantages. And the great thing is that this market is growing, more people want to come here, they're attracted by what West End has to offer. And we are disappointed that Crossrail is not starting this year. But once it gets running next year, it's important it's sorted and it runs reliably from day 1. That's going to encourage even more of our local catchment to come to the West End.

It's worth touching on, reminding somebody who haven't known us for so many years, about the resilience of being in the West End. In our 32 years, we've seen 2 sort of setbacks in real estate. The first was 1990 to 1993 when we owned a little bit of Chinatown. We were tiny in comparison to what we are today. But that in -- that very severe setback, we had interest rates of 15%. Everything was going off the rails, demonstrated the resilience of ownership in the West End. Our restaurants in Chinatown were never empty. We had rental growth. Valuations came off a bit -- recovered really quickly. So fast forward to 2007, 2010, exactly the same thing happened really. Values did come down about 21% compared to the general market of about 45%. But our income was really completely unaffected. It carried on, chugging up, vacancy didn't change. And so, of course, the stability quickly returned to our valuations and we were probably back to where we started within 2 years, whereas the rest of -- as you know, the rest of the property market has really -- well it's been challenged to get back to where they were at the peak of the market.

And of course, as you know, I've said it again and I'll say it again, that we're delivering -- about delivering long-term rental growth. This trajectory of growth, it's about creating ERV through our letting transactions, converting that into contracted income over a sort of 4 -- 3- to 4-year period. You can never quite predict. The steady, steady long-term growth, which we say always trends to around 4.5% to 5%. Growth has never been even year-on-year. We've had some years at 0 growth, some years at sub-5% and years at above 5%. So I'll say it's not as predictable as it's always going to be a certain figure. And -- but the long-term trend for over 20 years, this is where we've always trended back to. So there's no reason to think this will be changing. And so it is the focus of the business. So this, coupled with very low obsolescence in the portfolio, is really what underpins the investment case for Shaftesbury.

But I would say now that at 27%, reversion represents another potential GBP 32 million of income from this portfolio over the next couple of years, even just based on today's rental values. That's not anticipating any growth in those values.

Anyway, enough of me and the introduction. I'll hand you now over to Chris. He's going to run you through the results and the financial position.

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [2]

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Thanks, Brian. Good morning, everyone. Well, as Brian said, it's been a good year. Actually, it's been business as usual for us, if I'm honest with you. It's been a -- I'm in the wrong way. It's business as usual. So it's been a growth at everything really, including my waistline. And so we've got growth in earnings, growth in income. We've increased the dividends. It's up 5%. The NAV is up at GBP 9.91, 4.1% up, NAV growth. NAV return for dividends, 5.8%. Pleasingly, our income is getting up to -- it's over 90 -- nearly GBP 94 million, and that's growing. It's another year of growth. We've grown our income every year now for almost pretty much as long as I can remember. And if you look back, this is another year of the same.

So let's look at the income. Next slide. No further mistakes. So our gross income has gone from GBP 103 million to nearly GBP 113 million. It's kind of what we do is sustain growth in income. It's capturing the reversion, pushing on ERVs. Like-for-like growth in the year was 6.4%. It's good contribution from our turnover top-ups in our restaurants. That was just over GBP 1 million. I think it was GBP 700,000 last year. It just goes to show how successful our F&B tenants are. And there's more to come. As Brian said, the reversion is sort of GBP 32 million, and that's going to be growth in income over the coming years.

So let's look at earnings. Earnings, nearly GBP 52 million, compared to GBP 45 million last year, up just over 14%. And you can see the elements of this here. You see the large element and what drives it is net property income, and a lot of that from comes the rental growth. We have been spending on -- and sort of investing in our footfall. So we've spent quite a bit on PR in the year, increasing our reach and generally bringing people in. And we have to be very innovative. In fact, you should -- if you haven't been down, come and see the lights. You should have seen a bit on here, the Christmas lights, they're really innovative this year. They're amazing.

We spend on security. This is ever more important, as you can imagine, especially in high-profile locations like ours.

Cleaning. You got to make sure the place looks good when people come. You want people to come again.

We have spent a bit on repairs and maintenance in the year. There's -- I wouldn't say there's a trend. It's just how projects have fallen. We bought in some leases, which has enabled us to advance our tenant, makes us actually bring in more exciting and interesting tenants. So I wouldn't expect our property cost ratio to stay at the same level. I would expect it to moderate a bit over the coming years.

Our admin costs are down GBP 0.4 million. There's 2 things happening in there. One is reduction in our variable remuneration. It's where I put on a sad face. [Lynn] will be bringing around a collection plate, so please give generously, please.

And then there's some high professional costs. We did -- there's been quite a lot this year. It's gone on regulatory stuff so the cybersecurity. We've been looking at our risks and controls and all sorts of things really. It's a mixture of stuff in there.

Finance costs were GBP 1.5 million, better off than the previous year. And that's a mixture of -- actually, the lion's share of that is the benefits of the refinancings we've done over the last couple of years. See, there was some interest income as we were deploying the money from the placing. And then, Longmartin, down GBP 0.9 million against last year. I think I mentioned this at the half year. As we got some schemes in the courtyard to -- we're going to increase some -- the restaurant content there, and that's just taken income out in the short term while we -- it's development-related vacancy basically.

Right button. So let's look at the market. Demand is really robust. We did over GBP 30 million of transactions last year. Our commercial transactions, up 5.1% against previous ERVs, which it gives great evidence to our values. But actually, it's what we're about. That's what we're doing. We're trying to push on those ERVs and then crystallize the reversion. They're also still getting done. It's amazing. We've done -- we must have done something like GBP 3.5 million of transactions in sort of 1.5 months this year up -- at or above ERV at September. So it's really busy actually.

Resi lettings, just over GBP 8 million, down 0.1% on previous rents. Now you might remember at the half year, we said it was stabilizing. In the first half, I think it was down 0.5% against previous lettings. In fact, in the second half, it's recovered. And actually, we've seen an increase against previous rentals. You must remember in those resi lettings that we get a fixed uplift at 4% after year 1 and year 2. So actually, the resi is amazing. We -- I mean, Brian -- don't want to steal Brian's thunder, but it's pretty -- it's like a fully let hotel operation. We have here 590-something flats and I'd say, 3 empty at the end of the year.

Vacancy. Well, our vacancy, it's interesting. We -- last year -- this time last year, we were 6%. At the end of September, we were 4.6%. We're now 4%. Actually, that -- what's really happened, the large thing that's happened between September and now is the Thomas Neal's letting and I'll come onto that in a moment. Our vacancy is bang in line with our average, our long-term average, and it hasn't changed since the end of the year. Deals are being done, stuff just go on. It's a kind of roll on, roll off as there always is a churn.

So should we look at the larger schemes? So we're now 84% let or under offer at those schemes. I will just go through them. Thomas Neal's, you would have probably seen the -- sort of the press activity probably 2 weeks ago. We've let that to -- well, we're creating the Seven Dials market. It's going to be fabulous. It's going to be really amazing. Sort of food market and -- well, it's food. I'm always going to like it. So -- and you know what, it's really going to be interesting. It's going to create this halo effect in Seven Dials, which is something we're really, really hankering after. We're really excited about that. That's done. 57 Broadwick, that's fully let. We -- if you like sort of Japanese grill food, INKO NITO is my -- it's just fabulous. It's from the ROKA guys. It's my favorite in the portfolio at the moment. That's the restaurant.

The retail was let to End, which is an online retailer. Interesting sort of -- there's a clicks to bricks thing going on here. And they wanted a flagship in London, in our area and I don't get it. But I don't think it's aimed at old, fat accountants, if I'm honest with you. But it's really, really busy and -- old, fat, bald accountants. It's really busy. And what's really interesting is they had a real spike in their online activity from opening the store. It's amazing. You should have a look. It's great, but I don't get it. But actually, I don't get it every time. There's no -- if -- they ask me, if I do get them, then they're off the list, to start with. So that's fine.

At Central Cross, we've got 70% let or under offer. It's a mixture of -- it's mainly the F&B, actually. We've got -- what we got available at the moment is 3 shops, which is about GBP 1.1 million of income. That could be 4 shops. We could sub -- one's quite big. We could subdivide it. We've got under offer 2 shops and a restaurant, which is GBP 0.8 million. So together, uncontracted is GBP 1.9 million, which is, in our point, it's just 1.3% of our total ERV.

So let's look at the balance sheet. So really, the up to GBP 9.91, this chart just looks the same every time. So you have earnings and dividends largely offset each other. And actually, what's been -- what's driven this is the revaluation in the portfolio, which is giving us 39p of NAV.

So let's look at the valuation. So the value is now nearly GBP 4 billion. There's been lots of investment in the year. Brian will talk about that. We've sold a couple of properties with really quite healthy profits on book values. Brian will talk about those as well. And then we got a revaluation, GBP 118 million. The wholly-owned portfolio was up 4.2%, which was mainly rental growth. There was, you'll recall, at the half year, there have been 5 basis points yield compression in the first half. Yields have remained flat since, and I'll talk about those in a moment.

In Longmartin, you'll see there's a decrease, and we sort of flagged this up at the half year. So actually in Longmartin, everything is fine. What's happening is that along Long Acre, where we've got some quite high street-y type shops and the rents have really grown over the last, I don't know, probably the 10 years since we sort of got the scheme up and running, it's -- rents had a really good run. The value, as I just looked at it and said, well, we think there could be quite a lot of space coming to the market over the coming year or so. And we think with the travails there are in -- with national retailers, we think this could have a bit of pressure. So they basically marked down ERVs by -- or just along Long Acre by 8.5%, which 5% was in the first half. So they just chipped away a little bit more now.

We've also got some empty space in the courtyard where we've taken space back and we're creating more restaurants. So that kind of has a small effect. I mean, I suppose we're kind of grateful we don't have a lot of big high street-y sort of stuff. Most of our retail is quite small and demand is fantastic.

So the reversionary potential that Brian talked about. Nearly 27%, GBP 32 million. There's a mixture of things in there. There's some stuff that's contracted, some rent freeze that will run off pretty quickly. EPRA vacancy, well, that just rolls on and rolls off all the time. So that's -- that will come through pretty quickly. As Brian said, we got a lot of money tied up in schemes. I mean, we've been really active actually and we got a number of schemes. Typically, our schemes last 6 months, 9 months and you do see, again, a roll on, roll off of that during the year. Actually, we got a number of schemes here that are going to take a year or so to go through. They're really quite interesting. And actually, I would encourage you all to come and see us, and we can walk around and show you them that are really interesting. So what I would say is that GBP 11.8 million, we're not going to see a significant contribution to our income in the coming year from that. But actually, they're all value-added and that will then come through in the following year.

And then we have our under-rented element, which is kind of just reversion, which we tend to crystallize in 3 to 5 years, probably 3 to 4 actually.

So just turn to the valuation. Investor demand is still really strong, particularly for the smaller nuggets of freeholds that we have in the West End and I guess, it's a bit of a flag to safety. It's the best assets in the best city. This is some of the most valuable real estates on the planet. People are looking at them and saying, well, you know you get high occupancy, you get growing cash flow. Worse is a wealth preservation play. And I don't have to spend a lot of money on these buildings. And investors, typically, they are happy to buy in the sort of low-2s as long as they see the potential to get to sort of 3-or-so within 18 months to 2 years, and that's kind of what we're seeing. We can't buy the yields we're valued at, if only we could. That's just the way it is.

And on the counter side of that is there's virtually no supply. Nobody is really selling. Nobody -- and this is -- we always say this. It's people just look at their great pot of wealth they've got in one place. And typically, it's things like death, divorce, debts and sort of distress and whatever is life-changing events or -- well, I suppose death is -- anyway. So those are things that make people sell. And in a way, that all underlines the value of our portfolio because you just couldn't put together 15 acres of the West End in the way we've done it now because it's actually -- well, the ownerships are fragmented. It's not institutionally owned. It's mainly families.

Yields, as I say, over the second half, have been flat, wholly-owned at 3.41% and Longmartin at 3.82%. And I always stop and say this, but their value is to remind the board that this is a completely unique portfolio. It's exceptional in its uses. There's restaurant and retail uses and all the great things we got there. The opportunity to be there -- buy in 3 months what's taken 32 years to put together would probably command a premium.

Turning to the placing. This is just an update really for you. At the half year, we deployed -- or allocated 79% of the proceeds. That's now all deployed or allocated. So we've got -- of the money that hasn't actually been spent, GBP 39 million for 90-104 Berwick Street, which is annoyingly being delayed by the developer. Brian will speak about that a bit more. And then our scheme at 72 Broadwick Street, which Brian will talk a bit more, we got the funding for that.

And then just looking at the other side of the balance sheet. The -- we're in a pretty good place. We have significant resources available to invest further in the portfolio. Our loan-to-value now is just under 23%. We termed out our 2 revolving credit facilities this year. So our earliest maturity is now 2022. The blended cost of debt has come down a little bit over the year. Yes, that's a very strong platform to carry on growing our business.

And with that, I would like to pass back to Brian. The collection plates will be around just afterwards.

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [3]

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Thank you, Chris. So let's just have a look at what's going on operationally in the business now. But as a reminder of what we own, you'll see this -- the unusual nature of Shaftesbury's building is all the value is on the lower floors. It's this mix of restaurants, retail and leisure, 595 shops, bars, restaurants, cafés, pubs and clubs, over 1.1 million square feet. So the bedrock of the portfolio, upper floors, are this mixture of offices, generally small and 593 apartments.

The interesting point about the lower floors is planning and the physical constraints make it difficult in the West End to increase the supply of this space. So you can't build a lot more at ground floor level. That's just not going to happen. And of course, when we're providing that space, it is provided in shell form. So we avoid the cost of obsolescence. The tenants split the space out when it's worn out. The tenants have to deal with it. Yes, we spend some money on extending and improving where we can to make more efficient space, but our CapEx remains remarkably low at around GBP 30 million a year against, what, probably nearly GBP 4 billion worth of assets. So I will say very, very modest expenditure.

And then the other important thing about these older buildings is their flexibility. The uses ebbed and flows over generations. They can be used in different ways. You can knot them together. You can put the walls back in. You can add basements into ground floors. You can add first floors in or take them out as necessary. So we're finding that the portfolio is very adaptable to whatever the circumstance really. And as you could say, that's rather different where you got a purpose-built structure like a shopping center. It is what it is, and it's going to be very hard to adapt that if use requirements change.

Talking about the operating economy in the West End. Well, we said it's an incredible area in terms of footfall, 7 days a week trading, long hours, probably a more diverse and affluent demographic. We very much stick to a mid-market offer. You know we're not luxury, but we're not value-led. We're about creating distinctive locations, so something different. That's what draws people out or get them to spend their money. And we're seeing very resilient use demand for all of our uses.

We'd just note that average letting times have increased over the 12 months. Last year, we're talking about 2.5 months or 1.5 months. We've probably moved out to 2.5 months on average. So there's this greater caution and process you go through for getting lettings over the line, and it's particularly so when you got occupiers who are looking at larger rental commitments, larger space, larger fit-out costs. And on top of that, if they have any exposure to what's going on in the U.K. nationally at the moment in terms of retail and restaurants, well, you know that's not a great place to be at the moment. So I think that sort of problems they're having elsewhere slightly influences the speed at which they can commit to taking new space in the West End. It's no reflection on the fundamentals of the West End.

Restaurants, cafés, leisure are obviously really important part of the portfolio. It's grown considerably over the years. 10 years ago, we'd have been talking about 27% of our income. Now it's up to 35%. The focus on these really innovative casual dining choices, they're great drivers of footfall, they bring a lot of people into our locations. Clearly, the planning -- licenses restrictions are barriers to entry, and that's why you're seeing still in this market leases being bid for quite aggressively by occupiers trying to find the right space and the right locations. And not every restaurant succeeds, but everybody knows there's a willing buyer for a lot of those leases in the market at the moment and that has not changed.

It's -- I'll say we are seeing healthy trading. I didn't forget what you hear about U.K. nationally. We have no issues in our restaurants. We know some of our tenants have expanded out elsewhere and they've actually retrenched from those locations, which have not proved to be as resilient as the West End. But I'll say there, some of that may involve selling their leases in the West End. But fundamentally, the West End market remains very strong, and there are lots of buyers for those leases. So the main thing, we focus on being forward-thinking. We're always looking for new ideas in the food scene and that innovation is what attracts people.

And actually, if you have a look at some of the restaurants we've signed up this year, no chain formats there for you. And the 2 on the bottom right-hand corner, JinLi and Modern Shanghai are 2 of the 3 very large restaurants we've created in Chinatown, which are now fitting out and may well be open before Christmas. But the other is just a typical mix of all things that we offer.

Moving on to retail. Well, our retail is predominantly clustered in Carnaby, Seven Dials and Soho, so 83% of our retail income. And quite interesting, the split between what goes on in the shops, it's 37% pure fashion, but it's -- there's growing interest in lifestyle and accessories and footwear as well. It now accounts for 63% of what goes on in the retail.

Tenant selection is very -- is absolutely critical. We're always looking for, again, for new ideas. And our colleagues travel around the world looking to what's happening in the retail scene elsewhere and seeing what we can bring back here.

We've always lived in a world of shorter leases and flexible leasing arrangements. This is nothing new -- flexibility now works particularly well for retailers, but we like the opportunity to move things on when we think they've run their natural course. We're always looking for space to bring in the next new ideas.

And of course, we have -- the great benefit of our portfolio is we have a range of unit sizes. So we can cater from start-ups and more established operators. We can add to that space or pare it back if necessary. But, as always, it's cost at the end of the day. And if you look at where our retail sits in the sort of grand universe of West End retail -- on the right-hand side of the chart here -- these streets deliver good footfall. It's not as if they're quiet. Carnaby, you have over 40 million people a year passing through. Our parts of Covent Garden are in the mid-30s, 30 million people a year. And we'd say there's a lot of scope for growing these rents over time. It doesn't happen overnight, but getting the ingredients like the public realm sorted out are absolute key catalysts. And of course, getting on with -- seeing Crossrail running next year is going to be a major benefit to some of these streets. So we're confident off of these modest let rental levels, the portfolio income will continue to grow.

And again, here are a lineup of retail lettings. Again, it's more than just fashion. It's this whole range, this whole variety of retail and none of the very formulaic concepts or offerings you may see in the traditional high street or a shopping center. So really finding something different is what this experience is all about.

Offices are a part of the business, 20% of our ERV now, about 0.5 million square feet. Aside from 72 Broadwick Street, which we'll talk about, our offices, as you can see, they're generally very small, average letting at about 1,400 square feet. We got over 250 office tenants. So probably the largest provider of office -- small office accommodation to SME businesses in the core West End.

Retention rates have been very high. People are happy to stay put with us. We offer them quite a sort of club atmosphere around our buildings. You can have a Carnaby card or a Seven Dials. You can be involved in all the events that are going on there. And it's quite noticeable that people do still want their own office space, and we're aware that flexible space is becoming more available. But we're probably offering some of the -- something for these businesses in their next stage of growth. So whilst they happen to cowork for a period of time, sooner or later, they're going to want their own space and not be observed by everybody and potentially their competitors in working in some of these coworking space. They want -- those smaller spaces are still attracting a lot of interest. But what we need to do is make sure we have flexibility in leasing, in particular, getting broadband connection to all of our buildings. We've got a -- starting a [ROCK] program. We're rolling this out across our buildings. It's not easy. You got to deal with public streets and listed buildings, all sorts of things, but it's something we're aiming to do over the next couple of years.

Chris touched on residential. Occupancy there is very good. We actually had 1 day in the recent past where we had no flats available. So this is truly a fully let hotel. So good demand. Rents did come off a little bit in the first half but recovered in the second half. And don't forget, along the way, we're getting these -- the end of year 1 -- year 1 and year 2 of our ASTs, we get a minimum uplift of 4% per annum. So we've already banked that by the time we get to the end of the lease, and then there's a slight discussion around open market. So there's still good rolling income stream for us. We constantly upgrade and reconfigure. We're always looking at the space to make sure it reflects what people want in the market.

Moving on to the schemes now. As Chris said, it's been a busy year. We've been working on 10% of our floor space. CapEx -- well, if you add in the joint venture, approaching GBP 30 million. We're really quite modest. But you'll have seen now we've completed our larger schemes. We've put on really -- put our foot on the accelerator for a number of, what we call, medium-sized schemes, which I'll come onto shortly.

So inevitably, this refurbishment activity does slightly temper our growth. I must say we got more of it at the moment. And some of the schemes we're working on have got -- again, as Chris said, they got slightly longer duration, they're slightly larger schemes. So the reality is they're unlikely to be producing much of an income in the current year, but the rewards will come in 2020. That's what it's all about.

And as ever lots of public realm activity going on. We've completed our larger scheme in Chinatown, GBP 2 million to improve Newport Place, make a huge different. So once those restaurants are open, we can see the prospects of outdoor dining. And it's great that Chinatown now finally has its own public space. Earlham Street, nicely repaved. Already, the footfall is starting to grow there. So that's all positive. And we're looking at a number of other schemes, some in conjunction with adjoining owners in Broadwick Street, Rupert Street, Great -- Marshall Street, so lots to go for there. And with Westminster's ideas about how Oxford Street should -- the Oxford Street district should be dealt with these schemes of reactivating, improving side streets, not just Oxford Street, really chimes with what the city counselors are trying to achieve.

Busy period for acquisitions. As Chris said, never easy to buy, but we do find these things -- you never quite know when they're going to turn up. But I always say they're like filling in bits of the jigsaw puzzle. They stack up on their own, but the compound benefits of ownership and the additional control you get means you sort of assess it on a totally different basis. You look at them in the context of the whole as well as individually.

We're very disappointed that our forward-purchase of [Kemp] on Berwick Street has been delayed. We're expecting handover this month, but now we're told it's going to be mid-2019. And the frustration there is we're getting back 12,500 square foot of retail and a 2,000-square-foot restaurant. Quite frankly, if we had it now, well, it would let really quickly. The demand for these key streets in Soho, Broadwick, Berwick and Beak is exceptional at the moment. So there's nothing we can do about it. We just have to wait for delivery. It's not possible to hand it over in parts either. We just hope they get on with it and we'll hopefully send positive news next year. But obviously, this has taken a bit of income out of what we're expecting to receive this year.

A couple of disposals which we referred to in the first half. Again, they're one-off situations, but they did produce substantial surpluses over Cushman's valuation of those buildings. So it's interesting that this -- well, it shows really the strength of investor demand to buy individual buildings across the West End. And we're always looking to see what other ones perhaps we don't need to keep to crystallize on some of this demand.

Just talking briefly about 72 Broadwick Street. You remember this is the very large building we bought in December last year. Now vacated by National Magazine Company, and we've entered -- had all the flats. So we're looking at the building. We're not planning to knock it down. It's how we reorganize it, refurbish it. We'll be introducing -- perhaps putting a planning application. Some of you might come along to the consultation. You'll see we're looking at introducing some new uses throughout the building, but particularly some more retail and restaurant space on the first floor. And actually, in the basement, there's a redundant basement car park, which currently has no great value but we can see a lot of opportunity there. And it's very important to open up frontages around the building to benefit -- to take benefit from the growing footfall on Broadwick Street and benefiting the other ownerships we have around the building. And quite importantly, on the roof, we're actually reconstructing the 11 flats, which are very nice but probably slightly too big for the current letting market. So the idea is to produce 15 smaller flats. So planning application going in now. We expect to start work summer of next year. We think, hopefully, not too many issues around planning. It seems to have been very well received. We have improved the scheme from the way we looked at it originally. Now we've got stuck into the building. So the cost has gone up a little bit there. But actually, the potential rewards are greater and sort of consistent really.

And just talking about schemes again. These are a couple of our larger schemes here. Well, you see, actually each got a particular story. Charing Cross Road, something we bought nearly 2 years ago on the gateway into Chinatown. On Charing Cross Road, great opportunity to create new flagship restaurants and residential upstairs.

Gerrard Place also in Chinatown. If we've ever taken you into the Horse & Dolphin Yard over the last 32 years, we'll probably be surprised we finally found an answer to this great little courtyard. And it's been quite difficult to activate it, but we've got the biggest restaurant in Chinatown. We're cutting and carving that into 2 separate restaurants and with residential upstairs. But again, the compound benefit is here. There'll be -- we have interest in the space already. The way that can activate the courtyards and the impact on the buildings around it, which do have access onto the courtyard but don't overuse it, will be huge.

And then St. Martin's Courtyard, Chris referred to this as well. This is a scheme we did 10 years ago. We're already looking at better ways to use the space. There's an opportunity to bring more restaurant use into the courtyard. But again, to reconfigure it, to meet the demand today is quite telling really the pace of change here. But this portfolio can accommodate that. These buildings can be cut and carved in a number of ways.

So moving quickly now to the summary and outlook. You all have seen, though -- or you'll be aware of how we run this business. It's -- the background to all of what we do here is obviously a very uncertain U.K. situation. We've got constructural changing consumer spending habits, some patents combining with uncertainty around Brexit, which is really sort of slowing down the national economy. But I'll say, the West End is really immune to a considerable degree from this. We've got a very different sort of economy and a very different sort of customer base. And of course, our tenants are aware of this. This is why there's so much demand to be in London and the center of London. I think a lot of those restaurateurs and retailers will be very reluctant to move outside of the safety zone of the West End without good reason because they can see that when the U.K. struggles, it hits those areas, whereas West End is so much more insulated. Importantly, visitor numbers are still set to grow regardless of Brexit. And of course, we've got -- we've not seen far off more Chinese visitors making their way to London. It's not about Europeans. We've got a global market here.

So what's this business all about? Well, you know pretty well really: location, location, location, sums it up quite nicely. Valuable supply-constrained uses, very limited exposure to obsolescence. So the cost of running this portfolio is not high. Our approach has always been patient long term. Management strategy for our assets, that sort of consistency but adaptability is key. Very much focused on creating an interesting environment, an experience you won't get anywhere else, that's what the West End is all about. Change is everywhere, so our view is you just embrace it. Don't try and deny it. We need to keep moving forward, and we've got a great number of ideas that come from a very experienced team. Well, they've been around. We've seen some of the ups and downs over the years, but they're -- a number of them are here today. And they're great, committed, enthusiastic, enterprising. It's about flair and innovation, and that's how you make real estate work in the West End and in the current climate.

All of this works because we have great long-term financial arrangements in place. That's really important, particularly for a long-term business like ours. Sometimes, we've been the most active in buying stuff when the weather has been very cloudy. So it's great to have resources there and, at the same time, not be in the position where there's too much leverage in the business. We don't want to risk being put in a position where we may have to dispose of assets. That will be very destroying of value in the business.

So there we go. Our business is built on portfolio in the best of the best locations here in the center of the West End, robust finances and a strategy that is proven over the long term and a great team. So we feel pretty confident about what lies ahead.

Would just like to, well, wish you a Merry Christmas from Seven Dials. But before we get too much into the Christmas season, it's time for questions and answers. So if you all remember, we're being streamed around the world. As we speak to the 4 corners of the globe, will you please make your identity known when you ask a question for that global audience?

So I think we got some roving microphones here. Any questions?

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Questions and Answers

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Rob Virdee, [1]

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It's Rob Virdee from Green Street Advisors. Just a couple. Just on Central Cross, I appreciate it's small. You've got 30% which has not been let. Is there a Plan B there? And secondly, have you let anything in hindsight, would you have done anything differently with respect to some of your current schemes?

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [2]

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Tom, would you like to talk about Central Cross? It's one of your projects.

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Thomas James Chisnell Welton, Shaftesbury PLC - Property Director & Executive Director [3]

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Central Cross, quite a large proportion of it is actually F&B, and the vast majority of that is actually contracted. We just got one restaurant to go, which is now under offer and [in the solicitor's hands]. On the retail, it's a bit of a mixture, actually. I think when we set out to do the scheme, we probably highlighted that some of the tenants might not necessarily be typical Shaftesbury-type tenants. So this is bigger box retail. It's a different sort of location to some of the others that we operate in. So we've got a mixture of cafés. We've got a Chinese, gaming and sort of cybercafe that's taken space, probably the sorts of uses that you might not have expected, but it's shaping up very nicely. It's a gateway to Chinatown. It's a new location, right opposite Leicester Square Tube Station. So we don't have any qualms about the -- well, it would've been nice to let it quicker, but it does -- it's going very well. And it will make quite a big impact.

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [4]

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I'll take this -- your other point. Yes, we've had 3 quite large schemes by Shaftesbury standards running, and they started in a sort of pre-Brexit era. But I think we would have pressed ahead regardless because they're great strategic improvements to the portfolio. Again, sorting out the eastern end of Chinatown has been on our agenda for a long, long time, moving Carnaby -- edging Carnaby towards the Dean Street exits at Tottenham Court Road station and actually, using the growth in footfall on Broadwick Street has really been important. And Thomas Neal's, yes, that's taken a while. We really wanted at the outset a food-led offer and the first one didn't work. A second, purely retail occupier actually fell away after 9 months of discussion and agreeing terms. But we actually ended up right where we wanted to be with a really innovative food offer. So it's a long-term business. Not everything runs to a timetable. We just have to be adaptable. And actually, we get lettings over the line and they all get that.

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Rob Virdee, [5]

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Sorry, just one more. I was going to ask about time to conclude on lettings. I appreciate you say it's gone up to 2.5 months. How much variation is that between, say, F&B and retail?

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [6]

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I mean, this is a real mix, actually, Rob. It's -- there's no sort of trend there, I would say.

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [7]

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They just tend to be the larger units, not the small units.

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [8]

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Yes, yes. It's the large units where people sort of spend on fit-out and they're committing and that takes a bit longer.

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [9]

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And not West End retail as much as restaurants because really it's the -- there's a quantum of commitment that people are being asked to make or considering making.

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David Thomas Brockton, Liberum Capital Limited, Research Division - Research Analyst [10]

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It's David Brockton from Liberum. Can I ask 2, please? Firstly, in respect of Long Acre and the value of caution that you've seen there again. Can you just talk about whether you're seeing any of that caution manifest itself in the letting activity there yet? And also, where the sort of the cycle of lease renewals is for you for your units that you've got there? And that's the first question. The second question relates to turnover top-ups. You -- I think you noted in the presentation that the level of income has grown from those. Can you just remind us the proportion of restaurants and cafés that are paying to any of the top-ups and where your aspirations are for that to go?

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [11]

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Tom, do you want to deal with the Long answer...

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Thomas James Chisnell Welton, Shaftesbury PLC - Property Director & Executive Director [12]

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Yes, with Long Acre one. At the moment, I don't think there's any evidence to say that rents have actually come off on Long Acre. But it's just if you look at the nature of the units and the profile of the tenants and what we hear anecdotally what's available, I think the value is decided just to build in a hint of caution. That hasn't applied anywhere else across our portfolio. But I guess, everything else we have these less sort of high street if you understand.

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David Thomas Brockton, Liberum Capital Limited, Research Division - Research Analyst [13]

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And do you have a sort of proportion of renewals due pending in the current year for those? Or is that...

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Thomas James Chisnell Welton, Shaftesbury PLC - Property Director & Executive Director [14]

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It's a bit of a mixed bag. Obviously, it was done at a time when -- well, in fact, we've already regave 1 or 2 leases just to sort of circumvent that. So ideally, yes, you don't want all your leases falling in at one particular time. And certainly, that's not the case there.

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [15]

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On the restaurants. So you'll recall what we used to do is let leases inside the act and security of tenure. There'd be 25 years. And over probably the last 5 or 6 years, we've been unpicking that. On new leases, we won't give security of tenure. There'd be 15 years generally, and we're add in the turnover top-ups. So 54% of our restaurant leases are still on the old style. So it was 60%. It's come down to 54%. Next year, it'll be a smaller percentage. So every year is a growing percentage that we're getting into new-style leases. To be honest with you, I would -- the turnover top-up is important. But interestingly, what will happen when we get to rent review -- because the values don't really put very much value on. They've got a frothy yield on that, which is fine. I mean, that's absolutely fine. But I think what we'll see is that I wouldn't say that the turnover top-up will always go up because sometimes, when you have rent review, some of that will get converted into hard rent. And even if term for rent didn't change, the split between hard rent and turnover top-up could change. But for us, it's fantastic. It's GBP 1.1 million that flowed straight through to the bottom line this year.

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [16]

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I think it's also worth saying there's a bit of a lag in getting this turnover income. It doesn't normally kick in from day 1. You need a full clear 12 months of trading. I think that's the case in most of our leases. So these -- they pick up momentum. So we're probably on a slight 2-year lag. And before we see these other turnover, not every restaurant is going to pay them, but an awful lot do.

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Unidentified Analyst, [17]

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[Max here. Can you hear that?] Yes, just 2 quick questions, if I can. On the ERV growth, so it's down kind of 2.4% -- there we go. Down at 2.4% this year down from 3.5% last year, 5.7% the year before. How should we think of this? Is this to do with projects coming on? Or is this actually a longer-term trend? And should we think of it as down towards this level? And then secondly, just on the CapEx. You guys were talking that you don't do -- you provide a shell. Are retail -- or are F&B, particularly, are they spending more on CapEx? Have you seen that increase? I know there's been kind of reports elsewhere, where there's been large CapEx fit-outs and then F&B goes bust in sort of 18 months and this kind of thing. Is that something you guys have seen at all in your portfolio?

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [18]

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Would you like to talk about the ERV growth?

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [19]

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Yes, yes. I mean, ERV growth is -- I think Brian sort of talked about that on probably his second or third slide. We -- actually, we had a year -- I think it was 6-point-something the year before that. So you might -- that's a trend. But what we see is over time, it comes back to 4% to 5%. You get a few years above, a few years below. I don't -- we don't think that's a downward trend. And we're kind of looking longer term in the next year or this year, or we're just looking over the long term, and it always seems to kind of come back to the 4% to 5%.

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [20]

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We've had some years at 0 when you look at 2009 and '10. No ERV growth at all, but it picks up again and recovers. So this is why you get these above-trend years and below trend. And there's -- the climate we're in is the climate we're in. We can't do anything about that. And of course, value is recessing ERVs. But it's quite interesting, we keep beating their ERVs, which suggests they're perhaps exercising a bit of -- quite proper value is cautioning some of these things.

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [21]

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I think that's right. I mean, their commercial lettings were 5.1% up during the year. So that's actually -- we're not seeing that yet in the valuation. The other thing I would say is it might ebb and flow. What you don't see is big peaks and troughs as a statistical line. It's pretty flat or not flat but sort of straight, I suppose is the right word, but yes. So we are -- so I don't think -- we're not concerned by that at all.

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [22]

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I think generally it's why we're seeing increasing turnover from our retails and restaurants. So that's the thing that gives us real confidence.

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [23]

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Yes, yes. I mean, trading is looking really good, actually. People are reporting increases in turnover, yes. And it's busy. Why wouldn't you want to trade there?

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [24]

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Just on your question about restaurant fit-out investment. Yes, some tenants do invest substantial amounts of money. We've gotten -- our restaurants are mostly small. We generally think that's the sort of -- that's the best part of the market to be in at the moment. The sort of trend towards mega restaurants is perhaps coming off the ball a little bit because the fit-out costs are so high. But I'm not aware we've had any significant failures where -- the risk is the tenants at the end of the day. We've always said that.

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Thomas James Chisnell Welton, Shaftesbury PLC - Property Director & Executive Director [25]

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And certainly, in terms of the level of commitment from tenants, normally we reckon anything between 3 and 5 years' rent in terms of capital expenditures. So it's a fit-out and that still seems to be continuing.

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [26]

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I mean, we've never had a bad debt issue in a restaurant because the leases are so valuable. Somebody will come along and buy the leases and the fittings. And actually, a lot of stuff in the kitchen may still be usable for the next tenant. It's just the front of the house that gets changed. So in a way, that gets passed on to the next guy.

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Christopher Richard Fremantle, Morgan Stanley, Research Division - Executive Director [27]

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Chris Fremantle from Morgan Stanley. Just a very quick follow-up on the letting caution point that you made. I mean, you don't tend to disclose tenant sales development or any of those sort of tenant performance metrics. Is there any part of that letting caution which is about affordability rather than just broad caution? Is affordability starting to get stretched at all from what you've seen in the retail part of the portfolio? Or is that -- have you seen a similar development of tenant sales as you have for the underlying rental development?

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [28]

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Well, I think in terms of affordability, you just have to look at the rental tones chart that we've put up earlier on to see that our space is really quite affordable by West End standards, and our space is also quite small as well. So you can -- effects of turnover through these smaller shops and also restaurants. So I don't -- we're not seeing that as a particular problem. Obviously, all these businesses got cost pressures. Import costs are getting higher. Fortunately, we didn't -- we aren't exposed to the highest of the business rate increases. Most of ours were sort of 25% to 45% and spread over 4 years. So again, we got that advantage of a smaller space so that's quite important.

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [29]

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I think a lot of the caution we're seeing is in the bigger -- so we keep saying, the bigger units. It's where people live. It doesn't matter what the rent is, it's a big check you're going to write. It became 1980s all of a sudden, sorry. And that you're going to spend some money on the fit-out, and I think that's the caution. And you can just sort of see the macroeconomic sort of picture is there's uncertainty and people just aren't committing. I mean, why would you be the property director who puts his neck on the line to the board and say I want to open a big unit when the board's saying I want to shut the rest of my units everywhere else. And so that's the kind of -- but that's all stuff. That isn't the case at all, isn't it? We're not seeing this at all.

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Simon John Quayle, Shaftesbury PLC - Property Director & Executive Director [30]

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I've been using Soho as an example. And Brian mentioned our disappointment about not getting the [Kemp shops]. We have nothing to let in Soho at the moment and we have a lot of demand that is unsatisfied. So -- and those are the small units. It's interesting also that there's some slight rating relief for smaller units, which was announced recently. So if you got a rental value under GBP 51,000, you get some relief. It's only for the small shops, but it's a notification that people are taking out again.

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [31]

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And the other thing, as Brian said, the portfolio is quite adaptable. So it's interesting, probably 5 years ago, when the demand was for bigger units, we were taking walls out and knocking units together. We're kind of putting them back in now and just creating the small units. You just work to what the demand is.

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [32]

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The biggest operational concern for our business is -- I'm not going to go on any long discussion about the merits or otherwise of Brexit -- but it's the absence of staff. There's a real problem in staffing in retail and the hospitality across Central London at the moment. And then of course, it's affecting the construction industry as well now. So these are real concerns for the businesses. You can't run a restaurant without people there, people working the kitchens, people serving.

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Unidentified Analyst, [33]

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[Sam Abundo], Barclays. Two questions from me, please. First one on your development activity. Obviously, there's loads going on in the villages and lots of development activity. The slight negative of that is in the near term actually, that takes out a bit of the income. So I think in the second half, actually, the positive impact like-for-like was entirely offset by taking back space for development. How should we be thinking about that going into the next year? And kind of is there more to come? And do you still believe that like for the next year, the positive like-for-like impact will be largely offset by further development activity?

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [34]

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No, I think -- [Sam], no, I think -- thank you. No, we'll see like-for-like growth in rents next year. We have got a big pipeline of things. We're not really looking in the short term. We're looking much longer term, and we're not doing these things because we want to take income out. We're doing it because we want to create long-term value in the portfolio. So -- but no, we'll see growth in rents next year.

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Unidentified Analyst, [35]

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When do you expect to capture a large chunk of that ERV then kind of to put a bit kind of a target for us?

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [36]

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In the year after.

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Unidentified Analyst, [37]

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Okay. So that is not this? Okay, fine. And then second question, and this is partly related to kind of getting a bit of feeling for the tenant environment. Obviously, still going great and very good occupancy. At the same time, your operating costs and your village promotion costs are going up quite materially. Can you just give a bit more color? Is this -- I know you briefly alluded to it that this is a bit of a one-off high year. But especially with regards to like village promotion stuff, is it kind of expected to be sustained higher number? And are operating costs for the properties just a bit higher? Just a bit more color there will be useful.

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [38]

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Do you want to talk about PR?

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Simon John Quayle, Shaftesbury PLC - Property Director & Executive Director [39]

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I mean, PR and marketing events is a critical part of what we do for all of our villages. And we're very conscious obviously of costs, and I think this year has been slightly higher than normal years. But we don't anticipate that, that -- there certainly won't be increases on that over the coming years. But it's absolutely critical. We continue to do what we do for our villages and that's what draws footfall. It's also what draws retailers and restaurants to our areas because they expect to have that sort of support.

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Unidentified Analyst, [40]

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But does it effectively mean that you need to spend more in order to get -- to attract the same level of footfall and to attract the same level of tenant demand?

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [41]

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I mean, actually, what we're trying to do is increase our reach and push the message further. Actually, we're using social media more and more. And as you can imagine, that's just probably so important and using influencers, and that's actually pushing the message further. And really interesting, the innovation is important. As I say, if you haven't been to Carnaby, come down and look at the Bohemian Rhapsody lights. Their economy is just full of people. Everyone is taking a photo. Everyone single one of those photos goes on Instagram or Facebook or Twitter or whatever else. It's -- and that is all fantastic. That's just pushing the whole thing around. It's amazing.

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Simon John Quayle, Shaftesbury PLC - Property Director & Executive Director [42]

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And there is a move away, as Chris says, to social media and to sort of influencers. It's the youth influencers, which is really the important way of getting the message across now. So it's a different attack really to what we're going to be doing in the future.

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Christopher Peter Alan Ward, Shaftesbury PLC - Finance Director & Executive Director [43]

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And we're also looking at Weibo and WeChat. So we're involved with them, which are the sort of Chinese mega wraps, which are just, well, mindnumbing numbers of people using them as you can imagine.

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [44]

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And of course, the other elements of the equation is the fact that some of the income has been delayed in our larger schemes. There's a quite a lot of those 3 larger schemes that I think accounted for something like GBP 7.5 million of income. And things have likely been different. We expected to see those pretty much full income. We're catching up now. But again, the delay is there in the share of income. So again, the percentage probably wouldn't look such great increase had life proceeded as normal after the 24th of June or whatever it was, 2016. Conscious of the time, I think we may have to make this the last question. Far right.

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Benjamin Paul Richford, Crédit Suisse AG, Research Division - Research Analyst [45]

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Ben Richford from Crédit Suisse. Just wondering on disposals. You've clearly executed some disposals well above book value, and there's a few parts of your portfolio that are outside of the key sort of core villages. Is an opportunity there to do a bit more on disposals and get some excellent pricing on further deals?

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Brian Bickell, Shaftesbury PLC - CEO & Executive Director [46]

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I think we always look -- I mean, the year before we got rid of a number of what, maybe 10 flats, I think, which we thought was -- plus the requirements. Here, we've had a couple of commercial buildings. We may be looking at 1 or 2 others at the moment. I can't say any more than that. But I think we're always conscious that life moves on for a particular purpose at one time. Our objectives and focus might be slightly different now. So -- and if there are special purchases out there, as there certainly were for these 2 assets, then why not capitalize on those? It's sort of good housekeeping really. And it is evidenced -- an element of evidence that valuers will notice, I'm sure, when looking at the current values that individually, there is huge demand for these nuggets of West End freeholds. Anybody got views on it? No?

Right. Well, I'm conscious of the time now. So we're nearly at 10:30. Thank you all very much for your time today. We're always available to answer any other questions and very keen that if you got clients that would like to come and see us, we're always available to show people around. It's a very granular business. As ever, it is the Christmas season, so we have a little -- 2 little takeaways for you today, nothing that needs to be declared to the compliance department. We have a new restaurant guide, updated from probably 18 months ago. Loads of great new restaurants for you to try. And as part of our sustainability campaign, we also have a nicely branded coffee mug that is totally recyclable, I'm told. So you can do your bit to help the environment, i.e. using a Carnaby coffee mug. So again, thank you very much for your time today and have a great Christmas, everybody. Spend it in the West End.