Shaftesbury, the specialist London West End REIT, has begun the process to refinance £150m in two existing Nationwide loans, with the replacement financing longer-dated and up to £50m larger.
The two existing loans, a £100m facility originated in 2006 and a £50m facility arranged the year after, both have 2016 maturities but the West End specialist REIT confirmed this morning that an earlier refinancing is underway, which could lead to either one or two new facilities.
“The cost of the longer-term funding we are contemplating will be higher than that for the short-term facilities it is replacing,” wrote Shaftesbury in its annual results to the end of September, published this morning.
In April, Shaftesbury refinanced two £225m Lloyds Banking Group facilities: replacing a £125m bank facility with a £150m revolving credit facility with Lloyds; and a £134.75m 15-year fixed interest loan with Canada Life Investments at an all-in cost of 4.47% over the UK Gilt 2028 benchmark.
As part of the refinancing, Shaftesbury cancelled £110m in interest rate swaps at a cost of £29.0m. Shaftesbury is contemplating terminating additional interest rate swaps next year which have estimated breakage costs of between £25m and £30m, equivalent to around 10p against EPRA NAV.
Shaftesbury has been the subject of takeover speculation in recent weeks, after Hong Kong billionaire Samuel Tak Lee, who heads Prudential Enterprise, pushed his shareholding past 5% in October.
In its analyst call this morning, Shaftesbury management insisted no formal or informal interest had been lodged by the shareholder and they had no foresight as to whether or not to expect one.
However, Shaftesbury – whose property portfolio is spread across 14 acres throughout Carnaby Street, Covent Garden, Chinatown and Soho – declared in its results this morning that its valuers DTZ consider the value of its portfolio, up £426.4m to £2.6bn on a like-for-like basis, is greater than the sum of its parts.
Shaftesbury stated: “DTZ continue to advise us that, in their view, with its unusual confluence of ownership and use characteristics, some prospective purchasers may consider a wider combination of some parts of the portfolio, or the entire wholly-owned portfolio itself, to have a greater value than currently reflected in their valuation.”
Shaftesbury reported strong results culminating in an annual profit after tax of £440.4m – up 84% on 2013 – and a 25.7% increase in net asset value to £7.13, driven by a 55 basis points yield compression across the property portfolio.
Mike Prew, equity analyst at Jefferies described the NAV growth as “consensus busting” and noted it was “the strongest NAV ‘beat’ this earnings season”.
Shaftesbury’s increased by £426.4m over the 12 months to the end of September to £2.6bn, equating to an ungeared like-for-like capital return of 21.0%, compared to 2013’s equivalent 9.5%.
At the full wholly-owned property portfolio level, Shaftesbury’s equivalent yield has fallen to 4.0%, a reduction of 55bps over the year. Excluding the residential component, the equivalent yield rises to around 4.25%.
The estimated rental value (ERV) of Shaftesbury’s portfolio, based on current market sentiment for rents, now stands at £118.6m – 26.8% above current income of £25.1m.
In March 2014, Shaftesbury raised £153.2m through a share placing, issuing 25:25m shares at £6.20 per share. Around £105m, or near 70% of the net proceeds, financed Shaftesbury’s major acquisitions this year of Newport Sandringham and 57-59 Broadwick Street, for a combined £107.9m. Plans are underway for major reconfiguration schemes at both locations.
Additionally, £13m is predominantly earmarked for forward funding the Broadwick Street development, plus a further £14m is allocated to wider portfolio capital expenditure.