Shaftesbury Capital secures £570m from Norges Bank in Covent Garden sale

Shaftesbury Capital PLC has finalized a significant transaction involving its Covent Garden estate, forming a strategic partnership with Norges Bank Investment Management (NBIM), the Norwegian sovereign wealth fund. This agreement, which sees NBIM acquiring a 25% stake in Covent Garden for £570 million, underscores the continued appeal of London’s West End as a prime real estate investment destination.

The deal values Covent Garden estate at £2.7 billion, aligning with its most recent independent valuation. For Shaftesbury Capital, this move not only provides a substantial capital infusion but also enhances its financial flexibility. The transaction is expected to strengthen its balance sheet, reduce debt, and open avenues for reinvestment and expansion within its portfolio.

What Does This Deal Mean for Shaftesbury Capital’s Financial Position?

This transaction marks a pivotal step in Shaftesbury Capital’s long-term growth strategy. The company, a leading real estate investment trust (REIT) in central London, has built a strong portfolio encompassing Covent Garden estate, Carnaby, Soho, and Chinatown. With a property portfolio valued at £5 billion, Shaftesbury Capital’s holdings span 2.7 million square feet across high-footfall districts, making it a dominant player in London’s retail, office, and leisure markets.

By securing £570 million from NBIM, Shaftesbury Capital intends to reduce its debt burden significantly. The proceeds will be initially directed towards the partial repayment of the Canada Life term loan, reducing its outstanding balance from £135 million to £67.4 million. The company also aims to address its £275 million exchangeable bonds due in 2026, ensuring a more stable financial outlook.

With these measures in place, Shaftesbury Capital’s EPRA loan-to-value ratio will drop from 27% to 16%, demonstrating a substantial improvement in leverage. The company’s net debt will be cut nearly in half, from £1.4 billion to £700 million, positioning it for greater flexibility in pursuing acquisitions and portfolio enhancements.

How Will Shaftesbury Capital and NBIM Manage Covent Garden?

Despite selling a 25% stake in Covent Garden estate, Shaftesbury Capital will retain operational control. The deal structure ensures that the company will continue managing the day-to-day operations, with NBIM holding a non-controlling minority stake.

A shareholders’ agreement between the two entities outlines governance terms, ensuring that Shaftesbury Capital maintains autonomy while granting NBIM influence over key strategic decisions. The agreement also includes customary transfer restrictions, such as pre-emption rights and a three-year lock-up period, preventing either party from selling shares without meeting specific conditions.

In terms of financial arrangements, Shaftesbury Capital will oversee asset and property management services through an asset management agreement, under which it will earn management fees. These fees will help offset operational costs while allowing Shaftesbury Capital to generate consistent income from the estate’s performance.

Why Is Covent Garden Estate a Prime Investment for Norges Bank Investment Management?

The Covent Garden estate is one of the most prestigious mixed-use real estate assets in the world. Situated in the heart of London’s West End, it attracts millions of visitors annually, benefiting from a high footfall environment and resilient consumer demand.

The estate spans 1.4 million square feet, housing 220 buildings and over 850 units across retail, food and beverage, office, and residential spaces. As of 31 December 2024, the estate generated an annualized gross income of £104 million, with an estimated rental value (ERV) of £134 million.

Retail and hospitality tenants account for approximately 74% of the property’s value, while office and residential spaces comprise 26%. The estate’s strong tenant mix, coupled with a net initial yield of 3.6%, makes it an attractive long-term investment for institutional capital.

For NBIM, this acquisition aligns with its strategy of investing in prime global real estate. The sovereign wealth fund, which manages one of the world’s largest asset portfolios, has been expanding its West End real estate presence, previously acquiring stakes in other prime assets. This latest investment in Covent Garden estate further solidifies its commitment to high-quality, income-generating properties.

How Has Shaftesbury Capital’s Stock Reacted to the Deal?

Investor sentiment toward Shaftesbury Capital has been overwhelmingly positive following the announcement of this partnership. Shares of Shaftesbury Capital (LSE: SHC) rose by approximately 9.8% in response to the deal, reflecting market confidence in the company’s strategic direction.

Analysts have also reaffirmed their bullish outlook, with Shaftesbury Capital maintaining a “Buy” rating across multiple brokerage firms. The company’s 12-month price target is currently 149.25 pence, implying a potential 28.66% upside from current levels. Jefferies, a prominent investment bank, recently reiterated its support for Shaftesbury Capital’s business strategy, citing the Covent Garden deal as a value-enhancing move.

What Are the Long-Term Implications for Shaftesbury Capital?

This transaction is expected to be earnings-accretive, meaning it will contribute positively to Shaftesbury Capital’s profitability over time. The company will continue to benefit from fee income from asset management, while also reducing interest expenses through lower debt levels.

Additionally, the proceeds from the deal provide Shaftesbury Capital with new growth opportunities. The company is evaluating potential acquisitions within both Covent Garden estate and its broader portfolio, aiming to enhance its asset base and generate sustainable long-term returns.

Beyond acquisitions, Shaftesbury Capital is also exploring reinvestment in existing properties, focusing on refurbishment, asset repositioning, and tenant diversification. These initiatives are expected to increase rental yields and further solidify the company’s leadership position in London’s West End real estate market.

Why Does This Deal Signal Confidence in London’s Real Estate Market?

The successful completion of this transaction reaffirms the strength of London’s prime real estate sector, particularly in the West End. Despite broader economic uncertainties, institutional investors like NBIM continue to seek exposure to high-quality assets with strong income potential.

Shaftesbury Capital’s Chief Executive, Ian Hawksworth, emphasized that the investment reflects the enduring desirability of Covent Garden estate and highlights the firm’s ability to attract top-tier capital partners. Similarly, Jayesh Patel, Head of UK Real Estate at NBIM, noted that this acquisition strengthens NBIM’s footprint in London’s high-value property market, complementing its existing portfolio.

With Covent Garden estate being one of the most iconic retail and leisure destinations in the world, this transaction signals confidence in the long-term resilience and growth potential of central London’s property market.