Shaftesbury annual report 2013
OVERVIEW
Shaftesbury at a glance 04
Results overview 06
Chairman’s statement 08
StRatEgIc REpORt
Business model 10
Portfolio performance 16
Our portfolio 20
Finance review 38
Corporate responsibility 43
Principal risks and uncertainties 48
Portfolio analysis 50
Basis of valuation 50
gOVERNaNcE
Directors, officers and advisors 54
Corporate governance 56
Nomination committee report 59
Remuneration report 61
Remuneration policy report 62
Annual remuneration report 69
Audit committee report 79
Directors’ report 82
Summary report by the valuer 84
Directors’ responsibilities 86
Independent auditors’ report 87
FINaNcIaL StatEMENtS
Group statement of comprehensive income 91
Balance sheets 92
Cash flow statements 93
Statements of changes in shareholders’ equity 94
Notes to the financial statements 95
OtHER INFORMatION
Five year financial summary 114
Shareholders and corporate information 116
Glossary of terms 117
Shaftesbury PLC
01
We invest in real estate in the heart of London’s West End.
Our objective is to produce long-term growth in our revenue
through investment in, and management of, our property holdings,
which is delivered to shareholders through rising dividends.
Sustained improvement in rental income increases the value both
of our holdings and shareholders’ investment in our business.
Our wholly owned portfolio, which extends to over 13 acres of freeholds,
comprises over 560 buildings which provide 1.6 million sq. ft. of
commercial and residential accommodation. The Longmartin joint
venture, in which we have a 50% interest, owns a 1.9 acre island
site with 269,000 sq. ft. of mixed-use space.
Our portfolio is now valued at £2.05 billion.
Financial highlights
NET PROPERTY INCOME
EPRA NET ASSET VALUE*
NET ASSET VALUE RETURN
+3.1%
2013 £73.2 million
2012 £71.0 million
+13.9%
2013 £5.67 per share
2012 £4.98 per share
+16.3%
DIVIDENDS DECLARED IN
RESPECT OF FINANCIAL YEAR†
+4.2%
2013 12.5p per share
2012 12.0p per share
2009 54.5
2010 57.6
2011 66.6
2012 71.0
2013 73.2
2009 3.35
2010 4.14
2011 4.63
2012 4.98
2013 5.67
2009 - 8.1%
2010 26.5%
2011 14.4%
2012 10.1%
2013 16.3%
2009 10.6
2010 10.25
2011 11.25
2012 12.0
2013 12.5
* Adjusted in accordance with the EPRA Best Practice Recommendations. See page 39 for a reconciliation
to reported results.
† 2009 interim dividend per share adjusted to take into account the Rights Issue in 2009.
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Shaftesbury at a glance
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London’s West End, where all our investments are located, has a renowned concentration
of world-class historic and cultural attractions together with an unrivalled variety of shops,
restaurants, cafés, bars and clubs which bring huge numbers of domestic and international
visitors. It is also an important location for businesses, particularly those in the media,
creative and IT industries, and a popular place to live.
Shopping and leisure are important elements of the local economy, serving visitors as well as
the local working population and residents. In the West End, there is a long history of occupier
demand exceeding the availability of these uses, which is often restricted by planning policies
and space constraints. Consequently, we focus on central locations and buildings where the
predominant uses are retail and leisure-related. These elements now provide 70% of our
current income.
Shaftesbury villages
O X F O R D S T R E E T
Oxford
Circus
CARNABY
W1
4.1 ACRES
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CHARLOTTE
STREET
W1
0.6 ACRES
SOHO
W1
1.1 ACRES
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Tottenham
Court
Road
SEVEN DIALS
WC2
SHAFTESBURY AVENUE
2.9 ACRES
ST MARTIN’S
COURTYARD
WC2
1.9 ACRES
CHINATOWN
W1, WC2
SHAFTESBURY AVENUE
2.7 ACRES
Piccadilly
Circus
Y
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Leicester
Square
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COLISEUM
WC2
1.0 ACRE
Charing
Cross
Covent
Garden
OPERA
QUARTER
WC2
0.6 ACRES
D
S T R A N
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Shaftesbury at a glance continued
SHOPS
330
426,000 sq.ft
LONGMARTIN JOINT VENTURE
23
69,000 sq.ft
37%
OF OUR PORTFOLIO †
RESTAURANTS,
CAFÉS AND LEISURE
234
525,000 sq.ft
LONGMARTIN JOINT VENTURE
8
43,000 sq.ft
33%
OF OUR PORTFOLIO †
OFFICES
RESIDENTIAL
386,000 sq.ft
LONGMARTIN JOINT VENTURE
102,000 sq.ft
17%
OF OUR PORTFOLIO †
470
278,000 sq.ft
LONGMARTIN JOINT VENTURE
75
55,000 sq.ft
13%
OF OUR PORTFOLIO †
SHOPS
RESTAURANTS, CAFÉS AND LEISURE
OFFICES
RESIDENTIAL
C H A R L O TTE STREET
CARNABY
BY FAIR VALUE 33%
BY CURRENT INCO
M
E 3
2
%
O
H
O
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%
7
%
7
3 %
3 %
%
2
2
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N T IN C O M E 36%
B Y F AIR VALUE 35%
T G A R DEN†
N
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V
† By current income. Data includes our 50%
share of the Longmartin joint venture
O
C
06
Results overview
PROPERTY CAPITAL VALUE
RETURN (%)
TOTAL PROPERTY RETURN
(%)
NAV RETURN (EPRA NET
ASSETS) (%)
TOTAL SHAREHOLDER RETURN
(%)
SHAFTESBURY
BENCHMARK†
SHAFTESBURY
BENCHMARK†
SHAFTESBURY
SHAFTESBURY
BENCHMARK‡
9.5
5.5
13.4
9.7
6.5
3.5
16.3
14.1
10.1
24.7
19.5
16.0
-0.4
2013
-3.1
2012
2013
2012
2013
2012
2013
2012
† IPD UK Monthly Indices: Capital Growth and Total Return
‡ FTSE 350 Real Estate Index
FINANCIAL HIGHLIGHTS
Net property income
Property assets at fair value
Loan-to-value
EPRA results*
Profit after tax
Earnings per share
Net assets
Net asset value per share
Dividends
Interim dividend per share
Final dividend per share
Total dividend per share
Reported results
Profit after tax
Diluted earnings per share
Net assets
Diluted net asset value per share
* Prepared in accordance with the EPRA Best Practice Recommendations.
£m
£m
£m
Pence
£m
£
Pence
Pence
Pence
£m
Pence
£m
£
2013
73.2
2,052.6
29.5%
30.2
12.0
1,435.6
5.67
6.25
6.25
12.5
239.3
94.7
1,330.7
5.26
2012
71.0
1,828.2
30.5%
30.6
12.2
1,259.1
4.98
5.95
6.05
12.0
93.0
36.8
1,119.4
4.43
CHANGE
+3.1%
+12.3%
-1.3%
-1.6%
+14.0%
+13.9%
+5.0%
+3.3%
+4.2%
+157.3%
+157.3%
+18.9%
+18.7%
Shaftesbury annual report 2013 OVERVIEW
Results overview continued
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Chairman’s statement
I am pleased to announce another set of excellent results, following a year of good progress
for Shaftesbury, in which high levels of activity across our portfolio have driven growth in the
value of our business. London and the West End have gone from strength-to-strength, particularly
since the Olympics, with record visitor numbers reported to date in 2013. Occupier demand
remains strong, and vacancy levels have been low throughout the year.
Our portfolio, now valued at £2.05bn, has continued to perform well
this year, delivering a revaluation surplus of £174.3 million, which has
increased EPRA net asset value per share by 69p (13.9%) to £5.67 at
30 September 2013. After adding back dividends, the total NAV return
for the year was 16.3%.
Our redevelopment and refurbishment programme continues apace,
with 21 schemes currently on-site with an ERV of £4.9 million, the largest
of which is our 32,500 sq. ft. development fronting both Foubert’s Place
and Kingly Street. We continue to identify and progress opportunities
to unlock further rental growth from within our existing portfolio.
EPRA profit after tax for the year ended 30 September 2013 was £30.2
million compared with £30.6 million for the previous year. We have had
an unusually high level of redevelopment and refurbishment activity
during the year, undertaking 50 projects, totalling approximately
165,000 sq. ft., which represented nearly 9% of our total floor area.
These schemes, which include our two large projects in Carnaby, will
deliver increased rental income in the coming years. Inevitably, they
have resulted in higher vacancy levels in the short term, which has
tempered growth in income and profits in 2013. Letting space as these
schemes have completed has been successful, reflecting strong
demand for all uses and across all our villages. At the year end, space
available to let and being marketed represented 1.3% of our ERV.
The Board is pleased to recommend a final dividend of 6.25p, bringing
the total for the year to 12.5p, an increase of 4.2% compared with last
year. The final dividend will be paid on 14 February 2014 to shareholders
on the register on 24 January 2014. Of this, 3.75p will be paid as a PID
under the UK REIT regime with the remainder being paid as an
ordinary dividend.
Dividends declared in respect of this financial year, totalling £31.5 million,
are in excess of EPRA profit after tax, which amounted to £30.2 million.
This is largely as a result of an increase in the accounting charge for
equity-settled remuneration resulting from the continuing strong
performance of our portfolio. In recommending this dividend, the Board
has taken into account the short-term impact on revenue from the
high level of redevelopment activity, the successful letting of completed
schemes, and the expected significant contribution to our earnings
from schemes that have finished, or are due to complete over the
coming year. We expect our dividend to be covered in 2014.
Our portfolio produced a capital value return of 9.5%, which compares
to a capital value decline of 0.4% reported by the IPD Monthly Index.
This strong performance was the result of like-for-like growth in current
income and ERV of 5.4% and 4.5% respectively, coupled with yield
compression of 24 basis points in the wholly owned portfolio and 15 basis
points in the Longmartin joint venture. Our ERV has grown from
£99.9 million to £105.9 million, £20.0 million above current income.
Over the year, our shares delivered a total shareholder return of
14.1% compared with 24.7% shown by the FTSE 350 Real Estate Index.
Despite outperforming over the longer-term, this period of relative
under-performance has come as the UK economy has shown signs
that it is returning to growth. As a result, the market has re-rated the
shares of companies with a higher risk profile than ours, particularly
of those which have a relatively large proportion of their portfolio
focused on central London development.
We have purchased properties during the year totalling £28.0 million.
In current economic conditions, the supply of suitable properties to buy
remains limited in our prosperous locations. Owners in the West End
recognise the unique investment qualities of the type of properties we
are seeking to acquire and generally only sell when they have a particular
need for cash. Our acquisition strategy continues to be focused, ensuring
that purchases meet our strict criteria of location, uses, potential for
improvement through change of use and refurbishment, and benefits
from combination with our existing ownerships.
Robust long-term financing underpins the stability of our business.
Our debt represented 29.5% of portfolio value at year end and our earliest
loan maturities are in 2016. We are in discussion with existing and new
lenders to refinance the earliest maturities and increase our available
debt facilities.
There have been a number of changes to your Board during the year.
On 1 October 2012, we broadened the knowledge and skills of the Board
with the appointment of Sally Walden and Dermot Mathias as non-executive
directors. As announced this time last year, I replaced John Manser as
non-executive Chairman following his retirement in February 2013.
After serving nine years as a non-executive director of Shaftesbury,
Gordon McQueen, our Senior Independent Director and Chairman of
the Audit Committee, will retire from the Board at the AGM in February
2014. I would like to thank Gordon for his outstanding commitment and
guidance over the past years. Jill Little will become the Senior Independent
Director and step down from the chairmanship of the Remuneration
Committee. Sally Walden and Dermot Mathias will chair the
Remuneration and Audit Committees respectively.
The West End, with its uniquely diverse economy, underpinned by a strong
domestic and international visitor base, continues to be a prosperous
place for businesses and an exciting place to live. London is going through
a period of rapid growth, with its population forecast to grow by 20% to
10 million by 2030. There is major investment in all aspects of its
infrastructure to ensure that it can cope with this expansion. Significant
regeneration projects in and around the West End, some of which are
already under way, will provide new places to work and live, all within
a short distance from our vibrant villages.
Sustainable rental growth is the key to delivering attractive returns to
shareholders over the long term. I am confident that the benefits from
the continuing high volume of activity arising from our proven strategy
of innovative and intensive asset management, once compounded
across the portfolio, will continue to drive growth in rents and
long-term values.
Jonathan S. Lane
Chairman
27 November 2013
Shaftesbury annual report 2013 OVERVIEW
StRatEgIc REpORt
Business model 10
Portfolio performance 16
Our portfolio 20
Finance review 38
Corporate responsibility 43
Principal risks and uncertainties 48
Portfolio analysis 50
Basis of valuation 50
09
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10
Business model
Investing in the heart of London’s West End to deliver long-term growth in income and value.
OUR StRatEgy
We invest in real estate in London’s West End, a location which has
demonstrated great resilience over many years. We concentrate on
central locations close to a renowned concentration of world-class
attractions, along with unmatched shopping and leisure choices.
Together, these features attract huge numbers of domestic and overseas
visitors, as well as national and international businesses and
a growing residential community.
Our strategy is to:
• Produce sustainable growth in our revenue through long-term
investment in, and management of, our property holdings;
• Deliver this growing income stream to shareholders through
dividends; and
• Increase the value of our portfolio and of shareholders’ investment
in our business through a combination of rising income and a
concentration on uses which have low levels of obsolescence.
tHE WESt END’S pROSpERIty, REpUtatION aND gROWtH
London has more international visitors than any city in the western world.
Its population currently stands at 8.3 million and is forecast to grow by
20% to 10 million by 2030. Furthermore, there are over 20 million people
in southern England, living within easy access for commuting or
making day trips.
It has a long and special history as well as an unrivalled variety of heritage
and cultural attractions. For generations, these unique features have attracted
commerce and visitors from all parts of the world, bringing prosperity to
the city. This international appeal gives it a broad economic base which
is not reliant on the fortunes of the UK economy alone.
Spread over just a few square miles, the West End is a world-class retail
and visitor destination, attracting 200 million domestic and overseas
visits annually. It has an unrivalled choice of shops, restaurants and bars,
38 renowned theatres, 30 museums and galleries and a lively night-time
economy. It is a key business centre, with a working population of around
600,000 in the City of Westminster, making it an area with one of the
highest business concentrations in the country. It is also home to vibrant
and well-established residential communities. Around 240,000 people
live in the City of Westminster, of which it is estimated nearly 40,000
live in the core areas most associated with the West End.
Our management team has a long history of working in the West End.
In our experience, as a result of its large numbers of visitors, workers
and residents, consumer spending is resilient. This, coupled with
constrained supply of commercial space and a tight planning environment,
underpins the rental growth prospects and capital values of our portfolio.
Historically, during downturns in the economy or the property market,
tenant demand and rental levels, particularly for non-office uses, have
been much less affected, and capital values have been more stable
than the wider market.
London’s working population, residents and visitors have access to its
extensive public transport network. An estimated 210 million passengers
pass through the six underground stations closest to our villages every
year. However, with the expected population growth and increase in
visitors, there is now considerable investment in the existing public
transport network to improve capacity, reliability and passenger comfort.
Crossrail, a £15 billion construction project to create a new east-west
rail route through the centre of London, opening in 2018, will transform
rail journeys, increasing passenger capacity by 10% and relieving
pressure on the existing transport network. Our portfolio is all situated
within 800 metres of the planned entrances to the new Tottenham
Court Road and Bond Street stations. Consequently, we are extremely
well-placed to benefit from the expected increased footfall that
Crossrail will bring.
Crossrail is a major catalyst for regeneration around its stations and
adjacent streets, and will be an important driver of economic growth.
Along the eastern end of Oxford Street there are already a number of
major development schemes planned or under way. These schemes
will add to the availability of good quality office accommodation to cater
for the growing number of national and international businesses
seeking a base in the West End. Those offices add to the very important
local working population of often younger, affluent people who are
potential customers for our shops, restaurants, cafés and bars.
Transport for London, Westminster City Council and Camden Council
recognise the need for the public realm to be upgraded in order to
cope with the increased footfall anticipated in the years ahead. We
expect to see a number of public realm projects over the coming years
to help ease pedestrian congestion and provide stronger connections
between retail, cultural and recreational areas.
LONDON AND THE WEST END
LoNDoN
THE WEST END
• Fifth largest city in the world by GDP
• Estimated 200 million visits annually
• Largest city in Europe in terms of population and GDP
• One of the largest financial centres in the world
• Generates 30% of United Kingdom GDP
• Current population of 8.3 million and growing
• A multicultural city – 300 languages spoken
• Circa 55% of population under 35
• Attracts more international visitors than any other city in the
western world
• An extensive and growing public transport network
• Favourite destination for Londoners and 20 million people
in southern England who are easily able to visit for the day
• World-class visitor attractions – palaces, parks and historical sites
• Unrivalled cultural facilities – 38 theatres, cinemas, world-class
museums and galleries
• Choice of shops and restaurants unmatched by any other city in the
world
• A large local working population – a location particularly favoured by
media, IT and creative businesses
Shaftesbury annual report 2013 strategic report Business model continued
11
business
strategy
business
model
INVESt IN REaL EStatE IN
LONDON’S WESt END
cREatE SUStaINabLE
REVENUE gROWtH
DELIVER gROWINg INcOME
tO SHaREHOLDERS tHROUgH
DIVIDENDS
INcREaSE VaLUE OF
tHE pORtFOLIO aND
OF SHaREHOLDERS’
INVEStMENt
IN tHE bUSINESS
cREatINg
pROSpERIty
FOR
cOMMERcIaL
tENaNtS
cLUStERS OF OWNERSHIpS
HOLIStIc MaNagEMENt StRatEgy
• Maximise retail and leisure uses on lower floors
• Manage long-term mix of uses
• Encourage new operators and formats
• Clustering similar uses, concepts and brands
WORkINg WItH tENaNtS
IMpROVINg tHE pUbLIc REaLM
REFURbISH aND REcONFIgURE bUILDINgS
• Improve accommodation
• Minimise obsolescence
ENgagINg WItH StakEHOLDERS aND tHE
LOcaL cOMMUNIty
pERFORMaNcE
DRIVERS
RENtaL gROWtH
• Increase current
rental income
• ERV growth
• Low vacancy levels
LONg-tERM gROWtH
IN capItaL VaLUES
kpIs
LEttINgS > ERV
aSSESSED by VaLUERS
MINIMISE VacaNt
pERIODS
capItaL VaLUE REtURN
tOtaL pROpERty REtURN
tOtaL SHaREHOLDER
REtURN
Shaftesbury annual report 2013 strategic report
12 Business model continued
VILLagES IN tHE WESt END’S IcONIc aREaS
We own 13 acres of freeholds, comprising 1.6 million sq. ft. of
commercial and residential accommodation, mostly clustered in
villages in iconic areas at the heart of the West End. Our ownerships
are close to the West End’s principal attractions and reflect the
importance of the visitor-based economy. 35% of our portfolio by value
is in Covent Garden in the districts of Seven Dials, Coliseum, the Opera
Quarter and St Martin’s Courtyard, 33% is in Carnaby and 22% is in
Chinatown. Soho now represents 7% of our portfolio and 3% is in and
around Charlotte Street.
There are over 560 buildings in our wholly owned portfolio, virtually all
of which contain a mix of uses. Typically, lower floors contain our most
valuable uses of retail, restaurants, bars and leisure which together
provide 70% of current rental income. Upper floors are either offices,
residential or a combination of both.
The areas in which we invest are long-established, with street patterns
generally laid out between 1680 and 1720. They are mostly designated
as conservation areas and over 20% of our buildings are listed as being
of special architectural interest.
Working with tenants
We work closely with our retail, restaurant and leisure tenants to
promote their businesses and our areas to visitors, shoppers and
diners to bring footfall and spending. The prosperity of those
businesses is critical to our success.
Although the West End is a destination of world renown, we recognise
that awareness of our special locations should never be taken for granted.
In order to market our areas we use a wide range of channels to ensure
they are widely promoted as unique destinations within the West End,
which offer an unmatched choice of interesting, innovative and
ever-changing shopping, dining and leisure choices.
Working closely with experienced external marketing specialists,
our promotional initiatives include:
• Widely publicised consumer-focused events throughout the year
in Carnaby and Covent Garden such as shopping and music events.
In particular, we put considerable effort into dressing our areas in
the busy Christmas trading season;
• Continuous engagement with domestic and international press and
other media to raise public awareness;
pROSpERIty FOR tENaNtS aND SUStaINabLE RENtaL gROWtH
The key driver to long-term value creation is sustainable rental growth
and we achieve this by establishing and fostering areas in which our
commercial tenants are able to flourish and which provide desirable
places to live.
• An active social media programme including dedicated websites for
Carnaby, Seven Dials, Chinatown and Berwick Street, which provide
single reference points for each areas’ particular choices, as well as
utilising Facebook, Twitter and other channels to engage with an
often younger target market.
creating clusters of ownerships
Using our detailed knowledge, gained over many years of investing in
the West End, we target well-located areas and streets which have suffered
from fragmented ownership, lack of investment and the absence of
a cohesive strategy for uses and tenant mix, but where the footfall
potential is good and rents are initially low.
By establishing clusters of ownerships, we can initiate long-term
investment and management strategies for the areas to address these
problems and generate sustainable growth in rents and long-term
improvement in values.
Our villages accommodate a variety of uses, appealing to a broad
range of occupiers. We bring cohesion and consistency to streets and
entire areas. Reflecting the importance of shopping and leisure in the
West End, we choose areas and buildings which have, or have the
potential for, a predominance of these uses. Traditionally, in the areas
in which we invest, occupier demand for these uses has exceeded
availability, providing a firm foundation for rental growth.
Holistic management strategy
As long-term investors, we take an holistic approach to the management
of our holdings. In our experience, fostering and advancing the unique
character of our villages enhances their appeal to consumers and
tenants. We develop our villages through a combination of:
• Maximising retail and leisure uses within the lower floors of individual
buildings to create more efficient and accessible trading space;
• Managing the long-term tenant mix strategy for the dominant retail
and leisure aspects of the area, creating distinctive destinations to
bring greater footfall and prosperity;
• Encouraging new retail and leisure concepts to ensure our areas
respond to ever-changing tastes and expectations;
• Clustering similar or complementary retailers, concepts and brands;
• Managing planning uses to maximise rental and capital values.
We believe our tenants value our efforts to promote our areas and support
their businesses and are happy to work with us to ensure the success of
our initiatives. For us, our promotional activities are also an important way
to advertise the merits of our areas to a wide audience of potential tenants
who appreciate the benefits of locations which are supported by our
long-term holistic management philosophy and strategies.
Improving the public realm
We work closely with local authorities and community stakeholders to
improve the public realm. We promote and contribute to the costs of
up-grading streets in and around our villages, giving priority to
pedestrians and improving street lighting, public safety and security. In
our experience, investing in public streets and spaces creates safe and
welcoming areas, which is an important catalyst for increasing footfall
and bringing greater prosperity to our villages.
REFURbISH aND REcONFIgURE bUILDINgS
Improving accommodation for modern occupiers
We estimate the average age of our buildings is over 150 years. The
majority are in designated conservation areas and many are listed.
Wherever possible, we extend the useful lives of our buildings through
restoration and refurbishment to improve their efficiency and to meet
the requirements of modern commercial and residential occupiers.
We have considerable experience of improving buildings to meet
modern standards of efficiency and find that older buildings are very
flexible when it comes to reorganising occupational uses.
Sustainability is integrated across our business. We aim to minimise
the environmental impact of our operations where possible within the
confines of planning regulations and legislation which affect listed
buildings and conservation areas.
Low obsolescence
We generally provide space for our principal retail and leisure uses in
shell form so the costs of obsolescence we bear are minimal. However,
smaller offices, particularly on upper floors, tend to suffer from
obsolescence, as well as cyclical demand and, therefore, we seek to
introduce alternative uses, where possible.
Shaftesbury annual report 2013 strategic report Business model continued
13
total Shareholder Return
TSR over the year was 14.1%, compared with a return of 24.7%
delivered by the FTSE 350 Real Estate Index. This follows a stock
market re-rating, particularly over the past six months, of shares
which have a higher risk profile than ours and especially of those
which have a relatively large proportion of their portfolio focused on
central London office development.
Our TSR over the last five and ten years was 104.7% and 317.6%
respectively. This compares with the benchmark index which returned
11.5% and 76.4% over the same periods.
The long-term outperformance continues to reflect our consistent
management strategies, which have a record of delivering sustainable
growth in income and increases in capital values.
%
Shaftesbury
FTSE 350 Real Estate
Index
Relative performance
1 YEAR
5 YEARS
10 YEARS
14.1
104.7
317.6
24.7
-10.6
11.5
+93.2
76.4
+241.2
ENgagINg WItH StakEHOLDERS aND tHE LOcaL cOMMUNIty
Our office is close to all our investments and we visit our villages every
day. This allows us to have a regular dialogue with our tenants, whilst
continually adding to our knowledge and understanding of the dynamics
of our areas. In March 2014 we shall relocate our own office to Carnaby.
As a key stakeholder in our locations in the West End, we value the
diverse views of our tenants, community groups and other stakeholders
which give us important insights into the challenges faced by the West
End and help us to adapt our plans and co-ordinate with others.
We also work closely with the local authorities in our locations to
assist with the challenges of managing areas which attract huge
numbers of visitors throughout the day and late into the night, every
day of the week, whilst balancing the needs of local businesses and
residents. Our leases are structured so that we can ensure that our
tenants’ operations do not detract from the reputation of the West End.
kEy pERFORMaNcE INDIcatORS (kpIs)
The key drivers of performance are rental growth, both current and
potential, high occupancy levels, and low obsolescence. These underpin
long-term growth in capital values.
The principal risks and uncertainties faced by the business are set
out on pages 48 to 49.
The charts on page 6 show our performance against our chosen
benchmarks: the IPD UK Monthly Indices and the FTSE 350 Real
Estate Index.
performance vs. IpD
There is no published property performance index which is comparable
specifically to a portfolio of mixed-use buildings such as ours. Therefore,
we have, as in previous years, used the IPD UK Monthly Index, which
tracks all main commercial property categories across the UK, as
our benchmark.
We have continued to outperform the benchmark this year, recording
a total return of 13.4% compared with 6.5% reported by the IPD UK
Monthly Index. This included a strong capital value outperformance
with our portfolio growing in value by 9.5% during the year, whereas
the IPD benchmark reported a decline in capital values of 0.4%.
ERV growth and vacancy
Lettings, rent reviews and lease renewals totalling £18.7 million were
concluded, during the year, at an average 4.5% above September
2012 ERVs.
The amount of vacant space across the portfolio has remained low
throughout the year. EPRA vacancy at 30 September 2013 was 2.3%
of total ERV, below our long-term average of around 3%.
Overall, lettings have been concluded, on average, 33% quicker than
we had targeted. Our commercial space generally has let more quickly
than expected, reflecting strong demand throughout the year. Whilst
residential demand has been good, the quieter summer letting period
coincided with a number of apartments becoming available after
conversion or refurbishment. However, as expected, demand picked up
after the summer and our residential vacancy returned to normal levels.
Shaftesbury annual report 2013 strategic report 14
Shaftesbury annual report 2013 strategic report 15
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Portfolio performance
This has been another successful year for Shaftesbury, with capital growth of 9.5%, increasing
the value of our portfolio by £174.3 million to £2.05 billion. Rents, both current and potential,
have grown, and we have made good progress on our numerous schemes. Demand has
remained strong across all uses and occupancy levels have been high throughout the year.
pORtFOLIO VaLUatION
Our portfolio was valued at £2.05 billion at 30 September 2013 resulting
in a revaluation surplus for the year of £174.3 million. This represents
an ungeared total property return for the year of 13.4%, compared with
the IPD Monthly Index benchmark of 6.5%. This included a strong capital
value outperformance totalling 9.9% (Shaftesbury: +9.5%, IPD: -0.4%).
The principal drivers of this uplift in value over the year were rental growth,
both actual and prospective, and yield compression of 24 basis points
in the wholly owned portfolio and 15 basis points in the Longmartin
property holdings.
The yield compression during the year, in part, recognises that, as we
improve our buildings over the long term, income grows which, coupled
with low obsolescence, makes them more valuable. It also takes into
account the continued strong investor demand for, and limited availability
of, properties in our locations. There are currently no signs of this
demand abating.
Rental growth has continued throughout the year, reflecting strong occupier
demand for all uses across our villages. Lettings, rent reviews and
lease renewals totalling £18.7 million were concluded at an average
increase of 4.5% over September 2012 ERVs. This, coupled with acquisitions
and falling vacancy, resulted in current income growing by £5.0 million
to £85.9 million. The like-for-like increase was 5.4%.
Our strategy focuses on not only delivering growth in current income
but also improving the long-term rental prospects of the portfolio. Our
valuers have estimated the rental value of our portfolio at year end to
be £105.9 million, £20.0 million above current income. £18.2 million of
the reversion is attributable to the wholly owned portfolio and £1.8
million to our share of the Longmartin joint venture.
Excluding the impact of acquisitions, the ERV of our portfolio grew, on
a like-for-like basis, by 4.5%. Restaurants, cafés and bars showed especially
good growth with demand considerably out-stripping the restricted
availability of space in the West End.
PORTFOLIO REVERSIONARY POTENTIAL (£M)
23%
23%
19%
24%
23%
63.4
78.3
68.3
83.9
77.5
92.2
80.9
99.9
85.9
105.9
Of the total reversion, £4.8 million is contracted and will add to current
income on the expiry of rent free periods and pre-agreed increases in rents.
The ERV of vacant space either available to let or under refurbishment
was £8.1 million, including £2.0 million in respect of our major
redevelopment on Foubert’s Place and Kingly Street, in Carnaby, which
is expected to be completed in late 2014. £7.1 million of the reversion
should be crystallised over the normal five-year cycle of rent reviews,
lease renewals and lease expiries.
We have a long record of not only growing the reversionary potential
of the portfolio, but also converting this potential to actual income.
69% of total ERV and 72% of the reversion which is not yet contracted
comes from shops, restaurants and leisure uses. Our experience is
that, in our locations, demand and rental values for these uses are not
cyclical, which gives us confidence that we shall continue to capture
this reversion. We believe there is also considerable potential for further
rental growth to be unlocked through our continuing intensive active
management of the portfolio.
DTZ, independent valuers of our wholly owned portfolio, have, again,
noted that our portfolio is unusual because of its concentration of
properties in adjacent or adjoining central West End locations, and its
predominance of retail, restaurant, café and leisure uses. They have
advised the Board that some prospective purchasers might consider
that parts of the portfolio, when combined, may have a greater value
than that currently reflected in the valuation, which has been prepared
in accordance with RICS Valuation Professional Standards. A copy of
the summary report by DTZ can be found on pages 84 to 85.
In our experience, over a three-to-five year period, the values of our
villages generally perform in a similar manner. This year, Carnaby
(33% of our portfolio) produced capital growth of 10.6% driven by increases
in rental income and ERV, particularly for retail and restaurant space.
Covent Garden (28% of our portfolio, excluding the Longmartin joint
venture) and Chinatown (22% of our portfolio) grew in value by 8.5%
and 7.6%, respectively, largely as a result of a number of restaurant
lettings during the year which increased contracted rental income
and ERVs.
Our holdings in Soho delivered a capital value return of 14.1%, which
follows two years of lower growth while we were in the early stages of
our long-term investment strategy in this area. The increased valuation
of our Soho holdings this year recognises a reduced risk level following
successful lettings in the year, completion of redevelopment projects,
and the pre-letting of commercial space in our current schemes. In
Charlotte Street (3% of our portfolio) values grew by 9.1% as restaurant
rental tones increased and residential values rose. The properties in
our Longmartin joint venture showed a capital value return of 10.0%
over the year driven by ERV growth, particularly from shops
and restaurants.
2009
2010
2011
2012
2013
CURRENT INCOME
ERV
% REVERSION
Shaftesbury annual report 2013 strategic report
Portfolio performance continued
17
INCREASE IN CAPITAL VALUES
REDEVELOpMENt aND REFURbISHMENt actIVIty
With 50 projects across 165,000 sq. ft. (9% of our total floor area), this
has been a year of increased redevelopment and refurbishment activity.
This included our two large schemes, fronting Foubert’s Place and
Kingly Street in Carnaby, which totalled 40,500 sq. ft., and the refurbishment
of two office buildings totalling 28,000 sq. ft. Other projects involved
extending and reconfiguring retail and restaurant space, residential
conversions, upgrading offices and apartments and contributions to
public realm improvements. With our concentration of ownerships,
individual schemes frequently have a beneficial impact on adjacent
holdings, bringing cumulative and compound improvements to
an area.
We provide retail, restaurant and leisure space in shell form and
tenants are responsible for the costs of fitting out and obsolescence.
Furthermore, as we create apartments to a high standard at the
outset, we find obsolescence costs in these holdings are low.
Whilst we undertake many schemes, our outlay is modest. Capital
expenditure during the year totalled £20.8 million, representing 1.1%
of the portfolio value, marginally above our normal level of 0.8%-0.9%.
We continue to identify future redevelopment schemes, which will add
to our income and unlock further value from within the existing portfolio,
the timing of which will depend on planning permission and securing
vacant possession. We are currently on-site with 21 schemes,
involving 77,000 sq. ft. and with an ERV of £4.9 million.
% oF
PoRTFoLio
CAPiTAL GRoWTH
DURiNG YEAR
Total
Carnaby
Covent
Garden
100%
33%
28%
Chinatown
22%
Soho
Charlotte St
Longmartin
7%
3%
7%
acQUISItIONS
9.5%
10.6%
8.5%
7.6%
14.1%
9.1%
10.0%
THREE
YEAR
CAGR
7.4%
9.2%
6.7%
5.9%
6.1%
7.0%
7.2%
The criteria we apply to potential purchases are very strict.
We target acquisitions which:
• are in the heart of the West End, in and around our villages;
• have a predominance of, or potential for, retail and/or restaurant,
café and leisure uses; and
• provide potential for future rental growth, either individually or
through combination with our existing ownerships.
In our locations, there is always a limited availability of assets which fit
these strict criteria. Existing owners recognise the same merits that
we see in the exceptionally resilient and prosperous areas in which we
invest. However, we remain focused and continue to monitor long-term
ownerships and opportunities in our areas, constantly engaging with
owners and agents.
During the year, we acquired properties totalling £28.0 million; £19.7 million
in Covent Garden and £8.3 million in Soho. These acquisitions included
eight shops, four restaurants and 5,100 sq. ft. of offices. In addition, we
exchanged contracts to forward purchase a long leasehold interest in
6,500 sq. ft. of retail and restaurant space on the ground floor and
basement in the substantial residential-led development currently
being constructed on Broadwick Street, in Soho, which is expected
to complete in 2015.
Shaftesbury annual report 2013 strategic report 18 Portfolio performance continued
DEMaND aND OccUpaNcy
Demand across all our uses has remained strong throughout the
year, resulting in continuing high occupancy levels. EPRA vacancy at
30 September 2013 totalled £2.5 million, representing 2.3% of ERV,
of which £1.1 million (1.0% of ERV) was under offer. All available
restaurants were under offer and we had just 3,000 sq. ft. of offices
to let in our wholly owned portfolio. There was a normal residential
vacancy level at year end with twenty apartments available, of which
twelve (ERV: £0.3 million) were under offer.
Our 8,600 sq. ft. retail scheme on the north side of Foubert’s Place
completed in late spring 2013 and the two larger units are now let, one
of which (ERV: £0.4 million) was under offer at year end. The remaining
unit (ERV: £0.2 million) is currently being marketed.
Our major scheme on the site fronting the south of Foubert’s Place and
Kingly Street is under way, with completion expected by the end of 2014.
The total ERV of this scheme now stands at £2.0 million, £1.6 million
above pre-scheme income.
The ERV of other schemes totalled £3.6 million (3.4% of ERV), including
two restaurants, with an ERV of £0.4 million, which were under offer
and three restaurants (ERV £0.7 million) where we secured vacant
possession just prior to the year end. Offices undergoing refurbishment
included 11,500 sq. ft. in Carnaby (ERV £0.7 million) which are due to
complete at the end of 2013. The majority of the residential space
being redeveloped (ERV £0.6 million) is expected to be income-producing
by the end of 2013.
VACANCY AT 30 SEPTEMBER 2013
Held for or under refurbishment
ERV - £million
Foubert’s Place/Kingly Street
scheme (Carnaby)
Other schemes
Total held for or under
refurbishment
Area - ‘000 sq. ft.
Number of units
Available to let
ERV - £million
Ready to let
Under offer
EPRA vacancy
Area - ‘000 sq. ft.
Number of units
ReStauRantS,
caféS and
leiSuRe
ShopS
officeS ReSidential longmaRtin
total
% of
total eRV
0.5
0.5
1.0
15
9
1.1
0.5
1.6
18
22
0.4
1.2
1.6
24
8
-
0.2
0.2
5
4
0.7
0.8
1.5
25
0.1
-
0.1
3
0.4
1.0
1.4
18
0.1
0.3
0.4
12
-
0.1
0.1
0.1
0.1
0.2
2.0
3.6
5.6
1.4
1.1
2.5
1.9%
3.4%
5.3%
1.3%
1.0%
2.3%
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Our wholly owned portfolio comprises over 560 buildings, all of which contain a mix of uses.
Shops, restaurants, cafés and bars are on the lower floors, and offices or residential are above.
SHOPS
Number
Area (sq. ft.)
RESTAURANTS, CAFÉS AND LEISURE
Wholly
oWned longmaRtin
330
23
Number
426,000
69,000
Area (sq. ft.)
Wholly
oWned longmaRtin
234
8
525,000
43,000
Weighted average unexpired lease length (years)
5
5
Weighted average unexpired lease length (years)
12
13
37%
% OF CURRENT INCOME
We have 89 large shops (rent greater
than £100,000 p.a.) in the wholly owned
portfolio which generate 64% of current
income. Fashion accounts for nearly 80%
of the income from these larger shops,
with the majority of the remainder coming
from lifestyle retailers, for example
health and beauty. Our 241 smaller shops
provide 36% of current income and are an
important element of the character and
retail mix in our villages. These shops are
predominantly let to fashion and lifestyle brands. The Longmartin joint
venture has 23 shops, principally occupied by fashion retailers.
Demand for our shops has remained strong throughout the year. The wide
range of unit sizes and rental tones in our portfolio attracts a broad range
of tenants from those opening UK flagships or first stores through to
small independents from both the UK and overseas. We are keen to
seek out new retail concepts, which contribute to each village’s unique
character. We meet potential new occupiers at fashion and lifestyle
trade shows in the UK and abroad, as well as maintaining a regular
dialogue with existing tenants who are seeking to expand their operations.
We work with retailers to trial and promote their new ideas with short
and flexible leases, bringing a steady flow of interesting new concepts
and brands to our villages. This approach is particularly suitable for our
smaller shops. Successful new ideas lead to operators taking longer
leases. Where actual trading experience shows that a new concept is
neither meeting our, nor the retailer’s, expectations we are able to
react quickly.
The cycles of fashion are becoming shorter and without innovation
brands can soon become less interesting to consumers. Our flexible
leases allow us continually to refresh our tenant line-ups, ensuring
our villages maintain their appeal to today’s fashion-conscious
shoppers.
Our shops are typically let on the following basis:
• 3-5 year term for smaller shops
• 5-10 year term for larger shops
• Space provided in shell form; fit out is at the tenants’ cost,
with no financial contribution from us
• Short rent free period to help cover the tenants’ fitting out period
We invest considerable resources and energy in promoting our villages
to potential occupiers and consumers, and sourcing new brands and
concepts. We stay in regular contact with tenants and find that, not
only do they value our philosophy and the way we manage the villages,
but also are a great source of new ideas from their experiences
elsewhere.
% OF CURRENT INCOME
33%
Restaurants, cafés, bars, pubs and clubs
are a growing part of our business, now
representing 33% of current income. The
wide variety of dining and leisure choices
is a feature of the West End and forms an
integral part of the mix in our villages,
complementing our shops and drawing
visitors. As with our shops, we seek out
and encourage new food and beverage
concepts, both from the UK and abroad,
to add to the appeal of our villages.
Currently there is unprecedented demand from interesting and
well-funded food and beverage operators, which is continuing to drive
strong rental growth. Furthermore, planning policies in the West End
restrict the creation of new restaurant space, to preserve a balance
with other commercial uses.
As with shops, space is provided in shell form. Fit out is at the tenants’
cost and is usually substantial, sometimes costing the equivalent of
3-5 years’ rent. As a consequence, restaurant businesses prefer longer
leases over which to spread this up-front investment.
Typical lease terms:
• Historic leases: 25 years, 5 yearly upward-only rent reviews
and security of tenure on expiry
• Newer leases: 15 years, 5 yearly upward-only rent reviews.
No security of tenure on expiry
The substantial investment by the tenant, combined with restrictive
planning and licensing policies, make our leases valuable assets both
for us, as landlord, and for our tenants. Often new operators seek out
opportunities to open in our locations by taking an assignment of a
lease from an existing tenant, sometimes paying a considerable premium
to acquire this interest. Our leases give us considerable control over
this process, enabling us to select the most appropriate operators, as
well as accelerating asset management opportunities, including
re-gearing lease terms and releasing surplus space for other uses and
schemes. As a result of this competition for leases, it is often difficult
for us to secure vacant possession of our restaurants. However, when
we do, there is considerable demand from experienced and new
operators seeking to launch innovative concepts.
Shaftesbury annual report 2013 strategic report Our portfolio continued
21
OFFICES
RESIDENTIAL
Area (sq. ft.)
386,000
102,000
Area (sq. ft.)
Weighted average unexpired lease length (years)
4
6
Number
Wholly
oWned longmaRtin
Wholly
oWned longmaRtin
278,000
55,000
470
75
% OF CURRENT INCOME
17%
Offices bring an important working
population who shop, dine and socialise
in our villages. Most of our office tenants
are fashion retailers or businesses in the
media, creative and IT industries. Demand
remains strong with only 3,000 sq. ft. of
space available at year end, and we are
seeing steady rental growth. Lease
lengths are typically five years.
Most of our offices are relatively small.
We have four office buildings each with
a total area of between 10,000 and 20,000 sq. ft., three of which are in
Carnaby. Otherwise the average office is just 1,300 sq. ft. and our
average rent is around £40 per sq. ft.
We have continued converting smaller offices which cannot be adapted
to meet the requirements of today’s occupiers, often back to their original
residential use, where we see more consistent cash flows, lower vacancy
levels and significantly reduced obsolescence costs. Where we secure
residential planning consents, we often retain the flexibility to return
the space back to office use.
PORTFOLIO SUMMARY
Wholly oWned poRtfolio
Carnaby
Covent Garden
Chinatown
Soho
Charlotte Street
Wholly owned portfolio
Longmartin joint venture*
Total portfolio
*Group’s 50% share.
Shops
Restaurants, cafés and leisure
Offices
Residential
Total
† The Group has a 50% interest in the above.
13%
% OF CURRENT INCOME
Our apartments bring a residential
community, which adds another
important strand of life and activity to our
villages. This has been a growing part of
our business over recent years in all
villages, particularly as a result of
conversions from space no longer viable
for office use. Our apartments, which
cater for the mid-market, produce a growing
and reliable income stream, with high
occupancy levels and low obsolescence
risk. Tenancies are typically for three years with annual rent reviews
and rolling two-month break options after the first six months.
Whilst we have benefitted from the uplift in capital values over recent
years, the key drivers of long-term value in our buildings continue to
be the commercial uses on the lower floors. We let our apartments,
rather than sell them, to ensure we retain control over the whole building
in order not to compromise the management flexibility needed to
realise the long-term potential in those valuable lower floors.
faiR
Value
£m
684.5
576.7
446.0
146.8
54.9
1,908.9
143.7
2,052.6
% of
poRtfolio
cuRRent
income
£m
33%
28%
22%
7%
3%
93%
7%
100%
27.6
24.9
19.0
5.9
2.5
79.9
6.0
85.9
eRV
£m
37.7
29.2
21.1
7.4
2.7
98.1
7.8
105.9
Wholly oWned poRtfolio
longmaRtin joint VentuRe†
numbeR
330
234
470
aRea
Sq. ft.
426,000
525,000
386,000
278,000
% of
cuRRent
income
numbeR
37%
34%
17%
12%
23
8
75
1,615,000
100%
aRea
Sq. ft.
69,000
43,000
102,000
55,000
269,000
% of
cuRRent
income
41%
17%
25%
17%
100%
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Carnaby
Carnaby covers 4.1 acres across twelve streets to the east of Regent Street and south of
Oxford Street. It is an iconic destination for visitors and is internationally renowned for youth
fashion, particularly new concepts and brands. There are 48 larger shops (income in excess
of £100,000 p.a.) in Carnaby, accounting for 85% of the village’s retail income. Demand
remains strong, particularly from overseas retailers and those wishing to launch flagship
stores. The 71 smaller, often independently-run shops, add to the eclectic mix which
enhances Carnaby’s appeal as a unique shopping destination.
The rental value of the completed scheme is currently estimated at
£2.0 million, an increase of around £1.6 million compared with
pre-scheme levels. The estimated total cost is £13.5 million and
completion is scheduled by the end of 2014.
The growing variety of interesting restaurants, cafés and bars, which
we have introduced in the side streets and in Kingly Court, are adding
to Carnaby’s reputation as a food destination. Our 41 restaurants, bars
and cafés attract customers from within Carnaby, and also from
Regent Street, Oxford Street and other busy areas nearby, where the
dining offer is more limited.
We have made good progress with repositioning Kingly Court as a food
and beverage destination and have commenced further improvements
to the courtyard. We have already converted nearly 6,000 sq. ft. of retail
space to restaurant use, and have recently secured vacant possession
of a 2,000 sq. ft. restaurant with frontages to both Kingly Street and
Kingly Court. We are continuing to identify units which are potentially
suitable for the introduction of new food-related concepts.
Approximately 59% of our offices, by area, are in Carnaby. They are
mainly occupied by retailers, and businesses in the media, creative
and IT sectors. Office buildings with space greater than 10,000 sq. ft.
make up 29% of the total office area and there are 136 other office
tenants occupying an average of 1,200 sq. ft. each. Office rents in
Carnaby range from £45 per sq. ft. to £70 per sq. ft.
We expect to complete the refurbishment of an office building totalling
18,500 sq. ft. in Ganton Street by the end of 2013. We shall occupy
7,400 sq. ft. of this space in the New Year and the remaining space will
be marketed shortly. Otherwise, just 1,500 sq. ft. of office space was
vacant or being refurbished in Carnaby at 30 September 2013.
In the New Year, Kingly Street will be pedestrianised fully between
11 am and 7 am, consistent with the rest of Carnaby, and the pedestrian
zone will be extended to the junction with Great Marlborough Street.
This will usefully increase the availability of external seating on this
increasingly busy thoroughfare.
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It has been a particularly busy year for lettings in Carnaby as we continue
to introduce new retailers and brands to ensure that Carnaby maintains
its unique appeal to today’s fashion-conscious shoppers. During the
year, we have introduced thirteen new retailers for UK flagships, new
concepts or their first store in the UK. The total rental value of these
lettings was £2.8 million.
Our redevelopment project on the north side of Foubert’s Place, which
has increased the retail floor space by 5,000 sq. ft., was completed in
late spring. We have let the two largest units, representing approximately
80% of the ERV of this scheme, at new rental tones for Foubert’s Place,
and are now marketing the remaining unit to complementary retailers.
While on site with this scheme, we took the opportunity to refurbish
nine flats on the upper floors and these subsequently let swiftly at
higher rents.
The scheme to redevelop buildings fronting the south side of Foubert’s
Place and Kingly Street is progressing well, with demolition and enabling
works recently completed. This scheme will increase lettable space
from 14,500 sq. ft. to 32,500 sq. ft., providing 7,500 sq. ft. of retail space,
a 6,500 sq. ft. restaurant, 10,500 sq. ft. of offices and twelve apartments.
PERCENTAGE OF OUR PORTFOLIO
33%
O
O
H
H
O
O
S
S
N
N
W
W
O
O
T
T
A
A
N
N
I
I
H
H
C
C
C H A R L O TTE STREET
C H A R L O TTE STREET
CARNABY
BY FAIR VALUE 33
BY CURRENT IN
%
C
O
M
E
3
2
%
G A R DEN†
T G A R DEN†
T
N
N
E
E
V
V
O
O
C
C
SHOPS
RESTAURANTS, CAFÉS AND LEISURE
OFFICES
RESIDENTIAL
Our portfolio continued
25
VALUATION
ACqUISITIONS
£684.5m
Nil
CAPITAL
ExPENDITURE
£9.3m
CAPITAL VALUE
RETURN
10.6%
SHOPS
RESTAURANTS, CAFÉS
AND LEISURE
OFFICES
RESIDENTIAL
119
182,000 sq.ft
41
85,000 sq.ft
228,000 sq.ft
85
51,000 sq.ft
53%
OF CURRENT INCOME
13%
OF CURRENT INCOME
28%
OF CURRENT INCOME
6%
OF CURRENT INCOME
Shaftesbury annual report 2013 strategic report 26
Our portfolio continued
Covent Garden
Our wholly owned holdings in Covent Garden extend to 4.5 acres. Together with our 50%
interest in the Longmartin joint venture, Covent Garden is our largest investment location.
Covent Garden, with its historic street patterns and architecture, contains
half of the West End’s theatres. It has a broad range of shops, restaurants,
bars and cafés, giving it a distinctive and appealing atmosphere. There
is also a long-established and flourishing residential community.
Demand has remained strong across all uses in the year and the level
of vacancy has been low. We have completed lettings, lease renewals and
rent reviews with a rental value of £6.5 million in the year, including
65 commercial transactions. At year end, available commercial space
totalled 10,700 sq. ft. (ERV: £0.8 million), of which 3,200 sq. ft. (ERV:
£0.2 million) was under offer.
Our retail strategy for Seven Dials is establishing the area as an
international shopping and leisure destination with aspirational and
interesting retailers aimed at our target core consumer – 25 to 45 year
olds with high disposable income. During the year, we secured 13 new
lettings in Monmouth Street, Earlham Street and Neal Street, to retailers
either opening their first UK or flagship stores in Seven Dials.
We have introduced a number of exciting new restaurants to Seven Dials,
improving the area’s reputation as a dining destination. We have also
started to refresh the restaurant mix in Neal’s Yard and are currently
working on plans to improve its entrances, making this a unique
food quarter for Seven Dials.
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Improvements to the public realm continue to play an important role
in the development of our areas. During the year, a trial road closure
at the Cambridge Circus end of Earlham Street significantly decreased
traffic, creating a more pedestrian-friendly environment and noticeably
increasing footfall. We expect that this will soon become permanent
and are working with The London Borough of Camden and The Seven
Dials Trust on designs to further improve the public realm. New street
lighting is currently being installed across Seven Dials.
At Cambridge Circus, we are aware that, in anticipation of the greater
pedestrian flows expected from the new Tottenham Court Road Crossrail
interchange, Westminster City Council is investigating major
improvements to this already congested junction.
Longmartin’s portfolio continues to make good progress. Demand for all
uses has remained strong and our share of available vacant space was
just £0.2 million at 30 September 2013. We are now seeking planning
consent to make improvements to the courtyard to add to its vibrancy,
in conjunction with evolving the tenant mix. In addition, we continue to
work on schemes to improve unmodernised buildings on the periphery
of the site.
PERCENTAGE OF OUR PORTFOLIO
35%*
O
O
H
H
O
O
S
S
C H A R L O TTE STREET
C H A R L O TTE STREET
CARNABY
CARNABY
N
N
W
W
O
O
T
T
A
A
N
N
I
I
H
H
C
C
B Y C U R R
T I N
Y F
E
N
B
C
SHOPS
RESTAURANTS, CAFÉS AND LEISURE
OFFICES
RESIDENTIAL
C O
M E 36%
A I R V A L U E 35%
N T G A RDEN
E
V
O
Our portfolio continued
27
VALUATION
AcqUIsITIONs
£720.4m*
£19.7m
cApITAL
ExpENDITURE
£5.8m*
cApITAL VALUE
RETURN
8.8%*
WHOLLY OWNED
SHOPS
111
138,000 sq.ft
RESTAuRANTS, CAFéS
AND LEISuRE
87
165,000 sq.ft
OFFICES
RESIDENTIAL
84,000 sq.ft
197
116,000 sq.ft
35%
OF cURRENT INcOME
34%
OF cURRENT INcOME
13%
OF cURRENT INcOME
18%
OF cURRENT INcOME
LONGMARTIN JOINT VENTURE
SHOPS
23
69,000 sq.ft
RESTAuRANTS, CAFéS
AND LEISuRE
8
43,000 sq.ft
OFFICES
RESIDENTIAL
102,000 sq.ft
75
55,000 sq.ft
41%
OF cURRENT INcOME
17%
OF cURRENT INcOME
25%
OF cURRENT INcOME
17%
OF cURRENT INcOME
* Includes the Group’s 50% share of the Longmartin joint venture.
Shaftesbury annual report 2013 strategic report 28
Shaftesbury annual report 2013 strategic report 29
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30 Our portfolio continued
Chinatown
Chinatown, at the heart of the West End’s entertainment district, has the largest concentration
of restaurants in the UK. The prosperity of this thriving destination is underpinned by the large
number of visitors it attracts throughout the day, and into the night, seven days a week.
In Chinatown’s prosperous environment, our restaurants remain in
demand. With growing interest in innovative Far Eastern cuisine, we
are seeking to improve the quality and diversity of restaurants,
encouraging a wide variety of cuisines from around South East Asia.
Many of the restaurants in Chinatown are let on historic leases which
provide the tenant with an automatic right to renew at the end of the
lease term. Whilst this provides excellent security for us as landlord,
space rarely becomes available. However, during the course of the
year we secured possession of four restaurants, totalling 16,500 sq. ft.,
and have already introduced new concepts into two of these. We are
currently reconfiguring the other two, in Rupert Street and Wardour
Street, to produce more efficient restaurant space.
Part of our current strategy is to reposition and improve Rupert Street
and enhance values by refreshing the tenant mix and through long-term
investment in the public realm. In Rupert Court, which connects
Rupert Street to Wardour Street, we are upgrading and extending the
restaurants. Drawing on our experiences elsewhere in our villages, we
have further ideas for street improvements, which we are discussing
with Westminster City Council.
Recognising strong residential demand in the West End, we have embarked
on a rolling refurbishment programme to upgrade the quality of our
flats in Chinatown and improve rental and capital values. We are also
creating new residential space either by adding additional floors or
through conversions. We continue to find opportunities to unlock and
improve inefficient and under-utilised space on upper floors by introducing
more valuable alternative uses, both commercial and residential.
Working with Westminster City Council on public realm initiatives
remains an important part of our long-term strategy in Chinatown.
During the year, we part-funded Westminster City Council projects
which introduced a new traffic management scheme to pedestrianise
Lisle Street and the Chinatown section of Wardour Street from 12 noon
each day and also extended the pedestrian zone south from Gerrard
Street towards Coventry Street. These projects provide additional
capacity for pedestrians in busy streets which act as an important
gateway from Leicester Square.
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PERCENTAGE OF OUR PORTFOLIO
22%
C H A R L O TTE STREET
C H A R L O TTE STREET
CARNABY
CARNABY
O
O
H
H
O
O
S
S
%
2
E 2
M
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2
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RESTAURANTS, CAFÉS AND LEISURE
OFFICES
RESIDENTIAL
G A R DEN†
T G A R DEN†
T
N
N
E
E
V
V
O
O
C
C
Our portfolio continued
31
VALUATION
ACqUISITIONS
£446.0m
Nil
CAPITAL
ExPENDITURE
£2.4m
CAPITAL VALUE
RETURN
7.6%
SHOPS
62
60,000 sq.ft
RESTAURANTS, CAFÉS
AND LEISURE
65
189,000 sq.ft
OFFICES
RESIDENTIAL
33,000 sq.ft
91
61,000 sq.ft
25%
OF CURRENT INCOME
60%
OF CURRENT INCOME
6%
OF CURRENT INCOME
9%
OF CURRENT INCOME
Shaftesbury annual report 2013 strategic report 32
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34 Our portfolio continued
soho
Soho is a lively area filled with cafés, bars, clubs, restaurants and quirky shops lining its
narrow streets. Close to many of the West End’s attractions, its history, venues, distinctive
atmosphere and nightlife create a popular destination for visitors. There are many small
businesses, typically in the media and creative industries, and it has a long-established
residential community.
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The majority of our ownerships are currently centred in and around
Berwick Street and Brewer Street: routes through Soho which have,
for many years, suffered from fragmented ownership and a lack of
investment. Despite the high footfall, rental values are low compared
with neighbouring areas. Many of the properties we have acquired
were in poor condition. This provides us with refurbishment and
reconfiguration opportunities and scope to introduce more
valuable uses.
Crossrail is proving to be a catalyst for major investment along the
eastern end of Oxford Street. The new western entrance to Tottenham
Court Road station, on Dean Street, will bring improvements to the
north of Soho, including Berwick Street. There are a number of
privately-funded schemes which will help regenerate the area close
to our holdings, including the substantial development of the former
Trenchard House site on Broadwick Street, where we have exchanged
contracts to forward purchase the retail and restaurant elements on
the ground floor and basement (approximately 6,500 sq. ft.). Other
schemes include the recently completed major development at the
western end of Brewer Street, various projects along the east end of
Oxford Street, and proposed schemes for Walker’s Court and
Kemp House at the south end of Berwick Street.
With this investment and regeneration, Soho is currently going through
a renaissance, experiencing increased footfall and demand particularly
from restaurateurs attracted by Soho’s exciting food scene and vibrant
nightlife. We are also seeing greater interest from retailers who are
attracted not only by Soho’s distinctive edginess but also its seven-day
trading patterns and competitive rents.
pERcENTAGE OF OUR pORTFOLIO
7%
C H A R L O TTE STREET
C H A R L O TTE STREET
CARNABY
CARNABY
O
H
O
S
E 7 %
E 7 %
Y FAIR VA L U
ENT IN C O M
B
R
R
U
Y C
B
N
N
W
W
O
O
T
T
A
A
N
N
I
I
H
H
C
C
sHOps
REsTAURANTs, cAFÉs AND LEIsURE
OFFIcEs
REsIDENTIAL
G A R DEN†
T G A R DEN†
T
N
N
E
E
V
V
O
O
C
C
VALUATION
AcqUIsITIONs
£146.8m
£8.3m
cApITAL
ExpENDITURE
£3.1m
cApITAL VALUE
RETURN
14.1%
SHOPS
34
38,000 sq.ft
RESTAuRANTS, CAFéS
AND LEISuRE
26
52,000 sq.ft
OFFICES
RESIDENTIAL
33,000 sq.ft
58
32,000 sq.ft
28%
OF cURRENT INcOME
37%
OF cURRENT INcOME
16%
OF cURRENT INcOME
19%
OF cURRENT INcOME
C H A R L O TTE STREET
CARNABY
O
H
O
S
E 7 %
E 7 %
Y FAIR VA L U
ENT IN C O M
B
R
R
U
Y C
B
N
W
O
T
A
N
I
H
C
T G A R DEN†
N
E
V
O
C
35
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36
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37
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our portfolio continued
charlotte street
Charlotte Street is a busy and vibrant location, north of Oxford Street and close to Tottenham
Court Road, which is a renowned restaurant destination. Its large office population, dominated
by creative, media and tech businesses, and a large student population, add to the cosmopolitan
feel of the area.
When it opens in 2018, we expect Crossrail will substantially increase
the public transport capacity and footfall in the vicinity of Charlotte
Street. The new West End gateway station at Tottenham Court Road
is stimulating significant development, which will attract new
businesses and increase the residential population in the area.
Important development projects close to Charlotte Street include
Fitzroy Place, on Goodge Street, which includes 220,000 sq. ft. of
commercial space and over 230 residential apartments, with completion
anticipated by summer 2014. In addition, the redevelopment of the
Royal Mail site on Rathbone Place is expected to start early next year,
delivering offices totalling 217,000 sq. ft., 42,000 sq. ft. of retail space
and 162 apartments.
Although this is the smallest of our villages, we remain committed
to further investment in this vibrant district.
PercentAge oF our PortFolio
3%
H
H
O
O
S
S
C H A R L O TTE STREET
CARNABY
CARNABY
O
O
A I R V A L U E
T I N C O M E
Y F
R
E
N
3%
3%
B
R
BY C U
N
N
W
W
O
O
T
T
A
A
N
N
I
I
H
H
C
C
G A R DEN†
T G A R DEN†
T
N
N
E
E
V
V
O
O
C
C
shoPs
restAurAnts, cAFÉs AnD leisure
oFFices
resiDentiAl
vAluAtion
AcQuisitions
£54.9m
Nil
cAPitAl
exPenDiture
£0.2m
cAPitAl vAlue
return
9.1%
SHOPS
4
8,000 sq.ft
RESTAURANTS, CAFÉS
AND LEISURE
15
34,000 sq.ft
OFFICES
RESIDENTIAL
8,000 sq.ft
39
18,000 sq.ft
8%
oF current incoMe
55%
oF current incoMe
9%
oF current incoMe
28%
oF current incoMe
38
Finance review
In 2013 EPRA NAV increased by 13.9% to £5.67, representing a net asset value return before payment
of dividends of 16.3%. As anticipated, the increased level of redevelopment and refurbishment activity
across the portfolio constrained growth in net rental income in the year. However, the benefits of the
improved accommodation created by these schemes is now starting to deliver increased income.
EPRA profit after tax amounted to £30.2 million (2012: £30.6 million). EPRA EPS totalled 12.0p
(2012: 12.2p).
RESULtS
EPRA profits
Reported profit before tax
Adjusted for:
Surplus arising on revaluation of
investment properties
Profit on disposal of investment
properties
Movement in fair value of financial
derivatives
EPRA profit before tax
Current tax
EPRA profit after tax
EPRA EPS
2013
£M
241.7
2012
£M
94.8
(174.3)
(90.2)
-
(1.6)
(37.0)
30.4
(0.2)
30.2
12.0p
28.2
31.2
(0.6)
30.6
12.2p
Our rental income continued to rise during the year, with rents receivable
increasing by £2.5 million to £83.5 million (2012: £81.0 million), of which
acquisitions contributed £1.1 million. Our two major schemes in Carnaby
reduced income in the year compared to 2012 by £1.3 million. Excluding
the impact of acquisitions and the temporary loss of income resulting
from these two schemes, the like-for-like increase in rental income
was 3.4%.
Property charges increased by 3.0% to £10.3 million (2012: £10.0 million)
partly as a result of the increased level of space being held vacant for
redevelopment and refurbishment. After property charges, net property
income increased by 3.1% to £73.2 million (2012: £71.0 million).
Administrative costs, excluding the annual bonus provision and the charge
for equity-settled remuneration, were £7.5 million (2012: £7.2 million).
The cost attributable to equity-settled remuneration increased by
£1.1 million to £2.7 million (2012: £1.6 million) and included a non-cash
accounting provision in respect of share options of £2.2 million
(2012: £1.2 million) and a charge for employer’s national insurance of
£0.5 million (2012: £0.4 million). These increases arose principally as
a consequence of the continued good performance from our portfolio,
which increased the actual and forecast vesting of the NAV element of
our share options. The provision for annual bonuses has increased this
year by £0.2 million to £1.4 million (2012: £1.2 million), mainly as a
result of an increase in headcount and higher salaries.
Acquisitions and capital expenditure increased our net debt during
the year and so net finance costs (excluding the change in fair value
of derivative financial instruments) increased by £1.4 million to
£31.2 million (2012: £29.8 million). These costs were covered 1.97
times by operating profit before property valuation surpluses (2012:
2.05 times), comfortably in excess of the minimum of 1.5 times we
are required to maintain under the terms of our debt facilities.
With long-dated sterling swap rates rising during the second half of the
year, the fair value deficit attributable to our interest rate swaps fell
£37.0 million to £95.8 million at 30 September 2013 (2012: £132.8 million).
This accounting provision is excluded in the calculation of our banking
covenants. The Board keeps the swaps position, and the impact our
derivatives have in the long-term financing of the business,
under review.
As a REIT, our activities are largely exempt from corporation tax.
The Longmartin joint venture is not part of the REIT group and, therefore,
its profits are subject to corporation tax. Our 50% share of its tax charge
was £2.4 million (2012: £1.8 million) of which £2.2 million (2012: £1.2
million) related to deferred tax, mainly in respect of the revaluation of
Longmartin’s property. The current tax charge reduced by £0.4 million
to £0.2 million (2012: £0.6 million), largely due to tax efficiencies as a
result of raising debt in Longmartin in 2012.
DIVIDENDS
The Board has recommended a final dividend of 6.25p per share, up 3.3%
on the 2012 final dividend 6.05p. This brings the total dividend for the
year to 12.5p per share, an increase of 4.2% on 2012 (12.0p).
The total distribution in respect of the financial year will be £31.5 million.
This compares with our EPRA profit after tax of £30.2 million, which,
this year, has been reduced by the non-cash accounting charge for
equity-settled remuneration of £2.2 million.
Our policy is to maintain steady growth in dividends to reflect the long-term
trend in our income and EPRA earnings. In determining the level of the
dividend, the Board has taken into account the short-term reduction
in net property income growth as a result of our redevelopments and
refurbishments, and the expected significant contribution these schemes
will make to our rental income and earnings as they become fully
income-producing in 2014 and 2015.
3.75p of the dividend will be paid as a PID, with the balance as an
ordinary dividend.
EPRA PROFIT AFTER TAx (£M)
0.5
2.2
1.1
1.4
0.4
30.6
30.2
2012
Net
property
income
Admin
costs
Equity
settled
remuneration
Interest
Tax
2013
Shaftesbury annual report 2013 strategic report
Finance review continued
39
NEt aSSEt VaLUE
DEBT SUMMARY (INCLUDING OUR 50% SHARE OF LONGMARTIN DEBT)
2013
£M
2012
£M
1,330.7
1,119.4
Fixed rate debt*
EPRA net assets
Reported net assets
Adjusted for:
Fair value adjustment in respect of
financial derivatives
Deferred tax on revaluation surplus
and capital allowances
EPRA net assets
EPRA NAV per share
95.8
9.1
1,435.6
£5.67
132.8
6.9
1,259.1
£4.98
EPRA net assets increased over the year by £176.5 million (14.0%) to
£1,435.6 million (2012: £1,259.1 million), resulting in an increase in
EPRA NAV per share of 69p per share (13.9%) from £4.98 to £5.67. The
increase comprises EPRA earnings for the year of 12.0p per share and
the property revaluation surplus, equating to 69p per share. These
amounts were offset by dividends paid totalling 12.3p per share.
EPRA NAV (PENCE PER SHARE)
Bank debt hedged by swaps
Total fixed debt*
Unhedged bank debt
Total debt*
Undrawn facilities (floating rate)
Committed facilities
Debt ratios
Loan-to-value*
Gearing*†
Interest cover
Weighted average cost of debt
2013
£M
121.0
360.0
481.0
124.2
605.2
90.8
696.0
29.5%
42.1%
1.97x
5.07%
2012
£m
121.0
360.0
481.0
75.7
556.7
139.3
696.0
30.5%
44.2%
2.05x
5.43%
Weighted average debt maturity
5.8 years
6.8 years
% of debt fixed or hedged
79.5%
86.4%
12
12
69
*based on nominal value of debt
†measured against EPRA net assets
498
567
2012
Underlying
profits
Revaluation
Dividends
2013
caSH FLOWS aND DEbt
Cash flow from operating activities net of interest and tax payments
was £31.3 million (2012: £30.3 million), funding dividend payments
totalling £30.9 million (2012: £29.3 million). Net debt increased by
£48.1 million to £604.9 million (2012: £556.8 million), as a result of
acquisitions of £28.1 million and capital expenditure totalling
£20.7 million.
At 30 September 2013, we had long-term fixed rate borrowings of
£121.0 million (2012: £121.0 million) and committed variable rate bank
facilities totalling £575.0 million (2012: £575.0 million), of which £484.2
million were drawn (2012: £435.7 million). Gearing, measured against
EPRA net assets, was 42.1% (2012: 44.2%) and our loan-to-value ratio
was 29.5% (2012: 30.5%). We had available undrawn facilities totalling
£90.8 million (2012: £139.3 million).
Taking into account interest rate swaps on £360 million of floating
rate borrowings, 79.5% of our drawn debt was fixed at the year end
(2012: 86.4%). During the year, we drew down on our unhedged variable
rate bank facilities, the cost of which was considerably cheaper than
that of our fixed and hedged debt. Consequently, the weighted average
cost of debt, including non-utilisation fees for undrawn facilities, reduced
from 5.43% to 5.07%. Our existing bank facilities, which were negotiated
prior to the 2007-2009 banking crisis, are at margins considerably below
the terms which could be obtained in today’s market. At 30 September
2013, the average margin over LIBOR on our bank facilities was 0.91%
(2012: 0.88%). This would rise to 1.04% if all our facilities were fully
drawn.The marginal cost of new borrowings was around 1.80%
(2012: 1.70%).
The weighted average maturity of our debt was 5.8 years (2012: 6.8 years).
The Board regularly reviews the capital structure of our Balance Sheet,
future funding requirements, debt levels, maturities and hedging exposures.
As our investment strategy is long-term, our policy is to ensure our
funding is long-term in nature, with a large proportion of our funding
being fixed or having interest rate hedging. To avoid refinancing risk,
our intention is to extend our maturities and secure long-term sources
of finance well in advance of the contractual maturity of our current
facilities. New arrangements are likely to be more expensive than
those they replace.
Shaftesbury annual report 2013 strategic report
40
Finance review continued
We are now addressing the £375 million of our bank facilities which are
due to mature in 2016. We expect to refinance £225 million of these
arrangements in the coming months. The refinancing, if completed,
will strengthen our financial base by improving the maturity profile of
our debt and diversifying our sources of finance. As part of this, we
currently expect to terminate a proportion of our interest rate swaps
which, based on the year end mark-to-market valuation, would crystallise
approximately £28 million of the deficit, equivalent to a reduction of
11p in EPRA NAV per share.
MATURITY PROFILE (£M)
Drawn
Undrawn
58
317
33
92
75
61
60
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026
SEcURIty aND cOVENaNtS
The providers of our bank facilities and interest rate swaps, and the
holders of our Debenture Stock, have the benefit of fixed charges over
specific assets, and floating charges over all the assets of Shaftesbury
PLC and certain of its subsidiaries. The financial covenants in our
banking agreements are structured on a Group-wide basis and are
broadly similar for each facility.
The term loan in our Longmartin joint venture is secured by way of
a fixed charge over its property and certain of its other assets and a
floating charge over the remainder of its assets. There is no recourse
to either of the joint venture shareholders.
Actual and forecast performance against loan covenants are reviewed
by the Board at least quarterly. We continue to operate with significant
headroom over the covenant limits set out in our loan agreements.
LOOkINg aHEaD
London’s stature as one of the world’s leading global cities continues
to grow as it becomes an ever-more popular destination for visitors
and businesses, and as a place to live. The West End and our central
locations are clearly benefiting from London’s dynamism and growing
global reputation.
Following the successful staging of the 2012 Olympics and Paralympics,
which showcased London across the world, there has been a noticeable
increase in domestic and international visitors throughout the year.
Coupled with a gradual recovery in consumer confidence in the UK
and abroad, visitor spending is increasing, encouraging retailers,
restaurateurs and other leisure-related businesses to establish new
ventures, particularly in and around the West End.
London has an exceptionally large and growing business community,
attracting both major global organisations and UK-based corporations.
The West End, with its long history of culture and creativity, has a
particular concentration of fashion, media and IT businesses, bringing
a young, creative and affluent local working population to our areas.
The growth of London’s broad-based economy, together with a rapidly
rising population, is stimulating major public and private investment
in transport and essential infrastructure, as well as commercial and
residential development. Demand across all our locations, and for all
our uses, has been strong throughout the year and shows no sign of
abating. Our vacancy levels are low, space lets quickly and rental income
and values are steadily rising, leading to improved capital values. With
strong demand and growing international interest in our shops and
restaurants, we constantly seek opportunities to bring new concepts
and operators to our villages.
This year, growth in our income and revenue profit has been tempered
by the increased amount of redevelopment and refurbishment activity
across the portfolio, particularly in Carnaby. The first of the two important
schemes in Foubert’s Place is now substantially let and, together with
a number of other schemes in the portfolio, is now making an important
contribution to the revenue growth we expect to see in the coming
financial year.
It is unsurprising that, with clearly-evident prosperity and good
long-term prospects for the West End, owners are naturally reluctant
to sell so that opportunities to add to our portfolio are limited and their
timing is difficult to predict. With our long experience of working in
these areas, we maintain a focused and disciplined approach. The
main driver of growth in our business continues to be the long-term
potential in the £2 billion portfolio of over 560 buildings we
already own.
We have always believed that, for the stability of our business, our
long-term investment strategy must be supported with long-term
finance, even though shorter-term arrangements may be available
on cheaper terms. Although the maturity of bank facilities expiring in
2016 is over two years away, we are already in advanced discussions
to extend maturities and introduce new long-term sources of finance.
The security and stability of our locations and assets are particularly
attractive to providers of long-term finance.
Our business is run by a small, highly-committed team, which has
an exceptionally long experience of working in the West End property
market as well as the local community. 2014 will see us move our
office to Ganton Street in Carnaby, providing us with a modern working
environment in the heart of our largest village. We are well-supported
by an extensive network of advisors across a wide range of professional
disciplines. Their contribution to the progress of our business is
greatly valued.
The exceptional qualities of our unique portfolio, located in the centre
of one of the world’s most exciting, dynamic and prosperous cities,
have again been demonstrated this year in the growth in our income
and capital values. With our unrivalled knowledge of the areas in which
we invest, and our innovative approach to managing our assets, we are
confident that, as our business grows, we will continue to deliver good
returns to shareholders in the years ahead.
Shaftesbury annual report 2013 strategic report
41
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Shaftesbury annual report 2013 strategic report Corporate responsibility
Our approach to corporate responsibility reflects how we operate, our impact on the
environment and how we engage with our stakeholders. Whilst the Board has ultimate
responsibility for sustainability, its ethos is embedded in the day-to-day operations of our business.
Our remuneration policy is closely aligned with our corporate responsibility strategy and
Group corporate responsibility objectives are reflected in executive remuneration.
43
We have set the following overall environmental and corporate
responsibility priorities:
• Operate in an environmentally sustainable manner and minimise the
environmental impact of our operations, including climate change;
• Wherever practical, extend the economic useful lives of our buildings
through changes of use and reconfiguration;
• Comply with all legal and regulatory requirements, and, where
feasible, exceed minimum compliance;
• Establish annual targets and encourage continual improvement
in environmental performance;
• Engage with advisors, suppliers, tenants and stakeholders to
disseminate the Group’s corporate responsibility policies and
requirements;
• Invest in our local community;
• Conduct our business with integrity and in an open and
ethical manner; and
• Invest in the welfare and development of our employees.
SUStaINabILIty IN OUR pORtFOLIO
The focus of our sustainability strategy is to extend the useful life
of our buildings and, in doing so, preserve and enhance the heritage
of London’s West End. An essential aspect is to create economically
sustainable environments through our holistic approach to managing
our assets.
Our portfolio comprises buildings mostly within conservation areas,
and some 20% are listed as being of special architectural interest. We
estimate the average age of our buildings is over 150 years. Through
reconfiguring and refurbishing buildings, within the constraints of
current regulations protecting listed buildings and conservation areas,
we preserve properties and improve their environmental and economic
performance, creating value over the long-term.
Our corporate responsibility policies, updated annually, are available
on our website. The full report on our corporate responsibility
performance for the year ended 30 September 2013 is also available
on our website together with our action plan for 2014.
IMpLEMENtINg OUR pOLIcy
Refurbishment projects
We seek to refurbish buildings in a sympathetic manner, re-using
existing timber and original building fixtures and fittings, where
possible. When installing new fixtures and plant, consideration is given
to environmental performance as well as building regulations. For the
small amount of timber that is purchased, the aim is to use sustainably
sourced products, particularly those certified by the Forestry Stewardship
Commission or Programme for the Endorsement of Forest
Certification schemes.
We require contractors to dispose of waste appropriately, segregating
and recycling where possible and collating information on waste
quantities produced.
Day-to-day management
In the day-to-day management of our portfolio, energy consumption
and waste management are the key environmental issues.
We manage the waste on behalf of our tenants at Carnaby, Seven Dials
and St Martin’s Courtyard. The emphasis is on encouraging recycling
with increased proportions being recycled this year. All non-recycled
waste was diverted from landfill to energy from waste. In other parts
of the portfolio, space limitations restrict the opportunity to offer waste
management facilities. However, we work with the local authorities to
optimise the waste collection process in these areas.
Our energy consumption arises principally in the common parts of our
portfolio where we have direct responsibility for stairwell lights and
shared facilities and the environmental impact is small. Tenants are
responsible for reporting their own activities and emissions. We
encourage our tenants to be aware of their environmental responsibilities.
Greenhouse gas emissions for which we are responsible are contained
in the Directors’ Report on page 82.
acHIEVEMENtS
• LBG CONTRIBUTION OF 1.8% OF EPRA PRE-TAX PROFIT
• 100% GREEN TARIFF ELECTRICITY IN HEAD OFFICE, CARNABY,
• NO REPORTABLE HEALTH AND SAFETY INCIDENTS
• 63% CERTIFIED SUSTAINABLY SOURCED TIMBER USED
• 95% OF SCHEMES ACHIEVED AN ABOVE SATISFACTORY SCORE
FOR CONSIDERATE CONSTRUCTORS’ SCHEME
• NO WASTE TO LANDFILL IN CARNABY, SEVEN DIALS AND
ST MARTIN’S COURTYARD
SEVEN DIALS, CHINATOWN AND SOHO
• HONEY FROM OUR OWN BEES IN ST MARTIN’S COURTYARD.
PLANTING ADAPTED IN CARNABY TO FEED BEES
EXtERNaL REcOgNItION
Shaftesbury annual report 2013 strategic report
44 Corporate responsibility continued
EMpLOyEES
• Working with local authorities
We have 23 employees including executive directors. Employees’ long
experience in our local market is important and their contribution to
the business plays a key part in the delivery of our strategy. Employee
turnover has been minimal in recent years.
Employee training and development are essential in the running of our
business. Professionally qualified employees are encouraged to meet the
training requirements of their governing bodies. Other employees are
also encouraged to undertake training so that their skills are up-to-date.
All employees have an annual personal development review.
Our policy on gender diversity is included in the Nomination
Committee Report on page 60.
The Group considers the impact of its activities on human rights
throughout its supply chain.
We work closely with Westminster City Council and the London Borough
of Camden, within whose jurisdictions our properties are located, to
improve the public realm in and around our villages through
contributions to street improvements, pedestrianisation and street
lighting schemes.
• Scholarships
Fashion and catering are important aspects of the West End
economy. We have established bursary schemes with the London
College of Fashion for tailoring students and with Westminster
Kingsway College for trainees in catering and hospitality.
We apply the London Benchmarking Group methodology for measuring
our community contributions. For the year ended 30 September 2013
our contribution totalled £531,000 (2012: £404,000) as set out below:
HEaLtH aND SaFEty
LONDON BENCHMARK GROUP CONTRIBUTIONS
The Board has overall responsibility for health and safety. In our
refurbishment schemes, responsibility for health and safety is clearly
identified within all pre-tender documentation and is monitored by site
and project managers. Our managing agents oversee day-to-day
health and safety matters throughout the portfolio.
Actual contribution
Percentage of EPRA pre-tax profit
There have been no reportable health and safety incidents during the year.
£531,000
£404,000
1.8%
1.3%
2013
2012
cOMMUNIty ENgagEMENt
Our long-term prosperity depends on the success of London’s West End
as a destination for domestic and overseas visitors as well as businesses
and residents. We focus our community investment on the areas in
which our villages are situated. We work closely with organisations
based in the West End in community, leisure or arts fields and, in some
cases, help them to be located in the areas in which they operate but
would otherwise be unable to afford at market rents.
We have focused on the following this year:
• Sustainable Restaurant association
We have continued to work to promote this not-for-profit membership
association which provides restaurants with advice and support to
help them manage sustainability.
• Working with the arts, theatre and leisure
The promotion of the arts, theatre and leisure within the West End
is important to our continuing business. We are working with the
English National Opera and sponsoring their community choir.
We provide accommodation on flexible terms to organisations
including Stage One, which supports the development of theatre
producers.
• Support for charitable, community and educational purposes
We provide space in vacant units for periods of time to enable
charitable, community and educational events to take place.
We work with The Connection at St-Martins-in-the-Fields, House of
St Barnabas, South Westminster Drug and Alcohol Service and other
local community and educational groups, all of which work to
address social challenges in the local community.
We are now piloting a scheme, supported by Westminster City
Council and other West End landlords, to encourage employment of
Westminster residents in our tenants’ businesses by providing a free
recruitment service.
Shaftesbury annual report 2013 strategic report
Corporate responsibility continued
45
kEy taRgEtS aND pROgRESS IN tHE yEaR ENDED 30 SEptEMbER 2013 aND ObJEctIVES FOR tHE yEaR aHEaD
Set out below is an extract from our report on progress against the key targets this year and the objectives for the year to 30 September 2014.
We are independently assessed by RPS Group plc.
OBJECTIVES
ACHIEVED IN 2013
TARGETS FOR 2014
STAkEHoLDER AND CoMMUNiTY ENGAGEMENT
Continue to support local community
groups and be proactive in identifying and
working with charitable and other
organisations
Membership of the London Benchmarking
Group and adoption of their methodology
for reporting community involvement has
continued for this year
Continue membership of London Benchmarking Group
and further develop benchmarking measurements for
reporting
On-going financial support to key charities and
community support for 2014
ENViRoNMENTAL RESPoNSiBiLiTY
Invest in brownfield sites only
100% regeneration of central London sites Continue to achieve 100% use and regeneration
of brownfield sites as our portfolio expands
Operate in an environmentally sustainable
manner throughout our activities
For 20 (out of 22) refurbishment schemes
a minimum of 90% of facade and a
minimum of 80% of the primary structure
was retained
Maintain BREEAM criteria for re-use of structure and
facade in 100% of refurbishment schemes ie a
minimum of 50% of the facade and 80% of the primary
structure re-used
23 energy performance certificates were
assessed against an initial baseline and
three did not achieve target
Aim for BREEAM ”Very Good” for all new commercial
developments
Extend the useful life of buildings and improve their
sustainability by raising the energy performance
certificate rating of properties being refurbished
according to predetermined targets
Re-use of timber maximised throughout
all schemes
Continue to maximise the proportion of timber that
is re-used
63% of timber has been confirmed as
sustainably sourced with full chain of
custody and 45% using Forestry
Stewardship Commission timber
Green tariff electricity usage:
100% of head office, Chinatown, Soho,
Seven Dials and Carnaby
Source a minimum of 55% of all timber from certified
sources and ensure all timber is purchased from legal
sources
Purchase green electricity where costs are within 5%
of brown electricity
Timber to be sourced, where possible,
from well-managed sources, certified by
third party certification bodies
Monitor and, where possible, reduce
energy consumption. Investigate
opportunities for the use of renewable
energy
Manage construction waste to ensure
legal compliance and maximise re-use
and/or recycling of non-hazardous waste
18 contracts achieved target of a
minimum of 80% recycled construction
and demolition waste
Aim to re-use or recycle 80% non-hazardous demolition
and construction waste
Portfolio waste - recycle a minimum of
30% in Carnaby and Seven Dials and
divert 80% from landfill
In Carnaby and Seven Dials, 37% of
tenants’ waste was recycled and, of the
remaining waste, 100% was diverted from
landfill to energy from waste
Maintain the proportion of tenant-generated waste
recycled and divert 90% of tenant-generated waste at
Carnaby, Seven Dials and St Martin’s Courtyard (70%
of the portfolio) from landfill
Recycle a minimum of 10% of tenants’
waste in St Martin’s Courtyard and divert
80% from landfill
In St Martin’s Courtyard, 21% of tenants’
waste was recycled and the remaining
waste diverted from landfill to energy
from waste
SoCiAL RESPoNSiBiLiTY
Ensure there are no reportable health and
safety accidents/incidents throughout the
portfolio
No reportable health and safety accidents
recorded in a refurbishment project or in the
day-to-day management of the portfolio
Aim for no reportable accident and incidents throughout
the Group’s activities
Ensure all refurbishment schemes above
a specified capital value are registered
with the Considerate Constructors’
Scheme and continue to achieve 26 out of
40 (above a “satisfactory” score)
95% of eligible schemes were registered
95% of schemes achieved the target score
on the first visit. The overall average for
the sites visited was 31.6 out of 40 and
34.6 out of 50 under new scoring
arrangements
Continue to achieve 30 out of 50 (above a “satisfactory”
score)
Shaftesbury annual report 2013 strategic report 46
Shaftesbury annual report 2013 strategic report 47
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48 Principal risks and uncertainties
The Group’s strategy is to operate in a low-risk environment. We invest only in London’s West End,
where the property market has a long record of resilience and stability. The nature of our portfolio
does not expose us to risks inherent in major speculative development schemes and we manage
our Balance Sheet on a conservative basis with moderate leverage and good interest cover.
Operational and financial risks facing the Group are monitored through a process of regular
assessment by the executive team, and are reported to, and discussed at, meetings of the Audit
Committee and Board.
Our principal strategic risks have remained broadly unchanged over the year and relate to issues
which might prevent us from achieving our long-term goals of creating sustainable revenue growth
and increasing the value of the portfolio and shareholders’ investment in the business.
RISK AND IMPACT
MITIGATION
RiSk oF A SUSTAiNED FALL iN ViSiToR NUMBERS AND/oR SPENDiNG WHiCH AFFECTS:
1) The West End
ExTERNAL THREATS
Events which discourage visitors, such as threats to security or public
safety due to terrorism, health concerns such as an influenza pandemic,
or disruption to the public transport network on which the area depends,
could reduce visitor numbers. Over time, if a fall in visitors was both
sustained and significant, this could lead to a reduction in occupier
demand and the rental potential and value of the Group’s property assets.
COMPETING DESTINATIONS
Competition from other locations results in long-term decline in footfall
and consequently rents and values.
2) our villages
We fail to maintain the special character and/or tenant mix in our
villages which is key to attracting visitors and potential occupiers.
Our tenants’ prosperity suffers because of a sustained consequential
decrease in footfall which results in downward pressure on rents.
Such events, faced by all high-profile locations such as London, are
often beyond the Group’s control, and are an inherent risk in the Group’s
geographically-focused investment strategy.
However, the Group has an active policy of working with many local
bodies and statutory authorities to maximise the safety of visitors to
the West End and its villages. We have detailed emergency response
plans in place for each village.
The Group has insurance in place which would meet the cost of physical
destruction of its property assets resulting from a terrorist event, and
would also reimburse the Group for up to four years’ loss of income.
+ The West End’s prosperity, reputation and growth - page 10.
The West End has a wide and enduring appeal. More than just a
shopping destination, its variety of theatres, cinemas, parks,
museums, galleries and leisure venues attract unrivalled numbers of
visitors, compared with shopping centres outside the West End.
We are not complacent and recognise that these visitors, and the local
working and resident communities, have a choice of where to shop and
spend their leisure time. We ensure that our villages maintain a
distinct identity and seek out new concepts, brands and ideas to keep
our villages interesting.
+ The West End’s prosperity, reputation and growth - page 10.
+ Prosperity for tenants and sustainable rental growth - page 12.
We have a consistent strategy on tenant mix, recognising the need for
it to evolve over time. Fostering, developing and promoting the unique
character of our villages are key aspects of our business model. We
maintain a regular open dialogue with tenants and, being close to our
portfolio, we have a deep understanding of the environment needed by
our tenants to prosper.
The Group invests in areas where rental values are initially low relative
to surrounding areas. The overall village management strategies we
adopt (eg tenant selection, village reputation management, promotional
activity, refurbishment schemes, public realm improvements etc) are
designed to create prosperous locations where higher rents are sustainable.
Our management team is experienced and is incentivised to deliver
sustainable growth in rents.
The Board continually monitors individual village performance and
prospects.
+ Prosperity for tenants and sustainable rental growth - page 12.
+ key performance indicators – page 13.
Shaftesbury annual report 2013 strategic report Principal risks and uncertainties continued
49
RISK AND IMPACT
REGULAToRY RiSk
MITIGATION
Increasing regulation and its unforeseen consequences causes uncertainty. Changes in national and local policies and regulation could increase
costs, adversely limit our ability to optimise revenues and affect our values.
PLANNING POLICIES
All of the Group’s properties are located within the jurisdictions of
Westminster City Council and the London Borough of Camden. Changes
to their policies, particularly those relating to planning and licensing,
could have a significant impact on the Group’s ability to maximise the
long-term potential of its assets.
The Group works closely with both local authorities to ensure that its
properties are operated in a manner which complies with their local
policies and statutes.
The Group makes representations to both authorities regarding
proposed policy changes so that its views and practical experiences
are considered in framing policy.
The portfolio has a mix of uses so the Group is not reliant on income
from one particular use.
+ Prosperity for tenants and sustainable rental growth - page 12.
+ Engaging with stakeholders and the local community - page 13.
ENVIRONMENTAL REGULATION
Legislation which is intended to bring about improvements to the
environmental standards of buildings may impose obligations on owners
of older buildings which conflict with the existing legal requirements
governing conservation areas and listed buildings.
Our buildings, which on average are over 150 years old, are situated
in historic areas of London’s West End. All our villages are within
conservation areas and many of our properties are listed as being of
special architectural interest.
Such legislation may restrict the future use of older buildings by making
them subject to standards of environmental performance which cannot
be met because the changes required would be inconsistent with
existing legislation for listed buildings and conservation areas.
We endeavour to improve the environmental performance of our
buildings within the constraints imposed by current conservation area
and listed buildings legislation.
We are assisting with studies to identify new approaches to improving
the environmental performance of older buildings and to develop
refurbishment standards which are appropriate to their special status.
+ Engaging with stakeholders and the local community - page 13.
+ Corporate responsibility - pages 43 to 45.
VALUATioN RiSk
The valuation of property assets includes assumptions regarding the
income expectations and yields that investors would expect to achieve
on those assets over time. Many external economic and market factors,
such as interest rate expectations, bond yields, the availability and cost
of finance and the relative attraction of property against other asset
classes, could lead to a reappraisal of the assumptions used to arrive at
current valuations. In adverse conditions, this reappraisal can lead to a
reduction in property values and a loss in net asset value, amplified by
the effect of gearing. Such reduction in property values and loss of net
asset value could result in the Group being unable to meet the
asset-related covenants contained in its various finance agreements.
The Group has chosen to invest in property assets in a particular
location and with uses which have, historically, demonstrated a much
lower degree of valuation volatility than the wider market.
As part of its regular internal reporting, the Group reviews quarterly
forecasts of compliance with value-related banking covenants and the
extent to which values could fall before any asset-related covenant
would be breached. The Group has a substantial pool of uncharged
assets which could be used to top up the security held by its existing
debt providers.
+ The West End’s prosperity, reputation and growth - page 10.
+ Security and covenants - page 40.
Shaftesbury annual report 2013 strategic report 50 Portfolio analysis/basis of valuation
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pORtFOLIO aNaLySIS
at 30 SEptEMbER 2013
portfolio
Fair value
Shops
% of total fair value
Current income
ERV
Number
Area – sq. ft.
% of current income
% of ERV
Average unexpired lease length – years
Restaurants,
cafés and leisure
Number
Area – sq. ft.
% of current income
% of ERV
Average unexpired lease length – years
Offices
Area – sq. ft.
% of current income
% of ERV
Average unexpired lease length – years
Residential
Number
Area – sq. ft.
% of current passing rent
% of ERV
* Shaftesbury Group’s 50% share
baSIS OF VaLUatION
NOtE
caRNaby
cOVENt
gaRDEN
£576.7m
28%
£24.9m
£29.2m
111
138,000
35%
35%
5
87
cHINatOWN
£446.0m
22%
£19.0m
£21.1m
62
60,000
25%
23%
7
65
cHaRLOttE
StREEt
WHOLLy
OWNED
pORtFOLIO
LONgMaRtIN
tOtaL
pORtFOLIO
£54.9m
£1,908.9m
£143.7m*
£2,052.6m
93%
£79.9m
£98.1m
330
426,000
7%
£6.0m*
£7.8m*
23
69,000
100%
£85.9m
£105.9m
£684.5m
33%
£27.6m
£37.7m
119
182,000
53%
51%
4
41
85,000
165,000
189,000
52,000
34,000
525,000
43,000
13%
14%
12
34%
34%
11
60%
62%
14
228,000
84,000
33,000
33,000
386,000
102,000
28%
29%
5
85
13%
13%
2
197
6%
6%
3
91
51,000
116,000
61,000
32,000
18,000
278,000
55,000
6%
6%
18%
18%
9%
9%
1
2
3
4
4
5
4
4
5
4
4
5
4
4
AT 30 SEPTEMBER 2013
NOtE
caRNaby
Overall initial yield
Initial yield ignoring contractual rent-free
periods
Overall equivalent yield
Tone of retail equivalent yields
Tone of retail ERVs - ITZA £ per sq. ft.
Tone of restaurant equivalent yields
Tone of restaurant ERVs - £ per sq. ft.
Tone of office equivalent yields
Tone of office ERVs - £ per sq. ft.
Tone of residential ERVs - £ per annum
7
8
9
10
10
10
10
10
10
10
cOVENt
gaRDEN
3.95%
4.08%
cHINatOWN
3.99%
4.17%
SOHO
3.64%
3.96%
cHaRLOttE
StREEt
3.97%
3.98%
WHOLLy
OWNED
3.86%
4.08%
pORtFOLIO
LONgMaRtIN
3.74%
4.04%
4.76%
4.46%
4.40%
4.50%
4.28%
4.55%
4.58%
4.40 - 5.50%
4.25 - 5.65%
4.25 - 5.50%
4.60 - 6.55%
5.00 - 5.85%
£115 - £445
£63 - £450
£140 - £300
£95 - £250
£85 - £115
4.85 - 5.25%
4.25 - 5.50%
4.25 - 5.15%
4.50 - 5.00%
4.25 - 5.00%
£93 - £115
£40 - £150
£300 - £350
ItZa
£75 - £127
(£237 ItZa)
£60 - £86
5.60 - 6.00%
4.75 - 6.00%
5.50 - 6.00%
5.00 - 6.00%
5.50 - 5.75%
£45 - £70
£13,400
- £78,250
£30 - £52
£10,000
- £130,000
£35 - £48
£10,200
- £41,000
£30 - £45
£15,150
- £58,970
£30 - £35
£13,000
- £31,200
SOHO
£146.8m
7%
£5.9m
£7.4m
34
38,000
28%
28%
4
26
37%
38%
10
16%
14%
2
58
19%
20%
3%
£2.5m
£2.7m
4
8,000
8%
8%
2
15
55%
56%
13
8,000
9%
8%
1
39
28%
28%
37%
37%
5
234
34%
33%
12
17%
18%
4
470
12%
12%
41%
37%
5
8
17%
16%
13
25%
33%
6
75
17%
14%
3.51%
3.58%
4.00 - 5.75%
£94 - £500
5.00 - 6.00%
£41 - £74
5.00 - 5.75%
£50 - £59
£18,200
- £88,400
Portfolio analysis/basis of valuation continued
SOHO
£146.8m
7%
£5.9m
£7.4m
34
38,000
28%
28%
4
26
cHaRLOttE
StREEt
WHOLLy
OWNED
pORtFOLIO
LONgMaRtIN
tOtaL
pORtFOLIO
£54.9m
£1,908.9m
£143.7m*
£2,052.6m
100%
£85.9m
£105.9m
3%
£2.5m
£2.7m
4
8,000
8%
8%
2
15
93%
£79.9m
£98.1m
330
426,000
37%
37%
5
234
7%
£6.0m*
£7.8m*
23
69,000
41%
37%
5
8
85,000
165,000
189,000
52,000
34,000
525,000
43,000
37%
38%
10
33,000
16%
14%
2
58
55%
56%
13
8,000
9%
8%
1
39
34%
33%
12
17%
16%
13
386,000
102,000
17%
18%
4
470
25%
33%
6
75
51,000
116,000
61,000
32,000
18,000
278,000
55,000
19%
20%
28%
28%
12%
12%
17%
14%
cOVENt
gaRDEN
3.95%
4.08%
3.74%
4.04%
3.99%
4.17%
SOHO
3.64%
3.96%
cHaRLOttE
StREEt
3.97%
3.98%
WHOLLy
OWNED
pORtFOLIO
3.86%
4.08%
LONgMaRtIN
3.51%
3.58%
4.76%
4.46%
4.40%
4.50%
4.28%
4.55%
4.58%
4.40 - 5.50%
4.25 - 5.65%
4.25 - 5.50%
4.60 - 6.55%
5.00 - 5.85%
£115 - £445
£63 - £450
£140 - £300
£95 - £250
£85 - £115
4.85 - 5.25%
4.25 - 5.50%
4.25 - 5.15%
4.50 - 5.00%
4.25 - 5.00%
£93 - £115
£40 - £150
£300 - £350
£75 - £127
(£237 ItZa)
£60 - £86
5.60 - 6.00%
4.75 - 6.00%
5.50 - 6.00%
5.00 - 6.00%
5.50 - 5.75%
£30 - £45
£15,150
- £58,970
£30 - £35
£13,000
- £31,200
£45 - £70
£13,400
- £78,250
£30 - £52
£10,000
- £130,000
ItZa
£35 - £48
£10,200
- £41,000
4.00 - 5.75%
£94 - £500
5.00 - 6.00%
£41 - £74
5.00 - 5.75%
£50 - £59
£18,200
- £88,400
Offices
Area – sq. ft.
228,000
84,000
33,000
NOtE
caRNaby
cOVENt
gaRDEN
£576.7m
28%
£24.9m
£29.2m
111
138,000
cHINatOWN
£446.0m
22%
£19.0m
£21.1m
62
60,000
35%
35%
5
87
34%
34%
11
13%
13%
2
197
18%
18%
25%
23%
7
65
60%
62%
14
6%
6%
3
91
9%
9%
£684.5m
33%
£27.6m
£37.7m
119
182,000
53%
51%
4
41
13%
14%
12
28%
29%
5
85
6%
6%
pORtFOLIO aNaLySIS
at 30 SEptEMbER 2013
portfolio
Fair value
Shops
% of total fair value
Current income
ERV
Number
Area – sq. ft.
% of current income
% of ERV
Average unexpired lease length – years
Restaurants,
Number
cafés and leisure
Area – sq. ft.
% of current income
% of ERV
Average unexpired lease length – years
Average unexpired lease length – years
% of current income
% of ERV
Number
Area – sq. ft.
% of ERV
% of current passing rent
Residential
* Shaftesbury Group’s 50% share
baSIS OF VaLUatION
Overall initial yield
Initial yield ignoring contractual rent-free
periods
Overall equivalent yield
Tone of retail equivalent yields
Tone of retail ERVs - ITZA £ per sq. ft.
Tone of restaurant equivalent yields
Tone of restaurant ERVs - £ per sq. ft.
Tone of office equivalent yields
Tone of office ERVs - £ per sq. ft.
Tone of residential ERVs - £ per annum
1
2
3
4
4
5
4
4
5
4
4
5
4
4
7
8
9
10
10
10
10
10
10
10
AT 30 SEPTEMBER 2013
NOtE
caRNaby
cHINatOWN
51
T
R
O
P
E
R
C
G
E
T
A
R
T
S
I
3
1
0
2
t
r
o
p
e
r
l
a
u
n
n
a
y
r
u
b
s
e
t
f
a
h
S
NOtES
1.
2.
3.
The fair values at 30 September 2013 (the “valuation
date”) shown in respect of the individual villages are,
in each case, the aggregate of the fair values of several
different property interests located within close proximity
which, for the purpose of this analysis, are combined to
create each village. The different interests within each
village were not valued as a single lot.
Current income includes total actual and ‘estimated
income’ reserved by leases. No rent is attributed to leases
which were subject to rent-free periods at the valuation
date. Current income does not reflect any ground rents,
head rents or rent charges and estimated irrecoverable
outgoings at the valuation date. ‘Estimated income’
refers to gross estimated rental values in respect of
rent reviews outstanding at the valuation date and,
where appropriate, ERV in respect of lease renewals
outstanding at the valuation date where the fair value
reflects terms for a renewed lease.
ERV is the respective valuers’ opinion of the rental value
of the properties, or parts thereof, reflecting the terms
of the relevant leases or, if appropriate, reflecting the
fact that certain of the properties, or parts thereof, have
been valued on the basis of vacant possession and the
assumed grant of a new lease. Where appropriate, ERV
assumes completion of developments which are reflected
in the valuations. ERV does not reflect any ground
rents, head rents or rent charges and estimated
irrecoverable outgoings.
4.
The percentage of current income and the percentage
of ERV in each of the use sectors are expressed as a
percentage of total income and total ERV for each
village.
5. Average unexpired lease length has been calculated by
weighting the leases in terms of current rent reserved
under the relevant leases and, where relevant, by
reference to tenants’ options to determine leases in
advance of expiry through effluxion of time.
6. Where mixed uses occur within single leases, for the
purpose of this analysis, the majority use by rental
value has been adopted.
7. The initial yield is the net initial income at the valuation
date expressed as a percentage of the gross valuation.
Yields reflect net income after deduction of any ground
rents, head rents and rent charges and estimated
irrecoverable outgoings at the valuation date.
8. The initial yield ignoring contractual rent-free periods
has been calculated as if the contracted rent is payable
from the valuation date and as if any future stepped
rental uplifts under leases had occurred.
9. Equivalent yield is the internal rate of return, being the
discount rate which needs to be applied to the expected
flow of income so that the total amount of income so
discounted at this rate equals the capital outlay at values
current at the valuation date. The equivalent yield shown
for each village has been calculated by merging together
the cash flows and fair values of each of the different
interests within each village and represents the average
equivalent yield attributable to each village from
this approach.
10. The tone of rental values and yields is the range of rental
values or yields attributed to the majority of the properties.
11. All commercial floor areas are net lettable. All residential
floor areas are gross internal.
12. For presentation purposes some percentages have been
rounded to the nearest integer.
13. The analysis includes accommodation which is awaiting
or undergoing refurbishment or development and is not
available for occupation at the date of valuation.
52
T
R
O
P
E
R
C
G
E
T
A
R
T
S
I
3
1
0
2
t
r
o
p
e
r
l
a
u
n
n
a
y
r
u
b
s
e
t
f
a
h
S
53
E
C
N
A
N
R
E
V
O
G
3
1
0
2
t
r
o
p
e
r
l
a
u
n
n
a
y
r
u
b
s
e
t
f
a
h
S
gOVERNaNcE
Directors, officers and advisors 54
Corporate governance 56
Nomination committee report 59
Remuneration report 61
Remuneration policy report 62
Annual remuneration report 69
Audit committee report 79
Directors’ report 82
Summary report by the valuer 84
Directors’ responsibilities 86
Independent auditors’ report 87
54 Directors, officers and advisors
Executive directors
SIMON J QUayLE, BSC, MRICS
ExECUTIVE DIRECTOR
Joined in 1987 and appointed a director on 1.10.1997.
Responsible for the asset management and operational
strategy in Carnaby and the Group’s holdings in Soho
and Charlotte Street.
bRIaN bIckELL, FCA
CHIEF ExECUTIVE
Joined in 1986 and appointed Finance Director
on 20.7.1987. Appointed Chief Executive on 1.10.2011.
Overall responsibility for implementing the Group’s
strategy and day-to-day operations.
tHOMaS J c WELtON, MRICS
ExECUTIVE DIRECTOR
Joined in 1989 and appointed a director on 1.10.1997.
Responsible for the asset management and operational
strategy in Covent Garden (including the Longmartin
joint venture) and Chinatown.
cHRIStOpHER p a WaRD, MA(OXON), ACA
FINANCE DIRECTOR
Joined and appointed a director on 9.1.2012.
Responsible for implementation of the financial
strategy and all aspects of accounting and taxation.
.
cORpORatE WEbSItE
www.shaftesbury.co.uk
Includes library of annual and half year reports
and recent corporate announcements.
News alert service allows registered users to
receive e-mail alerts of new announcements.
VILLagE WEbSItES
www.carnaby.co.uk
www.chinatownlondon.org
www.sevendials.co.uk
www.stmartinscourtyard.com
www.berwickstreetlondon.co.uk
Shaftesbury annual report 2013 GOVERNANCE
Directors, officers and advisors continued
55
Chairman and non-executive directors
1
2
3
4
4 DERMOt c a MatHIaS*
NON-ExECUTIVE DIRECTOR
Appointed to the Board on 1.10.2012.
Partner in the corporate finance department of BDO LLP from 1980.
From 2002-2009 senior partner of the firm and chairman of the policy
board of BDO International. Member of the Industrial Development
Advisory Board from 2005-2011.
5 HILaRy S RIVa, OBE*
NON-ExECUTIVE DIRECTOR
Appointed to the Board on 12.2.2010.
Non-executive director of London and Partners, a not-for-profit
organisation promoting London. Chief Executive of the British Fashion
Council from 2005-2009 and remained in a non-executive capacity
until November 2010. Previously managing director of a number
of high street brands including Top Shop and Warehouse.
6 W gORDON McQUEEN, BSC, CA, FCIBS*
NON-ExECUTIVE DIRECTOR, SENIOR INDEPENDENT
DIRECTOR AND CHAIRMAN OF THE AUDIT COMMITTEE
Appointed to the Board on 25.4.2005 and Senior Independent
Director since 1.10.2009.
Non-executive director of Scottish Mortgage Investment Trust plc,
J.P. Morgan Mid-Cap Investment Trust plc and The Edinburgh Investment
Trust plc. Previously non-executive director of the Alliance Trust PLC
and finance director of Bank of Scotland PLC. Retires from the Board
at the 2014 AGM.
7 JILL c LIttLE*
NON-ExECUTIVE DIRECTOR AND CHAIRMAN
OF THE REMUNERATION COMMITTEE
Appointed to the Board on 24.2.2010.
5
6
7
1 JONatHaN S LaNE, MA, FRICS
NON-ExECUTIVE CHAIRMAN AND CHAIRMAN OF THE
NOMINATION COMMITTEE
Joined as managing director on 3.11.1986. Chief Executive until 30.9.2011.
Executive Deputy Chairman from 1.10.2011 and then from 8.2.2013
non-executive Chairman. Non-executive chairman of The Tennis
Foundation and trustee of the Royal Theatrical Support Trust.
2 OLIVER J D MaRRIOtt*
NON-ExECUTIVE DIRECTOR
Appointed to the Board on 23.9.2009.
Previously a financial journalist with roles as property editor on the Investors
Chronicle and financial editor of The Times. Former chairman of Churchbury
Estates Limited, Ilex Limited and non-executive director of P&O from
1985-1991.
3 SaLLy E WaLDEN*
NON-ExECUTIVE DIRECTOR
Appointed to the Board on 1.10.2012.
From 1984 to 2009 with Fidelity International where she held several
senior positions which included head of UK Equities. Trustee of the
Fidelity Foundation.
* Independent non-executive directors for the purposes of the UK Corporate
Governance Code.
Employed at John Lewis Partnership from 1975 to 2012. Merchandise
director on the board of John Lewis from 2002-2011 and Business and
Development director of the John Lewis Partnership from 2011-2012.
Trustee of Fashion and Textiles Children’s Trust and member of the
Commercial Panel of the National Trust.
Officers and advisors
SEcREtaRy aND REgIStERED OFFIcE
Penny Thomas, LLB (Hons), FCIS
Pegasus House
37-43 Sackville Street
London W1S 3DL
Tel: 020 7333 8118
Fax: 020 7333 0660
e-mail: shaftesbury@shaftesbury.co.uk
Registered number: 1999238
StOckbROkERS
J. P. Morgan Cazenove
Liberum
DEbENtURE StOck tRUStEE
Prudential Trustee Company Limited
LONg-tERM FINaNcE
Aviva Commercial Finance Limited
(Longmartin joint venture)
pRINcIpaL baNkS
Bank of Scotland Plc
Clydesdale Bank PLC
GE Real Estate Finance Limited
Lloyds Bank plc
Nationwide Building Society
INDEpENDENt aUDItORS
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
SOLIcItORS
Hogan Lovells International LLP
Eversheds LLP
Forsters LLP
VaLUERS
DTZ Debenham Tie Leung Limited
(wholly-owned portfolio)
Knight Frank LLP (Longmartin joint venture)
Shaftesbury annual report 2013 GOVERNANCE
56 Corporate governance
Good corporate governance is essential for the proper management of all businesses,
underpinning investor confidence in strategy and behaviour. Your Board is committed to
maintaining high standards of corporate governance throughout all aspects of our business,
to ensure the UK Corporate Governance Code is applied consistently and comprehensively.
John Manser retired from the Board on 8 February 2013. Until then,
I served as executive Deputy Chairman and became non-executive
Chairman on that date.
We continue to review the composition of the Board to ensure that it
has the skills and balance required for the proper stewardship of
the business.
Dermot Mathias and Sally Walden joined the Board on 1 October 2012
as part of our succession planning for the Board. They have brought a
range of skills to the Board to complement the existing non-executive
directors’ experience. Gordon McQueen will retire from the Board at
the conclusion of the 2014 AGM having served on the Board for almost
nine years. On his retirement, the Board will appoint Jill Little as
Senior Independent Director. She will hand over the role of Chairman
of the Remuneration Committee to Sally Walden. Dermot Mathias will
take on the role of Chairman of the Audit Committee.
Jonathan Lane
Chairman
cOMpLIaNcE WItH tHE Uk cORpORatE gOVERNaNcE cODE (tHE
“cODE”)
The Board is responsible to shareholders for the success of the
business. The strategy set by the Board, described in the Strategic
Report, is to invest in real estate in London’s West End. The Board
ensures that the business follows the strategy and that a financial and
operational structure is in place to enable the Group to meet its goals.
Set out below is an explanation of how the Group applied the principles
of the Code, and in so doing, how it complied with its provisions.
LEaDERSHIp
The Chairman is responsible for the leadership of the Board, ensuring
its effectiveness and setting its agenda. The Chief Executive has
responsibility for the management of the Group’s day-to-day operations.
The Board has adopted a statement of the division of responsibilities
between the two roles and a schedule of matters reserved for the Board
for decision. Both documents are available on the Group’s website.
Until 8 February 2013, Jonathan Lane had the role of executive Deputy
Chairman with specific responsibilities agreed by the Board, including
deputising for the Chairman and reviewing the Group’s succession planning
process. This role ceased when he became non-executive Chairman.
As described in last year’s Annual Report, an extensive shareholder
consultation was undertaken prior to the decision by the Board to
appoint Jonathan Lane as non-executive Chairman as he had been
Chief Executive from 1986 to 2011.
EFFEctIVENESS
composition of the board
The Nomination Committee keeps the composition of the Board under
review and makes recommendations to the Board on the appointment
of directors. There are six independent non-executive directors, one
of whom has the role of Senior Independent Director. The Board’s
composition meets the Code’s requirements that at least half of the
Board is comprised of independent non-executive directors:
4
Executive
directors
6
1
Independent
non-executive
directors
Chairman
Non-executive directors have a wide range of experience encompassing
property, finance, fund management and retailing. Each of the
non-executive directors, other than the Chairman, is considered to be
independent. The Board’s policy on gender diversity is described in the
Nomination Committee Report on page 60.
The tenure of independent non-executive directors, as at 30 September
2013, is set out below:
Years
Sally Walden
Dermot Mathias
1
1
Jill Little
Hilary Riva
Oliver Marriott
Gordon McQueen
3
3
4
8
Gordon McQueen will not stand for re-election at the 2014 AGM, having
served on the Board for almost nine years.
the board and its committees
The Board has three committees: Audit, Remuneration and Nomination.
Terms of reference for these committees are on the Group’s website.
The Company Secretary acts as secretary to each committee. Minutes
of meetings are circulated to all directors. Each member of the Audit
and Remuneration Committees is an independent non-executive
director. As Jonathan Lane did not meet the criteria of independence
set out in the Code at the time of his appointment, he has not been
appointed to the Audit and Remuneration Committees. He is a
member and Chairman of the Nomination Committee, as permitted
by the Code.
During the year, the non-executive directors met three times without
executive directors present.
Reports from each committee follow on pages 59 to 81.
Shaftesbury annual report 2013 GOVERNANCE
Corporate governance continued
57
Set out below is attendance at the scheduled Board meetings during
the year ended 30 September 2013. Additional meetings were held, as
required, to deal with routine and operational matters and attendance
at these meetings is not included in the table below.
MEMBER
PoSiTioN
Brian Bickell
Chief Executive
Simon Quayle
Property director
Tom Welton
Chris Ward
Jonathan Lane*
Property director
Finance director
Executive Deputy
Chairman (to 8.2.2013)
Non-executive Chairman
(from 8.2.2013)
NUMBER oF
MEETiNGS
ATTENDED
• • • • •
• • • • •
• • • • •
• • • • •
• •
• • •
John Manser**
Chairman (to 8.2.2013)
• •
Gordon McQueen
Non-executive director
Oliver Marriott
Non-executive director
Dermot Mathias
Non-executive director
Jill Little
Hilary Riva
Non-executive director
Non-executive director
Sally Walden
Non-executive director
• • • • •
• • • •
• • • • •
• • • • •
• • • • •
• • • • •
• Attended
Absent
*Jonathan Lane could have attended a maximum of two meetings as executive Deputy
Chairman and three meetings as non-executive Chairman.
**John Manser could have attended a maximum of two meetings.
training
The Chairman is responsible for the ongoing training of directors and
ensuring that they maintain the skills and knowledge required to fulfil
their roles as director. Training records are maintained by the Company
Secretary. Each director is expected to maintain their professional skills.
Non-executive directors are expected to ensure they are familiar with
the business through regular communication with executive directors
and employees including making visits to the Group’s portfolio.
Information
The Board is provided with timely information including financial data
for Board meetings and receives regular updates between meetings.
The Board may seek the advice and services of the Company Secretary
who is responsible for ensuring compliance with Board procedures
and advice to the Board on matters of corporate governance. Directors
may seek independent professional advice at the Group’s expense in
furtherance of their duties as directors.
Evaluation
The Board undertakes an annual review of its performance and the
performance of the Committees to ensure that each continues to operate
effectively. An externally-facilitated review was undertaken during the
year and the results of this are described in the Nomination
Committee Report on page 59.
accOUNtabILIty
Internal control and risk management procedures
The directors are responsible for the Group’s systems of internal controls
and risk management and for reviewing their effectiveness. Such systems
are designed to manage, rather than eliminate, the risks faced by the
business and can provide only reasonable and not absolute assurance
against material misstatement or loss. Their adequacy and effectiveness
are monitored through the risk management and audit processes which
include financial and portfolio management audits.
The principal risks and uncertainties identified by the Board, and how
they are managed or mitigated, are summarised in the Strategic Report
on pages 48 and 49.
Executive directors and senior employees meet regularly to review the risks
facing the business, the controls established to minimise those risks and
their effectiveness in operation. The aim of these reviews is to provide
reasonable assurance that material risks are identified with appropriate
action taken at an early stage to mitigate them. This includes ensuring
insurance is in place where appropriate. Reports on these reviews are
submitted during the year to the Audit Committee and the Board to enable
each to assess the effectiveness of the process and ensure that the Group
complies with the Turnbull Guidance on Internal Control.
The key elements of the Group’s procedures and internal financial
control framework, which are monitored throughout the year, are:
a)
b)
c)
d)
e)
The close involvement of the executive directors in all aspects of
day-to-day operations, including regular meetings with employees
to review all operational aspects of the business. The small number
of employees ensures familiarity with all aspects of the business;
Clearly defined responsibilities and limits of authority. The Board
has responsibility for strategy and has adopted a schedule of
matters which are required to be brought to it for decision. This
includes acquisitions, disposals, major contracts and material
refurbishment or development proposals above a specific
monetary level;
A comprehensive system of financial reporting and forecasting.
Group accounts are prepared quarterly and submitted to the
Board. Forecasts of profit, cash flow and bank facility covenant
compliance are prepared at least quarterly, approved by the Board
and used to monitor actual performance;
The Finance Director has overall responsibility for the preparation
of the financial information which is submitted to the Audit Committee
and the Board. The Audit Committee ensures that the internal
controls in the financial reporting process are in place and are
effective. The Audit Committee Report is on pages 79 to 81;
The day-to-day management of the Group’s portfolio is outsourced
to three managing agents. The Group monitors the performance of
each managing agent and has established extensive financial and
operational controls to ensure that each maintains an acceptable
level of service and that the information they provide is reliable.
The Group also uses the services of an external consultant to review
periodically the operational processes and controls of each
managing agent; and
f)
A comprehensive manual recording the key business processes
and related controls across the whole of the Group’s business is
maintained and regularly updated.
Shaftesbury annual report 2013 GOVERNANCE 58 Corporate governance continued
The Audit Committee has not identified any material weaknesses
in the Group’s control structure during the year.
Feedback from presentations and meetings is provided to the Board,
together with any published analyst comment on the Group.
Our corporate website, together with the websites and social media
channels we use to promote our villages, are important sources of
information on the Group, explaining our philosophy, strategy, current
activities and events across our villages.
All presentations and discussions are conducted within the boundaries
of the Listing Rules and Disclosure and Transparency Rules of the
Financial Conduct Authority.
The Chairman met a number of shareholders during the year. The
Chairman of the Remuneration Committee contacted shareholders
representing 50% of the Company’s issued share capital as part of
a consultation on the Group’s remuneration policy. The policy will be
tabled for approval at the 2014 AGM, in compliance with the new
regulations on directors’ remuneration.
The Senior Independent Director is available to shareholders as an
alternative channel of communication with the Board.
SHaRE capItaL StRUctURE
Details regarding the share capital structure are given in the
Directors’ Report on page 82.
The Board confirms that the procedures to identify, evaluate and manage
the significant risks faced by the Group have been in place throughout the
year under review and up to the date of approval of this Annual Report.
gOINg cONcERN
The Group’s business activities, together with the factors affecting
performance, financial position and future development are set out
in the Strategic Report on pages 9 to 51. The financial position of the
Group including cash flow, liquidity, borrowings, undrawn facilities
and debt maturity analysis is set out on pages 38 to 40.
The directors have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
foreseeable future. Therefore, they continue to adopt the going
concern basis in preparing the financial statements.
REMUNERatION
This information is contained in the remuneration reports on
pages 61 to 78.
RELatIONS WItH SHaREHOLDERS
The Board places great importance on a regular dialogue with both
shareholders who invest in our business, and contact with potential
investors, in order to explain our philosophy and strategy.
Annual and interim results are presented to formal meetings of real
estate analysts. Copies of these presentations are available on our
corporate website from the time of the meeting. Analysts are
encouraged to tour our portfolio with us, so they maintain a good
understanding of our activities.
During the year ended 30 September 2013, the Chief Executive and
other executive directors held over 150 meetings with UK and overseas
institutional shareholders and potential investors. These meetings
comprised individual and group presentations and tours of our portfolio.
Our tours provide an opportunity to see our assets, understand our
management initiatives, and also to meet members of our wider team.
In addition, during the year we conducted two portfolio tours with
members of the UK Shareholders’ Association, which represents the
interests of private investors.
Shaftesbury annual report 2013 GOVERNANCE Nomination committee report
The Committee keeps the composition of the Board under review, makes recommendations
on its membership and monitors succession planning for directors. It also evaluates Board
and Committee performance.
59
Gordon McQueen is approaching nine years’ service as a director of the Company and will retire at the 2014 AGM. The Committee considers that,
following his retirement, the composition of the Board will remain appropriate for the Group and therefore no additional appointment is
necessary at the present time.
Gordon McQueen is Chairman of the Audit Committee and our Senior Independent Director. The Board will appoint Jill Little as Senior Independent
Director, Sally Walden will become Chairman of the Remuneration Committee and Dermot Mathias will become Chairman of the Audit Committee.
All these changes will take place at the conclusion of the 2014 AGM.
Jonathan Lane
Chairman of the Nomination Committee
cOMMIttEE MEMbERS aND attENDaNcE
MEMBER
Jonathan Lane*
John Manser**
Jill Little
Gordon McQueen
Oliver Marriott
Dermot Mathias
Hilary Riva
Sally Walden
• Attended
Absent
PoSiTioN
NUMBER oF MEETiNGS ATTENDED
• •
Chairman (from 8.2.2013)
•
Chairman (to 8.2.2013)
• • •
Member
Senior Independent Director and Member • • •
Member
Member
Member
• •
• • •
• • •
Member
• • •
*Jonathan Lane could have attended a maximum of two meetings.
**John Manser could have attended a maximum of one meeting.
cOMMIttEE attENDEES by INVItatION ONLy
attENDEES
Brian Bickell
Penny Thomas
pOSItION
Chief Executive
Secretary to the Committee
actIVItIES DURINg tHE yEaR
STANDiNG MATTERS
ADDiTioNAL MATTERS
Succession planning for the Board and senior executives
Change in composition of the Committee
Board and Committee performance evaluation
Evaluation of the skills of the directors for re-election
Directors for re-election and election
Review of the annual committee report
bOaRD pERFORMaNcE EVaLUatION
The Board engaged Lintstock Limited to undertake the annual evaluation
of the performance of the Board and its Committees, building on the
external evaluation conducted in 2011 and seeking to identify areas where
performance and procedures might be further improved.
The scope of the review was agreed with the Chairman and the
Company Secretary to set the context for the evaluation.
Each director completed a questionnaire on the performance of the
Board, its Committees and the Chairman. The anonymity of
respondents was ensured in order to promote the open and frank
exchange of views. Lintstock then produced a report mapping the
performance of the Board against the results of the review in 2011,
which addressed the following areas:
Recommendation of the appointment of the Senior Independent
Director with effect from 7.2.2014
Recommendation of the appointment of the Chairman of Audit and
Remuneration Committees with effect from 7.2.2014
- dynamics of the Board, including the engagement of the directors in
the affairs of the Company and the environment in the boardroom,
- the Chairman’s transition into the role and priorities for Board meetings,
- management of time, planning of the annual cycle of work and agenda,
- evaluation of the Board’s oversight of operations,
- management of risk, including the Board’s review and testing of risk
management policies,
- composition and performance of the Committees of the Board,
- identification of the main priorities for the Board for the coming year.
The content for each subsequent evaluation will be designed to build
upon insights gained in the previous exercise to ensure that the
recommendations agreed in the review have been implemented and
that year-on-year progress is measured.
Shaftesbury annual report 2013 GOVERNANCE
60 Nomination committee report continued
pOLIcy ON DIVERSIty
DIREctORS StaNDINg FOR RE-ELEctION
All directors will stand for re-election at the 2014 AGM with the
exception of Gordon McQueen, who will retire from the Board at the
conclusion of the meeting.
Following the annual board performance reviews of individual
directors, the Chairman considers:
• that each director subject to re-election continues to operate as an
effective member of the Board; and
• that each director subject to re-election has the skill, knowledge and
experience that enables them to discharge their duties properly and
contribute to the effective operation of the Board.
The Board, on the advice of the Committee, therefore recommends the
re-election of each director standing for re-election. Full biographical
details of each director are available on pages 54 to 55.
cHaNgE IN bOaRD ROLES
At the conclusion of the 2014 AGM, following Gordon McQueen’s
retirement, the following changes in responsibilities will take place:
Jill Little
Resigns as Chairman of the Remuneration
Committee and appointed Senior Independent
Director
Sally Walden
Appointed Chairman of the Remuneration
Committee
Dermot Mathias Appointed Chairman of the Audit Committee
All aspects of diversity, including gender, are considered at every level
of recruitment. All appointments to the Board are made on merit. The
Board’s policy was approved in September 2011 and states clearly that
the Board seeks a composition with the right balance of skills and
diversity to meet the demands of the business. The Board does not
consider that quotas are appropriate for its representation and has
therefore chosen not to set targets. Gender diversity of the Board and
Company is set out below:
Female
Male
27%
73%
Board
52%
50%
48%
50%
All
employees
Senior
management
SUccESSION pLaNNINg
The Board comprises a team of four executive directors, three of
whom have an average length of service with the Company of 25 years,
complemented by non-executive directors who have wide business
experience and skills as well as a detailed understanding of the
Group’s philosophy and strategy. Continuity of experience and
knowledge, particularly of the unique environment of London’s West
End, within the executive team is particularly important in a focused,
long-term business such as ours.
It is a key responsibility of the Committee to advise the Board on
succession planning. The Committee ensures that future changes in
the Board’s membership are anticipated and properly managed, and
that in the event of unforeseen changes, management and oversight
of the Group’s business and long-term strategy will not be disrupted.
The Committee also addresses continuity in, and development of,
the executive management team below board level.
Shaftesbury annual report 2013 GOVERNANCE
Remuneration report
Our policy is to remunerate and incentivise executive directors and management through
simple and transparent arrangements which align executive rewards with the Group’s
long-term business strategy, goals and shareholder returns.
61
cONtEXt FOR tHE gROUp’S REMUNERatION appROacH
The Group has 23 employees, including four executive directors. Of
those four, three have an average length of service of 25 years. They
have built up substantial shareholdings in the Group, mainly through
retaining shares awarded under employee share schemes. The combined
holdings of the executive directors stand at just over 2.3 million shares
with a current market value of circa £14 million. The average length of
service below Board level is 11 years.
The Group’s small team of executive directors and key staff all have a
close involvement in the continuing development of the Group’s
management strategies and their implementation. Consequently, the
Committee considers it appropriate that, in setting objectives and
measuring performance, emphasis is placed on team rather than
individual performance.
This year we are following the new remuneration reporting regulations
which divide the remuneration report into two sections:
- the Remuneration Policy Report which sets out the Committee’s
policy and framework for executive remuneration. This section will
be proposed for a binding vote by shareholders at our 2014 AGM, and
- the Annual Remuneration Report which sets out how the Group has
remunerated directors during the year and is proposed for an
advisory vote by shareholders at the same meeting.
The Group’s remuneration policy has not changed during the year and
is as proposed in the policy table. We have, however, increased the
level of disclosure in line with the new regulations. Whilst the policy
below is already being operated, the Committee felt it prudent to
consult its major shareholders to ensure that it continues to meet
current investor expectations. Their responses were reported to, and
considered by, the Committee.
We believe our remuneration policy has been successful in remunerating
directors fairly, providing stability in the executive management team
which is desirable in this long-term business.
We continue to review our remuneration policy and have reviewed in
detail all components of remuneration to ensure that they remain
appropriate, competitive and are in accord with the new regulations.
Further aspects of this review will be completed in 2014. If the
outcome requires any substantive changes to the remuneration policy
we would consult with shareholders as necessary.
Against a background of a buoyant wider West End economy, the Group
has performed well this year, meeting or exceeding substantially all
the annual objectives set by the Committee, and delivering a good
financial performance. In recognition of this annual performance, the
Committee recommended to the Board awards of annual bonuses for
each executive director of 50% of base salary. This compares with a
maximum award under our remuneration policy of 125% and an
on-target award of 62.5%.
Delivery of long-term growth in shareholder value is rewarded through
our LTIP arrangements, which are an important element of the
remuneration package we provide. This year, performance for the
three year period ended 30 September 2013 has resulted in the vesting
of 50% of performance-related options granted in December 2010.
As a result of changes in the composition of the Board due to the
impending retirement of Gordon McQueen, I will step down as
Committee Chairman at the conclusion of the 2014 AGM. The Board
will appoint Sally Walden as Chairman of the Committee at that time.
Jill Little
Chairman of the Remuneration Committee
Shaftesbury annual report 2013 GOVERNANCE 62 Remuneration policy report
Set out below is the Group’s policy on directors’ remuneration, which will be proposed for
a binding vote at the 2014 AGM. If approved, the policy will be effective from that date.
EXEcUtIVE DIREctORS
ELEMENT LiNk WiTH STRATEGY
oPERATioN
Salary
Fixed remuneration at a
level appropriate to skills,
experience and complexity
of the role
Reviewed annually with effect from 1 December, with reference to inflation and other employees,
unless there is a change of role or responsibility or a new director is recruited (see recruitment policy)
Sector and other relevant market data (eg against constituent companies of the FTSE 350 Real
Estate Index) may be requested from remuneration advisors as required
Annual
bonus
To incentivise performance
in the reporting year through
the setting of targets at the
beginning of the year. These
annual targets are consistent
with the Group’s long-term
strategy
The opportunity to defer the
bonus and take it in shares
seeks to align directors’
interests with those of
shareholders and avoid
short-term decision making
Annual performance targets are set by the Committee at the beginning of the year and are linked to the
Group’s strategy and key business objectives of long-term growth in rental income and net asset value.
The Group’s two non-financial KPIs are used in the metrics to align directors’ interests with strategy
At the end of the financial year, the Committee evaluates performance against these objectives
whilst also taking into account overall financial performance and future prospects. The Committee
also satisfies itself that short-term targets have not been met at the expense of long-term interests.
This discretion is, however, only exercised within the limits of the scheme
Minimum performance required for any part of the bonus to be earned is calibrated so as to be
appropriately stretching and achievable
Where directors take all or part of the bonus in shares, these are held for a minimum of three years
in a Deferred Annual Share Bonus Scheme. No further performance conditions apply. Dividend
equivalents are paid at the end of the deferral period
The Committee has discretion to exercise malus provisions to reduce the award prior to payment or
release of the shares in the event of material misstatement of the financial statements or gross misconduct
Shaftesbury annual report 2013 GOVERNANCE Remuneration policy report continued
63
MAxiMUM
PoTENTiAL VALUE
The Committee does not specify a maximum salary or maximum
salary increase due to unintended consequences such as setting
undue expectations. When deciding salary increases, the Committee
considers average increases across the Company, prevailing rates
of inflation and, from time-to-time, market data
The Committee recognises the importance of setting salaries at levels
in the context of market median levels in the real estate sector, but
which are not excessive in relation to the Group’s particular
strategy and features. The emphasis in the Group’s remuneration
policies is to place greater weight on performance-based rewards
within the overall remuneration package
Further details on salary levels and any increases for a given year
are provided in the Annual Remuneration Report
Directors have the choice to take a bonus in shares or cash, in full
or part as follows:
Up to 125% of salary if taken entirely in shares;
or
Up to 100% of salary if taken entirely in cash
PERFoRMANCE MEASURES
AND PERFoRMANCE PERioDS
None
CHANGE FRoM
PREVioUS
YEAR?
No
Performance is assessed against a set of key financial
and non-financial annual measures which may vary
each year depending on the annual priorities of the
business. These are set by the Committee, for
example:
No
- Grow ERVs above the levels assessed by the Group’s
valuers (KPI)
- Let vacant space on a timely basis in light of market
conditions (KPI)
- Maximise occupancy of the Group’s portfolio
- Manage property expenses as a percentage of
rental income
- Corporate responsibility performance
- Deliver projects/transactions successfully
Performance against the above targets will be
assessed in the context of the overriding principle that
lettings/lease renewals must be in accordance with
the Group’s strict policies regarding tenant mix
Measures will be weighted in alignment with the
Group’s strategy for each year. Weightings for each
measure can be up to 30%
Within the limits of the scheme, the Committee has
discretion to adjust bonus outcomes (upwards or
downwards) as it considers appropriate to ensure
alignment of pay with overall performance and market
conditions
Further details of the measures, weightings and
targets applicable for a given period are provided in
the Annual Remuneration Report for that year
Shaftesbury annual report 2013 GOVERNANCE 64 Remuneration policy report continued
ELEMENt LINk WItH StRatEgy
OpERatION
LtIp
To incentivise and reward
performance over the long-
term, aligning directors’
interests with shareholders
and to encourage the
management of the Group’s
business in accordance with
its long-term strategy and
goals
Sharesave Part of overall package for
pension
Other
benefits
executive directors,
encouraging share ownership
Part of overall package for
executive directors providing
comprehensive remuneration
and retirement benefits
Part of overall package for
executives providing
comprehensive remuneration
Operated in accordance with plan rules approved by shareholders at the 2006 AGM
Award of nil cost options over ordinary shares with performance determined by two separate and
independent performance conditions over a set period. The Committee reviews the targets prior
to making each grant of nil cost options
Dividends accrue on any shares which vest and are paid in cash at vesting
The Committee has discretion to exercise malus provisions to reduce the award prior to vesting
in the event of material misstatement of the financial statements or gross misconduct
An HMRC approved scheme where employees may save a regular amount over three or five years
Options granted at a 20% discount to the prevailing share price at the date of grant
Contribution paid into a personal pension plan or taken as a cash equivalent, reduced for employer’s
national insurance liability
Each executive director receives:
• car allowance
• private medical insurance
• life insurance
• permanent health insurance
In addition to the above elements of remuneration, the Committee may consider it appropriate to grant an award under a different structure in
order to facilitate the recruitment or retention of an individual, exercising the discretion available under Listing Rule 9.4.2 R. Such discretion
would only be used in unforeseeable and exceptional circumstances.
Any commitment made prior to, but due to be fulfilled after, the approval and implementation of the remuneration policy detailed in this report
will be honoured, and is the same as that which is contained in the policy table.
NON-EXEcUtIVE DIREctORS aND cHaIRMaN
ELEMENt LINk WItH StRatEgy
OpERatION
Fees
To provide market-
competitive director fees
Fees are reviewed every two years. Sector and other relevant market data (eg constituent companies
in the FTSE 350 Real Estate Index) may be requested from remuneration advisors where required
An additional fee is payable to reflect the additional time commitment required to chair Board
committees or act as Senior Independent Director
The fee paid to the Chairman is determined by the Committee and fees to non-executive directors
are set by the Board
No director takes part in discussions regarding their own remuneration
DIFFERENcE bEtWEEN pOLIcy FOR DIREctORS aND EMpLOyEES
Pay and conditions throughout the Group are taken into consideration when setting remuneration policy. It is the Group’s approach that all
executive directors and 19 other employees are offered the same remuneration package elements, though not all employees are eligible for all
benefits provided to executive directors. Individual salary levels, percentage levels of awards in the annual bonus and LTIP vary according to the
employees’ level of responsibility and their contribution to the business.
As the same remuneration policy applies to executive directors and all employees, the Committee did not consult employees when drawing up
the Group’s policy.
Shaftesbury annual report 2013 GOVERNANCE
Remuneration policy report continued
65
MaXIMUM
pOtENtIaL VaLUE
pERFORMaNcE MEaSURES aND
pERFORMaNcE pERIODS
cHaNgE FROM
pREVIOUS
yEaR?
Maximum value 150% of salary at date of grant in normal
circumstances
Two equally weighted measures apply to a three-year
performance period:
No
Maximum value 200% of salary in exceptional circumstances such
as executive recruitment (this has not been used to date)
Threshold vesting is 10% of maximum award for TSR and 15% of
maximum award for NAV
- TSR versus FTSE 350 Real Estate Index
- NAV growth in excess of RPI
The detailed metrics are set out in the
Annual Remuneration Report
Up to £250 savings per month
25% of salary
None
None
No executive director received total benefits exceeding 15% of salary
during the most recent financial year and it is not anticipated that the cost
of benefits provided will exceed this level over the next three years
None
The Committee retains the discretion to approve a higher cost in
exceptional circumstances or in circumstances where factors outside
the Company’s control have changed materially eg increases in
insurance premiums
Notes to the table:
Performance measures
No
No
No
1. The performance measures set by the Committee for the annual bonus scheme reflect Group KPIs and short-term measures which help the Group achieve its strategic goals
of long-term growth in rental income and net asset value. The Committee makes reasonable changes to the measures each year in order to ensure continued alignment with
strategy
2. LTIP performance measures have been selected to align the interests of directors with those of shareholders. Performance targets are set by the Committee to be
appropriately stretching and achievable taking into account the Company’s strategic priorities and the economic environment in which the Company operates
OppORtUNIty
pERFORMaNcE MEaSURES aND
pERFORMaNcE pERIODS
As with the policy for the executive directors, the Company does not
specify a maximum level of increase
Not applicable
cHaNgE FROM
pREVIOUS
yEaR?
No
Shaftesbury annual report 2013 GOVERNANCE
66 Remuneration policy report continued
REcRUItMENt pOLIcy
Executive directors
A new director’s remuneration is proposed by the Committee and approved by the Board in line with this policy. The Group offers salary, benefits,
annual bonus and nil cost options in the LTIP on the same basis as existing directors receive, whilst recognising that existing directors have
experience and knowledge that a new appointees does not. As stated on page 64, the Committee has the discretion to implement a one-off
arrangement in accordance with Listing Rule 9.4.2 R. If the Group considered it appropriate to buy out any pre-existing variable pay arrangements
of an incoming director, it would only be with replacement awards structured on a comparable basis eg in terms of vesting period, performance
conditions etc. In doing so, the Committee would consider relevant factors when structuring such awards, including the likelihood of those
pre-existing conditions being met.
External appointment
ELEMENT
Salary
Annual bonus
LTiP
Sharesave
Pension
other benefits
APPRoACH
MAxiMUM ANNUAL GRANT VALUE*
The salaries of new appointees will be determined by reference to
relevant market data, experience and skills of the individual, internal
relativities and their current salary. Where new appointees have initial
salaries set below market, any shortfall will be managed with phased
increases within three years subject to the individual’s development in
the role
In line with the policy for other executive directors. For executive
directors joining part way through a year, awards would be pro-rated
New appointees will be granted awards under the LTIP on the same
terms as other executives as described in the policy table
125% of salary
200% of salary
In line with the policy for other executive directors
*excludes compensation for variable remuneration lost on leaving a former employer
Internal appointment
In the event of appointing a new executive director by way of internal promotion, the policy will be consistent with that for external appointees as
detailed above. Further detail on the policy for other employees is set out on page 64.
Non-executive directors
Newly appointed non-executive directors are paid fees at a level consistent with existing non-executive directors. Fees would be paid pro-rata.
LOSS OF OFFIcE payMENt
Provisions for payments on termination contained in executive directors’ service contracts are set out below:
DATE oF
APPoiNTMENT
DATE oF
CURRENT
CoNTRACT
NoTiCE PERioD
TERMiNATioN ARRANGEMENTS
B Bickell
1.10.2011
6.6.2011
One year’s notice
One year’s salary and benefits payable in event
of termination without notice. Director’s duty to
mitigate loss
S J Quayle
T J C Welton
C P A Ward
8.10.1997
8.10.1997
9.1.2012
8.10.1997
8.10.1997
1.10.2011
One year’s notice
Termination by payment of annual salary
One year’s notice
Termination by payment of annual salary
One year’s notice
One year’s salary and benefits payable in event
of termination without notice. Director’s duty to
mitigate loss
Any new executive director would be appointed on the same loss of office terms as Brian Bickell and Christopher Ward, namely 12 months’
salary and benefits with a duty to mitigate loss.
The terms of appointment of non-executive directors are documented in letters of appointment. Non-executive directors have a one month notice
period and their appointment would terminate without compensation if not re-elected at an AGM.
All contracts are available for inspection at the Company’s registered office.
Shaftesbury annual report 2013 GOVERNANCE Remuneration policy report continued
67
appROacH tO OtHER REMUNERatION payMENtS ON tERMINatION OF EMpLOyMENt aND cHaNgE OF cONtROL
In addition to the contractual provisions regarding payment on termination set out above, the Group’s incentive plans and share schemes contain
provisions for termination of employment.
CoMPoNENT
Annual bonus
GooD LEAVER*
BAD LEAVER*
CHANGE oF CoNTRoL
Only eligible to receive award if
completed a full year and cannot
elect to defer pro-rated award
into shares
Outstanding award forfeited
At the discretion of the Committee
Deferred Annual Share
Bonus Scheme
Eligible to continue to hold shares
until end of deferral period
Shares forfeited and original cash
bonus amount before uplift is paid
The scheme permits early
exercise
LTiP
Outstanding awards are forfeited
Eligible to receive pro-rata
payment from outstanding LTIP
awards for time in employment.
Any vesting is calculated and
made at the end of performance
period in the normal way. The
Committee has discretion to
accelerate and/or disapply
pro-rating in exceptional
circumstances
Awards would be made pro-rata
for time and performance, and
would vest as soon as practicable.
The Committee has discretion to
disapply pro-rating in exceptional
circumstances
Awards may alternatively be
exchanged for new equivalent
awards in the acquirer where
appropriate
Sharesave
In line with HMRC rules
In line with HMRC rules
In line with HMRC rules
*Good leaver provisions relate to termination of employment for reason of death, disability, injury, retirement with the agreement of the Company, participant’s office or
employment being with a company or business which ceases to be a member of the Group or, in other exceptional circumstances, at the discretion of the Committee (including
redundancy). Bad leaver provisions apply under all other circumstances.
The use of any discretion described above would be disclosed in the Annual Report for the relevant year.
cONSIDERatION OF SHaREHOLDER VIEWS
Shareholders, representing almost 50% of the Company’s issued share capital, have been given the opportunity to comment and question the
Committee on the policy. The consultation involved written correspondence, conference calls and meetings. The Chairman of the Committee
made herself available to answer questions on the policy, and shareholder responses were reported to, and considered by, the Committee.
SHaREHOLDINg REQUIREMENtS
Each executive director is required to build up and maintain a minimum shareholding in the Company equivalent to one year’s salary at date of
appointment to the Board. Newly appointed executive directors are expected to accumulate a fixed shareholding to this value over a period of five
years from the date of their appointment and may include shares held within the Deferred Annual Share Bonus Scheme. Shares received under
the LTIP and Deferred Annual Share Bonus scheme, net of deductions for income tax and national insurance, are retained until the minimum
shareholding level is attained.
There are no shareholding requirements for non-executive directors.
EXtERNaL appOINtMENtS
Executive directors are permitted to accept external appointments, with the prior approval of the Board, where there is no adverse impact on
their role with the Group. Any fees arising from such appointments may be retained by the executive director where the appointment is unrelated
to the Group’s business.
Shaftesbury annual report 2013 GOVERNANCE 68 Remuneration policy report continued
pOtENtIaL REMUNERatION FOR DIREctORS
The charts below set out the potential remuneration receivable by directors for below threshold, on-target and maximum performance. Potential
reward opportunities are based on the policy and applied to salaries as at 1 December 2013. Note that the projected values exclude the impact of
any share price movement or dividend accrual.
B BICKELL (£’000)
S qUAYLE AND T WELTON (£’000)
C WARD (£’000)
LTIP
Annual bonus
Fixed
628
1,088
16%
26%
100%
58%
1,893
36%
30%
34%
773
16%
26%
58%
448
100%
1,342
36%
30%
34%
1,224
36%
31%
33%
699
16%
27%
57%
399
100%
Minimum
On-target
Maximum
Minimum
On-target
Maximum
Minimum
On-target
Maximum
The minimum scenario reflects salary, pension and benefits (ie fixed remuneration) which are the only elements of the executive directors’
remuneration packages not linked to future performance.
The on-target scenario reflects fixed remuneration as above, plus bonus payout of 62.5% of salary and LTIP threshold vesting at 25% of
maximum award (ie 10% of maximum for median TSR performance and 15% of maximum for NAV growth in excess of RPI plus 3% pa).
The maximum scenario reflects fixed remuneration, plus full payout of all incentives.
Employee costs versus dividends paid
Employee costs
Dividends paid
35
30
25
20
15
10
5
0
2013 £m
2012 £m
Shaftesbury
FTSE 350 Real Estate Index
8
0
0
2
r
e
b
m
e
t
p
e
S
0
3
t
a
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
l
a
V
250
200
150
100
50
0
£600,000
£500,000
£400,000
£200,000
£100,000
0
2008
2009
2010
2011
2012
2013
Actual contribution
EPRA adjusted pre-tax profit
£534,000
£300,000
£404,000
1.3%
1.7%
2012
2013
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0
Shaftesbury annual report 2013 GOVERNANCE
Annual remuneration report
Set out below is the Annual Remuneration Report on directors’ pay for the year ended
30 September 2013. In accordance with the Committee’s terms of reference and the Group’s
remuneration policy, the Committee determines executive directors’ actual remuneration
for the year.
69
NUMBER oF MEETiNGS ATTENDED
• • • •
• • • •
• • •
• • • •
• • • •
• • • •
COMMITTEE MEMBERS AND ATTENDANCE
MEMBER
Jill Little
PoSiTioN
Committee Chairman
Gordon McQueen
Senior Independent Director and member
Oliver Marriott
Dermot Mathias
Hilary Riva
Sally Walden
• Attended
Absent
Member
Member
Member
Member
COMMITTEE ATTENDEES BY INVITATION ONLY
ATTENDEES
Jonathan Lane
Brian Bickell
Penny Thomas
PoSiTioN
Chairman
Chief Executive
Secretary to the Committee
Kepler Associates
Advisor to the Committee
aDVISORS tO tHE cOMMIttEE
The Committee is advised by Kepler Associates who were appointed advisor to the Committee in 2012 following a tender process. During the
year, fees in respect of remuneration advice amounted to £78,000. Kepler Associates has provided the Committee with a statement of independence
and that they have no other relationship with the Group. The Committee accepted the statement on independence and was satisfied that the
advice it received was independent.
actIVItIES DURINg tHE yEaR
The Committee had four scheduled and two additional meetings during the year to deal with the following matters:
ADDiTioNAL MATTERS
Detailed review of Group’s remuneration policy under the new
directors’ remuneration reporting guidelines
Shareholder consultation on remuneration policy
Instruct and commence a review of Group remuneration
strategy, which is ongoing
STANDiNG MATTERS
Annual review of remuneration policy
Determine pay and benefits for the executive directors and Company Secretary
and monitor the relationship between pay and benefits of other employees and
executive directors
Operation of the annual bonus scheme (including performance objectives) for
the executive directors, the Company Secretary and employees for the year ahead
Determine awards under the annual bonus scheme for executive directors and
the Company Secretary and monitor the relationship between awards for other
employees and executive directors
Note LTIP vesting calculated by reference to the degree of attainment
of performance conditions set at the date of award
Determine annual LTIP awards and performance conditions
Appointment of advisors for salary review and general advice regarding
remuneration structure, if required
Review Chairman’s fees every two years
Review the Remuneration Reports
Shaftesbury annual report 2013 GOVERNANCE 70 Annual remuneration report continued
SINgLE tOtaL FIgURE OF REMUNERatION FOR EXEcUtIVE DIREctORS (aUDItED)
The table below sets out a single figure for the total remuneration received by each executive director for the year ended 30 September 2013 and
the prior year:
SALARY
BENEFiTS 3
PENSioN
BENEFiT 4
SiNGLE YEAR
VARiABLE 5
MULTiPLE YEAR
VARiABLE 6
oTHER 7
ToTAL
2013
£’000
2012
£’000
2013
£’000
2012
£’000
2013
£’000
2012
£’000
2013
£’000
2012
£’000
2013
£’000
2012
£’000
2013
£’000
2012
£’000
2013
£’000
2012
£’000
B Bickell
S J Quayle
T J C Welton
C P A Ward1
J S Lane2
442
313
313
271
62
430
303
302
183
175
53
42
43
24
25
41
36
39
16
60
97
75
75
66
-
98
73
72
46
-
223
158
158
138
-
215
153
153
94
70
248
240
231
-
329
391
377
363
-
548
15
14
14
1
20
23
23
22
1
32
1,078
1,198
842
834
500
436
965
951
340
885
1. The single figure amount for Christopher Ward in 2012 was for nine months as he joined part way through the year
2. At the AGM on 8 February 2013, Jonathan Lane retired as executive Deputy Chairman and was appointed non-executive Chairman. His remuneration in respect of his role
as Deputy Chairman is shown above and as Chairman is shown in the single figure for non-executive directors below
3. Benefits comprise car benefit, permanent health insurance, life insurance and health insurance.
4. Pension contribution is 25% of salary and may be taken in cash (in part or entirely). The cash equivalent is reduced by any resultant tax liability borne by the Group
5. Payment for performance during the year ie annual bonus. For 2013, the executive directors received bonuses of 50% of salary. Each director has elected to take their 2013
bonus entirely in shares. No further performance criteria apply. See page 62 and 63 for further details
6. Multiple year variable is the LTIP. 50% of LTIP awards granted in December 2010 will vest on 9 December 2013. The value of these awards has been calculated by multiplying
the number of shares that will vest by the 3-month average share price to 30 September 2013 of £6.13. See below for further details. As disclosed last year, the award for
Jonathan Lane was made pro-rata according to the time he was an executive director
7. This includes Sharesave which has been valued based on the monthly savings amount (£250) and the discount provided (20%) ie £250 x 12 x 20%. It also includes any dividend
equivalents to be paid in respect of LTIP shares due to vest on 9 December 2013
Nil cost options under the LTIP granted on 8 December 2010 are due to vest on 9 December 2013 for Brian Bickell, Simon Quayle, Tom Welton
and Jonathan Lane. Of the options granted in December 2010, 50% of the options will vest in December 2013. The TSR performance condition
over the three years ended 30 September 2013 was not met, whilst NAV performance resulted in 100% vesting for this element.
Retrospective disclosure of the extent to which the targets have been met for the annual bonus in respect of the year ending 30 September 2013,
payable in December 2013, and included within the single figure remuneration for that year is as follows:
TARGET
Achieve growth in ERVs compared to levels assessed by our valuers
in the year end valuation (KPI)
PERFoRMANCE
Achieved rents 4.5% above ERV at 30.9.2012
Let vacant space on a timely basis in light of market conditions (KPI)
Exceeded target letting times on average by 33%
Corporate responsibility performance
DJSI score improved from 63 to 65. GRESB score ranked the Group 3
out of 10 in a peer group
Outperform UK IPD benchmark index
Outperformed IPD benchmark for total property return by 6.9%
Manage property expenses as a percentage of rental income
Deliver projects/transactions successfully
Ratio of property expenses compared to rents receivable unchanged
from previous financial year
Projects identified were either completed satisfactorily or, if delayed by
external factors, satisfactory progress was made during the year
During the year ended 30 September 2013, the Group has performed well with EPRA profit before tax of £30.4 million, EPRA earnings per share
of 12.0p and EPRA NAV of £5.67. Operational and financial performance of the business in the year has met or exceeded the Board’s expectation.
In determining the level of 2013 annual bonuses for executive directors, the Committee carefully analysed the Group’s performance against the
objectives set at the beginning of the financial year. Each of the objectives was considered to be substantially met or exceeded. However it was
noted this good performance was achieved against the background of a buoyant wider West End economy. Taking into account the environment in
which the Group was operating and EPRA profit and NAV growth for the year, together with the Group’s policy of rewarding delivery of sustained
growth in shareholder value through LTIP arrangements, it was decided that an annual bonus award of 50% of base salary was appropriate. This
compares with the Group’s policy of a maximum award of 125% and an on-target award of 62.5%. In all cases the bonus level is reduced by 20%
where an employee elects to take their annual bonus in cash rather than shares.
Shaftesbury annual report 2013 GOVERNANCE Annual remuneration report continued
71
SINgLE tOtaL FIgURE OF REMUNERatION FOR NON-EXEcUtIVE DIREctORS (aUDItED)
The table below sets out a single figure for the total remuneration received by each non-executive director for the year ended 30 September 2013
and the prior year:
P J Manser1
J S Lane2
J C Little
W G McQueen
O J D Marriott
D C A Mathias
H S Riva
S E Walden
FEE
CoMMiTTEE CHAiR FEES
ToTAL
2013
£’000
2012
£’000
2013
£’000
2012
£’000
2013
£’000
2012
£’000
41
73
50
50
50
50
50
50
113
n/a
50
50
50
n/a
50
n/a
-
-
8
8
-
-
-
-
-
n/a
6
6
-
n/a
-
n/a
41
73
58
58
50
50
50
50
113
n/a
56
56
50
n/a
50
n/a
1. John Manser retired as Chairman on 8 February 2013 and was succeeded by Jonathan Lane
2. For Jonathan Lane, the remuneration shown here is in respect of his role as non-executive Chairman since 8 February 2013
There have been no payments for loss of office during the year.
gaINS MaDE by DIREctORS ON EXERcISE OF SHaRE OptIONS (aUDItED)
During the year, the directors below exercised options granted in the 2001 share option scheme at £2.65 each. They also exercised nil cost
options granted under the LTIP which vested in December 2012.
The executive directors sold sufficient shares to meet income tax and national insurance liabilities on the exercise of their share options,
retaining the balance.
Total gains are set out below.
B Bickell
S J Quayle
T J C Welton
J S Lane
2013
£’000
796
715
672
1,103
3,286
2012
£’000
610
575
525
852
2,562
EXEcUtIVE DIREctOR EXtERNaL appOINtMENtS (UNaUDItED)
Executive directors are permitted to accept external appointments with the prior approval of the Board where there is no adverse impact on their
role with the Group. Any fees arising from such appointments may be retained by the executive director where the appointment is unrelated to
the Group’s business. Jonathan Lane received and retained fees in the period from 1 October 2012 to 8 February 2013 (when he became
non-executive Chairman) in respect of his directorship of a private company unconnected with the Group’s business totalling £1,500 for the
period to 8 February 2013 (2012: £4,500).
Shaftesbury annual report 2013 GOVERNANCE 72 Annual remuneration report continued
SHARE SCHEME INTERESTS AWARDED DURING THE YEAR (AUDITED)
DATE oF GRANT
SCHEME
AWARDS
MADE
DURiNG THE
YEAR
MARkET
PRiCE AT
DATE oF
AWARD £
FACE VALUE
AT DATE oF
AWARD £
B Bickell
S J Quayle
T J C Welton
C P A Ward
6.12.2012
10.12.2012
6.12.2012
10.12.2012
6.12.2012
10.12.2012
6.12.2012
10.12.2012
LTIP*
Deferred Annual Share Bonus Scheme**
LTIP*
Deferred Annual Share Bonus Scheme**
LTIP*
Deferred Annual Share Bonus Scheme**
LTIP*
Deferred Annual Share Bonus Scheme**
100,600
38,867
71,200
27,569
71,200
27,569
62,150
16,948
5.55
5.56
5.55
5.56
5.55
5.56
5.55
5.56
556,250
215,000
393,750
152,500
393,750
152,500
343,750
93,750
* Awards of nil cost options were made at 125% of salary. LTIP performance period is 1.10.2012 to 30.9.2015; performance measures are set out on page 73.
** Deferred Annual Share Bonus Scheme relates to the annual bonus in respect of the year ended 30.9.2012 taken in shares. No further performance criteria relate to this
scheme
Both the schemes are described in detail in the policy table on pages 62 to 65.
DIREctORS’ SHaRE ScHEME INtEREStS (aUDItED)
1. Deferred annual Share bonus Scheme
Where directors elect to take their annual bonus in shares, these are held for a minimum of three years in an employee benefit trust, although
they may be left in the scheme for up to seven years. Income tax and employees’ national insurance are payable on release. Dividend equivalents
accrue on shares held in the trust and on release are paid net of income tax and employees’ national insurance liabilities. There are no further
performance measures as an entitlement to receive the full award is determined at the date of award under the annual bonus scheme.
MARkET
PRiCE oN
DATE oF
GRANT
£
DATE oF GRANT
AT
1.10.2012
AWARDED
iN YEAR*
DELiVERED
iN YEAR
AT
30.9.2013
ENTiTLEMENT To oRDiNARY SHARES
B Bickell
S J Quayle
T J C Welton
C P A Ward
J S Lane
17.12.2010
21.12.2011
10.12.2012
17.12.2010
21.12.2011
10.12.2012
17.12.2010
21.12.2011
10.12.2012
10.12.2012
17.12.2010
21.12.2011
4.50
4.64
5.56
4.50
4.64
5.56
4.50
4.64
5.56
5.56
4.50
4.64
19,352
52,335
-
71,687
18,673
50,590
-
69,263
17,994
49,719
-
67,713
-
27,161
103,866
131,027
-
-
38,867
38,867
-
-
27,569
27,569
-
-
27,569
27,569
16,948
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
19,352
52,335
38,867
110,554
18,673
50,590
27,569
96,832
17,994
49,719
27,569
95,282
16,948
27,161
103,866
131,027
* In respect of the annual bonus for the year ended 30 September 2012. Shares are held in an employee benefit trust which at 30 September 2013 held 471,760 shares.
Shaftesbury annual report 2013 GOVERNANCE Annual remuneration report continued
73
2. LtIp
Awards of nil cost options are made by the Committee based on a multiple of salary divided by the average share price over five days prior to the
date of grant. Vesting of options is determined by performance over a three year period against the following criteria:
ANNUALiSED TSR oF THE CoMPANY’S SHARES LESS ANNUALiSED
TSR oF THE FTSE 350 REAL ESTATE iNDEx
RELEVANT AWARDS VESTiNG (%)
Less than 0% pa
0% pa
Between 0% pa and 5.5% pa
5.5% pa or more
0%
20%
Pro-rata on a straight line basis between 20% and 100%
100%
ANNUALiSED NAV GRoWTH LESS ANNUALiSED RPi GRoWTH,
oVER THE PERFoRMANCE PERioD
RELEVANT AWARDS VESTiNG (%)
Less than 3% pa
3% pa
Between 3% pa and 7% pa
7% pa or more
0%
30%
Pro-rata on a straight line basis between 30% and 100%
100%
Options granted to directors under the LTIP are set out below:
NUMBER oF oRDiNARY SHARES UNDER oPTioN
MARkET
PRiCE oF
SHARE oN
GRANT
£
DATE
oF
GRANT
AT
1.10.2012
GRANTED
DURiNG
YEAR
B Bickell
8.12.2009
8.12.2010
7.12.2011
6.12.2012
S J Quayle
8.12.2009
8.12.2010
7.12.2011
6.12.2012
T J C Welton 8.12.2009
8.12.2010
7.12.2011
6.12.2012
C P A Ward 17.1.2012
6.12.2012
J S Lane
8.12.2009
8.12.2010
7.12.2011
3.89
4.32
4.99
5.55
3.89
4.32
4.99
5.55
3.89
4.32
4.99
5.55
4.91
5.55
3.89
4.32
4.99
70,150
81,050
108,150
-
-
-
-
100,600
67,600
78,200
76,750
-
-
-
-
71,200
65,050
75,375
76,750
-
-
-
-
71,200
65,800
-
-
62,150
VESTED
AND
ExER-
CiSED
DURiNG
YEAR
70,150
-
-
-
67,600
-
-
-
65,050
-
-
-
-
-
LAPSED
DURiNG
YEAR
AT
30.9.2013
MARkET
PRiCE oF
SHARE oN
DATE oF
ExERCiSE
£
PERFoRMANCE
PERioD
ExERCiSE
PERioD
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6.42 1.10.2009-30.9.2012 12.2012-6.2013
81,050
108,150
100,600
- 1.10.2010-30.9.2013 12.2013-6.2014
- 1.10.2011-30.9.2014 12.2014-6.2015
- 1.10.2012-30.9.2015 12.2015-6.2016
-
6.42 1.10.2009-30.9.2012 12.2012-6.2013
78,200
76,750
71,200
- 1.10.2010-30.9.2013 12.2013-6.2014
- 1.10.2011-30.9.2014 12.2014-6.2015
- 1.10.2012-30.9.2015 12.2015-6.2016
-
6.42 1.10.2009-30.9.2012 12.2012-6.2013
75,375
76,750
71,200
65,800
62,150
- 1.10.2010-30.9.2013 12.2013-6.2014
- 1.10.2011-30.9.2014 12.2014-6.2015
- 1.10.2012-30.9.2015 12.2015-6.2016
- 1.10.2011-30.9.2014
1.2015-7.2015
- 1.10.2012-30.9.2015 12.2015-6.2016
-
6.42 1.10.2009-30.9.2012 12.2012-6.2013
29,170
107,330
- 1.10.2010-30.9.2013 12.2013-6.2014
24,097
19,953
- 1.10.2011-30.9.2014 12.2014-6.2015
98,200
136,500
44,050
-
-
-
98,200
-
-
Options are structured as nil cost options. Options granted on 8.12.2010 will vest on 9.12.2013. Of the options granted in December 2010, 50% of
the options will vest in December 2013. The TSR performance condition over the three years ended 30 September 2013 was not met, whilst NAV
performance resulted in 100% vesting for this element.
Shaftesbury annual report 2013 GOVERNANCE 74 Annual remuneration report continued
3. 2001 share option scheme (now closed)
No grants under this scheme have been made since 2004. All options under the scheme have now vested and been exercised or have lapsed.
NUMBER oF oRDiNARY SHARES
UNDER oPTioN
DATE
oF GRANT
AT
1.10.2012
ExERCiSED
DURiNG
YEAR
AT
30.9.2013
ExERCiSE
PRiCE
£
MARkET
VALUE
oF SHARE
oN
DATE oF
ExERCiSE
£
ExERCiSE
PERioD
15.12.2004
15.12.2004
15.12.2004
84,825
68,406
61,955
84,825
68,406
61,955
15.12.2004
115,207
115,207
-
-
-
-
2.65
2.65
2.65
2.65
6.42 12.2007-12.2014
6.42 12.2007-12.2014
6.42 12.2007-12.2014
6.42 12.2007-12.2014
B Bickell
S J Quayle
T J C Welton
J S Lane
4. Sharesave
Options are granted at a 20% discount to the market price on date of grant up to the maximum monthly savings amount permitted by HMRC of
£250 per month over three or five years. All directors have opted for five-year savings contracts.
NUMbER OF ORDINaRy SHaRES
UNDER OptION
DatE
OF gRaNt
at
1.10.2012
gRaNtED
DURINg
yEaR
LapSED
DURINg
yEaR
EXERcISED
DURINg
yEaR
at
30.9.2013
OptION
pRIcE
£
B Bickell
S J Quayle
T J C Welton
C P A Ward
J S Lane*
8.7.2011
8.7.2011
8.7.2011
5.7.2012
8.7.2011
3,595
3,595
3,595
3,759
3,595
-
-
-
-
-
-
-
-
-
-
-
-
-
2,487
1,108
3,595
3,595
3,595
3,759
-
4.29
4.29
4.29
3.99
4.29
MaRkEt
VaLUE
OF SHaRE
ON DatE
OF
EXERcISE
£
-
-
-
-
EXERcISE
pERIOD
8.2016-1.2017
8.2016-1.2017
8.2016-1.2017
8.2017-1.2018
5.60
8.2016-1.2017
*In accordance with the rules of the scheme, Jonathan Lane exercised 1,108 sharesave options on his retirement as an executive director on 8.2.2013. The remaining options lapsed.
The closing price of shares at 30 September 2013 was £5.90 and the range during the year was £5.20 to £6.70.
Shaftesbury annual report 2013 GOVERNANCE Annual remuneration report continued
75
Directors’ shareholDings
Directors’ interests in shAres (AuDiteD)
executive director
B Bickell
S J Quayle
T J C Welton
C P A Ward
non-executive director
J S Lane
P J Manser (retired 8.2.2013)
J C Little
W G McQueen
O J D Marriott
H S Riva
D C A Mathias
S E Walden
shares helD at
1.10.2012
shares acquireD
During the year
shares helD at
30.9.2013
801,900
777,912
608,303
2,000
1,043,918
175,000
2,142
8,333
5,000
6,450
-
-
63,822
57,300
53,919
3,448
865,722
835,212
662,222
5,448
16,082
1,060,000
-
-
-
-
-
8,000
20,000
n/a
2,142
8,333
5,000
6,450
8,000
20,000
There have been no changes in directors’ shareholdings since 30 September 2013 up to the date of this report.
totAl executive Directors’ shAreholDings
entitlement to shares
shares
owneD
outright
DeferreD
shares*
options vesteD
but not
exerciseD
865,722
835,212
662,222
5,448
110,554
96,832
95,282
16,948
-
-
-
-
shares unDer
option not
vesteD anD
subject to
performance
criteria
289,800
226,150
223,325
127,950
sharesave
shareholDing
requirement
met**
3,595
3,595
3,595
3,759
Yes
Yes
Yes
No
B Bickell
S J Quayle
T J C Welton
C P A Ward
* On exercise, deferred shares and LTIP nil cost options are subject to income tax and national insurance. The number that will actually be transferred will be reduced if
directors sell sufficient shares to meet their income tax and employee’s national insurance liability
**100% of salary at date of appointment to the Board, to be accumulated over five years from that date. For Christopher Ward, this is 54,000 shares
Shaftesbury annual report 2013 GOVERNANCE LTIP
Fixed
Annual bonus
1,088
16%
26%
628
100%
58%
1,893
36%
30%
34%
1,342
36%
30%
34%
773
16%
26%
58%
448
100%
699
16%
27%
57%
399
100%
1,224
36%
31%
33%
Minimum
On-target
Maximum
Minimum
On-target
Maximum
Minimum
On-target
Maximum
76 Annual remuneration report continued
Employee costs versus dividends paid
35
30
Employee costs
Dividends paid
Relative impoRtance of spend on pay (aUdited)
25
Dividends paid
Employee costs
31.1
8.1
2013 £m
20
15
29.5
10
6.5
2012 £m
5
Review of past peRfoRmance (aUdited)
0
The graph below shows the TSR for the Company compared with the FTSE 350 Real Estate Index, of which the Company is a constituent, over five
years. The Committee uses this index as one measure of performance for awards of shares under the LTIP, as it considers this is an appropriate
measure against which the relative performance of the Company should be compared for the purposes of considering executive directors’
remuneration.
2013 £m
2012 £m
The table below details the Chief Executive’s single figure remuneration over the same period.
5-yeAr TSr chArT To 30 SepTember 2013
Shaftesbury
FTSE 350 Real Estate Index
Value of £100
invested at 30
September 2008
8
0
0
2
r
e
b
m
e
t
p
e
S
0
3
t
a
d
e
t
s
e
v
n
i
0
0
1
£
f
o
e
u
l
a
V
250
200
150
100
50
0
2008
2009
2010
2011
2012
2013
FIVe yeAr chIeF eXecUTIVe SINGLe FIGUre remUNerATIoN
£600,000
Chief Executive single figure of remuneration (£’000)
Short-term award % against maximum opportunity
(percentage of maximum 125% of salary)
£500,000
Long-term award % against maximum opportunity (LTIP)
£400,000
2009
J S Lane
Actual contribution
EPRA adjusted pre-tax profit
2010
J S Lane
1,013
850
50%
50%
50%
50%
2011
J S Lane
2012
B BickeLL
3.0%
2013
B Bickell
1,650
90%
£534,000
76.7%
1,198
40%
100%
£300,000
£404,000
£200,000
£100,000
0
1.3%
1.7%
2012
2013
1,078
40%
50%
2.5%
2.0%
1.5%
1.0%
0.5%
0
Shaftesbury annual report 2013 GOVERNANCE
Annual remuneration report continued
77
pERcENtagE cHaNgE IN cHIEF EXEcUtIVE REMUNERatION (aUDItED)
The table below shows the percentage change in Chief Executive remuneration from the prior year compared to the average percentage change
in remuneration for all other employees. To provide a meaningful comparison, the analysis for other employees is based on a consistent group
of employees ie the same individuals appear in the 2012 and 2013 group.
Base salary
Taxable benefits
Annual bonus
Total
CHiEF ExECUTiVE (£’000)
oTHER EMPLoYEES (£’000)
2013
442
18
223
683
2012
430
18
215
663
%
change
2.8%
0%
3.7%
3.0%
2013
1,655
115
797
2,567
2012
1,584
111
737
2,432
%
change
4.5%
3.6%
8.1%
5.6%
SHaREHOLDER VOtINg (UNaUDItED)
At the Annual General Meeting on 8 February 2013, there was an advisory vote on the Remuneration Report. Voting by shareholders representing
83% of the issued share capital was as follows:
FoR
208,444,032
% FoR
99
AGAiNST
1,876,258
% AGAiNST
WiTHHELD
ToTAL VoTES
1
8,915
210,329,205
REMUNERatION FOR tHE yEaR ENDINg 30 SEptEMbER 2014 (UNaUDItED)
SaLaRIES FROM 1 DEcEMbER 2013 EXEcUtIVE DIREctORS
Executive directors’ salaries were reviewed with effect from 1 December 2013. The Committee recommended general increases in line with RPI
for executive directors and employees. Christopher Ward received an increase of 9% recognising that when he joined the Company he received a
lower salary as he was new to the role. This reflects the policy on recruitment to manage any below market level salary on appointment with
phased increases.
B Bickell
S J Quayle
T J C Welton
C P A Ward
1.12.2013
£’000
1.12.2012
£’000
incReaSe
460
325
325
300
445
315
315
275
3%
3%
3%
9%
Pension and benefits are as described in the policy table.
Each executive director will receive an award of nil cost options to the value of 125% of salary under the LTIP in December 2013 in respect of the
performance period 1 October 2013 to 30 September 2016. The performance measures will be as set out on page 73.
Shaftesbury annual report 2013 GOVERNANCE 78 Annual remuneration report continued
Disclosure of annual bonus targets for the year ahead (ie for the year ending 30 September 2014) is deemed to be commercially sensitive and
therefore the actual targets are not set out in this report, other than as contained in the remuneration policy.
TARGET
MEASURE oR REASoN FoR NoN-DiSCLoSURE
Achieve growth in ERVs compared to levels assessed by our valuers
in the year end valuation (KPI)
Let vacant space on a timely basis in light of market conditions (KPI)
Effectively achieve full lettings
Deliver projects/transactions successfully
Manage property expenses as a percentage of rental income
Corporate responsibility performance
The Committee considers the disclosure of management targets
regarding the achievement of rental levels, the speed of completing
letting or delivery of specific projects or transactions would be
prejudicial to the interests of shareholders. As a consequence of the
geographic concentration of the Group’s portfolio, disclosure of such
targets could have a material adverse impact on the Group’s position
when negotiating transactions with current or potential tenants or
other counter-parties
To match this year’s corporate responsibility scores (DJSI 65 and
GRESB ranked 3 out of 10 in peer group)
Performance against all targets will be disclosed retrospectively.
FEES FROM 1 DEcEMbER 2013 FOR NON-EXEcUtIVE DIREctORS
Non-executive director fees are reviewed every two years. The previous review was undertaken in 2011. Fees have been reviewed with effect from
1 December 2013 as follows:
Non-executive directors
Committee chair
Senior Independent Director (if not receiving an additional fee for chairing a committee)
£52,500 per annum (2012: £50,000)
£8,250 per annum (2012: £7,500)
£8,250 per annum (2012: n/a)
Actual fees payable with effect from 1 December 2013 are therefore as set out below:
P J Manser*
J S Lane*
J C Little**
W G McQueen
D C A Mathias**
O J D Marriott
H S Riva
S E Walden**
* Fees pro rata for the year
FEE 1.12.2013
£’000
CoMMiTTEE
CHAiR FEE
£’000
ToTAL FEE
£’000
fee 1.12.2012
£’000
committee
chaiR fee
£’000
total fee
£’000
-
125
53
53
53
53
53
53
-
-
8
8
-
-
-
-
-
125
61
61
53
53
53
53
115
115
50
50
50
50
50
50
-
-
8
8
-
-
-
-
115
115
58
58
50
50
50
50
** Dermot Mathias and Sally Walden will receive a Committee fee from 8 February 2014. Jill Little will receive a Senior Independent Director fee from that date.
Shaftesbury annual report 2013 GOVERNANCE
Audit committee report
The Committee reviews, and reports to the Board on financial reporting, internal control
and risk management, and reviews the performance, independence and effectiveness
of the external auditors.
79
This year, the Committee has focused on the changes to the narrative reporting and corporate governance disclosures in the Annual Report.
As part of this, the Board asked the Committee to advise on the statement by directors that the Annual Report, when read as a whole, is fair,
balanced and understandable and provides the information necessary for shareholders to assess the Group’s performance, business model
and strategy.
gordon McQueen
Chairman of the Audit Committee
COMMITTEE MEMBERS AND ATTENDANCE
MEMBER
PoSiTioN
NUMBER oF MEETiNGS ATTENDED
Gordon McQueen
Chairman and Senior Independent Director
Jill Little
Oliver Marriott
Dermot Mathias
Hilary Riva
Sally Walden
• Attended
Absent
Member
Member
Member
Member
Member
• • •
• • •
• •
• • •
• • •
• • •
Gordon McQueen and Dermot Mathias are the members of the Committee with recent and relevant financial experience.
COMMITTEE ATTENDEES BY INVITATION ONLY
ATTENDEES
Penny Thomas
Chris Ward
PwC
PoSiTioN
Secretary to the Committee
Finance Director
Independent auditors
The auditors have the opportunity for discussion without management present.
actIVItIES DURINg tHE yEaR
The Committee met three times during the year to deal with the following matters:
ADDiTioNAL MATTERS
• Reviewed catastrophic event risk planning
• Reviewed cyber risk and security
• Approved non-audit assignment awarded to the external audit
firm
STANDiNG MATTERS
• Reviewed published financial information including the year end results,
preliminary announcement, Annual Report, half year results, Half Year
Report and the Interim Management Statements
• Reviewed management accounts
• Reviewed significant issues and areas of judgement with the potential to
have a material impact on the financial statements, making any consequent
recommendations to the Board
• Met with the Group’s valuers to discuss the valuation process
• Reviewed key business procedures and controls
• Reviewed the risk and internal control framework
• Considered the appropriateness of the going concern assumption
• Monitored audit and non-audit fees
• Considered the independence of the auditors
• Reviewed the auditors’ performance and made a recommendation for the
re-appointment of the Group’s auditors by shareholders
• Planned for year end and reviewed the audit plan
• Reviewed the whistle-blowing policy
• Considered the need for an internal audit function
• Reviewed the Committee’s performance
• Reviewed the Committee Report
Shaftesbury annual report 2013 GOVERNANCE 80 Audit committee report continued
RISk REVIEW pROcESS
As part of standing matters, the Committee and the Board reviewed
the business risks and internal controls’ framework twice during the
year. In addition, it considered the Group’s catastrophic event risk
planning and cyber risk/security. The Group’s principal risks and
uncertainties are reported in the Strategic Report. The Group’s internal
control and risk management procedures are set out in the Corporate
Governance Report.
FINaNcIaL REpORtINg aND SIgNIFIcaNt FINaNcIaL
JUDgEMENtS
The Committee considers all financial information published in the
annual and half year financial statements and considers accounting
policies adopted by the Group, presentation and disclosure of the
financial information and, in particular, the key judgements made by
management in preparing the financial statements.
The directors are responsible for preparing the Annual Report. At the
request of the Board, the Committee considered whether the 2013
Annual Report was fair, balanced and understandable and whether
it provided the necessary information for shareholders to assess
Shaftesbury’s performance, business model and strategy. It was
satisfied that, taken as a whole, the 2013 Annual Report is fair,
balanced and understandable and included the necessary information
as set out above. It confirmed this to the Board, whose statement in
this regard is set out on page 86.
The Committee pays particular attention to matters it considers to be
important by virtue of their impact on the Group’s results and remuneration,
and particularly those which involve a high level of complexity,
judgement or estimation by management.
The key area of judgement that it considered in reviewing the financial
statements was the valuation of the investment property portfolio.
Whilst this is conducted by independent external valuers, it is one of the
key components of the annual and half year financial results and is
inherently subjective, requiring significant judgement. As well as detailed
management procedures and reviews of the process, members of the
Committee met the Group’s valuers without management present to
discuss the valuations, reviewed the key judgements and discussed
whether there were any significant disagreements with management.
This year, the Committee reviewed and challenged the 9.5% increase
in the valuation, the overall yield decrease and the 4.5% like-for-like
ERV growth. These were challenged with the valuers in order to agree
and conclude on the appropriateness of the assumptions applied.
Furthermore, the auditors use specialists, who meet with the valuers,
as part of their audit and report their findings and conclusions to the
Committee. The Board considered the valuation in detail at its meeting
to approve the financial statements; as part of this the external valuers
presented their findings.
In addition, the Committee has considered a number of other judgements
which have been made by management, none of which had a material
impact on the Group results. These include judgements concerning
the charge for equity settled remuneration, valuation of derivative
financial instruments, claims in the ordinary course of business and
bad debt provisions.
Management confirmed to the Committee that they were not aware of
any material misstatements and the auditors confirmed that they had
found no material misstatements in the course of their work.
After reviewing the reports from management and following its
discussions with the auditors and valuers, the Committee is satisfied
that the financial statements appropriately address the critical
judgements and key estimates, both in respect of the amounts
reported and the disclosures. The Committee is also satisfied that the
processes used for determining the value of the assets and liabilities
have been appropriately reviewed, challenged and are sufficiently
robust.
EXtERNaL aUDItORS
PricewaterhouseCoopers LLP (or its predecessor firms) has been the
Company’s auditors since it listed on the London Stock Exchange in
October 1987. The audit was tendered in 2010 and, under the Code, the
Company will next need to tender the audit by 2020. The Committee is
monitoring developments in the area of audit tendering and best
practice and will keep the matter under review.
The Audit Committee considers that the relationship with the auditors
is working well and remains satisfied with their effectiveness. The
external auditors are required to rotate the audit partners responsible
for the Group audit at least every five years and those responsible for
the subsidiary audits at least every seven years. The current lead audit
partner has been in position for three years. There are no contractual
obligations restricting the Group’s choice of external auditor.
aWaRD OF NON-aUDIt aSSIgNMENtS tO tHE EXtERNaL aUDIt FIRM
The policy of the Committee is that non-audit assignments will not be
awarded to the external audit firm where there is a risk that their audit
independence and objectivity could be compromised and that, other
than in exceptional circumstances, non-audit fees should not exceed
audit and assurance fees.
In addition, the award of any non-audit assignment to the Group’s auditors
in excess of £25,000 is subject to the prior approval of the Committee.
One assignment was approved during the year, under this policy, for
the Group’s corporate tax compliance work.
Shaftesbury annual report 2013 GOVERNANCE Audit committee report continued
81
aUDIt FEES
aNNUaL aUDItOR aSSESSMENt
Fees payable to the Group’s auditors for audit and non-audit services
are set out below:
Audit of the parent company’s annual
accounts
Audit of the consolidated Group
Total audit services
Audit related assurance services –
half year review
Other assurance services
Total assurance services
Total audit and assurance services
Tax compliance services
Tax advisory services
Services related to taxation
Other non-audit services
Total fees related to taxation and
other non-audit services
Total fees
2013
£’000
50
2012
£’000
45
83
133
20
-
20
153
36
24
60
6
66
219
89
134
19
6
25
159
56
88
144
-
144
303
Total fees related to taxation and other non-audit services represented
43% of the total fees for audit and assurance services (2012: 91%). Tax
advisory services represent various assignments carried out during
the year, none of which were individually significant.
The audit fees for the Company and the Group are relatively low due
primarily to the simple Group corporate structure.
On an annual basis, the Committee assesses the qualifications,
expertise and resources, and independence of the Group’s external
auditors, as well as the effectiveness of the audit process. It does this
through discussion and enquiry with the senior management team,
review of a detailed assessment questionnaire and confirmation from
the external auditor.
PricewaterhouseCoopers LLP has confirmed to the Committee that:
• They have internal procedures in place to identify any aspects of
non-audit work which could compromise their role as auditors and
to ensure the objectivity of their audit report;
• The total fees paid by the Group during the year do not represent
a material part of their firm’s fee income; and
• They consider that they have maintained their audit independence
throughout the year.
The Committee has completed its assessment of the external auditors
for the financial period under review. It has satisfied itself as to their
qualifications, expertise and resources and remains confident that
their objectivity and independence are not in any way impaired by
reason of the non-audit services which they provide to the Group.
The Committee resolved to recommend to the Board that
PricewaterhouseCoopers LLP continue as auditors.
PricewaterhouseCoopers LLP are recommended for re-appointment
at the 2014 AGM.
INtERNaL aUDIt
In view of the focused nature of the Group’s business, its modest size and
relatively simple structure together with the regular independent reviews
of the processes and controls of managing agents, the Committee
recommended to the Board that, at the present time, there is no need
to establish an internal audit function.
Shaftesbury annual report 2013 GOVERNANCE 82 Directors’ report
The directors present their report and the audited consolidated financial statements for the
year ended 30 September 2013.
StRatEgIc REpORt
SUbStaNtIaL SHaREHOLDINgS
A review of the development of the Group’s business during the year,
the principal risks and uncertainties facing the Group and its future
prospects are included in the Chairman’s Statement and the Strategic
Report which should be read in conjunction with this report.
RESULtS aND DIVIDENDS
The results for the year ended 30 September 2013 are set out in the
Group Statement of Comprehensive Income on page 91.
An interim dividend of 6.25p per ordinary share was paid on 5 July 2013
(2012: 5.95p).
The directors recommend a final dividend in respect of the year ended
30 September 2013 of 6.25p per ordinary share (2012: 6.05p), making
a total dividend for the year of 12.5p per ordinary share (2012: 12.0p).
If authorised at the 2014 AGM, the dividend will be paid on 14 February
2014 to members on the register at the close of business on 24 January
2014. 3.75p of the dividend will be paid as a PID and 2.5p as an
ordinary dividend.
The PID will be paid after the deduction of withholding tax at the basic
rate (currently 20%). However, certain categories of shareholder may
be entitled to receive payment of a gross PID if they are UK resident
companies, UK public bodies, UK pension funds and managers of
ISAs, PEPs and Child Trust Funds. Information together with the
relevant forms which must be completed and submitted to Company’s
registrars for shareholders who are eligible to receive gross PIDs is
available in the investor relations section of the Company’s website.
The ordinary dividend is not subject to withholding tax.
SHaRE capItaL
During the year, a total of 841,476 shares were issued at par, £4.29 and
£2.65 on the exercise of employee share options. At 30 September 2013,
the Company’s issued share capital comprised 252,314,167 ordinary
shares of 25p each.
The Company has one class of ordinary shares. All shares rank equally
and are fully paid. No person holds shares carrying special rights with
regard to control of the Company. There are neither restrictions on the
transfer of shares nor on the size of a holding, which are both governed
by the Articles of Association and prevailing legislation. The directors
are not aware of any agreements between holders of shares in the
Company that may result in restrictions on the transfer of shares or
on voting rights.
DIREctORS
The Company’s rules governing the appointment and replacement of
directors are contained in its Articles of Association. Changes to the
Articles of Association are only permitted in accordance with legislation
and must be approved by a special resolution of shareholders.
Details of the directors of the Company who served throughout the
year ended 30 September 2013 and up to the date of the financial
statements, and their interests in the ordinary share capital of the
Company and details of options granted to executive directors under
the Group’s share schemes are set out in the Annual Remuneration
Report on pages 69 to 78.
No member of the Board had a material interest in any contract of
significance with the Company, or any of its subsidiaries, at any time
during the year.
At 30 September and 27 November 2013, the Company had been notified,
in accordance with the UK Listing Authority’s Disclosure Rules and
Transparency Rules, that the following eight shareholders held, or
were beneficially interested in, 3% or more of the Company’s issued
share capital amounting to a total of 46.62%:
iSSUED SHARE CAPiTAL
%
BlackRock Inc
Norges Bank
Ameriprise Financial Inc
Standard Life Investments Limited
F&C Asset Management plc
Co-operative Financial Services Limited
Lloyds Banking Group plc
Stichting Pensioenfonds ABP
pURcHaSE OF OWN SHaRES
11.01
8.01
5.03
4.98
4.97
4.94
4.12
3.56
The Company was granted authority at the 2013 AGM to make market
purchases of its own ordinary shares. This authority will expire at the
conclusion of the 2014 AGM and a resolution will be proposed to seek
further authority. No ordinary shares were purchased under this
authority during the year or in the period from 1 October 2013 to
27 November 2013.
DIREctORS’ INDEMNItIES aND DIREctORS’ aND OFFIcERS’
LIabILIty INSURaNcE
The Company’s agreement to indemnify each director against any
liability incurred by the director in the course of their office to the
extent permitted by law remains in force. The Group maintains
Directors’ and Officers’ Liability Insurance of £10 million.
FINaNcIaL INStRUMENtS
The information required in respect of financial instruments, as required
by Schedule 7 of the Large and Medium Sized Companies and Groups
(Accounts and Reports) Regulations 2008 is given on pages 106 to 108.
cHaNgE OF cONtROL
Each of the Group’s bank facility agreements and the Longmartin joint
venture arrangement contains provisions entitling the counterparty to
terminate the contractual agreements in the event of a change of
control of the Group.
The Group’s share schemes contain provisions relating to the vesting and
exercising of options in the event of a change of control of the Group.
cONtRactS aND OtHER aRRaNgEMENtS
The Group has no contracts or other arrangements which are
considered essential to the Group’s business.
aUtHORISatION OF DIREctORS’ cONFLIctS OF INtEREStS
Directors are required to notify the Company of any conflict or potential
conflict of interest. They make an annual declaration to the Company if,
during the year, any conflicts have arisen. The Board confirms that no
conflicts have been identified or notified to the Company during the year
and, accordingly, the Board has not authorised any conflicts of interest
as permitted by the Company’s Articles of Association.
Shaftesbury annual report 2013 GOVERNANCE Directors’ report continued
83
gREENHOUSE gaS REpORtINg
This year we have followed the 2013 UK Government environmental
reporting guidance and used 2013 UK Government’s Greenhouse Gas
Conversion Factors for Company Reporting. Greenhouse gas emissions
are reported using the following parameters to determine what is
included within landlord and tenant consumption:
• Scope 1 – direct emissions includes whole building gas data in
Opera Quarter and St Martin’s Courtyard. Fugitive emissions from
air conditioning are included where it is the landlord’s responsibility
within the common parts. There are no company vehicles to report
within Scope 1.
• Scope 2 – indirect energy emissions includes purchased electricity for
the head office, landlord-controlled common parts areas and a small
number of buildings where the occupied areas and common parts are
on the same meter. Electricity used in refurbishment projects has not
been recorded separately. In the majority of cases, the electricity
consumed is recorded for the individual properties as part of the data
collection for the management of common parts, but from 2014
contractors will be required to provide project-specific data.
• Scope 3 – other indirect emissions, which include emissions
associated with electricity losses and generation. It also includes
business air and rail travel, but no other business travel as, given the
central London location, this is considered negligible.
Greenhouse gas emissions for our head office and the portfolio (including
50% of the joint venture on the basis of equity share) in tCO2e are set out
below and show a 7% increase over the year which is attributable to both
an increase in energy consumption and increased business travel.
ToTAL
oPERATioNAL
CoNTRoL
2013
TCo2E
ToTAL
oPERATioNAL
CoNTRoL
2012
TCo2E
53.9
21.0
3.5
4.1
82.5
969.4
118.0
1,087.4
60.5
28.8
15.8
7.2
n/d
51.8
*914.4
168.0
1,082.4
10.9
84.8
77.9
10.0
155.3
1,325.2
13.3
102.1
1,236.3
Scope 1 Direct (gas for wholly owned)
Scope 1 Direct (gas joint venture)
Scope 1 Direct (fugitive wholly owned)
Scope 1 Direct (fugitive joint venture)
Sub Total Scope 1
Scope 2 Indirect (wholly owned and
head office electricity)
Scope 2 Indirect (joint venture electricity)
Sub Total Scope 2
Scope 3 Other indirect air travel**
Scope 3 Other indirect energy use***
– electricity generation and losses
(wholly owned and head office)
Scope 3 – Other indirect: energy use
– electricity generation and losses
(joint venture)
Sub Total Scope 3
Total All Scopes
*Restated electricity consumption due to inclusion of omitted data for Charlotte Street
**Air travel data restated for 2012
***Restatement for 2012 data due to changes in transmission and distribution factor
significantly reduced for 2013 compared with previous Defra guidance
Consistent with the reported year-on-year emissions, the intensity
measure has increased from 68 kgCO2/m2 to 70.8 kgCO2/m2 for the
wholly owned portfolio but has decreased in St Martin’s Courtyard
from 155.6 kgCO2/m2 to 117.7 kgCO2 /m2.
It should be noted that the common parts floor area is linked to
consumption using an estimate of 10% of portfolio floor area. It is
recognised that this approach may result in understatement and will,
therefore, be reviewed in 2014.
The greenhouse gas emission data for 2012 and 2013 has been externally
verified by Planet and Prosperity Limited. The verification statements
may be found on the Company’s website.
Energy consumption (not including solar-derived energy at St Martin’s
Courtyard) has increased from 2,593,355 kWh in 2012 to 2,824,553 kWh
for 2013, an increase of 9% compared with the target of a 5% reduction
against 2011-2012. The increase is due to increased activity in the
portfolio.
Our aim is to select suppliers of green electricity in our villages where
such supplies are available and economically justifiable.
EMpLOyMENt aND ENVIRONMENtaL MattERS
The Group has 23 employees. KPIs relating to employees and the Group’s
employment and environmental policies are summarised in Corporate
Responsibility on pages 43 to 45 and are also available in full on the
Group’s website.
INDEpENDENt aUDItORS
A resolution for the reappointment of PricewaterhouseCoopers LLP as
auditors to the Company will be proposed at the 2014 AGM. The Board,
on the advice of the Audit Committee, recommends their reappointment.
PricewaterhouseCoopers LLP have consented to act if re-appointed.
2014 aNNUaL gENERaL MEEtINg
The 2014 AGM will include, as Special Business, resolutions dealing with
authority to issue shares, disapplication of pre-emption rights, authority to
purchase the Company’s own shares and authority to call a general meeting
on not less than 14 days’ notice. The resolutions are set out in the Notice of
Meeting together with explanatory notes which are contained in a separate
circular to shareholders which accompanies this Annual Report.
DIScLOSURE OF INFORMatION tO aUDItORS
Each director has confirmed that:
a)
b)
so far as they are aware, there is no relevant audit information
of which the Company’s auditors are unaware; and
they have taken all the steps that they ought to have taken as a
director in order to make themself aware of any relevant audit
information and to establish that the Company’s auditors are
aware of that information.
This confirmation is given in accordance with section 418 of the
Companies Act 2006.
By Order of the Board
penny thomas
Company Secretary
27 November 2013
Shaftesbury annual report 2013 GOVERNANCE 84 Summary report by the valuer
To the Directors of Shaftesbury PLC
In accordance with your instructions, we have undertaken a valuation
of the various commercial and residential freehold and long leasehold
property interests as at 30 September 2013 (the “date of valuation”) held
by Shaftesbury Carnaby Limited, Shaftesbury Covent Garden Limited,
Shaftesbury Chinatown Limited, Shaftesbury Charlotte Street Limited
and Shaftesbury Soho Limited, which are subsidiary companies
(collectively referred to as the “Subsidiary Companies”) of Shaftesbury
PLC (the “Company”), as referred to in our Valuation Reports dated
25 November 2013 (“our Reports”). Our Reports were prepared for
accounts purposes.
All properties have been subject to external inspections between
August and November 2013 and a number were subject to internal
inspections.
The valuations have been prepared in accordance with the appropriate
sections of the Valuation Standards (“VS”) and United Kingdom Valuation
Standards (“UKVS”) contained within the RICS Valuation – Professional
Standards 2012 (the “Red Book”). We confirm that we have sufficient
current knowledge of the relevant markets, and the skills and
understanding to undertake these valuations competently. We also
confirm that where more than one valuer has contributed to the
valuations the requirements of VS 1.6.4 of the Red Book have been
satisfied. Finally, we confirm that we have undertaken the valuations
acting as External Valuers, qualified for the purpose of the valuation.
In accordance with VS 1.9 and UKVS 4.3, we are required to make
certain disclosures in connection with this valuation instruction and
our relationship with the Company and the Subsidiary Companies.
Charles Smith is the signatory of our Reports. This is the first time that
he has been signatory of valuation reports addressed to the Subsidiary
Companies. DTZ Debenham Tie Leung has been carrying out this
valuation instruction for the Company, and now the Subsidiary Companies,
for a continuous period since 1996. As well as preparing our Reports,
we also undertake valuations of certain of the properties referred to in
our Reports for other purposes, such as secured lending and for
inclusion in shareholders’ circulars. There are no current fee-earning
instructions between DTZ Debenham Tie Leung and the Company or
the Subsidiary Companies other than valuation instructions. However,
in addition to valuation instructions, there are other previous fee-earning
relationships between DTZ Debenham Tie Leung and certain of the
Subsidiary Companies or the Company itself. These relate to our previous
appointment as property and asset managers in respect of the properties
known as Wellington House (6-9 Upper St Martin’s Lane, 6-8 Shelton
Street & 7-13 Mercer Street), 10/11, 12, 13/14, 16-19 & 20 Upper St
Martin’s Lane, 124, 125/126, 127/130 (inc 1-3 Slingsby Place), 132/135,
136/137, 138 (Beckett House), 140-142 & 143 Long Acre, 1, 3-5 &15/17
Mercer Street, London WC2 (all of which are owned by Longmartin
Properties Limited, a joint venture company owned in equal shares by
the Company and the Mercers’ Company); to our previous involvement
in advising the Company and Longmartin Properties Limited in respect
of landlord and tenant and other matters; to our previous involvement
in advising the Company or some of the Subsidiary Companies in
connection with the acquisition or disposal of certain properties and to
our previous involvement on behalf of the Company, or certain of the
Subsidiary Companies, in acting as letting agents in respect of certain
of the office accommodation.
DTZ Debenham Tie Leung was a wholly owned subsidiary of DTZ
Holdings plc (the “Group”) until 5 December 2011, when all the trading
subsidiaries of the Group were sold to UGL Limited (“UGL”). In UGL’s
financial year ending 30 June 2013, the proportion of total fees payable
by the Company to the total fee income of UGL was less than 5%.
In accordance with the provisions of Guidance Note 3 of the Red Book,
in undertaking our valuations, we have lotted together certain individual
properties to form a separate property (a “Property” or “Properties”) in
the manner we consider to be most likely to be adopted in the case of
an actual sale. We consider that lotting the properties together on the
basis reflected in our valuations would allow a purchaser to capitalise
on the estate management advantages and opportunities available
from such comprehensive ownership.
A high proportion of the total value of the Subsidiary Companies’
properties and Properties is accounted for by properties and Properties
situated in adjacent and/or adjoining locations in four specific areas of
the West End of London: Carnaby Street and its environs, Chinatown
and the adjoining area immediately west of Wardour Street (south of its
junction with Shaftesbury Avenue), and the areas around Seven Dials in
the western part of Covent Garden and a block of properties to the
east of the Central Covent Garden Piazza with its main frontage to
Wellington Street. These areas are all dominated by retail and restaurant
uses. In our opinion, at the date of valuation, this particular unusual
confluence of ownership and use characteristics may cause some
prospective purchasers to regard parts of the portfolio when combined
as having a greater value than the aggregate of the individual values of
the combined properties and Properties which make up those parts.
As required by the provisions of the Red Book, in undertaking our
valuations, we have valued each property or Property separately, rather
than valuing the portfolio as a whole or in combinations of parts. The
“total” valuation figure below is the aggregated value of the separate
properties or Properties within the various categories of tenure
referred to below.
All valuations were on the basis of Fair Value. We have assessed Fair
Value in accordance with VS 3.5 item 2 of the Red Book. Our opinion of
the Fair Value of each of the properties or Properties has been primarily
derived using comparable recent market transactions on arm’s
length terms.
We have not made any allowance for vendor’s sale costs nor for any tax
liabilities which may arise upon the disposal of any of the properties or
Properties. We have made deductions to reflect purchasers’ normal
acquisition costs.
A full explanation of the Assumptions made in our valuations and
details of the sources of information are contained within our Reports.
We have measured certain of the properties, or parts of properties,
either on site or by scaling from floor plans. The Company, its managing
agents or professional advisers have provided us with the floor areas
of the remaining properties or parts of properties.
We have read the majority of the leases and related documents provided
to us in respect of the commercial properties. Where we have not read
leases, we have relied on tenancy information provided by the Company,
its managing agents or professional advisers.
Certain properties were subject to works of repair or refurbishment at
30 September 2013, or were subject to outstanding retentions and fees
in respect of projects already completed at that date. In these instances,
the Company advised us of the amount of the outstanding costs. The
costs will be borne by the Company as they are not recoverable from
tenants. We have reflected these costs in our valuations. The total
amount of such costs is £16,962,000 and details of the individual sums
are included in our Reports.
Shaftesbury annual report 2013 GOVERNANCE Summary report by the valuer continued
85
The contents of our Reports are confidential to Shaftesbury PLC,
Shaftesbury Covent Garden Limited, Shaftesbury Carnaby Limited,
Shaftesbury Chinatown Limited, Shaftesbury Charlotte Street Limited
and Shaftesbury Soho Limited, for the specific purpose to which they
refer and are for their use only. Consequently, and in accordance with
current practice, no responsibility is accepted to any other party in
respect of the whole or any part of the contents of our Reports or this
summary report. Before our Reports or this summary report, or any
part thereof, are reproduced or referred to, in any document, circular
or statement, and before their contents, or any part thereof, are
disclosed orally or otherwise to a third party, the valuer’s written
approval as to the form and context of such publication or disclosure
must first be obtained. For the avoidance of doubt such, approval is
required whether or not DTZ Debenham Tie Leung is referred to by
name and whether or not the contents of our Reports or this summary
report are combined with others.
charles Smith MRIcS
International Director
RICS Registered Valuer
For and on behalf of DTZ Debenham Tie Leung Limited
125 Old Broad Street
London EC2N 1AR
As referred to above, we have lotted together certain individual properties
to form a number of separate Properties. In the case of three Properties
which comprise a number of individual properties, the majority of such
properties are held freehold but certain of them are held on long leases.
In order to divide our valuation of these Properties between the categories
of freehold and long leasehold, we have undertaken notional
apportionments of value between the freehold elements and the long
leasehold elements which together comprise the relevant Properties.
The amounts arising from these notional apportionments of value have
been included in the figures representing the freehold and long leasehold
categories below. The amounts arising from the notional apportionments
do not themselves represent the Fair Value of the two elements.
The Subsidiary Companies own a number of properties on a freehold
basis where they also hold long leasehold interests within the freehold
and have not merged the interests. For the purposes of the freehold/
long leasehold split below, we have included such properties within
the freehold category.
Having regard to the foregoing, we are of the opinion that the aggregates
of the Fair Values, as at 30 September 2013, of the freehold and long
leasehold property interests owned by the Company and the Subsidiary
Companies, subject to the Assumptions and comments in our Reports
dated 25 November 2013, were as follows:-
Freehold
properties
Long leasehold
properties
£1,793,310,000
(One billion, seven hundred and ninety-three
million, three hundred and ten
thousand pounds)
£115,595,000
(One hundred and fifteen million, five
hundred and ninety-five thousand pounds)
Total
£1,908,905,000
(one billion, nine hundred and eight
million, nine hundred and five thousand
pounds)
A long lease is one with an unexpired term in excess of 50 years.
Shaftesbury annual report 2013 GOVERNANCE 86 Directors’ responsibilities
The directors are responsible for preparing the Annual Report, the Remuneration Reports and
the financial statements in accordance with applicable law and regulations.
Each of the directors, whose names and functions are listed on pages
54 to 55 confirm that, to the best of their knowledge:
• the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of the
Group; and
• the Strategic Report contained on pages 9 to 51 of the Annual Report
includes a fair review of the development and performance of the
business and the position of the Group, together with a description
of the principal risks and uncertainties that it faces.
Company law requires the directors to prepare financial statements
for each financial year. Under that law the directors have prepared the
Group and Parent Company financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the
European Union. Under company law the directors must not approve
the financial statements unless they are satisfied that they give a true
and fair view of the state of affairs of the Group and the Company and
of the profit or loss of the Group for that period. In preparing these
financial statements, the directors are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable
and prudent;
• state whether applicable IFRSs as adopted by the European Union
have been followed, subject to any material departures disclosed
and explained in the financial statements;
• prepare the financial statements on the going concern basis unless
it is inappropriate to presume that the company will continue in
business.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the financial position of
the Company and the Group and enable them to ensure that the
financial statements and the Remuneration Reports comply with the
Companies Act 2006 and, as regards the Group financial statements,
Article 4 of the IAS Regulation. They are also responsible for
safeguarding the assets of the Company and the Group and hence for
taking reasonable steps for the prevention and detection of fraud and
other irregularities.
The directors are responsible for the maintenance and integrity of the
Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
The directors consider that the Annual Report and Accounts, taken as
a whole, is fair, balanced and understandable and provides the
information necessary for shareholders to assess the Group’s
performance, business model and strategy.
Shaftesbury annual report 2013 GOVERNANCE Independent auditors’ report
To the members of Shaftesbury PLC
87
REpORt ON tHE FINaNcIaL StatEMENtS
OUR OpINION
In our opinion:
• The financial statements give a true and fair view of the state of the
Group’s and of the Parent Company’s affairs as at 30 September
2013 and of the Group’s profit and of the Group’s and Parent
Company’s cash flows for the year then ended;
• The Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards (IFRSs)
as adopted by the European Union;
• The Parent Company financial statements have been properly
prepared in accordance with IFRSs as adopted by the European
Union and as applied in accordance with the provisions of the
Companies Act 2006; and
• The financial statements have been prepared in accordance with the
requirements of the Companies Act 2006 and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
This opinion is to be read in the context of what we say below.
WHat WE HaVE aUDItED
The Group financial statements and Parent Company financial
statements (the “financial statements”), which are prepared by
Shaftesbury PLC, comprise:
• the Group Statement of Comprehensive Income for the year ended
30 September 2013;
• the Group and Parent Company Balance Sheets as at
30 September 2013;
• the Group and Parent Company Statements of Cash Flows and
Changes in Shareholders’ equity for the year then ended; and
• the notes to the financial statements, which include a summary of
significant accounting policies and other explanatory information.
The financial reporting framework that has been applied in their
preparation comprises applicable law and IFRSs as adopted by the
European Union and, as regards the Parent Company, as applied in
accordance with the provisions of the Companies Act 2006.
Certain disclosures required by the financial reporting framework have
been presented elsewhere in the Annual Report, rather than in the notes
to the financial statements. These are cross-referenced from the
financial statements and are identified as audited.
WHat aN aUDIt OF FINaNcIaL StatEMENtS INVOLVES
In addition, we read all the financial and non-financial information in
the Annual Report to identify material inconsistencies with the audited
financial statements and to identify any information that is apparently
materially incorrect based on, or materially inconsistent with, the
knowledge acquired by us in the course of performing the audit. If we
become aware of any apparent material misstatements or inconsistencies
we consider the implications for our report.
OVERVIEW OF OUR aUDIt appROacH
Materiality
We set certain thresholds for materiality. These helped us to determine
the nature, timing and extent of our audit procedures and to evaluate
the effect of misstatements, both individually and on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for
the Group financial statements as a whole to be £3.1 million. Our
materiality was based on profit before tax, adjusted for net finance
income and investment property valuation movements.
OVERVIEW OF tHE ScOpE OF OUR aUDIt
The Group’s properties are combined into five ‘villages’, each of which
is a separate statutory entity. The Group financial statements are a
consolidation of the five entities, the Parent Company entity and the
Group’s joint venture. Except for the joint venture, on which specified
procedures were performed, all parts of the Group were identified as
requiring an audit of their complete financial information, either due
to their size or their risk characteristics. This work, all of which was
carried out by the Group audit team, together with additional procedures
performed on the consolidation, gave us sufficient appropriate audit
evidence for our opinion on the Group financial statements as a whole.
areas of particular audit focus
In preparing the financial statements, the directors made a number of
subjective judgements, notably in respect of accounting estimates relating
to the valuation of investment properties. This required them to make
assumptions and consider future events that are inherently uncertain.
We primarily focused our work on these significant accounting estimates
by assessing the directors’ judgements against available evidence,
forming our own independent judgements, and evaluating the
disclosures in the financial statements.
In our audit, we tested and examined information, using sampling and
other auditing techniques, to the extent we considered necessary to
provide a reasonable basis for us to draw conclusions. We obtained
audit evidence through testing the effectiveness of controls,
substantive procedures or a combination of both.
We conducted our audit in accordance with International Standards on
Auditing (UK and Ireland) (ISAs (UK & Ireland)). An audit involves obtaining
evidence about the amounts and disclosures in the financial statements
sufficient to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or
error. This includes an assessment of:
We considered the following areas to be those that required particular
focus in the current year. This is not a complete list of all risks or
areas of focus identified by our audit. We discussed these areas of
focus with the Audit Committee. Their report on those matters that
they considered to be significant issues in relation to the financial
statements is set out on page 80.
• whether the accounting policies are appropriate to the Group’s and
Parent Company’s circumstances and have been consistently applied
and adequately disclosed;
• the reasonableness of significant accounting estimates made by the
directors; and
• the overall presentation of the financial statements.
Shaftesbury annual report 2013 GOVERNANCE 88
Independent auditors’ report continued
AREA oF FoCUS
Valuation of investment properties
We focused on this area because of the magnitude of the balance and
the underlying assumptions involved in determining the fair value of
investment properties involve significant judgement and complexities.
Risk of fraud in revenue recognition
ISAs (UK & Ireland) presume there is a risk of fraud in revenue
recognition because of the pressure management may feel to achieve
planned results.
Risk of management override of internal controls
ISAs (UK & Ireland) require that we consider this.
HoW THE SCoPE oF oUR AUDiT ADDRESSED THE AREA oF FoCUS
We tested the data inputs to the investment property including rental
income, acquisitions and capital expenditure, by checking them back
to supporting documentation.
We met with management’s third party valuers to understand and
assess the assumptions used in the valuation. We tested the valuation
performed by the external valuers by challenging the assumptions
used in the calculation, including tenure and tenancy of properties,
prevailing market yields and comparable market transactions.
We tested key controls over the completeness, accuracy and timing
of revenue recognised in the financial statements and we also tested
income back to signed leases and the reconciliations of revenue to
cash receipts.
We also met with management to understand the key fraud risks and
controls and tested manual journals related to revenue accounts to
identify unusual or irregular items.
We assessed the overall control environment of the Group, including
the arrangements for staff to “whistle-blow” inappropriate actions,
and interviewed senior management. We examined the significant
accounting estimates and judgements relevant to the financial
statements for evidence of potential bias by the directors that might
indicate a risk of material misstatement due to fraud. In particular,
we tested key estimates and journal entries.
gOINg cONcERN
OpINIONS ON MattERS pREScRIbED by tHE cOMpaNIES act 2006
Under the Listing Rules we are required to review the directors’
statement, set out on page 58, in relation to going concern. We have
nothing to report having performed our review.
As noted in the directors’ statement, the directors have concluded that
it is appropriate to prepare the Group’s and Parent Company’s financial
statements using the going concern basis of accounting. The going
concern basis presumes that the Group and Parent Company have
adequate resources to remain in operation, and that the directors
intend them to do so, for at least one year from the date the financial
statements were signed. As part of our audit we have concluded that
the directors’ use of the going concern basis is appropriate.
However, because not all future events or conditions can be predicted,
these statements are not a guarantee as to the Group’s and the Parent
Company’s ability to continue as a going concern.
In our opinion:
• the information given in the Strategic Report and the Directors’
Report for the financial year for which the financial statements are
prepared is consistent with the financial statements;
• the part of the Annual Remuneration Report to be audited has been
properly prepared in accordance with the Companies Act 2006; and
• the information given in the Corporate Governance Statement set out
on pages 56 to 58 in the Annual Report with respect to internal control
and risk management systems and about share capital structures is
consistent with the financial statements.
Shaftesbury annual report 2013 GOVERNANCE Independent auditors’ report continued
89
OtHER MattERS ON WHIcH WE aRE REQUIRED tO REpORt by
EXcEptION
aDEQUacy OF accOUNtINg REcORDS aND INFORMatION aND
EXpLaNatIONS REcEIVED
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
• we have not received all the information and explanations we require
for our audit; or
OtHER INFORMatION IN tHE aNNUaL REpORt
Under ISAs (UK and Ireland), we are required to report to you if, in our
opinion, information in the Annual Report is:
• materially inconsistent with the information in the audited financial
statements; or
• apparently materially incorrect based on, or materially inconsistent
with, our knowledge of the Group and Parent Company acquired in
the course of performing our audit; or
• adequate accounting records have not been kept by the Parent
• is otherwise misleading.
We have no exceptions to report arising from this responsibility.
RESpONSIbILItIES FOR tHE FINaNcIaL StatEMENtS aND tHE aUDIt
OUR RESpONSIbILItIES aND tHOSE OF tHE DIREctORS
As explained more fully in the Directors’ Responsibilities Statement set
out on page 86, the directors are responsible for the preparation of the
Group and Parent Company financial statements and for being
satisfied that they give a true and fair view.
Our responsibility is to audit and express an opinion on the Group and
Parent Company financial statements in accordance with applicable
law and ISAs (UK and Ireland). Those standards require us to comply
with the Auditing Practices Board’s Ethical Standards for Auditors.
This report, including the opinions, has been prepared for and only for
the Company’s members as a body in accordance with Chapter 3 of
Part 16 of the Companies Act 2006 and for no other purpose. We do
not, in giving these opinions, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or
into whose hands it may come save where expressly agreed by our
prior consent in writing.
andrew paynter (Senior Statutory auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 November 2013
Company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the Parent Company financial statements and the part of the
Directors’ Remuneration Report to be audited are not in agreement
with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
DIREctORS’ REMUNERatION
Under the Companies Act 2006 we are required to report if, in our opinion,
certain disclosures of directors’ remuneration specified by law have
not been made, and under the Listing Rules we are required to review
certain elements of the report to shareholders by the Board on directors’
remuneration. We have no exceptions to report arising from these
responsibilities.
cORpORatE gOVERNaNcE StatEMENt
Under the Companies Act 2006, we are required to report to you if, in
our opinion a corporate governance statement has not been prepared
by the Parent Company. We have no exceptions to report arising from
this responsibility.
Under the Listing Rules we are required to review the part of the
Corporate Governance Statement relating to the Company’s compliance
with nine provisions of the UK Corporate Governance Code (‘the Code’).
We have nothing to report having performed our review.
On page 86 of the Annual Report, as required by the Code Provision
C.1.1, the directors state that they consider the Annual Report taken as
a whole to be fair, balanced and understandable and provides the
information necessary for members to assess the Group’s performance,
business model and strategy. On page 80, as required by C.3.8 of the
Code, the Audit Committee has set out the significant issues that it
considered in relation to the financial statements, and how they were
addressed. Under ISAs (UK & Ireland) we are required to report to you
if, in our opinion:
• the statement given by the directors is materially inconsistent with
our knowledge of the Group acquired in the course of performing our
audit; or
• the section of the Annual Report describing the work of the Audit
Committee does not appropriately address matters communicated
by us to the Audit Committee.
We have no exceptions to report arising from this responsibility.
Shaftesbury annual report 2013 GOVERNANCE FINaNcIaL
StatEMENtS
Group statement of comprehensive income 91
Balance sheets 92
Cash flow statements 93
Statements of changes in shareholders’ equity 94
Notes to the financial statements 95
90
S
T
N
E
M
E
T
A
T
S
L
A
C
N
A
N
F
I
I
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e
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l
a
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S
Group statement of comprehensive income
For the year ended 30 September 2013
91
Continuing operations
Revenue from properties
Property charges
Net property income
Administrative expenses
Charge for annual bonuses
Charge in respect of equity settled remuneration
Total administrative expenses
operating profit before investment property disposals and valuation movements
Profit on disposal of investment properties
Investment property valuation movements
operating profit
Finance income
Finance costs
Change in fair value of derivative financial instruments
Net finance income/(costs)
Profit before tax
Current tax
Deferred tax
Tax charge for the year
Profit and total comprehensive income for the year
Earnings per share:
Basic
Diluted
EPRA
The notes on pages 95 to 113 form an integral part of this Group financial information.
note
4
5
6
7
8
13
9
21
10
11
2013
£M
89.6
(16.4)
73.2
(7.5)
(1.4)
(2.7)
(11.6)
61.6
-
174.3
235.9
0.1
(31.3)
37.0
5.8
241.7
(0.2)
(2.2)
(2.4)
239.3
2012
£m
87.0
(16.0)
71.0
(7.2)
(1.2)
(1.6)
(10.0)
61.0
1.6
90.2
152.8
0.1
(29.9)
(28.2)
(58.0)
94.8
(0.6)
(1.2)
(1.8)
93.0
95.0p
94.7p
12.0p
37.1p
36.8p
12.2p
Shaftesbury annual report 2013 financial statements
92
Balance sheets
As at 30 September 2013
Non-current assets
Investment properties
Lease incentives
Property, plant and equipment
Investment in subsidiaries
Investment in joint venture
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Non-current liabilities
Borrowings
Derivative financial instruments
Deferred tax liabilities
Total liabilities
Net assets
Equity
Ordinary shares
Share premium
Share based payments reserve
Retained earnings
Total equity
Net asset value per share:
Basic
Diluted
EPRA
GRoUP
CoMPANY
NOTE
2013
£M
2012
£M
13
14
15
16
17
18
19
20
21
23
24
25
25
25
26
2,046.6
1,823.5
9.3
0.6
-
-
8.2
0.6
-
-
2,056.5
1,832.3
19.7
5.7
17.4
5.3
2013
£M
-
-
0.6
626.0
59.0
685.6
585.5
-
2012
£M
-
-
0.6
638.2
59.0
697.8
521.3
-
2,081.9
1,855.0
1,271.1
1,219.1
35.8
34.3
7.5
14.8
610.5
95.8
9.1
751.2
561.6
132.8
6.9
735.6
554.1
95.8
-
657.4
504.8
132.8
-
652.4
1,330.7
1,119.4
613.7
566.7
63.1
124.3
3.0
423.3
613.7
62.9
123.6
2.7
377.5
566.7
63.1
124.3
3.0
1,140.3
1,330.7
£5.27
£5.26
£5.67
62.9
123.6
2.7
930.2
1,119.4
£4.45
£4.43
£4.98
The notes on pages 95 to 113 form an integral part of this Group financial information.
On behalf of the Board who approved the financial statements on pages 91 to 113 on 27 November 2013.
Brian Bickell
Chief Executive
Christopher Ward
Finance Director
Shaftesbury annual report 2013 financial statements
Cash flow statements
For the year ended 30 September 2013
93
Cash flows from operating activities
Cash generated from operating activities
Interest received
Interest paid
Corporation tax paid
Net cash generated from operating activities
Cash flows from investing activities
Property acquisitions
Capital expenditure on properties
Proceeds from sales of properties
Purchase of property, plant and equipment
Dividends received from joint venture
Net cash used in investing activities
Cash flows from financing activities
Proceeds from exercise of share options
Proceeds from/(repayment of) borrowings
Proceeds from secured term loan
Facility arrangement costs
Payment of head lease liabilities
Equity dividends paid
Decrease in loans to subsidiaries
Decrease in loans to joint venture
Net cash from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
GRoUP
CoMPANY
2013
£M
62.0
0.1
(30.4)
(0.4)
31.3
(28.1)
(20.7)
-
(0.2)
-
(49.0)
0.9
48.5
-
-
(0.4)
(30.9)
-
-
18.1
0.4
5.3
5.7
2012
£M
59.4
0.1
(28.7)
(0.5)
30.3
(44.7)
(16.9)
2.6
(0.2)
-
(59.2)
1.0
1.4
60.0
(0.7)
(0.2)
(29.3)
-
-
32.2
3.3
2.0
5.3
2013
£M
(9.0)
-
(27.8)
-
(36.8)
-
-
-
(0.2)
0.3
0.1
0.9
48.9
-
-
-
(30.9)
17.8
-
36.7
-
-
-
2012
£M
(9.1)
-
(28.1)
-
(37.2)
-
-
-
(0.2)
2.4
2.2
1.0
(1.6)
-
-
-
(29.3)
12.7
52.2
35.0
-
-
-
NOTE
27
28
28
28
28
18
18
The notes on pages 95 to 113 form an integral part of this Group financial information.
Shaftesbury annual report 2013 financial statements
94
Statements of changes in shareholders’ equity
For the year ended 30 September 2013
Group
At 1 October 2011
Total comprehensive income and profit for the year
Transactions with owners:
Dividends paid during the year
Shares issued in connection with the exercise of share
options
Fair value of share based payments
Transfer in respect of options exercised
At 30 September 2012
Total comprehensive income and profit for the year
Transactions with owners:
Dividends paid during the year
Shares issued in connection with the exercise of share
options
Fair value of share based payments
Transfer in respect of options exercised
At 30 September 2013
Company
At 1 October 2011
Total comprehensive income and profit for the year
Transactions with owners:
Dividends paid during the year
Shares issued in connection with the exercise of share
options
Fair value of share based payments
Transfer in respect of options exercised
At 30 September 2012
Total comprehensive income and profit for the year
Transactions with owners:
Dividends paid during the year
Shares issued in connection with the exercise of share
options
Fair value of share based payments
Transfer in respect of options exercised
At 30 September 2013
oRDiNARY
SHARES
£M
SHARE
PREMiUM
£M
NOTE
SHARE
BASED
PAYMENTS
RESERVE
£M
62.6
122.9
3.1
12
24
8
12
24
8
12
24
8
12
24
8
-
-
0.3
-
-
62.9
-
-
0.2
-
-
63.1
-
-
0.7
-
-
123.6
-
-
0.7
-
-
124.3
-
-
-
1.2
(1.6)
2.7
-
-
-
2.2
(1.9)
3.0
62.6
122.9
3.1
-
-
0.3
-
-
62.9
-
-
0.2
-
-
63.1
-
-
0.7
-
-
123.6
-
-
0.7
-
-
124.3
-
-
-
1.2
(1.6)
2.7
-
-
-
2.2
(1.9)
3.0
RETAiNED
EARNiNGS
£M
865.1
93.0
ToTAL
£M
1,053.7
93.0
(29.5)
(29.5)
-
-
1.6
930.2
239.3
1.0
1.2
-
1,119.4
239.3
(31.1)
(31.1)
-
-
1.9
0.9
2.2
-
1,140.3
1,330.7
405.3
0.1
593.9
0.1
(29.5)
(29.5)
-
-
1.6
377.5
75.0
1.0
1.2
-
566.7
75.0
(31.1)
(31.1)
-
-
1.9
423.3
0.9
2.2
-
613.7
The notes on pages 95 to 113 form an integral part of this Group financial information.
Shaftesbury annual report 2013 financial statements
Notes to the financial statements
For the year ended 30 September 2013
1. GENEral iNFOrmaTiON
GENEral iNFOrmaTiON
95
The consolidated financial statements of the Group for the year ended 30 September 2013 comprise the results of the Company, its subsidiaries
and joint venture and were approved by the Board for issue on 27 November 2013.
The nature of the Group’s operations and its principal activities are set out in the Strategic Report on pages 10 to 13.
The Company is a public limited company which is listed on the London Stock Exchange and is incorporated and domiciled in the UK. The
address of the registered office is given on page 55.
Basis OF PrEParaTiON
These financial statements have been prepared in accordance with IFRS as adopted by the European Union, IFRIC interpretations and those
parts of the Companies Act 2006 applicable to companies reporting under IFRS.
The financial statements have been prepared under the historical cost convention as modified by the revaluation of investment properties and the
measurement of derivative financial instruments at fair value through the Statement of Comprehensive Income. Accounting policies have been
applied consistently in all periods presented in these financial statements.
The Company has not presented its own Statement of Comprehensive Income, as permitted by Section 408 of the Companies Act 2006. The
Company made a profit of £75.0 million (2012: £0.1 million) in the year.
GOiNG CONCErN
The Group adopts the going concern basis in preparing its consolidated financial statements as explained on page 58.
CriTiCal JudGEmENTs, assumPTiONs aNd EsTimaTEs
The Group’s significant accounting policies are stated in note 2. Not all of these significant accounting policies require the directors to make
difficult, subjective or complex judgements or estimates. However the directors consider the valuation of investment property to be critical
because of the level of complexity, judgement or estimation involved and its impact on the financial statements. These judgements involve
assumptions or estimates in respect of future events. Actual results may differ from these estimates.
The Group uses the valuations performed by its external valuers, DTZ Debenham Tie Leung Limited and Knight Frank LLP, as the basis for the
fair value of its investment properties.
The valuation of the Group’s property portfolio is inherently subjective due to, among other factors, the individual nature of each property, its
location and the expected future rental income. As a result, the valuations the Group places on its property portfolio are subject to a degree of
uncertainty and are made on the basis of assumptions which may not prove to be accurate, particularly in periods of volatility or low transaction
flow in the commercial property market. The investment property valuations contain a number of assumptions upon which DTZ Debenham Tie
Leung Limited and Knight Frank LLP have based their valuations; these are detailed in the Basis of Valuation on pages 50 to 51 . These
assumptions are in accordance with the RICS Valuation Standards. However, if any assumptions made by the external valuers prove to be
incorrect, this may mean that the value of the Group’s properties differs from their valuation reported in the financial statements, which could
have a material effect on the Group’s financial condition.
2. aCCOuNTiNG POliCiEs
NEW aCCOuNTiNG sTaNdards aNd iNTErPrETaTiONs
a) The following amendment to a standard is mandatory for the first time for the financial year beginning 1 october 2012:
sTaNdard Or iNTErPrETaTiON
IAS 1 ‘Presentation of financial statements’ on oCI
EFFECTivE FrOm
1 July 2012
No material changes to accounting policies arose as a result of this amendment.
b)
Standards, amendments and interpretations relevant to the Group that are not yet effective in the year ending 30 September 2013 and not
expected to have a significant impact on the Group’s financial statements:
sTaNdard Or iNTErPrETaTiON
IFRS 10 Consolidated financial statements
IFRS 12 Disclosure of interests in other entities
IAS 27 (revised 2011) Separate financial statements
IAS 28 (revised 2011) Associates and joint ventures
IAS 32 Financial instruments presentation on offsetting financial assets and liabilities
IFRS 7 Financial instruments asset and liability offsetting
IFRS 9 Financial instruments - classification and measurement
IAS 39 Financial instruments - recognition and measurement
Annual improvements 2011
IAS 19 (revised 2011) Employee benefits
IAS 12 Income taxes on deferred tax
IAS 36 Impairment of assets
EFFECTivE FrOm
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2013
1 January 2015
1 January 2014
1 January 2013
1 January 2013
1 January 2013
1 January 2014
Shaftesbury annual report 2013 financial statements 96
2. aCCOuNTiNG POliCiEs continued
c)
The following new standards are relevant to the Group but not yet effective in the year ending 30 September 2013 which are expected to have
a significant impact on the Group’s financial statements:
sTaNdard Or iNTErPrETaTiON
EFFECTivE FrOm imPaCT ON FiNaNCial sTaTEmENTs
IFRS 11 Joint arrangements
1 January 2014
IFRS 13 Fair value measurement
1 January 2013
The Group currently accounts for its joint venture using proportionate
consolidation. Under IFRS 11, joint ventures must be accounted for on an equity
basis. This will result in the Group recognising a single line item for the
investment and its share of the joint venture’s profit or loss. This change will not
affect the Group’s reported net assets nor profit after tax.
Under IFRS 13 the Group’s derivative financial instruments will be subject to a
credit value adjustment (CVA). The CVA takes into account the credit worthiness
of the respective counterparties. The impact will be to increase/(decrease)
reported net assets if the fair value is in a liability/(asset) position and increase/
(decrease) profit after tax.
Basis OF CONsOlidaTiON
The consolidated financial statements incorporate the audited financial statements of the Company and its subsidiaries, together with the
Group’s share of the results of its joint venture, made up to the Balance Sheet date.
suBsidiariEs
Subsidiaries are those entities controlled by the Company. Control exists where the Company has the power, directly or indirectly, to direct the
financial and operating activities of an entity so as to obtain benefits from its activities.
All intercompany transactions and balances are eliminated on consolidation. The accounting policies of the subsidiaries are consistent with
those adopted by the Group.
In the Company’s Balance Sheet, investments in subsidiaries are included at cost less any provision in respect of permanent impairment loss.
JOiNT vENTurEs
Joint ventures are those entities over which the Group has joint control, established by contractual agreement. Interests in joint ventures are
accounted for using the proportional consolidation method permitted under IAS 31 (‘Interests in joint ventures’).
The Group’s Balance Sheet includes its share of the assets and liabilities of the joint venture entity and the Group’s Statement of Comprehensive
Income includes its share of the entity’s income and expenditure.
The profit or loss arising on transactions with the joint venture entity are recognised only to the extent of that attributable to the interest of the
other joint venture party unless any loss represents a permanent impairment loss, in which case it is provided in full.
In the Company’s Balance Sheet, investments in joint ventures are stated at cost less any provisions for permanent impairment loss. Amounts
capitalised comprise costs incurred which are directly attributable to the formation of a specific joint venture entity.
aCQuisiTiONs
Where properties are acquired through corporate acquisitions and there are no significant assets (other than investment property) and liabilities,
and without a business being acquired, the acquisition is treated as an asset acquisition. In all other cases, the acquisition is treated as a
business combination.
iNvEsTmENT PrOPErTiEs
Investment properties are properties owned or leased by the Group which are held to generate rental income or long-term capital appreciation
or both. All of the Group’s leases to its tenants fall within the definition of operating leases, as the risks and rewards of ownership are retained by
the Group as lessor.
Investment properties are initially recognised on acquisition at cost, including related acquisition costs, and are revalued annually to reflect fair
value. Fair value is determined either by external professional valuers or by the directors in the case of properties sold shortly after the period
end. The fair value, as determined by the valuers, is reduced for any unamortised lease incentives held at the Balance Sheet date.
In the case of investment properties which are leasehold interests, such leases are accounted for as head leases and recognised as an asset and
an obligation to pay future minimum lease payments. The investment property asset is held in the Balance Sheet at fair value, gross of the head
lease liability. Lease payments are allocated between the liability and finance charges so as to achieve a constant period rate of interest on the
remaining balance of the liability.
Gains or losses arising on the revaluation of investment properties are included in the Statement of Comprehensive Income in the accounting
period in which they arise. Depreciation is not provided in respect of investment properties.
Additions to properties include costs of a capital nature only. Expenditure is classified as capital when it results in identifiable future economic
benefits which are expected to accrue to the Group. All other property expenditure is written-off in the Statement of Comprehensive Income as
incurred.
Amounts received by way of compensation for dilapidations from tenants vacating properties are credited against the cost of reinstatement
works. Where the Group has no intention of carrying out such works, the amounts received are credited to the Statement of Comprehensive
Income.
Purchases and sales of investment properties are recognised in the financial statements on the date at which there is a legally binding and
unconditional contract.
dErivaTivE FiNaNCial iNsTrumENTs
Derivative financial instruments are initially recognised and subsequently measured at fair value based on market prices, estimated future cash
flows and forward interest rates. movements in fair value are recognised in the Statement of Comprehensive Income within net finance costs.
Amounts payable or receivable under such arrangements are included within finance costs or income, recognised on an accruals basis.
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued 97
2. aCCOuNTiNG POliCiEs continued
BOrrOWiNGs aNd COsTs OF raisiNG FiNaNCE
Borrowings are initially recognised at fair value net of transaction costs incurred and are subsequently stated at amortised cost. Expenses and
discounts relating to the issue of long-term debt are deducted from the proceeds and written-off in the Statement of Comprehensive Income
over the life of the debt instrument using an effective yield method. Any premium arising on the issue of long-term debt is added to the proceeds
and credited to the Statement of Comprehensive Income over the life of the debt instrument using an effective interest method.
The costs of arranging long and medium-term bank facilities are written-off in the Statement of Comprehensive Income at a rate which results
in a constant charge over the unexpired term of the facilities.
TradE rECEivaBlEs aNd PayaBlEs
Trade receivables and trade payables are recognised at fair value and subsequently held at amortised cost.
In the case of trade receivables a provision for impairment is established when there is objective evidence that the Group will not be able to
collect all amounts due according to the original terms of the receivables.
Cash aNd Cash EQuivalENTs
Cash and cash equivalents comprise cash in hand and on-demand bank deposits. Where such deposits can be offset against any amounts owing
to the same bank in accordance with its loan agreement, and in the event of settlement the Group intends to settle as a net liability, they are
deducted from that loan liability.
OrdiNary sharEs
ordinary shares are classified as equity when there is no obligation to transfer cash or other assets. Incremental costs directly attributable to the
issue of new shares are shown in equity as a deduction, net of tax, from retained earnings.
rEvENuE
Revenue comprises rents receivable from tenants under operating leases, recognised on an accruals basis, and recoverable expenses incurred
on behalf of tenants. Rents are recognised on a straight-line basis over the term of the lease. Value added tax is excluded from all amounts.
Income arising as a result of rent reviews is recognised when agreement of new terms is reasonably certain.
Premiums receivable from tenants to surrender their lease obligations are recognised in the Statement of Comprehensive Income, unless they
arise in connection with a capital project in which case they are deducted from project costs.
The cost of any incentives given to lessees to enter into leases is spread over the period from the lease commencement date, to the earlier of its
expiry date or to the date of the first break, on a straight-line basis. Lease incentives are usually in the form of rent-free periods.
PrOPErTy CharGEs
Irrecoverable operating costs attributable to properties are charged to the Statement of Comprehensive Income when they arise.
Premiums payable to tenants in connection with the surrender of their lease obligations are recognised immediately in the Statement of
Comprehensive Income, unless they arise in connection with a capital project in which case they are capitalised.
EmPlOyEE BENEFiTs
(i) Share based remuneration
The cost of granting share options and other share based remuneration to employees is recognised in the Statement of Comprehensive Income
based on the fair value at the date of grant.
The fair value of the net asset value (non-market based) vesting condition is calculated when the options are granted using the modified binomial
option pricing model. At the end of each reporting period, the directors’ review their estimates of the number of options that are expected to vest
based on actual and forecast net asset values. The impact of the revision to original estimates, if any, is recognised in the Statement of
Comprehensive Income, with a corresponding adjustment to equity.
The fair value of the total shareholder return (market based) vesting condition is calculated when the options are granted using the monte Carlo
simulation option pricing model, using various assumptions as set out in note 32. The fair value is charged on a straight-line basis over the
vesting period. No adjustment is made to the original estimate for market based conditions after the date of grant regardless of whether the
options vest or not.
The amount charged in the Statement of Comprehensive Income is credited to the share based payments reserve. Following the exercise of
share options, the charges previously recognised in respect of these options are released from the share based payments reserve to retained
earnings.
(ii) Pension contributions
Payments to defined contribution plans are charged as an expense to the Statement of Comprehensive Income as they fall due.
lEasEs
(i) The Group as lessor
Operating leases - all of the Group’s leases to its tenants fall within the definition of operating leases, as substantially all the risk and rewards of
ownership are retained by the Group.
long leaseholds - where the Group grants residential long leasehold interests to tenants, as substantially all the risks and rewards of ownership
are transferred to the tenant, the property is not recognised as an investment property.
(ii) The Group as a lessee
Operating leases - the lease under which the Group occupies office accommodation for its own administration is accounted for as an operating
lease, with rents payable charged to the Statement of Comprehensive Income on a straight-line basis over the term of the lease.
head leases - where the terms of the lease transfer substantially all the risks and rewards of ownership to the Group they are accounted for as
head leases. Head leases are capitalised at the commencement of the lease at the lower of fair value of the property and the present value of the
minimum lease payments. The present value of future ground rents is added to the carrying value of the leasehold investment property and to
long-term liabilities. on payment of ground rent all of the costs are charged to the Statement of Comprehensive Income, principally as interest
payable, and the balance reduces the liability; an equal reduction to the asset’s valuation is charged in the Statement of Comprehensive Income.
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued 98
2. aCCOuNTiNG POliCiEs continued
CurrENT aNd dEFErrEd COrPOraTiON TaX
The tax expense or credit in a given year comprises current and deferred tax.
Current tax is the corporation tax payable on taxable income for the current year adjusted for prior years’ under or over provisions.
Deferred tax is provided in respect of all temporary timing differences between the values at which assets and liabilities are recorded in the
financial statements and their base cost for corporation tax purposes. Deferred tax is recognised in the Statement of Comprehensive Income
unless the items to which it relates have been accounted for in equity, in which case the related deferred tax is also dealt with in equity.
In the case of deferred tax in relation to investment property revaluation surpluses, the base cost used is historical book cost and ignores any
allowances or deductions which may be available to reduce the actual tax liability which would crystallise in the event of a disposal of the asset.
The Group expects to recover the value of its investment property assets through future rental income streams.
Deferred tax liabilities or assets are calculated using the tax rates that have been enacted or substantively enacted by the Balance Sheet date
and are expected to apply when the related deferred tax balance is realised.
Deferred tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary
difference can be utilised.
3. sEGmENTal iNFOrmaTiON
The chief operating decision maker has been identified as the Board, which is responsible for reviewing the Group’s internal reporting in order to
assess performance and the allocation of resources.
The Group’s properties, which are all located in London’s West End, are managed as a single portfolio. Its properties, which are of similar type,
are combined into villages. All of the villages are geographically close to each other and have similar economic features and risks.
For the purposes of IFRS 8, each village is considered to be a separate operating segment. However, in view of the similar characteristics of each
village, and the reporting of all investment, income and expenditure to the Board at an overall Group level, the aggregation criteria set out in
IFRS 8 have been applied to give one reportable operating segment.
The Board assesses the performance of the reportable operating segment using measures of net property income and investment property
valuation. All financial information provided to the Board is prepared on a basis consistent with these financial statements and, as the Group has
only one reportable segment, the measures used in assessing the business are set out in the Group Statement of Comprehensive Income.
4. rEvENuE FrOm PrOPErTiEs
Rents receivable
Wholly owned Group
Group’s share of Longmartin joint venture (note 16)
rents receivable
Recoverable property expenses
Rents receivable includes lease incentives recognised of £1.3 million (2012: £1.5 million).
5. PrOPErTy CharGEs
Property operating costs
Fees payable to managing agents
Letting, rent review, and lease renewal costs
Village promotion costs
Property outgoings
Recoverable property expenses
6. NET PrOPErTy iNCOmE
Wholly owned Group
Group’s share of Longmartin joint venture (note 16)
2013
£m
77.6
5.9
83.5
6.1
89.6
2013
£m
4.8
1.9
2.5
1.1
10.3
6.1
16.4
2013
£m
67.9
5.3
73.2
2012
£m
75.4
5.6
81.0
6.0
87.0
2012
£m
4.9
1.7
2.5
0.9
10.0
6.0
16.0
2012
£m
66.2
4.8
71.0
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
7. admiNisTraTivE EXPENsEs
Administrative expenses include:
Administrative fees receivable from joint venture
Depreciation
operating lease rentals - office premises
audiTOr’s rEmuNEraTiON
Audit of the Company
Audit of the consolidated Group
Total audit services
Audit related assurance services, including the interim review
other assurance services
Total assurance services
Total audit and assurance services
Tax compliance services
Tax advisory services
services related to taxation
other non-audit services
Total fees related to taxation and other non-audit services
Total fees
The £6,000 (2012: £Nil) of other non-audit services related to accounting and reporting advice.
Total audit and assurance fees accounted for 70% (2012: 52%) of total fees paid to PricewaterhouseCoopers LLP.
EmPlOyEE COsTs (GrOuP)
Wages and salaries
Annual bonuses (including social security costs)
Social security costs
other pension costs
Equity settled remuneration (see note 8)
99
2012
£m
(0.2)
0.2
0.2
2012
£000
45
89
134
19
6
25
159
56
88
144
-
144
303
£m
2.9
1.2
0.4
0.4
1.6
6.5
2013
£m
(0.2)
0.2
0.2
2013
£000
50
83
133
20
-
20
153
36
24
60
6
66
219
£m
3.2
1.4
0.4
0.4
2.7
8.1
avEraGE mONThly NumBEr OF EmPlOyEEs (GrOuP)
NumBEr
Number
Executive directors
Head office and property management
Estate management
4
16
2
22
5
15
2
22
A summary of directors’ emoluments, including the disclosures required by the Companies Act 2006, is set out in the Annual Remuneration
Report on pages 69 to 78.
8. CharGE iN rEsPECT OF EQuiTy sETTlEd rEmuNEraTiON
Charge for share based remuneration
Employer’s national insurance in respect of share awards and share options vested or expected to vest
A summary of the principal assumptions made at the last grant date are set out in note 32.
2013
£m
2.2
0.5
2.7
2012
£m
1.2
0.4
1.6
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
100
9. FiNaNCE COsTs
Debenture stock interest and amortisation
Bank and other interest
Facility arrangement cost amortisation
Amounts payable under derivative financial instruments
Amounts payable under head leases
10. TaXaTiON
Current tax
UK corporation tax
deferred tax
Provided in respect of investment property revaluation gains
Provided in respect of capital allowances
Tax charge for the year
Factors affecting the tax charge:
Profit before tax
UK corporation tax at 23.5% (2012: 25%)
REIT tax exempt profits and gains
Fair value movements not provided due to REIT status
Non REIT fair value adjustments not allowable for tax purposes
Excess losses of residual business not recognised
Change in deferred tax rate
Tax charge for the year
2013
£m
5.0
9.8
0.5
15.6
0.4
31.3
2013
£m
0.2
2.1
0.1
2.2
2.4
241.7
56.8
(7.1)
(37.9)
(8.7)
0.4
(1.1)
2.4
2012
£m
5.0
10.0
0.6
14.1
0.2
29.9
2012
£m
0.6
1.1
0.1
1.2
1.8
94.8
23.7
(7.7)
(21.5)
7.1
0.6
(0.4)
1.8
The reconciliation of the prior year tax charge has been restated to reflect a consistent presentation with the current year analysis. This has no
impact on the prior year tax charge, the reported results and net assets in either year.
The Group’s wholly owned business is subject to taxation as a REIT. Under the REIT regime, income from its rental business (calculated by
reference to tax rather than accounting rules) and chargeable gains from the sale of its investment properties are exempt from corporation tax.
The Longmartin joint venture is outside the REIT group and is subject to corporation tax.
11. EarNiNGs PEr sharE
The calculations below are in accordance with the EPRA Best Practice Recommendations.
Basic
EPRA adjustments:
Profit on sale of investment properties
Investment property valuation movements
movement in fair value of derivative financial
instruments
Deferred tax on property valuations and capital
allowances
EPra
PrOFiT
aFTEr
TaX
£m
239.3
-
(174.3)
(37.0)
2.2
30.2
2013
WEiGhTEd
avEraGE
NumBEr OF
OrdiNary
sharEs
milliON
EarNiNGs
PEr sharE
PENCE
251.9
95.0
-
(69.2)
(14.7)
0.9
12.0
94.7
251.9
2012
Weighted
average
Number of
ordiNary
shares
millioN
251.0
251.0
252.4
Profit
after
tax
£m
93.0
(1.6)
(90.2)
28.2
1.2
30.6
93.0
earNiNgs
Per share
PeNce
37.1
(0.6)
(36.0)
11.2
0.5
12.2
36.8
diluted
239.3
252.7
The difference between the weighted average and diluted average number of ordinary shares arises from the potentially dilutive effect of
outstanding options granted over ordinary shares.
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
12. dividENds Paid
Final dividend paid in respect of:
Year ended 30 September 2012 at 6.05p per share
Year ended 30 September 2011 at 5.75p per share
Interim dividend paid in respect of:
Six months ended 31 march 2013 at 6.25p per share
Six months ended 31 march 2012 at 5.95p per share
101
2013
£m
15.4
-
15.7
-
31.1
2012
£m
-
14.6
-
14.9
29.5
The final dividend was approved by the Board on 27 November 2013. Subject to approval by shareholders at the 2014 AGm, the final dividend will
be paid on 14 February 2014 to shareholders on the register at 24 January 2014. 3.75p of the total distribution of 6.25p per share will be paid as a
PID under the UK REIT regime and 2.50p will be paid as an ordinary dividend. The dividend totalling £15.8 million will be accounted for as an
appropriation of revenue reserves in the year ending 30 September 2014.
The trustee of the Company’s Employee Benefit Trust waived dividends in respect of 471,760 (2012: 355,644) ordinary shares during the year.
13. iNvEsTmENT PrOPErTiEs
At 1 october
Acquisitions
Refurbishment and other capital expenditure
Disposals
Net gain on revaluation
Add: Head leases capitalised
Book value at 30 september
Fair value at 30 september:
Properties valued by DTZ Debenham Tie Leung Limited
Properties valued by Knight Frank LLP
Add: Head lease capitalised
Less: Lease incentives recognised to date
Book value at 30 september
Historic cost of properties carried at valuation
2013
£m
1,818.1
28.0
20.8
-
174.3
2,041.2
5.4
2,046.6
1,908.9
143.7
2,052.6
5.4
(11.4)
2,046.6
1,076.0
2012
£m
1,670.0
44.0
14.9
(1.0)
90.2
1,818.1
5.4
1,823.5
1,699.0
129.2
1,828.2
5.4
(10.1)
1,823.5
1,027.2
Investment properties were subject to external valuation as at 30 September 2013 by qualified professional valuers, being members of the Royal
Institution of Chartered Surveyors, either working for DTZ Debenham Tie Leung Limited, Chartered Surveyors (in respect of the Group’s wholly
owned portfolio) or Knight Frank LLP, Chartered Surveyors (in respect of properties owned by Longmartin Properties Limited), both firms acting
in the capacity of External Valuers. All such properties were valued on the basis of fair value in accordance with the RICS Valuation - Professional
Standards 2012.
The investment properties valuation comprises:
Freehold properties
Leasehold properties with an unexpired term of over 50 years
Notional apportionment in respect of part freehold/part leasehold greater than 50 years unexpired
2013
£m
1,793.3
150.7
108.6
2,052.6
2012
£m
1,590.7
136.4
101.1
1,828.2
The fair value of each of the properties has been primarily derived using comparable recent market transactions on an arm’s length basis. There
are a number of assumptions that are made in deriving the fair value including assessments of market yields and estimated income. The key
assumptions are set out in the Basis of Valuation on pages 50 to 51.
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
102
13. iNvEsTmENT PrOPErTiEs continued
EXTErNal valuaTiON FEEs
Annual and half year valuations
Bank security valuations
2013
£m
0.3
0.1
0.4
2012
£m
0.3
0.1
0.4
Fees were agreed at fixed amounts in advance of the valuations being carried out. Neither firm was engaged by the Group in any capacity other
than as valuers during the year. The fees payable by the Group to each valuer do not constitute a significant part of their respective fee incomes.
CaPiTal COmmiTmENTs
WhOlly OWNEd
GrOuP
lONGmarTiN
JOiNT vENTurE*
Authorised and contracted
Authorised but not contracted
*Group’s share.
2013
£m
19.1
0.5
2012
£m
8.1
16.5
The Company had £0.4 million (2012: £Nil) of authorised and contracted capital commitments at 30 September 2013.
14. lEasE iNCENTivEs
Lease incentives recognised to date
Less: included in trade and other receivables (note 17)
2013
£m
0.2
-
2013
£m
11.4
(2.1)
9.3
2012
£m
-
0.2
2012
£m
10.1
(1.9)
8.2
The unamortised amount of lease incentives is allocated between amounts to be charged against rental income within one year of the Balance
Sheet date and amounts which will be charged against rental income in subsequent periods.
15. iNvEsTmENT iN suBsidiariEs
Shares in Group undertakings
At 1 october
Write-off of non-trading subsidiary prior to liquidation
at 30 september
2013
£m
638.2
(12.2)
626.0
2012
£m
638.2
-
638.2
During the year the Company wrote-down the book value of its non-trading subsidiary, Covent Garden Central Portfolio Limited to £Nil, following
the receipt of a £12.2 million distribution prior to liquidation.
The Group comprises a number of companies so has taken advantage of the exemption under Section 410(2) of the Companies Act 2006 in
providing information only in relation to subsidiary undertakings whose results or financial position, in the opinion of directors, principally affect
the financial statements.
The Company owns, directly, all of the ordinary issued share capital of the following principal subsidiary undertakings:
Shaftesbury Carnaby Limited
Shaftesbury Charlotte Street Limited
Shaftesbury Chinatown Limited
Shaftesbury Covent Garden Limited
Shaftesbury Soho Limited
All of the companies are engaged in property investment, are incorporated in Great Britain and are registered in England and Wales.
16. iNvEsTmENT iN JOiNT vENTurE
Shares at cost
1 october
Capital repaid by joint venture
at 30 september
2013
£m
59.0
-
59.0
2012
£m
79.0
(20.0)
59.0
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
16. iNvEsTmENT iN JOiNT vENTurE continued
The Company owns 7,782,100 B ordinary £1 shares in Longmartin Properties Limited, representing 50% of that company’s issued share capital.
The company is incorporated in Great Britain and registered in England and Wales and is engaged in property investment in London.
Longmartin Properties Limited’s principal place of business is the same as the Group’s, as set out on page 55.
Control of Longmartin Properties Limited is shared equally with The mercers’ Company, which owns 50% of its issued share capital.
During the year Longmartin Properties Limited paid £16.0 million (2012: £16.0 million) in dividends to its shareholders which were settled
through joint venture indebtedness. The company also paid £0.5 million (2012: £4.8 million) in cash dividends.
The Group’s share of the results of its joint venture for the year ended 30 September 2013 and of its assets and liabilities at that date, which have
been consolidated in the Group’s Statement of Comprehensive Income and Balance Sheet, are set out below:
103
statement of Comprehensive income
Rents receivable (adjusted for lease incentives)
Recoverable property expenses
revenue from properties
Property outgoings
Recoverable property expenses
Property charges
Net property income
Administrative expenses
Operating profit before investment property valuation movements
Investment property revaluation movements
Operating profit
Net finance costs
Profit before tax
Current tax
Deferred tax
Tax charge for the year
Profit and total comprehensive income for the year
Transactions with owners:
Dividends paid
movement in retained earnings
Balance sheet
Non-current assets
Investment properties at book value
Lease incentives
Current assets
Total assets
Current liabilities
Non-current liabilities
Secured term loan
other non-current liabilities
Total liabilities
Net assets attributable to the shaftesbury Group
2013
£m
2012
£m
5.9
0.6
6.5
(0.6)
(0.6)
(1.2)
5.3
(0.3)
5.0
13.0
18.0
(2.9)
15.1
(0.3)
(2.2)
(2.5)
12.6
(8.3)
4.3
5.6
0.5
6.1
(0.8)
(0.5)
(1.3)
4.8
(0.3)
4.5
6.0
10.5
(1.5)
9.0
(0.6)
(1.2)
(1.8)
7.2
(10.4)
(3.2)
2013
£m
2012
£m
145.3
3.1
148.4
7.4
155.8
5.3
60.0
13.9
79.2
76.6
130.8
3.1
133.9
15.6
149.5
5.5
60.0
11.7
77.2
72.3
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
104
17. TradE aNd OThEr rECEivaBlEs
Amounts due from tenants
Provision for doubtful debts
Lease incentives (note 14)
Amounts due from subsidiaries
other receivables and prepayments
GrOuP
COmPaNy
2013
£m
11.4
(0.4)
11.0
2.1
-
6.6
19.7
2012
£m
12.3
(0.3)
12.0
1.9
-
3.5
17.4
2013
£m
2012
£m
-
-
-
-
584.8
0.7
585.5
-
-
-
-
520.9
0.4
521.3
Amounts due from tenants at each year end included amounts contractually due and invoiced on 29 September in respect of rents and service
charge contributions in advance for the period 29 September to 24 December. As of 30 September 2013, amounts due from tenants which were
more than 90 days overdue, relating to accommodation and services provided up to 28 September 2013, totalled £1.2 million (2012: £1.4 million)
and are considered to be past due. Provisions against these overdue amounts totalled £0.4 million (2012: £0.3 million).
At 30 September 2013, cash deposits totalling £13.7 million (2012: £11.0 million) were held against tenants’ rent payment obligations.
The deposits are held in bank accounts administered by the Group’s managing agents.
18. Cash aNd Cash EQuivalENTs
Cash balances at 30 September 2013 included amounts of £4.2 million (2012: £4.2 million), which are held in accounts or on deposit that have certain
conditions that restrict the use of these monies. Holding cash in restricted accounts does not prevent the Group from earning returns by placing
these monies in interest bearing accounts or on deposit.
19. TradE aNd OThEr PayaBlEs
Rents and service charges invoiced in advance
Corporation tax
Amounts due in respect of property acquisitions
Trade payables and accruals in respect of capital expenditure
Amounts due to joint venture
other payables and accruals*
* Includes amounts secured by way of fixed charges on certain investment
properties and floating charges over the Group’s and joint venture’s assets.
GrOuP
COmPaNy
2013
£m
19.4
0.2
0.1
4.6
-
11.5
35.8
3.1
2012
£m
17.7
0.4
0.2
4.5
-
11.5
34.3
3.0
2013
£m
2012
£m
-
-
-
-
-
7.5
7.5
2.5
-
-
-
-
8.0
6.8
14.8
2.3
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
20. BOrrOWiNGs
Group
Debenture Stock
Secured bank loans
Secured term loan
debenture and secured loans
Head lease obligations
Total borrowings
Company
Debenture Stock
Secured bank loans
debenture and bank borrowings
NET dEBT (GrOuP)
Borrowings (as above)
Cash and cash equivalents (note 18)
2013
uNamOrTisEd
PrEmium
aNd issuE
COsTs
£m
NOmiNal
valuE
£m
BOOk
valuE
£m
NomiNal
value
£m
2012
uNamortised
Premium
aNd issue
costs
£m
61.0
484.2
60.0
605.2
5.4
610.6
61.0
492.6
553.6
2.5
(2.0)
(0.6)
(0.1)
-
(0.1)
2.5
(2.0)
0.5
63.5
482.2
59.4
605.1
5.4
610.5
63.5
490.6
554.1
61.0
435.7
60.0
556.7
5.4
562.1
61.0
443.7
504.7
2.6
(2.5)
(0.6)
(0.5)
-
(0.5)
2.6
(2.5)
0.1
2013
£m
610.6
(5.7)
604.9
105
book
value
£m
63.6
433.2
59.4
556.2
5.4
561.6
63.6
441.2
504.8
2012
£m
562.1
(5.3)
556.8
The Group’s head lease obligations represent its share of the net present value of amounts payable under leases with unexpired terms of 167
years held by Longmartin Properties Limited.
Debenture and bank borrowings are secured by fixed charges over certain investment properties held by subsidiaries and by floating charges
over the assets of the Company and certain subsidiaries. Certain cash balances in the subsidiaries are available for set-off against certain bank
indebtedness owing by the parent undertaking. The secured term loan is secured by fixed charges over the investment property and certain cash
balances held by the joint venture and by floating charges over the assets of the joint venture.
Certain of the Company’s bank loan agreements allow for part of the facility commitments to be provided by way of overdrafts, which are
available throughout the term of those facilities. At 30 September 2013, Group and Company bank loans included overdrafts of £0.7 million (2012:
£0.8 million).
availaBiliTy aNd maTuriTy OF GrOuP BOrrOWiNGs
Repayable between 10 and 15 years
Repayable between 5 and 10 years
Repayable between 2 and 5 years
Head lease obligations - leases expiring in 167 years
2013 FaCiliTiEs
2012 facilities
COmmiTTEd
£m
uNdraWN
£m
committed
£m
uNdraWN
£m
121.0
200.0
375.0
696.0
5.4
701.4
-
32.5
58.3
90.8
-
90.8
121.0
200.0
375.0
696.0
5.4
701.4
-
65.1
74.2
139.3
-
139.3
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
106
20. BOrrOWiNGs continued
iNTErEsT raTE PrOFilE OF iNTErEsT BEariNG BOrrOWiNGs (GrOuP)
2013
2012
iNTErEsT
raTE
FiXEd uNTil
dEBT
£m
iNTErEsT
raTE
debt
£m
iNterest
rate
Floating rate borrowings
LIBoR-linked loans (including margin)
12.2013 (at the latest)
124.2
1.41%
75.7
1.50%
hedged borrowings
Interest rate swaps (including margin)
see below
Total bank borrowings
Fixed rate borrowings
Secured term loan
8.5% First mortgage Debenture Stock - book value
Weighted average cost of drawn borrowings
12.2026
3.2024
360.0
484.2
60.0
63.5
5.78%
4.66%
4.43%
7.93%
4.98%
360.0
435.7
60.0
63.6
5.75%
5.01%
4.43%
7.93%
5.28%
The Group also incurs non-utilisation fees on undrawn facilities. At 30 September 2013, the weighted average charge on the undrawn facilities of
£90.8 million (2012: £139.3 million) was 0.52% (2012: 0.54%).
At 30 September 2013, the weighted average credit margin on the Group’s current bank facilities was:
Drawn facilities
If facilities were fully drawn
2013
0.91%
1.04%
2012
0.88%
1.04%
The Group has in place interest rate swaps to hedge £360.0 million of floating rate bank debt, at fixed rates in the range 4.59% to 5.15%, with a
weighted average rate at 30 September 2013 of 4.87%. The swaps, which are settled against three month LIBoR, expire between December 2027
and November 2038. The weighted average term is 19.4 years (2012: 20.4 years). If mutual break or early termination options are exercised the
weighted average term is 4.2 years (2012: 5.2 years).
21. FiNaNCial iNsTrumENTs
CaTEGOriEs OF FiNaNCial iNsTrumENTs
Group
Financial liabilities at fair value through the profit and loss
Financial assets: loans and receivables
Trade and other receivables (note 17)
Cash and cash equivalents (note 18)
Financial liabilities at amortised cost
Trade and other payables - due within one year (note 19)
Interest bearing borrowings (note 20)
Head lease obligations (note 20)
Net financial instruments
Company
Interest rate swaps
Financial assets: loans and receivables
Loans receivable from subsidiaries (note 17)
Financial liabilities at amortised cost
Trade and other payables - due within one year (note 19)
Interest bearing borrowings (note 20)
Loan payable to joint venture (note 19)
Net financial instruments
2013
BOOk
valuE
£m
2012
book
value
£m
(95.8)
(132.8)
11.0
5.7
16.7
(16.1)
(605.1)
(5.4)
(626.6)
(705.7)
12.0
5.3
17.3
(16.0)
(556.2)
(5.4)
(577.6)
(693.1)
(95.8)
(132.8)
584.8
520.9
(7.5)
(554.1)
-
(561.6)
(72.6)
(6.8)
(504.8)
(8.0)
(519.6)
(131.5)
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
21. FiNaNCial iNsTrumENTs continued
Fair valuEs OF dErivaTivE FiNaNCial iNsTrumENTs (GrOuP aNd COmPaNy)
interest rate swaps
At 1 october - deficit
Fair value deficit credited/(charged) to the Statement of Comprehensive Income
at 30 september - deficit
107
2013
£m
(132.8)
37.0
(95.8)
2012
£m
(104.6)
(28.2)
(132.8)
Changes in the fair value of the Group’s interest rate swaps, which are not held for speculative purposes, are reflected in the Statement of
Comprehensive Income as the Group has chosen not to adopt hedge accounting under the provisions of IAS 39 (Financial Instruments:
Recognition and measurement).
The extent to which the fair value deficit will crystallise will depend on the course of interest rates over the life of the swaps. The weighted
average maturity of the swaps at the Balance Sheet date is set out in note 20.
The 8.5% mortgage Debenture Stock 2024 and the Group’s share of its joint venture’s 4.43% secured term loan are held at amortised cost in the
Balance Sheet. The fair value of liability in excess of book value which is not recognised in the reported results for the year is £14.0 million (2012:
£18.5 million). The fair values have been calculated based on a discounted cash flow model using the relevant reference gilt and appropriate
market spread.
The Company is not obliged to redeem the £61.0 million (nominal) of Debenture Stock in issue in advance of its redemption date of 31 march
2024, when repayment will be at par value. The Company also has no obligation to repay its share of the secured term loan in advance of its
maturity on 21 December 2026.
The Group’s interest rate swaps are fair valued by J.C. Rathbone Associates Limited, using the following fair value hierarchy:
hiErarChy
dEsCriPTiON
iNsTrumENT
Level 1
Level 2
Level 3
Quoted prices (unadjusted) in active markets for identical assets or liabilities.
-
Inputs other than quoted prices included within level 1 that are observable for
the asset or liability, either directly (that is, as prices) or indirectly (that is,
derived from prices).
Interest rate swaps
Inputs for the asset or liability that are not based on observable market data
(that is, unobservable inputs). Discounted cash flows are used to determine
fair values of these instruments.
-
OThEr FiNaNCial iNsTrumENTs
The fair values of the Group’s and Company’s cash and cash equivalents, trade and other receivables, interest bearing borrowings (other than the
8.5% mortgage Debenture Stock 2024 and its share of the secured term loan), head leases and trade and other payables are not materially
different from the values at which they are carried in the financial statements.
Cash OuTFlOWs aTTriBuTaBlE TO FiNaNCial iNsTrumENTs aNd iNTErEsT-BEariNG BOrrOWiNGs (GrOuP)
The tables below summarise the Group’s undiscounted contractual cash flows arising on financial instruments and financial liabilities based on
conditions existing at the Balance Sheet date.
30 sEPTEmBEr 2013
Financial instruments
Interest rate swaps
Financial liabilities
Interest bearing borrowings:
Principal
Interest
Head lease obligations
Total
BOOk
valuE
£m
CONTraCTual
Cash FlOWs
£m
WiThiN
1 yEar
£m
2 TO 5
yEars
£m
5 TO 10
yEars
£m
OvEr
10 yEars
£m
95.8
111.2
13.9
43.7
22.9
30.7
605.1
-
5.4
706.3
605.2
102.2
88.4
907.0
-
13.3
0.5
27.7
316.7
44.2
2.1
406.7
167.5
37.8
2.6
230.8
121.0
6.9
83.2
241.8
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
108
21. FiNaNCial iNsTrumENTs continued
30 sEPTEmBEr 2012
Financial instruments
Interest rate swaps
Financial liabilities
Interest bearing borrowings:
Principal
Interest
Head lease obligations
Total
BOOk
valuE
£m
CONTraCTual
Cash FlOWs
£m
WiThiN
1 yEar
£m
2 TO 5
yEars
£m
5 TO 10
yEars
£m
OvEr
10 yEars
£m
132.8
148.2
14.1
56.5
38.6
39.0
556.2
-
5.4
694.4
556.7
113.1
87.7
905.7
-
12.9
0.4
27.4
300.8
46.9
2.0
406.2
134.9
39.9
2.6
216.0
121.0
13.4
82.7
256.1
The Group’s trade and other payables are all due within one year (2012: all due within one year).
22. maNaGEmENT OF FiNaNCial risk
CrEdiT risk
Credit risk refers to the risk that a counterparty will default on their contractual obligations resulting in financial loss to the Group.
The Group reviews the creditworthiness of potential tenants prior to entering into contractual arrangements. Where appropriate, tenants are
required to provide cash rental deposits to mitigate the potential loss in the event of default. Deposits held are referred to in note 17. The Group
has a large and diverse tenant base so that tenant credit risk is widely spread.
Provision is made in full where recovery of financial assets is, in the opinion of the directors, uncertain. The carrying amount of financial assets,
net of provisions for impairment, represents the Group’s maximum exposure to credit risk.
The Group’s bankers are set out on page 55. The Group tends to hold minimal cash balances, utilising overdraft and loan facilities for its
day-to-day cash requirements. Where cash deposits are held, they are placed with one of the Group’s existing facility providers.
liQuidiTy risk
The Board keeps under review the Group’s funding requirements, available facilities and covenant compliance to ensure it has sufficient funds
available to meet its existing commitments and to extend its portfolio through investment and acquisition of additional properties. The Group’s
policies regarding finance and its current financial position are set out in the Strategic Report on pages 38 to 40.
markET risk
market risk arises from the Group’s use of interest bearing financial instruments, and is the risk that future cash flows from financial
instruments will fluctuate due to changes in interest rates and credit costs. The Group’s policy is to minimise market risk through long-term
fixed rate debt, long-term committed bank facilities and the use of long-term interest rate swaps on a large portion of its floating rate bank debt.
As described in the Strategic Report on pages 38 to 40, the Board keeps under review the Group’s market risk, particularly in light of
expectations of future interest rate movements.
Details of the Group’s interest and hedging arrangements are set out in note 20.
iNTErEsT raTE sENsiTiviTy
The sensitivity analysis below has been determined based on the exposure to interest rates on its unhedged LIBoR-linked borrowings and a
change in the long-term interest rates against which the fair value of swaps is calculated at the Balance Sheet date. It represents the directors’
assessment of possible changes in interest rates and the potential impact on the Group’s results and equity.
(Increase)/decrease in finance costs before fair valuation of interest rate swaps
Decrease/(increase) in fair value deficit of interest rate swaps
Increase/(decrease) in profit and shareholders’ equity
mOvEmENT iN markET raTEs
iNCrEasE
OF 1.0%
£m
iNCrEasE
OF 0.5%
£m
rEduCTiON
OF 0.5%
£m
(1.2)
59.2
58.0
(0.6)
29.6
29.0
0.6
(29.6)
(29.0)
This sensitivity analysis does not take into account valuation movements on the Group’s investment properties as a result of movements in
long-term interest rates, which would be reflected in the Statement of Comprehensive Income.
CaPiTal risk maNaGEmENT
The capital structure of the Group consists of shareholders’ equity and net borrowings, including cash held on deposit. The type and maturity of
the Group’s borrowings is set out in note 20 and the Group’s equity structure is set out in the Statement of Changes in Shareholders’ Equity. The
Group regularly reviews its covenant compliance as discussed in the Strategic Report on page 40.
The Group’s capital management objectives are to continue as a going concern and to provide enhanced shareholder returns whilst maintaining
an appropriate risk reward balance to accommodate changing financial and operating market cycles. The Group’s capital structure such as levels
of gearing and loan-to-value ratios are discussed in the Strategic Report on page 39 and 40.
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
23. dEFErrEd TaX liaBiliTiEs
GrOuP
At 1 october
Provided in the Statement of Comprehensive Income (note 10)
at 30 september
Comprising:
Provision in respect of revaluation gains
Provision in respect of accelerated capital allowances
109
2013
£m
2012
£m
6.9
2.2
9.1
8.5
0.6
9.1
5.7
1.2
6.9
6.4
0.5
6.9
A 20% tax rate (2012: 23%) has been used in the calculation of the deferred tax balance as this was substantively enacted at 30 September 2013.
24. OrdiNary sharEs
Alloted and fully paid (ordinary 25p shares)
At 1 october
Issued in connection with the exercise of share options
at 30 september
2013
NumBEr
milliON
2012
Number
millioN
251.5
0.8
252.3
250.5
1.0
251.5
2013
£m
62.9
0.2
63.1
2012
£m
62.6
0.3
62.9
The Company’s Articles of Association contain provisions which set out the circumstances in which shareholders can exercise control over the
issue of shares.
The following options to subscribe for ordinary shares granted to executive directors and employees under the Company’s share option schemes
were outstanding at 30 September 2013:
NumBEr
OF sharEs
uNdEr
OPTiON
OuTsTaNdiNG
1.10.2012
330,393
13,122
22,654
30,219
509,975
595,180
552,350
65,800
daTE OF GraNT
2001 scheme
15.12.2004
sharesave scheme
14.7.2009
8.7.2011
5.7.2012
lTiP
8.12.2009
8.12.2010*
7.12.2011
16.1.2012
6.12.2012
aWardEd EXErCisEd
laPsEd
-
-
-
-
-
-
-
-
(330,393)
-
-
-
(1,108)
(2,487)
-
(509,975)
-
-
-
-
-
-
(29,170)
(24.097)
-
-
13,122
19,059
30,219
-
566,010
528,253
65,800
576,475
-
576,475
2,119,693
576,475
(841,476)
(55,754)
1,798,938
NumBEr
OF sharEs
uNdEr
OPTiON
OuTsTaNdiNG
30.9.2013
EXErCisaBlE
30.9.2013
OPTiON
EXErCisE
PriCE
EXErCisE
PEriOd
-
-
£2.65
2007-2014
£2.37
£4.29
£3.99
2012-2014
2014-2016
2015-2017
Nil cost
2012-2013
Nil cost
2013-2014
Nil cost
2014-2015
Nil cost
2015
Nil cost
2016-2017
-
-
-
-
-
-
-
-
-
* 283,005 options over ordinary shares will vest in December 2013, following satisfaction of performance targets in respect of the three years ended 30 September 2013.
For share options exercised during the year the weighted average share price at the date of exercise was:
sChEmE
2001 scheme
lTiP
sharesave
daTE OF GraNT
daTE OF EXErCisE
NumBEr OF sharEs
WEiGhTEd avEraGE
PriCE aT EXErCisE
15.12.2004
8.12.2009
8.12.2009
8.7.2011
23.5.2013
10.12.2012
23.5.2013
8.2.2013
330,393
208,975
301,000
1,108
£6.59
£5.53
£6.59
£5.60
The rules of the schemes referred to above are set out on pages 64 to 67 of the Remuneration Policy Report.
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
110
25. rEsErvEs
The Statement of Changes in Shareholders’ Equity is set out on page 94.
The following describes the nature and purpose of each of the reserves within shareholders’ equity.
rEsErvE
Share premium
Share based payments reserve
Retained earnings
dEsCriPTiON aNd PurPOsE
Share premium is the amount by which the fair value of the consideration received for ordinary shares
exceeds the nominal value of shares issued, net of expenses.
The equity settled remuneration expense charged to the Statement of Comprehensive Income is credited to
the share based payments reserve. This is spread over the vesting period of performance-based share
options. Upon exercise of options, the expense previously recognised is transferred to retained earnings.
Cumulative gains and losses recognised in the Statement of Comprehensive Income. Transfers from the
share based payments reserve and merger reserve are also credited to this account.
The Company’s retained earnings at 30 September 2013 include amounts distributable of £259.2 million (2012: £250.2 million).
26. NET assET valuE PEr sharE
The calculations below are in accordance with the EPRA Best Practice Recommendations.
Basic
Additional equity if all vested share options are
exercised
diluted
Fair value deficit in respect of Debenture and
secured term loan
EPra triple net
Fair value deficit in respect of Debenture and
secured term loan
Fair value of derivative financial instruments
Deferred tax on property valuations and capital
allowances
EPra
2013
NumBEr
OF OrdiNary
sharEs
milliON
252.3
0.9
253.2
253.2
253.2
NET
assETs
£m
1,330.7
0.2
1,330.9
(14.0)
1,316.9
14.0
95.8
9.1
1,435.8
NET
assET
valuE PEr
sharE
£
5.27
5.26
(0.06)
5.20
0.06
0.37
0.04
5.67
2012
Number
of ordiNary
shares
millioN
251.5
1.7
253.2
253.2
253.2
Net
assets
£m
1,119.4
1.1
1,120.5
(18.5)
1,102.0
18.5
132.8
6.9
1,260.2
Net
asset
value Per
share
£
4.45
4.43
(0.08)
4.35
0.08
0.52
0.03
4.98
The calculations of diluted net asset value per share show the potentially dilutive effect of options granted over ordinary shares outstanding at
the Balance Sheet date and include the increase in shareholders’ equity which would arise on the exercise of those options.
27. Cash FlOWs FrOm OPEraTiNG aCTiviTiEs
OPEraTiNG aCTiviTiEs
Profit before tax
adjusted for:
Lease incentives recognised
Charge for share based remuneration
Depreciation and losses on disposals
Profit on sale of investment properties
Investment property valuation movements
Net finance (income)/costs
Administrative charges, finance charges, and dividends received from
subsidiaries settled through inter-company indebtedness
Dividends received from joint venture
Write-off of non-trading subsidiary prior to liquidation
Cash flows from operations before changes in working capital
Changes in working capital:
Change in trade and other receivables
Change in trade and other payables
Cash generated from operating activities
GrOuP
COmPaNy
2013
£m
241.7
(1.3)
2.2
0.2
-
(174.3)
(5.8)
-
-
-
62.7
(2.1)
1.4
62.0
2012
£m
94.8
(1.5)
1.2
0.2
(1.6)
(90.2)
58.0
-
-
-
60.9
(1.4)
(0.1)
59.4
2013
£m
75.0
-
2.2
0.2
-
-
(8.7)
(81.8)
(8.3)
12.2
(9.2)
(0.4)
0.6
(9.0)
2012
£m
0.1
-
1.2
0.2
-
-
56.5
(56.3)
(10.4)
-
(8.7)
0.2
(0.6)
(9.1)
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
28. mOvEmENT iN BOrrOWiNGs
Group
8.5% First mortgage Debenture Stock 2024
Secured bank loans
Secured term loan
Facility arrangement costs
Head lease obligations
Year ended 30 September 2012
Company
8.5% First mortgage Debenture Stock 2024
Secured bank loans
Facility arrangement costs
Year ended 30 September 2012
29. OPEraTiNG lEasEs
ThE GrOuP as lEssOr
111
1.10.2012
£m
Cash
FlOWs
£m
NON-Cash
iTEms
£m
30.9.2013
£m
(63.6)
(435.7)
(60.0)
3.1
(5.4)
(561.6)
(500.5)
(63.6)
(443.7)
2.5
(504.8)
(506.1)
-
(48.5)
-
-
0.4
(48.1)
(60.5)
-
(48.9)
-
(48.9)
1.6
0.1
-
-
(0.5)
(0.4)
(0.8)
(0.6)
0.1
-
(0.5)
(0.4)
(0.3)
(63.5)
(484.2)
(60.0)
2.6
(5.4)
(610.5)
(561.6)
(63.5)
(492.6)
2.0
(554.1)
(504.8)
Future aggregate minimum rentals receivable under non-cancellable operating leases based on contracted rental income at the year end:
Not later than one year
Later than one year but not later than five years
Later than five years but not later than ten years
Later than ten years
2013
£m
81.0
209.5
142.2
118.0
550.7
2012
£m
74.9
192.7
132.1
130.0
529.7
The comparative disclosure has been restated to include additional leases that should have been included in the prior year. This has no impact
on the reported results and net assets in either year.
The Group has over 1,200 leases granted to its tenants. These vary depending on the individual tenant and the respective property and demise.
Leases have a typical term of 3 to 25 years (break clauses may mean the actual term is shorter), at a market rent with provisions to review to
market.
ThE GrOuP as a lEssEE
Future aggregate minimum payments in respect of a non-cancellable operating lease based on annual amounts payable at the year end:
Not later than one year
Later than one year but not later than five years
The Group leases its head office accommodation.
2013
£m
0.1
-
0.1
2012
£m
0.2
0.1
0.3
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
112
30. OBliGaTiONs uNdEr hEad lEasEs
GrOuP
The minimum lease payments under head leases fall due as follows:
Not later than one year
Later than one year but not more than five years
more than five years
Future finance charges on head leases
Present value of head lease liabilities
The present value of head lease liabilities is as follows:
Not later than one year
Later than one year but not more than five years
more than five years
2013
£m
0.3
1.0
41.9
43.2
(37.8)
5.4
-
0.1
5.3
5.4
2012
£m
0.3
1.0
42.2
43.5
(38.1)
5.4
-
0.1
5.3
5.4
31. rElaTEd ParTy TraNsaCTiONs
During the year, the Company received administrative fees, dividends and interest from its wholly owned subsidiaries. The Company also paid
interest on a loan and head rents to the Longmartin joint venture. These are summarised below:
Transactions with subsidiaries:
Administrative fees receivable
Dividends receivable
Interest receivable
2013
£m
8.5
43.8
29.6
2012
£m
7.6
20.6
28.1
Net amounts receivable from subsidiaries
584.8
520.9
Transactions with joint venture:
Administrative fees receivable
Dividends receivable
Interest payable
Amount due to joint venture
0.4
8.3
(0.2)
0.3
10.4
(0.8)
-
(8.0)
All amounts are unsecured and are repayable on demand.
Directors are considered the only key management personnel. Apart from the directors’ remuneration set out in the Annual Remuneration
Report on pages 69 to 78, there were no other transactions with directors.
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued
32. sharE BasEd rEmuNEraTiON
The fair value of option grants is measured by Lane Clark & Peacock LLP, Actuaries & Consultants, using a combination of monte Carlo
simulation and modified binomial models, and taking into account the terms and conditions upon which awards were granted. The fair value is
recognised over the expected vesting period. For the grant made during the year, the main inputs and assumptions of the models, and the
resulting fair values, are as follows:
113
Grant date
Share price at date of grant
Exercise price
Expected life – years
Performance condition
Assumed return volatility per annum
Assumed dividend yield per annum
Risk free discount rate per annum
Assumed index return volatility* – TSR performance condition
Assumed correlation between the Company’s shares and those in the index*
Basis of option pricing:
NAV performance condition
TSR performance condition
Fair values:
NAV
TSR
* The index is the FTSE 350 Real Estate Index.
2006 lTiP
6.12.2012
£5.53
£Nil
3
NAV and TSR
36%
2.17%
0.34%
34%
0.79
modified
binomial
monte Carlo
£5.18
£2.74
The assumed volatility was determined taking into account factors including the historical volatility of the Shaftesbury PLC share price. Actual
future volatility may differ, potentially significantly, from historic volatility.
The vesting conditions relating to options granted under 2006 LTIP are described in the Annual Remuneration Report on page 73.
Shaftesbury annual report 2013 financial statements Notes to the financial statements continued 114
Five year financial summary
iNCoME STATEMENTS
Rents receivable
Recoverable property expenses
Property outgoings
Net property income
Administrative expenses
Profit on disposal of properties
Property valuation movements
operating profit/(loss)
Net finance costs
Change in fair value of derivative financial instruments
Profit/(loss) before taxation
Taxation charge
Profit/(loss) after taxation
Adjust for:
Property disposal surpluses
Property valuation movements
Change in fair value of derivative financial instruments
Deferred tax on property valuations and capital allowances
Effect of REIT conversion
EPRA profit after taxation
Basic EPS
EPRA EPS
Total dividends per ordinary share declared in respect of the
financial year:
2013
£M
83.5
6.1
89.6
(16.4)
73.2
(11.6)
61.6
-
174.3
235.9
(31.2)
37.0
241.7
(2.4)
239.3
-
(174.3)
(37.0)
2.2
-
30.2
2012
£m
81.0
6.0
87.0
(16.0)
71.0
(10.0)
61.0
1.6
90.2
152.8
(29.8)
(28.2)
94.8
(1.8)
93.0
(1.6)
(90.2)
28.2
1.2
-
30.6
2011
£m
75.4
6.0
81.4
(14.8)
66.6
(9.6)
57.0
-
110.6
167.6
(27.8)
(24.1)
115.7
(1.9)
113.8
-
(110.6)
24.1
1.5
-
28.8
2010
£m
65.7
5.5
71.2
(13.6)
57.6
(8.2)
49.4
0.4
183.6
233.4
(27.1)
(34.4)
171.9
(4.8)
167.1
(0.4)
(183.6)
34.4
4.1
0.6
22.2
2009
£m
61.7
6.1
67.8
(13.3)
54.5
(6.8)
47.7
0.3
(48.1)
(0.1)
(26.4)
(31.6)
(58.1)
(0.3)
(58.4)
(0.3)
48.1
31.6
-
0.1
21.1
95.0p
37.1p
47.4p
73.6p
(31.3p)
12.0p
12.2p
12.0p
9.8p
11.3p
Actual
Restated*
12.50p
12.00p
11.25p
10.25p
-
-
-
-
12.25p
10.60p
* the interim 2009 dividend has been restated to show the theoretical dividend per share that would have been declared had the bonus shares inherent in the 2009 Rights Issue
been in existence at the dividend date.
Shaftesbury annual report 2013 financial statements
Five year financial summary continued
115
NET ASSETS
investment properties
At 1 October
Acquisitions
Refurbishment and other capital expenditure
Disposals
Net revaluation gain/(deficit)
Head lease liabilities
At 30 September – book value
Other assets
Lease incentives
2013
£M
2012
£m
2011
£m
2010
£m
2009
£m
1,818.1
1,670.0
1,475.3
1,204.5
1,202.2
28.0
20.8
-
174.3
2,041.2
5.4
44.0
14.9
(1.0)
90.2
1,818.1
5.4
64.9
19.2
-
110.6
1,670.0
5.4
65.3
22.5
(0.6)
183.6
1,475.3
5.4
29.8
20.6
-
(48.1)
1,204.5
5.4
2,046.6
1,823.5
1,675.4
1,480.7
1,209.9
0.6
9.3
0.6
8.2
0.6
7.0
0.5
5.4
0.3
4.2
2,056.5
1,832.3
1,683.0
1,486.6
1,214.4
Net current liabilities
(10.4)
(11.6)
(18.5)
(16.0)
(19.6)
2,046.1
1,820.7
1,664.5
1,470.6
1,194.8
Taxation payable
Borrowings
Derivative financial instruments
Deferred tax liabilities
Net assets
Add:
-
(610.5)
(95.8)
(9.1)
-
(561.6)
(132.8)
(6.9)
-
(500.5)
(104.6)
(5.7)
1,330.7
1,119.4
1,053.7
Derivative financial instruments
Deferred tax on property valuations and capital allowances
EPRA net assets
95.8
9.1
132.8
6.9
104.6
5.7
1,435.6
1,259.1
1,164.0
-
(522.2)
(80.5)
(4.2)
863.7
80.5
4.2
948.4
(3.8)
(427.5)
(46.1)
(0.1)
717.3
46.1
-
763.4
Diluted net asset value
£5.26
£4.43
£4.19
£3.78
£3.15
EPRA net asset value
£5.67
£4.98
£4.63
£4.14
£3.35
Mid market price of an ordinary share at 30 September
£5.90
£5.28
£4.68
£4.33
£3.57
Shaftesbury annual report 2013 financial statements
116 Shareholders and corporate information
ANALYSiS oF SHAREHoLDERS AT 30 SEPTEMBER 2013
REGiSTRAR
Banks and Nominees
Limited and Plc
Other organisations
Individuals
NUMBER oF SHARES
1-100,000
100,001-500,000
500,001-1,000,000
1,000,001 or over
NUMBER oF
ACCoUNTS
466
127
32
246
871
NUMBER
oF SHARES
HELD
‘000
243,584
1,098
1,720
5,912
% oF
SHARES
HELD
96
1
1
2
252,314
100
NUMBER oF
ACCoUNTS
NUMBER
oF SHARES
HELD
‘000
% oF
SHARES
HELD
675
107
30
59
8,395
25,169
19,901
198,849
3
10
8
79
871
252,314
100
CoRPoRATE TiMETABLE
Financial calendar
Annual General Meeting
7 February 2014
Interim Management Statement (first half)
7 February 2014
2014 Half Year Results to be announced
May 2014
Interim Management Statement (second half)
July/August 2014
DiViDENDS AND DEBENTURE iNTEREST
Proposed 2013 final dividend:
Ex-dividend
Record date
Payment date
2014 interim dividend to be paid
Debenture stock interest to be paid
22 January 2014
24 January 2014
14 February 2014
July 2014
31 March 2014 and
30 September 2014
Equiniti Limited maintains the Group’s Register of Members.
They may be contacted at:
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex, BN99 6DA
Telephone 0871 384 2294 (International +44 121 415 7047). Calls to this
number are charged at 8p per minute from a BT landline plus network
extras. Lines open 8.30 am to 5.30 pm, Monday to Friday.
Shareholder accounts may be accessed online through
www. shareview.co.uk. This gives secure access to account information
and permits shareholders to amend address information and payment
instructions. There is also a Shareview dealing service which is a
simple and convenient way to buy or sell shares in the Group.
EFFECT oF REiT STATUS oN PAYMENT oF DiViDENDS
As a REIT, we do not pay UK corporation tax in respect of rental profits
and chargeable gains relating to our property rental business.
However, we are required to distribute at least 90% of the qualifying
income (broadly calculated using the UK tax rules) as a PID.
Certain categories of shareholder may be able to receive the PID
element of their dividends gross, without deduction of withholding tax.
Categories which may claim this exemption include: UK companies,
charities, local authorities, UK pension schemes and managers of
PEPs, ISAs and Child Trust Funds.
Further information and the forms for completion to apply for PIDs to
be paid gross are available on the Group’s website or from the
registrar. The deadline for completed forms to be with the registrar for
payment of the 2013 final dividend is 24 January 2014.
Where the Group pays an ordinary dividend, in addition to the PID, this
will be treated in the same way as dividends from non-REIT
companies.
SHAREGiFT
The Orr Mackintosh Foundation operates a voluntary charity share
donation scheme for retail shareholders who wish to dispose of small
numbers of shares whose value makes it uneconomical to sell them.
Details are available from www. sharegift.org or the registrar.
Shaftesbury annual report 2013 oTHER INFoRMATIoN
Glossary of terms
117
Building Research Establishment Environmental Assessment
Method (BREEAM)
BREEAM sets the standard for best practice in sustainable building
design, construction and operation. Buildings are assessed on a broad
range of environmental factors and can be given ratings ranging from
pass to outstanding.
Capital value return
The valuation movement and realised surpluses or deficits arising
from the Group’s investment portfolio expressed as a percentage
return on the valuation at the beginning of the year adjusted for
acquisitions and capital expenditure.
Compound Annual Growth Rate (CAGR)
The year-on-year growth rate of an investment over a specified period
of time.
Conservation area
A conservation area is an area of special architectural interest, the
character or appearance of which it is desirable to preserve or
enhance. In dealing with development in conservation areas, the
general aim of authorities is to ensure that the quality of townscape is
preserved or enhanced, though legislation gives protection to
individual buildings considered to be of particular heritage,
significance and value to an area.
Dow Jones Sustainability indices (DJSi)
A global benchmark for investors who integrate sustainability into
their portfolios.
EPRA adjustments
Standard adjustments to calculate EPS and NAV as set out by EPRA in
its Best Practice and Policy Recommendations.
EPRA EPS
EPRA EPS is the level of recurring income arising from core
operational activities. It excludes all items which are not relevant to
the underlying and recurring portfolio performance.
EPRA NAV
EPRA NAV aims to provide a consistent long-term performance
measure, by adjusting reported net assets for items that are not
expected to crystallise in normal circumstances, such as the fair value
of derivative financial instruments and deferred tax on property
valuation surpluses. EPRA NAV includes the potentially dilutive effect
of outstanding options granted over ordinary shares.
EPRA net assets
Net assets used in the EPRA NAV calculation, excluding additional
equity if all vested share options were exercised.
EPRA triple net asset value
EPRA NAV incorporating the fair value of debt which is not included in
the reported net assets.
EPRA vacancy
The rental value of vacant property available expressed as a
percentage of ERV of the total portfolio.
Equivalent yield
Equivalent yield is the internal rate of return from an investment
property, based on the gross outlays for the purchase of a property
(including purchase costs), reflecting reversions to current market
rent, and such items as voids and non-recoverable expenditure but
disregarding potential changes in market rents.
European Public Real Estate Association (EPRA)
EPRA develops policies for standards of reporting disclosure, ethics
and industry practices.
Estimated rental value (ERV)
ERV is the market rental value of properties owned by the Group,
estimated by the Group’s valuers.
Fair value
The amount at which an asset or liability could be exchanged between
two knowledgeable willing unconnected parties in an arm’s length
transaction at the valuation date.
Gearing
Nominal value of Group borrowings expressed as a percentage of
EPRA net assets.
Global Real Estate Sustainability Benchmark (GRESB)
Organisation which assess the sustainability of real estate portfolios
around the world.
initial yield
The initial yield is the net initial income at the date of valuation
expressed as a percentage of the gross valuation. Yields reflect net
income after deduction of any ground rents, head rents, rent charges
and estimated irrecoverable outgoings.
interest cover
The interest cover is a measure of the number of times the Group can
make interest payments with its operating profit before investment
property disposals and valuation movements.
investment Property Databank (iPD)
IPD is an independent provider of real estate performance analysis
publishing detailed information on real estate market returns.
Like-for-like portfolio
The like-for-like portfolio includes all properties that have been held
for the whole period of account.
Loan-to-value
Nominal value of borrowings expressed as a percentage of the fair
value of property assets.
London Benchmarking Group (LBG)
LBG is a global network of 150 companies using the LBG Model to
improve the management, measurement and reporting of corporate
social investment.
Long Term incentive Plan (LTiP)
An arrangement under which an employee is awarded options in the
Company at nil cost, subject to a period of continued employment and
the attainment of NAV and TSR targets over a three-year vesting
period.
Net asset value (NAV)
Equity shareholders’ funds divided by the number of ordinary shares at
the balance sheet date.
Net asset value return
The change in EPRA NAV per ordinary share plus dividends paid per
ordinary share expressed as a percentage of the EPRA NAV per share
at the beginning of the year.
operational Energy (kg Co2 / m2)
This is the carbon dioxide produced in supplying energy for the
day-to-day operation of a building.
Property income Distribution (PiD)
A PID is a distribution by a REIT to its shareholders paid out of
qualifying profits. A REIT is required to distribute at least 90% of its
qualifying profits as a PID to its shareholders.
Real Estate investment Trust (REiT)
A REIT is a tax designation for an entity or group investing in real
estate that reduces or eliminates corporation tax providing certain
criteria obligations set out in tax legislation are met.
Tonnes of carbon dioxide equivalent (tCo2e)
Tonnes of carbon dioxide equivalent, which is a measure that allows
the comparison of emissions from other greenhouse gases relative to
one unit of CO2. It is calculated by multiplying the greenhouse gas
emissions by its 100-year global warming potential.
Total property return
Net property income and the valuation movement and realised
surpluses or deficits arising from the portfolio for the year expressed
as percentage return on the valuation at the beginning of the year
adjusted for acquisitions and capital expenditure.
Total Shareholder Return (TSR)
The change in the market price of an ordinary share plus dividends
reinvested expressed as a percentage of the share price at the
beginning of the year.
Shaftesbury annual report 2013 oTHER INFoRMATIoN
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