Shaftesbury
Annual report 2014
S
h
a
f
t
e
s
b
u
r
y
A
n
n
u
a
l
r
e
p
o
r
t
2
0
1
4
Self portrait
GOVERNANCE
Directors and officers 56
Corporate governance 58
Nomination Committee report 61
Audit Committee report 63
Remuneration report 67
Summary of remuneration policy 68
Annual Remuneration report 69
Directors’ report 80
Directors’ responsibilities 82
Independent auditors’ report 83
FINANCIAL STATEMENTS
Group statement of comprehensive income 88
Balance sheets 89
Cash flow statements 90
Statements of changes in equity 91
Notes to the financial statements 92
OTHER INFORMATION
Portfolio analysis 118
Basis of valuation 118
Summary Report by the Valuers 120
Glossary of terms 122
Shaftesbury SELF PORTRAIT
STRATEGIC REPORT
About Shaftesbury 1
Shaftesbury at a glance 2
Financial highlights 4
Chairman’s statement 5
Unique real estate portfolio totalling 14 acres
in the heart of London’s West End 8
London and the West End: prosperity
underpinned by economic, population and
visitor number growth 9
Objective to deliver long-term outperformance
in growth in rental income, capital values and
shareholder returns 12
How we create and deliver value 13
Focus on retail, restaurants and leisure 14
Proven and comprehensive management
strategy to create and foster distinctive,
attractive and prosperous locations 16
An experienced management team with an
innovative approach to long-term, sustainable
income and value creation 20
Prudent financial management, a strong
balance sheet and a focus on shareholder
returns 21
Delivering and measuring long-term
outperformance 22
Shops 24
Restaurants, cafés and leisure 26
Offices 28
Residential 29
Portfolio valuation 30
Acquisitions 32
Redevelopment and refurbishment activity 34
Demand and occupancy 36
Village summaries 38
Finance review 40
Looking ahead 46
Risk management 47
Corporate responsibility 51
see glossary on page 122 for defined terms used throughout this annual report
Shops
Restaurants,
cafés & leisure
Strategic Report
Strategic report
ABOUT SHAFTESBURY
We own a unique real estate portfolio
extending to 14 acres in the heart of London’s
West End. Our property interests are valued at
£2.6 billion*
We exclusively focus on this highly popular, sought-after
and prosperous location
see page 8
OUR OBjEcTivE
To deliver long-term outperformance in growth
in rental income capital values and
shareholder returns
We concentrate on locations and uses which have an
exceptional long-term record of delivering rental growth
see page 12
HOW WE cREATE AND DELivER vALUE
We focus on retail, restaurants, and leisure
With 582 shops, restaurants, cafés and pubs in the liveliest
parts of the West End
Proven and proactive management strategy to
create and foster distinctive, attractive and
prosperous locations
see pages 13 to 17
SUPPORTED BY
An experienced management team with an
innovative approach to long-term, sustainable
income and value creation
see page 20
Offices
Residential
Prudent financial management, a strong balance
sheet and a focus on shareholder returns
see page 21
* Including our 50% share of property held in joint venture
#001
@shaftesbury.co.uk annual report 2014
Shaftesbury at a glance
14 acres
owned across London’s
West End and 1.9 acres
owned in joint venture
1.7m sq.ft.
commercial and residential
accommodation plus 0.3m
sq.ft. held in joint venture
c. 1,500
tenants
VILLAGES BY fAIR VALuE
3
%
C
H
7
%
A
R
L
O
T
T
E S
T
7% SOHO
L
O
N
G
M
A
R
T
I
N
B Y 3 5 %
A
N
R
A
C
O W N
T
A
H I N
2 % C
2
C
O
V
E
N
T
G
A
R
D
E
N
2
6
%
uSES AS % Of CuRRENT INCOME
(WHOLLY OWNED PORTfOLIO)
SHOPS 37%
C
A
R
E
f
é
S
S
T
A
&
u
R
A
L
E
I
S
N
T
u
S
R
E
3
5
%
12
% RESIDENTIAL
S
E
f I C
f
6 % O
1
#002
Goodge
Street
8m
passengers
RRRRRRRRROOOOOOO AAVIAV AVIAAAAV AIA
FITZROVIA
ITZITTZTFITFITFFFF ZZZFITF TZTZF
T
O
T
T
E
N
H
A
M
C
O
U
R
T
R
O
O
A
A
CHARLOTTE
STREET
W1
0.7 ACRES
O X F O R D S T R E E T
Tottenham
D
D
Tottenham
Court Rd
Court Rd
38m
passengers
108m
passengers
SOSO
SOHO
OOOHOHO
OOOOHOHHOSOOSOSOOSOSOHOHOHSS
SOHO
W1
1.3 ACRES
A
RYR
RY
SHAFTESBURY AVENUE
WC2
SBU
UBU
SB
SEVEN DIALS
3.0 ACRES
SHAFTESBURY AVENUE
TESBU
Piccadilly
Circus
SH
42m
passengers
Y
L
D I L
A
C
P I C
Charing
ChahChCh
CrosrosCr ssss
Cross
Cr
C
H
A
R
I
N
G
C
R
O
S
S
R
O
Leicester
A
D
Square
CHINATOWN
W1, WC2
3.2 ACRES
Covent
Garden
21m
passengers
ST MARTIN’S
COURTYARD
WC2
1.9 ACRES
OPERA
QUARTER
WC2
0.6 ACRES
CCCC
CCO
VVVVCOOCOCOVEVEOVO
CCCOOVECOV
COVENT GARDEN
ENNEENDRDDARDARRRDRDGARARGARGA GT GG
T GARGA
VENT
RDERDE
T GGGT
AR
DEDED
VEV
NN
N
N
OOO
V
TT
T
39m
passengers
COLISEUM
WC2
1.0 ACRES
D
N
A
S T R
Oxford
Circus
85m
passengers
Bond
Street
102m
passengers
CARNABY
W1
R
E
G
G
GG
E
EE
E
4.2 ACRES
N
NN
T
T
S
T
R
E
E
T
AYFFAY
MAYFAIR
IRIRAIAIAYFAYFFAYAYAYYMAYMAAYMA AIR
shaftesbury at a glance continued
Strategic report
£2.6bn
portfolio valuation
£93.5m
current income
£118.6m
estimated rental value
Our growing portfolio, focused on shops, restaurants and
leisure, is clustered into villages in iconic areas, close to the
West End’s world-class visitor attractions.
The concentration of our ownerships – unique in a UK listed
real estate company – allows us to adopt comprehensive
management strategies to create and foster distinctive, attractive
and prosperous locations. The incremental improvements we
make have a compound benefit across our neighbouring
ownerships.
T
O
T
T
E
N
H
A
M
C
O
U
R
T
R
O
O
A
A
Goodge
Street
8m
passengers
FITZROVIA
RRRRRRRRROOOOOOO AAVIAV AVIAAAAV AIA
ITZITTZTFITFITFFFF ZZZFITF TZTZF
CHARLOTTE
STREET
W1
0.7 ACRES
O X F O R D S T R E E T
SOHO
W1
1.3 ACRES
SHAFTESBURY AVENUE
TESBU
SH
Circus
Piccadilly
42m
passengers
Y
L
D I L
A
C
P I C
Oxford
Circus
85m
passengers
Bond
Street
102m
passengers
CARNABY
W1
4.2 ACRES
R
E
G
GG
G
E
EE
E
N
NN
T
T
S
T
R
E
E
T
C
H
A
R
I
N
G
C
R
O
S
S
R
O
A
Leicester
Square
D
CHINATOWN
W1, WC2
3.2 ACRES
MAYFAIR
IRIRAIAIAYFAYFFAYAYAYYMAYMAAYMA AIR
AYFFAY
39m
passengers
D
D
Tottenham
Court Rd
Tottenham
Court Rd
38m
passengers
108m
passengers
SOSO
OOOHOHO
OOOOHOHHOSOOSOSOOSOSOHOHOHSS
SOHO
SHAFTESBURY AVENUE
A
RY
RYR
SEVEN DIALS
UBU
SBU
SB
WC2
3.0 ACRES
ST MARTIN’S
COURTYARD
WC2
1.9 ACRES
Covent
Garden
21m
passengers
OPERA
QUARTER
WC2
0.6 ACRES
N
COVENT GARDEN
T
CCO
T GARGA
ENNEENDRDDARDARRRDRDGARARGARGA GT GG
V
VENT
AR
N
CCCOOVECOV
NN
CCCC
OOO
VVVVCOOCOCOVEVEOVO
T GGGT
TT
VEV
RDERDE
DEDED
COLISEUM
WC2
1.0 ACRES
D
N
A
S T R
233 MILLION
passengers annually
at the six tube stations
closest to our villages
100%
of our portfolio is within
5 TO 10 MInuTes’ WalK
Of a CrOssraIl sTaTIOn
332
shOps
250
resTauranTs,
Cafés and pubs
415,000
sq.fT. OffICe spaCe
491
aparTMenTs
Charing
ChahChCh
CrosrosCr ssss
Cross
Cr
#003
Financial highlights
EPRA NET ASSET VALuE
NET ASSET VALuE RETuRN
EPRA EARNINGS (£M)
+25.7%
2014 £7.13 per share
2013 £5.67 per share
5.67
4.98
4.63
4.14
+28.0%
+7.9%
2014 £32.6 million
2013 £30.2 million
DIVIDENDS DECLARED IN RESPECT
Of fINANCIAL YEAR
+4.8%
2014 13.1p per share
2013 12.5p per share
7.13
26.5
28.0
16.3
14.4
10.1
30.6
30.2
28.8
32.6
12.0
12.5
13.1
11.25
10.25
22.2
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
REVERSIONARY POTENTIAL (£M)
£25.1m
2013 £20.0 million
Current income
ERV
83.9
77.5
92.2
80.9
68.3
NET PROPERTY INCOME (£M)
EPRA EPS
+8.9%
2014 £79.7 million
2013 £73.2 million
+1.7%
2014 12.2p per share
2013 12.0p per share
118.6
99.9
105.9
85.9
93.5
71.0
73.2
66.6
57.6
79.7
12.0
12.2
12.0
12.2
9.8
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
2010
2011
2012
2013
2014
#004
@shaftesbury.co.uk annual report 2014 chairman’s statement
Strategic report
EPRA NAV PER SHARE
£7.13
+ 25.7%
EPRA EARNINGS
£32.6m
+7.9%
DIVIDEND PER SHARE
13.1p
+4.8%
i am pleased to report another busy and
successful year.
Net asset value and portfolio valuation
growth
Our proven strategy of creating lively,
prosperous and desirable destinations in the
West End continues to attract broad-based
and growing demand for space across our
portfolio. This is reflected in growth in our
current and prospective rental income and
consequent uplifts in value.
This year we have secured important
strategic additions to our portfolio and
have added to our financial resources with
additional equity and new long-term debt
arrangements.
At 30 September 2014, our portfolio was valued at £2.6 billion.
This represents a like-for-like increase in values over the year of
21%, which has increased EPRA net asset value per share by
£1.46 from £5.67 to £7.13 at the year end. After adding back
dividends received by shareholders, this represents a
NAV return of 28% over the year.
The significant uplift in the valuation of our property portfolio this
year reflects clear market evidence of the strong and sustained
demand for all types of accommodation. Our valuers have reported
a noticeable reduction in yields investors pay to acquire assets
in Central London, and particularly the West End. This strong
investor appetite reflects confidence in the long-term security
and growth prospects of assets in locations such as ours, together
with expectations that interest rates will remain low for the
foreseeable future, and the greater availability of investment
finance.
DTZ, independent valuers of our wholly-owned portfolio, continue
to advise us that in their view some prospective purchasers,
recognising the exceptional features, qualities and prospects of
this unique portfolio, may consider a combination of some or all
parts of the portfolio to have a greater value than currently
reflected in their valuation, which has been prepared in
accordance with RICS guidelines.
EPRA earnings and dividends
EPRA earnings for the year ended 30 September 2014 amounted
to £32.6 million, compared with £30.2 million in the previous
year. Growth in rental income has been the main component of
this increase, through a combination of acquisitions, like-for-
like increase in rents of 6.3%, and the successful completion
and letting of a number of schemes, which last year tempered
growth in net property income.
The Board is pleased to recommend a final dividend of 6.6p,
bringing the total dividends for the year to 13.1p, an increase in
the rate per share of 4.8%.
The total distribution in respect of the year ended 30 September
2014 will amount to £36.4 million. The increase over the total
amount distributed in respect of the previous year of £31.6
million reflects the higher dividend per share and the increased
number of shares now in issue.
#005
chairman’s statement
Chairman’s statement continued
Portfolio activity
Activity across the portfolio continues apace. This year we have
worked on a wide variety of refurbishment schemes, extending to
around 9% of our floor space, which are improving the quality of
accommodation we are able to offer. Over £25 million of leasing
and rent review transactions were completed during the year,
equating to around 20% of ERV.
Each of our many schemes (50 in 2014) and transactions contribute
to the growth in our income, as well as frequently delivering benefits
compounded across our adjacent ownerships. We continue to
identify and advance further asset management opportunities
across our portfolio.
Acquisitions this year, which totalled £107.9 million, included
two significant strategic purchases – Newport Sandringham in
Chinatown and 57-59 Broadwick Street (formerly known as
Jaeger House) in Carnaby. Plans are in hand to carry out major
refurbishment and reconfiguration schemes to materially improve
their current low net income. Subject to the necessary consents,
we expect both schemes will commence in 2016.
Finance
In March 2014, we added to our equity base with a share placing
of 9.99% of our issued share capital at £6.20, which raised after
expenses £153.2 million. This additional capital is being deployed
to fund both acquisitions and our accelerating capital expenditure
programme. Also this year we have completed the refinancing of
£225 million of bank debt which was due to expire in 2016, securing
new long-term debt and terminating long-dated interest rate
swaps with a notional principal of £110 million. In the year ahead
we expect to refinance the remaining £150 million of debt due to
expire in September 2016 in a similar manner.
The steps we are taking ensure our business continues to be
supported by robust finances, a strong cash flow and modest
gearing.
#006
corporate Governance and Responsibility
We are committed to the principles of good corporate governance
and responsibility throughout our business.
In February 2014 Jill Little became our Senior Independent Director,
and Dermot Mathias and Sally Walden took over as chairs of the
Audit and Remuneration Committees respectively. This year’s
externally-facilitated review of the Board’s performance concluded
that it is working well and cohesively, and is playing an important
role in supporting the executive team and the evolution of
the business.
We are responding to the challenges of improving environmental
performance and sustainability throughout our portfolio and we
are increasing our commitments to the many initiatives we
support across the community in which we invest and work.
Our team
The continual evolution of our strategy, and our long and
consistent record of creating and delivering value to shareholders,
owes much to our experienced, innovative and committed team
of just 23 staff. They, in turn, are supported by a range of professional
advisors, across a variety of disciplines, who share our long-term
commitment and passion for our business.
Looking ahead
Increasingly unsettled political and economic sentiment across
many parts of the world is highlighting London’s unrivalled
advantages, stability and prospects. This exceptional global city
continues to attract domestic and international investment,
businesses and visitors on an unmatched scale, supporting a
buoyant and dynamic economy.
Our portfolio, in the heart of the West End, is uniquely well-placed
to benefit from London’s continuing success and prospects. Our
proven strategy continues to adapt and evolve under our
management team. Activity levels across the portfolio are
accelerating to capitalise on the strong and sustained demand
for accommodation in our locations.
Against this background I am confident we shall continue our
long record of delivering rising income, dividends and capital
returns for our shareholders.
Jonathan Lane
Chairman
27 November 2014
@shaftesbury.co.uk annual report 2014 The WOrKIng pOpula TIOn
WIThIn WesTMIns Ter Is
6OO,OOO
1 In 50 WOrKers In england
Strategic report
#007
Unique real estate portfolio totalling 14 acres
in the heart of London’s West End
Long history of demand exceeding supply
of retail, restaurant and leisure space
Shopping and leisure are important elements of the local
economy. 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.
The wholly-owned portfolio extends to 1.7 million sq. ft. of
commercial and residential space. Typically, the lower floors of
our buildings contain retail, restaurants, cafés and pubs; these
are our most valuable uses and provide 72% of our current
income. Upper floors are either offices, residential or a
combination of both.
The Longmartin joint venture owns 269,000 sq. ft. of mixed-use
accomodation. Retail, restaurants, cafés and bars provide 51%
of its current income.
see focus on retail, restaurants and leisure on page 14
Proven management strategies produce
cumulative and compound benefits
The concentration of our ownership in the West End is unique in
a UK listed real estate company. It allows us to adopt
comprehensive management strategies to create and foster
distinctive, attractive and prosperous locations, where
incremental improvements give compound benefits across our
adjacent ownerships. These benefits include improving the
quality of tenant mix, attracting higher footfall, and creating and
maintaining strong occupational demand, which, together,
establish higher rental tones.
see pages 16 to 17 for more information on our proven, comprehensive
management strategy
Exceptional transport links
Our villages have exceptional transport links, essential for
accessibility to the West End. The six major underground
stations closest to our villages handle some 233 million
passengers each year. Also, all our properties are situated
within five to ten minutes’ walk of the new Tottenham Court
Road and Bond Street Crossrail transport hubs, which alone are
expected to handle 220 million passengers by 2026.
see page 9 for more information on the impact of Crossrail
• currently valued at £2.6 billion*
• 1.7m sq. ft. of commercial and residential
accommodation (wholly-owned
portfolio)
• Holdings clustered in villages in iconic
areas, close to the West End’s world-class
visitor attractions
• Focused on shops, restaurants, cafés and
pubs – uses with a long history of demand
exceeding supply in the West End
• concentration of assets allows us to
adopt a comprehensive management
strategy for each village – our initiatives
bring compound benefits to our nearby
ownerships
• Exceptional transport links – all holdings
close to major underground stations and
the new West End crossrail transport hubs
* Including our 50% share of property held in joint venture
Ownership clusters close to the principal
attractions
Covering 14 acres, our wholly-owned portfolio is clustered in
villages in iconic areas at the heart of the West End: Carnaby,
Covent Garden, Chinatown, Soho and Charlotte Street. The
Longmartin joint venture, in which we have a 50% stake, owns
a 1.9 acre island site in Covent Garden.
Largely assembled over the past 20 years, our growing portfolio
is located close to an unrivalled concentration of world-class
heritage and cultural attractions. Together with a wide variety of
shops, restaurants, cafés, bars and clubs, these attract large
numbers of visitors, businesses and residents, providing the
foundation for strong footfall and prosperity for commercial
tenants in our villages.
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 some 20% of the
buildings we own are listed. As a consequence, the opportunity
for large-scale redevelopment to increase the supply of new
accommodation materially, particularly at lower-floor levels,
is limited.
see London and the West End on page 9
#008#008
@shaftesbury.co.uk annual report 2014
London and the West End: prosperity underpinned
by economic, population and visitor number growth
Strategic report
London
London is the largest city in Western Europe. Currently, it has a
population of 8.4 million, which is expected to grow to over 10
million by 20361. Importantly, beyond the boundary of Greater
London, there are even more people who can easily commute or
visit for a day.
The West End
The West End has 38 world-famous theatres, 30 museums,
galleries, live entertainment events, public spaces and parks.
Together with an unrivalled variety of shops, restaurants, cafés,
pubs, clubs and a lively night-time economy, the West End
attracts an estimated 315 million domestic and international
visits annually2. With its global appeal, it has a broad economic
base which is not reliant on the fortunes of the UK economy
alone.
The West End is also a key business centre with one of the most
dense employment concentrations in the world. The local working
population is an important element of the prosperity of the West
End and our villages and, with a number of large office developments
nearby, we expect further growth in the coming years.
Resilient consumer spending
With the large numbers of visitors, workers and residents,
footfall and consumer spending have shown long-term
resilience in our locations. In 2013, retail spending in the West
End was estimated at £8.5 billion, higher than any city in
Europe3. Together with a constrained supply of commercial
space, tight planning regulations and demand from a wide
variety of occupiers, these factors underpin our portfolio’s rental
prospects and capital value, both of which have shown
significantly greater long-term growth and stability through the
property cycles than the wider real estate market.
London and the West End
considerable investment
in transport network
and infrastructure
The West End is at the centre of the capital’s underground,
mainline rail and bus network. With further growth in passenger
numbers forecast, there is currently considerable investment in
upgrading and expanding the transport network. Improvements
to signalling and rolling stock have already increased
underground train frequencies by around 20% and planned
upgrades will add further capacity. From September 2015, the
Underground will run trains throughout the night, at weekends,
on certain lines.
Opening in late 2018, Crossrail will increase network capacity by
around 10%4, improving accessibility to the West End, providing
more comfortable travelling conditions and easing pressure at
nearby underground stations. It is estimated that passenger
numbers will treble at the Tottenham Court Road and Bond
Street transport hubs by the mid 2020s5. This is expected to
change footfall patterns materially in the vicinity.
9.84
10.11
xx
8.2
Crossrail is a catalyst for regeneration around its stations and in
nearby streets, including the east end of Oxford Street and its
immediate surrounds. To manage the expected substantial
increase in pedestrians, a number of improvements to the
public realm are planned to help ease pavement congestion and
provide stronger connections between retail, cultural and
leisure attractions.
9.54
9.2
London and the West End
1 Draft further alterations to the London Plan, January 2014
2 Jones Lang LaSalle – London’s West End Review and Outlook, February 2014
3 Harper Dennis Hobbs and ICSC report, November 2014
4 Crossrail
2036
2011
5 Arup, The Impact of Crossrail on Visitor Numbers in the West End, January 2014
2016
2021
2026
2031
Source: The London Plan
2011
2021
2026
2031
2036
8.2
xx
9.2
9.54
9.84
10.11
8.2
9.2
9.54
9.84
10.11
656
666
684
704
727
750
LONDON’S POPuLATION (MiLLioNS)
EMPLOYMENT PROJECTION (tHoUSaNDS)
318
334
347
361
375
389
2011
2016
2021
2026
2031
2036
2011
2021
2026
2031
2036
2011
2016
2021
2026
2031
2036
Source: The London Plan
Westminster
Source: The London Plan
Camden
Source: Draft further alterations to the London Plan, January 2014
Source: Draft further alterations to the London Plan, January 2014
#009
2011
2016
2021
2026
2031
2036
Source: The London Plan
315 milliOn
dOMesTIC and OVerseas VIsITOrs are
aTTraCTed TO The WesT end annually
#010
#011
Objective to deliver long-term outperformance in growth in
rental income, capital values and shareholder returns
Sustainable rental growth
Growth in rents through the cycles
Sustainable rental growth is fundamental to long-term growth
in earnings and capital values, which are delivered to shareholders
through dividends and increases in the value of their investment
in the business. We achieve this through:
• Investing in locations and properties which have an exceptional
long-term record of delivering growth.
The success of our long-term proactive and innovative
management strategy is reflected in our portfolio’s consistent
growth in current income and rental values. Over the past decade,
the ERV of the portfolio has been, on average, 23% above
current rents each year; it is this rental potential which delivers
tomorrow’s income and capital growth.
• Focusing on retail and leisure uses which, in the West End,
have demonstrated sustained demand and rental growth for
many years, and which have limited obsolescence.
• Improving our buildings and villages to create and foster
distinctive, attractive and prosperous locations.
see pages 13 to 17 for more information on how we create and deliver value
In measuring our success, achieving rents above ERV is a Key
Performance Indicator (“KPI”). With every letting, lease renewal
and rent review we aim to exceed ERV assessed by our external
valuers so that we not only convert the rental potential into
actual income but also improve future rental prospects across
our neighbouring properties.
Including the impact of acquisitions, the 10-year cumulative
annual growth in our current income and the ERV of our
portfolio has been 7.1% p.a. and 8.2% p.a. respectively, with
growth in current income every year. The reversion currently
is £25.1 million, 26.8% above current income.
see delivering and measuring long-term outperformance on page 22
REVERSIONARY POTENTIAL (£M)
Current income
ERV
80
78
72
58
60
63
61
50
66
54
119
100
106
92
78
81
84
68
94
86
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
#012
@shaftesbury.co.uk annual report 2014 How we create and deliver value
STRATEGIC REPORT
ELIVER SHAREHOLDE R V A L
ELIVER SHAREHOLDE R V A L
DIVIDENDS AND CA PIT A
DIVIDENDS AND CA PIT A
D
D
H R O U G H
H R O U G H
O W T H
O W T H
U
E T
E T
U
L G
L G
R
R
INVES
INVES
IN LO
IN LO
N
N
T IN R
T IN R
O
O
D
D
N
N
’S
’
S
E
E
A
A
L
L
IMPROVE
IMPROVE
THE PUBLIC
THE PUBLIC
REALM
REALM
FOCUS ON RETAIL
FOCUS ON RETAIL
AND LEISURE
AND LEISURE
W
W
E
E
E
E
S
S
S
S
T
T
T
T
A
A
T
T
E
E
E
E
N
N
D
D
PROMOTE
PROMOTE
OUR VILLAGES
OUR VILLAGES
ESTABLISH
ESTABLISH
OWNERSHIP
OWNERSHIP
CLUSTERS
CLUSTERS
G
G
R
R
O
O
P
P
W
W
O
O
I
I
N
N
R
R
T
T
F
F
G
G
I
I
O
O
N
N
L
L
I
I
O
O
C
C
O
O
V
V
A
A
M
M
E A
E A
N
N
E
E
D
D
L
L
U
U
CREATE DISTINCTIVE
CREATE DISTINCTIVE
RETAIL AND LEISURE
RETAIL AND LEISURE
DESTINATIONS
DESTINATIONS
RECONFIGURE
RECONFIGURE
AND IMPROVE
AND IMPROVE
SPACE
SPACE
L
L
O
O
M
M
N G-TERM PROVEN
N A G E M ENT STRATEGY
N G-TER M PROVEN
N A G E M ENT STRATEGY
A
A
#013
Focus on retail, restaurants and leisure
• 582 shops, restaurants, cafés and pubs,
Lease lengths
generate 72% of current income
• Restaurants and leisure are a growing
proportion of our portfolio
• Demand and rental levels are not cyclical
in the West End and our villages; low
long-term vacancy
• Space provided in shell form so our
obsolescence costs are limited
• Upper floors: offices (16%), residential (12%)
The wide variety of shopping, dining and leisure choices is a
key attraction of the West End. We have 582 shops, restaurants,
cafés, pubs and clubs in the West End’s liveliest districts, which
generate 72% of our current income.
Strong demand, restricted supply and
low vacancy
With a long history of occupier demand exceeding availability of
space for these uses, retail, restaurant and leisure rental levels
are not cyclical in our areas and vacancy levels are traditionally
low, both of which are important for sustainable rental growth.
In our portfolio, ready to let vacancy, excluding units under offer,
has averaged 2.1% for retail and 0.8% for restaurants, cafés,
bars and leisure over the past ten years.
Over recent years we have kept our retail leases shorter and
more flexible, giving us the opportunity to refresh tenant mix,
an important aspect of maintaining our villages’ appeal. Typical
retail lease terms are:
• Smaller shops: 3-5 years
• Larger shops: 5-10 years
• Short rent-free period to help cover the tenants’ fitting out period.
For restaurants, tenants invest considerable sums fitting out
their units, sometimes costing the equivalent of 3-5 years’ rent
and, therefore, longer leases give them an extended period over
which to amortise this cost. Typical restaurant lease terms are:
• Historic leases (approximately 75%, by rent, of our leases): 25
years, 5 yearly upward-only rent reviews and security of tenure
on expiry. Often granted over whole buildings.
• New leases: 15 years, 5 yearly upward-only rent reviews. There
is no security of tenure on expiry and we include a turnover-
related rental top-up. Leases extend only to operational space
ie not upper floors.
Limited obsolescence risk
An important aspect of our retail and leisure space is that we
only provide this accommodation in shell form. Tenants are
responsible for fit out, with no capital contribution from us. At
the end of the lease, we re-let the shell of space without
incurring significant refurbishment costs so we have limited
obsolescence risk.
%
RETAIL READY TO LET VACANCY
%
RESTAuRANT AND LEISuRE READY TO LET VACANCY
6
5
4
3
2
1
0
10 year average 2.1%
6
5
4
3
2
1
0
10 year average 0.8%
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
#014
@shaftesbury.co.uk annual report 2014
focus on retail, restaurants and leisure continued
Strategic report
Growing importance of
restaurants and leisure
With growing visitor numbers, a large and expanding local
working population and the rising trend for eating out, the
importance of the West End’s unrivalled restaurant and leisure
choices has grown markedly over recent years. Together with the
rapid improvement in the variety and quality of operators and
formats, they have become an attraction and footfall driver in
their own right. This is reflected in our portfolio where the
contribution from these uses has grown from 28% to 35% of our
current income over the past five years. Over the same period the
share of our income generated from retail has decreased from
42% to 37%.
To preserve the balance of commercial uses, planning policies in
the West End generally restrict the creation of new restaurant
space, limiting the available supply. We are one of the largest
owners of restaurants, cafés and bars in the West End.
see retail and restaurants, cafés and leisure on pages 24 and 26
Upper floors – generally offices and residential
The space above our shops and restaurants is generally in office
or residential use. These are important elements in our mix of
uses, bringing added life and vibrancy and providing our villages
with another source of customers for our shops, restaurants,
cafés, pubs and bars.
Our offices are typically occupied by smaller West End companies in
the media, fashion, creative and IT sectors. They are generally small
with an average size of 1,400 sq. ft. and modest average rental levels
of £41 per sq. ft. Our larger, more modern offices attract rents of
£60 – £70 per sq. ft. Lease lengths are typically five years.
Our apartments typically are let on three year tenancies with
annual RPI rent reviews and mutual breaks on a rolling two-
month basis after the first six months.
Whilst a resident community is an important part of life and
activity in our villages, most of the value of our buildings is in the
commercial uses on the lower floors. We prefer to retain control
over whole buildings in order not to compromise the management
flexibility needed to realise the long-term potential in those
valuable lower floors. Therefore, generally, we choose not to sell
our apartments.
see offices and residential on pages 28 and 29
seVen dIals annual fOOTfall Is OVer
3O milliOn
#015
Proven and comprehensive management strategy
to create and foster distinctive, attractive and
prosperous locations
• creating distinctive retail and leisure
destinations which appeal both to
consumers and tenants
• Ownership clusters allow us to invest in,
and holistically manage areas over the
long-term
• Active refurbishment and
reconfiguration programme to improve
our buildings, unlock value and grow
rents
• Promoting our villages as destinations
with a wide variety of interesting,
innovative and ever-changing shopping,
dining and leisure choices
• investing in the public realm to create
safe and welcoming areas
Our proven and comprehensive management strategy is
designed to create long-term prosperity by establishing and
fostering distinctive and busy destinations which appeal to
visitors, commercial tenants and residents.
Establish ownership clusters
We identify well-located areas where the footfall potential is
good but rents are initially low, often because they have suffered
from fragmented ownership, lack of investment and the absence
of a coherent strategy for uses and tenant mix.
By establishing and growing clusters of ownerships, we can
initiate long-term investment and management strategies for
the areas to unlock their potential, whilst creating and fostering
attractive locations to generate sustainable growth in rents and
long-term improvement in values.
create distinctive retail and leisure
destinations
Providing our retail and leisure tenants with an environment
within which they can prosper is critical to long-term
sustainable rental growth. We foster and nurture the unique
character of our villages to enhance their appeal to current and
prospective tenants, and their customers. We achieve this
through:
• Creating distinctive retail and leisure destinations.
• Managing the long-term tenant mix strategy for these
dominant uses, including clustering similar uses, concepts
and brands.
• Encouraging new retail, restaurant and leisure formats to
ensure our villages respond to ever-changing tastes and
expectations.
• Managing planning uses and licences to maximise rental and
capital values.
The West End’s unique attractions and variety of shops,
restaurants, cafés and pubs provide visitors with an experience
unmatched by other destinations. Together with the choice of
interesting and unusual retail concepts in our villages, our areas
are not materially affected by online shopping.
see focus on retail, restaurants and leisure on page 14
Reconfigure and improve space
We estimate that the average age of our buildings is around 150
years. In our experience, these, often terraced, buildings offer
much greater flexibility than more modern buildings. We have
an active refurbishment and reconfiguration programme to
improve our buildings, enhance their rental potential and values,
extend their useful lives and improve sustainability. This often
involves:
• Maximising retail, restaurant and leisure space.
• Reconfiguring buildings to provide occupiers with more
efficient trading space.
• Converting under-utilised space on upper floors to introduce
more valuable uses.
see pages 34 and 35 for redevelopment and refurbishment activity
#016
@shaftesbury.co.uk annual report 2014 proven and comprehensive management strategy continued
Strategic report
Promote our villages
improve the public realm
Whilst the West End attracts large numbers of visitors, we
recognise that they have a choice of where to spend their time.
As part of creating distinctive destinations, we work with our
tenants to promote their businesses and our villages as places
where visitors can find a wide variety of interesting, innovative
and ever-changing shopping, dining and leisure choices. Our
multi-channel marketing includes:
• Widely publicised events, which this year included shopping,
music and street food events.
• Dressing our areas eg at Christmas and for Chinese New Year.
• Domestic and international press engagement.
• An active digital strategy, including dedicated websites for
our villages and an extensive social media presence.
The sourcing and selection of new brands and concepts are a
fundamental part of our strategy and so we invest considerable
resources in promoting our areas to potential operators. We
also build on relationships with our existing tenants who are a
great source of new ideas from their experiences elsewhere.
Where possible, we promote and contribute to public realm
improvements in our villages to create a safe and welcoming
environment for tenants and their customers. In our experience,
this is an important catalyst for increasing footfall and bringing
greater prosperity.
see page 35 for improving the public realm
current and future focus
• Continue to seek out new concepts and ideas.
• Reconfigure space to create bigger and more efficient units for
today’s occupiers, including the planned schemes at 57-59
Broadwick Street, Carnaby, Newport Sandringham, Chinatown,
and the Thomas Neal’s Warehouse, Seven Dials.
• Unlock value from under-utilised upper floors.
• Encourage further public realm improvements across our
villages.
• Completion of our scheme in Foubert’s Place and Kingly Street.
for further details on these schemes see pages 32 and 34
VALuE DRIVERS
ASSOCIATED RISkS
• Sustainable rental growth
• Sustained fall in visitor
• High occupancy
• Low obsolescence
numbers to the West End
and our villages
• Regulation risk
• Change in planning
policies
• Economic risk
see pages 47 to 49 for information on risk management
see page 22 for details on how we deliver and measure long-term outperformance
#017
@shaftesbury.co.uk annual report 2014
#018
15 MaJOr prOMOTIOnal
eVenTs aCrOss Our
VIll ages In 2014
Strategic report
#019
An experienced management team with an innovative
approach to long-term, sustainable income and value
creation
• Forensic knowledge of our local market
Forensic knowledge
and management through different
property cycles
• Track record of long-term
outperformance against the wider real
estate market
Our management team has a forensic knowledge of the West
End. We are innovative and have a track record of long-term
outperformance against the wider real estate market. Our
senior management team has an average length of service with
the Group of 12 years.
see pages 56 to 57 for director biographies
• Relationships with key stakeholders
Relationships with key stakeholders
• All assets within 15 minutes’ walk of
our office
Our office is within fifteen minutes’ walk of all our assets,
enabling us to maintain regular contact with tenants,
community groups, neighbouring owners and other
stakeholders. This proximity means we are able to respond
quickly to opportunities and problems as they arise.
We also work closely with Westminster City Council and the
London Borough of Camden to:
• Achieve our shared goal of a safe, lively and prosperous
West End.
• 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.
The eVenIng pOpula TIOn In
WesTMInsTer Is esTIMaTed aT
4OO,OOO
#020
@shaftesbury.co.uk annual report 2014 Prudent financial management, a strong balance sheet
and a focus on shareholder returns
Strategic report
• Prudent approach to gearing
Low risk debt structure
• Diversity of loans, lenders and maturities
• Loan-to-value: 23.6%; weighted average
maturity of debt: 7.1 years
• Tax-efficient REiT structure
Sources of capital
Our business is funded with debt and equity. Equity provides
the permanent capital to support our long-term strategy. The
importance of our ownership clusters in long-term value creation
means that opportunities to recycle capital in our portfolio are
limited. Furthermore, under REIT rules, we are required to
distribute the majority of our recurring earnings. Therefore,
from time-to-time, we raise further equity funding.
Debt is an important source of capital, allowing us to invest in
the business and enhance shareholder returns. We adopt a
prudent approach to gearing, ensuring we have healthy interest
cover and a low loan-to-value ratio.
see details of our equity placing on page 43
Consistent with the long-term nature of our portfolio, our core
debt-finance is provided by long-term arrangements with covenant
structures which do not restrict the active management of our
assets. We have a diversified set of lenders and a spread of
maturities. Shorter-term revolving facilities provide us with
flexibility to act swiftly when acquiring properties as well as
capacity to invest further in our existing portfolio.
Exposure to adverse movements in long-term interest rates is
limited through fixed-interest facilities and hedging. At 30
September 2014, our loan-to-value ratio was 23.6% and our
interest cover for the current year was 2.0 times. Interest cover
has averaged 1.98 times over the past five years.
To minimise refinancing risk, we prefer to refinance facilities
well in advance of their contractual maturities. Our weighted
average maturity of debt is 7.1 years and our earliest debt
maturity is in September 2016.
see finance on pages 43 to 44
Tax-efficient structure
As a REIT, we are a tax-efficient vehicle for many investors. We
do not pay 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 REIT income as a PID.
This is treated as income for the investor, and is taxed according
to its own tax status. PIDs are subject to a withholding tax at
basic rate income tax, except for certain classes of investors
who can register to receive gross rather than net payments.
see page 57 for further information on our REIT status
#021
Delivering and measuring long-term outperformance
value drivers
The fundamental value drivers for long-term growth in rental income, capital values and shareholder returns are:
• Sustainable rental growth:
• Minimise vacancy:
• Low obsolescence:
• Cost control:
Fundamental driver of long-term growth in income and capital values
To maximise income generated by the portfolio
Limits the investment needed to maintain the portfolio
Maximises earnings potential
The key measures of our success, and how they link to remuneration, are set out below.
KPis for the year ended 30 September 2014
SPECIfIC MEASuRE
RESuLT
Commercial lettings/renewals to exceed ERVs
assessed by our valuers in the previous year
end valuation
+5.5% above September 2013 ERV
Let vacant space quickly
1 month average letting time
These KPIs, along with other targets covering occupancy, ERV growth, operating costs, CSR and delivering projects and transactions
are used to determine the executive and senior management annual bonus.
see page 71 for annual bonus achievements for year ended 30 September 2014
Long-term performance measures
Our performance against the long-term measures used in the LTIP is set out below.
EPRA NAV (coMpoUND aNNUaL gro WtH rate %)
TOTAL SHAREHOLDER RETuRN (%)
1 year
3 years
5 years
10 years
5.3
5.7
6.7
7.2
6.2
15.5
16.3
Shaftesbury
Benchmark
25.7
1 year
3 years
5 years
10 years
17.8
16.4
56.0
75.6
78.5
47.0
113.5
90.6
This is a measure of value creation. For the LTIP we compare
EPRA NAV growth with the increase in the retail price index (RPI)
plus minimum and maximum hurdles of 3% -7% over three
years. The benchmark above is based on RPI + 3%.
This measures the returns to shareholders, taking into account
dividends and share price movements in the period. For the LTIP
we benchmark against the TSR of the FTSE 350 Real Estate
Index over three years.
Sources: Our audited accounts and the published RPI index.
Source: Datastream
see page 74 for more information on the LTIP
#022
@shaftesbury.co.uk annual report 2014
Strategic report
Strategic report
In 2013 reT aIl spendIng In
The Wes T end es TIMaTed aT
£8.5Bn
hIgher Than any OTher CITy In eurOpe
#023
#023
Shops
NuMBER (WHOLLY-OWNED)
332
NuMBER (LONGMARTIN)
22
% Of CuRRENT INCOME
37%
CuRRENT RETAIL INCOME BY VILLAGE
%
5
N 2
E
D
R
A
T G
N
E
V
O
C
CHINATOWN 17%
SOHO 5
%
C
H
A
R
L
O
T
T
E
S
T
1
%
5 2 % C A R N A B Y
#024
AREA (SQ.fT.)
463,000
AREA (SQ.fT.)
67,000
WEIGHTED AVERAGE uNEXPIRED LEASE
4 years
WEIGHTED AVERAGE uNEXPIRED LEASE
4 years
Examples include:
• 7,500 sq. ft. of new retail space at our
current scheme on Foubert’s Place,
Carnaby, where we are already seeing
good interest ahead of anticipated
completion in early 2015.
see page 34 for further information on this scheme
• A plan to reconfigure 21,000 sq. ft. of
retail space in the Thomas Neal’s
Warehouse, Seven Dials, to reduce the
current sixteen units to fewer larger
units, or potentially a single unit. We
have secured the necessary planning
and listed building consents for this
project and currently are marketing the
space before finalising the plans. Works
to prepare the space for occupation are
expected to commence in 2016.
Currently, we are also advancing our
plans for 57-59 Broadwick Street and
Newport Sandringham.
see page 32 for further details on these two schemes
see pages 14 to 15 for why we focus on retail,
restaurants and leisure
The majority of our shops are let to
fashion and lifestyle retailers. Across
our wholly-owned portfolio, 96 larger
shops (rent greater than £100,000 p.a.)
generate 65% of current retail income.
Our 236 smaller shops, providing 35% of
current retail income, are an important
element of the character and retail mix
in our villages, and offer great flexibility
for retailers to grow or open new
concepts within our areas. The
Longmartin joint venture has 16 large
and 6 small shops, principally occupied
by fashion retailers.
Demand has remained good throughout
the year, particularly for our larger shops.
During the year, we completed leasing and
rent review transactions with a combined
rental value of £8.5 million, equivalent to
25.1% of our current retail income. This
included 29 new shop lettings and sixteen
lease renewals. Vacancy levels remain
low, with EPRA retail vacancy in the
wholly-owned portfolio of 4.0% at year
end, of which 2.3% was under offer.
see demand and occupancy on page 36
The strong appetite for larger units is
noticeable, not only from overseas
retailers looking to open flagships or
their first store in the UK, but also from
current tenants looking to upsize within
our villages. Responding to this demand,
we continue to identify opportunities to
reconfigure space within our generally
older buildings to provide more efficient
and larger accommodation for these
occupiers.
@shaftesbury.co.uk annual report 2014
shops continued
Strategic report
23
brands haVe ChOsen
TO Open TheIr flagshIp
sTOre In Our VIllages
OVer The pasT year
#025
Restaurants, cafés and leisure
NuMBER (WHOLLY-OWNED)
250
NuMBER (LONGMARTIN)
10
% Of CuRRENT INCOME
35%
CuRRENT RESTAuRANT, CAfé AND
LEISuRE INCOME BY VILLAGE
5
%
C
H
A
R
L
O
6
%
S
O
T
T
E
S
T
R
H
E
O
E
T
%
5
Y 1
B
A
N
R
A
C
COVENT GARDEN 30%
N
W
4 4 % C HIN A T O
#026
AREA (SQ.fT.)
552,000
AREA (SQ.fT.)
45,000
WEIGHTED AVERAGE uNEXPIRED LEASE
11 years
WEIGHTED AVERAGE uNEXPIRED LEASE
13 years
yoga studio. Extending to 43,000 sq. ft.,
this new dining destination provides 1,000
covers and complements the restaurants
and bars on Kingly Street and Ganton
Street. It is already attracting additional
footfall, from neighbouring streets, to
Carnaby and increasing dwell times.
Our development scheme on Kingly
Street, where we are creating a new 6,500
sq. ft. flagship restaurant over the ground
floor and basement is due to complete
early in 2015. We have commenced
marketing and interest is strong. This
scheme has also unlocked an opportunity
to improve the adjacent 1,800 sq. ft.
restaurant. Anchoring the food and
beverage offer at the north end of Kingly
Street, we expect these restaurants will
bring further footfall to the area.
see page 34 for further information on this scheme
To capitalise on the level of occupier demand
for restaurants, cafés and leisure space in
the West End, we are identifying opportunities
to secure vacant possession of buildings
where we can improve the space we offer,
accelerate rental growth, and, in some
cases, unlock further value by introducing
new uses to currently under-utilised
upper floors. Since October 2013, we have
secured possession of 46,000 sq. ft. of
space where we have introduced exciting
new concepts or currently are improving
the accommodation available.
see pages 14 to 15 for why we focus on retail,
restaurants and leisure
The wide variety of restaurants, cafés
and pubs across our portfolio is an
important part of our overall tenant-mix
strategy, drawing footfall to our villages.
Where possible, we are bringing in more
food and beverage operators to our
villages, improving the quality of the offer
and seeking further planning consents.
We have 124 larger restaurants and
bars (rental value over £100,000 p.a.)
which provide 85% of our current income
from restaurants, cafés and leisure. The
remaining 15% comes from 126 smaller
units. The Longmartin joint venture has
ten restaurant and leisure units, of which
seven have rental values greater than
£100,000 p.a.
We continue to experience extremely strong
demand for our restaurants, cafés and
leisure space and, consequently, our
vacancy levels remain minimal. We have
completed lettings, renewals and rent
reviews with a rental value of £7.2 million
in the year, representing 23.1% of our
current restaurant and leisure income.
This included the introduction of eleven
new concepts to our villages. EPRA
restaurant vacancy in the wholly-owned
portfolio was 3.1% at 30 September 2014,
all of which was under offer.
see demand and occupancy on page 36
The improvements we have made to
Kingly Street since its pedestrianisation
in 2010 have already turned Carnaby into
a dining destination. During the year we
completed the transformation of Kingly
Court, Carnaby, into a lively restaurant
and leisure hub, which now boasts
eighteen restaurants and cafés offering a
diverse variety of cuisines with al-fresco
dining, four bars and clubs and a large
@shaftesbury.co.uk annual report 2014
restaurants, cafés and leisure continued
Strategic report
19 neW hIgh prOfIle resTauranT
and Café leTTIngs COMpleTed
aCrOss Our pOr TfOlIO In 2014
#027
@shaftesbury.co.uk annual report 2014
Offices
AREA (SQ.fT.) (WHOLLY-OWNED)
415,000
AREA (SQ.fT.) (LONGMARTIN)
102,000
% Of CuRRENT INCOME
16%
CuRRENT OffICE INCOME BY VILLAGE
COVENT GARDEN 21%
CHINATOWN 10%
SOHO 6
%
C
H
A
R
L
O
T
T
E S
T 1
%
6 2 % C A R N A B Y
#028
WEIGHTED AVERAGE uNEXPIRED LEASE
4 years
WEIGHTED AVERAGE uNEXPIRED LEASE
5 years
Supply of office space in our areas is
constrained, yet with the buoyancy of
London’s economy, confidence is
stimulating demand, particularly from
SME media, creative, fashion and IT
businesses, whose natural home is in
our areas, and for whom our range of
suite sizes provides an excellent match
for their requirements. We are also
seeing interest for our larger floorplates
from businesses currently based in
more expensive locations who like the
vibrancy of our villages and see relative
value in our rents.
With demand outstripping supply, we have
seen good rental growth and a reduction
in tenant incentives. During the period,
we completed new lettings, lease renewals
and rent reviews totalling £4.5 million,
equivalent to 28.5% of our current office
income. At year end we had just three
office suites, totalling 1,400 sq. ft.,
available to let.
see demand and occupancy on page 36
We have a rolling programme to upgrade
our office space to improve its rental
prospects and environmental
performance.
In Ganton Street, we completed an 18,500
sq. ft. refurbishment scheme at one of
our largest office buildings during the
year. We relocated our office into two
floors and the remaining three floors let
quickly.
We are already receiving expressions of
interest in the 10,500 sq. ft. of new office
space being developed in our mixed-use
scheme on Kingly Street, expected to be
available in early 2015.
see page 34 for further information on this scheme
Our ideas for the recently purchased
57-59 Broadwick Street are set out on
page 32.
Residential
NuMBER (WHOLLY-OWNED)
491
NuMBER (LONGMARTIN)
75
% Of CuRRENT INCOME
12%
CuRRENT RESIDENTIAL INCOME
BY VILLAGE
N 17%
CHINATO
W
S O H O 1 1 %
C O V E N T G A R D E N
4 5 %
CHARLOTTE ST 8%
C
A
R
N
A
B
Y
1
9
%
AREA (SQ.fT.)
292,000
AREA (SQ.fT.)
55,000
The West End has become more popular
as a place to live over recent years,
which has led to sustained demand for
reasonably-priced apartments to rent.
This has allowed us to convert smaller
offices, which are no longer able to
meet the requirements of modern
occupiers, to residential use.
Consequently, residential has become
an increasing part of our business, now
representing 12% of our current income,
having been just 4% ten years ago.
Occupancy levels in our apartments,
which are generally positioned as
mid-market, are high and, with rising
demand and rents, they produce a
growing and reliable income stream.
During the year, the number of
apartments we own has increased by 21
to 491, largely as a result of conversions
of smaller, poor-quality offices. We
continue to identify opportunities to
create further apartments. We are also
now reconfiguring and upgrading some
of our existing flats to improve their
rental prospects.
With good demand throughout the year,
we completed lettings and renewals
totalling £4.9m, representing 45.8% of
our current residential income. At year
end we had just two apartments available
to let in the wholly-owned portfolio and
one in the Longmartin joint venture.
see demand and occupancy on page 36
Strategic report
#029
Portfolio valuation
This has been another year of strong capital value growth in our
portfolio. Rents, both actual and prospective, have continued to
increase and investor demand for real estate, particularly in the
West End, has remained high.
• Portfolio valued at £2.6 billion
• capital value growth: +21.0% (like-for-like)
• Like-for-like ERv growth: +6.6%
• Equivalent yields: 4.0% (wholly-owned
portfolio), 4.1% (Longmartin)
Strong valuation performance
Our portfolio was valued at £2.6 billion at 30 September 2014,
producing a valuation surplus of £426.4 million over the year
which equates to an ungeared like-for-like capital return of
21.0%.
The valuation uplift reported by our valuers this year reflects
clear market evidence of:
• The strong and sustained demand for all types of
accommodation in our locations, which is delivering growth in
current income and rental values across our portfolio, as well
as maintaining high levels of occupancy. The ERV of our
portfolio, based on currently established rental tones, now
stands at £118.6 million, £25.1 million above current income.
• A reduction in the yields investors are prepared to pay to
acquire assets in Central London, and particularly the West
End. The equivalent yield attributed by our valuers to our
wholly-owned portfolio is now 4.0%, a reduction of 0.55% over
the year. In the Longmartin joint venture, the reduction was
0.48%, bringing the equivalent yield to 4.1%.
This strong investor appetite reflects confidence in the long-
term security and growth prospects of assets in locations such
as ours, which is underpinned by a buoyant and dynamic
economy. The attraction of investments which offer safety and
growing returns is particularly appealing against a background
of continuing and historically low interest rates, and the greater
availability of investment finance.
In their report to the Board, DTZ, independent valuers of our
wholly-owned portfolio, note:
• the unusual concentration of our holdings in sought-after
West End locations;
• the predominance of retail, restaurant, café and leisure uses,
for which occupier demand has a long history, and continuing
prospect, of exceeding availability in the West End; and
• the extent to which, under RICS Valuation Professional Standards,
they are permitted to combine or “lot” parts of our portfolio.
DTZ continue to advise us that, in their view, with its unusual
confluence of ownership and use characteristics, some
prospective purchasers may consider a wider combination of
some parts of the portfolio, or the entire wholly-owned portfolio
itself, to have a greater value than currently reflected in their
valuation, prepared in accordance with RICS valuation standards.
see pages 120 to 121 for the summary report by the valuer
Wholly-owned portfolio
Carnaby
Covent Garden
Chinatown
Soho
Charlotte Street
Longmartin joint venture1
Total portfolio
1 Group’s 50% share
fAIR VALuE
£M
% Of
PORTfOLIO
CuRRENT
INCOME
£M
906.2
695.6
584.0
181.0
67.8
2,434.6
177.9
2,612.5
35%
26%
22%
7%
3%
93%
7%
100%
31.0
23.8
21.8
7.0
2.7
86.3
7.2
93.5
TOPPED uP
INITIAL YIELD
%
EQuIVALENT
YIELD
%
3.53%
3.25%
3.36%
3.49%
3.50%
3.40%
3.54%
4.07%
3.87%
4.04%
4.02%
3.90%
4.00%
4.10%
ERV
£M
41.7
30.9
26.3
8.1
3.1
110.1
8.5
118.6
see pages 118 to 119 for the portfolio analysis and the key assumptions used by the valuers in their valuations
#030
@shaftesbury.co.uk annual report 2014
portfolio valuation continued
Strategic report
Shops, restaurants, bars, cafés and residential uses account for
80% of the ERV and 73% of the un-contracted reversion. In our
experience, demand for these uses in our locations is not cyclical
and has shown sustained growth over many years. This, together
with our long-term management skills, gives us confidence that
we shall continue to deliver further rental growth.
capital increases across each village
All villages benefited from rental growth and yield compression
during the year. Overall, the portfolio delivered like-for-like capital
growth of 21.0% and the like-for-like portfolio cumulative annual
growth rate over three and five years has been 11.8% and 11.3%
respectively.
INCREASE IN CAPITAL VALuES
% Of
PORTfOLIO
CAPITAL GROWTH
DuRING YEAR
Carnaby
35% 25.8%
Covent Garden
26% 19.3%
Chinatown
22% 17.8%
Soho
7% 16.2%
Charlotte St
3% 15.8%
Longmartin
7% 22.2%
Total
100% 21.0%
THREE
YEAR
CAGR
fIVE
YEAR
CAGR
14.3% 13.0%
10.6% 10.4%
10.1% 9.6%
10.2% 10.2%
9.4% 9.5%
12.4%
N/A
11.8% 11.3%
continued rental growth
Our innovative management strategy has delivered sustained
growth in both actual and potential income over many years,
and this year is no exception. Our annualised current income
has grown by £7.6 million over the past twelve months from
£85.9 million to £93.5 million. The like-for-like increase was £4.3
million (+5.0%) and acquisitions contributed £3.3 million.
Importantly, the rental value of our portfolio, estimated by our
valuers, has increased by £12.7 million to £118.6 million.
Excluding the impact of acquisitions, which contributed £5.8
million to the total, the like-for-like increase was 6.6% with good
rental growth across all uses.
With their patterns of high and growing footfall and spending,
rental levels in our location are competitive in relation to the
prime streets in other parts of the West End.
see page 12 for more details on our history of rental growth through the cycles
The total reversion now stands at £25.1 million, 26.8% above
current income and comprises:
• £4.7 million which will be added to current income on the
expiry of rent free periods and pre-agreed increases in rents.
• £9.5 million in respect of vacant space, which includes
schemes currently in hand.
• £2.5 million estimated by our valuers to be income from future
schemes, principally 57-59 Broadwick Street and Newport
Sandringham. This estimate does not fully reflect the
additional income which could be generated from the more
extensive schemes we are now investigating.
• £8.4 million which should be realised through the normal
cycle of rent reviews, lease renewals and lettings. Where
possible, we seek to secure early vacant possession of
under-rented accommodation to accelerate the conversion
of this potential income.
REVERSIONARY POTENTIAL (£M)
9.5
2.5
8.4
4.7
93.5
Current
income
Contracted
Vacancy
future
schemes
under-rented
element
ERV
118.6
#031
Acquisitions
• Acquisitions in the year: £107.9 million
• Newport Sandringham and 57-59
Broadwick Street: 83% of the total
• Average initial yield: 2.6% – potential to
grow rents and values
• Further acquisitions since year end
Two major acquisitions with significant
reconfiguration potential
The acquisitions of Newport Sandringham, Chinatown, and 57-59
Broadwick Street, Carnaby, cost £89.4 million and produced an
average initial yield of 2.58%. Both have the potential for major
reconfiguration schemes.
In March 2014 we acquired a long leasehold interest in 49,700 sq. ft.
of shops, restaurants and bars in the Newport Sandringham
building at the eastern gateway to Chinatown, fronting Charing
Cross Road, Newport Court and Newport Place, with total
frontage of c. 550 ft. Costing £57.1 million, this acquisition, alone,
increased our retail, restaurant and leisure floor space in
Chinatown by around 18%. Currently the space is poorly
configured and under-utilised and so provides opportunities to
increase the income from, and value of, the building. In addition,
we believe the changes we are considering, together with public
realm improvements, will materially benefit Chinatown and our
existing holdings over the longer term.
We are currently preparing our proposals to be submitted to
Westminster City Council. Broadly, these include:
• Reconfiguring and improving the existing space to create more
efficient and valuable accommodation.
• Moving the restaurant and leisure planning uses to face
Chinatown, complementing our existing restaurant holdings.
• Creating double-height glazed shop fronts along its 330 ft.
retail frontage on Charing Cross Road, next to Leicester
Square Underground Station, and just 5 minutes’ walk from
the new Tottenham Court Road transport hub.
In addition, we plan to support Westminster City Council’s public
realm improvements in Newport Court and Newport Place,
which will considerably improve the eastern end of Chinatown
and might provide the potential for al-fresco dining.
Currently there are only short-term occupational leases and
licences in place, which provide flexibility for us to take vacant
possession of the space at reasonably short notice. The current
net income from these flexible arrangements is low and has
decreased since acquisition as we have already taken back space
#032
for our proposed scheme. The timing of the scheme will depend
upon planning and other consents, but we expect works to be
underway in mid-2016. The capital cost is not expected to exceed
£10 million and the improved space will be let on standard
commercial leases, which should substantially eliminate
non-recoverable property costs.
Also in March 2014, we acquired 57-59 Broadwick Street, a
prominent building on an increasingly important and busy
east-west pedestrian route, which links Carnaby and Berwick
Street and is close to the Dean Street exit to Tottenham Court
Road Crossrail Station. Extending to 24,900 sq. ft. of mainly
office space, it cost £32.3 million.
We are currently advancing our plans to create large retail units
over the lower floors, whilst extending and reconfiguring the
remaining office space and creating new residential units. The
scheme timing will depend upon the planning process, but we
hope to make our application in the Spring next year, with a view
to commencing works in 2016. The current leases expire in June
2015 and we are in discussion with the tenants to extend their
occupation. The cost will depend upon the consented scheme,
but currently we expect it to be in the region of £12 million.
Other acquisitions with potential to grow
rental income
Other acquisitions in the wholly-owned portfolio were in
Chinatown, Charlotte Street and Soho, and included two shops,
four restaurants, one bar, 2,100 sq. ft. of office space and nine
apartments. In addition, our Longmartin joint venture bought in
a long leasehold interest on 7,500 sq. ft. of office space within its
existing ownership. These acquisitions, totalling £18.5 million
and with an average initial yield of 2.86%, offer potential for
future rental growth, through lettings, rent reviews and
refurbishment or reconfiguration schemes.
The West End provides excellent security and long-term
prospects for investors, and existing owners remain reluctant to
sell assets which they will find difficult to replace. We continue
to seek out new acquisitions, but remain disciplined and patient,
focused on buildings which are in and around our villages, have
a predominance of, or potential for, retail, restaurant, café and
leisure uses, and provide potential for future rental growth,
either individually or through combination with our existing
ownerships.
Since the year end, we have acquired, or contracted to buy, a
restaurant and a pub at a total cost of £6.8 million. Furthermore,
in Autumn 2015, we expect to complete the forward-purchase of
6,500 sq. ft. of retail and restaurant space on the ground floor
and basement, on the site formerly occupied by Trenchard
House on Broadwick Street.
@shaftesbury.co.uk annual report 2014
acquisitions continued
Strategic report
#033
Redevelopment and refurbishment activity
This has been another year of considerable activity across our
holdings. We continue to identify new projects and seek planning
consents for schemes which will improve our buildings, add to our
income, increase rental tones and further unlock value.
• Schemes undertaken during the year:
continued high level of activity
154,000 sq. ft. (8.9% of total floor area in
the wholly-owned portfolio)
• capital expenditure: £24.2 million
• Planning applications approved in the
year: 132
Good initial returns and compound
benefits
Our schemes produce good initial returns – over the past three
years, they have delivered an average rental yield on cost of
nearly 9%. By virtue of the concentration of our ownerships, our
schemes also provide longer-term benefits, such as improved
tenant quality and establishing higher rental tones, which are
often compounded across our nearby holdings. Generally the
costs of our schemes are modest and their duration is short.
We have carried out 50 schemes during the year, extending to
154,000 sq. ft., representing 8.9% of the total floor area in the
wholly-owned portfolio. Capital expenditure was £24.2m,
equivalent to 1.2% of the portfolio value.
This included £6.1 million in respect of our mixed-use new-build
project fronting Foubert’s Place and Kingly Street. Completing in
phases from early 2015, the scheme is increasing the lettable
area on the site from 14,500 sq. ft. to 32,500 sq. ft. and will
comprise 7,500 sq. ft. of retail space, a 6,500 sq. ft. restaurant,
10,500 sq. ft. of office accommodation and twelve apartments.
The ERV of the new accommodation is £2.1 million, £1.7 million
above pre-scheme levels. The estimated scheme cost is £13.5
million, of which £9.0 million has been incurred to date.
Other larger projects during the year included:
• The transformation of Kingly Court, Carnaby, into a dining and
leisure hub.
• A scheme over 18,400 sq. ft. to improve two restaurants whilst
converting and reconfiguring upper floors to create ten new
apartments and upgrading five existing flats in Wardour Street
and Rupert Street, Chinatown.
• The refurbishment of 18,500 sq. ft. of office space in Ganton
Street, Carnaby.
• Numerous residential conversions across our villages.
Schemes currently on-site include the reconfiguration of
18,000 sq. ft. of shops, restaurants and cafés, and the
refurbishment of 23,000 sq. ft. of offices. In addition, we
are creating 27 new residential units as well as upgrading 26
apartments.
#034
@shaftesbury.co.uk annual report 2014 redevelopment and refurbishment activity continued
Strategic report
Whilst some progress has been made in the year, our ideas for
improvements in Earlham Street, Seven Dials and Rupert Street,
Chinatown, have not advanced as quickly as we would have liked.
Now that the Earlham Street traffic management scheme has
been made permanent, we are now working on designs for further
improvements with the London Borough of Camden. We are also
in discussion with Westminster City Council to advance
improvements to Rupert Street. In both streets, we are already
introducing interesting new operators which, together with street
and pavement improvements, should further improve footfall.
Looking forward, as part of the infrastructure improvements
connected with Crossrail, we expect other publicly-funded
projects to be undertaken close to our locations. This includes
improvements to Cambridge Circus, planned for 2015, which
will considerably improve access to Seven Dials, from Soho, at
this busy junction.
Adding further to the pipeline of
opportunities
At any one time we have a number of schemes at various stages
from initial ideas, seeking planning approval, awaiting vacant
possession or under construction. As part of this continuing
activity, during the year we submitted 132 planning applications
which were approved, allowing us to progress a number of our
plans. Larger schemes currently in the pipeline include a retail
conversion and office extension/refurbishment at 57-59
Broadwick Street, Carnaby, extension and reconfiguration of
retail and restaurant space at Newport Sandringham,
Chinatown and the rearrangement of space in the Thomas
Neal’s Warehouse, Seven Dials. Currently we envisage capital
expenditure in the region of £70 million to £75 million over
the next three years, which includes these larger schemes.
see pages 24 and 32 for more details on these larger schemes
improving the public realm
A key element of our management strategy and skill is to
encourage investment in the public realm in our villages –
an important catalyst for improving footfall. Examples include:
• Extension of the pedestrianisation in Kingly Street, which now
applies up to the junction with Great Marlborough Street and
operates from 11 am to 7 am, significantly increasing the
opportunity for al-fresco dining.
• Relaying the surface along the length of Carnaby Street, now
being planned, in conjunction with Westminster City Council,
for 2015.
• Improvements to the streetscape along Upper St Martin’s
Lane, outside St Martin’s Courtyard and at the entrance to
Seven Dials, now agreed with Westminster City Council and
planned for 2015.
• Following our purchase of Newport Sandringham, we are in
discussion with Westminster City Council and other
stakeholders over proposals to pedestrianise and improve
Newport Place.
#035
Demand and occupancy
Demand continues to be strong for all uses and across
each location. Space is letting quickly and vacancy levels
remain low.
• £25.1 million leasing and rent review
High level of leasing activity
transactions in the year
• commercial lettings and renewals up
5.5% vs September 2013 ERv
• Rent reviews up 26.3% vs previous rent
(approximately 5% pa compound)
• Ready to let vacancy: 0.6%
Excluding temporary lettings, we concluded transactions with a
rental value of £25.1 million during the year, equivalent to 27.1%
of our current annualised income, including:
• Commercial lettings, lease renewals and rent reviews: £20.2 million.
• Residential lettings and lease renewals: £4.9 million.
Commercial lettings and renewals were concluded on average
at 5.5% above ERV at 30 September 2013. Rent reviews resulted
in uplifts of, on average, 26.3% above previous rents, equivalent
to circa 5% annual compound growth over a five year period.
Low vacancy levels
EPRA vacancy totalled £3.0 million, representing 2.5% of ERV at
30 September 2014, of which £2.2 million (1.9% of ERV) was
under offer, leaving just £0.8 million (0.6% of ERV) available.
Reflecting our high redevelopment and refurbishment activity,
the ERV of schemes underway was £6.5 million (5.5% of ERV).
VACANCY AT 30 SEPTEMBER 2014
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
ERV – £million
Ready to let
Under offer
EPRA vacancy
Area – ‘000 sq. ft.
Number of units
#036
RESTAuRANTS,
CAféS AND
LEISuRE
SHOPS
OffICES
RESIDENTIAL
LONGMARTIN
TOTAL
% Of
TOTAL ERV
0.5
1.0
1.5
15
9
0.7
0.9
1.6
21
22
0.5
0.6
1.1
17
8
-
1.1
1.1
12
5
0.7
1.3
2.0
34
0.1
0.1
0.2
4
0.4
1.4
1.8
65
-
0.1
0.1
7
-
0.1
0.1
-
-
-
2.1
4.4
6.5
0.8
2.2
3.0
1.8%
3.7%
5.5%
0.6%
1.9%
2.5%
@shaftesbury.co.uk annual report 2014
demand and occupancy continued
Strategic report
Carnaby’s annual f OOTfall Is OVer
4O milliOn
Assets held for, or under, refurbishment included:
• Our large mixed-use redevelopment scheme fronting the
south side of Foubert’s Place and Kingly Street, which
accounted for £2.1 million (1.8% of total ERV).
• Eight shops, including six small shops (ERV < £100,000 pa)
with a total ERV of £0.4 million and two large shops (ERV >
£100,000 pa) with a total ERV of £0.6 million.
• Five restaurants, cafés and bars (ERV: £0.6 million), one of
The majority of our EPRA vacancy was under offer at the end of
the year and included ten shops, five restaurants, office space
totalling 2,200 sq. ft. and five apartments. The remaining ready
to let vacancy comprised:
• Three large shops (ERV: £0.4 million) and nine small shops
(ERV: £0.3 million). Since year end we have let, or agreed
terms on four of these shops (ERV: £0.3 million).
• Office space totalling 1,400 sq. ft. with an ERV of £0.1 million.
which (ERV: £0.2 million) is now under offer.
• Two apartments in the wholly-owned portfolio and one in the
• 22,000 sq. ft. of office space (ERV £1.3 million).
Longmartin joint venture.
• 27 new apartments under construction (ERV: £0.8 million) and
a further 26 being upgraded (ERV: £0.6 million).
#037
village summaries
CaRnaby 35% of our portfolio
Carnaby covers 4.2 acres across thirteen streets to the east of Regent Street and
south of Oxford Street. It is a popular destination attracting footfall estimated at
over 40 million people each year. It is internationally renowned for youth
fashion, particularly new concepts and brands, and is becoming an increasingly
busy restaurant and leisure destination. 62% of our office space is in Carnaby.
109 shops 45 restaurants, cafés and leisure 251,000 sq.ft. offices 87 apartments
Percentage of current income
53%
14%
27%
6%
COVEnT GaRDEn 33% of our portfolio
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. Our wholly-owned holdings in Covent Garden extend to 4.6
acres and includes Seven Dials, Coliseum and Opera Quarter. This location also includes
our 50% interest in the Longmartin joint venture. Footfall in Seven Dials is estimated at
over 30 million people annually.
WHOLLY-OWNED
111 shops 87restaurants, cafés and leisure 83,000 sq.ft. offices 203 apartments
Percentage of current income
33%
37%
10%
20%
LONGMARTIN
22 shops 10 restaurants, cafés and leisure 102,000 sq.ft. offices 75 apartments
Percentage of current income
37%
14%
33%
16%
SHOPS
RESTAuRANTS, CAféS AND LEISuRE
OffICES
RESIDENTIAL
#038#038
@shaftesbury.co.uk annual report 2014 Village summaries continued
Strategic report
Strategic report
CHInaTOWn 22% of our portfolio
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, estimated at over 50 million annually.
72 shops 71 restaurants, cafés and leisure 36,000 sq.ft. offices 98 apartments
Percentage of current income
27%
60%
5%
8%
SOHO 7% of our portfolio
Soho is a lively area 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, fashion, creative and IT industries, and it
has a long-established residential community.
36 shops 29 restaurants, cafés and leisure 37,000 sq.ft. offices 61 apartments
Percentage of current income
26%
38%
16%
20%
CHaRLOTTE STREET 3% of our portfolio
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 offices,
dominated by creative, media and IT businesses, together with a large student
population, add to the cosmopolitan feel of the area.
4 shops 18 restaurants, cafés and leisure 8,000 sq.ft. offices 42 apartments
Percentage of current income
9%
53%
7%
31%
SHOPS
RESTAuRANTS, CAféS AND LEISuRE
OffICES
RESIDENTIAL
#039#039
Finance review
EPRA NAV
£7.13
+25.7%
NET ASSET VALuE RETuRN
EPRA EARNINGS
28.0%
£32.6m
+7.9%
it has been an excellent year for Shaftesbury
with further growth in net asset value,
rents, earnings and dividends. We raised
£153.2 million through an equity placing
to fund investment in our portfolio in the
year ahead. We also refinanced a large
proportion of our earliest debt maturities,
considerably lengthening the weighted
average maturity profile and diversifying
our sources of finance.
income statement
This year we delivered a profit after tax of £440.4 million, up
£201.1 million on 2013 (84.0%) largely driven by a valuation
surplus of £426.4 million (2013: £174.3 million).
EPRA earnings increased by 7.9% to £32.6 million (2013: £30.2
million) and EPRA EPS was 12.2p (2013: 12.0p).
EPRA EARNINGS
Reported profit after tax
Adjusted for:
Net gain on revaluation of investment
properties
Movement in fair value of financial
derivatives
Deferred tax
EPRA earnings
EPRA EPS
2014
£M
440.4
2013
£M
239.3
(426.4)
(174.3)
12.0
6.6
32.6
12.2p
(37.0)
2.2
30.2
12.0p
Our rental income has continued to rise, increasing by
£8.1 million (9.7%) to £91.6 million (2013: £83.5 million). The
wholly-owned portfolio delivered a like-for-like increase of 6.3%,
driven by the high level of lettings, renewals and rent reviews,
and the completion and letting of schemes which had tempered
growth in rental income in 2013. Acquisitions contributed £2.5
million to the increase in rents receivable.
see page 36 for details on letting activity during the year and page 32 for
acquisitions
Property charges, excluding recoverable property costs,
increased by 15.5% to £11.9 million (2013: £10.3 million),
representing 13.0% of rents receivable (2013: 12.3%). The
increase in costs is largely attributable to:
• The large volume of lettings, lease renewals and rent reviews.
• A high level of irrecoverable costs, particularly rates, incurred
at Newport Sandringham, where there are only short-term
occupational leases and licences in place. On a like-for-like
basis, excluding this acquisition, property operating costs were
£4.5 million, £0.3 million lower than in 2013.
• Increased marketing and promotion of our villages, a key
aspect of our long-term management strategy.
Net property income increased by 8.9% to £79.7 million (2013:
£73.2 million).
see pages 16 to 17 for our proven, comprehensive management strategy
see page 32 for more information on Newport Sandringham
Administrative expenses, excluding the charges for annual
bonuses and equity settled remuneration, were £8.2 million
(2013: £7.5 million). This increase was largely due to higher staff
costs and an increase in occupation outgoings following our
relocation to Carnaby in February 2014. The charge for annual
bonuses was £2.6 million (2013: £1.4 million).
#040
@shaftesbury.co.uk annual report 2014 finance review continued
Strategic report
RECOMMENDED TOTAL DIVIDEND fOR THE YEAR
TOTAL DISTRIBuTION fOR THE YEAR
LOAN-TO-VALuE
13.1p
+4.8%
£36.4m
+15.2%
23.6%
As a consequence of the continued strong valuation growth
delivered by our portfolio, the forecast vesting of the NAV
element of share options has increased, resulting in the charge
for these options rising by £0.5 million to £3.2 million (2013:
£2.7 million). This charge included a non-cash accounting
provision of £2.7 million (2013: £2.2 million) and a charge for
employer’s national insurance of £0.5 million (2013: £0.5 million).
see pages 71 and 74 for details on the current year annual bonus and share
option vesting
The valuation surplus delivered by our portfolio was £426.4
million (2013: £174.3 million). This was driven by like-for-like
ERV growth of 6.6% and yield compression of 55 basis points
across the wholly-owned portfolio and 48 basis points in the
Longmartin joint venture.
see portfolio valuation pages 30 to 31
Net finance costs (excluding the change in fair value of our
interest rate swaps) increased by £1.6 million to £32.8 million
(2013: £31.2 million) largely as a result of:
• Higher average debt levels in 2014 resulting from acquisitions
and capital expenditure.
• The higher margins we are paying following the refinancing of
historic debt arrangements during the year, along with a
related accelerated write-off of unamortised deferred loan
issue costs totalling £0.3 million.
These increases have been partially offset by interest savings
resulting from the proceeds of the share placing in March 2014,
to the extent not yet deployed, being used to reduce drawings
under our revolving credit facilities.
On a like-for-like basis, excluding interest rate swaps which were
terminated during the year at a cost of £29.0 million, the fair
value deficit attributable to our interest rate swaps increased
following a fall in long-dated sterling swap rates, particularly in
the final quarter. This resulted in a charge for the year of £12.0
million (2013: credit £37.0 million). The Board keeps the Group’s
interest rate hedging strategy, and the impact our derivatives
have on the long-term financing of the business, under review.
see pages 43 to 44 for details on the refinancing and share placing
As a REIT, the Group’s activities are largely exempt from
corporation tax. However, the Longmartin joint venture is
outside our REIT group and, as such, is subject to corporation
tax. Our share of its tax charge in the year was £6.9 million
(2013: £2.4 million), of which £6.6 million (2013: £2.2 million)
was a charge for deferred tax, largely as a result of the
revaluation of Longmartin’s portfolio.
Dividends
The Board has recommended a final dividend of 6.6p per share,
an increase of 5.6% on the 2013 final dividend (6.25p). This
brings the total dividend for the year to 13.1p per share, an
increase of 4.8% on 2013 (12.5p).
The total distribution in respect of the financial year will be
£36.4 million, 15.2% higher than in the previous year (2013:
£31.6 million), taking into account the 9.9% increase in shares in
issue following the share placing in March 2014. This compares
with EPRA earnings of £32.6 million (2013: £30.2 million) which
are stated after non-cash accounting charges in respect of
equity settled remuneration totalling £2.7 million (2013: £2.2
million) and from writing-off remaining unamortised loan issue
costs (£0.3 million) following our refinancing transactions.
Our policy is to maintain steady growth in dividends to reflect
the long-term trend in the Group’s recurring earnings before
non-cash accounting charges. On this basis, the current year
dividend is virtually fully covered. Future distributions will continue
to reflect the growth in the Group’s net rental income and
recurring cash earnings.
The final dividend will comprise 1.8p paid as a PID and 4.8p
as an ordinary dividend.
#041
@shaftesbury.co.uk annual report 2014 finance review continued
EPRA net asset value
EPRA NAV (PENCE PER SHARE)
EPRA NAV per share rose by £1.46 to £7.13 (2013: £5.67),
representing an increase of 25.7%. The revaluation surplus
contributed £1.56 to the increase. This was offset by the cost of
terminating interest rate swaps in April, as part of restructuring
our facilities with Lloyds Banking Group, equivalent to 10p per
share. Earnings added 12p, which was offset by dividends paid.
The share placing in March 2014, accounting for £153.2 million
of the increase in net assets in the year, was NAV per share-
neutral.
567
2013
156
12
10
12
713
underlying
profits
Revaluation
Swap
break
costs
Dividend
2014
Five year financial summaries can be found on our website.
EPRA NET ASSETS
Reported net assets
2014
£M
2013
£M
1,893.2 1,330.7
Additional equity if all vested share options
were exercised
0.4
0.2
Adjust for:
Fair value adjustment in respect of
financial derivatives
Deferred tax on revaluation surplus and
capital allowances
EPRA net assets
EPRA NAV per share
78.8
95.8
15.7
9.1
1,988.1 1,435.8
£7.13
£5.67
15 milliOn
WesT end TheaTre TICKeTs sOld In 2014
#042
finance review continued
Strategic report
cash flows and net debt
Net debt increased by £9.2 million during the year to £614.1
million (2013: £604.9 million). The main cash flows were:
• Cash inflows from operating activities, net of interest and tax
payments, of £40.8 million.
• Dividend payments totalling £33.8 million.
• Investment in acquisitions and capital expenditure totalling
£134.3 million.
• Net proceeds from our share placing of £153.2 million.
• Interest rate swap termination costs of £29.0 million.
• Facility arrangement costs totalling £4.2 million.
The surplus funds raised by our debt restructuring during the
year partly funded the swap termination costs with the balance
being used to pay down bank facilities, which were available to
be re-drawn.
see below for more information on the refinancing during the year
Finance
During the year we strengthened our financial base, adding to
our resources, improving our debt maturity profile and
diversifying our sources of finance.
In March 2014, we raised £153.2 million through a share placing,
issuing 25.25 million shares at £6.20 per share. 70% of the
proceeds have been spent in 2014 on acquisitions, principally
Newport Sandringham and 57-59 Broadwick Street, and value-
adding reconfiguration schemes. The remainder is allocated to
purchase commitments in 2015, potential schemes on the two
recent major acquisitions and to advance our existing pipeline of
refurbishment and reconfiguration schemes over the coming
year.
see pages 32 to 35 for more information on acquisitions and redevelopment and
refurbishment activity
We restructured £225 million of facilities with Lloyds Banking
Group, which were due to mature in 2016, as follows:
• A £125 million bank facility was refinanced with a new £150
million five-year revolving credit facility.
• We arranged a new £134.75 million fixed-interest fifteen-year
term loan with Canada Life Investments at 4.47%, which was
partially used to refinance the remaining £100 million of
facilities.
• We cancelled interest rate swaps on a notional principal of
£110 million at a cost of £29.0 million.
These transactions increased our committed debt facilities by
£59.75 million to £755.75 million and reduced the level of debt
maturing in 2016 from £375 million to £150 million. The weighted
average debt maturity is now 7.1 years (2013: 5.8 years).
#043
finance review continued
DEBT MATuRITY PROfILE (£M)
150
150
125
75
61
60
135
We are now addressing the remaining £150
million of bank facilities which are due to
mature in 2016, with a view to increasing our
debt resources and further extending the
weighted average maturity of our debt.
The cost of the longer-term funding we
are contemplating will be higher than that
for the short-term facilities it is replacing
and we are considering terminating
further interest rate swaps which, subject
to market conditions and agreeing
suitable terms, could cost between £25
million and £30 million, equivalent to
around 10p against EPRA NAV.
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
2025
2026
2027
2028
2029
see page 42 for EPRA net asset value
Fixed rate debt1
Bank debt hedged by swaps
Total fixed debt1
Drawn unhedged bank debt
Total debt1
Undrawn facilities (floating rate)
Committed facilities
Debt ratios
Loan-to-value1
Gearing1,2
Interest cover
Weighted average cost of debt
%
41.5%
40.6%
82.1%
17.9%
100.0%
2014
£M
255.8
250.0
505.8
110.6
616.4
139.4
755.8
23.6%
31.0%
2.0x
5.11%
2013
£M
121.0
360.0
481.0
124.2
605.2
90.8
696.0
29.5%
42.1%
1.97x
5.07%
%
20.0%
59.5%
79.5%
20.5%
100.0%
At 30 September 2014, our loan-to-value
ratio was 23.6% (2013: 29.5%) and we had
undrawn committed facilities available to
fund acquisitions and investment in our
portfolio totalling £139.4 million. The
weighted average cost of debt was 5.11%,
four basis points higher than the prior year.
However, the marginal cost of drawing our
remaining available facilities is around
1.55% (2013: 1.80%), and therefore, as we
make further drawings, this weighted
average cost of debt will decrease. The
average margin on our drawn variable
rate bank facilities is now 1.11% (2013:
0.91%) and this would rise to 1.24% if all
facilities were fully drawn (2013: 1.04%).
Weighted average debt maturity
7.1 years
5.8 years
1. Based on nominal value of debt
2. Measured against EPRA net assets
#044
@shaftesbury.co.uk annual report 2014
Strategic report
#045
Looking ahead
Our portfolio – unique in its concentration in the heart of London’s
West End and its focus on retail, restaurant and leisure uses – is
underpinned by London’s reputation as a leading global city and its
dynamic economy. Both near-term and longer-range forecasts
anticipate continuing growth in London’s working and residential
population and economic performance.
continually refreshing the appeal of our
locations
The West End’s established profile and trading patterns are
attracting well-resourced retailers, and restaurant and leisure
operators with exciting new ideas and concepts from across the
world. Our strategy is to maintain the appeal and reputation of
our areas through constantly refreshing the mix and variety of
operators and formats, so that we continue to provide lively and
interesting destinations.
Our proven, long-term approach to creating and maintaining
busy and prosperous environments continues to attract strong
demand from operators specifically seeking space in our
carefully-curated and lively locations. The current strength of
demand across all uses, which shows no sign of slowing,
continues to deliver increases in both income and rental values.
improving the quality and configuration of
accommodation we provide
We continue to identify and implement schemes to enhance
income and capital values throughout the portfolio, by improving
and increasing lettable space, and, where appropriate,
reorganising or introducing new uses.
In particular, the acquisitions this year of Newport Sandringham,
Chinatown and 57-59 Broadwick Street, Carnaby have the
potential, subject to planning, for material improvement through
implementing changes of this nature. Plans for these projects
are in hand and we shall be submitting planning applications by
mid-2015, with a view to commencing works in 2016. As with
many of our schemes, the benefits from these projects will
provide compound benefits across our extensive adjacent
ownerships.
Adding to the portfolio
Properties in the locations, and of the type we seek to acquire,
offer their owners excellent long-term security and growth
prospects, so it is unsurprising that they are reluctant to sell.
Although we expect the availability of suitable properties will
continue to be restricted, we have demonstrated through our
acquisitions this year that our patient approach and exceptional
knowledge of the local market does lead, over time, to strategic
additions to our portfolio, as well as a steady flow of smaller
purchases which, cumulatively, are equally as important.
Resources to support a growing business
In order to act swiftly when opportunities arise to add to our
holdings, and to ensure we are able to progress improvements
to our properties, it is essential we have in place stable long-
term financing arrangements. This year we have both added to
our equity base and put in place new loan facilities to replace a
substantial portion of our 2016 facility maturities. In the year
ahead we will be addressing the remaining £150 million of debt
due to mature in September 2016.
confidence in long-term prospects
The expectation of sustained and increasing international and
domestic interest in London and the West End – whether for
investment, establishing or expanding businesses, or as a place
to visit, work or live – underpins our prospects.
Our highly-motivated and experienced management team has
an innovative and proven approach to managing our unique and
growing portfolio. We remain confident we shall continue to
deliver long-term outperformance in growth in income, capital
values and shareholder returns.
The Strategic Report on pages 1 to 53 was approved by the
Board on 27 November 2014.
Brian Bickell
Chief Executive
#046
@shaftesbury.co.uk annual report 2014 Risk management
Strategic report
The Group invests 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.
see pages 8 to 22 for more information on our business strategy and model. See also pages 40 to 44 for the finance review
Overview
Monitoring risk
As a foundation to effective day-to-day risk management we
encourage an open and honest culture within which staff can
operate. We are based in one office, and have just 23 employees.
Consequently, senior management has a close involvement in
all aspects of the business and all significant decisions.
Operational and financial risks facing the Group are monitored
through a process of regular assessment by the executive team.
The aim of these assessments is to:
• Provide reasonable assurance that material risks are identified.
• Ensure appropriate mitigation action is taken at an early stage.
Responsibilities
Board
Audit Committee
Overall responsibility for risk
management. Reviews principal
risks and uncertainties
regularly, along with actions
taken, where possible, to
mitigate them.
Assurance of the risk
management process.
Executive management
Design and implementation
of the necessary systems of
internal control.
Risks are recorded in a risk register and are considered in terms
of their impact and likelihood from both a financial and reputational
perspective. Risks, and the controls in place to mitigate them,
are reported to, and discussed at, meetings of the Audit Committee
and Board. It is recognised that risk cannot always be totally
eliminated and, in some cases, is outside of the Group’s control.
Principal risks and uncertainties
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. These are set out overleaf.
#047
risk management continued
Risk management
RISk AND IMPACT
MITIGATION
EVOLuTION Of RISk DuRING THE YEAR
Risk of a sustained fall in visitor numbers and/or spending affecting:
1) The West End
EXTERnaL THREaTS
Events which discourage visitors eg
• threats to security or public safety due to
terrorism
• health concerns (eg pandemics)
• disruption to the public transport network
upon which the area depends.
A sustained and significant fall in visitors
could lead to reduced occupier demand.
COmpETInG DESTInaTIOnS
Competition from other locations results in
long-term decline in footfall and consequently
rents and values.
2) Our villages
Failure to maintain the special character
and/or tenant mix in our villages which
is key to attracting visitors and potential
occupiers.
A sustained consequential decrease in
footfall could result in downward pressure
on rents.
#048
Such events, faced by all high-profile locations such as London,
are often beyond our control, and are an inherent risk in our
geographically-focused investment strategy.
We work with local bodies and statutory authorities to maximise
the safety of visitors to our villages and have detailed emergency
response plans.
We have terrorism and loss of income insurance in place.
In response to recent global
political developments, HM
Government has increased the
UK’s external terrorism threat
risk to severe.
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 residential 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 vibrant and
appealing.
see page 9 for information on the West End’s appeal
see pages 16 to 17 for our proven, comprehensive management strategy
Overall visitor numbers and
spending in the West End are
broadly in line with 2013.
Published forecasts continue
to predict growth up to, and
beyond 2020.
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 are designed to create
prosperous locations where higher rents are sustainable.
Our experienced management team is incentivised to deliver
sustainable growth in rents.
The Board continually monitors individual village performance
and prospects.
see pages 16 to 17 for our proven, comprehensive management strategy
see page 22 for delivering and measuring long-term outperformance
With footfall and occupier
demand across the villages
remaining strong, we continue
to see sustained rental growth
and low vacancy.
@shaftesbury.co.uk annual report 2014
risk management continued
Strategic report
RISk AND IMPACT
MITIGATION
EVOLuTION Of RISk DuRING THE YEAR
Regulatory risk
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.
We work closely with both local authorities to ensure that our
properties are operated in a manner which complies with their
local policies and statutes.
We also make representations to both authorities regarding
proposed policy changes so that our views and practical
experiences are considered in framing policy.
Our portfolio has a mix of uses so the Group is not reliant on
income from one particular use.
see pages 24 to 29 for details on our mix of uses
Although local planning policies
continue to evolve, there are no
indications that any changes
currently under consideration
would have a material adverse
impact on the Group’s business.
Environmental regulation
Legislation which is intended to bring about
improvements to the environmental
standards of buildings may restrict the future
use of older buildings by making them
subject to standards which cannot be met
because the changes required would be
inconsistent with existing legislation for listed
buildings and conservation areas.
All our villages are within conservation areas and many of
our buildings are listed as being of special architectural
interest.
We maintain a register of energy performance certificates
(EPC) and are undertaking a phased programme of
improvements to future proof our buildings within the
constraints imposed by current conservation area and
listed buildings legislation.
see corporate responsibility on page 51
Economic risk
Periods of economic uncertainty and
deteriorating confidence may reduce
consumer spending, tenant profitability and
occupier demand.
Changing economic conditions could lead to
a decline in the UK real estate market, eg the
global political landscape, currency
fluctuations, interest rate expectations, bond
yields, availability and cost of finance and the
relative attractiveness of property against
other asset classes.
This could result in declining valuations,
decreasing net asset value, amplified by the
effect of gearing, and possible loan covenant
defaults.
We focus on assets in a particular location and with uses which
have, historically, proved to be economically resilient and have
demonstrated much lower valuation volatility than the wider
market. We regularly assess investment market conditions;
this includes bi-annual external valuations.
We have a diverse tenant base, with limited exposure to any
single tenant. At 30 September 2014, tenant deposits totalling
£15.9 million were held against their rent payment obligations.
Our quarterly reporting includes forecasts of compliance and
headroom in respect of our debt covenants. We also have a
substantial pool of uncharged assets which could be used to
top up the security held by debt providers.
Our loan-to-value ratio was 23.6% at 30 September 2014.
see finance on pages 43 to 44
With greater clarity on
statutory minimum energy
performance requirements,
our rolling programme of
works is delivering
performance above the
minimum targets.
The UK economy has
continued to improve over the
past year. We are continuing
to benefit from rental growth
across our portfolio and
investment demand in the
West End remains strong.
Short-term interest rates
have remained low, and whilst
there is a general expectation
of modest increases in the
medium term, the general
consensus is that rates will
now remain lower for longer
than previously anticipated.
#049
332
SHOPS ACROSS OuR PORTfOLIO
#050
@shaftesbury.co.uk annual report 2014 corporate responsibility
Strategic report
corporate responsibility is embedded in the day-to-day
operations of our business.
HIGHLIGHTS DuRING THE YEAR
• London Benchmarking Group contribution
of 3% of EPRA pre-tax earnings
• 85% of refurbishment schemes achieved
a B or c grade EPc
• 83% of timber from certified sustainable
sources
• 87% of refurbishment schemes achieved
an above satisfactory score for the
considerate constructors’ Scheme
• 100% green tariff electricity in carnaby,
Seven Dials, chinatown, Soho and our
office
• No reportable health and safety incidents
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 a place where businesses and residents want to be. We
focus our community investment on the areas in which our
villages are situated and in the aspects which benefit the West
End both as a neighbourhood and visitor destination. We work
closely with organisations based in the West End in social,
leisure or arts fields and, in some cases, help them to be
located in areas which they might otherwise be unable to afford.
Employees
We have 23 employees including executive directors with an
average length of service of 13 years. There has, again, been no
employee turnover (excluding retirement).
Our remuneration policy is closely aligned with our corporate
responsibility strategy with performance forming part of our
executive remuneration. All employees are eligible for the same
range of benefits as the executive directors.
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 long-term
management strategy for our villages.
Most buildings in our portfolio are within conservation areas and
some 25% are listed as being of special architectural interest.
We preserve buildings and improve their environmental and
economic performance through refurbishment and
reconfiguration schemes, which are carried out within the
constraints of current regulations protecting listed buildings and
conservation areas. During the year, 85% of the EPCs issued
following refurbishment schemes achieved a grade B or C.
see pages 52 to 53 for our performance against this year’s targets and targets
for the year ahead
see page 81 for greenhouse gas emissions
see pages 34 to 35 for redevelopment and refurbishment activity
see page 62 for our policy on diversity
see page 71 for annual bonus achievments
Human rights
As the number of employees is small and the business of the
Group is focused in the West End of London, human rights are
considered in the Group’s wider operations and throughout its
supply chain.The Group intends to sign up to the UN Global
Compact during the year ahead in recognition of the importance
of human rights.
Our main report on corporate responsibility is available on
our website.
#051
@shaftesbury.co.uk annual report 2014 Corporate responsibility continued
Set out below is an extract from our summary corporate responsibility report against
the key targets this year and the objectives for the year to 30 September 2015.
We are independently assessed by RPS Group plc.
OBJECTIVES
ACHIEVED IN 2014
TARGETS fOR 2015
Stakeholder and community engagement
Maintain membership of various
benchmarking indices
Continue to support local community
groups and be proactive in identifying
and working with charitable and other
organisations
Environmental responsibility
Invest in brownfield sites only
Membership of DJSI, Carbon Disclosure
Project and FTSE4Good. EPRA
sustainability reporting silver award
winner. GRESB sector leader
Membership of the London
Benchmarking Group and adoption of
their methodology for reporting
community involvement has continued.
Contribution to community and
stakeholders (including Section 106
payments) equates to 3% of EPRA
pre-tax earnings
Continue membership of DJSI, GRESB,
FTSE4Good, Carbon Disclosure Project
and others
Continue membership of London
Benchmarking Group and further
develop benchmarking measurements
for reporting
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 73% of refurbishment schemes, a
minimum of 50% of facade and a
minimum of 80% of the primary structure
was retained
Of the EPCs obtained, 85% were a grade
C or above following refurbishment
Only one development scheme (fronting
Kingly Street and Foubert’s Place) was in
progress during 2014. It is currently on
track to achieve:
• BREEAM 2008 Offices – Very Good
• BREEAM 2008 Retail – Good
• BREEAM 2008 Restaurants – Good
Re-use of timber maximised throughout
all schemes
83% of timber has been confirmed as
sustainably sourced with full chain of
custody and 50% using Forestry
Stewardship Commission timber
Timber to be sourced, where possible,
from well-managed sources, certified by
third-party certification bodies
#052
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
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
Aim for BREEAM ”Very Good” for all new
commercial developments
Continue to maximise the proportion of
timber that is re-used
Source a minimum of 60% of all timber
from certified sources and ensure all
timber is purchased from legal sources
Corporate responsibility continued
Strategic report
OBJECTIVES
ACHIEVED IN 2014
TARGETS fOR 2015
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
Portfolio waste – recycle a minimum of
30% in Carnaby and Seven Dials and
divert 80% from landfill
Recycle a minimum of 10% of tenants’
waste in Longmartin and divert 80%
from landfill
Social responsibility
Ensure there are no reportable health
and safety accidents/incidents
throughout the portfolio
Ensure all refurbishment schemes
above a specified capital value are
registered with the Considerate
Constructors’ Scheme and continue to
achieve 30 out of 50 (above a
“satisfactory” score)
Absolute energy consumption decreased
in the wholly-owned portfolio by 3%
Absolute energy consumption in
Longmartin increased by 15% due to
increased tenant occupancy
Green tariff electricity usage:
30% of the portfolio sources 100%
renewable energy. 45% of the remainder
of the energy provided comes from
suppliers with above average renewable
sources
93% of contracts achieved target of a
minimum of 80% recycled construction
and demolition waste. 98% diversion
from landfill, by weight, for applicable
schemes
In Carnaby and Seven Dials, 45% of
tenants’ waste was recycled and 4%
composted. Of the remaining waste,
100% was diverted from landfill to
energy from waste
In Longmartin, 25% of tenants’ waste
was recycled and the remaining waste
was diverted from landfill to energy from
waste
Achieve a year-on-year 5% energy
reduction in both the wholly-owned
portfolio and joint venture
Purchase green electricity where costs
are within 5% of brown electricity
Aim to re-use or recycle a minimum of
80% non-hazardous demolition and
construction waste
Recycle 40% of tenants’ waste at
Carnaby and Seven Dials and 30% at
Longmartin and divert a minimum of
90% of waste from landfill
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
100% of eligible schemes were registered
87% of schemes achieved the target
score on the first visit. The overall average
for the sites visited was 33.6 out of 50
Continue to achieve 30 out of 50 (above a
“satisfactory” score)
#053
CHINATOWN’S ANNuAL f OOTfALL IS OVER
50 milliOn
#054
@shaftesbury.co.uk annual report 2014 Governance
Shaftesbury SELf PORTRAIT
Governance
Directors and officers 56
Corporate governance 58
Nomination Committee report 61
Audit Committee report 63
Remuneration report 67
Summary of remuneration policy 68
Annual Remuneration report 69
Directors’ report 80
Directors’ responsibilities 82
Independent auditors’ report 83
#055
Directors and officers
5
7
9
6
8
10
Executive directors
1 BRIAN BICkELL, fCA
cHief execUtive
2 SIMON J QuAYLE, BSC, MRICS
execUtive Director
3 THOMAS J C WELTON, MRICS
execUtive Director
Overall responsibility for
implementing the Group’s
strategy and day-to-day
operations
Responsible for the asset
management and operational
strategy in Carnaby and the
Group’s holdings in Soho and
Charlotte Street
Responsible for the asset
management and operational
strategy in Covent Garden
(including the Longmartin
joint venture) and Chinatown
4 CHRISTOPHER P A WARD, MA(OXON), ACA
fiNaNce Director
Responsible for implementation
of the financial strategy and all
aspects of accounting and
taxation
Joined the Group in 1986
Joined the Group in 1987
Joined the Group in 1989
Joined the Group in 2012
Board appointment
Appointed Finance Director on
20.7.1987 and Chief Executive on
1.10.2011
Board appointment
Appointed Property Director
on 1.10.1997
Board appointment
Appointed Property Director
on 1.10.1997
Board appointment
Appointed Finance Director
on 9.1.2012
2
1
4
3
#056
@shaftesbury.co.uk annual report 2014 directors and officers continued
goverNaNce
chairman and non-executive directors
5 JONATHAN S LANE, MA, fRICS
NoN-execUtive cHairMaN aND
cHairMaN of tHe NoMiNatioN coMMittee
7 SALLY E WALDEN*
NoN-execUtive Director aND cHairMaN of
tHe reMUNeratioN coMMittee
9 OLIVER J D MARRIOTT*
NoN-execUtive Director
SECRETaRy anD
REGISTERED OFFICE
Board appointment 2009
PENNY THOMAS, LLB (HONS), fCIS
Board appointment
1986 as managing director
Experience
Chief Executive until 30.9.2011
Executive Deputy Chairman from
1.10.2011
Non-executive Chairman from
8.2.2013
External appointments
Non-executive director of
easyHotel plc
Non-executive chairman of The
Tennis Foundation
Trustee of the Royal Theatrical
Support Trust
6 JILL C LITTLE*
NoN-execUtive Director aND SeNior
iNDepeNDeNt Director
Board appointment 2010
Experience
John Lewis Partnership 1975 to
2012. Merchandise director on
the board 2002-2011 and
Business and Development
director 2011-2012
External appointments
Interim chairman of the Commercial
Panel of the National Trust
Non-executive director of
Occa-Home
Consultant to various global
retailers
Board appointment 2012
Experience
From 1984 to 2009 with Fidelity
International where she held
senior positions in fund
management
External appointments
Trustee of the Fidelity
Foundation
Trustee of Wiltshire and
Swindon Community Foundation
8 DERMOT C A MATHIAS*
NoN-execUtive Director aND cHairMaN of
tHe aUDit coMMittee
Board appointment 2012
Experience
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
External appointments
Non-executive director of
Rectory Homes Limited
Non-executive chairman of
Red & Yellow Limited
Advisory Board Member of
Vermillion Partners Limited
Policy Board Member
of Mainetti Group
Experience
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
Non-executive director of P&O
from 1985-1991
10 HILARY S RIVA, OBE*
NoN-execUtive Director
Board appointment 2010
Experience
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 retailers
including Top Shop and Warehouse
External appointments
Non-executive director of
London and Partners
Non-executive director of ASOS plc
22 Ganton Street
London W1F 7FD
Tel: 020 7333 8118
Fax: 020 7333 0660
e-mail:
shaftesbury@shaftesbury.co.uk
Registered number: 1999238
REGISTRaR
EQuINITI LIMITED
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
CORpORaTE WEbSITE
WWW.SHAfTESBuRY.CO.uk
VILLaGE WEbSITES
WWW.CARNABY.CO.uk
WWW.CHINATOWNLONDON.ORG
WWW.SEVENDIALS.CO.uk
* Independent non-executive directors
for the purposes of the UK Corporate
Governance Code.
WWW.STMARTINSCOuRTYARD.CO.uk
WWW.BERWICkSTREETLONDON.CO.uk
More detailed biographical
information is available
on our website.
corporate timetable
FInanCIaL CaLEnDaR
Annual General Meeting
AGM Statement
2015 Half Year Results to be announced*
6 February 2015
6 February 2015
May 2015
* We no longer issue a hard copy of our half year statement to shareholders. The
statement is issued electronically and available on our website. See the website for
date of all future company announcements.
DIVIDEnDS anD DEbEnTuRE InTEREST
Proposed 2014 final dividend:
Ex-dividend
Record date
Payment date
2015 interim dividend to be paid
Debenture stock interest to be paid
22 January 2015
23 January 2015
13 February 2015
July 2015
31 March 2015 and
30 September 2015
EFFECT OF REIT STaTuS On paymEnT OF DIVIDEnDS
REITs do not pay UK corporation tax in respect of rental profits and
chargeable gains relating to property rental business. However, REITs
are required to distribute at least 90% of their 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 2014 final dividend is 23 January 2015.
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.
#057
corporate governance
chairman’s statement on governance
THE bOaRD
This is my first full year as Chairman.
The Board is committed to maintaining
high standards of corporate governance
and transparency throughout all aspects
of our business.
The Group has continued to comply with the principles of the UK
Corporate Governance Code with the exception that, owing to my
previous tenure as an executive, I was not independent upon my
appointment as Chairman.
There have been changes in the regulatory regime over the last
twelve months with more on the horizon. Corporate governance
is always high on the Board’s agenda and the Board has been
monitoring and responding to these changes. Each Committee
has met regularly and the work it has undertaken this year is
summarised in the individual Committee reports.
At the 2014 AGM, Gordon McQueen retired from the Board and
was succeeded as Senior Independent Director by Jill Little and
Dermot Mathias as chairman of the Audit Committee. Jill Little
stood down as chairman of the Remuneration Committee and
was succeeded by Sally Walden.
The Board is responsible for the leadership of the Group and the
long-term success of the business. It oversees the Group’s
strategy and its implementation, ensuring that an appropriate
financial and operational structure is in place.
see pages 8 to 22 for further detail on the Group’s strategy and business model.
Jonathan Lane as Chairman is responsible for the leadership of
the Board, ensuring it operates effectively and setting the agenda.
Brian Bickell, as Chief Executive, is responsible for the Group’s
day-to-day operations. There is a clear division of responsibilities
between the two roles. The Board delegates responsibility within
specific parameters to management to enable effective
operation of the business.
The Board has three Committees with responsibilities defined in
their terms of reference. Each Committee’s terms of reference
were reviewed and updated during the year. These are available
on the Group’s website. The independent non-executive
directors are members of all three committees.
The company secretary is responsible for advising the Board,
through the Chairman, on all governance matters.
Strategy
Performance
Risk
Corporate
responsibility
Jonathan Lane
Chairman
BOARD
Audit
Committee
Remuneration
Committee
Nomination
Committee
• financial reporting
• Monitor external auditors
• risk and internal control
• remuneration policy
• annual remuneration
including bonus and Ltip
awards
• Set annual performance
objectives
• Succession planning
• recommend candidates
to the Board
• Board performance
evaluation
• Diversity
Audit Committee
Report page 63
Remuneration
Report page 67
Nomination
Committee Report
page 61
#058
@shaftesbury.co.uk annual report 2014
Corporate governance continued
goverNaNce
bOaRD COmpOSITIOn
The composition of the Board is important to ensure that there is effective leadership of the Group. There is a balance of executive
and non-executive directors with a wide range of business skills, including property, finance, retail and fund management that
contribute to the Group’s operations. Each of the non-executive directors, other than the Chairman, is considered by the Board to
be independent.
4
5
1
Executive directors
Independent non-executive directors
Chairman
Committees comprise only independent non-executive directors, other than the Nomination Committee, which is chaired by
Jonathan Lane as permitted by the UK Corporate Governance Code.
Attendance by the directors at Board meetings is set out below. Attendance at Committee meetings is set out in each Committee
report. There was 100% attendance at Board and Committee meetings.
MEMBER
POSITION
Brian Bickell
Chief Executive
Simon Quayle
Property director
Thomas Welton
Property director
Christopher Ward
Finance director
Jonathan Lane
Chairman
Gordon McQueen* Non-executive director and Senior Independent Director (to 7.2.2014)
Oliver Marriott
Non-executive director
Dermot Mathias
Non-executive director
Jill Little
Hilary Riva
Senior Independent Director (from 7.2.2014) and non-executive director
Non-executive director
Sally Walden
Non-executive director
* Gordon McQueen: two meetings were held in the period prior to his retirement on 7 February 2014.
The non-executive directors met on a number of occasions during the year without management present.
see pages 61 to 79 for committee reports
NuMBER Of MEETINGS
ATTENDED (5 HELD)
• • • • •
• • • • •
• • • • •
• • • • •
• • • • •
• •
• • • • •
• • • • •
• • • • •
• • • • •
• • • • •
bOaRD pERFORmanCE EVaLuaTIOn
Following interviews of a number of external consultants by the
Chairman and company secretary, Jane Kirton Consulting was
appointed by the Board to undertake the board performance
review this year. The scope and focus of the review was agreed
with the Chairman. Interviews were conducted with each
member of the Board and the company secretary to ascertain
their views on the following subjects:
• operation of the Board
• principal business risks
• performance of the Committees
• topics for discussion at the Board
• timing of meetings and time management
• priorities for the Board for the year ahead
• process for future reviews
The results of the evaluation were tabled at meetings of the
Nomination Committee and the Board.
No major issues were identified. The Board felt that recent
changes in its composition were working well, that it was
working cohesively and that there was a good quality of
discussion at meetings. Regular visits to the Group’s holdings
were considered to be exceptionally valuable.
A review of the performance of the directors and Chairman was
also undertaken.
#059
Corporate governance continued
RISk manaGEmEnT anD InTERnaL COnTROL
The Board is responsible for determining the nature and extent
of the significant risks impacting the Group’s operations and
maintaining the risk management framework and internal
control systems. The Board reviews these arrangements
annually.
Such systems are designed to manage, rather than eliminate,
the risks faced by the business and can provide only reasonable,
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 property management audits.
The Group has established processes and procedures to identify,
assess and manage the significant risks it faces. These
processes and procedures were in place throughout the year
and remained in place up to the date of the approval of the
Annual Report and comply with the Financial Reporting
Council’s guidance “Internal Control – Revised Guidance for
Directors on the Combined Code”.
The key elements of the Group’s procedures and internal
financial control framework, which are monitored throughout
the year, are:
• 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,
including risks and controls.
• Clearly defined responsibilities and limits of authority, which
have recently been reviewed.
• Defined schedule of matters for decision by the Board
including significant acquisitions, disposals, major contracts
and material refurbishment or development proposals and any
other item outside the normal course of business.
• A comprehensive system of financial reporting and
forecasting.
• 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 provides
reliable information. The managing agents share with the
Group their internal control assessments. The Group
periodically uses the services of an external consultant to
review the managing agents’ operational processes and
controls.
• A comprehensive risk and control register which is reviewed
regularly and reported to the Audit Committee and Board.
see pages 47 to 49 for a summary of the risk management framework, the
principal risks and uncertainties identified by the Board, and how they are
managed or mitigated.
The Audit Committee has not identified any material
weaknesses in the Group’s control structure during the year.
see the Audit Committee report on pages 63 to 66
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 1 to
53. The financial position of the Group including cash flow,
liquidity, borrowings, undrawn facilities and debt maturity
analysis is set out on pages 43 to 44.
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
see Remuneration report on pages 67 to 79
RELaTIOnS WITH SHaREHOLDERS
The Board places great importance on regular contact with both
shareholders and potential investors, in order to explain the
Group’s strategy and its implementation. Investor relations is
the responsibility of the Chief Executive.
Annual and half year results are presented to formal meetings
of real estate analysts. Dial-in and replay facilities are made
available. Copies of these presentations are available on the
corporate website from the time of the meeting. Analysts are
encouraged to tour the portfolio, so they maintain a good
understanding of the Group’s activities.
During the year, the Chief Executive and executive directors met
around 200 UK and overseas institutional investors comprising
both current and potential shareholders. 175 meetings were
held in the UK, the Netherlands, the USA and Switzerland.
Meetings comprised individual and group presentations and
tours of the portfolio. The tours provide an opportunity to see
the Group’s assets, understand management initiatives, and
also to meet members of the team below Board level. In
addition, during the year, members of the UK Shareholders’
Association, which represents the interests of private investors,
attended a tour of the portfolio. Meetings are offered to key
corporate contacts including bankers and debt providers.
Feedback from presentations and meetings is provided to the
Board, together with published analyst comments on the Group.
The corporate website, together with the websites and social
media channels used to promote the villages, are important
sources of information on the Group, explaining the Group’s
philosophy, strategy, current activities and events across
the villages.
#060
@shaftesbury.co.uk annual report 2014 Nomination committee report
Dear shareholder
The role of the Committee is to lead the
process for board appointments and
evaluate the balance of skills, experience
and independence of board members. The
Committee also has oversight of the
Group’s training and development
processes below Board level to ensure that
employees have appropriate skills and that
they continue to develop in their roles.
The Committee continues to monitor the composition of the
Board so that future succession is managed effectively. The
Committee oversaw the changes in non-executive director roles
which came into effect at the conclusion of the 2014 AGM.
Jonathan Lane
Chairman – Nomination Committee
goverNaNce
COMMITTEE MEMBERS AND ATTENDANCE
MEMBER
POSITION
Jonathan Lane
Chairman
Jill Little
Gordon
McQueen*
Senior Independent
Director (from
7.2.2014) and Member
Senior Independent
Director and Member
(until 7.2.2014)
Oliver Marriott
Member
Dermot Mathias Member
Hilary Riva
Sally Walden
Member
Member
NuMBER Of MEETINGS
ATTENDED (3 HELD)
• • •
• • •
•
• • •
• • •
• • •
• • •
* Gordon McQueen: one meeting was held in the period prior to his retirement on
7 February 2014
COMMITTEE ATTENDEES BY INVITATION ONLY
ATTENDEES
POSITION
Brian Bickell
Chief Executive
Penny Thomas
Secretary to the Committee
kEY ACTIVITIES DuRING THE YEAR
Succession planning for the Board and senior executives
Considered the Board and Committee performance
evaluation results
Evaluated the skills of the directors for re-election
Proposed directors for re-election
Reviewed training undertaken by directors
Reviewed the annual committee report
Recommended to the Board the appointment of the Senior
Independent Director
Recommended to the Board the appointment of chairs of
Board committees
Recommended to the Board updated Committee terms of
reference
#061
nomination Committee report continued
pOLICy On DIVERSITy
SuCCESSIOn pLannInG
All aspects of diversity, including but not limited to gender, are
considered at every level of recruitment. All appointments to the
Board are made on merit. The Board has a policy on diversity 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 in determining
its composition and has therefore chosen not to set targets.
The Board has 30% female representation, which exceeds Lord
Davies’ target for FTSE 100 company boards to be 25% female
by 2015. Gender diversity of the Board and Company is set out
below showing both number of employees (total 23) and percentage
that this relates to.
BOARD
3 (30%)
7 (70%)
SENIOR MANAGEMENT
5 (50%)
5 (50%)
Male
Female
Male
Female
ALL EMPLOYEES (INCLuDING EXECuTIVE DIRECTORS)
Male
Female
12 (52%)
11 (48%)
The Board comprises a team of four executive directors, three of
whom have an average length of service with the Company of 27
years. Continuity of experience and knowledge, particularly of
the unique environment of London’s West End, is particularly
important in a focused, long-term business. The executive team
is complemented by six non-executive directors who have wide
business experience and skills as well as a detailed understanding
of the Group’s philosophy and strategy.
A key responsibility of the Committee is to advise the Board on
succession planning. The Committee ensures that evolution of
the Board’s membership is planned 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.
Development of the Group’s employees is considered at each
meeting of the Committee.
DIRECTORS STanDInG FOR RE-ELECTIOn
All directors will stand for re-election at the 2015 AGM.
Following the annual Board performance reviews of individual
directors, the Chairman considers that each director continues
to operate as an effective member of the Board and has the
skills, knowledge and experience that enables them to
discharge their duties properly. On the advice of the Committee,
the Board, therefore, recommends the re-election of each
director standing for re-election.
The current tenure of independent non-executives is set out
below.
Oliver Marriott
Hilary Riva
Jill Little
Dermot Mathias
Sally Walden
5 years
4 years
4 years
2 years
2 years
see pages 56 to 57 and the website for biographical information on each director
The Group supports initiatives to promote diversity within the
property industry. Brian Bickell is a board member of Freehold,
a networking forum for LGBT people working directly in real
estate and the professions associated with the industry.
The Group has policies for flexible working which are utilised by
3 of 23 employees.
#062
@shaftesbury.co.uk annual report 2014
Audit committee report
goverNaNce
Dear shareholder
COMMITTEE MEMBERS AND ATTENDANCE
This is my first report as Chairman of the
Audit Committee, following my
appointment to the role at the conclusion
of the 2014 AGM.
The Committee is tasked with reviewing and reporting to the
Board on financial reporting, internal control and risk
management, and reviews the performance, independence and
effectiveness of the external auditors in carrying out the
statutory audit.
The Committee advises the Board 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. Following significant changes to narrative
reporting and corporate governance disclosures in the Annual
Report last year, the Committee has, this year, monitored
emerging practice in these areas.
Dermot Mathias
Chairman - Audit Committee
MEMBER
POSITION
Dermot Mathias
Gordon McQueen*
Jill Little
Chairman (from
7.2.2014)
Chairman and
Senior Independent
Director (until
7.2.2014)
Senior Independent
Director (from
7.2.2014) and
member
Oliver Marriott
Dermot Mathias
Hilary Riva
Sally Walden
Member
Member
Member
Member
NuMBER Of
MEETINGS
ATTENDED
(3 HELD)
• • •
•
• • •
• • •
• • •
• • •
• • •
* Gordon McQueen: one meeting was held in the period prior to his retirement on
7 February 2014
Both Gordon McQueen and Dermot Mathias have been or are
the members of the Committee with recent and relevant
financial experience.
COMMITTEE ATTENDEES BY INVITATION ONLY
ATTENDEES
POSITION
Penny Thomas
Secretary to the Committee
Christopher Ward
Finance Director
Gareth Field
Robert Jessett
Senior members of the
finance team
PricewaterhouseCoopers
Independent auditors
At each meeting, the Committee has time with the auditors
without management present.
#063
audit Committee report continued
kEY ACTIVITIES DuRING THE YEAR
Reviewed and monitored the integrity of the published
financial information including the year end results,
preliminary announcement, Annual Report, half year results,
and the Interim Management Statements
Considered emerging best practice in relation to corporate
reporting
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
Advised the Board 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
Met with the Group’s valuers to discuss the valuation process
Reviewed the risk and internal control framework
Considered the appropriateness of the going concern
assumption
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
Approved non-audit assignments awarded to the external
audit firm
Monitored audit and non-audit fees
Considered the independence and objectivity of the auditors
Reviewed the auditors’ performance and made a
recommendation for the re-appointment of the Group’s
auditors by shareholders
Monitored developments in mandatory auditor tendering
Recommended to the Board updated Committee terms of
reference
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.
The Committee considered whether the Annual Report was fair,
balanced and understandable and whether it provided the
necessary information for shareholders to assess the Group’s
performance, business model and strategy. In carrying out this
exercise the Committee had regard to the systems and controls
around the preparation of the accounts, the procedures to bring
relevant information to the attention of the preparers of the
accounts, the consistency of the reports and whether they are in
accordance with the information provided to the Board during
the year. It also considered whether the Annual Report had been
written in straightforward language, without unnecessary
repetition of information.
The Committee was satisfied that, taken as a whole, the 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 82.
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.
• Valuation of investment properties
The valuation opinion is provided by independent external
valuers and is one of the critical components of the annual
and half year financial results. It is inherently subjective,
requiring significant judgement. As well as a detailed review of
the valuations by management, members of the Committee
met the Group’s valuers, without management present, before
finalisation of the annual and half year results. At these
meetings, they discussed the valuations, reviewed the key
judgements and discussed whether there were any significant
disagreements with management. They also discussed
current market conditions, recent transactions in the market
and any impact these have had on the valuation.
The auditors use internal real estate specialists, who meet
with the valuers as part of their audit and report their findings
and conclusions to the Committee. A member of the
Committee discussed the valuation with the auditors’ real
estate expert who had reviewed this year’s valuation. The
Board considered the valuation in detail at its meeting to
approve the financial statements; as part of this the Group’s
wholly-owned portfolio valuers presented their valuation
opinion.
#064
@shaftesbury.co.uk annual report 2014 audit Committee report continued
goverNaNce
• Other areas of judgement
In addition, the Committee has considered a number of other
judgements which have been made by management, none of
which were material in the context of the Group’s results or
net assets. These include judgements concerning the charge
for equity settled remuneration and the valuation of derivative
financial instruments.
• Going concern
The Committee reviewed whether it was appropriate to adopt
the going concern assumption in the preparation of the
results. In considering this, it reviews the Group’s three-year
profit, cash flow and investment forecasts, availability of
committed bank and debt facilities and expected headroom
under the financial covenants in those facilities. Following the
review, it recommended to the Board that it was appropriate to
adopt the going concern basis.
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.
RISk REVIEW pROCESS
As part of standing matters, the Committee and the Board
review the business risks and internal controls’ framework
during the year.
The Group’s principal risks and uncertainties are reported in the
Strategic Report and the Group’s internal control and risk
management procedures are set out in the Corporate
Governance Report.
see risk management pages 47 to 49 and corporate governance page 60
EXTERnaL auDITORS
The Committee remains satisfied with the effectiveness of the
external audit. The auditors are required to rotate the audit
partners responsible for the Group audit at least every five years
and those responsible for the subsidiary company audits at least
every seven years. The current lead audit partner has been in
position for four years. There are no contractual obligations
restricting the Group’s choice of external auditor.
Regulatory developments during the year will affect the audit
arrangements of listed companies. PricewaterhouseCoopers
LLP (or its predecessor firms) has been the Group’s auditors
since it listed on the London Stock Exchange in October 1987.
Although the audit was last tendered in 2010, under the new
regulations they will no longer be permitted to act as the
Group’s auditor after 2020. In view of this and emerging best
practice, and notwithstanding the professional level of service
provided by PricewaterhouseCoopers, the Committee has
decided to tender the audit with a view to changing auditor from
the year ending 30 September 2016. This will coincide with the
rotation of the current audit partner at the conclusion of the
audit for the year ending 30 September 2015.
aWaRD OF nOn-auDIT aSSIGnmEnTS TO THE
EXTERnaL auDIT FIRm
The policy of the Committee is that non-audit assignments are
not awarded to the external audit firm if 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 tax compliance
work.
#065
audit Committee report continued
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
2014
£’000
56
93
149
20
-
20
169
36
73
109
7
116
285
2013
£’000
50
83
133
20
-
20
153
36
24
60
6
66
219
Total fees related to taxation and other non-audit services
represented 69% of the total fees for audit and assurance
services (2013: 43%). 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.
Annually, 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 with the Finance Director, review of
a detailed assessment questionnaire and confirmation from the
external auditor. The Chairman of the Committee and the
Finance Director meet with an independent partner from the
external audit firm without the audit team present.
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.
• 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 recommended to the Board that
PricewaterhouseCoopers LLP continue as auditors and the
Board recommends their re-appointment at the 2015 AGM.
InTERnaL auDIT
In view of the focused nature of the Group’s business, the close
involvement of the executive directors in day-to-day decision
making 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, it considers there is no need to
establish an internal audit function.
#066
@shaftesbury.co.uk annual report 2014 Remuneration report
goverNaNce
Dear shareholder
This is my first report as Chairman of the
Remuneration Committee, having taken over
the role at the conclusion of the 2014 AGM.
Our remuneration policy sets out our approach to the reward of
executive and non-executive directors. It reflects the
Committee’s aim that overall levels of executive remuneration
should be fair whilst maintaining stability in the management of
this long-term business.
Last year, for the first time under the new regulations on
directors’ remuneration, our remuneration policy was tabled for
approval by shareholders at the 2014 AGM. We were pleased to
have received a 99% vote in support.
As no changes to our policy are proposed for the year ahead, it
is not subject to shareholder approval. The full policy is available
on the Group’s website and a short summary of the policy table
is set out below.
Our results this year show further growth in net asset value,
rents, earnings and dividends. We also refinanced near-term
debt and raised £153.2 million in an equity placing. This
performance has been taken into account when considering
variable remuneration for the executive directors.
The Committee’s key decisions during the year related to:
• a review of basic salaries
Salaries have been reviewed with effect from 1 December 2014
with increases of 3% which is below other employees in the
Group. Christopher Ward received an increase of 9%, recognising
that when he joined the Group in 2012, he received a lower
salary as he was new to the role. This is the final year where
he will receive a signficantly higher than average increase.
• annual bonus awards
For the annual bonus scheme, performance is measured
against the Group’s KPIs and other objectives which are critical
to long-term value creation for shareholders. The outcome of
performance against these targets is a bonus award of 75%.
Each executive director will take their bonus in shares.
• LTIP
A grant of nil cost options under the LTIP was made in
December 2013 at 125% of basic salary, below the policy limit
of 150%. Vesting will be subject to the same performance
criteria that have been applied since the scheme was approved
by shareholders in 2006. Performance is measured against
TSR versus the FTSE 350 Real Estate Index and NAV growth in
excess of RPI plus 3% over a three year period.
These performance measures incentivise value creation for
shareholders and the increase in the value of the Group’s
assets. The Committee believes that these performance
targets remain appropriate and provide a consistent approach
to measurement to determine vesting levels in the scheme.
LTIP awards granted in 2011 will vest in December 2014 and
January 2015, based on a three year performance period
ending 30 September 2014. The TSR target was not met, whilst
the NAV target was met in full, resulting in 50% vesting of the
total award.
The current LTIP will expire in 2016 and therefore, during the
course of 2015, the Committee will undertake a review of our
LTIP arrangements. A new plan will be proposed to
shareholders at the 2016 AGM.
• remuneration review
The Committee concluded no changes to the remuneration policy
were required at ths time. However, the Committee is taking
steps to implement the changes to the UK Corporate Governance
Code and the requirement to introduce clawback arrangements
into variable remuneration schemes. The Group already operates
malus provisions in the Deferred Annual Share Bonus scheme
and the LTIP and is introducing clawback for the performance
year ending 30 September 2015 in respect of the annual
bonus, and for LTIP awards being made in December 2014.
Although the Committee has discretion within the boundaries of
the remuneration policy, it has not this year exercised any such
discretion.
The Annual Remuneration Report which follows will be
proposed for an advisory vote at the 2015 AGM.
Sally Walden
Chairman – Remuneration Committe
context for the Group’s approach to
remuneration
The Group has 23 employees, including four executive directors.
The combined holdings of the four executive directors stand
at just over 2.5 million shares with a market value of £17 million
at the year end. Brian Bickell, Simon Quayle and Thomas
Welton have an average length of service of 27 years and the
value of their individual shareholdings is approximately 14
times their annual salary. They have built up substantial
shareholdings in the Group mainly through retaining shares
awarded under current and previous employee share schemes.
They have taken their annual bonus in shares for 8 out of the
9 years since the inception of the Deferred Annual Share
Bonus scheme and retained shares vesting each year from
the LTIP.
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. The
average length of service below Board level is 11 years.
#067
Summary of remuneration policy
There are no changes to the policy that was approved by shareholders at the 2014 AGM.
A summary of the remuneration policy is set out below. It does not replace or override the
full approved policy, which is available on the Group’s website and sets out our policy on
recruitment, loss of office, and termination of employment and change of control.
ELEMENT Of REMuNERATION
EXECuTIVE DIRECTORS
Salary
Annual bonus
LTIP
Pension
Other benefits and all
employee plans
NON-EXECuTIVE DIRECTORS
Fees
MAXIMuM OPPORTuNITY
PERfORMANCE PERIOD/ MEASuRES
No maximum – reviewed annually; details of increases
provided in annual remuneration report
Directors have the choice to take the bonus in shares or
cash, in full or part as follows:
Up to 125% of salary if taken entirely in shares (and held
for three years in the Annual Deferred Share Bonus
scheme)
or
None
Performance is measured over one year
and assessed against a set of key
financial and non-financial annual
measures which may vary each year
depending on the priorities of the
business
Up to 100% of salary if taken entirely in cash
Maximum value 150% of salary at date of grant in normal
circumstance.
Two equally weighted measures apply
over a three-year performance period:
Maximum value 200% of salary in exceptional
circumstances
• TSR versus FTSE 350 Real Estate Index
• NAV growth in excess of RPI plus 3%
Threshold vesting is 10% of maximum award for TSR and
15% of maximum award for NAV
25% of salary
The detailed metrics are set out in the Annual
Remuneration Report on pages 69 to 79
None
Contribution paid into a personal pension plan or taken as
a cash equivalent, reduced for employer’s national
insurance liability
It is not anticipated that the cost of benefits provided will
exceed 15% of salary over the term of the approved policy.
The Committee retains the discretion to approve a higher
cost in exceptional circumstances or where factors outside
the Company’s control have changed materially eg
increases in insurance premiums
Directors may also participate in the Group’s sharesave scheme
None
Fees are reviewed every two years. An additional fee is
payable to reflect the additional time commitment
required to chair Board committees or act as Senior
Independent Director
None
Clarification of recruitment policy
Following the publication of the policy report last year, we made a statement to clarify the use of Listing Rule 9.4.2R to make awards
of a different structure at recruitment. The Committee confirmed that the use of the power under Listing Rule 9.4.2R will only be
used by the Company in the case of recruitment of an executive director for the buyout of any pre-existing incentive awards which
would be forfeited on leaving a previous employer, and any such buyout, would have a fair value no higher than the awards forfeited.
Further details of our policy on recruitment and cessation of directors may be found in the full policy report on the website.
Clawback
Clawback provisions are being introduced for the LTIP and the Deferred Annual Share Bonus scheme during the financial year
ending 30 September 2015.
#068
@shaftesbury.co.uk annual report 2014 goverNaNce
committee attendees by invitation only
POSITION
ATTENDEES
Jonathan Lane
Chairman
Brian Bickell
Penny Thomas
Chief Executive
Secretary to the Committee
Advisors to the committee
The Committee’s appointed advisors for the first half of the year
were Kepler Associates. Kepler had been appointed following a
competitive tender process in 2012 and the Committee is
satisfied that advice provided was independent and objective.
During the year, fees of £3,000 were incurred. All fees paid
during the year relating to the 2013 Annual Report were
reported in that year.
A new advisor will be appointed in 2015.
Annual Remuneration report
Set out below is the Annual Remuneration
Report on directors’ pay for the year
ended 30 September 2014. The Committee
determines executive directors’
remuneration in accordance with its
terms of reference and the Group’s
remuneration policy.
committee members and attendance
MEMBER
Jill Little
Sally Walden
Gordon McQueen*
POSITION
Chairman (to
7.2.2014) member
(full year) and
Senior Independent
Director (from
7.2.2014)
Member (full year)
and Chairman
(from 7.2.2014)
Senior Independent
Director and
member (until
7.2.2014)
Oliver Marriott
Dermot Mathias
Hilary Riva
Member
Member
Member
NuMBER Of
MEETINGS
ATTENDED
(5 HELD)
• • • • •
• • • • •
• •
• • • • •
• • • • •
• • • • •
* Gordon McQueen: two meetings were held in the period prior to his retirement on 7.2.2014
#069
annual remuneration report continued
Key activities during the year
Determined pay and benefits for the executive directors and company secretary and monitored 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
Determined awards under the annual bonus scheme for executive directors and the company secretary and monitored the
relationship between awards for other employees and executive directors
Ratified LTIP vesting calculated by reference to the degree of attainment of performance conditions set at the date of award
Determined annual LTIP awards and performance conditions
Annual review of remuneration policy
Reviewed the Remuneration Report
Completed the review of Group 2013 remuneration strategy
Considered implementation of clawback provisions for the annual bonus/Deferred Annual Share Bonus scheme and the LTIP
Recommended to the Board updated Committee’s terms of reference
Monitored remuneration advisor and fees
Monitored emerging best practice in remuneration practice and reporting
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 2014 and the prior year:
SALARY
BENEfITS 3
PENSION BENEfIT 4
SINGLE YEAR
VARIABLE 5
MuLTIPLE YEAR
VARIABLE 6
2014
£’000
421
323
323
296
-
2013
£’000
442
313
313
271
62
2014
£’000
2013
£’000
2014
£’000
2013
£’000
2014
£’000
60
55
54
30
-
53
42
43
24
25
92
71
71
70
-
97
75
75
66
-
431
305
305
281
-
2013
£’000
223
158
158
138
-
2014
£’000
365
259
259
222
2013
£’000
245
236
227
-
-
323
OTHER 7
TOTAL
2014
£’000
2013
£’000
2014
£’000
2013
£’000
28
22
21
13
9
15
14
14
1
20
1,397
1,075
1,035
1,033
912
9
838
830
500
430
B Bickell1
S J Quayle
T J C Welton
C P A Ward
J S Lane2
1. Brian Bickell’s salary was reduced by £38,000 reflecting one month of unpaid leave taken during the year.
2. At the 2013 AGM, 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 2014, the executive directors received bonuses of 93.75% of salary in shares or 75% of salary in cash. Each
director has elected to take their 2014 bonus entirely in shares. No further performance criteria apply.
6. Multiple year variable is the vesting of shares in the LTIP. 50% of LTIP awards granted in December 2011 will vest on 7 December 2014 and 17 January 2015. The TSR
performance condition for the three year performance period was not met whilst NAV performance was met and resulted in full vesting of the 50% element of the award. 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 2014 of £6.75. The 2013
estimated figure has been restated to reflect actual share price at the date of vesting.
Awards vesting for Jonathan Lane in 2013 and 2014 were pro-rata according to the time he was an executive director.
7. This includes sharesave options which have been valued based on the monthly savings amount and the discount provided of 20%. It also includes any dividend equivalents to be
paid in respect of LTIP shares due to vest on 7 December 2014 and 17 January 2015 and dividend equivalents paid on the Deferred Annual Share Bonus Scheme which vested on
17 December 2013.
#070
@shaftesbury.co.uk annual report 2014 annual remuneration report continued
goverNaNce
Annual bonus achievements for year ended 30 September 2014
Retrospective disclosure of the extent to which the targets for the 2014 annual bonus have been met is provided below. The bonus
will be paid in December 2014 and is included in the single figure remuneration. The Group is a long-term business and looks to
maintain a consistent approach to target setting for both annual and long-term incentives. The Committee is mindful that annual
incentive payouts should fairly reflect performance in the round. The formulaic outturn of quantitative targets is therefore considered
in the context of factors such as the buoyancy of occupier demand in the wider West End market and progression against longer-
term strategic goals, to determine whether the level of bonus is appropriate.
MEASuRE
WEIGHTING
TARGET
ACHIEVEMENT
COMMENT
Portfolio
performance
• Achieve growth
in ERVs
20% Extent by which commercial
lettings or lease renewals exceed
valuers’ ERV in previous year:
Minimum – 3%
Maximum – 5%
Annual growth in Group total
ERV (like-for-like):
Minimum – 3%
Maximum – 5%
Commercial lettings
exceeded previous year
ERV on average by 5.5%
Annual growth in total
ERV 6.6%
• Let vacant space
on a timely basis
10% Complete lettings within target
periods set by use
(range 1 – 4 months)
Average void period
(measured from date
space became available to
let): 1 month
• Effectively
achieve full
lettings
• Manage property
expenses as a
percentage of
rental income
Corporate
responsibility
performance
Deliver projects/
transactions
successfully
10% ERV of space available to let not
to exceed 3% of Group ERV
(measured quarterly)
Average available to let
vacancy during year: 2.3%
of Group ERV
10% Ratio of property outgoings to
gross rents receivable not to
exceed rolling three year
average (like-for-like)
10% Maintain relative rankings in key
indices:
• DJSI
• GRESB
40% Specific operational objectives to
be met during the year critical to:
• progressing key long term
property projects
• maintaining long-term stability
in the Group’s financing
arrangements
Ratio for year: 12.6%
Rolling three year
average: 12.4%
2014 rankings improved
against 2013. DJSI score
increased from 65 to 68,
GRESB stayed at number
three in peer group
Operational objectives
which were targeted for
completion during the year
were substantially fully met
PERCENTAGE
AWARDED
40%
Although each of
these income targets
was exceeded and
the expense target
was substantially
met, the Committee
recognised that
occupier demand
generally in the West
End had been very
buoyant throughout
the year
Target exceeded
10%
In the case of targets
set in respect of
longer-term
projects, progress
was evident, but was
considered not yet
conclusive in
assessing the
liklihood of their
ultimate successful
delivery
25%
75%
#071
100%
Maximum
performance
target
Actual
performance as a
% of maximum
Note: The executive directors elected to receive their annual bonus entirely in shares which equates to 93.75% of salary out of a maximum opportunity of 125% of salary.
annual remuneration report continued
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 2014 and the prior year:
J S Lane1
J C Little
W G McQueen2
O J D Marriott
D C A Mathias
H S Riva
S E Walden
fEE
2014
£’000
125
53
19
53
53
53
53
2013
£’000
73
50
50
50
50
50
50
COMMITTEE CHAIR fEES
TOTAL
2014
£’000
-
8
3
-
5
-
5
2013
£’000
-
8
8
-
-
-
-
2014
£’000
125
61
22
53
58
53
58
2013
£’000
73
58
58
50
50
50
50
1. Non-executive Chairman from 8 February 2013. See also single figure remuneration for executive directors on page 70.
2. Gordon McQueen retired from the Board on 7 February 2014.
Gains made by directors on exercise of share options (audited)
The directors below exercised nil cost options which had vested in the LTIP in December 2013. Executive directors sold sufficient
shares to meet income tax and national insurance liabilities on exercise. Jonathan Lane sold all his vested shares.
Shares from the Deferred Annual Share Bonus scheme were also released in December 2013 and were transferred to participants. Brian
Bickell retained all the shares released from the scheme and met the tax and national insurance liability from his own funds. Simon
Quayle and Thomas Welton sold sufficient shares to meet income tax and national insurance liabilities and retained the balance. Jonathan
Lane sold 22,161 shares and retained 5,000 shares.
Total gains are set out below:
B Bickell
S J Quayle
T J C Welton
J S Lane *
2014
£’000
281
271
261
376
1,189
2013
£’000
796
715
672
1,103
3,286
* The shares released to Jonathan Lane relate to awards received during his time as an executive director.
Share scheme interests awarded during the year (audited)
B Bickell
S J Quayle
T J C Welton
C P A Ward
DATE Of GRANT
20.12.2013
17.12.2013
20.12.2013
17.12.2013
20.12.2013
17.12.2013
20.12.2013
17.12.2013
SCHEME
LTIP*
Deferred Annual Share Bonus Scheme**
LTIP*
Deferred Annual Share Bonus Scheme**
LTIP*
Deferred Annual Share Bonus Scheme**
LTIP*
Deferred Annual Share Bonus Scheme**
AWARDS MADE
DuRING THE YEAR
MARkET PRICE AT
DATE Of AWARD £
fACE VALuE AT
DATE Of AWARD £
94,900
36,238
67,000
25,651
67,000
25,651
61,900
22,394
6.06
5.98
6.06
5.98
6.06
5.98
6.06
5.98
575,094
216,703
406,020
153,393
406,020
153,393
375,114
133,916
* Awards of nil cost options were made at 125% of salary. The LTIP performance period is 1.10.2013 to 30.9.2016; performance measures are set out on page 74.
** Deferred Annual Share Bonus Scheme relates to the annual bonus in respect of the year ended 30.9.2013 taken in shares. No further performance criteria are applied to share
awards under this scheme.
Both the schemes are described in detail in the policy table on the Group’s website.
#072
@shaftesbury.co.uk annual report 2014 annual remuneration report continued
goverNaNce
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; they may be left in the scheme for up to seven years. Income tax and employees’ national insurance are payable on release
based on the market value of the shares at that date. Dividend equivalents accrue on shares held in the trust and on release are paid
net of income tax and employees’ national insurance liabilities. No further performance measures are applied to these awards as an
entitlement to receive the full award is determined at the date of award under the annual bonus scheme:
ENTITLEMENT TO ORDINARY SHARES
B Bickell
S J Quayle
T J C Welton
C P A Ward
J S Lane**
MARkET
PRICE ON
DATE Of
GRANT
£
4.50
4.64
5.56
5.98
4.50
4.64
5.56
5.98
4.50
4.64
5.56
5.98
5.56
5.98
4.50
4.64
DATE Of GRANT
17.12.2010
21.12.2011
10.12.2012
17.12.2013
17.12.2010
21.12.2011
10.12.2012
17.12.2013
17.12.2010
21.12.2011
10.12.2012
17.12.2013
10.12.2012
17.12.2013
17.12.2010
21.12.2011
AT
1.10.2013
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
-
16,948
27,161
103,866
131,027
AWARDED
IN YEAR*
-
-
-
36,328
36,328
-
-
-
25,651
25,651
-
-
-
25,651
25,651
-
22,394
22,394
-
-
-
DELIVERED
IN YEAR
19,352
-
-
-
19,352
18,673
-
-
-
18,673
17,994
-
-
AT
30.9.2014
-
52,335
38,867
36,328
127,530
-
50,590
27,569
25,651
103,810
-
49,719
27,569
25,651
17,994
102,939
-
-
-
27,161
-
-
16,948
22,394
39,342
-
103,866
103,866
* In respect of the annual bonus for the year ended 30 September 2013.
** Jonathan Lane’s interests relate to awards made whilst an executive director.
Shares are held in an employee benefit trust which at 30 September 2014 held 497,891 shares.
#073
annual remuneration report continued
Directors’ share scheme interests (audited) continued
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 these options is determined by performance over a three year period. As a long-term business, a consistent approach to
target setting is taken. The performance criteria are, and have been, applied consistently since the LTIP was approved by
shareholders in 2006 and are set out below:
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
HISTORIC LTIP VESTING PERfORMANCE
Vesting %
100
0%
30%
Pro-rata on a straight line basis between 30% and 100%
100%
TSR
NAV
2009
2010
2011
2012
2013
2014
Year of vesting
50
0
#074
@shaftesbury.co.uk annual report 2014 annual remuneration report continued
goverNaNce
Directors’ share scheme interests (audited) continued
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
1.10.2013
GRANTED
DuRING
YEAR
VESTED
AND
EXERCISED
DuRING
YEAR
LAPSED
DuRING
YEAR
AT
30.9.2014
MARkET
PRICE Of
SHARE ON
DATE Of
EXERCISE
£
PERfORMANCE
PERIOD
EXERCISE
PERIOD
B Bickell
8.12.2010
4.32
81,050
7.12.2011
4.99 108,150
6.12.2012
5.55 100,600
-
-
-
S J Quayle
20.12.2013
8.12.2010
7.12.2011
6.12.2012
20.12.2013
T J C Welton
8.12.2010
C P A Ward
7.12.2011
6.12.2012
20.12.2013
17.1.2012
6.12.2012
20.12.2013
6.06
4.32
4.99
5.55
6.06
4.32
4.99
5.55
6.06
4.91
5.55
6.06
-
94,900
78,200
76,750
71,200
-
-
-
-
67,000
75,375
76,750
71,200
-
-
-
-
67,000
65,800
62,150
-
-
-
61,900
40,525 40,525
-
6.08 1.10.2010-30.9.2013 12.2013-6.2014
-
-
-
- 108,150
- 100,600
-
94,900
- 1.10.2011-30.9.2014 12.2014-6.2015
- 1.10.2012-30.9.2015 12.2015-6.2016
- 1.10.2013-30.9.2016 12.2016-6.2017
39,100 39,100
-
6.08 1.10.2010-30.9.2013 12.2013-6.2014
-
-
-
-
-
-
76,750
71,200
67,000
- 1.10.2011-30.9.2014 12.2014-6.2015
- 1.10.2012-30.9.2015 12.2015-6.2016
- 1.10.2013-30.9.2016 12.2016-6.2017
37,688 37,687
-
6.08 1.10.2010-30.9.2013 12.2013-6.2014
-
-
-
-
-
-
-
-
-
-
-
-
76,750
71,200
67,000
65,800
62,150
61,900
- 1.10.2011-30.9.2014 12.2014-6.2015
- 1.10.2012-30.9.2015 12.2015-6.2016
- 1.10.2013-30.9.2016 12.2016-6.2017
- 1.10.2011-30.9.2014 1.2015-7.2015
- 1.10.2012-30.9.2015 12.2015-6.2016
- 1.10.2013-30.9.2016 12.2016-6.2017
J S Lane*
8.12.2010
4.32 136,500
7.12.2011
4.99
44,050
-
-
53,665 82,835
-
6.08 1.10.2010-30.9.2013 12.2013-6.2014
- 24,097
19,953
- 1.10.2011-30.9.2014 12.2014-6.2015
50% of the options granted on 7 December 2011 will vest on 8 December 2014. The TSR performance condition over the three years
ended 30 September 2014 was not met, whilst NAV performance resulted in 100% vesting for this element.
* Jonathan Lane’s interests relate to options granted during his time as an executive director.
#075
annual remuneration report continued
Directors’ share scheme interests (audited) continued
3. 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 over three or five years. All directors have opted for five-year savings contracts.
NuMBER Of ORDINARY SHARES uNDER OPTION
B Bickell
S J Quayle
T J C Welton
C P A Ward
DATE
Of GRANT
8.7.2011
2.7.2014
8.7.2011
2.7.2014
8.7.2011
2.7.2014
5.7.2012
2.7.2014
AT
1.10.2013
3,595
GRANTED
DuRING
YEAR
-
-
2,788
3,595
-
-
2,788
3,595
-
-
2,788
3,759
-
-
2,788
LAPSED
DuRING
YEAR
EXERCISED
DuRING
YEAR
AT
30.9.2014
OPTION
PRICE
£
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,595
2,788
3,595
2,788
3,595
2,788
3,759
2,788
4.29
5.38
4.29
5.38
4.29
5.38
3.99
5.38
MARkET
VALuE
Of SHARE ON
DATE
Of EXERCISE
£
-
-
-
-
-
-
-
-
EXERCISE
PERIOD
8.2016-1.2017
8.2019-1.2020
8.2016-1.2017
8.2019-1.2020
8.2016-1.2017
8.2019-1.2020
8.2017-1.2018
8.2019-1.2020
HMRC increased the monthly savings limit under sharesave plans to £500 from April 2014. Under the rules of sharesave, all
employees must be invited to participate on similar terms. The executive directors entered a new savings contract under sharesave
for an additional £250 per month, and received a grant of options which become exercisable in July 2019. However, the exercise of
these options will be subject to approval by shareholders to increase the amount executive directors may save under sharesave
according to our approved policy, in line with revised HMRC limits. This amendment will be made the next time the policy report is
subject to a shareholder vote, which will be at the 2016 AGM at the latest and, therefore, prior to the exercise of these options.
The closing price of shares at 30 September 2014 was £6.82 and the range during the year was £5.80 to £6.94.
Directors’ shareholdings (audited)
Executive director
B Bickell
S J Quayle
T J C Welton
C P A Ward
Non-executive director
J S Lane
J C Little
W G McQueen
O J D Marriott
H S Riva
D C A Mathias
S E Walden
SHARES HELD AT
1.10.2013
SHARES ACQuIRED
DuRING THE YEAR
SHARES HELD AT
30.9.2014
865,722
835,212
662,222
5,448
1,060,000
2,142
8,333
5,000
6,450
8,000
20,000
60,763
40,537
29,431
4,776
15,000
3,225
-
-
4,032
8,208
-
926,485
875,749
691,653
10,224
1,075,000
5,367
n/a
5,000
10,482
16,208
20,000
There have been no changes in directors’ shareholdings between 30 September 2014 and the date of this report.
#076
@shaftesbury.co.uk annual report 2014
annual remuneration report continued
goverNaNce
Directors’ shareholdings continued
EXECuTIVE DIRECTORS’ SHAREHOLDINGS AND SHARE INTERESTS
B Bickell
S J Quayle
T J C Welton
C P A Ward
SHARES
OWNED OuTRIGHT
DEfERRED SHARES*
OPTIONS VESTED
BuT NOT EXERCISED
926,485
875,749
691,653
10,224
127,530
103,810
102,939
39,342
-
-
-
-
SHARES uNDER
OPTION NOT VESTED
AND SuBJECT TO
PERfORMANCE
CRITERIA*
303,650
214,950
214,950
189,850
SHARESAVE
SHAREHOLDING
REQuIREMENT MET**
6,383
6,383
6,383
6,547
Yes
Yes
Yes
No
* On exercise or vesting, 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 employees’ national insurance liability.
** 100% of salary at date of appointment to the Board, to be accumulated over five years. For Christopher Ward, this is 54,000 shares from the date of his appointent in January
2012. For the other executive directors their holdings are in excess of 14 times annual salary.
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 2013 and 2014 group and the 2013 figures have
been restated on that basis.
Base salary
Taxable benefits
Annual bonus
Total
CHIEf EXECuTIVE
2013
£’000
442
18
223
683
2014
£’000)
*460
19
431
910
CHANGE
4.1%
5.6%
93.3%
33.2%
OTHER EMPLOYEES
2014
£’000
2,196
187
1,843
4,226
2013
£’000
2,071
156
929
3,156
CHANGE
6.0%
19.9%
98.4%
33.9%
* The figure for Brian Bickell is the full annual salary rather than the salary received during the year and reported in the single figure remuneration table on page 70. The full
annual salary figure is provided here to permit comparison between the change in Chief Executive’s remuneration and that of other employees.
Relative importance of spend on pay (audited)
36.4
31.6
10.2
8.1
2014 £M
2013 £M
Employee costs
Dividends paid
#077
annual remuneration report continued
Review of past performance (audited)
The chart below shows the TSR for the Company compared with the FTSE 350 Real Estate Index, of which the Company is a
constituent, over six 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.
The table below the chart details the Chief Executive’s single figure remuneration over the same period.
SIX YEAR TSR CHART TO 30 SEPTEMBER 2014
Value of £100 invested at 30 September 2008 (includes dividends reinvested)
250
200
150
100
50
0
£241
£130
2008
2009
2010
2011
2012
2013
2014
Shaftesbury
FTSE 350 Real Estate Index
SIX YEAR CHIEf EXECuTIVE SINGLE fIGuRE REMuNERATION
Chief Executive single figure of remuneration (£’000)
Annual bonus payout (% maximum)
Long-term incentive award vesting (% maximum)
Shareholder voting (unaudited)
2009
J S LANE
850
50%
50%
2010
J S LANE
1,013
50%
50%
2011
J S LANE
1,650
90%
76.7%
2012
B BICkELL
2013
B BICkELL
2014
B BICkELL
1,198
40%
100%
1,075
40%
50%
1,397
75%
50%
At the 2014 AGM, there was a binding vote on the Remuneration Policy and an advisory vote on the Remuneration Report.
Voting by shareholders representing 85% of the issued share capital was as follows:
Remuneration Policy
Remuneration Report
fOR
211,899,815
204,844,827
% fOR
99%
99%
AGAINST
% AGAINST
WITHHELD
TOTAL VOTES
2,895,385
2,173,403
1%
1%
463,398
215,258,598
8,240,368
215,258,598
#078
@shaftesbury.co.uk annual report 2014
annual remuneration report continued
goverNaNce
Statement of implementation of remuneration for the year ending 30 September 2015 (unaudited)
EXECuTIVE DIRECTORS’ SaLaRIES FROm 1 DECEmbER 2014
The Committee recommended general increases in line with RPI for executive directors and employees with effect from 1 December
2014. 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 and is the final year where he has received a signficantly higher than average increase.
B Bickell
S J Quayle
T J C Welton
C P A Ward
1.12.2014
£’000
1.12.2013
£’000
INCREASE
475
335
335
328
460
325
325
300
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 2014 in
respect of the performance period 1 October 2014 to 30 September 2017. The performance measures will be as set out on page 74
and are the same targets used in each year since the plan was approved in 2006.
Disclosure of annual bonus targets for the year ending 30 September 2015 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. Performance against all targets will
be disclosed retrospectively, provided they are not commercially sensitive.
MEASuRE
Achieve growth in ERVs
Let vacant space on a timely basis
Effectively achieve full lettings
Manage property expenses as
a percentage of rental income
WEIGHTING
20%
10%
10%
10%
TARGET OR REASON fOR NON-DISCLOSuRE
The Committee considers detailed 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 counterparties
Corporate responsibility performance
10% To match baseline year (2013) corporate responsibility scores (DJSI 65
Deliver projects/transactions
successfully
and GRESB ranked 3 out of 10 in peer group)
40% Specific operational objectives to be met during the year critical to
progressing long-term property projects or aspects of the Group’s
long-term financing strategy
nOn-EXECuTIVE DIRECTORS’ FEES FOR yEaR EnDInG 30 SEpTEmbER 2015
Non-executive director fees are reviewed every two years. The previous review was undertaken in 2013 and fees therefore remain
unchanged for the year ahead.
J S Lane
J C Little
D C A Mathias
O J D Marriott
H S Riva
S E Walden
BASE fEE
£
125,000
52,500
52,500
52,500
52,500
52,500
*SENIOR
INDEPENDENT
DIRECTOR fEE
£
-
8,250
-
-
-
-
COMMITTEE
CHAIR fEE
£
-
-
8,250
-
-
8,250
* Fee is only payable if the Senior Independent Director is not the chair of any other committee.
Sally Walden
Chairman - Remuneration Committee
TOTAL fEE
£
125,000
60,750
60,750
52,500
52,500
60,750
#079
Directors’ report
The directors present their report and the
audited consolidated financial statements
for the year ended 30 September 2014.
STRaTEGIC REpORT
see strategic report pages 1 to 53
RESuLTS anD DIVIDEnDS
The results for the year ended 30 September 2014 are set out in
the Group Statement of Comprehensive Income on page 88.
An interim dividend of 6.5p per ordinary share was paid on 4 July
2014 (2013: 6.25p).
The directors recommend a final dividend in respect of the year
ended 30 September 2014 of 6.6p per ordinary share (2013:
6.25p), making a total dividend for the year of 13.1p per ordinary
share (2013: 12.5p). If authorised at the 2015 AGM, the dividend
will be paid on 13 February 2015 to members on the register at
the close of business on 23 January 2015. 1.8p of the dividend
will be paid as a PID and 4.8p as an ordinary dividend.
see page 57 for further information on effect of REIT status on payment of dividends
SHaRE CapITaL
During the year, a total of 25,550,092 shares were issued.
300,092 shares were issued at either nil cost or in the range
£2.37 to £4.29, on the exercise of employee share options.
25,250,000 shares were issued in respect of a placing of ordinary
shares on 6 March 2014 at £6.20. At 30 September 2014, the
Company’s issued share capital comprised 277,864,259 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.
#080
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 2014 and up to the date of the
financial statements, their interests in the ordinary share capital
of the Company and details of options granted under the
Group’s share schemes are set out in the Annual Remuneration
Report on pages 69 to 79.
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.
SubSTanTIaL SHaREHOLDInGS
At 27 November 2014, the Company had been notified, in
accordance with the UK Listing Authority’s Disclosure Rules and
Transparency Rules, that the following nine shareholders held,
or were beneficially interested in, 3% or more of the Company’s
issued share capital amounting to a total of 57.3%:
ISSuED SHARE CAPITAL
%
Invesco Limited
BlackRock Inc
Norges Bank
Ameriprise Financial Inc
Standard Life Investments Limited
F&C Asset Management plc
PEL (UK) Limited
Royal London Asset Management Limited
Stichting Pensioenfonds ABP
11.00
9.45
9.02
5.00
4.97
4.97
4.96
4.37
3.56
puRCHaSE OF OWn SHaRES
The Company was granted authority at the 2014 AGM to make
market purchases of its own ordinary shares. This authority will
expire at the conclusion of the 2015 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 2014 to 27 November 2014.
@shaftesbury.co.uk annual report 2014 directors’ report continued
goverNaNce
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.
FInanCIaL InSTRumEnTS
see pages 108 to 109
CHanGE OF COnTROL
There are a number of debt and other financing agreements
which contain clauses which take effect, alter or terminate the
agreement upon 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.
auTHORISaTIOn OF DIRECTORS’ COnFLICTS OF
InTERESTS
Directors are required to notify the Company of any conflict or
potential conflict of interest and make an annual declaration.
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.
EmpLOymEnT anD EnVIROnmEnTaL maTTERS
see corporate responsibility page 51 and nomination committee report
pages 61 to 62
GREEnHOuSE GaS REpORTInG
The Group’s carbon emissions are immaterial. However,
in compliance with legislation, they are set out below.
This year we have followed the 2013 UK Government environmental
reporting guidance and used 2014 UK Government’s Greenhouse
Gas Conversion Factors for Company Reporting. For a full
definition of the reporting boundaries, please see the Summary
corporate responsibility report and the data report on the Group’s
website.
Greenhouse gas emissions for the head office, portfolio and
refurbishment sites (tCO2e) show a 15.97% increase over the year.
This year data is reported for all of Longmartin. As the Group
has full operational control, in line with best practice, it is
included within the reporting boundaries. Last year’s results
have therefore been restated on this basis, with an overall
increase in the level of consumption.
The chosen emissions intensity is for common parts floor areas,
which have been measured in 39 of the 161 reported properties
with common parts only and the emissions intensity figure has
been obtained of 45.78 kgCO2e/m2 (0.045 tonnes CO2e/m2.)
The greenhouse gas emissions data for 2013 and 2014 has been
externally verified by Planet and Prosperity Limited. The
verification statements are available on the Group’s website.
Scope 1
Scope 2
Scope 3
Total All Scopes
TOTAL
OPERATIONAL
CONTROL
2014
TCO2E
139.05
total
operational
control
2013
tco2e
99.15
1,394.43
1,196.00
171.75
175.30
1,705.23
1,470.45
InDEpEnDEnT auDITORS
A resolution for the reappointment of PricewaterhouseCoopers
LLP as auditors to the Company will be proposed at the 2015
AGM. The Board, on the advice of the Audit Committee,
recommends their reappointment. PricewaterhouseCoopers
LLP have consented to act if re-appointed.
2015 annuaL GEnERaL mEETInG
The 2015 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) so far as they are aware, there is no relevant audit information
of which the Company’s auditors are unaware; and
b) 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 2014
#081
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.
Each of the directors, whose names and functions are listed on
pages 56 to 57 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 1 to 53 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.
Directors’ responsibilities
The directors are responsible for preparing
the Annual Report, the Remuneration
Report and the financial statements in
accordance with applicable law and
regulations.
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; and
• 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 Report 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.
#082
@shaftesbury.co.uk annual report 2014 independent auditors’ report
To the members of Shaftesbury PLc
goverNaNce
Report on the financial statements
OuR OpInIOn
In our opinion:
• Shaftesbury PLC’s Group financial statements and Company
financial statements (the “financial statements”) give a true and
fair view of the state of the Group’s and of the Company’s affairs
as at 30 September 2014 and of the Group’s profit and the
Group’s and the 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 Company financial statements have been properly prepared
in accordance with International Financial Reporting Standards
(“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.
WHaT WE HaVE auDITED
Shaftesbury PLC’s financial statements comprise:
• the Group and Company Balance Sheets as at 30 September 2014;
• the Group Statement of Comprehensive Income for the year
then ended;
• the Group and Company Cash Flow Statements for the year
then ended;
• the Group and Company Statements of Changes in 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.
Certain required disclosures 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.
The financial reporting framework that has been applied in the
preparation of the financial statements is applicable law and
IFRSs as adopted by the European Union and, as regards the
Company financial statements, as applied in accordance with
the provisions of the Companies Act 2006.
THE SCOpE OF OuR auDIT anD OuR aREa OF FOCuS
We conducted our audit in accordance with International
Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”).
We designed our audit by determining materiality and assessing
the risks of material misstatement in the financial statements.
In particular, we looked at where the directors made subjective
judgements, for example in respect of significant accounting estimates
that involved making assumptions and considering future events
that are inherently uncertain. As in all of our audits, we also addressed
the risk of management override of internal controls, including
evaluating whether there is evidence of bias by the directors that
may represent a risk of material misstatement due to fraud.
The risk of material misstatement that had the greatest effect
on our audit, including the allocation of our resources and effort,
is identified as an “area of focus” in the table below together
with an explanation of how we tailored our audit to address it.
This is not a complete list of all risks identified by our audit.
AREA Of fOCuS
Valuation of investment properties
The valuation of the Group’s investment properties is the key
component of the net asset value and of the Group’s result for
the year. The result of the revaluation this year was a gain of
£426.4m (2013: £174.3m), which is accounted for under ‘Change
in the fair value of investment properties’ in the Group Statement
of Comprehensive Income. £394.0m of the revaluation related
to the wholly-owned portfolio, and £32.4m related to the
Group’s joint venture. A summary of the third party valuer’s
report covering the wholly-owned portfolio can be found on
pages 120 to 121 of the Annual Report.
The valuations are carried out by third party valuers in accordance
with the RICS Valuation - Professional Standards and IFRS 13 and
take into account, where available, evidence of market transactions
for properties and locations comparable to those of the Group.
The Group’s portfolio comprises retail, restaurants, offices and
residential property focused solely in the West End of London.
As a result the range of variables to be taken into account when
making the key judgements and assumptions associated with the
revaluation is narrower than for some other property companies.
HOW OuR AuDIT ADDRESSED THE AREA Of fOCuS
The valuers used by the Group, DTZ and Knight Frank, are
well-known firms, with considerable experience of the
Group’s market. We assessed the competence, capabilities
and objectivity of the firms, and verified their qualifications.
We also discussed the scope of their work and reviewed the
terms of their engagement in order to check that there were
no unusual terms or fee arrangements.
We tested the data inputs underpinning the investment property
valuation for a sample of properties, including rental income,
acquisitions and capital expenditure, by agreeing them back
to supporting documentation to assess the reliability,
completeness and accuracy of the underlying data.
We met with the valuers independently of management and
assessed the assumptions used and the reasons behind a
number of significant movements in the valuations. These
related primarily to yield compression, ERV growth and
acquisitions in the year.
#083
Independent auditors’ report continued
AREA Of fOCuS
HOW OuR AuDIT ADDRESSED THE AREA Of fOCuS
There are, however, still significant judgements and estimates
to be made in relation to the valuation of the Group’s
properties. For the 2014 revaluation these included
assumptions regarding yield compression and estimated rental
value (“ERV”) growth, which have moved favourably reflecting
the buoyancy of the central London property market.
We also compared a sample of the valuations to our
independently formed market expectations and challenged
any differences. In doing this we used evidence of comparable
market transactions and focused in particular on properties
where the growth in capital values was higher or lower than
our expectations based on market indices.
We focused our work on these key judgements as well as on
the robustness of the valuation process in general.
HOW WE TaILORED THE auDIT SCOpE
maTERIaLITy
We tailored the scope of our audit to ensure that we performed
enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the
Group, the accounting processes and controls, and the industry
in which the Group operates.
The Group’s properties are combined into five ‘villages’ spread
across six statutory entities. The Group financial statements are
a consolidation of the six entities, the Company and the Group’s
joint venture. All parts of the Group, including the joint venture,
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.
The scope of our audit is influenced by our application of
materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations,
helped us to determine the scope of our audit and 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 financial statements as a whole as bellow:
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £1.1 million
for financial statement line items where overall materiality applied
and £165,000 for line items where specific materiality applied
(2013: £150,000) as well as misstatements below that amount
that, in our view, warranted reporting for qualitative reasons.
Overall Group materiality
£22.0 million (2013: £3.1 million)
How we determined it
1% of total assets
Specific materiality
£3.3 million (2013: n/a)
How we determined it
5% of profit before tax before net finance costs and investment property valuation movements.
Rationale for
benchmarks applied
As explained above, the key area of focus in the audit is the valuation of investment properties
and the balance sheet as a whole. Given this, we set an overall Group materiality level based on
total assets. In addition, a number of key performance indicators of the Group are driven by
income statement items and we therefore also applied a lower specific materiality for testing
certain revenue and expense line items and related working capital balances.
This year we changed the basis for calculating overall materiality from the prior year, from an
adjusted profit benchmark to an asset based benchmark. This was done to more closely align
materiality with the key performance measure of the Group, being Net Asset Value. This change
did not impact on the level of audit work because we used a specific materiality level for certain
line items and because, due to their nature, the extent of our other procedures was not
determined using overall materiality. Neither did the change affect our evaluation of audit
findings because the total unadjusted differences were not above last year’s overall materiality
level.
#084
@shaftesbury.co.uk annual report 2014 Independent auditors’ report continued
goverNaNce
GOInG COnCERn
Under the Listing Rules we are required to review the directors’
statement, set out on page 60, 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 financial statements using
the going concern basis of accounting. The going concern basis
presumes that the Group and 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 Company’s ability to continue as a going concern.
Other required reporting
COnSISTEnCy OF OTHER InFORmaTIOn
Companies Act 2006 opinions
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; and
• the information given in the Corporate Governance Statement
set out on page 60 with respect to internal control and risk
management systems and about share capital structures is
consistent with the financial statements.
ISAs (UK & Ireland) reporting
Under ISAs (UK & 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 Company
acquired in the course of performing our audit; or
− is otherwise misleading.
We have no exceptions to report arising from this responsibility.
• the statement given by the directors on page 82, in accordance
with provision C.1.1 of the UK Corporate Governance Code
(“the Code”), 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
and Company’s performance, business model and strategy is
materially inconsistent with our knowledge of the Group and
Company acquired in the course of performing our audit.
We have no exceptions to report arising from this responsibility.
• the section of the Annual Report on page 64, as required by
provision C.3.8 of the Code, 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.
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
• adequate accounting records have not been kept by the
Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the 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
Directors’ remuneration report - Companies Act 2006 opinion
In our opinion, the part of the Directors’ Remuneration Report to
be audited has been properly prepared in accordance with the
Companies Act 2006.
Other Companies Act 2006 reporting
Under the Companies Act 2006 we are required to report to you
if, in our opinion, certain disclosures of directors’ remuneration
specified by law are not made. We have no exceptions to report
arising from this responsibility.
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 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. We have nothing to report having performed our review.
#085
We test and examine information, using sampling and other
auditing techniques, to the extent we consider necessary to
provide a reasonable basis for us to draw conclusions. We
obtain audit evidence through testing the effectiveness of
controls, substantive procedures or a combination of both.
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.
Andrew Paynter (Senior Statutory Auditor)
For and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
27 November 2014
Independent auditors’ report continued
Responsibilities for the financial
statements and the audit
OuR RESpOnSIbILITIES anD THOSE OF THE DIRECTORS
As explained more fully in the Directors’ Responsibilities set out
on page 82, the directors are responsible for the preparation of
the 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
financial statements in accordance with applicable law and ISAs
(UK & 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.
WHaT an auDIT OF FInanCIaL STaTEmEnTS
InVOLVES
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:
• whether the accounting policies are appropriate to the Group’s
and the 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.
We primarily focus our work in these areas by assessing the
directors’ judgements against available evidence, forming our
own judgements, and evaluating the disclosures in the financial
statements.
#086
@shaftesbury.co.uk annual report 2014 Group statement of comprehensive income
For the year ended 30 September 2014 088
Balance sheets 089
As at 30 September 2014 089
Cash flow statements 090
For the year ended 30 September 2014 090
Statements of changes in equity 091
For the year ended 30 September 2014 091
Notes to the financial statements 092
For the year ended 30 September 2014 092
Financial statements
Shaftesbury SELf PORTRAIT
Financial statements
Group statement of comprehensive income 88
Balance sheets 89
Cash flow statements 90
Statements of changes in equity 91
Notes to the financial statements 92
#087
Group statement of comprehensive income
For the year ended 30 September 2014
Revenue
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 valuation movements
Net gain on revaluation of investment properties
Operating profit
Finance income
Finance costs
Change in fair value of derivative financial instruments
Net finance (costs)/income
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
note
4
5
6
8
13
7
9
21
10
11
2014
£M
98.2
(18.5)
79.7
(8.2)
(2.6)
(3.2)
(14.0)
65.7
426.4
492.1
-
(32.8)
(12.0)
(44.8)
447.3
(0.3)
(6.6)
(6.9)
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)
440.4
239.3
165.2p
164.6p
12.2p
95.0p
94.7p
12.0p
#088
@shaftesbury.co.uk annual report 2014 Balance sheets
As at 30 September 2014
Non-current assets
Investment properties
Accrued income
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
Share capital
Share premium
Share based payments reserve
Retained earnings
Total equity
Net asset value per share:
Basic
Diluted
EPRA
fiNaNciaL StateMeNtS
GROuP
2014
£M
2013
£M
COMPANY
2014
£M
2013
£M
note
13
14
15
16
17
18
19
20
21
23
24
25
25
25
26
2,605.1
2,046.6
10.3
1.6
-
-
9.3
0.6
-
-
2,617.0
2,056.5
21.2
7.7
19.7
5.7
-
-
1.6
786.0
59.0
846.6
425.0
-
-
-
0.6
626.0
59.0
685.6
585.5
-
2,645.9
2,081.9
1,271.6
1,271.1
39.8
35.8
8.9
7.5
618.4
78.8
15.7
752.7
610.5
95.8
9.1
751.2
429.9
78.8
-
517.6
554.1
95.8
-
657.4
1,893.2
1,330.7
754.0
613.7
69.5
124.6
4.0
555.9
754.0
63.1
124.3
3.0
423.3
613.7
69.5
124.6
4.0
1,695.1
1,893.2
£6.81
£6.79
£7.13
63.1
124.3
3.0
1,140.3
1,330.7
£5.27
£5.26
£5.67
On behalf of the Board who approved and authorised for issue the financial statements on pages 88 to 116 on 27 November 2014.
Brian Bickell
Chief Executive
Christopher Ward
Finance Director
#089
GROuP
2014
£M
2013
£M
71.4
-
(30.3)
(0.3)
40.8
(108.0)
(26.3)
(1.4)
-
(135.7)
153.2
-
(123.6)
134.8
(4.2)
(29.0)
(0.5)
(33.8)
-
-
96.9
2.0
5.7
7.7
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
note
27
24
28
28
28
21
28
18
18
COMPANY
2014
£M
(9.2)
-
(26.3)
-
(35.5)
-
-
(1.4)
2.7
1.3
153.2
-
(122.8)
-
(2.2)
(29.0)
-
(33.8)
70.7
(1.9)
34.2
-
-
-
2013
£M
(9.0)
-
(27.8)
-
(36.8)
-
-
(0.2)
0.3
0.1
-
0.9
48.9
-
-
-
-
(30.9)
17.8
-
36.7
-
-
-
cash flow statements
For the year ended 30 September 2014
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
Investment property acquisitions
Capital expenditure on investment properties
Purchase of property, plant and equipment
Dividends received from joint venture
Net cash used in investing activities
Cash flows from financing activities
Net proceeds from share placing
Proceeds from exercise of share options
(Repayment of)/proceeds from borrowings
Proceeds from secured term loan
Facility arrangement costs
Termination of derivative financial instruments
Payment of head lease liabilities
Equity dividends paid
Decrease in loans to subsidiaries
Increase 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
#090
@shaftesbury.co.uk annual report 2014 Statements of changes in equity
For the year ended 30 September 2014
fiNaNciaL StateMeNtS
ORDINARY
SHARES
£M
note
MERGER
RESERVE
£M
SHARE
PREMIuM
£M
SHARE BASED
PAYMENTS
RESERVE
£M
RETAINED
EARNINGS
£M
TOTAL
£M
Group
At 1 October 2012
Profit and total comprehensive income 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
Profit and total comprehensive income for the year
Transactions with owners:
Dividends paid during the year
Shares issued in connection with share placing
Transfer to retained earnings
Transactions costs associated with share placing
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 2014
Company
At 1 October 2012
Profit and total comprehensive income 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
Profit and total comprehensive income for the year
Transactions with owners:
Dividends paid during the year
Shares issued in connection with share placing
Transfer to retained earnings
Transactions costs associated with share placing
62.9
-
-
0.2
-
-
63.1
-
-
-
-
-
-
-
-
-
-
-
6.3
150.3
-
-
0.1
-
-
69.5
62.9
-
-
0.2
-
-
63.1
-
-
(150.3)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6.3
150.3
12
24
8
12
24
24
8
12
24
8
12
24
-
-
(150.3)
-
-
-
-
-
123.6
2.7
-
-
0.7
-
-
-
-
-
2.2
(1.9)
930.2
239.3
1,119.4
239.3
(31.1)
(31.1)
-
-
1.9
0.9
2.2
-
124.3
3.0
1,140.3
1,330.7
-
-
-
-
-
0.3
-
-
-
-
-
-
-
-
2.7
(1.7)
440.4
440.4
(33.9)
(33.9)
-
156.6
150.3
(3.4)
(0.3)
-
1.7
-
(3.4)
0.1
2.7
-
124.6
4.0
1,695.1
1,893.2
123.6
2.7
-
-
0.7
-
-
124.3
-
-
-
-
-
0.3
-
-
124.6
-
-
-
2.2
(1.9)
3.0
-
-
-
-
-
-
2.7
(1.7)
4.0
377.5
75.0
566.7
75.0
(31.1)
(31.1)
-
-
1.9
423.3
18.2
0.9
2.2
-
613.7
18.2
(33.9)
(33.9)
-
156.6
150.3
(3.4)
(0.3)
-
1.7
-
(3.4)
0.1
2.7
-
555.9
754.0
#091
Shares issued in connection with the exercise of share options
24, 25
0.1
Fair value of share based payments
8
Transfer in respect of options exercised
At 30 September 2014
-
-
69.5
Notes to the financial statements
For the year ended 30 September 2014
1. GENERAL iNFORMATiON
GEnERaL InFORmaTIOn
The consolidated financial statements of the Group for the year ended 30 September 2014 comprise the results of the Company, its
subsidiaries and joint venture and were approved by the Board for issue on 27 November 2014.
The nature of the Group’s operations and its principal activities are set out in the Strategic Report on pages 1 to 4 and 8 to 21.
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 57.
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.
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 £18.2 million (2013: £75.0 million) in the year.
GOInG COnCERn
The Group adopts the going concern basis in preparing its consolidated financial statements as explained on page 60.
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
properties 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. DTZ Debenham Tie Leung Limited and Knight Frank
LLP make a number of assumptions in forming their opinion on the valuation of our investment properties, which are detailed in the
Basis of Valuation on pages 118 to 119. 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 position.
#092
@shaftesbury.co.uk annual report 2014 fiNaNciaL StateMeNtS
2. AccOUNTiNG POLiciES
nEW aCCOunTInG STanDaRDS anD InTERpRETaTIOnS
a) The following new standards and amendments to standards are mandatory for the first time for the financial year ended 30 September 2014:
STANDARD OR INTERPRETATION
IAS 12 Income taxes on deferred tax
IFRS 13 Fair value measurement
IAS 19 (revised 2011) Employee benefits
IFRS 7 Financial instruments asset and liability offsetting
Annual improvements 2011
EffECTIVE fROM
1 January 2013
1 January 2013
1 January 2013
1 January 2013
1 January 2013
Under IFRS 13 the Group’s derivative financial instruments are measured at fair value, being the estimated amount that the Group
would receive or pay to terminate the agreements at the balance sheet date, taking into account current interest rate expectations
and the current credit rating of the counterparties. The gain or loss at each fair value remeasurement is recognised in the Group
Statement of Comprehensive Income. The implementation of this standard has resulted in a credit value adjustment which has
reduced the reported deficit on the Group’s interest rate swaps. It has also resulted in additional disclosures.
As a result of adopting IFRS 13, the financial statements for the year ending 30 September 2014 also include additional assumptions
and sensitivity disclosures regarding the fair value measurement of investment properties. This standard has not had an impact on
reported investment property valuations.
Apart from IFRS 13, no material changes to accounting policies or disclosures arose as a result of these new standards and amendments.
b) Standards, amendments and interpretations relevant to the Group that are not yet effective in the year ending 30 September 2014
and are 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
IAS 39 Financial instruments - recognition and measurement
IAS 36 Impairment of assets
EffECTIVE fROM
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
c) The following new standard is relevant to the Group but not yet effective in the year ending 30 September 2014 and is 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
The Group currently accounts for its joint venture using proportional
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.
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, prepared up to the Balance Sheet date.
#093
Notes to the financial statements continued notes to the financial statements continued
2. ACCOUNTING POLICIES CONTINUED
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 that they are 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, the investment in joint venture is stated at cost less any provisions for permanent impairment loss.
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.
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 incentive balances
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.
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, comprising interest rate swaps for hedging purposes, are initially recognised at cost and are
subsequently measured at fair value being the estimated amount that the Group would receive or pay to terminate the agreement at
the Balance Sheet date, taking into account current interest rate expectations and the current credit rating of the counterparties.
The gain or loss at each fair value remeasurement is recognised in the Group Statement of Comprehensive Income. Amounts
payable or receivable under such arrangements are included within finance costs or income, recognised on an accruals basis.
#094
fiNaNciaL StateMeNtS
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.
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 value-enhancing 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 option, on a straight-line basis. Lease incentives are usually in the form of rent free periods.
pROpERTy CHaRGES
Irrecoverable property costs 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 value-enhancing 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.
#095
Notes to the financial statements continued notes to the financial statements continued
2. ACCOUNTING POLICIES CONTINUED
EMPLOYEE BENEFITS CONTINUED
(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
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 recognised as both an asset and an obligation to pay future minimum lease
payments. They 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. Lease payments are allocated between the head lease liability and finance charges to achieve a
constant rate of interest.
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.
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 segment.
The Board assesses the performance of the reportable segment based on 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.
#096
4. REvENUE
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 (2013: £1.3 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)
7. OPERATiNG PROFiT
The following items have been (credited)/charged in arriving at operating profit:
Administrative fees receivable from joint venture
Depreciation
Operating lease rentals - office premises
fiNaNciaL StateMeNtS
2014
£M
85.3
6.3
91.6
6.6
98.2
2014
£M
5.0
2.1
3.3
1.5
11.9
6.6
18.5
2014
£M
74.1
5.6
79.7
2014
£M
(0.2)
0.4
0.4
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
2013
£M
(0.2)
0.2
0.2
#097
Notes to the financial statements continued notes to the financial statements continued
7. OPERATING PROFIT CONTINUED
AuDITOR’S REMuNERATION
Audit of the Company
Audit of the consolidated Group
Total audit services
Audit related assurance services, including the interim review
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
Other non-audit services totalling £7,000 (2013: £6,000) related to accounting and reporting advice.
Total audit and assurance fees accounted for 59% (2013: 70%) 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)
AVERAGE MONTHLY NuMBER Of EMPLOYEES (GROuP)
Executive directors
Head office and property management
Estate management
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 79.
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.
#098
2014
£M
2.7
0.5
3.2
2014
£000
56
93
149
20
169
36
73
109
7
116
285
2014
£M
3.6
2.6
0.5
0.3
3.2
10.2
2013
£000
50
83
133
20
153
36
24
60
6
66
219
2013
£M
3.2
1.4
0.4
0.4
2.7
8.1
2014
NuMBER
2013
nuMber
4
17
2
23
4
16
2
22
2013
£M
2.2
0.5
2.7
9. FiNANcE cOSTS
Debenture stock interest and amortisation
Bank and other interest
Facility arrangement cost amortisation
Facility arrangement costs written-off on refinancing
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 22% (2013: 23.5%)
REIT tax exempt rental profits and revaluation gains
Non REIT fair value adjustments not allowable for tax purposes
Deferred tax not provided on excess losses of residual business
Change in deferred tax rate
Other timing differences
Tax charge for the year
fiNaNciaL StateMeNtS
2014
£M
5.0
13.9
0.8
0.3
12.3
0.5
32.8
2014
£M
0.3
6.5
0.1
6.6
6.9
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
447.3
98.4
241.7
56.8
(94.2)
(45.0)
2.6
0.7
-
(0.6)
6.9
(8.7)
0.4
(1.1)
-
2.4
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.
#099
Notes to the financial statements continued notes to the financial statements continued
11. EARNiNGS PER SHARE
The calculations below are in accordance with the EPRA Best Practice Recommendations.
2014
WEIGHTED
AVERAGE
NuMBER Of
ORDINARY
SHARES
MILLION
EARNINGS
PER SHARE
PENCE
266.6
165.2
PROfIT
AfTER
TAX
£M
440.4
2013
Weighted
average
nuMber of
ordinary
shares
Million
251.9
profit
after
tax
£M
239.3
Basic
EPRA adjustments:
Investment property valuation movements
(426.4)
(159.9)
(174.3)
Movement in fair value of derivative
financial instruments
Deferred tax on property valuations and
capital allowances
EPRA
Diluted
12.0
6.6
32.6
440.4
266.6
267.6
4.5
(37.0)
2.5
12.2
164.6
2.2
30.2
239.3
251.9
252.7
earnings
per share
pence
95.0
(69.2)
(14.7)
0.9
12.0
94.7
The difference between the weighted average and diluted weighted average number of ordinary shares arises from the potentially
dilutive effect of outstanding options granted over ordinary shares.
12. DiviDENDS PAiD
Final dividend paid in respect of:
Year ended 30 September 2013 at 6.25p per share
Year ended 30 September 2012 at 6.05p per share
Interim dividend paid in respect of:
Six months ended 31 March 2014 at 6.50p per share
Six months ended 31 March 2013 at 6.25p per share
2014
£M
15.9
-
18.0
-
33.9
2013
£M
-
15.4
-
15.7
31.1
A final dividend of 6.6p per share was recommended by the Board on 27 November 2014. Subject to approval by shareholders at the
2015 AGM, the final dividend will be paid on 13 February 2015 to shareholders on the register at 23 January 2015. 1.8p of the
dividend will be paid as a PID under the UK REIT regime and 4.8p will be paid as an ordinary dividend. The dividend totalling £18.4
million will be accounted for as an appropriation of revenue reserves in the year ending 30 September 2015.
The trustee of the Company’s Employee Benefit Trust waived dividends in respect of 497,891 (2013: 471,760) ordinary shares during
the year.
#100
13. iNvESTMENT PROPERTiES
pROpERTy RECOnCILIaTIOn
At 1 October
Acquisitions
Refurbishment and other capital expenditure
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 leases capitalised
Less: Lease incentives recognised to date
Book value at 30 September
Historic cost of properties carried at valuation
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
fiNaNciaL StateMeNtS
2014
£M
2013
£M
2,041.2
1,818.1
107.9
24.2
426.4
2,599.7
5.4
28.0
20.8
174.3
2,041.2
5.4
2,605.1
2,046.6
2,434.6
177.9
2,612.5
5.4
(12.8)
2,605.1
1,208.1
1,908.9
143.7
2,052.6
5.4
(11.4)
2,046.6
1,076.0
2014
£M
2013
£M
2,238.6
1,793.3
236.9
137.0
150.7
108.6
2,612.5
2,052.6
EXTERnaL VaLuERS
Investment properties were subject to external valuation as at 30 September 2014 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 properties were valued on the basis of fair value and highest and best use in accordance with the RICS Valuation - Professional
Standards 2014 and IFRS 13. When considering the highest and best use a valuer considers its actual and potential uses which are
legally and financially viable. Where the highest and best use differs from the existing use, the valuer considers the use a market
participant would have in mind when formulating the price it would bid and reflects the cost and likelihood of achieving that use.
The external valuations use information provided by the Group, such as tenancy information and capital expenditure expectations.
The valuers, in forming their opinion make a series of assumptions. The assumptions are typically market related, such as yields
and rental values, and are based on the valuers’ professional judgement and market observations. The major inputs to the external
valuation are reviewed by the senior management team. In addition, the valuers meet with external auditors and members of the
Audit Committee. Further details of the Audit Committee’s responsibilities in relation to valuations can be found in the Audit
Committee Report on page 64.
A summary of the DTZ Debenham Tie Leung Limited report can be found on pages 120 to 121.
#101
Notes to the financial statements continued notes to the financial statements continued
13. INVESTMENT PROPERTIES CONTINUED
EXTERnaL VaLuaTIOn FEES
Annual and half year valuations
Bank security valuations
2014
£M
0.3
0.2
0.5
2013
£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.
FaIR VaLuE mEaSuREmEnTS uSInG unObSERVabLE InpuTS (LEVEL 3)
The Group’s investment properties are reported under IFRS 13 ‘Fair value measurement’ which uses the following hierarchy to
determine the valuation basis of assets or liabilities:
HIERARCHY
DESCRIPTION
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).
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.
The fair value of the Group’s investment properties has primarily been determined using a Market Approach, which provides an
indication of value by comparing the subject asset with identical or similar assets for which price information is available. There are
a number of assumptions that are made in deriving the fair value, including equivalent yields and ERVs. Equivalent yields are based
on current market prices, depending on, inter alia, the location and use of the property. ERVs are calculated using a number of
factors which include market comparatives in terms of the buildings’ configuration, condition, size, location and the timing of
evidence such as rent reviews. Whilst there is market evidence for these inputs, and recent transaction prices for similar properties,
there is still a significant element of estimation and judgement. As a result of adjustments made to market observable data, these
significant inputs are deemed unobservable.
The Group considers all of its investment properties to fall within Level 3. The Group’s policy is to recognise transfers between fair
value hierarchy levels as at the date of the event or change in circumstances that caused the transfer. There have been no transfers
during the year.
The key assumptions made by the valuers are set out in the Basis of Valuation on pages 118 to 119.
SEnSITIVITy anaLySIS
As noted in the critical judgements, assumptions and estimates section of note 1 on page 92, the valuation of the Group’s property
portfolio is inherently subjective. As a result, the valuation 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 Group’s properties are all located in the West End of London and are virtually all multi-use buildings, usually configured with
commercial uses on the lower floors and office and/or residential uses on the upper floors. DTZ Debenham Tie Leung Limited and
Knight Frank LLP value properties in their entirety and not by use, consequently the sensitivity analysis below has been performed
on the Group’s portfolio as a whole.
Increase/(decrease) in the fair value of investment properties
#102
CHANGE IN ERV
CHANGE IN EQuIVALENT YIELDS
+5.0%
£M
120.2
-5.0%
£M
+0.25%
£M
(114.1)
(147.3)
-0.25%
£M
173.1
fiNaNciaL StateMeNtS
13. INVESTMENT PROPERTIES CONTINUED
These key unobservable inputs are inter-dependent. All other factors being equal, a higher equivalent yield would lead to a decrease
in the valuation of a property, and an increase in the ERV would increase the capital value, and vice versa.
CapITaL COmmITmEnTS
Authorised and contracted
Authorised but not contracted
*Group’s share.
14. AccRUED iNcOME
Accrued income in respect of lease incentives recognised to date
Less: included in trade and other receivables (note 17)
WHOLLY-OWNED GROuP
2013
£M
2014
£M
15.0
22.2
19.1
0.5
LONGMARTIN JOINT VENTuRE*
2014
£M
0.3
-
2014
£M
12.8
(2.5)
10.3
2013
£M
0.2
-
2013
£M
11.4
(2.1)
9.3
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
Additional share capital issued by a subsidiary
Write-off of investment in non-trading subsidiary prior to liquidation
At 30 September
2014
£M
626.0
160.0
-
786.0
2013
£M
638.2
-
(12.2)
626.0
During the year Shaftesbury CL Investment Limited, a wholly-owned subsidiary of the Company, issued 160.0 million ordinary shares
of £1 each to the Company at par value.
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 the
directors, principally affect the financial statements. A full list of Group companies will be included in the Company’s next annual
return in accordance with Section 410 of the Companies Act 2006.
Except where indicated otherwise, the Company owns, directly, all of the ordinary issued share capital of the following principal
subsidiary undertakings:
Shaftesbury Carnaby Limited
Shaftesbury Chinatown Limited
Shaftesbury Charlotte Street Limited
Shaftesbury CL Limited*
Shaftesbury Covent Garden Limited
Shaftesbury Soho Limited
* The share capital of this subsidiary is held by another Group company.
All of the companies are engaged in property investment, are incorporated in Great Britain and are registered in England and Wales.
#103
Notes to the financial statements continued notes to the financial statements continued
16. iNvESTMENT iN jOiNT vENTURE
Shares at cost
1 October and 30 September
2014
£M
2013
£M
59.0
59.0
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, as set out on page 57.
Control of Longmartin Properties Limited is shared equally with The Mercers’ Company, which owns 50% of its issued share capital.
The Group’s share of the results of its joint venture for the year ended 30 September 2014 and 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:
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
Net gain on revaluation of investment properties
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
#104
2014
£M
6.3
0.7
7.0
(0.7)
(0.7)
(1.4)
5.6
(0.3)
5.3
32.4
37.7
(3.2)
34.5
(0.3)
(6.6)
(6.9)
27.6
(2.7)
24.9
2013
£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
fiNaNciaL StateMeNtS
2014
£M
2013
£M
179.6
2.8
182.4
4.5
186.9
5.0
60.0
20.4
85.4
101.5
COMPANY
2014
£M
-
-
-
-
145.3
3.1
148.4
7.4
155.8
5.3
60.0
13.9
79.2
76.6
2013
£M
-
-
-
-
422.4
584.8
1.9
0.7
-
0.7
425.0
585.5
GROuP
2014
£M
11.6
(0.4)
11.2
2.5
-
-
7.5
21.2
2013
£M
11.4
(0.4)
11.0
2.1
-
-
6.6
19.7
16. INVESTMENT IN JOINT VENTURE CONTINUED
Balance Sheet
Non-current assets
Investment properties at book value
Accrued income in respect of 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
17. TRADE AND OTHER REcEivABLES
Amounts due from tenants
Provision for doubtful debts
Accrued income in respect of lease incentives (note 14)
Amounts due from subsidiaries
Amounts due from joint venture
Other receivables and prepayments
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 2014, amounts due
from tenants which were more than 90 days overdue, relating to accommodation and services provided up to 28 September 2014,
totalled £1.0 million (2013: £1.2 million) and are considered to be past due. Provisions against these overdue amounts totalled £0.3
million (2013: £0.4 million). The remaining balance is not considered to be impaired.
At 30 September 2014, cash deposits totalling £15.9 million (2013: £13.7 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 2014 included £2.2 million (2013: £4.2 million) held in accounts or on deposit that have certain
conditions restricting their use. Holding cash in restricted accounts does not prevent the Group from earning returns by placing
these monies in interest bearing accounts or on deposit.
#105
Notes to the financial statements continued notes to the financial statements continued
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
Other payables and accruals
20. BORROWiNGS
Group
Debenture Stock
Secured bank loans
Secured term loans
Debenture and secured loans
Head lease obligations
Total borrowings
Company
Debenture Stock
Secured bank loans
Debenture and bank borrowings
nET DEbT (GROup)
2014
uNAMORTISED
PREMIuM
AND ISSuE
COSTS
£M
2.3
(3.2)
(2.5)
(3.4)
-
(3.4)
2.3
(3.2)
(0.9)
NOMINAL
VALuE
£M
61.0
360.6
194.8
616.4
5.4
621.8
61.0
369.8
430.8
Nominal borrowings - gross
Cash balances set-off against certain borrowings
Cash and cash equivalents (note 18)
GROuP
2014
£M
20.6
0.2
-
2.5
16.5
39.8
BOOk
VALuE
£M
63.3
357.4
192.3
613.0
5.4
618.4
63.3
366.6
429.9
2013
£M
19.4
0.2
0.1
4.6
11.5
35.8
noMinal
value
£M
61.0
484.2
60.0
605.2
5.4
610.6
61.0
492.6
553.6
COMPANY
2014
£M
-
-
-
-
8.9
8.9
2013
unaMortised
preMiuM
and issue
costs
£M
2.5
(2.0)
(0.6)
(0.1)
-
(0.1)
2.5
(2.0)
0.5
2014
£M
630.9
(9.1)
621.8
(7.7)
614.1
2013
£M
-
-
-
-
7.5
7.5
book
value
£M
63.5
482.2
59.4
605.1
5.4
610.5
63.5
490.6
554.1
2013
£M
619.1
(8.5)
610.6
(5.7)
604.9
The Group’s head lease obligations represent its share of the net present value of amounts payable under leases with unexpired
terms of 166 years held by Longmartin Properties Limited.
#106
fiNaNciaL StateMeNtS
20. BORROWINGS CONTINUED
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 Longmartin joint venture and one of the Company’s
subsidiaries each have secured term loans. Both entities have granted fixed charges over certain of their investment properties and
cash balances, and floating charges over their assets as security for their respective loans.
aVaILabILITy anD maTuRITy OF GROup bORROWInGS
Repayable between 1 and 2 years
Repayable between 2 and 5 years
Repayable between 5 and 10 years
Repayable between 10 and 15 years
Head lease obligations - leases expiring in 166 years
2014 fACILITIES
2013 facilities
COMMITTED
£M
uNDRAWN
£M
coMMitted
£M
undraWn
£M
150.0
150.0
261.0
194.8
755.8
5.4
761.2
50.0
58.3
31.1
-
139.4
-
139.4
-
375.0
200.0
121.0
696.0
5.4
701.4
-
58.3
32.5
-
90.8
-
90.8
InTEREST RaTE pROFILE OF InTEREST bEaRInG bORROWInGS (GROup)
INTEREST RATE fIXED uNTIL
2014
DEBT
£M
INTEREST
RATE
2013
debt
£M
interest
rate
Floating rate borrowings
LIBOR-linked loans (including margin)
12.2014 (at the latest)
110.6
1.66%
124.2
1.41%
Hedged borrowings
Interest rate swaps (including margin)
see below
Total bank borrowings
Fixed rate borrowings
Secured term loan - joint venture
Secured term loan
8.5% First Mortgage Debenture Stock - book value
Weighted average cost of drawn borrowings
12.2026
5.2029
3.2024
250.0
360.6
60.0
134.8
63.3
6.06%
4.71%
4.43%
4.47%
7.93%
4.96%
360.0
484.2
60.0
-
63.5
5.78%
4.66%
4.43%
-
7.93%
4.98%
The Group also incurs non-utilisation fees on undrawn facilities. At 30 September 2014, the weighted average charge on the
undrawn facilities of £139.4 million (2013: £90.8 million) was 0.46% (2013: 0.52%).
At 30 September 2014, the weighted average credit margin on the Group’s current bank facilities was:
Drawn facilities
If facilities were fully drawn
2014
1.11%
1.24%
2013
0.91%
1.04%
The Group has in place interest rate swaps to hedge £250.0 million of floating rate bank debt, at fixed rates in the range 4.64% to
5.20%, with a weighted average rate at 30 September 2014 of 4.95%. The swaps, which are settled against three month LIBOR,
expire between December 2027 and November 2038. If mutual break or counterparty early termination options are exercised the
weighted average term is 4.9 years (2013: 4.2 years).
#107
Notes to the financial statements continued notes to the financial statements continued
21. FiNANciAL iNSTRUMENTS
CATEGORIES Of fINANCIAL INSTRuMENTS
Group
Interest rate swaps
Financial assets: receivables and cash and cash equivalents
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
Loans receivable from subsidiaries (note 17)
Loan receivable from joint venture (note 17)
Financial liabilities at amortised cost
Trade and other payables - due within one year (note 19)
Interest bearing borrowings (note 20)
Net financial instruments
FaIR VaLuE OF DERIVaTIVE FInanCIaL InSTRumEnTS (GROup anD COmpany)
Interest rate swaps
At 1 October - deficit
Swap contracts terminated
Fair value deficit (charged)/credited to the Statement of Comprehensive Income
At 30 September - deficit
2014
BOOk
VALuE
£M
2013
book
value
£M
(78.8)
(95.8)
11.2
7.7
18.9
(19.0)
(613.0)
(5.4)
(637.4)
(697.3)
11.0
5.7
16.7
(16.1)
(605.1)
(5.4)
(626.6)
(705.7)
(78.8)
(95.8)
422.4
1.9
424.3
(8.9)
(429.9)
(438.8)
(93.3)
2014
£M
(95.8)
29.0
(12.0)
(78.8)
584.8
-
584.8
(7.5)
(554.1)
(561.6)
(72.6)
2013
£M
(132.8)
-
37.0
(95.8)
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).
#108
fiNaNciaL StateMeNtS
21. FINANCIAL INSTRUMENTS CONTINUED
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. During the year the Group terminated
interest rate swaps with a notional principal of £110.0 million at a cost of £29.0 million.
The 8.5% Mortgage Debenture Stock 2024 and the Group’s secured term loans 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 £27.4 million (2013: £14.0
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 Group also has no obligation to repay its secured term loans in advance of
their maturities on 21 December 2026 and 2 May 2029.
The fair value of the Group’s interest rate swaps has been estimated using the mid-point of the relevant yield curve prevailing at the
reporting date, and represents the net present value of the differences between the contractual rate and the valuation rate through
to the contracted expiry date of the swap contract. The valuation technique falls within Level 2 of the fair value hierarchy (see note 13
for definition). The swaps were valued by J.C Rathbone Associates Limited.
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 secured term loans), 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 2014
Financial instruments
Interest rate swaps
Financial liabilities
Interest bearing borrowings:
Principal
Interest
Head lease obligations
Total
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
<1
YEAR
£M
1-2
YEARS
£M
2-5
YEARS
£M
5-10
YEARS
£M
>10
YEARS
£M
80.1
96.7
9.1
8.8
19.6
26.0
33.2
613.0
-
5.4
698.5
616.4
180.7
90.7
984.5
-
18.5
0.5
100.0
18.5
0.5
91.8
50.3
1.7
229.8
62.8
2.7
194.8
30.6
85.3
28.1 127.8
163.4
321.3
343.9
BOOk
VALuE
£M
CONTRACTuAL
CASH fLOWS
£M
<1
YEAR
£M
1-2
YEARS
£M
2-5
YEARS
£M
5-10
YEARS
£M
>10
YEARS
£M
95.8
111.2
13.9
14.4
29.3
22.9
30.7
605.1
-
5.4
706.3
605.2
102.2
88.4
907.0
-
13.3
0.5
27.7
-
13.3
0.5
28.2
316.7
30.9
1.6
378.5
167.5
37.8
2.6
230.8
121.0
6.9
83.2
241.8
#109
The Group’s trade and other payables are all due within one year (2013: all due within one year).
Notes to the financial statements continued notes to the financial statements continued
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 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 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 21, 41 and 43 to 44.
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. 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 21.
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 equity
MOVEMENT IN MARkET RATES
+1.0%
£M
(1.1)
41.8
40.7
+0.5%
£M
(0.6)
20.9
20.3
-0.5%
£M
0.6
(20.9)
(20.3)
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 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 Equity. The Group
regularly reviews its covenant compliance.
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 pages 21 and 43 to 44.
#110
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
24. SHARE cAPiTAL
Alloted and fully paid (ordinary 25p shares)
At 1 October
Issued in connection with the exercise of share options
Issued in connection with share placing
At 30 September
2014
NuMBER
MILLION
252.3
0.3
25.3
277.9
2013
nuMber
Million
251.5
0.8
-
252.3
fiNaNciaL StateMeNtS
2014
£M
9.1
6.6
15.7
15.0
0.7
15.7
2014
£M
63.1
0.1
6.3
69.5
2013
£M
6.9
2.2
9.1
8.5
0.6
9.1
2013
£M
62.9
0.2
-
63.1
During the year, 25,250,000 ordinary 25p shares were issued at £6.20 per share, raising £156.6 million. Transaction costs in
connection with the issue, which amounted to £3.4 million, have been charged against retained earnings in accordance with the
Companies Act 2006.
The Company’s Articles of Association contain provisions which set out the circumstances in which shareholders can exercise
control over the issue of shares.
#111
Notes to the financial statements continued notes to the financial statements continued
24. SHARE CAPITAL CONTINUED
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 2014:
NuMBER
Of SHARES
uNDER OPTION
OuTSTANDING
1.10.2013
DATE Of GRANT
Sharesave Scheme
AWARDED
EXERCISED
LAPSED
NuMBER
Of SHARES
uNDER OPTION
OuTSTANDING
30.9.2014
EXERCISABLE
30.9.2014
OPTION
EXERCISE
PRICE
EXERCISE
PERIOD
14.7.2009
8.7.2011
5.7.2012
2.7.2014
LTIP
8.12.2010
7.12.2011*
16.1.2012*
6.12.2012
20.12.2013
13,122
19,059
30,219
-
-
-
-
39,305
(13,122)
(2,522)
(1,441)
-
-
-
(814)
-
-
16,537
27,964
39,305
566,010
528,253
65,800
576,475
-
-
-
-
-
462,500
(283,005)
(283,005)
-
-
-
-
-
(2,593)
525,660
-
(5,613)
-
65,800
570,862
462,500
1,798,938
501,805
(300,090)
(292,025)
1,708,628
£2.37
£4.29
£3.99
£5.38
2012-2014
2014-2016
2015-2017
2017-2019
Nil cost
2013-2014
Nil cost
2014-2015
Nil cost
2015
Nil cost
2015-2016
Nil cost
2016-2017
-
-
-
-
-
-
-
-
-
-
* 262,830 and 32,900 options over ordinary shares will vest in December 2014 and January 2015 respectively, following satisfaction of performance targets in
respect of the three years ended 30 September 2014.
For share options exercised during the year the weighted average share price at the date of exercise was:
SCHEME
LTIP
Sharesave
DATE Of GRANT
DATE Of
EXERCISE
NuMBER Of
SHARES
8.12.2010
9.12.2013
283,005
5.7.2012
14.7.2009
8.7.2011
17.6.2014
1.8.2014
1.8.2014
1,441
13,122
2,522
WEIGHTED
AVERAGE
PRICE AT
EXERCISE
£6.02
£6.40
£6.74
£6.74
A summary of the rules of the schemes referred to above are set out in the Summary of Remuneration Policy on page 68 and the
Annual Remuneration Report on pages 74 and 76. The remuneration policy, which includes more detail, is available on the Group’s
website.
#112
fiNaNciaL StateMeNtS
25. RESERvES
The Statements of Changes in Equity are set out on page 91.
The following describes the nature and purpose of each of the reserves within equity.
RESERVE
Share premium
Merger reserve
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 merger reserve is used where more than 90% of the shares in a subsidiary are acquired
and the consideration includes the issue of new shares by the Company, thereby attracting
merger relief under the Companies Act 2006.
The equity settled remuneration expense charged to the Statement of Comprehensive Income
is credited to the share based payments reserve. 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 merger reserve that arose during the year was as a result of the share placing in March 2014. No share premium is recognised
in the Company’s financial statements as the issue was subject to merger relief under the Companies Act 2006.
The Company’s retained earnings at 30 September 2014 include amounts distributable of £258.4 million (2013: £259.2 million).
The transfer between share premium and retained earnings of £0.3 million arises from the reclassification of the cumulative
nominal value of shares issued in respect of nil cost employee share options which had been charged incorrectly to share premium.
The current period reclassification reinstates share premium to its full amount and is considered immaterial and, in accordance
with IAS 8, has not been corrected by way of a prior period adjustment.
26. NET ASSET vALUE PER SHARE
The calculations below are in accordance with the EPRA Best Practice Recommendations.
2014
NuMBER
Of ORDINARY
SHARES
MILLION
NET
ASSETS
£M
NET
ASSET
VALuE PER
SHARE
£
2013
nuMber
of ordinary
shares
Million
net
assets
£M
Basic
1,893.2
277.9
6.81
1,330.7
252.3
Additional equity if all vested share options
are exercised
Diluted
Fair value deficit in respect of Debenture
and secured term loans
EPRA triple net
Fair value deficit in respect of Debenture
and secured term loans
Fair value of derivative financial
instruments
Deferred tax on property valuations and
capital allowances
EPRA
0.4
1,893.6
(27.4)
1,866.2
27.4
78.8
15.7
1,988.1
1.1
279.0
279.0
279.0
0.2
6.79
1,330.9
(0.10)
6.69
(14.0)
1,316.9
0.10
0.28
0.06
7.13
14.0
95.8
9.1
1,435.8
0.9
253.2
253.2
253.2
net
asset
value per
share
£
5.27
5.26
(0.06)
5.20
0.06
0.37
0.04
5.67
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 equity which would arise on the exercise of those options.
#113
Notes to the financial statements continued notes to the financial statements continued
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
Investment property valuation movements
Net finance costs/(income)
Administrative charges, finance charges, and dividends received from
subsidiaries settled through inter-company indebtedness
Dividends received from joint venture
Write-off of investment in non-trading subsidiary prior to liquidation
GROuP
2014
£M
447.3
(1.3)
2.7
0.4
(426.4)
44.8
-
-
-
2013
£M
241.7
(1.3)
2.2
0.2
(174.3)
(5.8)
-
-
-
Cash flows from operations before changes in working capital
67.5
62.7
Changes in working capital:
Change in trade and other receivables
Change in trade and other payables
Cash generated from operating activities
28. MOvEMENT iN BORROWiNGS
(1.1)
5.0
71.4
(2.1)
1.4
62.0
COMPANY
2014
£M
18.3
-
2.7
0.4
-
39.1
(68.3)
(2.7)
-
(10.5)
-
1.3
(9.2)
2013
£M
75.0
-
2.2
0.2
-
(8.7)
(81.8)
(8.3)
12.2
(9.2)
(0.4)
0.6
(9.0)
Group
8.5% First Mortgage Debenture Stock 2024
Secured bank loans
Secured term loans
Facility arrangement costs
Head lease obligations
Year ended 30 September 2013
Company
8.5% First Mortgage Debenture Stock 2024
Secured bank loans
Facility arrangement costs
Year ended 30 September 2013
#114
1.10.2013
£M
(63.5)
(484.2)
(60.0)
2.6
(5.4)
(610.5)
(561.6)
(63.5)
(492.6)
2.0
(554.1)
(504.8)
CASH
fLOWS
£M
NON-CASH
ITEMS
£M
30.9.2014
£M
-
123.6
(134.8)
4.2
0.5
(6.5)
(48.1)
-
122.8
2.2
125.0
(48.9)
0.2
-
-
(1.1)
(0.5)
(1.4)
(0.8)
0.2
-
(1.0)
(0.8)
(0.4)
(63.3)
(360.6)
(194.8)
5.7
(5.4)
(618.4)
(610.5)
(63.3)
(369.8)
3.2
(429.9)
(554.1)
fiNaNciaL StateMeNtS
29. OPERATiNG LEASES
THE GROup aS LESSOR
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
2014
£M
78.8
209.1
137.9
107.5
533.3
2013
£M
81.0
209.5
142.2
118.0
550.7
The Group has over 1,500 leases granted to its tenants. These vary depending on the individual tenant and the respective property
and demise. Typical lease terms are set out in the Strategic Report on pages 14 to 15.
THE COmpany 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
Later than five years but not later than ten years
Later than ten years
In the current year the Company leased its head office accommodation from a wholly-owned subsidiary.
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
2014
£M
0.4
1.6
2.0
1.8
5.8
2014
£M
0.3
1.0
41.6
42.9
(37.5)
5.4
-
0.1
5.3
5.4
2013
£M
0.1
-
-
-
0.1
2013
£M
0.3
1.0
41.9
43.2
(37.8)
5.4
-
0.1
5.3
5.4
In addition to the minimum lease payments above there are contingent rents payable which are calculated as a proportion of net
rental income.
#115
Notes to the financial statements continued notes to the financial statements continued
31. RELATED PARTY TRANSAcTiONS
During the year, the Company received administrative fees, dividends and interest from its wholly-owned subsidiaries. The Company
also received interest on a loan and administrative fees from the Longmartin joint venture. In the current year the Company leased
its office accommodation from a wholly-owned subsidiary. These transactions are summarised below:
Transactions with subsidiaries:
Administrative fees receivable
Dividends receivable
Interest receivable
Rents payable
2014
£M
11.1
30.9
26.4
0.2
2013
£M
8.5
43.8
29.6
-
Net amounts receivable from subsidiaries
422.4
584.8
Transactions with joint venture:
Administrative fees receivable
Dividends receivable
Interest receivable/(payable)
Amount due from joint venture
0.4
2.7
0.1
1.9
0.4
8.3
(0.2)
-
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 79, there were no other transactions with directors.
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:
Grant date
Share price at date of grant
Exercise price
Expected life – years
Performance condition
Assumed return volatility per annum - TSR performance condition
Assumed dividend yield per annum
Risk free discount rate per annum - TSR performance condition
Assumed index return volatility* - TSR performance condition
Assumed correlation between the Company’s shares and those in the index* - TSR performance condition
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
20.12.2013
£6.09
£Nil
3
NAV and TSR
30%
2.05%
1.02%
28%
0.79
Modified binomial
Monte Carlo
£5.72
£2.52
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 the 2006 LTIP are described in the Annual Remuneration Report on page 74.
#116
Other information
Shaftesbury SELf PORTRAIT
Other information
Portfolio analysis 118
Basis of valuation 118
Summary Report by the Valuers 120
Glossary of terms 122
#117
Portfolio analysis
AT 30 SEPTEMBER 2014
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
AT 30 SEPTEMBER 2014
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.
Average residential ERVs - £ per sq. ft. per
annum
#118
NOTE
1
2
3
4
4
5
4
4
5
4
4
5
4
4
NOTE
7
8
9
10
10
10
10
10
10
CARNABY
£906.2m
35%
£31.0m
£41.7m
109
185,000
53%
48%
4
45
COVENT
GARDEN
£695.6m
26%
£23.8m
£30.9m
111
139,000
33%
34%
5
87
CHINATOWN
£584.0m
22%
£21.8m
£26.3m
72
93,000
27%
28%
5
71
93,000
165,000
203,000
14%
14%
11
251,000
27%
32%
4
87
37%
33%
10
83,000
10%
14%
3
203
52,000
122,000
6%
6%
20%
19%
60%
57%
12
36,000
5%
5%
3
98
65,000
8%
10%
CARNABY
3.23%
3.53%
4.07%
COVENT
GARDEN
3.04%
3.25%
3.87%
CHINATOWN
3.33%
3.36%
4.04%
SOHO
£181.0m
7%
£7.0m
£8.1m
36
38,000
26%
27%
4
29
55,000
38%
38%
8
37,000
16%
17%
2
61
34,000
20%
18%
SOHO
3.48%
3.49%
4.02%
3.70 - 4.90%
4.00 - 5.25%
3.90 - 5.00%
4.25 - 5.75%
£120 - £470
£63 - £475
£140 - £330
£120 - £250
4.15 - 5.50%
3.85 - 4.50%
3.90 - 4.50%
4.00 - 5.00%
£100 - £115
£50 - £173
£200 - £375
ITZA
£80 - £103
(£240 ITZA)
4.75 - 5.00%
4.50 - 4.75%
4.75 - 5.00%
4.75 - 5.35%
£48 - £73
£43 - £60
£40 - £50
£38 - £55
CHARLOTTE
STREET
£67.8m
£2,434.6m
LONGMARTIN
£177.9m*
TOTAL
PORTfOLIO
£2,612.5m
100%
£93.5m
£118.6m
36,000
552,000
415,000
102,000
19,000
292,000
WHOLLY
OWNED
PORTfOLIO
93%
£86.3m
£110.1m
332
463,000
37%
36%
4
250
35%
33%
11
16%
19%
4
491
12%
12%
WHOLLY
OWNED
PORTfOLIO
3.22%
3.40%
4.00%
7%
£7.2m*
£8.5m*
22
67,000
37%
37%
4
10
45,000
14%
15%
13
33%
34%
5
75
55,000
16%
14%
LONGMARTIN
3.48%
3.54%
4.10%
3.65 - 4.75%
£78 - £550
4.25 - 5.00%
£75 - £113
4.50 - 4.85%
£40 - £64
3%
£2.7m
£3.1m
4
8,000
9%
10%
2
18
53%
53%
11
8,000
7%
9%
1
42
31%
28%
CHARLOTTE
STREET
3.38%
3.50%
3.90%
4.50 - 5.50%
£90 - £140
4.00 - 4.75%
£68 - £86
5.00 - 5.25%
£38 - £50
£47.00
£46.50
£41.00
£46.00
£43.50
£44.00
@shaftesbury.co.uk annual report 2014 portfolio analysis and basis of valuation continued
otHer iNforMatioN
AT 30 SEPTEMBER 2014
Portfolio
Fair value
NOTE
CHARLOTTE
STREET
WHOLLY
OWNED
PORTfOLIO
£67.8m
£2,434.6m
LONGMARTIN
£177.9m*
3%
£2.7m
£3.1m
4
8,000
9%
10%
2
18
93%
£86.3m
£110.1m
332
463,000
37%
36%
4
250
93,000
165,000
203,000
36,000
552,000
7%
£7.2m*
£8.5m*
22
67,000
37%
37%
4
10
45,000
14%
15%
13
33%
34%
5
75
55,000
16%
14%
415,000
102,000
53%
53%
11
8,000
7%
9%
1
42
35%
33%
11
16%
19%
4
491
19,000
292,000
31%
28%
12%
12%
CARNABY
3.23%
3.53%
4.07%
COVENT
GARDEN
3.04%
3.25%
3.87%
CHINATOWN
3.33%
3.36%
4.04%
3.70 - 4.90%
4.00 - 5.25%
3.90 - 5.00%
4.25 - 5.75%
£120 - £470
£63 - £475
£140 - £330
£120 - £250
4.15 - 5.50%
3.85 - 4.50%
3.90 - 4.50%
4.00 - 5.00%
£100 - £115
£50 - £173
£200 - £375
ITZA
£80 - £103
(£240 ITZA)
4.75 - 5.00%
4.50 - 4.75%
4.75 - 5.00%
4.75 - 5.35%
£48 - £73
£43 - £60
£40 - £50
£38 - £55
CHARLOTTE
STREET
3.38%
3.50%
3.90%
4.50 - 5.50%
£90 - £140
4.00 - 4.75%
£68 - £86
5.00 - 5.25%
£38 - £50
WHOLLY
OWNED
PORTfOLIO
3.22%
3.40%
4.00%
LONGMARTIN
3.48%
3.54%
4.10%
3.65 - 4.75%
£78 - £550
4.25 - 5.00%
£75 - £113
4.50 - 4.85%
£40 - £64
£47.00
£46.50
£41.00
£46.00
£43.50
£44.00
Offices
Area – sq. ft.
251,000
36,000
CARNABY
£906.2m
35%
£31.0m
£41.7m
109
185,000
53%
48%
4
45
14%
14%
11
27%
32%
4
87
6%
6%
COVENT
GARDEN
£695.6m
26%
£23.8m
£30.9m
111
139,000
33%
34%
5
87
37%
33%
10%
14%
3
203
20%
19%
10
83,000
CHINATOWN
£584.0m
22%
£21.8m
£26.3m
72
93,000
27%
28%
5
71
60%
57%
12
5%
5%
3
98
65,000
8%
10%
52,000
122,000
SOHO
£181.0m
7%
£7.0m
£8.1m
36
38,000
26%
27%
4
29
55,000
38%
38%
8
37,000
16%
17%
2
61
34,000
20%
18%
SOHO
3.48%
3.49%
4.02%
Shops
Restaurants,
Number
cafés and leisure
Area – sq. ft.
% of total fair value
Current income
ERV
Number
Area – sq. ft.
% of current income
% of ERV
Average unexpired
lease length – years
% of current income
% of ERV
Average unexpired
lease length – years
% 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
AT 30 SEPTEMBER 2014
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.
Average residential ERVs - £ per sq. ft. per
annum
1
2
3
4
4
5
4
4
5
4
4
5
4
4
NOTE
7
8
9
10
10
10
10
10
10
TOTAL
PORTfOLIO
£2,612.5m
100%
£93.5m
£118.6m
Notes
1.
2.
3.
4.
5.
6.
7.
8.
9.
The fair values at 30 September 2014 (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 annual 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 nor 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 nor rent charges and estimated irrecoverable outgoings.
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.
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.
Where mixed uses occur within single leases, for the purpose of this
analysis, the majority use by rental value has been adopted.
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.
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.
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.
#119
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 2014 (the
“date of valuation”) held by Shaftesbury Carnaby Limited,
Shaftesbury Covent Garden Limited, Shaftesbury Chinatown
Limited, Shaftesbury Soho Limited and Shaftesbury CL 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 2014
(“our Reports”). Our Reports were prepared for accounts purposes.
All properties have been subject to external inspections between
March and November 2014 and a number were subject to
internal inspections.
The valuations have been prepared in accordance with the
appropriate sections of the Professional Standards (“PS”), RICS
Global Valuation Practice Statements (“VPS”), RICS Global
Valuation Practice Guidance – Applications (“VPGAs”) and United
Kingdom Valuation Standards (“UKVS”) contained within the
RICS Valuation - Professional Standards 2014 UK Edition, (the
“Red Book”). It follows that the valuations are compliant with
International Valuation Standards. 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 PS 2.8 and UKVS 4, 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 third 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 have been no
fee-earning instructions between DTZ Debenham Tie Leung and
the Company or the Subsidiary Companies other than valuation
instructions for in excess of three years.
As at the date of valuation DTZ Debenham Tie Leung was a UGL
Company. In UGL’s financial year ending 30 June 2014, the
proportion of fees payable by the Company to the total fee
income of UGL was less than 5%. DTZ became a stand alone,
private global property services company on 5 November 2014,
following the sale to TPG Capital Management. DTZ’s financial
year end is 30 June. We anticipate that the proportion of fees
payable by the Company to DTZ in the financial year to 30 June
2015 will remain at less than 5%.
#120
In accordance with the provisions of VPGA 8 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 VPS 4.1.5.1(a) 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.
@shaftesbury.co.uk annual report 2014 summary report by the Valuer continued
otHer iNforMatioN
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 2014, 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 £11,484,895
and details of the individual sums are included in our Reports.
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 to the right. 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 2014, 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
2014, were as follows:-
Freehold
Properties
Long leasehold
Properties
£2,238,640,000
(Two billion, two hundred and thirty-eight
million, six hundred and forty thousand
pounds)
£195,920,000
(One hundred and ninety-five million, nine
hundred and twenty thousand pounds)
Total
£2,434,560,000
(Two billion, four hundred and thirty-
four million, five hundred and sixty
thousand pounds)
A long lease is one with an unexpired term in excess of 50 years.
The contents of our Reports are confidential to Shaftesbury PLC,
Shaftesbury Covent Garden Limited, Shaftesbury Carnaby Limited,
Shaftesbury Chinatown Limited, Shaftesbury Soho Limited and
Shaftesbury CL 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
#121
@shaftesbury.co.uk annual report 2014
Glossary of terms
Annual General Meeting/AGM
The annual general meeting held on 7 February
2014 (2014 AGM) or the annual general meeting
to be held on 6 February 2015 (2015 AGM)
EPRA net assets
Net assets used in the EPRA NAV calculation,
excluding additional equity if all vested share
options were exercised.
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 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 assesses 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.
Like-for-like portfolio
The like-for-like portfolio includes all properties
that have been held throughout the accounting
period.
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 on rental profits or chargeable
gains relating to the rental business, 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 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.
#122
Printed by Park Communications on FSC® certified paper.
Park is EMAS certified; its Environmental Management System
is certified to ISO 14001 and it is a CarbonNeutral® company.
100% of the inks used are vegetable oil based, 95% of press
chemicals are recycled for further use and, on average 99%
of any waste associated with this production will be recycled.
This document is printed on munken polar, a paper containing
virgin fibre sourced from well managed, responsible, FSC®
certified forests. The pulp is bleached using both Elemental
Chlorine Free (ECF) and Totally Chlorine Free (TCF) processes.
Design: SG Design {sg-design.co.uk}
Print: Park Communication {www.parkcom.co.uk}
S
h
a
f
t
e
s
b
u
r
y
A
n
n
u
a
l
r
e
p
o
r
t
2
0
1
4
PABLO PICASSO
SHAFTESBURY PLC
22 Ganton Street, Carnaby, London W1F 7FD
T: 020 7333 8118 F: 020 3667 8051
shaftesbury.co.uk