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Shaftesbury PLC
22 Ganton Street
Carnaby
London W1F 7FD
T: 020 7333 8118
shaftesbury.co.uk
ANNUAL REPORT 2015
Contents
Strategic report
Financial highlights 4
Chairman’s statement 5
Exceptional portfolio 8
Our objective 14
Governance
Directors and officers 70
Corporate governance 72
Nomination Committee report 76
Audit Committee report 78
How we create and deliver value 19
Remuneration report 82
Mix of uses 20
Retail 24
Remuneration policy 84
Annual Remuneration report 92
Restaurants, cafés and pubs 25
Directors’ report 102
Offices 26
Residential 27
Proven management strategy 30
Experienced management team 33
Robust balance sheet 34
Valuation 38
Directors’ responsibilities 104
Independent auditors’ report 105
Financial statements
Group statement of
comprehensive income 110
Investment in our portfolio 42
Balance sheets 111
Demand and occupancy 46
Cash flow statements 112
Village summaries 48
Results and finance 52
Looking ahead 57
Risk management 59
Viability Statement 66
Statements of changes in equity 113
Notes to the financial statements 114
Other information
Shareholder information 141
Portfolio analysis 142
Basis of valuation 142
Summary report by the valuer 144
Sustainability 146
Glossary of terms 156
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001
Exceptional
We own an exceptional real estate portfolio, extending to 14
acres, in the heart of London’s West End. Our property interests
are valued at £3.1 billion1
We focus exclusively on this highly popular, sought-after and prosperous location
see pages 8 to 13
Resilient
Our objective is to deliver long-term outperformance in growth
of rental income, capital values and shareholder returns
We concentrate on locations and uses which have a long record of delivering rental
growth
see pages 14 to 17
Focused
We focus on retail, restaurants, and leisure
With 570 shops, restaurants, cafés and pubs in the liveliest parts of the West End, which
provide 70% of our current income2
see pages 19 to 27
Proven
Our proven management strategy creates and fosters
distinctive, attractive and prosperous destinations
see pages 30 to 31
Experienced
Our experienced management team has an innovative approach
to sustainable income growth and long-term value creation
see page 33
Robust
We operate with prudent financial management, a strong
balance sheet and a tax-efficient REIT structure
see page 34
1 Including our 50% share of property held in joint venture
2 Wholly-owned portfolio
002
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 004
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
Financial
highlights
EPRA net asset value
(£ per share)
Net asset value
return (%)
EPRA earnings (£m)
+21.9%
2015 £8.69 per share
2014 £7.13 per share
+23.8%
+10.7%
2015 £36.1 million
2014 £32.6 million
9
6
.
8
3
1
.
7
7
6
.
5
8
9
.
4
3
6
.
4
0
.
8
2
8
.
3
2
1
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6
3
6
.
2
3
6
.
0
3
8
.
8
2
2
.
0
3
3
.
6
1
4
.
4
1
1
.
0
1
Dividends
(pence per share)
+5.0%
2015 13.75p per share
2014 13.1p per share
5
7
.
3
1
1
.
3
1
5
.
2
1
0
.
2
1
5
2
.
1
1
2011 2012 2013 2014 2015
2011 2012 2013 2014 2015
2011 2012 2013 2014 2015
2011 2012 2013 2014 2015
Reversionary
potential1 (£m)
£25.2m
2014 £25.1 million
Current income
ERV
2
.
2
9
5
.
7
7
9
.
9
9
9
.
0
8
6
.
8
1
1
5
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3
9
9
.
5
0
1
9
.
5
8
8
.
7
2
1
6
.
2
0
1
Net property
income (£m)
+6.3%
2015 £78.8 million
2014 £74.1 million
8
.
8
7
1
.
4
7
9
.
7
6
2
.
6
6
1
.
3
6
EPRA EPS
(pence per share)
+6.6%
2015 13.0p per share
2014 12.2p per share
0
.
3
1
2
.
2
1
2
.
2
1
0
.
2
1
0
.
2
1
2011
1 Including our 50% share of property held in joint venture
2013
2012
2014
2015
2011 2012 2013 2014 2015
2011 2012 2013 2014 2015
Dividends
(pence per share)
EPRA EPS
(pence per share)
005
Chairman’s
statement
I am pleased
to report another
year of strong
performance
Our long-term strategy of investment in the heart of
London’s West End continues to deliver increasing
shareholder value and dividends, underpinned by
sustained demand and growth in actual and
prospective rental income.
Across our fourteen acres of ownership1, relentless activity,
which includes asset management, schemes and acquisitions, is
key to our continuing success.
We focus on retail, restaurants and leisure in iconic West End
locations. Businesses seeking space value our strategy of
fostering constantly-evolving destinations, which draw many
millions of people throughout the year.
Our approach creates prosperous areas for our tenants and, in
doing so, establishes the demand that supports long-term
growth in our income and the value of our portfolio.
Strong NAV growth
EPRA net asset value per share grew by £1.56 to £8.69 at the year
end, primarily driven by strong valuation growth in our portfolio.
This represents a NAV return, after adding back dividends, of
23.8%.
The valuation of our portfolio2 rose by £466.6 million to £3.1 billion,
an 18% like-for-like increase over the year. This increase is
attributable to a combination of:
• Continuing strong occupier demand, and limited availability of
space, which, together, are driving sustained growth in actual
and potential rental income;
• The improvements we make to our buildings to provide better
space and enhance their income-generation prospects; and
• The considerable investment demand for properties in our
prosperous and resilient locations, which exceeds the
availability of assets to buy.
The portfolio reversionary potential2, estimated by our valuers,
stands at £25.2 million, 24.6% above current rents. We are
confident that we shall continue our long record of converting
this potential into cash flow, whilst further growing rental values.
+21.9%
£8.69
EPRA NAV per share
+10.7%
£36.1m
EPRA earnings
+5.0%
13.75p
Dividends per share
1 Wholly-owned portfolio
2 Including our 50% share of property owned in joint venture
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 006
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
CHAIRMAN’S STATEMENT CONTINUED
Importantly, DTZ, independent valuers of our wholly-owned
portfolio, continue to advise the Board that, in their view, some
prospective purchasers may recognise the compelling opportunity,
which the acquisition of the portfolio would provide, to own, in a
single transaction, a substantial number of predominantly retail and
restaurant properties in adjacent, or adjoining, locations in London’s
West End. Consequently, they 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.
Increased EPRA earnings and dividends
EPRA earnings increased by 10.7% to £36.1 million (2014: £32.6
million), largely driven by like-for-like growth in rental income of
5.5%. With sustained strong demand across all our locations and
for all uses, we are achieving rents on leasing transactions and
rent reviews, on average, 11.2% above ERVs twelve months earlier.
As well as crystallising and exceeding the portfolio reversion
previously reported, these transactions create new rental tones
which benefit our adjoining, or nearby, ownerships.
Your Board is pleased to recommend a final dividend of 6.925p,
bringing the total dividends for the year to 13.75p, an increase of
5.0%. The total distribution in respect of the year will amount to
£38.3 million (2014: £36.5 million).
Asset management and investment in our
portfolio
It has been another busy year of asset management activity and
investment across our portfolio.
During the year, we completed £27.3 million of leasing and rent
review transactions, equivalent to around 23% of total ERV.
We have worked on a wide variety of refurbishment schemes,
extending to 181,000 sq. ft., or 10% of our floor area. This
included the completion of our major scheme in Carnaby,
fronting Foubert’s Place and Kingly Street.
Capital expenditure for the year amounted to £24.7 million. This
continues to be modest in relation to the value of our portfolio, as
we provide retail, restaurant and leisure space in shell form, and
have limited exposure to the obsolescence inherent in offices. In
all our schemes, we are mindful of the need to ensure our
generally older building stock continues to meet, or exceed, the
minimum standards of environmental performance required by
law and expected by our occupiers.
We continue to identify and advance further asset management
opportunities across our portfolio. In particular, we are making
good progress with three important schemes which we shall be
starting during 2016:
• In Chinatown, we have secured planning consent for a major
reconfiguration of 45,500 sq. ft. of retail and restaurant space
fronting Charing Cross Road and Newport Court. We shall start
our works early in 2016.
• In Carnaby, we have submitted a planning application for the
refurbishment and extension of 57 Broadwick Street, which
will provide 33,000 sq. ft. of retail, restaurant, office and
residential accommodation. Subject to receiving consent,
we expect the scheme to be underway by mid-2016.
• In Seven Dials, in early 2016, we shall commence a scheme to
materially alter Thomas Neal’s Warehouse to provide
21,000 sq. ft. of reconfigured space suitable for retailers
seeking a flagship presence in this popular location.
The availability of properties to acquire, which meet our strict
investment criteria, continues to be limited. Existing owners
remain reluctant to relinquish valuable investments which offer
both security and good growth prospects. Inevitably, the timing
of acquisitions is always unpredictable.
In the first half, we acquired seven properties at a cost of
£25.8m. Although we made no purchases in the second half,
since the year end, we have secured acquisitions totalling
£22.1 million. In each acquisition we have identified potential for
asset management initiatives which should deliver good rental
and capital growth in the medium-term, and which will benefit
our holdings nearby.
Adding to our long-term financial resources
Long-term funding is a natural fit with our business model and
portfolio of good quality assets which, with our management,
deliver secure and growing income streams.
Since the beginning of 2015, we have completed the refinancing of
our remaining debt facilities, which were due to expire in 2016,
securing £250 million of long-term loans at an average rate of
3.51%. The refinancing provided us with additional resources of
£96.6 million, of which £28.1 million was used to terminate
£70 million of long-dated interest rate swaps.
CHAIRMAN’S STATEMENT CONTINUED
007
Corporate Governance
Outlook
We are committed to the principles of good corporate
governance and responsibility throughout our business.
PricewaterhouseCoopers LLP, and their predecessor firms, have
been our auditors since the company was founded in 1986. In
light of new regulations regarding the rotation of auditors, and, in
line with emerging best practice, we decided to tender the audit
during the year.
Following this tender process, PricewaterhouseCoopers LLP will
resign as auditors at the completion of this year’s audit and Ernst
& Young LLP will be appointed. The Board is recommending that
Ernst & Young LLP be reappointed as auditor from the date of
the Annual General Meeting in February.
Our team and the Board
Unusually for a business of our size, we operate with a staff of just
25. Their experience, knowledge and commitment are key to the
continuing success of the Group’s long-term strategy and the
evolution of its implementation across our growing portfolio.
Their innovative thinking ensures we adapt and respond to an
ever-changing environment.
Importantly, we benefit from the experience and advice from a
wide range of professional advisors, who share our enthusiasm for,
and commitment to, our portfolio, and the areas in which we invest.
We are fortunate that we are able to call on the advice and wider
experience of five Non-Executive Directors, who understand our
business, how we operate, and the challenges that may lie ahead.
After 29 years at the Company, for many of which as Chief
Executive, I have asked the Nomination Committee, led by our
Senior Independent Director, Jill Little, to undertake a process to
identify my successor as Non-Executive Chairman.
London’s global status continues to attract domestic and international
businesses and visitors in unrivalled numbers. The city is currently
experiencing a period of exceptional investment and growth.
With forecasts pointing to a rapidly increasing population, more
people and businesses are being drawn to its dynamic economy,
wide variety of attractions and diverse, cosmopolitan atmosphere.
The completion of Crossrail in 2018, with its two West End
transport hubs at Tottenham Court Road and Bond Street, will
bring much-needed additional transport capacity to the London
network. Importantly for us, accessibility to the West End will be
materially improved and footfall patterns will change, which will
benefit our holdings, all of which are a short walk from these new
hubs.
We invest in predominantly retail, restaurant and leisure locations
and buildings in the core West End, where these uses have a long
history of sustained demand, resulting in occupancy levels and
rental growth which typically are unaffected by wider cyclical
trends. With the factors supporting the outlook and long-term
success of the West End mirroring those of the entire city, they
also underpin the unique qualities and prospects of our
exceptional, centrally-located portfolio.
Against this background, and with our experience and forensic
knowledge of the West End, we expect to continue to deliver
long-term growth in shareholder value and income.
Jonathan Lane OBE
Chairman
24 November 2015
l a t e
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 008
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
14 acres
in the heart of London’s West End1 and
1.9 acres owned in joint venture2
1.7m sq. ft.
commercial and residential accommodation1
plus 0.3m sq.ft. held in joint venture2
1,550
commercial and residential tenants1
£3.1bn
portfolio valuation3
£102.6m
current income3
£127.8m
estimated rental value3
1 Wholly-owned portfolio
2 Shaftesbury has a 50% interest in this joint venture
3 Including our 50% share of property held in joint venture
4 Estimated total passengers using Tottenham Court Road and Bond Street stations
by the mid-2020s
Exceptional
real estate
portfolio in the
heart of London’s
West End
GOODGE
STREET
T
E
E
R
T
E S
G
D
O
O
G
T
O
T
T
E
N
H
A
M
C
O
U
R
T
Villages by fair value
7%
3%
7%
22%
26%
35%
Carnaby
Covent Garden
Chinatown
Soho
Charlotte Street
Longmartin
OXFORD
CIRCUS
BOND
STREET
O X F O R D S T R E E T
W
A
R
D
O
U
R
S
T
R
E
E
T
R
O
A
D
TOTTENHAM
COURT ROAD
C
H
A
R
I
N
G
C
R
O
S
S
R
O
A
D
Uses as a % of current income1
13%
Shops
17%
35%
Restaurants, cafés and leisure
Offices
Residential
R
E
G
E
N
T
S
T
R
E
E
T
35%
E
U
N
TESBURY A V E
F
A
SH
PICCADILLY
CIRCUS
REGENT STRE E T
Y
L
D I L
A
C
P I C
COVENT
GARDEN
D
N
A
S T R
E
R
C
A
G
N
O
L
LEICESTER
SQUARE
C
H
A
R
I
N
G
C
R
O
S
S
R
O
A
D
CHARING CROSS
GREEN
PARK
L
L
A
L M
L
A
P
L
L
A
E M
H
T
ST JAMES’S
PARK
EXCEPTIONAL PORTFOLIO CONTINUED
009
100%
of our portfolio is between 5 and 10
minutes’ walk of a Crossrail station
245m
passengers annually handled by the six
stations closest to our villages
GOODGE
STREET
8m
PASSENGERS
R
T
E S
G
D
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Charlotte
Street
0.7 acres
O
N
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T
E
H
A
M
C
O
U
R
T
R
O
A
D
OXFORD
CIRCUS
99m
PASSENGERS
BOND
STREET
102m4
PASSENGERS
O X F O R D S T R E E T
W
A
R
D
O
U
R
S
T
R
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T
TOTTENHAM
COURT ROAD
37m
PASSENGERS
108m4
C
PASSENGERS
H
A
R
I
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G
C
R
O
S
S
R
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A
D
Seven Dials
3.0 acres
Soho
1.3 acres
Carnaby
4.2 acres
R
E
G
E
N
T
S
T
R
E
E
T
Restaurants, cafés and leisure
Shops
Offices
Residential
E
U
N
Chinatown
3.2 acres
TESBURY A V E
F
A
SH
PICCADILLY
CIRCUS
LEICESTER
SQUARE
C
H
A
R
I
43m
PASSENGERS
N
G
St Martin’s
Courtyard2
1.9 acres
E
G
R
A
C
N
O
L
COVENT
GARDEN
15m
PASSENGERS
Opera
Quarter
0.6 acres
REGENT STRE E T
43m
PASSENGERS
C
R
O
S
S
R
O
A
D
Coliseum
1.0 acre
D
N
A
S T R
Y
L
D I L
A
C
P I C
CHARING CROSS
GREEN
PARK
L
L
A
L M
L
A
P
L
L
A
E M
H
T
ST JAMES’S
PARK
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
010
west
east
CONTINUED Exceptional
real estate portfolio
in the heart of
London’s West End
Accumulated over 29 years, our
portfolio extends to 14 acres in the
heart of the West End, together with
a 50% interest in a further 1.9 acres
in our Longmartin joint venture.
It was independently valued at
£3.1 billion at 30 September 20151.
SEE PAGE 38 TO 40 FOR DETAILS OF THE VALUATION
We own nearly 600 buildings, mostly of “domestic”
size, clustered in villages in iconic areas – Carnaby,
Covent Garden, Chinatown, Soho and Charlotte
Street – close to the West End’s world-class visitor
attractions.
The areas in which we invest are long-established,
with street patterns generally laid out between
1680 and 1720. Virtually all our holdings are within
Conservation Areas and around 20% of our
buildings are listed as being of special
architectural interest.
Ownerships across the West End are largely
fragmented or held by the landed estates. This,
together with an unwillingness by existing owners
to sell properties in this prosperous area, would
make it virtually impossible to replicate a portfolio
of this size and concentration, and with a mix of
uses such as ours, in our central locations.
1 Including our 50% share of property held in joint venture
EXCEPTIONAL PORTFOLIO CONTINUED
011
With the benefit of our proven management strategies,
our portfolio delivers sustainable growth in rents,
through the cycles, which is fundamental to long-term
value creation.
The key features of our portfolio are:
Situated entirely in London’s
West End
• Prosperous area with high footfall
• Unrivalled visitor destination and popular
business location
• Benefits from the long-term growth of London’s
economy, population and visitors
• London’s “safe haven” status provides stability
and resilience
• Exceptional transport links – all our properties are
close to major underground stations and the new
West End Crossrail transport hubs
SEE PAGE 13 FOR MORE INFORMATION ON LONDON AND THE WEST END
Clustered in iconic areas
• Concentration in renowned areas with high footfall
• Allows us to adopt a comprehensive management
strategy for each village
• Our initiatives bring compound benefits to our
nearby ownerships
SEE PAGES 30 TO 31 FOR DETAILS OF OUR MANAGEMENT STRATEGIES
Focused on shops, restaurants, cafés
and pubs (70% of current income)
• These uses have a long history, in the West End, of
demand exceeding supply and low vacancy levels
• Rental levels for these uses have historically not
been cyclical in this location
• As we provide this accommodation in shell form,
there is limited obsolescence for us, as landlord
• Upper floors are generally offices, residential or a
mix of both
SEE PAGES 20 TO 21 FOR WHY WE FOCUS ON THESE USES
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 012
lifestyle
h i g h s t y l e
Why London’s
West End?
Unrivalled visitor and
business destination,
bringing prosperity
and resilience
London is one of the world’s
principal global cities and is the
largest city in Western Europe. It
has an unrivalled variety of heritage
and cultural attractions, which draw
huge numbers of domestic and
overseas’ visitors. It is also a
world-class business location.
The city’s population is currently 8.6 million, and
is expected to grow to more than 10 million by
20361. Additionally, there is a similar, and growing,
population in southern England who can easily
commute or visit for a day.
This global appeal brings prosperity to the city,
giving it a broad economic base which is not
reliant on the fortunes of the wider UK economy.
1 The London Plan, March 2015
2 Mastercard – Global City Index
3 Jones Lang LaSalle – Heart of London, New West End Company,
Shaftesbury – London’s West End Review and Outlook, March 2015
4 The West End Partnership, The West End Vision 2030
5 Cushman & Wakefield, Capital Watch, Summer 2015
6 Crossrail
7 Harper Dennis Hobbs and The New West End Company, Crossrail visitor
impact study, September 2015
8 Arup, The Impact of Crossrail on Visitor Numbers in the West End, January 2014
EXCEPTIONAL PORTFOLIO CONTINUED
013
The West End’s popularity
The West End’s variety of shops, restaurants, cafés, pubs and
clubs, together with its 38 world-famous theatres, 30 museums,
galleries, live entertainment, public spaces and parks, attract 390
million visits annually3. In 2014, London was ranked as the world’s
most popular city tourist destination, welcoming 18.7 million
international visitors, up 8% from the previous year2. Visitor
spending, in the West End, is estimated at £11 billion p.a.4
Generating 3% of the UK’s economic output (GVA)4, the City of
Westminster is an economic powerhouse with one of the most
dense employment concentrations in the world; it is estimated
that there is a working population across the borough of over
650,0001. It is home to a wide range of businesses and a large
number of SMEs; over 80% of businesses employ fewer than ten
people. The West End is also a popular place to live, with around
59,000 residents4.
SEE PAGE 21 FOR WHY THIS LOCAL WORKING AND RESIDENT POPULATION IS IMPORTANT
Strong footfall and consumer spending, yet
constrained supply of space
The large numbers of visitors, together with the working and
resident populations, bring footfall and spending, which have
shown long-term resilience. Availability of commercial space is
constrained, planning regulations are tight and there is demand
from a wide variety of occupiers. This structural imbalance in
supply and demand is fundamental to 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.
Exceptional and improving transport links
The West End is at the heart of the capital’s underground and bus
network. The six underground stations closest to our villages
handled 245 million passengers in 2014, an increase of 5% over
2013. In recognition of the growing demands placed on the
transport network, investment of £25.3 billion is forecast, over
the next six years, to upgrade and expand the transport
infrastructure, increasing capacity and improving reliability5.
Crossrail
Crossrail is planned to open in 2018. It is estimated that this will:
• Increase network capacity by around 10%6
• Extend the West End’s provincial catchment area by 27%7
• Shorten travel times
• Treble passenger numbers at the Tottenham Court Road and
Bond Street transport hubs by the mid 2020s8, materially
changing footfall patterns in the vicinity
• Increase retail and leisure spending in the West End
We expect to be a major beneficiary as all our properties are
within ten minutes’ walk, and approximately 80% within five
minutes, of the two West End Crossrail stations.
Responding to the expected substantial increase in footfall
around the new stations and in nearby streets, a number of
improvements to the public realm are underway, or planned, to
ease pavement congestion and provide stronger connections
between retail, cultural and leisure attractions.
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 014
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
Resilient
Our objective
is to deliver
long-term
outperformance
in growth of
rental income,
capital values
and shareholder
returns
We concentrate on locations
which have an exceptional
record of long-term prosperity,
resilience and growth.
Key value drivers
Value driver
Sustained demand
Minimal vacancy
Limited obsolescence
Why is this important?
Fundamental to long-term growth
in rental income and capital values
Maximises income generated by the
portfolio
Limits investment needed to
maintain our portfolio
Cost control
Maximises earnings
SEE PAGE 21 FOR HOW WE FOCUS LARGELY ON USES WHICH GIVE US LIMITED
OBSOLESCENCE RISK
SEE PAGE 53 FOR MORE INFORMATION ON COSTS IN THE CURRENT YEAR AND PAGE 4
FOR DIVIDENDS OVER THE PAST FIVE YEARS
The associated principal risks are:
• A sustained fall in visitor numbers and/or spending in the West
End and our villages, leading to a reduction in tenant demand
and occupancy levels e.g. as a result of terrorism, health
concerns, long-term disruption to the transport network, or
competing destinations
• Regulatory risk, including changes in planning policies
• Economic risks
SEE PAGES 61 TO 63 FOR DETAILS OF OUR PRINCIPAL RISKS AND HOW WE MITIGATE THEM
SEE PAGES 19 TO 31 FOR INFORMATION ON OUR BUSINESS MODEL
Sustainable rental growth
Sustainable rental growth is fundamental to long-term growth in
income, earnings and capital values. We achieve this through:
• Investing in popular locations
• Focusing on retail and leisure uses which, in the West End, have
a long history of sustained demand and rental growth
• Improving our buildings and villages to create and foster
distinctive, attractive and prosperous locations
SEE PAGE 13 FOR THE WEST END’S POPULARITY
SEE PAGES 20 TO 21 FOR OUR FOCUS ON RETAIL AND LEISURE USES
SEE PAGE 19 FOR HOW WE CREATE AND DELIVER VALUE
OUR OBJECTIVE CONTINUED
015
Growth in rents through the cycles
High occupancy
Our long-term management strategy creates strong tenant demand.
Consequently, vacancy levels are typically low, with average EPRA
vacancy in the wholly-owned portfolio over the past ten years of
2.5%. At 30 September 2015, EPRA vacancy was 1.6%.
EPRA vacancy %2
4
3
2
1
0
10 year average: 2.5%
2006 2007 2008 2009 2010 2011
2012 2013 2014 2015
SEE PAGES 30 TO 31 FOR DETAILS ON OUR PROVEN MANAGEMENT STRATEGY
SEE PAGE 47 FOR MORE INFORMATION ON CURRENT VACANCY
Our strategy has delivered consistent growth in current income
and rental values over many years. The 10-year cumulative annual
growth rate in the current income and ERV of our portfolio has
been 7.5% p.a. and 7.7% p.a. respectively, with growth in current
income every year1.
Over the past decade, the ERV of the portfolio has been, on
average, 24% above current rents each year. The reversion
currently stands at £25.2 million, 24.6% above current income.
Typically we crystallise the potential income into cash flow over
a three-to-five year period. 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 establish
rental tones which exceed the ERV assessed by our external
valuers. In doing so, we improve the reversionary potential by
generating market rental evidence on individual properties and
across our neighbouring holdings. It is this rental potential which
delivers future income and capital growth.
Reversionary potential2
Current income (£m)
ERV (£m)
2
7
6
6
4
5
8
5
0
8
8
7
0
6
3
6
8
6
8
2
1
9
1
1
3
0
1
0
0
1
2
9
4
8
8
7
6
8
1
8
6
0
1
4
9
2006 2007 2008 2009 2010
2011
2012
2013 2014 2015
SEE PAGE 40 FOR MORE INFORMATION ON THE COMPONENTS OF THE CURRENT
REVERSIONARY POTENTIAL
KPIs
The key measures of our success, and how they link to remuneration, are set out below.
Specific measure
Commercial lettings/renewals/rent reviews to exceed ERVs
assessed by our valuers in the previous year
Result for year ended 30 September 2015
• Transactions in the first half: +10.0% vs March 2014 ERV
• Transactions in the second half: +12.1% vs September 2014 ERV
• Transactions during the year: +8.1% above September 2014
ERV
Let vacant space quickly
One month average letting time
These KPIs, along with other targets covering occupancy, ERV growth, operating costs, corporate social responsibility and delivering
projects and transactions are used to determine executive and senior management annual bonuses.
SEE PAGE 94 FOR OUR ACHIEVEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2015
1 Including the impact of acquisitions
2 Including our 50% share of property held in joint venture
3 Wholly-owned portfolio
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
OUR OBJECTIVE CONTINUED
tourists
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OUR OBJECTIVE CONTINUED
017
Long-term performance measures
Our performance against the long-term measures used in the LTIP is set out below.
The LTIP measures performance over three years.
Measure
What does it measure?
Growth in EPRA NAV
Value creation
Total shareholder return
Returns to shareholders, taking into account
share price movements and dividends in the
period
Benchmark
Source
Performance
Cumulative Annualised Growth Rate vs Retail
Price Index + 3%
FTSE 350 Real Estate Index
Our audited accounts and the ONS Retail
Prices Index
Datastream
1 year
3 years
5 years
10 years
3.8%
5.1%
21.9%
20.4%
16.0%
5.9%
9.4%
6.0%
1 year
3 years
5 years
10 years
36.7%
24.3%
81.7%
79.6%
134.7%
117.3%
42.0%
281.9%
Comment
Outperformance over each period measured
Outperformance over each period measured
SEE PAGE 95 FOR MORE INFORMATION ON THE LTIP
Shaftesbury
Benchmark
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 018
push
pull
How we
create and
deliver value
019
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eliver sharehold e r v
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CREATE DISTINCTIVE
RETAIL AND LEISURE
DESTINATIONS
ESTABLISH
OWNERSHIP
CLUSTERS
RECONFIGURE
AND IMPROVE
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FURTHER COMMENTARY ON OUR BUSINESS MODEL IS PROVIDED ON PAGES 20 TO 35
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
Shops, restaurants, cafés and
pubs generate 70% of current
income1
Careful selection of tenants
new concepts and independents
favoured
Strong demand, restricted
supply and low vacancy
Space provided in shell form
so our obsolescence costs
are limited
Growing importance of
restaurants and leisure
Upper floors generally offices
and residential
Mix of uses,
focused
on retail,
restaurants
and leisure
Shops, restaurants, cafés and pubs generate
70% of current income1
We have one million sq. ft. of retail, restaurant and leisure space
in our wholly-owned portfolio, which provides 70% of our
current income1. It comprises 313 shops, mainly of medium or
small size, and 257 restaurants, cafés and pubs. The choice of
interesting shopping, dining and leisure concepts in our villages
gives visitors an experience unmatched by competing destinations.
Careful selection of tenants - new concepts
and independents favoured
The careful selection of retail, restaurant and leisure tenants is
fundamental to our strategy. We favour new concepts and
independent operators, to ensure our areas provide a different
offer to traditional “high street” formats and locations.
Our tenant selection focus is mid-market, innovative and
accessible; our shops are neither luxury nor value-led and our
restaurants typically are neither Michelin-starred nor low-end
fast food.
Strong demand, restricted supply and low
vacancy
In the West End, there is a long history of occupier demand for
retail, restaurant and leisure space exceeding availability, which is
often restricted by planning policies.
As a result, rental levels for these uses, in our areas, historically
have not been cyclical. Even in times of major financial
uncertainty, rents for these uses have not recorded declines. Our
vacancy levels are traditionally low, averaging 3.6% for retail and
1.5% for restaurants, cafés, bars and leisure over the past ten
years1,2.
SEE PAGES 46 TO 47 FOR INFORMATION ON CURRENT DEMAND AND VACANCY
MIX OF USES CONTINUED
021
Limited obsolescence risk
Upper floors - a mix of offices and residential
Much of the space above our shops and restaurants consists of
offices, residential, or a mix of both. A local working population
and a residential community are essential elements of the
character and economy of our areas, bringing added life and
vibrancy, and providing customers for our shops, restaurants,
cafés, and pubs.
Over recent years, in response to the growing demand for
residential accommodation in our lively, central locations, we
have converted many of our smaller, poorer quality offices back
to their original residential use. Consequently, our income from
offices has reduced from 28% to 17% since 2005. At the same time,
the income contribution from residential has increased from 6% to
13%.
SEE PAGES 26 TO 27 FOR MORE INFORMATION ON OUR OFFICES AND APARTMENTS
An important aspect of our retail, restaurant, café and leisure
accommodation is that we provide it 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, limiting our obsolescence risk.
Growing importance of restaurants and leisure
Restaurants and leisure are growing in importance, reflecting
changing lifestyles and expectations of the huge numbers who
visit, work, or reside in, the West End. This is reflected in our
portfolio, where the contribution from these uses has grown
from 27% to 35% of current income since 2005. Over the same
period, the share of our income generated from retail has
decreased from 39% to 35%.
SEE PAGES 24 TO 25 FOR FURTHER INFORMATION ON OUR SHOPS, RESTAURANTS, CAFÉS,
AND PUBS
Evolution of uses over time
% of current income1
6
28
27
39
Residential
Offices
Restaurants, cafés and pubs
Shops
13
17
35
35
2005
2015
1 Wholly-owned portfolio
2 EPRA vacancy
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
022
n
i
g
u
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p
023
chill out
024
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
MIX OF USES CONTINUED
Retail
Wholly-owned
Shops
313
Larger shops2 70 (62% of current income)
Smaller shops3 243 (38% of current income)
Area (sq.ft.)
456,000
Weighted average
unexpired lease term
4 years
Current income
£32.9m
Longmartin
Shops
22
Larger shops2 12 (67% of current income)
Smaller shops3 10 (33% of current income)
Area (sq.ft.)
67,000
Weighted average
unexpired lease term
5 years
Current income
£2.9m
Current income by village1
Carnaby
Covent Garden
Chinatown
1%
6%
17%
25%
51%
30%
Competitive rental levels
compared with nearby streets
Our 313 wholly-owned shops are occupied
principally by fashion and lifestyle retailers. An
important element of the character and mix in
our villages is our ability to provide a wide
range of shop sizes and rental tones across our
many different buildings and streets. As well as
providing shoppers with a variety of interesting
formats, this offers great flexibility for retailers
to grow, or open, new concepts within our
areas.
Our villages have high, and growing, footfall yet
our rental levels remain competitive in relation
to nearby streets.
Shorter, more flexible leases
Our retail leases are generally short, 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’ fit-out period.
Sustained, broad-based demand
Our central, iconic retail destinations continue
to attract good tenant demand, particularly
from North American, European and UK concepts
seeking to open flagships or concept stores.
We have also had a number of existing tenants
who have expanded, relocated, or taken
second sites within our villages, particularly in
Carnaby, our largest retail area. With this
breadth of demand, we continue to introduce
new operators to maintain a fresh and
interesting retail mix across our areas.
During the year, we completed leasing and rent
review transactions with a combined rental
value of £8.9 million, equivalent to 27% of our
current retail income. This included 34 new
lettings, seventeen lease renewals and twelve
rent reviews. Vacancy levels remain low and
void periods are short. EPRA vacancy1 was 2.4%
at year end, of which 0.2% was under offer.
Our share of lettings and rent reviews in the
Longmartin joint venture was £0.8 million.
SEE DEMAND AND OCCUPANCY ON PAGES 46 TO 47
Soho
Charlotte Street
Larger retail developments
During the year, we completed the development
of 7,500 sq. ft. of new retail space at our
scheme on Foubert’s Place, Carnaby, which
was let to an overseas’ brand making its debut
in Europe.
We shall commence our redevelopment of our
large ownership on Charing Cross Road early in
2016. Our plans include creating approximately
32,000 sq. ft. of large, double-height retail
units along a 330 foot frontage on this busy
street, which we expect to be a major
beneficiary of Crossrail footfall. We are making
substantial improvements to the configuration
of the space, which we plan to market on
completion in 2017.
We have started to secure vacant possession
of space ahead of our planned reconfiguration
of the 21,000 sq. ft. Thomas Neal’s Warehouse,
Seven Dials, to reduce the current sixteen units
to fewer, larger units, or potentially a single
unit. Works are expected to commence early in
2016, with completion in mid-2017.
Our planning application for the reconfiguration
and extension of 57 Broadwick Street has been
submitted. Subject to consent, we expect to
commence works in spring 2016 to convert
offices into 11,000 sq. ft. of flagship retail
space, at this gateway to Carnaby from Soho.
SEE PAGES 42 TO 43 FOR FURTHER INFORMATION ON
THESE SCHEMES
SEE PAGES 20 TO 21 FOR WHY WE FOCUS ON RETAIL,
RESTAURANTS AND LEISURE
SEE PAGE 13 FOR FURTHER INFORMATION ON CROSSRAIL
SEE PAGES 142 TO 143 FOR RENTAL TONES ADOPTED BY
THE VALUERS
.
35%
of current
income1
1 Wholly-owned portfolio
2 Rent > £150,000 p.a.
3 Rent < £150,000 p.a.
Carnaby
Covent Garden
Chinatown
Soho
Charlotte Street
MIX OF USES CONTINUED
025
Restaurants,
cafés and
pubs
Current income by village1
Carnaby
Covent Garden
Chinatown
Soho
Charlotte Street
5%
8%
16%
This included introducing nineteen new
concepts in our villages, seven lease renewals
and twenty three rent reviews. EPRA restaurant
vacancy1 was 0.5% at 30 September 2015, half
of which was under offer.
41%
30%
Our share of rent reviews in the Longmartin
joint venture was £0.2 million.
SEE DEMAND AND OCCUPANCY ON PAGES 46 TO 47
Wholly-owned
Restaurants,
cafés, and pubs
257
Area (sq.ft.)
559,000
Weighted average
unexpired lease term
11 years
Current income
£34.0m
Longmartin
Restaurants, cafés
and pubs
11
Area (sq.ft.)
45,000
Weighted average
unexpired lease term
15 years
Current income
£1.3m
Increasingly becoming a
footfall driver
Eating out and socialising are ever-more popular.
Consequently, the variety and quality of
restaurants, cafés and pubs in the West End is
increasingly becoming a footfall driver in its own
right. With 257 wholly-owned restaurants, cafés
and pubs, we are the largest provider of food and
beverage space across the core West End, owning
nearly one in five of the licenced premises.
Long leases, but becoming
more flexible for us, as landlord
Tenants invest considerable sums fitting out
their space, sometimes spending the equivalent
of 3-5 years’ rent and, therefore, we grant
longer leases to provide them an extended
period over which to amortise this cost. Typical
restaurant lease terms are:
• Historic leases (approximately 70%, by rent, of
our leases): 25 years, five-yearly upward-only
rent reviews and security of tenure on expiry.
Often granted over whole buildings.
• New leases: 15 years, five-yearly upward-only
rent reviews. There is no security of tenure
on expiry and we also benefit from a
turnover-related rental top-up. Leases
extend only to operational space i.e. not
upper floors.
Historically high demand,
with low availability of space
Planning policy in the West End generally seeks to
regulate the provision of new restaurant space, in
the interests of preserving a balance of
commercial uses and the amenity of local
residents. This, together with reluctance by
existing operators to relinquish their valuable
sites, severely limits the supply of space.
Tenant demand continues at historically high
levels. In our sought-after locations, we regularly
receive numerous competitive offers for available
units and pre-letting is common. Our areas
attract interest from independent operators,
established street-food concepts, start-ups
seeking their first site and existing small
restaurant groups with new ideas and creative
partners. With consumers keen to experience
different concepts and tastes, these operators
are particularly interesting and relevant to our
villages, broadening our dining and leisure offer
and bringing both customer and social media
interest.
We have completed lettings, renewals and rent
reviews with a rental value of £7.8 million in the
year, representing 23% of our current restaurant
and leisure income.
Opportunities to add to, or
reconfigure, our accommodation
Responding to the high level of demand, we
continue to identify opportunities to secure
vacant possession of restaurants which, in the
past, had been let on long leases, providing
tenants with the right to renew at the end of the
term. This allows us to improve the configuration
of space on the lower floors, attract new
operators on more beneficial terms, and often
release valuable upper floors for other uses. At
30 September 2015, we had 16,000 sq. ft. of
restaurant and café space where we were either
making, or plan to make, improvements.
Our recently-created restaurant quarter in
Carnaby includes Kingly Street, Kingly Court and
Ganton Street. It is now widely recognised as a
major and exciting dining hub, attracting footfall
from a wide catchment, including Soho, Oxford
Street, Regent Street and Mayfair. It complements
Carnaby’s reputation as a retail destination.
Having completed our large development
scheme fronting Foubert’s Place and Kingly
Street, Carnaby, two new restaurants have
opened, anchoring the food offer at the
northern end of Kingly Street. Importantly,
almost all the frontages on Kingly Street are
now in food and beverage use.
We have made further improvements to Kingly
Court in the year, and have introduced
restaurants on the second floor. This lively
destination now boasts nineteen restaurants
and cafés, four bars and clubs and over 1,200
covers, in an alfresco setting.
Our Charing Cross Road/Chinatown scheme, set
to commence in 2016, will create improved dining
space by relocating restaurant and bar uses from
Charing Cross Road, to provide 13,500 sq. ft. of
large restaurant units, fronting Newport Place
and Newport Court.
SEE PAGES 42 TO 43 FOR FURTHER INFORMATION ON
THESE SCHEMES
SEE PAGES 20 TO 21 FOR WHY WE FOCUS ON RETAIL,
RESTAURANTS AND LEISURE
SEE PAGES 142 TO 143 FOR RENTAL TONES ADOPTED BY
OUR VALUERS35%
of current
income1
1 Wholly-owned portfolio
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
026
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
MIX OF USES CONTINUED
Offices
Current income by village1
Carnaby
Covent Garden
Chinatown
2%
Soho
Charlotte Street
8%
7%
18%
65%
Wholly-owned
Area (sq.ft.)
418,000
Weighted average
unexpired lease term
4 years
Current income
£15.4m
Longmartin
Area (sq.ft.)
102,000
Weighted average
unexpired lease term
5 years
Current income
£2.5m
Large provider of small office
space in the core West End
We are one of the largest providers of small
office space in the core West End. Our 418,000
sq. ft. of office space in the wholly-owned
portfolio is let to 294 tenants, of which 240
occupy less than 2,000 sq. ft. The average
letting is 1,400 sq. ft. at £46 per sq. ft., and the
average ERV is £56 per sq. ft. The tone for our
best offices is now £53 - £78 per sq. ft. Lease
lengths are typically five years.
Constrained supply and strong
demand
Over recent years, supply of small office space
across the West End has reduced as a result of
office-to-residential conversions and
redevelopment of multi-let office buildings to
create higher specification space with larger
floor plates.
We are experiencing extremely strong demand
for our smaller office accommodation, largely
from the buoyant SME media, creative, fashion
and IT sectors. These businesses traditionally
have been based in Soho and Covent Garden.
We also have strong interest for our larger floor
plates from an increasing number of financial
companies, who find our villages to be better
value and more lively than their existing
locations.
With occupier demand outstripping supply,
rents have continued to rise, rent-free periods
have reduced, and vacancy levels have been
extremely low. When space does become
available, pre-letting is commonplace.
During the year, we completed new lettings,
lease renewals and rent reviews in the
wholly-owned portfolio, extending to 87,000
sq. ft. and totalling £4.9 million, equivalent to
32% of our current office income. This
included letting 10,500 sq. ft. of newly-built
office space in our development at 25 Kingly
Street for £0.8 million. It also included 42 new
leases, 23 renewals and four rent reviews. At
year end we had just four office suites, totalling
1,900 sq. ft., available to let.
Our share of lettings in the Longmartin joint
venture was £0.2 million.
SEE DEMAND AND OCCUPANCY ON PAGES 46 TO 47
SEE PAGE 42 FOR DETAILS ON THE KINGLY STREET
DEVELOPMENT
Improving rental prospects
Responding to buoyant demand, we are keen,
when opportunities arise, to reconfigure and
upgrade our office space to ensure it meets
the flexible working space standards expected
by SMEs in our areas. At the same time, we
improve its environmental performance, as we
strive to minimise occupation costs for our
tenants.
Our planning application for the
reconfiguration of 57 Broadwick Street
includes the refurbishment and extension of
the existing offices to create 20,000 sq. ft. of
modern, large-floor plate space.
SEE PAGE 43 FOR DETAILS ON THE SCHEME AT
57 BROADWICK STREET
SEE PAGES 142 TO 143 FOR RENTAL TONES ADOPTED BY
OUR VALUERS
17%
of current
income1
1 Wholly-owned portfolio
Carnaby
Covent Garden
Chinatown
Soho
Charlotte Street
Residential
Current income by village1
Carnaby
Covent Garden
Chinatown
Soho
Charlotte Street
MIX OF USES CONTINUED
027
4%
11%
20%
20%
45%
Reliable and growing cash flow
With its wide variety of attractions and lively
atmosphere, the West End is a popular place to
live, and we see sustained demand for our
reasonably-priced apartments to rent. Our 528
wholly-owned flats are mainly studios and one
or two bedroom apartments. Mostly, they have
been created from the conversion of small
office accommodation, which could not be
adapted to meet modern occupier
requirements. We have secured a number of
residential conversion planning consents which
we could implement in the future.
Our residential accommodation, with its high
occupancy levels, provides a reliable and
growing income stream, presently representing
13% of our current income.
Preference to lease, rather
than sell, apartments
The value of our buildings is weighted towards
the retail, restaurant and leisure uses on the
lower floors. We prefer to retain control over
whole buildings to avoid compromising the
management flexibility needed to realise the
long-term potential in those valuable lower
floors. Therefore, we choose not to sell our
apartments, where, to do so, would
compromise this flexibility.
Flexible leases
Our apartments, which are rented unfurnished,
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.
High occupancy levels
During the year, we completed 203 lettings and
renewals in the wholly-owned portfolio, with a
rental value totalling £5.6 million, representing
45% of our current income from this use.
Our share of residential letting activity in the
Longmartin joint venture was £0.3 million.
With continuing strong demand in our
locations, residential vacancy levels have been
low throughout the year. At 30 September
2015, we had thirteen apartments available to
let, whilst a further four were under offer.
There were two vacant apartments in the
Longmartin joint venture.
We have a rolling refurbishment programme to
ensure the accommodation we offer matches
the standard of new-build rental flats, which
are coming to the market in greater numbers
in, and around, the West End. At year end, we
were constructing, or upgrading, 46
apartments in the wholly-owned portfolio and
four flats in the Longmartin joint venture.
SEE DEMAND AND OCCUPANCY ON PAGES 46 TO 47
Wholly-owned
Apartments
528
Area (sq.ft.)
308,000
Current income
£12.4m
Longmartin
Apartments
75
Area (sq.ft.)
55,000
Current income
£1.2m
13%
1 Wholly-owned portfolio
of current
income1
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
wide
029
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 030
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
• Creating distinctive retail and
leisure destinations which appeal
both to tenants and their
customers
• Ownership clusters allow us to
invest in, and holistically manage,
areas over the long-term
• Active refurbishment
programme to improve our
buildings, grow rents, and unlock
value
• Good initial returns and
compound benefits
• 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
Proven
management
strategy to
create and
foster distinctive,
attractive and
prosperous
locations
Creating distinctive retail and leisure
destinations
Our proven management strategy creates long-term prosperity
by establishing and fostering distinctive and attractive
destinations which appeal to visitors, occupiers and residents.
Providing our retail, restaurant and leisure tenants with an
environment where they can prosper is essential to the long-
term success of our business.
We achieve this through:
• 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 to maximise rental and capital values
SEE PAGES 20 TO 21 FOR MORE INFORMATION, AND WHY WE FOCUS ON RETAIL,
RESTAURANTS AND LEISURE
PROVEN MANAGEMENT STRATEGY CONTINUED
031
Ownership clusters allow holistic long-term
management
Over the years, we have identified 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.
We establish ownership clusters so that we can take a long-term
holistic view in our investment and management strategies. This
allows us to unlock rental and capital value potential whilst
compounding the benefits of individual transactions, such as
improved tenant quality and higher rental tones, across our
nearby holdings.
Active refurbishment programme to improve
our buildings, grow rents, and unlock value
We estimate that the average age of our buildings is around 150
years. In our experience, these buildings offer much greater
flexibility than more modern buildings. Conservation and listed
building legislation limits wholescale development in our areas.
However, our skill is in bringing long-term sustainability to our
historic buildings and areas through an active refurbishment and
reconfiguration programme which improves our buildings,
enhances their rental potential and values, and extends their
useful lives. This often involves:
• Maximising retail, restaurant and leisure space
• Reconfiguring buildings to provide occupiers with more
efficient trading space
• Maintaining and improving buildings to ensure they are capable
of meeting the needs of modern occupiers
• Maximising environmental performance whilst maintaining
buildings’ individual characters
• Converting under-utilised space on upper floors to introduce
more valuable uses and bring long-term economic sustainability
to buildings as a whole
Typically, the duration of our numerous schemes is short and the
costs are modest. Annual capital expenditure across our
portfolio is normally less than 1% of portfolio value.
SEE PAGES 42 TO 43 FOR DETAILS OF INVESTMENT IN OUR PORTFOLIO DURING THE YEAR
Promoting our villages as destinations with a
wide variety of interesting, innovative and
ever-changing choices
Whilst the West End attracts large numbers of visitors, we are not
complacent. Despite the fact that our ownerships are in the
heart of the West End, we do not assume people will necessarily
visit, and spend in, our shops, restaurants, cafés and pubs.
Therefore, we work closely with our tenants to promote their
businesses, and our areas, to the West End’s wide domestic and
international audience.
Our multi-channel marketing includes:
• Widely publicised initiatives such as shopping, street food and
music events
• Dressing our areas e.g. at Christmas and for Chinese New Year
• An active digital strategy, including dedicated websites for our
villages, and an extensive social media presence
We build on relationships with our existing tenants who are not
only a great source of new ideas from their experiences
elsewhere, but also have their own promotional and digital
strategies which bring further footfall to our villages.
We invest considerable resources in promoting our areas to
potential retail, restaurant and leisure operators. This includes
active engagement with the trade press, research visits to UK and
international cities, and attendance at trade events.
Investing in the public realm to create safe and
welcoming areas
We identify, promote and contribute to public realm improvements
in our villages to ensure our streetscapes provide a safe and
welcoming environment for tenants, their customers, and
residents. In our experience, this is an important catalyst for
increasing footfall.
SEE PAGE 43 FOR MORE INFORMATION ON IMPROVING THE PUBLIC REALM
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
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Experienced
management team
with an innovative
approach to long-term,
sustainable income
and value creation
• Forensic knowledge of the
West End and management
through different property
market cycles
• Record of long-term
outperformance against the
wider real estate market
• Relationships with key
stakeholders
• All ownerships within 15
minutes’ walk of our office
Forensic knowledge of the West End
Our long-established team has a forensic knowledge of the West
End and experience of management through different property
market cycles. Our executive directors have an average length of
service of nearly 22 years, and are supported by a senior
management team with twelve years’ average service.
Our team of 25 staff is supported by a broad range of external
advisors, many of whom have worked with us for much of
Shaftesbury’s 29 years. Everybody involved with Shaftesbury
– staff and advisors – shares a passion and enthusiasm for the
West End and our locations.
SEE PAGE 17 FOR OUR RECORD COMPARED WITH THE FTSE 350 REAL ESTATE SECTOR
SEE PAGES 70 TO 71 FOR DIRECTOR BIOGRAPHIES
Relationships with key stakeholders
Based in Carnaby, we are within fifteen minutes’ walk of all our
holdings. We maintain regular contact with tenants, community
groups, neighbouring owners and other stakeholders, and are
able to respond quickly to opportunities and issues as they arise.
As a long-term investor in our areas, we are active in working
with, and supporting, our local community to address issues and
challenges of mutual interest and concern.
SEE SUSTAINABILITY ON PAGES 146 TO 155
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. We 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.
v i n t a g e i n s p i re d
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 034
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
Robust
Prudent
financial
management, a
strong balance
sheet and a
tax-efficient
structure
• Investment in our portfolio
funded through equity and debt
• Prudent approach to gearing
• Low risk debt structure
diversity of loans, lenders and
maturities
• Loan-to-value: 22.5%
• Weighted average maturity
of debt: 10.2 years
• Tax-efficient REIT structure
Sources of capital
Investment in our portfolio to enhance shareholder returns is
funded through a combination of equity and debt, with equity
providing the permanent capital to support our long-term strategy.
Under REIT rules, we are required to distribute the majority of
our recurring earnings. The importance of our ownership clusters
in long-term value creation means that opportunities to recycle
capital are limited.
SEE PAGES 30 TO 31 FOR WHY OWNERSHIP CLUSTERS ARE IMPORTANT OVER THE LONG TERM
Low-risk debt structure
Consistent with the long-term nature of our portfolio and secure
income streams, our core debt finance is provided by long-term
arrangements with covenant structures which do not restrict the
active management of our assets. Medium-term revolving
facilities provide us with flexibility in managing our resources and
capacity to invest further in our existing portfolio, in particular
allowing us to act swiftly when acquiring properties.
Our approach to gearing is prudent, ensuring we have:
Healthy interest cover
→ Year ended 30 September 2015:
2.13 times
Low loan-to-value ratio
→ 30 September 2015: 22.5%
Spread of maturities and
diversity of lenders
→ Earliest maturity: 2018. Latest
maturity: 2035. Weighted
average maturity at 30
September 2015: 10.2 years
Limited exposure to interest
rate movements
→ % of debt fixed at 30 September
2015: 97.2%
Over the long term, we would expect debt to represent around
one third of our invested capital, although we also consider other
metrics, such as interest cover, when considering gearing levels.
SEE FINANCING ANALYSIS ON PAGE 56
Tax-efficient REIT 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 investors, and is taxed
according to their 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 141 FOR FURTHER INFORMATION ON OUR REIT STATUS, AND PAGE 54 FOR THE
RECOMMENDED DIVIDEND
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
Valuation
Further strong
growth in current
rents, ERVs and
capital values,
underpinned by
sustained high
occupier and
investor demand
• Portfolio valued at £3.1 billion1
• Capital value growth1,2: +18.0%
Almost two thirds of our portfolio reversion arises
from uses which historically have not suffered from
cyclicality in demand, providing a secure platform
for further growth in income.
Further strong valuation performance
Our portfolio1 has been valued at 30 September 2015 at £3.13
billion, producing a surplus on revaluation of £466.6 million. The
ungeared like-for-like capital value return was 18.0%, with strong
growth reported in each village. The like-for-like portfolio
cumulative annual growth rate over three years has been 16.0%.
• ERV growth1,2: +7.0%
• Equivalent yield: 3.61%
(wholly-owned portfolio),
3.75% (Longmartin)
• Continued growth in actual and
potential rents
• ERV is now 24.6% above current
rent1
1 Including our 50% share of the Longmartin joint venture
2 Like-for-like
VALUATION CONTINUED
039
Wholly-owned portfolio
Carnaby
Covent Garden
Chinatown
Soho
Charlotte Street
Longmartin joint venture1
Total portfolio2
FAIR VALUE
£m
% OF
PORTFOLIO
CURRENT
INCOME
£m
1,109.9
808.6
693.8
215.8
91.4
2,919.5
212.5
3,132.0
35%
26%
22%
7%
3%
93%
7%
34.6
26.7
23.3
7.3
2.8
94.7
7.9
100%
102.6
TOPPED-UP
INITIAL YIELD
%
EQUIVALENT
YIELD
%
3.23%
3.06%
3.01%
3.12%
2.78%
3.11%
3.28%
3.69%
3.55%
3.56%
3.62%
3.52%
3.61%
3.75%
ERV
£m
45.7
32.8
27.3
8.8
3.9
118.5
9.3
127.8
SEE PAGES 142 TO 143 FOR THE PORTFOLIO ANALYSIS AND THE KEY ASSUMPTIONS USED BY THE VALUERS IN THEIR VALUATIONS
VILLAGE
Carnaby
Covent Garden
Chinatown
Soho
Charlotte Street
Longmartin joint venture1
Total2
2015 CAPITAL GROWTH3
3-YEAR CAGR
21.0%
14.8%
17.3%
15.0%
20.3%
19.0%
18.0%
18.9%
14.0%
14.1%
14.8%
14.6%
16.9%
16.0%
Our capital growth over the year reflects:
• Continuing strong occupier demand and low vacancy, which is
DTZ, independent valuer of our wholly-owned portfolio, have
noted that our portfolio has:
driving sustained growth in actual and prospective rents.
• an unusual concentration of holdings in sought-after West End
• Improvements we make to the income potential of the
accommodation we offer, including reconfiguration to create
better, more efficient trading space and, where possible, the
introduction of more valuable uses in our buildings.
• A reduction in yields investors are prepared to pay to secure
assets in the extremely prosperous, resilient West End. Against
a background of a scarcity of supply of properties to acquire,
this strong investor appetite reflects a desire for assets which
provide growing returns, particularly in an environment of
low-cost finance.
The equivalent yield attributed by our valuers to our wholly-
owned portfolio at 30 September 2015 was 3.61%, a reduction of
0.39% over the year. In the Longmartin joint venture, the
reduction was 0.35%, bringing the equivalent yield to 3.75%.
locations; and
• a predominance of retail, restaurant, café and leisure uses, for
which there continues to be strong occupier demand, as
demonstrated by current, and historic, low vacancy levels
throughout the portfolio.
They also comment on the extent to which, under RICS Valuation
Professional Standards, they are guided to combine or “lot” parts
of our portfolio. They continue to advise the Board that, in their
view, 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 144 TO 145 FOR THE SUMMARY REPORT BY THE VALUER
1 Our 50% share
2 Including our 50% share of the Longmartin joint venture
3 Like-for-like
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
VALUATION CONTINUED
Continuing rental growth
We have, once again, seen growth in both actual and potential
income this year, continuing our record of long-term sustainable
rental growth, a key driver of long-term value creation. Over the
year, our annualised current income1 has grown by £9.1 million
from £93.5 million to £102.6 million, of which acquisitions
contributed £0.6 million. The like-for-like increase was 9.1%. This
included the lettings at our completed scheme fronting Foubert’s
Place and Kingly Street, Carnaby, which totalled £2.4 million.
SEE PAGE 15 FOR MORE DETAILS ON OUR RECORD OF SUSTAINABLE RENTAL GROWTH
THROUGH THE CYCLES.
SEE PAGE 42 FOR DETAILS ON THIS SCHEME IN CARNABY
Importantly, our valuers’ estimate of the rental value of our
portfolio (“ERV”)1 increased by £9.2 million this year and now
stands at £127.8 million (30.9.2014: £118.6 million). Excluding the
impact of acquisitions, which contributed £1.0 million to the
total, the like-for-like increase was £8.2 million (7.0%), reflecting
good rental growth across all villages and uses.
Like-for-like ERV growth1 (£m)
+7.0%
8.2
1.0
Converting the reversionary potential into
cash flow
The total reversion1 now stands at £25.2 million, 24.6% higher
than the annualised current rent. Of this, £7.1 million is contracted
and will be realised as rent-free periods expire. Vacant property,
including schemes in hand, accounted for £7.3 million, which will
be realised as schemes complete and units are let.
SEE PAGE 46 FOR HOW OUR LEASING TRANSACTIONS HAVE EXCEEDED ERV AT SEPTEMBER
2014 DURING THE YEAR
SEE PAGE 47 FOR VACANCY DETAILS
Included in the total ERV is £1.3 million in respect of potential
income from our schemes at 57 Broadwick Street, Carnaby, and
Charing Cross Road/Chinatown2. This estimate of income is
largely based on the existing space and does not fully take into
account additional income which we expect to be generated by
these schemes.
SEE PAGE 43 FOR DETAILS ON THESE SCHEMES
£9.5 million of our reversionary potential should be realised
through the normal cycle of rent reviews, lease renewals and
lettings. Shops, restaurants, cafés and pubs account for 63% of
this uncontracted reversion. In our experience, these uses have,
in our locations, demonstrated a long history of sustained,
non-cyclical demand. Together with a restricted supply of space,
this underpins their growth prospects. Consequently, we remain
confident that, through our proven long-term management
strategy, we shall not only convert this potential additional
income into cash flow, but also deliver further additional
long-term sustained rental growth. With vacancy levels remaining
low, where possible, we seek to secure vacant possession of
under-rented space and, in re-letting, accelerate the realisation
of this potential income.
Reversionary potential1 (£m)
7.3
1.3
7.1
9.5
127.8
118.6
127.8
102.6
2014
Acquisitions
Like-for-like
growth
2015
Current
income
Contracted Vacancy
Future
schemes
Under-
rented
element
ERV
1 Including our 50% share of the Longmartin joint venture
2 To the extent not accounted for within vacancy, in the case of Charing Cross Road/Chinatown
008041
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
Investment in
our portfolio
High level of
activity. Good
progress has
been made
on our larger
schemes
• Schemes undertaken during the
year: 181,000 sq. ft. (10.4% of total
floor area in the wholly-owned
portfolio)
• Development fronting Foubert’s
Place and Kingly Street
completed and let above ERV
• Capital expenditure1: £24.7 million
• Planning consent granted for our
major 45,500 sq. ft. Charing Cross
Road/Chinatown scheme
• Planning application made for
our scheme at 57 Broadwick Street
• Seven properties acquired.
Cost: £25.8m; further acquisitions
since year end
We continue to progress a pipeline of new projects
to improve our buildings, increase income and
unlock value.
Continued high level of refurbishment activity
A high level of management and refurbishment activity continues
across our portfolio, with schemes undertaken during the year
extending to 181,000 sq.ft. (10.4% of floor space in the wholly-
owned portfolio), at a cost1 of £24.7 million. With strong occupier
demand for our properties, securing vacant possession of space
provides opportunities to carry out asset management initiatives
to deliver growth in rental income and values. We made 96
planning applications during the year, including those for our
Charing Cross Road/Chinatown, and 57 Broadwick Street,
Carnaby schemes.
SEE PAGE 31 FOR MORE INFORMATION ON HOW SCHEMES FORM AN IMPORTANT PART OF
OUR MANAGEMENT STRATEGY
Our major scheme in Carnaby, fronting Foubert’s Place and Kingly
Street, was our largest project completed in the year. This
mixed-use development, which cost £15.7 million, comprised
24,500 sq. ft. of retail, restaurant and office space, along with
twelve apartments. Rents were £2.0 million above pre-scheme
levels and 17.7% ahead of ERV at 30 September 2014.
Other larger projects underway, or completed during the year,
included further improvements to Kingly Court, reconfigurations
of retail, restaurant and pub space, office refurbishments,
residential conversions and refurbishments, and public realm
improvements.
SEE PAGE 47 FOR DETAILS OF SCHEMES UNDERWAY AT YEAR END
1 Wholly-owned portfolio
INVESTMENT IN OUR PORTFOLIO CONTINUED
043
Good progress with our important larger
schemes
We continue to identify and progress a wide range of asset
management opportunities across our portfolio, and have a number
of schemes at various stages from initial ideas, seeking planning
approval, awaiting vacant possession, or under construction.
We are making good progress, with our important larger schemes:
Charing Cross Road/Chinatown
During the summer, we were granted planning consent to reconfigure
our substantial retail and restaurant ownership on the eastern
boundary of Chinatown, with extensive frontages to Charing Cross
Road, Newport Court and Newport Place. The scheme, totalling
some 45,500 sq. ft., will create much improved space for occupiers.
This includes a contiguous retail frontage on Charing Cross Road
of some 330 feet, new restaurants in Newport Place and Newport
Court, and a materially improved gateway into Chinatown.
The scheme, expected to complete in mid-2017, will cost around
£10 million and will significantly increase net property income
from this property, once fully let. Works will commence early in
2016 and we have started taking back space, with a view to
securing vacant possession by the end of 2015.
SEE PAGE 47 FOR DETAILS ON THIS SCHEME’S VACANCY AT YEAR END
57 Broadwick Street, Carnaby
We have submitted a planning application for the reconfiguration
and extension of 57 Broadwick Street, a prominent building at the
eastern gateway to Carnaby from Soho. Broadwick Street,
already an important pedestrian route through Soho, linking
Carnaby and Berwick Street, is expected to benefit from the
opening of Tottenham Court Road Crossrail station’s western
ticket hall on Dean Street, in 2018. Other nearby schemes,
planned or underway, will, over the next five years, bring further
active retail and restaurant frontages along the street and
greater footfall.
Our proposed scheme provides for:
• The creation of flagship retail units, extending to 11,000 sq. ft.
over the lower floors;
• Refurbishment and extension of the remaining office space,
to provide 20,000 sq. ft. of grade A accommodation; and
• 2,000 sq. ft. of residential accommodation
Subject to receiving consent, we expect to commence works
during spring 2016, with completion in phases from late 2017, and
at a cost currently estimated at £14 million. In the interim, we
have extended the existing occupational leases to April 2016.
Thomas Neal’s Warehouse, Seven Dials
Having secured planning and Listed Building consents, we shall be
reconfiguring the Thomas Neal’s Warehouse, to produce 21,000
sq. ft. of flagship retail space. We expect this scheme to
commence early in 2016, with completion in mid-2017. The
project is expected to cost £2 million. It will also involve a loss of
annual income, while works are carried out, of £0.8 million.
Investing in, and improving, the public realm
Investment in the public realm in and around our villages is an
important catalyst for improving footfall. Examples during the
year include:
• Upgrading the streetscape along Upper St Martin’s Lane,
improving the entrance to St Martin’s Courtyard and the
southern gateway to Seven Dials
• Resurfacing Carnaby Street and improvements to Foubert’s
Place, the busiest route into Carnaby from Regent Street
We have also agreed to part-fund a scheme to improve
Wellington and Russell Streets in the Opera Quarter and
discussions for improvements to Rupert Street, south of
Shaftesbury Avenue, continue. Plans are also being discussed
with Westminster City Council to create a pedestrianised public
square in Newport Court and improve Newport Place.
As part of the infrastructure improvements connected with Crossrail,
Cambridge Circus is to be improved, in 2016, to relieve pedestrian
congestion at this important and busy junction between Soho
with Seven Dials. We anticipate this will encourage more footfall
along Earlham Street, where we also expect to contribute to a
major public realm improvement scheme, which we are optimistic
will commence in 2016. This will bring material long-term benefits to
our holdings around this important eastern gateway in to Seven Dials.
We continue to identify, and encourage, further public realm
improvements across our villages.
Acquisitions
We acquired seven properties during the year. Costing £25.8 million,
these additions to our portfolio in Soho, Charlotte Street, Covent
Garden and Carnaby comprised two shops, two restaurants, two
cafés, a vacant pub, 4,950 sq. ft. of office space and eight apartments.
These acquisitions, bought with an average net initial yield of 2.0%,
complement our existing, extensive ownerships and offer the
potential for good rental and capital growth through a combination
of asset management and refurbishment schemes. Whilst we have
longer-term asset management ambitions for these properties, in the
short term we have already increased the income they generate
by 20% and this will rise to approximately 40% once we have
completed and let apartments which are currently being upgraded.
In December 2015, we expect to complete the forward-purchase
of 6,500 sq. ft. of new retail and restaurant space on the ground
floor and basement at 19-25 Broadwick Street, Soho. Completion
of this purchase has been delayed by the vendor due to construction
issues. We anticipate keen occupier interest once we have
secured ownership.
The availability of assets to buy which meet our specific criteria
continues to be limited as owners in our extremely prosperous and
resilient areas, understandably, remain reluctant to sell. The timing
of acquisitions is always unpredictable. Whilst there were no
acquisitions in the second half of the year, since year end we have
contracted to buy properties, totalling £22.1 million, which we
had been investigating for some time.
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 044
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
Demand and
occupancy
Continuing
strong demand
for space in our
carefully-curated
locations, high
occupancy levels
and sustained
growth in current
and prospective
rental income
Continued high level of leasing activity
It has been another busy year for lettings, lease renewals and rent
reviews, with £27.3 million of transactions, equivalent to 28.8% of
our current annualised income1. The total included £2.4 million from
the letting of our large mixed-use scheme on Foubert’s Place and
Kingly Street, Carnaby, 17.7% ahead of ERV at 30 September 2014.
Commercial
Lettings and renewals
Rent reviews
£m
15.9
5.7
+8.3% vs September 2014 ERV
+24.8% vs previous rent
(equivalent to 4.5% CAGR
over five years)
21.6
+8.1% vs September 2014 ERV
Residential
Lettings and renewals
5.7
+3.4% vs prior rent2
Total
27.3
In addition, our share of leasing activity in the Longmartin joint
venture was £1.6 million, with commercial lettings and reviews
11.5%, on average, above last year’s ERV. The final phase of the St
Martin’s Courtyard development was completed five years ago,
and we are now managing the first rent reviews.
• £27.3 million leasing and rent
review transactions in the year1
• Commercial lettings, renewals
and reviews up 8.1% vs 30
September 2014 ERV
• Development and refurbishment
vacancy: 4.3% and set to grow
as our major schemes commence
in 2016
• Available-to-let vacancy: 1.3%
1 Wholly-owned portfolio
2 Excludes £1.9 million of lettings of newly-built apartments
DEMAND AND OCCUPANCY CONTINUED
047
Vacancy at 30 September 20151
Held for, or under, refurbishment
ERV – £ million
Charing Cross Road/Chinatown scheme
Other schemes
Total
Area – ‘000 sq. ft.
Available
ERV – £ million
Under offer
Available-to-let
EPRA vacancy
Area – ‘000 sq. ft.
RESTAURANTS,
CAFÉS
SHOPS
AND LEISURE
OFFICES
RESIDENTIAL
TOTAL
% OF
TOTAL ERV
1.0
0.6
1.6
24
0.1
0.9
1.0
11
0.6
0.4
1.0
16
0.1
0.1
0.2
3
-
1.0
1.0
16
0.1
0.1
0.2
4
-
1.4
1.4
26
0.1
0.4
0.5
10
1.6
3.4
5.0
82
0.4
1.5
1.9
28
1.4%
2.9%
4.3%
0.3%
1.3%
1.6%
Low vacancy levels
Reflecting the strength of interest we have in our space, vacancy
levels have remained low throughout the year, with an average
EPRA vacancy of 2.1%. At 30 September 2015, EPRA vacancy in
our wholly-owned portfolio amounted to £1.9 million,
representing 1.6% of ERV, of which £0.4 million (0.3% of ERV) was
under offer, leaving £1.5 million (1.3% of ERV) available to let.
Our redevelopment and refurbishment programme continues
apace and, at 30 September 2015, the ERV of schemes underway
was £5.0 million (4.3% of ERV). This level will increase further as
we start our important Charing Cross Road/Chinatown, Broadwick
Street and Thomas Neal’s Warehouse schemes in 2016.
SEE PAGE 43 FOR MORE INFORMATION ON THESE PLANNED SCHEMES
Assets held for, or under, refurbishment included:
• 24,000 sq. ft. of retail and restaurant space at our major
Charing Cross Road/Chinatown scheme (ERV: £1.6 million),
where we have started securing vacant possession of space;
• Four shops in the Thomas Neal’s Warehouse (ERV: £0.2 million)
in the lead up to our reconfiguration of the centre;
• Five small shops (ERV < £150,000), with a total ERV of £0.4 million;
• Five restaurants and cafés (ERV: £0.4 million);
• 16,400 sq. ft. of office space (ERV £1.0 million); and
• 46 apartments under construction, or being upgraded
(ERV: £1.4 million).
Available-to-let vacancy comprised:
• Two large shops (ERV: £0.4 million) and seven small shops (ERV:
£0.5 million). Since year end we have let, or agreed terms on,
three shops (ERV: £0.2 million);
• One restaurant (ERV: £0.1 million), which has been placed under
offer since year end; and
• Office space totalling 1,900 sq. ft. with an ERV of £0.1 million,
and thirteen apartments with an ERV of £0.4 million.
Space under offer at 30 September 2015 included:
• Three small shops;
• Two restaurants;
• 2,400 sq. ft. of office space; and
• Four apartments.
In addition, in the Longmartin joint venture, two apartments were
available to let and there were four apartments, one office suite,
and one shop being upgraded or reconfigured at year end. Our
50% share of the vacancy in this joint venture was £0.4 million.
1 Wholly-owned portfolio
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
Village
summaries
Carnaby
35% of our
portfolio1
Covent Garden
33% of our
portfolio1
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 has become an
increasingly vibrant restaurant and
leisure destination. 62% of our
office space is in Carnaby.
98 shops
181,000 sq. ft.
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 include Seven
Dials, and the restaurant districts of the 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
108 shops
137,000 sq. ft.
Longmartin2
22 shops
67,000 sq. ft.
51 restaurants, cafés
and pubs
97,000 sq. ft.
251,000 sq.ft. offices
92 apartments
54,000 sq. ft.
84 restaurants, cafés
and pubs
162,000 sq. ft.
83,000 sq.ft. offices
211 apartments
126,000 sq. ft.
11 restaurants, cafés
and pubs
45,000 sq. ft.
102,000 sq.ft offices
75 apartments
55,000 sq. ft.
Percentage of village’s current income
7%
21%
31%
£34.6m
49%
10%
£26.7m
29%
15%
15%
37%
£7.9m3
31%
38%
17%
1 By value
2 Shaftesbury has a 50% interest in these units
3 Our 50% share
Shops
Restaurants, cafés and leisure
Offices
Residential
VILLAGE SUMMARIES CONTINUED
049
Chinatown
22% of our
portfolio1
Soho
7% of our
portfolio1
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. Our holdings extend to
3.2 acres.
Soho is a lively area with numerous
cafés, bars, clubs, restaurants and
quirky shops. Its distinctive
atmosphere and nightlife create a
popular destination for visitors. It
is a renowned creative hub, with
46,000 employed by the many
small businesses situated here,
typically in the media, fashion,
creative and IT industries. It has a
long-established residential
community.
Charlotte Street
3% of our
portfolio1
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.
66 shops
89,000 sq. ft.
36 shops
40,000 sq. ft.
5 shops
9,000 sq. ft.
72 restaurants, cafés
and pubs
203,000 sq. ft.
30 restaurants, cafés
and pubs
55,000 sq. ft.
20 restaurants, cafés
and pubs
42,000 sq. ft.
39,000 sq.ft. offices
112 apartments
71,000 sq. ft.
35,000 sq.ft. offices
67 apartments
36,000 sq. ft.
10,000 sq.ft. offices
46 apartments
21,000 sq. ft.
Percentage of village’s current income
10%
5%
25%
£23.3m
19%
27%
£7.3m
16%
9%
19%
10%
£2.8m
60%
38%
62%
1 By value
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 050
h o t
051
co ld
052
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
+21.9%
£8.69
EPRA NAV
+23.8%
Net Asset Value Return1
+10.7%
£36.1m
EPRA Earnings
+6.6%
13.0p
EPRA EPS
+5.0%
13.75p
Recommended total
dividend for the year
22.5%
Loan-to-value
+1.7%
168.0p
Basic EPS
+22.5%
£8.32
Diluted NAV
1 Based on EPRA NAV, before dividends
Results and
finance
It has been another
year of good
progress with
further growth in
net asset value,
rents, earnings
and dividends
We completed the refinancing of our 2016 debt
maturities, considerably lengthening the weighted
average maturity profile, diversifying our sources
of finance and increasing our financial resources.
With substantial and secure resources, we are
well-placed to continue growing, and investing in,
our portfolio and executing our business strategy.
Change of accounting policy for the
Longmartin joint venture
The Group is adopting IFRS 11 ‘Joint Arrangements’ for the first
time this year. This standard removes the proportionate
consolidation option that was previously available under IAS 31
‘Interests in Joint Ventures’ and instead requires us to account
for the joint venture using the equity method. The consequence
is that we now include the Group’s net equity interest in
Longmartin as a single line item in both the consolidated balance
sheet and consolidated income statement, rather than
proportionally consolidating the Group’s share of assets,
liabilities, income and expenses on a line-by-line basis. Loans,
interest and management fees between the Group and
Longmartin are no longer eliminated on consolidation.
Whilst this change in accounting policy does not affect the net
asset position nor profit after tax, it does alter the line-by-line
analysis in the primary statements and the cash and cash
equivalents reported in the Cash Flow Statement. The prior year
comparatives have been restated accordingly, and the changes
are summarised in note 2 to the Financial Statements. The
following financial commentary is based on the IFRS position.
RESULTS AND FINANCE CONTINUED
053
Income statement
Further growth in EPRA earnings
Profit after tax for the year was £467.3 million (2014: £440.4
million), and included a valuation surplus of £432.0 million (2014:
£394.0 million). As is usual practice in our sector, we produce an
alternative measure for earnings, making standard adjustments
as set out by EPRA in its Best Practice and Policy Recommendations.
EPRA earnings are a measure of the level of recurring income
arising from core operational activities. It excludes all items
which are not relevant to the underlying performance, such as
property and interest rate swap valuation movements.
EPRA earnings increased by 10.7% to £36.1 million (2014: £32.6
million) and EPRA EPS was 13.0p, up 6.6% over the year (2014:
12.2p). The smaller relative increase in EPRA EPS, compared with
that for EPRA earnings, reflects the increased weighted average
number of shares in issue this year, following our share placing in
March 2014.
EPRA earnings
IFRS profit after tax
Adjusted for:
Change in value of investment
properties
Change in fair value of financial
derivatives
Adjustments in respect of the
Longmartin joint venture:
Change in value of investment
properties
Deferred tax
EPRA earnings
EPRA EPS
2015
£m
467.3
As restated1
2014
£m
440.4
(432.0)
(394.0)
28.5
12.0
(34.6)
6.9
36.1
13.0p
(32.4)
6.6
32.6
12.2p
1 Restated for the change in accounting policy detailed on page 115
Net property income
Rents receivable have increased by 7.6% to £91.8 million (2014:
£85.3 million). The like-for-like growth of 5.5% largely reflects
the continued crystallisation of the reversionary potential of our
portfolio through lettings, renewals and rent reviews. Acquisitions
contributed £1.9 million to the increase.
Rents receivable (£m)
4.6
1.9
85.3
2014
Acquisitions
Underlying
growth
SEE PAGE 46 FOR DETAILS ON LEASING ACTIVITY DURING THE YEAR
SEE PAGE 43 FOR ACQUISITIONS
91.8
2015
Irrecoverable property costs were £13.0 million (2014: £11.2
million), representing 14.2% of rents receivable (2014: 13.1%). The
increase is mainly due to costs associated with the large volume
of leasing activity in the year, coupled with the high level of
irrecoverable costs at our Charing Cross Road/Chinatown
scheme. This block is let on a short-term basis ahead of
commencement of our scheme in early 2016. As a result, income
is low and there is a high level of irrecoverable costs. Excluding
this property, irrecoverable costs were 13.0% of rents receivable
(2014: 12.7%).
Net property income was £78.8 million, up 6.3% on last year
(2014: £74.1 million).
SEE PAGE 43 FOR MORE INFORMATION ON OUR PLANNED CHINATOWN DEVELOPMENT
Administrative expenses
Administrative expenses, excluding the charge for equity-settled
remuneration, increased by 3.8% to £11.0 million (2014: £10.6
million). This includes a charge for annual bonuses of £2.2 million
(2014: £2.6 million). The increase before bonuses was largely due to
higher staff costs and an increase in occupation outgoings following
our relocation to larger offices in Carnaby in February 2014.
The charge for equity-settled remuneration was £3.0 million
(2014: £3.2 million), which included a non-cash accounting
provision of £2.3 million (2014: £2.7 million) and a charge for
employer’s National Insurance of £0.7 million (2014: £0.5 million).
SEE PAGES 94 TO 95 FOR DETAILS ON THE CURRENT YEAR ANNUAL BONUS AND SHARE
OPTION VESTING
Revaluation surplus
Our portfolio delivered a valuation surplus of £432.0 million
(2014: £394.0 million), principally driven by like-for-like ERV
growth of 6.8% and yield compression of 39 basis points.
SEE PORTFOLIO VALUATION ON PAGES 38 TO 40
Finance costs
Net finance costs (excluding the change in fair value of our
interest rate swaps) increased by £1.2 million to £30.7 million
(2014: £29.5 million). The increase is the result of higher average
debt levels arising from acquisitions, capital expenditure and the
cost of termination of interest rate swap contracts, partly offset
by a lower blended cost of debt following our refinancing during
the year. The total includes an accelerated write-off of
unamortised deferred loan issue costs totalling £0.2 million.
Excluding interest rate swaps which were cancelled in the year at
a cost of £28.1 million, the like-for-like fair value deficit on our
interest rate swaps increased by £28.5 million to £79.2 million,
following a fall in long-dated interest rates in the year. The Board
keeps under review the Group’s interest rate hedging strategy,
and the impact our derivatives have on the long-term financing
of the business.
SEE PAGE 56 FOR DETAILS ON THE REFINANCING
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 054
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
RESULTS AND FINANCE CONTINUED
Longmartin profits
Our share of post-tax profit from the Longmartin joint venture
increased by £2.1 million to £29.7 million (2014: £27.6 million)
principally due to:
• an increase in net property income of 5.4% to £5.9 million
(2014: £5.6 million), driven by a like-for-like increase in rental
income of 6.3%.
• a revaluation surplus of £34.6 million (2014: £32.4 million) with
like-for-like ERV growth of 9.1% and equivalent yield compression
of 35 basis points.
• an increase in the tax charge of £0.3 million to £7.2 million
(2014: £6.9 million), as a result of deferred tax on the revaluation
surplus.
Tax
As a REIT, the Group’s activities are largely exempt from
corporation tax and, as a result, there is no tax charge in the year
(2014: £Nil).
Dividend growth
The Board is pleased to recommend a final dividend of 6.925p
per share, an increase of 4.9% on last year’s final dividend of
6.6p. Together with the interim dividend paid in July 2015, the
total dividend for the year is 13.75p per share, an increase of
0.65p, or 5.0% on 2014.
We aim to maintain a steady growth in dividends, reflecting the
long-term trend in our income and cash earnings. In determining
this dividend level, the Board has taken into account the non-
cash accounting charge for equity-settled remuneration of £2.3
million and the accelerated write-off of unamortised deferred
issue costs, totalling £0.2 million, following the refinancing of our
Nationwide bank facilities in the year; together these reduced
EPRA earnings per share by 0.9 pence.
Having agreed with HM Revenue & Customs that the cost of
terminating interest swaps in 2014 and 2015 was deductible
against qualifying REIT income, dividends in respect of the 2015
year are being paid entirely as ordinary dividends. We expect to
start paying a PID again next year.
SEE PAGE 56 FOR DETAILS OF THE REFINANCING AND INTEREST RATE SWAP TERMINATION
DURING THE YEAR
r
a
i
n
shine
RESULTS AND FINANCE CONTINUED
055
shine
EPRA NAV (pence per share)
167
13
10
14
713
2014
EPRA
earnings
Revaluation
Swap
break
costs
Dividend
2015
869
Five year financial summaries can be found on our website.
Increased EPRA net asset value
EPRA NAV per share increased by £1.56 (21.9%) to £8.69 (2014:
£7.13). This increase included contributions of £1.55 per share
and 12p per share from the revaluations of the wholly-owned
portfolio and the Longmartin joint venture property respectively.
The cost of terminating interest rate swaps in March 2015,
following the refinancing of one of our short-term revolving
credit facilities, reduced NAV by 10p per share. EPRA profits of
13.0p per share were matched by dividends paid.
EPRA NAV
IFRS net assets
Effect of exercise of options
Diluted net assets
Adjusted for:
Fair value of financial
instruments
Adjustment in respect of the
Longmartin joint venture:
Deferred tax
EPRA NAV
EPRA NAV per share
2015
£m
2,325.4
0.4
2,325.8
As restated1
2014
£m
1,893.2
0.4
1,893.6
79.2
78.8
22.6
2,427.6
£8.69
15.7
1,988.1
£7.13
1 Restated for the change in accounting policy detailed on page 115
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
056
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
RESULTS AND FINANCE CONTINUED
Cash flows and net debt
Debt maturity profile (£m)
Net debt increased by £84.8 million to £637.8 million over the
year (2014: £553.0 million). The major cash flows were:
0
5
1
• Operating cash inflow (£37.4 million)
• Dividend payments (£39.5 million)
• Acquisitions and capital expenditure (£50.9 million)
• Interest rate swap termination costs (£28.1 million)
During the year, we completed the refinancing of our remaining
2016 debt, arranging two secured term loans, totalling £250.0
million, at a blended fixed interest rate of 3.51% p.a. The loans
are repayable in full at maturity in March 2030 (£130.0 million)
and July 2035 (£120.0 million). On drawing the loans, we
cancelled two revolving credit facilities, totalling £150.0 million,
which were due to expire in 2016. This added £100.0 million to
our financial resources, of which £28.1 million was used to fund
the termination of £70.0 million of interest rate swaps. Facility
arrangement costs totalled £3.4 million. The balance was used to
pay down revolving bank facilities, which are available to be
re-drawn.
SEE PAGE 34 FOR WHY LONG-TERM DEBT IS A NATURAL FIT FOR OUR BUSINESS
Extended maturity and lower cost of debt
Our weighted average maturity of debt1 at 30 September 2015
was 10.2 years (2014: 7.1 years) and our earliest debt maturity is
now a £150 million revolving credit facility, which expires in
November 2018.
Although net debt increased over the year by £84.8 million,
at year end our loan-to-value ratio1 had fallen to 22.5% (2014:
23.6%), largely as a result of growth in the value of our portfolio
over the year. We had £150.3 million of committed undrawn
facilities (2014: £139.4 million), which are available to fund further
investment in our portfolio. Of our drawn debt, 97.2% was fixed
or hedged1 (2014: 82.1%), although this level will fall to around
80% as our undrawn variable-rate facilities are utilised.
5
3
1
0
3
1
0
2
1
5
2
1
5
7
1
6
0
6
2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035
Bank facilities
Long-term fixed debt
Longmartin fixed debt (our 50% share)
The weighted average cost of debt1 was 4.92%, 19 basis points
lower than at 30 September 2014. The marginal cost of drawings
under our committed facilities is around 1.5% (2014: 1.55%), and
so, as further drawings are made, the average cost of debt will
reduce. If our facilities had been fully drawn at 30 September
2015, the weighted average cost of debt1 would have been
4.32%. The average margin on our drawn variable-rate bank
facilities has increased to 1.16% (2014: 1.11%) and this would rise
further to 1.35% if all facilities were fully drawn (2014: 1.24%).
Total fixed debt2
Drawn unhedged bank debt
Total debt2
Undrawn facilities (floating rate)
Committed facilities
Loan-to-value2
Gearing4
Interest cover
% debt fixed
Weighted average cost of debt5
Weighted average debt maturity (years)
2015
Longmartin3
£m
Proportional
consolidation
£m
60.0
-
60.0
-
60.0
28.2%
39.4%
2.1x
100.0%
4.43%
11.2
685.8
19.7
705.5
150.3
855.8
22.5%
29.1%
2.1x
97.2%
4.92%
10.2
IFRS
£m
625.8
19.7
645.5
150.3
795.8
22.1%
28.4%
2.1x
96.9%
4.96%
10.1
2014
Longmartin3
£m
Proportional
consolidation
£m
60.0
-
60.0
-
60.0
33.7%
51.2%
2.0x
100.0%
4.43%
12.2
505.8
110.6
616.4
139.4
755.8
23.6%
31.0%
2.0x
82.1%
5.11%
7.1
IFRS
£m
445.8
110.6
556.4
139.4
695.8
22.9%
29.7%
2.0x
80.1%
5.18%
6.7
1 Including our 50% share of the Longmartin joint venture
2 Based on nominal value of debt
3 Shaftesbury Group’s 50% share. This loan is without recourse to Shaftesbury.
4 Based on EPRA net assets
5 Including non-utilisation fees on undrawn bank facilities
Bank facilities
Long-term fixed debt
Longmartin fixed debt (our 50% share)
057
Looking ahead
The West End continues
to flourish, benefiting from
the long-term growth in
London’s economy,
population, and visitor
numbers
Our exceptional portfolio, based in the busiest
and liveliest parts of the West End, is focused on
shops, restaurants, cafés and pubs. Extending to
over 1 million sq. ft., these uses produce 70% of
our rental income1. They have a long record of
sustained demand and rental growth, unaffected
by wider economic and property market cycles.
Strong demand
We continue to experience strong demand in each of our
locations, and across all uses. Demand is broad-based, and we
are seeing retailers and restaurateurs looking to secure footholds
in our carefully-curated areas ahead of Crossrail opening in 2018.
This demand is producing good rental growth and high
occupancy levels.
Intensive asset management
Our portfolio is highly reversionary and we continue to identify
and secure opportunities to take back space, often to carry out
improvement projects, and, through re-letting, not only to
convert the potential rent into actual income but also improve
rental prospects. Our clusters of ownerships allow the benefits of
improvements we make to be compounded across our adjacent,
or nearby, holdings.
Opportunities to acquire new assets
The availability of assets to acquire in our locations, and which
meet our strict criteria, continues to be constrained as owners,
understandably, remain reluctant to sell. Although the timing of
additions to our portfolio is impossible to predict, over the
medium term, a steady flow of purchases are important in
extending our ownership clusters and offering new marriage value
possibilities. Having secured two acquisitions since September, we
continue to appraise new opportunities.
Confidence in long-term prospects
The West End’s prosperity, which is not reliant on the fortunes of
the UK economy, underpins the long-term demand for
accommodation. Our holdings will continue to benefit from this
demand, as well as the substantial investment the city attracts.
We have a committed team with a forensic knowledge of the
West End. Passion for this business, and the West End, is very
much a part of our DNA. We remain confident that, with our
innovative and successful strategy, our exceptional portfolio will
continue to deliver growth in rental income, long-term values and
returns for shareholders.
The Strategic Report on pages 1 to 68 was approved by the Board
on 24 November 2015.
We are making good progress with our major schemes at Charing
Cross Road/Chinatown, 57 Broadwick Street, Carnaby, and
Thomas Neal’s Warehouse, Seven Dials. Works are planned to
commence in 2016 with a view to completion over the second
half of 2017, when we expect to see a material increase in net
property income from these projects.
Brian Bickell
Chief Executive
Chris Ward
Finance Director
1 Wholly-owned portfolio
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
058
o utsid e
i n s i d e
059
Management structure
As a foundation to effective day-to-day risk management, we
encourage an open and honest culture within which staff can
operate. Our management team, based in one office, within
fifteen minutes’ walk of all our holdings, comprises four executive
directors and 21 employees. This stable management team, with
an average tenure of over 15 years, has an in-depth knowledge of
our business and the West End.
The Board’s attitude to risk is embedded in the business, with
senior management having close involvement in all aspects of
operations and significant decisions. This involvement extends to
the Non-Executive Directors, who approve all transactions over a
specified level. We hold regular portfolio tours for the Board, to
instil a deep understanding of our business strategy and model.
SEE PAGE 33 FOR OUR MANAGEMENT TEAM’S EXPERIENCE
The senior management team below Board level is incentivised in
the same way as executive directors to achieve the Group’s
strategic goals of delivering long-term outperformance.
Decisions are made for long-term benefit, rather than short-
term gain. Succession planning across the management team is
monitored by the Board.
DETAILS OF OUR ANNUAL BONUS TARGETS AND LTIP PERFORMANCE CRITERIA ARE SET OUT
IN THE ANNUAL REMUNERATION REPORT ON PAGES 94 TO 95
Responsibilities
Board
Audit Committee
Executive management
Overall responsibility for risk
management. Reviews
principal risks and
uncertainties regularly, along
with actions taken, where
possible, to mitigate them.
Assurance of the internal
controls and risk management
process.
Day-to-day management of
risk. Design and implementation
of the necessary systems of
internal control.
Risk
management
The Board’s
attitude to risk
management
is consistent
with its low
overall appetite
for risk
This report should be read in conjunction with the
Viability Statement on page 66.
Overview
The Board structures the Group’s operations to minimise exposure
to investment, operational and financial risks, and to ensure that
there is a rigorous, regular review of risks and mitigation across its
activities.
Important factors in the relative low risk of our business include:
• The Group invests only in London’s West End, where there is a
long history of resilience, stability and sustained occupier
demand for our principal uses of retail, restaurants and leisure
• With a diverse tenant base, there is limited exposure to any
single tenant
• The nature of our portfolio does not expose us to risks inherent
in major speculative development schemes
• We have a small and stable management team, based in one
location, close to all our holdings
• The Board manages our balance sheet on a conservative basis
with moderate leverage, long-term finance, a spread of loan
maturities, good interest cover and with the majority of interest
costs fixed.
SEE PAGES 8 TO 31 FOR MORE INFORMATION ON OUR BUSINESS STRATEGY AND MODEL
AND PAGE 34 FOR INFORMATION ON OUR APPROACH TO FINANCIAL MANAGEMENT
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 060
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
RISK MANAGEMENT CONTINUED
Operational and financial risks facing the Group are monitored
through a process of regular assessment by the executive team.
The aim of this assessment is to:
• Provide reasonable assurance that material risks are identified
• Ensure appropriate mitigation action is taken at an early stage
Risks are considered in terms of their impact and likelihood from
operational, financial and reputational perspectives. Risks, and
the controls in place to mitigate them, are formally reported,
discussed and challenged, at meetings of the Audit Committee
and Board. To the extent significant risks, failings or control
weaknesses arise during the year, these are reported to the
Board and appropriate action is taken to rectify the issue and
implement controls to mitigate further occurrences.
Having monitored the Group’s risk management and internal
control system, and having reviewed the effectiveness of material
controls, the Audit Committee has not identified any significant
failings or weaknesses in the Group’s control structure during the
year.
SEE THE AUDIT COMMITTEE REPORT ON PAGES 78 TO 81
Principal risks and uncertainties
The Board has carried out a robust assessment of the principal
risks faced by the business. The nature of these has remained
unchanged over the year and relates to issues which might
prevent us from achieving our long-term goals of creating
sustainable revenue growth and increasing the value of the
portfolio, or factors which could adversely impact shareholders’
investment in the business. These are set out on pages 61 to 63.
Risk management and internal control
The Board is responsible for determining, and keeping under
review throughout the year, the nature and extent of the
principal risks impacting the Group’s operations and maintaining
the risk management framework and internal control systems.
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 principal 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
accord with the Financial Reporting Council’s Guidance on Risk
Management, Internal Control and Related Financial and Business
Reporting (2014).
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
• Defined schedule of matters for decision by the Board including
significant acquisitions, disposals, major contracts, material
refurbishment/development proposals and any other
transaction 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
financial and operational 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.
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
RISK MANAGEMENT CONTINUED
061
Geographic concentration risk
Risk of a sustained fall in visitor numbers
and/or spending
RISK
POTENTIAL IMPACT
MITIGATION
Events which discourage
visitors to the West End e.g.
• threats to security or public
• Reduced visitor numbers,
spending and occupier
demand
safety due to terrorism
• Reduced rental income and/
• Inherent risk given the
geographic concentration
of our investments in a high
profile location
EVOLUTION OF RISK DURING
THE YEAR
• health concerns (e.g.
pandemics)
• Major, long-term disruption
to the public transport
network upon which the area
depends
or capital values
• Terrorism and loss of rent
• Potential increased vacancy
and declining profitability
• Damage to property
insurance
• Close liaison with local
bodies/authorities to
maximise safety of visitors
• Detailed emergency response
plans
Across the West End, visitor
numbers, spending and
occupier demand continue to
be buoyant. The UK’s terrorism
threat level remains severe
SEE PAGE 13 FOR WHY WE FOCUS ON THE WEST END
Competing destinations lead
to long-term decline in footfall
in our villages
• Reduced visitor numbers and
• Ensure our villages maintain a
occupier demand
distinct identity
• Reduced rental income and/
• Management strategies to
or capital values
• Potential increased vacancy
and declining profitability
create prosperous
destinations within which
tenants can operate
• Seek out new concepts, brands
and ideas to keep our villages
vibrant and appealing
• Consistent strategy on tenant
mix, which evolves over time
• Marketing and promotion of
our villages
• KPI to deliver sustainable
rental growth
• Regular board monitoring of
village performance and
prospects
SEE PAGES 30 TO 31 FOR DETAILS ON OUR PROVEN MANAGEMENT STRATEGY
Footfall and occupier demand
across our villages remains
strong. We continue to see
sustained rental growth and
low vacancy
062
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
RISK MANAGEMENT CONTINUED
Regulatory risks
RISK
POTENTIAL IMPACT
MITIGATION
EVOLUTION OF RISK DURING
THE YEAR
All our properties are in the
boroughs of Westminster and
Camden. Changes to local
policies, particularly planning
and licensing, could have a
significant impact on our ability
to maximise the long-term
potential of its assets
• Limit our ability to optimise
• Ensure our properties are
revenues
• Reduced profitability
• Reduced capital values
operated in compliance with
local regulations
• Make representations on
proposed policy changes,
to ensure our views and
experience are considered
• Mix of uses in our portfolio
means we are not reliant on
income from one particular
use
There are no current
indications that the evolution
of the planning and licensing
environments, either as a
result of national or local
legislation, will have a material
impact on the Group’s business
for the foreseeable future
SEE PAGES 20 TO 27 FOR DETAILS ON OUR MIX OF USES
• Potential decrease in
• Up-to-date Energy
revenues and increased cost
• Cost to improve buildings to
Performance Certificates being
obtained for all buildings
the required standard
• Phased programme of
improvements to future-proof
buildings within the
constraints of current listed
building and conservation
areas legislation
Our rolling programme
of works is delivering
performance above the
minimum levels currently
required under legislation
All our buildings are in
Conservation Areas and
many are listed. Legislation
to improve environmental
performance 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
SEE SUSTAINABILITY ON PAGES 146 TO 155
together
Economic risks
which may threaten our ability
to meet our strategic objectives
RISK
Periods of economic
uncertainty and lower
confidence could reduce
consumer spending, tenant
profitability and occupier
demand
POTENTIAL IMPACT
• Pressure on rents
• Declining profitability
• Reduced capital values
RISK MANAGEMENT CONTINUED
063
MITIGATION
• Focus on assets, locations
and uses which have
historically proved to be
economically resilient and
have demonstrated much
lower valuation volatility than
the wider market
• Diverse tenant base with
limited exposure to any one
tenant
• Tenant deposits held against
unpaid rent obligations (at 30
September 2015): £17.4m
EVOLUTION OF RISK DURING
THE YEAR
The West End’s economy is
buoyant and we continue to
benefit from strong demand,
footfall and rental growth. The
Global and UK economies are
forecast to deliver trend-level
growth over the medium term,
underpinning business and
consumer confidence
SEE PAGES 8 TO 13 FOR DETAILS ON OUR UNIQUE PORTFOLIO AND WHY WE INVEST IN THE WEST END
Decline in the UK real estate
market due to macro-
economic factors e.g. global
political landscape, currency
expectations, bond yields,
interest rate expectations,
availability and cost of finance,
relative attractiveness of
property compared with other
asset classes
• Reduced capital values
• Focus on assets, locations
• Decrease in NAV, amplified
by gearing
• Loan covenant defaults
Interest rates have continued
at historically low levels.
Market sentiment is that
increases will be moderate
and gradual
and uses which have
historically proved to be
economically resilient and
have demonstrated much
lower valuation volatility than
the wider market
• Regular review of investment
market conditions including
bi-annual external valuations
• Maintain conservative levels
of leverage
• Quarterly forecasts including
covenant headroom review
• Substantial pool of uncharged
assets available to top up
security held by lenders
SEE PAGES 8 TO 13 FOR DETAILS ON OUR UNIQUE PORTFOLIO AND WHY WE INVEST IN THE WEST END. SEE ALSO PAGE 34 FOR OUR CONSERVATIVE APPROACH TO FINANCIAL MANAGEMENT
alone
SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT 064
kiss
065
m
a
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e
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p
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
Viability
Statement
In accordance with provision C.2.2 of the 2014
revision of the Code, the Board has assessed the
prospects of the Company over a longer period
than the twelve months that has in practice been
the focus of the ‘Going Concern’ provision.
The Board conducted the review for a five-year period,
corresponding with the period covered by its current forecasts.
These forecasts are updated quarterly and reflect the Group’s
established strategy of investing in London’s West End, its existing
investment commitments, available financial resources and
long-term financing arrangements. They consider profits, cash
flows, funding requirements and other key financial ratios over
the period, as well as the headroom in the financial covenants
contained in our various loan agreements. Important assumptions
underlying the forecasts include:
Assumption
Crystallisation of the
portfolio reversionary
potential over the period
The Group had undrawn
committed loan facilities
at 30 September 2015
totalling £150.3 million,
which comfortably
exceeds the Group’s
commitments over the
assessment period. This
assumes an ability to
re-finance revolving credit
facilities totalling £150.0
million and £125.0 million
which mature in 2018 and
2020 respectively.
Comment
We have a long record of
crystallising the independently-
assessed ERV of our portfolio over
a three-to-five year period. 63%
of the total portfolio reversion
comes from shops, restaurants,
cafés and pubs, the demand for
which, in our locations, is not
cyclical and has demonstrated
sustained growth over many years.
SEE DETAILS ON THE REVERSION ON PAGE 40
The Group maintains a prudent
approach to gearing, with debt
facilities which are largely fixed and
long-term in nature. At 30
September, our loan-to-value
ratio was 22.5%.
The facilities which mature during
the period of assessment represent
18.8% and 15.7%, respectively, of
our total committed debt facilities.
The Board has reasonable confidence
that we shall be able to refinance
these facilities and intends to do
so in advance of their contractual
maturities.
SEE THE FINANCE REVIEW ON PAGE 56
The principal risks are set out on pages 61 to 63 and the most
relevant potential impact of these risks on viability was
considered to be:
• A substantial and sustained decrease in visitor numbers to the
West End and our villages which could result in reduced
occupier demand, rental income and/or capital values, higher
vacancy and declining profitability
• Regulatory changes which reduce profitability and capital
values
• Changing economic conditions which reduce capital values,
and put pressure on loan covenants
The Board overlaid the potential impact of the principal risks
which could affect solvency or liquidity in “severe but plausible”
scenarios onto the five-year forecasts and concluded that the
business would remain viable. As part of this, they performed
sensitivity analyses that flexed inputs to the forecasts including
reduced income, profitability and capital values, both individually
and in unison, to reflect these severe but plausible scenarios.
Based on the results of the procedures outlined above, the
Directors have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as they fall
due over the five-year period of their assessment.
067
tranquil
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SHAFTESBURY ANNUAL REPORT 2015 STRATEGIC REPORT
work
play
SHAFTESBURY ANNUAL REPORT 2015
069
Governance
Directors and officers 70
Corporate governance 72
Nomination Committee report 76
Audit Committee report 78
Remuneration report 82
Remuneration policy 84
Annual Remuneration report 92
Directors’ report 102
Directors’ responsibilities 104
Independent auditors’ report 105
070
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
Directors and officers
Executive directors
Simon J Quayle, BSc, MRICS
Executive director
Tom J C Welton, MRICS
Executive director
Brian Bickell, FCA
Chief Executive
Responsible for the asset
management and operational
strategy in Carnaby, Soho and
Charlotte Street
Joined the Group in 1987
Board appointment
Appointed Property Director
on 1.10.1997
External appointments
ZSL Development Strategy
Board
Responsible for the asset
management and operational
strategy in Covent Garden
(including the Longmartin joint
venture) and Chinatown
Joined the Group in 1989
Board appointment
Appointed Property Director
on 1.10.1997
Overall responsibility for
implementing the Group’s
strategy and day-to-day
operations
Joined the Group in 1986
Christopher P A Ward,
MA (Oxon), ACA
Finance Director
Responsible for implementation
of the Group’s financial strategy
and all aspects of accounting
and taxation
Board appointment
Appointed Finance Director on
20.7.1987 and Chief Executive
on 1.10.2011
Joined the Group in 2012
Board appointment
Appointed Finance Director
on 9.1.2012
External appointments
Freehold
External appointments
Westway Trust
Chairman and
non-executive directors
071
Left to right: Sally Walden, Hilary Riva, Oliver Marriott, Jill Little, Dermot Mathias and Jonathan Lane
Jonathan S Lane OBE, MA,
FRICS
Non-executive Chairman and
Chairman of the Nomination
Committee
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
Chairman of easyHotel plc
Chairman of The Tennis Foundation
Trustee of The Royal Theatrical
Support Trust
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
Chairman of the Commercial
Group of the National Trust
Non-executive director of
Houseology Limited
Consultant to a number of
global retailers
Sally E Walden*
Non-executive director and
chairman of the Remuneration
Committee
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
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
Oliver J D Marriott*
Non-executive director
Board appointment 2009
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 and Ilex Limited
Secretary and registered
office
Penny Thomas, LLB (Hons),
FCIS
22 Ganton Street
London W1F 7FD
Tel: 020 7333 8118
email:
shaftesbury@shaftesbury.co.uk
Registered number: 1999238
Non-executive director
of P&O from 1985-1991
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
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex BN99 6DA
Corporate website
www.shaftesbury.co.uk
Village websites
carnaby.co.uk
chinatownlondon.org
sevendials.co.uk
stmartinscourtyard.co.uk
berwickstreetlondon.co.uk
From 2002-2009 senior partner
of the firm and chairman of the
policy board of BDO International
Previously managing director of
a number of high street retailers
including Top Shop and Warehouse
External appointments
Non-executive director
of Rectory Homes Limited
Non-executive chairman
of Red & Yellow Limited
External appointments
Non-executive director
of London and Partners
Non-executive director
of ASOS plc
* Independent non-executive directors
for the purposes of the UK Corporate
Governance Code.
More detailed biographical information
is available on our website.
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 072
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
Corporate governance
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 published in 2014 with the
exception that, owing to my previous tenure as an executive,
I was not independent upon my appointment as Chairman.
Our governance framework is built around our focused strategy
of investing in the West End of London executed by an
experienced management team. The Board monitors the risks
faced by the business and ensures that there are appropriate
controls to minimise such risks as far as possible.
The Board monitors activity across the Group’s portfolio,
including larger projects and letting and tenancy transactions,
the financial aspects of the business and the evolution and
implementation of its sustainability strategies. The Board had a
strategy day where it focused on societal, technological and
economic changes which may, in the years ahead, influence the
implementation of our long-term investment strategy.
The Remuneration Committee, led by Sally Walden, has
undertaken a substantial review of the Group’s remuneration policy.
This culminated in a proposal to shareholders for a binding vote at
our 2016 AGM on a revised remuneration policy which includes a
new LTIP for executives, incorporating a post-vesting holding
period.
The Audit Committee, led by Dermot Mathias, has tendered the
Group’s external audit. Last year, we reported that, in view of the
tenure of PricewaterhouseCoopers LLP (and their precedesor
firms) since 1987 as our auditors and proposed legislation on
auditor rotation, that we would tender our auditor appointment.
The Committee recommended to the Board the appointment of
Ernst & Young LLP as Group auditor at the conclusion of the 2015
audit. Their re-appointment is proposed at the 2016 AGM. A
considerable focus this year has also been on the risk profile of
the Group and the new viability statement that your Board has
made regarding the future prospects of your Group.
Jonathan Lane OBE
Chairman
CORpORAtE GOVERNANCE CONTINUED
073
Typically a Board meeting will be structured to receive
reports from:
Chief Executive
covering the general and local property
market conditions, operational and
financial overview, shareholder relations
and sustainability
Property Directors
asset management, schemes and
acquisitions
Finance Director
published financial statements,
financing, forecasts, performance and
financial analysis
Company secretary
governance, regulation and sustainability
Strategic topic
Committee chairmen
relating to an aspect of the Group’s
business and/or a visit to a part of the
Group’s portfolio
reports on activities at each committee
meeting held immediately prior to the
Board
Where possible, employees below Board level are invited to
present to the Board on operational topics. Non-executive
directors have direct and open access to employees below board
level. During the year, the Board held a strategy day to consider
particular topics in greater depth including a Board performance
review.
The company secretary is responsible for advising the Board,
through the Chairman, on all governance matters.
The Board
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 and that risks are
managed appropriately or mitigated.
SEE STRATEGIC REPORT ON PAGES 1 TO 68
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 executive
management to enable effective operation of the business.
The Board has Audit, Remuneration and Nomination Committees.
Their responsibilities are defined in terms of reference, which are
available on the Group’s website. Committees comprise only
independent non-executive directors, other than the Nomination
Committee, which is chaired by Jonathan Lane (non-
independent Chairman) as permitted by the Code. The Board
meets regularly with an annual cycle of topics to be considered
including key management and financial updates as well as
approval of significant acquisitions and refurbishment schemes.
Strategy
Performance
Risk
Sustainability
Board
Audit
Committee
• Financial reporting
• Monitor external
auditors
• Risk and internal
control
Remuneration
Committee
• Remuneration policy
• Annual remuneration
including bonus and
LTIP awards
• Set annual
performance
objectives
Nomination
Committee
• Succession planning
• Recommend
candidates to the
Board
• Board performance
evaluation
• Diversity
AUDIT COMMITTEE
REPORT PAGES
78 TO 81
REMUNERATION
REPORT PAGES
82 TO 101
NOMINATION
COMMITTEE REPORT
REPORT PAGE 76 TO 77
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 074
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
CORpORAtE GOVERNANCE CONTINUED
Board composition
Board performance evaluation
This year, the Board undertook an internal Board performance
evaluation, having undertaken an externally-faciliated evaluation
last year. The process took place in an open forum at the Board’s
strategy day and covered:
• The structure and content of board meetings.
• Time management, including the timing and frequency of
meetings. Changes to the order of the agenda were suggested and
a better balance during the two days of the Board and Committee
meetings. It was agreed that the strategy day had been extremely
valuable and should be repeated annually.
• Engagement with shareholders including greater involvement of
non-executive directors in meetings with shareholders.
• The Board’s strategic focus.
The evaluation concluded that the Board was working cohesively
and that there was a good quality of discussion at meetings.
An important focus during this year, and for the year ahead,
remains Board succession and executive development below
Board level.
The non-executive directors found that regular visits to the
Group’s holdings, coupled with specific focus at each meeting on
a village, were exceptionally valuable.
A review of the performance of the directors and Chairman was
also undertaken.
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
Executive directors
Independent non-executive
directors
1
Chairman
Attendance by directors at scheduled Board meetings is set out
below. Attendance at scheduled 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
Oliver Marriott
Non-executive director
Dermot Mathias
Non-executive director
NUMBER OF
MEETINGS
ATTENDED
(5 HELD)
• • • • •
• • • • •
• • • • •
• • • • •
• • • • •
• • • • •
• • • • •
Jill Little
Senior Independent Director
• • • • •
Hilary Riva
Non-executive director
Sally Walden
Non-executive director
• • • • •
• • • • •
The non-executive directors met on a number of occasions
during the year without management present.
COMMITTEE REPORTS ON PAGES 76 TO 101
CORpORAtE GOVERNANCE CONTINUED
075
Risk management and internal control
SEE PAGE 59 TO 63
Viability and going concern
SEE PAGES 66 AND 114
Remuneration
SEE REMUNERATION REPORT ON PAGES 82 TO 101
Relations with shareholders
The Board places great importance on regular contact with
shareholders and potential investors, in order to communicate
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 and long-term strategy.
During the year, the Chief Executive and executive directors met
around 200 UK and overseas institutional investors, comprising
both current and potential shareholders. Meetings were held in
the UK, Amsterdam, Paris and New York. Meetings comprised
individual and group presentations and tours of the portfolio. The
tours provide an opportunity to see the Group’s assets,
understand management strategy, and also to meet members of
the team below Board level.
During the year, a tour of the portfolio was arranged for members
of the UK Shareholders’ Association, which represents the
interests of private investors.
Meetings are offered to finance and debt providers.
Feedback from these presentations and meetings is provided to
the Board, together with published analyst comments on the
Group.
The AGM is an opportunity for shareholders to meet the Board
and vote on the resolutions. All directors, including the chairs of
the committees, are available at the AGM to answer shareholder
questions.
During the year, shareholders were consulted on the Group’s
proposed changes to its remuneration policy.
SEE REMUNERATION REPORT ON PAGES 82 TO 101
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 its philosophy,
strategy, current activities and events across the villages.
SEE LIST OF WEBSITES ON PAGE 71
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 076
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
Nomination Committee report
Dear shareholder
The role of the Committee is to evaluate the balance of skills, experience
and independence of board members and lead the process for board
appointments. The Committee also recommends to the Board that all
directors are subject to annual re-election, in line with the Code.
The Committee continues to monitor the composition of the Board so that future succession is managed effectively. After 29 years at
the Company, I have asked the Committee to search for my successor. The Senior Independent Director is leading a process in
accordance with the Code.
We have focused on the Group’s medium-term succession planning for executive directors, senior staff and non-executive directors
during the year. The Committee has oversight of the Group’s training and development processes below Board level to ensure all
employees have appropriate skills and that they continue to develop in their roles.
An annual Board performance evaluation was internally facilitated this year. The process, conducted as part of a Board strategy day,
concluded that the Board was working cohesively.
Jonathan Lane OBE
Chairman – Nomination Committee
Committee members and attendance
MEMBER
Jonathan Lane
Jill Little
Oliver Marriott
Dermot Mathias
Hilary Riva
Sally Walden
POSITION
Chairman
Senior Independent Director
Member
Member
Member
Member
Committee attendees by invitation only
ATTENDEES
Brian Bickell
POSITION
Chief Executive
Penny Thomas
Secretary to the Committee
Key activities during the year
NUMBER OF MEETINGS ATTENDED
(5 HELD)
• • • • •
• • • • •
• • • • •
• • • • •
• • • • •
• • • • •
SUCCESSION
PERFORMANCE AND SKILLS
REAPPOINTMENT OF DIRECTORS
Succession planning for the Board and
senior executives
Considered the Board and Committee
performance evaluation results
Proposed to the Board directors for
re-election
Reviewed the skills of the directors for
re-election
Reviewed training undertaken by
directors
Reviewed the annual committee report
NOmiNAtiON COmmittEE REpORt CONTINUED
077
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 policy on diversity is to
ensure its composition has an appropriate balance of skills and
diversity to meet the requirements of the business. The Board
considers that quotas are not appropriate in determining its
composition and has therefore chosen not to set targets.
The current Board composition has 30% female representation,
which exceeds Lord Davies’ target for FTSE 100 company boards
of 25% female by 2015. Gender diversity of the Board and
Company is set out below, showing both number of employees
(total 25) and percentage that this relates to.
Board
7
70%
Male
Female
3
30%
Senior Management
Male
Female
5
50%
5
50%
All employees
(including executive directors)
Male
Female
11
44%
14
56%
The Board comprises a team of four executive directors, three of
whom have an average length of service with the Company of 28
years. Continuity of experience and knowledge, particularly of
the unique environment of London’s West End, is important in
our focused, long-term business. The executive team is
complemented by six non-executive directors who have wide
business experience and skills and 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 and a development programme has
been introduced during the past two years.
The Senior Independent Director is leading a process for the
succession of the Chairman, in accordance with the Code.
Directors standing for re-election
All directors will stand for re-election at the 2016 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 tenure of independent non-executives at 30 September
2015 is set out below.
Oliver Marriott
Hilary Riva
Jill Little
Dermot Mathias
Sally Walden
6 years 2 months
5 years 9 months
5 years 9 months
3 years
3 years
SEE PAGES 70 TO 71 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
forum for LGBT real estate professionals. The Group has
committed to the RICS Inclusive Employer Quality Mark scheme
which aims to drive behaviour changes by encouraging firms to
look carefully at their employment practices and have inclusivity
embedded in their operations.
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
078
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
Audit Committee report
Dear shareholder
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 various statements made in the Annual Report, including those on viability, going concern, risk and
controls and whether when read as a whole the Annual Report, is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Group’s performance, business model and strategy.
As we stated in last year’s report, and in accordance with emerging best practice, the Committee has carried out an audit tender process
during the year. PricewaterhouseCoopers LLP will resign as auditors at the completion of this year’s audit and Ernst & Young LLP will
be appointed by the Board. Their appointment will be subject to their re-appointment at the 2016 AGM.
On behalf of the Board, I thank PricewaterhouseCoopers LLP for the high quality audit service they have provided to the Group
since 1987.
Dermot mathias
Chairman - Audit Committee
COMMITTEE MEMBERS AND ATTENDANCE
MEMBER
Dermot Mathias
Jill Little
Oliver Marriott
Hilary Riva
Sally Walden
POSITION
Chairman
Senior Independent Director and member
Member
Member
Member
Dermot Mathias is the member 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
LLP
Independent auditors
At each meeting, the Committee has time with the auditors without management present.
NUMBER OF MEETINGS ATTENDED
(3 HELD)
• • •
• • •
• • •
• • •
• • •
AuDit COmmittEE REpORt CONTINUED
079
Key activities during the year
FINANCIAL STATEMENTS
AUDIT
MISCELLANEOUS
Reviewed and monitored the integrity of
the published financial information
including the year end results, preliminary
announcement, Annual Report and half
year results
Reviewed significant issues and areas of
judgement which have the potential to
have a material impact on the financial
statements, making any consequent
recommendations to the Board
Met with the Group’s valuers to discuss the
valuation process and outcome
Considered emerging best practice in
relation to corporate reporting
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
Advised the Board on the Viability
Statement
Reviewed and approved the Committee
Report
Planned for year end and reviewed the
audit plan
Considered the independence and
objectivity of the auditors
Reviewed the auditors’ performance
Tendered the Group audit and made a
recommendation to the Board that Ernst
& Young LLP be appointed
Approved non-audit assignments
awarded to the external audit firm, and
monitored audit/non-audit fees
Reviewed the whistle-blowing policy
Considered the need for an internal
audit function
Reviewed the Committee’s performance
Considered the appropriateness of the
going concern assumption
Carried out a robust assessment of the
principal risks faced by the business
Reviewed the risk and internal control
framework, including monitoring the
Group’s risk management and internal
controls systems and assessed the
adequacy and effectiveness of controls
and disclosures made in the annual
report. The review covered all material
controls, including financial, operational
and compliance controls
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 080
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
AuDit COmmittEE REpORt CONTINUED
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, and the use of any adjusted measures, eg EPRA
measures, were adequately explained.
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 104.
Consideration was also given to the Principal Risks and the
Viability Statement, set out on pages 61 to 66. The Committee
has reviewed the scenario analysis prepared by management
including the assumptions made and has recommended the
statement to the Board.
The Committee considered the appropriateness of the
accounting policies used in preparing the financial statements,
and in particular, paid attention to matters it considered to be
important by virtue of their impact on the Group’s results and
remuneration, and those which involve a high level of complexity,
judgement or estimation by management. The significant areas
considered are set out below:
• Valuation of investment properties
• 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 five-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 in the Annual Report 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
reviewed the business risks and internal controls’ framework
during the year. This review included testing by the external
auditors and assurance from the Finance Director over certain
key controls.
The Group’s internal control and risk management procedures,
and its principal risks and uncertainties are reported in the
Strategic Report.
The valuation opinion is provided by independent external
SEE RISK MANAGEMENT ON PAGES 59 TO 63
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. 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.
External auditors
The Committee remains satisfied with the effectiveness of the
external audit.
The Committee tendered the Group audit during the year. The
tender process involved a series of meetings with the Committee
Chairman and management, including portfolio tours, and each
candidate firm presented to the Committee and executive
management. The Committee recommended to the Board that
Ernst & Young LLP be appointed following the end of the financial
year. The Board accepted this recommendation.
PricewaterhouseCoopers LLP will resign as auditors at the
completion of this year’s audit and the Board will appoint Ernst &
Young LLP. The Board will recommend that Ernst & Young LLP is
re-appointed as Group auditor at the AGM in February 2016.
In accordance with the current regulations, the Group will
re-tender the audit every ten years.
AuDit COmmittEE REpORt CONTINUED
081
Annual auditor assessment
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 year 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.
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.
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.
Audit fees
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
2015
£’000
58
98
156
21
-
21
177
39
39
78
-
78
255
2014
AS RE-STATED
£’000
56
93
149
20
-
20
169
32
69
101
7
108
277
Total fees related to taxation and other non-audit services
represented 44% of the total fees for audit and assurance
services (2014: 64%). Tax advisory services represent various
assignments carried out during the year, none of which were
individually significant. The comparative figures have been
re-stated after the adoption of IFRS 11 ‘Joint Arrangements’
during the year. Further information on this is set out on page 115.
The audit fees for the Company and the Group are relatively low
due primarily to the simple Group corporate structure.
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 082
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
Remuneration report
Dear shareholder
Our remuneration policy sets out
our approach to the reward of
executive and non-executive
directors. It reflects our aim that
overall levels of executive
remuneration should be fair whilst
maintaining stability in the
management of this long-term
business. The policy we have
operated throughout this financial
year was approved by
shareholders at the 2014 AGM.
Our strong results this year show a growth in
portfolio value to £3.1 billion and growth in
earnings and income resulting in a 5% increase in
the annual dividend per share to 13.75p. TSR,
which is one of the measures used in our LTIP, was
36.7% for the year. Progress has been made
during the year in advancing a number of
schemes in the portfolio. The refinancing of debt
facilities due to mature in 2016 was completed
increasing the Group’s financial resources.
Against the backdrop of this performance, the Committee’s main
decisions related to:
Review of basic salaries
Salaries were reviewed with effect from 1 December 2015 with
average increases in the region of 2%, and in line, with salary
increases for all employees.
Annual bonus awards
Annual bonus awards were measured against our KPIs and other
performance objectives which contribute to long-term
shareholder value. The outcome of performance against these
targets is 70%. However, the Committee took into account that
the achievement of objectives was made in a year with a
continuing buoyant West End economy and felt that an annual
bonus award of 60% was more reasonable in the circumstances.
The bonus payment equates to 75% of basic salary if taken entirely
in shares, which are held in the Deferred Annual Share Bonus
Scheme for three years, or 60% of basic salary if taken in cash.
Ltip
A grant of nil cost options was made in December 2014 at 125% of
basic annual salary with a three year performance period
commencing 1 October 2014. 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
by reference to TSR versus the FTSE 350 Real Estate Index and NAV
growth. These performance measures incentivise the creation of
value for shareholders and the increase in the value of the Group’s
portfolio. 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 which were made in 2012 will vest in December 2015,
based on a three year performance period which ended on 30
September 2015. The TSR target was partially met and the NAV
target was fully met. The total award vesting is 63.5%.
Review of current arrangements
As we reported in 2014, during 2015 we have carried out a review of
our current LTIP arrangements, which are due to expire in 2016.
As part of this work, we have reviewed our remuneration policy
and made a number of changes. The principles of our policy remain
the same, though we are aware that, in order to attract and retain
employees, we need to remain competitive.
The remuneration policy will be proposed to shareholders for a
binding vote at the 2016 AGM.
REmuNERAtiON REpORt CONTINUED
083
Context for the group’s remuneration approach
The Group has 25 employees, including four executive
directors. Of those four, three have an average length of
service of 28 years. The combined holdings of these three
executive directors stand at just over 2.6 million shares with a
current market value of circa £25 million, which equates to
individual holdings of between 21 and 26 times their annual
salary. They have built up these substantial shareholdings
mainly through the retention of shares awarded in employee
share schemes, having taken their annual bonus in shares
in nine out of the last ten years since the Deferred Annual
Share Bonus scheme was introduced and retained shares
from the LTIP.
The Group’s small team of executive directors and key
employees all have a close involvement in the continuing
development, and implementation, of the Group’s
management strategies. Consequently, the Committee
considers it appropriate that, in setting objectives and
measuring performance, emphasis is placed on team
rather than individual performance. Average length of
service below the Board is ten years. The stable
management team has again had zero staff turnover and the
total number of employees increased this year by two.
The changes are summarised below.
• Renewal of Ltip
Our current LTIP was approved in 2006 and is due to expire in 2016.
The Committee believes that the current LTIP has been an
important factor in incentivising and rewarding the strong
performance delivered to shareholders over the life of the scheme.
The Committee proposes essentially to renew the LTIP, retaining the
existing structure, award size and performance targets.
The targets for the LTIP were reviewed by the Committee and
have remained identical to those in the existing scheme which
had been used for the last ten years. The Committee is
convinced that these targets remain appropriate, as the
Company is a long-term business, and feels that the targets
remain stretching throughout the property cycle.
• introduction of holding period
The only material change is the introduction of a two-year
post-vesting holding period, in line with best practice.
• Clawback and malus
Clawback and malus provisions are included in the LTIP.
The approval of the new plan rules is proposed as a separate item at
the 2016 AGM and further information may be found in the notice of
meeting.
• increasing the annual bonus opportunity to 150% of salary
In reviewing our remuneration policy, the Committee considered all
aspects of the current remuneration package against best
practice and market data. To ensure the remuneration package
remains competitive in our talent markets, we are proposing to
increase the maximum annual bonus opportunity for executive
directors from 125% to 150% of salary. To receive the maximum,
participants will still be required to defer all of the award into
shares for three years. The maximum cash bonus will be
unchanged at 100% of salary. Salary levels on which this bonus
level is based are not excessive and the change is intended to
increase the performance-related element of total potential
remuneration, coupled with a demanding deferral period. The
Committee will continue to operate the bonus in a robust manner
against genuinely stretching performance targets. In recent years,
bonus awards have been in the range of 40%-75%.
The annual bonus scheme, and the LTIP are offered to all
employees in the Company, and we use both schemes as a
mechanism to encourage share ownership and alignment with
shareholder interests.
• increasing the share ownership guideline from 100% to 200% of salary
In line with current market practice, we propose to increase
our shareholding guidelines for executive directors to a
minimum of 200% of salary.
Sally Walden
Chairman – Remuneration Committee
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 084
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
Remuneration policy
Set out below is the Group’s policy on directors’ remuneration,
which will be proposed for a binding vote at the 2016 AGM.
If approved, the policy will be effective from that date.
Changes to the remuneration policy
The main changes to this remuneration policy, from the previous policy approved by shareholders at the 2014 AGM, and as described
in the Chairman’s introductory statement, are as follows:
• Increase in the maximum annual bonus (when taken in deferred shares) to 150% of salary;
• Incorporation of the terms of the new 2016 Long Term Incentive Plan to include a two-year post vesting holding period; and
• Increase to the minimum shareholding requirement from 100% to 200% of salary.
Executive directors
ELEMENT
LINK WITH STRATEGY
OPERATION
MAXIMUM POTENTIAL VALUE
PERFORMANCE MEASURES AND PERFORMANCE PERIODS
Salary
Fixed remuneration at a level appropriate to
skills, experience and complexity
of the role
Salaries are normally reviewed annually with effect from 1
December. Any increases are determined with reference to
inflation and the salary increases for other employees, unless
there is a change of role or responsibility or a new director is
recruited (see recruitment policy)
Sector and other relevant market data (eg against constituent
companies of the FTSE 350 REIT Index) may be requested from
remuneration advisors as required
The Committee recognises the importance of setting salaries at
levels in the context of market median levels in the real estate
sector, but which are not excessive in relation to the Group’s
particular strategy and features. The emphasis in the Group’s
remuneration policies is to place greater weight on
performance-based rewards within the overall remuneration
package
Annual bonus
To incentivise performance in the reporting year
through the setting of targets at the beginning of
the year. These annual targets are consistent
with the Group’s long-term strategy
The opportunity to defer the bonus and take it in
shares seeks to align directors’ interests with
those of shareholders and discourage
short-term decision making
Annual performance targets are set by the Committee at the
beginning of the year and are linked to the Group’s strategy and
key business objectives
At the end of the financial year, the Committee evaluates
performance against these objectives, whilst also taking into
account overall financial performance and future prospects. The
Committee also satisfies itself that short-term targets have not
been met at the expense of long-term goals
Within the limits of the scheme, the Committee has discretion to
adjust bonus outcomes (upwards or downwards) as it considers
appropriate, to ensure alignment of pay with overall performance
and market conditions
Minimum performance required for any part of the bonus to be
earned is calibrated so as to be appropriately stretching and
achievable
Where directors take all or part of the bonus as an award of
shares (in the form of a conditional award of shares or a nil-cost
option), these awards vest after a minimum of three years from
grant under the Company’s deferred bonus plan. No further
performance conditions apply. Awards may also, at the
Committee’s discretion, be settled in cash
Malus and clawback provisions apply to all elements of the bonus
(as described elsewhere in this section)
The Committee does not specify a maximum salary or
None
maximum salary increase
Further details on salary levels and any increases are provided
in the Annual Remuneration Report
Directors have the choice to take a bonus in shares or cash, in
Performance is assessed against a set of key financial and
full or part as follows:
Up to 150% of salary if taken entirely in shares;
or
Up to 100% of salary if taken entirely in cash
non-financial annual measures which may vary each year
depending on the annual priorities of the business.
Performance targets are set by the Committee.
Measures will be weighted in alignment with the Group’s strategy
for each year. A substantial part of the total bonus will be based
on quantitative KPIs. Further details of the measures, weightings
and targets applicable for a given period are provided in the
Annual Remuneration Report for that year
REmuNERAtiON pOLiCy CONTINUED
085
Changes to the remuneration policy
The main changes to this remuneration policy, from the previous policy approved by shareholders at the 2014 AGM, and as described
in the Chairman’s introductory statement, are as follows:
• Increase in the maximum annual bonus (when taken in deferred shares) to 150% of salary;
• Incorporation of the terms of the new 2016 Long Term Incentive Plan to include a two-year post vesting holding period; and
• Increase to the minimum shareholding requirement from 100% to 200% of salary.
Executive directors
ELEMENT
LINK WITH STRATEGY
OPERATION
MAXIMUM POTENTIAL VALUE
PERFORMANCE MEASURES AND PERFORMANCE PERIODS
Salary
Fixed remuneration at a level appropriate to
Salaries are normally reviewed annually with effect from 1
skills, experience and complexity
of the role
The Committee does not specify a maximum salary or
maximum salary increase
None
Further details on salary levels and any increases are provided
in the Annual Remuneration Report
Annual bonus
To incentivise performance in the reporting year
Annual performance targets are set by the Committee at the
through the setting of targets at the beginning of
beginning of the year and are linked to the Group’s strategy and
the year. These annual targets are consistent
key business objectives
with the Group’s long-term strategy
At the end of the financial year, the Committee evaluates
The opportunity to defer the bonus and take it in
performance against these objectives, whilst also taking into
shares seeks to align directors’ interests with
account overall financial performance and future prospects. The
those of shareholders and discourage
Committee also satisfies itself that short-term targets have not
short-term decision making
been met at the expense of long-term goals
Directors have the choice to take a bonus in shares or cash, in
full or part as follows:
Up to 150% of salary if taken entirely in shares;
or
Up to 100% of salary if taken entirely in cash
Performance is assessed against a set of key financial and
non-financial annual measures which may vary each year
depending on the annual priorities of the business.
Performance targets are set by the Committee.
Measures will be weighted in alignment with the Group’s strategy
for each year. A substantial part of the total bonus will be based
on quantitative KPIs. Further details of the measures, weightings
and targets applicable for a given period are provided in the
Annual Remuneration Report for that year
December. Any increases are determined with reference to
inflation and the salary increases for other employees, unless
there is a change of role or responsibility or a new director is
recruited (see recruitment policy)
Sector and other relevant market data (eg against constituent
companies of the FTSE 350 REIT Index) may be requested from
remuneration advisors as required
The Committee recognises the importance of setting salaries at
levels in the context of market median levels in the real estate
sector, but which are not excessive in relation to the Group’s
particular strategy and features. The emphasis in the Group’s
remuneration policies is to place greater weight on
performance-based rewards within the overall remuneration
package
Within the limits of the scheme, the Committee has discretion to
adjust bonus outcomes (upwards or downwards) as it considers
appropriate, to ensure alignment of pay with overall performance
and market conditions
Minimum performance required for any part of the bonus to be
earned is calibrated so as to be appropriately stretching and
achievable
Where directors take all or part of the bonus as an award of
shares (in the form of a conditional award of shares or a nil-cost
option), these awards vest after a minimum of three years from
grant under the Company’s deferred bonus plan. No further
performance conditions apply. Awards may also, at the
Committee’s discretion, be settled in cash
Malus and clawback provisions apply to all elements of the bonus
(as described elsewhere in this section)
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 086
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
REmuNERAtiON pOLiCy CONTINUED
Executive directors continued
ELEMENT
LINK WITH STRATEGY
OPERATION
MAXIMUM POTENTIAL VALUE
PERFORMANCE MEASURES AND PERFORMANCE PERIODS
Maximum value 150% of salary at date of grant in normal
The awards will be subject to performance targets measured
circumstances
Maximum value 200% of salary in exceptional circumstances
such as executive recruitment (this has not been used to date)
value
over a three-year period. It is intended that these performance
measures are aligned to strategic objectives and shareholder
The current performance measures are:
• TSR measured relative to a relevant index of peers; and
• NAV growth
Threshold vesting is 25% of the award. The detailed targets are
set out in the Annual Remuneration Report
The limits are as defined by HMRC from time
None
None
There is no maximum value. Benefits are set at a level which the
None
Committee determines is reasonable and appropriate
The value may vary depending on service provided, cost and
market conditions
Ltip
To incentivise and reward performance over the
long-term, aligning directors’ interests with
those of shareholders and to encourage the
management of the Group’s business in
accordance with its long-term strategy and
goals
A new LTIP is to be put to shareholders for approval at the 2016
AGM
Awards may be granted in the form of nil cost options,
conditional share awards or, at the Committee’s discretion, be
settled in cash
At the end of the performance period, performance against the
targets is calculated, and the percentage of awards that will
vest is determined
Unless the Committee determines otherwise, vested awards will
then be subject to an additional holding period before
participants are entitled to receive their shares. A holding
period will normally last for two years, unless the Committee
determines otherwise
Malus and clawback provisions apply to the LTIP (as described
elsewhere in this section)
All employee
plans
Part of overall package for all employees,
encouraging share ownership
Executive directors are eligible to participate in other share
plans, which are offered on similar terms to all employees, for
example Sharesave and SIP
pension
Part of overall package for executive directors
providing comprehensive remuneration
and retirement benefits
Contribution paid into a personal pension plan or taken as a
cash equivalent, reduced for any resultant tax liability borne by
the Group
to time
25% of salary
Other benefits Part of overall package for executives providing
comprehensive remuneration
Each executive director currently receives:
• car allowance
• private medical cover
• life insurance
• permanent health insurance
Other benefits may be provided if considered reasonable and
appropriate by the Committee, including, but not limited to,
housing allowance and relocation allowance
Notes to the table:
performance measures
1. The performance measures set by the Committee for the
annual bonus scheme reflect Group KPIs and short-term
measures which are consistent with, and support, the Group’s
strategic goals of long-term growth in rental income and net
asset value. The Committee may make reasonable changes to
the measures each year in order to ensure continued
alignment with strategy.
2. LTIP performance measures have been selected to align the
interests of directors with those of shareholders.
Performance targets are set by the Committee to be
appropriately stretching and achievable taking into account
the Group’s strategic priorities and the economic
environment in which the Group operates.
3. The Committee may amend or substitute any performance
measure applicable to an LTIP award if an event occurs that
causes the Committee to determine an amended, or
substituted, measure would be more appropriate and not
materially less difficult to satisfy.
In addition to the above elements of remuneration, the Committee
may consider it appropriate to grant an award under a different
structure in order to facilitate the recruitment of an individual,
exercising the discretion available under Listing Rule 9.4.2 R. Such
discretion would only be used in the case of recruitment of an
executive director for the buyout of existing incentive awards
which would be forfeited on leaving a previous employer, in line
with the terms of the recruitment policy.
REmuNERAtiON pOLiCy CONTINUED
087
ELEMENT
LINK WITH STRATEGY
OPERATION
MAXIMUM POTENTIAL VALUE
PERFORMANCE MEASURES AND PERFORMANCE PERIODS
Maximum value 150% of salary at date of grant in normal
circumstances
Maximum value 200% of salary in exceptional circumstances
such as executive recruitment (this has not been used to date)
The awards will be subject to performance targets measured
over a three-year period. It is intended that these performance
measures are aligned to strategic objectives and shareholder
value
The current performance measures are:
• TSR measured relative to a relevant index of peers; and
• NAV growth
Threshold vesting is 25% of the award. The detailed targets are
set out in the Annual Remuneration Report
Ltip
To incentivise and reward performance over the
A new LTIP is to be put to shareholders for approval at the 2016
Executive directors continued
long-term, aligning directors’ interests with
AGM
those of shareholders and to encourage the
management of the Group’s business in
accordance with its long-term strategy and
goals
Awards may be granted in the form of nil cost options,
conditional share awards or, at the Committee’s discretion, be
settled in cash
vest is determined
At the end of the performance period, performance against the
targets is calculated, and the percentage of awards that will
Unless the Committee determines otherwise, vested awards will
then be subject to an additional holding period before
participants are entitled to receive their shares. A holding
period will normally last for two years, unless the Committee
determines otherwise
elsewhere in this section)
Malus and clawback provisions apply to the LTIP (as described
All employee
Part of overall package for all employees,
Executive directors are eligible to participate in other share
plans
encouraging share ownership
plans, which are offered on similar terms to all employees, for
The limits are as defined by HMRC from time
to time
example Sharesave and SIP
pension
Part of overall package for executive directors
Contribution paid into a personal pension plan or taken as a
25% of salary
providing comprehensive remuneration
cash equivalent, reduced for any resultant tax liability borne by
and retirement benefits
the Group
None
None
Other benefits Part of overall package for executives providing
Each executive director currently receives:
comprehensive remuneration
There is no maximum value. Benefits are set at a level which the
Committee determines is reasonable and appropriate
None
The value may vary depending on service provided, cost and
market conditions
• car allowance
• private medical cover
• life insurance
• permanent health insurance
Other benefits may be provided if considered reasonable and
appropriate by the Committee, including, but not limited to,
housing allowance and relocation allowance
The Committee reserves the right to make any remuneration
payments, and payments for loss of office (including exercising
any discretion available to it in connection with such payments),
notwithstanding that they are not in line with the policy set out
above where the terms of the payment were agreed: (i) before
7 February 2014 (the date the Company’s first directors’
remuneration policy approved by shareholders in accordance
with section 439A of the Companies Act came into effect); (ii)
before the policy set out above came into effect, provided that
the terms of the payment were consistent with the directors’
remuneration policy (approved by shareholders in accordance
with section 439A of the Companies Act) in force at the time
they were agreed; or (iii) at a time when the relevant individual
was not a director of the Company and, in the opinion of the
Committee, the payment was not in consideration for the
individual becoming a director of the Company. For these
purposes “payments” includes the Committee satisfying awards
of variable remuneration and, in relation to an award over shares,
the terms of the payment are “agreed” at the time the award is
granted
The Committee may make minor amendments to the policy set
out above (for regulatory, exchange control, tax or administrative
purposes, or to take account of a change in legislation) without
obtaining shareholder approval for that amendment
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 088
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
REmuNERAtiON pOLiCy CONTINUED
Dividend equivalents for share-based awards
Malus and clawback
Awards granted under the Deferred Annual Share Bonus plan and
the LTIP may incorporate the right to receive an amount (in cash
or shares) equal to the dividends which would have been paid on
the shares that vest in the period up to vesting (or, where LTIP
awards are made subject to a holding period, the end of the
holding period). This amount may be calculated assuming the
dividends were reinvested in the Company’s shares on a
cumulative basis.
In the event of a material misstatement of the financial
statements or gross misconduct, the Committee has discretion
to exercise the following malus and clawback provisions in
respect of the annual bonus and the LTIP. The Committee may:
• reduce a bonus prior to payment;
• reduce the vesting of a deferred share award prior to vesting;
• for awards granted after March 2016, require, at any time prior
to the fifth anniversary of grant, a participant to return the
value of the cash bonus or deferred share awards he has
received;
• reduce the vesting of an LTIP award prior to vesting; and/or
• for LTIP awards granted after March 2016 require, at any time
prior to the fifth anniversary of grant, a participant to return
the value of the LTIP awards he has received.
PERFORMANCE
MEASURES AND
PERFORMANCE
PERIODS
Not applicable
MAXIMUM POTENTIAL
VALUE
As with the policy for
the executive
directors, the policy
does not specify a
maximum fee or level
of increase
Non-executive directors and Chairman
ELEMENT
LINK WITH STRATEGY
OPERATION
Fees and
benefits
To provide
market-competitive
director fees
Fees are normally reviewed every two years.
Sector and other relevant market data (eg
constituent companies in the FTSE 350 REIT
Index) may be requested from remuneration
advisors where required
A further fee is payable to reflect the additional
time commitment required for other Board
duties, such as chairing Board committees or
acting as Senior Independent Director
The fee paid to the Chairman is determined by
the Committee and fees to non-executive
directors are set by the Board
No director takes part in discussions regarding
their own remuneration
Benefits may be provided to non-executive
directors if considered reasonable and
appropriate by the Board
As the same remuneration policy is applied to executive directors
and all employees, the Committee did not consult employees
when drawing up the Group’s policy.
Difference between policy for directors and
employees
Pay and conditions throughout the Group are taken into
consideration when setting remuneration policy. The Group’s 21
employees below Board level are offered the same remuneration
package elements as executive directors, though not all
employees are eligible for all benefits provided to executive
directors. Individual salary levels, percentage levels of awards in
the annual bonus and LTIP vary according to employees’ level of
responsibility and their contribution to the business. The same
performance criteria, where appropriate, are applied to
executive directors and other employees.
REmuNERAtiON pOLiCy CONTINUED
089
Recruitment policy
Executive directors
A newly-appointed director’s remuneration would be proposed
by the Committee and approved by the Board in line with the
Group’s policy. The Group offers salary, benefits, annual bonus
and awards under the LTIP. If the Group considered it appropriate
to buy out any pre-existing variable pay arrangements of an
incoming director, it would only be with replacement awards
structured on a comparable basis eg in terms of vesting period,
performance conditions etc. In doing so, the Committee would
consider relevant factors when structuring such awards, including
the likelihood of those pre-existing conditions being met. As
stated on page 87, the Committee has the discretion to
implement a one-off arrangement for the purposes of buy-out
awards only, in accordance with Listing Rule 9.4.2 R.
External appointment
ELEMENT
Salary
Annual bonus
Ltip
All employee share
plans, pension and
other benefits
APPROACH
The salaries of new appointees will be determined by reference to relevant market
data, experience and skills of the individual, internal relativities and their current
salary. Where new appointees have initial salaries set below market, any shortfall will
be managed with phased increases within three years, subject to the individual’s
development in the role
In line with the limits set out in the policy table. For executive directors joining part
way through a year, awards would be pro-rated. The Committee may determine
different performance targets for the new recruit, to reflect the shortened period in
role
MAXIMUM ANNUAL
GRANT VALUE*
150% of salary
New appointees will be granted awards under the LTIP under the limits described in
the policy table. The Committee may amend or alter the performance targets for the
new recruit, as it considers appropriate
200% of salary
In line with the limits as described in the policy table
*excludes compensation for variable remuneration lost on leaving a former employer
internal appointment
In the event of appointing a new executive director by way of internal promotion, the policy will be consistent with that for external
appointees as detailed above. Further detail on the policy for employees below board level is set out above.
Non-executive directors
Newly appointed non-executive directors are paid fees at a level consistent with existing non-executive directors. Fees would be paid
pro-rata in their first year.
Loss of office payment
Provisions for payments on termination contained in executive directors’ service contracts are set out below:
DATE OF
APPOINTMENT
DATE OF
CURRENT
CONTRACT
NOTICE PERIOD
TERMINATION ARRANGEMENTS
B Bickell
1.10.2011
6.6.2011
One year’s notice
One year’s salary and benefits payable in event of termination
without notice. Director’s duty to mitigate loss
S J Quayle
1.10.1997
8.10.1997
One year’s notice
Termination by payment of annual salary
T J C Welton 1.10.1997
8.10.1997
One year’s notice
Termination by payment of annual salary
C P A Ward
9.1.2012
3.10.2011
One year’s notice
One year’s salary and benefits payable in event of termination
without notice. Director’s duty to mitigate loss
Any new executive director would be appointed on the same loss
of office terms as Brian Bickell and Christopher Ward, namely
twelve months’ salary and benefits, with a duty to mitigate loss
on termination.
The terms of appointment of non-executive directors are
documented in letters of appointment. Non-executive directors
have a one-month notice period and their appointment would
terminate without compensation if not re-elected at an AGM.
All contracts are available for inspection at the Company’s
registered office.
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 090
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
REmuNERAtiON pOLiCy CONTINUED
Approach to other remuneration payments on termination of employment and change of control
In addition to the contractual provisions regarding payment on termination set out above, the Group’s incentive plans and share
schemes contain provisions for termination of employment.
COMPONENT
GOOD LEAVER*
BAD LEAVER*
CHANGE OF CONTROL**
Annual bonus May be eligible, at the discretion of the Committee, to
receive an award based on the achievement of the
performance targets and reduced pro-rata for time
served in the year. Paid in cash with no uplift
Deferred
Annual Share
Bonus plan
Awards vest on the normal vesting date unless the
Committee determines the award should vest
following cessation of employment
Ltip
Unvested awards will vest (and vested awards will be
released from any holding period) at the same time
as if the individual had not left the Group, unless the
Committee determines the award should vest (and be
released) following the cessation of employment***
The extent to which an unvested award vests will be
determined by the Committee, taking into account
normal performance conditions, and, unless the
Committee determines otherwise, the proportion
of the vesting period the participant has served
Outstanding award
forfeited
At the discretion of the
Committee
Will receive the lower of
the value of the original
cash bonus (before any
uplift for deferral) or the
value of any deferred
shares on the date of
cessation
Outstanding unvested
awards are forfeited
Awards vest at date of change of
control
Awards vest (and are released)
taking into account, in the case of
unvested awards, the
performance conditions and,
unless the Committee determines
otherwise, the proportion of the
vesting period that has elapsed
All employee
plans
In line with HMRC rules
In line with HMRC rules
In line with HMRC rules
*
Good leaver provisions relate to termination of office or employment by reason of death, disability, injury, retirement with the agreement of the Company, the participant’s
office or employment being with a company or business which ceases to be a member of the Group or, in other exceptional circumstances, at the discretion of the
Committee (including redundancy). Bad leaver provisions apply under all other circumstances.
** Alternatively, on a change of control, awards may be exchanged for equivalent awards of shares in a different company. In the event of a demerger, delisting, special dividend
or other event which, in the Committee’s opinion, would materially affect the current or future value of the Company’s shares, the Committee may allow awards to vest and
be released early on the same basis as for a change of control. Alternatively, in these circumstances or in the event of a variation of the Company’s share capital, the
Committee may adjust the number of shares subject to an award.
*** If a participant leaves during a holding period for any reason, his award will normally be released at the same time as if he had not left the Group, unless the Committee
determines it should be released following his cessation of employment. However, if a participant is summarily dismissed, his award will immediately lapse.
The use of any discretion described above would be disclosed in the Annual Report for the relevant year.
Consideration of shareholder views
Shareholding requirements
Shareholders, representing almost 55% of the Company’s issued
share capital, have been given the opportunity to comment and
question the Committee on the remuneration policy and the
proposed changes. The Chairman of the Committee was available
to discuss the policy with shareholders and governance bodies.
Shareholder responses were reported to, and considered by, the
Committee.
Each executive director is required to build up and maintain a
minimum shareholding in the Company equivalent to two years’
salary at date of appointment to the Board. Newly appointed
executive directors are expected to accumulate a fixed
shareholding to this value over a period of five years from the
date of their appointment and may include shares subject to
deferred bonus awards. Shares received under the LTIP and
Deferred Annual Share Bonus Scheme, net of deductions for
income tax and national insurance, are required to be retained
until the minimum shareholding level is attained. There are no
shareholding requirements for non-executive directors.
External appointments
Executive directors are permitted to accept external appointments,
with the prior approval of the Board, where there is no adverse
impact on their role with the Group. Any fees arising from such
appointments may be retained by the executive director where the
appointment is unrelated to the Group’s business.
REmuNERAtiON pOLiCy CONTINUED
091
Potential remuneration for directors
The charts below set out the potential remuneration receivable
by directors for below threshold, on-target and maximum
performance. Potential reward opportunities are based on this
policy and applied to salaries as at 1 December 2015. Note that
the projected values exclude the impact of any share price
movement or dividend accrual.
B Bickell (£’000)
665
100%
1,211
15%
30%
55%
2,120
35%
34%
31%
LTIP
Annual bonus
Fixed
Minimum
On-target
Maximum
SJ Quayle and TJC Welton (£’000)
474
100%
859
15%
30%
55%
1,500
34%
34%
32%
Minimum
Minimum
On-target
On-target
Maximum
Maximum
CPA Ward (£’000)
453
100%
830
15%
30%
55%
1,458
35%
34%
31%
Minimum
On-target
Maximum
The minimum scenario reflects salary, pension and benefits
(ie fixed remuneration) which are the only elements of the
executive directors’ remuneration packages not linked to
future performance.
The on-target scenario reflects fixed remuneration as above,
plus bonus payout of 75% of salary and LTIP threshold vesting
at 25% of maximum award.
The maximum scenario reflects fixed remuneration, plus full
payout of all incentives. It assumes a maximum bonus of 150%
of salary which would be receivable fully in shares.
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 092
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
Annual Remuneration report
Set out below is the Annual Remuneration Report on directors’ pay for the
year ended 30 September 2015. This relates to the remuneration policy
currently in operation which was approved by shareholders at the 2014
AGM. This policy may be found on the Group’s website.
The Committee determines executive directors’ remuneration in accordance
with its terms of reference and the Group’s remuneration policy.
Committee members and attendance
MEMBER
Sally Walden
Jill Little
Oliver Marriott
Dermot Mathias
Hilary Riva
POSITION
Chairman
Member and Senior Independent Director
Member
Member
Member
NUMBER OF MEETINGS ATTENDED (5 HELD)
• • • • •
• • • • •
• • • • •
• • • • •
• • • • •
Committee attendees by invitation only
Advisor to the committee
ATTENDEES
Jonathan Lane
POSITION
Chairman
Brian Bickell
Chief Executive
Penny Thomas
Secretary to the Committee
The secretary attends all meetings and the Chief Executive
and Chairman may be invited to attend meetings as required.
Key committee activities during the year
POLICY
OPERATIONAL
During the year, the Committee appointed Deloitte LLP as
independent advisor to the Committee, following a selection
process. Deloitte LLP is a member of the Remuneration Consultants
Group and voluntarily operates under the Code of Conduct in
relation to executive remuneration consulting in the UK. The
Committee is satisfied that the Deloitte LLP engagement partner
and team, that provide remuneration advice to the Committee, do
not have connections with the Group that may impair their
objectivity and independence. The fees charged by Deloitte LLP for
the provision of independent advice to the Committee during the
financial year were £128,000 (excluding VAT). Deloitte LLP provided
no other services to the Group during the year.
ADVISORS AND PRACTICE
Appointment of advisor
Monitored remuneration
advisor and fees
Monitored emerging best
practice in remuneration and
reporting
Annual review of remuneration
policy and proposals for a new
remuneration policy
Consulted with shareholders on
the proposed new remuneration
policy
Remuneration review including
proposing a new LTIP and changes
to the annual bonus scheme
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 setting
of 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 for the performance period commencing
1 October 2014
Reviewed the Annual Remuneration Report for
inclusion in the annual report
ANNuAL REmuNERAtiON REpORt CONTINUED
093
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 2015 and the prior year:
SALARy
2015
£’000
2014
£’000
BENEFitS 2
2015
£’000
2014
£’000
pENSiON
BENEFit 3
2015
£’000
2014
£’000
B Bickell1
S J Quayle
T J C Welton
C P A Ward
473
333
333
323
421
323
323
296
59
53
40
34
60
55
54
30
104
73
73
76
92
71
71
70
ANNuAL
BONuS 4
Ltip 5
OtHER 6
tOtAL
2015
£’000
2014
£’000
2015
£’000
356
251
251
246
431
305
305
281
598
423
423
369
2014
£’000
440
313
313
273
2015
£’000
2014
£’000
2015
£’000
2014
£’000
1
1
1
1
1
1
1
1
1,591 1,455
1,134 1,068
1,121 1,067
1,049
951
1. Brian Bickell’s salary was reduced in 2014 by £38,000 reflecting one month of unpaid leave taken during the year.
2. Benefits comprise car benefit, permanent health insurance, life insurance and health insurance.
3. 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.
4. Payment for performance in respect of the relevant financial year. For 2015, the executive directors received bonuses of 75% of salary in shares or 60% of salary in cash. Each
director has elected to take their 2015 bonus entirely in shares, which are deferred for a period of three years. No further performance criteria apply.
5. Reflects the vesting of shares in the LTIP in respect of performance for the relevant financial year. 63.5% of LTIP awards granted in December 2012 will vest on 6 December
2015. The TSR performance condition for the three-year performance period to 30.9.2015 was partially met and resulted in vesting of 27% of this 50% element of the award.
NAV performance was met and resulted in full vesting of this 50% element of the award. The value of these awards has been calculated by multiplying the number of shares that
will vest by the three-month average share price to 30 September 2015 of £8.974. The 2014 estimated figure has been restated to reflect actual share price at the date of
vesting. The value of dividends paid, or to be paid, on vested shares is also included.
6. This relates to sharesave options which have been valued based on the monthly savings amount and the discount provided of 20%. The 2014 figures have been restated as last
year the figures included the LTIP dividend equivalent (now included in the LTIP figure) and the Deferred Annual Share Bonus dividend figure which is not required to be
included.
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 2015 and the prior year:
J S Lane
J C Little
O J D Marriott
D C A Mathias
H S Riva
S E Walden
W G McQueen2
FEE
2015
£’000
125
2014
£’000
125
53
53
53
53
53
-
53
53
53
53
53
19
COmmittEE CHAiR FEES
OtHER1
2015
£’000
2014
£’000
-
8
-
8
-
8
-
-
8
-
5
-
5
3
2015
£’000
22
-
-
-
-
-
-
2014
£’000
-
-
-
-
-
-
-
tOtAL
2015
£’000
147
2014
£’000
125
61
53
61
53
61
-
61
53
58
53
58
22
1 Other includes dividend equivalents paid in the year on vested LTIP shares. These relate to Jonathan Lane’s previous role as an executive director.
2 Gordon McQueen retired from the Board on 7 February 2014.
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 094
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
ANNuAL REmuNERAtiON REpORt CONTINUED
Annual bonus achievements for year ended 30 September 2015
Retrospective disclosure of the extent to which the targets for the 2015 annual bonus have been met is provided below.
MEASURE
WEIGHTING TARGET
ACHIEVEMENT
COMMENT
portfolio performance
• Achieve growth in ERVs1
20% Extent by which commercial lettings or
lease renewals exceed valuer’s ERV in
previous year:
Minimum - 3%
Maximum - 5%
Commercial lettings
exceeded previous year ERV
on average by 8.1%2
PERCENTAGE
AWARDED
40%
Annual growth in Group total ERV
(like-for-like):
Annual growth in total ERV
6.8%
Minimum - 3%
Maximum - 5%
• Let vacant space on
a timely basis1
10% Complete lettings within target
periods set by use (range 1 – 4
months)
Average void period
(measured from date space
became available to let):
• Effectively achieve
10% ERV of space available to let not to
exceed 3% of Group ERV (measured
quarterly)
1 month
Average EPRA vacancy
during year: 2.1% of Group
ERV2
10% Ratio of property outgoings to gross
Ratio for year2: 12.8%
rents receivable not to exceed rolling
three year average (like-for-like)
Rolling three-year average:2
12.6%
full lettings
• Manage property
expenses as a
percentage of
rental income
Sustainability
performance
10% Maintain relative rankings in key
indices:
• DJSI
• GRESB
DJSI score decreased from
65 (2013 benchmark) to 61,
GRESB improved peer
group ranking to 2 from 3
and achieved a “green star”
rating
Operational objectives
which were targeted for
completion during the year
were substantially fully met
In the case of
targets over
more than
one year,
progress
against
milestones
was demon-
strated
5%
25%
70%
Deliver projects/
transactions successfully
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
100%
maximum performance
target
Actual performance as a %
of maximum
(see below for the actual
amount awarded and
explanatory note)
1 Group KPIs
2 Wholly-owned portfolio
Note: 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 bonus awards 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 ensure the level of bonus is appropriate. Whilst the achievement
against the targets was 70%, the Committee felt that a more reasonable award in view of these external factors was 60%. Accordingly
a bonus of 75% of salary is payable in deferred shares or 60% of salary if taken entirely in cash. All the executive directors elected to
take their bonus in shares which equates to an award of 75% out of a maximum opportunity of 125% of salary.
ANNuAL REmuNERAtiON REpORt CONTINUED
095
LTIP vesting in performance period to 30 September 2015
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 current
LTIP was approved by shareholders in 2006 and are set out below. This table also provides details of the awards vesting in respect of
the financial year.
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%
Performance in three-year period to 30 September 2015*:
22.04% pa and outperformed the benchmark by 0.5% pa
Vesting outcome (for this half of the award)
27% of maximum
ANNUALISED NAV GROWTH LESS ANNUALISED RPI GROWTH,
OVER THE PERFORMANCE PERIOD
RELEVANT AWARDS VESTING
Less than 3% pa
3% pa
Between 3% pa and 7% pa
7% pa or more
0%
30%
Pro-rata on a straight line basis between 30% and 100%
100%
Performance in three year period to 30 September 2015:
20.4% pa
Vesting outcome (for this half of the award)
100% of maximum
* Calculated using the three-month average TSR in the periods before grant and vesting.
Historic LTIP vesting performance
Vesting %
100
0
0
1
7
.
6
7
0
5
0
5
50
0
5
0
5
TSR
NAV
5
.
3
6
0
2009 2010
2011
2012 2013 2014 2015
Year of vesting
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
096
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
ANNuAL REmuNERAtiON REpORt CONTINUED
Share scheme interests awarded during the year (audited)
B Bickell
S J Quayle
T J C Welton
C P A Ward
SCHEME
LTIP1
Deferred Annual Share Bonus Scheme2
LTIP1
Deferred Annual Share Bonus Scheme2
LTIP1
Deferred Annual Share Bonus Scheme2
LTIP1
Deferred Annual Share Bonus Scheme2
FACE VALUE AT
DATE OF AWARD £’000
591
431
417
305
417
305
408
281
1. Awards of nil cost options were made at 125% of salary. The face value is calculated using the average share price used to determine the number of shares awarded, being
796.6p (the average share price over the five days prior to the date of grant, 8.12.14).The LTIP performance period is 1.10.2014 to 30.9.2017 and the level of threshold vesting is
set out on page 95. Performance measures are set out on page 95.
2. Deferred Annual Share Bonus Scheme relates to the annual bonus in respect of the year ended 30.9.2014 taken in shares. The face value is calculated using the price paid to
acquire the shares, being 780p. No further performance criteria are applied to share awards under this scheme.
Directors’ shareholdings and share scheme interests (audited)
SHARES
OWNED OUTRIGHT DEFERRED SHARES1
OPTIONS
VESTED
BUT NOT EXERCISED
SHARES UNDER
OPTION NOT VESTED
AND SUBJECT TO
PERFORMANCE
CRITERIA1
SHARESAVE
SHAREHOLDING
REQUIREMENT MET2
130,409
92,295
92,295
75,410
-
-
-
-
269,720
190,545
190,545
175,225
6,383
6,383
6,383
6,547
Yes
Yes
Yes
Yes
Executive director
B Bickell
S J Quayle
T J C Welton
C P A Ward
Non-executive director
J S Lane
J C Little
O J D Marriott
H S Riva
D C A Mathias
S E Walden
982,743
922,789
738,232
27,606
1,075,000
5,367
5,000
10,479
16,208
20,000
There have been no changes in directors’ shareholdings between 30 September 2015 and the date of this report.
1. 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.
2. 100% of salary at date of appointment to the Board, to be accumulated over five years. For Christopher Ward, 100% of salary equates to 54,000 shares from the date of his
appointment in January 2012. For the other executive directors their holdings (based on 30.9.2015 share price) are in excess of 20 times annual salary. It is proposed to increase
the shareholding requirement with effect from the 2016 AGM to 200%.
Additional details on the share awards summarised in this table are provided below, with further explanation on the operation of the
plans set out in the Policy Table.
ANNuAL REmuNERAtiON REpORt CONTINUED
097
1. Deferred Annual Share Bonus Scheme
ENTITLEMENT TO ORDINARY SHARES
MARKET
PRICE ON
DATE OF
GRANT
£
DATE OF GRANT
B Bickell
S J Quayle
T J C Welton
C P A Ward
21.12.2011
10.12.2012
17.12.2013
22.12.2014
21.12.2011
10.12.2012
17.12.2013
22.12.2014
21.12.2011
10.12.2012
17.12.2013
22.12.2014
10.12.2012
17.12.2013
22.12.2014
J S Lane2
21.12.2011
4.64
5.56
5.98
7.80
4.64
5.56
5.98
7.80
4.64
5.56
5.98
7.80
5.56
5.98
7.80
4.64
AT
1.10.2014
52,335
38,867
36,238
-
127,440
50,590
27,569
25,651
-
103,810
49,719
27,569
25,651
-
102,939
16,948
22,394
-
39,342
103,866
AWARDED
IN YEAR1
-
-
-
55,304
55,304
-
-
-
39,075
39,075
-
-
-
39,075
39,075
-
-
36,068
36,068
DELIVERED
IN YEAR
52,335
-
-
-
52,335
50,590
-
-
-
50,590
49,719
-
-
-
49,719
-
-
-
-
-
103,866
At
30.9.2015
-
38,867
36,238
55,304
130,409
-
27,569
25,651
39,075
92,295
-
27,569
25,651
39,075
92,295
16,948
22,394
36,068
75,410
-
1. In respect of the annual bonus for the year ended 30 September 2014.
2. Jonathan Lane’s interests relate to awards made whilst an executive director.
Shares are held in an employee benefit trust which at 30 September 2015 held 439,249 shares.
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 098
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
ANNuAL REmuNERAtiON REpORt CONTINUED
2. Ltip
NUMBER OF ORDINARY SHARES UNDER OPTION
MARKET
PRICE OF
SHARE ON
GRANT
£
DATE
OF
GRANT
AT
1.10.2014
GRANTED
DURING
YEAR
VESTED
AND
EXERCISED
DURING
YEAR
LAPSED
DURING
YEAR
At
30.9.2015
MARKET
PRICE OF
SHARE ON
DATE OF
EXERCISE
£
PERFORMANCE
PERIOD
EXERCISE
PERIOD
B Bickell
7.12.2011
4.99
108,150
6.12.2012
5.55 100,600
20.12.2013
6.06
94,900
-
-
-
8.12.2014
7.78
-
74,220
54,075 54,075
-
7.80
1.10.2011-30.9.2014 12.2014-6.2015
-
-
-
- 100,600
-
-
94,900
74,220
-
-
-
1.10.2012-30.9.2015 12.2015-6.2016
1.10.2013-30.9.2016 12.2016-6.2017
1.10.2014-30.9.2017 12.2017-6.2018
303,650
74,220
54,075 54,075
269,720
S J Quayle
7.12.2011
6.12.2012
4.99
5.55
76,750
71,200
20.12.2013
6.06
67,000
-
-
-
8.12.2014
7.78
-
52,345
38,375 38,375
-
7.80
1.10.2011-30.9.2014 12.2014-6.2015
-
-
-
-
-
-
71,200
67,000
52,345
-
-
-
1.10.2012-30.9.2015 12.2015-6.2016
1.10.2013-30.9.2016 12.2016-6.2017
1.10.2014-30.9.2017 12.2017-6.2018
214,950
52,345
38,375 38,375 190,545
T J C Welton
7.12.2011
6.12.2012
4.99
5.55
76,750
71,200
20.12.2013
6.06
67,000
-
-
-
8.12.2014
7.78
-
52,345
38,375 38,375
-
7.80
1.10.2011-30.9.2014 12.2014-6.2015
-
-
-
-
-
-
71,200
67,000
52,345
-
-
-
1.10.2012-30.9.2015 12.2015-6.2016
1.10.2013-30.9.2016 12.2016-6.2017
1.10.2014-30.9.2017 12.2017-6.2018
214,950
52,345
38,375 38,375 190,545
C P A Ward
17.1.2012
4.91
65,800
6.12.2012
20.12.2013
8.12.2014
5.55
6.06
7.78
62,150
61,900
-
51,175
-
-
-
32,900 32,900
-
7.95
1.10.2011-30.9.2014
1.2015-7.2015
-
-
-
-
-
-
62,150
61,900
51,175
-
-
-
1.10.2012-30.9.2015 12.2015-6.2016
1.10.2013-30.9.2016 12.2016-6.2017
1.10.2014-30.9.2017 12.2017-6.2018
189,850
51,175
32,900 32,900
175,225
J S Lane1
7.12.2011
4.99
19,953
-
9,976
9,977
-
7.80
1.10.2011-30.9.2014 12.2014-6.2015
Of the options granted on 6 December 2012, 63.5% will vest on 7 December 2015. The TSR performance condition over the three
years ended 30 September 2015 was partially met and resulted in 27% vesting for that element, whilst NAV performance resulted in
100% vesting for that element.
1. Jonathan Lane’s interest relates to options granted during his tenure as an executive director.
ANNuAL REmuNERAtiON REpORt CONTINUED
099
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
DATE
OF GRANT
AT
1.10.2014
GRANTED
DURING
YEAR
LAPSED
DURING
YEAR
EXERCISED
DURING
YEAR
At
30.9.2015
OPTION
PRICE
£
B Bickell
S J Quayle
T J C Welton
C P A Ward
8.7.2011
2.7.2014
8.7.2011
2.7.2014
8.7.2011
2.7.2014
5.7.2012
2.7.2014
3,595
2,788
6,383
3,595
2,788
6,383
3,595
2,788
6,383
3,759
2,788
6,547
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
3,595
2,788
6,383
3,595
2,788
6,383
3,595
2,788
6,383
3,759
2,788
6,547
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. In July 2014, 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 in the policy report, which is subject
to a shareholder vote. This will be at the 2016 AGM and, therefore, prior to the exercise of these options.
Percentage change in Chief Executive remuneration
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 like-for-like group of employees, ie the same individuals appear in the 2014 and 2015 group and the 2014 figures have been
restated on that basis.
Base salary1
Taxable benefits
Annual bonus
Total
CHiEF EXECutiVE
OtHER EmpLOyEES
CHANGE
2.8%
(1.7)%
(17.9)%
(6.6)%
CHANGE
6.0%
11.1%
(11.9)%
(1.5)%
1. The figure for Brian Bickell in 2014 is the full annual salary rather than the salary received during the year and reported in the single figure remuneration table on page 93. The
full annual salary figure is provided here to permit comparison between the change in Chief Executive’s remuneration and that of other employees.
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
100
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
ANNuAL REmuNERAtiON REpORt CONTINUED
Relative importance of spend on pay
Employee costs
Dividends paid
£38.3m
£36.5m
£10.0m
£10.2m
2015
2014
Review of past performance
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 seven 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.
Seven-year TSR chart to 30 September 2015
Value of £100 invested
at 30 September 2008
350
300
250
200
150
100
50
0
£330
Shaftesbury
FTSE 350 Real Estate Index
£161
2008
2009
2010
2011
2012
2013
2014
2015
Seven-year chief executive single figure remuneration1
Chief Executive single figure of remuneration (£’000)
Annual bonus payout (% maximum)
Long-term incentive award vesting (% maximum)
1. 2009-2011: Jonathan Lane; 2012-2015: Brian Bickell
Shareholder voting
2009
850
50%
50%
2010
1,013
50%
50%
2011
1,650
90%
2012
1,198
40%
76.7%
100%
2013
1,075
40%
50%
2014
1,455
75%
50%
2015
1,591
60%
63.5%
At the 2015 AGM, there was an advisory vote on the Annual Remuneration Report. There was no policy vote.
Voting by shareholders representing 85% of the issued share capital was as follows:
Remuneration Report
FOR
235,381,012
% FOR
99.7%
AGAINST
% AGAINST
WITHHELD
TOTAL VOTES
765,291
0.3%
1,493,004 237,639,307
ANNuAL REmuNERAtiON REpORt CONTINUED
101
Statement of implementation of remuneration for the year ending 30 September 2016
Executive directors’ salaries from 1 December 2015
The Committee recommended general increases in line with RPI for executive directors and employees with effect from 1 December 2015.
B Bickell
S J Quayle
T J C Welton
C P A Ward
1.12.2015
£’000
485
342
342
335
1.12.2014
£’000
475
335
335
328
INCREASE
2%
2%
2%
2%
Pension and benefits are as described in the policy table.
LTIP awards will be made under the existing LTIP. Each executive director will receive an award of nil cost options to the value of 125%
of salary under the LTIP in December 2015, in respect of the performance period 1 October 2015 to 30 September 2018. The
performance measures will be as set out on page 95 and are the same targets used in each year since the plan was approved in 2006.
Executive directors will be eligible for a maximum bonus of up to 150% of salary (if taken in shares) and 100% of salary (if taken in cash), in
accordance with the Remuneration Policy on pages 84 to 91 if approved at the 2016 AGM. Disclosure of annual bonus targets for the year
ending 30 September 2016 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
WEIGHTING TARGET OR REASON FOR NON-DISCLOSURE
Achieve growth in ERVs*
Let vacant space on a timely basis*
Effectively achieve full lettings
Manage property expenses as
a percentage of rental income
20%
10%
10%
10%
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
Deliver projects/transactions
successfully
*Group KPIs.
10% To match baseline year (2013) corporate responsibility scores (GRESB ranked 3 out
of 10 in peer group, EPRA silver sustainability reporting)
40% Specific operational objectives to be met during the year critical to progressing
long-term property projects and financing
Non-executive directors’ fees from 1 December 2015
Non-executive director fees are reviewed every two years. The previous review was undertaken in 2013. Fees have been reviewed with
effect from 1 December 2015:
FROM 1.12.2015
SENIOR
INDEPENDENT
DIRECTOR FEE1
£
COMMITTEE
CHAIR FEE
£
-
10,000
-
-
-
-
-
-
10,000
-
-
10,000
BASE FEE
£
130,000
55,000
55,000
55,000
55,000
55,000
TOTAL FEE
£
130,000
65,000
65,000
55,000
55,000
65,000
BASE FEE
£
125,000
52,500
52,500
52,500
52,500
52,500
FROM 1.12.2014
INDEPENDENT
DIRECTOR FEE1
£
COMMITTEE
CHAIR FEE
£
-
8,250
-
-
-
-
-
-
8,250
-
-
8,250
TOTAL FEE
£
125,000
60,750
60,750
52,500
52,500
60,750
J S Lane
J C Little
D C A Mathias
O J D Marriott
H S Riva
S E Walden
1. Fee is only payable if the Senior Independent Director is not the chair of any other committee.
Sally Walden
Chairman - Remuneration Committee
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
102
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
Directors’ report
The directors present their report
and the audited consolidated
financial statements for the year
ended 30 September 2015.
Strategic report
SEE STRATEGIC REPORT PAGES 1 TO 68
Results and dividends
The results for the year ended 30 September 2015 are set out in
the Group Statement of Comprehensive Income on page 110.
An interim dividend of 6.825p per ordinary share was paid on 3
July 2015 (2014: 6.5p).
The directors recommend a final dividend in respect of the year
ended 30 September 2015 of 6.925p per ordinary share (2014:
6.6p), making a total dividend for the year of 13.75p per ordinary
share (2014: 13.1p). If authorised at the 2016 AGM, the dividend
will be paid on 12 February 2016 to members on the register at
the close of business on 22 January 2016. The dividend will be
paid entirely as an ordinary dividend.
SEE PAGE 141 FOR FURTHER INFORMATION ON THE EFFECT OF OUR REIT STATUS ON THE
PAYMENT OF DIVIDENDS
SEE PAGE 54 FOR FURTHER INFORMATION ON WHY THE DIVIDEND IS BEING PAID AS AN
ORDINARY DIVIDEND
Share capital
During the year, a total of 312,123 ordinary shares were issued at
either nil cost or £3.99 on the exercise of employee share
options. At 30 September 2015, the Company’s issued share
capital comprised 278,176,382 ordinary shares of 25p each.
The Company has one class of ordinary shares. All shares rank
equally and are fully paid. No person holds shares carrying
special rights with regard to control of the Company. There are
neither restrictions on the transfer of shares nor on the size of
a holding, which are both governed by the Articles of Association
and prevailing legislation. The directors are not aware of any
agreements between holders of shares in the Company that may
result in restrictions on the transfer of shares or on voting rights.
Directors
The Company’s rules governing the appointment and
replacement of directors are contained in its Articles of
Association. Changes to the Articles of Association are only
permitted in accordance with legislation and must be approved
by a special resolution of shareholders.
Details of the directors of the Company who served throughout
the year ended 30 September 2015 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 92 to 101.
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 24 November 2015, the Company had been notified, in
accordance with the UK Listing Authority’s Disclosure Rules and
Transparency Rules, that the following eight shareholders held, or
were beneficially interested in, 3% or more of the Company’s
issued share capital amounting to a total of almost 55%:
Invesco Limited
BlackRock Inc
Norges Bank
Ameriprise Financial Inc
Standard Life Investments Limited
F&C Asset Management plc
Royal London Asset Management Limited
Stichting Pensioenfonds ABP
ISSUED SHARE
CAPITAL
%
13.59
9.45
9.02
5.00
4.97
4.97
4.37
3.56
DiRECtORS’ REpORt CONTINUED
103
Purchase of own shares
Independent auditors
The Company was granted authority at the 2015 AGM to make
market purchases of its own ordinary shares. This authority will
expire at the conclusion of the 2016 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 2015 to 24 November 2015.
A resolution for the re-appointment of Ernst & Young LLP as
auditors to the Company will be proposed at the 2016 AGM. The
Board, on the advice of the Audit Committee, recommends their
appointment.
SEE PAGE 80 FOR MORE DETAIL ON THE TENDER PROCESS WHICH RESULTED IN ERNST &
YOUNG LLP’S APPOINTMENT
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 132 TO 133
Change of control
The Longmartin joint venture and a number of debt financing
agreements 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.
2016 annual general meeting
The 2016 AGM will include 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.
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.
By Order of the Board
penny thomas
Company Secretary
24 November 2015
Employment and environmental matters
SEE NOMINATION COMMITTEE REPORT ON PAGES 76 TO 77 AND SUSTAINABILITY REPORT
ON PAGES 146 TO 155
Greenhouse Gas Reporting
The Group’s carbon emissions are immaterial. However, in
compliance with legislation, they are set out in the sustainability
report on pages 147 to 148.
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 104
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
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.
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 70 to 71 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 68 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.
105
materiality
• Overall Group materiality: £30.8
million which represents 1% of total
assets.
• Specific Group materiality: £3.4
million which represents 5% of
profit before tax excluding
investment property valuation
movements and net finance costs.
The specific Group materiality has
been applied to certain revenue
and expense line items and related
working capital balances.
Audit scope
• The Group audit team carries out
the statutory audits of all
components within the Group and
the consolidation.
Area of focus
• Valuation of investment properties.
Independent
auditors’ report
To the members
of Shaftesbury PLC
Report on the financial statements
Our audit approach
Overview
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 2015 and of the Group’s profit and
the Group’s and the Company’s cash flows for the year then
ended;
materiality
• the Group financial statements have been properly prepared in
accordance with International Financial Reporting Standards
(“IFRSs”) as adopted by the European Union;
Audit scope
Areas
of focus
• the Company financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union
and as applied in accordance with the provisions of the
Companies Act 2006; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the IAS
Regulation.
What we have audited
The financial statements, included within the Annual Report,
comprise:
• the Group and Company Balance Sheets as at 30 September 2015;
• 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 was evidence of bias
by the directors that represented 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 that follows. We have
also set out how we tailored our audit to address this specific
area in order to provide an opinion on the financial statements as
a whole, and any comments we make on the results of our
procedures should be read in this context. This is not a complete
list of all risks identified by our audit.
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
106
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
iNDEpENDENt AuDitORS’ REpORt CONTINUED
AREA OF FOCUS
Valuation of investment properties
Refer to pages 78 to 81 (Audit Committee Report), pages 125 to 126
(Notes to the financial statements – note 12) and pages 115 to 121
(Significant Accounting Policies).
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 Group’s investment properties were held at £2,908.0m as
at 30 September 2015 with a gain in revaluation of investment
property of £432.0m (2014 as restated: £394.0m). In addition, the
Group financial statements reflect £215.0m of investment properties
representing the Group’s 50% share of its joint venture and a gain in
revaluation of these properties of £34.6m (2014: £32.4m).
The valuations are carried out by third party valuers in accordance with
the RICS Valuation - Professional Standards and IFRS 13. A summary of
the third party valuer’s report covering the wholly-owned portfolio
can be found on pages 144 to 145 of the Annual Report.
The Group’s investment properties are carried at fair value using a
market approach. There are significant judgements and estimates to
be made in relation to the valuation of the Group’s investment
properties. Where available, the valuations take into account 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. Where
the Group owns a significant number of properties in close proximity,
these valuations are performed on a lotted basis (as allowed by the
provisions of the RICS Valuation – Professional Standards). This
reflects the manner considered most likely to be adopted in the case
of an actual sale and reflects that a potential purchaser could
capitalise on the estate management advantages and opportunities
available from the comprehensive ownership.
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.
The most significant judgements and estimates affecting the
valuations included assumptions regarding yield movements and
estimated rental value (“ERV”) growth, both of which have moved
favourably reflecting the buoyancy of the central London property
market. We focused our work on these key judgements as well as on
the robustness of the valuation process in general.
The existence of significant estimation uncertainty, coupled with the
fact that only a small percentage difference in individual property
valuations when aggregated could result in a material misstatement,
is why we gave specific audit focus and attention to this area.
HOW OUR AUDIT ADDRESSED THE AREA OF FOCUS
The valuers used by the Group, DTZ, for the wholly-owned portfolio
and Knight Frank for the joint venture portfolio, 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. Based on this work, we
were satisfied that the firms remain independent and competent, and
that the scope of their work was appropriate.
We agreed the data inputs underpinning the investment property
valuation for a sample of properties, including rental income,
acquisitions and capital expenditure, by agreeing them to the
underlying property records held by the Group to assess the
reliability, completeness and accuracy of the underlying data. The
underlying property records were assessed for reliability by reviewing
signed and approved lease contracts or sale/purchase contracts and
by reviewing approved third party invoices. All leases and contracts
are held by independent lawyers.
We met with the external valuers independently of management and
obtained the valuation reports to discuss and challenge the
assumptions used and the reasons behind the significant movements
in the valuations. These related primarily to yield compression and
ERV growth.
We involved our internal valuation specialists to compare the
valuations of each property 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. Generally,
we found the assumptions and valuations to be in line with our
expectations. Where assumptions did not fall within our expected
range, we assessed whether additional evidence presented in arriving
at the final valuations was appropriate. Variances were predominantly
due to rent reviews or new lettings at higher rents or movements in
ERV and yield to reflect market transactions in close proximity. We
verified the movements to supporting documentation.
We discussed the upward movements in the valuation with the
Directors and Audit Committee and found they were able to provide
explanations and refer to appropriate supporting evidence.
How we tailored the audit scope
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 seven statutory entities. The Group financial statements
are a consolidation of the seven entities, the parent company
and two holding companies, and include the Group’s joint venture
on an equity accounting basis.
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. Entities
holding investment properties (including the joint venture) were
considered relevant due to the significant judgement around the
investment property valuation. Holding companies were
considered relevant due to third party borrowings which are
material in size and nature. 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.
iNDEpENDENt AuDitORS’ REpORt CONTINUED
107
Materiality
The scope of our audit was 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 on the individual financial
statement line items and disclosures. It also helped in evaluating
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 follows:
Overall Group
materiality
How we
determined it
Specific
materiality
How we
determined it
Rationale for
benchmarks
applied
£30.8 million (2014: £22.0 million)
1% of total assets
£3.4 million (2014: £3.3 million)
Consistent with last year, 5% of profit before
tax before net finance costs and investment
property valuation movements
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 to
evaluate certain revenue and expense line
items and related working capital balances
We agreed with the Audit Committee that we would report to
them misstatements identified during our audit above £1.5 million
(2014: £1.1 million) for financial statement line items where overall
materiality applied and £170,000 (2014: £165,000) for line items
where specific materiality applied as well as misstatements
below these amounts that, in our view, warranted reporting for
qualitative reasons.
Going concern
Under the Listing Rules we are required to review the directors’
statement, set out on page 114, in relation to going concern. We have
nothing to report having performed our review.
Under ISAs (UK & Ireland) we are also required to report to you if we
have anything material to add or to draw attention to in relation to the
directors’ statement about whether they considered it appropriate to
adopt the going concern basis in preparing the financial statements.
We have nothing material to add or to draw attention to.
As noted in the directors’ statement, the directors have concluded
that it is appropriate to adopt the going concern basis in preparing
the financial statements. 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 75 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
- otherwise misleading.
We have no exceptions to report.
• the statement given by the directors on page 104, 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.
• the section of the Annual Report on pages 78 to 81, 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.
The directors’ assessment of the prospects of
the Group and of the principal risks that would
threaten the solvency or liquidity of the Group
Under ISAs (UK & Ireland) we are required to report to you if we have
anything material to add or to draw attention to in relation to:
• the directors’ confirmation in the Annual Report, in accordance
with Provision C.2.1 of the Code, that they have carried out a
robust assessment of the principal risks facing the Group,
including those that would threaten its business model, future
performance, solvency or liquidity.
We have nothing material to add or to draw attention to.
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE 108
SHAFTESBURY ANNUAL REPORT 2015 GOVERNANCE
iNDEpENDENt AuDitORS’ REpORt CONTINUED
• the disclosures in the Annual Report that describe those risks
and explain how they are being managed or mitigated.
We have nothing material to add or to draw attention to.
Responsibilities for the financial
statements and the audit
• the directors’ explanation in the Annual Report, in accordance with
Provision C.2.2 of the Code, as to how they have assessed the
prospects of the Group, over what period they have done so and
why they consider that period to be appropriate, and their
statement as to whether they have a reasonable expectation that
the Group will be able to continue in operation and meet its
liabilities as they fall due over the period of their assessment,
including any related disclosures drawing attention to any necessary
qualifications or assumptions.
We have nothing material to add or to draw attention to.
Under the Listing Rules we are required to review the directors’
statement that they have carried out a robust assessment of the
principal risks facing the Group and the directors’ statement in
relation to the longer-term viability of the Group, set out on
pages 59 to 66. Our review was substantially less in scope than an
audit and only consisted of making inquiries and considering the
directors’ process supporting their statements; checking that the
statements are in alignment with the relevant provisions of the
Code; and considering whether the statements are consistent
with the knowledge acquired by us in the course of performing
our audit. We have nothing to report having performed our
review.
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 ten further
provisions of the Code. We have nothing to report having
performed our review.
Our responsibilities and those of the directors
As explained more fully in the Directors’ Responsibilities
Statement set out on page 104, 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.
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
24 November 2015
SHAFTESBURY ANNUAL REPORT 2015
109
Financial
statements
Group statement of
comprehensive income 110
Balance sheets 111
Cash flow statements 112
Statements of changes in equity 113
Notes to the financial statements 114
110
Group statement of comprehensive income
For the year ended 30 September 2015
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 surplus on revaluation of investment properties
Operating profit
Finance income
Finance costs
Change in fair value of derivative financial instruments
Net finance costs
Share of post-tax profit from joint venture
Profit before tax
Tax charge for the year
Profit and total comprehensive income for the year
Earnings per share:
Basic
Diluted
EPRA
Please see page 156 for an explanation of the EPRA measures used in these financial statements.
NOTES
4
5
7
12
6
8
20
14
9
10
2015
£M
98.7
(19.9)
78.8
(8.8)
(2.2)
(3.0)
(14.0)
64.8
432.0
496.8
0.1
(30.8)
(28.5)
(59.2)
29.7
467.3
-
467.3
AS RESTATED
2014
£M
91.2
(17.1)
74.1
(8.0)
(2.6)
(3.2)
(13.8)
60.3
394.0
454.3
0.1
(29.6)
(12.0)
(41.5)
27.6
440.4
-
440.4
168.0p
167.4p
13.0p
165.2p
164.6p
12.2p
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 111
2014
£M
-
-
59.0
1.6
-
786.0
846.6
COMPANY
2015
£M
-
-
59.0
1.5
-
997.9
Balance sheets
As at 30 September 2015
GROUP
AS RESTATED
2014
£M
2015
£M
AS RESTATED
2013
£M
NOTES
Non-current assets
Investment properties
Accrued income
Investment in joint venture
Property, plant and equipment
Other receivables
Investment in subsidiaries
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
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
12
13
14
17
15
16
17
18
19
20
22
23
23
23
24
2,908.0
2,425.5
1,901.4
9.5
129.6
1.5
3.7
-
7.5
101.5
1.6
1.5
-
6.2
76.6
0.6
-
-
3,052.3
2,537.6
1,984.8
1,058.4
21.7
7.7
21.4
3.4
17.4
0.5
118.2
425.0
- -
3,081.7
2,562.4
2,002.7
1,176.6
1,271.6
36.8
36.7
30.5
6.8
8.9
640.3
79.2
756.3
553.7
78.8
669.2
545.7
95.8
672.0
267.9
79.2
353.9
429.9
78.8
517.6
2,325.4
1,893.2
1,330.7
822.7
754.0
69.6
124.7
4.0
624.4
822.7
69.5
124.6
4.0
555.9
754.0
69.6
124.7
4.0
2,127.1
2,325.4
£8.36
£8.32
£8.69
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 110 to 139 on 24 November 2015.
Brian Bickell
Chief Executive
Christopher Ward
Finance Director
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS
112
Cash flow statements
For the year ended 30 September 2015
Cash flows from operating activities
Cash generated from operating activities
Interest received
Interest 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 borrowings
Proceeds from secured term loans
Increase in cash held in restricted accounts and deposits
Facility arrangement costs
Termination of derivative financial instruments
Equity dividends paid
Decrease in loans to subsidiaries
Decrease/(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
GROUP
2015
£M
AS RESTATED
2014
£M
67.4
0.1
(30.1)
37.4
(25.8)
(25.1)
(0.3)
1.6
(49.6)
-
0.1
(160.9)
250.0
(2.2)
(3.4)
(28.1)
(39.5)
-
0.5
16.5
4.3
3.4
7.7
64.6
0.1
(27.5)
37.2
(105.8)
(23.8)
(1.4)
2.7
(128.3)
153.2
-
(123.6)
134.8
(1.5)
(4.2)
(29.0)
(33.8)
-
(1.9)
94.0
2.9
0.5
3.4
COMPANY
2015
£M
(11.2)
0.1
(21.1)
(32.2)
-
-
(0.3)
1.6
1.3
-
0.1
2014
£M
(9.2)
-
(26.3)
(35.5)
-
-
(1.4)
2.7
1.3
153.2
-
(162.8)
(122.8)
-
-
-
(28.1)
(39.5)
260.7
0.5
30.9
-
-
-
-
-
(2.2)
(29.0)
(33.8)
70.7
(1.9)
34.2
-
-
-
NOTES
25
26
26
17
26
20
11
17
17
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS Statements of changes in equity
For the year ended 30 September 2015
113
SHARE
CAPITAL
£M
MERGER
RESERVE
£M
SHARE
PREMIUM
£M
NOTES
SHARE
BASED
PAYMENTS
RESERVE
£M
RETAINED
EARNINGS
£M
TOTAL
EQUITY
£M
Group
At 1 October 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
Transaction 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
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 2015
Company
At 1 October 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
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 2015
11
22
22
7
11
22
7
11
22
22
7
11
22
7
63.1
-
-
-
-
-
6.3
150.3
-
-
0.1
-
-
69.5
-
-
0.1
-
-
69.6
63.1
-
-
(150.3)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6.3
150.3
-
-
0.1
-
-
69.5
-
-
0.1
-
-
69.6
(150.3)
-
-
-
-
-
-
-
-
-
-
-
124.3
3.0
1,140.3
1,330.7
-
-
-
-
-
0.3
-
-
-
-
-
-
-
-
2.7
(1.7)
440.4
440.4
(33.9)
-
150.3
(3.4)
(0.3)
-
1.7
(33.9)
156.6
-
(3.4)
0.1
2.7
-
124.6
4.0
1,695.1
1,893.2
-
-
0.1
-
-
124.7
-
-
-
2.2
(2.2)
4.0
467.3
467.3
(37.5)
(37.5)
-
-
2.2
0.2
2.2
-
2,127.1
2,325.4
124.3
3.0
423.3
-
-
-
-
-
0.3
-
-
124.6
-
-
0.1
-
-
124.7
-
-
-
-
-
-
2.7
(1.7)
4.0
-
-
-
2.2
(2.2)
4.0
613.7
18.2
(33.9)
156.6
-
(3.4)
0.1
2.7
-
754.0
103.8
18.2
(33.9)
-
150.3
(3.4)
(0.3)
-
1.7
555.9
103.8
(37.5)
(37.5)
-
-
2.2
0.2
2.2
-
624.4
822.7
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 114
Notes to the financial statements
For the year ended 30 September 2015
1. General information
General information
The consolidated financial statements of the Group for the year ended 30 September 2015 (presented in pounds sterling) were
approved by the Board for issue on 24 November 2015.
The nature of the Group’s operations and its principal activities are set out in the Strategic Report on pages 8 to 34.
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 71.
Basis of preparation
These financial statements have been prepared in accordance with IFRS as adopted by the European Union, IFRS Interpretations
Committee (IFRIC) 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 £103.8 million (2014: £18.2 million) in the year.
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 8 to 34. The financial position of the Group including cash flow, liquidity, borrowings, undrawn
facilities and debt maturity analysis is set out on pages 52 to 56. 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.
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, as the basis for the fair value of
its investment properties. Knight Frank LLP value the investment properties owned by the Longmartin Joint Venture.
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 142 to 143. 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.
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
115
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 ending
30 September 2015:
STANDARD OR INTERPRETATION
IFRS 10 Consolidated financial statements
IFRS 11 Joint arrangements
IFRS 12 Disclosure of interests in other entities
IAS 27 (revised 2011) Separate financial statements
Amendments to IFRS 10,11 and 12 on transition guidance
Amendments to IFRS 10, 12 and IAS 27 on consolidation for investment entities
IAS 28 (revised 2011) Associates and joint ventures
Amendments to IAS 32 Financial instruments asset and liability offsetting
Amendment to IAS 36 Impairment of assets on recoverable amount disclosures
Amendment to IAS 39 Financial instruments: Recognition and measurement,
on novation of derivatives and hedge accounting
EFFECTIVE FROM
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
1 January 2014
The only new standard or amendment to have a material impact on the Group is IFRS 11 Joint arrangements.
IFRS 11 Joint arrangements - IAS 31, Interests in Joint Ventures has been replaced by IFRS 11 Joint arrangements. The Group has joint
control over Longmartin Properties Limited by virtue of its 50% share in the equity shares of the company and requirement for
unanimous consent by both parties over decisions related to the relevant activities of the arrangement. As a result the Group has
assessed Longmartin Properties Limited to be a joint venture under IFRS 11.
Under IAS 31 the Group accounted for its share of its joint venture’s results and balance sheet using proportional consolidation. IFRS 11
precludes the use of proportional consolidation, with equity accounting being the only permitted option. The Group’s net interest in
its joint venture is now disclosed as a single line item in both the Group Statement of Comprehensive Income and Group Balance
Sheet. Accompanied by this the Group Cash Flow Statement excludes cash flows generated by the joint venture but now includes
loans received/(advanced) and dividends received in separate line items.
The impact on the Group Statement of Comprehensive Income and the Group Balance Sheet is purely presentational and does not
affect the Group’s reported net assets nor profit after tax. Cash and cash equivalents in the Group Cash Flow Statement are reduced
by the Group’s share of cash held in the joint venture.
As the impact of the transition to IFRS 11 has a material impact on the presentation of the Group’s financial statements the prior year
figures have been restated. The tables below show the impact of the change in accounting policy on the Group Statement of
Comprehensive Income, the Group Balance Sheet and Group Cash Flow Statement.
Apart from IFRS 11, no material changes to accounting policies arose as a result of these new standards and amendments.
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 116
2. Accounting policies continued
Impact on Group Statement of Comprehensive Income
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 surplus on revaluation of investment properties
Operating profit
Finance income
Finance costs
Change in fair value of derivative financial instruments
Net finance costs
Share of post-tax profit from joint venture
Profit before tax
Tax charge for the year
Profit and total comprehensive income for the year
Impact on Group Balance Sheet
30 SEPTEMBER 2014
Non-current assets
Investment properties
Accrued income
Investment in joint venture
Property, plant and equipment
Other receivables*
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
AS PREVIOUSLY
STATED
YEAR ENDED
30.9.2014
£M
IFRS 11
ADJUSTMENTS
£M
AS RESTATED
YEAR
ENDED
30.9.2014
£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
(6.9)
440.4
(7.0)
1.4
(5.6)
0.2
-
-
0.2
(5.4)
(32.4)
(37.8)
0.1
3.2
-
3.3
27.6
(6.9)
6.9
-
91.2
(17.1)
74.1
(8.0)
(2.6)
(3.2)
(13.8)
60.3
394.0
454.3
0.1
(29.6)
(12.0)
(41.5)
27.6
440.4
-
440.4
AS PREVIOUSLY
STATED
30.9.2014
£M
IFRS 11
ADJUSTMENTS
£M
AS RESTATED
30.9.2014
£M
2,605.1
10.3
-
1.6
-
(179.6)
(2.8)
101.5
-
1.5
2,425.5
7.5
101.5
1.6
1.5
2,617.0
(79.4)
2,537.6
21.2
7.7
0.2
(4.3)
21.4
3.4
2,645.9
(83.5)
2,562.4
39.8
(3.1)
36.7
618.4
78.8
15.7
752.7
(64.7)
-
(15.7)
(83.5)
553.7
78.8
-
669.2
Net assets
1,893.2
-
1,893.2
*Adjustment relates to the reclassification of cash held on deposit, see note 17 for further details.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
117
AS PREVIOUSLY
STATED
30.9.2013
£M
IFRS 11
ADJUSTMENTS
£M
AS RESTATED
30.9.2013
£M
2,046.6
(145.2)
1,901.4
9.3
-
0.6
(3.1)
76.6
-
6.2
76.6
0.6
2,056.5
(71.7)
1,984.8
19.7
5.7
(2.3)
(5.2)
17.4
0.5
2,081.9
(79.2)
2,002.7
35.8
(5.3)
30.5
610.5
95.8
9.1
751.2
(64.8)
-
(9.1)
545.7
95.8
-
(79.2)
672.0
30 SEPTEMBER 2013
Non-current assets
Investment properties
Accrued income
Investment in joint venture
Property, plant and equipment
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
1,330.7
-
1,330.7
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 118
2. Accounting policies continued
Impact on Group Cash Flow Statement
Cash flows from operating activities
Cash generated from operating activities
Interest received
Interest paid
Corporation tax
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
Repayment of borrowings
Proceeds from secured term loan
Increase in cash held in restricted accounts and deposits*
Facility arrangement costs
Termination of derivative financial instrument
Payment of head lease liabilities
Equity dividends paid
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
AS PREVIOUSLY
STATED
YEAR ENDED
30.9.2014
£M
IFRS 11
ADJUSTMENTS
£M
AS RESTATED
YEAR ENDED
30.9.2014
£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
(6.8)
0.1
2.8
0.3
(3.6)
2.2
2.5
-
2.7
7.4
-
-
-
(1.5)
-
-
0.5
-
(1.9)
(2.9)
0.9
(5.2)
(4.3)
64.6
0.1
(27.5)
-
37.2
(105.8)
(23.8)
(1.4)
2.7
(128.3)
153.2
(123.6)
134.8
(1.5)
(4.2)
(29.0)
-
(33.8)
(1.9)
94.0
2.9
0.5
3.4
*Adjustment relates to the reclassification of cash held on deposit, see note 17 for further details.
b) The following Annual Improvements that are relevant to the Group are not yet effective in the year ending 30 September 2015 and
are not expected to have a significant impact on the Group’s financial statements:
STANDARD OR INTERPRETATION
Annual Improvements 2011-2013
EFFECTIVE FROM
1 January 2015
c) There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on
the Group.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
119
2. Accounting policies continued
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 and net assets of its joint venture, prepared up to the Balance Sheet date.
Subsidiaries
Subsidiaries are those entities controlled by the Company. Control exists where the Company has the power, directly or indirectly, to
direct the financial and operating activities of an entity so as to obtain benefits from its activities.
All intercompany transactions and balances are eliminated on consolidation. The accounting policies of the subsidiaries are consistent
with those adopted by the Group.
In the Company’s Balance Sheet, investments in subsidiaries are included at cost less any provision in respect of permanent impairment loss.
Joint ventures
Joint ventures are those entities over which the Group has joint control, established by contractual agreement. Investments in joint
ventures are accounted for using the equity method. On initial recognition the investment is recognised at cost, and the carrying
amount is subsequently increased or decreased to recognise the Group’s share of the profit or loss and dividends of the joint venture
after the date of acquisition. The Group’s investment in joint ventures is presented separately on the Balance Sheet and the Group’s
share of the joint venture’s post-tax profit or loss for the year is also presented separately in the Statement of Comprehensive Income.
Where there is an indication that the Group’s investment in joint ventures may be impaired the Group evaluates the recoverable
amount of its investment, being the higher of the joint venture’s fair value less costs to sell and value in use. If the recoverable amount
is lower than the carrying value an impairment loss is recognised in the Statement of Comprehensive Income.
If the Group’s share of losses in a joint venture equals or exceeds its investment in the joint venture, the Group does not recognise
further losses, unless it has legal or constructive obligations to make payments on behalf of the joint venture.
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 finance 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 finance 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.
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 120
2. Accounting policies continued
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.
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.
Cash which is held on deposit that has certain conditions restricting its use is assessed to determine whether it meets the IFRS
criteria of cash and cash equivalents. Where it does not meet the definition of being available on demand, liquid or readily convertible,
it is classified as other receivables.
Share capital
Share capital is 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.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
121
2. Accounting policies continued
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 29. The fair value is charged on a
straight-line basis over the vesting period. No adjustment is made to the original estimate for market based conditions after the
date of grant regardless of whether the options vest or not.
The amount charged in the Statement of Comprehensive Income is credited to the share based payments reserve. Following the
exercise of share options, the charges previously recognised in respect of these options are released from the share based
payments reserve to retained earnings.
(ii) Pension contributions
Payments to defined contribution plans are charged as an expense to the Statement of Comprehensive Income as they fall due.
Leases
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.
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 a
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.
4. Revenue
Rents receivable
Recoverable property expenses
Rents receivable includes lease incentives recognised of £2.4 million (2014 as restated £1.6 million).
2015
£M
91.8
6.9
98.7
AS RESTATED
2014
£M
85.3
5.9
91.2
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 122
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. 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
AUDITOR 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
2015
£M
6.1
2.1
3.0
1.8
13.0
6.9
19.9
2015
£M
(0.4)
0.4
0.4
AS RESTATED
2014
£M
4.8
1.9
3.1
1.4
11.2
5.9
17.1
AS RESTATED
2014
£M
(0.4)
0.4
0.4
2015
£000
AS RESTATED
2014
£000
58
98
156
21
177
39
39
78
-
78
255
56
93
149
20
169
32
69
101
7
108
277
Total fees related to taxation and other non-audit services represented 44% (2014: 64%) of the total fees for audit and assurance
services. 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.
EMPLOYEE COSTS (GROUP)
Wages and salaries
Annual bonuses (including social security costs)
Social security costs
Other pension costs
Equity settled remuneration (see note 7)
2015
£M
3.9
2.2
0.5
0.4
3.0
10.0
2014
£M
3.6
2.6
0.5
0.3
3.2
10.2
NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 6. Operating profit continued
AVERAGE MONTHLY NUMBER OF EMPLOYEES (GROUP)
Executive directors
Head office and property management
Estate management
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
123
2015
NUMBER
2014
NUMBER
4
18
1
23
4
17
2
23
A summary of directors’ emoluments, including the disclosures required by the Companies Act 2006, is set out in the Annual Remuneration
Report on pages 92 to 101.
7. 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
2015
£M
2.3
0.7
3.0
2014
£M
2.7
0.5
3.2
Included in the charge for share based remuneration is £2.2 million (2014: £2.7 million) for the fair value of share options.
A summary of the principal assumptions made at the last grant date are set out in note 29.
8. 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
2015
£M
5.0
15.6
0.8
0.2
9.2
30.8
AS RESTATED
2014
£M
5.0
11.2
0.8
0.3
12.3
29.6
9. Tax charge for the year
The Group’s wholly-owned business is subject to taxation as a REIT. Under the REIT regime, income from its rental business (calculated
by reference to tax rather than accounting rules) and chargeable gains from the sale of its investment properties are exempt from
corporation tax.
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 124
10. Earnings per share
The calculations below are in accordance with the EPRA Best Practice Recommendations.
2015
WEIGHTED
AVERAGE
NUMBER OF
ORDINARY
SHARES
MILLION
EARNINGS
PER SHARE
PENCE
278.1
168.0
AS RESTATED
2014
WEIGHTED
AVERAGE
NUMBER OF
ORDINARY
SHARES
MILLION
EARNINGS
PER SHARE
PENCE
266.6
165.2
PROFIT
AFTER
TAX
£M
440.4
(155.3)
(394.0)
(12.4)
(32.4)
10.2
12.0
2.5
13.0
167.4
6.6
32.6
440.4
266.6
267.6
(147.8)
(12.2)
4.5
2.5
12.2
164.6
278.1
279.2
PROFIT
AFTER
TAX
£M
467.3
(432.0)
(34.6)
28.5
6.9
36.1
467.3
Basic
EPRA adjustments:
Investment property valuation movements –
wholly-owned portfolio
Investment property valuation movements –
joint venture
Movement in fair value of derivative financial
instruments
Deferred tax on property valuations and capital
allowances – joint venture
EPRA
Diluted
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.
11. Dividends paid
Final dividend paid in respect of:
Year ended 30 September 2014 at 6.60p per share
Year ended 30 September 2013 at 6.25p per share
Interim dividend paid in respect of:
Six months ended 31 March 2015 at 6.825p per share
Six months ended 31 March 2014 at 6.50p per share
Dividends for the year
Timing difference on payment of withholding tax
Dividends cash paid
2015
£M
18.5
-
19.0
-
37.5
2.0
39.5
2014
£M
-
15.9
-
18.0
33.9
(0.1)
33.8
A final dividend of 6.925p per share was recommended by the Board on 24 November 2015. Subject to approval by shareholders at
the 2016 AGM, the final dividend will be paid on 12 February 2016 to shareholders on the register at 22 January 2016. The dividend will
be paid entirely as an ordinary dividend. The dividend totalling £19.3 million will be accounted for as an appropriation of revenue
reserves in the year ending 30 September 2016.
The trustee of the Company’s Employee Benefit Trust waived dividends in respect of 439,250 (2014: 497,891) ordinary shares during
the year.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 12. Investment properties
Property reconciliation
At 1 October
Acquisitions
Refurbishment and other capital expenditure
Net surplus on revaluation of investment properties
Book value at 30 September
Fair value at 30 September:
Properties valued by DTZ Debenham Tie Leung Limited
Less: Lease incentives recognised to date (note 13)
Book value at 30 September
The investment properties valuation comprises:
Freehold properties
Leasehold properties
External valuers
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
125
2015
£M
AS RESTATED
2014
£M
2,425.5
1,901.4
25.8
24.7
432.0
105.7
24.4
394.0
2,908.0
2,425.5
2,919.5
2,434.6
(11.5)
(9.1)
2,908.0
2,425.5
2015
£M
AS RESTATED
2014
£M
2,691.4
2,238.6
228.1
196.0
2,919.5
2,434.6
Investment properties were subject to external valuation as at 30 September 2015 by qualified professional valuers, being members of
the Royal Institution of Chartered Surveyors, working for DTZ Debenham Tie Leung Limited, Chartered Surveyors, 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 Standards - Professional
Standards 2014 and IFRS 13. When considering the highest and best use a valuer considers its actual and potential uses which are physically,
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 pages 79 to 80.
A summary of the DTZ Debenham Tie Leung Limited report can be found on pages 144 to 145.
External valuation fees
Annual and half year valuations
Bank security valuations
2015
£M
0.3
0.4
0.7
2014
£M
0.3
0.2
0.5
Fees were agreed at fixed amounts in advance of the valuations being carried out. DTZ Debenham Tie Leung Limited was not engaged
by the Group in any capacity other than as valuers during the year. The fees payable by the Group to the valuer do not constitute a
significant part of their fee income.
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 126
12. Investment properties continued
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 current rental income, market comparatives, occupancy and timing of 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 142 to 143.
Sensitivity analysis
As noted in the critical judgements, assumptions and estimates section of note 1 on page 114, the valuation of the Group’s property
portfolio is inherently subjective. As a result, the valuations the Group places on its property portfolio are subject to a degree of
uncertainty and are made on the basis of assumptions which may not prove to be accurate, particularly in periods of volatility or low
transaction flow in the commercial property market.
The Group’s properties are all located in the West End 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 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
CHANGE IN ERV
CHANGE IN
EQUIVALENT YIELDS
+5.0%
£M
134.3
-5.0%
£M
(129.0)
+0.25%
£M
(191.8)
-0.25%
£M
220.0
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.
At 30 September 2015, the Group had capital commitments of £16.4 million (2014 as restated £15.0 million).
13. Accrued income
Accrued income in respect of lease incentives recognised to date
Less: included in trade and other receivables (note 16)
2015
£M
11.5
(2.0)
9.5
AS RESTATED
2014
£M
9.1
(1.6)
7.5
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 years.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS
14. Investment in joint venture
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
127
Group
At 1 October
Share of profits
Dividends received
Book value 30 September
Company
Shares at cost
1 October and 30 September
2015
£M
101.5
29.7
(1.6)
129.6
2015
£M
2014
£M
76.6
27.6
(2.7)
101.5
2014
£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 71.
Control of Longmartin Properties Limited is shared equally with The Mercers’ Company, which owns 50% of its issued share capital.
The summarised Statement of Comprehensive Income and Balance Sheet are presented 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 surplus 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
2015
£M
13.4
1.6
15.0
(1.6)
(1.6)
(3.2)
11.8
(0.6)
11.2
69.2
80.4
(6.6)
73.8
(0.6)
(13.8)
(14.4)
59.4
2014
£M
12.6
1.4
14.0
(1.4)
(1.4)
(2.8)
11.2
(0.6)
10.6
64.8
75.4
(6.4)
69.0
(0.6)
(13.2)
(13.8)
55.2
Profit attributable to the Group
29.7
27.6
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 128
14. Investment in joint venture continued
Balance Sheet
Non-current assets
Investment properties at book value
Accrued income
Cash and cash equivalents
Current assets
Total assets
Current liabilities
Non-current liabilities
Secured term loan
Other non-current liabilities
Total liabilities
Net assets
Net assets attributable to the Group
15. Investment in subsidiaries
Shares in Group undertakings
At 1 October
Additional share capital issued by subsidiary
At 30 September
2015
£M
2014
£M
430.0
4.4
434.4
5.9
3.5
359.2
5.6
364.8
5.7
3.3
443.8
373.8
9.8
10.0
120.0
54.8
184.6
259.2
120.0
40.8
170.8
203.0
129.6
101.5
2015
£M
786.0
211.9
997.9
2014
£M
626.0
160.0
786.0
During the year Shaftesbury AV Investment Limited, a wholly-owned subsidiary of the Company, issued 211.9 million ordinary shares of
£1 each to the Company at par value.
The full list of the Company’s subsidiary undertakings is presented below. Except where indicated otherwise, the Company owns,
directly, all of the ordinary issued share capital:
Carnaby Estate Holdings Limited
Carnaby Investments Limited
Carnaby Property Investments Limited*
Charlotte Street Estate Holdings Limited
Chinatown Estate Holdings Limited
Chinatown Property Investments Limited*
Covent Garden Estate Holdings Limited
Covent Garden Property Investments Limited*
Shaftesbury AV Investment Limited
Shaftesbury AV Limited*
Shaftesbury Carnaby Limited
Shaftesbury Charlotte Street Limited
Shaftesbury Chinatown Limited
Shaftesbury CL Investment Limited
Shaftesbury CL Limited*
Shaftesbury Covent Garden Limited
Shaftesbury Investments 1 Limited
Shaftesbury Investments 2 Limited
Shaftesbury Investments 4 Limited
Shaftesbury Investments 5 Limited
Shaftesbury Investments 6 Limited
Shaftesbury Investments 7 Limited
Shaftesbury Investments 8 Limited
Shaftesbury Investments 9 Limited
Shaftesbury Investments 10 Limited
Shaftesbury Soho Limited
* The share capital of these subsidiaries are held by other Group companies.
All of the companies are either engaged in property investment or dormant. They are incorporated in Great Britain and are registered
in England and Wales.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
129
16. Trade and other receivables
Amounts due from tenants
Provision for doubtful debts
Accrued income in respect of lease incentives (note 13)
Amounts due from subsidiaries
Amounts due from joint venture
Other receivables and prepayments
GROUP
COMPANY
2015
£M
11.3
(0.6)
10.7
2.0
-
1.4
7.6
21.7
AS RESTATED
2014
£M
2015
£M
2014
£M
11.5
(0.4)
11.1
1.6
-
1.9
6.8
21.4
-
-
-
-
116.1
1.4
0.7
118.2
-
-
-
-
422.4
1.9
0.7
425.0
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 at 30 September 2015, amounts due
from tenants which were more than 90 days overdue, relating to accommodation and services provided up to 28 September 2015,
totalled £1.9 million (2014: £1.0 million) and are considered to be past due. Provisions against these overdue amounts totalled £0.5
million (2014: £0.3 million). The remaining balance is not considered to be impaired.
At 30 September 2015, cash deposits totalling £17.4 million (2014 as restated £15.1 million) were held against tenants’ rent payment
obligations. The deposits are held in bank accounts administered by the Group’s managing agents.
17. Cash and cash equivalents
Cash and cash equivalents at 30 September 2015 were £7.7 million (2014 as restated £3.4 million).
Other receivables of £3.7 million at 30 September 2015 relates to cash held 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. £1.5 million of cash and cash equivalents in the prior year has been reclassified to other receivables to reflect
this presentational change.
18. Trade and other payables
Rents and service charges invoiced in advance
Trade payables and accruals in respect of capital expenditure
Other payables and accruals
GROUP
COMPANY
2015
£M
20.7
1.9
14.2
36.8
AS RESTATED
2014
£M
18.9
2.3
15.5
36.7
2015
£M
-
-
6.8
6.8
2014
£M
-
-
8.9
8.9
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 130
19. Borrowings
Group
Debenture Stock
Secured bank loans
Secured term loans
Debenture and secured loans
Company
Debenture Stock
Secured bank loans
Debenture and bank borrowings
Net debt (Group)
Nominal borrowings - gross
Cash balances set-off against certain borrowings
Cash and cash equivalents (note 17)
2015
UNAMORTISED
PREMIUM
AND ISSUE
COSTS
£M
NOMINAL
VALUE
£M
61.0
199.7
384.8
645.5
61.0
207.0
268.0
2.2
(2.3)
(5.1)
(5.2)
2.2
(2.3)
(0.1)
AS RESTATED
2014
UNAMORTISED
PREMIUM
AND ISSUE
COSTS
£M
NOMINAL
VALUE
£M
61.0
360.6
134.8
556.4
61.0
369.8
430.8
2.3
(3.2)
(1.8)
(2.7)
2.3
(3.2)
(0.9)
BOOK
VALUE
£M
63.3
357.4
133.0
553.7
63.3
366.6
429.9
BOOK
VALUE
£M
63.2
197.4
379.7
640.3
63.2
204.7
267.9
2015
£M
652.8
(7.3)
645.5
(7.7)
637.8
AS RESTATED
2014
£M
565.5
(9.1)
556.4
(3.4)
553.0
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. Two 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. Additionally, the two shareholders of their subsidiaries have granted a charge over the
shares in these companies.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
131
19. Borrowings continued
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
2015 FACILITIES
AS RESTATED
2014 FACILITIES
COMMITTED
£M
UNDRAWN
£M
COMMITTED
£M
UNDRAWN
£M
-
275.0
136.0
384.8
795.8
-
150.3
-
-
150.3
150.0
150.0
261.0
134.8
695.8
50.0
58.3
31.1
-
139.4
Interest rate profile of interest bearing borrowings (Group)
Floating rate borrowings
LIBOR-linked loans (including margin)
Hedged borrowings
Interest rate swaps (including margin)
Total bank borrowings
Fixed rate borrowings
Secured term loans
8.5% First Mortgage Debenture Stock - book value
Weighted average cost of drawn borrowings
2015
AS RESTATED
2014
DEBT
£M
INTEREST
RATE
DEBT
£M
INTEREST
RATE
19.7
1.75%
110.6
1.66%
180.0
199.7
384.8
63.2
6.01%
5.59%
3.85%
7.93%
4.78%
250.0
360.6
134.8
63.3
6.06%
4.71%
4.47%
7.93%
5.02%
The Group also incurs non-utilisation fees on undrawn facilities. At 30 September 2015, the weighted average charge on the undrawn
facilities of £150.3 million (2014: £139.4 million) was 0.70% (2014: 0.46%).
At 30 September 2015, the weighted average credit margin on the Group’s current bank facilities was:
Drawn facilities
If facilities were fully drawn
2015
1.16%
1.35%
2014
1.11%
1.24%
The Group has in place interest rate swaps to hedge £180.0 million of floating rate bank debt, at fixed rates in the range 4.64% to
5.16%, with a weighted average rate at 30 September 2015 of 4.85%. The swaps, which are settled against three month LIBOR, expire
between August 2028 and November 2038. If mutual break or counterparty early termination options are exercised the weighted
average term is 4.1 years (2014: 4.9 years).
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 132
20. Financial instruments
CATEGORIES OF FINANCIAL INSTRUMENTS
Group
Interest rate swaps
Financial assets: receivables and cash and cash equivalents
Trade and other receivables (note 16)
Loan receivable from joint venture (note 16)
Other receivables (note 17)
Cash and cash equivalents (note 17)
Financial liabilities at amortised cost
Trade and other payables - due within one year (note 18)
Interest bearing borrowings (note 19)
Net financial instruments
Company
Interest rate swaps
Financial assets: loans and receivables
Loans receivable from subsidiaries (note 16)
Loan receivable from joint venture (note 16)
Financial liabilities at amortised cost
Trade and other payables - due within one year (note 18)
Interest bearing borrowings (note 19)
Net financial instruments
2015
BOOK
VALUE
£M
AS RESTATED
2014
BOOK
VALUE
£M
(79.2)
(78.8)
10.7
1.4
3.7
7.7
23.5
(16.1)
(640.3)
(656.4)
(712.1)
11.1
1.9
1.5
3.4
17.9
(17.8)
(553.7)
(571.5)
(632.4)
(79.2)
(78.8)
116.1
1.4
117.5
(6.8)
(267.9)
(274.7)
(236.4)
422.4
1.9
424.3
(8.9)
(429.9)
(438.8)
(93.3)
Other receivables relates to cash held on deposit, that have certain conditions restricting their use which are due between 2 May
2029 and 31 July 2035.
The Group’s trade and other payables are all due within one year (2014: all due within one year).
Fair value of derivative financial instruments (group and company)
Interest rate swaps
At 1 October - deficit
Swap contracts terminated
Fair value deficit charged to the Statement of Comprehensive Income
At 30 September - deficit
2015
£M
(78.8)
28.1
(28.5)
(79.2)
2014
£M
(95.8)
29.0
(12.0)
(78.8)
Changes in the fair value of the Group’s interest rate swaps, which are not held for speculative purposes, are reflected in the
Statement of Comprehensive Income as the Group has chosen not to adopt hedge accounting under the provisions of IAS 39
‘Financial Instruments: Recognition and Measurement’.
The extent to which the fair value deficit will crystallise will depend on the course of interest rates over the life of the swaps. The
weighted average maturity of the swaps at the Balance Sheet date is set out in note 19. During the year the Group terminated interest
rate swaps with a notional principal of £70.0 million at a cost of £28.1 million.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
133
20. Financial instruments continued
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 12
for definition). The swaps are valued by J.C Rathbone Associates Limited.
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 £39.1 million (2014 as
restated £22.3 million). The fair values have been calculated based on a discounted cash flow model using the relevant reference gilt
and appropriate market spread. The valuation technique falls within Level 2 of the fair value hierarchy (see note 12 for definition).
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 2 May 2029, 19 March 2030, and 31 July 2035.
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), 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 2015
Financial instruments
Interest rate swaps
Financial liabilities
Interest bearing borrowings:
Principal (note 19)
Interest
Total
30 SEPTEMBER 2014
Financial instruments
Interest rate swaps
Financial liabilities
Interest bearing borrowings:
Principal (note 19)
Interest
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
79.2
95.1
6.4
7.1
17.7
24.7
39.2
640.3
-
645.5
294.3
719.5
1,034.9
BOOK
VALUE
£M
CONTRACTUAL
CASH FLOWS
£M
-
23.5
29.9
<1
YEAR
£M
-
23.5
30.6
AS RESTATED
1-2
YEARS
£M
124.7
69.0
211.4
2-5
YEARS
£M
136.0
92.7
253.4
5-10
YEARS
£M
384.8
85.6
509.6
>10
YEARS
£M
78.8
96.7
9.1
8.8
19.6
26.0
33.2
553.7
-
632.5
556.4
164.4
817.5
-
17.2
26.3
100.0
17.2
126.0
91.8
46.3
157.7
229.8
56.1
311.9
134.8
27.6
195.6
The prior year figure for the book value of the interest rate swaps has been corrected by £1.3 million in the table above to amend a
disclosure inconsistency in the equivalent table in the 2014 Annual Report.
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 134
21. 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 16. 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. Financial instruments that
are neither past due nor impaired are expected to be fully recoverable.
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 34 and 56.
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 20.
Interest rate sensitivity
The sensitivity analysis below has been determined based on the exposure to interest rates on its unhedged LIBOR-linked borrowings
and a change in the long-term interest rates against which the fair value of swaps is calculated at the Balance Sheet date. It represents
the directors’ assessment of possible changes in interest rates and the potential impact on the Group’s results and equity.
MOVEMENT IN MARKET RATES
+0.5%
£M
+1.0%
£M
-0.5%
£M
(Increase)/decrease in finance costs before fair valuation of interest rate swaps
Decrease/(increase) in fair value deficit of interest rate swaps
Increase/(decrease) in profit and shareholders’ equity
(0.2)
35.6
35.4
(0.1)
17.8
17.7
0.1
(17.8)
(17.7)
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 19 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 34 and 56.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
135
22. Share capital
Allotted 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
2015
NUMBER
MILLION
2014
NUMBER
MILLION
277.9
0.3
-
278.2
252.3
0.3
25.3
277.9
2015
£M
69.5
0.1
-
69.6
2014
£M
63.1
0.1
6.3
69.5
The Company’s Articles of Association contain provisions which set out the circumstances in which shareholders can exercise control
over the issue of shares.
The following options to subscribe for ordinary shares granted to executive directors and employees under the Company’s share
option schemes were outstanding at 30 September 2015:
NUMBER
OF SHARES
UNDER
OPTION
OUTSTANDING
1.10.2014
DATE OF GRANT
Sharesave Scheme
AWARDED
EXERCISED
LAPSED
16,537
27,964
39,305
-
-
-
-
19,270
-
(16,687)
-
-
-
-
-
-
8.7.2011
5.7.2012
2.7.2014
3.7.2015
LTIP
7.12.2011
17.1.2012
6.12.2012*
20.12.2013
8.12.2014
525,660
65,800
570,862
462,500
-
-
-
-
-
416,450
(262,536)
(263,124)
(32,900)
(32,900)
-
-
-
(537)
570,325
-
-
462,500
416,450
1,708,628
435,720
(312,123)
(296,561)
1,535,664
NUMBER
OF SHARES
UNDER
OPTION
OUTSTANDING
30.9.2015
16,537
11,277
39,305
19,270
-
-
EXERCISABLE
30.9.2015
OPTION
EXERCISE
PRICE
EXERCISE
PERIOD
£4.29
£3.99
2016
2017
£5.38
2017-2019
£6.94
2018-2020
Nil cost
2014-2015
Nil cost
2015
Nil cost
2015-2016
Nil cost
2016-2017
Nil cost
2017-2018
-
-
-
-
-
-
-
-
-
-
* 362,156 options over ordinary shares will vest in December 2015, following satisfaction of performance targets in respect of the
three years ended 30 September 2015.
The weighted average remaining life of share options outstanding at 30 September 2015 is 1.1 years (2014: 1.2 years).
The weighted average exercise price of share options outstanding at 30 September 2015 was £0.30 (2014: £0.23).
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
7.12.2011
7.12.2011
16.1.2012
5.7.2012
5.7.2012
8.12.2014
22.4.2015
19.1.2015
3.8.2015
8.8.2015
258,927
3,609
32,900
14,432
2,255
WEIGHTED
AVERAGE
PRICE AT
EXERCISE
£7.80
£8.47
£7.95
£9.33
£8.93
A summary of the rules of the schemes referred to above is set out in the Remuneration Report on pages 86 to 88. The remuneration
policy, which includes more detail, is available on the Group’s website.
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 136
23. Reserves
The Statement of Changes in Equity is set out on page 113.
The following describes the nature and purpose of each of the reserves within equity.
RESERVE
DESCRIPTION AND PURPOSE
Share premium
Merger reserve
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.
Share based
payments reserve
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.
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.
24. Net asset value per share
The calculations below are in accordance with the EPRA Best Practice Recommendations.
Basic
Additional equity if all vested share options are
exercised
Diluted
Fair value deficit in respect of Debenture and
secured term loans
1.2
279.4
0.4
2,325.8
(39.1)
EPRA triple net
2,286.7
279.4
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 – joint venture
39.1
79.2
22.6
EPRA
2,427.6
279.4
2015
NET
ASSETS
£M
NUMBER
OF ORDINARY
SHARES
MILLION
NET
ASSET
VALUE PER
SHARE
£
2,325.4
278.2
8.36
AS RESTATED
2014
NUMBER
OF ORDINARY
SHARES
MILLION
NET
ASSET
VALUE PER
SHARE
£
277.9
6.81
1.1
279.0
279.0
279.0
6.79
(0.08)
6.71
0.08
0.28
0.06
7.13
NET
ASSETS
£M
1,893.2
0.4
8.32
1,893.6
(0.14)
8.18
0.14
0.29
0.08
8.69
(22.3)
1,871.3
22.3
78.8
15.7
1,988.1
The calculations of diluted net asset value per share show the potentially dilutive effect of options granted over ordinary shares
outstanding at the Balance Sheet date and include the increase in shareholders’ equity which would arise on the exercise of those
options.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS 25. Cash flows from operating activities
GROUP
COMPANY
NOTES TO THE FINANCIAL STATEMENTS CONTINUED
137
OPERATING ACTIVITIES
Profit before tax
Adjusted for:
Lease incentives recognised (note 4)
Charge for share based remuneration (note 7)
Depreciation and losses on disposals (note 6)
2015
£M
467.3
AS RESTATED
2014
£M
440.4
(2.4)
2.3
0.4
(1.6)
2.7
0.4
Investment property valuation movements (note 12)
(432.0)
(394.0)
2015
£M
103.8
-
2.3
0.4
-
Net finance costs
59.2
41.5
50.0
Administrative charges, finance charges, and dividends received from
subsidiaries settled through inter-company indebtedness
Dividends received from joint venture
Share of profit from joint venture (note 14)
Cash flows from operations before changes in working capital
Changes in working capital:
Change in trade and other receivables
Change in trade and other payables
Cash generated from operating activities
26. Movement in borrowings
-
-
(29.7)
65.1
(0.5)
2.8
67.4
-
-
(27.6)
61.8
(1.8)
4.6
64.6
(165.6)
(1.6)
-
(10.7)
(0.2)
(0.3)
(11.2)
2014
£M
18.2
-
2.7
0.4
-
39.1
(68.3)
(2.7)
-
(10.6)
-
1.4
(9.2)
Group
8.5% First Mortgage Debenture Stock 2024
Secured bank loans
Secured term loans
Facility arrangement costs
Year ended 30 September 2014 - as restated
Company
8.5% First Mortgage Debenture Stock 2024
Secured bank loans
Facility arrangement costs
Year ended 30 September 2014
AS RESTATED
1.10.2014
£M
CASH
FLOWS
£M
NON-CASH
ITEMS
£M
30.9.2015
£M
(63.3)
(360.6)
(134.8)
5.0
(553.7)
(545.7)
(63.3)
(369.8)
3.2
(429.9)
(554.1)
-
160.9
(250.0)
3.4
(85.7)
(7.0)
-
162.8
-
162.8
125.0
0.1
-
-
(1.0)
(0.9)
(1.0)
0.1
-
(0.9)
(0.8)
(0.8)
(63.2)
(199.7)
(384.8)
7.4
(640.3)
(553.7)
(63.2)
(207.0)
2.3
(267.9)
(429.9)
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS
138
27. 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
2015
£M
80.3
221.4
143.8
108.6
554.1
AS RESTATED
2014
£M
72.7
196.4
131.3
100.3
500.7
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 24 to 27.
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
2015
£M
0.4
1.6
2.0
1.4
5.4
2014
£M
0.4
1.6
2.0
1.8
5.8
The Company leases its head office accommodation from a wholly-owned subsidiary.
28. 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. The Company leases its office
accommodation from a wholly-owned subsidiary. These transactions are summarised below:
Transactions with subsidiaries:
Administrative fees receivable
Dividends receivable
Interest receivable
Rent payable
2015
£M
11.1
134.7
20.4
0.4
2014
£M
11.1
30.9
26.4
0.2
Net amounts receivable from subsidiaries
116.1
422.4
Transactions with joint venture:
Administrative fees receivable
Dividends receivable
Interest receivable
Amount due from joint venture
0.4
1.6
0.1
1.4
0.4
2.7
0.1
1.9
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 92 to 101, there were no other transactions with directors.
NOTES TO THE FINANCIAL STATEMENTS CONTINUED SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS CONTINUED
139
29. 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
2006 LTIP
8.12.14
£7.93
£Nil
3
NAV and TSR
18%
1.65%
0.98%
17%
0.83
Modified binomial
Monte Carlo
£7.54
£4.41
* The index is the FTSE 350 Real Estate Index.
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 95.
SHAFTESBURY ANNUAL REPORT 2015 FINANCIAL STATEMENTS
140
SHAFTESBURY ANNUAL REPORT 2015
Other
information
Shareholder information 141
Portfolio analysis 142
Basis of valuation 142
Summary Report by the Valuers 144
Sustainability 146
Glossary of terms 156
Other
information
Shareholder information 141
Portfolio analysis 142
Basis of valuation 142
Summary Report by the Valuers 144
Sustainability 146
Glossary of terms 156
SHAFTESBURY ANNUAL REPORT 2015
141141
Shareholder information
Corporate timetable
Annual General Meeting
AGM statement
5 February 2016
5 February 2016
2016 half year results to be announced*
May 2016
* We no longer issue a hard copy of our half year statement to
shareholders. The statement is issued electronically and is
available on our website.
See the website for dates of all future company announcements.
Dividends and Debenture Interest
Proposed 2015 final dividend:
Ex-dividend
Record date
Payment date
2016 interim dividend to be paid
Debenture stock interest to be paid
21 January 2016
22 January 2016
12 February 2016
July 2016
31 March 2016 and
30 September 2016
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 2015 final dividend is 22 January 2016.
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.
SEE PAGE 54 FOR DETAILS OF CURRENT YEAR DIVIDENDS
Registrar
Equiniti Limited maintains the Group’s Register or Members. They
may be contacted at:
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex, BN99 6DA
Telephone 0371 384 2294 (International +44 121 415 7047).
Lines open 8.30am to 5.30pm, Monday to Friday.
Shareholder accounts may be accessed online through
www.shareview.co.uk. This gives secure access to account
information instructions. There is also a Shareview dealing
service which is a simple and convenient way to buy or sell
shares in the Group.
142
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
Portfolio analysis
AT 30 SEPTEMBER 2015
Portfolio
Fair value
Shops
Restaurants,
cafés and pubs
% of total fair value
Current income
ERV
Number
Area – sq. ft.
% of current income
% of ERV
Average unexpired lease length – years
Number
Area – sq. ft.
% of current income
% of ERV
Offices
Area – sq. ft.
Average unexpired lease length – years
Residential
% of current income
% of ERV
Average unexpired lease length – years
Number
Area – sq. ft.
% of current passing rent
% of ERV
1 Shaftesbury Group’s 50% share
Basis of valuation
AT 30 SEPTEMBER 2015
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
7
8
9
10
10
10
10
10
10
10
TOTAL
100%
£102.6m
£127.8m
NOTE
CARNABY
COVENT
GARDEN
CHINATOWN
SOHO
STREET
PORTFOLIO
LONGMARTIN
PORTFOLIO
CHARLOTTE
WHOLLY
OWNED
1
2
3
4
4
5
4
4
5
4
4
5
4
4
£1,109.9m
£808.6m
£693.8m
£215.8m
£91.4m
£2,919.5m
£212.5m1
£3,132.0m
35%
£34.6m
£45.7m
98
26%
£26.7m
£32.8m
108
22%
£23.3m
£27.3m
66
7%
£7.3m
£8.8m
36
3%
£2.8m
£3.9m
93%
£94.7m
£118.5m
313
7%
£7.9m1
£9.3m1
22
181,000
137,000
89,000
40,000
9,000
456,000
67,000
49%
46%
4
51
31%
32%
4
84
25%
28%
5
72
27%
26%
4
30
97,000
162,000
203,000
55,000
42,000
559,000
45,000
15%
15%
11
38%
34%
10
60%
57%
12
38%
35%
9
251,000
83,000
39,000
35,000
10,000
418,000
102,000
29%
33%
4
92
10%
15%
4
211
5%
5%
2
112
16%
19%
3
67
54,000
126,000
71,000
36,000
21,000
308,000
55,000
7%
6%
21%
19%
10%
10%
19%
20%
NOTE
CARNABY
COVENT
GARDEN
2.96%
3.06%
3.55%
CHINATOWN
3.00%
3.01%
3.56%
SOHO
3.03%
3.12%
3.62%
2.83%
3.23%
3.69%
3.35 - 4.25% 3.60 - 5.25% 3.50 - 4.50% 3.80 - 4.75%
£120 - £485
£75 - £475
£140 - £340
£120 - £250
3.75 - 5.00% 3.50 - 4.50% 3.50 - 3.75% 3.75 - 4.10%
£105 - £125
£55 - £179
£200 - £390
ITZA
£85 - £112
(£240 ITZA)
4.00 - 4.50% 4.00 - 4.25% 4.25 - 4.75% 4.40 - 4.50%
£55 - £78
£50 - £63
£43 - £53
£45 - £65
£48
£50
£40
£48
£50
£47
£46
37%
37%
5
11
17%
15%
15
31%
35%
5
75
15%
13%
5
9%
8%
3
20
62%
54%
10
10%
10%
4
46
19%
28%
35%
35%
4
257
35%
32%
11
17%
21%
4
528
13%
12%
WHOLLY
OWNED
2.91%
3.11%
3.61%
STREET
PORTFOLIO
LONGMARTIN
CHARLOTTE
2.66%
2.78%
3.52%
4.25 - 4.75%
£93 - £168
3.60 - 4.25%
£75 - £100
4.50 - 5.00%
£45 - £55
3.19%
3.28%
3.75%
3.25 - 4.15%
£78 - £608
3.85 - 4.15%
£90 - £133
4.00 - 4.50%
£48 - £75
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
143
CHARLOTTE
STREET
WHOLLY
OWNED
PORTFOLIO
LONGMARTIN
TOTAL
PORTFOLIO
1.
Notes
AT 30 SEPTEMBER 2015
Portfolio
Fair value
NOTE
CARNABY
CHINATOWN
SOHO
Shops
Restaurants,
cafés and pubs
Residential
% of total fair value
Current income
ERV
Number
Area – sq. ft.
% of current income
% of ERV
Number
Area – sq. ft.
% of current income
% of ERV
Average unexpired lease length – years
Average unexpired lease length – years
Average unexpired lease length – years
% of current income
% of ERV
Number
Area – sq. ft.
% of current passing rent
% of ERV
1 Shaftesbury Group’s 50% share
Basis of valuation
AT 30 SEPTEMBER 2015
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.
1
2
3
4
4
5
4
4
5
4
4
5
4
4
7
8
9
10
10
10
10
10
10
10
COVENT
GARDEN
26%
£26.7m
£32.8m
108
31%
32%
4
84
38%
34%
10
10%
15%
4
211
21%
19%
35%
£34.6m
£45.7m
98
49%
46%
4
51
15%
15%
11
29%
33%
4
92
7%
6%
25%
28%
5
72
60%
57%
12
5%
5%
2
112
10%
10%
27%
26%
4
30
38%
35%
9
16%
19%
3
67
19%
20%
NOTE
CARNABY
CHINATOWN
COVENT
GARDEN
2.96%
3.06%
3.55%
2.83%
3.23%
3.69%
3.00%
3.01%
3.56%
SOHO
3.03%
3.12%
3.62%
3.35 - 4.25% 3.60 - 5.25% 3.50 - 4.50% 3.80 - 4.75%
£120 - £485
£75 - £475
£140 - £340
£120 - £250
3.75 - 5.00% 3.50 - 4.50% 3.50 - 3.75% 3.75 - 4.10%
£105 - £125
£55 - £179
£200 - £390
ITZA
£85 - £112
(£240 ITZA)
4.00 - 4.50% 4.00 - 4.25% 4.25 - 4.75% 4.40 - 4.50%
£55 - £78
£50 - £63
£43 - £53
£45 - £65
£1,109.9m
£808.6m
£693.8m
£215.8m
£91.4m
£2,919.5m
£212.5m1
£3,132.0m
22%
£23.3m
£27.3m
66
7%
£7.3m
£8.8m
36
3%
£2.8m
£3.9m
5
93%
£94.7m
£118.5m
313
7%
£7.9m1
£9.3m1
22
100%
£102.6m
£127.8m
181,000
137,000
89,000
40,000
9,000
456,000
67,000
9%
8%
3
20
35%
35%
4
257
37%
37%
5
11
Offices
Area – sq. ft.
251,000
83,000
39,000
35,000
10,000
418,000
102,000
97,000
162,000
203,000
55,000
42,000
559,000
45,000
62%
54%
10
35%
32%
11
17%
15%
15
54,000
126,000
71,000
36,000
21,000
308,000
55,000
10%
10%
4
46
17%
21%
4
528
31%
35%
5
75
19%
28%
13%
12%
15%
13%
CHARLOTTE
STREET
WHOLLY
OWNED
PORTFOLIO
2.91%
3.11%
3.61%
2.66%
2.78%
3.52%
4.25 - 4.75%
£93 - £168
3.60 - 4.25%
£75 - £100
LONGMARTIN
3.19%
3.28%
3.75%
3.25 - 4.15%
£78 - £608
3.85 - 4.15%
£90 - £133
4.50 - 5.00%
£45 - £55
4.00 - 4.50%
£48 - £75
Average residential ERVs - £ per sq. ft. per annum
£48
£50
£40
£48
£50
£47
£46
The fair values at 30 September 2015 (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.
2. 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.
3. 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.
4. The percentage of current income and the percentage of ERV in
each of the use sectors are expressed as a percentage of total
income and total ERV for each village.
5. Average unexpired lease length has been calculated by weighting
the leases in terms of current rent reserved under the relevant
leases and, where relevant, by reference to tenants’ options to
determine leases in advance of expiry through effluxion of time.
6. Where mixed uses occur within single leases, for the purpose of
this analysis, the majority use by rental value has been adopted.
7.
The initial yield is the net initial income at the valuation date
expressed as a percentage of the gross valuation. Yields reflect net
income after deduction of any ground rents, head rents and rent
charges and estimated irrecoverable outgoings at the valuation date.
8. The initial yield ignoring contractual rent free periods has been
calculated as if the contracted rent is payable from the valuation date
and as if any future stepped rental uplifts under leases had occurred.
9.
Equivalent yield is the internal rate of return, being the discount
rate which needs to be applied to the expected flow of income
so that the total amount of income so discounted at this rate
equals the capital outlay at values current at the valuation date.
The equivalent yield shown for each village has been calculated
by merging together the cash flows and fair values of each of the
different interests within each village and represents the average
equivalent yield attributable to each village from this approach.
10. The tone of rental values and yields is the range of rental values
or yields attributed to the majority of the properties.
11. All commercial floor areas are net lettable. All residential floor
areas are gross internal.
12. For presentation purposes some percentages have been
rounded to the nearest integer.
13. The analysis includes accommodation which is awaiting or
undergoing refurbishment or development and is not available for
occupation at the date of valuation.
144
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
Summary Report by the Valuers
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 30th September 2015 (the
“date of valuation”) held by Shaftesbury Carnaby Limited,
Shaftesbury Covent Garden Limited, Shaftesbury Chinatown
Limited, Shaftesbury Soho Limited, Shaftesbury AV 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 16 November 2015 (“our Reports”). Our Reports
were prepared for accounts purposes.
DTZ was a UGL Company until 5 November 2014. 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%. The
DTZ group became a stand-alone, private global property
services company on 5 November 2014, following the sale to a
consortium of investors led by TPG Capital Management. On 1
September 2015, DTZ acquired C&W and the combined group
now trades under the C&W brand. C&W’s financial year end is 31
December. We anticipate that the proportion of fees payable by
the Company to the C&W group in the financial year to 31
December 2015 will remain at less than 5%.
All properties have been subject to external inspections between
January and October 2015 and a number were subject to internal
inspections.
We confirm that the valuations have been prepared in
accordance with the appropriate sections of the RICS
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, (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 2.3.7 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 valuations.
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 fifth time that he has been signatory of valuation reports
addressed to the Subsidiary Companies. DTZ Debenham Tie
Leung (“DTZ”) 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.
On 2 September 2015, DTZ and Cushman & Wakefield (“C&W”)
combined under a common brand. Notwithstanding our new
branding, our legal entities have not changed, including their
names. Prior to 2 September 2015, there had been no fee-
earning instructions between DTZ and the Company or the
Subsidiary Companies, other than valuation instructions, for in
excess of three years. Prior to 2 September 2015, C&W were
appointed as retail agents by Shaftesbury Soho Limited and
Shaftesbury Carnaby Limited and these instructions have
continued since then.
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. 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.
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
SUMMARY REPORT BY THE VALUER CONTINUED
145
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, Shaftesbury AV 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
As of 2 September, 2015, DTZ Debenham Tie Leung and Cushman
& Wakefield have combined under a new common brand.
Notwithstanding our new branding, our underlying legal entities
have not changed, including their names.
We have measured certain of the properties, or parts of
properties, either on site or by scaling from floor plans. The
Company, its managing agents or professional advisers have
provided us with the floor areas of the remaining properties or
parts of properties.
We have read the majority of the leases and related documents
provided to us in respect of the commercial properties. Where we
have not read leases, we have relied on tenancy information provided
by the Company, its managing agents or professional advisers.
Certain properties were subject to works of repair or refurbishment
at 30th September 2015, 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 £11,362,000 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 below. The amounts arising from the notional
apportionments do not themselves represent the Fair Value of the
two elements.
The Subsidiary Companies own a number of properties on a
freehold basis where they also hold long leasehold interests
within the freehold and have not merged the interests. For the
purposes of the freehold/long leasehold split below, we have
included such properties within the freehold category.
Having regard to the foregoing, we are of the opinion that the
aggregates of the Fair Values, as at 30th September 2015, 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 16 November
2015, were as follows:-
Freehold
Properties
£2,691,420,000
(Two billion, six hundred and ninety-one
million, four hundred and twenty thousand
pounds)
Long leasehold
Properties
£228,100,000
(Two hundred and twenty-eight million, one
hundred thousand pounds)
Total
£2,919,520,000
(Two billion, nine hundred and nineteen
million, five hundred and twenty thousand
pounds)
146
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
Sustainability
This is a condensed version of the report
which is available on our website
Our approach to sustainability and corporate
responsibility is embedded within the day-to-day
management of our portfolio and our business.
All our buildings are in conservation areas and around 25% are
listed. Within the often strict constraints imposed by legislation
which govern these designations, we improve and maintain our
buildings, with the aim of maximising their environmental
performance. Our management strategy also extends the
economic useful lives of our buildings through changes of use
and reconfiguration, so they continue to meet the expectations
of modern occupiers. In our view, this emphasis on restoration
and repair has less environmental impact than demolition and
development.
We also recognise that while the West End is a busy and lively
place, there are social issues in the community we work in and
the problems common in city centres, such as noise and rough
sleeping. We concentrate our social investment activities on
supporting organisations that tackle these problems in the West
End. Our commitment is to be a good long-term, socially
responsible neighbour and investor in our area, integrated into
the community. We measure our involvement in accordance with
the London Benchmarking Group methodology.
We have made a commitment to support the United Nations
Global Compact and its ten principles in the areas of human
rights, labour, environment and anti-corruption. We have
reviewed our policies to reflect this commitment and are
implementing programmes internally and throughout our
supply chain and engaging with our principal suppliers.
To assist in our ongoing commitment to improving our performance
and understanding of the sustainability issues that affect our buildings,
we have become members of the Better Building Partnership. This
enables us to engage with peer group companies and begin to
benchmark our performance against others in our sector. We have
also joined Wild West End, a biodiversity initiative in conjunction
with other landowners in the West End. The aim is to create a
network of green infrastructure in London’s West End for both
environmental and community benefit.
A highlight of this year was our performance in the Global Real
Estate Sustainability Benchmark where, for the first time, we
achieved Green Star status. Going forward, we aim to build on
our progress throughout our operations, in particular with major
refurbishments planned within the portfolio.
This report forms part of our UNGC Communication on
Progress against the ten principles. More detail on our
strategy and data performance can be found on our website.
Brian Bickell,
Chief Executive
24 November 2015
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
SUSTAINABILITY CONTINUED
147
Sustainability indices
In order to measure and benchmark our performance against our peers we have continued to participate
in the key sector indices. We have maintained or improved our relative performance this year.
GRESB Green Star Scored
72 (2014: 57), and was 2
out of 6 in our peer group
(2014: 3 out of 8).
Silver award winner for
sustainability reporting
(2014: silver).
Continued listing in
the FTSE4Good
Listed on Dow Jones
Sustainability Index for eighth
year. Scored 61 (68 in 2014).
Continued Member of
Ethibel Excellence
CDP – Continued listing on
Carbon Disclosure Project
scoring 94 (2014: 84%) for
disclosure and a grade C
for performance (2014: B)
Environment
Energy performance
Overall, energy consumption for the wholly-owned portfolio,
Longmartin and the head office increased by 6% with small
increases throughout the portfolio that can primarily be
attributed to increased tenant activity and, changes resulting
from new acquisitions and building refurbishment.
A comparison of like-for-like performance between 2014 and
2015 shows that the portfolio as a whole has a year-on-year
increase of just over 4% which reflects increased activity in the
portfolio.
We continue to purchase green tariff electricity throughout the
portfolio with the majority of the villages making purchases with
at least 40% renewable proportion, which is above the electricity
supply industry average.
Absolute energy consumption within operational control
Usage (KWh)
Total
217
3,270,051
3,043,584
3,159,818
3,270,522
3,460,978
6.0%
TOTAL
NUMBER OF
PROPERTIES
2011
2012
2013
2014
2015
2014-2015
% CHANGE
Like-for-like energy consumption within operational control
Usage (KWh)
Total
201(214)
201(219)
3,253,724
3,391,546
137,823
4.2%
NUMBER OF
PROPERTIES
REPORTED ON
2014 (TOTAL
PROPERTIES)
NUMBER OF
PROPERTIES
REPORTED ON
2015 (TOTAL
PROPERTIES)
2014
2015
DIFFERENCE
2014–2015
CHANGE
148
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
SUSTAINABILITY CONTINUED
Greenhouse gas emissions
For the year ended 30 September 2015 we have again followed
the 2013 UK Government environmental reporting guidance and
used 2015 UK Government’s Conversion Factors for Company
Reporting. Greenhouse gas emissions are reported using the
following parameters to determine what is included within the
reporting boundaries in terms of landlord and tenant
consumption:
Scope 1 – direct emissions includes whole building gas data in
Opera Quarter and Longmartin. Fugitive emissions from air
conditioning are included where it is the landlord’s responsibility
within the common parts. There are no company vehicles to
report within Scope 1.
Scope 2 – indirect energy emissions include purchased
electricity for the head office and landlord controlled common
areas and a small number of buildings where the occupied areas
and common parts are on the same meter. Electricity used in
refurbishment projects has also been recorded.
Scope 3 – other indirect emissions, which includes emissions
associated with electricity losses and generation. It also includes
business air travel and rail, but no other business travel as, given
the central London location of the group’s operations, this is
considered negligible.
Greenhouse gas emissions for the portfolio, head office and
refurbishment sites (tCO2e) show a 6.7% decrease for Scope 2
emissions and no change for Scope 1 emissions.
Data for the previous year is restated for electricity and gas
consumed in Longmartin. This equates to a net increase of 59
tonnes for 2014. Data is also restated for buildings in Carnaby due
to a change in metering and equates to an increase of 42 tonnes.
Absolute Scope 1 GHG emissions
SCOPE1
Total
Absolute Scope 2 GHG Emissions
SCOPE 2
Total
Absolute Scope 3 emissions
SCOPE 3
Total
Like for Like Scope 1 GHG emissions
SCOPE 1
Total
Like for Like Scope 2 GHG emissions
SCOPE 2
Total
2012
68
2012
1,250
2012
112
2013
99
2013
1,196
2013
175
2014
42
2014
76
2014
1,559
2014
187
2015
76
2014-2015
CHANGE
0.0%
2015
1,455
2014-2015
CHANGE
-6.7%
2015 % DIFFERENCE
147
-21.8%
2015
DIFFERENCE % DIFFERENCE
52
9
22.0
2014
1,495
2015
DIFFERENCE % DIFFERENCE
1,438
-56.5
-3.8%
All emisssions above are in Tonnes CO2e
The chosen emissions intensity is common parts floor areas, which has been measured in 62 of the 135 reported properties with
common parts only and the emissions intensity figure has been obtained of 50 kgCO2e/m2 (0.050 tonnes CO2e/m2), a small increase
over last year’s 46 kgCO2e/m2 (0.046 tonnes CO2e/m2).
GHG Intensity by floor area
Total
62
38,460
3,573
385,524
108
NUMBER OF
PROPERTIES
COMMON
PARTS FLOOR
AREA FT²
FLOOR
AREA M2
KWH
(ELECTRICITY)
CONSUMPTION
INTENSITY
KG CO2E/M²
50
Assurance statement
Our greenhouse gas emissions data has been subject to an
independent assurance process. A full copy of the verification
opinion statement, including the scope and basis of the work, can
be found on our website.
“We have conducted a verification of the greenhouse gas data
reported by the above entity in its Annual Report for the year
ended 30 September 2015. We have not rechecked prior year
data that is reported. On the basis of the verification work
undertaken (which is reported in Annex 2 of the full statement)
nothing has come to our attention to suggest that this data is
not fairly stated, with the exception of a small number of
non-material issues.” Planet & Prosperity Limited.
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
SUSTAINABILITY CONTINUED
149
Waste
We manage tenant generated waste in
Carnaby, Seven Dials and Longmartin. We
exceeded our target recycling rate with
47% recycled at Carnaby and Seven Dials
and 39% at Longmartin. The improved
performance at Longmartin can be
attributed to a proactive tenant
engagement programme addressing waste
management and recycling. In both
Carnaby and Longmartin we encourage
composting food waste by our restaurant
tenants, although the take-up is variable,
and is an area for future focus. Residual
waste is sent to an energy from waste
scheme rather than landfill.
Absolute waste within operational control
2012
574
TOTAL RECYCLED
2013
2014
2015
2012
515
776
1,060
1,240
ENERGY FROM WASTE
2013
964
2014
1,081
2015
1,286
Totals
(tonnes)
31.6% 34.8% 40.4% 44.9% 68.3%
65.1% 56.3% 54.5%
Our refurbishment projects on average diverted over 97% from landfill.
2012
-
-
COMPOSTED
2014
2013
2015
13
63
3.2%
0.5%
-
-
Water
Overall consumption across the portfolio has decreased although
there have been changes in individual properties reported for
Carnaby due to a significant review of the data collection process.
At Longmartin the quality of data collection is improving with
actual meter readings available for the second half of the year. The
relatively high consumption results from tenant uses such as
showers, toilets and kitchens. Installation of more efficient
appliances is being researched for 2016.
In Chinatown the small volume of water usage for steam cleaning
in South Service Yard remained consistent.
Absolute water consumption with operational control
TOTAL USAGE (M3)
Totals
2012
3,618
2013
3,775
2014
2015
2014 - 2015
CHANGE
43,134
42,993
-0.3%
Like-for-like water consumption within operational control
PROPERTIES
REPORTED ON
2014
PROPERTIES
REPORTED ON
2015
TOTAL USAGE
(M³) 2014
TOTAL USAGE
(M³) 2015
DIFFERENCE
2014 - 2015
DIFFERENCE
Total
9(15)
9 (10)
10,478
6,985
-3,493
-33.3%
Building Certifications
EPC totals (total count of EPC assessments)
EPC grade A-E
EPC grade F-G
EPC grade - not yet assessed
585
279
347
31%
17%
52%
EPC grade (number of refurbishment
schemes achieving grade)
EPC grade B
EPC grade C
EPC grade D
2
1
1
1
12
70% of the commercial portfolio, based
on lettable floor area of buildings, now has
an Energy Performance Certificate (EPC)
with the breakdown opposite.
The Energy Act 2011 requires that, by
2016, buildings at the time of letting
should be an EPC of grade E or above.
There are still a proportion of our
properties under the threshold or not yet
assessed. The majority of those that have
not been assessed are under long term
leases which have not undergone a lease
transaction since 2008 and therefore not
triggered the requirement for an EPC.
Properties with grades F and G are being
progressively addressed as part of the
ongoing refurbishment programme when
vacant possession is obtained. Our
objective is to improve the EPC rating of
the refurbished property. Out of 14 EPCs
obtained, a significant majority (92%)
achieved a grade C or above.
150
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
SUSTAINABILITY CONTINUED
Timber
Our approach is to reuse timber where possible. Timber features
such as windows, joists, floorboards, staircases and paneling
are retained where possible. For the small volume of timber
purchased, over 74% was sustainably sourced with full chain of
custody and 40% was Forest Stewardship Council certified which
is in line with our targets.
Volume Timber Purchased (m³)
% Sustainably Sourced (with Chain of Custody)
% Forest Stewardship Council Certification
2012
200
63
36
2013
248
64
46
2014
190
83
50
2015
285
74
41
Biodiversity
We recognise the importance of promoting biodiversity and
believe that being in an urban area makes the need for green
spaces and the connections between these spaces important for
wildlife to survive.
A number of the West End’s property owners are working
together in a collaboration to install a combination of green
roofs, green walls, planters, street trees and flower boxes across
buildings and public realm to create a network of ‘stepping
stones’ through the West End.
The aim is to increase habitat diversity and encourage a variety of
birds and insects to the area.
As part of the initial stages of the project, we have undertaken an
inventory of all the existing habitats within our portfolio which
are quantified below.
Further initiatives for next year include the installation of planters
on service roofs in Carnaby and Seven Dials and introducing
window boxes and hanging baskets to Charlotte Street to
increase the habitat provision.
Total
BIRD BOX
21
GREEN
WALL
6
GREEN
ROOF
HANGING
BASKETS
8
46
INSECT
HOME
2
PLANTERS
96
TREES
13
WINDOW
BOXES
823
BEE HIVES
3
A further endorsement of our biodiversity activities was the
award of an eFIG (trade association of the interior landscape
design industry) Silver Leaf Award for the design and
implementation of the green roof at our head office in Ganton
Street.
Stakeholders and our local community
We continue our approach to engagement with our
key stakeholder groups: employees, tenants,
lenders and insurers, investors and analysts, local
government, regulators, local communities and
suppliers.
We have over 800 commercial tenants. We aim for each tenant
to have direct contact with at least one director and/or member
of the property team and in addition full time estate managers
are available to deal with day-to-day concerns. In 2014, a formal
customer satisfaction survey was carried out of our tenants in
Carnaby and Seven Dials with a 34% response rate. The feedback
was largely positive and where any matter was identified the
agent responsible for that village followed up with the tenants.
The exercise will be repeated in the coming year in Carnaby and
Seven Dials and will be extended to other villages.
We provide subsidised membership of the Sustainable Restaurant
Association for new restaurant tenants. Fourteen tenants have
signed up for this year.
An online Building Guide for commercial tenants is under
development with its launch planned for 2016. The Guide will cover
all management issues relevant to the tenants, such as emergency
response, fire protection and will also include sustainability advice
such as optimising recycling within the portfolio.
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
SUSTAINABILITY CONTINUED
151
TENANT SATISFACTION SURVEY RESULTS
PROPERTY NAME
Carnaby - Residential
Carnaby - Office
Carnaby - Retail
Carnaby - Restaurant
Overall average: 71%
PROPERTY NAME
Seven Dials - Residential
Seven Dials - Office
Seven Dials - Retail
Seven Dials - Restaurant
Overall average: 77%
Community
Our long term prosperity depends on the success
of London’s West End as a destination for domestic
and overseas visitors and businesses.
What we contribute
Cash
Staff time
London is one of the world’s principal global cities and is the largest
city in Western Europe. It has as unrivaled variety of heritage and
cultural attractions, which draw huge numbers of domestic and
overseas visitors. It is also a world-class business location.
In kind contributions
In kind
Management costs
How we contribute
Charitable gifts
Community investment
Commercial initiatives in
the community
What we support
Education
Health
Economic development
Environment
Arts/culture
Social welfare
Our engagement is aligned with the areas in which our villages
are situated and in the aspects that benefit the West End as a
community, (to live and work) and a visitor destination. We work
closely with a number of organisations based in the West End
based in the community, leisure or arts which allows them to be
located close to the areas in which they operate.
We have continued our membership of the London
Benchmarking Group. Our LBG contribution measured in
accordance with the criteria equated to £515,000. Our s106
contributions1 were £272,000 giving an overall total of community
investment of £787,000. This equates to 2.2% of EPRA pre-tax
profit. We assisted in providing leverage of £113,000.
LBG
£515,000
s106
£272,000
1 S106 contributions relate to payments required to be made by a company to
a local council under planning regulations.
AVERAGE
RATING
% SATISFIED
3.8
3.9
3.5
3.9
75%
74%
58%
78%
AVERAGE
RATING
% SATISFIED
3.4
4.2
3.6
3.7
56%
100%
68%
83%
5.12%
8.7%
6.1%
18.1%
62.0%
0.87%
30.8%
68.4%
27.7%
10.0%
51.3%
4.1%
5.0%
1.9%
152
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
SUSTAINABILITY CONTINUED
Charity Partners
Last year we trialled a charity partner initiative in Seven Dials. By
selecting one organisation to focus on each year, we provide
targeted assistance and make a real difference to the
organisations we work with.
This year we have a charity partner in each of our main villages.
The charity selected has a link to the village or local community
within which it is situated and may have a secondary link in that it
tackles a social issue or supports the uses of our buildings. We
partner with the charity at events in that village, using these as
platforms to raise funds and promote awareness of their cause.
We also promote them on our village websites.
Our partners this year, and the work they do, are set out below.
Seven Dials and St Martin’s Courtyard
Carnaby
By helping people to cope with the physical impacts of being
homeless along with helping them to rebuild their lives. The
Connection strives to provide help to over 200 people in central
London everyday by engaging each person with activity programmes
and specialist support including day and night centre services for
all age groups, employment and training programs and
resettlement support.
Trekstock gives young adults living with cancer an authentic voice
to ensure they have age-appropriate information and support.
Trekstock was selected, because as tenants in Carnaby, we work
closely with them on their fundrasing activities.
Soho
Chinatown
(cid:12050)(cid:2324)(cid:1025)(cid:5527)
Chinese Community Centre
The London Chinese Community Centre (LCCC) is committed to
maintaining and developing services and activities to improve the
quality of life and wellbeing of the Chinese community, particularly
those who are disadvantaged. The LCCC services include Community
Development Services: offering various English, Computer, Arts
and Cultural classes; Information & Advice Services; Elderly
Health Improvement Service; and a Youth Club;
The House of St Barnabas’s vision is to create a society where
lasting employment is a reality for those affected by
homelessness and social exclusion.
The House of St Barnabas runs an Employment Academy for
those affected by homelessness to give them skills in the catering
and hospitality industry.
A detailed list of the other organisations we work with and
support is contained in the full version of this report on our
website.
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
SUSTAINABILITY CONTINUED
153
Employees
We employ 25 staff including
executive directors. Every
employee is important and their
experience and contributions to
the business play a key part in
the delivery of our strategy.
There continue to be five women
in senior executive positions
(50% of executive staff excluding
directors) and three female
non-executive directors.
We believe that training and development
of our staff is essential. This year our staff
underwent an average of 20 hours training
per employee. All staff also underwent a
personal development review. We offer
flexible working and 12% of employees
currently work part-time.
Health and Safety
The Board has overall responsibility
for health and safety.
Managing agents oversee day-to-day health
and safety matters throughout the portfolio.
In our refurbishment sites, responsibility
for health and safety is identified within
all pre-tender documentation and is
monitored by site and project managers.
We continued to maintain our record of
no reportable health and safety incidents
throughout the portfolio. The Accident
Frequency Rate for Shaftesbury employees
was zero (2014 – zero) and there were no
health and safety prosecutions, enforcement
actions or fatalities in 2015.
Percentage of female staff overall
Percentage of female staff in senior
positions
Percentage of female board members
Average training hours per employee
Number of staff receiving performance
reviews
Average length of service
Staff turnover
2012
45%
50%
20%
15
2013
52%
50%
27%
15
2014
52%
50%
30%
30
2015
56%
50%
30%
20
100%
100%
100%
100%
13
0
12
0
12
0
12
0
Absenteeism average per employee
5 days
4 days
1.4 days
2 days
Proportion of staff with flexible working
13%
13%
13%
12%
Number of reportable injuries
Work related fatalities
Number of Enforcement Agency
prosecutions or fines
Number of prohibition notices
Employee accidents and incidents
Number of employee days off work from injury
2012
2013
2014
2015
0
0
0
1
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
154
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
SUSTAINABILITY CONTINUED
Performance against targets
OBJECTIVE
Environment
ACHIEVED IN 2015
TARGETS FOR 2016
Aim for legal environmental compliance
No legal non-compliances have been
reported
Aim for legal compliance
Invest in brownfield sites only
100% regeneration of central London sites
Continue to achieve 100% use and
regeneration of brownfield sites as our
portfolio expands
Operate in an environmentally sustainable
manner throughout our activities
Timber to be sourced where possible
from well-managed sources, certified
by third party certification schemes
For 83% of refurbishment schemes, a
minimum of 50% of façade and a minimum
of 80% of primary structure was retained
Of the EPCs obtained 92% were a grade
C or above post refurbishment
No new commercial schemes were in progress
so no BREEAM assessments were required
Extend the useful life of buildings and
improve their sustainability by raising the
EPC rating of properties being refurbished
according to predetermined targets
Aim for BREEAM Very Good for all new
commercial developments and selected
non-domestic refurbishment schemes
Reuse of timber maximised throughout all
schemes
Continue to maximise the proportion
of timber that is reused
74% of timber has been confirmed as
sustainably sourced with full Chain of Custody
and 40% using Forest Stewardship Council
timber
Source a minimum of 60% of all timber
from certified sources and ensure all
timber is purchased from legal sources
Monitor and, where possible, reduce
energy consumption in common parts.
Investigate opportunities for the use
of renewable energy
Absolute energy consumption increased
throughout the wholly owned and managed
portfolio by 6% as a result of increased
activity across the portfolio.
Achieve a year on year 3% energy
reduction throughout the portfolio
Purchase green electricity where costs
are within 5% of brown electricity
Manage construction waste to ensure
legal compliance and maximise re-use
and/or recycling of non-hazardous waste
Portfolio waste: Recycle a minimum
of 40% at Carnaby and Seven Dials
and divert 90% from landfill Recycle
a minimum of 30% at Longmartin and
divert 90% from landfill
Improve biodiversity appropriate to
the Group’s urban location
40% of the portfolio sourced 100% renewable
energy and 40% sourced energy from suppliers
with above average renewable sources
All the schemes that reported achieved
target of a minimum of 80% recycled
construction and demolition waste. An
average of 97% of waste by weight was
diverted from landfill.
Aim to reuse or recycle a minimum of
80% non hazardous demolition and
construction waste.
In Carnaby and Seven Dials 47% of tenants’
waste was recycled and the remainder was
diverted from landfill to energy from waste
Recycle 40% of tenants’ waste at Carnaby,
Seven Dials and Longmartin and divert a
minimum of 90% of waste from landfill
At Longmartin 39% of tenants’ waste was
recycled, including food waste composted,
and the remaining waste was diverted from
landfill to energy from waste
Joined the Wild West End and continuing to
maximise the benefits of using planters and
other features through appropriate species
selection
Continue membership of Wild West End
and increase number of biodiversity
features throughout the portfolio
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
SUSTAINABILITY CONTINUED
155
OBJECTIVE
ACHIEVED IN 2015
TARGETS FOR 2016
Stakeholders and our local community
Maintain membership of various
benchmarking indices
Membership of DJSI, Carbon Disclosure
Project and FTSE4Good. Participated in
GRESB and achieved Green Star Status. EPRA
Sustainability reporting Silver award against
EPRA reporting requirements
Signatory to UN Global Compact
Continue participation in UNGC, GRESB,
FTSE4Good, Carbon Disclosure Project
and others
Continue to support local community
groups and be proactive in identifying
and working with charitable and other
organisations
Membership of the London Benchmarking
Group and adoption of their methodology
for reporting community involvement has
continued.
Continue membership of London
Benchmarking Group and further develop
benchmarking measurements for
reporting
Contribution to community and stakeholders
(including Section 106 payments) equates to
2.2% of EPRA pre tax earnings
Continue to maintain regular liaison
with tenants
Undertook tenant satisfaction surveys in
Seven Dials and Carnaby with a 74% overall
satisfaction rate
Repeat tenant satisfaction surveys for
Seven Dials and Carnaby and extend to
other parts of the portfolio
Ongoing subsidised offer of membership to
the Sustainable Restaurant Association which
is included within the Heads of Terms of the
leases as a requirement for all new tenants
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 34 out of 50
Continue to achieve 30 out of 50
(above a ‘satisfactory’ score).
Ensure all refurbishment schemes above
a specified value are registered with the
Considerate Constructors’ Scheme and
continue to achieve 30 out of 50 (above
a ‘satisfactory’ score)
Employees
Ensure there are no reportable health
and safety accidents/incidents
throughout the portfolio
No reportable health and safety accidents
recorded in a refurbishment project or in
the day-to-day management of the portfolio
Aim for no reportable accidents and
incidents throughout the Group’s
activities
Comply in all respects with key
applicable employment legislation
56% of staff are female of which 50% are
in senior positions and 30% of the board
are female
Again the company has had no staff turnover
Continue to measure and improve
relevant employment metrics and adhere
to the Principles of the RICS Inclusive
Employer Quality Mark
156
SHAFTESBURY ANNUAL REPORT 2015 OTHER INFORMATION
Glossary of terms
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 period 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.
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.
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.
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.
EPRA net assets
Net assets used in the EPRA NAV
calculation, including additional equity if
all vested share options were exercised.
Like-for-like portfolio
The like-for-like portfolio includes all
properties that have been held
throughout the accounting period.
EPRA triple net asset value
EPRA NAV incorporating the fair value of
debt which is not included in the reported
net assets.
Loan-to-value
Nominal value of borrowings expressed as
a percentage of the fair value of property
assets.
EPRA vacancy
The rental value of vacant property
available expressed as a percentage of
ERV of the total portfolio.
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 period.
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 and chargeable gains relating to the
rental business, providing certain criteria
obligations set out in tax legislation are met.
The Office of National Statistics (ONS)
The ONS is the executive office of the UK
Statistics Authority, a non-ministerial
department which reports directly to the UK
Parliament. It is charged with the collection
and publication of statistics related to the
economy, population and society of the UK.
Topped up initial yield
An adjusted initial yield which assumes
rent free periods or other unexpired lease
incentives, such as discounted rent
periods and step ups, have expired.
Total property return
Net property income and the valuation
movement and realised surpluses or
deficits arising from the portfolio for the
year expressed as percentage return on
the valuation at the beginning of the
period adjusted for acquisitions and
capital expenditure.
Total Shareholder Return (TSR)
The change in the market price of an
ordinary share plus dividends reinvested
expressed as a percentage of the share
price at the beginning of the period.
Contents
Strategic report
Financial highlights 4
Chairman’s statement 5
Exceptional portfolio 8
Our objective 14
Governance
Directors and officers 70
Corporate governance 72
Nomination Committee report 76
Audit Committee report 78
How we create and deliver value 19
Remuneration report 82
Mix of uses 20
Retail 24
Remuneration policy 84
Annual Remuneration report 92
Restaurants, cafés and pubs 25
Directors’ report 102
Offices 26
Residential 27
Proven management strategy 30
Experienced management team 33
Robust balance sheet 34
Valuation 38
Directors’ responsibilities 104
Independent auditors’ report 105
Financial statements
Group statement of
comprehensive income 110
Investment in our portfolio 42
Balance sheets 111
Demand and occupancy 46
Cash flow statements 112
Village summaries 48
Results and finance 52
Looking ahead 57
Risk management 59
Viability Statement 66
Statements of changes in equity 113
Notes to the financial statements 114
Other information
Shareholder information 141
Portfolio analysis 142
Basis of valuation 142
Summary report by the valuer 144
Sustainability 146
Glossary of terms 156
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Shaftesbury PLC
22 Ganton Street
Carnaby
London W1F 7FD
T: 020 7333 8118
shaftesbury.co.uk
ANNUAL REPORT 2015