Shaftesbury PLC Annual Report 2016

FY2016 Annual Report · Shaftesbury PLC

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SPRING
SUMMER
AUTUMN
WINTER

A YEAR IN THE LIFE

Annual Report 2016

STRATEGIC REPORT - OVERVIEW
WHO WE ARE... 1
FINANCIAL HIGHLIGHTS 2
CHAIRMAN’S STATEMENT 4
CHIEF EXECUTIVE'S STATEMENT 5
OUR BUSINESS MODEL: HOW WE CREATE
AND DELIVER VALUE 8
EXCEPTIONAL PORTFOLIO IN THE
HEART OF LONDON'S WEST END 12
FOCUS ON RETAIL AND LEISURE 21

RESTAURANTS, CAFÉS AND LEISURE 22
RETAIL 24
OFFICES 26
RESIDENTIAL 28

CREATE PROSPEROUS ENVIRONMENTS
FOR TENANTS 31
EXPERIENCED MANAGEMENT TEAM 34
PRUDENT FINANCIAL MANAGEMENT 35
HOW WE MEASURE SUCCESS 38

STRATEGIC REPORT - ANNUAL REVIEW
PORTFOLIO VALUATION 43
INVESTING IN OUR PORTFOLIO 50
LEASING AND OCCUPANCY 53
FINANCIAL RESULTS 56
FINANCE REVIEW 62
RISK MANAGEMENT 63
PRINCIPAL RISKS AND UNCERTAINTIES 66
VIABILITY STATEMENT 71
SUSTAINABILITY 72

GOVERNANCE
DIRECTORS AND OFFICERS 80
GOVERNANCE AT A GLANCE 82
CORPORATE GOVERNANCE 84
NOMINATION COMMITTEE REPORT 87
AUDIT COMMITTEE REPORT 90
REMUNERATION REPORT 94
SUMMARY OF REMUNERATION POLICY 96
ANNUAL REMUNERATION REPORT 98
DIRECTORS’ REPORT 110
DIRECTORS’ RESPONSIBILITIES 112
INDEPENDENT AUDITORS’ REPORT 113

FINANCIAL STATEMENTS
GROUP STATEMENT OF COMPREHENSIVE INCOME 120
BALANCE SHEETS 121
CASH FLOW STATEMENTS 122
STATEMENTS OF CHANGES IN EQUITY 123
NOTES TO THE FINANCIAL STATEMENTS 124

OTHER INFORMATION
SHAREHOLDER INFORMATION 153
PORTFOLIO ANALYSIS 154
BASIS OF VALUATION 154
SUMMARY REPORT BY THE VALUERS 156
SUSTAINABILITY 158
GLOSSARY OF TERMS 166

STRATEGIC REPORT OVERVIEW

Who we are...

WE ARE A REAL ESTATE INVESTMENT TRUST WHICH INVESTS
EXCLUSIVELY IN THE HEART OF LONDON’S WEST END. OUR
OBJECTIVE IS TO DELIVER LONG-TERM GROWTH IN RENTAL
INCOME, CAPITAL VALUES AND SHAREHOLDER RETURNS.

Our exceptional portfolio extends to over 14 acres, together
with a 50% share of 1.9 acres in our Longmartin joint venture.
Located close to the West End’s major visitor attractions, it is
mainly clustered in Carnaby, Seven Dials and Chinatown, but
also includes substantial ownerships in east and west Covent
Garden, Soho and Charlotte Street.

Our 584 restaurants, cafés, pubs and shops provide 70% of
annualised current income. In the West End, there is a structural
imbalance between demand and availability of this space, which is
an important factor in our portfolio’s long-term rental prospects.

Our upper floors comprise 406,000 sq. ft. of generally small
offices and 559 apartments, which we let.

We have a proven, comprehensive and long-term management
strategy which creates and fosters distinctive, lively and
prosperous environments. With our clusters of ownerships,
improvements we make through our management activities
compound to benefit our adjacent and nearby holdings.

1
1

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEW
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS
FINANCIAL HIGHLIGHTS

PORTFOLIO HIGHLIGHTS
PORTFOLIO VALUATION1
(£BN)

LIKE-FOR-LIKE PORTFOLIO
VALUATION GROWTH1 (%)

5
5
5
5
5
5
5
3
3
3
3
3
3
3
.
.
.
.
.
.
.
3
3
3
3
3
3
3

3
1
.
3

1
6
.
2

5
0
.
2

3
8
.
1

0
.
1
2

0
.
8
1

5
.
9

5
.
5

0
0
.
.
4
4

REVERSIONARY POTENTIAL1 (£M)

Annualised current income
ERV ERV
ERV

9
9
9
.
.
.
9
9
9
9
9
9

9
9
9
9
9
.
.
.
.
.
0
0
0
0
0
8
8
8
8
8

9
9
9
9
.
.
.
.
5
5
5
5
0
0
0
0
1
1
1
1

9
9
9
9
9
.
.
.
.
.
5
5
5
5
5
8
8
8
8
8

6
6
6
6
.
.
.
.
8
8
8
8
1
1
1
1
1
1
1
1

5
5
5
5
5
.
.
.
.
.
3
3
3
3
3
9
9
9
9
9

8
8
8
8
.
.
.
.
7
7
7
7
2
2
2
2
1
1
1
1

6
6
6
6
6
.
.
.
.
.
2
2
2
2
2
0
0
0
0
0
1
1
1
1
1

7
7
.
.
8
8
3
3
1
1

6
6
6
6
6
.
.
.
.
.
9
9
9
9
9
0
0
0
0
0
1
1
1
1
1

2016
2012 2013 2014 2015 2016
2016

20162016
2012 2013 2014 2015 2016

2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012
2012

2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013
2013

2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014
2014

2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015
2015

2016
2016
2016

£3.35bn

+4.0%

£29.1m

REPORTED RESULTS
DILUTED NAV PER SHARE
(£ PER SHARE)

4
4
4
5
5
5
.
.
.
8
8
8

2
3
.
8

9
7
.
6

6
2
.
5

3
4
.
4

NET PROPERTY INCOME
(£M)

8
.
8
7

1
.
4
7

1
1
.
.
4
4
8
8

2
.
6
6

9
.
7
6

BASIC EPS (PENCE PER SHARE)

2
.
5
6
1

0
.
8
6
1

DIVIDENDS (PENCE
PER SHARE)

0
0
.
2
1

0
5
.
2
1

0
1
.
3
1

5
7
.
3
1

7
7
7
.
.
.
4
4
4
1
1
1

0
.
5
6

1
.
7
3

6
6
.
.
5
5
3
3

2012 2013 2014 2015 2016

+2.6%

+6.7%

-78.8%

+6.9%

EPRA RESULTS2
NAV PER SHARE
(£ PER SHARE)

8
8
8
8
8
8
8
8
.
.
.
.
8
8
8
8

9
6
.
8
3
1
.
7

7
6
.
5

8
9
.
4

NET ASSET VALUE RETURN
(%)

0
.
8
2

3
.
6
1
1
.
0
1

8
.
3
2

8
8
.
.
3
3

EPRA EARNINGS
(£M)

6
.
0
3

2
.
0
3

1
.
6
3

6
.
2
3

0
0
.
.
9
9
3
3

EPRA EPS (PENCE
PER SHARE)

2
.
2
1

0
.
2
1

2
.
2
1

0
.
3
1

0
0
0
0
.
.
.
.
4
4
4
4
1
1
1
1

2016
2012 2013 2014 2015 2016

2012 2013 2014 2015 2016

+2.2%

+3.8%

+8.0%

+7.7%

JANUARY
S M T W T F S

1 2

3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30

LUMIERE LONDON
Lumiere London was London’s largest-ever light festival, a free four-day
event enjoyed by an estimated one million people. Our installation, by
Julian Opie, was entitled ‘Shaida Walking’. Situated on Broadwick Street, at
the eastern gateway to Carnaby, this was the only installation in the West
End which was retained after the festival.

1 Including our 50% share of property held in

joint venture

2 For EPRA defi nitions, see Glossary on

page 166

STRATEGIC REPORT OVERVIEWCHAIRMAN’S STATEMENT

IN THIS, MY FIRST STATEMENT AS CHAIRMAN, I WOULD LIKE TO THANK
THE BOARD AND STAFF, NOT ONLY FOR WELCOMING ME AND HELPING
ME THROUGH MY INDUCTION TO THE BUSINESS OVER THE PAST FEW
MONTHS, BUT, MORE IMPORTANTLY, FOR DELIVERING SUCH A STRONG
SET OF RESULTS.

Our proven long-term strategy, with its
relentless focus on the delivery of sustainable
rental growth, continues to produce
market-leading total shareholder returns
and we are confident it will continue to do so.

OUR PORTFOLIO
Our portfolio is exceptional not only in its
geographical concentration in the lively
heart of London’s West End, but its focus
on restaurants, cafés, leisure and retail
across over 1 million sq. ft. in some 600
buildings. Our innovative and enterprising
management strategy has a long record of
creating and fostering distinctive locations
in which our tenants’ businesses can prosper
through growing footfall and visitor spending.
This, in turn, supports our goal of generating
sustainable demand, which drives rental
and capital value growth but with relatively
low capital expenditure, all of which enhances
shareholder returns. Our portfolio, which is
now valued at £3.35 billion, is unique in
London and would be impossible to replicate.

GOVERNANCE AND RESPONSIBILITY
I join a company which has shown an
exceptional commitment to high standards
of corporate governance, transparency and
social responsibility. We strive to adopt
best practice across every aspect of the
business, overseen by an effective and
knowledgeable Board.

We maintain a regular dialogue with all our
institutional shareholders through meetings
and tours of our portfolio, and always welcome
the views, both positive and negative, from
all stakeholders, on our performance and
standards of corporate behaviour.

I have been particularly impressed with the
Group’s commitment to sustainability in the
management of its portfolio and its socially-
responsible approach to its operations. We
have a widely-recognised reputation for the
stewardship of our extensive ownership of
mainly older buildings. Our skill in bringing both
environmental and economic sustainability,
preserving and enhancing the iconic West
End locations we own, is a key aspect of our
long-term success. We are very active in, and
committed to, the communities in which
we operate. We work with local resident
and stakeholder groups, addressing a range
of social and other issues and support our
local councils and other statutory authorities
wherever we can assist.

JONATHAN LANE
On behalf of the Board and our shareholders,
I would like to thank Jonathan Lane for his
outstanding contribution to Shaftesbury’s
development over its first 30 years. The
qualities and strength of the business today,
and its long-term prospects, are a testament
to his commitment, determination, wide
experience and vision. He has handed over
a company in great shape.

OUTLOOK
Despite current political and economic
uncertainties around the world, London
and the West End are flourishing, and their
long-term prospects remain as bright as
ever. National and international businesses
are continuing to invest and locate here and
domestic and overseas visitors are coming, in
ever-growing numbers, to experience its
world-class attractions, shopping, restaurant,
leisure and entertainment choices. A
combination of vast public and private
investment in London’s transport network,
public realm, infrastructure and building
stock is supporting both the city’s reputation
as a global destination and the long-term
prospects for the West End and our portfolio.

With the company’s patient, long-term
strategy, and a committed, experienced
and enthusiastic management team, the
Board and I are confident we shall continue
our successful record of delivering growing
dividends and out-performance in total
returns for our shareholders.

Jonathan Nicholls
Chairman

29 November 2016

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEW
CHIEF EXECUTIVE'S STATEMENT

+2.2%

£8.88

EPRA NAV per share

+8.0%
£39.0m

EPRA earnings

+6.9%
14.7p

Dividends per share

WE ARE PLEASED TO REPORT ANOTHER YEAR OF EXCELLENT
PERFORMANCE. AGAINST A BACKGROUND OF GROWING CAUTION IN
PROPERTY MARKETS, WHICH IS BEGINNING TO AFFECT SOME PROPERTY
VALUES, OUR EXCEPTIONAL PORTFOLIO HAS DELIVERED UNDERLYING
CAPITAL VALUE GROWTH1 OF 4.9%.

The unique features of the West End
attract a wide variety of national and
international businesses, and provide a
large local working population, particularly
from the creative, media and tech sectors,
whose activity and spending throughout the
working week make an important contribution
to its economy and character. We benefit
from the substantial investment being made
by others in improving and extending the
stock of office accommodation around our
locations and across the West End.

OUR FOCUS ON LONDON’S WEST END
Over our 30-year history, we have patiently
assembled an exceptional portfolio of over
14 acres in the heart of London’s West End,
a location which is underpinned by an
unrivalled variety of attractions for local,
domestic and international visitors. Our
investment strategy is focused on restaurants,
cafés, leisure and retail, where our ownerships
extend to over 1 million sq. ft. and provide
70% of our annualised rental income. Our
long-term management strategy is aimed at
creating lively destinations, which attract both
footfall and spending by offering a distinctive
variety of retail and leisure choices. As space
in the West End for these core uses is
constrained by planning policies, the structural
imbalance in demand and availability brings
great resilience in occupancy and rental levels.

In addition, with over 400,000 sq. ft. of
office accommodation, we are the largest
single provider of accommodation for SME
businesses in Soho and Covent Garden.
We have also built up an ownership of
559 apartments which we rent and which
appeal to younger people who are studying
or working in central London.

Progression in current and potential future
rental income has been resilient and
investment yields attributed by our valuers
have remained firm. After adjusting for the
increase in SDLT announced in the March
2016 Budget, which has affected the
valuation of all UK property assets, capital
value growth over the year reduces to 4.0%.

The increase in our net property income
of 6.7% to £84.1 million reflects sustained
occupier demand and high levels of
occupancy across our portfolio and has
delivered an 8.0% increase in our EPRA
earnings to £39.0 million. This translates
into a 7.7% increase in EPRA earnings per
share, and supports a 6.9% increase in
dividends paid and proposed in respect
of the year to 14.7 pence per share.

The growth in the value of our portfolio
added 43 pence to the net asset value of
£8.69 we reported last year, an increase
of 4.9%. This has been offset by the costs
of refinancing our debenture stock and
terminating certain interest rate swaps,
which amounted to 24 pence per share,
resulting in a net asset value per share of
£8.88, an overall increase of 2.2%. This
well-timed refinancing has provided us with
new, low-coupon, long-term funding, which
has increased our financial resources and
will improve earnings in the years ahead.

1 Like-for-like, before the impact of increased SDLT

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEWCHIEF EXECUTIVE'S STATEMENT CONTINUED

THE WEST END ECONOMY
The buoyant conditions we reported last
year in our local market have continued
throughout the current year. Although
there have been growing concerns of an
economic slowdown nationally since the
beginning of 2016, the West End continues
to prosper, with steadily rising domestic and
international visitor numbers and spending
and demand from a broad-spectrum of
businesses seeking space across all uses.

These conditions, and the special appeal of
our high-profile and carefully-curated areas,
have underwritten the low level of vacancy
in our portfolio, and good growth in both
current rental income and rental tones,
throughout the year. We concluded £27.8
million of leasing transactions, achieving rents
for commercial space 7.7% above ERV at the
previous year end. This activity converts
our portfolio’s reversionary potential into
contracted income, whilst at the same time
providing valuable rental evidence for
growing income, over time, from our adjacent
and nearby holdings.

Although the outcome of the EU referendum
has created uncertainty for business
nationally, we have not, so far, seen any
adverse impact on occupier demand,
footfall or trading in our areas. The recent
depreciation in sterling has already added
to the spending power of international
visitors and, if sustained, may lead to
increased visitor numbers above their
long-term growth trend. Domestic
inflationary pressures, which are expected
to increase next year, may impact UK
consumer confidence but will be less
important for visitors who benefit from a
strong local currency. Until future trading
and other arrangements with the EU
become clearer, there is a risk that business
decisions may be deferred, slowing the UK
economy, but we expect the West End’s
wide appeal and economy will maintain its
history of resilience.

The recently announced revaluation of
business rates across England will increase
the levy on business premises in London
from next April. Across our portfolio, we
anticipate increases in the range 30% to
45%, depending on location. Broadly, we
estimate that this will increase tenants’
occupancy costs by c. 2% to 3% of
turnover. The average increases across our
streets will be less marked than for some
nearby locations and other Central London
destinations, increasing the competitive
advantage of the more-modestly priced
accommodation we offer. Whilst the
transitional arrangements for larger premises
are not as generous as they have been in
the past, we estimate that half of our 584
restaurants, cafés and shops, and three
quarters of our offices will qualify for the
transition to the new levels to be effected
over four years.

We support Westminster City Council’s
initiative to seek to retain more of the £1.8
billion of business rates they collect on
behalf of the Treasury. An increase from
the 4% they currently keep would support
their ambition to further invest in the
borough’s infrastructure, in partnership
with property owners and other stakeholders.

IMPROVING ACCESS TO THE WEST END
We expect our portfolio will, in the coming
years, benefit from a number of transport
infrastructure improvements. The opening
of the Elizabeth Line in late 2018, improved
rail and tube capacity, and initiatives such
as weekend night time running on the
Underground, are expected to bring more
footfall and spending to the West End. Whilst
the increased rates burden on tenants,
coupled with wider economic uncertainties,
are not welcome, these improvements will
enhance the West End's connectivity and
should, over time, enable restaurant, leisure
and retail businesses to absorb increased
costs through turnover growth.

INVESTING IN OUR PORTFOLIO
Our strategy is to refurbish, reconfigure
and adapt, rather than redevelop, our
buildings. Despite our extensive
management activity, our focus on uses
which limit the exposure to obsolescence
in our portfolio continues to result in a
relatively low level of capital expenditure,
which this year totalled £32.6 million, less
than 1% of the valuation of our portfolio.

We are making good progress with our
major projects in Seven Dials, Chinatown
and Carnaby. Each of these schemes is
located on streets which are expected to
benefit from greater forecast footfall from
the completion of the new Tottenham
Court Road transport hub and associated
public realm improvements. Our selection
of occupiers, and the creativity they bring
with their trading formats, will be of
particular importance. Inevitably with retail
and restaurant accommodation of the sizes
we are offering, where occupiers will be
investing heavily in their fit-outs, letting
periods are likely to be longer than for the
smaller space we traditionally have to offer.
In total, these three schemes will, on
completion and letting, add an estimated
£7.4 million to our contracted income. We
expect each will bring significant benefits to
our neighbouring ownerships as well as
producing long-term rental growth.

We continue to identify and negotiate early
vacant possession of under-utilised space
to implement improvement schemes,
introducing new, more valuable uses, where
possible. These projects unlock value and
enhance the rental potential of our holdings,
often producing compound benefits across
our extensive adjacent ownerships.

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEWCHIEF EXECUTIVE'S STATEMENT CONTINUED

ADDING TO OUR OWNERSHIPS
Over the year, additions to our portfolio
totalled £62.7 million.

In our locations, the availability of properties
to acquire, which meet our strict investment
criteria, continues to be limited. Existing
owners, who are mainly private, rather than
institutional, are reluctant to sell, recognising
the long-term security and growth prospects
their ownerships offer. This situation, which
has existed for many years, is unlikely to
change, even as a result of current economic
uncertainties, so assembling a portfolio of
14 acres, like ours, in the heart of the West
End, would be impossible.

However, as in the past, our patient approach
and forensic knowledge of our local market
will lead to a steady flow of purchases which
extend and complement our ownership
clusters, and provide further opportunities to
add value through our intensive management
strategies.

IMPORTANT REFINANCING INITIATIVES
With a scarcity of the type of properties we
seek to acquire, we need to act swiftly when
opportunities arise and, therefore access
to stable long-term funding and committed
financial resources is critical. In October
2016 we completed the early redemption of
our historical debenture stock and issued
£285 million of 15 year bonds, providing
additional net resources of £189.4 million,

enabling us to continue to fund additions
to, as well as investment in, our already-
extensive portfolio. This new debt was
secured at an exceptionally low fixed
coupon of 2.487%. Coupled with the
termination of £55 million of interest rate
swaps in October 2016, these transactions
have usefully reduced the cost of our debt,
benefiting future earnings and dividends.

LOOKING AHEAD
2016 will be remembered as a year of
unprecedented political turbulence, not
just in the UK but in many parts of the
world. The impact of the events we have
seen this year have not yet become clear,
and their longer term ramifications may not
become apparent for some considerable
time. This will inevitably bring uncertainty to
the general business climate, with risks to
consumer confidence and economic growth.

Whilst London and, at its heart, the West
End, cannot be completely immune from
the influences of the macro environment,
its global city status, exceptionally dynamic
and broad-based economy and enduring
appeal for domestic and international
businesses and visitors, will continue to
support its long-term prospects for
sustained growth and prosperity. This
positive outlook underpins the potential in
our portfolio.

Our management strategy, executed by an
experienced and enthusiastic team, with
a forensic knowledge of the local market,
has a long record of delivering sustained
rental growth, which is key to the long-term
growth in the value of our portfolio and
shareholder returns. Our strategy is
deliberately long-term in outlook and is not
influenced by short-term market or
economic conditions. Its implementation
constantly evolves to ensure that our
buildings and locations adapt and respond
to the challenges of technological
developments and environmental
sustainability, as well as expectations of
both occupiers and the vast, and ever-
growing, numbers who visit every day,
throughout the year.

The exceptional qualities and resilience of
our business have delivered long-term
sector out-performance. Despite present
uncertainties, we are confident our
impossible-to-replicate portfolio and the
innovative, long-term management we
bring to it, will continue this record of
delivering sustained growth in total returns
for shareholders.

Brian Bickell
Chief Executive

29 November 2016

TOTAL SHAREHOLDER RETURNS (TO SEPTEMBER 2016)

10 YEARS

5 YEARS

1 YEAR

100

+157%

100

+38%

100

+20%

2006

Shaftesbury

FTSE 350 RE

+146%

-11%

2016

2011

2016

2015

2016

Shaftesbury

FTSE 350 RE

+134%

+96%

Shaftesbury

FTSE 350 RE

+8%

-12%

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEW

OUR BUSINESS MODEL: HOW WE CREATE AND DELIVER VALUE

EXCEPTIONAL PORTFOLIO IN THE HEART
OF LONDON'S WEST END

Global destination attracting high volumes of footfall
and spending

Broad-based local economy, not solely reliant on
the fortunes of the UK

Record of long-term prosperity, economic resilience
and growth

PAGES 12 TO 19

FOCUS ON RESTAURANTS, LEISURE AND
SHOPS

Long history of demand exceeding availability
of space
• Rental levels have not shown declines, even in times

of economic uncertainty

• Low vacancy and sustained rental growth

Space provided in shell-form only, so limited exposure
to obsolescence

PAGES 21 TO 29

CREATE PROSPEROUS ENVIRONMENTS
FOR TENANTS

Establish ownership clusters

Curate distinctive destinations which appeal to visitors,
businesses and residents

Reconfigure and improve space

Drive footfall and spending

Improve the public realm

PAGES 31 TO 32

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEWOUR BUSINESS MODEL: HOW WE CREATE AND DELIVER VALUE CONTINUED

Together with...

EXPERIENCED MANAGEMENT
TEAM

PRUDENT FINANCIAL
MANAGEMENT

Long-established, innovative team with forensic
knowledge of the West End property and
occupier markets

Modest leverage

Long-term financing

Tax-efficient REIT structure

PAGE 34

PAGE 35

...drives long-term growth in income and capital values through...

SUSTAINED
DEMAND

LOW
VACANCY

LIMITED
OBSOLESCENCE

Fundamental to long-term
growth in rental income and
capital values

Maximises income
generated by the portfolio

Limits expenditure needed
to maintain our portfolio

...to deliver...

LONG-TERM GROWTH IN DIVIDENDS AND
SHAREHOLDER RETURNS

PAGES 38 TO 39 ON HOW WE MEASURE SUCCESS

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEW10 Shaftesbury Annual Report 2016

STRATEGIC REPORT OVERVIEW

FEBRUARY
S M T W T F S
1 2 3 4 5 6

7 8 9 10 11 12 13

14 15 16 17 18 19 20
21 22 23 24 25 26 27

28 29

CHINESE
NEW
YEAR

Each year we support and promote
Chinese New Year celebrations. This year was
‘The Year of the Monkey’. Chinatown played
a major role as London’s West End celebrated
with a festival filled with music, acrobatics and
a parade with ten lion-dance teams.

EXCEPTIONAL PORTFOLIO IN THE
HEART OF LONDON'S WEST END

CLUSTERED IN ICONIC AREAS WITH HIGH FOOTFALL
FOCUSED ON OVER 1 MILLION SQ. FT. OF RESTAURANTS,
LEISURE AND SHOPS

VILLAGES (% OF VALUATION1)

USES (% OF ANNUALISED CURRENT INCOME2)

£3.35bn

22%

35%

Carnaby
Covent Garden
Chinatown
Soho
Charlotte Street
Longmartin3

14%

16%

£101.0m

35%

Shops
Restaurants, cafés
and leisure
Offi ces
Residential

26%

35%

Accumulated over 30 years, our portfolio
comprises nearly 600 buildings, mostly of
domestic size, in 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. Our
wholly-owned portfolio is all within
Conservation Areas and around 20% of
our buildings are listed as being of special
architectural interest.

The buildings we seek to acquire are mainly
in long-term private ownership. Existing
owners remain unwilling to sell properties
in this resilient area. Therefore, it would be
virtually impossible to replicate a portfolio
of this size and concentration, and with
such a mix of uses, in these vibrant and
prosperous locations.

With the benefit of our proven management
strategies, our portfolio delivers sustainable
growth in rents, through the wider property
market cycles, which is fundamental to
long-term value creation.

WHOLLY-OWNED PORTFOLIO

275
restaurants,
cafés and
pubs

309 shops

406,000 sq. ft.
offi ce space

559
apartments

1 Including our 50% share of property held in joint

3 Shaftesbury has a 50% interest in this joint

venture

2 Wholly-owned portfolio

4 Estimated annual passenger numbers by the

mid-2020's

12 Shaftesbury Annual Report 2016

STRATEGIC REPORT OVERVIEW

RR
RR
RR
R

T
T
T
T
T
T
T
T
T
T
T

E S
S
S
S
S
S
S
S
S
S
S
E
E

G
G
G

D
D
D

O
O
O

G
G
G

T
T
T

CHARLOTTE
E
E
E
EE
E
STREET
0.8 acres

TT
T
TT

O
OO
OO
OO

TT
TT
TT
T

T
T
T
T
T

E
E
E
E
E

NN
N

H
H
H

A
A
A

M
MM

O ver 14 a cres
in the hear t of London’s West
End2 and 1.9 acres owned in
joint venture3

O X F O R D S T R E E T
O XO X FF OO RR D S TD S T R ER E

108m4

PASSENGERS

TOTTENHAM
COURT ROAD

37m

PASSENGERS

100%of our portfolio is between

fi ve and ten minutes’ walk of a
Crossrail station

BOND
STREET

102m4

PASSENGERS

OXOXOXOXOXOXFOFORDRDRDRDRDRD
OXFORD
CIRCUS

92m

PASSENGERS

CARNABY
4.2 acres

T
T
T

R
R
R

E
E
E

TTTT
T

SOHO
1.4 acres

OO
O

AA
A

DD
D
DD

UU
U
UU
UU

NN
N
NN

E
EE
EE
EE
CHINATOWN
3.2 acres

TESBURY A V E

AF
SH

RREEGG
REGENT STRE E T

Y
YY
Y

LL
LL
LL
L

D ID I LL
D I L

PICCADILLY
CIRCUS

43m

PASSENGERS

L
L
L

A
A
A

L M
M
L M
L

L
L
L

A
A
A

P
P
P

£3.35bn

E M
MM
portfolio valuation1
EE

ST JAMES’S
ST ST ST ST ST ST JAJAJAJAJAJAMEMES’S’S S
PARK
PAPARKRK

LL
L

T
T
T

AA
A

H
H
H

A
AA

C
C
C

C
PP II C
P I C

1.8m sq. ft.
of commercial and residential
accommodation2 plus 0.3m sq. ft.
held in joint venture3

GREEN
PARK

London Underground

Elizabeth Line

SEVEN DIALS
3.1 acres

ST MARTIN’S
COURTYARD3
E
EE
1.9 acres
R
RR
O
OO
L
LLLL

GG
G

NN
N

AA
A

CC
C

COVENT
GARDEN

15m

PASSENGERS

LEICESTER
ICESTETETETETETERRRR
ICES
ICES
ICES
ICES
ICES
ICES
LELELELELELEICES
SQUARE

44m

PASSENGERS

OPERA
QUARTER
0.6 acres

COLISEUM
1.0 acre

S T R

CHARING CROSS

STRATEGIC REPORT OVERVIEW
STRATEGIC REPORT OVERVIEW

Shaftesbury Annual Report 2016

EXCEPTIONAL PORTFOLIO IN THE HEART OF LONDON'S WEST END
OUR VILLAGES

CARNABY
35% OF OUR PORTFOLIO1

Carnaby is a unique and iconic shopping and
dining destination, two minutes away from both
Oxford Circus and Piccadilly Circus. It offers over
100 retail brands and 53 restaurants, cafés and
bars across our ownership of 13 streets covering
4.2 acres. Attracting footfall, estimated at over
40 million people each year, it is a popular and
internationally-renowned destination for fashion
retail, focused on new concepts and brands, and
targeted at a 15 – 25 age-range. In recent years,
its reputation for lively casual dining and leisure
choices, centred on Kingly Court and Kingly Street,
has become increasingly important.

61% of the Group’s office space is in Carnaby.

1 By value

101 shops

181,000 sq. ft.

247,000 sq. ft.

offices

Shops
Restaurants, cafés
and leisure
Offices
Residential

53 restaurants,

cafés and pubs
103,000 sq. ft.

94 apartments

56,000 sq. ft.

28%

£39.6m

50%

16%

Percentage of annualised
current income

STRATEGIC REPORT OVERVIEW
COVENT GARDEN
33% OF OUR PORTFOLIO1

Covent Garden, famous for its historic street
patterns and architecture, is home to half
of London’s West End theatres. It has a
broad range of shops, restaurants, bars and
cafés, giving it a distinctive atmosphere,
appealing to a wide range of audiences.
There is also a long-established and
flourishing residential community.

Our wholly-owned holdings, extending to 4.7
acres, are principally centred on Seven Dials in
north Covent Garden, in close proximity to
the Tottenham Court Road transport hub.
They also include the Coliseum and Opera
Quarter restaurant districts to the east
and west of the Piazza. Annual footfall in
Seven Dials alone is estimated at over 30
million people.

This location also includes our 50% interest
in the Longmartin joint venture, close to
Leicester Square.

1 By value

2 Shaftesbury has a 50% interest in these

3 Our 50% share

WHOLLY-OWNED

94 shops
138,000 sq. ft.

84,000 sq. ft.
offices

92 restaurants,
cafés and pubs
176,000 sq. ft.

221 apartments
137,000 sq. ft.

11%

Shops
Restaurants, cafés
and leisure
Offices
Residential

22%

30%

£27.5m

37%

LONGMARTIN2
21 shops
67,000 sq. ft.

10 restaurants,
cafés and pubs
45,000 sq. ft.

102,000 sq. ft.
offices

75 apartments
55,000 sq. ft.

15%

37%

£8.6m3

32%

16%

Percentage of annualised
current income

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEW
EXCEPTIONAL PORTFOLIO IN THE HEART OF LONDON'S WEST END
OUR VILLAGES

CHINATOWN
22% OF OUR PORTFOLIO1

Chinatown is at the heart of London’s
West End entertainment district, next to
Leicester Square, Piccadilly Circus and
Shaftesbury Avenue. It has an
exceptional concentration of restaurants
which offer an ever-widening range of
Far Eastern dining choices. 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. We are the dominant
owner, with holdings extending to 3.2 acres.

66 shops

95,000 sq. ft.

77 restaurants,

cafés and pubs
206,000 sq. ft.

1 By value

29,000 sq. ft.

offices

124 apartments

78,000 sq. ft.

Shops
Restaurants, cafés
and leisure
Offices
Residential

13%

22%

£22.3m

61%

Percentage of annualised
current income

1 BY VALUE

SOHO
7% OF OUR PORTFOLIO1

CHARLOTTE STREET
3% OF OUR PORTFOLIO1

Soho is unique in its combination of a flourishing day-time business
community and an important evening and night-time economy. By day,
it offers a wide variety of independent, quirky shops and is a hub for
creativity with many small businesses, typically in the media, tech and
fashion businesses. In the evening and night-time, its distinctive
atmosphere and exceptional choice of restaurants, cafés, bars and
clubs, together with nearby theatres, create a popular destination for
visitors as well as a valuable amenity for the West End’s large working
population. It has a diverse residential community.

39 shops

43,000 sq. ft.

30 restaurants,
cafés and pubs
58,000 sq. ft.

15%

21%

27%

£8.0m

37%

36,000 sq. ft.

offices

Percentage of annualised
current income

69 apartments
38,000 sq. ft.

1 By value

Shops
Restaurants, cafés
and leisure
Offices
Residential

Charlotte Street, encompassing Goodge Street and Rathbone Place,
is a bustling location and renowned dining district, just north of
Oxford Street and close to Tottenham Court Road. Its rapidly
increasing office concentration, dominated by creative, media,
fashion and tech businesses, together with a large student
population, add to the cosmopolitan feel of the area.

9 shops

14,000 sq. ft.

23 restaurants,
cafés and pubs
47,000 sq. ft.

10,000sq. ft.
offices

51 apartments

23,000 sq. ft.

16%

18%

£3.6m

58%

Percentage of annualised
current income

Shops
Restaurants, cafés
and leisure
Offices
Residential

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEW

STRATEGIC REPORT OVERVIEWEXCEPTIONAL PORTFOLIO IN THE HEART OF LONDON'S WEST END
WHY LONDON'S WEST END?
POPULAR VISITOR AND BUSINESS DESTINATION
WITH A LONG RECORD OF PROSPERITY AND RESILIENCE

LONDON: PROSPEROUS AND GROWING
London is the largest city in Western Europe. Not only one of the world’s leading business
centres, its unrivalled variety of heritage and cultural attractions draws huge numbers of
domestic and international visitors. It was ranked the world’s most popular tourist city
destination in 20151.

Its population, currently 8.6 million, is expected to grow to more than 10 million by 20362.
Additionally, there is a similar, and growing, population in southern England which can easily visit
for a day.

With its global appeal, long-term growth in London’s economy, population and visitor numbers
gives it a resilient economic base which is not reliant solely on the fortunes of the wider UK
economy.

THE WEST END: POPULAR DESTINATION
BRINGING STRONG FOOTFALL AND
CONSUMER SPENDING
The West End is a popular destination,
attracting huge numbers of domestic and
international visitors. Annual visits are
estimated at over 300 million.

Its unrivalled concentration of entertainment
and cultural attractions, historic buildings,
and public spaces are complemented by a
world–class variety of shopping. Importantly,
these attractions are enhanced by a wide
choice of innovative and accessible dining
and leisure concepts. Together, these
provide an all-round experience sought by
today’s visitors.

The West End is also a location for a wide
range of global, national and local businesses,
and a popular place to live. The City of
Westminster, generating over 3% of UK
economic output, has a working population
across the borough of over 650,000.
Together with the West End’s visitors, and
its residential community, this brings high
footfall and spending, both of which have
shown long-term resilient growth.

AVAILABILITY OF SPACE IS
CONSTRAINED
Availability of commercial space in the
West End is constrained, planning
regulations are tight and there is demand
from a wide variety of national and
international 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 economic
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 handle over 200 million passengers
annually. The transport network is critical
to the success of the West End and huge
infrastructure investment, to improve
capacity and reliability, is underway.

Already, we are seeing the benefits of the
Underground running through the night on
Fridays and Saturdays, which started in late
summer. We also expect to be a major
beneficiary of the Elizabeth Line, which
opens in 2018. Apart from increasing
network capacity, it will extend the West
End’s provincial catchment area and
shorten travel times, factors which are
expected to increase visitor numbers and
retail and leisure spending. Passenger
numbers at the Tottenham Court Road
and Bond Street transport hubs are
forecast to reach over 200 million by the
mid-2020s3, materially changing footfall
patterns in the vicinity. All our properties
are within ten minutes’ walk, and
approximately 80% within five minutes,
of these two West End 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
planned, or underway, to ease pavement
congestion and provide stronger connections
between retail, cultural and leisure attractions.

1 Mastercard – Global City Index

2 The London Plan, March 2015

3 Arup, The Impact of Crossrail on Visitor
Numbers in the West End, January 2014

LONDON
FASHION
WEEK
We supported London
Fashion Week with a
focus on womenswear
brands in Carnaby and
Seven Dials. The
campaign ran through-
out social media, and
on each village website,
with a competition to
win tickets to a London
Fashion Week show.

FEBRUARY
S M T W T F S

1 2 3 4 5 6

7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27

28 29

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEW

FEBRUARY
S M T W T F S

1 2 3 4 5 6

7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27

28 29

DOUBLE
DATES
Seven Dials partnered
with Double, a new dating
app featured on Dragons'
Den and invited 28 single
people to enjoy a date in
Seven Dials.

MARCH
S M T W T F S
1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19

20 21 22 23 24 25 26

27 28 29 30 31

MOTHER'S DAY
Unique products, gift ideas
and experiences were
showcased through our
consumer newsletters and
social media channels across
our portfolio.

20 Shaftesbury Annual Report 2016

STRATEGIC REPORT OVERVIEW

FOCUS ON RESTAURANTS, LEISURE AND RETAIL
MIX OF USES, FOCUSED ON RESTAURANTS,
LEISURE AND RETAIL OVER LOWER FLOORS
UPPER FLOORS - MIX OF OFFICES AND
RESIDENTIAL

SPACE PROVIDED IN SHELL
FORM SO OBSOLESCENCE IS
LIMITED
Importantly, we provide our retail, restaurant,
café and leisure accommodation in shell
form. Tenants are responsible for fit-out,
with no capital contribution from us. At the
end of the lease, we re-let the shell of space
without incurring significant refurbishment
costs, limiting our exposure to obsolescence.

UPPER FLOORS - A MIX OF
OFFICES AND RESIDENTIAL
The space above our shops and restaurants
comprises small 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 regular customers for our shops,
restaurants, cafés, and leisure operators.

In response to the growing demand for
residential accommodation, where possible,
we convert our smaller offices, which were
no longer suitable for office use, back to
their original residential use.

EVOLUTION OF USES OVER TIME
(% OF ANNUALISED CURRENT INCOME¹)

Residential

Offices

Restaurants and leisure

Shops

2006

2016

LIKE-FOR-LIKE ERV GROWTH¹
RESTAURANTS, LEISURE AND RETAIL

160

140

120

100

Like-for-like ERV growth
ERV (cumulative, rebased to 100)

5.7%

5.0%

5.5%

4.7%

4.8% 5.1% 5.0%

3.6%

0.5%

-0.1%

2006 2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

RESTAURANTS, LEISURE AND
SHOPS GENERATE 70% OF
CURRENT ANNUALISED
INCOME1
We have over 1 million sq. ft. of restaurant
leisure and retail space, which provides 70%
of our current income1. It comprises 309
shops, mainly of medium or small size, and 275
restaurants, cafés and pubs. The combination
of these uses and variety of interesting
brands in our villages gives visitors an
experience unmatched by other destinations.

CAREFUL SELECTION OF
TENANTS: NEW CONCEPTS
AND INDEPENDENTS FAVOURED
The careful selection of restaurant, leisure and
retail tenants is fundamental to our strategy.
We favour new concepts, independent
operators and international retailers making
their UK debut and prefer mid-market,
innovative and accessible concepts; 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 restaurant, leisure and
retail space exceeding availability, which is
often restricted by planning policies.

As a result, rents for these uses, in our
areas, have not demonstrated cyclical or
structural decline, even in times of major
economic uncertainty. Our vacancy levels
have been low historically, averaging 3.3% of
ERV for retail and 1.4% of ERV for restaurants,
cafés and leisure over the past ten years1,2.

1 Wholly-owned portfolio

2 EPRA vacancy

SEE PAGE 53 FOR INFORMATION ON VACANCY

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEW

RESTAURANTS,
CAFÉS AND LEISURE

ANNUALISED CURRENT INCOME
BY VILLAGE1

18%

£35.3m

39%

29%

Carnaby

Covent Garden

Chinatown

Soho

Charlotte Street

WHOLLY-OWNED

LONGMARTIN

Restaurants, cafés and pubs

275

Area sq. ft.

590,000

Area sq. ft.

45,000

Weighted average unexpired
lease term

11 years

Current income

£35.3m

13 years

Current income

£1.4m

35%

of annualised
current income1

22 Shaftesbury Annual Report 2016

STRATEGIC REPORT OVERVIEW

IMPORTANT DRIVER OF FOOTFALL
We are the largest single provider of dining and leisure space in
the West End, owning nearly one in five of the licensed premises.
Restaurants, cafés and leisure choices are important to the mix of
uses in our villages. Most of our restaurants provide a casual dining
experience, often with an all-day offer. The broad variety of concepts
and cuisines is a major driver of footfall and social media interest.

HIGH DEMAND, RESTRICTED AVAILABILITY OF SPACE
The availability of restaurant and leisure space in the West End
is constrained by restrictive planning policies, which seek to
preserve the balance of commercial uses and amenity of local
residents. The barriers to entry are high with existing operators
reluctant to relinquish their valuable sites, other than for
significant premiums. As a consequence, tenants ensure they
preserve their valuable occupation rights and our bad debt
history is negligible.

Demand for space in our busy areas is strong, particularly from
independent operators, established street-food concepts and
start-ups seeking their first site. Usually we receive numerous
offers for available units and vacancy levels are minimal.

LONGER LEASES, BUT TERMS IMPROVING
Tenants invest considerable sums fitting out their space, sometimes
spending the equivalent of 3-5 years’ rent and, therefore, we grant
longer leases than those for shops, to provide an extended period
over which to amortise this cost.

Until recently, leases were granted over whole buildings and
provided tenants with renewal rights on expiry. We find that upper
floors are often now underutilised and, where opportunities arise,
we seek to negotiate the surrender of these leases to secure
vacant possession. 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.

Reflecting the strength of demand for our restaurant space, in
recent years we have reduced the term of leases we grant and
introduced more flexibility at expiry. Also, we include turnover-
related rental top-ups, giving us the higher of market rent and
a percentage of turnover.

TYPICAL LEASE TERMS

HISTORICAL LEASES

NEW LEASES

Term

25 years

15 years

Rent reviews

Five-yearly, upward-only

Security of tenure on expiry Yes

Turnover-related top-up

Yes

Space leases typically
granted over

Whole buildings

Operational space only
(i.e. not upper floors)

Proportion of our restaurant
leases (by income)

62%

Incentives

N/A

LETTING ACTIVITY DURING
THE YEAR

Lettings/rent reviews1:

£8.2 million

(19.4% of restaurant, cafés & leisure ERV)

15 New lettings

4 Lease renewals

29 Rent reviews

EPRA vacancy1 at 30 September 2016:
0.9%, of which 0.7% was under offer.

Our share of lettings and rent reviews
in the Longmartin joint venture: £0.2m.

38%

Short rent-free period to
help cover tenant fit-out
time. No contribution to
fit-out costs

KEY PRIORITIES FOR 2017

Identify further opportunities
to negotiate vacant possession of
restaurants let on historical
leases.

Introduce new restaurant
operators to our villages.

Completion of our Charing Cross
Road/Chinatown scheme and
associated public realm
improvements

1 Wholly-owned portfolio

SEE PAGE 51 FOR FURTHER INFORMATION ON THE
CHARING CROSS ROAD/CHINATOWN SCHEME

STRATEGIC REPORT OVERVIEW

Shaftesbury Annual Report 2016

RETAIL

ANNUALISED CURRENT INCOME
BY VILLAGE1

14%

£35.8m

55%

23%

Carnaby

Covent Garden

Chinatown

Soho

Charlotte Street

WHOLLY-OWNED

LONGMARTIN

Shops

309Larger shops2 88 (64% of current income)

21Larger shops2 10 (85% of current income)

Smaller shops3 221 (36% of current income)

Smaller shops3 11 (15% of current income)

Area sq. ft.

471,000

Area sq. ft.

67,000

Weighted average unexpired
lease term

4 years

Current income

£35.8m

4 years

Current income

£3.2m

35%

of annualised
current income1

24 Shaftesbury Annual Report 2016

STRATEGIC REPORT OVERVIEW

Our retail areas in Carnaby and Seven Dials make an important
contribution to the West End's reputation as a global shopping
destination.

COMPETITIVE RENTAL LEVELS COMPARED WITH
NEARBY STREETS
An important element of the character and mix in our villages is
the wide range of shop sizes and rental levels across our streets,
from small starter units to larger shops for more-established
retailers. This enables us to provide a wide diversity of retail formats
and offers great flexibility for retailers to grow, or open new
concepts, within our areas.

Importantly, in our high-footfall and spending locations, rental
levels are competitive relative to nearby streets.

TYPICAL LEASE TERMS
Our retail leases generally are short, giving us the opportunity
to refresh tenant mix, an important aspect of maintaining our
villages’ appeal.

Smaller shops: 3-5 years

Larger shops: 5-10 years

Short rent-free period to help cover tenant fit-out periods.

SUSTAINED DEMAND
The majority of our space is let to fashion and lifestyle retailers.
Quality and variety are becoming ever-more important as shoppers’
behaviour changes, with a bias towards innovation, experience,
fulfilment and the ability to find something different from that
commonly offered by high streets and shopping centres. To
attract visitors, we seek out new, interesting concepts from across
the world, to maintain a fresh retail mix.

With the huge potential customer base offered by the West End,
demand for space in our iconic retail destinations remains good, with
interest both from domestic and international retailers, often
opening new concept stores or flagships.

1 Wholly-owned portfolio

2 Rental value > £150,000 pa

3 Rental value < £150,000 pa

4 Source: Cushman & Wakefield, published information and company data

5 Based on 30 ft zones

WEST END RETAIL RENTAL TONES4 (PRIME ZONE A PER SQ. FT.)

1,500

1,400

1,000

750

700

650

Shaftesbury streets

515

400

350

275

230 210 190 140

Old B ond Street5
M on m outh Street
Berwick Street
Floral Street
Earlha m Street
C ovent G arden M arket
Foubert's Place
N e w burgh Street
Long Acre
N eal Street
Regent Street5
C arnaby Street
O xford Street5
Ja m es Street W C 2

KEY PRIORITIES FOR 2017

Completion of our Thomas Neal’s
Warehouse and Charing Cross
Road schemes.

Introduce further interesting
retail concepts to our villages.

LETTING ACTIVITY DURING
THE YEAR

Lettings/rent reviews1:

£10.3 million

(22.5% of retail ERV)

25 New lettings

26 Lease renewals

21 Rent reviews

EPRA vacancy1 at 30 September 2016: 0.7%.

Our share of lettings and rent reviews in
the Longmartin joint venture: £1.4m.

SEE PAGE 51 FOR FURTHER INFORMATION ON
THE THOMAS NEAL'S WAREHOUSE AND
CHARING CROSS ROAD SCHEMES

STRATEGIC REPORT OVERVIEW

Shaftesbury Annual Report 2016

OFFICES

ANNUALISED CURRENT INCOME
BY VILLAGE1

18%

£16.4m

67%

Carnaby

Covent Garden

Chinatown

Soho

Charlotte Street

26 Shaftesbury Annual Report 2016

WHOLLY-OWNED

Area sq. ft.

406,000

LONGMARTIN

Area sq. ft.

102,000

Weighted average unexpired
lease term

4 years

Current income

£16.4m

5 years

Current income

£2.7m

16%

of annualised
current income1

STRATEGIC REPORT OVERVIEW

LARGE PROVIDER OF SMALL OFFICE SPACE IN
THE CORE WEST END
We are an important provider of small, affordable office space in
the core West End, with 406,000 sq. ft. of accommodation in the
wholly-owned portfolio, let to 246 tenants, of which 87% occupy
less than 2,500 sq. ft.

Our average letting is 1,440 sq. ft., often over more than one floor,
at £51 per sq. ft. (2015: £46 per sq. ft.). The average ERV is £61 per
sq. ft. (2015: £56 per sq. ft.).

STRONG DEMAND, WITH LOW AVAILABILITY OF SPACE
Demand for our smaller office accommodation is good, particularly
from the SME media, creative, fashion and tech sectors, which
traditionally have been based in Soho and Covent Garden.

Over recent years, office-to-residential conversions and
redevelopment of multi-let office buildings, to higher specification,
larger floor plate space, has reduced the availability of smaller
office accommodation across our locations.

With occupier demand outstripping availability of space, rental
levels have grown and vacancy levels remain extremely low.

TYPICAL LEASE TERMS

Smaller offices: 3-5 years

Larger offices: 5-10 years, with break options at year 5

Incentives: Short rent-free period. No contribution to fit-out costs

LETTING ACTIVITY DURING
THE YEAR

Lettings/rent reviews1:

£3.1 million

(12.8% of office ERV)

26 New lettings

35 Lease renewals

1 Rent review

EPRA vacancy1 at 30 September 2016:
4.1%, of which 3.3% was under offer.

Our share of lettings and rent reviews
in the Longmartin joint venture: £0.6m.

KEY PRIORITIES FOR 2017

Continue reconfiguring/
upgrading our office space
to ensure it meets modern,
flexible working space standards
and to improve its environmental
performance to minimise
occupation costs.

Progress our 57 Broadwick
Street redevelopment.

1 Wholly-owned portfolio

SEE PAGE 51 FOR FURTHER INFORMATION ON
THE 57 BROADWICK STREET SCHEME

STRATEGIC REPORT OVERVIEW

Shaftesbury Annual Report 2016

RESIDENTIAL

ANNUALISED CURRENT INCOME
BY VILLAGE1

WHOLLY-OWNED

Apartments

559

Area sq. ft.

332,000

Current income

£13.5m

12%

18%

21%

£13.5m

45%

Carnaby

Covent Garden

Chinatown

Soho

Charlotte Street

LONGMARTIN

Apartments

Area sq. ft.

55,000

Current income

£1.2m

14%

of annualised
current income1

STRATEGIC REPORT OVERVIEW

28 Shaftesbury Annual Report 2016

POPULAR AREA TO LIVE
The West End is a popular place to live and we continue to see
sustained demand to rent our mid-market apartments. Our flats
are mainly studios and one or two-bedroom apartments, many
of which have been created from the conversion of small office
accommodation back to its original residential use. We have a
number of further residential conversion planning consents which
we could implement in the future.

RELIABLE AND GROWING CASH FLOW
Occupancy levels in our apartments are high and, with strong
demand, they produce a growing and reliable income stream.

GENERALLY, WE DO NOT SELL OUR APARTMENTS
Most of the value of our buildings is in the commercial 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,
generally, we choose not to sell our apartments.

TYPICAL LEASE TERMS

Three year Assured Shorthold Tenancies

Let unfurnished

Annual RPI uplifts

Mutual break options on a rolling two-month basis after the first six months

KEY PRIORITIES FOR 2017

Continue our rolling
refurbishment programme to
upgrade our apartments and
improve their rental prospects.

Identify future potential
residential conversions.

LETTING ACTIVITY DURING
THE YEAR

Lettings/renewals1

£6.2 million

(37.6% of residential ERV)

200 Lettings

29 Renewals
Vacancy1 at 30 September 2016:
eleven apartments, of which ten were
under offer.

Our share of lettings and renewals
in the Longmartin joint venture: £0.5m.

1 Wholly-owned portfolio

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEWAPRIL
S M T W T F S

1 2

3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23

24 25 26 27 28 29 30

BERWICK
STREET
CALLING/
RECORD
STORE
DAY

Our three-month campaign to discover up-and-coming
music talent, the start of which coincided with Record
Store Day, had over 4,000 entries. The winning band
was awarded a studio session to produce a vinyl record,
which was sold in ten Berwick Street shops, with proceeds
going to charity partner House of St Barnabas.

CREATE PROSPEROUS ENVIRONMENTS
FOR TENANTS

CREATE
DISTINCTIVE
RETAIL AND
LEISURE
DESTINATIONS

MANAGEMENT
STRATEGY

IMPROVE
THE PUBLIC
REALM

ESTABLISH
OWNERSHIP
CLUSTERS

PROMOTE OUR
VILLAGES

RECONFIGURE
AND IMPROVE
SPACE

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 retail and leisure

tenant-mix strategy. This includes clustering
similar uses 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

OWNERSHIP CLUSTERS

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.

Establishing ownership clusters enable us
to 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 adjacent and nearby
holdings.

STRATEGIC REPORT OVERVIEW

Shaftesbury Annual Report 2016

CREATE PROSPEROUS ENVIRONMENTS
FOR TENANTS CONTINUED

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
economic and environmental sustainability
to our properties and areas through
refurbishment and reconfiguration to
improve our buildings, enhance their rental
potential and capital values, and extend
their useful lives. This involves a
combination of:

PROMOTING OUR VILLAGES AS
DESTINATIONS WITH A WIDE
VARIETY OF INTERESTING,
INNOVATIVE AND
EVER-CHANGING CHOICES

We work closely with our tenants to promote
our areas and their businesses to the West
End’s wide domestic and international
audience.

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.

Our multi-channel marketing includes:

• Widely publicised initiatives such as

shopping, street food and music events

• An active digital strategy, including

dedicated websites for our villages, and
an extensive social media presence

• Decorating our villages e.g. at Christmas

• Maximising retail, restaurant and leisure

and for Chinese New Year

We build on relationships with our existing
tenants who are not only a great source of
new ideas, 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 trade
press, research visits to UK and international
cities, and attendance at trade events.

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 schemes is
short and the costs are modest. Annual
capital expenditure is normally less than
1% of portfolio value.

Details of the impact of our business on
the environment are set out in
Sustainability on pages 72 to 76.

32 Shaftesbury Annual Report 2016

STRATEGIC REPORT OVERVIEW

APRIL
S M T W T F S

1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23

24 25 26 27 28 29 30

LONDON
COFFEE
NIGHT

The London Coffee Festival
celebrates London’s bustling
and vibrant coffee scene. We
supported this campaign with
a series of digital promotions to
showcase cafés and café-culture
across our portfolio.

Lorem ipsum dolor sit amet, vel pharetrarut
rum at. Eu dapibus dignissim quis diamnia
nulla quis, quam tortor auctor lacus ut. Acvar
ius amet quisque quib usdam.

EXPERIENCED MANAGEMENT TEAM
WITH AN INNOVATIVE APPROACH TO LONG-TERM,
SUSTAINABLE INCOME AND VALUE CREATION

FORENSIC KNOWLEDGE
OF THE WEST END

Our long-established team has a forensic
knowledge of the West End and experience
of management through different
economic cycles. Our executive directors
have an average length of service of nearly
23 years, and the senior management team
has twelve years’ average service. The
experience and diversity of our team is an
essential element of our success. Details of
our diversity policy are set out in the
Nomination Committee report on page
88. How we invest in the welfare and
development of staff is set out in
Sustainability on page 76.

We are supported by a broad range of
external advisors, who bring us both ideas
and their wide experience, gained from
other clients. Everybody involved with
Shaftesbury – staff and advisors – shares a
passion and enthusiasm for the West End
and our locations.

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.

Also, we 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.

Details of how our activities are aligned with
the local community and key stakeholders
are set out in Sustainability on page 75.
Human Rights are discussed in the
Corporate Governance Report on page
84.

APRIL
S M T W T F S

1 2

3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30

THE MAGIC
CIRCLE
The magician, Dynamo,
unveiled a blue plaque to
commemorate the Magic
Circle, which was founded in
1905 at the Pinoli Restaurant,
17 Wardour Street, Chinatown.

SEE PAGES 80 TO 81 FOR DIRECTOR BIOGRAPHIES

SEE SUSTAINABILITY ON PAGES 72 TO 76

34 Shaftesbury Annual Report 2016

STRATEGIC REPORT OVERVIEW

PRUDENT FINANCIAL MANAGEMENT
A STRONG BALANCE SHEET AND A
TAX-EFFICIENT STRUCTURE

SOURCES OF CAPITAL

LOW-RISK DEBT STRUCTURE

Under REIT rules, we are required to
distribute the majority of our recurring
earnings. Furthermore, the importance of
our ownership clusters in long-term value
creation means that opportunities to
recycle capital are limited.

Therefore, investment in our portfolio is
funded through a combination of equity
and debt, with equity providing the
permanent capital to support our
long-term strategy. We use debt to
enhance, not drive, returns.

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.

Over the long term, we would expect
debt to represent around one third of
our invested capital, although we consider
other metrics, such as interest cover,
when considering gearing levels.

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 withholding tax at basic rate
income tax, except for certain classes of
investors who can register to receive their
distributions gross, rather than net.

Healthy interest cover

Low loan-to-value ratio 1

Spread of maturities and diversity of lenders

→

Year ended 30 September 2016: 2.1 times

30 September 2016: 25.8%

Earliest maturity: 2018
Latest maturity: 2035
Weighted average maturity1 at
30 September 2016: 10.8 years

Limited exposure to interest
rate movements

→

% of debt fixed1 at 30 September 2016: 99%

SEE PAGES 58 AND 59 FOR FURTHER
INFORMATION ON OUR REIT STATUS AND
DIVIDENDS

SEE FINANCE REVIEW ON PAGE 62

1 Pro-forma for the issue of 2.487% Mortgage

Bonds 2031 and redemption of 8.5% Debenture
Stock 2024, and for cancellation of interest rate
swaps with a notional principal of £55m in
October 2016

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEW
36

Shaftesbury Annual Report 2016CARNABY
STYLE
NIGHT

This was the fifth year for the Carnaby
shopping event in partnership with GQ.
120 shops and restaurants participated,
offering 20% discounts, music, and
other activities.

MAY
S M T W T F S
1 2 3 4 5 6 7
8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28

29 30 31

Shaftesbury Annual Report 2016

HOW WE MEASURE SUCCESS
ALIGNMENT WITH REMUNERATION

LONG-TERM PERFORMANCE MEASURES
TOTAL SHAREHOLDER RETURN (TSR)

EPRA NAV (COMPOUND ANNUAL GROWTH)

Shaftesbury
FTSE 350
Real Estate Index

133.7%

145.7%

95.5%

16.1%

Shaftesbury
Shaftesbury one
year growth before
exceptional
refinancing costs
RPI plus 3%

13.9%

60.4%

25.6%

4.9% 5.0%

4.7%

2.2%

5.2%

6.8%

5.8%

3 years

5 years

-10.6%

10 years

1 year

3 years

5 years

10 years

8.0%

-11.7%

1 year

This measures returns to shareholders, taking into account share price
movements and dividends in the period.

For LTIPs granted before 2016, we benchmark TSR against the FTSE 350 Real
Estate Index. Thereafter, LTIPs are benchmarked against the FTSE 350 REIT
Index. The benchmark used in chart above is the FTSE 350 Real Estate Index.

We have outperformed the benchmark over each period measured.

This is the traditional sector measure of value creation.

We benchmark the compound annualised growth rate against the
Retail Price Index plus 3%.

With the exception of the current year, we have outperformed the
benchmark over each period measured.

EPRA NAV at 30 September 2016 took into account the exceptional costs
of refinancing our 8.5% Debenture Stock 2024 and for the cancellation of
interest rate swaps with a notional principal of £55m. These reduced EPRA
NAV by 24 pence per share. Excluding these exceptional costs, one-year
growth was 4.9%.

Alignment with remuneration: The three-year relative performance for each of these measures is used in calculating performance for the LTIP.

SEE PAGES 97 AND 101 FOR MORE INFORMATION ON THE LTIP

SEE PAGE 60 FOR MORE INFORMATION ON EPRA NAV

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEWOPERATIONAL MEASURES (KPIs)
SUSTAINED RENTAL GROWTH
Typically, we crystallise our portfolio's
reversionary potential into cash flow over
a three-to-five year period. In measuring
our success, achieving rents above ERV is
a 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.

Our strategy has delivered sustained
growth in current income and rental values
over many years. The 10-year compound
annual growth rate in annualised current

REVERSIONARY POTENTIAL1,2

Annualised current income (£m)
ERV (£m)

100

106

income and ERV of our portfolio has been
7.4% 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, 24.6%
above annualised current income at each
year end. The reversion currently stands at
£29.1 million, 26.6% above annualised
current income.

139

110

128

103

119

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

ANNUAL KPI

Achieve growth in ERVs

RESULT FOR YEAR ENDED 30 SEPTEMBER 2016

Commercial lettings/renewals/rent reviews3: +7.7% vs ERV at
September 2015

MAXIMISE OCCUPANCY
With sustained tenant demand, vacancy levels are typically low, with average EPRA vacancy3 over the past ten years of 2.3% of ERV.
At 30 September 2016, EPRA vacancy was 1.6%.

EPRA VACANCY3 (% OF ERV)

10 year average: 2.3%

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

ANNUAL KPI

Let vacant space quickly

RESULT FOR YEAR ENDED 30 SEPTEMBER 2016

1.2 months' average letting time3

Alignment with remuneration: We use these KPIs as targets for the annual bonus scheme.

SEE PAGE 100 FOR HOW THESE MEASURES FORM
PART OF THE BONUS FOR THE YEAR ENDED 30
SEPTEMBER 2016

SEE PAGE 53 FOR MORE INFORMATION ON
VACANCY

1 Data includes acquisitions

2 Including our 50% share of property held in joint venture

3 Wholly-owned portfolio

Shaftesbury Annual Report 2016STRATEGIC REPORT OVERVIEW

STRATEGIC
REPORT
ANNUAL
REVIEW

PORTFOLIO VALUATION 43
INVESTING IN OUR PORTFOLIO 50
LEASING AND OCCUPANCY 53
FINANCIAL RESULTS 56
FINANCE REVIEW 62
RISK MANAGEMENT 63
PRINCIPAL RISKS AND UNCERTAINTIES 66
VIABILITY STATEMENT 71
SUSTAINABILITY 72

Shaftesbury Annual Report 2016

JUNE
S M T W T F S

1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18

19 20 21 22 23 24 25

26 27 28 29 30

STYLE
SATURDAY

Traffic-free and filled with entertainment, the area around the iconic
monument, at the centre of Seven Dials, was transformed into an
urban garden, complete with pop-up tepee, green lawn with deck
chairs and garden games. Across the seven streets, a series of free
activities could be found both in-store and outdoors. Celebrating
everything that’s stylish in Seven Dials, the day involved fashion, food,
music, shopping and more.

PORTFOLIO VALUATION
ACROSS OUR PORTFOLIO, STRONG DEMAND AND EXTENSIVE
ASSET MANAGEMENT ACTIVITY IS DELIVERING CONTINUED
GROWTH IN CURRENT RENTS AND ERVs, DRIVING CAPITAL
VALUE GROWTH.

£3.35bn

Portfolio valuation1

4.0%

Capital value growth1,2

5.7%

ERV growth1,2

4.9%

Underlying growth1,2
before SDLT increase

The valuation of our portfolio, including
our 50% share of the Longmartin joint
venture, increased by £216 million to £3.35
billion over the year. The ungeared,
like-for-like valuation growth was 4.0%,
after a reduction of 0.9% as a result of an
increase in SDLT on commercial property
of 1%, imposed in the March 2016 Budget.

VILLAGE

Carnaby

Covent Garden

Chinatown

Soho

Charlotte Street

Longmartin JV3

2016 CAPITAL GROWTH2

3-YEAR CAGR2

4.9%

3.2%

2.7%

5.3%

4.0%

5.1%

4.0%

16.9%

12.2%

12.4%

12.1%

13.2%

15.2%

14.1%

Wholly-owned portfolio

Carnaby

Covent Garden

Chinatown

Soho

Charlotte Street

Longmartin joint venture3

Total portfolio1

VALUATION
£M

% OF
PORTFOLIO

ANNUALISED
CURRENT
INCOME
£M

TOPPED-UP
INITIAL YIELD
%

EQUIVALENT
YIELD
%

ERV
£M

1,161.0

875.0

725.9

244.0

117.7

3,123.6

224.4

3,348.0

35%

26%

22%

93%

100%

39.6

27.5

22.3

8.0

3.6

101.0

8.6

109.6

48.8

35.9

29.2

10.0

4.8

128.7

10.0

138.7

3.22%

2.89%

3.09%

3.30%

2.79%

3.08%

3.38%

3.65%

3.57%

3.40%

3.63%

3.52%

3.57%

3.79%

1 Including our 50% share of the Longmartin joint venture

2 Like-for-like

3 Our 50% share

STRATEGIC REPORT ANNUAL REVIEW

Shaftesbury Annual Report 2016
44

JUNE
S M T W T F S

1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25

26 27 28 29 30

PRIDE IN
LONDON
Pride in London is the
capital’s biggest LGBT
community event. We
became a corporate
sponsor for the fi rst time
in 2016 and the iconic
Carnaby arch was
decorated as a rainbow,
with the Pride campaign
hash tag #NoFilter.
Restaurants and bars
across Carnaby, Seven
Dials and Berwick Street,
celebrated with a host of
exclusive offers, events
and promotions.

PORTFOLIO VALUATION CONTINUED

INVESTMENT SECURITY, GROWING
RETURNS AND LOW OBSOLESCENCE
Investor interest remains strong for
properties like ours, which provide
investment security, low vacancy, growing
returns and limited exposure to
obsolescence. This is further fuelled by the
current availability of finance at historically
low levels.

Against this backdrop of strong demand,
availability of properties to purchase
remains limited.

Equivalent yields, attributed by our external
valuers, have remained broadly unchanged
over the year with the wholly-owned
portfolio at 3.57% (2015: 3.61%), and the
Longmartin joint venture at 3.79% (2015:
3.75%).

The valuation of our larger schemes does
not include expected development profits
which will be recognised once they are
completed and let.

POTENTIAL GREATER VALUE FOR
SOME, OR ALL, PARTS OF THE
PORTFOLIO
DTZ, independent valuer of our wholly-
owned portfolio, has continued to note that:

• our portfolio is unusual in its substantial

number of predominantly restaurant and
retail properties in adjacent, or adjoining,
locations in London’s West End; and

• there is a long record of strong occupier
demand for these uses in this location
and, consequently, high occupancy levels
throughout the portfolio.

Consequently, they have reiterated to the
Board that some prospective purchasers
may recognise the rare and compelling
opportunity to acquire, in a single
transaction, substantial parts of the
portfolio, or the portfolio in its entirety.
Such parties may consider a combination
of some, or all, parts of the portfolio to
have a greater value than currently reflected
in the valuation included in these financial
statements, which has been prepared in
accordance with RICS guidelines.

VALUATION INCREASE DRIVEN BY
STRONG RENTAL GROWTH
Sustained demand for space across our
portfolio, together with extensive asset
management activity, continue to deliver
growth in current income and rental
values. Our management strategies have a
relentless focus on, and a long record of,
converting the potential reversion in our
portfolio into cash flow, whilst further
increasing rental values.

Annualised current income increased on
a like-for-like basis by 6.2%, Importantly,
the ERV of our portfolio1, which is based
on currently established rental tones,
increased on a like-for-like basis by 5.7% and
currently stands at £138.7m, 26.6% above
current income. The components of this
reversionary potential are shown opposite.

64% of the uncontracted, under-rented
reversion is accounted for by shops,
restaurants, cafés and pubs. In our locations,
these uses have a long history of sustained,
non-cyclical demand, which, together with
a restricted supply of space, underpins their
growth prospects. We remain confident
that, with our proven long-term
management strategy, we shall not only
continue to convert this rental potential
into cash flow, but also deliver further
long-term growth in rental values.

Shaftesbury Annual Report 2016STRATEGIC REPORT ANNUAL REVIEW
PORTFOLIO VALUATION CONTINUED

RENTAL GROWTH

At 30 September 2015

Contribution from acquisitions

Impact of major schemes2

Underlying growth

At 30 September 2016

Like-for-like growth3

COMPONENTS OF THE REVERSION1 (£M)

140

ANNUALISED
CURRENT
INCOME1
£M

102.6

1.4

(0.6)

6.2

109.6

6.2%

REVERSIONARY
POTENTIAL1
£M

25.2

1.2

1.9

0.8

29.1

ERV1
£M

127.8

2.6

1.3

7.0

138.7

5.7%

9.9

138.7

+26.6%

14.2

2.7

2.3

109.6

100

ANNUALISED CURRENT
INCOME

CONTRACTED/RENT
FREE PERIODS

EPRA
VACANCY

SCHEME
VACANCY

UNDER-RENTED
LEASES

ERV - BASED ON
CURRENT RENTAL
EVIDENCE

Expected term
to realisation

How it will be
realised

Near term

Near to
medium term

On expiry of
rent-free periods

On letting of space
available at 30
September 2016

On completion and
letting of schemes at
30 September 2016

Through the normal
cycle of rent reviews,
lease renewals
and lettings. This is
typically converted
to contracted
income over
a 3 – 5 year period

SEE PAGE 50 FOR FURTHER DETAILS OF
SCHEME VACANCY

SEE PAGE 53 FOR INFORMATION ON EPRA
VACANCY

1 Including our 50% share of

2 Charing Cross Road/Chinatown, Thomas Neal’s Warehouse,

the joint venture

Seven Dials, 57 Broadwick Street, Carnaby and
Foubert’s Place/Kingly Street, Carnaby

3 Excluding acquisitions and the impact of major schemes

Shaftesbury Annual Report 2016STRATEGIC REPORT ANNUAL REVIEW48

STREET EAT

Carnaby’s Street Eat returned in July for a free one-day food festival in the heart of London's
West End. Visitors enjoyed over 30 delicious food stalls serving over 20 cuisines from around the world,
courtesy of Carnaby's restaurants, bars and cafés. It created a family-friendly carnival atmosphere with
live music and entertainment on the streets. Also, we used the event as an opportunity to promote
biodiversity and explain our role in Wild West End.

JULY
S M T W T F S

1 2

3 4 5 6 7 8 9

10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30

INVESTING IN OUR PORTFOLIO
EXTENSIVE ASSET MANAGEMENT AND REFURBISHMENT
ACTIVITY DELIVERING INCREASING INCOME AND UNLOCKING
VALUE.

249,000 sq. ft.

Space under refurbishment
during the year

£32.6 million

Capital expenditure

£62.7 million

Acquisitions

EXTENSIVE ACTIVITY
Schemes during the year extended to
249,000 sq. ft. (circa 14% of wholly-owned
floor space), at a cost, during the year, of
£32.6 million. Where possible, we seek to
negotiate early vacant possession of
under-rented space to implement further
asset management initiatives to accelerate
the capture of, and growth in, our portfolio’s
reversionary potential. During the year we
secured 71 planning consents, a vital part
of maintaining a pipeline of projects.

GOOD PROGRESS WITH MAJOR
SCHEMES

At 30 September 2016, space held for, or under,
refurbishment extended to 202,000 sq. ft.,
and represented 11% of ERV, an increase
of 6.7% during the year. This included our
three major schemes: Thomas Neal’s
Warehouse, Seven Dials, Charing Cross Road/
Chinatown and 57 Broadwick Street,
Carnaby, which totalled 101,200 sq. ft. and
represented 5.7% of ERV.

Each of these major schemes is well-
positioned to benefit from expected
changes in footfall following the opening of
the Elizabeth Line in 2018 and will bring
significant long-term benefits to our

neighbouring ownerships. Our selection of
tenants, and how they intend to use this
exciting new space, will be particularly
important to their success. Inevitably, with
space of this size, where occupiers will be
investing heavily in their fit-outs, letting
periods are likely to be longer than the
smaller space we traditionally have to offer.

Once let, these schemes will add £7.4
million to our annual income. Importantly,
since the restaurant and retail space on
the lower floors, extending to 79,200 sq.
ft., will be provided in shell form only,
further rental growth will come with little,
or no further, capital expenditure.

VACANT SPACE HELD FOR, OR UNDERGOING, REFURBISHMENT AT 30 SEPTEMBER 20161

RESTAURANTS,
CAFÉS AND
LEISURE
£M

1.4

2.8

Major schemes2

Other schemes

Total

Area ('000 sq. ft.)

% OF TOTAL ERV

SHOPS
£M

OFFICES
£M

RESIDENTIAL
£M

TOTAL
£M

4.2

1.5

5.7

1.7

1.9

3.6

0.1

2.0

2.1

7.4

6.8

14.2

202

30.9.16
%

5.7%

5.3%

11.0%

30.9.15
%

1.4%

2.9%

4.3%

1 Wholly-owned portfolio

2 Charing Cross Road/Chinatown,

Thomas Neal’s Warehouse, Seven Dials,
57 Broadwick Street, Carnaby.

Shaftesbury Annual Report 2016STRATEGIC REPORT ANNUAL REVIEWINVESTING IN OUR PORTFOLIO CONTINUED

THOMAS NEAL’S WAREHOUSE,
SEVEN DIALS
We completed the reconfiguration of
Thomas Neal’s Warehouse, Seven Dials, in
October 2016.

The scheme provides 22,700 sq. ft. of retail
space, including up to 3,000 sq. ft. for
restaurant use. Marketing is now underway
and the level of initial interest is encouraging.

Located close to the new Tottenham
Court Road transport hub, this flagship
accommodation, together with major public
realm improvements in 2017, will further
strengthen Seven Dials as a popular and
distinctive retail and leisure destination.

Earlham Street, which is part of an
important pedestrian route from Soho
towards Thomas Neal's Warehouse, is set to
undergo a major upgrade, commencing in
spring 2017. Rental tones in this important
gateway into Seven Dials from Cambridge
Circus have lagged behind nearby streets for
some time. However, with an expectation of
increased footfall from Tottenham Court
Road and the benefit of improvements to
Cambridge Circus to relieve pedestrian
congestion, planned for early 2017, this
should bring material long-term benefits to
this street, as well as our other holdings in
Seven Dials.

57 BROADWICK STREET, CARNABY
Having completed strip-out works, in
September construction commenced at our
major mixed-use project at 57 Broadwick
Street, Carnaby. Situated within a few
minutes’ walk of Tottenham Court Road’s
new western ticket hall on Dean Street, this
30,000 sq. ft. scheme at this eastern
gateway to Carnaby will provide:

• flagship retail space and a restaurant,

together extending to 8,000 sq. ft., over
the lower floors;

• 20,000 sq. ft. of refurbished and extended
grade A office accommodation across the
upper floors; and

• two apartments totalling 2,000 sq. ft.

The project will complete in phases from
late 2017, at an estimated cost of £14.5
million, of which £3.1 million had been
incurred by 30 September 2016.

With an expectation of increased footfall
along Broadwick Street, Westminster City
Council have designated this improving
thoroughfare as a priority pedestrian route
and have now begun a programme to
improve the streetscape.

OTHER SCHEMES

At 30 September 2016, we were progressing
other projects, extending to 100,800 sq. ft.
and representing 5.3% of ERV. These included
the reconfiguration and improvement of
16,800 sq. ft. of retail, 19,000 sq. ft. of
restaurants and cafés, 31,000 sq. ft. of office
space, and 56 apartments either being
created or upgraded. We expect these to
complete and become income-producing in
the coming year.

CHARING CROSS ROAD/CHINATOWN

Having commenced this scheme in January
2016, we have now passed the half-way point
and are on track to complete our works in
spring 2017. Located next to Leicester Square
Underground station, and within a short walk
of Tottenham Court Road station, it will bring
major improvements to this important block
on Chinatown’s eastern boundary, which we
expect to provide material benefits to our
other holdings in Chinatown.

The scheme will provide:

• 35,000 sq. ft. of retail along a 330-foot

frontage on Charing Cross Road, a street
with high footfall, which is expected to grow
materially once the Elizabeth Line opens.

• 13,500 sq. ft. of restaurant space, fronting

Newport Place and Newport Court.

• a much-improved gateway into Chinatown.

We are creating space with exceptional
floor-to-ceiling heights, providing an
opportunity to increase floor space by adding
mezzanine floors in a number of locations
within our scheme, if required by tenants.

Formal marketing will commence in early 2017,
once works are sufficiently progressed to
show the accommodation to prospective
occupiers. The expected cost is £14.5
million, of which £8.4 million had been
incurred by 30 September 2016.

We continue to support Westminster City
Council’s plans to create a part-pedestrianised
public square in Newport Place, at the eastern
end of Gerrard Street. This will provide the
opportunity, subject to licensing and planning
consents, for al fresco dining for our
newly-created restaurants, and significantly
improve the public realm in Chinatown.
Currently we expect works to begin in late
spring 2017.

STRATEGIC REPORT ANNUAL REVIEW

Shaftesbury Annual Report 2016

INVESTING IN OUR PORTFOLIO CONTINUED

ACQUISITIONS WITH THE POTENTIAL
FOR RENTAL AND CAPITAL GROWTH

Acquisitions during the year totalled £62.7
million. These additions to our portfolio in
Covent Garden, Soho and Charlotte Street
comprised nine shops, five restaurants and
cafés, 2,850 sq. ft. of office space and four
apartments.

On acquisition, they produced an average
net initial yield of 2.4%. As we integrate
them with our existing ownerships, they
offer the potential for good rental and
capital growth through short and medium-
term asset management initiatives, some
of which have already commenced.

We continue to seek out new acquisitions,
but remain disciplined, concentrating on
buildings:

• in, and around, our villages;

• which have a predominance of, or

potential for, restaurant, leisure and
retail uses; and

• which offer the potential for future
rental growth, either individually or
through combination with our existing
ownerships.

As ever, the availability of buildings which
fit these strict investment criteria remains
limited, with existing owners reluctant to
sell assets which they will find hard to
replace in this exceptionally prosperous
and resilient area.

JULY
S M T W T F S

1 2

3 4 5 6 7 8 9

10 11 12 13 14 15 16

17 18 19 20 21 22 23
24 25 26 27 28 29 30
31

CHINATOWN
GATE

A new authentic Chinatown gate was inaugurated by H.R.H. The Duke
of York and the Chinese Ambassador to the UK. The gate, made in
China from traditional materials and crafts, acknowledges the
important contribution the Chinese community makes to London
and the West End. We supported the initial planning for this
community-inspired project.

52 Shaftesbury Annual Report 2016

STRATEGIC REPORT ANNUAL REVIEW

LEASING AND OCCUPANCY
DEMAND CONTINUES TO BE STRONG FOR ALL USES AND
ACROSS EACH LOCATION. SPACE CONTINUES TO LET
QUICKLY AND VACANCY LEVELS REMAIN LOW.

Commercial

Lettings and lease renewals

Rent reviews

£m

11.4

10.2

+9.2% vs September 2015 ERV

+29.2% vs previous rent (equivalent to 5.3%
CAGR over five years)

21.6

+7.7% vs September 2015 ERV

Residential

Lettings and renewals

Total1

+2.5% vs prior rent

6.2

27.8

Available-to-let vacancy comprised: five
small shops, one restaurant, 3,000 sq. ft.
of office space and one apartment.

Space under offer at 30 September 2016
included four cafés, 11,000 sq. ft. of office
accommodation and ten apartments.

In the Longmartin joint venture, two shops,
4,000 sq. ft. of office space and two
apartments were available-to-let or under
offer. The ERV of our 50% share of EPRA
vacancy was £0.3 million.

% OF TOTAL ERV

SHOPS
£M

OFFICES
£M

RESIDENTIAL
£M

TOTAL
£M

30.9.16
%

30.9.15
%

0.3

0.8

0.2

1.0

0.3

1.4

0.6

2.0

1.1%

0.5%

1.6%

0.3%

1.3%

1.6%

LEASING

During the year, we concluded lettings,
lease renewals and rent reviews in the
wholly-owned portfolio with a rental value
of £27.8 million (2015: £27.3 million),
representing 21.6% of total ERV. Of this,
commercial transactions totalled £21.6
million (2015: £21.6 million) and residential
lettings and renewals amounted to £6.2
million (2015: £5.7 million). Rents achieved
for commercial uses were, on average,
7.7% above ERV at 30 September 2015.

Our share of leasing activity in the
Longmartin joint venture was £2.7 million.
Commercial rents achieved were, on average,
6.2% above ERV at 30 September 2015.

VACANCY
With sustained tenant demand for space,
EPRA vacancy has been, on average, 1.9%
of total ERV over the year. At 30
September 2016, it stood at 1.6%, of which
1.1% was under offer.

EPRA VACANCY AT 30 SEPTEMBER 20161

RESTAURANTS,
CAFÉS AND
LEISURE
£M

0.3

0.1

0.4

Under offer

Available-to-let

EPRA vacancy

Area ('000 sq. ft.)

1 Wholly-owned portfolio

Shaftesbury Annual Report 2016STRATEGIC REPORT ANNUAL REVIEWTHE
OLYMPICS

AUGUST
S M T W T F S
1 2 3 4 5 6
7 8 9 10 11 12 13

14 15 16 17 18 19 20
21 22 23 24 25 26 27

28 29 30 31

To cheer on Team GB at the 2016 Olympic Games in Rio,
we created a 200 metre interactive art installation stretching
around our Charing Cross Road/Chinatown scheme. Passers-by
could take a pin badge, from the 10,000 which created the
artwork, to show their support for our athletes.

HURDLES

WRESTLING

TRACK

WEIGHTLIFTING

GOLF

TABLE TENNIS

HOCKEY

WOMEN'S FOOTBALL

RHYTHMIC GYMNASTICS

BOXING

SHOW JUMPING

TRACK CYCLING

Shaftesbury Annual Report 2016FINANCIAL RESULTS
THIS HAS BEEN ANOTHER GOOD YEAR FOR
SHAFTESBURY WITH FURTHER GROWTH IN INCOME,
EARNINGS, DIVIDENDS AND NAV.

REPORTED RESULTS
+2.6%
£8.54

Diluted NAV

EPRA RESULTS
+2.2%
£8.88

EPRA NAV

+6.7%
£84.1m

Net property
income

-78.8%
35.6p

Basic EPS

+6.9%
14.7p

Dividends per
share

+3.8%

NAV return

+8.0%
£39.0m

EPRA earnings

+7.7%7%
14.0p

EPRA EPS

INCOME STATEMENT
Reported earnings
Profit after tax for the year was £99.1
million (2015: £467.3 million) and basic
earnings per share was 35.6 pence,
compared with 168.0 pence in 2015. The
decrease was largely due to a lower
revaluation surplus on our portfolio1, which
contributed 43 pence (2015: 167 pence),
and the recognition of the fair value of our
8.5% Debenture Stock, which reduced
basic earnings per share by 10 pence.

EPRA earnings
As is usual practice in our sector, we
produce an alternative measure for certain
indicators, including earnings, making
adjustments set out by EPRA in its Best
Practice and Policy Recommendations.
EPRA earnings are a measure of the level
of underlying operating results and an
indication of the extent to which current
dividend payments are supported by
recurring earnings. In our case, EPRA
earnings excludes valuation movements in
respect of our properties and interest rate
swaps and ignores deferred tax arising in

our Longmartin joint venture. The one-off
charge from recognising the fair value of
our Debenture Stock in the current year
has also been excluded, as set out in the
reconciliation opposite.

EPRA earnings increased by 8.0% to £39.0
million (2015: £36.1 million). EPRA EPS was
14.0 pence, 7.7% above last year (2015:
13.0 pence). The increase in earnings was
driven principally by increased net
property income, partly offset by higher
finance costs.

1 Including our 50% share

of the joint venture

SEE PAGE 62 FOR DETAILS ON THE REFINANCING OF OUR DEBENTURE STOCK

Shaftesbury Annual Report 2016STRATEGIC REPORT ANNUAL REVIEW

FINANCIAL RESULTS CONTINUED

EPRA EARNINGS

IFRS profit after tax

Adjusted for:

Change in value of investment properties

Change in fair value of financial derivatives

Recognition of fair value of Debenture Stock

Adjustments in respect of the Longmartin joint venture:

Change in value of investment properties

Deferred tax

EPRA earnings

EPRA EPS

Net property income
Rents receivable increased by 7.2% to
£98.4 million (2015: £91.8 million) as we
continue to convert our portfolio’s
reversionary potential into contracted cash
flow.

Acquisitions accounted for £1.0 million of
this increase. Our scheme at Foubert’s
Place/Kingly Street, Carnaby, which became
income-producing in the second half of last
year, contributed £1.6 million. This was
offset by vacancy at major schemes which
commenced this year, reducing rents
receivable by £2.4 million compared with
2015.

Like-for-like growth in rental income, excluding
the impact of acquisitions and major
refurbishment schemes, was 7.3%.

The increase compared with last year is, in
part, due to a higher level of asset
management activity. Also, it reflects
increased marketing and promotion of our
villages, a key aspect of our long-term
strategy.

Net property income was £84.1 million, an
increase of 6.7% on last year (2015: £78.8
million).

RENTS RECEIVABLE (£m)

100

+7.2%

1.0

1.6

91.8

2016
£M

99.1

2015
£M

467.3

(108.3)

(432.0)

34.9

29.2

(11.3)

(4.6)

39.0

14.0p

28.5

(34.6)

6.9

36.1

13.0p

6.4

-2.4

98.4

Irrecoverable property charges were £14.3
million (2015: £13.0 million), representing
14.5% of rents receivable (2015: 14.2%).

SEE PAGES 50 TO 52 FOR FURTHER
INFORMATION ON THESE MAJOR
REFURBISHMENT SCHEMES AND ACQUISITIONS

2015

Acquisitions

Foubert's
Place/
Kingly St
scheme

Major current
scheme
vacancy

Like-for-like
growth

2016

Shaftesbury Annual Report 2016STRATEGIC REPORT ANNUAL REVIEWSPORTING
HEROES
As part of the 50th anniversary
of the 1966 World Cup, Carnaby
was visited by football icons Geoff
Hurst and Pelé. Current England
cricketers, Ben Stokes and Joe
Root, gave cricket coaching to
competition winners and visitors
to St Martin's Courtyard were
treated to a "Haka", ahead of the
forthcoming British Lions tour.

Photographs of Geoff Hurst, Pelé, Ben Stokes
and Joe Root courtesy of Pro Direct

Administrative expenses
Administrative expenses, excluding the
charge for equity-settled remuneration,
totalled £11.6 million (2015: £11.0 million).
This includes a charge for annual bonuses
of £3.0 million (2015: £2.2 million).

The charge for equity-settled remuneration
was £2.5 million (2015: £3.0 million). This
included a non-cash accounting provision
of £1.9 million (2015: £2.3 million) and a
charge for employer’s National Insurance
of £0.6 million (2015: £0.7 million).

Revaluation surplus
The revaluation surplus from our wholly-
owned portfolio was £108.3 million (2015:
£432.0 million). This surplus represented a
like-for-like increase of 3.9%, principally
driven by like-for-like growth in contracted
income and ERV of 6.0% and 5.5%
respectively. The increase in SDLT for
commercial properties reduced values by
0.9%.

Finance costs
With higher net debt as a result of
acquisitions and further investment in our
portfolio, net finance costs (excluding the
change in fair value of our interest rate swaps
and the one-off charge from recognising
the fair value of our Debenture Stock)
increased by £2.9 million to £33.6 million
(2015: £30.7 million).

Having modified the terms of our 8.5%
Debenture Stock 2024 in September 2016,
in anticipation of a new bond issue, we

recognised the fair value of the Stock, to
reflect the expected net present value of
the future cash flows, including an early
redemption penalty. This resulted in a
one-off, non-cash charge to finance costs
of £29.2 million. This deficit was crystallised
in October 2016.

The fair value deficit on our interest rate
swaps increased by £34.9 million to £114.1
million, following a fall in long-dated interest
rates, particularly after the EU referendum
in June 2016. The Board regularly reviews
the Group’s interest hedging strategy and
the impact these derivatives have on the
long-term financing of the business. In
October 2016, we terminated swaps with a
notional principal of £55 million, at a cost
of £34.1 million. We have now cancelled
around 65% of our legacy interest rate
swaps over the past three years.

Longmartin results
Our share of post-tax profit from the
Longmartin joint venture decreased by
£11.2 million to £18.5 million (2015: £29.7
million). This decrease was largely due to
a lower revaluation surplus of £11.3 million
(2015: £34.6 million), which was partly
offset by a deferred tax credit.

Our share of EPRA earnings from the joint
venture increased by £0.6 million to £2.6
million (2015: £2.0 million), principally due
to an increase in net property income of
14.4% to £6.7 million (2015: £5.9 million),
following a number of rent reviews over
the past twelve months.

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
(2015: £Nil).

Despite our REIT status, we do collect and
pay other taxes eg payroll taxes, VAT, Stamp
Duty Land Tax and Business Rates. During
the year, the total tax paid in respect of
these taxes amounted to £21.0 million. In
addition, £1.2 million of tax was withheld
from Property Income Distributions and
paid to HMRC. In addition, our share of
corporation tax incurred by the Longmartin
joint venture was £0.6 million.

The group’s tax strategy is to account for
tax on an accurate and timely basis. Our
appetite for tax risk is low and we only
structure our affairs based on sound
commercial principles. We do not engage
in aggressive tax planning. Rather, we
maintain an open dialogue with HMRC with
a view to identifying and solving issues
promptly. HMRC have designated us as a
‘low risk’ taxpayer, a status we aim to
maintain. Our detailed tax strategy is
available on our website.

SEE PAGES 100 TO 101 FOR DETAILS OF THE
CURRENT YEAR ANNUAL BONUS AND SHARE
OPTION VESTING

SEE PORTFOLIO VALUATION ON PAGES 43 TO 47

SEE FINANCE REVIEW ON PAGE 62

58 Shaftesbury Annual Report 2016

STRATEGIC REPORT ANNUAL REVIEW

FINANCIAL RESULTS CONTINUED

DIVIDEND
The Board has recommended a final
dividend of 7.55 pence per share, an
increase of 9.0% on last year’s final
dividend (6.925 pence). This brings the
total dividend for the year to 14.7 pence
per share, an increase of 6.9% on 2015
(13.75 pence).

The dividend for the year ended 30
September 2016 is covered by EPRA
earnings, after adding back the non-cash
accounting charge in the year for
equity-settled remuneration of £1.9 million.
If approved at the 2017 AGM, the final
dividend will be paid on 17 February 2017.
It will comprise 5.2 pence as a PID and
2.35 pence as an ordinary dividend.

The Board monitors the Group’s ability to
pay dividends out of available resources
and distributable reserves. Prospective
dividend payments are estimated in our
forecasts, which also consider future
liquidity requirements.

As a REIT, we are required to distribute a
minimum of 90% of net rental income,
calculated by reference to tax rather than
accounting rules, as a PID. Notwithstanding
this, our dividend policy is to maintain
steady growth in dividends, reflecting the
long-term trend in our income and adjusted
EPRA earnings1. To the extent that dividends
exceed the amount available to distribute
as a PID, we pay the balance as ordinary
dividends.

We have substantial distributable reserves,
as disclosed in note 21 to the financial
statements.

The exceptional charges associated with
the recent refinancing of our debenture
stock and termination of interest rate
swaps will be charged against our qualifying
REIT income and, consequently, it is likely
that any dividend in relation to the year
ending 30 September 2017 will be paid as
an ordinary dividend, with PID distributions
resuming in the following year.

DIVIDENDS VS EARNINGS (PENCE PER SHARE)

PID
Ordinary dividend
Adjusted EPRA EPS1

12.7

12.0

2.5

12.9

10.0

4.8

13.2

13.75

13.9

8.3

5.05

14.7

9.65

2012

2013

2014

2015

2016

1 EPRA EPS, adjusted to add back the non-cash accounting
charge for equity-settled remuneration and accelerated
write-off of loan issue costs

STRATEGIC REPORT ANNUAL REVIEW

Shaftesbury Annual Report 2016

FINANCIAL RESULTS CONTINUED

NET ASSET VALUE
Reported diluted net asset value per share
increased by 22 pence to £8.54 per share,
largely due to diluted earnings per share of
35.5 pence less dividends paid totalling
14.075 pence.

EPRA NAV makes adjustments to reported
NAV, to provide a measure of the fair value
of net assets on a long-term basis. Assets and
liabilities that are not expected to crystallise
in normal circumstances are excluded. In our
case, the calculation excludes the fair value of
interest rate swaps, other than those which we
expect to terminate, and deferred tax related
to property valuation surpluses in the
Longmartin joint venture.

EPRA NAV per share increased by 19 pence
(2.2%) to £8.88 (2015: £8.69). EPRA earnings
of 14 pence per share were offset by dividends
paid in the year (14.075 pence per share). The
revaluation surpluses from the wholly-owned
portfolio and the Longmartin joint venture
added 43 pence.

The exceptional charges from refinancing
activity reduced EPRA NAV by 24 pence, of
which 10 pence arose from recognising the
fair value of our Debenture Stock and 14 pence
was charged in respect of interest rate swaps,
with a notional principal of £55 million and fair
value deficit of £38.0 million, which we intended
to cancel. These swaps were cancelled in
October 2016, at a cost of £34.1 million.
The saving, compared with the deficit at
30 September 2016, will increase NAV by
1.4 pence per share in the coming year.

CASH FLOWS AND NET DEBT
Net debt increased by £114.3 million to £752.1
million over the year (2015: £637.8 million), and
now includes £92.2 million in respect of the
8.5% Debenture Stock (2015: £61.0 million)
following the recognition of its fair value.

The major cash flows were:

• Operating cash inflow totalling £44.3 million

• Dividends paid amounting to £38.2 million

• Acquisitions and capital expenditure of

£91.2 million

EPRA NAV

IFRS net assets

Effect of exercise of options

Diluted net assets

Adjusted for:

Fair value of financial instruments1

Adjustment in respect of our joint venture:

Deferred tax

EPRA NAV

EPRA NAV per share

EPRA NAV (PENCE PER SHARE)
920

2016
£M

2,387.1

0.5

2,387.6

76.1

18.0

2,481.7

£8.88

-10

-14

869

850

2015

EPRA earnings

Dividend

Revaluation Recognition of

Debenture
Stock fair value

Swap
break
costs

29.2

NET DEBT (£M)

760

637.8

2015

560

29.2

62.0

-44.3

38.2

Operating
cash inflow

Dividend

Acquisitions

Capital
expenditure

Recognition
of
Debenture
Stock fair value2

2015
£M

2,325.4

0.4

2,325.8

79.2

22.6

2,427.6

£8.69

888

2016

752.1

2016

SEE PORTFOLIO VALUATION ON PAGES 43 TO 47
SEE FINANCE REVIEW ON PAGE 62

1 Excluding interest rate swaps with a notional principal of

2 Non-cash item in 2016, which crystallised in October 2017

£55 million, which, at 30 September 2016, the Board
intended to cancel

60 Shaftesbury Annual Report 2016

STRATEGIC REPORT ANNUAL REVIEW

AUGUST
S M T W T F S

1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20

21 22 23 24 25 26 27

28 29 30 31

SPOTLIGHT

Seven Dials played tribute to the cultural scene which weaves its way
throughout this area. Spotlight returned with a free one-day music, comedy
and arts festival. The area was transformed into a traffic-free, entertainment
hot spot where visitors enjoyed a series of free live performances, as well as
exclusive activities and promotions in over 120 shops and restaurants.

FINANCE REVIEW
IMPORTANT REFINANCING OF HISTORICAL DEBT INCREASED
FINANCIAL RESOURCES, EXTENDED AVERAGE DEBT MATURITY
AND REDUCED BLENDED COST.

£214.6m

Available facilities1

25.8%

Loan-to-value1,2

10.8 years

Weighted average debt
maturity1,2

DEBENTURE STOCK REFINANCING
In September 2016, we amended our 8.5% First
Mortgage Debenture Stock 2024, to set the terms
under which we could refinance this Stock, in
exchange for a new issue of Guaranteed First
Mortgage Bonds. In October 2016, taking advantage
of extremely low gilt yields, we issued £285
million of bonds with a coupon of 2.487% and
maturity in September 2031.
Part of the proceeds of the issue were used to:
• redeem our existing £61 million 8.5% First

Mortgage Debenture Stock due 2024, including
a prepayment cost of £31.1 million.

• cancel interest rate swaps with a notional principal

of £55 million, at a cost of £34.1 million.

The balance of the proceeds was used to reduce
drawings under our revolving credit facilities, which
are available to be re-drawn.

INCREASE IN FINANCIAL RESOURCES
The issue significantly increased our financial
resources for further investment in our portfolio,
whilst extending our weighted average debt
maturity and reducing our blended cost of debt.

The table opposite sets out a summary of our
debt, both at 30 September 2016, and on a
pro-forma basis for these transactions.

On a pro-forma basis, at 30 September 2016, our
loan-to-value ratio was 25.8% (2015: 22.5%) and
we had committed undrawn facilities totalling
£214.6 million (2015: £150.3 million). Of our drawn
debt, 98.8% was fixed or hedged (2015: 97.2%).

The blended cost of debt was 3.9%, 1.0% lower
than at 30 September 2015. The marginal cost of our
undrawn committed facilities is around 1.2% (2015:
1.5%) and, so, as additional drawings are made, our
cost of debt will fall further. If our facilities were fully
drawn, the blended cost of debt would be 3.4%.

DEBT SUMMARY

Debt excluding Longmartin JV

- Fixed/hedged debt3

- Drawn unhedged bank debt

Longmartin non-recourse debt (50% share)

Total debt

Undrawn floating rate facilities

Loan-to-value2,3

Gearing2,3,4

Interest cover2

% debt fixed2

Blended cost of debt5

Marginal cost of undrawn floating rate facilities

PRO-FORMA DEBT MATURITY PROFILE1,2

WEIGHTED AVERAGE MATURITY: 10.8 YEARS

REPORTED
2016
£M

PRO-FORMA1
2016
£M

657.0

110.7

767.7

60.0

827.7

59.3

24.7%

33.4%

2.1x

87%

4.5%

1.3%

794.8

10.4

805.2

60.0

865.2

214.6

25.8%

34.9%

2.3x

99%

3.9%

1.2%

285

2015
£M

625.8

19.7

645.5

60.0

705.5

150.3

22.5%

29.1%

2.1x

97%

4.9%

1.5%

150

125

135 130
0
6

120

2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035

Bank facility (variable)
Mortgage bonds (fixed)
Term loan (fixed)
JV term loan (fixed, our 50% share)

1 Pro-forma for the issue of 2.487% Mortgage Bonds 2031
and redemption of 8.5% Debenture Stock 2024, and for
the cancellation of interest rate swaps with a notional
principal of £55m in October 2016.

2 Including our 50% share of the Longmartin

5 Including non-utilisation fees on undrawn bank facilities

joint venture

3 Based on nominal value of debt

4 Based on EPRA net assets

62 Shaftesbury Annual Report 2016

STRATEGIC REPORT ANNUAL REVIEW

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 71.

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:
restaurants, leisure and retail.

• 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 material
speculative development schemes

• We have an established and experienced

management team, based in one
location, close to all our holdings

• We manage 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.

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 team, based in one office,
within fifteen minutes’ walk of all our
holdings, comprises four executive directors
and 23 staff. The senior management team,
with an average tenure of 16 years, has an
in-depth knowledge of our business and
the West End property market.

RESPONSIBILITIES

The Board’s attitude to risk is embedded in
the business, with executive directors
having close involvement in all aspects of
operations and significant decisions.
Non-executive directors approve capital
and non-routine transactions over a
specified level.

Senior management, below Board level, is
incentivised in the same way as executive
directors to achieve the Group’s strategic
goals of delivering long-term growth in rental
income, capital values and shareholder
returns. Decisions are made for long-term
benefit, rather than short-term gain.
Succession planning across the management
team is monitored by the Board.

EXECUTIVE
MANAGEMENT

AUDIT
COMMITTEE

BOARD

Day-to-day management
of risk. Design and
implementation of the
necessary systems of
internal control.

Assurance of the internal
controls and risk
management process.

Overall responsibility for
risk management. Reviews
principal risks and uncertainties
regularly, along with actions
taken, where possible, to
mitigate them.

STRATEGIC REPORT ANNUAL REVIEW

Shaftesbury Annual Report 2016

SEPTEMBER
S M T W T F S

1 2 3

4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24

25 26 27 28 29 30

CARNABY
LONDON
FASHION
WEEK

Carnaby was the only place in London’s West End that
visitors could watch live streaming, on a giant screen,
direct from the catwalk showing the latest trends.
Throughout the five days, complimentary fashion and
beauty services were offered within a pamper-van.

PRINCIPAL RISKS AND UNCERTAINTIES
The Board has carried out a robust
assessment of the principal risks and
uncertainties which might prevent the
Group achieving its goal of long-term
growth in rental income, capital values and
shareholder returns. These risks and
uncertainties are largely consistent with
those reported in 2015. We no longer
consider meeting the requirements of
legislation to improve environmental
performance of buildings to be a principal
risk or uncertainty. This is because the
legislation has become more clear and,
through our rolling refurbishment activities,
we are able to meet its requirements
without significant cost.

To date we have seen no adverse impact
on occupier demand, footfall or trading as
a result of political and economic
uncertainties following the EU referendum.
Until the UK's future exit arrangements are
negotiated, we are unable to draw any firm
conclusions as to the longer-term impact
on our business. However, with London's
status and broad-based economy, we
believe it will be less adversely affected
than the wider UK.

Details of the principal risks and uncertainties,
mitigation and evolution of risk during the
year are set out on pages 66 to 69.

RISK MANAGEMENT CONTINUED

RISK MANAGEMENT AND INTERNAL
CONTROL
The Board reviews the nature and extent of
the Group's principal risks and uncertainties,
and monitors 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 and uncertainties 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 are:

• Close involvement of the executive

directors in all aspects of day-to-day
operations, including regular meetings
with employees to review 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, which is
updated on a quarterly basis and
includes forecast liquidity requirements
and loan covenant compliance

• 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.

RISK ASSESSMENT
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 that
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.

The Audit Committee has monitored the
Group’s risk management and internal
control system, and having reviewed the
effectiveness of material controls, has not
identified any significant failings or
weaknesses in the Group’s controls
during the year.

SEE THE AUDIT COMMITTEE REPORT ON PAGES
90 TO 93

STRATEGIC REPORT ANNUAL REVIEW

Shaftesbury Annual Report 2016

PRINCIPAL RISKS AND UNCERTAINTIES

GEOGRAPHIC CONCENTRATION RISK

RISK

POTENTIAL IMPACT

LINK TO BUSINESS MODEL

MITIGATION

COMMENTARY

HOW RISK HAS

CHANGED

Events which discourage visitors to the
West End e.g.

• Reduced visitor numbers, spending and

• Exceptional portfolio in the heart of

occupier demand

London's West End

• Threats to security or public safety due

• Reduced rental income and/or capital

to terrorism

values

• Health concerns (e.g. pandemics)

• Potential increased vacancy and

• Major, long-term disruption to the

public transport network upon which
the area depends

declining profitability

• Damage to property

Competing destinations lead to long-
term decline in footfall in our villages

• Reduced visitor numbers and occupier

• Exceptional portfolio in the heart of

demand

London's West End

• Reduced rental income and/or capital

• Create prosperous environments for

values

tenants

• Potential increased vacancy and

declining profitability

• Inherent risk given the geographic concentration of

London has a growing population, is the most visited

our investments in a high profile location

city in the western world, and current forecasts are

• Insurance cover maintained for terrorism and loss-

for further growth in tourism

of-rent

safety of visitors

• Close liaison with statutory authorities to maximise

Across the West End, visitor numbers, spending and

occupier demand continue to be buoyant

The UK’s terrorism threat level remains severe

• Detailed emergency response plans

• Ensure our villages maintain a distinct identity

Footfall and occupier demand across our villages

remains strong. We continue to see sustained rental

growth and low vacancy

• Management strategies to 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 performance and

prospects

REGULATORY RISK

RISK

POTENTIAL IMPACT

LINK TO BUSINESS MODEL

MITIGATION

COMMENTARY

HOW RISK HAS

CHANGED

All our properties are in the boroughs of
Westminster and Camden. Changes to
national or 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 revenues

• Exceptional portfolio in the heart of

• Ensure our properties are operated in compliance

There are no current indications that the evolution

• Reduced profitability

• Reduced capital values

London's West End

• Focus on restaurants, leisure and retail

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

of the planning and licensing framework, either as

a result of national or local legislation, will have

a material impact on the Group’s business for the

foreseeable future

Shaftesbury Annual Report 2016STRATEGIC REPORT ANNUAL REVIEW

PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED

GEOGRAPHIC CONCENTRATION RISK

RISK

POTENTIAL IMPACT

LINK TO BUSINESS MODEL

MITIGATION

COMMENTARY

HOW RISK HAS
CHANGED

Events which discourage visitors to the

• Reduced visitor numbers, spending and

• Exceptional portfolio in the heart of

occupier demand

London's West End

• Threats to security or public safety due

• Reduced rental income and/or capital

West End e.g.

to terrorism

• Health concerns (e.g. pandemics)

• Potential increased vacancy and

• Major, long-term disruption to the

declining profitability

public transport network upon which

• Damage to property

the area depends

Competing destinations lead to long-

term decline in footfall in our villages

• Reduced visitor numbers and occupier

• Exceptional portfolio in the heart of

• Reduced rental income and/or capital

• Create prosperous environments for

London's West End

tenants

• Potential increased vacancy and

declining profitability

values

demand

values

• Inherent risk given the geographic concentration of

our investments in a high profile location

• Insurance cover maintained for terrorism and loss-

London has a growing population, is the most visited
city in the western world, and current forecasts are
for further growth in tourism

of-rent

• Close liaison with statutory 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

Footfall and occupier demand across our villages
remains strong. We continue to see sustained rental
growth and low vacancy

• Ensure our villages maintain a distinct identity

• Management strategies to 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 performance and

prospects

REGULATORY RISK

RISK

POTENTIAL IMPACT

LINK TO BUSINESS MODEL

MITIGATION

COMMENTARY

All our properties are in the boroughs of

• Limit our ability to optimise revenues

• Exceptional portfolio in the heart of

• Ensure our properties are operated in compliance

Westminster and Camden. Changes to

national or local policies, particularly

planning and licensing, could have a

significant impact on our ability to maximise

the long-term potential of its assets

• Reduced profitability

• Reduced capital values

London's West End

• Focus on restaurants, leisure and retail

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 framework, either as
a result of national or local legislation, will have
a material impact on the Group’s business for the
foreseeable future

HOW RISK HAS
CHANGED

Risk unchanged

Risk increased

Risk decreased

Shaftesbury Annual Report 2016STRATEGIC REPORT ANNUAL REVIEW

PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED

ECONOMIC RISK

RISK

POTENTIAL IMPACT

LINK TO BUSINESS MODEL

MITIGATION

COMMENTARY

HOW RISK HAS

CHANGED

Periods of economic uncertainty
and lower confi dence could reduce
consumer spending, tenant profi tability
and occupier demand

• Pressure on rents

• Declining profi tability

• Reduced capital values

• Exceptional portfolio in the heart of

London's West End

• Focus on restaurants, leisure and retail

• Create prosperous environments for

tenants

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
fi nance, relative attractiveness of
property compared with other asset
classes

• Reduced capital values

• Prudent fi nancial management

• Focus on assets, locations and uses which have

Interest rates have continued at historically low

• Decrease in NAV, amplifi ed by gearing

• Loan covenant defaults

• Focus on assets, locations and uses which have

Restaurant, leisure and retail tenants provide

historically proved to be economically resilient and

70% of our annualised current income

have demonstrated much lower valuation volatility

than the wider market

Trading, footfall and spending has been resilient

since the EU referendum and we continue to benefi t

• Diverse tenant base with limited exposure to any

from strong demand, footfall and rental growth.

one tenant

• Tenant deposits held against unpaid rent

obligations at 30 September 2016: £18.0m

However, uncertainty will remain until the UK's future

arrangements with the EU are negotiated

historically proved to be economically resilient and

levels

have demonstrated much lower valuation volatility

than the wider market

Present market sentiment is that increases will be

moderate and gradual, although the current political

• Regular review of investment market conditions

and economic backdrop increases uncertainty

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

NOVEMBER
S M T W T F S
1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19

20 21 22 23 24 25 26

27 28 29 30

TEA DANCE
We are headline sponsor
of the annual Westminster
City Council senior citizens'
tea dance. Supported by the
Sir Simon Milton Foundation,
it hosts 1,000 residents,
from across the borough, at
the Grosvenor House Hotel.

68 Shaftesbury Annual Report 2016

STRATEGIC REPORT ANNUAL REVIEW

PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED

ECONOMIC RISK

RISK

POTENTIAL IMPACT

LINK TO BUSINESS MODEL

MITIGATION

COMMENTARY

HOW RISK HAS
CHANGED

Periods of economic uncertainty

and lower confi dence could reduce

consumer spending, tenant profi tability

and occupier demand

• Pressure on rents

• Declining profi tability

• Reduced capital values

• Exceptional portfolio in the heart of

London's West End

• Focus on restaurants, leisure and retail

• Create prosperous environments for

tenants

Decline in the UK real estate market due

• Reduced capital values

• Prudent fi nancial management

to macro-economic factors e.g. global

political landscape, currency

expectations, bond yields, interest rate

expectations, availability and cost of

fi nance, relative attractiveness of

property compared with other asset

classes

• Decrease in NAV, amplifi ed by gearing

• Loan covenant defaults

• 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 2016: £18.0m

Restaurant, leisure and retail tenants provide
70% of our annualised current income

Trading, footfall and spending has been resilient
since the EU referendum and we continue to benefi t
from strong demand, footfall and rental growth.
However, uncertainty will remain until the UK's future
arrangements with the EU are negotiated

• 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

• 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

Interest rates have continued at historically low
levels

Present market sentiment is that increases will be
moderate and gradual, although the current political
and economic backdrop increases uncertainty

Risk unchanged

Risk increased

Risk decreased

THE START OF
THE SWINGING
SIXTIES
A green plaque was
unveiled at 5 Newburgh
Street to commemorate
the revolutionary menswear
shop ‘Vince’, which was
located at this address from
1954 through the 1960s,
and is credited with
kick-starting the "Swinging
Sixties" fashion revolution
in Carnaby Street.

NOVEMBER
S M T W T F S

1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19

20 21 22 23 24 25 26

27 28 29 30

STRATEGIC REPORT ANNUAL REVIEW

Shaftesbury Annual Report 2016

HALLOWEEN

The Carnaby streets were lined with hundreds of pumpkins as part
of Halloween festivities.

OCTOBER
S M T W T F S

2 3 4 5 6 7 8

9 10 11 12 13 14 15
16 17 18 19 20 21 22

23 24 25 26 27 28 29
30 31

70 Shaftesbury Annual Report 2016
70

STRATEGIC REPORT ANNUAL REVIEW

VIABILITY STATEMENT
THE BOARD HAS ASSESSED THE PROSPECTS
OF THE GROUP OVER A FIVE-YEAR PERIOD.

SCENARIO ANALYSIS
The review 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. It
included sensitivity analyses which flexed
inputs to the forecasts including reduced
income, profitability and capital values, both
individually and in unison, to reflect these
severe but plausible scenarios. Asset value
declines, similar to market movements in
2008/09, were also modelled, along with an
assessment of how far property yields would
need to rise, and rental income would have
to fall, before the Group would be at risk of
breaching the financial covenants in its
various loan arrangements.

VIABILITY
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.

The Strategic Report on pages 1 to 76 was
approved by the Board on 29 November
2016.

Brian Bickell
Chief Executive

Chris Ward
Finance Director

REVIEW OF PROSPECTS
The Board considered a review of the
Group's prospects, prepared by senior
management. This covered a five-year
period, corresponding with the period
covered by the Group's current forecasts.
These forecasts are updated quarterly and
reflect the Group’s established strategy of
long-term investment in London’s West
End, its existing 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 the Group's various loan
agreements. Important assumptions
underlying the forecasts include:

FORECAST KEY ASSUMPTIONS

PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks and uncertainties are set
out on pages 66 to 69 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 could reduce

profitability and capital values

• Changing economic conditions which
could reduce capital values, reducing
headroom in loan covenants

ASSUMPTIONS

COMMENT

On a pro-forma basis1, the Group had
undrawn committed loan facilities at 30
September 2016 totalling £214.6 million,
which comfortably exceeds the Group’s
commitments over the assessment
period. This assumes an ability to
refinance revolving credit facilities
totalling £150 million, £125 million and
£75 million which mature in 2018,
2020 and 2021 respectively.

Crystallisation of the portfolio
reversionary potential over the period

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 ratio1 was 25.8%.

The facilities which mature during the
period of assessment represent 32.4% 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.

We have a long record of crystallising the
independently-assessed ERV of our portfolio
over a three-to-five year period. 64% of
the total portfolio reversion arises from
shops, restaurants, cafés and pubs, the
demand for which, in our locations, is not
cyclical and has demonstrated sustained
long-term growth over many years. ERVs
are based on current, proven rental tones,
and do not assume any further growth.

1 Pro-forma for the issue of 2.487% Mortgage Bonds 2031, redemption of
8.5% Debenture Stock 2024 and cancellation of interest rate swaps with
a notional principal of £55 million in October 2016 (see page 62 for
further information)

Shaftesbury Annual Report 2016STRATEGIC REPORT ANNUAL REVIEW
SUSTAINABILITY

SUSTAINABILITY IS EMBEDDED IN THE MANAGEMENT OF OUR
BUSINESS. WE CONTINUE TO DEVELOP OUR STRATEGY AND ITS
IMPLEMENTATION ACROSS ALL ASPECTS OF OUR OPERATIONS.

We have also continued to engage and
collaborate with neighbouring owners and
other stakeholders to further sustainability
objectives in London’s West End. We are
an active member of both, the Better
Building Partnership and the Wild West
End biodiversity collaboration. Through the
latter we are gaining momentum with the
implementation of biodiversity features
throughout the portfolio. We are also an
associate member of the New West End
Company which is working on the Air
Quality 2020 initiative - a partnership of
London companies concerned about
congestion and resulting air pollution
issues in the West End.

In the year ahead we will work together
with stakeholders to identify and
implement practical measures that can
contribute to reducing traffic movements,
through coordinated delivery and
servicing, and consequently reduce air
pollution.

This is a condensed version of our
Sustainability Report (and
Communication on Progress for the UN
Global Compact). The environmental
information, including biodiversity, is set
out on pages 158 to 165. The full report is
available on our website.

Our strategic focus continues to be the
re-use and careful management of existing
buildings. We pride ourselves on our ability
to extend the economic useful lives of our
buildings through changes of use and
reconfiguration, within the constraints of
legislation, so that they continue to meet
the needs of modern occupiers. This
emphasis on restoration and repair forms
the core of our sustainability strategy and
is measured through an increased number
of schemes on course to achieve BREEAM*
certification.

In an urban location, which is intensively
used by huge numbers of visitors and a
large working population and residential
community, social issues and challenges
are bound to arise. We therefore focus on
community related activities which help to
support organisations that tackle these
problems. We are long-term, socially
responsible neighbours and investors in
our area and are integrated into our
community. We measure our continued
involvement in line with the London
Benchmarking Group methodology.

We remain committed in our support of
the United Nations Global Compact
(UNGC) and its ten principles in the areas
of human rights, labour, environment and
anti-corruption. We are implementing
programmes internally and across our
supply chain with emphasis on engaging
with our principal suppliers and how they
operate in the management of our
portfolio. We are encouraging the payment
of the London living wage and are
progressing the requirements of the
Modern Slavery Act 2015 throughout our
supply chain as objectives for 2017.

*BREEAM Building Research Establishment Environmental Assessment Method

Shaftesbury Annual Report 2016STRATEGIC REPORT ANNUAL REVIEWSUSTAINABILITY CONTINUED
MANAGEMENT OF SUSTAINABILITY

With the growth of our business and the increasing importance
that we are placing on sustainability, we have formed a
Sustainability Committee. Chaired by the Chief Executive, it
comprises members of the management team and the Company
Secretary. It meets quarterly to define objectives, agree
strategies and review progress. We have a robust Sustainability
Policy which is reviewed annually by the Board and is available
on our website. This is supported by a materiality framework
outlined below.

MATERIALITY
We have based our sustainability strategies and goals on the
following core factors:

Community: engaging with community groups and charities to
ensure we are aligned in our community.

Stakeholders: engaging with our tenants, investors and principal
advisors ensures that we are aware of their expectations and can
respond accordingly. In particular, we work with tenants to
identify ways in which they can use our buildings more efficiently
and operate in a more sustainable manner.

Environment: the re-use and careful management of existing
buildings is inherently sustainable. In addition, reducing the
running costs of the buildings and improving their operational
efficiencies is essential to attract tenants, as well as meet future
regulatory requirements. See page 161.

Suppliers: working closely with our suppliers enables us to control
our potentially most significant indirect impacts and facilitate
better standards of service.

Employees: investing in the welfare and development of our
employees ensures high standards of performance and
continuing low turnover of staff.

We aim to progress towards reporting in line with the Global
Reporting Initiative (GRI) G4 requirements and formalise a
materiality assessment from an external and internal
perspective:

External review – a review of external influences, views of
investors, benchmarking indices, activities of our peers and
other companies to provide the basis for identifying the issues
that are material to the business now and in the future.

Internal review – the findings from the above were reviewed
internally by the Sustainability Committee and then we held an
internal workshop to establish the relative importance of the
issues to our business, balanced with the importance to
stakeholders.

Below is the result of our first assessment which shows a
materiality matrix setting out the most significant issues. These
were identified as: community, central London air pollution,
living wage, health and safety, infrastructure, greenhouse gas
emissions, human rights, waste, material use and biodiversity.

Whilst we will continue to consider the core factors as part of
our sustainability strategy, we will prioritise these top ten issues
and aim to address them in the year ahead.

HIGH

L
A
N
R
E
T
N

Community

Air Pollution

GHG

Infastructure

Living
wage

Health
and
safety

Material
use

Waste

Human
rights

Biodiversity

LOW

EXTERNAL

HIGH

STRATEGIC REPORT ANNUAL REVIEW

Shaftesbury Annual Report 2016

SUSTAINABILITY CONTINUED
COMMUNITY

We ensure our activities and engagement are aligned with the community
in which our portfolio is located and in the aspects that support the West
End both as a community and visitor destination.

We have continued our membership of the London Benchmarking Group
(LBG). Our LBG contribution is measured in accordance with their
framework and equated to £723,000. The breakdown of the elements that
make up this figure are set out opposite.

Our Section 106 contributions (an agreement to make a payment to a local
authority in respect of planning obligations) were £166,000 giving an overall
total of community investment of £889,000.

Our collaborations provided community leverage of £73,000 to
stakeholders.

What we contribute

Cash
Staff time
In kind contributions
Pro bono
Management costs

How we contribute

Charitable gifts
Community investment
Commercial initiatives
in the community

6.2%

5.3%

32.8%

40.0%

15.7%

7.1%

33.4%

LBG
£723,000

s106
£166,000

CHARITY PARTNERS
This year we have continued our relationship with charity partners in our
villages. We work with the nominated charity to promote their aims and
activities to a wide audience, through events and media activities. We work
with other charitable and not-for-profit organisations that we support, as a
Group, which reach across a number of our villages. These include:

LandAid
London Law Centre
Sir Simon Milton Foundation (including sponsorship of Westminster City
Council tea dance)
Stage One
The Sustainable Restaurant Association/Food Made Good
Westminster Kingsway College
Westminster Tree Trust
Zoological Society of London
University of the Arts
Westway Trust

59.5%

What we support

13.3%

Education
Health
Economic development
Environment
Arts/culture
Social welfare
Other

31.9%

5.9%

1.3%

35.7%

1.3%

10.6%

OUR VILLAGE CHARITY PARTNERS ARE:
Covent Garden
The Connection at St Martins-in-the-Fields, Covent Garden Community
Association, The Seven Dials Trust, Donmar Warehouse, the ENO’s
community choir and Central St Martins.

Chinatown
The London Chinese Community Centre, London Chinatown Chinese
Association, Chinese Information and Advice Centre and China Exchange.

Carnaby
Trekstock, the London College of Fashion, Deal Real Legacy, Stage One,
The Samaritans and Pride in London.

Soho
The House of St Barnabas, The Soho Society, Soho Create, Museum of Soho,
Soho Parish Primary School and West End Community Trust.

74 Shaftesbury Annual Report 2016

STRATEGIC REPORT ANNUAL REVIEW

SUSTAINABILITY CONTINUED
STAKEHOLDERS

This year we engaged with the New West End Company, a business
improvement district, and their Air Quality 2020 project. Landowners and
other stakeholders are working together to identify ways to improve the
flow of vehicles, reduce congestion and improve air quality in the West End.

Local Government
We work together with Westminster City Council and Camden Council on
public realm projects in order to improve the areas surrounding our
portfolio.

During the reporting period, we commissioned a pilot study to identify
potential delivery and servicing consolidation schemes that could be
considered by retailers, restaurants and businesses in Seven Dials. Four
potential measures were identified: supplier consolidation, re-timing of
deliveries, mandating the use of a single approved courier and discouraging
personal deliveries. The results of the pilot study will be fed back to
participating businesses and the study will be extended to all the
restaurants in Seven Dials. The ultimate goal is that through sharing delivery
and waste vans, vehicle movements will be reduced, improving traffic flow
and consequent emissions ,to the benefit of occupiers, residents and
visitors to the area.

We have continued our membership of the Better Building Partnership, a
collaboration of the UK’s largest commercial property owners working
together to improve the sustainability of their commercial portfolios.
Through this we have the opportunity to engage with peer group companies
to identify best practice opportunities appropriate to our operations and
to benchmark the performance of a selection of our buildings.

Suppliers
With our outsourcing model, we are concentrating our efforts on
transparency within our supply chain in the following areas.

In accordance with the Modern Slavery Act 2015, we have published a
statement on our website detailing how we are tackling slavery and human
trafficking in our supply chain. We have written to all our first tier suppliers to
raise awareness of the legislation, telling them of our plans which include
carrying out a due diligence exercise throughout our business to establish the
areas of risk, and reviewing all relevant contracts and requesting that our
suppliers also contact their suppliers to raise awareness of the legislation.

We have other policies in place which address human rights, whistleblowing
and the ethical conduct of our business, all of which are included within our
Sustainability Policy. Our policy is provided annually to each member of our
supply chain to encourage them to adopt and enforce similar policies in
their own business.

An objective last year was to address the implementation of the London
living wage throughout our supply chain. We are making good progress with
our managing agents reviewing facilities contracts for our portfolio to
ensure, as a minimum, that the pay scales meet the national living wage and,
where possible, meet the London living wage. We recognise that for
refurbishment projects, enforcing the requirement is proving more
challenging but our project management teams are aware of the
requirement and are disseminating it to contractors and subcontractors.

Tenant engagement
We continue to provide subsidised membership of the Sustainable
Restaurant Association and this is included in the Heads of Terms for new
restaurant tenants. Eleven tenants have signed up this year.

An online Building Guide for commercial tenants is being developed and
should be completed shortly. The Guide will cover all management issues
relevant to the tenants, such as sustainability advice including fit-out,
emergency response, fire protection and recycling facilities within the
portfolio.

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. As in 2015, we conducted a formal customer
satisfaction survey of our tenants in Carnaby and Seven Dials. The feedback
for Carnaby was largely positive and an improvement on last year but there
was a slight drop in performance at Seven Dials which is being addressed.
The exercise will be repeated in the forthcoming year in Carnaby and Seven
Dials.

Results of customer satisfaction survey:

PROPERTY NAME

Carnaby - Residential

Carnaby - Office

Carnaby - Retail

Carnaby - Restaurant

AVERAGE RATING

% SATISFIED

3.94

4.10

3.97

3.94

81%

90%

83%

75%

Response rate: 35%
Overall average: 82% (2015: 71%)

PROPERTY NAME

AVERAGE RATING

% SATISFIED

Seven Dials - Residential

Seven Dials - Office

Seven Dials - Retail

Seven Dials - Restaurant

Response rate: 29%
Overall average: 62% (2015: 77%)

3.53

3.44

3.46

2.75

62%

67%

69%

50%

Shaftesbury Annual Report 2016STRATEGIC REPORT ANNUAL REVIEWSUSTAINABILITY CONTINUED
EMPLOYEES

We recognise the importance of the welfare and professional
development of our employees, as well as ensuring an inclusive
culture throughout our activities.

We employ 27 staff including executive directors. There continue
to be five women in senior executive positions (50% of executive
staff excluding directors) and three female non-executive directors.
Our commitment to promoting gender equality is reflected in our
membership of Real Estate Balance, whose objective is to work
with both men and women in the real estate industry and with
corporate leaders to achieve a greater gender balance at board
and executive management level across the real estate sector by
supporting, in a practical way, the development of an enduring
female talent pipeline. We have also committed to the RICS
Inclusive Employer Quality Mark.

Percentage of female staff overall

Percentage of female staff in senior positions

Percentage of female board members

Average training hours per employee

We believe that training and development of our staff is essential
and, this year, each employee underwent an average of 12 hours
training. All staff also underwent a personal development review.
Flexible working is available and 11% of employees currently work
part-time.

This year we organised a training session for all staff, conducted by
an external law firm, which covered bribery, giving and receiving of gifts
and whistleblowing. There have been no instances of non-compliance
with our Anti-Bribery Policy during the financial year.

2014

52%

50%

30%

2015

56%

50%

30%

2016

60%

50%

30%

Number of staff receiving professional development review

100%

Average length of service

Staff turnover

Absenteeism (average per employee)

Number of staff with flexible working

1.4 days

2 days

Health and Safety
The Board has overall responsibility for health and safety.

In our refurbishment projects, responsibility for health and safety
is identified within all pre-tender documentation and is monitored
by site and project managers. Managing agents oversee day-to-day
health and safety matters throughout the portfolio.

There were two reportable health and safety incidents in the
managed portfolio. The Accident Frequency Rate for Shaftesbury
employees was zero (2015 – zero) and there were no health and
safety prosecutions, enforcement actions or fatalities in 2016.

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

2014

2015

2016

Shaftesbury Annual Report 2016STRATEGIC REPORT ANNUAL REVIEW
NOVEMBER
S M T W T F S

1 2 3 4 5
6 7 8 9 10 11 12
13 14 15 16 17 18 19
20 21 22 23 24 25 26

27 28 29 30

TURNING
ON THE
LIGHTS

Music playing, the lights being
turned on, discounts offered in
shops and restaurants, and the
festival atmosphere, indicates
that Christmas has officially
started in Carnaby and
Seven Dials.

GOVERNANCE

DIRECTORS AND OFFICERS 80
GOVERNANCE AT A GLANCE 82
CORPORATE GOVERNANCE 84
NOMINATION COMMITTEE REPORT 87
AUDIT COMMITTEE REPORT 90
REMUNERATION REPORT 94
SUMMARY OF REMUNERATION POLICY 96
ANNUAL REMUNERATION REPORT 98
DIRECTORS’ REPORT 110
DIRECTORS’ RESPONSIBILITIES 112
INDEPENDENT AUDITORS’ REPORT 113

Shaftesbury Annual Report 2016

DIRECTORS AND OFFICERS
EXECUTIVE DIRECTORS

Executive Directors from left to right:
Chris Ward, Tom Welton, Brian Bickell, Simon Quayle

BRIAN BICKELL, FCA
Chief Executive
Overall responsibility for
implementing the Group’s strategy
and day-to-day operations
Joined the Group in 1986
Board appointment
Appointed Finance Director on
20.7.1987 and Chief Executive on
1.10.2011
External appointments
Director of Longmartin Properties
Limited
Board member of Westminster
Property Association
Chairman, UK China Visa Alliance
Board member of Freehold

SIMON J QUAYLE, BSc, MRICS
Executive director
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

TOM J C WELTON, MRICS
Executive director
Responsible for the asset
management and operational
strategy in Covent Garden and
Chinatown
Joined the Group in 1989
Board appointment
Appointed Property Director
on 1.10.1997
External appointments
Director of Longmartin Properties
Limited

CHRIS P A WARD, MA (Oxon), ACA
Finance Director
Responsible for implementation of
the Group’s financial strategy and all
aspects of accounting and taxation
Joined the Group in 2012
Board appointment
Appointed Finance Director
on 9.1.2012
External appointments
Westway Trust

SECRETARY
PENNY THOMAS, LLB (Hons), FCIS

REGISTERED OFFICE
22 Ganton Street, London W1F 7FD
Tel: 020 7333 8118
email: shaftesbury@shaftesbury.co.uk
Registered number: 1999238

Shaftesbury Annual Report 2016

GOVERNANCE

DIRECTORS AND OFFICERS
NON-EXECUTIVE DIRECTORS

JONATHAN C NICHOLLS ACA, FCT*
Non-executive Chairman and Chairman
of the Nomination Committee
Board appointment 1.9.2016 and
Chairman on 1.10.2016
Experience
From 1985 various roles at Abbey
National. In 1996 joined Hanson plc
and became Finance Director in 1998.

Skills
Over 18 years’ experience of plc
boards and their operation
Strong and well-developed finance,
commercial and strategic skills
Significant communication, investor
relations and management skills
Several decades experience in
property and related industries

Joined Old Mutual plc in 2006 as
Group Finance Director

Non-executive director of Man
Group plc from 2004-2006

Non-executive director and
chairman of the audit committee of
Great Portland Estates plc from
2009 until July 2016
Other appointments
Non-executive director and chairman
of the audit committee of SIG plc
Non-executive director, senior
independent director and chairman
of the audit committee of D S Smith plc
Non-executive director, senior
independent director and chairman
of the audit committee of Ibstock plc

JILL C LITTLE*
Non-executive director and Senior
Independent Director
Board appointment 2010
Experience
John Lewis Partnership 1975 to 2012.
Merchandise director 2002-2011 and
Business and Development director
2011-2012
Other appointments
Chairman of the Commercial Group
of the National Trust
Non-executive director of Joules
Group Plc
Consultant to a number of global
retailers
Skills
Significant experience in the retail sector
Strong communication and
management skills

SALLY E WALDEN*
Non-executive director and
chairman of the Remuneration
Committee
Board appointment 2012
Experience
From 1984 to 2009 with Fidelity
International in senior fund
management roles
Other appointments
Trustee of the Fidelity Foundation
Trustee of Wiltshire and Swindon
Community Foundation
Skills
Experience of financial markets and
fund management
Experience in remuneration
structures
Financial analysis skills

DERMOT C A MATHIAS BSC, FCA*
Non-executive director and
Chairman of the Audit Committee
Board appointment 2012
Experience
Partner in the corporate finance
department of BDO LLP from 1980
From 2002-2009 senior partner of
the firm and chairman of the policy
board of BDO International

Non-executive directors from left to right:
Oliver Marriott, Jill Little, Jonathan Nicholls, Sally Walden, Dermot Mathias, Hilary Riva

Other appointments
Non-executive director of Rectory
Homes Limited
Non-executive chairman of
Red & Yellow
Governor of Activate Learning
Skills
Strong financial skills
Extensive experience in leadership
and management

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
Non-executive director of P&O
from 1985-1991
Skills
Experience in finance and property
sectors

HILARY S RIVA, OBE*
Non-executive director
Board appointment 2010
Experience
Previously managing director of
various high street brands including
Top Shop, Warehouse, Dorothy
Perkins and Evans
Chief Executive of the British
Fashion Council from 2005-2009
and remained in a non-executive
capacity until November 2010
Other appointments
Non-executive director of ASOS plc,
London and Partners and Shepherd
Neame Limited
Skills
Extensive experience in the fashion
retail industry
Understanding of consumer
behaviour and strategic planning

* Independent non-executive directors for
the purposes of the UK Corporate Governance
Code. More detailed biographies are
available on our website.

Shaftesbury Annual Report 2016GOVERNANCE
GOVERNANCE AT A GLANCE

LEADERSHIP

DIVISION OF
RESPONSIBILITY
• Separation of roles
of Chairman and
Chief Executive

• Statement of
responsibilities

THE ROLE OF
THE BOARD
• Schedule of matters

reserved for the Board

• D&O cover and deeds

of indemnity

THE
CHAIRMAN
• Independent
Chairman
appointed 1.10.2016

• Leadership of

the Board

NON-EXECUTIVE
DIRECTORS
• Meetings of non-executive

directors held without
executives

• Senior Independent
Director identified

UK CORPORATE
GOVERNANCE
CODE
Compliant except for
A.3.1 and B.6 - see page 84

AUDIT COMMITTEE
AND AUDITORS
• Audit Committee Report - page 90

• Recent and relevant financial experience

- Dermot Mathias

• Whistleblowing Policy - page 93

• Review of need for internal audit function

- page 92

• External auditor appointment - page 91

THE LEVEL AND
COMPONENTS OF
REMUNERATION
• Annual Remuneration

Report - pages 98 to 109

ACCOUNTABILITY

RISK MANAGEMENT
AND INTERNAL
CONTROL
• Robust assessment of

principal risks - page 63

• Risk management and

internal control - page 65

• Viability Statement - page 71

FINANCIAL AND
BUSINESS
REPORTING
• Directors responsible for preparing

annual report which is fair, balanced
and understandable - page 112

• Auditor’s Report - page 113

• Business model description - page 8

• Adopt going concern basis - page 91

Shaftesbury Annual Report 2016

GOVERNANCE

REMUNERATION

UK CORPORATE

GOVERNANCE

CODE

Compliant except for

A.3.1 and B.6 - see page 84

GOVERNANCE AT A GLANCE CONTINUED

EFFECTIVENESS

COMPOSITION
OF THE BOARD
• Independent Chairman

• Balance of 4 executive directors

and 5 independent non-executive
directors

• Skills and experience - page 81

RE-ELECTION
• All directors are
re-elected on an
annual basis

• 3 non-executive directors
have more than 6 years
service and are subject
to rigorous review

EVALUATION
• Board performance

evaluation delayed to
2017 - page 84

• External evaluation

in 2015

APPOINTMENTS
TO THE BOARD
• Nomination Committee
process for Chairman
appointment - page 87

COMMITMENT
• Time commitment
considered when
electing and
re-electing directors

DEVELOPMENT
• Induction of Chairman

- page 89

• Directors training is

monitored and updates
on regulatory and
legislative changes
provided

INFORMATION
AND SUPPORT
• Company Secretary

advises the Board through
the Chairman

• Access to independent

professional advice

• Good information flows
between management
and the Board

DIALOGUE WITH
SHAREHOLDERS
• Over 235 meetings with
investors and potential
investors including
portfolio tours

• Chairman and Senior
Independent Director
available to shareholders

CONSTRUCTIVE
USE OF GENERAL
MEETINGS
• Accessible AGM with voting on
a poll, separate resolutions and
proxy voting (for, against or
withheld)

• Committee Chairs available
at AGM to answer questions

• Notice sent out at least 20

working days before meeting

PROCEDURE
• Remuneration Policy

summary table pages
96 to 97

• Annual Remuneration

Report - pages 98 to 109

• No director is involved

in fixing their own
remuneration

RELATIONS WITH
SHAREHOLDERS

GOVERNANCE

Shaftesbury Annual Report 2016

CORPORATE GOVERNANCE

THE ROLE OF THE BOARD IN GOVERNANCE IS TO SET THE STRATEGIC AIMS
OF THE BUSINESS, PROVIDE LEADERSHIP AND SUPERVISION AND REPORT
TO SHAREHOLDERS ON ITS STEWARDSHIP.

DEAR SHAREHOLDER

I am delighted to be writing to you as your new Chairman.

Corporate governance is an important component of the day-to-day
running of your Company and I intend to follow in the footsteps of good
governance set by my predecessors. My background in other listed
companies means that I have a wide range of experience to bring to
the Board.

We have a well-balanced Board with a good range of skills. I was appointed to
the Board on 1 September 2016 and I am standing for election at the 2017
AGM. My fellow directors, in line with good governance, will all stand for
re-election. Specifically, the Nomination Committee made the recommendation
for the re-election of Jill Little, Hilary Riva and Oliver Marriott who have all
served on the Board for more than six years. In making the recommendation, the
Nomination Committee considered the contribution that these non-executive
directors make to the business and their continuing independence.

COMPLIANCE WITH THE UK CORPORATE GOVERNANCE CODE
The Company has complied with the UK Corporate Governance Code during
the year except for two principles:

• Independence of the Chairman – A.3.1
Jonathan Lane, who retired as Chairman on 30 September 2016, was

formerly Chief Executive of the Company. He was therefore not deemed to
be independent upon his appointment. From 1 October 2016, when I took
on the role of Chairman, we returned to compliance with this principle.

• Annual board performance review – B.6
The Nomination Committee and the Board were focused throughout the

year on the Chairman succession process. It was therefore decided not to
undertake a board performance review this year but delay it until the new
Chairman had joined the Board. An external review had been undertaken
in 2015, and no material issues were identified. Therefore, we propose to
undertake a full board performance review in early 2017. We will report to
you on the results of the board performance review in the 2017 Annual
Report.

Our compliance with the UK Corporate Governance Code is summarised
on pages 82 to 83 and set out in detail in the following pages.

HUMAN RIGHTS AND THE MODERN SLAVERY ACT 2015
The Group is committed to respecting human rights and as part of that
commitment, is a signatory to the UN Global Compact. As a property
investment company, human rights in a small head office of 27 people are
easy to oversee. With our outsourcing model, we are concentrating our
efforts on transparency in the supply chain. The legislation is now in force
and we are talking with our first and second tier suppliers about the principles
of the UN Global Compact and the Modern Slavery Act. Our statement of
compliance with the Modern Slavery Act which sets out how
we approach its requirements, is set out on our website with a link from
our home page. See also page 75.

MARKET ABUSE REGULATIONS
New regulations came into force in July 2016. In order to assist with meeting
the Group’s obligations under the regime, a Disclosure Committee of the
Board was set up to monitor inside information and closed periods.

TAX
Earlier this year, the Board approved a statement of its policy on tax.
A summary of this policy is set out on page 58 and a copy of the Board’s
statement is available on our website.

I look forward to working with my fellow directors over the coming years.
I also look forward to meeting shareholders and welcoming you to our
AGM on 10 February 2017.

Jonathan Nicholls
Chairman

Shaftesbury Annual Report 2016GOVERNANCE
CORPORATE GOVERNANCE CONTINUED

THE BOARD
The Board has Audit, Remuneration and Nomination
Committees. A Disclosure Committee of the Board
was established during the year. It deals with the
requirements of the market abuse regulations
which came into force in July 2016. Responsibilities
of each are defined in their terms of reference,
which are available on the Group’s website and
their reports are set out on pages 87 to 109.

During the year, two management committees
were established: a Sustainability Committee and
a Pensions Committee, both with executive
management membership.

The Board meets regularly and there is an annual
cycle of topics to be considered including key
management and financial updates as well as approval
of significant acquisitions and refurbishment
schemes. Each Committee provides a summary of
business discussed to the Board and the minutes
of all Committees are circulated to the Board.

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.

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. All directors contribute to
the constructive debate in the boardroom and to
the implementation of the Group’s strategy.

Jonathan Nicholls, who joined the Board on 1
September 2016 and became Chairman on 1
October 2016, was independent on his
appointment to the Board. Each of the other
non-executive directors is considered by the
Board to be independent.

Set out below is the structure of the Group’s Board and Committees:

STRATEGY

PERFORMANCE

RISK

SUSTAINABILITY

BOARD

BOARD
COMMITTEES

AUDIT COMMITTEE
• Financial reporting
• Monitor external auditors
• Risk and internal control

REMUNERATION COMMITTEE
• Remuneration policy
• Annual remuneration including

NOMINATION COMMITTEE
• Succession planning
• Recommend candidates to

DISCLOSURE COMMITTEE
• Compliance with market

abuse regulations

bonus and LTIP awards
• Set annual performance

objectives

the Board

• Board performance evaluation
• Diversity

MANAGEMENT
COMMITTEES

SUSTAINABILTY COMMITTEE
Chaired by Chief Executive
• Sustainability policy
• Sustainability statement

PENSIONS COMMITTEE
Chaired by Finance Director
• Pensions governance

AUDIT COMMITTEE
REPORT PAGES
90 TO 93

REMUNERATION
REPORT PAGES
94 TO 109

NOMINATION COMMITTEE
REPORT PAGES
87 TO 89

SUSTAINABILITY
COMMITTEE
REPORT PAGES
72 TO 76 AND 158 TO 165

Shaftesbury Annual Report 2016GOVERNANCE

CORPORATE GOVERNANCE CONTINUED

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.

NUMBER OF MEETINGS
ATTENDED (5 HELD)

MEMBER

Brian Bickell

POSITION

Chief Executive

Simon Quayle

Property Director

Tom Welton

Chris Ward

Property Director

Finance Director

Jonathan Nicholls*

Chairman from 1 October 2016

Jonathan Lane

Chairman to 30 September 2016

Oliver Marriott

Non-executive director

Dermot Mathias

Non-executive director

Jill Little

Hilary Riva

Senior Independent Director

Non-executive director

Sally Walden

Non-executive director

*Attended the one meeting held following his appointment on 1 September 2016.

RELATIONS WITH SHAREHOLDERS
The Board considers regular contact with our shareholders is an important aspect of corporate
governance. Investor relations is the responsibility of the Chief Executive.

During the year, the Chief Executive and executive directors held over 235 meetings with UK and
overseas institutional investors comprising both current and potential shareholders. Meetings
involve either group or individual presentations and tours of the portfolio. The tours provide an
opportunity to see the Group’s assets, understand management strategy, and to meet members
of the team below Board level. Feedback from these and analyst meetings is provided to the
Board.

All directors are present for the AGM and available to answer questions from shareholders.

Shaftesbury Annual Report 2016GOVERNANCE

NOMINATION COMMITTEE REPORT

DEAR SHAREHOLDER

THE PRIMARY ROLE OF THE COMMITTEE IS TO CONSIDER ORDERLY BOARD SUCCESSION,
FOR BOTH EXECUTIVE AND NON-EXECUTIVE DIRECTORS.

DURING THE YEAR, THE COMMITTEE UNDERTOOK A PROCESS FOR THE APPOINTMENT OF A
NEW CHAIRMAN. I AM DELIGHTED TO HAVE BEEN SELECTED AND RECOMMENDED TO THE
BOARD AS YOUR CHAIRMAN. I HAVE ALSO BEEN APPOINTED TO CHAIR THIS COMMITTEE.

Jill Little, the Senior Independent Director, led the process for the Chairman’s
succession and her letter to you is below.

As Chairman of the Nomination Committee, my focus will be on Board
succession and talent development to ensure that there is a pipeline of
talented and experienced people in the business for future senior executive
and Board appointments. We have a long-established executive team and
development of employees below Board level is important for the continuity
of mangement of our Company.

During my induction as Chairman, I have met all employees and have
reviewed the plans in place for executive development and succession.
We will continue to develop these plans throughout my Chairmanship.

Jonathan Nicholls
Chairman and Chairman - Nomination Committee

DEAR SHAREHOLDER

IN NOVEMBER 2015, WE ANNOUNCED THAT JONATHAN LANE, OUR THEN CHAIRMAN, WOULD
RETIRE FROM THE BOARD AND THAT WE WOULD COMMENCE A PROCESS TO IDENTIFY HIS
SUCCESSOR. AS JONATHAN LANE COULD NOT BE INVOLVED IN THE APPOINTMENT PROCESS,
THE COMMITTEE ASKED ME TO LEAD THE SEARCH IN MY CAPACITY AS SENIOR
INDEPENDENT DIRECTOR.

The Committee agreed a role specification and matrix of the skills that
candidates should demonstrate. Some of the key attributes that the
Committee felt a new Chairman should demonstrate included a broad
commerical knowledge, listed company and property experience, as well as
sufficient time to commit to the role. The Committee appointed The Zygos
Partnership, who had previously worked with the Company on the
appointment of the Chief Executive and Finance Director, to advise on the
appointment process. They were felt to understand the culture and structure
of the Company including the Company’s very specific and defined strategy
and philosophy.

A long list of candidates was produced and from there a number were
selected for interview. Non-executive directors interviewed the shortlisted
candidates. The list was narrowed down further and all remaining candidates
met the Chief Executive as well as the other executive directors and were
taken on a tour of the Group’s portfolio. All directors were kept informed at
every stage of the process.

Jonathan Nicholls was the preferred candidate and the Committee
recommended his appointment to the Board. The full Board wholeheartedly
agreed with the Committee’s recommendation. It was announced in May 2016
that he would join the Board on 1 September 2016 as a non-executive
director and succeed Jonathan Lane as Chairman from the start of the new
financial year on 1 October 2016.

Jill Little
Senior Independent Director

Shaftesbury Annual Report 2016GOVERNANCE

NOMINATION COMMITTEE REPORT CONTINUED

POLICY ON DIVERSITY
All aspects of diversity, including but not limited to gender, are considered at
every level of recruitment. All appointments to the Board, and elsewhere in
the Company, 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.

Board composition is 30% female and 70% male. Gender diversity of the
Board and Company is set out below, showing both number of employees
(total 27) and percentage that this relates to.

DIRECTORS

30%

ALL EMPLOYEES

60%

SENIOR MANAGEMENT EXCLUDING
EXECUTIVE DIRECTORS

50%

70%

Male
Female

40%

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 businesses in the real
estate sector to look carefully at their employment practices and to ensure
inclusivity is embedded in their operations.

The Group is a member of Real Estate Balance whose objective is to achieve a
better gender balance in the real estate industry, at board and executive
management level, by supporting the development of a female talent pipeline
across the sector.

SUCCESSION PLANNING AND DEVELOPMENT
The Committee advises the Board on succession planning. It 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
will continue to monitor non-executive director succession. In the year ahead
it will ensure that the Audit Committee has the right skills to meet the Group’s
obligations under the new requirement of the UK Corporate Governance Code,
to have competence relevant to the sector on the Committee.

To manage executive director succession, the Committee also addresses
continuity in, and development of, the executive management team below
board level. It recognises that for when future executive directors are
needed, it is important to have developed internal talent. Current executive
directors have a long tenure and there are no foreseeable vacancies at Board
level. However, it is important the development of the Group’s employees is
monitored by the Committee. The development programme continues and
all employees are encouraged to fulfil their potential in their roles.

DIRECTORS STANDING FOR ELECTION AND RE-ELECTION
As Jonathan Nicholls joined the Board on 1 September 2016, he will be
proposed for election by shareholders at the 2017 AGM. All other directors will
stand for re-election at the 2017 AGM. Oliver Marriott, Jill Little and Hilary Riva
have been on the Board for more than six years. The Committee has ensured
that these directors continue to have the appropriate range of skills and
expertise to operate effectively (as described in the biographies on pages
80 to 81) and maintain their independence. The Committee therefore
recommends that they remain on the Board for a further year.

On the advice of the Committee, the Board recommends the re-election of
each director.

The tenure of directors at 30 September 2016 (excluding Jonathan Lane who
retired on that date) is set out below.

Jonathan Nicholls

Oliver Marriott

Hilary Riva

Jill Little

Dermot Mathias

Sally Walden

1 month

7 years

6 years 7 months

4 years

Brian Bickell

30 years

Simon Quayle

Tom Welton

Chris Ward

*19 years

4 years 9 months

SEE PAGES 80 TO 81 AND THE WEBSITE
FOR BIOGRAPHICAL INFORMATION
ON EACH DIRECTOR

* Period of Board membership

Shaftesbury Annual Report 2016GOVERNANCE

NOMINATION COMMITTEE REPORT CONTINUED

CHAIRMAN INDUCTION
The Senior Independent Director, assisted by the Company Secretary, led a
detailed induction for the new Chairman.

In the period between the announcement of his appointment and taking over
as Chairman on 1 October 2016, Jonathan Nicholls met the Group’s key
corporate advisors, undertook a number of tours around the Group’s

COMMITTEE MEMBERS AND ATTENDANCE

portfolio, met all the Group’s employees, and received detailed materials to
enable him to be fully briefed for his first Board meeting in September 2016.

MEMBER

Jonathan Lane*

Jill Little

Oliver Marriott

Dermot Mathias

Hilary Riva

Sally Walden

POSITION

Chairman

Senior Independent Director

NUMBER OF MEETINGS
ATTENDED (3 HELD)

Member

COMMITTEE ATTENDEES BY INVITATION ONLY

ATTENDEES

Brian Bickell

POSITION

Chief Executive

Penny Thomas

Secretary to the Committee

The Zygos Partnership

Search consultants

KEY ACTIVITIES DURING THE YEAR

SUCCESSION

PERFORMANCE AND SKILLS

RE-APPOINTMENT OF DIRECTORS

Search and selection of
a new Chairman

Reviewed the skills of the directors for re-election, with particular
focus on non-executive directors with more than six years service

Proposed to the Board directors for re-election

Recommendation of
Jonathan Nicholls to the Board

Succession planning for the
Board and senior executives

Reviewed diversity policy

Reviewed the annual committee report

* Jonathan Lane resigned from the

Committee on 30 September 2016. He was
replaced by Jonathan Nicholls who joined
the Committee on 1 October 2016 and is
thus excluded from these figures.

Shaftesbury Annual Report 2016GOVERNANCE

AUDIT COMMITTEE REPORT

DEAR SHAREHOLDER

THE COMMITTEE IS TASKED WITH REVIEWING AND ADVISING 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.

The Board appointed Ernst & Young LLP as independent auditors during the
year, following a tender process in 2015.

Dermot Mathias
Chairman – Audit Committee

FINANCIAL REPORTING AND SIGNIFICANT FINANCIAL JUDGEMENTS
The Committee reviews all financial information published in the annual and
half year financial statements. It 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 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, 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 112.

Consideration was also given to the Principal Risks and Uncertainties and the
Viability Statement, set out on pages 66 to 69. 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

The valuation opinion is provided by independent external valuers and is
one of the critical components of the annual and half year financial results.
It is inherently subjective, requiring significant judgement. As well as a
detailed review of the valuations by management, members of the
Committee met the Group’s valuers, without management present, before
finalisation of the annual and half year results. At these meetings, they
discussed the valuations, reviewed the key judgements and discussed
whether there were any significant disagreements with management. They
also discussed current market conditions, including the impact of the EU
Referendum, 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 at its
meeting to approve the financial statements; at which the valuers of the
Group’s wholly-owned portfolio attended and explained the assumptions
underlying their valuation opinion.

Shaftesbury Annual Report 2016GOVERNANCE
AUDIT COMMITTEE REPORT CONTINUED

• 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 or net assets. These include judgements concerning
the charge for equity settled remuneration and the valuation of derivative
financial instruments.

The Committee also reviewed revenue recognition policies across the
Group, considering the use of judgement and estimates in preparing
financial information. The Committee concluded that the Group’s revenue
recognition policies are generally straightforward, and there were no
transactions involving a high degree of judgement or estimation.

• Accounting for the refinancing of 8.5% First Mortgage Debenture Stock

due 2024 (the “Stock”)
The Committee reviewed the accounting for the refinancing of the Group’s
Debenture Stock.

In September 2016, the terms of the Debenture Stock were amended to grant
the Company an early redemption option to redeem the Stock in full at an
agreed amount, including a redemption premium. The exercise of the early
redemption option was conditional upon the issue of newly created longer-
dated Guaranteed First Mortgage Bonds, to be issued by 31 December 2016.

The amendments to the redemption terms materially changed the
discounted present value of the cash flows of the Stock. In order to reflect
this change, the Company revised the carrying value of the Stock. It was
previously held in the Balance Sheet at amortised cost, and is now held at
fair value, being the total consideration to be paid to stockholders. This
resulted in an increase in the recognised liability of £29.2 million, comprising
the redemption premium noted above, less the remaining unamortised issue
premium in respect of the Stock. This has been charged to the Statement
of Total Comprehensive Income in the year ended 30 September 2016.

The carrying value of the Stock has been included in the Balance Sheet
within current liabilities, reflecting the expectation that it would be satisfied
within three months of the year end.

In arriving at the accounting treatment noted above, the Board has made a
judgement that the issue of new First Mortgage Bonds was extremely likely.
To support this judgement, the Committee noted that the Group had
issued a prospectus in relation to the Bonds, the order book had been
substantially over-subscribed and had closed on 29 September 2016, at
which point the new Bonds had been priced. The new Bonds were issued
on 7 October 2016.

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 satisfied that
the processes used for determining the value of the assets and liabilities have
been appropriately reviewed, challenged and are sufficiently robust.

GOING CONCERN
The Committee reviewed whether it was appropriate to adopt the going
concern basis in the preparation of the results. In considering this, it reviewed
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.

VIABILITY STATEMENT
At the request of the Board, the Committee reviewed the Viability Statement
and the period for which the Board should assess the prospects of the Group.
Last year, the Group considered a five year period appropriate. This assumption
remains appropriate. The Committee reviewed a report from management
which set out the basis for the conclusions in the Viability Statement, including
scenario analyses. The Board’s viability statement is set out on page 71.

RISK REVIEW PROCESS
As part of standing matters, the Committee 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 Committee undertook a review of the Group’s cyber security risks and
was satisfied that the Group had met the Government’s cyber essentials
requirements.

EXTERNAL AUDITORS
The Committee is satisfied with the effectiveness of the external audit. The
Committee put the Group audit out to tender during 2015 and the Board
appointed Ernst & Young LLP. The process was described in last year’s report.

The Company has complied during the year with the provisions of the
Statutory Audit Services for Large Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and Audit Committee Responsibilities)
Order 2014.

This is the first year that the current lead audit partner, Eamonn McGrath, has
been in position. There are no contractual obligations restricting the Group’s
choice of external auditor. In accordance with the current regulations, the
Group will re-tender the audit every ten years.

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. Other than in exceptional circumstances,
non-audit fees should not exceed audit and assurance fees in any year. 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. There were two
such assignments during the year, relating to the refinancing of the Debenture
Stock.

Shaftesbury Annual Report 2016GOVERNANCE

AUDIT COMMITTEE REPORT CONTINUED

AUDIT FEES
Fees payable to the Group’s auditors for audit and non-audit services are set
out below:

2016

2015

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

142

188

213

156

177

255

Total fees related to non-audit services represented 13% of the total fees for
audit and assurance services (2015: 44%). The comparative figures represent
fees paid to PricewaterhouseCoopers LLP in its role as independent auditor
in the prior year.

The auditors were also paid £27,000 (2015: £26,400) for their audit of
Longmartin Properties Limited. Our 50% share of this was £13,500 (2015:
£13,200).

ANNUAL AUDITOR ASSESSMENT
Annually, the Committee assesses the qualifications, expertise, 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. This is the first year that Ernst & Young LLP have
been our auditor and following informal assessments, to date, the Committee
is satisfied with the effectiveness of the external audit and the interaction
between the auditors and the Committee. Following completion of the
current year’s audit, the Committee will carry out a formal assessment.

Ernst & Young 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 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 has advised the Board that,
at the present time, it considers that there is no need to establish an internal
audit function.

The matter will be kept under review.

Shaftesbury Annual Report 2016GOVERNANCE
AUDIT COMMITTEE REPORT CONTINUED

COMMITTEE MEMBERS AND ATTENDANCE

MEMBER

Dermot Mathias

Jill Little

Oliver Marriott

Hilary Riva

Sally Walden

COMMITTEE ATTENDEES BY INVITATION ONLY

ATTENDEES

Penny Thomas

Chris Ward

Gareth Field
Robert Jessett
Stefanie Doede

POSITION

Chairman

Senior Independent Director and member

NUMBER OF MEETINGS
ATTENDED (4 HELD)

Member

POSITION

Secretary to the Committee

Finance Director

Senior members of the finance team

PricewaterhouseCoopers LLP (2015)
Ernst & Young LLP (2016)

Independent auditors

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

Reviewed the Group’s policies on revenue recognition

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

Considered the appropriateness of the going concern assumption

Reviewed and approved the Committee Report

Planned for year end and
reviewed the audit plan

Approved non-audit assignments awarded to the
external audit firm, and monitored audit/non-audit fees

Considered the independence
and objectivity of the auditors

Made a recommendation
to the Board for the re-
appointment of the Group’s
auditors by shareholders

Discussed Ernst & Young’s
report on the audit

Meetings with external auditors
without senior management
present

Reviewed the whistle-blowing policy

Considered the need for an internal audit function

Reviewed the Committee’s performance

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

Reviewed cyber security risk

Shaftesbury Annual Report 2016GOVERNANCE

REMUNERATION REPORT

DEAR SHAREHOLDER

THE REMUNERATION POLICY SETS OUT OUR APPROACH TO THE REWARD OF EXECUTIVE AND
NON-EXECUTIVE DIRECTORS. IT REFLECTS OUR AIM THAT WE SHOULD ENSURE MANAGEMENT
CONTINUITY IN THIS LONG-TERM BUSINESS WHILST PROVIDING OVERALL FAIR REMUNERATION
LEVELS.

THE POLICY WE HAVE OPERATED THROUGHOUT THIS FINANCIAL YEAR WAS APPROVED
BY SHAREHOLDERS AT THE 2016 AGM.

We have seen another year of excellent progress, achieving growth in NAV
and earnings. We continue our high level of asset management activity and
have made good progress on our main projects (see page 50). We have
completed an important financial restructuring as described on page 62.

Against the backdrop of this performance, the Committee’s main decisions
during the year related to:

ANNUAL BONUS TARGETS
The Committee sets annual targets and objectives which align with the
Group’s long-term strategy.

Where projects extend for periods beyond the financial year, annual targets
are set to assess progress towards achievement of the ultimate objectives.
In setting the targets, the Committee uses the Group’s KPIs which drive value
in the form of long-term rental growth.

ANNUAL BONUS OUTCOMES AND EXERCISE OF DISCRETION
Annual bonus awards are measured against our KPIs and other performance
objectives which contribute to long-term shareholder value. The outcome of
performance against these targets was 82% of the maximum award. The 2016
bonus targets are disclosed in full on page 98. However, the Committee took
into account that the achievement of objectives was made against a background
of a continuing buoyant West End economy and felt that a cautious approach
to remuneration should be adopted. It has decided that an annual bonus
award of 60% (of maximum) is more reasonable in the circumstances.

Each executive director has elected to receive his award solely in the form
of deferred shares, and will therefore receive a deferred share award of 90%
of salary in December 2016, equivalent to 60% of maximum under the scheme.

The Committee exercised discretion in reducing the annual bonus award to
avoid a formulaic outturn and reflect a more appropriate payout.

LTIP VESTING

LTIP awards which were made in 2013 will vest in December 2016, based on a
three year performance period which ended on 30 September 2016. Annualised
TSR of 17% per annum exceeded that of the benchmark (FTSE 350 Real
Estate Index) by over 9% per annum over the period. Growth in NAV (above
the RPI benchmark) was 16.17% over the period.

As a result of this performance, the Committee confirmed that the TSR target
and the NAV target were fully met resulting in 100% vesting of these awards.

LTIP GRANT

As detailed in last year’s report, we undertook a comprehensive review of the
LTIP as part of the renewal of our plan which had reached its ten-year limit.
This was approved at the 2016 AGM. The Committee agreed to introduce a two
year post-vesting holding period for new awards. Last year’s report indicated
that the LTIP awards to be made in the year ending 30 September 2016 would
be made under the old LTIP rules in December 2015, without the holding
period. Ultimately, the Committee decided it would be more appropriate to
delay the grant of executive awards until after the 2016 AGM once
shareholders had approved the new rules. This allowed the grants to be
made under the new plan with the post-vesting holding period and new
malus/clawback provisions.

The Committee made a grant of nil cost options in February 2016 at 125% of
basic annual salary with a three year performance period to 30 September 2018.
Subject to performance against the targets (TSR performance compared with
the FTSE350 REIT Index and NAV growth), the awards will vest in December
2018, and be released in December 2020 following the post-vesting holding
period.

ALIGNMENT WITH EMPLOYEES
In reviewing salaries and considering bonus outcomes, the Committee considers
the overall pay packages of the executive directors. The Committee is aware
of the sensitivity of pay issues and considers all employees when reviewing
executive directors’ pay. All employees receive the same benefits as directors;
they participate in the LTIP and have the opportunity to defer their annual
bonus into shares. They also participate in sharesave, and receive health and
life insurance.

All employees also receive a pension; executive directors have the equivalent
of 25% of salary paid as pension contributions; all other employees have the
equivalent of 17.5% of salary paid into a pension.

Shaftesbury Annual Report 2016GOVERNANCEREMUNERATION REPORT CONTINUED

REVIEW OF SALARIES
Salaries of executive directors were reviewed to take effect from 1 December
2016 with increases of in the range of 1-2%, and below average salary
increases for our employees.

CHAIRMAN FEES
The Committee agreed the fees for the incoming Chairman at £150,000 per
annum which were set at a market competitive level in line with our policy.

REMUNERATION POLICY
Our Remuneration Policy was approved by shareholders at the 2016 AGM,
with almost 95% of shareholders voting in favour of the new arrangements.

We are not proposing any changes this year and therefore the full Remuneration
Policy has not been included in this year’s report. An extract from the
Remuneration Policy table is reproduced on pages 96 and 97 for ease of
reference.

The Annual Remuneration Report was approved by 99% of shareholders
voting at the 2016 AGM.

We look forward to receiving your continued support at the forthcoming AGM.

Sally Walden
Chairman – Remuneration Committee

CONTEXT FOR THE GROUP’S REMUNERATION
APPROACH

The Group has 27 employees, including four executive directors.
Of those four, three have an average length of service of 29 years.
The combined holdings of these three executive directors stand at
just over 2.8 million shares with a market value at 30 September
2016 of circa £27.5 million, which equates to individual holdings of
approximately 21 times their annual salary. The executive directors
have taken their annual bonus in shares in ten out of the last
eleven years since the Deferred Annual Share Bonus scheme was
introduced and retained shares from the LTIP. As a result, they
have built up substantial shareholdings.

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 10 years. The management team has
had one resignation during the year. The total number of
employees increased this year by two.

AT A GLANCE

2016 GROUP PERFORMANCE

Rents receivable
+7.2%
£98.4m

EPRA Earnings
per share
+7.7%
14.0p

ERV growth

5.7%

Dividend
per share
+6.9%
14.7p

Portfolio value
+4.0%
£3.35 bn

EPRA NAV per share
+2.2%
£8.88

TSR

+8.0%

FTSE350
Real Estate Index

-12%

Shaftesbury Annual Report 2016GOVERNANCESUMMARY OF REMUNERATION POLICY

AT THE ANNUAL GENERAL MEETING HELD ON 5 FEBRUARY 2016, SHAREHOLDERS
APPROVED THE REMUNERATION POLICY, WHICH BECAME EFFECTIVE AS AT THAT DATE.

An extract of key parts of the Remuneration Policy table from the Remuneration Policy is reproduced below for information only. The full Remuneration
Policy is on our website and set out on pages 88 to 95 of the 2015 Annual Report which is also available in the investor relations section of the Group’s
website.

EXECUTIVE DIRECTORS

ELEMENT OPERATION / PERFORMANCE MEASURES

MAXIMUM POTENTIAL VALUE

Salary

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

The Committee does not specify a
maximum salary or maximum salary
increase

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

Further details on salary levels and
any increases are provided in the
Annual Remuneration Report

Annual
bonus

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. 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

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;

Up to 100% of salary if taken entirely
in cash

Shaftesbury Annual Report 2016GOVERNANCESUMMARY OF REMUNERATION POLICY CONTINUED

ELEMENT

OPERATION / PERFORMANCE MEASURES

LTIP

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

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

MAXIMUM POTENTIAL VALUE

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)

All employee
plans

Executive directors are eligible to participate in other share plans, which are offered on similar terms
to all employees, for example Sharesave and SIP

The limits are as defined by HMRC
from time to time

Pension

Contribution paid into a personal pension plan or taken as a cash equivalent, reduced for any resultant
tax liability borne by the Group

25% of salary

Other benefits 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

There is no maximum value.
Benefits are set at a level which the
Committee determines is reasonable
and appropriate

The value may vary depending on
service provided, cost and market
conditions

Shaftesbury Annual Report 2016GOVERNANCE
ANNUAL REMUNERATION REPORT

SET OUT BELOW IS THE ANNUAL REMUNERATION REPORT ON DIRECTORS’ PAY
FOR THE YEAR ENDED 30 SEPTEMBER 2016.

THE REPORT DETAILS HOW WE INTEND TO OPERATE THE REMUNERATION POLICY
FOR THE YEAR AHEAD AND HOW WE IMPLEMENTED IT DURING THE YEAR.

STATEMENT OF IMPLEMENTATION OF REMUNERATION FOR THE YEAR ENDING 30 SEPTEMBER 2017

EXECUTIVE DIRECTORS’ SALARIES FROM 1 DECEMBER 2016
The Committee recommended general increases for executive directors and employees with effect from 1 December 2016.

B Bickell
S J Quayle
T J C Welton
C P A Ward

1.12.2016
£’000
490
346
346
342

1.12.2015
£’000
485
342
342
335

INCREASE
1%
1%
1%
2%

This compares to an average increase across the employee population of 4%. Pension and other benefits are as described in the Remuneration Policy table.

ANNUAL BONUS TARGETS
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. Disclosure of annual bonus targets for the year ending 30 September 2017 is deemed to be commercially sensitive and therefore the
actual targets are not set out in this report. The targets will be disclosed retrospectively next year, provided they are no longer commercially sensitive.

MEASURE
Achieve growth in ERVs 1

Let vacant space on a timely basis 1

Effectively achieve full lettings

Manage property expenses

WEIGHTING TARGET OR REASON FOR NON-DISCLOSURE

20%

10%

The Committee considers specific disclosure of 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 parties

Corporate responsibility performance

10% To match baseline year (2013) corporate responsibility scores (GRESB ranked 3 out

of 10 in peer group, EPRA silver sustainability reporting)

Deliver projects/transactions successfully

40% Specific operational objectives to be met during the year critical to progressing

long-term property projects and financing

LTIP
LTIP awards of 125% of salary will be granted in December 2016, in respect of the performance period 1 October 2016 to 30 September 2019. The
performance measures will be as set out on page 102. A two-year post-vesting holding period will apply to these awards.

NON-EXECUTIVE DIRECTORS’ FEES FROM 1 DECEMBER 2016
Non-executive director fees are reviewed every two years. The previous review was undertaken in 2015 and therefore no changes will apply this year to fees,
other than the Chairman’s fee which was set at £150,000. Non-executive fees are £55,000 per annum. There is an additional fee of £10,000 where a non-executive
director chairs a committee and for the Senior Independent Director (if not already in receipt of a Committee Chairman fee). The Chairman does not receive
an additional fee for chairing the Nomination Committee.

1 Group KPIs.

Shaftesbury Annual Report 2016GOVERNANCEANNUAL REMUNERATION REPORT CONTINUED

REMUNERATION FOR YEAR ENDING 30 SEPTEMBER 2016

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 2016 and the prior year:

SALARY

2016
£’000

2015
£’000

BENEFITS 1
2016
£’000

2015
£’000

PENSION
BENEFIT 2

ANNUAL
BONUS 3

LTIP 4

OTHER 5

TOTAL

2016
£’000

2015
£’000

2016
£’000

2015
£’000

2016
£’000

2015
£’000

2016
£’000

2015
£’000

2016
£’000

2015
£’000

B Bickell

S J Quayle

T J C Welton

C P A Ward

483

341

333

473

333

323

106

104

437

308

302

356

251

246

914

645

577

530

375

377

329

1,991

1,523

1,417

1,086

1,404

1,075

1,318

1,009

1. Benefits comprise car allowance, permanent health insurance, life insurance and health insurance.
2. 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.

3. Payment for performance in respect of the relevant financial year. For 2016, the executive
directors could have received bonuses of 90% of salary in shares or 60% of salary in cash.
Each director has elected to take their 2016 bonus entirely in shares, which are deferred for
a period of three years. No further performance criteria apply.

4. Reflects the vesting of shares in the LTIP in respect of performance for the relevant

financial year. 100% of LTIP awards granted in December 2013 will vest in December 2016.
The TSR performance condition for the three-year performance period to 30.9.2016 was
met and resulted in full vesting 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 2016 of £9.33. The 2015 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.

5. This relates to sharesave options which have been valued based on the monthly savings

amount and the discount on the option price of 20%.

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 2016 and the prior year:

FEE

2016
£’000

COMMITTEE CHAIR/ SENIOR
INDEPENDENT DIRECTOR1 FEES
2015
£’000

2016
£’000

2015
£’000

OTHER 2

2016
£’000

2015
£’000

TOTAL

2016
£’000

2015
£’000

J C Nicholls 3

J S Lane

J C Little

O J D Marriott

D C A Mathias

H S Riva

S E Walden

129

125

129

1. Fee is only payable if the Senior Independent Director is not the chair of any other committee.
2. Includes dividend equivalents paid in the year on vested LTIP shares. These relate to Jonathan Lane’s previous role as an executive director.
3. Jonathan Nicholls joined the Board on 1 September 2016 and became Chairman on 1 October 2016.

147

Shaftesbury Annual Report 2016GOVERNANCE

ANNUAL REMUNERATION REPORT CONTINUED

ANNUAL BONUS ACHIEVEMENTS FOR YEAR ENDED 30 SEPTEMBER 2016
Full retrospective disclosure of the targets for the 2016 annual bonus scorecard is provided below.

MEASURE

WEIGHTING TARGET

ACHIEVEMENT

PERCENTAGE
AWARDED

Portfolio performance
• Achieve growth in ERVs1

20% Extent by which commercial lettings or
lease renewals exceed valuer’s ERV by
5% in previous year
Annual growth in Group total ERV
(like-for-like) to exceed 5%

Commercial lettings exceeded previous year ERV
on average by 7.7% 2. See page 39.

20%

Annual growth in total ERV 5.7%

• Let vacant space on a timely basis1

10% Complete lettings within target

periods set by use (range 1 – 3 months
according to use)

• Effectively achieve full lettings

10% ERV of space available to let not to

• Manage property expenses as a
percentage of rental income

Sustainability performance

exceed 3% of Group ERV (measured
quarterly)

10% Ratio of property outgoings to gross
rents receivable not to exceed rolling
three year average (like-for-like)
10% Maintain relative rankings in key indices

(5% on each of):

• EPRA
• GRESB

Average void period (measured from date space
became available to let). Maximum within target for
each use.

1.2 months. See page 39.
Average EPRA vacancy during year: 1.9% of Group
ERV 2

Ratio for year 2: 14.0%

Rolling three-year average: 2 13.3%

GRESB “green star” rating

EPRA silver sustainability reporting award

10%

Deliver projects/transactions
successfully

40% Specific operational objectives to be
met during the year critical to:

Operational objectives which were targeted for
completion during the year were substantially fully met

32%

• progressing key long-term property

projects

• maintaining long-term stability in the

Group’s financing arrangements

In the case of targets over more than one year,
progress against milestones was demonstrated

Progress on development of the Group’s portfolio
plus refinancing activities. The Group’s major
refurbishment projects include Thomas Neal’s
Warehouse, Newport Sandringham and 57 Broadwick
Street - see Strategic Report for further information.

82%

Maximum performance target

100%

Actual performance as a %
of maximum (see below for the
actual amount awarded and
explanatory note)

COMMITTEE’S EXERCISE OF DISCRETION
The Group’s strategy is long-term. The Committee considers it appropriate 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 82%, the Committee felt that a more reasonable award in view of general market conditions during the year
was 60% of maximum, assuming the bonus was taken in cash. All the executive directors elected to take their bonus in shares which equates to an award of
90% out of a maximum opportunity of 150% of their salary.

1 Group KPIs
2 Wholly-owned portfolio

100

Shaftesbury Annual Report 2016GOVERNANCEANNUAL REMUNERATION REPORT CONTINUED

The Committee has exercised its discretion to reduce the awards in the last two years and the effect of this is set out below:

YEAR

2015

2016

ACTUAL BONUS PERCENTAGE POTENTIAL
ACCORDING TO ACHIEVEMENT TABLE

BONUS PERCENTAGE AFTER EXERCISE OF
DISCRETION BY REMUNERATION COMMITTEE

70%

82%

Reduced to 60%

LTIP VESTING FOR THE PERFORMANCE PERIOD TO 30 SEPTEMBER 2016
Vesting of the LTIP awards granted in December 2013 was determined by performance over a three-year period to 30 September 2016. The table below
provides details of performance against the performance conditions for 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

Less than 0% pa

0% pa

Between 0% pa and 5.5% pa

5.5% pa or more

RELEVANT AWARDS VESTING

20%

Pro-rata on a straight line basis between 20% and 100%

100%

Performance in three-year period to 30 September 20161:
17.05% pa and outperformed the benchmark by 9.16% pa

Vesting outcome (for this half of the award)
100% 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

30%

Pro-rata on a straight line basis between 30% and 100%

100%

Performance in three year period to 30 September 2016:
16.17% pa RPI Growth of 1.69%. Outperformance of 14.44%

Vesting outcome (for this half of the award)
100% of maximum

1 Calculated using the three-month average TSR in the periods before grant and vesting

HISTORIC LTIP VESTING PERFORMANCE

100

76.7

Vesting %
100

100

TSR
NAV

63.5

2010
Year of vesting

2011

2012

2013

2014

2015

2016

101

Shaftesbury Annual Report 2016GOVERNANCE
ANNUAL REMUNERATION REPORT CONTINUED

SHARE SCHEME INTERESTS AWARDED DURING THE YEAR (AUDITED)
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.

Awards under the schemes below were made in February 2016, following approval of the Remuneration Policy by shareholders at the 2016 AGM. This was to
permit the grant under the new rules including post-vesting holding periods for the LTIP and malus/clawback provisions in both schemes.

B Bickell

S J Quayle

T J C Welton

C P A Ward

SCHEME

LTIP 1
Deferred Annual Share Bonus Scheme 2

FACE VALUE AT
DATE OF AWARD £’000

606
356

428
251

419
246

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 £9.268
(the average share price over the five days prior to 8.12.15). The LTIP performance period is
1 October 2015 to 30 September 2018. Performance measures are set out in the table below.

2. Deferred Annual Share Bonus Scheme relates to the annual bonus in respect of the year

ended 30.9.2015 taken in shares. The face value is calculated using the price paid to acquire
the shares, being £8.395. No further performance criteria are applied to share awards
under this scheme.

In view of the Group’s long-term strategy, a consistent approach to target setting is taken for the LTIP. The performance criteria for the 2016 awards, which
have been applied consistently since 2006, are set out below. However, two minor changes were made from the calibration of the targets in previous years.
First, the TSR benchmark index was changed from the FTSE350 Real Estate Index to the FTSE350 REIT Index which the Committee believes to be a more
direct and appropriate comparator. Second, threshold vesting was equalised to 25% on both elements of the award (having previously been 20% for the TSR
element and 30% for the NAV element).

ANNUALISED TSR OF THE COMPANY’S SHARES LESS
ANNUALISED TSR OF THE FTSE 350 REIT INDEX

Less than 0% pa

0% pa

Between 0% pa and 5.5% pa

5.5% pa or more

RELEVANT AWARDS VESTING

25%

Pro-rata on a straight line basis between 25% and 100%

100%

ANNUALISED NAV GROWTH LESS ANNUALISED RPI GROWTH,
OVER THE PERFORMANCE PERIOD

RELEVANT AWARDS VESTING

25%

Pro-rata on a straight line basis between 25% and 100%

100%

Less than 3% pa

3% pa

Between 3% pa and 7% pa

7% pa or more

102

Shaftesbury Annual Report 2016GOVERNANCE
ANNUAL REMUNERATION REPORT CONTINUED

DIRECTORS’ SHAREHOLDINGS AND SHARE SCHEME INTERESTS AT 30 SEPTEMBER 2016 (AUDITED)

SHARES
OWNED OUTRIGHT

DEFERRED
SHARES 1

OPTIONS
VESTED BUT NOT
EXERCISED

SHARES UNDER OPTION NOT
VESTED AND SUBJECT TO
PERFORMANCE CRITERIA 1

SHARESAVE

SHAREHOLDING
REQUIREMENT MET 2

234,533

165,471

158,190

4,812

6,547

Yes

Executive director

B Bickell

S J Quayle

T J C Welton

C P A Ward

Non-executive director

J C Nicholls

J S Lane 3

J C Little

O J D Marriott

H S Riva

D C A Mathias

S E Walden

1,070,782

133,978

94,654

87,720

986,182

780,300

57,423

1,075,000

5,367

5,000

16,479

16,208

40,000

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
which for Chris 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
30.9.2016 share price) are in excess of 21 times annual salary. The requirement was
increased to 200% of salary in the Remuneration Policy approved by shareholders in 2016,
and this will be applied to future appointments to the Board.

3. Retired 30 September 2016.

There have been no changes in directors’ shareholdings between 30 September 2016 and the date of this report.

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
Remuneration Policy table.

103

Shaftesbury Annual Report 2016GOVERNANCE
ANNUAL REMUNERATION REPORT CONTINUED

1. Deferred Annual Share Bonus Scheme

B Bickell

S J Quayle

T J C Welton

C P A Ward

DATE OF GRANT

10.12.2012

17.12.2013

22.12.2014

8.2.2016

10.12.2012

17.12.2013

22.12.2014

8.2.2016

10.12.2012

17.12.2013

22.12.2014

8.2.2016

10.12.2012

17.12.2013

22.12.2014

8.2.2016

MARKET
PRICE ON
DATE OF
GRANT
£

5.56

5.98

7.80

8.30

5.56

5.98

7.80

8.30

5.56

5.98

7.80

8.30

5.56

5.98

7.80

8.30

ENTITLEMENT TO ORDINARY SHARES

AT
1.10.2015

AWARDED
IN YEAR 1

DELIVERED
IN YEAR

AT
30.9.2016

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

42,436

29,928

29,258

38,867

27,569

16,948

36,238

55,304

42,436

133,978

25,651

39,075

29,928

94,654

25,651

39,075

29,928

94,654

22,394

36,068

29,258

87,720

Shares are held in an employee benefit trust which at 30 September 2016 held 491,804 shares.

1. In respect of the annual bonus for the year ended 30 September 2015.

104

Shaftesbury Annual Report 2016GOVERNANCEANNUAL REMUNERATION REPORT CONTINUED

2. LTIP

NUMBER OF ORDINARY SHARES UNDER OPTION

MARKET
PRICE OF
SHARE ON
GRANT
£

DATE
OF
GRANT

AT
1.10.2015

GRANTED
DURING
YEAR

VESTED
AND
EXERCISED
DURING
YEAR

LAPSED
DURING
YEAR

AT
30.9.2016

MARKET
PRICE OF
SHARE ON
DATE OF
EXERCISE
£

PERFORMANCE
PERIOD

EXERCISE
PERIOD

B Bickell

6.12.2012

5.55

100,600

20.12.2013 1

8.12.2014

8.2.2016 2

S J Quayle

6.12.2012

20.12.2013 1

8.12.2014

8.2.2016 2

T J C Welton

6.12.2012

20.12.2013 1

8.12.2014

8.2.2016 2

C P A Ward

6.12.2012

20.12.2013 1

8.12.2014

8.2.2016 2

6.06

7.78

8.30

5.55

6.06

7.78

8.30

5.55

6.06

7.78

8.30

5.55

6.06

7.78

8.30

94,900

74,220

65,413

63,881

36,719

8.295

1.10.2012-30.9.2015

12.2015-6.2016

94,900

74,220

65,413

1.10.2013-30.9.2016

12.2016-6.2017

1.10.2014-30.9.2017

12.2017-6.2018

1.10.2015-30.9.2018 12.2020-6.2021

269,720

65,413

63,881

36,719

234,533

71,200

67,000

52,345

46,126

45,212

25,988

8.295

1.10.2012-30.9.2015

12.2015-6.2016

67,000

52,345

46,126

1.10.2013-30.9.2016

12.2016-6.2017

1.10.2014-30.9.2017

12.2017-6.2018

1.10.2015-30.9.2018 12.2020-6.2021

190,545

46,126

45,212

25,988

165,471

71,200

67,000

52,345

46,126

45,212

25,988

8.295

1.10.2012-30.9.2015

12.2015-6.2016

67,000

52,345

46,126

1.10.2013-30.9.2016

12.2016-6.2017

1.10.2014-30.9.2017

12.2017-6.2018

1.10.2015-30.9.2018 12.2020-6.2021

190,545

46,126

45,212

25,988

165,471

62,150

61,900

51,175

45,115

39,466

22,684

8.295

1.10.2012-30.9.2015

12.2015-6.2016

61,900

51,175

45,115

1.10.2013-30.9.2016

12.2016-6.2017

1.10.2014-30.9.2017

12.2017-6.2018

1.10.2015-30.9.2018 12.2020-6.2021

175,225

45,115

39,466

22,684

158,190

1 The TSR and NAV performance conditions over the three years ended 30 September 2016
have been met in full and therefore all the nil cost options granted on 20 December 2013
will vest in December 2016.

2 Granted on 8 February 2016 following shareholder approval of the Remuneration Policy and
the new LTIP rules at the AGM. The number of shares was calculated using the average price
to 2 December 2015 and the award will vest in December 2018 (and be released following
the two year holding period in December 2020) in line with the Company’s normal
December grant timetable.

105

Shaftesbury Annual Report 2016GOVERNANCEANNUAL REMUNERATION REPORT CONTINUED

3. Sharesave
Options are granted at a 20% discount to the market price on date of grant up to the maximum monthly savings amount permitted by HMRC over three or five
years. All directors have opted for five-year savings contracts.

NUMBER OF ORDINARY SHARES UNDER OPTION

DATE
OF GRANT

AT
1.10.2015

GRANTED
DURING
YEAR

LAPSED
DURING
YEAR

B Bickell

S J Quayle

8.7.2011

2.7.2014

1.7.2016

8.7.2011

2.7.2014

1.7.2016

T J C Welton

8.7.2011

2.7.2014

1.7.2016

5.7.2012

2.7.2014

C P A Ward

3,595

2,788

6,383

3,595

2,788

6,383

3,595

2,788

6,383

3,759

2,788

6,547

2,024

EXERCISED
DURING
YEAR

3,595

3.595

3,595

3.595

3,595

3.595

MARKET VALUE
OF SHARE ON
DATE OF
EXERCISE
£

OPTION
PRICE
£

EXERCISE
PERIOD

AT
30.9.2016

2,788

2,024

4,812

2,788

2,024

4,812

2,788

2,024

4,812

3,759

2,788

6,547

4.29

5.38

7.41

4.29

5.38

7.41

4.29

5.38

7.41

3.99

5.38

9.27

8.2016-1.2017

8.2019-1.2020

8.2021-1.2022

9.27

8.2016-1.2017

8.2019-1.2020

8.2021-1.2022

9.27

8.2016-1.2017

8.2019-1.2020

8.2021-1.2022

8.2017-1.2018

8.2019-1.2020

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 2015 and 2016 figures and the 2015 comparatives have been restated on that basis.

CHIEF EXECUTIVE
CHANGE

OTHER EMPLOYEES
CHANGE

(37)%

23%

10%

(39)%

29%

12%

Base salary

Taxable benefits

Annual bonus

TOTAL

106

Shaftesbury Annual Report 2016GOVERNANCEANNUAL REMUNERATION REPORT CONTINUED

RELATIVE IMPORTANCE OF SPEND ON PAY

£40.9m

£38.5m

Employee costs
Dividends paid

£10.7m

£10.0m

2016

2015

REVIEW OF PAST PERFORMANCE
The chart below shows the TSR for the Company compared with the FTSE350
REIT Index, of which the Company is a constituent, over eight 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 TSR chart details the Chief Executive’s single
figure remuneration over the same period.

EIGHT-YEAR TSR CHART TO 30 SEPTEMBER 2016

Value of £100 invested
at 30 September 2008

£400

£350

£300

£250

£200

£150

£100

£50

£0

Shaftesbury
FTSE350
REIT index

£354

£143

2008

2009

2010

2011

2012

2013

2014

2015

2016

EIGHT-YEAR CHIEF EXECUTIVE SINGLE FIGURE REMUNERATION 1

Chief Executive single figure of remuneration (£’000)

Annual bonus payout (% maximum)

Long-term incentive award vesting (% maximum)

1. 2009-2011: Jonathan Lane; 2012-2016: Brian Bickell

2009

850

50%

2010

1,013

50%

2011

1,650

90%

2012

1,198

40%

76.7%

100%

2013

1,075

40%

50%

2014

1,455

75%

50%

2015

1,523

60%

2016

1,991

60%

63.5%

100%

107

Shaftesbury Annual Report 2016GOVERNANCEANNUAL REMUNERATION REPORT CONTINUED

COMMITTEE MEMBERS AND ATTENDANCE

MEMBER

Sally Walden

Jill Little

Oliver Marriott

Dermot Mathias

Hilary Riva

POSITION

Chairman

Member and Senior Independent Director

NUMBER OF MEETINGS ATTENDED (6 HELD)

Member

COMMITTEE ATTENDEES BY INVITATION ONLY

ATTENDEES

Jonathan Nicholls

Brian Bickell

Penny Thomas

POSITION

Chairman

Chief Executive

Secretary to the Committee

ADVISOR TO THE COMMITTEE
Deloitte LLP act as independent advisor to the Committee. 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 £25,000 (excluding VAT).
Deloitte LLP provided no other services to the Group during the year.

108

Shaftesbury Annual Report 2016GOVERNANCE

ANNUAL REMUNERATION REPORT CONTINUED

KEY COMMITTEE ACTIVITIES DURING THE YEAR

POLICY

OPERATIONAL

Annual review of remuneration
policy and proposals for a new
remuneration policy (for 2016
AGM)

Consulted with shareholders on
the proposed new remuneration
policy (for 2016 AGM)

Remuneration review including
proposing a new LTIP and changes
to the annual bonus scheme (for
2016 AGM)

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 2016

Reviewed the Annual Remuneration Report for inclusion in the Annual Report and set
fees for new Chairman

ADVISORS AND PRACTICE

Monitored remuneration
advisor and fees

Monitored emerging best practice
in remuneration and reporting

SHAREHOLDER VOTING
At the 2016 AGM, a new Remuneration Policy was proposed to shareholders and there was an advisory vote on the Annual Remuneration Report. Voting by
shareholders representing 85% of the issued share capital on these resolutions was as follows:

Remuneration Policy

Annual Remuneration Report

FOR

% FOR

AGAINST

% AGAINST

WITHHELD

TOTAL VOTES

223,968,828

234,921,007

94.8

99.8

12,339,332

394,504

5.2

0.2

286,816

236,308,160

1,279,465

235,315,511

Sally Walden
Chairman - Remuneration Committee

109

Shaftesbury Annual Report 2016GOVERNANCE
DIRECTORS’ REPORT

THE DIRECTORS PRESENT THEIR REPORT AND THE AUDITED CONSOLIDATED
FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER 2016.

STRATEGIC REPORT
See Strategic Report on pages 41 to 76.

RESULTS AND DIVIDENDS
The results for the year ended 30 September 2016 are set out in the Group
Statement of Comprehensive Income on page 120.

An interim dividend of 7.15p per ordinary share was paid on 1 July 2016
(2015: 6.825p).

The directors recommend a final dividend in respect of the year ended
30 September 2016 of 7.55p per ordinary share (2015: 6.925p), making a total
dividend for the year of 14.7p per ordinary share (2015: 13.75p). If authorised
at the 2017 AGM, the dividend will be paid on 17 February 2017 to members on
the register at the close of business on 20 January 2017. The dividend will be
paid as part PID and part ordinary dividend.

SHARE CAPITAL
During the year, a total of 378,700 ordinary shares were issued at either nil
cost or £4.29 on the exercise of the LTIP and sharesave options. At 30
September 2016, the Company’s issued share capital comprised 278,555,082
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 during the year ended
30 September 2016 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 98 to 109.

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.

PURCHASE OF OWN SHARES
The Company was granted authority at the 2016 AGM to make market
purchases of its own ordinary shares. This authority will expire at the
conclusion of the 2017 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 2016 to 29 November 2016.

SUBSTANTIAL SHAREHOLDINGS
At 29 November 2016, the Company had been notified, in accordance with
the UK Listing Authority’s Disclosure Rules and Transparency Rules, that the
following shareholders held, or were beneficially interested in, 3% or more of
the Company’s issued share capital:

Invesco Limited

PEL Limited

Norges Bank

BlackRock Inc

SEE PAGE 153 FOR FURTHER INFORMATION ON THE EFFECT OF OUR REIT STATUS ON
THE PAYMENT OF DIVIDENDS

SEE PAGE 59 FOR FURTHER INFORMATION ON WHY THE DIVIDEND IS BEING PAID AS A PID
AND AN ORDINARY DIVIDEND

110

ISSUED SHARE
CAPITAL
%

13.98

13.25

9.02

6.01

Shaftesbury Annual Report 2016GOVERNANCEDIRECTORS’ REPORT CONTINUED

DIRECTORS’ INDEMNITIES AND DIRECTORS’ AND OFFICERS’ LIABILITY
INSURANCE
The Company’s agreement to indemnify each director against any liability
incurred 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 141 to 144.

CHANGE OF CONTROL
The Longmartin joint venture and a number of debt financing agreements
contain clauses which take effect, alter or terminate these agreements upon
a change of control of the Group.

The Group’s share schemes contain provisions relating to the vesting and
exercising of options in the event of a change of control of the Group.

AUTHORISATION OF DIRECTORS’ CONFLICTS OF INTERESTS
Directors are required to notify the Company of any conflict or potential
conflict of interest and make an annual declaration. The Board confirms that
no conflicts have been identified or notified to the Company during the year
and, accordingly, the Board has not authorised any conflicts of interest as
permitted by the Company’s Articles of Association.

INDEPENDENT AUDITORS
A resolution for the re-appointment of Ernst & Young LLP as auditors to the
Company will be proposed at the 2017 AGM. The Board, on the advice of the
Audit Committee, recommends their appointment.

2017 ANNUAL GENERAL MEETING
The 2017 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:

so far as they are aware, there is no relevant audit information of which
the Company’s auditors are unaware; and

they have taken all the steps that they ought to have taken as a director in
order to make themself aware of any relevant audit information and to
establish that the Company’s auditors are aware of that information.

This confirmation is given in accordance with section 418 of the Companies
Act 2006.

EMPLOYMENT AND ENVIRONMENTAL MATTERS
See Nomination Committee Report on pages 87 to 89 and Sustainability
Report on pages 72 to 76 and 158 to 165.

GREENHOUSE GAS REPORTING
The Group’s carbon emissions are immaterial. However, in compliance with
legislation, they are set out in the Sustainability Report on page 159.

By Order of the Board

Penny Thomas
Company Secretary

29 November 2016

111

Shaftesbury Annual Report 2016GOVERNANCEDIRECTORS’ 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 in accordance with IAS8 ‘accounting

policies, changes in accounting estimates and errors and then apply them
consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state that the Group and company has complied with IFRSs as adopted by
the European Union, 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 do so.

Directors’ responsibility statement under the Disclosure and
Transparency Rules
Each of the directors, whose names and functions are listed on pages 80 to
81 confirm that, to the best of their knowledge:

• the Group and Company 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 41 to 76 of the Annual Report

includes a fair review of the development and performance of the business
and the position of the Group and Company, together with a description of
the principal risks and uncertainties that it faces.

Directors’ statement under the UK Corporate Governance Code
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.

The directors are responsible for keeping adequate accounting records that
are sufficient to show and explain the Group’s and 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.

Each of the directors confirm that to the best of their knowledge the Annual
Report

• presents information, including accounting policies, in a manner that

provides relevant, reliable, comparable and understandable information; and

• provides additional disclosures when compliance with the specific

requirements of IFRSs is insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
Group’s and Company’s financial position and performance.

A copy of the financial statements of the Group is placed on the Company’s
website.

Information published on the internet is accessible in many countries with
different legal requirements.

This responsibility statement was approved by the Board and signed on its
behalf by:

Brian Bickell
Chief Executive

29 November 2016

Chris Ward
Finance Director

29 November 2016

112

Shaftesbury Annual Report 2016GOVERNANCE

INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SHAFTESBURY PLC

REPORT ON THE FINANCIAL STATEMENTS
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 2016 and of
the Group’s profit for the year then ended;

• The Group financial statements have been properly prepared in

accordance with International Financial Reporting Standards (IFRSs) as
adopted by the European Union;

• The Company financial statements have been properly prepared in

accordance with IFRSs as adopted by the European Union as applied in
accordance with the provisions of the Companies Act 2006; and

• The financial statements have been prepared in accordance with the
requirements of the Companies Act 2006, and, as regards the Group
financial statements, Article 4 of the IAS Regulation.

WHAT WE HAVE AUDITED
Shaftesbury PLC’s financial statements comprise:

GROUP COMPANY

Balance sheet as at 30 September 2016

Statement of comprehensive income for the year then ended

Cash flow statement for the year then ended

Statement of changes in equity for the year then ended

Related notes to the financial statements

The financial reporting framework that has been applied in their preparation
is applicable law and IFRSs as adopted by the European Union. The Company
financial statements have been prepared in accordance with IFRSs as
adopted by the European Union and as applied in accordance with the
provisions of the Companies Act 2006.

OVERVIEW OF OUR AUDIT APPROACH

Risks of material
misstatement

The valuation of investment property (including
properties within the Longmartin Joint Venture)

Audit scope

Revenue recognition including the timing of
revenue recognition, and the treatment of rents
and incentives

The Group operates in London’s West End and
consists of a single reportable segment made
up of five villages across ten statutory entities.
All of the Group’s companies were included in
the scope of the audit. The Group audit team
performed direct testing of the Longmartin
Joint Venture balances which are included in
the Group Financial Statements.

The Group audit team performed all the work
necessary to issue the Group and Company
audit opinion, including undertaking all of the
audit work on the risks of material misstatement
identified above.

Materiality

Overall Group materiality: £33m which
represents 1% of total assets.

Specific Group materiality: £3.9m which
represents 5% of operating profit before
investment property valuation movements and
net finance costs.

113

Shaftesbury Annual Report 2016GOVERNANCEINDEPENDENT AUDITOR’S REPORT CONTINUED

OUR ASSESSMENT OF RISK OF MATERIAL MISSTATEMENT
We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the allocation of
resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the procedures below which were
designed in the context of the financial statements as a whole and, consequently, we do not express any opinion on these individual areas.

RISK

OUR RESPONSE TO THE RISK

The valuation of investment property

Our audit procedures around the valuation of investment property included:

£3,111.6m (plus £228m being the Group’s share
in the Longmartin joint venture)

Refer to the Audit Committee Report (page
90); Accounting policies (page 126); and Note
10 of the Consolidated Financial Statements
(pages 131-133)

The valuation of investment property
(including properties held in the joint
venture) requires significant judgement
and estimates by management and the
external valuers. Any input inaccuracies or
unreasonable bases used in these judgements
(such as in respect of estimated rental value
and yield profile applied) could result in a
material misstatement of the statement of
comprehensive income and balance sheet.

There is also a risk that management may
unduly influence the significant judgements
and estimates in respect of property valuations
in order to achieve property valuation and
other performance targets to meet market
expectations or bonus targets.

We understood and assessed the design and implementation of the Group’s
controls over data used in the valuation of the investment property portfolio and
management’s review of the valuations.

We evaluated the competence of the external valuers which included consideration
of their qualifications and expertise, as well as their independence.

We performed testing over the inputs to the valuations. For a sample of properties
we tested the contracted rent and key lease terms by agreeing this back to lease
agreements.

16%

Fair value of investment properties
tested by audit team Chartered
Surveyors
Fair value of investment properties
subject to analytical procedures

84%

KEY OBSERVATIONS
COMMUNICATED TO THE
AUDIT COMMITTEE

We have audited the inputs,
assumptions and methodology
used by the external valuers.
We conclude that the inputs
and methodology applied
are reasonable and that the
external valuations are an
appropriate assessment of
the fair value of investment
properties at 30 September
2016.

Our Chartered Surveyors
concluded that the sample
of valuations they tested are
within a reasonable range.

We conclude that
management provided an
appropriate level of review
and challenge over the
valuations but we did not
identify evidence of undue
management influence.

The Group audit team includes Chartered Surveyors who tested a sample of
properties. They challenged the valuation approach and assumptions. The sample size
they tested accounted for 84% of the fair value of investment properties (including
investment properties held in the Longmartin joint venture). Our Chartered Surveyors
compared the equivalent yields applied to each property to an expected range of
yields taking into account market data and asset specific considerations. They also
considered whether the other assumptions applied by the external valuers, such as
the estimated rental values, tenant incentives and development costs to complete
were supported by available data such as recent lettings and occupancy levels.

Together with our Chartered Surveyors, we met with the external valuers to discuss
the findings from our audit work described above and to seek further explanations as
required. We also discussed the impact of current market conditions on the property
valuations.

In respect of the properties not in the sample tested by our Chartered Surveyors
(16% of the fair value), we performed detailed analytical procedures on a property-
by-property basis. This involved forming an expectation of the fair value of each
property in the portfolio by reference to relevant external market data relating to
capital growth rates. We investigated further the valuations of those properties which
were not in line with our initial expectations which included further discussions with
management and the external valuers and, where appropriate, involvement of our
Chartered Surveyors.

114

Shaftesbury Annual Report 2016GOVERNANCEINDEPENDENT AUDITOR’S REPORT CONTINUED

RISK

OUR RESPONSE TO THE RISK

KEY OBSERVATIONS
COMMUNICATED TO THE
AUDIT COMMITTEE

We made enquiries of the external valuers to confirm that they had not
been subject to undue influence from management.

We utilised our detailed analytical procedures and work of the Chartered
Surveyors described above in order to assess for evidence of undue
management influence.

We performed site visits accompanied by our Chartered Surveyors for
a sample of properties (focusing primarily on development properties)
which enabled us to assess the stage of completion of, and gain specific
insights into, these refurbishments/developments.

For development appraisals, we vouched the costs incurred to date,
and agreed the cost to complete estimates to approved budgets and
contractual arrangements.

We met with project managers for the two properties which were material
and under significant refurbishment or development during the year and
assessed project costs, progress of development and leasing status and
considered the reasonableness of forecast costs to complete included in
the valuations as well as identified contingencies, exposures and remaining
risks. We corroborated the information provided by the project managers
through valuation review, site visits and cost analysis. We also obtained the
development feasibilities and compared the development spend against
budget.

Revenue recognition, including the
timing of revenue recognition, and the
treatment of rents and incentives

£98.4m of rents receivable
Refer to the Audit Committee Report
(page 91); Accounting policies (page 125);
and Note 2 of the Consolidated Financial
Statements (page 127)

Market expectations and profit
based targets may place pressure
on management to distort revenue
recognition. This may result in
overstatement or deferral of revenues to
assist in meeting current or future targets
or expectations.

In order to distort rental income,
management could manipulate the
deferred revenue balance or the manually
calculated IFRS rent adjustment for lease
incentives.

Our audit procedures around revenue recognition included:

We tested controls over revenue recognition and the treatment of rents
which have been designed by the Group to prevent and detect fraud and
errors in revenue recognition.

We also performed controls testing on the billings process.

We performed detailed testing for a sample of revenue transactions by
agreeing them back to lease agreements.

For a sample of leases, we tested that the lease income, including the
treatment of lease incentives, is on a straight-line basis, and in accordance
with SIC-15 Operating Leases – Incentives.

We performed substantive analytical procedures and found that the
revenue recognised by the Group and each of the operating companies
was materially consistent with our expectations developed from rents in
the tenancy schedules.

We assessed whether the revenue recognition policies adopted complied
with IFRSs as adopted by the European Union.

We performed audit procedures specifically designed to address the risk
of management override of controls including journal entry testing, which
included particular focus on journal entries which impact deferred revenue
and lease incentives.

We audited the timing of
revenue recognition, treatment
of rents and incentives,
and assessed the risk of
management override. Based
upon the audit procedures
performed, we concluded that
revenue has been recognised
on an appropriate basis in the
year.

115

Shaftesbury Annual Report 2016GOVERNANCEINDEPENDENT AUDITOR’S REPORT CONTINUED

OUR APPLICATION OF MATERIALITY
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming
our audit opinion.

The table below sets out the materiality, performance materiality and threshold for reporting audit differences applied on our audit:

Overall

Specific

Applicable for account balances not related to investment
properties, loans & borrowings and derivatives

BASIS

1% of total assets

5% of operating profit before
investment property valuation
movements and net finance costs

MATERIALITY

PERFORMANCE
MATERIALITY

AUDIT
DIFFERENCES

£33.0m

£3.9m

£17.0m

£2.0m

£1.7m

£0.2m

Materiality
The magnitude of an omission or misstatement that, individually or in the
aggregate, could reasonably be expected to influence the economic
decisions of the users of the financial statements. Materiality provides a basis
for determining the nature and extent of our audit procedures.

Performance materiality
The application of materiality at the individual account or balance level. It is
set at an amount to reduce to an appropriately low level the probability that
the aggregate of uncorrected and undetected misstatements exceeds
materiality.

When establishing our overall audit strategy, we determined a magnitude of
uncorrected misstatements that we judged would be material for the
financial statements as a whole. We determined that total assets would be
the most appropriate basis for determining overall materiality given that key
users of the Group’s financial statements are primarily focused on the
valuation of the Group’s assets; primarily the investment property portfolio.
This provided a basis for determining the nature, timing and extent of risk
assessment procedures, identifying and assessing the risk of material
misstatement and determining the nature, timing and extent of further audit
procedures. For planning purposes this was initially based on the total assets
as at 30 September 2015.

We have determined that for account balances not related to investment
properties (either wholly owned or within the Joint Venture), loans &
borrowings and derivatives, a misstatement of less than materiality for the
financial statements as a whole could influence the economic decisions of
users. We have determined that materiality for these areas should be based
on operating profit before investment property valuation movements and net
finance costs. We believe that it is appropriate to use a profit based measure
as profit is also a focus of users of the financial statements.

During the course of our audit, we reassessed initial materiality and, as the
actual value of total assets increased from that which we had used as the
initial basis for determining overall materiality (primarily due to the increase in
property valuations from the annual revaluation), we increased our materiality
threshold to £33.0m, as noted in the table above, which represents 1.0% of
total assets of £3.3bn as at 30 September 2016.

In their prior year audit PwC adopted an overall materiality of £30.8m based
on 1% of total assets. They also applied a specific materiality of £3.4m based
on 5% of profit before tax before net finance costs and investment property
movements.

As this is an initial audit for us, on the basis of our risk assessments, together
with our assessment of the Group’s overall control environment, our
judgement is that overall performance materiality and specific performance
materiality (i.e. our tolerance for misstatement in an individual account or
balance) for the Group should be 50% of the respective materiality. We have
set performance materiality at this percentage as this is our first year as
auditor. Our objective in adopting this approach is to confirm that total
detected and undetected audit differences do not exceed our materiality for
the financial statements as a whole.

Reporting threshold
An amount below which identified misstatements are considered as being
clearly trivial.

We agreed with the Audit Committee that we would report to the Committee
all uncorrected audit differences in excess of £1.7m, as well as uncorrected
audit differences in excess of £0.2m that relate to our specific testing of the
other account balances not related to investment properties, loans &
borrowings and derivatives. These are set at 5% of their respective planning
materiality. We also agreed to report differences below that threshold that,
in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative
measures of materiality discussed above and in light of other relevant
qualitative considerations in forming our opinion.

116

Shaftesbury Annual Report 2016GOVERNANCEINDEPENDENT AUDITOR’S REPORT CONTINUED

SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS
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. 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.

RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITOR
As explained more fully in the Directors’ Responsibilities Statement set out on
page 112, 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 International Standards on Auditing (UK
and Ireland). Those standards require us to comply with the Auditing
Practices Board’s Ethical Standards for Auditors.

This report is made solely to the company’s members, as a body, in accordance
with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has
been undertaken so that we might state to the company’s members those
matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and the company’s
members as a body, for our audit work, for this report, or for the opinions we
have formed.

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006
In our opinion:

• The part of the Directors’ Remuneration Report to be audited has been

properly prepared in accordance with the Companies Act 2006;

• 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

pages 82 to 86 with respect to internal control and risk management
systems in relation to financial reporting processes and about share capital
structures is consistent with the financial statements.

MATTERS ON WHICH WE ARE REQUIRED TO REPORT BY EXCEPTION

ISAs (UK
and Ireland)
reporting

We are required to report to you if, in our
opinion, financial and non-financial information
in the annual report is:

We have no
exceptions
to report.

• 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 acquired in the course of
performing our audit; or

• Otherwise misleading.

In particular, we are required to report whether
we have identified any inconsistencies between
our knowledge acquired in the course of
performing the audit and the directors’
statement that they consider the annual report
and accounts taken as a whole is fair, balanced
and understandable and provides the information
necessary for shareholders to assess the entity’s
performance, business model and strategy;
and whether the annual report appropriately
addresses those matters that we communicated
to the audit committee that we consider should
have been disclosed.

We are required to report to you if, in our opinion:

• 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; or

• Certain disclosures of directors’ remuneration

specified by law are not made; or

• We have not received all the information and

explanations we require for our audit.

• A Corporate Governance Statement has not

been prepared by the company

We are required to review:

• The directors’ statement in relation to going

concern, set out on page 124, and longer-
term viability, set out on page 71; and

• The part of the Corporate Governance

Statement relating to the company’s compliance
with the provisions of the UK Corporate
Governance Code specified for our review

Companies
Act 2006
reporting

Listing Rules
review
requirements

We have no
exceptions
to report.

117

Shaftesbury Annual Report 2016GOVERNANCEINDEPENDENT AUDITOR’S
REPORT CONTINUED

STATEMENT ON THE DIRECTORS’ ASSESSMENT OF THE PRINCIPAL
RISKS THAT WOULD THREATEN THE SOLVENCY OR LIQUIDITY OF
THE ENTITY

We have
nothing
material
to add or
to draw
attention
to.

ISAs (UK
and Ireland)
reporting

We are required to give a statement as to
whether we have anything material to add or
to draw attention to in relation to:

• The directors’ confirmation in the annual
report that they have carried out a robust
assessment of the principal risks facing the
entity, including those that would threaten its
business model, future performance, solvency
or liquidity;

• The disclosures in the annual report that

describe those risks and explain how they are
being managed or mitigated;

• The directors’ statement in the financial

statements about whether they considered it
appropriate to adopt the going concern basis
of accounting in preparing them, and their
identification of any material uncertainties to
the entity’s ability to continue to do so over a
period of at least twelve months from the date
of approval of the financial statements; and

• The directors’ explanation in the annual report
as to how they have assessed the prospects of
the entity, 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
entity 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.

Eamonn McGrath
(Senior Statutory Auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor

London
28 November 2016

118

Shaftesbury Annual Report 2016GOVERNANCE
FINANCIAL
STATEMENTS

GROUP STATEMENT OF COMPREHENSIVE INCOME 120
BALANCE SHEETS 121
CASH FLOW STATEMENTS 122
STATEMENTS OF CHANGES IN EQUITY 123
NOTES TO THE FINANCIAL STATEMENTS 124

119

Shaftesbury Annual Report 2016GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 SEPTEMBER 2016

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

Recognition of fair value of Debenture Stock

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 166 for an explanation of the EPRA measures used in these financial statements.

NOTES

2016
£M

106.2

(22.1)

84.1

(8.6)

(3.0)

(2.5)

(14.1)

70.0

108.3

178.3

0.1

(33.7)

(29.2)

(34.9)

(97.7)

18.5

99.1

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

35.6p

35.5p

14.0p

168.0p

167.4p

13.0p

120

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSBALANCE SHEETS
AS AT 30 SEPTEMBER 2016

NOTES

GROUP

2016
£M

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

Borrowings

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

COMPANY

2016
£M

59.0

1.4

754.7

815.1

757.1

0.5

2015
£M

2,908.0

9.5

129.6

1.5

3.7

3,111.6

9.8

146.4

1.4

3.7

3,272.9

3,052.3

19.3

15.6

21.7

7.7

3,307.8

3,081.7

1,572.7

45.3

92.2

669.1

114.1

920.7

36.8

640.3

79.2

756.3

9.2

92.2

289.0

114.1

504.5

2015
£M

59.0

1.5

997.9

1,058.4

118.2

1,176.6

6.8

267.9

79.2

353.9

2,387.1

2,325.4

1,068.2

822.7

69.7

124.8

3.6

870.1

1,068.2

69.6

124.7

4.0

624.4

822.7

69.7

124.8

3.6

2,189.0

2,387.1

£8.57

£8.54

£8.88

69.6

124.7

4.0

2,127.1

2,325.4

£8.36

£8.32

£8.69

On behalf of the Board who approved and authorised for issue the financial statements on pages 120 to 151 on 29 November 2016.

Brian Bickell
Chief Executive

Chris Ward
Finance Director

121

Shaftesbury Annual Report 2016FINANCIAL STATEMENTS

CASH FLOW STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2016

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

Decrease in loans to joint venture

(Increase)/decrease in loans to subsidiaries

Acquisition of subsidiary

Net cash used in investing activities

Cash flows from financing activities

Proceeds from exercise of share options

Proceeds from borrowings

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

Net cash from financing activities

Net change in cash and cash equivalents

Cash and cash equivalents at 1 October

Cash and cash equivalents at 30 September

GROUP

COMPANY

2016
£M

76.9

0.1

(32.7)

44.3

(62.0)

(29.2)

(0.3)

1.7

0.5

AS RESTATED
2015
£M

67.4

0.1

(30.1)

37.4

(25.8)

(25.1)

(0.3)

1.6

0.5

(89.3)

(49.1)

0.1

114.5

(23.5)

(38.2)

52.9

7.9

7.7

15.6

0.1

69.6

(230.5)

250.0

(2.2)

(3.4)

(28.1)

(39.5)

16.0

4.3

3.4

7.7

2016
£M

(11.0)

0.1

(18.0)

(28.9)

(0.3)

1.7

0.5

(16.4)

(1.7)

(16.2)

0.1

107.2

(23.5)

(38.2)

45.6

0.5

AS RESTATED
2015
£M

(11.2)

0.1

(21.1)

(32.2)

(0.3)

1.6

0.5

260.7

262.5

0.1

67.7

(230.5)

(28.1)

(39.5)

(230.3)

NOTES

Movements in loans to the joint venture of £0.5 million (2015: £0.5 million) and movements in loans to subsidiaries of £16.4 million (2015: £260.7 million) have
been reclassified from financing to investing activities to better reflect the nature of the transactions. Proceeds and repayment of borrowings have been
restated to present these movements on a gross basis. These changes have no impact on the net change in cash and cash equivalents, net assets, or reported
results in either of the years presented.

122

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSSTATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 SEPTEMBER 2016

Group

At 1 October 2014

Profit and total comprehensive income for the year

Transactions with owners:

Dividends paid

Exercise of share options

Fair value of share-based payments

Release on exercise of share options

At 30 September 2015

Profit and total comprehensive income for the year

Transactions with owners:

Dividends paid

Exercise of share options

Fair value of share-based payments

Release on exercise of share options

At 30 September 2016

Company

At 1 October 2014

Profit and total comprehensive income for the year

Transactions with owners:

Dividends paid

Exercise of share options

Fair value of share-based payments

Release on exercise of share options

At 30 September 2015

Profit and total comprehensive income for the year

Transactions with owners:

Dividends paid

Exercise of share options

Fair value of share-based payments

Release on exercise of share options

At 30 September 2016

SHARE
CAPITAL
£M

SHARE
PREMIUM
£M

SHARE-BASED
PAYMENTS
RESERVE
£M

NOTES

69.5

124.6

4.0

0.1

69.6

124.7

0.1

69.7

0.1

124.8

2.2

(2.2)

4.0

1.9

(2.3)

3.6

69.5

124.6

4.0

0.1

69.6

124.7

0.1

69.7

0.1

124.8

2.2

(2.2)

4.0

1.9

(2.3)

3.6

The Company’s distributable reserves are disclosed in note 21 to the financial statements.

RETAINED
EARNINGS
£M

1,695.1

467.3

TOTAL
EQUITY
£M

1,893.2

467.3

(37.5)

2.2

0.2

2.2

2,127.1

2,325.4

99.1

(39.4)

(0.1)

2.3

(39.4)

0.1

1.9

2,189.0

2,387.1

555.9

103.8

754.0

103.8

(37.5)

2.2

624.4

282.9

(39.4)

(0.1)

2.3

0.2

2.2

822.7

282.9

(39.4)

0.1

1.9

870.1

1,068.2

123

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 30 SEPTEMBER 2016

1 ACCOUNTING POLICIES

BASIS OF PREPARATION
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 80. The 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 in Pounds Sterling and under the historical cost convention as modified by the revaluation of investment
properties and derivative financial instruments.

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 £282.9 million (2015: £103.8 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 39. The financial position of the Group including cash flow, liquidity, borrowings, undrawn facilities and debt maturity analysis is set out on pages
56 to 62. 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 below. 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’s wholly-owned portfolio is valued by its external valuers, DTZ Debenham Tie Leung Limited. Knight Frank LLP value the investment properties
owned by the Longmartin Joint Venture. The valuations are used as the basis for the fair value of the investment properties.

The valuation of the Group’s property portfolio is inherently subjective due to, among other factors, the individual nature of each property, its location and
the expected future rental income. As a result, the valuations the Group places on its property portfolio are subject to a degree of uncertainty and are made
on the basis of assumptions which may not prove to be accurate, particularly in periods of volatility or low transaction flow in the commercial property market.
DTZ Debenham Tie Leung Limited and Knight Frank LLP make a number of assumptions in forming their opinion on the valuation of our investment properties,
which are detailed in the Basis of Valuation on pages 154 to 155. 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.

NEW ACCOUNTING STANDARDS AND INTERPRETATIONS
a) The following amendments to Standards and Interpretations were mandatory for the first time for the financial year ended 30 September 2016:

STANDARD OR INTERPRETATION

Annual Improvements 2011-2013

Amendment to IAS 19 Employee benefits on defined benefit plans

Annual Improvements 2010-2012

No material changes to accounting policies arose as a result of these amendments.

EFFECTIVE FROM

1 January 2015

1 February 2015

124

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 ACCOUNTING POLICIES CONTINUED

b) The following amendments to Standards and Interpretations are relevant to the Group and are not yet effective in the year ended 30 September 2016 and

are not expected to have a significant impact on the Group’s financial statements:

STANDARD OR INTERPRETATION

Annual Improvements 2012-2014

Amendment to IFRS 11 Joint arrangements on acquisition of an interest in a joint operation

Amendments to IAS 16 and IAS 38 on depreciation and amortisation

Amendments to IAS 27 Separate financial statements on equity accounting

Amendments to IAS 1 Presentation of financial statements disclosure initiative

Amendments to IFRS 10, 12 and IAS 28 on consolidation for investment entities

IFRS 15 Revenue from contracts with customers

EFFECTIVE FROM

1 January 2016

1 January 2018

c) There are no other Standards or Interpretations that are not yet effective that would be expected to have a material impact on the Group.

BASIS OF CONSOLIDATION
The Group financial statements consolidate the financial statements of the Company and its subsidiaries.

Subsidiaries are those entities controlled by the Company. Control exists when the Company is exposed to variable returns and has the ability to affect those
returns through its power over the entity. 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 impairment loss.

NET PROPERTY INCOME
Revenue comprises rents receivable from tenants under operating leases, recognised on an accruals basis, and recoverable expenses incurred on behalf of
tenants, where the Group acts as principal. 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.

The cost of any incentives given to lessees to enter into leases is spread on a straight-line basis over the non-cancellable period of the lease, being the earlier
of its expiry date or the date of the first break option. Lease incentives are usually in the form of rent-free periods.

Irrecoverable property costs are charged to the Statement of Comprehensive Income when they arise.

EMPLOYEE BENEFITS
Share-based remuneration

The cost of granting share options 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 any revision to original estimates 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 27. 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 those options are released from the share-based payments reserve to retained earnings.

Pension contributions

Payments to defined contribution plans are charged as an expense to the Statement of Comprehensive Income as they fall due.

125

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 ACCOUNTING POLICIES CONTINUED

INVESTMENT PROPERTIES
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.

Gains or losses arising on the revaluation of investment properties are included in the Statement of Comprehensive Income. 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 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.

Premiums payable to tenants in connection with the surrender of their lease obligations are capitalised if they arise in connection with a value-enhancing project,
otherwise they are recognised immediately in the Statement of Comprehensive Income.

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 when the significant risks and rewards of ownership are transferred.

All of the Group’s leases to its tenants are operating leases except where the Group grants long leasehold interests to tenants, in which case, as substantially
all the risks and rewards of ownership are transferred to the tenant, the property is not recognised as an investment property.

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.

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 of, and dividends from, 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 impairment loss.

TRADE RECEIVABLES AND PAYABLES
Trade receivables and trade payables are recognised at fair value and subsequently held at amortised cost, less any provision for impairment in respect of
trade 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 and is not available on demand, liquid or readily convertible, is classified as other
receivables.

BORROWINGS AND COSTS OF RAISING FINANCE
Borrowings are initially recognised at fair value net of transaction costs incurred and are subsequently held at amortised cost. Issue costs and premiums are
written-off to the Statement of Comprehensive Income using an effective interest rate method.

126

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

1 ACCOUNTING POLICIES CONTINUED

DERIVATIVE FINANCIAL INSTRUMENTS
Derivative financial instruments, comprising interest rate swaps for hedging purposes, are measured at fair value. Movements in fair value are recognised in the
Statement of Comprehensive Income.

SEGMENTAL INFORMATION
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. In view of the similar characteristics 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. Financial information
provided to the Board is prepared on a basis consistent with these financial statements.

2 REVENUE

Rents receivable

Recoverable property expenses

Rents receivable includes lease incentives recognised of £0.5 million (2015: £2.4 million).

3 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

2016
£M

98.4

7.8

106.2

2016
£M

6.5

2.3

3.3

2.2

14.3

7.8

22.1

2015
£M

91.8

6.9

98.7

2015
£M

6.1

2.1

3.0

1.8

13.0

6.9

19.9

127

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

4 OPERATING PROFIT

The following items have been (credited)/charged in arriving at operating profit:

Administrative fees receivable from joint venture

Depreciation

AUDITOR REMUNERATION

Audit of the Company

Audit of the consolidated Group

Total audit services

Audit related assurance services, including the half year 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

2016
£M

(0.2)

0.4

2016
£000

142

188

213

Total fees related to taxation and other non-audit services represented 13% (2015: 44%) of the total fees for audit and assurance services.

The audit fees for the Company and the Group are relatively low due primarily to the simple Group corporate structure.

EMPLOYEE COSTS

Wages and salaries

Annual bonuses (including social security costs)

Social security costs

Other pension costs

Equity-settled remuneration (note 5)

AVERAGE MONTHLY NUMBER OF EMPLOYEES

Executive directors

Head office and property management

Estate management

2015
£M

(0.4)

0.4

2015
£000

156

177

255

2015
£M

3.9

2.2

0.5

0.4

3.0

10.0

2016
£M

4.3

3.0

0.5

0.4

2.5

10.7

2016
NUMBER

2015
NUMBER

A summary of directors’ emoluments, including the disclosures required by the Companies Act 2006, is set out in the Remuneration Report on pages 98 to 107.

128

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

5 CHARGE IN RESPECT OF EQUITY-SETTLED REMUNERATION

Charge for share-based remuneration

Employer’s national insurance in respect of share awards

A summary of the principal assumptions made at the grant dates during the year is set out in note 27.

6 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

2016
£M

1.9

0.6

2.5

2016
£M

5.0

20.0

1.0

7.7

33.7

2015
£M

2.3

0.7

3.0

2015
£M

5.0

15.6

0.8

0.2

9.2

30.8

7 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.

129

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

8 EARNINGS PER SHARE

BASIC AND DILUTED EARNINGS PER SHARE

Basic

Dilutive effect of share options

Diluted

2016

2015

PROFIT
AFTER
TAX
£M

99.1

NUMBER OF
SHARES
MILLION

EARNINGS
PER SHARE
PENCE

278.4

1.0

279.4

35.6

(0.1)

35.5

PROFIT
AFTER
TAX
£M

467.3

NUMBER OF
SHARES
MILLION

EARNINGS
PER SHARE
PENCE

278.1

1.1

279.2

168.0

(0.6)

167.4

EPRA EARNINGS PER SHARE
The calculations below are in accordance with the EPRA Best Practice Recommendations.

Basic

EPRA adjustments:

Investment property valuation surplus (note 10)

Movement in fair value of derivatives (note 18)

Recognition of fair value of Debenture Stock (note 17)

Adjustments in respect of the joint venture:

Investment property valuation surplus

Deferred tax

EPRA earnings

2016

2015

PROFIT
AFTER
TAX
£M

NUMBER OF
SHARES
MILLION

EARNINGS
PER SHARE
PENCE

99.1

278.4

35.6

PROFIT
AFTER
TAX
£M

467.3

NUMBER OF
SHARES
MILLION

EARNINGS
PER SHARE
PENCE

278.1

168.0

(108.3)

34.9

29.2

(11.3)

(4.6)

39.0

278.4

(38.9)

(432.0)

12.5

10.5

(4.1)

(1.6)

14.0

28.5

(34.6)

6.9

36.1

(155.3)

10.2

(12.4)

2.5

13.0

278.1

130

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

9 DIVIDENDS PAID

Final dividend for:

Year ended 30 September 2015 at 6.925p per share

Year ended 30 September 2014 at 6.60p per share

Interim dividend for:

Year ended 30 September 2016 at 7.15p per share

Year ended 30 September 2015 at 6.825p per share

Dividends for the year

Timing difference on payment of withholding tax

Dividends cash paid

2016
£M

19.5

19.9

39.4

(1.2)

38.2

2015
£M

18.5

19.0

37.5

2.0

39.5

A final dividend of 7.55p per share was recommended by the Board on 29 November 2016. Subject to approval by shareholders at the 2017 AGM, the final
dividend will be paid on 17 February 2017 to shareholders on the register at 20 January 2017. 5.2p of the dividend will be paid as a PID under the UK REIT
regime and 2.35p will be paid as an ordinary dividend. The dividend totalling £21.0 million will be accounted for as an appropriation of revenue reserves in the
year ending 30 September 2017. See page 59 of the Strategic Report for commentary on dividends.

The trustee of the Company’s Employee Benefit Trust waived dividends in respect of 491,804 (2015: 439,250) ordinary shares during the year.

10 INVESTMENT PROPERTIES

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: unamortised lease incentives (note 11)

Book value at 30 September

2016
£M

2015
£M

2,908.0

2,425.5

62.7

32.6

108.3

3,111.6

25.8

24.7

432.0

2,908.0

3,123.6

2,919.5

(12.0)

(11.5)

3,111.6

2,908.0

131

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

10 INVESTMENT PROPERTIES CONTINUED

The investment properties valuation comprises:

Freehold properties

Leasehold properties

2016
£M

2,864.8

258.8

3,123.6

2015
£M

2,691.4

228.1

2,919.5

Investment properties were subject to external valuation as at 30 September 2016 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 valuers 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 90 to 93.

A summary of the DTZ Debenham Tie Leung Limited report can be found on pages 156 to 157.

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. It is noted that Cushman and Wakefield (of whom DTZ Debenham Tie Leung Limited form part) are the letting
agents for Shaftesbury Carnaby PLC and Shaftesbury Soho Limited. The fees payable by the Group to Cushman and Wakefield (including DTZ Debenham Tie
Leung Limited) do not constitute a significant part of their fee income.

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 and occupancy. 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 of the hierarchy in IFRS 13, as set out below. 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.

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 key assumptions made by the valuers are set out in the Basis of Valuation on pages 154 to 155. The Group’s acquisition and capital expenditure activity is
discussed on pages 50 to 52.

SENSITIVITY ANALYSIS
As noted in the critical judgements, assumptions and estimates section on page 124, 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.

132

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

10 INVESTMENT PROPERTIES CONTINUED

The Group’s properties are all located in London’s 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
+5.0%
£M

135.7

-5.0%
£M

(136.2)

CHANGE IN
EQUIVALENT YIELDS
+0.25%
£M

-0.25%
£M

(210.3)

238.3

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 2016, the Group had capital commitments of £31.3 million (2015: £16.4 million).

11 ACCRUED INCOME

Accrued income in respect of lease incentives

Less: included in trade and other receivables (note 14)

2016
£M

12.0

(2.2)

9.8

2015
£M

11.5

(2.0)

9.5

Lease incentives are 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.

12 INVESTMENT IN JOINT VENTURE

Group

At 1 October

Share of profits

Dividends received

Book value 30 September

Company

Shares at cost

1 October and 30 September

2016
£M

129.6

18.5

(1.7)

146.4

2016
£M

2015
£M

101.5

29.7

(1.6)

129.6

2015
£M

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 80.

Control of Longmartin Properties Limited is shared equally with The Mercers’ Company, which owns 50% of its issued share capital.

133

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

12 INVESTMENT IN JOINT VENTURE CONTINUED

The summarised Statement of Comprehensive Income and Balance Sheet used for consolidation purposes are presented below:

Statement of Comprehensive Income

Rents receivable

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 credit/(charge) for the year

Profit and total comprehensive income for the year

2016
£M

15.1

1.4

16.5

(1.6)

(1.4)

(3.0)

13.5

(0.4)

13.1

22.5

35.6

(6.6)

29.0

(1.2)

9.1

7.9

36.9

2015
£M

13.4

1.6

15.0

(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

Profit attributable to the Group

18.5

29.7

134

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

12 INVESTMENT IN JOINT VENTURE CONTINUED

Balance Sheet

Non-current assets

Investment properties at book value

Accrued income

Other receivables

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

2016
£M

AS RESTATED
2015
£M

455.0

430.0

4.0

1.3

460.3

4.1

4.0

4.4

1.3

435.7

4.6

3.5

468.4

443.8

9.4

9.8

120.0

46.3

175.7

292.7

120.0

54.8

184.6

259.2

146.4

129.6

Amounts totalling £1.3 million, in respect of cash held on deposit, which have certain conditions restricting their use, have been reclassified from cash and
cash equivalents to other receivables at 30 September 2015. This presentational change does not impact earnings or net assets.

13 INVESTMENT IN SUBSIDIARIES

Shares in Group undertakings

At 1 October

Acquisition of subsidiary

Impairment of subsidiary

Additional share capital issued by subsidiary

At 30 September

2016
£M

997.9

1.7

(244.9)

754.7

2015
£M

786.0

211.9

997.9

135

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

13 INVESTMENT IN SUBSIDIARIES CONTINUED

During the year the Company acquired 100% of the share capital of Helcon Limited. Shaftesbury Carnaby PLC distributed £244.9 million to the Company,
following a capital reduction during the year. Following this, the Company impaired its investment.

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:

Active subsidiaries:

Shaftesbury Carnaby PLC (formerly Shaftesbury Carnaby Limited)

Shaftesbury AV Limited*

Shaftesbury Covent Garden Limited

Shaftesbury Chinatown Limited

Shaftesbury Soho Limited

Shaftesbury AV Investment Limited

Dormant subsidiaries:

Carnaby Estate Holdings Limited

Carnaby Investments Limited

Carnaby Property Investments Limited*

Chinatown Estate Holdings Limited

Chinatown Property Investments Limited*

Covent Garden Estate Holdings Limited

Covent Garden Property Investments Limited*

Shaftesbury Charlotte Street Limited

Charlotte Street Estate Holdings Limited

Chinatown London Limited

Shaftesbury CL Investment Limited

Shaftesbury CL Limited*

Helcon 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

* 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.

14 TRADE AND OTHER RECEIVABLES

Amounts due from tenants

Provision for doubtful debts

Accrued income in respect of lease incentives (note 11)

Amounts due from subsidiaries

Amounts due from joint venture

Prepayments

Other receivables

136

GROUP

2016
£M

10.5

(0.5)

10.0

2.2

0.9

4.4

1.8

19.3

2015
£M

11.3

(0.6)

10.7

2.0

1.4

7.2

0.4

21.7

COMPANY

2016
£M

2015
£M

755.6

0.9

0.6

757.1

116.1

1.4

0.6

0.1

118.2

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

14 TRADE AND OTHER RECEIVABLES CONTINUED

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 2016, amounts due from tenants which were more than 90 days
overdue, relating to accommodation and services provided up to 28 September 2016, totalled £1.5 million (2015: £1.9 million) and are considered to be past
due. Provisions against these overdue amounts totalled £0.4 million (2015: £0.5 million). The remaining balance is not considered to be impaired.

At 30 September 2016, cash deposits totalling £18.0 million (2015: £17.4 million) were held against tenants’ rent payment obligations. The deposits are held in
bank accounts administered by the Group’s managing agents.

15 CASH AND CASH EQUIVALENTS
Cash and cash equivalents at 30 September 2016 were £15.6 million (2015: £7.7 million) for the Group and £0.5 million (2015: £Nil) for the Company.

Other receivables include £3.7 million at 30 September 2016 (2015: £3.7 million) which relate to cash held on deposit as security for certain secured term
loans, and where there are 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.

16 TRADE AND OTHER PAYABLES

Rents and service charges invoiced in advance

Amounts due in respect of property acquisitions

Trade payables and accruals in respect of capital expenditure

Other taxation and social security

Other payables and accruals

GROUP

COMPANY

2016
£M

21.3

0.7

5.2

6.1

12.0

45.3

2015
£M

20.7

1.9

4.9

9.3

36.8

2016
£M

3.4

5.8

9.2

2015
£M

1.7

5.1

6.8

137

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

17 BORROWINGS

Group – Current borrowings

Debenture Stock

Group – Non-current borrowings

Debenture Stock

Secured bank loans

Secured term loans

Total non-current borrowings

Total Group borrowings

Company – Current borrowings

Debenture Stock

Company – Non-current borrowings

Debenture Stock

Secured bank loans

Total non-current borrowings

Total Company borrowings

NET DEBT

Nominal borrowings - gross

Cash balances set-off against certain borrowings

Cash and cash equivalents (note 15)

138

NOMINAL
VALUE
£M

92.2

290.7

384.8

675.5

767.7

92.2

290.7

382.9

2016
UNAMORTISED
PREMIUM
AND ISSUE
COSTS
£M

2015
UNAMORTISED
PREMIUM
AND ISSUE
COSTS
£M

BOOK
VALUE
£M

NOMINAL
VALUE
£M

(1.7)

(4.7)

(6.4)

(1.7)

92.2

289.0

380.1

669.1

761.3

61.0

199.7

384.8

645.5

2.2

(2.3)

(5.1)

(5.2)

63.2

197.4

379.7

640.3

92.2

289.0

381.2

61.0

207.0

268.0

2.2

(2.3)

(0.1)

GROUP

COMPANY

2016
£M

767.7

(15.6)

752.1

2015
£M

652.8

(7.3)

645.5

(7.7)

637.8

2016
£M

382.9

(0.5)

382.4

63.2

204.7

267.9

2015
£M

268.3

(0.3)

268.0

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

17 BORROWINGS CONTINUED

The 8.5% First Mortgage Debenture Stock due 2024 (the Stock) and bank loans are secured by fixed charges over certain investment properties held by
subsidiaries, with a carrying value of £1,320.4 million (2015: £1,412.7 million), and by floating charges over the assets of the Company and certain subsidiaries.
Two of the Company’s subsidiaries each have secured term loans. Both entities have granted fixed charges over certain of their investment properties, with
a carrying value of £1,116.5 million (2015: £1,060.7 million), and cash balances, and floating charges over their assets as security for their respective loans.
Additionally, the two shareholders of these subsidiaries have granted a charge over the shares in these companies.

Following an EGM of holders of the £61.0 million Debenture Stock in September 2016, the terms and conditions of the Stock were amended to grant
Shaftesbury an option to redeem the Stock in full at an agreed amount, conditional upon an issue of newly created longer-dated Guaranteed First Mortgage
Bonds or an equivalent cash alternative.

As a result of the substantial modification to the expected future cash flows of the Debenture Stock, the Company de-recognised the book value of the Stock,
which was previously held in the Balance Sheet at amortised cost. It then recognised the fair value of the Stock, being the total consideration to be paid to the
holders of the Stock. This resulted in an increase in the recognised liability of £29.2 million, compared with the previous book value. This increase comprised
the redemption premium of £31.1 million, less the unamortised premium in respect of the original Stock of £1.9 million. This was charged to the Statement of
Comprehensive Income in the year ended 30 September 2016. The fair value of the Stock, which represents the new basis for amortised cost, is included in
the Balance Sheet within current liabilities, as the directors considered the condition of the issue of newly created Guaranteed First Mortgage Bonds was highly
likely to be met within one year of the Balance Sheet date.

On 7 October 2016, Shaftesbury Carnaby PLC, a subsidiary of Shaftesbury PLC, issued £285 million of Guaranteed First Mortgage Bonds (the Bonds) with a
coupon of 2.487% and maturity in September 2031. The Bonds are secured by fixed charges over the properties held by Shaftesbury Carnaby PLC and a
floating charge over Shaftesbury Carnaby PLC’s assets. They also benefit from an unsecured guarantee from Shaftesbury PLC.

On the same day, the Company’s existing £61.0 million Debenture Stock was redeemed in full, being satisfied by existing holders of the Stock exchanging their
Stock for new Bonds, or taking cash. Of the £285 million proceeds raised by the issue of the new Bonds, £92.2 million was used to redeem the existing Stock.
This was satisfied by £10.4 million of cash and £81.8 million of new Bonds. The fixed and floating charges relating to the Stock were released.

AVAILABILITY AND MATURITY OF BORROWINGS (GROUP)

Repayable within 1 year

Repayable between 2 and 5 years

Repayable between 5 and 10 years

Repayable between 10 and 15 years

2016 FACILITIES

2015 FACILITIES

COMMITTED
£M

DRAWN
£M

UNDRAWN
£M

COMMITTED
£M

DRAWN
£M

UNDRAWN
£M

92.2

350.0

384.8

827.0

92.2

290.7

384.8

767.7

59.3

275.0

136.0

384.8

795.8

124.7

136.0

384.8

645.5

150.3

AVAILABILITY AND MATURITY OF BORROWINGS (COMPANY)

2016 FACILITIES

2015 FACILITIES

COMMITTED
£M

DRAWN
£M

UNDRAWN
£M

COMMITTED
£M

DRAWN
£M

UNDRAWN
£M

Repayable within 1 year

Repayable between 2 and 5 years

Repayable between 5 and 10 years

92.2

350.0

92.2

290.7

442.2

382.9

59.3

275.0

136.0

411.0

132.0

136.0

268.0

143.0

139

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

17 BORROWINGS CONTINUED

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

INTEREST RATE PROFILE OF INTEREST BEARING BORROWINGS (COMPANY)

Floating rate borrowings

LIBOR-linked loans (including margin)

Hedged borrowings

Interest rate swaps (including margin)

Total bank borrowings

Fixed rate borrowings

8.5% First Mortgage Debenture Stock - book value

Weighted average cost of drawn borrowings

2016

2015

DEBT
£M

INTEREST
RATE

DEBT
£M

INTEREST
RATE

110.7

1.75%

19.7

1.75%

180.0

290.7

384.8

92.2

6.17%

4.49%

3.85%

7.93%

4.45%

180.0

199.7

384.8

63.2

6.01%

5.59%

3.85%

7.93%

4.78%

2016

2015

DEBT
£M

INTEREST
RATE

DEBT
£M

INTEREST
RATE

110.7

1.75%

27.0

1.75%

180.0

290.7

92.2

6.17%

4.49%

7.93%

5.10%

180.0

207.0

63.2

6.01%

5.45%

7.93%

6.03%

The interest rate for the 8.5% First Mortgage Debenture Stock in 2016 represents the effective interest rate on the book value of the Debenture Stock prior to
the modification of its terms in September 2016.

The Group and Company also incur non-utilisation fees on undrawn facilities. At 30 September 2016, the weighted average charge on the undrawn facilities of
£59.3 million (2015: £150.3 million) for the Group was 0.70% (2015: 0.70%), and 0.70% (2015: 0.70%) on the undrawn facilities of £59.3 million (2015: £143.0
million) for the Company.

At 30 September 2016, the weighted average credit margin on the Group and Company’s current bank facilities was:

Drawn facilities

If facilities were fully drawn

2016

1.33%

1.37%

2015

1.16%

1.35%

The Group and Company have 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 2016 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 3.1 years (2015: 4.1 years).

In October 2016, the Group and Company terminated interest rate swap contracts with a notional principal of £55.0 million. These swaps, with an average rate
of 4.76%, had expiry dates between August 2028 and November 2038, and included counterparty early termination options in November 2018. The cost of
terminating these swaps was £34.1 million. They were included in the Balance Sheet at 30 September 2016 at a fair value of £38.0 million.

Details of the Group’s current financial position are discussed on pages 60 to 62.

140

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

18 FINANCIAL INSTRUMENTS

CATEGORIES OF FINANCIAL INSTRUMENTS

Group

Interest rate swaps

Financial assets: receivables and cash and cash equivalents

Trade and other receivables (note 14)

Loan receivable from joint venture (note 14)

Other receivables (note 15)

Cash and cash equivalents (note 15)

Financial liabilities at amortised cost

Trade and other payables - due within one year (note 16)

Interest bearing borrowings (note 17)

Net financial instruments

Company

Interest rate swaps

Financial assets: loans and receivables

Loans receivable from subsidiaries (note 14)

Loan receivable from joint venture (note 14)

Financial liabilities at amortised cost

Trade and other payables - due within one year (note 16)

Interest bearing borrowings (note 17)

Net financial instruments

2016
BOOK
VALUE
£M

AS RESTATED
2015
BOOK
VALUE
£M

(114.1)

(79.2)

10.0

0.9

3.7

15.6

30.2

(17.9)

(761.3)

(779.2)

(863.1)

10.7

1.4

3.7

7.7

23.5

(11.2)

(640.3)

(651.5)

(707.2)

(114.1)

(79.2)

755.6

0.9

756.5

(5.8)

(381.2)

(387.0)

255.4

116.1

1.4

117.5

(5.1)

(267.9)

(273.0)

(234.7)

Other receivables relate to cash held on deposit, which 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 (2015: all due within one year).

The prior year figures for trade and other payables have been restated by £4.9 million (Group) and £1.7 million (Company) in the table above to exclude certain
items which had previously been included, but which are not financial instruments under IAS 39.

141

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

18 FINANCIAL INSTRUMENTS CONTINUED

FAIR VALUE OF 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

2016
£M

(79.2)

(34.9)

(114.1)

2015
£M

(78.8)

28.1

(28.5)

(79.2)

Changes in the fair value of the Group’s and Company’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 17.

The fair value of the 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 10 for definition). The swaps are valued by J.C Rathbone Associates Limited.

Interest rate swaps are the only financial instruments which are held at fair value. There have been no transfers between hierarchy levels during the year (2015:
none).

The 8.5% Mortgage Debenture Stock is held at amortised cost. This was remeasured in September 2016, following modifications to the terms of the Stock (see
note 17).

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 £52.5 million (2015: £39.1 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 10 for definition).

The Group 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, and those financial instruments included within trade and other receivables, interest
bearing borrowings, (including the 8.5% Mortgage Debenture Stock but excluding the secured term loans), and trade and other payables are not materially
different from the values at which they are carried in the financial statements.

142

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

18 FINANCIAL INSTRUMENTS CONTINUED

The tables below summarise the undiscounted contractual cash flows arising on financial liabilities based on conditions existing at the Balance Sheet date.

30 SEPTEMBER 2016

Group

Financial instruments

Interest rate swaps

Financial liabilities

Interest bearing borrowings:

Principal (note 17)

Interest

Total

30 SEPTEMBER 2015

Group

Financial instruments

Interest rate swaps

Financial liabilities

Interest bearing borrowings:

Principal (note 17)

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

114.1

123.8

6.9

8.3

24.0

35.0

49.6

761.3

5.1

880.5

767.7

235.6

1,127.1

92.2

20.0

119.1

19.9

28.2

BOOK
VALUE
£M

CONTRACTUAL
CASH FLOWS
£M

AS RESTATED
1-2
YEARS
£M

<1
YEAR
£M

290.7

50.7

365.4

2-5
YEARS
£M

74.1

109.1

5-10
YEARS
£M

384.8

70.9

505.3

>10
YEARS
£M

79.2

95.1

6.4

7.1

17.7

24.7

39.2

640.3

4.8

724.3

645.5

294.3

1,034.9

23.5

29.9

23.5

30.6

124.7

69.0

211.4

136.0

92.7

253.4

384.8

85.6

509.6

The prior year figure for the book value of interest has been restated by £4.8 million to include the book value of interest in the table above, which had
previously been excluded.

143

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

18 FINANCIAL INSTRUMENTS CONTINUED

30 SEPTEMBER 2016

Company

Financial instruments

Interest rate swaps

Financial liabilities

Interest bearing borrowings:

Principal (note 17)

Interest

Total

30 SEPTEMBER 2015

Company

Financial instruments

Interest rate swaps

Financial liabilities

Interest bearing borrowings:

Principal (note 17)

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

114.1

123.8

6.9

8.3

24.0

35.0

49.6

381.2

2.2

497.5

382.9

16.6

523.3

BOOK
VALUE
£M

CONTRACTUAL
CASH FLOWS
£M

92.2

5.2

104.3

<1
YEAR
£M

5.1

13.4

1-2
YEARS
£M

290.7

6.3

321.0

2-5
YEARS
£M

35.0

49.6

5-10
YEARS
£M

>10
YEARS
£M

79.2

95.1

6.4

7.1

17.7

24.7

39.2

267.9

2.1

349.2

268.0

60.6

423.7

8.7

15.1

8.7

15.8

132.0

24.6

174.3

136.0

18.6

179.3

39.2

19 MANAGEMENT OF FINANCIAL RISKS (GROUP AND COMPANY)

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 14. 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 assets 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 35 and 60 to 62.

144

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

19 MANAGEMENT OF FINANCIAL RISKS (GROUP AND COMPANY) CONTINUED

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 18.

INTEREST RATE SENSITIVITY
The sensitivity analysis below has been determined based on the exposure to interest rates on its unhedged LIBOR-linked borrowings and a change in the
long-term interest rates against which the fair value of swaps is calculated at the Balance Sheet date. It represents the directors’ assessment of possible
changes in interest rates and the potential impact on the Group’s results and equity.

(Increase)/decrease in finance costs before fair valuation of interest rate swaps

Decrease/(increase) in fair value deficit of interest rate swaps

Increase/(decrease) in profit and shareholders’ equity

MOVEMENT IN MARKET RATES
+1.0%
£M

+0.5%
£M

(1.2)

40.4

39.2

(0.6)

20.2

19.6

-0.5%
£M

0.6

(20.2)

(19.6)

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 17 and the Group’s equity structure is set out in the Statement of Changes in Equity. The Group regularly reviews its loan 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 35 and 62.

20 SHARE CAPITAL

Alloted and fully paid (ordinary 25p shares)

At 1 October

Exercise of share options

At 30 September

2016
NUMBER
MILLION

2015
NUMBER
MILLION

278.2

0.4

278.6

277.9

0.3

278.2

2016
£M

69.6

0.1

69.7

2015
£M

69.5

0.1

69.6

145

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

20 SHARE CAPITAL CONTINUED

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 2016:

DATE OF GRANT

Sharesave Scheme

8.7.2011

5.7.2012

2.7.2014

3.7.2015

1.7.2016

LTIP

6.12.2012

20.12.2013*

8.12.2014

2.12.2015

8.2.2016

AWARDED

EXERCISED

LAPSED

AT
30.9.2016

EXERCISABLE
30.9.2016

OPTION
EXERCISE
PRICE

AT
1.10.2015

16,537

11,277

39,305

19,270

(16,537)

(1,672)

21,368

570,325

462,500

416,450

153,050

224,225

(362,163)

(208,162)

(11,500)

(12,500)

(11,100)

1,535,664

398,643

(378,700)

(244,934)

1,310,673

11,277

37,633

19,270

21,368

451,000

403,950

141,950

224,225

£4.29

£3.99

£5.38

£6.94

£7.41

Nil

* 451,000 options over ordinary shares will vest in December 2016, following satisfaction of performance targets in respect of the three years ended 30 September 2016.

DATE OF GRANT

Weighted average exercise price

Weighted average remaining contractual life

AT
1.10.2015

£0.30

1.1 years

AWARDED

EXERCISED

£0.40

£0.19

LAPSED

£0.04

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

6.12.2012

7.12.2015

6.12.2012

8.2.2016

6.12.2012

25.4.2016

8.7.2011

4.8.2016

146,658

213,298

2,207

16,537

EXERCISE
PERIOD

2016

2017

2017-2019

2018-2020

2019-2021

2015-2016

2016-2017

2017-2018

2018-2019

2020-2021

AT
30.9.2016

£0.41

1.2 years

WEIGHTED
AVERAGE
PRICE AT
EXERCISE

£9.30

£8.40

£9.00

£8.99

A summary of the rules of the schemes referred to above is set out in the Remuneration Report on page 97. The remuneration policy, which includes more
detail, is available on the Group’s website.

146

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

21 RESERVES
The Statement of Changes in Equity is set out on page 123.

The following describes the nature and purpose of each of the reserves within equity.

RESERVE

Share premium

Share-based payments reserve

DESCRIPTION AND PURPOSE

Share premium is the amount by which the fair value of the consideration received for ordinary shares
exceeds the nominal value of shares issued, net of expenses.

The equity-settled remuneration expense charged to the Statement of Comprehensive Income is credited
to the share-based payments reserve. 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 are also credited to this account.

The Company’s retained earnings at 30 September 2016 include amounts distributable of £373.7 million (2015: £400.0 million).

22 NET ASSET VALUE PER SHARE
The calculations below are in accordance with the EPRA Best Practice Recommendations.

Basic

Dilutive effect of share options

Diluted

Fair value of derivatives

Deferred tax*

EPRA NAV

Fair value of derivatives

Deferred tax*

Fair value of secured term loans*

2016

NUMBER
OF ORDINARY
SHARES
MILLION

278.6

1.0

279.6

NET
ASSETS
£M

2,387.1

0.5

2,387.6

76.1

18.0

2,481.7

279.6

(76.1)

(18.0)

(64.9)

EPRA NNNAV

2,322.7

279.6

* Includes our 50% share of deferred tax and fair value of secured term loans in the Longmartin joint venture.

NET
ASSET
VALUE PER
SHARE
£

8.57

8.54

0.27

0.07

8.88

(0.27)

(0.07)

(0.23)

8.31

AS RESTATED
2015

NUMBER
OF ORDINARY
SHARES
MILLION

278.2

1.2

279.4

NET
ASSETS
£M

2,325.4

0.4

2,325.8

79.2

22.6

2,427.6

279.4

(79.2)

(22.6)

(47.3)

2,278.5

279.4

NET
ASSET
VALUE PER
SHARE
£

8.36

8.32

0.29

0.08

8.69

(0.29)

(0.08)

(0.17)

8.15

The calculations of diluted net asset value per share show the potentially dilutive effect of share options outstanding at the Balance Sheet date and include the
increase in shareholders’ equity which would arise on the exercise of those options.

In accordance with EPRA recommendations, the adjustment for the fair value of derivatives excludes those interest rate swaps which were cancelled in
October 2016 (see note 17).

The comparative figure for the fair value of secured term loans has been restated by £8.2 million to include the fair value in excess of book value for the debt
in the joint venture. This has decreased EPRA NNNAV net assets by £8.2 million and EPRA NNNAV net asset value per share by £0.03.

147

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

23 CASH FLOWS FROM OPERATING ACTIVITIES

GROUP

COMPANY

OPERATING ACTIVITIES

Profit before tax

Adjusted for:

Lease incentives recognised (note 2)

Charge for share-based remuneration (note 5)

Depreciation (note 4)

2016
£M

99.1

(0.5)

1.9

0.4

2015
£M

467.3

(2.4)

2.3

0.4

Investment property valuation movements (note 10)

(108.3)

(432.0)

2016
£M

282.9

1.9

0.4

2015
£M

103.8

2.3

0.4

Net finance costs

97.7

59.2

82.6

50.0

Administrative charges, finance charges, and dividends received from subsidiaries settled
through inter-company indebtedness

Impairment of subsidiary (note 13)

Dividends received from joint venture

Share of profit from joint venture (note 12)

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

(18.5)

71.8

2.1

3.0

76.9

(29.7)

65.1

(0.5)

2.8

67.4

(623.1)

244.9

(1.7)

(12.1)

0.1

1.0

(11.0)

(165.6)

(1.6)

(10.7)

(0.2)

(0.3)

(11.2)

148

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

24 MOVEMENT IN BORROWINGS

Group

8.5% First Mortgage Debenture Stock 2024

Secured bank loans

Secured term loans

Facility arrangement costs

Year ended 30 September 2015

Company

8.5% First Mortgage Debenture Stock 2024

Secured bank loans

Facility arrangement costs

Year ended 30 September 2015

25 OPERATING LEASES

1.10.2015
£M

CASH
FLOWS
£M

NON-CASH
ITEMS
£M

30.9.2016
£M

(63.2)

(199.7)

(384.8)

7.4

(640.3)

(553.7)

(63.2)

(207.0)

2.3

(267.9)

(429.9)

(91.0)

(85.7)

(83.7)

162.8

(29.0)

(1.0)

(30.0)

(0.9)

(29.0)

(0.6)

(29.6)

(0.8)

(92.2)

(290.7)

(384.8)

6.4

(761.3)

(640.3)

(92.2)

(290.7)

1.7

(381.2)

(267.9)

2015
£M

80.3

221.4

143.8

108.6

554.1

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

2016
£M

84.2

234.2

143.8

98.7

560.9

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 23 to 29.

149

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

25 OPERATING LEASES CONTINUED

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

2016
£M

0.4

1.6

2.0

1.0

5.0

2015
£M

0.4

1.6

2.0

1.4

5.4

The Company leases its head office accommodation from a wholly-owned subsidiary.

26 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

Rents payable

2016
£M

11.7

592.5

18.9

0.4

2015
£M

11.1

134.7

20.4

0.4

Net amounts receivable from subsidiaries

755.6

116.1

Transactions with joint venture:

Administrative fees receivable

Dividends receivable

Interest receivable

Amount due from joint venture

0.2

1.7

0.1

0.9

0.4

1.6

0.1

1.4

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
98 to 107, there were no other transactions with directors.

150

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUED

27 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 grants 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

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

2016 LTIP

2.12.15

£9.36

£Nil

8.2.16

£8.295

£Nil

NAV and TSR

20%

0.78%

19%

0.84

20%

0.40%

20%

0.87

Modified binomial

Monte Carlo

£9.40
£4.24

£7.94
£3.88

* The index is the FTSE 350 Real Estate Index for the 2006 LTIP scheme and the FTSE 350 REIT Index for the 2016 LTIP scheme.

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 101.

28 EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
In October 2016 the Group issued £285 million of 2.487% Guaranteed First Mortgage Bonds due 2031. At the same time, it redeemed its £61.0 million 8.5%
First Mortgage Debenture Stock due 2024. It also cancelled interest rate swaps with a notional principal of £55.0 million, at a cost of £34.1 million. Further
details are set out in note 17.

151

Shaftesbury Annual Report 2016FINANCIAL STATEMENTSOTHER
INFORMATION

SHAREHOLDER INFORMATION 153
PORTFOLIO ANALYSIS 154
BASIS OF VALUATION 154
SUMMARY REPORT BY THE VALUERS 156
SUSTAINABILITY CONTINUED 158
GLOSSARY OF TERMS 166

152

SHAREHOLDER INFORMATION

CORPORATE TIMETABLE

Annual General Meeting

AGM statement

2017 half year results to be announced*

10 February 2017

May 2017

See the website for dates of all future company announcements.

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

DIVIDENDS AND BOND INTEREST

Proposed 2016 final dividend:

Ex-dividend

Record date

Payment date

2017 interim dividend to be paid

Mortgage bond interest to be paid

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.

CORPORATE WEBSITE
www.shaftesbury.co.uk

19 January 2017

20 January 2017

17 February 2017

July 2017

31 March 2017 and
30 September 2017

VILLAGE WEBSITES
carnaby.co.uk

chinatown.co.uk

sevendials.co.uk

stmartinscourtyard.co.uk

berwickstreetlondon.co.uk

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 2016 final
dividend is 20 January 2017.

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 59 FOR DETAILS OF CURRENT YEAR DIVIDENDS

* 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.

153

Shaftesbury Annual Report 2016OTHER INFORMATION
PORTFOLIO ANALYSIS

AT 30 SEPTEMBER 2016

Portfolio

Fair value

Shops

Restaurants,
cafés and leisure

Offices

Residential

% 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

Average unexpired lease length – years

Area – sq. ft.

% of current income

% of ERV

Average unexpired lease length – years

Number

Area – sq. ft.

% of current passing rent

% of ERV

NOTE

CARNABY

£1,161.0m

35%

£39.6m

£48.8m

101

COVENT
GARDEN

£875.0m

26%

£27.5m

£35.9m

CHINATOWN

SOHO

£725.9m

£244.0m

22%

£22.3m

£29.2m

£8.0m

£10.0m

CHARLOTTE

STREET

£117.7m

£3.6m

£4.8m

WHOLLY

OWNED

93%

£101.0m

£128.7m

309

PORTFOLIO

LONGMARTIN

PORTFOLIO

£3,123.6m

£224.4m1

£3,348.0m

TOTAL

100%

£109.6m

£138.7m

181,000

138,000

95,000

43,000

14,000

471,000

67,000

50%

47%

30%

32%

22%

28%

27%

103,000

176,000

206,000

58,000

47,000

590,000

45,000

16%

15%

37%

33%

61%

56%

37%

38%

247,000

84,000

29,000

36,000

10,000

406,000

102,000

28%

32%

11%

15%

221

124

15%

17%

56,000

137,000

78,000

38,000

23,000

332,000

55,000

22%

20%

13%

12%

21%

18%

1 Shaftesbury Group’s 50% share

BASIS OF VALUATION

AT 30 SEPTEMBER 2016

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

154

NOTE

CARNABY

COVENT
GARDEN

2.81%

2.89%

3.57%

CHINATOWN

3.04%

3.09%

3.40%

SOHO

2.91%

3.30%

3.63%

STREET

PORTFOLIO

LONGMARTIN

3.18%

3.22%

3.65%

3.35 - 4.25%

3.60 - 4.50%

3.50 - 4.50%

3.75 - 4.50%

£125 - £515

£75 - £490

£140 - £350

£140 - £275

3.65 - 5.00%

3.50 - 4.25%

3.50 - 3.75%

3.75 - 4.10%

£105 - £135

£90 - £179

£260 - £400
ITZA

£85 - £124
(£275 ITZA)

10 4.00% - 4.50%

4.00 - 4.25%

4.25 - 4.50%

4.40 - 4.60%

£58 - £80

£50 - £75

£43 - £53

£50 - £65

£51

£44

£48

35%

36%

275

35%

33%

16%

19%

559

14%

12%

WHOLLY

OWNED

3.00%

3.08%

3.57%

£8.6m1

£10.0m1

37%

39%

16%

14%

32%

34%

15%

13%

3.26%

3.38%

3.79%

3.4% - 4.15%

£78 - £700

3.75 - 4.00%

£90 - £137.50

4.25% - 4.50%

£50 - £77.50

£49

18%

14%

58%

51%

16%

26%

CHARLOTTE

2.65%

2.79%

3.52%

3.50 - 4.75%

£93 - £215

3.60 - 4.15%

£77.50 - £100

4.50 - 4.75%

£45 - £55

£56

Shaftesbury Annual Report 2016OTHER INFORMATIONAT 30 SEPTEMBER 2016

Portfolio

Fair value

NOTE

Shops

Restaurants,

cafés and leisure

Offices

Residential

Average unexpired lease length – years

% 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

Area – sq. ft.

% of current income

% of ERV

Average unexpired lease length – years

Number

Area – sq. ft.

% of current passing rent

% of ERV

CARNABY

£1,161.0m

35%

£39.6m

£48.8m

101

COVENT

GARDEN

£875.0m

26%

£27.5m

£35.9m

CHINATOWN

SOHO

£725.9m

£244.0m

22%

£22.3m

£29.2m

£8.0m

£10.0m

50%

47%

16%

15%

28%

32%

30%

32%

37%

33%

11%

15%

221

22%

20%

22%

28%

61%

56%

124

13%

12%

27%

37%

38%

15%

17%

21%

18%

56,000

137,000

78,000

38,000

1 Shaftesbury Group’s 50% share

BASIS OF VALUATION

AT 30 SEPTEMBER 2016

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

NOTE

CARNABY

CHINATOWN

COVENT

GARDEN

2.81%

2.89%

3.57%

3.18%

3.22%

3.65%

3.04%

3.09%

3.40%

SOHO

2.91%

3.30%

3.63%

3.35 - 4.25%

3.60 - 4.50%

3.50 - 4.50%

3.75 - 4.50%

£125 - £515

£75 - £490

£140 - £350

£140 - £275

3.65 - 5.00%

3.50 - 4.25%

3.50 - 3.75%

3.75 - 4.10%

£105 - £135

£90 - £179

£260 - £400

ITZA

£85 - £124

(£275 ITZA)

10 4.00% - 4.50%

4.00 - 4.25%

4.25 - 4.50%

4.40 - 4.60%

£58 - £80

£50 - £75

£43 - £53

£50 - £65

£51

£44

£48

PORTFOLIO ANALYSIS CONTINUED

CHARLOTTE
STREET

WHOLLY
OWNED
PORTFOLIO

LONGMARTIN

TOTAL
PORTFOLIO

£117.7m

£3,123.6m

£224.4m1

£3,348.0m

£3.6m

£4.8m

93%

£101.0m

£128.7m

309

£8.6m1

£10.0m1

100%

£109.6m

£138.7m

181,000

138,000

95,000

43,000

14,000

471,000

67,000

18%

14%

35%

36%

275

37%

39%

103,000

176,000

206,000

58,000

47,000

590,000

45,000

247,000

84,000

29,000

36,000

10,000

406,000

102,000

58%

51%

35%

33%

16%

14%

16%

19%

559

32%

34%

23,000

332,000

55,000

16%

26%

14%

12%

15%

13%

CHARLOTTE
STREET

2.65%

2.79%

3.52%

3.50 - 4.75%

£93 - £215

3.60 - 4.15%

£77.50 - £100

4.50 - 4.75%

£45 - £55

£56

WHOLLY
OWNED
PORTFOLIO

3.00%

3.08%

3.57%

LONGMARTIN

3.26%

3.38%

3.79%

3.4% - 4.15%

£78 - £700

3.75 - 4.00%

£90 - £137.50

4.25% - 4.50%

£50 - £77.50

£49

NOTES

1 The fair values at 30 September 2016 (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 annualised 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.

155

Shaftesbury Annual Report 2016OTHER INFORMATIONSUMMARY 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 2016 (the “Valuation Date”) held by Shaftesbury
Carnaby Limited, Shaftesbury Covent Garden Limited, Shaftesbury Chinatown
Limited, Shaftesbury Soho Limited, Shaftesbury AV Limited, Shaftesbury CL
Limited and Helcon 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 22 November 2016 (“our Reports”).
Our Reports were prepared for accounts purposes.

All properties have been subject to external inspections between February
and October 2016 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 PS 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 and has been the signatory of valuation reports
addressed to the Company and the Subsidiary Companies since 2013. 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 1 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 1 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 1 September 2015, C&W were appointed as retail agents by
Shaftesbury Soho Limited and Shaftesbury Carnaby Limited and these
instructions have continued since then.

The DTZ group became a stand-alone, private global property services
company on 5 November 2014, following its sale to a consortium of investors
led by TPG Capital Management. On 1 September 2015, DTZ acquired Cushman
& Wakefield and the combined group now trades under the Cushman &
Wakefield brand. Cushman & Wakefield’s financial year end is 31 December.
The proportion of fees payable by the Company to the Cushman & Wakefield
group in the financial year to 31 December 2015 was less than 5%.

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 Valuation Date, 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.

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 some 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.

156

Shaftesbury Annual Report 2016OTHER INFORMATION
SUMMARY REPORT BY THE VALUERS CONTINUED

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, Shaftesbury CL
Limited and Helcon 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 Partner
RICS Registered Valuer

For and on behalf of
DTZ Debenham Tie Leung Limited
125 Old Broad Street
London EC2N 1AR

As of 1 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.

Certain properties were subject to works of repair or refurbishment at 30th
September 2016, 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
£30,002,100 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 five 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 2016, 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 22
November 2016, were as follows:

Freehold Properties

Long leasehold
Properties

Total

£2,864,815,000
(Two billion, eight hundred and sixty-four
million, eight hundred and fifteen thousand
pounds)

£258,795,000
(Two hundred and fifty-eight million, seven
hundred and ninety-five thousand pounds)

£3,123,610,000
(Three billion, one hundred and twenty-three
million, six hundred and ten thousand pounds)

A long lease is one with an unexpired term in excess of 50 years.

157

Shaftesbury Annual Report 2016OTHER INFORMATION
SUSTAINABILITY CONTINUED
ENVIRONMENTAL

WE PROMOTE SUSTAINABILITY THROUGH OUR RE-USE AND CAREFUL MANAGEMENT OF EXISTING BUILDING
STRUCTURES, FABRIC AND SPACE BY IMPROVING THEIR OPERATIONAL EFFICIENCIES. WE REDUCE RUNNING
COSTS TO THE BENEFIT OF BOTH OURSELVES AND OUR TENANTS.

ENERGY PERFORMANCE

Overall, energy consumption decreased by 7% primarily attributed to the refurbishment of Newport Sandringham and other larger buildings, which in
previous years, had high energy consumption.

Absolute energy consumption

USAGE (kwh)

Total

COVERAGE OF
APPLICABLE
PROPERTIES

209 out of 209

2014

2015

2016

2015-2016
% CHANGE

3,753,344

4,645,047

4,322,090

-7%

A comparison of like-for-like performance between 2015 and 2016 shows a 21% decrease which reflects the rolling programme of small scale
refurbishment as well as variations in occupancy levels.

Like-for-like energy consumption

USAGE (kwh)

NUMBER OF
PROPERTIES
REPORTED ON
2015

NUMBER OF
PROPERTIES
REPORTED
ON 2016

2015

2016

DIFFERENCE

2015-2016
% CHANGE

Total

180

3,524,797

2,788,230

-736,567

-21%

We continue to purchase green tariff 100% renewable electricity for 75% of the portfolio.

ENERGY SAVINGS OPPORTUNITY SCHEME (ESOS)
In compliance with legislation, we undertook an ESOS audit during 2015.
We used an external consultant to conduct the audit which was prepared in
accordance with Environment Agency requirements. The audit focused on
the landlord controlled areas and a small number of buildings where we are
responsible for the purchase of electricity and gas for the whole building.
The energy savings identified equate to 558,030 kWh and a carbon reduction
of 191.1 tCO2. We have an ongoing programme to identify and implement
energy savings improvements, such as progressive replacement of existing
lights with LED spotlights. Improvements identified, such as boiler upgrades,
will be considered when the buildings are due for refurbishment. The total

budget implementation costs for the recommendations across the portfolio
are approximately £129,510 which should provide total estimated annual energy
savings of £49,300 with a simple average payback period of 2.6 years.

This section comprises the remainder of the condensed Sustainability Report. The full report is available on our website together with case studies.

Three years’ data is included in this section. For five years’ data, please refer to the Sustainability Data Report 2016 on our website.

158

Shaftesbury Annual Report 2016OTHER INFORMATION

SUSTAINABILITY CONTINUED
ENVIRONMENTAL CONTINUED

GREENHOUSE GAS EMISSIONS

LIKE-FOR-LIKE SCOPE 1 GHG EMISSIONS

We report these numbers in accordance with UK legislation. The figures
relate to landlord controlled common parts such as staircases. The numbers
are therefore minimal.

SCOPE 1

Total tCO2e

2015

291

2016

DIFFERENCE % DIFFERENCE

185

-106

-36.4%

For the reporting year we have again followed the UK Government environmental
reporting guidance and used the 2016 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. Fugitive emissions
from air conditioning are included where it is the landlord’s responsibility
within the common parts. There are no company vehicles to report
within Scope 1.

SCOPE 2 – indirect energy emissions includes purchased electricity for the
head office and landlord controlled common parts areas and a small number
of buildings where the occupied areas and common parts are on the same
meter. Electricity used in refurbishment projects has 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 this is
considered negligible.

Greenhouse gas emissions for the portfolio, head office and refurbishment
sites (tCO2e) are set out opposite and show a significant year-on-year
variation. Overall, energy consumption is, in absolute terms, small, covering
mainly landlord - controlled areas. The increase in Scope 1 emissions is
attributed to increased reporting of gas consumption in Carnaby and Seven
Dials and the decrease in Scope 2 emissions is due to the refurbishment of
Newport Sandringham.

Data for 2014-2015 is restated for gas consumed as it had previously been
reported using the incorrect units. This equates to an increase of 216 tonnes
for 2015.

ABSOLUTE SCOPE 1 AND 2 GHG EMISSIONS

SCOPE 1

Total tCO2e

SCOPE 2

Total tCO2e

2014

164

2014

1,559

2015

312

2015

1,405

2015-2016
CHANGE

20.2%

2015-2016
CHANGE

-31.4%

2016

376

2016

964

LIKE-FOR-LIKE SCOPE 2 GHG EMISSIONS

SCOPE 2

Total tCO2e

2015

1,042

2016

DIFFERENCE % DIFFERENCE

878

-164

-15.7%

ABSOLUTE SCOPE 3 EMISSIONS

SCOPE 3

Total tCO2e

2014

199

2015

176

2015-2016
CHANGE

2016

167

-4.85%

The chosen emissions intensity is common parts floor areas, which has been
measured in 59 of the 122 reported properties with common parts only and the
emissions intensity figure has been obtained of 37.3 kgCO2e/m2 (0.037 tonnes
CO2e/m2), a decrease over last year’s 50 kgCO2e/m2 (0.05 tonnes CO2e/m2).

GHG INTENSITY BY FLOOR AREA

NUMBER OF
PROPERTIES

COMMON PARTS
FLOOR AREA FT²

FLOOR AREA
M SQ FT

KWH
(ELECTRICITY)

CONSUMPTION

INTENSITY KG CO2E/M²

Total 59

34,447

3,200

289,569

90.5

37.3

ASSURANCE STATEMENT
Our greenhouse gas emissions data has been subject to an independent
assurance process provided by Planet & Prosperity Ltd. A full copy of the
verification opinion statement, including the scope and basis of the work,
can be found on our website. The final opinion of the assurance provider is
summarised below, but readers should be aware of the context within which
this statement is made by reading the full statement and opinion.

We have conducted a verification of the greenhouse gas data reported by
the above entity in its Annual Report for the period 1 October 2015 to 30
September 2016. On the basis of the verification work undertaken (which is
reported in Annex 2 of the full statement and excludes the managing agents’
accounting processes) nothing has come to our attention to suggest that
these data are not fairly stated with the exception of a small number of
non-material issues. We have not checked prior year data that is reported
nor the details of the restatement of data for 2012-2015 which resulted from
material errors in the primary source data.

159

Shaftesbury Annual Report 2016OTHER INFORMATIONSUSTAINABILITY CONTINUED
ENVIRONMENTAL CONTINUED

WASTE

We exceeded our target recycling rate with 51% recycled at Carnaby and
Seven Dials and 48% at Longmartin. We encourage composting by our
restaurant tenants, and active engagement with tenants has increased the

proportion to over 7%. The remaining waste is diverted from landfill to energy
from waste.

Absolute waste within operational control

TOTAL RECYCLED

ENERGY FROM WASTE

COMPOSTED

TONNES OF WASTE

2014

2015

776

1,000

2016

1,407

2014

1,081

2015

1,286

2016

1,353

2014

2015

TOTAL RECYCLED

ENERGY FROM WASTE

COMPOSTED

PERCENTAGE OF WASTE

2014

2015

2016

2014

2015

2016

40.4%

42.4%

47.2%

56.3%

54.5%

45.4%

2014

3.3%

2015

3.1%

2016

223

2016

7.5%

Totals

Our refurbishment projects diverted, on average, over 99% of waste from landfill.

WATER

The extent of water consumption reporting is improving with increased
clarity of which properties are within landlord control. Overall consumption
across the portfolio has shown a significant decrease primarily attributable
to Newport Sandringham undergoing refurbishment. Like-for-like, there has
also been a decrease reflecting the reduced occupancy levels in the
properties concerned.

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

2014

43,134

2015

2016

2015 - 2016
CHANGE

42,993

18,789

-56.3%

Like-for-like water consumption within operational control

PROPERTIES
REPORTED
ON 2015

PROPERTIES
REPORTED ON
2016

TOTAL
USAGE (M³)
2015

TOTAL
USAGE (M³)

2016 DIFFERENCE

2015 - 2016
DIFFERENCE

Total

11,700

10,815

-885

-7.6%

160

Shaftesbury Annual Report 2016OTHER INFORMATION
SUSTAINABILITY CONTINUED
ENVIRONMENTAL CONTINUED

BUILDING CERTIFICATIONS

We have had in place for a number of years an objective to achieve BREEAM
Very Good for all new commercial developments of which there have been
five over the past six years. Progress has been made over the year to extend
the coverage to include refurbishment projects, both domestic and non
domestic; four are in progress and are on course to achieve a minimum
of our target of Very Good:
• 57 Broadwick Street is on track to achieve BREEAM Excellent against

BREEAM for Offices 2008 requirements.

• 39 William IV Street has been registered to BREEAM Domestic

refurbishment and has achieved Very Good at the design stage.
(see case study).

• 65-75 Monmouth Street is also a domestic refurbishment on track to achieve

a BREEAM Very Good.

• 9 Kingly Street is at early design stage and is likely to aim for BREEAM

Non Domestic Very Good.

The Energy Act 2011 requires that by 2018 properties at the time of letting
should be have an Energy Performance Certificate (EPC) of Grade E or above.
There are still a proportion of our properties that are under the threshold or
have not yet been assessed. The majority of those that have not been assessed
are let under long term leases which have not undergone a lease transaction
since 2008 and do not therefore require an EPC at the current time.

Wholly-owned
(Total count of EPC assessments)

16.0%

A-E

F-G

949

250

Not done 233

17.4%

Longmartin
(Total count of EPC assessments)

25.0%

A-E

F-G

Not done 33

5.0%

66.6%

70.0%

A proportion of the lower grade properties (just over 40%) are listed and
we are consequently limited as to what are considered feasible improvements.
Of the remaining properties, the rolling programme of refurbishment is
proving effective with over 80% achieving a C rating or above.

USE OF MATERIALS

We maximise the re-use of materials on site in all our refurbishment
projects above a capital value of £150,000, with a significant proportion of
the primary structure and external façade retained. Similarly, our approach
is to re-use timber where possible. Timber features such as windows, joists,
floorboards, staircases and paneling were retained where possible.

For the small volume of timber purchased, 67% was Forest Stewardship
Council (FSC) certified and overall 90% was sustainably sourced with full
chain of custody which is an improvement in performance. In addition in
Carnaby, the principal contractor that works on minor refurbishment work
has achieved full FSC Chain of Custody Certification for the sourcing and
use of timber products on all projects.

Volume timber purchased (m³)

300

200

100

2014

2015

2016

% FSC Certification
% Sustainably Sourced (with Chain of Custody)
Other timber

161

Shaftesbury Annual Report 2016OTHER INFORMATIONSUSTAINABILITY CONTINUED
ENVIRONMENTAL CONTINUED

BIODIVERSITY

We recognise the importance of promoting biodiversity. The West End is an
intensively used urban area, which needs thriving and connected green
spaces. This is important for both wildlife and health and wellbeing of
occupiers and visitors.

We have continued our membership of Wild West End
(www.wildwestend.london). The West End’s largest property owners are
working together to encourage birds, bees and bats back, and create
greater connections with nature for residents, visitors and workers to enjoy.
This year we have undertaken a baseline ecology survey of the portfolio and
defined objectives. We promoted the initiative to the public through the
Carnaby Street Eat event, a one day food festival, informing visitors at the
food festival of the importance of enhancing habitats for pollinators.

This year we installed six green walls as part of ongoing refurbishment projects.
We undertook another project to improve the biodiversity of vacant and
inaccessible roof tops, by installing sedum pods and planters in such areas
in Carnaby and Seven Dials.

We were shortlisted for the Pollinator Award at the CIRIA sponsored BIG
Biodiversity Challenge and were awarded a DEFRA Bees Needs Champions
for our work in improving the biodiversity of the West End.

We will continue in the year ahead to select similar roofs throughout the
portfolio and install larger areas of sedum pods where space allows.

S ’ NEE

E E

MPIO N 2 01

BIRD
BOX

GREEN
WALL

GREEN
ROOF

SEDUM
PODS

HANGING
BASKETS

INSECT
HOME

PLANTERS

TREES

WINDOW
BOXES

BEE
HIVES

125

-3

880

823

2016

2015

Difference

Three trees were irreparably damaged by a vehicle.

162

Shaftesbury Annual Report 2016OTHER INFORMATIONSUSTAINABILITY CONTINUED
PERFORMANCE AGAINST TARGET SUMMARY

WE SET OUT BELOW OUR ACHIEVEMENTS AGAINST THIS YEAR’S TARGETS AND OUR TARGETS
FOR THE CURRENT YEAR

OBJECTIVE

ACHIEVED IN 2016

TARGETS FOR 2017

Stakeholders and community

Maintain membership of various benchmarking
indices

Membership of Carbon Disclosure Project and
FTSE4Good. Participated in GRESB and achieved
a four Green Star rating. EPRA Sustainability
reporting Silver award against EPRA reporting
requirements

Signatory to UNGC

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 use of their methodology for reporting
community involvement has continued.

Continue membership of London Benchmarking
and further develop benchmarking measurements
for reporting

Continue to maintain regular liaison with tenants

Contribution to community and stakeholders
(including Section 106 payments) equates to 2.2%
of EPRA pre-tax earnings

Undertook tenant satisfaction surveys in Seven
Dials and Carnaby with a 74% overall satisfaction.

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

Repeat tenant satisfaction surveys for Seven Dials
and Carnaby and extend to other parts of the
portfolio.

Promote the ‘Close the Door’ initiative with retail
tenants in the portfolio

Work with other local occupiers, local authorities
and the Mayor’s office to investigate and promote
solutions to reducing air pollution in central
London

Associate member of New West End Company
lobbying to improve air quality in central London.

Review findings of consolidation study and extend
to other villages

Commissioned pilot consolidation delivery study
for Seven Dials

Principal suppliers to ensure that an appropriate
system for remuneration and in compliance with the
London living wage is in place within the supply chain

The requirement for the payment of London living
wage has been included in new contracts in one
village

Increase number of supply chain contracts that
include London living wage

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)

100% of eligible schemes were registered

87% of schemes achieved the target score on the
first visit. The overall average for the sites visited
was 33 out of 50

Continue to achieve 30 out of 50 (above a
‘satisfactory’ score)

163

Shaftesbury Annual Report 2016OTHER INFORMATIONSUSTAINABILITY CONTINUED
PERFORMANCE AGAINST TARGET SUMMARY

OBJECTIVE

Employees

ACHIEVED IN 2016

TARGETS FOR 2017

Ensure there are procedures to minimise risk of
reportable health and safety accidents/incidents
throughout the portfolio

No reportable health and safety accidents
recorded in a refurbishment project

Review health and safety policies across the
portfolio

Two reportable incidents in the portfolio

Aim for no reportable accidents and incidents
throughout the Group’s activities

Ensure compliance with anti-bribery and
corruption policy

Undertook internal training of all staff.

Maintain compliance

No non- compliances or fines

Comply in all respects with employment legislation 60% of staff are female of which 50% are in senior

positions and 30% of the board are female

One person left this year

Corporate sponsor of Real Estate Balance in order
to promote gender equality in the sector and
signatory to the RICS Inclusive Employer Quality
Mark

Continue to measure and improve relevant
employment metrics and implement an action plan
for the RICS Inclusive Employer Quality Mark

Continue active involvement with Real Estate
Balance including membership of one of task
groups

Environment

Full legal environmental compliance

No breaches of legal requirements have been
reported

Full legal compliance

Invest in brownfield sites only

100% regeneration of central London sites

Continue to achieve 100% use of brownfield sites

Operate in an environmentally sustainable manner
throughout our activities

Of the EPCs assessed, 80% were a grade C or
above post refurbishment

Four schemes both commercial and residential
on course to achieve a minimum of BREEAM Very
Good

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 larger refurbishment schemes
both commercial and domestic

Timber to be sourced where possible from
well-managed sources, certified by third party
certification schemes

Reuse of timber maximized throughout all
schemes.

Continue to maximize the proportion of timber
that is reused.

Over 90% of timber has been confirmed as
sustainably sourced with full Chain of Custody and
67% using FSC timber

Source a minimum of 70% 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

A decrease of 7% principally attributed to the
refurbishment of Newport Sandringham. Like-for-
like performance has shown a 21% decrease

75% of portfolio sourced 100% renewable energy

Achieve a year on year 3% energy reduction
throughout the portfolio

Purchase green electricity where costs are within
5% of brown electricity

Reduce Greenhouse Gas emissions by a rolling
target of 5% from the baseline of 2015 by 2020

164

Shaftesbury Annual Report 2016OTHER INFORMATIONSUSTAINABILITY CONTINUED
PERFORMANCE AGAINST TARGET SUMMARY

OBJECTIVE

ACHIEVED IN 2016

TARGETS FOR 2017

Manage construction waste to ensure legal
compliance and maximise re-use and recycling
of non-hazardous waste

Recycle a minimum of 40% of tenants’ waste at
Carnaby and Seven Dials and divert 90% from
landfill

Improve biodiversity appropriate to the Group’s
urban location

All the schemes that reported, achieved an
average of 99% diversion from landfill, by weight
of non hazardous demolition and construction
waste

In Carnaby and Seven Dials, 51% of tenants’ waste
was recycled and 5% was sent for composting.
The remainder was diverted from landfill to
energy from waste

Aim to reuse or recycle a minimum of 90% non
hazardous demolition and construction waste

Recycle and compost a minimum of 50% of
tenants’ waste and divert a minimum of 90%
of waste from landfill

Continued membership of Wild West End. Baseline
study of biodiversity initiatives. Continuing to
maximise the benefits of using planters, sedum
pods and window boxes and other features
through appropriate species selection

Continue membership of Wild West End and
increase number of biodiversity features
throughout the portfolio in particular on
service roofs

165

Shaftesbury Annual Report 2016OTHER INFORMATIONGLOSSARY 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.

EPRA net assets
Net assets used in the EPRA NAV calculation,
including additional equity if all vested share
options were exercised.

EPRA NNNAV
EPRA NAV incorporating the fair value of debt
which is not included in the reported net assets.

EPRA vacancy
The rental value of vacant property available
expressed as a percentage of ERV of the total
portfolio.

Equivalent yield
Equivalent yield is the internal rate of return from
an investment property, based on the gross
outlays for the purchase of a property (including
purchase costs), reflecting reversions to current
market rent, and such items as voids and
non-recoverable expenditure but disregarding
potential changes in market rents.

European Public Real Estate Association (EPRA)
EPRA develops policies for standards of reporting
disclosure, ethics and industry practices.

Estimated rental value (ERV)
ERV is the market rental value of properties
owned by the Group, estimated by the Group’s
valuers.

Fair value
The amount at which an asset or liability could be
exchanged between two knowledgeable willing
unconnected parties in an arm’s length
transaction at the valuation date.

Gearing
Nominal value of Group borrowings expressed as
a percentage of EPRA net assets.

Initial yield
The initial yield is the net initial income at the date
of valuation expressed as a percentage of the
gross valuation. Yields reflect net income after
deduction of any ground rents, head rents, rent
charges and estimated irrecoverable outgoings.

Interest cover
The interest cover is a measure of the number of
times the Group can make interest payments with
its operating profit before investment property
disposals and valuation movements.

Like-for-like portfolio
The like-for-like portfolio includes all properties
that have been held throughout the accounting
period.

Loan-to-value
Nominal value of borrowings expressed as a
percentage of the fair value of property assets.

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.

166

Shaftesbury Annual Report 2016OTHER INFORMATION167

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