Shaftesbury PLC Annual Report 2017

FY2017 Annual Report · Shaftesbury PLC

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ANNUAL REPORT 2017

Shaftesbury in numbers

Strategic report Overview
1
2 Highlights
4 Chairman’s statement
7 Chief Executive's statement
11 Our business model: how we create and deliver value
12 Exceptional portfolio in the heart of London's west end
21 Focus on restaurants, leisure and retail
22 Creating distinctive, lively and interesting destinations
26 How we measure success
28 Sustainability and stakeholders

Strategic report Annual review
36 Portfolio valuation
40 Leasing and occupancy
48 Portfolio investment
50 Financial results
56 Financial management
59 Risk management
64 Viability statement

Governance
68 Our people
72 Governance at a glance
74 Corporate Governance
80 Nomination Committee report
82 Audit Committee report
86 Remuneration report
89 Remuneration at a glance
90 Summary of remuneration policy
92 Annual remuneration report
102 Directors’ report
104 Directors’ responsibilities
105 Independent auditor’s report

Financial statements
114 Group statement of comprehensive income
115 Balance sheets
116 Cash flow statements
117 Statements of changes in equity
118 Notes to the financial statements

Other information
140 Alternative Performance Measures (APMs)
142 Portfolio analysis
142 Basis of valuation
144 Summary report by the valuers
146 Shareholder information
147 Glossary of terms

Strategic report Overview

Shaftesbury is a real estate investment trust
which invests exclusively in the liveliest parts of
London’s West End. Our objective is to deliver
long-term growth in rental income, capital
values and shareholder returns.
Focussed on restaurants, leisure and retail,
our exceptional portfolio is clustered mainly
in Carnaby, Seven Dials and Chinatown, but
also includes substantial ownerships in east and
west Covent Garden, Soho and Fitzrovia.

Shaftesbury in numbers

141/2 acres
AND 1.9 ACRES OWNED IN

JOINT VENTURE

1.8m sq.ft.

COMMERCIAL AND RESIDENTIAL
SPACE AND 0.3M SQ.FT. IN
JOINT VENTURE

584 SHOPS, RESTAURANTS,

CAFÉS AND PUBS

£3.64bn

PORTFOLIO VALUATION¹

£114.1m

ANNUALISED CURRENT

INCOME2

£144.5m

ESTIMATED RENTAL VALUE2

6.6%

OF ERV2 HELD FOR, OR
UNDER, REFURBISHMENT

£9.52

EPRA NAV¹

26.7%

LOAN TO VALUE1,3

1 An alternative performance measure (“APM”). See page 140
2 See Glossary on page 147 for definitions
3 Based on net debt and including our 50% share of the Longmartin joint venture

Highlights

Reported results

NET ASSET VALUE
PER SHARE3,6 (£ per share)

NET PROPERTY INCOME
(£m)

BASIC EPS
(pence per share)

DIVIDENDS
(pence per share)

+10.7%

+5.0%

+203.7%

+8.8%

9
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EPRA results1,3

NAV PER SHARE
(£ per share)

+7.2%

9
6
8

8
8
8

2
5
.
9

3
1
.
7

7
6
.
5

NET ASSET VALUE RETURN
(%)

EPRA EARNINGS
(£m)

EPRA EPS
(pence per share)

+8.9%

+15.9%

+15.7%

0
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STRATEGIC REPORT OVERVIEW Shaftesbury Annual Report 2017

Portfolio highlights

TOTAL
VALUATION2,3 (£bn)

LIKE-FOR-LIKE VALUATION
GROWTH2,3 (%)

NET
INVESTMENT2,3 (£m)

REVERSIONARY
POTENTIAL2 (£m)

£3.64bn

+7.0%

£65.1m

£30.4m

4
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Annualised current income
ERV

Financial management2

LOAN TO VALUE3,4
(%)

INTEREST COVER3
(TIMES)

BLENDED COST OF DEBT3,5
(%)

WEIGHTED AVERAGE
MATURITY OF DEBT

26.7%

4
.
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3.3%

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1 For EPRA definitions, see Glossary on page 147

4 Based on net debt

2 Including our 50% of the Longmartin joint venture

5 Including non-utilisation fees on undrawn bank facilities

3 Alternative performance measures (“APM”), See page 140

6 Excluding non-core asset acquired as part of a portfolio

STRATEGIC REPORT OVERVIEW Shaftesbury Annual Report 2017

Chairman’s
Statement

I am delighted to report another strong set
of results, following a busy and successful
year for the Group. Our focussed strategy
has continued to deliver our objectives of
growth in both income and the value of our
exceptional portfolio, along with long-term,
sector-leading returns for shareholders.

Our business

Over the 31 years since Shaftesbury was formed, we have assembled
an impossible-to-replicate portfolio in the heart of London’s
West End of some 600 buildings across 14½ acres. The renowned
and enduring appeal of London’s West End to a global audience
of visitors and businesses brings a resilience to its economy not
seen elsewhere in the UK and in very few cities across the world.

Underpinned by an estimated 200 million annual visits to the
West End, our business focusses on the 1.1 million sq. ft. of restaurant,
leisure and retail space that we own in high profile, popular locations.
With our forensic knowledge of the West End, we curate
distinctive, interesting and lively destinations which attract
Londoners, a large and important local working population,
domestic visitors, and international tourists in numbers
unmatched by any city destination in the western world.

Continuing value creation and
income growth

Our portfolio, now valued1 at £3.64 billion, continues to deliver
rental and capital growth, but with relatively low capital
expenditure.

We have continued our long record of crystallising our portfolio’s
reversionary potential into contracted cash flow, whilst growing
this potential further. Together with significantly reduced finance
costs following important refinancing activity, this has driven
strong growth in earnings over the year. The Board is delighted
to recommend a final dividend of 8.1p, bringing the total
distribution for the year to 16.0p, an increase of 8.8%. This
follows last year’s increase of 6.9%.

Focus on culture, governance
and sustainability

In my first year with Shaftesbury, I have come to appreciate the
culture of this business and the important part it plays in supporting
our strategy and our continuing success. Importantly, our strategy,
and every aspect of its implementation, prioritises long-term
goals, planning and sustainable outcomes over short-term gains
and rewards.

We pride ourselves in being open, transparent and engaged,
not just with shareholders but also with our wide array of
stakeholders, including our employees, local communities,
neighbours and local authorities. We ensure that our Board
decision-making includes consideration of these important
stakeholders.

The Board and I are committed to maintaining the high standards
of corporate governance and behaviour we have demonstrated
for many years.

Succession planning throughout the organisation is an essential
aspect of our long-term strategy. My responsibility is to ensure
that the Board’s membership continues to evolve so that we
have access to the broad skills and experience required to
support the current and future needs of the business.

1 An alternative performance measure (APM). See page 140

STRATEGIC REPORT OVERVIEW Shaftesbury Annual Report 2017

STRATEGIC REPORT OVERVIEW CHAIRMAN’S STATEMENT Shaftesbury Annual Report 2017

The knowledge and enthusiasm of our management team have been critical
to the successful implementation of our strategy. Our employee retention
record, which is a testament to the working environment we offer, is exceptional.
We invest in training and developing our employees, to ensure they grow in
their roles and that we maintain a pipeline of talent for internal promotion.

A key aspect of our long-term success is the socially responsible way in
which we run our business. We see the preservation and enhancement of
our iconic destinations as critical to our long-term future and we are
committed to bringing economic and environmental sustainability through
the stewardship of our extensive ownership of mainly older buildings.
Creating prosperous, appealing locations which support the businesses of
our commercial occupiers, and which benefit the important residential
communities in and around our areas, creates the conditions which sustain
the long-term prospects of our business.

Outlook

Whilst UK economic and political uncertainty is unsettling business
confidence and investment, London continues to thrive. Its long-term
prospects, and those of the West End, are underpinned by their global
status and appeal, excellent connectivity and dynamic, creative, broad-
based economy.

Over my first year, it has become increasingly apparent that this business
has many strengths, from our exceptional portfolio through to a quality
team, a proven and evolving long-term strategy and a robust balance sheet.

I am confident we shall continue to meet today’s challenges, capture
tomorrow’s opportunities and maintain our long record of delivering
sustained growth in income, capital value and shareholder returns.

Board changes

Oliver Marriott retired from the Board in July and I would like to thank him
for his outstanding contribution to Shaftesbury during his eight-year tenure.
On 28 November 2017, Richard Akers will join the Board as a non-executive
director, and I am sure his broad range of real estate and corporate skills
and experience will be invaluable.

Jonathan Nicholls
Chairman

27 November 2017

With increasing numbers of visitors to the West End and the widely-recog-

nised growth in interest and spending on leisure activities, our 282 restau-

rants, cafés and pubs are important drivers of footfall and trading in our

locations.

Chief
Executive’s
Statement

It is pleasing to report another year of good progress and strong results,
against a backdrop of economic uncertainty.

EPRA EARNINGS1

DIVIDENDS PER SHARE

EPRA NAV PER SHARE1

£45.2m
+15.9%

16.0p
+8.8%

£9.52
+7.2%

Growing earnings

Continued demand for space in our popular and busy
locations, together with our proven management strategy,
has resulted in an increase in net property income of 5.0%
to £88.3 million. We are now reaping the benefits of the
important refinancing initiatives we completed in October last
year, which significantly reduced our finance costs. Together,
these factors have contributed to an increase in EPRA
earnings1 of £6.2 million to £45.2 million, which equates to
an increase in EPRA earnings per share1 of 15.7%.

Uplift in NAV

Our exceptional portfolio has delivered underlying capital
value growth of 7.0% over the year, adding 83 pence (9.3%)
to EPRA net asset value per share1. The increase in value
reflects the combined impact of growing current income
and the prospect of sustained future income growth,
particularly in locations which are expected to benefit from
Crossrail-related footfall in the coming years. Limited
opportunities to buy the type of buildings we own, and
continuing strong investor demand, have led to a reduction
in investment yields in the West End market, particularly in
the second half of the year.

This valuation uplift has been offset partly by the cost of
terminating our remaining legacy interest rate swaps, which
amounted to 20 pence per share. At 30 September 2017,
EPRA NAV per share1 stood at £9.52, an increase of 64
pence, or 7.2%.

1 Alternative performance measures (APMs). See page 140

STRATEGIC REPORT OVERVIEW Shaftesbury Annual Report 2017

STRATEGIC REPORT OVERVIEW CHIEF ExECUTIVE’S STATEMENT Shaftesbury Annual Report 2017

A unique portfolio in an
exceptional location

West End connectivity and
infrastructure

Our portfolio extends to some 600 buildings across 14½ acres of London’s
West End.

Our investment strategy is focussed on restaurants, leisure and retail, uses
which, in the West End, have a long record of resilience and growth. Our
long-term management strategy of assembling clusters of ownerships
enables us to curate and promote distinctive destinations which offer a wide
variety of innovative, mid-market choices in dining, leisure and retail.

London is the largest city in Western Europe and most visited city in the
western world, with an estimated 19.1 million international visitors in 2016.
Current forecasts point to a growth in tourist numbers of around 3.5% per
annum through to 2025.

Located at its heart is the West End, with its exceptional variety of visitor
attractions, from cultural and historic to dining and shopping. The exceptional
numbers of domestic and international visitors, together with a large local
working population, mean that the West End is busy seven-days-a-week,
throughout the year. It offers a prosperous trading environment for our
occupiers, attracting demand for space and sustaining growth in our rental
values and income.

Within the West End, the availability of space, particularly for restaurant,
leisure and retail uses, is constrained by local planning and other policies.
This structural imbalance between demand for, and availability of, space is
fundamental to our portfolio’s rental and capital value prospects.

The completion of Crossrail 1 is now a year away, with the first services on
the Elizabeth line expected in December 2018. Once fully operational, this
important addition to London’s transport network will add 10% to its
capacity, and materially improve accessibility to the West End. Over the
medium term, we expect the new transport hubs at Tottenham Court Road
and Bond Street will result in significant changes to traditional footfall
patterns throughout the West End. With all our portfolio in close proximity
to these hubs, we anticipate being a major beneficiary of these changes,
with a number of our streets expected to see much increased footfall and
profile, enhancing their long-term rental growth prospects.

Continuing investment across the transport network is improving reliability
and increasing capacity, encouraging travel by public transport to the West
End. Last year’s introduction of 24-hour running at weekends on certain
underground lines has been well-received, and initial passenger numbers
have exceeded forecasts.

Elsewhere, we are seeing a number of Crossrail-related public realm
schemes progressing. Of great importance to the West End is the initiative
announced, earlier this year, to pedestrianise much of Oxford Street. This
will bring significant benefits, including a much-improved pedestrian
environment and a reduction in traffic-generated air pollution. Currently, it
is expected that the first stage of pedestrianisation, west of Oxford Circus,
will be operational by mid-2018. Planning for the eastern end of Oxford
Street is underway.

The West End economy

In our long experience, the breadth of the West End’s economy provides
considerable protection from the cyclicality and headwinds experienced by
the UK national economy.

Over the year, business and consumer confidence has begun to come under
pressure, and growth in the national economy is slowing. However, conditions
in the West End have so far largely been unaffected. In particular, weakness
in sterling has provided a boost to the spending power of international visitors
as well as increasing visitor numbers. Our restaurants, cafés, bars and shops
are reporting resilient trading growth, better enabling them to absorb
upward pressures on operating costs currently faced by all businesses.

Demand for the smaller accommodation that traditionally we offer is
healthy. Lettings, lease renewals and rent reviews are being concluded on
terms in line with our expectations, and vacancy levels have remained in line
with our long-term trend of 3%, or less, of portfolio ERV.

We are making good progress at our three larger schemes. 46% by ERV of
the completed space is now either let or under offer and marketing of the
remaining space continues. This larger space we are offering requires
occupiers to invest significant sums in fit-out and take on substantial rental
commitments and we expect letting periods to be longer than for smaller
space. Macro-economic uncertainties are now showing signs of slowing
potential occupiers’ decision–making processes. We shall be patient in
selecting occupiers which match our long-term aspirations.

The widely reported increase in national business rates took effect in April
2017. As we anticipated, average increases for our occupiers were in the
range of 30% to 40%, with a large number of our smaller tenants able to
benefit from a four-year transition period. Occupiers of large space on
streets where rental levels are above our average have seen greater
increases, and only limited transition provisions. Despite these unwelcome
increases in operating costs for our tenants, we have not seen any direct
impact on occupancy levels or interest in leasing space.

During the year, we concluded £31.1 million of leasing transactions, achieving
rents for commercial space 6.7% above ERV at the previous year end. This is
not only converting an element of our reversionary potential in to
contracted income, but it also provides valuable evidence to increase rental
tones and grow income from our adjacent and nearby buildings.

Investing in our portfolio

Our strategy is to adapt our buildings to meet the expectations of today’s
occupiers, and improve energy performance, through reconfiguration and
refurbishment, rather than redevelopment. We focus on uses where we
provide space in shell form only, with tenants taking responsibility for what
are often substantial fit-out costs. This significantly reduces our exposure to
obsolescence costs across the portfolio. Consequently, despite continuing
high levels of activity across our holdings, capital expenditure remains
modest. This year, our outlay was £40.3 million, slightly above our long-term
average of around 1% of portfolio value. Additionally, our share of capital
expenditure in the Longmartin joint venture was £1.2 million.

We continue to identify schemes across our portfolio, and are prepared to
intervene to negotiate early vacant possession of space to accelerate our
plans. We balance the costs of these initiatives against the valuable
long-term benefits to income and capital values, which frequently
compound across our extensive adjacent ownerships.

Adding to our portfolio

We have assembled our portfolio over a period of 31 years, through acquiring
single buildings, small portfolios, or occasionally large blocks, which were in
single ownership. We apply strict investment criteria to every purchase, and
focus on the prospects for long-term income growth potential through
harnessing our forensic market knowledge, our particular skills in improving
older building stock and capturing synergies with our other ownerships.

The buildings we seek to acquire in our chosen locations are frequently in
long-term private ownership. Their availability is always limited, as existing
owners are reluctant to sell in our sought-after areas. Understandably,
competition to purchase is intense, as other investors appreciate the
long-term prospects and security they offer.

This year, additions to our portfolio totalled £37.1 million. In addition, in
August 2017, we announced the forward purchase of a strategically important
block on Berwick Street in Soho, for £38.5 million. Currently, it is undergoing
a major redevelopment, which is expected to finish in late 2018, at which
point we will complete the acquisition.

STRATEGIC REPORT OVERVIEW CHIEF ExECUTIVE’S STATEMENT Shaftesbury Annual Report 2017

Refinancing legacy debt and hedging

Looking ahead

Taking advantage of low long-term interest rates, over the year, we have
taken important steps to refinance the remainder of our legacy debt and
hedging, whilst adding to our financial resources.

We have issued £575 million of long-dated bonds, comprising £285 million
for 15 years at 2.487% and £290 million for 10 years at 2.348%. The
proceeds were used, in part, to fund the early repayment of our historical
debenture stock and a bank facility. In addition, we have terminated our
remaining £180 million of interest rate swaps.

Together, these transactions reduced the cost of our debt significantly,
benefiting earnings and dividends, as well as adding around £310 million to
our financial resources. In a competitive investment market, the ready
availability of funding to secure acquisitions gives us a valuable advantage.

Long-term rewards of a long-term
strategy

October 2017 marked the 30th anniversary of the listing of Shaftesbury’s
shares on the London Stock Exchange. In our early years, whilst we owned a
block of 26 restaurants in the centre of Chinatown, our assets comprised
mainly offices in London and several UK locations. From mid-1993, we
refocussed the business, concentrating on restaurant, leisure and retail in
London’s West End.

Our long-term approach to assembling and managing this exceptional portfolio
has delivered sustainable growth in income, which is the ultimate driver of
long-term value. The success of this strategy is evident in our performance.
Since we floated in 1987, our share price has risen 460%, compared with the
FTSE 350 Real Estate Index of 94%, and since our focus switched to the
West End, the increase has been 1,431% against 119% for the sector.

The uncertainties created by last year’s EU referendum decision have
increased during 2017. It may be some time before the UK’s future trading
and other arrangements with the EU become clear, and there could be further
challenges as their ramifications become apparent. Inevitably, business and
consumer confidence is being affected, slowing economic growth and
business investment.

The broad economic base of the West End, and its enduring global appeal to
visitors and businesses, underpin its resilience and long-term prospects, providing
a considerable degree of protection against national economic headwinds.
This has been evident in the strength of our performance through different
business cycles and operating environments in our 31-year history.

The successful implementation of our distinctive strategy is due to our
committed, experienced and enthusiastic team, supported by the wide range
of external advisors who are invaluable in delivering our strategy. Together, they
bring flair and innovation to the management of our portfolio, ensuring it
evolves and adapts to meet the ever-changing tastes and expectations of all
those who visit, work or establish businesses in the West End.

Underwritten by the unique features of the West End, we are confident our
strategy will continue our long record of growing our exceptional portfolio’s
income and value, and, in turn, the returns we deliver to our shareholders.

Brian Bickell
Chief Executive

27 November 2017

RELATIVE SHARE PRICE PERFORMANCE SINCE
LISTING IN 1987

RELATIVE SHARE PRICE PERFORMANCE FOLLOWING
REFOCUS ON THE WEST END IN 1993

Shaftesbury

FTSE 350 Real Estate

Both rebased to 100

Shaftesbury

FTSE 350 Real Estate

Both rebased to 100

460%

+366%

94%

100

Oct 87

100

Oct 17

Jul 93

1,431%

+1,312%

119%

Oct 17

STRATEGIC REPORT OVERVIEW Shaftesbury Annual Report 2017
STRATEGIC REPORT OVERVIEW CHIEF ExECUTIVE’S STATEMENT Shaftesbury Annual Report 2017

What we own

EXCEPTIONAL PORTFOLIO IN THE HEART OF THE WEST END

clustered in popular destinations

focussed on restaurants, leisure and shops

282

RESTAURANTS,
CAFÉS AND
PUBS

302

SHOPS

0.4

m
sq.ft.

OFFICES

562

APARTMENTS

33 %

17 %

% of current annualised income1

see page 12

see page 21

35%

32%

22%

CARNABY

COVENT GARDEN

CHINATOWN

SOHO

FITZROVIA

What we do

CREATE DISTINCTIVE, LIVELY AND INTERESTING DESTINATIONS SUPPORTED BY

FORENSIC
KNOWLEDGE
OF THE
WEST END

LONG-TERM
HOLISTIC
CURATION OF
OUR AREAS

MANAGEMENT
STRATEGY

OWNERSHIP
CLUSTERS

INVEST IN
THE PUBLIC
REALM

IMPROVE
OUR
BUILDINGS

PROMOTE OUR
DESTINATIONS

FOOTFALL AND
SPENDING

SUSTAINED
DEMAND

LOW
VACANCY

ExPERIENCED
MANAGEMENT TEAM

see page 23

PRUDENT FINANCIAL
MANAGEMENT

see page 56

FOCUS ON SUSTAINABILITY
AND STAKEHOLDERS

see page 28

EFFECTIVE
GOVERNANCE

see page 22

see page 74

How we deliver value

GROWING CONTRACTED
INCOME AND RENTAL
POTENTIAL

GROWTH IN EARNINGS
AND DIVIDENDS

LONG-TERM GROWTH IN
PORTFOLIO VALUE AND TOTAL
SHAREHOLDER RETURNS

see page 26 for how we measure success

1 Wholly-owned portfolio

11
11

Exceptional

portfolio

in the heart of
London’s West End

over 31 years to
accumulate and
impossible to
replicate

141/2 acres and
1.9 acres owned
in joint venture

Accumulated over 31 years, our portfolio
comprises nearly 600 buildings, mostly of
domestic size, 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 typically
in long-term private ownership, and, in our
experience, existing owners are unwilling to
sell in this resilient area. We believe it would
be impossible to replicate a portfolio such as
ours in these vibrant and prosperous locations.

PORTFOLIO VALUATION1

35%

£3.64bn

22%

26%

CARNABY
COVENT GARDEN
CHINATOWN
SOHO
FITZROVIA
LONGMARTIN

ANNUALISED CURRENT
INCOME2

13%

37%

£105.3m

17%

33%
RESTAURANTS, CAFÉS AND LEISURE
SHOPS
OFFICES
RESIDENTIAL

1 Including our 50% share of the Longmartin joint venture

2 Wholly-owned portfolio

STRATEGIC REPORT OVERVIEW Shaftesbury Annual Report 2017STRATEGIC REPORT OVERVIEW PORTFOLIO Shaftesbury Annual Report 2017

c. 600 buildings
clustered in iconic,
high footfall
locations

1.8 million sq. ft.
of commercial and
residential space
and 0.3 m sq. ft.
held in joint venture

100% of our portfolio
is between five and
ten minutes’ walk
of an Underground/
Elizabeth Line station

E S

FITZROVIA
0.8 acres

O X F O RD S T RE E T

TOTTENHAM COURT ROAD

BOND STREET

OXFORD CIRCUS

CARNABY
4.3 acres

SOHO
1.4 acres

N
G

C
R
O

SEVEN DIALS
3.2 acres

G A C R E

ST MARTIN’S
N
O
COURTYARD
1.9 acres

COVENT GARDEN

T STREET

D I L

P I C

GREEN

PARK

TESBU RY A V

CHINATOWN
3.2 acres

AF
H
S

LEICESTER SQUARE

COLISEUM
S T R
1.0 acre

CHARING CROSS

PICCADILLY CIRCUS

L M

E M

ST JAMES’S

PARK

OPERA
QUARTER
0.6 acres

STRATEGIC REPORT OVERVIEW PORTFOLIO Shaftesbury Annual Report 2017

Exceptional portfolio in the heart of
London’s West End

LONDON
prosperous and growing

8.6 million
London’s
population
expected to
reach 10m by
2036

19.1 million
overseas visits
to London in
2016, expected
to grow by 3.5%
p.a. by 2025

One of the world’s principal global
cities

London is the largest city in Western Europe and is a leading commercial
centre. With its unrivalled variety of heritage and cultural attractions, which
draw huge numbers of domestic and international visitors, it is one of the
world’s most popular tourist city destinations. Annual overseas visitor
numbers have grown 25% over the past five years and 2016 saw a record
19.1 million visits. Current forecasts point to increases of 35% and 21% in
overseas and domestic overnight visits, respectively, by 2025.

Growing population

The city’s population is currently around 8.6 million, with growth of 16%
forecast by the mid 2030’s. Additionally, there is a similar, and growing,
population in southern England within easy commuting or visiting distance.

Economic resilience

Its global appeal brings long-term prosperity, which gives it a resilient
economic base, which is not reliant solely on the fortunes of the wider UK
economy.

STRATEGIC REPORT OVERVIEW PORTFOLIO Shaftesbury Annual Report 2017

THE WEST END
popular destination attracting exceptional footfall and spending

>200 million
annual visits
to the West
End

c.700,000
working
population in
the City of
Westminster

>4% of UK GVA
produced
within the City
of Westminster

>200 million
passengers
use the six
underground
stations closest
to our villages

Huge numbers of visitors and large
working population

Exceptional and improving
transport links

The West End has an unrivalled concentration of entertainment and cultural
attractions, historic buildings, public spaces, world–class variety of shops
and a wide choice of innovative and accessible dining and leisure concepts.

Together, these provide an exceptional all-round experience, attracting huge
numbers of domestic and international visitors. Annual visits are estimated
at over 200 million. Importantly, it is also a location for a wide range of
global, national and local businesses, and a popular place to live. The City of
Westminster generates over 4% of UK economic output and has a working
population across the borough of almost 700,000. Together with its visitor
base and its important residential community, this brings high, and growing,
footfall and spending.

Demand outstrips availability of
space

Availability of restaurant, leisure and retail 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 economic cycles than the real estate market
outside this resilient location.

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 infrastructure investment to improve capacity and reliability
continues.

We expect to benefit greatly from the Elizabeth Line, which opens in a year’s
time. 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-2020s, 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.

STRATEGIC REPORT OVERVIEW PORTFOLIO Shaftesbury Annual Report 2017

Exceptional portfolio in the heart of
London’s West End
Our destinations

Carnaby
35% OF OUR PORTFOLIO1
£39.7m CURRENT INCOME2
£1.3bn VALUATION

IN NUMBERS

RESTAURANTS,
CAFÉS AND
LEISURE

SHOPS

OFFICES

APARTMENTS

109,000
sq.ft.

182,000
sq.ft.

244,000
sq.ft.

56,000
sq.ft.

CURRENT INCOME2 BREAKDOWN

16% 49% 28% 7%

Carnaby is a unique, iconic
shopping and dining destination,
a few minutes away from both
Oxford Circus and Piccadilly Circus.
Attracting an estimated 40 million people each year, it
is a popular and internationally-renowned destination
for fashion retail, focussed on flagship stores, new
concepts and independent brands. It now has a
growing reputation for lively casual dining and leisure
choices, centred on Kingly Court and Kingly Street.
Our ownership, across 14 streets, covers 4.3 acres.

61% of the Group’s office space is in Carnaby. It includes
our largest floor plates and more modern office buildings.

carnaby.co.uk

STRATEGIC REPORT OVERVIEW PORTFOLIO Shaftesbury Annual Report 2017

Covent Garden
32% OF OUR PORTFOLIO1,3
£37.0m CURRENT INCOME2,3
£1.2bn VALUATION3

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
flourishing residential community.
Our wholly-owned holdings, extending to 4.8 acres,
are principally centred on Seven Dials in north Covent
Garden, close to Leicester Square and the
Tottenham Court Road transport hub. They also
include the Coliseum and Opera Quarter restaurant
districts, in east and west Covent Garden. Annual
footfall in Seven Dials alone is estimated at over
30 million people.

sevendials.co.uk
stmartinscourtyard.co.uk

1 By value

2 Annualised, as at 30 September 2017

3 Including our 50% share of the Longmartin joint venture

4 Shaftesbury has a 50% interest in this joint venture

WHOLLY-OWNED IN NUMBERS

RESTAURANTS,
CAFÉS AND
LEISURE

SHOPS

OFFICES

APARTMENTS

216

176,000
sq.ft.

143,000
sq.ft.

85,000
sq.ft.

133,000
sq.ft.

CURRENT INCOME2 BREAKDOWN

39% 28% 12% 21%

LONGMARTIN4 IN NUMBERS

RESTAURANTS,
CAFÉS AND
LEISURE

SHOPS

OFFICES

APARTMENTS

39,000
sq.ft.

73,000
sq.ft.

102,000
sq.ft.

55,000
sq.ft.

CURRENT INCOME2 BREAKDOWN

15% 36% 34% 15%

STRATEGIC REPORT OVERVIEW PORTFOLIO Shaftesbury Annual Report 2017

Exceptional portfolio in the heart of
London’s West End
Our destinations

Chinatown
22% OF OUR PORTFOLIO1
£23.8m CURRENT INCOME2
£0.8bn VALUATION

Soho
7% OF OUR PORTFOLIO1
£8.9m CURRENT INCOME2
£0.3bn VALUATION

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 a wide range of Chinese and East Asian
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.

chinatown.co.uk

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
sectors. 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 the
West End’s large working population. It has a large
residential community.

IN NUMBERS

RESTAURANTS,
CAFÉS AND
LEISURE

SHOPS

OFFICES

APARTMENTS

thisissoho.co.uk

IN NUMBERS

RESTAURANTS,
CAFÉS AND
LEISURE

SHOPS

OFFICES

APARTMENTS

130

211,000
sq.ft.

92,000
sq.ft.

28,000
sq.ft.

86,000
sq.ft.

59,000
sq.ft.

43,000
sq.ft.

36,000
sq.ft.

CURRENT INCOME2 BREAKDOWN

62% 21% 4% 13%

41% 25% 15% 19%

Fitzrovia
4% OF OUR PORTFOLIO1
£4.7m CURRENT INCOME2
£0.1bn VALUATION

Fitzrovia is a bustling
neighbourhood and renowned
dining district, just north of
Oxford Street and close to
Tottenham Court Road.
Our ownerships extend to 0.8 acres on, or close to,
Charlotte Street and Goodge Street.

Fitzrovia’s 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.

IN NUMBERS

RESTAURANTS,
CAFÉS AND
LEISURE

SHOPS

OFFICES

APARTMENTS

50,000
sq.ft.

14,000
sq.ft.

10,000
sq.ft.

25,000
sq.ft.

CURRENT INCOME2 BREAKDOWN

54% 13% 8% 25%

1 By value

2 Annualised, as at 30 September 2017

STRATEGIC REPORT OVERVIEW PORTFOLIO Shaftesbury Annual Report 2017

Focus

on restaurants,
leisure and retail
Mix of uses, focussed on
restaurants, leisure and retail
over lower floors with offices
and residential on upper floors.

Restaurants,
leisure and
shops generate
70% of current
annualised
income1

Our 1.1 million sq. ft. of restaurant, leisure and retail space
provides 70% of total current income1. It comprises 282
restaurants, cafés and pubs and 302 shops, mainly of medium or
small size. The variety of interesting dining, leisure and retail
brands gives our destinations a particular identity and provides
visitors with an experience unmatched by other areas.

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

Residential

Offices

Restaurants and leisure

Shops

2007

1 Wholly-owned portfolio

2 EPRA vacancy

2017

New concepts and
independents favoured

Careful tenant selection is critical to ensure our areas remain
popular and attract growing footfall. We favour new concepts,
independent operators and international retailers making their
UK debut and prefer mid-market, innovative formats. Our shops
are neither luxury nor value-led and our restaurants typically are
neither Michelin-starred nor low-end fast food.

Long history of demand
exceeding availability

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.

Consequently, rents for these uses, in our areas, have not
demonstrated cyclical nor structural decline, even in times of
major economic uncertainty. Over the past ten years, ERV for
these uses has demonstrated like-for-like annualised growth of
3.8%, despite rental levels remaining broadly flat during the global
financial crisis. Vacancy levels for these uses over the same
period have averaged 3.0% of ERV1,2.

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

160

140

120

100

10-year CAGR: 3.8%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ERV (cumulative, rebased to £100 at 30 September 2007)

Limited obsolescence

An important aspect of restaurant, leisure and retail
accommodation is that we provide it in shell form only. Tenants
are responsible for their fit-out, with no capital contribution
from us. When tenants vacate, 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.

See also page 81.

Real estate balance
An association of real estate leaders with
the objective 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.

RICS inclusive employer
quality mark
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.

STRATEGIC REPORT OVERVIEW SUSTAINABILITY AND STAKEHOLDERS Shaftesbury Annual Report 2017

Performance against targets

One of our strategic goals is to work with our stakeholders including tenants, suppliers, employees, agents and the local community throughout our
operations. This engagement is inherent in our performance against the other three strategic goals, which are set out below:

Strategic goal:

ENVIRONMENTALLY SUSTAINABLE RE-USE AND MANAGEMENT OF BUILDINGS

Refurbishment schemes above
£1 million value target BREEAM
Very Good

Increase the EPC rating of
properties being refurbished

Source timber from well-managed
sources, certified by third party
certification schemes

Work with other stakeholders
to investigate and promote
solutions to reduce air pollution
in the West End

2017 Progress
Focussed on vehicle movements: Launched
initiative to consolidate deliveries to tenants in
Carnaby
Working with waste contractors to
consolidate waste collections in Carnaby

2017 Progress
Six schemes (both commercial and
residential) on course to achieve a
minimum of BREEAM Very Good

Future action 2018
Implement air quality strategy
Extend initiatives to other locations

Future action 2018
Continue to target BREEAM and develop
fit out guide for commercial tenants

2017 Progress
Making progress towards compliance
with MEES
Of the EPCs assessed, over 80% were
a grade C or above and all qualifying
buildings achieved at least an E on
completion of refurbishment

Future action 2018
Extend the useful life of buildings and
improve their sustainability by raising the
EPC rating of properties being refurbished
according to predetermined targets

2017 Progress
Reuse of timber maximised throughout
all schemes
Over 95% of timber has been confirmed
as sustainably sourced with full Chain of
Custody and 92% using FSC timber

Future action 2018
Continue to maximise the proportion
of timber that is reused
Source a minimum of 90% of all timber
from certified sources and ensure all
timber is purchased from legal sources

Maximise use of landlord procured
renewable energy and reduce
energy consumption in
common parts

2017 Progress
All landlord controlled portfolio sourced
100% renewable electricity

An increase of 3% for landlord-procured
electricity, but overall reduction in
greenhouse gas emissions

Future action 2018
Continue to purchase green electricity where
costs are within 5% of brown electricity
Engage with tenants to achieve a year on
year 3% energy reduction throughout
the portfolio
Reduce Greenhouse Gas emissions by
a rolling annual target of 5% from the 2015
baseline by 2020

Recycle a minimum of 50% of
tenants’ waste and divert 90%
from landfill

Improve biodiversity appropriate
to the Group’s urban location

2017 Progress
57% of tenants’ waste recycled or
composted in Carnaby and Seven Dials
Green Apple award for Carnaby
Remainder of all waste diverted to landfill
33% recycling achieved at Chinatown in
first year of reporting

Future action 2018
Continue to engage with tenants to
improve recycling

2017 Progress
Continued membership of Wild West End
Increased area covered by 16% from 8,127
sq. ft. to 9,461 sq. ft.

Developed Biodiversity strategy with five
year targets

Future action 2018
Continue membership of Wild West End
Implement five year plan to achieve a 50%
increase of coverage of biodiverse features

STRATEGIC REPORT OVERVIEW SUSTAINABILITY AND STAKEHOLDERS Shaftesbury Annual Report 2017

Strategic goal:

INVEST IN OUR COMMUNITY

Support local community groups
and be proactive in identifying and
working with charitable and other
organisations

2017 Progress
Ongoing support of nominated charities

Continue membership of London
Benchmarking Group

2017 Progress
Contribution to community and stakeholders
(including Section 106 payments) equates to
2.5% of EPRA pre-tax earnings

All projects registered with
Considerate Constructors’
Scheme achieve a minimum
score of 30 out of 50

2017 Progress
Average score was 34.8 out of 50

Future action 2018
Create community investment committee
to set strategic goals for community
engagement and identify new initiatives

Future action 2018
Continue membership to monitor
contributions

Future action 2018
Continue to achieve a minimum score
of 30 out of 50 (above ‘satisfactory’)

Strategic goal:

FAIR AND ETHICAL FRAMEWORK FOR EMPLOYEES AND SUPPLY CHAIN

Minimise risk of reportable health
and safety accidents/incidents
throughout the portfolio

Ensure compliance with
anti-bribery and corruption policy

Ensure London Living Wage is paid
through the supply chain, where
within our control

2017 Progress
No incidents in 2017

2017 Progress
No policy breaches

Future action 2018
Review health and safety policies across
the portfolio
Aim for no reportable accidents and incidents
throughout the Group’s activities

Future action 2018
Maintain full compliance; continuing review
of policies and procedures

2017 Progress
The requirement for the payment of
London living wage has been included in
new contracts
Supplier Code issued to all principal
suppliers

Future action 2018
Ensure adherence to Supplier Code
Aim for accreditation from Living Wage
Foundation

Review compliance procedures and
supplier reporting

Invest in training and
development of our employees.
Comply with employment
legislation and best practice
including diversity
2017 Progress
59% of employees are female. The
Executive Committee has 57% females.
The Board has 30% females
Gained Fairplace Award from Ethical
Property Foundation
Signatory to the RICS Inclusive Employer
Quality Mark

Future action 2018
Implement an action plan for the RICS
Inclusive Employer Quality Mark

Continue to monitor diversity within
the Group

Strategic report Annual review

Portfolio

valuation

Strong capital value performance; further increases in
contracted and prospective rents, expectation of continued
rental growth, and sustained investor demand for secure assets
with growth potential in the West End.

PORTFOLIO VALUATION1,4

VALUATION GROWTH1,2,4

ERV GROWTH1,2,4

£3.64bn

7.0%

3.5%

Potential for greater value
Cushman & Wakefield, independent valuer of our wholly-owned
portfolio, has continued to note that:

• our portfolio is unusual in its substantial number of predominantly
restaurant, leisure 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, as a result, high occupancy levels,
which underpins the long-term prospects for rental growth.

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.

Strong valuation performance
At 30 September 2017, the valuation of our portfolio, including our
50% share of the Longmartin joint venture, increased to £3.64
billion, following a revaluation surplus for the year of £233.2 million.
Like-for-like valuation growth was 7.0%, bringing the compound
annual growth rate over five years to 11.7%.

This year’s valuation performance reflects sustained occupier
demand, intensive asset management activity across our portfolio,
and continued growth in contracted income and rental values.
Also, it takes into account expectations of further rental growth,
good occupancy levels, and low capital expenditure.

Sustained investor demand yet
limited supply of assets to acquire
During the year, we have seen a sharpening of investor appetite,
especially for freehold properties in our locations, which offer
investment security, growing returns and limited exposure to
obsolescence. This heightening of demand is particularly evident
for properties close to prime streets, where lower rental levels
offer better growth prospects.

The equivalent yield attributed by our valuers to our wholly-owned
portfolio was 3.46%, an eleven basis points reduction over the
year. The availability of buildings to purchase remains as limited
as ever, largely because they are typically in long-term private
ownership and existing owners are reluctant to sell. Consequently,
when assets do become available, competition is fierce.

In the Longmartin joint venture, ERV reflects the conclusion of
the first round of rent reviews, following scheme completion in
2011, where we have seen significant increases in rents. The
equivalent yield for this geared long leasehold interest was
broadly unchanged at 3.8%.

1 Including our 50% share of the Longmartin joint venture. See presentation

of financial information on page 50

2 Like-for-like. See Glossary on page 147 for definition

3 Our 50% share

4 Portfolio excluding non-core asset acquired as part of a portfolio

STRATEGIC REPORT ANNUAL REVIEW Shaftesbury Annual Report 2017STRATEGIC REPORT ANNUAL REVIEW PORTFOLIO VALUATION Shaftesbury Annual Report 2017

ERV GROWTH1,2,4

3.5%

VILLAGE

Carnaby

Covent Garden

Chinatown

Soho

Fitzrovia

Wholly-owned portfolio

Longmartin joint venture3

Total portfolio1,4

VILLAGE

Carnaby

Covent Garden

Chinatown

Soho

Fitzrovia

Wholly-owned portfolio

Longmartin joint venture3

Total portfolio1

FAIR VALUE
£M

1,265.5

947.2

791.5

272.1

140.2

3,416.5

227.8

3,644.3

% OF
PORTFOLIO

ANNUALISED
CURRENT
INCOME
£M

35%

26%

22%

94%

100%

39.7

28.2

23.8

8.9

4.7

105.3

8.8

114.1

TOPPED-UP
NET INITIAL YIELD
%

EQUIVALENT
YIELD
%

3.04%

2.76%

2.75%

2.96%

2.93%

2.89%

3.25%

3.56%

3.36%

3.42%

3.49%

3.36%

3.46%

3.80%

ERV
£M

51.2

36.4

30.3

10.7

5.5

134.1

10.4

144.5

2017 VALUATION GROWTH2

5-YEAR CAGR2

7.1%

7.5%

6.0%

11.3%

11.4%

7.5%

1.0%

7.0%

13.5%

10.5%

10.1%

12.6%

12.0%

11.7%

11.2%

11.7%

See details on how we improve our buildings on page 22

See Portfolio Investment on page 48

STRATEGIC REPORT ANNUAL REVIEW PORTFOLIO VALUATION Shaftesbury Annual Report 2017

Continuing growth in contracted rents and ERVs
Demand for space in our carefully-curated locations has been good throughout the year, which, together with extensive asset management across the
portfolio, has continued to drive growth in contracted and potential future income.

At 30 September 2017, annualised current income stood at £114.1 million, following a like-for-like increase of 3.9% during the year. The ERV of our portfolio,
which is based on current rental tones and largely reflects rental evidence we have established through our leasing transactions, was assessed by our valuers
at £144.5 million, £30.4 million or 26.6% above current income. Like-for-like ERV growth over the year was 3.5%.

ANNUALISED CURRENT INCOME1,3 (£M)

ERV1,3 (£M)

4.9

144.5

138.7

1.3

(0.4)

3.5%

109.6

0.5

4.3

114.1

100

(0.3)

3.9%

2016

ACQUISITIONS

DISPOSALS

LIKE-FOR-LIKE
GROWTH2

2017

2016

ACQUISITIONS

DISPOSALS

LIKE-FOR-LIKE
GROWTH2

2017

The components of the portfolio reversionary potential are shown below. Of the total uncontracted reversion, 67% is accounted for by restaurants, leisure
and retail. In our locations, these uses have a long history of sustained demand, which, together with a restricted availability of space, underpins their growth
prospects. We remain confident that, with our proven long-term management strategy, we shall continue to convert this rental potential into cash flow,
whilst delivering further long-term growth in rental values.

COMPONENTS OF THE REVERSION1,3 (£M)

145

+26.6%

9.6

2.4

8.3

10.1

144.5

114.1

100

ANNUALISED
CURRENT INCOME

CONTRACTED/
RENT-FREE PERIODS

EPRA VACANCY

SCHEME VACANCY

UNDER-RENTED LEASES

ERV - BASED ON
CURRENT RENTAL
EVIDENCE

How it will be
realised

On expiry of
rent-free periods

On letting of space
available at 30
September 2017

On completion and
letting of schemes
in progress at 30
September 2017

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

1 Including our 50% share of the Longmartin joint venture.

See presentation of financial information on page 50

2 Like-for-like. See Glossary on page 147

3 Excluding a non-core asset acquired as part of a portfolio

See Leasing and occupancy on page 40

How it will be

realised

On expiry of

rent-free periods

On letting of space

available at 30

September 2017

On completion and

letting of schemes

in progress at 30

September 2017

Through the normal

cycle of rent reviews,

lease renewals

and lettings. This is

typically converted to

contracted income

over a 3 – 5 year

period

Leasing
and occupancy

Sustained demand across our portfolio helped deliver strong leasing results.
Our Thomas Neal’s Warehouse and Central Cross schemes completed in
the year and letting is underway.

Leasing
During the year, we concluded leasing transactions in the wholly-owned
portfolio with a rental value of £31.1 million (2016: £27.8 million). Of this,
commercial transactions totalled £23.8 million (2016: £21.6 million) and
residential lettings and renewals amounted to £7.3 million (2016: £6.2 million).
Rents for commercial uses were, on average, 6.7% above ERV at 30
September 2016.

LEASING ACTIVITY DURING THE YEAR1

£M

Commercial

Lettings and lease renewals 13.4 +7.7% vs September 2016 ERV

Rent reviews

10.4 +22.6% vs previous rent (equivalent
to 4.2% CAGR over five years)

23.8 +6.7% vs September 2016 ERV

Residential

Lettings and renewals

7.3 -1.6% vs prior rent

Total

31.1

Our share of lettings, lease renewals and rent reviews in the Longmartin joint
venture was £3.9 million (2016: £2.7 million), with commercial rents achieved
broadly in line with ERV at 30 September 2016. Accounting for £3.2 million,
rent reviews delivered average increases of 36.4% compared with previous
rental levels, an equivalent 5-year CAGR of 6.4%. We have now concluded the
majority of this first round of rent reviews following scheme completion in 2011.

EPRA vacancy
At 30 September 2017, EPRA vacancy was 6.0% of ERV, an increase of 4.4%
over the year. The total includes 3.5% in respect of Thomas Neal’s Warehouse
and Central Cross. Excluding these larger schemes, EPRA vacancy was 2.5%,
in-line with our long-term average.

Completed larger schemes
We have created large, prominent retail and restaurant units at our Thomas
Neal’s Warehouse and Central Cross schemes, of which 34% by ERV is now
let or under offer. Larger space requires occupiers to commit to significant
investment in fit-out and substantial rental obligations and we expect letting
periods to be longer for these units than for the smaller space typically we have
to offer. Current macro-economic uncertainties are showing signs of slowing
potential tenants’ decision–making processes. We will be patient in selecting
occupiers which meet our objective of delivering long-term rental growth.

Thomas Neal’s Warehouse
In the heart of Seven Dials, our scheme created a unique 22,800 sq. ft.
flagship retail unit. At 30 September 2017, it accounted for 0.7% of
available-to-let ERV. The space now is under offer to a single occupier.

Central Cross
Located at the eastern gateway to Chinatown, next to Leicester Square
Underground station and a few minutes’ walk from Tottenham Court Road
station, our scheme is well-positioned to benefit from high and growing
footfall.

We have created exceptional, double-height accommodation with five
shops, totalling 34,500 sq. ft., on Charing Cross Road and seven restaurants,
fronting Newport Place and Newport Court, extending to 13,300 sq. ft.

At 30 September 2017, all four of the smaller restaurants (ERV: £0.4 million)
were let or under offer. Subsequently, we have placed one large restaurant
under offer (ERV: £0.3 million). We have ongoing discussions with a number
of parties for the remaining space.

1 Wholly-owned portfolio

See also letting activity by use on pages 42 to 47

STRATEGIC REPORT ANNUAL REVIEW Shaftesbury Annual Report 2017
STRATEGIC REPORT ANNUAL REVIEW LEASING AND OCCUPANCY Shaftesbury Annual Report 2017

Other vacancy
Available-to-let vacancy, excluding larger schemes, comprised two cafés
(ERV: £0.1 million), six shops (ERV: £1.2 million), 13,100 sq. ft. of office space
(ERV: £0.8 million) and one apartment.

Space under offer included two restaurants, five shops, 2,100 sq. ft. of
offices and five apartments.

In the Longmartin joint venture, two shops were available to let. The ERV
of our 50% share of this space was £0.2 million.

EPRA VACANCY1 AT 30 SEPTEMBER 2017

RESTAURANTS,
CAFÉS AND
LEISURE

SHOPS

OFFICES

RESIDENTIAL

TOTAL

Larger schemes2

Other vacancy
-available-to-let

-under offer

£1.4m

£3.4m

£0.1m

£0.2m

£1.2m

£0.6m

£0.8m

£0.2m

£0.1m

£4.8m

£2.2m

£1.1m

% OF TOTAL
ERV
2017

3.5%

1.7%

0.8%

2016

0.5%

1.1%

£1.7m

£5.2m

£1.0m

£0.2m

£8.1m

6.0% 1.6%

18,500
sq.ft.

72,000
sq.ft.

15,300
sq.ft.

4,100
sq.ft.

109,900
sq.ft.

31,000
sq.ft.

1 Wholly-owned portfolio

2 Thomas Neal’s Warehouse and Central Cross

STRATEGIC REPORT ANNUAL REVIEW Shaftesbury Annual Report 2017

Restaurants, cafés
and leisure

37% OF

OUR PORTFOLIO1,2

282 RESTAURANTS,

CAFÉS AND PUBS

605,000

SQ.FT.

ANNUALISED CURRENT INCOME
BY VILLAGE2

10%

17%

£38.3m

38%

29%

CARNABY
COVENT GARDEN
CHINATOWN
SOHO
FITZROVIA

10 years

WEIGHTED AVERAGE
UNEXPIRED LEASE TERM2,3

3.7%

EPRA VACANCY2,3

£10.2m

LETTINGS / RENT REVIEWS2,4
(22.1% of restaurant, cafés & leisure ERV)

19 NEW LETTINGS
6 LEASE RENEWALS
44 RENT REVIEWS

At 30 September 2017, EPRA vacancy for these uses
was 3.7%, and included 3.1% in respect of the recently
completed Central Cross scheme. Other vacancy was
0.6%, of which 0.4% was under offer. Our ten-year
average EPRA vacancy for restaurants, cafés and
leisure is 1.6%.

Newer leases provide us
with more flexibility

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

Until recently, leases were granted over whole buildings
and provided tenants with renewal rights on expiry.
We find that upper floors often are now under-utilised
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 annual turnover. This provides a useful
contribution to both income and earnings.

Largest provider of dining
and leisure space in the
West End
With increasing numbers of visitors to the West End,
and the widely-recognised growth in interest and
spending on leisure activities, our 282 restaurants,
cafés and pubs are important drivers of footfall and
trading in our locations. We are the largest single
provider of dining and leisure space in the West End,
curating high-profile and busy destinations such as
Chinatown, Kingly Court, Neal’s Yard and the Opera
Quarter. The majority of our restaurants provide
casual dining, with a focus on atmosphere, quality
and experience, increasingly with an all-day offer.

Operators are attracted to the West End as it provides
access to exceptional daily footfall throughout the
year, a discerning, affluent customer base of domestic
and international visitors and a large working population.
The independent sector is particularly active, reflecting
the interest from diners to experience high quality,
creative and accessible new food concepts, often
then sharing their experiences on social media.

Demand outstrips
availability of space
Availability of restaurant and leisure accommodation
remains constrained by local planning policies, which
restrict large-scale increases in these uses, whether by
development, extension of existing space, or conversion
from other uses. The barriers to entry are high, with
existing operators reluctant to relinquish their valuable
sites, other than for significant premiums. Generally,
tenants ensure they preserve their valuable occupation
rights and our bad debt history is negligible.

Demand for the smaller space typically we have
to offer is healthy, particularly from independent
operators, established street-food concepts and
start-ups seeking their first site.

1 % of annualised current income

2 Wholly-owned portfolio

3 At 30 September 2017

4 Leasing activity during the year ended 30 September 2017

TYPICAL LEASE TERMS

SHOPS
RESTAURANTS, CAFÉS AND PUBS
Term
OFFICES
Rent reviews
RESIDENTIAL

HISTORICAL LEASES

25 years

Five-yearly, upward-
only

NEW LEASES

15 years

Five-yearly, upward-only

Security of tenure on expiry

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)

Incentives

60%

N/A

40%

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

OUR PROGRESS AGAINST 2017 KEY PRIORITIES

KEY PRIORITY

STATUS

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

Negotiated vacant possession of six leases in the year, with a rental
value of £0.8m.

Introduce new restaurant
operators to our destinations.

19 new openings during the year.

Completion of our Central Cross
scheme and associated public realm
improvements.

Scheme completed in May 2017.
50% of restaurant space (by ERV) let or under offer currently. Public
realm improvements commenced in October 2017.

2018 KEY PRIORITIES

Complete the letting of restaurant
space at Central Cross.

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

Introduce new restaurant operators
to our destinations.

See page 40 for further information on Central Cross

STRATEGIC REPORT ANNUAL REVIEW Shaftesbury Annual Report 2017

Retail

33% OF

OUR PORTFOLIO1,2

ANNUALISED CURRENT INCOME
BY VILLAGE2

7% 2%

14%

22%

£35.0m

55%

CARNABY
COVENT GARDEN
CHINATOWN
SOHO
FITZROVIA

4 years

WEIGHTED AVERAGE
UNEXPIRED LEASE TERM2,3

11.1%

EPRA VACANCY2,3

£8.1m

LETTINGS / RENT REVIEWS2,4
(17.4% of retail ERV)

14 NEW LETTINGS
21 LEASE RENEWALS
21 RENT REVIEWS

302 SHOPS

474,000 SQ.FT.

Contribution to the West
End as a leading shopping
destination
Providing 77% of our current annualised retail
income, our large clusters of shops in Carnaby and
Seven Dials make an important contribution to the
West End’s reputation as a leading global retail
destination.

Wide range of shop sizes
and rents
An important element of the character of our
destinations is the wide range of shop sizes and
rental levels across our buildings and streets.

Of our 302 shops, 209 are small (ERV < £150,000 p.a.),
providing 37% of our current annualised income, and
93 are large (63% of current annualised income). This
allows us to provide a variety of retail formats, from
start-ups to more established operators, whilst
offering retailers flexibility to expand or introduce
new concepts.

Importantly, rental levels in our high-footfall and spending
locations are competitive compared with nearby streets
(see the chart, opposite).

Responding to ever-
changing shopper tastes

The majority of our space is let to fashion and lifestyle
retailers.

Tenant selection is a key aspect of our strategy to create
and maintain distinctive retail locations. Shoppers’
behaviour is changing rapidly with an emphasis on
innovation, experience, fulfilment and the ability to
find something different from that commonly found
in shopping centres and on high streets. To attract
visitors, we seek out new, interesting concepts from
across the world, to maintain a fresh retail mix.
Additionally, we maintain flexibility in our leasing so
we are able to respond to shoppers’ ever-changing
tastes and retailers’ requirements.

Interest remains good
With high footfall, we continue to have good demand
for space, both from domestic and overseas retailers,
often opening new concept stores or flagships.

Despite well-publicised challenges being faced by the
retail sector, leasing activity during the year has been
good with lettings, renewals and rent reviews being
concluded ahead of ERVs assessed by our valuers.
Importantly, currently we have a number of tenants
renewing leases early or upsizing, demonstrating their
confidence in continued profitable trading in our
locations.

EPRA vacancy at 30 September 2017 was 11.1% of
retail ERV, of which vacant space at Thomas Neal’s
Warehouse and Central Cross accounted for 7.2%. Of
other available space, 1.3% was under offer. Average
retail vacancy over the past ten years has been 4.3%.

1 % of annualised current income

2 Wholly-owned portfolio

3 At 30 September 2017

4 Leasing activity during the year ended 30 September 2017

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

6 Based on 30 ft zones

TYPICAL LEASE TERMS

WEST END RETAIL RENTAL TONES5 (PRIME ZONE A PER SQ.FT.)

2,200

Our retail leases generally are short,
giving us the opportunity to refresh
tenant mix:

Smaller shops: 3-5 years

Larger shops: 5-10 years

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

1,400

SHOPS
RESTAURANTS, CAFÉS AND PUBS
OFFICES
RESIDENTIAL

1,100

800

730

650

525

400

360

Shaftesbury streets

285

240

220

190

165

Old B ond Street6
Ja m es Street W C 2

O xford Street6

Regent Street6

M arket
C ovent G arden
C arnaby Street
Long Acre

Foubert's Place
N eal Street

M on m outh Street
Floral Street

N e w burgh Street

Earlha m Street

Berwick Street

OUR PROGRESS AGAINST 2017 KEY PRIORITIES

KEY PRIORITY

STATUS

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

Thomas Neal’s Warehouse completed in October 2016 and now
is under offer.

Central Cross completed in May 2017. Marketing continues.

Introduce further interesting retail
concepts to our destinations.

14 new openings during the year.

2018 KEY PRIORITIES

Letting retail space at Central Cross.

Continue to introduce interesting
retail concepts to our destinations.

See page 40 for further information on Thomas Neal’s Warehouse and Central Cross

STRATEGIC REPORT ANNUAL REVIEW Shaftesbury Annual Report 2017

Offices

17% OF

OUR PORTFOLIO1,2

ANNUALISED CURRENT INCOME
BY VILLAGE2

8% 2%

20%

£17.5m

64%

CARNABY
COVENT GARDEN
CHINATOWN
SOHO
FITZROVIA

4 years

WEIGHTED AVERAGE
UNEXPIRED LEASE TERM2,3

4.0%

EPRA VACANCY2,3

£5.5m

LETTINGS / RENT REVIEWS2,4
(22.1% of office ERV)

29 NEW LETTINGS
30 LEASE RENEWALS
4 RENT REVIEWS

403,000 SQ.FT.

Large provider of small,
flexible office space
With 403,000 sq. ft. of office space, let to 243
tenants, we are an important provider of small office
accommodation in the core West End. Our average
letting is 1,380 sq. ft. at £55 per sq. ft. (2016: £51 per
sq. ft.) and average ERV is £61 per sq. ft. (2016: £61
per sq. ft.).

Whilst we already provide flexible terms and space,
we are working to ensure we remain competitive with
other SME space providers.

Limited availability of space
Demand for our office space remains good, particularly
from the media, creative and tech sectors, which often
find their natural home in Soho and Covent Garden.

Availability of smaller office space remains low across
our locations. Whilst we have seen a modest increase
in lease incentive packages during the year, occupancy
levels have been high. Retention rates have been
good, with 30 leases being renewed.

Office vacancy at 30 September 2017 was 4.0%
of total office ERV.

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

OUR PROGRESS AGAINST 2017 KEY PRIORITIES

2018 KEY PRIORITIES

KEY PRIORITY

STATUS

Schemes extending to 62,400 sq.
ft. completed or underway at 30
September 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.

The scheme is on track to complete
in early 2018. Marketing of the office
space has commenced.

Maintain strong cash flows
through high occupancy.

Complete our 57 Broadwick
Street redevelopment.

Further office upgrades to
meet modern, flexible space
standards.

1 % of annualised current income

2 Wholly-owned portfolio

3 At 30 September 2017

4 Leasing activity during the year ended
30 September 2017

See page 49 for further information on the 57 Broadwick Street scheme

STRATEGIC REPORT ANNUAL REVIEW Shaftesbury Annual Report 2017

Residential

13% OF

OUR PORTFOLIO1,2

ANNUALISED CURRENT INCOME
BY VILLAGE2

18%

12%

£14.5m

22%

40%

CARNABY
COVENT GARDEN
CHINATOWN
SOHO
FITZROVIA

1.2%

EPRA VACANCY2,3

£7.3m

LETTINGS / RENT REVIEWS2,4
(44.5% of residential ERV)

208 NEW LETTINGS
53
9

RENT REVIEWS

LEASE RENEWALS

562 APARTMENTS 336,000 SQ.FT.

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 planning consents for residential conversion,
which we could implement in the future.

Preference to lease, not sell,
our apartments
Most of the value of our buildings is in the commercial
uses on the lower floors. We prefer to lease, rather
than sell, our apartments in order to retain control
over whole buildings to realise the long-term potential
in those valuable lower floors. During the year, we
identified, and sold, nine apartments which we considered
did not compromise long-term management flexibility.

High occupancy and
reliable cash flow
Demand for our mid-market apartments remains good,
resulting in high occupancy levels and a stable cash
flow. Normally, we have less than ten apartments
available at any one time. At 30 September 2017 we
had six apartments available, of which five were
under offer.

During the year, we have seen a slight softening in rental
levels, owing to increased availability of newly-built
buy-to-let flats across central London. We continue
our rolling programme to upgrade our apartments, in
order to ensure their specification remains competitive
and maintain our high occupancy rates.

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

OUR PROGRESS AGAINST 2017 KEY PRIORITIES

KEY PRIORITY

STATUS

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

Refurbishment works on 79 apartments
during the year, of which 40 were
ongoing at year end.

Identify future potential
residential conversions.

Planning consents granted to create 23
apartments.

2018 KEY PRIORITIES

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

Identify future potential
residential conversions.

Maintain strong cash flow
through high occupancy.

1 % of annualised current income

2 Wholly-owned portfolio

3 At 30 September 2017

4 Leasing activity during the year ended
30 September 2017

See page 53 for disposals during the year

Portfolio

investment

Considerable activity continues, adding to income, increasing rental
tones and unlocking value. Important acquisitions secured during the
year.

CAPITAL EXPENDITURE

SPACE UNDER REFURBISHMENT DURING THE YEAR

£40.3m

249,400sq.ft.

Investing across our portfolio
Continuing the trend over recent years, high levels of asset
management and refurbishment activity continue across our
portfolio, improving our buildings, increasing income and rental
potential, and unlocking value.

Capital expenditure during the year totalled £40.3 million, representing
1.29% of wholly-owned portfolio value, with schemes extending to
249,400 sq. ft. (13.7% of wholly-owned floor space). This included
£14.5 million in respect of our three larger schemes: Thomas Neal’s
Warehouse, Central Cross and 57 Broadwick Street.

During the year, we secured 62 planning consents, an important part
of maintaining a pipeline of projects. At year end, we had 22 planning
applications awaiting decision.

We continue to identify opportunities to implement further asset
management initiatives. This often involves negotiations to secure
vacant possession of space to enable us to accelerate the
implementation of our ideas.

Projects in hand at year end
At 30 September 2017, we had schemes extending to 124,000 sq. ft. and
representing 6.6% of ERV, down from 11.0% a year ago. This decrease
was largely due to the completion of our Thomas Neal’s Warehouse and
Central Cross schemes.

VACANT SPACE1 HELD FOR, OR UNDER, REFURBISHMENT AT 30 SEPTEMBER 2017

RESTAURANTS,
CAFÉS AND
LEISURE

SHOPS

OFFICES

RESIDENTIAL

TOTAL

Larger
schemes2

Other
schemes

£0.4m

£0.6m

£1.2m

£0.1m

£2.3m

£1.5m

£1.9m

£2.1m

£1.1m

£6.6m

% OF TOTAL
ERV
2017

1.7%

4.9%

2016

5.7%

5.3%

£1.9m

£2.5m

£3.3m

£1.2m

£8.9m

6.6% 11.0%

20,800
sq.ft.

31,200
sq.ft.

47,300
sq.ft.

24,700
sq.ft.

124,000
sq.ft.

202,000
sq.ft.

1 Wholly-owned portfolio

2 2017: 57 Broadwick Street, Carnaby. 2016: Central Cross,

Thomas Neal’s Warehouse and 57 Broadwick Street

For details on Thomas Neal’s Warehouse and Central Cross see page 40

STRATEGIC REPORT ANNUAL REVIEW Shaftesbury Annual Report 2017

STRATEGIC REPORT ANNUAL REVIEW PORTFOLIO INVESTMENT Shaftesbury Annual Report 2017

57 Broadwick Street, Carnaby
Construction at our mixed-use project at 57 Broadwick Street, at the
eastern entrance to Carnaby, is progressing well. Located within a few
minutes’ walk of the new western entrance to Tottenham Court Road
station, on Dean Street, the scheme will provide:

• 11,800 sq. ft. of flagship retail and restaurant space over the lower floors;

• 15,000 sq. ft. of new grade A office accommodation across the upper

floors; and

• two apartments totalling 1,900 sq. ft.

The scheme is expected to cost £14.9 million, of which £10.2 million had
been incurred by 30 September 2017. Construction of the retail and
restaurant accommodation (ERV: £1.0 million) has now completed and the
space either is let or under offer. Marketing of the office accommodation,
which is planned to complete early in 2018, has commenced.

Other schemes
During the year, schemes with an ERV of £4.6 million completed and are
largely now income-producing. New schemes, with an ERV of £4.1 million,
commenced.

We had 47 schemes underway at 30 September 2017, extending to 95,300
sq. ft. and representing 4.9% of ERV. These included 17,600 sq. ft. of
restaurants and cafés (ERV: £1.5 million), 22,500 sq. ft. of shops (ERV: £1.9
million), 32,300 sq. ft. of office space (ERV: £2.1 million), and 38 apartments
either being created or up-graded (ERV: £1.1 million). Of this, space with an
ERV of £0.9 million was under offer.

In the Longmartin joint venture, our share of capital expenditure during the
year was £1.2 million. At 30 September 2017, the ERV of our 50% share of
space held for refurbishment was £0.7 million. This includes the
redevelopment of the prominent 13,000 sq. ft. mixed-use building on the
corner of Long Acre and Upper St Martin’s Lane. Expected to complete in
late 2018, our share of the cost of this scheme is expected to be £4.6 million.

SCHEME VACANCY1 (% of ERV)

5.7%

1.7%

2.0% 1.9%

3.6% 3.9%

0.9%

1.9%

1.3%

2.9%

5.3% 4.9%

1.6% 1.5%

2.3%

1.2%

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Larger schemes

Other schemes

Improving the public realm
Improving the public realm is a key part of our management strategy.

Public realm improvements both to Cambridge Circus and the western
section of Earlham Street are now close to completion. We expect that
these schemes, together with the opening of the Elizabeth Line, will, over
time, materially improve footfall throughout Seven Dials, bringing benefits
particularly to those streets where rental values are currently materially
below their long-term potential.

At our Central Cross holding, Westminster City Council’s improvement
scheme for Newport Place and Newport Court, which we are funding, has
commenced recently. It is scheduled for completion in phases from spring
2018. This new public space will be traffic-free each day, other than for
servicing between 7am and noon, providing the opportunity, subject to
planning and licensing approvals, for al fresco dining.

As part of the plans to improve pedestrian capacity, in advance of the
opening of the Elizabeth Line, Westminster City Council have designated
Broadwick Street as a priority pedestrian route. There have already been
improvements to the public realm at the eastern end of the street and we
are now working with the City Council on plans to improve the streetscape
around 57 Broadwick Street and the eastern entrance to Carnaby.

Acquisitions with good rental growth
prospects

£37.1m

ACQUISITIONS

During the year, we acquired seven properties at a total cost of £37.1 million.
These comprised four restaurants, two shops, one pub and 3,700 sq. ft. of
office space, of which 2,300 sq. ft. has planning consent for residential use.
Three of these buildings were acquired with vacant possession. Through
short and medium-term asset management initiatives, these additions each
offer the potential for good rental and capital growth, either individually or
in combination with our existing ownerships.

We continue to identify and investigate opportunities to acquire assets in,
and around, our areas, which offer the opportunity for future rental growth.

90-104 Berwick Street
In August 2017, we entered in to a contract to forward purchase a long-
leasehold interest in 90-104 Berwick Street, Soho, at a price of £38.5 million.

Located at the southern end of Berwick Street, the property is currently
being redeveloped to provide 12,500 sq. ft of retail, a 5,500 sq. ft.
supermarket, a 2,000 sq. ft. restaurant and a 110-bedroom hotel. Both the
hotel and supermarket have been pre-let. The redevelopment is expected
to complete in late 2018, which will, subject to satisfying various contractual
conditions, trigger the completion of the acquisition.

This strategic acquisition increases our ownership of Berwick Street
frontages to 50%. Once completed, it will enable us to accelerate our
long-term strategy on this important north-south route in the heart of
Soho, which we consider to have good medium to long-term prospects. We
expect Berwick Street, which is currently in the final phase of major public
realm improvements, to benefit from a significant increase in footfall from
the opening of the Elizabeth Line and Tottenham Court Road’s new ticket
hall on Dean Street in December 2018.

See how improving our buildings and investing in public realm forms part of our management strategy on pages 22 to 23

Financial
results

REPORTED RESULTS
NET ASSET VALUE PER SHARE1

EPRA RESULTS1
EPRA NAV

£9.49
+10.7%

£9.52
+7.2%

NET PROPERTY INCOME

NAV RETURN

£88.3m
+5.0%

+8.9%

BASIC EPS

EPRA EARNINGS

108.1p
+203.7%

£45.2m
+15.9%

DIVIDENDS PER SHARE

EPRA EPS

16.0p
+8.8%

16.2p
+15.7%

This year’s results show further
growth in income, earnings and
dividends, resulting from continued
crystallisation of our portfolio’s
reversionary potential and the
benefit of lower financing costs.
Net asset value growth was driven
by a strong portfolio valuation
performance.

Presentation of financial information
Our property portfolio is a combination of properties which are
wholly owned by the Group and a 50% share of property held in
joint venture.

The financial statements, prepared under IFRS, includes the Group’s
interest in its joint venture as one-line items in the Income Statement
and Balance Sheet. The analysis below is based on the IFRS financial
statements.

Internally, management consider the valuation of properties and our
debt position on a proportionally consolidated basis, including our
50% share of the joint venture. Consequently, the analysis of the
valuation on pages 36 to 38 and the finance review on pages 56 to 57
are presented on this proportionally consolidated basis.

We consider that this presentation better explains to stakeholders the
Group’s activities and financial position. Measures presented on a
proportional consolidation basis are alternative performance measures
as they are not defined under IFRS. Further details are set out on
page 140.

Income statement

Net property income

Administrative expenses

Valuation gains2

Operating profit

Net finance costs

2017
£M

2016
£M

88.3

84.1

(14.1)

231.7

108.3

305.9

178.3

(32.7)

(33.6)

Debt and interest rate swaps fair value movements3 22.0

(64.1)

Share of Longmartin post-tax results

Profit before tax

Tax

Reported earnings for the year

Basic earnings per share

6.4

301.6

18.5

99.1

301.6

99.1

108.1

35.6p

See Alternative Performance Measures on page 140

STRATEGIC REPORT ANNUAL REVIEW Shaftesbury Annual Report 2017
STRATEGIC REPORT ANNUAL REVIEW FINANCIAL RESULTS Shaftesbury Annual Report 2017

Reported earnings
Profit after tax for the year amounted to £301.6 million (2016: £99.1 million).
Basic earnings per share increased to 108.1p (2016: 35.6p), largely due to:

• the portfolio revaluation surplus, which contributed 82.7p (2016: 38.9p).
• net property income which added 31.7p (2016: 30.2p).
• the decrease in the fair value deficit of our interest rate swaps added 7.9p,
compared with an increase in this deficit, which reduced earnings per
share by 12.5p last year.

• net finance costs, excluding fair value movements, reduced earnings per

share by 11.7p (2016: 12.1p).

• a decrease in our share of the post-tax profits from our joint venture,

which contributed 2.3p (2016: 6.6p), largely driven by a lower revaluation
surplus.

Additionally, last year’s earnings per share were reduced by 10.5p as a result
of a one-off charge to recognise the fair value of our 8.5% Debenture Stock.

EPRA earnings1
As is usual practice in our sector, we produce alternative measures 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 exclude valuation movements in
respect of our properties and interest rate swaps, profits on disposal of
investment properties and deferred tax arising in our Longmartin joint
venture. In 2016, it also excluded the charge for recognising the fair value of
our Debenture Stock. EPRA earnings are reconciled below.

IFRS profit after tax

Adjusted for:

2017
£M

301.6

2016
£M

99.1

Change in value of investment properties

(230.6)

(108.3)

Change in fair value of financial derivatives

Profit on disposal of investment properties

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

(22.0)

(1.1)

(2.6)

(0.1)

45.2

16.2p

34.9

29.2

(11.3)

(4.6)

39.0

14.0p

EPRA earnings increased by 15.9% to £45.2 million (2016: £39.0 million) and
EPRA EPS grew 15.7% to 16.2p (2016: 14.0p). This increase was principally
driven by growth in net property income as we continue to capture our
portfolio’s reversionary potential, lower finance costs following our
refinancing in October 2016 (see page 56), and increased profits from our
Longmartin joint venture, having concluded a number of rent reviews during
the year.

EPRA EARNINGS (£M)

4.2

0.9

1.1

45.2

39.0

2016

NET
PROPERTY
INCOME

FINANCE
COSTS

LONGMARTIN

2017

Net property income
Rents receivable increased by £5.0 million to £103.4 million (2016: £98.4
million). Like-for-like growth was 5.0%, as we continue to convert our
portfolio’s reversionary potential into contracted cash flow. Acquisitions
contributed £1.3 million to the increase, whilst vacancy arising from our
larger schemes and disposals reduced rents receivable compared with last
year by £0.8 million and £0.2 million, respectively.

Irrecoverable property charges were £15.1 million (2016: £14.3 million),
representing 14.6% of rents receivable (2016: 14.5%). After these costs, net
property income was £88.3 million, up 5.0% (2016: £84.1 million).

RENTS RECEIVABLE (£M)

98.4

1.3

(0.2)

(0.8)

4.7

103.4

2016

ACQUISITIONS DISPOSALS

LARGER
SCHEME
VACANCY
(YoY impact)

LIKE-FOR-
LIKE
GROWTH

2017

Administrative expenses
Administrative expenses totalled £14.1 million (2016: £14.1 million). This included
charges for annual bonuses of £2.7 million (2016: £3.0 million) and share
options of £1.8 million (2016: £2.5 million). Administrative costs, excluding
these charges, increased by £1.0 million to £9.6 million (2016: £8.6 million),
reflecting growing activity within our business, increased employment costs
and additional headcount. We do not capitalise administrative costs.

1 An alternative performance measure (“APM”). See page 140

2 Profit on disposal and surplus on revaluation of investment properties

3 Change in fair value of interest rate swaps and, in 2016, recognition of fair value of

Debenture Stock

See Financial management on pages 56 to 57

Net property income

Administrative expenses

Valuation gains2

Operating profit

Net finance costs

Share of Longmartin post-tax results

Profit before tax

Tax

Reported earnings for the year

Basic earnings per share

2017

£M

2016

£M

88.3

84.1

(14.1)

231.7

108.3

305.9

178.3

(32.7)

(33.6)

6.4

301.6

18.5

99.1

301.6

99.1

108.1

35.6p

Debt and interest rate swaps fair value movements3 22.0

(64.1)

STRATEGIC REPORT ANNUAL REVIEW FINANCIAL RESULTS Shaftesbury Annual Report 2017

Valuation gains and disposal profits
The surplus arising on the revaluation of our wholly-owned portfolio amounted
to £230.6 million (2016: £108.3 million). This represented a like-for-like
increase of 7.5%, principally driven by like-for-like ERV growth of 3.4%,
together with yield compression of 11 basis points. Further details are
provided on pages 36 to 38.

Disposals of non-core assets in the period totalled £13.8 million, 12.6% above
book value at 30 September 2016. These included nine apartments, a small
mixed-use building in Covent Garden and 1,500 sq. ft. of ancillary commercial
basement space, which was sold to an adjoining owner. After costs, these
disposals generated a profit in the year of £1.1 million.

Net finance costs
Net finance costs (excluding the change in fair value of interest rate swaps)
decreased by £0.9 million to £32.7 million (2016: £33.6 million) largely as a
result of the benefits of reduced borrowing costs following our refinancing
in October 2016. This was partly offset by:
• higher net debt as a result of acquisitions and further investment in our

portfolio; and

• an accelerated write-off of unamortised deferred loan issue costs of

£0.3 million, following our refinancing in September 2017.

Debt and interest rate swaps fair value
movements
Following increases in long-term interest rates during the year, the fair value
deficit in respect of our interest rate swaps decreased, leading to a credit to
the Income Statement of £22.0 million. We have now terminated these
swap contracts.

Share of Longmartin post-tax results
Our share of post-tax profit from the Longmartin joint venture decreased by
£12.1 million to £6.4 million (2016: £18.5 million), largely due to a lower revaluation
surplus of £2.6 million (2016: £11.3 million). Our share of net property income
increased by £1.3 million, following the successful conclusion of a number of
rent reviews which contributed to a like-for-like increase in rents receivable
of 17.2%.

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 (2016: £Nil).

In common with most businesses, we do collect and pay other taxes and levies
e.g. payroll taxes, VAT, Stamp Duty Land Tax, Business Rates, and withholding
tax on Property Income Distributions. During the year, the total amount paid
in respect of these taxes amounted to £18.1 million (2016: £22.2 million). In
addition, our share of corporation tax incurred by the Longmartin joint
venture was £0.9 million (2016: £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 structure our affairs based on
sound commercial principles, rather than engaging in aggressive tax planning.
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.

Dividends
As a REIT, we are required to distribute a minimum of 90% of qualifying REIT
income, calculated by reference to tax rather than accounting rules, 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.

Notwithstanding this distribution requirement, our dividend policy is to maintain
steady growth in dividends, reflecting the long-term trend in our income and
EPRA earnings, adjusted to add back the non-cash accounting charge for
equity-settled remuneration. To the extent that dividends exceed the amount
available to distribute as a PID, we pay the balance as ordinary dividends.

The Board has recommended a final dividend of 8.1p per share, up 7.3% on
last year’s final dividend (7.55p per share). Together with the interim dividend
of 7.9p per share, this brings the total for the year to 16.0p per share, an
increase of 8.8% on 2016 (14.7p per share).

This increase reflects growth in net property income and earnings
enhancements from the refinancing reported last year and is covered 1.01
times by EPRA earnings per share and 1.04 times by adjusted earnings per
share1, after adding back the non-cash accounting share option charge of
£1.4 million.

If approved at the 2018 AGM, the final dividend will be paid on 16 February
2018. The exceptional charges associated with our refinancing activities
during the year are charged against our current year qualifying REIT income.
Since these charges outweigh qualifying income in the year, the final dividend
will be paid as an ordinary dividend. It is likely that PID distributions will
resume in 2018.

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 take into consideration future
liquidity requirements.

At 30 September 2017, we had distributable reserves of £218.0 million. It is our
policy, where possible, for subsidiary companies to distribute the majority of
their distributable profits to Shaftesbury PLC annually. Currently, there are
no restrictions on subsidiaries’ ability to distribute profits.

DIVIDENDS VS EARNINGS (PENCE PER SHARE)

Dividends 5-year CAGR: 5.9%

2.5

4.8

5.05

12.9

13.2

13.75

13.9

14.7

10.0

8.3

9.65

16.7

16.0

2013

2014

2015

2016

2017

PID

Ordinary dividend

Adjusted EPS1

See Portfolio valuation on page 36

See Financial management on pages 56 to 57

1 EPRA EPS, adjusted to add back the non-cash accounting charge for equity-settled

remuneration. This is an alternative performance measure. See page 140

STRATEGIC REPORT ANNUAL REVIEW FINANCIAL RESULTS Shaftesbury Annual Report 2017

Balance Sheet

Investment properties

Investment in joint venture

Net debt

Fair value of financial instruments

Other net assets/(liabilities)

Net assets

Net asset value per share1

2017
£M

2016
£M

EPRA NAV1

2017
£M

2016
£M

3,407.3

3,111.6

IFRS net assets

2,646.9

2,387.1

148.0

(914.2)

5.8

146.4

(752.1)

(114.1)

(4.7)

2,646.9

2,387.1

£9.49

£8.57

Effect of exercise of options

0.5

Diluted net assets

Adjusted for:

2,647.4

2,387.6

- Fair value of financial instruments

76.1

Adjustment in respect of the Longmartin
joint venture:

- Deferred tax

EPRA NAV

EPRA NAV per share

EPRA NAV growth

Net asset value return1

17.9

18.0

2,665.3

2,481.7

£9.52

7.2%

8.9%

£8.88

2.2%

3.8%

Cash flows and net debt
Net debt increased by £162.1 million to £914.2 million (2016: £752.1 million).
The major cash flows were:
• Operating cash inflow totalling £44.0 million.
• Dividends paid amounting to £44.5 million.
• Net capital investment in our portfolio of £68.2 million.
• Termination of interest rate swaps at a cost of £92.1 million.

NET DEBT1 (£M)

1.3

92.1

68.2

914.2

(44.0)

44.5

752.1

600

2016

DIVIDENDS

OPERATING
CASH
INFLOW

NET
PORTFOLIO
INVESTMENT

SWAP
CANCEL-
LATION

OTHER

2017

Net asset value per share1
Net asset value per share increased by 10.7% to £9.49 (2016: £8.57), largely due
to the revaluation surplus on our investment properties, which contributed 82p.
Operating profit, excluding the revaluation surplus, added 27p. Net finance
costs reduced net asset value per share by 4p, after a credit for the decrease
in the fair value deficit attributable to our interest rate swaps, prior to their
termination in September 2017, of 8p. Our share of the Longmartin joint
venture contributed 2p and dividends paid during the year totalled 15.45p.

EPRA NAV1
EPRA NAV is a sector-recognised benchmark, which makes adjustments to
reported NAV to provide a measure of the fair value of net assets on a long-term
basis. Assets and liabilities which are not expected to crystallise in normal
circumstances are excluded. In our case, the calculation excludes deferred
tax related to property valuation surpluses in the Longmartin joint venture
and the fair value of interest rate swaps. Having terminated our remaining
interest rate swaps during the year, there is now no adjustment to EPRA NAV
in respect of these.

EPRA NAV per share increased by 64p (7.2%) to £9.52 (2016: £8.88). EPRA
earnings of 16.2p per share were offset largely by dividends paid in the year
(15.45p per share). The revaluation surpluses from the wholly-owned portfolio
and the Longmartin joint venture added 83p. The cancellation of our remaining
interest rate swaps reduced EPRA NAV by 20p. Growth over the year,
excluding these exceptional refinancing costs, was 9.5%.

Net asset value return1 measures shareholder value creation, taking into
account the growth in EPRA NAV together with dividends paid in the period.
Net asset value return in 2017 was 8.9% (2016: 3.8%).

EPRA NAV1 (PENCE PER SHARE)

(20)

(15)

952

850

888

2016

EPRA
EARNINGS

DIVIDENDS

REVALUATION

SWAP
CANCELLATION

2017

1 An Alternative Performance Measure (“APM”). See page 140
54

Financial
management

Important refinancing activity has increased our financial
resources, diversified our sources of finance, and significantly
reduced financing costs.

Sources of capital
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.

Low-risk debt structure
Consistent with the long-term nature of our portfolio and secure income
streams, our core debt finance is provided by long-term arrangements with
covenant structures which do not restrict the active management of our
assets. Medium-term revolving facilities provide us with flexibility in managing
our resources and capacity to invest further in our existing portfolio, in
particular allowing us to act swiftly when acquiring properties.

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.

Financing activity during the year
We have concluded important initiatives during the year to strengthen further
the Group’s financing arrangements, taking advantage of the current interest
rate environment and lenders’ appetite to provide secure long-term finance.

During the year we issued £575 million of secured bonds:

DATE OF ISSUE

October 2016

September 2017

AMOUNT
£M

285.0

290.0

RATE

MATURITY

2.487%

2.348%

2031

2027

The proceeds of the first issue, in October 2016, were used to redeem
our £61 million 8.5% Debenture Stock, including a prepayment cost of
£31.1 million, and to terminate interest rate swaps with a notional principal
of £55 million, at a cost of £34.1 million. The balance was used to reduce
drawings against our revolving credit facilities.

Following the second issue, in September 2017, we repaid bank facilities
totalling £75 million, reduced drawings against our revolving credit facilities,
with the balance being retained as cash. Subsequently, we cancelled our
remaining interest rate swaps at a cost of £57.9 million.

Together, these transactions increased our financial resources, diversified
our sources of debt, reduced the blended cost and extended the average
maturity.

SOURCES OF FINANCE1

21.2%

CASH AND AVAILABLE
FACILITIES

£321m

£1.3bn

44.4%

34.4%

Bonds

Term loans

Revolving bank
facilities

At 30 September, our cash and undrawn revolving credit facilities totalled
£320.6 million and our blended cost of debt had fallen over the year by 1.2%
to 3.3%. The marginal cost of our undrawn facilities was just 1.2%. As we
continue to fund net investment in our portfolio through further drawings
against these facilities, our weighted average cost of debt will fall further.

DEBT SUMMARY1

275

Marginal cost1
1.2%

1,020

Blended cost1,2
3.3%

Undrawn facilities (£m)

Drawn bank facilities (£m)

Long-term debt (£m)

291

537

Marginal cost1
1.3%

Blended cost1,2
4.5%

2017

2016

1 Including our 50% share of Longmartin debt. See presentation of

financial information on page 50

2 Including non-utilisation fees on undrawn bank facilities
3 Based on EPRA net assets
4 Based on net debt

5 An Alternative Performance Measure (APM). See page 140

STRATEGIC REPORT ANNUAL REVIEW Shaftesbury Annual Report 2017
STRATEGIC REPORT ANNUAL REVIEW FINANCIAL MANAGEMENT Shaftesbury Annual Report 2017

DEBT SUMMARY

Debt excluding Longmartin JV

- Fixed/hedged debt

- Drawn unhedged bank debt

Wholly-owned

Longmartin non-recourse debt (50% share)

Total debt1,5

Cash and cash equivalents

- Wholly-owned

- Longmartin (50% share)

Net debt (including our 50% share of Longmartin)1,5

Less: our share of Longmartin net debt

Reported net debt

DEBT1 METRICS

Undrawn floating rate facilities (£m)

Loan-to-value4,5

Gearing3,4,5

Interest cover5

% debt fixed

Blended cost2,5

Marginal cost of undrawn floating rate facilities

Weighted average maturity (years)

DEBT MATURITY PROFILE1
Weighted average maturity: 10.3 years

2017
£M

959.8

60.0

1,019.8

(45.6)

(0.6)

973.6

(59.4)

914.2

275.0

26.7%

36.5%

2.3x

100%

3.3%

1.2%

10.3

2016
£M

657.0

110.7

767.7

60.0

827.7

(15.6)

(2.0)

810.1

(58.0)

752.1

59.3

24.2%

32.6%

2.1x

87%

4.5%

1.3%

9.2

290

285

150

125

135

130

120

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

Bank facility (variable)

Bonds (fixed)
Term loan (fixed)
JV term loan (fixed, our 50% share)

We are in advanced discussions currently to extend both of our bank facilities from 2018 and 2020 to 2022.

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 64.

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 contributing to the relatively 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 restaurant,
leisure and retail space, which are the principal sources of our rental
income and portfolio value

• 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 have a culture
which encourages open dialogue within the management team and with the
wide range of external advisors we employ in running the business. Our
team, based in one office, within fifteen minutes’ walk of all our holdings,
comprises four executive directors and 25 staff. The executive management
team, with an average tenure of over 16 years, has an in-depth knowledge of
our business and the West End property market.

The Board’s attitude to risk is embedded in the business, with executive
directors closely involved in all aspects of operations and significant
decisions. Non-executive directors approve capital, debt 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 continually monitored
by the Board.

Responsibilities

EXECUTIVE
MANAGEMENT
Day-to-day management
of risk.

Design and implementation
of appropriate and effective
systems of internal control.

AUDIT COMMITTEE

BOARD

Assurance over the internal
controls and risk management
process.

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

STRATEGIC REPORT ANNUAL REVIEW Shaftesbury Annual Report 2017STRATEGIC REPORT ANNUAL REVIEW RISK MANAGEMENT Shaftesbury Annual Report 2017

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 we face. 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

includes forecast liquidity requirements and loan covenant compliance.
• The day-to-day management of the Group’s portfolio is outsourced to
two 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 the 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.

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 consistent with those reported in 2016.

The performance of the UK economy has been relatively resilient since the
EU referendum in June 2016. Whilst national consumer spending trends are
unclear, trading in our locations continues to be buoyant, benefiting from
increasing numbers of international visitors, whose spending power has
been enhanced by the strength of their local currencies against Sterling
since the referendum.

Looking ahead, the UK faces a period of uncertainty as it negotiates its exit
from the EU, which brings a risk of lower business and consumer confidence.
Whilst it is not possible to conclude as to any long-term impact this may
have on our business, we expect the West End, underpinned by its wide
appeal and dynamic economy, will maintain its long record of resilience.

Details of the principal risks and uncertainties, mitigation and evolution of
risk during the year are set out on pages 61 to 63.

STRATEGIC REPORT ANNUAL REVIEW RISK MANAGEMENT Shaftesbury Annual Report 2017

GEOGRAPHIC CONCENTRATION RISK

RISK

POTENTIAL IMPACT

MITIGATION

COMMENTARY

HOW RISK HAS
EVOLVED

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

• Threats to security or public

safety due to terrorism

• Health concerns
(e.g. pandemics)

• Reduced visitor numbers,
spending and occupier
demand

• Reduced rental income
and/or capital values

• Potential increased vacancy
and declining profitability

• Damage to property

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

• Reduced visitor numbers
and occupier demand
• Reduced rental income
and/or capital values

• Potential increased vacancy
and declining profitability

London has a growing
population, is the most visited
city destination for international
tourists in the western world,
and current forecasts are for
further growth in visitor
numbers. Across the West End,
spending and occupier demand
continue to be healthy

The UK’s terrorism threat level
currently is “severe” after
briefly being raised to
“critical” earlier this year

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

• Inherent risk given the

geographic concentration
of our investments in a high
profile location

• Insurance cover maintained

for terrorism and loss-of-rent
• Close liaison with statutory
authorities to maximise
safety of visitors

• Detailed emergency

response plans

• 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

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 our assets

• Limit our ability to optimise

• Ensure our properties are

revenues

• Reduced profitability
• Reduced capital values

operated in compliance with
local regulations

• Make representations on
proposed policy changes,
to ensure our views and
experience are considered
• Mix of uses in our portfolio
means we are not reliant on
income from one particular
use

There are no current
indications that the evolution
of planning and licensing
frameworks, either as a result
of national or local legislation,
will have a material impact on
the Group’s business for the
foreseeable future

Link to business model:
1

Exceptional portfolio in the heart of London’s West End

Focus on restaurants, leisure and retail

3
Creating distinctive, lively and interesting destinations

Risk increased

Risk unchanged

Risk decreased

STRATEGIC REPORT ANNUAL REVIEW RISK MANAGEMENT Shaftesbury Annual Report 2017

ECONOMIC RISK

RISK

POTENTIAL IMPACT

MITIGATION

COMMENTARY

HOW RISK HAS
EVOLVED

• Pressure on rents
• Declining profitability
• Reduced capital values

Economic uncertainty and
lower confidence could reduce
consumer spending. Together
with upward cost pressures,
this could reduce tenant
profitability and occupier
demand

• Reduced capital values
• Decrease in NAV, amplified

by gearing

• Loan covenant defaults

Decline in the UK real estate
market due to macro-
economic factors e.g. global
political landscape, currency
expectations, bond yields,
interest rate expectations,
availability and cost of finance,
relative attractiveness of
property compared with other
asset classes

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

In our areas, trading, footfall
and spending have been
resilient since the EU
referendum and we continue
to benefit from healthy
demand and rental growth.
However, uncertainty will
remain until the UK's future
arrangements with
the EU are negotiated

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

• Focus on assets, locations

and uses which have
historically proved to be
economically resilient

• Tourism and retail/leisure

spending in the West End are
not reliant on the wider-UK
economy

• Promoting our areas
• Diverse tenant base with

limited exposure to any one
tenant

• Tenant deposits held against
unpaid rent obligations at
30 September 2017: £18.5m

• Focus on assets, locations

and uses where:
- there is a structural
imbalance between
availability of space and
demand

- 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

• Conservative levels of

leverage, with the majority
at fixed rates

• Spread of sources of finance

and loan maturities

• Quarterly forecasts including
covenant headroom review

• Pool of uncharged assets

available to top up security
held by lenders

Link to business model:
1

Exceptional portfolio in the heart of London’s West End

Focus on restaurants, leisure and retail

3
Creating distinctive, lively and interesting destinations

Prudent financial management

Risk increased

Risk unchanged

Risk decreased

Viability
statement

The Board has assessed the prospects of
the Group over a five year period. Based
on the assumptions set out below, it has
a reasonable expectation that the Group
will be able to continue in operation and
meet its liabilities as they fall due over
this assessment period.

The Board considered a five-year review of the Group’s prospects, prepared by senior
management. This period reflects lease lengths or rent review patterns across the
majority of our portfolio, and corresponds with the Group’s current forecast period.
Our forecasts are updated half-yearly 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.

KEY FORECAST ASSUMPTIONS

ASSUMPTIONS

COMMENT

The Group had cash and
undrawn committed loan
facilities at 30 September
2017 totalling £320.6 million,
which comfortably exceeds
the Group’s commitments over
the assessment period. This
assumes an ability to refinance
revolving credit facilities totalling
£150 million and £125 million
which mature in 2018 and 2020
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 26.7%. The interest on all drawn debt
was fixed at that point and our weighted
average maturity of debt was 10.3 years.

The two facilities which mature during the
period of assessment represent 22.2% of
our total committed debt facilities.

We are currently in advanced negotiations
to refinance both of these facilities and the
Board has reasonable confidence that these
negotiations will conclude successfully.

We have a long record of crystallising
the independently-assessed ERV of our
portfolio over a three-to-five year period.
67% of the total uncontracted portfolio
reversion arises from restaurants, leisure
and shops, 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.

Principal risks and uncertainties
The most relevant potential impacts on viability, which arise
from our principal risks and uncertainties are set out below:
• 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.

Scenario analysis
In carrying out this review, we assumed no further acquisitions
nor capital expenditure, other than that which was committed
or approved by the Board. Similarly, we assume no new debt
facilities are raised and no debt refinancing takes place, other
than refinancing the bank facilities which mature during the
forecast period.

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 resulting from increasing equivalent yields
to levels similar to those in 2008/09 were modelled. This would
result in a near halving of our portfolio valuation. In unison, we
considered decreases in rental income of up to 40%. These
assumptions would represent a significant contraction in the
size of the business over the five-year period. However, our
assessment is that such a scenario would not threaten the
viability of the Group.

Viability
Based on the assessment 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 to September 2022.

The Strategic Report on pages 1 to 64 was approved by the
Board on 27 November 2017.

Brian Bickell
Chief Executive

Chris Ward
Finance Director

1 Based on net debt and including our 50% share of the Longmartin joint venture.

See Financial management on pages 56 to 57

See principal risks and uncertainties on pages 61 to 63

STRATEGIC REPORT ANNUAL REVIEW Shaftesbury Annual Report 2017
See principal risks and uncertainties on pages 61 to 63

Governance

STRATEGIC REPORT OVERVIEW Shaftesbury Annual Report 2017Governance

STRATEGIC REPORT OVERVIEW Shaftesbury Annual Report 2017 Our
people

Executive Directors

BRIAN BICKELL, FCA
Chief Executive
Overall responsibility for implementing
the Group’s strategy and day-to-day
operations
Joined the Group in 1986

SIMON J QUAYLE, BSC, MRICS
Executive director
Responsible for the asset management
and operational strategy in Carnaby,
Soho and Fitzrovia
Joined the Group in 1987

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

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
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 Visitor Alliance
Board member of Freehold

Board appointment
Appointed Property Director
on 1.10.1997

External appointments
ZSL development strategy board
Revo strategy board

Board appointment
Appointed Property Director
on 1.10.1997

External appointments
Director of Longmartin Properties
Limited

Board appointment
Appointed Finance Director
on 9.1.2012

External appointments
Westway Trust: trustee, chairman of
audit committee and member of
property and regeneration committee

From left to right: Brian Bickell, Chris Ward, Tom Welton and Simon Quayle

GOVERNANCE Shaftesbury Annual Report 2017Non-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.
Joined Old Mutual plc in 2006 as
Group Finance Director
Non-executive director of Man Group
plc 2004-2006
Non-executive director and chairman
of the audit committee of Great
Portland Estates plc 2009-2016
Non-executive director and chairman
of the audit committee of SIG plc
2009-2017
Other appointments
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

Skills
Over 19 years’ experience of public
company boards and their operation
Finance, commercial, strategic,
communication, investor relations and
management skills
20 years’ experience in property and
related industries

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, NTE Limited and
NTRE Limited
Non-executive director of Joules
Group Plc and Nobia AB

Skills
Extensive experience in the retail sector
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
Director of the Pantry Partnership

Skills
Experience of financial markets and
fund management
Financial analysis skills
Experience in remuneration structures

From left to right: Jonathan Nicholls, Sally Walden, Dermot Mathias,
Jill Little, Richard Akers and Hilary Riva

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
Senior partner of BDO and chairman
of the policy board of BDO
International 2002-2009

Other appointments
Non-executive director of Rectory
Homes Limited
Governor of Activate Learning

Skills
Strong financial skills
Extensive experience in leadership and
management

RICHARD AKERS FRICS*
Non-executive director
Board appointment 28.11.2017

Experience
Senior executive of Land Securities Group
plc (1995-2014). Joined main board in May
2005 following appointment as Managing
Director of the Retail Portfolio.
Director and President of the British
Council of Shopping Centres 2009-2012.

Other appointments
Non-executive director, senior
independent director and chairman of
the remuneration committee and safety,
health and environmental committee of
Barratt Developments PLC
Member of the advisory board of Battersea
Power Station Development Company
Limited

Skills
Broad range of real estate knowledge and
experience, including retail property

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 and chairman
of the remuneration committee of
ASOS plc
Director of Shepherd Neame Limited
Skills
Extensive experience in the fashion
retail sector
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.

GOVERNANCE Shaftesbury Annual Report 2017Management team
Details of the senior leadership team and the Company Secretary are
set out below. Together with the executive directors, they comprise
the Executive Committee. See page 75 for information on the committee.

PENNY THOMAS LLB (HONS), FCIS
Company Secretary
Joined 2005
Advises the Board on governance.
Responsible for compliance, company
secretarial and group-wide sustainability.
Member of sustainability and
community investment committees.

JULIA WILKINSON BSC MSC MRICS
Portfolio & Group Restaurant
Strategy Executive
Joined 1997
Group restaurant and leisure leasing
strategy and Opera Quarter, Coliseum
and Fitzrovia asset management.

ANDREW PRICE BSC (HONS), MRICS
Portfolio Executive
Joined 2001
Group-wide acquisitions strategy and
Chinatown asset management.
Chairman of community investment
committee.

ROB KIRK BSC (HONS), MRICS
Portfolio Executive
Joined 2004
Carnaby and Soho asset management
and group-wide property
management and environmental
strategy.
Member of sustainability
committee. Board member - Soho
Neighbourhood Forum.

SAM BAIN-MOLLINSON
BA (HONS) MSC MRICS
Head of Retail
Joined 2011
Group retail strategy and retail
leasing.

CHARLES OWEN BSC (HONS), MRICS
Portfolio Executive
Joined 2012
Seven Dials and St Martin’s Courtyard
asset management and group-wide
planning.
Member of community investment
committee.

KAREN BAINES FCIM
Head of Group Marketing &
Communications
Joined 2016
Consumer, trade and corporate
communications, marketing and
events.

Corporate website
shaftesbury.co.uk

Other websites
carnaby.co.uk
sevendials.co.uk
chinatown.co.uk
thisissoho.co.uk
stmartinscourtyard.co.uk

GOVERNANCE Shaftesbury Annual Report 2017
71

Governance
at a glance

THE
CHAIRMAN
• Independent

Chairman

• Leadership of

the Board

THE ROLE OF
THE BOARD
• Schedule of matters

reserved for the Board

• D&O cover and deeds

of indemnity

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

• Statement of

responsibilities
- page 104

LEADERSHIP

NON-EXECUTIVE
DIRECTORS
• Meetings of non-executive

directors held without
executives

• Senior Independent
Director identified

UK CORPORATE
GOVERNANCE
CODE1
Full compliance
- see page 74

RISK MANAGEMENT
AND INTERNAL
CONTROL
• Robust assessment of
principal risks - page 59

• Effectiveness of risk

management and internal
control systems - page 60

• Viability statement - page 64

FINANCIAL AND
BUSINESS REPORTING
• Annual report which is fair, balanced

and understandable - page 83

• Auditor’s report - pages 105 to 110

• Business model description - page 11

• Going concern - page 102

AUDIT COMMITTEE
AND AUDITORS
• Audit Committee report - pages 82 to 84

• Recent and relevant financial experience

- Dermot Mathias

• Whistleblowing policy - page 29

• Review of need for internal audit function

- page 84

THE LEVEL AND
COMPONENTS OF
REMUNERATION
• Annual Remuneration

report - pages 92 to 100

ACCOUNTABILITY

GOVERNANCE Shaftesbury Annual Report 2017
GOVERNANCE AT A GLANCE Shaftesbury Annual Report 2017

RE-ELECTION
• All directors stand for

annual re-election

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

COMPOSITION
OF THE BOARD
• Independent Chairman

• Balance of 4 executive directors

and 4 independent non-executive
directors

• Skills and experience - pages 68 to 69

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

DEVELOPMENT
• Induction of Chairman

and non-executive
director - page 81

• Directors’ training is

monitored and updates
on regulatory and
legislative changes
provided

• New compliance training

programme

UK CORPORATE

GOVERNANCE

CODE1

Full compliance

- see page 74

EFFECTIVENESS

EVALUATION
• Full external Board

performance
evaluation - page 77

APPOINTMENTS
TO THE BOARD
• Nomination Committee
process for new non-
executive director
appointment - page 80

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 225 meetings with
investors and potential
investors in the year,
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

RELATIONS
WITH
SHAREHOLDERS

PROCEDURE
• Remuneration policy

summary table - pages
90 to 91

• Annual remuneration

report - pages 92 to 100

• No director is involved

in fixing their own
remuneration

REMUNERATION

1 Available at www.frc.org.uk

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 following my first
year as your Chairman.
Corporate governance is embedded in our culture
and the day-to-day running of your Company. I am
committed to maintaining the high standards we
have demonstrated for many years. We pride
ourselves on being open, transparent and engaged
with our shareholders, stakeholders and our local
community.

We have a well-balanced Board with a good range
of skills. It is important that I ensure there is a steady
and smooth rotation and refreshing of non-
executive directors.

Oliver Marriott retired as a director in July having
served for almost eight years. I thank him, on behalf
of the Board and shareholders, for his contribution
during this time.

We will appoint a new non-executive director,
Richard Akers, on 28 November 2017. His skills will
complement those of his fellow directors. He will be
proposed to shareholders for election at the AGM
in February 2018. The process leading up to his
recommendation for election is contained in the
Nomination Committee report. We are delighted to
welcome him to the Board.

In accordance with good governance, each of my
fellow directors and I will stand for re-election at the
AGM. The Nomination Committee had recommended
the re-election of Jill Little and Hilary Riva, who have
both served on the Board for more than six years,
having considered the contribution that they make
to the business and their continuing independence.

Compliance with the UK
Corporate Governance
Code
The Company has complied in full with the UK
Corporate Governance Code during the year.
The application of the principles of the Code is
contained in this report and in the individual
Committee reports which follow.

Employees
The knowledge, experience and commitment of our
employees is critical to the delivery of our strategy.
I have spent time this year getting to know, not only
my fellow Board members, but also everyone who
works for us.

This year, we have focussed on employee recruitment,
training and development. We have instigated a
number of procedures around recruitment to ensure
we recruit from a diverse talent pool. Training and
development are important to ensure employees
grow in their roles and that we continue to retain
their skills and experience.

GOVERNANCE Shaftesbury Annual Report 2017GOVERNANCE CORPORATE GOVERNANCE Shaftesbury Annual Report 2017

We have recently formed an Executive Committee
comprising the executive directors, Company
Secretary and the senior leadership team. Its role
is to monitor operational matters and contribute to
the longer term evolution of the Group’s strategy
and its implementation. It provides senior employees
below Board level, greater engagement and
experience in managing the Group’s business.

Further information can be found on page 70.

Culture
Culture is important in the operation of the
Board and throughout the Group. Our corporate
culture underpins the success of our business
and is embedded throughout our long-term
business model.

The Board has an open and transparent culture
which is facilitated and monitored by me. This is
particularly evident in Board meetings where we
engage in constructive and open dialogue.

As part of our July meeting, Board culture was
discussed. This was the first stage of our work, to
articulate and document our culture and values,
which has been extended throughout the
organisation.

Data protection
In addition to the risk and control framework review,
particular attention has been focussed this year
to ensure that we have appropriate data and
information governance processes, controls and
policies in place ahead of the implementation of
the General Data Protection Regulation in May 2018.

Further information on our risks is contained in
risk management on pages 59 to 63.

Board performance
evaluation
This year, we have undertaken a full external
Board performance review. The process,
recommendations made, and the actions to
implement those recommendations, are
summarised on page 77.

Jonathan Nicholls
Chairman

27 November 2017

GOVERNANCE CORPORATE GOVERNANCE Shaftesbury Annual Report 2017

THE
CHAIRMAN

THE ROLE OF
THE BOARD

DIVISION OF
RESPONSIBILITY

The Board

NON-EXECUTIVE
DIRECTORS

LEADERSHIP

There is a balance of executive and non-executive
directors, with a wide range of business skills,
including property, finance, retail and fund
management on our Board. All directors
contribute to constructive debate in the
boardroom and to the implementation of the
Group’s strategy.

The Chairman was independent on his
appointment to the Board. He chairs the
Nomination Committee, but, in line with the UK
Corporate Governance Code, is not a member of
the Remuneration or Audit Committees. Each of
the other non-executive directors is considered
by the Board to be independent.

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.

Whilst strategy is considered at every Board, one
meeting each year is dedicated to this topic. The
July 2017 Board meeting focussed on a strategy
session which considered the impact of external
changes and developments and how the Group’s
business model might be affected. This included
consideration of the Company’s culture,
succession, the impact of technology, changes in
consumer behaviours and the tourism market as
well as the resources and skills the business may
require in the future.

Employees below Board level are invited to present
to the Board on operational topics during the course
of the year. Non-executive directors have direct
and open access to employees below Board level.

BOARD MEETING ATTENDANCE
(six held)
Chairman
Jonathan Nicholls
Executive directors
Brian Bickell

Simon Quayle

Tom Welton

Chris Ward
Non-executive directors
Jill Little

Oliver Marriott*

Dermot Mathias

Hilary Riva

Sally Walden

* Five meetings were held in the period prior to

his retirement on 5 July 2017

6
6
6
6

6
5
6
6
6

STRATEGY

PERFORMANCE

RISK

SUSTAINABILITY

BOARD

BOARD
COMMITTEES
Terms of reference are
available on our website

AUDIT
COMMITTEE
• Financial reporting

• Monitor external

auditors

• Risk and internal control
Audit Committee report
pages 82 to 84

REMUNERATION
COMMITTEE
• Remuneration policy

• Annual remuneration
including bonus and
LTIP awards

NOMINATION
COMMITTEE
• Succession planning

• Recommend candidates

to the Board

• Board performance

• Set annual performance

evaluation

objectives

Remuneration report
pages 86 to 100

• Diversity
Nomination Committee
report pages 80 to 81

DISCLOSURE
COMMITTEE
• Compliance with market

abuse regulations

MANAGEMENT
COMMITTEES

EXECUTIVE COMMITTEE
Chaired by Chief Executive
Members: Executive directors,
Company Secretary, senior
leadership team (see page 70)

• Evolution of long-term strategy

• Day-to-day operational matters

SUSTAINABILTY COMMITTEE
Chaired by Chief Executive
Members: Company Secretary,
Portfolio Executive

PENSIONS COMMITTEE
Chaired by Finance Director
Members: Chief Executive,
Company Secretary

• Sustainability strategy and policy

• Pension scheme governance

• Annual sustainability report
Sustainability and stakeholders pages
28 to 33

GOVERNANCE CORPORATE GOVERNANCE Shaftesbury Annual Report 2017

EVALUATION

RE-ELECTION

APPOINTMENTS
TO THE BOARD

COMPOSITION
OF THE BOARD

INFORMATION
AND SUPPORT

DEVELOPMENT

COMMITMENT

EFFECTIVENESS

• All directors are subject to annual
re-election. Two non-executive
directors have more than six years’
service and were subject to
rigorous review by the Nomination
Committee which considered their
contribution and independence.

• Training and development of

directors including the
implementation of an e-learning
programme.

• Close engagement with the business
and employees and an open-door
policy for non-executive directors.

• Good flow of information to the

Board.

• Regular visits/tours of the portfolio.

Board performance evaluation
No evaluation was undertaken last year due to the change of the Chairman
but, the Board undertook to carry out a full externally-facilitated evaluation
during the course of 2017. Boardroom Dialogue was appointed to carry
out the review. Meetings were held with each director and the Company
Secretary individually. The report was discussed at the September
meeting of the Board.

• The conclusion of the evaluation was that the Board functions well.

• The appointment of a new Chairman has been received positively by

stakeholders and he has settled well into the role.

• There is an excellent working relationship at all levels of the Board.

Areas to focus on in the year ahead include:
• Continuing focus on succession planning for both executive and

non-executive directors.

• Increased training and development of employees.

• Introduce a NED only session at every Board meeting (currently held

annually).

• Streamline the volume and format of information to the Board.

The Senior Independent Director reviewed the performance of the
Chairman. The Chairman reviewed the performance of all other
directors.

A review of each committee was undertaken by its members.

DIALOGUE WITH
SHAREHOLDERS

CONSTRUCTIVE
USE OF GENERAL
MEETINGS

RELATIONS WITH SHAREHOLDERS

• The Board considers regular contact

with our shareholders to be an
important aspect of corporate
governance. Investor relations is the
responsibility of the Chief Executive.

• Tours are held with the UK

Shareholders Association, which
represents private investors.

• During the year, the Chief Executive
and executive directors held over
225 meetings with UK and overseas
institutional investors comprising
both current and potential
shareholders. Meetings involved
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 the senior
leadership team and other
employees.

• Engagement with equity and market
analysts including portfolio tours.

• Feedback from shareholder and
analyst meetings is provided to
the Board.

• Analysts’ capital markets day held

with a focus on Chinatown.

• All directors are present at the AGM
and available to answer questions
from shareholders. New AGM
format includes a presentation
from the Chief Executive on the
Group’s business.

• Live audio webcasts with replay
facilities are available for the
annual and half year results
presentations to analysts.

COMPOSITION
OF THE BOARD

RE-ELECTION

APPOINTMENTS
TO THE BOARD

EVALUATION

Nomination
committee
report

COMMITMENT

DEVELOPMENT

INFORMATION
AND SUPPORT

EFFECTIVENESS

KEY RESPONSIBILITIES

• Review the structure, size

and composition of the Board
and its Committees (including
skills, experience, independence
and diversity) and make
recommendations to the
Board accordingly.

• Lead the process for new
Board appointments and
review succession for directors
and senior management.
• Review the time commitment
expected from the Chairman
and non-executive directors.
• Ensure an effectiveness review
of the Board, its Committees
and directors is conducted
annually.

Dear shareholder

The primary role of the Committee is to consider
Board composition and orderly succession, both for
executive and non-executive directors.
During the year, Oliver Marriott retired following eight
years’ service and Richard Akers will join the Board.

Succession planning and
development
As Chairman of this Committee, my focus is on
Board succession and talent development to ensure
that there is a pipeline of able and experienced
people in the business for potential future senior
executive and Board appointments.

The Committee ensures that the 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 would not be disrupted.

To manage executive director succession, we address
continuity in, and development of, the management
team below Board level. Current executive directors
have a long tenure and there are no immediate
vacancies at Board level. However, we recognise that
it is important to develop internal talent. Our
development planning encourages employees to
fulfil their potential and grow in their roles.

Search for a non-executive
director
As part of the evolution of Board membership, and
following the retirement of Oliver Marriott, a search
was undertaken to recruit a non-executive director.
The Board considered the skills required and
appointed The Zygos Partnership, to undertake the
search. They have worked with us on a number of
appointments and appreciate our business, strategy,
culture, diversity policy and the skills we were seeking.
Shortlisted candidates were interviewed by myself
and the Senior Independent Director. The final
interview was with the Chief Executive, executive
directors and the Company Secretary.

The Committee recommended to the Board the
appointment of Richard Akers, who joins us on 28
November 2017. We are delighted with his
appointment, which brings his broad range of
experience to complement the overall skill set of the
Board. He has wide experience within the real estate
and construction sectors. The Committee was careful
to ensure that his other roles did not give rise to any
conflicts of interest and that he has sufficient time
to devote to his directorship.

A detailed induction programme has commenced
to familarise Richard with the business.

We will continue to keep the composition of the
Board under review.

KEY ACTIVITIES

• Committee Report
• Proposed directors for election and

re-election

• Review skills of directors for re-election

with more than 6 years’ service

NOVEMBER 2016
80

Succession planning for executive directors and non-executive directors

MAY 2017

SEPTEMBER 2017

GOVERNANCE Shaftesbury Annual Report 2017

GOVERNANCE NOMINATION COMMITTEE REPORT Shaftesbury Annual Report 2017

EFFECTIVENESS

Directors standing for
election and re-election
Richard Akers will be proposed for election to the
Board at the 2018 AGM.

Jill Little and Hilary Riva have been on the Board for
more than six years. The Committee has concluded
that they continue to bring to the Board the
appropriate range of skills and expertise to operate
effectively and maintain their independence. The
Committee therefore recommends that they remain
on the Board for a further year. Therefore, on the
advice of the Committee, the Board proposes the
re-election of each director. Board tenure is set
out opposite.

Jonathan Nicholls
Chairman - Nomination Committee

27 November 2017

Chairman induction
The Senior Independent Director, assisted by the
Company Secretary, led a detailed induction,
summarised below, which commenced prior to
the Chairman’s appointment to the Board on 1
September 2016. It took place over several
months and ensured that he had a thorough
understanding of the Group, its business and
operations, and met key stakeholders.
• Tours of the Group’s portfolio with the director

and executive responsible for each area.
• Meetings with executive and non-executive

directors.

• Meetings with key corporate advisors.
• Meetings and introductions to employees.
• Provision of detailed induction pack.
• Meetings with major shareholders.
• Attendance at Committee meetings as an

observer.

• Attendance at year end results presentation.

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

COMMITTEE MEMBERS
AND MEETING ATTENDANCE
(three held)
Jonathan Nicholls
Chairman

Jill Little

Oliver Marriott*
Dermot Mathias
Hilary Riva

Sally Walden
* Two meetings were held in the period prior to

his retirement on 5 July 2017

3
1
3
3
3

TENURE OF DIRECTORS
(at 30 September 2017)
Chairman
Jonathan Nicholls
Non-executive directors
Jill Little

Dermot Mathias

Hilary Riva

Sally Walden
Executive directors
Brian Bickell

Simon Quayle
Chris Ward
Tom Welton

* Period of Board membership

1 year

71/2 years

5 years
71/2 years

5 years

31 years

*20 years
53/4 years

*20 years

Diversity
The Board recognises the importance of diversity,
both in its membership, and in the Group’s
employees. It has a clear policy to promote
diversity across the business.

The Board considers that quotas are not appropriate
in determining its composition and has therefore
chosen not to set targets.

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 Group, are made on merit. Gender diversity of
the Board and Group is set out below,

DIRECTORS

7(70%) 3(30%)

SENIOR LEADERSHIP TEAM
(EXCLUDING EXECUTIVE DIRECTORS)

3(43%) 4(57%)

ALL EMPLOYEES

12(41%) 17(59%)

The Group supports initiatives to promote
diversity within the real estate sector. 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. During the year,
we have appointed three new employees and
these principles have been applied in the
recruitment process. Unconscious bias training
has been held for all employees.

NOVEMBER 2016

MAY 2017

Succession planning for executive directors and non-executive directors

• Diversity policy

SEPTEMBER 2017

RISK
MANAGEMENT
AND INTERNAL
CONTROL

ACCOUNTABILITY

FINANCIAL AND
BUSINESS
REPORTING

AUDIT COMMITTEE
AND AUDITORS

Audit
committee
report

KEY RESPONSIBILITIES

• Review in detail the work

of the external auditor and
valuer and any significant
financial judgement made
by management.

• Monitor the Group’s

reporting process and
financial management.

• Scrutinise the full and half
yearly financial statements.

• Consider the appointment

of the external auditor, their
reports to the Committee
and their independence.

• Review the risk

management framework
and ensure that risks are
carefully identified and
assessed, and that systems
of risk management and
internal control are in place
and effective.

• Review the Group’s
arrangements by which
employees and our supply
chain may raise concerns
about possible improprieties
in financial reporting or
other matters.

Dear shareholder

I am pleased to present the Committee’s report
for the year.

The Committee is an important element of the
Group’s governance structure and provides effective
oversight of the performance, independence and
objectivity of the auditor and the audit process.

Our role is to review and advise the Board on
financial reporting including the processes around
the portfolio valuation, which is the most significant
figure in the annual results. This, and other judgements
made by the Board in the preparation of the financial
statements, are discussed in detail below.

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 Committee also oversees the Group’s risk
management framework and processes.

Going concern
The Committee reviewed whether it was appropriate
to adopt the going concern basis in the preparation
of the results. In considering this, we reviewed the
Group’s five-year forecasts, availability of committed
bank facilities and expected headroom under the
financial covenants in our debt arrangements. This
review included sensitivity analyses. Following the
review, it recommended to the Board that it was
appropriate to adopt the going concern basis. The
Board’s confirmation is set out on page 102.

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
to be appropriate. Following the review, the
Committee concluded that this period 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 64.

KEY ACTIVITIES

• Annual report
• Recommend

re-appointment of auditors

• Committee report

NOVEMBER 2016

• Approved auditor fees
• Objectivity of auditors
• Viability statement
• Going concern
• Risks and internal control

GOVERNANCE Shaftesbury Annual Report 2017GOVERNANCE AUDIT COMMITTEE REPORT Shaftesbury Annual Report 2017

Financial statements
The executive directors 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.

2017 annual report:
Fair, balanced and understandable
The directors are responsible for preparing the Annual Report. The
Committee reported to the Board that the Annual Report:
• was fair, balanced and understandable;
• provided the necessary information for shareholders to assess the
Group’s performance, business model and strategy; and
• had been written in straightforward language, without unnecessary
repetition of information, and that the use of any adjusted
measures, e.g. those set out in EPRA Best Practice
Recommendations, had been adequately explained and reconciled
to the financial statements and not been given more prominence
than a corresponding measure under IFRS.

The Committee considered the systems and controls around the
preparation of the financial statements, the procedures to bring
relevant information to the attention of the preparers of the financial
statements, and whether the report was in accordance with the
information provided to the Board during the year.

Significant judgements:
Valuation of investment properties
The valuation opinion provided by independent external valuers is one
of the critical components of the annual and half year financial results.
External valuations are subjective and require significant judgement to
be exercised by the valuation firm.

To assist the Board’s review of the valuation, management prepared
a detailed analysis. The valuers presented their valuation to the
Committee, providing comparable evidence for key judgements.
Following the presentation, the Committee had a discussion with the
valuers without management present.

The auditors use in-house real estate specialists, who met with
the valuers as part of their audit and report their findings to the
Committee.

The Board considered the valuation at its meeting to approve
the financial statements.

Other areas of judgement
Whilst not material in the context of the Group’s assets or net assets,
the Committee reviewed the judgements made by management in
calculating the charge for equity-settled remuneration.

COMMITTEE MEMBERS
AND MEETING ATTENDANCE
(three held)
Dermot Mathias
Chairman

Jill Little

Oliver Marriott*

Hilary Riva

Sally Walden

* Two meetings were held in the period prior to

his retirement on 5 July 2017

3
1
3
3

• Half year results
• Audit plan & strategy
• Review of auditors
• Approved non-audit fees
• Risk and controls

MAY 2017

• Whistleblowing policy review
• Considered need for internal audit function
• Reviewed risks and internal controls

framework

• Cyber security

SEPTEMBER 2017

Internal audit
In view of the focussed 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 need for an internal audit function is reviewed annually.

Audit fees
Fees payable to the Group’s auditors for audit and non-audit services are
set out in note 4 to the Financial Statements on page 121.

Total fees related to non-audit services represented 41% of the total fees
for audit and assurance services (2016: 50%).

The auditors were also paid £31,000 (2016: £27,000) for their audit of
Longmartin Properties Limited. The Company’s 50% share of this was
£15,500 (2016: £13,500).

Dermot Mathias
Chairman – Audit Committee

27 November 2017

GOVERNANCE AUDIT COMMITTEE REPORT Shaftesbury Annual Report 2017

External auditors
The Committee is satisfied with the effectiveness of the external audit. The
Company has complied 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 second year that Eamonn McGrath has been the lead audit
partner. 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 at least every ten years.

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
confirmations from the external auditor. The Chairman of the Committee
and the Finance Director also met with an independent partner of Ernst &
Young LLP.

This is the second 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 of the audit process.

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.

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 was one non-audit assignment during the year relating to the issue of
a First Mortgage Bond by Shaftesbury Chinatown PLC.

KEY RESPONSIBILITIES

• Determine the terms of

employment and remuneration
for executive directors and
the Company Secretary.

• Ensure that the executive
directors are remunerated
fairly and responsibly with the
long-term interests of the
Company in mind.

• Consider the appropriateness
of the directors’ remuneration
framework against
arrangements for other
employees.

• Review the remuneration
policy every three years.

• Approve the design, targets
and outcomes for the annual
bonus schemes and share
incentive schemes.

• Ensure that the remuneration
report and disclosure of director
remuneration is simple to read
and understand, accurate and
complete.

Remuneration
report

THE LEVEL AND
COMPONENTS OF
REMUNERATION

Dear shareholder

PROCEDURE

REMUNERATION

I am pleased to present our 2017 remuneration report.
The remuneration policy sets out our approach
to the reward of executive and non-executive
directors. Our aim is to provide a remuneration
structure which is fair, with incentives aligned
with the Group’s strategy and long-term objectives,
and which encourages executive continuity.

We have reported another strong set of results which
has delivered growth in income and the value of the
business. We have continued intensive asset
management of our portfolio and completed important
refinancing initiatives, as summarised in the Strategic
Report on page 56. Against the backdrop of this
performance, the Committee’s main decisions during
the year related to the following elements:

Annual bonus outcomes
At the beginning of each year, we set financial and
operational targets for the annual bonus scheme
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
targets, we use the Group’s KPIs which drive value
through the delivery of long-term rental growth.

The outcome of performance against our targets
was 55% of the maximum potential award. The 2017
bonus targets are disclosed in full on page 94.

Each executive director has elected to receive his
award solely in the form of deferred shares, and will
therefore receive an award under the Deferred
Annual Share Bonus Scheme of 82.5% of salary in
December 2017, which will vest in December 2020.

2018 salary review
Salaries of executive directors were reviewed and
increases of 2% were approved, effective from
1 December 2017. This is below the average salary
increases awarded to employees.

2018 annual bonus
The Committee reviewed the annual bonus
framework for 2018 to ensure it remained aligned to
the Group’s strategy and operational goals. We
decided that the performance measures remained
appropriate but would introduce two minor
amendments to the calibration for the year ahead.
First, we are increasing the weighting of the “growth
in ERV” metric from 20% to 35% of the overall
bonus to reflect the strategic importance of rental
growth to the business. Second, for that ERV metric,
we will introduce a target range with a payout scaled
from threshold to maximum, depending on the
performance achieved. This reflects feedback from
our investors and is intended to make the target
more stretching whilst also providing greater
incentive to maximise performance within a range of
potential outcomes. Targets will be fully disclosed
retrospectively in next year’s report.

KEY ACTIVITIES

• Set annual bonus targets
• Annual bonus outcomes
• Annual review of

remuneration policy

• Ratify LTIP vesting
• LTIP grant approval
• Committee report

NOVEMBER 2016

(2 MEETINGS)

GOVERNANCE Shaftesbury Annual Report 2017GOVERNANCE REMUNERATION REPORT Shaftesbury Annual Report 2017

Remuneration policy
Our policy was approved at the 2016 AGM, with
94% of shareholders, who voted, voting in favour.
The policy table is summarised on page 91 for
ease of reference.

We are not proposing any changes this year.

The 2016 Annual Remuneration Report was approved
at the 2017 AGM, with 99% of shareholders who
voted, voting in favour.

We will review our policy during 2018 for
shareholder approval in 2019.

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

Sally Walden
Chairman - Remuneration Committee

27 November 2017

Context for the Group’s
remuneration approach
The Group has 29 employees, including four
executive directors. The combined holdings of
the executive directors is just over 3.1 million
shares (market value at 30 September 2017 of
circa £31 million). This equates to individual
holdings of between 3 and 30 times their
annual salary.

These substantial holdings have been built up
over a number of years through a combination of:
• Taking the annual bonus in shares through
the Deferred Annual Share Bonus scheme;
• Retaining shares from the LTIP; and
• Acquiring shares for cash.
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 strategy.
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 of the executive
directors is 24 years and of the executive
committee is eleven years.

LTIP vesting
LTIP awards which were made in 2014 will vest in
December 2017, based on a three year performance
period which ended on 30 September 2017.
Annualised TSR of 15.5% per annum exceeded
that of the benchmark (FTSE 350 Real Estate
Index) by 11% per annum over the period. Growth
in NAV exceeded the benchmark RPI by 7.9%
over the period. As a result of this performance,
the TSR target and the NAV target were fully met
resulting in 100% vesting of these awards.

2018 LTIP grant
An LTIP award will be made in December 2017 at
125% of basic annual salary with a three-year
performance period ending 30 September 2020.
Subject to performance against the targets (TSR
performance compared with the FTSE 350 REIT
Index and NAV growth), which will remain
unchanged, the awards will vest in December
2020, and be released in December 2022
following a two-year post-vesting holding period.

Alignment with employees
In reviewing salaries and bonus outcomes, we
consider overall remuneration packages of the
executive directors. Employee remuneration
levels are considered when reviewing executive
directors’ salaries. 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.

The Company makes a pension contribution to
employees: executive directors receive 25% of
salary and all other employees receive 17.5% of
salary. This is paid into a pension or may be taken
as a cash equivalent, in which case it is reduced for
any associated tax borne by the Group.

Review of non-executive
director and chairman fees
Fees for non-executive directors, including the
Chairman, are reviewed every two years.

Fees for non-executive directors were reviewed by
the Board and new fee levels equating to an increase
of 3.6% will take effect from 1 December 2017.

The Committee reviewed the Chairman’s fee
taking into account his time commitment,
experience and performance. His performance
during his first year in the role was reviewed in a
process led by the Senior Independent Director.
The Committee agreed to increase the fee to
£225,000 with effect from 1 December 2017. The
fee will remain below the lower quartile of UK
listed companies of a similar financial size and
most of our closest industry peers.

• Market update
• Update on LTIP
• Review AGM feedback
• Review terms of reference

MAY 2017

COMMITTEE MEMBERS
AND MEETING ATTENDANCE
(four held)
Sally Walden
Chairman

Jill Little

Oliver Marriott*

Dermot Mathias

Hilary Riva

* Three meetings were held in the period prior to

his retirement on 5 July 2017

4
3
4
4

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 £24,500 (excluding
VAT). Deloitte LLP provided no other
services to the Group during the year.

• Salary review
• Review advisor’s performance
• Preparation for year end
remuneration processes
• Review Chairman’s fees
• Dilution review

SEPTEMBER 2017

Remuneration
at a glance

SALARY

BENEFITS

PENSION

ANNUAL BONUS

LTIP

TOTAL
REMUNERATION

FIXED PAY

PERFORMANCE-RELATED PAY

PERFORMANCE-RELATED PAY FRAMEWORK (2017 AWARDS)

10%

let vacant
space on a
timely basis
(KPI)

10%

sustainability
performance

I F TAKEN I
R Y
F S A L ARY IF T

% O
ANNUAL
BONUS

F S A
O
%
0
5
1

0
0
1

N
C
A
S
H

10%

effectively
achieve full
lettings

10%

manage
property
expenses

20%

achieve growth
in ERVs (KPI)

40%

deliver projects/
transactions
successfully

F 15 0 % O F S ALARY IN
LTIP
STAN

O
D
R
A
W

R
C
U
M

50%on TSR measured

relative to FTSE 350
REIT Index

50%on NAV growth

2017 GROUP PERFORMANCE

RENTS RECEIVABLE

EPRA EARNINGS PER SHARE1

PORTFOLIO VALUE1

TSR (SHAFTESBURY)

£103.4m
+5.1%

16.2p
+15.7%

£3.64bn
+7.0%2

+6.5%

ERV GROWTH2

DIVIDENDS PER SHARE

EPRA NAV PER SHARE 1

TSR (FTSE350 REAL ESTATE INDEX)

+3.5%

16.0p
+8.8%

£9.52
+7.2%

1 An alternative performance measure (APM). See page 140

2 Like-for-like. See Glossary on page 147

+5.5%

GOVERNANCE Shaftesbury Annual Report 2017

Summary
of remuneration policy

Our policy was approved on 5 February 2016.

A summary of the Remuneration Policy table for
executive director remuneration is reproduced
opposite for information only.

The full Remuneration Policy is on our website and
set out on pages 84 to 91 of the 2015 Annual Report.

GOVERNANCE SUMMARY OF REMUNERATION POLICY Shaftesbury Annual Report 2017

Executive Directors

ELEMENT
SALARY

OPERATION / PERFORMANCE MEASURES
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

Sector and other relevant market data (e.g. against constituent companies of the FTSE 350
REIT Index) may be requested from remuneration advisors as required

The Committee recognises the importance of setting salaries at levels in the context of
market median levels in the real estate sector, but which are not excessive in relation to the
Group’s particular strategy and features. The emphasis in the Group’s remuneration policies is
to place greater weight on performance-based rewards within the overall remuneration package

ANNUAL
BONUS

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

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

MAXIMUM POTENTIAL VALUE
The Committee does not
specify a maximum salary
or maximum salary increase
Further details on salary
levels and any increases
are provided in the Annual
Remuneration Report

Directors have the choice
to take a bonus in shares or
cash, in full or part as follows:
Up to 150% of salary if taken
entirely in shares;
or
Up to 100% of salary if taken
entirely in cash

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

Maximum value 150% of salary
at date of grant in normal
circumstances

Maximum value 200% of salary
in exceptional circumstances
such as executive recruitment
(this has not been used to
date)

The 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

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

ALL
EMPLOYEE
PLANS

PENSION Contribution paid into a personal pension plan or taken as a cash equivalent, reduced

25% of salary

OTHER
BENEFITS

for any resultant tax liability borne by the Group

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

Annual
remuneration
report

Set out below is the annual remuneration report on directors’
pay for the year ended 30 September 2017.
The report details how we intend to apply 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 2018
Executive directors’ salaries from 1 December 2017

B BICKELL

S J QUAYLE

T J C WELTON

C P A WARD

1.12.2017
£’000

1.12.2016
£’000

INCREASE

500

353

349

490

346

342

This compares to an average increase across the employee population of 5%.

Annual bonus targets
Maximum bonus of up to 150% of salary (if taken in shares) and 100% of salary (if taken in cash).

Disclosure of annual bonus targets for the year ending 30 September 2018 is deemed to be commercially sensitive and therefore the actual targets are not
set out in this report. A range for the rental growth target is being introduced with a threshold level for achievement. The targets will be disclosed
retrospectively next year, provided they are no longer commercially sensitive.

MEASURE

RENTAL GROWTH

Deliver growth in ERVs1

OCCUPANCY

Maximise portfolio occupancy

Let vacant property quickly1

OTHER

Ratio of property outgoings to gross rents receivable

Corporate responsibility performance

Deliver projects/transactions successfully

WEIGHTING

TARGET OR REASON FOR NON-DISCLOSURE

35%

10%

40%

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

To match baseline year (2013) corporate responsibility scores in GRESB and EPRA
reporting benchmarks
Specific operational objectives to be met during the year critical to progressing
long-term property projects and financing

1 Group KPIs

GOVERNANCE Shaftesbury Annual Report 2017GOVERNANCE ANNUAL REMUNERATION REPORT Shaftesbury Annual Report 2017

LTIP
LTIP awards of 125% of salary will be granted in December 2017. Performance will be measured over a three-year period which commenced on 1 October 2017.
A two-year post-vesting holding period will apply to these awards.

The performance measures will remain the same as those applicable to awards made last year and are as set out on page 95.

Non-executive directors’ fees from 1 December 2017
Non-executive director fees are reviewed every two years and were reviewed this year to take effect from 1 December 2017.

Fees for the Chairman were increased to £225,000. Fees for non-executive directors were increased to £57,000. 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).
There was no change to that fee. The Chairman does not receive an additional fee for chairing the Nomination Committee.

Remuneration for year ending 30 September 2017
Single total figure of remuneration for executive directors (audited)

SALARY

BENEFITS1

PENSION
BENEFIT2

ANNUAL
BONUS3

LTIP4

OTHER5

TOTAL

2017
£’000

2016
£’000

2017
£’000

2016
£’000

2017
£’000

2016
£’000

2017
£’000

2016
£’000

2017
£’000

2016
£’000

2017
£’000

2016
£’000

2017
£’000

2016
£’000

B BICKELL

S J QUAYLE

T J C WELTON

C P A WARD

489

345

341

483

341

333

107

106

404

285

282

437

308

302

773

545

531

877

619

571

1,825

1,954

1,299

1,391

1,290

1,378

1,264

1,312

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 2017, the executive directors could have received bonuses of 82.5% of salary in shares or 55% of salary in cash.

Each director has elected to take their 2017 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. The TSR and NAV performance conditions for the three-year performance period to
30.9.2017 were met in full and 100% of the awards vested. 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 30.9.2017 of £9.896. The 2016 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 Sharesave options 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)

FEE

2017
£’000

150

2016
£’000

129

COMMITTEE CHAIR/ SENIOR
INDEPENDENT DIRECTOR1 FEES

BENEFITS

TOTAL

2017
£’000

2016
£’000

2017
£’000

2016
£’000

2017
£’000

153

J C NICHOLLS2

J S LANE

J C LITTLE

O J D MARRIOTT3

D C A MATHIAS

H S RIVA

S E WALDEN

1 Fee is only payable if the Senior Independent Director is not the chair of any other Committee

2 Joined Board on 1.9.2016 and became Chairman on 1.10.2016

3 Fees up to 5.7.2017 when he retired from the Board

2016
£’000

129

GOVERNANCE ANNUAL REMUNERATION REPORT Shaftesbury Annual Report 2017

Annual bonus outcome for year ended 30 September 2017
Full retrospective disclosure of the targets for the 2017 annual bonus scorecard is provided below. The bonus will be paid in December 2017.

MEASURE

WEIGHTING

TARGET

ACHIEVEMENT

PERCENTAGE
AWARDED

RENTAL GROWTH

Achieve growth in ERVs1,2

OCCUPANCY

20% Extent by which Group commercial
leasing transactions exceed valuers’
ERV by 5% in previous year

Commercial leasing transactions exceeded
previous year ERV on average by 6.7%

Annual like-for-like growth in Group
total ERV to exceed 5%

Annual growth in Group total ERV: 3.5%

10%

Let vacant space on a timely basis1,2

10% Complete lettings within target

Targets met for each use.

10%

periods set by us

(measured from date space became
available to let; range 1 – 3 months;
excludes larger schemes3)

Average period vacant: 1.5 months

Effectively achieve full occupancy2

10% ERV of space available to let not to

Quarterly EPRA vacancy: Range 1.5% - 3.0%

10%

exceed 3% of Group ERV (measured
quarterly; excludes larger schemes3)

OTHER

Manage property expenses2

Corporate responsibility
performance

10% Ratio of property outgoings to gross
rents receivable not to exceed three
year rolling average

Ratio for year: 14.6%

Rolling three year average: 14.5%

10% Maintain relative rankings in key

EPRA Gold award

indices:

• EPRA
• GRESB

GRESB “green star” rating

Although a number of project targets were
met, letting progress at two completed larger
projects did not meet their respective targets
set at the beginning of the year

Deliver projects and transactions
successfully

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

Progressing key long-term projects
and larger schemes3

Maintaining long-term stability in the
Group’s financing arrangements

TOTAL

100%

10%

15%

55%

Committee’s exercise of discretion

The Committee has not exercised discretion in the award of bonuses for the
year ended 30 September 2017. The table opposite shows historic exercise of
discretion by the Committee.

ACTUAL BONUS PERCENTAGE
POTENTIAL ACCORDING TO
ACHIEVEMENT TABLE

BONUS PERCENTAGE AFTER
EXERCISE OF DISCRETION BY
REMUNERATION COMMITTEE

70%

82%

55%

Reduced to 60%

55%

YEAR

2015

2016

2017

1 Group KPIs

2 Wholly-owned portfolio

3 Larger schemes: Thomas Neal’s Warehouse, Central Cross and 57 Broadwick Street

GOVERNANCE ANNUAL REMUNERATION REPORT Shaftesbury Annual Report 2017

LTIP vesting for the performance period to 30 September 2017

The detailed performance against targets which resulted in full vesting of the
LTIP in 2017 is as follows:

HISTORIC LTIP VESTING PERFORMANCE

100

Vesting %
100

76.7

100

63.5

2011
Year of vesting

2012

2013

2014

2015

2016

2017

TSR
NAV

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

AWARD VESTING CRITERIA PERFORMANCE

Less than 0% pa

0% pa

20%

Between 0% pa
and 5.5% pa

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

5.5% pa or more

100%

Performance in
three-year period
to 30 September 2017:
15.5% pa and
outperformed the
benchmark by 11.0% pa

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

ANNUALISED NAV
GROWTH LESS
ANNUALISED RPI
GROWTH

AWARD VESTING CRITERIA PERFORMANCE

Less than 3% pa

3% pa

30%

Between 3% pa
and 7% pa

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

7% pa or more

100%

Performance in
three year period to
30 September 2017:
10.1% pa versus RPI
growth of 2.2%.
Outperformance of 7.9%

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

Share scheme interests awarded during the year (audited)

SCHEME

B BICKELL

Deferred Annual Share Bonus Scheme1
LTIP2

S J QUAYLE

Deferred Annual Share Bonus Scheme1
LTIP2

T J C WELTON Deferred Annual Share Bonus Scheme1

LTIP2

C P A WARD

Deferred Annual Share Bonus Scheme1
LTIP2

FACE VALUE AT
DATE OF
AWARD £’000

438
607

309
429

302
424

1 Deferred Annual Share Bonus Scheme: Directors elected to take their annual bonus for
the year ended 30.9.2016 in shares which were purchased in the market. The face value
is calculated using the price paid to acquire the shares, being £8.91028. No further
performance criteria are applied to share awards under this scheme.

Target performance for the awards granted during the year is as follows:

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

AWARD VESTING CRITERIA

Less than 0% pa

0% pa

25%

Between 0% pa and 5.5% pa

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

5.5% pa or more

100%

ANNUALISED NAV GROWTH LESS
ANNUALISED RPI GROWTH

AWARD VESTING CRITERIA

Less than 3% pa

25%

2 LTIP: Awards of nil cost options are made by the Committee at 125% of salary divided by

3% pa

the average share price over five days prior to the date of grant. The face value is
calculated using the average share price used to determine the number of shares
awarded, being £9.026 (the average share price over the five days prior, up to and
including 5.12.16). There is a three year performance period (targets below) with a two
year post vesting holding period.

Between 3% pa and 7% pa

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

7% pa or more

100%

GOVERNANCE ANNUAL REMUNERATION REPORT Shaftesbury Annual Report 2017

Directors’ shareholdings and share scheme interests at 30 September 2017 (audited)

SHARES
OWNED OUTRIGHT

DEFERRED SHARES1

SHARES UNDER OPTION
NOT VESTED AND SUBJECT
TO PERFORMANCE
CRITERIA1

SHARESAVE

SHAREHOLDING
REQUIREMENT MET2

146,728

103,547

98,713

207,483

146,371

143,640

4,812

3,950

Yes

EXECUTIVE DIRECTOR

B BICKELL

S J QUAYLE

T J C WELTON

C P A WARD

NON-EXECUTIVE DIRECTOR

J C NICHOLLS

J C LITTLE

H S RIVA

D C A MATHIAS

S E WALDEN

1,157,160

1,035,151

829,269

105,733

10,000

5,367

18,148

16,208

60,000

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 For future executive director appointments, the equivalent of a shareholding of 200% of salary at date of appointment to the Board, to be accumulated over five years.

There have been no changes in directors’ shareholdings between 30 September 2017 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.

1. DEFERRED ANNUAL SHARE BONUS SCHEME

ENTITLEMENT TO ORDINARY SHARES

MARKET PRICE
ON DATE OF GRANT
£

AT
1.10.2016

AWARDED
IN YEAR1

DELIVERED
IN YEAR

AT
30.9.2017

B BICKELL

S J QUAYLE

T J C WELTON

C P A WARD

DATE OF GRANT

17.12.2013

22.12.2014

8.2.2016

12.12.2016

17.12.2013

22.12.2014

8.2.2016

12.12.2016

17.12.2013

22.12.2014

8.2.2016

12.12.2016

17.12.2013

22.12.2014

8.2.2016

12.12.2016

There are 597,351 shares held in an employee benefit trust at 30 September 2017.

5.98

7.80

8.30

8.95

5.98

7.80

8.30

8.95

5.98

7.80

8.30

8.95

5.98

7.80

8.30

8.95

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

48,988

34,544

33,387

36,238

25,651

22,394

55,304

42,436

48,988

146,728

39,075

29,928

34,544

103,547

39,075

29,928

34,544

103,547

36,068

29,258

33,387

98,713

GOVERNANCE ANNUAL REMUNERATION REPORT Shaftesbury Annual Report 2017

2. LTIP

MARKET
PRICE OF
SHARE ON
GRANT
£

DATE
OF
GRANT

B BICKELL

20.12.2013

8.12.20141

8.2.20162

12.12.20162

S J QUAYLE 20.12.2013

8.12.20141

8.2.20162

12.12.20162

TJC WELTON 20.12.2013

8.12.20141

8.2.20162

12.12.20162

CPA WARD

20.12.2013

8.12.20141

8.2.20162

12.12.20162

6.06

7.78

8.30

8.95

6.06

7.78

8.30

8.95

6.06

7.78

8.30

8.95

6.06

7.78

8.30

8.95

NUMBER OF ORDINARY SHARES UNDER OPTION

AT
1.10.2016

94,900

74,220

65,413

GRANTED
DURING
YEAR

67,850

VESTED
AND
EXERCISED
DURING
YEAR

94,900

234,533

67,850

94,900

67,000

52,345

46,126

47,900

67,000

165,471

47,900

67,000

52,345

46,126

47,900

67,000

165,471

47,900

67,000

61,900

51,175

45,115

47,350

61,900

158,190

47,350

61,900

MARKET
PRICE OF
SHARE ON
DATE OF
EXERCISE
£

LAPSED
DURING
YEAR

AT
30.9.2017

PERFORMANCE
PERIOD

EXERCISE
PERIOD

8.91028 1.10.2013-30.9.2016 12.2016-6.2017

74,220

65,413

67,850

207,483

- 1.10.2014-30.9.2017 12.2017-6.2018

- 1.10.2015-30.9.2018 12.2020-6.2021

- 1.10.2016-30.9.2019 12.2021-6.2022

8.91028 1.10.2013-30.9.2016 12.2016-6.2017

52,345

46,126

47,900

146,371

- 1.10.2014-30.9.2017 12.2017-6.2018

- 1.10.2015-30.9.2018 12.2020-6.2021

- 1.10.2016-30.9.2019 12.2021-6.2022

8.91028 1.10.2013-30.9.2016 12.2016-6.2017

52,345

46,126

47,900

146,371

- 1.10.2014-30.9.2017 12.2017-6.2018

- 1.10.2015-30.9.2018 12.2020-6.2021

- 1.10.2016-30.9.2019 12.2021-6.2022

8.91028 1.10.2013-30.9.2016 12.2016-6.2017

51,175

45,115

47,350

143,640

- 1.10.2014-30.9.2017 12.2017-6.2018

- 1.10.2015-30.9.2018 12.2020-6.2021

- 1.10.2016-30.9.2019 12.2021-6.2022

1 The TSR and NAV performance conditions over the three years ended 30.9.2017 have been met in full and therefore all the nil cost options granted on 8.12.2014 will vest in December 2017.

2 Following approval of the Remuneration Policy at the 2016 AGM, options granted under 2016 LTIP rules include a two-year post-vesting holding period.

GOVERNANCE ANNUAL REMUNERATION REPORT Shaftesbury Annual Report 2017

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.

NUMBER OF ORDINARY SHARES UNDER OPTION

DATE
OF GRANT

AT
1.10.2016

GRANTED
DURING
YEAR

LAPSED
DURING
YEAR

EXERCISED
DURING
YEAR

AT
30.9.2017

MARKET VALUE
OF SHARE ON
DATE OF
EXERCISE
£

OPTION
PRICE
£

B BICKELL

2.7.2014

1.7.2016

S J QUAYLE

2.7.2014

1.7.2016

T J C WELTON

2.7.2014

1.7.2016

C P A WARD

5.7.2012

2.7.2014

30.6.2017

2,788

2,024

4,812

2,788

2,024

4,812

2,788

2,024

4,812

3,759

2,788

6,547

1,162

3,759

2,788

2,024

4,812

2,788

2,024

4,812

2,788

2,024

4,812

2,788

1,162

3,950

5.38

7.41

5.38

7.41

5.38

7.41

3.99

5.38

7.74

EXERCISE
PERIOD

8.2019-1.2020

8.2021-1.2022

8.2019-1.2020

8.2021-1.2022

8.2019-1.2020

8.2021-1.2022

9.81

8.2017-1.2018

8.2019-1.2020

8.2020-1.2021

Percentage change in Chief Executive remuneration compared to average percentage
change in remuneration for all other employees

CHIEF EXECUTIVE OTHER EMPLOYEES

CHANGE

RELATIVE IMPORTANCE OF SPEND ON PAY

£44.6m

£41.2m

Base salary

Taxable benefits

Annual bonus

TOTAL

1.2%

0.6%

(7.4)%

(2.8)%

3.3%

3.0%

0.4%

2.1%

The analysis for other employees is based on a like-for-like group of
employees, i.e. the same individuals appear in the 2016 and 2017
figures and the 2016 comparatives have been restated on that basis.

£9.9m

£10.7m

2017

2016

Employee costs
Dividends

GOVERNANCE ANNUAL REMUNERATION REPORT Shaftesbury Annual Report 2017

Review of past performance
The chart below shows the TSR for the Company compared with the FTSE 350 REIT Index, of which the Company is a constituent, over nine 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 total figure of remuneration over the same period.

NINE-YEAR TSR CHART TO 30 SEPTEMBER 2017
Value of £100 invested at 30 September 2008

£400

£350

£300

£250

£200

£150

£100

£50

£0

£377

£149

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Shaftesbury
FTSE 350
REIT index

NINE-YEAR CHIEF EXECUTIVE SINGLE TOTAL FIGURE OF REMUNERATION1

Chief Executive single total figure of remuneration
(£’000)

2009

2010

2011

2012

2013

2014

2015

2016

2017

850

1,013

1,650

1,198

1,075

1,455

1,523

1,954

1,825

Annual bonus payout2 (% maximum)

Long-term incentive award vesting (% maximum)

50%

90%

40%

50%

76.7%

100%

40%

50%

75%

60%

55%

50%

63.5%

100%

SHAREHOLDER VOTING
At the 2017 AGM, there was an advisory vote on the Annual Remuneration Report. Voting by shareholders representing 72.37% of the issued share capital on
the resolution was as follows:

FOR

% FOR

AGAINST

% AGAINST

WITHHELD

TOTAL VOTES

Annual Remuneration Report

199,176,833

99.3

1,401,780

0.7

1,350,527

200,578,613

On behalf of the Board

Sally Walden
Chairman - Remuneration Committee

27 November 2017

1 2009-2011: Jonathan Lane, 2012-2017: Brian Bickell

2 Based on award in cash. See page 91 for details if award taken in shares

100

101

Directors’
report

The directors present their report and the audited
consolidated financial statements for the year ended
30 September 2017.

Strategic report
For the review of the business and its likely future developments, see the
Strategic Report on pages 1 to 64.

Results and dividends
The results for the year ended 30 September 2017 are set out in the Group
Statement of Comprehensive Income on page 114.

An interim dividend of 7.9p per ordinary share was paid on 7 July 2017 (2016: 7.15p).

The directors recommend a final dividend in respect of the year ended
30 September 2017 of 8.1p per ordinary share (2016: 7.55p), making a total
dividend for the year of 16.0p per ordinary share (2016: 14.7p). If authorised
at the 2018 AGM, the dividend will be paid on 16 February 2018 to members
on the register at the close of business on 19 January 2018. The dividend will
be paid as an ordinary dividend.

Share capital
During the year, a total of 477,247 ordinary shares were issued at either nil
cost on the exercise of LTIP options, or £6.94, £3.99 or £5.38 on the exercise
of Sharesave options. At 30 September 2017, the Company’s issued share
capital comprised 279,032,329 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 2017 and up to the date of the financial statements, their
interests in the ordinary share capital of the Company and details of options
granted under the Group’s share schemes are set out in the Annual
Remuneration Report on pages 92 to 100.

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.

Going concern
The directors confirm they have a reasonable expectation that the Company
has adequate resources to continue in operation for at least 12 months from
the date of signing these financial statements.

Purchase of own shares
The Company was granted authority at the 2017 AGM to make market
purchases of its own ordinary shares. This authority will expire at the
conclusion of the 2018 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 2017 to 27 November 2017.

Substantial shareholdings
At 27 November 2017, 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:

PEL Limited

Invesco Limited

Norges Bank

BlackRock Inc

ISSUED SHARE CAPITAL
%

25.02

9.99

8.94

6.67

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 129 to 132.

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

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.

102

GOVERNANCE Shaftesbury Annual Report 2017GOVERNANCE DIRECTORS’ REPORT Shaftesbury Annual Report 2017

Employment, human rights and
environmental matters
See sustainability and stakeholders on pages 28 to 33 and the Nomination
Committee report on pages 80 to 81.

Independent auditors
A resolution for the re-appointment of Ernst & Young LLP as auditors to the
Company will be proposed at the 2018 AGM. The Board, on the advice of the
Audit Committee, recommends their re-appointment.

The chosen emissions intensity is common parts floor areas, which has been
measured in 67 of the 125 (2016: 59 of 122) reported properties with
common parts only and the emissions intensity figure has been obtained of
49.5 kgCO2e/m2 (0.05 tonnes CO2e/m2), an increase over last year’s 37.3
kgCO2e/m² (0.04 tonnes CO2e/m2). KWH (electricity) was 781,533 (2016:
289,569).

By Order of the Board

Penny Thomas
Company Secretary

2018 annual general meeting
The 2018 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.

Shaftesbury PLC
Incorporated, registered and domiciled
in England and Wales number 1999238
22 Ganton Street
Carnaby
London W1F 7FD

27 November 2017

Disclosure of information to auditors
Each director has confirmed that:

a) so far as they are aware, there is no relevant audit information of which

the Company’s auditors are unaware; and

b) they have taken all the steps that they ought to have taken as a director in
order to make themselves 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.

Greenhouse gas reporting
We report our greenhouse gas emissions in accordance with UK legislation.
The figures relate to landlord controlled common parts such as staircases.
The numbers are therefore minimal.

Overall, energy consumption has increased by a small amount. Due to the
increased use of renewable energy in the national grid, greenhouse gas
emissions in the portfolio decreased by 18% from 1,565.5 tonnes to
1,288 tonnes.

ABSOLUTE SCOPE 1 AND 2 GHG EMISSIONS1

SCOPE 1

Total tCO2e

SCOPE 2

Total tCO2e

2017

207

2017

906

2016-2017
CHANGE

-45%

2016

375

2016-2017
CHANGE

2016

1,018

-11%

1 For the reporting year we have again followed the UK Government environmental reporting guidance and used the 2017 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.

103

Directors’
responsibilities

The directors are responsible for preparing the Annual Report,
the Remuneration Report and the financial statements in
accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each
financial year. Under that law the directors have prepared the Group and
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 IAS 8 ‘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 68 to
69 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 1 to 64 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

27 November 2017

Chris Ward
Finance Director

27 November 2017

104

GOVERNANCE Shaftesbury Annual Report 2017

Independent
auditor’s report
to the members of Shaftesbury PLC

Our opinion on the financial statements
In our opinion:
• Shaftesbury PLC’s Group financial statements and Parent company

(‘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 2017 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 at 30 September 2017 comprise:

Balance sheet

Statement of comprehensive income

Cash flow statement

Statement of changes in equity

Related notes 1 to 26, including a summary of significant
accounting policies

GROUP COMPANY

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.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing
(UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards
are further described in the Auditor’s responsibilities for the audit of the
financial statements section of our report below. We are independent of
the Group and Company in accordance with the ethical requirements that
are relevant to our audit of the financial statements in the UK, including the
FRC’s Ethical Standard as applied to listed public interest entities, and we
have fulfilled our other ethical responsibilities in accordance with these
requirements.

We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.

Conclusions relating to principal risks,
going concern and viability statement
We have nothing to report in respect of the following information in the
annual report, in relation to which the ISAs (UK) require us to report to you
whether we have anything material to add or draw attention to:

• the disclosures in the annual report set out on pages 61 to 63 that

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

• the directors’ confirmation set out on page 60 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 directors’ statement set out on page 118 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;

• whether the directors’ statement in relation to going concern required

under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit; or

• the directors’ explanation set out on page 64 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.

105

GOVERNANCE Shaftesbury Annual Report 2017

GOVERNANCE INDEPENDENT AUDITOR’S REPORT Shaftesbury Annual Report 2017

Overview of our audit approach

Key Audit
Matters

Audit scope

• The valuation of investment property (including properties within the Longmartin joint venture)

• 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 across eleven 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.

Materiality

• Overall Group materiality: £36m which represents 1% of total assets.

• Specific Group materiality: £3.7m which represents 5% of operating profit before investment property valuation movements and

net finance costs.

Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period
and include the most significant assessed risks of material misstatement (whether or not due to fraud) that we identified. These matters included those which
had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters
were addressed in the context of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on
these matters.

RISK

OUR RESPONSE TO THE RISK

Risk: The valuation of investment property
£3,407m (plus £231m being the Group’s share in
the Longmartin joint venture)

Refer to the Audit Committee Report (pages 82
to 84); Accounting policies (page 120); and Note 9
of the Consolidated Financial Statements (pages
123 to 124)

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.

Our audit procedures around the valuation of investment property included:

• 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 review the
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 2017.

We did not identify any exceptions
or material errors in the input
testing for the sample we tested.

We conclude that the valuation of
each of the assets in the sample
tested by our Chartered Surveyors
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.

106

GOVERNANCE INDEPENDENT AUDITOR’S REPORT Shaftesbury Annual Report 2017

RISK

OUR RESPONSE TO THE RISK

KEY OBSERVATIONS
COMMUNICATED TO THE
AUDIT COMMITTEE

• 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.

• We made enquiries of the external valuers and inspected their terms
of reference to confirm that they had not been subject to undue
influence or direction 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 performed detailed testing for a sample of leases by agreeing

the annual rent back to the terms of the 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
to confirm the processing and timing of journals to record revenue is
consistent with our expectations.

Risk: Revenue recognition, including the
timing of revenue recognition, and the
treatment of rents and incentives
£103m of rents receivable (FY16: £98m)

Refer to the Audit Committee Report (pages
82 to 84); Accounting policies (page 119);
and Note 2 of the Consolidated Financial
Statements (page 121)
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 IFRS rent adjustment
for 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 conclude that
revenue has been recognised
on an appropriate basis in
the year.

107

GOVERNANCE INDEPENDENT AUDITOR’S REPORT Shaftesbury Annual Report 2017

An Overview of the scope of our audit
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope for each entity within the
Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We take into account size, risk profile, the organisation
of the group, effectiveness of group-wide controls and changes in the business environment when assessing the level of work to be performed at each entity.

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

£36.0m

£3.7m

£27.0m

£2.8m

£1.8m

£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 focussed 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 2016.

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 75% (2016: 50%) of the respective materiality. We have
increased our set performance materiality from 50% to 75% in the current
year due to few uncorrected adjustments being identified in the 2016 audit,
and no weaknesses being identified in our walk-through testing of key
control processes. 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.

We assessed 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 overall materiality for the financial
statements could influence the economic decisions of users. We have
determined that specific 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 for specific materiality 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 £36.0m, as noted in the table above, which
represents 1.0% of total assets of £3.6bn as at 30 September 2017.

In the prior year audit we adopted an overall materiality of £33.0m based on
1% of total assets. We also applied a specific materiality of £3.9m based on
5% of operating profit before investment property valuation movements
and net finance costs.

108

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 any uncorrected audit differences on investment property
valuations in excess of £1.8m, 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.

GOVERNANCE INDEPENDENT AUDITOR’S REPORT Shaftesbury Annual Report 2017

Other information
The other information comprises the information included in the annual
report including the Strategic report Overview, Strategic report Annual
Review, Governance and Other information (including Shareholder
information, Portfolio analysis, Basis of valuation, Summary report by the
valuers, Sustainability and the Glossary of terms) set out on pages 1 to 104
and 139 to 147, other than the financial statements and our auditor’s report
thereon. The directors are responsible for the other information.

Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in this
report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is
to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our
knowledge obtained in the audit or otherwise appears to be materially
misstated. If we identify such material inconsistencies or apparent material
misstatements, we are required to determine whether there is a material
misstatement in the financial statements or a material misstatement of the
other information. If, based on the work we have performed, we conclude
that there is a material misstatement of the other information, we are
required to report that fact.

We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our responsibility
to specifically address the following items in the other information and to
report as uncorrected material misstatements of the other information
where we conclude that those items meet the following conditions:

• Fair, balanced and understandable set out on page 104 – the statement
given by the directors that they consider the annual report and financial
statements 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, is materially inconsistent with
our knowledge obtained in the audit; or

• Audit Committee reporting set out on pages 82 to 84 – the section
describing the work of the audit committee does not appropriately
address matters communicated by us to the Audit Committee is materially
inconsistent with our knowledge obtained in the audit; or

• Directors’ statement of compliance with the UK Corporate Governance
Code set out on page 74 – the parts of the directors’ statement required
under the Listing Rules relating to the Company’s compliance with the UK
Corporate Governance Code containing provisions specified for review by
the auditor in accordance with Listing Rule 9.8.10R (2) do not properly
disclose a departure from a relevant provision of the UK Corporate
Governance Code.

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.

In our opinion, based on the work undertaken in the course of the audit:

• 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 those reports have been
prepared in accordance with applicable legal requirements;

• the information about internal control and risk management systems in

relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 in the Disclosure
Rules and Transparency Rules sourcebook made by the Financial Conduct
Authority (the FCA Rules), is consistent with the financial statements and
has been prepared in accordance with applicable legal requirements; and

• information about the Company’s corporate governance code and

practices and about its administrative, management and supervisory
bodies and their committees complies with rules 7.2.2, 7.2.3 and 7.2.7 of
the FCA Rules.

Matters on which we are required to
report by exception
In light of the knowledge and understanding of the Group and the Company
and its environment obtained in the course of the audit, we have not
identified material misstatements in:

• the strategic report or the directors’ report; or

• the information about internal control and risk management systems in

relation to financial reporting processes and about share capital
structures, given in compliance with rules 7.2.5 and 7.2.6 of the FCA Rules

We have nothing to report in respect of the following matters in relation to
which the Companies Act 2006 requires us 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

109

GOVERNANCE INDEPENDENT AUDITOR’S REPORT Shaftesbury Annual Report 2017

• We assessed the susceptibility of the Group’s financial statements to

material misstatement, including how fraud might occur by reviewing the
Company’s risk register, enquiry with management and the Audit
Committee during the planning and execution phases of our audit.

• Based on this understanding we designed our audit procedures to identify
non-compliance with such laws and regulations. Our procedures involved
the following:

- Inquire of members of senior management, and when appropriate,
those charged with governance regarding their knowledge of any
non-compliance or potential non-compliance with laws and regulations
that could affect the financial statements.

- Reading minutes of meetings of those charged with governance.
- Obtaining and reading correspondence from legal and regulatory bodies

including HRMC.

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.

A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor’s report.

Other matters we are required to
address
• We were appointed by the Company on 15 October 2015 to audit the

financial statements for the year ended 30 September 2016 and
subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments is 2 years,
covering the years ending 30 September 2016 to 30 September 2017. Our
audit engagement letter was refreshed on 30 October 2017.

• The non-audit services prohibited by the FRC’s Ethical Standard were not
provided to the Group or the Company and we remain independent of the
Group and the Company in conducting the audit.

• The audit opinion is consistent with the additional report to the Audit

Committee.

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

London
27 November 2017

Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on
page 104 the directors are responsible for the preparation of the financial
statements and for being satisfied that they give a true and fair view in
accordance, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are free
from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for
assessing the Group and Company’s ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless management either intends to
liquidate the Group or the Company or to cease operations, or has no
realistic alternative but to do so.

Auditor’s responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that includes
our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always
detect a material misstatement when it exists. Misstatements can arise from
fraud or error and are considered material if, individually or in the aggregate,
they could reasonably be expected to influence the economic decisions of
users taken on the basis of these financial statements.

Explanation as to what extent the audit
was considered capable of detecting
irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and assess
the risks of material misstatement of the financial statements due to fraud;
to obtain sufficient appropriate audit evidence regarding the assessed risks
of material misstatement due to fraud, through designing and implementing
appropriate responses; and to respond appropriately to fraud or suspected
fraud identified during the audit. However, the primary responsibility for the
prevention and detection of fraud rests with both those charged with
governance of the entity and management.

Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks that

are applicable to the Group and determined that the most significant
frameworks which are directly relevant to specific assertions in the
financial statements are those that relate to the reporting framework
(IFRS, the Companies Act 2006 and UK Corporate Governance Code) and
the relevant tax regulations in the United Kingdom, including the UK REIT
regulations.

• We understood how the Company is complying with those frameworks
through enquiry with management, and by identifying the Company’s
policies and procedures regarding compliance with laws and regulations.
We also identified those members of management who have the primary
responsibility for ensuring compliance with laws and regulations, and for
reporting any known instances of non-compliance to those charged with
governance.

1. The maintenance and integrity of the Shaftesbury PLC website is the responsibility of the
directors; the work carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for any changes that may
have occurred to the financial statements since they were initially presented on the
website.

2. Legislation in the United Kingdom governing the preparation and dissemination of financial

statements may differ from legislation in other jurisdictions.

110

111

Financial statements

112

Financial statements

113

Group statement of com-

prehensive income

Group statement
of comprehensive income

For the year ended 30 September 2017

Revenue

Property charges

Net property income

Administrative expenses

Annual bonuses

Equity-settled remuneration

Total administrative expenses

Operating profit before investment property disposals and valuation movements

Profit on disposal of investment properties

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

NOTES

2017
£M

111.5

(23.2)

88.3

(9.6)

(2.7)

(1.8)

(14.1)

74.2

1.1

230.6

305.9

0.1

(32.8)

22.0

(10.7)

6.4

301.6

108.1p

107.9p

16.2p

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

35.6p

35.5p

14.0p

114

FINANCIAL STATEMENTS Shaftesbury Annual Report 2017Balance sheets

As at 30 September 2017

Group statement of com-

prehensive income

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

GROUP

NOTES

2017
£M

2016
£M

COMPANY

AS RESTATED
2016
£M

2017
£M

3,407.3

3,111.6

9.5

148.0

1.2

3.7

9.8

146.4

1.4

3.7

3,569.7

3,272.9

22.0

45.6

19.3

15.6

59.0

1.2

619.6

679.8

484.3

25.8

59.0

1.4

754.7

815.1

770.6

0.5

3,637.3

3,307.8

1,189.9

1,586.2

41.6

948.8

990.4

45.3

92.2

669.1

114.1

920.7

106.6

(0.8)

105.8

22.7

92.2

289.0

114.1

518.0

2,646.9

2,387.1

1,084.1

1,068.2

69.8

124.9

3.0

886.4

69.7

124.8

3.6

870.1

1,084.1

1,068.2

69.8

124.9

3.0

2,449.2

2,646.9

£9.49

£9.46

£9.52

69.7

124.8

3.6

2,189.0

2,387.1

£8.57

£8.54

£8.88

The Company made a profit of £57.7 million (2016: £282.9 million) in the year. See notes 13 and 15 for information on the reclassification of amounts due
from/to subsidiaries in the Company financial statements.

On behalf of the Board who approved and authorised for issue the financial statements on pages 114 to 138 on 27 November 2017.

Brian Bickell
Chief Executive

Chris Ward
Finance Director

115

FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

Cash flow statements

Cash flow
statements
For the year ended 30 September 2017

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

Investment property disposals

Capital expenditure on investment properties

Purchase of property, plant and equipment

Dividends received from joint venture

Decrease in loans to joint venture

Decrease in loans to subsidiaries

Increase 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 issue of mortgage bonds

Repayment of debenture stock

Mortgage bond issue 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

AS RESTATED
2016
£M

2017
£M

COMPANY

AS RESTATED
2016
£M

2017
£M

76.7

0.1

(32.8)

44.0

(40.1)

13.4

(41.5)

(0.1)

4.8

74.6

0.1

(32.7)

42.0

(59.7)

(29.2)

(0.3)

1.7

0.5

(63.5)

(87.0)

0.1

146.5

(437.2)

493.2

(10.4)

(6.1)

(92.1)

(44.5)

49.5

30.0

15.6

45.6

0.1

114.5

(23.5)

(38.2)

52.9

7.9

7.7

15.6

(13.8)

0.1

(11.1)

(24.8)

(0.1)

4.8

575.2

(82.4)

(9.8)

487.7

0.1

146.5

(437.2)

(10.4)

(92.1)

(44.5)

(437.6)

25.3

0.5

25.8

(11.0)

0.1

(18.0)

(28.9)

(0.3)

1.7

0.5

76.6

(93.0)

(1.7)

(16.2)

0.1

107.2

(23.5)

(38.2)

45.6

0.5

NOTES

The prior year comparatives have been restated in the Company cash flow statement, to present movements in loans to subsidiaries on a gross basis and in
the Group cash flow statement, to reclassify £2.3 million between cash generated from operating activities and cash used for investment property
acquisitions. In both cases, the directors consider the restatements more fairly present the cash flows for the Group and Company. 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.

116

FINANCIAL STATEMENTS Shaftesbury Annual Report 2017Statements
of changes in equity

For the year ended 30 September 2017

Statements of changes in

equity

Group

At 1 October 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

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 2017

Company

At 1 October 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

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 2017

SHARE
CAPITAL
£M

SHARE
PREMIUM
£M

SHARE-BASED
PAYMENTS
RESERVE
£M

NOTES

RETAINED
EARNINGS
£M

TOTAL
EQUITY
£M

69.6

124.7

4.0

2,127.1

2,325.4

0.1

69.7

124.8

0.1

69.8

124.9

1.9

(2.3)

3.6

1.4

(2.0)

3.0

99.1

(39.4)

(0.1)

2.3

(39.4)

0.1

1.9

2,189.0

2,387.1

301.6

(43.3)

(0.1)

2.0

(43.3)

0.1

1.4

2,449.2

2,646.9

69.6

124.7

4.0

0.1

69.7

124.8

0.1

69.8

124.9

1.9

(2.3)

3.6

1.4

(2.0)

3.0

624.4

282.9

(39.4)

(0.1)

2.3

870.1

57.7

(43.3)

(0.1)

2.0

822.7

282.9

(39.4)

0.1

1.9

1,068.2

57.7

(43.3)

0.1

1.4

886.4

1,084.1

117

The Company’s distributable reserves are disclosed in note 19 to the financial statements.

FINANCIAL STATEMENTS Shaftesbury Annual Report 2017Notes to the financial

statements

Notes to the
financial statements

For the year ended 30 September 2017

1 Accounting policies

Basis of preparation
Shaftesbury PLC (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 103. The Company is the ultimate parent company of the Shaftesbury PLC Group (the Group). 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
£57.7 million (2016: £282.9 million) in the year.

These financial statements have been prepared in accordance with IFRS as adopted by the European Union, IFRS Interpretations Committee (IFRIC) and
those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements have been prepared in Pounds Sterling and
under the historical cost convention as modified by the revaluation of investment properties and derivative financial instruments.

Going concern
The Group’s business activities, together with the factors affecting performance, financial position and future development are set out in the Strategic
Report on pages 1 to 64. The financial position of the Group including cash flow, liquidity, borrowings, undrawn facilities and debt maturity analysis is set out
on pages 54 to 57. The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least 12
months from the date these financial statements were approved. 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, Cushman & Wakefield. 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 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. Cushman & Wakefield and Knight Frank LLP make a number of assumptions in forming their opinion on the valuation of our investment
properties, which are detailed in the Basis of Valuation on pages 142 to 143. These assumptions are in accordance with the RICS Valuation - Global
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. See note 9 for further
information.

New accounting standards and interpretations
a)

The following amendments to existing Standards and Interpretations were relevant to the Group and mandatory for the first time for the financial year
ended 30 September 2017:

STANDARD OR INTERPRETATION

Annual Improvements 2012-2014

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

Amendments to IAS 1 Presentation of financial statements disclosure initiative

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

118

EFFECTIVE FROM

1 January 2016

FINANCIAL STATEMENTS Shaftesbury Annual Report 2017Notes to the

financial statements

For the year ended 30 September 2017

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

1 Accounting policies continued

The following new Standards and amendments to existing Standards are relevant to the Group, are not yet effective in the year ended 30 September
2017 and are not expected to have a significant impact on the Group’s financial statements:

STANDARD OR INTERPRETATION

Amendments to IAS 7 Statement of cash flows - disclosure initiative

Amendments to IFRS 2 Classification of share-based payment transactions

IFRS 9 Financial instruments

IFRS 15 Revenue from contracts with customers

IFRS 16 Leases

EFFECTIVE FROM

1 January 2017

1 January 2018

1 January 2019

IFRS 9 – Financial Instruments
This standard deals with, amongst other things, the classification and measurement of financial instruments. Having carried out an assessment of the
standard, the Group believes the main impact will be the measurement and presentation of trade receivables in the Group financial statements, and
balances due from subsidiaries in the Company financial statements. Having considered expected credit losses and sources of forward-looking data, we do
not currently expect any impact will be material.

IFRS 15 – Revenue from contracts with customers
This standard is based on the principle that revenue is recognised when control passes to a customer. In our case, the standard is most applicable to the
recognition point for service charge income and disposals of investment properties. As the standard excludes rental income, which falls within the scope of
IFRS 16 – Leases, it is not expected that IFRS 15 will have a significant impact on the Group’s financial statements. There may be changes to presentation and
disclosure.

IFRS 16 - Leases
For operating leases in excess of one year, this standard requires lessees to recognise a right-of-use asset and a related lease liability representing the
obligation to make lease payments. The right-of-use asset is assessed for impairment annually and is amortised on a straight-line basis. The lease liability is
amortised using the effective interest method. Lessor accounting is substantially unchanged from current accounting. Therefore, since the Group is
primarily a lessor, this standard does not significantly impact the Group’s financial statements. However, for the Company, it will result in the recognition of a
right-to-use asset and corresponding lease liability, which we estimate at approximately £3 million, in the year when the standard becomes effective.

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 20. 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.

119

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

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. The Group has one joint venture, the
investment in which is accounted for using the equity method. On initial recognition the investment was recognised at cost. Subsequently, the carrying
amount is increased or decreased to recognise the Group’s share of the profit or loss of, and dividends from, the joint venture. The Group’s investment in
the joint venture 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 its joint venture 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 the 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 its joint venture is stated at cost less any provision 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.

Cash held on deposit which has certain conditions restricting its use and is not available on demand, liquid or readily convertible, is classified within 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.

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.

120

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

2 Revenue

Rents receivable

Recoverable property expenses

2017
£M

103.4

8.1

111.5

Rents receivable includes a charge of £0.5 million from amortisation of accrued income in respect of lease incentives (2016: credit of £0.5 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

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 Group

Total fees for audit services

Audit related assurance services - half year review

Other assurance services

Non-audit services

Total fees for non-audit services

Total fees

2016
£M

98.4

7.8

106.2

2016
£M

6.5

2.3

3.3

2.2

14.3

7.8

22.1

2016
£M

(0.2)

0.4

2016
£000

142

2017
£M

7.1

2.4

3.4

2.2

15.1

8.1

23.2

2017
£M

(0.1)

0.3

2017
£000

128

188

266

213

The auditor provided no taxation services to the Group in 2017 (2016: nil). Total fees for non-audit services represented 41% (2016: 50%) of the total fees
for audit services. The audit fees for the Company and the Group are relatively low due primarily to the simple Group corporate structure.

121

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

4 Operating profit continued

Group and Company

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

2017
£M

4.5

2.7

0.6

0.3

1.8

9.9

2016
£M

4.3

3.0

0.5

0.4

2.5

10.7

2017
NUMBER

2016
NUMBER

A summary of directors’ emoluments, including the disclosures required by the Companies Act 2006, is set out in the Annual Remuneration Report on
pages 92 to 100.

5 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 last grant date is set out in note 20.

6 Profit on disposal of investment properties

Net sale proceeds

Book value at date of sale

7 Finance costs

Debenture stock interest and amortisation

Mortgage bond interest

Bank and other interest

Issue cost amortisation

8 Tax charge for the year

2017
£M

1.4

0.4

1.8

2017
£M

13.4

(12.3)

1.1

2017
£M

0.1

7.4

23.8

1.5

32.8

2016
£M

1.9

0.6

2.5

2016
£M

5.0

27.7

1.0

33.7

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.

122

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

9 Investment properties

At 1 October

Acquisitions

Disposals

Refurbishment and other capital expenditure

Net surplus on revaluation of investment properties

Book value at 30 September

Fair value at 30 September:

Core properties valued by Cushman & Wakefield

Non-core properties valued by Cushman & Wakefield

Less: unamortised lease incentives (note 10)

Book value at 30 September

The investment properties valuation comprises:

Freehold properties

Leasehold properties

2017
£M

2016
£M

3,111.6

2,908.0

37.1

(12.3)

40.3

230.6

62.7

32.6

108.3

3,407.3

3,111.6

3,416.5

3,123.6

2.4

(11.6)

(12.0)

3,407.3

3,111.6

2017
£M

3,133.0

285.9

3,418.9

2016
£M

2,864.8

258.8

3,123.6

Investment properties were valued at 30 September 2017 by qualified professional valuers, being members of the Royal Institution of Chartered Surveyors
(RICS), working for Cushman & Wakefield, 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 - Global Standards, which incorporate,
the International Valuation Standards and the RICS UK Valuation Standards edition current at the valuation date and IFRS 13. When considering a property’s
highest and best use, the 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 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 similar assets for which price information is available. The external valuer uses information provided by the Group, such as
tenancy information and capital expenditure expectations. In deriving fair value, the valuer also makes a series of assumptions, using professional judgement
and market observations. These assumptions include equivalent yields and rental values (ERVs) applicable to the properties. Equivalent yields are based on
current market prices, depending on, inter alia, the location and use of the properties. ERVs are calculated using a number of factors which include current
rental income, market comparatives and occupancy levels. 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.

Since the key inputs to the valuation are unobservable, the Group considers all its investment properties fall within Level 3 of the fair value hierarchy in IFRS
13. The Group’s policy is to recognise transfers between 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 (2016: none).

The key assumptions made by the valuers are set out in the Basis of Valuation on pages 142 to 143.

The major inputs to the external valuation are reviewed by the senior management team. In addition, the valuer meets with external auditors and 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 82 to
84.

A summary of the Cushman & Wakefield report can be found on pages 144 to 145.

Fees were agreed at fixed amounts in advance of the valuations being carried out. It is noted that Cushman & Wakefield acted as letting agents for
Shaftesbury Carnaby PLC, Shaftesbury Soho Limited and Shaftesbury Chinatown PLC in the year. The fees payable by the Group to Cushman & Wakefield do
not constitute a significant part of their fee income.

123

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

9 Investment properties continued

Sensitivity analysis
As noted in the critical judgements, assumptions and estimates section on page 118, the valuation of the Group’s property portfolio is inherently subjective.
As a result, the valuations the Group places on its property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions which
may not prove to be accurate, particularly in periods of volatility or low transaction flow in the commercial property market.

The Group’s properties are all located in 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. Cushman & Wakefield value properties in their entirety and not by use, consequently the
sensitivity analysis below has been performed on the Group’s portfolio as a whole.

Increase/(decrease) in the fair value of investment properties

CHANGE IN ERV

CHANGE IN
EQUIVALENT YIELDS

+5.0%
£M

153.7

-5.0%
£M

+0.25%
£M

(154.4)

(241.9)

-0.25%
£M

275.8

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 2017, the Group had capital commitments of £13.6 million (2016: £31.3 million). See pages 48 to 49 for a discussion of the Group’s property
activity during the year.

10 Accrued income

Accrued income in respect of lease incentives

Less: included in trade and other receivables (note 13)

2017
£M

11.6

(2.1)

9.5

2016
£M

12.0

(2.2)

9.8

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.

11 Investment in joint venture

Group

At 1 October

Share of profits

Dividends received

Book value at 30 September

Company

Shares at cost

At 1 October and 30 September

2017
£M

146.4

6.4

(4.8)

148.0

2017
£M

2016
£M

129.6

18.5

(1.7)

146.4

2016
£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 and registered office is the same as the Group, as set out on page 103.

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

124

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

11 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 (charge)/credit for the year

Profit and total comprehensive income for the year

Profit attributable to the Group

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

2017
£M

17.7

1.5

19.2

(1.7)

(1.5)

(3.2)

16.0

(0.2)

15.8

5.3

21.1

(6.8)

14.3

(1.7)

0.2

(1.5)

12.8

6.4

2017
£M

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

18.5

2016
£M

462.6

455.0

3.1

1.3

4.0

1.3

467.0

460.3

1.2

3.9

4.1

4.0

472.1

468.4

10.1

9.4

120.0

46.1

176.2

295.9

120.0

46.3

175.7

292.7

148.0

146.4

125

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

12 Investment in subsidiaries

Shares in Group undertakings

At 1 October

Acquisition of subsidiary

Impairment of subsidiary

At 30 September

2017
£M

754.7

9.8

(144.9)

619.6

2016
£M

997.9

1.7

(244.9)

754.7

During the year the Company acquired 100% of the share capital of Shaftesbury West End Limited (formerly Soho Thai Limited). Shaftesbury Chinatown PLC
distributed £144.9 million to the Company, following a capital reduction during the year. Following this, the Company impaired its investment in this subsidiary. In
2016, Shaftesbury Carnaby PLC distributed £244.9 million to the Company following a capital reduction. The Company then impaired its investment. The
distributions were settled through intercompany indebtedness.

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
Shaftesbury Covent Garden Limited
Shaftesbury Chinatown PLC (formerly Shaftesbury Chinatown Limited)
Shaftesbury Soho Limited
Shaftesbury AV Investment Limited

Shaftesbury AV Limited*
Shaftesbury CL Investment Limited
Shaftesbury CL Limited*
Helcon Limited
Shaftesbury West End Limited (formerly Soho Thai 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
Shaftesbury Covent Garden Property Investments Limited*
Shaftesbury Charlotte Street Limited
Charlotte Street Estate Holdings Limited
Chinatown London 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

* 100% of the share capital of these subsidiaries is 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.
The registered office of the subsidiaries is the same as the Group, as set out on page 103.

13 Trade and other receivables

Amounts due from tenants

Provision for doubtful debts

Accrued income in respect of lease incentives (note 10)

Amounts due from subsidiaries

Amounts due from joint venture

Prepayments

Other receivables

GROUP

2017
£M

12.0

(0.5)

11.5

2.1

0.9

7.1

0.4

2016
£M

10.5

(0.5)

10.0

2.2

0.9

4.4

1.8

COMPANY

AS RESTATED
2016
£M

2017
£M

482.7

769.1

0.9

0.6

0.1

0.9

0.6

22.0

19.3

484.3

770.6

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 2017, amounts due from tenants which were more than 90 days
overdue totalled £1.1 million (2016: £1.5 million) and are considered to be past due. Provisions against these overdue amounts totalled £0.4 million (2016: £0.4
million). The remaining balance is not considered to be impaired.

At 30 September 2017, cash deposits totalling £18.5 million (2016: £18.0 million) were held against tenants’ rent payment obligations. The deposits are held in
bank accounts administered by the Group’s managing agents.

Amounts due from subsidiaries at 30 September 2016 have been restated and presented on a gross basis (see note 15). This has no impact on the net assets
of the Company for that year.

126

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

14 Cash and cash equivalents

Cash and cash equivalents at 30 September 2017, comprising cash at bank, were £45.6 million (2016: £15.6 million) for the Group and £25.8 million (2016:
£0.5 million) for the Company.

Non-current other receivables include £3.7 million at 30 September 2017 (2016: £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.

15 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

Amounts due to subsidiaries

Other taxation and social security

Other payables and accruals

GROUP

2017
£M

22.8

4.0

5.2

9.6

41.6

2016
£M

21.3

0.7

5.2

6.1

12.0

45.3

COMPANY

AS RESTATED
2016
£M

2017
£M

100.6

2.0

4.0

106.6

13.5

3.4

5.8

22.7

Amounts due to subsidiaries at 30 September 2016 have been restated and presented on a gross basis (see note 13). This has no impact on the net assets of
the Company for that year.

16 Borrowings

Group – Current borrowings

Debenture Stock

Group – Non-current borrowings

Mortgage bonds

Secured bank facilities

Secured term loans

Total non-current borrowings

Total Group borrowings

Company – Current borrowings

Debenture Stock

Company – Non-current borrowings

Secured bank facilities

Total non-current borrowings

Total Company borrowings

2017

2016

NOMINAL
VALUE
£M

UNAMORTISED
ISSUE COSTS
£M

BOOK
VALUE
£M

NOMINAL
VALUE
£M

UNAMORTISED
ISSUE COSTS
£M

92.2

BOOK
VALUE
£M

92.2

289.0

380.1

669.1

761.3

(1.7)

(4.7)

(6.4)

575.0

384.8

959.8

(5.8)

(0.8)

(4.4)

(11.0)

569.2

(0.8)

380.4

948.8

290.7

384.8

675.5

767.7

92.2

(0.8)

290.7

382.9

(1.7)

289.0

381.2

At 30 September 2017, there were no drawings against the Company’s secured bank facilities (2016: £290.7 million). The Company is still able to benefit from
these committed revolving credit facilities, and as such, unamortised issue costs of £0.8 million continue to be carried in the Balance Sheet.

127

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

16 Borrowings continued

Net debt/funds

Nominal borrowings – gross

Cash and cash equivalents (note 14)

GROUP

COMPANY

2017
£M

959.8

(45.6)

914.2

2016
£M

767.7

(15.6)

752.1

2017
£M

(25.8)

2016
£M

382.9

(0.5)

382.4

On 7 October 2016, Shaftesbury Carnaby PLC, a subsidiary of the Company, issued £285 million of Guaranteed First Mortgage Bonds (mortgage bonds 2031)
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 the Company.

On the same day, the Company’s existing £61.0 million Debenture Stock (the 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.

On 7 September 2017, Shaftesbury Chinatown PLC, a subsidiary of the Company, issued £290 million of Guaranteed First Mortgage Bonds (mortgage bonds
2027) with a coupon of 2.348% and maturity in September 2027. The bonds are secured by fixed charges over the properties held by Shaftesbury
Chinatown PLC and a floating charge over Shaftesbury Chinatown PLC’s assets. They also benefit from an unsecured guarantee from the Company.

The Group’s borrowings are secured by fixed charges over certain investment properties held by subsidiaries, with a carrying value of £3,015.4 million (2016:
£2,436.9 million), and by floating charges over the assets of the Company and/or certain subsidiaries.

Availability and maturity of borrowings (Group)

Repayable within 1 year

Repayable between 2 and 5 years

Repayable between 5 and 10 years

Repayable after 10 years

2017 FACILITIES

2016 FACILITIES

COMMITTED
£M

DRAWN
£M

UNDRAWN
£M

COMMITTED
£M

DRAWN
£M

UNDRAWN
£M

275.0

290.0

669.8

1,234.8

290.0

669.8

959.8

275.0

92.2

350.0

384.8

827.0

92.2

290.7

384.8

767.7

59.3

Availability and maturity of borrowings (Company)

Repayable within 1 year

Repayable between 2 and 5 years

2017 FACILITIES

2016 FACILITIES

COMMITTED
£M

DRAWN
£M

UNDRAWN
£M

COMMITTED
£M

DRAWN
£M

UNDRAWN
£M

275.0

92.2

350.0

442.2

92.2

290.7

382.9

59.3

128

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

16 Borrowings continued

Interest rate profile of interest bearing borrowings (Group)

Floating rate borrowings

LIBOR-linked facilities (including margin)

Hedged borrowings

Interest rate swaps (including margin)

Total bank borrowings

Fixed rate borrowings

Secured term loans

Mortgage bonds 2027

Mortgage bonds 2031

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 facilities (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

2017

2016

DEBT
£M

INTEREST
RATE

DEBT
£M

INTEREST
RATE

384.8

290.0

285.0

3.85%

2.35%

2.49%

2.99%

110.7

1.75%

180.0

290.7

6.17%

4.49%

384.8

3.85%

92.2

7.93%

4.45%

2017

2016

DEBT
£M

INTEREST
RATE

DEBT
£M

INTEREST
RATE

110.7

1.75%

180.0

290.7

92.2

6.17%

4.49%

7.93%

5.10%

The Group and Company also incur non-utilisation fees on undrawn facilities. At 30 September 2017, the weighted average charge on the undrawn facilities
of £275.0 million (2016: £59.3 million) for the Group and Company was 0.69% (2016: 0.70%).

The weighted average credit margin on the Group and Company’s current bank facilities was:

Drawn facilities

If facilities were fully drawn

Details of the Group’s current financial position are discussed on pages 56 to 57.

17 Financial instruments

FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS (GROUP AND COMPANY)

Interest rate swaps

At 1 October – deficit

Swap contracts terminated

Fair value movement credited/(charged) to the Statement of Comprehensive Income

At 30 September – deficit

During the year the Group and Company terminated interest rate swap contracts with a notional principal of £180.0 million at a cost of £92.1 million.

2017

1.51%

2016

1.33%

1.37%

2017
£M

2016
£M

(114.1)

92.1

22.0

(79.2)

(34.9)

(114.1)

129

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

17 Financial instruments continued

CATEGORIES OF FINANCIAL INSTRUMENTS

Group

Interest rate swaps

Financial assets: receivables and cash and cash equivalents

Trade and other receivables (note 13)

Amounts due from joint venture (note 13)

Other receivables (note 14)

Cash and cash equivalents (note 14)

Financial liabilities at amortised cost

Trade and other payables - due within one year (note 15)

Interest bearing borrowings (note 16)

Net financial instruments

Company

Interest rate swaps

Financial assets: loans and receivables

Amounts due from subsidiaries (note 13)

Amounts due from joint venture (note 13)

Financial liabilities at amortised cost

Trade and other payables - due within one year (note 15)

Amounts due to subsidiaries (note 15)

Interest bearing borrowings (note 16)

Net financial instruments

2017
BOOK
VALUE
£M

AS RESTATED
2016
BOOK
VALUE
£M

(114.1)

11.5

0.9

3.7

45.6

61.7

(13.6)

(948.8)

(962.4)

(900.7)

10.0

0.9

3.7

15.6

30.2

(17.9)

(761.3)

(779.2)

(863.1)

(114.1)

482.7

0.9

483.6

(4.0)

(100.6)

0.8

(103.8)

379.8

769.1

0.9

770.0

(5.8)

(13.5)

(381.2)

(400.5)

255.4

Other receivables relate to cash held on deposit, which have certain conditions restricting their use which are due between 2029 and 2035. The Group’s
trade and other payables are all due within one year (2016: all due within one year).

Amounts due from/to subsidiaries have been restated at 30 September 2016 to present these balances on a gross basis. This has no impact on the net
assets of the Company for that year.

Other financial instruments
The Group’s mortgage bonds and secured term loans are held at amortised cost in the Balance Sheet. The fair value of these financial instruments is in
excess of book value. This excess, which is not recognised in the reported results for the year, is £16.2 million (2016: £52.5 million). The fair values have been
calculated based on a discounted cash flow model using the relevant reference gilt and appropriate market spread. The valuation technique falls within
Level 2 of the fair value hierarchy in IFRS 13.

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 (excluding the mortgage bonds and 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.

130

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

17 Financial instruments continued

Contractual cash flows
The tables below summarise the undiscounted contractual cash flows arising on interest bearing financial liabilities based on conditions existing at the
Balance Sheet date. The Group has no obligation to repay its mortgage bonds or secured term loans in advance of their maturities between 2027 and 2035.

30 SEPTEMBER 2017

Group
Financial liabilities

Interest bearing borrowings:

Principal (note 16)

Interest

Total

30 SEPTEMBER 2016

Group
Financial instruments

Interest rate swaps

Financial liabilities

Interest bearing borrowings:

Principal (note 16)

Interest

Total

30 SEPTEMBER 2017

Company
Financial liabilities

Interest bearing borrowings:

Principal (note 16)

Interest

Total

30 SEPTEMBER 2016

Company
Financial instruments

Interest rate swaps

Financial liabilities

Interest bearing borrowings:

Principal (note 16)

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

948.8

3.6

959.8

371.6

952.4

1,331.4

BOOK
VALUE
£M

CONTRACTUAL
CASH FLOWS
£M

28.7

<1
YEAR
£M

28.7

1-2
YEARS
£M

86.2

2-5
YEARS
£M

290.0

143.6

433.6

5-10
YEARS
£M

669.8

84.4

754.2

>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

BOOK
VALUE
£M

CONTRACTUAL
CASH FLOWS
£M

(0.8)

0.2

(0.6)

BOOK
VALUE
£M

CONTRACTUAL
CASH FLOWS
£M

92.2

20.0

119.1

<1
YEAR
£M

19.9

28.2

1-2
YEARS
£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

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

92.2

5.2

104.3

5.1

13.4

290.7

6.3

321.0

35.0

49.6

131

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

17 Financial instruments continued

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 13. 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.

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 56 to 57.

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. The Board keeps
under review the Group’s market risk, particularly in light of expectations of future interest rate movements.

Interest rate risk
At 30 September 2017, the Group’s drawn borrowings consisted entirely of fixed rate debt. Given this, the Group’s exposure to changes in long-term interest
rates and the potential impact on the Group’s results and equity is considered to be insignificant. This 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 16 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 ratio are discussed in the Strategic Report on pages 56 to 57.

18 Share capital

Allotted and fully paid (ordinary 25p shares)

At 1 October

Exercise of share options

At 30 September

2017
NUMBER
MILLION

2016
NUMBER
MILLION

278.6

0.4

279.0

278.2

0.4

278.6

2017
£M

69.7

0.1

69.8

2016
£M

69.6

0.1

69.7

The Company’s Articles of Association contain provisions which set out the circumstances in which shareholders can exercise control over the issue of
shares.

19 Reserves

The Statement of Changes in Equity is set out on page 117.

The following describes the nature and purpose of each of the reserves within equity.

RESERVE

Share premium

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.

Share-based payments reserve

The equity-settled remuneration expense charged to the Statement of Comprehensive Income is credited to
the share-based payments reserve. Upon exercise of options, the expense previously recognised is transferred
to retained earnings.

Retained earnings

Cumulative gains and losses recognised in the Statement of Comprehensive Income. Transfers from the
share-based payments reserve are also credited to this account.

The Company’s retained earnings at 30 September 2017 include amounts distributable of £218.0 million (2016 as restated: £316.5 million). The prior year
figure has been restated to reflect realised losses on cancelled interest rate swap contracts prior to 30 September 2016.

132

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

20 Share-based remuneration

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 2017:

AWARDED

EXERCISED

LAPSED

AT
30.9.2017

EXERCISABLE
30.9.2017

OPTION
EXERCISE
PRICE

EXERCISE
PERIOD

DATE OF GRANT

Sharesave scheme

5.7.2012

2.7.2014

3.7.2015

1.7.2016

30.6.2017

LTIP

20.12.2013

8.12.2014*

2.12.2015

8.2.2016

12.12.2016

AT
1.10.2016

11,277

37,633

19,270

21,368

(11,277)

(14,214)

(756)

(540)

23,419

17,974

21,368

16,115

402,426

138,800

(1,524)

(3,150)

224,225

(5,179)

406,621

16,115

451,000

403,950

141,950

224,225

411,800

(451,000)

£3.99

£5.38

2017

2019

£6.94

2018-2020

£7.41

2019-2021

£7.74

2020-2022

Nil

2016-2017

2017-2018

2018-2019

2020-2021

2019-2022

1,310,673

427,915

(477,247)

(10,393)

1,250,948

* 402,426 options over ordinary shares will vest in December 2017, following satisfaction of performance targets in respect of the three years ended 30 September 2017.

Weighted average exercise price

£0.41

£0.29

£0.27

£0.36

£0.43

AT
1.10.2016

AWARDED

EXERCISED

LAPSED

AT
30.9.2017

Weighted average remaining contractual life

1.2 years

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

20.12.2013

14.12.2016

451,000

5.7.2012

2.7.2014

1.8.2017

3.7.2015

12.4.2017

11,277

14,214

756

2.1 years

WEIGHTED
AVERAGE
PRICE AT
EXERCISE

£8.91

£9.81

£9.59

The LTIP and Sharesave schemes were the only share-based payment arrangements that existed during the year.

A summary of the rules of the schemes referred to above is set out in the Remuneration Report on page 91. The remuneration policy, which includes more
detail, is available on the Group’s website.

133

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

20 Share-based remuneration continued

The fair value of option grants is measured by Lane Clark & Peacock LLP, Actuaries & Consultants. For the grant made during the year, the main inputs and
assumptions, and the resulting fair values, are as follows:

2016 LTIP

12.12.16

£9.01

Nil

NAV and TSR

18%

0.3%

19%

84%

Modified binomial
Monte Carlo

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

Discount for marketability

Fair values:
NAV
TSR

* The index is the FTSE 350 REIT Index.

NO
HOLDING PERIOD

CONTINGENT
HOLDING PERIOD

TWO YEAR
HOLDING PERIOD

£9.01
£3.56

£8.74
£3.45

£8.47
£3.35

The assumed volatility was determined taking into account factors including the historical volatility of the Company share price. Actual future volatility may
differ, potentially significantly, from historic volatility.

The vesting conditions relating to options granted under the 2016 LTIP are described in the Annual Remuneration Report on page 95.

21 Dividends

Final dividend for:

Year ended 30 September 2016 at 7.55p per share

Year ended 30 September 2015 at 6.925p per share

Interim dividend for:

Year ended 30 September 2017 at 7.9p per share

Year ended 30 September 2016 at 7.15p per share

Dividends for the year

Timing difference on payment of withholding tax

Dividends cash paid

2017
£M

21.3

22.0

43.3

1.2

44.5

2016
£M

19.5

19.9

39.4

(1.2)

38.2

A final dividend of 8.1p per share was recommended by the Board on 27 November 2017. Subject to approval by shareholders at the 2018 AGM, the final
dividend will be paid as an ordinary dividend on 16 February 2018 to shareholders on the register at 19 January 2018. The dividend totalling £22.6 million will
be accounted for as an appropriation of revenue reserves in the year ending 30 September 2018. See page 53 of the Strategic Report for commentary on
dividends.

The trustee of the Company’s Employee Benefit Trust waived dividends in respect of 597,351 (2016: 491,804) ordinary shares during the year.

134

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

22 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)

Investment property valuation movements (note 9)

Profit on disposal of investment properties (note 6)

Net finance costs

Administrative charges, finance charges, and dividends received from subsidiaries settled
through intercompany indebtedness

Impairment of subsidiary (note 12)

Dividends received from joint venture

Share of profit from joint venture (note 11)

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

23 Movement in borrowings

Group

Mortgage bonds

8.5% First Mortgage Debenture Stock 2024

Secured bank facilities

Secured term loans

Issue costs

Year ended 30 September 2016

Company

8.5% First Mortgage Debenture Stock 2024

Secured bank facilities

Issue costs

Year ended 30 September 2016

2017
£M

301.6

AS RESTATED
2016
£M

99.1

0.5

1.4

0.3

(0.5)

1.9

0.4

(230.6)

(108.3)

(1.1)

10.7

(6.4)

76.4

(0.5)

0.8

76.7

97.7

(18.5)

71.8

(0.2)

3.0

74.6

2017
£M

57.7

1.4

0.3

2016
£M

282.9

1.9

0.4

(12.0)

(200.1)

82.6

(623.1)

144.9

244.9

(4.8)

(12.6)

(0.1)

(1.1)

(13.8)

(1.7)

(12.1)

0.1

1.0

(11.0)

1.10.2016
£M

CASH
FLOWS
£M

NON-CASH
ITEMS
£M

30.9.2017
£M

(493.2)

(92.2)

(290.7)

(384.8)

6.4

(761.3)

(640.3)

(92.2)

(290.7)

1.7

(381.2)

(267.9)

10.4

290.7

6.1

(186.0)

(91.0)

10.4

290.7

301.1

(83.7)

(81.8)

81.8

(1.5)

(30.0)

81.8

(0.9)

80.9

(29.6)

(575.0)

(384.8)

11.0

(948.8)

(761.3)

0.8

(381.2)

135

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

24 Performance measures

Earnings per share

Basic

Dilutive effect of share options

Diluted

2017

2016

PROFIT
AFTER
TAX
£M

301.6

NUMBER OF
SHARES
MILLION

EARNINGS
PER SHARE
PENCE

278.9

0.7

279.6

108.1

(0.2)

107.9

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

EPRA earnings per share
The calculations below are in accordance with the EPRA Best Practice Recommendations.

2017

2016

NUMBER OF
SHARES
MILLION

EARNINGS
PER SHARE
PENCE

PROFIT
AFTER
TAX
£M

NUMBER OF
SHARES
MILLION

EARNINGS
PER SHARE
PENCE

278.9

108.1

99.1

278.4

35.6

Basic

EPRA adjustments:

Investment property valuation surplus (note 9)

Profit on disposal of investment properties (note 6)

Movement in fair value of derivatives (note 17)

Recognition of fair value of Debenture Stock

Adjustments in respect of the joint venture:

Investment property valuation surplus

Deferred tax

EPRA earnings

PROFIT
AFTER
TAX
£M

301.6

(230.6)

(1.1)

(22.0)

(2.6)

(0.1)

45.2

278.9

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*

Excess of fair value over carrying value of debt:

Secured term loans*

Mortgage bonds

EPRA NNNAV

2017

NUMBER
OF ORDINARY
SHARES
MILLION

279.0

0.8

279.8

NET
ASSETS
£M

2,646.9

0.5

2,647.4

17.9

2,665.3

279.8

(17.9)

(40.0)

15.5

2,622.9

279.8

* Includes our 50% share of deferred tax and fair value of secured term loans in the Longmartin joint venture.

136

(82.7)

(108.3)

(0.4)

(7.9)

(0.9)

16.2

NET ASSET
VALUE PER
SHARE
£

9.49

9.46

0.06

9.52

(0.06)

(0.14)

0.05

9.37

34.9

29.2

(11.3)

(4.6)

39.0

NET
ASSETS
£M

2,387.1

0.5

2,387.6

76.1

18.0

278.4

2016

NUMBER
OF ORDINARY
SHARES
MILLION

278.6

1.0

279.6

2,481.7

279.6

(76.1)

(18.0)

(64.9)

2,322.7

279.6

(38.9)

12.5

10.5

(4.1)

(1.6)

14.0

NET ASSET
VALUE PER
SHARE
£

8.57

8.54

0.27

0.07

8.88

(0.27)

(0.07)

(0.23)

8.31

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

24 Performance measures continued

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 at 30 September 2016 excludes those interest rate swaps which
were cancelled in October 2016.

Net asset value return

EPRA NAV at 1 October (A)

EPRA NAV at 30 September

Increase during the year

Dividends paid during the year

NAV return (B)

NAV return % (B/A)

Financing ratios

Loan-to-value and gearing

Nominal value of debt

Cash and cash equivalents

Net debt (A)

Fair value of investment properties (B)

Loan-to-value (A/B)

EPRA net assets (C)

Gearing (A/C)

Interest cover

2017
PENCE

888.00

952.00

64.00

15.45

79.45

8.9%

2016

SHARE OF
JOINT
VENTURE
£M

60.0

(2.0)

58.0

224.4

25.8%

2016
PENCE

869.00

888.00

19.00

14.08

33.08

3.8%

TOTAL
£M

827.7

(17.6)

810.1

3,348.0

24.2%

2,481.7

32.6%

WHOLLY-
OWNED
BUSINESS
£M

959.8

(45.6)

914.2

3,418.9

26.7%

2017

SHARE OF
JOINT
VENTURE
£M

60.0

(0.6)

59.4

227.8

26.1%

WHOLLY-
OWNED
BUSINESS
£M

767.7

(15.6)

752.1

3,123.6

24.1%

TOTAL
£M

1,019.8

(46.2)

973.6

3,646.7

26.7%

2,665.3

36.5%

Operating profit before investment property disposals
and valuation movements (A)

74.2

7.9

82.1

70.0

6.6

76.6

Finance costs

Finance income

Net finance costs (B)

Interest cover (A/B)

32.8

(0.1)

32.7

2.3x

2.7

2.9x

35.5

(0.1)

35.4

2.3x

33.7

(0.1)

33.6

2.1x

2.7

2.4x

36.4

(0.1)

36.3

2.1x

For the wholly-owned group, the blended cost of debt is 3.19% (2016: 4.47%). This is calculated using the drawn cost of borrowings of 2.99% (2016: 4.45%)
plus the cost of commitment fees on undrawn bank facilities of 0.69% (2016: 0.70%). At 30 September 2017, the undrawn bank facilities totalled £275.0
million (2016: £59.3 million). For total debt, the blended cost of debt is 3.26% (2016: 4.52%) and includes the impact of our share of debt in our joint
venture of £60 million (2016: £60 million), upon which interest is charged at 4.43% (2016: 4.43%).

See also pages 50 to 54 in the Strategic Report for explanations of why we use these performance measures.

137

FINANCIAL STATEMENTS NOTES TO THE FINANCIAL STATEMENTS Shaftesbury Annual Report 2017

25 Operating leases

The Group as lessor
Future aggregate minimum rentals receivable under non-cancellable operating leases based on contracted rental income at the year end:

Not later than one year

Later than one year but not later than five years

Later than five years but not later than ten years

Later than ten years

2017
£M

96.1

241.5

144.5

107.8

589.9

2016
£M

84.2

234.2

143.8

98.7

560.9

The Group has over 1,250 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 43 to 47.

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

The Company leases its head office accommodation from a wholly-owned subsidiary.

26 Related party transactions

2017
£M

0.4

1.6

2.0

0.6

4.6

2016
£M

0.4

1.6

2.0

1.0

5.0

During the year, the Company received administrative fees, dividends and interest from its subsidiaries. The Company leases its office accommodation from
a subsidiary and paid interest on amounts due to subsidiaries. The Company also received interest on a loan and administrative fees from the joint venture.
These transactions are summarised below:

Transactions with subsidiaries:

Administrative fees receivable

Dividends receivable

Interest receivable

Interest payable

Rents payable

Amounts due from subsidiaries

Amounts due to subsidiaries

Transactions with joint venture:

Administrative fees receivable

Dividends receivable

Interest receivable

Amount due from joint venture

AS RESTATED
2016
£M

2017
£M

11.4

177.3

12.8

1.4

0.4

482.7

(100.6)

0.1

4.8

0.9

11.7

592.5

18.9

0.4

769.1

(13.5)

0.2

1.7

0.1

0.9

All amounts are unsecured, repayable on demand and bear a market rate of interest. Directors are considered the only key management personnel. Apart
from the directors’ remuneration set out in the Annual Remuneration Report on pages 92 to 100, there were no other transactions with directors.

See notes 13 and 15 for information on the restatement of amounts due from/to subsidiaries.

138

Other information

139

Alternative Performance
Measures (APMs)

The Group has applied the European Securities and Markets Authority (ESMA) guidelines on alternative performance measures in these annual results. An APM
is a financial measure of historical or future financial performance, position or cash flows of the Group which is not a measure defined or specified in IFRS.

Set out below is a summary of APMs used in this Annual Report – some of which are EPRA performance measures, which are a set of standard disclosures for the
property industry, as defined by EPRA in its Best Practice Recommendations.

APM

NEAREST IFRS MEASURE

EXPLANATION AND RECONCILIATION

EPRA earnings and earnings per share

Profit and total comprehensive income for the year

Note 24 and Strategic Report (page 51)

Basic earnings per share

Adjusted earnings per share

Basic earnings per share

Strategic Report (page 53)

Net asset value per share

Net assets attributable to shareholders

Note 24 and Strategic Report (page 54)

Diluted net asset value per share

Net assets attributable to shareholders

Note 24

EPRA net assets and NAV

Net asset value return

Net assets

N/A

Note 24 and Strategic Report (page 54)

Total portfolio

Valuation growth

Investment properties

Strategic Report (pages 37 and 50)

Net surplus on revaluation of investment properties

Strategic Report (pages 37 and 50) and Glossary

Portfolio net investment

N/A

Glossary

Total debt

Net debt

Group LTV

Gearing

Blended cost of debt

Interest cover

Borrowings

Note 24 and Strategic Report (pages 50 and 57)

Borrowings less cash and cash equivalents

Note 24 and Strategic Report (pages 50 and 57)

N/A

Note 24 and Strategic Report (pages 50 and 57)

Where this report uses like-for-like comparisons, these are defined within the Glossary.

EPRA Measures
The following is a summary of the EPRA performance measures included in this Annual Report. The measures are defined in the Glossary.

MEASURE

Earnings

DEFINITION

Earnings from operational activities, excluding fair value movements in
respect of properties and interest rate swaps and deferred tax arising in
our joint venture

Earnings per share

EPRA earnings per weighted number of ordinary shares

Net assets

NAV per share

Triple net assets

Net assets adjusted to remove fair value movements on interest rate
swaps and deferred tax arising in our joint venture

Diluted EPRA net assets per share

EPRA net assets adjusted to include the fair value of financial instruments
and debt

Triple NAV (NNNAV)

Diluted triple net assets per share

Net Initial Yield (NIY)

Current annualised rental income less non-recoverable property costs as
a % of property valuation plus assumed purchasers’ costs

Topped-up NIY

NIY adjusted to reflect expiry of rent-free periods and stepped rents

Vacancy

Cost ratio

140

ERV of vacant space as a % of ERV of all properties

Total costs (including direct vacancy costs) as a % of gross rental income

PAGE

2017

£45.2m

2016

£39.0m

136

143

141

16.2p

14.0p

£2,665.3m

£2.481.7m

£9.52

£8.88

£2,622.9m

£2,322.7m

£9.37

2.77%

2.89%

6.0%

26.9%

£8.31

3.00%

3.08%

1.6%

27.8%

STRATEGIC REPORT OTHER INFORMATION Shaftesbury Annual Report 2017
STRATEGIC REPORT OTHER INFORMATION ALTERNATIvE PERFORMANCE MEASURES (APMS) Shaftesbury Annual Report 2017

As disclosed in note 1 to the financial statements, all of the Group’s properties are in one geographic location and are managed as a single portfolio. As such, we do
not report on a segmental basis. Like-for-like calculations of growth in values and rents are therefore stated on an aggregated basis.

EPRA COST RATIO

Gross rental income

Revenue

Less: recoverable property expenses

Share of joint venture rents receivable

Cost

Property charges

Less: recoverable property expenses

Share of joint venture property expenses

Administrative expenses

Share of joint venture administrative expenses

Total costs

Less: charge for share-based remuneration

Total costs excluding share-based payments

EPRA cost ratio

Cost ratio excluding share-based payments

NOTE

2017
£M

2016
£M

111.5

106.2

(8.1)

8.9

(7.8)

7.5

112.3

105.9

23.2

(8.1)

0.9

14.1

0.1

30.2

(1.4)

28.8

22.1

(7.8)

0.8

14.1

0.2

29.4

(1.9)

27.5

26.9%

25.6%

27.8%

26.0%

Note: We do not capitalise property nor administrative expenses. The figures above include vacancy costs. Given the nature of our portfolio, it is impractical to separate these out.

Investment properties
Whilst our portfolio is geographically concentrated in London’s West End, it is granular in nature, with almost 600, generally small, buildings, often clustered
in contiguous blocks. It is not practical to provide detailed property-by-property information recommended by EPRA’s BPR. However, an analysis of our
portfolio, split by destination and occupier use, is set out on pages 142 to 143.

We own 100% of our properties, except for property held by our Longmartin joint venture, in which we have a 50% interest. The breakdown of our
wholly-owned portfolio between freehold and long leasehold ownership is set out on page 123.

At 30 September 2017, we had 772 commercial and 516 residential tenants, with no individual tenant representing a material amount of our current
annualised income. The ten largest commercial tenants represented just 10.5% of current annualised income. As our tenant base is so granular, we do not
believe listing the top ten tenants, nor a detailed analysis of tenant business sector is useful. However, the analysis on pages 142 to 143 sets out details of
income and rental values by destination and occupier use.

EPRA vacancy by occupier use is set out on pages 40 to 41.

Development disclosures
Our wholly-owned portfolio is all within Conservation Areas and around 20% of our buildings are listed. We do not carry out material speculative developments.
Our capital expenditure commitments are low, representing an average of 1.1% of portfolio value over the past five years. Included in this are numerous
small schemes, and no one scheme is material.

At 30 September 2017, we had one larger scheme underway, details of which are set out on page 49. An overview of assets held for, or undergoing,
refurbishment is set out on pages 48 to 49.

141

Portfolio analysis

Basis of valuation

Portfolio analysis

AT 30 SEPTEMBER 2017

Portfolio

Fair value (£m)

Restaurants,
cafés and leisure

Shops

% of total fair value

Current income (£m)

ERV (£m)

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

Offices

Area – sq. ft.

% of current income

% of ERV

Average unexpired lease length – years

Residential

Number

Area – sq. ft.

% of current passing rent

% of ERV

1 Shaftesbury Group’s 50% share

Basis of valuation

AT 30 SEPTEMBER 2017

Overall initial yield

Topped-up initial yield

Overall equivalent yield

Tone of restaurant equivalent yields

Tone of restaurant ERVs - £ per sq. ft.

Tone of retail equivalent yields

Tone of retail ERVs - ITZA £ per sq. ft.

Tone of office equivalent yields

Tone of office ERVs - £ per sq. ft.

Average residential ERVs - £ per sq. ft. per annum

142

NOTE

1,14

2,14

3,14

CARNABY

1,265.5

35%

39.7

51.2

COvENT
GARDEN

947.2

26%

28.2

36.4

CHINATOWN

791.5

22%

23.8

30.3

SOHO

272.1

8.9

10.7

WHOLLY-

OWNED

FITZROvIA

PORTFOLIO

LONGMARTIN1

PORTFOLIO

140.2

3,416.5

227.8

3,644.3

TOTAL

100%

114.1

144.5

109,000

176,000

211,000

59,000

50,000

605,000

39,000

16%

17%

39%

34%

62%

59%

41%

39%

182,000

143,000

92,000

43,000

14,000

474,000

73,000

49%

46%

28%

32%

21%

25%

28%

244,000

85,000

28,000

36,000

10,000

403,000

102,000

28%

31%

12%

15%

216

130

15%

17%

56,000

133,000

86,000

36,000

25,000

336,000

55,000

21%

19%

13%

12%

19%

16%

4.7

5.5

54%

13%

25%

94%

105.3

134.1

282

37%

34%

302

33%

35%

17%

19%

562

13%

12%

8.8

10.4

15%

13%

36%

41%

34%

15%

12%

NOTE

CARNABY

COvENT
GARDEN

2.64%

2.76%

3.36%

CHINATOWN

2.65%

2.75%

3.42%

SOHO

2.92%

2.96%

3.49%

2.90%

3.04%

3.56%

3.40% - 3.90% 3.35% - 3.90% 3.50% - 3.75% 3.50% - 3.85%

£110 - £145

£55 - £178 £270 - £405 (ITZA)

£110 - £135

3.35% - 3.95% 3.35% - 4.00% 3.50% - 4.25% 3.50% - 4.25%

£125 - £525

£100 - £480

£140 - £355

£165 - £280

4.00% - 4.50% 4.00% - 4.25%

4.25% 4.25% - 4.60%

£58 - £83

£50 - £75

£43 - £60

£50 - £73

£52

£49

£41

£48

FITZROvIA

PORTFOLIO

LONGMARTIN

WHOLLY-

OWNED

2.77%

2.89%

3.46%

3.31%

3.25%

3.80%

3.75% - 4.00%

£90 - £138

3.40% - 4.15%

£94 - £710

4.00% - 4.50%

£63 - £78

£49

2.86%

2.93%

3.36%

3.35% - 4.00%

£93 - £120

3.40% - 4.50%

£100 - £215

4.00% - 4.50%

£48 - £60

£54

STRATEGIC REPORT OTHER INFORMATION Shaftesbury Annual Report 2017STRATEGIC REPORT OTHER INFORMATION PORTFOLIO ANALYSIS Shaftesbury Annual Report 2017

AT 30 SEPTEMBER 2017

Portfolio

Fair value (£m)

CARNABY

1,265.5

COvENT

GARDEN

947.2

CHINATOWN

FITZROvIA

WHOLLY-
OWNED
PORTFOLIO

LONGMARTIN1

TOTAL
PORTFOLIO

140.2

3,416.5

227.8

3,644.3

4.7

5.5

94%

105.3

134.1

282

8.8

10.4

100%

114.1

144.5

109,000

176,000

211,000

59,000

50,000

605,000

39,000

54%

37%

34%

302

15%

13%

182,000

143,000

92,000

43,000

14,000

474,000

73,000

13%

33%

35%

36%

41%

Offices

Area – sq. ft.

244,000

85,000

28,000

36,000

10,000

403,000

102,000

56,000

133,000

86,000

36,000

25,000

336,000

55,000

25%

13%

12%

15%

12%

17%

19%

562

34%

35%

39.7

51.2

16%

17%

49%

46%

28%

31%

26%

28.2

36.4

39%

34%

28%

32%

12%

15%

216

21%

19%

791.5

22%

23.8

30.3

62%

59%

21%

25%

130

13%

12%

SOHO

272.1

8.9

10.7

41%

39%

25%

28%

15%

17%

19%

16%

Restaurants,

cafés and leisure

Average unexpired lease length – years

Shops

% of total fair value

Current income (£m)

ERV (£m)

Number

Area – sq. ft.

% of current income

% of ERV

Number

Area – sq. ft.

% of current income

% of ERV

Average unexpired lease length – years

% of current income

% of ERV

Average unexpired lease length – years

Residential

Number

Area – sq. ft.

% of current passing rent

% of ERV

1 Shaftesbury Group’s 50% share

Basis of valuation

AT 30 SEPTEMBER 2017

Overall initial yield

Topped-up initial yield

Overall equivalent yield

Tone of restaurant equivalent yields

Tone of restaurant ERVs - £ per sq. ft.

Tone of retail equivalent yields

Tone of retail ERVs - ITZA £ 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

2.64%

2.76%

3.36%

2.90%

3.04%

3.56%

2.65%

2.75%

3.42%

SOHO

2.92%

2.96%

3.49%

3.40% - 3.90% 3.35% - 3.90% 3.50% - 3.75% 3.50% - 3.85%

£110 - £145

£55 - £178 £270 - £405 (ITZA)

£110 - £135

3.35% - 3.95% 3.35% - 4.00% 3.50% - 4.25% 3.50% - 4.25%

£125 - £525

£100 - £480

£140 - £355

£165 - £280

4.00% - 4.50% 4.00% - 4.25%

4.25% 4.25% - 4.60%

£58 - £83

£50 - £75

£43 - £60

£50 - £73

£52

£49

£41

£48

FITZROvIA

2.86%

2.93%

3.36%

3.35% - 4.00%

£93 - £120

3.40% - 4.50%

£100 - £215

4.00% - 4.50%

£48 - £60

£54

WHOLLY-
OWNED
PORTFOLIO

2.77%

2.89%

3.46%

LONGMARTIN

3.31%

3.25%

3.80%

3.75% - 4.00%

£90 - £138

3.40% - 4.15%

£94 - £710

4.00% - 4.50%

£63 - £78

£49

NOTE

1,14

2,14

3,14

Notes
1.

The fair values at 30 September 2017 (the “valuation date”) shown in
respect of the individual villages are, in each case, the aggregate of
the fair values of several different property interests located within
close proximity which, for the purpose of this analysis, are combined
to create each village. The different interests within each village were
not valued as a single lot.

Current income includes total 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.

ERV is the respective valuers’ opinion of the rental value of the
properties, or parts thereof, reflecting the terms of the relevant
leases or, if appropriate, reflecting the fact that certain of the
properties, or parts thereof, have been valued on the basis of vacant
possession and the assumed grant of a new lease. Where appropriate,
ERV assumes completion of developments which are reflected in the
valuations. ERV does not reflect any ground rents, head rents nor rent
charges and estimated irrecoverable outgoings.

The percentage of current income and the percentage of ERV in each
of the use sectors are expressed as a percentage of total income and
total ERV for each village.

Average unexpired lease length has been calculated by weighting the
leases in terms of current rent reserved under the relevant leases
and, where relevant, by reference to tenants’ options to determine
leases in advance of expiry through effluxion of time.

Where mixed uses occur within single leases, for the purpose of this
analysis, the majority use by rental value has been adopted.

The initial yield is the net initial income at the valuation date
expressed as a percentage of the gross valuation. Yields reflect net
income after deduction of any ground rents, head rents and rent
charges and estimated irrecoverable outgoings at the valuation date.

The topped-up initial yield, ignoring contractual rent-free periods,
has been calculated as if the contracted rent is payable from the
valuation date and as if any future stepped rental uplifts under leases
had occurred.

Equivalent yield is the internal rate of return, being the discount rate
which needs to be applied to the expected flow of income so that the
total amount of income so discounted at this rate equals the capital
outlay at values current as of 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.

14. The analysis excludes a non-core asset, acquired as part of a portfolio

during the year.

143

Summary report

by the valuers

Summary report
by the valuers
To the directors of Shaftesbury PLC

In accordance with your instructions, we have undertaken a valuation of the
various commercial and residential freehold and long leasehold property
interests as at 30th September 2017 (the “Valuation Date”) held by Shaftesbury
Carnaby PLC, Shaftesbury Covent Garden Limited, Shaftesbury Chinatown
PLC, Shaftesbury Soho Limited, Shaftesbury AV Limited, Shaftesbury CL
Limited, Shaftesbury West End 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 24 November 2017 (“our Reports”). Our Reports were prepared for
accounts purposes.

All properties have been subject to external inspections between January
and October 2017 and a number were subject to internal inspections.

We confirm that the valuations and Reports have been prepared in
accordance with the RICS Valuation – Global Standards which incorporate
the International Valuation Standards (“IVS”) and the RICS UK Valuation
Standards (the “RICS Red Book”) edition current at the Valuation Date. It
follows that the valuations are compliant with IVS. We confirm that all valuers
who have contributed to the valuation have complied with the requirements
of PS 1 of the RICS Red Book. We confirm that we have sufficient current
knowledge of the relevant markets, and the skills and understanding to undertake
the valuation competently. We confirm that Charles Smith has overall
responsibility for the valuations and is in a position to provide an objective
and unbiased valuation and is competent to undertake the valuations.
Finally, we confirm that we have undertaken the valuations acting as an
External Valuer as defined in the RICS Red Book.

In accordance with PS 2.5 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 has been
the signatory of valuation reports addressed to the Company and the
Subsidiary Companies since 2013. Cushman & Wakefield Debenham Tie
Leung Limited (“C&W”) 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 1st September 2015, DTZ acquired Cushman & Wakefield and the
combined group now trades under the Cushman & Wakefield brand.
Cushman & Wakefield’s financial year end is 31st December. The proportion
of fees payable by the Company to the Cushman & Wakefield group in the
financial year to 31st December 2016 was less than 5%. We anticipate that
the proportion of fees payable by the Company to the Cushman & Wakefield
group in the financial year to 31st December 2017 will remain at less than 5%.

Prior to 1st 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 four years. Prior to 1st September
2015, Cushman & Wakefield were appointed, until recently, as retail agents
by Shaftesbury Soho Limited and Shaftesbury Carnaby PLC. C&W are
currently appointed as retail agents on behalf of Shaftesbury Chinatown PLC
in respect of the property known as Central Cross.

In accordance with the provisions of VPS3 of the RICS Red Book edition
current at the Valuation Date, in undertaking our valuations we have lotted
together certain individual properties to form a separate property (each
referred to as a “Property”, collectively as the “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 RICS 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 VPS4 item 7 of the RICS Red Book. Under these provisions,
the term “Fair Value” means the definition adopted by the International
Accounting Standards Board (“IASB”) in IFRS 13, namely “The price that
would be received to sell an asset, or paid to transfer a liability in an orderly
transaction between market participants at the measurement date”.

Under IFRS 13, The Fair Value Hierarchy, the property we have valued is
designated as Level 3 inputs. Level 3 inputs have been designated as
unobservable inputs. Unobservable inputs are used to measure fair value to
the extent that relevant observable inputs are not available, thereby allowing
for situations in which there is little, if any, market activity for the asset or
liability at the measurement date. An entity develops unobservable inputs
using the best information available in the circumstances, which might
include the entity’s own data, taking into account all information about
market participant assumptions that is reasonably available (IFRS 13:87-89).

144

STRATEGIC REPORT OTHER INFORMATION Shaftesbury Annual Report 2017STRATEGIC REPORT OTHER INFORMATION SUMMARY REPORT BY THE vALUERS Shaftesbury Annual Report 2017

Our opinion of the Fair Value of each of the 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.

Having regard to the foregoing, we are of the opinion that the aggregates of
the Fair Values, as at 30th September 2017, 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 24 November 2017, were as follows:

A full explanation of the Assumptions made in our valuations and details of
the sources of information are contained within our Reports.

Freehold Properties

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 advisors have provided us with the floor areas of the remaining
properties or parts of properties.

Long leasehold
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 advisors.

Total

£3,133,015,000
(Three billion, one hundred and thirty-three
million and fifteen thousand pounds)

£285,925,000
(Two hundred and eighty-five million, nine
hundred and twenty-five thousand pounds)

£3,418,940,000
(Three billion, four hundred and eighteen
million, nine hundred and forty thousand
pounds)

Certain properties were subject to works of repair or refurbishment at 30th
September 2017, or were subject to outstanding retentions and fees in
respect of projects already completed at that date. In these instances, the
Company advised us of the amount of the outstanding costs. The costs will
be borne by the Company as they are not recoverable from tenants. We
have reflected these costs in our valuations. The total amount of such costs
is £11,494,050 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.

A long lease is one with an unexpired term in excess of 50 years.

The contents of our Reports are confidential to Shaftesbury PLC,
Shaftesbury Covent Garden Limited, Shaftesbury Carnaby PLC, Shaftesbury
Chinatown PLC, Shaftesbury Soho Limited, Shaftesbury AV Limited,
Shaftesbury CL Limited, Shaftesbury West End 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 Cushman & Wakefield Debenham Tie Leung
Limited 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
Cushman & Wakefield Debenham Tie Leung Limited

145

Shareholder

Information

Shareholder
information

Corporate Timetable

FINANCIAL CALENDAR

Annual General Meeting and AGM statement

9 February 2018

Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex, BN99 6DA

2018 half year results

DIvIDENDS AND BOND INTEREST

Proposed 2017 final dividend:

Ex-dividend

Record date

Payment date

2018 interim dividend to be paid

Bond interest

May 2018

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.

18 January 2018

19 January 2018

16 February 2018

July 2018

31 March and
30 September 2018

Effect of REIT status on payment of
dividends
As a REIT, we do not pay UK corporation tax in respect of rental profits and
chargeable gains relating to our property rental business. However, we are
required to distribute at least 90% of the qualifying income (broadly
calculated using the UK tax rules) as a PID.

Certain categories of shareholder may be able to receive the PID element of
their dividends gross, without deduction of withholding tax. Categories
which may claim this exemption include: UK companies, charities, local
authorities, UK pension schemes and managers of PEPs, ISAs and Child Trust
Funds.

Further information and the forms for completion to apply for PIDs to be
paid gross are available on the Group’s website or from the registrar.

Where the Group pays an ordinary dividend this will be treated in the same
way as dividends from non-REIT companies. The 2017 final dividend is being
paid entirely as an ordinary dividend.

146

STRATEGIC REPORT OTHER INFORMATION Shaftesbury Annual Report 2017
Glossary of terms

Glossary
of terms

Annualised current income
Total annualised actual and ‘estimated
income’ reserved by leases at a
valuation date. No rent is attributed
to leases which were subject to
rent-free periods at that date. It does
not reflect any ground rents, head
rents nor rent charges and estimated
irrecoverable outgoings at the
valuation date. ‘Estimated income’
refers to gross ERVs 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. Like-for-like growth in
annualised current income is the
change during a period, adjusted to
remove the impact of acquisitions
and disposals, expressed as a
percentage of annualised current
income at the start of the period.

Alternative Performance Measure
(APM)
A financial measure of historical or
future financial performance, position
or cash flows of the Group which is not
a measure defined or specified in IFRS.

Best Practices Recommendations
(BPR)
Standards set out by EPRA to provide
comparable reporting between
investment property companies.

Blended cost of debt
Weighted average cost of drawn
borrowings, plus non-utilisation fees
on undrawn borrowings.

Compound Annual Growth Rate
(CAGR)
The year-on-year growth rate of an
investment over a specified period of
time.

Diluted net asset value per share
Net asset value per share taking into
account the dilutive effect of
potential vesting of share options.

EPRA
European Public Real Estate Association.

EPRA adjustments
Standard adjustments to calculate
EPRA measures, in accordance with
its BPR.

EPRA cost ratio
Total costs as a percentage of gross
rental income.

EPRA earnings
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 EPS
EPRA earnings divided by the
weighted average number of shares in
issue during a reporting period.

EPRA net assets
Net assets adjusted 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. It includes additional equity if
all vested share options were exercised.

EPRA NAV
EPRA net assets per share, including
the potentially dilutive effect of
outstanding options granted over
ordinary shares.

EPRA triple net assets
EPRA net assets amended to include
the fair value of financial instruments
and debt.

EPRA NNNAV
EPRA NAV amended to include the fair
value of financial instruments and debt.

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.
Like-for-like ERV growth is the change
in ERV during a period, adjusted to
remove the impact of acquisitions and
disposals, expressed as a percentage
of ERV at the start of the period.

Fair value
The amount at which an asset or
liability could be exchanged between
two knowledgeable, willing and
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.

Interest cover
Operating profit before investment
property disposals and valuation
movements, divided by finance costs
net of finance income.

Like-for-like growth in rents
receivable
The increase in rents receivable during
an accounting period, adjusted to
remove the impact of acquisitions,
disposals and changes as a result of
larger refurbishment schemes,
expressed as a percentage of rents
receivable in the corresponding
previous accounting period.

Loan-to-value (LTV)
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 during the period of calculation,
expressed as a percentage of the
EPRA NAV per share at the beginning
of the period.

Net initial yield
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.

Net investment
Acquisitions and capital expenditure
less disposals in a period.

Portfolio reversionary potential
The amount by which the ERV
exceeds current income, measured at
a valuation date.

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.

Topped-up net initial yield
Net initial yield adjusted to assume
rent-free periods or other unexpired
lease incentives, such as discounted
rent periods and stepped rents, have
expired.

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.

Valuation growth
The valuation movement and realised
surpluses or deficits arising from the
Group’s investment property portfolio
expressed as a percentage return on
the valuation at the beginning of the
period adjusted, on a time weighted
basis, for acquisitions, disposals and
capital expenditure. When measured
on a like-for-like basis, the calculation
excludes those properties acquired
or sold during the period.

147

STRATEGIC REPORT OTHER INFORMATION Shaftesbury Annual Report 2017Design: SG Design (sg-design.co.uk)

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