S
S
h
h
S
a
h
a
f
f
a
t
t
f
e
e
t
s
e
s
b
s
b
b
u
u
r
u
r
r
y
y
y
A
A
A
n
n
n
n
n
n
u
u
u
a
a
a
l
l
l
R
R
R
e
e
e
p
p
p
o
o
o
r
r
r
t
t
t
2
2
2
0
0
0
1
1
7
1
8
8
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.
Focused on restaurants, leisure and retail, our 15-acre
portfolio is clustered mainly in Carnaby, Seven Dials and
Chinatown, but also includes substantial ownerships in
east and west Covent Garden, Soho and Fitzrovia.
Strategic report
Annual review
42 Portfolio report
50 Acquisitions
51 Financial results
55 Financial management
57 Risk management
61 Viability statement
Governance
64 Our people
70 Governance at a glance
74 Corporate governance
80 Nomination committee
report
82 Audit committee report
86 Directors’ remuneration
report
89 Remuneration at a glance
90 Remuneration policy
Annual remuneration
97
report
108 Directors’ report
110 Directors’ responsibilities
111 Independent auditor’s
report
Financial
statements
118 Group statement of
comprehensive income
119 Balance sheets
120 Cash flow statements
121 Statements of changes
in equity
122 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 Non-financial
information statement
147 Shareholder information
148 Glossary of terms
10
Strategic report
Overview
1 Shaftesbury in numbers
2 Chairman’s statement
Q&A with the Chief
3
Executive
Business model and
strategy at a glance
Exceptional portfolio in
the heart of London's
West End
Focus on restaurants,
leisure and retail
20 Curating distinctive
12
17
21
22
and lively destinations
Promoting our
destinations
Restaurants, cafés
and leisure
Retail
24
26 Offices
28 Residential
32 Measuring success
34 Sustainability and
stakeholders
Shaftesbury Annual Report 2018
12345
Strategic report Overview
Shaftesbury in numbers
1
Strategic report
Overview
Our portfolio in the heart of the West End
15 acres
and 1.9 acres owned in joint
venture
1.9m sq.ft.
commercial and residential space4
and 0.3m sq.ft. in joint venture
595restaurants, cafés, pubs
and shops4
>200mannual visits to the West End c.700,000
City of Westminster’s working
population
100%of portfolio within short walk
of an Underground station
£3.95bn
portfolio valuation1,3
£154.0m
estimated rental value2,3
£32.5m
reversionary potential2,3
£31.4m
lettings, renewals and
rent reviews4
Financials
4.6%EPRA vacancy2,4,5
7.6%scheme vacancy4,5
£175.5m
profit after tax
58.1p
earnings per share
16.8p
dividends per share
£51.7m
EPRA earnings1,2
17.1pEPRA earnings per share1,2
5.8%net asset value return1,2
£9.91
EPRA NAV1,2
22.8%
loan to value1,2,3,6
2.6x
interest cover1,2,3
1 An alternative performance
measure. See page 140
2 See Glossary on page 148
for definition
3 Including our 50% share
of the Longmartin
joint venture
4 Wholly-owned portfolio
5 % of total ERV
6 Based on net debt
People
30employees
60%Gender balance
(% female employees)
11 years
average length of service
Shaftesbury
Annual
Report 2018
1
11
Strategic report Overview
Chairman’s statement
Our results this year once again demonstrate the
resilient qualities of our portfolio, our strategy and
our experienced management.
A key ingredient of our success is our transparent and socially-
responsible culture, which pervades every aspect of our
governance arrangements and how we behave. Reflecting our
long investment horizon, decisions are made based on long-term
benefits and rewards, rather than being focused on short-term
gains. We take a holistic approach both to our business and the
areas in which we choose to invest, which benefits all who visit
the West End as well as the important local community. We are
committed to sustainability in the management of our portfolio
of mainly older buildings, extending their economic useful lives
through use change and sympathetic refurbishment, as well as
minimising the environmental impact of both our activities and
those of our occupiers.
Our team’s experience and forensic knowledge of our West End
locations, and the local investment and occupier market, are
invaluable to both the delivery of our strategy and its evolution.
Our staff development and succession plans are ensuring we
maintain a broad and growing range of skills to address the future
needs of the business. On behalf of the Board, I would like to
thank the team for their outstanding commitment and contribution
to our progress this year.
After serving nearly nine years as a non-executive director,
Hilary Riva will retire from the Board at the AGM in February
2019. We all thank Hilary for her excellent contribution, counsel
and guidance over the past nine years. We expect to appoint a
new non-executive director shortly.
With the exceptional qualities of our portfolio, the expertise of
our team and a strong balance sheet, I am confident we are well
placed to navigate the challenges which may lie ahead and take
advantage of the opportunities which inevitably will arise.
Jonathan Nicholls
Chairman
26 November 2018
Over 32 years, we have assembled an impossible-to-replicate
portfolio in the heart of London’s West End. Our focus on
delivering long-term growth in rental income, achieved with
modest capital expenditure, underpins our record of sustained,
sector-leading returns to investors. Our approach was honed in
the severe property-sector recession of the early 1990s, and the
resilience it brings to our business was tested and proven in the
global financial downturn of 2007 to 2010.
Reflecting the growth in our EPRA earnings1 this year, the Board
is pleased to recommend a final dividend of 8.5p, bringing the
total dividends for the year to 16.8p, an increase in rate per share
of 5.0%. The total distribution for the year will be £51.6 million.
Over the past ten years the compound annual growth rate in
EPRA earnings1 and dividends per share has been 7.2% and 7.0%
respectively.
A long-term investment strategy, such as ours, needs to be
supported by stable, long-term finances. In December 2017 we
raised £260.4 million, net of expenses, through a placing of new
equity. This well-supported share issue has ensured we have
committed resources to continue to invest in, and take advantage
of, opportunities to grow the business, whilst avoiding the risks
inherent in excessive debt leverage. The proceeds are now fully
deployed or earmarked for investment.
Shaftesbury Annual Report 2018
2
Strategic report Overview
Q&A with the Chief Executive
Brian Bickell answers questions on our performance
and activities during the year, the evolution of our
business and longer-term challenges and priorities.
How has Shaftesbury performed this year?
It has been another year of good progress with growth in income,
earnings and the value of our portfolio. Our results continue to
demonstrate the appeal and qualities of our carefully-curated
and iconic destinations, underwritten by the global attraction
and exceptional features of London and the West End. Footfall,
spending and the demand for space in our locations continues
to be largely unaffected by the widely-reported headwinds
affecting the national economy and consumer confidence.
Profit after tax for the year was £175.5 million. EPRA earnings1 this
year have risen by £6.5 million to £51.7 million, which equates to
an increase in EPRA earnings per share1 of 5.6% to 17.1 pence.
Net property income increased by 6.2% to £93.8 million (2017:
£88.3 million) as a result of an increase in rents receivable,
reflecting income from acquisitions and like-for like growth of
6.4%, partly offset by an increase in property costs. We have
benefited from the first full year of interest savings following debt
restructuring in 2016 and 2017, which significantly reduced our
blended finance cost.
The valuation of our portfolio1,2 now stands at £3.95 billion, reflecting
a like-for-like increase of 3.8%, of which 3.0% arose in the first
half of the year. In assessing our portfolio, the valuers take into
account growing contracted income, prospects for long-term
growth in rental values and continuing high levels of occupancy.
The portfolio revaluation surplus, together with disposal profits,
have added 39 pence to EPRA net asset value per share1, which
now stands at £9.91, an increase of 4.1%. Net asset value return1
for the year was 5.8%.
What underpins London’s economic resilience
and prospects?
London is one of the leading global cities. It has the largest
economy of any Western European city and contributes almost
one quarter of UK GDP. The breadth of its economy encompasses:
• a world-leading financial and commercial centre;
• a major hub for creative industries, from technology to media;
• a globally-recognised location for education and research;
• home to world-class visual and performing arts facilities; and
• a valuable visitor economy, attracting more international tourists
than any city in the western hemisphere as well as huge
numbers of local and domestic visitors.
1 An alternative
performance measure.
See page 140
2 Including our
50% share of the
Longmartin
joint venture
Shaftesbury
Annual
Report 2018
3
+5.6%
EPRA EPS1
£3.95bn
Portfolio valuation1
Financial results: pages 51 to 54
Valuation review: pages 42 to 44
Strategic report Overview11 Strategic report Overview
Q&A with the Chief Executive continued
This unique combination of features means London is not solely
reliant on the fortunes of the wider UK economy. Although the
uncertainty surrounding the implications of Brexit for the UK
economy are having an adverse impact on business and consumer
confidence, London is much less affected. It continues to attract
domestic and international businesses and investment, with
medium-term growth projections for London out-performing
national forecasts.
Why do you focus on the West End?
At the heart of the city, the West End draws over 200 million visits
annually. Its huge working population provides a regular, daily
customer base for its retail, restaurant and leisure businesses.
Importantly, throughout the week and particularly around
weekends, local, domestic and international visitors arrive in
their millions to enjoy its tourist and cultural attractions as well
as unrivalled shopping, dining and leisure choices. Together with
its residential population, the West End offers a busy, seven-
days-a-week trading environment, and a more-affluent customer
base, which underpins its prosperity and appeal to businesses.
London’s extensive transport infrastructure makes the West End
accessible not only to Londoners, but also to the large population
in the south east who commute or visit for a day out. The five main
Underground stations in the West End currently handle some
225 million passengers annually. The opening of the Elizabeth
Line, now expected late next year, will add 10% to London’s
transport capacity and will improve the West End’s transport
connectivity materially. All our ownerships are within a short
walk of the new Tottenham Court Road and Bond Street
interchanges, which are forecast to be handling 200 million
passengers annually by the mid-2020s.
Has leasing activity across the portfolio been
affected by UK-wide economic uncertainties?
With robust footfall and trading in our locations, occupier
demand has been stable throughout the year. We completed
leasing transactions with a rental value of £31.4 million and,
excluding our larger schemes, EPRA vacancy1,2 over the year
has remained in line with our ten-year average.
£31.4m
leasing
transactions
The average period taken to let space, measured from the date it
becomes available to the completion of a contractual commitment,
has increased over the year by 4 weeks to around 2½ months.
Potential occupiers have become more cautious, especially
where they are contemplating substantial fit-out and rental
commitments. This is particularly so where they are exposed to
UK-wide consumer spending trends.
At our three completed larger schemes, 84.4% of the income is
now contracted or under offer. Our mixed use scheme at 57
Broadwick Street, Carnaby, was fully let during the year and we
completed the letting of Thomas Neal’s Warehouse, in Seven Dials,
in November 2018. At our retail and restaurant scheme at Central
Cross, Chinatown, 47% of the income is now contracted and a
further 23% is under offer. The ERV of space available or under
offer is £1.9 million, representing just 1.3% of total portfolio ERV.
Whilst the pace of these lettings has impacted on revenue growth
in the year ended 30 September 2018, they will now be making a
useful contribution to earnings in the current financial year.
84.4%
completed larger
scheme income
contracted
or under
offer
schemes
undertaken
extending to
177,200
sq.ft.
Are you continuing to invest in improving the
portfolio?
During the year, schemes to improve our buildings extended to
177,200 sq. ft. Capital expenditure totalled £25.3 million. Having
completed the development of the three larger schemes we
commenced in 2015, and in response to sustained demand for
the space we typically have to offer, over recent months we have
taken opportunities to accelerate a number of schemes. Whilst
these will temper revenue growth until they become income-
producing, they will bring long-term benefits to our portfolio.
Shaftesbury Annual Report 2018
4
Leasing and occupancy: pages 45 to 46
Asset management: pages 46 to 47
Why we invest in London’s West End: page 12
Q&A with the
Chief Executive
continued
Have you been able to add to the portfolio
this year?
We seek to buy buildings which have a predominance of valuable
restaurant or retail uses on lower floors already, or where we see
potential to achieve this. We focus on high-footfall West End
locations, close to our existing holdings, where we can see
prospects for long-term rental growth. Our asset management
strategy often brings compound benefits to our existing holdings.
Ownerships in our locations are fragmented and buildings we
seek are likely to be privately, rather than institutionally, owned.
Growing macroeconomic uncertainties have not had any
discernible impact on the West End investment market during
the year or on the availability of assets to buy. Existing owners
tend to have a long-term outlook, valuing the security these
investments provide, and, in the absence of financial or personal
pressures, they remain reluctant to sell. For the same reasons,
other investors – domestic and international – are keen and
competitive buyers of the limited number of buildings which
come to the market.
Despite this supply/demand imbalance, we have secured
additions to the portfolio totalling £167.8 million. Our largest
acquisition was 72 Broadwick Street, in December 2017, for
£92.1 million, which has given us control of a 0.5-acre site in
the centre of Carnaby.
£167.8m
acquisitions
The forward-purchase of a long-leasehold interest in 90-104
Berwick Street, Soho, which we contracted in August 2017 for
£41 million, including costs, has been delayed. The vendor has
advised that their redevelopment scheme, which we will acquire
once complete, is behind schedule and will not be handed over
to us until mid-2019. This strategic acquisition will increase our
ownership to around 50% of Berwick Street’s frontages.
At year end, the ERV of space held for, or under refurbishment
totalled £10.9 million (7.6% of ERV²) and extended to 174,700 sq. ft.
In September 2018, we secured vacant possession of 65,300 sq. ft.
of space at 72 Broadwick Street, Carnaby. Shortly we will submit a
planning application to introduce new uses and reconfigure the
building, and currently expect to start our works in summer 2019.
How do you ensure the appeal of your iconic
West End locations evolves?
Creating prosperous environments for our tenants is fundamental
to sustained growth in rental income and, in turn, the value of our
portfolio. Our long-term strategy focuses on curating distinctive, lively
destinations in the West End, attracting footfall and spending to
support our retail, restaurant and leisure occupiers. We
deliberately focus on an innovative mid-market offer, to appeal
to the broadest customer base. Promoting our areas to the widest
audience of potential visitors and customers is an essential aspect
of our strategy. The environments we create are also important
in attracting office occupiers and residents for our apartments.
In recent years, we have seen considerable growth in interest
and spending on innovative, casual dining and leisure concepts.
It is now widely-acknowledged that a varied and interesting food
and beverage offer, particularly where there is very high visitor
footfall, is a significant attraction in its own right and draws
potential customers for retailers. We are the largest single owner
of restaurants, cafés and licensed premises in the West End, and
their importance as a source of rental income has grown from
28% to 35% of ERV2 over the last 10 years.
Our largest cluster of restaurants is in Chinatown, where we have
a rolling programme to introduce new food concepts from
mainland China and across the Far East. Carnaby’s casual dining
and leisure offer, which now accounts for 21% of its income,
continues to draw increasing footfall from lunchtime to late
evening, throughout the week.
How are you adapting to the changing retail
environment?
With consumer spending patterns, tastes and expectations
changing at an ever-faster rate, often heavily influenced by social
media, we recognise the importance of ensuring our locations
respond to these trends through our choice of occupiers and,
where appropriate, changing uses. We seek out, trial and support
new concepts, both domestic and international, and have always
adopted a leasing strategy which provides flexibility for tenants
as well as ourselves. Importantly, rental levels in our busy
locations are very competitive compared with nearby streets.
Whilst our shops usually have an online presence, we are starting
to see internet-based retailers taking physical space in our
locations to promote their brand identities.
1 Wholly-owned portfolio
2 % of total ERV
Acquisitions: page 50
Restaurants, cafés and leisure: pages 22 to 23
Promoting our destinations: page 21
Retail: pages 24 to 25
Shaftesbury
Annual
Report 2018
5
Strategic report Overview11 Strategic report Overview
Q&A with the Chief Executive continued
How do you see the investment market and
potential for acquisitions changing in the
medium term?
We do not expect to see an increase in the availability of properties
to acquire in the foreseeable future. However, we have a forensic
knowledge of the local market and a focus on purchases which
meet our strict criteria, based on their potential and benefits
they may bring to our extensive holdings over the long term.
Together with readily-available finance, this gives us an advantage
in a highly-competitive environment.
We are always keen to add to our ownerships. However, our
main focus is to crystallise the income potential of the buildings
we already own, whilst creating opportunities to grow their
income-generating potential further.
Following last year’s equity placing, how are the
Group’s finances positioned?
Our financing strategy has always been based on maintaining a
mix of equity and external finance, with debt arrangements
which we believe are prudent and support our long-term
investment and asset management horizons.
We monitor gearing levels, taking into account current financial
commitments, as well as the need for funding to grow and invest
in our portfolio, which often requires us to act quickly when
opportunities arise. In light of recent and prospective investment
commitments, in December 2017, the Board resolved that it was
the appropriate time to raise additional equity to ensure gearing
did not increase to a level which would constrain future portfolio
activity or increase financing risk. A well-supported equity placing
was carried out, issuing new shares on a non pre-emptive basis
equivalent to 9.98% of share capital at £9.52, raising £260.4
million, net of expenses.
In 2016 and 2017, we took important steps to restructure our
debt finance, taking advantage of low long-term interest rates to
retire expensive legacy finance and hedging. This initiative was
completed in early 2018 with the restructure and extension of
our two remaining revolving bank facilities. Our earliest debt
maturities are now in 2022 and 2023, with a spread of expiries
out to 2035.
We are now very well placed to continue our long-term investment
strategy, with the capacity to raise additional long-term debt
finance when appropriate, without the risk of being hampered by
adverse equity market conditions. At the year end, gearing2,3,4
stood at 29.5% and our loan-to-value ratio1,2,3 was 22.8%. Cash
and available debt resources stood at £343.5 million, of which
£92.7 million is already earmarked for investment.
As a result of voting at the 2018 AGM, we currently do not have
authority from shareholders to carry out non pre-emptive share
issues. Should the need arise, this does not preclude issuing
equity on a pre-emptive basis through, for example, a rights issue
or open offer.
How do you engage with your community?
We operate in the heart of the West End. By value, some 84% of
our portfolio falls within the jurisdiction of the City of Westminster,
with the remainder in the London Borough of Camden. We work
with both local authorities across a range of activities. Day-to-day,
we augment their management services such as street cleaning
and security. Also, we work with neighbouring long-term owners
and Business Improvement Districts to help address wider West
End issues such as air quality, biodiversity and freight and waste
consolidation.
We identify and collaborate with the local authorities on projects
to improve the public realm around our areas. Schemes this year
included a major new public square at Newport Place,
Chinatown and the repaving of Earlham Street West in Seven
Dials, both of which have improved the streetscapes materially
and are already bringing increasing footfall.
£260.4m
equity placing
2
major public
realm schemes
£225m
bank facilities
refinanced
1 An alternative performance measure. See page 140
2 Including our 50% share of the Longmartin joint venture
3 Based on net debt
4 Based on EPRA net assets
Shaftesbury Annual Report 2018
6
Sustainability and stakeholders: pages 34 to 39
Public realm improvements: page 72
Financial management: pages 55 to 56
We are based in the community in which we operate and strive
to be a responsible, accessible corporate citizen. Our extensive
engagement with the local community provides financial support
and advice for a wide range of local community groups and
charities as well as arts organisations. We hosted 30 organisations
at our community partner’s networking breakfast this year, which
was addressed by the Leader of Westminster City Council.
We have evaluated our community investment, comprising the
value of time we devote to community activities and contributions,
both in kind and in cash, at £0.9 million this year.
Who are the people who work for Shaftesbury?
The successful delivery of our strategy is supported by an
experienced team, who are committed to ensuring its
implementation continues to evolve to meet the challenges and
opportunities of change across not only our business, but the
local and wider environment in which we operate.
We operate our business with a staff of just 30 employees but
we are supported by over 200 out-sourced advisors across a
wide-range of professional disciplines, as well as contractors and
on-site personnel. We have a comprehensive code of standards
to which these organisations are required to adhere to, including
matters such as sustainability and sourcing of materials, health
and safety, London Living Wage commitments, Modern Slavery
Act obligations and diversity. Importantly, we benefit not only
from the knowledge and experience our external advisors bring,
but also their enthusiasm and support for our business and values.
What is your outlook for the year ahead and
longer term?
Uncertainty surrounding our departure from the EU and future
trading and other arrangements with the EU27, together with
structural changes in traditional national retailing patterns,
continue to affect nationwide business confidence and
investment, economic growth and consumer spending. However,
the global attractions of London and the West End to businesses
and huge numbers of local, domestic and international visitors,
together with their broad-based economies, create an operating
environment which is insulated from the impact of national
headwinds and has good long-term growth prospects.
Although we are seeing longer letting periods for the largest space
we have to offer, general demand continues to be firm, buoyed
by the trading conditions our tenants are reporting. Importantly,
our ownership clusters enable us to curate distinctive locations
and we continue to focus on growing their appeal by offering an
ever-evolving experience with a variety of affordable, contemporary
retail, restaurant and leisure choices. This approach supports the
prosperity of our tenants and sustains demand for the competitively-
priced commercial and residential accommodation we offer.
Our experienced, enthusiastic team, which brings flair and
innovation to the management of our portfolio, coupled with
secure finances and underpinned by the dynamism of, and
prospects for, London and the West End, have always been, and
will continue to be, the foundations of the long-term success of
this exceptional business.
Brian Bickell
Chief Executive
26 November 2018
Gareth Field
Passed away June 2018
Aged 54
Our dear colleague Gareth died suddenly on 20 June 2018. Our Financial Controller and IT
manager, he joined the Group in October 1987, and was close to completing 31 years’ service.
He is greatly missed by all his Shaftesbury colleagues as well as all those who were fortunate to
meet him. He will be fondly remembered by all for his love of life, personality, warmth and
humour, gregarious nature, loyalty and support, openness and his commitment to Shaftesbury.
Gareth was the cornerstone of the Shaftesbury team and a great ambassador for the business
and our culture; he embodied the best of us.
His love of sport and Wales was second only to that of his family; our thoughts are with his wife
Nicki, his children Chris and Annabel, and his mother Carole. We share the pain of their loss.
Strategic report
Overview
Q&A with the
Chief Executive
continued
Shaftesbury
Annual
Report 2018
7
11
We are committed to supporting
our diversity agenda
At Shaftesbury, we appreciate the importance of
diversity in terms of new ideas, fresh perspectives
and a variety of skills it brings to our business.
It enhances our reputation as an employer and
motivates both staff and the people with whom
we work.
Diversity is not limited to gender but includes a
wide spectrum of attributes and backgrounds.
Outside of our workplace, we promote the
diversity agenda in a variety of ways.
Right: We are sponsors of Pride in
London. Across Soho, Carnaby and
Seven Dials, many of our occupiers
actively supported the festival with
one-off events and a range of special
deals and products.
With this year’s #PrideMatters
campaign focused on what Pride
means to the community, from
celebration to diversity and beyond,
we were pleased to welcome back
the Pride in London pop-up shop
to the heart of Soho, which raised
£63,000 for the organisation.
Shaftesbury and diversity
Freehold
A networking group for real
estate professionals who identify
as LGBT. Founded in 2011, it now
has over 1,000 members. Brian
Bickell has been a member of its
board since 2011.
Real Estate Balance
We are members of Real Estate
Balance, whose mission is to
improve gender diversity across
the industry, particularly at
senior levels.
30% Club
We have signed up to this global
initiative to encourage improved
gender balance on boards to not
only encourage better leadership
and governance, but also contribute
to better all-round performance.
International Women’s Day
Seven Dials celebrated International
Women’s Day in March with a
host of activities and special
events, including a free live panel
discussion.
Pathways to Property
We support this programme to
introduce young people from
varying social backgrounds to the
real estate sector and its career
opportunities.
Shaftesbury Annual Report 2018
1
Case Study one
Diversity
9
Strategic report Overview
Business model and strategy
At a glance
We own an exceptional portfolio in the
heart of London’s West End clustered in
popular destinations
with a focus on
restaurants, leisure
and shops
Carnaby
£1.42bn
297Restaurants,
cafés & pubs
35%
298Shops
33%
Chinatown
£0.84bn
Offices
0.5m sq.ft.
20%
Soho
£0.3bn Fitzrovia
£0.15bn
593Apartments
12%
Covent Garden
£1.01bn
St Martin’s
Courtyard
£0.22bn
Portfolio valuation including our 50% share of the Longmartin joint venture
% of wholly-owned portfolio ERV
See page 14
See page 17
Shaftesbury Annual Report 2018
10
Strategic report
Strategic report
Overview
Overview
Business model
and strategy
At a glance
continued
Curating distinctive and lively
destinations
Attracting
occupiers
Delivering long-
term returns
Ownership
clusters
Footfall and
spending
Growing
contracted
income and
rental potential
Forensic
knowledge of
the West End
Tenant
selection
Management
strategy
Engagement
with local
community and
stakeholders
Improve
our buildings
and the public
realm
Promoting
our destinations
High
occupancy
Sustained
demand
Growth in
earnings and
dividends
Long-term
growth in
portfolio value
and total
shareholder
returns
See page 20
See pages 32 and 33
Supported by
Experienced
management
team
Prudent
financial
management
Effective
governance
See pages 39 and 64 to 67
See page 55
See page 70
Shaftesbury
Annual
Report 2018
11
11 Strategic report Overview
Exceptional portfolio in the heart
of London’s West End
Since the early 1990s, we have invested
exclusively in the heart of London’s West End,
concentrating on iconic, high-footfall
locations.
BOND STREET
R
E
G
E
N
T
S
T
R
E
E
T
Over the years we have identified well-located areas where
footfall potential is good but rents are initially low, often
because they have suffered from fragmented ownership, lack
of investment and the absence of a coherent strategy for
uses and tenant mix.
We take a long-term view in our investment and
management strategies. Establishing ownership clusters
enables us to unlock rental and capital value potential whilst
compounding the benefits of individual transactions, such
as improved tenant quality and higher rental tones, across
our adjacent and nearby holdings.
This investment strategy was born out of our experience in the
property recession of 1990 – 1993, when our then modest
holdings in Chinatown saw sustained tenant demand, rental
growth and rising cash flow. Capital values declined much
less, and recovered more quickly, than the wider London or UK
market in that challenging period. We saw similar economic
performance in the global financial crisis of 2007 – 2010.
Since we adopted this strategy, our portfolio, which now
comprises nearly 600 buildings, mostly of domestic size, close
to the West End’s world-class visitor attractions, has delivered
sustained rental growth and long-term out-performance in
capital values and total shareholder returns.
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.
Portfolio valuation1
Carnaby 36%
Covent Garden 26%
Chinatown 21%
Soho 7%
Fitzrovia 4%
Longmartin 6%
£3.95bn
ERV2
Over 32
years
to accumulate and
virtually impossible
to replicate
GREEN
PARK
£143.7m
Restaurants, cafés and leisure 35%
Shops 33%
Offices 20%
Residential 12%
15 acres
and 1.9 acres
owned in joint
venture
T
E
E
R
T
E S
G
D
O
O
G
OX F O R D S T R E E T
T
O
T
T
E
N
H
A
M
C
O
U
R
T
R
O
A
D
C
H
A
R
I
N
G
C
R
O
S
S
R
O
A
D
R
E
G
E
N
T STREET
Y
L
D I L
A
C
P I C
E
U
N
E
AFTESBU RY A V
H
S
L
L
A
L M
L
A
P
L
L
A
E M
H
T
ST JAMES’S
PARK
G A C R E
N
O
L
D
N
A
S T R
1 Including our 50% share of
the Longmartin joint venture
2 Wholly-owned portfolio
Shaftesbury Annual Report 2018
12
T
E
E
R
T
E S
G
D
O
O
G
T
O
T
T
E
N
H
A
M
C
O
U
Fitzrovia
0.8 acres
R
T
R
O
A
D
OX F O R D S T R E E T
TOTTENHAM COURT ROAD
OXFORD CIRCUS
R
E
G
E
N
T
S
T
R
E
E
T
BOND STREET
Carnaby
4.7 acres
R
E
G
E
N
T STREET
Y
L
D I L
A
C
P I C
GREEN
PARK
c. 600
buildings
clustered in iconic,
high footfall
locations
C
H
A
R
I
N
G
Seven Dials
3.2 acres
C
R
O
S
S
R
O
A
D
G A C R E
St Martin’s
Courtyard
1.9 acres
L
N
O
COVENT GARDEN
Soho
1.5 acres
E
U
N
E
AFTESBU RY A V
Chinatown
H
3.2 acres
S
LEICESTER SQUARE
D
N
A
S T R
Coliseum
1.0 acre
CHARING CROSS
100%
of our portfolio is
close to an
Underground/
Elizabeth Line station
PICCADILLY CIRCUS
L
L
A
L M
L
A
P
L
L
A
E M
H
T
ST JAMES’S
PARK
1.9 million
sq. ft.
of commercial and
residential space
and 0.3 m sq. ft. held
in joint venture
1
1
Strategic report
Overview
Exceptional
portfolio in the
heart of London’s
West End
continued
Opera
Quarter
0.6 acres
Shaftesbury
Annual
Report 2018
13
Strategic report Overview
Exceptional portfolio in the heart
of London’s West End
Our destinations
Carnaby
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, focused on flagship stores, new concepts and independent
brands. It now has a growing reputation for lively, casual dining,
cafés, pubs, bars and clubs, centred on Kingly Court and Kingly
Street. Our ownership, across 14 streets, covers 4.7 acres.
65% of the Group’s office space is in Carnaby. It includes our
largest floor plates and more modern office buildings.
carnaby.co.uk
Covent Garden
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. This
location also includes 1.9 acres, close to Leicester Square, held
by the Longmartin joint venture, in which we own 50%.
sevendials.co.uk
stmartinscourtyard.co.uk
Carnaby
of our portfolio1
36%
£44.8m
£57.2m
current income2
ERV
Shaftesbury Annual Report 2018
14
Covent Garden
of our portfolio1
26%
£30.2m
current income2
Longmartin
of our portfolio3
6%
£8.1m
£10.3m
current income3
ERV3
£37.6m
ERV
% of village annualised current income
Carnaby
Covent
Garden Chinatown
Soho
Fitzrovia Longmartin
Restaurants,
cafés and
leisure
Retail
Offices
21%
39%
62%
42%
51%
14%
46%
28%
20%
22%
16%
34%
27%
12%
4%
17%
7%
36%
Strategic report
Overview
Exceptional
portfolio in the
heart of London’s
West End
Our destinations
continued
Residential
6%
21%
14%
19%
26%
16%
Chinatown
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
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.
thisissoho.co.uk
Fitzrovia
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.
Chinatown
21%
of our portfolio1
£24.1m
current income2
£31.6m
ERV
Soho
7%
of our portfolio1
£9.4m
current income2
£11.6m
ERV
of our portfolio1
Fitzrovia
4%
£4.9m
£5.7m
current income2
ERV
1 By value
2 Annualised, as at
30 September 2018
3 Our 50% share of the
Longmartin joint venture
Shaftesbury
Annual
Report 2018
15
11 Strategic report Overview
Exceptional portfolio in the
heart of London’s West End
Why London’s West End?
The West End
The West End is a popular destination with
estimated visits in excess of 200 million annually.
Visitors are attracted by its variety of shops, wide
choice of innovative and accessible dining and
leisure concepts, together with its unrivalled
concentration of entertainment and cultural
attractions, historic buildings and public spaces.
Generating over 3% of the UK’s economic output,
the City of Westminster is an economic powerhouse.
With an estimated 700,000 jobs across the
borough, it is the largest employment centre in
the UK. Together with its visitor base and
important residential community, this brings
seven-days-a-week footfall and spending.
The West End is at the heart of the capital’s
transport network. The six underground
stations closest to our villages handle over
225 million passengers annually. This network
is critical to the success of the West End and
infrastructure investment continues to improve
capacity and reliability.
Our portfolio is uniquely well-placed to benefit
from the Elizabeth Line, currently expected to
open late next year. 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 West End.
>200 million
annual visits to
the West End
c.700,000
working
population in
the City of
Westminster
>3%
of UK GVA
produced within
the City of
Westminster
>225 million
passengers use the six
Underground stations
closest to our villages
London
London is one of the world’s principal global cities.
It is the largest city in Western Europe and is a
world-leading financial and commercial centre. Its
unrivalled variety of heritage and cultural
attractions draw huge numbers of domestic and
international visitors. 2017 saw an increase in
international visitors for the eighth consecutive
year, rising to a record 19.8 million visits with an
estimated spend of £13.5 billion. Forecasts point to
growth in overseas and domestic overnight visits of
around 25% by 2025.
The city’s population is currently around 8.9 million
and is expected to grow to 10 million by 2030.
Additionally, there is a similar population in southern
England, within easy commuting or visiting
distance.
Its global appeal brings prosperity to the city, giving
it a broad and resilient economic base, which is
not reliant solely on the fortunes of the wider UK
economy.
8.9 million
London’s
population
19.8 million
overseas visits to
London in 2017
Shaftesbury Annual Report 2018
16
1
1
Strategic report
Overview
68%
of ERV1
Restaurants,
leisure and
retail
1 Wholly-owned
portfolio
2 EPRA vacancy
3 Excluding larger
schemes at 30 Sept
2017 and 2018
Shaftesbury
Annual
Report 2018
17
Strategic report Overview
Focus on restaurants, leisure and retail
Diversified mix of income streams, focused on
restaurants, leisure and retail over lower floors
with offices and residential on upper floors.
Our 1.1 million sq. ft. of restaurant, leisure and retail space provides
69% of our annualised current income1 and 68% of ERV1. It
comprises 297 restaurants, cafés and pubs and 298 shops, mainly
of medium or small size.
Like-for-like ERV growth¹
restaurants, leisure and retail
Tenant selection
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, rather
than predictable chains.
Long history of demand exceeding
availability
In our areas, listed building and conservation legislation largely
restricts wholescale development. Also, local planning and
licensing policies for restaurants and leisure constrain the
availability of space.
With a long history of resilient occupier demand, there is a structural
imbalance between supply and demand, which is fundamental to our
portfolio’s rental prospects and capital value. They have both
shown significantly greater long-term growth and stability
through economic cycles than the real estate market outside
this location, even in times of adverse economic conditions.
Over the past ten years, the ERV of these uses has
demonstrated like-for-like annualised growth of 3.6%, despite
rental levels remaining broadly flat during the global financial
crisis. Over the same period, vacancy levels for these uses have
averaged 2.5% of ERV1,2,3.
160
140
120
100
80
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
ERV (cumulative, rebased to 100 at 30 September 2008)
Restaurants, leisure and retail vacancy1,2,3
4%
3%
2%
1%
0%
3.5%
3.6%
3.1%
average: 2.5%
3.1%
2.7%
2.6%
1.4%
2.3%
1.5%
0.8%
2009 2010 2011
2012
2013 2014 2015
2016
2017
2018
Evolution of uses over time (% of ERV¹)
Residential
Offices
Shops
Restaurants and leisure
7
22
43
28
2008
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, normally with no capital contribution from us.
When tenants vacate, we re-let the shell of space usually without
incurring significant refurbishment costs, limiting portfolio
obsolescence.
Upper floors - a mix of offices and
residential
Typically, our upper floors comprise small offices, residential, or
a mix of both. A local working population and a residential
community are important 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.
12
20
33
35
2018
Restaurants, cafés, leisure and retail: pages 22 to 25
Offices and residential: pages 26 to 29
1 Charitable engagement
The Connection
Through sponsoring two outreach
workers we help homeless people in
our areas. The organisation provides
immediate relief from homelessness
and long-term support leading to
housing, work and independence.
House of St Barnabas
We support this charity which aims
to create a fairer future where lasting
work is a reality for people affected
by homelessness. The charity supports
people back in to work through a
City & Guilds accredited 12 week
employability programme.
LandAid
We are a corporate sponsor of this
property-sector charity, focused on
providing accommodation for young
homeless people. We held an advisors'
treasure hunt in the West End, which
raised £17,600.
The Samaritans
As well as sponsoring a charity comedy
night and providing funding so they
could open at Christmas and on New
Year’s Day, we helped them hold Brew
Monday in Kingly Court, where many
Carnaby restaurants and cafés came
together to donate hot drinks and
snacks, raising invaluable funds and
the organisation's profile.
Choose Love
A pop-up store selling presents for
people in need. They sell real gifts
– practical items – which are donated
to refugees. All the donations support
front-line services and the shop is
raising awareness of Help Refugees.
Shaftesbury Annual Report 2018
18
We have a long record of
supporting local charities and
not-for-profit organisations
Through sponsorship, provision of
accommodation, pro-bono advice and time,
we assist local organisations to support their
valuable work across the West End, and its local
community.
We offer retail space which is temporarily vacant
to a range of charities and groups to enable them
to promote their aims and activities to the many
millions who visit our locations.
Right: We sponsored a special
benefit performance, hosted by
Sir Ian McKellen, of The York Realist
at the Donmar Warehouse, in aid of
their Young & Free scheme and the
Albert Kennedy Trust.
Photograph by Johan Persson
19
Strategic report Overview
Curating distinctive and lively
destinations
Our strategy is to encourage footfall to, and
spending in, our areas to provide our restaurants,
cafés, pubs and shops with an environment
within which they can prosper.
This drives sustained occupier demand and high occupancy levels, which, in turn, supports our ability to deliver long-term
sustainable income growth. Key aspects to our management strategy are set out below.
Ownership
clusters
Tenant
selection
Improving
our buildings
and the
public realm
Compounding benefits
of individual transactions
across nearby holdings
Providing visitors with
an interesting
experience
Unlocking value, improving
long-term sustainability and
creating welcoming areas
Exceptional portfolio: pages 12 to 16
Restaurants, cafés, leisure and retail:
pages 22 to 25
Asset management: pages 46 to 47
Environment: pages 36 to 37
Promoting our
destinations
Engagement
with local
community and
stakeholders
Forensic
knowledge of
the West End
Raising awareness, footfall
and spending
Promoting our destinations: page 21
Understanding local
expectations and
supporting the West End
Stakeholders and community:
pages 34 to 38
Experience through economic
cycles
Our people: pages 39 and 64 to 67
Shaftesbury Annual Report 2018
20
Strategic report Overview
Promoting our destinations
Marketing is a key aspect of the holistic curation of
our areas, encouraging footfall and spending.
Strategic report
Overview
Karen Baines
Head of Group Marketing
and Communications
answers questions
regarding marketing
and promoting our
destinations
Why is marketing your destinations
important?
Whilst we invest in popular and buzzy areas, we can’t
assume that visitors to the West End will know of, or
come to, our areas. Therefore, we tell the story and
the heritage of our iconic shopping and dining
destinations to raise their profile and stand out from
other London destinations. We support our tenants in
raising awareness of their businesses and how they
provide unique experiences, generally not available on
the high street.
Is the strategy the same for each village?
Inevitably our aim is the same; to raise awareness, drive
footfall and increase spend. However, we tailor brand
values, messaging and tactics, taking into account each
of our areas’ history, personality and target audience.
What do you do?
Throughout the year, we hold widely-publicised
campaigns and events in our destinations, such as
shopping evenings, street food festivals and our
innovative Christmas decorations. As well as active
engagement with trade and consumer press, our
digital strategy includes dedicated websites for our
areas and a significantly growing social media presence.
Some of our events this year included:
• Soho Music Month and Seven Dials Soundtrack,
which supported the Mayor’s wider “Sounds Like
London” campaign for London;
• Street Eat, where we hosted a picnic table along the
length of Carnaby Street for visitors to celebrate a
wide range of street food from our local restaurants;
• National Dumpling Day in Chinatown, where 1,800
dumplings were given away; and
• In Seven Dials, we hosted a week of activities to
promote International Women’s Day.
Our occupiers help bring our events to life, using
their own marketing channels and, often arranging
their own, related activities.
Where appropriate, we collaborate with partners
to increase our reach and enhance the impact of
campaigns and events to attract greater exposure.
For example, in partnership with 20th Century Fox,
recently we have unveiled a Bohemian Rhapsody-
themed light installation in Carnaby.
What feedback have you had from
tenants following events?
It’s been resoundingly positive; as well as making them
feel part of the community, they value Shaftesbury’s
support in raising the profile of our areas and their
brands, with both domestic and international audiences.
“ We are delighted to support
Carnaby Street Eat. What’s better
than setting up stall, eating tons
of food, having some fun and
getting to know as many of our
customers and neighbours as
possible.”
Stevie Parle, Chef-Owner of Pastaio
How do you measure success?
There are a lot of factors we take into consideration,
including footfall, tenant and partner feedback, and
social media influence and statistics.
How important is social media?
Digital is one of the many strands of our integrated
marketing strategy. With consumers becoming ever
more digital savvy, our shoppers and diners
increasingly are using social media to discover places
to visit and to share their experience. We use a wide
range of social media platforms, including Weibo and
WeChat, which enable us to tailor our messaging to,
and engage with, Chinatown’s wider western and
Asian audience.
For tenants, social media is vital to their brands, so
we support them in promoting new launches,
initiatives and events across our digital platforms and
through our partners.
Digital influencers are an important aspect of our social
media strategy, through promoting our story to their
large, loyal follower base.
Do your events present security concerns?
Ensuring safety and security is paramount. We work
with Westminster and Camden Councils and the
emergency services to ensure visitors, residents and
workers remain safe and secure whilst enjoying our
events.
Shaftesbury
Annual
Report 2019
21
11 Strategic report Overview
Restaurants, cafés and leisure
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 Opera Quarter.
35% 297
of our portfolio1,2
restaurants,
cafés and pubs1
0.6m sq.ft.
Why do you invest in restaurants, cafés
and leisure?
With its high footfall, the West End has become
London’s dining hot-spot. Increasingly, the large
working population and visitors are looking for
interesting and different dining and leisure experiences.
Consequently, these are important drivers of footfall,
dwell-time and trading in our locations.
What are you looking for when you
select tenants?
The majority of our restaurants provide casual dining,
with a focus on atmosphere, quality and experience,
often with an all-day offer.
Favouring mid-market formats, we look for distinctive
concepts, something we don’t have and which add
more depth to the existing offer. We like operators to
have had some experience honing their concept, in,
for example, pop-ups, markets, supper clubs etc. We
think about whether we would like to eat there, as we
are customers as well.
Is it a risk taking fledgling operations?
It is part and parcel of our philosophy to be
forward-thinking; to support new concepts. The
team behind them needs to be good, have a plan for
fit-out, service and social media, and be well-financed.
Are you being impacted by the number
of casual dining concepts which are in
financial difficulty?
We continue to see healthy trading across our areas.
Much of the well-publicised financial distress has
been in national chain formats, which have expanded
across the country and are suffering from a national
slowdown in dining and leisure spending, or poor site
selection. We are not seeing this in our areas, where
the footfall is high and there is a relatively affluent
customer base. The incidence of concepts not
succeeding in our locations is relatively low, but, with
unsatisfied demand, others usually are keen to step
in and take the space.
1 Wholly-owned portfolio
2 % of ERV
3 At 30 September 2018
4 Leasing activity during the year ended 30 September 2018
Why is the availability of restaurant and
leisure space constrained?
Local planning and licensing policies 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 low.
How good is occupier demand?
With operators attracted by potential to trade
prosperously in this seven-days-a-week economy,
occupier demand is good, outstripping availability of
space. Competition for available space continues to
be strong, and occupancy levels remain high. At 30
September 2018, EPRA vacancy1,2 for our restaurant,
café and leisure space was 1.4%, of which 0.4% was
under offer.
“ Shaftesbury have been very
encouraging every step of the
way. They took a bit of a punt
on The Palomar - we hadn’t
done anything before and I
think a lot of landlords
wouldn’t have been so brave.”
Layo Paskin, The Palomar
How is Chinatown changing?
The 86 restaurants, cafés and bars we own in
Chinatown, close to the West End’s major
entertainment venues, represent 35%, by floor
space, of our total ownership of these valuable uses.
In this especially busy location, notable for its long
hours of trading, our strategy is to improve the
variety of the dining offer, whilst maintaining
affordability and remaining respectful of its Chinese
heritage. Our vision is to showcase different regions
of China, whilst adding pan-Asian operators.
Julia Wilkinson
Head of Restaurant
Strategy
answers questions
on restaurants, cafés
and leisure
ERV by village1
£50.0m
Carnaby 20%
Covent Garden 26%
Chinatown 39%
Soho 9%
Fitzrovia 6%
Shaftesbury Annual Report 2018
22
1
Strategic report
Overview
Restaurants,
cafés and leisure
continued
22 new lettings
12 lease renewals
31 rent reviews
9 years 1.4% £10.5m
EPRA vacancy1,3
weighted average
unexpired lease term1,3
lettings/rent reviews1,4
(21.0% of restaurant, café and
leisure ERV)
Recently, we have invested in improving the overall
visitor experience through major public realm
improvements. Also, we have improved our branding for
the area through events, marketing and a stronger social
media presence, including in mainland China.
What are your typical lease terms?
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, as well as
providing us with data to better understand the
metrics of restaurant trading across our areas.
At 30 September 2018, the proportion of our
restaurant income under historical leases was 54%
(2017: 60%), providing us with opportunities to add
further value and flexibility over the coming years.
Typical lease terms
Historical Leases
New Leases
Term
Rent reviews
Security of tenure on expiry
Turnover-related top-up
Space leases typically granted
over
Proportion of our restaurant
leases (by income)
Incentives
54%
N/A
15 years
25 years
Five-yearly, upward-only Five-yearly, upward-only
Yes
No
Whole buildings
No
Yes
Operational space only (i.e.
not upper floors)
46%
Short rent-free period to
help cover tenant
fit-out time. No contribution
to fit-out costs
Progress against 2018 priorities
Priority
Status
Letting of restaurant and café
space at Central Cross
Eight of the nine restaurant, café and leisure units have
been let. The remaining restaurant is under offer
Identify further opportunities
to negotiate vacant possession
of restaurants let on historical
leases
Introduce new restaurant
operators to our destinations
Negotiated vacant possession of four leases in the year,
with a rental value of £1.0m
22 new openings during the year
2019 priorities
Identify further opportunities to negotiate vacant possession of, or restructure,
historical restaurant leases
Introduce new restaurant concepts to our destinations
Promoting our destinations: page 21
See page 45 for more information on Central Cross
Shaftesbury
Annual
Report 2018
23
1
Strategic report Overview
Retail
Our shops, mainly clustered in Carnaby, Seven Dials and
Soho, make an important contribution to the West End’s
reputation as a leading global destination.
33% 298
of our portfolio1,2
shops1
0.5m sq.ft.
What is the typical space you lease?
A significant feature of our retail portfolio is that we
are able to offer retailers the choice of a wide range
of rental levels and shop sizes, from small boutiques
to large flagships, in modern or historic buildings, so
they can find the right space to suit their brand. It allows
us to attract a variety of formats from new start-ups
to more established retailers looking to open unique
concepts in the West End.
How do you keep your destinations
interesting?
It is important that shoppers can find something
different from that commonly found in shopping
centres and on high streets. Our retail strategy
constantly evolves to respond to changing consumer
behaviour, but the central principle remains -
maintain a fresh retail mix by seeking out both
national and international brands which intend to
launch new, interesting concepts and global first
stores. Many of our retailers are independents, an
important factor in making our districts unique
destinations.
How do you assess potential retailers?
Each of our destinations has a specific brand identity.
In selecting retail concepts, we assess whether they fit
this identity, will add value and attract footfall. We
favour brands that offer unique experiences and
products, want to be part of our community and
which offer a reason for shoppers to visit our areas.
Is social media important?
It is important but we look at everything a brand
does. If they are using social media in an exciting and
fresh way to generate consumer interest and drive
sales, then that’s a good sign. However, this is only
one part of the story. If the brand has an interesting
story, is generating interest, and is driving footfall in
our streets, then it adds value to the area.
1 Wholly-owned portfolio
2 % of ERV
3 At 30 September 2018
4 Leasing activity during the year ended 30 September 2018
5 Source: Cushman & Wakefield, published information and
company data
6 Based on 30 ft. zones
7 Letting status at 26 November 2018
How affordable is your space?
Rental levels in our high-footfall and spending
locations are competitive compared with nearby
streets (see the chart, opposite).
“ We chose Seven Dials because
the location is so central, and
it’s an iconic and beautiful
neighbourhood that’s home
to so many beloved retailers.
We’re excited to be alongside
the Seven Dials shops, and to
be able to call London home to
our first permanent store in
Europe.”
Jen Rubio, Away
How do you stay ahead of the curve?
Our typical retail leases are short, allowing us to have
a portfolio of brands which are relevant and
trend-driven. It is important we identify the next
generation of ideas and concepts. We travel a lot
looking for inspiration, seeing other cities and their
brands, and visiting retailers who are interested in
opening in London. Many retailers we meet view
London’s West End as the place to launch a
successful international business.
Trade shows also provide new ideas, as do existing tenants
who look to grow within our areas or start new concepts.
Sometimes we trial new brands on a short and flexible
basis, which often are converted to longer leases.
Promoting our destinations: page 21
Sam Bain-Mollison
Head of Retail
answers questions
on retail
ERV by village1
£46.9m
Carnaby 51%
Covent Garden 26%
Chinatown 14%
Soho 7%
Fitzrovia 2%
Shaftesbury Annual Report 2018
24
1
continued1
Retail
Strategic report
Overview
23 new lettings
18 lease renewals
14 rent reviews
4years 10.9% £6.5m
EPRA vacancy1,3
lettings/rent reviews1,4
(13.9% of retail ERV)
weighted average
unexpired lease term1,3
How do you assess whether a brand is a
success?
Our relationship with brands starts when we select
them. Our office is close to all our shops so we have
real-time day-to-day experience of their trading. This
knowledge is supplemented by turnover data.
How has online retail affected you?
Whilst online is having a major impact on wider high
street retail, we find that there is consumer demand
for the interesting mix of brands and concepts across
our areas, particularly when coupled with the
experience that our food and beverage offer
provides. Also, we are starting to see internet brands
wanting physical space in our destinations, to
reinforce their brand identities.
How are retailers trading in your areas?
Despite continued headwinds and challenges across
the retail sector, generally our tenants continue to
trade well. Importantly, our mid-market retail offer is
not limited solely to fashion, but includes, for
example, health and beauty, accessories and lifestyle
brands.
Whilst businesses are being more cautious in taking
on new commitments over larger space, and the
average time to conclude lettings has increased a
little this year, we are continuing to see good interest
for the smaller space we typically have to offer. Our
flexible portfolio allows us to respond to this demand,
and, where practical, we are dividing larger units.
Leasing activity during the year has been good with
lettings, renewals and rent reviews being concluded
ahead of ERVs assessed by our valuers.
At 30 September 2018, EPRA vacancy1,2 of our retail
space was 10.9%, of which 7.0% was under offer,
including 5.3% at Central Cross and Thomas Neal’s
Warehouse. Average retail vacancy1 over the past ten
years has been 3.7%.
Typical lease terms
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.
West End retail rental tones5 (prime zone A per sq.ft.)
2,200
1,200
1,000
750
710
650
535
Shaftesbury streets
400
360
285
240
220
195
185
Bond Street6
Oxford Street6
Ja m es Street W C2
Long Acre
C ovent G arden M arket
Regent Street6
C arnaby Street
N eal Street
Foubert's Place
Floral Street
M on m outh Street
N e w burgh Street
Earlha m Street
Berwick Street
Progress against 2018 priorities
Priority
Status
Letting space at Thomas Neal’s
Warehouse and Central Cross
Thomas Neal’s Warehouse: let7
Central Cross: two retail units under offer, three units
available to let7
Introduce further interesting retail
concepts to our destinations
23 new openings during the year
2019 priorities
Let remaining retail space at Central Cross
Continue to introduce interesting retail concepts to our destinations
See page 45 for more information on Thomas Neal’s
Warehouse and Central Cross
Shaftesbury
Annual
Report 2018
25
Strategic report Overview
Offices
We are an important provider of small, flexible office
space in the West End.
20% 0.5m sq.ft.
of our portfolio1,2
of offices1
The growth in flexible and co-working operators, in
and around our areas, is a positive, bringing
additional, often young, workers, who become
customers for our restaurants, cafés, pubs and shops.
Responding to the need to remain competitive with
occupiers’ requirements, we have a programme to
ensure fibre connectivity to our buildings, so
occupiers can “plug and play”. Also, in Seven Dials,
we are trialling a flexible workspace concept,
providing tenants with fitted and cabled space, and
are working on a portal system which will better
connect occupiers to provide a more integrated
community. Lease contracts for this space are short
and simple, costs are fixed and lease terms are
flexible, starting at two years.
“ Many tenants are SME
businesses in the media,
creative, fashion and tech
sectors”
How is demand?
The availability of office space like ours remains low
across our locations and we continue to see good
demand. Whilst we have seen a small increase in
incentive packages, retention rates have been good,
and occupancy levels have remained high. At 30
September 2018, EPRA vacancy1,2 for our offices was
2.0% of total office ERV.
How important are offices to your areas?
Offices are integral to the mix of uses in our areas,
bringing a large working population which is an
important source of customers for our restaurants,
cafés, pubs and shops during the week.
How big is a typical office?
As with our other uses, the historical nature of our
buildings means that there is no typical unit size. At 30
September 2018, we owned 466,000 sq. ft. of office
space across our wholly-owned portfolio, a net increase
of 63,000 sq. ft. during the year, of which 54,100 sq. ft.
was due to the purchase of 72 Broadwick Street,
Carnaby. Our office space, which is mostly above
restaurants, cafés and shops, is let to 253 tenants. Our
average letting is 1,420 sq. ft., often over more than one
floor. We do have a number of larger floor plates, mainly
in Carnaby and Seven Dials, which means we appeal to
different sized businesses.
Typically, who are your tenants?
Many are SME companies in the media, creative, fashion
and tech sectors, which have traditionally been based
across Carnaby, Soho and Covent Garden. They are
attracted by the community of similar businesses in this
vibrant, creative part of London. Additionally, our
tenants benefit from privilege cards, offering discounts
in our shops, restaurants and cafés.
Are you being adversely impacted by
the rise of flexible and co-working
operators?
We offer flexible space on affordable terms and have
a range of office sizes, allowing our occupiers to grow
and adapt in a rapidly-changing market. At 30
September 2018, our average rent was £57 per sq. ft.
(2017: £55 per sq. ft.) and average ERV was £64 per
sq. ft. (2017: £61 per sq. ft.).
Rob Kirk
Portfolio Executive
Charles Owen
Portfolio Executive
answer questions
on our offices
1 Wholly-owned portfolio
2 % of ERV
3 At 30 September 2018
4 Leasing activity during the year ended 30 September 2018
Shaftesbury Annual Report 2018
26
1
1
Offices
continued
Strategic report
Overview
26 new lettings
15 lease renewals
5 rent reviews
4years 2.0% £6.2m
EPRA vacancy1,3
lettings/rent reviews1,4
(21.2% of office ERV)
weighted average
unexpired lease term1,3
ERV by village1
£29.3m
Carnaby 69%
Covent Garden 19%
Chinatown 4%
Soho 7%
Fitzrovia 1%
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
Short rent-free period to help cover tenant fit-out periods
Progress against 2018 priorities
Priority
Status
Maintain strong cash flows through
high occupancy
Occupancy levels have remained high throughout the
year and retention rates have been good with 15 leases
renewing
Complete our 57 Broadwick Street
redevelopment
The scheme completed in April 2018 and the space is
fully let
Further office upgrades to meet
modern, flexible space standards
Schemes extending to 55,200 sq. ft. completed or
underway at 30 September 2018
2019 priorities
Maintain strong cash flows through high occupancy
Obtain planning consent for our 72 Broadwick Street scheme
Further office upgrades to meet modern, flexible space standards
See page 45 for more information on 57 Broadwick Street and
page 50 for 72 Broadwick Street
Shaftesbury
Annual
Report 2018
27
Strategic report Overview
Residential
Demand to rent our 593 mid-market apartments - mainly
studios and one or two bedroom flats – remains good.
of our portfolio1,2
apartments1
What are your typical apartments?
They are mainly mid-market, affordable 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.
How long are your leases?
We let our apartments unfurnished, on three-year
Assured Shorthold Tenancies. In our experience,
around 10% of leases renew at the end of term.
Who are your tenants?
Typically they are international students and people
working in and around the area, often for a few years
only, who want the buzz of the West End.
How is the letting market?
Demand remains good and normally we have over
98% occupancy. Lettings and renewals1 with a rental
value of £8.2 million were completed during the year.
Whilst rents achieved, on average, were 0.1% below
previous levels, reflecting a greater availability of flats
to rent in Central London, high occupancy levels
have delivered an important cash flow for the business.
How are you responding to increased
competition across central London?
We have a rolling programme to upgrade our
apartments, in order to ensure their specification
remains competitive. Currently, we are planning to
install fibre connectivity to our flats, a feature which
is increasingly demanded by potential tenants.
“ Demand for our mid-market
apartments remains good,
resulting in high occupancy
levels and a stable cash flow”
Will your residential portfolio continue to
grow?
Over the past five years, we have increased the number
of apartments by approximately 26%, through
conversion from other uses and acquisitions. We have
a number of planning consents for residential
conversion, which we could implement in the future.
However, we do not expect the proportion of our
income from residential to change materially.
Why do you choose to lease rather than
sell your apartments?
Most of the value of our buildings is in the commercial
uses on the lower floors. Generally, we do not sell our
apartments so that we retain control over whole
buildings to realise the long-term potential in those
valuable lower floors.
Shelley Webb
Head of Residential
answers questions on our
residential portfolio
1 Wholly-owned portfolio
2 % of ERV
3 At 30 September 2018
4 Leasing activity during the year ended 30 September 2018
Shaftesbury Annual Report 2018
28
0.4m sq.ft.12%593
1
continued1
Residential
Strategic report
Overview
224 new lettings
68 lease renewals
EPRA vacancy1,3
lettings/renewals1,4
(46.9% of residential ERV)
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
Progress against 2018 priorities
Priority
Status
Continue our rolling refurbishment
programme to upgrade our
apartments and improve their
rental prospects
Identify future potential residential
conversions
Refurbishment works on 66 apartments during the year,
of which 43 were ongoing at year end
Planning consents granted to create 24 apartments
Maintain strong cash flow through
high occupancy
Average occupancy: 98% of ERV
2019 priorities
Continue our rolling refurbishment programme to upgrade our apartments and improve
their rental prospects
Maintain strong cash flow through high occupancy
ERV by village1
£17.5m
Carnaby 19%
Covent Garden 39%
Chinatown 23%
Soho 10%
Fitzrovia 9%
Apartments by number of beds
3
2
1
1 bed 67%
2 bed 27%
3 bed 6%
Shaftesbury
Annual
Report 2018
29
1.1%£8.2m 30
We have been committed to
operating in an environmentally
and sustainable way for many
years.
Focusing on environmental sustainability is a key
aspect of our long-term strategy. We have a rolling
programme to improve the environmental efficiency
of our buildings. We encourage our tenants to
embrace sustainability, be it through fit-out or
reducing waste.
More details on our approach to sustainability and
the environment can be found on pages 34 to 37.
Left: We support the Mayor of London
and the #OneLess campaign to install
public water fountains. As a step towards
reducing plastic waste in London and
protecting the environment, Kingly
Court was chosen as the first site for
this important initiative. We are actively
working with our restaurant, cafe and
pub tenants across the portfolio to
remove single-use plastic water
bottles from their businesses.
Shaftesbury and
sustainability
Sustainable buildings
We aim to achieve BREEAM “Very
Good” on all our refurbishment
projects. We have a rolling
programme of energy
performance improvement
across our 600 buildings. We
now have more than 38% of our
space with an energy performance
rating of C or above.
Pass on Plastic
We donated space to create an
exciting pop-up ocean experience
to support this campaign to
educate the public on the need
to eliminate single-use plastics.
Sustainable Restaurant
Association
We encourage restaurant tenants
to become members of the SRA
and fit-out and operate their
premises sustainably. Also, we
sponsor the Open Right Award at
the “Food Made Good” awards in
recognition of restaurants fitting-out
sustainably from initial opening.
Shaftesbury
Annual
Report 2018
21
Strategic report Overview
Measuring success
The principal metrics we focus on in running the
business include both long-term performance
and operational measures, reflecting our
long-term strategy.
Total shareholder return (%)
237.3%
Compound annual growth
in EPRA NAV1 (%)
11.8%
10.2%
68.0%
43.8%
59.1%
4.1%
5.0%
6.3%
6.1%
4.1%
4.5%
5.4%
5.7%
-9.4%
1 year
-1.1%
3 years
5 years
10 years
1 year
3 years
5 years
10 years
Shaftesbury
FTSE 350 REIT Index
Shaftesbury
RPI plus 3%
Rationale
Measures shareholder value creation, taking into account share
price movements and dividends in the period.
Alignment with remuneration
Performance over three years is benchmarked against an index
of other listed real estate companies for our LTIPs. For executive
directors, the benchmark is the FTSE 350 REIT Index. For staff,
this is the last year of vesting of LTIPs benchmarked against the
FTSE 350 Real Estate Index. For future years there will be
alignment with the executive directors.
Commentary
Over the long term, we have outperformed the sector. However,
during the past year we have underperformed with our share price
falling from a small premium to a modest discount to EPRA NAV.
Rationale
Traditional sector measure of value creation.
Alignment with remuneration
We compare compound annual growth in EPRA NAV per share
to a target of RPI plus 3% as a performance measure for our LTIPs.
Commentary
Over five and ten years, we have out-performed the benchmark.
However, over the shorter term, EPRA NAV growth has been
below the target, largely reflecting exceptional refinancing costs
incurred in 2016 and 2017.
EPRA NAV growth over 2018 was 4.1%, largely driven by the
revaluation of our portfolio (see page 43). This compared with
the benchmark hurdle of 6.3%.
Over three years to 30 September 2018, compound annual growth
was 4.5%, 1.6 percentage points below the benchmark. Excluding
the exceptional refinancing costs, three year growth was 6.0% p.a.
LTIP vesting: page 101
LTIP vesting: page 101
Portfolio management
Financial management
Growth in annualised current income3,5 5.1%
Loan to value1
ERV growth3,5
2.4%
Blended cost of debt1
22.8%
3.2%
Reversionary potential3
26.7%
Weighted average debt maturity
10.2 years
Scheme vacancy4
7.6%
See more on pages 44 and 47
See more on pages 55 to 56
Operational
measures
In addition to our KPIs, there
are other operational metrics
we monitor in assessing the
performance of the business.
1 An alternative performance measure. See page 140
2 Data includes acquisitions
3 Including our 50% share of property held in joint venture
4 Wholly-owned portfolio
5 Like-for-like
6 Excluding larger schemes
Shaftesbury Annual Report 2018
32
Measuring success
continued
6.0%
4.6%
Sustained rental growth2,3
154
145
139
Maximise occupancy4
128
119
122
114
106
100
94
110
103
92
86
78
84
78
81
68
63
10 year average: 2.9%
2.9%
2.6% 2.8%
2.7%
2.3%
1.4%
1.6% 1.6%
2.5%
2.7%
2012
2009 2010
Annualised current income (£m)
2011
2013
ERV (£m)
2014
2015
2016
2017
2018
2009
2010
2011
2012
2013
2014
2015 2016
2017
2018
EPRA vacancy (% of ERV)
Thomas Neal’s Warehouse and Central Cross
Rationale
In our leasing activity, we aim to establish new rental tones which exceed ERVs
assessed by our external valuers. This grows our portfolio’s reversionary
potential by providing rental evidence in leasing negotiations on our nearby
holdings. We aim to crystallise this rental potential into contracted income
over three to five years. Importantly, the level of lease incentives granted to
tenants remains modest.
Alignment with remuneration
Achieving rents above ERV is a KPI in our annual bonus scheme.
Commentary
Our strategy has delivered sustained growth in annualised current income and
rental values over many years. The 10-year like-for-like compound annual
growth rate in annualised current income and ERV of our portfolio has been
5.1% p.a. and 3.9% p.a. respectively, with growth every year.
Commercial leasing transactions4 during the year were concluded 5.1%
higher than ERV at September 2017.
Rationale
Low vacancy levels are a key factor in ensuring our portfolio produces good
cash flows.
Alignment with remuneration
Maximising occupancy is a KPI in our annual bonus scheme.
Commentary
Average EPRA vacancy4 over the past ten years has been 2.9% of ERV.
Over the past two years, EPRA vacancy has increased as a result of our
larger Thomas Neal’s Warehouse and Central Cross development schemes.
At 30 September 2018, EPRA vacancy included 1.9% in respect of these
schemes (2017: 3.5%).
Average letting time6 in 2018 was 2.5 months (2017: 1.5 months).
Reversionary potential: page 44; Leasing: page 45;
Annual bonus outcome: page 100
Vacancy: page 46;
Annual bonus outcome: page 100
Financial results and reporting
Our people
Sustainability and stakeholders
Growth in net property income
EPRA earnings per share1
6.2%
17.1p
Employee retention
% female employees
100%
60%
See more on pages 51 to 54
See more on page 39
% of Energy Performance Certificates of
grade E or above
78%
London Benchmarking Group
contribution as a % of EPRA earnings
1.7%
See more on pages 36 to 38
Shaftesbury
Annual
Report 2018
33
Strategic report Overview11
Strategic report Overview
Sustainability and stakeholders
Our goals are:
- The environmentally sustainable re-use and
management of existing buildings
-Invest in the local community
-Effective stakeholder engagement
- A fair and ethical framework for employees
and our supply chain
Benchmark
indices
At the heart of our sustainability strategy is a focus on extending
the economic useful lives of our buildings. Through changes of
use and reconfiguration, within the constraints of legislation, our
buildings can continue to meet the needs of modern occupiers.
In an urban location, which is intensively used by huge numbers
of visitors, a large working population and residential community,
social issues and challenges are bound to arise. We therefore
focus on community-related activities which help to support
organisations that tackle these problems.
The Wild West End collaboration, which promotes biodiversity,
continues to gain momentum. Working with other neighbouring
landowners, we are increasing the number of biodiversity
features throughout our portfolio, with the consequent associated
benefits of improved health and well-being for tenants, residents
and visitors. The concept won an EPRA sustainability award for
its outstanding contribution to society.
Our non-financial information statement is set out on page 146.
Management of sustainability
The Sustainability Committee meets quarterly to define objectives,
agree strategies and review progress. We have a robust and
effective Sustainability Policy which is reviewed annually by
the Board and is available on our website.
We continue to base our sustainability strategies on our core goals:
Stakeholders: engaging with our tenants, investors and other
stakeholders ensures that we are aware of their expectations
and can respond accordingly. In particular, we work with tenants
to identify ways in which they can use our buildings more
efficiently and operate in a more sustainable manner.
Environment: re-use and careful management of existing
buildings. In addition, reducing the running costs of buildings and
improving their operational efficiency is important in attracting
tenants, as well as meeting regulatory requirements.
Working closely with our supply chain enables us to control our
most significant impacts and facilitate better sustainability
standards throughout.
Community: engaging with local groups and charities
to ensure we support our community.
Employees: investing in our employees to support their
development and encourage retention.
During 2018, we reviewed our materiality assessment which
identifies the sustainability key issues and challenges which we
should be addressing in the year ahead. Our broad strategic
goals remain relevant and will continue to form the framework of
our approach. Community, central London air pollution, living
wage, health and safety, greenhouse gas emissions and
infrastructure continue to be key issues, both internally and
externally, and human rights, waste, material use and biodiversity
are all increasing in significance.
Shaftesbury Annual Report 2018
34
Sustainability and
stakeholders
continued
Modern slavery and human rights
We have policies in place which address human rights, modern
slavery and the ethical conduct of our business, all of which are
included within our Sustainability Policy which is updated
annually. We respect international principles of human rights and
have been a signatory of the UN Global Compact since 2015.
Our Sustainability Policy is also provided to organisations in our
supply chain to encourage them to adopt and enforce similar
policies in their own businesses. We ask our principal advisors
and suppliers to commit to the Universal Declaration of Human
Rights with respect to all employees and sub-contractors
employed by them.
We promote the human rights of our employees through equal
opportunity and in our recruitment process, regardless of their
sex, sexual orientation, age, race, disability, marital status, religion
and nationality.
As a consequence of our outsourcing model, the effective
communication of our policies and objectives throughout our
supply chain is important to ensure that an ethical and
sustainable approach is adopted to the employment of labour
and the purchase of goods and services on our behalf.
We ensure our Supplier Code of Conduct is circulated to our
principal suppliers for inclusion in contracts. Our Code requires
payment of the London living wage and compliance with the
Modern Slavery Act 2015 throughout our supply chain.
We have recently launched a new supplier engagement process
which includes our expectation that suppliers commit to our
Sustainability Policy and Supplier Code of Conduct.
As part of our 2017 Modern Slavery Statement, we committed to
seek accreditation with the Living Wage Foundation which we
have successfully achieved. It covers payment of our own
employees as well as those within our immediate supply chain.
We have updated our whistleblowing policy and expanded our
commitment to facilitate the reporting of inappropriate business
behaviour through a dedicated and confidential whistleblowing
hotline for employees and our supply chain.
Health and safety
The Board has overall responsibility for health and safety.
In our refurbishment projects, responsibility for health and
safety is identified within all pre-tender documentation and is
monitored by site and project managers. Managing agents
oversee day-to-day health and safety matters throughout the
portfolio.
There were no reportable health and safety incidents in the
portfolio. The accident frequency rate for Shaftesbury
employees was zero (2017: zero) and there were no health and
safety prosecutions, enforcement actions or fatalities in 2018.
Stakeholders
As a long-term business in the West End, we have developed
relationships with an extensive range of stakeholders with whom
we work across a range of activities.
y
s i t
r
e
d iv
Bio
arehold e r s
h
S
e
t
s
a
W
S
u
p
p
l
i
e
r
s
Visitors
E
n
ergy
Labour/em
conditio
plo
n
s
y
m
e
n
t
Tenants
E
m
p
l
o
y
e
e
s
C
o
m
m
u
n
i
t
y
s
t
n
e
d
si
e
R
a l
r itie s
c
L o
a u t h o
A i r q
ality
u
We work closely with our suppliers and hold an annual
sustainability seminar which considers environmental and
community matters and ensures that our supply chain is aligned
with our values. For the first time this year, we held a similar
seminar for the construction companies and project managers
in our supply chain, which was received very positively.
Labo
ur
o
it
i
p
l
c
/
n
e
d
m
o
y
o
We hold an annual community breakfast which is a networking
opportunity for our local partners - community groups,
re
charities, not-for-profit organisations and local government
a
h
which operate in our areas.
S
e
l
s
e
n
p
m
e
y
o
t
E
n
m
s
Biodiversit y
holders
Our employees work closely with our local community including
local organisations, groups and statutory authorities with
responsibility for particular issues in our local environment such
as safety and policing.
y
t
ni
u
m
l
i
e
S
u
p
E
p
r
s
n
v
i
r
o
n
m
e
nt
Visito r s
C o m
A ir q uality
Read more on our fifth community breakfast: page 38
Shaftesbury
Annual
Report 2018
35
Strategic report Overview11
Strategic report Overview
Sustainability and stakeholders continued
57 Broadwick Street
An office refurbishment scheme which is on track to
achieve BREEAM Excellent post construction.
The use of the existing structure provided the
opportunity to reduce the amount of new materials
used within the construction process while reducing
the environmental impact caused by the
development.
The building incorporates a variety of energy and
water efficiency measures within both the building
fabric and the services installation including:
• Enhancements to the building fabric envelope
thermal performance by introducing thermal
insulation to achieve lower capacity heating
systems, thereby reducing energy consumption
• Providing new high performance glazing in order
to reduce solar heat and reduce the cooling plant
required
• Providing occupancy detection and automatic
daylight dimming within the lighting control
system
• Using low energy, high efficiency light sources
• Maximising the use of daylighting within the
building
• Including water appliances within the building that
reduce water consumption.
The 5th floor roof area includes a green roof and
planters that have been planted with species in
accordance with the objectives of Wild West End
and provide both biodiversity benefits as well as
reducing potential water run-off compared with the
original building.
Environment
We improve and extend the useful economic life of our buildings
through refurbishment, change of use and reconfiguration.
All our portfolio is located in Conservation Areas and around 20%
of our buildings are listed. Within these constraints, we strive to
provide environmentally efficient commercial and residential
accommodation as well as advice to occupiers, to minimise the
overall impact of our business on the environment.
Waste
We achieved a recycling and composting of food waste rate of
55% for Carnaby and Seven Dials. We encourage composting by
our restaurant tenants, and active engagement with tenants has
increased the proportion to 18%. The remaining waste is
diverted from landfill to energy from waste schemes.
Our refurbishment projects diverted, on average, over 98% of
waste from landfill.
Air quality
We recognise the decline in air quality in central London and
although we cannot directly influence this, we are promoting
measures that will contribute to an improvement. We promote
to occupiers the benefits of delivery consolidation and the use
of a zero-emissions vehicle through our nominated suppliers.
Through this initiative, there was a saving of 2.9 tonnes of carbon
over the course of the year – equivalent to 6,838 miles driven.
Biodiversity measures also help with improving air quality.
Single-use plastic
This year we have engaged with our tenants to address the
environmental issue of single-use plastic that is affecting both
the local and global environment. Initiatives have included the
installation of a water fountain at Kingly Court as part of the
#OneLess and Mayor of London initiative. To date, the equivalent
of over 20,000 500ml plastic bottles have been avoided.
We hosted a two-week public exhibition to raise awareness
of single-use plastic and had a visit from Plasticus The Whale.
The Carnaby arch was themed for WWF’s Earth Hour 2018 and
our Street Eat food festival in August was entirely single-use
plastic free.
Shaftesbury Annual Report 2018
36
Read more on single-use plastic: page 31
Sustainability and
stakeholders
continued
Building certifications
Our objective is to achieve BREEAM Very Good for all larger
commercial and domestic refurbishment schemes with three
schemes completing during the reporting period and a number
of others are in progress with the majority on course to achieve
at least Very Good. In total over 10% of the portfolio by floor
area is on course to be BREEAM certified.
Use of materials
We maximise the re-use of materials on site in all our
refurbishment projects, with a significant proportion of the
primary structure and external façade retained. Similarly, our
approach is to re-use timber. Timber features such as windows,
joists, floorboards, staircases and panelling are retained where
possible.
For the small volume of timber purchased, 89% was Forest
Stewardship Council (FSC) certified and, overall, 96% was
sustainably sourced with full chain of custody.
Biodiversity
We recognise the importance of promoting biodiversity. The
West End is an intensively-used urban area, which needs thriving
and connected green spaces. This is important both for wildlife
and the health and well-being of occupiers and visitors.
This year we made further progress with our goal to improve the
biodiversity of empty and inaccessible roof tops. Through
installing additional features throughout the portfolio, including
green roofs, sedum roofs, window boxes, bird boxes and insect
homes, we have increased total area coverage by 33% from
9,524 sq. ft. to 12,644 sq. ft.
We promoted Defra’s Bees’ Needs Week again this year, by
installing a bee-themed Carnaby Street arch and hosted a pop
up ‘Hive’ on Carnaby Street, which helped to promote bee
conservation organisations and research. Our work was
recognised by DEFRA with an award as a Bees’ Needs Champion
2018 for raising public awareness of the needs of pollinators.
We have installed two bee hives in Carnaby, making a total of five
across our portfolio.
Energy consumption
Energy consumption has been largely unchanged year-on-year
reflecting fluctuations in tenant numbers and occupancy. Due to
the increased use of renewable energy in the national grid,
greenhouse gas emissions decreased by over 16% from 1,316
tonnes to 1,099 tonnes.
EPCs
We continue to make good progress against the Government’s
Minimum Energy Efficiency Standards (MEES). From April 2018,
demised areas at the time of letting are required to have an
Energy Performance Certificate (EPC) of grade E or above.
Properties that have in the past been assessed at Grades F or G
are currently occupied. Once they become vacant, we will carry
out such works as are necessary to improve their rating to above
the minimum level.
A number of properties have not been assessed yet as they are
let on long-term leases which have not been subject to an
expiry since 2008, when EPCs were introduced. They will be
scheduled for works, to meet or exceed the requirements of
MEES, when the leases expire.
Of the EPCs assessed after refurbishment, over 80% were a
grade C or above.
Number of leases
A-E Grade 1,144
F or G grade 168
Unassessed 155
See page 109 for our Greenhouse gas reporting
See page 41 for information on greening our villages
Shaftesbury
Annual
Report 2018
37
Strategic report Overview11 Strategic report Overview
Sustainability and stakeholders continued
£0.89m
Community
Our activities are aligned with the area in which our portfolio is
located and community engagement is embedded at all levels of
our organisation. We have a long record of close involvement with
local charities and not-for-profit organisations which work on
initiatives in these communities. Not only are they our neighbours,
but the work of our local partners ensures that the West End
continues to be a vibrant and diverse destination which supports
residents, businesses and cultural organisations and welcomes
growing numbers of domestic and international visitors.
Our community investment committee oversees the strategic
direction and effectiveness of our community giving. Reporting
directly to the Board, the committee strengthens our
community engagement through its focus on developing our
relationships with key community partners and expanding
participation opportunities.
We have continued our membership of the London
Benchmarking Group (LBG). Our contribution is measured in
accordance with their framework which provides a standard
and comparable methodology.
The total contribution comprises more than just cash - it is time
given by employees and the cost of properties used for charitable
or educational purposes. We provide space to charities and other
not-for-profit organisations on a short-term basis to assist in
promoting their charity or cause in our areas or provide cost-
effective space for organisations in our central locations. The
chart shows the breakdown of these elements of our
contribution. Our community contribution amounted to £0.89
million which equates to 1.7% of EPRA earnings.
We support a wide range of organisations, a number of which
are showcased throughout this annual report. Others not
mentioned elsewhere include: London College of Fashion, ZSL,
Phoenix Gardens, St Anne’s Church, China Exchange, Trekstock
and the Chinese Information and Advice Centre.
How we contribute
What we support
Cash 52%
Employee time 21%
In-kind contributions 19%
Management costs 8%
Social welfare 28%
Other 4%
Arts/culture 10%
Education 40%
Health 8%
Environment 10%
Shaftesbury Annual Report 2018
38
Key activities
CEO Sleepout for The House of St Barnabas
Staff, including our Chief Executive, took part in the
CEO Sleepout raising funds for The House of St
Barnabas, a charity which works to break the cycle of
homelessness. A total of £24,000 was raised.
Founding Partner of the Young Westminster
Foundation
As a founding partner, we support the Foundation’s
mission to create opportunities for children and young
people in Westminster enabling the next generation to
fulfil their potential. In this role, we encourage the
local community, visitors, occupiers and partners to
engage with the initiative.
Westminster Lion accreditation
A new initiative from Westminster City Council which
recognises businesses that work hard to make a
positive impact in their communities.
Our fifth community breakfast
We work with many not-for-profit organisations in the
local area. To enable them to meet each other and
network, we host an annual community breakfast.
More than 80 people attended the breakfast from
30 organisations spanning the arts, education, health,
food, organisations for the homeless and elderly,
environment, business improvement districts and
local councils.
Brian Bickell welcomed guests and introduced
Councillor Nickie Aiken, Leader of Westminster
City Council, who spoke about local issues and the
City Council’s priorities.
See page 63 for more on community engagement
See page 18 for more information on charitable engagement
See page 49 for more on our support to the arts
Sustainability and
stakeholders
continued
Employees
Our team
We have a team of 30 full and part-time permanent employees.
We operate on an outsourcing business model whereby
day-to-day activities are devolved to long-term external
advisors, agents and suppliers. Decision-making and strategic
functions are not outsourced.
Employees by department
Executive Directors/company secretarial 5
Property (including marketing) 15
Finance 4
Administration 6
Fairplace Award 2017
We became the first FTSE 250 real estate company to
win the prestigious Fairplace Award, an ethical workplace
accreditation from property charity the Ethical Property
Foundation. The award recognises good policy and
practice in the community in terms of funding local
projects, carbon footprint and sustainability, and
landlord and tenant engagement.
Our culture
Our culture is open and inclusive. We encourage individuality
and independence and we treat others with respect. Our roles
are interesting and varied, providing a breadth of experience and
interest.
Another essential ingredient in making Shaftesbury a good place
to work is our culture of encouraging innovation and embracing
new ideas. Decisions are made efficiently and employees can
see their ideas coming to life.
As a business, we make long-term decisions and are proud of
our reputation for being a responsible landlord and an integral
part of our local community. We care about our impact, aiming to
create legacies that sustainably improve our locations. This
attracts people to work, and stay working, with us. This is borne
out by the fact that our average length of service is 11 years and
our employment turnover in 2018 was zero.
Diversity and inclusion
We are committed to diversity within our team, recognising that
diversity of thought, skills and personal attributes contribute to a
successful business. As a signatory to the 30% Club, gender
diversity at senior levels of our organisation is important but we
also recognise that diversity is not just limited to gender. Hence, we
also support Real Estate Balance which seeks to address the
gender imbalance in property.
Our approach is reflected in our recruitment procedures where we
ensure that we recruit from the widest talent pool and consider
a full spectrum of attributes and backgrounds.
We support the Pathways to Property programme which aims to
improve diversity in the property sector by introducing students
from less-advantaged and non-traditional backgrounds to the
industry.
Pay and benefits
We offer our employees competitive remuneration packages which
recognise their contribution to our business. Everyone, regardless
of their role or level of seniority, receives the same benefits, including
participation in our LTIP scheme, a generous pension scheme
and a tailored development programme.
Volunteering leave was introduced last year and 14% of employees
have taken advantage of the flexible working arrangements we offer
which are designed to accommodate different working patterns.
Training and development
Investment in the training and development of our employees is
essential to our long-term success. All employees have access to
training and development tools and support that they require
for their day-to-day roles and for their career progression.
We offer a wide suite of training opportunities which can comprise
psychometric analysis, 360-degree assessment, external courses,
internal training and professional development. This year, we have
partnered with Henley Business School to enable senior
employees to undertake more intensive development training.
We have engaged a human resource specialist to assist with our
strategic approach to employees and to formalise procedures
we have in place. As we are part way through this work, we expect
to be able to report more extensively next year.
For the first time, we have undertaken an employee survey, so
that we can be aware of our working environment and the
expectations of employees. The results of this will be reported in
next year’s annual report.
Number of employees
Female
Females on Executive Committee
(excluding executive directors)
2018
30
60%
57%
2017
29
59%
57%
Percentage of female board members
30%
30%
Average training hours per employee
Average length of service (years)
Employee turnover (number)
Absentee rate (EPRA calculation)
Employees with flexible working arrangements
19
11
0
1.6
14%
16
12
1
0.96
14%
See also the Nomination Committee report on pages 80 to 81 for the Board’s approach to gender diversity.
See page 8 for more information on supporting the diversity agenda
Shaftesbury
Annual
Report 2018
39
Strategic report Overview11
40
Shaftesbury and
the environment
Window boxes and planters
Across our portfolio, we have
over 1,000 window boxes, 105
planters and 50 hanging baskets,
planted with "bee-friendly" species.
Green walls and roofs
Twelve green roofs and walls,
together with over 1,700 sq. ft. of
sedum pods increase biodiversity
across our areas.
Bees’ Needs Week
Carnaby became a hive of activity
as, together with many of our
tenants, we supported Bees’ Needs
Week to raise awareness of the
importance of pollinators to the
beauty of our landscapes and
our economy.
We have five bee hives in Carnaby
and Covent Garden.
The greening of our villages
is an intrinsic part of our
sustainability strategy
With over 200 million visits annually to the
West End, we recognise the importance
that thriving green spaces play in the city
environment .
Across our portfolio, we have a number of
features which not only make our locations
more pleasant places to spend time, by
encouraging biodiversity, improving air
quality and encouraging access to green
spaces.
Further details on our approach to
sustainability are set out on pages 34 to 37.
Left: Together with other West End
property owners, we have formed "Wild
West End" which is working to encourage
birds, bees and bats back into the West
End. Situated between four of London’s
Royal Parks, the partnership aims to
create a connecting network of green
stepping stones through a combination of
green roofs, green walls, planters, street
trees and flower boxes. This benefits
not just wildlife and the environment,
but all those who come to the area. As
part of our biodiversity strategy, we have
created a roof-top garden at our office
planted with pollinator-friendly plants.
Shaftesbury
Annual
Report 2018
41
Strategic report Annual review
Portfolio report
Relentless asset management and leasing activity
continues to drive high occupancy, rental growth and
the valuation of our portfolio.
Valuation
Portfolio valuation1
Our portfolio, including our 50% share of the
Longmartin joint venture, has been valued at 30
September 2018 at £3.95 billion, an increase of
£304.9 million over the year.
After allowing for acquisitions, disposals and capital
expenditure, the revaluation surplus1 was £118.1 million.
This surplus reflects:
• strong investor demand for well-located assets with
the prospect of high occupancy, growth in rents and
cash flows, yet limited exposure to obsolescence;
• the benefits of our asset management activity
delivering increased contracted income and
improved ERV, with the incremental benefits often
having a compound effect across nearby holdings;
• the relative affordability of our rents in our high
footfall locations compared with nearby streets; and
• robust occupier demand in our carefully-curated
locations and the resilience this provides against
the headwinds that are impacting wider UK high
street rents and occupancy.
Like-for-like valuation growth was 3.8%, comprising
4.2% in the wholly-owned portfolio, partly offset by a
decline of 2.4% in the Longmartin joint venture.
Continued investor demand and limited
supply
Our portfolio, in the heart of the West End, has a
history of delivering sustained rental growth and sector
outperformance over the long term. Unsurprisingly,
existing owners of the types of buildings we seek to
acquire remain reluctant to sell in this especially
prosperous and resilient area, severely limiting the
availability of assets to buy.
Macroeconomic uncertainty is continuing to focus
institutional and private investors on less cyclical
locations and secure income streams. This, together
with a limited supply of investment opportunities,
means that when assets become available,
competition is intense.
The equivalent yield attributed by our valuers to our
wholly-owned portfolio reduced by 5 basis points in
the six months to 31 March 2018 and remained flat
over the following six months at 3.41% (2017: 3.46%).
The valuation of the geared long leasehold interest
held by the Longmartin joint venture fell over the year
by 2.4%, of which 1.9% was reported in the first half.
The equivalent yield has remained broadly flat at 3.82%
(2017: 3.80%). However, during the year, our valuers
have reduced their estimate of retail ERVs on Long
Acre by 8.5%, of which 5% was reported in our interim
results. This reflects a lack of recent letting evidence
and a potential increase in availability of large shops
in this “high street” location, where rental tones have
increased significantly over recent years. Additionally,
the valuation takes into account the short-term impact
of securing vacant possession of space for our planned
restaurant scheme in St Martin’s Courtyard.
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.
Simon Quayle
Property Director
Tom Welton
Property Director
Shaftesbury Annual Report 2018
42
See page 47 for information on St Martin’s Courtyard
See page 25 for the relative affordability of our rents
Portfolio valuation (£bn)1,4
5
9
.
3
4
6
3
.
5
3
3
.
3
1
.
3
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
1
6
2
.
4
1
0
2
£3.95bn
Valuation growth (%)1,2,4
0
.
1
2
.
0
8
1
4
1
0
2
5
1
0
2
0
4
.
6
1
0
2
0
7
.
7
1
0
2
8
.
3
8
1
0
2
3.8%
ERV growth (%)1,2,4
6
6
.
0
7
.
.
7
5
.
5
3
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
4
.
2
8
1
0
2
2.4%
Portfolio report
continued
Annualised
current
income
£m
44.8
30.2
24.1
9.4
4.9
ERV
£m
57.2
37.6
31.6
11.6
5.7
113.4
143.7
8.1
10.3
Topped-up
net initial
yield
%
Equivalent
yield
%
2.96%
2.78%
2.67%
2.90%
2.83%
2.84%
3.16%
3.56%
3.26%
3.34%
3.44%
3.31%
3.41%
3.82%
Fair value
£m
% of
portfolio
1,424.7
1,013.7
837.2
300.8
148.2
36%
26%
21%
7%
4%
94%
6%
Village
Carnaby
Covent Garden
Chinatown
Soho
Fitzrovia
Village
Carnaby
Covent Garden
Chinatown
Soho
Fitzrovia
Wholly-owned portfolio4
3,724.6
Longmartin joint venture3
224.6
Total portfolio1,4
3,949.2
100%
121.5
154.0
2018 valuation growth2
5-year CAGR2
3.9%
4.0%
4.2%
6.2%
4.5%
4.2%
3.8%
12.1%
9.6%
9.4%
10.8%
11.0%
10.6%
8.6%
10.5%
Wholly-owned portfolio4
Longmartin joint venture3
-2.4%
Total portfolio1,4
1 I ncluding our 50% share of the Longmartin joint venture. See
presentation of financial information on page 51
2 Like-for-like. See Glossary on page 148 for definition
3 Our 50% share
4 Portfolio excluding non-core asset acquired as part of a portfolio.
See note 8 on page 126 for a reconciliation to the financial statements
Shaftesbury
Annual
Report 2018
43
Strategic report Annual review2
Strategic report Annual review
Portfolio report continued
Reversionary potential
Converting our portfolio’s reversionary potential into contracted
income and cash flow, while further increasing rental values, are
key drivers to long-term value creation.
Our leasing and active asset management activity during the year
has, once again, delivered growth in both annualised current
income and ERV.
At 30 September 2018, annualised current income stood at £121.5
million following a like-for-like increase of 5.1% over the year.
Annualised current income1,3 (£m)
Total ERV, which is based on today’s rental tones, and largely
reflects rental evidence established through leasing transactions,
was estimated by our valuers at £154.0 million. Excluding the
impact of acquisitions and disposals, which contributed £6.0
million (net), like-for-like growth was 2.4%.
The total reversion now stands at £32.5 million, 26.7% above
annualised current income. The components of this reversionary
potential are shown below. We remain confident that, through
our proven long-term management strategy, we shall not only
continue to convert this rental potential into cash flow, but also
deliver further long-term growth in rental values.
ERV1,3 (£m)
6.4
144.5
3.5
154.0
(0.4)
2.4%
114.1
1.9
(0.3)
5.1%
5.8
121.5
100
100
2017
Acquisitions
Disposals
Like-for-like
growth2
2018
2017
Acquisitions
Disposals
Like-for-like
growth2
2018
Components of the reversion1,3 (£m)
Contracted/
rent-free periods
On expiry of rent-free
periods
Scheme vacancy
On completion and letting
of schemes in progress at
30 September 2018
ERV - based on
current rental
evidence
Annualised
current income
How it will be realised
EPRA vacancy
On letting of space
available at
30 September 2018
Under-rented leases
Through the normal cycle of
rent reviews, lease renewals
and lettings. This is typically
converted to contracted
income over a 3 – 5 year period
9.3
154.0
11.8
+26.7%
121.5
100
7.3
4.1
Annualised
current income
Contracted/
rent-free periods
EPRA vacancy
Scheme vacancy
Under-rented leases
ERV - based on
current rental
evidence
1 Including our
50% share of the
Longmartin joint
venture. See
presentation of
financial information
on page 51
2 Like-for-like. See
Glossary on page 148
3 Excluding a non-core
asset acquired as
part of a portfolio
Shaftesbury Annual Report 2018
44
Leasing and occupancy
Leasing
During the year, we concluded lettings, lease renewals and rent
reviews in the wholly-owned portfolio with a rental value of £31.4
million (2017: £31.1 million), equating to 21.9% of ERV.
Commercial leasing transactions totalled £23.2 million (2017:
£23.8 million) and residential lettings and renewals amounted to
£8.2 million (2017: £7.3 million). Rents for commercial uses were,
on average, 5.1% above ERV at 30 September 2017, providing
useful evidence for our valuers.
At 30 September 2018, space with a rental value of £3.7 million
was under offer.
Commercial
Lettings and renewals
Rent reviews
2018
£m
14.5
8.7
+4.0% vs September 2017 ERV
+25.4% vs previous rent
(5-year CAGR: +4.6%)
23.2
+5.1% vs September 2017 ERV
Thomas Neal’s Warehouse (0.6% of ERV1)
100%
let2
In the heart of Seven Dials, Thomas Neal’s Warehouse is a unique
flagship retail unit extending to 22,800 sq. ft. including 3,000 sq.
ft. of restaurant space. In autumn 2017, we agreed terms with an
international retailer over the whole space but in August 2018 they
withdrew. At 30 September 2018, this unit was under offer again,
and recently we have completed the lease. Opening in summer
2019, this food hall concept will further strengthen Seven Dials
as a popular and distinctive retail and leisure destination.
Residential
Lettings and renewals
Total
8.2
31.4
-0.1% vs previous rent
Central Cross, Chinatown (2.6% of ERV1)
Our share of leasing transactions in the Longmartin joint venture
was £1.4 million (2017: £3.9 million).
Progress at our completed larger schemes
57 Broadwick Street, Carnaby (1.7% of ERV1)
70%
let or under
offer2
30%
available2
Located at the eastern gateway to Chinatown, our scheme
provides 28,500 sq. ft. of retail space and 20,400 sq. ft. of
restaurant and café accommodation. At 30 September 2018,
76% of the scheme was let or under offer. Subsequently, we
have placed another unit under offer, but one offer has been
withdrawn. At 26 November 2018, the scheme was 70% let or
under offer:
• Eight of the nine restaurant, café and leisure units (ERV: £1.8
million) had been let and one (ERV: £0.3 million) was under
offer.
• Two retail units (ERV: £0.5 million) were under offer and three
units (ERV: £1.1 million), extending to 19,400 sq. ft., were
available and are being marketed.
100%
let
We completed and let this mixed-use scheme, at the eastern
entrance to Carnaby, during the year. On the lower floors, where
we created new retail and restaurant space, we have introduced
an online retailer who wanted a presence in Carnaby, and a new
restaurant concept.
1 Wholly-owned portfolio
2 Letting status at 26 November 2018
Portfolio report
continued
Shaftesbury
Annual
Report 2018
45
Strategic report Annual review2
Strategic report Annual review
Portfolio report continued
EPRA vacancy1 at 30 September 2018
Restaurants,
cafés and
leisure
Shops
Offices
Residential
Total
% of total ERV
2018
% of total ERV
2017
Larger schemes2
Under offer
Available-to-let
Other vacancy
Under offer
Available-to-let
Total
Under offer
Available-to-let
-
0.3
0.3
0.2
0.2
0.4
0.2
0.5
1.9
0.6
2.5
1.4
1.2
2.6
3.3
1.8
-
-
-
0.1
0.5
0.6
0.1
0.5
-
-
-
0.1
0.1
0.2
0.1
0.1
1.9
0.9
2.8
1.8
2.0
3.8
3.7
2.9
1.3%
0.6%
1.9%
1.3%
1.4%
2.7%
2.6%
2.0%
0.2%
3.3%
3.5%
0.8%
1.7%
2.5%
1.0%
5.0%
£0.7m £5.1m £0.6m £0.2m £6.6m 4.6%
7,500 sq.ft.
99,900 sq.ft.
79,000 sq.ft.
3,900 sq.ft.
9,500 sq.ft.
6.0%
109,900 sq.ft.
EPRA vacancy1
EPRA vacancy decreased by 1.4% to 4.6% of total ERV over the
year, following letting progress at our larger schemes. Excluding
these larger schemes, EPRA vacancy was 2.7%, of which 1.3%
was under offer.
Other vacancy
Excluding larger schemes, available-to-let vacancy comprised
nine shops (ERV: £1.2 million), 8,000 sq. ft. of office space (ERV:
£0.5 million), one restaurant and one café (ERV: £0.2 million) and
two apartments (ERV: £0.1 million). Space under offer included
eight shops, two restaurants, 1,500 sq. ft. of offices and three flats.
In the Longmartin joint venture, four shops (8,400 sq. ft.), one
apartment and 5,700 sq. ft. of office space were available. The
ERV of our 50% share of this space was £0.7 million, of which
£0.3 million was under offer.
Asset management activity
Conservation status and listed building legislation limits
wholescale development in our areas. However, through
refurbishment and reconfiguration, we improve our
buildings to improve their income prospects and unlock
value. This involves a combination of:
• maximising trading space across the lower floors.
• converting under-utilised space on upper floors to
introduce more valuable uses.
• improving environmental performance.
Annual capital expenditure is normally around 1% of portfolio
value. Whilst capital outlay on schemes is generally modest,
often the loss of income is a relatively large part of the
overall cost.
Schemes during the year extended to 177,200 sq. ft. (9.7% of
wholly-owned floor space). Capital expenditure totalled £25.3
million, representing 0.7% of wholly-owned portfolio value. This
included £4.8 million in respect of 57 Broadwick Street, Carnaby.
At 30 September 2018, vacant space held for, or under,
refurbishment extended to 174,700 sq. ft. and represented 7.6%
of ERV. This included 65,300 sq. ft. at 72 Broadwick Street,
where we recently secured vacant possession.
During the year, schemes with an ERV of £8.1 million completed,
including 57 Broadwick Street, Carnaby. New schemes with an
ERV of £10.0 million commenced, of which our larger scheme at
72 Broadwick Street, Carnaby, accounted for £4.0 million. Our
current schemes are not expected to make a significant
contribution to revenue in the year ending 30 September 2019.
See page 45 for information on 57 Broadwick Street, Thomas Neal’s Warehouse and Central Cross
1 Wholly-owned portfolio
2 Thomas Neal’s Warehouse and Central
Cross
Shaftesbury Annual Report 2018
46
Vacant space1 held for, or under, refurbishment at 30 September 2018
Restaurants,
cafés and
leisure
0.1
Larger schemes2
Other schemes
2.9
Shops
-
0.6
Offices
3.5
2.5
Residential
0.4
0.9
Total
4.0
6.9
% of total
ERV
2018
2.8%
4.8%
% of total
ERV
2017
1.7%
4.9%
Portfolio report
continued
£3.0m £0.6m £6.0m £1.3m £10.9m 7.6%
40,700 sq.ft.
10,900 sq.ft. 93,300 sq.ft. 29,800 sq.ft.
174,700 sq.ft.
6.6%
124,000 sq.ft.
Other schemes
Excluding 72 Broadwick Street, we had 47 other schemes
underway at 30 September 2018, extending to 109,400 sq. ft. and
representing 4.8% of ERV. These included 39,600 sq. ft. of
restaurants and cafés (ERV: £2.9 million), 10,900 sq. ft. of shops
(ERV: £0.6 million), 39,500 sq. ft. of office space (ERV: £2.5
million), and 32 apartments either being created or upgraded
(ERV: £0.9 million). These included some medium-sized
schemes, as set out below.
Longmartin
In the Longmartin joint venture, our share of capital expenditure
in the period was £2.4 million. At 30 September 2018, the ERV of
our 50% share of space held for refurbishment was £0.9 million.
This included:
• Our mixed-use commercial scheme on the corner of Long
Acre and Upper St Martin’s Lane, currently on track to complete
in spring 2019. Our share of the cost is £4.6 million of which £3.1
million has been spent to date.
• A scheme to improve St Martin’s Courtyard, including creating
two new restaurants whilst reconfiguring a third, which we will
commence shortly. Expected to complete in autumn 2019, our
share of the cost is £3.7 million.
Public realm improvements
We identify and contribute to public realm improvements
in our villages. In our experience, creating safe and
welcoming environments is an important catalyst for
long-term growth in footfall and spending.
During the year, the scheme to improve the pedestrian
environment on the west section of Earlham Street completed.
Together with the recently-completed improvements to
Cambridge Circus, we are seeing increased footfall already, and
expect this to grow further once the Elizabeth Line opens.
Westminster City Council’s extensive public realm scheme
encompassing Newport Place and Newport Court, which we
have funded, is now complete and has transformed the eastern
end of Chinatown. The new part-pedestrianised public square in
Newport Place will provide a focal point for visitors, and, subject
to planning and licensing, will provide the opportunity for al
fresco dining for the first time in Chinatown.
Scheme
Description
1 Gerrard Place, Chinatown Reconfiguration to create two restaurants, including
active frontage in Horse & Dolphin Yard, and 9 apartments
45/49 Charing Cross Road,
Chinatown
Reconfiguration and extension to provide new flagship
restaurant space at this gateway to Chinatown and
five apartments
50 Marshall Street, Carnaby Creation of retail unit and refurbishment and
1 Little Marlborough Street,
Carnaby
extension of office space.
Office extension and refurbishment
Estimated cost
£m
Costs to date
£m
Estimated
completion
6.4
3.6
5.0
2.6
1.1
0.8
-
0.6
Autumn
2019
Summer
2019
Summer
2020
Summer
2019
1 Wholly-owned portfolio
2 2018: 72 Broadwick Street, 2017: 57 Broadwick Street
Read more on 72 Broadwick Street on page 50
Read more on public realm improvements on page 72
Shaftesbury
Annual
Report 2018
47
Strategic report Annual review2
48
We are supporters of
the arts
With over 40 live theatres, world-class museums,
galleries and live music venues, the arts are an
important part of the patchwork of features which
make the West End so special. Our support,
provided in a variety of ways, some of which are
noted here, helps ensure the West End continues
to be a thriving cultural and creative hub.
Left: We participated
in Lumiere London 2018, the UK’s
largest light festival. Featuring more
than 50 artworks by UK and interna-
tional artists, the festival attracted huge
numbers of visitors.
We contributed a number of pieces,
including puppeteer-operated
flame-coloured flamingos in Chinatown,
our giant plug, bulbs and Shaida Walking
installations in Carnaby and, in Seven
Dials, an iconic telephone box which
had been transformed into a
contemporary aquarium.
Shaftesbury and the arts
Donmar
We are a corporate sponsor of
this not-for-profit theatre in
Seven Dials, which is renowned
for its diverse artistic policy and
exceptional educational work with
young people and budding artists.
ENO community choir
We are founding funders of this
choir, which is open to all who live
or work in Westminster, providing
the opportunity to learn, sing
with professional opera singers,
attend dress rehearsals at the
Coliseum and sing in public.
Soundtrack
As part of the Mayor of London’s
“Sounds like London” campaign,
Soundtrack was a popular one-day
music festival in Seven Dials, which
showcased up and coming music,
comedy and theatre acts.
Stage One
Through subsidised space, we help
this charity which aids aspiring
theatre producers get on the
career ladder and provides them
with valuable co-working space.
Soho Music Month
Carnaby and Soho celebrated
Soho Music Month in June.
Events included an all-female
record market in Berwick Street,
and an exhibition, Platform LDN,
in Carnaby. Many tenants
participated, putting on music
sessions and hosting events.
There was also an educational
element with local students
working towards their Open
College Network qualification.
Shaftesbury
Shaftesbury
Annual
Annual
Report 2018
Report 2018
49
49
Strategic report Annual review
Acquisitions
Whilst the availability of assets to buy continues to be
limited, during the year, we secured acquisitions totalling
£167.8 million.
Acquisitions
When seeking out new acquisitions, we remain
disciplined, concentrating on buildings:
• in, and around, our areas;
• which have a predominance of, or potential
for, restaurant, leisure and retail uses; and
• which offer the potential for future rental
growth, either individually or through
combination with our existing ownerships.
72 Broadwick Street, Carnaby
In early December 2017, we acquired the freehold of
72 Broadwick Street, situated at the important
eastern gateway to Carnaby, for £92.1 million.
The Group already owned an ungeared long leasehold
interest over 13,900 sq. ft. of retail and café space in
the lower floors of the building. Acquiring the freehold
gave us control over this important 0.5 acre site,
which, on purchase, provided 54,100 sq. ft. of office
accommodation, eleven apartments extending to
11,200 sq. ft. and a large basement car park.
In September 2018, we secured vacant possession
of the office and residential space, and held a public
consultation on our plans for this building, which
include:
• introducing new retail, restaurant and leisure uses;
• relocating the office and residential entrances;
• refurbishing and extending the remaining office
space; and
• reconfiguring and upgrading the residential
accommodation.
We will be submitting a formal planning application
shortly and, subject to receiving the necessary
consents, expect to start our works in summer 2019.
Ahead of this, we have commenced stripping out
the space.
We estimate our enhanced scheme will take two
years at a cost of around £30 million.
Neal Street, Seven Dials
In late December 2017, we acquired six shops on Neal
Street, Seven Dials, for £24.4 million. Adjacent to existing
holdings, these buildings increase our ownership of
frontages on the northern section of Neal Street to
around 70%.
Situated close to the Tottenham Court Road Crossrail
hub, we expect the northern end of Neal Street to see
material footfall growth once the Elizabeth Line service
starts next year. Current rental tones on this part of
the street are significantly lower than at the southern
end. However, with the benefit of growing footfall and
our careful curation, we expect this differential in
rents will narrow significantly over the medium term.
Great Marlborough Street, Carnaby
In March 2018, we purchased the freehold of 35 and
36 Great Marlborough Street, for £22.5 million. Located
at the busy northern gateway to Carnaby, the buildings
comprise two food retail units (3,000 sq. ft.) and 4,250
sq. ft. of office accommodation on the upper floors.
We are discussing plans with Westminster City Council
to improve the street-scape in the vicinity, which,
together with our wider estate management strategy,
will improve medium-term rental growth prospects
for this part of Carnaby.
Other acquisitions
Other acquisitions during the year totalled £28.8
million. These additions to our portfolio in Carnaby,
Covent Garden, Chinatown and Soho comprised one
restaurant, one café, one bar, one shop, 9,200 sq. ft.
of office space and one apartment. These offer the
potential for good rental and capital growth through
short and medium-term asset management initiatives.
90-104 Berwick Street, Soho
(forward purchase)
The redevelopment of 90-104 Berwick Street, Soho,
which we have contracted to purchase once it has been
completed, has been delayed. We now anticipate
completing the acquisition of this long leasehold interest,
for £41 million, including acquisition costs, in mid-2019.
Located at the southern end of Berwick Street, the
development will 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, representing two thirds of the
expected income from the property. Following this
acquisition, we will own around 50% of Berwick
Street’s frontages.
Andrew Price
Portfolio Executive
Shaftesbury Annual Report 2018
50
Strategic report Annual review
Financial results
Strategic report
Annual review
£93.8m
net property income
+6.2%
£175.5m
profit after tax
(41.8)%
58.1p
basic EPS
(46.3)%
16.8p
dividends per share
+5.0%
Chris Ward
Finance Director
£51.7mEPRA earnings1
+14.4%
17.1pEPRA EPS1
+5.6%
£9.91
EPRA NAV1
+4.1%
Presentation of financial information
EPRA measures
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 portfolio valuation movements, profits on disposal of
investment properties and deferred tax arising in our Longmartin joint
venture. In 2017, it also excluded fair value movements in respect of
interest rate swaps, until they were cancelled in September 2017.
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.
Net asset value return measures shareholder value creation, taking into
account the growth in EPRA NAV together with dividends paid in the year.
Presentation of investment properties and debt
Our property portfolio is a combination of properties which are
wholly-owned by the Group and our 50% share of property held in the
Longmartin joint venture.
The financial statements, prepared under IFRS, include the Group’s
interest in its joint venture as one-line items in the Income Statement
and Balance Sheet. The analysis that follows 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 42 to 44 and the finance review on pages 55 to 56 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
(APMs) as they are not defined under IFRS.
Further details on APMs used in this annual report, and how they
reconcile to IFRS, are set out on page 140.
1 An alternative performance measure. See page 140
Shaftesbury
Annual
Report 2018
51
2 Strategic report Annual review
Financial results continued
Income statement
Net property income
Administrative expenses
Valuation gains and disposal profits
Operating profit
Net finance costs
Interest rate swaps fair value movements
Share of Longmartin post-tax results
Profit before tax
Tax
Reported earnings for the year
Basic earnings per share
EPRA earnings1
EPRA earnings per share1
2018
£m
93.8
2017
£m
88.3
(13.7)
(14.1)
127.7
207.8
231.7
305.9
(31.2)
(32.7)
-
(1.1)
22.0
6.4
175.5
301.6
-
175.5
58.1p
51.7
17.1p
-
301.6
108.1p
45.2
16.2p
Profit after tax
Profit after tax for the year was £175.5 million (2017: £301.6
million) and basic earnings per share was 58.1p (2017: 108.1p). The
decrease in profit after tax was largely due to a lower revaluation
surplus in the wholly-owned portfolio this year. Together with
disposal profits, this contributed £127.7 million (2017: £231.7 million).
Additionally, earnings were boosted last year by a gain on the fair
value of interest rate swaps of £22.0 million. These swaps were
cancelled in September 2017.
Higher net property income, lower administrative costs, and
reduced net finance costs, together, increased profit after tax by
£7.4 million. This was partly offset by a post-tax loss in the
Longmartin joint venture, our share of which reduced earnings
by £1.1 million in 2018, compared with a profit in 2017 of £6.4
million. The results of the joint venture are set out on page 53.
EPRA earnings1
EPRA earnings increased by 14.4% to £51.7 million (2017: £45.2
million) and EPRA earnings per share grew 5.6% to 17.1p (2017:
16.2p). The smaller relative increase in EPRA earnings per share,
compared with that for EPRA earnings, reflects the additional
shares in issue following the equity placing in December 2017.
EPRA earnings are reconciled to profit after tax in note 22 to the
financial statements.
The increase in EPRA earnings was driven principally by growth
in net property income and lower net finance costs, partly offset
by lower net property income in the Longmartin joint venture,
largely due to scheme vacancy.
EPRA earnings1
5.5
0.4
1.5
51.7
(0.9)
45.2
20
2017
Admin costs
Longmartin
2018
Net property
income
Net finance
costs
Net property income
Rents receivable increased by 9.1% to £112.8 million (2017: £103.4
million), reflecting continued conversion of our portfolio’s
reversionary potential into contracted cash flow, together with
the impact of acquisitions. Excluding acquisitions and disposals,
the like-for-like increase was 6.4%. Turnover-related rental
top-ups made a useful contribution, totalling £1.1 million (2017:
£0.7 million). Acquisitions accounted for £3.3 million of the
increase, while disposals reduced rents receivable by £0.4
million compared with last year.
Rents receivable
6.5
112.8
103.4
3.3
(0.4)
70
2017
Acquisitions
Disposals
2018
Like-for-like
Growth
Irrecoverable property charges were £19.0 million (2017: £15.1
million). The increase in property operating costs reflects:
• growing our promotional and social media activities, an
essential aspect of our strategy to drive footfall and spending;
• a high incidence of repairs and maintenance projects in the
year, the cost of which is only partly recoverable through
service charges;
• increases in estate management costs; and
• buying in leases to allow us to improve our tenant mix.
Net property income was £93.8 million, up 6.2% (2017: £88.3 million).
Shaftesbury Annual Report 2018
52
Portfolio valuation: pages 42 to 44
Acquisitions: page 50
Read more on the equity placing on page 56
Promoting our destinations: page 21
Administrative expenses
Administrative expenses amounted to £13.7 million (2017: £14.1
million). Despite increased headcount, employee costs were £1.4
million lower than in 2017, due to decreased charges for variable
compensation. Other administrative costs were £1.0 million
higher than last year, largely as a result of increased professional
fees and irrecoverable VAT.
Valuation gains and disposal profits
Our wholly-owned portfolio’s revaluation surplus was £123.1 million
(2017: £230.6 million), representing like-for-like valuation growth
of 4.2% (2017: 7.5%), principally driven by a like-for-like increase
in ERV of 2.6% (2017: 3.4%) and yield compression of five basis
points (2017: 11 basis points compression).
Disposals of non-core properties generated net proceeds, after
sale costs, of £13.3 million (2017: £13.4 million) and a surplus over
2017 book value of £4.6 million (2017: £1.1 million). These included
three shops, 1,875 sq. ft. of office space and three apartments,
as well as nine lease extension premiums received from residential
long leaseholders.
Net finance costs
Net finance costs decreased by £1.5 million to £31.2 million (2017:
£32.7 million). This reflects the benefits of reduced borrowing
costs following the refinancing last year, together with lower net
debt and higher interest income following the equity placing in
December 2017. These savings were partly offset by an accelerated
write-off of previously unamortised loan issue costs, totalling
£0.3 million, following the refinancing of our bank facilities in
February 2018.
Tax
As a REIT, the Group’s activities are largely exempt from corporation
tax. As a result, there is no tax charge in the year (2017: £Nil).
As 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 £29.2 million (2017: £18.1 million). In addition, our
share of taxes, including corporation tax, levied on, or collected
by, the Longmartin joint venture was £1.8 million (2017: £0.9 million).
Tax strategy
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.
Share of Longmartin post-tax results
Following the reduction in the valuation of Longmartin’s
investment property (see page 43), the joint venture delivered a
loss after tax for the year, our 50% share of which was £1.1 million
(2017: profit of £6.4 million).
Our share of the revaluation deficit was £5.0 million, compared
with a surplus last year of £2.6 million. Excluding this revaluation
loss and the related deferred tax credit, our share of EPRA
earnings1 from the Longmartin joint venture decreased by £0.9
million to £2.8 million (2017: £3.7 million). This reduction was largely
due to scheme-related vacancy during the year and the benefit,
last year, of back-rents following rent review settlements.
Dividends
Dividend strategy
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. Principal
risks and uncertainties, including those which might affect
income and earnings, are set out on pages 59 to 60.
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 2018, we had
distributable reserves of £222.2 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 any
subsidiaries’ ability to distribute profits.
The Board has recommended a final dividend of 8.5 pence per
share, an increase of 4.9% on last year’s final dividend (2017: 8.1
pence). This brings the total dividend for the year to 16.8 pence
per share, an increase of 5.0% on 2017 (16.0 pence).
This increase reflects growth in net property income and
earnings enhancements from last year’s refinancing. Total
dividends for the year are covered 1.02 times by EPRA earnings
per share1 and 1.03 times by adjusted earnings per share1, after
adding back the non-cash accounting share option charge of
£0.6 million (2017: £1.4 million).
Annual bonus outcome: page 100
Portfolio valuation: pages 42 to 44
Financial management: pages 55 to 56
Financial results
continued
1 An alternative
performance measure.
See page 140
Shaftesbury
Annual
Report 2018
53
Strategic report Annual review2 Strategic report Annual review
Financial results continued
The total distribution for the year will be £51.6 million, 9.6%
higher than last year (2017: £47.1 million). This reflects the
increased dividend per share and the greater number of shares
now in issue, and is fully covered by adjusted EPRA earnings1 of
£52.3 million.
If approved at the 2019 AGM, the final dividend will be paid on 15
February 2019 as an ordinary dividend.
EPRA NAV
EPRA NAV per share1 increased by 39p (4.1%) to £9.91 during the
year (2017: £9.52). Revaluation surpluses, including disposal
profits, added 39p, comprising 41p from the wholly-owned
portfolio less our share of the revaluation deficit in the
Longmartin joint venture. EPRA earnings of 17.1p per share
largely were offset by dividends paid (16.4p per share). EPRA NAV
is reconciled to net assets in note 22 to the financial statements.
Dividends vs adjusted earnings1 (pence per share)
Dividends 5-year CAGR: 6.1%
EPRA NAV1 (pence per share)
17
952
(16)
17.3
16.8
16.7
16.0
39
991
(1)
13.75
13.9
13.1
13.2
14.7
14.7
2014
2015
2016
2017
2018
Dividends
Adjusted EPS1
Balance Sheet
Investment properties
3,714.8
3,407.3
2018
£m
2017
£m
Investment in joint venture
Net debt
Other net assets
Net assets
NAV per share1
EPRA NAV per share1
Net asset value return1
143.9
(841.3)
15.6
148.0
(914.2)
5.8
3,033.0
2,646.9
£9.87
£9.91
5.8%
£9.49
£9.52
8.9%
Net assets
Net assets increased by £386.1 million, predominantly due to the
equity placing in December 2017, which added £260.4 million,
and profit after tax of £175.5 million, partly offset by dividends
paid which totalled £50.6 million.
900
2017
EPRA
earnings
Revaluation
2018
Dividends
Share placing/
rounding
Cash flows and net debt
Net debt decreased by £72.9 million to £841.3 million (2017:
£914.2 million). The major cash flows were:
• net proceeds from the share placing of £260.4 million.
• net capital investment in our portfolio of £181.1 million.
• operating cash inflow totalling £46.3 million.
• dividends paid amounting to £50.6 million.
Net cash flows from investing activities in respect of the
Longmartin joint venture were nil, following receipt of dividends
totalling £3.0 million, offset by an equal amount advanced under
the shareholder loan agreement.
Net debt1 (£m)
181.1
914.2
50.6
(46.3)
(260.4)
2.1
841.3
600
2017
Dividends
Equity placing
2018
Operating
cash inflow
Net portfolio
investment
Other
1 An alternative performance measure. See page 140
Shaftesbury Annual Report 2018
54
Share placing: page 56
Portfolio valuation: pages 42 to 44
Strategic report Annual review
Financial management
Equity placing and refinancing activities completed
during the year. Long-term financing and available
resources continue to support our long-term
investment strategy.
Our approach to financial management
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. Debt provides capital for
investment in our portfolio.
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.
We seek to minimise financing risk and whilst we do not set out
loan-to-value targets, over the long term, we would expect debt
to represent around one third of our invested capital. Typically,
when gearing approaches the upper limit of our tolerance, we
look to secure additional equity funding to provide financial
capacity for continued investment in our portfolio.
Key aspects of our debt arrangements are:
• Conservative leverage
• Spread of maturities
and sources of finance
We use debt to enhance, not drive,
returns.
Reduces refinancing risk.
• Long-term arrangements
form the core of our debt
finance
Consistent with the long-term
nature of our portfolio and secure
income streams.
• Medium-term revolving
facilities
Provide flexibility and the ability to
act swiftly when acquiring
properties.
• Majority of interest is fixed
Limits exposure to interest rate risk.
Loan to value1,3,4
Sources of finance1
Interest cover1,4
Blended cost of debt1,2,4
22.8%
.
7
6
2
.
2
4
2
8
.
2
2
.
6
3
2
.
2
2
2
£1.2bn
Bonds5
Revolving bank facilities6
Term loans5
18%
36%
46%
2.6x
.
6
2
3
2
.
0
2
.
1
.
2
1
.
2
3.2%
1
.
5
.
9
4
.
5
4
3
3
.
2
.
3
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
1 Including our 50% share of Longmartin debt. See presentation of financial information on page 51
2 Including non-utilisation fees on undrawn bank facilities
3 Based on net debt
4 An Alternative Performance Measure (APM). See page 140
5 Fixed rate
6 Variable rate
Read more on the equity placing on page 56
Shaftesbury
Annual
Report 2018
55
Strategic report Annual review2
Strategic report Annual review
Financial management continued
Share issue
On 6 December 2017, we strengthened our equity base, through
a non pre-emptive issue of 27,855,508 million new ordinary
shares, representing approximately 9.98% of our issued share
capital at the time. The shares were issued at £9.52 per share,
which equated to EPRA NAV at 30 September 2017 and
represented a discount of 4.9% to the closing price of £10.01 per
existing ordinary share on 5 December 2017. After issue costs of £4.8
million, net proceeds were £260.4 million, representing a total
discount of approximately 6.59%.
The placing was to finance:
• the acquisition of 72 Broadwick Street, Carnaby, and additional
anticipated capital expenditure;
• the forward purchase of a long-leasehold interest in 90-104
Berwick Street; and
• other property acquisitions, totalling £9.0 million, in the
preceding six months.
Net debt (including 50% share of the
Longmartin joint venture)1,5
The remainder of the proceeds were raised to provide financial
capacity for further acquisitions, as opportunities arise, and to
fund value-enhancing schemes.
Cash and cash equivalents
Undrawn floating rate facilities
Available resources
Refinancing bank facilities
In February 2018, we restructured our revolving bank facilities
with arrangements as follows:
• £125 million facility extended from 2020 to 2022.
• new £100 million facility maturing in 2023, replacing a £150
million facility which was due to mature in November 2018.
In line with our approach to financial management, as we invest
further in our portfolio, we shall utilise these facilities and raise
additional new debt facilities to support our long-term strategy,
whilst maintaining a balance between equity and debt which
avoids the risks inherent in excessive leverage for this business.
Finance summary
Reported net debt
2018
£m
2017
£m
841.3
914.2
900.0
973.6
118.5
225.0
343.5
45.6
275.0
320.6
At 30 September 2018, available resources amounted to £343.5
million, of which £92.7 million will be used to fund capital
commitments at that date, the anticipated capital expenditure
at 72 Broadwick Street, and our share of scheme costs in the
Longmartin joint venture.
Debt metrics1
Loan-to-value4,5
Gearing3,4,5
Interest cover5
% debt fixed
Blended cost of debt2,5
Marginal cost of undrawn floating rate facilities
Weighted average maturity (years)
Debt maturity profile (£m)1
Weighted average maturity: 10.2 years
2018
£m
22.8%
29.5%
2.6x
100%
3.2%
1.6%
10.2
2017
£m
26.7%
36.5%
2.3x
100%
3.3%
1.2%
10.3
Bank facilities (variable)
Bonds (fixed)
Term loan (fixed)
JV term loan
(fixed, our 50% share)
290
285
125
100
60
135 130
120
2019
2022 2023
2026 2027
2029 2030 2031
2035
90–104 Berwick Street: page 50
72 Broadwick Street: page 50
At 30 September 2018, all of the net proceeds had been spent
or earmarked for acquisitions and schemes.
Use of proceeds at 30 September 2018
Gross proceeds
Issue costs
Net proceeds
Amounts deployed to date
Acquisitions
- Completed in the 6 months preceding the
placing and £2m deposit for 90-104 Berwick
Street
- Completed since the share issue
Capital expenditure to date
Amounts earmarked for investment
- 90-104 Berwick Street (net of deposit)
- Contribution to anticipated capital expenditure
for our enhanced scheme at 72 Broadwick Street
Total deployed or earmarked for deployment
£m
265.2
(4.8)
260.4
11.0
167.8
17.4
196.2
39.0
25.2
64.2
260.4
Related party disclosures relevant to the share issue are set out
in note 17 to the financial statements. We had not issued shares
for cash on a non pre-emptive basis during the three-year
period preceding December 2017.
1 Including our 50% share of Longmartin debt. See presentation of financial information on page 51
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
Shaftesbury Annual Report 2018
56
Strategic report Annual review
Risk management
The Board’s attitude to risk management is
consistent with its low overall appetite for risk.
This report should be read in conjunction with
the viability statement on page 61.
Context and risk appetite
We invest exclusively in London’s West End, a location of which
our management team has a forensic knowledge and which has
shown significantly greater long-term growth and economic stability
through the property cycles than the wider real estate market.
Our strategy has delivered long-term success for the Group.
However, inevitably our geographic concentration is an inherent
risk and there are certain external factors which we cannot control.
However, in the execution of our strategy, we seek to structure
the Group’s operations to minimise exposure to operational and
financial risks, recognising that our appetite to risk varies across
different elements of our strategy, as follows:
High
Medium
Low
Geographic
concentration
Development
risk
Letting
risk
Financing
risk
Compliance
risk
Reputation
risk
Important factors contributing to the relatively low risk of our
business include:
• Our experienced senior leadership team, with an average
tenure of 16 years, has an in-depth knowledge of our business
and the West End property market. We are based in one
location, close to all our holdings;
• The nature of our portfolio does not expose us to risks
inherent in material speculative development schemes;
• With a diverse tenant base, there is limited exposure to any
single occupier;
• 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;
• Our culture encourages open dialogue within the management
team and with the wide range of external advisors we employ
in running the business;
• The organisation of our Group structure is simple and transparent;
and
• Our governance framework includes clearly defined
responsibilities and limits of authority.
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 above a relatively low specified
level.
Senior management 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 on the basis of long-term benefit, rather than
short-term gain.
Exceptional portfolio in the heart of the West End: page 12
Culture: page 39
Asset management activity: pages 46 to 47
Sustainability and stakeholders: pages 34 to 39
Restaurants, cafés, leisure and retail: pages 22 to 25
Governance: pages 74 to 79
Financial management: pages 55 to 56
Remuneration report: pages 86 to 88
Shaftesbury
Annual
Report 2018
57
Strategic report Annual review2
Strategic report Annual review
Risk management continued
Top down
Oversight, assessment
and mitigation at
a Group level
Identification,
assessment and
mitigation at an
operational level
Bottom up
Board
• Overall responsibility for risk
management and internal
control
• Determines the risk appetite
• Review principal and
emerging risks
Risk committee
• Co-ordinate and develop the
risk management process
• Consider strategic and emerging
risks and internal controls
Executive
management
• Day-to-day monitoring of risk
• Design and implementation
of controls
Audit committee
• Monitor the effectiveness
of the risk management
process and internal
control framework
Assurance
• Review of the effectiveness
of controls
• Observations from the
external auditor
How we monitor and manage risk
Roles and responsibilities in managing our risk and controls
framework are summarised above.
The Board has overall responsibility for risk management and the
systems of internal control. 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.
Executive management are closely involved with day-to-day
operations. Issues are dealt with as they arise and, where
significant, are discussed more widely with the executive team.
This ensures an awareness of the risk and solutions adopted.
Challenges that have arisen and how risks have changed are key
inputs from executive management to the Risk Committee.
The day-to-day management of the Group’s portfolio is
outsourced to two managing agents. The Group monitors their
performance 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 their
internal control assessments with the Group.
During the year, areas of focus included:
Topic
GDPR
Actions
Project to implement the requirements
of GDPR, including training for all staff.
Cyber security
Reputation management Crisis communications training for
External review of our arrangements.
senior management
In the coming year, we plan to review tax procedures in relation
to both the “Senior Accounting Officer” regime and preventing
the facilitation of tax evasion. Also, we plan to carry out an audit
on one of our managing agent’s processes.
The Risk Committee, comprising a mix of executive directors
and members of the senior management team, co-ordinates
and develops the risk management and controls framework. It
meets twice a year, or more frequently as needed, and reports
to the Audit Committee and Board.
Shaftesbury Annual Report 2018
58
Risk Committee – key activities
• Review and assessment of the Group’s risk register;
• Identification of new and emerging risks;
• Provide support in defining risk appetite;
• Assess and review the Group’s control environment; and
• Assess the effectiveness of the Group’s controls.
During the year, we commissioned an external review of the Risk
Committee’s activities to ensure it remains effective and meets
the needs of the business, now and into the future.
How we assess risk and internal controls
Significant risks and mitigating controls are detailed in the risk
register.
Risks are considered in terms of the likelihood of occurrence and
their potential impact on the business. In assessing impact, a number
of criteria are considered including the effect on our strategic
objectives, operational or financial matters, our reputation,
stakeholder relationships, health and safety and regulatory matters.
Risks are assessed on both gross (assuming no controls are in place)
and residual (after mitigation) bases.
To the extent that significant risks, failings or control weaknesses
arise during the year, appropriate action is taken to rectify the
issue and implement controls to mitigate further occurrences.
During the year, executive management assessed the effectiveness
of key controls, reporting their findings to the Audit Committee.
The review did not identify any significant control failings. In the
coming year, it is anticipated that the effectiveness of these key
controls will be reviewed independently, to provide third-party
assurance.
The Group’s processes and procedures to identify, assess, and
manage its principal risks and uncertainties were in place throughout
the year and remained in place up to the date of the approval of
the Annual Report.
Audit committee report: pages 82 to 85
Strategic report Annual review
Principal risks and uncertainties
Strategic report
Annual review
The Board has carried out a robust assessment of the principal
and emerging 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, their mitigation and the evolution of risk during
the year are set out below. They are largely consistent with
those reported in 2017, although now include the potential
impact of a disorderly Brexit.
Other risks discussed, but, through mitigation, currently are not
considered to be principal risks or uncertainties included:
Market
Failure to adapt to changing market
conditions or competition
Reputation
Failure to anticipate changes in profitability
Misconduct or poor operational standards
by third party agents
Damage to reputation with stakeholders
Governance, data
and internal control disruption and/or loss of data
Significant cyber security breach leading to
Expulsion from REIT regime through
non-compliance
Health and safety issues
Failure to meet our corporate social
responsibility objectives
Failure to meet financial or tax compliance
obligations
Attracting, retaining and developing
talented people
Succession planning
People
Emerging risks include the well-publicised headwinds affecting
the retail sector, including future consumer trends and
technological disruption to the retail landscape. These topics
are considered regularly so that we can adapt to ensure our
destinations remain distinctive and interesting.
This report should be read in conjunction with the viability
statement on page 61.
Reduction of spending and/
or footfall in our areas
Spending and footfall are important ingredients
for the success of our restaurant, leisure and
retail tenants
Potential causes
• Fall in the popularity of the West End and
particularly our areas leading to decreasing
visitor numbers
• Changes in consumer tastes, habits and
spending power
• Terrorism or the threat of terrorism
• Competing destinations
Consequences
• Reduced tenant profitability
• Reduced occupier demand
• Higher vacancy
• Reduced rental income and declining earnings
• Reduced ERV, capital values and NAV
(amplified by gearing)
Mitigation
• Focus on areas and uses which have a long
history of growth and resilience
• Ensure our areas maintain a distinct identity
• Seek out new concepts, brands and ideas to
keep our areas vibrant and appealing
• Active promotion of our areas
• Tourism and retail/leisure spending in the West
End are not solely reliant on the wider-UK
economy
• Regular Board monitoring of performance and
prospects
• KPI to deliver sustainable rental growth
Link to strategy
1
2
3
Evolution of risk
Residual risk
within appetite
1
2
3
4
Exceptional portfolio in the heart of London’s West End: page 12
Focus on restaurants, leisure and retail: page 17
Curating distinctive and lively destinations: page 20
Financial management: pages 55 to 56
Shaftesbury
Annual
Report 2018
59
2
Strategic report Annual review
Principal risks and uncertainties continued
Changes in planning and
licensing regulations
All our properties are in the boroughs of
Westminster and Camden. Changes to policies
may limit our ability to maximise the long-term
potential of our portfolio
Potential causes
• Unfavourable changes to national or local
planning and licensing policies
• Tenants acting outside of planning/licensing
consents
Consequences
• Ability to maximise the growth prospects of our
assets limited
• Reduced occupier demand
• Reduced earnings
• Decrease in property values and NAV (amplified
by gearing)
Mitigation
• Ensure our properties are operated in
compliance with local regulations
• Make representations on proposed policy
changes, to ensure our views and experience
are considered
• Use of specialist advisors on planning and
licensing
• Monitoring of tenant compliance with planning
consents and licences
• Mix of uses in our portfolio means we are not
reliant on income from one particular use
Link to strategy
2
Evolution of risk
Residual risk
within appetite
Macroeconomic factors
Impact of economic and political uncertainty,
including a disorderly Brexit
Decline in the UK real estate
market
Changes to macroeconomic outlook
Potential causes
• Unforeseen macroeconomic shocks or events
• Disorderly Brexit
• Upward cost pressures
Consequences
• Lower consumer confidence
• Reduced visitor numbers
• Reduced tenant profitability
• Reduced occupier demand
• Pressure on rents
• Higher vacancy
• Reduced rental income and declining earnings
• Reduced ERV, capital values and NAV (amplified
by gearing)
• Specifically in the case of a disorderly Brexit,
tenants could suffer:
- Staff shortages
- Increased import prices
- Longer lead times and lower availability of
stock
Mitigation
• Focus on locations and uses which historically
have proved to be economically resilient
• Tourism and retail/leisure spending in the West
End are not reliant on the wider-UK economy
• Active promotion of our areas
• Diverse tenant base with limited exposure to
any one tenant
• Tenant deposits held against unpaid rent
obligations at 30 September 2018: £20.6 million.
Link to strategy
1
2
3
Evolution of risk
Potential causes
• Changes to global political landscape
• Increasing bond yields and cost of finance
• Reduced availability of capital and finance
• Lower relative attractiveness of property
compared with other asset classes
Consequences
• Reduced property values
• Decrease in NAV (amplified by gearing)
• Risk of loan covenant breaches
• Ability to raise new debt funding curtailed
Mitigation
• Focus on assets, locations and uses where
there is a structural imbalance between
availability of space and demand, and which
historically have demonstrated much lower
valuation volatility than the wider UK property
market
• Regular review of investment market conditions
including bi-annual external valuations
• Conservative levels of leverage
• 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 strategy
1
2
4
Evolution of risk
Risk increase reflects
growing macroeconomic
uncertainty and
expectations of rising
long-term interest rates
The increased rating
reflects continued
uncertainty as our EU
departure approaches
Residual risk
within appetite
Residual risk
within appetite
1
2
3
4
Exceptional portfolio in the heart of London’s West End: page 12
Focus on restaurants, leisure and retail: page 17
Curating distinctive and lively destinations: page 20
Financial management: pages 55 to 56
Shaftesbury Annual Report 2018
60
Strategic report Annual review
Viability statement
The directors have assessed the Group’s viability
and confirm that they have a reasonable
expectation that the Group will be able to
continue in operation and meet its liabilities as
they fall due over the five-year period to
September 2023.
Period of assessment
The five-year assessment period reflects lease lengths or rent
review patterns across the majority of our portfolio, and
corresponds with the Group’s current forecast period. Typical
lease terms are set out on pages 23 to 29. Whilst the directors
consider prospects over a longer period in the execution of our
strategy, we consider this assessment horizon strikes the
optimum balance between planning for the longer term and the
progressively unreliable nature of forecasting in later years. The
directors confirm that they have no reason to expect a material
change in the Group’s viability immediately following the end of
the five-year assessment period.
Assessment process
Our forecasts are updated at least half-yearly and reflect the
Group’s established strategy of long-term investment in
London’s West End, existing commitments, available financial
resources, and long-term financing arrangements. They consider
profits, cash flows, 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.
In its assessment, the Board considered a five-year review of the
Group’s viability, prepared by senior management. The base case
scenario was the latest five-year forecast. The key forecast
assumptions were:
• continued crystallisation of the portfolio reversionary potential
over the period. ERVs are based on current, proven rental
tones, and do not assume any further growth. Our long record
of converting ERV into contracted income and cash flow, typically
over a three-to-five year period, is set out on page 33.
• no further acquisitions or capital expenditure, other than that
which had been committed or approved by the Board.
• no new debt facilities are raised and no debt refinancing takes
place, other than refinancing bank facilities totalling £125
million and £100 million which mature in 2022 and 2023
respectively. These facilities represent 18% of our total
committed debt arrangements.
The review considered the potential impact of the principal risks
which could affect solvency or liquidity in ‘severe but plausible’
scenarios, and particularly those risks which could result in
reduced income, profitability and capital values. Sensitivity
analyses were prepared which flexed these key inputs, both
individually and in unison.
See pages 59 to 60 for principal risks and uncertainties.
Our investment strategy is focused on restaurants, leisure and
retail, uses which, in the West End, have a long record of resilience
and growth. Our management strategy has delivered high occupancy
and sustainable income growth over the long term as set out on
page 33. A fall in income would result in lower earnings. If
sustained, this could lead to reduced dividends but would not
threaten the Group’s viability unless loan covenants were
breached. See page 53 for information on our dividend policy.
A reduction in capital values might curtail the ability to raise new
debt funding, but would not present a viability risk if loan-to-
value loan covenants continued to be satisfied. See page 55 for
more on our prudent approach to financial management,
including loan-to-value and interest cover ratios.
The sensitivity analyses modelled asset value declines resulting
from increasing equivalent yields to levels similar to those in
2008/09, together with a 10% decline in ERVs. This would result
in a near halving of our portfolio valuation. In unison, we
considered decreases in rental income of up to 50%. 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.
The Strategic Report on pages 1 to 61 was approved by the Board
on 26 November 2018.
Brian Bickell
Chief Executive
Chris Ward
Finance Director
Shaftesbury
Annual
Report 2018
61
Strategic report Annual review2
62
As a responsible, long-term
investor in our areas, being a
good neighbour and focusing
on local issues is essential.
By working with, and supporting, our local community
to address issues and challenges of mutual interest
and concern, collectively we make the West End an
even better place. Working within fifteen minutes’
walk of all our holdings, we are well-positioned to
understand local issues and support local charities
and not-for-profit organisations, to help them make
a difference.
Read more on our work with the local community
on page 38.
Left: We sponsor the annual Soho
Food Feast - a festival which raises
money for Soho Parish Primary
School. Supported by many of our
restaurants, it attracts foodies from
across London as well as families
and Soho residents, giving it a great
community feel and energetic
atmosphere. To date, the event has
raised funds for a new multi-level
playground and for a healthy eating
kitchen.
Shaftesbury and the
community
Chinese Community Centre
The Centre preserves and promotes
Chinese culture, arts and identity
and fosters better community
integration.
We fund a Chinese-speaking advisor
to provide advice on welfare, benefits
and housing.
Soho Fete
We sponsor this fete, which marked
its 40th anniversary this year. With
live music, food and drink from local
restaurants, this fete is popular
amongst the Soho community.
Soho Parish Primary School
We supported the school through
trips, including to the London Zoo,
and advice on refurbishing
classrooms.
Westminster Tea Dance
Organised through the Sir Simon
Milton Foundation, we co-sponsor
the afternoon at the ballroom of
the Grosvenor House hotel which
hosts 1,000 Westminster residents
over 65. The event is part of the Silver
Sunday national campaign to tackle
loneliness and isolation in the
elderly in the community.
Shaftesbury
Annual
Report 2018
63
Governance
Our people
Executive Directors
Brian Bickell FCA
Chief Executive
Overall responsibility for implementing
strategy and day-to-day operations
Joined the Group in 1986
Board appointment
Appointed Finance Director in 1987
and Chief Executive in 2011
External appointments
Director of Longmartin Properties
Limited
Board member of Westminster
Property Association
Chairman, UK China Visitor Alliance
Board member of Freehold
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, taxation and IT
Joined the Group in 2012
Board appointment
Appointed Property Director in 1997
Board appointment
Appointed Property Director in 1997
Board appointment
Appointed Finance Director in 2012
External appointments
ZSL development strategy board
Revo strategy board
Member of Council for Sustainable
Business
External appointments
Director of Longmartin Properties
Limited
External appointments
Westway Trust: trustee, chairman of
audit committee and member of
property and regeneration committee
Left to right: Chris Ward, Simon Quayle, Brian Bickell, Tom Welton
Shaftesbury Annual Report 2018
64
Governance
Our people
Non-executive Directors
Jonathan C Nicholls ACA, FCT*
Non-executive Chairman and
Chairman of the Nomination
Committee
Board Chairman appointment 2016
Skills
Over 20 years’ experience of public
company boards and their operation
Finance, commercial, strategic,
communication, investor relations and
management skills
21 years’ experience in property and
related industries
Experience
From 1985 various roles at Abbey
National. In 1996 joined Hanson PLC
and became Finance Director in 1998
Old Mutual plc Group Finance Director
from 2006-2008
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
Current external appointments
Non-executive director, senior
independent director and chairman of
the audit committee of D S Smith Plc
Chairman of Ibstock plc
Jill C Little*
Non-executive director and
Senior Independent Director
Board appointment 2010
Experience
John Lewis Partnership 1975 to 2012.
Merchandise director 2002-2011 and
Business and Development director
2011-2012
Current external 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
Current external 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
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 2004-2010
Left to right: Jill Little, Jonathan Nicholls, Hilary Riva, Richard Akers, Sally Walden, Dermot Mathias
Governance
Current external appointments
Non-executive director and chairman
of the audit committee of JTC PLC
Governor of Activate Learning
Skills
Strong financial skills
Extensive experience in leadership
and management
Richard Akers FRICS*
Non-executive director
Board appointment 2017
Experience
Senior executive of Land Securities
Group PLC from 1995-2014. Joined
main board in May 2005 as Managing
Director of the Retail Portfolio
Director and President of the British
Council of Shopping Centres
2009-2012
Current external 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
Non-executive director of The Unite
Group plc
Skills
Broad range of real estate knowledge
and experience at board level,
including retail property
Hilary S Riva OBE*
Non-executive director and
designated non-executive director
for employee engagement
Board appointment 2010
Will retire from the Board in February 2019
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 2010
Current external 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.
Shaftesbury
Annual
Report 2018
65
3 Governance
Our people
Senior leadership team
The Executive Committee comprises the executive directors and the senior leadership team.
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, risk,
pension and community investment
committees.
Trustee of Soho Square Garden
Committee.
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 and member of pension
and risk committees.
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 and risk
committees.
Board member of Soho Neighbourhood
Forum.
Shaftesbury Annual Report 2018
66
Governance
Our people
Senior leadership
team continued
Shaftesbury
Annual
Report 2018
67
Sam Bain-Mollinson
BA (HONS) MSC, MRICS
Head of Retail
Joined 2011
Group retail strategy and leasing.
Charles Owen BSC (HONS),
MRICS
Portfolio Executive
Joined 2012
Seven Dials and St Martin’s Courtyard
asset management and group-wide
planning strategy.
Member of community investment
and risk committees.
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
3 Governance
Our people
Directors' Q&A
Chairman Jonathan Nicholls and non-executive director
Richard Akers, our most recent appointment, provide an
insight into their respective roles at the Group.
How do you encourage open and
constructive dialogue at board meetings?
For the Board to operate effectively, it is essential
that every director’s opinion is heard and fed into
the decision-making process. In order to facilitate
constructive dialogue, I strive to cultivate a board
culture that is open and transparent. On a practical
level, I ensure that Board papers are sent out early
so that the directors have sufficient time to properly
prepare for every meeting.
“ The Chairman must have the
interpersonal skills to ensure
that the Board as a whole
functions cohesively and
effectively”
What do you enjoy most about your
roles as Chairman and Chairman of the
Nomination Committee?
I have seen first-hand how the Group’s management
strategy has created dynamic and attractive West
End destinations, and I am proud to be the Chairman
of such an exciting company. My role has presented
me with the unique opportunity to learn about how
we operate. Relative to its financial size, we are a
small organisation of 30 staff all based in one office in
Carnaby, and it has been a real pleasure getting to
know our people, our exceptional portfolio and how
the business operates.
What skills are required to be an
effective Chairman and how do these
differ from other board positions?
The fundamental role of the Chairman is to manage
and lead the Board which means that strong leadership
skills are essential, more so than in other directorship
positions since responsibility for the successful
running of the Board rests with the Chairman.
We benefit from a Board comprised of individuals
with a breadth of experience. The Chairman should
have the interpersonal skills to ensure the Board
functions cohesively and effectively, and where each
director’s views and opinions are respected. Even
the most experienced boards can face difficult and
challenging periods and the Chairman should have
the experience and strength of personality to overcome
these situations and provide leadership to the rest
of the Board.
The Chairman should be able to communicate
effectively to external stakeholders, for example,
at the annual general meeting.
How do you feel that your industry
experience has prepared you for your
role as Chairman of the Board?
I have held numerous management and directorship
positions in my career, all of which have equipped
me with the diverse skill set required to hold the
positions of Chairman of the Board and the
Nomination Committee.
As a former executive director and a non-executive
director of various PLCs for over ten years, I have
had meaningful decision-making roles at board level
which informs my business judgement. I know what it
is like to be both an executive and non-executive
director so that I can put myself in the shoes of our
directors which helps me to understand and cultivate
different points of view and act as a liaison between
management and the Board.
Jonathan Nicholls
Chairman
answers questions
regarding his role
as Chairman
Shaftesbury Annual Report 2018
68
Governance
Our people
Directors' Q&A
continued
Richard Akers
Non-executive Director
answers questions
regarding the roles
and responsibilities of
the non-executive
directors
What attracted you to the role of a
non-executive director at Shaftesbury?
I have always been a fan of Shaftesbury because of
its clear identity, strategy and consistent performance.
It is unique in its approach to property investment,
namely the careful curation of its locations to create
vibrant and attractive destinations. Joining the Board
gives me the opportunity to contribute my own
industry experience to help drive that strategy
through creative contribution and helpful challenge
to the Board.
What types of skills and competencies
make a successful non-executive
director?
A fundamental skill for any effective non-executive
director is the capacity for independent thought and
a resistance to group-think. Non-executive directors
must provide an external perspective to the Board
which means that big picture and long-term thinking
skills are extremely valuable as well. Effective
communication, active listening skills and knowing
how to ask the right questions to get to the root of
an issue quickly are important if there is to be
effective debate at Board level. It goes without saying
that non-executive directors must be passionate
about the company and its direction and bring some
specific competency or experience to the table.
How do the non-executive directors
simultaneously support and
constructively challenge the executive
directors?
It is a delicate balance. On the one hand, the
non-executive directors must maintain independence
and hold the executive directors to account against
the strategy whilst on the other they must provide
support and be committed to our direction.
I am pleased to say that this Board maintains a very
open and collaborative culture which is overseen by
our Chairman, and this encourages the type of
constructive debate one would expect from a
well-functioning and supportive Board.
“ A fundamental skill for any
effective non-executive
director is the capacity for
independent thought and
a resistance to group-think”
Outside of the boardroom, how do the
non-executive directors maintain a high
level of involvement?
A non-executive directorship does not involve just
attending board meetings every few months. In
between board meetings, the non-executive directors
are given regular progress updates and a good deal
of information is shared to ensure we are each fully
aware of developments and can prepare effectively
for upcoming meetings. In addition, there are regular
meetings with members of the executive team as well
as portfolio tours with the property team, all of which
promote a high level of involvement and engagement
with employees at all levels of the business.
Shaftesbury
Annual
Report 2018
69
3
Governance
Governance at a glance
Leadership
Sets out the Group’s governance
structure as well as the function
and operation of the Board
The role of
the Board
• Leadership of the Company
• Meets 5 times a year
• 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 division of
responsibilities
The Chairman
and Non-executive
directors
• Independent Chairman
• Meetings of non-executive
directors held without executives
after each Board meeting
• Senior Independent
Director identified
Risk management
and internal control
• Robust assessment of principal
risks - pages 59 - 60
• Effectiveness of risk management
and internal control systems
- pages 57 - 58
• Viability statement - page 61
UK Corporate
Governance
Code (2016)1
Full compliance
- see pages 74 - 75
Audit Committee
and auditors
• Audit Committee report - pages 82 to 85
• Whistleblowing policy - page 85
• Review of need for internal audit function
- page 85
• Recent and relevant financial experience
Accountability
Explains the role of the Board and Audit Committee
in maintaining effective risk management and
internal control procedures
Financial and
business reporting
• Annual report which is fair, balanced
and understandable - page 54
• Auditor’s report - pages 111 to 117
• Business model description - pages
10 - 11
• Going concern - page 84
1 Available at www.frc.org.uk
Shaftesbury Annual Report 2018
70
The level and
components of
remuneration
• Annual Remuneration
report - pages 86 to 107
Re-election and
Commitment
• All directors stand for annual re-election
• 3 non-executive directors have more
than 6 years’ service and are subject
to rigorous review
• Engagement with largest shareholders
on extension of tenure of Jill Little
• Time commitment considered when
electing and re-electing directors
Governance
Governance
at a glance
continued
Effectiveness
Explains the procedures in place and
the steps taken to ensure the Board and
its Committees function effectively
Composition
of the Board
• Independent Chairman
• Balance of 4 executive directors,
5 independent non-executive
directors and Chairman
• Skills and experience
- pages 64 - 65
Development
and Evaluation
• Induction of new non-executive
director - page 81
• Directors’ training monitored
and updates on regulatory and
legislative changes provided
• Internal Board performance
evaluation - page 78
Appointments
to the Board
• Succession planning
• Nomination Committee
report - pages 80 - 81
• Independent non-executive
directors
• Non-executive director
search
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 175 meetings with investors
and potential investors in the year,
including portfolio tours
- page 79
• Chairman and Senior
Independent Director
available to shareholders
• Regular updates on shareholder
meetings provided to Board
Procedure
• Remuneration policy
proposed for shareholder
approval at 2019 AGM
- pages 90 to 96
• Annual remuneration
report - pages 97 to 107
• No director is involved in fixing
their own remuneration
• Committee Chairman
engages with 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
An overview of the actions taken to
engage with shareholders
Remuneration
Describes the Group’s approach to
remuneration in relation to directors
and how it is implemented
Shaftesbury
Annual
Report 2018
71
33 Good quality, well-managed
public spaces are an important
part of our strategy to encourage
visitors and businesses to our
locations, and improve local
amenity for residents.
We partner with our local authorities, investing in
improvements to the public realm in our locations
to raise the standard of the paving, redistribute more
space to pedestrians and improve lighting. We also
work with them to promote and fund pedestrianised
streets that are available for servicing at limited
times, but are then given over solely to pedestrians
at all other times.
With exceptional footfall across our areas, we
supplement services provided by the authorities
with additional street cleaning, on-street waste
management, CCTV monitoring and patrolling
with on-site staff. We help people to move around
our areas by providing wayfinding, and we create
the sense of place using signage, environmental
improvements such as window boxes and planting,
iconic art installations and creative seasonal
lighting and decorations.
Shaftesbury and the
public realm
Earlham Street (right)
Improvements included a new
single surface road and widening
scheme following the road
closure at the junction with
Shaftesbury Avenue
Newport Court
The resurfacing of the area in the
courtyard and funding for a new
pagoda to enhance the area in
front of the new restaurants
Shaftesbury Annual Report 2018
72
73
Governance
Corporate governance
Dear shareholder
Corporate governance is embedded in our culture
and the day-to-day running of your Company.
I am committed to maintaining the high standards of
governance we have demonstrated for many years.
We pride ourselves on being open, transparent and
engaged with our shareholders, stakeholders and our
local community. The theme of our annual report
this year reflects the network of our relationships
with our wider stakeholder group.
I am pleased to report how we have complied in full
with the UK Corporate Governance Code, which sets
out the principles of good governance we apply in
our day-to-day operations. We are now preparing for
an updated code which will come into effect for the
financial year commencing 1 October 2019.
Board changes
Jill Little, our senior independent director, has been
on the Board since February 2010 and will reach nine
years’ service in February 2019. Hilary Riva also
reaches nine years’ service at the same time and will
retire from the Board at the 2019 AGM.
As part of our non-executive succession process, we
are currently undertaking a search for an additional
Board member to join us following Hilary Riva's
retirement. However, in order to manage the
succession of our non-executive directors, we are
smoothing the bunching of appointments that has
occurred in the past by proposing that Jill Little
remain on the board for a further year. We value Jill
Little's experience and wisdom; she makes a valuable
contribution to the Board and her independence is
undoubted. However, she will step down as senior
independent director and from membership of all
the Committees of the Board at the 2019 AGM. As
extending her service beyond nine years is a
departure from the UK Corporate Governance Code,
we have written to our largest shareholders to seek
their views. Of those that responded, all indicated
that they were supportive of this approach.
Therefore, we are proposing Jill Little’s re-election
for a further year at the 2019 AGM.
Richard Akers, who joined the Board in November
2017 will become senior independent director at the
conclusion of the 2019 AGM.
Employees
We have continued to focus on employee
recruitment, training and development. We have
instigated a number of procedures to ensure we
recruit from a diverse talent pool. We have continued
our investment in training and development which is
important to ensure that employees grow in their
roles and that we retain their skills and experience.
2018 UK Corporate Governance Code
A new code comes into effect next year. This will apply to us from 1 October 2019. However, in
accordance with best practice, we are assessing what provisions we have in place already, and
what we can adopt early during the course of this year. We will report on compliance and progress
in next year’s annual report.
What’s in place now:
Two-year post-vesting holding period in the
LTIP rules.
Designated non-executive director for
employee engagement.
Whistleblowing helpline.
Emerging risks description.
What’s coming in during the year:
The remuneration policy to adopt the same
pension level for directors as employees for
newly-appointed directors. This will apply from
the 2019 AGM, if the policy is approved by
shareholders.
Review of diversity policy.
Progress work on culture to document our values.
Update terms of reference for committees to
reflect new code.
Shaftesbury Annual Report 2018
74
Governance
Corporate
governance
continued
The Executive Committee comprises the executive
directors, company secretary and the senior
leadership team. Its role is to monitor operational
matters and contribute to the longer-term evolution
and implementation of strategy. It provides
senior employees below Board level greater
engagement and experience in the management
of the business. We continue to embed the
Executive Committee structure into the business.
This Committee meets on a monthly basis and
this year had an off-site meeting where the team
considered how the business should respond to
various structural changes in the business
environment in which we operate.
We appointed Hilary Riva as the designated
non-executive director with responsibility for
employee engagement. Her remit is to engage with
our employees so the Board understands their
views. On Hilary Riva’s retirement from the Board
at the 2019 AGM, Richard Akers will take on the role.
We have a wide range of external advisors with
whom we work closely. We are very aware of the
importance of these relationships together
with how their behaviour impacts on our wider
stakeholders. This year, we have updated our
Supplier Code of Conduct, compliance with
which is mandated throughout our supply chain.
Culture
Our corporate culture underpins the success of
our business and is embedded throughout our
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
discussion is constructive and open.
Last year, the Board undertook the first stage of
our work to articulate and document our culture
and values. During this year, the work has continued
with employees across the organisation who
participated in a similar workshop as the directors.
The output comparison showed that,
organisation-wide, the views on the culture of the
business were consistent between the Board and
employees.
As one of the first activities as designated
non-executive director for employee engagement,
Hilary Riva set up a culture group and is meeting
with employees and our external human
resources advisor, to document our values and
behaviours that will be used to describe our
culture and frame how we work. As this work
spans more than one reporting year, we expect
to report more fully next year.
As you will see from my biography, I am a director
of two other FTSE companies and chairman of
one of those. I would like to assure you that I have
sufficient time to devote to my role as your
Chairman and do not envisage any new
appointments.
We are proud of our annual report and strive
each year to improve the transparency and
clarity of our reporting. We received EPRA gold
awards for both our sustainability and financial
reporting in last year’s annual report.
We are committed to being a sustainably-
focused business and we are working with our
wider stakeholder group to improve the
environment. Therefore, we are this year using
the authority in our articles to move away from
the paper version of this report and ask
shareholders to look at it online in future years.
You have the option to continue to receive the
report through your letterbox. We hope you
share our commitment and in future will read this
report online.
We are always willing to engage with our
shareholders who are the owners of the business.
The Board, and in particular Committee
Chairmen, are available via the Company
Secretary for dialogue with shareholders.
Jonathan Nicholls
Chairman
26 November 2018
Compliance with the UK
Corporate Governance
Code
The Company has complied in full with
the main and supporting principles of the
UK Corporate Governance Code during
the year. Their application is contained in
the rest of the governance section. Where
appropriate further information is given
on the Code provisions and how they are
applied.
Data protection
The Data Protection Act 2018 came into force in
May. It has changed the way personal data is
managed by all businesses. Our policies and
procedures were updated and we verified that,
not just us, but key suppliers were also prepared
for the changes. This has linked in with our work
on cyber security and making sure we have
robust IT systems in place.
Board performance
evaluation
This year, we have undertaken an internal Board
performance review. The process,
recommendations made, and the actions to
implement those recommendations, are
summarised on page 78.
Summary of Board performance evaluation:
page 78
Shaftesbury
Annual
Report 2018
75
3 Governance
Corporate governance
Leadership
The Board has executive and non-executive directors,
with a wide range of business experience, including
property, finance, retail and fund management which,
together, provide a balanced skillset.
Leadership
The Chairman leads the Board. He 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 as they do not
fall within any of the criteria within the UK Corporate
Governance Code that would impact their independence.
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. The non-
executive directors meet after each Board meeting without
management present.
Each Committee provides a summary of business discussed
to the Board and the minutes of all Committee meetings
are circulated to the Board.
The Chief Executive is responsible for the operational and
day-to-day management of the business.
Senior 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 all employees below Board level.
The structure of our Committees is set out opposite.
Board and Committee meeting attendance
Board Audit Remuneration Nomination Independent
Number held
Chairman
Jonathan Nicholls1,2
5
5
3
-
6
-
2
2
Non-executive directors
Richard Akers3
4/4
2/2
4/4
1/1
3
3
3
3
6
6
6
6
2
2
1
2
Jill Little
Dermot Mathias1
Hilary Riva
Sally Walden1
Executive directors
Brian Bickell2
Simon Quayle
Tom Welton
Chris Ward2
5
5
5
5
5
5
5
5
N/A
Y
Y
Y
Y
Y
1 Chairman of a Committee
2 Has attended Committee meetings by invitation
3 Indicates the actual number of meetings Richard Akers could attend following his appointment
to the Board and Committees on 28.11.2017
Shaftesbury Annual Report 2018
76
Leadership
Governance
Corporate
governance
Leadership
continued
The Board is collectively responsible for strategy, performance, risk management and
sustainability
Board of directors
Board Committees
Certain functions of the Board and decision-making powers are delegated to the
Board Committees
Chief Executive
Management Committees
The Management Committees have responsibility for setting and executing certain
strategic outcomes overseen by the Chief Executive
Executive
Committee
• Implementation of
long-term strategy
• Day-to-day
operational
matters
Sustainability
Committee
• Sustainability policy
and strategy
• Annual
sustainability report
Risk
Committee
• Assessment of
principal risks
• Effectiveness of risk
management and
internal control
Pensions
Committee
• Pension scheme
governance
Community
Investment
Committee
• Strategy for
community
investment
• Approve investment
in community
activities
Shaftesbury
Annual
Report 2018
77
3Audit Committee• Financial reporting• Monitor external auditors• Risk and internal controlRead the report pages 82 - 85Remuneration Committee• Remuneration policy• Annual remuneration including bonus and LTIP awards• Set annual performance objectivesRead the report pages 86 - 107Nomination Committee• Succession planning• Recommend candidates • Board performance evaluation• DiversityRead the report pages 80 - 81
Governance
Corporate governance
Effectiveness
Effectiveness
All directors are subject to annual re-election. Jill Little will have
served nine years as a non-executive director of the Company in
February 2019. Under the UK Corporate Governance Code, she
will cease to be independent. For the reasons explained on page 74,
we are proposing her re-election by shareholders for a further
year though she will step down as senior independent director
and from all committee memberships following the 2019 AGM.
Hilary Riva will retire at the 2019 AGM having reached nine years
on the Board.
Sally Walden and Dermot Mathias have more than six years’ service
and were subject to a detailed review by the Nomination Committee
which considered their contribution and independence.
In terms of Committee membership, unless not permitted by the UK
Corporate Governance Code, all non-executive directors are
members of each Committee. This ensures that they are involved in
all aspects of the Committees' business.
All Committees have written terms of reference which are
available on the corporate website.
Tenure of directors
Executive directors
Non-executive directors
Richard Akers 2017
Jonathan Nicholls 2016
Sally Walden 2012
Dermot Mathias 2012
Chris Ward 2012
Jill Little 2010
Hilary Riva 2010
Tom Welton 1997
Simon Quayle 1997
Brian Bickell 1987
1987
2018
See page 80 for Nomination Committee
non-executive director tenure review
Shaftesbury Annual Report 2018
78
Directors’ skills
Property
Retail
Finance
Remuneration
Fund
management
Executive directors
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
•
•
•
•
Non-executive directors
Jonathan Nicholls
•
Jill Little
Sally Walden
Dermot Mathias
Richard Akers
•
Hilary Riva
•
•
•
•
•
•
•
•
•
•
•
•
Board performance evaluation
A full externally-facilitated evaluation took place in 2017. As a result of that
review, non-executive directors now meet at every Board meeting without the
executives present. We have also streamlined the volume and format of the
information sent to the Board.
This year, an internal questionnaire-based evaluation was led by the Chairman
and supported by the Company Secretary. Each director was invited to
comment on the operations and performance of the Board, its Committees
and their fellow directors. The results were collated by the Company
Secretary and feedback was provided by the Chairman at the September
meeting of the Board. The Senior Independent Director undertook a review of
the Chairman's performance with contributions from the other directors and
provided feedback on his performance to the Board as a whole.
The evaluation this year highlighted that the key area of focus for the year
ahead remains both executive and non-executive succession.
Governance
Corporate governance
Relations with shareholders
Governance
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.
During the year, the Chief Executive and executive directors held
over 175 meetings with UK and overseas institutional investors,
comprising both current and potential shareholders as well as
equity market analysts. Meetings involved either group or
individual presentations and tours of the portfolio. Tours provide
an opportunity to see our assets, understand management
strategy, and to meet the senior leadership team. Feedback
from these meetings is provided to the Board.
All directors are present at the AGM and available to answer
questions from shareholders. Our AGM includes a presentation
from the Chief Executive on our business activities.
Live audio webcasts with replay facilities are available for the
annual and half year results presentations to analysts. A
live-streamed video webcast will be available for the 2018, and
subsequent, analyst results presentation.
During the year, we have undertaken a number of engagement
activities with major shareholders and corporate governance
agencies:
• consulted on the extension of tenure of Jill Little.
• consulted on the 2019 Remuneration Policy which is being
proposed for a binding shareholder vote at the AGM.
• offered general engagement meetings with the Chairman.
At the 2018 AGM, three resolutions received votes against in
excess of 20%:
• Ordinary resolution – authority to allot shares: 27.4%
• Special resolutions – authority to allot shares on a non-pre-
emptive basis: 25.2% and 26.1%
In each case, the combined holdings of PEL (UK) Limited, Orosi
(UK) Limited and Orosi (UK) 2 Limited, our largest shareholder,
voted their then 25.02% shareholding against these resolutions.
Votes against resolutions in excess of 20% are recorded on the
Investment Association’s public register of substantial votes
against resolutions. Under the UK Corporate Governance Code,
companies are expected to engage with shareholders who cast
large votes against a resolution, to understand the reasons for
their voting. The votes against these resolutions followed the
shareholder’s request to us to circulate a letter to our other
shareholders under the authority of Section 314 of the
Companies Act 2006.
Since the 2018 AGM, the Board has sought to engage with the
beneficial owner. To date, we have only received an
acknowledgement of our letters so we will continue to seek a
meeting as we believe constructive dialogue and engagement is
in the interests of all our shareholders.
The Board considers the authority sought by the allotment and
pre-emption resolutions continues to be in the best interests of
the Company, and will propose them at the 2019 AGM.
Trading
updates
Results
presentations
and webcasts
Roadshows
Portfolio tours
Annual
General
Meeting
Sector
conferences
Consultations
Shaftesbury
Annual
Report 2018
79
3
Governance
Nomination committee report
Dear shareholder
The primary role of the Committee is to consider Board
composition and orderly succession, both for executive
and non-executive directors.
Committee members
Jonathan Nicholls (Chairman)
Richard Akers
Jill Little
Dermot Mathias
Hilary Riva
Sally Walden
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 business and
long-term strategy would not be disrupted.
In considering executive director succession, we
address continuity in, and development of, the
management team below Board level. Current executive
directors have a long tenure. Whilst there are no
immediate vacancies at Board level, we recognise that it
is important to develop internal talent. Our development
planning encourages employees to fulfil their
potential and grow in their roles.
We continue to keep the composition of the Board
under review.
Directors standing for
re-election
Dermot Mathias and Sally Walden have been
non-executive directors 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.
As set out on page 74, Jill Little will remain on the
Board for a further year. The Committee advised the
Board on the proposal to re-elect each director,
other than Hilary Riva, who will retire from the Board
at the 2019 AGM as she will reach nine years' service
in February 2019.
Key activities
• Appointment of Richard Akers recommended to the Board
• Committee Report
• Proposed directors for election and re-election
• Reviewed skills of directors for re-election
with more than 6 years’ service
Non-executive directors
I reported in detail last year on the process for the
search for a new non-executive director. This
culminated in the recommendation to the Board to
appoint Richard Akers. He joined the Board at the
end of November 2017 and a detailed summary of his
induction process is contained within this report.
Hilary Riva will retire at the 2019 AGM. We have
commenced a search for an additional non-
executive director to join us on the Board as her
replacement.
Engagement with shareholders
As Chairman of the Committee, I consult with
shareholders regarding succession. With the departure
from the UK Corporate Governance Code to extend
the tenure of Jill Little by a year, I have written to
shareholders representing 66% of our share capital to
ascertain their views on this approach. Of those that
responded, all were in favour of the proposal.
I am available to shareholders throughout the year
and at the 2019 AGM to answer questions on the
work of the Committee.
Jonathan Nicholls
Chairman – Nomination Committee
26 November 2018
Focus for 2019
• Non-executive succession
• Culture
• Diversity policy/action plan
• Oversight of employee development
October 2017
November 2017
December 2017
January 2018
February 2018
March 2018
April 2018
Shaftesbury Annual Report 2018
80
Core programme
One-to-one
briefings
Reading and
reference material
Non-executive director induction
The Chairman led the induction process for Richard Akers,
assisted by the Company Secretary.
Richard Akers' induction began shortly after the announcement
of his appointment on 5 October 2017. In addition to various one-
to-one meetings (see below), he was also provided with reading
and reference material relating to our operations. As there are a
small number of senior employees in one location, Richard met
the team during the process.
Chairman
Chief Executive
Portfolio tours with Property Directors
Finance Director
Chairs of Audit, Nomination and Remuneration Committee
Key advisors: external auditors, valuers, corporate
communications
Role of a director: Directors’ duties and Shaftesbury policies
The Board: Schedule of matters reserved, minutes, and procedures
Rules: Articles of Association
Current issues: Shareholder feedback
The Group: Key information including history, structure, financial
reports and budget
People: Structure chart
Relationships: Key advisors and joint venture partner
Board Committees: Terms of reference, membership, and minutes
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.
• Succession planning for executive
and non-executive directors
March 2018
April 2018
May 2018
August 2018
June 2018
September 2018
July 2018
Governance
Nomination
committee report
continued
Diversity
The Board recognises the importance of diversity, both in its
membership, and its 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 but
keeps the topic of diversity under consideration in all aspects of
Board composition.
Diversity includes but is not limited to gender, and is considered
at every level of recruitment. All appointments to the Board, and
elsewhere, are made on merit. Gender diversity across the
Company is set out below.
For the second year running, we were top of FTSE 250 in the
Hampton-Alexander review for the highest female
representation on the executive committee and direct reports.
The Hampton-Alexander review, which is an independent,
business-led initiative supported by the Government, aims to
increase the number of women in leadership positions in FTSE 350
companies.
Directors
Senior leadership
team excluding
executive directors
All employees
3
30%
7
70%
4
57%
3
43%
18
60%
12
40%
Female
Male
We were ranked in the top 200 globally for gender diversity by
Equileap which provides insight on diversity data.
We support initiatives to promote diversity within the real estate
sector. Brian Bickell is a board member of Freehold, a forum for
LGBT real estate professionals.
We have 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 two
permanent employees and four interim employees and these
principles have been applied in the recruitment process.
We are 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.
The Group is a signatory to the 30% Club which is a campaign to
achieve a minimum of 30% women on FTSE 350 boards. It also
seeks to develop a diverse talent pool. Our Board has achieved
the 30% target.
Diversity is wider than gender balance, and the Board is committed
to maintaining a diverse workforce. We will be preparing a policy
and action plan in the coming year.
Shaftesbury
Annual
Report 2018
81
3 Governance
Audit committee report
Dear shareholder
Accountability
I am pleased to present the Committee’s report which
highlights the key activities and focus for the year ended
30 September 2018.
The Committee is an important element of the
governance structure. It is composed solely of
independent non-executive directors, with a good
diversity of experience, including property, retail and
finance. For the purpose of the UK Corporate
Governance Code, I meet the requirement of having
appropriate recent and relevant financial experience.
Meetings
At my request, all meetings are attended by the external
auditor, the Chairman and members of the senior
management team.
The Committee meets privately with the external
auditor and the valuers to discuss any matters they
may wish to raise. The Committee is satisfied that
both the external auditor and valuers remain
independent and objective in their work.
Throughout the year, I meet with executive directors,
as appropriate, to obtain a good understanding of
key issues affecting the Group which helps me in my
oversight of the agenda and discussions at
Committee meetings.
Risk, control and assurance
The Risk Committee evaluates the risk and control
arrangements, reporting to the Audit Committee.
Whilst we do not have a formal internal audit
function, we commission external reviews, from time
to time, to supplement the existing risk and control
arrangements. Reviews this year and anticipated work
for the coming year, are set out in the following report.
Effectiveness
The Committee receives comprehensive reports for
consideration on a timely basis in advance of meetings.
This facilitates a good quality of discussion and level
of challenge by the Committee.
The performance of the Committee was considered
as part of the wider Board effectiveness review. The
review was positive and we believe that the Committee
continues to operate effectively.
Engagement with shareholders
I welcome questions from shareholders on the
Committee’s activities. If you wish to discuss any aspect
of this report, please contact me via the Company
Secretary. I will be attending the 2019 AGM and look
forward to meeting you there.
I would like to thank the other members of the
Committee, management and our external auditors
for their support during the year.
Dermot Mathias
Chairman – Audit Committee
26 November 2018
See page 78 for the Board effectiveness review
Committee members
Dermot Mathias (Chairman)
Richard Akers
Jill Little
Hilary Riva
Sally Walden
Key activities
• Annual report
• Viability statement
• Going concern
• Committee report
• Re-appointment of
auditors
• Independence and
objectivity of auditors
• Approved auditor fees
• Risk management and
internal control
October 2017
November 2017
December 2017
January 2018
April 2018
Shaftesbury Annual Report 2018
82
Governance
Audit committee
report continued
Key responsibilities
• Review the work of the external auditor and valuer
and any significant financial judgement made by
management.
• Monitor the reporting process and financial
management.
• Review the full and half year financial statements,
including consideration of material estimates and
areas of judgement exercised in their preparation.
• Advise 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 performance,
business model and strategy.
• Consider the appointment of the external auditor,
their reports to the Committee, performance,
objectivity and 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.
• Consider the need for an internal audit function.
• Review the whistleblowing arrangements.
Financial Reporting
The Committee reviewed the content and tone of the annual
and half year results. The Finance Director provided a
commentary on the draft results, financial position and
key estimates and judgements.
The executive directors confirmed to the Committee that they
were not aware of any material misstatements in the half year
and annual results 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
discussions with the external auditor and valuers, the Committee
was satisfied that:
• the financial statements appropriately addressed the critical
judgements and key estimates, both in respect of the amounts
reported and the disclosures;
• the processes used for determining the value of the assets
and liabilities had been appropriately reviewed, challenged
and were sufficiently robust; and
• the Group has adopted appropriate accounting policies.
During the year, we received a letter from the Financial
Reporting Council (FRC), following a review of our 2017 Annual
Report by their Conduct Committee1. No questions or queries
arose from the review and no response from us was requested.
A number of minor matters were noted for consideration and,
where appropriate, changes have been made to disclosures in
the 2018 Annual Report.
Focus for 2019
• Assessing the effectiveness of key controls
• Review of one of our managing agent's processes
• Consideration of certain tax procedures
1 The FRC noted that the review was carried out without the benefit of a
detailed understanding of our business or the underlying transactions
entered into, although it was conducted by staff who have an understanding
of the relevant legal and accounting framework. They also commented that
their role is to consider compliance with reporting requirements, rather than
to verify information provided. Therefore, their letter does not provide
assurance that our 2017 Annual Report is correct in all material respects.
• Half year results
• Audit plan and strategy
• External auditor
• Non-audit fees
• Cyber-security
• Risk management and
effectiveness
controls
• Whistleblowing policy
• Considered need for internal audit function
• Risks and controls update
• Cyber-security update
April 2018
May 2018
June 2018
July 2018
August 2018
September 2018
Shaftesbury
Annual
Report 2018
83
33 Governance
Audit committee report continued
2018 Annual Report
Valuation of investment properties
The valuations provided by external valuers are significant
components of the annual and half year results. External valuations
are subjective and require significant estimates to be made, including,
but not limited to, market yields and ERVs. At 30 September 2018,
the valuation of investment properties was £3.72 billion. Additionally,
our share of the valuation of investment properties held in joint
venture was £224.6 million. A commentary on these valuations is
set out on page 42 and a summary of the key assumptions made
by the valuers is shown on pages 144 to 145.
In reviewing the valuations, the Committee considered:
• an analysis and commentary by management;
• presentations from the valuers of the wholly-owned portfolio
and the Longmartin joint venture, which included comparable
evidence for the key assumptions adopted; and
• an assessment by the external auditor, who used in-house real
estate valuers as part of its audit.
The Committee was satisfied with the assumptions and estimates
used in the valuation.
Other estimates
Whilst not material in the context of the Group’s assets or net
assets, the Committee reviewed the estimates made by
management in calculating the charge for equity-settled
remuneration and was satisfied with the assumptions adopted.
The above description of the significant estimates should be read
in conjunction with the Independent Auditor’s Report on pages 111
to 117 and the significant accounting policies disclosed in the notes
to the financial statements, particularly note 1 which describes
significant estimates and assumptions. Further information on the
approach taken by the valuers in valuing investment properties and
a sensitivity analysis on equivalent yields and ERV are set out in
note 8 to the financial statements.
Fair, balanced and understandable
The Committee discussed a report from the Finance Director
covering the systems and controls around the preparation of the
financial statements and whether the Annual Report;
• was open and honest, reporting challenges alongside successes
and opportunities;
• provided clear explanations of KPIs and their link to the strategy;
• explained our business model, strategy and accounting policies
simply, using clear language;
• included clear signposts to additional information; and
• was in accordance with the information provided to the Board
during the year.
The Committee considered whether 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, and that the use of Alternative
Performance Measures had been adequately explained and
reconciled to the financial statements and not been given more
prominence than a corresponding measure under IFRS.
The Committee reported to the Board that, in its view, the Annual
Report was fair balanced and understandable. The Board’s
confirmation can be found in the directors’ responsibilities
statement on page 110.
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. We continue to adopt a five-year
assessment period, based on lease lengths and review patterns for
the majority of the portfolio and corresponding to current
forecasts. The Committee discussed the viability assessment,
prepared by management, which included, inter alia:
• stress testing in severe but plausible scenarios, particularly in
respect of loan covenant compliance; and
• an assessment of investment commitments alongside liquidity
and financing capacity.
The Committee was satisfied that the five-year assessment period
remained appropriate and recommended the Viability Statement
to the Board. See also page 61.
Going concern
The Committee reviewed whether it was appropriate to adopt the
going concern basis in the preparation of the results. In considering
this, it reviewed the Group’s five-year forecasts, availability of
liquidity and expected headroom under the financial covenants in
debt arrangements. 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 108.
External valuers
The Committee monitored the valuers’ objectivity and
independence and met with the valuer of the wholly-owned
portfolio without management present to allow them to raise any
concerns they may have had. The valuers have confirmed that they
are appropriately qualified to carry out the valuations and that fees
they receive are not a material part of their overall fee income.
Further details in respect of the valuer of the wholly-owned
portfolio, including fees for valuation and non-valuation services,
are given in note 8 to the financial statements. The Committee
remains satisfied that the valuers are objective and independent.
External auditors
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 third year that Eamonn McGrath has been the lead audit
partner. Eamonn has announced his retirement following the
conclusion of the 2018 audit. His successor, Dan Saunders, has met
with the Chairman, Audit Committee Chairman and Finance
Director. We are assured that the transition and handover period
will be managed efficiently. The Committee would like to thank
Eamonn for his professionalism as audit partner to the Group over
the past three years.
There are no contractual obligations restricting our choice of external
auditor. In accordance with the current regulations, we will re-tender
the audit at least every ten years. The last tender was in 2014.
Shaftesbury Annual Report 2018
84
Accountability
Governance
Audit committee
report continued
Risk management and internal control
Our approach to risk management and internal control is set out
on page 57 to 58. Principal risks and uncertainties are disclosed on
pages 59 to 60.
Risks and internal controls are monitored by executive
management on a day-to-day basis. The Risk Committee formally
assesses strategic and emerging risks, as well as key mitigating
controls, reporting to the Audit Committee.
Executive management reports to the Audit Committee on its
assessment of the effectiveness of key controls. In the coming
year, we anticipate this work will be supplemented by an external
review (see internal audit, below).
Additionally, the external auditors review procedures and controls
as part of their work and comment, where appropriate, to the
Committee.
The Committee remains satisfied that there is a robust review of
risks and that the controls over the significant risks operate
effectively.
Internal audit
The Committee reviews the need for an internal audit function
annually. The Committee has advised the Board that it considers
that there is no need to establish an internal audit function. This
assessment is based on the focused nature of the Group’s
business, the close involvement of the executive directors in
day-to-day decision making and relatively simple Group structure.
From time to time, the Group engages external advisors to carry
out targeted reviews to supplement the existing risk management
and internal control arrangements and provide further assurance.
In 2018, this comprised:
• reviews of the cyber security and GDPR arrangements; and
• an assessment of procedures to identify, evaluate and control
strategic risks.
Projects anticipated for the coming year are set out on page 83
and the findings from these reviews will be made available to the
external auditor.
Whistleblowing
The Committee reviewed and approved the Group’s whistleblowing
procedures and has introduced a dedicated whistleblowing line for
employees and the wider supply chain.
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 meet with an independent partner of Ernst & Young LLP (EY).
EY has confirmed to the Committee that:
• It has internal procedures in place to identify any aspects of
non-audit work which could compromise its role as auditor and
to ensure the objectivity of its audit report.
• The total fees paid by the Group during the year do not
represent a material part of its firm’s fee income.
• It considers that it has maintained audit independence
throughout the year.
The Committee’s relationship with the external auditor is one of
openness and professionalism. From its discussions during the
year, it considers that the auditor provides appropriate
professional challenge and reports its findings in a frank and
honest manner.
During the year, an Audit Quality Review Team (AQRT) from the FRC
undertook an inspection of EY’s audit of the Group’s financial
statements for the year ended 30 September 2017. As part of that
process, the Audit Committee Chairman spoke with the AQRT to
share the Audit Committee’s perspectives on the quality of EY’s
audit and its delivery on commitments made by the audit firm as
part of the audit tender process. On completion of the review, the
Audit Committee received and considered the AQRT’s final report
on its inspection and discussed it with the audit partner. The
report gave the Committee no concerns over the quality,
objectivity or independence of the audit.
The Committee remains satisfied with the effectiveness of the
external audit and the interaction between the auditors and the
Committee. Also, it is satisfied as to the auditor’s qualifications,
expertise and resources and remains confident that its objectivity
and independence are not in any way impaired by the provision of
non-audit services.
Audit fees
Fees payable to the auditor for audit and non-audit services are
set out in note 4 to the Financial Statements on page 126.
Total fees related to non-audit services represented 18% of the
total fees for audit services (2017: 41%).
The auditor was also paid £31,400 (2017: £31,000) for its audit of
Longmartin Properties Limited. The Company’s 50% share of this
was £15,700 (2017: £15,500).
The Committee’s policy is that non-audit assignments are not
awarded to the external audit firm if there is a risk that audit
independence and objectivity could be compromised. Other than
in exceptional circumstances, non-audit fees should not exceed
70% of audit and assurance fees over a rolling three-year period.
The award of any non-audit assignment to the auditors in excess of
£25,000 is subject to the prior approval of the Committee.
Shaftesbury
Annual
Report 2018
85
33 Governance
Directors’ remuneration report
Dear shareholder
I am pleased to present our 2018 directors’
remuneration report.
The resilience of our strategy and business model
against the backdrop of the economic and political
uncertainty nationally has delivered EPRA earnings¹
of 17.1 pence per share, an increase of 5.6% and an
increase² in the portfolio valuation¹ of 3.8% to £3.95
billion. The key performance metrics are summarised
on page 89 and more detailed financial information is
set out in the strategic report.
The remuneration policy on pages 90 to 96 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 to our strategy and long-term objectives, and
which encourages executive continuity, in line with
our culture. This policy will be submitted for a binding
shareholder vote at our 2019 AGM.
The remainder of the report, on pages 97 to 107,
summarises the remuneration outcomes in respect
of the reporting year and the proposed executive
director remuneration for the year ahead. This part
of the report will be subject to an advisory
shareholder vote at the 2019 AGM.
Committee composition and
meetings
We have good experience on the Committee with
two current and one former public company
remuneration committee chairs.
Our external advisors attend meetings when required.
The Chairman is invited to attend all meetings, and
the Chief Executive also attends when invited.
Annual bonus and LTIP
outcomes for the year
At the beginning of each year, we set financial and
operational targets for the annual bonus scheme
which align with our 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
52.5% of the maximum potential award. 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 78.75% of salary in
December 2018, which will vest in December 2021.
LTIP awards which were made in 2015 will vest in
December 2018, based on a three -year performance
period which ended on 30 September 2018. Annualised
TSR of 1.9% per annum exceeded that of the benchmark
(FTSE 350 REIT Index) by 1.5% per annum over the
period. Growth in NAV exceeded the benchmark RPI
by 1.4% over the period. As a result of this performance,
the TSR target was partially met and the NAV target
was not met resulting in 22.5% vesting of these
awards. This vested award will be subject to a
two-year holding period in line with our policy.
The Committee has not exercised discretion in
making these awards.
Committee members
Sally Walden (Chairman)
Richard Akers
Jill Little
Dermot Mathias
Hilary Riva
1 An alternative performance measure see page 140.
2 Like-for-like. See glossary on page 148.
Key activities
• Set 2018 annual bonus
targets
• Review 2017 annual
bonus outcomes
• Ratify LTIP vesting
• LTIP grant approval
• Committee report
• Annual salary review
• Oversight of all employee
salary reviews
• Review annual work cycle
• Update on share schemes
October 2017
November 2017
December 2017
January 2018
February 2018
March 2018
April 2018
Shaftesbury Annual Report 2018
86
Remuneration
Governance
Directors’
remuneration
report continued
Review of remuneration
policy
In advance of the renewal of our remuneration
policy at the 2019 AGM, during 2018 the Committee
undertook a thorough review of the framework
currently in place to ensure it remains appropriate
for the business and in the context of evolving
shareholder expectations and market practice.
The Committee determined that our current
remuneration policy continues to support the
delivery of the strategy and long-term objectives
whilst encouraging executive continuity. Therefore,
the Committee is not proposing to make any
major changes to the structure of the policy.
The Committee is mindful of recent developments
in the market and UK Corporate Governance
Code regarding the alignment of executive
pension contributions with those across the
wider organisation. The Committee is proposing
that the new policy will reduce pension provision
for future executive director appointments from
25% to 17.5% of salary, in line with the pension
contribution received by all our other employees.
The new UK Corporate Governance Code will be
applicable to us from 1 October 2019. The
Committee will monitor how practice and investor
expectations evolve during 2019 with respect to
the extension of shareholding requirements into
a post-employment period and will report on our
proposed approach in next year’s Directors'
Remuneration Report.
2019 LTIP grant
An LTIP award will be made in December 2018 at
125% of basic annual salary with a three-year
performance period ending 30 September 2021.
Subject to performance against the targets, awards
will vest in December 2021, and be released in
December 2023 following a two-year post-vesting
holding period.
As part of the policy review described above, the
Committee reviewed the performance measures
within our incentive framework to ensure they
remained appropriate to reflect business
performance and shareholder value creation.
Following the review, we are proposing to amend
the LTIP performance measures as follows:
• Introduce a new element based on Total
Accounting Return (TAR) against a peer group
of FTSE 350 REIT companies. This measure
captures NAV per share growth plus any
ordinary dividends paid, expressed as a
percentage of the period's opening NAV.
• We will retain the current TSR and NAV
measures in their current form. These
measures have been used since the inception
of the LTIP.
The three measures will be equally weighted
(one-third on each).
We believe that this structure provides a more
balanced and comprehensive approach to
assessing our property and shareholder value
performance over the long-term and provides a
less binary outcome to performance assessment.
Key responsibilities
• Determine the terms of employment and
remuneration for executive directors and
senior management.
• 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 and approve the performance
targets and outcomes for the annual
bonus schemes and share incentive
schemes.
• Review the remuneration policy every
three years.
• Ensure that the remuneration report and
disclosure of director remuneration is
simple to read and understand, accurate
and complete.
Focus for 2019
• Monitor practice of post-employment
shareholding guidelines
• Impact of new Corporate Governance
Code generally
• Oversight of remuneration policies and
procedures throughout Shaftesbury and
link with culture
• Feedback from
shareholders
• Review Committee
performance
• Review advisor’s
performance
• Interim update
on bonus and LTIP
performance
• Policy review
• Policy review
• Preparation for year end
remuneration processes
• Dilution review
March 2018
April 2018
May 2018
June 2018
July 2018
August 2018
September 2018
Shaftesbury
Annual
Report 2018
87
3
Governance
Directors’ remuneration report continued
2018 salary review
Salaries of executive directors were reviewed and
increases of 2% for the Chief Executive and Property
Directors and 3% for the Finance Director were
approved, effective from 1 December 2018. This is
in line with CPI of 2.7% and below the average
salary increases awarded to employees.
Alignment with employees
In reviewing salaries and bonus outcomes, we
consider overall remuneration packages of the
executive directors together as well as all other
employees' remuneration.
All employees have the same benefit structure 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.
Engagement with
shareholders
As Chairman of the Committee, I consult with
shareholders on a regular basis regarding
executive remuneration. Ahead of the publication
of this report, I engaged with shareholders
representing 70% of our share capital and
received good support for the proposed changes
to policy and to our LTIP performance measures.
I am available to shareholders throughout the
year and at the 2019 AGM to answer questions on
executive remuneration.
Sally Walden
Chairman - Remuneration Committee
26 November 2018
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 £32,000 (excluding VAT). Deloitte LLP
provided no other services to the Group during the year.
Context for our approach to remuneration
We have 30 permanent employees, including four executive directors. The
combined holdings of the executive directors is just over 3.3 million shares (market
value at 30 September 2018 of circa £30 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.
Our small team of executive directors and key employees all have a close
involvement and direct impact on 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 25 years and members of
the executive committee (excluding executive directors) is 11 years.
Remuneration
Shaftesbury Annual Report 2018
88
Governance
Remuneration at a glance
Governance
SALARY
+
BENEFITS
+
PENSION
CONTRIBUTION
+
ANNUAL BONUS
+
LTIP
=
TOTAL
REMUNERATION
Fixed pay
Performance-related pay
Performance-related pay framework (2019 awards)
10%
occupancy
p to 15
U
10%
CSR
performance
(KPI)
5%
growing net
property income
(KPI)
33.3%
on TSR measured relative
to FTSE 350 REIT Index
f
i
0 %
taken in sh
a
r
e
s
Annual
bonus
Up to 100% of
salary if taken
in cash
17.5%
convert ERV’s
to contractual
income (KPI)
ard of 15
w
a
m
u
m
i
x
a
M
0 % o f salary in n
o
r
m
a
l
LTIP
Awards of 125%
in normal
circumstances
c
i
r
c
u
m
s
ta
nces
33.3%
on TAR against a peer group
of FTSE 350 REIT
companies
40%
specific projects
17.5%
rental growth
(KPI)
33.3%
NAV return measured on an
absolute basis
2018 Group performance
Net property
income
£93.8m
+6.2%
Dividends per share
EPRA earnings
per share1
17.1p
+5.6%
EPRA NAV per share1
16.8p
+5.0%
£9.91
+4.1%
Portfolio
valuation1
TSR (Shaftesbury)
ERV growth2
£3.95bn
+3.8%
-9.4%
versus FTSE 350 Real Estate
Index +4.1%
+2.4%
1 An alternative
performance
measure (APM).
See page 140
2 Like-for-like. See
Glossary on page 148
Shaftesbury
Annual
Report 2018
89
33
Governance
Remuneration policy
Set out below is our policy on directors’ remuneration, which
will be proposed for a binding vote at the 2019 AGM.
If approved, the policy will be effective from that date.
Changes to the remuneration policy
The main change to this remuneration policy, from the previous policy approved by shareholders at the 2016 AGM, and as described in Sally Walden’s
introductory letter, is the reduction in pension contributions (or equivalent cash allowance) for newly appointed executive directors from 25% to 17.5%
of salary to bring it in line with all other employees in the organisation.
Executive directors
Element
Link with strategy
Operation
Salary
Fixed remuneration at a level
appropriate to skills, experience
and complexity of the role.
Salaries are normally reviewed annually with effect from 1 December. Any increases are
determined with reference to inflation and the salary increases for other employees, unless
there is a change of role or responsibility or a new director is recruited (see recruitment policy).
Sector and other relevant market data (eg against constituent companies of the FTSE 350 REIT
Index) may be requested from remuneration advisors.
The Committee recognises the importance of setting salaries at levels in the context of market
median levels in the real estate sector, but which are not excessive in relation to the Group’s
particular strategy and features.
The emphasis in the Group’s remuneration policies is to place greater weight on performance-
based rewards within the overall remuneration package.
Annual bonus
To incentivise performance in
the reporting year through the
setting of targets at the beginning
of the year. These annual
targets are consistent with the
Group’s long-term strategy. The
opportunity to defer the bonus
and take it in shares seeks to align
directors’ interests with those
of shareholders and discourage
short-term decision making.
LTIP
To incentivise and reward
performance over the long-term,
aligning directors’ interests with
those of shareholders and to
encourage the management of the
Group’s business in accordance
with its long-term strategy and
goals.
Shaftesbury Annual Report 2018
90
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.
Directors have the choice to take a
Performance targets are set by the Committee. Performance is assessed against a set of key financial and
bonus in shares or cash, in full or part
non-financial annual measures which may vary each year depending on the annual priorities of the business
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 parameters of the scheme, the Committee has discretion to adjust bonus outcomes
(upwards or downwards) as it considers appropriate, to ensure alignment of pay with overall
performance and market conditions.
Minimum performance required for any part of the bonus to be earned is calibrated so as to be
appropriately stretching and achievable.
Where directors take all or part of the bonus as an award of shares (in the form of a conditional
award of shares or a nil-cost option), these awards vest after a minimum of three years from
grant under the Company’s deferred bonus plan. No further performance conditions apply.
Awards may also, at the Committee’s discretion, be settled in cash.
Malus and clawback provisions apply to all elements of the bonus (as described elsewhere in this
section).
Awards may be granted in the form of nil cost options, conditional share awards or, at the
Committee’s discretion, be settled in cash.
Maximum value 150% of salary at date
The awards will be subject to performance targets measured over a three-year period. It is intended that
of grant in normal circumstances.
these performance measures are aligned to strategic objectives and shareholder value. For awards under this
At the end of the performance period, performance against the targets is calculated, and the
percentage of awards that will vest is determined.
Unless the Committee determines otherwise, vested awards will then be subject to an additional
holding period before participants are entitled to receive their shares. A holding period will
normally last for two years, unless the Committee determines otherwise.
Malus and clawback provisions apply to the LTIP (as described elsewhere in this section).
Maximum value 200% of salary in
exceptional circumstances such as
executive recruitment (this has not
been used to date).
policy, the performance measures will be as follows (equally weighted):
• Total Accounting Return (TAR) measured against a peer group of FTSE 350 REIT companies;
• Net Asset Value Return, being growth in EPRA NAV together with dividends paid in the period measured on
an absolute basis; and
• Total shareholder return measured relative to a relevant index of peers.
Threshold vesting will be no higher than 25% of the each performance measure. The detailed targets are set
out in the Annual Remuneration Report.
before determining the final vesting level.
The Committee will consider the Group’s underlying financial performance over the performance period
Maximum potential value
Performance measures and performance periods
The Committee does not specify a
None
maximum salary or maximum salary
increase.
Further details on salary levels and any
increases are provided in the Annual
Remuneration Report.
as follows:
shares; or
in cash.
Up to 150% of salary if taken entirely in
Up to 100% of salary if taken entirely
and prevailing market conditions. Measures will be weighted in alignment with the Group’s objectives 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 are provided in the Annual Remuneration Report for that year.
Changes to the remuneration policy
The main change to this remuneration policy, from the previous policy approved by shareholders at the 2016 AGM, and as described in Sally Walden’s
introductory letter, is the reduction in pension contributions (or equivalent cash allowance) for newly appointed executive directors from 25% to 17.5%
of salary to bring it in line with all other employees in the organisation.
Executive directors
Link with strategy
Operation
Element
Salary
Fixed remuneration at a level
Salaries are normally reviewed annually with effect from 1 December. Any increases are
appropriate to skills, experience
determined with reference to inflation and the salary increases for other employees, unless
and complexity of the role.
there is a change of role or responsibility or a new director is recruited (see recruitment policy).
Annual bonus
To incentivise performance in
the reporting year through the
setting of targets at the beginning
of the year. These annual
targets are consistent with the
Group’s long-term strategy. The
opportunity to defer the bonus
and take it in shares seeks to align
directors’ interests with those
of shareholders and discourage
short-term decision making.
Sector and other relevant market data (eg against constituent companies of the FTSE 350 REIT
Index) may be requested from remuneration advisors.
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 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 parameters of the scheme, the Committee has discretion to adjust bonus outcomes
(upwards or downwards) as it considers appropriate, to ensure alignment of pay with overall
performance and market conditions.
Minimum performance required for any part of the bonus to be earned is calibrated so as to be
appropriately stretching and achievable.
Where directors take all or part of the bonus as an award of shares (in the form of a conditional
award of shares or a nil-cost option), these awards vest after a minimum of three years from
grant under the Company’s deferred bonus plan. No further performance conditions apply.
Awards may also, at the Committee’s discretion, be settled in cash.
Malus and clawback provisions apply to all elements of the bonus (as described elsewhere in this
section).
LTIP
To incentivise and reward
Awards may be granted in the form of nil cost options, conditional share awards or, at the
performance over the long-term,
Committee’s discretion, be settled in cash.
aligning directors’ interests with
those of shareholders and to
encourage the management of the
Group’s business in accordance
with its long-term strategy and
goals.
At the end of the performance period, performance against the targets is calculated, and the
percentage of awards that will vest is determined.
Unless the Committee determines otherwise, vested awards will then be subject to an additional
holding period before participants are entitled to receive their shares. A holding period will
normally last for two years, unless the Committee determines otherwise.
Malus and clawback provisions apply to the LTIP (as described elsewhere in this section).
Governance
Remuneration
policy continued
Remuneration
Maximum potential value
Performance measures and performance periods
The Committee does not specify a
maximum salary or maximum salary
increase.
None
Further details on salary levels and any
increases are provided in the Annual
Remuneration Report.
Directors have the choice to take a
bonus in shares or cash, in full or part
as follows:
Up to 150% of salary if taken entirely in
shares; or
Up to 100% of salary if taken entirely
in cash.
Performance targets are set by the Committee. 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
and prevailing market conditions. Measures will be weighted in alignment with the Group’s objectives 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 are provided in the Annual Remuneration Report for that year.
Maximum value 150% of salary at date
of grant in normal circumstances.
Maximum value 200% of salary in
exceptional circumstances such as
executive recruitment (this has not
been used to date).
The awards will be subject to performance targets measured over a three-year period. It is intended that
these performance measures are aligned to strategic objectives and shareholder value. For awards under this
policy, the performance measures will be as follows (equally weighted):
• Total Accounting Return (TAR) measured against a peer group of FTSE 350 REIT companies;
• Net Asset Value Return, being growth in EPRA NAV together with dividends paid in the period measured on
an absolute basis; and
• Total shareholder return measured relative to a relevant index of peers.
Threshold vesting will be no higher than 25% of the each performance measure. The detailed targets are set
out in the Annual Remuneration Report.
The Committee will consider the Group’s underlying financial performance over the performance period
before determining the final vesting level.
Shaftesbury
Annual
Report 2018
91
33 Governance
Remuneration policy continued
Executive directors continued
Element
Link with strategy
Operation
Maximum potential value
Performance measures and performance periods
All employee
plans
Pension
Part of overall package for
all employees, encouraging
share ownership.
Part of overall package for
executive directors providing
appropriate remuneration
and retirement benefits.
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
None
from time to time.
Contribution paid into a personal pension plan or taken as a cash equivalent, reduced for any
resultant tax liability borne by the Group.
Other benefits
Part of overall package for
executives providing
comprehensive
remuneration.
Each executive director currently receives:
• car allowance
• private medical cover
• life insurance
• permanent health insurance
Shareholding
guidelines
To further encourage long-term
alignment between executives
and shareholders.
Newly appointed directors will not receive a car allowance.
Other benefits may be provided if considered reasonable and appropriate by the Committee,
including, but not limited to, housing allowance and relocation allowance.
Executive directors are expected to build up a shareholding of 200% of salary (as at the date of
appointment to the Board), to be accumulated over five years from appointment. Shareholding
may include shares subject to deferred annual share bonus awards, though reduced in number
to reflect that the holding is subject to income tax and national insurance deductions on exercise.
Shares received under the LTIP and deferred annual share bonus scheme are required to be
retained on a net of tax basis, until the minimum shareholding level is attained.
Notes to the table:
Performance measures
1 The performance measures set by the Committee for the annual bonus scheme reflect
Group KPIs and short-term measures which are consistent with, and support, the Group’s
strategic goals of long-term growth in rental income and net asset value. The Committee
may make reasonable changes to the measures or weightings each year in order to ensure
continued alignment with strategy.
2 LTIP performance measures have been selected to align the interests of directors with
those of shareholders. Performance targets are set by the Committee to be appropriately
stretching and achievable taking into account the Group’s strategic priorities and the
economic environment in which the Group operates.
Non-executive directors and Chairman
Operation
Element
Link with strategy
Fees and
benefits
To provide market-competitive
director fees.
Fees are normally reviewed every two years. Sector and other relevant market data (eg constituent
companies in the FTSE 350 REIT Index) may be requested from remuneration advisors where required.
A further fee is payable to reflect the additional time commitment required for other Board
duties, such as chairing Board committees or acting as Senior Independent Director.
The fee paid to the Chairman is determined by the Committee and fees to non-executive
directors are set by the Board.
No director takes part in discussions regarding their own remuneration. Benefits may be provided
to non-executive directors if considered reasonable and appropriate by the Board.
Shaftesbury Annual Report 2018
92
For any executive director appointed
None
after 8 February 2019, the maximum
contribution (or cash allowance) is
17.5% of salary. For any executive director
appointed prior to 8 February 2019, the
maximum contribution (or cash allowance)
remains 25% of salary.
There is no maximum value.
None
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.
N/A
N/A
Maximum potential value
Performance measures and performance periods
As with the policy for the executive
None
directors, the policy does not specify
a maximum fee or level of increase.
Governance
Remuneration
policy continued
Executive directors continued
Element
Link with strategy
Operation
All employee
plans
Part of overall package for
all employees, encouraging
share ownership.
Executive directors are eligible to participate in other share plans, which are offered on similar
terms to all employees, for example Sharesave and SIP.
The limits are as defined by HMRC
from time to time.
None
Maximum potential value
Performance measures and performance periods
Pension
Contribution paid into a personal pension plan or taken as a cash equivalent, reduced for any
resultant tax liability borne by the Group.
Part of overall package for
executive directors providing
appropriate remuneration
and retirement benefits.
Other benefits
Part of overall package for
Each executive director currently receives:
executives providing
comprehensive
remuneration.
• car allowance
• private medical cover
• life insurance
• permanent health insurance
Newly appointed directors will not receive a car allowance.
Other benefits may be provided if considered reasonable and appropriate by the Committee,
including, but not limited to, housing allowance and relocation allowance.
Shareholding
guidelines
To further encourage long-term
Executive directors are expected to build up a shareholding of 200% of salary (as at the date of
alignment between executives
appointment to the Board), to be accumulated over five years from appointment. Shareholding
and shareholders.
may include shares subject to deferred annual share bonus awards, though reduced in number
to reflect that the holding is subject to income tax and national insurance deductions on exercise.
Shares received under the LTIP and deferred annual share bonus scheme are required to be
retained on a net of tax basis, until the minimum shareholding level is attained.
None
For any executive director appointed
after 8 February 2019, the maximum
contribution (or cash allowance) is
17.5% of salary. For any executive director
appointed prior to 8 February 2019, the
maximum contribution (or cash allowance)
remains 25% of salary.
There is no maximum value.
None
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.
N/A
N/A
Notes to the table continued:
3 The Committee may amend or substitute any performance measure applicable to an LTIP
award if an event occurs that causes the Committee to determine an amended, or
substituted, measure would be more appropriate and not materially less difficult to satisfy.
The Committee reserves the right to make any remuneration payments, and payments for
loss of office (including exercising any discretion available to it in connection with such
payments), notwithstanding that they are not in line with the policy set out above where the
terms of the payment were agreed: (i) before 5 February 2016 (the date the Company’s
previous directors’ remuneration policy approved by shareholders in accordance with
section 439A of the Companies Act came into effect); (ii) before the policy set out above
came into effect, provided that the terms of the payment were consistent with the
directors’ remuneration policy (approved by shareholders in accordance with section 439A
of the Companies Act) in force at the time they were agreed; or (iii) at a time when the
relevant individual was not a director of the Company and, in the opinion of the Committee,
the payment was not in consideration for the individual becoming a director of the
Company. For these purposes “payments” includes the Committee satisfying awards of
variable remuneration and, in relation to an award over shares, the terms of the payment
are “agreed” at the time the award is granted.
The Committee may make minor amendments to the policy set out above (for regulatory,
exchange control, tax or administrative purposes, or to take account of a change in
legislation) without obtaining shareholder approval for that amendment.
Non-executive directors and Chairman
Link with strategy
Operation
Element
Fees and
benefits
To provide market-competitive
Fees are normally reviewed every two years. Sector and other relevant market data (eg constituent
director fees.
companies in the FTSE 350 REIT Index) may be requested from remuneration advisors where required.
Maximum potential value
Performance measures and performance periods
As with the policy for the executive
directors, the policy does not specify
a maximum fee or level of increase.
None
A further fee is payable to reflect the additional time commitment required for other Board
duties, such as chairing Board committees or acting as Senior Independent Director.
The fee paid to the Chairman is determined by the Committee and fees to non-executive
directors are set by the Board.
No director takes part in discussions regarding their own remuneration. Benefits may be provided
to non-executive directors if considered reasonable and appropriate by the Board.
Shaftesbury
Annual
Report 2018
93
33
Governance
Remuneration policy continued
Difference between policy for
directors and employees
Pay and benefits throughout the Group are taken into
consideration when setting remuneration policy. The
26 employees below Board level are offered the same
remuneration package elements as executive directors,
although not all employees are eligible for all benefits provided
to executive directors. Individual salary levels, percentage levels
of awards in the annual bonus and LTIP vary according to
employees’ level of responsibility. The same performance
criteria, where relevant, are applied to executive directors and
other employees.
As the same remuneration policy is applied to executive
directors and all employees, the Committee did not consult
employees when drawing up the policy.
Recruitment policy
Executive directors
A newly-appointed director’s remuneration would be proposed
by the Committee and approved by the Board in line with the
policy. The Group offers salary, benefits, annual bonus and
awards under the LTIP. If the Group considered it appropriate to
buy out any pre-existing variable pay arrangements of an
incoming director, it would only be with replacement awards
structured on a comparable basis eg in terms of vesting period,
performance conditions etc. In doing so, the Committee would
consider relevant factors when structuring such awards,
including the likelihood of those pre-existing conditions being
met. The Committee has the discretion to implement a one-off
arrangement for the purposes of buy-out awards only, in
accordance with Listing Rule 9.4.2 R.
External appointment
Element
Approach
Maximum
annual grant
value*
The salaries of new appointees will be
determined by reference to relevant market
data, experience and skills of the individual,
internal relativities and their current salary.
Where new appointees have initial salaries set
below market, any shortfall will be managed
with phased increases within three years,
subject to the individual’s development in
the role.
150% of salary
200% of salary
In line with the limits set out in the policy
table. For executive directors joining part
way through a year, awards would be
pro-rated. The Committee may determine
different performance targets for the new
recruit, to reflect the shortened period
in role.
New appointees will be granted awards
under the LTIP under the limits described in
the policy table. The Committee may amend
or alter the performance targets for the new
recruit, as it considers appropriate.
In line with the limits as described in the
policy table.
Salary
Annual bonus
LTIP
All employee
share plans,
pension and
other benefits
*excludes compensation for variable remuneration lost on leaving a former employer
Internal appointment
In the event of appointing a new executive director by way of
internal promotion, the policy will be consistent with that for
external appointees as detailed above. Further detail on the
policy for employees below board level is set out above.
Non-executive directors
Newly appointed non-executive directors are paid fees at a level
consistent with existing non-executive directors. Fees would be
paid pro-rata in their first year.
Shaftesbury Annual Report 2018
94
Governance
Remuneration
policy continued
Loss of office payment
Provisions for payments on termination contained in executive directors’ service contracts are set out below:
Date of
appointment
Date of current
contract
Notice period
Termination arrangements
Brian Bickell
1.10.2011
6.6.2011
One year’s notice
One year’s salary and benefits payable in event of termination
without notice. Director’s duty to mitigate loss
Simon Quayle
Tom Welton
Chris Ward
1.10.1997
1.10.1997
9.1.2012
8.10.1997
8.10.1997
3.10.2011
One year’s notice
Termination by payment of annual salary
One year’s notice
Termination by payment of annual salary
One year’s notice
One year’s salary and benefits payable in event of termination
without notice. Director’s duty to mitigate loss
Any new executive director would be appointed on the same loss of office terms as Brian Bickell and Chris Ward, namely twelve months’ salary and
benefits, with a duty to mitigate loss on termination.
The terms of appointment of non-executive directors are documented in letters of appointment. Non-executive directors have a one-month notice
period and their appointment would terminate without compensation if not re-elected at an AGM.
All contracts are available for inspection at the Company’s registered office.
Approach to other remuneration payments on termination of employment and change of control
In addition to the contractual provisions regarding payment on termination set out above, the Group’s incentive plans and share schemes contain
provisions for termination of employment:
Component
Good leaver*
Annual bonus
May be eligible, at the discretion of the Committee, to receive
an award based on the achievement of the performance
targets and reduced pro-rata for time served in the year. Paid
in cash with no uplift.
Deferred Annual
Share Bonus Scheme
Awards vest on the normal vesting date unless the Committee
determines the award should vest following cessation of
employment.
Bad leaver*
Change of control**
Outstanding award forfeited
At the discretion of the
Committee
Will receive the lower of the
value of the original cash bonus
(before any uplift for deferral) or
the value of any deferred shares
on the date of cessation
Awards vest at date of change of
control
LTIP
Unvested awards will vest at the same time as if the individual
had not left the Group, unless the Committee determines
the award should vest following the cessation of employment.
Vested awards remain subject to the two-year post-vesting
holding period***.
Outstanding unvested awards
are forfeited
Vested awards remain subject
to the two-year post-vesting
holding period
The extent to which an unvested award vests will be
determined by the Committee, taking into account normal
performance conditions, and, unless the Committee
determines otherwise, the proportion of the vesting period the
participant has served.
Awards vest (and are released)
taking into account, in the
case of unvested awards,
the performance conditions
and, unless the Committee
determines otherwise, the
proportion of the vesting period
that has elapsed
All employee plans
In line with HMRC rules
In line with HMRC rules
In line with HMRC rules
* Good leaver provisions relate to termination of office or employment by reason of death, disability, injury, retirement with the agreement of the Company, the participant’s office or
employment being with a company or business which ceases to be a member of the Group or, in other exceptional circumstances, at the discretion of the Committee (including redundancy).
Bad leaver provisions apply under all other circumstances.
** Alternatively, on a change of control, awards may be exchanged for equivalent awards of shares in a different company. In the event of a demerger, delisting, special dividend or other event
which, in the Committee’s opinion, would materially affect the current or future value of the Company’s shares, the Committee may allow awards to vest and be released early on the same basis
as for a change of control. Alternatively, in these circumstances or in the event of a variation of the Company’s share capital, the Committee may adjust the number of shares subject to an
award.
*** If a participant leaves during a holding period for any reason, his award will normally be released at the same time as if he had not left the Group, unless the Committee determines it should
be released following his cessation of employment. However, if a participant is summarily dismissed, his award will immediately lapse.
The use of any discretion described above would be disclosed in the Annual Report for the relevant year.
Shaftesbury
Annual
Report 2018
95
33 Governance
Remuneration policy continued
Remuneration
Consideration of shareholder views
Shareholders, representing almost 70% of the Company’s issued
share capital, have been given the opportunity to comment and
question the Committee on the remuneration policy and the
proposed change. The Chairman of the Committee was available
to discuss the policy with shareholders and governance bodies.
Shareholder responses were reported to, and considered by,
the Committee. Of those that responded, all were supportive of
the proposals.
External appointments
Executive directors are permitted to accept external appointments,
with the prior approval of the Board, where there is no adverse
impact on their role. Any fees arising from such appointments
may be retained by the executive director where the
appointment is unrelated to our business.
Potential remuneration for directors
The charts below set out the potential remuneration receivable
by directors for below threshold, on-target and maximum
performance. Potential reward opportunities are based on this
policy and applied to salaries as at 1 December 2018. Note that
the projected values exclude the impact of any share price
movement or dividend accrual.
Brian Bickell (£’000)
2,223
34%
34%
32%
1,266
15%
30%
55%
693
100%
LTIP
Annual bonus
Fixed
Minimum
On-target
Maximum
Simon Quayle, Tom Welton and Chris Ward (£’000)
493
100%
898
15%
30%
55%
1,573
34%
34%
32%
Minimum
On-target
Maximum
The minimum scenario reflects salary, pension and benefits (ie
fixed remuneration) which are the only elements of the executive
directors’ remuneration packages not linked to future performance.
The on-target scenario reflects fixed remuneration as above,
plus bonus payout of 75% of salary and LTIP threshold vesting at
25% of maximum award. The maximum scenario reflects fixed
remuneration, plus full payout of all incentives. It assumes a
maximum bonus of 150% of salary which would be receivable
fully in shares.
Shaftesbury Annual Report 2018
96
Remuneration
Governance
Governance
Annual remuneration report
Set out below is the annual remuneration report
on directors’ pay for the year ended 30 September
2018. 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 2019
Executive directors’ salaries from 1 December 2018
1.12.2018
£’000
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
510
360
360
360
1.12.2017
£’000
500
353
353
349
Increase
2%
2%
2%
3%
This compares to an average increase across the employee population of 3.6% and inflation (CPIH) of 2.7%.
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 2019 is deemed to be commercially sensitive and
therefore the actual targets are not set out in this report.
A range was introduced last year for the rental growth target
with a threshold level for achievement. This year, ranges for
other measures are being introduced where appropriate. The
targets will be disclosed retrospectively next year, provided they
are no longer commercially sensitive.
Measure
Rental growth (KPI)
Deliver growth in ERVs
Convert ERVs to contractual income (KPI)
Commercial lettings/reviews/renewals at or
above valuers’ ERVs twelve months earlier
Growing net property income (KPI)
Net property income growth to at least track
growth in rents receivable
CSR performance (KPI)
Corporate responsibility performance
Occupancy
Maximise portfolio occupancy
Specific projects
Various
1 Global Real Estate Sustainability Benchmark
Weighting
Target or reason for non-disclosure
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 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.
17.5%
17.5%
5%
10%
10%
40%
Shaftesbury
Annual
Report 2018
97
33 Governance
Annual remuneration report continued
LTIP
LTIP awards of 125% of salary will be granted in December 2018. Performance will be measured over a three-year period which commenced on 1 October
2018. A two-year post-vesting holding period will apply to these awards.
The vesting of this award will be subject to three performance measures, equally weighted, as shown in the following tables:
Annualised TSR of the company’s shares less
annualised TSR of the FTSE 350 REIT index
Less than 0% pa
0% pa
Between 0% pa and 5.5% pa
5.5% pa or more
Vesting schedule (for this component)
0%
25%
Pro-rata on a straight line basis between 25% and 100%
100%
Annualised net asset value growth less annualised RPI growth
Vesting schedule (for this component)
Less than 3% pa
3% pa
Between 3% pa and 7% pa
7% pa or more
0%
25%
Pro-rata on a straight line basis between 25% and 100%
100%
TAR against peer group of FTSE 350 REIT companies1
Vesting schedule (for this component)
Below median
Median
Median to upper quartile
Upper quartile
0%
25%
Pro-rata on a straight line basis between 25% and 100%
100%
1 TAR measures growth in EPRA defined NAV plus any ordinary dividends paid during the period expressed as a percentage of NAV.
Non-executive directors’ fees from 1 December 2018
Non-executive director fees are reviewed every two years and were reviewed in 2017 with changes taking effect from 1 December 2017. There are no
changes to fees for the year ending 30 September 2019.
Fees for the Chairman remain at £225,000 per annum and for non-executive directors at £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). The Chairman does
not receive an additional fee for chairing the Nomination Committee.
Shaftesbury Annual Report 2018
98
Governance
Annual
remuneration
report continued
Remuneration for year ending 30 September 2018
Single total figure of remuneration for executive directors (audited)
Salary
Benefits1
Pension
benefit2
Annual
bonus3
LTIP4
Total
2018
£’000
2017
£’000
2018
£’000
2017
£’000
2018
£’000
498
352
352
348
489
345
345
341
55
49
40
40
52
48
39
34
109
77
77
78
2017
£’000
107
76
76
76
2018
£’000
2017
£’000
2018
£’000
2017
£’000
394
278
278
275
404
285
285
282
167
118
118
115
778
549
549
535
2018
£’000
1,223
874
865
856
2017
£’000
1,830
1,303
1,294
1,268
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
1 Benefits comprise car allowance, permanent health insurance, life insurance, health insurance and Sharesave options which have been valued based on the monthly savings amount and the
discount on the option price of 20%
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 2018, each executive directors could have received bonuses of 78.75% of salary in shares or 52.5% of salary in cash. Each
director has elected to take their 2018 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
30.9.2018 were met in part and 22.5 % 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 30.9.2018 of £9.19. The 2017 estimated figure has been restated to reflect actual share price at the date of vesting. The value of dividends paid during the year on vested shares is
also included
Single total figure of remuneration for non-executive directors (audited)
Fee
2018
£’000
213
48
57
57
57
57
2017
£’000
150
-
55
55
55
55
Committee chair/
senior independent
director1 fees
2018
£’000
2017
£’000
Benefits
2018
£’000
2017
£’000
-
-
10
-
10
10
-
-
10
-
10
10
-
-
-
-
-
-
3
-
-
-
-
-
Total
2018
£’000
213
48
67
57
67
67
2017
£’000
153
-
65
55
65
55
Jonathan Nicholls
Richard Akers2
Jill Little
Hilary Riva
Dermot Mathias
Sally Walden
1 Fee is only payable if the Senior Independent Director is not the chair of any other Committee
2 Joined Board on 28.11.2017
Remuneration
Shaftesbury
Annual
Report 2018
99
33
Measure
Rental growth
Deliver growth
in ERVs1,2
Occupancy
Maximise portfolio
occupancy1,2
Let vacant property quickly2
Other
Ratio of property outgoings
to gross rents receivable2
Corporate
responsibility performance
Governance
Annual remuneration report continued
Annual bonus outcome for year ended 30 September 2018
Full retrospective disclosure of the targets for the 2018 annual bonus scorecard is provided below. Each executive director has elected to received his award
solely in deferred shares under the Deferred Annual Share Bonus Scheme, which will vest in December 2021.
Weighting Target
Achievement
Percentage awarded
35% Extent by which commercial leasing
transactions exceed valuers’ ERV in
the range of 3 - 7%
Commercial leasing
transactions exceeded
previous year ERV on average
by 5.1%
Annual like-for-like growth in
Group total ERV in range of 3-7%
Annual growth in Group total
ERV: 2.4%
17.5%
10% ERV of space available to let not to
exceed 3% of Group ERV (measured
quarterly; excludes larger schemes3)
Target met. Quarterly
average EPRA vacancy rate:
2.85%
Complete lettings within target
periods (measured from date space
became available to let; range 1 – 3
months; excludes larger schemes3)
Targets met for residential
lettings. Not met for other
uses
5% Ratio of property outgoings to
Not met
gross rents receivable not to
exceed three year rolling average
10% Maintain relative rankings in key
EPRA Gold award
indices:
• EPRA
• GRESB4
GRESB4 “green star” rating
Project and financing targets
were largely met. Performance
against larger scheme letting
targets was assessed in the
context of a market-wide
slowdown in transaction
activity for larger space as
a consequence of macro
economic uncertainties
5%
0%
10%
20%
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
Total
100%
52.5%
1 Group KPIs
2 Wholly-owned portfolio
3 Larger schemes: Thomas Neal’s Warehouse, Central Cross and 57 Broadwick Street
4 Global Real Estate Sustainability Benchmark
Last year we reported that we were looking at our annual bonus targets to introduce ranges for individual targets. This was to avoid a binary approach to awards
under the targets. The Committee believes this approach provides a better incentive for employees. For 2018, a range was set for rental growth, with a threshold
level for achievement. As noted on page 97, ranges have been introduced this year for certain operational measures.
The Committee is focused on ensuring that setting annual bonus targets should not be at the expense of our long-term strategy. The measures in the “Deliver
projects and transactions successfully” section above, include targets with a duration of more than one year that are important to the long-term success of
the business. It is difficult to give more detailed disclosure than that set out above as the identification and achievement of these targets is commercially
sensitive. Full disclosure will be made once the projects have been completed.
Shaftesbury Annual Report 2018
100
Governance
Annual
remuneration
report continued
Committee’s exercise of discretion
The Committee is mindful that annual bonus awards should fairly reflect performance in the round, exercising its discretion, where appropriate, to take
account of overall financial performance and future prospects of the Company. The Committee has not exercised discretion in the award of bonuses for
the year ended 30 September 2018. The table below shows historic exercise of discretion by the Committee.
Year
2015
2016
2017
2018
Actual bonus percentage potential
according to achievement table
Bonus percentage after exercise of
discretion by remuneration committee
70%
82%
55%
52.5%
Reduced to 60%
Reduced to 60%
No change at 55%
No change at 52.5%
LTIP vesting for the performance period to 30 September 2018
The detailed performance against targets which resulted in 22.5 % vesting of the
LTIP in 2018 is as follows:
Historic LTIP vesting performance
Annualised TSR of the
company’s shares less
annualised TSR of the
FTSE 350 REIT index
Less than 0% pa
0% pa
Between 0% pa
and 5.5% pa
Award vesting
criteria
Performance1
0%
25%
Pro-rata on a straight
line basis between
25% and 100%
Performance in three-year
period to 30 September 2018:
1.9% pa and outperformed the
benchmark by 1.5% pa
Vesting outcome (for this half of
the award) 45% of maximum
5.5% pa or more
100%
1 Calculated using the three-month average TSR in the periods before
granting and vesting
Vesting %
100
100
50
0
63.5
50
50
100
100
22.5
2012
Year of vesting
2013
2014
2015
2016
2017
2018
TSR
NAV
Annualised NAV
growth less
annualised RPI
growth
Less than 3% pa
3% pa
Between 3% pa
and 7% pa
7% pa or more
100%
Award vesting
criteria
Performance
0%
25%
Pro-rata on a straight
line basis between
25% and 100%
Performance in three year
period to
30 September 2018: 4.5% pa
versus RPI growth of 3.1%.
Outperformance of 1.4%.
Vesting outcome (for this half of
the award) is zero
Vesting in December 2018 is the first vesting of options under the 2016 scheme rules.
Shares vesting are subject to a two-year post-vesting holding period.
Shaftesbury
Annual
Report 2018
101
33 Governance
Annual remuneration report continued
Share scheme interests awarded during the year (audited)
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Scheme
Deferred Annual Share Bonus Scheme1
LTIP2
Deferred Annual Share Bonus Scheme1
LTIP2
Deferred Annual Share Bonus Scheme1
LTIP2
Deferred Annual Share Bonus Scheme1
LTIP2
Face value at
date of award
£’000
404
625
285
441
285
441
282
436
1 Deferred Annual Share Bonus Scheme: Directors elected to take their annual bonus for the year ended 30.9.2017 in shares which were purchased in the market. The face value is calculated
using the price paid to acquire the shares, being £9.996279. No further performance criteria are applied to share awards under this scheme.
2 LTIP: Awards of nil cost options are made by the Committee at 125% of salary divided by 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 £9.902 (the average share price over the five days prior, up to and including 4.12.2017). There is a three year
performance period (targets below) with a two-year post-vesting holding period.
Performance targets for the LTIP awards granted during the year are the same as those set out on page 101 (with 50% of the award assessed on each
metric).
Shaftesbury Annual Report 2018
102
Directors’ shareholdings and share scheme interests at 30 September 2018 (audited)
Governance
Annual
remuneration
report continued
Shares under
option not vested
and subject to
performance
criteria1
Sharesave
Shareholding
requirement met2
196,373
138,576
138,576
136,510
4,812
4,812
4,812
3,950
Yes
Yes
Yes
Yes
Deferred
shares1
131,864
93,028
93,028
90,871
Executive director
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Non-executive director
Jonathan Nicholls
Richard Akers
Jill Little
Hilary Riva
Dermot Mathias
Sally Walden
Shares
owned
outright
1,240,592
1,083,452
877,570
151,827
30,000
7,000
8,364
20,068
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 Under the remuneration policy, executive directors are expected to build up a shareholding of 200% of salary (as at the date of appointment to the Board), to be accumulated over five years
from appointment.
There have been no changes in directors’ shareholdings between 30 September 2018 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.
Remuneration
Shaftesbury
Annual
Report 2018
103
33 Governance
Annual remuneration report continued
1. Deferred Annual Share Bonus Scheme
Entitlement to ordinary shares
Date of grant
Market price
on date of grant
£
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
22.12.2014
8.2.2016
12.12.2016
12.12.2017
22.12.2014
8.2.2016
12.12.2016
12.12.2017
22.12.2014
8.2.2016
12.12.2016
12.12.2017
22.12.2014
8.2.2016
12.12.2016
12.12.2017
7.80
8.30
8.95
9.996
7.80
8.30
8.95
9.996
7.80
8.30
8.95
9.996
7.80
8.30
8.95
9.996
At
1.10.2017
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
Awarded
in year
-
-
-
40,440
40,440
-
-
-
28,556
28,556
-
-
-
28,556
28,556
-
-
-
28,226
28,226
Delivered
in year
55,304
-
-
-
55,304
39,075
-
-
-
39,075
39,075
-
-
-
39,075
36,068
-
-
-
36,068
At
30.9.2018
-
42,436
48,988
40,440
131,864
-
29,928
34,544
28,556
93,028
-
29,928
34,544
28,566
93,028
-
29,258
33,387
28,226
90,871
There are 598,868 shares held in an employee benefit trust at 30 September 2018.
Remuneration
Shaftesbury Annual Report 2018
104
Governance
Annual
remuneration
report continued
2. LTIP
Number of ordinary shares under option
Market
price of
share on
grant
£
Date
of grant
At
1.10.2017
Granted
during
year
Brian Bickell
8.12.2014
7.78
74,220
8.2.20161,2
8.30
65,413
12.12.20162
8.95
67,850
-
-
-
12.12.20172
9.97
-
63,110
207,483
63,110
Simon Quayle
8.12.2014
7.78
52,345
8.2.20161,2
8.30
46,126
12.12.20162
8.95
47,900
-
-
-
12.12.20172
9.97
-
44,550
146,371
44,550
Tom Welton
8.12.2014
7.78
52,345
8.2.20161,2
8.30
46,126
12.12.20162
8.95
47,900
-
-
-
12.12.20172
9.97
-
44,550
146,371
44,550
Chris Ward
8.12.2014
7.78
51,175
8.2.20161,2
8.30
45,115
12.12.20162
8.95
47,350
-
-
-
12.12.20172
9.97
-
44,045
Vested
and
exercised
during
year
74,220
-
-
-
74,220
52,345
-
-
-
52,345
52,345
-
-
-
52,345
51,175
-
-
-
143,640
44,045
51,175
Lapsed
during
year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
At
30.9.2018
-
65,413
67,850
63,110
196,373
-
46,126
47,900
44,550
138,576
-
46,126
47,900
44,550
138,576
-
45,115
47,350
44,045
136,510
Market
price of
share on
date of
exercise
£
Performance
period
Exercise
period
10.00 1.10.2014-
30.9.2017
- 1.10.2015-
30.9.2018
- 1.10.2016-
30.9.2019
- 1.10.2017-
30.9.2020
10.00 1.10.2014-
30.9.2017
- 1.10.2015-
30.9.2018
- 1.10.2016-
30.9.2019
- 1.10.2017-
30.9.2020
10.00 1.10.2014-
30.9.2017
- 1.10.2015-
30.9.2018
- 1.10.2016-
30.9.2019
- 1.10.2017-
30.9.2020
10.00 1.10.2014-
30.9.2017
- 1.10.2015-
30.9.2018
- 1.10.2016-
30.9.2019
- 1.10.2017-
30.9.2020
12.2017-
6.2018
12.2020-
6.2021
12.2021-
6.2022
12.2022-
6.2023
12.2017-
6.2018
12.2020-
6.2021
12.2021-
6.2022
12.2022-
6.2023
12.2017-
6.2018
12.2020-
6.2021
12.2021-
6.2022
12.2022-
6.2023
12.2017-
6.2018
12.2020-
6.2021
12.2021-
6.2022
12.2022-
6.2023
1 The TSR and NAV performance conditions over the three years ended 30.9.2018 have been met in part and 22.5% of the nil cost options granted on 8.2.2016 will vest in December 2018.
2 Options granted from 2016 onward are subject to a two-year post-vesting holding period.
Shaftesbury
Annual
Report 2018
105
33 Governance
Annual remuneration report continued
3. Sharesave
Options are granted at a 20% discount to the market price on date of grant up to the maximum monthly savings amount permitted by HMRC over three or
five years.
Brian Bickell
Date
of grant
2.7.2014
1.7.2016
Simon Quayle
2.7.2014
1.7.2016
Tom Welton
2.7.2014
1.7.2016
Chris Ward
2.7.2014
30.6.2017
At
1.10.2017
2,788
2,024
4,812
2,788
2,024
4,812
2,788
2,024
4,812
2,788
1,162
3,950
Granted
during
year
Lapsed
during
year
Exercised
during
year
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Market value
of share on
date of
exercise
£
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
- 8.2019-
1.2020
- 8.2020-
1.2021
At
30.9.2018
2,788
Option
price
£
5.38
2,024
7.41
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
7.74
Percentage change in Chief Executive remuneration compared to average percentage
change in remuneration for all other employees
Chief Executive
change
Other employees
change
Relative importance of spend on pay (£m)
Base salary
Taxable benefits
Annual bonus
Total
1.9%
5.9%
(2.6)%
(0.1)%
3.4%
19.0%
(6.5)%
(0.2)%
The analysis for other employees is based on a like-for-like group
of employees, i.e. the same individuals appear in the 2017 and 2018
figures and the 2017 comparatives have been restated on that basis.
Annual bonus figures reflect the extent to which individuals choose
to take annual bonuses as deferred shares in the Deferred Annual Share
Bonus Scheme, which attract a 50% uplift in value.
Shaftesbury Annual Report 2018
106
51.6
47.1
8.5
9.9
2018
2017
Employee costs
Dividends
Remuneration
Governance
Annual
remuneration
report continued
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 ten 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.
Ten-year TSR chart to September 2018
400
350
300
250
200
150
100
50
0
2008
Shaftesbury
FTSE 350 REIT
237.3%
59.1%
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: Datastream as at 28 September 2018
Ten-year chief executive single total figure of remuneration1
Chief Executive single total figure
of remuneration (£’000)
Annual bonus payout² (% maximum)
Long-term incentive award vesting
(% maximum)
2009
850
50%
50%
2010
1,013
50%
50%
2011
1,650
90%
76.7%
2012
1,198
40%
100%
2013
1,075
2014
1,455
40%
50%
75%
50%
2015
1,523
60%
63.5%
2016
1,954
60%
100%
2017
1,830
55%
100%
2018
1,223
52.5%
22.5%
1 2009-2011: Jonathan Lane, 2012-2018: Brian Bickell
2 Based on award in cash. See page 99 for details of award taken in shares
Shareholder voting
At the 2018 AGM, there was an advisory shareholder vote on the Annual Remuneration Report. Voting by shareholders representing 66.9% of the issued
share capital on the resolution was as follows:
Annual Remuneration Report
195,395,694
For
% For
95.5
Against
% Against
Withheld
Total votes
9,126,268
4.5
1,079,168
204,521,962
On behalf of the Board
Sally Walden
Chairman - Remuneration Committee
26 November 2018
Shaftesbury
Annual
Report 2018
107
33
Governance
Directors’ report
The directors present their report and the audited
consolidated financial statements for the year
ended 30 September 2018.
Strategic report
For the review of the business and its likely future developments,
see the Strategic Report on pages 1 to 61.
Corporate governance statement
For the corporate governance statement, see pages 74 to 107,
which are incorporated by reference into this report.
Results and dividends
The results for the year ended 30 September 2018 are set out in
the Group Statement of Comprehensive Income on page 118.
An interim dividend of 8.3p per ordinary share was paid on
6 July 2018 (2017: 7.9p).
The directors recommend a final dividend in respect of the year
ended 30 September 2018 of 8.5p per ordinary share (2017: 8.1p),
making a total dividend for the year of 16.8p per ordinary share
(2017: 16.0p). If authorised at the 2019 AGM, the dividend will be
paid on 15 February 2019 to members on the register at the
close of business on 18 January 2019. The dividend will be paid
as an ordinary dividend.
Share capital
During the year, 27,855,508 ordinary shares were issued at £9.52
per share as a result of a placing on 6 December 2017. A further
414,350 ordinary shares were issued at either nil cost on the
exercise of LTIP options, or £6.94 on the exercise of Sharesave
options. At 30 September 2018, the Company’s issued share
capital comprised 307,302,187 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
Rules governing the appointment and replacement of directors
are contained in the 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 who served during the year ended 30
September 2018 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 on pages 64 to 65 and in the Annual Remuneration
Report on pages 97 to 107.
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.
The Board manages the business of the Company under the
powers set out in the Articles of Association. These powers
include the directors' ability to issue or buy back shares.
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 2018 AGM to make
market purchases of its own ordinary shares. This authority will
expire at the conclusion of the 2019 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 2018 to 26 November 2018.
Major shareholders
Information provided to the Company pursuant to the Financial
Conduct Authority’s Disclosure and Transparency Rules (“DTR”) is
published on a Regulatory Information Service and on the Company’s
website. As at 26 November 2018, the following information has
been received in accordance with DTR 5, from holders of
notifiable interests in the Company’s issued share capital.
Notifiable
interests
Ordinary
shares
%
of capital
disclosed1
PEL (UK) Limited,
26,798,820
Orosi (UK) Limited,
30,131,276
Orosi (UK) 2 Limited
23,442,540
Norges Bank
BlackRock Inc
80,372,636
71,135,465
15,201,236
1,146,033
8.72
9.80
7.63
26.15
23.15
4.94
0.37
Nature of
holding
Direct
Direct
Direct
Direct
Indirect
Financial
instruments
(securities
lending)
16,347,269
5.31
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.
Shaftesbury Annual Report 2018
108
1 As at date of notification
Governance
Directors’
report
continued
Financial instruments
See pages 132 to 134.
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
during the year and, accordingly, the Board has not authorised any
conflicts of interest as permitted by the Articles of Association.
Employment, human rights and
environmental matters
See sustainability and stakeholders on pages 34 to 39 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 2019 AGM. The Board, on the
advice of the Audit Committee, recommends their re-appointment.
2019 annual general meeting
The 2019 AGM will include resolutions dealing with the remuneration
policy, authority to issue shares, disapplication of pre-emption rights,
authority to purchase the Company’s own shares, authority to call
a general meeting on not less than 14 days’ notice and an increase
in authority for non-executive directors' maximum pay level. The
resolutions are set out in the Notice of Meeting, together with
explanatory notes which are contained in a separate circular to
shareholders which accompanies this Annual Report.
Disclosure of information to auditors
Each director has confirmed that:
a) so far as they are aware, there is no relevant audit information
of which the Company’s auditors are unaware; and
b) they have taken all the steps that they ought to have taken as
a director in order to make 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 (GHG) 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 remained consistent year on
year reflecting fluctuations in tenant numbers and occupancy.
Due to the increased use of renewable energy in the national
grid, GHG in the portfolio decreased by over 16% from 1,316
tonnes to 1,099 tonnes.
Absolute Scope 1 and 2 GHG emissions1
2017
Scope 1
2018
Change
Total tCO2e
Scope 2
Total tCO2e
223
2018
876
207
8%
2017
Change
1,109
(21)%
We are reporting on two emission intensities this year:
performance against turnover and common parts floor areas.
For common parts floor areas this has been measured in 66 of
the 122 reported properties. The emissions intensity figure was
56 kgCO2e/m2 (0.06 tonnes CO2e/m2), a small decrease from last
year’s 64 kgCO2e/m² (0.06 tonnes CO2e/m2). Against turnover, the
intensity has decreased from 12 tonnes per £million of total
revenue to 9 tonnes per £million of total revenue.
The scope 2 total above differs from 906 tCO2e reported last
year, due to restatements within the portfolio.
Carbon Smart have conducted the verification of our GHG
emissions for the period. They have confirmed that the reported
emissions for scope 1, 2 and 3 have received limited verification
in accordance with the requirements of the ISO 14064 – part 3
standard. The boundary of the verification included the landlord
areas from the properties where the Group has sole ownership
and operational control. The verification is limited to 2018 and no
prior restatements or changes to portfolio data were included.
Based on the verification procedures detailed in the full statement
on our website, Carbon Smart found no evidence to suggest that
our GHG inventory is not materially correct and prepared in
accordance with the internal reporting methodologies and
WBCSD & WRI GHG corporate and scope 3 standards.
By Order of the Board
Penny Thomas
Company Secretary
Shaftesbury PLC
Incorporated, registered and domiciled
in England and Wales number 1999238
22 Ganton Street
Carnaby
London W1F 7FD
26 November 2018
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.
Shaftesbury
Annual
Report 2018
109
3
Governance
Directors’ responsibilities
The directors are responsible for preparing the
Annual Report, the Remuneration Report and
the financial statements in accordance with
applicable law and regulations.
Directors’ responsibility statement
under the Disclosure and
Transparency Rules
Each of the directors, whose names and functions are listed on
pages 64 to 65 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 61 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 they face.
Directors’ statement under the UK
Corporate Governance Code
Each of the directors confirm that, to the best of their knowledge,
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.
This directors’ responsibilities statement was approved by the
Board and signed on its behalf by:
Brian Bickell
Chief Executive
26 November 2018
Chris Ward
Finance Director
26 November 2018
Company law requires the directors to prepare financial statements
for each financial year. Under that law the directors are required
to prepare the Group financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted
by the European Union (EU) and Article 4 of the IAS Regulation
and have also elected to prepare the Parent Company financial
statements in accordance with IFRSs as adopted by the EU.
Under company law the directors must not approve the financial
statements unless they are satisfied that they give a true and fair
view of the state of affairs of the Group and the Company and of
the profit or loss of the Group for that period. In preparing these
financial statements, the directors are required to:
• select suitable accounting policies in accordance with IAS8
‘Accounting Policies, Changes in Accounting Estimates and
Errors’ and then apply them consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• present information, including accounting policies, in a manner
that provides relevant, reliable, comparable and
understandable information;
• provide additional disclosures when compliance with the
specific requirements of IFRSs as adopted by the EU 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;
• state that the Group and Company has complied with IFRSs as
adopted by the EU, 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.
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.
A copy of the financial statements of the Group is placed on the
Company’s website. The directors are responsible for the
maintenance and integrity of the Company’s website.
Information published on the internet is accessible in many countries
with different legal requirements. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Shaftesbury Annual Report 2018
110
Governance
Independent auditor’s report
To the members of Shaftesbury PLC
Governance
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 2018
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 2018
comprise:
Group
Company
Balance sheet
Statement of comprehensive income
Cash flow statement
Statement of changes in equity
Related notes 1 to 24, including a
summary of significant accounting
policies
4
4
4
4
4
4
4
4
4
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 59 to 60
that describe the principal risks and explain how they are
being managed or mitigated;
• the directors’ confirmation set out on page 59 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 122 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 61 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.
Shaftesbury
Annual
Report 2018
111
3 Governance
Independent auditor’s report continued
Overview of our audit approach
Key Audit Matters
• 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
Audit scope
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: £40m which represents 1% of total assets.
• Specific Group materiality: £4.0m 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
judgment, 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: The valuation of investment
property
£3,714.8m (plus £228.7m being the Group’s share in the
Longmartin joint venture).
Refer to the Audit Committee Report (page 84); Accounting
policies (pages 122 to 124); and Note 8 of the Consolidated
Financial Statements (pages 126 to 127).
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 response to the risk
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%
84%
Fair value of investment properties
tested by audit team Chartered
Surveyors
Fair value of investment properties
tested by analytical procedures
• The Group audit team includes Chartered Surveyors who
tested a sample of properties. They challenged the valuation
approach and assumptions. The sample size they tested
accounted for 84% of the fair value of investment properties
(including investment properties held in the Longmartin joint
venture). Our Chartered Surveyors compared the equivalent
yields applied to each property to an expected range of yields
taking into account market data and asset specific
considerations. They also considered whether the other
assumptions applied by the external valuers, such as the
estimated rental values, tenant incentives and development
costs to complete were supported by available data such as
recent lettings and occupancy levels.
• Together with our Chartered Surveyors, we looked for contra
indicators for the estimated rental values and yields adopted.
• We searched the tenant base to confirm there was no
concentration of higher risk of failure tenants.
Shaftesbury Annual Report 2018
112
• 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 the
valuations of those properties which were not in line with our
initial expectations. This included further discussions with
management and the external valuers and, where appropriate,
the 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 our
Chartered Surveyors described above in order to assess for
evidence of undue management influence.
• We performed site visits accompanied by our Chartered
Surveyors for a sample of properties (focusing primarily on
development properties) which enabled us to assess the stage
of completion of, and gain specific insights into, these
refurbishments/developments.
• For development appraisals, we vouched the costs incurred to
date, and agreed the cost to complete estimates to approved
budgets and contractual arrangements. We met with the
surveyors to discuss the project costs and risks associated
with the project.
• 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.
Key observations communicated to
the Audit Committee
We have audited the inputs, assumptions and reviewed 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 2018.
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.
Risk: Revenue recognition, including
the timing of revenue recognition, and
the treatment of rents and incentives
£112.8m of rents receivable (FY17: £103.4m).
Refer to the Accounting policies (page 123); and Note 2 of the
Consolidated Financial Statements (page 125).
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.
Our response to the risk
• 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 verified the completeness of the lease incentives
recorded. For a sample of leases, we read the terms to identify
rent free periods and other incentives. We verified that these
incentives in our sample were correctly recorded in the rent
free asset and that income was correctly straight-lined.
• 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 performed analytical procedures to confirm the deferred
income balance is materially within expectations. We
substantively tested a sample of balances by agreeing the
timing of rent recognised to invoices or rent agreements.
• We considered the decline in the UK retail and restaurant
sector and assessed the impact on the Group’s financial
statements. We obtained a list of known Creditors Voluntary
Arrangements and looked at Shaftesbury’s tenant list to identify
tenants at risk of non-payment of rental amounts. We obtained
the aged debtors listing for the Group and the Longmartin
Joint Venture to identify aged debtors. We tested recoverability
of the aged debtors by agreeing to subsequent cash receipts.
We enquired with and challenged management regarding the
appropriateness of the provision for doubtful debts. We also
considered the recoverability of other tenant-related balances
including lease incentive assets and prepaid letting costs.
• 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.
Governance
Independent
auditor’s report
continued
Shaftesbury
Annual
Report 2018
113
33 Governance
Independent auditor’s report continued
Key observations communicated to
the Audit Committee
We audited the timing of revenue recognition, treatment of rents
and incentives, and assessed the risk of management override.
We have assessed the recoverability of the aged debtors and
tenant-related balances, including lease incentive assets and
prepaid letting costs, and concluded that the provision is
reasonable.
Based upon the audit procedures performed, we conclude that
revenue has been recognised on an appropriate basis in the year.
The procedures we carried out over revenue recognition apply
to all the Group`s revenue and the revenue in the Longmartin
Joint Venture.
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 and borrowings
Basis
1% of total assets
5% of operating profit before
investment property valuation
movements and net finance costs
Materiality
£40.0m
£4.0m
Performance
materiality
Audit
differences
£30.0m
£3.0m
£2.0m
£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.
When establishing our overall audit strategy, we determined a
magnitude of uncorrected misstatements that we judged would
be material for the financial statements as a whole. We
determined that total assets would be the most appropriate
basis for determining overall materiality given that key users of
the Group's financial statements are primarily focused on the
valuation of the Group's assets; primarily the investment
property portfolio. This provided a basis for determining the
nature, timing and extent of risk assessment procedures,
identifying and assessing the risk of material misstatement and
determining the nature, timing and extent of further audit
procedures. For planning purposes this was initially based on the
total assets as at 31 March 2018.
We assessed that for account balances not related to investment
properties (either wholly owned or within the Joint Venture),
loans and borrowings, 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.
There has been no change in our overall materiality or in our
materiality threshold as at 30 September 2018.
In the prior year audit we adopted an overall materiality of £36m
based on 1% of total assets. We also applied a specific materiality
of £3.7m based on 5% of operating profit investment property
valuation movements and net finance costs.
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.
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%
(2017: 75%) of the respective materiality. 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.
Shaftesbury Annual Report 2018
114
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 £2m, 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 and borrowings. 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.
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 107 and 142 to 148, 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 84 – 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 85 – 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.
Governance
Independent
auditor’s report
continued
Shaftesbury
Annual
Report 2018
115
33 Governance
Independent auditor’s report continued
Matters on which we are required to
report by exception
In the 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
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement set out on page 110 the directors are responsible for
the preparation of the financial statements and for being
satisfied that they give a true and fair view, 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.
• We assessed the susceptibility of the Group’s financial
statements to material misstatement, including how fraud
might occur by reviewing the Companies 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.
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.
Shaftesbury Annual Report 2018
116
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 3 years, covering the years ended 30
September 2016 to 30 September 2018. 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.
Use of our report
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.
Eamonn McGrath (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
26 November 2018
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.
Governance
Independent
auditor’s report
continued
Shaftesbury
Annual
Report 2018
117
33 Financial statements
Group statement of comprehensive income
For the year ended 30 September 2018
Revenue
Property charges
Net property income
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
Change in fair value of derivative financial instruments
Share of post-tax (loss)/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
See page 140 for an explanation of the EPRA measures used in these financial statements.
Notes
2
3
4
5
8
6
16
10
7
22
2018
£m
122.1
(28.3)
93.8
(13.7)
80.1
4.6
123.1
207.8
0.8
(32.0)
-
(1.1)
175.5
-
175.5
58.1p
58.0p
17.1p
2017
£m
111.5
(23.2)
88.3
(14.1)
74.2
1.1
230.6
305.9
0.1
(32.8)
22.0
6.4
301.6
-
301.6
108.1p
107.9p
16.2p
Shaftesbury Annual Report 2018
118
Financial statements
Balance sheets
As at 30 September 2018
Notes
Group
2018
£m
2017
£m
Non-current assets
Investment properties
Accrued income
Investment in joint venture
Property, plant and equipment
Other receivables
Investment in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Non-current liabilities
Borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium
Share-based payments reserve
Retained earnings
Total equity
8
9
10
13
11
12
13
14
15
17
18
18
18
Financial statements
Company
2018
£m
-
-
59.0
1.3
-
1,160.9
1,221.2
51.2
100.6
2017
£m
-
-
59.0
1.2
-
619.6
679.8
484.3
25.8
3,714.8
3,407.3
9.9
143.9
1.3
3.7
-
9.5
148.0
1.2
3.7
-
3,873.6
3,569.7
30.3
118.5
22.0
45.6
4,022.4
3,637.3
1,373.0
1,189.9
40.8
41.6
6.6
106.6
948.6
989.4
948.8
990.4
(1.8)
4.8
(0.8)
105.8
3,033.0
2,646.9
1,368.2
1,084.1
76.8
378.4
1.2
2,576.6
3,033.0
69.8
124.9
3.0
2,449.2
2,646.9
76.8
378.4
1.2
911.8
69.8
124.9
3.0
886.4
1,368.2
1,084.1
The Company made a profit of £73.5 million (2017: £57.7 million) in the year.
On behalf of the Board who approved and authorised for issue the financial statements on pages 118 to 139 on 26 November 2018.
Brian Bickell
Chief Executive
Chris Ward
Finance Director
Shaftesbury
Annual
Report 2018
119
44
Financial statements
Cash flow statements
For the year ended 30 September 2018
Group
2018
£m
76.5
0.8
(31.0)
46.3
(167.8)
13.3
(26.6)
(0.4)
3.0
(3.0)
-
-
-
2017
£m
76.7
0.1
(32.8)
44.0
(40.1)
13.4
(41.5)
(0.1)
4.8
-
-
-
-
Company
2018
£m
(15.9)
0.7
(1.8)
(17.0)
-
-
-
(0.4)
3.0
(3.0)
73.0
(188.9)
-
(181.5)
(63.5)
(116.3)
0.1
265.2
(4.8)
72.0
(72.0)
-
-
(1.8)
-
(50.6)
208.1
72.9
45.6
118.5
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
265.2
(4.8)
72.0
(72.0)
-
-
(1.8)
-
(50.6)
208.1
74.8
25.8
100.6
2017
£m
(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
Notes
21
5
17
17
15
15
20
13
13
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 the joint venture
Increase in loans to the joint venture
Amounts received from subsidiaries
Amounts provided to subsidiaries
Acquisition of subsidiary
Net cash used in investing activities
Cash flows from financing activities
Proceeds from exercise of share options
Proceeds from share placing
Share placing costs
Proceeds from borrowings
Repayment of borrowings
Proceeds from issue of mortgage bonds
Repayment of debenture stock
Loan 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
Shaftesbury Annual Report 2018
120
Financial statements
Statements of changes in equity
For the year ended 30 September 2018
Financial statements
Share
capital
£m
Share
premium
£m
Share-based
payments
reserve
£m
Notes
Retained
earnings
£m
Total
equity
£m
Group
At 1 October 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
Profit and total comprehensive income for the year
Transactions with owners:
Dividends paid
Share placing
Exercise of share options
Fair value of share-based payments
Release on exercise of share options
At 30 September 2018
Company
At 1 October 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
Profit and total comprehensive income for the year
Transactions with owners:
Dividends paid
Share placing
Exercise of share options
Fair value of share-based payments
Release on exercise of share options
At 30 September 2018
20
17
4
20
17
17
4
20
17
4
20
17
17
4
69.7
124.8
3.6
-
-
0.1
-
-
69.8
-
-
6.9
0.1
-
-
-
-
0.1
-
-
124.9
-
-
253.5
-
-
-
76.8
378.4
-
-
-
1.4
(2.0)
3.0
-
-
-
-
0.8
(2.6)
1.2
69.7
124.8
3.6
-
-
0.1
-
-
69.8
-
-
6.9
0.1
-
-
-
-
0.1
-
-
124.9
-
-
253.5
-
-
-
76.8
378.4
-
-
-
1.4
(2.0)
3.0
-
-
-
-
0.8
(2.6)
1.2
The Company’s distributable reserves are disclosed in note 18 to the financial statements.
2,189.0
301.6
(43.3)
(0.1)
-
2.0
2,449.2
175.5
(50.6)
-
(0.1)
-
2.6
2,387.1
301.6
(43.3)
0.1
1.4
-
2,646.9
175.5
(50.6)
260.4
-
0.8
-
2,576.6
3,033.0
870.1
57.7
(43.3)
(0.1)
-
2.0
886.4
73.5
(50.6)
-
(0.1)
-
2.6
1,068.2
57.7
(43.3)
0.1
1.4
-
1,084.1
73.5
(50.6)
260.4
-
0.8
-
911.8
1,368.2
Shaftesbury
Annual
Report 2018
121
44 Financial statements
Notes to the financial statements
For the year ended 30 September 2018
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 109. 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
£73.5 million (2017: £57.7 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 61. The financial position of the Group including cash flow, liquidity, borrowings, undrawn facilities and debt maturity analysis is set out on
pages 54 to 56. 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.
Significant judgements, assumptions and key estimates
The preparation of the financial statements in accordance with IFRS requires the directors to make judgements and estimates about the carrying amounts
of assets and liabilities, in applying the Group's accounting policies. The judgements and estimates are based on historical experience and other relevant
factors, including expectations of future events, and are reviewed on a continual basis. Although the estimates are made using the directors' best
knowledge of the amount, event or actions, actual results may differ from the original estimates.
Significant area of estimation uncertainty
The investment property portfolio is valued by independent third party valuers. Cushman & Wakefield value the properties owned by the Group, and Knight
Frank LLP value the properties owned by the Longmartin joint venture.
The valuation 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 8 for further information.
The directors did not make any significant judgements in the preparation of these financial statements.
New accounting standards and interpretations
a) The following amendment to an existing standard was relevant to the Group and mandatory for the first time for the financial year ended 30 September
2018. It did not have an impact on the amounts reported in the financial statements, however it did require additional disclosures, as set out in note 15.
• IAS 7 (amendment) - Statement of cash flows (disclosure initiative)
b) The following new standards and amendments to existing standards are relevant to the Group, are not yet effective in the year ended 30 September 2018
and are not expected to have a significant impact on the Group’s financial statements:
• Annual Improvements 2014-2016
• IFRS 2 (amendment) - Classification of share-based payment transactions
• IFRS 9 - Financial instruments
• IFRS 15 - Revenue from contracts with customers
• IFRS 16 - Leases
IFRS 9 - Financial Instruments (effective from 1 January 2018)
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 (effective from 1 January 2018)
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.
Shaftesbury Annual Report 2018
122
continued4
Notes to the
financial
statements
Financial statements
1 Accounting policies continued
IFRS 16 – Leases (effective from 1 January 2019)
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 option schemes
The Company administers a long-term incentive plan (LTIP) and a sharesave scheme (SAYE). The cost of granting share options to employees under these
schemes is recognised in the Statement of Comprehensive Income based on the fair value at the date of grant. The expense is recognised on a straight-line
basis over the vesting period based on the number of options that are expected to vest.
The fair value of the long-term incentive plan is calculated using the modified binomial pricing model and the Monte Carlo simulation pricing model for the
non-market based and market based conditions respectively. At each reporting period, the non-market based condition is reassessed and the impact, if
any, of a revision to original estimates is recognised in the Statement of Comprehensive Income.
The fair value of the sharesave scheme is calculated using a modified binomial pricing model.
Deferred share bonus scheme
Under the Company's annual bonus scheme, employees have the option to take their annual bonus in either cash, or shares. Where employees opt to take
the bonus in cash, it is expensed to the Statement of Comprehensive Income in the year in which it relates.
Where employees opt to take all, or part, of their bonus in shares, the Company offers a matching award of up to 50%, subject to continued employment
throughout the performance period. The cost of the matching award is recognised on a straight-line basis over the performance period. The remaining
expense is recognised in the year in which it relates. Provisions for leavers during the performance period are set out on page 95.
Pension contributions
Payments to defined contribution plans are charged as an expense to the Statement of Comprehensive Income as they fall due.
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.
Shaftesbury
Shaftesbury
Annual
Annual
Report 2018
Report 2018
123
123
4Financial statementsNotes to the financial statements continued4 1 Accounting policies continued
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.
Tenant lease incentives are included in current trade and other receivables when the amounts to be charged against rental income fall within one year of
the Balance Sheet date. Amounts which will be charged against rental income in more than one year are included in non-current assets.
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
IFRS 8 requires operating segments to be reported in a manner consistent with the internal financial reporting reviewed by the chief operating decision maker. The
chief operating decision maker of the Group is the Board. The Board is responsible for reviewing the Group’s internal reporting in order to assess performance.
The information reviewed by the Board is prepared on a basis consistent with these financial statements. That is, the information is provided at a Group level and
includes both the IFRS reported results and EPRA measures (see page 140 for an explanation on the EPRA measures used in these financial statements).
The Group’s properties are all located in London’s West End, and are all of a similar type. The properties are typically mixed-use buildings with restaurants,
leisure and retail on the lower floors and small offices and apartments on the upper floors. As the properties share similar economic characteristics we
consider them to be one operating segment. As such, no further segmental information is presented.
Shaftesbury Annual Report 2018
124
Financial statements Notes to the financial statements continued 2 Revenue
Rents receivable
Recoverable property expenses
2018
£m
112.8
9.3
122.1
Rents receivable includes a credit of £0.5 million from amortisation of accrued income in respect of lease incentives (2017: charge of £0.5 million).
3 Property charges
Property operating costs
Vacant property costs
Fees payable to managing agents
Letting, rent review, and lease renewal costs
Marketing and events expenditure
Property outgoings
Recoverable property expenses
2018
£m
7.6
1.4
2.6
3.6
3.8
19.0
9.3
28.3
2017
£m
103.4
8.1
111.5
2017
£m
5.7
1.1
2.4
3.3
2.6
15.1
8.1
23.2
Following a review of the Group's property charges, the amounts included in the table above have been reclassified between the different types of
property expenses, to provide a better representation of the underlying expenditure. The 2017 figures have been restated accordingly. This had no impact
on the total property charges for that year.
4 Administrative expenses
Group and Company
Employee costs
Depreciation
Other head office costs
Less: administrative fees received from the joint venture
Employee costs (including the directors)
Wages and salaries
Social security costs
Other pension costs
Equity-settled remuneration
2018
£m
8.5
0.4
4.9
13.8
(0.1)
13.7
2018
£m
6.6
0.8
0.3
0.8
8.5
2017
£m
9.9
0.3
4.0
14.2
(0.1)
14.1
2017
£m
6.9
1.3
0.3
1.4
9.9
Included within equity-settled remuneration is a charge of £0.6 million (2017: £1.4 million) for the LTIP and SAYE schemes. Note 19 includes a summary of the
principal assumptions made at the last grant dates for these schemes. Details of the employee costs for the Group's key management personnel are set out
in note 24.
Within the table above, amounts for social security costs were previously included within each of the respective employee costs. These have been
reclassified and presented together in their entirety. The 2017 figures have been restated accordingly.
Average monthly number of employees
Executive directors
Head office and property management
Estate management
2018
number
4
25
1
30
2017
number
4
22
1
27
Shaftesbury
Annual
Report 2018
125
4Financial statementsNotes to the financial statements continued4 4 Administrative expenses continued
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
2018
£000
61
116
177
22
10
-
32
209
2017
£000
60
128
188
22
27
29
78
266
The auditor provided no taxation services to the Group in 2018 (2017: nil). Total fees for non-audit services represented 18% (2017: 41%) of the total fees for
audit services. The audit fees are relatively low due primarily to the simple Group corporate structure.
5 Profit on disposal of investment properties
Net sale proceeds
Book value at date of sale
6 Finance costs
Debenture stock interest and amortisation
Mortgage bond interest
Bank and other interest
Issue cost amortisation
2018
£m
13.3
(8.7)
4.6
2018
£m
-
13.9
16.5
1.6
32.0
2017
£m
13.4
(12.3)
1.1
2017
£m
0.1
7.4
23.8
1.5
32.8
7 Tax charge for the year
The Group’s wholly-owned business is subject to taxation as a REIT. Under the REIT regime, income from its rental business (calculated by reference to tax
rather than accounting rules) and chargeable gains from the sale of its investment properties are exempt from corporation tax.
8 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 9)
Book value at 30 September
The investment properties valuation comprises:
Freehold properties
Leasehold properties
Shaftesbury Annual Report 2018
126
2018
£m
3,407.3
167.8
(8.7)
25.3
123.1
3,714.8
3,724.6
2.4
(12.2)
3,714.8
2018
£m
3,495.3
231.7
3,727.0
2017
£m
3,111.6
37.1
(12.3)
40.3
230.6
3,407.3
3,416.5
2.4
(11.6)
3,407.3
2017
£m
3,133.0
285.9
3,418.9
Financial statements Notes to the financial statements continued 8 Investment properties continued
Investment properties were valued at 30 September 2018 by professionally qualified external valuers. The Group's wholly-owned portfolio is valued by
Cushman & Wakefield, members of the Royal Institution of Chartered Surveyors (RICS).
All properties were valued on the basis of fair value and highest and best use, in accordance with IFRS 13 and the RICS Valuation - Global Standards, which
incorporate the International Valuation Standards and the RICS UK Valuation Standards edition current at the valuation date. 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. The key assumptions are the equivalent yields and estimated future rental income, (ERVs), as set out in the Basis of Valuation on pages 142
to 143. 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 (2017: none).
The major inputs to the external valuation are reviewed by the senior management team. In addition, the valuer meets with the external auditor 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 85.
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. During the year, Cushman & Wakefield acted as letting agents for
Shaftesbury Carnaby PLC and Shaftesbury Chinatown PLC, rent review surveyors for Shaftesbury CL Limited, and provided other advice to Shaftesbury
PLC. Non valuation fees represented 53% of total fees for the valuation of the Group's investment properties. The fees payable by the Group to Cushman &
Wakefield do not constitute a significant part of their fee income.
Sensitivity analysis
As noted in the significant judgements, assumptions and key estimates section on page 122, 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
-5.0%
£m
(172.5)
Change in ERV
-2.5%
£m
(88.7)
+2.5%
£m
83.1
Change in equivalent yields
+5.0%
£m
170.4
-0.50%
£m
682.8
-0.25%
£m
308.9
+0.25%
£m
(270.8)
+0.50%
£m
(501.1)
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 2018, the Group had capital commitments of £58.7 million (2017 as restated: £52.6 million). This included £39.0 million (2017 as restated: £39.0
million) relating to the forward purchase of a long leasehold interest and £19.7 million (2017: £13.6 million) relating to future capital expenditure for the
enhancement of the Group’s investment properties. The 2017 figure has been restated to include amounts relating to the forward purchase of a long
leasehold interest. See pages 42 to 50 for a discussion of the Group’s property activity during the year.
Details of the restrictions on the Group's investment properties are set out in note 15.
9 Accrued income
Accrued income in respect of lease incentives
Less: included in trade and other receivables (note 12)
2018
£m
12.2
(2.3)
9.9
2017
£m
11.6
(2.1)
9.5
Shaftesbury
Annual
Report 2018
127
4Financial statementsNotes to the financial statements continued4 10 Investment in joint venture
Group
At 1 October
Share of (loss)/profits
Dividends received
Book value at 30 September
Company
Shares at cost
At 1 October and 30 September
2018
£m
148.0
(1.1)
(3.0)
143.9
2018
£m
2017
£m
146.4
6.4
(4.8)
148.0
2017
£m
59.0
59.0
The Company owns 7,782,100 B ordinary £1 shares in Longmartin Properties Limited, representing 50% of that company’s issued share capital. The
company is incorporated in Great Britain and registered in England and Wales and is engaged in property investment in London. Longmartin Properties
Limited’s principal place of business and registered office is the same as the Group, as set out on page 109. Control of Longmartin Properties Limited is
shared equally with The Mercers’ Company, which owns 50% of its issued share capital.
At 30 September 2018, the joint venture had capital commitments of £10.4 million (2017: £5.5 million) relating to future capital expenditure for the enhancement
of its investment properties, of which, 50% relates to the Group.
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 (deficit)/surplus on revaluation of investment properties
Operating profit
Finance costs
(Loss)/profit before tax
Current tax
Deferred tax
Tax credit/(charge) for the year
(Loss)/profit and total comprehensive (loss)/income for the year
(Loss)/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
Shaftesbury Annual Report 2018
128
2018
£m
16.1
1.5
17.6
(1.8)
(1.5)
(3.3)
14.3
(0.4)
13.9
(10.0)
3.9
(6.8)
(2.9)
(1.5)
2.3
0.8
(2.1)
(1.1)
2018
£m
457.4
2.1
1.3
460.8
2.6
3.9
467.3
15.5
120.0
43.9
179.4
287.9
143.9
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
462.6
3.1
1.3
467.0
1.2
3.9
472.1
10.1
120.0
46.1
176.2
295.9
148.0
Financial statements Notes to the financial statements continued 11 Investment in subsidiaries
Shares in Group undertakings
At 1 October
Acquisition of subsidiary
Additional share capital issued by subsidiaries
Impairment of subsidiary
At 30 September
2018
£m
619.6
-
554.7
(13.4)
1,160.9
2017
£m
754.7
9.8
-
(144.9)
619.6
During the year Shaftesbury Charlotte Street Limited distributed £13.4 million to the Company following a capital reduction. Following this, the Company
impaired its investment in this subsidiary. A number of subsidiaries issued share capital to the Company during the year. All transactions were settled
through intercompany indebtedness.
In 2017, the Company acquired 100% of the share capital of Shaftesbury West End Limited. The Company also impaired its investment in Shaftesbury
Chinatown PLC, following a capital reduction and distribution from that company.
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
Shaftesbury Soho Limited
Shaftesbury AV Investment Limited
Dormant subsidiaries:
Carnaby Estate Holdings Limited
Carnaby Investments Limited
Carnaby Property Investments Limited1
Chinatown Estate Holdings Limited
Chinatown Property Investments Limited1
Covent Garden Estate Holdings Limited
Shaftesbury Covent Garden Property Investments Limited1
Shaftesbury Charlotte Street Limited
Charlotte Street Estate Holdings Limited
Chinatown London Limited
Shaftesbury AV Limited1
Shaftesbury CL Investment Limited
Shaftesbury CL Limited1
Helcon Limited2
Shaftesbury West End 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
1. 100% of the share capital of these subsidiaries is held by other Group companies.
2. This subsidiary is in the process of being voluntarily wound up in order to simplify the Group structure.
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 109.
12 Trade and other receivables
Amounts due from tenants
Provision for doubtful debts
Accrued income in respect of lease incentives (note 9)
Amounts due from subsidiaries
Amounts due from joint venture
Prepayments
Other receivables
Group
Company
2018
£m
16.2
(1.2)
15.0
2.3
-
3.9
9.0
0.1
30.3
2017
£m
12.0
(0.5)
11.5
2.1
-
0.9
7.1
0.4
22.0
2018
£m
-
-
-
-
46.6
3.9
0.7
-
51.2
2017
£m
-
-
-
-
482.7
0.9
0.6
0.1
484.3
At 30 September 2018, amounts due from tenants which were more than 90 days overdue totalled £2.6 million (2017: £1.1 million). Provisions against these
overdue amounts totalled £1.0 million (2017: £0.4 million). The remaining balance is not considered to be impaired.
Cash deposits totalling £20.6 million (2017: £18.5 million) were held against tenants’ rent payment obligations. The deposits are held in bank accounts
administered by the Group’s managing agents and are not included within the Group Balance Sheet.
Shaftesbury
Annual
Report 2018
129
4Financial statementsNotes to the financial statements continued4 13 Cash and cash equivalents
Cash and cash equivalents at 30 September 2018, comprising cash at bank, were £118.5 million (2017: £45.6 million) for the Group and £100.6 million (2017:
£25.8 million) for the Company.
Non-current other receivables include £3.7 million at 30 September 2018 (2017: £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.
14 Trade and other payables
Rents and service charges invoiced in advance
Trade payables and accruals in respect of capital expenditure
Amounts due to subsidiaries
Other taxation and social security
Other payables and accruals
15 Borrowings
Group
Mortgage bonds
Secured bank facilities
Secured term loans
Total Group borrowings
Nominal
value
£m
575.0
-
384.8
959.8
2018
Unamortised
issue costs
£m
(5.3)
(1.8)
(4.1)
(11.2)
Group
Company
2018
£m
25.2
2.7
-
5.1
7.8
40.8
Book
value
£m
569.7
(1.8)
380.7
948.6
2017
£m
22.8
4.0
-
5.2
9.6
41.6
2018
£m
-
-
2.8
1.3
2.5
6.6
Nominal
value
£m
575.0
-
384.8
959.8
2017
Unamortised
issue costs
£m
(5.8)
(0.8)
(4.4)
(11.0)
2017
£m
-
-
100.6
2.0
4.0
106.6
Book
value
£m
569.2
(0.8)
380.4
948.8
Details of the Group’s current financial position, including the refinancing activity during the year, are discussed on pages 55 to 56.
In the year ended 30 September 2017, two subsidiaries of the Company issued £575 million of Guaranteed First Mortgage Bonds. Following this, the
Company redeemed its existing £61.0 million Debenture Stock.
At 30 September 2018, there were no drawings against the Group’s secured bank facilities (2017: none). The Group is still able to benefit from these
committed revolving facilities, and as such, unamortised issue costs of £1.8 million (2017: £0.8 million) continue to be carried in the Balance Sheet.
The Group’s borrowings are secured by fixed charges over certain investment properties held by subsidiaries, with a carrying value of £3,151.4 million (2017:
£3,015.4 million), and by floating charges over the assets of the Company and/or certain subsidiaries. To the extent there is a fixed charge over a property,
consent is needed from the relevant lender for the fixed charge to be removed, for example, in the case of a disposal of that property. There are currently
no restrictions on the remittance of income from investment properties.
Net debt reconciliation
Non-current borrowings
Mortgage bonds
Secured bank facilities
Secured term loans
Loan issue costs
Loan issue costs1
Cash & cash equivalents (note 13)
Net debt at 30 September 2018
Net debt at 30 September 2017
Cash flows
1.10.2017
£m
Inflows
£m
Outflows
£m
Non-cash
items
30.9.2018
£m
575.0
-
384.8
(11.0)
948.8
11.0
(45.6)
914.2
752.1
-
72.0
-
-
72.0
-
(358.9)
(286.9)
(95.1)
-
(72.0)
-
(1.8)
(73.8)
1.8
286.0
214.0
257.2
-
-
-
1.6
1.6
(1.6)
-
-
-
575.0
-
384.8
(11.2)
948.6
11.2
(118.5)
841.3
914.2
1. Loan issue costs are eliminated in the calculation of net debt.
The cash flows relating to secured bank facilities were drawings under revolving credit facilities and their subsequent repayments.
Shaftesbury Annual Report 2018
130
Financial statements Notes to the financial statements continued
15 Borrowings continued
Availability and maturity of borrowings
Repayable between 1 and 5 years
Repayable between 5 and 10 years
Repayable after 10 years
Committed
£m
225.0
290.0
669.8
1,184.8
2018 facilities
Drawn
£m
-
290.0
669.8
959.8
Undrawn
£m
225.0
-
-
225.0
Committed
£m
275.0
290.0
669.8
1,234.8
2017 facilities
Drawn
£m
-
290.0
669.8
959.8
Interest rate profile of interest bearing borrowings
Fixed rate borrowings
Secured term loans
Mortgage bonds 2027
Mortgage bonds 2031
Weighted average cost of drawn borrowings
2018
2017
Debt
£m
384.8
290.0
285.0
Interest
rate
3.85%
2.35%
2.49%
2.99%
Debt
£m
384.8
290.0
285.0
Undrawn
£m
275.0
-
-
275.0
Interest
rate
3.85%
2.35%
2.49%
2.99%
The Group and Company also incur non-utilisation fees on undrawn facilities. At 30 September 2018, the weighted average charge on the undrawn facilities
of £225.0 million (2017: £275.0 million) for the Group and Company was 0.66% (2017: 0.69%).
The weighted average credit margin on the Group and Company’s secured bank facilities was:
Drawn facilities
If facilities were fully drawn
Company
Secured bank facilities
Total Company borrowings
2018
-
1.46%
Nominal
value
£m
-
-
2018
Unamortised
issue costs
£m
(1.8)
(1.8)
Book
value
£m
(1.8)
(1.8)
Nominal
value
£m
-
-
2017
Unamortised
issue costs
£m
(0.8)
(0.8)
2017
-
1.51%
Book
value
£m
(0.8)
(0.8)
At 30 September 2018, there were no drawings against the Company’s secured bank facilities (2017: £Nil). The Company is still able to benefit from these
committed revolving credit facilities, and as such, unamortised issue costs of £1.8 million (2017: £0.8 million) continue to be carried in the Balance Sheet.
Net debt reconciliation
Non-current borrowings
Secured bank facilities
Loan issue costs
Loan issue costs1
Cash & cash equivalents (note 13)
Net debt at 30 September 2018
Net debt at 30 September 2017
1. Loan issue costs are eliminated in the calculation of net debt.
Availability and maturity of borrowings
Repayable between 1 and 5 years
Cash flows
1.10.2017
£m
Inflows
£m
Outflows
£m
Non-cash
items
30.9.2018
£m
-
(0.8)
(0.8)
0.8
(25.8)
(25.8)
382.4
72.0
-
72.0
-
(414.0)
(342.0)
(580.2)
(72.0)
(1.8)
(73.8)
1.8
339.2
267.2
253.8
-
0.8
0.8
(0.8)
-
-
(81.8)
-
(1.8)
(1.8)
1.8
(100.6)
(100.6)
(25.8)
Committed
£m
225.0
2018 facilities
Drawn
£m
-
Undrawn
£m
225.0
Committed
£m
275.0
2017 facilities
Drawn
£m
-
Undrawn
£m
275.0
Shaftesbury
Annual
Report 2018
131
4Financial statementsNotes to the financial statements continued4
16 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 to the Statement of Comprehensive Income
At 30 September - deficit
2018
£m
-
-
-
-
In 2017 the Group and Company terminated interest rate swap contracts with a notional principal of £180.0 million at a cost of £92.1 million.
Categories of financial instruments
Group
Financial assets
Trade and other receivables (note 12)
Amounts due from joint venture (note 12)
Other receivables (note 13)
Cash and cash equivalents (note 13)
Financial liabilities
Trade and other payables - due within one year (note 14)
Interest bearing borrowings (note 15)
Net financial instruments
Company
Financial assets
Amounts due from subsidiaries (note 12)
Amounts due from joint venture (note 12)
Cash and cash equivalents (note 13)
Financial liabilities
Trade and other payables - due within one year (note 14)
Amounts due to subsidiaries (note 14)
Interest bearing borrowings (note 15)
Net financial instruments
2018
book
value
£m
15.0
3.9
3.7
118.5
141.1
(10.5)
(948.6)
(959.1)
(818.0)
46.6
3.9
100.6
151.1
(2.5)
(2.8)
1.8
(3.5)
147.6
2017
£m
(114.1)
92.1
22.0
-
As
restated
2017
book
value
£m
11.5
0.9
3.7
45.6
61.7
(13.6)
(948.8)
(962.4)
(900.7)
482.7
0.9
25.8
509.4
(4.0)
(100.6)
0.8
(103.8)
405.6
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 (2017: all due within one year).
Net financial instruments for the Company at 30 September 2017 have been restated to include cash and cash equivalents in the above table. 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 £955.2
million (2017: £975.9 million). The difference between the fair value and the book value is not recognised in the reported results for the year. 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.
Shaftesbury Annual Report 2018
132
Financial statements Notes to the financial statements continued 16 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.
Group
30 September 2018
Financial liabilities
Interest bearing borrowings:
Principal (note 15)
Interest
Total
30 September 2017
Financial liabilities
Interest bearing borrowings:
Principal (note 15)
Interest
Total
Company
30 September 2018
Financial liabilities
Interest bearing borrowings:
Principal (note 15)
Interest
Total
30 September 2017
Financial liabilities
Interest bearing borrowings:
Principal (note 15)
Interest
Total
Book
value
£m
Contractual
cash flows
£m
948.6
3.0
951.6
Book
value
£m
948.8
3.6
952.4
959.8
342.9
1,302.7
Contractual
cash flows
£m
959.8
371.6
1,331.4
Book
value
£m
Contractual
cash flows
£m
(1.8)
0.1
(1.7)
Book
value
£m
(0.8)
0.2
(0.6)
-
-
-
Contractual
cash flows
£m
-
-
-
<1
year
£m
-
28.7
28.7
<1
year
£m
-
28.7
28.7
<1
year
£m
-
-
-
<1
year
£m
-
-
-
1-2
years
£m
-
28.7
28.7
1-2
years
£m
-
28.7
28.7
1-2
years
£m
-
-
-
1-2
years
£m
-
-
-
2-5
years
£m
-
86.2
86.2
2-5
years
£m
-
86.2
86.2
2-5
years
£m
-
-
-
2-5
years
£m
-
-
-
5-10
years
£m
290.0
136.8
426.8
5-10
years
£m
290.0
143.6
433.6
5-10
years
£m
-
-
-
5-10
years
£m
-
-
-
>10
years
£m
669.8
62.5
732.3
>10
years
£m
669.8
84.4
754.2
>10
years
£m
-
-
-
>10
years
£m
-
-
-
Management of financial risks (Group and Company)
An overview of the Group's risk management policies and the principal risks and uncertainties is set out on pages 57 to 60. The disclosure below provides
further detail regarding financial risk management.
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. The Group has a large and diverse tenant
base so that tenant credit risk is widely spread. Where appropriate, tenants are required to provide cash deposits to mitigate the potential loss in the event
of default. Tenant deposits are referred to in note 12.
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 is deposited with banks or financial institutions, the Group considers the counterparty credit rating and places amounts with different banks or
financial institutions to spread counterparty credit risk. Deposits and liquidity requirements are reviewed on a weekly basis.
Shaftesbury
Annual
Report 2018
133
4Financial statementsNotes to the financial statements continued4 16 Financial instruments continued
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 55 to 56.
Market risk
Interest rate 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 interest rate risk through long-term fixed rate debt. At 30
September 2018, 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 financial position is considered to be insignificant. The Board keeps under review the Group’s interest
rate risk, particularly in light of expectations of future interest rate movements.
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 15 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 55 to 56.
17 Share capital
Allotted and fully paid (ordinary 25p shares)
At 1 October
Exercise of share options
Share placing
At 30 September
2018
number
million
279.0
0.4
27.9
307.3
2017
number
million
278.6
0.4
-
279.0
2018
£m
69.8
0.1
6.9
76.8
2017
£m
69.7
0.1
-
69.8
During the year, 27,855,508 ordinary 25p shares were issued at £9.52 per share, raising £265.2 million. Transaction costs in connection with the issue, which
amounted to £4.8 million, have been charged against share premium in accordance with the Companies Act 2006.
In respect of the equity issue, Invesco Asset Management Limited and Orosi (UK) Limited were related parties of Shaftesbury PLC for the purposes of the
Listing Rules and participated in the equity placing in respect of 1,050,000 and 6,864,368 placing shares respectively, for a total consideration of
approximately £9.996 million and £65.349 million respectively. These transactions were disclosed via the Regulatory News Service on 6 December 2017, in
accordance with LR11.1.10R, and Shaftesbury PLC received written confirmation from its sponsor that the terms of the transactions were fair and reasonable
as far as Shaftesbury PLC’s shareholders were concerned.
18 Reserves
The Statement of Changes in Equity is set out on page 121.
The following describes the nature and purpose of each of the reserves within equity.
Reserve
Share premium
Share-based
payments reserve
Retained earnings
Description and purpose
Share premium is the amount by which the fair value of the consideration received for ordinary shares exceeds the nominal value of
shares issued, net of expenses.
The equity-settled remuneration expense charged to the Statement of Comprehensive Income is credited to the share-based
payments reserve. Upon exercise of options, the expense previously recognised is transferred to retained earnings.
Cumulative gains and losses recognised in the Statement of Comprehensive Income. Transfers from the
share-based payments reserve are also credited to this account.
The Company’s retained earnings at 30 September 2018 include amounts distributable of £222.2 million (2017: £218.0 million).
Shaftesbury Annual Report 2018
134
Financial statements Notes to the financial statements continued
19 Share-based remuneration
The Group operates a long-term incentive plan (LTIP), sharesave scheme (SAYE) and a deferred annual share bonus scheme (DASBS). A summary of the
rules of the schemes is set out in the Remuneration Policy on pages 90 to 96.
LTIP and SAYE schemes
The following share options granted to executive directors and employees were outstanding at 30 September 2018:
Awarded
Exercised
Lapsed
At
30.9.2018
Exercisable
30.9.2018
Option
exercise
price
Weighted
average price
at exercise
Exercise
period
At
1.10.2017
23,419
17,974
21,368
16,115
-
402,426
138,800
Date of grant
SAYE
2.7.2014
3.7.2015
1.7.2016
30.6.2017
29.6.2018
LTIP 2006 scheme
8.12.2014
2.12.2015*
LTIP 2016 scheme
8.2.2016*
12.12.2016
12.12.2017
-
-
-
-
12,831
-
(11,924)
-
-
-
-
-
(728)
(1,162)
-
23,419
6,050
20,640
14,953
12,831
-
-
(402,426)
-
-
-
-
138,800
224,225
406,621
-
1,250,948
-
-
400,195
413,026
-
-
-
(414,350)
-
-
-
(1,890)
224,225
406,621
400,195
1,247,734
-
1,296
-
-
-
-
-
-
-
-
1,296
£5.38
£6.94
£7.41
£7.74
£7.57
Nil
Nil
Nil
Nil
Nil
-
£9.29
-
-
-
2019
2018-2020
2019-2021
2020-2022
2021-2023
£9.97
-
2017-2018
2018-2019
-
-
-
2020-2021
2019-2022
2020-2023
* Following satisfaction of performance targets in respect of the three years ended 30 September 2018, 98,707 options over ordinary shares will vest in December 2018.
Weighted average exercise price
Weighted average remaining contractual life
At
1.10.2017
£0.43
2.1 years
Awarded
£0.24
Exercised
£0.20
Lapsed
£7.61
At
30.9.2018
£0.43
2.6 years
The fair value of option grants is measured by Lane Clark & Peacock LLP, Actuaries & Consultants. For the grants made during the year, the main inputs and
assumptions, and the resulting fair values, are as follows:
Grant date
Share price at date of grant
Exercise price
Expected life of award
Share return volatility (per annum)
Risk free discount rate per annum
Index return volatility*
Correlation between the Company’s shares and those in the index*
Dividend yield
* The index is the FTSE 350 REIT Index.
Fair values:
SAYE
No holding period
Contingent holding period
Two year holding period
SAYE 3 Year
29.6.18
£9.325
£7.57
3
15%
0.8%
-
-
1.8%
SAYE 5 Year
29.6.18
£9.325
£7.57
5
16%
1.0%
-
-
1.8%
LTIP
12.12.17
£9.985
Nil
3
16%
0.5%
19%
82%
-
SAYE 3 Year
SAYE 5 Year
LTIP (TSR)
LTIP (NAV)
£1.81
-
-
-
£1.95
-
-
-
-
£3.97
£3.89
£3.77
-
£9.99
£9.79
£9.49
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 101.
Shaftesbury
Annual
Report 2018
135
4Financial statementsNotes to the financial statements continued4 19 Share-based remuneration continued
Deferred annual share bonus scheme
At 1 October
Awarded
Exercised
At 30 September
20 Dividends
Final dividend for:
Year ended 30 September 2017
Year ended 30 September 2016
Interim dividend for:
Year ended 30 September 2018
Year ended 30 September 2017
Dividends paid in the year
Timing difference on payment of withholding tax
Dividends cash paid
2018
Shares
597,351
208,914
(207,397)
598,868
2017
Shares
491,804
221,283
(115,736)
597,351
2018
£m
25.1
-
25.5
-
50.6
-
50.6
2017
£m
-
21.3
-
22.0
43.3
1.2
44.5
Pence per share
PID
-
5.2p
8.3p
-
Ordinary
8.1p
2.35p
-
7.9p
A final dividend of 8.5p per share was recommended by the Board on 26 November 2018. Subject to approval by shareholders at the 2019 AGM, the final
dividend will be paid as an ordinary dividend on 15 February 2019 to shareholders on the register at 18 January 2019. The dividend totalling £26.1 million will
be accounted for as an appropriation of revenue reserves in the year ending 30 September 2019. See page 53 of the Strategic Report for commentary on
dividends.
The total distribution for the final dividend for the year ended 30 September 2017 of £25.1 million increased from £22.6 million, (the amount reported in the
2017 Annual Report), due to the increase in outstanding share capital as a result of the share placing in December 2017, prior to the payment of the
dividend in February 2018.
The trustee of the Company’s Employee Benefit Trust waived dividends in respect of 598,868 (2017: 597,351) ordinary shares during the year.
21 Cash flows from operating activities
Operating activities
Profit before tax
Adjusted for:
Lease incentives recognised (note 2)
Equity-settled remuneration (note 4)
Depreciation (note 4)
Investment property valuation surplus (note 8)
Profit on disposal of investment properties (note 5)
Net finance costs
Administrative charges, finance charges, and dividends received from subsidiaries settled
through intercompany indebtedness
Impairment of subsidiary (note 11)
Dividends received from the joint venture (note 10)
Share of (loss)/profit from the joint venture (note 10)
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
See note 15 for the cash flow movement in net debt.
Group
Company
2018
£m
175.5
(0.5)
0.8
0.4
(123.1)
(4.6)
31.2
-
-
-
1.1
80.8
(5.1)
0.8
76.5
2017
£m
301.6
0.5
1.4
0.3
(230.6)
(1.1)
10.7
-
-
-
(6.4)
76.4
(0.5)
0.8
76.7
2018
£m
73.5
-
0.8
0.4
-
-
1.7
(100.0)
13.4
(3.0)
-
(13.2)
0.1
(2.8)
(15.9)
2017
£m
57.7
-
1.4
0.3
-
-
(12.0)
(200.1)
144.9
(4.8)
-
(12.6)
(0.1)
(1.1)
(13.8)
Shaftesbury Annual Report 2018
136
Financial statements Notes to the financial statements continued 22 Performance measures
Earnings per share
Basic
Dilutive effect of share options
Diluted
Profit
after tax
£m
175.5
-
175.5
2018
Number
of shares
million
302.1
0.3
302.4
EPRA earnings per share
The calculations below are in accordance with the EPRA Best Practice Recommendations.
Basic
EPRA adjustments:
Investment property valuation surplus (note 8)
Profit on disposal of investment properties (note 5)
Movement in fair value of derivatives
Adjustments in respect of the joint venture:
Investment property valuation deficit/(surplus)
Deferred tax
EPRA earnings
EPRA adjusted earnings per share
EPRA earnings
Charge for share options (note 4)
EPRA adjusted earnings
Profit
after tax
£m
175.5
(123.1)
(4.6)
-
5.0
(1.1)
51.7
Profit
after tax
£m
51.7
0.6
52.3
2018
Number
of shares
million
302.1
302.1
2018
Number
of shares
million
302.1
302.1
Net asset value per share
The calculations below are in accordance with the EPRA Best Practice Recommendations.
Basic
Dilutive effect of share options
Diluted
Deferred tax*
EPRA NAV
Deferred tax*
Excess of fair value over carrying value of debt:
Secured term loans*
Mortgage bonds
EPRA NNNAV
2018
Number
of ordinary
shares
million
307.3
0.4
307.7
307.7
307.7
Net
assets
£m
3,033.0
0.5
3,033.5
16.7
3,050.2
(16.7)
(34.5)
32.0
3,031.0
Earnings
per share
pence
58.1
(0.1)
58.0
Earnings
per share
pence
58.1
(40.7)
(1.5)
-
1.6
(0.4)
17.1
Earnings
per share
pence
17.1
0.2
17.3
Net asset
value per
share
£
9.87
9.86
0.05
9.91
(0.05)
(0.11)
0.10
9.85
Profit
after tax
£m
301.6
-
301.6
Profit
after tax
£m
301.6
(230.6)
(1.1)
(22.0)
(2.6)
(0.1)
45.2
Profit
after tax
£m
45.2
1.4
46.6
Net
assets
£m
2,646.9
0.5
2,647.4
17.9
2,665.3
(17.9)
(40.0)
15.5
2,622.9
2017
Number
of shares
million
278.9
0.7
279.6
2017
Number
of shares
million
278.9
278.9
2017
Number
of shares
million
278.9
278.9
2017
Number
of ordinary
shares
million
279.0
0.8
279.8
279.8
279.8
Earnings
per share
pence
108.1
(0.2)
107.9
Earnings
per share
pence
108.1
(82.7)
(0.4)
(7.9)
(0.9)
-
16.2
Earnings
per share
pence
16.2
0.5
16.7
Net asset
value per
share
£
9.49
9.46
0.06
9.52
(0.06)
(0.14)
0.05
9.37
* Includes our 50% share of deferred tax and fair value of secured term loans in the Longmartin joint venture.
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.
Shaftesbury
Annual
Report 2018
137
4Financial statementsNotes to the financial statements continued4 22 Performance measures continued
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)
Total investment property revaluation surpluses
Wholly-owned portfolio revaluation surplus (note 8)
Longmartin joint venture revaluation (deficit)/surplus (note 10)
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
Operating profit before investment property disposals
and valuation movements (A)
Finance costs
Finance income
Net finance costs (B)
Interest cover (A/B)
2018
pence
952.00
991.00
39.00
16.40
55.40
5.8%
2018
£m
123.1
(5.0)
118.1
2017
Share
of joint
venture
£m
60.0
(0.6)
59.4
227.8
26.1%
7.9
2.7
-
2.7
2.9x
2017
pence
888.00
952.00
64.00
15.45
79.45
8.9%
2017
£m
230.6
2.6
233.2
Total
£m
1,019.8
(46.2)
973.6
3,646.7
26.7%
2,665.3
36.5%
82.1
35.5
(0.1)
35.4
2.3x
Wholly-
owned
business
£m
959.8
(118.5)
841.3
3,727.0
22.6%
80.1
32.0
(0.8)
31.2
2.6x
2018
Share
of joint
venture
£m
60.0
(1.3)
58.7
224.6
26.1%
7.0
2.8
-
2.8
2.5x
Total
£m
1,019.8
(119.8)
900.0
3,951.6
22.8%
3,050.2
29.5%
87.1
34.8
(0.8)
34.0
2.6x
Wholly-
owned
business
£m
959.8
(45.6)
914.2
3,418.9
26.7%
74.2
32.8
(0.1)
32.7
2.3x
For the wholly-owned group, the blended cost of debt is 3.15% (2017: 3.19%). This is calculated using the cost of drawn borrowings of 2.99% (2017: 2.99%)
plus the cost of commitment fees on undrawn bank facilities of 0.66% (2017: 0.69%). At 30 September 2018, the undrawn bank facilities totalled £225.0
million (2017: £275.0 million).
For total debt, the blended cost of debt is 3.22% (2017: 3.26%) and includes the impact of our share of debt in our joint venture of £60 million (2017: £60
million), upon which interest is charged at 4.43% (2017: 4.43%).
See page 51 in the Strategic Report for explanations of why we use these performance measures.
Shaftesbury Annual Report 2018
Shaftesbury Annual Report 2018
138
138
Financial statements Notes to the financial statements continued 23 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
2018
£m
104.8
262.7
155.9
145.1
668.5
2017
£m
96.1
241.5
144.5
107.8
589.9
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 23 to 29.
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
2018
£m
0.4
1.6
2.0
0.2
4.2
2017
£m
0.4
1.6
2.0
0.6
4.6
The Company leases its head office accommodation from a wholly-owned subsidiary.
24 Related party transactions
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 the joint venture:
Administrative fees receivable
Dividends receivable
Interest receivable
Amount due from the joint venture
2018
£m
10.5
83.8
6.3
0.6
0.4
46.6
(2.8)
0.1
3.0
0.1
3.9
2017
£m
11.4
177.3
12.8
1.4
0.4
482.7
(100.6)
0.1
4.8
-
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 97 to 107, and below, there were no other transactions with directors.
See note 17 for disclosure of related party transactions regarding the share placing during the year.
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the Group, is set out below. Further information regarding the remuneration
of individual directors is given in the Annual Remuneration Report on pages 97 to 107.
Directors' emoluments
Short-term employee benefits
Other long-term benefits
Share-based payments
2018
£m
2.9
0.8
0.4
4.1
2017
£m
2.8
0.8
1.2
4.8
Shaftesbury
Shaftesbury
Annual
Annual
Report 2018
Report 2018
139
139
4Financial statementsNotes to the financial statements continued4 Other information
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 22 and Strategic Report (pages 51 and 52)
Basic earnings per share
Adjusted earnings per share
Basic earnings per share
Note 22 and Strategic Report (page 53)
Net asset value per share
Net assets attributable to shareholders
Note 22 and Strategic Report (page 54)
Diluted net asset value per share
Net assets attributable to shareholders
Note 22
EPRA net assets and NAV
Net asset value return
Total portfolio
Revaluation surplus
Valuation growth
Net debt
Group LTV
Gearing
Blended cost of debt
Interest cover
Net assets
N/A
Note 22 and Strategic Report (pages 51 and 54)
Note 22 and Strategic Report (pages 51 and 54)
Investment properties
Strategic Report (pages 42 to 43 and 51)
Net surplus on revaluation of investment properties
Note 22 and Strategic Report (pages 42 and 54)
Net surplus on revaluation of investment properties
Strategic Report (pages 42 to 43)
Borrowings less cash and cash equivalents
Note 22 and Strategic Report (pages 51 and 56)
N/A
N/A
N/A
N/A
Note 22 and Strategic Report (pages 51 and 55 to 56)
Note 22 and Strategic Report (pages 51 and 56)
Note 22 and Strategic Report (pages 51 and 55 to 56)
Note 22 and Strategic Report (pages 51 and 55 to 56)
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 (in 2017), profits on disposal
of investment properties and deferred tax arising in our joint venture
Earnings per share
EPRA earnings per weighted average number of ordinary shares
Net assets
NAV per share
Triple net assets
Triple NAV (NNNAV)
Net Initial Yield (NIY)
Topped-up NIY
Vacancy
Cost ratio
Net assets adjusted to remove deferred tax arising in our joint venture
Diluted EPRA net assets per share
EPRA net assets adjusted to include the fair value of debt
Diluted triple net assets per share
Current annualised rental income less non-recoverable property costs as
a % of property valuation plus assumed purchasers’ costs
NIY adjusted to reflect expiry of rent-free periods and stepped rents
ERV of vacant space as a % of ERV of all properties
Total costs as a % of gross rental income - including direct vacancy cost
Total costs as a % of gross rental income - excluding direct vacancy cost
Page
137
2018
£51.7m
2017
£45.2m
137
137
137
137
137
143
143
46
141
141
17.1p
16.2p
£3,050.2m
£2,665.3m
£9.91
£9.52
£3,031.0m
£2,622.9m
£9.85
2.68%
2.84%
4.6%
28.0%
26.6%
£9.37
2.77%
2.89%
6.0%
26.9%
25.6%
As disclosed in note 1 to the financial statements, the Group’s properties are all located in London’s West End, and are all of a similar type. The properties
are typically mixed-use buildings with restaurants, leisure and retail on the lower floors and small offices and apartments on the upper floors. As the
properties share similar economic characteristics we consider them to be one operating segment. Like-for-like calculations of growth in values and rents
are therefore stated on an aggregated basis.
Shaftesbury Annual Report 2018
140
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
Vacant property costs
Share of joint venture vacant property costs
Total costs excluding vacant property costs
EPRA cost ratio (including vacant property costs)
EPRA cost ratio (excluding vacant property costs)
Note: We do not capitalise property nor administrative expenses.
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 126.
At 30 September 2018, we had 802 commercial and 545 residential tenants,
with no individual tenant representing a material amount of our current
annualised income. The ten largest commercial tenants represented just
10.7% 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 page 46.
Like-for-like growth in annualised current income and ERV is set out on
page 44. Like-for-like growth in rental income is set out on page 52.
Other information
Alternative
Performance
Measures
continued
Note
2
2
10
3
3
10
10
3
2018
£m
122.1
(9.3)
8.1
120.9
28.3
(9.3)
0.9
13.7
0.2
33.8
(1.4)
(0.3)
32.1
28.0%
26.6%
2017
£m
111.5
(8.1)
8.9
112.3
23.2
(8.1)
0.9
14.1
0.1
30.2
(1.1)
(0.3)
28.8
26.9%
25.6%
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 1.0% of portfolio value over the past five years. Included in
this are numerous small schemes, and no one scheme is material.
At 30 September 2018, we had one larger scheme, details of which are set
out on page 50. An overview of assets held for, or undergoing,
refurbishment is set out on pages 46 to 47.
EPRA capital expenditure
Group
Acquisitions
Investment property capital expenditure
- On acquisitions during the year
- On like-for-like portfolio
Joint venture (our 50% share)
Investment property capital expenditure
2018
£m
167.8
1.3
24.0
2.4
195.5
2017
£m
37.1
0.5
39.8
1.2
78.6
Details of acquisitions and capital expenditure in the year are set out on
pages 46 to 50.
Shaftesbury
Annual
Report 2018
141
55 Other information
Portfolio analysis
At 30 September 2018
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
Note
1,14
2,14
3,14
4
4
5
4
4
5
4
4
5
4
4
Carnaby
1,424.7
36%
44.8
57.2
61
Covent
Garden
1,013.7
26%
30.2
37.6
95
Chinatown
837.2
21%
24.1
31.6
86
Soho
300.8
7%
9.4
11.6
32
Longmartin1
224.6
6%
8.1
10.3
9
Total
portfolio
3,949.2
100%
121.5
154.0
114,000
178,000
221,000
62,000
48,000
623,000
39,000
21%
17%
10
97
39%
36%
9
97
62%
62%
11
57
42%
39%
9
37
180,000
147,000
83,000
44,000
16,000
470,000
73,000
46%
42%
4
28%
32%
4
20%
21%
4
22%
28%
3
304,000
88,000
25,000
39,000
10,000
466,000
102,000
27%
35%
4
109
12%
14%
4
214
4%
4%
3
149
17%
18%
2
68
67,000
133,000
97,000
37,000
25,000
359,000
55,000
6%
6%
21%
18%
14%
13%
19%
15%
Basis of valuation
At 30 September 2018
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
Shaftesbury Annual Report 2018
142
Note
Carnaby
2.81%
2.96%
3.56%
Covent
Garden
2.64%
2.78%
3.26%
Chinatown
2.47%
2.67%
3.34%
Soho
2.77%
2.90%
3.44%
3.40%-3.85%
3.35%-3.90%
3.40%-3.75%
3.40%-3.75%
£120-£153
£55-£178
£270-£420 (ZA)
£110-£145
3.30%-3.75%
3.00%-3.90%
3.40%-4.25%
3.40%-4.25%
£125-£535
£110-£480
£150-£365
£150-£305
3.85%-4.50%
4.00%-4.25%
4.25%
4.25%-4.50%
£58-£85
£50-£75
£43-£65
£53-£73
£53
£52
£44
£51
7
8
9
10
10
10
10
10
10
10
Fitzrovia
148.2
4%
4.9
5.7
23
51%
49%
8
10
16%
17%
5
7%
8%
2
53
26%
26%
Fitzrovia
2.82%
2.83%
3.31%
3.25%-3.65%
£93-£120
3.30%-4.35%
£100-£215
4.00%-4.35%
£48-£60
£58
Wholly-
owned
portfolio
3,724.6
94%
113.4
143.7
297
37%
35%
9
298
32%
33%
4
17%
20%
4
593
14%
12%
Wholly-
owned
portfolio
2.68%
2.84%
3.41%
14%
13%
13
22
34%
39%
3
36%
35%
5
75
16%
13%
Longmartin
2.99%
3.16%
3.82%
3.75%-4.00%
£90-£138
3.40%-4.15%
£94-£650
3.75%-4.00%
£63-£79
£52
At 30 September 2018
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
Number
Area – sq. ft.
% of current income
% of ERV
Average unexpired lease length – years
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
21%
17%
10
97
46%
42%
4
27%
35%
4
109
6%
6%
39%
36%
9
97
28%
32%
4
12%
14%
4
214
21%
18%
62%
62%
11
57
20%
21%
4
4%
4%
3
149
14%
13%
Note
1,14
2,14
3,14
Carnaby
1,424.7
36%
44.8
57.2
61
Covent
Garden
1,013.7
26%
30.2
37.6
95
Chinatown
837.2
21%
24.1
31.6
86
Fitzrovia
148.2
4%
4.9
5.7
23
Wholly-
owned
portfolio
3,724.6
94%
113.4
143.7
297
Longmartin1
224.6
6%
8.1
10.3
9
Total
portfolio
3,949.2
100%
121.5
154.0
114,000
178,000
221,000
62,000
48,000
623,000
39,000
51%
49%
8
10
37%
35%
9
298
14%
13%
13
22
Offices
Area – sq. ft.
304,000
88,000
25,000
39,000
10,000
466,000
102,000
180,000
147,000
83,000
44,000
16,000
470,000
73,000
16%
17%
5
32%
33%
4
34%
39%
3
67,000
133,000
97,000
37,000
25,000
359,000
55,000
26%
26%
14%
12%
16%
13%
7%
8%
2
53
17%
20%
4
593
36%
35%
5
75
At 30 September 2018
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.
Note
Carnaby
Chinatown
Covent
Garden
2.64%
2.78%
3.26%
2.81%
2.96%
3.56%
2.47%
2.67%
3.34%
3.40%-3.85%
3.35%-3.90%
3.40%-3.75%
3.40%-3.75%
£120-£153
£55-£178
£270-£420 (ZA)
£110-£145
3.30%-3.75%
3.00%-3.90%
3.40%-4.25%
3.40%-4.25%
£125-£535
£110-£480
£150-£365
£150-£305
3.85%-4.50%
4.00%-4.25%
4.25%
4.25%-4.50%
£58-£85
£50-£75
£43-£65
£53-£73
Average residential ERVs - £ per sq. ft. per annum
£53
£52
£44
£51
Fitzrovia
2.82%
2.83%
3.31%
3.25%-3.65%
£93-£120
3.30%-4.35%
£100-£215
4.00%-4.35%
£48-£60
£58
Wholly-
owned
portfolio
2.68%
2.84%
3.41%
Longmartin
2.99%
3.16%
3.82%
3.75%-4.00%
£90-£138
3.40%-4.15%
£94-£650
3.75%-4.00%
£63-£79
£52
Soho
300.8
7%
9.4
11.6
32
42%
39%
9
37
22%
28%
3
17%
18%
2
68
19%
15%
Soho
2.77%
2.90%
3.44%
4
4
5
4
4
5
4
4
5
4
4
7
8
9
10
10
10
10
10
10
10
Other information
Portfolio analysis
and Basis of
valuation
continued
Notes
1.
2.
3.
4.
5.
6.
7.
8.
9.
The fair values at 30 September 2018 (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.
Shaftesbury
Annual
Report 2018
143
55 Other information
Summary report by the valuers
To the directors of Shaftesbury PLC
In accordance with your instructions, we have undertaken a valuation of the
various commercial and residential freehold and long leasehold property
interests as at 30th September 2018 (the “Valuation Date”) held by
Shaftesbury Carnaby PLC, Shaftesbury Covent Garden Limited, Shaftesbury
Chinatown PLC, Shaftesbury Soho Limited, Shaftesbury AV Limited,
Shaftesbury CL Limited and Shaftesbury West End 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 9 November 2018 (“our Reports”). Our Reports
were prepared for accounts purposes.
All properties have been subject to external inspections between January
and October 2018 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 valuations 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 valuations 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 2017 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 2018 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 as retail agents by Shaftesbury
Soho Limited and Shaftesbury Carnaby PLC; this instruction ceased in 2017.
C&W acted as rent review surveyors on behalf of Shaftesbury CL Limited
during 2018 and are currently appointed as letting agents on behalf of
Shaftesbury Chinatown PLC in respect of restaurant accommodation in 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.
Shaftesbury Annual Report 2018
144
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 properties we have valued are
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].
Our opinion of the Fair Value of each of the properties and Properties has
been primarily derived using comparable recent market transactions on
arm’s length terms.
We have not made any allowance for vendor’s sale costs nor for any tax
liabilities which may arise upon the disposal of any of the properties or
Properties. We have made deductions to reflect purchasers’ normal
acquisition costs.
A full explanation of the Assumptions made in our valuations and details of
the sources of information are contained within our Reports.
The Company, its managing agents or professional advisers have provided
us with the floor areas of the remaining properties or parts of properties.
We have read some of the leases and related documents provided to us in
respect of the commercial properties. Where we have not read leases, we
have relied on tenancy information provided by the Company, its managing
agents or professional advisers.
Certain properties were subject to works of repair or refurbishment at 30th
September 2018, 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 £17,461,800 and details of the individual sums are included in our Reports.
Other information
Summary report
by the valuers
continued
The contents of our Reports including this summary report are confidential
to Shaftesbury PLC, Shaftesbury Covent Garden Limited, Shaftesbury
Carnaby PLC, Shaftesbury Chinatown PLC, Shaftesbury Soho Limited,
Shaftesbury AV Limited, Shaftesbury CL Limited and Shaftesbury West End
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
As referred to above, we have lotted together certain individual properties
to form a number of separate Properties. In the case of five Properties
which comprise a number of individual properties, the majority of such
properties are held freehold but certain of them are held on long leases. In
order to divide our valuation of these Properties between the categories of
freehold and long leasehold, we have undertaken notional apportionments
of value between the freehold elements and the long leasehold elements
which together comprise the relevant Properties. The amounts arising from
these notional apportionments of value have been included in the figures
representing the freehold and long leasehold categories below. The
amounts arising from the notional apportionments do not themselves
represent the Fair Value of the two elements.
The Subsidiary Companies own a number of properties on a freehold basis
where they also hold long leasehold interests within the freehold and have
not merged the interests. For the purposes of the freehold/long leasehold
split below, we have included such properties within the freehold category.
Having regard to the foregoing, we are of the opinion that the aggregates of
the Fair Values, as at 30th September 2018, 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 9 November 2018, were as follows:
Freehold Properties
Long leasehold
Properties
Total
£3,495,245,000
(Three billion, four hundred and ninety-five million,
two hundred and forty-five thousand pounds)
£231,740,000
(Two hundred and thirty-one million, seven hundred
and forty thousand pounds)
£3,726,985,000
(Three billion, seven hundred and twenty-six million,
nine hundred and eighty-five thousand pounds)
A long lease is one with an unexpired term in excess of 50 years.
Shaftesbury
Annual
Report 2018
145
55 Other information
Non-financial information statement
We are not required to comply with the new non-financial reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006.
However the table below, and information it refers to, is intended to help stakeholders understand our position on key non-financial matters. This builds on
existing reporting that we already do under the following frameworks: CDP, Disclosure and Transparency Rules, Guidance on the Strategic Report (UK
Financial Reporting Council), UN Global Compact, UN Sustainable Development Goals and UN Guiding Principles.
Reporting
requirement
Environmental
matters
Related CSR goal
The environmentally sustainable re-use
and management of existing buildings,
page 34
Employees
A fair and ethical framework for
employees and our supply chain, page 39
Policies and standards which
govern our approach1, 2
Further information
Sustainability policy
Environment, pages 36 to 37
Greenhouse gas reporting, page 109
Sustainability and stakeholders, pages
34 to 35
Anti-bullying and harassment policy
Diversity and inclusion, pages 39 and 81
Disability policy
Employees, pages 39 and 74 to 75
Equal opportunities policy
Health and safety, page 35
Health and safety policy
Nomination Committee report, pages
80 to 81
Human rights
A fair and ethical framework for
employees and our supply chain,
page 35
Modern Slavery and Human Trafficking
Statement
Statement of data protection principles
Modern slavery and human rights, page 35
Sustainability and stakeholders, pages
34 to 39
Social matters
Invest in our local community, page 38
A fair and ethical framework for
employees and our supply chain, page 39
Sustainability policy
Community Investment Committee
Terms of Reference
Sustainability policy
Supplier Code of Conduct
Community, page 38
Sustainability and stakeholders, pages
34 to 39
Anti-corruption
and anti-bribery
A fair and ethical framework for
employees and our supply chain, page 35
Bribery and anti-corruption policy
Audit Committee report, pages 82 to 85
Whistleblowing policy
Money laundering policy
Modern slavery and human rights, page
35
1 Certain group policies and internal guidelines are not published externally
2 Further information is available on our website, including our Supplier Code of Conduct
and our Sustainability Policy
Shaftesbury Annual Report 2018
146
Sustainability and stakeholders: pages 34 to 39
Business model and strategy: pages 10 to 11
Risk management: pages 57 to 58
Other information
Shareholder information
Corporate Timetable
Financial Calendar
Annual General Meeting and AGM statement
8 February 2019
2019 half year results
May 2019
Dividends and bond interest
Proposed 2018 final dividend:
Ex-dividend
Record date
Payment date
2019 interim dividend to be paid
Bond interest
17 January 2019
18 January 2019
15 February 2019
July 2019
31 March and
30 September 2019
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 our website or from the registrar.
Where we pay an ordinary dividend this will be treated in the same way as
dividends from non-REIT companies. The 2018 final dividend between will
be paid as an ordinary dividend.
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex, BN99 6DA
Telephone 0371 384 2294 (International +44 121 415 7047). Lines open
8.30am to 5.30pm, Monday to Friday (excluding public holidays in England
and Wales).
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 Company.
Secretary and registered office
Penny Thomas LLB (Hons), FCIS
22 Ganton Street
Carnaby
London W1F 7FD
Other information
Shaftesbury
Annual
Report 2018
147
55
Other information
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.
Building Research
Establishment Environmental
Assessment Method (BREEAM)
An environmental impact assessment
method for commercial buildings.
Performance is measured across a
series of ratings: Pass, Very Good,
Excellent and Outstanding
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.
Shaftesbury Annual Report 2018
148
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.
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 performance 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.
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.
Reversionary potential
The amount by which ERV exceeds
annualised current income,
measured at a valuation date.
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.
Design: SG Design (sg-design.co.uk)
Print: Park Communications on FSC® certified paper.
Park is an EMAS certified company and its Environmental
Management System is certified to ISO 14001.
100% of the inks used are vegetable oil based, 95% of press
chemicals are recycled for further use and, on average
99% of any waste associated with this production will be
recycled.
This document is printed on XPER, a paper sourced from
well-managed, responsible, FSC® certified forests. The
pulp used in this product is bleached using an Elemental
Chlorine Free (ECF) process.
This is a certified CarbonNeutral® publication. Emissions
generated during the manufacture and delivery of this
product have been measured and reduced to net zero
through a verified carbon offsetting project via The
CarbonNeutral Company. This is in accordance with The
CarbonNeutral Protocol, the global leading standard for
carbon neutrality.
Shaftesbury PLC
22 Ganton Street
Carnaby
London W1F 7FD
T: 020 7333 8118
shaftesbury.co.uk