making great places even better
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Annual Report 2019
Shaftesbury Annual Report 2019
Shaftesbury is a real estate investment trust which
invests exclusively in the liveliest parts of London’s
West End. Focused on food, beverage, retail and
leisure uses, our portfolio is clustered mainly in
Carnaby, Seven Dials and Chinatown, but also
includes substantial ownerships in east and west
Covent Garden, Soho and Fitzrovia.
Our purpose
Our culture
Our values
To curate vibrant and
thriving villages in the heart
of London’s West End.
Our open and inclusive
culture is one of tradition
and innovation.
At its core is a holistic approach to
making great places even better for
t(cid:731)e (cid:725)enefit of our sta(cid:734)e(cid:731)o(cid:735)ders(cid:671)
through fostering our areas and
providing vibrant and inspiring
e(cid:747)(cid:739)eriences for (cid:745)isitors(cid:671) occu(cid:739)iers(cid:671)
their customers and residents.
(cid:692)cross t(cid:731)e (cid:725)usiness(cid:671) (cid:746)e forge (cid:735)asting
re(cid:735)ations(cid:731)i(cid:739)s and (cid:739)artners(cid:731)i(cid:739)s(cid:671)
(cid:725)ased on res(cid:739)ect(cid:671) integrity and
trans(cid:739)arency(cid:673) (cid:714)e em(cid:725)race c(cid:731)ange(cid:671)
seek challenge and look to evolve
and improve.
(cid:714)e (cid:746)e(cid:735)come ne(cid:746) (cid:739)eo(cid:739)(cid:735)e(cid:671) (cid:725)usinesses(cid:671)
ideas and perspectives – everyone
has a voice and an impact.
(cid:693)y com(cid:725)ining our strengt(cid:731)s(cid:671) (cid:746)e
ac(cid:731)ie(cid:745)e success (cid:725)eyond (cid:739)rofit to(cid:685)
• make a positive difference;
(cid:997) de(cid:735)i(cid:745)er sustaina(cid:725)(cid:735)e(cid:671) (cid:735)ong(cid:672)term
(cid:725)enefits for our sta(cid:734)e(cid:731)o(cid:735)ders and
our people;
(cid:997) (cid:725)ui(cid:735)d a t(cid:731)ri(cid:745)ing (cid:746)or(cid:734)ing cu(cid:735)ture(cid:686) and
(cid:997) ma(cid:734)e a (cid:739)ositi(cid:745)e(cid:671) (cid:735)ong(cid:672)(cid:735)asting
contribution to London’s West End.
Page 36
Human
• Approachable
• Honest and open
• Fair and respectful
• Inclusive
Original
• Finding and nurturing talent
and new ideas
• Unique curation of our villages
• Creative thinking
Community minded
• Embedded in the local
community
• Connecting people and
businesses
• (cid:707)ublic benefit
Responsible
• Committed to the West End
• Cultivating and fostering
• Sustainable
Long term
• Long-term partnerships
• Long-term careers
• Making great places even better
These values are fundamental
to our (cid:725)e(cid:731)a(cid:745)iour(cid:671) decision ma(cid:734)ing
and the delivery both of our
purpose and strategic objectives.
Pages 36 to 45
Iconic villages
CARNABY
COVENT GARDEN
CHINATOWN
SOHO
FITZROVIA
Mix of uses
Food, beverage
and leisure
15.2 acres
and 1.9 acres owned in
joint venture
1.9m sq ft
commercial and residential
space and 0.3m sq ft in
joint venture
c. 600
buildings
Retail
(cid:706)ffices
Residential
(cid:664) of (cid:746)(cid:731)o(cid:735)(cid:735)y(cid:672)o(cid:746)ned (cid:739)ortfo(cid:735)io E(cid:709)(cid:713)
38%
31%
19%
12%
0.7m
sq ft
0.4m
sq ft
0.4m
sq ft
0.4m
sq ft
Talented and experienced team
34
employees
68%
female
32%
male
Strategic report
2019 summary
1
Our long-term business
2
Chief executive’s statement
3
Business model and strategy
6
Exceptional portfolio in the heart of London’s West End
8
Holistic long-term village curation
16
17
Focus on food, beverage, retail and leisure
25 Promoting our villages
Measuring success
26
29 Sustainability
31 Stakeholders
32 Environment
34 Social
36 Our people and culture - the ‘Shaftesbury Way’
48 Portfolio valuation report
51 Portfolio activity report
54 Financial report
58 Risk management
60 Principal risks and uncertainties
62 Viability statement
Nomination committee report
Governance
63 Our people
65 Our board
66 Governance at a glance
68 Corporate governance
75
78 Audit committee report
82
84
85 Remuneration policy
86
95 Directors’ report
97
98
Directors’ responsibilities
Independent auditor’s report
Annual remuneration report
Directors’ remuneration report
Remuneration at a glance
Financial statements
102 Group statement of comprehensive income
103 Balance sheets
104 Cash flow statements
105 Statements of changes in equity
106 Notes to the financial statements
Other information
124 Alternative Performance Measures (APMs)
126 Portfolio analysis
126 Basis of valuation
128 Summary report by the valuers
130 Non-financial information statement
130 Shareholder information
131 Glossary of terms
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11 years
average length of service
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shaftesbury.co.uk
follow @shaftesburyplc
Shaftesbury Annual Report 2019
Strategic report
Our long-term business
Impossible-to-replicate
portfolio
Long-term growth
prospects
• Clustered in the busiest parts of the
West End
• (cid:697)ocused on uses (cid:746)it(cid:731) a (cid:735)ong (cid:731)istory of
occupier demand exceeding availability
• Sma(cid:735)(cid:735) to medium(cid:672)si(cid:749)ed s(cid:739)ace (cid:746)it(cid:731)
competitive rental levels
Proven active
management strategy
to create value
• (cid:703)ong record of sustained gro(cid:746)t(cid:731) in
rental income
• (cid:703)ong(cid:672)term out(cid:739)erformance against
• (cid:693)enefit from gro(cid:746)t(cid:731) in (cid:703)ondon(cid:990)s
(cid:739)o(cid:739)u(cid:735)ation(cid:671) (cid:746)or(cid:734)force and (cid:745)isitor num(cid:725)ers
• Highly reversionary
• Consistent record of converting rental
t(cid:731)e (cid:746)ider rea(cid:735) estate sector
potential into contracted income
• Pi(cid:739)e(cid:735)ine of (cid:745)a(cid:735)ue(cid:672)accreti(cid:745)e sc(cid:731)emes
Pages 8 to 15
Pages 15, 49 to 50
Pages 6 to 7, 49, 52, 94
Experienced and
innovative
management team
• (cid:697)orensic (cid:734)no(cid:746)(cid:735)edge of t(cid:731)e (cid:714)est End
property and occupier markets
• Skilled in adapting our space to meet
occupiers’ evolving needs
Socially responsible
• Sustainable reuse of buildings
• Strong re(cid:735)ations(cid:731)i(cid:739)s (cid:746)it(cid:731) occu(cid:739)iers(cid:671)
local authorities and communities
• Open and inclusive culture
Resilience, stability and
low risk
• (cid:703)ong(cid:672)term out(cid:739)erformance t(cid:731)roug(cid:731)
economic and property cycles
• (cid:703)ong(cid:672)term gro(cid:746)t(cid:731) in (cid:739)ortfo(cid:735)io (cid:745)a(cid:735)ue
and total shareholder returns
• (cid:698)ro(cid:746)ing di(cid:745)idends
• (cid:711)a(cid:747)(cid:672)efficient (cid:709)E(cid:700)(cid:711) structure and
conser(cid:745)ati(cid:745)e financing
Pages 4, 8, 63 to 65
Pages 29 to 35, 52
Pages 8, 55, 56, 94, 130
10 year performance
210.3%
Total Shareholder Return
13.5% pa
Total Accounting Return1,5,6
11.4% pa
EPRA NAV growth1,5,6
4.2% pa
Growth in annualised
current income2,3,6
4.8% pa
ERV growth2,3,6
6.9% pa
Growth in rental income6
5.3% pa
Dividend per share growth6
2.9%
Average EPRA vacancy2,4
5.8%
Average ERV of space under
refurbishment2,4
1 An alternative performance measure: see page 124
2 Wholly-owned portfolio
3 Like-for-like
4 % of total ERV
5 No IFRS equivalent has been presented because these are “per share” metrics, for which there is no equivalent under IFRS
6 Compound annual growth
2
2
Shaftesbury Annual Report 2019
Strategic report
Chief executive’s statement
In a year dominated by domestic political
uncertainties and a slowing national economy,
the qualities of our portfolio, business model
and proven strategy, together, have delivered
a resilient performance.
Highlights of the year
• (cid:705)et (cid:739)ro(cid:739)erty income(cid:685) (cid:757)(cid:684)(cid:683)(cid:673)(cid:675)m (cid:670)(cid:679)(cid:673)(cid:680)(cid:664)
• Profi t for t(cid:731)e year(cid:685) (cid:757)(cid:677)(cid:681)(cid:673)(cid:675)m
• EPRA earnings1(cid:685) (cid:757)(cid:680)(cid:679)(cid:673)(cid:681)m ((cid:670)(cid:680)(cid:673)(cid:681)(cid:664))
• Commercial leasing activity2(cid:685) (cid:670)(cid:678)(cid:673)(cid:677)(cid:664) (cid:745)s (cid:677)(cid:675)(cid:676)(cid:683) E(cid:709)(cid:713)
• (cid:712)nder(cid:735)ying a(cid:745)erage occu(cid:739)ancy(cid:685) (cid:684)(cid:682)(cid:664)
• (cid:713)a(cid:735)ue(cid:672)en(cid:731)ancing asset management sc(cid:731)emes
across (cid:677)(cid:679)(cid:676)(cid:671)(cid:681)(cid:675)(cid:675) s(cid:740)(cid:673) ft(cid:673) of s(cid:739)ace2
• P(cid:735)anning consent for (cid:682)(cid:677) (cid:693)road(cid:746)ic(cid:734) Street sc(cid:731)eme
secured and (cid:746)or(cid:734)s commenced
• Seven Dials Market opened in Thomas Neal’s
Warehouse
• Centra(cid:735) Cross no(cid:746) (cid:684)(cid:678)(cid:664) (cid:735)et or under offer
• (cid:714)(cid:731)o(cid:735)(cid:735)y(cid:672)o(cid:746)ned (cid:739)ortfo(cid:735)io (cid:745)a(cid:735)uation(cid:685) (cid:757)(cid:678)(cid:673)(cid:683)(cid:725)n ((cid:672)(cid:675)(cid:673)(cid:677)(cid:664))3
(cid:672) E(cid:709)(cid:713) gro(cid:746)t(cid:731)3(cid:685) (cid:678)(cid:673)(cid:677)(cid:664)
(cid:672) (cid:709)e(cid:745)ersionary (cid:739)otentia(cid:735)(cid:685) (cid:757)(cid:678)(cid:677)(cid:673)(cid:681)m
• Longmartin(cid:680) (cid:739)ro(cid:739)erty (cid:745)a(cid:735)uation(cid:685) (cid:757)(cid:675)(cid:673)(cid:677)(cid:725)n ((cid:672)(cid:683)(cid:673)(cid:680)(cid:664))3
• (cid:705)et assets(cid:685) (cid:757)(cid:678)(cid:673)(cid:675)(cid:725)n ((cid:672)(cid:675)(cid:673)(cid:684)(cid:664))
• EPRA NAV per share1(cid:685) (cid:757)(cid:684)(cid:673)(cid:683)(cid:677) ((cid:672)(cid:675)(cid:673)(cid:684)(cid:664))
• (cid:711)(cid:731)ree(cid:672)year strategic (cid:739)eo(cid:739)(cid:735)e (cid:739)(cid:735)an im(cid:739)(cid:735)emented
• Community in(cid:745)estment(cid:685) (cid:757)(cid:675)(cid:673)(cid:683)m ((cid:676)(cid:673)(cid:680)(cid:664) of EP(cid:709)(cid:692) earnings)
• (cid:697)or t(cid:731)e t(cid:731)ird year(cid:671) to(cid:739) of t(cid:731)e (cid:697)(cid:711)SE (cid:677)(cid:680)(cid:675) in t(cid:731)e
(cid:699)am(cid:739)ton(cid:672)(cid:692)(cid:735)e(cid:747)ander re(cid:745)ie(cid:746) for t(cid:731)e (cid:731)ig(cid:731)est fema(cid:735)e
representation on the executive committee and
direct reports
1 An alternative performance measure: see page 124
2 Wholly-owned portfolio
3 Like-for-like
4 % of total ERV, excluding assets held for, or undergoing, refurbishment
5 Our 50% share
6 New West End Company
Our carefully-curated and managed locations continue to enjoy sustained,
broad-based occupier demand for space, attracted by the popular, lively and
distinctive West End destinations we create and the millions who visit throughout
the year.
Profi t for the year ended 30 September 2019 amounted to £26.0 million.
EPRA earnings1 grew by 5.6% over the year to £54.6 million, and EPRA
earnings per share1 increased by 4.1% to 17.8 pence. The principal driver
of this growth was a 4.5% increase in net property income to £98.0 million.
At 30 September 2019, EPRA NAV1 stood at £9.82, down 9 pence per share
(0.9%) over the year. This decrease was the result of defi cits arising from
revaluations of the combined portfolio, net of disposal profi ts, totalling
£31.7 million, equivalent to 10 pence per share. The valuation of our
wholly-owned portfolio was broadly fl at, showing a like-for-like decline
of just 0.2%. Property owned by our Longmartin joint venture fell in value
by 8.5%, principally due to a 19.4% write down of its retail, principally large
shops on Long Acre, where the valuers advise, over the year, ERVs have
fallen by 14% and yields have moved out by 25 basis points.
We have continued our long record of converting our portfolio’s reversionary
potential into contracted income. The cash fl ow and earnings this generates
supports long-term shareholder value creation and a growing dividend
stream. The Board is recommending a fi nal dividend of 9.0p, an increase
on last year’s fi nal dividend of 5.9%. This will bring the total dividend for
the year to 17.7p, up 5.4% on 2018.
Economic backdrop
Uncertainties stemming from Brexit and the political impasse in Parliament,
which have continued throughout the year, are weighing on UK business
and consumer confi dence, resulting in low levels of growth and investment
nationally. At the same time, trends in consumer spending patterns and
structural changes in traditional, national retailing, resulting from developments
in technology and logistics, continue to have a signifi cant impact on retailers’
space requirements and their appetite to take on new commitments.
London’s status as a global destination for business and visitors, and the
breadth and scale of its economy, means it is not solely reliant on the
fortunes of the UK economy. Its unique features, and those of the West End
in particular, underpin the resilience of our portfolio and continue to provide
a considerable degree of insulation from national economic headwinds.
Our portfolio benefi ts from the West End’s exceptional volume of daily
visitors, unmatched by any other UK location. With an estimated 200+
million visits per year, its catchment comprises a huge local workforce,
nearly nine million Londoners and a similar number in the Home Counties
who can easily visit for a day, as well as domestic and international tourists.
This creates a seven-days-a-week trading environment for our occupiers,
with access to an affl uent, diverse customer base.
The West End continues to attract huge investment in its infrastructure and
buildings by public bodies and landowners, as well as from businesses who
are based here. We benefi t from these commitments by others, which are
bringing public realm and environmental improvements, modern offi ces to
support the growth of the local working population, more hotels and new
shopping and leisure choices, all of which will enhance the West End’s appeal
and footfall. The current plans for the Oxford Street District, alone, are
expected to deliver £2.9 billion of new investment over the next three years6.
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Shaftesbury Annual Report 2019
Strategic report Chief executive’s statement
Occupational market trends
(cid:697)ood(cid:671) (cid:725)e(cid:745)erage(cid:671) retai(cid:735) and (cid:735)eisure(cid:772) ((cid:681)(cid:684)(cid:664) of E(cid:709)(cid:713))
Trading conditions in our locations remain good. Our food, beverage and
retail tenants are, on average, reporting year-on-year turnover growth.
In common with businesses generally, cost pressure and staff shortages
continue to present operational challenges.
Our high-footfall and spending locations continue to attract robust demand
for space from a wide range of domestic and international occupiers. This is
in contrast to declining interest reported across high streets and shopping
centres, as national retail and restaurant chains reduce their trading space,
or abandon under-performing locations. We have been largely unaffected
by widely-reported national retail and restaurant restructurings and failures,
with tenant insolvencies during the year accounting for less than 2% of ERV.
Where space has been handed back, it has re-let well.
We have a reputation as an innovative landlord with a consistent approach
to curating our villages and a focus on creating an environment in which
our tenants can prosper. Our proven strategy is based on a dynamic mix
of uses, with careful occupier selection focused on a differentiated,
mid-market offer, rather than formulaic formats or high-end brands.
The success of our areas owes much to our preference for introducing
interesting new concepts over covenant-led criteria, and brands that are
creative, forward-thinking and adapt to fast-moving trends. Our ownership
clusters give occupiers confidence that our strategy and standards will be
rigorously maintained, unlike streets with competing owners and no clear
direction.
An important aspect of our strategy, which is much valued by our tenants, is
the promotion of our locations to the widest audience. Working closely with
occupiers, our events, marketing and social media campaigns raise the
profile and awareness of our areas with the aim of growing visitor numbers
and spending, benefiting their businesses. We are currently trialling a data
capture project in Seven Dials which will provide us with greater insight on
trading conditions, footfall patterns and visitor demographics. This
information, which will be shared with our occupiers, will be useful in both
targeting our consumer marketing and our tenant selection process.
Across our streets, retail rental levels are generally modest in relation to
those nearby, and the space we provide is generally smaller, resulting in
lower fit out and accommodation costs for occupiers.
(cid:706)ffices and residentia(cid:735)(cid:772) ((cid:678)(cid:676)(cid:664) of E(cid:709)(cid:713))
Demand for the office accommodation we provide remains good. Our lively
locations and competitive rents particularly attract smaller businesses from
across the creative sectors. Occupancy is high and we have seen rental
growth over the year. Responding to growing demand for self-contained,
“plug and play” space, this year, we have successfully trialled a fitted and
cabled concept, let on short, simple and flexible leases.
With negligible vacancy throughout the year, our residential portfolio of
610 studios and small apartments continues to deliver reliable cash flows.
(cid:679)
(cid:679)
Evolution of our portfolio
Our strategy has always focused on constantly adapting our buildings, through
reconfiguration or change of use, enabling us to provide accommodation which
meets both current occupier requirements and anticipates market trends. We
are always keen to take back under-utilised space in our buildings, often radically
changing how that space is used, enhancing its long-term income prospects.
Examples include:
• Kingly Court, which, during our 22-year ownership, has changed from small
offices and workshops, first to a retail-led courtyard and now to a vibrant
dining hub;
• In Chinatown, for many years we have been introducing alternative uses
in under-utilised upper floors, whilst improving trading space on lower
trading floors;
• Demand for very small, inflexible offices has been in long-term decline,
so we have responded by converting low-grade space, which cannot be
brought up to modern standards, to residential accommodation for rent,
to meet growing numbers seeking to live in our lively locations;
• Across the portfolio, we continually respond to trends in food, beverage
and retail and occupier space requirements, either increasing or reducing
trading area by combining or dividing units, or adding or removing first
floors and basements.
Whilst we continue to have retailers upsizing, renewing leases early or opening
concepts in other of our villages, this year it has become increasingly apparent
that a growing number now prefer to operate from smaller space, reducing
their overheads and rent commitments. The flexibility afforded by our buildings,
and our long experience and skills in adapting space, mean we are able to
meet this current change in appetite for larger space by reducing the size of
our bigger shops, where appropriate. During the year, we completed schemes
to repurpose or resize retail space across 49,000 sq. ft., and, currently, we
have identified a further 23,000 sq. ft., subject to planning consents.
In response to the growing interest and spending on eating out and
socialising, which are an important part of any visit to the West End, over
recent years, our strategy has been to increase the number of interesting
casual dining and leisure concepts in our popular and busy locations.
Our 315 restaurants, cafés, pubs and bars are important drivers of footfall,
dwell-time and trading in our villages and now account for 38% of our ERV2,
up from 27% ten years ago. Over that same period, the proportion of ERV
from retail2 has fallen from 45% to 31%.
Portfolio activity
This has been another busy year for leasing activity, with commercial and
residential transactions2 of £33.5 million, an increase of £2.1 million over last
year. On average, commercial rents achieved exceeded ERVs twelve months
earlier by 3.2%, while lease incentives have remained broadly unchanged.
Average letting times in the year have been largely in line with last year and
underlying occupancy remains around 97%.
During the year, capital investment in our portfolio2 totalled £30.9 million, as
we progressed a number of refurbishment schemes, which will deliver both
individual and compound long-term benefits to our holdings. At 30 September
2019, projects underway2 accounted for 10.4% of portfolio ERV. This included
4.1% at our larger scheme at 72 Broadwick Street, Carnaby, which is due to
complete in phases from late 2020. Other schemes accounted for £9.4
million of portfolio ERV, of which £7.7 million is expected to complete in the
coming year. Whilst this will increase EPRA vacancy in the short term, once let,
they will make an important contribution to earnings over the medium term.
General uncertainty has led to an even greater reluctance of owners to sell
their buildings. In the absence of financial pressures, they prefer to hold
assets which offer long-term security and good growth prospects. Despite
the low levels of investment market activity, we have secured acquisitions
totalling £47.0 million, and have taken advantage of investor demand to sell
two non-core assets, realising net proceeds of £14.3 million, 24.3% above
their previous valuation.
Shaftesbury Annual Report 2019
Strategic report
Chief executive’s statement
En(cid:745)ironment(cid:671) socia(cid:735) and go(cid:745)ernance
We have always sought to be a good corporate citizen. As a substantial
landowner in high-profi le parts of the West End, we have responsibilities
to our wide range of stakeholders. This year, we have undertaken extensive
work, involving all our staff and the Board, to defi ne the “Shaftesbury Way”.
This articulates our purpose, values and culture and has been valuable in
engaging the entire team in thinking about who we are, what we stand for,
how we are perceived by our stakeholders, and what they expect from us.
It has also identifi ed the things we do well and what we can do better.
Importantly, it has been a cornerstone of the staff engagement and
development programmes we have started this year.
We are conscious that we must maintain our eff orts to minimize the
environmental impact of our business and portfolio of mainly older buildings.
Their heritage is important to the fabric and ambience of the West End and
we continue to address and improve their energy performance. We are now
turning our attention to our occupiers and how they use the space we provide.
We aim to help them address sustainability in their businesses, harnessing our
particular knowledge and experience, so they meet our expectations as
responsible property owners. We also coordinate our eff orts with neighbouring
owners and local authorities to tackle wider West End issues, such as air quality,
congestion and biodiversity.
Our ethos has always been to be an engaged, open, and long-term, trusted
and supportive neighbour, helping to address social and other issues which
can have an adverse impact on the local community. Our annual community
partners’ breakfast drew 36 local groups and organisations, with whom we work
closely and support throughout the year.
Looking ahead
The mood of uncertainty, which has grown since the 2016 EU referendum, may
yet take some time to improve, and current forecasts for the national economy
do not show any sign of return to confi dence and optimism amongst businesses
and consumers. The structural changes facing national retail are unlikely to
abate, tempering retailer demand for space other than in the busiest locations.
By their nature, qualities and international appeal, London and the West End are
much less aff ected by current national concerns, and their prospects for long-term
growth and investment remain strongly positive. Our villages, in the popular heart
of the West End, provide a character and variety which traditional high streets and
shopping centres are unable to match, attracting exceptional footfall and seven-
days-a week trading. Our skill in curating distinctive, prosperous destinations,
which combine authentic experiences and innovative choices, is complemented
by our long experience in continually adapting our buildings to meet trends in
demand, occupier requirements and stringent environmental standards.
Our proven strategy, an impossible-to-replicate resilient portfolio, stable long-term
fi nancing and, most importantly, an experienced, enthusiastic and entrepreneurial
team, guided by a responsible culture and embedded values, together provide
the ingredients for the continued long-term success of this business.
Brian Bickell
25 November 2019
Areas of focus for the coming year
• Continue to de(cid:735)i(cid:745)er gro(cid:746)t(cid:731) in E(cid:709)(cid:713)s
• Convert portfolio reversionary potential
into contracted income and cas(cid:731) (cid:1026) o(cid:746)
• Maximise portfolio occupancy
• See(cid:734) out ne(cid:746) food(cid:671) (cid:725)e(cid:745)erage(cid:671) retai(cid:735) and
leisure concepts to bring to our villages
• Progress sc(cid:731)eme at (cid:682)(cid:677) (cid:693)road(cid:746)ic(cid:734) Street
• Ensure t(cid:731)e si(cid:749)e and confi guration of s(cid:739)ace
(cid:746)e offer re(cid:1026) ects occu(cid:739)ier re(cid:740)uirements
• Identify opportunities to repurpose space
to introduce alternative uses
• Identify potential public realm
improvements
• Deliver on strategic people plan priorities
• Improve portfolio sustainability and energy
effi ciency
• Aim for BREEAM Very Good ratings for all
sc(cid:731)emes o(cid:745)er (cid:757)(cid:676) mi(cid:735)(cid:735)ion
• Increase tenant engagement on
sustainability goals
• Maintain rankings in key ESG indices
• Continue investing in our local
communities
2019 General Election and Brexit
A General Election was announced in early November, which is to be held on 12 December 2019. The UK’s departure from the EU has been postponed
until 31 January 2020. The outcome of the election will determine the next stages of the Brexit process.
An agreement has been reached between the Government and the EU on the terms on which the UK will leave the EU, but the legislation to enact
it cannot be passed until the new Parliament sits after the election. The agreement provides for a transition period to 31 December 2020, but
extendable to 31 December 2022 if both parties agree, during which the UK’s future trading and other arrangements are to be negotiated.
At the time of preparing this Annual Report, there remains a risk of a “no-deal” Brexit, which could result in short-term disruption to business supply
chains. It may also have a negative impact on sterling and business and consumer confi dence. Other than the non-binding political declaration now
agreed between the parties, the detail and implications of the UK’s future arrangements with the EU will not become clear until negotiations have
progressed. The parties have stated a desire to conclude those negotiations by December 2020.
Principal risks and uncertainties: pages 60 to 61
(cid:680)
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Strategic report
Business model and strategy
Our purpose
To curate vibrant and thriving villages in the heart of London’s West End
our
resources
our
activities
Exceptional portfolio
Pages 8 to 15
Experienced team
Pages 63 to 65
Stakeholder relationships
Page 31
Financial resources
Page 57
Underpinned by
Forensic knowledge
of the West End
Pages 63 to 65
Effective governance
and risk management
Pages 58 to 59 and 63 to 94
Culture and values
Pages 36 to 45
Prudent
financial
management
Page 57
Reuse
and improve
buildings
Page 52
Holistic
long-term
village
curation
Page 16
Invest
exclusively in
the West End
Pages 8 to 15
Invest
in staff
welfare and
development
Pages 36 to 47
Focus
on food,
beverage,
retail and
leisure
Page 17
Focus on
sustainability
and
stakeholders
Pages 29 to 35
(cid:681)
(cid:681)
Business model and strategy
Our purpose
To curate vibrant and thriving villages in the heart of London’s West End
Shaftesbury Annual Report 2019
Strategic report
Business model and strategy
creating value
through. . .
Growing
footfall and
spending
Space which
meets needs
of occupiers
Sustained
demand
High
occupancy
. . . to meet our
long-term strategic
objectives
Long-term growth in rents
and portfolio value
Grow recurring earnings
an(cid:727) cas(cid:731) (cid:1026) o(cid:746)
Attract, develop and retain
talented people
Minimise environmental
impact
Extending
useful life
of buildings
Developing
and innovative
team
Deliver sustainable, long-term
(cid:725)enefi ts for o(cid:744)r sta(cid:734)e(cid:731)ol(cid:727)ers
Positive, long-lasting
contribution to
London’s West End
Value creation and success against our long-term objectives
are measured using (cid:702)(cid:707)(cid:700)s(cid:671) which are re(cid:1026) ected in remuneration
Pages 26 to 28
(cid:682)
(cid:682)
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Shaftesbury Annual Report 2019
Strategic report
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.
Mi(cid:747)ed(cid:672)use (cid:725)ui(cid:735)dings (cid:746)it(cid:731)
considerable management
(cid:1026) e(cid:747)i(cid:725)i(cid:735)ity
Our areas 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. As a consequence, there
is limited opportunity for large-scale redevelopment to
increase the supply of new accommodation materially,
particularly at lower-fl oor levels. However, our portfolio of
mostly smaller, mixed-use buildings provides considerable
management fl exibility, including the ability to reconfi gure
space and change uses, enabling our accommodation
to adapt to changing occupier demand. Signifi cantly,
with our focus on uses which reduce our exposure to
obsolescence, capital expenditure is modest, an
important factor in long-term shareholder value creation.
Focus on food, beverage, retail and leisure: page 17
Portfolio activity report: page 51
Impossible to replicate
The buildings we seek to acquire are typically in
long-term private ownership and existing owners are
reluctant to sell. Consequently, it would be virtually
impossible, now, to replicate a portfolio such as ours in
the West End.
Portfolio valuation: page 49
Sustained renta(cid:735) gro(cid:746)t(cid:731) and
(cid:735)ong(cid:672)term out(cid:739)erformance
Our investment strategy was born out of our experience
in the severe property recession of 1990 to 1993. In contrast
to national conditions, our then modest holdings in
Chinatown saw sustained tenant demand, and resilient
rental levels and cash fl ows. 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
fi nancial crisis of 2007 to 2010.
Since we adopted this strategy, we have identifi ed
well-located areas in the West End, where footfall
potential is good but rents are low, often because
they have suff ered from fragmented ownership, lack
of investment and the absence of a coherent strategy
for uses and tenant mix. Our mixed-use portfolio has
grown to c. 600 buildings close to the West End’s major
employment locations, transport hubs and visitor
attractions. Underwritten by an exceptionally resilient
location, it has delivered sustained rental growth and
long-term outperformance in capital values and total
shareholder returns.
Why London’s West End?: page 15
Com(cid:739)ounded (cid:725)enefi ts of
o(cid:746)ners(cid:731)i(cid:739) c(cid:735)usters
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 benefi ts of individual
improvements we make, such as enhanced tenant mix,
improved footfall and spending, and higher rental
tones, across our nearby holdings.
Holistic long-term village curation: page 16
Food, beverage and leisure
Retail
(cid:706)ffi ces
Residential
38%
31%
19%
12%
£149.7m ERV3
1 Combined portfolio, including our 50% share of the Longmartin joint venture
2 By value
3 Wholly-owned portfolio
(cid:683)
(cid:683)(cid:683)(cid:683)
1
(cid:757)(cid:679)(cid:673)(cid:675)(cid:725)n
CARNABY
(cid:679)(cid:673)(cid:683) (cid:692)C(cid:709)ES
page 10
36%
of portfolio2
COVENT
GARDEN
(cid:679)(cid:673)(cid:683) (cid:692)C(cid:709)ES
page 11
26%
of portfolio2
CHINATOWN
3.2 ACRES
page 12
21%
of portfolio2
SOHO
(cid:676)(cid:673)(cid:680) (cid:692)C(cid:709)ES
page 13
8%
of portfolio2
FITZROVIA
0.9 ACRES
page 14
4%
of portfolio2
LONGMARTIN
1.9 ACRES
page 11
5%
of portfolio2
H I G H H O L B O R N
GOODGE STREET
OXFORD STREET
TOTTENHAM COURT ROAD
REGENT STREET
BRUTON STREET
SHAFTESBURY AVENUE
PICCADILLY
LONG ACRE
STRAND
HAYMARKET
DRURY LANE
CHARING CROSS ROAD
TRAFALGAR SQUARE
HIGH HOLBORN
MONMOUTH STREET
THE THAMES
BT TOWER
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C E N T R E P O I N T
O X F O R D S T R E E T
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CENTRE POINT
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ENGLISH
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OPERA
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TRAFALGAR
SQUARE
THE THAMES
Shaftesbury Annual Report 2019
Strategic report
Exceptional portfolio in the heart of London’s West End
BT TOWER
T
GOODGE STREET
T
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Over 33 years to accumulate
and virtually impossible to replicate
15.2 acres and 1.9 acres owned
in joint venture
G
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c. 600 buildings3
iconic, high footfall locations
clustered in
FITZROVIA
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A
C E N T R E
P O I N T
O X F O R D S T R E E T
OXFORD
CIRCUS
C O M E T O
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CARNABYST
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CARNABY
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CENTRE POINT
TOTTENHAM
COURT ROAD
C
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SEVEN DIALS
R
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R N
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OPERA
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AFTESBU R Y
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CHINATOWN
LEICESTER
SQUARE
PICCADILLY CIRCUS
PICCADILLY
CIRCUS
H
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1.9 million sq ft
of commercial and residential space and
0.3m sq ft held in joint venture
ENGLISH
NATIONAL
OPERA
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COLISEUM
TRAFALGAR
SQUARE
CHARING CROSS
100% of our portfolio is close to an
Underground/Elizabeth Line station
THE THAMES
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OXFORD STREET
TOTTENHAM COURT ROAD
REGENT STREET
BRUTON STREET
SHAFTESBURY AVENUE
PICCADILLY
LONG ACRE
STRAND
HAYMARKET
DRURY LANE
CHARING CROSS ROAD
TRAFALGAR SQUARE
HIGH HOLBORN
MONMOUTH STREET
THE THAMES
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Strategic report
Carnaby
36% of combined portfolio1
Carnaby is an iconic shopping and
dining destination, a few minutes from
both Oxford Circus and Piccadilly Circus.
Famous for its history as the centre of
“Swinging Sixties London”, Carnaby has
reinvented itself throughout the decades.
Today, its 14 streets are filled with an eclectic
mix of shops, restaurants, cafés and bars, and
attract footfall estimated at over 40 million
people each year. Our ownership covers 4.8 acres.
Carnaby’s shops showcase international and
British labels, from flagships to independent
brands and new concepts. It is also home to
a large cluster of restaurants, cafés and bars,
centred on Kingly Court and Kingly Street,
with an all-day offer.
1 By value
2 Wholly-owned portfolio
Food, beverage
and leisure
% of ERV
Retail
(cid:706)ffices
Residential
23%
40%
31%
6%
167,000
sq ft
178,000
sq ft
271,000
sq ft
69,000
sq ft
Portfolio analysis: page 126
£60.8m ERV2
carnaby.co.uk
follow carnabylondon
central hub and icon of London
and is now at the centre of the
“ Carnaby has always been a
green London movement ”
Jaime Winstone, Actor
10
Shaftesbury Annual Report 2019
Strategic report
“ Seven Dials is full of
independent brands
and boutiques. A well-
travelled person who
knows more about
design tends to gravitate
towards Seven Dials as
they want to fi nd
exclusive products ”
Gautam Sinha, Nappa Dori
Covent Garden
31% of combined portfolio1,2
Famous for its historic street patterns
and architecture, and home to half of
London’s West End theatres, Covent
Garden is a popular destination for
visitors and Londoners. It also has a
(cid:1026) ourishing residential communit(cid:748)(cid:673)
Our wholly-owned holdings, extending to
4.8 acres, are centred on Seven Dials but
also include the Coliseum and Opera
Quarter restaurant districts, in west and
east Covent Garden.
Seven Dials is a historic village in north
Covent Garden, close to Soho and the
Tottenham Court Road transport hub.
Attracting estimated annual footfall of
over 30 million, its seven interconnecting
streets showcase a wide range of
independent boutiques, international
fashion labels, heritage brands, as well
as a diverse selection of interesting
restaurants, cafés and bars.
The Longmartin joint venture, in which
we own 50%, owns a 1.9 acre cluster
of mixed-use buildings, centred on
St Martin’s Courtyard in Covent Garden.
This off ers a range of fashion, beauty,
lifestyle and wellbeing brands, alongside
9 restaurants, 102,000 sq. ft. of offi ce
space and 75 apartments.
Food, beverage
and leisure
% of ERV3
Retail
(cid:706)ffi ces
Residential
37%
31%
14%
18%
203,000
sq ft
130,000
sq ft
88,000
sq ft
135,000
sq ft
£39.0m ERV3
Portfolio analysis: page 126
sevendials.co.uk
stmartinscourtyard.co.uk
follow @shaftesburyplc
1 By value
2 % includes our 50% share of property held by Longmartin
3 Wholly-owned portfolio
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Chinatown
21% of combined portfolio1
Chinatown is a bustling village with
a large far-eastern community at
the heart of London’s West End
entertainment district, next to
Leicester Square and Shaftesbury
Avenue, and close to Piccadilly Circus.
Its large concentration of restaurants and
cafés offers an evolving mix of traditional
and modern Chinese and pan-Asian
culture and cuisines.
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.
Food, beverage
and leisure
% of ERV
63%
Retail
(cid:706)ffices
Residential
20%
3%
14%
213,000
sq ft
79,000
sq ft
26,000
sq ft
100,000
sq ft
Portfolio analysis: page 126
£31.8m ERV2
c(cid:731)inato(cid:746)n(cid:673)co(cid:673)u(cid:734)
follow C(cid:731)inato(cid:746)n(cid:703)ondon
1 By value
2 Wholly-owned portfolio
“ As Chinatown is London’s
only destination where
the East truly meets the
West, it is the perfect fit
for our brand ”
Emily Foo, co-founder of Taiyakiya
12
including wonderful neighbouring Swedish
fashion businesses, makes it the perfect setting
“ Berwick Street’s varied and cutting-edge shops,
for our fi rst London Söderberg café ”
Åsa Penman, Söderberg
Soho
8% of combined portfolio1
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South of Oxford Street and between
Carnaby and Seven Dials, Soho is
home to many creative businesses,
independent boutiques, iconic
restaurants, cafés, bars, and clubs.
It has a large residential community.
By day, Soho off ers 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 proximity to the West End’s
main leisure and cultural attractions, makes
it a popular destination both for visitors and
the West End’s large working population.
Extending to 1.5 acres, our holdings in Soho
are centred on Berwick Street, Broadwick
Street and Brewer Street.
1 By value
2 Wholly-owned portfolio
Food, beverage
and leisure
% of ERV
Retail
(cid:706)ffi ces
Residential
38%
29%
18%
15%
63,000
sq ft
43,000
sq ft
40,000
sq ft
37,000
sq ft
£12.1m ERV2
thisissoho.co.uk
follow thisissoho
Portfolio analysis: page 126
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Shaftesbury Annual Report 2019
Strategic report
Fitzrovia
4% of combined portfolio1
To the north of Oxford Street and close
to Tottenham Court Road, Fitzrovia is
London’s oldest dining district,
renowned for its abundance of small
restaurants, bistros, cafés, pubs and
bars. Its large residential, student and
working populations add to the area’s
buzz and cosmopolitan feel.
Our ownerships extend to 0.9 acres on, or
close to, Charlotte Street and Goodge Street.
Food, beverage
and leisure
Retail
% of ERV
(cid:706)ffices
Residential
50%
16%
8%
26%
51,000
sq ft
16,000
sq ft
10,000
sq ft
27,000
sq ft
£6.0m ERV2
1 By value
2 Wholly-owned portfolio
Portfolio analysis: page 126
“ It’s been great to see Fitzrovia develop
into the cool “neighbourhood” it is now.
It has its own, quite chilled, vibe and is
becoming a real foodie hotspot, with
independent restaurants and bars
popping up all over ”
Ben Tish, Norma London
(cid:676)(cid:679)
Shaftesbury Annual Report 2019
Strategic report
Exceptional portfolio in the heart of London’s West End
Why London’s West End
London
The West End
8.9 million
London’s population1
c. 23%
contribution to UK GVA2
350 million domestic
and international visits3 in 2018
19.1 million overseas visits
to London3 in 2018
(cid:706)ne of t(cid:731)e (cid:746)or(cid:735)d(cid:990)s (cid:739)rinci(cid:739)a(cid:735) cities
The largest city in Western Europe, London is a global creative, fi nancial and
commercial centre and one of the world’s most popular visitor destinations.
Its economy generates nearly 23% of UK Gross Value Added (GVA), and is
expected to grow at a faster rate than the wider UK economy over the
coming years.
(cid:698)ro(cid:746)t(cid:731) in (cid:739)o(cid:739)u(cid:735)ation and (cid:745)isitor num(cid:725)ers
Greater London’s population, currently 8.9 million, is expected to grow by 11%
to 10 million by 2030. Additionally, there is a similar, and growing, population in
southern England which can easily commute or visit.
Its outstanding cultural off er, heritage, education facilities and experience
continues to draw huge numbers of visitors. 2018 saw an estimated 350
million domestic and international visits to London with a combined spend
of £29 billion. With 19.1 million international visitors, it was ranked the third
most popular tourist city destination4 in 2018 and forecasts3 point to growth
of around 25% by 2025.
This global appeal brings prosperity and gives London a broad and resilient
visitor and leisure economic base which is not reliant solely on the fortunes
of the wider UK economy.
1 Draft London Plan
2 Offi ce for National Statistics
3 London & Partners
4 Mastercard Global Destination Cities Index 2019
5 City of Westminster
6 New West End Company
7 Transport for London
>200 million
annual visits to the West End6
c.700,000 working population in
the City of Westminster5
>3% of UK GVA produced within the
City of Westminster2
>225 million passengers use the
six Underground stations closest to our
villages7
Se(cid:745)en(cid:672)days(cid:672)a(cid:672)(cid:746)ee(cid:734) footfa(cid:735)(cid:735) and s(cid:739)ending
At the heart of central London, the West End is a vibrant and popular destination
with estimated visits of over 200 million annually.
Drawing visitors from around the world, it provides an all-round experience,
from its unrivalled concentration of entertainment and cultural attractions,
historic buildings and public spaces, to its world–class variety of shopping and
some of London’s best and most-innovative restaurants, cafés, bars and clubs.
The West End is a location for a wide range of global, national and local
businesses, and a popular place to live. The City of Westminster, alone,
accounts for over 14% of London’s economic output and more than 3% of
UK GVA. It is the largest employment centre in the UK with a working
population of over 700,000.
Together with the West End’s visitors, and its residential community, this
brings seven-days-a-week footfall and spending, both of which have shown
long-term resilient growth.
Constrained availability of space
Availability of commercial space in the West End is constrained, planning
regulations are restrictive and there is demand from a wide variety of national
and international occupiers. This structural imbalance between supply and
demand is fundamental to our portfolio’s rental prospects and capital value,
both of which have shown signifi cantly greater long-term growth and
stability through the economic cycles than the wider real estate market.
(cid:692)t t(cid:731)e (cid:731)eart of (cid:703)ondon(cid:990)s trans(cid:739)ort net(cid:746)or(cid:734)
The West End is at the heart of London’s transport network. The six
underground stations closest to our villages handle over 225 million
passengers annually7. Over the longer term, our portfolio is also uniquely
well-placed to benefi t from increased visits, spending and materially
changing footfall patterns resulting from the opening of the Elizabeth Line.
This will expand London’s rail capacity, bringing an additional 1.5 million people
within 45 minutes of the West End. Having been delayed further, current
expectations are that initial services will commence in 2021 at the earliest.
(cid:676)(cid:680)
(cid:676)(cid:680)
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Shaftesbury Annual Report 2019
Shaftesbury Annual Report 2019
Shaftesbury Annual Report 2019
Strategic report
Strategic report
Strategic report
Holistic long-term village curation
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
supports our ability to deliver long-term income growth. Key aspects to our
management strategy are set out below.
Ownership
clusters
Tenant
selection
Improving
our buildings
and the
public realm
(cid:694)om(cid:739)o(cid:744)n(cid:727)in(cid:730) (cid:725)enefi ts
of individual transactions
across nearby holdings
Providing visitors with an
interesting experience
Unlocking value, improving
long-term sustainability and
creating welcoming areas
Page 8
Pages 18 to 21
Pages 52 to 53
Promoting our
villages
Engagement
with local
community and
stakeholders
Forensic
knowledge of
the West End
Raising awareness to drive
footfall and spending
Understanding local
expectations and
supporting the West End
Experience through
economic cycles
Pages 24 to 25
Pages 31, 34 to 35
Pages 63 to 65
(cid:676)(cid:681)(cid:676)(cid:681)
(cid:676)(cid:681)
(cid:676)(cid:681)(cid:676)(cid:681)(cid:676)(cid:681)(cid:676)(cid:681)(cid:676)(cid:681)
(cid:676)(cid:681)
Shaftesbury Annual Report 2019
Strategic report
Focus on food, beverage, retail and leisure
Dining, socialising and shopping are important elements
of the West End’s economy.
(cid:695)i(cid:745)ersifi ed mi(cid:747) of income streams
Providing a diversifi ed mix of income streams, our mixed-use portfolio
comprises restaurants, shops, cafés, bars and pubs over lower fl oors with
offi ces and residential on upper fl oors. Our 1.1 million sq. ft. of food,
beverage, retail and leisure space provides 70% of our annualised current
income1 and 69% of ERV1. Currently, it comprises 315 restaurants, cafés and
pubs and 293 shops, mostly of medium or small size.
(cid:698)ro(cid:746)ing interest and s(cid:739)ending on food and
beverage
Over recent years, our strategy has been to increase the number of interesting
casual dining and leisure concepts in our popular, high-footfall locations to
meet growing interest and spending on food and beverage by the West
End’s large, relatively affl uent, customer base. Food, beverage and leisure
now accounts for 38% of our ERV, up from 27% ten years ago. Over that
same period, the proportion of ERV from retail has fallen from 45% to 31%.
(cid:703)ong(cid:672)term gro(cid:746)t(cid:731) and sta(cid:725)i(cid:735)ity t(cid:731)roug(cid:731)
economic cycles
In our areas, there is a long history of occupier demand exceeding the
availability of space, which often is restricted by listed building and conservation
area legislation. This is particularly the case for restaurants, pubs and bars,
which are also subject to local planning and licensing restrictions.
Consequently, occupancy is generally high and rental levels for these uses
have not demonstrated cyclical volatility, resulting in greater long-term growth
and stability through economic cycles than the wider real estate market.
Over the past ten years, these uses have delivered like-for-like annualised
ERV growth of 3.9%. Over the same period, vacancy levels for these uses
have averaged 2.6% of ERV1,2,3.
(cid:709)estaurants(cid:671) retai(cid:735) and (cid:735)eisure(cid:685) (cid:735)i(cid:734)e(cid:672)for(cid:672)(cid:735)i(cid:734)e E(cid:709)(cid:713) gro(cid:746)t(cid:731)(cid:779)
160
140
120
100
80
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
ERV (cumulative, re-based to 100 at 30 September 2009)
EPRA vacancy: page 51
Limited obsolescence
We provide food, beverage, retail and leisure accommodation in shell form only.
Occupiers are responsible for their fi t-out, normally with no capital contribution
from us. When tenants vacate, we re-let the shell of space usually without
incurring signifi cant refurbishment costs, limiting portfolio obsolescence.
(cid:712)(cid:739)(cid:739)er (cid:1026) oors (cid:672) a mi(cid:747) of offi ces and residentia(cid:735)
Typically, our upper fl oors comprise small offi ces, 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 a regular customer base.
Offi ces: page 22; residential: page 23
E(cid:745)o(cid:735)ution of uses o(cid:745)er time ((cid:664) of E(cid:709)(cid:713)(cid:779))
9
19
45
27
2009
Residential
Offi ces
Shops
Food, beverage and leisure
12
19
31
38
2019
Preference for mid(cid:672)mar(cid:734)et(cid:671) inno(cid:745)ati(cid:745)e
concepts
Careful tenant selection is critical to ensure our areas remain distinctive,
lively and popular, attracting growing footfall and spending. We favour new
concepts, independent operators and international brands making their UK
debut, and prefer mid-market, innovative formats, rather than formulaic
national chains. The combination of high footfall, modest rental levels, the
consistent curation and promotion of our villages, and the small to medium-
sized accommodation we provide is important in providing occupiers with
the ingredients to trade prosperously.
Food, beverage and leisure: page 18; retail: page 20
1 Wholly-owned portfolio
2 EPRA vacancy
3 Excluding larger schemes at 30 Sept 2017 and 2018
(cid:676)(cid:681)(cid:676)(cid:681)
(cid:676)(cid:682)
(cid:676)(cid:682)
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Shaftesbury Annual Report 2019 Strategic report
Strategic report
Food, beverage and leisure
We are the largest single provider of dining
and leisure space in the West End, curating
high(cid:672)profi le and bus(cid:748) destinations such as
Chinatown, Kingly Court, Neal’s Yard and
Opera Quarter.
(cid:678)(cid:683)(cid:664) of our portfolio2
restaurants, cafés, pubs and bars
(cid:678)(cid:676)(cid:680)
“
(cid:700) (cid:735)o(cid:745)e t(cid:731)e (cid:725)u(cid:749)(cid:749) of (cid:702)ing(cid:735)y Court(cid:673) (cid:716)ou
immediately feel transformed to another
(cid:746)or(cid:735)d(cid:673) (cid:697)or me(cid:671) t(cid:731)e courtyard reminds
me of my (cid:731)ome in (cid:700)ndia in t(cid:731)e summer(cid:671)
on t(cid:731)e second (cid:1026) oor (cid:746)it(cid:731) a(cid:735)(cid:735) t(cid:731)e (cid:746)indo(cid:746)s
o(cid:739)ened(cid:673) (cid:700)n (cid:746)inter(cid:671) t(cid:731)e roof and (cid:725)eautifu(cid:735)
(cid:735)ig(cid:731)ts remind me of t(cid:731)e (cid:746)inter mar(cid:740)uees
of my fami(cid:735)y (cid:746)eddings(cid:673) (cid:700)t fi ts so (cid:746)e(cid:735)(cid:735)
(cid:746)it(cid:731) t(cid:731)e food (cid:746)e ser(cid:745)e
“
(cid:692)sma (cid:702)(cid:731)an(cid:671) (cid:695)ar(cid:733)ee(cid:735)ing E(cid:747)(cid:739)ress
(cid:697)it(cid:749)ro(cid:745)ia 5%
Soho 8%
C(cid:731)inato(cid:746)n 35%
1 All data relates to wholly-owned portfolio
2 % of ERV
3 As at 30 September 2019
4 Leasing activity during the year ended 30 September 2019
(cid:757)(cid:680)(cid:681)(cid:673)(cid:680)mERV by village
(cid:676)(cid:683)
(cid:676)(cid:683)(cid:676)(cid:683)
(cid:675)(cid:673)(cid:682)m s(cid:740) ft
9 years (cid:746)eig(cid:731)ted a(cid:745)erage une(cid:747)(cid:739)ired
lease term
(cid:677)(cid:673)(cid:680)(cid:664) EPRA vacancy(cid:677)(cid:671)(cid:678)
(cid:757)(cid:684)(cid:673)(cid:684)m (cid:735)ettings(cid:674)rent re(cid:745)ie(cid:746)s(cid:679)
(17.5% of restaurant, café and leisure ERV)
(cid:676)(cid:681) ne(cid:746) (cid:735)ettings
(cid:683) (cid:735)ease rene(cid:746)a(cid:735)s
(cid:678)(cid:681) rent re(cid:745)ie(cid:746)s sett(cid:735)ed
Carnaby 26%
Covent Garden 26%
Evolution of restaurant leases
Restaurant tenants invest considerable sums fi tting out their space,
sometimes spending the equivalent of 3 to 5 years’ rent and, therefore,
we grant longer leases than for shops, to provide an extended period
over which occupiers can amortise this cost.
Historically, leases were often granted over whole buildings and provided
tenants with renewal rights on expiry. We fi nd that upper fl oors 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 confi guration of space on the lower fl oors, attract new
operators on more benefi cial terms, and often release valuable upper
fl oors for other uses.
In recent years we have also reduced the term of leases we grant and
introduced more fl exibility at expiry and, now, we include turnover-related
rental top-ups, giving us the higher of market rent and a percentage of
sales. This continues to provide a useful contribution to both income and
earnings, as well as providing us with useful commercial data. At 30
September 2019, the proportion of our restaurants under historical leases
was 49% (2018: 54%), over a third of which are in Chinatown, providing us
with further opportunities to add value and fl exibility over the coming years.
Typical restaurant 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 ERV)
Incentives
25 years
Five-yearly,
upward-only
Yes
No
Whole buildings
49%
N/A
15 years
Five-yearly,
upward-only
No
Yes
Operational space only
(i.e. not upper fl oors)
51%
Short rent-free period
to help cover tenant
fi t-out time. No
contribution to fi t-out
costs
Shaftesbury Annual Report 2019
Strategic report (cid:697)ood(cid:671) (cid:725)e(cid:745)erage and (cid:735)eisure
Strategic report
(cid:699)a(cid:735)o effect on footfa(cid:735)(cid:735)(cid:671) d(cid:746)e(cid:735)(cid:735)(cid:672)time and trading
At the centre of London’s food scene, the West End has a wide choice of
high quality, creative and accessible dining experiences, from breakfast
through to late night dining.
We are the largest single provider of food and beverage space in the West
End, curating high-profi le and busy destinations such as Chinatown, Kingly
Court, Neal’s Yard and Opera Quarter. In our experience, a strong food and
beverage off er has a halo eff ect on footfall, encouraging new customers to
visit, increasing dwell time and driving improved trading in our villages.
Evolution of uses: page 17
Adding variety to our offer
The majority of our restaurants provide casual dining, with a focus on
ambience, quality and experience, often with an all-day off er. Always
looking to add more variety to our existing off er, we favour mid-market
and distinctive formats, often supporting new independent concepts or
international entrants, rather than formulaic chains. In assessing new
tenants, we consider a number of factors including their plans for fi t-out,
service and social media, and, crucially, whether we would like to eat or
drink there. In many cases, successful occupiers will look to us for further
space, often for new concepts.
Constrained availability of space
Availability of restaurant space remains constrained by local planning and
licensing policies, which restrict large-scale increases in these uses, whether
by development, extension of existing space, or conversion from other uses.
Existing operators are generally reluctant to relinquish their valuable sites,
other than for signifi cant premiums.
Healthy occupier demand
Against this backdrop of limited availability of space, occupier demand
remains healthy, buoyed by the potential to trade profi tably seven-days-
a-week in our high footfall villages.
During the year, we concluded lettings and rent reviews with a rental value
of £9.9 million. These included Seven Dials Market, which opened in Thomas
Neal’s Warehouse, a 23,000 sq. ft. Victorian warehouse in the heart of
Seven Dials. The concept is an innovative hybrid, providing an exciting
line-up of street food concepts with their fi rst “bricks and mortar” space,
a bar, bookshop and a market selling fresh produce. This has increased the
casual food and beverage off er in Seven Dials, further improving this
popular and distinctive village destination.
Pages 38 to 39
Occupancy levels are high, and with tenants ensuring they preserve their
valuable occupation rights, our bad debt history is negligible. Many national
casual dining chains, suff ering from reduced consumer spending outside of
London and poor site selection, are closing units. In contrast, the incidence
of concepts not succeeding in our villages is low, refl ecting the prosperity of
our locations, careful tenant selection, and the holistic curation of our areas.
Where concepts fail, usually the space re-lets quickly, often with the incumbent
receiving a substantial premium for the lease from the new operator.
At 30 September 2019, EPRA vacancy for our food, beverage and leisure
space was 2.5%, of which 1.6% was under off er. Much of this space was in
recently completed schemes.
Portfolio activity report: page 51
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Shaftesbury Annual Report 2019 Strategic report
Strategic report
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 retail destination.
31%
of our portfolio2
(cid:714)e se(cid:735)ected Se(cid:745)en (cid:695)ia(cid:735)s for our fi rst
(cid:739)ermanent store (cid:725)ecause (cid:746)e (cid:746)anted
293shops
“
an attracti(cid:745)e (cid:731)ig(cid:731)(cid:672)footfa(cid:735)(cid:735) (cid:735)ocation to
dis(cid:739)(cid:735)ay our fantastic acti(cid:745)e(cid:746)ear (cid:735)a(cid:725)e(cid:735)s for
our loyal customers to discover in person.
The space combines the choice of
e(cid:672)commerce (cid:746)it(cid:731) t(cid:731)e e(cid:747)(cid:739)erience of
(cid:739)(cid:731)ysica(cid:735) retai(cid:735) and (cid:746)i(cid:735)(cid:735) offer Se(cid:745)en (cid:695)ia(cid:735)s
(cid:745)isitors com(cid:739)(cid:735)ete (cid:725)rand ta(cid:734)eo(cid:745)ers(cid:671)
“
hosting talks and running clubs
(cid:692)(cid:735)e(cid:747)andra (cid:713)ant(cid:731)ournout(cid:671) Managing (cid:695)irector of (cid:697)as(cid:731)ercise
(cid:697)it(cid:749)ro(cid:745)ia 2%
Soho 8%
Bond Street6
James Street W C2
Oxford Street6
Regent Street6
Covent Garden Market
Long Acre
Carnaby Street
Neal Street
Foubert's Place
Floral Street
Monmouth Street
Newburgh Street
Berwick Street
Earlham Street
(cid:675)(cid:673)(cid:679)m s(cid:740) ft
3 years (cid:746)eig(cid:731)ted a(cid:745)erage
unexpired lease term
(cid:681)(cid:673)(cid:683)(cid:664) EPRA vacancy(cid:677)(cid:671)(cid:678)
(cid:757)(cid:676)(cid:677)(cid:673)(cid:680)m (cid:735)ettings(cid:674)rent re(cid:745)ie(cid:746)s(cid:679)
(26.6% of retail ERV)
(cid:678)(cid:682) ne(cid:746) (cid:735)ettings
(cid:677)(cid:683) (cid:735)ease rene(cid:746)a(cid:735)s
13 rent re(cid:745)ie(cid:746)s sett(cid:735)ed
Carnaby 51%
C(cid:731)inato(cid:746)n 13%
(cid:757)(cid:679)(cid:682)(cid:673)(cid:675)m
ERV by village
Covent Garden 26%
1 All data relates to wholly-owned portfolio
2 % of ERV
3 As at 30 September 2019
4 Leasing activity during the year ended 30 September 2019
5 Source: Cushman & Wakefi eld, published information and
company data
6 Based on 30 ft zones
20
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Shaftesbury Annual Report 2019
Strategic report Retail
(cid:714)ide range of s(cid:731)o(cid:739) si(cid:749)es and com(cid:739)etiti(cid:745)e
rents
A key element of the character of our villages is the wide range of shop sizes
across our buildings and streets, from boutiques to larger fl agships. Of our
293 shops, 67% by number are small to medium-sized (ERV < £150,000) and
provide 33% of retail ERV. 96 shops are larger (ERV > £150,000) and provide
67% of ERV. This allows us to provide a variety of rental levels and retail
formats, from start-ups to more established operators, whilst off ering
retailers fl exibility to expand or introduce new concepts within our villages.
Importantly, rental tones in our high-footfall and spending locations are
competitive compared with nearby streets.
West End retail rental tones(cid:680) ((cid:739)rime (cid:749)one (cid:692) (cid:739)er s(cid:740)(cid:673)ft(cid:673))
2,250
Shaftesbury streets
1,300
925
750 650 600 540
400 375
250 240 220 200
195
Bond Street6
James Street W C2
Oxford Street6
Covent Garden Market
Regent Street6
Long Acre
Carnaby Street
Neal Street
Foubert's Place
Floral Street
Monmouth Street
Newburgh Street
Berwick Street
Earlham Street
E(cid:745)er(cid:672)e(cid:745)o(cid:735)(cid:745)ing retai(cid:735) strategy
Ensuring our villages have a fresh and diff erentiated retail mix is fundamental
in ensuring we create and maintain distinctive locations. As with our food,
beverage and leisure space, tenant selection is critical. We target brands
with new concepts, or fi rst stores and fl agships, rather than national chains
found in shopping centres and high streets. Many of our retailers are
independents, an important factor in making our villages distinctive
destinations. There is a current trend away from “fast fashion”, with our
visitors preferring experience, wellness, sustainable products and brands
with an authentic ethical purpose.
Aspects we consider when assessing whether a brand will benefi t our
villages include:
• Whether it fi ts the village’s distinct brand identity;
• How interesting their product is and what experience their customers
will have;
• Its social story including business transparency, supply chain ethics,
carbon footprint, and price of production; and
• How it will promote its story and use digital media channels.
In researching new ideas and concepts, we travel to see other cities and
their brands, attend trade shows and meet retailers, many of which view our
areas in the West End as ideal places to launch their international business.
Also, through building long-term relationships with our tenants, we are
well-placed to help them expand or introduce new concepts in our areas.
01
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Good leasing activity and high occupancy
Interest in our areas is robust, with retailers attracted by high footfall, the mix
of retail and food and beverage, the aff ordability of our rents, the marketing
support we off er and our approach to the curation of our villages.
Despite well-publicised headwinds being faced by the retail sector, leasing
activity during the year has been good, occupancy is high and the level of
lease incentives has remained stable.
During the year, we concluded 78 lettings, renewals and rent reviews, with a
combined rental value of £12.5 million. At 30 September 2019, EPRA vacancy
was 6.8% of retail ERV, and comprised eleven available shops (4.0% of ERV)
and six units which were under off er (2.8% of ERV). Importantly, we have a
number of retailers which recently have upsized, renewed leases, sometimes
ahead of lease expiry, or opened concepts in our other villages, demonstrating
their confi dence in continued profi table trading in our locations.
We are seeing growing demand for retailers requiring smaller shops. This is
driven by a lower overall commitment in rent and fi t out together with less
need for storage space due to more-effi cient stock replacement models.
Our skill in the reconfi guration and repurposing of space to alternative uses
is allowing us to respond to this changing demand. Examples include splitting
space into smaller shops and taking back space, particularly basements and
fi rst fl oors, where, subject to planning, we can introduce often more valuable
alternative uses, such as restaurants, live entertainment space or offi ces.
We expect retail headwinds to prevail for some time and occupiers are likely
to become ever-more discerning over the locations and stores they choose.
With the combination of our high footfall streets, modest rents, fl exible
approach to leasing and reputation for encouraging innovation, we are
well-placed to weather these challenges.
Portfolio activity report: page 51
(cid:700)m(cid:739)ortance of (cid:1026) e(cid:747)i(cid:725)(cid:735)e (cid:735)easing a(cid:739)(cid:739)roac(cid:731)
Given the negative retail news backdrop, retailers are innovating and
modifying their strategies more quickly, to respond to ever-changing
consumer trends. Consequently, our fl exible approach to leasing is
becoming ever-more important. Our typical retail leases have always
been relatively short, allowing us to keep the brand line-up fresh and
interesting. We trial new concepts through pop-ups and short-term
leases. As well as adding interest to our areas, this provides the
opportunity to assess performance and the value they add to
our streets. Often, these convert into longer leases.
Typical lease terms
Smaller shops: 3-5 years
Larger shops: 5-10 years
Short rent-free period to help cover tenant fi t-out periods.
21
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Shaftesbury Annual Report 2019
Strategic report
Strategic report
(cid:706)ffi ces
We are an important provider of
small(cid:671) (cid:1026) e(cid:747)ible o(cid:729)fi ce space in the
West End.
19%of our portfolio2
(cid:675)(cid:673)(cid:679)m s(cid:740) ft
3 years
(cid:746)eig(cid:731)ted a(cid:745)erage
unexpired lease term
(cid:757)(cid:678)(cid:673)(cid:683)m
(cid:735)ettings(cid:674)rent re(cid:745)ie(cid:746)s(cid:679)
(cid:667)(cid:676)(cid:678)(cid:673)(cid:681)(cid:664) o(cid:729) o(cid:729)fi ce (cid:696)(cid:709)(cid:713)(cid:668)
2.9%
EPRA vacancy (cid:677)(cid:671)(cid:678)
(cid:676)(cid:680)
(cid:735)ease rene(cid:746)a(cid:735)s
29
ne(cid:746) (cid:735)ettings
(cid:681)
rent re(cid:745)ie(cid:746)s sett(cid:735)ed
Important source of customers
Offi ces are an intrinsic part of the mix of uses in our villages,
bringing a working population which is an important source
of customers for our restaurants, cafés, pubs, bars and shops.
At 30 September 2019, our wholly-owned portfolio included
435,000 sq. ft. of offi ce space, a net decrease of 31,000 sq. ft.
during the year, predominantly due to securing planning
consent to convert space into restaurant and leisure uses at
72 Broadwick Street.
Read more on 72 Broadwick Street on page 52
Typically, our space is occupied by small and medium-sized
businesses in the media, creative, fashion and tech sectors.
These have traditionally found their natural home in Carnaby,
Soho and Covent Garden, and are attracted by the vibrant
locations, fl exibility and aff ordable accommodation we provide,
together with the community of similar businesses in this creative
part of London. Our tenants’ staff benefi t from privilege cards,
off ering discounts in our shops, restaurants and cafés.
Sma(cid:735)(cid:735)(cid:671) (cid:1026) e(cid:747)i(cid:725)(cid:735)e and afforda(cid:725)(cid:735)e s(cid:739)ace
Our offi ce space is generally small, aff ordable, and mostly situated
above our restaurants, cafés and shops. We can off er a range of
offi ce sizes, allowing our occupiers to grow within our portfolio.
Our average letting is 1,400 sq. ft. at £59 per sq. ft. (2018: £57 per
sq. ft.) and average ERV is £65 per sq. ft. (2018: £64 per sq. ft.).
Despite the growth in co-working space in the West End,
demand for our smaller, self-contained space remains good.
Responding to growing demand for fl exible “plug and play”
space, we have successfully trialled a workspace concept during
the year, the key aspects of which are:
• Short and simple leases;
• Fitted and cabled space;
• Fixed costs; and
• Flexible lease terms, starting at two years.
High occupancy
Demand for our offi ce accommodation is good, rental levels
and incentives are fi rm and occupancy is high. During the year,
we completed lettings, renewals and rent reviews with a rental
value of £3.8 million. Retention rates have been good, with
fi fteen leases being renewed during the year.
At 30 September 2019, offi ce vacancy was £0.8 million,
representing 2.9% of offi ce ERV, of which half was under off er.
Portfolio activity report: page 51
(cid:697)it(cid:749)ro(cid:745)ia 1%
Soho 8%
C(cid:731)inato(cid:746)n 4%
Covent Garden 20%
Carnaby 67%
Typical lease terms
Smaller offi ces: 3-5 years
Larger offi ces: 5-10 years, with break options at year 5
Incentives: Short rent-free period. No contribution to fi t-out costs
(cid:757)(cid:677)(cid:682)(cid:673)(cid:684)mERV by village
1 All data relates to wholly-owned portfolio
2 % of ERV
3 As at 30 September 2019
4 Leasing activity during the year ended 30 September 2019
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Shaftesbury Annual Report 2019
Strategic report
Strategic report
Residential
Demand to rent our mid-market
apartments - mainly studios
and one or two bedroom (cid:1026) ats
– remains good.
12%of our portfolio2
(cid:681)(cid:676)(cid:675)apartments
(cid:675)(cid:673)(cid:679)m s(cid:740) ft
(cid:675)(cid:673)(cid:680)(cid:664) EPRA vacancy(cid:677)(cid:671)(cid:678)
212 ne(cid:746) (cid:735)ettings
Mid(cid:672)mar(cid:734)et accommodation
Our 610 mid-market fl ats are mainly studios and one or
two-bedroom apartments, many of which have been created
from the conversion of small offi ce accommodation back to its
original residential use. We have a number of further planning
consents for residential conversion, which we could implement
in the future.
Our tenants are typically international students or people
working in London, often for a few years only, who like the
convenience, vibrancy and bustle of the West End.
We let our apartments unfurnished, on three-year Assured
Shorthold Tenancies. These leases are fl exible, including rolling
mutual break options after six months, and provide for annual
RPI rent increases. In our experience, there is a high incidence
of leases that renew at the end of the term.
(cid:699)ig(cid:731) occu(cid:739)ancy and sta(cid:725)(cid:735)e cas(cid:731) (cid:1026) o(cid:746)
Demand for our apartments remains good, resulting in high
occupancy levels and a stable cash fl ow. Lettings and renewals
with a rental value of £7.3 million were completed during the
year, with rents being achieved marginally above existing levels.
At 30 September 2019 only three apartments were available, all
of which were under off er.
We continue our rolling programme to upgrade our apartments,
in order to ensure their specifi cation remains competitive and
maintain our high occupancy rates.
Portfolio activity report: page 51
Preference to (cid:735)ease(cid:671) not se(cid:735)(cid:735)(cid:671) our
apartments
Most of the value of our buildings is in the commercial uses on
the lower fl oors. Consequently, we prefer to lease, rather than
sell, our apartments in order to retain control over whole
buildings to realise the long-term potential in those valuable
lower fl oors.
Typical lease terms
Three year Assured Shorthold Tenancies
(cid:757)(cid:682)(cid:673)(cid:678)m lettings and
rene(cid:746)a(cid:735)s(cid:679) (39.9% of
residential ERV)
(cid:679)(cid:678) (cid:735)ease rene(cid:746)a(cid:735)s
Let unfurnished
Annual RPI uplifts
Mutual break options on a rolling two-month basis after the
fi rst six months
(cid:697)it(cid:749)ro(cid:745)ia 8%
Soho 10%
Carnaby 20%
(cid:757)(cid:676)(cid:683)(cid:673)(cid:678)m
ERV by village
C(cid:731)inato(cid:746)n 24%
Covent Garden 38%
1 All data relates to wholly-owned portfolio
2 % of ERV
3 As at 30 September 2019
4 Leasing activity during the year ended 30 September 2019
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Shaftesbury Annual Report 2019
Strategic report
1
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5
1 Festival 30, Seven Dials
2 International Women’s Day, Seven Dials
3 Soho Music Month, Carnaby
4 Chinese New Year, Chinatown
5 Christmas lights launch, Seven Dials
(cid:677)(cid:679)
(cid:677)(cid:679)
Shaftesbury Annual Report 2019
Strategic report
Promoting our villages
Our promotional activities
are focused on improving
awareness of our villages to
drive footfall and spending
and, in turn, help our tenants
trade profi tabl(cid:748)(cid:673)
We never assume that visitors to the West End will know of, nor come to our
villages. To raise awareness, we use targeted marketing strategies to tell the
story of our villages, including why consumers actively seek to spend time
in these vibrant areas and the unique experiences they provide, which are
generally not available on the high street or in shopping centres.
Our integrated marketing strategy includes trade and consumer press, digital
and social media platforms and events. Our marketing partners, which
include the Evening Standard, Time Out and London & Partners, as well
as social media infl uencers, help further increase our promotional reach.
Brand messages are tailored for each village to refl ect their heritage,
personality and target audience, be it domestic and international consumers
or potential occupiers. A key aspect of our strategy is collaboration with
our occupiers to help promote their brands and new product launches.
Throughout the year, we organise events and campaigns which highlight the
culture and history of individual villages, their shopping and dining off er, and
our charity and community initiatives. Our occupiers help bring these to life,
using their own marketing channels and, often, arranging their own related
activities.
Examples of events and campaigns in the year include:
• Festival 30: a one-day festival, celebrating the 30th anniversary of the
iconic sundial in the heart of Seven Dials, which off ered a range of activities,
arts, workshops, food and community activities.
• Contemplate: a fi ve-day art exhibition in Chinatown, demystifying lesser-
known ingredients in Far Eastern cuisine.
• Carnaby Feels the Love: a campaign that has run throughout the year,
championing sustainability, charity and community initiatives.
• Blue Turtle: An initiative focused on reducing the consumption of single-use
plastic products and waste, and the sustainable sourcing of seafood. As part
of this, 45 of Carnaby’s restaurants have been recognised for improving
practice and working towards being ocean friendly.
• Soho Music Month: a free music and culture festival celebrating Carnaby’s
and Soho’s heritage and music scene.
(cid:677)(cid:680)
(cid:677)(cid:680)
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Shaftesbury Annual Report 2019
Strategic report
Measuring success
(cid:714)e use a balance o(cid:729) financial and non(cid:672)financial metrics to
measure our performance. These include both long-term
performance and operational measures, aligned with our
long-term strategy. A number of these metrics help
determine executive and staff remuneration.
Alignment with strategy and link to remuneration
Strategic o(cid:725)(cid:733)ecti(cid:745)es to de(cid:735)i(cid:745)er a (cid:739)ositi(cid:745)e(cid:671) (cid:735)ong(cid:672)(cid:735)asting contri(cid:725)ution to (cid:703)ondon(cid:990)s (cid:714)est End
1
(cid:703)ong(cid:672)term
gro(cid:746)t(cid:731) in
rents and
portfolio
value
2
(cid:698)ro(cid:746)
recurring
earnings
and cash
(cid:1026)o(cid:746)
3
(cid:692)ttract(cid:671)
develop and
retain
talented
people
(cid:679)
Minimise
environmental
impact
(cid:680)
Deliver
sustaina(cid:725)(cid:735)e(cid:671)
(cid:735)ong(cid:672)term
(cid:725)enefits for
our stake(cid:672)
holders
(cid:702) (cid:702)P(cid:700)
R
*
Remuneration
Metric
introduced
in 2019
Business model and strategy; pages 6 to 7
Total Shareholder Return (%)
Total Accounting Return1 (%)
EPRA NAV1 growth (%)
1
2 3 (cid:679) (cid:680) (cid:702) R
1
2 3 (cid:679) (cid:680) (cid:702) * R
1
2 3 (cid:679) (cid:680) (cid:702) R
Shaftesbury
Benchmark
23.8 23.1
Shaftesbury
Benchmark
21.9
Shaftesbury
Benchmark
36.7
24.1
7.5
6.5
3.6
4.1
-9.9
-9.4
6.9
2.4
13.5
3.8
8.9
8.7
5.3
5.8
2.5
0.8
7.2
6.9
6.3
4.1
5.4
5.0
3.8
2.2
-0.9
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Measures shareholder value creation,
taking into account share price
movements and dividends in the period.
We benchmark against the FTSE 350
REIT Index.
Over the long term, we have outperformed
the sector. However, over each of the past
two years we have underperformed with
our share price falling from a premium to
a discount to EPRA NAV. Over five years,
TSR was 45.3%, outperforming the
benchmark by 16.3 percentage points.
Performance over three years relative to
the benchmark is a measure in the LTIP
scheme.
LTIP vesting: page 90
Overall measure of performance, taking
into account growth in EPRA NAV plus
dividends paid, as a ratio of EPRA NAV at the
start of the period. For the benchmark above,
we have used a market capital-weighted
index of FTSE 350 REITs.
In 2019, TAR was 0.8%, following a decrease
in the portfolio valuation in the year,
underperforming the benchmark by 1.7
percentage points. Over five years, TAR was
8.3% pa, compared with the benchmark
(10.4% pa), and is stated after exceptional
refinancing costs which reduced EPRA NAV
by 44 pence per share between 2016 and 2017.
For our LTIP, we measure TAR over three
years relative to the benchmark.
LTIP: page 87
(cid:677)(cid:681)
(cid:677)(cid:681)
Traditional real estate measure of value
creation. The benchmark is RPI plus 3%.
Following a decrease in the valuation of
our properties, EPRA NAV declined by
0.9% this year, underperforming the
benchmark by 6.3 percentage points.
Performance over five years, after
exceptional refinancing costs in 2016 and
2017, was 6.6% pa, 1.1 percentage points
above the benchmark.
For our LTIP, we benchmark three-year
growth in EPRA NAV on an absolute
basis against the benchmark.
LTIP vesting: page 90
Shaftesbury Annual Report 2019
Strategic report
Measuring success
Rental growth
Commercial leasing vs ERV2 (%)
1
2
(cid:702) *
R
8.1
7.7
6.7
5.1
3.2
Like-for-like ERV growth4 (%)
Net property income (£m)
Income
1
2 (cid:702) R
7.0
5.7
3.5
2.4
2.7
2 (cid:702) * R
88.3
84.1
78.8
98.0
93.8
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
Our strategy has delivered sustained growth
in annualised current income and rental
values over many years. Through our leasing
activity, we convert previously assessed
rental potential into contracted income,
whilst establishing new rental levels which
provide evidence for leasing negotiations
and for our valuers in assessing ERVs.
Commercial leasing transactions in 2019
were concluded 3.2% above ERV at
September 2018.
Wholly-owned portfolio leasing performance
against previous year ERV is a performance
criterion for the annual bonus.
Portfolio activity report: page 51;
Annual bonus: page 89
Occupancy
Underlying EPRA vacancy2,3 (%)
1
2 (cid:702) R
2.9
3.1
2.1
1.9
2.3
Measures growth in the rental potential
of our portfolio. Typically, our portfolio’s
reversion is crystallised into contracted
income over three to fi ve years.
Importantly, the level of lease incentives
granted to tenants remains modest. These
are mostly in the form of rent-free periods.
Like-for-like ERV growth is an annual bonus
metric. In 2019, it was 2.7% for the combined
portfolio, with the wholly-owned portfolio
delivering 3.2% and Longmartin’s portfolio
declining by 3.5%.
Portfolio valuation: page 48; Annual bonus:
page 89
Growth in net property income is a key
driver of earnings and dividends. This year,
it increased by 4.5% to £98.0 million. The
relative increases in rental income and
associated property outgoings are assessed
as a bonus metric. In 2019, the ratio of
property outgoings to rental income fell
from 16.8% to 16.5%.
Financial report: page 55; Annual bonus: page 89
Average time to let2,3 (months)
1
2 (cid:702) * R
2.5
2.6
1.5
1.2
1.0
Energy performance
% of demises2 with EPC rating A-E
1 (cid:679) (cid:680) *
74
67
78
81
52
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
High occupancy and letting property quickly are key factors in sustaining good cash fl ows from
our portfolio. For the wholly-owned portfolio, both average EPRA vacancy (measured quarterly)
and letting times are KPIs for the annual bonus. During 2019, average EPRA vacancy was 3.1%,
marginally higher than in 2018. Average letting time, measured from the date space becomes
available to let, was 2.6 months, broadly in line with 2018.
Vacancy comparatives have been restated to present quarterly averages each year, rather than
the year end position, and to exclude exceptional larger schemes. This presentation matches
the vacancy KPI calculation for the annual bonus scheme.
Portfolio activity report: page 51; Annual bonus: page 89
1 Alternative performance measure: page 124
2 Wholly-owned portfolio
3 Excluding exceptional larger schemes. See portfolio activity report: page 51
4 Including our 50% share of Longmartin
(cid:677)(cid:682)
(cid:677)(cid:682)
Improving the energy performance of our
space is an important factor in minimising
the environmental impact of our operations.
We aim to improve energy performance with
each refurbishment scheme. This year, the
number of demises with an EPC rating of
at least E has increased by three
percentage points to 81%.
Environment: page 32
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Strategic report
Measuring success
Financial management
Loan-to-value2,4,5 (%)
(cid:680)
22.1
26.7
24.1
Interest cover4,5 (x)
Blended cost of debt3,4,5 (%)
2 (cid:680)
2.6
2.7
2 (cid:680)
5.0
4.5
23.9
22.6
2.3
2.1
2.1
3.2
3.2
3.2
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
2015
2016
2017
2018
2019
We operate with conservative leverage levels with long-term fixed interest arrangements forming the core of our debt finance. Loan-to-value
increased in 2019 to 23.9%, resulting from the combination of further investment in our portfolio, funded by net debt, and the decrease in the
portfolio valuation.
Interest on our drawn debt facilities is fixed and, accordingly, the blended cost of debt has remained at 3.2% in 2019. However, with growing
operating profit before investment property disposals and valuation movements, interest cover has increased from 2.6x to 2.7x.
Financial report: page 57; portfolio valuation: page 48
Other operational measures
In addition to our KPIs, other operational metrics we monitor in assessing the performance of the business include:
Portfolio management
Growth in annualised current income
1
Page 49
Wholly-owned portfolio
Combined portfolio1
Reversionary potential
1
Page 49
Wholly-owned portfolio
Combined portfolio1
ERV of space undergoing refurbishment4
(cid:680)1
Page 52
Our people
Staff retention
3
Page 46
Training (hours per employee)
3
Page 46
Financial
EPRA earnings per share5
2
Page 54
Sustainability and stakeholders
GRESB rating
(cid:679) R
(cid:702)
Page 29
EPRA Sustainability BPR rating
(cid:679) R
(cid:702)
Page 29
London Benchmarking Group contribution as a % of EPRA earnings
(cid:680)
Page 34
Annual bonus: page 89
1 Including our 50% share of Longmartin debt
2 Based on net debt
3 Including non-utilisation fees on undrawn bank facilities
4 Wholly-owned portfolio
5 Alternative performance measure: page 124
(cid:677)(cid:683)
(cid:677)(cid:683)
2019
2.4%
1.8%
27.8%
28.2%
10.4%
2019
97%
20
2019
17.8p
2019
75%
Gold
1.5%
2018
6.2%
5.1%
26.7%
26.7%
7.6%
2018
100%
19
2018
17.1p
2018
69%
Gold
1.7%
Shaftesbury Annual Report 2019
Strategic report
Sustainability
We have supported the UN Global Compact principles of
sustainability since 2015 and, this year, we are integrating
the UN Sustainable Development Goals (SDGs) into our
sustainability strategy.
We have mapped our strategy against the SDGs during the
course of this year and will continue to integrate them into
our processes. The relevant SDG icons are highlighted in the
following sections where they apply.
UN Global Compact and the SDGs
We support the ten principles of the UN Global Compact on
human rights, labour, environment and anti-corruption. The
2030 Agenda for Sustainable Development, adopted by all
United Nations Member States in 2015, provides a shared
blueprint for peace and prosperity for people and the planet,
now and into the future. At its heart are the seventeen SDGs,
which are an urgent call for action by all countries, developed
and developing, in a global partnership. They recognise that
ending poverty and other deprivations must go hand-in-hand
with strategies that improve health and education, reduce
inequality, and spur economic growth, all while tackling climate
change and working to preserve our oceans and forests. The
UK is a signatory to these goals. The UK Government has
developed its own agenda for delivering these goals and
companies are encouraged to adopt this framework.
Sustainability Committee
Our Sustainability Committee, chaired by the Chief Executive,
meets quarterly and is responsible for setting the sustainability
policy and strategy across the Group. The Committee is
advised by an external consultancy, which provides
independent review and analysis of our actions and policies.
This information is reported to the Executive Committee and
the Board.
Modern Slavery and human rights
We have policies in place which address human rights,
modern slavery and the ethical conduct of our business. Our
sustainability policies and our supplier code of conduct are
provided to our key suppliers, who are required to adhere to
the same high standards we set for ourselves. Our Modern
Slavery statement is available on our website. We require that
workers in our supply chain are paid a London Living Wage.
We have signed up to the Living Wage Foundation.
(cid:700)ndustry recognition(cid:674)a(cid:746)ards
Climate change
Climate change is an increasingly signifi cant issue for society.
The UK Government has an objective of achieving net zero
carbon by 2050. As the owner of a portfolio of buildings in
central London, we recognise the need to respond to this
challenge, with Building Regulations and MEES having an
important role.
Our strategy to maintain and refurbish existing buildings is an
intrinsically sustainable approach. It conserves embodied
energy within existing materials and avoids unnecessary waste,
materials and energy required to construct new properties. We
acknowledge that there is much more to do to meet the
challenges of climate change.
With over 800 commercial tenancies, we are in a good position
to infl uence and support our tenants’ own sustainability
strategies. We report on our own impact, but are aware that
our tenants’ activities can have a much greater contribution on
our environment. We have engaged more widely this year
through both the Blue Turtle initiative and the use of a new
tenant portal in Seven Dials. Both initiatives will be expanded
and used to help guide our tenants’ sustainability activities. We
will seek to increase engagement with our tenants, to ensure
that we are all working together to address these issues in 2020
and beyond.
Waste and single-use plastic: page 33
Sustainability data report
Our Sustainability Data Report is available on our
website. It provides a full update on progress
against our sustainability targets and associated
data for the year ending 30 September 2019.
The report also contains our UN Global Compact
Communication on Progress.
Continued
inclusion in the
FTSE4Good 2018
top 89% percentile
GRESB Green Star
- score 75
Gold award winner
for sustainability
reporting - third
successive year
Continued
Member of Ethibel
Excellence, Europe
ISS ESG prime status
(formerly Oekom)
CDP - Continued
inclusion on Carbon
Disclosure Project
scoring a grade C
in 2018
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1 Community Breakfast 2019
2 Silver Sunday Tea Dance for Westminster over 65s
3 Launch of DEFRA’s Bees’ Needs Week in Carnabee
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Strategic report
Stakeholders
We are committed to stakeholder
engagement as a core component of our
business and sustainability strategies.
We view engagement with our stakeholders as a continuous dialogue which enables us to
work collaboratively to support and align our business goals and activities.
We engage with our many stakeholder groups in a variety of formal and informal ways.
Engagement ranges from meetings with shareholders, local groups and employees to
communication with our suppliers and occupiers, to provide advice, fi nancial and in-kind
support. By working together with external stakeholder partners, we are able to identify and
address issues by bringing together the expertise, knowledge and passion of many
organisations and individuals.
Shareholders
Open and transparent
engagement through tours and
shareholder meetings. Corporate
governance is an important part of
our day-to-day operations.
Page 74
Occupiers
Employees
Visitors
Shareholders
Create prosperous locations,
supporting business and providing
amenity for residents. We
encourage occupiers to be aligned
with our sustainability goals.
Continual investment to support
their development. Purpose and
values articulated and embedded
in the business. Development of a
Strategic People Plan.
Pages 16 and 33
Pages 36 to 47
Foster distinctive, lively locations,
which are an important part of the
West End’s global appeal.
Page 16
Suppliers
and advisors
Local
authorities
Local
community
Supplier code of conduct sets out
the values and behaviours we
expect of our supply chain.
Page 29
Work closely with Westminster
City Council and Camden Council
on a wide range of initiatives to
support their policies and goals,
including improving the public
realm.
Page 53
Understand its needs and be
part of our community. Provide
opportunities to link our community
partners and help them raise
awareness of their causes and
contribute through advice, and
fi nancial or in-(cid:734)in(cid:727) s(cid:744)(cid:739)(cid:739)ort(cid:673)
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Environment
At the heart of our environmental sustainability
strategy is extending the useful lives of our
heritage buildings, through refurbishment and
change of use.
We have long been committed to operating in a sustainable way. At the core
of our sustainability strategy is reusing and improving, rather than redeveloping
buildings. In doing so, we extend their useful economic lives, while preserving
the West End’s rich heritage for future generations.
BREEAM
In order to ensure that we meet environmental standards for good building
design and operation, we follow BREEAM principles when we refurbish a
building. For all refurbishment projects with a value over £1 million, we aim
to achieve a BREEAM certification of Very Good. Since we introduced this
requirement, we have had 19 schemes certified, extending to approximately
10% of the portfolio. We have a number of other schemes which should be
completed in the year ahead which will increase this percentage.
EPCs
All buildings, other than listed buildings, are required to have an energy
performance certificate to measure their efficiency. Under MEES
regulations, all demised areas are required to have an EPC of grade E or
above. Set out below is the current status of commercial and residential
demises in our portfolio.
A-E grade
F or G grade
Unassessed
9%
10%
1,488
demises
81%
The majority of properties assessed as F and G grade or unassessed are
currently occupied. We have a programme of improvement to address the
small number of residential properties which need to be upgraded by 2020.
For commercial properties, there is a requirement that all properties
should be at least a grade E by 2023. As part of the ongoing refurbishment
programme, when they become vacant, we will undertake works to improve
their ratings.
Energy and (cid:746)ater consum(cid:739)tion and
greenhouse gas emissions
Our direct energy consumption is relatively low, as the majority relates to
the, usually, small common parts of buildings. There is a trend towards the
collection of whole building data which we are working towards. For the full
report on GHG see page 96. We have seen an overall reduction in GHG
emissions of 10% across the portfolio during the year.
We have committed to developing Science Based Targets for the reduction
of emissions to reach the Government’s target of net zero carbon by 2050,
in line with the Paris Agreement.
All the energy we use in our common parts is from 100% renewable
sources. Our Carnaby Christmas decorations this year are also powered
using renewable energy.
As with landlord purchased energy, our water consumption only relates to
common parts and is a relatively low figure. We intend to engage with our
tenants to identify ways in which to expand monitoring and identify
opportunities to reduce water consumption.
Our water fountain in Kingly Court has saved over 75,000 500 ml single-use
plastic bottles since it was installed in June 2018.
Biodiversity
The West End of London is an urban landscape. The biodiversity and urban
greening in our areas is important for visitors and those working and living in
our areas, from a health and wellbeing perspective as well as improving the
environment for local wildlife. Activities this year included:
• supporting WWF’s Earth Hour in Carnaby with a themed arch and
encouraging our tenants to show their commitment to action on
environmental issues.
• supporting the launch of Defra’s Bees’ Needs Week campaign and providing
a retail unit for Defra to promote the importance of pollinators
in the ecosystem. For the third year running, we have been awarded Defra’s
Bees’ Needs Champion for our work in this area.
• opening our roof terrace as part of Open Roof Weekend, for the Mayor of
London’s National Park City Festival. Over 350 people visited during the
weekend.
• our employees picking litter up from the Thames as part of a community
day, in partnership with Thames 21 conservation charity.
Our Bees’ Needs Champion Award
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Strategic report
Environment
Wild West End
Wild West End is a collaboration with a number of other West End
landowners to promote biodiversity. Its objective is to encourage birds,
bees and bats back into London’s West End. Since the partnership
undertook its 2016 baseline study, the number of green installations,
across all its members, has increased from by 22% to 309.
In September 2019, Wild West End received the Biodiversity and
Environmental Net Gain award at the Institute of Environmental
Management and Assessment’s Sustainability Awards. The project was
commended by the judges as ’really imaginative– a well thought-out
programme, with a highly diverse set of parameters considered’.
See www.wildwestend.london
A rare sighting of the tiny Firecrest, a scarce migrant bird and winter
visitor to the UK, in Kingly Court, Carnaby.
(cid:714)aste and sing(cid:735)e(cid:672)use (cid:739)(cid:735)astic
Reduction in waste, and particularly single-use plastic, is an important
priority for us. We recycled and composted 59% of waste in Carnaby and
Seven Dials during the year. The recycling rate across the portfolio is 44.5%.
We have introduced a trial of coff ee cup recycling in Carnaby and are
monitoring its usage.
Blue Turtle initiative
Climate change, ocean degradation and plastic pollution are recognised as
the most signifi cant and growing threats to ocean health. To help prevent
these impacts, it is essential that we engage with our occupiers and
encourage them to consider better use of resources towards a more
environmentally friendly lifestyle.
Blue Turtle is an initiative, we developed during the year, in partnership with
ocean conservation charity, Project Zero. It is working to improve environmental
sustainability in our cafés and restaurants, by enhancing awareness of the
environmental consequences of their operations and how they can adapt
their businesses. The initiative, which started in Carnaby, will now be rolled
out to other locations.
Businesses participate in the Blue Turtle initiative by making a pledge and
by auditing their own practices through an online toolkit. Their participation
encourages them to commit and set targets against the Blue Turtle Criteria.
Participants who commit to improve their practices gain the Blue Turtle
Commitment Mark, which they can display within their premises and online
channels.
Since it was launched in June 2019, over 45 Carnaby cafés, restaurants and
pubs have made a pledge and 17 Carnaby businesses have been awarded the
Blue Turtle mark, signifying their commitment towards being ocean-friendly.
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Health and safety
The Board has overall responsibility for health and safety. In our refurbishment
projects, responsibility for health and safety is identifi ed in 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 during
the year. The accident frequency rate for employees was zero (2018: zero)
and there were no health and safety prosecutions, enforcement actions or
fatalities.
Our Blue Turtle logo
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Social
Our values recognise the importance we place on being
community minded; of playing an integral part in our villages.
We work with not-for-profit organisations, charities, educational
establishments and other local community groups, recognising that our
long-term support enables them to make a difference in their activities.
Our support takes a variety of forms: money, in-kind donations through
space; advice and time given by employees, both volunteering or through
working with community groups.
Our strategy is set by the Community Investment Committee, chaired by
Andrew Price, with employees from across the Company. We focus on areas
where investment has the ability to influence and impact our villages.
Activities during the year have included:
• our annual community breakfast which brings together our stakeholders
in an informal atmosphere together with local councillors and an external
speaker enables networking between over 36 stakeholder groups.
• introduced volunteering leave for employees, with take-up of 74 hours.
• GivX award recognising the level of community giving.
• installation of Good Box tap donation points where contactless payments
make instant donations. These were used for Tap London (homeless
Christmas campaign), The Fawcett Society and ZSL for its People For
Wildlife pop-up.
• co-sponsor of the Sir Simon Milton Foundation annual tea dance
(part of Silver Sunday) for 1,000 Westminster residents aged 65 and over.
• Soho Music Month had an educational element as part of the month long
activities. This involved working with young people for their ONC Advanced
Project Management certification.
• in collaboration with London College of Fashion, we provided two recent
tailoring graduates with studio space in Carnaby, using this space as a
launch for their fledgling businesses (see Kingly Street Tailors opposite).
• we sponsor a daytime outreach worker from the Connection at St
Martin-in-the-Fields, a charity tackling homelessness.
Other organisations we have supported during the year:
Youth/education
• Young Westminster Foundation
• So(cid:731)o Paris(cid:731) Primary sc(cid:731)oo(cid:735) (t(cid:731)e on(cid:735)y sc(cid:731)oo(cid:735) in So(cid:731)o)
• Stage (cid:706)ne (su(cid:739)(cid:739)orting t(cid:731)e future of commercia(cid:735) t(cid:731)eatre
t(cid:731)roug(cid:731) education)
Social issues
• (cid:699)ouse of St (cid:693)arna(cid:725)as ((cid:725)rea(cid:734)ing t(cid:731)e cyc(cid:735)e of
(cid:731)ome(cid:735)essness)
• (cid:703)and(cid:692)id (t(cid:731)e (cid:739)ro(cid:739)erty industry(cid:990)s c(cid:731)arity focusing on
(cid:731)e(cid:735)(cid:739)ing (cid:731)ome(cid:735)ess yout(cid:731)s)
Community groups
• West End Community Trust
• St Anne’s Church
• Chinese Information and Advice Centre
Industry groups
• (cid:697)ree(cid:731)o(cid:735)d ((cid:703)(cid:698)(cid:693)(cid:711) rea(cid:735) estate (cid:739)rofessiona(cid:735) net(cid:746)or(cid:734))
• Pat(cid:731)(cid:746)ays to Pro(cid:739)erty (raising a(cid:746)areness of (cid:739)ro(cid:739)erty as a
career)
• (cid:709)ea(cid:735) Estate (cid:693)a(cid:735)ance (addressing gender im(cid:725)a(cid:735)ance in t(cid:731)e
(cid:739)ro(cid:739)erty sector)
Environmental/biodiversity
• (cid:717)oo(cid:735)ogica(cid:735) Society of (cid:703)ondon ((cid:717)S(cid:703))
• we sponsored Pride in London and provided a pop-up shop for the
• P(cid:731)oeni(cid:747) (cid:698)ardens (a community garden c(cid:735)ose to Se(cid:745)en (cid:695)ia(cid:735)s)
month leading up to the event in July 2019.
• we fund the part-time advisory post at the Chinese Community Centre.
We often link our community support with marketing and events so that
community groups are able to leverage from these activities to raise the
profile of their organisations and funds at the same time. We may also
provide short-term space as part of the activity.
In 2019, our contribution totalled £0.82 million, equivalent to 1.5% of EPRA
earnings, as set out opposite. We measure this in accordance with LBG, a
recognised benchmark.
(cid:699)o(cid:746) (cid:746)e contri(cid:725)ute(cid:685)
(cid:714)(cid:731)at (cid:746)e su(cid:739)(cid:739)ort(cid:685)
9%
10%
3%
24%
25%
41%
£0.82m
£0.82m
7%
31%
25%
Money
Time
In-kind contributions
Management costs
(cid:678)(cid:679)
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14%
11%
Education
Health
Environments
Art/culture
Social welfare
Emergency relief
Other
Shaftesbury Annual Report 2019
Strategic report
Social
Kingly Street Tailors
Following a competitive process for recent tailoring
graduates of the London College of Fashion, judges
including Harold Tillman, Mark Powell and Tom Horne,
selected two tailors who were awarded incubator
space in Kingly Street studios. Joshua Millard and
Sarah Hollebon have emerging businesses in women’s
tailoring.
The collaboration with London College of Fashion
also includes mentoring and business support from
the college.
Tailoring is an important part of the heritage of
Carnaby and Soho and this helps ensure the
continuation of the talent development pipeline.
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Strategic report
Our people and culture - the ‘Shaftesbury Way’
At the heart of Shaftesbury is our team, who share a
passion and ambition for making great places even
better. We are committed to building upon our working culture,
developing a diverse and inclusive team from the widest talent
pools and making Shaftesbury a great place to work.
Our purpose:
To curate vibrant and
thriving villages in the
heart of London’s West End
Our values:
Human
Original
Community minded
Responsible
Long term
Read more on our values: pages 37 to 45
(cid:706)ur (cid:739)ur(cid:739)ose(cid:671) cu(cid:735)ture and (cid:745)a(cid:735)ues
This year we articulated our purpose and values, with input from everyone
in the business, as well as listening to what our key stakeholders said about
working with us. We believed we had a good sense of what was distinct
about Shaftesbury’s culture and ways of working and this came through
strongly in the process, which we undertook with an independent facilitator.
Our process included:
• Employee and Board workshops to explore, discuss and define the culture
at Shaftesbury. The focus was on how people experience, and think about,
Shaftesbury’s culture today, as well as to indicate aspects of the culture that
they felt might need to change or develop in the future.
• External stakeholder interviews, conducted independently, to gather
insights on the Company’s purpose, values, team and ways of working.
• Working sessions with our internal culture group, made up of a cross-
section of employees, to gain input and feedback at each stage of the
process.
• Regular Board updates and opportunities to input, with final sign-off and
approval of our purpose statement and values.
• Distillation of our learning from the process to describe what kind of
business we are, called the ‘Shaftesbury Way’.
The Shaftesbury Way
We have a small, diverse team of talented people, united by a shared
ambition to make our great places better for the benefit of our multiple
stakeholders. Our collective desire is to cultivate and foster environments
to provide vibrant and inspiring experiences for visitors, occupiers, their
customers and residents. Our culture is one of tradition and innovation.
We act with courtesy, respect and integrity, embrace change, seek
challenge, and look to the future to evolve and improve. We are inclusive,
encouraging difference and openly welcoming new people, ideas and
perspectives to enable everyone to be themselves, have a voice, and make
an impact. We combine our strengths to achieve success beyond profit:
making a positive difference and delivering sustainable, long-term results
for our stakeholders, communities and each other. Together, we aim to
make a positive, lasting contribution to London’s West End.
Next steps
The next stage of this process, one that is a priority for the coming year, is
to fully embed our values into all aspects of our employment proposition
and practice. This includes reviewing how we develop, motivate, recognise
and reward our team and how we recruit and induct new team members.
(cid:678)(cid:681)
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Human
We build relationships based
on openness, empathy, trust and
respect, showing interest and
care for those with whom we
work. We welcome diff erence
and encourage diversity.
A variety of backgrounds,
experiences, characteristics
and preferences leads
to wider perspectives,
increased creativity, better
decision-making and inclusive
spaces where people feel
welcome.
Outside of our workplace, we
promote the diversity agenda
including gender, ethnicity,
social background and
orientation.
We have been a corporate
sponsor of Pride in London
for four years. As part of Pride
Jubilee celebrations, this year,
we provided a free-of-charge
pop-up shop, which raised
£68,000 in sales, as well as offi ce
space leading up to Pride day.
Our culture and values: page 36
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Original
From fi nding and nurturing
new talent to challenging and
evolving our thinking, we think
creatively and encourage new
ideas from our people, business
partners and communities.
Originality is an important
aspect in the unique curation of
our villages, including the events
we organise, public art, and the
occupiers we choose, where
innovative concepts are
favoured over predictable
formats found elsewhere.
For example, this year we selected
Kerb to open Seven Dials Market
in Thomas Neal’s Warehouse.
Having previously curated street
food markets, this is Kerb’s fi rst
“bricks and mortar” space.
As well as off ering a number
of diff erent food choices, their
innovative approach to the
curation of this space includes
London’s fi rst cheese conveyor
belt restaurant (left), which
off ers over 25 diff erent cheeses,
all sourced from around the UK,
paired with condiments and
small-producer wines.
Our culture and values: page 36
Holistic long-term village curation: page 16
Focus on food, beverage, retail and leisure:
page 17
3939
Community
minded
As a responsible, long-term
investor in our areas, being a
good neighbour and focusing on
local issues is essential. We work
with, and support, our local
communities to address issues
and challenges, promote public
realm improvements and create
vibrant places.
In the summer, we collaborated
with the Seven Dials Trust to
mark the 30th anniversary of
the iconic sundial pillar in the
centre of Seven Dials. Visitors
enjoyed live entertainment,
theatre, arts, crafts, al fresco
dining and cocktails across the
seven interconnecting streets,
including a pop-up lawn around
the Dial.
Our culture and values: page 36
Stakeholders: page 31
Promoting our villages: pages 24 to 25
(cid:679)(cid:675)(cid:679)(cid:675)
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(cid:679)(cid:676)(cid:679)(cid:676)
Responsible
We are committed to London’s
West End and see ourselves as
long-term custodians of the
areas in which we invest. We
hold ourselves accountable to
a wide-range of stakeholders.
We invest in staff wellbeing and
development, cultivate
relationships with our business
partners and stakeholders,
holistically curate our villages and
behave in a socially-responsible
manner.
During the year we collaborated
with ocean conservation charity
Project Zero to reduce the use of
single-use plastics and promote
sustainably-sourced seafood.
Our innovative Christmas
decorations in Carnaby, made
from recycled and reusable
materials and powered by
renewable energy, raise
awareness of the need to
protect and restore the ocean
by mitigating the damaging
effects of climate change and
plastic pollution.
Our culture and values: page 36
Holistic long-term village curation: page 16
Environment: page 33
Stakeholders: page 31
(cid:679)(cid:677)
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(cid:679)(cid:678)(cid:679)(cid:678)
44
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Long term
As custodians, we take a
long-term, holistic approach to
our villages. We seek to make a
positive, long-lasting
contribution to the West End.
Across the business, our decision
making is forward-looking,
focused on long-term benefi ts
rather than short-term gains.
Shaftesbury was founded in
1986 with a modest ownership
in Chinatown. Over 33 years,
we have grown our Chinatown
holdings to 3.2 acres. During this
period of ownership, we have
worked with other stakeholders
in delivering fi ve separate public
realm schemes, helping maintain
this village as a busy, vibrant
destination. Our curation of this
area is one of respect for its
historical heritage and evolution
to showcase the breadth and
diversity of regional Chinese
cuisine, alongside Far-Eastern
concepts.
Our culture and values: page 36
Holistic long-term village curation: page 16
(cid:679)(cid:680)
Shaftesbury Annual Report 2019
Strategic report Our people and culture
34members
of staff
2:1
3%employee
turnover
female:male
ratio
(cid:710)taff a(cid:730)e (cid:739)rofi le
Headcount 29
Headcount 34
8%
10%
73%
17%
2017
59%
33%
2019
ages 59+
ages 37 – 58
ages 24 – 36
30%female
representation
on the Board
67%female
representation
on the Executive
Committee1
Employee engagement
We are committed to gaining regular feedback from our team and to
listening to their perspectives about what we are getting right and where
we can improve. In November 2018, we conducted an employee survey via
the Best Companies Group “Best Places to Work in Property” survey, with
over 90% of our employees taking part. The survey provided evaluation
across a number of metrics including overall engagement, leadership and
planning, culture and communication, role satisfaction, work environment,
training and development, and pay and benefi ts.
Our results were positive, with strength in the overall engagement,
leadership and planning and role satisfaction categories.
100% of respondents said:
“I understand the long-term strategy of this organisation”
“I am very satisfi ed with my employer”
“I am proud to work for this organisation”
“I would recommend working here to a friend”
The responses for training and development were positive at 80%, but
indicated an area for focus and opportunity, which has been factored into
our strategic people plan and priorities for the year.
We have continued to have a very low level of employee turnover, with
only one leaver this year. The stability of our team, with an average length
of service of 10.5 years, refl ects the positive feedback from this survey.
1 Excluding executive directors
Strategic People Plan
This year we developed the Shaftesbury Strategic People Plan 2021, working
with an HR consultant to provide independent challenge. Our strategic intent
is to be a great place to work; attracting, growing and retaining the best talent.
The plan focuses on fi ve strategic pillars:
Engagement
• Understanding and driving high levels of employee engagement, with an
active culture of listening and responding to employee needs and
perspectives.
Experience
• To be recognised for providing a distinctive and positive employee
experience, aligned with our purpose and values.
People development and capability
• Having the right organisation structure, capability and skills in place to drive
business growth, with a committed leadership team which is equipped to
lead the business and develop emerging talent for future leadership roles.
People performance
• To embed a culture of regular development and performance discussions.
Sustaina(cid:725)(cid:735)e (cid:746)or(cid:734)force
• To have a healthier, more inclusive and more sustainable working
environment, where employees feel they make a diff erence in their roles.
We have shared our strategic plan across the business, developed a strategic
delivery roadmap, and are regularly monitoring progress against our targets
and priorities.
Developing talent for the future
We remain committed to our outsourced business model, operating with a
small team and a wider group of external advisors and partners. However, as
part of our strategic people plan, we have recognised the importance of a
pipeline of talent and, during the year, we have recruited a number of
people, taking our headcount to 34 at 30 September 2019. Together with
recruitment in 2018, the age profi le of our workforce has shifted over the
past two years (see chart left).
We support everyone in the business to grow and develop. During the year,
we have invested further in employee development, delivering nearly 700
hours of training across our team, including ‘Leading Self’, a nine-month
leadership programme for a cohort of rising talent.
For the third year running,
we were top of the FTSE 250
in the Hampton-Alexander
review for the highest
female representation on
the executive committee
and direct reports.
(cid:679)(cid:681)
(cid:679)(cid:681)
(cid:679)(cid:682)
Shaftesbury Annual Report 2019
Strategic report Our people and culture
Em(cid:739)(cid:735)oyee (cid:746)e(cid:735)(cid:735)(cid:725)eing
Fostering employee wellbeing is good for our people and can be a core
enabler both of employee engagement and organisational performance.
The fast-changing world of work and the fl uctuating demands it can place
on our employees, and our business, means that our grasp of health and
wellbeing needs to constantly evolve so we can understand the impact on
our people. Consequently, this is a priority for us and, this year, we have
introduced a number of employee wellbeing initiatives to support them.
Working with the Feelgood Company, we have off ered everyone the
opportunity to attend a series of one-hour workshops, delivered to
support our team to be healthy and fi t, with optimum levels of energy
and resilience. These workshops were tailored to address the challenges
presented by working life and to off er an opportunity to refl ect on physical
and mental health, as well as to consider nutrition, to ensure we can each
be at our best. The workshops provided strategies to support people to
perform at their best in work and life and to put into practice new habits
to boost energy, both emotionally and physically.
We also reviewed our working policies, introducing fl exible hours and a
working-from-home policy as part of our employee off er. Our private
health care scheme includes the provision of mental health counselling
support.
(cid:709)e(cid:746)arding (cid:739)erformance
We are committed to rewarding performance, off ering competitive base
salaries and benefi ts packages. This year we completed a comprehensive
pay benchmarking process to ensure that we understand our position
within the market place and are aware of any trends in remuneration in
the sector. Our reward philosophy is based on team performance and
our incentive schemes aim to focus everyone on the achievement of
our strategic objectives.
Read more on reward scheme structures: page 85
Developing a diverse and inclusive team
We are committed to developing a diverse and inclusive team from the
widest talent pools as we believe this promotes employee recruitment,
engagement and productivity, and encourages collaboration and innovation,
underpinned by respect and equal opportunities for all. Diversity is all
about the rich mix of visible and non-visible diff erences and backgrounds
we aim for in our team and which is ingrained in our culture. Inclusion
means creating a collaborative environment that is open to diff erent ideas,
perspectives and styles of thinking, where all our people feel they can be
themselves, and where everyone can contribute fully to the Company’s
success. Our commitment extends to the standards we expect of
businesses with which we engage to provide advice and services.
In the year ahead, we will be reviewing our diversity and inclusion practices
and we will specifi cally be looking at how we can attract more BAME
candidates to apply for our positions, as well as considering how we
can provide more opportunities for young people from disadvantaged
backgrounds to develop careers either with us or within the real estate
sector.
Read more on diversity and our progress against the recommendations
for the Hampton-Alexander Review: page 77
(cid:679)(cid:682)
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Shaftesbury Annual Report 2019
Strategic report
Portfolio valuation report
Wholly-owned
Longmartin2
Portfolio valuation1
£4.0bn
combined
£3.8bn
((cid:684)(cid:680)(cid:664))
£0.2bn
((cid:680)(cid:664))
Valuation growth1,3
-0.2% -0.6%
combined
-8.5%
ERV growth3
3.2% 2.7%combined
-3.5%
Reversionary potential
£32.6m £35.1mcombined
£2.5m
1 An alternative performance measure: page 124
2 Our 50% share
3 Like-for-like
(cid:679)(cid:683)
(cid:679)(cid:683)
Combined portfolio
Our combined portfolio comprises 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 this joint venture as one-line items in the Income Statement and
Balance Sheet. The combined portfolio valuation is reconciled to the
valuation in the financial statements in note 25 to the financial statements.
At 30 September 2019, our combined portfolio1 was valued at £4.0 billion. On a
like-for-like basis, the valuation has declined by 0.6%, with the wholly-owned
portfolio (95% of the combined portfolio) declining by 0.2% and Longmartin’s
property (5% of the combined portfolio) showing a decrease of 8.5%.
% of
combined
portfolio
%
95%
5%
100%
Valuation
£m
3,784.2
209.0
3,993.2
Valuation
growth3
%
(0.2)%
(8.5)%
(0.6)%
ERV growth3
%
3.2%
(3.5)%
2.7%
Wholly-owned portfolio
Longmartin2
Combined1
In the analysis below, we have provided separate narratives on the
wholly-owned portfolio and Longmartin. We believe this presentation provides
a clearer analysis of the Group’s portfolio and performance for stakeholders.
Wholly-owned portfolio
At 30 September 2019, the valuation of the wholly-owned portfolio
was £3.8 billion. On a like-for-like basis, the valuation declined by 0.2%,
principally due to an overall increase in the portfolio equivalent yield of six
basis points to 3.47% (2018: 3.41%). The impact of this was largely offset by
improvements made through asset management initiatives, which resulted
in continued growth in both contracted income and estimated rental values.
After allowing for acquisitions, disposals and capital expenditure, the
revaluation deficit was £15.3 million.
Valuation
£m
1,437.7
Carnaby
Covent Garden
1,036.5
Chinatown
Soho
Fitzrovia
843.9
314.1
152.0
Annualised
current
income
£m
% of
portfolio
38%
28%
22%
8%
4%
44.4
30.3
26.8
10.7
4.9
Topped-up
net initial
yield
%
Equivalent
yield
%
2.98%
2.75%
2.89%
2.97%
2.73%
3.67%
3.28%
3.35%
3.45%
3.40%
ERV
£m
60.8
39.0
31.8
12.1
6.0
3,784.2
100%
117.1
149.7
2.89%
3.47%
Village
Carnaby
Covent Garden
Chinatown
Soho
Fitzrovia
2019 valuation growth1,3
5-year CAGR3
-1.3%
-0.1%
0.8%
6.7%
5.8%
6.1%
3.1%
8.1%
-2.4%
-0.2%
7.3%
6.4%
Shaftesbury Annual Report 2019
Strategic report
Portfolio valuation report
The increase in the equivalent yield was predominantly due to:
• yield expansion of up to twenty basis points in respect of larger shops,
mainly in Carnaby Street. Despite continuing demand for space in this
street, and further rental growth during the year, this yield adjustment
refl ects a market-wide shift in sentiment with general uncertainty around
occupier demand for even the best-located larger shops, where overall
rents and fi t-out commitments are higher; and
• a softening in the capital value of our mid-market residential
accommodation in certain villages of up to 4%, averaging 2.3% across the
portfolio. The average capital value of our residential is now £1,480 per sq.
ft. (2018: £1,510 per sq. ft.).
Read more on how we are responding to changing demand for
larger shops by repurposing our space on page 21
Residential: page 23
The availability of properties to buy in our locations and which meet our
strict criteria continues to be exceptionally limited. Existing owners, who
typically are private, rather than institutional investors, remain reluctant to
dispose of assets which off er security, high occupancy, reliable cash fl ow
and long-term growth prospects. When assets do become available, there
is strong domestic and international appetite, particularly for lot sizes up
to £25 million and where there are asset management opportunities.
Cushman & Wakefi eld, 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 underpin 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 refl ected in
the valuation included in these results, which has been prepared in
accordance with RICS guidelines.
(cid:698)ro(cid:746)ing re(cid:745)ersionary (cid:739)otentia(cid:735)
Annualised current income (£m)
ERV (£m)
150
144
134
129
27.8%
119
110
98
93
85
77
67
74
76
80
86
101
105
95
113
117
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Despite an increased level of space undergoing refurbishment during
the year, annualised current income has grown, on a like-for-like basis,
by 2.4% to £117.1 million (2018: £113.4 million).
Portfolio activity report: page 52
(cid:692)nnua(cid:735)ised current income ((cid:757)m)
2.8
117.1
113.4
1.0
(0.1)
2.4%
Sustained renta(cid:735) gro(cid:746)t(cid:731)
Over many years, our operationally-focused village management strategies
have delivered sustained growth in both contracted and potential income;
key drivers of long-term value creation. In our leasing activity, we aim to
convert the portfolio’s reversionary potential into contracted income and
cash fl ow, whilst establishing new rental tones, the benefi t of which is often
compounded across nearby holdings. The 10-year like-for-like compound
annual growth rate in annualised current income and ERV of our portfolio
has been 4.2% p.a. and 4.8% p.a. respectively, with growth every year.
100
2018
Acquisitions
Disposals
Like-for-like
growth
2019
(cid:679)(cid:684)
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Shaftesbury Annual Report 2019
Strategic report
Portfolio valuation report
The ERV of our wholly-owned portfolio is based on current, proven rental
tones. Importantly, the modest level of lease incentives granted to tenants,
usually in the form of rent-free periods, has remained largely unchanged
during the year.
At 30 September 2019, ERV was assessed by our valuers at £149.7 million,
up £6.0 million over the year, following growth in every village. Across the
portfolio, like-for-like growth was 3.2%, which included a contribution of
1.1% from 72 Broadwick Street, reflecting its increased rental potential as
a result of the refurbishment scheme which is now underway.
Portfolio activity report: page 52
E(cid:709)(cid:713) ((cid:757)m)
4.6
149.7
1.9
143.7
(0.5)
3.2%
Longmartin valuation
In the narrative below, all figures represent our 50% share.
At 30 September 2019, Longmartin’s long leasehold property was valued at
£209.0 million, £15.6 million lower than at 30 September 2018. After allowing
for capital expenditure in the year, the valuation decrease was 8.5%, equating
to a revaluation deficit of £19.2 million, largely due to a further write-down in
the value of retail space, which represents 37% of Longmartin’s portfolio.
% of
portfolio
£m
Annualised
current
income
£m
Valuation
£m
Retail
77.2
Non-retail
131.8
37%
63%
209.0
100%
2.6
4.9
7.5
Valuation
growth1,2
%
ERV
growth2
%
ERV
£m
3.5 (19.4)% (10.3)%
6.5
(0.6)%
0.8%
10.0
(8.5)%
(3.5)%
Change in
equivalent
yield
(basis
points)
+25
+3
+12
Retail
At 30 September 2019, the valuation of Longmartin’s retail space was £77.2
million (2018: £95.3 million), down 19.4% over the year, after allowing for
capital expenditure. The majority of this space is on Long Acre, a “high
street” which is characterised by large retail units, relatively high rental
tones and overall rents, and where ownerships are fragmented. Occupier
demand for these larger shops has declined and there has been a
noticeable increase in the availability of space on Long Acre during the year.
Over the year, annualised current retail income has fallen by £0.2 million to
£2.6 million (2018: £2.8 million), largely due to retail space on Long Acre
which has become vacant and is now under refurbishment.
Portfolio activity report: page 53
The ERV of Longmartin’s retail space decreased, on a like-for-like basis,
during the year, by 10.3% from £3.9 million to £3.5 million. This follows a
decline of 5.6% in 2018. On Long Acre, the decline was 14%, with the range
of zone A rents now £550-£600 per sq. ft., down from £618 - £650 a year ago.
Reflecting increased availability and current uncertainty over occupier
demand, the valuers have increased the equivalent yield attributed to Long
Acre retail by 35 basis points. When combined with retail not on Long Acre,
the overall retail equivalent yield has increased to 3.89% (2018: 3.64%).
(cid:705)on(cid:672)retai(cid:735)
At 30 September 2019, the valuation of Longmartin’s non-retail space,
comprising restaurants, offices and residential, was £131.8 million (2018:
£129.3 million). After allowing for capital expenditure in the year, the
like-for-like valuation decrease was 0.6%, reflecting a small increase
in the average equivalent yield, largely offset by rental growth.
Current annualised income for the non-retail space decreased over
the year from £5.3 million to £4.9 million, as a result of our restaurant
reconfiguration scheme in St Martin’s Courtyard, together with rent
free periods following recent lettings.
Portfolio activity report: page 53
The ERV of non-retail space has increased on a like-for-like basis, during
the year, by 0.8% to £6.5 million. The rental value of restaurants has grown
by 3.2%, reflecting improvements we are making, whilst the ERV of offices
and residential has been largely unchanged.
On average, the equivalent yield attributed to non-retail space was 3.97%,
three basis points higher over the year (2018: 3.94%).
130
2018
Acquisitions
Disposals
Like-for-like
growth
2019
The portfolio’s total reversionary potential is now £32.6 million, 27.8% above
annualised current income. We aim to crystallise this rental potential into
contracted income over three to five years.
Com(cid:739)onents of t(cid:731)e re(cid:745)ersion ((cid:757))
117.1
5.9
A
5.5
B
149.7
5.7
D
15.5
C
50
Annualised
current
income
Contracted
EPRA
vacancy
Asset
management
schemes
underway
Under
rented leases
ERV
(cid:699)o(cid:746) it (cid:746)i(cid:735)(cid:735) (cid:725)e rea(cid:735)ised
A On expiry of
rent-free periods
or contractual
increases in rent
B On letting space
available at 30
September 2019
C On completion and
letting of schemes
in progress at 30
September 2019
D Through the normal
cycle of rent reviews,
lease renewals and
lettings. Typically
realised over a
3-5 year period.
1 Alternative performance measure: page 124
2 Like-for-like
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Strategic report
Portfolio activity report
Leasing activity during the year1
Residential
Commercial
£7.3m
+0.2%
vs previous rent
Total
£33.5m
2018: £31.4m
+3.2%
vs 9/18 ERV
£26.2m
EPRA vacancy1,2
(cid:679)(cid:673)(cid:681)(cid:664)E(cid:709)(cid:713)(cid:685) (cid:757)(cid:681)(cid:673)(cid:681)m
(cid:678)(cid:673)(cid:682)(cid:664)E(cid:709)(cid:713)(cid:685) (cid:757)(cid:680)(cid:673)(cid:680)m
2018
2019
Schemes across1
241,600 sq ft
Capital expenditure1
£30.9 million
Projects underway1,2
(cid:682)(cid:673)(cid:681)(cid:664)E(cid:709)(cid:713)(cid:685) (cid:757)(cid:676)(cid:675)(cid:673)(cid:684)m
(cid:676)(cid:675)(cid:673)(cid:679)(cid:664)E(cid:709)(cid:713)(cid:685) (cid:757)(cid:676)(cid:680)(cid:673)(cid:680)m
2018
2019
Acquisitions1
£47.0 million
1 Wholly-owned portfolio
2 % of total ERV
3 2019: Central Cross; 2018: Central Cross and Thomas Neal’s Warehouse
Leasing activity
During the year, occupier demand has been robust and occupancy levels
have remained high.
We continue to convert our portfolio’s reversionary potential into contracted
income, whilst delivering further long-term growth in rental values. In the
year to 30 September 2019, we concluded leasing transactions in the
wholly-owned portfolio with a rental value of £33.5 million (2018: £31.4
million), equating to 22.4% of total ERV.
Commercial leasing activity totalled £26.2 million, 3.2% above ERV at
30 September 2018. This included lettings and renewals with a rental value
of £15.6 million, 3.4% over 2018 ERV and rent reviews (rental value: £10.6
million) concluded 19.5% ahead of passing rents. Residential lettings and
renewals amounted to £7.3 million, with rents being achieved marginally
above previous levels.
Vacancy
During the year, EPRA vacancy1 has decreased by 0.9% to 3.7% of ERV.
EPRA vacancy1 at 30 September 2019
Food,
beverage
and leisure
£m
% of total ERV
Shops
£m
Offi ces
£m
Residential
£m
Total
£m
2019
%
2018
%
Larger schemes3
-
0.8
-
Underlying
vacancy
Available-to-let
Under offer
Total
Area (‘000 sq. ft.)
0.5
0.9
1.4
1.4
16
1.6
0.8
2.4
3.2
46
0.4
0.4
0.8
0.8
12
-
-
0.1
0.1
0.1
1
0.8
0.5% 1.9%
2.5
2.2
4.7
5.5
75
1.7% 1.4%
1.5% 1.3%
3.2% 2.7%
3.7% 4.6%
100
Larger schemes3
Having concluded lettings at Thomas Neal’s Warehouse in Seven Dials, and Central
Cross, larger scheme vacancy has fallen by 1.4% to 0.5% of total ERV during
the year.
At 30 September 2019, just two shops (ERV: £0.8 million) remained available
at Central Cross, of which one was under off er (ERV: £0.5 million).
Underlying vacancy
At 30 September 2019, available-to-let vacancy totalled £2.5 million,
representing 1.7% of ERV (2018: 1.4%). This comprised one restaurant and
three cafés (ERV £0.5 million), fi ve large and fi ve small shops (combined ERV:
£1.6 million) and 6,800 sq. ft. of offi ce space (ERV: £0.4 million).
Space with a rental value of £2.2 million (1.5% of ERV) was under off er (2018:
1.3%). This included eight restaurants and cafés (ERV: £0.9 million), fi ve shops
(ERV: £0.8 million), 5,500 sq. ft. of offi ces (ERV: £0.4 million) and three apartments.
(cid:680)(cid:676)
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Asset management
Sustainable reuse of buildings
With conservation area status and listed building legislation limiting
wholescale development in our areas, our strategy is to carefully manage,
reuse and adapt existing buildings. Through refurbishment, reconfiguration
and change of use, we improve our assets by:
• extending their useful economic lives;
• improving income and rental prospects;
• enhancing environmental performance; and
• making our accommodation more attractive to occupiers.
Our reconfiguration and refurbishment schemes often involve a
combination of maximising trading space across the lower floors, whilst
converting under-utilised space on upper floors to introduce alternative,
more valuable uses. Currently, we are responding to greater occupier
interest for smaller shops, where possible, by reconfiguring units and
introducing different, equally valuable uses for the space this releases.
Annual capital expenditure is generally modest at around 1% of portfolio
value. Often, the loss of income during works being carried out is a
relatively large part of the overall cost of a scheme.
Mixed-use buildings with considerable management flexibility: page 8
Limited obsolescence: page 17
In minimising our environmental impact, key scheme objectives include:
• reusing materials on site;
• using sustainably-sourced new materials;
• improving the energy performance of our accommodation; and
• achieving a BREEAM “Very Good” rating on all our larger projects.
Environment: page 32
Schemes
High levels of asset management and refurbishment activity continue across
our portfolio. Capital expenditure during the year totalled £30.9 million,
representing 0.8% of wholly-owned portfolio value, with schemes extending
to 241,600 sq. ft. (12.6% of wholly-owned floor space). This included our
80,000 sq. ft. project at 72 Broadwick Street, Carnaby.
At any one time, we have schemes at various stages, from initial ideas,
seeking planning approval, awaiting vacant possession or under construction.
As part of this continuing activity, during the year, we submitted 108
planning applications, an important ingredient in securing the pipeline
of activity.
We continue to identify opportunities to implement further asset
management initiatives to improve the rental prospects and value of
buildings across our portfolio, the timing of which often depends on
when we can secure vacant possession of space.
Pro(cid:733)ects under(cid:746)ay at year end
At 30 September 2019, vacant space held for, or under, refurbishment1
extended to 213,000 sq. ft., and represented 10.4% of total ERV, an increase
from 7.6% a year ago.
Space held for or undergoing refurbishment1 at
30 September 2019
Food,
beverage
and leisure
£m
Shops
£m
Offices
£m
Residential
£m
72 Broadwick Street
Other schemes
Area (’000 sq. ft.)
3.5
1.9
5.4
73
0.4
2.4
2.8
27
1.5
4.0
5.5
77
0.7
1.1
1.8
36
% of total ERV
Total
£m
6.1
9.4
2019
%
2018
%
4.1% 2.8%
6.3% 4.8%
15.5
10.4% 7.6%
213
175
(cid:682)(cid:677) (cid:693)road(cid:746)ic(cid:734) Street(cid:671) Carna(cid:725)y
Having secured planning consent earlier in the year, we have now
commenced works on our 80,000 sq. ft. mixed-use scheme to:
• introduce new retail, restaurant and leisure uses;
• relocate the office and residential entrances to allow activation
of the commercial frontage on Broadwick Street;
• extend and refurbish the remaining office space; and
• reconstruct the residential accommodation, increasing the number
of apartments from eleven to fifteen.
The project’s ERV is £6.1 million (4.1% of portfolio ERV), up £2.1 million
over the year, which reflects the planning consent secured in the year and
incorporation of additional lower floor space into the design. Its estimated
total cost is £32.1 million, of which £6.0 million had been incurred by
30 September 2019. Completion is anticipated in phases from late 2020.
Other schemes
At 30 September 2019, we had 52 schemes underway, extending to 133,000
sq. ft. and representing 6.3% of ERV. These included 26,700 sq. ft. of
restaurants and cafés (ERV: £1.9 million), 23,800 sq. ft. of shops
(ERV: £2.4 million), 60,100 sq. ft. of office accommodation (ERV: £4.0 million)
and 36 apartments being created or upgraded (ERV: £1.1 million).
During the year, new schemes with an ERV of £5.6 million commenced,
whilst schemes with an ERV of £3.0 million completed and are now largely
income-producing or under offer.
Projects with an ERV of £7.7 million are expected to complete in the coming
year, of which £5.0 million is anticipated in the first half of the year. In the
short term, these will increase EPRA vacancy, but will provide a useful
contribution to income and earnings over the medium term.
1 Wholly-owned portfolio
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Shaftesbury Annual Report 2019
Strategic report
Portfolio activity report
Other than 72 Broadwick Street, our medium-sized schemes underway at
30 September 2019 included:
Scheme
Description
1 Gerrard Place,
Chinatown
Reconfi guration to create two
restaurants, including active
frontage in Horse & Dolphin
Yard, and 9 apartments
1 Little Marlborough
Street, Carnaby
Offi ce extension and
refurbishment
45/49 Charing Cross
Road, Chinatown
Reconfi guration and extension
to provide new fl agship
restaurant space and fi ve
apartments at this gateway
to Chinatown
16-20 Short’s Gardens,
Seven Dials
Offi ce reconfi guration and
refurbishment
50 Marshall Street,
Carnaby
Creation of retail unit and
refurbishment/extension of
offi ce space
Estimated
cost
£m
Cost to
complete
£m
Estimated
completion
6.4
2.1
Q1 2020
2.7
4.0
2.1
4.9
0.1
Q1 2020
1.6
Q2 2020
1.9
Q3 2020
4.3
Q4 2020
Longmartin asset management
In the narrative below, all fi gures (except areas) represent our 50% share.
During the year, lettings and rent reviews with a rental value of £1.4 million
were concluded (2018: £1.4 million). This included a new lease to Dishoom,
to combine two restaurants, fronting Upper St Martin’s Lane and backing
on to St Martin’s Courtyard, to create a 10,000 sq. ft. fl agship unit, which
will further enhance the courtyard’s dining off er.
At 30 September 2019, the ERV of Longmartin’s vacant space was £0.9
million (2018: £0.7 million) and included a prominent fl agship unit at the
corner of Upper St Martin’s Lane and Long Acre, together with 5,900 sq. ft.
of offi ce space at the recently completed Sussex House scheme (ERV: £0.6
million), all of which was under off er. Other vacancy included 8,800 sq. ft. of
offi ce accommodation, which was under off er (ERV: £0.2 million), two small
shops (ERV: £0.1 million) and one apartment.
Capital expenditure in the year was £3.7 million. At 30 September 2019,
the ERV of space under refurbishment was £1.0 million (2018: £0.9 million),
the majority of which relates to:
• two large adjoining shops on Long Acre (ERV: £0.6 million), which have
become vacant and where plans are being prepared to reconfi gure the
combined space to reduce the retail element and introduce alternative
uses at fi rst fl oor; and
• a scheme to reconfi gure the north side of St Martin’s Courtyard to create
three restaurants (ERV: £0.3 million), each with outside seating, which is
currently expected to complete in late 2019.
Public realm improvements
We continue to 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.
In the coming year, London Borough of Camden plans to improve the
northern entrance to Seven Dials on Shaftesbury Avenue, at the junction
with Monmouth Street and Neal Street. Complementing their existing
junction improvement works, the scheme will involve repaving, de-cluttering
the pavement and improved lighting and should increase footfall into Seven
Dials, particularly from Tottenham Court Road once the Elizabeth Line
opens. We are expecting to contribute £0.4 million to this scheme.
Improvements to Rupert Street, south of Shaftesbury Avenue, are planned
next year by Westminster City Council after Chinese New Year celebrations
in February 2020. Here, the pavement on the east side will be signifi cantly
widened and de-cluttered, with lighting and signage mounted on buildings
wherever possible. Our contribution to this is anticipated to be £0.5 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 off er the potential for future rental growth, either individually or
through combination with our existing ownerships.
During the year, we acquired fi ve properties at a total cost of £47.0 million.
Located in Carnaby, Fitzrovia, Soho and Seven Dials, these comprised a pub
(4,000 sq. ft.), two restaurants (4,000 sq. ft.), four shops (10,000 sq. ft.) and
3,300 sq. ft. of offi ce accommodation.
(cid:684)(cid:675)(cid:672)(cid:676)(cid:675)(cid:679) (cid:693)er(cid:746)ic(cid:734) Street
The vendor currently expects to be in a position to complete the sale of
this long leasehold interest to us by 30 April 2020. Since 30 September
2019, a reduction in the purchase price, from £38.5 million to £36.0 million
(exclusive of purchase costs), has been agreed.
Read more on availability of properties to buy: page 49
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Shaftesbury Annual Report 2019
Strategic report
Financial report
(cid:707)resentation of financial
information
EPRA measures
As is usual practice in our sector, we produce alternative measures for
certain indicators, including earnings, earnings per share and NAV, making
adjustments set out by EPRA in its Best Practices Recommendations. These
recommendations are designed to make the financial statements of public
real estate companies more comparable across Europe, enhancing the
transparency and coherence of the sector. These measures are reconciled
to IFRS in note 25 to the financial statements.
Investment properties and debt
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.
The Board considers the valuation of properties and our debt position on
both IFRS and proportionally consolidated bases, including our 50% share
of investment property and debt in the joint venture. This is reflected in the
valuation and capital structure analyses on pages 48 and 57. We consider
that this presentation is useful for stakeholders. Measures presented on
a proportionally consolidated basis are alternative performance measures
(APMs) as they are not defined under IFRS.
Further details on APMs used, and how they reconcile to IFRS, are set out
on page 124.
Income statement
Net property income
Administrative expenses
Valuation (deficits)/gains and disposal profits
Operating profit
Net finance costs
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
2019
£m
98.0
(15.2)
(12.5)
70.3
(30.5)
(13.8)
26.0
-
26.0
8.5p
54.6
17.8p
2018
£m
93.8
(13.7)
127.7
207.8
(31.2)
(1.1)
175.5
-
175.5
58.1p
51.7
17.1p
Profit after tax for the year was £26.0 million (2018: £175.5 million) and basic
earnings per share was 8.5p (2018: 58.1p). The decrease in profit after tax
was largely due to:
• a revaluation deficit, net of disposal profits, which reduced profits, this year,
by £12.5 million, compared with a surplus of £127.7 million in 2018; and
• an increase in our share of the post-tax losses from the Longmartin joint
venture, as a result of the reduction in the valuation of its investment
property.
These reductions were partly offset by higher operating profit before
investment property disposals and valuation movements and lower net
finance costs, which, together, increased profit after tax by £3.4 million.
Portfolio valuation: page 48
EPRA earnings1
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 the Longmartin joint venture.
EPRA earnings increased by 5.6% to £54.6 million (2018: £51.7 million)
resulting in EPRA EPS of 17.8p, 4.1% above last year (2018: 17.1p). The smaller
relative increase in EPRA EPS, compared with that for EPRA earnings, is
due to the larger weighted average number of shares in issue following
the equity placing in December 2017.
The increase in earnings was due to:
• an increase in net property income resulting from the continued
conversion of our reversionary potential into contracted income; and
• a reduction in net finance costs, due to increased interest income received
in the period, together with lower loan issue cost amortisation, following
an accelerated write-off of costs in 2018.
These were partly offset by:
• higher employee costs, which increased administrative expenses; and
• lower net property income in the Longmartin joint venture as a result
of development schemes and vacancy.
EPRA earnings1 ((cid:757)m)
4.2
51.7
0.7
54.6
(1.5)
(0.5)
20
2018
Admin costs
Longmartin
2019
Net property
income
Net finance
costs
1 An alternative performance measure: page 124
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Shaftesbury Annual Report 2019
Strategic report
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(cid:706)(cid:739)erating (cid:739)rofi t (cid:725)efore in(cid:745)estment (cid:739)ro(cid:739)erty
disposals and valuation movements
Rental income increased by 4.0% (£4.5 million) to £117.3 million (2018: £112.8
million). The like-for-like increase was 4.9%, as we continue to crystallise
the reversionary potential of our portfolio. Acquisitions added £1.8 million,
whilst disposals reduced rental income by £0.4 million. Having secured
vacant possession at 72 Broadwick Street in September 2018, this scheme
was not income-producing during the year, having contributed short-term
income of £2.3 million to rental income in 2018.
Portfolio activity: page 52
(cid:709)enta(cid:735) income ((cid:757)m)
112.8
1.8
(2.3)
(0.4)
4.9%
5.4
117.3
70
2018
72 Broadwick
Street
Acquisitions
Disposals
Like-for-like
growth
2019
After irrecoverable property charges of £19.3 million (2018: £19.0 million),
representing 16.5% of rental income (2018: 16.8%), net property income
was £98.0 million, up 4.5% over the year (2018: £93.8 million).
Administrative expenses totalled £15.2 million (2018: £13.7 million). This
increase was largely due to additional employee costs as a result of higher
headcount, together with an increase in performance-related compensation.
The total expense includes a non-cash accounting charge for equity-settled
remuneration of £1.2 million (2018: £0.6 million) and a bonus cost of £2.6
million (2018: £2.2 million).
Annual remuneration report: page 89
Excluding employee costs, other administrative expenses were unchanged
at £5.2 million (2018: £5.2 million).
(cid:713)a(cid:735)uation defi cit and dis(cid:739)osa(cid:735) (cid:739)rofi ts
The revaluation defi cit in the year amounted to £15.3 million (2018: surplus
of £123.1 million), representing a like-for-like valuation decrease1 of 0.2%,
largely due to average yield expansion of six basis points (2018: fi ve basis
points yield compression), largely off set by like-for-like ERV growth of 3.2%
(2018: 2.6%).
During the year, we sold two non-core properties. Net proceeds, after sale
costs, were £14.3 million, 24.3% above book value, representing a surplus of
£2.8 million. Disposal gains in 2018 were £4.6 million.
Portfolio valuation: page 48
(cid:705)et fi nance costs
Net fi nance costs of £30.5 million (2018: £31.2 million) included interest
income of £1.0 million (2018: £0.8 million). The charge in 2018 included an
accelerated write-off of previously unamortised loan issue costs, totalling
£0.3 million, following refi nancing activity in February 2018.
S(cid:731)are of (cid:703)ongmartin (cid:739)ost(cid:672)ta(cid:747) resu(cid:735)ts
Revaluation defi cits resulted in the Longmartin joint venture reporting
post-tax losses in both 2018 and 2019. Our share of the revaluation defi cit in
2019 was £19.2 million (2018: £5.0 million). Excluding these revaluation losses,
and our share of the related deferred tax credits totalling £3.1 million (2018:
£1.1 million), our share of EPRA earnings1 from Longmartin decreased by £0.5
million to £2.3 million (2018: £2.8 million), due to lower net property income
as a result of development schemes and vacancy on Long Acre.
Portfolio valuation: page 50
Portfolio activity: page 53
Tax
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 aff airs 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. During the year, HMRC confi rmed our status as a
‘low risk’ taxpayer. Our detailed tax strategy is available on our website.
As a REIT, the Group’s activities are largely exempt from corporation tax and,
as a result, there is no tax charge in the year (2018: £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 £23.5 million (2018: £29.2 million). In
addition, our share of taxes, including corporation tax, levied on, or
collected by, Longmartin was £1.6 million (2018: £1.8 million).
Dividends
As a REIT, we are required to distribute a minimum of 90% of net rental
income, calculated by reference to tax rather than accounting rules, as a
PID. Notwithstanding this, our dividend policy is to maintain steady growth in
dividends, refl ecting 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 for a year exceed the amount
available to distribute as a PID, we pay the balance as ordinary dividends.
Principal risks and uncertainties, including those which might aff ect income
and earnings, are set out on pages 60 to 61.
The Board monitors the Group’s ability to pay dividends out of available
resources and distributable reserves. Our forecasts take into consideration
future liquidity requirements, which include prospective dividend payments.
At 30 September 2019, we had distributable reserves of £228.4 million. It is
our policy, where possible, for subsidiary companies to distribute the majority
of their distributable profi ts to Shaftesbury PLC annually. Currently, there
are no restrictions on any subsidiaries’ ability to distribute profi ts.
The Board has recommended a fi nal dividend of 9.0p per share, an increase
of 5.9% on last year’s fi nal dividend of 8.5p. If approved at the 2020 AGM,
the total dividend for the year will be 17.7p per share, an increase of 5.4% on
last year (16.8p).
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Strategic report Financial report
This increase reflects growth in EPRA earnings1, as discussed above. Total
dividends for the year are covered 1.01 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 £1.2 million (2018: £0.6 million).
The total distribution for the year will be £54.4 million, 5.4% higher than last
year (2018: £51.6 million) and is fully covered by adjusted EPRA earnings1 of
£54.6 million.
If approved at the 2020 AGM, the final dividend will be paid on 14 February
2020, with 5.25p as a PID and 3.75p as an ordinary dividend.
Dividends vs adjusted earnings1 ((cid:739)ence (cid:739)er s(cid:731)are)
Dividends 5-year CAGR: 6.2%
Dividends
Adjusted EPS1
EPRA NAV1
EPRA NAV makes adjustments to reported NAV to provide a measure of the
fair value of net assets on a long-term basis. Assets and liabilities which are
not expected to crystallise in normal circumstances are excluded. In our
case, the calculation excludes deferred tax related to property valuation
surpluses and deficits in the Longmartin joint venture.
Total accounting return measures shareholder value creation, taking into
account the growth in EPRA NAV together with dividends paid.
EPRA NAV per share decreased during the year by 9p (0.9%) to £9.82 (2018:
£9.91), principally due to the revaluation deficits, both in the wholly-owned
portfolio and Longmartin, less disposal profits. Together, these reduced
EPRA NAV by 10p per share. EPRA earnings1 of 17.8p per share were largely
offset by dividends paid (17.2p per share).
EPRA NAV1 ((cid:739)ence (cid:739)er s(cid:731)are)
17.3
17.7
18.2
991
18
(17)
982
(10)
16.7
16.0
16.8
14.7
14.7
13.75
13.9
2015
2016
2017
2018
2019
900
2018
EPRA
earnings
Dividends
Net revaluation
movements
2019
Balance Sheet
Investment properties
Investment in joint venture
Net debt
Other net assets
Net assets
EPRA NAV per share1
Total accounting return1
2019
£m
3,765.9
127.6
(905.8)
19.5
3,007.2
£9.82
0.8%
2018
£m
3,714.8
143.9
(841.3)
15.6
3,033.0
£9.91
5.8%
(cid:694)as(cid:731) (cid:1026)o(cid:746)s an(cid:727) net (cid:727)e(cid:725)t
Net debt increased by £64.5 million to £905.8 million (2018: £841.3 million).
The major cash flows were:
• Acquisitions and capital expenditure totalling £75.4 million.
• Net disposal proceeds of £14.3 million.
• Operating cash inflow totalling £50.6 million.
• Dividends paid amounting to £52.9 million.
(cid:705)et de(cid:725)t ((cid:757)m)
61.1
1.1
905.8
Net assets
At 30 September 2019, net assets were £3,007.2 million. The decrease
during the year of £25.8 million, from £3,033.0 million, followed dividends
paid, amounting to £52.9 million, profit after tax for the year of £26.0 million
and credits for share-based remuneration of £1.1 million.
(50.6)
841.3
52.9
700
2018
Operating
cash inflow
Dividends
Net portfolio
investment
Other
2019
1 An alternative performance measure: page 124
(cid:680)(cid:681)
(cid:680)(cid:681)
Shaftesbury Annual Report 2019
Strategic report
Financial report
Capital structure
Under REIT rules, we are required to distribute the majority of our recurring
earnings. Furthermore, the importance of our ownership clusters in long-term
value creation means that opportunities to recycle capital are limited.
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.
We seek to minimise fi nancing 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 prospective
fi nancial ratios, including gearing, approach the upper limit of our tolerance,
we look to secure additional equity funding to provide fi nancial capacity for
continued investment in our portfolio.
The summary below is presented both with and without our proportional
share of Longmartin’s net debt.
Presentation of fi nancial information: page 54
Finance summary
Net debt
- reported under IFRS
- proportionally consolidated1,5
Resources
Cash (IFRS)
Undrawn fl oating rate facilities (£m)
2019
£m
905.8
965.2
54.0
225.0
279.0
(82.4)
196.6
2018
£m
841.3
900.0
118.5
225.0
343.5
(92.7)
250.8
• Conservative leverage
• Spread of maturities
and sources of fi nance
We use debt to enhance, not drive,
returns.
Available resources
Commitments7
Reduces refi nancing risk.
Uncommitted resources
• Long-term arrangements
form the core of our debt
fi nance
Consistent with the long-term
nature of our portfolio and secure
income streams.
• Medium-term revolving
facilities
Provide fl exibility and the ability to
act swiftly when acquiring
properties.
• Majority of interest fi xed
Limits exposure to interest rate risk.
Sources of debt
Bonds (fi xed rate)
Revolving bank facilities (variable rate)
Term loans (fi xed rate)
Wholly-owned
business
2019
Including
Longmartin
2019
Wholly-owned
business
2018
Including
Longmartin
2018
Loan-to-value4,5
Gearing3,4,5
Interest cover5
% drawn debt fi xed
Blended cost of debt2,5
Marginal cost of undrawn fl oating
rate facilities
23.9%
31.9%
2.7x
100%
3.2%
1.6%
24.2%
31.9%
2.7x
100%
3.2%
1.6%
22.6%
29.5%
2.6x
100%
3.2%
1.6%
22.8%
29.5%
2.6x
100%
3.2%
1.6%
Weighted average maturity (years)
9.3
9.2
10.3
10.2
19%
32%
49%
At 30 September 2019, net debt was £905.8 million (2018: £841.3 million)
and our loan-to-value ratio5 increased to 23.9% (2018: 22.6%) as a result
of investment in our portfolio during the year and the impact of the
revaluation defi cits.
Portfolio valuation: page 48; portfolio activity: pages 52 to 53
Available resources totalled £279.0 million (2018: £343.5 million), of which
£82.4 million is earmarked for existing commitments. On a pro-forma basis,
taking this expenditure into account, our loan-to-value ratio5 would be
25.6%.
The blended cost of debt5 was 3.2% (2018: 3.2%) and the marginal cost of
drawing on our committed revolving credit facilities was 1.6% (2018: 1.6%).
(cid:695)e(cid:725)t maturity (cid:739)rofi (cid:735)e ((cid:757)m)
Bank facilities (variable)
Bonds (fi xed)
Term loan (fi xed)
JV term loan6 (fi xed, our 50% share)
290
285
125
100
60
135 130
120
2019
2022 2023
2026 2027
2029 2030 2031
2035
1 Including our 50% share of Longmartin debt. See presentation of fi nancial information on
page 54.
2 Including non-utilisation fees on undrawn bank facilities.
3 Based on EPRA net assets.
4 Based on net debt.
5 Alternative performance measure: page 124.
6 Shaftesbury Group’s 50% share; non-recourse to Shaftesbury.
7 Capital commitments (wholly-owned portfolio). 2018 included expected scheme
commitments at 72 Broadwick Street.
(cid:680)(cid:682)
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Shaftesbury Annual Report 2019
Strategic report
Risk management
Context and risk appetite
We invest exclusively in London’s West End, a location 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 this
geographic concentration is a high inherent risk and there are certain
external factors which we cannot control.
In executing our strategy, we seek to minimise exposure to operational,
reputational and financial risks, recognising that our appetite to risk varies
across different elements of our strategy, as follows:
High
Medium
Low
Development
risk
Letting
risk
Financing
risk
Compliance
risk
Reputation
risk
Important factors contributing to the relatively low risk of our business include:
• An experienced executive and senior leadership team, with an average
tenure of 16 years, which 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;
Pages 63 to 65
• The nature of our portfolio does not expose us to risks inherent in material
speculative development schemes;
Page 8
• Our diverse tenant base limits exposure to any single occupier;
• Our Balance Sheet is managed 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;
Page 57
• A culture which encourages open dialogue within the management team
and with the wide range of external advisors employed in running the business;
Page 36
• A simple group structure; and
• A governance framework which includes clearly defined responsibilities and
limits of authority.
Page 70
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 and executive directors share the same incentive
targets and benefits, which are set to achieve the Group’s purpose and
long-term strategic objectives, and encourage decisions to be made on the
basis of long-term benefit, rather than short-term gain.
(cid:680)(cid:683)
(cid:680)(cid:683)
Monitoring and managing risk
Roles and responsibilities in managing our risk and controls framework
are summarised below.
Risk is considered as follows:
• Daily at an operational level by senior management;
• Weekly at executive director meetings;
• Monthly at the Executive Committee meetings; and
• Bi-annually (or as needed) by the Risk Committee.
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.
On a day-to-day basis, risks are dealt with as they arise and, where
significant, are discussed more widely with the executive team. This ensures
an awareness of the risks identified and solutions adopted. Issues 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.
Assurance: page 59
The Risk Committee, comprising executive directors and members of the
senior leadership 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. Its key activities
include:
• Reviewing and assessing the Group’s risk register;
• Reviewing principal risks and uncertainties, including new/emerging risks;
• Providing support to the Board to define risk appetite;
• Assessing and reviewing the Group’s control environment; and
• Assessing the effectiveness of the Group’s controls.
Assessing 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, environmental matters and regulatory issues. 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,
appropriate action is taken to rectify the issue and implement controls to
mitigate further occurrences. Such occurrences are reported to the Audit
Committee.
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.
Shaftesbury Annual Report 2019
Strategic report
Risk management
Top down
Oversight, assessment and
mitigation at a Group level
Board
• Overall responsibility for risk management and internal control
• Determines the risk appetite
• Reviews principal and emerging risks
Risk committee
• Co-ordinate and develop the risk
management process
• Consider strategic and emerging risks
and internal controls
Audit committee
• Monitor the eff ectiveness of the risk
management process and internal
control framework
Identifi cation, assessment
and mitigation at an
operational level
Bottom up
Executive management
• Day-to-day monitoring of risk
• Design and implementation of controls
Assurance
• Internal audit reviews
• Review of the eff ectiveness of controls
• Observations from the external auditor
01
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Assurance
Effectiveness of controls
During the year, external assurance reviews have been carried out on the
eff ectiveness of controls in the following areas:
• portfolio investment;
• refurbishment and reconfi guration scheme management; and
• tax procedures in relation to the prevention of the facilitation of tax evasion.
Executive management have also assessed the eff ectiveness of key controls
not covered by these external reviews.
(cid:692)d(cid:745)isory re(cid:745)ie(cid:746) of (cid:739)rocedures
Procedures and controls over tax processes, GDPR and processes at one of
our managing agents have been externally reviewed during the year.
Findings from these reviews were reported to the Audit Committee. Whilst
they did not identify any signifi cant issues or control failings, a small number
of recommendations for improvements were made and these have been
addressed or are being considered by management, with oversight by the
Risk Committee.
Whilst the programme for reviewing processes and controls in the coming
year is currently being fi nalised, a review of the purchases and payments
cycle is currently underway. In addition, we anticipate an external review of
the eff ectiveness of tax controls and an advisory review of the rent cycle
processes.
(cid:680)(cid:684)
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Shaftesbury Annual Report 2019
Strategic report
Principal risks and uncertainties
The Board has carried out a robust assessment of the principal and
emerging risks and uncertainties which might prevent the Group achieving
its strategic objectives. 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 2018.
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.
• Failure to anticipate changes in occupier profitability.
Reputation
• Misconduct or poor operational standards by third
party agents.
Governance,
data and
internal
control
• Damage to reputation with local stakeholders and
communities.
• Significant cyber security breach leading to disruption
and/or loss of data.
• Expulsion from REIT regime through non-compliance.
• Health and safety matters.
• Failure to meet our environmental, social and
governance (ESG) responsibility objectives.
• Failure to meet financial or tax compliance obligations.
People
• Attracting, retaining and developing talented people.
• Succession planning.
New and emerging risks discussed by the Risk Committee and the Board
included:
• Impact of climate change.
• Failure to anticipate or understand changes in consumer and occupier
trends in food, beverage and retail.
• Failure to effectively use, store and manage data.
• Failure to meet stakeholder ESG expectations.
Additionally, other issues discussed included competing locations and the
impact of CVA’s on leasing negotiations.
Climate change is expected to have a growing impact on our weather over
the medium term, which is likely to present local, national and global
challenges for all businesses and society generally. We have in place a
number of measures to minimise the environmental impact of our business.
This risk will now be considered at each Risk Committee meeting.
To tackle some of these emerging issues, we:
• have increased staffing levels;
• are carrying out a commercial data pilot in Seven Dials;
• are assessing our IT strategy; and
• continue to consider future consumer trends and technological disruption.
This report should be read in conjunction with the viability statement on
page 62.
Reduction of spending and/
or footfall in our areas
Footfall and customer spending 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 sustained rental growth.
Strategic objectives
Link to business
model
1
2
5
A,B,C
Evolution of risk
Residual risk
within appetite
Strategic objectives
1
(cid:703)ong(cid:672)term
gro(cid:746)t(cid:731) in
rents and
portfolio
value
2
(cid:698)ro(cid:746)
recurring
earnings
and cash
(cid:1026)o(cid:746)
3
(cid:692)ttract(cid:671)
develop and
retain
talented
people
(cid:679)
Minimise
environmental
impact
(cid:680)
Deliver
sustaina(cid:725)(cid:735)e(cid:671)
(cid:735)ong(cid:672)term
(cid:725)enefits for our
stakeholders
Link to business model
A Invest exclusively in the West End
B Holistic long-term village curation
C Focus on food, beverage, retail and leisure
D Focus on sustainability and stakeholders
E
Invest in staff welfare and development
F Reuse and improve buildings
G Prudent financial management
Evolution of risk
Risk increased
Risk unchanged
Risk decreased
Pages 6 to 7
Pages 6 to 7
(cid:681)(cid:675)
(cid:681)(cid:675)
Shaftesbury Annual Report 2019
Strategic report
Principal risks and uncertainties
Changes in regulatory
environment
All our properties are in the boroughs of
Westminster and Camden, so changes to local
policies may limit our ability to maximise the
long-term potential of our portfolio. Increasing
national regulation, including corporate social
responsibility targets and obligations raise costs
and, in extremis, could limit the ability to
maximise values and income.
Potential causes
• Unfavourable changes to national or local
planning and licensing policies.
• Tenants acting outside of planning/licensing
consents.
• Growing complexity and level of sustainability
regulation.
• Increased stakeholder focus on ESG.
Consequences
• Ability to maximise the growth prospects of our
assets limited.
• Reduced occupier demand.
• Increased costs.
• Reduced earnings.
• Decrease in property values and NAV (amplifi ed
by gearing).
Mitigation
• Ensure our properties are operated in
compliance with local and national 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.
Macroeconomic factors
Impact of economic and political uncertainty.
Potential causes
• Macroeconomic shocks or events.
• 2019 general election.
• Uncertainty on the timing and terms of Brexit.
• Upward cost pressures.
Consequences
• Lower consumer confi dence.
• Reduced visitor numbers.
• Reduced tenant profi tability.
• Reduced occupier demand.
• Pressure on rents.
• Higher vacancy.
• Reduced rental income and declining earnings.
• Reduced ERV, capital values and NAV (amplifi ed
by gearing).
• Depending upon the terms of Brexit, lower
availability of labour, occupier supply chain
disruption and higher import costs.
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 2019: £20.7 million.
General election 2019 and Brexit: page 5
Decline in the UK real estate
market
Changes to macroeconomic outlook.
Potential causes
• Changes to political landscape.
• Increasing bond yields and cost of fi nance.
• Reduced availability of capital and fi nance.
• Lower relative attractiveness of property
compared with other asset classes.
• Changing overseas investor perception of UK
real estate.
Consequences
• Reduced property values.
• Decrease in NAV (amplifi ed 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 fi nance and loan
maturities.
• Quarterly forecasts including covenant
headroom review.
• Pool of uncharged assets available to top up
security held by lenders.
Capital structure: page 57
• Sustainability targets included in remuneration,
Strategic objectives
including for each refurbishment or
reconfi guration scheme appraisal.
• Recruitment of a head of sustainability.
Portfolio activity report: page 52
Link to business
model
Evolution of risk
Strategic objectives
1
2 4 5
Link to business
model
Evolution of risk
B,C,D,E
Residual risk
within appetite
1
2
5
A,B,C,F
The increased rating
refl ects continued
uncertainty as our EU
departure
approaches.
Strategic objectives
1
2
5
Link to business
model
Evolution of risk
A,B,F
Risk increase
refl ects growing
macroeconomic
uncertainty.
Residual risk
within appetite
Risk level increased to
refl ect impact of
building performance
and environmental
regulation.
Residual risk
within appetite
(cid:681)(cid:676)
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Shaftesbury Annual Report 2019
Strategic report
Viability statement
(cid:711)he directors ha(cid:745)e assessed the (cid:698)roup(cid:990)s (cid:745)iabilit(cid:748) 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 o(cid:745)er the fi(cid:745)e(cid:672)(cid:748)ear period to (cid:710)eptember (cid:677)(cid:675)(cid:677)(cid:679)(cid:673)
Our investment strategy is focused on food, beverage, retail and leisure,
uses which, in the West End, have a long record of resilience and growth.
Our management strategy has delivered high occupancy and sustained
income growth over the long term as set out on page 49. 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 55 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 covenants
continued to be satisfied. See page 57 for more on our prudent approach
to financial management. Loan-to-value and interest cover ratios are set
out on page 57.
The sensitivity analyses modelled asset value declines of up to 50%,
resulting from increasing equivalent yields, together with decreases in ERVs.
In unison, we considered decreases in net property income of up to 50%,
alongside an increase in interest rates of up to 5%. Whilst these scenarios
would present significant challenges over the five-year period, our
assessment is that they would not threaten the viability of the Group.
The Strategic Report on pages 1 to 62 was approved by the Board on
25 November 2019.
Brian Bickell
Chief Executive
Chris Ward
Finance Director
Period of assessment
The five-year assessment period reflects lease lengths or rent review
patterns across a large part of our portfolio, and corresponds with the
Group’s current forecast period. Typical lease terms are set out on pages 19
to 23. 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 50.
• 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, including macroeconomic uncertainties and the
potential impact of a no deal Brexit.
Sensitivity analyses were prepared which flexed the key inputs, both
individually and in unison.
See pages 60 to 61 for principal risks and uncertainties.
(cid:681)(cid:677)
(cid:681)(cid:677)
Shaftesbury Annual Report 2019
Governance
Our people
Senior leadership team
The Executive Committee comprises the executive directors and the senior leadership team.
Julia Wilkinson
Group Restaurant Strategy Executive
Joined: 1997
Julia is a chartered surveyor and leads
the Group restaurant and leisure
leasing strategy.
Charles Owen
Portfolio Executive
Joined: 2012
Charles is a chartered surveyor
and is responsible for the asset
management of the Covent Garden
portfolio.
Charles is a member of the
Community Investment and
Risk Committees.
Karen Baines
Head of Group Marketing &
Communications
Joined: 2016
Karen is responsible for the
Group-wide strategic marketing
and PR for consumer, trade and
corporate communications.
Penny Thomas
Company Secretary
Joined: 2005
Penny leads on company secretarial
activities within the Group, advising
the Board on governance. Penny is a
chartered secretary and is responsible
for compliance, company secretarial
and group-wide sustainability. She also
acts as secretary to the Board and its
Committees. Penny is a member of
our Sustainability, Risk, Pension and
Community Investment Committees.
Penny is a Trustee of the Soho Square
Garden Committee.
Andrew Price
Portfolio Executive
Joined: 2001
Andrew is a chartered surveyor and is
responsible for the Group-wide
acquisitions strategy and Chinatown
asset management.
Andrew chairs the Community
Investment Committee and is a
member of our Pension and Risk
Committees.
Sam Bain-Mollinson
Head of Retail
Joined: 2011
Sam is a chartered surveyor and is
responsible for the Group retail
strategy and leasing.
(cid:681)(cid:678)
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Shaftesbury Annual Report 2019
Governance
Executive directors
Left to right
Tom Welton
Brian Bickell
Simon Quayle
Chris Ward
Non-executive
directors
Left to right
Dermot Mathias
Jennelle Tilling
Sally Walden
Jonathan Nicholls
Jill Little
Richard Akers
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Shaftesbury Annual Report 2019
Governance
Our board
Executive directors
Brian Bickell
Chief Executive
Appointed to the Board: July 1987
Relevant experience and contribution
Brian was appointed Chief Executive in 2011,
having joined Shaftesbury in 1986 and was
appointed Finance Director in 1987. As Chief
Executive, Brian is responsible for implementing
strategy and the day-to-day operations of the
Group. Brian is a chartered accountant.
Brian has a long tenure with Shaftesbury and
extensive experience within the property
sector. Brian has a proven record of driving
strategy, delivering success and setting an
open and transparent culture.
Current external appointments
Director of Longmartin Properties Limited,
Board member of Westminster Property
Association, and Board member of Freehold.
A trustee of Young Westminster Foundation.
Simon Quayle
Executive Director
Appointed to the Board: October 1997
Relevant experience and contribution
Simon joined Shaftesbury in 1987, and was
appointed Property Director in 1997. Simon
is a chartered surveyor and is responsible for
the asset management and operational strategy
in Carnaby, Soho and Fitzrovia.
Simon’s long tenure with the Group and
knowledge of the West End property market
means that he has valuable knowledge and
insight to promote and contribute to our
villages and the Group’s strategy.
Current external appointments
Member of the Strategy Board for ZSL, and a
Member of Council for Sustainable Business.
Tom Welton
Executive Director
Appointed to the Board: October 1997
Relevant experience and contribution
Tom joined the Group in 1989 and was
appointed Property Director in 1997. Tom is
a chartered surveyor and is responsible for
the asset management and operational
strategy in Covent Garden and Chinatown.
Tom’s commercial experience and knowledge
of the Group, and the West End property
market, contributes value to our villages and
the Group’s strategy.
Current external appointments
Director of Longmartin Properties Limited.
Chris Ward
Finance Director
Appointed to the Board: January 2012
Relevant experience and contribution
Chris joined the Group in 2012 as Finance
Director, having previously spent nine years
with Redevco as Finance Director of the UK
and Nordic countries. Chris is a chartered
accountant and is responsible for fi nancial
accounting, tax and IT matters.
Chris has fi nancial and real estate experience,
which contributes to Group strategy.
Non-executive directors
Jonathan Nicholls N
Chairman
Appointed to the Board: September 2016
Sally Walden A R N
Non-executive director
Appointed to the Board: October 2012
Relevant experience and contribution
Jonathan was fi nance director of Hanson plc
between 1998 and 2006, and of Old Mutual plc
between 2006 and 2008.
Jonathan has been non-executive director and
chairman of the audit committee of Great
Portland Estates plc (2009 to 2016), SIG Plc
(2009 to 2017) and DS Smith plc (2009 to 2019),
where he was also Senior Independent Director
between 2013 and 2019.
Jonathan has over 20 years’ experience of
public company boards and their operations.
He also has over 21 years of experience in the
property sector. and is a chartered accountant.
Current external appointments
Chairman of Ibstock plc.
Richard Akers A R N
Senior Independent Director
Appointed to the Board: November 2017
Relevant experience and contribution
Prior to joining the Board, Richard was a senior
executive of Land Securities Group PLC from
1995 and joined the main board in 2005 as
managing director of the Retail Portfolio.
Richard is a chartered surveyor and provides
a broad range of real estate knowledge and
experience at board level.
Richard was appointed Senior Independent
Director and designated non-executive director
for employee engagement in February 2019.
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. Non-executive director
of The Unite Group plc, and member of the
advisory board of Battersea Power Station
Development Company Limited.
Jill Little
Non-executive director
Appointed to the Board: February 2010
Will retire from the Board in February 2020
Relevant experience and contribution
Jill worked with the John Lewis Partnership
from 1975 to 2012. Jill has extensive experience
in the retail sector, as well as strong
communication and management skills.
Current external appointments
Chairman of the Commercial Group of the
National Trust, non-executive director of
Joules Group Plc, Nobia AB and Loungers PLC.
Relevant experience and contribution
From 1984 to 2009, Sally held senior fund
management roles in Fidelity International,
and has broad experience within the fi nancial
markets and fund management. Sally has good
experience in remuneration.
Current external appointments
Trustee of the Fidelity Foundation and director
of the Pantry Partnership.
Dermot Mathias A R N
Non-executive director
Appointed to the Board: October 2012
Relevant experience and contribution
Dermot was a partner in the corporate fi nance
department of BDO LLP from 1980, and from
2004 to 2010 was senior partner of BDO and
chairman of the Policy Board of BDO
International.
As a chartered accountant, Dermot provides
recent and relevant fi nancial experience to the
board and the audit committee. In addition,
Dermot brings extensive experience in
leadership and management.
Current external appointments
Non-executive director and chairman of the
audit committee of JTC PLC, governor of
Activate Learning.
Jennelle Tilling A R N
Non-executive director
Appointed to the Board: January 2019
Relevant experience and contribution
Jennelle joined the Board in 2019, and has over
25 years’ experience of consumer marketing,
digital and innovation within food retail brands.
Jennelle held a variety of senior marketing roles
over 17 years at Yum! Restaurants, and is the
Founder and Chief Brand Strategist at
Marketing with Insight.
Jennelle has a wide range of experience in
consumer marketing, digital and innovation
which complements the skills on the Board.
Current external appointments
Non-executive director of Camelot and
non-executive director of Butchies. Fellow
of The Marketing Society, member and past
president of Women in Advertising and
Communications London and a mentor to
The Marketing Academy.
Key to Committee Membership
A Audit Committee
R Remuneration Committee
N Nomination Committee
Committee Chair
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Shaftesbury Annual Report 2019
Governance
Governance at a glance
UK Corporate Governance Code 20161
Full compliance see page 68
Leadership
Sets out the Group’s governance structure
and the function and operation of the
Board
The Chairman and non-executive directors
• Independent Chairman
• Meetings of non-executive directors held without
executives after each Board meeting
• Senior Independent Director identified
Effectiveness
Explains the procedures in place and the
steps taken to ensure the Board and its
Committees function effectively
Re-election and commitment
• All directors stand for annual re-election
• Three non-executive directors have more than six years’
service and are subject to rigorous review
• Engagement with largest shareholders on extension of
tenure of Jill Little for a further year
• Time commitment considered when electing and re-electing
directors
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 80
• Auditor’s report - pages 98 to 101
• Business model description - pages 6 to 7
• Going concern - page 95
Remuneration
Describes the Group’s approach to
executive directors remuneration and
how it is implemented
The level and components of
remuneration
• Directors’ Remuneration Report - pages 82 to 94
Relations with
shareholders
An overview of the actions taken
to engage with shareholders
Dialogue with shareholders
• Over 200 meetings with investors and potential investors in
the year, including portfolio tours - page 74
• Chairman and Senior Independent Director available to
shareholders
• Regular updates on shareholder meetings provided to Board
1 Available at www.frc.org.uk
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Shaftesbury Annual Report 2019
Governance Governance at a glance
The role of the Board
• Leadership of the Company
• Meets fi ve times a year
• Schedule of matters reserved for the Board
• Directors & Offi cer’s insurance and deeds of indemnity
Division of responsibilities
• Separation of roles of Chairman and Chief Executive
• Statement of division of responsibilities
Composition of the Board
• Independent Chairman
• Balance of four executive directors, fi ve
independent non-executive directors
and Chairman
• All directors have recent and relevant
experience - page 65
Development and
evaluation
• Induction of new non-
executive director - page 76
• Directors’ training monitored
and updates on regulatory
and legislative changes
provided
• Internal Board performance
evaluation - page 73
Appointments
to the Board
• Succession planning
• Nomination
Committee report -
pages 75 to 77
• Independent non-
executive directors
• Non-executive
director search -
page 76
Information
and support
• Company Secretary
advises the Board
through the Chairman
• Access to independent
professional advice
• Good information fl ows
between management
and the Board
Risk management and internal control
• Robust assessment of principal risks - pages 60 to 61
• Eff ectiveness of risk management and internal control systems
- pages 58 to 59
• Viability statement - page 62
Audit Committee and auditors
• Audit Committee report - pages 78 to 81
• Whistleblowing policy - page 78
• Review of need for internal audit function - page 81
• Recent and relevant fi nancial experience
Procedure
• Remuneration policy approved by shareholders at 2019 AGM - page 85
• Directors’ Remuneration Report - pages 82 to 94
• No director is involved in setting 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
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Shaftesbury Annual Report 2019
Governance
Corporate governance
Dear shareholder
Governance underpins the way in which our
business is managed, encompassing culture,
values and corporate behaviour, and is an
important ingredient of our long-term success.
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 2016 (the “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. The UK Corporate
Governance Code 2018 (the “2018 Code”) applies to the Company
from 1 October 2019, our preparatory work has continued this year,
and we shall report against this in our 2020 Annual Report.
Board composition and changes
A number of changes to the Board took place during the year.
Hilary Riva retired from the Board at the conclusion of the 2019 AGM,
having completed nine years’ service.
Jill Little also reached nine years’ service at the 2019 AGM. In order to
maintain Board continuity, and having carried out a rigorous review of her
independence and consulted major shareholders, she was re-appointed
for a further year. She stood down from the Audit, Remuneration and
Nomination Committees, and as Senior Independent Director, to focus
on her Board role. Jill will now retire at the 2020 AGM. In her ten years
as a non-executive director, she spent five years as our Senior Independent
Director and four years as chair of the Remuneration Committee. Throughout,
she has been a voice of challenge, wisdom, advice and support. On behalf
of the Board I would like to thank Jill for her invaluable wisdom and counsel.
I am pleased to present the 2019 Corporate Governance Report. Our focus
on culture and stakeholder engagement has been a key theme for the
Board this year.
Richard Akers became our Senior Independent Director at the 2019 AGM,
and also took on the additional role as designated non-executive for
employee engagement.
The executive directors and employees are tasked with running the
business day-to-day. The Board’s role is to oversee their activities,
promoting the long-term success of the Company and generating value not
just for shareholders, but a wide audience of stakeholders. Oversight
extends beyond challenging and supporting executive directors to regular
contact and dialogue with our other 30 employees.
My role as Chairman is to ensure the Board carries out its responsibilities
effectively, that it works cohesively and it has a range of skills and
experience to support the delivery of our corporate purpose and aims.
This is the last year we will report under the 2016 UK Corporate Governance
Code. We have already implemented some of the aspects of the 2018 UK
Corporate Governance Code, which is applicable from 1 October 2019,
including:
• updated terms of reference for each of our Board committees;
• updated Board Diversity Policy;
• Directors’ Remuneration Policy updated for directors’ pension contribution
parity with employees;
• two-year post-vesting holding period in the LTIP;
• designated non-executive director for employee engagement; and
• initiating an extensive project across the business, with input from external
stakeholders, to articulate our corporate purpose, culture and values.
Jennelle Tilling joined the Board in January 2019. We have already benefited
from her extensive experience gained in her career in consumer marketing and
food retail brands, complementing the Board’s existing skills. The recruitment
process we undertook is set out in the Nomination Committee report.
Nomination committee report: pages 75 to 77
Shareholder litigation
As announced on 11 June 2019, the Board has been served with legal
proceedings issued by companies controlled by Sam Tak Lee, who is the
beneficial owner of 26.32% of our share capital. The proceedings concern
allegations and claims relating to the equity placing conducted by the
Company in December 2017, challenging both the rationale for the equity
placing and the way in which shares were allocated. The claimants are
seeking damages for their alleged losses in the region of £10 million plus
interest and costs.
The Board considers the claims have no merit and intends to defend the
allegations robustly. We are advised that the case is likely to be heard in
Court in 2021.
In connection with this dispute, Mr Lee voted against a number of resolutions
at the 2019 AGM. He has chosen not to respond to, or declined numerous
invitations to engage directly with the Board.
Significant votes against at our AGM: page 74
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Key focus for 2020
• External review of Board performance
• Board succession planning
• Implementing the recommendations of the 2018 Code
• Continuing investment in our employees
• Encourage and grow initiatives in stakeholder engagement and
environmental sustainability
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Shaftesbury Annual Report 2019
Governance Corporate governance
People and culture
An important part of planning for the future is to ensure that, as our business
continues to grow and evolve, we recognise and articulate our values and
culture which have underpinned our success for over 30 years. This process,
which has involved all our employees, has demonstrated the open,
collaborative culture embedded in our business, and their infectious
enthusiasm and commitment, which are clearly evident to our wide range of
stakeholders.
Our people and culture: pages 36 to 47
Engaging with our shareholders and
stakeholders
We maintain a regular dialogue with shareholders throughout the year. The
management team are available to meet shareholders following annual and
half year results announcements, and encourage tours of our portfolio to
explain the very granular nature of our asset management activity. Feedback
from these shareholder events is provided to the Board.
We have a wide range of stakeholders, from our commercial and residential
occupiers, to our advisors and our supply chain, the local community in
which we invest and also work, our local authorities, neighbouring landowners
and industry groups. Each of these groups plays an important role in
supporting the delivery of our corporate purpose and delivering a positive,
lasting contribution to London’s West End.
All Board members will attend the AGM and Committee chairs are available
to shareholders to answer questions.
Thank you for your continuing support.
Jonathan Nicholls
Chairman
25 November 2019
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Shaftesbury Annual Report 2019 Governance Corporate Governance Leadership
Shaftesbury Annual Report 2019
Leadership
Corporate governance
Leadership
Our balanced and experienced
Board delivers and drives our
strategy
Our governance structure is set out on page 71. The Board is responsible
for corporate governance and has established this structure to enable
eff ective leadership and oversight of the Company’s activities. As
recommended by the Code, the Board has a majority of independent
non-executive directors who provide relevant advice and challenge to
the executive directors.
The Board meets regularly and there is an annual cycle of topics it
considers, including updates on key management, fi nancial, and
operational matters and approval of signifi cant acquisitions and
refurbishment schemes. Non-executive directors meet after each
Board meeting without management present.
Committee Chairs provide a detailed update to the Board after each
Committee meeting, and all Committee minutes are circulated to the
Board.
Senior employees below Board level are invited to present to the Board
on operational topics during the course of the year. This enables
non-executive directors to have direct and open access to our senior
leadership team.
The Executive Committee comprises executive directors and the senior
leadership team. Its role is to oversee operational matters and
contribute to the longer-term evolution of our strategy. It provides
senior employees below Board level with greater engagement and
experience in the management of the business. We continue to evolve
the Executive Committee’s role and responsibilities.
Board meeting attendance
Number of meetings held
5
Jonathan Nicholls
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Richard Akers
Jill Little
Dermot Mathias
Sally Walden
Jennelle Tilling1
Hilary Riva2
1 Jennelle Tilling joined the Board on 1 January 2019 and could have attended a
maximum of four meetings
2 Hilary Riva retired from the Board on 8 February 2019 and could have attended a
maximum of two meetings
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Shaftesbury Annual Report 2019
Governance Corporate Governance Leadership
Leadership
Chairman
Jonathan Nicholls
Responsible for the leadership
of the Board and its overall
eff ectiveness and individual
director performance.
Chief Executive
Brian Bickell
Responsible for the day-to-day
running of the business.
Recommends the Company
strategy and commercial
objectives to the Board. Overall
responsibility for the executive
team and implementing the
Board’s decisions.
Other executive directors
Simon Quayle, Tom Welton,
Chris Ward
Each have specifi c areas of
executive responsibility relating
to the say-to-day running of the
business.
Independent non-executive
directors
Richard Akers, Sally
Walden, Dermot Mathias,
Jennelle Tilling, Jill Little
Hold management to account
and constructively challenge the
executive directors. Provide
strategic guidance and off er
specialist advice.
Senior Independent Director
Richard Akers
Provides a sounding board for the Chairman
and support to the Chairman in the delivery
of his responsibilities. Available to
shareholders as an alternative channel of
communication to the Chairman.
Designated non-executive director
for employee engagement
Richard Akers
Ensures that the views and interests of
the employees are considered in the
Board discussions and decision-making.
Board
Ten directors (Chairman, four executive
(cid:727)irectors an(cid:727) fi (cid:745)e in(cid:727)e(cid:739)en(cid:727)ent
non-executive directors)
Provide leadership to promote the long-term
sustainable success of the Company.
Accountable to shareholders, to ensure the
Company generates value to shareholders and
contributes to wider society.
Review the Company’s purpose, values and
strategy and alignment with the Company
culture.
Review the performance of the Group.
Company Secretary
Penny Thomas
Advises the Board on governance, and
ensures a good information fl ow between
the Executive Committee and Board. Acts
as Secretary to all Board Committees.
Audit Committee
Remuneration Committee
Nomination Committee
Disclosure Committee
Chairman: Dermot Mathias
Chairman: Sally Walden
Membership: four
non-executive directors
Monitors the integrity of the
fi nancial statements and all
fi nancial reporting. Oversees the
Group’s risks and controls, and
maintains the relationship with
the external auditor.
Membership: four
non-executive directors
Determines the policy for
executive director remuneration
and quantum, including bonus
and LTIP awards. Responsible for
setting annual performance
objectives.
Chairman: Jonathan
Nicholls
Membership: four
non-executive directors
and the Chairman
Leads the process on board
appointments, and ensures
succession planning for the
Board and senior executives.
Leads the annual board
performance evaluation.
Chairman: Jonathan
Nicholls
Membership: Chairman,
Chief Executive, Finance
Director and Company
Secretary
Assists and informs the
decisions of the Board
concerning the identifi cation
of inside information, and
considers related disclosure
requirements.
Chairman: Brian Bickell
Responsible for oversight of operational matters and contributes to the long-term evolution of strategy.
Executive Committee
Sustainability Committee
Risk Committee
Chairman: Brian Bickell
Sets the Sustainability Policy and
strategy across the Group.
Chairman: Chris Ward
Assesses the Group’s principal
risks, and ensures eff ective risk
management and internal
controls.
Community Investment
Committee
Chairman: Andrew Price
Sets the strategy for community
investment.
Pensions Committee
Chairman: Chris Ward
Oversight of the governance of
the Shaftesbury pension
scheme.
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Shaftesbury Annual Report 2019
Governance Corporate Governance Leadership
Leadership
Culture and values
The Board has an important role in defi ning our corporate culture which
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 the Chairman. This is particularly evident in Board meetings
where discussion is constructive and open.
Following Hilary Riva’s retirement from the Board in February, Richard Akers
took on the role of the designated non-executive director for employee
engagement. The Board felt that out of the possible options recommended
by the 2018 Code, the designated non-executive director was the best fi t,
due to our open culture. We have a small number of employees in an open
plan offi ce, which the non-executive directors visit throughout the year. This
provides all non-executive directors with the opportunity to maintain close
involvement and a regular dialogue with employees. This links through to
our value of being human, with all our Board members being approachable,
visible and open. The Board felt that expanding the role of the Senior
Independent Director to cover employee engagement would work well.
To ensure that the Board are kept updated on employee development,
Chris Ward was nominated the executive director sponsor for our
“Leading Self” nine-month leadership programme.
Culture and values: page 36
Effectiveness
In accordance with the Code, all directors are subject to annual re-election,
and at least half the Board, excluding the Chairman, are independent
non-executive directors.
Independence of directors: page 73
The Board believes that it, and its Committees, have the appropriate
combination of skills, experience and knowledge to enable them to carry
out their duties eff ectively. The Nomination Committee keeps under review
the tenure of all directors, Board diversity and the eff ectiveness of
individual directors.
All our non-executive directors are considered to be independent by the
Board. Jill Little had reached nine years’ service as a non-executive director
in February 2019, at which point the Code no longer deems her to be
independent. Due to Jill’s tenure, the Board reviewed her independence.
Based on Jill’s external appointments, and contribution to the Board, she
was considered to continue to be independent and would remain on the
Board for a further year, and retire at the conclusion of the 2020 AGM.
However, in line with good governance, she stepped down as Senior
Independent Director and from the Board’s Committees in February 2019. As
reported last year, we consulted with investors on extending Jill’s tenure, and
no concerns were raised. Jill was re-elected as a director at the 2019 AGM.
All Committees have terms of reference, which are available on our website.
These have been updated during the year to ensure that they comply with
the 2018 Code.
The Board recognise the importance of all directors being able to dedicate
suffi cient time to eff ectively discharge their duties and responsibilities.
The commitment expected is considered by the Board on each director
appointment. Directors undertake additional external appointments, which
are periodically reviewed by the Nomination Committee and the Board. The
Board is satisfi ed that each has suffi cient time to carry out their responsibilities.
Key activities supporting the Shaftesbury
strategy
The governance structure assists the Board with the delivery of our strategy
and is central to our daily operations. Our structure ensures that the culture
and values of good governance go beyond the boardroom and is embraced
by all employees.
Our people and culture: pages 36 to 47
The table below highlights the areas of Board focus during the year and how
it links to our strategic objectives.
Focus area
Activities
Strategy and
operations
Pages 1 to 28
Purpose
and values
Page 36
Employees
and culture
Pages 36 to 47
Finance
Link to
strategic
priorities
2
1
4
Reviewed the retail and leisure occupier market
and their customers, and trends in the food and
beverage market
Reviewed and discussed portfolio activity to ensure
decisions are made focusing on the long term,
including any environmental effects
Reviewed marketing strategies across the villages
Reviewed the Company purpose statement and
values, following employee workshops
1 3
Received an update on employee views and
engagement
3
Approved a three-year strategic people plan
Established a culture group across the Company
with an executive director sponsor
Designated non-executive director attended
meetings with employees on culture
Approved full year results, half year results, trading
update and the annual report
2 5
Reviewed the key risks to the Group and the
controls in place for their mitigation
Considered and monitored the Group’s risk appetite
and principal risks and uncertainties
Approved the viability and going concern statements
Pages 54 to 57
Reviewed and approved the tax strategy
Governance
Reviewed and approved the Modern Slavery
statement
3
Reviewed the 2018 Code and ongoing preparatory
work to ensure compliance
Reviewed the results from the Board performance
evaluation
Approved updated Committees’ terms of reference
Approved a new Board Diversity Policy
Reviewed the whistleblowing policy
Pages 66 to 74
Feedback from shareholder engagement
In all its activities, the Board considers its statutory duties and the interests
of its key stakeholders, including employees, shareholders and the local
community.
Key
1
2
3
4
5
Long-term growth in rents and portfolio value
Grow recurring earnings and cash fl ow
Attract, develop and retain talented people
Minimise environmental impact
Deliver sustainable, long-term benefi ts for our stakeholders
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Governance Corporate Governance Leadership
Leadership
Independence of directors
Chairman
Executive directors
Independent non-executive directors
1
5
4
Directors’ skills
Property
Food,
beverage,
retail
Finance and
reporting
Remuneration
Investor
engagement
Marketing
Executive directors
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Non-executive directors
Jonathan Nicholls
Jill Little
Sally Walden
Dermot Mathias
Richard Akers
Jennelle Tilling
•
•
•
•
•
•
Tenure of directors
Executive directors
Non-executive directors
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Board performance evaluation
A full externally-facilitated evaluation last took place in 2017. As a result
of that review, non-executive directors now meet without the executives
present at every Board meeting. Additionally, we have streamlined the
volume and format of the information sent to the Board.
An internal questionnaire-based evaluation, led by the Chairman and
supported by the Company Secretary, has been undertaken for the last
two years. 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 Chairman
reviewed the performance of the non-executive directors, with input
received from all directors. 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.
As part of the 2019 evaluation, the Board considered the objectives from
2018, set out below. Good progress has been made during the year and
these objectives remain the Board’s focus for the year ahead and in
particular, stakeholder engagement feedback.
Area of Focus
Objective
Performance
Director succession
To clarify the succession
plans in place for both
the executive and non-
executive directors.
Director succession planning
has been a key focus for the
Nomination Committee during the
year. In addition, we have worked
alongside an external consultant,
who has provided guidance for
succession planning below the
Board. This has included enhancing
employee development to better
equip our pipeline of talent to grow
in the business.
•
•
Stakeholder
engagement
To further report on the
stakeholder engagement
and reporting to the
Board.
Developing reporting to the Board
on stakeholder engagement with the
local community, our suppliers and
occupiers.
The 2019 evaluation concluded that the Board and its Committees worked
well together and that it operates with high levels of transparency and
openness.
An externally facilitated board evaluation will be undertaken in 2020.
Jennelle Tilling 2019
Richard Akers 2017
Jonathan Nicholls 2016
Sally Walden 2012
Dermot Mathias 2012
Chris Ward 2012
Jill Little 2010
Year 1
Independent
externally
facilitated
review
Tom Welton 1997
Simon Quayle 1997
Brian Bickell 1987
Year 3
Internal review
to focus on
progress against
years 1 and 2
Year 2
Internal review
to monitor
progress and
any new issues
raised
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Shaftesbury Annual Report 2019
Governance Corporate Governance Leadership
Leadership
Signifi cant (cid:745)otes against at our (cid:692)nnua(cid:735)
General Meeting
At the 2019 AGM, the nine resolutions set out below received votes against
in excess of 20%, which under the Investment Association guidance is a
substantial vote against:
• Ordinary resolution – approval of the remuneration policy,
• Ordinary resolution – approval of the annual remuneration report,
• Ordinary resolutions – re-election of Jonathan Nicholls, Brian Bickell and
Chris Ward,
• Ordinary resolution – authority to allot shares,
• Special resolutions – authority to allot shares on a non-pre-emptive basis,
• Special resolution – authority to call general meeting on less than 14 days’
notice.
The combined holdings controlled by Sam Tak Lee totalling 25.02% at that
time (PEL (UK) Limited, Orosi (UK) Limited and Orosi (UK) 2 Limited,
subsequently transferred to another company controlled by him, Veloqx
(Jersey) Limited), voted against these resolutions. As a result, the special
resolutions to disapply the requirement to allot shares on a pre-emptive
basis and to enable general meetings to be called on less than 14 days’
notice were not passed. Mr Sam Tak Lee did not vote on any other resolution
put to shareholders, all of which were passed with in excess of 99% of those
voting in favour.
Under the 2018 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 this shareholder’s
request to circulate a letter to our shareholders under the authority of
Section 314 of the Companies Act 2006.
As referred to in our announcement to the London Stock Exchange on 31
July 2019, since the 2019 AGM, the Board has continued its attempts
to engage with Mr Lee, without success.
Shareholder litigation: page 68
The Board considers that the authorities sought by the pre-emption
resolutions continue to be in the best interests of the Company, and will be
proposing them at the 2020 AGM for consideration by all shareholders.
Relations with shareholders
The Board considers regular contact with all of our shareholders to be
an important aspect of corporate governance. All directors are keen to
understand the views of our shareholders and potential investors. The Chief
Executive takes responsibility for investor relations, alongside the Chairman
and the Senior Independent Director.
During the year, the Chief Executive and executive directors held over
200 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 villages, understand
management strategy, and to meet the senior leadership team. Feedback
from these meetings is provided to the Board.
All directors were present at the 2019 AGM, which provided shareholders
with an opportunity to meet the Board. At our 2020 AGM we will be
introducing online voting for all resolutions.
Live video webcasts with replay facilities are available for the annual and half
year results presentations to analysts.
During the year, we have undertaken a number of engagement activities
with major shareholders and corporate governance agencies, including:
• consultation on extension of tenure of Jill Little, and
• off ered general engagement meetings with the Chairman.
In addition to regular portfolio tours, a timeline of the diff erent investor
relations activities undertaken during the year is set out below.
November 2018
Real estate conference
Results for the year ended 30 September 2018
Analyst presentation
December 2018
Year end results investor meetings
European Public Real Estate conference
February 2019
Annual General Meeting
Trading update statement
March 2019
Property sector conference
UK Shareholder Association tour
April 2019
May 2019
Investor roadshow
Interim results
Analyst presentation
Property seminar
June 2019
Interim results investor roadshows
Investor conference
July 2019
Investor Roadshow
September 2019
Seven Dials analyst presentation
UK Shareholder Association meeting
Trading update statement
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Shaftesbury Annual Report 2019
Governance
Effectiveness
Nomination committee report
Having the right individuals on
our Board, and ensuring there
are suitable plans for succession,
are key to delivering on our
long-term strategic objectives.
Committee members and meeting
attendance
Jonathan Nicholls (Chairman)
Number of meetings
attended (2 held)
Richard Akers
Dermot Mathias
Sally Walden
Jill Little1
Jennelle Tilling2
Hilary Riva3
I am pleased to present our report for 2019. I chair the Committee,
and all other members are independent non-executive directors.
We welcomed Jennelle Tilling to the Board in January 2019 as an
independent non-executive director. Jill Little will retire from the Board at
the conclusion of our AGM in January 2020, having been on the Board for
nine years. Throughout the year the Committee focused on succession
planning, both for the Board as well as across the Company. We updated
our Diversity Policy which was recommended to the Board for approval.
Non-executive director induction: page 76
Committee activities and focus
during 2019
• Recommended the extension of Jill Little’s tenure until the 2020
AGM.
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1 Jill Little retired from the Committee on 8 February 2019 and could have attended
a maximum of one meeting.
• Recommended to the Board the appointment of Jennelle Tilling.
• Recommended to the Board the change of role of Richard Akers to
03
2 Jennelle Tilling joined the Committee on 1 January 2019 and could have attended
Senior Independent Director.
a maximum of one meeting.
3 Hilary Riva retired from the Board on 8 February 2019 and could have attended
a maximum of one meeting.
Key responsibilities
• Ensure that there are suffi cient plans in place for the orderly
and eff ective succession of the Board and senior leadership
team.
• Monitor the size, structure, composition and diversity of the
Board and its Committees.
• Keep under consideration directors’ skills, experience, and
independence.
• Non-executive director succession planning.
• Updated Diversity Policy for approval by the Board.
• Oversight of development plans for employees.
• Updated terms of reference.
• Approved the Nomination Report for inclusion in the 2019 Annual
Report.
Key focus for 2020
• Succession of non-executive directors
• Employee development
• Lead the process for Board appointments.
• Continuing work on culture and embedding into the Company
• Review the time commitment expected from directors, and
ensure the Board undertakes an eff ectiveness review of the
Board, its Committees and the individual directors.
• External board performance evaluation
• Diversity
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Shaftesbury Annual Report 2019
Governance Nomination committee report
Effectiveness
Succession planning and talent
management
The Committee focuses on orderly succession planning for our Board and
talent development to ensure that there is a pipeline of able and
experienced people in the business for potential future leadership roles. In
the 2019 Board performance evaluation, there was a general consensus that
this should continue to be a focus for the Committee and the Board.
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 vacancies at
Board level, we recognise that it is important to develop our talent below
the Board. Our development planning encourages employees to fulfi l their
potential and grow in their roles.
Further information on our employee development programmes can be
found on page 46.
Non-executive director induction
I joined Shaftesbury in January 2019 and received a tailored induction
programme from the Chairman and Company Secretary. This
induction included meetings with the Chairman, Chief Executive,
Finance Director, and the Chairs of all Board Committees. These
meetings provided an opportunity to discuss Board strategy, priorities
and future plans. I was also taken on tours of the Shaftesbury portfolio
with the Property Directors to understand the individual strategies for
each village in addition to meeting a wide range of advisers.
Given the size and structure of Shaftesbury, I have met with the
employees and gained an understanding of the people and culture
that make up this unique business.
I have over 25 years’ experience within consumer marketing, digital
and innovation, having worked with leading global FMCG and food
retail brands across the UK and internationally. I am the Founder and
Chief Brand Strategist at Marketing with Insight, a brand consultancy
specialising in retail, food and beverage strategy. I feel that my
extensive knowledge and experience of marketing will complement
the strength and skills currently on the Board.
Developing talent for the future: page 46
Our people and culture: pages 36 to 47
Jennelle Tilling
Non-executive director succession
As announced in the 2018 Annual Report, on the recommendation of the
Committee, Jill Little will retire from the Board at the 2020 AGM.
Jennelle Tilling was appointed to the Board in January 2019. The external
search agency, Russell Reynolds, was engaged for the search for a new
non-executive director. They are a signatory to the Voluntary Code of
Conduct, and have no other connection with the Company or with
individual directors.
When we started the process of searching for a new non-executive director,
there was a fi rst round interview with Jill Little, the Senior Independent
Director at that time, and me, to ensure that candidates would have the
relevant skills and experience to bring to the Board. Following this, a shortlist
was circulated to the Committee and the candidates met with the Chief
Executive. A fi nal recommendation was made to the Board, and Jennelle’s
appointment was proposed and approved at the 2019 AGM by shareholders.
Whilst we considered Jill to be independent, following the recommendation
last year to extend Jill’s term of appointment for an additional year, the
Committee decided that Jill should step down from all Committees and as
Senior Independent Director. The Committee recommended to the Board
that Richard Akers be appointed as Senior Independent Director in her
place. We decided that the role of the Senior Independent Director would
include the position of designated non-executive for employee engagement,
to refl ect the importance of this area. The Committee felt that due to
Richard’s external experience, he would be well suited to this position.
Dermot Mathias and Sally Walden have been on the Board more than six
years, so the Committee has undertaken a review of their contribution to
the Board. The Committee concluded that both Dermot and Sally continue
to bring to the Board the appropriate range of skills and expertise to
operate eff ectively and maintain their independence. The Committee
recommended to the Board the re-election of all directors, other than
Jill Little at the 2020 AGM.
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Shaftesbury Annual Report 2019
Governance Nomination committee report
Effectiveness
Directors
7 (70%)
male
3 (30%)
female
Senior leadership team
excluding executive directors
2 (33%)
male
4 (67% )
female
All employees
Diversity
The Board recognises the importance of diversity, both in its membership,
and the Company’s employees. It has a clear policy to promote diversity
across the business, which is available on our website. The Board feels that
a group that is diverse in its nature, in respect of gender, race, religious
beliefs, social background and personal and professional experiences is able
to provide more scrutiny and challenge, as well as diff ering perspectives.
The Board considers that quotas are not appropriate in determining its
composition and has, therefore, chosen not to set formal targets but keeps
diversity under consideration in all aspects of Board composition. 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 of women on
the board. 67% of our senior leadership team are female.
Diversity includes but is not limited to gender, and is considered at every
level of recruitment. All appointments are made on merit and based on
objective criteria.
For the third year running, we were top of the 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.
We support initiatives to promote diversity within the real estate sector. Our
Chief Executive is a board member of Freehold, a forum for LGBT real
estate professionals.
We follow the RICS Inclusive Employer Quality Mark scheme which aims to
drive behaviour changes by encouraging businesses in the real estate sector
to look carefully at their employment practices and to ensure inclusivity is
embedded in their operations. During the year, we have appointed three
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.
I would like to thank my fellow Committee members and senior
management for their dedication and support throughout the year.
Jonathan Nicholls
Chairman of the Nomination Committee
25 November 2019
11 (32%)
male
23 (68%)
female
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Shaftesbury Annual Report 2019
Governance
Accountability
Audit committee report
Maintaining oversight of our risks
and ensuring the integrity of our
business and our fi nancial
statements is essential
for the Company.
I am pleased to present to you the Audit Committee Report for 2019.
Our Committee is composed solely of independent non-executive
directors, with a good diversity of experience, including property, retail and
fi nance. For the purpose of the Code, I satisfy the requirement of having
appropriate recent and relevant fi nancial experience. I am a chartered
accountant with many years of senior fi nancial experience.
At my request, all meetings, or parts of meetings, are attended by the external
auditor, the Chairman and members of the senior management team.
The Committee meets with the external auditor and the valuers, without
management present, to discuss any matters they may wish to raise. The
Committee is satisfi ed that both the external auditor and valuers remain
independent and objective in their work.
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.
Throughout the year, I meet with executive directors, as appropriate, to
obtain a good understanding of key issues aff ecting 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 aff ecting the
Group, reporting to the Audit Committee.
Whilst we do not have a formal internal audit function, throughout the year
we have considered external reviews to provide assurance on certain of the
existing risk and control arrangements. Reviews this year, and anticipated
work for the coming year, are set out in the following report.
Whistleblowing
Under the 2018 Code, the responsibility for whistleblowing now resides with
the Board, and widens the remit from fi nancial to all aspects of the business.
The Committee will review the whistleblowing policy on an annual basis, and
report to the Board on its conclusions and highlight any concerns, including
any whistleblowing incidents. There have been no incidents reported during
the course of the year.
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 of the Audit Committee
25 November 2019
Committee members and meeting
attendance
Number of meetings
attended (3 held)
Dermot Mathias (Chairman)
Richard Akers
Sally Walden
Jill Little1
Jennelle Tilling2
Hilary Riva3
1 Jill Little retired from the Committee on 8 February 2019 and could have attended
a maximum of one meeting.
2 Jennelle Tilling joined the Committee on 1 January 2019 and could have attended
a maximum of two meetings.
3 Hilary Riva retired from the Board on 8 February 2019 and could have atttended
a maximum of one meeting.
Key responsibilities
• Review the work of the external auditor and valuers and any
signifi cant fi nancial judgements made by management.
• Monitor the reporting process and fi nancial management.
• Review the integrity of the full and half year fi nancial 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.
• Responsible for the relationship with the external auditor and
consider the re-appointment of the external auditor, their
reports to the Committee, performance, objectivity and
independence, and non-audit services.
• Review the risk management framework and ensure that risks
are carefully identifi ed and assessed, and that systems of risk
management and internal control are in place and eff ective.
• Consider the need for an internal audit function.
• Review the whistleblowing arrangements.
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Shaftesbury Annual Report 2019
Governance Audit committee report
Accountability
Committee activities and focus
during 2019
Financial Reporting
• Annual Report and Half Year Results
• Viability statement and going concern
• Ensured that the Annual Report was fair, balanced and
understandable
Audit
• Independence, objectivity and eff ectiveness of the external auditor
• Audit fees and non-audit fees
• Audit plan and strategy
Controls and Assurance
• Reviewed risk management, controls, and principal risks
and uncertainties
• Assurance over eff ectiveness of internal controls
• Updated whistleblowing policy
• Considered need for internal audit
Governance
• Updated terms of reference
• Approved the Audit Committee Report for inclusion in the Annual
Report
Key focus for 2020
• Review of the eff ectiveness of our tax controls
• Review the eff ectiveness of our managing agents procedures
• Review our rent and purchases cycles
Financial Reporting
The Committee reviewed the content and tone of the annual and half year
fi nancial results. The Finance Director provided a commentary on the draft
results, fi nancial position, key estimates and judgements.
The executive directors confi rmed to the Committee that they were not
aware of any material misstatements in the half year and annual results and
the external auditors confi rmed that they 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 satisfi ed that:
• the fi nancial 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 suffi ciently robust;
and
• the Group has adopted appropriate accounting policies.
2019 Annual Report
Valuation of investment properties
The valuations provided by external valuers are signifi cant components of
the annual and half year results. External valuations are subjective and
require signifi cant estimates to be made including, but not limited to,
market yields and ERVs. At 30 September 2019, the valuation of investment
properties was £3.78 billion. Additionally, our share of the valuation of
investment properties held in the joint venture was £209.0 million. 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 11 to the fi nancial statements.
In reviewing the valuations, the Committee considered:
• an analysis and commentary by management;
• presentations from Cushman & Wakefi eld, valuer of the wholly-owned
portfolio, and Knight Frank, who value the Longmartin joint venture’s
investment properties, which included comparable evidence for the key
assumptions adopted; and
• an assessment by the external auditor, who used its in-house real estate
valuers as part of its audit.
The Committee was satisfi ed 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 estimates made by management in preparing the
fi nancial results, including the charge for share-based remuneration,
and was satisfi ed with the assumptions adopted.
The Committee also considered revenue recognition and the use of
judgements and estimates in preparing fi nancial information and were
satisfi ed that there were no material transactions which involved a high
degree of judgement or estimation.
In addition, the Committee reviewed the shareholder litigation referred
to on page 68 and was satisfi ed that this had been accounted for and
disclosed appropriately, in accordance with IFRS.
The above description of signifi cant estimates should be read in
conjunction with the Independent Auditor’s Report and the signifi cant
accounting policies disclosed in the notes to the fi nancial statements,
particularly note 3 which describes signifi cant estimates and assumptions.
Independent auditor’s report: pages 98 to 101
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Shaftesbury Annual Report 2019
Governance Audit committee report
Accountability
External valuers
The Committee monitored the objectivity and independence of Cushman &
Wakefi eld and Knight Frank and met without management present. The
valuers have confi rmed that they are appropriately qualifi ed 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 valuers, including fees for
valuation and non-valuation services, are given in note 11 to the fi nancial
statements. The Committee remains satisfi ed 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 fi rst year that Daniel Saunders has been the lead audit partner
from Ernst & Young LLP (“EY”), following the retirement of the previous lead
audit partner at the conclusion of the 2018 audit.
EY was appointed as external auditor after the appointment went out to
tender in 2014. EY is subject to ongoing monitoring of their eff ectiveness.
Annually, the Committee assesses the qualifi cations, expertise, resources,
and independence of the Group’s external auditors, as well as the
eff ectiveness of the audit process. It does this through discussion with the
Finance Director, review of a detailed assessment questionnaire and
confi rmations from the external auditor. The Chairman of the Committee
and the Finance Director met with an independent review partner from EY.
EY has confi rmed 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 fi rm’s fee income; and
• 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
fi ndings in a frank and honest manner.
The Committee remains satisfi ed with the eff ectiveness of the external
audit and the interaction between the auditors and the Committee. Also, it
is satisfi ed as to the auditor’s qualifi cations, expertise and resources and
remains confi dent that its objectivity and independence are not in any way
impaired by the provision of non-audit services. This will continue to be
reviewed by the Committee on an annual basis.
Fair, balanced and understandable
On behalf of the Board, the Committee discussed a report from the
Finance Director covering the systems and controls around the preparation
of the fi nancial 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 a fair, balanced and understandable assessment of the Company’s
position and prospects;
• 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 fi nancial statements and not
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.
Directors’ responsibilities statement: page 97
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 fi ve-year assessment period. 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 fi nancing
capacity.
The Committee was satisfi ed that the fi ve-year assessment period remained
appropriate and recommended the viability statement to the Board.
Viability statement: page 62
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 fi ve-year forecasts, availability of liquidity and
expected headroom under the fi nancial covenants in debt arrangements.
Following the review, it recommended to the Board that it was appropriate
to adopt the going concern basis.
Going concern: page 95
80
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Shaftesbury Annual Report 2019
Governance Audit committee report
Accountability
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 the relatively simple
Group structure.
As referred to above, to provide further assurance the Group engaged
external advisors to carry out targeted reviews. These reviews
supplemented the existing risk management and internal control
arrangements undertaken by management and the Risk Committee. In 2019,
the eff ectiveness of the controls of the following areas were completed:
• portfolio investments;
• refurbishment and reconfi guration scheme management; and
• tax procedures in relation to the prevention of the facilitation of tax evasion.
Process reviews were also undertaken externally over the Senior Accounting
Offi cer tax regime, the General Data Protection Regulation, and the
processes of one of our managing agents. The results of these reviews were
reported to the Committee for their consideration and input. An external
review of the purchasing cycle is currently being carried out and the
fi ndings will be reported to the Committee in due course.
The fi ndings from external reviews are made available to EY.
Audit fees
Fees payable to the auditor for audit and non-audit services are set out in
note 7 to the Financial Statements on page 108.
Total fees related to non-audit services represented 16% of the total fees
for audit services (2018: 18%).
The auditor was also paid £33,400 (2018: £31,400) for its audit of Longmartin
Properties Limited. The Company’s 50% share of this was £16,700 (2018:
£15,700).
The Committee’s policy is that non-audit assignments are not awarded to
the external audit fi rm if there is a risk that audit independence and
objectivity could be compromised. Our non-audit work policy was updated
this year to ensure that, 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. Our
executive directors have authority to approve non-audit assignments to the
auditors under £25,000, however, if this reaches a cumulative amount of
£100,000 in a year (including the half year review), the authority for the
executive directors falls to £5,000. This was reviewed by the Committee and
approved by the Board.
Risk management and internal control
Risks and internal controls are monitored by management on a day-to-day
basis. The Risk Committee, chaired by our Finance Director, formally
assesses strategic and emerging risks and the eff ectiveness of key controls,
reporting to the Committee.
This year, to supplement the work by management, controls over certain of
our processes were reviewed externally. The outcomes of these reviews
were reported to the Committee (see internal audit).
The external auditors review procedures and controls as part of their work
and comment, where appropriate, to the Committee.
The Committee remains satisfi ed that there is a robust review of risks and
that the controls over the signifi cant risks operate eff ectively.
Risk management and internal control: pages 58 to 59
Principal risks and uncertainties: pages 60 to 61
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Shaftesbury Annual Report 2019
Governance
Remuneration
Directors’ remuneration report
Our remuneration supports the
strategy and long-term success
of the business, balancing reward
and performance.
I am pleased to present our 2019 Directors’ Remuneration Report.
Our remuneration policy was approved by shareholders at the 2019 AGM
and applied from the conclusion of the meeting. The summary on page 85
sets out our approach to the remuneration and 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 and behaviours in line with our culture
and values.
The annual remuneration report, summarises the remuneration outcomes
in respect of the reporting year and the proposed executive director
remuneration for the year ahead. This report will be subject to an advisory
shareholder vote at the 2020 AGM.
Annual remuneration report: pages 86 to 94
Pay and performance in 2019
At the beginning of each year, we set fi nancial and operational targets for
the annual bonus scheme which align with our long-term strategy. Where
projects extend for periods beyond the fi nancial year, annual targets are set
to assess progress towards achieving the ultimate objectives. In setting
targets, we use the Group’s KPIs which drive value through the delivery of
long-term rental growth.
In a challenging economic environment, our performance against our
annual objectives has been good. However, with lower growth in the
valuation of our portfolio together with weaker equity market sentiment,
this year we have not met our three-year LTIP objectives. The outcomes for
the variable pay elements of executive director remuneration were:
Annual bonus: Performance against our targets was 57.5% of the
maximum potential award and is disclosed in more detail on page 89.
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 86.25% of salary in December
2019, which will vest in December 2022.
LTIP: Vesting of awards made in 2016 are measured on a three-year
performance period which ended on 30 September 2019. Annualised TSR
of -2.3% and growth in NAV of 3.4% were both below the relevant
benchmark, resulting in zero vesting.
Post-employment shareholding
requirements
As noted in last year’s report, during the year the Committee reviewed the
operation of our shareholding guidelines in the context of changes to the
2018 Code, which will apply to us from 1 October 2019, and emerging
investor expectations in respect to post-employment requirements.
Committee members and meeting
attendance
Number of meetings
attended (4 held)
Sally Walden (Chairman)
Richard Akers
Dermot Mathias
Jill Little1
Jennelle Tilling2
Hilary Riva3
1 Jill Little resigned from the Committee on 8 February 2019 and could have attended
a maximum of two meetings.
2 Jennelle Tilling joined the Committee on 1 January 2019 and could have attended
a maximum of two meetings.
3 Hilary Riva retired from the Board on 8 February 2019 and could have attended
a maximum of two meetings.
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 LTIP.
• Review the remuneration policy every three years.
• Ensure that the remuneration report and disclosure of director
remuneration is simple to read and understandable, accurate and
complete.
Committee activities and focus
during 2019
• Reviewed the 2018 annual bonus outcomes.
• Ratifi ed the 2018 LTIP vesting and approved LTIP grants.
• Put the Remuneration Policy for approval at the AGM.
• Reviewed the 2019 salaries of the executive directors.
• Set 2019 annual bonus and LTIP targets.
• Reviewed the eff ectiveness of the Committee’s advisers and
monitored their fees.
• Approved the Committee report for inclusion in the Annual Report.
• Updated terms of reference.
82
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Shaftesbury Annual Report 2019
Governance Directors’ remuneration report
Remuneration
Context for our approach to
remuneration
We have 34 permanent employees, including four executive directors.
The combined holdings of the executive directors is 3.4 million shares
(market value at 30 September 2019 of circa £31 million). This
equates to individual holdings of between 4 and 28 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 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 26 years and
members of the executive committee (excluding executive directors)
is 11 years.
Alignment with employees
We off er remuneration packages to all employees which are market
competitive and align with the same structure as executive directors.
All employees:
• participate in the LTIP and the annual bonus scheme;
• have the opportunity to defer their annual bonus into shares;
• are eligible to participate in Sharesave, and receive health and life
insurance; and
• receive pension contributions of 17.5% of salary, which is signifi cantly
above typical market levels.
Key focus for 2020
• Continue to monitor the development of best practice in post-
employment shareholding guidelines.
• Monitor the impact of the 2018 Code on executive director
remuneration.
• Oversight of remuneration policies and procedures throughout
the Company and ensure that are aligned with the corporate culture.
Under our current remuneration policy, executive directors are expected to
build up a shareholding of 200% of salary, to be accumulated over fi ve years
from appointment, by retaining any shares received under the LTIP and
Deferred Annual Share Bonus Scheme until the minimum shareholding level is
attained.
With eff ect from 1 October 2019, executive directors will be expected to
retain this minimum level of shareholding (or, if lower, their actual shareholding)
for a period of two years from the date of cessation of their employment.
The requirement shall apply to shares received from the vesting of
company share awards after the eff ective date of this new policy.
Appropriate mechanisms will be put in place to support compliance.
Pension alignment
The Committee supports the 2018 Code principle that executive pensions
should be aligned with the wider workforce and, as a result, our new
Remuneration Policy, approved earlier this year, reduced the maximum
pension contribution (or a cash allowance in lieu) for any new executive
director appointment to 17.5% of salary, the rate which matches that
received by all employees below Board level.
We believe our policy to reduce the pension provision for newly appointed
directors is an eff ective and proportionate route to achieving alignment in
pension provision over time. We will keep this approach under review as
expectations and practice continue to evolve.
The year ahead
Salaries of executive directors were reviewed in the context of an average
increase for all other employees of 8.1%. The Committee determined
increases of circa 3% for the Chief Executive and Property Directors. The
Finance Director was awarded an increase of 6.9% recognising his
increased seniority and responsibilities associated with the role. All
increases are eff ective from 1 December 2019.
We have set the 2020 annual bonus targets and, in view of the increasing
importance of sustainability to our stakeholders, have increased this
element from 10% to 20%. The element attributed to property projects has
been reduced from 40% to 25% and there is a new element for internal
corporate projects representing 5%.
An LTIP award will be made in December 2019 at 125% of salary. Subject to
performance against the targets over a three year performance period,
awards will vest in December 2022, and be released in December 2024
following a two-year post-vesting holding period.
Last year, we introduced Total Accounting Return (TAR) into our LTIP to sit
alongside Net Asset Value growth and Total Shareholder Return, each
constituting one third of the award. We will retain this approach for this
year’s award.
The TAR component is based on performance relative to a peer group of
FTSE 350 REITs and, following a review, we will be making a minor amendment
to the calibration of the measure. For last year’s award, vesting will be based
on the ranked position of Shaftesbury’s TAR against the peer group. For this
year’s award, and in future, vesting will be based on Shaftesbury’s TAR
relative to a market-capitalisation weighted index of the FTSE 350 REITs.
The Committee believes that measuring performance in this way provides a
fairer, more relevant, and less volatile, performance benchmark and is
consistent with the relative TAR measure typically operated by other listed
property companies. The Committee is satisfi ed that 2% outperformance
against the index for maximum vesting is appropriately stretching and no less
challenging than our previous approach.
I would like to thank my fellow Committee members, senior management
and external consultants for their support during the year.
Sally Walden
Chairman of the Remuneration Committee
25 November 2019
83
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Shaftesbury Annual Report 2019
Governance
Remuneration
Remuneration at a glance
SALARY
+
BENEFITS
+
PENSION
CONTRIBUTION
+
ANNUAL BONUS
+
LTIP
=
TOTAL
REMUNERATION
Fixed pay
Performance-related pay
Performance-related pay framework 2020
5%
corporate
to 15
p
U
20%
environmental
sustainability
17.5%
ERV growth
(KPI)
33.3%
TSR measured relative to
FTSE 350 REIT Index
0 % i
f takeninsh
a
r
e
17.5%
convert ERV’s
to contractual
income (KPI)
s
Annual
bonus
Up to 100% of
salary if taken
in cash
5%
growing net
property
income
(KPI)
of15
ard
w
a
m
u
m
i
x
a
M
25%
specifi c projects
10%
occupancy
(KPI)
33.3%
NAV growth measured
on an absolute basis
umstances
0 % o f salaryoth
e
r
LTIP
Awards of 125%
t
h
a
n
i
n
e
x
c
e
ptionalcirc
33.3%
TAR measured against a
market capitalisation
weighted index of FTSE
350 REITs
2019 Group performance
2019 Key remuneration metrics
Net property
income
£98.0m
+4.5%
Dividends per
share
EPRA earnings1
£54.6m
+5.6%
EPRA NAV
per share1
17.7p
+5.4%
£9.82
-0.9%
1 An alternative performance measure (APM). See page 124
2 Like-for-like. See Glossary on page 131
ERV growth2
2.7%
Portfolio
valuation1,2
£4.0bn
-0.6%
TSR
(Shaftesbury)
2.4%
versus FTSE 350 Real
Estate Index +6.9%
84
84
LTIP vesting
0%
Salary increase
all employees
Annual bonus
awards
57.5%
Average salary
increase for
directors
3.8%
Percentage of employees
granted LTIP options
8.1%
100%
Shaftesbury Annual Report 2019
Governance
Remuneration
Remuneration policy
Our remuneration policy was approved by
shareholders at the AGM on 8 February 2019.
A summary of the remuneration policy for executive directors is set out below for information purposes only.
The full policy was included in the 2018 Annual Report and is reproduced on our website.
Element
Operation / Performance measures
Salary
Annual
bonus
LTIP
Salaries are normally reviewed annually with effect from 1 December. Any increases are determined with reference to infl ation and the
salary increases for other employees, unless there is a change of role or responsibility or a new director is recruited (see recruitment policy)
Sector and other relevant market data (eg against constituent companies of the FTSE 350 REIT Index) may be requested from remuneration
advisors as required
The Committee recognises the importance of setting salaries at levels in the context of market median levels in the real estate sector, but
which are not excessive in relation to the Group’s particular strategy and features
The emphasis in the Group’s remuneration policies is to place greater weight on performance-based rewards within the overall remuneration package
Annual 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 fi nancial year, the Committee evaluates performance against these objectives, whilst also taking into account overall fi nancial
performance and future prospects. The Committee also satisfi es itself that short-term targets have not been met at the expense of long-term goals
Performance is assessed against a set of key fi nancial and non-fi nancial 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 strategy for each year. A substantial part of the total bonus will be based on
quantitative KPIs. Further details of the measures, weightings and targets applicable are provided in the Annual Remuneration Report
following the end of the performance year
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 Group’s Deferred Annual Share 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
Awards may be granted in the form of nil cost options, conditional share awards or, at the Committee’s discretion, be settled in cash
The awards will be subject to performance targets measured over a three-year period. It is intended that these performance measures are
aligned to strategic objectives and shareholder value
The current performance measures are:
• Total accounting return (TAR) measured against a market capitalisation weighted index of FTSE 350 REITs
• TSR measured relative to a relevant index of peers; and
• Net asset value growth measured relative to RPI
Threshold vesting will be no higher than 25% of each performance measure. The detailed targets are set out in the Annual Remuneration
Report
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
Maximum potential value
The Committee does not
specify a maximum salary or
maximum salary increase
Further details on salary
levels and any increases
are provided in the Annual
Remuneration Report
Directors have the choice
to take a bonus in shares
or cash, in full or part as
follows:
Up to 150% of salary if taken
entirely in shares;
or
Up to 100% of salary if taken
entirely in cash
Maximum value 150% of
salary at date of grant in
normal circumstances
Maximum value 200%
of salary in exceptional
circumstances such as
executive recruitment (this
has not been used to date)
All
employee
plans
Executive directors are eligible to participate in other share plans, which are offered on similar terms to all employees, eg sharesave and
SIP
The limits are as defi ned by
HMRC from time to time
Pension
Contributions are paid into a personal pension plan or taken as a cash equivalent, reduced for any resultant tax liability borne by the Group
Other
benefi ts
Each executive director currently receives:
• a car allowance
• private medical cover
• life insurance
• permanent health insurance
Other benefi ts may be provided if considered reasonable and appropriate by the Committee, including, but not limited to, housing allowance
and relocation allowance
85
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17.5% of salary for any
executive director appointed
after 8 February 2019
25% of salary for any
executive director appointed
prior to 8 February 2019
There is no maximum
value. Benefi ts 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
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Shaftesbury Annual Report 2019
Governance
Remuneration
Annual remuneration report
Set out below is the annual remuneration report
on directors’ pay for the year ended 30 September
2019. The report details how we will apply the
remuneration policy for the year ahead and
how we implemented it during the year.
Statement of implementation of remuneration for year ending 30 September
2020
Executive directors’ salaries from 1 December 2019
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
1.12.2019
£’000
1.12.2018
£’000
525
370
370
385
510
360
360
360
This compares to an average increase across the employee population (excluding executive directors) of 8.1% and infl ation (CPIH) of 1.5%.
2020 annual bonus targets
Maximum bonus of up to 150% of salary if taken entirely in shares and 100%
of salary if taken in cash.
The Committee considers specifi c disclosure of annual targets regarding
the achievement of rental levels, the speed of completing lettings or
delivery of specifi c 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 an adverse impact on the Group’s position when negotiating
transactions with current or potential tenants or other parties.
Disclosure of annual bonus targets for the year ending 30 September 2020
is therefore deemed to be commercially sensitive. 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 (measured half yearly)
Growing net property income (KPI)
Net property income growth to at least track growth in rental income
Occupancy (KPI)
Maximise portfolio occupancy
Let vacant property quickly (excluding larger schemes)
Portfolio, sustainability and corporate
Portfolio projects
Environmental sustainability
Internal corporate projects
Increase
2.9%
2.8%
2.8%
6.9%
Percentage
weighting
17.5%
17.5%
5%
5%
5%
25%
20%
5%
86
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Shaftesbury Annual Report 2019
Governance Annual remuneration report
Remuneration
LTIP
LTIP awards of 125% of salary will be granted in December 2019. Performance will be measured over a three-year period which commenced on 1 October
2019. 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
Vesting schedule (for this component)
Less than 0% pa
0% pa
Between 0% pa and 5.5% pa
5.5% pa or more
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 relative to market cap-weighted index of FTSE 350 REITs1
Vesting schedule (for this component)
Below index
Equal to index
0%
25%
Between index and index +2% per annum
Pro-rata on a straight line basis between 25% and 100%
Index +2% per annum or above
100%
1 TAR measures growth in EPRA NAV plus any dividends (or other distributions to shareholders which reduce NAV) paid during the period expressed as a percentage of EPRA NAV at the start of
the year.
Non-executive directors’ fees from 1 December 2019
Non-executive director fees are reviewed every two years. Following the most recent review, taking into account market data, the following changes were
agreed and will take eff ect from 1 December 2019:
Fees for the Chairman will be increased from £225,000 to £235,000 per annum.
Fees for non-executive directors will be increased from £57,000 to £60,000 per annum.
There is an additional fee of £10,000 where a non-executive director chairs a committee and for the Senior Independent Director (if not already in receipt
of a Committee Chairman fee), both of which will be increased to £15,000. The Chairman does not receive an additional fee for chairing the Nomination
Committee.
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Shaftesbury Annual Report 2019
Governance
Annual remuneration report
Remuneration
Remuneration for year ending 30 September 2019
Sing(cid:735)e tota(cid:735) fi gure of remuneration for e(cid:747)ecuti(cid:745)e directors (audited)
Salary
2019
£’000
508
359
359
358
2018
£’000
498
352
352
348
Benefi ts1
2019
£’000
2018
£’000
23
57
45
44
55
49
40
40
Pension
benefi t2
Annual
bonus3
LTIP4
Total
2019
£’000
112
79
79
80
2018
£’000
109
77
77
78
2019
£’000
2018
£’000
2019
£’000
440
311
311
311
394
278
278
275
0
0
0
0
2018
£’000
135
95
95
92
2019
£’000
1,083
806
794
793
2018
£’000
1,191
851
842
833
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
1 Benefi ts 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% at grant
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 fi nancial year. For 2019, each executive director could have received a bonus of 86.25% of salary in shares or 57.5% of salary in cash. Each
director has elected to take their 2019 bonus entirely in shares, which are deferred for a period of three years. No further performance criteria apply
4 Refl ects the vesting of shares in the LTIP in respect of performance for the relevant fi nancial year. The TSR and NAV performance conditions for the three-year performance period to
30.9.2019 were not met and none of the awards vested. The 2018 estimated fi gure has been restated to refl ect actual share price at the date of vesting together with the value of dividends
paid during the year on vested shares
Sing(cid:735)e tota(cid:735) fi gure of remuneration for non(cid:672)e(cid:747)ecuti(cid:745)e directors (audited)
Jonathan Nicholls
Richard Akers
Jill Little
Hilary Riva2
Dermot Mathias
Sally Walden
Jennelle Tilling3
Fee
2019
£’000
225
57
57
20
57
57
43
2018
£’000
213
48
57
57
57
57
-
Committee chair/
senior independent
director1 fees
2019
£’000
2018
£’000
-
6
4
-
10
10
-
-
-
10
-
10
10
-
Total
2019
£’000
225
63
61
20
67
67
43
2018
£’000
213
48
67
57
67
67
-
1 Fee is only payable if the Senior Independent Director is not the chair of any other Committee
2 Retired from the board on 8 February 2019
3 Joined the board on 1 January 2019
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Shaftesbury Annual Report 2019
Governance
Annual remuneration report
Remuneration
Annual bonus outcome for year ended 30 September 2019
Retrospective disclosure of the targets for the 2019 annual bonus scorecard is provided below. Each executive director has elected to receive his award
solely in deferred shares under the Deferred Annual Share Bonus Scheme, which will vest in December 2022.
Measure
Rental growth (KPI)
Deliver growth in ERVs
(includes Longmartin)
Convert ERVs to contractual income (KPI)
Commercial lettings/reviews/renewals at or above
valuers’ ERVs: measured as transactions in the
fi rst half year against ERV at 31.3.2018 and then
in the second half of the year against ERV at
30.9.2018
Weighting
Target range
17.5%
3% to 7%
17.5%
3% to 7%
Achievement against target
2.7%
5.25%
Percentage
achieved
0%
11.4%
Grow net property income (KPI)
5%
+1% to -1%
-2.4%
5%
Percentage increase in property outgoings
compared to percentage increase in rental
income
Occupancy
Maximise portfolio occupancy measured by
average quarterly EPRA vacancy (excluding larger
schemes)1 (KPI)
Average time to let across uses (months)1,2 (KPI)
Corporate
responsibility performance (KPI)
Specifi c projects
0%
3.4%
10%
27.6%
5%
1.5% to 3%
3.1%
5%
10%
40%
1.5 months to 4 months
2.6 months
Company retained its sustainability reporting EPRA Gold award and its GRESB “green star”
rating both of which measure the transparency of reporting
This component of the bonus measures specifi c strategic and operational objectives to be met
during the year critical to progressing key long-term projects and larger schemes, to deliver
long-term value for shareholders. Some measures relate to projects with a duration of more
than one year. It is not always feasible to provide a detailed disclosure of performance for
these projects as the identifi cation and achievement of these targets is commercially sensitive.
In the opinion of the Committee, public disclosure could compromise ongoing commercial
negotiations and ultimately shareholder value.
In assessing this year’s performance against objectives, the Committee considered key
achievements during 2019 which determined the outcome for this component including:
• Covent Garden: Thomas Neal’s Warehouse - a letting was completed to Kerb, to open Seven
Dials Market,
• Carnaby: secured planning consent for 72 Broadwick Street scheme and works underway,
• Despite signifi cant business uncertainty, identifi ed and executed a number of opportunities
for lease restructurings across the portfolio,
• Undertook a review of property costs, resulting in identifi cation and initial delivery of cost
effi ciencies across the portfolio
Further detailed discussion of strategic and operational performance during the year is set out
on pages 1 to 62 of this annual report
Total
100%
57.5%
1 Wholly-owned portfolio
2 Based on weighted averages across uses
Measuring success: pages 26 to 28
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Shaftesbury Annual Report 2019
Governance
Annual remuneration report
Remuneration
Committee’s exercise of discretion
The Committee believes that annual bonus awards should fairly refl ect overall performance in the context of prevailing general economic and property
market conditions and exercises discretion, where appropriate, to take account of overall fi nancial performance and future prospects of the Company.
The Committee has not exercised discretion in the award of bonuses for the year ended 30 September 2019. The table below shows historic exercise of
discretion by the Committee.
Year
2015
2016
2017
2018
2019
Actual bonus percentage potential
according to achievement table
Bonus percentage after exercise of
discretion by remuneration committee
70%
82%
55%
52.5%
57.5%
Reduced to 60%
Reduced to 60%
No change at 55%
No change at 52.5%
No change at 57.5%
LTIP vesting for the performance period to 30 September 2019
The detailed performance against targets which resulted in zero vesting of the LTIP in 2019 is as follows:
Historic LTIP vesting performance
Vesting %
100
100
63.5
50
50
22.5
0
2013
Year of vesting
2014
2015
2016
2017
2018
2019
TSR
NAV
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
0%
25%
Pro-rata on a straight line
basis between 25% and
100%
Performance
Performance in three-year period
to 30 September 2019: -2.3%
pa. Underperformed benchmark
by 5.3% pa
Vesting outcome (for this half of
the award) is zero
5.5% pa or more
100%
Annualised NAV
growth less
annualised RPI
growth
Less than 3% pa
3% pa
Between 3% pa
and 7% pa
Award vesting
criteria
0%
25%
Pro-rata on a straight line
basis between 25% and
100%
Performance
Performance in three year period
to 30 September 2019: 3.4%pa
RPI growth: 3.3% pa
Vesting outcome (for this half of
the award) is zero
7% pa or more
100%
90
90
Historic LTIP vesting performance
Shaftesbury Annual Report 2019
Governance
Annual remuneration report
Remuneration
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
394
638
278
450
278
450
275
450
1 Deferred Annual Share Bonus Scheme: Directors elected to take their annual bonus for the year ended 30.9.2018 in shares which were purchased in the market. The face value is calculated
using the price paid per share of of £8.6966. No further performance criteria are applied to share awards under this scheme
2 LTIP: Awards of nil cost options were made by the Committee at 125% of salary. The face value is calculated using the average share price over the fi ve days prior, up to and including 3.12.2018,
to determine the number of shares awarded, being £8.89. There is a three-year performance period with a two-year post-vesting holding period
For the 2018 award, vesting of the TAR measure is based on the ranked position of Shaftesbury TAR against the constituents of the FTSE 350 REIT index,
with threshold vesting for median ranking and maximum vesting for upper quartile ranking (see page 98 of the 2018 report).
Directors’ shareholdings and share scheme interests at 30 September 2019 (audited)
Shares under
option not vested
and subject to
performance
criteria3
Shares vested
and subject
to two year
post-vesting
holding period
202,670
143,070
143,070
142,015
14,718
10,379
10,379
10,151
Deferred
shares3
134,704
95,065
95,065
93,216
Sharesave
4,286
4,286
4,286
2,519
Shares
owned
outright
Shareholding
requirement
met1
Value of shares
owned outright
as a percentage
of salary2
Yes
Yes
Yes
Yes
2,255%
2,781%
2,262%
434%
Executive director
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Non-executive director
Jonathan Nicholls
Richard Akers
Jill Little
Dermot Mathias
Sally Walden
Jennelle Tilling
Hilary Riva4
1,265,800
1,102,052
896,170
172,090
30,000
9,000
8,364
16,208
60,000
-
20,068
1 Based on share price at 30.9.2019 of £9.085 and salary as at 1.12.2018
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 fi ve
years from appointment
3 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 suffi cient shares to meet their income tax and employees’ national insurance liability
4 Retired from the Board on 8.2.2019 and shareholding stated as at that date
There have been no changes in directors’ shareholdings between 30 September 2019 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.
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Shaftesbury Annual Report 2019
Governance
Annual remuneration report
Remuneration
1. Deferred Annual Share Bonus Scheme
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Date
of grant
12.12.2016
12.12.2017
3.12.2018
12.12.2016
12.12.2017
3.12.2018
12.12.2016
12.12.2017
3.12.2018
12.12.2016
12.12.2017
3.12.2018
Market price
on date of grant
£
8.95
9.996
8.65
8.95
9.996
8.65
8.95
9.996
8.65
8.95
9.996
8.65
Entitlement to ordinary shares
At
1.10.2018
Awarded
in year
48,988
40,440
-
89,428
34,544
28,556
-
63,100
34,544
28,556
-
63,100
33,387
28,226
-
61,613
-
-
45,276
45,276
-
-
31,965
31,965
-
-
31,965
31,965
-
-
31,603
31,603
At
30.9.2019
48,988
40,440
45,276
134,704
34,544
28,556
31,965
95,065
34,544
28,566
31,965
95,065
33,387
28,226
31,603
93,216
2. LTIP
Nil cost options are granted subject a three year performance period. Any award that vests is then subject to a two year post-vesting holding period.
Number of ordinary shares under option
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Date
of grant
12.12.20161
12.12.2017
4.12.2018
12.12.20161
12.12.2017
4.12.2018
12.12.20161
12.12.2017
4.12.2018
12.12.2016 1
12.12.2017
4.12.2018
Market
price of
share on
grant
£
8.95
9.97
8.67
8.95
9.97
8.67
8.95
9.97
8.67
8.95
9.97
8.67
At
1.10.2018
67,850
63,110
-
130,960
47,900
44,550
-
92,450
47,900
44,550
-
92,450
47,350
44,045
-
91,395
Granted
during
year
-
-
71,710
71,710
-
-
50,620
50,620
-
-
50,620
50,620
-
-
50,620
50,620
At
30.9.2019
67,850
63,110
71,710
202,670
47,900
44,550
50,620
143,070
47,900
44,550
50,620
143,070
47,350
44,045
50,620
142,015
1 As described on page 90, the TSR and NAV performance conditions over the three years ended 30.9.2019 have not been met. These awards will therefore lapse.
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Shaftesbury Annual Report 2019
Governance
Annual remuneration report
Remuneration
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
fi ve years. Participants have six months from the date of vesting to exercise.
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Date
of grant
1.7.2016
28.6.2019
1.7.2016
28.6.2019
1.7.2016
28.6.2019
30.6.2017
28.6.2019
At
1.10.2018
Granted
during
year
At
30.9.2019
2,024
-
2,024
2,024
-
2,024
2,024
-
2,024
1,162
-
1,162
-
2,262
2,262
-
2,262
2,262
-
2,262
2,262
-
1,357
1,357
2,024
2,262
4,286
2,024
2,262
4,286
2,024
2,262
4,286
1,162
1,357
2,519
Option
price
£
7.41
6.63
Vesting
date
1.8.2021
1.8.2024
7.41
6.63
1.8.2021
1.8.2024
7.41
6.63
7.74
6.63
1.8.2021
1.8.2024
1.8.2020
1.8.2022
Percentage change in Chief Executive
remuneration compared to average
percentage change in remuneration for
all other employees
Relative importance of spend on pay (£m)
54.4
51.6
Base salary
Taxable benefi ts
Annual bonus
Total
Chief Executive
change
Other employees
change
2.0%
1.2%
11.7%
6.2%
4.2%
4.6%
14.2%
8.0%
The analysis for other employees is based on a like-for-like group of
employees, i.e. the same individuals appear in the 2018 and 2019 fi gures
and the 2018 comparatives have been restated on that basis.
Annual bonus fi gures refl ect 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.
Note that there is no requirement to disclose a CEO pay ratio as the
number of employees (34) falls signifi cantly below the threshold of
250 employees for disclosure under this provision.
10.0
8.5
2019
2018
Employee costs
Dividends
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Shaftesbury Annual Report 2019
Governance
Annual remuneration report
Remuneration
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 2019
400
350
300
250
200
150
100
50
0
2009
Shaftesbury
FTSE 350 REIT
210%
133%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: Datastream as at 30 September 2019
(cid:711)en(cid:672)year c(cid:731)ief e(cid:747)ecuti(cid:745)e sing(cid:735)e tota(cid:735) fi gure of remuneration1
Chief Executive single total fi gure of remuneration (£’000)
Annual bonus payout² (% maximum)
Long-term incentive award vesting (% maximum)
2010
1,013
50%
50%
2011
1,650
90%
76.7%
2012
1,198
40%
100%
2013
1,075
40%
50%
2014
1,455
75%
50%
2015
1,523
60%
63.5%
2016
1,954
60%
100%
2017
1,830
55%
100%
2018
1,191
52.5%
22.5%
2019
1,083
57.5%
0%
1 2010-2011: Jonathan Lane, 2012-2019: Brian Bickell
2 Based on award in cash. See page 88 for details of award taken in shares
Shareholder voting
At the 2019 AGM, shareholders voted on the Directors’ Remuneration Policy and on the Annual Remuneration Report. Voting by shareholders representing
90.76% of the issued share capital on the resolutions was as follows:
Directors’ Remuneration Policy
Annual Remuneration Report
For
197,412,262
197,983,949
% For
70.76
70.98
Against
81,571,987
80,930,767
% Against
29.24
29.02
Total votes
278,984,249
278,914,716
Withheld
712,552
782,086
The Committee notes that both of these resolutions received signifi cant votes (defi ned as above 20%) against.
See signifi cant votes against at our AGM: page 74
On behalf of the Board
Sally Walden
Chairman of the Remuneration Committee
25 November 2019
Advisor to the Committee
Deloitte LLP act as independent advisor to the Committee. They are 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 satisfi ed 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 fi nancial year were £32,000 (excluding VAT).
Deloitte LLP provided no other services to the Group during the year.
94
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Shaftesbury Annual Report 2019
Governance
Directors’ report
The directors present their report on the affairs of the
group and the audited consolidated fi nancial
statements for the year ended 30 September 2019.
UK Corporate Governance Code
The Company has applied and complied with the provisions of the Code
throughout the Company’s fi nancial year. This is the last year that the
Company will report against the Code as the 2018 Code came into eff ect
for the Company on 1 October 2019. The 2020 Annual Report will be the
fi rst report which will apply and comply with the provisions of the 2018 UK
Corporate Governance Code.
Strategic report
The Strategic Report is incorporated into this report by reference.
Strategic report: pages 1 to 62
Corporate governance and diversity
statements
The corporate governance and diversity statements are incorporated into
this report by reference.
Corporate governance: pages 63 to 101
Results and dividends
The results for the year ended 30 September 2019 are set out in the Group
Statement of Comprehensive Income.
Group statement of comprehensive income: page 102
An interim dividend of 8.7 pence per ordinary share was paid on 6 July 2019
(2018: 8.3p).
The directors recommend a fi nal dividend in respect of the year ended 30
September 2019 of 9.0 pence per ordinary share (2018: 8.5p), making a total
dividend for the year of 17.7 pence per ordinary share (2018: 16.8p). If
authorised at the 2020 AGM, the dividend will be paid on 14 February 2020
to members on the register at the close of business on 17 January 2020.
The dividend will be paid partly as a PID (5.25 pence) and partly as an
ordinary dividend (3.75 pence). The 2020 AGM will be held on 31 January
2020 at 11:00 am at the Ham Yard Hotel, 1 Ham Yard, London, W1D 7DT.
Share capital
During the year, 110,428 ordinary shares were issued at nil cost on the
exercise of LTIP options, and £5.38, £6.94, £7.41 and £7.74 on the exercise of
sharesave options. At 30 September 2019, the Company’s issued share
capital comprised 307,412,615 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 no restrictions on the transfer of shares,
on voting rights, or on the size of a holding, which are 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 and directors’ shareholdings
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 which is in line with the
Code and the Company’s Articles of Association.
Details of the directors who served during the year ended 30 September 2019
and up to the date of the fi nancial statements, their interests in the ordinary
share capital of the Company and details of options granted under the Group’s
share schemes are set out in the Directors’ Remuneration Report.
Directors’ remuneration report: pages 82 to 94
No member of the Board had a material interest in any contract of signifi cance
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 confi rm that 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 fi nancial statements.
Viability statement
Viability statement: page 62
Purchase of own shares
The Company was granted authority at the 2019 AGM to make market
purchases of its own ordinary shares. This authority will expire at the
conclusion of the 2020 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 2019 to 25 November 2019.
Major shareholders
Information provided to the Company pursuant to the FCA’s DTRs is
published on a Regulatory Information Service and on the Company’s
website. As at 25 November 2019, the following information has been
received in accordance with DTR 5, from holders of notifi able interests in
the Company’s issued share capital.
Notifi able
interests
Veloqx (Jersey) Limited
as trustee of the Veloqx
settlement (Sam Tak Lee)
Ordinary
shares
% of capital
disclosed1 Nature of holding
80,888,951
26.32
Indirect
Norges Bank
77,034,285
25.06
Direct
1 As at date of notifi cation
Directors’ indemnities and directors’ and
offi cers(cid:990) (cid:735)ia(cid:725)i(cid:735)ity insurance
The Company’s agreement to indemnify each director against any liability
incurred in the course of their offi ce to the extent permitted by law remains
in force.
The Group maintains Directors’ and Offi cers’ Liability Insurance.
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Shaftesbury Annual Report 2019
Governance Directors’ report
Financial instruments
Details in relation to financial instruments are incorporated into this report by
reference.
Financial instruments: pages 114 to 116
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 Company’s share schemes contain provisions relating to the vesting and
exercising of options in the event of a change of control of the Group.
(cid:692)ut(cid:731)orisation of directors(cid:990) con(cid:1026)icts 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
Our people and culture pages 36 to 47
Sustainability and stakeholders: pages 29 to 35
Independent auditors
A resolution for the re-appointment of Ernst & Young LLP as auditors to the
Company will be proposed at the 2020 AGM. The Board, on the advice of
the Audit Committee, recommends their re-appointment.
2020 annual general meeting
The 2020 AGM will include resolutions dealing with authority to issue shares,
disapplication of pre-emption rights, authority to purchase the Company’s own
shares and authority to call a general meeting on not less than 14 days’ notice.
The resolutions are set out in the Notice of Meeting in a separate circular to
shareholders which accompanies this Annual Report. The Notice of Meeting
and Annual Report are available on the Company’s website.
Political donations
The Company did not make any political donations during the year (2018: nil).
Events after the balance sheet date
There were no significant events occurring after the reporting period, but before
the financial statements were authorised for issue on 25 November 2019.
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 auditors are unaware; and
they have taken all reasonable steps to ascertain any relevant audit
information and ensure the auditors are aware of such information.
b)
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.
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Overall, energy consumption has remained consistent year on year
reflecting fluctuations in tenant numbers and occupancy. A total of
4,382,587 kWh has been consumed in the portfolio (2018: 4,432,716 kWh).
Due to the increased use of renewable energy in the national grid, GHG in
the portfolio decreased by over 7% from 1,164 tonnes to 1,077 tonnes.
Energy efficiency measures taken by the Company include the installation
of light-emitting diode lights, improvements as part of refurbishment and
actions to respond to ESOS.
Absolute Scope 1 and 2 GHG emissions1
Scope 1
Total tCO2e
Scope 2
Total tCO2e
2019
191
2019
886
2018
223
2018
941
Change
-14.25%
Change
-5.9%
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.
We are reporting on two emission intensities this year: performance against
turnover and common parts floor areas. For common parts floor areas this
relates to 126 reported properties. The emissions intensity figure was 46.39
CO2e/m2 (0.046 tonnes CO2e/m2), a small increase from last year’s 46.01
kgCO2e/m² (0.046 tonnes CO2e/m2). Against turnover, the intensity has
decreased from 9.5 tonnes per £million of total revenue to 8.5 tonnes per
£million of total revenue.
The scope 2 total above differs from 876 tCO2e reported last year, due to
restatements within the portfolio.
Carbon Smart has conducted the verification of Shaftesbury’s GHG
emissions assertions for the period 1 October 2018 to 30 September 2019
through which it is 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 Shaftesbury has sole
ownership and operational control. The verification engagement assessed
the year-on-year performance change, the intensity metric (tCO2e/annual
turnover) compared to financial year 2018 as well as the restatement of
emissions (scope 1, 2 and 3) for the 2018 reporting year.
Based on the verification procedures detailed in the full statement, Carbon
Smart found no evidence to suggest that Shaftesbury’s GHG inventory is not
materially correct and prepared in accordance with the internal reporting
methodologies and WBCSD & WRI GHG corporate and scope 3 standards.
Full details are available in the Sustainability Data Report on our website.
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
25 November 2019
Shaftesbury Annual Report 2019
Governance
Directors’ responsibilities
The directors are responsible for preparing the
Annual Report, the Directors’ Remuneration Report
and the fi nancial 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 page 65
confi rm that, to the best of their knowledge:
• the Group fi nancial statements, which have been prepared in accordance
with IFRSs as adopted by the EU give a true and fair view of the assets,
liabilities, fi nancial position and profi t of the Group;
• the Company fi nancial statements, which have been prepared in
accordance with IFRSs as adopted by the EU give a true and fair view of the
assets, liabilities, fi nancial position and profi t of the Company; and
• the Strategic Report contained on pages 1 to 62 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 Code
Each of the directors confi rm 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
25 November 2019
Chris Ward
Finance Director
25 November 2019
Company law requires the directors to prepare fi nancial statements for
each fi nancial year. Under that law the directors are required to prepare the
Group fi nancial 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 fi nancial statements in accordance with IFRSs as adopted by the
EU. Under company law the directors must not approve the fi nancial
statements unless they are satisfi ed that they give a true and fair view of the
state of aff airs of the Group and the Company and of the profi t or loss of
the Group for that period. In preparing these fi nancial 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 specifi c
requirements of IFRSs as adopted by the EU is insuffi cient to enable users
to understand the impact of particular transactions, other events and
conditions on the Group’s and Company’s fi nancial 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
fi nancial statements; and
• prepare the fi nancial statements on the going concern basis unless it is
inappropriate to do so.
The directors are responsible for keeping adequate accounting records that
are suffi cient to show and explain the Group’s and Company’s transactions
and disclose with reasonable accuracy at any time the fi nancial position of
the Company and the Group and enable them to ensure that the fi nancial
statements and the Directors’ Remuneration Report comply with the
Companies Act 2006 and, as regards the Group fi nancial 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 fi nancial 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
diff erent legal requirements. Legislation in the United Kingdom governing
the preparation and dissemination of fi nancial statements may diff er from
legislation in other jurisdictions.
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Shaftesbury Annual Report 2019
Governance
Independent Auditor’s Report
To the members of Shaftesbury PLC
Opinion
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 2019 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.
We have audited the financial statements of Shaftesbury PLC which comprise:
Balance sheet
Statement of comprehensive income
Cash flow statement
Statement of changes in equity
Related notes 1 to 29 to the financial statements,
including a summary of significant accounting policies
Group
Company
✓
✓
✓
✓
✓
✓
✓
✓
✓
The financial reporting framework that has been applied in their preparation
is applicable law and IFRSs as adopted by the European Union. The Company
financial statements have been prepared in accordance with IFRSs as
adopted by the European Union and as applied in accordance with the
provisions of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under
those standards are further described in the Auditor’s responsibilities for
the audit of the financial statements section of our report below. We are
independent of the Group and Company in accordance with the ethical
requirements that are relevant to our audit of the financial statements in
the UK, including the FRC’s Ethical Standard as applied to listed public
interest entities, and we have fulfilled our other ethical responsibilities in
accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to principal risks,
going concern and viability statement
We have nothing to report in respect of the following information in the
annual report, in relation to which the ISAs (UK) require us to report to you
whether we have anything material to add or draw attention to:
• the disclosures in the annual report set out on pages 60 and 61 that describe
the principal risks and explain how they are being managed or mitigated;
• the directors’ confirmation set out on page 60 in the annual report that
they have carried out a robust assessment of the principal risks facing the
entity, including those that would threaten its business model, future
performance, solvency or liquidity;
• the directors’ statement set out on page 106 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
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• 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 62 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.
Overview of our audit approach
Key audit
matters
within the Longmartin joint venture)
• The valuation of investment property (including properties
Audit scope
• Revenue recognition including the timing of revenue
recognition, and the treatment of rents and incentives
• Litigation and claims
• The group operates in London’s West End and consists of a
single reporting segment across twelve 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 within the
group. The Group audit scope is consistent with the prior year.
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
£3,765.9m (plus £213.1m being the Group’s share in the Longmartin joint venture)
Refer to the Audit Committee Report (page 79); Accounting policies (page
123); and Note 11 of the Consolidated Financial Statements (pages 108 to 109)
The valuation of investment property (including properties held in the
Longmartin 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 balance
sheet and in the statement of comprehensive income.
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 obtained an understanding of the Group’s controls over data used in
the valuation of the investment property portfolio, including management’s
review of the valuations, to ensure the controls were designed and
implemented correctly.
• We evaluated the competence of the external valuers which included
consideration of their qualifications and expertise, as well as their independence.
Shaftesbury Annual Report 2019
Governance
Independent Auditor’s Report
• We performed testing over the inputs to the valuations. For a sample of
properties, we tested the contracted rent and key lease terms used by the
valuers back to lease agreements.
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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 82% 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 specifi c 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.
1
• Together with our Chartered Surveyors, we looked for contra indicators for
the estimated rental values and yields adopted.
5
• We searched the tenant base to confi rm there was not a concentration of
4
higher risk of failure tenants.
• In respect of the properties not in the sample tested by our Chartered
Surveyors (18% of the fair value), we performed detailed analytical
procedures on a property-by-property basis. This involved forming an
expectation of the fair value of each property in the portfolio by reference
to relevant external market data relating to capital growth rates. We
investigated further the valuations of those properties which were not in
line with our initial expectations which included further discussions with
management and the external valuers and, where appropriate, involvement
of our Chartered Surveyors.
• We made enquiries of the external valuers and inspected their terms of
reference to confi rm that they had not been subject to undue infl uence or
direction from management.
• We utilised our detailed analytical procedures and work of the Chartered
Surveyors described above in order to assess for evidence of undue
management infl uence.
• We performed site visits accompanied by our Chartered Surveyors for a
sample of properties (focusing primarily on properties under signifi cant
refurbishment) which enabled us to assess the stage of completion of, and
gain specifi c insights into, these refurbishments.
• For properties under signifi cant refurbishment, we vouched the costs
incurred to date, and agreed the cost to complete estimates to approved
budgets and contractual arrangements. We met with property surveyors to
discuss the project costs and risks associated with the signifi cant projects.
• Together with our Chartered Surveyors, we met with the external valuers to
discuss the fi ndings 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 2019.
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 infl uence or bias.
Risk: Revenue recognition, including the
timing of revenue recognition, and the
treatment of rents and incentives
£117.3m of rents receivable (FY18: £112.8m)
Refer to the Accounting policies (page 122); and Note 5 of the Consolidated
Financial Statements (page 107)
Market expectations and profi t 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 verifi ed 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 verifi ed 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 confi rm the deferred income
balance is materially within our 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 fi nancial statements. We obtained a list
of known Creditors Voluntary Arrangements and other information about
retailer health and compared to 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 evaluated whether the revenue recognition policies adopted complied
with IFRSs as adopted by the European Union.
• We performed audit procedures specifi cally designed to address the risk of
management override of controls including journal entry testing to confi rm
the processing and timing of journals to record revenue is consistent with
our expectations.
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 for doubtful debts 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.
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Shaftesbury Annual Report 2019
Governance Independent Auditor’s Report
Risk: Litigation and claims
Refer to Corporate Governance (page 68) and Note 27 of the Consolidated
Financial Statements (page 121).
Judgement is required in assessing the recognition of a provision or disclosure
of a contingent liability in relation to a claim brought against the Group.
This is a new key audit matter in the year because of a claim brought against
the Group which resulted in our audit procedures requiring increased
involvement of senior members of the audit team.
Our response to the risk
• We understood the nature of the claim, and judgements made in respect of
it, by reading claim documents, and corroborated our understanding
through inquiry with management and the Group’s external legal counsel.
• We evaluated the judgements made in preparing the financial statements
relevant to whether a provision should be recognised or a disclosure should
be made of a contingent liability as a result of the claim.
• We verified that appropriate disclosure had been made in the Consolidated
Financial Statements to meet the requirements of IFRS.
Key observations reported to the Audit Committee
We conclude that management have accounted for the claim appropriately
and have presented a contingent liability disclosure in accordance with IAS 37.
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:
Basis
Materiality
Perfor-
mance
Materiality
Audit
Differences
Overall
Specific
Applicable for account
balances not related to
investment properties,
loans and borrowings.
1% of total assets
5% of operating profit
before investment
property valuation
movements and net
finance costs
£40m
£4m
£30m
£3m
£2m
£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 focussed on the valuation of the
Group’s assets; primarily the investment property portfolio. This provided a
basis for determining the nature, timing and extent of risk assessment
procedures, identifying and assessing the risk of material misstatement and
determining the nature, timing and extent of further audit procedures. For
planning purposes this was initially based on the total assets as at 31 March 2019.
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 2019.
In the prior year audit we adopted an overall materiality of £40m based on
1% of total assets. We also applied a specific materiality of £4m based on
5% of operating profit before 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 was 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% (2018: 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.
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 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, Governance and Other information set
out on pages 1 to 97 and 124 to 132, 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:
100
100
Shaftesbury Annual Report 2019
Governance
Independent Auditor’s Report
• Fair, balanced and understandable set out on page 80 – the statement
given by the directors that they consider the annual report and fi nancial
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 78 to 81 – the section
describing the work of the audit committee does not appropriately address
matters communicated by us to the audit committee; or
• Directors’ statement of compliance with the UK Corporate Governance
Code set out on page 68 – 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 specifi ed 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.
Opinions 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 fi nancial year for which the fi nancial statements are prepared is
consistent with the fi nancial statements; and
• the strategic report and the directors’ report have been prepared in
accordance with applicable legal requirements.
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 identifi ed
material misstatements in the strategic report or the directors’ report.
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 parent company,
or returns adequate for our audit have not been received from branches
not visited by us; or
• the parent company fi nancial 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 specifi ed by law are not made; or
• we have not received all the information and explanations we require for
our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out
on page 97, the directors are responsible for the preparation of the fi nancial
statements and for being satisfi ed that they give a true and fair view, and for
such internal control as the directors determine is necessary to enable the
preparation of fi nancial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the fi nancial 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 the directors either intend to
liquidate the Group or the Company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit
of t(cid:731)e fi nancial statements
Our objectives are to obtain reasonable assurance about whether the
fi nancial 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 infl uence the economic
decisions of users taken on the basis of these fi nancial 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 fi nancial statements due to fraud;
to obtain suffi cient 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 identifi ed 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 signifi cant
frameworks which are directly relevant to specifi c assertions in the fi nancial
statements are those that relate to the reporting framework (IFRSs, 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 Shaftesbury PLC 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
identifi ed 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 fi nancial statements to
material misstatement, including how fraud might occur, by reviewing the
Company’s risk register and 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 aff ect
the fi nancial statements.
– Reading minutes of meetings of those charged with governance.
– Obtaining and reading correspondence from legal and regulatory bodies
including HMRC.
A further description of our responsibilities for the audit of the fi nancial
statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms part
of our auditor’s report.
Other matters we are required to address
• We were appointed by the Company on 15 October 2015 to audit the
fi nancial statements for the year ended 30 September 2016 and
subsequent fi nancial periods. The period of total uninterrupted
engagement including previous renewals and reappointments is 4 years,
covering the years ended 30 September 2016 to 30 September 2019. 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 explaining the results of our audit.
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.
Daniel Saunders (Senior statutory auditor)
for and on behalf of Ernst & Young LLP, Statutory Auditor
London
25 November 2019
101
101
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Shaftesbury Annual Report 2019
Financial statements
Group statement of comprehensive income
For the year ended 30 September 2019
Revenue
Property charges
Net property income
Administrative expenses
Operating profit before investment property disposals and valuation movements
Profit on disposal of investment properties
Net revaluation (deficit)/surplus on investment properties
Operating profit
Finance income
Finance costs
Share of post-tax loss 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 124 for an explanation of the EPRA measures used in these financial statements.
Notes
5
6
7
8
11
9
13
10
25
2019
£m
126.9
(28.9)
98.0
(15.2)
82.8
2.8
(15.3)
70.3
1.0
(31.5)
(13.8)
26.0
-
26.0
8.5p
8.5p
17.8p
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
102
102
Shaftesbury Annual Report 2019
Financial statements
Balance sheets
As at 30 September 2019
Group
2019
£m
Notes
Non-current assets
Investment properties
Accrued income
Investment in joint venture
Property, plant and equipment
Other receivables
Investment in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Non-current liabilities
Borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium
Share-based payments reserve
Retained earnings
Total equity
11
12
13
16
14
15
16
17
18
20
21
21
21
2018
£m
3,714.8
9.9
143.9
1.3
3.7
-
3,765.9
13.1
127.6
1.4
3.7
-
3,911.7
3,873.6
35.1
54.0
4,000.8
30.3
118.5
4,022.4
43.8
40.8
949.8
993.6
948.6
989.4
Company
2019
£m
-
-
59.0
1.4
-
1,238.3
1,298.7
47.8
36.9
1,383.4
10.4
(1.3)
9.1
2018
£m
-
-
59.0
1.3
-
1,160.9
1,221.2
51.2
100.6
1,373.0
6.6
(1.8)
4.8
3,007.2
3,033.0
1,374.3
1,368.2
76.9
378.6
1.3
2,550.4
3,007.2
76.8
378.4
1.2
2,576.6
3,033.0
76.9
378.6
1.3
917.5
76.8
378.4
1.2
911.8
1,374.3
1,368.2
The Company made a profi t of £57.9 million (2018: £73.5 million) in the year.
On behalf of the Board who approved and authorised for issue the fi nancial statements on pages 102 to 123 on 25 November 2019.
Brian Bickell
Chief Executive
Chris Ward
Finance Director
103
103
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Shaftesbury Annual Report 2019
Financial statements
(cid:694)as(cid:731) (cid:1026)o(cid:746) statements
For the year ended 30 September 2019
Operating activities
Cash generated from operating activities
Interest received
Interest paid
Net cash from/(used in) operating activities
Investing activities
Investment property acquisitions
Investment property disposals
Capital expenditure on investment properties
Purchase of property, plant and equipment
Dividends received from joint venture
Increase in loans to joint venture
Amounts received from subsidiaries
Amounts provided to subsidiaries
Net cash (used in)/from investing activities
Financing activities
Proceeds from exercise of share options
Proceeds from share placing
Share placing costs
Proceeds from borrowings
Repayment of borrowings
Loan issue costs
Equity dividends paid
Net cash (used in)/from financing activities
Net change in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Cash and cash equivalents at the end of the year
Group
2019
£m
79.8
1.0
(30.2)
50.6
(47.2)
14.3
(28.2)
(0.5)
2.5
(3.3)
-
-
2018
£m
76.5
0.8
(31.0)
46.3
(167.8)
13.3
(26.6)
(0.4)
3.0
(3.0)
-
-
(62.4)
(181.5)
0.2
-
-
-
-
-
(52.9)
(52.7)
(64.5)
118.5
54.0
0.1
265.2
(4.8)
72.0
(72.0)
(1.8)
(50.6)
208.1
72.9
45.6
118.5
Company
2019
£m
(16.4)
0.9
(1.5)
(17.0)
-
-
-
(0.5)
2.5
(3.3)
67.4
(60.1)
6.0
0.2
-
-
-
-
-
(52.9)
(52.7)
(63.7)
100.6
36.9
2018
£m
(15.9)
0.7
(1.8)
(17.0)
-
-
-
(0.4)
3.0
(3.0)
73.0
(188.9)
(116.3)
0.1
265.2
(4.8)
72.0
(72.0)
(1.8)
(50.6)
208.1
74.8
25.8
100.6
Notes
24
8
20
20
23
16
16
104
104
Shaftesbury Annual Report 2019
Financial statements
Statements of changes in equity
For the year ended 30 September 2019
Share
capital
£m
Share
premium
£m
Notes
Share-based
payments
reserve
£m
Retained
earnings
£m
Total
equity
£m
378.4
1.2
2,576.6
3,033.0
Group
At 1 October 2018
Profi t and total comprehensive income for the year
Dividends paid
Exercise of share options
Share-based payments
Release on exercise of share options
At 30 September 2019
At 1 October 2017
Profi t and total comprehensive income for the year
Dividends paid
Share placing
Exercise of share options
Share-based payments
Release on exercise of share options
At 30 September 2018
Company
At 1 October 2018
Profi t and total comprehensive income for the year
Dividends paid
Exercise of share options
Share-based payments
Release on exercise of share options
At 30 September 2019
At 1 October 2017
Profi t and total comprehensive income for the year
Dividends paid
Share placing
Exercise of share options
Share-based payments
Release on exercise of share options
At 30 September 2018
23
20
23
20
20
23
20
23
20
20
76.8
-
-
0.1
-
-
76.9
69.8
-
-
6.9
0.1
-
-
-
-
0.2
-
-
378.6
124.9
-
-
253.5
-
-
-
76.8
378.4
76.8
-
-
0.1
-
-
76.9
69.8
-
-
6.9
0.1
-
-
378.4
-
-
0.2
-
-
378.6
124.9
-
-
253.5
-
-
-
76.8
378.4
The Company’s distributable reserves are disclosed in note 21 to the fi nancial statements.
105
105
-
-
-
0.9
(0.8)
1.3
3.0
-
-
-
-
0.8
(2.6)
1.2
1.2
-
-
-
0.9
(0.8)
1.3
3.0
-
-
-
-
0.8
(2.6)
1.2
26.0
(52.9)
(0.1)
-
0.8
26.0
(52.9)
0.2
0.9
-
2,550.4
3,007.2
2,449.2
2,646.9
175.5
(50.6)
-
(0.1)
-
2.6
175.5
(50.6)
260.4
-
0.8
-
2,576.6
3,033.0
911.8
57.9
(52.9)
(0.1)
-
0.8
917.5
886.4
73.5
(50.6)
-
(0.1)
-
2.6
1,368.2
57.9
(52.9)
0.2
0.9
-
1,374.3
1,084.1
73.5
(50.6)
260.4
-
0.8
-
911.8
1,368.2
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Shaftesbury Annual Report 2019
Financial statements
Notes to t(cid:731)e financial statements
For the year ended 30 September 2019
1 Basis of preparation
Shaftesbury PLC (“the Company”) is a public company limited by shares,
incorporated, registered and domiciled in England and Wales. It is listed on
the London Stock Exchange. The address of the registered office and its
registered number are given on page 96.
The financial statements of the Company, and the consolidated financial
statements of the Company and its subsidiaries, (collectively, “the Group”)
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.
The Company is the ultimate parent company of the Group. The Company
has not presented its own Statement of Comprehensive Income, as
permitted by Section 408 of the Companies Act 2006. The Company made
a profit of £57.9 million (2018: £73.5 million) in the year.
Going concern
The Group’s business activities, together with the factors affecting
performance, financial position and future development are set out in the
Strategic Report on pages 1 to 62. The financial position of the Group
including cash flow, liquidity, borrowings, undrawn facilities and debt
maturity analysis is set out on pages 56 to 57. The directors have a
reasonable expectation that the Group has adequate resources to continue
in operational existence for at least 12 months from the date these financial
statements were approved. Therefore, they continue to adopt the going
concern basis in preparing the financial statements.
2 Changes in accounting policies
The Group’s significant accounting policies are disclosed in note 29. The
accounting policies and methods of computation used are consistent with
those of the previous financial year, with the exception of new standards
and amendments to standards which became effective in the financial year.
New standards adopted during the year
The following standards and amendments to existing standards were
relevant to the Group, adopted from 1 October 2018, and did not have a
material impact on the financial statements.
Annual Improvements 2014-2016
IFRS 2 (amendment) – Classification of share-based payment transactions
IAS 40 (amendment) – Transfers of investment property
IFRS 9 – Financial Instruments
This standard deals with, amongst other things, the classification and
measurement of financial instruments. The main area applicable to the
Group is the method for assessing any impairment provisions, given the
requirement to use a forward-looking expected credit loss model. The
material financial assets subject to the new expected credit loss model
include cash and cash equivalents, trade receivables, amounts due from
joint venture and amounts due from subsidiaries (Company only). Following
adoption of the standard, the accounting policies and disclosures have
been updated in line with the new IFRS 9 requirements. There was no
material impact to the amounts recognised in the financial statements. The
standard was adopted retrospectively, without restating the comparative
balances for classification, measurement and impairment.
IFRS 15 – Revenue from contracts with customers
This standard is based on the principle that revenue is recognised when
control passes to a customer. For the Group it is applicable to service
charge income and proceeds from the disposal of investment properties. It
does not include rental income, which falls within the scope of IAS 17 –
Leases (IFRS 16 – Leases from 1 October 2019). Following the Group’s
assessment of the standard, its adoption did not have a material impact to
the amounts recognised in the financial statements. The accounting policies
and disclosures have been updated in line with the new IFRS 15
requirements. The standard was adopted on a modified retrospective basis,
therefore comparative balances have not been restated.
Standards relevant to the Group but not yet effective
The following standard and amendments to existing standards were in issue
at the Balance Sheet date, are not yet effective, and have not been adopted
early. They are not expected to have a significant impact on the Group’s
financial statements.
IFRS 9 (amendment) – Prepayment features with negative compensation
IAS 28 (amendment) – Long-term interest in associates and joint ventures
Annual Improvements 2015-2017
IFRS 16 – Leases (effective from 1 October 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 for its
head office, which we estimate at approximately £4.5 million, in the year
when the standard becomes effective.
(cid:678) Significant (cid:733)udgements(cid:671) assum(cid:739)tions 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.
Values are 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 126 to 127. 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 11 for further information.
(cid:692)rea of (cid:733)udgement
The directors considered the contingent liability arising from litigation from a
shareholder and whether a provision should be recognised. The contingent
liability is disclosed in note 27. Otherwise, the directors did not make any
significant judgements in the preparation of these financial statements.
106
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Shaftesbury Annual Report 2019
Financial statements
(cid:705)otes to t(cid:731)e fi nancia(cid:735) statements
4 Segmental information
IFRS 8 requires operating segments to be reported in a manner consistent with the internal fi nancial 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 fi nancial statements. That is, the information is provided at a Group
level and includes both the IFRS reported results and EPRA measures (see page 124 for an explanation on the EPRA measures used in these fi nancial
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 fl oors and small offi ces and apartments on the upper fl oors. As the properties share similar economic characteristics we
consider them to be one operating segment. As such, no segmental information is presented.
5 Revenue
Rental income
Service charge income
2019
£m
117.3
9.6
126.9
2018
£m
112.8
9.3
122.1
Rental income includes a net increase of £2.3 million from tenant lease incentives (2018: £0.5 million net increase). Included within service charge income is
£2.1 million (2018: £1.8 million) of amounts that were deferred at the previous year end. Amounts deferred at the end of the year relate to service charges
invoiced in advance for the period 29 September to 24 December.
6 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
Service charge expenses
7 Administrative expenses
Group and Company
Employee costs
Depreciation
Other head offi ce 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
2019
£m
7.3
2.0
2.7
3.4
3.9
19.3
9.6
28.9
2019
£m
10.0
0.4
4.9
15.3
(0.1)
15.2
2019
£m
7.2
0.9
0.4
1.5
10.0
2018
£m
7.6
1.4
2.6
3.6
3.8
19.0
9.3
28.3
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
Included within equity-settled remuneration is a charge of £1.2 million (2018: £0.6 million) for the LTIP and SAYE schemes. Note 22 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 28.
Average monthly number of employees
Executive directors
Head offi ce and property management
Estate management
107
107
2019
number
2018
number
4
27
1
32
4
25
1
30
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Shaftesbury Annual Report 2019
Financial statements (cid:705)otes to t(cid:731)e financia(cid:735) statements
7 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
Total fees for non-audit services
Total fees
2019
£000
71
128
199
26
5
31
230
2018
£000
61
116
177
22
10
32
209
The auditor provided no taxation services to the Group in 2019 (2018: nil). Total fees for non-audit services represented 16% (2018: 18%) of the total fees for
audit services.
(cid:683) Profit on dis(cid:739)osa(cid:735) of in(cid:745)estment (cid:739)ro(cid:739)erties
Net sale proceeds
Book value at date of sale
9 Finance costs
Mortgage bond interest
Bank and other interest
Issue cost amortisation
2019
£m
14.3
(11.5)
2.8
2019
£m
13.9
16.4
1.2
31.5
2018
£m
13.3
(8.7)
4.6
2018
£m
13.9
16.5
1.6
32.0
10 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.
11 Investment properties
At 1 October
Acquisitions
Disposals
Refurbishment and other capital expenditure
Net revaluation (deficit)/surplus on 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
Lease incentives and costs included in receivables
Book value at 30 September
The investment properties valuation comprises:
Freehold properties
Leasehold properties
108
108
2019
£m
3,714.8
47.0
(11.5)
30.9
(15.3)
3,765.9
3,784.2
-
(18.3)
3,765.9
2019
£m
3,531.2
253.0
3,784.2
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
Shaftesbury Annual Report 2019
Financial statements
(cid:705)otes to t(cid:731)e fi nancia(cid:735) statements
11 Investment properties continued
Investment properties were valued at 30 September 2019 by professionally qualifi ed external valuers. The Group’s wholly-owned portfolio is valued by
Cushman & Wakefi eld, 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 fi nancially viable. Where the highest and best use
diff ers from the existing use, the valuer considers the use a market participant would have in mind when formulating the price it would bid and refl ects 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 126 to 127. 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 signifi cant element of estimation and judgement. As a result of adjustments made
by the valuers to market observable data, these signifi cant 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 (2018: 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
78 to 80.
A summary of the Cushman & Wakefi eld report can be found on pages 128 to 129.
Fees were agreed at fi xed amounts in advance of the valuations being carried out. During the year, Cushman & Wakefi eld acted as letting agents for
Shaftesbury Covent Garden Limited and Shaftesbury CL Limited, rent review surveyors for Shaftesbury CL Limited and provided other advice to
Shaftesbury PLC. Non valuation fees represented 36% of total fees for the valuation of the Group’s investment properties. Fees payable by the Group to
Cushman & Wakefi eld do not constitute a signifi cant part of their fee income.
Sensitivity analysis
As noted in the signifi cant judgements, assumptions and key estimates section on page 106, 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 fl ow 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 confi gured with commercial uses on the lower
fl oors and offi ce and/or residential uses on the upper fl oors. Cushman & Wakefi eld 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
(171.0)
Change in ERV
-2.5%
£m
+2.5%
£m
(85.8)
89.4
+5.0%
£m
178.8
Change in equivalent yields
+0.5%
£m
-0.25%
£m
313.0
(500.1)
-0.5%
£m
684.5
+1.0%
£m
(883.3)
These key unobservable inputs are inter-dependent. All other factors being equal, a higher equivalent yield would lead to a decrease in the valuation of a
property, and an increase in the ERV would increase the capital value, and vice versa.
At 30 September 2019, the Group had capital commitments of £82.4 million (2018: £58.7 million). This included £39.0 million (2018: £39.0 million) relating to
the forward purchase of a long leasehold interest and £43.4 million (2018: £19.7 million) relating to future capital expenditure for the enhancement of the
Group’s investment properties. See pages 51 to 53 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 18.
12 Accrued income
Accrued income in respect of lease incentives
Less: included in trade and other receivables (note 15)
2019
£m
16.1
(3.0)
13.1
2018
£m
12.2
(2.3)
9.9
109
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Shaftesbury Annual Report 2019
Financial statements (cid:705)otes to t(cid:731)e financia(cid:735) statements
(cid:676)(cid:678) (cid:700)n(cid:745)estment in (cid:733)oint (cid:745)enture
Group
At 1 October
Share of losses
Dividends received
Book value at 30 September
Company
Shares at cost
At 1 October and 30 September
2019
£m
143.9
(13.8)
(2.5)
127.6
2019
£m
59.0
2018
£m
148.0
(1.1)
(3.0)
143.9
2018
£m
59.0
The Company owns 7,782,100 B ordinary £1 shares in Longmartin Properties Limited, representing 50% of that company’s issued share capital. The
company is incorporated in Great Britain and registered in England and Wales and is engaged in property investment in London. Longmartin Properties
Limited’s principal place of business and registered office is the same as the Group, as set out on page 96. Control of Longmartin Properties Limited is
shared equally with The Mercers’ Company, which owns 50% of its issued share capital.
At 30 September 2019, the joint venture had capital commitments of £5.2 million (2018: £10.4 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
Rental income
Service charge income
Revenue from properties
Property outgoings
Service charge expenses
Property charges
Net property income
Administrative expenses
Operating profit before investment property valuation movements
Net revaluation deficit on investment properties
Operating (loss)/profit
Finance costs
Loss before tax
Current tax
Deferred tax
Tax credit for the year
Loss and total comprehensive loss for the year
Loss attributable to the Group
Balance Sheet
Non-current assets
Investment properties at book value
Accrued income
Other receivables
Cash and cash equivalents
Other 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
110
110
2019
£m
15.0
1.8
16.8
(2.2)
(1.8)
(4.0)
12.8
(0.2)
12.6
(38.5)
(25.9)
(6.8)
(32.7)
(1.2)
6.3
5.1
(27.6)
(13.8)
2019
£m
426.3
1.7
1.3
429.3
1.2
4.1
434.6
21.7
120.0
37.7
179.4
255.2
127.6
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
Shaftesbury Annual Report 2019
Financial statements
(cid:705)otes to t(cid:731)e fi nancia(cid:735) statements
14 Investment in subsidiaries
Shares in Group undertakings
At 1 October
Additional share capital issued by subsidiaries
Impairment of shares in subsidiary
At 30 September
2019
£m
1,160.9
77.4
-
1,238.3
2018
£m
619.6
554.7
(13.4)
1,160.9
A number of subsidiaries issued share capital to the Company in both 2019 and 2018. All transactions were settled through intercompany indebtedness.
In 2018, 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.
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 offi ce of the subsidiaries is the same as the Group, as set out on page 96.
15 Trade and other receivables
Trade receivables
Provision for expected credit losses
Accrued income in respect of lease incentives (note 12)
Amounts due from subsidiaries
Amounts due from joint venture
Other taxation and social security
Prepayments
Other receivables
Group
Company
2019
£m
18.3
(1.5)
16.8
3.0
-
7.2
-
7.6
0.5
35.1
2018
£m
16.2
(1.2)
15.0
2.3
-
3.9
-
9.0
0.1
30.3
2019
£m
-
-
-
-
37.5
7.2
2.0
0.6
0.5
47.8
2018
£m
-
-
-
-
46.6
3.9
-
0.7
-
51.2
Trade receivables represent amounts due from tenants. Within this balance is £3.4 million (2018: £2.6 million) owed for service charges.
Provisions against tenant receivables are calculated using a forward-looking expected credit loss model. In determining the provision, the Group considers
both recent payment history and future expectations of possible default in order to recognise a lifetime expected credit loss allowance. At 30 September
2019, amounts due from tenants which were more than 90 days overdue totalled £2.7 million (2018: £2.6 million). Provisions against these overdue amounts
totalled £1.5 million (2018: £1.0 million). The remaining balance is not considered to be impaired.
Cash deposits totalling £20.7 million (2018: £20.6 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.
111
111
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Shaftesbury Annual Report 2019
Financial statements (cid:705)otes to t(cid:731)e financia(cid:735) statements
16 Cash and cash equivalents
Cash and cash equivalents at 30 September 2019, comprising cash at bank, were £54.0 million (2018: £118.5 million) for the Group and £36.9 million (2018:
£100.6 million) for the Company.
Non-current other receivables include £3.7 million at 30 September 2019 (2018: £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.
17 Trade and other payables
Deferred rental income
Accruals and deferred service charge income
Trade payables and accruals in respect of capital expenditure
Amounts due to subsidiaries
Other taxation and social security
Other payables and accruals
Group
Company
2019
£m
23.0
5.1
28.1
3.5
-
2.9
9.3
43.8
2018
£m
22.2
3.0
25.2
2.7
-
5.1
7.8
40.8
2019
£m
-
-
-
-
5.5
1.2
3.7
10.4
2018
£m
-
-
-
-
2.8
1.3
2.5
6.6
Following the adoption of IFRS 15, the amounts included in the table above for deferred rental income and accruals and deferred service charge income
have been disaggregated and disclosed separately. The 2018 figures have been restated accordingly. This had no impact on the net assets nor profit after
tax reported for that year.
18 Borrowings
Group
Mortgage bonds
Secured bank facilities
Secured term loans
Total Group borrowings
Nominal
value
£m
575.0
-
384.8
959.8
2019
Unamortised
issue costs
£m
(4.9)
(1.3)
(3.8)
(10.0)
Book
value
£m
570.1
(1.3)
381.0
949.8
Nominal
value
£m
575.0
-
384.8
959.8
2018
Unamortised
issue costs
£m
(5.3)
(1.8)
(4.1)
(11.2)
Book
value
£m
569.7
(1.8)
380.7
948.6
Details of the Group’s current financial position are discussed on page 57.
At 30 September 2019, there were no drawings against the Group’s secured bank facilities (2018: none). The Group is still able to benefit from these
committed revolving facilities, and as such, unamortised issue costs of £1.3 million (2018: £1.8 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 £3,088.9 million (2018:
£3,151.4 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 term loans
Loan issue costs
Loan issue costs1
Cash & cash equivalents (note 16)
Net debt at 30 September 2019
Net debt at 30 September 2018
1. Loan issue costs are eliminated in the calculation of net debt.
Cash flows
1.10.2018
£m
Inflows
£m
Outflows
£m
Non-cash items
£m
30.9.2019
£m
575.0
384.8
(11.2)
948.6
11.2
(118.5)
841.3
914.2
-
-
-
-
-
(97.8)
(97.8)
(286.9)
-
-
-
-
-
162.3
162.3
214.0
-
-
1.2
1.2
(1.2)
-
-
-
575.0
384.8
(10.0)
949.8
10.0
(54.0)
905.8
841.3
112
112
Shaftesbury Annual Report 2019
Financial statements
(cid:705)otes to t(cid:731)e fi nancia(cid:735) statements
18 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
424.8
535.0
1,184.8
2019
Drawn
£m
-
424.8
535.0
959.8
Undrawn
£m
225.0
-
-
225.0
Committed
£m
225.0
290.0
669.8
1,184.8
2018
Drawn
£m
-
290.0
669.8
959.8
(cid:700)nterest rate (cid:739)rofi (cid:735)e of interest (cid:725)earing (cid:725)orro(cid:746)ings
Fixed rate borrowings
Secured term loans
Mortgage bonds 2027
Mortgage bonds 2031
Weighted average cost of drawn borrowings
2019
2018
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
225.0
-
-
225.0
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 2019, the weighted average charge on the undrawn facilities
of £225.0 million (2018: £225.0 million) for the Group and Company was 0.66% (2018: 0.66%).
The weighted average credit margin on the Group and Company’s secured bank facilities was 1.46% (2018: 1.46%).
Company
Secured bank facilities
Total Company borrowings
Nominal
value
£m
-
-
2019
Unamortised
issue costs
£m
(1.3)
(1.3)
Book
value
£m
(1.3)
(1.3)
Nominal
value
£m
-
-
2018
Unamortised
issue costs
£m
(1.8)
(1.8)
Book
value
£m
(1.8)
(1.8)
At 30 September 2019, there were no drawings against the Company’s secured bank facilities (2018: £Nil). The Company is still able to benefi t from these
committed revolving credit facilities, and as such, unamortised issue costs of £1.3 million (2018: £1.8 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 16)
Net debt at 30 September 2019
Net debt at 30 September 2018
1. Loan issue costs are eliminated in the calculation of net debt.
Availability and maturity of borrowings
Repayable between 1 and 5 years
Cash fl ows
1.10.2018
£m
Infl ows
£m
Outfl ows
£m
Non-cash items
£m
30.9.2019
£m
-
(1.8)
(1.8)
1.8
(100.6)
(100.6)
(25.8)
-
-
-
-
(71.0)
(71.0)
(342.0)
-
-
-
-
134.7
134.7
267.2
-
0.5
0.5
(0.5)
-
-
-
-
(1.3)
(1.3)
1.3
(36.9)
(36.9)
(100.6)
Committed
£m
225.0
2019
Drawn
£m
-
Undrawn
£m
225.0
Committed
£m
225.0
2018
Drawn
£m
-
Undrawn
£m
225.0
113
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Financial statements (cid:705)otes to t(cid:731)e financia(cid:735) statements
19 Financial instruments
Categories of financial instruments (book value)
Group
Financial assets
Trade and other receivables (note 15)
Amounts due from the joint venture (note 15)
Other receivables (note 16)
Cash and cash equivalents (note 16)
Current other receivables (note 15)
Financial liabilities
Trade and other payables - due within one year (note 17)
Interest bearing borrowings (note 18)
Net financial instruments
Company
Financial assets
Amounts due from subsidiaries (note 15)
Amounts due from the joint venture (note 15)
Cash and cash equivalents (note 16)
Current other receivables (note 15)
Financial liabilities
Trade and other payables - due within one year (note 17)
Amounts due to subsidiaries (note 17)
Interest bearing borrowings (note 18)
Net financial instruments
2019
£m
16.8
7.2
3.7
54.0
0.5
82.2
(12.8)
(949.8)
(962.6)
(880.4)
37.5
7.2
36.9
0.5
82.1
(3.7)
(5.5)
1.3
(7.9)
74.2
2018
£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
Other receivables relate to cash held on deposit, which have certain conditions restricting their use which are due between 2029 and 2035.
(cid:706)t(cid:731)er financia(cid:735) 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
£1,042.9 million (2018: £955.2 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.
114
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Financial statements
(cid:705)otes to t(cid:731)e fi nancia(cid:735) statements
19 Financial instruments continued
Contractua(cid:735) cas(cid:731) (cid:1026) o(cid:746)s
The tables below summarise the undiscounted contractual cash fl ows arising on interest bearing fi nancial 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 2019
Financial liabilities
Interest bearing borrowings:
Principal (note 18)
Interest
Total
30 September 2018
Financial liabilities
Interest bearing borrowings:
Principal (note 18)
Interest
Total
Company
30 September 2019
Financial liabilities
Interest bearing borrowings:
Principal (note 18)
Interest
Total
30 September 2018
Financial liabilities
Interest bearing borrowings:
Principal (note 18)
Interest
Total
Book
value
£m
949.8
3.0
952.8
Book
value
£m
948.6
3.0
951.6
Book
value
£m
(1.3)
0.1
(1.2)
Book
value
£m
(1.8)
0.1
(1.7)
Contractual
cash fl ows
£m
959.8
314.1
1,273.9
Contractual
cash fl ows
£m
959.8
342.9
1,302.7
Contractual
cash fl ows
£m
-
0.1
0.1
Contractual
cash fl ows
£m
-
-
-
<1
year
£m
-
28.7
28.7
<1
year
£m
-
28.7
28.7
<1
year
£m
-
0.1
0.1
<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
424.8
127.4
552.2
5-10
years
£m
290.0
136.8
426.8
5-10
years
£m
-
-
-
5-10
years
£m
-
-
-
>10
years
£m
535.0
43.1
578.1
>10
years
£m
669.8
62.5
732.3
>10
years
£m
-
-
-
>10
years
£m
-
-
-
Interest of £0.1 million at 30 September 2018 for the Company was paid within one year of that date.
Management of fi nancia(cid:735) ris(cid:734)s ((cid:698)rou(cid:739) and Com(cid:739)any)
An overview of the Group’s risk management policies and the principal risks and uncertainties is set out on pages 58 to 61. The disclosure below provides
further detail regarding fi nancial risk management.
Credit risk
Credit risk refers to the risk that a counterparty will default on their contractual obligations resulting in fi nancial 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 15.
Provision is made in full where recovery of fi nancial assets is, in the opinion of the directors, uncertain. The carrying amount of fi nancial 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. Details of the provisions for impairment for the Group’s trade receivables are included in note 15.
Where cash is deposited with banks or fi nancial institutions, the Group considers the counterparty credit rating and places amounts with diff erent banks or
fi nancial institutions to spread counterparty credit risk. Deposits and liquidity requirements are reviewed on a weekly basis.
115
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Financial statements (cid:705)otes to t(cid:731)e financia(cid:735) statements
19 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 capital structure and a
summary of its funding strategy is set out in the Strategic Report on page 57.
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 2019, 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 18 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 page 57.
20 Share capital
Allotted and fully paid (ordinary 25p shares)
At 1 October
Exercise of share options
Share placing
At 30 September
2019
number
million
307.3
0.1
-
307.4
2018
number
million
279.0
0.4
27.9
307.3
2019
£m
76.8
0.1
-
76.9
2018
£m
69.8
0.1
6.9
76.8
In 2018, 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.
21 Reserves
The Statement of Changes in Equity is set out on page 105.
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
Amount by which the fair value of the consideration received for ordinary shares exceeds the nominal value of shares issued, net of expenses.
Reserve used to recognise the value of equity-settled remuneration provided to employees.
Cumulative gains and losses recognised in the Statement of Comprehensive Income, net of dividends and adjustments for equity-settled remuneration.
The Company’s retained earnings at 30 September 2019 include amounts distributable of £228.4 million (2018: £222.2 million).
116
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Financial statements
(cid:705)otes to t(cid:731)e fi nancia(cid:735) statements
22 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 Report on page 85.
LTIP and SAYE schemes
The following share options granted to executive directors and employees were outstanding at 30 September 2019:
Awarded
Exercised
Lapsed
At
30.9.2019
Exercisable
30.9.2019
Option
exercise
price
Weighted
average price
at exercise
Date of grant
SAYE
02.07.2014
03.07.2015
01.07.2016
30.06.2017
29.06.2018
28.06.2019
LTIP 2016 scheme
02.12.2015
08.02.2016
12.12.2016*
12.12.2017
LTIP 2018 scheme
04.12.2018
At
1.10.2018
23,419
6,050
20,640
14,953
12,831
-
138,800
224,225
406,621
400,195
-
-
-
-
-
26,998
-
-
-
-
(23,419)
(1,260)
(8,496)
(355)
-
-
(43,977)
(4,826)
(14,550)
(13,545)
-
(36)
-
(2,201)
(2,376)
-
(90,546)
(173,772)
(471)
(7,624)
-
4,754
12,144
12,397
10,455
26,998
4,277
45,627
391,600
379,026
Exercise
period
2019
2018-2020
2019-2021
2020-2022
2021-2023
2022-2024
2018-2019
2020-2021
2019-2022
2020-2023
£7.84
£9.07
£7.69
£9.07
-
-
£8.78
£8.65
£9.07
£9.07
-
2021-2024
-
-
-
-
-
-
4,277
-
-
-
-
4,277
£5.38
£6.94
£7.41
£7.74
£7.57
£6.63
Nil
Nil
Nil
Nil
Nil
-
1,247,734
456,470
483,468
-
(110,428)
(18,280)
(295,306)
438,190
1,325,468
* 391,600 share options will lapse at the vesting date in December 2019.
Weighted average exercise price
Weighted average remaining contractual life
At
1.10.2018
£0.43
2.6 years
Awarded
Exercised
£0.37
£1.82
Lapsed
£0.12
At
30.9.2019
£0.36
2.7 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 (years)
Share return volatility (per annum)
Risk free discount rate (per annum)
Index return volatility (FTSE 350 REIT Index)
Correlation between the Company’s shares and those in the FTSE 350 REIT Index
Dividend yield
Fair values:
SAYE
No holding period
Contingent holding period
Two year holding period
SAYE 3 Year
SAYE 5 Year
28.6.19
£8.03
£6.63
3
14%
0.6%
-
-
2.1%
LTIP
(TSR)
-
£4.61
£4.52
£4.38
28.6.19
£8.03
£6.63
5
15%
0.6%
-
-
2.1%
LTIP
(NAV)
-
£8.65
£8.48
£8.22
LTIP
4.12.18
£8.65
Nil
3 or 5
16%
0.8%
18%
81%
-
LTIP
(TAR)
-
£8.65
£8.48
£8.22
SAYE 3
Year
SAYE 5
Year
£1.36
-
-
-
£1.45
-
-
-
The assumed volatility was determined taking into account factors including the historical volatility of the Company share price. Actual future volatility may
diff er, potentially signifi cantly, from historic volatility.
The vesting conditions relating to options granted under the 2016 LTIP are described in the Annual Remuneration Report on page 90.
117
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Financial statements (cid:705)otes to t(cid:731)e financia(cid:735) statements
22 Share-based remuneration continued
Deferred annual share bonus scheme
At 1 October
Awarded
Exercised
At 30 September
23 Dividends
Final dividend for:
Year ended 30 September 2018
Year ended 30 September 2017
Interim dividend for:
Year ended 30 September 2019
Year ended 30 September 2018
Dividends paid in the year
2019
Shares
598,868
205,640
(188,466)
616,042
2018
Shares
597,351
208,914
(207,397)
598,868
2019
£m
26.2
-
26.7
-
52.9
2018
£m
-
25.1
-
25.5
50.6
Pence per share
PID
-
-
8.7p
8.3p
Ordinary
8.5p
8.1p
-
-
A final dividend of 9.0p per share was recommended by the Board on 25 November 2019. Subject to approval by shareholders at the 2020 AGM, the final
dividend will be paid on 14 February 2020 to shareholders on the register at 17 January 2020. 5.25p of the dividend will be paid as a PID and 3.75p will be
paid as an ordinary dividend. The dividend totalling £27.7 million will be accounted for as an appropriation of revenue reserves in the year ending 30
September 2020. See page 55 of the Strategic Report for commentary on dividends.
The trustee of the Company’s Employee Benefit Trust waived dividends in respect of 616,042 (2018: 598,868) ordinary shares during the year.
(cid:677)(cid:679) Cas(cid:731) (cid:1026)o(cid:746)s from o(cid:739)erating acti(cid:745)ities
Operating activities
Profit before tax
Adjusted for:
Lease incentives recognised (note 5)
Share-based payments
Depreciation (note 7)
Net revaluation deficit/(surplus) on investment properties (note 11)
Profit on disposal of investment properties (note 8)
Net finance costs
Administrative charges, finance charges, and dividends received from subsidiaries settled through
intercompany indebtedness
Impairment of subsidiary (note 14)
Dividends received from joint venture (note 13)
Share of post-tax loss from joint venture (note 13)
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 18 for the cash flow movement in net debt.
Group
Company
2019
£m
26.0
(2.3)
0.9
0.4
15.3
(2.8)
30.5
-
-
-
13.8
81.8
(4.1)
2.1
79.8
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
2019
£m
57.9
-
0.9
0.4
-
-
0.9
(71.9)
-
(2.5)
-
(14.3)
(2.3)
0.2
(16.4)
2018
£m
73.5
-
0.8
0.4
-
-
1.7
(100.0)
13.4
(3.0)
-
(13.2)
0.1
(2.8)
(15.9)
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Financial statements
(cid:705)otes to t(cid:731)e fi nancia(cid:735) statements
25 Performance measures
Earnings per share
Basic
Dilutive effect of share options
Diluted
1. Weighted average
Profi t
after tax
£m
26.0
-
26.0
2019
Number
of shares1
million
307.4
0.2
307.6
EPRA earnings per share
The calculations below are in accordance with the EPRA Best Practice Recommendations.
Basic
EPRA adjustments:
Net revaluation defi cit/(surplus) on investment properties (note 11)
Profi t on disposal of investment properties (note 8)
Adjustments in respect of the joint venture:
Investment property valuation defi cit
Deferred tax
EPRA earnings
1. Weighted average
(cid:692)d(cid:733)usted earnings (cid:739)er s(cid:731)are
EPRA earnings
Charge for share options (note 7)
Adjusted earnings
1. Weighted average
Profi t
after tax
£m
26.0
15.3
(2.8)
19.2
(3.1)
54.6
Profi t
after tax
£m
54.6
1.2
55.8
2019
Number
of shares1
million
307.4
307.4
2019
Number
of shares1
million
307.4
307.4
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 tax1
EPRA NAV
Deferred tax1
Difference between fair value and carrying value of debt:
Secured term loans1
Mortgage bonds
EPRA NNNAV
2019
Number
of ordinary
shares
million
307.4
0.3
307.7
307.7
307.7
Net
assets
£m
3,007.2
0.5
3,007.7
13.6
3,021.3
(13.6)
(75.8)
(17.9)
2,914.0
Earnings
per share
pence
8.5
-
8.5
Earnings
per share
pence
8.5
5.0
(0.9)
6.2
(1.0)
17.8
Earnings
per share
pence
17.8
0.4
18.2
Net asset
value per
share
£
9.78
9.77
0.05
9.82
(0.05)
(0.24)
(0.06)
9.47
Profi t
after tax
£m
175.5
-
175.5
Profi t
after tax
£m
175.5
(123.1)
(4.6)
5.0
(1.1)
51.7
Profi t
after tax
£m
51.7
0.6
52.3
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
2018
Number
of shares1
million
302.1
0.3
302.4
2018
Number
of shares1
million
302.1
302.1
2018
Number
of shares1
million
302.1
302.1
2018
Number
of ordinary
shares
million
307.3
0.4
307.7
307.7
307.7
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
1. Includes our 50% share of deferred tax and fair value of secured term loans in the joint venture.
The calculations of diluted net asset value per share show the potentially dilutive eff ect 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.
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Shaftesbury Annual Report 2019
Financial statements (cid:705)otes to t(cid:731)e financia(cid:735) statements
25 Performance measures continued
(cid:711)ota(cid:735) accounting return ((cid:711)(cid:692)(cid:709))
Opening EPRA NAV (A)
Closing EPRA NAV
(Decrease)/increase in the year
Dividends paid in the year
TAR (B)
TAR % (B/A)
Combined portfolio
Combined portfolio valuation
Wholly-owned portfolio valuation (note 11)
Joint venture valuation
Combined portfolio revaluation (deficits)/surplus and profits on disposal
Wholly-owned portfolio revaluation (deficit)/surplus (note 11)
Joint venture revaluation deficit (note 13)
Profit on disposal of investment properties (note 8)
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)
Wholly-
owned
business
£m
959.8
(54.0)
905.8
3,784.2
23.9%
82.8
31.5
(1.0)
30.5
2.7x
2019
Share
of joint
venture
£m
60.0
(0.6)
59.4
209.0
28.4%
6.3
3.0
-
3.0
2.1x
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
Total
£m
1,019.8
(54.6)
965.2
3,993.2
24.2%
3,021.2
31.9%
89.1
34.5
(1.0)
33.5
2.7x
2019
pence
991.0
982.0
(9.0)
17.2
8.2
0.8%
2019
£m
3,784.2
209.0
3,993.2
(15.3)
(19.2)
(34.5)
2.8
(31.7)
2018
Share
of joint
venture
£m
60.0
(1.3)
58.7
224.6
26.1%
7.0
2.8
-
2.8
2.5x
2018
pence
952.0
991.0
39.0
16.4
55.4
5.8%
2018
£m
3,727.0
224.6
3,951.6
123.1
(5.0)
118.1
4.6
122.7
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
For the wholly-owned group, the blended cost of debt is 3.2% (2018: 3.2%). This is calculated using the cost of drawn borrowings of 3.0% (2018: 3.0%) plus
the cost of commitment fees on undrawn bank facilities of 0.7% (2018: 0.7%). At 30 September 2019, the undrawn bank facilities totalled £225.0 million
(2018: £225.0 million).
For total debt, the blended cost of debt is 3.2% (2018: 3.2%) and includes the impact of our share of debt in our joint venture of £60 million (2018: £60
million), upon which interest is charged at 4.4% (2018: 4.4%).
See pages 54 and 56 in the Strategic Report for explanations of why we use these performance measures.
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Shaftesbury Annual Report 2019
Financial statements
(cid:705)otes to t(cid:731)e fi nancia(cid:735) statements
26 Operating leases
The Group as a 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 fi ve years
Later than fi ve years but not later than ten years
Later than ten years
2019
£m
110.2
274.6
163.7
166.1
714.6
2018
£m
104.8
262.7
155.9
145.1
668.5
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 19 to 23.
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 fi ve years
Later than fi ve years but not later than ten years
Later than ten years
2019
£m
0.6
2.3
2.6
-
5.5
2018
£m
0.4
1.6
2.0
0.2
4.2
The Company leases its head offi ce accommodation from a wholly-owned subsidiary.
27 Contingent liability
As announced on 11 June 2019, the Company has been served with legal proceedings issued by companies controlled by Mr Samuel Tak Lee. The
proceedings concern allegations and claims relating to the equity placing conducted by the Company in December 2017. Mr Lee currently has an interest
in approximately 26.32% of the Company’s share capital. The claimants are seeking damages for their alleged losses in the region of £10.4 million.
The Board considers the claims to have no merit and intends to defend the allegations robustly. The legal process is expected to take place over the next
18 months.
28 Related party transactions
During the year, the Company received administrative fees, dividends and interest from its subsidiaries. The Company leases its offi ce 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
Amounts due from joint venture
2019
£m
11.8
58.0
2.1
0.1
0.4
37.6
(5.5)
0.1
2.5
0.3
7.2
2018
£m
10.5
83.8
6.3
0.6
0.4
46.6
(2.8)
0.1
3.0
0.1
3.9
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 86 to 94, and below, there were no other transactions with
directors.
See note 20 for disclosure of related party transactions regarding the share placing in the prior year.
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Financial statements (cid:705)otes to t(cid:731)e financia(cid:735) statements
28 Related party transactions continued
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 86 to 94.
Directors’ emoluments
Short-term employee benefits
Other long-term benefits
Share-based payments
2019
£m
3.0
0.9
0.9
4.8
2018
£m
2.9
0.8
0.4
4.1
(cid:677)(cid:684) Significant accounting (cid:739)o(cid:735)icies
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
Rental income arises from operating leases granted to tenants. It is recognised on a straight-line basis over the term of the lease. Rental income uplifts
arising as a result of rent reviews are recognised when agreement of terms is reasonably certain.
The cost of lease incentives offered to tenants to enter into a lease, typically initial rent-free periods, is recognised 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.
Payments received from tenants to surrender their lease obligations are recognised immediately in the Group Statement of Comprehensive Income.
The Group’s revenue from contracts with customers, as defined in IFRS 15, includes service charge income. Service charge income is recognised as income
over time in the year in which the services are rendered. Revenue is recognised over time because the tenants benefit from the services as soon as they
are rendered by the Group. The actual services provided each reporting period are determined using costs incurred as the input method. As the Group
acts as a principal, service charge income is shown gross in the financial statements.
Irrecoverable property costs, including vacant costs and other property expenditure, are expensed to the Statement of Comprehensive Income in the year
to which they relate. Initial direct costs incurred in arranging an operating lease are added to the carrying value of investment properties, and are
subsequently recognised as an expense over the lease term on the same basis as the lease income.
Em(cid:739)(cid:735)oyee (cid:725)enefits
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 annual 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 to which it relates. Leaver provisions during the performance period are set out in the Remuneration Policy which is
available on the Company’s website.
Pension contributions
Payments to defined contribution plans are charged as an expense to the Statement of Comprehensive Income as they fall due.
122
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Financial statements
(cid:705)otes to t(cid:731)e fi nancia(cid:735) statements
(cid:677)(cid:684) Signifi cant accounting (cid:739)o(cid:735)icies continued
Investment properties
Investment properties are initially recognised on acquisition at cost, including related acquisition costs, when the Group assumes control of the property.
Investment properties are revalued annually to refl ect 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 adjusted for unamortised lease incentive and letting
cost balances.
Gains or losses arising on the revaluation of investment properties are included in the Statement of Comprehensive Income. Depreciation is not provided
in respect of investment properties.
Additions to properties include costs of a capital nature only. Expenditure is classifi ed as capital when it results in future economic benefi ts 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.
Disposals of investment properties are recognised in the period when control of the property transfers to the buyer. Typically, disposal will either occur on
unconditional exchange of contracts or completion. Where completion is expected to occur signifi cantly after exchange, or where the Group continues to
have signifi cant outstanding obligations after exchange of contracts, control will not usually transfer until completion. Any gain or loss on disposal, being the
diff erence between the net disposal proceeds and the carrying value of the property, is included in the Statement of Comprehensive Income in the period
in which the property is derecognised.
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 signifi cant 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 profi t 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 profi t 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. The Group assesses expected credit losses for trade receivables on a forward-looking basis.
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 classifi ed within other
receivables.
(cid:693)orro(cid:746)ings and costs of raising fi nance
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 eff ective interest rate method.
123
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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
EPRA earnings and earnings per share
Adjusted earnings per share
Net asset value per share
Diluted net asset value per share
EPRA net assets and NAV
EPRA triple net assets
EPRA triple NAV (NNNAV)
Total Accounting Return
Combined portfolio
Combined portfolio revaluation
Valuation growth/decline/decrease
Net debt
Loan-to-value (LTV)
Gearing
Blended cost of debt
Interest cover
Profit and total comprehensive income for the year
Basic earnings per share
Basic earnings per share
Net assets attributable to shareholders
Net assets attributable to shareholders
Net assets
Net assets
Net assets
N/A
Investment properties
Net surplus/deficit on revaluation of investment properties
Net surplus/deficit on revaluation of investment properties
Borrowings less cash and cash equivalents
N/A
N/A
N/A
N/A
Where this report uses like-for-like comparisons, these are defined within the Glossary.
Explanation and reconciliation
Note 25 and Strategic Report (page 54)
Note 25 and Strategic Report (page 56)
Note 25
Note 25
Note 25 and Strategic Report (page 56)
Below and note 25
Below and note 25
Note 25 and Strategic Report (page 56)
Note 25 and Strategic Report (page 48)
Note 25 and Strategic Report (page 48)
Strategic Report (pages 48 and 50)
Note 25 and Strategic Report (pages 54 and 57)
Note 25 and Strategic Report (pages 54 and 57)
Note 25 and Strategic Report (pages 54 and 57)
Note 25 and Strategic Report (pages 54 and 57)
Note 25 and Strategic Report (pages 54 and 57)
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
Earnings per share
Net assets
NAV per share
Triple net assets
Triple NAV (NNNAV)
Net Initial Yield (NIY)
Topped-up NIY
Vacancy
Cost ratio
Definition
Earnings from operational activities, excluding fair value movements in respect of properties,
profits on disposal of investment properties and deferred tax arising in our joint venture
EPRA earnings per weighted average number of ordinary shares
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
119
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119
119
119
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127
127
51
125
125
2019
£54.6m
17.8p
£3,021.3m
£9.82
£2,914.0m
£9.47
2.70%
2.89%
3.7%
28.6%
26.8%
2018
£51.7m
17.1p
£3,050.2m
£9.91
£3,031.0m
£9.85
2.68%
2.84%
4.6%
28.0%
26.6%
As disclosed in note 4 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.
124
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Shaftesbury Annual Report 2019
Other information
Alternative Performance Measures
EPRA cost ratio
Gross rental income
Revenue
Less: service charge income
Share of joint venture rental income
Cost
Property charges
Less: service charge 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.
Note
5
5
13
6
6
13
13
6
2019
£m
126.9
(9.6)
7.5
124.8
28.9
(9.6)
1.1
15.2
0.1
35.7
(2.0)
(0.3)
33.4
28.6%
26.8%
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%
Investment properties
Whilst our portfolio is geographically concentrated in London’s West End, it
is granular in nature, with c. 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 126
to 127.
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 108.
At 30 September 2019, we had 843 commercial and 555 residential leases,
with no individual tenant representing a material amount of our current
annualised income. The ten largest commercial tenants represented just
9.8% 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 126 to 127 sets out
details of income and rental values by destination and occupier use.
EPRA vacancy by occupier use is set out on page 51.
Like-for-like growth in annualised current income and ERV is set out on
pages 49 and 50. Like-for-like growth in rental income is set out on page 55.
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 around 1.0% of portfolio value p.a.. Included in this are
numerous small schemes, and no one scheme is material.
At 30 September 2019, we had one larger scheme, details of which are set
out on page 52. An overview of assets held for, or undergoing,
refurbishment is set out on pages 52 to 53.
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
2019
£m
47.0
-
30.9
3.7
81.6
2018
£m
167.8
1.3
24.0
2.4
195.5
Details of acquisitions and capital expenditure in the year are set out on
pages 52 to 53.
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Other information
Portfolio analysis
At 30 September 2019
Portfolio
Food, beverage and
leisure
Shops
Offices
Residential
Fair value (£m)
% 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
Area – sq. ft.
% of current income
% of ERV
Average unexpired lease length – years
Number
Area – sq. ft.
% of current passing rent
% of ERV
1 Shaftesbury Group’s 50% share
Basis of valuation
At 30 September 2019
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
Carnaby
1,437.7
36%
44.4
60.8
68
167,000
23%
23%
9
101
178,000
43%
40%
3
271,000
28%
31%
3
113
69,000
6%
6%
Covent
Garden
1,036.5
26%
30.3
39.0
98
203,000
40%
37%
8
98
130,000
28%
31%
4
88,000
11%
14%
4
219
135,000
21%
18%
Chinatown
843.9
21%
26.8
31.8
92
213,000
66%
63%
10
49
79,000
17%
20%
4
26,000
3%
3%
3
154
100,000
14%
14%
Soho
314.1
8%
10.7
12.1
33
63,000
40%
38%
9
35
43,000
27%
29%
3
40,000
16%
18%
2
68
37,000
17%
15%
Carnaby
2.72%
2.98%
3.67%
Covent
Garden
2.55%
2.75%
3.28%
Chinatown
2.78%
2.89%
3.35%
Soho
2.85%
2.97%
3.45%
3.40%-3.85%
3.35%-3.90%
3.40%-3.75%
3.40%-3.75%
£120-£155
£60-£200
£270-£428 (ZA)
£120-£145
3.35%-3.75%
3.00%-3.90%
3.40%-4.25%
3.50%-4.25%
£125-£540
£110-£480
£150-£375
£165-£305
4.00%-4.50%
4.00%-4.25%
4.25%-4.50%
4.25%-4.50%
£58-£90
£53
£50-£70
£51
£43-£65
£44
£53-£73
£49
Note
1
2
3
4
4
5
4
4
5
4
4
5
4
4
Note
7
8
9
10
10
10
10
10
10
10
126
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Fitzrovia
152.0
4%
4.9
6.0
24
49%
50%
7
10
16%
16%
4
7%
8%
1
56
27,000
28%
26%
51,000
697,000
42,000
16,000
446,000
69,000
10,000
435,000
102,000
368,000
55,000
Wholly-
owned
portfolio
3,784.2
95%
117.1
149.7
315
40%
38%
9
293
30%
31%
3
16%
19%
3
610
14%
12%
Wholly-
owned
portfolio
2.70%
2.89%
3.47%
Longmartin1
209.0
5%
7.5
10.0
9
13%
15%
13
21
34%
35%
3
36%
36%
4
75
17%
14%
Longmartin
2.96%
3.17%
3.94%
4.00%-4.25%
£115-£145
3.75%-4.25%
£94-£600
4.00%-4.50%
£63-£80
£51
Fitzrovia
2.73%
2.73%
3.40%
3.35%-3.65%
£90-£125
3.40%-4.35%
£100-£215
4.00%-4.35%
£48-£60
£57
At 30 September 2019
Portfolio
Food, beverage and
Number
leisure
Shops
Offi ces
Residential
1 Shaftesbury Group’s 50% share
Average unexpired lease length – years
Fair value (£m)
% of total fair value
Current income (£m)
ERV (£m)
Area – sq. ft.
% of current income
% of ERV
Number
Area – sq. ft.
% of current income
% of ERV
Area – sq. ft.
% of current income
% of ERV
Average unexpired lease length – years
Average unexpired lease length – years
Number
Area – sq. ft.
% of current passing rent
% of ERV
Note
Carnaby
1,437.7
Covent
Garden
1,036.5
Chinatown
843.9
36%
44.4
60.8
68
23%
23%
9
101
43%
40%
3
28%
31%
3
113
6%
6%
167,000
203,000
213,000
63,000
178,000
130,000
79,000
43,000
271,000
88,000
26,000
40,000
69,000
135,000
100,000
37,000
21%
26.8
31.8
92
66%
63%
10
49
17%
20%
4
3%
3%
3
154
14%
14%
26%
30.3
39.0
98
40%
37%
8
98
28%
31%
4
11%
14%
4
219
21%
18%
Soho
314.1
8%
10.7
12.1
33
40%
38%
9
35
27%
29%
3
16%
18%
2
68
17%
15%
1
2
3
4
4
5
4
4
5
4
4
5
4
4
At 30 September 2019
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 offi ce equivalent yields
Tone of offi ce ERVs - £ per sq. ft.
Average residential ERVs - £ per sq. ft. per annum
Note
7
8
9
10
10
10
10
10
10
10
Carnaby
2.72%
2.98%
3.67%
Covent
Garden
2.55%
2.75%
3.28%
Chinatown
2.78%
2.89%
3.35%
Soho
2.85%
2.97%
3.45%
3.40%-3.85%
3.35%-3.90%
3.40%-3.75%
3.40%-3.75%
£120-£155
£60-£200
£270-£428 (ZA)
£120-£145
3.35%-3.75%
3.00%-3.90%
3.40%-4.25%
3.50%-4.25%
£125-£540
£110-£480
£150-£375
£165-£305
4.00%-4.50%
4.00%-4.25%
4.25%-4.50%
4.25%-4.50%
£58-£90
£53
£50-£70
£51
£43-£65
£44
£53-£73
£49
Shaftesbury Annual Report 2019
Other information
Fitzrovia
152.0
4%
4.9
6.0
24
51,000
49%
50%
7
10
16,000
16%
16%
4
10,000
7%
8%
1
56
27,000
28%
26%
Fitzrovia
2.73%
2.73%
3.40%
3.35%-3.65%
£90-£125
3.40%-4.35%
£100-£215
4.00%-4.35%
£48-£60
£57
Wholly-
owned
portfolio
3,784.2
95%
117.1
149.7
315
697,000
40%
38%
9
293
446,000
30%
31%
3
435,000
16%
19%
3
610
368,000
14%
12%
Wholly-
owned
portfolio
2.70%
2.89%
3.47%
Longmartin1
209.0
5%
7.5
10.0
9
42,000
13%
15%
13
21
69,000
34%
35%
3
102,000
36%
36%
4
75
55,000
17%
14%
Longmartin
2.96%
3.17%
3.94%
4.00%-4.25%
£115-£145
3.75%-4.25%
£94-£600
4.00%-4.50%
£63-£80
£51
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Notes
1.
The fair values at 30 September 2019 (the “valuation date”) shown in respect
of the individual villages are, in each case, the aggregate of the fair values of
several diff erent property interests located within close proximity which, for
the purpose of this analysis, are combined to create each village. The
diff erent interests within each village were not valued as a single lot.
2. Current income includes total annualised actual and ‘estimated income’
reserved by leases. No rent is attributed to leases which were subject to
rent-free periods at the valuation date. Current income does not refl ect 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 refl ects terms for a renewed lease.
3. ERV is the respective valuers’ opinion of the rental value of the properties, or
parts thereof, refl ecting the terms of the relevant leases or, if appropriate,
refl ecting 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 refl ected in the valuations. ERV does not refl ect any ground rents, head
rents nor rent charges and estimated irrecoverable outgoings.
4. The percentage of current income and the percentage of ERV in each of the
use sectors are expressed as a percentage of total income and total ERV for
each village.
5. Average unexpired lease length has been calculated by weighting the leases
in terms of current rent reserved under the relevant leases and, where
relevant, by reference to tenants’ options to determine leases in advance of
expiry through effl uxion of time.
6. Where mixed uses occur within single leases, for the purpose of this analysis,
the majority use by rental value has been adopted.
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7. The initial yield is the net initial income at the valuation date expressed as a
percentage of the gross valuation. Yields refl ect net income after deduction
of any ground rents, head rents and rent charges and estimated
irrecoverable outgoings at the valuation date.
8. 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.
9. Equivalent yield is the internal rate of return, being the discount rate which
needs to be applied to the expected fl ow of income so that the total amount
of income 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 fl ows and fair values of each of the
diff erent 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 fl oor areas are net lettable. All residential fl oor 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.
127
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Shaftesbury Annual Report 2019
Other information
Summary report by the valuers
To the directors of Shaftesbury PLC
In accordance with your instructions, which were confirmed in our letter
dated 9th April 2019 (the “Engagement”) we have undertaken a valuation of
the various commercial and residential freehold and long leasehold property
interests as at 30th September 2019 (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 22 November
2019 (“our Reports”). Our Reports were prepared for accounts purposes.
All properties have been subject to external inspections between February
and October 2019 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 Valuation UK
National Supplement (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 UK VPS 3, 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 2018 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 2019 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.
In 2018, Cushman & Wakefield acted as letting agents on behalf of Shaftesbury
Chinatown PLC in respect of restaurant accommodation in the property
known as Central Cross. Cushman & Wakefield are currently retained by
Shaftesbury Covent Garden Limited and Shaftesbury CL Limited to provide
retail letting and professional advice.
In accordance with the provisions of VPS1 item 3 d) and VPGA 9 of the RICS
Red Book edition current at the Valuation Date, in undertaking our valuations
we have lotted together certain individual properties to form a separate
property (each referred to as a “Property”, collectively as the “Properties”)
in the manner we consider to be most likely to be adopted in the case of an
actual sale. We consider that lotting the properties together on the basis
reflected in our valuations would allow a purchaser to capitalise on the
estate management advantages and opportunities available from such
comprehensive ownership.
A high proportion of the total value of the Subsidiary Companies’ properties
and Properties is accounted for by properties and Properties situated in
adjacent and/or adjoining locations in four specific areas of the West End of
London: Carnaby Street and its environs, Chinatown and the adjoining area
immediately west of Wardour Street (south of its junction with Shaftesbury
Avenue), and the areas around Seven Dials in the western part of Covent
Garden and a block of properties to the east of the Central Covent Garden
Piazza with its main frontage to Wellington Street. These areas are all
dominated by retail and restaurant uses. In our opinion, at the Valuation Date,
this particular unusual confluence of ownership and use characteristics may
cause some prospective purchasers to regard parts of the portfolio when
combined as having a greater value than the aggregate of the individual values
of the combined properties and Properties which make up those parts.
As required by the provisions of the RICS Red Book, in undertaking our
valuations, we have valued each property or Property separately, rather
than valuing the portfolio as a whole or in combinations of parts. The “total”
valuation figure below is the aggregated value of the separate properties or
Properties within the various categories of tenure referred to below.
All valuations were on the basis of Fair Value. We have assessed Fair Value in
accordance with VPS4 item 7 of the RICS Red Book. Under these provisions,
the term “Fair Value” means the definition adopted by the International
Accounting Standards Board (“IASB”) in IFRS 13, namely “The price that
would be received to sell an asset, or paid to transfer a liability in an orderly
transaction between market participants at the measurement date”.
Under IFRS 13, The Fair Value Hierarchy, the 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.
128
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Shaftesbury Annual Report 2019
Other information
Summary report by the valuers
The contents of our Reports, including this summary report, are confi dential
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 their sole use only and for the Purpose of Valuation as stated
in our Reports (“Purpose of Valuation”).
You must not disclose the contents of our Reports to a third party in any
way, including where we are not referred to by name or if our Reports or
this summary report are to be combined with other reports, documents
or information, without fi rst obtaining our written approval to the form and
context of the proposed disclosure in accordance with the terms of the
Engagement. We will not approve any disclosure that does not refer
adequately to the terms of the Engagement.
Our Reports or this summary report or any part of it may not be modifi ed,
altered (including altering the context in which the summary report is
displayed) or reproduced without our prior written consent. Any person
who breaches this provision shall indemnify us against all claims, costs,
losses and expenses that we may suff er as a result of such breach.
We hereby exclude all liability arising from use of and/or reliance on our
Reports or this summary report by any person or persons except as
otherwise set out in the terms of the Engagement.
Our Reports and this summary report may be relied upon only in
connection with the Purpose of Valuation stated and only by you.
Yours faithfully
Charles Smith MRICS
International Partner
RICS Registered Valuer
For and on behalf of
Cushman & Wakefi eld Debenham Tie Leung Limited
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 fl oor areas of the 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 2019, 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 refl ected these costs in our valuations. The total amount of such costs
is £43,511,000 and details of the individual sums are included in our Reports.
As referred to above, we have lotted together certain individual properties
to form a number of separate Properties. In the case of fi ve 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 fi gures
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 2019, of the freehold and long
leasehold property interests owned by the Company and the Subsidiary
Companies, subject to the Assumptions and comments in our Reports
dated 22 November 2019, were as follows:
Freehold Properties
Long leasehold
Properties
Total
£3,531,180,000
(Three billion, fi ve hundred and thirty-one million, one
hundred and eighty thousand pounds)
£253,035,000
(Two hundred and fi fty-three million, thirty-fi ve thousand
pounds)
£3,784,215,000
(Three billion, seven hundred and eighty-four million, two
hundred and fi fteen thousand pounds)
A long lease is one with an unexpired term in excess of 50 years.
129
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Shaftesbury Annual Report 2019
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: Carbon Disclosure Project, 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
Employees
Related sustainability goal
The environmentally sustainable re-use and
management of existing buildings
Policies and standards which
govern our approach1, 2
Sustainability policy
Further information
Sustainability, pages 29 to 35
Environment, pages 32 to 33
Greenhouse gas reporting, page 96
A fair and ethical framework for employees and
our supply chain
Anti-bullying and harassment policy
Our people, pages 36 to 47
Disability policy
Equal opportunities policy
Health and safety policy
Diversity and inclusion, pages 47 and 77
Health and safety, page 33
Nomination Committee report, pages 75 to 77
Human rights
A fair and ethical framework for
employees and our supply chain
Modern Slavery and Human Trafficking Statement
Modern slavery and human rights, page 29
Statement of data protection principles
Sustainability and stakeholders, pages 29 to 35
Sustainability policy
Social matters
Invest in our local community
A fair and ethical framework for employees and
our supply chain
Community Investment Committee Terms of
Reference
Social, pages 34 to 35
Sustainability, pages 29 to 35
Sustainability policy
Supplier Code of Conduct
Anti-corruption
and anti-bribery
A fair and ethical framework for employees and
our supply chain
Bribery and anti-corruption policy
Audit Committee report, pages 78 to 81
Whistleblowing policy
Money laundering policy
Modern slavery and human rights, page 29
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
Shareholder information
Corporate Timetable
Financial Calendar
Annual General Meeting and AGM statement
2020 half year results
Dividends and bond interest
Proposed 2019 final dividend:
Ex-dividend
Record date
Payment date
2020 interim dividend to be paid
Bond interest
Further information and the forms for completion to apply for PIDs to be
paid gross are available on our website or from the registrar.
31 January 2020
May 2020
Where we pay an ordinary dividend this will be treated in the same way as
dividends from non-REIT companies. The 2019 final dividend will be paid
5.25 pence as a PID and 3.75 pence as an ordinary dividend.
16 January 2020
17 January 2020
14 February 2020
July 2020
31 March and
30 September 2020
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.
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.
Secretary and registered office
Penny Thomas LLB (Hons), FCIS
22 Ganton Street
Carnaby
London W1F 7FD
130
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Shaftesbury Annual Report 2019
Other information
Glossary of terms
2018 Code
The FRC’s UK Corporate Governance Code 2018,
which will apply to the Company from 1 October
2019.
Compound Annual Growth Rate
(CAGR)
The year-on-year growth rate of an investment
over a specifi ed period of time.
Alternative Performance Measure
(APM)
A fi nancial measure of historical or future
fi nancial performance, position or cash fl ows of
the Group which is not a measure defi ned or
specifi ed in IFRS.
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 refl ect
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 refl ects 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.
Conservation Area
A protected area of special architectural interest,
the character or appearance of which is
desirable to preserve or enhance.
CPI
Consumer Price Index.
Diluted net asset value per share
Net asset value per share taking into account the
dilutive eff ect of potential vesting of share
options.
DTR
The Financial Conduct Authority’s Disclosure and
Transparency Rules.
Energy Performance Certifi cate (EPC)
An asset rating setting out how energy effi cient a
building is, rated by its carbon dioxide emission
on a scale of A to G, with A being the most energy
effi cient.
EPRA
European Public Real Estate Association.
Annual General Meeting (AGM)
Our AGM will be held on 31 January 2020 at Ham
Yard Hotel, 1 Ham Yard, London, W1D 7DT.
EPRA adjustments
Standard adjustments to calculate EPRA
measures, in accordance with its BPR.
BAME
Black, Asian, and minority ethnic.
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.
Code
The FRC’s UK Corporate Governance Code 2016.
Combined portfolio
The combination of our wholly-owned
Investment properties and our 50% of
Investment properties held In the Longmartin
joint venture.
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 fi nancial
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 eff ect of outstanding options
granted over ordinary shares.
EPRA triple net assets
EPRA net assets amended to include the fair
value of fi nancial instruments and debt.
EPRA NNNAV
EPRA NAV amended to include the fair value of
fi nancial instruments and debt.
EPRA vacancy
The rental value of available to let vacant
property (excluding property which is held for, or
undergoing, refurbishment), 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), refl ecting reversions to current
market rent, and such items as voids and
non-recoverable expenditure but disregarding
potential changes in market rents.
ESG
Environment, Social and Governance.
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.
ESOS
Energy Savings Opportunity Scheme.
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.
FCA
Financial Conduct Authority.
FRC
Financial Reporting Council.
GHG
Greenhouse gas emissions.
Gearing
Nominal value of group borrowings expressed as
a percentage of EPRA net assets.
Global Real Estate Sustainability
Benchmark (GRESB)
An organisation which measures and provides an
Environmental, Social and Governance (ESG)
benchmark for real estate and infrastructure
investments across the world.
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Shaftesbury Annual Report 2019
Other information Glossary of terms
Gross Value Added (GVA)
An economic productivity metric measuring
economic contribution to a sector or area.
IFRS
International Financial Reporting Standards.
Minimum Energy Efficiency Standards
(MEES)
Applies to private rented residential and
non-domestic property to encourage the
improvement of the buildings’ energy efficiency.
Total Accounting Return (TAR)
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.
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.
Underlying EPRA vacancy
EPRA vacancy excluding completed exceptional
larger refurbishment schemes.
Valuation growth/decline
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.
Interest cover
Operating profit before investment property
disposals and valuation movements, divided by
finance costs net of finance income, excluding
finance lease interest in the joint venture (where
relevant).
Key Performance Indicator (KPI)
Activities aligned to business objectives against
which the performance of the Group is assessed.
Net asset value (NAV)
Equity shareholders’ funds divided by the
number of ordinary shares at the balance sheet
date.
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.
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.
Listed building
A building officially recognised as having special
historical or architectural interest and therefore
protected from demolition or alteration without
prior approval.
Loan-to-value (LTV)
Nominal value of borrowings expressed as a
percentage of the fair value of property assets.
London Benchmarking Group (LBG)
Global standard in measuring and managing
corporate community investment.
London Inter-Bank Offered Rate
(LIBOR)
Average rate of interest used in lending between
banks on the London interbank market, which is
used as a reference for setting interest rates on
other loans.
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 Investment
Acquisitions and capital expenditure less
disposals.
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.
RPI
Retail Price Index.
SDG
UN Sustainable Development Goals.
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.
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22 Ganton Street
Carnaby
London W1F 7FD
T: 020 7333 8118
shaftesbury.co.uk