Shaftesbury Annual report 2020 Strategic Report Xxxxx
Making a
positive
contribution
to London’s
West End
Annual Report 2020
Shaftesbury Annual report 2020 Strategic Report
Shaftesbury Annual report 2020 Strategic Report
Shaftesbury is a Real Estate Investment
Trust (REIT) which invests exclusively in the
heart of London’s West End.
Our 16-acre ownership of c.600 buildings
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 is to curate vibrant and thriving
villages, making great places even better for
the benefit of our stakeholders.
Governance
81 Governance overview
82 Chairman’s introduction
84
Monitoring of culture and engagement
with employees
Nomination committee report
85 The role of the Board and its Committees
86 Principal Board activities in 2019/20
90 Division of responsibilities
93 Board evaluation
94
96 Audit committee report
100 Directors’ remuneration report
103 Remuneration at a glance
105 Remuneration policy
106 Annual remuneration report
114 Directors’ report
118 Directors’ responsibilities
119 Independent auditor’s report
Financial statements
128 Group statement of comprehensive
income
129 Balance sheets
130 Cash flow statements
131 Statements of changes in equity
132 Notes to the financial statements
Other information
154 Climate risk and opportunity
156 Alternative Performance Measures (APMs)
158 Portfolio analysis
158 Basis of valuation
160 Summary report by the valuers
162 Debt covenants
163 Shareholder information
164 Glossary of terms
Strategic report
2020 summary
1
Q+A with the Chief Executive
2
Covid-19: impact and response
6
Exceptional portfolio in the heart of
10
London’s West End
Portfolio uses
Non-financial information statement
14
20 Why London’s West End?
21 Making great places even better
22 Business model and strategy
24
Measuring our performance
27 Sustainability
29 Environment
34
35 Stakeholder engagement
42
53
Our people and culture
Strategy and Operations Executive
Committee
54 Our Board
56 Portfolio valuation report
59 Portfolio activity report
63 Financial results
67 Financing
71 Risk management
73 Principal risks and uncertainties
78 Viability statement
Iconic villages
CARNABY
COVENT GARDEN
CHINATOWN
SOHO
FITZROVIA
16.0 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
Mix of uses
% of wholly-owned portfolio ERV
37%
FOOD, BEVERAGE
AND LEISURE
30%
RETAIL
20%
OFFICES
13%
RESIDENTIAL
0.7m sq ft
0.4m sq ft
0.4m sq ft
0.4m sq ft
shaftesbury.co.uk
follow @shaftesburyplc
carnaby.co.uk
sevendials.co.uk
chinatown.co.uk
thisissoho.co.uk
theyardscoventgarden.co.uk
Talented and
experienced
team
39employees
33%male
67%female
9 years
average
length
of service
Page 1
on the year?
Q: What are your reflections
A: Rarely in history has the world seen such widespread
disruption to normal patterns of life, which came without
warning from the beginning of 2020. In the UK, since 2016
Brexit and its political ramifications dominated the national agenda but
the result of the December 2019 general election brought certainty
and early signs of a return of business and consumer confidence.
However, this was short-lived, as concerns regarding the Covid-19 virus
grew rapidly, and governments around the world introduced measures
never before seen in peacetime to address the pandemic. Only now
are we seeing the first positive signs that the crisis could recede in the
year ahead. However, the social and economic consequences of the
disruption we have all experienced this year will be important factors
in the pace of recovery in the months and years ahead.
affected by the pandemic?
Q: How has London’s West End been
A: At the heart of one of the world’s great cities, the West End’s
long record of success reflects its domestic and global
appeal to businesses, visitors and residents. In normal times,
its flourishing commercial and leisure economy draws over 200 million
visits annually, which supports its rich and unrivalled offer of cultural
and historic attractions, hospitality choices and shopping. The bedrock
of this footfall are Londoners, its huge working population, and daily
domestic leisure visitors.
Measures to contain the pandemic continue to have a material effect
on normally busy city centres around the world. Since March, there has
been a material and sustained reduction in the West End’s economy as
a result of measures imposed to contain the spread of Covid-19
infections as a consequence of:
• Advice to avoid unnecessary travel and use of public transport;
• For office-based workers, recommendation to avoid commuting and
work from home wherever possible;
• Closure of non-essential retail and all hospitality from late March until
the end of June, and again throughout November with capacity
constraints when open to maintain social distancing;
• Continuing closure of theatres, bars and clubs, which has severely
curtailed the West End’s renowned evening and night-time economy;
and
• A collapse in international leisure and business travel due to border
control restrictions around the world.
Q+A
with the
Chief
Executive
Brian Bickell answers
questions on our performance
and activities during this
challenging year, the evolution
of our business and longer-term
challenges and priorities
Page 2
Shaftesbury Annual Report 2020 Strategic report Q+A with the Chief Executive
“ Although near-term challenges will be with us throughout
2021, I am confident we are well placed, both financially and
operationally, to return to long-term prosperity and growth
as the current global and local pandemic disruption recedes
into history.”
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Businesses across the West End which, either directly or indirectly,
rely on its usually-predicable, exceptional daily levels of visitors and
spending have seen their income and cash flow severely affected by
this pandemic-related disruption, resulting in growing levels of vacancy
and a significant reduction in demand for space due to uncertainty
of the timing of a return to normalised conditions.
A large proportion of our 624 apartments are let to people from
overseas, who come to London to work or study. Inevitably, as
pandemic uncertainties grew, many chose for personal reasons
to vacate and quickly return to their countries of origin.
unprecedented situation?
Q: How has Shaftesbury responded to this
A: In our long-term management strategy for our villages, we
have always recognised our responsibility to our commercial
occupiers to ensure the trading environments we curate,
and the support we offer, provide the conditions for their businesses
to flourish. We are also conscious of our responsibilities to our
residential tenants and a wide range of local stakeholders.
As soon as we saw the early, rapid impact of the pandemic in Chinatown,
it became clear that we should offer occupiers across our locations,
particularly those reliant on daily footfall, financial and other assistance
to enable them to weather a prolonged period of business disruption
and through the gradual return to more-normal trading. Similarly, we
would support our residential tenants, including those from overseas
who wished to return home or were affected by reduction or loss of
employment income, as a result of the pandemic.
Extensive engagement with our commercial occupiers has focused on
providing financial assistance tailored to their particular circumstances
to give them the confidence to resume trading as and when conditions
permit. This has principally been through rent waivers or deferrals,
drawing on rent deposits and, where appropriate, restructuring and
extending leases to provide greater certainty of occupation. We waived
residential tenants’ notice periods if they needed to vacate early, or
provided rental support where appropriate.
The safety of those who work in, visit or live in our locations has been
paramount. Working with our occupiers, we have implemented social
distancing protocols across our buildings and public streets and spaces,
including provision of outdoor seating, enhanced cleaning, hand sanitiser
stations, signage and advice on Covid-safe operating procedures.
Inevitably, our usual programme of events and activities to promote
our locations and our occupiers’ businesses has been affected by
Government restrictions on public gatherings. We have refocused our
marketing activities to use social media channels to maintain public
engagement with our areas and occupiers, and provide information
and advice on changing Government guidance.
been affected?
Q: How has this year’s financial performance
A: The first half of the financial year saw relatively normal
operating conditions, with the pattern of rent collection and
expenditure largely unaffected. However, there was a noticeable
decline in new lettings and enquiries from mid-February as pandemic
concerns grew and business confidence declined.
From March onwards, collections of rents and service charges have
been materially affected by occupiers’ loss of trading and income.
Despite Government financial assistance, and our own continuing
initiatives to support occupiers, we are seeing an increase in business
failures, and the handing back of space not only in our portfolio, but
across the West End.
The uncertain near-term outlook is affecting the prospects of
collecting arrears and increasing the risk of tenant insolvency, leading
to a high level of charges for expected credit losses and impairment of
lease incentive and deferred letting balances totalling £21.9 million at
the year end.
As a consequence of the unprecedented operating conditions
throughout the second half, net property income fell to £74.3 million,
a reduction of £23.7 million compared with last year. After a revaluation
deficit of £698.5 million, the loss after tax was £699.5 million (2019: profit:
£26.0 million). EPRA earnings, which exclude revaluation gains and
losses, declined to £29.4 million compared with £54.6 million in 2019.
Over the year, our portfolio valuation decreased on a like-for-like basis
by 18.3% to £3.1 billion. This decline reflects the expected loss of
income until operating conditions recover, an increase in vacancy
across the West End, particularly of retail and hospitality space, and
subdued demand for space, which together are affecting the near-term
outlook for rental levels and investor demand. The valuation decreases
in both our wholly-owned portfolio and the Longmartin joint venture
were the main drivers in net assets declining by £726.6 million to
£2,280.6 million. At 30 September 2020, EPRA NAV was £7.43 per
share, down 24.3% over the year (2019: £9.82 per share).
Page 3
Shaftesbury Annual Report 2020 Strategic report Q+A with the Chief Executive
addressed over the year?
Q: How have sustainability priorities been
A:
Although Covid-19 issues have dominated our lives this year,
we have not lost sight of the importance of advancing our
initiatives to further reduce the environmental impacts of our
business operations, including action to address the global climate
change emergency, and ensuring our support for local communities
responds to the particular challenges they have faced this year.
Our approach to the sustainable re-use of existing buildings, through
repurposing and improving their environmental performance, is a
fundamental aspect of our strategy. We have now set ambitious targets
for reducing our own direct carbon emissions and will be announcing
Science Based Targets and a net zero carbon target in 2021. Air quality,
greening, freight and waste consolidation and working with our
occupiers to help address their environmental challenges and
opportunities, will continue to be priorities in the year ahead.
During the pandemic, together with neighbouring owners, we have
worked with Westminster and Camden councils to support the
recovery of local hospitality businesses with the provision of outdoor
seating to supplement their trading. This initiative has involved pavement
widening and partial road closures, which have been generally well
received, and have demonstrated how carefully managed, permanent
public realm measures can improve the local environment for both
residents and visitors.
Collaborating with our occupiers, neighbours and other stakeholders is
integral to our approach. Based in Carnaby, “working above the shop”,
provides us with first-hand knowledge of local issues and opportunities.
The Board was conscious at the outset of the March lockdown that
communities around us, especially young people, would face particular
challenges. We established a Covid-19 Community Fund, supported by
waivers of 20% of Board remuneration from April to July, which has
provided financial and in-kind support of over £310,000 to support
local groups addressing urgent needs across Westminster and Camden.
Together with our other donations, time and in-kind donations of
space, our community support this year amounted to £866,000.
financial resilience of the business?
Q: What steps have you taken to maintain the
A: The Board has always followed a prudent, forward-looking
approach to ensuring the Group maintains a resilient financial
structure, with an appropriate mix of equity and debt to
minimise risk and support its long-term strategy.
Since April, with much-reduced income collection and growing
vacancy, our focus has been to conserve liquidity, reducing non-
essential expenditure, placing a moratorium on new schemes and
acquisitions, other than by exception. In addition, the Board took
the difficult decision to suspend dividends in respect of the current
financial year, with the intention of resuming distributions as soon as
there is a sustained recovery in rental income to more-normal levels,
whilst always complying with our REIT PID obligations. We have continued
open and constructive discussions with our banks, term loan providers
and bondholders to keep them appraised of operational conditions
and the impact of Covid-19 disruption on their security. Where required,
we have continued to agree waivers of income-related covenants.
Anticipating the consequences of a protracted period of pandemic-
related disruption and recovery, and the potential near-term implications
for revenue and property values, in October 2020, the Board announced
a fully-underwritten equity issue to raise £297 million before costs,
together with an open offer to raise a further £10 million. Completed
in November, the issue was well-supported and raised £294.4 million
net of costs which has reduced our leverage and refinancing and
asset-related covenant risks, as well as providing working capital to
fund forecast operating losses and capital expenditure until macro
and local conditions stabilise and business confidence returns.
through the pandemic?
Q: How have you supported your team
A: An important factor in Shaftesbury’s long-term success has
been the experience, local knowledge and commitment of
our team, and an open culture with a clear set of values
which guide behaviours across the business. Covid-19 disruption, and
the priority of ensuring the safety of our people, has meant we have
been unable to be physically together as a team since late March.
Technology has enabled the business to continue to operate, and
we have found ways to maintain close contact even while working
remotely in this far from ideal situation. In particular, we have
addressed well-being and stress issues, which arise in such
unprecedented and uncertain times, with valued, spontaneous
face-to-face interaction between colleagues being much reduced.
Being away from the office for an extended period has allowed us to
rethink our internal structure and procedures and review our people
reward arrangements, staff resource requirements and ways to build
more flexibility into our working routine, in anticipation of returning to
the office.
Page 4
Shaftesbury Annual Report 2020 Strategic report Q+A with the Chief Executive
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
for recovery?
Q: How are you positioning the business
A: In the years to come, 2020 may be remembered as “The
Covid-19 year which changed the world”. The extent of
disruption the pandemic is having on the institutions of
Government, businesses and communities is challenging accepted
certainties and norms, with long-term financial and other ramifications
which are only now beginning to become apparent. We are already
seeing an acceleration of pre-pandemic trends in retail, spending
habits, working practices and, perhaps, most importantly, how the
priorities and aspirations of the younger generation are changing.
Embracing change and innovation have always been part of Shaftesbury’s
DNA. Our skills and approach in repurposing our buildings to adapt to
trends in occupier demand, curating our locations to meet the
ever-changing expectations of businesses and the millions who visit,
and collaborating with a wide range of stakeholders, will enable us to
navigate a fast-moving operating environment. We are preparing
further changes in the year ahead to ensure we have the skill sets, data
and agility to deliver the continual evolution of our business model and
operational strategy.
In the year ahead, the widespread distribution of effective vaccines will
bring a gradual return of confidence and activity across the West End
and, a recovery in domestic footfall and spending to our villages. At the
present time, it is not possible to predict at what point conditions will
improve but it is likely social distancing and other restrictions, with the
risk of further lockdowns, will continue into the spring and possibly
early summer, putting further financial strain on many of our occupiers.
The overhang of unusually high vacancy across the West End will take
time to be absorbed, but the particular appeal of our carefully-curated
locations, our innovative mid-market offer, modest rents and flexible
leasing terms, will be an important advantage for us. Once stability has
returned, we will consider strategic acquisitions to our portfolio, and
selective disposals of buildings no longer considered core to our
long-term strategy.
The direct and immediate impact of restrictions to control the
pandemic are being seen in cities across the country and much of the
world. However, the economies of London and the West End have a
long history of structural resilience, having weathered many episodes of
challenges and uncertainties. Their unique features, which come from
a culture of constant evolution across a broad-based economy,
attracting talent, creativity, innovation and investment from across the
world, will hasten their recovery and reinforce their enduring appeal to
businesses, visitors and residents alike. The long-term prospects for
our portfolio, located in the busiest and liveliest parts of the West End,
are underpinned by these valuable qualities, together with the
experience, innovation and enthusiasm our team bring to its
management.
Although near-term challenges will be with us throughout 2021, I am
confident we are well placed, both financially and operationally, to
return to long-term prosperity and growth as the current global and
local pandemic disruption recedes into history.
Brian Bickell
14 December 2020
Peter Lawrence Levy OBE
The Board of Shaftesbury was saddened to learn the death
of Peter Levy, the Company’s founder and former Chairman,
in November, following a short illness.
Peter and members of his family founded the Company in
1986, with an initial capital of £10 million. It was floated in
October 1987. Peter chaired the Board until his retirement
in September 2004.
Peter was widely-known and well-respected across the real
estate sector, particularly as a partner in DE & J Levy, the
West End estate agency started by his father and uncle in the
1930s. He had a wide range of charitable interests, including
the Cystic Fibrosis Trust, where his fundraising was
recognised with the award of an OBE.
“Shaftesbury’s reputation, culture and
values owe much to Peter’s foresight and
commitment in the formative years of the
business. He will be greatly missed not only
by his family but all those who were fortunate
to know him and work alongside him.”
Brian Bickell
Page 5
Shaftesbury Annual Report 2020 Strategic report
Covid-19:
impact and response
r
a
e
y
t
s
a
l
k
e
e
w
e
m
a
s
e
h
t
f
o
%
a
s
a
120%
100%
80%
60%
40%
l
l
20%
a
f
t
o
o
f
0
2
0
0%2
Lockdown
(non-essential retail
closed)
UK High Street average
at 20% of 2019 level
West End at 8%
Begin to
unlock
F&B reopened
UK High Street average
at 61% of 2019 level
West End at 39%
Enter 2nd
wave
Rule of six,
work from
home,
Tier 2
2nd
Lockdown
Tier
Tier
2➔3
2➔3
UK High Street
UK High Street
UK High Street
UK High Street
UK High Street
West End
West End
West End
West End
West End
January
February
March
March
April
April
May
May
June
June
July
July
August
August
December
September October NovemberDecember
September October
September
November
November
Source: New West End Company
Impact on West End footfall and trading
The success and prosperity of the West End is based on its huge,
seven-days-a-week footfall comprising its large working population,
residents and domestic and international visitors.
Inevitably, the Covid-19 pandemic and Government-imposed social
distancing measures have had, and continue to have, a material adverse
eff ect on normal patterns of footfall, activity and business in the West
End.
From early February, growing reports regarding the rapid spread of the
Covid-19 virus began to impact leasing activity, with a number of
negotiations put on hold or terminated. From early March there was a
noticeable decline in visitor numbers and spending, both in the West
End generally and our locations. The Government formally announced
a lockdown on 23 March, although in the West End most activity had
already ceased.
Following the fi rst lockdown, footfall began to build over the summer
months, reaching around 50% of pre-Covid levels. This was particularly
noticeable in the vicinity of Oxford Street and Regent Street, the West
End’s major shopping streets, and Carnaby, Soho and Leicester Square,
its major dining and leisure destinations. In Seven Dials, after a slower
start, footfall patterns recovered in line with these locations.
As Government restrictions tightened from mid-September, footfall
decreased again and then largely evaporated during the second
lockdown in November. Together with restrictions on hours of trade
and social distancing, this had a very challenging impact on all
consumer-facing, footfall-reliant businesses, which are inevitably
cash-fl ow sensitive. Consequently, this has presented material
operational and fi nancial challenges for our occupiers, particularly
those in our restaurants, cafés, pubs and shops. Offi ce occupiers,
particularly those with direct or indirect exposure to consumer-facing
businesses, and residential tenants have also been aff ected, but to a
lesser extent.
Covid-19 timeline
February 2020
• Global Covid-19 concerns grow
• Footfall and spending begin to decline,
fi rst in Chinatown, then across the
West End
• Reduced leasing activity as global
business confi dence declines
March 2020
• Government restrictions to halt
spread of Covid-19
• Footfall and commercial activity
at negligible levels
• Construction activity halted
April -June 2020
• Plans begin to emerge for gradual
relaxation of Government restrictions
• Non-essential retail allowed to open
from June 15
Page 6
Page 6
Shaftesbury Annual Report 2020 Strategic report Covid-19: Impact and response
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Preserving long-term value by supporting
tenants and maintaining occupancy
A key aspect of our strategic response has been to help our occupiers
through this challenging period by providing fi nancial and other
practical support, alongside the Government’s various initiatives such
as the Coronavirus Business Interruption Loan scheme, business rates
relief, furloughing employees, temporary VAT reductions and the “Eat
Out to Help Out” scheme. Maintaining occupancy across our portfolio,
wherever possible, will position Shaftesbury for sustained recovery over
the medium and long-term, as the post-pandemic recovery
progresses.
Our fi nancial support predominantly has come through a
combination of:
• Part waivers of contracted rents;
• Drawing on rental deposits, which we have not required to be
replenished;
• Agreeing payment plans structured over a period which refl ects a
gradual return to more normal trading; and
• Restructuring and/or extending leases, to provide greater certainty
for occupiers.
The eventual recovery of amounts deferred and outstanding will
depend on tenants’ ability to meet these commitments. The future
viability of their businesses will be infl uenced by pandemic-related
factors including further Government measures which could adversely
aff ect trading conditions and the pace at which footfall and spending
recovers.
From 1 October 2020, we have off ered most commercial occupiers the
option to pay rent and service charges monthly rather than quarterly in
advance, in order to help align our revenue collection with occupiers’
cash fl ows.
+ Portfolio activity report: page 59
In turn, these challenges have aff ected occupiers’ ability to meet both
rental and other lease obligations or remain solvent. For us, there have
been a number of consequential outcomes:
• Rent collections have been signifi cantly below normal levels. For the
second half of our fi nancial year, cash collections represented 53% of
contracted income.
+ Portfolio activity report: page 59
• Reduced net property income as a result of rental income write-off s,
impairment charges and additional costs, either due to increased
vacancy or tenants’ inability to pay for service charge expenditure.
Net property income for the year was £74.3 million, down 24.2%
year-on-year.
+ Financial results: page 63
• The amount of vacant space across the West End, in general, and in
our portfolio, has increased signifi cantly. At 30 September 2020,
wholly-owned EPRA vacancy was 10.2%, compared with a 10-year
pre-Covid average of 2.9%. By 30 November 2020, it had risen to 12.0%.
+ Portfolio activity report: page 59
• Occupational demand has slowed, with operators often not prepared
to commit to leases until there is better visibility on the timing of the
return to more-normal footfall and trading. The rental value of
commercial leasing activity in the second half of our fi nancial year
was £4.8 million, compared with £16.9 million during the same period
last year. Of the total, rent reviews accounted for £2.7 million.
+ Portfolio activity report: page 59
• The change in the balance between supply of, and demand for, space
has led to pressure on rental levels. Together with general
uncertainty, this has resulted in an 18.3% like-for-like decrease in the
valuation of our wholly-owned portfolio in the year, most of which
occurred since pandemic concerns fi rst materialised.
+ Portfolio valuation report: page 56
• With more competition for occupiers, we are now having to incur
more capital expenditure on our vacant food, beverage and retail
units to maximise their letting prospects.
+ Portfolio activity report: page 59
The Government has announced that London and parts of the Home
Counties will be moving to Tier 3 restrictions, beginning from 16
December 2020 until further notice. As a result, all hospitality
businesses will close other than for takeaway or home delivery services
and non-essential travel into or out of the Tier 3 area is discouraged.
July -August 2020
• F&B permitted to reopen on 4 July
• Improvement as local and domestic
day visitors return, followed by gradual
return of offi ce workers
• F&B trade benefi ts from “Eat Out to
Help Out” scheme
• Footfall approaching 50% of pre-
pandemic level
September 2020
• Concerns over a second wave grow
with extensive “local lockdowns” in
Scotland, Wales and the North
• Government imposes national 10pm
F&B curfew, new “rule of six” restricting
size of groups and return to work
guidance reversed
October 2020
• Government introduces new three-tier
alert framework to address regional
outbreaks. London was placed in tier
two, the “High risk” tier, which means
two or more households are not
permitted to mix indoors
Page 7
Page 7
Shaftesbury Annual Report 2020 Strategic report Covid-19: Impact and response
Food and beverage, leisure and retail
After an extended period of closure, most of our restaurants, cafés,
pubs and shops reopened over the summer. They have adapted their
operations to ensure eff ective social distancing measures are in place,
and many have adopted revised trading hours to refl ect footfall
patterns. Food and beverage businesses have benefi ted from the use
of outdoor seating, especially in our permanently pedestrianised
streets and courtyards in Carnaby and Chinatown, as well as in streets
where Westminster City Council granted temporary road closures and
time-limited permissions to use external seating. The temporary
closure by Camden Council of streets around Seven Dials outside
servicing hours is presenting the opportunity to trial a traffi c-reduction
scheme. With the second UK lockdown in November 2020, virtually all
our food, beverage and retail premises closed, other than for takeaway
service, although these are now back open and trading.
Despite the improvement in footfall during the summer, many of the
Group’s occupiers, particularly retailers, continued to report
considerably lower turnover than in normal conditions. The sustained
return to the healthy trading volumes across the West End will depend
on Government decisions on social distancing measures in light of the
future course of the pandemic, a recovery of confi dence in the use of
public transport and a return to working in offi ces rather than from
home. We have continued our dialogue with occupiers to agree
bespoke packages of rental and other measures to support their
recovery, including rent payment plans, waivers, deferrals, lease
restructuring, service charge reductions and marketing initiatives.
In view of the uncertainty surrounding the timing of the return to more
normal footfall and trading conditions in the West End and continuing
Government restrictions, we extended our support arrangements to
the end of 2020, and, for the period of the second lockdown, we
provided further rent waivers. Now that London is to enter Tier 3
restrictions from 16 December 2020, we anticipate that further
measures to support our occupiers will be required as trading
conditions will be severely impacted during the important period
leading up to Christmas and over the New Year, having already been
disrupted by the second lockdown. The extent of any continuing
measures of support will depend on the duration of these restrictions,
as well as the prospects for the fi rst half of 2021 and beyond.
Offi ces
Many of our offi ce occupiers are SMEs operating in the media, creative,
fashion and technology sectors, and which often have direct or indirect
exposure to businesses which themselves have been aff ected
signifi cantly by the pandemic, such as those in retail, food and
beverage, and the performing arts. Despite this, rent collections have
been signifi cantly less aff ected than from our retail, food and beverage
tenants and, accordingly, limited concessions have been granted on a
case-by-case basis. However, we have experienced an increase in
leases not being renewed, leading to growing offi ce vacancy.
+ Portfolio activity report: page 59
Residential
Typically, our 624 apartments are occupied by those seeking a base in
the West End for either work or study, and are particularly popular with
younger people from overseas. As a result of the fi rst lockdown
restrictions, many tenants chose to return home, leaving fl ats
unoccupied. With the continuing uncertainty, many chose not to return
to the UK for the time being and vacated permanently. In these
circumstances, the Group waived any commitments under their
tenancy agreements. Where appropriate, the Group is off ering support
to residential tenants to assist them in meeting their rental
commitments.
Longmartin
Similar support has been granted by the Longmartin board to its food,
beverage and retail occupiers, on a case-by-case basis.
Addressing fi nancing risk
The adverse operating conditions impacted our fi nancing arrangements
with interest cover covenants under pressure, reduced loan-to-value
headroom, an expectation that near-term liquidity needs would have to
be funded by undrawn revolving facilities, upon which we were reliant
on covenant waivers and increased refi nancing risk. With fi nancing risk
elevated beyond the Board’s tolerance, in November 2020, we increased
our capital by £294.4 million, net of expenses, through an equity issue
to ensure we maintain a strong fi nancial base, are positioned to return
to long-term growth as pandemic issues recede and, should conditions
improve, have capacity for portfolio investment.
+ Financing: page 67
November 2020
• 2nd lockdown
December 2020
• 2nd national lockdown
ends
• Stringent social distancing
restrictions remain in place
• London back in Tier 2, rising
to Tier 3 from 16 December
• Work at home advice
Outlook
• Risk of further/continuing
restrictions and protracted
recovery
• Vaccine possibility
Page 8
Page 8
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Shaftesbury Annual Report 2020 Strategic report Covid-19: Impact and response
Looking ahead to recovery
Recovery in footfall and business confidence will be dictated by the
course of the pandemic in the short and medium term, and the
consequential restrictions imposed by the UK and other governments.
The advent of effective vaccines will boost confidence once widely
available and hopefully quicken the recovery, although, at this stage, it is
too soon to predict the timing of the return of confidence and footfall.
The pace of recovery in our villages will depend on:
• The end of tier 3 restrictions in London and surrounding areas;
• how quickly West End visitor volumes recover;
• the alleviation of social distancing measures;
• a recovery in public transport usage in and out of the West End, in
light of the need to maintain social distancing;
• a return to more-normal levels of daily office workers in the West
End;
• a resumption and recovery in international business travel and
tourism to the West End; and
• the relaxation on restrictions which prevent or discourage leisure
visits to the West End’s visitor attractions, such as theatres, cinemas,
galleries, museums and historical sites.
With continuing operational uncertainty for our occupiers, we expect
EPRA vacancy across our portfolio to increase in the short term, which,
along with availability of space across the West End, will continue to put
near-term pressure on rental levels and valuations. However, as footfall
builds and confidence recovers, occupier demand and vacancy will
return to more normal levels. We are already seeing enquiries for space
in our locations, but reflecting current market conditions, many
potential occupiers are currently looking for a higher specification of
landlord fit out and greater leasing flexibility.
We firmly believe that our support for tenants, through good times and
bad, is a key part of our brand and our values, and will attract occupier
demand in our carefully-curated, lively locations.
Working with our other stakeholders
The importance of engaging and working collaboratively with our wide
range of stakeholders has been more evident than ever during this
challenging period.
We are ensuring appropriate service levels are maintained across our
portfolio and have developed a comprehensive strategy to safeguard
commercial occupiers, residents and visitors, as activity returns to our
locations. This includes supplemental cleaning, hand sanitiser points, street
and footfall management and signage. Occupier and visitor
communications, as well as engagement with our local authorities are
important aspects of this strategy.
Unlike most other city locations, the West End is unusual in its land
ownerships. Our 16-acre portfolio is part of a patchwork of long-
established privately-owned estates and other corporate owners. In
addition, large areas are designated Business Improvement Districts,
which bring together individual owners and their tenants. Together with
our neighbours, we face common challenges arising from the impact of
the pandemic, and are collaborating on initiatives to support the recovery
of the West End.
Working with London & Partners, the Mayor of London’s promotional
organisation, we are part of a group of West End organisations funding
the delivery of important marketing plans to encourage local and
domestic leisure visitors back to London. While travel restrictions
remain in place, London’s international marketing is focused on
reminding people about what makes London great to encourage them
to visit when they are able to do so. Specifically for the West End, we
are collaborating with other stakeholders on a campaign, #MyWestEnd,
to encourage consumers back.
The pandemic period has presented challenges and opportunities for
our team. We have focused on staff well-being, clear and regular
communications, investment in technology, regular consultation and
how we can return to normal life in the recovery period.
+ Our people and culture: page 42
Support for our local communities has continued, including the
establishment of a fund to support our community partners and local
not-for-profit organisations, and help people affected by Covid-19
within the boroughs of Westminster and Camden, which, to date, has
provided financial and in-kind support of over £310,000. Funding for
this initiative came from savings made following the Board’s decision to
waive 20% of executive director base salaries and pension
contributions and non-executive director fees for the four months
from 1 April 2020.
+ Remuneration report: page 100
Page 9
Shaftesbury Annual Report 2020 Strategic report Exceptional portfolio in the heart of London’s West End
Shaftesbury Annual Report 2020 Strategic report Xxxxx
Since the early 1990s, we
have invested exclusively
in the heart of London’s
West End, concentrating on
iconic, high-footfall locations
£3.3bn portfolio valuation1
TOTTENHAM COURT ROAD
GOODGE STREET
Fitzrovia
0.9 acres
4% of portfolio2
Residential
13%
(cid:706)(cid:729)fi ces
20%
£140.3m
ERV3
37%
Food
beverage
and leisure
30%
Retail
1. Combined portfolio including our 50% share of Longmartin
2. % of combined portfolio
3. Wholly-owned portfolio
Page 10
Page 10
Shaftesbury Annual Report 2020 Strategic report Exceptional portfolio in the heart of London’s West End
Shaftesbury Annual Report 2020 Strategic report Xxxxx
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Covent Garden
5.0 acres
25% of portfolio2
COVENT GARDEN
Longmartin
1.9 acres
5% of portfolio2
Soho
1.5 acres
8% of portfolio2
LEICESTER SQUARE
Chinatown
3.8 acres
21% of portfolio2
Carnaby
4.8 acres
37% of portfolio2
OXFORD CIRCUS
PICCADILLY CIRCUS
Page 11
Page 11
Shaftesbury Annual Report 2020 Strategic report (cid:696)(cid:747)ce(cid:739)tional (cid:739)o(cid:741)t(cid:729)olio in the hea(cid:741)t o(cid:729) (cid:703)on(cid:727)on(cid:992)s (cid:714)est (cid:696)n(cid:727)
Shaftesbury Annual Report 2020 Strategic report Xxxxx
Exceptional portfolio in the heart of London’s West End
Virtually impossible-to-replicate portfolio
Our portfolio has been assembled over 34 years. The buildings we seek to
acquire are typically in long-term private, rather than institutional, ownership
and existing owners are generally averse to selling assets which have a long
history of high occupancy, reliable cash fl ow and long-term growth
prospects. Consequently, it would be virtually impossible now to assemble
and replicate a portfolio such as ours in the West End.
(cid:694)om(cid:739)o(cid:744)n(cid:727) (cid:725)enefi ts o(cid:729) o(cid:746)ne(cid:741)shi(cid:739) cl(cid:744)ste(cid:741)s
Establishing and extending ownership clusters in our chosen locations
enables us to implement a cohesive, long-term management strategy to
unlock rental and capital value potential while compounding the benefi ts of
individual improvements we make, such as increased footfall and spending,
and higher rental tones, across our nearby holdings.
(cid:710)t(cid:741)(cid:744)ct(cid:744)(cid:741)al im(cid:725)alance (cid:725)et(cid:746)een s(cid:744)(cid:739)(cid:739)l(cid:748) o(cid:729)(cid:671) an(cid:727)
(cid:727)eman(cid:727) (cid:729)o(cid:741)(cid:671) s(cid:739)ace ac(cid:741)oss the a(cid:741)eas in (cid:746)hich
(cid:746)e in(cid:745)est
In the West End, listed building and conservation area legislation and local
planning policies, together, limit the opportunity for large-scale
redevelopment to increase the supply of new accommodation materially,
particularly at lower-fl oor levels. Against a backdrop of constrained supply of
space, there is a long history, in the West End, of good occupier demand
from a wide variety of national and international occupiers for food,
beverage, retail and leisure accommodation, particularly in our carefully-
curated, aff ordable locations. Consequently, our portfolio has historically
benefi ted from high occupancy levels and growing income, which together
underpin the long-term prospects for rental growth.
(cid:704)i(cid:747)e(cid:727)(cid:672)(cid:744)se (cid:725)(cid:744)il(cid:727)in(cid:730)s (cid:746)ith mana(cid:730)ement
(cid:1028) e(cid:747)i(cid:725)ilit(cid:748)
Our portfolio of mostly smaller, mixed-use buildings provides considerable
management fl exibility. This includes the ability to improve, reconfi gure and
repurpose space, enabling us to adapt buildings to meet current demand and
anticipate future market trends in occupier requirements.
Evolving the mix of uses is an important factor in the long-term growth in
rental income and capital values. Over recent years, we have increased the
number of interesting casual dining and leisure concepts in our villages
through changes of use, repurposing less valuable retail space, extending
existing units or by acquisition. Our 317 restaurants, cafés, pubs and bars are
important drivers of footfall, dwell-time and trading in our villages and, at 30
September 2020, accounted for 37% of portfolio ERV, up from 32% at 30
September 2010. Over that same period, the proportion of ERV from retail
has fallen from 40% to 30%.
Similarly, in recent years we have repurposed our smallest offi ces, which no
longer meet the needs of modern businesses, to residential accommodation.
Page 12
Page 12
Carnaby
Valuation £1.2bn
Our largest village, 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”, it has reinvented itself
throughout the decades(cid:673) (cid:711)oda(cid:748), its (cid:676)(cid:679) streets,
the majority of which are pedestrianised for
most of the day, showcase international and
(cid:693)ritish labels, (cid:729)rom fl agships to independent
brands and new concepts. It is also home to a
lively cluster of restaurants, cafés and bars,
centred on Kingly Court, Kingly Street and
Ganton Street.
(cid:709)esidential (cid:681)(cid:664)
Food
beverage
and leisure
(cid:677)(cid:679)(cid:664)
(cid:706)(cid:729)fi ces (cid:678)(cid:677)(cid:664)
£58.0m
ERV
(cid:709)etail (cid:678)(cid:683)(cid:664)
(cid:694)hinato(cid:746)n
Valuation £0.7bn
Chinatown is a bustling village with a large
far-eastern community at the heart of the West
End’s 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.
(cid:709)esidential (cid:676)(cid:679)(cid:664)
(cid:706)(cid:729)fi ces (cid:679)(cid:664)
(cid:709)etail (cid:677)(cid:675)(cid:664)
£30.1m
ERV
Food
beverage
and leisure
(cid:681)(cid:677)(cid:664)
Exceptional portfolio in the heart of London’s West End
Shaftesbury Annual Report 2020 Strategic report Exceptional portfolio in the heart of London’s West End
Shaftesbury Annual Report 2020 Strategic report Xxxxx
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Covent Garden
(cid:713)aluation (cid:757)(cid:675)(cid:673)(cid:683)bn
Our wholly-owned properties in Covent Garden are
located in Seven Dials, the Opera Quarter and the
Coliseum area. Seven Dials comprises a
seventeenth century network of streets, courtyards
and warehouse buildings radiating from the
sundial monument, which have a mix of shops,
restaurants, cafés, bars, theatres and hotels.
To the east and west of the Covent Garden Piazza,
the Opera Quarter and Coliseum holdings have a
high concentration of restaurants, cafés and bars
refl ecting their close proximit(cid:748) to ma(cid:733)or theatres,
cinemas and hotels.
Soho
Valuation £0.3bn
South of Oxford Street and between Regent Street
and Covent Garden, Soho is home to many
creative businesses, independent boutiques,
iconic restaurants, cafés, bars, and clubs. By day,
Soho offers a wide variety of independent, quirky
shops and is a hub for creativity with many small
businesses, typically in the media, tech and
fashion sectors. In the evening and night-time, its
distinctive atmosphere and proximity to the West
End’s main leisure and cultural attractions,
makes it a popular destination for visitors and the
West End’s large working population.
(cid:709)esidential (cid:676)(cid:684)(cid:664)
(cid:706)(cid:729)fi ces (cid:676)(cid:680)(cid:664)
£35.4m
ERV
Food
beverage
and leisure
(cid:678)(cid:682)(cid:664)
(cid:709)etail (cid:677)(cid:684)(cid:664)
Longmartin
(cid:709)esidential (cid:676)(cid:679)(cid:664)
Food
beverage
and leisure
(cid:676)(cid:683)(cid:664)
(cid:706)(cid:729)fi ces (cid:679)(cid:677)(cid:664)
£8.8m
ERV
(cid:709)etail (cid:677)(cid:681)(cid:664)
Longmartin
Joint Venture
Valuation £0.2bn(cid:676)
Longmartin owns a long leasehold interest in a
(cid:676)(cid:673)(cid:684)-acre cluster o(cid:729) mixed-use buildings, centred on
St Martin’s Courtyard in Covent Garden. This offers a
range of food, beverage and retail concepts,
alongside (cid:676)(cid:675)(cid:677),(cid:675)(cid:675)(cid:675) s(cid:740)(cid:673) (cid:729)t(cid:673) o(cid:729) o(cid:729)fi ce space and (cid:682)(cid:680)
apartments.
1 Our 50% share
(cid:709)esidential (cid:676)(cid:681)(cid:664)
(cid:706)(cid:729)fi ces (cid:676)(cid:684)(cid:664)
£11.3m
ERV
Food
beverage
and leisure
(cid:678)(cid:684)(cid:664)
(cid:709)etail (cid:677)(cid:681)(cid:664)
Fitzrovia
(cid:713)aluation (cid:757)(cid:675)(cid:673)(cid:676)bn
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 are on, or close to, Charlotte Street and
Goodge Street.
(cid:709)esidential (cid:677)(cid:683)(cid:664)
(cid:706)(cid:729)fi ces (cid:683)(cid:664)
(cid:709)etail (cid:676)(cid:681)(cid:664)
£5.5m
ERV
Food
beverage
and leisure
(cid:679)(cid:683)(cid:664)
Page 13
Page 13
Shaftesbury Annual Report 2020 Strategic report Portfolio uses
Food,
beverage
and leisure
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 and Neal’s Yard. In our experience, a strong food and
beverage off ering has a halo eff ect on footfall, attracting visitors,
increasing dwell time and driving improved trading in our villages.
Across our villages, we are able to provide a broad range of unit sizes,
ensuring we can attract a wide spectrum of food and beverage
occupiers. The majority of our restaurants provide casual dining, with a
focus on ambience, quality and experience, often with an all-day off er.
We favour mid-market and distinctive formats, often supporting new
independent concepts or international entrants, rather than formulaic
chains.
Restaurant tenants invest considerable sums fi tting out their space,
sometimes spending the equivalent of three to fi ve 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 can be under-utilised and, where opportunities arise, in
recent years, we have sought to negotiate the surrender of these leases
to secure vacant possession. This has enabled 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, introduced
more fl exibility at expiry and included turnover-related rental top-ups,
giving us the higher of market rent and a percentage of sales. Before
the onset of the Covid-19 pandemic, this had provided a useful
contribution to both income and earnings. We believe that these
arrangements will continue to deliver value when normal trading
conditions return.
+ Covid-19: impact and response: page 6
1. All data relates to wholly-owned portfolio
2. % of ERV
3. As at 30 September 2020
4. Leasing activity during the year ended 30 September 2020
Page 14
37% of our portfolio2
0.7m sq ft
317 restaurants, cafés,
bars and pubs
8 years weighted
average unexpired lease
term3
£8.2m lettings/rent
reviews4
Carnaby 27%
£52.8m
ERV by village
Covent
Garden
25%
Fitzrovia 5%
Soho 8%
Chinatown
35%
Typical restaurant lease terms
Term
Rent reviews
Historical
Leases
New Leases
25 years
15 years
Five-yearly,
upward-only
Five-yearly,
upward-only
Security of tenure on
expiry
Turnover-related
top-up
Yes
No
No
Yes
Space leases typically
granted over
Whole
buildings
Operational space only
(i.e. not upper fl oors)
Proportion of our
restaurant leases
(by ERV)
49%
51%
Incentives
N/A
Contribution to occupier
fi t out through rent-free
period, and enhanced
specifi cation of
accommodation,
depending on market
conditions
Shaftesbury Annual Report 2020 Strategic report Portfolio uses
Retail
A key element of the character
of our villages is the wide range
of shop sizes across the buildings
and streets, from boutiques to
larger fl agships.
Ensuring we 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
formulaic national chains found in shopping centres and high streets.
Many of our retail occupiers are independents, an important factor in
making our villages distinctive destinations. There is a current trend
away from “fast fashion”, with shoppers in our areas preferring
experience, wellness, sustainable products and brands with an ethical
purpose.
Of our 294 shops, 72% by number are small to medium-sized (ERV <
£150,000 p.a.). This allows us to provide a variety of rental levels and
retail formats, from start-ups to more established operators, while
off ering retailers fl exibility to expand or introduce new concepts within
the villages. Crucially, retail rental tones in our high-footfall and
spending locations are competitive compared with nearby streets.
We are seeing a trend 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 team is skilled in the reconfi guration and repurposing of
space to alternative uses, which allows us to respond to this changing
demand.
Retailers, particularly those exposed to structural changes in shopping
habits, nationally and internationally, 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 villages, this provides the opportunity to assess
performance and the value they add to our streets. Currently, we are
receiving enquiries from occupiers looking to secure space in our
locations for the longer term, but require initial concessionary rents
and/or turnover-linked elements, gradually rising to market standard
terms.
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 respond to these challenges.
+ Covid-19: impact and response: page 6
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
30% of our portfolio2
0.4m sq ft
294 shops
3 years weighted
average unexpired
lease term3
£6.9m lettings/rent
reviews4
Carnaby 52%
Fitzrovia 2%
Soho 7%
Chinatown
14%
£42.0m
ERV by village
Covent Garden
25%
Typical lease terms
Smaller shops: 3-5 years
Larger shops: 5-10 years
Contribution to occupier fi t out through short rent-free
period, and enhanced specifi cation of accommodation,
depending on market conditions
1. All data relates to wholly-owned portfolio
2. % of ERV
3. As at 30 September 2020
4. Leasing activity during the year ended 30 September 2020
Page 15
Shaftesbury Annual Report 2020 Strategic report Portfolio uses
(cid:706)(cid:729)fi ces
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 restaurants, cafés,
pubs, bars and shops.
Our offi ce space is generally small, aff ordable, and mostly situated on
fl oors above our restaurants, cafés and shops. We can off er a range of
offi ce sizes, allowing our occupiers to grow within our portfolio.
Typically, our offi ces are 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 average letting is 1,460 sq. ft. at £60 per sq. ft. (2019: £59 per sq. ft.)
and average ERV is £63 per sq. ft. (2019: £65 per sq. ft.).
The pandemic has accelerated existing trends in the offi ce market, with
occupiers increasingly requiring fi tted “plug and play” space and fl exible
lease terms. Furthermore, remote working may change the way offi ces
are used once the pandemic recovery begins which may result in
changes to space requirements. We are responding to new
requirements by building on our successful trials of a fl exible workspace
concept which includes simple leases, fi tted and cabled space, fi xed
costs and fl exible terms. Our tenants’ staff already benefi t from
privilege cards, off ering discounts in our shops, restaurants and cafés
and we are now considering how we can introduce more amenities, for
example, cycle parking facilities, showers and managed meeting room
space.
+ Covid-19: impact and response: page 6
20% of our portfolio2
0.4m sq ft
2 years weighted
average unexpired lease
term3
£2.5m lettings/rent
reviews4
Carnaby 67%
£27.6m
ERV by village
Fitzrovia
2%
Soho 8%
Chinatown
4%
Covent Garden
19%
Typical lease terms
Standard smaller offi ces: 3-5 years
Standard larger offi ces: 5-10 years, with break options at
year 5
Incentives: Market standard rent-free period. No
contribution to fi t-out costs
1. All data relates to wholly-owned portfolio
2. % of ERV
3. As at 30 September 2020
4. Leasing activity during the year ended 30 September 2020
Page 16
Shaftesbury Annual Report 2020 Strategic report Portfolio uses
Residential
Our tenants are typically
students or people working in
London, often for a few years
only, who like the convenience
and bustle of the West End and
the sense of community of
being part of one of our villages.
Our residential portfolio comprises mostly mid-market fl ats - mainly
studios and one or two-bedroom apartments, many of which have
been created from the conversion of small offi ces back to their original
residential use.
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.
Our experience is that, in normal times, there is a high incidence of
leases that renew at the end of the term.
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
apartments in order to retain control over whole buildings to realise the
long-term potential in those valuable lower fl oors.
We have a rolling programme to upgrade our apartments. This presents
opportunities to improve environmental performance, modernise
layouts and upgrade their specifi cation to ensure they remain
competitive and to maintain high occupancy rates.
+ Covid-19: impact and response: page 6
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
13% of our portfolio2
0.4m sq ft
624 apartments
£6.0m lettings/rent
reviews3
Fitzrovia 9%
Carnaby 19%
Soho 10%
Chinatown
24%
£18.0m
ERV by village
Covent Garden
38%
Typical lease terms
Three year Assured Shorthold Tenancies
Let unfurnished
Annual RPI uplifts
Mutual break options on a rolling two-month
basis after the fi rst six months
1. All data relates to wholly-owned portfolio
2. % of ERV
3. Leasing activity during the year ended 30 September 2020
Page 17
Page 17
Page 17
Shaftesbury Annual report 2020 Strategic Report Xxxxx
Shaftesbury Annual Report 2020 Strategic report Xxxxx
Page 18
Page 18
Shaftesbury Annual report 2020 Strategic Report Xxxxx
Shaftesbury Annual Report 2020 Strategic report Xxxxx
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Making a
positive
contribution
+
Page 19
Page 19
Shaftesbury Annual Report 2020 Strategic report
Why London’s West End?
London’s pre-eminent position amongst the world’s leading cities
continues to underpin the long-term prospects for our portfolio,
which is located in the heart of the West End, a vibrant and
popular global destination.
London
9.3 million
(cid:703)on(cid:727)on(cid:992)s (cid:739)o(cid:739)(cid:744)lation1
c. 23%
cont(cid:741)i(cid:725)(cid:744)tion to (cid:712)(cid:702) (cid:698)(cid:713)(cid:692)2
315 million
domestic and international
visits3 in 2019
21.7 million
inte(cid:741)national to(cid:744)(cid:741)ist (cid:745)isits
to London4 in 2019
Global appeal brings prosperity a broad
and resilient economic base
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. In 2019, it attracted an estimated 315 million domestic and
international visits and its economy generates 23% of UK Gross Value
Added (GVA).
The city’s population is currently around 9.3 million, with growth to
10 million¹ by 2030. Additionally, there is a similar, and growing, population
in southern England within easy commuting or visiting distance.
The huge numbers of people choosing to spend their time in London
for work, rest and play brings prosperity and gives it a broad and
resilient economic base which is not reliant solely on the fortunes of the
wider UK economy.
Seven-days-a-week economy with access
to an a(cid:729)(cid:1028) (cid:744)ent(cid:671) (cid:727)i(cid:745)e(cid:741)se c(cid:744)stome(cid:741) (cid:725)ase
The West End provides visitors with an all-round experience, from its
unrivalled concentration of entertainment and cultural attractions, historic
buildings and public spaces, to a world–class variety of shopping and some
of London’s best and most innovative restaurants, cafés, bars and clubs.
It is also a location for a wide range of global, national and local businesses,
and a popular place to live. This enduring appeal to a local, national and
global audience has always been the cornerstone of its economy.
1 World population review 2020
2 Offi ce for National Statistics;
data for 2018
3 London & Partners
Page 20
4 Statista
5 Data in normal times, pre Covid-19
6 New West End Company
7 City of Westminster
8 Transport for London
West End5
>200 million
ann(cid:744)al (cid:745)isits to the (cid:714)est (cid:696)n(cid:727)6
c(cid:673)(cid:682)(cid:680)(cid:679)(cid:671)(cid:675)(cid:675)(cid:675)
(cid:746)o(cid:741)(cid:734)in(cid:730) (cid:739)o(cid:739)(cid:744)lation in the (cid:694)it(cid:748) o(cid:729)
Westminster7
Largest
evening & night time economy in the UK7
>200 million
(cid:739)assen(cid:730)e(cid:741)s (cid:744)se the si(cid:747) (cid:712)n(cid:727)e(cid:741)(cid:730)(cid:741)o(cid:744)n(cid:727)
stations closest to o(cid:744)(cid:741) (cid:745)illa(cid:730)es8
In normal times, it is estimated the West End attracts in excess of 200
million visits annually, comprising Londoners, a large working population
of over 750,000 across a wide range of sectors, and exceptional numbers
of domestic and international tourists. Together, they provide a dynamic
and prosperous seven-days-a-week economy with access to an affl uent,
diverse customer base, and an economy, which is not solely reliant on
national conditions and prospects. In turn, this drives sustained
occupier demand in a market of constrained supply of commercial
space which is fundamental to our portfolio’s long-term prospects.
(cid:694)lose to hi(cid:730)h (cid:739)(cid:741)ofi le locations an(cid:727) at the
heart of the transport network
Our villages are all close to high profi le locations (such as Regent Street,
Oxford Street and Leicester Square) and are at the heart of the capital’s
underground and bus network. The six underground stations closest to
our villages handle over 200 million passengers annually. Over the longer
term, our portfolio is well-placed to benefi t from increased visits, spending
and changing footfall patterns expected once the Elizabeth Line is fully
operational. Whilst this has been delayed further, with the central
section expected to be operational in 2022, when it is fully open, it will
bring an additional 1.5 million people within 45 minutes of the West End.
(cid:696)(cid:747)(cid:739)ectation o(cid:729) (cid:741)et(cid:744)(cid:741)n to (cid:739)(cid:741)os(cid:739)e(cid:741)it(cid:748) in the
post-pandemic recovery
The broad-based economies of London and the West End have a long
history of structural resilience, having weathered many episodes of
challenges and uncertainties. In the post-pandemic recovery, we
believe that these economic characteristics will underpin the return
to prosperity and sustained long-term growth.
Why London’s West End?
Shaftesbury Annual Report 2020 Strategic report
The Shaftesbury proposition
Making great places
even better
We adopt a holistic approach to making great places even
better for the benefi t of our stakeholders, through fostering
our areas and providing inspiring experiences for visitors,
occupiers and their customers, and residents.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Our values are fundamental to our behaviour, decision making
and the delivery both of our purpose and strategic objectives.
+ Our people and culture: page 42
By combining our strengths, culture and values, we achieve
success beyond profi t to:
• deliver sustainable, long-term benefi ts (cid:729)or our sta(cid:734)eholders
and our people;
• build a thriving working culture; and
• make a positive, long-lasting contribution to
London’s West End.
Impossible-to-
replicate portfolio
• Clustered in the busiest parts
of the West End
• Focused on uses with a long
history of occupier demand
exceeding availability
• Small to medium-sized space
with competitive rental levels
+ Exceptional portfolio: page 10
Experienced
and innovative
management team
• Forensic knowledge of the West
End property and occupier
markets
• Skilled in adapting our buildings
and space to meet occupiers’
evolving needs
+ Our people and culture: pages 53 to 55
Long-term estate
management
strategy
• Focus on sustained income
growth
• Adaptable portfolio with a
mix of uses
• Modest capital expenditure
model
+ Business model and strategy: page 22
Long-term growth
prospects
• Benefi t from London’s global
city status, scale and economic
outlook
Responsible
• Sustainable reuse of buildings
• Good relationships with
occupiers, local authorities
and communities
• Exceptional locations bring
• Open and inclusive culture
long-term resilience
+ Why London’s West End?: page 20
• Effective governance and risk
management
+ Environment: page 29; Stakeholder
engagement: page 35; Our people and culture:
page 42; Risk management: page 71;
Governance: page 81
Low risk
• Target stable long-term in-
come and capital returns
• Prudent fi nancial and risk
management
• Tax-effi cient REIT structure
+ Financing: page 67; Tax: page 64
Page 21
Shaftesbury Annual Report 2020 Strategic report
Business model and strategy
Curating vibrant and thriving
villages in the heart of London’s
West End
Resources
Exceptional
portfolio
+ See pages 10 to 13
Experienced,
innovative team
+ See pages 53 to 55
Financial resources
+ See pages 67 to 69
Strategy
Through the holistic, long-term curation
of our villages we provide distinctive,
welcoming environments for visitors,
commercial occupiers and residents. The
combination of high-footfall, ever-evolving
curation and competitively-priced space
which meets the needs of occupiers
provides our restaurants, cafés, pubs
and shops with the ingredients to trade
prosperously. While the Covid-19
pandemic has disrupted this performance
over recent months, we believe the
fundamentals remain intact to return to
growth once the effects of the pandemic
have in all signifi cant respects receded(cid:673)
Underpinned by:
Effective governance and risk management
+ See pages 71 to 77, 80 to 117
Culture and values
+ See pages 42 to 44 , 84
Stakeholder relationships
+ See pages 40 to 41
Page 22
Page 22
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Shaftesbury Annual Report 2020 Strategic report Business model and strategy
Investment strategy
Invest exclusively in the heart of London’s
West End
• Concentrating on iconic, high-footfall locations close
to its major employment locations, transport hubs and
visitor attractions
Establish ownership clusters
• Compounding benefi ts of individual improvements
across our nearby holdings
Mixed-use buildings, focused on food,
beverage, retail and leisure
• Long history of occupier demand exceeding availability
of space
• Offi ces and residential on upper fl oors
• Ecosystem of visitors, workers and residents
provides footfall and life to our areas
+ See pages 10 to 17
Management strategy
Occupier selection
• Preference for mid-market, innovative formats, rather
than formulaic national chains
• Favour new concepts, independent operators and
international brands making their UK debut
+ See pages 14 to 15
Modern, fl exible approach to leasing
• Off er occupiers greater fl exibility and less onerous lease
commitments
• Trial concepts on short leases
+ See pages 14 to 16
Improve, reconfi gure and repurpose space
• Provide accommodation which meets current requirements
and anticipates market trends
• Sustainable reuse of buildings and materials
+ See pages 29-30, 61 to 62
Promoting villages to a wide audience
• Targeted, multi-channel marketing
• Increased reach through collaboration with occupiers
+ See pages 8 to 9, 35-37
Improving the public realm
• Create safe and welcoming environments
+ See page 62
Engagement with local community and
stakeholders
• Understand local expectations
• Good relationships with tenants, local authorities and local
communities
+ See pages 35 to 37
Creating value
through
• Ensuring our areas remain distinctive,
lively and popular
• Providing visitors with an interesting
and enjoyable experience
• Attracting growing footfall and
spending
• Sustained occupier demand
• High occupancy
• Adapting to ever-changing consumer
tr ends and occupier requirements
• Unlocking latent value and enhancing
long-term income prospects
• Extending buildings’ useful economic
lives
• Improving energy performance
Our long-term
strategic objectives
Our long-term strategic objectives, delivered through
the combination of our resources and investment and
management strategies, are:
• Long-term growth in rents and portfolio
value
• Grow recurring earnings and cash fl ow
• Minimise the environmental impact
of our operations
• Attract, develop and retain talented people
• Deliver sustainable, long-term benefi ts
for our stakeholders
Together, our aim is to make a positive, long-
lasting contribution to London’s West End.
Near-term strategic priorities are designed with our
long-term objectives in mind, rather than for short-term
gain. Value creation and success against our strategic
priorities and objectives are measured using KPIs, which
are reflected in remuneration.
+ See pages 24 to 26
Page 23
Page 23
Underpinned by:
Effective governance and risk management
+ See pages 71 to 77, 80 to 117
Culture and values
+ See pages 42 to 44 , 84
Stakeholder relationships
+ See pages 40 to 41
Shaftesbury Annual Report 2020 Strategic report
Measuring our performance
We use a balance of financial and non-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. Performance in the current year, inevitably, has
been dominated by the effects of the Covid-19 pandemic.
Alignment with strategy and link to remuneration
Strategic objectives to deliver a positive, long-lasting contribution to London’s West End
1
2
3
4
5
Long-term growth
in rents and
portfolio value
Grow recurring
earnings and
cash flow
Attract, develop
and retain
talented people
Minimise
environmental
impact
Deliver sustainable,
long-term benefits
for our stakeholders
K
KPI
R
Remuneration
+ Business model and strategy; pages 22 to 23
Total Shareholder Return (%)
1
2 3 4 5 K R
Shaftesbury
Benchmark
7.5
6.5
3.6
6.9
4.1
2.4
-9.9
-9.4
-16.9
-44.7
Total Accounting Return1 (%)
EPRA NAV1 growth (%)
1
2 3 4 5 K R
Shaftesbury
Benchmark
1
2 3 4 5 K R
Shaftesbury
Benchmark
13.5
3.8
8.9
8.7
5.3
5.8
2.5
0.8
1.0
5.0
2.2
7.2
6.9
6.3
4.1
5.4
4.1
-0.9
-23.4
-24.3
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Measures shareholder value creation, taking
into account share price movements and
dividends in the period. We benchmark
against the FTSE 350 REIT Index.
In 2020, our TSR was -44.7%, 27.8% below
the benchmark, reflecting the decrease in
our share price during the year, which was
largely fuelled by the impacts of the Covid
pandemic on the West End.
+ Covid-19: impact and response: page 6
Performance over three years relative to the
benchmark is a measure in the LTIP scheme.
+ Remuneration report: page 107
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
use a market capital-weighted index of FTSE
350 REITs.
In 2020, TAR was -23.4%, largely due to the
decline in our property valuations, driven by
the impact of the pandemic. The final
dividend in respect of 2019 (9.0p per share)
forms part of the return.
+ Portfolio valuation report: page 56
For our LTIP, we measure TAR over three
years relative to the benchmark.
+ Remuneration report: page 107
Traditional real estate measure of valuation
creation. For our LTIP, we benchmark
three-year growth in EPRA NAV on an
absolute basis against RPi+3%.
+ Remuneration report: page 107
Following valuation declines, EPRA NAV
decreased by 24.3% this year,
underperforming the benchmark (+4.1%).
For 2021, we will adopt the new EPRA NTA
metric rather than EPRA NAV. In 2020,
EPRA NTA and EPRA NAV were the same.
+ Financial results: page 63
+ Portfolio valuation report: page 56
Page 24
Shaftesbury Annual Report 2020 Strategic report Measuring our performance
Rental growth
Commercial leasing vs ERV2 (%)
Like-for-like ERV growth2 (%)
Net property income (£m)
Income
1
2
K R
7.7
6.7
5.1
3.2
1
2 K R
1
2 K R
88.3
84.1
93.8
98.0
74.3
6.4
0.8
3.4
2.6
3.2
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
2016
2017
2018
2019
2020
2016
2017
2018
2019
-6.6
2020
Our strategy has delivered 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.
While leasing activity was considerably lower
than normal during the year, commercial
leasing transactions were concluded 0.8%
above ERV at September 2019.
+ Portfolio activity report: page 59
Wholly-owned portfolio leasing performance
against previous year ERV is a performance
criterion for the annual bonus.
+ Remuneration report: page 108
Measures growth in the rental potential
of our wholly-owned portfolio. In previous
years, we included our 50% share of
Longmartin in these figures on a
proportionally consolidated basis. This year,
we have presented the information for the
wholly-owned portfolio only, in line with our
reporting on valuations and our remuneration
metrics. The comparatives have been
restated accordingly.
+ Portfolio valuation report: page 56
Like-for-like ERV growth is an annual bonus
metric. In 2020, it was -6.6% with the
impact of Covid-19 increasing vacant space
across the West End and reducing
near-term occupier demand, putting
pressure on rental values.
+ Remuneration report: page 108
Occupancy
Quarterly average underlying
EPRA vacancy2 (%)
2 K R
1
Weighted average vacant period2
(months)
2 K R
1
6.3
4.5
2.9
3.1
2.3
1.9
2.5
2.6
1.2
1.5
2016
2017
2018
2019
2020
Growth in net property income is a key driver
of earnings and dividends. This year, it
decreased by 24.2% to £74.3 million largely
due to rent waivers and Covid-19 related
charges for expected credit losses and
impairment. The relative increases in rental
income and associated property outgoings
are assessed as a bonus metric. In 2020, the
ratio of property outgoings to rental income
(before the charges noted above) decreased
from 16.5% to 15.9%.
+ Financial results: page 63
+ Remuneration report: page 108
Energy performance
% of demises with EPC rating A-E
1 4 5
74
78
67
81
83
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
High occupancy and letting property quickly are key factors in sustaining good cash flows from
our portfolio. In 2020, EPRA vacancy increased from 3.2% to 10.2%, due to the impact of the
Covid-19 pandemic, including a reduction in leasing activity, space handed back by commercial
tenants and an increase in vacant apartments. Consequently, quarterly average underlying EPRA
vacancy - a measure for the annual bonus - was up from 3.1% to 6.3%.
The average time that space has been available-to-let during the year, weighted by the ERV of
that space, also is a measure for the annual bonus. This year, it was up by 1.9 months to 4.5
months, with the Covid-19 pandemic adversely impacting occupier demand.
+ Portfolio activity report: page 59
+ Remuneration report: page 108
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 two percentage points
to 83%.
+ See page 29
1 Alternative performance measure
2 Wholly-owned portfolio
3 Excluding exceptional larger schemes
Page 25
Shaftesbury Annual Report 2020 Strategic report Measuring our performance
Financial management
Loan-to-value1,3 (%)
5
24.1
26.7
31.5
23.9
22.6
Blended cost of debt2,3 (%)
Interest cover3 (x)
2 5
4.5
3.2
3.2
3.2
2.9
2 5
2.3
2.1
2.6
2.7
1.9
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
We operate with conservative leverage levels with long-term fixed interest arrangements forming the core of our debt finance. In 2020, our
loan-to-value ratio increased to 31.5%, predominantly due to an 18.3% like-for-like decrease in the portfolio valuation. Since 30 September 2020,
we increased our financial resources by £294.4 million through an issue of equity. On a pro forma basis, our loan-to-value ratio decreased to 22.1%.
The blended cost of debt reduced from 3.2% to 2.9% during the year, following drawings made on our revolving credit facilities, which had a lower
marginal cost than our existing long-term borrowings. However, with net property income decreasing due to the impact of the Covid pandemic
growing, operating profit before investment property disposals and valuation movements decreased from £82.8 million to £59.9 million, leading to
a decrease in interest cover to 1.9 times.
+ Financing: page 67; Financial results: page 63
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
Reversionary potential
1
+ See page 57
ERV of space undergoing refurbishment
+ See page 57
51
+ See page 61
Our people
Staff retention
3
+ See page 43
Financial
EPRA earnings per share³
2
+ See page 63
Sustainability and stakeholders
GRESB rating
4 R
K
EPRA Sustainability BPR rating
+ See page 28
4 R
K
London Benchmarking Group contribution as a % of EPRA earnings
+ See page 28
2020
(6.4)%
27.7%
10.1%
2020
92%
2020
9.6p
2020
64%
Gold
2.9%
2019
2.4%
27.8%
10.4%
2019
97%
2019
17.8p
2019
75%
Gold
1.5%
5
+ See page 4
1 Based on net debt
2 Including non-utilisation fees on undrawn bank facilities
3 Alternative performance measure
Page 26
Shaftesbury Annual Report 2020 Strategic report
Sustainability
We are committed to being a responsible business. For us, that
means investing for the long term, continuing to support our local
communities and operating in an environmentally sustainable
manner.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
At the heart of our sustainability strategy is the long held policy of
reducing the environmental impact of our operations by extending the
useful economic lives of our buildings, through refurbishment, change
of use and reconfi guration. This enables us to protect the unique
heritage of the West End whilst improving the energy effi ciency of our
buildings and minimising the carbon emissions and waste that inevitably
come with new construction.
Our corporate values recognise the importance of being 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 local
charities and not-for-profi t organisations to help them address these
challenges. By partnering with grassroots operations, we can rely on
their expertise to maximise the value of our support.
UN Sustainable Development Goals and
Global Compact
We support the ten principles of the UN Global
Compact on human rights, labour, environment and
anti-corruption. We became a signatory in February
2015 and have since annually reviewed and updated
our Sustainability Policy to refl ect our commitment.
We have identifi ed the Sustainable Development
Goals that are most relevant to our business,
integrating them into our sustainability policies and targets. Our
Sustainability Data Report, which is available on our website, contains
our UN Global Compact Communication on Progress.
As a society, we’re at a crossroads for sustainability. The impact of
climate change, biodiversity loss and social inequality is being felt
across the world. In response, governments, communities and
businesses are taking action.
As a responsible business, we are committed to making a positive
impact. This is the right thing to do for our planet, our stakeholders and
our business.
We utilise the full reach of our operations, our infl uence over partner
organisations and the unique profi le of our villages to achieve
meaningful environmental and social outcomes. We believe that small
actions add up and through our relationships we can have more impact
than acting alone.
With much achieved to date, in 2021, we will take our sustainability
aspirations to the next level. We will commit our business to long-term
targets on carbon emissions and to continue working with our
partners to make progress against the UN Sustainable Development
Goals (SDGs).
As the demand for ethical consumption grows, we want to be the
destination of choice for sustainable businesses in the West End.
The pandemic has had a serious impact on our business, but our
commitment to sustainability remains as strong as ever.
Embedding sustainability in our business
Sustainability is embedded into our business and considered in
major strategic and operational decisions. To continually improve
environmental performance across our operations, we set annual
targets and communicate our sustainability policies to our wide range
of advisors, suppliers, occupiers and stakeholders. We believe that
good governance also includes transparency and our Sustainability
Policy is available on our website. This policy details our minimum
expectations, our reporting requirements, and sets out annual
performance including energy, carbon, water, waste and material use.
This year, we recruited a Head of Sustainability, who is responsible for
setting and coordinating our strategy. We have a Sustainability Committee,
chaired by our CEO, at which staff from across the business consider
all aspects of sustainability and review our policies. Our external
sustainability advisor attends committee meetings to provide
independent review and analysis.
Community engagement activities are coordinated by the Community
Investment Committee, ensuring that we have a fair and consistent
approach to the allocation of funds and in-kind support.
Our sustainability strategy, policies, action plan and overall performance
are reviewed and considered annually by the Board. Progress against the
strategy and material changes to sustainability related risks, including
climate change, are considered by the Risk Committee and the Board.
+ Community activities: pages 36 and 37
+ Environmental activities: page 29
Page 27
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Shaftesbury Annual Report 2020 Strategic report Sustainability
Sustainability Data Report
A full update of progress against our sustainability targets and
associated data for the year ended 30 September 2020 can be
found in our Sustainability Data Report which is available on
our website.
Industry recognition and awards
We participate in a range of benchmarks to help guide our sustainability
strategy and provide independent verifi cation of our progress.
We have increased our scores with FTSE4Good (95th percentile) and
maintained our EPRA Gold status for a 3rd year and CDP score (B). We
are also pleased that our sustainability performance has been recognised
by our inclusion on the European Dow Jones Sustainability Index in
2020, one of only fi ve companies in the UK Real Estate sector.
We have seen an overall reduction in our GRESB score. This is due mainly
to changes in GRESB scoring methodology and the challenge of submitting
asset level data now required across our portfolio of 600 buildings.
Industry collaboration
We continue to actively participate in a range of industry groups, to
share experiences and promote the adoption of best practice
for sustainable real estate.
Principal industry memberships include the Better Buildings Partnership,
London Benchmarking Group and the Westminster Property Association.
We also continue to be an active member of the Wild West End initiative,
a partnership with neighbouring estates and business groups to
improve biodiversity across the West End.
We continue to build partnerships with our occupiers, including
initiatives like the Blue Turtle scheme, through which more than 35
of our Carnaby restaurants and bars pledged to reduce single use
plastic and their impact on ocean health.
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.
We have signed up to the Living Wage Foundation and require that workers
in our supply chain are paid at least a London Living Wage. Our Modern
Slavery Statement, updated in January 2020, is available on our website.
Health and Safety
Our 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 (2019: zero) and there were
no health and safety prosecutions, enforcement actions or fatalities.
Our material issues
Our approach to sustainability is based on a clear understanding of the
issues that are most relevant to our stakeholders and an appreciation
of the environmental and social impacts of our operations.
During 2020, we undertook a further review of our sustainability
priorities. This initial exercise comprised staff interviews, desktop
analysis and conversations with our contractors and managing agents.
The research highlighted several key priorities:
• Continue with our community engagement, focusing on young people
and our local communities in Westminster and Camden through
grassroots organisations.
• Continue our policy of protecting and re-using buildings to maintain
the heritage of our villages whilst minimising carbon emissions.
• Set ambitious targets to reduce our carbon emissions (operational
and embodied) and continue to improve the energy effi ciency of our
portfolio.
• Clarify and clearly communicate our exposure to climate risks.
• Continue to increase the area of green space across our portfolio
and work with peers through the Wild West End.
• Engage with our occupiers and supply chain and use the public profi le
of our villages to promote sustainability.
In 2021 we will continue to develop our materiality analysis, ensuring
that our sustainability strategy is aligned with the needs of our business
and expectations of our stakeholders.
Base line to footnotes and longest copy
Base line to page number
Page 28
Shaftesbury Annual Report 2020 Strategic report
Environment
Our most significant impacts on the environment are primarily
from the day-to-day operation of our buildings but also from
our refurbishment projects.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Our environmental strategy is built on the principle of extending the
useful lives of our heritage buildings. Re-using and enhancing existing
buildings, rather than demolition and redevelopment, is fundamentally
the most sustainable approach; increasing energy efficiency whilst
avoiding carbon emissions and use of materials associated with new
construction. Our recent refurbishment project at 50 Marshall Street,
described on page 30, exemplifies this approach.
Through our programme of low carbon refurbishments, we preserve
our buildings, protect the character of our areas and increase
biodiverse green space.
Performance update
We have continued to make good progress against our environmental
targets in a year that has inevitably been significantly impacted by the
Covid-19 pandemic. A comprehensive report on our sustainability
performance can be found in our Sustainability Data Report on our
website.
BREEAM
In order to meet environmental standards for good building design and
operation, we follow BREEAM (Building Research Establishment
Environmental Assessment Method) principles when refurbishing a
building. For all refurbishment projects with a value over £1 million, we
aim to achieve a minimum BREEAM certification of Very Good. Since
we introduced this requirement, we have had 20 schemes certified,
extending to approximately 10% of the portfolio.
EPCs
All buildings, other than listed buildings, are required to have an Energy
Performance Certificate (EPC) to demonstrate their efficiency. Under
the Minimum Energy Efficiency Standards (MEES) regulations, all
demised areas are required to have an EPC of grade E or above.
As at 30 September 2020, 83% of properties were A to E grade (c. 1,278
demises), an increase from 81% last year. All our residential properties
now satisfy the MEES regulations. A small number of properties are
exempted either because the buildings are listed or the costs of doing
the works are prohibitive and would be too disruptive to occupiers.
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 or we will work with tenants
to meet the requirements of the regulations.
A-E
F&G
Unassessed
9%
8%
1,544
demises
83%
Energy, water and greenhouse gases
Our direct energy consumption is relatively small as it only
encompasses the common areas of our buildings. On a like-for-like
basis, electricity consumption has dropped by 16% during the year,
continuing our recent downward trend. This is due, in part, to the
impact of our programme of refurbishments such as the installation
of low energy lighting across the portfolio, but also reflects a reduction
in usage as Covid-19 has limited building occupation during the year.
We continue to purchase electricity sourced from renewables across
all of our wholly-owned portfolio, including our Carnaby Christmas
decorations. Excluding the impact of purchasing renewable electricity,
we have still seen our greenhouse gas (GHG) emissions intensity drop
by 7.7% from the previous year. These emissions relate to our direct
combustion of gas, refrigerant losses (scope 1) and purchased
electricity (scope 2). Further details are included in our energy and
carbon statement on pages 116 and 117.
Our water consumption only relates to common parts and remains
relatively low. Overall consumption has reduced by 24% during the year,
much of which can be attributed to reduced occupation of our space
during the pandemic.
100% renewable energy for our wholly-owned portfolio
11% reduction in absolute electricity use
7.7% reduction in carbon emissions intensity
Waste
The total volume of waste we collect across our portfolio has reduced
by 42%, primarily due to lower footfall attributable to Covid-19
restrictions. However, the percentage of waste recycled has reduced
by 3%, most likely as a result of single-use products, such as coffee
cups, making up a relatively larger proportion of waste in the year
The amount of waste from refurbishment projects is minimised by
reusing materials whenever possible. Where this is not feasible, material
is sent to waste transfer stations which operate a zero waste to landfill
policy, where possible, achieving a combined total score of 88%
diverted from landfill. This year, the majority of waste sent to landfill
came from our 72 Broadwick Street scheme, which had an element
of contaminated waste material.
42% reduction in waste
Page 29
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Shaftesbury Annual Report 2020 Strategic report Environment
Valuing natural resources
We signifi cantly reduce our environmental impact by minimising the
use of new materials in our refurbishment projects and responsibly
sourcing, when new material is required. 98% of our timber is from
sustainably certifi ed sources and the remaining small amount is
sourced in line with EU Timber Regulations.
Retaining and reusing buildings’ façades and primary structures is
an important feature of our refurbishment schemes. During the year
ended 30 September 2020, we achieved over 85% retention and reuse,
across our schemes.
A full breakdown of our environmental impact can be found in
the Sustainability Data Report on our website.
Action on climate change
We recognise the need to take urgent action on climate change, setting
ambitious targets for reducing our carbon emissions and making sure
that our business is resilient to climate-related risks.
The built environment accounts for approximately 40% of the UK’s
carbon emissions and will play a signifi cant role in the UK meeting its
2050 net zero carbon target and commitments under the Paris
Agreement. It is also estimated that over 80% of current buildings will
still be in use in 2050, and many of our buildings have been standing
more than 150 years already. Therefore, the low carbon retrofi t of
current buildings will play a critical part in the process.
We have set annual carbon reduction targets for our own direct
emissions (scope 1 & 2) and are calculating longer term targets (10 years)
that refl ect the emissions reductions that scientists agree are needed
to limit the worst impacts of climate change. These are referred to as
being ‘science based’ and we have submitted our targets to the
Science Based Targets Initiative (SBTI) for external validation.
We are continuing to improve the energy effi ciency of our buildings and
have the opportunity to support and positively infl uence the behaviour
of our occupiers and contractors. Therefore, we consider it important
that our medium term targets include emissions relating to our
occupiers’ energy use and those attributable to our refurbishment
projects. These are scope 3 emissions.
Actions on climate change we have taken to date include:
• Setting operational carbon emissions reduction targets for our
portfolio.
• Establishing a comprehensive carbon emissions baseline (2019) to
include tenants’ energy use in our buildings.
• Purchasing renewable electricity for our own supplies. However, we
don’t see this as a long-term solution as it is not increasing the overall
renewable energy capacity of the grid.
• A rolling programme of energy effi cient retrofi ts. We target a minimum
of BREEAM Very Good rating on all projects with a value above £1m.
• Undertaking research into the embodied carbon of a typical
refurbishment project to better understand our emissions and identify
reductions opportunities.
• Undertaking an initial review of our climate change risks.
Case study:
50 Marshall
Street
Shaftesbury’s approach to the preservation
and enhancement of existing buildings has
been demonstrated this year with the
refurbishment of 50 Marshall Street, a project
now close to completion.
The building was constructed in the early 1980s, extending to
819m2 over 5 storeys. The reinforced concrete frame structure
had relatively small fl oor plates and, at an EPC rating of G, it
was no longer fi t for purpose as a modern space.
Working in partnership with our project manager and
Architect, the original structure and much of the façade was
retained, saving considerable carbon emissions and continuing
to lock up carbon from the 1980s.
The fl oor plates were expanded and an additional fl oor added,
along with a biodiverse green roof that will be accessible for all
the occupants. The energy effi ciency of the building will improve
dramatically. Improved glazing and low energy lighting, along
with the addition of heat pumps, will enable this all-electric,
naturally ventilated building to achieve an EPC level of B. We
are also targeting a minimum of BREEAM Very Good with an
aspiration to increase this to Excellent as the project completes.
Base line to footnotes and longest copy
Base line to page number
Page 30
Shaftesbury Annual Report 2020 Strategic report Environment
Greening our portfolio
Increasing green space across our portfolio has a wide range of benefi ts.
Aside from supporting wildlife, integrating nature can help limit the
impacts of climate change, improve air quality and make the portfolio
more attractive. London is home to greater breadth of wildlife than
many people realise, with an estimated 14,000 species having been
recorded living amongst its buildings, streets and parks. Studies also
show that connecting with nature can reduce stress and boost wellbeing.
We continue to seek every opportunity to increase biodiversity across
our portfolio, this year achieving a further 9% uplift in area. We have
already exceeded our 5-year plan target (set in 2016), increasing
biodiversity by 70% (target: 50%).
9% annual increase in biodiversity.
Biodiverse space has increased 70% since 2016
We have continued our partnership with other local landowners
through the award winning Wild West End initiative. This enables us to
share in best practice and play our part of creating wildlife corridors
through the West End by connecting green spaces owned by diff erent
landowners. By working in partnership we can have a greater impact
than working alone.
Air quality
Improving air quality across our portfolio remains critically important to
support people’s health, promote green transport and encourage visitors.
We have partnered with other major West End landlords to consolidate
deliveries, reduce vehicle movements and improve tenant engagement.
In Seven Dials, we are working with community groups and the council
to reduce traffi c and improve the area for walking and cycling. At the
start of 2020, a workshop with local groups identifi ed a way forward,
and Camden COVID Safe Travel initiative has seen the area experience
lower traffi c levels and improved air quality. We will continue our
proactive work with all local partners and the local community in 2021
to drive long-term improvements in air quality across London based
on what we have learned during the pandemic.
Looking ahead
In the coming year, we have a number of strategic sustainability
priorities:
• Develop our sustainability strategy to refl ect the unique nature of
our business and the positive impact that we can have on all our
stakeholders;
• Set an ambitious and transparent net zero carbon target based on
a comprehensive understanding of our portfolio and our emissions
reduction strategy.
• Continue our focus on building reuse and a commitment to
understand more about the embodied carbon benefi ts of retaining
buildings;
• Continue to invest in green infrastructure and set a new medium-term
biodiversity target;
• Develop our climate risk reporting in line with the recommendations
of the Task Force on Climate-related Financial Disclosures (TCFD);
• Continue to improve data collection across our portfolio; and
• Take action to improve water management, where we have control.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Case study:
The journey to
100% pollinator
friendly planting
We are committed to protecting and increasing
biodiversity across our estate, and in 2016 we set
an ambitious fi ve-year target to increase biodiverse
space by 50%. The majority of our portfolio consists
of buildings which sit on the public highway and
many of our roofs are taken up with industrial plant,
therefore we have had to think outside the box.
Across our portfolio we have 1,245 window boxes, 124 planters
and 46 hanging baskets bringing splashes of colour to the
streets. Our traditional selection of plants, such as begonias,
look great from the pavement but unfortunately aren’t
particularly attractive or benefi cial to pollinating insects.
As we add more habitat for insects, such as natural log piles
or the bee hives located on our roof tops, we need to ensure
that we also provide suffi cient local food sources.
In 2019 we trialled 100% pollinator-friendly window boxes in
Newburgh Street in Carnaby. The plants had a more natural
colouring whilst also providing a critical food source. Based
on the success of this trial, in 2020, all the window boxes,
planters and hanging baskets have been planted with 100%
pollinator-friendly species.
We have achieved our 5-year target early, with a 70%
increase in biodiverse space since 2016. We will continue to
look for new opportunities to bring nature to the streets of
the West End.
Page 31
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Shaftesbury Annual Report 2020 Strategic report Xxxxx
Making a
positive
contribution
+
Base line to footnotes and longest copy
Base line to page number
Page 32
Page 32
Shaftesbury Annual Report 2020 Strategic report Xxxxx
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Page 33
Page 33
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Shaftesbury Annual Report 2020 Strategic report
Non(cid:672)financial in(cid:729)o(cid:741)mation statement
We are not required to comply with the non-financial reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006.
However, the table below, and information to which it refers, 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
Policies and standards which
govern our approach1, 2
Sustainability policy and action plan
Requirements for management of the
portfolio
Requirements for refurbishment
projects
Supplier code of conduct
Anti-bullying and harassment policy
Board diversity policy
Data protection policy
Disability policy
Equal opportunities policy
Sustainability action plan
Sustainability policy
Health, safety and wellbeing policy
Sustainability action plan
Sustainability policy
Modern slavery and human trafficking
statement
Supplier code of conduct
Community Investment Committee
terms of reference
Sustainability action plan
Sustainability policy
Payment of suppliers policy
Supplier code of conduct
Bribery and anti-corruption policy
Money laundering policy
Share dealing policy
Supplier code of conduct
Whistleblowing policy
Environmental
matters
Employees
Human rights
Social matters
Bribery and
anti-corruption
Business model
Principal
risks and
uncertainties
Non-
financial key
performance
indicators
Website information
Further information in this report
https://www.shaftesbury.co.uk/en/
sustainability/our-approach.html
For more on sustainability, see pages
27 and 28
https://www.shaftesbury.co.uk/en/
sustainability/environment.html
For more on how we protect the
environment, see pages 29 to 31
https://www.shaftesbury.co.uk/en/
sustainability/community/people.
html
For more on greenhouse gases,
see page 116
For more on our culture, values and
people, see pages 42 to 45
For more on diversity and inclusion,
see pages 44 and 95
https://www.shaftesbury.co.uk/
en/sustainability/modern-slavery-
statement.html
For more on modern slavery and
human rights, see page 28
https://www.shaftesbury.co.uk/en/
sustainability/community.html
For more on our stakeholder
relationships, see pages 35 to 41
https://www.shaftesbury.co.uk/
en/investor-relations/corporate-
governance.html
https://www.shaftesbury.co.uk/en/
about-us/how-do-we-add-value.
html
https://www.shaftesbury.co.uk/
en/investor-relations/corporate-
governance/principal-risks-and-
uncertainties.html
For more on our Covid-19 Community
Fund, see pages 46 and 47
For more on sustainability, see pages
27 and 28
For our audit committee report, see
page 97
For more on modern slavery and
human rights, see page 28
For more on our behaviours, see
page 89
For more on our strategy and
business model, see pages 22 and 23
For our risk report, see pages 71 to 77
For more on non-financial key
performance indicators, see pages
24 and 25
Base line to footnotes and longest copy
Base line to page number
Page 34
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
Non(cid:672)financial in(cid:729)o(cid:741)mation statement
Stakeholder engagement
Shaftesbury Annual Report 2020 Strategic report
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
We are committed to engaging with our stakeholders and
building long-term relationships founded on respect, integrity
and transparency. Through fostering our relationships and
collaboration, we aim to make a constructive difference and
deliver a positive long-lasting legacy for London’s West End.
Our approach to our engagement and activities undertaken throughout the year can be seen below. More information on engagement with
employees and shareholders can be found as follows:
Our people and
culture
+ See pages 42 to 45
Monitoring
of culture and
engaging with
employees
+ See page 84
Consideration
of remuneration
and related
policies below
the Board
+ See page 102
Section 172
Statement
+ See pages 40 and 41
Relations with
shareholders
+ See page 89
During the first UK lockdown, we initiated promotional campaigns to
maintain awareness of our villages and services provided by our
occupiers. Our marketing team collaborated with occupiers on social
media campaigns and online events. These included “Bringing
Chinatown Home”, “Seven Dials @ Home” and “Carnaby Together”, with
programmes of unique digital content to entertain, educate and inform
consumers and local residents. In addition through our community
portals and direct communications we have worked to provide
practical support and guidance to our residential occupiers.
Occupiers
Our long-term strategy has always recognised the importance of
creating prosperous environments for our commercial occupiers
as well as amenity for local residents.
Maintaining a continuing dialogue with our occupiers enables us to
better understand their priorities and challenges as their businesses
grow and evolve. Occupier prosperity, particular for our food, beverage
and retail tenants, is important to our long-term success. A key aspect
of our management strategy is the careful selection of these occupiers,
focusing on what makes each village distinct and looking for interesting
concepts which will bring footfall to our areas. A food, beverage or retail
occupier’s journey often with us starts with an interview so we can
understand their business model and assess how their brand or
concept will add value to our villages. This is the start of a relationship,
which, similarly to our office and residential occupier relationships,
continues and evolves as our occupiers’ needs change.
Engagement and activities during the year
During the year we undertook an occupier survey across Carnaby
to understand the need for any further communal amenities and
the importance of sustainability and wellness for our occupiers,
which is helping inform our strategy.
Following a successful trial in Seven Dials in 2019, this year, we launched
tenant portals for Carnaby, Soho and Chinatown to improve direct
communication with our occupiers. The portals provide occupiers
with regular updates on Government guidance, key information relating
to the villages as well as upcoming events. In addition, the portals assist
with turnover data collection and, in Seven Dials, provide regular
footfall information.
This year, the impact of continuing Covid-19 restrictions and evolving
Government guidance has led to intensive engagement to discuss the
financial support as well as non-financial initiatives such as marketing
and social media campaigns we could offer.
We have reduced service charge expenditure, where safe to do so,
during the lockdown periods. From October 2020, we have provided
the option for commercial occupiers to be invoiced and pay rent and
service charge monthly, rather than quarterly in advance, better
aligning our revenue collection with their cash flows.
Page 35
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Shaftesbury Annual Report 2020 Strategic report Stakeholder engagement
In preparation for the relaxation of the lockdown, we worked with
our occupiers to ensure returning staff and visitors could do so safely,
implementing social distancing guidance, providing hand sanitisers and
installing signage throughout the villages and within our buildings.
We also promoted our retailers and our F&B tenants’ alfresco dining
offers through social media, across our villages with campaigns such
as “Love Chinatown” and “You are Brilliant” in Chinatown and Carnaby
respectively. We have also created bike hubs in Seven Dials and
Carnaby to support our clean air strategies and provide an additional
amenity for local workers and visitors
Always keen to find and support new concepts, at the end of September
we launched the “Start Up with Seven Dials” offer to provide brands
starting up during lockdown with a physical space within Seven Dials,
including support from retail experts.
Local residents are an important part of the community and we are
seeking ways to improve how we engage with them on initiatives that
might affect the areas in which they live. Looking forward into 2021,
the focus of our engagement will be making sure occupiers are better
aware of our plans and priorities and encouraging them to be part
of our conversations with the local community.
Community
We aim to use our expertise, resources and influence for wider public
benefit. We work with a range of partners including non-for profit
organisations, charities, educational establishments and other local
community groups, recognising that our long-term support enables
them to make a difference through their activities.
In considering initiatives affecting our local area, we seek to engage
with residents and other community groups for their views. In the
year ahead we will be developing our engagement to ensure we better
communicate with our local communities to explain work we are doing,
show them how we can help and encourage them to work
collaboratively with us.
The Community Investment Committee, chaired by one of our
Property Directors, oversees our programme of community investment
and activity. Our support takes a variety of forms, including financial
and in-kind donations through provision of short and long-term
accommodation, advice and time given by employees. We often link
our community support with marketing events so that community
groups are able to leverage from these activities, to raise awareness
and the profile of their organisation. This year, including our Covid
Community Fund, our financial, in-kind and employee time
contributions totalled £866,000.
Management
costs 10%
In-kind
contributions
of space 31%
How
Cash 51%
Time 8%
Other 7%
Education 11%
Health 8%
Emergency
relief 24%
What
Environment 13%
Social welfare 28%
Arts/culture 9%
Base line to footnotes and longest copy
Base line to page number
Page 36
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Shaftesbury Annual Report 2020 Strategic report Stakeholder engagement
Engagement and activities during the year
We have a range of community support activities across our villages.
As part of our programme we finance a daytime outreach worker from
The Connection at St Martins, a homeless charity which focuses on
help for rough sleepers. We are a founding member of the House of
St. Barnabas and support their employability programme which helps
homeless people into work.
In Chinatown, we fund a part-time advice worker at the Chinese
Community Centre, who helps the Chinese speaking community with
a wide range of issues. In addition, we support the Chinese Health and
Wellbeing Clinic, which deals with physical and mental health. Across
our other villages we contribute to a range of activities, including a
grassroots community centre at the Dragon Hall Trust and, sponsoring
the Donmar Theatre. As part of Silver Sunday we co-sponsored the
Westminster Tea Dance for senior citizens and we helped pay for 1,000
afternoon tea gift boxes to elderly and isolated people in Westminster.
Supporting organisations which have a specific local expertise means
that we can have more impact than acting alone. We partner with the
Young Westminster and Young Camden Foundations in their work to
support young people across the boroughs. At Westminster Kingsway
College, our partnership since 2014 has enabled a number of
educational projects for students in the Creative Arts Faculty. This
year’s project involved students designing a tote bag. Responding to a
commercial brief set by our marketing team which challenged them to
take inspiration from Seven Dials, and research of the area. Providing
valuable practical experience, shortlisted students presented their
ideas to our marketing team who gave feedback for the students to
build on. We have continued our long-term relationship with Soho
Parish Primary School and this year we contributed to their new
website in addition to the provision of laptops and food vouchers
provided through our Covid Community Fund.
As a result of the pandemic, many of our community partners’
traditional sources of funding have been reduced and often there has
been additional demand on the services they provide. In March 2020
we established our Covid Community Fund, to provide them with
additional financial support.
+ Covid Community Fund: pages 46 and 47
In addition, to help ensure that our communities remained connected,
we ran a number of digital campaigns, including #CarnabyCares, across
our village social media channels and websites which promoted the
wide range of projects initiated by our occupiers across our villages.
These included support for the NHS and key workers, and promotion
of free well-being offerings.
Advisors, contractors and suppliers
Shaftesbury operates an out-sourcing model. Our small team of 39
employees is supported by a range of external advisors across various
property and corporate disciplines. Operating in a small geographic
area, we have always believed that access to the wider knowledge and
experience of advisors across their fields of expertise is of considerable
long-term benefit to the business. Our relationships with advisors are
generally long term, based on mutual trust and respect. We value the
contribution they make; our approach is collegiate, listening to and
learning from them through open, constructive dialogue, rather than
simply directing them to carry out our instructions. Some advisors,
such as managing agents or project managers, may operate with
delegated authorities, but in general, all decisions of any significance
remain with our in-house team.
Day-to-day operations across our portfolio are the responsibility of
external managing agents, who on our behalf procure contractors and
suppliers and other specialists to service and maintain our buildings,
liaising with occupiers as a first point of contact. We engage project
managers to oversee refurbishment projects, who similarly suggest
and procure professional advice and building contractors to deliver
the schemes.
As well as expecting our advisors, contractors and suppliers to comply
with standards and codes that may be specific to their industry, we
require them to adopt our standards of behaviour in relation to the
environment, the community and employees set out in our Supplier
Code of Conduct. These relationships are usually covered by clear
contractual arrangements, which define the rights and obligations
of each party. We are signatories to the Prompt Payment Code with
our Payment of Suppliers Policy available from our website. To ensure
that our suppliers and their employees feel safe to raise any concerns,
we have a whistleblowing policy and helpline.
Engagement and activities during the year
Our team is in regular, often daily, contact with our external advisors.
Working centrally within our portfolio, we aim to respond quickly to
issues as they arise with clear instructions based on the advice we
receive, our own experience and wider stakeholder consideration.
Inevitably, the pandemic has presented challenges across all aspects
of our business, which has required even greater engagement with
our advisors to address a range of issues affecting our commercial
occupiers and their businesses, residential tenants, suppliers and
contractors throughout the lockdown and reopening period.
Environment 13%
Page 37
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Shaftesbury Annual Report 2020 Strategic report Stakeholder engagement
Finance providers
We maintain good, open relationships with our finance providers.
Engagement and activities in the year ended 30
September 2020
This year we have proactively kept our finance advisers informed of
both our actions taken and planned to respond to the pandemic.
+ s172 engaging with our finance providers: page 41
Joint Venture partners
We established our 50:50 Longmartin joint venture with The Mercer’s
Company in 2005 with the aim of combining and developing our
interests on Long Acre and at the gateway to Seven Dials. Over the
intervening years, overseen by the Longmartin board, the buildings held
by the joint venture have been redeveloped to create St Martin’s
Courtyard, which adds to the vibrancy of our respective holdings. To
ensure a high level of oversight, the Longmartin board formally meets
five time a year with day to day operations managed by the joint
venture’s operating committee.
Local authorities, neighbouring landowners
and West End tourism partners
Working with Westminster City and Camden Councils, we identify and
contribute to a wide range of matters through regular dialogue. This
includes responding to draft policies and consultations to share our
experience and knowledge to help shape public realm improvements
and traffic reductions across our areas.
+ Public realm improvements page 62
We also work with neighbouring property owners, Business
Improvement Districts, and our tourism partners to promote London’s
West End to a domestic and international audience.
Engagement and activities during the year
In response to Covid-19, we increased our collaboration with neighbouring
estates and landowners, Business Improvement Districts, as well as
Westminster City Council and Camden Council, on solutions for
responsibly managing social distancing across the West End’s streets.
To help encourage our local communities and Londoners to safely and
responsibly return to our villages, we worked with Westminster City
Council and Camden Council to secure a series of timed road closures
and other street measures, during core trading hours for F&B and retail
occupiers. This enabled our hospitality occupiers to trade from external
seating whilst adhering to social distancing restrictions. In Carnaby,
Chinatown and Seven Dials, we also provided our own additional
communal seating for use by anyone visiting the area, bringing extra
seating capacity for takeaway food. In addition, we took part in the
working group convened by Camden Council to share best practice
and co-ordinate opportunities and support to all occupiers across
Camden.
During the year, we engaged with Westminster City Council on a
number of policy reviews including their Busking and Street
Entertainment Policy and the City Plan 2040 where we contributed to
the Examination in Public with representations on a number of policy
areas. We are members of the Soho Neighbourhood Forum which is
developing a planning strategy for Soho. In Seven Dials, we have had
regular dialogue with senior officers at Camden Council around issues
affecting the evening and night time economy and commented on their
new external seating policy.
We have worked closely with our tourism partners, London & Partners,
the Mayor of London’s promotional agency, Visit Britain and other local
property owners and Business Improvement Districts, to actively
support the safe return of visitors to London. Working with London &
Partners, we helped create the campaigns #virtuallylondon, and
‘Because I’m A Londoner’, to promote London to domestic and
international visitors.
Together with our West End partners, we developed a West End
initiative, #MyWestEnd, which was collectively supported through our
own digital campaigns.
Through our membership of various bodies such as London & Partners,
London First, Association of International Retail and Business
Improvement Districts, we have supported various lobbying campaigns
for the benefit of our occupiers and the West End.
Base line to footnotes and longest copy
Base line to page number
Page 38
Shaftesbury Annual Report 2020 Strategic report Stakeholder engagement
Engagement and activities during the year
To ensure the Longmartin board was kept fully apprised of the
challenging market conditions, during the year it revisited the delegated
authorities and introduced regular informal board calls between the
scheduled board meetings involving our executive directors, Brian
Bickell and Tom Welton and our portfolio director, Charles Owen. The
Longmartin business plan was also updated to include new strategic
priorities in light of the changing market conditions.
Matters relating to Longmartin’s operations, fi nancing and other matters
are reported and regularly discussed at Shaftesbury Board meetings
throughout the year.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Making a
positive
contribution
+
Page 38
Page 39
Page 39
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Shaftesbury Annual Report 2020 Strategic report Stakeholder engagement
Our S172 (1) Statement
The Board of Directors confirm that during the year under review, it has
acted in a way it considered in good faith to be most likely to promote
the long-term success of the Company for the benefit of members as a
whole, whilst having due regard to the matters set out in section 172 (a)
to (f) of the Companies Act 2006, being the:
day-to-day operations. A ‘Stakeholder dashboard’ summarising the key
areas of engagement undertaken by the executive directors and the wider
team across the business is considered at each scheduled board meeting.
For more on s172 matters and stakeholder engagement:
(a) likely consequences of any decision in the long-term;
(b) interests of the Company’s employees;
Key decisions for the
long-term
(c) need to foster the Company’s business relationships with suppliers,
customers and others;
(d) impact of the Company’s operations on the community and the
environment;
Employees
(e) desirability of the Company maintaining a reputation for high
standards of business conduct; and
(f) need to act fairly between members of the Company.
Our stakeholders and Board processes
In making this statement, the Board considers that its key stakeholders
include our shareholders and potential investors, employees, occupiers,
visitors, local authorities, community partners, suppliers, finance providers,
and our joint venture partner. Building and nurturing our relationships
with these stakeholders for the long term is key to our success.
+ Stakeholder engagement: pages 35 to 39
+ Employee engagement: pages 43 and 45
+ Shareholder engagement: page 89
For Board approval of transactions, the elements of s172 are considered
in assessing whether such actions are likely to promote the success of
the Company for the benefit of the members as a whole. Whilst the Board
has direct engagement with our employees and shareholders, it receives
a combination of reports from the executive directors, senior managers
and advisors to understand the views of the Group’s stakeholders regarding
Fostering business
relationships with suppliers,
customers and others
Community
Environment
High standards of
business conduct
Investors
Name of Annual Report pages
Q&A with the Chief Executive
Covid-19 impact and response
Business model and strategy
Chairman’s letter
Principal Board activities in 2019/20
Our people and culture
Making a positive contribution
to our employees
Monitoring of our culture and
engagement with employees
Stakeholder engagement
Making a positive contribution to
support our occupiers
Principal Board activities in 2019/20
Stakeholder engagement
Making a positive contribution to
our community
Chairman’s letter
Environment
Making a positive contribution to
the environment
Our people and culture
Stakeholder engagement
Our business conduct
Leadership and purpose
Financing
Annual Report
page numbers
+ See pages 2 to 5
+ See pages 6 to 9
+ See pages 22 and 23
+ See pages 82 to 83
+ See pages 86 to 88
+ See pages 42 to 44
+ See page 45
+ See page 84
+ See pages 35 to 39
+ See pages 48 to 49
+ See pages 86 to 88
+ See pages 36 and 37
+ See pages 46 to 47
+ See page 83
+ See pages 29 to 31
+ See pages 50 to 51
+ See pages 42 to 44
+ See pages 35 to 39
+ See page 89
+ See page 89
+ See page 67
The Board’s engagement with stakeholders and decisions taken to promote the success of the Company as a whole for its members in
response to Covid-19
Supporting our
occupiers
for the long-term
Supporting our
communities
Our purpose is to curate vibrant and thriving villages in the heart of London’s West End for the benefit of all our
stakeholders. At its core is a holistic approach to patient, long-term curation of our villages by providing distinctive and
appealing experiences for visitors, occupiers, their customers and residents. A key component of this strategy is the mix
and appeal of our restaurant, café, pub and shop occupiers. The effective closure of the West End, starting in February,
had an immediate and very challenging impact on all consumer-facing, footfall-reliant businesses, which are inevitably
cash-flow sensitive. As a result, our team’s focus, supported by the Board, since the beginning of the pandemic and
lockdown has been to help our occupiers through this challenging period by providing financial and other practical
support to retain occupancy, helping to preserve the long-term value and prospects of our exceptional portfolio.
From March 2020, the Board has supported the Strategic and Operations Executive Committee’s recommendations on rent
concession strategies. In addition it has supported a permanent change in policy, from October 2020, to vary our leases
to provide the option for commercial lessees to pay rent and service charges monthly, rather than quarterly in advance,
in order to align our revenue collection with the cash flows of our occupiers.
+ Covid-19 impact and response: pages 6 to 9
+ Making a positive contribution to support our occupiers: pages 48 to 49
The Board was kept informed of other engagement and initiatives undertaken across the business with our local
authorities, adjoining landowners and Business Improvement Districts to help support occupiers, and drive footfall
across the portfolio.
Early in the pandemic, it became clear that our community partners’ finances could be materially affected, either
because their traditional sources of funding had been reduced and/or there would be additional demand on the
services they provide. In response, the Company set up a Covid-19 Community Fund, in April 2020, to support these
partners and help people affected by Covid-19 within the boroughs of Westminster and Camden. The fund was
administered by the Community Investment Committee. To date, the fund has made awards in cash and in kind to
charitable partners totalling over £310,000 to 18 causes impacted by the pandemic. We have received positive feedback
from the organisations supported by the fund.
Funding for this initiative came from savings made following the Board’s decision to waive 20% of both executive
director base salaries and pension contributions and non-executive director fees for four months.
+ Making a positive contribution to support our community: pages 46 to 47
Base line to footnotes and longest copy
Base line to page number
Page 40
Shaftesbury Annual Report 2020 Strategic report Stakeholder engagement
Retaining, protecting
and motivating our
employees
As an organisation with under 40 employees, our people are fundamental to the success of our business.
During the first lockdown, when government guidance was to work from home wherever possible, regular all-
employee presentations were held. Jonathan Nicholls, Richard Akers and Jennelle Tilling attended a number of
sessions providing the opportunity for Q&A.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Engaging with our
finance providers
Balance sheet
strength,
consideration of our
shareholders and
governance
Following the easing of the first lockdown, based on responses from an all-employee questionnaire and consultation
with the members of the Strategic and Operations Executive Committee, the Board discussed and approved the
Group’s return to office plan, which was implemented in September 2020 following an all employee presentation and
Q&A session.
Having considered an employee reward survey in September 2020, the Remuneration Committee approved:
• a change in the structure of the employee annual bonus plan, to include an element of individual objectives; and
• the introduction of a recognition project, overseen by the Culture Group, made up of employees from across the
business and sponsored by Richard Akers as our non-executive director responsible for employee engagement.
Communication of these changes was made through a combination of all employee meetings, feedback from Strategic
and Operations Executive Committee members to their teams and employee workshops.
+ Our people and culture: page 42 to 45
We maintain a dialogue with our finance providers throughout the year. Since March 2020, we have kept them
apprised on the impact of the pandemic and the measures the business has been taking to service our financial
obligations. In particular, our discussions have centred on interest cover covenant waivers.
We recognised that offering some solutions to our lenders, rather than simply requesting waivers, was in the spirit of
partnership. The Board agreed that, where possible, we should offer lenders cash deposits up to an amount
equivalent to the interest payments during the term of the waivers. Our open and pragmatic approach has been well
received and has resulted in constructive discussions and agreements on interest cover covenant waivers.
Whilst we remain compliant with the financial covenants in our bonds, the Board agreed that we should hold regular
business updates while Covid-19 uncertainties persist and we gave bondholder credit updates in June and
September. The next update will be in December 2020.
+ Financing: pages 67 to 69
In responding to the pandemic, the Board’s view is that maintaining occupancy across the Group’s portfolio, wherever
possible, will protect the long-term value of the business. When the post-pandemic recovery progresses, this
approach, together with a strong financial base, should position the business to return to long-term growth.
With the prospect of reduced rent collections and growing vacancy, our strategy, since March 2020, has been to preserve
liquidity, with a moratorium on non-essential expenditure, new schemes and acquisitions, other than by exception.
In view of the likely reduction in rental income and, in turn, adjusted EPRA earnings, the Board decided against paying
an interim or final dividend in relation to the current year, but intends to resume dividend payments as soon as it
considers it prudent, maintaining its policy of sustainable dividend growth over the long-term.
The Board assessed the Group’s financial position in light of the implications of the Covid-19 pandemic, and
considered a range of options to optimise the Group’s long-term capital structure. It concluded that we should
prioritise maintaining a strong financial base and appropriate liquidity levels, focusing on debt and gearing levels, and
that a material level of disposals to address financing risks would not be in the long-term interests of the Group.
Accordingly, it determined that it would be in the best long-term interest of the Group to raise equity.
+ Financing: page 67
Extensive consideration was given to the most appropriate structure for an equity capital raise, balancing execution
and equity market risks with our strong desire to ensure a share issue respected the pre-emption rights of
shareholders as far as possible.
The Board’s decision to structure the equity capital raising by way of a combination of a Firm Placing, a Placing and
Open Offer and an Offer for Subscription took into account a number of factors. These included the dilution to
shareholders not able, or only partially able, to take part in the Firm Placing, the total net proceeds to be raised and
the advice that the structure provided a lower level of market risk than a rights issue in the then current market
environment which had been impacted by a combination of uncertainties, including Covid-19, the US election and
Brexit. The Board believe that the Firm Placing and excess entitlement facility of the Open Offer has enabled the
Company to satisfy demand from current shareholders wishing to increase their equity in the Company as well as
potential new investors. Furthermore, the Offer for Subscription allowed an opportunity for other potential investors,
including employees and retail investors, to become shareholders in the Company. The Board also sought to balance
the dilution to existing shareholders arising from the Firm Placing and Offer for Subscription with the benefit of
bringing in substantial investors with firm commitments to ensure the success of the capital raise. Shareholder
approval of the arrangement was sought through a number of resolutions at a general meeting to enable the
transaction. The resolutions were passed with a minimum vote in favour of 95.77%.
In undertaking the Firm Placing and Open Offer, we required an independent report for our Prospectus. Whilst we
believed that EY as our auditors were best placed to provide this, we were conscious that the fees might be seen as
an impairment to their independence. We engaged with EY, who consulted with the FRC and obtained clearance in
advance of being appointed to undertake the work.
+ External auditors: page 99
Page 41
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Shaftesbury Annual Report 2020 Strategic report
Our people and
culture
We employ a diverse team of
talented people, united by a
shared ambition to make our
places better for the benefit of
our multiple stakeholders.
Our purpose, culture and values
Our purpose is to curate vibrant and thriving villages in the heart of
London’s West End. At its core is a desire to make great places even
better for the benefit of our stakeholders, through fostering our areas
to provide inspiring experiences for visitors, occupiers and their
customers, and residents.
How we work is just as important as the end result. Our values are
fundamental to our behaviour, decision making and the delivery both of
our purpose and strategic objectives.
Our five core values, set out to the right, guide our behaviours, ways of
working, and demonstrate our commitment to doing the right thing
– for each other, our stakeholders, and our business. They are a critical
part of our success; helping make Shaftesbury a great place to work
and enabling us to deliver on our long-term strategic objectives.
We define our culture as the “Shaftesbury Way”. Our small, diverse
team of talented people are united by a shared ambition to make great
places even better. Aligning with our values, our culture is one of
respecting tradition but bringing innovation, acting with courtesy,
respect and integrity but not being afraid to embrace change, seeking
challenge, trying new things and evolving. We are inclusive, encouraging
difference and welcoming new people, ideas and perspectives to
enable everyone to be themselves, have a voice, and make an impact.
Combining our experience, enthusiasm, culture and values, we seek to
achieve success beyond profit by delivering sustainable long-term
benefits for our stakeholders and people, building a thriving working
culture and making a positive, long-lasting contribution to London’s
West End.
Embedding values across our business
Having consulted with the Shaftesbury team and our key stakeholders,
last year we articulated our purpose and values. This year, our focus has
been on embedding these values in all aspects of our people proposition
and practices. In the summer, we hosted a virtual culture event in July,
taking the opportunity to reconnect as a team, to reflect on what
makes Shaftesbury special and to consider how we “live our values”.
We have recently launched a new performance review process, a key
component of which is regular staff review conversations which include
how our people are demonstrating our values in their everyday work.
Human
• Building relationships based on openness, empathy, trust
and respect – showing genuine interest and care for each
other and those with whom we work.
• We celebrate difference and encourage diversity. A
variety of backgrounds, experiences, characteristics and
preferences leads to wider perspectives, increased
creativity, better decision making and inclusive spaces
where everyone can feel welcome, be themselves, and
reach their potential.
• Outside of our workplace, we promote the diversity agenda,
including gender, ethnicity, social background and orientation.
Original
• We see change as opportunity to arrive at fresh solutions
and better outcomes.
• From finding and nurturing new talent to challenging and
evolving our thinking, we welcome new ideas, approaches
and perspectives and encourage ideas from our people,
business partners and communities.
• This is an important aspect in the 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.
Community minded
• As a responsible, long-term investor in our areas, being a
good neighbour and focusing on local issues is essential.
• Working closely and collaboratively with our communities
and local authorities, we combine our influence and
expertise to address issues and challenges, promote
public realm improvements and create vibrant places.
Responsible
• As long-term custodians of the areas in which we invest,
we hold ourselves accountable to a wide-range of
stakeholders. It is important that we do the right thing, in
the right way, acting responsibly and with integrity.
• We invest in staff well-being and development, cultivate
relationships with our business partners and stakeholders,
holistically curate our villages and behave in a socially-
responsible manner.
Long term
• We take a long-term, holistic approach to our villages.
• From our partnerships and people, to the impact we wish to
make, our decision making is forward-looking; focused on
long-term sustainable benefits rather than short-term gains.
Base line to footnotes and longest copy
Base line to page number
Page 42
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Shaftesbury Annual Report 2020 Strategic report Our people and culture
Strategic People Plan
This was the second year of our Strategic People Plan, which is about
ensuring Shaftesbury continues to be a great place to work, attracting,
growing and retaining the best talent. It is based on five strategic pillars:
Engagement
To understand and drive high levels of employee engagement
Experience
To be recognised for providing a distinctive and positive employee
experience, aligned with our purpose and values
People development and capability
To grow our capability now and for the future
People performance
To develop an active performance culture and practices
Sustainable workforce
To have a more healthy, inclusive and sustainable working environment
Whilst we made good progress across all five of the strategic pillars, the
Covid-19 pandemic required a re-prioritisation of a number of planned
activities. We continue to share progress against our strategic plan with
employees and regularly monitor progress against our roadmap. Key
progress highlights included a reward review and the launch of a new
performance review process to replace annual appraisals.
In the coming year, we plan to:
• Develop a culture of recognition, acting on the feedback from
a project led by the culture group
• Launch an online reward portal to improve access to all
reward information
• Embed the performance review process within the business,
with all individuals having quarterly performance conversations
with their manager
• Learn from our working practices during Covid and apply
the positive outcomes to our future ways of working
Rewarding Performance
As at 30 September 2020, we had 39 employees including the
Executive Directors. Employees receive a basic salary together with a
pension contribution of 17.5% of salary, life and health insurance. All
members of staff who meet certain qualifying conditions are eligible to
participate in our annual and long-term incentive schemes and the
Sharesave Plan.
We remain committed to rewarding performance and to offering highly
competitive packages. Working with Innecto, a reward consultancy, we
reviewed our existing reward package, considering how it aligned with
our desired reward philosophy and different approaches to ensure it is
valued both by employees and the Company. The project considered
the feedback from the all-employee survey, and included employee focus
groups and comprehensive benchmarking against the property market.
The review confirmed that our reward packages are competitive and
are highly valued by all the team, regardless of age or tenure.
As a result of the findings of the project, we will be implementing a
number of changes in the year ahead, including the introduction of
personal objectives as a part of our annual bonus scheme to reward
individual performance, rather than basing bonuses solely on corporate
performance.
Employees
9 years average length of service
33% male
39headcount
67%female
Representation on the Strategy and
Operations Executive Committee
58% male
12members
42%female
Employee engagement
A measure of positive employee engagement is our low levels of
employee turnover. During the year, turnover was only 8%, and, at 30
September 2020, the average length of service was 9 years.
We are committed to gaining regular feedback from our team and to
act on the feedback we receive. As well as pulse surveys on specific
topics throughout the year, we conducted an all-employee survey in
July. The results were positive, indicating high levels of staff satisfaction.
100% of respondents strongly agreed or agreed with the statements:
‘I am proud to work for Shaftesbury’
‘I would recommend Shaftesbury as a great place to work’
The feedback identified some areas for improvement, particularly
around better clarity over the link between individual contribution and
reward, and better recognition and more valuable performance
conversations. We are already taking action to improve these areas.
Our culture group, which comprises a cross section of skills and levels
of experience, is another way we listen to how our employees feel
about working at Shaftesbury. This group was important in developing
our purpose statement and values and they will be playing a key role in
a project in the new financial year to develop a culture of recognition.
Richard Akers, the designated non-executive director for employee
engagement, ensures that the views and interests of the team are
considered in Board discussions and decision making.
Page 43
Shaftesbury Annual Report 2020 Strategic report Our people and culture
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Developing talent for the future
We operate with an outsourced business model, employing a small
team and working with a wider group of external advisors. Developing
our talent for the future is an essential ingredient in our success and,
due to our size, we are able to tailor development to the needs of
individuals. This year saw the completion of our “Leading Self”
programme, a nine month, modular-based leadership development
course for rising talent. We plan to develop phase 2 of the programme
for its participants, whilst introducing a new cohort in the coming year.
Recently, we launched ‘Performance Conversations @ Shaftesbury’,
our new performance review process. Moving away from annual
appraisals, we have introduced a focus on regular and better two-way
performance conversations, which we feel will be more valuable to the
whole team. As part of this, we have provided training for managers and
their reports to ensure eff ective outcomes.
Developing a diverse and inclusive team
We have a clear policy to promote diversity and inclusivity across the
business, recognising that a group that is diverse in nature, irrespective
of visible and non-visible diff erences, backgrounds, gender, experience
and orientation is able to provide diff ering perspectives and challenge.
The passion, expertise, warmth and diversity of our people is vital to
our ongoing success.
We strive for an inclusive culture with a collaborative environment that
is open to diff erent ideas and styles of thinking, where all of our people
feel they can be themselves and contribute to the Company’s success.
Whether someone has been here three days, three months or three
years, we ensure everyone has a voice. We treat everyone with fairness,
respect and openness, and encourage our people to share ideas,
develop their skills and reach their potential. Our commitment extends
to the standards we expect of the businesses with whom we partner
and work.
Diversity is considered at every level of recruitment. All appointments
are made on merit and based on objective criteria. We support
initiatives to promote diversity within the real estate sector. We are a
member of the 30% Club, which is a campaign to achieve a minimum
of 30% representation of women on FTSE 350 boards. 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. In 2019, for the third
year running, Shaftesbury was top of the FTSE 250 in the Hampton-
Alexander review for the highest female representation on the
executive committee and direct reports.
Base line to footnotes and longest copy
Base line to page number
Page 44
Shaftesbury Annual report 2020 Strategic Report Our people and culture
Making a
Our people and culture
positive
Senior leadership team
contribution
to our
employees
We continued to support employees’ well-being
with monthly seminars, run by the FeelGood
Company, covering topics specifi cally targeted at
the challenges people may have been facing
during the pandemic, including nutrition and
optimising immunity, sleep and taking control of
mental and emotional overdrive. We also
encouraged the team to work with fl exible start and
fi nish times. Underpinning our actions, was a
consultative approach where the team provided
their input and feedback; this was particularly the
case as we planned for a socially-distanced return
to the offi ce. In listening to concerns and
perspectives we developed a plan which was
supported by all and accommodated individual
needs and circumstances.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
All our staff have continued to be employed on
their full terms and conditions throughout the
pandemic. Like most businesses, we had to
quickly adjust our working practices to deal with
remote working, and then socially-distanced
wor(cid:734)ing in our o(cid:729)fi ce(cid:673) (cid:714)hilst this has presented
challenges, it has prepared us (cid:729)or fl exible wor(cid:734)ing
once normal life returns.
The well-being of our people has been a key
priority for the Board during this challenging year.
Recognising that keeping everyone connected
was a vital ingredient in managing this period as
effectively as possible, we introduced bi-weekly
all-staff virtual updates and arranged regular
virtual team “huddles” and social events.
Ahead of the return to offi ce
We carried out a comprehensive risk assessment,
following which we introduced:
• a temporary satellite offi ce to provide more
socially-distanced space;
• screens between all work-stations;
• increased cleaning protocols;
• the provision of face masks;
• hand sanitisers at the offi ce entrances and
hands-free taps in washrooms; and
• shared-space protocols.
We also introduced a new working
approach
Based on the ‘bubble’ concept to limit the number
of people working in our offi ces at the same time
and restrict the risk of transmission of the virus
across the team, all employees worked a
combination of days in the offi ce and days at home.
Looking ahead
We are committed to reviewing the various lessons
we have learned from the changes in our approach
during this period and to applying these to improve
our future ways of working.
Page 45
Page 45
Page 45
Page 45
Page 45
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Shaftesbury Annual report 2020 Strategic Report Xxxxx
Shaftesbury Annual report 2020 Strategic Report Xxxxx
Shaftesbury Annual Report 2020 Strategic report Xxxxx
Making a
positive
contribution
to our
community
Seven Dials Community Centre food bank
Shaftesbury has a long-term commitment to London’s
West End and support for its local community is
embedded in our values and strategy
Base line to footnotes and longest copy
Base line to page number
Page 46
Page 46
Shaftesbury Annual report 2020 Strategic Report Xxxxx
Shaftesbury Annual Report 2020 Strategic report Xxxxx
Shaftesbury Annual report 2020 Strategic Report Xxxxx
In addition to our normal work with not-for-
profi t organisations, charities, educational
establishments and other local groups to
make a positive contribution to the people
and communities in our locations, this year,
we created our Covid Community Fund to
support young people and our communities
affected by the pandemic in the boroughs of
Westminster and Camden.
By 30 September 2020, we had provided cash
and funding in-kind through the Covid
Community Fund of over £310,000 to support
18 causes.
+ Community engagement: page 36
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Supporting young people and
education programmes
To help young people across a range of
ages, grants made included:
• the purchase of laptops for the Soho
Parish Primary School to enable children
to continue to learn remotely;
• assisting Young Westminster Foundation
in a transitioning project to help year six
students with the anxiety of moving to
secondary schools, exacerbated by
Covid-19; and
• supporting Westminster Kingsway
College, in its employability enterprise
programme aimed at 14-23 year olds.
Working with another longstanding
community partner, we provided funding to
the House of St Barnabas, a local homeless
charity, to reopen its house and
employment academy with Covid-19
secure measures.
Providing food and shelter
We made grants to the new Covent Garden
Food Bank, created by our longstanding
community partners, the Dragon Hall and
Seven Dials Community Centre, to
purchase equipment and contribute to
running costs to help alleviate food poverty
in the Seven Dials Community. Separately,
we provided funding to the North
Paddington Foodbank, to cover the cost of
hiring temporary refrigeration equipment. In
addition to our normal funding of an
outreach worker, we provided funds to The
Connection, our Westminster based
homeless charity partner, to refi t their
premises to provide a Covid-19 safe
environment for staff and clients.
Aiding well-being
We have provided funding to the
Samaritans for materials to make their
central London branch, in Carnaby,
Covid-19 safe so they could remain open. In
addition to our own monetary contribution,
we were delighted that Blenheim
Construction, the contractors at our 50
Marshall Street and 72 Broadwick Street
schemes, undertook the works required at
no cost. Recognising the widespread
mental health impacts of Covid-19, we
have helped fund the Young Camden
Foundation in their support of local
community organisations safeguarding the
mental health and well-being of children,
young people and youth workers during the
pandemic and its aftermath.
Soho Parish Primary School laptops
Page 47
Page 13
Page 47
Page 13
Street dressing in Seven Dials
Shaftesbury Annual report 2020 Strategic Report Xxxxx
Shaftesbury Annual Report 2020 Strategic report Xxxxx
Shaftesbury Annual report 2020 Strategic Report Xxxxx
Street furniture
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Making a
positive
contribution
to support
our
occupiers
Messaging
Base line to footnotes and longest copy
Bike hubs in Carnaby and Seven Dials
Al fresco seating in Soho
Base line to page number
Page 48
Page 48
Page 48
Page 48
Street dressing in Seven Dials
Shaftesbury Annual Report 2020 Strategic report Xxxxx
We believe that the West End, one of the world’s great destinations,
will weather this unprecedented period; its recovery is not a
question of “If” but “When”. Our priority is to support our
occupiers until that recovery is established.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Shaftesbury Annual report 2020 Strategic Report Xxxxx
Street dressing in
Seven Dials
Virtual villages
We brought to life our villages virtually, with
a programme of unique digital content to
entertain, educate and inform people while
they were unable to visit the villages in
person.
Street closures and communal
seating
We have worked with Westminster and
Camden councils to identify and
implement additional road space that can
be used for both outdoor seating and
pedestrians, providing additional trading
capacity for our hospitality businesses and
more space for pedestrians to maintain
social distancing. In addition, we have
installed communal tables and seating to
provide socially-distanced outdoor
amenity for visitors.
Safety and confi dence
Across our villages, we have introduced
social distancing messaging and hand
sanitiser stations as well as providing cycle
parking hubs, to give visitors confi dence
and reassurance to return to our villages.
Street dressing in Seven Dials,
Carnaby and Chinatown
We dressed our villages and provided
on-street activity to welcome back visitors.
Lobbying
We have collaborated with local
stakeholders and partners on campaigns
to support the West End’s post-pandemic
recovery including lobbying for extending
short-term business rates relief and
long-term reform, reversing the
Government’s decision to abolish tax-free
shopping, and funding arrangements for
London & Partners.
Page 49
Page 49
Page 49
Page 49
We are committed to supporting
our commercial occupiers and
residents through this period of
unprecedented upheaval in normal
patterns of life and business
activit(cid:748)(cid:673) (cid:692)longside fi nancial
support, we have put in place a
number of practical measures.
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Shaftesbury Annual Report 2020 Strategic report Xxxxx
Making a
positive
contribution
to the
environment
We are committed to having a positive impact on the local
environment, from protecting and improving our heritage
buildings to bringing wildlife back to the city.
Base line to footnotes and longest copy
Base line to page number
Page 50
Page 50
Page 50
Page 34
Page 50
Shaftesbury Annual Report 2020 Strategic report Xxxxx
22 Ganton Street roof terrace
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Increasing biodiversity
Increasing biodiversity
Since 2016, we have increased the
Since 2016, we have increased the
area of biodiverse green space on
area of biodiverse green space on
our estate by 70%, providing valuable
our estate by 70%, providing valuable
habitat for a wide variety of species.
habitat for a wide variety of species.
We now have more than 6,000m2 of
We now have more than 6,000ft2 of
green roofs, 124 planters, more than
green roofs, 124 planters, 1,245
1,200 window boxes and 5 bee hives
window boxes and 5 bee hives
across the portfolio.
across the portfolio.
We continue our partner with other
We continue to partner with other
local landowners through the award
local landowners through the award
winning Wild West End initiative.
winning Wild West End initiative.
Reducing carbon emissions
Reducing carbon emissions
By extending the useful life of our
By extending the useful life of our
heritage buildings, we improve their
heritage buildings, we improve their
energy efficiency whilst avoiding
energy efficiency whilst avoiding
carbon emissions associated with
carbon emissions associated with
new construction. We are continuing
new construction. We are continuing
to reduce carbon emissions from our
to reduce carbon emissions from our
own operations and where we
own operations and where we
purchase electricity, we do so from
purchase electricity, we do so from
renewable sources.
renewable sources.
Reducing waste
Reducing waste
We retain as much of our buildings
We retain as much of our buildings
as possible during refurbishment
as possible during refurbishment
projects. In 2020 we achieved 85%
projects. In 2020 we achieved 85%
retention of primary structure and
retention of primary structure and
façade. Across our Carnaby estate
façade. Across our Carnaby estate
we are also working in partnership
we are also working in partnership
with our occupiers to reduce the
with our occupiers to reduce the
volume of single-use plastic and
volume of single use plastic and
promote sustainable consumption
promote sustainable consumption
through the Blue Turtle scheme.
through the Blue Turtle scheme.
Improving air quality
Improving air quality
We are working to reduce the
We are working to reduce the
number of polluting vehicles in the
number of polluting vehicles in the
West End by supporting schemes to
West End by supporting schemes to
consolidate deliveries, encouraging
consolidate deliveries, encouraging
walking and providing facilities for
walking and providing facilities for
cyclists.
cyclists.
Improving the local environment
Improving the local environment
is not just good for biodiversity,
is not just good for biodiversity,
it is also good for business,
it is also good for business,
helping to create an attractive
helping to create an attractive
place that supports peoples’
place that supports peoples’
health and wellbeing whilst
health and well-being whilst
helping to reduce the impacts
helping to reduce the impacts
of climate change.
of climate change.
Green roof and planters
Caption for photo
Caption for photo
Pollinator friendly window boxes
Page 51
Page 51
Shaftesbury Annual Report 2020 Strategic report Our people and culture
Shaftesbury Annual report 2020 Strategic Report Our people and culture
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Making a
positive
contribution
+
Base line to footnotes and longest copy
Base line to page number
Page 52
Shaftesbury Annual Report 2020 Strategic report Our people and culture
Our people and culture
Strategy and Operations Executive
Committee
The Strategy and Operations Executive comprises the executive directors
and the senior leadership team.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Julia Wilkinson
Restaurant Director
Date joined Shaftesbury
1997
Responsibilities
Group restaurant and leisure
strategy and leasing.
Committee memberships
Operations Committee
Desna Martin
Company Secretary
Date joined Shaftesbury
2020
Responsibilities
Leads on corporate governance
within the Group and advising the
Board. Company Secretary for the
Longmartin joint venture.
Other committee memberships
Operations Committee
Risk Committee
Disclosure Committee
Community Investment Committee
Pension Committee
Charles Owen
Property Director
Date joined Shaftesbury
2012
Responsibilities
Asset management of Covent
Garden and a member of the
Longmartin joint venture
Management Committee.
Committee memberships
Operations Committee
Risk Committee
Sustainability Committee
Community Investment Committee
Karen Baines
Head of Group
Marketing &
Communications
Date joined Shaftesbury
2016
Responsibilities
Group-wide strategic marketing
and PR for consumer, trade and
corporate communications.
Committee memberships
Operations Committee
Community Investment Committee
Andrew Price
Property Director
Date joined Shaftesbury
2001
Responsibilities
Group-wide acquisitions strategy
and asset management of
Chinatown and Soho.
Committee memberships
Operations Committee
Risk Committee
Community Investment Committee
(Chair)
Pension Committee
Sam Bain-Mollison
Retail Director
Date joined Shaftesbury
2011
Responsibilities
Group retail strategy and leasing.
Other committee memberships
Operations Committee
Jenna Slade
Senior Portfolio Executive
Date joined Shaftesbury
2019
Responsibilities
Asset management of
Carnaby and Fitzrovia.
Committee memberships
Operations Committee
Risk Committee
Alastair Deutsch
Head of Finance
Date joined Shaftesbury
2020
Responsibilities
Financial planning and analysis,
strategic commercial insights,
treasury, tax, investor relations and
IT.
Committee memberships
Operations Committee
Risk Committee
IT Committee
Page 53
Shaftesbury Annual Report 2020 Strategic report Our people and culture
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Our people and culture
Our Board
Executive directors
Chris Ward
Finance Director
Date appointed to the Board
January 2012
Independent: No
Key strengths and experience
• a chartered accountant
• has financial and real estate
experience, which contribute to
the Group’s strategy.
Prior to joining Shaftesbury, Chris
was Finance Director of the UK and
Nordic countries for Redevco for
nine years.
Chris is responsible for financial
accounting, tax and IT matters.
Committee memberships:
Strategic and Operations
Executive Committee
Risk Committee (Chair)
Disclosure Committee
Pension Committee (Chair)
IT Committee (Chair)
Simon Quayle
Executive Director
Date appointed to the Board
October 1997
Independent: No
Key strengths and experience
• a chartered surveyor
• long tenure with Shaftesbury
• knowledge of the West End
Tom Welton
Executive Director
Date appointed to the Board
October 1997
Independent: No
Key strengths and experience
• a chartered surveyor
• long tenure with Shaftesbury
• commercial experience and
property market which provides
valuable knowledge and insight to
our villages and strategy
knowledge of the Group and West
End property market provide value
to our villages and strategy
Simon joined Shaftesbury in 1987
and was appointed as Property
Director in 1997.
Simon is responsible for the asset
management and operational
strategy in Carnaby, Soho and
Fitzrovia.
Committee memberships:
Strategic and Operations Executive
Committee
Operations Committee
Sustainability Committee
Current external appointments
Member of the Strategy Board
for ZSL.
Tom joined Shaftesbury in 1989 and
was appointed as Property Director
in 1997.
Tom is responsible for the asset
management and operational
strategy in Covent Garden and
Chinatown.
Committee memberships:
Strategic and Operations Executive
Committee
Operations Committee
Current external appointments
Director of Longmartin Properties
Limited.
Brian Bickell
Chief Executive
Date appointed to the Board
July 1987
Independent: No
Key strengths and experience
• a chartered accountant
• long tenure with Shaftesbury
• extensive experience within the
property sector
• proven record of driving strategy,
delivering success and setting an
open and transparent culture
Brian joined Shaftesbury in 1986 and
was appointed Finance Director in
1987. Brian was later appointed as
Chief Executive in 2011.
Brian is responsible for implementing
the Shaftesbury strategy and the
day-to-day operations of the Group.
Committee memberships:
Strategic and Operations Executive
Committee (Chair)
Risk Committee
Disclosure Committee
Sustainability Committee (Chair)
Pension Committee
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.
Base line to footnotes and longest copy
Base line to page number
Page 54
Shaftesbury Annual Report 2020 Strategic report Our people and culture
Non-executive directors
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
4 Sally Walden N A R
Non-executive director
Date appointed to the Board
October 2012
Independent: Yes
Key strengths and experience
• provides knowledge and insight
into remuneration, financial
markets and fund management.
Sally held senior fund management
roles in Fidelity International from
1984 to 2009.
Current external appointments
Trustee of the Fidelity Foundation
and director of the Pantry Partnership
5 Jennelle Tilling N A R
Non-executive director
Date appointed to the Board
January 2019
Independent: Yes
Key strengths and experience
• Fellow of The Marketing Society
• over 25 years’ experience of
consumer marketing, digital and
innovation within food retail
brands, which complements the
skills on the Board
Jennelle held a variety of senior
marketing roles for over 17 years at
Yum! Restaurants, and is the
Founder and Chief Brand Strategist
at Marketing with Insight.
Current external appointments
Non-executive director of Camelot
and non-executive director of
Butchies and Trustee for Guide Dogs
to the Blind.
2 Richard Akers N A R
Senior Independent
Director
Date appointed to the Board
November 2017
Independent: Yes
Key strengths and experience
• a chartered surveyor
• provides a broad range of real
estate knowledge and experience
at board level.
Prior to joining Shaftesbury, 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 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.
3 Dermot Mathias N A R
Non-executive director
Date appointed to the Board
October 2012
Will retire from the Board in
February 2021
Independent Yes
Key strengths and experience
• a chartered accountant
• provides recent and relevant
financial experience to the board
and the audit committee
• extensive experience in leadership
and management
Prior to joining Shaftesbury, Dermot
was a partner in the corporate
finance 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.
Current external appointments
Non-executive director, senior
independent director and chairman
of the audit committee of JTC PLC,
governor and vice chair of Activate
Learning Education Trust.
2
4
1 Jonathan Nicholls N
Chairman of the Board
Date appointed to the Board
September 2016
Independent: Yes on appointment
to the Board
Key strengths and experience
• over 21 years’ experience of public
company boards and their
operations
• over 22 years’ of experience within
the property sector
Jonathan was finance director of
Hanson plc between 1998 and 2006,
and of Old Mutual plc between 2006
and 2008.
Jonathan has been a 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.
Current external appointments
Chairman of Ibstock plc
Page 55
1
3
5
Key to Committee Membership
N Nomination Committee
A Audit Committee
R Remuneration Committee
Committee Chair
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Shaftesbury Annual Report 2020 Strategic report
Portfolio valuation report
Covid-19 has had a signifi cant impact on our valuations this year.
Reduced footfall, consequential occupier operational and fi nancial
challenges, increased vacancy across the West End, and other
uncertainties have resulted in pressure on rental values and
increased yields. The 18.3% valuation decrease in the wholly-owned
portfolio has largely occurred since the beginning of March 2020.
Presentation of Longmartin joint venture
information
Our property interests are a combination of the wholly-owned
portfolio and a 50% share of property held in the Longmartin joint
venture. The fi nancial statements, prepared under IFRS, include our
interest in this joint venture as one-line items in the Income Statement
and Balance Sheet.
In previous years, our narrative has presented the combined portfolio
valuation analysis and the fi nance position on a proportionally
consolidated basis. However, we now consider that it is appropriate to
separately report Longmartin’s activity, valuation and capital structure.
We believe this presentation provides a clearer analysis and is
consistent with the fi nancial statements.
Wholly-owned portfolio
At 30 September 2020, our portfolio was valued at £3.1 billion. On a
like-for-like basis, the valuation declined by 18.3%, principally due to
uncertainties resulting from Covid-19. After allowing for capital
expenditure, the revaluation defi cit was £698.5 million.
Whilst we saw some improvement in both the occupational and
investment markets following the UK general election in December
2019, this started to decline from early February 2020 amid growing
Covid-19 fears. Since then, Government restrictions have had a material
eff ect on trading conditions for all consumer-facing, footfall-reliant
businesses, which are inevitably cash-fl ow sensitive, leading to
near-term uncertainty, lower occupier demand, pressure on rents and
increased vacancy.
+ Portfolio activity report: page 59
The valuation decline during the year was driven by an increase in the
portfolio equivalent yield of 48 basis points to 3.95% (2019: 3.47%),
refl ecting:
• increased valuation yields applied to food, beverage, leisure and retail
uses, and selected offi ces. Reducing values by around £371 million,
this refl ected investor sentiment given Covid-19 economic
uncertainties;
• a reduction of 6.6% in ERVs across the portfolio, equating to a
decrease in valuation of approximately £195 million. This was largely
driven by increased vacancy levels across the West End and reduced
near-term occupier demand, which are consequences of operational
challenges arising from the pandemic;
• a reduction in the valuation of our apartments of between 7.5% and
10%, equating to approximately £48 million. This refl ected increased
near-term availability of residential space for rent in the West End
which has led to more buy-to-let investor caution with an associated
increase in required returns to refl ect current uncertainty; and
• the valuer’s estimate of the short-term income impact of rental
support likely to be granted to occupiers as a result of the pandemic
and reduced occupancy, equating to a valuation decrease of
approximately £57 million.
Wholly owned portfolio valuation
Carnaby
Covent Garden
Chinatown
Soho
Fitzrovia
2019
Valuation
£m
Annualised current
income
£m
1,212.3
840.8
700.6
258.7
125.0
3,137.4
3,784.2
41.7
28.8
24.7
10.4
4.3
109.9
117.1
ERV
£m
58.0
35.4
30.1
11.3
5.5
140.3
149.7
Valuation growth1
%
Topped-up net
initial yield
%
(17.0)%
(19.5)%
(17.8)%
(21.2)%
(18.5)%
(18.3)%
(0.2)%
3.1%
3.0%
3.2%
3.6%
2.9%
3.1%
2.9%
Equivalent yield
Change2
+54bps
+34bps
+43bps
+39bps
+37bps
+48bps
%
4.2%
3.6%
3.8%
3.8%
3.8%
3.9%
3.5%
Base line to footnotes and longest copy
Base line to page number
1. Like-for-like. Alternative performance measure. See page 156.
2. Expressed in basis points.
Page 56
Shaftesbury Annual Report 2020 Strategic report Portfolio valuation report
Valuation movements (£m)
3,784
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
(371)
(195)
(48)
(57)
24
3,137
2019
Yield
ERV
Residential
Short-term cash
fl ow impact
Acquisitions and
capex impact
2020
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.
Covid-19 impact on contracted rental
income and ERV
Our strategy has delivered sustained growth in annualised current
income and rental values over many years. However, since early March
2020, Covid-19 has had a negative impact on both. The chart below
demonstrates the resilience displayed by the wholly-owned portfolio
during the global fi nancial crisis and the impact to date of the Covid-19
pandemic.
Annualised current income
During the year, annualised current income fell by 6.1% to £109.9 million
(2019: £117.1 million). On a like-for-like basis, before the impact of
acquisitions in the year, the decline was 6.4%. This decrease occurred
since 31 March 2020, when annualised current income totalled £117.7
million, and largely refl ects increased EPRA vacancy.
+ Portfolio activity report: page 59
ERV
A key output from our strategy is long-term growth in rents and ERVs.
Through our leasing activity, previously assessed rental potential is
typically converted into contracted rents, whilst establishing new rental
levels, which provide evidence both for future leasing negotiations and
for the valuers when assessing ERVs. Typically, our portfolio’s
reversionary potential is converted into contracted rent over three
to fi ve years.
Over the ten years to 30 September 2019, the wholly-owned portfolio
delivered like-for-like compound annual growth in ERV of 4.7%. However,
this year, the portfolio’s ERV decreased on a like-for-like basis by 6.6%
to £140.3 million (2019: £149.7 million), refl ecting pressure on rents as a
result of higher availability of space across the West End together with
ongoing operational and fi nancial challenges faced by our occupiers.
This was particularly the case for retail and food, beverage and leisure,
where ERVs declined on average by 10.7% and 6.9% respectively.
Offi ce ERVs declined by 1.7%.
+ Covid-19: impact and response: page 6
Long-term progression in ERVs and contracted rents
Annualised current income (£m)
ERV (£m)
h
t
w
o
r
g
V
R
E
L
-
f
-
L
V
R
E
d
n
a
e
m
o
c
n
i
d
e
t
c
a
r
t
n
o
C
7.4%
4.8%
GFC
-3.9%
1.6%
6.1%
6.0%
4.3%
6.4%
6.8%
6.4%
3.4%
2.6%
3.2%
Covid
-6.6%
55
55
73
59
72
62
77
67
110
119
129
134
144
150
140
28%
93
98
85
74
76
80
86
95
101
105
113
117
110
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Page 57
Shaftesbury Annual Report 2020 Strategic report Portfolio valuation report
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Reversion components (£m)
4.2
% of ERV
3.0%
109.9
L-f-L
-6.4%
14.4
-2.5
14.3
10.2%
10.1%
-1.8%
140.3
L-f-L
-6.6%
Annualised current
income
Contracted income
EPRA vacancy
+ Page 60
Asset management
schemes
+ Page 61
Over-rented leases
ERV
At 30 September, the portfolio’s ERV was 27.7% above annualised
current income. The components of the reversion are set out in the
chart above. Typically, our portfolio has a long history of being under
rented. However, following the decrease in ERVs in the year, our valuers
estimate that let accommodation is currently over-rented by £2.5
million in total. Depending on the path and pace of recovery, further
pressure on ERVs would increase the over-rented element of our
portfolio until such time as vacant space across the West End has
been absorbed.
Longmartin valuation
In the narrative below, all fi gures (except areas) represent our 50% share.
During the year Longmartin’s long leasehold property decreased on
a like-for-like basis by 16.9% from £209 million to £175 million. The
revaluation defi cit, after capital expenditure, was £35.8 million, following
a 12.0% decline in ERVs to £8.8 million (2019: £10 million) and an
increase in equivalent yield of 17 basis points to 4.11% (2019: 3.94%). At
30 September 2020, annualised current income was £6.2 million, down
17.3% during the year (2019: £7.5 million).
The valuation decline was driven by retail and food & beverage, which
decreased by 40.1%, and 17.4% respectively.
Retail
Retail values decreased on a like-for-like basis during the year by 40.1%
to £41.9 million (2019: £70.0 million). In contrast to the Group’s
wholly-owned shops, Longmartin’s retail space predominantly
comprises large units on Long Acre, a street with relatively high overall
rents, for which occupier demand continues to decline. Together with
general uncertainty and further pressure on rents as a result of
Covid-19, this has led to an increase in Long Acre retail equivalent yields
of 50 basis points during the year, and further reductions in ERVs.
Food & beverage
During the year, the valuation of Longmartin’s food & beverage
accommodation decreased by 17.4% from £38.1 million to £31.5 million.
This decrease was driven by an increase in equivalent yield of 51 basis
points and a decrease in ERV, recognising existing vacant space in St
Martin’s Courtyard, following a scheme to create three restaurants, and
disruption to the supply and demand balance caused by near-term
food and beverage vacancy in the immediate surrounding area as
a result of Covid-19.
Residential and offi ces
The valuation of Longmartin’s apartments decreased by 6.5% to £28.1
million (2019: £30.1 million), refl ecting a near-term increase in the
availability of space and slowing of the investment market. The offi ces
valuation increased by 3.7% to £73.5 million (2019: £70.9 million)
following ERV growth of 3.2% and equivalent yield compression
of two basis points to 4.21% (30 September 2019: 4.23%).
Valuation outlook
We expect that the valuation of both the wholly-owned portfolio and
Longmartin’s property are likely to experience downward pressure in
the near term. This is predominantly due to the growing availability of
space across the West End and the continued impact of Covid-19
containment measures aff ecting trading conditions for retail, food,
beverage and leisure businesses, with the risk of further declines if the
current market outlook worsens. The pace of pandemic recovery will
be important in the extent and duration of downward pressure on
valuations.
+ Covid-19: impact and response: page 6
Base line to footnotes and longest copy
Base line to page number
Page 58
Shaftesbury Annual Report 2020 Strategic report
Portfolio activity report
Following a largely “business as usual” first half of our financial year,
the Covid-19 pandemic had a significant impact on our business
during the second half, resulting in reduced rent collections,
increased vacancy and reduced occupier demand.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Rent collection
Our key priority has been, and continues to be, supporting our
occupiers through the period of pandemic disruption (pages 7 to 8). A
significant element of this support has been through rent concessions,
often by way of waivers, deferrals and introduction of further lease
flexibility including short-term turnover-related rents. In some cases,
our concessions have provided the opportunity to restructure leases.
Furthermore, we have drawn on tenant rent deposits to part settle
their arrears and are not requiring these deposits to be topped-up.
In order to provide certainty for our food, beverage and retail
businesses, our discussions and agreements with them initially focused
on the six months to 30 September 2020. From 1 October 2020, we
commenced providing commercial occupiers with the option to pay
rent and service charges monthly rather than quarterly in advance, in
order to help align our revenue collection with their cash flows. With
England entering a second national lockdown on 5 November 2020,
rent collections since 30 September 2020 have been further reduced
and additional waivers have been granted.
Contracted rent and rent collection since the first UK
Covid-19 lockdown1
Collected
Deferred
Waived
Outstanding
Total contracted
6 months to 30
September 2020
%
£m
2 months to 30
November 2020
%
£m
30.3
5.2
14.3
7.3
57.1
53%
9%
25%
13%
6.9
-
7.4
4.3
18.6
37%
-
40%
23%
By 30 November 2020, we had collected 53% of contracted rent for
the six months to 30 September 2020, of which drawings against rent
deposits accounted for £6.8 million (12% of contracted rent). At 30
September 2020, we continued to hold rent deposits totalling £14.3
million (2019: £20.7 million). 34% of contracted rent had been waived or
deferred and 13% remained outstanding.
Rent collections for the two months to 30 November 2020, a period
which included the second lockdown, were 37%, of which rent deposits
accounted for £0.2 million (1% of contracted rent). 40% of rent has
been waived and 23% remained outstanding.
The eventual recovery of amounts deferred or outstanding will depend
on tenants’ ability to meet these commitments. This will be influenced
by pandemic-related factors which continue to affect the future
viability of their businesses.
Rent collection rates have varied by use, with residential and office
collections being higher than those for food, beverage and retail
businesses which inevitably are more footfall reliant.
% of contracted income collected1
6 months to 30 September 2020
2 months to 30 November 2020
£9.5m
54%
£7.5m
79%
£1.8m
31%
£2.1m
70%
£5.9m
83%
£1.5m
88%
Retail
Offices
Residential
£7.4m
33%
£1.5m
19%
Food,
beverage
& leisure
Looking ahead, our rental and service charge support is likely to continue
through 2021, with our occupiers having reduced income in the
important period leading up to Christmas and into the New Year, which
traditionally has provided them with liquidity buffers to withstand the
normally slower quarter to March. The eventual return to more-normal
rent collection levels will be highly correlated to the recovery in footfall.
Leasing and occupier demand
The decisive outcome of the December 2019 general election, and
clarity regarding the UK’s exit from the EU, brought welcome signs of an
improvement in business confidence and investment, as well as
consumer activity. Our occupiers reported good footfall and spending
in our locations in the important trading period over Christmas and the
New Year, and in the early weeks of 2020, enquiries to lease space
grew, and the availability of potential acquisitions picked up.
From early February 2020, growing reports regarding the rapid spread
of the Covid-19 virus began to impact leasing activity and lower leasing
volumes have continued since March 2020.
During the year, we concluded leasing transactions with a rental value
of £23.6 million, 30% lower than the volume in 2019. The decrease in
commercial letting activity was particularly noticeable in the second
half of the financial year.
Letting activity during the year
2020
2019
H1
£m
9.3
3.5
12.8
2.2
15.0
H2
£m
2.1
2.7
4.8
3.8
8.6
£m
11.4
6.2
17.6
6.0
23.6
Commercial
Lettings and renewals
Rent reviews
Residential
1. As at 30 November 2020
£m
Change
15.6
10.6
26.2
7.3
33.5
(27)%
(42)%
(33)%
(18)%
(30)%
Page 59
Shaftesbury Annual Report 2020 Strategic report Portfolio activity report
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
The uncertain outlook for the national economy and consumer
spending is having a significant impact on business confidence and
investment, which is unlikely to improve materially until pandemic
concerns abate. Retailers, particularly those exposed to structural
changes in shopping habits nationally and internationally, which were
clearly evident before the onset of the pandemic, have been
accelerating their review of space requirements, both in terms of
location and size of shops. Similarly, over-extended food and beverage
chains continue to retrench their operations to focus only on the most
profitable locations and sites.
We have seen encouraging letting interest in recent weeks, with
potential occupiers attracted by the curation of our normally buoyant
and prosperous villages, with relatively affordable rents. Generally,
businesses remain cautious in taking on rental and capital expenditure
commitments and occupiers are looking for greater flexibility when
entering into new leases, including rent suspension in the event of
further lockdowns. In the case of food, beverage, leisure and retail
premises, a higher specification of landlords’ basic fit out, rather than
taking space in shell condition, is becoming standard market practice.
We are now providing fully fitted-out space in some of our office
schemes. We expect the demand for further lease flexibility to be
prevalent until the West End fully recovers from the pandemic.
Occupancy
Although the West End has a long-term availability/demand imbalance,
we have seen a decline in portfolio occupancy during the year.
Compared with the 10-year pre-Covid-19 average of 2.9%, EPRA
vacancy rose to 10.2% during the year, with the majority of the increase
since March 2020.
Affecting all uses, this was largely due to the impact of the Covid-19
pandemic, including the significant reduction in letting activity since
February 2020, completion of refurbishment schemes, space handed
back by commercial tenants and an exceptional increase in vacant
apartments.
EPRA vacancy history
Underlying
Larger schemes
Tenant insolvencies since the lockdown in March 2020 accounted for
approximately 2% of ERV.
EPRA vacancy at 30 September 2020
Food,
beverage
and leisure
£m
Shops
£m
Offices
£m
Residen-
tial
£m
Under offer
Available-to-let
2019
Area (’000 sq. ft.)
2020
2019
0.9
2.6
3.5
1.4
47
16
0.4
4.1
4.5
3.2
45
46
0.2
2.3
2.5
0.8
40
12
0.2
3.7
3.9
0.1
72
1
Total
£m
1.7
12.7
14.4
5.5
204
75
% of total ERV
2020
%
1.1%
9.1%
10.2%
2019
%
1.8%
1.9%
3.7%
Commercial vacancy
At 30 September 2020, commercial EPRA vacancy comprised:
• 22 restaurants and cafés (47,000 sq. ft.): total ERV of £3.5 million;
• 35 shops (45,000 sq. ft.): total ERV of £4.5 million;
- 9 were larger shops (ERV > £150,000): total ERV of £2.7 million; and,
- 26 were smaller shops: total ERV of £1.8 million; and
• 45 office suites (40,000 sq. ft.): total ERV of £2.5 million.
Pre-Covid:
10 year
quarterly
average
2.9%
1.6%
2.9%
3.2%
2.7%
2.3%
1.6%
1.6%
6.0%
3.5%
2.5%
4.6%
1.9%
2.7%
3.7%
0.5%
3.2%
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Base line to footnotes and longest copy
Base line to page number
Page 60
Covid:
+7.3% vs
10 year
average
10.2%
0.3%
9.9%
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Shaftesbury Annual Report 2020 Strategic report Portfolio activity report
Residential vacancy
Residential vacancy, which prior to the pandemic had typically been
minimal, was unusually high at 137 apartments with an ERV of £3.9
million at 30 September 2020. This large increase in the second half of
our financial year was mainly due to occupiers from overseas returning
home when Government restrictions were introduced, and the collapse
in demand from long-stay international business and leisure travellers.
Across the West End, many landlords who would usually let their flats
short-term or let to serviced apartment operators have been
attempting to find long-term tenants. This has resulted in a near-term
increase in availability of apartments to let, causing downward pressure
on rents. Given the long-term structural shortage of accommodation in
the West End, we believe that this is a short-term challenge in respect
of our residential portfolio.
Occupancy outlook
By 30 November 2020, EPRA vacancy had risen further to 12% of ERV.
We expect near-term EPRA vacancy to increase through a combination
of occupiers suffering further operational and financial challenges,
occupier demand remaining subdued until there is a sustained recovery
in footfall, spending and business confidence, and the completion of
schemes currently in progress. This will, inevitably, weigh on near-term
rental levels across the West End. However, we are confident that our
historically popular areas will continue to be destinations of choice for
potential occupiers as recovery gets underway.
(cid:709)e(cid:729)(cid:744)(cid:741)(cid:725)ishment(cid:671) (cid:741)econfi(cid:730)(cid:744)(cid:741)ation an(cid:727)
redevelopment schemes
A key aspect of our asset management strategy is to carefully manage,
re-use and adapt our portfolio of mostly smaller, mixed-use buildings.
Through refurbishment, reconfiguration and change of use, we improve
our assets by:
• adapting our accommodation to meet current occupier requirements
and anticipate market trends;
• extending their useful economic lives;
• improving income and rental prospects; and
• enhancing environmental performance.
Our schemes mostly are not capital intensive and take a relatively short
time. Consequently, capital expenditure is modest, usually less than 1%
of the portfolio value each year, an important factor in long-term
shareholder value creation.
Capital expenditure during the year totalled £34.8 million, representing
1.1% of wholly-owned portfolio value. This included our project at 72
Broadwick Street, Carnaby.
At 30 September 2020, vacant space held for, or under, refurbishment
extended to 200,000 sq. ft., and represented 10.1% of total ERV, down
from 10.4% a year ago.
Space held for or undergoing refurbishment at
30 September 2020
Food,
beverage
and leisure
£m
Shops
£m
Offices
£m
Residen-
tial
£m
72 Broadwick Street
Other schemes
2019
Area (’000 sq. ft.)
2020
2019
3.4
1.1
4.5
5.4
63
73
0.4
1.8
2.2
2.8
22
27
1.5
4.7
6.2
5.5
85
77
0.6
0.8
1.4
1.8
30
36
Total
£m
5.9
8.4
14.3
15.5
200
213
% of total ERV
2020
%
4.1%
6.0%
10.1%
2019
%
4.1%
6.3%
10.4%
72 Broadwick Street, Carnaby
Works continue on our 77,000 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.
Of the repurposed and upgraded commercial accommodation, 48% by
ERV is conditionally pre-let to Equinox, an American fitness and lifestyle
brand. The office space is no longer under offer.
Whilst site activity was suspended in March and April, due to lockdown
restrictions, good progress is being made. The estimated overall
scheme cost is now £35.7 million, of which £14.3 million had been
incurred by 30 September 2020. We currently anticipate completion in
phases from Summer 2021.
Other schemes
At 30 September 2020, we had 57 other schemes underway, extending
to 123,000 sq. ft. and with an ERV of £8.4 million (6.0% of ERV). These
included 17,000 sq. ft. of food and beverage space, 19,000 sq. ft. of
retail, 67,500 sq. ft. of office accommodation and 32 apartments.
Projects with an ERV of £5.1 million are anticipated to complete by 31
March 2021, and are likely to increase near-term EPRA vacancy,
although will provide a useful contribution to income and earnings over
the medium term.
Largest other schemes by cost
Scheme
Description
50 Marshall Street,
Carnaby
45/49 Charing Cross
Road, Chinatown
16-20 Short’s Gardens,
Seven Dials
Creation of retail unit;
refurbishment/extension of
office space
Reconfiguration and
extension to provide new
flagship restaurant space
and five apartments at this
gateway to Chinatown
Office reconfiguration and
refurbishment
Estimated
cost
£m
Cost to
complete
£m
Estimated
completion
5.1
4.0
0.7
Q1 2021
0.2
Q1 2021
2.2
0.4
Q2 2021
Page 61
Main heading and baseline of body copy
without heading
Second line of main heading and baseline
for copy with main heading
Baseline of copy with two line heading
Shaftesbury Annual Report 2020 Strategic report Portfolio activity report
Public realm improvements
London Borough of Camden’s works to improve the northern entrance
to Seven Dials on Shaftesbury Avenue are now substantially complete.
This now provides a crossing directly on the main walking route
between Seven Dials and Tottenham Court Road station, which should
increase footfall into Monmouth Street and Neal Street once the
Elizabeth Line opens.
Improvements to Rupert Street, south of Shaftesbury Avenue, have
now completed, doubling pavement space and providing the
opportunity for al fresco dining.
In Seven Dials, a Covid-related trial by Camden Council has removed
all traffic from Seven Dials from 10am until 6pm, and will be in place
until September 2021, after which a permanent traffic reduction
scheme could be put in place, subject to public consultation.
We have commenced working on the concept designs for the space
to the side of 72 Broadwick Street, with a view to removing traffic and
providing a new public space with flexible seating and greening at this
important entrance into Carnaby.
We continue discussions with both Westminster City Council and the
London Borough of Camden on how our food and beverage businesses
can access more outdoor space, particularly in light of social distancing
measures.
Looking ahead to the coming year
At any one time, we have schemes at various stages, from initial ideas,
seeking planning approval, awaiting vacant possession or under
construction. Over recent years, we have often sought to secure
vacant possession of space where we could improve long-term income
prospects through reconfiguration and change of use schemes. Until
the operating environment improves, we will focus on protecting
existing income and preserving liquidity and new schemes will only
be considered where there is a compelling case.
Most of our current schemes will complete in 2021. In line with our
strategy, we will continue to reconfigure buildings to meet changing
occupier demands. This is particularly so for shops where we anticipate
further downsizing of our bigger units, where appropriate, and, where
space is released, introducing other uses.
With growing food, beverage and retail vacancy across the wider West
End, it is likely that availability of space to let will exceed occupier
demand for some time after the pandemic recovery starts. Whilst we
believe our areas will continue to be seen as “best in class”, in the short
term, we expect to have to invest in elements of fit out in our vacant
units to maximise their letting prospects.
Longmartin asset management
In the following narrative, all figures (except areas) represent our 50%
share.
For the six months to 30 September 2020, 81% of contracted rent has
been collected to date. 16% has been waived and 3% remains
outstanding. For the quarter to December 2020, 70% of rent has been
collected so far. The higher relative collection rate, compared with that
for the wholly-owned portfolio, mainly reflects the higher proportion
of offices and larger international retail in Longmartin.
During the year, lettings and rent reviews with a rental value of £1.6
million were concluded (2019: £1.4 million).
At 30 September 2020, the ERV of Longmartin’s vacant space was
£1.1 million (2019: £0.9 million) and there was space with an ERV of
£0.1 million under refurbishment. Capital expenditure in the year
was £1.6 million.
Acquisitions and disposals
Adding to our portfolio
We take a long-term view in our investment strategy. When seeking out
new acquisitions, we adopt a disciplined approach, focusing on buildings:
• on busy streets in areas close to West End landmarks where, as a
consequence of fragmented ownership and lack of strategic curation
and investment, rental tones are significantly lower than nearby prime
locations; and
• which add to existing or emerging clusters of ownerships where we
can, over time, compound the benefits of our activities to deliver
long-term growth in rental and capital values through our holistic
management strategies.
We have a preference for adaptable and often period buildings which
either have, or have the potential for, a predominance of food,
beverage, retail or leisure uses on the lower floors. In the West End,
these uses have a long history of occupier demand exceeding
availability, underpinning their growth prospects.
With our focused acquisition strategy to establish and extend long-term
ownership clusters, disposals are rare. However, we keep the portfolio
under review to identify and sell individual buildings which, through
change of circumstances, are no longer considered to be of core
importance to our long-term strategy, and where disposals will not
damage the integrity and long-term value of the wholly-owned portfolio.
During the year we added to our existing and emerging clusters in
Carnaby and Soho, acquiring three buildings for £13.3 million:
• a dilapidated, mixed-use building fronting Kingly Street and Kingly
Court in Carnaby, which had been in the same ownership since 1982.
We have sought to acquire this property ever since our purchase of
the Carnaby Estate in 1997. Plans are already being progressed for a
refurbishment and reconfiguration scheme extending to two
adjoining buildings; and
• two freeholds in Berwick Street which adjoin existing ownerships and
will offer the opportunity, in time, to reconfigure or add space.
With the West End’s broad-based economy, global appeal and
resilience, existing private owners are traditionally reluctant to sell other
than in periods of uncertainty or financial pressure. The
unprecedented operational disruption to West End footfall, trading,
demand for space and occupancy resulting from pandemic-related
measures, is beginning to unsettle current owners. This may present a
rare opportunity to acquire key strategic additions to our ownership
clusters.
+ Financing: page 67
Since 30 September 2020, we have acquired a building in Seven Dials
for £2.8 million.
90-104 Berwick Street
In 2017, we conditionally agreed to acquire this development in Soho.
The vendor failed to meet contractual obligations to complete the sale
to us by 30 April 2020. The scheme achieved practical completion in
October. We continue discussions with the vendor, but a decision on
acquiring this building will not be made until a number of important
pre-purchase conditions have been fulfilled to our satisfaction.
Base line to footnotes and longest copy
Base line to page number
Page 62
Shaftesbury Annual Report 2020 Strategic report
Financial results
The Covid-19 pandemic has had a material negative impact on
our results this year, due to occupier operational and fi nancial
distress, increased vacancy, lower rent collections, charges for
expected credit losses and impairment, and investment property
valuation defi cits.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
(cid:707)(cid:741)esentation o(cid:729) fi nancial in(cid:729)o(cid:741)mation
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
fi nancial 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 24 to the
fi nancial statements.
Further details on APMs used, and how they reconcile to IFRS, are set
out on page 156.
Accounting for Covid-19 support provided
to occupiers
The support we are providing to occupiers as a result of the Covid-19
pandemic is largely in the form of deferrals and/or waivers of rent and
lease modifi cations. The accounting treatment depends on the type of
support granted and often results in a mis-match between EPRA
earnings and cash fl ows:
• Rent deferrals: income is recognised as normal and the deferred rent
receivable balance is assessed for impairment.
• Rent waivers: the cost of rent waivers is deferred over the remaining
term of the lease, in much the same way as a lease incentive. Any
deferred cost is then assessed for impairment. The deferred cost
balance, after amortisation or impairment, is deducted from the
valuation of investment properties and, so, is initially charged to
revaluation gains or losses. As the balance is amortised or impaired,
there is a charge against revenue and an equal credit to revaluation
gains or losses.
Where a lease is modifi ed, e.g. extended, in exchange for a rent waiver,
the cost of the waiver is spread over the revised lease term.
The fi nancial statements include signifi cant provisions for expected
credit losses in respect of trade receivables and impairments of
balances such as lease incentives and deferred letting costs. In
assessing the provisions, we consider a number of factors including
ongoing operational and fi nancial challenges being experienced by
tenants which reduce their ability to pay back arrears, including
amounts deferred, and increase the risk of tenant default. Given
the materiality of the charges for these provisions in the current year,
they are presented separately on the face of the Income Statement.
+ Preserving long-term value by supporting tenants to maintain occupancy: page 7
+ Rent collection: page 59
+ Occupancy: page 60
Income statement
Rental income
Service charge income
Revenue
Charges for expected credit losses and impairments
Service charge expenses
Other property charges
Net property income
Administrative expenses
Valuation defi cits and disposal profi ts
Operating profi t
Net fi nance costs
Share of Longmartin post-tax loss
Profi t before tax
Tax
Reported earnings for the year
Basic earnings per share
EPRA earnings1
EPRA earnings per share1
1. Alternative performance measure.
2020
£m
114.4
10.1
124.5
(21.9)
(10.1)
(18.2)
74.3
(14.4)
(698.2)
(638.3)
(31.8)
(29.4)
(699.5)
-
(699.5)
(227.5)p
29.4
9.6p
2019
£m
117.3
9.6
126.9
-
(9.6)
(19.3)
98.0
(15.2)
(12.5)
70.3
(30.5)
(13.8)
26.0
-
26.0
8.5p
54.6
17.8p
Change
£m
(2.9)
0.5
(2.4)
(21.9)
(0.5)
1.1
(23.7)
0.8
(685.7)
(708.6)
(1.3)
(15.6)
(725.5)
-
(725.5)
(236.0)p
(25.2)
(8.2)p
The loss after tax for the year was £699.5 million, compared with a
profi t in 2019 of £26.0 million. The year-on-year change was largely
due to consequences of the Covid-19 pandemic and included:
• a revaluation defi cit, net of disposal profi ts, of £698.2 million (2019:
defi cit of £12.5 million);
• charges for expected credit losses and impairments totalling £21.9
million (2019: nil); and
• an increase in our share of the post-tax losses from the Longmartin
joint venture, predominantly due to an increased investment property
revaluation defi cit in the year, our share of which was £35.8 million
(2019: £19.2 million).
+ Portfolio valuation report: page 56
Page 63
Shaftesbury Annual Report 2020 Strategic report Financial results
Revenue
During the year, rental income, before the impact of charges for
expected credit losses and impairments, was £114.4 million (2019: £117.3
million), and included accrued income from lease incentives of £11.9
million (2019: £2.3 million). The increase in accrued income is a result
of accounting for waivers of rent during the period.
In the fi rst half of the fi nancial year, our rental income (including
accrued income) increased by 2.2% compared with the corresponding
period in 2019. However, in the second half of the year, rental income
decreased by 7.2%, compared with 2019, largely due to increased
vacancy and rent waivers granted to tenants as a result of Covid-19.
Rental income
6 months ended 31 March
6 months ended 30 September
2020
£m
59.9
54.5
114.4
2019
£m
58.6
58.7
117.3
%
+2.2%
-7.2%
-2.5%
For the full year, the like-for-like decrease in rental income, excluding
the impact of acquisitions, was £4.1 million (-3.5%).
After service charge income of £10.1 million (2019: £9.6 million), revenue
decreased by £2.4 million to £124.5 million (2019: £126.9 million).
Expected credit losses on trade receivables
Rent collections were signifi cantly reduced during the second half
of our fi nancial year. Given the uncertain trading outlook for many of
our food, beverage and retail tenants, and the higher risk of occupier
default, provisions have been made against amounts owing which
have either been deferred as part of our Covid-19 occupier support
package or remain unpaid without an agreed waiver. The charge to
the Income Statement during the year was £13.0 million.
+ Portfolio activity report: page 59
Impairment charges
The Income Statement includes a £8.9 million charge for impairments
in respect of lease incentives, rent waivers and deferred letting costs
(2019: £nil). These refl ect our assessment of the likelihood of future
tenant default or failure, considering ongoing pandemic-related
operational challenges.
+ Portfolio activity report: page 59
Property charges and net property income
Property charges, excluding recoverable service charge costs, were
£18.2 million, down 5.7% during the year (2019: £19.3 million). The
decrease was due to reduced letting and marketing activity, partly
off set by higher irrecoverable property operating costs, including
those as a result of increased vacancy levels.
Excluding employee costs, administrative costs were £6.2 million, £1.0
million higher than for the previous year (2019: £5.2 million), refl ecting
increases in audit and professional fees, insurance costs and
irrecoverable VAT, together with donations made from our Covid-19
Community Fund.
+ Remuneration report: page 100
Valuation defi cit and disposal profi ts
Our wholly-owned portfolio’s revaluation defi cit was £698.5 million
(2019: defi cit of £15.3 million). This represented a like-for-like valuation
decrease of 18.3%, largely due to uncertainties as a result of Covid-19,
leading to lower rent collections, increased vacancy, reduced rental
values and an outward movement in yields.
+ Portfolio valuation report: page 56
Residential long leasehold tenure extensions granted during the year
generated a disposal profi t of £0.3 million.
Net fi nance costs
Net fi nance costs increased by £1.3 million to £31.8 million (2019: £30.5
million), largely due to drawings against our revolving credit facilities in
March 2020, as part of a prudent approach to cash management and
liquidity risk.
Finance income decreased by £0.3 million to £0.7 million (2019: £1.0
million) due to a combination of lower cash balances and reduced
market interest rates.
Share of Longmartin post-tax loss
Revaluation defi cits resulted in the Longmartin joint venture reporting
post-tax losses in both 2020 and 2019. Our share of the revaluation
defi cit in 2020 was £35.8 million (2019: £19.2 million). Excluding these
revaluation losses, and the related deferred tax credits totalling £5.1
million (2019: £3.1 million), our share of EPRA earnings from Longmartin
decreased by £1.0 million to £1.3 million (2019: £2.3 million) largely due
to lower net property income following charges for expected credit
losses and impairments, of which our share was £0.6 million.
+ Portfolio valuation report: page 56
+ Portfolio activity report: page 59
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. In 2019, HMRC confi rmed our
status as a ‘low risk’ taxpayer. Despite the fi nancial challenges in the
second half of our year, we continue to meet the requirements in the
REIT regulations.
Our detailed tax strategy is available on our website.
Net property income for the year was £74.3 million, down
£23.7 million compared with the previous year (2019: £98.0 million).
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 (2019: £nil).
Administrative expenses
Administrative expenses, totalling £14.4 million, were £0.8 million
lower than in the previous year (2019: £15.2 million).
Employee costs were £1.8 million lower at £8.2 million (2109: £10.0
million). This decrease was largely due to executive directors not
receiving an annual bonus, together with all directors waiving 20%
of salary, pension contributions and fees for four months in the year.
These savings were partly off set by additional employee costs as
a result of higher headcount and the 2019 annual pay review.
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 £13.3 million (2019: £23.5
million). In addition, our share of taxes, including corporation tax, levied
on, or collected by, Longmartin was £1.0 million (2019: £1.6 million). The
decrease in taxes paid is largely due to reduced output VAT, following
the decrease in rent collections from commercial tenants in the
second half of the fi nancial year.
Page 64
Shaftesbury Annual Report 2020 Strategic report Financial results
EPRA earnings (£m)
54.6
(2.9)
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
(13.0)
1.1
0.8
29.4
(8.9)
(1.3)
(1.0)
2019
Rental
income
Expected
credit losses
Impairment
charges
Property
charges
Admin
costs
Net fi nance
costs
Longmartin
2020
EPRA earnings
EPRA earnings are a measure of the level of underlying operating
results and an indication of the extent to which dividends are
supported by recurring earnings. In our case, EPRA earnings exclude
portfolio valuation movements, profi ts on disposal of investment
properties, and deferred tax arising in the Longmartin joint venture.
In the year ended 30 September 2020, EPRA earnings decreased by
46.2% to £29.4 million (2019: £54.6 million), of which £25.3 million was
earned in the fi rst half of the fi nancial year. EPRA earnings in the
second half were impacted signifi cantly by the pandemic, which has
resulted in reduced rental income and charges being made for
expected credit losses and impairments. EPRA earnings per share
amounted to 9.6p, 46.1% lower than the previous year (2019: 17.8p).
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 policy is to maintain progressive 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 73 to 77.
The Board monitors our ability to pay dividends out of available resources
and distributable reserves. Our forecasts take into consideration future
liquidity requirements, which include prospective dividend payments.
Where possible, subsidiary companies 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. At 30
September 2020, we had distributable reserves of £261.4 million.
Following the outbreak of Covid-19, the Board announced on 24 March
2020 that, in view of the likely reduction in rent collections and, in turn,
adjusted EPRA earnings, it had taken the decision not to declare an
interim dividend in order to preserve liquidity. A further announcement
was made on 25 September 2020 that no fi nal dividend would be
declared in respect of the year ended 30 September 2020.
The Board intends to resume dividend payments as soon as it
considers prudent, maintaining its policy of sustainable dividend growth
over the long-term. The pace of the post-pandemic income recovery,
and our REIT PID obligations, will be key factors in the Board’s
near-term decisions on declaring dividends.
EPRA NAV (pence per share)
982
10
Balance Sheet
Investment properties
Investment in joint venture
Net debt
Other net assets
Net assets
EPRA NAV per share1
Total accounting return1
2020
£m
3,115.5
96.8
(987.0)
55.3
2,280.6
£7.43
(23.4)%
2019
£m
3,765.9
127.6
(905.8)
19.5
3,007.2
£9.82
0.8%
1. Alternative performance measure.
At 30 September 2020, net assets were £2,280.6 million, £726.6 million
lower over the year (2019: £3,007.2 million). This decrease was largely
due to the loss after tax of £699.5 million, and the dividend paid in
respect of the previous year, amounting to £27.8 million.
Other net assets have increased by £35.8 million to £55.3 million (2019:
£19.5m), largely due to a decrease in deferred income following our
decision to off er most commercial tenants the ability to be invoiced
monthly, rather than quarterly in advance from 1 October 2020,
together with deposits made in respect of interest cover covenant
waivers amounting to £8.7 million.
+ Covid-19: impact and response: page 6
EPRA NAV
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 defi cits in the Longmartin joint
venture.
Total accounting return measures shareholder value creation, taking
into account the movement in EPRA NAV together with dividends paid.
EPRA NAV per share decreased during the year by £2.39 (24.3%) to
£7.43 (2019: £9.82), principally due to the revaluation defi cits, both in
the wholly-owned portfolio and Longmartin. Together, these reduced
EPRA NAV by £2.40 per share. EPRA earnings of 9.6p per share were
off set by the payment of the fi nal dividend for the previous year (9.0p
per share).
(9)
(240)
743
2019
EPRA earnings
Dividend
Revaluation movements
2020
Page 65
Shaftesbury Annual Report 2020 Strategic report Financial results
New EPRA net asset measures
In October 2019, EPRA introduced three new measures of net asset
value:
(cid:694)ash (cid:1028) o(cid:746)s an(cid:727) net (cid:727)e(cid:725)t
Net debt increased by £81.2 million to £987.0 million (2019: £905.8
million). The major cash fl ows were:
Net Reinstatement Value (NRV)
This measures the value of net assets on a long-term basis, assuming
no disposals. Assets and liabilities that are not expected to crystallise
in normal circumstances, such as deferred taxes on property
valuation surpluses, are excluded. It is a refl ection of what would be
needed to recreate the company. Consequently, purchasers’ costs
which have been deducted in arriving at the fair value of investment
properties are added back.
Net Tangible Assets (NTA)
This recognises that companies buy and sell assets and therefore
takes into account deferred tax liabilities on sales, unless there is no
intention to sell in the long run.
Net Disposal Value (NDV)
This represents the value of net tangible assets, assuming an orderly
sale of the business’ assets, achieving fair values as reported in the
Balance Sheet. It includes deductions for liabilities that would
crystallise in this scenario, including deferred tax and the diff erence
between the fair value and carrying value of fi nancial liabilities.
At 30 September 2020, these metrics were:
• Net cash generated from operating activities: £2.5 million (2019:
£50.6 million). The decrease was predominantly due to lower rent
collections in respect of both rents due during the year and rents
billed in advance at the end of the year, following the move to
monthly invoicing from 1 October 2020.
+ Portfolio activity report: page 59
• Net cash used in investing activities: £55.9 million (2019: £62.4
million). The main cash fl ows were net investment in the portfolio
amounting to £44.2 million, deposits lodged with lenders in
connection with securing interest cover waivers, totalling £8.7 million,
and £2.9 million net cash outfl ow to the Longmartin Joint Venture.
+ Portfolio activity report: page 59
+ Financing: page 67
• Net cash infl ow from fi nancing activities: £72.2 million (2019: cash
outfl ow £52.7 million), comprising net drawings against the revolving
credit facilities amounting to £100 million less dividends paid totalling
£27.8 million (2019: £52.9 million).
+ Financing: page 67
NRV: £8.16 (2019: £10.71)
NTA: £7.43 (2019: £9.82)
NDV: £7.29 (2019: £9.47)
+ Financial statements: note 24
Currently, for us, EPRA NTA equates to EPRA NAV and EPRA NDV
equates to EPRA NNNAV. From the coming fi nancial year, we will
commence reporting on these new measures rather than EPRA NAV,
with EPRA NTA becoming our main metric.
Net debt (£m)
905.8
27.8
(2.5)
44.2
8.7
2.9
0.1
987.0
2019
Operating
cash infl ow
Dividends
Net portfolio
investment
Interest waiver
deposits
Net cash fl ow with
Longmartin
Other
2020
Page 66
Shaftesbury Annual Report 2020 Strategic report
Financing
Recognising our fi nancing risk had increased as a result of
reduced rent collections and low visibility over near-term income,
in November 2020, we issued equity to ensure we maintain a
strong fi nancial base, are positioned to return to long-term
growth as pandemic issues recede and, should conditions
improve, have capacity for portfolio investment.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Financing strategy
Investment in our portfolio is funded through a combination of equity
and debt, with equity providing the permanent capital to support our
long-term strategy. Debt provides capital for investment in our portfolio.
Under REIT rules, we are required to distribute the majority of our
recurring earnings. Furthermore, the importance of our ownership
clusters in long-term value creation means that opportunities to
recycle capital are limited.
We adopt a prudent approach to our capital structure, seeking to
minimise fi nancing risk. Typically, when prospective fi nancial ratios,
including, but not limited to, gearing, approach the upper limit of
our tolerance, we look to secure additional equity funding to mitigate
these risks and provide fi nancial capacity to support the operation
and long-term growth of the business.
Key aspects of our fi nancing policy include conservative leverage,
diversifi ed sources of fi nance and a spread of debt maturities. The core
of our debt fi nance is secured, long-term arrangements, consistent
with the long-term nature of our business model, investment strategy
and income streams, with the majority of interest fi xed. Working capital
is provided through secured, medium-term revolving credit facilities.
In managing fi nancing risk, we aim to maintain:
• signifi cant levels of available liquidity to cover contractual
commitments and provide us with speed of execution when
acquisitions become available;
• a prudent loan-to-value ratio across the Group, with headroom
above loan-to-value covenants in our debt facilities; and
• a pool of unsecured properties which could be used to top up debt
security if necessary, to comply with loan-to-value covenants.
Position at 30 September 2020
At 30 September 2020, net debt was £987.0 million (2019: £905.8
million) and our loan-to-value ratio had increased to 31.5% (2019:
23.9%), largely due to the decline in the portfolio’s valuation in the year.
Available resources totalled £197.8 million, comprising £72.8 million of
cash and undrawn revolving credit facilities amounting to £125 million.
Committed capital expenditure, to be funded from these resources,
totalled £31.0 million.
+ Portfolio valuation report: page 56
+ Portfolio activity report: page 59
Equity issue
The pandemic has had a signifi cant impact on our operating cash fl ows
and has elevated our fi nancing risks:
• with reduced rent collections and increased vacancy continuing to put
pressure on the interest cover (ICR) covenants in our debt
arrangements, we are currently reliant on ICR waivers from our
revolving credit facility and term loan providers;
• decreased valuations have elevated our near-term loan-to-value risks;
and
• refi nancing risk is growing with low visibility on near-term income and
the consequential implications for valuations.
+ Principal risks and uncertainties: page 73
Since March 2020, our strategy has been to preserve liquidity, with
a moratorium on non-essential expenditure, new schemes and
acquisitions, other than by exception, and the decisions to not pay
dividends for 2020. Given the uncertainty over income levels, in March
2020, we drew £150 million against our revolving credit facilities, as part
of a prudent approach to cash management. By 30 September 2020,
we had repaid £50 million of these drawings.
+ Covid-19: impact and response: page 6
Having assessed our fi nancial position in light of the implications of the
Covid-19 pandemic, on 22 October 2020, we announced details of an
issue of equity with gross proceeds of £307 million, comprising £297
million by way of a fi rm placing, placing and open off er, and £10 million
by way of an off er for subscription. The purpose of the equity issue was
to ensure we maintain a strong fi nancial base, are positioned to return
to long-term growth as pandemic issues recede and, should conditions
improve, have capacity for portfolio investment.
Following approval by shareholders of certain resolutions to execute
the transaction, on 18 November 2020, we issued 76.75 million shares,
representing approximately 25% of our issued share capital, at £4 per
share. After issue costs, the net proceeds were £294.4 million.
Use of net proceeds
Managing fi nancing risks
Repay RCF drawings
Potential cash deposits to remedy term loan ICR covenants
Liquidity maintenance
Fund potential operating cash out fl ows
Capital expenditure in 2021 and 2022
Maintain prudent level of liquidity1
General corporate purposes
Net proceeds
£m
100
12
45
65
63
9
294
1. But should conditions improve, provide some capacity for portfolio investment
Page 67
Shaftesbury Annual Report 2020 Strategic report Financing
Managing fi nancing risks
• Revolving credit facilities
Following the completion of equity issue, we cancelled our £125 million
revolving credit facility, which was undrawn and had a contractual
maturity in May 2022. In doing so, we benefi ted from:
• removing of the risks associated with expected requests for further
interest cover waivers until the contracted expiry of the facility and
the need to either renew or refi nance this facility during a period of
uncertainty regarding near-term income, cash fl ows, property
valuations and, consequently, lenders’ appetite to provide new credit;
• releasing £252 million of charged properties into our pool of uncharged
assets; and
• eliminating the £0.8m p.a. commitment cost of this facility.
Furthermore, we have now repaid £100 million of drawings against
our remaining revolving credit facility, which remains available to be
re-drawn, provided that we remain compliant with all requirements in
the loan agreement, including the fi nancial covenants. Whilst undrawn,
the annualised interest saving is estimated at £1.0 million. Since the
equity raise, we have secured an extension to this facility’s interest
cover covenant waiver from January 2021 to October 2021.
In the event that we require further waivers which either are not
granted, or are subject to restrictions we fi nd unacceptable, the
liquidity provided by the equity issue would allow us to part cancel
or terminate the facility ahead of its contractual maturity.
• Term loans
In the absence of interest cover covenant waivers from the providers
of our term loans, we can remedy interest cover ratio shortfalls with
cash deposits, although there are restrictions on the number of times
these remedies can be used, and would be subject to available liquidity.
For the equity issue, we estimated that up to £12 million of liquidity
would be required for ICR cash cures during the working capital
statement period.
Since the equity raise, we have secured an extension to the ICR covenant
in our £250 million term loans to January 2022, reducing the likelihood
or scale of cash cures being required in the future. In consideration for
this extension, we placed a further £4.4 million on deposit with the
lender for the duration of the waiver.
The ICR waivers we now have in place for our term loans is set out
below:
Facility amount
£134.8m
£250m
• Bonds
ICR waiver
July 2021
Jan 2022
At 30 September 2020, we remained compliant with the terms of the
fi nancial covenants under our bonds. However, given the uncertain
outlook, we continue to monitor the covenants and will take
appropriate action if required.
• Loan-to-value risk
Our individual debt arrangements have specifi cally charged assets as
security, although the relative amounts of collateral charged, compared
with the amount of each facility, are not uniform. At 30 September
2020, our pool of unsecured properties were valued at £434 million.
Following the termination of our £125 million revolving credit facility, this
pool has increased, on a pro-forma basis at 30 September 2020, to
£686 million, providing further loan-to-value covenant headroom
across our remaining borrowing arrangements.
+ Viability statement: page 78
Impact of the equity issue
Impact on cash (£m)
Impact on liquidity (£m)
294.4
294.4
(100.0)
(12.0)
72.8
(45.0)
145.2
(65.0)
197.8
Undrawn
facilities
125
Cash
72.8
(125.0)
(12.0)
(45.0)
(65.0)
245.2
Undrawn
facilities
100
Cash
145.2
30 Sept
2020
Net
proceeds
Repay
RCF
drawings
ICR
related
deposits1
2021
operating
cash
fl ows1
Capital
expendi-
ture1
Pro forma
balance
30 Sept
2020
Net
proceeds
Terminate
£125m RCF
ICR
related
deposits1
2021
operating
cash
fl ows1
Capital
expenditure1
Pro forma
balance
1. In the reasonable worst-case scenario for the working capital statement in the prospectus
On a pro forma basis, adjusting for the net proceeds of the equity issue, the termination of the £125 million revolving credit facility and repayment
of drawings under the £100 million revolving credit facility, at 30 September, net debt was £692.6 million, we had £367.2 million of available
resources and our loan-to-value ratio was 22.1%.
Page 68
Shaftesbury Annual Report 2020 Strategic report Financing
Liquidity maintenance
The equity issue allows us to maintain a prudent level of liquidity.
At 30 September 2020, we had available resources of £197.8 million.
Following the equity issue, and allowing for the termination of our
£125 million revolving credit facility, this increased on a pro-forma
basis to £367.2 million.
Given the ongoing impact of the pandemic, we expect:
• a cash outfl ow from operating activities in the coming year, refl ecting
ongoing reduced rent collections, increased vacancy and
consequential increases in costs, set against a fi xed fi nance cost base.
In the reasonable worst-case scenario, prepared for the equity issue
prospectus, this cash outfl ow was estimated at approximately £45
million for the year ending 30 September 2021.
• capital expenditure over the coming two fi nancial years of
approximately £65 million, which includes capital commitments at 30
September 2020 of £31.0 million, new schemes and the estimated cost
of refurbishing vacant space to maximise its letting prospects, given the
increase in vacancy across the wider-West End, which has increased
competition for occupiers.
The equity raise provided funds to ensure that our liquidity does not
fall below levels we consider appropriate, after taking into account
these estimated cash outfl ows.
+ Covid-19: impact and response: page 6
We will maintain our usual disciplined approach to acquisitions. Until
such time as current trading conditions improve suffi ciently, we shall
continue to prioritise a prudent approach to maintaining liquidity.
However, by exception, should rare opportunities arise to secure
particular, long-sought acquisitions in our core or emerging ownership
clusters, which will provide valuable long-term compound benefi ts,
we will consider deploying available liquidity. However, while the lack
of visibility over our near-term income as a result of Covid-19 persists
and we remain reliant on interest cover covenant waivers across our
debt facilities, we will look to replace the liquidity used for acquisitions
with selected disposals of assets no longer considered core to our
long-term strategic objectives.
+ Portfolio activity report: page 59
LIBOR replacement
LIBOR, the London Inter Bank Off er Rate interest rate benchmark
is expected to be discontinued after the end of 2021. In its place,
a replacement ‘risk free’ rate, the Sterling Overnight Index Average
(SONIA) will be used. There are two fundamental diff erences between
LIBOR and SONIA:
• LIBOR is an annualised forward-looking term rate, with several diff erent
tenors available ranging from one day to 12 months but SONIA is only
available as an overnight borrowing rate. LIBOR is fi xed in advance for
a given term, meaning the interest amount can be calculated at the
beginning of the interest period while SONIA will be compounded in
arrears and therefore will not be precisely known until the end of the
period.
• SONIA generally provides lower rates than LIBOR (which includes a
banking sector risk or liquidity premium). Inevitably, this rate diff erence
will be priced into debt instruments in another way in future.
LIBOR is only used in our remaining £100 million revolving credit facility.
Whilst the agreement does not have provisions to deal with this change,
we will work with the providers of this facility to prepare for a smooth
transition in readiness for the cessation of LIBOR.
Financing summary
The table below shows the position at 30 September 2020 as reported
in the fi nancial statements and pro forma for the net proceeds of the
equity issue, the termination of the £125 million revolving credit facility
and repayment of drawings under the £100 million revolving credit
facility. It excludes our proportional share of Longmartin’s non-
recourse net debt.
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Resources
Cash
Undrawn fl oating rate facilities (£m)
Available resources
Commitments7
Uncommitted resources
Debt stats
Net debt
Loan-to-value1,2
Gearing1,2,4
Interest cover1,3
% drawn debt fi xed
Blended cost of debt1,6
Marginal cost of undrawn fl oating rate facilities
Weighted average maturity (years)
Sources of fi nance (fully drawn basis)
Bonds
Term loans
Revolving credit facilities
2020
Reported
£m
2020
Pro forma
£m
72.8
125.0
197.8
(31.0)
166.8
987.0
31.5%
43.1%
1.9x
91%
2.9%
0.7%
8.3
49%
32%
19%
267.2
100.0
367.2
(31.0)
336.2
692.6
22.1%
26.8%
N/A
100%
3.1%
1.0%
9.0
54%
36%
10%
2019
£m,5
54.0
225.0
279.0
(82.4)
196.6
905.8
23.9%
30.0%
2.7x
100%
3.2%
1.6%
9.3
49%
32%
19%
1 Alternative performance measure.
2 Based on net debt.
3 Ratio of operating profi t before investment property disposals and valuation
movements to net fi nance costs.
4 Based on EPRA net assets.
5 Comparatives restated to refl ect that we are no longer presenting fi nance ratios
including our joint venture on a proportionally consolidated basis (see page 56).
6 Including non-utilisation fees on undrawn bank facilities.
7 Capital commitments at 30 September 2020. See page 136.
Debt maturity profi le
Revolving credit facility
Bonds
Term loan
290
285
1251
1002
135 130
120
2022 2023
2027
2029 2030 2031
2035
1. Undrawn at 30 September 2020 and terminated since
2. Drawn at 30 September but repaid since
+ Summary of fi nancial covenants: page 162
Longmartin fi nance
The fi gures below represent our 50% share.
The Longmartin joint venture has a £60 million fi xed-rate term loan
maturing in 2026 which is non-recourse to Shaftesbury.
At 30 September 2020, Longmartin’s net debt was £57.9 million,
representing a loan-to-value ratio of 33.1%, up from 28.4% in 2019 due
to the property valuation decrease in the year.
+ Portfolio valuation report: page 56
An ICR waiver to April 2021 has been agreed with Longmartin’s lender
and we are now discussing a potential extension.
+ Summary of fi nancial covenants: page 162
Page 69
Shaftesbury Annual report 2020 Strategic Report Our people and culture
Shaftesbury Annual Report 2020 Strategic Report Xxxxx
Making a
positive
contribution
+
Page 70
Page 70
Page 70
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Shaftesbury Annual Report 2020 Strategic report
Risk management
Risk tolerance and management is embedded across the business,
with the tone and culture set by the Board. Our near-term risk
landscape has changed this year, with the pandemic presenting a
number of issues. Navigating these challenges and being able to
adapt to a rapidly-changing set of circumstances to manage risk
has been key
Context
We invest exclusively in the heart of London’s West End, concentrating
on establishing ownership clusters in iconic, high-footfall locations. This
investment strategy has delivered long-term success for the Group and
whilst the Covid-19 pandemic has disrupted performance this year, we
expect a return to growth once the effects of the pandemic have, in
all significant respects, receded. Inevitably, the pandemic and social
distancing policies have had a major impact on the West End and the
Group’s near-term risk landscape during the year, which the Risk
Committee has considered in preparing this report.
Important factors in considering risk across the Group include:
• An experienced executive and senior leadership team, with an average
tenure of over 14 years, and an in-depth knowledge of our business
and the West End property market. We are based in one location, close
to all our holdings;
+ Senior leadership team: page 53
+ Our Board: page 54
• The nature of our portfolio does not expose us to risks inherent in
material speculative development schemes;
+ Exceptional portfolio in the heart of London’s West End: page 12
• 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, and with the
majority of interest costs fixed;
+ Financing: page 67
• A culture which encourages open dialogue within the whole team and
with our wide range of external advisors;
+ Our people and culture: page 42
Change in risk appetite during the year
• A simple group structure; and
• A governance framework which includes clearly defined responsibilities
and limits of authority.
+ Governance overview: page 81
The Board’s attitude to risk is embedded in the business, with the
Strategy and Operations Executive, which includes executive directors,
closely involved in all aspects of the business and significant decisions.
The whole Board approves capital, debt and non-routine transactions
above a relatively low specified level.
Incentive targets and benefits are set to achieve the Group’s purpose,
long-term strategic objectives and near-term priorities, whilst
encouraging decisions to be made on the basis of long-term benefit,
rather than short-term gain.
Risk appetite
Inevitably, investing in one location presents an inherent geographic
concentration risk and there are certain external factors which we
cannot control. However, in executing our management 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 shown in the diagram below.
+ Business model and strategy: page 22
Our appetite for development risk has reduced while near-term
income and vacancy uncertainty persists. Currently, we are prioritising
income and liquidity preservation over actively securing vacant possession
of space for reconfiguration and refurbishment schemes. At the same
time, our appetite for tenant risk has increased, recognising high vacancy
levels across the West End, and consequently more competition for
occupiers.
High
Medium
Low
Geographic
concentration
Development
Tenant
Financing
Compliance
Reputation
Environmental
Page 71
Shaftesbury Annual Report 2020 Strategic report Risk management
Monitoring and managing risk
Our risk management and control framework is shown in the diagram
below. It enables us to eff ectively identify, evaluate and manage our
principal and emerging risks.
Roles and responsibilities in managing our risk and controls framework
are summarised below. Risk is considered as follows:
Informal consideration
• Daily at an operational level by senior management;
• Weekly at executive director meetings; and
• Monthly at Strategy and Operations Executive meetings.
Formal consideration
• 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 addressed as they arise and, where
signifi cant, are discussed more widely with the Strategy and Operations
Executive. Issues that have arisen and how risks have changed are key
inputs 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 fi nancial and operational controls to ensure that each
maintains an acceptable level of service and provides reliable fi nancial
and operational information. The managing agents share their internal
control assessments with the Group.
The Risk Committee meets twice a year, or more frequently as needed,
and reports to the Audit Committee and Board.
Assessing risk and internal controls
Signifi cant 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 eff ect on our strategic objectives,
operational or fi nancial matters, our reputation, stakeholder
relationships, health and safety, sustainability and regulatory issues.
Risks are assessed on both gross (assuming no controls are in place)
and residual (after mitigation) bases.
To the extent that signifi cant 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.
Assurance
Whilst we do not have a formal internal audit function, the Risk
Committee oversees the provision of assurance on controls to the
Audit Committee. Normally, this comprises a rolling program of external
reviews on processes and the eff ectiveness of controls, supplemented
with controls testing by management. Results of the reviews and
recommendations are reported to the Audit Committee, and followed
up by the Risk Committee. This year, the eff ectiveness of key controls
was reviewed by management. Recognising the challenges that remote
working would present, the programme of external reviews was paused,
although we plan to recommence this in the coming year.
Governance
Oversight,
assessment and
mitigation at
a Group level
Board
• Set risk culture
• Determine risk appetite
• Review principal and emerging risks
Oversight
Risk Committee
• Co-ordinate and develop risk
management process
• Assess control environment
and eff ectiveness of controls
• Co-ordinate the assurance
reviews
• Review and assess risk register
• Consider principal and
emerging risks and mitigating
internal controls
• Monitor risks and response
plans
Audit Committee
• Monitor risk exposure and
appetite
• Review the eff ectiveness of
the risk management and
internal control framework
• Approve the assurance
programme
Assurance
• Internal and external reviews
of processes and the
eff ectiveness of key controls
• Observations from the
external auditor
Ownership
Strategy and Operations Executive
• Oversee day-to-day monitoring and management of risk, including identifi cation and response
• Design and implementation of controls
• Ensure key controls are operating and are eff ective
• Assist Risk Committee with identifi cation of principal and emerging risks
• Monitor performance of advisors including the Group’s managing agents
• Brief Risk Committee on key issues that have arisen
Top
Down
Bottom
up
Identifi cation,
assessment and
mitigation at an
operational
level
Page 72
Shaftesbury Annual Report 2020 Strategic report
Principal risks and uncertainties
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
This report should be read in conjunction with the viability statement
on pages 78 to 79.
In assessing our principal risks, we considered the following strategic
risks and, in view of mitigating controls, concluded they were not
currently principal risks or uncertainties:
Risk landscape
With our strategy of investing in one location, the risk of an event which
prevents or deters people coming to the West End has long been on
our risk register. The prosperity of the West End is based on high
footfall volumes, seven days-a-week. In normal times, it is estimated
that it attracts over 200 million visits annually, comprising Londoners, a
working population of over 750,000 and exceptional numbers of
domestic and international tourists. The Covid-19 pandemic has had a
major impact on the West End and all aspects of our business, elevating
a number of principal risks and presenting new challenges.
With the pace and scale of the impact of Covid-19, we have had to
mobilise, assess, plan and respond to the multitude of challenges.
Throughout the period since March, the Strategy and Operations
Executive has met regularly to consider a rapidly evolving range of
topics including occupiers, our people, communities, day-to-day
operations, finance, IT, communications, liaison with our neighbours
and local authorities, regulations and recovery. The Board has also met
regularly during this period and has received updates from
management.
In November 2020, the Group strengthened its Balance Sheet through
an equity raise, which has reduced its financing risk. However, while
Government restrictions remain in place, operational risk remains high.
Principal strategic 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.
Significantly reduced footfall, together with restrictions on opening
hours and social distancing measures have presented our occupiers
with tough operational and financial challenges. For us, this has resulted
in reduced rent collections, increased costs, a slowdown in occupier
demand, increasing vacancy, pressure on rental values, decreased
valuations and increased financing risks. Given the interdependence of
many of our risks, exacerbated by the significant decline in footfall this
year, we have included the impact of Covid-19 in the individual risk
analyses, rather than disclose it as a separate risk.
+ Covid-19: impact and response: page 6
We cluster our principal risks in the following categories: external
factors, geographic concentration, market and consumer, brand and
reputation, governance, data and internal control, and people. Risks are
scored on a scale from low to very high.
Geographic
concentration
Brand and reputation
• Destruction of multiple assets.
• Misconduct or poor operational standards by third
party agents.
• Damage to reputation with local stakeholders and
communities.
Governance, data and
internal control
• 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.
People
• Attracting, retaining and developing talented
people.
• Succession planning.
Emerging risks included:
• Failure to anticipate or understand changes in consumer and occupier
trends in food, beverage and retail. This forms part of the regular
Strategy and Operations Executive discussions.
• Failure to effectively use, store and manage data. A review of how we
can harness and make better use of management and commercial
information is planned for the coming year.
• Cyber security risks. An overhaul and modernisation of our IT
infrastructure is underway.
Strategic objectives
1
2
3
Long-term
growth in rents
and portfolio
value
Grow recurring
earnings and
cash flow
Attract, develop
and retain
talented people
4
5
Minimise
environmental
impact
Deliver sustainable,
long-term benefits for
our stakeholders
Evolution of risk
Risk increased
Risk unchanged
Risk decreased
Residual risk
Low
Medium
High
Very high
Page 73
Shaftesbury Annual Report 2020 Strategic report Principal risks and uncertainties
1. External Factors
Macroeconomic factors
Potential causes
• Macroeconomic shocks or events.
• Uncertainty on trading and other
relationships with the EU from
1 January 2021:
Consequences
• Lower consumer confidence/spending.
• Reduced visitor numbers.
• Reduced business confidence and investment.
• Brexit-related occupier supply chain disruption
- Short-term disruption to the UK
and higher import costs.
economy.
- Upward cost pressures.
- Supply chain disruption.
• Longer-term Covid 19 impacts:
- Higher inflation.
- Taxation increases.
- Recessionary environment.
- Higher unemployment.
• Reduced tenant profitability/increased
occupier financial distress/tenant default.
• Reduced occupier demand.
• Higher vacancy.
• Downward pressure on rents.
• Reduced rental income and declining earnings.
• Reduced ERV, capital values and NAV (amplified by
gearing).
• Risk of loan covenant breaches.
Commentary/Mitigation
• We focus on locations and uses which historically have
proved to be economically resilient.
Strategic
objectives
1
5
2
• We actively promote our areas to drive footfall.
• Covid-19 has resulted in increased macroeconomic risk.
• Operational impact, this year, has been significant
and will continue through the recovery period.
• Longer-term economic pressures may temper occupier
profitability.
• Our equity raise in November 2020 has ensured
our financial base remains strong.
+ Covid-19: impact and response: page 6
+ Viability statement: page 78
Evolution of
risk:
Residual risk:
Decline in the UK real estate market
Potential causes
• Changes to political landscape.
• Increasing bond yields and cost of
finance.
• Reduced availability of capital and
finance.
• Lower relative attractiveness of
property compared with other asset
classes.
• Changing overseas investor perception
of UK real estate.
• Covid-19 accelerating structural
changes in retail and office sectors.
Strategic
objectives
1
5
2
Evolution of
risk:
Residual risk:
Consequences
• Reduced property values.
• Decrease in NAV (amplified by gearing).
• Risk of loan covenant breaches.
• Ability to raise new debt funding curtailed.
Commentary/Mitigation
• We focus on assets, locations and uses where, in normal
conditions, there is a structural imbalance between
availability of space and demand.
• We regularly review investment market conditions including
bi-annual external valuations.
• Our wholly-owned portfolio declined by 18.3% during the year.
• Further pressure on yields and ERVs is likely in the near
term, predominantly due to surplus vacancy across
the West End and the continued impact of Covid-19
containment measures affecting our occupiers’ trading
conditions, with the risk of further declines if the current
market outlook worsens.
• Increased competition for occupiers is likely to increase
near-term capital expenditure requirements.
• An effective vaccination programme, low finance rates,
and relative affordability of London real estate for overseas
investors could provide yield support.
• Reconfiguration of our buildings is important to respond to
changing occupier demand.
• We operate with conservative levels of leverage, with a
spread of both sources of finance and loan maturities.
Quarterly forecasts include covenant headroom review.
• We maintain a pool of uncharged assets to top up security
held by lenders, if required. Our equity raise in November
2020 and subsequent cancellation of a revolving credit
facility has increased our LTV covenant headroom.
+ Portfolio valuation report: page 56
+ Viability statement: page 78
Page 74
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Strategic
objectives
1
2
4 5
Evolution of
risk:
Residual risk:
Shaftesbury Annual Report 2020 Strategic report Principal risks and uncertainties
1. External Factors continued
Changes in regulatory environment
Potential causes
• Unfavourable changes to national
or local planning and licensing
policies.
• Tenants acting outside of
planning/licensing consents.
• Growing complexity and level of
Consequences
• Ability to maximise the
growth prospects of our
assets restricted.
• Reduced tenant
profitability/increased
occupier financial distress.
sustainability regulation.
• Reduced occupier
• Increased stakeholder focus on
demand.
ESG.
• Regulation/guidance in respect of
social distancing both within our
portfolio and in connection with
domestic and international travel
for the duration of the pandemic.
• Increased costs.
• Reduced earnings.
• Decrease in property
values and NAV (amplified
by gearing).
• Reduction of spending/
footfall in our areas.
Commentary/Mitigation
• All our properties are in the boroughs of Westminster and Camden: changes to local
policies may limit our ability to maximise the long-term potential of our portfolio.
• We ensure our properties are operated in compliance with local and national regulations.
• We use specialist advisors on planning and licensing and make representations on
proposed policy changes, to ensure our views and experience are considered.
• Tenant compliance with planning consents and licences is regularly monitored.
• The Town and Country Planning (Use Classes) (Amendment) Regulations 2020,
effective from September 2020, provide flexibility to change uses of commercial,
business and service accommodation, eg between retail and restaurants. Whilst this
could increase the supply of certain uses, eg restaurants, in the West End over the
longer-term, subject to other planning and licensing regulations being met, it also
presents opportunities to evolve the use mix in 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.
• Head of Sustainability recruited to develop our long-term sustainability strategy
and our already extensive community engagement.
• Sustainability targets are included in remuneration and for each refurbishment or
reconfiguration scheme appraisal.
• Social distancing regulation continues to impact our occupiers’ ability to trade.
+ Sustainability: page 27
+ Covid-19: impact and response: page 6
2. Geographic concentration
Reduction in spending and/or footfall in our areas
Consequences
• Lower sales densities.
• Reduced tenant
profitability/increased
occupier financial distress/
tenant default.
• Reduced occupier demand.
• Higher vacancy.
• Reduced rental income and
declining earnings.
• Reduced ERV, capital values
and NAV (amplified by
gearing).
• Risk of loan covenant
breaches.
Potential causes
• Pandemics.
• Macro economic conditions
including recession,
declining disposable income,
unemployment etc.
• 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.
• Possibility that Covid-19 induces
permanent structural changes
in frequency of visits and
spending behaviour.
• UK plans to end tax-free
shopping for overseas visitors.
Commentary/Mitigation
• Footfall and customer spending are important ingredients for the success of our
restaurant, leisure and retail tenants.
• Key aspects of our management strategy are to: ensure our areas maintain a distinct
identity; seek out new concepts, brands and ideas to keep our areas vibrant and
appealing; and actively promote our areas.
• The Board regularly monitors performance and prospects.
• The pandemic, social distancing regulations and Government advice to work from
Strategic
objectives
1
2
5
Evolution of
risk:
home have dramatically reduced footfall.
Residual risk:
• The new “normal” following Covid-19, including how people choose to work and
shop, could reduce footfall and spending in the medium to long term. A significant
proportion of our customer base is local workers and Londoners, and we expect
footfall and spending to improve once the return to offices commences, although
flexible home working may change the daily pattern of footfall. We will continue to
adapt our portfolio to meet occupier requirements.
• Whilst being invested in one area is a risk, our ownership clusters are also a strength
and an opportunity, allowing us to adopt a holistic curation of our villages.
• Public transport is important in making our areas more accessible to a wide range
of visitors. Whilst delayed, Crossrail is now scheduled to open in 2022. This line is
expected to bring an additional 1.5 million people within 45 minutes of the West End.
• It is too early to tell if or how the pandemic will impact long-term international
travel patterns, particularly in the long-haul sector. The UK’s plans to end tax-free
shopping for overseas visitors, making it the only EU country to do so, could further
impact overseas visits to the UK and the amount spent by international tourists.
However, the impact on our areas is expected to be less significant due to our focus
on local workers, Londoners and domestic tourists, and our mid-market offer.
• Changing leasing structure landscape (eg more flexibility for occupiers and risk
sharing) may lead to volatility in income and earnings.
+ Covid-19: impact and response: page 6
+ Why London’s West End: page 20
+ Business model and strategy: page 22
Page 75
Shaftesbury Annual Report 2020 Strategic report Principal risks and uncertainties
3. Market and consumer
Significant increase in tenant default/failure
Consequences
• Lower sales densities, reduced
tenant profitability.
• Reduced income and earnings.
• Increased vacancy and related
costs.
• Frictional cost of re-letting.
• Reduced ERV, capital values
and NAV (amplified by gearing).
• Risk of loan covenant breaches.
Potential causes
• Decline in turnover (see
Reduction in spending and/or
footfall in our areas).
• Increasing cost base and
supply chain disruption (see
macroeconomic factors).
• Occupiers with limited Balance
Sheet capacity are less likely to
sustain a prolonged period of
operational losses.
• Wind down of Government
Covid-19 support, including
business rates relief which
ceases at the end of March
2021.
• Possibility that Covid-19 induces
permanent structural changes
in frequency of visits and
spending behaviour.
• Economic headwinds including
recession, declining disposable
income, unemployment.
Strategic
objectives
1
2
5
Evolution of
risk:
Residual risk:
Commentary/Mitigation
• This risk has increased substantially this year, and continues to rise.
• Tenant trading monitored regularly by the Operations Committee.
• Whilst the rent from any single tenant is not material - the top ten tenants
represent less than 10% of our rent roll - many of our tenants are small,
independent businesses, which have suffered significant operational and
financial distress throughout the pandemic. Many have used debt to cover
shortfalls. The longer Government restrictions persist, the greater the risk that
their businesses become unviable.
• In normal times, occupier demand exceeds availability of space in our areas.
Therefore, covenant has not been a major factor in when selecting tenants.
Rather, we favour interesting concepts which help bring footfall to our villages.
Currently, vacancy across the wider West End has led to available space
exceeding demand, although we believe the supply and demand balance will
revert once pandemic issues have receded and available space is absorbed.
• Our support through rent concessions has been critical to support our
restaurant, retail and leisure occupiers in this challenging period. Despite this,
we have seen a number of failures and tenants not wishing to renew at expiry.
• We continue to lobby Government on our tenants’ behalf and provide marketing
support.
• Tenant deposits held against unpaid rent obligations at 30 September 2020:
£14.3 million.
+ Covid-19: impact and response: page 6
+ Portfolio activity report: page 59
We are unable to adapt to tenant demands/shifts in market offer by competitors, or we fail to
anticipate changes in rental growth
Potential causes
• Rapidly changing occupier
requirements.
Consequences
• Reduced income and earnings.
• Increased vacancy and related
• Structural changes in consumer
costs.
Commentary/Mitigation
• The wholly-owned portfolio’s ERV declined on a like-for-like basis by 6.6% in the
year. We expect further pressure on rental values until a sustained recovery is
underway and vacancy levels begin to subside.
Strategic
objectives
1
2
5
• Increased irrecoverable
expenditure.
• Additional capital expenditure
required to compete on fit-out
standards.
• Pressure on ERV, leading to
decline in capital values and
NAV (amplified by gearing).
• Risk of loan covenant breaches.
behaviour and spending.
• Occupiers becoming
increasingly cost conscious
leading to:
- reduced space requirements
and consequential lower
occupational costs, including
investment in fit-out; and
- an increased reluctance
to contribute fully towards
building service charge and
insurance costs.
• Increased vacancy across the
West End.
• Shaftesbury tenant proposition
becomes uncompetitive.
• Flexible working could change
office requirements.
• The current imbalance between availability of space in the West End and
occupier demand is resulting in tenants and potential tenants being more
demanding, especially given the competition for occupiers. We are having to
spend more on unit fit outs to maximise letting prospects and more lettings
are on an inclusive basis, where service charge and insurance costs are not
necessarily fully recoverable.
Evolution of
risk:
Residual risk:
• However, occupiers are still focusing on the quality of the location. Through the
holistic curation of our villages, we have competitive advantage, compared with
owners of single buildings in streets with fragmented ownerships.
• Our portfolio of mostly smaller mixed-use buildings provides considerable
management flexibility to adapt our accommodation to meet space
requirements, an important factor with the current trend towards smaller-sized
units where occupiers can retain a physical brand and product touch point for
their customers.
• We typically seek innovative, mid-market concepts and brands for our villages.
As footfall builds in the pandemic aftermath, the range of rental tones and unit
sizes we can offer across our villages, together with our relatively affordable
rents and approach to leasing flexibility will be more important than ever.
+ Business model and strategy: page 22
+ Portfolio activity report: page 59
Page 76
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
Shaftesbury Annual Report 2020 Strategic report Principal risks and uncertainties
4. Financing and capital structure
Financing risk
Potential causes
• Reduction in income or values
as a result of other principal
risks.
Consequences
• Loan covenant breaches or
reliance on waivers from
lenders.
Commentary/Mitigation
• We review our capital structure and debt covenants regularly; quarterly
forecasts include covenant headroom review.
Strategic
objectives
2
5
• We maintain a pool of uncharged assets to top up security held by lenders,
• Changing lease structure
landscape to more flexible
leases and/or risk sharing.
Evolution of
risk:
Residual risk:
• Insufficient liquidity to meet
if required.
obligations.
• Ability to raise new finance or
refinance existing debt may be
impaired.
• Forced disposal of properties.
• We adopt a prudent approach to our capital structure to minimise financing
risk. However, the prolonged period of reduced rent collections during the
pandemic put stress on our debt covenants and the ability to refinance debt
that was maturing in the near-term.
• Our equity raise in November 2020 ensured that we maintain a strong equity
base and are positioned to return to long-term growth as pandemic issues
recede.
• The pandemic continues to put pressure on net property income. However,
throughout our viability assessment period, we currently expect to meet
interest cover covenants in our debt facilities, either through secured waivers
or by utilising cure mechanisms.
• Our pool of unsecured properties has been bolstered through the release
of security following the termination of an undrawn revolving credit facility,
providing further headroom in our loan-to-value covenants.
+ Financing: page 67
+ Viability statement: page 78
5. Sustainability
Climate risk
Commentary/Mitigation
We recognise that climate change and the transition to a low carbon economy will present significant long-term risks and opportunities for our business.
Failure to identify and mitigate risks could lead to disruption to our operations, damage to our reputation, and inhibit our ability to attract visitors and
occupiers, which ultimately could lead to a reduction in the value of our portfolio. We are continuing to de-carbonise our portfolio and will incur additional
costs in the low energy refurbishment of buildings.
Our key risk indicators are: energy and carbon emissions, waste consumption, EPC ratings and green building certification.
Our mitigation actions include:
• Our Sustainability Committee has oversight of climate related risks. The Committee is chaired by our CEO and led by our Head of Sustainability.
• The Sustainability Committee reports to both the Risk Committee, where climate change is a specific risk, and the Board.
• We are setting science based targets for carbon emissions reductions and will develop a long term net zero carbon target.
• We have a clear sustainability policy and Action Plan that sets out our targets to reduce carbon emissions across our operations.
• Our refurbishment strategy, which addresses about 10% of the portfolio a year, increases energy efficiency and sets minimum expectations for EPCs and
green building standards.
• We have third party verification of our carbon reporting.
• We implemented a five-year biodiversity strategy in 2016 with the objective to achieve a 10% year-on-year increase in quantity of biodiversity features
Strategic
objectives
1
2
4 5
Evolution of
risk:
Residual risk:
across our estate.
+ Sustainability: page 27
+ TCFD statement: page 154
Page 77
Shaftesbury Annual Report 2020 Strategic report
Viability statement
The directors have assessed the Group’s viability and confirm that
they have a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall due over
the three year period to 30 September 2023
Period of assessment
In light of the Covid-19 pandemic, the current level of uncertainty and
the unprecedented pace of change in both our operating environment
and the wider economy have resulted in reasonable expectations
carrying a much lower degree of confidence. Recognising this, the
directors have reduced their period of viability assessment from five
years to three years.
The five-year assessment period used previously reflected lease
lengths or rent review patterns across a large part of our portfolio,
and corresponded with the Group’s typical forecast period. Current
short- to medium-term uncertainty over key assumptions such as lease
terms, rent collection and occupancy render longer-term forecasts
unreliable.
Whilst the Board monitors prospects over a longer period in the execution
of the Group’s strategy, in choosing a three year assessment period it
considered that to make any meaningful longer-term forecast would
require greater clarity with regard to the long-term implications of the
Covid-19 pandemic on our occupiers, consumer behaviour and the
wider economy.
The directors confirm that they have no reason to expect a material
change in the Group’s viability immediately following the end of the
three-year assessment period.
Assessment process
In assessing the Group’s viability, the Board has considered a three-year
review of the Group’s viability, prepared by senior management.
The review considered the potential impact of the principal risks which
could affect solvency or liquidity in ‘severe but plausible’ scenarios for
a range of public health and macroeconomic outcomes. The directors
paid particular attention to those risks which could result in reduced
income, profitability and capital values or a shortfall in liquidity.
Key assumptions
Key assumptions for the central viability scenario along with their link to
the Group’s principal risks are set out below. Each of these assumptions
was also subjected to an extreme downside sensitivity analysis, flexing
the key inputs, in unison, to model more severe adverse impacts and
delays in recovery from the pandemic, assessing the Group’s earnings,
liquidity and debt covenant compliance in a downside scenario.
• West End footfall and consumer spend to recover slowly from the
second quarter of FY 2021 onwards, returning to pre-pandemic levels
in FY 2023
1 4 5 6 7
• Rent collection rates to recover gradually in response to improving
footfall and consumer spending
1 4 5 6 7
• Portfolio vacancy to increase in FY 2021 reflecting continued relatively
low footfall levels, tenant failure, the continuing impact of the pandemic
and the possibility of disruption at the end to the Brexit transition
period
1
3 4 5 6 7
• Further decreases in rental values, crystallising as a reduction in
income as tenancies reach breaks or expiries or tenants default,
resulting in reduced capital values and rental income
1
2 4 5 6 7
• Increased tenant incentive packages including longer rent-free periods,
increased landlord contributions and higher standard of fit-out,
particularly for our food, beverage, retail and leisure space, coinciding
with shortening lease lengths
1
2 5 6
• Increased non-recoverable property and service charge costs
1
3 4 5
• Decrease in capital values reflecting declining rental values and
increasing yields
1
2 4 5 6 7
• No acquisitions or disposals are assumed. The completion of existing
developments is assumed after which capital expenditure is assumed
to continue broadly in-line with the historical trend.
• In view of the Group’s Balance Sheet strength, following the
November 2020 equity raise, no further change in the capital
structure was assumed.
Principal risks
1
Macroeconomic factors
2
Decline in the
UK real estate market
3
Changes in
regulatory
environment
5
Significant increase in
tenant default/failure
6
We are unable to adapt to tenant demand/shifts in
market offer by competitors, or we fail to anticipate
changes in rental growth
4
Reduction in spending
and/or footfall in our
areas
7
Finance risk
Page 78
Shaftesbury Annual Report 2020 Strategic report Viability statement
t
r
o
p
e
r
c
g
e
t
a
r
t
S
i
• Having cancelled the £125 million revolving credit facility following the
equity raise, the remaining £100 million revolving credit facility is
assumed to be refinanced at maturity on a like-for-like basis but to
remain undrawn throughout the viability period. No other changes to
the Group’s financing are assumed.
+ Financing: page 67
Assessment
The Group’s investment strategy is focused on food, beverage, retail
and leisure uses which, in the West End, prior to the onset of the
pandemic, had a long record of resilience and growth. Its management
strategy had delivered high occupancy and sustained income growth
over the long term. However, Covid-19 containment measures have
resulted in an acute fall in income and severe operating and financial
challenges for the Group’s hospitality and retail occupiers.
+ Covid-19: impact and response: page 6
It is the Board’s expectation that the fundamentals of the investment
strategy remain sound and that the effects of the pandemic on the
business will reverse in the medium-term.
The viability assessment assumes that Covid-19 containment measures
are reduced in the coming 12-18 months and a recovery in West End
footfall and spending will follow.
Recent announcements of successful vaccine trials and the Government’s
plans for a mass vaccination programme are first steps towards recovery
but there remains significant uncertainty over the timing and pace of
the return of West End footfall and spending and an economic recovery.
The Group’s food, beverage, retail and leisure operators face severe
economic challenges from loss of trade, the accumulation of
emergency loans and unpaid debts and the termination of government
support schemes, including the business rates holiday from April 2021.
The risk of Covid-19 related tenant failures is likely to remain elevated
for some time.
If reduced earnings were sustained throughout the viability period
this would be detrimental to the Group’s ability to return to profit and
recommence dividends. However, it would not threaten the Group’s
viability unless loan covenants were breached and were not capable
of being cured.
A reduction in capital values might put viability at risk if loan-to-value
covenants on the Group’s debt cannot be satisfied. Declining values
may also curtail its ability to raise new debt funding, but no new funding
is expected to be required due to the Group’s cash reserves, following
the equity raise in November 2020. Debt facilities due to be refinanced
in the viability period are not currently expected to be drawn.
+ Financing: page 67
The downside scenario modelled asset value declines of up to 40%,
resulting from increasing yields, together with decreases in ERVs.
In unison, the downside scenario considered sustained low levels of
rent collection and increased vacancy, costs and tenant incentives
to the extent that the three year average net property income over the
viability period would be 26% below the pre-pandemic level of the year
ended 30 September 2019, with significantly lower levels in the first
eighteen months of the viability assessment period.
Under the downside scenario, the Group would not meet its interest
cover covenants until the final six months of the viability period.
However, for all drawn debt facilities, throughout the viability assessment
period, the Group has either secured interest cover covenant waivers
from its lenders or can make up income shortfalls using cash deposits
or additional assets with sufficient contractual income from its pool of
unsecured properties. The number of occasions on which cure rights
may be used is limited but the directors expect to have sufficient
use-rights to extend through the viability period.
Whilst this scenario would present significant challenges over the
viability period, the directors’ assessment is that, in view of the Group’s
cash reserves, its expected covenant compliance and cure rights, and
the reverse stress testing set out below, the Group would remain viable.
Reverse stress testing
The Board has used reverse stress testing to estimate the level to which
capital values and income would need to fall before it was unable to
cure a breach in its loan-to-value or interest cover covenants.
The Board estimates that the Group could withstand a further 41%
overall decrease in valuations before reaching the limit of its loan-to-
value covenants.
If it were to cancel the remaining revolving credit facility (which is not
expected to be utilised in its downside scenario) and release its security
to be charged against other loans, this tolerance would increase to 48%.
Assuming the allocation of uncharged assets to debt facilities that would
be necessary to sustain these valuation declines, the Group re-calculated
its forecast interest cover covenant headroom. At the point of lowest
headroom in the downside scenario, when the relevant income is already
assumed to be at approximately half of its pre-pandemic level, the Group
could sustain a further income decline of up to 29%, with tolerance
increasing to 46% in the event that the remaining revolving credit facility
were cancelled and its charged assets made available to secure against
other loans.
The Strategic Report on pages 1 to 79 was approved by the Board on 14
December 2020.
Brian Bickell
Chief Executive
Chris Ward
Finance Director
Page 79
Shaftesbury Annual report 2020 Strategic Report Our people and culture
Shaftesbury Annual Report 2020 Strategic Report Xxxxx
Governance
Page 80
Page 80
Shaftesbury Annual Report 2020 Governance
Governance overview
Leadership and purpose
An overview of how the Board monitors
purpose and culture, its key activities
throughout the year and its governance
framework
Chairman's introduction
Monitoring of culture and engagement with employees
The role of the Board and its Committees
Principal Board activities in 2019/20
Our conflicts of interest procedures
Our business conduct
Significant votes against resolutions at our 2020 AGM
Relations with shareholders
+ Leadership and purpose: pages 82 to 89
e
c
n
a
n
r
e
v
o
G
Division of responsibilities
Describes the roles of the directors and
review of director independence
Composition, succession and
evaluation
Sets out our consideration of Board
composition, succession planning
and the Board evaluation
Audit, risks and internal controls
Explains the role of the Audit Committee
in ensuring the integrity of the financial
statements and oversight of our risk
management and internal control systems
Remuneration
Outlines our remuneration policies which
support our strategy and promote long-
term sustainable success
Board and Committee membership
Independence and effectiveness
Roles and responsibilities of the directors
+ Division of responsibilities: pages 90 to 92
Board skills and experience
Our Board evaluation process
Nomination Committee report
+ Composition, succession and evaluation: pages 93 to 95
Audit Committee report
+ Audit, risks and internal controls: pages 96 to 99
Directors' Remuneration report
Remuneration at a glance
Remuneration policy
Annual remuneration report
+ Remuneration: pages 100 to 113
Compliance with the UK Corporate Governance Code 2018 (the “2018 Code”)
This is the first year for the Company to report against the 2018 Code, and the Board considers it has complied in full with the Code
throughout the year ending 30 September 2020, with the exception of Provision 38. This provision requires the alignment of executive
director pension contributions with the wider workforce. As explained in the Directors’ remuneration report on pages 101 and 105, we have
committed to align the contribution levels of the current executive directors with the workforce contribution rate by the end of 2022. Any
new executive directors will be aligned on appointment. The governance report on pages 81 to 113 set out how the Company has complied
with the principles and provisions within the 2018 Code.
Page 81
Shaftesbury Annual Report 2020 Governance
Leadership
and purpose
Chairman’s
introduction
In this period of considerable
uncertainty, good governance,
the strength of our stakeholder
relationships, maintaining a
close dialogue with our talented
team and living our values, is,
I believe, fundamental to our
long-term success
Dear shareholder
I am pleased to present our 2020 Governance report and, as this is our
first year under which the revised UK Corporate Governance Code
2018 has applied to Shaftesbury, we have taken the opportunity to
present some of our governance initiatives under the key themes of the
new governance and reporting rules.
Our purpose, strategy and culture
Given the uncertain and evolving environment in which we have been
living and working this year, I am pleased to be able to report that the
Shaftesbury team’s actions have been critical in delivering on
short-term strategic priorities to support our long-term underlying
purpose: to curate vibrant and thriving villages in the heart of London’s
West End. A key focus for the Board from the beginning of the Covid-19
disruption has been maintaining occupancy across the Group’s
portfolio. We believe this approach, underpinned by a strong financial
base following our capital raise of £307 million through the Firm Placing,
Placing and Open Offer and Offer for Subscription, which completed in
November 2020, will position the business to return to long-term
growth as the pandemic issues recede.
Fundamental to our purpose and strategy is their alignment with our
culture based on our values of being human, original, community
minded, responsible and long term. We are pleased that these have
been a cornerstone to the Shaftesbury team’s actions throughout the
year and, in particular, in the period since the pandemic dominated the
global agenda. How the Board has sought to achieve our purpose and
discharge its duties under s172 of the Companies Act during the year,
including in relation to the pandemic, and our successful post year-end
capital raise, is covered in more detail in our s172 statement on pages
40 and 41.
+ Our people and culture: pages 42 to 45
+ Monitoring of culture and engagement with employees: page 84
Board members and meeting
attendance
Scheduled Board
meetings
(4 held)
Additional
Board
meetings2
Chairman
Jonathan Nicholls
Executive directors
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Non-executive directors
Richard Akers
Dermot Mathias
Sally Walden
Jennelle Tilling
Jill Little1
17/17
17/17
17/17
17/17
17/17
17/17
17/17
17/17
17/17
-
1. Jill Little retired from the Board on 31 January 2020 and could have attended a
maximum of two meetings.
2. In response to the pandemic, frequent ad hoc Board calls were introduced to keep
the Board informed of the changing market circumstances.
Page 82
Shaftesbury Annual Report 2020 Governance Leadership and purpose
Board composition and changes
Succession planning is an important part of our Board governance. In
order to phase our non-executive director retirements, Dermot
Mathias, who continues to bring to the Board a strong level of skill and
independence, but who will have served nine years on the Board in
October 2021, will retire at our 2021 AGM. On behalf of the Board, I
would like to thank Dermot for his valued contribution to the Board
over the years and, in particular, his sage advice over the course of our
recent capital raise. As Sally Walden will also have served nine years on
the Board in October 2021, we have carried out a rigorous review of her
contribution, and are satisfied that Sally remains independent and
objective. In order to provide an orderly succession, it is proposed that
Sally will lead on the 2022 triennial remuneration policy review,
shadowed by Jennelle Tilling, who will become our Remuneration
Committee chair on Sally's retirement from the Board.
Following Jill Little’s retirement at the 2020 AGM and in anticipation of
Dermot Mathias’ retirement at the 2021 AGM, we are delighted that
Ruth Anderson will join us in December 2020 as a non-executive
director and will bring to the Board her experience as a tax and
business advisor to a range of UK and global businesses as well as
previous Audit Committee chair roles at Ocado plc, Coats Group plc
and Travis Perkins plc. From the 2021 AGM it is intended that Ruth will
become Audit Committee chair.
Diversity and inclusion
Of our Strategy and Operations Executive Committee, and their direct
reports, 42% and 74% respectively are female. Following the retirement
of Dermot Mathias at the 2021 AGM, 33% of our Board will be female.
We appreciate that diversity extends beyond gender and we continue
to actively consider diversity and inclusion in all Board and employee
appointments.
Board evaluation
This year our Board evaluation was undertaken externally by Sean
O’Hare of Boardroom Dialogue during the first lockdown and I am
pleased to report that the Board and its Committee's were considered
to be working effectively.
Details of this process, the findings of the review and our progress
against 2018/19 objectives can be found on page 93.
Risk management
One of the ways the Board has monitored the evolution of our risks and
priorities to the challenging circumstances through the pandemic has
been through the introduction of additional Board calls between our
scheduled meetings. Through these additional 17 virtual meetings, the
executive directors, wider team and advisers kept the Board fully
apprised of the changing conditions and actions both taken and
planned. As these more-frequent Board engagements regarding
day-to-day operations have proved valuable, the plan is to continue to
have monthly calls in between our scheduled Board meetings for the
foreseeable future, enabling us to use our scheduled meetings to focus
on more strategic matters.
Our consideration of risks is integral to the way we operate and is
intrinsic in approval of any material transaction. Twice yearly, the Audit
Committee and the Board formally review current and emerging risks.
As the impact of the pandemic has been felt across our operations, we
have considered this within each aspect of the business rather than
treating it as a separate risk. See more on our risk management,
principal risks and uncertainties outlined on pages 71 to 77.
e
c
n
a
n
r
e
v
o
G
Sustainability, the environment and the
community
Whilst the pandemic has, and will continue to, impact our business, our
commitment to sustainability remains as strong as ever. To ensure we
meet the long-term expectations of our stakeholders, we continue to
monitor our sustainability priorities, including actions we need to take to
address climate change, minimise our environmental impact and invest
in our local community.
+ Sustainability: pages 27 to 28
+ Environment: pages 29 to 31
As a result of the pandemic we have refocused our efforts on supporting
young people and our communities in Westminster and Camden.
Recognising the impact of Covid-19 on these groups, in April 2020, we
announced our Covid-19 Community Fund and are pleased to report
that we have provided support of over £310,000 for 18 causes. Part of
the funding for this initiative came through savings made from waivers
of directors' remuneration. Recognising that there will be ongoing
implications for young people and our local communities, we have also
made a commitment of a further £50,000 from our 2020/21
Community Investment budget split over the Young Westminster and
Camden Foundations.
+ Making a positive difference to our community: pages 46 and 47
Legal proceedings instigated by a major
shareholder
As previously reported, on 11 June 2019, the Board was served with legal
proceedings issued by companies controlled by Mr Samuel Tak Lee,
who was at the time the beneficial holder of 26.32% of our share capital.
At the 2020 AGM, Mr Lee, by then the ultimate beneficial owner of 26.15%
of the issued share capital, voted against nine resolutions, of which only
three, which were Special Resolutions, were not passed by the requisite
75% majority. Mr Lee did not vote on any other resolutions, all of which
were passed with in excess of 98% of those voting in favour.
On 30 May 2020, we announced that entities beneficially owned by
Mr Lee had agreed to sell their 26.3% interest in the Company. This was
followed by an announcement on 1 June 2020 that legal proceedings
had been withdrawn. Given the sale of his interest, no further action
was taken in connection with engaging with Mr Lee on his votes against
the 2020 AGM resolutions.
Engaging with our stakeholders
Critical to our long-term success is the strength of our stakeholder
relationships. Whilst a large element of the Board’s regular stakeholder
engagement is with shareholders and employees, a key part of our role
as a Board is oversight of the wider team’s relationships with other
stakeholders including occupiers, the local community, suppliers,
finance providers, joint venture partners, visitors, local authorities,
adjoining property owners and industry associations. For more details
on how we have engaged with stakeholders and the outcome of that
engagement see our s172 statement on pages 40 and 41.
+ Stakeholder engagement: pages 35 to 39
The Shaftesbury team’s efforts this year have been unparalleled in
navigating the challenges faced by the business and nurturing our
relationships across all areas and I would like to thank them for their
continued hard work and dedication. In addition, I would like to express
my gratitude to my fellow Board members for their continued challenge,
support and extra time commitment over the past twelve months.
Lastly, I would just like to say thank you to all of our shareholders for
your continued support in these extraordinary times.
Jonathan Nicholls
Chairman
14 December 2020
Page 83
Shaftesbury Annual Report 2020 Governance Leadership and purpose
Monitoring of culture and engagement
with employees
Key to the achievement of our purpose and strategy is Shaftesbury's
culture and our aim to make a positive difference. Our monitoring of
culture has never been more important and extra Board meetings
during the year provided further opportunities for your Board to see
this culture in action through the Shaftesbury team living our values:
As a small team of under 40 people, there is high level of interaction
with the executive directors in relation to both our various management
committees and day-to day operations. In addition, with all employees
based in one location, the non-executive directors take the
opportunity to meet informally with the team.
• Human. This has been demonstrated through our team's frequent
communications with, and resulting actions in relation to, our
occupiers, employees, the community, suppliers and lenders.
• Original. In these unprecedented times, our teams have worked hard
to ‘think outside the box’ and we have strived to find creative
solutions to sharing the pain of our occupiers and looking creatively
as to how to maintain our visitors' interest in the West End. We have
found opportunities to aid our occupiers during and post-lockdown,
and are lobbying our local councils in respect of initiatives to support
occupiers reopening and helping them implement the new social
distancing measures.
• Community minded. We have proactively looked to support our
long-standing community partners and reached out to help others
through our Covid-19 Community Fund and our wider Community
Investment Committee activities.
• Responsible. We have engaged with and supported our employees,
with none being furloughed, continued to both assist our occupiers
and pay suppliers promptly and created a Covid-19 Community Fund
to help young people and our local communities.
• Long-term. Our actions to support occupiers are, in our view, the
best way to preserve the long-term value of our business.
In monitoring our culture, as part of the employee reward survey in
September 2020, our staff were asked additional questions about how
they felt about Shaftesbury as a place to work and the level of
recognition received. The Board was delighted with the level of
employee response and the feedback that 100% felt both that they
were proud to work for Shaftesbury and would recommend
Shaftesbury as a place to work. However, there were areas identified
for improvement, particularly in recognising the efforts of our teams
and individuals. As a result of this feedback, we have asked our Culture
Group, a cross section of employees across the business, to address
this as part of a recognition project which is sponsored by Richard
Akers, our designated non-executive director for employee
engagement. In addition, the Board has been able to monitor our
culture and ensure engagement with employees through the
attendance of non-executive directors, on a rotational basis, to some
of the Shaftesbury all-employee meetings.
Human
Original
Community-minded
Responsible
Long-term
Page 84
Shaftesbury Annual Report 2020 Governance Leadership and purpose
The role of the Board and its
Committees
The Board
• Four scheduled meetings
• Sets Group strategy
• Oversees the alignment of the Group’s purpose, culture and values,
+ Principal Board activities: pages 86 to 88
strategy and risk appetite
+ Division of responsibilities: on pages 90 to 92
+ Our Board: pages 54 to 55
• Considers the balance of interests between stakeholders for the
long-term success of the Company
• Oversees the Group’s governance
e
c
n
a
n
r
e
v
o
G
Audit
Committee
• Three scheduled meetings
• Oversees the Group’s
valuation and financial
reporting process
• Reviews the adequacy and
effectiveness of internal
financial controls and risk
management systems including
the need for internal audit
• Reviews the independence and
effectiveness of the auditors
+ Audit committee report:
pages 96 to 99
Nomination
Committee
• Five scheduled meetings
• Reviews the structure, size
and composition of the Board
• Oversees succession planning
and development of a diverse
pipeline
Disclosure
Committee
• Meets as required
• Ensures compliance with the
Market Abuse Regulation
• Recommends appointments
to the Board
+ Nomination committee report:
pages 94 and 95
Remuneration
Committee
• Five scheduled meetings
• Determines the remuneration
policy for executive directors,
Chairman and senior employees
• Ensures there is a link between
culture, performance and
remuneration
• Monitors employee
remuneration and related
policies
+ Directors' remuneration report:
pages 100 to 113
Risk
Committee
Strategy and Operations
Executive Committee
• Meets at least twice a year
• Reviews and monitors the
Group’s principal current and
emerging risks
• Oversees the effectiveness of
the Group’s risk management
systems
+ Risk management: pages 71 and 72
+ Principal risks and uncertainties:
pages 73 to 77
• Meets fortnightly
• Develops and implements strategy, operational plans and policies
• Monitors operational and financial performance
• Monitors risks and opportunities
• Ensures appropriate team resourcing, development and succession
planning
Pension
Committee
• Meets at least once a year
• Provides oversight of the
governance of the
Shaftesbury pension scheme
Operations
Committee
Community
Investment Committee
Sustainability
Committee
IT Steering
Committee
• Meets fortnightly
• Oversees day-to-day
operations and procedures
• Meets at least four times a year
• Oversees the Group’s
community investment
strategy, programme and
activities
+ Community: page 36 and 37
• Meets at least four times a
year
• Sets the Company’s
sustainability strategy and
management approach
+ Environment: pages 29 to 31
+ Sustainability: pages 27 and 28
• Meets at least four times a
year
• Monitors the alignment of the
Group’s IT needs and strategy
• Reviews the performance of
the outsourced IT function
Page 85
Shaftesbury Annual Report 2020 Governance Leadership and purpose
Principal Board activities in 2019/20
At every scheduled Board meeting, the Board receives an update from the executive directors and the company secretary on the corporate equity
markets, financial matters, portfolio activities and governance. The table below provides examples of significant matters discussed and
consideration of stakeholders and s172 matters in the year ended 30 September 2020. At the outset of the Covid-19 pandemic, the Board
introduced additional Board meetings to provide updates on the impact of the pandemic to Shaftesbury’s business, stakeholders and the Group’s
financial position. For more on how the Board engaged on these matters and key decisions taken by the Board in relation to s172 matters, please
see pages 40 and 41.
Topic
Activity and outcome1
Stakeholders considered
Section 172 considerations
STRATEGY & OPERATIONS
Acquisitions and capital
expenditure
• Approval of the acquisitions of three strategically important buildings in Kingly Street
and Berwick Street
• Regular updates on progress of the 72 Broadwick Street scheme and leasing strategy
• Post the onset of Covid-19, all non-essential capital expenditure reviewed to
preserve liquidity
Shaftesbury’s office
offering
• Consideration of the changing requirements of office tenants and how to evolve
Shaftesbury’s offering to meet these requirements
Tax Strategy
• Approved the updated tax strategy
IT Strategy
• Updates and reviews of Shaftesbury’s IT Strategy, cyber security, third party
providers, working from home arrangements and IT Steering Committee actions
Occupier support and
post-lockdown recovery
strategy
Stakeholder dashboard
• Updates received and discussed in relation to:
- proposed rent concession strategies
- our post-lockdown recovery strategy
- additional support being offered to occupiers and actions being undertaken in
relation to engagement with local councils and social distancing measures to
benefit occupiers
- external asset management teams’ actions and cost saving measures
+ S172 statement: page 40
• Consideration at each scheduled Board meeting of engagement activities
undertaken by the executive directors and wider Shaftesbury team
Shareholders
Occupiers
Suppliers
Lenders
Shareholders
Employees
Occupiers
Shareholders
Suppliers
Employees
Suppliers
Shareholders
Employees
Occupiers
Local authorities/
neighbouring landowners/
West End tourism partners
Suppliers
Shareholders
Community
Occupiers
Employees
Local authorities/
neighbouring landowners/
West End tourism partners
Suppliers
Lenders
FINANCE
Capital structure and
liquidity
• Regular consideration of the Group’s liquidity, cash flow forecasts, covenants,
covenant waiver discussions and balance sheet strength
Shareholders
Lenders
Long-term consequences
Environment
Business relationships
Reputation
Long-term consequences
Employees
Business relationships
Business relationships
Reputation
Long-term consequences
Employees
Business relationships
Reputation
Long-term consequences
Employees
Business relationships
Reputation
Long-term consequences
Employees
Business relationships
Community
Reputation
Fairness between
shareholders
Long-term consequences
Fairness between
shareholders
Dividend
Financial Reporting
• Process started for the November 2020 Firm Placing, Placing and Open Offer and
Offer for Subscription to raise gross proceeds of £307 million
+ S172 statement: page 41
• Recommended the payment of the 2019 final dividend
• Review of the effect of Covid-19 on liquidity, and determination that no dividend
payments be paid or recommended in relation to the 2020 Half Year and Full Year
results
+ Dividends: page 65
• Review and approval of the Full Year results and January trading statements
• Review and approval of the Half Year results and March and September trading
1. Matters impacted by Covid-19 in bold
statements
Page 86
Shareholders
Long-term consequences
Reputation
Shareholders
Lenders
Long-term consequences
Reputation
Shaftesbury Annual Report 2020 Governance Leadership and purpose
Topic
RISK
Activity and outcome1
Stakeholders considered
Section 172 considerations
e
c
n
a
n
r
e
v
o
G
Risk management
• Confirmed risk appetite based on recommendation from the Risk Committee
• Deliberation of the principal and emerging risks and amendments made following
recommendations from the Audit and Risk Committees
• Consideration of how the pandemic impacted the Group's risks
+ Risk management and principal risks and uncertainties: pages 71 to 77
SHAREHOLDERS
Shareholder engagement
• Discussion of planned investor meetings
• Consideration of feedback from the investor presentations and roadshows
• Feedback from meetings with shareholders
+ Relations with shareholders: page 89
GOVERNANCE
Internal governance
• Updates provided on temporary and permanent changes made to internal
Committee structures
• Approval of the Strategy and Operations Executive Committee terms of reference
• Minutes received from new Operating Committees
External Board evaluation
• Feedback received from the external Board evaluation and actions agreed
+ Board evaluation: page 93
Non-executive director
succession
Division of responsibilities
• Consideration of the experience required of a non-executive director to replace
Shareholders
Dermot Mathias as Audit Committee chair
+ Nomination Committee report: pages 94 and 95
• Reviewed and approved the updated terms of reference for the Audit, Remuneration
and Nomination Committees
• Reviewed and approved the terms of reference and division of responsibilities for the
Chairman, Chief Executive and Senior Independent Director
• Approval of the appointment of Brian Bickell as Deputy Vice Chair of the Westminster
Property Association and Jennelle Tilling as Trustee for Guide Dogs for the Blind
+ Roles and responsibilities of the directors: page 92
Shareholders
Community
Occupiers
Employees
Local authorities/
neighbouring landowners/
West End tourism partners
Suppliers
Lenders
1. Matters impacted by Covid-19 in bold
Long-term consequences
Employees
Business relationships
Environment
Reputation
Shareholders
Community
Occupiers
Employees
Local authorities/
neighbouring landowners/
West End tourism partners
Suppliers
Lenders
Shareholders
Long-term consequences
Reputation
Shareholders
Community
Occupiers
Employees
Local authorities/
neighbouring landowners/
West End tourism partners
Suppliers
Shareholders
Community
Occupiers
Employees
Local authorities/
neighbouring landowners/
West End tourism partners
Suppliers
Lenders
Long-term consequences
Employees
Business relationships
Community
Reputation
Long-term consequences
Employees
Business relationships
Community
Environment
Reputation
Long-term consequences
Reputation
Long-term consequences
Employees
Business relationships
Community
Environment
Reputation
Page 87
Shaftesbury Annual Report 2020 Governance Leadership and purpose
Topic
Activity and outcome1
Stakeholders considered
Section 172 considerations
PEOPLE & CULTURE
Strategic People Plan
Remote working, return to
office plans and employee
wellbeing
• Regular updates on the progress of the Strategic People Plan
+ Strategic People Plan: page 43
• Consideration of:
Employees
Employees
- working from home arrangements including actions proposed and undertaken
in relation to employee engagement and wellbeing;
- employee feedback and return to office plan
• Attendance of all employee Shaftesbury presentations by Jonathan Nicholls,
Richard Akers and Jennelle Tilling
Reward survey
+ S172 statement: page 41
• Consideration of feedback from the all employee reward survey and focus groups and
Employees
approval of actions proposed to address areas raised
SUSTAINABILITY & COMMUNITY
+ Consideration of remuneration and related policies below the Board: page 102
Modern Slavery Statement • Approval of our 2020 Modern Slavery Statement
+ Modern Slavery and human rights: page 28
Shaftesbury’s
sustainability approach
• Consideration of our sustainability approach, proposed underlying premise and priorities
+ Sustainability: pages 27 and 28
Covid-19 Community
Fund
• Director remuneration waived to fund our Covid-19 Community Fund launched
to assist local community during the pandemic
• Updates received on how funds being utilised
+ Making a positive contribution to our community: page 46 and 47
Our Community
Investment approach
• Approval of the revised terms of reference for Shaftesbury’s Community Investment
Committee
Shareholders
Community
Occupiers
Employees
Suppliers
Shareholders
Community
Occupiers
Employees
Local authorities/
neighbouring landowners/
West End tourism partners
Suppliers
Community
Occupiers
Employees
Shareholders
Community
Occupiers
Employees
Long-term consequences
Employees
Long-term consequences
Employees
Reputation
Long-term consequences
Employees
Long-term consequences
Employees
Business relationships
Reputation
Long-term consequences
Employees
Business relationships
Community
Environment
Reputation
Long-term consequences
Employees
Business relationships
Community
Reputation
Long-term consequences
Employees
Business relationships
Community
Reputation
1. Matters impacted by Covid-19 in bold
(cid:706)(cid:744)(cid:741) con(cid:1028)ict o(cid:729) inte(cid:741)est (cid:739)(cid:741)oce(cid:727)(cid:744)(cid:741)es
The Company’s Articles of Association allow for the Board to authorise any actual or potential conflicts of interest that may arise from the directors’
external relationships or commitments. Any potential conflicts of interest are declared at the start of each Board meeting and a director who has a
conflict of interest is not counted in the quorum or entitled to vote when Board considers the matter in which the director has an interest. Actual
and potential conflicts are formally reviewed annually in respect of both the nature of individuals’ roles and their time commitment. No actual or
potential conflicts arose during the year.
The external interests of new directors are considered as part of the recruitment process and, if appropriate, authorised by the Board on
appointment. Any additional external appointments, which are subject to Board approval, are also considered by the Board in relation to the nature
of the appointment and time commitment.
The Board considered these procedures to be working effectively.
Page 88
Shaftesbury Annual Report 2020 Governance Leadership and purpose
Our business conduct
Our culture is founded on forging lasting relationships and partnerships
based on respect, integrity and transparency and as a small team, our
Board and Strategic and Operations Executive Committee have a high
level of oversight over the group’s activities, policies and procedures.
Formal policies in place during the year in relation to anti-corruption
and anti-bribery matters included our anti-money laundering,
anti-bribery, share dealing, whistleblowing and anti-tax evasion
policies. As part of their induction, training is given to new employees
on key policies and for certain topics we require our employees to
undertake annual compliance training.
We do not have a separate human rights policy, however, we support
the ten principles of the UN Global Compact on human rights, labour,
environment and anti-corruption and we expect suppliers, as a
minimum, to adhere to all relevant human rights, employment and
health and safety legislation and comply with standards and codes
specific to their business. As our day-to-day property management is
outsourced, it is important for us that the values and behaviours of our
suppliers are consistent with our own and that new suppliers sign up to
our Supplier Code of Conduct. Our Modern Slavery Act statement is
also updated annually for actions undertaken during the year to
prevent modern slavery and human trafficking in our business and
supply chain.
With our open and transparent culture, employees are encouraged to
speak up if they witness any wrongdoing, or behaviour which does not
align with our high standards. We have a formal whistleblowing policy
under which employees and suppliers can report any concerns either
through our senior independent director or through an independent
hotline and online portal. Following receipt of a whistleblowing report,
we have procedures to follow to ensure that appropriate investigation
is undertaken. This policy is reviewed by the Audit Committee and the
Board annually.
(cid:710)i(cid:730)nificant (cid:745)otes a(cid:730)ainst at o(cid:744)(cid:741) (cid:692)nn(cid:744)al
General Meeting
At the 2020 AGM, the resolutions set out below received votes against
in excess of 20%, which under the Investment Association guidance is
a significant vote against:
• Ordinary resolution - annual remuneration report
• Ordinary resolution - 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 meetings on not less
than 14 days’ notice
Mr Samuel Tak Lee, the ultimate beneficial owner of 26.15% of the
issued share capital at the time, voted against these resolutions. As a
result, the special resolutions listed above were not passed. Mr Lee did
not vote on any other resolutions, all of which were passed with 98%
or more of those voting, voting in favour.
On 30 May 2020, the Board was advised that entities beneficially
owned by Mr Lee had agreed to sell their interest in the Company. As a
result, no further action was taken to engage with Mr Lee regarding the
votes against certain 2020 AGM resolutions.
The Board considers that the authorities sought by the resolutions
above continue to be in the best interests of the Company, and will be
proposing them at the 2021 AGM for consideration by all shareholders.
Relations with shareholders
The Board considers the views of our shareholders and regular
contact with potential investors to be an important aspect of
corporate governance. The chief executive has day-to-day
responsibility for investor relations and feedback is provided
to the Board.
Notwithstanding the impact of the pandemic on our ability to
physically meet shareholders and potential investors, and take them
on tours of the portfolio during the year, the Chief Executive and
executive directors held around 200 meetings with UK and overseas
existing and potential institutional investors, as well as equity market
analysts. Meetings involved either group or individual presentations
and, prior to government social distancing restrictions as a result
of Covid-19, tours of the portfolio which provide an opportunity
to see our villages, understand management strategy, and to meet
the senior leadership team.
A timeline of investor relations activities undertaken during the
year is set out below.
e
c
n
a
n
r
e
v
o
G
November 2019
December 2019
January 2020
March 2020
June 2020
Results for the year ended 30 September 2019
Analyst presentation
Year end results investor roadshow
Year end results investor roadshow
European Public Real Estate conference
Annual General Meeting
Trading update statement
Global Property Conference
Covid-19 update statement
Interim results
Analyst presentation
Interim results investor roadshow
September 2020 Trading update statement
For the November 2019 annual results presentation to analysts, a live
video webcast with replay facilities was made available on our website.
As a result of Government guidance on social distancing during
lockdown in June 2020 this year, Brian Bickell and Chris Ward
pre-recorded the half year results presentation and hosted a live Q&A
session for analysts. The recordings were made available on our
website.
Due to the continued Government pandemic guidance, shareholders
were not able to attend our November 2020 General Meeting in
relation to our capital raise in person. However, they were able to
follow the proceedings at the meeting via a listen-only audio facility. To
enable shareholders to be able to ask questions in advance of the
meeting, a dedicated electronic mailbox was also made available.
All of the directors were present at the 2020 AGM, which provided
shareholders with an opportunity to meet the Board. For our 2021
AGM, given the uncertainty in relation to Government social distancing
to ensure shareholders' safety, shareholders will not be permitted to
attend the AGM in person. However, shareholders will be offered the
opportunity to participate remotely and be able to ask questions and
vote electronically. For more details, please see our Notice of Meeting.
During the year, we have undertaken a number of engagement
activities, including consultation with:
• a number of our larger shareholders on the size and method of our
capital raise in accordance with the requirements of the market
abuse regulations; and
• a number of our large shareholders on a minor amendment to the
calibration of our 2019 LTIP TAR performance measure.
Following our capital raise and the publication of the 2020 annual
results we will be offering general engagement meetings to our major
shareholders with our Chairman, Jonathan Nicholls and Senior
Independent Director, Richard Akers.
Page 89
Shaftesbury Annual Report 2020 Governance
Division of responsibilities
Committee membership
y
t
i
l
i
b
a
n
i
a
t
s
u
S
e
e
t
t
i
m
m
o
C
e
e
t
t
i
m
m
o
C
T
I
CC
++
++
CC
++
n
o
i
t
a
n
m
o
N
i
e
e
t
t
i
m
m
o
C
e
e
t
t
i
m
m
o
C
t
i
d
u
A
n
o
i
t
a
r
e
n
u
m
e
R
e
e
t
t
i
m
m
o
C
e
r
u
s
o
l
c
s
i
D
e
e
t
t
i
m
m
o
C
&
y
g
e
t
a
r
t
S
s
n
o
i
t
a
r
e
p
O
e
v
i
t
u
c
e
x
E
)
E
O
S
(
e
e
t
t
i
m
m
o
C
e
e
t
t
i
m
m
o
C
k
s
i
R
y
t
i
n
u
m
m
o
C
t
n
e
m
t
s
e
v
n
I
e
e
t
t
i
m
m
o
C
e
e
t
t
i
m
m
o
C
n
o
i
s
n
e
P
s
n
o
i
t
a
r
e
p
O
1
e
e
t
t
i
m
m
o
C
C Chair + Member
CHAIRMAN
Jonathan Nicholls
Jonathan Nicholls
Non-executive Chairman
Non-executive Chairman
EXECUTIVE DIRECTORS
Brian Bickell
Brian Bickell
Chief Executive
Chief Executive
Simon Quayle
Simon Quayle
Executive Director
Executive Director
Chris Ward
Chris Ward
Finance Director
Finance Director
Tom Welton
Tom Welton
Executive Director
Executive Director
NON-EXECUTIVE DIRECTORS
Richard Akers
Richard Akers
Senior Independent Director
Senior Independent Director
Dermot Mathias
Dermot Mathias
Non-executive Director
Non-executive Director
Jennelle Tilling
Jennelle Tilling
Non-executive Director
Non-executive Director
d
r
a
o
B
CC
++
++
++
++
++
++
++
CC
++
++
++
Sally Walden
Sally Walden
Non-executive Director
Non-executive Director
++
STRATEGIC AND OPERATIONS EXECUTIVE COMMITTEE MEMBERS
STRATEGIC AND OPERATIONS EXECUTIVE COMMITTEE MEMBERS
++
Samantha Bain-Mollison
Samantha Bain-Mollison
Retail Director
Retail Director
Karen Baines
Karen Baines
Head of Group Marketing & Communications
Head of Group Marketing & Communications
Alastair Deutsch
Alastair Deutsch
Head of Finance
Head of Finance
Desna Martin
Desna Martin
Company Secretary
Company Secretary
Charles Owen
Charles Owen
Property Director
Property Director
Andrew Price
Andrew Price
Property Director
Property Director
Jenna Slade
Jenna Slade
Senior Portfolio Executive
Senior Portfolio Executive
Julia Wilkinson
Julia Wilkinson
Restaurant Director
Restaurant Director
++
CC
++
++
++
++
++
CC
CC
++
++
++
++
CC
++
++
++
++
++
CC
++
++
++
++
++
++
++
++
++
++
++
++
++
++
CC
++
CC
++
++
++
++
++
++
++
++
++
++
++
++
1. The Operations Committee is chaired on a rotating basis by members of the Strategy and Operations Executive Committee below the Board.
Page 90
Shaftesbury Annual Report 2020 Governance Division of responsibilities
There is clear division between executive and non-executive
responsibilities which ensures accountability and oversight. During the
year, the non-executive directors, led by the Chairman, regularly met
without management present. The roles of Chairman, Chief Executive
and Senior Independent Director are clearly defined, set out in writing
and regularly reviewed by the Board and are available from our website
under Corporate Governance. Similarly the Audit, Nomination and
Remuneration Committees’ terms of reference were reviewed by both
the respective Committees and the Board during the year, and are
available on our website under Corporate Governance.
Independence and 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.
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 effectively. The biographies of all of the members
of the Board, outlining their strengths and experience, can be found on
page 54 and 55. The Nomination Committee keeps under review the
tenure of all directors, Board diversity and the effectiveness of
individual directors.
Director tenure
Executive directors
Independent non-executive directors
Jennelle Tilling 2019
Richard Akers 2017
Jonathan Nicholls 2016
Sally Walden 2012
Dermot Mathias 2012
Chris Ward 2012
Tom Welton 1997
Simon Quayle 1997
Brian Bickell 1987
35
Years
30
25
20
15
10
5
0
All non-executive directors are considered by the Board to be
independent.
The Board recognises the importance of all directors being able to
dedicate sufficient time to effectively discharge their duties and
responsibilities. The commitment expected is considered by the Board on
each director appointment and was a key consideration this year in the
recommendation of Ruth Anderson’s appointment to the Board. Directors
undertake additional external appointments, which are periodically
reviewed by the Nomination Committee and the Board. The Board is
satisfied that each has sufficient time to carry out their responsibilities.
During the year ended 30 September 2020, additional external Board
roles for which Board approval was sought and received included Brian
Bickell’s appointment as Deputy Vice Chair of the Westminster Property
Association and Jennelle Tilling’s appointment as a Trustee for Guide
Dogs for the Blind.
e
c
n
a
n
r
e
v
o
G
Independence of directors
Chairman
Executive directors
Independent non-executive directors
1
4
4
Page 91
Shaftesbury Annual Report 2020 Governance Division of responsibilities
Roles and responsibilities
of the directors
Chairman:
Jonathan Nicholls
In his role as Chairman, Jonathan Nicholls is responsible for:
• Leading the Board in the consideration, challenge, support and oversight of the Company’s strategy and its implementation
• Promotion and oversight of the achievement of Company’s purpose, values and culture
• Monitoring the Company’s risk profile
• Effective engagement between the Board, its shareholders and other key stakeholders
• Leading on the review of the Board’s effectiveness
• Oversight of succession planning
• Ensuring regular discussion by the non-executive directors without management present
As part of his role, Jonathan chairs the Nomination Committee
Chief Executive:
Brian Bickell
As Chief Executive, Brian Bickell is responsible for:
• Adapting and executing the Group’s strategy and commercial objectives to ensure they evolve in anticipation of changing market
conditions and risks
• The operational and financial performance of the Group
• Ensuring the Company’s business is conducted with the highest standards of integrity, in keeping with the Company’s culture and values
• Oversight of the Group’s skills, diversity, management development and succession
• Communication with the Board, employees and other stakeholders
As part of his role, Brian is a member of the Longmartin joint venture Board, chairs the Strategy and Operations Executive Committee and
Sustainability Committee and has Board responsibility for HR matters
Finance Director:
Chris Ward
As Finance Director, Chris Ward:
• Supports the Chief Executive in developing and implementing strategy and managing risk
• Provides financial leadership and the alignment of the Company’s business and financial strategy and management of the
Company’s capital structure
• Is responsible for financial planning and analysis, treasury, tax and IT functions
• Is responsible for presenting and reporting accurate and timely financial information
As part of his role, Chris chairs the Risk, IT and Pension Committees
Other Executive Directors:
Simon Quayle, Tom Welton
Senior Independent Director:
Richard Akers
As Executive Directors, Simon Quayle and Tom Welton:
• Support the Chief Executive in developing and implementing the Group’s strategy and objectives
• Develop and execute business plans in collaboration with the Chief Executive, Finance Director and Senior management
• Oversee the day-to-day activities of the Group in line with the Group’s values
As part of their roles, Tom is a member of the Longmartin joint venture Board and Simon is a member of the Sustainability Committee.
In his role as Senior Independent Director, Richard Akers:
• Provides a ‘sounding board’ for the Chairman and acts as an intermediary for non-executive directors when necessary
• Is available to shareholders as required as an alternative contact to the Chairman
• Leads the non-executive directors in the evaluation of the Chairman’s performance
• Acts as an independent point of contact in the Group’s whistleblowing procedures
Designated Non-Executive Director
for employee engagement:
Richard Akers
In his role as Designated Non-Executive Director for employee engagement, Richard:
• Acts as Board sponsor for the Employee Culture Group
• Attends Shaftesbury staff presentations as appropriate
• Monitors feedback from, and actions proposed as a result of, employee surveys, reporting to the Board or Remuneration Committee as
appropriate
• Reviews any whistleblowing matters raised by employees
Non-Executive Directors:
Richard Akers, Dermot Mathias,
Sally Walden, Jennelle Tilling
In their role as Non-Executive Directors and members of the Nomination, Audit and Remuneration Committees, Richard Akers,
Dermot Mathias, Sally Walden and Jennelle Tilling:
• Give an external perspective and provide constructive challenge to the executive directors and members of the Strategy and Operations
Executive Committee in the Board’s discussions and decision making using their broad mix of business skills and experience
• Monitor performance of the Group’s strategy within the risk management framework
• Promote the highest standards of integrity and corporate governance throughout the Company and particularly at Board level
• Review the integrity of financial reporting and that financial controls and systems of risk management are robust
• Determine appropriate levels of remuneration for the senior executives
Dermot Mathias and Sally Walden chair the Audit Committee and Remuneration Committee respectively
Page 92
Shaftesbury Annual Report 2020 Governance
Composition, succession and evaluation
Board evaluation
Board skills and experience
As part of the review Sean O’Hare:
Food,
Food,
beverage,
beverage,
retail
retail
Real estate
Real estate
Corporate
Corporate
fi nance
fi nance
Accounting/
Accounting/
fi nance
fi nance
Fund
Fund
management
management
/fi nancial
/fi nancial
markets
markets
Consumer
Consumer
marketing
marketing
EXECUTIVE DIRECTORS
Brian Bickell
Brian Bickell
Simon Quayle
Simon Quayle
Tom Welton
Tom Welton
Chris Ward
Chris Ward
NON-EXECUTIVE DIRECTORS
Jonathan Nicholls
Jonathan Nicholls
Richard Akers
Richard Akers
Dermot Mathias
Dermot Mathias
Sally Walden
Sally Walden
Jennelle Tilling
Jennelle Tilling
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
++
Our 2019/20 Board evaluation process
Board performance evaluation cycle
Year 1
Independent
externally facilitated
review
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
As part of our three year external Board evaluation cycle, this year our
Board and Committee evaluation process was externally facilitated by
Sean O’Hare of Boardroom Dialogue and included matters arising as a
result of the start of the pandemic. In considering the appointment, the
Board believed that Sean O’Hare, having undertaken our 2017 Board
evaluation, was best placed to consider how the Board had and should
continue to evolve, to maximise its eff ectiveness. Neither Sean O’Hare
nor Boardroom Dialogue have any other connection with the Company
or any director.
• interviewed each Board director and the Company Secretary;
• attended a meeting of each of the Board, Audit, Remuneration and
Nomination Committees; and
• provided his feedback to a meeting of the Board in July 2020.
In addition to the evaluation of the Board and each of the Committees,
individual feedback on the directors was provided to the Chairman,
who after consideration of the recommendations from the Board
evaluation process, met with the directors individually. Richard Akers as
Senior Independent Director also led a discussion with the non-
executive directors as to the Chairman's performance.
e
c
n
a
n
r
e
v
o
G
The review was focused on the following key areas:
• Board leadership and company purpose – including strategy, values
and culture, allocation of resources to deliver on the strategy,
stakeholder (including workforce) engagement.
• Division of responsibilities – the eff ectiveness of the Chairman, size of
the Board, quality of engagement in Board discussions, appropriateness
of Board papers, frequency and length of Board meetings, and
interaction of Board members outside of formal meetings.
• Composition, succession and evaluation – eff ectiveness of the
Nomination Committee, appointments process for Board and senior
management roles, induction and development of Board members,
leadership development and action arising from the most recent
internal and external evaluations; and
• Committee eff ectiveness – including the Audit Committee oversight
of fi nance, risk and controls plus the Remuneration Committee's
eff ectiveness in aligning remuneration with Company values and
reviewing performance outcomes in light of market expectations.
The review concluded that the fl ow and activities of both the Board
and Committees worked well. The Chairman’s personal style of
openness and supporting change enhanced the Board and the
directors’ eff ectiveness in working in a collegiate manner with engaged
and open discussions.
Refl ecting the timing of the review and the impact of Covid-19,
recommendations of areas for the Board to keep under review included:
• regular consideration of the resilience of the business model;
• continued monitoring of the Group’s culture;
• consideration of the Group’s science-based targets as part of its
Sustainability strategy;
• reviewing the strengths of the Group’s stakeholder relationships; and
• capitalising on the learnings arising from the revised ways of working
as a result of Covid-19 and streamlining of board processes.
Progress against the Group’s 2019 evaluation:
Area of Focus
Objective
Progress
Director
succession
Clarify the succession
plans in place for both
the non-executive and
executive directors.
Stakeholder
engagement
Improve reporting on the
stakeholder engagement
and reporting to the Board.
Ruth Anderson to join the Board as a non-executive director in December 2020. To ensure a staggered succession, Dermot Mathias
will be retiring after 8 years at the 2021 AGM, and it is proposed that Sally Walden remain as Chair of the Remuneration Committee
until the 2022 AGM. Given her knowledge of the Group, Sally will lead on the 2022 Remuneration Policy, shadowed by Jennelle Tilling,
who will succeed her as Chair of the Remuneration Committee.
Changes made to internal management committees and recruitment of a Head of Finance to add resilience below Board level.
Executive directors’ succession kept under review.
A stakeholder ‘dashboard’ of engagement by the executive and non-executive directors and wider Shaftesbury teams is tabled at
each scheduled Board meeting. As part of this, the Strategy and Operations Executive Committee and Board consider the strength
of Shaftesbury’s relationship with shareholders, employees, occupiers, our community, local authorities, London promotional
groups and local property owners, suppliers and advisors, lenders and our joint venture partners.
Page 93
Shaftesbury Annual Report 2020 Governance
Composition, succession and evaluation
Nomination
committee report
As our business continues to
evolve, and our operating
environment becomes more
complex, our focus this year has
been on non-executive director
succession and to ensure our
management structure, skills
and experience below the Board
support the effective delivery of
our long-term ambitions
Nomination Committee members and
attendance
Number of meetings
attended (5 held)
Jonathan Nicholls (Chair)
Dear shareholder
As chair of the Nomination Committee, I am pleased to present our
report for 2020, covering the work of the Committee during the year
with our key focus on non-executive succession planning.
Succession planning and talent
development
This year, following Jill Little’s retirement from the Board at the January
2020 AGM, and in light of Dermot Mathias and Sally Walden’s length of
tenure and anticipated retirement from the Board over the course of
the next two years, our focus was to find the right person to join our
Board. We are delighted that Ruth Anderson, with over 20 years’
experience as a KPMG partner acting as tax and business advisor to a
range of UK and global businesses and previously Audit Committee
chair of Ocado plc, Coats Group plc and Travis Perkins plc, will be
joining the Board on 21 December 2020. As part of her induction, Ruth
attended our December 2020 Board and Committee meetings.
Inzito, an external search agency, was engaged to undertake the search
which started in February 2020 with the shortlist initially interviewed by
Brian Bickell and myself. Inzito, are a signatory to the Voluntary Code of
Conduct, and have no other connection with the Company or the
individual directors. A key element of our consideration as to
individual’s suitability for the role was that candidates would be able to
devote sufficient time to the role and which, on challenge, precluded a
number of candidates. A shortlist was then interviewed by Chris Ward
and the other non-executive directors. After due consideration, the
Committee recommended the appointment of Ruth to the Board,
which was approved at our December 2020 Board meeting.
Richard Akers
Dermot Mathias
Jennelle Tilling
Sally Walden
Key responsibilities
• Monitor and review the structure, size, composition
(including skills, knowledge, experience and diversity) of the
Board and its Committees
• To ensure that there are sufficient plans in place for the
orderly and effective succession of the Board and senior
leadership team
• Keep under consideration directors’ skills, experience and
independence
• Lead the process for Board appointments
• Review the time commitment expected from directors
• Review the results of the Board performance evaluation
that relate to its composition, diversity and how effectively
members of the Board work together
2020 areas of focus
• Undertook the search and appointment process for a new
non-executive director and recommended to the Board
the appointment of Ruth Anderson
• Reviewed non-executive director succession plans
• Reviewed executive director succession
• Updated the Committee terms of reference
• Reviewed the Committee’s effectiveness
Page 94
Shaftesbury Annual Report 2020 Governance Composition, succession and evaluation
Dermot Mathias, having served eight years on the Board in October
2020, will be retiring from the Board at our 2021 AGM. To ensure an
orderly succession, we are proposing that Sally Walden, who has also
served eight years on the Board as of October 2020, remain as chair of
our Remuneration Committee until the 2022 AGM. In order to provide
an orderly succession, it is proposed that Sally will lead on the 2022
triennial Remuneration policy review, shadowed by Jennelle Tilling, who
will become our Remuneration Committee chair on Sally's retirement
from the Board. As Dermot and Sally have been on the Board for more
than six years, a rigorous examination of their continued effectiveness
and independence was considered by the Nomination Committee in
considering the individual director reappointments at the AGM and the
Committee concluded that they continue to be independent and
effective in their roles. As Senior Independent Director, Richard Akers,
in consultation with the other members of the Board, keeps succession
planning of my role as Chair under regular review.
During the year, the executive directors revisited our internal management
committee structures and established two new committees, being our
Strategy and Operations Executive Committee (‘SOE’) made up of our
executive directors and senior management chaired by Brian Bickell
and an Operations Committee, reporting into the SOE.
The Nomination Committee recognises that our executive directors
have a long tenure with Shaftesbury and their succession remains
under continual review. The clear roles and responsibilities of the SOE
ensures that our key senior management team below Board work
closely with the executive directors in the implementation of the
Company’s strategy and oversight of operations. This structure both
ensures an appropriate breadth and depth below Board level and aids
in the personal development of our senior management team. To provide
additional resilience to our Finance team, we recruited Alastair Deutsch as
Head of Finance and a member of the SOE in September 2020.
The whole Board has been kept informed of our development plans for
all our employees through updates on our Strategic People Plan, which,
as a result of Covid-19, has seen a re-prioritisation of a number of
different actions.
+ Our Strategic People Plan: page 43
Diversity and inclusion
The Board recognises the importance of diversity and a culture of
inclusion, both in its membership, and the Company’s employees. We
have 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 valuable differing perspectives across the business as well as
fostering constructive challenge to established behaviours and attitudes.
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.
Whilst we fell below this level as a result of Jill Little’s retirement earlier
this year, following Ruth Anderson’s appointment we will again have
30% female representation on the Board which will increase to 33%
after Dermot Mathias’s retirement at the 2021 AGM.
Below Board level, we have a gender-diverse talent pool, with 63%
female membership on our SOE (excluding the executive directors) and
of direct reports to the SOE, 74% 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. We support initiatives to promote diversity
within the real estate sector:
• 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.
• We are a corporate sponsor of Freehold, a London-based forum for
LGBT real estate professionals.
(cid:695)i(cid:745)e(cid:741)sit(cid:748) fi(cid:730)(cid:744)(cid:741)es
Directors
7male
(70%)
10
3female
(30%)
including Ruth Anderson, who will join the Board on
21 December 2020
e
c
n
a
n
r
e
v
o
G
3male
(37%)
5male
(26%)
13male
(33%)
Strategy and
Operations Executive
Committee (excluding
executive directors)
5female
(63%)
Direct reports into the
Strategy and
Operations Executive
Committee
14 female
(74%)
All employees
26 female
(67%)
8
19
39
Committee effectiveness
During the year, we updated our Nomination Committee terms of
reference and, following the Board and Committee evaluation process,
to respond to a number of challenges as to how the Nomination
Committee could be more effective we have:
• revisited our Board member skill matrix in advance of recruitment of a
new non-executive director in 2021. Prior to this search being started,
we will review, as a Board, any key areas of experience we believe we
should be seeking that would add to the Board; and
• designed a programme between the non-executive directors and SOE
to enable an informal forum for mentoring and engagement of our
senior management team.
In a more challenging year than normal, I would like to thank my fellow
Committee members for their support throughout the year.
Jonathan Nicholls
Chair of the Nomination Committee
14 December 2020
Page 95
Shaftesbury Annual Report 2020 Governance
Audit, risks and
internal controls
Audit committee
report
The Committee’s role is to
oversee the integrity of the
Group’s financial reporting, risk
management and the external
audit relationship
Dear shareholder
I am pleased to present the report of the Audit Committee for the year
ended 30 September 2020 which provides an overview of key areas of
focus during the year.
Financial reporting
Valuation of the portfolio, accounting considerations
and key areas of judgement or estimation
The valuations provided by external valuers are significant components
of the annual and half year results. As such, the Committee focuses on
the valuation process, the key judgements made by the valuers and
their independence. Following our review, the Committee is satisfied
that the valuation process is robust, the assumptions and estimates
used in the valuations are appropriate and the valuers remain
independent and objective.
The Covid-19 pandemic created a number of matters for the
Committee to consider, including:
• the going concern assessment and Viability Statement;
• accounting for rent concessions; and
• key areas of estimation uncertainty in the financial statements,
particularly provisions for expected credit losses and impairments.
These matters are set out in the following report.
Viability and going concern statements
The Committee considered, together with their underlying
assumptions, for the Interim Statements, the going concern statement
and for the Annual Report, both the viability and the going concern
statements. This included management's work on assessing the
potential risks to the business (in particular, the impact of the Covid-19
pandemic) and the three-year period adopted in the Viability
Statement. The Committee was satisfied that management had
conducted robust assessments and recommended to the Board that it
could approve and make the viability and going concern statements.
Fair, balanced and understandable
The Board as a whole is responsible for determining whether the 2020
Annual Report and Financial Statements are fair balanced and
understandable. The Audit Committee’s role in this is covered on page
99. For the year ended 30 September 2020, the Committee confirmed
to the Board it was satisfied that the Annual Report was fair, balanced
and understandable.
+ Directors' responsibility statement: page 118
Audit Committee members
and meeting attendance
Number of meetings
attended (3 held)
Dermot Mathias (Chair)
Richard Akers
Sally Walden
Jennelle Tilling
Key responsibilities
• Review of the work of the external auditor and valuers and
any significant financial judgements made by management
• Advising the Board on various statements made in the
Annual Report, including those on viability, going concern,
risk and controls and whether, when read as a whole, the
Annual Report is fair, balanced and understandable and
provides the information necessary for shareholders to
assess the Company’s position, performance, business
model and strategy
• Responsible for the relationship with the external auditor
and consideration of their reappointment, their reports to
the Committee, performance, objectivity and
independence including the level of provision of
non-audit services
• Review of the Company’s internal financial controls, and
internal control and risk management systems
• Review of the Company whistleblowing policy and
procedures
• Ongoing monitoring of the need for an internal audit
function
Page 96
Shaftesbury Annual Report 2020 Governance Audit, risks and internal controls
2020 Annual Report
The executive directors have confirmed to the Committee that they
were not aware of any material misstatements in the Interim Statements
and annual results and the external auditors confirmed that they found
no material misstatements in the course of their work.
Risk, control and assurance
The Risk Committee evaluates the Group’s risk and control
arrangements, reporting to the Audit Committee and the Board. In the
current year, this evaluation has included the significant impact of the
pandemic on a wide range of aspects of the business.
After reviewing the reports from management and, following
discussions with the external auditor and valuers, the Committee is
satisfied that:
• both the external auditor and valuers remain independent and
objective in their work;
• the financial statements appropriately addressed the critical
judgements and key estimates, both in respect of the amounts
reported and the disclosures;
• the processes used for determining the value of the assets and
liabilities had been appropriately reviewed, challenged and were
sufficiently robust; and
• the Group has adopted appropriate accounting policies.
Independence and effectiveness of the
auditor and auditor reappointment
In normal circumstances, non-audit fees form a relatively minor
proportion of work carried out by EY. However, this year in undertaking
the Group’s equity issuance, we required the work of a reporting
accountant, including an independent report on the working capital
statement. Whilst we believed that EY as our auditors were best placed
to provide these services, we were cognisant of auditor independence
and, therefore, engaged not only with EY but also with the FRC on this
matter. The FRC’s clearance was obtained in advance of appointing EY
to undertake the work. In seeking the FRC’s clearance, given the timing
of the work, an exemption was sought to exceed the 70% non-audit fee
cap for both the year ended 30 September 2020 and the year ending
30 September 2021. Separately, the Audit Committee also considered
the safeguards that EY put in place to ensure its independence in
undertaking the work.
The Committee remains satisfied with the effectiveness of the external
audit and its interaction with EY. It also remains confident that EY's
objectivity and independence are not in any way impaired by the
provision of non-audit services and based on the Committee’s
recommendation, the Board is proposing that EY be reappointed as the
Company’s external auditor at this year’s AGM.
+ External auditors: page 99
+ Audit fees: page 99
How the Committee operates
The Audit Committee is composed solely of independent non-executive
directors, with a good diversity of experience, including property, F&B,
marketing and finance. Dermot Mathias, as a chartered accountant
with many years of senior financial experience, satisfies the requirement
of having appropriate recent and relevant financial experience.
At the Audit Committee Chair’s 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 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, the Audit Chair meets with executive directors,
as appropriate, to obtain a good understanding of key issues affecting
the Group which helps the Chair in his oversight of the agenda and
discussions at Committee meetings.
e
c
n
a
n
r
e
v
o
G
Whilst we do not have a formal internal audit function, a rolling
programme of reviews of key controls is conducted through a combination
of assessments by external parties and reviews by management, as
appropriate, to provide assurance on the Group’s risk and control
arrangements. In the current year, remote working has made external
reviews impractical and so a review of the effectiveness of controls has
been performed by management. We anticipate supplementing
management’s work with external reviews in the coming year.
+ Risk management: pages 71 and 72
Whistleblowing
Whilst accountability for whistleblowing is a Board responsibility, the
Audit Committee continues to review the whistleblowing policy on an
annual basis. There were no whistleblowing instances during the year.
+ Whistleblowing policy and procedures: page 89
Committee effectiveness
I believe that the quality of discussion and challenge by the Committee,
of management, the external audit team and individuals undertaking
reviews of the Group's internal controls, together with the quality of
papers received by the Committee, ensure the Committee is able to
perform its role effectively. This year the Committee’s effectiveness was
formally reviewed as part of the external Board evaluation process and
I am pleased to be able to report that the feedback was that the
Committee was working effectively.
I would like to thank the other members of the Committee,
management and our external auditors for their support during the year.
Dermot Mathias
Chair of the Audit Committee
14 December 2020
2020 areas of focus
Financial reporting
• Reviewed the half year and year end financial statements including
key judgements, estimates and assumptions, going concern and
viability statements
• Consideration as to whether the Annual Report was fair, balanced
and understandable
• Meetings with the valuers in respect of the half year and year end
portfolio valuations and directors’ valuations included within the
prospectus for the equity raise in November 2020
• Meetings with the auditors in respect of the half year and annual results
Audit
• Consideration of the independence and effectiveness of the
external auditor
• Audit fees and non-audit fees
• Audit plan and strategy
Controls and assurance
• Review of risks and controls, including reports from the Risk
Committee and management's testing of the operation of controls
• Review of ongoing GDPR programme
• Review of the Group’s whistleblowing policy
• Consideration of the need for internal audit
Governance
• Updated the Committee’s terms of reference
• Reviewed the Committee’s effectiveness
Page 97
Shaftesbury Annual Report 2020 Governance Audit, risks and internal controls
(cid:710)i(cid:730)nificant acco(cid:744)ntin(cid:730) matte(cid:741)s an(cid:727) (cid:734)e(cid:748) a(cid:741)eas o(cid:729) (cid:733)(cid:744)(cid:727)(cid:730)ement an(cid:727) estimation
Considerations
Action taken and conclusions
Valuation of the Group's and Longmartin's investment properties
The valuation of investment properties is a key determinant of the Group’s net
asset value as well as indirectly impacting executive and employee remuneration.
The valuation is conducted by independent valuers. However, valuations are
inherently subjective and require significant estimates to be made including, but
not limited to, market yields, ERVs and void periods.
Given the level of market disruption as a result of the onset of the pandemic, the
valuation reports at 31 March 2020 included statements highlighting a material
valuation uncertainty, which was consistent with market practice and not specific
to Shaftesbury. By 30 September 2020, the valuers had removed the material
uncertainty clauses from their valuation reports.
At 30 September 2020, the valuation of investment properties was £3.137 billion.
Additionally, our share of the valuation of investment properties held in the joint
venture was £175 million.
Further information on the approach taken by the valuers in valuing the portfolio
and a sensitivity analysis on equivalent yields and ERV is set out in note 10 to the
financial statements.
+ Portfolio valuation report: pages 56 to 58
The Audit Committee Chair and members of the Audit Committee met the valuers without management
present, to review the valuations at 31 March and 30 September. The Audit Committee together with the
Chairman of the Board, the Chief Executive, Finance Director and the external audit team met with the
valuers at the June and December Committee meetings to discuss the valuation included in the half year
and year end financial statements. At these meetings, consideration is given to:
• analysis and commentary by management;
• presentations from Cushman & Wakefield, valuers of the wholly-owned portfolio, and Knight Frank,
who value Longmartin's investment properties, which include comparable evidence for the key
assumptions adopted; and
• an assessment by the external auditor, which uses its in-house real estate valuers as part of its audit.
The Committee discussed the valuers' material uncertainty clauses included in the valuations at 31
March 2020 and considered the disclosures in the Financial Statements and was satisfied that they had
been appropriately disclosed.
Annually, the valuers also confirm that they are appropriately qualified to carry out the valuations
and that fees they receive are not a material part of their overall fee income. Further details in respect of
the valuers, including fees for valuation and non-valuation services, are given in note 10 to the financial
statements. The Committee remains satisfied that the valuers are objective and independent.
Following its reviews, the Committee was satisfied that the valuations had been carried out
appropriately and were suitable for inclusion in the Group’s accounts.
Specific matters arising from the Covid-19 pandemic
The Covid-19 pandemic and government social distancing measures have had a material impact on footfall and spending in the Group’s villages in the year.
Rent collections have been significantly below normal levels and many of the Group’s commercial occupiers are suffering operational and financial challenges.
The Group has supported its occupiers through a number of measures including waivers and deferrals of rent.
+ Covid-19: impact and response: pages 6 to 9
As a consequence, there were a number of matters for the Committee to consider.
Accounting for rent waivers as lease modifications
Under IFRS, the cost of rent waivers is spread over the remaining term of the
lease, or extended term if the lease has been extended in exchange for the waiver.
Rent waivers in the year amounted to £14.3 million.
+ Portfolio activity report: pages 59 to 62
Provisions for expected credit losses and impairments
At 30 September 2020, occupier arrears, including amounts deferred as part of
the Group’s occupier support, amounted to £26.0 million.
Provisions against these arrears totalled £14.3 million. The Income Statement
charge for expected credit losses in the year was £13.0 million.
Management have also assessed the carrying value of lease incentive and
prepaid letting cost balances, in view of occupiers’ financial challenges and
considered whether these balances were impaired. The charge for impairments
within net property income during the year was £8.9 million.
The Committee considered papers from management on the accounting treatment for lease modifications
and waivers and discussed the accounting treatment with the external auditor.
The Committee was satisfied that the accounting treatment for rent waivers and lease modifications
was appropriate, in line with IFRS.
As an area of significant estimation in the year, the Committee considered the methodology used
by management and the rationale for the judgements made in assessing expected credit losses and
impairments.
The external auditor specifically reported on the provisions made.
The Committee concluded it was satisfied with the methodologies and judgements used by
management in assessing the provisions for expected credit losses and impairments, and that the
disclosures in the Annual Report were appropriate.
+ Financial results: pages 63 and 64
Accounting policy for deferred income which is considered will not be fully recoverable
At 31 March 2020, there was an environment of extreme credit uncertainty. Rents
billed in advance of the following quarter, amounting to £14.7 million, were
considered to not be fully recoverable on the basis of likely concessions to be
granted to occupiers. These amounts had not been recognised as income at that point.
In the half year results, the Group applied an accounting policy for deferred
income which it considered would not be fully recoverable. Under the
accounting policy, these amounts were derecognised from deferred income and
trade receivables at the reporting date, with both the income and expected
credit loss recognised in the Income Statement on an accruals basis.
Effective from 1 October 2020, the Group offered commercial occupiers
the opportunity to be invoiced, and pay, rent and service charges monthly.
Consequently, amounts billed in advance at 30 September 2020 were not material.
Viability and going concern statements
Given pandemic-related uncertainties, the Group placed a special emphasis on
its going concern assessments during the year and the Viability Statement.
In the Interim Statements, the going concern statement:
• included a key assumption that interest cover covenant waivers would be
granted or extended throughout the going concern assessment period; and
• disclosed the material uncertainty clause reported by the valuers.
For the statements in this Annual Report:
• the forecasts used to assess going concern and viability included the proceeds
of the equity raise completed in November 2020; and
• in light of the uncertain environment, the viability assessment period was
reduced from five years to three years
+ Viability Statement: pages 78 to 79; Going concern statement: pages 115 and 116.
Page 98
The Committee was briefed by management and consulted with the external auditor on the
appropriateness of the policy.
The Committee concluded that the accounting policy presented a true and fair view and had been
properly disclosed in the interim statements.
In considering these statements, the Committee reviewed forecast reports from management which
considered downside scenarios and stress testing of material assumptions including vacancy and rent
collection rates. The forecasts also considered a number of key aspects, including:
• loan covenant compliance including waivers received from the Group’s finance providers and
covenant cure rights available to the Group;
• available liquidity and financing capacity; and
• refinancing of debt facilities.
Following review and discussion, the Committee concurred with management’s recommendation
that the viability statement should be reduced to three years, was satisfied that management had
conducted robust assessments and recommended to the Board:
• it could approve and make the viability and going concern statements; and
• the reduced period for the Viability Statement.
Shaftesbury Annual Report 2020 Governance Audit, risks and internal controls
e
c
n
a
n
r
e
v
o
G
Fair, balanced and understandable
On behalf of the Board, the Committee discussed a report from the
Finance Director covering the financial statements and whether the
Annual Report:
• had clearly reported the impact of Covid-19 on the financial
statements;
• 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 financial 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.
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.
Following an audit tender process, EY was appointed as external auditor
for the year ended 30 September 2016. Annually, the Committee
assesses the qualifications, expertise, resources, and independence of
the Group’s external auditors, as well as the effectiveness of the audit
process through discussion with the Finance Director and Group
Financial Controller, review of a detailed assessment questionnaire and
confirmations from the external auditor. The chair of the Committee
and the Finance Director also meet with an independent partner from
EY.
EY has confirmed to the Committee that:
• it has internal procedures in place to identify any aspects of
non-audit work which could compromise its role as auditor and to
ensure the objectivity of its audit report;
• the total fees paid by the Group during the year do not represent a
material part of its firm’s fee income; and
• it considers that it has maintained audit independence throughout
the year.
This year, in undertaking the Group’s equity issuance, we required the
work of a reporting accountant including an independent report on the
working capital statement. Whilst we believed that EY as our auditors
were best placed to provide this we were conscious of not wanting to
compromise their independence and, therefore, engaged not only with
EY but also with the FRC on this matter and the FRC’s clearance was
obtained in advance of appointing EY to undertake the work. In seeking
the FRC’s clearance, given the timing of the work, an exemption was
sought to exceed the 70% non-audit fee cap for both the year ended
30 September 2020 and the year ending 30 September 2021.
Factors taken into account by the Audit Committee in being satisfied as
to EY’s continued audit independence in relation to undertaking this
work included:
• the nature of the work undertaken by EY and consideration of the
relevant independence threats and safeguards in place. For example,
the working capital exercise was carried out by a separate team and
led by a separate engagement partner. In addition, there was no self
review threat as EY did not prepare any information used for financial
reporting;
• all of the non-audit services provided in the year, including the
reporting accountants work was permissible under the UK Ethical
Standard;
• for the previous two years, the nature of the non-audit services
performed by EY were principally only in respect of the review of the
half year results, with other non-audit services not exceeding £10,000
p.a.; and
• it was not anticipated that EY would perform any other non-audit
services for the year ended 30 September 2020 or the year ending 30
September 2021 apart from the half year review and usual assurance
work.
The Committee’s relationship with the external auditor is one of
openness and professionalism. From its discussions during the year, the
Committee considers that the auditor provides appropriate professional
challenge and reports its findings in a frank and honest manner.
The Committee remains:
• satisfied with the effectiveness of the external audit and the interaction
between the auditors and the Committee;
• satisfied as to the auditor’s qualifications, expertise and resources; and
• remains confident that its objectivity and independence are not in any
way impaired by the provision of non-audit services.
Audit fees
Fees payable to the auditor for audit and non-audit services are set out
in note 6 to the Financial Statements on page 135.
The Committee’s policy is that non-audit assignments are not awarded
to the external audit firm if there is a risk that audit independence and
objectivity could be compromised. Our non-audit fees policy was
updated during the year to reflect changes to the Financial Reporting
Council’s Revised Ethical Standards. Under our non-audit work policy,
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.
As a result of EY's work on the Group's equity issuance (outlined in more
detail under External auditors), non-audit fees were 175% of audit fees in
the year ended 30 September 2020 and were 303% of the average audit
fees for the preceding three years. As a result of the timing of the work,
non-audit fees are expected to exceed the audit fees for the year ending
30 September 2021.
The auditor was also paid £36,000 (2019: £33,400) for its audit of the
Longmartin joint venture. The Company’s 50% share of this was £18,000
(2019: £16,700).
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 related controls,
reporting to the Committee. Formal reviews of the effectiveness of
financial controls undertaken by management are also reviewed by the
Committee. The external auditors review procedures and controls as
part of their work and comment, where appropriate, to the Committee.
+ Principal risks and uncertainties: pages 73 to 77
+ Risk management: pages 71 and 72
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.
To supplement reviews of risk management and internal control
arrangements undertaken by management and the Risk Committee,
from time-to-time, the Committee appoints third parties to provide
further assurance and their reports are made available to the external
auditor. During the year, it was considered that external reviews would
be impractical given social distancing measures and remote working.
The Committee anticipates the external reviews to recommence in the
coming year.
Page 99
Shaftesbury Annual Report 2020 Governance
Remuneration
Directors’
remuneration
report
Our aim is to align the
remuneration both of our
executive directors and
employees with our purpose
and values which support the
Group’s strategy and long-term
success
Dear shareholder
I am pleased to present our 2020 Directors’ remuneration report.
Our aim is to set a fair remuneration structure, which encourages both
executive and employee behaviours which reflect our culture and
values, and fosters team continuity through incentives aligned with our
strategy and long-term objectives.
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 2021 AGM.
Remuneration Committee members
and attendance
Number of meetings attended (5 held)
Sally Walden (Chair)
Richard Akers
Dermot Mathias
Jennelle Tilling
Key responsibilities
• Determine the framework and remuneration policy for
executive directors, Chairman, and senior management
2020 areas of focus
• Reviewed the 2019 annual bonus outcomes
• Considered the 2016 LTIP vesting and approved 2019 LTIP
• Review the ongoing appropriateness and relevance of the
grants
remuneration policy
• Ensure that executive directors are remunerated fairly and
responsibly with the long-term interests of the Company in
mind
• Keep under review employee remuneration, related polices
and alignment of incentives and rewards with the Company
culture
• Consider the appropriateness of the directors’
remuneration framework compared with arrangements for
other employees
• Review and approve the performance targets and
outcomes (using discretion where appropriate) for the
annual bonus scheme and LTIP
• Ensure that the remuneration report and disclosures are
easy to read and understandable, accurate and complete
• Reviewed the executive directors' salaries
• Set the 2020 annual bonus and LTIP targets
• Considered executive director pension levels and alignment
with employees
• Reviewed and approved employee retention proposals and
2020 employee reward proposals
• Approved technical adjustments of outstanding executive
director and employee LTIP and bonus share awards in light of
the November 2020 capital raise
• Evaluated the performance of Deloitte as independent
remuneration advisors
• Updated the Committee terms of reference
• Reviewed the Committee’s effectiveness
Page 100
Shaftesbury Annual Report 2020 Governance Remuneration
Actions in relation to Covid-19 and pay
and performance in 2020
This year, key to the focus of our activities has been the appropriateness
of executive director and employee reward in light of the Group’s and
team’s performance in the unprecedented circumstances we find
ourselves in. Our business priorities have been our focus on supporting
occupiers, liquidity, the strength of our balance sheet and maintaining
strong stakeholder relationships. In light of these priorities, your Board
decided against the payment of a dividend for the 2020 financial year
and undertook a successful equity issue which completed in
mid-November 2020.
+ Covid-19 impact and response: pages 6 to 9
With a small team of under 40 employees, who are critical in the
implementation of our strategy, management of the business and our
relationships with our stakeholders, we decided that none of our team
would be furloughed. We also did not seek any government financial
support for the business.
In March 2020, the Board decided to set up a Covid-19 Community
Fund. Part funding for this initiative came from savings made by the
Board waiving 20% of both executive director base salaries and
pension contributions and non-executive director fees for a four
month period.
+ Covid-19 Community Fund: pages 46 and 47
Although our business performed well during the first six months
of the year, the growing impact of the pandemic and measures to
contain it have had a material impact on normal patterns of life and
commerce, both for our occupiers and on the near-term prospects
for our business and financial performance. In light of this we did not
meet our 2020 financial or operational targets for this year’s annual
bonus. We did deliver a number of achievements in respect of the
performance measures related to specific portfolio and corporate
projects and environmental sustainability objectives, which resulted
in an overall bonus outcome of 25% of maximum. However, in the
context of the impact of the pandemic on overall business
performance, the Committee exercised discretion, unanimously
supported by the executive directors, to reduce the bonus award
outcome from 25% to zero.
The challenging economic environment has had a material adverse
effect on the valuation of our portfolio, which in turn resulted in a nil
vesting of both the 2017 LTIP award's absolute and relative measures.
e
c
n
a
n
r
e
v
o
G
Pension alignment
The Committee supports the principle that executive pension
contributions should be aligned with the wider workforce. Our 2019
policy ensured that contributions for any newly-appointed directors
would be aligned with the rate applicable to all other employees
(17.5% of salary). Following a further review of our approach in light of
evolving shareholder views on this issue, the Committee has determined
that the pension rate for our incumbent directors will also be reduced
to 17.5% by no later than the end of 2022, in line with guidance from
shareholder bodies.
The year ahead
In the context of the current circumstances, the Committee
determined that there would be no salary increase for the executive
directors for the year commencing 1 October 2020. For employees
below the Board, the average increase was 4.1%, recognising the
importance of retaining and motivating our team in the current
environment.
Our approach for the 2021 annual bonus has been to simplify and align
our performance measures to our key operational goals for the year,
set in the context of the current pandemic environment. As in any
normal year, we will set challenging performance targets, whilst also
retaining discretion to allow the Committee to ensure the final outcome
is appropriate to the overall performance delivered. The maximum
opportunity for the 2021 bonus will remain at 150% of salary (if taken
solely in shares) in line with our policy. For more details on our record
for using discretion in respect of bonus outcomes see page 109.
For our LTIP, awards will be made to the executive directors in
December 2020 at 125% of salary and will vest, in accordance with
our policy, based on relative total shareholder return (TSR), relative
total accounting return (TAR), and EPRA NAV growth. In reviewing the
performance targets in the context of the current outlook for the
West End and our portfolio, the Committee determined that it would
be appropriate to re-calibrate the NAV performance target range from
RPI+3%-7% p.a. to 0%-5%p.a. Further detail on the performance
targets for this award is set out on page 107. In line with our policy, the
Committee will consider the Group’s underlying financial performance
over the three year performance measurement period before
determining the final vesting level. In view of the decrease in our share
price as a result of the impact of the pandemic, this will include an
assessment of whether any potential "windfall gains" have arisen,
in line with guidance from shareholder bodies.
During the year ahead, we will be reviewing our Remuneration Policy,
as part of the regular three year cycle ahead of seeking shareholder
approval at the 2022 AGM. In designing our 2022 Policy, we will be
engaging with our largest shareholders and governance agencies as
appropriate to obtain and consider their views.
We hope that you will continue to support our approach to
remuneration and will vote in favour of this report at the 2021 AGM.
I would like to thank my fellow Committee members, senior management
and external consultants for their support during the year.
Sally Walden
Chair of the Remuneration Committee
14 December 2020
Page 101
Shaftesbury Annual Report 2020 Governance Remuneration
Consideration of remuneration
and related policies below the
Board
One of the Remuneration Committee’s key responsibilities is to
have oversight of remuneration and related policies below the
Board and alignment of those incentives and awards with the
Group’s strategic aims and culture. The Committee considers it
important that employee engagement and feedback is taken into
account.
This year, recognising the unprecedented uncertainties and
challenges caused by the Covid-19 pandemic and feedback for
our inaugural employee reward survey, we considered our
employee incentives in relation to retention and motivation in
the current environment as well as the long term.
As part of this review, we:
• considered the appropriateness and level of restricted share
awards for key senior management;
• approved the change in job titles of senior individuals to better
reflect their roles and responsibilities;
• agreed the executive directors recommendation as to the level
of base salary increase for employees below the Board;
• brought forward the date of salary increases from 1 December
to 1 October to align with our financial year;
• approved the introduction of personal objectives as part of the
annual bonus scheme for employees below the Board to ensure
better reward of individual’s contributions to the Group’s
performance;
• supported the introduction of increased transparency into the
employee remuneration and reward process; and
• supported the creation of a recognition project run by the
Culture Group and sponsored by Richard Akers, non-executive
director responsible for employee engagement, to greater
recognise the actions of individuals in living our values.
Context for our approach to
remuneration
We have 39 permanent employees, including four executive
directors. The combined holdings of the executive directors is
3.5 million shares (market value at 30 September 2020 of circa
£17.5 million). This equates to individual holdings of between 2
and 15 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.
Executive directors and employees 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, a significant element is attributed to team, rather
than individual, performance.
Average length of service of the executive directors is 27 years
and members of the Strategy and Operations Executive
Committee (excluding executive directors) is 8 years.
Alignment with employees
We offer remuneration packages to all employees which are
market competitive and broadly align with the same structure
provided to executive directors.
Eligible 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
significantly above typical market levels.
Page 102
Shaftesbury Annual Report 2020 Governance Remuneration
Remuneration at a glance
SALARY
+
BENEFITS
+
PENSION
CONTRIBUTION
+
ANNUAL BONUS
+
LTIP
=
TOTAL
REMUNERATION
Fixed pay
Performance-related pay
Director Remuneration 2020
Brian Bickell, Chief Executive (£'000)
Fixed pay
Annual bonus
LTIP
Chris Ward, Finance Director (£'000)
2,000
1,800
1,500
1,200
900
600
300
0
2019 (actual)
2020 (actual)
2020 (possible
maximum)
2,000
1,800
1,500
1,200
900
600
300
0
2019 (actual)
2020 (actual)
2020 (possible
maximum)
Breakdown of
remuneration
Salary1
Benefi ts2
Pension benefi t1,3
Annual Bonus4
LTIP5
Total
£’000
508
23
112
440
-
1,083
£’000
488
21
107
-
-
616
£’000
525
21
115
788
625
2,074
Breakdown of
remuneration
Salary1
Benefi ts2
Pension benefi t1,3
Annual Bonus4
LTIP5
Total
£’000
358
44
80
311
-
793
£’000
355
43
79
-
-
477
£’000
385
43
85
578
436
1,527
Simon Quayle, Executive Director (£'000)
Tom Welton, Executive Director (£'000)
2019 (actual)
2020 (actual)
2020 (possible
maximum)
2019 (actual)
2020 (actual)
2020 (possible
maximum)
e
c
n
a
n
r
e
v
o
G
2,000
1,800
1,500
1,200
900
600
300
0
Breakdown of
remuneration
Salary1
Benefi ts2
Pension benefi t1,3
Annual Bonus4
LTIP5
Total
2,000
1,800
1,500
1,200
900
600
300
0
£’000
359
57
79
311
-
806
£’000
344
60
75
-
-
479
£’000
370
60
80
554
441
1,505
Breakdown of
remuneration
Salary1
Benefi ts2
Pension benefi t1,3
Annual Bonus4
LTIP5
Total
£’000
359
45
79
311
-
794
£’000
344
50
75
-
-
469
£’000
370
50
80
554
441
1,495
1. 2020 actual salaries and pension entitlements, refl ect the four month 20% waiver of salary and pension entitlements.
2. 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.
3. Pension contribution is 25% of salary and may be taken in cash (in part or entirely). The cash equivalent is reduced by any resultant tax liability borne by the Group.
4. Payment for performance in respect of the relevant fi nancial year. No bonus was awarded for the fi nancial year ending 30.09.2020.
5. 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 September 2020 were not met resulted
in nil vesting. In 2019, the fi gure received was as a result of the three-year performance period to 30 September 2019 not being met so no awards vested.
Value of shareholding vs. shareholding policy (% of salary)1
Directors %
Policy
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Under the remuneration policy, executive directors are expected to
build a shareholding of 200% (as at date of appointment to the Board),
of salary to be accumulated over fi ve years from appointment.
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.
0%
200% 400% 600% 900% 1,000% 1,200% 1,400% 1,600%
1. Based on share price at 30.9.20 of £4.972 and salary as at 1.12.2019.
Page 103
Shaftesbury Annual report 2020 Strategic Report Our people and culture
Shaftesbury Annual Report 2020 Governance
Shaftesbury Annual report 2020 Governance Remuneration at a glance
Making a
positive
contribution
+
Page 104
Page 104
Page 104
Shaftesbury Annual Report 2020 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
Salaries are normally reviewed annually with effect from 1 December. Any increases are determined with reference to inflation
and the salary increases for other employees, unless there is a change of role or responsibility or a new director is recruited
(see recruitment policy)
Sector and other relevant market data (eg against constituent companies of the FTSE 350 REIT Index) may be requested from
remuneration advisors as required
The Committee recognises the importance of setting salaries at levels in the context of market median levels in the real estate
sector, but which are not excessive in relation to the Group’s particular strategy and features
The emphasis in the Group’s remuneration policies is to place greater weight on performance-based rewards within the overall
remuneration package
Annual performance targets are set by the Committee at the beginning of the year and are linked to the Group’s strategy and
key business objectives
At the end of the financial year, the Committee evaluates performance against these objectives, whilst also taking into account
overall financial performance and future prospects. The Committee also satisfies itself that short-term targets have not been
met at the expense of long-term goals
Performance is assessed against a set of key financial and non-financial annual measures which may vary each year depending
on the annual priorities of the business and prevailing market conditions
Measures will be weighted in alignment with the Group’s 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
• EPRA Net Asset Value growth measured on an absolute basis;
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
Salary
Annual
bonus
LTIP
All
employee
plans
Pension
Other
benefits
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 defined by HMRC from
time to time
Contributions are paid into a personal pension plan or taken as a cash equivalent, reduced for any resultant tax liability borne
by the Group
Each executive director currently receives:
• a car allowance
• private medical cover
• life insurance
• permanent health insurance
Other benefits may be provided if considered reasonable and appropriate by the Committee, including, but not limited to,
housing allowance and relocation allowance
17.5% of salary for any executive director
appointed after 8 February 20191
25% of salary for any executive director
appointed prior to 8 February 20191
There is no maximum value. Benefits
are set at a level which the Committee
determines is reasonable and
appropriate
The value may vary depending on
service provided, cost and market
conditions
1. In 2020, the Committee determined that the pension rate for incumbent directors will also be reduced to 17.5% of salary by no later than the end of 2022,
in line with shareholder guidance.
Page 105
e
c
n
a
n
r
e
v
o
G
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)
Shaftesbury Annual Report 2020 Governance Remuneration
Annual remuneration report
Set out below is the annual remuneration report on directors’ pay
for the year ended 30 September 2020. The report details how we will
apply the remuneration policy for the year ahead and how we
implemented it during the financial year.
Statement of implementation of remuneration for year ending 30 September 2021
Executive directors’ salaries from 1 October 20201
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
1.10.2020
£’000
525
370
370
385
1.12.2019
£’000
525
370
370
385
Increase
0%
0%
0%
0%
1 Executive director salary reviews have been moved to 1 October each year to coincide with the financial year.
For employees below the Board, the average increase was 4.1%, recognising the importance of retaining and motivating our team in the current
environment.
Measure
Cash flow from net property income
Sustainability and corporate projects
Percentage
weighting
75%
25%
2021 annual bonus targets
Maximum bonus of up to 150% of salary if taken entirely in shares and
100% of salary if taken in cash.
For 2021, the Committee reviewed the choice and weighting of
performance targets in the context of the key objectives for the
financial year. It was agreed to simplify and consolidate the financial and
operational metrics into one performance measure (cash flow from net
property income), representing the majority of the annual bonus and
capturing our near-term focus on maximising income collection,
maintaining occupancy levels and controlling property costs during the
current period of uncertainty. The remainder will be based on key
corporate and sustainability objectives, measured over the year.
Disclosure of annual bonus targets for the year ending 30 September
2021 is deemed to be commercially sensitive. The targets will be
disclosed retrospectively next year, to the extent they are no longer
commercially sensitive.
Page 106
Shaftesbury Annual Report 2020 Governance Remuneration
e
c
n
a
n
r
e
v
o
G
LTIP
LTIP awards of 125% of salary will be granted in December 2020. Performance will be measured over a three year period which commenced on 1
October 2020. A two year post-vesting holding period will apply to these awards. In line with the policy, the Committee will consider the Group’s
underlying financial performance over the three year measurement period before determining the final vesting level. In the context of the
decrease in our share price as a result of the impact of the pandemic, this will include an assessment of whether any potential "windfall gains"
have arisen, in accordance with guidance from shareholder bodies.
The vesting of this award will be subject to three performance measures, equally weighted, as shown in the following tables. In reviewing the
performance targets in the context of the current outlook for the West End and our portfolio, the Committee determined that it would be
appropriate to re-calibrate the NAV performance targets range from RPI+3%-7% p.a. to 0%-5% p.a. as shown in the table below. This
recalibration involved removing the reference to RPI, to simplify and align with common market practice for LTIP performance measurement.
The Committee believes the re-calibrated NAV target range remains appropriately stretching in the context of the current outlook. There are
no changes to the targets for the TSR or TAR measures.
Annualised TSR of the Company’s shares less
annualised TSR of the FTSE 350 REIT Index
Less than 0% pa
0% pa
Between 0% pa and 5.5% pa
5.5% pa or more
Annualised net asset value growth
Less than 0% pa
0% pa
Between 0% pa and 5% pa
5% pa or more
TAR relative to market cap-weighted index of FTSE 350 REITs1
Below index
Equal to index
Between index and index +2% per annum
Index +2% per annum or above
Vesting Schedule (for this component)
0%
25%
Pro-rata on a straight line basis between 25% and 100%
100%
Vesting Schedule (for this component)
0%
25%
Pro-rata on a straight line basis between 25% and 100%
100%
Vesting Schedule (for this component)
0%
25%
Pro-rata on a straight line basis between 25% and 100%
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 October 2020
Non-executive director fees are reviewed every two years. The last review was undertaken in 2019 and, therefore, there are no changes to
non-executive director fees from 1 October 2020.
Remuneration for year ended 30 September 2020
Single total figure of remuneration for executive directors (audited)
Salary
Benefits2
Pension benefit3
Total Fixed
Annual bonus4
LTIP5
Total Variable
Total
20201
£’000
488
344
344
355
2019
£’000
508
359
359
358
2020
£’000
2019
£’000
20201
£’000
21
60
50
43
23
57
45
44
107
75
75
79
2019
£’000
112
79
79
80
2020
£’000
616
479
469
477
2019
£’000
643
495
483
482
2020
£’000
-
-
-
-
2019
£’000
440
311
311
311
2020
£’000
2019
£’000
2020
£’000
-
-
-
-
-
-
-
-
-
-
-
-
2019
£’000
440
311
311
311
2020
£’000
616
479
469
477
2019
£’000
1,083
806
794
793
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
1. All executive directors waived 20% of their salary and pension contributions for four months from 1.4.2020 as a result of the Covid-19 pandemic.
2. Benefits comprise car allowance, permanent health insurance, life insurance, health insurance and Sharesave options which have been valued on the monthly savings
amount and the discount on the option price of 20% at grant.
3. Pension contribution is 25% of salary and may be taken in cash (in part or entirely). The cash equivalent is reduced by any resultant tax liability borne by the Group.
The Committee has determined that the pension rate for incumbent directors will also be reduced to 17.5% of salary by no later than the end of 2022, in line with
shareholder guidance.
4. For 2020 each executive director could have received a bonus of 25% of the maximum (see table on page 108). However, following the exercise of Committee discretion,
no bonus has been awarded in respect of 2020, see pages 101 and 108.
5. Reflects the vesting of shares in the LTIP in respect of performance for the relevant financial year. The TSR and NAV performance conditions for the three-year performance
period to 30.9.2020 were not met and none of the awards vested.
Page 107
Shaftesbury Annual Report 2020 Governance Remuneration
Single total figure of remuneration for non-executive directors (audited)
Jonathan Nicholls
Richard Akers
Dermot Mathias
Sally Walden
Jennelle Tilling
Jill Little2
Fee
20201
£’000
218
56
56
56
56
20
2019
£’000
225
57
57
57
43
57
Committee chair/
Senior Independent
Director fee
20201
£’000
-
13
13
13
-
-
2019
£’000
-
6
10
10
-
4
Total Fixed2
2020
£’000
218
69
69
69
56
20
2019
£’000
225
63
67
67
43
61
1. Non-executive directors waived 20% of their fees for four months from 1.4.2020 in response to the Covid-19 pandemic.
2. Non-executive directors do not receive any variable remuneration.
3. Retired from the Board on 31.1.2020.
Annual bonus outcome for year ended 30 September 2020
Retrospective disclosure of the targets for the 2020 annual bonus scorecard is provided below.
Measure
Rental growth (KPI)
Deliver growth in ERVs
Convert ERVs to contractual income (KPI)
Commercial lettings/reviews/renewals at or
above valuers’ ERVs: measured as transactions
in the first half year against ERV at 31.3.2019
and then in the second half of the year
against ERV at 30.9.2019
Grow net property income (KPI)
Percentage increase in property outgoings
compared to percentage increase in rental
income
Occupancy
Maximise portfolio occupancy measured by
average quarterly EPRA vacancy (KPI)
Average vacant period across uses (KPI)
Specific portfolio and internal corporate
projects1
Weighting
Target range
17.5%
2% to 6%
17.5%
3% to 7%
5%
+1% to -1%
5%
2% to 4%
5%
30%
1.5 months to 6 months
(depending on use)
Environmental sustainability
20%
Total
Impact of exercise of Committee discretion
100%
Total bonus due after application of discretion
Achievement against target
The Covid-19 pandemic severely disrupted every aspect of the
Group’s operations from February 2020, and as a consequence,
none of the 2020 operational metrics have been met. In the
absence of any comprehensive or relevant annual data, the
Remuneration Committee considers it is not appropriate to
attribute any operation-related bonus to the four month period
prior to the Covid-19 disruption.
Percentage
achieved
0%
Due to the impact of Covid-19, a number of projects were unable to
progress as envisaged when the 2020 objectives were set. However,
the Committee recognised progress achieved in the following areas:
• Public realm projects in Seven Dials, Chinatown and Carnaby
• Improved tenant data collection
• Rationalising arrangements with managing agents
• Improved building management cost controls
• Setting a new IT strategy and implementing significant
enhancements
Further detailed discussion of strategic and operational
performance during the year is set out on pages 1 to 69 of this
Annual Report
Targets were set regarding contractors’ site performance, achieving
improved environmental performance in refurbishment schemes,
implementing changes arising from ESOS audits, progress towards
setting of science-based targets and tenant engagement.
Despite Covid-19 disruption, good progress was achieved across
a majority of these objectives.
10%
15%
25%
(25)%
-
All data based on wholly-owned portfolio
1. This component of the bonus measures specific portfolio and internal corporate 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 identification 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.
Page 108
Shaftesbury Annual Report 2020 Governance Remuneration
Committee’s exercise of discretion
The Committee believes that annual bonus awards should fairly reflect overall performance in the context of prevailing general economic and
property market conditions and exercises discretion, where appropriate, to take account of overall financial performance and future prospects of
the Company.
The Committee has exercised discretion in the award of bonuses for the year ended 30 September 2020. The table below shows historic exercise
of discretion by the Committee.
Year
2015
2016
2017
2018
2019
2020
Actual bonus percentage potential
according to achievement table
Bonus percentage after exercise of
discretion by Remuneration Committee.
70%
82%
55%
52.5%
57.5%
25%
Reduced to 60%
Reduced to 60%
No change at 55%
No change at 52.5%
No change at 57.5%
Reduced to 0%
LTIP vesting for performance period to 30 September 2020
The detailed performance against targets which resulted in zero vesting of the LTIP in 2020 is as follows:
e
c
n
a
n
r
e
v
o
G
Annualised TSR of the
Company’s shares less
annualised TSR of the
FTSE 350 REIT index
Less than 0% pa
0% pa
Between 0% pa
and 5.5% pa
5.5% pa or more
Annualised NAV
growth less
annualised RPI
growth
Less than 3% pa
3% pa
Annual vesting criteria
Performance
0%
20%
Pro-rata on a straight line
basis between 20% and 100%
100%
Performance in three-year
period to 30 September
2020: -48.7% (benchmark:
-7.5%)
Vesting outcome (for this
half of the award) is zero
Historic LTIP vesting performance
Vesting %
100
100
63.5
50
Award vesting criteria
Performance
2014
Year of vesting
2015
0%
30%
Between 3% pa and 7% pa
Pro-rata on a straight line
basis between 30% and 100%
7% pa or more
100%
Performance in three year
period to 30 September
2020: -7.8% pa versus RPI
growth of 2.3% pa
Vesting outcome (for this
half of the award) is zero
22.5
0
0
2016
2017
2018
2019
2020
TSR
NAV
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
Sharesave3
Face value at
date of award
£’000
440
656
311
462
311
462
311
481
15
1. Deferred Annual Share Bonus Scheme: Directors elected to take their annual bonus for the year ended 30.9.2019 in shares which were purchased in the market. The face value is
calculated using the price paid per share of £9.1475. 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 five days prior, up to and including
11.12.2019, to determine the number of shares awarded, being £9.1095. There is a three-year performance period with a two-year post-vesting holding period.
3. Sharesave: Sharesave options are granted at a 20% discount to the market price up to the maximum monthly savings amount permitted by HMRC. Chris Ward was granted Sharesave
options at £4.71 representing a 20% discount to the average share price over the five days prior to the invitation date of 19.06.2020.
Page 109
Shaftesbury Annual Report 2020 Governance Remuneration
Directors’ shareholdings and share scheme interests at 30 September 2020 (audited)
Shares owned
outright
Shareholding
requirement met2
Value of shares
owned outright as
a percentage of
salary3
Executive directors
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Non-executive directors
Jonathan Nicholls
Richard Akers
Dermot Mathias
Sally Walden
Jennelle Tilling
Jill Little5
1,292,6651
1,120,303
914,4211
189,9411
45,000
12,000
16,2081
60,0001
-
8,364
Yes
Yes
Yes
Yes
1,224%
1,505%
1,229%
245%
Shares under
option not vested
and subject to
performance
criteria4
Shares vested and
subject to two year
post-vesting holding
period
206,860
145,940
145,940
147,495
14,718
10,379
10,379
10,151
Deferred shares4
133,803
94,465
94,465
93,773
Sharesave
4,286
4,286
4,286
4,541
1. Includes shares held by persons closely associated.
2. Based on share price at 30.9.2020 of £4.972 and salary as at 1.12.2019.
3. Under the remuneration policy, executive directors are expected to build up a shareholding of 200% of salary (as at the date of appointment to the Board), to be accumulated over
five years from appointment.
4. On exercise or vesting, deferred shares and LTIP nil cost options are subject to income tax and national insurance. The number that will actually be transferred will be reduced if
directors sell sufficient to meet their income tax and employees’ national insurance liability.
5. Retired from the Board on 31.1.2020 and shareholding stated as at that date.
In relation to the equity issue announced on 22 October 2020, the directors and their persons closely associated acquired the following shares,
details of which were announced on 20 November 2020: Brian Bickell 12,500, Simon Quayle 12,500, Tom Welton 6,250, Chris Ward 12,500, Jonathan
Nicholls 12,500, Richard Akers 2,896, Dermot Mathias 12,500, Sally Walden 1,250 and Jennelle Tilling 12,500.
Additional details on the share awards summarised in this table are provided below and on page 111, with further explanation on the operation of
the plans set out in the Remuneration policy table.
1 Deferred Annual Share Bonus Scheme
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Date
of grant
12.12.2017
3.12.2018
12.12.2019
12.12.2017
3.12.2018
12.12.2019
12.12.2017
3.12.2018
12.12.2019
12.12.2017
3.12.2018
12.12.2019
Market
price on
date of
grant
£
9.996
8.65
9.1475
9.996
8.65
9.1475
9.996
8.65
9.1475
9.996
8.65
9.1475
Entitlement to ordinary shares
At
1.10.2019
Awarded
in year
At
30.9.2020¹
40,440
45,276
-
85,716
28,556
31,965
-
60,521
28,556
31,965
-
60,521
28,226
31,603
-
59,829
-
-
48,087
48,087
-
-
33,944
33,944
-
-
33,944
33,944
-
-
33,944
33,944
40,440
45,276
48,087
133,803
28,556
31,965
33,944
94,465
28,556
31,965
33,944
94,465
28,226
31,603
33,944
93,773
1. Following the equity issue announced on 22.10.2020, and approved by shareholders on 17.11.2020, the shares awarded under the Deferred Annual Share Bonus Scheme have
subsequently been restated to reflect the new share capital of the Company. These were technical adjustments and did not increase or decrease the value of the award. The
restated figures will be reported in the 2021 Annual Report.
Page 110
Shaftesbury Annual Report 2020 Governance Remuneration
2 LTIP
Nil cost options are granted subject to a three year performance period. Any award that vests is then subject to a two year post-vesting holding period.
Brian Bickell
Simon Quayle
Tom Welton
Chris Ward
Date
of grant
12.12.20172
4.12.20183
12.12.20193
12.12.20172
4.12.20183
12.12.20193
12.12.20172
4.12.20183
12.12.20193
12.12.20172
4.12.20183
12.12.20193
Market
price on
date of
grant
£
9.97
8.67
9.15
9.97
8.67
9.15
9.97
8.67
9.15
9.97
8.67
9.15
Number of ordinary shares under option
At
1.10.2019
63,110
71,710
-
134,820
44,550
50,620
-
95,170
44,550
50,620
-
95,170
44,045
50,620
-
94,665
Granted
during
year
-
-
72,040
72,040
-
-
50,770
50,770
-
-
50,770
50,770
-
-
52,830
52,830
e
c
n
a
n
r
e
v
o
G
At
30.9.20201
63,110
71,710
72,040
206,860
44,550
50,620
50,770
145,940
44,550
50,620
50,770
145,940
44,045
50,620
52,830
147,495
1. Following the equity issue announced on 22.10.2020, and approved by shareholders on 17.11.2020, the shares granted under the LTIP have subsequently been restated to reflect the
new share capital of the Company. These were technical adjustments and did not increase or decrease the value of the award. The restated figures will be reported in the 2021
Annual Report.
2. As described on page 101, the TSR and NAV performance conditions over the three years ended 30.9.2020 have not been met. These awards will therefore lapse.
3. The LTIP vesting criteria for the awards granted in 2018 and 2019 can be found in their respective Annual Reports, available on our website at www.shaftesbury.co.uk.
3 Sharesave
Options are granted at a 20% discount to the market price on the date of grant up to the maximum monthly savings amount permitted by HMRC
over three or five 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
1.7.2017
28.6.2019
9.7.2020
At
1.10.2019
Granted
during year
2,024
2,262
4,286
2,024
2,262
4,286
2,024
2,262
4,286
1,162
1,357
-
2,519
-
-
-
-
-
-
-
-
-
-
-
3,184
3,184
Lapsed
during year
-
-
-
-
-
-
-
-
(1,162)
-
-
(1,162)
At
30.9.20201
2,024
2,262
4,286
2,024
2,262
4,286
2,024
2,262
4,286
-
1,357
3,184
4,541
Option
price1
£
7.41
6.63
7.41
6.63
7.41
6.63
7.74
6.63
4.71
Vesting
date
1.8.2021
1.8.2024
1.8.2021
1.8.2024
1.8.2021
1.8.2024
1.8.2020
1.8.2022
1.8.2025
1. Following the equity issue announced on 22.10.2020, and approved by shareholders on 17.11.2020, the options granted, and the option price under the Sharesave have subsequently
been restated to reflect the new share capital of the Company. These were technical adjustments and did not increase or decrease the value of the award. The restated figures will
be reported in the 2021 Annual Report.
Page 111
Shaftesbury Annual Report 2020 Governance Remuneration
Percentage change in remuneration of the Board of Directors
The table below shows the percentage change in remuneration of each executive and non-executive director against Shaftesbury employees as a
whole between the years ended 30 September 2019 and 30 September 2020.
Executive directors (% change)
Non-executive directors (% change)5
Element of pay
Base salary/fees2
Benefits3
Annual bonus4
Average
employee
(% change)1
8.8%
-16.7%
-51.1%
Brian
Bickell
-4.1%
-4.4%
-100%
Simon
Quayle
-4.2%
-4.4%
-100%
Tom
Welton
-4.2%
-9.1%
-100%
Chris
Ward
Jonathan
Nicholls
Richard
Akers
Dermot
Mathias
Sally
Walden
Jennelle
Tilling
-0.8%
-6.1%
-100%
-3.3%
N/A
N/A
8.4%
N/A
N/A
2.5%
N/A
N/A
2.5%
N/A
N/A
-2.6%6
N/A
N/A
1. This table shows the change in average salary, taxable benefits and bonus for all employees that were employed for the full years ended 30.9.2019 and 30.9.2020. Average employee
pay has been calculated using a mean per capita on a full-time equivalent basis. These figures exclude the executive and non-executive directors.
2. Stated taking into account the 20% waivers of salary by all executive directors and of all non-executive fees for four months of the financial year as a result of the Covid-19 pandemic.
3. The Company's self funded health care costs fell in the year to 30.9.2020 resulting in a larger relative decrease in the cost of benefits for employees than directors.
4. The executive directors received no annual bonus for the year ended 30.09.2020.
5. Non-executive directors receive no benefits and do not participate in the annual bonus scheme.
6. Jennelle Tilling joined the group on 1.1.2019. The salary included in the table for the year ended 30.9.2019 has been annualised.
Note that there is no requirement to disclose a CEO pay ratio as the number of employees (39) falls significantly below the threshold of 250
employees for disclosure under this provision.
Relative importance of spend on pay (£m)
54.5
8.2
0
10.0
2020
2019
Employee costs
Dividends
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 2020
Shaftesbury
FTSE 350 REIT
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Source: Datastream as at 30 September 2020
300
250
200
150
100
50
0
2010
Page 112
Shaftesbury Annual Report 2020 Governance Remuneration
Ten-year chief executive single total figure of remuneration1
Chief Executive single total figure of remuneration (£’000)
Annual bonus payout (% maximum)
Long-term incentive award vesting (% maximum)
1. 2011: Jonathan Lane; 2012-2020: Brian Bickell
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%
2020
616
0%
0%
Shareholder voting
Shareholders voted on the Remuneration Policy at the 2019 AGM, and on the Annual Remuneration Report at the 2020 AGM. Voting by
shareholders representing 90.76% and 92.59% of the issued share capital, in 2019 and 2020 respectively, on the resolutions, was as follows:
2019 Remuneration policy
2020 Annual remuneration report
For
197,412,262
203,699,453
% For
70.76
71.57
Against
81,571,987
80,932,966
% Against
29.24
28.43
Total votes
278,984,249
284,632,419
Withheld
712,552
611,135
e
c
n
a
n
r
e
v
o
G
The Committee notes that both of these resolutions received significant votes (defined as above 20%) against. For more information on this see
page 89.
On behalf of the Board
Sally Walden
Chair of the Remuneration Committee
14 December 2020
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 satisfied that
the Deloitte LLP engagement partner and team that provide
remuneration advice to the Committee do not have connections
with the Group that may impair their objectivity and independence.
The fees charged by Deloitte LLP for the provision of independent
advice to the Committee during the financial year were £36,700
(excluding VAT).
Deloitte LLP provided no other services to the Group during the year.
Page 113
Shaftesbury Annual Report 2020 Governance
Directors’ report
The directors present their report on the affairs of the Group and the
audited consolidated financial statements for the year ended 30
September 2020.
UK Corporate Governance Code
The Company has applied and complied with the provisions of the 2018
UK Corporate Governance Code (the Code) throughout the Company’s
financial year, with the exception of Provision 38. This provision requires
the alignment of executive director pension contributions with the wider
workforce. As explained in the Directors’ remuneration report on pages
101, we have committed to align the contribution levels of the current
executive directors with the workforce contribution rate (17.5%) by the
end of 2022. Any new executive directors will be aligned on appointment.
For full details of the Code, please refer to the FRC’s website at
www.frc.org.uk.
Disclosures by reference
Information that is relevant to this report including information required
by the Companies Act 2006, Disclosure and Transparency Rule 7.2 and
Listing Rule 9.8.4R is incorporated by reference into this report. This
information can be found in the annual report as follows:
Content
Strategic report
Likely future developments in the business
- Q&A with the Chief Executive
Employment, human rights and environmental matters
- Our people and culture
- Sustainability
- Environment
Section 172 statement
Viability statement
Corporate governance
Directors' waiver of emoluments
Financial instruments
Pages
1 to 79
5
42 to 45
27 and 28
29 to 31
40 and 41
78 and 79
80 to 113 and 118
101 and 107
141 to 143
Company status
Shaftesbury PLC is a public limited liability company incorporated
under the laws of England and Wales. It is the holding company of the
Shaftesbury group of companies and has a premium listing on the
London Stock Exchange main market. Shaftesbury PLC is Real Estate
Investment Trust (REIT) and constituent member of the FTSE 250 Index.
Share capital
During the year, 4,922 ordinary shares were issued at nil cost on the
exercise of LTIP options, and £7.74 and £7.54 on the exercise of
sharesave options. At 30 September 2020, the Company’s issued share
capital comprised 307,417,537 ordinary shares of 25p each. Since 30
September 2020, the Company has undertaken a Firm Placing, Placing and
Open Offer and Offer for Subscription which has increased the
Company’s issued share capital. Information regarding this capital raise may
be seen below under the heading “Events after the Balance Sheet date”.
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
Page 114
are governed by the Articles of Association and prevailing legislation. In
accordance with the Articles of Association, the Company may impose
restrictions on, amongst other things, the size of a holding to preserve
its REIT status. 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.
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 30 September 2020, the following information has been
received in accordance with DTR 5, from holders of notifiable interests
in the Company’s issued share capital.
Notifiable
interests
Ordinary
shares
% of capital
disclosed1
Nature of
holding
Capital & Counties Properties PLC2
Norges Bank
80,721,003
77,034,285
26.26
25.06
Direct
Direct
1. As at date of notification.
2. As at 14.12.2020, Capital & Counties Properties PLC held 96,971,003 ordinary shares
(25.24%).
Purchase of own shares
The Company was granted authority at the 2020 AGM to make market
purchases of its own ordinary shares. This authority will expire at the
conclusion of the 2021 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 2020 to 14 December 2020.
Results and dividends
The results for the year ended 30 September 2020 are set out in the
Group statement of comprehensive income.
+ Group statement of comprehensive income: page 128
In light of Covid-19 operating challenges and uncertainty regarding their
duration, the Board decided not to declare a dividend in respect of the
year ended 30 September 2020.
Events after the Balance Sheet date
On 22 October 2020, the Company announced a proposed Firm Placing,
Placing, Open Offer and Offer for Subscription (the Capital Raise). The
Company raised gross proceeds of £307 million from the Capital Raise,
which was approved at a general meeting of the Company on 17 November
2020. 76.75 million new shares were issued and, as a result, at 14 December
2020, the Company’s issued share capital comprised 384,167,537
ordinary shares of 25p each. For more information, see page 149.
In respect of the capital raise, Capital & Counties Properties PLC
(“Capco”) and Norges Bank ("Norges") were related parties of Shaftesbury
PLC for the purposes of the Listing Rules and participated in the equity
issue in respect of 16,250,000 and 19,245,032 shares respectively, for a
total consideration of approximately £65 million and £77 million respectively.
In respect of Capco, this transaction was disclosed via the Regulatory
News Service on 22 October 2020, in accordance with LR11.1.10R.
Shaftesbury Annual Report 2020 Governance Directors' report
In respect of Norges, the issue of shares was a transaction of sufficient
size to require shareholder approval under chapter 11 of the Listing
Rules as announced via the Regulatory News Service on 22 October
2020. This approval was granted at the Extraordinary General Meeting
on 17 November 2020. 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.
On 27 November 2020, the Group cancelled its £125.0 million revolving
credit facility, which was undrawn. On 27 November 2020, the Group
repaid £100.0 million of drawings against its remaining revolving credit
facility, which remains available to be re-drawn, provided the Group
remains compliant with all requirements in the loan agreement,
including the financial covenants. On 20 November 2020, the Group
secured an extension to the interest cover covenant waiver in respect
of this facility from January 2021 to October 2021. In consideration for
this extension, the Group placed a further £1.0 million on deposit with
the lender for the duration of the waiver.
On 19 November 2020, the Group secured an extension to the interest
cover covenant waiver in respect of its £250.0 million term loan from
April 2021 to January 2022. In consideration for this extension, the
Group placed a further £4.4 million on deposit with the lender for the
duration of the waiver.
+ Financing: pages 67 and 68
On 14 December 2020, in response to rising Covid-19 infection rates,
the Government announced that London and parts of the Home
Counties would be moving to Tier 3 restrictions, beginning from 16
December until further notice. This will have an adverse impact on both
our hospitality and retail occupiers’ ability to trade and will therefore
likely have an adverse impact on near-term rent collection.
+ Covid-19: impact and response: pages 7 and 8
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.
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 2020 and up to the date of approval of the financial
statements, their interests in the ordinary share capital of the Company
and details of options granted under the Group’s share schemes are
set out in the directors’ remuneration report which is incorporated by
reference to this report and can be found at pages 110 and 111.
No member of the Board had a material interest in any contract of
significance with the Company, or any of its subsidiaries, at any time
during the year.
The Board manages the business of the Company under the powers
set out in the Articles of Association. These powers include the
directors’ ability to issue or buy back shares.
Directors’ indemnities and directors’ and
o(cid:729)fice(cid:741)s(cid:992) lia(cid:725)ilit(cid:748) ins(cid:744)(cid:741)ance
The Company’s agreement to indemnify each director against any
liability incurred in the course of their office to the extent permitted by
law remains in force.
The Group maintains Directors’ and Officers’ Liability Insurance.
e
c
n
a
n
r
e
v
o
G
(cid:692)(cid:744)tho(cid:741)isation o(cid:729) (cid:727)i(cid:741)ecto(cid:741)s(cid:992) con(cid:1028)icts o(cid:729)
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.
Going concern
Given the significant uncertainties resulting from the impact of
Covid-19 on the economic environment in which the Group operates,
the directors have placed a particular focus on the appropriateness
of adopting the going concern basis in preparing the consolidated
financial statements for the year ended 30 September 2020.
+ Covid-19: impact and response: pages 6 to 9
In October 2020, having assessed the Group's financial position in
light of the implications of the Covid-19 pandemic for its short- and
medium-term prospects, the Board determined that it was in the
long-term interests of the Group to raise equity to ensure the Group
maintains a strong financial base and is positioned to return to
long-term growth as pandemic issues recede.
On 22 October 2020, the Board announced its intention to issue up
to 76.75 million shares by means of a Firm Placing, a Placing and Open
Offer and an Offer for Subscription. The equity issue was approved by
an Extraordinary General Meeting of the Company on 17 November
2020 and 76.75 million shares were admitted for trading the following
day. Net proceeds from the equity raise were £294.4 million.
+ Financing: page 67
The Group's going concern assessment covers the period from the
date of authorisation of these consolidated financial statements to
31 March 2022 (the going concern period), and takes into account its
liquidity, committed expenditure, and likely ongoing levels of costs.
In preparing the assessment of going concern, the Board has considered
a severe but plausible downside scenario, which assumes continued
low levels of rent collection, increased vacancy, existing capital
commitments are satisfied and there are no acquisitions or disposals.
It also assumed surplus unsecured property is charged to individual
loans and factored in decreases in property values of up to 40%.
The Group anticipates that Government Covid-19 containment
measures will continue to adversely affect its occupiers' ability to
trade through to spring 2021 and that footfall may not recover to
pre-pandemic levels within the going concern period.
These continued restrictions are expected to lead to continued
reduced levels of rent collection and increased EPRA vacancy
throughout the going concern period as well as declining estimated
rental values and asset values.
As a consequence, under the downside scenario, it is likely that the
Group will not meet interest cover covenants throughout the whole
of the going concern period. However, on all drawn debt facilities it
has either secured waivers or has cure rights:
• The Group has secured interest cover waivers from its two term loan
lenders for periods ending July 2021 and January 2022 respectively.
The facilities have cash cure rights for all testing dates in the going
concern period not covered by existing waivers and the Group
anticipates sufficient available cash to make any necessary deposits.
• The Group was compliant with its mortgage bonds' interest cover
covenants at 30 September 2020 and expects to remain compliant
during the going concern period. Should it be required, the Group has
the ability to top-up the charged asset pool with additional assets with
sufficient contractual income from its pool of unsecured properties.
Page 115
Shaftesbury Annual Report 2020 Governance Directors' report
• Since 30 September 2020, the Group has cancelled its shortest
maturity revolving credit facility (£125 million, maturing May 2022) and
has repaid all drawings under its remaining revolving credit facility (£100
million, maturing February 2023). In its downside scenario, the Group
forecasts that it will have sufficient cash throughout the going concern
period, such that it does not anticipate being reliant on the undrawn
facility for liquidity and could cancel it if interest cover covenant
waivers were not available.
There are no debt maturities until February 2023.
+ Financing: pages 68 and 69
At 30 September 2020, the Group's loan-to-value ratio was 31.5%.
Pro forma for the receipt of the proceeds of the equity raise this falls
to 22.1%. The Group's individual debt arrangements have specifically
charged assets as security, although the relative amounts of collateral
against each arrangement are not uniform. However, as part of the
Group's finance strategy, it has a pool of unsecured properties which
can be used to top-up debt security pools, if necessary, to comply with
loan-to-value covenants. The cancellation of the £125 million revolving
credit facility has released additional assets to this pool. Through
charging these unsecured properties, the Group estimates that it could
withstand a 41% decrease in valuations before reaching the limit of its
loan-to-value covenants. If it were to cancel the remaining revolving
credit facility and release its assets to be charged against other loans,
this tolerance would increase to 48%.
Under the Group's severe but plausible downside scenario, the Group
has sufficient liquidity for the going concern period assuming that
values do not decline beyond the tolerance levels noted above. The
Board, therefore, has a reasonable expectation that the Group has
adequate resources to continue in operational existence for the going
concern period. On this basis, the Board has continued to adopt the
going concern basis in preparing the consolidated financial statements.
Political donations
The Company did not make any political donations during the year
(2019: nil).
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
b) they have taken all reasonable steps to ascertain any relevant audit
information and ensure the auditors are aware of such information.
2019-20 Energy consumption and GHG emissions
Overall, energy consumption has reduced year-on-year reflecting
fluctuations in occupier numbers and occupancy primarily attributed
to the effects of Covid-19 and its impacts on the economy in central
London. A total of 4,361,669 kWh has been consumed in the portfolio in
2020 (2019: 4,477,290 kWh). This includes all landlord controlled areas
as well as energy consumed on refurbishment projects.
Due to the increased use of renewable energy in the national grid,
Scope 1 and 2 GHG in the portfolio decreased by over 9.5% from 1,077
tonnes in financial year 2019 to 975 tonnes. With respect to market-
based emissions, all of the wholly owned portfolio within operational
control has used green tariff electricity with resulting zero emissions. A
small amount of electricity was purchased as part of the refurbishment
schemes and at the Longmartin joint venture which is not green tariff
and is quantified below for 2020.
UK GHG
emissions
2020
(tCO2e)
211
199
12
764
160
975
UK GHG
emissions
2019
(tCO2e)
191
185
6
886
n/d2
1,077
tCO2e/£M tCO2e/£M
8.5
7.8
UK Energy
consumption
2020 (kWh)
UK Energy
consumption
2019 (kWh)
1,081,475.7
1,009,666.5
3,280,193.6
3,467,623.9
kWh/£M
35,033
kWh/£M
35,282
Scope 11
Natural gas
Refrigerant losses
Scope 2 location-based (electricity)
Scope 2 market-based (electricity)
Total (location-based)
Intensity metric
Total emissions and energy/
£M revenue
1. Shaftesbury does not have any fleet or company cars hence no emissions are
reported from transport fuel or other energy sources in scope 1 as not applicable.
2. This figure was not reported in 2019.
Energy efficiency actions undertaken in the 2019-20
reporting year
As in previous years, we continue to progressively increase the
coverage of LED lighting in our properties and undertake ongoing
improvements and upgrades through the programme of refurbishment.
We also completed the second phase assessment in accordance with
the Government Energy Savings Opportunities Scheme (ESOS).
In addition to the continued progress of the above, other actions
recommended the ESOS assessors include:
• reviewing existing energy management practices in specific buildings;
and
This confirmation is given in accordance with section 418 of the
Companies Act 2006.
• further engaging with tenants and staff to increase awareness and
identify opportunities for savings.
Greenhouse gas emissions
We report our greenhouse gas emissions (GHG) and energy consumption
in compliance with the requirements of The Companies (Directors’
Report) and Limited Liability Partnerships (Energy and Carbon Report)
Regulations 2018. Our scope 1 and 2 emissions statements cover the
reporting period 1 October 2019 to 30 September 2020 and are
detailed in the table below. Scope 1 is defined as direct emissions that
include any gas data for landlord-controlled parts and fugitive emissions
from air conditioning are included where it is our responsibility within
the managed portfolio. Scope 2 is defined as indirect energy emissions
which include purchased electricity throughout the Group’s operations
within landlord-controlled parts. The figures relate to landlord controlled
common parts such as staircases and the numbers are therefore
minimal. Electricity used in refurbishment projects has been included
where material.
In total, a potential saving of 200 tonnes of GHG is anticipated once all
the recommendations are implemented. Further details are contained
within the Sustainability Data Report on pages 27 and 28.
We are reporting on two emission intensities: performance against
turnover and common parts floor areas. Common parts floor areas
includes 126 reported properties. The emissions intensity figure was
39.5 kgCO2e/m2 (0.039 tonnes CO2e/m2), a decrease from last year’s
46 kgCO2e/m² (0.046 tonnes CO2e/m2). Against turnover, the intensity
has reduced from 8.5 tonnes per £million of total revenue to 7.8 tonnes
per £million of total revenue.
We have this year increased the extent of coverage of our Scope 3 data
which is detailed in our Sustainability Data Report. This enables us to
better understand carbon emissions across our value chain and will
be increased further over the forthcoming reporting year.
Page 116
Shaftesbury Annual Report 2020 Governance Directors' report
Methodology
The energy and carbon statements disclosed in this report have been
calculated using an operational control reporting boundary and in
accordance with the following standards:
• WRI/WBCSD (2004). Greenhouse Gas Protocol: Corporate Accounting
and Reporting Standard - Revised Edition;
• WRI/WBCSD (2015). Greenhouse Gas Protocol: Scope 2 Guidance for
market-based reporting; and
• Department for Environment, Food & Rural Affairs and Department for
Business, Energy & Industrial Strategy (2019): Environmental reporting
guidelines: Including Streamlined Energy and Carbon Reporting
requirements’.
We have applied the appropriate greenhouse gas conversion factors
from UK Department for Business, Energy and Industrial Strategy
(BEIS) 2020.
Third Party Data Verification
Avieco (formerly Carbon Smart) has conducted the verification of our
GHG emissions statements for the stated period. They have confirmed
that the reported emissions for scope 1, 2 and 3 have received limited
verification in accordance with the requirements of the ISO 14064 –
part 3 standard. The boundary of the verification included the landlord
areas from the properties where the Group has sole ownership and
operational control. The verification engagement assessed the
year-on-year performance change and the intensity metric (tCO2e/
annual turnover) compared to financial year 2019.
Based on the verification procedures detailed in the full statement
on our website, Avieco found no evidence to suggest that our GHG
inventory is not materially correct and prepared in accordance with
the internal reporting methodologies and WBCSD & WRI GHG
corporate and scope 3 standards.
2021 annual general meeting
The 2021 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.
The Board takes the well-being of the Company's employees and
shareholders very seriously, The Government has introduced measures
to deal with the pandemic which include guidance on social distancing
and restrictions on non-essential travel and public gatherings, which
affect the manner in which the AGM can be conducted. The Board
regrets that to ensure shareholders' safety, shareholders will not be
permitted to attend the AGM in person. However, shareholders will be
offered the opportunity to participate remotely, ask questions and vote
electronically. Full details of the manner in which the AGM will be
operated can be found in the Notice of Meeting. The AGM will be held
on 25 February 2021 at 11:00 am.
Independent auditors
A resolution for the re-appointment of Ernst & Young LLP as auditors to
the Company will be proposed at the 2021 AGM. The Board, on the
advice of the Audit Committee, recommends their re-appointment.
e
c
n
a
n
r
e
v
o
G
By Order of the Board
Desna Martin
Company Secretary
Shaftesbury PLC
Incorporated, registered and domiciled
in England and Wales number 1999238
22 Ganton Street
Carnaby
London W1F 7FD
14 December 2020
Page 117
Shaftesbury Annual Report 2020 Governance
Directors’ responsibilities
The directors are responsible for preparing the Annual Report, the
Directors’ Remuneration Report and the financial statements in
accordance with applicable law and regulations.
Company law requires the directors to prepare financial statements for
each financial year. Under that law the directors are required to prepare
the Group financial statements in accordance with International Financial
Reporting Standards (IFRSs) as adopted by the European Union (EU) and
Article 4 of the IAS Regulation and have also elected to prepare the
Parent Company financial statements in accordance with IFRSs as
adopted by the EU. Under company law the directors must not approve
the financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and the Company and of the
profit or loss of the Group for that period. In preparing these financial
statements, the directors are required to:
• select suitable accounting policies in accordance with IAS8 ‘Accounting
Policies, Changes in Accounting Estimates and Errors’ and then apply
them consistently;
• make judgements and accounting estimates that are reasonable and
prudent;
A copy of the financial statements of the Group is placed on the
Company’s website. The directors are responsible for the maintenance
and integrity of the Company’s website.
Information published on the internet is accessible in many countries
with different legal requirements. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Directors’ responsibility statement under
the Disclosure and Transparency Rules
Each of the directors, whose names and functions are listed on pages
55 and 56 confirm that, to the best of their knowledge the:
• Group financial statements, which have been prepared in accordance
with IFRSs as adopted by the EU give a true and fair view of the assets,
liabilities, financial position and profit of the Group;
• present information, including accounting policies, in a manner that
• Company financial statements, which have been prepared in
provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with the specific
requirements of IFRSs as adopted by the EU is insufficient to enable
users to understand the impact of particular transactions, other events
and conditions on the Group’s and Company’s financial position and
performance;
• state that the Group and Company has complied with IFRSs as
adopted by the EU, subject to any material departures disclosed and
explained in the financial statements; and
• prepare the financial statements on the going concern basis unless it is
inappropriate to do so.
The directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group’s and Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements and the Directors’ Remuneration
Report comply with the Companies Act 2006 and, as regards the
Group financial statements, Article 4 of the IAS Regulation. They are
also responsible for safeguarding the assets of the Company and the
Group and hence for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
accordance with IFRSs as adopted by the EU give a true and fair view of
the assets, liabilities, financial position and profit of the Company; and
• Strategic Report contained on pages 1 to 79 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 confirm that, to the best of their knowledge, the
Annual Report and Accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group's performance, business model and
strategy.
This directors’ responsibilities statement was approved by the Board
and signed on its behalf by:
Brian Bickell
Chief Executive
14 December 2020
Chris Ward
Finance Director
14 December 2020
Page 118
Shaftesbury Annual Report 2020 Governance
Independent auditor’s report
To the members of Shaftesbury PLC
e
c
n
a
n
r
e
v
o
G
Opinion
In our opinion:
• Shaftesbury PLC’s Group financial statements and Parent company
financial statements (the ‘‘financial statements’’) give a true and fair
view of the state of the Group’s and of the Parent company’s affairs as
at 30 September 2020 and of the Group’s loss 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 Parent company financial statements have been properly prepared
in accordance with IFRSs as adopted by the European Union as applied
in accordance with the provisions of the Companies Act 2006; and
• The financial statements have been prepared in accordance with the
requirements of the Companies Act 2006, and, as regards the Group
financial statements, Article 4 of the IAS Regulation.
What we have audited
We have audited the financial statements of Shaftesbury PLC (the
‘Parent company’) and its subsidiaries (the ‘Group’) for the year ended
30 September 2020 which comprise:
Balance Sheet
Statement of Comprehensive Income
Cash flow statement
Statement of changes in equity
Related notes 1 to 28, including a summary of
significant accounting policies
Group
4
4
4
4
4
Parent
company
4
4
4
4
The financial reporting framework that has been applied in their
preparation is applicable law and International Financial Reporting
Standards (IFRSs) as adopted by the European Union and, as regards
the Parent company financial statements, 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 Parent 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 73 to 77 that
describe the principal risks and explain how they are being managed or
mitigated;
• the directors’ confirmation set out on page 73 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 132 in the financial
statements about whether they considered it appropriate to adopt
the going concern basis of accounting in preparing them, and their
identification of any material uncertainties to the entity’s ability to
continue to do so over a period of at least twelve months from the
date of approval of the financial statements;
• whether the directors’ statement in relation to going concern required
under the Listing Rules in accordance with Listing Rule 9.8.6R(3) is
materially inconsistent with our knowledge obtained in the audit; or
• the directors’ explanation set out on pages 78 to 79 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
• The valuation of investment property
• Revenue recognition including the timing of revenue
recognition, and the treatment of rents and incentives
• Provisions for expected credit losses on rent receivables
Audit scope
and lease incentives
• Going concern
• The Group operates in London’s West End and consists
of a single reporting segment across eleven statutory
entities. All of the Group’s companies were included in
the scope of the audit. The Group audit team performed
direct testing of the Longmartin joint venture balances
which are included within the Group. The Group audit
scope is consistent with the prior year.
Materiality
• Overall Group Materiality: £33m which represents 1% of
total assets.
• Specific Group Materiality: £3.4m which represents
5% of the average operating profit over 3 years before
investment property valuation movements and net
finance costs.
Page 119
Shaftesbury Annual Report 2020 Governance Independent auditor’s report
Key audit matters
Key audit matters are those matters that, in our professional judgement,
were of most significance in our audit of the financial statements of
the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified.
These matters included those which had the greatest effect on: the
overall audit strategy, the allocation of resources in the audit; and
directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements
as a whole, and in our opinion thereon, and we do not provide a
separate opinion on these matters.
This year we have removed one key audit matter ‘Litigation and claims’
following the withdrawal of the legal proceedings that were issued by a
former substantial shareholder. We have identified two new key audit
matters ‘Provisions for expected credit loss on rents receivable and
lease incentives’ and ‘Going concern’. The impact of the Covid-19
pandemic on the Group and its tenants has meant the audit partner
and other senior members of the audit team spent a significant amount
of time assessing the key assumptions and judgements in these two areas.
Risk: The valuation of investment property
£3,137.4m (plus £175.0m being the Group’s share in the Longmartin
joint venture)
Refer to the Audit Committee Report (page 98); Accounting policies
(page 150); and Note 10 of the Consolidated Financial Statements
(pages 135 to 136)
The valuation of investment property, which includes properties held in
the joint venture, requires significant judgement and estimates by
management and the external valuers. Any input inaccuracies or
unreasonable assumptions used in these judgements (such as in
respect of estimated rental value (ERV) and yield profile applied) could
result in a material misstatement of the statement of comprehensive
income and balance sheet.
There is also a risk that management may unduly influence the
significant judgements and estimates in respect of property valuations
in order to achieve 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 met with the external valuers, Cushman & Wakefield and Knight
Frank, to understand the methodology used, and the basis for
assumptions adopted including yields, ERVs, void periods, and tenant
incentives.
• We assessed how the valuers have reflected the impact of Covid-19
in the valuations. We assessed the assumptions around rent
collection levels in the short term, taking into account potential
further government action, trading restrictions and the risk of tenant
failure. We challenged these assumptions and looked for contra
indicators in other evidence we obtained during the audit including:
- recent rent collection data from tenants and subsequent cash receipts
- the level of waivers and concessions granted to tenants by the Group
- management’s assessment of the recoverability of tenant-related
balances, and performing a search for known Company Voluntary
Arrangements and tenants with financial issues
Fair value of investment
properties tested by
detailed analytical
procedures
15%
85%
Fair value of investment
properties tested by
audit team Chartered
Surveyors
• 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 85% of the
fair value of investment properties, including investment properties
held in the Longmartin joint venture.
• Our Chartered Surveyors compared the equivalent yields applied
to each property to an expected range of yields taking into account
market data and asset specific considerations. They also assessed
the other assumptions applied by the external valuers, such as the
estimated rental values and corroborated these to the rental tones
set by relevant open market lettings, rent renewals and market reports.
• Together with our Chartered Surveyors, we obtained the sources of
information used by the external valuers. We searched for available
market evidence by researching leasing and investment transactional
evidence from property transaction databases and market reports,
looking for contra indicators to challenge the yields and ERVs adopted.
• In respect of the properties not in the sample tested by our Chartered
Surveyors (15% 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 evaluated the competence of the external valuers which included
consideration of their qualifications and expertise, as well as their
independence.
• We made enquiries of the external valuers and inspected their terms
of reference to confirm that they had not been subject to undue
influence or direction from management.
• We utilised our detailed analytical procedures and work of the
Chartered Surveyors described above in order to assess for evidence
of undue management influence.
• For properties under significant 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 risk associated
with the significant projects, including potential additional costs
resulting from development delays caused by Covid-19.
• 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.
Page 120
Shaftesbury Annual Report 2020 Governance Independent auditor’s report
Key observations communicated to the Audit Committee
We audited the inputs, assumptions and reviewed the methodology
used by the external valuers. We assessed the impact of Covid-19 and
the risk of reduced collections of rental income, the assumptions
around void periods and lease incentives.
A higher degree of estimation and judgement has been applied in the
valuation in the current year, in particular in assessing the ERVs and
yields, resulting from a fall in the volume of letting and transactional
evidence.
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 and we did not identify evidence of
undue management influence or bias.
We concluded 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 2020.
Risk: Revenue recognition, including the timing of
revenue recognition, and the treatment of rents and
incentives
£102.5m of rental income (FY19: £115.0m), £11.9m adjustment for lease
incentives (FY19: £2.3m)
Refer to the Audit Committee Report (page 98); Accounting policies
(page 150); and Note 5 of the Consolidated Financial Statements (page
134)
Market expectations and profit based targets may place pressure on
management to distort revenue recognition. This may result in
overstatement or deferral of revenues to assist in meeting current or
future targets or expectations.
In order to distort rental income, management could manipulate the
deferred revenue balance, the IFRS rent adjustment for lease
incentives, or the treatment of operating lease modifications resulting
from Covid-19 which relate to the current year.
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, including
identifying rent free periods, turnover rents, break dates and other
incentives.
• We performed substantive analytical procedures and found that the
rental income recognised by the Group, and each of the operating
companies, was materially consistent with our expectations
developed from rents in the tenancy schedules, allowing for lease
incentives, credit notes and voids.
• 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 IFRS 16 Leases.
• We verified the completeness of the lease incentives recorded, by
confirming that all leases with lease incentives from our detailed
testing of the tenancy schedule have been included in the
calculation.
• In response to the operating lease modifications arising from
Covid-19 we:
- Updated our understanding of the controls in place to identify and
record the operating lease modifications.
- Obtained, and tested the completeness of, a schedule of credits
notes raised by managing agents. We verified that these operating
lease modifications were correctly accounted for and that the
rental income was correctly straight-lined over the lease term.
e
c
n
a
n
r
e
v
o
G
- On a sample basis, we tested rent waivers and concessions to
supporting evidence such as invoices or credit notes to verify
the accuracy of management’s operating lease modification
calculations.
- We assessed the ‘effective date’ of the operating lease
modifications with reference to available evidence of the
agreement between landlord and tenant.
• In respect of the deferred income recognised at year end we:
- Performed analytical procedures to confirm the deferred
income balance is materially within our expectations, based
on the timing of invoicing.
- Substantively tested a sample of balances by agreeing the
timing of rent recognised to invoices or rent agreements.
- For a sample of deferred income balances, we considered the
likelihood of collectability for each tenant.
• We have assessed the adequacy of the disclosures in the
financial statements and whether they appropriately reflect the
impact of Covid-19 on the revenue recognition of the Group.
• We evaluated whether the revenue recognition policies adopted
complied with IFRSs as adopted by the European Union.
• We performed audit procedures specifically designed to address
the risk of management override of controls including journal entry
testing to confirm the processing and timing of journals to record
revenue is consistent with our expectations.
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 assessed the accuracy and completeness of the accounting
for operating lease modifications, in response to Covid-19.
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.
Risk: Provisions for expected credit losses on rent
receivables and lease incentives
£14.3m provision for expected credit losses on rent receivables (FY19:
£1.5m) and £8.2m for lease incentives (FY19: £0m)
Refer to the Audit Committee Report (page 98); Accounting policies
(page 151); and Notes 11, 14 and 18 of the Consolidated Financial
Statements (pages 136, 138 and 142)
Provisions for expected credit losses on rent receivables and lease
incentives requires estimation using historical and forecast information
available at the balance sheet date. In the current year, this estimation
is more complex with rapidly changing events brought on by the
Covid-19 pandemic and government action restricting the trading
of the Group’s tenants. There is a risk that the provision recognised
in the financial statements is not in accordance with IFRS 9 and does
not accurately reflect the credit risk to the Group at the year end.
The provision for expected credit losses on rent receivables is an
estimation of the likelihood that tenants will settle unpaid rents owing
to Shaftesbury at 30 September 2020. The provision for expected
credit losses on lease incentives requires an assessment of whether
the lease contract is likely to remain in place until the planned end
of the lease term.
Page 121
Shaftesbury Annual Report 2020 Governance Independent auditor’s report
Our response to the risk
We performed procedures to address the heightened risk of non-
payment of rent receivables and the risk of future tenant default in the
current environment, including:
• We obtained an understanding of the Group’s controls over the
calculation of the provisions, including management’s assessment of
the risk of non-payment and risk of future tenant default, to ensure
the controls were designed and implemented correctly.
• We performed additional procedures to assess the financial health of
the Group’s tenants. These procedures included: obtaining a list of
known Company Voluntary Arrangements, performing press searches
for evidence of tenant financial difficulty, holding discussions with the
external valuers and with the Group’s property surveyors and
reviewing tenancy information and rent collection data to identify
those tenants with a higher risk of default. We assessed whether
those higher risk tenants had been appropriately provided for at the
year end, in both the provision for expected credit losses on rent
receivables and lease incentives.
• We assessed the significant assumptions adopted by management in
the provision for expected credit losses on rent receivables and lease
incentives. The most significant of these being the probability of
default for the tenants, based on their risk profile. We challenged this
assumption in light of other information we obtained during the audit
including the rent collection assumptions made by external valuers,
and by management in their going concern assessment.
• Given the high degree of estimation uncertainty, we performed
sensitivity analysis on the probability of default in order to derive a
range of reasonable outcomes for the provision for expected credit
losses on rent receivables and lease incentives.
• We assessed the credit risk assessment prepared by management.
We validated the tenant deposits in place, obtaining confirmations of
balances held by the managing agents.
• We tested the completeness of the expected credit loss provision by
comparing the tenants included in the provision workings to audited
tenancy schedules and to the audited lease incentive schedule.
• We tested the clerical accuracy of the provision workings and verified
that the provision was calculated in accordance with management’s
policy. For any exceptions to this policy, we obtained supporting
evidence to validate the provision amount.
• We assessed the adequacy of the disclosures in the financial
statements for the provision for expected credit losses on rent
receivables and lease incentives.
Key observations communicated to the Audit Committee
We audited the provision for expected credit losses on rent receivables
and lease incentives.
We assessed the risk of tenant default and non-collection of rents as
a result of current market conditions. We searched for indicators of
tenant financial distress and considered whether the risk of default was
appropriately considered in the provisions. We have also considered
the consistency of management’s estimates about future rent
collections with other information we obtained during the audit.
We have tested the key inputs to the provisions including the existence
of available rent deposits which reduce the Group’s exposure to
credit losses.
We conclude that the provision for expected credit losses on rent
receivables and lease incentives recognised is fairly stated as at
30 September 2020, and that the disclosures in the financial
statements are in accordance with IFRS.
Risk: Going concern
The Group’s financial statements are prepared on the going concern
basis of accounting. This basis is dependent on a number of factors,
including the Group’s forecast financial performance and liquidity
levels, and the Group’s ability to continue to operate within the financial
covenants of its debt facilities.
Refer to the Audit Committee Report (page 98) and Note 1 of the
Consolidated Financial Statements (page 132)
The Covid-19 pandemic has impacted tenants’ ability to trade, and
in turn the Group’s rent collection. As a consequence, the Group
identified that it was likely it would not meet interest cover covenants
throughout the whole of the going concern period which may adversely
impact the Group’s ability to continue to operate as a going concern.
Subsequent to the year end, the Group has raised equity with net
proceeds of £294.4m following approval by shareholders of certain
resolutions to execute the transaction on 18 November 2020, and
agreed waiver extensions for covenant on its drawn debt facilities
where they had been assessed as being required.
The debt facilities also have loan-to-value covenants. While the fall
in the value of investment properties has reduced the headroom,
the Group expects to continue to remain in compliance with these
covenants.
There is also a risk that management has not adequately disclosed
the results of its going concern assessment in the financial statements.
Our response to the risk
• We obtained an understanding of the process followed by
management to prepare the Group’s going concern assessment
which we obtained a copy of, including identifying the key
assumptions which influenced the cash flow forecasts.
• We obtained the cash flow forecasts prepared by management
showing three scenarios including a severe but plausible downside
scenario. We tested the mathematical accuracy of the forecast
models.
• We challenged the appropriateness of the forecasts by assessing
historical forecasting accuracy, comparing assumptions to historic
performance and our knowledge of current trading conditions and
circumstances. We applied further sensitivities to stress test the
liquidity of the Group over the going concern period.
• We agreed key terms in the financing arrangements such as loan
maturity dates, covenants and cure rights to the underlying
agreements. We obtained copies of the waivers received from
lenders and assessed whether their terms were consistent with the
assumptions made in management’s going concern assessment.
• We recalculated covenant calculations using the forecasts and
evaluated whether the covenants would be met during the going
concern period. We considered the assessment of our Chartered
Surveyors of the likelihood of future falls in property values which
would result in future breaches of loan to value covenants.
We assessed the effectiveness of mitigating actions available
to management (in particular the cure rights) to avoid breaching
the covenants where a waiver is not already in place.
• We read board minutes to identify any matters that may impact
the going concern assessment.
• We read the disclosures in the financial statements in relation to
going concern with a view to assessing whether they adequately
disclose the risks, the potential outcomes and the availability of
effective mitigating actions.
Page 122
Shaftesbury Annual Report 2020 Governance Independent auditor’s report
e
c
n
a
n
r
e
v
o
G
Key observations communicated to the Audit Committee
Based on the results of our audit procedures, we agreed with
management’s conclusion that it is appropriate to prepare the financial
statements on a going concern basis and that there is no material
uncertainty related to the Group’s ability to continue as a going
concern.
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.
This included assessing that:
• the Group has sufficient liquidity over the going concern period;
• the Group has obtained waivers for forecast interest cover covenant
breaches;
• in the severe but plausible downside scenario where interest cover
covenants are forecast to be breached after the expiry of existing
interest cover waivers, the Group has sufficient liquidity to cure these
breaches through the going concern period; and
• the Group has sufficient unencumbered assets to remain in
compliance with the loan to value covenants on its facilities.
We concluded that the disclosures in respect of going concern are
appropriate and accurately describe the position we understand as
a result of our audit procedures.
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.
As a result of the most recent UK lockdown and the government’s
recommendation to work from home, the year end audit procedures
were completed remotely. We held regular meetings with management
via video call to assist in obtaining appropriate evidence to express an
opinion on the Group financial statements.
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:
Materiality
Performance
Materiality
Audit
Differences
£33m
£3.4m
£25m
£2.6m
£1.7m
£170k
Overall
Specific
Applicable for account
balances not related to
investment properties,
loans and borrowings.
Basis
1% of total assets
5% of the average
operating profit
over 3 years before
investment property
valuation movements
and net finance costs
Overall materiality
When establishing our overall audit strategy, we determined a
magnitude of uncorrected misstatements that we judged would be
material for the financial statements as a whole. We determined that
total assets would be the most appropriate basis for determining
overall materiality given that key users of the Group’s financial
statements are primarily focussed on the valuation of the Group’s
assets; primarily the investment property portfolio. This provided a
basis for determining the nature, timing and extent of risk assessment
procedures, identifying and assessing the risk of material misstatement
and determining the nature, timing and extent of further audit
procedures. For planning purposes this was initially based on total
assets as at 31 March 2020.
During the course of our audit, we reassessed our initial materiality.
As a result, there was a decrease in our overall materiality reflecting
the valuation loss on investment properties between the time we set
initial materiality and 30 September 2020. Our materiality basis and
threshold have remained consistent with planning. In the prior year
audit we adopted an overall materiality of £40m based on 1% of
total assets.
Specific materiality
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.
In the prior year, we adopted a specific materiality of £4.0m based
on 5% of operating profit before investment property valuation
movements and net finance costs.
Considering the impact of Covid-19 on the Group and the reduction
in operating profit for the current year, we reconsidered the basis of
our specific materiality. For the current year, we reduced the specific
materiality we apply to the income statement and working capital
balances and have set specific materiality on a normalised basis, being
5% of the average operating profit before investment property
valuation movements and net finance costs for 2018, 2019 and 2020.
The adoption of a normalised basis in setting materiality reflects our
assessment of what a user considers to be material to the financial
statements. This has resulted in a lower specific materiality being
adopted of £3.4m.
Page 123
Shaftesbury Annual Report 2020 Governance Independent auditor’s report
Performance materiality
The application of materiality at the individual account or balance
level. It is set at an amount to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements exceeds materiality.
On the basis of our risk assessments, together with our assessment of
the Group's overall control environment, our judgement is that overall
performance materiality and specific performance materiality (i.e. our
tolerance for misstatement in an individual account or balance) for the
Group should be 75% (2019: 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 properties,
loans and borrowings in excess of £1.7m, as well as uncorrected audit
differences in excess of £170k that relate to our specific testing of the
other account balances not related to investment properties, loans and
borrowings. These are set at 5% of their respective planning materiality.
We also agreed to report differences below that threshold that, in our
view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the
quantitative measures of materiality discussed above and in light
of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the
annual report including the Strategic report, Governance and Other
information set out on pages 1 to 118 and 154 to 165, other than the
financial statements and our auditor’s report thereon. The directors are
responsible for the other information.
Our opinion on the financial statements does not cover the other
information and, except to the extent otherwise explicitly stated in this
report, we do not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial
statements or our knowledge obtained in the audit or otherwise appears
to be materially misstated. If we identify such material inconsistencies
or apparent material misstatements, we are required to determine
whether there is a material misstatement in the financial statements or
a material misstatement of the other information. If, based on the work
we have performed, we conclude that there is a material misstatement
of the other information, we are required to report that fact.
We have nothing to report in this regard.
In this context, we also have nothing to report in regard to our
responsibility to specifically address the following items in the other
information and to report as uncorrected material misstatements of
the other information where we conclude that those items meet the
following conditions:
• Fair, balanced and understandable set out on page 118 – the
statement given by the directors that they consider the annual report
and financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s performance, business model and
strategy, is materially inconsistent with our knowledge obtained in the
audit; or
• Audit Committee reporting set out on pages 96 to 99 – 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 114 – the parts of the directors’
statement required under the Listing Rules relating to the company’s
compliance with the UK Corporate Governance Code containing
provisions specified for review by the auditor in accordance with
Listing Rule 9.8.10R(2) do not properly disclose a departure from a
relevant provision of the UK Corporate Governance Code.
Opinion on other matters prescribed by
the Companies Act 2006
In our opinion, the part of the directors’ remuneration report to be
audited has been properly prepared in accordance with the Companies
Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
• the information given in the strategic report and the directors’ report
for the financial year for which the financial statements are prepared
is consistent with the financial statements; and
• 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
Parent company and its environment obtained in the course of the
audit, we have not identified material misstatements in the strategic
report or the directors’ report.
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 financial statements and the part of the
directors’ remuneration report to be audited are not in agreement
with the accounting records and returns; or
• certain disclosures of directors’ remuneration specified by law are
not made; or
• we have not received all the information and explanations we require
for our audit.
Page 124
Shaftesbury Annual Report 2020 Governance Independent auditor’s report
• Based on this understanding we designed our audit procedures
to identify non-compliance with such laws and regulations. Our
procedures involved the following:
- Inquire of members of senior management, and when appropriate,
those charged with governance regarding their knowledge of any
non-compliance or potential non-compliance with laws and
regulations that could affect the financial statements.
- Reading minutes of meetings of those charged with governance.
- Obtaining and reading correspondence from legal and regulatory
bodies including HMRC.
A further description of our responsibilities for the audit of the financial
statements is located on the Financial Reporting Council’s website at
https://www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
e
c
n
a
n
r
e
v
o
G
Other matters we are required to address
• We were appointed by the Company on 15 October 2015 to audit
the financial statements for the year ended 30 September 2016
and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments is
5 years, covering the years ended 30 September 2016 to
30 September 2020. Our audit engagement letter was refreshed
on 26 May 2020.
• The non-audit services prohibited by the FRC’s Ethical Standard
were not provided to the Group or the Parent company and we
remain independent of the Group and the Parent company in
conducting the audit. As disclosed in the Company’s Audit
Committee report, we have obtained an exemption from the FRC in
respect of the non-audit services provided to the Group in 2020,
which exceeded the 70% non-audit services fee cap. We confirm
that there are appropriate safeguards in place and that we remain
independent.
• 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
14 December 2020
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set
out on page 118, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair
view, and for such internal control as the directors determine is
necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for
assessing the Group and Parent 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 Parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit of
the financial statements
Our objectives are to obtain reasonable assurance about whether the
financial statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance
but is not a guarantee that an audit conducted in accordance with ISAs
(UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the
basis of these financial statements.
Explanation as to what extent the audit
was considered capable of detecting
irregularities, including fraud
The objectives of our audit, in respect to fraud, are; to identify and
assess the risks of material misstatement of the financial statements
due to fraud; to obtain sufficient appropriate audit evidence regarding
the assessed risks of material misstatement due to fraud, through
designing and implementing appropriate responses; and to respond
appropriately to fraud or suspected fraud identified during the audit.
However, the primary responsibility for the prevention and detection
of fraud rests with both those charged with governance of the entity
and management.
Our approach was as follows:
• We obtained an understanding of the legal and regulatory frameworks
that are applicable to the Group and determined that the most
significant frameworks which are directly relevant to specific assertions
in the financial statements are those that relate to the reporting
framework (IFRS, the Companies Act 2006 and UK Corporate
Governance Code) and the relevant tax regulations in the
United Kingdom, including the UK REIT regulations.
• We understood how Shaftesbury PLC is complying with those
frameworks through enquiry with management, and by identifying
the policies and procedures regarding compliance with laws and
regulations. We also identified those members of management who
have the primary responsibility for ensuring compliance with laws
and regulations, and for reporting any known instances of non-
compliance to those charged with governance.
• We assessed the susceptibility of the Group’s financial statements to
material misstatement, including how fraud might occur by reviewing
the Companies risk register, enquiry with management and the Audit
Committee during the planning and execution phases of our audit.
1. The maintenance and integrity of the Shaftesbury PLC website is the responsibility of the directors; the work carried out by
the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any
changes that may have occurred to the financial statements since they were initially presented on the website.
2. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from
legislation in other jurisdictions.
Page 125
Making a
positive
contribution
+
Page 126
Financial statements
Page 127
Shaftesbury Annual Report 2020 Financial statements
Group statement of comprehensive income
For the year ended 30 September 2020
Revenue
Expected credit losses
Impairment charges
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 on investment properties
Operating (loss)/profit
Finance income
Finance costs
Share of post-tax loss from joint venture
(Loss)/profit before tax
Tax charge for the year
(Loss)/profit and total comprehensive (loss)/income for the year
(Loss)/earnings per share:
Basic and diluted
Notes
5
6
7
10
8
12
9
24
2020
£m
124.5
(13.0)
(8.9)
(28.3)
74.3
(14.4)
59.9
0.3
(698.5)
(638.3)
0.7
(32.5)
(29.4)
(699.5)
-
(699.5)
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
(227.5)p
8.5p
Page 128
Group statement of comprehensive income
For the year ended 30 September 2020
Balance sheets
As at 30 September 2020
Shaftesbury Annual Report 2020 Financial statements
Notes
Group
2020
£m
Non-current assets
Investment properties
Accrued income
Investment in joint venture
Property, plant and equipment
Other receivables
Investment in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Total assets
Current liabilities
Trade and other payables
Non-current liabilities
Trade and other payables
Borrowings
Total liabilities
Net assets
Equity
Share capital
Share premium
Share-based payments reserve
Retained earnings
Total equity
10
11
12
15
13
14
15
16
16
17
19
20
20
20
2019
£m
3,765.9
13.1
127.6
1.4
3.7
-
3,115.5
16.3
96.8
1.2
3.7
-
3,233.5
3,911.7
45.0
72.8
35.1
54.0
Company
2020
£m
-
-
59.0
5.4
-
1,226.8
1,291.2
161.5
61.5
2019
£m
-
-
59.0
1.4
-
1,238.3
1,298.7
47.8
36.9
3,351.3
4,000.8
1,514.2
1,383.4
19.7
43.8
4.4
10.4
-
1,051.0
1,070.7
-
949.8
993.6
3.8
99.0
107.2
-
(1.3)
9.1
2,280.6
3,007.2
1,407.0
1,374.3
76.9
378.6
1.3
1,823.8
2,280.6
76.9
378.6
1.3
2,550.4
3,007.2
76.9
378.6
1.3
950.2
76.9
378.6
1.3
917.5
1,407.0
1,374.3
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
F
The Company made a profit of £59.8 million (2019: £57.9 million) in the year.
On behalf of the Board who approved and authorised for issue the financial statements on pages 128 to 151 on 14 December 2020.
Brian Bickell
Chief Executive
Chris Ward
Finance Director
Page 129
Shaftesbury Annual Report 2020 Financial statements
(cid:694)ash (cid:1028)o(cid:746) statements
For the year ended 30 September 2020
Operating activities
Cash generated from/(used in) 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
Increase in cash held in restricted accounts
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 borrowings
Repayment of borrowings
Equity dividends paid
Net cash from/(used in) 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
Company
2020
£m
33.5
0.4
(31.4)
2.5
(13.3)
0.3
(31.2)
(0.1)
(8.7)
1.4
(4.3)
-
-
(55.9)
-
150.0
(50.0)
(27.8)
72.2
18.8
54.0
72.8
2019
£m
79.8
1.0
(30.2)
50.6
(47.2)
14.3
(28.2)
(0.5)
-
2.5
(3.3)
-
-
(62.4)
0.2
-
-
(52.9)
(52.7)
(64.5)
118.5
54.0
2020
£m
(17.0)
0.3
(2.6)
(19.3)
-
-
-
(0.1)
(1.3)
1.4
(4.3)
40.2
(64.2)
(28.3)
-
150.0
(50.0)
(27.8)
72.2
24.6
36.9
61.5
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
Notes
23
7
15
17
17
22
15
15
Page 130
Shaftesbury Annual Report 2020 Financial statements
Statements of changes in equity
For the year ended 30 September 2020
Group
At 1 October 2019
Loss and total comprehensive loss for the year
Dividends paid
Share-based payments
Release on exercise of share options
At 30 September 2020
At 1 October 2018
Profit 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
Company
At 1 October 2019
Profit and total comprehensive income for the
year
Dividends paid
Share-based payments
Release on exercise of share options
At 30 September 2020
At 1 October 2018
Profit 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
Notes
22
22
19
22
22
19
Share
capital
£m
Share
premium
£m
Share-based
payments
reserve
£m
76.9
-
-
-
-
76.9
76.8
-
-
0.1
-
-
76.9
76.9
-
-
-
-
378.6
-
-
-
-
378.6
378.4
-
-
0.2
-
-
378.6
378.6
-
-
-
-
76.9
378.6
76.8
-
-
0.1
-
-
76.9
378.4
-
-
0.2
-
-
378.6
1.3
-
-
0.7
(0.7)
1.3
1.2
-
-
-
0.9
(0.8)
1.3
1.3
-
-
0.7
(0.7)
1.3
1.2
-
-
-
0.9
(0.8)
1.3
Retained
earnings
£m
2,550.4
(699.5)
(27.8)
-
0.7
1,823.8
Total
equity
£m
3,007.2
(699.5)
(27.8)
0.7
-
2,280.6
2,576.6
26.0
3,033.0
26.0
(52.9)
(0.1)
-
0.8
(52.9)
0.2
0.9
-
2,550.4
3,007.2
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
F
917.5
59.8
(27.8)
-
0.7
950.2
911.8
57.9
(52.9)
(0.1)
-
0.8
917.5
1,374.3
59.8
(27.8)
0.7
-
1,407.0
1,368.2
57.9
(52.9)
0.2
0.9
-
1,374.3
The Company’s distributable reserves are disclosed in note 20 to the financial statements.
Page 131
Shaftesbury Annual Report 2020 Financial statements
Notes to the financial statements
For the year ended 30 September 2020
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 117.
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 £59.8 million (2019: £57.9 million) in the year.
Going concern
Given the significant uncertainties resulting from the impact of
Covid-19 on the economic environment in which the Group operates,
the directors have placed a particular focus on the appropriateness of
adopting the going concern basis in preparing the consolidated
financial statements for the year ended 30 September 2020.
+ Covid-19: impact and response: page 6
In October 2020, having assessed the Group's financial position in light
of the implications of the Covid-19 pandemic for its short- and
medium-term prospects, the Board determined that it was in the
long-term interests of the Group to raise equity to ensure the Group
maintains a strong financial base and is positioned to return to
long-term growth as pandemic issues recede.
On 22 October 2020, the Board announced its intention to issue up to
76.75 million shares by means of a Firm Placing, a Placing and Open
Offer and an Offer for Subscription. The equity issue was approved by
an Extraordinary General Meeting of the Company on 17 November
2020 and 76.75 million shares were admitted for trading the following
day. Net proceeds from the equity raise were £294.4 million.
+ Financing: page 67
The Group's going concern assessment covers the period from the
date of authorisation of these consolidated financial statements to 31
March 2022 (the "going concern period"), and takes into account its
liquidity, committed expenditure, and likely ongoing levels of costs.
In preparing the assessment of going concern, the Board has considered
a severe but plausible downside scenario, which assumes continued
low levels of rent collection, increased vacancy, existing capital
commitments are satisfied and there are no acquisitions or disposals. It
also assumed surplus unsecured property is charged to individual loans
and factored in decreases in property values of up to 40%.
The Group anticipates that Government Covid-19 containment
measures will continue to adversely affect its occupiers' ability to trade
through to spring 2021 and that footfall may not recover to pre-
pandemic levels within the going concern period.
These continued restrictions are expected to lead to continued
reduced levels of rent collection and increased EPRA vacancy
throughout the going concern period as well as declining estimated
rental values and asset values.
As a consequence, under the downside scenario, it is likely that the
Group will not meet interest cover covenants throughout the whole of
the going concern period. However, on all drawn debt facilities it has
either secured waivers or has cure rights:
• The Group has secured interest cover waivers from its two term loan
lenders for periods ending July 2021 and January 2022 respectively.
The facilities have cash cure rights for all testing dates in the going
concern period not covered by existing waivers and the Group
Page 132
anticipates sufficient available cash to make any necessary deposits.
• The Group was compliant with its mortgage bonds' interest cover
covenants at 30 September 2020 and expects to remain compliant
during the going concern period. Should it be required, the Group has
the ability to top-up the charged asset pool with additional assets
with sufficient contractual income from its pool of unsecured
properties.
• Since 30 September 2020, the Group has cancelled its shortest
maturity revolving credit facility (£125 million, maturing May 2022) and
has repaid all drawings under its remaining revolving credit facility
(£100 million, maturing February 2023). In its downside scenario, the
Group forecasts that it will have sufficient cash throughout the going
concern period, such that it does not anticipate being reliant on the
undrawn facility for liquidity and could cancel it if interest cover
covenant waivers were not available.
There are no debt maturities until February 2023.
+ Financing: page 67
At 30 September 2020, the Group's loan-to-value ratio was 31.5%. Pro
forma for the receipt of the proceeds of the equity raise this falls to
22.1%. The Group's individual debt arrangements have specifically
charged assets as security, although the relative amounts of collateral
against each arrangement are not uniform. However, as part of the
Group's finance strategy, it has a pool of unsecured properties which
can be used to top-up debt security pools, if necessary, to comply with
loan-to-value covenants. The cancellation of the £125 million revolving
credit facility has released additional assets to this pool. Through
charging these unsecured properties, the Group estimates that it could
withstand a 41% decrease in valuations before reaching the limit of its
loan-to-value covenants. If it were to cancel the remaining revolving
credit facility and release its assets to be charged against other loans,
this tolerance would increase to 48%.
Under the Group's severe but plausible downside scenario, the Group
has sufficient liquidity for the going concern period assuming that
values do not decline beyond the tolerance levels noted above. The
Board, therefore, has a reasonable expectation that the Group has
adequate resources to continue in operational existence for the going
concern period. On this basis, the Board has continued to adopt the
going concern basis in preparing the consolidated financial statements.
2. Changes in accounting policies
The Group’s significant accounting policies are disclosed in note 28.
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 2019, and did not have a
significant impact on the 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)
The Group and Company adopted IFRS 16 on 1 October 2019, using the
modified retrospective approach. Comparatives for the 2019 financial
year have not been restated. 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.
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
2. Changes in accounting policies continued
As the Group is primarily a lessor, this standard had no significant
impact on the Group financial statements.
The Company leases its head office accommodation from a subsidiary
company. As a result, the Company has recognised a right-of-use asset
and lease liability, which were both initially measured at £4.6 million,
being the present value of the £5.5 million remaining lease payments,
discounted at a rate of 3.75%, at 1 October 2019.
The impact on the Company Balance Sheet on transition at 1 October
2019 is shown below:
At 1 Oct
2019
(£m)
At 30 Sept
2020
(£m)
Property, plant & equipment (right-of-use asset)
Current trade & other payables (lease liability)
Non-current trade & other payables (lease liability)
4.6
0.4
4.2
4.2
0.4
3.8
The right-of-use asset was initially measured at an amount equal to the
lease liability. As a result, there was no impact on opening retained
earnings at 1 October 2019.
In applying IFRS 16 for the first time, the Group and Company have used
the following practical expedient permitted by the standard:
• Exclusion of initial direct costs for the measurement of the right-of-use
asset.
Whilst judgement and estimates were required in the initial adoption of
IFRS 16, these were not considered significant.
Standards relevant to the Group but not yet effective
The following amendments to existing standards were relevant to the
Group, are not yet effective, and have not been adopted early. They are
not expected to have a significant impact on the financial statements:
• IFRS 9, IAS 39 and IFRS 7 (amendments) – Interest rate benchmark reform
• IAS 1 and IAS 8 (amendments) – Definition of material
• IFRS 3 (amendment) – Definition of a business
• IFRS 16 (amendment) - Covid-19 related rent concessions
(cid:678)(cid:673) (cid:710)i(cid:730)nificant (cid:733)(cid:744)(cid:727)(cid:730)ements(cid:671) ass(cid:744)m(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 areas of estimation uncertainty
Investment property valuation
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.
Valuations 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 require estimates to be made, including, but not
limited to, market yields, ERVs, void periods and, currently, the likely
short-term impact of rent concessions. These estimates are based on
assumptions made by the valuers. The most significant assumptions are
those in respect of market yields and ERVs, which are summarised in the
Basis of Valuation on pages 158 to 159 and are in accordance with the
RICS Valuation - Global Standards. Given the inherent subjectivity, the
valuations 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. 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.
Given market disruption as a result of the onset of the Covid-19
pandemic, the valuation reports at 31 March 2020 included statements
highlighting a material valuation uncertainty, which was consistent with
market practice and not specific to the Group. By 30 September 2020,
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
F
the valuers had removed the material uncertainty clauses from their
valuation reports.
In recognition of the potential for market conditions to move rapidly in
response to changes in the control, or future spread, of Covid-19, the
external valuers have highlighted the importance of the valuation date in
their reports. It is their view that, as at the valuation date, transaction
volumes and other relevant evidence had returned to levels where an
adequate quantum of market evidence existed upon which to base
opinions of value. Accordingly, and for the avoidance of doubt, the
valuations at 30 September 2020 were not subject to ‘material valuation
uncertainty’.
Further information on the approach taken by the valuers in valuing the
portfolio and a sensitivity analysis on equivalent yields and ERV, which are
the most significant assumptions impacting the fair values, is set out in
note 10 to the financial statements.
Provisions for expected credit losses on rent receivables,
impairment of lease incentives and prepaid letting expenses
During the year, tenant default risk has increased with occupiers
suffering operational and financial challenges as a result of the
pandemic. The Group has supported its occupiers through a package
of measures including deferrals and waivers of rent obligations. Rent
collections have been significantly below normal levels.
+ Covid-19: impact and response: page 6
+ Portfolio activity report: page 59
In preparing the financial statements, estimates are made in assessing
expected credit losses in respect of rent receivables, lease incentives
and prepaid letting expenses. In normal circumstances, these estimates
draw on historical information, such as recent payment history.
However, in the current market with greater uncertainty, the focus is
more on forecast information, taking into account expectations about
trading levels, footfall and tenants' ability to pay rental arrears and, with
respect to lease incentives and prepaid letting expenses, whether it is
likely tenants will serve out the remainder of the contractual terms of
their leases. In assessing provisions, the Group identifies risk factors
associated with each use (food and beverage, retail, office and
residential).
The Group assesses the likely recovery of rent receivables for potential
provisions, which are estimated using a forward-looking expected
credit loss model for each receivable from an occupier. In determining
the provision, the Group considers both recent payment history and
future expectations of occupiers’ ability to pay or possible default in
order to recognise a lifetime expected credit loss allowance.
Where the credit loss relates to revenue already recognised in the
Income Statement, the expected credit loss allowance is recognised in
the Income Statement. Expected credit losses totalling £13.0 million
were charged to the Income Statement in the year (2019: £nil).
Accrued income from lease incentives and prepaid letting expenses are
subject to impairment review at each period end. In determining the
impairment provision, the Group reviews leases on an individual basis,
making a provision based on an expected credit loss model, using
information available about the likelihood of a lease terminating earlier
than the date of contractual break or expiry.
The provision for expected credit loss in the year has increased to £14.3
million, reflecting the increased credit risk (see note 14). The provisions
against lease incentives and prepaid letting expenses have increased to
£8.2 million (see note 11) and £0.7 million respectively.
For further information in respect of the estimation of these provisions
see note 18.
The directors did not make any significant judgements in the
preparation of these financial statements, which is consistent with the
prior year.
The two key estimates made in the current year financial statements
are investment property valuation and the provision for expected
credit losses for rent receivables and the impairment of lease
incentives and prepaid letting expenses. The estimate for provisions
was not a key estimate in the prior year, because the provision for
credit losses and impairment was not material.
Page 133
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
4. Segmental information
IFRS 8 requires operating segments to be reported in a manner consistent with the internal financial reporting reviewed by the chief operating
decision maker. The chief operating decision maker of the Group is the Board. The Board is responsible for reviewing the Group’s internal reporting
in order to assess performance.
The information reviewed by the Board is prepared on a basis consistent with these financial statements. That is, the information is provided at a
Group level and includes both the IFRS reported results and EPRA measures (see page 156 for an explanation on the EPRA measures used in these
financial statements).
The Group’s properties are all located in London’s West End, and are all of a similar type. The properties are typically mixed-use buildings with
restaurants, leisure and retail on the lower floors and small offices and apartments on the upper floors. As the properties share similar economic
characteristics we consider them to be one operating segment. As such, no segmental information is presented.
5. Net property income
Rental income (excluding lease incentives)
Adjustment for lease incentives
Rental income
Service charge income
Revenue
Expected credit losses
Impairment charges
Service charge expenses
Other property charges
Property charges
2020
£m
102.5
11.9
114.4
10.1
124.5
(13.0)
(8.9)
102.6
(10.1)
(18.2)
(28.3)
74.3
2019
£m
115.0
2.3
117.3
9.6
126.9
-
-
126.9
(9.6)
(19.3)
(28.9)
98.0
Impairment charges of £8.9 million (2019: £nil) include £8.2 million (2019: £nil) for tenant lease incentive balances and £0.7 million (2019: £nil) for
prepaid letting expense balances.
Property charges include £1.7 million (2019: £2.0 million) in respect of investment properties that were vacant during the year.
6. Administrative expenses
Employee costs
Depreciation
Other head office costs
Less: administrative fees received from the joint venture
Employee costs (including the directors)
Wages and salaries
Social security costs
Other pension costs
Equity-settled remuneration
2020
£m
8.2
0.3
6.0
14.5
(0.1)
14.4
2020
£m
6.3
0.3
0.3
1.3
8.2
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
Included within equity-settled remuneration is a charge of £1.0 million (2019: £1.2 million) for the LTIP and SAYE schemes. Note 21 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 26.
Average monthly number of employees
Executive directors
Head office and property management
Estate management
Page 134
2020
number
4
33
1
38
2019
number
4
27
1
32
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
6. 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 assurance services
Other non-audit services
Total fees for non-audit services
Total fees
2020
£000
99
228
327
45
234
279
293
572
899
2019
£000
71
128
199
26
5
31
-
31
230
The auditor provided no taxation services to the Group in 2020 (2019: £nil). The auditor acted as reporting accountants in connection with the
Company's equity raise that completed on 18 November 2020. Total non-audit fees payable to Ernst & Young for permissible non-audit services
relating to the equity issuance are £790,000. Of this, £516,000 relates to fees payable at the end of the year and are presented in the table above.
Total fees for non-audit services represented 175% (2019: 16%) of the total fees for audit services. See page 99 of the Audit Committee Report
which sets out further considerations in respect of the audit and non-audit fees for the year.
(cid:682)(cid:673) (cid:707)(cid:741)ofit on (cid:727)is(cid:739)osal o(cid:729) in(cid:745)estment (cid:739)(cid:741)o(cid:739)e(cid:741)ties
Net sale proceeds
Book value at date of sale
Disposal profits in 2020 relate to residential long leasehold tenure extensions granted in the year.
8. Finance costs
Mortgage bond interest
Bank and other interest
Issue cost amortisation
2020
£m
0.3
-
0.3
2020
£m
13.9
17.4
1.2
32.5
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
F
2019
£m
14.3
(11.5)
2.8
2019
£m
13.9
16.4
1.2
31.5
9. Tax charge for the year
The Group’s wholly-owned business is subject to taxation as a REIT. Under the REIT regime, income from its rental business (calculated by reference
to tax rather than accounting rules) and chargeable gains from the sale of its investment properties are exempt from corporation tax.
10. Investment properties
At 1 October
Acquisitions
Disposals
Refurbishment and other capital expenditure
Net revaluation deficit on investment properties
Book value at 30 September
Fair value at 30 September:
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
2020
£m
3,765.9
13.3
-
34.8
(698.5)
3,115.5
3,137.4
(21.9)
3,115.5
2020
£m
2,929.0
208.4
3,137.4
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
Investment properties were valued at 30 September 2020 by professionally qualified external valuers. The Group’s wholly-owned portfolio is valued
by Cushman & Wakefield, members of the Royal Institution of Chartered Surveyors (RICS).
All properties were valued on the basis of fair value and highest and best use, in accordance with IFRS 13 and the RICS Valuation - Global Standards,
which incorporate the International Valuation Standards and the Valuation UK National Supplement (the "RICS Red Book") edition current at the
valuation date. When considering a property’s highest and best use, the valuer considers its actual and potential uses which are physically, legally
and financially viable. Where the highest and best use differs from the existing use, the valuer considers the use a market participant would have in
mind when formulating the price it would bid and reflects the cost and likelihood of achieving that use.
Page 135
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
10. Investment properties continued
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 158 to 159. Equivalent yields are based on current market prices, depending on, inter alia, the location and use
of the properties. ERVs are calculated using a number of factors which include current rental income, market comparatives and occupancy levels.
Whilst there is market evidence for these inputs, and recent transaction prices for similar properties, there is still a significant element of estimation
and judgement. As a result of adjustments made by the valuers to market observable data, these significant inputs are deemed unobservable.
Since the key inputs to the valuation are unobservable, the Group considers all its investment properties fall within Level 3 of the fair value
hierarchy in IFRS 13. The Group’s policy is to recognise transfers between hierarchy levels as at the date of the event or change in circumstances
that caused the transfer. There have been no transfers during the year (2019: 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 96 to 99.
A summary of the Cushman & Wakefield report can be found on pages 160 to 161.
Fees were agreed at fixed amounts in advance of the valuations being carried out. During the year, Cushman & Wakefield acted as letting agents for
Shaftesbury Covent Garden Limited and Shaftesbury CL Limited, and provided other advice to Shaftesbury PLC. Non-valuation fees represented
34% of total fees for the valuation of the Group’s investment properties. Fees payable by the Group to Cushman & Wakefield do not constitute a
significant part of their fee income.
Sensitivity analysis
As noted in the significant judgements, assumptions and key estimates section on page 133, the valuation of the Group’s property portfolio is
inherently subjective. As a result, the valuations the Group places on its property portfolio are subject to a degree of uncertainty and are made on
the basis of assumptions which may not prove to be accurate, particularly in periods of volatility or low transaction flow in the commercial property
market.
Cushman & Wakefield included the following statement in their report at 30 September 2020:
“The outbreak of Covid-19, declared by the World Health Organisation as a “Global Pandemic” on the 11th March 2020, has and continues to
impact many aspects of daily life and the global economy – with some real estate markets having experienced lower levels of transactional activity
and liquidity. Travel restrictions have been implemented by many countries and “lockdowns” applied to varying degrees. Local lockdowns are
being deployed as necessary, significant further outbreaks have emerged in parts of the UK and a “second wave” is now widely considered to be
taking place in many countries in Europe.
“The pandemic and the measures taken to tackle Covid-19 continue to affect economies and real estate markets globally. Nevertheless, as at the
valuation date property markets are mostly functioning, with transaction volumes and other relevant evidence returning to levels where an
adequate quantum of market evidence exists upon which to base opinions of value. Accordingly, and for the avoidance of doubt, our valuation is
not reported as being subject to ‘material valuation uncertainty’ as defined by VPS 3 and VPGA 10 of the RICS Valuation – Global Standards.
“For the avoidance of doubt this explanatory note has been included to ensure transparency and to provide further insight as to the market
context under which the valuation opinion was prepared. In recognition of the potential for market conditions to move rapidly in response to
changes in the control or future spread of Covid-19 we highlight the importance of the valuation date.”
The Group’s properties are all located in London’s West End and are virtually all multi-use buildings, usually configured with commercial uses on the
lower floors and office and/or residential uses on the upper floors. Cushman & Wakefield value properties in their entirety and not by use.
Consequently, the sensitivity analysis below has been performed on the Group’s portfolio as a whole. The sensitivity analysis has been expanded
this year, widening the movement in ERV’s and yields, given the increased level of estimation uncertainty.
(Decrease)/increase in the fair value
Increase/(decrease) in the fair value
-25%
£m
(681.5)
-0.25%
£m
236.0
-20%
£m
(548.3)
+0.25%
£m
(199.6)
Change in ERV
-15%
£m
(415.2)
Change in Yield
+0.5%
£m
(379.4)
-10%
£m
(282.2)
+0.75%
£m
(538.3)
-5%
£m
(148.7)
+1.0%
£m
(680.5)
+5%
£m
126.2
+1.25%
£m
(808.2)
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 2020, the Group had capital commitments of £31.0 million (2019: £82.4 million). This included £31.0 million relating to future capital
expenditure for the enhancement of the Group’s investment properties (2019: £43.4 million). At 30 September 2019, it also included £39.0 million
relating to the forward purchase of a long leasehold interest. The vendor failed to meet its obligations to complete the sale and at 30 September
2020, we were no longer contractually committed. See pages 59 to 62 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 17.
11. Accrued income
Accrued income in respect of lease incentives
Less: included in trade and other receivables (note 14)
2020
£m
20.6
(4.3)
16.3
2019
£m
16.1
(3.0)
13.1
At 30 September 2020, the Group held impairment provisions totalling £8.2 million (2019: £nil) against lease incentive balances. See note 3 for
further information.
Page 136
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
12. Investment in joint venture
Group
At 1 October
Share of losses
Dividends received
Book value at 30 September
Company
Shares at cost
At 1 October and 30 September
2020
£m
127.6
(29.4)
(1.4)
96.8
2020
£m
59.0
2019
£m
143.9
(13.8)
(2.5)
127.6
2019
£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 117. Control of Longmartin
Properties Limited is shared equally with The Mercers’ Company, which owns 50% of its issued share capital.
At 30 September 2020, the joint venture had capital commitments of £0.1 million (2019: £5.2 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
Expected credit losses
Impairment charges
Other property charges
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
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
2020
£m
15.3
1.9
17.2
(0.4)
(0.8)
16.0
(2.9)
(1.9)
(4.8)
11.2
(0.3)
10.9
(71.7)
(60.8)
(7.3)
(68.1)
(0.9)
10.2
9.3
(58.8)
(29.4)
2020
£m
358.0
1.8
1.3
361.1
4.3
5.7
371.1
30.0
120.0
27.5
177.5
193.6
96.8
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
F
2019
£m
15.0
1.8
16.8
-
-
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
Page 137
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
13. Investment in subsidiaries
Shares in Group undertakings
At 1 October
Additional share capital issued by subsidiaries
Impairment of shares in subsidiaries
At 30 September
2020
£m
1,238.3
-
(11.5)
1,226.8
2019
£m
1,160.9
77.4
-
1,238.3
During the year, Helcon Limited and Shaftesbury WE Limited (formerly Shaftesbury West End Limited) distributed £12.5 million to the Company.
Following this, the Company impaired its investment in these subsidiaries. The distributions were settled by intercompany indebtedness.
In 2019, a number of subsidiaries issued share capital to the Company. All transactions were settled through intercompany indebtedness.
The full list of the Company’s subsidiary undertakings is presented below. Except where indicated otherwise, the Company owns, directly, all of the
ordinary issued share capital:
Active subsidiaries:
Shaftesbury Carnaby PLC
Shaftesbury Covent Garden Limited
Shaftesbury Chinatown PLC
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
Shaftesbury West End Limited (formerly Shaftesbury Investments 1 Limited)
Chinatown London Limited
Shaftesbury AV Limited1
Shaftesbury CL Investment Limited
Shaftesbury CL Limited1
Helcon Limited2
Shaftesbury Investments 2 Limited
Shaftesbury Investments 4 Limited
Shaftesbury Investments 5 Limited
Shaftesbury Investments 6 Limited
Shaftesbury Investments 7 Limited
Shaftesbury Investments 8 Limited
Shaftesbury Investments 9 Limited
Shaftesbury Investments 10 Limited
Shaftesbury WE Limited2 (formerly Shaftesbury West End Limited)
1. 100% of the share capital of these subsidiaries is held by other Group companies.
2. This subsidiary is in the process of being voluntarily wound up in order to simplify the Group structure.
All of the companies are either engaged in property investment or dormant. They are incorporated in Great Britain and are registered in England
and Wales. The registered office of the subsidiaries is the same as the Group, as set out on page 117.
14. Trade and other receivables
Trade receivables
Provision for expected credit losses
Accrued income in respect of lease incentives (note 11)
Amounts due from subsidiaries
Amounts due from joint venture
Other taxation
Prepayments
Other receivables
Group
Company
2020
£m
26.0
(14.3)
11.7
4.3
-
11.8
2.9
1.9
12.4
45.0
2019
£m
18.3
(1.5)
16.8
3.0
-
7.2
-
7.6
0.5
35.1
2020
£m
-
-
-
-
144.6
11.8
1.4
0.5
3.2
161.5
2019
£m
-
-
-
-
37.5
7.2
2.0
0.6
0.5
47.8
Trade receivables represent amounts due from tenants. Within this balance is £3.6 million (2019: £3.4 million) owed for service charges.
See note 18 for further information on the provision for expected credit losses.
Cash deposits totalling £14.3 million (2019: £20.7 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.
Page 138
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
15. Cash and cash equivalents
Cash at bank
Restricted cash (included in other receivables):
Non-current other receivables
Current other receivables
Group
Company
2020
£m
72.8
3.7
8.7
12.4
2019
£m
54.0
3.7
-
3.7
2020
£m
61.5
-
1.3
1.3
2019
£m
36.9
-
-
-
Restricted cash relates to cash held on deposit as security for certain secured term loans and secured bank facilities, and where there are certain
conditions restricting their use.
16. Trade and other payables
Due within one year
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
Lease liabilities (note 2)
Total trade and other payables due within one year
Due after one year
Lease liabilities (note 2)
Total other payables due after one year
Group
2020
£m
3.4
1.1
4.5
4.8
-
0.5
9.9
-
19.7
-
-
2019
£m
23.0
5.1
28.1
3.5
-
2.9
9.3
-
43.8
-
-
Company
2020
£m
-
-
-
-
-
0.5
3.5
0.4
4.4
3.8
3.8
All deferred service charge income of the prior year was recognised as income in the current year.
17. Borrowings
Group
Mortgage bonds
Secured bank facilities
Secured term loans
Total Group borrowings
Nominal
value
£m
575.0
100.0
384.8
1,059.8
2020
Unamortised
issue costs
£m
(4.4)
(1.0)
(3.4)
(8.8)
Book
value
£m
570.6
99.0
381.4
1,051.0
Nominal
value
£m
575.0
-
384.8
959.8
2019
Unamortised
issue costs
£m
(4.9)
(1.3)
(3.8)
(10.0)
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
F
2019
£m
-
-
-
-
5.5
1.2
3.7
-
10.4
-
-
Book
value
£m
570.1
(1.3)
381.0
949.8
Details of the Group’s current financial position are discussed on pages 67 to 69.
The Group’s borrowings are secured by fixed charges over certain investment properties held by subsidiaries, with a carrying value of £2,697.9
million (2019: £3,088.9 million), and by floating charges over the assets of the Company and/or certain subsidiaries. To the extent there is a fixed
charge over a property, consent is needed from the relevant lender for the fixed charge to be removed, for example, in the case of a disposal of
that property. There are currently no restrictions on the remittance of income from investment properties.
Net debt reconciliation
Non-current borrowings
Mortgage bonds
Secured bank facilities
Secured term loans
Loan issue costs
Loan issue costs1
Cash & cash equivalents (note 15)
Net debt at 30 September 2020
1. Loan issue costs are eliminated in the calculation of net debt.
1.10.2019
£m
575.0
-
384.8
(10.0)
949.8
10.0
(54.0)
905.8
Cash flows
Inflows
£m
-
150.0
-
-
150.0
-
(185.6)
(35.6)
Outflows
£m
Non-cash items
£m
30.9.2020
£m
-
(50.0)
-
-
(50.0)
-
166.8
116.8
-
-
-
1.2
1.2
(1.2)
-
-
575.0
100.0
384.8
(8.8)
1,051.0
8.8
(72.8)
987.0
Page 139
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
-
-
1.2
1.2
(1.2)
-
-
2019
Drawn
£m
-
424.8
535.0
959.8
575.0
384.8
(10.0)
949.8
10.0
(54.0)
905.8
Undrawn
£m
225.0
-
-
225.0
Interest
rate
-
3.85%
2.35%
2.49%
2.99%
17. Borrowings continued
Non-current borrowings
Mortgage bonds
Secured term loans
Loan issue costs
Loan issue costs1
Cash & cash equivalents (note 15)
Net debt at 30 September 2019
1. Loan issue costs are eliminated in the calculation of net debt.
Availability and maturity of borrowings
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
-
-
-
-
-
(97.8)
(97.8)
-
-
-
-
-
162.3
162.3
Repayable between 1 and 5 years
Repayable between 5 and 10 years
Repayable after 10 years
Committed
£m
225.0
554.8
405.0
1,184.8
2020
Drawn
£m
100.0
554.8
405.0
1,059.8
Undrawn
£m
125.0
-
-
125.0
Committed
£m
225.0
424.8
535.0
1,184.8
Interest rate profile of interest bearing borrowings
Secured bank facilities
Secured term loans
Mortgage bonds 2027
Mortgage bonds 2031
Weighted average cost of drawn borrowings
2020
2019
Debt
£m
100.0
384.8
290.0
285.0
Interest
rate
1.66%
3.85%
2.35%
2.49%
2.87%
Debt
£m
-
384.8
290.0
285.0
The Group and Company also incur non-utilisation fees on undrawn facilities. At 30 September 2020, the weighted average charge on the undrawn
facilities of £125.0 million (2019: £225.0 million) for the Group and Company was 0.68% (2019: 0.66%).
The weighted average credit margin on the Group and Company’s secured bank facilities was 1.46% (2019: 1.46%).
Nominal
value
£m
100.0
100.0
2020
Unamortised
issue costs
£m
(1.0)
(1.0)
1.10.2019
£m
-
(1.3)
(1.3)
1.3
(36.9)
(36.9)
Book
value
£m
99.0
99.0
Inflows
£m
150.0
-
150.0
-
(191.9)
(41.9)
Nominal
value
£m
-
-
2019
Unamortised
issue costs
£m
(1.3)
(1.3)
Book
value
£m
(1.3)
(1.3)
Cash flows
Outflows
£m
Non-cash items
£m
30.9.2020
£m
(50.0)
-
(50.0)
-
167.3
117.3
-
0.3
0.3
(0.3)
-
-
100.0
(1.0)
99.0
1.0
(61.5)
38.5
Company
Secured bank facilities
Total Company borrowings
Net debt reconciliation
Non-current borrowings
Secured bank facilities
Loan issue costs
Loan issue costs1
Cash & cash equivalents (note 15)
Net debt at 30 September 2020
1. Loan issue costs are eliminated in the calculation of net debt.
Page 140
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
17. Borrowings continued
Non-current borrowings
Secured bank facilities
Loan issue costs
Loan issue costs1
Cash & cash equivalents (note 15)
Net debt at 30 September 2019
1. Loan issue costs are eliminated in the calculation of net debt.
Availability and maturity of borrowings
1.10.2018
£m
Inflows
£m
Outflows
£m
Non-cash items
£m
30.9.2019
£m
Cash flows
-
(1.8)
(1.8)
1.8
(100.6)
(100.6)
-
-
-
-
(71.0)
(71.0)
-
-
-
-
134.7
134.7
-
0.5
0.5
(0.5)
-
-
-
(1.3)
(1.3)
1.3
(36.9)
(36.9)
Committed
£m
225.0
2020
Drawn
£m
100.0
Undrawn
£m
125.0
Committed
£m
225.0
2019
Drawn
£m
-
Undrawn
£m
225.0
Repayable between 1 and 5 years
18. Financial instruments
Categories of financial instruments (book value)
Group
Financial assets
Trade and other receivables (note 14)
Amounts due from joint venture (note 14)
Other receivables (note 15)
Cash and cash equivalents (note 15)
Current other receivables (note 14)
Financial liabilities
Trade and other payables - due within one year (note 16)
Interest bearing borrowings (note 17)
Net financial instruments
Company
Financial assets
Amounts due from subsidiaries (note 14)
Amounts due from joint venture (note 14)
Cash and cash equivalents (note 15)
Current other receivables (note 14)
Financial liabilities
Trade and other payables - due within one year (note 16)
Amounts due to subsidiaries (note 16)
Interest bearing borrowings (note 17)
Net financial instruments
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
F
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
2020
£m
11.7
11.8
3.7
72.8
12.4
112.4
(14.7)
(1,051.0)
(1,065.7)
(953.3)
144.6
11.8
61.5
3.2
221.1
(3.5)
-
(99.0)
(102.5)
118.6
Other receivables relate to cash held on deposit, which have certain conditions restricting their use which are due between 2029 and 2035.
Other financial instruments
The Group’s mortgage bonds and secured term loans are held at amortised cost in the Balance Sheet. The fair value of these financial instruments
is £988.9 million (2019: £1,042.9 million). The difference between the fair value and the book value is not recognised in the reported results for the
year. The fair values have been calculated based on a discounted cash flow model using the relevant reference gilt and appropriate market spread.
The valuation technique falls within Level 2 of the fair value hierarchy in IFRS 13.
The fair values of the Group’s and Company’s cash and cash equivalents, and those financial instruments included within trade and other
receivables, interest bearing borrowings (excluding the mortgage bonds and the secured term loans), and trade and other payables are not
materially different from the values at which they are carried in the financial statements.
Contractual cash flows
The tables below summarise the undiscounted contractual cash flows arising on interest bearing financial liabilities based on conditions existing at
the Balance Sheet date. The Group has no obligation to repay its mortgage bonds or secured term loans in advance of their maturities between
2027 and 2035. The Group's secured bank facilities mature in 2022 and 2023. See note 27 for refinancing transactions completed post year end.
Page 141
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
18. Financial instruments continued
Group
30 September 2020
Financial liabilities
Interest bearing borrowings:
Principal (note 17)
Interest
Total
30 September 2019
Financial liabilities
Interest bearing borrowings:
Principal (note 17)
Interest
Total
Company
30 September 2020
Financial liabilities
Interest bearing borrowings:
Principal (note 17)
Interest
Total
30 September 2019
Financial liabilities
Interest bearing borrowings:
Principal (note 17)
Interest
Total
Book
value
£m
Contractual
cash flows
£m
1,051.0
2.9
1,053.9
1,059.8
289.4
1,349.2
Book
value
£m
Contractual
cash flows
£m
949.8
3.0
952.8
959.8
314.1
1,273.9
Book
value
£m
99.0
-
99.0
Book
value
£m
(1.3)
0.1
(1.2)
Contractual
cash flows
£m
100.0
4.0
104.0
Contractual
cash flows
£m
-
0.1
0.1
<1
year
£m
-
30.4
30.4
<1
year
£m
-
28.7
28.7
<1
year
£m
-
1.7
1.7
<1
year
£m
-
0.1
0.1
1-2
years
£m
-
30.4
30.4
1-2
years
£m
-
28.7
28.7
1-2
years
£m
-
1.7
1.7
1-2
years
£m
-
-
-
2-5
years
£m
100.0
86.8
186.8
2-5
years
£m
-
86.2
86.2
2-5
years
£m
100.0
0.6
100.6
2-5
years
£m
-
-
-
5-10
years
£m
554.8
112.4
667.2
5-10
years
£m
424.8
127.4
552.2
5-10
years
£m
-
-
-
5-10
years
£m
-
-
-
>10
years
£m
405.0
29.4
434.4
>10
years
£m
535.0
43.1
578.1
>10
years
£m
-
-
-
>10
years
£m
-
-
-
Management of financial risks (Group and Company)
An overview of the Group’s risk management policies and the principal risks and uncertainties is set out on pages 71 to 77. The disclosure below
provides further detail regarding financial risk management.
Credit risk
Credit risk refers to the risk that a counterparty will default on their contractual obligations resulting in financial loss to the Group.
The Group defines default as the failure to meet contractual obligations as such obligations fall due. Generally, default risk is managed through a
large and diverse tenant base so that tenant credit risk is widely spread.
The Group reviews the creditworthiness of potential tenants prior to entering into contractual arrangements. Where appropriate, tenants are
required to provide cash deposits to mitigate the potential loss in the event of default. Tenant deposits are referred to in note 14.
During the year, tenant default risk, and hence credit risk associated with our tenants, has increased with occupiers suffering operational and
financial challenges as a result of the pandemic. The Group has supported its occupiers through a package of measures including deferrals and
waivers of rent obligations. Rent collections have been significantly below normal levels.
+ Covid-19: impact and response: page 6
+ Portfolio activity report: page 59
Tenant default risk has been elevated to a principal risk for the Group.
+ Principal risks and uncertainties: page 73
In respect of tenant arrears, the Group identified risk factors associated with each use (food and beverage, retail, office and residential) and
calculated provisions taking into account the type of use, rent deposits held and rent collections, on a tenant-by-tenant basis. The Group was able
to utilise £2.3 million of the £14.3 million tenant rent deposits held at 30 September 2020 to offset unpaid rent receivables. Absent the assumed use
of tenant deposits held at 30 September 2020 as collateral against arrears at that date, the maximum exposure to credit risk for the Group was £9.4
million. Tenant arrears are derecognised when there is no longer a reasonable expectation of collection.
Page 142
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
18. Financial instruments continued
Where cash is deposited with banks or financial institutions, the Group considers the counterparty credit rating and places amounts with different
banks or financial institutions to spread counterparty credit risk. Deposits and liquidity requirements are reviewed on a weekly basis.
The Company’s credit risk management, objectives and policies are consistent with those of the Group.
Capital risk management
The capital structure of the Group consists of equity and net borrowings, including cash held on deposit. The type and maturity of the Group’s
borrowings is set out in note 17 and the Group’s share capital and reserves are set out in notes 19 and 20 and 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.
During the year, reduced rent collections and low visibility over near-term income put pressure on interest cover covenants in certain of the
Group's debt arrangements and waivers from lenders were secured, where necessary. Since 30 September 2020, these waivers have been
extended. The Board assessed the Group’s financial and liquidity position in light of the impact of the pandemic and considered a range of options
to optimise the Group’s long-term capital structure including disposals, bond issuance, repayment of existing debt facilities and options for raising
capital. In November 2020, the Group issued equity, raising net proceeds of £294.4 million. The equity issue has ensured the Group maintains a
strong financial base, is positioned to return to long-term growth as pandemic issues recede and, should conditions improve, has capacity for
portfolio investment (see note 27).
The Group’s capital structure and financing strategy are discussed in the Strategic Report on pages 67 to 69.
Financing risk is set out in further detail in “principal risks and uncertainties” on page 77.
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 and planned commitments. The Group’s liquidity position and requirements were considered as part of the
assessment noted in capital risk management (above).
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 Board keeps the Group’s interest rate risk under review, particularly
in light of expectations of future interest rate movements.
The Group’s policy is to minimise interest rate risk through long-term fixed rate debt. At 30 September 2020, 91% of the Group’s drawn borrowings
were fixed rate. Following the equity issue in November 2020, the Group cancelled one of its revolving credit facilities and repaid its other revolving
credit facility. Both facilities bore variable rate interest. Following this, the Group’s drawn debt arrangements were all fixed rate. 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.
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
F
19. Share capital
Group and Company
Allotted and fully paid (ordinary 25p shares)
At 1 October
Exercise of share options
At 30 September
See note 27 for information on the equity raise completed post year end.
20. Reserves
The Statement of Changes in Equity is set out on page 131.
The following describes the nature and purpose of each of the reserves within equity:
2020
number
million
307.4
-
307.4
2019
number
million
307.3
0.1
307.4
2020
£m
76.9
-
76.9
2019
£m
76.8
0.1
76.9
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 2020 include amounts distributable of £261.4 million (2019: £228.4 million).
Page 143
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
21. 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 105.
LTIP and SAYE schemes
The following share options granted to executive directors and employees were outstanding at 30 September 2020:
Date of grant
SAYE
03.07.2015
01.07.2016
30.06.2017
29.06.2018
28.06.2019
09.07.2020
LTIP
02.12.2015
08.02.2016
12.12.2016
12.12.20171
04.12.2018
12.12.2019
24.07.2020
At
1.10.2019
4,754
12,144
12,397
10,455
26,998
-
4,277
45,627
391,600
379,026
438,190
-
-
1,325,468
Awarded
Exercised
Lapsed
At
30.9.2020
Exercisable
30.9.2020
-
-
-
-
-
117,557
-
-
-
-
-
500,160
256,350
874,067
-
-
(348)
(297)
-
-
(4,277)
-
-
-
-
-
-
(4,922)
(2,161)
(6,072)
(3,372)
(10,158)
(18,313)
-
2,593
6,072
8,677
-
8,685
117,557
-
-
(391,600)
(32,966)
(39,750)
(38,700)
-
(543,092)
-
45,627
-
346,060
398,440
461,460
256,350
1,651,521
2,593
-
6,740
-
-
-
-
-
-
-
-
-
-
9,333
Option
exercise
price
£6.94
£7.41
£7.74
£7.57
£6.63
£4.71
Nil
Nil
Nil
Nil
Nil
Nil
Nil
Weighted
average
price at
exercise
Exercise
period
- 2020-2021
- 2021-2022
9.29 2020-2023
-
9.29
- 2022-2025
- 2023-2026
8.89
2019
- 2020-2021
-
-
-
-
- 2021-2024
- 2022-2025
- 2022-2023
1. 346,060 share options will lapse at the vesting date in December 2020.
2. Following the equity issue announced on 22 October 2020, and approved by shareholders on 17 November 2020, the shares granted under the schemes above have subsequently
been restated to reflect the new share capital of the Company. These were technical adjustments and did not increase or decrease the value of the award. The restated figures will
be reported in the 2021 Annual Report.
Weighted average exercise price
Weighted average remaining contractual life
At
1.10.2019
0.36
2.72
Awarded
Exercised
0.63
1.00
Lapsed
0.52
At
30.9.2020
0.45
2.66
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
£1.10
-
-
-
SAYE 3 Year
SAYE 5 Year
09.07.20
£5.15
£4.71
3
29%
-0.1%
-
-
1.7%
SAYE 5
Year
£1.08
-
-
-
09.07.20
£5.15
£4.71
5
25%
-0.1%
-
-
1.7%
LTIP
(TSR)
-
£3.82
£3.70
£3.59
LTIP
12.12.19
£9.32
Nil
3 or 5
17%
0.6%
18%
81%
-
LTIP
(NAV)
-
£9.32
£9.04
£8.76
LTIP
24.07.20
£4.80
Nil
2 or 3
n/a
n/a
n/a
n/a
n/a
LTIP
(TAR)
-
£9.32
£9.04
£8.76
The assumed volatility was determined taking into account factors including the historical volatility of the Company share price. Actual future
volatility may differ, potentially significantly, from historic volatility.
The vesting conditions relating to options granted in the year under the LTIP are described in the Annual Remuneration Report on page 107.
Page 144
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
21. Share-based remuneration continued
Deferred annual share bonus scheme
At 1 October
Awarded
Exercised
At 30 September
22. Dividends
Final dividend for:
Year ended 30 September 2019
Year ended 30 September 2018
Interim dividend for:
Year ended 30 September 2019
Dividends paid in the year
2020
Shares
616,042
164,771
(212,669)
568,144
2019
Shares
598,868
205,640
(188,466)
616,042
Pence per share
PID
Ordinary
5.25p
-
8.7p
3.75p
8.5p
-
2020
£m
27.8
-
-
27.8
2019
£m
-
26.2
26.7
52.9
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
F
The Board announced on 25 September 2020 that no final dividend would be declared in respect of the year ended 30 September 2020. The
Board intends to resume dividend payments as soon as it considers prudent, maintaining its policy of sustainable dividend growth over the
long-term. The pace of the post-pandemic income recovery and our REIT PID obligations, will be key factors in the Board's near-term decisions on
declaring dividends. See page 65 of the Strategic Report for further commentary on our dividend policy.
The trustee of the Company’s Employee Benefit Trust waived dividends in respect of 568,144 (2019: 616,042) ordinary shares during the year.
(cid:677)(cid:678)(cid:673) (cid:694)ash (cid:1028)o(cid:746)s (cid:729)(cid:741)om o(cid:739)e(cid:741)atin(cid:730) acti(cid:745)ities
Operating activities
Profit before tax
Adjusted for:
Lease incentives recognised
Share-based payments
Depreciation (note 6)
Net revaluation deficit on investment properties (note 10)
Profit on disposal of investment properties (note 7)
Net finance costs
Administrative charges, finance charges, and dividends received from subsidiaries
settled through intercompany indebtedness
Impairment of subsidiaries (note 13)
Dividends received from joint venture (note 12)
Share of post-tax loss from joint venture (note 12)
Cash flows from operations before changes in working capital
Changes in working capital:
Change in trade and other receivables
Change in trade and other payables
Cash generated from/(used in) operating activities
See note 17 for the cash flow movement in net debt.
Group
Company
2020
£m
(699.5)
(3.7)
0.7
0.3
698.5
(0.3)
31.8
-
-
-
29.4
57.2
1.5
(25.2)
33.5
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
2020
£m
59.8
-
0.7
0.3
-
-
2.3
(87.3)
11.5
(1.4)
-
(14.1)
(0.7)
(2.2)
(17.0)
2019
£m
57.9
-
0.9
0.4
-
-
0.9
(71.9)
-
(2.5)
-
(14.3)
(2.3)
0.2
(16.4)
Page 145
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
24. Performance measures
Earnings per share
Basic
Dilutive effect of share options
Diluted
1. Weighted average
Loss
after tax
£m
(699.5)
-
(699.5)
2020
Number
of shares1
million
307.4
-
307.4
Loss
per share
pence
(227.5)
-
(227.5)
Profit
after tax
£m
26.0
-
26.0
2019
Number
of shares1
million
307.4
0.2
307.6
Earnings
per share
pence
8.5
-
8.5
For the year ended 30 September 2020, potential ordinary shares are excluded from the weighted average diluted number of shares when
calculating IFRS diluted loss per share because they are not dilutive.
EPRA earnings per share
The calculations below are in accordance with the EPRA Best Practice Recommendations.
Basic
EPRA adjustments:
Net revaluation deficit on investment
properties (note 10)
Profit on disposal of investment properties
(note 8)
Adjustments in respect of the joint venture:
Investment property valuation deficit
Deferred tax
EPRA earnings
1. Weighted average
Like-for-like rental growth
Rental income in current year
Adjusted for impact of:
Impact of acquisitions
Impact of disposals
Like-for-like rental income in current year (A)
Rental income in previous year
Adjusted for impact of:
Impact of acquisitions
Impact of disposals
Like-for-like rental income in previous year (B)
Profit
after tax
£m
(699.5)
698.5
(0.3)
35.8
(5.1)
29.4
2020
Number
of shares1
million
307.4
307.4
Earnings
per share
pence
(227.5)
227.2
(0.1)
11.6
(1.6)
9.6
Profit
after tax
£m
26.0
15.3
(2.8)
19.2
(3.1)
54.6
2019
Number
of shares1
million
307.4
307.4
2020
£m
114.4
(1.7)
-
112.7
117.3
(0.5)
-
116.8
Earnings
per share
pence
8.5
5.0
(0.9)
6.2
(1.0)
17.8
2019
£m
117.3
(2.5)
-
114.8
112.8
(3.0)
(0.4)
109.4
Like-for like (decline)/growth in rental income (A/B-1)
(3.5%)
4.9%
Adjusted EPRA earnings per share
EPRA earnings
Charge for share options (note 6)
Adjusted EPRA earnings
1. Weighted average
Profit
after tax
£m
29.4
1.0
30.4
2020
Number
of shares1
million
307.4
307.4
Earnings
per share
pence
9.6
0.3
9.9
Profit
after tax
£m
54.6
1.2
55.8
2019
Number
of shares1
million
307.4
307.4
Earnings
per share
pence
17.8
0.4
18.2
Page 146
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
24. Performance measures continued
Net asset value per share
Basic
Dilutive effect of share options
Diluted
2020
Number of
ordinary
shares
million
307.4
0.6
308.0
Net assets
£m
2,280.6
0.7
2,281.3
Net asset
value per
share
£
7.42
7.41
Net assets
£m
3,007.2
0.5
3,007.7
2019
Number of
ordinary
shares
million
307.4
0.3
307.7
Net asset
value per
share
£
9.78
9.77
In October 2019, EPRA introduced three new measures of net asset value in its Best Practices Recommendations: EPRA Net Reinstatement Value
(NRV), EPRA Net Tangible Assets (NTA) and EPRA Net Disposal Value (NDV). These are effective from 1 October 2020 but have been presented below
with a comparison to the current measures, EPRA NAV and EPRA NNNAV.
IFRS net assets
Dilutive effect of share options¹
Deferred tax²
Difference between fair value and carrying value of debt:
Secured term loans³
Mortgage bonds
Investment property purchasers' costs
Total
Number of diluted shares (million)
Diluted net assets per share (£)
IFRS net assets
Dilutive effect of share options¹
Deferred tax²
Difference between fair value and carrying value of debt:
Secured term loans³
Mortgage bonds
Investment property purchasers' costs
Total
Number of diluted shares (million)
Diluted net assets per share (£)
Existing measures
New measures
2020
EPRA NAV
£m
EPRA NNNAV
£m
EPRA NRV
£m
2,280.6
0.7
8.5
-
-
-
2,289.8
308.0
7.43
2,280.6
0.7
-
(48.0)
11.4
-
2,244.7
308.0
7.29
Existing measures
EPRA NAV
£m
3,007.2
0.5
13.6
-
-
-
3,021.3
307.7
9.82
EPRA NNNAV
£m
3,007.2
0.5
-
(75.8)
(17.9)
-
2,914.0
307.7
9.47
2,280.6
0.7
8.5
-
-
222.5
2,512.3
308.0
8.16
2019
EPRA NRV
£m
3,007.2
0.5
13.6
-
-
272.9
3,294.2
307.7
10.71
EPRA NTA
£m
2,280.6
0.7
8.5
-
-
-
2,289.8
308.0
7.43
New measures
EPRA NTA
£m
3,007.2
0.5
13.6
-
-
-
3,021.3
307.7
9.82
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
F
EPRA NDV
£
2,280.6
0.7
-
(48.0)
11.4
-
2,244.7
308.0
7.29
EPRA NDV
£m
3,007.2
0.5
-
(75.8)
(17.9)
-
2,914.0
307.7
9.47
1. Increase in shareholders' equity, which would arise on the exercise of share options.
2. Our 50% share of deferred tax in the joint venture.
3. Includes the wholly-owned Group's secured term loans and our 50% share of secured term loans in the joint venture.
Total accounting return (TAR)
Opening EPRA NAV (A)
Closing EPRA NAV
Decrease in the year
Dividends paid in the year
TAR (B)
TAR % (B/A)
2020
pence
982.0
743.0
(239.0)
9.0
(230.0)
(23.4)%
2019
pence
991.0
982.0
(9.0)
17.2
8.2
0.8%
Page 147
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
24. Performance measures continued
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)
Cost of debt
Blended cost of drawn borrowings
Commitment fees on undrawn secured bank facilities
Blended cost of debt
2020
£m
1,059.8
(72.8)
987.0
3,137.4
31.5%
2,289.8
43.1%
59.9
32.5
(0.7)
31.8
1.9x
2.9%
0.7%
2.9%
2019
£m
959.8
(54.0)
905.8
3,784.2
23.9%
3,021.3
30.0%
82.8
31.5
(1.0)
30.5
2.7x
3.0%
0.7%
3.2%
We are no longer presenting financing ratios including our joint venture on a proportionally consolidated basis. We now consider that it is
appropriate to separately report the joint venture's activity, valuation and capital structure. We believe this presentation provides a clearer analysis
and is consistent with the financial statements. Consequently, gearing and loan-to-value ratios have been restated at 30 September 2019.
See page 156 for explanations on why we use these performance measures.
25. 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 five years
Later than five years
2020
£m
91.9
259.1
263.6
614.6
2019
£m
110.2
274.6
329.8
714.6
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 14 to 17.
The Company as a lessee
Future aggregate minimum payments in respect of a non-cancellable operating lease based on annual amounts payable at the year end:
Not later than one year
Later than one year but not later than five years
Later than five years
The Company leases its head office accommodation from a wholly-owned subsidiary.
2020
£m
0.6
2.3
2.0
4.9
2019
£m
0.6
2.3
2.6
5.5
Page 148
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
26. Related party transactions
Transactions during the year between the Company, its subsidiaries and the joint venture are disclosed below:
Transactions with subsidiaries:
Administrative fees receivable
Dividends receivable
Interest receivable
Interest payable
Transactions with the joint venture:
Administrative fees receivable
Dividends receivable
Interest receivable
2020
£m
11.1
72.6
3.2
0.2
0.1
1.4
0.4
2019
£m
11.8
58.0
2.1
0.5
0.1
2.5
0.3
Amounts due from subsidiaries and the joint venture are disclosed in note 14 and amounts due to subsidiaries are disclosed in note 16. 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 106 to 113, and below, there were no other transactions with directors.
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 106 to 113.
Directors’ emoluments
Short-term employee benefits
Other long-term benefits
Share-based payments
2020
£m
2.9
-
0.6
3.5
2019
£m
3.0
0.9
0.9
4.8
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
F
27. Post Balance Sheet events
On 22 October 2020, the Company announced details of an issue of equity with gross proceeds of £307.0 million, comprising £297.0 million by way
of a Firm Placing, Placing and Open Offer, and £10.0 million by way of an Offer for Subscription. The purpose of the equity issue was to ensure the
Group maintains a strong financial base, is positioned to return to long-term growth as pandemic issues recede and, should conditions improve,
has capacity for portfolio investment.
On 18 November 2020, the Company issued 76.75 million shares, representing approximately 25% of its issued share capital, at £4 per share. After
issue costs of £12.6 million, the net proceeds were £294.4 million. Issue costs which were contingent on completion of the equity issuance were not
provided for at 30 September 2020. Following the share issue, the Company’s issued share capital was 384,167,537.
In respect of the equity issue, Capital & Counties Properties PLC (“Capco”) and Norges Bank ("Norges") were related parties of Shaftesbury PLC for
the purposes of the Listing Rules and participated in the equity issue in respect of 16,250,000 and 19,245,032 shares respectively, for a total
consideration of approximately £65 million and £77 million respectively. In respect of Capco, this transaction was disclosed via the Regulatory News
Service on 22 October 2020, in accordance with LR11.1.10R. In respect of Norges, the issue of shares was a transaction of sufficient size to require
shareholder approval under chapter 11 of the Listing Rules as announced via the Regulatory News Service on 22 October 2020. This approval was
granted at the Extraordinary General Meeting on 17 November 2020. 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.
On 27 November 2020, the Group cancelled its £125.0 million revolving credit facility, which was undrawn. On 27 November 2020, the Group repaid
£100.0 million of drawings against its remaining revolving credit facility, which remains available to be re-drawn, provided the Group remains
compliant with all requirements in the loan agreement, including the financial covenants. On 20 November 2020, the Group secured an extension
to the interest cover covenant waiver in respect of this facility from January 2021 to October 2021. In consideration for this extension, the Group
placed a further £1.0 million on deposit with the lender for the duration of the waiver.
On 19 November 2020, the Group secured an extension to the interest cover covenant waiver in respect of its £250.0 million term loan from April
2021 to January 2022. In consideration for this extension, the Group placed a further £4.4 million on deposit with the lender for the duration of the
waiver.
On 14 December 2020, in response to rising Covid-19 infection rates, the Government announced that London and parts of the Home Counties
would be moving to Tier 3 restrictions, beginning from 16 December until further notice. This will have an adverse impact on both our hospitality
and retail occupiers’ ability to trade and will therefore likely have an adverse impact on near-term rent collection.
See pages 67 and 69 in the Strategic Report for further information on Post Balance Sheet events.
Page 149
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
2(cid:683)(cid:673) (cid:710)i(cid:730)nificant acco(cid:744)ntin(cid:730) (cid:739)olicies
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
Net property income comprises rental income, service charge income, property expenses, service charge expenses, expected credit losses on rent
receivables and impairment of lease incentives.
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.
As lessor, the Group accounts for a modification to an operating lease as a new lease from the effective date of the modification, considering any
prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease.
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.
Employee benefits
Share option schemes
The Company administers a long-term incentive plan (LTIP) and a sharesave scheme (SAYE). The cost of granting share options to employees under
these schemes is recognised in the Statement of Comprehensive Income based on the fair value at the date of grant. The expense is recognised on
a straight-line basis over the vesting period based on the number of options that are expected to vest.
The fair value of the long-term incentive plan is calculated using the modified binomial pricing model and the Monte Carlo simulation pricing model
for the non-market based and market based conditions respectively. At each reporting period, the non-market based condition is reassessed and
the impact, if any, of a revision to original estimates is recognised in the Statement of Comprehensive Income.
The fair value of the sharesave scheme is calculated using a modified binomial pricing model.
Deferred 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.
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 reflect fair value. Fair value is determined either by external professional valuers or by the
directors in the case of properties sold shortly after the period end. The fair value, as determined by the valuers, is 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 classified as capital when it results in future economic benefits which
are expected to accrue to the Group. All other property expenditure is written-off in the Statement of Comprehensive Income as incurred.
Premiums payable to tenants in connection with the surrender of their lease obligations are capitalised if they arise in connection with a value-
enhancing project, otherwise they are recognised immediately in the Statement of Comprehensive Income.
Amounts received by way of compensation for dilapidations from tenants vacating properties are credited against the cost of reinstatement works.
Where the Group has no intention of carrying out such works, the amounts received are credited to the Statement of Comprehensive Income.
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 significantly after exchange, or where the
Group continues to have significant outstanding obligations after exchange of contracts, control will not usually transfer until completion. Any gain
or loss on disposal, being the difference 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.
Page 150
Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
(cid:677)(cid:683)(cid:673) (cid:710)i(cid:730)nificant acco(cid:744)ntin(cid:730) (cid:739)olicies contin(cid:744)e(cid:727)
Acquisitions
Where properties are acquired through corporate acquisitions and there are no significant assets (other than investment property) and liabilities,
and without a business being acquired, the acquisition is treated as an asset acquisition. In all other cases, the acquisition is treated as a business
combination.
Joint ventures
Joint ventures are those entities over which the Group has joint control, established by contractual agreement. The Group has one joint venture,
the investment in which is accounted for using the equity method. On initial recognition the investment was recognised at cost. Subsequently, the
carrying amount is increased or decreased to recognise the Group’s share of the profit or loss of, and dividends from, the joint venture. The
Group’s investment in the joint venture is presented separately on the Balance Sheet and the Group’s share of the joint venture’s post-tax profit or
loss for the year is also presented separately in the Statement of Comprehensive Income.
Where there is an indication that the Group’s investment in its joint venture may be impaired, the Group evaluates the recoverable amount of its
investment, being the higher of the joint venture’s fair value less costs to sell and value in use. If the recoverable amount is lower than the carrying
value an impairment loss is recognised in the Statement of Comprehensive Income.
If the Group’s share of losses in the joint venture equals or exceeds its investment in the joint venture, the Group does not recognise further losses,
unless it has legal or constructive obligations to make payments on behalf of the joint venture.
In the Company’s Balance Sheet, the investment in its joint venture is stated at cost less any provision for impairment loss.
Trade receivables and payables
Trade receivables are recognised at fair value and subsequently held at amortised cost, less any provision for impairment.
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.
The Group assesses expected credit losses for trade receivables and impairment on lease incentives on a forward-looking basis. See note 3 and
note 18 for further information.
Trade payables are recognised at fair value and subsequently held at amortised cost.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand and on-demand bank deposits.
Cash held on deposit which has certain conditions restricting its use and is not available on demand, liquid or readily convertible, is classified within
other receivables.
Borrowings and costs of raising finance
Borrowings are initially recognised at fair value net of transaction costs incurred and are subsequently held at amortised cost. Issue costs and
premiums are written-off to the Statement of Comprehensive Income using an effective interest rate method.
s
t
n
e
m
e
t
a
t
s
l
i
a
c
n
a
n
i
F
Page 151
Shaftesbury Annual Report 2020 Other information
Making a
positive
contribution
+
Page 152
Page 152
Shaftesbury Annual Report 2020 Other information
Other information
n
o
i
t
a
m
r
o
f
n
i
r
e
h
t
O
Page 153
Page 153
Shaftesbury Annual Report 2020 Other information
Climate risk and opportunity
We have outlined our current approach to identifying and managing our most significant climate change risks and opportunities. We consider this
to be an iterative process and we will continue to improve our understanding of risks and evolve our disclosures in line with the recommendations
of the Task Force on Climate-related Financial Disclosures.
Governance - Disclose the organisation’s governance around climate-related risks and opportunities
Board oversight of climate-related risks and
opportunities
Annually, the sustainability strategy and associated policies and action plan are considered by the Board for the year
ahead. Progress against the strategy and material changes to climate change risks are considered as an agenda item at
Board meetings.
Management’s role in assessing and managing climate-
related risks and opportunities
We have a Sustainability Committee chaired by our CEO.
The Committee has oversight of climate-related risks including policy, regulatory and legal risk. It reports directly to
the Board and the Risk Committee. The Committee includes members of the Strategy and Operations Committee, our
retained sustainability advisor, Company Secretary and Head of Sustainability.
Strategy - Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning where such
information is material
Climate-related risks and opportunities identified over
the short, medium, and long term
As a property company we are exposed to a wide range of climate-related risks. Our portfolio is wholly located in the West
End of London which limits the scope of the risks we face. Principal considerations include:
Short term (0-1 years):
• Challenges of meeting Minimum Energy Efficiency Standards (MEES) for both domestic and non-domestic buildings,
especially for many of the period buildings in our portfolio.
• Current and prospective tenants are increasingly concerned about the energy efficiency and sustainability credentials
of the buildings that they occupy.
• Opportunity to demonstrate the carbon benefits of our policy of retaining and refurbishing buildings.
Medium term (1-5 years):
• The continuing evolution of planning requirements and tenant expectations for sustainable buildings, which will require
a continued investment in our portfolio.
• Issues relating to achieving the required rate of decarbonisation of our portfolio. This will need to give consideration
to the age of our buildings and the significant proportion of the portfolio not within our operational control as it is
occupied by tenants.
Long term (5-30 years):
• We are committed to the West End of London and therefore consider climate change over longer-term time horizons as
critical to the success of our business.
• Chronic physical risks are expected to have a greater impact with hotter and drier summers likely. Extreme weather
will need to be addressed through the refurbishment of our buildings to ensure that they continue to meet occupier
requirements.
• We also acknowledge the impact of indirect physical risks such as flooding in other areas of London that could limit the
capacity of the regional transport system. The impact of climate risks on our supply chain should also be considered in
more detail.
• Shaftesbury, in common with all organisations, needs to address the UK Government’s objective of achieving net zero
carbon by 2050 and local government targets in advance of this date.
Impact of climate-related risks and opportunities on
the organisation’s business, strategy, and financial
planning
• The identified climate-related risks impact our approach to the procurement and refurbishment of buildings, the
ongoing management of our villages and the development of our sustainability strategy.
• Our refurbishment programme, which typically covers around 10% of the portfolio each year, addresses many of the
key risks that we have identified.
• Targets have been set for the minimum EPC of new refurbishment projects and BREEAM certification on larger projects
to increase efficiency.
• We have committed to setting a science based target for annual carbon emissions reductions and will set a net zero
carbon target.
• We monitor energy consumption within our landlord-controlled space, such as common parts of buildings, and identify
measures which can reduce energy consumption.
• We are committed to procuring green tariff electricity across our landlord consumption in the managed portfolio and
increasing this to tenant areas and refurbishment projects.
• We are also committed to increasing green space which will play an important role in adapting to climate change.
Resilience of the organisation’s strategy, taking into
consideration different climate-related scenarios
including a 2°C or lower scenario
• Our strategy is to invest for the long term in the West End, continually improving our portfolio and setting high
environmental standards for refurbishment projects that deliver efficient buildings.
• Through this strategy, we increase the resilience of our portfolio to extreme weather events, changes in energy
efficiency regulation and demand for sustainable buildings.
• We are committed to developing science based targets that will be in line with a lower than 2-degree scenario.
• Related policies and procedures are set out in our Sustainability Action Plan, available on our website.
Page 154
Shaftesbury Annual Report 2020 Other information Climate Risk and Opportunity
Risk Management - Disclose how the organisation identifies, assesses, and manages climate-related risks
Processes for identifying and assessing climate-related
risks
The organisation’s processes for managing climate-
related risks
Processes for identifying, assessing, and managing
climate-related risks are integrated into the
organisation’s overall risk management.
Climate change risks are assessed by the Sustainability Committee, the Risk Committee and the Board. The Risk Committee
meets twice a year and is chaired by our Finance Director. The Committee reviews key potential risks to the business, both
operational and financial, including sustainability-related issues. Climate change is considered a significant emerging risk by
the Committee.
Climate risks have been initially identified by reviewing the UK Met Office climate scenarios for Central London and other
publically available information.
We participate in the Carbon Disclosure Project (CDP) and have retained our B rating in 2020. Details can be found on the
CDP website.
Our approach to climate change is embedded in our policies, targets and KPIs. We are setting a science based target for
carbon emissions reductions, which will be the foundation of our carbon emissions reduction strategy over the next 10
years. Performance against sustainability KPIs is considered in the calculation of executive and management financial
remuneration.
The Head of Sustainability is a member of the Risk Committee and is responsible for highlighting climate risks in the
context of wider business risk discussions.
Metrics and targets - Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material
Metrics used by the organisation to assess climate-
related risks and opportunities in line with its strategy
and risk management process
Alongside our Annual Report, we publish a detailed Sustainability Data Report and Sustainability Action Plan. These
documents, which detail annual targets and performance, can be found on our website.
Key metrics used to help us understand our carbon impact and resilience of the portfolio to climate risks include:
• Achieve BREEAM ‘Very Good’ for all developments and/or refurbishment schemes of a capital value above £1 million
• Aim for an EPC Grade B rating on all new-build projects
• Refurbishment schemes over £250,000 to achieve minimum Grade C EPC rating
• 3% absolute annual reduction in landlord-controlled energy consumption
• Aim for a 5% like-for-like reduction in landlord-controlled energy consumption against the previous year
Performance against a range of sustainability targets form part of the annual compensation review process.
Scope 1, Scope 2, and if appropriate, Scope 3 greenhouse
gas (GHG) emissions, and the related risks
Our scope 1, 2 and 3 emissions are reported in line with EPRA and detailed in our Sustainability Data Report and
summarised in our Streamlined Energy and Carbon Report on pages 116 and 117.
Targets used by the organisation to manage climate-
related risks and opportunities and performance against
targets
We have calculated science based targets and submitted to the Science Based Targets Initiative for their review. We will
publish details once they have been approved.
n
o
i
t
a
m
r
o
f
n
i
r
e
h
t
O
Page 155
Shaftesbury Annual Report 2020 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. EPRA performance measures are a set of standard disclosures for the property
industry, as defined by EPRA in its Best Practices Recommendations.
APM
Nearest IFRS measure
EPRA earnings and earnings per share
Adjusted EPRA earnings per share
Like-for-like growth/decline/decrease in
rental income
Net asset value per share
Diluted net asset value per share
EPRA net assets and NAV
EPRA NTA
EPRA NDV
EPRA NRV
Total Accounting Return
Valuation growth/decline
Net debt
Loan-to-value
Gearing
Blended cost of debt
Interest cover
Profit and total comprehensive income for the year
Basic earnings per share
Profit and total comprehensive income for the year
Revenue
Net assets attributable to shareholders
Net assets attributable to shareholders
Net assets
Net assets
Net assets
Net assets
N/A
Net surplus/deficit on revaluation of investment properties
Borrowings less cash and cash equivalents
N/A
N/A
N/A
N/A
Explanation and reconciliation
Note 24 and Financial results (page 65)
Note 24 and Financial results (page 65)
Note 24 and Financial results (page 64)
Note 24
Note 24
Note 24 and Financial results (page 65)
Note 24 and Financial results (page 66)
Note 24 and Financial results (page 66)
Note 24 and Financial results (page 66)
Note 24 and Financial results (page 65)
Portfolio valuation report (page 56)
Note 24 and Financial results (page 66)
Note 24 and Financing (page 69)
Note 24 and Financing (page 69)
Note 24 and Financing (page 69)
Note 24 and Financing (page 69)
Where this report uses like-for-like comparisons, these are defined within the Glossary. Note that Adjusted EPRA earnings per share had been
described as Adjusted earnings per share in previous years. Since it had always been based on EPRA earnings per share, we have changed its
description this year to make it more clear.
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)
EPRA NTA per share
EPRA NDV per share
EPRA NRV per share
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
Diluted net assets per share adjusted to remove deferred tax arising in our joint venture
Diluted net assets per share adjusted to include the excess of fair value of debt over book value
Diluted net assets per share adjusted to remove deferred tax arising in our joint venture
but to add back investment property purchasers’ costs
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
146
146
147
147
147
147
147
147
147
159
159
60
157
157
2020
£29.4m
9.6p
£2,289.8m
£7.43
£2,244.7m
£7.29
£7.43
£7.29
£8.16
3.0%
3.1%
10.2%
28.1%
26.5%
2019
£54.6m
17.8p
£3,021.3m
£9.82
£2,914.0m
£9.47
£9.82
£9.47
£10.71
2.70%
2.89%
3.7%
28.6%
26.8%
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.
Page 156
Shaftesbury Annual Report 2020 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
Capitalised property and 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
5
5
12
5
5
12
6
12
5
2020
£m
124.5
(10.1)
7.6
122.0
28.3
(10.1)
1.5
14.4
-
0.2
34.3
(1.7)
(0.3)
32.3
28.1%
26.5%
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%
1. We do not capitalise property nor administrative expenses.
2. The above figures exclude expected credit losses and impairment charges in 2020.
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 location and occupier use,
is set out on pages 158 to 159.
Development disclosures
Our wholly-owned portfolio is mostly 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, with an average annual spend of around 1% of portfolio value.
Included in this are numerous small schemes, and generally no one
scheme is material.
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 135.
At 30 September 2020, we had 782 commercial and 440 residential
leases, with no individual tenant representing a material amount of our
current annualised income. The ten largest commercial tenants
represented just 9.7% of current annualised income. As our tenant
base is so granular, we do not believe listing the top ten tenants, nor a
detailed analysis of tenant business sector is useful. However, the
analysis on pages 158 to 159 sets out details of income and rental values
by location and occupier use.
EPRA vacancy by occupier use is set out on page 60.
Like-for-like growth/(decrease) in annualised current income and ERV
is set out on pages 57 and 58. Like-for-like decrease in rental income is
set out on page 64.
At 30 September 2020, we had one larger scheme, details of which are
set out on page 61. An overview of assets held for, or undergoing,
refurbishment is set out on pages 61 to 62.
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
2020
£m
13.3
-
34.8
1.6
49.7
2019
£m
47.0
-
30.9
3.7
81.6
Details of acquisitions and capital expenditure in the year are set out on
pages 61 to 62.
n
o
i
t
a
m
r
o
f
n
i
r
e
h
t
O
Page 157
Shaftesbury Annual Report 2020 Other information
Portfolio analysis
At 30 September 2020
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
Note
Carnaby
Covent
Garden
Chinatown
1
2
3
4
4
5
4
4
5
4
4
5
4
4
1,212.3
37%
41.7
58.0
70
169
24%
24%
8
99
173
44%
38%
3
274
27%
32%
3
117
68
5%
6%
840.8
25%
28.8
35.4
96
201
44%
37%
7
99
131
27%
29%
4
89
11%
15%
3
222
137
18%
19%
700.6
21%
24.7
30.1
91
209
66%
62%
9
49
82
18%
20%
4
25
4%
4%
3
159
103
12%
14%
Soho
258.7
8%
10.4
11.3
35
65
42%
39%
9
38
45
29%
26%
3
41
15%
19%
1
70
37
14%
16%
At 30 September 2020
Overall initial yield
Topped-up initial yield
Overall equivalent yield
Tone of restaurant equivalent yields
Tone of restaurant ERVs - £ per sq. ft.
Tone of retail equivalent yields
Tone of retail ERVs - ITZA £ per sq. ft.
Tone of office equivalent yields
Tone of office ERVs - £ per sq. ft.
Average residential ERVs - £ per sq. ft. per annum
Note
Carnaby
Covent
Garden
Chinatown
Soho
7
8
9
10
10
10
10
10
10
10
3.0%
3.1%
4.2%
4.0% - 4.5%
£120 - £145
4.0% - 4.3%
£120 - £500
4.3% - 4.5%
£58 - £90
£51
3.1%
3.0%
3.2%
3.0%
3.8%
3.6%
4.0% - 4.5%
3.8% - 4.4%
£55 - £175 £250 - £400 (ZA)
4.0% - 4.5%
3.5% - 4.3%
£150 - £365
£85 - £325
4.5% - 4.8%
4.0% - 4.5%
£40 - £65
£40 - £68
£42
£50
3.5%
3.6%
3.8%
3.9% - 4.2%
£110 - £135
4.0% - 4.7%
£145 - £290
4.5%
£45 - £73
£48
Page 158
Fitzrovia
125.0
4%
4.3
5.5
25
52
60%
48%
6
9
15
17%
16%
3
10
4%
8%
1
56
27
19%
28%
Fitzrovia
2.9%
2.9%
3.8%
3.8% - 4.2%
£85 - £120
3.9% - 4.8%
£100 - £200
4.5% - 4.7%
£40 - £63
£56
Wholly
owned
portfolio
3,137.4
95%
109.9
140.3
317
696
41%
37%
8
294
446
31%
30%
3
439
16%
20%
2
624
372
12%
13%
Wholly
owned
portfolio
3.0%
3.1%
3.9%
Longmartin
joint venture1
175.0
5%
6.2
8.8
10
46
7%
14
20
64
18%
29%
26%
2
102
47%
42%
4
75
55
17%
14%
Longmartin
joint venture
2.8%
3.8%
4.1%
4.3% - 4.8%
£70 - £265
4.3% - 4.8%
£94 - £450
4.0% - 4.5%
£63 - £80
£43
Shaftesbury Annual Report 2020 Other information Portfolio analysis
Note
Carnaby
1,212.3
Covent
Garden
840.8
Chinatown
700.6
1
2
3
4
4
5
4
4
5
4
4
5
4
4
37%
41.7
58.0
70
169
24%
24%
8
99
173
44%
38%
3
274
27%
32%
3
117
68
5%
6%
25%
28.8
35.4
96
201
44%
37%
7
99
131
27%
29%
4
89
11%
15%
3
222
137
18%
19%
21%
24.7
30.1
91
209
66%
62%
9
49
82
18%
20%
4
25
4%
4%
3
159
103
12%
14%
Soho
258.7
8%
10.4
11.3
35
65
42%
39%
9
38
45
29%
26%
3
41
15%
19%
1
70
37
14%
16%
At 30 September 2020
Portfolio
Food, beverage
and leisure
Shops
Offices
Residential
Average unexpired lease length – years
Fair value (£m)
% of total fair value
Current income (£m)
ERV (£m)
Number
Area – sq. ft.
% of current income
% of ERV
Number
Area – sq. ft.
% of current income
% of ERV
Area – sq. ft.
% of current income
% of ERV
Average unexpired lease length – years
Average unexpired lease length – years
Number
Area – sq. ft.
% of ERV
% of current passing rent
1 Shaftesbury Group’s 50% share
Basis of valuation
At 30 September 2020
Overall initial yield
Topped-up initial yield
Overall equivalent yield
Tone of restaurant equivalent yields
Tone of restaurant ERVs - £ per sq. ft.
Tone of retail equivalent yields
Tone of retail ERVs - ITZA £ per sq. ft.
Tone of office equivalent yields
Tone of office ERVs - £ per sq. ft.
Average residential ERVs - £ per sq. ft. per annum
Note
Carnaby
7
8
9
10
10
10
10
10
10
10
3.0%
3.1%
4.2%
4.0% - 4.5%
£120 - £145
4.0% - 4.3%
£120 - £500
4.3% - 4.5%
£58 - £90
£51
Covent
Garden
3.0%
3.0%
3.6%
Chinatown
3.1%
3.2%
3.8%
3.8% - 4.4%
4.0% - 4.5%
£55 - £175 £250 - £400 (ZA)
3.5% - 4.3%
£85 - £325
4.0% - 4.5%
£40 - £68
£50
4.0% - 4.5%
£150 - £365
4.5% - 4.8%
£40 - £65
£42
Soho
3.5%
3.6%
3.8%
3.9% - 4.2%
£110 - £135
4.0% - 4.7%
£145 - £290
£45 - £73
4.5%
£48
Fitzrovia
Wholly
owned
portfolio
Longmartin
joint venture1
125.0
4%
4.3
5.5
25
52
60%
48%
6
9
15
17%
16%
3
10
4%
8%
1
56
27
19%
28%
Fitzrovia
2.9%
2.9%
3.8%
3.8% - 4.2%
£85 - £120
3.9% - 4.8%
£100 - £200
4.5% - 4.7%
£40 - £63
£56
3,137.4
95%
109.9
140.3
317
696
41%
37%
8
294
446
31%
30%
3
439
16%
20%
2
624
372
12%
13%
Wholly
owned
portfolio
3.0%
3.1%
3.9%
175.0
5%
6.2
8.8
10
46
7%
18%
14
20
64
29%
26%
2
102
47%
42%
4
75
55
17%
14%
Longmartin
joint venture
2.8%
3.8%
4.1%
4.3% - 4.8%
£70 - £265
4.3% - 4.8%
£94 - £450
4.0% - 4.5%
£63 - £80
£43
Notes
1.
The fair values at 30 September 2020 (the “valuation date”) shown in respect
of the individual villages are, in each case, the aggregate of the fair values of
several different property interests located within close proximity which, for
the purpose of this analysis, are combined to create each village. The
different interests within each village were not valued as a single lot.
2.
3.
4.
5.
6.
7.
8.
9.
Current income includes total annualised actual and ‘estimated income’
reserved by leases. No rent is attributed to leases which were subject to rent-
free periods at the valuation date. Current income does not reflect any
ground rents, head rents nor rent charges and estimated irrecoverable
outgoings at the valuation date. ‘Estimated income’ refers to gross estimated
rental values in respect of rent reviews outstanding at the valuation date and,
where appropriate, ERV in respect of lease renewals outstanding at the
valuation date where the fair value reflects terms for a renewed lease.
ERV is the respective valuers’ opinion of the rental value of the properties, or
parts thereof, reflecting the terms of the relevant leases or, if appropriate,
the fact that certain of the properties, or parts thereof, have been valued on
the basis of vacant possession and the assumed grant of a new lease. Where
appropriate, ERV assumes completion of developments which are reflected
in the valuations. ERV does not reflect any ground rents, head rents nor rent
charges and estimated irrecoverable outgoings.
The percentage of current income and the percentage of ERV in each of the
use sectors are expressed as a percentage of total income and total ERV for
each village.
Average unexpired lease length has been calculated by weighting the leases
in terms of current rent reserved under the relevant leases and, where
relevant, by reference to tenants’ options to determine leases in advance of
expiry through effluxion of time.
Where mixed uses occur within single leases, for the purpose of this analysis,
the majority use by rental value has been adopted.
The initial yield is the net initial income at the valuation date expressed as a
percentage of the gross valuation. Yields reflect net income after deduction
of any ground rents, head rents and rent charges and estimated irrecoverable
outgoings at the valuation date.
The topped-up initial yield, ignoring contractual rent free periods, has been
calculated as if the contracted rent is payable from the valuation date and as
if any future stepped rental uplifts under leases had occurred.
Equivalent yield is the internal rate of return, being the discount rate which
needs to be applied to the expected flow of income so that the total amount
of income so discounted at this rate equals the capital outlay at values
current as of the valuation date. The equivalent yield shown for each village
has been calculated by merging together the cash flows and fair values of
each of the different interests within each village and represents the average
equivalent yield attributable to each village from this approach.
10. The tone of rental values and yields is the range of rental values or yields
attributed to the majority of the properties.
11.
All commercial floor areas are net lettable. All residential floor areas are gross
internal.
12. For presentation purposes some percentages have been rounded to the
nearest integer.
13. The analysis includes accommodation which is awaiting, or undergoing,
refurbishment or development and is not available for occupation at the date
of valuation.
n
o
i
t
a
m
r
o
f
n
i
r
e
h
t
O
Page 159
Shaftesbury Annual Report 2020 Other information
Summary report by the valuers
To the directors of Shaftesbury PLC
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 as referred to in 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.
In accordance with your instructions, which were confirmed in our
letter dated 22nd May 2020 (the “Engagement”) we have undertaken a
valuation of the various commercial and residential freehold and long
leasehold property interests as at 30th September 2020 (the “Valuation
Date”) held by Shaftesbury Carnaby PLC, Shaftesbury Covent Garden
Limited, Shaftesbury Chinatown PLC, Shaftesbury Soho Limited,
Shaftesbury AV Limited and Shaftesbury CL Limited, which are
subsidiary companies (collectively referred to as the “Subsidiary
Companies”) of Shaftesbury PLC (the “Company”), as referred to in our
Valuation Reports dated 29th October 2020 (“our Reports”). Our
Reports were prepared for accounts purposes.
All properties have been subject to external inspections between
January and March 2020 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 2019 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 2020 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.
Page 160
Shaftesbury Annual Report 2020 Other information Summary report by the valuers
A full explanation of the Assumptions made in our valuations and details
of the sources of information are contained within our Reports.
The Company, its managing agents or professional advisers have
provided us with the floor areas of the 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 2020, or were subject to outstanding retentions and
fees in respect of projects already completed at that date. In these
instances, the Company advised us of the amount of the outstanding
costs. The costs will be borne by the Company as they are not
recoverable from tenants. We have reflected these costs in our
valuations. The total amount of such costs is £30,809,600 and details of
the individual sums are included in our Reports.
The outbreak of COVID-19, declared by the World Health Organisation
as a “Global Pandemic” on the 11th March 2020, has and continues to
impact many aspects of daily life and the global economy – with some
real estate markets having experienced lower levels of transactional
activity and liquidity. Travel restrictions have been implemented by
many countries and “lockdowns” applied to varying degrees. Local
lockdowns are being deployed as necessary, significant further
outbreaks have emerged in parts of the UK and a “second wave” is now
widely considered to be taking place in many countries in Europe.
The pandemic and the measures taken to tackle COVID-19 continue to
affect economies and real estate markets globally. Nevertheless, as at
the valuation date property markets are mostly functioning, with
transaction volumes and other relevant evidence returning to levels
where an adequate quantum of market evidence exists upon which to
base opinions of value. Accordingly, and for the avoidance of doubt,
our valuation is not reported as being subject to ‘material valuation
uncertainty’ as defined by VPS 3 and VPGA 10 of the RICS Valuation –
Global Standards.
For the avoidance of doubt this explanatory note has been included to
ensure transparency and to provide further insight as to the market
context under which the valuation opinion was prepared. In recognition
of the potential for market conditions to move rapidly in response to
changes in the control or future spread of COVID-19 we highlight the
importance of the valuation date.
As referred to above, we have lotted together certain individual
properties to form a number of separate Properties. In the case of five
Properties which comprise a number of individual properties, the
majority of such properties are held freehold but certain of them are
held on long leases. In order to divide our valuation of these Properties
between the categories of freehold and long leasehold, we have
undertaken notional apportionments of value between the freehold
elements and the long leasehold elements which together comprise
the relevant Properties. The amounts arising from these notional
apportionments of value have been included in the figures representing
the freehold and long leasehold categories below. The amounts arising
from the notional apportionments do not themselves represent the
Fair Value of the two elements.
The Subsidiary Companies own a number of properties on a freehold
basis where they also hold long leasehold interests within the freehold
and have not merged the interests. For the purposes of the freehold/
long leasehold split below, we have included such properties within the
freehold category.
Having regard to the foregoing, we are of the opinion that the
aggregates of the Fair Values, as at 30th September 2020, 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 29th October 2020, were as follows:
Freehold Properties
Long leasehold
Properties
Total
£2,928,955,000
(Two billion, nine hundred and twenty-eight million, nine hundred
and fifty-five thousand pounds)
£208,420,000
(Two hundred and eight million, four hundred and twenty
thousand pounds)
£3,137,375,000
(Three billion, one hundred and thirty-seven million, three
hundred and seventy-five thousand pounds)
A long lease is one with an unexpired term in excess of 50 years.
The contents of our Reports, including this summary report, are
confidential to Shaftesbury PLC, Shaftesbury Covent Garden Limited,
Shaftesbury Carnaby PLC, Shaftesbury Chinatown PLC, Shaftesbury
Soho Limited, Shaftesbury AV Limited and Shaftesbury CL 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 first 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
modified, 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 suffer 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 & Wakefield Debenham Tie Leung Limited
n
o
i
t
a
m
r
o
f
n
i
r
e
h
t
O
Page 161
Shaftesbury Annual Report 2020 Other information
Debt covenants
Set out below is a high-level summary of the financial covenants in our debt agreements. It does not describe every detail in the agreements.
Interest cover
Bonds
Frequency
of testing
Half yearly
Term loans
Quarterly
Summary of measure
Min Comments
Net property income of specifically secured assets,
adjusted to exclude certain costs, to gross interest
payable under the bonds.
Net property income of specifically secured assets,
adjusted to exclude certain costs, to gross interest
payable under the loans.
1.15x Calculation is based on the annualised income accruing at the
testing date, or due to accrue within three months.
Security top-up (or purchase and cancel sufficient bonds) to
1.25x required if ICR falls below 1.15x.
1.4x - 1.5x 3-month backward looking test based on actual receipts.
12-month projected test. Cure rights available.
Waivers until July 2021 (£134.8m term loan) and January 2022
(£250m term loan).
1.5x Based on Group half year and full year reported information, and
management accounts in the interim quarters.
Waiver until October 2021.
Revolving credit facility1 Quarterly
Consolidated net rental income plus dividends from
the joint venture to consolidated net interest.
1. Ignoring our £125m facility which was terminated in November 2020.
Loan-to-value
Bonds
Frequency
of testing
Half yearly
Term loans
Quarterly
Revolving credit facility1 Quarterly
Summary of measure
Max Comments
Nominal value of bonds to valuation of specifically
secured assets.
Debt to valuation of specifically secured assets.
Amounts drawn to valuation of specifically secured
assets.
66.67% Security top-up (or purchase and cancel sufficient bonds) to
60.0% required if LTV exceeds 66.67%.
60% - 70% Cure rights available. Cash waterfall applies if LTV > 65%.
66.67% Cure rights available. Draw stop at 50% during term of ICR waiver.
1. Ignoring our £125m facility which was terminated in November 2020.
The revolving credit facility also contains a Group gearing covenant, where the ratio of consolidated borrowings to consolidated tangible net worth
cannot exceed 1.75x.
Summary of measure
Max Comments
Net property income of specifically secured assets,
adjusted to exclude certain costs, to gross interest
payable under the loan.
1.3x 3-month backward looking test based on actual receipts.
12-month projected test. Cure rights available.
Waiver to April 2021.
60% Cure rights available.
Longmartin term loan
Interest cover
Frequency
of testing
Quarterly
Loan-to-value
Quarterly
Debt to valuation of specifically secured assets.
Page 162
Shaftesbury Annual Report 2020 Other information
Shareholder information
Corporate timetable
Financial Calendar
Annual General Meeting and AGM statement
2020 half year results
Dividends and bond interest
Bond interest
25 February 2021
May 2021
31 March and
30 September 2021
The timing of the next dividend payment is to be determined.
Shareholder enquiries
All enquiries relating to holdings of shares or bonds in Shaftesbury PLC,
including notification of change of address, queries regarding dividends
and interest payments, or the loss of a certificate, should be addressed
to the Company’s registrar. Contact details for the registrar are outlined
below.
All enquiries relating to the capital raise announced on 22 October
2020, or any other enquiry that requires the attention of the Company,
should be sent to investor.relations@shaftesbury.co.uk.
Company website
The Company has a corporate website, which maintains a digital version
of the most recent Annual Report and financial statements, as well as
other information. Other information includes announcements made
by the Company and the current share price of the Company. The site
can be found at www.shaftesbury.co.uk.
Effect of REIT status on payment of
dividends
As a REIT, we do not pay UK corporation tax in respect of rental profits
and chargeable gains relating to our property rental business. However,
we are required to distribute at least 90% of the qualifying income
(broadly calculated using the UK tax rules) as a PID.
Certain categories of shareholder may be able to receive the PID
element of their dividends gross, without deduction of withholding tax.
Categories which may claim this exemption include: UK companies,
charities, local authorities, UK pension schemes and managers of PEPs,
ISAs and Child Trust Funds.
Further information and the forms for completion to apply for PIDs to
be paid gross are available on our website or from the registrar.
Where we pay an ordinary dividend this will be treated in the same way
as dividends from non-REIT companies. As announced in the Trading
Statement of 25 September 2020, the Board has not recommended a
final dividend.
Registrar
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex, BN99 6DA
Telephone 0371 384 2294 (International +44 121 415 7047). Lines open
8.30am to 5.30pm, Monday to Friday (excluding public holidays in
England and Wales).
Equiniti can also be contacted by email. Emails should be sent to
customer@equiniti.com.
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.
(cid:710)ec(cid:741)eta(cid:741)(cid:748) an(cid:727) (cid:741)e(cid:730)iste(cid:741)e(cid:727) o(cid:729)fice
Desna Martin, FCA
22 Ganton Street
Carnaby
London W1F 7FD
n
o
i
t
a
m
r
o
f
n
i
r
e
h
t
O
Page 163
Shaftesbury Annual Report 2020 Other information
Glossary of terms
2018 Code
The FRC’s UK Corporate Governance Code
2018, which applied to the Company from
1 October 2019.
Adjusted EPRA earnings
EPRA earnings adjusted to add back the
non-cash accounting charge for equity-
settled remuneration.
Alternative Performance Measure (APM)
A financial measure of historical or future
financial performance, position or cash flows
of the Group which is not a measure defined
or specified in IFRS.
Annualised current income
Total annualised actual and ‘estimated income’
reserved by leases at a valuation date. No rent
is attributed to leases which were subject to
rent-free periods at that date. It does not
reflect any ground rents, head rents nor rent
charges and estimated irrecoverable outgoings
at the valuation date. ‘Estimated income’ refers
to gross ERVs in respect of rent reviews
outstanding at the valuation date and, where
appropriate, ERV in respect of lease renewals
outstanding at the valuation date where the fair
value reflects terms for a renewed lease.
Like-for-like growth in annualised current
income is the change during a period, adjusted
to remove the impact of acquisitions and
disposals, expressed as a percentage of
annualised current income at the start of the
period.
Best Practices Recommendations (BPR)
Standards set out by EPRA to provide
comparable reporting between investment
property companies.
Business Improvement District (BID)
A defined area in which a levy is charged on all
business rate payers in addition to the business
rates bill. This levy is used to develop projects
which will benefit businesses in the local area.
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.
Carbon emissions
In the context of this report this is shorthand
for greenhouse gas emissions.
Compound Annual Growth Rate (CAGR)
The year-on-year growth rate of an
investment over a specified period of time.
CPI
Consumer Price Index.
Diluted net asset value per share
Net asset value per share taking into account
the dilutive effect of potential vesting of share
options.
Direct energy consumption
Emissions from sources that are owned or
controlled by the reporting company.
Dow Jones Sustainability Index
A family of indices evaluating the sustainability
performance of publicly listed companies.
Page 164
DTR
The Financial Conduct Authority’s Disclosure
and Transparency Rules.
Embodied Carbon
The total greenhouse gas (GHG) emissions
generated to build or refurbish an asset. This
includes emissions from extraction,
manufacture/processing, transportation and
assembly.
Energy Performance Certificate (EPC)
An asset rating setting out how energy
efficient a building is, rated by its carbon
dioxide emission on a scale of A to G, with
A being the most energy efficient.
EPRA
European Public Real Estate Association.
EPRA adjustments
Standard adjustments to calculate EPRA
measures, in accordance with its BPR.
EPRA cost ratio
Total costs as a percentage of gross rental income.
EPRA earnings
The level of recurring income arising from
core operational activities. It excludes all items
which are not relevant to the underlying and
recurring portfolio performance.
EPRA EPS
EPRA earnings divided by the weighted
average number of shares in issue during a
reporting period.
EPRA net assets
Net assets adjusted for items that are not
expected to crystallise in normal circumstances,
such as deferred tax on property valuation
surpluses. It includes additional equity if all
vested share options were exercised.
EPRA Net Disposal Value (NDV)
The value of net tangible assets, assuming an
orderly sale of the business’ assets, achieving
fair values as reported in the Balance Sheet. It
includes deductions for liabilities that would
crystallise in this scenario, including deferred
tax and the difference between the fair value
and carrying value of financial liabilities. When
presented as a per share figure, it takes into
account the potentially dilutive effect of
outstanding options granted over ordinary shares.
EPRA Net Reinstatement Value (NRV)
The value of net assets on a long-term basis,
assuming no disposals. Assets and liabilities
that are not expected to crystallise in normal
circumstances, such as deferred taxes on
property valuation surpluses, are excluded.
It is a reflection of what would be needed to
recreate the company. Purchasers’ costs
which have been deducted in arriving at the
fair value of investment properties are added
back. When presented as a per share figure, it
takes into account the potentially dilutive
effect of outstanding options granted over
ordinary shares.
Net Tangible Assets (NTA)
A measure of net assets which recognises that
companies buy and sell assets and therefore
takes into account deferred tax liabilities on
sales, unless there is no intention to sell in the
long run. When presented as a per share
figure, it takes into account the potentially
dilutive effect of outstanding options granted
over ordinary shares.
EPRA NAV
EPRA net assets per share, including the
potentially dilutive effect of outstanding
options granted over ordinary shares.
EPRA NNNAV
EPRA NAV amended to include the fair value
of financial instruments and debt.
EPRA sBPR
EPRA Best Practice Recommendations on
Sustainability Reporting.
EPRA triple net assets
EPRA net assets amended to include the fair
value of financial instruments and debt.
EPRA vacancy
The rental value of vacant property available
(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), reflecting
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.
ESOS
Energy Savings Opportunity Scheme.
Estimated Rental Value (ERV)
The market rental value of properties,
estimated by the Group’s Valuers. Like-for-like
ERV growth is the change in ERV during a
period, adjusted to remove the impact of
acquisitions and disposals, expressed as a
percentage of ERV at the start of the period.
Fair value
The amount at which an asset or liability could
be exchanged between two knowledgeable,
willing and unconnected parties in an arm’s
length transaction at the valuation date.
FCA
Financial Conduct Authority.
FRC
Financial Reporting Council.
FTSE4Good
A series of benchmarks and tradable indexes for
ESG investors, which was launched in 2001.
GHG
Greenhouse gas emissions.
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.
Gross Value Added (GVA)
An economic productivity metric measuring
economic contribution to a sector or area.
Gearing
Nominal value of Group borrowings expressed
as a percentage of EPRA net assets.
IFRS
International Financial Reporting Standards.
Shaftesbury Annual Report 2020 Other information Glossary of terms
Initial yield
The net initial income at the valuation date
expressed as a percentage of the gross
valuation. Yields reflect net income after
deduction of any ground rents, head rents
and rent charges and estimated irrecoverable
outgoings at the valuation date.
Interest cover
Operating profit before investment property
disposals and valuation movements, divided
by finance costs net of finance income.
Internal Rate of Return (IRR)
The rate of return that if used as a discount
rate and applied to the projected cash flows
that would result in a net present value of zero.
Key Performance Indicator (KPI)
Activities aligned to business objectives
against which the performance of the Group
is assessed.
Leasing activity
The rental value secured across the
wholly-owned property portfolio of the Group
from lettings, rent reviews and lease renewals
during a period.
Like-for-like growth in rental income
The increase in rental income 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)
Net debt 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.
London Living Wage
An hourly rate of pay, calculated independently
to reflect the high cost of living in the capital.
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.
Minimum Energy Efficiency Standards (MEES)
Applies to private rented residential and
non-domestic property to encourage the
improvement of the buildings’ energy efficiency.
Net asset value (NAV)
Equity shareholders’ funds divided by the
number of ordinary shares at the Balance
Sheet date.
Net debt
The nominal value of the Group’s borrowings
less cash and cash equivalents.
Net initial yield
Net initial income at the date of valuation
expressed as a percentage of the gross
valuation. Yields reflect net income after
deduction of any ground rents, head rents, rent
charges and estimated irrecoverable outgoings.
Net Zero Carbon
When relevant GHG emissions attributable to
operations of the business are minimised and
outstanding emissions are balanced by removing
an equivalent amount from the atmosphere.
Paris Agreement
An agreement by participating countries to
combat climate change and adapt to its effects.
The central aim is to strengthen the global
response to the threat of climate change by
keeping a global temperature rise this century
well below 2 degrees Celsius above pre-
industrial levels and to pursue efforts to limit
the temperature increase even further to
1.5 degrees Celsius.
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.
Scope 1 emissions
Direct GHG emissions from owned or controlled
sources such as gas used for heating.
Scope 2 emissions
Indirect GHG emissions from the generation
of purchased energy such as electricity.
Scope 3 emissions
All indirect GHG emissions (not included in
scope 2) that occur in the value chain of the
reporting company.
Science Based Targets
A carbon emissions target that it is in line with
the scale of reductions determined to be
required to prevent the worst effects of
climate change.
SDG
UN Sustainable Development Goals.
Sharesave or SAYE (Save-As-You-Earn)
A savings-related share option scheme.
Employees are granted options to acquire
shares at the end of a three or five-year
vesting period using savings accumulated
through salary sacrifice.
TCFD
Task Force for Climate-related Financial
Disclosure.
Topped-up net initial yield
Net initial yield at the valuation date as if the
contracted rent in respect of leases which are
subject to contractual rent free periods is
payable from the valuation date and as if any
future stepped rental uplifts under leases had
occurred.
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.
Underlying EPRA vacancy
The rental value of available to let vacant
property (excluding property which is held for,
or undergoing, refurbishment and EPRA
vacancy due to exceptional larger
refurbishment schemes) expressed as a
percentage of ERV of the Group’s wholly-
owned property portfolio. It is measured at
the reporting date and, when reported for a
reporting period, it is presented as the
quarterly average during that period.
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.
Weighted average vacant period
The average time that space has been available
to let (excluding property which is held for, or
undergoing, refurbishment and EPRA vacancy
due to exceptional larger refurbishment
schemes) across the wholly-owned portfolio
from the start of the period to the reporting
date, weighted by the ERV of that space.
Design: SG Design (sg-design.co.uk)
Print: Park Communications on FSC® certified paper
Park works to the EMAS standard and its Environmental
Management System is certified to ISO 14001.
This publication has been manufactured using 100%
offshore wind electricity sourced from UK wind.
100% of the inks used are vegetable oil based 95%
of press chemicals are recycled for further use and,
on average 99% of any waste associated with this
production will be recycled and the remaining 1%
used to generate energy.
This document is printed on Munken Kristal, a paper
sourced from well managed, responsible, FSC® certified
forests and other controlled sources. The pulp used in
this product is bleached using an elemental chlorine
free (ECF) process.
This is a certified CarbonNeutral® publication. Emissions
generated during the manufacture and delivery of this
product have been measured and reduced to net zero
through a verified carbon offsetting project via The
CarbonNeutral Company. This is in accordance with
The CarbonNeutral Protocol, the global leading standard
for carbon neutrality.
Page 165
Shaftesbury Annual report 2020 Other
Shaftesbury Annual report 2020 Strategic Report Xxxxx
Shaftesbury PLC
22 Ganton Street
Carnaby
London W1F 7FD
T: 020 7333 8118
Shaftesbury.co.uk
S
h
a
f
t
e
s
b
u
r
y
P
L
C
A
n
n
u
a
l
R
e
p
o
r
t
2
0
2
0
Page 1