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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Shaftesbury Plc | LSE:SHB | London | Ordinary Share | GB0007990962 | ORD 25P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 421.60 | 419.00 | 420.20 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMSHB
RNS Number : 3539Q
Shaftesbury PLC
29 November 2016
SHAFTESBURY 2016 FULL YEAR RESULTS
Relentless focus on sustainable rental growth continues to deliver resilient growth in earnings, dividend and NAV
Shaftesbury PLC ("Shaftesbury") today announces its results for the year ended 30 September 2016.
Highlights
Hot Features
Premium
* Footfall and trading in the West End and our
locations buoyant. Broad-based occupier demand
throughout the year, together with extensive asset
management activity, have driven good growth in
income and EPRA earnings.
* Underlying portfolio capital value growth(1,2) of
4.9% reflects continuing rental growth and conversion
of reversionary potential into contracted cash flow.
After SDLT increase, capital value growth 4.0%.
Yields largely unchanged.
* Refurbishment schemes across 202,000 sq. ft. under
way at 30 September 2016, represent GBP14.2 million
(11%) of total ERV(3) . Includes our three major
schemes in Seven Dials, Chinatown and Carnaby, which
will add an estimated GBP7.4 million to contracted
income, once let.
* Issue of GBP285 million of 15-year bonds has added
significant financial capacity for further
earnings-accretive investment in our portfolio.
* Termination of interest rate swaps in October 2016
reduces future finance costs by GBP1.9 million per
annum.
------------------------------------------------------------------------
Growth in income, dividends and NAV
-- Net property income(3) up GBP5.3 million (6.7%) to GBP84.1 million (2015: GBP78.8 million).
-- EPRA earnings increased by 8.0% to GBP39.0 million (2015: GBP36.1 million). EPRA earnings per share increased by 7.7% to 14.0p (2015: 13.0p).
-- IFRS earnings: GBP99.1 million (2015: GBP467.3 million). IFRS earnings per share: 35.6 p (2015: 168.0 p), the decrease largely due to a lower revaluation surplus in 2016, compared with 2015.
-- Total dividend for the year 14.7p (2015: 13.75p), an increase of 6.9%. Final dividend per share of 7.55p (2015: 6.925p).
-- Increase in reported IFRS NAV of 2.6% to GBP8.54 per share (2015: GBP8.32 per share).
-- EPRA NAV: GBP8.88 per share, an increase of 19p (2.2%). Portfolio capital value growth added 43p (4.9%) before a reduction of 24p as a result of early termination of debenture debt and interest rate swaps.
-- Net asset value return before dividends: 3.8% (2015: 23.8%).
Continued growth in contracted rents, ERVs and portfolio value(2)
-- Portfolio valuation: GBP3.35 billion. Underlying like-for-like capital value return over the year: +4.9% but reduced to 4.0% as a result of the increase in SDLT announced in the March 2016 Budget.
-- ERV, based on current, established rental tones, increased by GBP10.0 million to GBP138.7 million (2015: GBP127.8 million). Like-for-like ERV growth: 5.7%. CAGR over 10 years: 4.6%.
-- Portfolio reversionary potential has grown by GBP3.9 million to GBP29.1 million, 26.6% above current annualised income, of which GBP14.2 million relates to refurbishment schemes in progress at 30 September 2016.
-- Equivalent yields largely unchanged. Wholly-owned portfolio: 3.57% (2015: 3.61%); Longmartin joint venture: 3.79% (2015: 3.75%).
Strong occupier demand across all locations and for all uses
-- EPRA vacancy(3) at 30 September 2016: 1.6% of ERV, of which 1.1% was under offer.
-- Commercial lettings, lease renewals and rent reviews(1) (rental value: GBP21.6 million) concluded at an average 7.7% above 30 September 2015 ERV.
Further investment in our portfolio
-- Redevelopment and refurbishment schemes across 249,000 sq. ft. (14% of floor space(3) ). Capital expenditure(1) : GBP32.6 million (2015: GBP24.7 million).
-- Major schemes: Thomas Neal's Warehouse completed after year end and marketing now underway. Encouraging initial interest. Charing Cross Road/Chinatown and 57 Broadwick Street progressing well.
-- We continue to identify opportunities to carry out further asset management initiatives to increase rental potential and unlock value.
-- Acquisitions totalling GBP62.7 million in Covent Garden, Soho and Charlotte Street.
Important financing initiatives
-- Completed the refinancing of our 8.5% Debenture Stock 2024 with issue of GBP285m 2.487% Mortgage Bonds maturing in 2031.
-- In October 2016 cancelled interest rate swaps with notional principal of GBP55 million. Legacy swaps totalling GBP235 million terminated since 2013.
-- Conservative gearing. Loan-to-value ratio(2,4) : 25.8% (2015: 22.5%).
-- Weighted average maturity of debt(2,4) : 10.8 years (2015: 10.2 years).
-- Weighted average cost of debt(2,4) : 3.9% (2015: 4.9%).
-- Committed unutilised facilities(2,4) : GBP214.6 million. Marginal cost of drawing on these facilities: 1.2%.
Brian Bickell, Chief Executive, commented:
"We are pleased to report another year of excellent performance. Against a background of growing caution in property markets, which is beginning to affect some property values, our exceptional portfolio has delivered underlying capital value growth of 4.9%.
Whilst London and, at its heart, the West End, cannot be completely immune from the influences of the macro environment, its global city status, exceptionally dynamic and broad-based economy and enduring appeal for domestic and international businesses and visitors, will continue to support its long-term prospects for sustained growth and prosperity. This positive outlook underpins the potential in our portfolio.
The exceptional qualities and resilience of our business have delivered long-term sector out-performance. Despite present uncertainties, we are confident our impossible-to-replicate portfolio and the innovative, long-term management we bring to it, will continue this record of delivering sustained growth in total returns for shareholders."
29 November 2016
For further information:
Shaftesbury PLC 020 7333 Capital Access Group 8118 020 3763 3400 Brian Bickell, Chief Scott Fulton Executive Simon Courtenay Chris Ward, Finance Director 1. Like-for-like. 2. Includes 50% of the Longmartin joint venture. 3. Wholly-owned portfolio.
4. Pro-forma for refinancing of our Debenture Stock on 7 October 2016 and cancellation of interest rate swaps on notional principal of GBP55m, in October 2016.
This announcement includes inside information
There will be a presentation to equity analysts at 9.30 am on Tuesday 29 November 2016, at The London Stock Exchange, 10 Paternoster Square, London EC4M 7LS. There will be a conference call for bondholders at 3:30 pm on Friday 2 December 2016. If you would like to participate, please contact Gill Smith on 020 7333 8118.
There is a live audio webcast of the analyst presentation which you can access via the following link: https://goo.gl/u2KeFW or from our website. A playback facility of this presentation will be available on the Group's website www.shaftesbury.co.uk by the end of the day. The presentation document is available on the Group's website www.shaftesbury.co.uk
About Shaftesbury
Shaftesbury PLC is a Real Estate Investment Trust, which owns a unique real estate portfolio extending to over 14 acres in the heart of London's West End - a highly popular, sought-after and prosperous destination for visitors and businesses. Our holdings are concentrated in Carnaby, Covent Garden, Chinatown, Soho and Charlotte Street.
Our objective is to deliver long-term growth in rental income, capital values and shareholder returns.
We focus on retail, restaurants and leisure in the liveliest parts of the West End. Our portfolio now comprises 584 shops, restaurants, cafés and pubs, extending to over 1 million sq. ft., and accounting for 70% of our current income. In our locations these uses have a long record of occupier demand exceeding their availability. The portfolio also includes 406,000 sq. ft. of offices and 559 apartments for rent, which provide 16% and 14%, respectively, of our current income.
In addition, we have a 50% interest in the Longmartin joint venture with The Mercers' Company, which has a long leasehold interest in St Martin's Courtyard in Covent Garden. Extending to 1.9 acres, it includes 21 shops, ten restaurants and cafés, 102,000 sq. ft. of offices and 75 apartments.
Our proven management strategy is to create and foster distinctive, attractive and prosperous locations. Its implementation is supported by an experienced management team with an innovative approach to long-term, sustainable income and value creation, and a focus on shareholder returns. We have a strong balance sheet with modest leverage.
Forward-looking statements
This document may contain certain 'forward-looking' statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-looking statements.
Any forward-looking statements made by, or on behalf of, Shaftesbury PLC speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Shaftesbury PLC does not undertake to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.
Information contained in this document relating to Shaftesbury PLC or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance.
Ends.
Highlights
Change
2016 2015 %
---------------------------------------------------------- -------- -------- ------- ---------
Net property income GBPm 84.1 78.8 +6.7%
Property valuation
* Wholly-owned GBPm 3,123.6 2,919.5 +3.9%(1)
* Total including 50% share of the Longmartin joint
venture GBPm 3,348.0 3,132.0 +4.0%(1)
Loan-to-value(2,3) % 25.8 22.5%
EPRA results(4)
Earnings GBPm 39.0 36.1 +8.0%
Earnings per share Pence 14.0 13.0 +7.7%
Net assets GBPm 2,481.7 2,427.6 +2.2%
Net asset value per share GBP 8.88 8.69 +2.2%
---------------------------------------------------------- -------- -------- ------- ---------
Dividends
Interim dividend per share Pence 7.15 6.825 +4.8%
Final dividend per share Pence 7.55 6.925 +9.0%
Total dividend per share Pence 14.70 13.75 +6.9%
Total distribution declared
in respect of the financial
period GBPm 41.0 38.5 +6.5%
---------------------------------------------------------- -------- -------- ------- ---------
Reported results
Profit after tax GBPm 99.1 467.3 -78.8%
Basic earnings per share Pence 35.6 168.0 -78.8%
Net assets GBPm 2,387.1 2,325.4 +2.6%
Diluted net asset value per
share GBP 8.54 8.32 +2.6%
---------------------------------------------------------- -------- -------- ------- ---------
KPIs
Portfolio ERV growth(1,2) % 5.7% 7.0%
Average time to let(5) Months 1.2 1.0
EPRA vacancy(5) % 1.6% 1.6%
Performance(6)
Total shareholder return % +8.0% +36.7%
Capital value return(1) % +4.0% +18.0%
Net asset value return % +3.8% +23.8%
---------------------------------------------------------- -------- -------- ------- ---------
1. Like-for-like
2. Including 50% share of the Longmartin joint venture.
3. Pro-forma for refinancing of our Debenture Stock on 7 October 2016 and cancellation of interest rate swaps on notional principal of GBP55m, in October 2016.
4. Adjusted in accordance with EPRA Best Practice Recommendations. 5. Wholly-owned portfolio.
6. Shaftesbury Group data (other than total shareholder return) derived from financial results.
See Glossary of terms below.
Chief Executive's Statement
+2.2% +8.0% +6.9%
GBP8.88 GBP39.0m 14.7p
EPRA NAV per share EPRA earnings Dividends per
share
-------------------- --------------- ---------------
We are pleased to report another year of excellent performance. Against a background of growing caution in property markets, which is beginning to affect some property values, our exceptional portfolio has delivered underlying capital value growth(1) of 4.9%.
Progression in current and potential future rental income has been resilient and investment yields attributed by our valuers have remained firm. After adjusting for the increase in SDLT announced in the March 2016 Budget, which has affected the valuation of all UK property assets, capital value growth over the year reduces to 4.0%.
The increase in our net property income of 6.7% to GBP84.1 million reflects sustained occupier demand and high levels of occupancy across our portfolio and has delivered an 8.0% increase in our EPRA earnings to GBP39.0 million. This translates into a 7.7% increase in EPRA earnings per share, and supports a 6.9% increase in dividends paid and proposed in respect of the year to 14.7 pence per share.
The growth in the value of our portfolio added 43 pence to the net asset value of GBP8.69 we reported last year, an increase of 4.9%. This has been offset by the costs of refinancing our debenture stock and terminating certain interest rate swaps, which amounted to 24 pence per share, resulting in a net asset value per share of GBP8.88, an overall increase of 2.2%. This well-timed refinancing has provided us with new, low-coupon, long-term funding, which increased our financial resources and will improve earnings in the years ahead.
Our focus on London's West End
Over our 30-year history, we have patiently assembled an exceptional portfolio of over 14 acres in the heart of London's West End, a location which is underpinned by an unrivalled variety of attractions for local, domestic and international visitors. Our investment strategy is focused on restaurants, cafés, leisure and retail, where our ownerships extend to over 1 million sq. ft. and provide 70% of our annualised rental income. Our long-term management strategy is aimed at creating lively destinations, which attract both footfall and spending by offering a distinctive variety of retail and leisure choices. As space in the West End for these core uses is constrained by planning policies, the structural imbalance in demand and availability brings great resilience in occupancy and rental levels.
In addition, with over 400,000 sq. ft. of office accommodation, we are the largest single provider of accommodation for SME businesses in Soho and Covent Garden. We have also built up an ownership of 559 apartments which we rent and which appeal to younger people who are studying or working in central London.
The unique features of the West End attract a wide variety of national and international businesses, and provide a large local working population, particularly from the creative, media and tech sectors, whose activity and spending throughout the working week make an important contribution to its economy and character. We benefit from the substantial investment being made by others in improving and extending the stock of office accommodation around our locations and across the West End.
The West End economy
The buoyant conditions we reported last year in our local market have continued throughout the current year. Although there have been growing concerns of an economic slowdown nationally since the beginning of 2016, the West End continues to prosper, with steadily rising domestic and international visitor numbers and spending and demand from a broad-spectrum of businesses seeking space across all uses.
These conditions, and the special appeal of our high-profile and carefully-curated areas, have underwritten the low level of vacancy in our portfolio, and good growth in both current rental income and rental tones, throughout the year. We concluded GBP27.8 million of leasing transactions, achieving rents for commercial space 7.7% above ERV at the previous year end. This activity converts our portfolio's reversionary potential into contracted income, whilst at the same time providing valuable rental evidence for growing income, over time, from our adjacent and nearby holdings.
Although the outcome of the EU referendum has created uncertainty for business nationally, we have not, so far, seen any adverse impact on occupier demand, footfall or trading in our areas. The recent depreciation in sterling has already added to the spending power of international visitors and, if sustained, may lead to increased visitor numbers above their long-term growth trend. Domestic inflationary pressures, which are expected to increase next year, may impact UK consumer confidence but will be less important for visitors who benefit from a strong local currency. Until future trading and other arrangements with the EU become clearer, there is a risk that business decisions may be deferred, slowing the UK economy, but we expect the West End's wide appeal and economy will maintain its history of resilience.
The recently announced revaluation of business rates across England will increase the levy on business premises in London from next April. Across our portfolio, we anticipate increases in the range 30% to 45%, depending on location. Broadly, we estimate that this will increase tenants' occupancy costs by c. 2-3% of turnover. The average increases across our streets will be less marked than for some nearby locations and other Central London destinations, increasing the competitive advantage of the more-modestly priced accommodation we offer. Whilst the transitional arrangements for larger premises are not as generous as they have been in the past, we estimate that half of our 584 restaurants, cafés and shops, and three quarters of our offices will qualify for the transition to the new levels to be effected over four years.
We support Westminster City Council's initiative to seek to retain more of the GBP1.8 billion of business rates they collect on behalf of the Treasury. An increase from the 4% they currently keep would support their ambition to further invest in the borough's infrastructure, in partnership with property owners and other stakeholders.
Improving access to the West End
We expect our portfolio will, in the coming years, benefit from a number of transport infrastructure improvements. The opening of the Elizabeth Line in late 2018, improved rail and tube capacity, and initiatives such as weekend night time running on the Underground, are expected to bring more footfall and spending to the West End. Whilst the increased rates burden on tenants, coupled with wider economic uncertainties, are not welcome, these improvements will enhance the West End's connectivity and should, over time, enable restaurant, leisure and retail businesses to absorb increased costs through turnover growth.
Investing in our portfolio
Our strategy is to refurbish, reconfigure and adapt, rather than redevelop, our buildings. Despite our extensive management activity, our focus on uses which limit the exposure to obsolescence in our portfolio continues to result in a relatively low level of capital expenditure, which this year totalled GBP32.6 million, less than 1% of the valuation of our portfolio.
We are making good progress with our major projects in Seven Dials, Chinatown and Carnaby. Each of these schemes is located on streets which are expected to benefit from greater forecast footfall from the completion of the new Tottenham Court Road transport hub and associated public realm improvements. Our selection of occupiers, and the creativity they bring with their trading formats, will be of particular importance. Inevitably with retail and restaurant accommodation of the sizes we are offering, where occupiers will be investing heavily in their fit-outs, letting periods are likely to be longer than for the smaller space we traditionally have to offer. In total, these three schemes will, on completion and letting, add an estimated GBP7.4 million to our contracted income. We expect each will bring significant benefits to our neighbouring ownerships as well as producing long-term rental growth.
We continue to identify and negotiate early vacant possession of under-utilised space to implement improvement schemes, introducing new, more valuable uses, where possible. These projects unlock value and enhance the rental potential of our holdings, often producing compound benefits across our extensive adjacent ownerships.
Adding to our ownerships
Over the year, additions to our portfolio totalled GBP62.7 million.
In our locations, the availability of properties to acquire, which meet our strict investment criteria, continues to be limited. Existing owners, who are mainly private, rather than institutional, are reluctant to sell, recognising the long-term security and growth prospects their ownerships offer. This situation, which has existed for many years, is unlikely to change, even as a result of current economic uncertainties, so assembling a portfolio of 14 acres, like ours, in the heart of the West End, would be impossible.
However, as in the past, our patient approach and forensic knowledge of our local market will lead to a steady flow of purchases which extend and complement our ownership clusters, and provide further opportunities to add value through our intensive management strategies.
Important refinancing initiatives
With a scarcity of the type of properties we seek to acquire, we need to act swiftly when opportunities arise and, therefore access to stable long-term funding and committed financial resources is critical. In October 2016 we completed the early redemption of our historical debenture stock and issued GBP285 million of 15 year bonds, providing additional net resources of GBP189.4 million, enabling us to continue to fund additions to, as well as investment in, our already-extensive portfolio. This new debt was secured at an exceptionally low fixed coupon of 2.487%. Coupled with the termination of GBP55 million of interest rate swaps in October 2016, these transactions have usefully reduced the cost of our debt, benefiting future earnings and dividends.
Looking ahead
2016 will be remembered as a year of unprecedented political turbulence, not just in the UK but in many parts of the world. The impact of the events we have seen this year have not yet become clear, and their longer term ramifications may not become apparent for some considerable time. This will inevitably bring uncertainty to the general business climate, with risks to consumer confidence and economic growth.
Whilst London and, at its heart, the West End, cannot be completely immune from the influences of the macro environment, its global city status, exceptionally dynamic and broad-based economy and enduring appeal for domestic and international businesses and visitors, will continue to support its long-term prospects for sustained growth and prosperity. This positive outlook underpins the potential in our portfolio.
Our management strategy, executed by an experienced and enthusiastic team, with a forensic knowledge of the local market, has a long record of delivering sustained rental growth, which is key to the long-term growth in the value of our portfolio and shareholder returns. Our strategy is deliberately long-term in outlook and is not influenced by short-term market or economic conditions. Its implementation constantly evolves to ensure that our buildings and locations adapt and respond to the challenges of technological developments and environmental sustainability, as well as expectations of both occupiers and the vast, and ever-growing, numbers who visit every day, throughout the year.
The exceptional qualities and resilience of our business have delivered long-term sector out-performance. Despite present uncertainties, we are confident our impossible-to-replicate portfolio and the innovative, long-term management we bring to it, will continue this record of delivering sustained growth in total returns for shareholders.
Brian Bickell
Chief Executive
29 November 2016
1. Like-for-like, before the impact of increased SDLT
Portfolio valuation
Across our portfolio, strong demand and extensive asset management activity is delivering continued growth in current rents and ERVs, driving capital value growth.
GBP3.35bn 4.9% 4.0% 5.7%
Portfolio Underlying Capital ERV growth(1,2)
valuation(1) growth(1,2) value growth(1,2)
before SDLT
increase
The valuation of our portfolio, including our 50% share of the Longmartin joint venture, increased by GBP216 million to GBP3.35 billion over the year. The ungeared, like-for-like valuation growth was 4.0%, after a reduction of 0.9% as a result of an increase in SDLT on commercial property of 1%, imposed in the March 2016 Budget.
Annualised Topped-up
Fair current initial Equivalent
value % of income ERV yield yield
GBPm portfolio GBPm GBPm % %
------------------- -------- ----------- ----------- ------ --------- ----------
Wholly-owned
portfolio
Carnaby 1,161.0 35% 39.6 48.8 3.22% 3.65%
Covent Garden 875.0 26% 27.5 35.9 2.89% 3.57%
Chinatown 725.9 22% 22.3 29.2 3.09% 3.40%
Soho 244.0 7% 8.0 10.0 3.30% 3.63%
Charlotte Street 117.7 3% 3.6 4.8 2.79% 3.52%
-------- ----------- ----------- ------ --------- ----------
3,123.6 93% 101.0 128.7 3.08% 3.57%
Longmartin
joint venture(3) 224.4 7% 8.6 10.0 3.38% 3.79%
-------- ----------- ----------- ------
Total portfolio 3,348.0 100% 109.6 138.7
------------------- -------- ----------- ----------- ------ --------- ----------
Village 2016 Capital 3 year CAGR(2)
growth(2)
----------------------------- ------------- ---------------
Carnaby 4.9% 16.9%
Covent Garden 3.2% 12.2%
Chinatown 2.7% 12.4%
Soho 5.3% 12.1%
Charlotte Street 4.0% 13.2%
Longmartin joint venture(3) 5.1% 15.2%
------------- ---------------
4.0% 14.1%
----------------------------- ------------- ---------------
1. Including our 50% share of the Longmartin joint venture
2. Like-for-like
3. Our 50% share
Valuation increase driven by strong rental growth
Sustained demand for space across our portfolio, together with extensive asset management activity, continue to deliver growth in current income and rental values. Our management strategies have a relentless focus on, and a long record of, converting the potential reversion in our portfolio into cash flow, whilst further increasing rental values.
Rental growth Annualised Reversionary
current income(1) ERV(1) potential(1)
GBPm GBPm GBPm
-------------------------------- ------------------- --------- --------------
At 30 September 2015 102.6 127.8 25.2
Contribution from acquisitions 1.4 2.6 1.2
Impact of major schemes(2) (0.6) 1.3 1.9
Underlying growth 6.2 7.0 0.8
------------------- --------- --------------
At 30 September 2016 109.6 138.7 29.1
------------------- --------- --------------
Like-for-like growth(3) 6.2% 5.7%
-------------------------------- ------------------- --------- --------------
1. Including our 50% share of the Longmartin joint venture.
2. Charing Cross Road/Chinatown, Thomas Neal's Warehouse, Seven Dials, 57 Broadwick Street, Carnaby and Foubert's Place/Kingly Street, Carnaby.
3. Excluding acquisitions and the impact of major schemes.
Annualised current income increased on a like-for-like basis by 6.2%, Importantly, the ERV of our portfolio, which is based on currently established rental tones, increased on a like-for-like basis by 5.7% and currently stands at GBP138.7m, 26.6% above current income.
Components of the reversionary potential
GBPm Expected How it will be realised
term to
realisation
--------------- ----- ------------- -----------------------------
Contracted 2.7 Near term On expiry of rent-free
income periods
--------------- ----- ------------- -----------------------------
EPRA vacancy 2.3 Near term Upon letting of available
space at 30 September 2016
--------------- ----- ------------- -----------------------------
Space vacancy 14.2 Near to On completion of and letting
medium of schemes at 30 September
term 2016
Under-rented 9.9 Near to Through the normal cycle
leases medium of rent reviews, lease
term renewals and lettings.
This is typically converted
to income over a 3 - 5
year period.
-----
29.1
--------------- ----- ------------- -----------------------------
64% of the uncontracted, under-rented reversion is accounted for by shops, restaurants, cafés and pubs. In our locations, these uses have a long history of sustained, non-cyclical demand, which, together with a restricted supply of space, underpins their growth prospects. We remain confident that, with our proven long-term management strategy, we shall not only continue to convert this rental potential into cash flow, but also deliver further long-term growth in rental values.
Investment security, growing returns and low obsolescence
Investor interest remains strong for properties like ours, which provide investment security, low vacancy, growing returns and limited exposure to obsolescence. This is further fuelled by the current availability of finance at historically low levels. Against this backdrop of strong demand, availability of properties to purchase remains limited.
Equivalent yields, attributed by our external valuers, have remained broadly unchanged over the year with the wholly-owned portfolio at 3.57% (2015: 3.61%), and the Longmartin joint venture at 3.79% (2015: 3.75%).
The valuation of our larger schemes does not include expected development profits which will be recognised once they are completed and let.
Potential greater value for some, or all, parts of the portfolio
DTZ, independent valuer of our wholly-owned portfolio, has continued to note that:
-- our portfolio is unusual in its substantial number of predominantly restaurant and retail properties in adjacent, or adjoining, locations in London's West End; and
-- there is a long record of strong occupier demand for these uses in this location and, consequently, high occupancy levels throughout the portfolio.
Consequently, they have reiterated to the Board that some prospective purchasers may recognise the rare and compelling opportunity to acquire, in a single transaction, substantial parts of the portfolio, or the portfolio in its entirety. Such parties may consider a combination of some, or all, parts of the portfolio to have a greater value than currently reflected in the valuation included in these financial statements, which has been prepared in accordance with RICS guidelines.
Investing in our portfolio
Extensive asset management and refurbishment activity delivering increasing income and unlocking value.
249,000 sq. ft. GBP32.6 million GBP62.7 million Space under refurbishment Capital expenditure Acquisitions during the year ---------------------------- ---------------------- -----------------
Extensive activity
Schemes during the year extended to 249,000 sq. ft. (circa 14% of wholly-owned floor space), at a cost, during the year, of GBP32.6 million. Where possible, we seek to negotiate early vacant possession of under-rented space to implement further asset management initiatives to accelerate the capture of, and growth in, our portfolio's reversionary potential. During the year we secured 71 planning consents, a vital part of maintaining a pipeline of projects.
Vacant space held for, or undergoing, refurbishment at 30 September 2016(1)
% of total ERV
Restaurants,
cafés
and leisure Shops Offices Residential Total 30.9.16 30.9.15
GBPm GBPm GBPm GBPm GBPm % %
------------------ ------------- ------ -------- ------------ ------ -------- --------
Major schemes(2) 1.4 4.2 1.7 0.1 7.4 5.7% 1.4%
Other schemes 1.4 1.5 1.9 2.0 6.8 5.3% 2.9%
------------- ------ -------- ------------ ------ -------- --------
Total 2.8 5.7 3.6 2.1 14.2 11.0% 4.3%
------------- ------ -------- ------------ ------ -------- --------
Area ('000
sq. ft.) 35 80 51 36 202 82
------------------ ------------- ------ -------- ------------ ------ -------- --------
1. Wholly-owned portfolio
2. Charing Cross Road/Chinatown, Thomas Neal's Warehouse, Seven Dials, 57 Broadwick Street, Carnaby
Good progress with major schemes
At 30 September 2016, space held for, or under, refurbishment extended to 202,000 sq. ft., and represented 11% of ERV, an increase of 6.7% during the year. This included our three major schemes: Thomas Neal's Warehouse, Seven Dials, Charing Cross Road/Chinatown and 57 Broadwick Street, Carnaby, which totalled 101,200 sq. ft. and represented 5.7% of ERV.
Each of these major schemes is well-positioned to benefit from expected changes in footfall following the opening of the Elizabeth Line in 2018 and will bring significant long-term benefits to our neighbouring ownerships. Our selection of tenants, and how they intend to use this exciting new space, will be particularly important to their success. Inevitably, with space of this size, where occupiers will be investing heavily in their fit-outs, letting periods are likely to be longer than the smaller space we traditionally have to offer.
Once let, these schemes will add GBP7.4 million to our annual income. Importantly, since the restaurant and retail space on the lower floors, extending to 79,200 sq. ft., will be provided in shell form only, further rental growth will come with little, or no further, capital expenditure.
Thomas Neal's Warehouse, Seven Dials
We completed the reconfiguration of Thomas Neal's Warehouse, Seven Dials, in October 2016.
The scheme provides 22,700 sq. ft. of retail space, including up to 3,000 sq. ft. for restaurant use. Marketing is now underway and the level of initial interest is encouraging.
Located close to the new Tottenham Court Road transport hub, this flagship accommodation, together with major public realm improvements in 2017, will further strengthen Seven Dials as a popular and distinctive retail and leisure destination.
Earlham Street, which is part of an important pedestrian route from Soho towards Thomas Neal's Warehouse, is set to undergo a major upgrade, commencing in spring 2017. Rental tones in this important gateway into Seven Dials from Cambridge Circus have lagged behind nearby streets for some time. However, with an expectation of increased footfall from Tottenham Court Road and the benefit of improvements to Cambridge Circus to relieve pedestrian congestion, planned for early 2017, this should bring material long-term benefits to this street, as well as our other holdings in Seven Dials.
Charing Cross Road/Chinatown
Having commenced this scheme in January 2016, we have now passed the half-way point and are on track to complete our works in spring 2017. Located next to Leicester Square Underground station, and within a short walk of Tottenham Court Road station, it will bring major improvements to this important block on Chinatown's eastern boundary, which we expect to provide material benefits to our other holdings in Chinatown.
The scheme will provide:
-- 35,000 sq. ft. of retail along a 330-foot frontage on Charing Cross Road, a street with high footfall, which is expected to grow materially once the Elizabeth Line opens.
-- 13,500 sq. ft. of restaurant space, fronting Newport Place and Newport Court.
-- a much-improved gateway into Chinatown.
We are creating space with exceptional floor-to-ceiling heights, providing an opportunity to increase floor space by adding mezzanine floors in a number of locations within our scheme, if required by tenants.
Formal marketing will commence in early 2017, once works are sufficiently progressed to show the accommodation to prospective occupiers. The expected cost is GBP14.5 million, of which GBP8.4 million had been incurred by 30 September 2016.
We continue to support Westminster City Council's plans to create a part-pedestrianised public square in Newport Place, at the eastern end of Gerrard Street. This will provide the opportunity, subject to licensing and planning consents, for al fresco dining for our newly-created restaurants, and significantly improve the public realm in Chinatown. Currently we expect works to begin in late spring 2017.
57 Broadwick Street, Carnaby
Having completed strip-out works, in September construction commenced at our major mixed-use project at 57 Broadwick Street, Carnaby. Situated within a few minutes' walk of Tottenham Court Road's new western ticket hall on Dean Street, this 30,000 sq. ft. scheme at this eastern gateway to Carnaby will provide:
-- flagship retail space and a restaurant, together extending to 8,000 sq. ft., over the lower floors;
-- 20,000 sq. ft. of refurbished and extended grade A office accommodation across the upper floors; and
-- two apartments totalling 2,000 sq. ft.
The project will complete in phases from late 2017, at an estimated cost of GBP14.5 million, of which GBP3.1 million had been incurred by 30 September 2016.
With an expectation of increased footfall along Broadwick Street, Westminster City Council have designated this improving thoroughfare as a priority pedestrian route and have now begun a programme to improve the streetscape.
Other schemes
At 30 September 2016, we were progressing other projects, extending to 100,800 sq. ft. and representing 5.3% of ERV. These included the reconfiguration and improvement of 19,000 sq. ft. of restaurants and cafés, 16,800 sq. ft. of retail, 31,000 sq. ft. of office space, and 56 apartments either being created or upgraded. We expect these to complete and become income-producing in the coming year.
Acquisitions with the potential for rental and capital growth
Acquisitions during the year totalled GBP62.7 million. These additions to our portfolio in Covent Garden, Soho and Charlotte Street comprised nine shops, five restaurants and cafés, 2,850 sq. ft. of office space and four apartments.
On acquisition, they produced an average net initial yield of 2.4%. As we integrate them with our existing ownerships, they offer the potential for good rental and capital growth through short and medium-term asset management initiatives, some of which have already commenced.
We continue to seek out new acquisitions, but remain disciplined, concentrating on buildings:
-- in, and around, our villages;
-- which have a predominance of, or potential for, restaurant, leisure and retail uses; and
-- which offer the potential for future rental growth, either individually or through combination with our existing ownerships.
As ever, the availability of buildings which fit these strict investment criteria remains limited, with existing owners reluctant to sell assets which they will find hard to replace in this exceptionally prosperous and resilient area.
Leasing and occupancy
Demand continues to be strong for all uses and across each location. Space continues to let quickly and vacancy levels remain low.
Leasing
During the year, we concluded lettings, lease renewals and rent reviews in the wholly-owned portfolio with a rental value of GBP27.8 million (2015: GBP27.3 million), representing 21.6% of total ERV. Of this, commercial transactions totalled GBP21.6 million (2015: GBP21.6 million) and residential lettings and renewals amounted to GBP6.2 million (2015: GBP5.7 million). Rents achieved for commercial uses were, on average, 7.7% above ERV at 30 September 2015.
GBPm
------------- ----- -------------------------------------
Commercial
Lettings and 11.4 +9.2% vs 30 September 2015 ERV
renewals
Rent reviews 10.2 +29.2% vs previous rent (equivalent
to 5.3% CAGR over five years)
-----
21.6 +7.7% vs 30 September 2015 ERV
Residential
Lettings and 6.2 +2.5% vs prior rent
renewals
-----
Total 27.8
------------- ----- -------------------------------------
Our share of leasing activity in the Longmartin joint venture was GBP2.7 million. Commercial rents achieved were, on average, 6.2% above ERV at 30 September 2015.
Vacancy
EPRA vacancy at 30 September 2016(1)
% of total
ERV
Restaurants,
cafés
and leisure Shops Offices Residential Total 30.9.16 30.9.15
GBPm GBPm GBPm GBPm GBPm % %
----------------- ------------ ----- ------- ----------- ----- ------- -------
Under offer 0.3 - 0.8 0.3 1.4 1.1% 0.3%
Available-to-let 0.1 0.3 0.2 - 0.6 0.5% 1.3%
------------ ----- ------- ----------- ----- ------- -------
EPRA vacancy 0.4 0.3 1.0 0.3 2.0 1.6% 1.6%
------------ ----- ------- ----------- ----- ------- -------
Area ('000
sq. ft.) 6 4 14 7 31 28
----------------- ------------ ----- ------- ----------- ----- ------- -------
1. Wholly-owned portfolio.
With sustained tenant demand for space, EPRA vacancy has been, on average, 1.9% of total ERV over the year. At 30 September 2016, it stood at 1.6%, of which 1.1% was under offer.
Available-to-let vacancy comprised: one restaurant, five small shops, 3,000 sq. ft. of office space and one apartment. Space under offer at 30 September 2016 included four cafés, 11,000 sq. ft. of office accommodation and ten apartments.
In the Longmartin joint venture, two shops, 4,000 sq. ft. of office space and two apartments were available-to-let or under offer. The ERV of our 50% share of EPRA vacancy was GBP0.3 million.
Portfolio review
Lower floors - 70% of current income(1)
Wholly-owned Longmartin(2)
------------------------------------ ------------- --------------
Restaurants, cafés and leisure
- 35% of current income(1)
Number 275 10
Area (sq. ft.) 590,000 45,000
Retail - 35% of current income(1)
Number 309 21
Area (sq. ft.) 471,000 67,000
1. Wholly-owned portfolio
2. Shaftesbury has a 50% interest
Restaurants, cafés and leisure
Important driver of footfall
We are the largest single provider of dining and leisure space in the West End, owning nearly one in five of the licenced premises. Restaurants, cafés and leisure choices are important to the mix of uses in our villages. Most of our restaurants provide a casual dining experience, often with an all-day offer. The broad variety of concepts and cuisines is a major driver of footfall and social media interest.
High demand, restricted availability of space
The availability of restaurant and leisure space in the West End is constrained by restrictive planning policies, which seek to preserve the balance of commercial uses and amenity of local residents. The barriers to entry are high with existing operators reluctant to relinquish their valuable sites, other than for significant premiums. As a consequence, tenants ensure they preserve their valuable occupation rights and our bad debt history is negligible.
Demand for space in our busy areas is strong, particularly from independent operators, established street-food concepts and start-ups seeking their first site. Usually we receive numerous offers for available units and vacancy levels are minimal.
Longer leases, but terms improving
Tenants invest considerable sums fitting out their space, sometimes spending the equivalent of 3-5 years' rent and, therefore, we grant longer leases than those for shops, to provide an extended period over which to amortise this cost.
Until recently, leases were granted over whole buildings and provided tenants with renewal rights on expiry. We find that upper floors are often now underutilised and, where opportunities arise, we seek to negotiate the surrender of these leases to secure vacant possession. This allows us to improve the configuration of space on the lower floors, attract new operators on more beneficial terms, and often release valuable upper floors for other uses.
Reflecting the strength of demand for our restaurant space, in recent years we have reduced the term of leases we grant and introduced more flexibility at expiry. Also, we include turnover-related rental top-ups, giving us the higher of market rent and a percentage of turnover.
During the year, we completed leasing transactions with a rental value of GBP8.2 million, equivalent to 19.4% of restaurant, café and leisure ERV. This included nineteen lettings and renewals, and 29 rent reviews. Our share of leasing transactions in the Longmartin joint venture was GBP0.2 million.
Retail
Our retail areas in Carnaby and Seven Dials make an important contribution to the West End's reputation as a global shopping destination.
Competitive rental levels compared with nearby streets
An important element of the character and mix in our villages is the wide range of shop sizes and rental levels across our streets, from small starter units to larger shops for more-established retailers. This enables us to provide a wide diversity of retail formats and offers great flexibility for retailers to grow, or open new concepts, within our areas.
Importantly, in our high-footfall and spending locations, rental levels are competitive relative to nearby streets.
Sustained demand
The majority of our space is let to fashion and lifestyle retailers. Quality and variety are becoming ever-more important as shoppers' behaviour changes, with a bias towards innovation, experience, fulfilment and the ability to find something different from that commonly offered by high streets and shopping centres. To attract visitors, we seek out new, interesting concepts from across the world, to maintain a fresh retail mix.
With the huge potential customer base offered by the West End, demand for space in our iconic retail destinations remains good, with interest both from domestic and international retailers, often opening new concept stores or flagships.
During the year, we completed letting transactions with a combined rental value of GBP10.3 million, equivalent to 22.5% of retail ERV. This included 25 new shop lettings, 26 lease renewals and 21 rent reviews. Our share of lettings and rent reviews in the Longmartin joint venture was GBP1.4 million.
Upper floors - 30% of current income(1)
Wholly-owned Longmartin(2)
--------------------------------------- ------------- --------------
Offices - 16% of current income(1)
Area (sq. ft.) 406,000 102,000
Residential - 14% of current income(1)
Number 559 75
Area (sq. ft.) 332,000 55,000
1. Wholly-owned portfolio
2. Shaftesbury has a 50% interest
Offices
Large provider of small office space in the core West End
We are an important provider of small, affordable office space in the core West End, with 406,000 sq. ft. of accommodation in the wholly-owned portfolio, let to 246 tenants, of which 87% occupy less than 2,500 sq. ft.
Our average letting is 1,440 sq. ft., often over more than one floor, at GBP51 per sq. ft. (2015: GBP46 per sq. ft.). The average ERV is GBP61 per sq. ft. (2015: GBP56 per sq. ft.).
Strong demand, with low availability of space
Demand for our smaller office accommodation is good, particularly from the SME media, creative, fashion and tech sectors, which traditionally have been based in Soho and Covent Garden.
Over recent years, office-to-residential conversions and redevelopment of multi-let office buildings, to higher specification, larger floor plate space, has reduced the availability of smaller office accommodation across our locations.
With occupier demand outstripping availability of space, rental levels have grown and vacancy levels remain extremely low.
During the year, we completed lettings and lease renewals with a rental value of GBP3.1 million, equivalent to 12.8% of office ERV. Our share of lettings in the Longmartin joint venture was GBP0.6 million.
Residential
Popular area to live
The West End is a popular place to live and we continue to see sustained demand to rent our mid-market apartments. Our flats are mainly studios and one or two-bedroom apartments, many of which have been created from the conversion of small office accommodation back to its original residential use. We have a number of further residential conversion planning consents which we could implement in the future.
Reliable and growing cash flow
Occupancy levels in our apartments are high and, with strong demand, they produce a growing and reliable income stream.
During the year, we completed lettings and renewals totalling GBP6.2 million, equivalent to 37.6% of residential ERV. Our share of residential letting activity in the Longmartin joint venture was GBP0.5 million.
Generally, we do not sell our apartments
Most of the value of our buildings is in the commercial uses on the lower floors. We prefer to retain control over whole buildings to avoid compromising the management flexibility needed to realise the long-term potential in those valuable lower floors. Therefore, generally, we choose not to sell our apartments.
Financial results
This has been another good year for Shaftesbury with further growth in income, earnings, dividends and NAV.
Reported results
+2.6% +6.7% -78.8% +6.9%
GBP8.54 GBP84.1m 35.6p 14.7p
Diluted NAV Net property Basic EPS Dividends per
income share
------------- -------------- --------------- ---------------
EPRA results
+2.2% +8.0% +7.7%
GBP8.88 +3.8% GBP39.0m 14.0p
EPRA NAV NAV return EPRA earnings EPRA EPS
------------- -------------- --------------- ---------------
Income statement
Reported earnings
Profit after tax for the year was GBP99.1 million (2015: GBP467.3 million) and basic earnings per share was 35.6 pence, compared with 168.0 pence in 2015. The decrease was largely due to a lower revaluation surplus from our portfolio, which contributed 43 pence (2015: 167 pence), and the recognition of the fair value of our 8.5% Debenture Stock, which reduced basic earnings per share by 10 pence.
EPRA earnings
As is usual practice in our sector, we produce an alternative measure for certain indicators, including earnings, making adjustments set out by EPRA in its Best Practice and Policy Recommendations. EPRA earnings are a measure of the level of underlying operating results and an indication of the extent to which current dividend payments are supported by recurring earnings. In our case, EPRA earnings excludes valuation movements in respect of our properties and interest rate swaps and ignores deferred tax arising in our Longmartin joint venture. The one-off charge from recognising the fair value of our Debenture Stock in the current year has also been excluded, as set out in the reconciliation below.
EPRA earnings 2016 2015
GBPm GBPm
-------------------------------------------------------- ------- -------
IFRS profit after tax 99.1 467.3
Adjusted for:
- Change in value of investment properties (108.3) (432.0)
- Change in fair value of financial instruments 34.9 28.5
- Recognition of fair value of Debenture Stock 29.2 -
Adjustments in respect of the Longmartin joint venture:
- Change in value of investment properties (11.3) (34.6)
- Deferred tax (4.6) 6.9
------- -------
EPRA earnings 39.0 36.1
------- -------
EPRA EPS 14.0p 13.0p
-------------------------------------------------------- ------- -------
EPRA earnings increased by 8.0% to GBP39.0 million (2015: GBP36.1 million). EPRA EPS was 14.0 pence, 7.7% above last year (2015: 13.0 pence). The increase in earnings was driven principally by increased net property income, partly offset by higher finance costs.
Net property income
Rents receivable increased by 7.2% to GBP98.4 million (2015: GBP91.8 million) as we continue to convert our portfolio's reversionary potential into contracted cash flow.
Acquisitions accounted for GBP1.0 million of this increase. Our scheme at Foubert's Place/Kingly Street, Carnaby, which became income-producing in the second half of last year, contributed GBP1.6 million. This was offset by vacancy at major schemes which commenced this year, reducing rents receivable by GBP2.4 million compared with 2015. Like-for-like growth in rental income, excluding the impact of acquisitions and major refurbishment schemes, was 7.3%.
Irrecoverable property charges were GBP14.3 million (2015: GBP13.0 million), representing 14.5% of rents receivable (2015: 14.2%). The increase compared with last year is, in part, due to a higher level of asset management activity. Also, it reflects increased marketing and promotion of our villages, a key aspect of our long-term strategy.
Net property income was GBP84.1 million, an increase of 6.7% on last year (2015: GBP78.8 million).
Administrative expenses
Administrative expenses, excluding the charge for equity-settled remuneration, totalled GBP11.6 million (2015: GBP11.0 million). This includes a charge for annual bonuses of GBP3.0 million (2015: GBP2.2 million).
The charge for equity-settled remuneration was GBP2.5 million (2015: GBP3.0 million). This included a non-cash accounting provision of GBP1.9 million (2015: GBP2.3 million) and a charge for employer's National Insurance of GBP0.6 million (2015: GBP0.7 million).
Revaluation surplus
The revaluation surplus from our wholly-owned portfolio was GBP108.3 million (2015: GBP432.0 million). This surplus represented a like-for-like increase of 3.9%, principally driven by like-for-like growth in contracted income and ERV of 6.0% and 5.5% respectively. The increase in SDLT for commercial properties reduced values by 0.9%.
Finance costs
With higher net debt as a result of acquisitions and further investment in our portfolio, net finance costs (excluding the change in fair value of our interest rate swaps and the one-off charge from recognising the fair value of our Debenture Stock) increased by GBP2.9 million to GBP33.6 million (2015: GBP30.7 million).
Having modified the terms of our 8.5% Debenture Stock 2024 in September 2016, in anticipation of a new bond issue, we recognised the fair value of the Stock, to reflect the expected net present value of the future cash flows, including an early redemption penalty. This resulted in a one-off, non-cash charge to finance costs of GBP29.2 million. This deficit was crystallised in October 2016.
The fair value deficit on our interest rate swaps increased by GBP34.9 million to GBP114.1 million, following a fall in long-dated interest rates, particularly after the EU referendum in June 2016. The Board regularly reviews the Group's interest hedging strategy and the impact these derivatives have on the long-term financing of the business. In October 2016, we terminated swaps with a notional principal of GBP55 million, at a cost of GBP34.1 million. We have now cancelled around 65% of our legacy interest rate swaps over the past three years.
Longmartin results
Our share of post-tax profit from the Longmartin joint venture decreased by GBP11.2 million to GBP18.5 million (2015: GBP29.7 million). This decrease was largely due to a lower revaluation surplus of GBP11.3 million (2015: GBP34.6 million), which was partly offset by a deferred tax credit.
Our share of EPRA earnings from the joint venture increased by GBP0.6 million to GBP2.6 million (2015: GBP2.0 million), principally due to an increase in net property income of 14.4% to GBP6.7 million (2015: GBP5.9 million), following a number of rent reviews over the past twelve months.
Tax
As a REIT, the Group's activities are largely exempt from corporation tax and, as a result, there is no tax charge in the year (2015: GBPNil).
Despite our REIT status, we do collect and pay other taxes eg payroll taxes, VAT, Stamp Duty Land Tax and Business Rates. During the year, the total tax paid in respect of these taxes amounted to GBP21.0 million. In addition, GBP1.2 million of tax was withheld from Property Income Distributions and paid to HMRC. In addition, our share of corporation tax incurred by the Longmartin joint venture was GBP0.6 million.
The group's tax strategy is to account for tax on an accurate and timely basis. Our appetite for tax risk is low and we only structure our affairs based on sound commercial principles. We do not engage in aggressive tax planning. Rather, we maintain an open dialogue with HMRC with a view to identifying and solving issues promptly. HMRC have designated us as a 'low risk' taxpayer, a status we aim to maintain. Our detailed tax strategy is available on our website.
Dividend
The Board has recommended a final dividend of 7.55 pence per share, an increase of 9.0% on last year's final dividend (6.925 pence). This brings the total dividend for the year to 14.7 pence per share, an increase of 6.9% on 2015 (13.75 pence).
The dividend for the year ended 30 September 2016 is covered by EPRA earnings, after adding back the non-cash accounting charge in the year for equity-settled remuneration of GBP1.9 million. If approved at the 2017 AGM, the final dividend will be paid on 17 February 2017. It will comprise 5.2 pence as a PID and 2.35 pence as an ordinary dividend.
The Board monitors the Group's ability to pay dividends out of available resources and distributable reserves. Prospective dividend payments are estimated in our forecasts, which also consider future liquidity requirements.
As a REIT, we are required to distribute a minimum of 90% of net rental income, calculated by reference to tax rather than accounting rules, as a PID. Notwithstanding this, our dividend policy is to maintain steady growth in dividends, reflecting the long-term trend in our income and EPRA earnings, adjusted to add back the non-cash accounting charge for equity-settled remuneration. To the extent that dividends exceed the amount available to distribute as a PID, we pay the balance as ordinary dividends. We have substantial distributable reserves.
The exceptional charges associated with the recent refinancing of our debenture stock and termination of interest rate swaps will be charged against our qualifying REIT income and, consequently, it is likely that any dividend in relation to the year ending 30 September 2017 will be paid as an ordinary dividend, with PID distributions resuming in the following year.
Net asset value
Reported diluted net asset value per share increased by 22.0 pence to GBP8.54 per share, largely due to diluted earnings per share of 35.5 pence less dividends paid totalling 14.075 pence.
EPRA NAV makes adjustments to reported NAV, to provide a measure of the fair value of net assets on a long-term basis. Assets and liabilities that are not expected to crystallise in normal circumstances are excluded. In our case, the calculation excludes the fair value of interest rate swaps, other than those which we expect to terminate, and deferred tax related to property valuation surpluses in the Longmartin joint venture.
2016 2015
EPRA NAV GBPM GBPM
------------------------------------------- ------- -------
IFRS net assets 2,387.1 2,325.4
Effect of exercise of options 0.5 0.4
------- -------
Diluted net assets 2,387.6 2,325.8
Adjusted for:
* Fair value of financial instruments 76.1 79.2
Adjustments in respect of the
Longmartin joint venture:
* Deferred tax 18.0 22.6
------- -------
EPRA NAV 2,481.7 2,427.6
------- -------
EPRA NAV per share GBP8.88 GBP8.69
-------------------------------------------- ------- -------
EPRA NAV per share increased by 19 pence (2.2%) to GBP8.88 (2015: GBP8.69). EPRA earnings of 14 pence per share were offset by dividends paid in the year (14.075 pence per share). The revaluation surpluses from the wholly-owned portfolio and the Longmartin joint venture added 43 pence.
The exceptional charges from refinancing activity reduced EPRA NAV by 24 pence, of which 10 pence arose from recognising the fair value of our Debenture Stock and 14 pence was charged in respect of interest rate swaps, with a notional principal of GBP55 million and fair value deficit of GBP38.0 million, which we intended to cancel. These swaps were cancelled in October 2016, at a cost of GBP34.1 million. The saving, compared with the deficit at 30 September 2016, will increase NAV by 1.4 pence per share in the coming year.
Cash flows and net debt
Net debt increased by GBP114.3 million to GBP752.1 million over the year (2015: GBP637.8 million), and now includes GBP92.2 million in respect of the 8.5% Debenture Stock (2015: GBP61.0 million) following the recognition of its fair value.
The major cash flows were:
-- Operating cash inflow totalling GBP44.3 million
-- Dividends paid amounting to GBP38.2 million
-- Acquisitions and capital expenditure of GBP91.2 million
Finance review
Important refinancing of historical debt increased financial resources, extended average debt maturity and reduced blended cost.
GBP214.6m 25.8% 10.8 years
Available facilities(1) Loan-to-value(1) Weighted average debt
maturity(1)
-------------------------- ------------------- ------------------------
Debenture Stock refinancing
In September 2016, we amended our 8.5% First Mortgage Debenture Stock 2024, to set the terms under which we could refinance this Stock, in exchange for a new issue of Guaranteed First Mortgage Bonds. In October 2016, taking advantage of extremely low gilt yields, we issued GBP285 million of bonds with a coupon of 2.487% and maturity in September 2031.
Part of the proceeds of the issue were used to:
-- redeem our existing GBP61 million 8.5% First Mortgage Debenture Stock due 2024, including a prepayment cost of GBP31.1 million.
-- cancel interest rate swaps with a notional principal of GBP55 million, at a cost of GBP34.1 million.
The balance of the proceeds was used to reduce drawings under our revolving credit facilities, which are available to be re-drawn.
Increase in financial resources
The issue significantly increased our financial resources for further investment in our portfolio, whilst extending our weighted average debt maturity and reducing our blended cost of debt.
The table below sets out a summary of our debt, both at 30 September 2016, and on a pro-forma basis for these transactions.
Debt summary
Reported Pro-forma(1)
2016 2016 2015
GBPM GBPM GBPM
---------------------------------- --------- ------------- ----------
Debt excluding Longmartin
JV
* Fixed/hedged debt(3) 657.0 794.8 628.8
* Drawn unhedged bank debt 110.7 10.4 19.7
--------- ------------- ----------
767.7 805.2 645.5
Longmartin non-recourse
debt (50% share) 60.0 60.0 60.0
--------- ------------- ----------
Total debt 827.7 865.2 705.5
--------- ------------- ----------
Undrawn floating rate facilities 59.3 214.6 150.3
Loan-to-value(2,3) 24.7% 25.8% 22.5%
Gearing(2,3,4) 33.4% 34.9% 29.1%
Interest cover(2) 2.1x 2.3x 2.1x
% debt fixed(2) 87% 99% 97%
Blended cost of debt(5) 4.5% 3.9% 4.9%
Marginal cost of undrawn
floating rate facilities 1.3% 1.2% 1.5%
Weighted average debt maturity(2) 9.2 years 10.8 years 10.2 years
---------------------------------- --------- ------------- ----------
1. Pro-forma for the issue of 2.487% Mortgage Bonds 2031 and redemption of 8.5% Debenture Stock 2024, and for the cancellation of interest rate swaps with a notional principal of GBP55m in October 2016.
2. Including our 50% share of the Longmartin joint venture 3. Based on nominal value of debt. 4. Based on EPRA net assets. 5. Including non-utilisation fees on undrawn bank facilities.
On a pro-forma basis, at 30 September 2016, our loan-to-value ratio was 25.8% (2015: 22.5%) and we had committed undrawn facilities totalling GBP214.6 million (2015: GBP150.3 million). Of our drawn debt, 98.8% was fixed or hedged (2015: 97.2%).
The blended cost of debt was 3.9%, 1.0% lower than at 30 September 2015. The marginal cost of our undrawn committed facilities is around 1.2% (2015: 1.5%) and, so, as additional drawings are made, our cost of debt will fall further. If our facilities were fully drawn, the blended cost of debt would be 3.4%.
Debt maturity profile
Year of maturity Facility type Total facility
GBPm
------------------ ----------------------- ---------------
2018 Bank facility 150
2020 Bank facility 125
2021 Bank facility 75
Term loan (Longmartin
2026 joint venture) 60(1)
2029 Term loan 135
2030 Term loan 130
2031 Mortgage bonds 285
2035 Term loan 120
------------------ ----------------------- ---------------
1. Shaftesbury Group's 50% share. This loan is without recourse to Shaftesbury.
Portfolio analysis
Wholly
At 30 September Covent Charlotte owned Total
2016 Note Carnaby Garden Chinatown Soho Street portfolio Longmartin portfolio
--------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ ------------- ------------
Portfolio Fair value 1 GBP1,161.0m GBP875.0m GBP725.9m GBP244.0m GBP117.7m GBP3,123.6m GBP224.4m(1) GBP3,348.0m
-------------- ----------- ----- ------------ ---------- ---------- ---------- ---------- ------------ ------------- ------------
% of total
fair value 35% 26% 22% 7% 3% 93% 7% 100%
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ ------------- ------------
Current
income 2 GBP39.6m GBP27.5m GBP22.3m GBP8.0m GBP3.6m GBP101.0m GBP8.6m(1) GBP109.6m
----------- ----- ------------ ---------- ---------- ---------- ---------- ------------ ------------- ------------
ERV 3 GBP48.8m GBP35.9m GBP29.2m GBP10.0m GBP4.8m GBP128.7m GBP10.0m(1) GBP138.7m
-------------- ----------- ----- ------------ ---------- ---------- ---------- ---------- ------------ ------------- ------------
Shops Number 101 94 66 39 9 309 21
-------------- ----------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
Area -
sq. ft. 181,000 138,000 95,000 43,000 14,000 471,000 67,000
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
% of current
income 4 50% 30% 22% 27% 18% 35% 37%
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
% of ERV 4 47% 32% 28% 27% 14% 36% 39%
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
Average
unexpired
lease length
- years 5 4 4 5 4 5 4 4
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
Restaurants,
cafés
and leisure Number 53 92 77 30 23 275 10
-------------- ----------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
Area -
sq. ft. 103,000 176,000 206,000 58,000 47,000 590,000 45,000
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
% of current
income 4 16% 37% 61% 37% 58% 35% 16%
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
% of ERV 4 15% 33% 56% 38% 51% 33% 14%
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
Average
unexpired
lease length
- years 5 11 10 12 10 9 11 13
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
Area -
Offices sq. ft. 247,000 84,000 29,000 36,000 10,000 406,000 102,000
-------------- ----------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
% of current
income 4 28% 11% 4% 15% 8% 16% 32%
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
% of ERV 4 32% 15% 4% 17% 9% 19% 34%
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
Average
unexpired
lease length
- years 5 4 4 3 3 4 4 5
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
Residential Number 94 221 124 69 51 559 75
-------------- ----------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
Area -
sq. ft. 56,000 137,000 78,000 38,000 23,000 332,000 55,000
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
% of current
passing
rent 4 6% 22% 13% 21% 16% 14% 15%
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
% of ERV 4 6% 20% 12% 18% 26% 12% 13%
-------------------------- ----- ------------ ---------- ---------- ---------- ---------- ------------ -------------
1. Shaftesbury Group's 50% share
Basis of valuation
Wholly
At 30 September Covent Charlotte owned
2016 Note Carnaby Garden Chinatown Soho Street portfolio Longmartin
-------------------- ----- -------------- ------------- -------------- -------------- ---------------- ---------- ----------------
Overall initial
yield 7 3.18% 2.81% 3.04% 2.91% 2.65% 3.00% 3.26%
-------------------- ----- -------------- ------------- -------------- -------------- ---------------- ---------- ----------------
Topped-up initial
yield 8 3.22% 2.89% 3.09% 3.30% 2.79% 3.08% 3.38%
-------------------- ----- -------------- ------------- -------------- -------------- ---------------- ---------- ----------------
Overall equivalent
yield 9 3.65% 3.57% 3.40% 3.63% 3.52% 3.57% 3.79%
-------------------- ----- -------------- ------------- -------------- -------------- ---------------- ---------- ----------------
Tone of retail 3.4%-4.15%
equivalent yields 10 3.35-4.25% 3.60-4.50% 3.50-4.50% 3.75-4.50% 3.50-4.75%
-------------------- ----- -------------- ------------- -------------- -------------- ---------------- ---------- ----------------
Tone of retail GBP77.50-GBP700
ERVs - ITZA
GBP per sq.
ft. 10 GBP125-GBP515 GBP75-GBP490 GBP140-GBP350 GBP140-GBP275 GBP92.50-GBP215
-------------------- ----- -------------- ------------- -------------- -------------- ---------------- ---------- ----------------
Tone of restaurant 3.75-4.00%
equivalent yields 10 3.65-5.00% 3.50-4.25% 3.50-3.75% 3.75-4.10% 3.60-4.15%
-------------------- ----- -------------- ------------- -------------- -------------- ---------------- ---------- ----------------
Tone of restaurant GBP90-GBP137.50
ERVs - GBP per
sq. ft. GBP85-GBP124
GBP260-GBP400 (GBP275
10 GBP105-GBP135 GBP90-GBP179 ITZA ITZA) GBP77.50-GBP100
-------------------- ----- -------------- ------------- -------------- -------------- ---------------- ---------- ----------------
Tone of office 4.25%-4.50%
equivalent yields 10 4.00%-4.50% 4.00-4.25% 4.25-4.50% 4.50-4.60% 4.50-4.75%
-------------------- ----- -------------- ------------- -------------- -------------- ---------------- ---------- ----------------
Tone of office GBP50-GBP77.50
ERVs - GBP per
sq. ft. 10 GBP58-GBP80 GBP50-GBP75 GBP43-GBP53 GBP50-GBP65 GBP45-GBP55
-------------------- ----- -------------- ------------- -------------- -------------- ---------------- ---------- ----------------
Average residential
ERVs - GBP per
sq. ft. per
annum 10 GBP51 GBP51 GBP44 GBP48 GBP56 GBP49
-------------------- ----- -------------- ------------- -------------- -------------- ---------------- ---------- ----------------
Notes
1. The fair values at 30 September 2016 (the "valuation date") shown in respect of the individual villages are, in each case, the aggregate of the fair values of several different property interests located within close proximity which, for the purpose of this analysis, are combined to create each village. The different interests within each village were not valued as a single lot.
2. Current income includes total annualised actual and 'estimated income' reserved by leases. No rent is attributed to leases which were subject to rent-free periods at the valuation date. Current income does not reflect any ground rents, head rents nor rent charges and estimated irrecoverable outgoings at the valuation date. 'Estimated income' refers to gross estimated rental values in respect of rent reviews outstanding at the valuation date and, where appropriate, ERV in respect of lease renewals outstanding at the valuation date where the fair value reflects terms for a renewed lease.
3. ERV is the respective valuers' opinion of the rental value of the properties, or parts thereof, reflecting the terms of the relevant leases or, if appropriate, reflecting the fact that certain of the properties, or parts thereof, have been valued on the basis of vacant possession and the assumed grant of a new lease. Where appropriate, ERV assumes completion of developments which are reflected in the valuations. ERV does not reflect any ground rents, head rents nor rent charges and estimated irrecoverable outgoings.
4. The percentage of current income and the percentage of ERV in each of the use sectors are expressed as a percentage of total income and total ERV for each village.
5. Average unexpired lease length has been calculated by weighting the leases in terms of current rent reserved under the relevant leases and, where relevant, by reference to tenants' options to determine leases in advance of expiry through effluxion of time.
6. Where mixed uses occur within single leases, for the purpose of this analysis, the majority use by rental value has been adopted.
7. The initial yield is the net initial income at the valuation date expressed as a percentage of the gross valuation. Yields reflect net income after deduction of any ground rents, head rents and rent charges and estimated irrecoverable outgoings at the valuation date.
8. The topped-up initial yield, ignoring contractual rent free periods, has been calculated as if the contracted rent is payable from the valuation date and as if any future stepped rental uplifts under leases had occurred.
9. Equivalent yield is the internal rate of return, being the discount rate which needs to be applied to the expected 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.
Group Statement of Comprehensive Income
For the year ended 30 September 2016
2016 2015
Notes GBPm GBPm
------------------------------------ ----- ------ ------
Revenue 2 106.2 98.7
Property charges 3 (22.1) (19.9)
------ ------
Net property income 84.1 78.8
------------------------------------ ----- ------ ------
Administrative expenses (8.6) (8.8)
Charge for annual bonuses (3.0) (2.2)
Charge in respect of equity-settled
remuneration 4 (2.5) (3.0)
------ ------
Total administrative expenses (14.1) (14.0)
------------------------------------ ----- ------ ------
Operating profit before investment
property valuation movements 70.0 64.8
Net surplus on revaluation of
investment properties 9 108.3 432.0
------ ------
Operating profit 178.3 496.8
------------------------------------ ----- ------ ------
Finance income 0.1 0.1
Finance costs 5 (33.7) (30.8)
Recognition of fair value of
Debenture Stock 15 (29.2) -
Change in fair value of derivative
financial instruments 16 (34.9) (28.5)
------ ------
Net finance costs (97.7) (59.2)
------------------------------------ ----- ------ ------
Share of post-tax profit from
joint venture 11 18.5 29.7
------ ------
Profit before tax 99.1 467.3
Tax charge for the year 6 - -
------ ------
Profit and total comprehensive
income for the year 99.1 467.3
------ ------
Earnings per share: 7
Basic 35.6p 168.0p
Diluted 35.5p 167.4p
EPRA 14.0p 13.0p
------------------------------------ ----- ------ ------
Please see below for an explanation of the EPRA measures used in these financial statements.
Group Balance Sheet
As at 30 September 2016
2016 2015
Notes GBPM GBPM
--------------------------------- ----- ------- -------
Non-current assets
Investment properties 9 3,111.6 2,908.0
Accrued income 10 9.8 9.5
Investment in joint venture 11 146.4 129.6
Property, plant and equipment 1.4 1.5
Other receivables 13 3.7 3.7
3,272.9 3,052.3
Current assets
Trade and other receivables 12 19.3 21.7
Cash and cash equivalents 13 15.6 7.7
------- -------
Total assets 3,307.8 3,081.7
------- -------
Current liabilities
Trade and other payables 14 45.3 36.8
Borrowings 15 92.2 -
Non-current liabilities
Borrowings 15 669.1 640.3
Derivative financial instruments 16 114.1 79.2
------- -------
Total liabilities 920.7 756.3
------- -------
Net assets 2,387.1 2,325.4
------- -------
Equity
Share capital 17 69.7 69.6
Share premium 124.8 124.7
Share-based payments reserve 3.6 4.0
Retained earnings 2,189.0 2,127.1
------- -------
Total equity 2,387.1 2,325.4
------- -------
Net asset value per share: 18
Basic GBP8.57 GBP8.36
Diluted GBP8.54 GBP8.32
EPRA GBP8.88 GBP8.69
--------------------------------- ----- ------- -------
On behalf of the Board who approved and authorised for issue the financial statements on 29 November 2016.
Brian Bickell Chris Ward Chief Executive Finance Director
Group Cash Flow Statement
For the year ended 30 September 2016
As restated
2016 2015
Notes GBPM GBPM
-------------------------------------- ----- ------ -----------
Cash flows from operating activities
Cash generated from operating
activities 19 76.9 67.4
Interest received 0.1 0.1
Interest paid (32.7) (30.1)
------ -----------
Net cash generated from operating
activities 44.3 37.4
------ -----------
Cash flows from investing activities
Investment property acquisitions (62.0) (25.8)
Capital expenditure on investment
properties (29.2) (25.1)
Purchase of property, plant
and equipment (0.3) (0.3)
Dividends received from joint
venture 1.7 1.6
Decrease in loans to joint venture 0.5 0.5
Net cash used in investing activities (89.3) (49.1)
------ -----------
Cash flows from financing activities
Proceeds from exercise of share
options 0.1 0.1
Proceeds from borrowings 114.5 69.6
Repayment of borrowings (23.5) (230.5)
Proceeds from secured term loans - 250.0
Increase in cash held in restricted
accounts and deposits - (2.2)
Facility arrangement costs - (3.4)
Termination of derivative financial
instruments - (28.1)
Equity dividends paid 8 (38.2) (39.5)
------ -----------
Net cash from financing activities 52.9 16.0
------ -----------
Net change in cash and cash
equivalents 7.9 4.3
Cash and cash equivalents at
1 October 13 7.7 3.4
------ -----------
Cash and cash equivalents at
30 September 13 15.6 7.7
-------------------------------------- ----- ------ -----------
Movements in loans to the joint venture of GBP0.5 million (2015: GBP0.5 million) have been reclassified from financing to investing activities to better reflect the nature of the transactions. Proceeds and repayment of borrowings have been restated to present these movements on a gross basis. These changes have no impact on the net change in cash and cash equivalents, net assets, or reported results in either of the years presented.
Statement of Changes in Equity
For the year ended 30 September 2016
Share-based
Share Share payments Retained Total
capital premium reserve earnings equity
Notes GBPM GBPM GBPM GBPM GBPM
------------------------------- ----- -------- -------- ----------- --------- -------
At 1 October 2014 69.5 124.6 4.0 1,695.1 1,893.2
Profit and total comprehensive
income for the year - - - 467.3 467.3
Transactions with
owners:
Dividends paid 8 - - - (37.5) (37.5)
Exercise of share
options 17 0.1 0.1 - - 0.2
Fair value of share-based
payments 4 - - 2.2 - 2.2
Release on exercise
of share options - - (2.2) 2.2 -
-------- -------- ----------- --------- -------
At 30 September 2015 69.6 124.7 4.0 2,127.1 2,325.4
Profit and total comprehensive
income for the year - - - 99.1 99.1
Transactions with
owners:
Dividends paid 8 - - - (39.4) (39.4)
Exercise of share
options 17 0.1 0.1 - (0.1) 0.1
Fair value of share-based
payments 4 - - 1.9 - 1.9
Release on exercise
of share options - - (2.3) 2.3 -
-------- -------- ----------- --------- -------
At 30 September 2016 69.7 124.8 3.6 2,189.0 2,387.1
------------------------------- ----- -------- -------- ----------- --------- -------
Notes to the financial statements
For the year ended 30 September 2016
1. Accounting policies
Basis of preparation
The preliminary announcement does not constitute full financial statements.
The results for the year ended 30 September 2016 included in this preliminary announcement are extracted from the audited financial statements for the year ended 30 September 2016 which were approved by the directors on 29 November 2016. The auditor's report on those financial statements was unqualified and did not include a statement under Section 498(2) or 498(3) of the 2006 Companies Act.
The 2016 Annual Report is expected to be posted to shareholders in December 2016 and will be considered at the Annual General Meeting to be held on 10 February 2017. The financial statements for the year ended 30 September 2016 have not yet been delivered to the Registrar of Companies.
The auditor's report on the financial statements for the year ended 30 September 2015 was unqualified and did not include a statement under Section 498(2) or 498(3) of the 2006 Companies Act. The financial statements for the year ended 30 September 2015 have been delivered to the Registrar of Companies.
Going concern
The Group's business activities, together with the factors affecting performance, financial position and future development are set out above. The financial position of the Group including cash flow, liquidity, borrowings, undrawn facilities and debt maturity analysis is set out above. The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to adopt the going concern basis in preparing the financial statements.
Critical judgements, assumptions and estimates
The preparation of these financial statements requires the Board to make judgements, assumptions and estimates that affect amounts reported in the Statement of Comprehensive Income and Balance Sheet. Such decisions are made at the time the financial statements are prepared and adopted based on the best information available. Actual outcomes may be different from initial estimates and are reflected in the financial statements as soon as they become apparent.
The directors consider the valuation of investment property to be critical because of the level of complexity, judgement or estimation involved and its impact on the financial statements. The Group's wholly-owned portfolio is valued by its external valuers, DTZ Debenham Tie Leung Limited. Knight Frank LLP value the investment properties owned by the Longmartin joint venture. The valuations are used as the basis for the fair value of the investment properties.
The valuation of the Group's property portfolio is inherently subjective due to, among other factors, the individual nature of each property, its location and the expected future rental income. As a result, the valuations the Group places on its property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions which may not prove to be accurate, particularly in periods of volatility or low transaction flow in the commercial property market. DTZ Debenham Tie Leung Limited and Knight Frank LLP make a number of assumptions in forming their opinion on the valuation of our investment properties, which are detailed in the basis of valuation above. These assumptions are in accordance with the RICS Valuation Standards. However, if any assumptions made by the external valuers prove to be incorrect, this may mean that the value of the Group's properties differs from their valuation reported in the financial statements, which could have a material effect on the Group's financial position.
New accounting standards and interpretations
a) The following amendments to Standards and Interpretations were mandatory for the first time for the financial year ended 30 September 2016:
Standard or Interpretation Effective from ------------------------------------- --------------- Annual Improvements 2011-2013 1 January 2015 Amendment to IAS 19 Employee benefits 1 February 2015 on defined benefit plans Annual Improvements 2010-2012 1 February 2015 ------------------------------------- ---------------
No material changes to accounting policies arose as a result of these amendments.
b) The following amendments to Standards and Interpretations are relevant to the Group and are not yet effective in the year ended 30 September 2016 and are not expected to have a significant impact on the Group's financial statements:
Effective
Standard or Interpretation from
----------------------------------------------- ---------
Annual Improvements 2012-2014 1 January
2016
Amendment to IFRS 11 Joint arrangements 1 January
on acquisition of an interest in a joint 2016
operation
Amendments to IAS 16 and IAS 38 on depreciation 1 January
and amortisation 2016
Amendments to IAS 27 Separate financial 1 January
statements on equity accounting 2016
Amendments to IAS 1 Presentation of financial 1 January
statements disclosure initiative 2016
Amendments to IFRS 10, 12 and IAS 28 1 January
on consolidation for investment entities 2016
IFRS 15 Revenue from contracts with customers 1 January
2018
----------------------------------------------- ---------
c) There are no other Standards or Interpretations that are not yet effective that would be expected to have a material impact on the Group.
Segmental information
The Group's properties, which are all located in London's West End, are managed as a single portfolio. Its properties, which are of a similar type, are combined into villages. All of the villages are geographically close to each other and have similar economic features and risks. In view of the similar characteristics and the reporting of all investment, income and expenditure to the Board at an overall Group level, the aggregation criteria set out in IFRS 8 have been applied to give one reportable segment.
The Board assesses the performance of the reportable segment based on net property income and investment property valuation. Financial information provided to the Board is prepared on a basis consistent with these financial statements.
2. Revenue
2016 2015
GBPm GBPm
------------------------------ ----- -----
Rents receivable 98.4 91.8
Recoverable property expenses 7.8 6.9
----- -----
106.2 98.7
------------------------------ ----- -----
Rents receivable includes lease incentives recognised of GBP0.5 million (2015: GBP2.4 million).
3. Property charges
2016 2015
GBPm GBPm
---------------------------------------- ----- -----
Property operating costs 6.5 6.1
Fees payable to managing agents 2.3 2.1
Letting, rent review, and lease renewal
costs 3.3 3.0
Village promotion costs 2.2 1.8
----- -----
Property outgoings 14.3 13.0
Recoverable property expenses 7.8 6.9
----- -----
22.1 19.9
---------------------------------------- ----- -----
4. Charge in respect of equity-settled remuneration
2016 2015
GBPm GBPm
------------------------------------ ----- -----
Charge for share-based remuneration 1.9 2.3
Employer's national insurance in
respect of share awards 0.6 0.7
----- -----
2.5 3.0
------------------------------------ ----- -----
5. Finance costs
2016 2015
GBPm GBPm
------------------------------------------ ----- -----
Debenture stock interest and amortisation 5.0 5.0
Bank and other interest 20.0 15.6
Facility arrangement cost amortisation 1.0 0.8
Facility arrangement costs written-off
on refinancing - 0.2
Amounts payable under derivative
financial instruments 7.7 9.2
----- -----
33.7 30.8
------------------------------------------ ----- -----
6. 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.
7. Earnings per share
Basic and diluted earnings per share
2016 2015
------------------ -------------------------- -----------------------------
Profit Number Earnings Profit Number
after of per after of Earnings
tax shares share tax shares per share
GBPM Million Pence GBPM Million Pence
------------------ ------ -------- -------- ------ --------- ----------
Basic 99.1 278.4 35.6 467.3 278.1 168.0
Dilutive effect
of share options - 1.0 (0.1) - 1.1 (0.6)
------ -------- -------- ------ --------- ----------
Diluted 99.1 279.4 35.5 467.3 279.2 167.4
------------------ ------ -------- -------- ------ --------- ----------
EPRA earnings per share
The calculations below are in accordance with the EPRA Best Practice Recommendations.
2016 2015
------------------------ ------------------------------ ------------------------------
Profit Number Profit Number
after of Earnings after of Earnings
tax shares per share tax shares per share
GBPM Million Pence GBPM Million Pence
------------------------ ------- --------- ---------- ------- --------- ----------
Basic 99.1 278.4 35.6 467.3 278.1 168.0
EPRA adjustments:
Investment property
valuation surplus
(note 9) (108.3) (38.9) (432.0) (155.3)
Movement in fair
value of derivatives
(note 16) 34.9 12.5 28.5 10.2
Recognition of
fair value of
Debenture Stock
(note 15) 29.2 10.5 - -
Adjustments in
respect of the
joint venture:
Investment property
valuation surplus (11.3) (4.1) (34.6) (12.4)
Deferred tax (4.6) (1.6) 6.9 2.5
------- --------- ---------- ------- --------- ----------
EPRA earnings 39.0 278.4 14.0 36.1 278.1 13.0
------------------------ ------- --------- ---------- ------- --------- ----------
8. Dividends paid
2016 2015
GBPm GBPm
-------------------------------------------- ----- -----
Final dividend for:
Year ended 30 September 2015 at 6.925p
per share 19.5 -
Year ended 30 September 2014 at 6.60p
per share - 18.5
Interim dividend for:
Year ended 30 September 2016 at 7.15p
per share 19.9 -
Year ended 30 September 2015 at 6.825p
per share - 19.0
----- -----
Dividends for the year 39.4 37.5
Timing difference on payment of withholding
tax (1.2) 2.0
----- -----
Dividends cash paid 38.2 39.5
-------------------------------------------- ----- -----
A final dividend of 7.55p per share was recommended by the Board on 29 November 2016. Subject to approval by shareholders at the 2017 AGM, the final dividend will be paid on 17 February 2017 to shareholders on the register at 20 January 2017. 5.2p of the dividend will be paid as a PID under the UK REIT regime and 2.35p will be paid as an ordinary dividend. The dividend totalling GBP21.0 million will be accounted for as an appropriation of revenue reserves in the year ending 30 September 2017. See above for commentary on dividends.
9. Investment properties
2016 2015
GBPm GBPm
-------------------------------------------- ------- -------
At 1 October 2,908.0 2,425.5
Acquisitions 62.7 25.8
Refurbishment and other capital expenditure 32.6 24.7
Net surplus on revaluation of investment
properties 108.3 432.0
------- -------
Book value at 30 September 3,111.6 2,908.0
-------------------------------------------- ------- -------
Fair value at 30 September:
Properties valued by DTZ Debenham
Tie Leung Limited 3,123.6 2,919.5
Less: unamortised lease incentives
(note 10) (12.0) (11.5)
------- -------
Book value at 30 September 3,111.6 2,908.0
-------------------------------------------- ------- -------
The investment properties valuation comprises:
2016 2015
GBPm GBPm
--------------------- ------- -------
Freehold properties 2,864.8 2,691.4
Leasehold properties 258.8 228.1
------- -------
3,123.6 2,919.5
--------------------- ------- -------
Investment properties were subject to external valuation as at 30 September 2016 by qualified professional valuers, being members of the Royal Institution of Chartered Surveyors, working for DTZ Debenham Tie Leung Limited, Chartered Surveyors, acting in the capacity of external valuers.
All properties were valued on the basis of fair value and highest and best use in accordance with the RICS Valuation Standards - Professional Standards 2014 and IFRS 13. When considering the highest and best use a valuer considers its actual and potential uses which are physically, legally and financially viable. Where the highest and best use differs from the existing use, the valuer considers the use a market participant would have in mind when formulating the price it would bid and reflects the cost and likelihood of achieving that use.
The external valuers use information provided by the Group, such as tenancy information and capital expenditure expectations. The valuers, in forming their opinion make a series of assumptions. The assumptions are typically market related, such as yields and rental values, and are based on the valuers' professional judgement and market observations. The major inputs to the external valuation are reviewed by the senior management team. In addition, the valuers meet with external auditors and members of the Audit Committee.
The fair value of the Group's investment properties has primarily been determined using a Market Approach, which provides an indication of value by comparing the subject asset with identical or similar assets for which price information is available. There are a number of assumptions that are made in deriving the fair value, including equivalent yields and ERVs. Equivalent yields are based on current market prices, depending on, inter alia, the location and use of the property. ERVs are calculated using a number of factors which include current rental income, market comparatives and occupancy. Whilst there is market evidence for these inputs, and recent transaction prices for similar properties, there is still a significant element of estimation and judgement. As a result of adjustments made to market observable data, these significant inputs are deemed unobservable.
The Group considers all of its investment properties to fall within Level 3 of the hierarchy in IFRS 13, as set out below. The Group's policy is to recognise transfers between fair value hierarchy levels as at the date of the event or change in circumstances that caused the transfer. There have been no transfers during the year.
Hierarchy Description
--------- ------------------------------------------------
Level 1 Quoted prices (unadjusted) in active markets
for identical assets or liabilities.
Level 2 Inputs other than quoted prices included within
level 1 that are observable for the asset or
liability, either directly (that is, as prices)
or indirectly (that is, derived from prices).
Level 3 Inputs for the asset or liability that are
not based on observable market data (that is,
unobservable inputs). Discounted cash flows
are used to determine fair values of these
instruments.
--------- ------------------------------------------------
The key assumptions made by the valuers are set out in the basis of valuation. The Group's acquisition and capital expenditure activity is discussed above.
Sensitivity analysis
As noted in the critical judgements, assumptions and estimates section, the valuation of the Group's property portfolio is inherently subjective. As a result, the valuations the Group places on its property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions which may not prove to be accurate, particularly in periods of volatility or low transaction flow in the commercial property market.
The Group's properties are all located in London's West End and are virtually all multi-use buildings, usually configured with commercial uses on the lower floors and office and/or residential uses on the upper floors. DTZ Debenham Tie Leung Limited value properties in their entirety and not by use, consequently the sensitivity analysis below has been performed on the Group's portfolio as a whole.
Change in equivalent
Change in ERV yields
--------------- ----------------------
+5.0% -5.0% +0.25% -0.25%
GBPm GBPm GBPm GBPm
-------------------------- ------ ------- ----------- ---------
Increase/(decrease)
in the fair value
of investment properties 135.7 (136.2) (210.3) 238.3
-------------------------- ------ ------- ----------- ---------
These key unobservable inputs are inter-dependent. All other factors being equal, a higher equivalent yield would lead to a decrease in the valuation of a property, and an increase in the ERV would increase the capital value, and vice versa.
At 30 September 2016, the Group had capital commitments of GBP31.3 million (2015: GBP16.4 million).
10. Accrued income
2016 2015
GBPm GBPm
----------------------------------- ----- ---------------
Accrued income in respect of lease
incentives 12.0 11.5
Less: included in trade and other
receivables (note 12) (2.2) (2.0)
----- ---------------
9.8 9.5
----------------------------------- ----- ---------------
Lease incentives are allocated between amounts to be charged against rental income within one year of the Balance Sheet date and amounts which will be charged against rental income in subsequent years.
11. Investment in joint venture
2016 2015
GBPm GBPm
------------------------ ----- -----
Group
At 1 October 129.6 101.5
Share of profits 18.5 29.7
Dividends received (1.7) (1.6)
----- -----
Book value 30 September 146.4 129.6
------------------------ ----- -----
The summarised Statement of Comprehensive Income and Balance Sheet used for consolidation purposes are presented below:
2016 2015
GBPm GBPm
----------------------------------------- ----- ------
Statement of Comprehensive Income
----------------------------------------- ----- ------
Rents receivable 15.1 13.4
Recoverable property expenses 1.4 1.6
----------------------------------------- ----- ------
Revenue from properties 16.5 15.0
----------------------------------------- ----- ------
Property outgoings (1.6) (1.6)
Recoverable property expenses (1.4) (1.6)
----------------------------------------- ----- ------
Property charges (3.0) (3.2)
----- ------
Net property income 13.5 11.8
Administrative expenses (0.4) (0.6)
----- ------
Operating profit before investment
property valuation movements 13.1 11.2
Net surplus on revaluation of investment
properties 22.5 69.2
----- ------
Operating profit 35.6 80.4
Net finance costs (6.6) (6.6)
----- ------
Profit before tax 29.0 73.8
----------------------------------------- ----- ------
Current tax (1.2) (0.6)
Deferred tax 9.1 (13.8)
----------------------------------------- ----- ------
Tax credit/(charge) for the year 7.9 (14.4)
----- ------
Profit and total comprehensive income
for the year 36.9 59.4
----- ------
Profit attributable to the Group 18.5 29.7
----------------------------------------- ----- ------
As restated
2016 2015
GBPm GBPm
------------------------------------- ----- -----------
Balance Sheet
Non-current assets
Investment properties at book value 455.0 430.0
Accrued income 4.0 4.4
Other receivables 1.3 1.3
----- -----------
460.3 435.7
Cash and cash equivalents 4.1 4.6
Current assets 4.0 3.5
----- -----------
Total assets 468.4 443.8
----- -----------
Current liabilities 9.4 9.8
Non-current liabilities
Secured term loan 120.0 120.0
Other non-current liabilities 46.3 54.8
----- -----------
Total liabilities 175.7 184.6
----- -----------
Net assets 292.7 259.2
----- -----------
Net assets attributable to the Group 146.4 129.6
------------------------------------- ----- -----------
Amounts totalling GBP1.3 million, in respect of cash held on deposit, which have certain conditions restricting their use, have been reclassified from cash and cash equivalents to other receivables at 30 September 2015. This presentational change does not impact earnings or net assets.
12. Trade and other receivables
2016 2015
GBPm GBPm
----------------------------------- ----- -----
Amounts due from tenants 10.5 11.3
Provision for doubtful debts (0.5) (0.6)
----- -----
10.0 10.7
Accrued income in respect of lease
incentives (note 10) 2.2 2.0
Amounts due from joint venture 0.9 1.4
Prepayments 4.4 7.2
Other receivables 1.8 0.4
----- -----
19.3 21.7
----------------------------------- ----- -----
Amounts due from tenants at each year end included amounts contractually due and invoiced on 29 September in respect of rents and service charge contributions in advance for the period 29 September to 24 December. As of 30 September 2016, amounts due from tenants which were more than 90 days overdue, relating to accommodation and services provided up to 28 September 2016, totalled GBP1.5 million (2015: GBP1.9 million) and are considered to be past due. Provisions against these overdue amounts totalled GBP0.4 million (2015: GBP0.5 million). The remaining balance is not considered to be impaired.
At 30 September 2016, cash deposits totalling GBP18.0 million (2015: GBP17.4 million) were held against tenants' rent payment obligations. The deposits are held in bank accounts administered by the Group's managing agents.
13. Cash and cash equivalents
Cash and cash equivalents at 30 September 2016 were GBP15.6 million (2015: GBP7.7 million).
Other receivables include GBP3.7 million at 30 September 2016 (2015: GBP3.7 million) which relate to cash held on deposit as security for certain secured term loans, and where there are certain conditions restricting its use. Holding cash in restricted accounts does not prevent the Group from earning returns by placing these monies in interest-bearing accounts or on deposit.
14. Trade and other payables
2016 2015
GBPm GBPm
--------------------------------------- ----- -----
Rents and service charges invoiced
in advance 21.3 20.7
Amounts due in respect of property
acquisitions 0.7 -
Trade payables and accruals in respect
of capital expenditure 5.2 1.9
Other taxation and social security 6.1 4.9
Other payables and accruals 12.0 9.3
----- -----
45.3 36.8
--------------------------------------- ----- -----
15. Borrowings
2016 2015
----------------------- ---------------------------- ----------------------------
Unamortised Unamortised
premium premium
Nominal and issue Book Nominal and issue Book
value costs value value costs value
GBPM GBPM GBPM GBPM GBPM GBPM
----------------------- ------- ----------- ------ ------- ----------- ------
Current borrowings
Debenture Stock 92.2 - 92.2 - - -
------- ----------- ------ ------- ----------- ------
Non-current borrowings
Debenture Stock - - - 61.0 2.2 63.2
Secured bank loans 290.7 (1.7) 289.0 199.7 (2.3) 197.4
Secured term loans 384.8 (4.7) 380.1 384.8 (5.1) 379.7
------- ----------- ------ ------- ----------- ------
Total non-current
borrowings 675.5 (6.4) 669.1 645.5 (5.2) 640.3
------- ----------- ------ ------- ----------- ------
Total borrowings 767.7 (6.4) 761.3 645.5 (5.2) 640.3
----------------------- ------- ----------- ------ ------- ----------- ------
Net debt
2016 2015
GBPM GBPM
-------------------------------------- ------ -----
Nominal borrowings - gross 767.7 652.8
Cash balances set-off against certain
borrowings - (7.3)
------ -----
767.7 645.5
Cash and cash equivalents (note 13) (15.6) (7.7)
------ -----
752.1 637.8
-------------------------------------- ------ -----
The 8.5% First Mortgage Debenture Stock due 2024 (the Stock) and bank loans are secured by fixed charges over certain investment properties held by subsidiaries, with a carrying value of GBP1,320.4 million (2015: GBP1,412.7 million), and by floating charges over the assets of the Company and certain subsidiaries. Two of the Company's subsidiaries each have secured term loans. Both entities have granted fixed charges over certain of their investment properties, with a carrying value of GBP1,116.5 million (2015: GBP1,060.7 million), and cash balances, and floating charges over their assets as security for their respective loans. Additionally, the two shareholders of these subsidiaries have granted a charge over the shares in these companies.
Following an EGM of holders of the GBP61.0 million Debenture Stock in September 2016, the terms and conditions of the Stock were amended to grant Shaftesbury an option to redeem the Stock in full at an agreed amount, conditional upon an issue of newly created longer-dated Guaranteed First Mortgage Bonds or an equivalent cash alternative.
As a result of the substantial modification to the expected future cash flows of the Debenture Stock, the Company de-recognised the book value of the Stock, which was previously held in the Balance Sheet at amortised cost. It then recognised the fair value of the Stock, being the total consideration to be paid to the holders of the Stock. This resulted in an increase in the recognised liability of GBP29.2 million, compared with the previous book value. This increase comprised the redemption premium of GBP31.1 million, less the unamortised premium in respect of the original Stock of GBP1.9 million. This was charged to the Statement of Comprehensive Income in the year ended 30 September 2016. The fair value of the Stock, which represents the new basis for amortised cost, is included in the Balance Sheet within current liabilities, as the directors considered the condition of the issue of newly created Guaranteed First Mortgage Bonds was highly likely to be met within one year of the Balance Sheet date.
On 7 October 2016, Shaftesbury Carnaby PLC, a subsidiary of Shaftesbury PLC, issued GBP285 million of Guaranteed First Mortgage Bonds (the Bonds) with a coupon of 2.487% and maturity in September 2031. The Bonds are secured by fixed charges over the properties held by Shaftesbury Carnaby PLC and a floating charge over Shaftesbury Carnaby PLC's assets. They also benefit from an unsecured guarantee from Shaftesbury PLC.
On the same day, the Company's existing GBP61.0 million Debenture Stock was redeemed in full, being satisfied by existing holders of the Stock exchanging their Stock for new Bonds, or taking cash. Of the GBP285 million proceeds raised by the issue of the new Bonds, GBP92.2 million was used to redeem the existing Stock. This was satisfied by GBP10.4 million of cash and GBP81.8 million of new Bonds. The fixed and floating charges relating to the Stock were released.
Availability and maturity of borrowings
2016 Facilities 2015 Facilities
------------------ ------------------------- -------------------------
Committed Drawn Undrawn Committed Drawn Undrawn
GBPM GBPM GBPM GBPM GBPM GBPM
------------------ --------- ----- ------- --------- ----- -------
Repayable within
1 year 92.2 92.2 - - - -
Repayable between
2 and 5 years 350.0 290.7 59.3 275.0 124.7 150.3
Repayable between
5 and 10 years - - - 136.0 136.0 -
Repayable between
10 and 15 years 384.8 384.8 - 384.8 384.8 -
--------- ----- ------- --------- ----- -------
827.0 767.7 59.3 795.8 645.5 150.3
------------------ --------- ----- ------- --------- ----- -------
Interest rate profile of interest bearing borrowings
2016 2015
------------------------------- --------------- ---------------
Debt Interest Debt Interest
GBPM rate GBPM rate
------------------------------- ----- -------- ----- --------
Floating rate borrowings
LIBOR-linked loans (including
margin) 110.7 1.75% 19.7 1.75%
Hedged borrowings
Interest rate swaps (including
margin) 180.0 6.17% 180.0 6.01%
----- -------- ----- --------
Total bank borrowings 290.7 4.49% 199.7 5.59%
----- -----
Fixed rate borrowings
Secured term loans 384.8 3.85% 384.8 3.85%
8.5% First Mortgage Debenture
Stock - book value 92.2 7.93% 63.2 7.93%
-------- --------
Weighted average cost of
drawn borrowings 4.45% 4.78%
------------------------------- ----- -------- ----- --------
The interest rate for the 8.5% First Mortgage Debenture Stock in 2016 represents the effective interest rate on the book value of the Debenture Stock prior to the modification of its terms in September 2016.
The Group also incurs non-utilisation fees on undrawn facilities. At 30 September 2016, the weighted average charge on the undrawn facilities of GBP59.3 million (2015: GBP150.3 million) was 0.70% (2015: 0.70%).
At 30 September 2016, the weighted average credit margin on the Group's current bank facilities was:
2016 2015
------------------------------- ----- -----
Drawn facilities 1.33% 1.16%
If facilities were fully drawn 1.37% 1.35%
------------------------------- ----- -----
The Group has in place interest rate swaps to hedge GBP180.0 million of floating rate bank debt, at fixed rates in the range 4.64% to 5.16%, with a weighted average rate at 30 September 2016 of 4.85%. The swaps, which are settled against three month LIBOR, expire between August 2028 and November 2038. If mutual break or counterparty early termination options are exercised the weighted average term is 3.1 years (2015: 4.1 years).
In October 2016, the Group terminated interest rate swap contracts with a notional principal of GBP55.0 million. These swaps, with an average rate of 4.76%, had expiry dates between August 2028 and November 2038, and included counterparty early termination options in November 2018. The cost of terminating these swaps was GBP34.1 million. They were included in the Balance Sheet at 30 September 2016 at a fair value of GBP38.0 million.
Details of the Group's current financial position are discussed above.
16. Financial instruments
Fair value of financial instruments
2016 2015
GBPm GBPm
----------------------------------- ------- ------
Interest rate swaps
At 1 October - deficit (79.2) (78.8)
Swap contracts terminated - 28.1
Fair value deficit charged to the
Statement of Comprehensive Income (34.9) (28.5)
------- ------
At 30 September - deficit (114.1) (79.2)
----------------------------------- ------- ------
Changes in the fair value of the Group's interest rate swaps, which are not held for speculative purposes, are reflected in the Statement of Comprehensive Income as the Group has chosen not to adopt hedge accounting under the provisions of IAS 39 'Financial Instruments: Recognition and Measurement'.
The extent to which the fair value deficit will crystallise will depend on the course of interest rates over the life of the swaps. The weighted average maturity of the swaps at the Balance Sheet date is set out in note 15.
The fair value of the interest rate swaps has been estimated using the mid-point of the relevant yield curve prevailing at the reporting date, and represents the net present value of the differences between the contractual rate and the valuation rate through to the contracted expiry date of the swap contract. The valuation technique falls within Level 2 of the fair value hierarchy (see note 9 for definition). The swaps are valued by J.C Rathbone Associates Limited.
Interest rate swaps are the only financial instruments which are held at fair value. There have been no transfers between hierarchy levels during the year (2015: none).
The 8.5% Mortgage Debenture Stock is held at amortised cost. This was remeasured in September 2016, following modifications to the terms of the Stock (see note 15).
The Group's secured term loans are held at amortised cost in the Balance Sheet. The fair value of liability in excess of book value which is not recognised in the reported results for the year is GBP52.5 million (2015: GBP39.1 million). The fair values have been calculated based on a discounted cash flow model using the relevant reference gilt and appropriate market spread. The valuation technique falls within Level 2 of the fair value hierarchy (see note 9 for definition).
The Group has no obligation to repay its secured term loans in advance of their maturities on 2 May 2029, 19 March 2030, and 31 July 2035.
Other financial instruments
The fair values of the Group's cash and cash equivalents, and those financial instruments included within trade and other receivables, interest bearing borrowings, (including the 8.5% Mortgage Debenture Stock but excluding the secured term loans), and trade and other payables are not materially different from the values at which they are carried in the financial statements.
17. Share capital
2016 2015
Number Number 2016 2015
Million Million GBPm GBPm
--------------------------------- -------- -------- ----- -----
Alloted and fully paid (ordinary
25p shares)
At 1 October 278.2 277.9 69.6 69.5
Exercise of share options 0.4 0.3 0.1 0.1
-------- -------- ----- -----
At 30 September 278.6 278.2 69.7 69.6
--------------------------------- -------- -------- ----- -----
During the year, 362,163 ordinary 25p shares were issued in connection with the exercise of nil cost options granted under the 2006 LTIP and 16,537 shares were issued in connection with the exercise of Sharesave scheme options with an exercise price of GBP4.29.
18. Net asset value per share
The calculations below are in accordance with the EPRA Best Practice Recommendations.
As restated
2016 2015
-------------------------- ----------------------------- -----------------------------
Net Net
asset asset
Number value Number value
Net of ordinary per Net of ordinary per
assets shares share assets shares share
GBPm Million GBP GBPM Million GBP
-------------------------- ------- ------------ ------ ------- ------------ ------
Basic 2,387.1 278.6 8.57 2,325.4 278.2 8.36
Dilutive effect of
share options 0.5 1.0 0.4 1.2
------- ------------ ------ ------- ------------ ------
Diluted 2,387.6 279.6 8.54 2,325.8 279.4 8.32
Fair value of derivatives 76.1 0.27 79.2 0.29
Deferred tax* 18.0 0.07 22.6 0.08
------- ------------ ------ ------- ------------ ------
EPRA NAV 2,481.7 279.6 8.88 2,427.6 279.4 8.69
Fair value of derivatives (76.1) (0.27) (79.2) (0.29)
Deferred tax* (18.0) (0.07) (22.6) (0.08)
Fair value of secured
term loans* (64.9) (0.23) (47.3) (0.17)
------- ------------ ------ ------- ------------ ------
EPRA NNNAV 2,322.7 279.6 8.31 2,278.5 279.4 8.15
-------------------------- ------- ------------ ------ ------- ------------ ------
* Includes our 50% share of deferred tax and fair value of secured term loans in the Longmartin joint venture.
The calculations of diluted net asset value per share show the potentially dilutive effect of share options outstanding at the Balance Sheet date and include the increase in shareholders' equity which would arise on the exercise of those options.
In accordance with EPRA recommendations, the adjustment for the fair value of derivatives excludes those interest rate swaps which were cancelled in October 2016 (see note 15).
The comparative figure for the fair value of secured term loans has been restated by GBP8.2 million to include the fair value in excess of book value for the debt in the joint venture. This has decreased EPRA NNNAV net assets by GBP8.2 million and EPRA NNNAV net asset value per share by GBP0.03.
19. Cash flows from operating activities
2016 2015
Operating activities GBPm GBPm
----------------------------------------- ------- -------
Profit before tax 99.1 467.3
Adjusted for:
Lease incentives recognised (note
2) (0.5) (2.4)
Charge for share-based remuneration
(note 4) 1.9 2.3
Depreciation 0.4 0.4
Investment property valuation movements
(note 9) (108.3) (432.0)
Net finance costs 97.7 59.2
Share of profit from joint venture
(note 11) (18.5) (29.7)
------- -------
Cash flows from operations before
changes in working capital 71.8 65.1
Changes in working capital:
Change in trade and other receivables 2.1 (0.5)
Change in trade and other payables 3.0 2.8
------- -------
Cash generated from operating activities 76.9 67.4
----------------------------------------- ------- -------
20. Movement in borrowings
Cash Non-cash
1.10.2015 flows items 30.9.2016
GBPm GBPm GBPm GBPm
------------------------------ --------- ------ -------- ---------
Group
8.5% First Mortgage Debenture
Stock 2024 (63.2) - (29.0) (92.2)
Secured bank loans (199.7) (91.0) - (290.7)
Secured term loans (384.8) - - (384.8)
Facility arrangement
costs 7.4 - (1.0) 6.4
--------- ------ -------- ---------
(640.3) (91.0) (30.0) (761.3)
--------- ------ -------- ---------
Year ended 30 September
2015 (553.7) (85.7) (0.9) (640.3)
------------------------------ --------- ------ -------- ---------
21. Related party transactions
Transactions between Shaftesbury PLC (the "Company") and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note.
Transactions and balances between the Company and its joint venture, which have not been eliminated on consolidation are summarised below:
2016 2015
GBPm GBPm
--------------------------------- ----- -----
Transactions with joint venture:
Administrative fees receivable 0.2 0.4
Dividends receivable 1.7 1.6
Interest receivable 0.1 0.1
Amount due from joint venture 0.9 1.4
--------------------------------- ----- -----
22. Events occurring after the Balance Sheet date
In October 2016 the Group issued GBP285 million of 2.487% Guaranteed First Mortgage Bonds due 2031. At the same time, it redeemed its GBP61.0 million 8.5% First Mortgage Debenture Stock due 2024. It also cancelled interest rate swaps with a notional principal of GBP55.0 million, at a cost of GBP34.1 million. Further details are set out in note 15.
23. Annual General Meeting
The 2017 Annual General Meeting will be held at The Ham Yard Hotel, 1 Ham Yard, London W1D 7DT on 10 February 2017 at 11.00 am.
Risk management
The Board's attitude to risk management is consistent with its low overall appetite for risk.
Overview
The Board structures the Group's operations to minimise exposure to investment, operational and financial risks, and to ensure that there is a rigorous, regular review of risks and mitigation across its activities.
Important factors in the relative low risk of our business include:
-- The Group invests only in London's West End, where there is a long history of resilience, stability and sustained occupier demand for our principal uses of restaurants, leisure and retail
-- With a diverse tenant base, there is limited exposure to any single tenant
-- The nature of our portfolio does not expose us to risks inherent in material speculative development schemes
-- We have an established and experienced management team, based in one location, close to all our holdings
-- We manage our balance sheet on a conservative basis with moderate leverage, long-term finance, a spread of loan maturities, good interest cover and with the majority of interest costs fixed.
Management structure
As a foundation to effective day-to-day risk management, we encourage an open and honest culture within which staff can operate. Our team, based in one office, within fifteen minutes' walk of all our holdings, comprises four executive directors and 23 staff. The senior management team, with an average tenure of 16 years, has an in-depth knowledge of our business and the West End property market.
The Board's attitude to risk is embedded in the business, with executive directors having close involvement in all aspects of operations and significant decisions. Non-executive directors approve capital and non-routine transactions over a specified level.
Senior management, below Board level, is incentivised in the same way as executive directors to achieve the Group's strategic goals of delivering long-term growth in rental income, capital values and shareholder returns. Decisions are made for long-term benefit, rather than short-term gain. Succession planning across the management team is monitored by the Board.
Responsibilities
Board Overall responsibility for risk
management. Reviews principal risks
and uncertainties regularly, along
with actions taken, where possible,
to mitigate them.
--------------------- ---------------------------------------
Audit Committee Assurance of the internal controls
and risk management process.
--------------------- ---------------------------------------
Executive management Day-to-day management of risk. Design
and implementation of the necessary
systems of internal control.
--------------------- ---------------------------------------
Risk management and internal control
The Board reviews the nature and extent of the Group's principal risks and uncertainties, and monitors the risk management framework and internal control systems. Such systems are designed to manage, rather than eliminate, the risks faced by the business and can provide only reasonable, not absolute, assurance against material misstatement or loss. Their adequacy and effectiveness are monitored through the risk management and audit processes which include financial and property management audits.
The Group has established processes and procedures to identify, assess, and manage, the principal risks and uncertainties it faces. These processes and procedures were in place throughout the year and remained in place up to the date of the approval of the Annual Report and accord with the Financial Reporting Council's Guidance on Risk Management, Internal Control and Related Financial and Business Reporting (2014).
The key elements of the Group's procedures and internal financial control framework are:
-- Close involvement of the executive directors in all aspects of day-to-day operations, including regular meetings with employees to review risks and controls
-- Clearly defined responsibilities and limits of authority
-- Defined schedule of matters for decision by the Board including significant acquisitions, disposals, major contracts, material refurbishment/development proposals and any other transaction outside the normal course of business
-- A comprehensive system of financial reporting and forecasting, which is updated on a quarterly basis and includes forecast liquidity requirements and loan covenant compliance
-- The day-to-day management of the Group's portfolio is outsourced to three managing agents. The Group monitors the performance of each managing agent and has established extensive financial and operational controls to ensure that each maintains an acceptable level of service and provides reliable financial and operational information. The managing agents share with the Group their internal control assessments. The Group periodically uses the services of an external consultant to review the managing agents' operational processes and controls.
Risk assessment
Operational and financial risks facing the Group are monitored through a process of regular assessment by the executive team. The aim of this assessment is to:
-- Provide reasonable assurance that material risks are identified
-- Ensure appropriate mitigation action is taken at an early stage
Risks are considered in terms of their impact and likelihood from operational, financial and reputational perspectives. Risks, and the controls in place to mitigate them, are formally reported, discussed and challenged, at meetings of the Audit Committee and Board. To the extent that significant risks, failings or control weaknesses arise during the year, these are reported to the Board and appropriate action is taken to rectify the issue and implement controls to mitigate further occurrences.
The Audit Committee has monitored the Group's risk management and internal control system, and having reviewed the effectiveness of material controls, has not identified any significant failings or weaknesses in the Group's controls during the year.
Principal risks and uncertainties
The Board has carried out a robust assessment of the principal risks and uncertainties which might prevent the Group achieving its goal of long-term growth in rental income, capital values and shareholder returns. These risks and uncertainties are largely consistent with those reported in 2015. We no longer consider meeting the requirements of legislation to improve environmental performance of buildings to be a principal risk or uncertainty. This is because the legislation has become more clear and, through our rolling refurbishment activities, we are able to meet its requirements without significant cost.
To date we have seen no adverse impact on occupier demand, footfall or trading as a result of political and economic uncertainties following the EU referendum. Until the UK's future exit arrangements are negotiated, we are unable to draw any firm conclusions as to the longer-term impact on our business. However, with London's status and broad-based economy, we believe it will be less adversely affected than the wider UK.
Geographic concentration risk
Risk of a sustained fall in visitor numbers and/or spending
Potential
Risk impact Mitigation Commentary
------------------------------------------------------------ -------------------------------------------------- ----------------------------------------------------------- ------------
Events which London has
discourage * Reduced visitor numbers, spending and occup * Inherent risk given the geographic concentration of a growing
visitors to ier demand our investments in a high profile location population,
the West End is the most
e.g. visited
* Threats to security or public safety due to terrorism * Reduced rental income and/or capital values * Insurance cover maintained for terrorism and city
loss-of-rent in the
western
* Health concerns (e.g. pandemics) * Potential increased vacancy and declining world, and
profitability * Close liaison with statutory authorities to maximise current
safety of visitors forecasts
* Major, long-term disruption to the public transport are for
network upon which the area depends * Damage to property further
* Detailed emergency response plans growth in
tourism
Across the
West End,
visitor
numbers,
spending
and
occupier
demand
continue to
be buoyant
The UK's
terrorism
threat
level
remains
severe
------------------------------------------------------------ -------------------------------------------------- ----------------------------------------------------------- ------------
Competing Footfall
destinations * Reduced visitor numbers and occupier demand * Ensure our villages maintain a distinct identity and
lead to long-term occupier
decline in demand
footfall in * Reduced rental income and/or capital values * Management strategies to create prosperous across our
our villages destinations within which tenants can operate villages
remains
* Potential increased vacancy and declining strong. We
profitability * Seek out new concepts, brands and ideas to keep our continue to
villages vibrant and appealing see
sustained
rental
* Consistent strategy on tenant mix, which evolves ove growth
r and low
time vacancy
* Marketing and promotion of our villages
* KPI to deliver sustainable rental growth
* Regular board monitoring of performance and prospect
------------------------------------------------------------ -------------------------------------------------- ----------------------------------------------------------- ------------
Regulatory risk
Potential
Risk impact Mitigation Commentary
-------------- --------------------------------------------- ------------------------------------------------------------ ------------
All our There are
properties * Limit our ability to optimise revenues * Ensure our properties are operated in compliance with no current
are in the local regulations indications
boroughs of that the
Westminster * Reduced profitability evolution
and Camden. * Make representations on proposed policy changes, to of the
Changes to ensure our views and experience are considered planning
national or * Reduced capital values and
local licensing
policies, * Mix of uses in our portfolio means we are not reliant framework,
particularly on income from one particular use either as
planning and a result of
licensing, national or
could have local
a legislation
significant ,
impact on will have
our ability a material
to maximise impact on
the the Group's
long-term business
potential for
of its the
assets foreseeable
future
-------------- --------------------------------------------- ------------------------------------------------------------ ------------
Economic risk
Potential
Risk impact Mitigation Commentary
--------------- ------------------------------ ------------------------------------------------------------ -------------
Periods of Restaurant,
economic * Pressure on rents * Focus on assets, locations and uses which have leisure and
uncertainty historically proved to be economically resilient and retail
and lower have demonstrated much lower valuation volatility tenants
confidence * Declining profitability than the wider market provide 70%
could reduce of our
consumer annualised
spending, * Reduced capital values * Diverse tenant base with limited exposure to any one current
tenant tenant income
profitability Trading,
and occupier footfall
demand * Tenant deposits held against unpaid rent obligations and spending
at 30 September 2016: GBP18.0m has been
resilient
since the
EU
referendum
and we
continue
to benefit
from strong
demand,
footfall
and rental
growth.
However,
uncertainty
will remain
until the
UK's future
arrangements
with the EU
are
negotiated
--------------- ------------------------------ ------------------------------------------------------------ -------------
Decline in Interest
the UK real * Reduced capital values * Focus on assets, locations and uses which have rates
estate market historically proved to be economically resilient and have
due to have demonstrated much lower valuation volatility continued
macro-economic * Decrease in NAV, ampli than the wider market at
factors e.g. fied by gearing historically
global low levels
political * Regular review of investment market conditions Present
landscape, * Loan covenant defaults including bi-annual external valuations market
currency sentiment
expectations, is that
bond yields, * Maintain conservative levels of leverage increases
interest rate will be
expectations, moderate
availability * Quarterly forecasts including covenant headroom and gradual,
and cost of review although the
finance, current
relative political
attractiveness * Substantial pool of uncharged assets available to top and economic
of property up security held by lenders backdrop
compared with increases
other asset uncertainty
classes
--------------- ------------------------------ ------------------------------------------------------------ -------------
Shareholder Information
Registrar
Equiniti Limited maintains the Group's Register or Members. They may be contacted at:
Equiniti Limited
Aspect House
Spencer Road
Lancing
West Sussex, BN99 6DA
Telephone 0871 384 2294 (International +44 121 415 7047). Calls to this number are charged at 8p per minute from a BT landline plus network extras. Lines open 8.30am to 5.30pm, Monday to Friday.
Shareholder accounts may be accessed online through www.shareview.co.uk. This gives secure access to account information instructions. There is also a Shareview dealing service which is a simple and convenient way to buy or sell shares in the Group.
Effect of REIT status on payment of dividends
As a REIT, we do not pay UK corporation tax in respect of rental profits and chargeable gains relating to our property rental business. However, we are required to distribute at least 90% of the qualifying income (broadly calculated using the UK tax rules) as a PID.
Certain categories of shareholder may be able to receive the PID element of their dividends gross, without deduction of withholding tax. Categories which may claim this exemption include: UK companies, charities, local authorities, UK pension schemes and managers of PEPs, ISAs and Child Trust Funds.
Further information and the forms for completion to apply for PIDs to be paid gross are available on the Group's website or from the registrar. The deadline for completed forms to be with the registrar for payment of the 2016 final dividend is 20 January 2017.
Where the Group pays an ordinary dividend, in addition to the PID, this will be treated in the same way as dividends from non-REIT companies.
Corporate Timetable
Financial Calendar
Annual General Meeting 10 February 2017 AGM statement 10 February 2017
Dividends and Mortgage Bond interest
Proposed 2016 final dividend:
Ex-dividend 19 January 2017 Record date 20 January 2017 Payment date 17 February 2017 2017 interim dividend to be paid July 2017
Mortgage Bond interest 31 March 2017 and 30 September 2017
Glossary of terms
Capital value return
The valuation movement and realised surpluses or deficits arising from the Group's investment portfolio expressed as a percentage return on the valuation at the beginning of the period adjusted for acquisitions and capital expenditure.
Compound Annual Growth Rate (CAGR)
The year-on-year growth rate of an investment over a specified period of time.
EPRA adjustments
Standard adjustments to calculate EPS and NAV as set out by EPRA in its Best Practice and Policy Recommendations.
EPRA EPS
EPRA EPS is the level of recurring income arising from core operational activities. It excludes all items which are not relevant to the underlying and recurring portfolio performance.
EPRA NAV
EPRA NAV aims to provide a consistent long-term performance measure, by adjusting reported net assets for items that are not expected to crystallise in normal circumstances, such as the fair value of derivative financial instruments and deferred tax on property valuation surpluses. EPRA NAV includes the potentially dilutive effect of outstanding options granted over ordinary shares.
EPRA net assets
Net assets used in the EPRA NAV calculation, including additional equity if all vested share options were exercised.
EPRA NNNAV
EPRA NAV incorporating the fair value of debt which is not included in the reported net assets.
EPRA vacancy
The rental value of vacant property available expressed as a percentage of ERV of the total portfolio.
Equivalent yield
Equivalent yield is the internal rate of return from an investment property, based on the gross outlays for the purchase of a property (including purchase costs), reflecting reversions to current market rent, and such items as voids and non-recoverable expenditure but disregarding potential changes in market rents.
European Public Real Estate Association (EPRA)
EPRA develops policies for standards of reporting disclosure, ethics and industry practices.
Estimated rental value (ERV)
ERV is the market rental value of properties owned by the Group, estimated by the Group's valuers.
Fair value
The amount at which an asset or liability could be exchanged between two knowledgeable, willing and unconnected parties in an arm's length transaction at the valuation date.
Gearing
Nominal value of Group borrowings expressed as a percentage of EPRA net assets.
Initial yield
The initial yield is the net initial income at the date of valuation expressed as a percentage of the gross valuation. Yields reflect net income after deduction of any ground rents, head rents, rent charges and estimated irrecoverable outgoings.
Interest cover
The interest cover is a measure of the number of times the Group can make interest payments with its operating profit before investment property disposals and valuation movements.
Loan-to-value
Nominal value of borrowings expressed as a percentage of the fair value of property assets.
Long Term Incentive Plan (LTIP)
An arrangement under which an employee is awarded options in the Company at nil cost, subject to a period of continued employment and the attainment of NAV and TSR targets over a three-year vesting period.
Net asset value (NAV)
Equity shareholders' funds divided by the number of ordinary shares at the balance sheet date.
Net asset value return
The change in EPRA NAV per ordinary share plus dividends paid per ordinary share expressed as a percentage of the EPRA NAV per share at the beginning of the period.
Property Income Distribution (PID)
A PID is a distribution by a REIT to its shareholders paid out of qualifying profits. A REIT is required to distribute at least 90% of its qualifying profits as a PID to its shareholders.
Real Estate Investment Trust (REIT)
A REIT is a tax designation for an entity or group investing in real estate that reduces or eliminates corporation tax on rental profits and chargeable gains relating to the rental business, providing certain criteria obligations set out in tax legislation are met.
Topped-up initial yield
An adjusted initial yield which assumes rent free periods or other unexpired lease incentives, such as discounted rent periods and step ups, have expired.
Total property return
Net property income and the valuation movement and realised surpluses or deficits arising from the portfolio for the year expressed as a percentage return on the valuation at the beginning of the period adjusted for acquisitions and capital expenditure.
Total Shareholder Return (TSR)
The change in the market price of an ordinary share plus dividends reinvested expressed as a percentage of the share price at the beginning of the period.
This information is provided by RNS
The company news service from the London Stock Exchange
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(END) Dow Jones Newswires
November 29, 2016 02:00 ET (07:00 GMT)
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