Shaftesbury Annual report 2020 Strategic Report Xxxxx Making a positive contribution to London’s West End
Annual Report 2020 Shaftesbury Annual report 2020 Strategic Report
Shaftesbury is a Real Estate Investment Trust (REIT) which invests exclusively in the heart of London’s West End. Our 16-acre ownership of c.600 buildings is clustered mainly in Carnaby, Seven Dials and Chinatown, but also includes substantial ownerships in east and west Covent Garden, Soho and Fitzrovia. Our purpose is to curate vibrant and thriving villages, making great places even better for the benefit of our stakeholders.
Strategic report Governance Financial statements 1 2020 summary 81 Governance overview 128 Group statement of comprehensive 2 Q+A with the Chief Executive 82 Chairman’s introduction income 6 Covid-19: impact and response 84 Monitoring of culture and engagement 129 Balance sheets 10 Exceptional portfolio in the heart of with employees 130 Cash flow statements London’s West End 85 The role of the Board and its Committees 131 Statements of changes in equity 14 Portfolio uses 86 Principal Board activities in 2019/20 132 Notes to the financial statements 20 Why London’s West End? 90 Division of responsibilities 21 Making great places even better 93 Board evaluation 22 Business model and strategy 94 Nomination committee report Other information 24 Measuring our performance 96 Audit committee report 154 Climate risk and opportunity 27 Sustainability 100 Directors’ remuneration report 156 Alternative Performance Measures (APMs) 29 Environment 103 Remuneration at a glance 158 Portfolio analysis 34 Non-financial information statement 105 Remuneration policy 158 Basis of valuation 35 Stakeholder engagement 106 Annual remuneration report 160 Summary report by the valuers 42 Our people and culture 114 Directors’ report 162 Debt covenants 53 Strategy and Operations Executive 118 Directors’ responsibilities 163 Shareholder information Committee 119 Independent auditor’s report 164 Glossary of terms 54 Our Board 56 Portfolio valuation report 59 Portfolio activity report 63 Financial results 67 Financing 71 Risk management 73 Principal risks and uncertainties 78 Viability statement Iconic villages
CARNABY 16.0and 1.9 acres acres owned in COVENT GARDEN joint venture
CHINATOWN 1.9mcommercial and sq residential ft space SOHO and 0.3m sq ft in joint venture
FITZROVIA c.buildings 600
Mix of uses % of wholly-owned portfolio ERV 37% FOOD, BEVERAGE AND LEISURE 30% RETAIL 20% OFFICES 13% RESIDENTIAL
0.7m sq ft 0.4m sq ft 0.4m sq ft 0.4m sq ft
Talented and experienced shaftesbury.co.uk team follow @shaftesburyplc
male33% employees39 carnaby.co.uk sevendials.co.uk chinatown.co.uk 9 years thisissoho.co.uk average theyardscoventgarden.co.uk length of service
female67% Page 1 What are your reflections Q: on the year? Rarely in history has the world seen such widespread disruption to normal patterns of life, which came without A: warning from the beginning of 2020. In the UK, since 2016 Brexit and its political ramications dominated the national agenda but the result of the December 2019 general election brought certainty and early signs of a return of business and consumer condence. However, this was short-lived, as concerns regarding the Covid-19 virus grew rapidly, and governments around the world introduced measures never before seen in peacetime to address the pandemic. Only now are we seeing the rst positive signs that the crisis could recede in the year ahead. However, the social and economic consequences of the disruption we have all experienced this year will be important factors in the pace of recovery in the months and years ahead.
Q+A How has London’s West End been Q: affected by the pandemic? At the heart of one of the world’s great cities, the West End’s with the long record of success reects its domestic and global A: appeal to businesses, visitors and residents. In normal times, its ourishing commercial and leisure economy draws over 200 million visits annually, which supports its rich and unrivalled oer of cultural Chief and historic attractions, hospitality choices and shopping. The bedrock of this footfall are Londoners, its huge working population, and daily domestic leisure visitors. Executive Measures to contain the pandemic continue to have a material eect on normally busy city centres around the world. Since March, there has been a material and sustained reduction in the West End’s economy as Brian Bickell answers a result of measures imposed to contain the spread of Covid-19 questions on our performance infections as a consequence of: • Advice to avoid unnecessary travel and use of public transport; and activities during this • For oce-based workers, recommendation to avoid commuting and challenging year, the evolution work from home wherever possible; • Closure of non-essential retail and all hospitality from late March until the end of June, and again throughout November with capacity of our business and longer-term constraints when open to maintain social distancing; challenges and priorities • Continuing closure of theatres, bars and clubs, which has severely curtailed the West End’s renowned evening and night-time economy; and • A collapse in international leisure and business travel due to border control restrictions around the world.
Page 2 Shaftesbury Annual Report 2020 Strategic report Q+A with the Chief Executive
Although near-term challenges will be with us throughout
“ Strategic report 2021, I am condent we are well placed, both nancially and operationally, to return to long-term prosperity and growth as the current global and local pandemic disruption recedes into history.”
Businesses across the West End which, either directly or indirectly, How has this year’s financial performance rely on its usually-predicable, exceptional daily levels of visitors and been affected? spending have seen their income and cash ow severely aected by Q: this pandemic-related disruption, resulting in growing levels of vacancy The rst half of the nancial year saw relatively normal and a signicant reduction in demand for space due to uncertainty operating conditions, with the pattern of rent collection and of the timing of a return to normalised conditions. A: expenditure largely unaected. However, there was a noticeable A large proportion of our 624 apartments are let to people from decline in new lettings and enquiries from mid-February as pandemic overseas, who come to London to work or study. Inevitably, as concerns grew and business condence declined. pandemic uncertainties grew, many chose for personal reasons From March onwards, collections of rents and service charges have to vacate and quickly return to their countries of origin. been materially aected by occupiers’ loss of trading and income. Despite Government nancial assistance, and our own continuing initiatives to support occupiers, we are seeing an increase in business How has Shaftesbury responded to this failures, and the handing back of space not only in our portfolio, but unprecedented situation? across the West End. Q: The uncertain near-term outlook is aecting the prospects of In our long-term management strategy for our villages, we collecting arrears and increasing the risk of tenant insolvency, leading have always recognised our responsibility to our commercial to a high level of charges for expected credit losses and impairment of occupiers to ensure the trading environments we curate, A: lease incentive and deferred letting balances totalling £21.9 million at and the support we oer, provide the conditions for their businesses the year end. to ourish. We are also conscious of our responsibilities to our residential tenants and a wide range of local stakeholders. As a consequence of the unprecedented operating conditions throughout the second half, net property income fell to £74.3 million, As soon as we saw the early, rapid impact of the pandemic in Chinatown, a reduction of £23.7 million compared with last year. After a revaluation it became clear that we should oer occupiers across our locations, decit of £698.5 million, the loss after tax was £699.5 million (2019: prot: particularly those reliant on daily footfall, nancial and other assistance £26.0 million). EPRA earnings, which exclude revaluation gains and to enable them to weather a prolonged period of business disruption losses, declined to £29.4 million compared with £54.6 million in 2019. and through the gradual return to more-normal trading. Similarly, we would support our residential tenants, including those from overseas Over the year, our portfolio valuation decreased on a like-for-like basis who wished to return home or were aected by reduction or loss of by 18.3% to £3.1 billion. This decline reects the expected loss of employment income, as a result of the pandemic. income until operating conditions recover, an increase in vacancy across the West End, particularly of retail and hospitality space, and Extensive engagement with our commercial occupiers has focused on subdued demand for space, which together are aecting the near-term providing nancial assistance tailored to their particular circumstances outlook for rental levels and investor demand. The valuation decreases to give them the condence to resume trading as and when conditions in both our wholly-owned portfolio and the Longmartin joint venture permit. This has principally been through rent waivers or deferrals, were the main drivers in net assets declining by £726.6 million to drawing on rent deposits and, where appropriate, restructuring and £2,280.6 million. At 30 September 2020, EPRA NAV was £7.43 per extending leases to provide greater certainty of occupation. We waived share, down 24.3% over the year (2019: £9.82 per share). residential tenants’ notice periods if they needed to vacate early, or provided rental support where appropriate. The safety of those who work in, visit or live in our locations has been paramount. Working with our occupiers, we have implemented social distancing protocols across our buildings and public streets and spaces, including provision of outdoor seating, enhanced cleaning, hand sanitiser stations, signage and advice on Covid-safe operating procedures. Inevitably, our usual programme of events and activities to promote our locations and our occupiers’ businesses has been aected by Government restrictions on public gatherings. We have refocused our marketing activities to use social media channels to maintain public engagement with our areas and occupiers, and provide information and advice on changing Government guidance.
Page 3 Shaftesbury Annual Report 2020 Strategic report Q+A with the Chief Executive
What steps have you taken to maintain the How have sustainability priorities been Q: financial resilience of the business? Q: addressed over the year? Although Covid-19 issues have dominated our lives this year, The Board has always followed a prudent, forward-looking approach to ensuring the Group maintains a resilient nancial we have not lost sight of the importance of advancing our A: structure, with an appropriate mix of equity and debt to A: initiatives to further reduce the environmental impacts of our minimise risk and support its long-term strategy. business operations, including action to address the global climate change emergency, and ensuring our support for local communities Since April, with much-reduced income collection and growing responds to the particular challenges they have faced this year. vacancy, our focus has been to conserve liquidity, reducing non- essential expenditure, placing a moratorium on new schemes and Our approach to the sustainable re-use of existing buildings, through acquisitions, other than by exception. In addition, the Board took repurposing and improving their environmental performance, is a the dicult decision to suspend dividends in respect of the current fundamental aspect of our strategy. We have now set ambitious targets nancial year, with the intention of resuming distributions as soon as for reducing our own direct carbon emissions and will be announcing there is a sustained recovery in rental income to more-normal levels, Science Based Targets and a net zero carbon target in 2021. Air quality, whilst always complying with our REIT PID obligations. We have continued greening, freight and waste consolidation and working with our open and constructive discussions with our banks, term loan providers occupiers to help address their environmental challenges and and bondholders to keep them appraised of operational conditions opportunities, will continue to be priorities in the year ahead. and the impact of Covid-19 disruption on their security. Where required, During the pandemic, together with neighbouring owners, we have we have continued to agree waivers of income-related covenants. worked with Westminster and Camden councils to support the Anticipating the consequences of a protracted period of pandemic- recovery of local hospitality businesses with the provision of outdoor related disruption and recovery, and the potential near-term implications seating to supplement their trading. This initiative has involved pavement for revenue and property values, in October 2020, the Board announced widening and partial road closures, which have been generally well a fully-underwritten equity issue to raise £297 million before costs, received, and have demonstrated how carefully managed, permanent together with an open oer to raise a further £10 million. Completed public realm measures can improve the local environment for both in November, the issue was well-supported and raised £294.4 million residents and visitors. net of costs which has reduced our leverage and renancing and Collaborating with our occupiers, neighbours and other stakeholders is asset-related covenant risks, as well as providing working capital to integral to our approach. Based in Carnaby, “working above the shop”, fund forecast operating losses and capital expenditure until macro provides us with rst-hand knowledge of local issues and opportunities. and local conditions stabilise and business condence returns. The Board was conscious at the outset of the March lockdown that communities around us, especially young people, would face particular How have you supported your team challenges. We established a Covid-19 Community Fund, supported by waivers of 20% of Board remuneration from April to July, which has Q: through the pandemic? provided nancial and in-kind support of over £310,000 to support An important factor in Shaftesbury’s long-term success has local groups addressing urgent needs across Westminster and Camden. been the experience, local knowledge and commitment of Together with our other donations, time and in-kind donations of space, our community support this year amounted to £866,000. A: our team, and an open culture with a clear set of values which guide behaviours across the business. Covid-19 disruption, and the priority of ensuring the safety of our people, has meant we have been unable to be physically together as a team since late March. Technology has enabled the business to continue to operate, and we have found ways to maintain close contact even while working remotely in this far from ideal situation. In particular, we have addressed well-being and stress issues, which arise in such unprecedented and uncertain times, with valued, spontaneous face-to-face interaction between colleagues being much reduced. Being away from the oce for an extended period has allowed us to rethink our internal structure and procedures and review our people reward arrangements, sta resource requirements and ways to build more exibility into our working routine, in anticipation of returning to the oce.
Page 4 Shaftesbury Annual Report 2020 Strategic report Q+A with the Chief Executive Strategic report
How are you positioning the business Q: for recovery? Peter Lawrence Levy OBE In the years to come, 2020 may be remembered as “The The Board of Shaftesbury was saddened to learn the death Covid-19 year which changed the world”. The extent of of Peter Levy, the Company’s founder and former Chairman, A: disruption the pandemic is having on the institutions of in November, following a short illness. Government, businesses and communities is challenging accepted certainties and norms, with long-term nancial and other ramications Peter and members of his family founded the Company in which are only now beginning to become apparent. We are already 1986, with an initial capital of £10 million. It was oated in seeing an acceleration of pre-pandemic trends in retail, spending October 1987. Peter chaired the Board until his retirement habits, working practices and, perhaps, most importantly, how the in September 2004. priorities and aspirations of the younger generation are changing. Peter was widely-known and well-respected across the real Embracing change and innovation have always been part of Shaftesbury’s estate sector, particularly as a partner in DE & J Levy, the DNA. Our skills and approach in repurposing our buildings to adapt to West End estate agency started by his father and uncle in the trends in occupier demand, curating our locations to meet the 1930s. He had a wide range of charitable interests, including ever-changing expectations of businesses and the millions who visit, the Cystic Fibrosis Trust, where his fundraising was and collaborating with a wide range of stakeholders, will enable us to recognised with the award of an OBE. navigate a fast-moving operating environment. We are preparing further changes in the year ahead to ensure we have the skill sets, data and agility to deliver the continual evolution of our business model and “Shaftesbury’s reputation, culture and operational strategy. values owe much to Peter’s foresight and In the year ahead, the widespread distribution of eective vaccines will commitment in the formative years of the bring a gradual return of condence and activity across the West End business. He will be greatly missed not only and, a recovery in domestic footfall and spending to our villages. At the present time, it is not possible to predict at what point conditions will by his family but all those who were fortunate improve but it is likely social distancing and other restrictions, with the to know him and work alongside him.” risk of further lockdowns, will continue into the spring and possibly early summer, putting further nancial strain on many of our occupiers. Brian Bickell The overhang of unusually high vacancy across the West End will take time to be absorbed, but the particular appeal of our carefully-curated locations, our innovative mid-market oer, modest rents and exible leasing terms, will be an important advantage for us. Once stability has returned, we will consider strategic acquisitions to our portfolio, and selective disposals of buildings no longer considered core to our long-term strategy. The direct and immediate impact of restrictions to control the pandemic are being seen in cities across the country and much of the world. However, the economies of London and the West End have a long history of structural resilience, having weathered many episodes of challenges and uncertainties. Their unique features, which come from a culture of constant evolution across a broad-based economy, attracting talent, creativity, innovation and investment from across the world, will hasten their recovery and reinforce their enduring appeal to businesses, visitors and residents alike. The long-term prospects for our portfolio, located in the busiest and liveliest parts of the West End, are underpinned by these valuable qualities, together with the experience, innovation and enthusiasm our team bring to its management. Although near-term challenges will be with us throughout 2021, I am condent we are well placed, both nancially and operationally, to return to long-term prosperity and growth as the current global and local pandemic disruption recedes into history.
Brian Bickell 14 December 2020
Page 5 Shaftesbury Annual Report 2020 Strategic report
Covid-19: impact and response
Lockdown Begin to F&B reopened Enter 2nd 2nd Tier (non-essential retail unlock wave Lockdown 2➔3 120% UK High Street average closed) at 61% of 2019 level Rule of six, UK High Street average West End at 39% work from 100% at 20% of 2019 level home, West End at 8% Tier 2 80%
60% UK High Street
40%
20% West End
2020 footfall as a % of the same week last year 0% January FebruaryMarch April May June July August September October November NovemberDecemberDecember
Source: New West End Company
Following the rst lockdown, footfall began to build over the summer Impact on West End footfall and trading months, reaching around 50% of pre-Covid levels. This was particularly The success and prosperity of the West End is based on its huge, noticeable in the vicinity of Oxford Street and Regent Street, the West seven-days-a-week footfall comprising its large working population, End’s major shopping streets, and Carnaby, Soho and Leicester Square, residents and domestic and international visitors. its major dining and leisure destinations. In Seven Dials, after a slower Inevitably, the Covid-19 pandemic and Government-imposed social start, footfall patterns recovered in line with these locations. distancing measures have had, and continue to have, a material adverse As Government restrictions tightened from mid-September, footfall e ect on normal patterns of footfall, activity and business in the West decreased again and then largely evaporated during the second End. lockdown in November. Together with restrictions on hours of trade From early February, growing reports regarding the rapid spread of the and social distancing, this had a very challenging impact on all Covid-19 virus began to impact leasing activity, with a number of consumer-facing, footfall-reliant businesses, which are inevitably negotiations put on hold or terminated. From early March there was a cash- ow sensitive. Consequently, this has presented material noticeable decline in visitor numbers and spending, both in the West operational and nancial challenges for our occupiers, particularly End generally and our locations. The Government formally announced those in our restaurants, cafés, pubs and shops. O ce occupiers, a lockdown on 23 March, although in the West End most activity had particularly those with direct or indirect exposure to consumer-facing already ceased. businesses, and residential tenants have also been a ected, but to a lesser extent.
Covid-19 timeline
February 2020 March 2020 April -June 2020 • Global Covid-19 concerns grow • Government restrictions to halt • Plans begin to emerge for gradual spread of Covid-19 • Footfall and spending begin to decline, relaxation of Government restrictions fi rst in Chinatown, then across the • Footfall and commercial activity • Non-essential retail allowed to open West End at negligible levels from June 15 • Reduced leasing activity as global • Construction activity halted business confi dence declines
Page 6 Shaftesbury Annual Report 2020 Strategic report Covid-19: Impact and response Strategic report
In turn, these challenges have a ected occupiers’ ability to meet both Preserving long-term value by supporting rental and other lease obligations or remain solvent. For us, there have been a number of consequential outcomes: tenants and maintaining occupancy A key aspect of our strategic response has been to help our occupiers • Rent collections have been signi cantly below normal levels. For the through this challenging period by providing nancial and other second half of our nancial year, cash collections represented 53% of practical support, alongside the Government’s various initiatives such contracted income. as the Coronavirus Business Interruption Loan scheme, business rates Portfolio activity report: page 59 relief, furloughing employees, temporary VAT reductions and the “Eat + Out to Help Out” scheme. Maintaining occupancy across our portfolio, • Reduced net property income as a result of rental income write-o s, wherever possible, will position Shaftesbury for sustained recovery over impairment charges and additional costs, either due to increased the medium and long-term, as the post-pandemic recovery vacancy or tenants’ inability to pay for service charge expenditure. progresses. Net property income for the year was £74.3 million, down 24.2% year-on-year. Our nancial support predominantly has come through a combination of: Financial results: page 63 + • Part waivers of contracted rents; • The amount of vacant space across the West End, in general, and in our portfolio, has increased signi cantly. At 30 September 2020, • Drawing on rental deposits, which we have not required to be wholly-owned EPRA vacancy was 10.2%, compared with a 10-year replenished; pre-Covid average of 2.9%. By 30 November 2020, it had risen to 12.0%. • Agreeing payment plans structured over a period which re ects a Portfolio activity report: page 59 gradual return to more normal trading; and + • Restructuring and/or extending leases, to provide greater certainty • Occupational demand has slowed, with operators often not prepared for occupiers. to commit to leases until there is better visibility on the timing of the return to more-normal footfall and trading. The rental value of The eventual recovery of amounts deferred and outstanding will commercial leasing activity in the second half of our nancial year depend on tenants’ ability to meet these commitments. The future was £4.8 million, compared with £16.9 million during the same period viability of their businesses will be in uenced by pandemic-related last year. Of the total, rent reviews accounted for £2.7 million. factors including further Government measures which could adversely a ect trading conditions and the pace at which footfall and spending + Portfolio activity report: page 59 recovers. • The change in the balance between supply of, and demand for, space From 1 October 2020, we have o ered most commercial occupiers the has led to pressure on rental levels. Together with general option to pay rent and service charges monthly rather than quarterly in uncertainty, this has resulted in an 18.3% like-for-like decrease in the advance, in order to help align our revenue collection with occupiers’ valuation of our wholly-owned portfolio in the year, most of which cash ows. occurred since pandemic concerns rst materialised. Portfolio activity report: page 59 Portfolio valuation report: page 56 + + • With more competition for occupiers, we are now having to incur more capital expenditure on our vacant food, beverage and retail units to maximise their letting prospects. + Portfolio activity report: page 59 The Government has announced that London and parts of the Home Counties will be moving to Tier 3 restrictions, beginning from 16 December 2020 until further notice. As a result, all hospitality businesses will close other than for takeaway or home delivery services and non-essential travel into or out of the Tier 3 area is discouraged.
July -August 2020 September 2020 October 2020 • F&B permitted to reopen on 4 July • Concerns over a second wave grow • Government introduces new three-tier • Improvement as local and domestic with extensive “local lockdowns” in alert framework to address regional day visitors return, followed by gradual Scotland, Wales and the North outbreaks. London was placed in tier return of offi ce workers • Government imposes national 10pm two, the “High risk” tier, which means two or more households are not • F&B trade benefi ts from “Eat Out to F&B curfew, new “rule of six” restricting permitted to mix indoors Help Out” scheme size of groups and return to work guidance reversed • Footfall approaching 50% of pre- pandemic level Page 7 Shaftesbury Annual Report 2020 Strategic report Covid-19: Impact and response
Food and beverage, leisure and retail Offi ces After an extended period of closure, most of our restaurants, cafés, Many of our o ce occupiers are SMEs operating in the media, creative, pubs and shops reopened over the summer. They have adapted their fashion and technology sectors, and which often have direct or indirect operations to ensure e ective social distancing measures are in place, exposure to businesses which themselves have been a ected and many have adopted revised trading hours to re ect footfall signi cantly by the pandemic, such as those in retail, food and patterns. Food and beverage businesses have bene ted from the use beverage, and the performing arts. Despite this, rent collections have of outdoor seating, especially in our permanently pedestrianised been signi cantly less a ected than from our retail, food and beverage streets and courtyards in Carnaby and Chinatown, as well as in streets tenants and, accordingly, limited concessions have been granted on a where Westminster City Council granted temporary road closures and case-by-case basis. However, we have experienced an increase in time-limited permissions to use external seating. The temporary leases not being renewed, leading to growing o ce vacancy. closure by Camden Council of streets around Seven Dials outside Portfolio activity report: page 59 servicing hours is presenting the opportunity to trial a tra c-reduction + scheme. With the second UK lockdown in November 2020, virtually all Residential our food, beverage and retail premises closed, other than for takeaway Typically, our 624 apartments are occupied by those seeking a base in service, although these are now back open and trading. the West End for either work or study, and are particularly popular with Despite the improvement in footfall during the summer, many of the younger people from overseas. As a result of the rst lockdown Group’s occupiers, particularly retailers, continued to report restrictions, many tenants chose to return home, leaving ats considerably lower turnover than in normal conditions. The sustained unoccupied. With the continuing uncertainty, many chose not to return return to the healthy trading volumes across the West End will depend to the UK for the time being and vacated permanently. In these on Government decisions on social distancing measures in light of the circumstances, the Group waived any commitments under their future course of the pandemic, a recovery of con dence in the use of tenancy agreements. Where appropriate, the Group is o ering support public transport and a return to working in o ces rather than from to residential tenants to assist them in meeting their rental home. We have continued our dialogue with occupiers to agree commitments. bespoke packages of rental and other measures to support their recovery, including rent payment plans, waivers, deferrals, lease Longmartin restructuring, service charge reductions and marketing initiatives. Similar support has been granted by the Longmartin board to its food, In view of the uncertainty surrounding the timing of the return to more beverage and retail occupiers, on a case-by-case basis. normal footfall and trading conditions in the West End and continuing Government restrictions, we extended our support arrangements to Addressing fi nancing risk the end of 2020, and, for the period of the second lockdown, we The adverse operating conditions impacted our nancing arrangements provided further rent waivers. Now that London is to enter Tier 3 with interest cover covenants under pressure, reduced loan-to-value restrictions from 16 December 2020, we anticipate that further headroom, an expectation that near-term liquidity needs would have to measures to support our occupiers will be required as trading be funded by undrawn revolving facilities, upon which we were reliant conditions will be severely impacted during the important period on covenant waivers and increased re nancing risk. With nancing risk leading up to Christmas and over the New Year, having already been elevated beyond the Board’s tolerance, in November 2020, we increased disrupted by the second lockdown. The extent of any continuing our capital by £294.4 million, net of expenses, through an equity issue measures of support will depend on the duration of these restrictions, to ensure we maintain a strong nancial base, are positioned to return as well as the prospects for the rst half of 2021 and beyond. to long-term growth as pandemic issues recede and, should conditions improve, have capacity for portfolio investment. + Financing: page 67
November 2020 December 2020 Outlook • 2nd lockdown • 2nd national lockdown • Risk of further/continuing ends restrictions and protracted • Stringent social distancing recovery restrictions remain in place • Vaccine possibility • London back in Tier 2, rising to Tier 3 from 16 December • Work at home advice
Page 8 Shaftesbury Annual Report 2020 Strategic report Covid-19: Impact and response
Working with our other stakeholders Looking ahead to recovery Strategic report The importance of engaging and working collaboratively with our wide Recovery in footfall and business condence will be dictated by the range of stakeholders has been more evident than ever during this course of the pandemic in the short and medium term, and the challenging period. consequential restrictions imposed by the UK and other governments. The advent of eective vaccines will boost condence once widely We are ensuring appropriate service levels are maintained across our available and hopefully quicken the recovery, although, at this stage, it is portfolio and have developed a comprehensive strategy to safeguard too soon to predict the timing of the return of condence and footfall. commercial occupiers, residents and visitors, as activity returns to our locations. This includes supplemental cleaning, hand sanitiser points, street The pace of recovery in our villages will depend on: and footfall management and signage. Occupier and visitor • The end of tier 3 restrictions in London and surrounding areas; communications, as well as engagement with our local authorities are how quickly West End visitor volumes recover; important aspects of this strategy. • • the alleviation of social distancing measures; Unlike most other city locations, the West End is unusual in its land ownerships. Our 16-acre portfolio is part of a patchwork of long- • a recovery in public transport usage in and out of the West End, in established privately-owned estates and other corporate owners. In light of the need to maintain social distancing; addition, large areas are designated Business Improvement Districts, • a return to more-normal levels of daily oce workers in the West which bring together individual owners and their tenants. Together with End; our neighbours, we face common challenges arising from the impact of • a resumption and recovery in international business travel and the pandemic, and are collaborating on initiatives to support the recovery tourism to the West End; and of the West End. • the relaxation on restrictions which prevent or discourage leisure Working with London & Partners, the Mayor of London’s promotional visits to the West End’s visitor attractions, such as theatres, cinemas, organisation, we are part of a group of West End organisations funding galleries, museums and historical sites. the delivery of important marketing plans to encourage local and With continuing operational uncertainty for our occupiers, we expect domestic leisure visitors back to London. While travel restrictions EPRA vacancy across our portfolio to increase in the short term, which, remain in place, London’s international marketing is focused on along with availability of space across the West End, will continue to put reminding people about what makes London great to encourage them near-term pressure on rental levels and valuations. However, as footfall to visit when they are able to do so. Specically for the West End, we builds and condence recovers, occupier demand and vacancy will are collaborating with other stakeholders on a campaign, #MyWestEnd, return to more normal levels. We are already seeing enquiries for space to encourage consumers back. in our locations, but reecting current market conditions, many The pandemic period has presented challenges and opportunities for potential occupiers are currently looking for a higher specication of our team. We have focused on sta well-being, clear and regular landlord t out and greater leasing exibility. communications, investment in technology, regular consultation and We rmly believe that our support for tenants, through good times and how we can return to normal life in the recovery period. bad, is a key part of our brand and our values, and will attract occupier + Our people and culture: page 42 demand in our carefully-curated, lively locations. Support for our local communities has continued, including the establishment of a fund to support our community partners and local not-for-prot organisations, and help people aected by Covid-19 within the boroughs of Westminster and Camden, which, to date, has provided nancial and in-kind support of over £310,000. Funding for this initiative came from savings made following the Board’s decision to waive 20% of executive director base salaries and pension contributions and non-executive director fees for the four months from 1 April 2020. + Remuneration report: page 100
Page 9 Shaftesbury Annual Report 2020 Strategic report ExceptionalXxxxx portfolio in the heart of London’s West End
Since the early 1990s, we have invested exclusively in the heart of London’s West End, concentrating on iconic, high-footfall locations £3.3bn portfolio valuation1 TOTTENHAM COURT ROAD
GOODGE STREET Fitzrovia 0.9 acres 4% of portfolio2
Residential
13%
Food fi ces 20% 37% beverage £140.3m and leisure ERV3
30%
Retail
1. Combined portfolio including our 50% share of Longmartin 2. % of combined portfolio 3. Wholly-owned portfolio
Page 10 Shaftesbury Annual Report 2020 Strategic report ExceptionalXxxxx portfolio in the heart of London’s West End Strategic report
Covent Garden 5.0 acres 25% of portfolio2
COVENT GARDEN
Longmartin LEICESTER SQUARE 1.9 acres 5% of portfolio2 Chinatown PICCADILLY CIRCUS 3.8 acres Soho 21% of portfolio2 1.5 acres 2 8% of portfolio Carnaby 4.8 acres 37% of portfolio2
OXFORD CIRCUS
Page 11 Shaftesbury Annual Report 2020 Strategic report Xxxxx ce tional o t olio in the hea t o on on s est n
Exceptional portfolio in the heart of London’s West End Virtually impossible-to-replicate portfolio Our portfolio has been assembled over 34 years. The buildings we seek to acquire are typically in long-term private, rather than institutional, ownership and existing owners are generally averse to selling assets which have a long Carnaby history of high occupancy, reliable cash ow and long-term growth Valuation £1.2bn prospects. Consequently, it would be virtually impossible now to assemble and replicate a portfolio such as ours in the West End. Our largest village, Carnaby is an iconic shopping and dining destination, a few minutes from both Oxford Circus and Piccadilly Circus. om o n enefi ts o o ne shi cl ste s Famous for its history as the centre of “Swinging Establishing and extending ownership clusters in our chosen locations Sixties London”, it has reinvented itself enables us to implement a cohesive, long-term management strategy to throughout the decades oda , its streets, unlock rental and capital value potential while compounding the bene ts of the majority of which are pedestrianised for individual improvements we make, such as increased footfall and spending, most of the day, showcase international and and higher rental tones, across our nearby holdings. ritish labels, rom fl agships to independent brands and new concepts. It is also home to a t ct al im alance et een s l o an lively cluster of restaurants, cafés and bars, eman o s ace ac oss the a eas in hich centred on Kingly Court, Kingly Street and Ganton Street. e in est In the West End, listed building and conservation area legislation and local planning policies, together, limit the opportunity for large-scale redevelopment to increase the supply of new accommodation materially, esidential Food particularly at lower- oor levels. Against a backdrop of constrained supply of beverage space, there is a long history, in the West End, of good occupier demand and leisure from a wide variety of national and international occupiers for food, beverage, retail and leisure accommodation, particularly in our carefully- fi ces £58.0m curated, a ordable locations. Consequently, our portfolio has historically bene ted from high occupancy levels and growing income, which together ERV underpin the long-term prospects for rental growth.
i e se il in s ith mana ement etail e i ilit Our portfolio of mostly smaller, mixed-use buildings provides considerable management exibility. This includes the ability to improve, recon gure and repurpose space, enabling us to adapt buildings to meet current demand and anticipate future market trends in occupier requirements. hinato n Evolving the mix of uses is an important factor in the long-term growth in Valuation £0.7bn rental income and capital values. Over recent years, we have increased the number of interesting casual dining and leisure concepts in our villages Chinatown is a bustling village with a large through changes of use, repurposing less valuable retail space, extending far-eastern community at the heart of the West existing units or by acquisition. Our 317 restaurants, cafés, pubs and bars are End’s entertainment district, next to Leicester important drivers of footfall, dwell-time and trading in our villages and, at 30 Square and Shaftesbury Avenue, and close to September 2020, accounted for 37% of portfolio ERV, up from 32% at 30 Piccadilly Circus. Its large concentration of September 2010. Over that same period, the proportion of ERV from retail restaurants and cafés offers an evolving mix of has fallen from 40% to 30%. traditional and modern Chinese and pan-Asian culture and cuisines. Similarly, in recent years we have repurposed our smallest o ces, which no longer meet the needs of modern businesses, to residential accommodation.
esidential
fi ces
Food £30.1m beverage etail ERV and leisure
Page 12 Shaftesbury Annual Report 2020 Strategic report XxxxxExceptional portfolio in the heart of London’s West End
Exceptional portfolio in the heart of London’s West End Strategic report Covent Garden Soho aluation bn Valuation £0.3bn Our wholly-owned properties in Covent Garden are South of Oxford Street and between Regent Street located in Seven Dials, the Opera Quarter and the and Covent Garden, Soho is home to many Coliseum area. Seven Dials comprises a creative businesses, independent boutiques, seventeenth century network of streets, courtyards iconic restaurants, cafés, bars, and clubs. By day, and warehouse buildings radiating from the Soho offers a wide variety of independent, quirky sundial monument, which have a mix of shops, shops and is a hub for creativity with many small restaurants, cafés, bars, theatres and hotels. businesses, typically in the media, tech and To the east and west of the Covent Garden Piazza, fashion sectors. In the evening and night-time, its the Opera Quarter and Coliseum holdings have a distinctive atmosphere and proximity to the West high concentration of restaurants, cafés and bars End’s main leisure and cultural attractions, refl ecting their close proximit to ma or theatres, makes it a popular destination for visitors and the cinemas and hotels. West End’s large working population.
esidential Food esidential beverage Food fi ces £11.3m and leisure beverage ERV and leisure fi ces £35.4m ERV etail
etail
Longmartin Food Fitzrovia beverage esidential and leisure aluation bn To the north of Oxford Street and close to Tottenham Court Road, Fitzrovia is London’s oldest dining district, renowned for its abundance of small £8.8m restaurants, bistros, cafés, pubs and bars. Its large ERV residential, student and working populations add fi ces etail to the area’s buzz and cosmopolitan feel. Our ownerships are on, or close to, Charlotte Street and Goodge Street.
Longmartin Joint Venture esidential Food beverage Valuation £0.2bn £5.5m and leisure Longmartin owns a long leasehold interest in a ERV -acre cluster o mixed-use buildings, centred on fi ces St Martin’s Courtyard in Covent Garden. This offers a range of food, beverage and retail concepts, etail alongside , s t o o fi ce space and apartments.
1 Our 50% share
Page 13 Shaftesbury Annual Report 2020 Strategic report Portfolio uses
Food, 37% of our portfolio2 beverage 0.7m sq ft 317 restaurants, cafés, and leisure bars and pubs At the centre of London’s food 8 years weighted scene, the West End has a wide average unexpired lease choice of high quality, creative term3 and accessible dining experiences, from breakfast £8.2m lettings/rent 4 through to late night dining. reviews We are the largest single provider of food and beverage space in the West End, curating high-pro le and busy destinations such as Chinatown, Kingly Court and Neal’s Yard. In our experience, a strong food and beverage o ering has a halo e ect on footfall, attracting visitors, Carnaby 27% increasing dwell time and driving improved trading in our villages. Fitzrovia 5% Across our villages, we are able to provide a broad range of unit sizes, ensuring we can attract a wide spectrum of food and beverage occupiers. The majority of our restaurants provide casual dining, with a Soho 8% focus on ambience, quality and experience, often with an all-day o er. We favour mid-market and distinctive formats, often supporting new independent concepts or international entrants, rather than formulaic £52.8m chains. ERV by village Covent Restaurant tenants invest considerable sums tting out their space, Garden sometimes spending the equivalent of three to ve years’ rent and, 25% therefore, we grant longer leases than for shops, to provide an Chinatown extended period over which occupiers can amortise this cost. 35% Historically, leases were often granted over whole buildings and provided tenants with renewal rights on expiry. We nd that upper oors often can be under-utilised and, where opportunities arise, in recent years, we have sought to negotiate the surrender of these leases to secure vacant possession. This has enabled us to improve the con guration of space on the lower oors, attract new operators on more bene cial terms, and often release valuable upper oors for Typical restaurant lease terms other uses. Historical New Leases In recent years, we have also reduced the term of leases, introduced Leases more exibility at expiry and included turnover-related rental top-ups, Term 25 years 15 years giving us the higher of market rent and a percentage of sales. Before the onset of the Covid-19 pandemic, this had provided a useful Rent reviews Five-yearly, Five-yearly, contribution to both income and earnings. We believe that these upward-only upward-only arrangements will continue to deliver value when normal trading Security of tenure on Yes No conditions return. expiry + Covid-19: impact and response: page 6 Turnover-related No Yes top-up Space leases typically Whole Operational space only granted over buildings (i.e. not upper oors) Proportion of our 49% 51% restaurant leases (by ERV) Incentives N/A Contribution to occupier t out through rent-free period, and enhanced speci cation of 1. All data relates to wholly-owned portfolio 2. % of ERV accommodation, 3. As at 30 September 2020 depending on market 4. Leasing activity during the year ended 30 September 2020 conditions Page 14 Shaftesbury Annual Report 2020 Strategic report Portfolio uses
2 Retail 30% of our portfolio Strategic report A key element of the character 0.4m sq ft of our villages is the wide range 294 shops of shop sizes across the buildings and streets, from boutiques to 3 years weighted larger fl agships. average unexpired 3 Ensuring we have a fresh and di erentiated retail mix is fundamental in lease term ensuring we create and maintain distinctive locations. As with our food, beverage and leisure space, tenant selection is critical. We target brands with new concepts, or rst stores and agships, rather than £6.9m lettings/rent formulaic national chains found in shopping centres and high streets. 4 Many of our retail occupiers are independents, an important factor in making our villages distinctive destinations. There is a current trend reviews away from “fast fashion”, with shoppers in our areas preferring experience, wellness, sustainable products and brands with an ethical purpose. Of our 294 shops, 72% by number are small to medium-sized (ERV < £150,000 p.a.). This allows us to provide a variety of rental levels and Carnaby 52% retail formats, from start-ups to more established operators, while o ering retailers exibility to expand or introduce new concepts within the villages. Crucially, retail rental tones in our high-footfall and spending locations are competitive compared with nearby streets. Fitzrovia 2% We are seeing a trend for retailers requiring smaller shops. This is Soho 7% driven by a lower overall commitment in rent and t out, together with less need for storage space due to more e cient stock replacement £42.0m models. Our team is skilled in the recon guration and repurposing of ERV by village space to alternative uses, which allows us to respond to this changing demand. Retailers, particularly those exposed to structural changes in shopping Chinatown habits, nationally and internationally, are innovating and modifying their 14% strategies more quickly, to respond to ever-changing consumer trends. Consequently, our exible approach to leasing is becoming ever-more important. Our typical retail leases have always been relatively short, Covent Garden allowing us to keep the brand line-up fresh and interesting. We trial new 25% concepts through pop-ups and short-term leases. As well as adding interest to our villages, this provides the opportunity to assess performance and the value they add to our streets. Currently, we are receiving enquiries from occupiers looking to secure space in our Typical lease terms locations for the longer term, but require initial concessionary rents Smaller shops: 3-5 years and/or turnover-linked elements, gradually rising to market standard terms. Larger shops: 5-10 years We expect retail headwinds to prevail for some time and occupiers are Contribution to occupier t out through short rent-free likely to become ever-more discerning over the locations and stores period, and enhanced speci cation of accommodation, they choose. With the combination of our high footfall streets, modest depending on market conditions rents, exible approach to leasing and reputation for encouraging innovation, we are well-placed to respond to these challenges. + Covid-19: impact and response: page 6
1. All data relates to wholly-owned portfolio 2. % of ERV 3. As at 30 September 2020 4. Leasing activity during the year ended 30 September 2020 Page 15 Shaftesbury Annual Report 2020 Strategic report Portfolio uses
fi ces 20% of our portfolio2 Offi ces are an intrinsic part of 0.4m sq ft the mix of uses in our villages, 2 years weighted bringing a working population average unexpired lease which is an important source of term3 customers for restaurants, cafés, pubs, bars and shops. £2.5m lettings/rent 4 Our o ce space is generally small, a ordable, and mostly situated on reviews oors above our restaurants, cafés and shops. We can o er a range of o ce sizes, allowing our occupiers to grow within our portfolio. Typically, our o ces are occupied by small and medium-sized businesses in the media, creative, fashion and tech sectors. These have traditionally found their natural home in Carnaby, Soho and Covent Garden, and are attracted by the vibrant locations, exibility and a ordable accommodation we provide, together with the community of similar businesses in this creative part of London. Our average letting is 1,460 sq. ft. at £60 per sq. ft. (2019: £59 per sq. ft.) Carnaby 67% and average ERV is £63 per sq. ft. (2019: £65 per sq. ft.). The pandemic has accelerated existing trends in the o ce market, with occupiers increasingly requiring tted “plug and play” space and exible lease terms. Furthermore, remote working may change the way o ces are used once the pandemic recovery begins which may result in changes to space requirements. We are responding to new Fitzrovia £27.6m requirements by building on our successful trials of a exible workspace 2% ERV by village concept which includes simple leases, tted and cabled space, xed Soho 8% costs and exible terms. Our tenants’ sta already bene t from privilege cards, o ering discounts in our shops, restaurants and cafés Chinatown and we are now considering how we can introduce more amenities, for example, cycle parking facilities, showers and managed meeting room 4% space. Covent Garden + Covid-19: impact and response: page 6 19%
Typical lease terms Standard smaller o ces: 3-5 years Standard larger o ces: 5-10 years, with break options at year 5 Incentives: Market standard rent-free period. No contribution to t-out costs
1. All data relates to wholly-owned portfolio 2. % of ERV 3. As at 30 September 2020 4. Leasing activity during the year ended 30 September 2020 Page 16 Shaftesbury Annual Report 2020 Strategic report Portfolio uses
2 Residential 13% of our portfolio Strategic report Our tenants are typically 0.4m sq ft students or people working in 624 apartments London, often for a few years only, who like the convenience £6.0m lettings/rent and bustle of the West End and reviews3 the sense of community of being part of one of our villages. Our residential portfolio comprises mostly mid-market ats - mainly studios and one or two-bedroom apartments, many of which have been created from the conversion of small o ces back to their original residential use. We let our apartments unfurnished, on three-year Assured Shorthold Tenancies. These leases are exible, including rolling mutual break options after six months, and provide for annual RPI rent increases. Our experience is that, in normal times, there is a high incidence of Carnaby 19% leases that renew at the end of the term. Fitzrovia 9% Most of the value of our buildings is in the commercial uses on the lower oors. Consequently, we prefer to lease, rather than sell apartments in order to retain control over whole buildings to realise the Soho 10% long-term potential in those valuable lower oors. We have a rolling programme to upgrade our apartments. This presents £18.0m opportunities to improve environmental performance, modernise ERV by village layouts and upgrade their speci cation to ensure they remain competitive and to maintain high occupancy rates. + Covid-19: impact and response: page 6 Chinatown 24% Covent Garden 38%
Typical lease terms Three year Assured Shorthold Tenancies Let unfurnished Annual RPI uplifts Mutual break options on a rolling two-month basis after the rst six months
1. All data relates to wholly-owned portfolio 2. % of ERV 3. Leasing activity during the year ended 30 September 2020 Page 17 Shaftesbury Annual reportReport 20202020 StrategicStrategic Reportreport Xxxxx
Page 18 Shaftesbury Annual Reportreport 20202020 StrategicStrategic Reportreport Xxxxx Making a positive Strategic report contribution +
Page 19 Shaftesbury Annual Report 2020 Strategic report
Why London’s West End? London’s pre-eminent position amongst the world’s leading cities continues to underpin the long-term prospects for our portfolio, which is located in the heart of the West End, a vibrant and popular global destination.
London West End5 9.3 million 1 >200 million on on s o lation ann al isits to the est n 6 c. 23% 2 c cont i tion to o in o lation in the it o Westminster7 315 million domestic and international 3 Largest visits in 2019 evening & night time economy in the UK7 21.7 million >200 million inte national to ist isits assen e s se the si n e o n 4 to London in 2019 stations closest to o illa es8
Global appeal brings prosperity a broad In normal times, it is estimated the West End attracts in excess of 200 million visits annually, comprising Londoners, a large working population and resilient economic base of over 750,000 across a wide range of sectors, and exceptional numbers The largest city in Western Europe, London is a global creative, nancial of domestic and international tourists. Together, they provide a dynamic and commercial centre and one of the world’s most popular visitor and prosperous seven-days-a-week economy with access to an a uent, destinations. In 2019, it attracted an estimated 315 million domestic and diverse customer base, and an economy, which is not solely reliant on international visits and its economy generates 23% of UK Gross Value national conditions and prospects. In turn, this drives sustained Added (GVA). occupier demand in a market of constrained supply of commercial The city’s population is currently around 9.3 million, with growth to space which is fundamental to our portfolio’s long-term prospects. 10 million¹ by 2030. Additionally, there is a similar, and growing, population in southern England within easy commuting or visiting distance. lose to hi h ofi le locations an at the The huge numbers of people choosing to spend their time in London heart of the transport network for work, rest and play brings prosperity and gives it a broad and Our villages are all close to high pro le locations (such as Regent Street, resilient economic base which is not reliant solely on the fortunes of the Oxford Street and Leicester Square) and are at the heart of the capital’s wider UK economy. underground and bus network. The six underground stations closest to our villages handle over 200 million passengers annually. Over the longer term, our portfolio is well-placed to bene t from increased visits, spending Seven-days-a-week economy with access and changing footfall patterns expected once the Elizabeth Line is fully to an a ent i e se c stome ase operational. Whilst this has been delayed further, with the central The West End provides visitors with an all-round experience, from its section expected to be operational in 2022, when it is fully open, it will unrivalled concentration of entertainment and cultural attractions, historic bring an additional 1.5 million people within 45 minutes of the West End. buildings and public spaces, to a world–class variety of shopping and some of London’s best and most innovative restaurants, cafés, bars and clubs. It is also a location for a wide range of global, national and local businesses, ectation o et n to os e it in the and a popular place to live. This enduring appeal to a local, national and post-pandemic recovery global audience has always been the cornerstone of its economy. The broad-based economies of London and the West End have a long history of structural resilience, having weathered many episodes of 1 World population review 2020 4 Statista challenges and uncertainties. In the post-pandemic recovery, we 2 O ce for National Statistics; 5 Data in normal times, pre Covid-19 believe that these economic characteristics will underpin the return data for 2018 6 New West End Company to prosperity and sustained long-term growth. 3 London & Partners 7 City of Westminster 8 Transport for London Page 20 Shaftesbury Annual Report 2020 Strategic report
Why London’s West End? The Shaftesbury proposition Strategic report Making great places even better We adopt a holistic approach to making great places even better for the benefi t of our stakeholders, through fostering our areas and providing inspiring experiences for visitors, occupiers and their customers, and residents.
Our values are fundamental to our behaviour, decision making and the delivery both of our purpose and strategic objectives. + Our people and culture: page 42 Impossible-to- replicate portfolio By combining our strengths, culture and values, we achieve • Clustered in the busiest parts success beyond profi t to: of the West End • deliver sustainable, long-term benefi ts or our sta eholders • Focused on uses with a long and our people; history of occupier demand exceeding availability • build a thriving working culture; and • Small to medium-sized space with competitive rental levels • make a positive, long-lasting contribution to Exceptional portfolio: page 10 London’s West End. +
Experienced Long-term estate and innovative management management team strategy • Forensic knowledge of the West • Focus on sustained income End property and occupier growth markets • Adaptable portfolio with a • Skilled in adapting our buildings mix of uses and space to meet occupiers’ • Modest capital expenditure evolving needs model + Our people and culture: pages 53 to 55 + Business model and strategy: page 22
Long-term growth Responsible Low risk prospects • Sustainable reuse of buildings • Target stable long-term in- • Benefi t from London’s global • Good relationships with come and capital returns city status, scale and economic occupiers, local authorities • Prudent fi nancial and risk outlook and communities management • Exceptional locations bring • Open and inclusive culture • Tax-effi cient REIT structure long-term resilience • Effective governance and risk Financing: page 67; Tax: page 64 Why London’s West End?: page 20 + + management Environment: page 29; Stakeholder + engagement: page 35; Our people and culture: page 42; Risk management: page 71; Governance: page 81 Page 21 Shaftesbury Annual Report 2020 Strategic report
Business model and strategy Curating vibrant and thriving villages in the heart of London’s West End
Resources Strategy Through the holistic, long-term curation Exceptional of our villages we provide distinctive, portfolio welcoming environments for visitors, + See pages 10 to 13 commercial occupiers and residents. The combination of high-footfall, ever-evolving curation and competitively-priced space Experienced, which meets the needs of occupiers provides our restaurants, cafés, pubs
innovativeSee pages 53 to 55 team and shops with the ingredients to trade + prosperously. While the Covid-19 pandemic has disrupted this performance Financial resources over recent months, we believe the + See pages 67 to 69 fundamentals remain intact to return to growth once the effects of the pandemic have in all signifi cant respects receded
Underpinned by: Effective governance and risk management + See pages 71 to 77, 80 to 117 Culture and values + See pages 42 to 44 , 84 Stakeholder relationships + See pages 40 to 41
Page 22 Shaftesbury Annual Report 2020 Strategic report Business model and strategy
Investment strategy Invest exclusively in the heart of London’s Strategic report West End Creating value • Concentrating on iconic, high-footfall locations close to its major employment locations, transport hubs and through visitor attractions • Ensuring our areas remain distinctive, Establish ownership clusters lively and popular • Compounding bene ts of individual improvements across our nearby holdings • Providing visitors with an interesting Mixed-use buildings, focused on food, and enjoyable experience beverage, retail and leisure • Attracting growing footfall and • Long history of occupier demand exceeding availability of space spending • O ces and residential on upper oors • Sustained occupier demand • Ecosystem of visitors, workers and residents provides footfall and life to our areas • High occupancy + See pages 10 to 17 • Adapting to ever-changing consumer tr ends and occupier requirements • Unlocking latent value and enhancing Management strategy long-term income prospects Occupier selection • Extending buildings’ useful economic • Preference for mid-market, innovative formats, rather than formulaic national chains lives • Favour new concepts, independent operators and • Improving energy performance international brands making their UK debut + See pages 14 to 15 Modern, fl exible approach to leasing • O er occupiers greater exibility and less onerous lease commitments • Trial concepts on short leases + See pages 14 to 16 Improve, reconfi gure and repurpose space • Provide accommodation which meets current requirements Our long-term and anticipates market trends • Sustainable reuse of buildings and materials strategic objectives + See pages 29-30, 61 to 62 Our long-term strategic objectives, delivered through the combination of our resources and investment and Promoting villages to a wide audience management strategies, are: • Targeted, multi-channel marketing • Increased reach through collaboration with occupiers • Long-term growth in rents and portfolio + See pages 8 to 9, 35-37 value Improving the public realm • Grow recurring earnings and cash fl ow • Create safe and welcoming environments + See page 62 • Minimise the environmental impact Engagement with local community and of our operations Underpinned by: stakeholders • Attract, develop and retain talented people • Understand local expectations Effective governance and risk management • Good relationships with tenants, local authorities and local • Deliver sustainable, long-term benefi ts + See pages 71 to 77, 80 to 117 communities for our stakeholders See pages 35 to 37 + Together, our aim is to make a positive, long- Culture and values lasting contribution to London’s West End. + See pages 42 to 44 , 84 Near-term strategic priorities are designed with our long-term objectives in mind, rather than for short-term Stakeholder relationships gain. Value creation and success against our strategic + See pages 40 to 41 priorities and objectives are measured using KPIs, which are reflected in remuneration. + See pages 24 to 26
Page 23 Shaftesbury Annual Report 2020 Strategic report
Measuring our performance We use a balance of financial and non-financial metrics to measure our performance. These include both long-term performance and operational measures, aligned with our long-term strategy. A number of these metrics help determine executive and staff remuneration. Performance in the current year, inevitably, has been dominated by the effects of the Covid-19 pandemic.
Alignment with strategy and link to remuneration
Strategic objectives to deliver a positive, long-lasting contribution to London’s West End
1 2 3 4 5 K Long-term growth Grow recurring Attract, develop Minimise Deliver sustainable, KPI in rents and earnings and and retain environmental long-term benefits portfolio value cash flow talented people impact for our stakeholders R Remuneration
+ Business model and strategy; pages 22 to 23 Total Shareholder Return (%) Total Accounting Return1 (%) EPRA NAV1 growth (%) Shaftesbury Shaftesbury Shaftesbury 1 2 3 4 5 K R Benchmark 1 2 3 4 5 K R Benchmark 1 2 3 4 5 K R Benchmark 13.5
8.9 8.7 7.2 6.9 6.3 5.8 5.4 7.5 5.3 5.0 6.5 6.9 3.8 4.1 4.1 3.6 4.1 2.5 2.2 2.4 0.8 1.0 -0.9
-9.9 -9.4 -16.9
-44.7 -23.4 -24.3 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Measures shareholder value creation, taking Overall measure of performance, taking into Traditional real estate measure of valuation into account share price movements and account growth in EPRA NAV plus dividends creation. For our LTIP, we benchmark dividends in the period. We benchmark paid, as a ratio of EPRA NAV at the start of three-year growth in EPRA NAV on an against the FTSE 350 REIT Index. the period. For the benchmark above, we absolute basis against RPi+3%. In 2020, our TSR was -44.7%, 27.8% below use a market capital-weighted index of FTSE Remuneration report: page 107 the benchmark, reecting the decrease in 350 REITs. + Following valuation declines, EPRA NAV our share price during the year, which was In 2020, TAR was -23.4%, largely due to the decreased by 24.3% this year, largely fuelled by the impacts of the Covid decline in our property valuations, driven by underperforming the benchmark (+4.1%). pandemic on the West End. the impact of the pandemic. The nal For 2021, we will adopt the new EPRA NTA Covid-19: impact and response: page 6 dividend in respect of 2019 (9.0p per share) + forms part of the return. metric rather than EPRA NAV. In 2020, Performance over three years relative to the EPRA NTA and EPRA NAV were the same. Portfolio valuation report: page 56 benchmark is a measure in the LTIP scheme. + Financial results: page 63 Remuneration report: page 107 For our LTIP, we measure TAR over three + Portfolio valuation report: page 56 + years relative to the benchmark. + + Remuneration report: page 107
Page 24 Shaftesbury Annual Report 2020 Strategic report Measuring our performance
Rental growth Income Strategic report Commercial leasing vs ERV2 (%) Like-for-like ERV growth2 (%) Net property income (£m)
1 2 K R 1 2 K R 1 2 K R 98.0 7.7 93.8 6.7 88.3 84.1 74.3 5.1
3.2 6.4 3.4 3.2 0.8 2.6
-6.6 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
Our strategy has delivered growth in Measures growth in the rental potential Growth in net property income is a key driver annualised current income and rental values of our wholly-owned portfolio. In previous of earnings and dividends. This year, it over many years. Through our leasing years, we included our 50% share of decreased by 24.2% to £74.3 million largely activity, we convert previously assessed rental Longmartin in these gures on a due to rent waivers and Covid-19 related potential into contracted income, whilst proportionally consolidated basis. This year, charges for expected credit losses and establishing new rental levels which provide we have presented the information for the impairment. The relative increases in rental evidence for leasing negotiations and for wholly-owned portfolio only, in line with our income and associated property outgoings our valuers in assessing ERVs. reporting on valuations and our remuneration are assessed as a bonus metric. In 2020, the While leasing activity was considerably lower metrics. The comparatives have been ratio of property outgoings to rental income than normal during the year, commercial restated accordingly. (before the charges noted above) decreased from 16.5% to 15.9%. leasing transactions were concluded 0.8% + Portfolio valuation report: page 56 above ERV at September 2019. + Financial results: page 63 Portfolio activity report: page 59 Like-for-like ERV growth is an annual bonus Remuneration report: page 108 + metric. In 2020, it was -6.6% with the + Wholly-owned portfolio leasing performance impact of Covid-19 increasing vacant space against previous year ERV is a performance across the West End and reducing criterion for the annual bonus. near-term occupier demand, putting pressure on rental values. + Remuneration report: page 108 + Remuneration report: page 108
Occupancy Energy performance Quarterly average underlying Weighted average vacant period2 % of demises with EPC rating A-E 2 EPRA vacancy (%) 1 2 K R (months) 1 2 K R 1 4 5
6.3 4.5 81 83 74 78 67
2.5 2.6 2.9 3.1 2.3 1.5 1.9 1.2
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 High occupancy and letting property quickly are key factors in sustaining good cash ows from Improving the energy performance of our our portfolio. In 2020, EPRA vacancy increased from 3.2% to 10.2%, due to the impact of the space is an important factor in minimising Covid-19 pandemic, including a reduction in leasing activity, space handed back by commercial the environmental impact of our tenants and an increase in vacant apartments. Consequently, quarterly average underlying EPRA operations. We aim to improve energy vacancy - a measure for the annual bonus - was up from 3.1% to 6.3%. performance with each refurbishment scheme. This year, the number of The average time that space has been available-to-let during the year, weighted by the ERV of demises with an EPC rating of at least E that space, also is a measure for the annual bonus. This year, it was up by 1.9 months to 4.5 has increased by two percentage points months, with the Covid-19 pandemic adversely impacting occupier demand. to 83%. Portfolio activity report: page 59 + See page 29 + Remuneration report: page 108 + 1 Alternative performance measure 2 Wholly-owned portfolio 3 Excluding exceptional larger schemes
Page 25 Shaftesbury Annual Report 2020 Strategic report Measuring our performance
Financial management Loan-to-value1,3 (%) Blended cost of debt2,3 (%) Interest cover3 (x) 5 2 5 2 5
26.7 31.5 2.7 4.5 2.6 2.3 24.1 23.9 2.1 1.9 22.6 3.2 3.2 3.2 2.9
2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020
We operate with conservative leverage levels with long-term xed interest arrangements forming the core of our debt nance. In 2020, our loan-to-value ratio increased to 31.5%, predominantly due to an 18.3% like-for-like decrease in the portfolio valuation. Since 30 September 2020, we increased our nancial resources by £294.4 million through an issue of equity. On a pro forma basis, our loan-to-value ratio decreased to 22.1%. The blended cost of debt reduced from 3.2% to 2.9% during the year, following drawings made on our revolving credit facilities, which had a lower marginal cost than our existing long-term borrowings. However, with net property income decreasing due to the impact of the Covid pandemic growing, operating prot before investment property disposals and valuation movements decreased from £82.8 million to £59.9 million, leading to a decrease in interest cover to 1.9 times. + Financing: page 67; Financial results: page 63
Other operational measures In addition to our KPIs, other operational metrics we monitor in assessing the performance of the business include:
Portfolio management 2020 2019 Growth in annualised current income 1 + See page 57 (6.4)% 2.4% Reversionary potential 1 + See page 57 27.7% 27.8% ERV of space undergoing refurbishment 1 5 + See page 61 10.1% 10.4%
Our people 2020 2019 Sta retention 3 + See page 43 92% 97%
Financial 2020 2019 EPRA earnings per share³ 2 + See page 63 9.6p 17.8p
Sustainability and stakeholders 2020 2019 GRESB rating 4 R K + See page 28 64% 75% EPRA Sustainability BPR rating 4 R K + See page 28 Gold Gold London Benchmarking Group contribution as a % of EPRA earnings 5 + See page 4 2.9% 1.5%
1 Based on net debt 2 Including non-utilisation fees on undrawn bank facilities 3 Alternative performance measure Page 26 Shaftesbury Annual Report 2020 Strategic report
Sustainability Strategic report We are committed to being a responsible business. For us, that means investing for the long term, continuing to support our local communities and operating in an environmentally sustainable manner.
At the heart of our sustainability strategy is the long held policy of UN Sustainable Development Goals and reducing the environmental impact of our operations by extending the useful economic lives of our buildings, through refurbishment, change Global Compact of use and recon guration. This enables us to protect the unique We support the ten principles of the UN Global heritage of the West End whilst improving the energy e ciency of our Compact on human rights, labour, environment and buildings and minimising the carbon emissions and waste that inevitably anti-corruption. We became a signatory in February come with new construction. 2015 and have since annually reviewed and updated our Sustainability Policy to re ect our commitment. Our corporate values recognise the importance of being community- We have identi ed the Sustainable Development minded. As a responsible, long-term investor in our areas, being a good Goals that are most relevant to our business, neighbour and focusing on local issues is essential. We work with local integrating them into our sustainability policies and targets. Our charities and not-for-pro t organisations to help them address these Sustainability Data Report, which is available on our website, contains challenges. By partnering with grassroots operations, we can rely on our UN Global Compact Communication on Progress. their expertise to maximise the value of our support.
Embedding sustainability in our business Sustainability is embedded into our business and considered in major strategic and operational decisions. To continually improve environmental performance across our operations, we set annual targets and communicate our sustainability policies to our wide range As a society, we’re at a crossroads for sustainability. The impact of of advisors, suppliers, occupiers and stakeholders. We believe that climate change, biodiversity loss and social inequality is being felt good governance also includes transparency and our Sustainability across the world. In response, governments, communities and Policy is available on our website. This policy details our minimum businesses are taking action. expectations, our reporting requirements, and sets out annual performance including energy, carbon, water, waste and material use. As a responsible business, we are committed to making a positive impact. This is the right thing to do for our planet, our stakeholders and This year, we recruited a Head of Sustainability, who is responsible for our business. setting and coordinating our strategy. We have a Sustainability Committee, chaired by our CEO, at which sta from across the business consider We utilise the full reach of our operations, our in uence over partner all aspects of sustainability and review our policies. Our external organisations and the unique pro le of our villages to achieve sustainability advisor attends committee meetings to provide meaningful environmental and social outcomes. We believe that small independent review and analysis. actions add up and through our relationships we can have more impact than acting alone. Community engagement activities are coordinated by the Community Investment Committee, ensuring that we have a fair and consistent With much achieved to date, in 2021, we will take our sustainability approach to the allocation of funds and in-kind support. aspirations to the next level. We will commit our business to long-term targets on carbon emissions and to continue working with our Our sustainability strategy, policies, action plan and overall performance partners to make progress against the UN Sustainable Development are reviewed and considered annually by the Board. Progress against the Goals (SDGs). strategy and material changes to sustainability related risks, including climate change, are considered by the Risk Committee and the Board. As the demand for ethical consumption grows, we want to be the destination of choice for sustainable businesses in the West End. + Community activities: pages 36 and 37 The pandemic has had a serious impact on our business, but our + Environmental activities: page 29 commitment to sustainability remains as strong as ever.
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Main heading and baseline of body copy Modern Slavery and human rights without heading Sustainability Data Report We have policies in place which address human rights, modern slavery A full update of progress against our sustainability targets and and the ethical conduct of our business. Our sustainability policies and Second line of main heading and baseline associated data for the year ended 30 September 2020 can be our Supplier Code of Conduct are provided to our key suppliers, who for copy with main heading found in our Sustainability Data Report which is available on are required to adhere to the same high standards we set for ourselves. our website. We have signed up to the Living Wage Foundation and require that workers in our supply chain are paid at least a London Living Wage. Our Modern Baseline of copy with two line heading Slavery Statement, updated in January 2020, is available on our website. Industry recognition and awards We participate in a range of benchmarks to help guide our sustainability Health and Safety strategy and provide independent veri cation of our progress. Our Board has overall responsibility for health and safety. In our refurbishment projects, responsibility for health and safety is identi ed in all pre-tender documentation and is monitored by site and project managers. Managing agents oversee day-to-day health and safety matters throughout the portfolio. There were no reportable health and safety incidents in the portfolio during the year. The accident frequency rate for employees was zero (2019: zero) and there were no health and safety prosecutions, enforcement actions or fatalities.
Our material issues Our approach to sustainability is based on a clear understanding of the issues that are most relevant to our stakeholders and an appreciation of the environmental and social impacts of our operations. During 2020, we undertook a further review of our sustainability priorities. This initial exercise comprised sta interviews, desktop We have increased our scores with FTSE4Good (95th percentile) and analysis and conversations with our contractors and managing agents. maintained our EPRA Gold status for a 3rd year and CDP score (B). We The research highlighted several key priorities: are also pleased that our sustainability performance has been recognised by our inclusion on the European Dow Jones Sustainability Index in • Continue with our community engagement, focusing on young people 2020, one of only ve companies in the UK Real Estate sector. and our local communities in Westminster and Camden through grassroots organisations. We have seen an overall reduction in our GRESB score. This is due mainly to changes in GRESB scoring methodology and the challenge of submitting • Continue our policy of protecting and re-using buildings to maintain asset level data now required across our portfolio of 600 buildings. the heritage of our villages whilst minimising carbon emissions. • Set ambitious targets to reduce our carbon emissions (operational Industry collaboration and embodied) and continue to improve the energy e ciency of our We continue to actively participate in a range of industry groups, to portfolio. share experiences and promote the adoption of best practice • Clarify and clearly communicate our exposure to climate risks. for sustainable real estate. • Continue to increase the area of green space across our portfolio Principal industry memberships include the Better Buildings Partnership, and work with peers through the Wild West End. London Benchmarking Group and the Westminster Property Association. • Engage with our occupiers and supply chain and use the public pro le We also continue to be an active member of the Wild West End initiative, of our villages to promote sustainability. a partnership with neighbouring estates and business groups to improve biodiversity across the West End. In 2021 we will continue to develop our materiality analysis, ensuring that our sustainability strategy is aligned with the needs of our business We continue to build partnerships with our occupiers, including and expectations of our stakeholders. initiatives like the Blue Turtle scheme, through which more than 35 of our Carnaby restaurants and bars pledged to reduce single use plastic and their impact on ocean health.
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Environment Strategic report Our most significant impacts on the environment are primarily from the day-to-day operation of our buildings but also from our refurbishment projects.
Our environmental strategy is built on the principle of extending the useful lives of our heritage buildings. Re-using and enhancing existing Energy, water and greenhouse gases Our direct energy consumption is relatively small as it only buildings, rather than demolition and redevelopment, is fundamentally encompasses the common areas of our buildings. On a like-for-like the most sustainable approach; increasing energy eciency whilst basis, electricity consumption has dropped by 16% during the year, avoiding carbon emissions and use of materials associated with new continuing our recent downward trend. This is due, in part, to the construction. Our recent refurbishment project at 50 Marshall Street, impact of our programme of refurbishments such as the installation described on page 30, exemplies this approach. of low energy lighting across the portfolio, but also reects a reduction Through our programme of low carbon refurbishments, we preserve in usage as Covid-19 has limited building occupation during the year. our buildings, protect the character of our areas and increase We continue to purchase electricity sourced from renewables across biodiverse green space. all of our wholly-owned portfolio, including our Carnaby Christmas decorations. Excluding the impact of purchasing renewable electricity, Performance update we have still seen our greenhouse gas (GHG) emissions intensity drop We have continued to make good progress against our environmental by 7.7% from the previous year. These emissions relate to our direct targets in a year that has inevitably been signicantly impacted by the combustion of gas, refrigerant losses (scope 1) and purchased Covid-19 pandemic. A comprehensive report on our sustainability electricity (scope 2). Further details are included in our energy and performance can be found in our Sustainability Data Report on our carbon statement on pages 116 and 117. website. Our water consumption only relates to common parts and remains relatively low. Overall consumption has reduced by 24% during the year, BREEAM much of which can be attributed to reduced occupation of our space In order to meet environmental standards for good building design and during the pandemic. operation, we follow BREEAM (Building Research Establishment Environmental Assessment Method) principles when refurbishing a 100% renewable energy for our wholly-owned portfolio building. For all refurbishment projects with a value over £1 million, we aim to achieve a minimum BREEAM certication of Very Good. Since 11% reduction in absolute electricity use we introduced this requirement, we have had 20 schemes certied, extending to approximately 10% of the portfolio. 7.7% reduction in carbon emissions intensity
EPCs All buildings, other than listed buildings, are required to have an Energy Waste Performance Certicate (EPC) to demonstrate their eciency. Under The total volume of waste we collect across our portfolio has reduced the Minimum Energy Eciency Standards (MEES) regulations, all by 42%, primarily due to lower footfall attributable to Covid-19 demised areas are required to have an EPC of grade E or above. restrictions. However, the percentage of waste recycled has reduced As at 30 September 2020, 83% of properties were A to E grade (c. 1,278 by 3%, most likely as a result of single-use products, such as coee demises), an increase from 81% last year. All our residential properties cups, making up a relatively larger proportion of waste in the year now satisfy the MEES regulations. A small number of properties are The amount of waste from refurbishment projects is minimised by exempted either because the buildings are listed or the costs of doing reusing materials whenever possible. Where this is not feasible, material the works are prohibitive and would be too disruptive to occupiers. is sent to waste transfer stations which operate a zero waste to landll For commercial properties, there is a requirement that all properties policy, where possible, achieving a combined total score of 88% should be at least a grade E by 2023. As part of the ongoing diverted from landll. This year, the majority of waste sent to landll refurbishment programme, when they become vacant, we will came from our 72 Broadwick Street scheme, which had an element undertake works to improve their ratings or we will work with tenants of contaminated waste material. to meet the requirements of the regulations. 42% reduction in waste
A-E 9% F&G 8% Unassessed
1,544 demises
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Main heading and baseline of body copy Valuing natural resources without heading We signi cantly reduce our environmental impact by minimising the use of new materials in our refurbishment projects and responsibly Second line of main heading and baseline sourcing, when new material is required. 98% of our timber is from sustainably certi ed sources and the remaining small amount is for copy with main heading sourced in line with EU Timber Regulations. Baseline of copy with two line heading Retaining and reusing buildings’ façades and primary structures is an important feature of our refurbishment schemes. During the year ended 30 September 2020, we achieved over 85% retention and reuse, across our schemes. A full breakdown of our environmental impact can be found in the Sustainability Data Report on our website.
Action on climate change We recognise the need to take urgent action on climate change, setting ambitious targets for reducing our carbon emissions and making sure that our business is resilient to climate-related risks. The built environment accounts for approximately 40% of the UK’s carbon emissions and will play a signi cant role in the UK meeting its 2050 net zero carbon target and commitments under the Paris Agreement. It is also estimated that over 80% of current buildings will still be in use in 2050, and many of our buildings have been standing more than 150 years already. Therefore, the low carbon retro t of current buildings will play a critical part in the process. We have set annual carbon reduction targets for our own direct emissions (scope 1 & 2) and are calculating longer term targets (10 years) that re ect the emissions reductions that scientists agree are needed to limit the worst impacts of climate change. These are referred to as Case study: being ‘science based’ and we have submitted our targets to the Science Based Targets Initiative (SBTI) for external validation. We are continuing to improve the energy e ciency of our buildings and 50 Marshall have the opportunity to support and positively in uence the behaviour of our occupiers and contractors. Therefore, we consider it important that our medium term targets include emissions relating to our Street occupiers’ energy use and those attributable to our refurbishment projects. These are scope 3 emissions. Actions on climate change we have taken to date include: Shaftesbury’s approach to the preservation • Setting operational carbon emissions reduction targets for our and enhancement of existing buildings has portfolio. been demonstrated this year with the • Establishing a comprehensive carbon emissions baseline (2019) to refurbishment of 50 Marshall Street, a project include tenants’ energy use in our buildings. now close to completion. • Purchasing renewable electricity for our own supplies. However, we The building was constructed in the early 1980s, extending to don’t see this as a long-term solution as it is not increasing the overall 819m2 over 5 storeys. The reinforced concrete frame structure renewable energy capacity of the grid. had relatively small oor plates and, at an EPC rating of G, it • A rolling programme of energy e cient retro ts. We target a minimum was no longer t for purpose as a modern space. of BREEAM Very Good rating on all projects with a value above £1m. Working in partnership with our project manager and • Undertaking research into the embodied carbon of a typical Architect, the original structure and much of the façade was refurbishment project to better understand our emissions and identify retained, saving considerable carbon emissions and continuing reductions opportunities. to lock up carbon from the 1980s. • Undertaking an initial review of our climate change risks. The oor plates were expanded and an additional oor added, along with a biodiverse green roof that will be accessible for all the occupants. The energy e ciency of the building will improve dramatically. Improved glazing and low energy lighting, along with the addition of heat pumps, will enable this all-electric, naturally ventilated building to achieve an EPC level of B. We are also targeting a minimum of BREEAM Very Good with an aspiration to increase this to Excellent as the project completes.
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Greening our portfolio Strategic report Increasing green space across our portfolio has a wide range of bene ts. Aside from supporting wildlife, integrating nature can help limit the impacts of climate change, improve air quality and make the portfolio more attractive. London is home to greater breadth of wildlife than many people realise, with an estimated 14,000 species having been recorded living amongst its buildings, streets and parks. Studies also show that connecting with nature can reduce stress and boost wellbeing. We continue to seek every opportunity to increase biodiversity across our portfolio, this year achieving a further 9% uplift in area. We have already exceeded our 5-year plan target (set in 2016), increasing biodiversity by 70% (target: 50%).
9% annual increase in biodiversity.
Biodiverse space has increased 70% since 2016
We have continued our partnership with other local landowners through the award winning Wild West End initiative. This enables us to share in best practice and play our part of creating wildlife corridors through the West End by connecting green spaces owned by di erent landowners. By working in partnership we can have a greater impact than working alone.
Air quality Improving air quality across our portfolio remains critically important to Case study: support people’s health, promote green transport and encourage visitors. We have partnered with other major West End landlords to consolidate deliveries, reduce vehicle movements and improve tenant engagement. In Seven Dials, we are working with community groups and the council The journey to to reduce tra c and improve the area for walking and cycling. At the start of 2020, a workshop with local groups identi ed a way forward, and Camden COVID Safe Travel initiative has seen the area experience 100% pollinator lower tra c levels and improved air quality. We will continue our proactive work with all local partners and the local community in 2021 to drive long-term improvements in air quality across London based friendly planting on what we have learned during the pandemic.
Looking ahead We are committed to protecting and increasing In the coming year, we have a number of strategic sustainability biodiversity across our estate, and in 2016 we set priorities: an ambitious ¢ ve-year target to increase biodiverse • Develop our sustainability strategy to re ect the unique nature of space by 50%. The majority of our portfolio consists our business and the positive impact that we can have on all our of buildings which sit on the public highway and stakeholders; many of our roofs are taken up with industrial plant, • Set an ambitious and transparent net zero carbon target based on therefore we have had to think outside the box. a comprehensive understanding of our portfolio and our emissions reduction strategy. Across our portfolio we have 1,245 window boxes, 124 planters and 46 hanging baskets bringing splashes of colour to the Continue our focus on building reuse and a commitment to • streets. Our traditional selection of plants, such as begonias, understand more about the embodied carbon bene ts of retaining look great from the pavement but unfortunately aren’t buildings; particularly attractive or bene cial to pollinating insects. • Continue to invest in green infrastructure and set a new medium-term As we add more habitat for insects, such as natural log piles biodiversity target; or the bee hives located on our roof tops, we need to ensure • Develop our climate risk reporting in line with the recommendations that we also provide su cient local food sources. of the Task Force on Climate-related Financial Disclosures (TCFD); In 2019 we trialled 100% pollinator-friendly window boxes in • Continue to improve data collection across our portfolio; and Newburgh Street in Carnaby. The plants had a more natural • Take action to improve water management, where we have control. colouring whilst also providing a critical food source. Based on the success of this trial, in 2020, all the window boxes, planters and hanging baskets have been planted with 100% pollinator-friendly species. We have achieved our 5-year target early, with a 70% increase in biodiverse space since 2016. We will continue to look for new opportunities to bring nature to the streets of the West End.
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Main heading and baseline of body copy without heading Making a Second line of main heading and baseline positive for copy with main heading contribution Baseline of copy with two line heading +
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Main heading and baseline of body copy without heading Non financial in o mation statement Second line of main heading and baseline for copy with main heading
Baseline of copy with two line heading We are not required to comply with the non-nancial reporting requirements contained in sections 414CA and 414CB of the Companies Act 2006. However, the table below, and information to which it refers, is intended to help stakeholders understand our position on key non-nancial matters. This builds on existing reporting that we already do under the following frameworks: Carbon Disclosure Project, Disclosure and Transparency Rules, Guidance on the Strategic Report (UK Financial Reporting Council), UN Global Compact, UN Sustainable Development Goals and UN Guiding Principles.
Reporting Policies and standards which requirement govern our approach1, 2 Website information Further information in this report
Sustainability policy and action plan https://www.shaftesbury.co.uk/en/ For more on sustainability, see pages Environmental sustainability/our-approach.html 27 and 28 matters Requirements for management of the portfolio https://www.shaftesbury.co.uk/en/ For more on how we protect the Requirements for refurbishment sustainability/environment.html environment, see pages 29 to 31 projects For more on greenhouse gases, Supplier code of conduct see page 116
Anti-bullying and harassment policy https://www.shaftesbury.co.uk/en/ For more on our culture, values and Employees Board diversity policy sustainability/community/people. people, see pages 42 to 45 Data protection policy html For more on diversity and inclusion, Disability policy see pages 44 and 95 Equal opportunities policy Sustainability action plan Sustainability policy Health, safety and wellbeing policy
Sustainability action plan https://www.shaftesbury.co.uk/ For more on modern slavery and Human rights Sustainability policy en/sustainability/modern-slavery- human rights, see page 28 Modern slavery and human tracking statement.html statement Supplier code of conduct
Community Investment Committee https://www.shaftesbury.co.uk/en/ For more on our stakeholder Social matters terms of reference sustainability/community.html relationships, see pages 35 to 41 Sustainability action plan For more on our Covid-19 Community Sustainability policy Fund, see pages 46 and 47 Payment of suppliers policy For more on sustainability, see pages Supplier code of conduct 27 and 28
Bribery and anti-corruption policy https://www.shaftesbury.co.uk/ For our audit committee report, see Bribery and en/investor-relations/corporate- page 97 anti-corruption Money laundering policy Share dealing policy governance.html For more on modern slavery and Supplier code of conduct human rights, see page 28 Whistleblowing policy For more on our behaviours, see page 89
https://www.shaftesbury.co.uk/en/ For more on our strategy and Business model about-us/how-do-we-add-value. business model, see pages 22 and 23 html
https://www.shaftesbury.co.uk/ For our risk report, see pages 71 to 77 Principal en/investor-relations/corporate- risks and governance/principal-risks-and- uncertainties uncertainties.html
For more on non-nancial key Non- performance indicators, see pages financial key 24 and 25 performance indicators
1. Certain group policies and internal guidelines are not published externally 2. Further information is available on our website, including our Supplier Code of Conduct and our Sustainability Policy
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Non financial in o mation statement Stakeholder engagement Strategic report We are committed to engaging with our stakeholders and building long-term relationships founded on respect, integrity and transparency. Through fostering our relationships and collaboration, we aim to make a constructive difference and deliver a positive long-lasting legacy for London’s West End.
Our approach to our engagement and activities undertaken throughout the year can be seen below. More information on engagement with employees and shareholders can be found as follows:
Our people and Monitoring Consideration Section 172 Relations with culture of culture and of remuneration Statement shareholders See pages 42 to 45 engaging with and related + See pages 40 and 41 + See page 89 + employees policies below + See page 84 the Board + See page 102
Occupiers During the rst UK lockdown, we initiated promotional campaigns to Our long-term strategy has always recognised the importance of maintain awareness of our villages and services provided by our creating prosperous environments for our commercial occupiers occupiers. Our marketing team collaborated with occupiers on social as well as amenity for local residents. media campaigns and online events. These included “Bringing Chinatown Home”, “Seven Dials @ Home” and “Carnaby Together”, with Maintaining a continuing dialogue with our occupiers enables us to programmes of unique digital content to entertain, educate and inform better understand their priorities and challenges as their businesses consumers and local residents. In addition through our community grow and evolve. Occupier prosperity, particular for our food, beverage portals and direct communications we have worked to provide and retail tenants, is important to our long-term success. A key aspect practical support and guidance to our residential occupiers. of our management strategy is the careful selection of these occupiers, focusing on what makes each village distinct and looking for interesting concepts which will bring footfall to our areas. A food, beverage or retail occupier’s journey often with us starts with an interview so we can understand their business model and assess how their brand or concept will add value to our villages. This is the start of a relationship, which, similarly to our oce and residential occupier relationships, continues and evolves as our occupiers’ needs change.
Engagement and activities during the year During the year we undertook an occupier survey across Carnaby to understand the need for any further communal amenities and the importance of sustainability and wellness for our occupiers, which is helping inform our strategy. Following a successful trial in Seven Dials in 2019, this year, we launched tenant portals for Carnaby, Soho and Chinatown to improve direct communication with our occupiers. The portals provide occupiers with regular updates on Government guidance, key information relating to the villages as well as upcoming events. In addition, the portals assist with turnover data collection and, in Seven Dials, provide regular footfall information. This year, the impact of continuing Covid-19 restrictions and evolving Government guidance has led to intensive engagement to discuss the nancial support as well as non-nancial initiatives such as marketing and social media campaigns we could oer. We have reduced service charge expenditure, where safe to do so, during the lockdown periods. From October 2020, we have provided the option for commercial occupiers to be invoiced and pay rent and service charge monthly, rather than quarterly in advance, better aligning our revenue collection with their cash ows.
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Main heading and baseline of body copy In preparation for the relaxation of the lockdown, we worked with accommodation, advice and time given by employees. We often link without heading our occupiers to ensure returning sta and visitors could do so safely, our community support with marketing events so that community implementing social distancing guidance, providing hand sanitisers and groups are able to leverage from these activities, to raise awareness Second line of main heading and baseline installing signage throughout the villages and within our buildings. and the prole of their organisation. This year, including our Covid We also promoted our retailers and our F&B tenants’ alfresco dining Community Fund, our nancial, in-kind and employee time for copy with main heading o ers through social media, across our villages with campaigns such contributions totalled £866,000. as “Love Chinatown” and “You are Brilliant” in Chinatown and Carnaby Baseline of copy with two line heading respectively. We have also created bike hubs in Seven Dials and Carnaby to support our clean air strategies and provide an additional Management amenity for local workers and visitors costs 10% Always keen to nd and support new concepts, at the end of September we launched the “Start Up with Seven Dials” o er to provide brands starting up during lockdown with a physical space within Seven Dials, including support from retail experts. Local residents are an important part of the community and we are In-kind How Cash 51% seeking ways to improve how we engage with them on initiatives that contributions might a ect the areas in which they live. Looking forward into 2021, of space 31% the focus of our engagement will be making sure occupiers are better aware of our plans and priorities and encouraging them to be part of our conversations with the local community. Time 8% Community We aim to use our expertise, resources and inuence for wider public benet. We work with a range of partners including non-for prot Other 7% Education 11% organisations, charities, educational establishments and other local community groups, recognising that our long-term support enables Health 8% them to make a di erence through their activities. In considering initiatives a ecting our local area, we seek to engage Emergency with residents and other community groups for their views. In the relief 24% Environment 13% year ahead we will be developing our engagement to ensure we better What communicate with our local communities to explain work we are doing, show them how we can help and encourage them to work collaboratively with us. Arts/culture 9% The Community Investment Committee, chaired by one of our Social welfare 28% Property Directors, oversees our programme of community investment and activity. Our support takes a variety of forms, including nancial and in-kind donations through provision of short and long-term
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Engagement and activities during the year In addition, to help ensure that our communities remained connected, We have a range of community support activities across our villages. we ran a number of digital campaigns, including #CarnabyCares, across Strategic report As part of our programme we nance a daytime outreach worker from our village social media channels and websites which promoted the The Connection at St Martins, a homeless charity which focuses on wide range of projects initiated by our occupiers across our villages. help for rough sleepers. We are a founding member of the House of These included support for the NHS and key workers, and promotion St. Barnabas and support their employability programme which helps of free well-being oerings. homeless people into work. In Chinatown, we fund a part-time advice worker at the Chinese Advisors, contractors and suppliers Community Centre, who helps the Chinese speaking community with Shaftesbury operates an out-sourcing model. Our small team of 39 a wide range of issues. In addition, we support the Chinese Health and employees is supported by a range of external advisors across various Wellbeing Clinic, which deals with physical and mental health. Across property and corporate disciplines. Operating in a small geographic our other villages we contribute to a range of activities, including a area, we have always believed that access to the wider knowledge and grassroots community centre at the Dragon Hall Trust and, sponsoring experience of advisors across their elds of expertise is of considerable the Donmar Theatre. As part of Silver Sunday we co-sponsored the long-term benet to the business. Our relationships with advisors are Westminster Tea Dance for senior citizens and we helped pay for 1,000 generally long term, based on mutual trust and respect. We value the afternoon tea gift boxes to elderly and isolated people in Westminster. contribution they make; our approach is collegiate, listening to and learning from them through open, constructive dialogue, rather than Supporting organisations which have a specic local expertise means simply directing them to carry out our instructions. Some advisors, that we can have more impact than acting alone. We partner with the such as managing agents or project managers, may operate with Young Westminster and Young Camden Foundations in their work to delegated authorities, but in general, all decisions of any signicance support young people across the boroughs. At Westminster Kingsway remain with our in-house team. College, our partnership since 2014 has enabled a number of educational projects for students in the Creative Arts Faculty. This Day-to-day operations across our portfolio are the responsibility of year’s project involved students designing a tote bag. Responding to a external managing agents, who on our behalf procure contractors and commercial brief set by our marketing team which challenged them to suppliers and other specialists to service and maintain our buildings, take inspiration from Seven Dials, and research of the area. Providing liaising with occupiers as a rst point of contact. We engage project valuable practical experience, shortlisted students presented their managers to oversee refurbishment projects, who similarly suggest ideas to our marketing team who gave feedback for the students to and procure professional advice and building contractors to deliver build on. We have continued our long-term relationship with Soho the schemes. Parish Primary School and this year we contributed to their new Environment 13% As well as expecting our advisors, contractors and suppliers to comply website in addition to the provision of laptops and food vouchers with standards and codes that may be specic to their industry, we provided through our Covid Community Fund. require them to adopt our standards of behaviour in relation to the As a result of the pandemic, many of our community partners’ environment, the community and employees set out in our Supplier traditional sources of funding have been reduced and often there has Code of Conduct. These relationships are usually covered by clear been additional demand on the services they provide. In March 2020 contractual arrangements, which dene the rights and obligations we established our Covid Community Fund, to provide them with of each party. We are signatories to the Prompt Payment Code with additional nancial support. our Payment of Suppliers Policy available from our website. To ensure that our suppliers and their employees feel safe to raise any concerns, + Covid Community Fund: pages 46 and 47 we have a whistleblowing policy and helpline. Engagement and activities during the year Our team is in regular, often daily, contact with our external advisors. Working centrally within our portfolio, we aim to respond quickly to issues as they arise with clear instructions based on the advice we receive, our own experience and wider stakeholder consideration. Inevitably, the pandemic has presented challenges across all aspects of our business, which has required even greater engagement with our advisors to address a range of issues aecting our commercial occupiers and their businesses, residential tenants, suppliers and contractors throughout the lockdown and reopening period.
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Main heading and baseline of body copy Local authorities, neighbouring landowners Finance providers without heading We maintain good, open relationships with our nance providers. and West End tourism partners Working with Westminster City and Camden Councils, we identify and Second line of main heading and baseline contribute to a wide range of matters through regular dialogue. This Engagement and activities in the year ended 30 for copy with main heading includes responding to draft policies and consultations to share our September 2020 experience and knowledge to help shape public realm improvements This year we have proactively kept our nance advisers informed of Baseline of copy with two line heading and trac reductions across our areas. both our actions taken and planned to respond to the pandemic. + Public realm improvements page 62 + s172 engaging with our nance providers: page 41 We also work with neighbouring property owners, Business Improvement Districts, and our tourism partners to promote London’s Joint Venture partners West End to a domestic and international audience. We established our 50:50 Longmartin joint venture with The Mercer’s Company in 2005 with the aim of combining and developing our Engagement and activities during the year interests on Long Acre and at the gateway to Seven Dials. Over the In response to Covid-19, we increased our collaboration with neighbouring intervening years, overseen by the Longmartin board, the buildings held estates and landowners, Business Improvement Districts, as well as by the joint venture have been redeveloped to create St Martin’s Westminster City Council and Camden Council, on solutions for Courtyard, which adds to the vibrancy of our respective holdings. To responsibly managing social distancing across the West End’s streets. ensure a high level of oversight, the Longmartin board formally meets ve time a year with day to day operations managed by the joint To help encourage our local communities and Londoners to safely and venture’s operating committee. responsibly return to our villages, we worked with Westminster City Council and Camden Council to secure a series of timed road closures and other street measures, during core trading hours for F&B and retail occupiers. This enabled our hospitality occupiers to trade from external seating whilst adhering to social distancing restrictions. In Carnaby, Chinatown and Seven Dials, we also provided our own additional communal seating for use by anyone visiting the area, bringing extra seating capacity for takeaway food. In addition, we took part in the working group convened by Camden Council to share best practice and co-ordinate opportunities and support to all occupiers across Camden. During the year, we engaged with Westminster City Council on a number of policy reviews including their Busking and Street Entertainment Policy and the City Plan 2040 where we contributed to the Examination in Public with representations on a number of policy areas. We are members of the Soho Neighbourhood Forum which is developing a planning strategy for Soho. In Seven Dials, we have had regular dialogue with senior ocers at Camden Council around issues aecting the evening and night time economy and commented on their new external seating policy. We have worked closely with our tourism partners, London & Partners, the Mayor of London’s promotional agency, Visit Britain and other local property owners and Business Improvement Districts, to actively support the safe return of visitors to London. Working with London & Partners, we helped create the campaigns #virtuallylondon, and ‘Because I’m A Londoner’, to promote London to domestic and international visitors. Together with our West End partners, we developed a West End initiative, #MyWestEnd, which was collectively supported through our own digital campaigns. Through our membership of various bodies such as London & Partners, London First, Association of International Retail and Business Improvement Districts, we have supported various lobbying campaigns for the benet of our occupiers and the West End.
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Engagement and activities during the year Strategic report To ensure the Longmartin board was kept fully apprised of the challenging market conditions, during the year it revisited the delegated authorities and introduced regular informal board calls between the scheduled board meetings involving our executive directors, Brian Bickell and Tom Welton and our portfolio director, Charles Owen. The Longmartin business plan was also updated to include new strategic priorities in light of the changing market conditions. Matters relating to Longmartin’s operations, nancing and other matters are reported and regularly discussed at Shaftesbury Board meetings Making a throughout the year. positive contribution +
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Main heading and baseline of body copy Our S172 (1) Statement day-to-day operations. A ‘Stakeholder dashboard’ summarising the key without heading The Board of Directors conrm that during the year under review, it has areas of engagement undertaken by the executive directors and the wider acted in a way it considered in good faith to be most likely to promote team across the business is considered at each scheduled board meeting. Second line of main heading and baseline the long-term success of the Company for the benet of members as a For more on s172 matters and stakeholder engagement: for copy with main heading whole, whilst having due regard to the matters set out in section 172 (a) to (f) of the Companies Act 2006, being the: Annual Report Name of Annual Report pages page numbers Baseline of copy with two line heading (a) likely consequences of any decision in the long-term; Key decisions for the Q&A with the Chief Executive See pages 2 to 5 (b) interests of the Company’s employees; + long-term Covid-19 impact and response + See pages 6 to 9 (c) need to foster the Company’s business relationships with suppliers, Business model and strategy + See pages 22 and 23 customers and others; Chairman’s letter + See pages 82 to 83 (d) impact of the Company’s operations on the community and the Principal Board activities in 2019/20 + See pages 86 to 88 environment; Employees Our people and culture + See pages 42 to 44 (e) desirability of the Company maintaining a reputation for high Making a positive contribution See page 45 to our employees + standards of business conduct; and Monitoring of our culture and See page 84 (f) need to act fairly between members of the Company. engagement with employees + Fostering business Stakeholder engagement See pages 35 to 39 Our stakeholders and Board processes relationships with suppliers, Making a positive contribution to + See pages 48 to 49 In making this statement, the Board considers that its key stakeholders customers and others support our occupiers + include our shareholders and potential investors, employees, occupiers, Principal Board activities in 2019/20 + See pages 86 to 88 visitors, local authorities, community partners, suppliers, nance providers, Community Stakeholder engagement See pages 36 and 37 and our joint venture partner. Building and nurturing our relationships Making a positive contribution to + See pages 46 to 47 with these stakeholders for the long term is key to our success. our community + See page 83 Stakeholder engagement: pages 35 to 39 Chairman’s letter + + Employee engagement: pages 43 and 45 Environment Environment See pages 29 to 31 + Shareholder engagement: page 89 Making a positive contribution to + See pages 50 to 51 + the environment + For Board approval of transactions, the elements of s172 are considered High standards of Our people and culture See pages 42 to 44 in assessing whether such actions are likely to promote the success of business conduct Stakeholder engagement + See pages 35 to 39 the Company for the benet of the members as a whole. Whilst the Board Our business conduct + See page 89 has direct engagement with our employees and shareholders, it receives + Investors Leadership and purpose See page 89 a combination of reports from the executive directors, senior managers Financing + See page 67 and advisors to understand the views of the Group’s stakeholders regarding +
The Board’s engagement with stakeholders and decisions taken to promote the success of the Company as a whole for its members in response to Covid-19
Supporting our Our purpose is to curate vibrant and thriving villages in the heart of London’s West End for the benet of all our occupiers stakeholders. At its core is a holistic approach to patient, long-term curation of our villages by providing distinctive and for the long-term appealing experiences for visitors, occupiers, their customers and residents. A key component of this strategy is the mix and appeal of our restaurant, café, pub and shop occupiers. The eective closure of the West End, starting in February, had an immediate and very challenging impact on all consumer-facing, footfall-reliant businesses, which are inevitably cash-ow sensitive. As a result, our team’s focus, supported by the Board, since the beginning of the pandemic and lockdown has been to help our occupiers through this challenging period by providing nancial and other practical support to retain occupancy, helping to preserve the long-term value and prospects of our exceptional portfolio. From March 2020, the Board has supported the Strategic and Operations Executive Committee’s recommendations on rent concession strategies. In addition it has supported a permanent change in policy, from October 2020, to vary our leases to provide the option for commercial lessees to pay rent and service charges monthly, rather than quarterly in advance, in order to align our revenue collection with the cash ows of our occupiers. Covid-19 impact and response: pages 6 to 9 + Making a positive contribution to support our occupiers: pages 48 to 49 + The Board was kept informed of other engagement and initiatives undertaken across the business with our local authorities, adjoining landowners and Business Improvement Districts to help support occupiers, and drive footfall across the portfolio.
Supporting our Early in the pandemic, it became clear that our community partners’ nances could be materially aected, either communities because their traditional sources of funding had been reduced and/or there would be additional demand on the services they provide. In response, the Company set up a Covid-19 Community Fund, in April 2020, to support these partners and help people aected by Covid-19 within the boroughs of Westminster and Camden. The fund was administered by the Community Investment Committee. To date, the fund has made awards in cash and in kind to charitable partners totalling over £310,000 to 18 causes impacted by the pandemic. We have received positive feedback from the organisations supported by the fund. Funding for this initiative came from savings made following the Board’s decision to waive 20% of both executive director base salaries and pension contributions and non-executive director fees for four months. + Making a positive contribution to support our community: pages 46 to 47 Base line to footnotes and longest copy
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Retaining, protecting As an organisation with under 40 employees, our people are fundamental to the success of our business. Strategic report and motivating our During the rst lockdown, when government guidance was to work from home wherever possible, regular all- employees employee presentations were held. Jonathan Nicholls, Richard Akers and Jennelle Tilling attended a number of sessions providing the opportunity for Q&A. Following the easing of the rst lockdown, based on responses from an all-employee questionnaire and consultation with the members of the Strategic and Operations Executive Committee, the Board discussed and approved the Group’s return to oce plan, which was implemented in September 2020 following an all employee presentation and Q&A session. Having considered an employee reward survey in September 2020, the Remuneration Committee approved: • a change in the structure of the employee annual bonus plan, to include an element of individual objectives; and • the introduction of a recognition project, overseen by the Culture Group, made up of employees from across the business and sponsored by Richard Akers as our non-executive director responsible for employee engagement. Communication of these changes was made through a combination of all employee meetings, feedback from Strategic and Operations Executive Committee members to their teams and employee workshops. + Our people and culture: page 42 to 45 Engaging with our We maintain a dialogue with our nance providers throughout the year. Since March 2020, we have kept them ¢nance providers apprised on the impact of the pandemic and the measures the business has been taking to service our nancial obligations. In particular, our discussions have centred on interest cover covenant waivers. We recognised that oering some solutions to our lenders, rather than simply requesting waivers, was in the spirit of partnership. The Board agreed that, where possible, we should oer lenders cash deposits up to an amount equivalent to the interest payments during the term of the waivers. Our open and pragmatic approach has been well received and has resulted in constructive discussions and agreements on interest cover covenant waivers. Whilst we remain compliant with the nancial covenants in our bonds, the Board agreed that we should hold regular business updates while Covid-19 uncertainties persist and we gave bondholder credit updates in June and September. The next update will be in December 2020. + Financing: pages 67 to 69 Balance sheet In responding to the pandemic, the Board’s view is that maintaining occupancy across the Group’s portfolio, wherever strength, possible, will protect the long-term value of the business. When the post-pandemic recovery progresses, this consideration of our approach, together with a strong nancial base, should position the business to return to long-term growth. shareholders and With the prospect of reduced rent collections and growing vacancy, our strategy, since March 2020, has been to preserve governance liquidity, with a moratorium on non-essential expenditure, new schemes and acquisitions, other than by exception. In view of the likely reduction in rental income and, in turn, adjusted EPRA earnings, the Board decided against paying an interim or nal dividend in relation to the current year, but intends to resume dividend payments as soon as it considers it prudent, maintaining its policy of sustainable dividend growth over the long-term. The Board assessed the Group’s nancial position in light of the implications of the Covid-19 pandemic, and considered a range of options to optimise the Group’s long-term capital structure. It concluded that we should prioritise maintaining a strong nancial base and appropriate liquidity levels, focusing on debt and gearing levels, and that a material level of disposals to address nancing risks would not be in the long-term interests of the Group. Accordingly, it determined that it would be in the best long-term interest of the Group to raise equity. + Financing: page 67 Extensive consideration was given to the most appropriate structure for an equity capital raise, balancing execution and equity market risks with our strong desire to ensure a share issue respected the pre-emption rights of shareholders as far as possible. The Board’s decision to structure the equity capital raising by way of a combination of a Firm Placing, a Placing and Open Oer and an Oer for Subscription took into account a number of factors. These included the dilution to shareholders not able, or only partially able, to take part in the Firm Placing, the total net proceeds to be raised and the advice that the structure provided a lower level of market risk than a rights issue in the then current market environment which had been impacted by a combination of uncertainties, including Covid-19, the US election and Brexit. The Board believe that the Firm Placing and excess entitlement facility of the Open Oer has enabled the Company to satisfy demand from current shareholders wishing to increase their equity in the Company as well as potential new investors. Furthermore, the Oer for Subscription allowed an opportunity for other potential investors, including employees and retail investors, to become shareholders in the Company. The Board also sought to balance the dilution to existing shareholders arising from the Firm Placing and Oer for Subscription with the benet of bringing in substantial investors with rm commitments to ensure the success of the capital raise. Shareholder approval of the arrangement was sought through a number of resolutions at a general meeting to enable the transaction. The resolutions were passed with a minimum vote in favour of 95.77%. In undertaking the Firm Placing and Open Oer, we required an independent report for our Prospectus. Whilst we believed that EY as our auditors were best placed to provide this, we were conscious that the fees might be seen as an impairment to their independence. We engaged with EY, who consulted with the FRC and obtained clearance in advance of being appointed to undertake the work. + External auditors: page 99
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Human • Building relationships based on openness, empathy, trust Main heading and baseline of body copy and respect – showing genuine interest and care for each without heading Our people and other and those with whom we work. • We celebrate difference and encourage diversity. A Second line of main heading and baseline culture variety of backgrounds, experiences, characteristics and for copy with main heading preferences leads to wider perspectives, increased creativity, better decision making and inclusive spaces Baseline of copy with two line heading We employ a diverse team of where everyone can feel welcome, be themselves, and talented people, united by a reach their potential. • Outside of our workplace, we promote the diversity agenda, shared ambition to make our including gender, ethnicity, social background and orientation. places better for the benefit of our multiple stakeholders.
Our purpose, culture and values Original Our purpose is to curate vibrant and thriving villages in the heart of • We see change as opportunity to arrive at fresh solutions London’s West End. At its core is a desire to make great places even and better outcomes. better for the benet of our stakeholders, through fostering our areas to provide inspiring experiences for visitors, occupiers and their • From finding and nurturing new talent to challenging and customers, and residents. evolving our thinking, we welcome new ideas, approaches How we work is just as important as the end result. Our values are and perspectives and encourage ideas from our people, fundamental to our behaviour, decision making and the delivery both of business partners and communities. our purpose and strategic objectives. • This is an important aspect in the curation of our villages, Our ve core values, set out to the right, guide our behaviours, ways of including the events we organise, public art and the working, and demonstrate our commitment to doing the right thing occupiers we choose, where innovative concepts are – for each other, our stakeholders, and our business. They are a critical favoured over predictable formats found elsewhere. part of our success; helping make Shaftesbury a great place to work and enabling us to deliver on our long-term strategic objectives. We dene our culture as the “Shaftesbury Way”. Our small, diverse team of talented people are united by a shared ambition to make great places even better. Aligning with our values, our culture is one of respecting tradition but bringing innovation, acting with courtesy, Community minded respect and integrity but not being afraid to embrace change, seeking • As a responsible, long-term investor in our areas, being a challenge, trying new things and evolving. We are inclusive, encouraging good neighbour and focusing on local issues is essential. dierence and welcoming new people, ideas and perspectives to • Working closely and collaboratively with our communities enable everyone to be themselves, have a voice, and make an impact. and local authorities, we combine our influence and Combining our experience, enthusiasm, culture and values, we seek to expertise to address issues and challenges, promote achieve success beyond prot by delivering sustainable long-term public realm improvements and create vibrant places. benets for our stakeholders and people, building a thriving working culture and making a positive, long-lasting contribution to London’s West End.
Embedding values across our business Having consulted with the Shaftesbury team and our key stakeholders, Responsible last year we articulated our purpose and values. This year, our focus has • As long-term custodians of the areas in which we invest, been on embedding these values in all aspects of our people proposition we hold ourselves accountable to a wide-range of and practices. In the summer, we hosted a virtual culture event in July, stakeholders. It is important that we do the right thing, in taking the opportunity to reconnect as a team, to reect on what makes Shaftesbury special and to consider how we “live our values”. the right way, acting responsibly and with integrity. We have recently launched a new performance review process, a key • We invest in staff well-being and development, cultivate component of which is regular sta review conversations which include relationships with our business partners and stakeholders, how our people are demonstrating our values in their everyday work. holistically curate our villages and behave in a socially- responsible manner.
Long term • We take a long-term, holistic approach to our villages. • From our partnerships and people, to the impact we wish to make, our decision making is forward-looking; focused on long-term sustainable benefits rather than short-term gains.
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Employees Strategic People Plan Strategic report This was the second year of our Strategic People Plan, which is about 9 years average length of service ensuring Shaftesbury continues to be a great place to work, attracting, growing and retaining the best talent. It is based on ve strategic pillars:
Engagement 33% To understand and drive high levels of employee engagement male Experience To be recognised for providing a distinctive and positive employee experience, aligned with our purpose and values People development and capability headcount39 To grow our capability now and for the future People performance To develop an active performance culture and practices Sustainable workforce To have a more healthy, inclusive and sustainable working environment Whilst we made good progress across all ve of the strategic pillars, the female67% Covid-19 pandemic required a re-prioritisation of a number of planned activities. We continue to share progress against our strategic plan with employees and regularly monitor progress against our roadmap. Key progress highlights included a reward review and the launch of a new Representation on the Strategy and performance review process to replace annual appraisals. Operations Executive Committee In the coming year, we plan to: • Develop a culture of recognition, acting on the feedback from a project led by the culture group • Launch an online reward portal to improve access to all 58%male reward information • Embed the performance review process within the business, with all individuals having quarterly performance conversations with their manager members12 • Learn from our working practices during Covid and apply the positive outcomes to our future ways of working
Rewarding Performance As at 30 September 2020, we had 39 employees including the Executive Directors. Employees receive a basic salary together with a pension contribution of 17.5% of salary, life and health insurance. All female42% members of sta who meet certain qualifying conditions are eligible to participate in our annual and long-term incentive schemes and the Sharesave Plan. Employee engagement We remain committed to rewarding performance and to oering highly A measure of positive employee engagement is our low levels of competitive packages. Working with Innecto, a reward consultancy, we employee turnover. During the year, turnover was only 8%, and, at 30 reviewed our existing reward package, considering how it aligned with September 2020, the average length of service was 9 years. our desired reward philosophy and dierent approaches to ensure it is We are committed to gaining regular feedback from our team and to valued both by employees and the Company. The project considered act on the feedback we receive. As well as pulse surveys on specic the feedback from the all-employee survey, and included employee focus topics throughout the year, we conducted an all-employee survey in groups and comprehensive benchmarking against the property market. July. The results were positive, indicating high levels of sta satisfaction. The review conrmed that our reward packages are competitive and 100% of respondents strongly agreed or agreed with the statements: are highly valued by all the team, regardless of age or tenure. ‘I am proud to work for Shaftesbury’ As a result of the ndings of the project, we will be implementing a number of changes in the year ahead, including the introduction of ‘I would recommend Shaftesbury as a great place to work’ personal objectives as a part of our annual bonus scheme to reward The feedback identied some areas for improvement, particularly individual performance, rather than basing bonuses solely on corporate around better clarity over the link between individual contribution and performance. reward, and better recognition and more valuable performance conversations. We are already taking action to improve these areas. Our culture group, which comprises a cross section of skills and levels of experience, is another way we listen to how our employees feel about working at Shaftesbury. This group was important in developing our purpose statement and values and they will be playing a key role in a project in the new nancial year to develop a culture of recognition. Richard Akers, the designated non-executive director for employee engagement, ensures that the views and interests of the team are considered in Board discussions and decision making.
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Main heading and baseline of body copy Developing talent for the future Developing a diverse and inclusive team without heading We operate with an outsourced business model, employing a small We have a clear policy to promote diversity and inclusivity across the team and working with a wider group of external advisors. Developing business, recognising that a group that is diverse in nature, irrespective Second line of main heading and baseline our talent for the future is an essential ingredient in our success and, of visible and non-visible di erences, backgrounds, gender, experience due to our size, we are able to tailor development to the needs of and orientation is able to provide di ering perspectives and challenge. for copy with main heading individuals. This year saw the completion of our “Leading Self” The passion, expertise, warmth and diversity of our people is vital to Baseline of copy with two line heading programme, a nine month, modular-based leadership development our ongoing success. course for rising talent. We plan to develop phase 2 of the programme We strive for an inclusive culture with a collaborative environment that for its participants, whilst introducing a new cohort in the coming year. is open to di erent ideas and styles of thinking, where all of our people Recently, we launched ‘Performance Conversations @ Shaftesbury’, feel they can be themselves and contribute to the Company’s success. our new performance review process. Moving away from annual Whether someone has been here three days, three months or three appraisals, we have introduced a focus on regular and better two-way years, we ensure everyone has a voice. We treat everyone with fairness, performance conversations, which we feel will be more valuable to the respect and openness, and encourage our people to share ideas, whole team. As part of this, we have provided training for managers and develop their skills and reach their potential. Our commitment extends their reports to ensure e ective outcomes. to the standards we expect of the businesses with whom we partner and work. Diversity is considered at every level of recruitment. All appointments are made on merit and based on objective criteria. We support initiatives to promote diversity within the real estate sector. We are a member of the 30% Club, which is a campaign to achieve a minimum of 30% representation of women on FTSE 350 boards. The Hampton- Alexander review, which is an independent, business-led initiative supported by the Government, aims to increase the number of women in leadership positions in FTSE 350 companies. In 2019, for the third year running, Shaftesbury was top of the FTSE 250 in the Hampton- Alexander review for the highest female representation on the executive committee and direct reports.
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We continued to support employees’ well-being with monthly seminars, run by the FeelGood Company, covering topics specifi cally targeted at OurMaking people a and culturethe challenges people may have been facing Strategic report during the pandemic, including nutrition and optimising immunity, sleep and taking control of positive mental and emotional overdrive. We also encouraged the team to work with fl exible start and Senior leadershipfi nishteam times. Underpinning our actions, was a contribution consultative approach where the team provided their input and feedback; this was particularly the case as we planned for a socially-distanced return to our to the offi ce. In listening to concerns and perspectives we developed a plan which was supported by all and accommodated individual employees needs and circumstances. Ahead of the return to offi ce We carried out a comprehensive risk assessment, following which we introduced: • a temporary satellite offi ce to provide more socially-distanced space; • screens between all work-stations; • increased cleaning protocols; • the provision of face masks; All our staff have continued to be employed on • hand sanitisers at the offi ce entrances and their full terms and conditions throughout the hands-free taps in washrooms; and pandemic. Like most businesses, we had to • shared-space protocols. quickly adjust our working practices to deal with remote working, and then socially-distanced We also introduced a new working wor ing in our o fi ce hilst this has presented approach challenges, it has prepared us or fl exible wor ing Based on the ‘bubble’ concept to limit the number once normal life returns. of people working in our offi ces at the same time and restrict the risk of transmission of the virus The well-being of our people has been a key across the team, all employees worked a priority for the Board during this challenging year. combination of days in the offi ce and days at home. Recognising that keeping everyone connected was a vital ingredient in managing this period as Looking ahead effectively as possible, we introduced bi-weekly We are committed to reviewing the various lessons we have learned from the changes in our approach all-staff virtual updates and arranged regular during this period and to applying these to improve virtual team “huddles” and social events. our future ways of working.
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Seven Dials Community Centre food bank
Shaftesbury has a long-term commitment to London’s West End and support for its local community is embedded in our values and strategy
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Base line to page number Page 46 Shaftesbury Annual Reportreport 20202020 StrategicStrategic Reportreport Xxxxx In addition to our normal work with not-for- Supporting young people and profi t organisations, charities, educational education programmes establishments and other local groups to To help young people across a range of ages, grants made included: make a positive contribution to the people Strategic report and communities in our locations, this year, • the purchase of laptops for the Soho Parish Primary School to enable children we created our Covid Community Fund to to continue to learn remotely; support young people and our communities • assisting Young Westminster Foundation affected by the pandemic in the boroughs of in a transitioning project to help year six Westminster and Camden. students with the anxiety of moving to secondary schools, exacerbated by By 30 September 2020, we had provided cash Covid-19; and and funding in-kind through the Covid • supporting Westminster Kingsway Community Fund of over £310,000 to support College, in its employability enterprise 18 causes. programme aimed at 14-23 year olds. + Community engagement: page 36 Working with another longstanding community partner, we provided funding to the House of St Barnabas, a local homeless charity, to reopen its house and employment academy with Covid-19 secure measures. Providing food and shelter We made grants to the new Covent Garden Food Bank, created by our longstanding community partners, the Dragon Hall and Seven Dials Community Centre, to purchase equipment and contribute to running costs to help alleviate food poverty in the Seven Dials Community. Separately, we provided funding to the North Paddington Foodbank, to cover the cost of hiring temporary refrigeration equipment. In addition to our normal funding of an outreach worker, we provided funds to The Connection, our Westminster based homeless charity partner, to refi t their premises to provide a Covid-19 safe environment for staff and clients. Aiding well-being We have provided funding to the Samaritans for materials to make their central London branch, in Carnaby, Covid-19 safe so they could remain open. In addition to our own monetary contribution, we were delighted that Blenheim Construction, the contractors at our 50 Marshall Street and 72 Broadwick Street schemes, undertook the works required at no cost. Recognising the widespread mental health impacts of Covid-19, we have helped fund the Young Camden Foundation in their support of local community organisations safeguarding the mental health and well-being of children, young people and youth workers during the pandemic and its aftermath.
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Messaging
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Shaftesbury Annual Report 2020 Strategic report Xxxxx We believe that the West End, one of the world’s great destinations, will weather this unprecedented period; its recovery is not a
question of “If” but “When”. Our priority is to support our Strategic report occupiers until that recovery is established.
Shaftesbury Annual report 2020 Strategic Report Xxxxx Street dressing in Seven Dials
Virtual villages We brought to life our villages virtually, with a programme of unique digital content to entertain, educate and inform people while they were unable to visit the villages in person.
Street closures and communal seating We have worked with Westminster and Camden councils to identify and implement additional road space that can be used for both outdoor seating and pedestrians, providing additional trading capacity for our hospitality businesses and more space for pedestrians to maintain social distancing. In addition, we have installed communal tables and seating to provide socially-distanced outdoor amenity for visitors. Safety and confi dence Across our villages, we have introduced social distancing messaging and hand sanitiser stations as well as providing cycle parking hubs, to give visitors confi dence and reassurance to return to our villages. Street dressing in Seven Dials, We are committed to supporting Carnaby and Chinatown our commercial occupiers and We dressed our villages and provided on-street activity to welcome back visitors. residents through this period of unprecedented upheaval in normal Lobbying patterns of life and business We have collaborated with local activit longside fi nancial stakeholders and partners on campaigns to support the West End’s post-pandemic support, we have put in place a recovery including lobbying for extending number of practical measures. short-term business rates relief and long-term reform, reversing the Government’s decision to abolish tax-free shopping, and funding arrangements for London & Partners.
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We are committed to having a positive impact on the local environment, from protecting and improving our heritage buildings to bringing wildlife back to the city.
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Increasing biodiversity Since 2016, we have increased the area of biodiverse green space on our estate by 70%, providing valuable habitat for a wide variety of species. 2 We now have more than 6,000ft6,000m2 of of green roofs, 124 planters, 1,245more than window1,200 window boxes boxes and 5 and bee 5 hives bee hives across the portfolio. We continue toour partner partner with with other other local landowners through the award winning Wild West End initiative. Reducing carbon emissions By extending the useful life of our heritage buildings, we improve their energy efficiency whilst avoiding carbon emissions associated with new construction. We are continuing to reduce carbon emissions from our own operations and where we purchase electricity, we do so from Caption for photo Improving the local environment renewable sources. is not just good for biodiversity, Reducing waste it is also good for business, Reducing waste We retain as much of our buildings helping to create an attractive We retain as much of our buildings as possible during refurbishment place that supports peoples’ projects. In 2020 we achieved 85% health and wellbeingwell-being whilst whilst retention of primary structure and façade. Across our Carnaby estate helping to reduce the impacts façade. Across our Carnaby estate we are also working in partnership of climate change. with our occupiers to reduce the volume of singlesingle-use use plasticplastic andand promote sustainable consumption through the Blue Turtle scheme. Improving air quality Improving air quality Green roof and planters We are working to reduce the CaptionPollinator for photo friendly window boxes numberWe are working of polluting to reduce vehicles the in the Westnumber End of by polluting supporting vehicles schemes in the to consolidateWest End by deliveries,supporting encouraging schemes to walkingconsolidate and deliveries,providing encouragingfacilities for cyclists.walking and providing facilities for cyclists.
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Our people and culture Strategic report Strategy and Operations Executive Committee
The Strategy and Operations Executive comprises the executive directors and the senior leadership team.
Desna Martin Julia Wilkinson Charles Owen Karen Baines Company Secretary Restaurant Director Property Director Head of Group Date joined Shaftesbury Date joined Shaftesbury Date joined Shaftesbury Marketing & 2020 1997 2012 Communications Responsibilities Responsibilities Responsibilities Date joined Shaftesbury Leads on corporate governance Group restaurant and leisure Asset management of Covent 2016 within the Group and advising the strategy and leasing. Garden and a member of the Responsibilities Board. Company Secretary for the Committee memberships Longmartin joint venture Group-wide strategic marketing Longmartin joint venture. Operations Committee Management Committee. and PR for consumer, trade and Other committee memberships Committee memberships corporate communications. Operations Committee Operations Committee Committee memberships Risk Committee Risk Committee Operations Committee Disclosure Committee Sustainability Committee Community Investment Committee Community Investment Committee Community Investment Committee Pension Committee
Andrew Price Property Director Date joined Shaftesbury 2001 Responsibilities Alastair Deutsch Jenna Slade Sam Bain-Mollison Group-wide acquisitions strategy Head of Finance and asset management of Senior Portfolio Executive Date joined Shaftesbury Retail Director Chinatown and Soho. Date joined Shaftesbury 2020 Date joined Shaftesbury Committee memberships 2019 2011 Operations Committee Responsibilities Responsibilities Financial planning and analysis, Responsibilities Risk Committee Asset management of strategic commercial insights, Community Investment Committee Group retail strategy and leasing. Carnaby and Fitzrovia. treasury, tax, investor relations and (Chair) Other committee memberships IT. Pension Committee Committee memberships Operations Committee Operations Committee Committee memberships Risk Committee Operations Committee Risk Committee IT Committee
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Brian Bickell Chris Ward Simon Quayle Tom Welton Chief Executive Finance Director Executive Director Executive Director Date appointed to the Board Date appointed to the Board Date appointed to the Board Date appointed to the Board July 1987 January 2012 October 1997 October 1997 Independent: No Independent: No Independent: No Independent: No Key strengths and experience Key strengths and experience Key strengths and experience Key strengths and experience • a chartered accountant • a chartered accountant • a chartered surveyor • a chartered surveyor • long tenure with Shaftesbury • has nancial and real estate • long tenure with Shaftesbury • long tenure with Shaftesbury • extensive experience within the experience, which contribute to • knowledge of the West End • commercial experience and property sector the Group’s strategy. property market which provides knowledge of the Group and West • proven record of driving strategy, Prior to joining Shaftesbury, Chris valuable knowledge and insight to End property market provide value delivering success and setting an was Finance Director of the UK and our villages and strategy to our villages and strategy open and transparent culture Nordic countries for Redevco for Simon joined Shaftesbury in 1987 Tom joined Shaftesbury in 1989 and Brian joined Shaftesbury in 1986 and nine years. and was appointed as Property was appointed as Property Director was appointed Finance Director in Chris is responsible for nancial Director in 1997. in 1997. 1987. Brian was later appointed as accounting, tax and IT matters. Simon is responsible for the asset Tom is responsible for the asset Chief Executive in 2011. Committee memberships: management and operational management and operational strategy in Carnaby, Soho and strategy in Covent Garden and Brian is responsible for implementing Strategic and Operations Fitzrovia. Chinatown. the Shaftesbury strategy and the Executive Committee day-to-day operations of the Group. Risk Committee (Chair) Committee memberships: Committee memberships: Committee memberships: Disclosure Committee Strategic and Operations Executive Strategic and Operations Executive Committee Committee Strategic and Operations Executive Pension Committee (Chair) Operations Committee Operations Committee Committee (Chair) IT Committee (Chair) Risk Committee Sustainability Committee Current external appointments Disclosure Committee Current external appointments Director of Longmartin Properties Sustainability Committee (Chair) Member of the Strategy Board Limited. Pension Committee for ZSL. Current external appointments Director of Longmartin Properties Limited, Board member of Westminster Property Association and Board member of Freehold. A trustee of Young Westminster Foundation.
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Non-executive directors
2 Richard Akers N A R 4 Sally Walden N A R Senior Independent Non-executive director Director Date appointed to the Board Date appointed to the Board October 2012 November 2017 Independent: Yes Independent: Yes Key strengths and experience Key strengths and experience • provides knowledge and insight • a chartered surveyor into remuneration, nancial • provides a broad range of real markets and fund management. estate knowledge and experience Sally held senior fund management at board level. roles in Fidelity International from Prior to joining Shaftesbury, Richard 1984 to 2009. 1 2 was a senior executive of Land Current external appointments Securities Group PLC from 1995, and Trustee of the Fidelity Foundation joined the main board in 2005 as and director of the Pantry Partnership managing director of the Retail Portfolio. Richard was appointed Senior 5 Jennelle Tilling N A R Independent Director and Non-executive director designated non-executive director Date appointed to the Board for employee engagement in January 2019 February 2019. Independent: Yes Current external appointments Key strengths and experience Non-executive director, senior independent director and chairman • Fellow of The Marketing Society of the remuneration committee and • over 25 years’ experience of safety, health and environmental consumer marketing, digital and committee of Barratt Developments innovation within food retail PLC. Non-executive director of The brands, which complements the 3 4 Unite Group plc. skills on the Board Jennelle held a variety of senior marketing roles for over 17 years at N A R 3 Dermot Mathias Yum! Restaurants, and is the N 1 Jonathan Nicholls Non-executive director Founder and Chief Brand Strategist Chairman of the Board Date appointed to the Board at Marketing with Insight. Date appointed to the Board October 2012 Current external appointments September 2016 Will retire from the Board in Non-executive director of Camelot Independent: Yes on appointment February 2021 and non-executive director of to the Board Independent Yes Butchies and Trustee for Guide Dogs to the Blind. Key strengths and experience Key strengths and experience • over 21 years’ experience of public • a chartered accountant company boards and their • provides recent and relevant operations nancial experience to the board • over 22 years’ of experience within and the audit committee the property sector • extensive experience in leadership 5 Jonathan was nance director of and management Hanson plc between 1998 and 2006, Prior to joining Shaftesbury, Dermot and of Old Mutual plc between 2006 was a partner in the corporate and 2008. nance department of BDO LLP Jonathan has been a non-executive from 1980, and from 2004 to 2010 director and chairman of the audit was senior partner of BDO and committee of Great Portland chairman of the Policy Board of Estates plc (2009 to 2016), SIG Plc BDO International. (2009 to 2017) and DS Smith plc Current external appointments (2009 to 2019), where he was also Non-executive director, senior Senior Independent Director Key to Committee Membership independent director and chairman between 2013 and 2019. N Nomination Committee of the audit committee of JTC PLC, Current external appointments governor and vice chair of Activate A Audit Committee Chairman of Ibstock plc Learning Education Trust. R Remuneration Committee Committee Chair
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Main heading and baseline of body copy without heading Portfolio valuation report Second line of main heading and baseline Covid-19 has had a signifi cant impact on our valuations this year. for copy with main heading Reduced footfall, consequential occupier operational and fi nancial Baseline of copy with two line heading challenges, increased vacancy across the West End, and other uncertainties have resulted in pressure on rental values and increased yields. The 18.3% valuation decrease in the wholly-owned portfolio has largely occurred since the beginning of March 2020.
Presentation of Longmartin joint venture The valuation decline during the year was driven by an increase in the portfolio equivalent yield of 48 basis points to 3.95% (2019: 3.47%), information re ecting: Our property interests are a combination of the wholly-owned portfolio and a 50% share of property held in the Longmartin joint • increased valuation yields applied to food, beverage, leisure and retail venture. The nancial statements, prepared under IFRS, include our uses, and selected o ces. Reducing values by around £371 million, interest in this joint venture as one-line items in the Income Statement this re ected investor sentiment given Covid-19 economic and Balance Sheet. uncertainties; In previous years, our narrative has presented the combined portfolio • a reduction of 6.6% in ERVs across the portfolio, equating to a valuation analysis and the nance position on a proportionally decrease in valuation of approximately £195 million. This was largely consolidated basis. However, we now consider that it is appropriate to driven by increased vacancy levels across the West End and reduced separately report Longmartin’s activity, valuation and capital structure. near-term occupier demand, which are consequences of operational We believe this presentation provides a clearer analysis and is challenges arising from the pandemic; consistent with the nancial statements. • a reduction in the valuation of our apartments of between 7.5% and 10%, equating to approximately £48 million. This re ected increased Wholly-owned portfolio near-term availability of residential space for rent in the West End At 30 September 2020, our portfolio was valued at £3.1 billion. On a which has led to more buy-to-let investor caution with an associated like-for-like basis, the valuation declined by 18.3%, principally due to increase in required returns to re ect current uncertainty; and uncertainties resulting from Covid-19. After allowing for capital • the valuer’s estimate of the short-term income impact of rental expenditure, the revaluation de cit was £698.5 million. support likely to be granted to occupiers as a result of the pandemic Whilst we saw some improvement in both the occupational and and reduced occupancy, equating to a valuation decrease of investment markets following the UK general election in December approximately £57 million. 2019, this started to decline from early February 2020 amid growing Covid-19 fears. Since then, Government restrictions have had a material e ect on trading conditions for all consumer-facing, footfall-reliant businesses, which are inevitably cash- ow sensitive, leading to near-term uncertainty, lower occupier demand, pressure on rents and increased vacancy. + Portfolio activity report: page 59
Wholly owned portfolio valuation Annualised current Topped-up net Valuation income ERV Valuation growth1 initial yield Equivalent yield £m £m £m % % % Change2 Carnaby ( ) bps Covent Garden ( ) bps Chinatown ( ) bps Soho ( ) bps Fitzrovia ( ) bps ( ) bps 2019 ( )
1. Like-for-like. Alternative performance measure. See page 156. Base line to footnotes and longest copy 2. Expressed in basis points.
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Valuation movements (£m) 3,784 Strategic report
(371) 24 3,137 (195) (48) (57)
2019 Yield ERV Residential Short-term cash Acquisitions and 2020 ow impact capex impact Cushman & Wake eld, independent valuer of our wholly-owned Annualised current income portfolio, has continued to note that: During the year, annualised current income fell by 6.1% to £109.9 million • our portfolio is unusual in its substantial number of predominantly (2019: £117.1 million). On a like-for-like basis, before the impact of restaurant, leisure and retail properties in adjacent, or adjoining, acquisitions in the year, the decline was 6.4%. This decrease occurred locations in London’s West End; and since 31 March 2020, when annualised current income totalled £117.7 • there is a long record of strong occupier demand for these uses in this million, and largely re ects increased EPRA vacancy. location and, as a result, high occupancy levels, which underpin the Portfolio activity report: page 59 long-term prospects for rental growth. + Consequently, they have reiterated to the Board that some prospective ERV purchasers may recognise the rare and compelling opportunity to A key output from our strategy is long-term growth in rents and ERVs. acquire, in a single transaction, substantial parts of the portfolio, or the Through our leasing activity, previously assessed rental potential is portfolio in its entirety. Such parties may consider a combination of typically converted into contracted rents, whilst establishing new rental some, or all, parts of the portfolio to have a greater value than currently levels, which provide evidence both for future leasing negotiations and re ected in the valuation included in these results, which has been for the valuers when assessing ERVs. Typically, our portfolio’s prepared in accordance with RICS guidelines. reversionary potential is converted into contracted rent over three to ve years. Covid-19 impact on contracted rental Over the ten years to 30 September 2019, the wholly-owned portfolio income and ERV delivered like-for-like compound annual growth in ERV of 4.7%. However, Our strategy has delivered sustained growth in annualised current this year, the portfolio’s ERV decreased on a like-for-like basis by 6.6% income and rental values over many years. However, since early March to £140.3 million (2019: £149.7 million), re ecting pressure on rents as a 2020, Covid-19 has had a negative impact on both. The chart below result of higher availability of space across the West End together with demonstrates the resilience displayed by the wholly-owned portfolio ongoing operational and nancial challenges faced by our occupiers. during the global nancial crisis and the impact to date of the Covid-19 This was particularly the case for retail and food, beverage and leisure, pandemic. where ERVs declined on average by 10.7% and 6.9% respectively. O ce ERVs declined by 1.7%. + Covid-19: impact and response: page 6
Long-term progression in ERVs and contracted rents Annualised current income (£m) ERV (£m)
GFC Covid 7.4% 6.1% 6.0% 6.4% 6.8% 6.4% 4.8% 4.3% 1.6% 3.4% 2.6% 3.2%
-3.9%
L-f-L ERV growth ERV L-f-L -6.6%
150 144 140 129 134 119 28% 110 93 98 85 77 55 73 72
55 59 62 67 74 76 80 86 95 101 105 113 117 110
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Contracted income and ERV and income Contracted
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Main heading and baseline of body copy Reversion components (£m) without heading 14.3 140.3 14.4 -2.5 Second line of main heading and baseline 109.9 4.2 for copy with main heading % of ERV 3.0% 10.2% 10.1% -1.8% Baseline of copy with two line heading L-f-L L-f-L -6.6% -6.4%
Annualised current Contracted income EPRA vacancy Asset management Over-rented leases ERV income schemes + Page 60 + Page 61
At 30 September, the portfolio’s ERV was 27.7% above annualised current income. The components of the reversion are set out in the Food & beverage chart above. Typically, our portfolio has a long history of being under During the year, the valuation of Longmartin’s food & beverage rented. However, following the decrease in ERVs in the year, our valuers accommodation decreased by 17.4% from £38.1 million to £31.5 million. estimate that let accommodation is currently over-rented by £2.5 This decrease was driven by an increase in equivalent yield of 51 basis million in total. Depending on the path and pace of recovery, further points and a decrease in ERV, recognising existing vacant space in St pressure on ERVs would increase the over-rented element of our Martin’s Courtyard, following a scheme to create three restaurants, and portfolio until such time as vacant space across the West End has disruption to the supply and demand balance caused by near-term been absorbed. food and beverage vacancy in the immediate surrounding area as a result of Covid-19.
Longmartin valuation Residential and offi ces In the narrative below, all gures (except areas) represent our 50% share. The valuation of Longmartin’s apartments decreased by 6.5% to £28.1 During the year Longmartin’s long leasehold property decreased on million (2019: £30.1 million), re ecting a near-term increase in the a like-for-like basis by 16.9% from £209 million to £175 million. The availability of space and slowing of the investment market. The o ces revaluation de cit, after capital expenditure, was £35.8 million, following valuation increased by 3.7% to £73.5 million (2019: £70.9 million) a 12.0% decline in ERVs to £8.8 million (2019: £10 million) and an following ERV growth of 3.2% and equivalent yield compression increase in equivalent yield of 17 basis points to 4.11% (2019: 3.94%). At of two basis points to 4.21% (30 September 2019: 4.23%). 30 September 2020, annualised current income was £6.2 million, down 17.3% during the year (2019: £7.5 million). Valuation outlook The valuation decline was driven by retail and food & beverage, which We expect that the valuation of both the wholly-owned portfolio and decreased by 40.1%, and 17.4% respectively. Longmartin’s property are likely to experience downward pressure in the near term. This is predominantly due to the growing availability of Retail space across the West End and the continued impact of Covid-19 Retail values decreased on a like-for-like basis during the year by 40.1% containment measures a ecting trading conditions for retail, food, to £41.9 million (2019: £70.0 million). In contrast to the Group’s beverage and leisure businesses, with the risk of further declines if the wholly-owned shops, Longmartin’s retail space predominantly current market outlook worsens. The pace of pandemic recovery will comprises large units on Long Acre, a street with relatively high overall be important in the extent and duration of downward pressure on rents, for which occupier demand continues to decline. Together with valuations. general uncertainty and further pressure on rents as a result of Covid-19: impact and response: page 6 Covid-19, this has led to an increase in Long Acre retail equivalent yields + of 50 basis points during the year, and further reductions in ERVs.
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Portfolio activity report Strategic report Following a largely “business as usual” first half of our financial year, the Covid-19 pandemic had a significant impact on our business during the second half, resulting in reduced rent collections, increased vacancy and reduced occupier demand.
1 Rent collection % of contracted income collected Our key priority has been, and continues to be, supporting our 6 months to 30 September 2020 occupiers through the period of pandemic disruption (pages 7 to 8). A signicant element of this support has been through rent concessions, 2 months to 30 November 2020 often by way of waivers, deferrals and introduction of further lease £9.5m exibility including short-term turnover-related rents. In some cases, our concessions have provided the opportunity to restructure leases. £7.4m £7.5m Furthermore, we have drawn on tenant rent deposits to part settle their arrears and are not requiring these deposits to be topped-up. £5.9m In order to provide certainty for our food, beverage and retail 54% businesses, our discussions and agreements with them initially focused 33% 79% on the six months to 30 September 2020. From 1 October 2020, we 83% £1.8m £2.1m commenced providing commercial occupiers with the option to pay £1.5m £1.5m rent and service charges monthly rather than quarterly in advance, in 19% 31% 70% 88% order to help align our revenue collection with their cash ows. With Food, Retail Oces Residential England entering a second national lockdown on 5 November 2020, beverage rent collections since 30 September 2020 have been further reduced & leisure and additional waivers have been granted. Looking ahead, our rental and service charge support is likely to continue Contracted rent and rent collection since the first UK through 2021, with our occupiers having reduced income in the 1 Covid-19 lockdown important period leading up to Christmas and into the New Year, which 6 months to 30 2 months to 30 traditionally has provided them with liquidity buers to withstand the September 2020 November 2020 normally slower quarter to March. The eventual return to more-normal £m % £m % rent collection levels will be highly correlated to the recovery in footfall. Collected Deferred -- Leasing and occupier demand Waived The decisive outcome of the December 2019 general election, and Outstanding clarity regarding the UK’s exit from the EU, brought welcome signs of an Total contracted improvement in business condence and investment, as well as consumer activity. Our occupiers reported good footfall and spending By 30 November 2020, we had collected 53% of contracted rent for in our locations in the important trading period over Christmas and the the six months to 30 September 2020, of which drawings against rent New Year, and in the early weeks of 2020, enquiries to lease space deposits accounted for £6.8 million (12% of contracted rent). At 30 grew, and the availability of potential acquisitions picked up. September 2020, we continued to hold rent deposits totalling £14.3 million (2019: £20.7 million). 34% of contracted rent had been waived or From early February 2020, growing reports regarding the rapid spread deferred and 13% remained outstanding. of the Covid-19 virus began to impact leasing activity and lower leasing volumes have continued since March 2020. Rent collections for the two months to 30 November 2020, a period which included the second lockdown, were 37%, of which rent deposits During the year, we concluded leasing transactions with a rental value accounted for £0.2 million (1% of contracted rent). 40% of rent has of £23.6 million, 30% lower than the volume in 2019. The decrease in been waived and 23% remained outstanding. commercial letting activity was particularly noticeable in the second half of the nancial year. The eventual recovery of amounts deferred or outstanding will depend on tenants’ ability to meet these commitments. This will be inuenced Letting activity during the year by pandemic-related factors which continue to aect the future viability of their businesses. 2020 2019 H1 H2 Rent collection rates have varied by use, with residential and oce £m £m £m £m Change collections being higher than those for food, beverage and retail Commercial businesses which inevitably are more footfall reliant. Lettings and renewals () Rent reviews () () Residential () ()
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Main heading and baseline of body copy The uncertain outlook for the national economy and consumer Tenant insolvencies since the lockdown in March 2020 accounted for without heading spending is having a signicant impact on business condence and approximately 2% of ERV. investment, which is unlikely to improve materially until pandemic Second line of main heading and baseline concerns abate. Retailers, particularly those exposed to structural EPRA vacancy at 30 September 2020 changes in shopping habits nationally and internationally, which were for copy with main heading % of total ERV clearly evident before the onset of the pandemic, have been Food, accelerating their review of space requirements, both in terms of beverage Residen- Baseline of copy with two line heading location and size of shops. Similarly, over-extended food and beverage and leisure Shops Oces tial Total 2020 2019 chains continue to retrench their operations to focus only on the most £m £m £m £m £m % % protable locations and sites. Under oer Available-to-let We have seen encouraging letting interest in recent weeks, with potential occupiers attracted by the curation of our normally buoyant 2019 and prosperous villages, with relatively aordable rents. Generally, Area (’000 sq. ft.) businesses remain cautious in taking on rental and capital expenditure 2020 commitments and occupiers are looking for greater exibility when 2019 entering into new leases, including rent suspension in the event of further lockdowns. In the case of food, beverage, leisure and retail premises, a higher specication of landlords’ basic t out, rather than Commercial vacancy taking space in shell condition, is becoming standard market practice. At 30 September 2020, commercial EPRA vacancy comprised: We are now providing fully tted-out space in some of our oce • 22 restaurants and cafés (47,000 sq. ft.): total ERV of £3.5 million; schemes. We expect the demand for further lease exibility to be prevalent until the West End fully recovers from the pandemic. • 35 shops (45,000 sq. ft.): total ERV of £4.5 million; - 9 were larger shops (ERV > £150,000): total ERV of £2.7 million; and, Occupancy - 26 were smaller shops: total ERV of £1.8 million; and Although the West End has a long-term availability/demand imbalance, • 45 oce suites (40,000 sq. ft.): total ERV of £2.5 million. we have seen a decline in portfolio occupancy during the year. Compared with the 10-year pre-Covid-19 average of 2.9%, EPRA vacancy rose to 10.2% during the year, with the majority of the increase since March 2020. Aecting all uses, this was largely due to the impact of the Covid-19 pandemic, including the signicant reduction in letting activity since February 2020, completion of refurbishment schemes, space handed back by commercial tenants and an exceptional increase in vacant apartments.
EPRA vacancy history Covid: Underlying Larger schemes +7.3% vs 10 year average
10.2% 0.3%
6.0%
9.9% Pre-Covid: 4.6% 10 year quarterly 3.5% 3.7% average 3.2% 2.9% 2.9% 0.5% 2.7% 1.9% 2.3% 1.6% 1.6% 1.6% 3.2% 2.5% 2.7%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
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Residential vacancy Space held for or undergoing refurbishment at Strategic report Residential vacancy, which prior to the pandemic had typically been 30 September 2020 minimal, was unusually high at 137 apartments with an ERV of £3.9 % of total ERV million at 30 September 2020. This large increase in the second half of Food, our nancial year was mainly due to occupiers from overseas returning beverage Residen- home when Government restrictions were introduced, and the collapse and leisure Shops O¤ces tial Total 2020 2019 in demand from long-stay international business and leisure travellers. £m £m £m £m £m % % Across the West End, many landlords who would usually let their ats 72 Broadwick Street short-term or let to serviced apartment operators have been Other schemes attempting to nd long-term tenants. This has resulted in a near-term increase in availability of apartments to let, causing downward pressure 2019 on rents. Given the long-term structural shortage of accommodation in Area (’000 sq. ft.) the West End, we believe that this is a short-term challenge in respect 2020 of our residential portfolio. 2019
Occupancy outlook 72 Broadwick Street, Carnaby By 30 November 2020, EPRA vacancy had risen further to 12% of ERV. Works continue on our 77,000 sq. ft. mixed-use scheme to: We expect near-term EPRA vacancy to increase through a combination • introduce new retail, restaurant and leisure uses; of occupiers suering further operational and nancial challenges, occupier demand remaining subdued until there is a sustained recovery • relocate the oce and residential entrances to allow activation of the in footfall, spending and business condence, and the completion of commercial frontage on Broadwick Street; schemes currently in progress. This will, inevitably, weigh on near-term • extend and refurbish the remaining oce space; and rental levels across the West End. However, we are condent that our • reconstruct the residential accommodation, increasing the number of historically popular areas will continue to be destinations of choice for apartments from eleven to fteen. potential occupiers as recovery gets underway. Of the repurposed and upgraded commercial accommodation, 48% by ERV is conditionally pre-let to Equinox, an American tness and lifestyle e ishment econfi ation an brand. The oce space is no longer under oer. redevelopment schemes Whilst site activity was suspended in March and April, due to lockdown A key aspect of our asset management strategy is to carefully manage, restrictions, good progress is being made. The estimated overall re-use and adapt our portfolio of mostly smaller, mixed-use buildings. scheme cost is now £35.7 million, of which £14.3 million had been Through refurbishment, reconguration and change of use, we improve incurred by 30 September 2020. We currently anticipate completion in our assets by: phases from Summer 2021.
• adapting our accommodation to meet current occupier requirements and anticipate market trends; Other schemes At 30 September 2020, we had 57 other schemes underway, extending • extending their useful economic lives; to 123,000 sq. ft. and with an ERV of £8.4 million (6.0% of ERV). These • improving income and rental prospects; and included 17,000 sq. ft. of food and beverage space, 19,000 sq. ft. of • enhancing environmental performance. retail, 67,500 sq. ft. of oce accommodation and 32 apartments. Our schemes mostly are not capital intensive and take a relatively short Projects with an ERV of £5.1 million are anticipated to complete by 31 time. Consequently, capital expenditure is modest, usually less than 1% March 2021, and are likely to increase near-term EPRA vacancy, of the portfolio value each year, an important factor in long-term although will provide a useful contribution to income and earnings over shareholder value creation. the medium term. Capital expenditure during the year totalled £34.8 million, representing Largest other schemes by cost 1.1% of wholly-owned portfolio value. This included our project at 72 Broadwick Street, Carnaby. Estimated Cost to cost complete Estimated At 30 September 2020, vacant space held for, or under, refurbishment Scheme Description £m £m completion extended to 200,000 sq. ft., and represented 10.1% of total ERV, down 50 Marshall Street, Creation of retail unit; Qª from 10.4% a year ago. Carnaby refurbishment/extension of o¤ce space 45/49 Charing Cross Recon¬guration and Qªª Road, Chinatown extension to provide new ®agship restaurant space and ¬ve apartments at this gateway to Chinatown 16-20 Short’s Gardens, O¤ce recon¬guration and Qª Seven Dials refurbishment
Page 61 Shaftesbury Annual Report 2020 Strategic report Portfolio activity report
Main heading and baseline of body copy Public realm improvements Acquisitions and disposals without heading London Borough of Camden’s works to improve the northern entrance to Seven Dials on Shaftesbury Avenue are now substantially complete. Adding to our portfolio Second line of main heading and baseline This now provides a crossing directly on the main walking route We take a long-term view in our investment strategy. When seeking out between Seven Dials and Tottenham Court Road station, which should new acquisitions, we adopt a disciplined approach, focusing on buildings: for copy with main heading increase footfall into Monmouth Street and Neal Street once the • on busy streets in areas close to West End landmarks where, as a Baseline of copy with two line heading Elizabeth Line opens. consequence of fragmented ownership and lack of strategic curation Improvements to Rupert Street, south of Shaftesbury Avenue, have and investment, rental tones are signicantly lower than nearby prime now completed, doubling pavement space and providing the locations; and opportunity for al fresco dining. • which add to existing or emerging clusters of ownerships where we In Seven Dials, a Covid-related trial by Camden Council has removed can, over time, compound the benets of our activities to deliver all trac from Seven Dials from 10am until 6pm, and will be in place long-term growth in rental and capital values through our holistic until September 2021, after which a permanent trac reduction management strategies. scheme could be put in place, subject to public consultation. We have a preference for adaptable and often period buildings which We have commenced working on the concept designs for the space either have, or have the potential for, a predominance of food, to the side of 72 Broadwick Street, with a view to removing trac and beverage, retail or leisure uses on the lower oors. In the West End, providing a new public space with exible seating and greening at this these uses have a long history of occupier demand exceeding important entrance into Carnaby. availability, underpinning their growth prospects. We continue discussions with both Westminster City Council and the With our focused acquisition strategy to establish and extend long-term London Borough of Camden on how our food and beverage businesses ownership clusters, disposals are rare. However, we keep the portfolio can access more outdoor space, particularly in light of social distancing under review to identify and sell individual buildings which, through measures. change of circumstances, are no longer considered to be of core importance to our long-term strategy, and where disposals will not damage the integrity and long-term value of the wholly-owned portfolio. Looking ahead to the coming year At any one time, we have schemes at various stages, from initial ideas, During the year we added to our existing and emerging clusters in seeking planning approval, awaiting vacant possession or under Carnaby and Soho, acquiring three buildings for £13.3 million: construction. Over recent years, we have often sought to secure • a dilapidated, mixed-use building fronting Kingly Street and Kingly vacant possession of space where we could improve long-term income Court in Carnaby, which had been in the same ownership since 1982. prospects through reconguration and change of use schemes. Until We have sought to acquire this property ever since our purchase of the operating environment improves, we will focus on protecting the Carnaby Estate in 1997. Plans are already being progressed for a existing income and preserving liquidity and new schemes will only refurbishment and reconguration scheme extending to two be considered where there is a compelling case. adjoining buildings; and Most of our current schemes will complete in 2021. In line with our • two freeholds in Berwick Street which adjoin existing ownerships and strategy, we will continue to recongure buildings to meet changing will oer the opportunity, in time, to recongure or add space. occupier demands. This is particularly so for shops where we anticipate With the West End’s broad-based economy, global appeal and further downsizing of our bigger units, where appropriate, and, where resilience, existing private owners are traditionally reluctant to sell other space is released, introducing other uses. than in periods of uncertainty or nancial pressure. The With growing food, beverage and retail vacancy across the wider West unprecedented operational disruption to West End footfall, trading, End, it is likely that availability of space to let will exceed occupier demand for space and occupancy resulting from pandemic-related demand for some time after the pandemic recovery starts. Whilst we measures, is beginning to unsettle current owners. This may present a believe our areas will continue to be seen as “best in class”, in the short rare opportunity to acquire key strategic additions to our ownership term, we expect to have to invest in elements of t out in our vacant clusters. units to maximise their letting prospects. + Financing: page 67 Since 30 September 2020, we have acquired a building in Seven Dials Longmartin asset management for £2.8 million. In the following narrative, all gures (except areas) represent our 50% share. 90-104 Berwick Street For the six months to 30 September 2020, 81% of contracted rent has In 2017, we conditionally agreed to acquire this development in Soho. been collected to date. 16% has been waived and 3% remains The vendor failed to meet contractual obligations to complete the sale outstanding. For the quarter to December 2020, 70% of rent has been to us by 30 April 2020. The scheme achieved practical completion in collected so far. The higher relative collection rate, compared with that October. We continue discussions with the vendor, but a decision on for the wholly-owned portfolio, mainly reects the higher proportion acquiring this building will not be made until a number of important of oces and larger international retail in Longmartin. pre-purchase conditions have been fullled to our satisfaction. During the year, lettings and rent reviews with a rental value of £1.6 million were concluded (2019: £1.4 million). At 30 September 2020, the ERV of Longmartin’s vacant space was £1.1 million (2019: £0.9 million) and there was space with an ERV of £0.1 million under refurbishment. Capital expenditure in the year was £1.6 million.
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Base line to page number Page 62 Shaftesbury Annual Report 2020 Strategic report
Financial results Strategic report The Covid-19 pandemic has had a material negative impact on our results this year, due to occupier operational and fi nancial distress, increased vacancy, lower rent collections, charges for expected credit losses and impairment, and investment property valuation defi cits.
esentation o fi nancial in o mation Income statement As is usual practice in our sector, we produce alternative measures 2020 2019 Change for certain indicators, including earnings, earnings per share and NAV, £m £m £m making adjustments set out by EPRA in its Best Practices Rental income ( ) Recommendations. These recommendations are designed to make the Service charge income nancial statements of public real estate companies more comparable across Europe, enhancing the transparency and coherence of the Revenue ( ) sector. These measures are reconciled to IFRS in note 24 to the Charges for expected credit losses and impairments ( ) - ( ) nancial statements. Service charge expenses ( ) ( ) ( ) Further details on APMs used, and how they reconcile to IFRS, are set Other property charges ( ) ( ) out on page 156. Net property income ( ) Administrative expenses ( ) ( ) Accounting for Covid-19 support provided Valuation de¬ cits and disposal pro¬ ts ( ) ( ) ( ) to occupiers Operating pro¡ t ( ) ( ) The support we are providing to occupiers as a result of the Covid-19 Net ¬ nance costs ( ) ( ) ( ) pandemic is largely in the form of deferrals and/or waivers of rent and Share of Longmartin post-tax loss ( ) ( ) ( ) lease modi cations. The accounting treatment depends on the type of Pro¡ t before tax ( ) ( ) support granted and often results in a mis-match between EPRA earnings and cash ows: Tax - -- Reported earnings for the year ( ) ( ) • Rent deferrals: income is recognised as normal and the deferred rent receivable balance is assessed for impairment. Basic earnings per share ( ) p p ( ) p 1 ( ) • Rent waivers: the cost of rent waivers is deferred over the remaining EPRA earnings term of the lease, in much the same way as a lease incentive. Any EPRA earnings per share1 p p ( ) p deferred cost is then assessed for impairment. The deferred cost 1. Alternative performance measure. balance, after amortisation or impairment, is deducted from the valuation of investment properties and, so, is initially charged to The loss after tax for the year was £699.5 million, compared with a revaluation gains or losses. As the balance is amortised or impaired, pro t in 2019 of £26.0 million. The year-on-year change was largely there is a charge against revenue and an equal credit to revaluation due to consequences of the Covid-19 pandemic and included: gains or losses. • a revaluation de cit, net of disposal pro ts, of £698.2 million (2019: Where a lease is modi ed, e.g. extended, in exchange for a rent waiver, de cit of £12.5 million); the cost of the waiver is spread over the revised lease term. • charges for expected credit losses and impairments totalling £21.9 The nancial statements include signi cant provisions for expected million (2019: nil); and credit losses in respect of trade receivables and impairments of • an increase in our share of the post-tax losses from the Longmartin balances such as lease incentives and deferred letting costs. In joint venture, predominantly due to an increased investment property assessing the provisions, we consider a number of factors including revaluation de cit in the year, our share of which was £35.8 million ongoing operational and nancial challenges being experienced by (2019: £19.2 million). tenants which reduce their ability to pay back arrears, including Portfolio valuation report: page 56 amounts deferred, and increase the risk of tenant default. Given + the materiality of the charges for these provisions in the current year, they are presented separately on the face of the Income Statement. + Preserving long-term value by supporting tenants to maintain occupancy: page 7 + Rent collection: page 59 + Occupancy: page 60
Page 63 Shaftesbury Annual Report 2020 Strategic report Financial results
Revenue Excluding employee costs, administrative costs were £6.2 million, £1.0 During the year, rental income, before the impact of charges for million higher than for the previous year (2019: £5.2 million), re ecting expected credit losses and impairments, was £114.4 million (2019: £117.3 increases in audit and professional fees, insurance costs and million), and included accrued income from lease incentives of £11.9 irrecoverable VAT, together with donations made from our Covid-19 million (2019: £2.3 million). The increase in accrued income is a result Community Fund. of accounting for waivers of rent during the period. + Remuneration report: page 100 In the rst half of the nancial year, our rental income (including accrued income) increased by 2.2% compared with the corresponding Valuation defi cit and disposal profi ts period in 2019. However, in the second half of the year, rental income Our wholly-owned portfolio’s revaluation de cit was £698.5 million decreased by 7.2%, compared with 2019, largely due to increased (2019: de cit of £15.3 million). This represented a like-for-like valuation vacancy and rent waivers granted to tenants as a result of Covid-19. decrease of 18.3%, largely due to uncertainties as a result of Covid-19, leading to lower rent collections, increased vacancy, reduced rental Rental income values and an outward movement in yields. 2020 2019 Portfolio valuation report: page 56 £m £m % + Residential long leasehold tenure extensions granted during the year 6 months ended 31 March generated a disposal pro t of £0.3 million. 6 months ended 30 September - - Net fi nance costs Net nance costs increased by £1.3 million to £31.8 million (2019: £30.5 For the full year, the like-for-like decrease in rental income, excluding million), largely due to drawings against our revolving credit facilities in the impact of acquisitions, was £4.1 million (-3.5%). March 2020, as part of a prudent approach to cash management and After service charge income of £10.1 million (2019: £9.6 million), revenue liquidity risk. decreased by £2.4 million to £124.5 million (2019: £126.9 million). Finance income decreased by £0.3 million to £0.7 million (2019: £1.0 million) due to a combination of lower cash balances and reduced Expected credit losses on trade receivables market interest rates. Rent collections were signi cantly reduced during the second half of our nancial year. Given the uncertain trading outlook for many of Share of Longmartin post-tax loss our food, beverage and retail tenants, and the higher risk of occupier Revaluation de cits resulted in the Longmartin joint venture reporting default, provisions have been made against amounts owing which post-tax losses in both 2020 and 2019. Our share of the revaluation have either been deferred as part of our Covid-19 occupier support de cit in 2020 was £35.8 million (2019: £19.2 million). Excluding these package or remain unpaid without an agreed waiver. The charge to revaluation losses, and the related deferred tax credits totalling £5.1 the Income Statement during the year was £13.0 million. million (2019: £3.1 million), our share of EPRA earnings from Longmartin Portfolio activity report: page 59 decreased by £1.0 million to £1.3 million (2019: £2.3 million) largely due + to lower net property income following charges for expected credit Impairment charges losses and impairments, of which our share was £0.6 million. The Income Statement includes a £8.9 million charge for impairments Portfolio valuation report: page 56 in respect of lease incentives, rent waivers and deferred letting costs + Portfolio activity report: page 59 (2019: £nil). These re ect our assessment of the likelihood of future + tenant default or failure, considering ongoing pandemic-related Tax operational challenges. The Group’s tax strategy is to account for tax on an accurate and timely Portfolio activity report: page 59 basis. Our appetite for tax risk is low and we structure our a airs based + on sound commercial principles, rather than engaging in aggressive tax Property charges and net property income planning. We maintain an open dialogue with HMRC with a view to Property charges, excluding recoverable service charge costs, were identifying and solving issues promptly. In 2019, HMRC con rmed our £18.2 million, down 5.7% during the year (2019: £19.3 million). The status as a ‘low risk’ taxpayer. Despite the nancial challenges in the decrease was due to reduced letting and marketing activity, partly second half of our year, we continue to meet the requirements in the o set by higher irrecoverable property operating costs, including REIT regulations. those as a result of increased vacancy levels. Our detailed tax strategy is available on our website. Net property income for the year was £74.3 million, down As a REIT, the Group’s activities are largely exempt from corporation tax £23.7 million compared with the previous year (2019: £98.0 million). and, as a result, there is no tax charge in the year (2019: £nil). As with most businesses, we do collect and pay other taxes and levies Administrative expenses e.g. payroll taxes, VAT, stamp duty land tax, business rates, and withholding Administrative expenses, totalling £14.4 million, were £0.8 million tax on Property Income Distributions. During the year, the total amount lower than in the previous year (2019: £15.2 million). paid in respect of these taxes amounted to £13.3 million (2019: £23.5 Employee costs were £1.8 million lower at £8.2 million (2109: £10.0 million). In addition, our share of taxes, including corporation tax, levied million). This decrease was largely due to executive directors not on, or collected by, Longmartin was £1.0 million (2019: £1.6 million). The receiving an annual bonus, together with all directors waiving 20% decrease in taxes paid is largely due to reduced output VAT, following of salary, pension contributions and fees for four months in the year. the decrease in rent collections from commercial tenants in the These savings were partly o set by additional employee costs as second half of the nancial year. a result of higher headcount and the 2019 annual pay review.
Page 64 Shaftesbury Annual Report 2020 Strategic report Financial results
EPRA earnings (£m)
54.6 Strategic report (2.9)
(13.0) 1.1 0.8 29.4 (8.9) (1.3) (1.0)
2019 Rental Expected Impairment Property Admin Net nance Longmartin 2020 income credit losses charges charges costs costs
EPRA earnings Balance Sheet EPRA earnings are a measure of the level of underlying operating 2020 2019 results and an indication of the extent to which dividends are £m £m supported by recurring earnings. In our case, EPRA earnings exclude Investment properties portfolio valuation movements, pro ts on disposal of investment properties, and deferred tax arising in the Longmartin joint venture. Investment in joint venture Net debt ( ) ( ) In the year ended 30 September 2020, EPRA earnings decreased by 46.2% to £29.4 million (2019: £54.6 million), of which £25.3 million was Other net assets earned in the rst half of the nancial year. EPRA earnings in the Net assets second half were impacted signi cantly by the pandemic, which has EPRA NAV per share1 ¥ ´ resulted in reduced rental income and charges being made for Total accounting return1 ( ) expected credit losses and impairments. EPRA earnings per share amounted to 9.6p, 46.1% lower than the previous year (2019: 17.8p). 1. Alternative performance measure. At 30 September 2020, net assets were £2,280.6 million, £726.6 million Dividends lower over the year (2019: £3,007.2 million). This decrease was largely As a REIT, we are required to distribute a minimum of 90% of net rental due to the loss after tax of £699.5 million, and the dividend paid in income, calculated by reference to tax rather than accounting rules, as respect of the previous year, amounting to £27.8 million. a PID. Notwithstanding this, our policy is to maintain progressive growth Other net assets have increased by £35.8 million to £55.3 million (2019: in dividends, re ecting the long-term trend in our income and EPRA £19.5m), largely due to a decrease in deferred income following our earnings, adjusted to add back the non-cash accounting charge for decision to o er most commercial tenants the ability to be invoiced equity-settled remuneration. To the extent that dividends for a year monthly, rather than quarterly in advance from 1 October 2020, exceed the amount available to distribute as a PID, we pay the balance together with deposits made in respect of interest cover covenant as ordinary dividends. Principal risks and uncertainties, including those waivers amounting to £8.7 million. which might a ect income and earnings, are set out on pages 73 to 77. Covid-19: impact and response: page 6 The Board monitors our ability to pay dividends out of available resources + and distributable reserves. Our forecasts take into consideration future liquidity requirements, which include prospective dividend payments. EPRA NAV Where possible, subsidiary companies distribute the majority of their EPRA NAV makes adjustments to reported NAV to provide a measure distributable pro ts to Shaftesbury PLC annually. Currently, there are of the fair value of net assets on a long-term basis. Assets and liabilities no restrictions on any subsidiaries’ ability to distribute pro ts. At 30 which are not expected to crystallise in normal circumstances are September 2020, we had distributable reserves of £261.4 million. excluded. In our case, the calculation excludes deferred tax related to property valuation surpluses and de cits in the Longmartin joint Following the outbreak of Covid-19, the Board announced on 24 March venture. 2020 that, in view of the likely reduction in rent collections and, in turn, adjusted EPRA earnings, it had taken the decision not to declare an Total accounting return measures shareholder value creation, taking interim dividend in order to preserve liquidity. A further announcement into account the movement in EPRA NAV together with dividends paid. was made on 25 September 2020 that no nal dividend would be EPRA NAV per share decreased during the year by £2.39 (24.3%) to declared in respect of the year ended 30 September 2020. £7.43 (2019: £9.82), principally due to the revaluation de cits, both in The Board intends to resume dividend payments as soon as it the wholly-owned portfolio and Longmartin. Together, these reduced considers prudent, maintaining its policy of sustainable dividend growth EPRA NAV by £2.40 per share. EPRA earnings of 9.6p per share were over the long-term. The pace of the post-pandemic income recovery, o set by the payment of the nal dividend for the previous year (9.0p and our REIT PID obligations, will be key factors in the Board’s per share). near-term decisions on declaring dividends.
EPRA NAV (pence per share) 982 10 (9) 743 (240)
2019 EPRA earnings Dividend Revaluation movements 2020
Page 65 Shaftesbury Annual Report 2020 Strategic report Financial results
New EPRA net asset measures ash o s an net e t In October 2019, EPRA introduced three new measures of net asset Net debt increased by £81.2 million to £987.0 million (2019: £905.8 value: million). The major cash ows were: Net Reinstatement Value (NRV) • Net cash generated from operating activities: £2.5 million (2019: This measures the value of net assets on a long-term basis, assuming £50.6 million). The decrease was predominantly due to lower rent no disposals. Assets and liabilities that are not expected to crystallise collections in respect of both rents due during the year and rents in normal circumstances, such as deferred taxes on property billed in advance at the end of the year, following the move to valuation surpluses, are excluded. It is a re ection of what would be monthly invoicing from 1 October 2020. needed to recreate the company. Consequently, purchasers’ costs Portfolio activity report: page 59 which have been deducted in arriving at the fair value of investment + properties are added back. • Net cash used in investing activities: £55.9 million (2019: £62.4 million). The main cash ows were net investment in the portfolio Net Tangible Assets (NTA) amounting to £44.2 million, deposits lodged with lenders in This recognises that companies buy and sell assets and therefore connection with securing interest cover waivers, totalling £8.7 million, takes into account deferred tax liabilities on sales, unless there is no and £2.9 million net cash out ow to the Longmartin Joint Venture. intention to sell in the long run. Portfolio activity report: page 59 Net Disposal Value (NDV) + Financing: page 67 This represents the value of net tangible assets, assuming an orderly + • Net cash in ow from nancing activities: £72.2 million (2019: cash sale of the business’ assets, achieving fair values as reported in the out ow £52.7 million), comprising net drawings against the revolving Balance Sheet. It includes deductions for liabilities that would credit facilities amounting to £100 million less dividends paid totalling crystallise in this scenario, including deferred tax and the di erence £27.8 million (2019: £52.9 million). between the fair value and carrying value of nancial liabilities. Financing: page 67 At 30 September 2020, these metrics were: + NRV: £8.16 (2019: £10.71) NTA: £7.43 (2019: £9.82) NDV: £7.29 (2019: £9.47) + Financial statements: note 24 Currently, for us, EPRA NTA equates to EPRA NAV and EPRA NDV equates to EPRA NNNAV. From the coming nancial year, we will commence reporting on these new measures rather than EPRA NAV, with EPRA NTA becoming our main metric.
8.7 2.9 0.1 987.0 Net debt (£m) 44.2 27.8 905.8
(2.5)
2019 Operating Dividends Net portfolio Interest waiver Net cash ow with Other 2020 cash in ow investment deposits Longmartin
Page 66 Shaftesbury Annual Report 2020 Strategic report
Financing Strategic report Recognising our fi nancing risk had increased as a result of reduced rent collections and low visibility over near-term income, in November 2020, we issued equity to ensure we maintain a strong fi nancial base, are positioned to return to long-term growth as pandemic issues recede and, should conditions improve, have capacity for portfolio investment.
Financing strategy Equity issue Investment in our portfolio is funded through a combination of equity The pandemic has had a signi cant impact on our operating cash ows and debt, with equity providing the permanent capital to support our and has elevated our nancing risks: long-term strategy. Debt provides capital for investment in our portfolio. • with reduced rent collections and increased vacancy continuing to put Under REIT rules, we are required to distribute the majority of our pressure on the interest cover (ICR) covenants in our debt recurring earnings. Furthermore, the importance of our ownership arrangements, we are currently reliant on ICR waivers from our clusters in long-term value creation means that opportunities to revolving credit facility and term loan providers; recycle capital are limited. • decreased valuations have elevated our near-term loan-to-value risks; We adopt a prudent approach to our capital structure, seeking to and minimise nancing risk. Typically, when prospective nancial ratios, re nancing risk is growing with low visibility on near-term income and including, but not limited to, gearing, approach the upper limit of • the consequential implications for valuations. our tolerance, we look to secure additional equity funding to mitigate these risks and provide nancial capacity to support the operation + Principal risks and uncertainties: page 73 and long-term growth of the business. Since March 2020, our strategy has been to preserve liquidity, with Key aspects of our nancing policy include conservative leverage, a moratorium on non-essential expenditure, new schemes and diversi ed sources of nance and a spread of debt maturities. The core acquisitions, other than by exception, and the decisions to not pay of our debt nance is secured, long-term arrangements, consistent dividends for 2020. Given the uncertainty over income levels, in March with the long-term nature of our business model, investment strategy 2020, we drew £150 million against our revolving credit facilities, as part and income streams, with the majority of interest xed. Working capital of a prudent approach to cash management. By 30 September 2020, is provided through secured, medium-term revolving credit facilities. we had repaid £50 million of these drawings. In managing nancing risk, we aim to maintain: + Covid-19: impact and response: page 6 • signi cant levels of available liquidity to cover contractual Having assessed our nancial position in light of the implications of the commitments and provide us with speed of execution when Covid-19 pandemic, on 22 October 2020, we announced details of an acquisitions become available; issue of equity with gross proceeds of £307 million, comprising £297 million by way of a rm placing, placing and open o er, and £10 million • a prudent loan-to-value ratio across the Group, with headroom by way of an o er for subscription. The purpose of the equity issue was above loan-to-value covenants in our debt facilities; and to ensure we maintain a strong nancial base, are positioned to return • a pool of unsecured properties which could be used to top up debt to long-term growth as pandemic issues recede and, should conditions security if necessary, to comply with loan-to-value covenants. improve, have capacity for portfolio investment. Following approval by shareholders of certain resolutions to execute Position at 30 September 2020 the transaction, on 18 November 2020, we issued 76.75 million shares, At 30 September 2020, net debt was £987.0 million (2019: £905.8 representing approximately 25% of our issued share capital, at £4 per million) and our loan-to-value ratio had increased to 31.5% (2019: share. After issue costs, the net proceeds were £294.4 million. 23.9%), largely due to the decline in the portfolio’s valuation in the year. Available resources totalled £197.8 million, comprising £72.8 million of Use of net proceeds cash and undrawn revolving credit facilities amounting to £125 million. Committed capital expenditure, to be funded from these resources, £m totalled £31.0 million. Managing ¡ nancing risks + Portfolio valuation report: page 56 Repay RCF drawings + Portfolio activity report: page 59 Potential cash deposits to remedy term loan ICR covenants Liquidity maintenance Fund potential operating cash out ® ows Capital expenditure in 2021 and 2022 Maintain prudent level of liquidity1 63 General corporate purposes 9 Net proceeds 294
1. But should conditions improve, provide some capacity for portfolio investment
Page 67 Shaftesbury Annual Report 2020 Strategic report Financing
Managing fi nancing risks Since the equity raise, we have secured an extension to the ICR covenant • Revolving credit facilities in our £250 million term loans to January 2022, reducing the likelihood or scale of cash cures being required in the future. In consideration for Following the completion of equity issue, we cancelled our £125 million this extension, we placed a further £4.4 million on deposit with the revolving credit facility, which was undrawn and had a contractual lender for the duration of the waiver. maturity in May 2022. In doing so, we bene ted from: The ICR waivers we now have in place for our term loans is set out removing of the risks associated with expected requests for further • below: interest cover waivers until the contracted expiry of the facility and the need to either renew or re nance this facility during a period of Facility amount ICR waiver uncertainty regarding near-term income, cash ows, property £134.8m July 2021 valuations and, consequently, lenders’ appetite to provide new credit; £250m Jan 2022 • releasing £252 million of charged properties into our pool of uncharged • Bonds assets; and At 30 September 2020, we remained compliant with the terms of the • eliminating the £0.8m p.a. commitment cost of this facility. nancial covenants under our bonds. However, given the uncertain Furthermore, we have now repaid £100 million of drawings against outlook, we continue to monitor the covenants and will take our remaining revolving credit facility, which remains available to be appropriate action if required. re-drawn, provided that we remain compliant with all requirements in the loan agreement, including the nancial covenants. Whilst undrawn, • Loan-to-value risk the annualised interest saving is estimated at £1.0 million. Since the Our individual debt arrangements have speci cally charged assets as equity raise, we have secured an extension to this facility’s interest security, although the relative amounts of collateral charged, compared cover covenant waiver from January 2021 to October 2021. with the amount of each facility, are not uniform. At 30 September In the event that we require further waivers which either are not 2020, our pool of unsecured properties were valued at £434 million. granted, or are subject to restrictions we nd unacceptable, the Following the termination of our £125 million revolving credit facility, this liquidity provided by the equity issue would allow us to part cancel pool has increased, on a pro-forma basis at 30 September 2020, to or terminate the facility ahead of its contractual maturity. £686 million, providing further loan-to-value covenant headroom across our remaining borrowing arrangements. • Term loans Viability statement: page 78 In the absence of interest cover covenant waivers from the providers + of our term loans, we can remedy interest cover ratio shortfalls with cash deposits, although there are restrictions on the number of times these remedies can be used, and would be subject to available liquidity. For the equity issue, we estimated that up to £12 million of liquidity would be required for ICR cash cures during the working capital statement period.
Impact of the equity issue Impact on cash (£m) Impact on liquidity (£m) 294.4
294.4
(125.0) (12.0) (45.0) 245.2 (100.0) (12.0) 197.8 (65.0) Undrawn (45.0) facilities Undrawn 100 145.2 facilities (65.0) 125 72.8 Cash 145.2 Cash 72.8
30 Sept Net Repay ICR 2021 Capital Pro forma 30 Sept Net Terminate ICR 2021 Capital Pro forma 2020 proceeds RCF related operating expendi- balance 2020 proceeds £125m RCF related operating expenditure1 balance drawings deposits1 cash ture1 deposits1 cash o w s1 o w s1 1. In the reasonable worst-case scenario for the working capital statement in the prospectus On a pro forma basis, adjusting for the net proceeds of the equity issue, the termination of the £125 million revolving credit facility and repayment of drawings under the £100 million revolving credit facility, at 30 September, net debt was £692.6 million, we had £367.2 million of available resources and our loan-to-value ratio was 22.1%.
Page 68 Shaftesbury Annual Report 2020 Strategic report Financing
Liquidity maintenance 2020 2020 The equity issue allows us to maintain a prudent level of liquidity. Reported Pro forma 2019 Strategic report ,5 At 30 September 2020, we had available resources of £197.8 million. £m £m £m Following the equity issue, and allowing for the termination of our Resources £125 million revolving credit facility, this increased on a pro-forma Cash basis to £367.2 million. Undrawn ® oating rate facilities (£m) 125.0 100.0 225.0 Given the ongoing impact of the pandemic, we expect: Available resources • a cash out ow from operating activities in the coming year, re ecting Commitments7 ( ) ( ) ( ) ongoing reduced rent collections, increased vacancy and Uncommitted resources 166.8 336.2 196.6 consequential increases in costs, set against a xed nance cost base. Debt stats In the reasonable worst-case scenario, prepared for the equity issue Net debt prospectus, this cash out ow was estimated at approximately £45 1,2 million for the year ending 30 September 2021. Loan-to-value Gearing1,2,4 • capital expenditure over the coming two nancial years of approximately £65 million, which includes capital commitments at 30 Interest cover1,3 x N/A x September 2020 of £31.0 million, new schemes and the estimated cost % drawn debt ¬ xed of refurbishing vacant space to maximise its letting prospects, given the Blended cost of debt1,6 increase in vacancy across the wider-West End, which has increased Marginal cost of undrawn ® oating rate facilities competition for occupiers. Weighted average maturity (years) 8.3 9.0 9.3 The equity raise provided funds to ensure that our liquidity does not Sources of ¡ nance (fully drawn basis) fall below levels we consider appropriate, after taking into account these estimated cash out ows. Bonds Covid-19: impact and response: page 6 Term loans + Revolving credit facilities 19% 10% 19% We will maintain our usual disciplined approach to acquisitions. Until such time as current trading conditions improve su ciently, we shall 1 Alternative performance measure. 2 Based on net debt. continue to prioritise a prudent approach to maintaining liquidity. 3 Ratio of operating pro t before investment property disposals and valuation However, by exception, should rare opportunities arise to secure movements to net nance costs. particular, long-sought acquisitions in our core or emerging ownership 4 Based on EPRA net assets. 5 Comparatives restated to re ect that we are no longer presenting nance ratios clusters, which will provide valuable long-term compound bene ts, including our joint venture on a proportionally consolidated basis (see page 56). we will consider deploying available liquidity. However, while the lack 6 Including non-utilisation fees on undrawn bank facilities. of visibility over our near-term income as a result of Covid-19 persists 7 Capital commitments at 30 September 2020. See page 136. and we remain reliant on interest cover covenant waivers across our debt facilities, we will look to replace the liquidity used for acquisitions Debt maturity profi le with selected disposals of assets no longer considered core to our Revolving credit facility long-term strategic objectives. Bonds 290 285 + Portfolio activity report: page 59 Term loan LIBOR replacement LIBOR, the London Inter Bank O er Rate interest rate benchmark 1 135 is expected to be discontinued after the end of 2021. In its place, 125 130 120 1002 a replacement ‘risk free’ rate, the Sterling Overnight Index Average (SONIA) will be used. There are two fundamental di erences between LIBOR and SONIA:
• LIBOR is an annualised forward-looking term rate, with several di erent 2022 2023 2027 2029 2030 2031 2035 tenors available ranging from one day to 12 months but SONIA is only 1. Undrawn at 30 September 2020 and terminated since available as an overnight borrowing rate. LIBOR is xed in advance for 2. Drawn at 30 September but repaid since a given term, meaning the interest amount can be calculated at the Summary of nancial covenants: page 162 beginning of the interest period while SONIA will be compounded in + arrears and therefore will not be precisely known until the end of the period. Longmartin fi nance The gures below represent our 50% share. • SONIA generally provides lower rates than LIBOR (which includes a banking sector risk or liquidity premium). Inevitably, this rate di erence The Longmartin joint venture has a £60 million xed-rate term loan will be priced into debt instruments in another way in future. maturing in 2026 which is non-recourse to Shaftesbury. LIBOR is only used in our remaining £100 million revolving credit facility. At 30 September 2020, Longmartin’s net debt was £57.9 million, Whilst the agreement does not have provisions to deal with this change, representing a loan-to-value ratio of 33.1%, up from 28.4% in 2019 due we will work with the providers of this facility to prepare for a smooth to the property valuation decrease in the year. transition in readiness for the cessation of LIBOR. + Portfolio valuation report: page 56 An ICR waiver to April 2021 has been agreed with Longmartin’s lender Financing summary and we are now discussing a potential extension. The table below shows the position at 30 September 2020 as reported Summary of nancial covenants: page 162 in the nancial statements and pro forma for the net proceeds of the + equity issue, the termination of the £125 million revolving credit facility and repayment of drawings under the £100 million revolving credit facility. It excludes our proportional share of Longmartin’s non- recourse net debt.
Page 69 Shaftesbury Annual reportReport 20202020 StrategicStrategic ReportReportOurXxxxx people and culture
Making a positive contribution +
Page 7070Page Shaftesbury Annual Report 2020 Strategic report
Risk management Strategic report Risk tolerance and management is embedded across the business, with the tone and culture set by the Board. Our near-term risk landscape has changed this year, with the pandemic presenting a number of issues. Navigating these challenges and being able to adapt to a rapidly-changing set of circumstances to manage risk has been key
Context • A simple group structure; and We invest exclusively in the heart of London’s West End, concentrating • A governance framework which includes clearly dened responsibilities on establishing ownership clusters in iconic, high-footfall locations. This and limits of authority. investment strategy has delivered long-term success for the Group and Governance overview: page 81 whilst the Covid-19 pandemic has disrupted performance this year, we + expect a return to growth once the eects of the pandemic have, in The Board’s attitude to risk is embedded in the business, with the all signicant respects, receded. Inevitably, the pandemic and social Strategy and Operations Executive, which includes executive directors, distancing policies have had a major impact on the West End and the closely involved in all aspects of the business and signicant decisions. Group’s near-term risk landscape during the year, which the Risk The whole Board approves capital, debt and non-routine transactions Committee has considered in preparing this report. above a relatively low specied level. Important factors in considering risk across the Group include: Incentive targets and benets are set to achieve the Group’s purpose, long-term strategic objectives and near-term priorities, whilst • An experienced executive and senior leadership team, with an average encouraging decisions to be made on the basis of long-term benet, tenure of over 14 years, and an in-depth knowledge of our business rather than short-term gain. and the West End property market. We are based in one location, close to all our holdings; Senior leadership team: page 53 Risk appetite + Inevitably, investing in one location presents an inherent geographic Our Board: page 54 concentration risk and there are certain external factors which we + cannot control. However, in executing our management strategy, we • The nature of our portfolio does not expose us to risks inherent in seek to minimise exposure to operational, reputational and nancial material speculative development schemes; risks, recognising that our appetite to risk varies across dierent + Exceptional portfolio in the heart of London’s West End: page 12 elements of our strategy, as shown in the diagram below. • Our diverse tenant base limits exposure to any single occupier; + Business model and strategy: page 22 • Our Balance Sheet is managed on a conservative basis with moderate Our appetite for development risk has reduced while near-term leverage, long-term nance, a spread of loan maturities, and with the income and vacancy uncertainty persists. Currently, we are prioritising majority of interest costs xed; income and liquidity preservation over actively securing vacant possession Financing: page 67 of space for reconguration and refurbishment schemes. At the same + time, our appetite for tenant risk has increased, recognising high vacancy • A culture which encourages open dialogue within the whole team and levels across the West End, and consequently more competition for with our wide range of external advisors; occupiers. + Our people and culture: page 42
Change in risk appetite during the year
High
Medium
Low Geographic Development Tenant Financing Compliance Reputation Environmental concentration
Page 71 Shaftesbury Annual Report 2020 Strategic report Risk management
Monitoring and managing risk Assessing risk and internal controls Our risk management and control framework is shown in the diagram Signi cant risks and mitigating controls are detailed in the risk register. below. It enables us to e ectively identify, evaluate and manage our Risks are considered in terms of the likelihood of occurrence and their principal and emerging risks. potential impact on the business. In assessing impact, a number of Roles and responsibilities in managing our risk and controls framework criteria are considered including the e ect on our strategic objectives, are summarised below. Risk is considered as follows: operational or nancial matters, our reputation, stakeholder relationships, health and safety, sustainability and regulatory issues. Informal consideration Risks are assessed on both gross (assuming no controls are in place) • Daily at an operational level by senior management; and residual (after mitigation) bases. • Weekly at executive director meetings; and To the extent that signi cant risks, failings or control weaknesses arise, • Monthly at Strategy and Operations Executive meetings. appropriate action is taken to rectify the issue and implement controls to mitigate further occurrences. Such occurrences are reported to the Audit Committee. Formal consideration • Bi-annually (or as needed) by the Risk Committee. The Group’s processes and procedures to identify, assess, and manage its principal risks and uncertainties were in place throughout the year and The Board has overall responsibility for risk management and the remained in place up to the date of the approval of the Annual Report. systems of internal control. Such systems are designed to manage, rather than eliminate, the risks faced by the business and can provide only reasonable, not absolute, assurance against material misstatement Assurance or loss. Whilst we do not have a formal internal audit function, the Risk Committee oversees the provision of assurance on controls to the On a day-to-day basis, risks are addressed as they arise and, where Audit Committee. Normally, this comprises a rolling program of external signi cant, are discussed more widely with the Strategy and Operations reviews on processes and the e ectiveness of controls, supplemented Executive. Issues that have arisen and how risks have changed are key with controls testing by management. Results of the reviews and inputs to the Risk Committee. recommendations are reported to the Audit Committee, and followed The day-to-day management of the Group’s portfolio is outsourced to up by the Risk Committee. This year, the e ectiveness of key controls two managing agents. The Group monitors their performance and has was reviewed by management. Recognising the challenges that remote established nancial and operational controls to ensure that each working would present, the programme of external reviews was paused, maintains an acceptable level of service and provides reliable nancial although we plan to recommence this in the coming year. and operational information. The managing agents share their internal control assessments with the Group. The Risk Committee meets twice a year, or more frequently as needed, and reports to the Audit Committee and Board.
Oversight, Governance Board assessment and • Set risk culture mitigation at • Determine risk appetite a Group level • Review principal and emerging risks
Oversight Risk Committee Audit Committee Assurance • Co-ordinate and develop risk • Monitor risk exposure and • Internal and external reviews management process appetite of processes and the • Assess control environment • Review the e£ ectiveness of e£ ectiveness of key controls Top and e£ ectiveness of controls the risk management and • Observations from the Down • Co-ordinate the assurance internal control framework external auditor reviews • Approve the assurance • Review and assess risk register programme • Consider principal and emerging risks and mitigating internal controls Bottom up • Monitor risks and response plans
Ownership Strategy and Operations Executive • Oversee day-to-day monitoring and management of risk, including identi cation and response • Design and implementation of controls Identi cation, • Ensure key controls are operating and are e£ ective assessment and • Assist Risk Committee with identi cation of principal and emerging risks mitigation at an • Monitor performance of advisors including the Group’s managing agents operational • Brief Risk Committee on key issues that have arisen level
Page 72 Shaftesbury Annual Report 2020 Strategic report
Principal risks and uncertainties Strategic report
This report should be read in conjunction with the viability statement In assessing our principal risks, we considered the following strategic on pages 78 to 79. risks and, in view of mitigating controls, concluded they were not currently principal risks or uncertainties:
Risk landscape Geographic • Destruction of multiple assets. With our strategy of investing in one location, the risk of an event which concentration prevents or deters people coming to the West End has long been on Brand and reputation • Misconduct or poor operational standards by third our risk register. The prosperity of the West End is based on high party agents. footfall volumes, seven days-a-week. In normal times, it is estimated that it attracts over 200 million visits annually, comprising Londoners, a • Damage to reputation with local stakeholders and working population of over 750,000 and exceptional numbers of communities. domestic and international tourists. The Covid-19 pandemic has had a Governance, data and • Signi¬cant cyber security breach leading to major impact on the West End and all aspects of our business, elevating internal control disruption and/or loss of data. a number of principal risks and presenting new challenges. • Expulsion from REIT regime through non-compliance. With the pace and scale of the impact of Covid-19, we have had to • Health and safety matters. mobilise, assess, plan and respond to the multitude of challenges. • Failure to meet our environmental, social and Throughout the period since March, the Strategy and Operations governance (ESG) responsibility objectives. Executive has met regularly to consider a rapidly evolving range of People topics including occupiers, our people, communities, day-to-day • Attracting, retaining and developing talented people. operations, nance, IT, communications, liaison with our neighbours and local authorities, regulations and recovery. The Board has also met • Succession planning. regularly during this period and has received updates from management. Emerging risks included: In November 2020, the Group strengthened its Balance Sheet through • Failure to anticipate or understand changes in consumer and occupier an equity raise, which has reduced its nancing risk. However, while trends in food, beverage and retail. This forms part of the regular Government restrictions remain in place, operational risk remains high. Strategy and Operations Executive discussions. • Failure to eectively use, store and manage data. A review of how we Principal strategic risks and uncertainties can harness and make better use of management and commercial The Board has carried out a robust assessment of the principal and information is planned for the coming year. emerging risks and uncertainties which might prevent the Group achieving its strategic objectives. These risks and uncertainties, their • Cyber security risks. An overhaul and modernisation of our IT mitigation and the evolution of risk during the year are set out below. infrastructure is underway. Signicantly reduced footfall, together with restrictions on opening hours and social distancing measures have presented our occupiers with tough operational and nancial challenges. For us, this has resulted Strategic objectives in reduced rent collections, increased costs, a slowdown in occupier demand, increasing vacancy, pressure on rental values, decreased 1 2 3 valuations and increased nancing risks. Given the interdependence of many of our risks, exacerbated by the signicant decline in footfall this Long-term Grow recurring Attract, develop and retain year, we have included the impact of Covid-19 in the individual risk growth in rents earnings and talented people analyses, rather than disclose it as a separate risk. and portfolio cash flow value + Covid-19: impact and response: page 6 We cluster our principal risks in the following categories: external 4 5 factors, geographic concentration, market and consumer, brand and reputation, governance, data and internal control, and people. Risks are Minimise Deliver sustainable, scored on a scale from low to very high. environmental long-term benefits for impact our stakeholders
Evolution of risk
Risk increased Risk unchanged Risk decreased
Residual risk
Low Medium High Very high
Page 73 Shaftesbury Annual Report 2020 Strategic report Principal risks and uncertainties
1. External Factors Macroeconomic factors
Potential causes Consequences Commentary/Mitigation Strategic
• Macroeconomic shocks or events. • Lower consumer con¬dence/spending. • We focus on locations and uses which historically have objectives • Reduced visitor numbers. proved to be economically resilient. 1 2 5 • Uncertainty on trading and other relationships with the EU from • Reduced business con¬dence and investment. • We actively promote our areas to drive footfall. 1 January 2021: • Brexit-related occupier supply chain disruption • Covid-19 has resulted in increased macroeconomic risk. Evolution of - Short-term disruption to the UK and higher import costs. • Operational impact, this year, has been signi¬cant risk: economy. • Reduced tenant pro¬tability/increased and will continue through the recovery period. - Upward cost pressures. occupier ¬nancial distress/tenant default. • Longer-term economic pressures may temper occupier - Supply chain disruption. • Reduced occupier demand. Residual risk: pro¬tability. • Longer-term Covid 19 impacts: • Higher vacancy. • Our equity raise in November 2020 has ensured - Higher in®ation. • Downward pressure on rents. our ¬nancial base remains strong. - Taxation increases. • Reduced rental income and declining earnings. Covid-19: impact and response: page 6 - Recessionary environment. • Reduced ERV, capital values and NAV (ampli¬ed by + Viability statement: page 78 - Higher unemployment. gearing). + • Risk of loan covenant breaches.
Decline in the UK real estate market
Potential causes Consequences Commentary/Mitigation Strategic
• Changes to political landscape. • Reduced property values. • We focus on assets, locations and uses where, in normal objectives conditions, there is a structural imbalance between • Increasing bond yields and cost of • Decrease in NAV (ampli¬ed by gearing). 1 2 5 availability of space and demand. ¬nance. • Risk of loan covenant breaches. • We regularly review investment market conditions including • Reduced availability of capital and • Ability to raise new debt funding curtailed. bi-annual external valuations. Evolution of ¬nance. risk: • Our wholly-owned portfolio declined by 18.3% during the year. • Lower relative attractiveness of • Further pressure on yields and ERVs is likely in the near property compared with other asset term, predominantly due to surplus vacancy across classes. Residual risk: the West End and the continued impact of Covid-19 • Changing overseas investor perception containment measures a¼ecting our occupiers’ trading of UK real estate. conditions, with the risk of further declines if the current • Covid-19 accelerating structural market outlook worsens. changes in retail and o¤ce sectors. • Increased competition for occupiers is likely to increase near-term capital expenditure requirements. • An e¼ective vaccination programme, low ¬nance rates, and relative a¼ordability of London real estate for overseas investors could provide yield support. • Recon¬guration of our buildings is important to respond to changing occupier demand. • We operate with conservative levels of leverage, with a spread of both sources of ¬nance and loan maturities. Quarterly forecasts include covenant headroom review. • We maintain a pool of uncharged assets to top up security held by lenders, if required. Our equity raise in November 2020 and subsequent cancellation of a revolving credit facility has increased our LTV covenant headroom. + Portfolio valuation report: page 56 + Viability statement: page 78
Page 74 Shaftesbury Annual Report 2020 Strategic report Principal risks and uncertainties
1. External Factors continued Strategic report Changes in regulatory environment
Potential causes Consequences Commentary/Mitigation Strategic
• Unfavourable changes to national • Ability to maximise the • All our properties are in the boroughs of Westminster and Camden: changes to local objectives or local planning and licensing growth prospects of our policies may limit our ability to maximise the long-term potential of our portfolio. 1 2 4 5
policies. assets restricted. • We ensure our properties are operated in compliance with local and national regulations. • Tenants acting outside of • Reduced tenant • We use specialist advisors on planning and licensing and make representations on Evolution of planning/licensing consents. pro¬tability/increased proposed policy changes, to ensure our views and experience are considered. risk: • Growing complexity and level of occupier ¬nancial distress. • Tenant compliance with planning consents and licences is regularly monitored. sustainability regulation. • Reduced occupier • The Town and Country Planning (Use Classes) (Amendment) Regulations 2020, demand. • Increased stakeholder focus on e¼ective from September 2020, provide ®exibility to change uses of commercial, Residual risk: ESG. • Increased costs. business and service accommodation, eg between retail and restaurants. Whilst this • Regulation/guidance in respect of • Reduced earnings. could increase the supply of certain uses, eg restaurants, in the West End over the social distancing both within our • Decrease in property longer-term, subject to other planning and licensing regulations being met, it also portfolio and in connection with values and NAV (ampli¬ed presents opportunities to evolve the use mix in our portfolio. domestic and international travel by gearing). • Increasing national regulation, including corporate social responsibility targets and for the duration of the pandemic. • Reduction of spending/ obligations raise costs and, in extremis, could limit the ability to maximise values footfall in our areas. and income. • Head of Sustainability recruited to develop our long-term sustainability strategy and our already extensive community engagement. • Sustainability targets are included in remuneration and for each refurbishment or recon¬guration scheme appraisal. • Social distancing regulation continues to impact our occupiers’ ability to trade. + Sustainability: page 27 + Covid-19: impact and response: page 6
2. Geographic concentration Reduction in spending and/or footfall in our areas
Potential causes Consequences Commentary/Mitigation Strategic
• Pandemics. • Lower sales densities. • Footfall and customer spending are important ingredients for the success of our objectives • Reduced tenant restaurant, leisure and retail tenants. 1 2 5 • Macro economic conditions including recession, pro¬tability/increased • Key aspects of our management strategy are to: ensure our areas maintain a distinct declining disposable income, occupier ¬nancial distress/ identity; seek out new concepts, brands and ideas to keep our areas vibrant and Evolution of unemployment etc. tenant default. appealing; and actively promote our areas. risk: • Fall in the popularity of the • Reduced occupier demand. • The Board regularly monitors performance and prospects.
West End and particularly our • Higher vacancy. • The pandemic, social distancing regulations and Government advice to work from areas leading to decreasing • Reduced rental income and home have dramatically reduced footfall. Residual risk: visitor numbers. declining earnings. • The new “normal” following Covid-19, including how people choose to work and • Changes in consumer tastes, • Reduced ERV, capital values shop, could reduce footfall and spending in the medium to long term. A signi¬cant habits and spending power. and NAV (ampli¬ed by proportion of our customer base is local workers and Londoners, and we expect • Terrorism or the threat of gearing). footfall and spending to improve once the return to o¤ces commences, although terrorism. • Risk of loan covenant ®exible home working may change the daily pattern of footfall. We will continue to • Competing destinations. breaches. adapt our portfolio to meet occupier requirements. • Possibility that Covid-19 induces • Whilst being invested in one area is a risk, our ownership clusters are also a strength permanent structural changes and an opportunity, allowing us to adopt a holistic curation of our villages. in frequency of visits and • Public transport is important in making our areas more accessible to a wide range spending behaviour. of visitors. Whilst delayed, Crossrail is now scheduled to open in 2022. This line is • UK plans to end tax-free expected to bring an additional 1.5 million people within 45 minutes of the West End. shopping for overseas visitors. • It is too early to tell if or how the pandemic will impact long-term international travel patterns, particularly in the long-haul sector. The UK’s plans to end tax-free shopping for overseas visitors, making it the only EU country to do so, could further impact overseas visits to the UK and the amount spent by international tourists. However, the impact on our areas is expected to be less signi¬cant due to our focus on local workers, Londoners and domestic tourists, and our mid-market o¼er. • Changing leasing structure landscape (eg more ®exibility for occupiers and risk sharing) may lead to volatility in income and earnings. + Covid-19: impact and response: page 6 + Why London’s West End: page 20 + Business model and strategy: page 22
Page 75 Shaftesbury Annual Report 2020 Strategic report Principal risks and uncertainties
3. Market and consumer
Significant increase in tenant default/failure
Potential causes Consequences Commentary/Mitigation Strategic
• Decline in turnover (see • Lower sales densities, reduced • This risk has increased substantially this year, and continues to rise. objectives Reduction in spending and/or tenant pro¬tability. • Tenant trading monitored regularly by the Operations Committee. 1 2 5 footfall in our areas). • Reduced income and earnings. • Whilst the rent from any single tenant is not material - the top ten tenants • Increasing cost base and • Increased vacancy and related represent less than 10% of our rent roll - many of our tenants are small, Evolution of supply chain disruption (see costs. independent businesses, which have su¼ered signi¬cant operational and risk: macroeconomic factors). ¬nancial distress throughout the pandemic. Many have used debt to cover • Frictional cost of re-letting. • Occupiers with limited Balance shortfalls. The longer Government restrictions persist, the greater the risk that • Reduced ERV, capital values Sheet capacity are less likely to their businesses become unviable. and NAV (ampli¬ed by gearing). Residual risk: sustain a prolonged period of • In normal times, occupier demand exceeds availability of space in our areas. • Risk of loan covenant breaches. operational losses. Therefore, covenant has not been a major factor in when selecting tenants. • Wind down of Government Rather, we favour interesting concepts which help bring footfall to our villages. Covid-19 support, including Currently, vacancy across the wider West End has led to available space business rates relief which exceeding demand, although we believe the supply and demand balance will ceases at the end of March revert once pandemic issues have receded and available space is absorbed. 2021. • Our support through rent concessions has been critical to support our • Possibility that Covid-19 induces restaurant, retail and leisure occupiers in this challenging period. Despite this, permanent structural changes we have seen a number of failures and tenants not wishing to renew at expiry. in frequency of visits and • We continue to lobby Government on our tenants’ behalf and provide marketing spending behaviour. support. • Economic headwinds including • Tenant deposits held against unpaid rent obligations at 30 September 2020: recession, declining disposable £14.3 million. income, unemployment. + Covid-19: impact and response: page 6 + Portfolio activity report: page 59
We are unable to adapt to tenant demands/shifts in market offer by competitors, or we fail to anticipate changes in rental growth
Potential causes Consequences Commentary/Mitigation Strategic
• Rapidly changing occupier • Reduced income and earnings. • The wholly-owned portfolio’s ERV declined on a like-for-like basis by 6.6% in the objectives requirements. year. We expect further pressure on rental values until a sustained recovery is 1 2 5 • Increased vacancy and related • Structural changes in consumer costs. underway and vacancy levels begin to subside. behaviour and spending. • Increased irrecoverable • The current imbalance between availability of space in the West End and Evolution of • Occupiers becoming expenditure. occupier demand is resulting in tenants and potential tenants being more risk: demanding, especially given the competition for occupiers. We are having to increasingly cost conscious • Additional capital expenditure spend more on unit ¬t outs to maximise letting prospects and more lettings leading to: required to compete on ¬t-out are on an inclusive basis, where service charge and insurance costs are not - reduced space requirements standards. Residual risk: necessarily fully recoverable. and consequential lower • Pressure on ERV, leading to However, occupiers are still focusing on the quality of the location. Through the occupational costs, including decline in capital values and • holistic curation of our villages, we have competitive advantage, compared with investment in ¬t-out; and NAV (ampli¬ed by gearing). owners of single buildings in streets with fragmented ownerships. - an increased reluctance • Risk of loan covenant breaches. to contribute fully towards • Our portfolio of mostly smaller mixed-use buildings provides considerable building service charge and management ®exibility to adapt our accommodation to meet space insurance costs. requirements, an important factor with the current trend towards smaller-sized units where occupiers can retain a physical brand and product touch point for • Increased vacancy across the their customers. West End. • We typically seek innovative, mid-market concepts and brands for our villages. • Shaftesbury tenant proposition As footfall builds in the pandemic aftermath, the range of rental tones and unit becomes uncompetitive. sizes we can o¼er across our villages, together with our relatively a¼ordable • Flexible working could change rents and approach to leasing ®exibility will be more important than ever. o¤ce requirements. + Business model and strategy: page 22 + Portfolio activity report: page 59
Page 76 Shaftesbury Annual Report 2020 Strategic report Principal risks and uncertainties
4. Financing and capital structure Strategic report
Financing risk
Potential causes Consequences Commentary/Mitigation Strategic
• Reduction in income or values • Loan covenant breaches or • We review our capital structure and debt covenants regularly; quarterly objectives as a result of other principal reliance on waivers from forecasts include covenant headroom review. 2 5
risks. lenders. • We maintain a pool of uncharged assets to top up security held by lenders, • Changing lease structure • Insu¤cient liquidity to meet if required. Evolution of landscape to more ®exible obligations. • We adopt a prudent approach to our capital structure to minimise ¬nancing risk: leases and/or risk sharing. • Ability to raise new ¬nance or risk. However, the prolonged period of reduced rent collections during the
re¬nance existing debt may be pandemic put stress on our debt covenants and the ability to re¬nance debt impaired. that was maturing in the near-term. Residual risk: • Forced disposal of properties. • Our equity raise in November 2020 ensured that we maintain a strong equity base and are positioned to return to long-term growth as pandemic issues recede. • The pandemic continues to put pressure on net property income. However, throughout our viability assessment period, we currently expect to meet interest cover covenants in our debt facilities, either through secured waivers or by utilising cure mechanisms. • Our pool of unsecured properties has been bolstered through the release of security following the termination of an undrawn revolving credit facility, providing further headroom in our loan-to-value covenants. + Financing: page 67 + Viability statement: page 78
5. Sustainability
Climate risk
Commentary/Mitigation Strategic
We recognise that climate change and the transition to a low carbon economy will present signi¬cant long-term risks and opportunities for our business. objectives Failure to identify and mitigate risks could lead to disruption to our operations, damage to our reputation, and inhibit our ability to attract visitors and 1 2 4 5 occupiers, which ultimately could lead to a reduction in the value of our portfolio. We are continuing to de-carbonise our portfolio and will incur additional costs in the low energy refurbishment of buildings. Evolution of Our key risk indicators are: energy and carbon emissions, waste consumption, EPC ratings and green building certi¬cation. risk: Our mitigation actions include:
• Our Sustainability Committee has oversight of climate related risks. The Committee is chaired by our CEO and led by our Head of Sustainability. • The Sustainability Committee reports to both the Risk Committee, where climate change is a speci¬c risk, and the Board. Residual risk: • We are setting science based targets for carbon emissions reductions and will develop a long term net zero carbon target. • We have a clear sustainability policy and Action Plan that sets out our targets to reduce carbon emissions across our operations. • Our refurbishment strategy, which addresses about 10% of the portfolio a year, increases energy e¤ciency and sets minimum expectations for EPCs and green building standards. • We have third party veri¬cation of our carbon reporting. • We implemented a ¬ve-year biodiversity strategy in 2016 with the objective to achieve a 10% year-on-year increase in quantity of biodiversity features across our estate. + Sustainability: page 27 + TCFD statement: page 154
Page 77 Shaftesbury Annual Report 2020 Strategic report
Viability statement The directors have assessed the Group’s viability and confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three year period to 30 September 2023
Period of assessment • West End footfall and consumer spend to recover slowly from the In light of the Covid-19 pandemic, the current level of uncertainty and second quarter of FY 2021 onwards, returning to pre-pandemic levels the unprecedented pace of change in both our operating environment in FY 2023 and the wider economy have resulted in reasonable expectations 1 4 5 6 7 carrying a much lower degree of condence. Recognising this, the directors have reduced their period of viability assessment from ve • Rent collection rates to recover gradually in response to improving years to three years. footfall and consumer spending The ve-year assessment period used previously reected lease 1 4 5 6 7 lengths or rent review patterns across a large part of our portfolio, and corresponded with the Group’s typical forecast period. Current • Portfolio vacancy to increase in FY 2021 reecting continued relatively short- to medium-term uncertainty over key assumptions such as lease low footfall levels, tenant failure, the continuing impact of the pandemic terms, rent collection and occupancy render longer-term forecasts and the possibility of disruption at the end to the Brexit transition unreliable. period Whilst the Board monitors prospects over a longer period in the execution 1 3 4 5 6 7 of the Group’s strategy, in choosing a three year assessment period it • Further decreases in rental values, crystallising as a reduction in considered that to make any meaningful longer-term forecast would income as tenancies reach breaks or expiries or tenants default, require greater clarity with regard to the long-term implications of the resulting in reduced capital values and rental income Covid-19 pandemic on our occupiers, consumer behaviour and the wider economy. 1 2 4 5 6 7 The directors conrm that they have no reason to expect a material • Increased tenant incentive packages including longer rent-free periods, change in the Group’s viability immediately following the end of the increased landlord contributions and higher standard of t-out, three-year assessment period. particularly for our food, beverage, retail and leisure space, coinciding with shortening lease lengths Assessment process 1 2 5 6 In assessing the Group’s viability, the Board has considered a three-year review of the Group’s viability, prepared by senior management. • Increased non-recoverable property and service charge costs The review considered the potential impact of the principal risks which 1 3 4 5 could aect solvency or liquidity in ‘severe but plausible’ scenarios for a range of public health and macroeconomic outcomes. The directors • Decrease in capital values reecting declining rental values and paid particular attention to those risks which could result in reduced increasing yields income, protability and capital values or a shortfall in liquidity. 1 2 4 5 6 7 • No acquisitions or disposals are assumed. The completion of existing Key assumptions developments is assumed after which capital expenditure is assumed Key assumptions for the central viability scenario along with their link to to continue broadly in-line with the historical trend. the Group’s principal risks are set out below. Each of these assumptions was also subjected to an extreme downside sensitivity analysis, exing • In view of the Group’s Balance Sheet strength, following the the key inputs, in unison, to model more severe adverse impacts and November 2020 equity raise, no further change in the capital delays in recovery from the pandemic, assessing the Group’s earnings, structure was assumed. liquidity and debt covenant compliance in a downside scenario.
Principal risks
1 2 3 4 Macroeconomic factors Decline in the Changes in Reduction in spending UK real estate market regulatory and/or footfall in our environment areas
5 6 7 Significant increase in We are unable to adapt to tenant demand/shifts in Finance risk tenant default/failure market offer by competitors, or we fail to anticipate changes in rental growth
Page 78 Shaftesbury Annual Report 2020 Strategic report Viability statement Strategic report
• Having cancelled the £125 million revolving credit facility following the In unison, the downside scenario considered sustained low levels of equity raise, the remaining £100 million revolving credit facility is rent collection and increased vacancy, costs and tenant incentives assumed to be renanced at maturity on a like-for-like basis but to to the extent that the three year average net property income over the remain undrawn throughout the viability period. No other changes to viability period would be 26% below the pre-pandemic level of the year the Group’s nancing are assumed. ended 30 September 2019, with signicantly lower levels in the rst eighteen months of the viability assessment period. Financing: page 67 + Under the downside scenario, the Group would not meet its interest cover covenants until the nal six months of the viability period. Assessment However, for all drawn debt facilities, throughout the viability assessment The Group’s investment strategy is focused on food, beverage, retail period, the Group has either secured interest cover covenant waivers and leisure uses which, in the West End, prior to the onset of the from its lenders or can make up income shortfalls using cash deposits pandemic, had a long record of resilience and growth. Its management or additional assets with sucient contractual income from its pool of strategy had delivered high occupancy and sustained income growth unsecured properties. The number of occasions on which cure rights over the long term. However, Covid-19 containment measures have may be used is limited but the directors expect to have sucient resulted in an acute fall in income and severe operating and nancial use-rights to extend through the viability period. challenges for the Group’s hospitality and retail occupiers. Covid-19: impact and response: page 6 Whilst this scenario would present signicant challenges over the + viability period, the directors’ assessment is that, in view of the Group’s It is the Board’s expectation that the fundamentals of the investment cash reserves, its expected covenant compliance and cure rights, and strategy remain sound and that the eects of the pandemic on the the reverse stress testing set out below, the Group would remain viable. business will reverse in the medium-term. The viability assessment assumes that Covid-19 containment measures Reverse stress testing are reduced in the coming 12-18 months and a recovery in West End The Board has used reverse stress testing to estimate the level to which footfall and spending will follow. capital values and income would need to fall before it was unable to Recent announcements of successful vaccine trials and the Government’s cure a breach in its loan-to-value or interest cover covenants. plans for a mass vaccination programme are rst steps towards recovery The Board estimates that the Group could withstand a further 41% but there remains signicant uncertainty over the timing and pace of overall decrease in valuations before reaching the limit of its loan-to- the return of West End footfall and spending and an economic recovery. value covenants. The Group’s food, beverage, retail and leisure operators face severe If it were to cancel the remaining revolving credit facility (which is not economic challenges from loss of trade, the accumulation of expected to be utilised in its downside scenario) and release its security emergency loans and unpaid debts and the termination of government to be charged against other loans, this tolerance would increase to 48%. support schemes, including the business rates holiday from April 2021. Assuming the allocation of uncharged assets to debt facilities that would The risk of Covid-19 related tenant failures is likely to remain elevated be necessary to sustain these valuation declines, the Group re-calculated for some time. its forecast interest cover covenant headroom. At the point of lowest If reduced earnings were sustained throughout the viability period headroom in the downside scenario, when the relevant income is already this would be detrimental to the Group’s ability to return to prot and assumed to be at approximately half of its pre-pandemic level, the Group recommence dividends. However, it would not threaten the Group’s could sustain a further income decline of up to 29%, with tolerance viability unless loan covenants were breached and were not capable increasing to 46% in the event that the remaining revolving credit facility of being cured. were cancelled and its charged assets made available to secure against A reduction in capital values might put viability at risk if loan-to-value other loans. covenants on the Group’s debt cannot be satised. Declining values may also curtail its ability to raise new debt funding, but no new funding The Strategic Report on pages 1 to 79 was approved by the Board on 14 is expected to be required due to the Group’s cash reserves, following December 2020. the equity raise in November 2020. Debt facilities due to be renanced in the viability period are not currently expected to be drawn. Brian Bickell Chris Ward Financing: page 67 Chief Executive Finance Director + The downside scenario modelled asset value declines of up to 40%, resulting from increasing yields, together with decreases in ERVs.
Page 79 Shaftesbury Annual Reportreport 20202020 StrategicStrategic ReportReportOurXxxxx people and culture
Governance
Page 80 term sustainablesuccess support ourstrategyandpromotelong- Outlines ourremunerationpolicieswhich Remuneration management andinternalcontrolsystems statements andoversightofourrisk in ensuringtheintegrityoffinancial Explains theroleofAuditCommittee Audit, risksandinternalcontrols and theBoardevaluation composition, successionplanning Sets outourconsiderationofBoard evaluation Composition, successionand review ofdirectorindependence Describes therolesofdirectorsand Division ofresponsibilities framework throughout theyearanditsgovernance purpose andculture,itskeyactivities An overviewofhowtheBoardmonitors Leadership andpurpose Governance overview Shaftesbury AnnualReport2020Governance with the principles andprovisions within the 2018 Code. new executive directors willbealigned onappointment. Thegovernance onpages report 81to 113set outhow the Company has complied committed to align the contribution levels ofthe current executive directors with the workforce contribution rate by the endof2022. Any director pension contributions with the widerworkforce. As explained inthe Directors’ remuneration onpages report 101and105,we have throughout the year ending 30September 2020, with the exception ofProvision 38.This provision requires the alignment ofexecutive This is the rst year for the Company to against report the 2018 Code,andthe Board considers ithas complied infull with the Code Compliance withtheUKCorporateGovernance Code2018(the“2018Code”) + Roles andresponsibilities ofthe directors Independence andeectiveness Board andCommittee membership + Relations with shareholders Signicant votes against resolutions atour2020 AGM Our business conduct Our conicts ofinterest procedures Principal Board activities in2019/20 The role ofthe Board andits Committees Monitoring ofculture andengagement with employees Chairman's introduction + Annual remuneration report Remuneration policy Remuneration ataglance Directors' Remuneration report + Audit Committee report + Nomination Committee report Our Board evaluation process Board skills andexperience
Division ofresponsibilities: pages 90to 92 Leadership and purpose: pages 82to 89 Remuneration: pages 100to 113 Audit, risks and internal controls: pages 96 to 99 Composition, succession and evaluation: pages 93 to 95 Page 81
Governance Shaftesbury Annual Report 2020 Governance
Leadership and purpose Chairman’s introduction In this period of considerable uncertainty, good governance, the strength of our stakeholder relationships, maintaining a close dialogue with our talented team and living our values, is, I believe, fundamental to our long-term success Board members and meeting Dear shareholder I am pleased to present our 2020 Governance report and, as this is our attendance rst year under which the revised UK Corporate Governance Code 2018 has applied to Shaftesbury, we have taken the opportunity to Scheduled Board Additional present some of our governance initiatives under the key themes of the meetings Board new governance and reporting rules. (4 held) meetings2 Chairman Our purpose, strategy and culture Given the uncertain and evolving environment in which we have been Jonathan Nicholls 17/17 living and working this year, I am pleased to be able to report that the Executive directors Shaftesbury team’s actions have been critical in delivering on short-term strategic priorities to support our long-term underlying Brian Bickell 17/17 purpose: to curate vibrant and thriving villages in the heart of London’s Simon Quayle 17/17 West End. A key focus for the Board from the beginning of the Covid-19 disruption has been maintaining occupancy across the Group’s Tom Welton 17/17 portfolio. We believe this approach, underpinned by a strong nancial Chris Ward 17/17 base following our capital raise of £307 million through the Firm Placing, Placing and Open Oer and Oer for Subscription, which completed in Non-executive directors November 2020, will position the business to return to long-term Richard Akers 17/17 growth as the pandemic issues recede. Fundamental to our purpose and strategy is their alignment with our Dermot Mathias 17/17 culture based on our values of being human, original, community Sally Walden 17/17 minded, responsible and long term. We are pleased that these have been a cornerstone to the Shaftesbury team’s actions throughout the Jennelle Tilling 17/17 year and, in particular, in the period since the pandemic dominated the Jill Little1 - global agenda. How the Board has sought to achieve our purpose and discharge its duties under s172 of the Companies Act during the year, 1. Jill Little retired from the Board on 31 January 2020 and could have attended a maximum of two meetings. including in relation to the pandemic, and our successful post year-end 2. In response to the pandemic, frequent ad hoc Board calls were introduced to keep capital raise, is covered in more detail in our s172 statement on pages the Board informed of the changing market circumstances. 40 and 41. + Our people and culture: pages 42 to 45 + Monitoring of culture and engagement with employees: page 84
Page 82 principal risks anduncertainties outlined onpages 71to 77. treating itas aseparate risk. Seemore onourrisk management, have considered this within each aspect ofthe business rather than As the impact of the pandemic has beenfelt across ouroperations, we Committee andthe Board formally review current andemerging risks. intrinsic inapproval ofany material transaction. Twice yearly, the Audit Our consideration ofrisks is integral to the way we operate andis on more strategic matters. foreseeable future, enabling us to use ourscheduled meetings to focus have monthly calls inbetween ourscheduled Board meetings for the day-to-day operations have proved valuable, the plan is to continue to planned. As these more-frequent Board engagements regarding apprised ofthe changing conditions andactions both taken and executive directors, widerteam andadvisers kept the Board fully scheduled meetings. Through these additional meetings, 17virtual the been through the introduction ofadditional Board calls between our priorities to the challenging circumstances through the pandemic has One ofthe ways the Board has monitored the evolution ofourrisks and Risk management against 2018/19 objectives can befound onpage 93. Details ofthis process, the ndings ofthe review andourprogress to beworking eectively. pleased to that report the Board andits Committee's were considered O’Hare ofBoardroom Dialogue during the rst lockdown andIam This year ourBoard evaluation was undertaken externally by Sean Board evaluation appointments. to actively consider diversity andinclusion inallBoard andemployee We appreciate that diversity extends beyond gender andwe continue of Dermot Mathias atthe 2021 AGM, 33%ofourBoard willbefemale. reports, 42%and74% respectively are female. Following the retirement Of ourStrategy andOperations Executive Committee, andtheir direct Diversity andinclusion become Audit Committee chair. and Travis Perkins plc.From the 2021 AGM itis intended that Ruth will previous Audit Committee chair roles atOcado plc,Coats Group plc business advisor to arange ofUKandglobal businesses as well as director andwillbring to the Board herexperience as atax and Ruth Anderson willjoinus inDecember 2020 as anon-executive Dermot Mathias’ retirement atthe 2021 AGM, we are delighted that Following JillLittle’s retirement atthe 2020 AGM andinanticipation of Committee chair onSally'sretirement from the Board. shadowed by JennelleTilling, whowillbecome ourRemuneration Sally willlead onthe 2022 triennial remuneration policyreview, objective. Inorder to provide anorderly succession, itis proposed that contribution, andare satised that Sallyremains independent and the Board inOctober 2021, we have carried outarigorous review ofher recent capital raise. As SallyWalden willalso have served nineyears on over the years and,inparticular, his sage advice over the course ofour would like to thank Dermot for his valued contribution to the Board October 2021, willretire atour2021 AGM. Onbehalf ofthe Board, I independence, butwhowillhave served nineyears onthe Board in Mathias, whocontinues to bring to the Board astrong level ofskill and order to phase ournon-executive director retirements, Dermot Succession ofourBoard planning part is governance. animportant In Board compositionandchanges Shaftesbury AnnualReport2020Governance Leadership andpurpose 14 December 2020 Chairman Jonathan Nicholls your inthese continued support extraordinary times. Lastly, Iwould just like to say thank you to allofourshareholders for andextrasupport timecommitment over the past twelve months. my gratitude to my fellow Board members for their continued challenge, continued hard work anddedication. Inaddition, Iwould like to express relationships across allareas andIwould like to thank them for their navigating the challenges faced by the business andnurturing our The Shaftesbury team’s eorts this year have beenunparalleled in the 2020 AGM resolutions. was taken inconnection with engaging with MrLee onhis votes against had beenwithdrawn. Given the sale ofhis interest, nofurther action followed by anannouncement on1June2020 that legal proceedings Mr Lee had agreed to sell their 26.3% interest inthe Company. This was On 30May 2020, we announced that entities benecially owned by were passed with inexcess of98%those voting infavour. 75% majority. MrLee didnot vote onany other resolutions, all ofwhich three, whichwere Special Resolutions, were not passed by the requisite of the issued share capital, voted against nineresolutions, ofwhichonly At the 2020 AGM, MrLee, by then the ultimate benecial owner of26.15% who was atthe timethe benecial holderof26.32% ofourshare capital. proceedings issued by companies controlled by MrSamuelTak Lee, As previously reported, on11June2019, the Board was served with legal shareholder Legal proceedingsinstigatedbyamajor + Camden Foundations. InvestmentCommunity budget split over the Young Westminster and made acommitment ofafurther £50,000from our2020/21 implications for young peopleandourlocal communities, we have also of directors' remuneration. Recognising that there willbeongoing the funding for this initiative came through savings made from waivers that we have provided ofover support £310,000 for 18causes. of Part announced ourCovid-19 Fund Community andare pleased to report Recognising the impact ofCovid-19 onthese groups, inApril2020, we young peopleandourcommunities inWestminster andCamden. As aresult ofthe pandemic we have refocused oureorts onsupporting + + in ourlocal community. address climate change, minimise ourenvironmental impact andinvest monitor oursustainability priorities, including actions we needto take to meet the long-term expectations ofourstakeholders, we continue to commitment to sustainability remains as strong as ever. To ensure we Whilst the pandemic has, andwillcontinue to, impact ourbusiness, our community Sustainability, theenvironmentand + engagement see ours172statement onpages 40and41. on how we have engaged with stakeholders andthe outcome ofthat adjoining owners property associations. andindustry For more details nance providers, joint venture partners, visitors, local authorities, stakeholders including occupiers, the local community, suppliers, as aBoard is oversight ofthe widerteam’s relationships with other engagement is with shareholders andemployees, akey ofourrole part relationships. Whilst alarge element ofthe Board’s regular stakeholder Critical to ourlong-term success is the strength ofourstakeholder Engaging withourstakeholders
Making apositive dierence to our community: pages 46and 47 Environment: pages 29to 31 Sustainability: pages 27 to 28 Stakeholder engagement: pages 35to 39
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Governance Shaftesbury Annual Report 2020 Governance Leadership and purpose
Monitoring of culture and engagement with employees
Key to the achievement of our purpose and strategy is Shaftesbury's As a small team of under 40 people, there is high level of interaction culture and our aim to make a positive dierence. Our monitoring of with the executive directors in relation to both our various management culture has never been more important and extra Board meetings committees and day-to day operations. In addition, with all employees during the year provided further opportunities for your Board to see based in one location, the non-executive directors take the this culture in action through the Shaftesbury team living our values: opportunity to meet informally with the team. • Human. This has been demonstrated through our team's frequent In monitoring our culture, as part of the employee reward survey in communications with, and resulting actions in relation to, our September 2020, our sta were asked additional questions about how occupiers, employees, the community, suppliers and lenders. they felt about Shaftesbury as a place to work and the level of recognition received. The Board was delighted with the level of • Original. In these unprecedented times, our teams have worked hard employee response and the feedback that 100% felt both that they to ‘think outside the box’ and we have strived to nd creative were proud to work for Shaftesbury and would recommend solutions to sharing the pain of our occupiers and looking creatively Shaftesbury as a place to work. However, there were areas identied as to how to maintain our visitors' interest in the West End. We have for improvement, particularly in recognising the eorts of our teams found opportunities to aid our occupiers during and post-lockdown, and individuals. As a result of this feedback, we have asked our Culture and are lobbying our local councils in respect of initiatives to support Group, a cross section of employees across the business, to address occupiers reopening and helping them implement the new social this as part of a recognition project which is sponsored by Richard distancing measures. Akers, our designated non-executive director for employee • Community minded. We have proactively looked to support our engagement. In addition, the Board has been able to monitor our long-standing community partners and reached out to help others culture and ensure engagement with employees through the through our Covid-19 Community Fund and our wider Community attendance of non-executive directors, on a rotational basis, to some Investment Committee activities. of the Shaftesbury all-employee meetings. • Responsible. We have engaged with and supported our employees, with none being furloughed, continued to both assist our occupiers and pay suppliers promptly and created a Covid-19 Community Fund to help young people and our local communities. • Long-term. Our actions to support occupiers are, in our view, the best way to preserve the long-term value of our business.
Human Original Community-minded
Responsible Long-term
Page 84 Shaftesbury AnnualReport2020GovernanceLeadershipandpurpose Committees The roleoftheBoardandits Committee Operations Committee Risk Committee Audit + + • • • + • • • • • • + • • •
systems systems the Group’s risk management Oversees the eectiveness of emerging risks Group’s principal current and Reviews andmonitors the Meets atleast twice ayear eectiveness ofthe auditors Reviews the independence and the needfor internal audit management systems including nancial controls andrisk eectiveness ofinternal Reviews the adequacyand reporting process valuation andnancial Oversees the Group’s Three scheduled meetings operations andprocedures Oversees day-to-day Meets fortnightly
strategy andrisk appetite Oversees the alignment ofthe Group’s purpose, culture andvalues, Sets Group strategy Four scheduled meetings
pages 96 to 99 Audit committee report: pages 73 to 77 Principal risks and uncertainties: Risk management: pages 71and 72 Principal Board activities: pages 86to 88
Executive Committee Strategy andOperations Investment Committee Community pages 94 and 95 + • • • • • • • • • • • Committee Nomination +
to the Board Recommends appointments pipeline and development ofadiverse Oversees succession planning and composition ofthe Board Reviews the structure, size Five scheduled meetings activities strategy, programme and investmentcommunity Oversees the Group’s Meets atleast four times ayear planning Ensures appropriate team resourcing, development andsuccession Monitors risks andopportunities Monitors operational andnancial performance Develops andimplements strategy, operational plans andpolicies Meets fortnightly
Nomination committee report: Community: page 36and 37 +
Division ofresponsibilities: onpages 90to 92
The Board
• • Committee Sustainability
• • + + • • Committee Disclosure Oversees the Group’s governance long-term success ofthe Company Considers the balance ofinterests between stakeholders for the
Market Abuse Regulation Ensures compliance with the Meets as required management approach sustainability strategy and Sets the Company’s year Meets atleast four times a
Sustainability: pages 27 and 28 Environment: pages 29to 31
+
Our Board
: pages 54to 55 Committee IT Steering • • • • • • + Committee Pension • • • Committee Remuneration
Shaftesbury pension scheme governance ofthe Provides oversight ofthe Meets atleast once ayear policies remuneration andrelated Monitors employee remuneration culture, performance and Ensures there is alinkbetween Chairman andsenior employees policy for executive directors, Determines the remuneration Five scheduled meetings the outsourced IT function Reviews the performance of Group’s IT needs andstrategy Monitors the alignment ofthe year Meets atleast four times a
pages 100to 113 Directors' remuneration report:
Page 85
Governance Shaftesbury Annual Report 2020 Governance Leadership and purpose
Principal Board activities in 2019/20
At every scheduled Board meeting, the Board receives an update from the executive directors and the company secretary on the corporate equity markets, nancial matters, portfolio activities and governance. The table below provides examples of signicant matters discussed and consideration of stakeholders and s172 matters in the year ended 30 September 2020. At the outset of the Covid-19 pandemic, the Board introduced additional Board meetings to provide updates on the impact of the pandemic to Shaftesbury’s business, stakeholders and the Group’s nancial position. For more on how the Board engaged on these matters and key decisions taken by the Board in relation to s172 matters, please see pages 40 and 41.
Topic Activity and outcome1 Stakeholders considered Section 172 considerations STRATEGY & OPERATIONS
Acquisitions and capital • Approval of the acquisitions of three strategically important buildings in Kingly Street Shareholders Long-term consequences expenditure and Berwick Street Occupiers Environment • Regular updates on progress of the 72 Broadwick Street scheme and leasing strategy Suppliers Business relationships • Post the onset of Covid-19, all non-essential capital expenditure reviewed to Lenders Reputation preserve liquidity Shaftesbury’s oce • Consideration of the changing requirements of oce tenants and how to evolve Shareholders Long-term consequences oering Shaftesbury’s oering to meet these requirements Employees Employees Occupiers Business relationships
Tax Strategy • Approved the updated tax strategy Shareholders Business relationships Suppliers Reputation IT Strategy • Updates and reviews of Shaftesbury’s IT Strategy, cyber security, third party Employees Long-term consequences providers, working from home arrangements and IT Steering Committee actions Suppliers Employees Business relationships Reputation Occupier support and • Updates received and discussed in relation to: Shareholders Long-term consequences post-lockdown recovery - proposed rent concession strategies Employees Employees strategy - our post-lockdown recovery strategy Occupiers Business relationships - additional support being oered to occupiers and actions being undertaken in Local authorities/ Reputation relation to engagement with local councils and social distancing measures to neighbouring landowners/ bene¡t occupiers West End tourism partners - external asset management teams’ actions and cost saving measures Suppliers + S172 statement: page 40 Stakeholder dashboard • Consideration at each scheduled Board meeting of engagement activities Shareholders Long-term consequences undertaken by the executive directors and wider Shaftesbury team Community Employees Occupiers Business relationships Employees Community Local authorities/ Reputation neighbouring landowners/ Fairness between West End tourism partners shareholders Suppliers Lenders FINANCE
Capital structure and • Regular consideration of the Group’s liquidity, cash ²ow forecasts, covenants, Shareholders Long-term consequences liquidity covenant waiver discussions and balance sheet strength Lenders Fairness between • Process started for the November 2020 Firm Placing, Placing and Open Oer and shareholders Oer for Subscription to raise gross proceeds of £307 million + S172 statement: page 41 Dividend • Recommended the payment of the 2019 ¬nal dividend Shareholders Long-term consequences • Review of the eect of Covid-19 on liquidity, and determination that no dividend Reputation payments be paid or recommended in relation to the 2020 Half Year and Full Year results + Dividends: page 65 Financial Reporting • Review and approval of the Full Year results and January trading statements Shareholders Long-term consequences • Review and approval of the Half Year results and March and September trading Lenders Reputation statements
1. Matters impacted by Covid-19 in bold
Page 86 1. Matters impacted by Covid-19 inbold Shaftesbury AnnualReport2020GovernanceLeadershipandpurpose Internal governance GOVERNANCE Shareholder engagement SHAREHOLDERS Division of responsibilities succession Non-executive director External BoardExternal evaluation Risk managementRisk RISK Topic + • • • • + • • • + • • • + • • • + • Activity and outcome Feedback received from theexternal Board evaluation and actions agreed Minutes received from new Operating Committees Approval of theStrategy and Operations Executive Committee terms of reference Committee structures Updates provided ontemporary and permanent changes madeto internal Feedback from meetings withshareholders Consideration of feedback from theinvestor presentations and roadshows ofDiscussion planned investor meetings Consideration of how thepandemic impacted theGroup's risks recommendations from Committees theAudit and Risk Deliberation of theprincipaland emerging and risks amendments madefollowing Con¬rmed riskappetite basedonrecommendation from Committee theRisk Property Association asTrustee and JennelleTilling for for GuideDogs theBlind Approval of theappointment Chairof of theWestminster Brian Bickell Vice asDeputy Chairman, Chief Executive and SeniorIndependent Director Reviewed and approved theterms of reference and divisionof responsibilities for the and Nomination Committees Reviewed and approved theupdated terms of reference for theAudit, Remuneration Dermot Mathias as Audit Committee chair Consideration of theexperience required of anon-executive director to replace
Risk management and principal risks and uncertainties: pages 71to 77 Roles and responsibilities ofthe directors: page92 Nomination Committee pages report: 94 and 95 Board evaluation: page93 Relations with shareholders: page89 1 Shareholders Lenders Suppliers West Endtourism partners neighbouring landowners/ Local authorities/ Employees Occupiers Community Shareholders Section 172considerations Stakeholders considered Lenders Suppliers West Endtourism partners neighbouring landowners/ Local authorities/ Employees Occupiers Community Shareholders Shareholders Lenders Suppliers West Endtourism partners neighbouring landowners/ Local authorities/ Employees Occupiers Community Shareholders Suppliers West Endtourism partners neighbouring landowners/ Local authorities/ Employees Occupiers Community Shareholders Reputation Long-term consequences Reputation Environment relationshipsBusiness Employees Long-term consequences Reputation Environment Community relationshipsBusiness Employees Long-term consequences Reputation Long-term consequences Reputation Environment Community relationshipsBusiness Employees Long-term consequences Reputation Community relationshipsBusiness Employees Long-term consequences Page 87
Governance Shaftesbury Annual Report 2020 Governance Leadership and purpose
Topic Activity and outcome1 Stakeholders considered Section 172 considerations PEOPLE & CULTURE
Strategic People Plan • Regular updates on the progress of the Strategic People Plan Employees Long-term consequences + Strategic People Plan: page 43 Employees Remote working, return to • Consideration of: Employees Long-term consequences oce plans and employee - working from home arrangements including actions proposed and undertaken Employees wellbeing in relation to employee engagement and wellbeing; Reputation - employee feedback and return to oce plan • Attendance of all employee Shaftesbury presentations by Jonathan Nicholls, Richard Akers and Jennelle Tilling + S172 statement: page 41 Reward survey • Consideration of feedback from the all employee reward survey and focus groups and Employees Long-term consequences approval of actions proposed to address areas raised Employees + Consideration of remuneration and related policies below the Board: page 102 SUSTAINABILITY & COMMUNITY
Modern Slavery Statement • Approval of our 2020 Modern Slavery Statement Shareholders Long-term consequences Modern Slavery and human rights: page 28 Community Employees + Occupiers Business relationships Employees Reputation Suppliers Shaftesbury’s • Consideration of our sustainability approach, proposed underlying premise and priorities Shareholders Long-term consequences sustainability approach Sustainability: pages 27 and 28 Community Employees + Occupiers Business relationships Employees Community Local authorities/ Environment neighbouring landowners/ Reputation West End tourism partners Suppliers Covid-19 Community • Director remuneration waived to fund our Covid-19 Community Fund launched Community Long-term consequences Fund to assist local community during the pandemic Occupiers Employees • Updates received on how funds being utilised Employees Business relationships + Making a positive contribution to our community: page 46 and 47 Community Reputation Our Community • Approval of the revised terms of reference for Shaftesbury’s Community Investment Shareholders Long-term consequences Investment approach Committee Community Employees Occupiers Business relationships Employees Community Reputation
1. Matters impacted by Covid-19 in bold
con ict o inte est oce es The Company’s Articles of Association allow for the Board to authorise any actual or potential conicts of interest that may arise from the directors’ external relationships or commitments. Any potential conicts of interest are declared at the start of each Board meeting and a director who has a conict of interest is not counted in the quorum or entitled to vote when Board considers the matter in which the director has an interest. Actual and potential conicts are formally reviewed annually in respect of both the nature of individuals’ roles and their time commitment. No actual or potential conicts arose during the year. The external interests of new directors are considered as part of the recruitment process and, if appropriate, authorised by the Board on appointment. Any additional external appointments, which are subject to Board approval, are also considered by the Board in relation to the nature of the appointment and time commitment. The Board considered these procedures to be working eectively.
Page 88 proposing them atthe 2021 AGM for consideration by allshareholders. above continue to beinthe best interests ofthe Company, andwillbe The Board considers that the authorities sought by the resolutions votes against 2020 AGM certain resolutions. result, nofurther actionwas taken to engage with MrLee regarding the owned by MrLee had agreed to sell their interest inthe Company. As a On 30May 2020, the Board was advised that entities benecially or more ofthose voting, voting infavour. not vote onany other resolutions, allofwhichwere passed with 98% result, the special resolutions listed above were not passed. MrLee did issued share capital atthe time,voted against these resolutions. As a Mr SamuelTak Lee, the ultimate benecial owner of26.15% ofthe • • • • • a signicant vote against: in excess of20%, whichunderthe Investment Association guidance is At the 2020 AGM, the resolutions set outbelow received votes against General Meeting i nificant otesa ainstato nn al Board annually. is undertaken. This policyis reviewed by the Audit Committee andthe we have procedures to follow to ensure that appropriate investigation Followinghotline andonlineportal. receipt ofawhistleblowing report, through oursenior independent director orthrough anindependent under whichemployees andsuppliers can any report concerns either align with ourhighstandards. We have aformal whistleblowing policy speak upifthey witness any wrongdoing, orbehaviour whichdoes not With ouropenandtransparent culture, employees are encouraged to supply chain. prevent modern slavery andhuman tracking inourbusiness and also updated annuallyfor actions undertaken during the year to our Supplier CodeofConduct.OurModern Slavery Act statement is suppliers are consistent with ourown andthat new suppliers sign upto outsourced, for itis important us that the values andbehaviours ofour specic to their business. As ourday-to-day management property is health andsafety legislation andcomply with standards andcodes minimum, to adhere to allrelevant human rights, employment and environment andanti-corruption andwe expect suppliers, as a the ten principles ofthe UNGlobal Compact on human rights, labour, We donot have aseparate human rights policy, however, we support undertake annualcompliance training. on key policies andfor topics certain we require ouremployees to oftheirpolicies. induction,training As part is given to new employees anti-bribery, share dealing, whistleblowing andanti-tax evasion mattersand anti-bribery includedouranti-money laundering, Formal policies inplace during the year inrelation to anti-corruption level ofoversight over the group’s activities, policies andprocedures. Board andStrategic andOperations Executive Committee have ahigh based onrespect, integrity andtransparency andas asmall team, our Our culture is founded on forging lasting relationships and partnerships Our businessconduct Shaftesbury AnnualReport2020GovernanceLeadershipandpurpose
than 14days’ notice Special resolution -authority to call general meetings onnot less basis Special resolutions -authority to allot shares onanon-pre-emptive Ordinary resolution -authority to allot shares and Chris Ward Ordinary resolution -re-election ofJonathan Nicholls, Brian Bickell Ordinary resolution -annualremuneration report September 2020 June 2020 March 2020 January 2020 December 2019 November 2019 year is set outbelow. A timelineofinvestor relations activities undertaken during the the senior leadership team. to see ourvillages, understand management strategy, andto meet of Covid-19, tours ofthe portfolio whichprovide anopportunity and, priorto government social distancing restrictions as aresult analysts. Meetings involved either group orindividualpresentations existing andpotential institutional investors, as well asmarket equity executive directors heldaround 200 meetings with UKandoverseas on tours ofthe portfolioduring the year, the ChiefExecutive and physically meetshareholders andpotential investors, andtake them Notwithstanding the impact ofthe to pandemic onourability to the Board. responsibility for investor relations andfeedback is provided corporate governance. Thechiefexecutive has day-to-day contact with potential investors to aspect beanimportant of The Board considers the views ofourshareholders andregular Relations withshareholders Independent Director, Richard Akers. shareholders with ourChairman, Jonathan Nicholls andSenior results we willbeoering general engagement meetings to ourmajor Following ourcapital raise andthe publication ofthe 2020 annual • • activities, including consultation with: During the year, we have undertaken anumberofengagement vote electronically. For more details, please see ourNotice ofMeeting. toopportunity participate remotely andbeableto ask questions and attend the AGM inperson. However, shareholders willbeoered the to ensure shareholders' safety, shareholders willnot bepermitted to AGM, given inrelation the uncertainty to Government social distancing shareholders to with anopportunity meetthe Board. For our2021 All ofthe directors were present atthe 2020 AGM, whichprovided meeting, adedicated electronic mailbox was also made available. enable shareholders to beableto ask questions inadvance ofthe follow the proceedings atthe meeting via alisten-only audiofacility. To relation to ourcapital raise inperson. However, they were ableto were not ableto attend ourNovember 2020 General Meeting in Due to the continued Government pandemic guidance, shareholders website. session for analysts. Therecordings were made available onour pre-recorded the half year results presentation andhosted alive Q&A lockdown inJune2020 this year, Brian Bickell andChris Ward As aresult ofGovernment guidance onsocial distancing during video webcast with replay facilities was made available onourwebsite. For the November 2019 annualresults presentation to analysts, alive
calibration ofour2019 LTIP TAR performance measure. a numberofourlarge shareholders onaminoramendment to the abuse regulations; and capital raise in accordance with the requirements ofthe market a numberofourlarger shareholders onthe size andmethod ofour Trading update statement Interim results investor roadshow Analyst presentation Interim results Covid-19 update statement Global Property Conference Trading update statement Annual General Meeting European PublicReal Estate conference Year endresults investor roadshow Year endresults investor roadshow Analyst presentation Results for theyear ended30September 2019
Page 89
Governance Shaftesbury Annual Report 2020 Governance
Division of responsibilities Committee membership 1
C Chair + Member Board Nomination Committee Audit Committee Remuneration Committee Disclosure Committee & Strategy Operations Executive (SOE) Committee Risk Committee Community Investment Committee Pension Committee Operations Committee Sustainability Committee IT Committee
CHAIRMAN Jonathan Nicholls Non-executive Chairman C C C EXECUTIVE DIRECTORS Brian Bickell Chief Executive + + C + + C Simon Quayle Executive Director + + + + Chris Ward Finance Director + + + C C C Tom Welton Executive Director + + + NONºEXECUTIVE DIRECTORS Richard Akers Senior Independent Director + + + + Dermot Mathias Non-executive Director + + C + Jennelle Tilling Non-executive Director + + + + Sally Walden Non-executive Director + + + C STRATEGIC AND OPERATIONS EXECUTIVE COMMITTEE MEMBERS Samantha Bain-Mollison Retail Director + + Karen Baines Head of Group Marketing & Communications + + + Alastair Deutsch Head of Finance + + + + Desna Martin Company Secretary + + + + + + Charles Owen Property Director + + + + + Andrew Price Property Director + + C + + Jenna Slade Senior Portfolio Executive + + + Julia Wilkinson Restaurant Director + +
1. The Operations Committee is chaired on a rotating basis by members of the Strategy and Operations Executive Committee below the Board.
Page 90 Shaftesbury AnnualReport2020GovernanceDivisionofresponsibilities individual directors. tenure ofalldirectors, Board diversity andthe eectiveness of page 54and55.TheNomination Committee keeps underreview the of the Board, outlining their strengths andexperience, can befound on outtheir dutiescarry eectively. Thebiographies of all ofthe members combination ofskills, experience andknowledge to enable them to The Board believes that it,andits Committees, have the appropriate independent non-executive directors. re-election, andatleast half the Board, excluding the Chairman, are In accordance with the Code,alldirectors are subject to annual Independence andeffectiveness available onourwebsite underCorporate Governance. the respective Committees andthe Board during the year, andare Remuneration Committees’ terms ofreference were reviewed by both under Corporate Governance. Similarly the Audit, Nomination and and regularly reviewed by the Board andare available from ourwebsite and SeniorIndependent Director are clearly dened,set outinwriting without management present. Theroles ofChairman, ChiefExecutive year, the non-executive directors, ledby the Chairman, regularly met responsibilities whichensures accountability andoversight. During the There is clear division between executive andnon-executive Brian Bickell 1987 Director tenure Independent non-executive directors Executive directors Years Simon Quayle 1997 Tom Welton 1997 5 0 25 30 35
Dermot Mathias 2012 Sally Walden 2012 20 Jonathan Nicholls Chris Ward 2012 5 0 0 5 10 15 Richard Akers 2017 Jennelle Tilling 2019 2016
Dogs for the Blind. Association andJennelleTilling’s appointment as aTrustee for Guide Bickell’s appointment as Vice ChairDeputy of the Westminster Property roles for whichBoard approval was sought andreceived includedBrian During the year ended30September 2020, additional external Board satised that each has sucient timeto outtheir responsibilities. carry reviewed by the Nomination Committee andthe Board. TheBoard is undertake additional external appointments, whichare periodically recommendation ofRuth Anderson’s appointment to the Board. Directors each director appointment andwas akey consideration this year inthe responsibilities. Thecommitment expected is considered by the Board on dedicate sucient timeto eectively discharge their duties and The Board recognises ofalldirectors the importance being ableto independent. All non-executive directors are considered by the Board to be Independence ofdirectors Independent non-executive directors Executive directors Chairman 4 1 4 Page 91
Governance Shaftesbury Annual Report 2020 Governance Division of responsibilities
Roles and responsibilities of the directors
Chairman: In his role as Chairman, Jonathan Nicholls is responsible for: Jonathan Nicholls • Leading the Board in the consideration, challenge, support and oversight of the Company’s strategy and its implementation • Promotion and oversight of the achievement of Company’s purpose, values and culture • Monitoring the Company’s risk pro¬le • E¼ective engagement between the Board, its shareholders and other key stakeholders • Leading on the review of the Board’s e¼ectiveness • Oversight of succession planning • Ensuring regular discussion by the non-executive directors without management present As part of his role, Jonathan chairs the Nomination Committee Chief Executive: As Chief Executive, Brian Bickell is responsible for: Brian Bickell • Adapting and executing the Group’s strategy and commercial objectives to ensure they evolve in anticipation of changing market conditions and risks • The operational and ¬nancial performance of the Group • Ensuring the Company’s business is conducted with the highest standards of integrity, in keeping with the Company’s culture and values • Oversight of the Group’s skills, diversity, management development and succession • Communication with the Board, employees and other stakeholders As part of his role, Brian is a member of the Longmartin joint venture Board, chairs the Strategy and Operations Executive Committee and Sustainability Committee and has Board responsibility for HR matters Finance Director: As Finance Director, Chris Ward: Chris Ward • Supports the Chief Executive in developing and implementing strategy and managing risk • Provides ¬nancial leadership and the alignment of the Company’s business and ¬nancial strategy and management of the Company’s capital structure • Is responsible for ¬nancial planning and analysis, treasury, tax and IT functions • Is responsible for presenting and reporting accurate and timely ¬nancial information As part of his role, Chris chairs the Risk, IT and Pension Committees Other Executive Directors: As Executive Directors, Simon Quayle and Tom Welton: Simon Quayle, Tom Welton • Support the Chief Executive in developing and implementing the Group’s strategy and objectives • Develop and execute business plans in collaboration with the Chief Executive, Finance Director and Senior management • Oversee the day-to-day activities of the Group in line with the Group’s values As part of their roles, Tom is a member of the Longmartin joint venture Board and Simon is a member of the Sustainability Committee. Senior Independent Director: In his role as Senior Independent Director, Richard Akers: Richard Akers • Provides a ‘sounding board’ for the Chairman and acts as an intermediary for non-executive directors when necessary • Is available to shareholders as required as an alternative contact to the Chairman • Leads the non-executive directors in the evaluation of the Chairman’s performance • Acts as an independent point of contact in the Group’s whistleblowing procedures Designated Non-Executive Director In his role as Designated Non-Executive Director for employee engagement, Richard: for employee engagement: • Acts as Board sponsor for the Employee Culture Group Richard Akers • Attends Shaftesbury sta¼ presentations as appropriate • Monitors feedback from, and actions proposed as a result of, employee surveys, reporting to the Board or Remuneration Committee as appropriate • Reviews any whistleblowing matters raised by employees Non-Executive Directors: In their role as Non-Executive Directors and members of the Nomination, Audit and Remuneration Committees, Richard Akers, Richard Akers, Dermot Mathias, Dermot Mathias, Sally Walden and Jennelle Tilling: Sally Walden, Jennelle Tilling • Give an external perspective and provide constructive challenge to the executive directors and members of the Strategy and Operations Executive Committee in the Board’s discussions and decision making using their broad mix of business skills and experience • Monitor performance of the Group’s strategy within the risk management framework • Promote the highest standards of integrity and corporate governance throughout the Company and particularly at Board level • Review the integrity of ¬nancial reporting and that ¬nancial controls and systems of risk management are robust • Determine appropriate levels of remuneration for the senior executives Dermot Mathias and Sally Walden chair the Audit Committee and Remuneration Committee respectively
Page 92 engagement Stakeholder succession Objective Director Area of Focus Progress againsttheGroup’s2019evaluation: or any director. nor Boardroom Dialogue have any other connection with the Company continue to evolve, to maximise its eectiveness. Neither Sean O’Hare evaluation, was best placed to consider how the Board had andshould Board believed that Sean O’Hare, having undertaken our2017 Board result ofthe ofthe pandemic. start Inconsidering the appointment, the Sean O’Hare ofBoardroom Dialogue andincludedmatters arising as a Board andCommittee evaluation process was externally facilitated by ofourthreeAs part year external Board evaluation cycle, this year our Board performanceevaluationcycle Our 2019/20Boardevaluationprocess Board skillsandexperience Board evaluation Composition, successionandevaluation Shaftesbury AnnualReport2020Governance Brian Bickell DIRECTORSEXECUTIVE Jennelle Tilling Sally Walden Dermot Mathias Richard Akers Jonathan Nicholls DIRECTORSNONºEXECUTIVE Chris Ward Tom Welton Simon Quayle against years1and2 focus onprogress Internal reviewto Year 3 and reporting to theBoard. stakeholder engagement Improve reporting onthe executive directors. the non-executive and plans inplacefor both thesuccession Clarify review externally facilitated Independent Year 1 Real estate + + + + + + beverage, Food, retail + + + + groups and localproperty owners, suppliers and advisors, lenders and ourjoint venture partners. of Shaftesbury’s relationship with shareholders, employees, occupiers, ourcommunity, localauthorities, London promotional each scheduledBoard meeting. Aspart of this,theStrategy and Operations Executive Committee and Board consider thestrength A stakeholder ‘dashboard’ of engagement by theexecutive and non-executive directors and widerShaftesbury teams istabled at Executive directors’ kept succession underreview. Changes madeto internal management committees and recruitment to of aHeadof addresilience Finance below Board level. who willsucceedherasChairof theRemuneration Committee. until the2022 AGM. Given herknowledge of theGroup, Sallywillleadonthe2022 Remuneration Policy, shadowed by JennelleTilling, will beretiring after 8years at the2021 AGM, and itisproposed that SallyWalden remain asChairof theRemuneration Committee Ruth Anderson to jointheBoard asanon-executive director inDecember2020. To ensure astaggered Dermot succession, Mathias Progress Corporate ¬nance + + + + + any newissuesraised monitor progressand Internal reviewto Year 2 Accounting/ ¬nance + + + + + management management /¬ nancial markets Fund Fund + + + + Consumer marketing + + + As part ofthe reviewAs part Sean O’Hare: • • • The review was focused onthe following key areas: executive directors as to the Chairman's performance. Senior Independent Director also ledadiscussion with the non- evaluation process, metwith the directors individually. Richard Akers as who after consideration ofthe recommendations from the Board individual feedback onthe directors was provided to the Chairman, In additionto the evaluation ofthe Board andeach ofthe Committees, • • • • • • • • recommendations ofareas for the Board to keep under review included: Reecting the timing ofthe review andthe impact ofCovid-19, and opendiscussions. directors’ eectiveness inworking inacollegiate manner with engaged openness change andsupporting enhanced the Board andthe and Committees worked well. TheChairman’s personal of style The review concluded that the ow andactivities ofboth the Board • internal andexternal evaluations; and leadership development andactionarising from the most recent management roles, inductionanddevelopment ofBoard members, Nomination Committee, appointments process for Board andsenior Composition, succession andevaluation –eectiveness ofthe interaction ofBoard members outside offormal meetings. of Board papers, frequency andlength ofBoard meetings, and the Board, ofengagement quality inBoard discussions, appropriateness Division ofresponsibilities –the eectiveness ofthe Chairman, size of stakeholder (including workforce) engagement. and culture, allocation ofresources to deliver onthe strategy, Board leadership andcompany purpose –including strategy, values provided his feedback to ameeting ofthe Board inJuly2020. Nomination Committees; and attended ameeting ofeach ofthe Board, Audit, Remuneration and interviewed each Board director andthe Company Secretary; as aresult ofCovid-19 andstreamlining ofboard processes. capitalising onthe learnings arising from the revised ways ofworking reviewing the strengths ofthe Group’s stakeholder relationships; and Sustainability strategy; consideration ofthe Group’s science-based targets ofits as part continued monitoring ofthe Group’s culture; regular consideration ofthe resilience ofthe business model; reviewing performance outcomes inlight ofmarket expectations. eectiveness inaligning remuneration with Company values and of nance, risk andcontrols plus the Remuneration Committee's Committee eectiveness –including the Audit Committee oversight Page 93
Governance Shaftesbury Annual Report 2020 Governance Composition, succession and evaluation
Nomination committee report As our business continues to evolve, and our operating environment becomes more complex, our focus this year has been on non-executive director succession and to ensure our management structure, skills Nomination Committee members and and experience below the Board attendance support the effective delivery of Number of meetings our long-term ambitions attended (5 held) Jonathan Nicholls (Chair) Dear shareholder As chair of the Nomination Committee, I am pleased to present our Richard Akers report for 2020, covering the work of the Committee during the year Dermot Mathias with our key focus on non-executive succession planning. Jennelle Tilling Succession planning and talent Sally Walden development This year, following Jill Little’s retirement from the Board at the January 2020 AGM, and in light of Dermot Mathias and Sally Walden’s length of tenure and anticipated retirement from the Board over the course of the next two years, our focus was to nd the right person to join our Key responsibilities Board. We are delighted that Ruth Anderson, with over 20 years’ • Monitor and review the structure, size, composition experience as a KPMG partner acting as tax and business advisor to a (including skills, knowledge, experience and diversity) of the range of UK and global businesses and previously Audit Committee Board and its Committees chair of Ocado plc, Coats Group plc and Travis Perkins plc, will be joining the Board on 21 December 2020. As part of her induction, Ruth • To ensure that there are sucient plans in place for the attended our December 2020 Board and Committee meetings. orderly and e£ective succession of the Board and senior leadership team Inzito, an external search agency, was engaged to undertake the search which started in February 2020 with the shortlist initially interviewed by • Keep under consideration directors’ skills, experience and Brian Bickell and myself. Inzito, are a signatory to the Voluntary Code of independence Conduct, and have no other connection with the Company or the • Lead the process for Board appointments individual directors. A key element of our consideration as to • Review the time commitment expected from directors individual’s suitability for the role was that candidates would be able to devote sucient time to the role and which, on challenge, precluded a • Review the results of the Board performance evaluation number of candidates. A shortlist was then interviewed by Chris Ward that relate to its composition, diversity and how e£ectively and the other non-executive directors. After due consideration, the members of the Board work together Committee recommended the appointment of Ruth to the Board, which was approved at our December 2020 Board meeting.
2020 areas of focus • Undertook the search and appointment process for a new non-executive director and recommended to the Board the appointment of Ruth Anderson • Reviewed non-executive director succession plans • Reviewed executive director succession • Updated the Committee terms of reference • Reviewed the Committee’s e£ectiveness
Page 94 • • within the real estate sector: based onobjective criteria. We initiatives support to promote diversity level ofrecruitment.every Allappointments are made onmerit and Diversity includes butis not limited to gender, andis considered at of direct reports to the SOE, 74% are female. female membership onourSOE (excluding the executive directors) and Below Board level, we have agender-diverse talent pool,with 63% after Dermot Mathias’s retirement atthe 2021 AGM. 30% female representation onthe Board whichwillincrease to 33% this year, following Ruth Anderson’s appointment we willagain have Whilst we fell below this level as aresult ofJillLittle’s retirement earlier campaign to achieve aminimumof30%women on FTSE 350boards. composition. TheGroup is asignatory to the 30%Clubwhichis a keeps diversity underconsideration inallaspects ofBoard composition andhas, therefore, chosen not to set formal targets but The Board considers that quotas are not appropriate indetermining its fostering constructive challenge to established behaviours andattitudes. provide valuable diering perspectives across the business as well as background andpersonal andprofessional experiences is ableto its nature, inrespect ofgender, race, religious beliefs, social available onourwebsite. TheBoard feels that agroup that is diverse in have aclear policyto promote diversity across the business, whichis inclusion, both inits membership, andthe Company’s employees. We The Board recognises ofdiversity the importance andaculture of Diversity andinclusion + dierent actions. as aresult ofCovid-19, has seen are-prioritisation ofanumber all ouremployees through updates onourStrategic People Plan, which, The wholeBoard has beenkept informed ofourdevelopment plans for Head ofFinance andamemberofthe SOE inSeptember 2020. additional resilience to ourFinance team, we recruited Alastair Deutsch as in the personal development ofoursenior management team. To provide ensures anappropriate breadth anddepth below Board level andaids Company’s strategy andoversight ofoperations. This structure both closely with the executive directors inthe implementation ofthe ensures that ourkey senior management team below Board work under continual review. Theclear roles andresponsibilities ofthe SOE have along tenure with Shaftesbury andtheir succession remains The Nomination Committee recognises that ourexecutive directors and anOperations Committee, reporting into the SOE. executive directors andsenior management chaired by Brian Bickell Strategy andOperations Executive Committee (‘SOE’) made upofour committee structures andestablished two new committees, being our During the year, the executive directors revisited ourinternal management planning ofmy role as Chair underregular review. in consultation with the other members ofthe Board, keeps succession eective intheir roles. As SeniorIndependent Director, Richard Akers, Committee concluded that they continue to beindependent and considering the individualdirector reappointments atthe AGM andthe and independence was considered by the Nomination Committee in than sixyears, arigorous examination oftheir continued eectiveness from the Board. As Dermot andSallyhave beenonthe Board for more will become ourRemuneration Committee chair onSally'sretirement triennial Remuneration policyreview, shadowed by JennelleTilling, who an orderly succession, itis proposed that Sallywilllead onthe 2022 our Remuneration Committee until the 2022 AGM. Inorder to provide served eight years onthe Board as ofOctober 2020, remain as chair of orderly succession, we are proposing that SallyWalden, whohas also 2020, willberetiring from the Board atour2021 AGM. To ensure an Dermot Mathias, having served eight years onthe Board inOctober Shaftesbury AnnualReport2020GovernanceComposition,successionandevaluation LGBT real estate professionals. We are acorporate sponsor ofFreehold, aLondon-based forum for talent pipelineacross the sector. the real estate industry, by the supporting development ofafemale a better gender balance atboard andexecutive management level, in We are amemberofReal Estate Balance whose objective is to achieve
Our Strategic People Plan: page43 14 December 2020 Chair ofthe Nomination Committee Jonathan Nicholls Committee members for throughout their support the year. In amore challenging year than normal, Iwould like to thank my fellow • • Committee could bemore eective we have: to respond to anumberofchallenges as to how the Nomination reference and,following the Board andCommittee evaluation process, During the year, we updated ourNomination Committee terms of Committee effectiveness All employees Committee Operations Executive Strategy and Direct reportsintothe executive directors) Committee Operations Executive Strategy and Directors i e sit fi es senior management team. to enable aninformal forum for mentoring andengagement ofour designed aprogramme between the non-executive directors andSOE should beseeking that would addto the Board; and we willreview, as aBoard, any key areas ofexperience we believe we new non-executive director in2021. Prior to this search being started, revisited ourBoard memberskill matrix inadvance ofrecruitment ofa (67%) (63%) (74%) 5 3 26 14 (30%) female female female (excluding (excluding female
21 December 2020 including Ruth Anderson, whowilljointhe Board on 39 10 19 8 7 (70%) 3 (37%) (33%) 13 (26%) 5 male male male male Page 95
Governance Shaftesbury Annual Report 2020 Governance
Audit, risks and internal controls Audit committee report The Committee’s role is to oversee the integrity of the Group’s financial reporting, risk management and the external audit relationship Dear shareholder Audit Committee members I am pleased to present the report of the Audit Committee for the year and meeting attendance ended 30 September 2020 which provides an overview of key areas of focus during the year. Number of meetings attended (3 held) Financial reporting Valuation of the portfolio, accounting considerations Dermot Mathias (Chair) and key areas of judgement or estimation Richard Akers The valuations provided by external valuers are signicant components of the annual and half year results. As such, the Committee focuses on Sally Walden the valuation process, the key judgements made by the valuers and their independence. Following our review, the Committee is satised Jennelle Tilling that the valuation process is robust, the assumptions and estimates used in the valuations are appropriate and the valuers remain independent and objective. The Covid-19 pandemic created a number of matters for the Committee to consider, including: Key responsibilities • the going concern assessment and Viability Statement; • Review of the work of the external auditor and valuers and • accounting for rent concessions; and any signicant nancial judgements made by management • key areas of estimation uncertainty in the nancial statements, • Advising the Board on various statements made in the particularly provisions for expected credit losses and impairments. Annual Report, including those on viability, going concern, These matters are set out in the following report. risk and controls and whether, when read as a whole, the Annual Report is fair, balanced and understandable and provides the information necessary for shareholders to Viability and going concern statements assess the Company’s position, performance, business The Committee considered, together with their underlying model and strategy assumptions, for the Interim Statements, the going concern statement and for the Annual Report, both the viability and the going concern • Responsible for the relationship with the external auditor statements. This included management's work on assessing the and consideration of their reappointment, their reports to potential risks to the business (in particular, the impact of the Covid-19 the Committee, performance, objectivity and pandemic) and the three-year period adopted in the Viability independence including the level of provision of Statement. The Committee was satised that management had non-audit services conducted robust assessments and recommended to the Board that it • Review of the Company’s internal nancial controls, and could approve and make the viability and going concern statements. internal control and risk management systems • Review of the Company whistleblowing policy and Fair, balanced and understandable procedures The Board as a whole is responsible for determining whether the 2020 • Ongoing monitoring of the need for an internal audit Annual Report and Financial Statements are fair balanced and function understandable. The Audit Committee’s role in this is covered on page 99. For the year ended 30 September 2020, the Committee conrmed to the Board it was satised that the Annual Report was fair, balanced and understandable. + Directors' responsibility statement: page 118
Page 96 + + Company’s external auditor atthis year’s AGM. recommendation, the Board is proposing that EYbereappointed as the provision ofnon-auditservices andbased onthe Committee’s andindependence areobjectivity not inany way impaired by the audit andits interaction with EY. Italso remains condent that EY's The Committee remains satised with the eectiveness ofthe external theundertaking work. the safeguards that EYputinplace to ensure its independence in 30 September 2021. Separately, the Audit Committee also considered cap for both the year ended30September 2020 andthe year ending of the work, anexemption was sought to exceed the 70% non-auditfee to undertake the work. Inseeking the FRC’s clearance, given the timing matter. TheFRC’s clearance was obtained inadvance ofappointing EY and, therefore, engaged not onlywith EYbutalso with the FRC onthis to provide these services, we were cognisant ofauditor independence statement. Whilst we believed that EYas ourauditors were best placed accountant, including anindependent onthe report working capital the Group’s issuance, equity we required the work ofareporting ofworkproportion carried outby EY. However, this year inundertaking In normal circumstances, non-auditfees form arelatively minor auditor andreappointment Independence andeffectivenessofthe • • • • satised that: discussions with the external auditor andvaluers, the Committee is After reviewing the reports from management and,following no material misstatements inthe course oftheir work. and annualresults andthe external auditors conrmed that they found were not aware of any material misstatements in the Interim Statements The executive directors have conrmed to the Committee that they 2020 AnnualReport Shaftesbury AnnualReport2020GovernanceAudit,risksandinternalcontrols the Group has adopted appropriate accounting policies. suciently robust; and liabilities had beenappropriately reviewed, challenged andwere the processes used for determining the value ofthe assets and reported andthe disclosures; judgements andkey estimates, both inrespect ofthe amounts the nancial statements appropriately addressed the critical objective intheir work; both the external auditor andvaluers remain independent and
Audit fees: page99 External auditors: page99 discussions atCommittee meetings. the Group which helps the Chair in his oversight ofthe agenda and as appropriate, to obtain agood understanding of key issues a£ecting Throughout the year, the Audit Chair meets with executive directors, ofdiscussiona good quality and level ofchallenge by the Committee. consideration, onatimely basis, in advance ofmeetings. This facilitates raise. TheCommittee receives comprehensive reports for without management present, to discuss any matters they may wish to The Committee meets with the external auditor and the valuers, members ofthe senior management team. meetings, are attended by the external auditor, the Chairman and At the Audit Committee Chair’s request, allmeetings, of orparts of having appropriate recent and relevant nancial experience. with many years ofsenior nancial experience, satises the requirement marketing and nance. Dermot Mathias, as achartered accountant directors, with agood diversity ofexperience, including property, F&B, TheAudit Committee is composed solely ofindependent non-executive How theCommitteeoperates 14 December 2020 Chair ofthe Audit Committee Dermot Mathias management andourexternal auditors for during their the support year. I would like to thank the other members ofthe Committee, Committee was working eectively. I ampleased to beableto that report the feedback was that the formally reviewed ofthe external as part Board evaluation process and perform its role eectively. This year the Committee’s eectiveness was papers received by the Committee, ensure the Committee is ableto reviews ofthe Group's internal controls, together with the of quality of management, the external auditteam andindividuals undertaking I believe that the ofdiscussion quality andchallenge by the Committee, Committee effectiveness + annual basis. There were nowhistleblowing instances during the year. Audit Committee continues to review the whistleblowing policyonan Whilst accountability for whistleblowing is aBoard responsibility, the Whistleblowing + management’s work with external reviews inthe coming year. been performed by management. We anticipate supplementing reviews impractical andso areview ofthe eectiveness ofcontrols has arrangements. Inthe current year, remote working has made external appropriate, to provide assurance onthe Group’s risk andcontrol of assessments by external andreviews parties by management, as programme ofreviews ofkey controls is conducted through acombination Whilst we donot have aformal internal auditfunction, arolling pandemic onawiderange ofaspects ofthe business. current year, this evaluation has includedthe signicant impact ofthe arrangements, reporting to the Audit Committee andthe Board. Inthe The Risk Committee evaluates the Group’s risk andcontrol Risk, controlandassurance
Whistleblowing policyand procedures: page89 Risk management: pages 71and 72 2020 areasoffocus Governance Controls and assurance Audit • • • • • • • • • • • • • Financial reporting
Reviewed the Committee’s e£ectiveness Updated the Committee’s terms ofreference Consideration ofthe needfor internal audit Review ofthe Group’s whistleblowing policy Review ofongoing GDPRprogramme Committee and management's testing ofthe operation ofcontrols Review ofrisks and controls, including reports from the Risk Audit plan and strategy Audit fees and non-auditfees external auditor Consideration ofthe independence and e£ectiveness ofthe Meetings with the auditors in respect ofthe half year and annual results prospectus for the raise equity in November 2020 portfolio valuations and directors’ valuations included within the Meetings with the valuers in respect ofthe half year and year end and understandable Consideration as to whether the Annual Reportwas fair, balanced statementsviability key judgements, estimates and assumptions, going concern and Reviewed the half year and year endnancial statements including
Page 97
Governance Shaftesbury Annual Report 2020 Governance Audit, risks and internal controls
i nificant acco ntin matte s an e a eas o ement an estimation Considerations Action taken and conclusions Valuation of the Group's and Longmartin's investment properties The valuation of investment properties is a key determinant of the Group’s net The Audit Committee Chair and members of the Audit Committee met the valuers without management asset value as well as indirectly impacting executive and employee remuneration. present, to review the valuations at 31 March and 30 September. The Audit Committee together with the The valuation is conducted by independent valuers. However, valuations are Chairman of the Board, the Chief Executive, Finance Director and the external audit team met with the inherently subjective and require signi¬cant estimates to be made including, but valuers at the June and December Committee meetings to discuss the valuation included in the half year not limited to, market yields, ERVs and void periods. and year end ¬nancial statements. At these meetings, consideration is given to: Given the level of market disruption as a result of the onset of the pandemic, the • analysis and commentary by management; valuation reports at 31 March 2020 included statements highlighting a material • presentations from Cushman & Wake¬eld, valuers of the wholly-owned portfolio, and Knight Frank, valuation uncertainty, which was consistent with market practice and not speci¬c who value Longmartin's investment properties, which include comparable evidence for the key to Shaftesbury. By 30 September 2020, the valuers had removed the material assumptions adopted; and uncertainty clauses from their valuation reports. • an assessment by the external auditor, which uses its in-house real estate valuers as part of its audit. At 30 September 2020, the valuation of investment properties was £3.137 billion. The Committee discussed the valuers' material uncertainty clauses included in the valuations at 31 Additionally, our share of the valuation of investment properties held in the joint March 2020 and considered the disclosures in the Financial Statements and was satis¬ed that they had venture was £175 million. been appropriately disclosed. Further information on the approach taken by the valuers in valuing the portfolio Annually, the valuers also con¬rm that they are appropriately quali¬ed to carry out the valuations and a sensitivity analysis on equivalent yields and ERV is set out in note 10 to the and that fees they receive are not a material part of their overall fee income. Further details in respect of ¬nancial statements. the valuers, including fees for valuation and non-valuation services, are given in note 10 to the ¬nancial Portfolio valuation report: pages 56 to 58 statements. The Committee remains satis¬ed that the valuers are objective and independent. + Following its reviews, the Committee was satis¬ed that the valuations had been carried out appropriately and were suitable for inclusion in the Group’s accounts. Speci¡c matters arising from the Covid-19 pandemic The Covid-19 pandemic and government social distancing measures have had a material impact on footfall and spending in the Group’s villages in the year. Rent collections have been signi¬cantly below normal levels and many of the Group’s commercial occupiers are su¼ering operational and ¬nancial challenges. The Group has supported its occupiers through a number of measures including waivers and deferrals of rent. Covid-19: impact and response: pages 6 to 9 As+ a consequence, there were a number of matters for the Committee to consider. Accounting for rent waivers as lease modi¡cations Under IFRS, the cost of rent waivers is spread over the remaining term of the The Committee considered papers from management on the accounting treatment for lease modi¬cations lease, or extended term if the lease has been extended in exchange for the waiver. and waivers and discussed the accounting treatment with the external auditor. Rent waivers in the year amounted to £14.3 million. The Committee was satis¬ed that the accounting treatment for rent waivers and lease modi¬cations + Portfolio activity report: pages 59 to 62 was appropriate, in line with IFRS. Provisions for expected credit losses and impairments At 30 September 2020, occupier arrears, including amounts deferred as part of As an area of signi¬cant estimation in the year, the Committee considered the methodology used the Group’s occupier support, amounted to £26.0 million. by management and the rationale for the judgements made in assessing expected credit losses and Provisions against these arrears totalled £14.3 million. The Income Statement impairments. charge for expected credit losses in the year was £13.0 million. The external auditor speci¬cally reported on the provisions made. Management have also assessed the carrying value of lease incentive and The Committee concluded it was satis¬ed with the methodologies and judgements used by prepaid letting cost balances, in view of occupiers’ ¬nancial challenges and management in assessing the provisions for expected credit losses and impairments, and that the considered whether these balances were impaired. The charge for impairments disclosures in the Annual Report were appropriate. within net property income during the year was £8.9 million. + Financial results: pages 63 and 64 Accounting policy for deferred income which is considered will not be fully recoverable At 31 March 2020, there was an environment of extreme credit uncertainty. Rents The Committee was briefed by management and consulted with the external auditor on the billed in advance of the following quarter, amounting to £14.7 million, were appropriateness of the policy. considered to not be fully recoverable on the basis of likely concessions to be The Committee concluded that the accounting policy presented a true and fair view and had been granted to occupiers. These amounts had not been recognised as income at that point. properly disclosed in the interim statements. In the half year results, the Group applied an accounting policy for deferred income which it considered would not be fully recoverable. Under the accounting policy, these amounts were derecognised from deferred income and trade receivables at the reporting date, with both the income and expected credit loss recognised in the Income Statement on an accruals basis. E¼ective from 1 October 2020, the Group o¼ered commercial occupiers the opportunity to be invoiced, and pay, rent and service charges monthly. Consequently, amounts billed in advance at 30 September 2020 were not material. Viability and going concern statements Given pandemic-related uncertainties, the Group placed a special emphasis on In considering these statements, the Committee reviewed forecast reports from management which its going concern assessments during the year and the Viability Statement. considered downside scenarios and stress testing of material assumptions including vacancy and rent In the Interim Statements, the going concern statement: collection rates. The forecasts also considered a number of key aspects, including: • included a key assumption that interest cover covenant waivers would be • loan covenant compliance including waivers received from the Group’s ¬nance providers and granted or extended throughout the going concern assessment period; and covenant cure rights available to the Group; • disclosed the material uncertainty clause reported by the valuers. • available liquidity and ¬nancing capacity; and For the statements in this Annual Report: • re¬nancing of debt facilities. • the forecasts used to assess going concern and viability included the proceeds Following review and discussion, the Committee concurred with management’s recommendation of the equity raise completed in November 2020; and that the viability statement should be reduced to three years, was satis¬ed that management had • in light of the uncertain environment, the viability assessment period was conducted robust assessments and recommended to the Board: reduced from ¬ve years to three years • it could approve and make the viability and going concern statements; and + Viability Statement: pages 78 to 79; Going concern statement: pages 115 and 116. • the reduced period for the Viability Statement. Page 98 • • • • • EY has conrmed to the Committee that: EY. and the Finance Director also meetwith from anindependent partner conrmations from the external auditor. Thechair ofthe Committee Financial Controller, review ofadetailed assessment questionnaire and process through discussion with the Finance Director andGroup the Group’s external auditors, as well as the eectiveness ofthe audit assesses the qualications, expertise, resources, andindependence of for the year ended30September 2016. Annually, the Committee Following anaudittender process, EYwas appointed as external auditor Order 2014. Competitive Tender Processes andAudit Committee Responsibilities) forServices Large Companies Market Investigation (Mandatory Use of The Company has complied with the provisions ofthe Statutory Audit External auditors • • • • • • • • • Annual Report: Finance Director covering the nancial statements andwhether the On behalf ofthe Board, the Committee discussed from areport the Fair, balancedandunderstandable work included: to EY’s continued auditindependence inrelation to this undertaking Factors taken into account by the Audit Committee inbeing satised as 30 September 2020 andthe year ending 30September 2021. sought to exceed the 70% non-auditfee cap for both the year ended the FRC’s clearance, given the timing ofthe work, anexemption was obtained inadvance ofappointing EYto undertake the work. Inseeking EY butalso with the FRC onthis matter andthe FRC’s clearance was compromise their independence and,therefore, engaged not onlywith were best placed to provide this we were conscious ofnot wanting to working capital statement. Whilst we believed that EYas ourauditors work ofareporting accountant including anindependent onthe report This year, the inundertaking Group’s issuance, equity we required the Report was fair, balanced andunderstandable. The Committee reported to the Board that, inits view, the Annual The Committee considered whether the AnnualReport: Shaftesbury AnnualReport2020GovernanceAudit,risksandinternalcontrols Standard; reporting accountants work was permissible underthe UKEthical all ofthe non-auditservices provided inthe year, including the reporting; review threat as EYdidnot prepare any information used for nancial led by aseparate engagement partner. Inaddition,there was noself the working capital exercise was carried out by aseparate team and relevant independence threats andsafeguards inplace. For example, the nature ofthe work undertaken by EYandconsideration ofthe the year. it considers that ithas maintained auditindependence throughout material ofits rm’s part fee income; and the total fees paid by the Group during the year donot represent a ensure the ofits auditreport; objectivity non-audit work whichcould compromise its role as auditor andto it has internal procedures inplace to identify any aspects of under IFRS. and not given more prominence than acorresponding measure been adequately explained and reconciled to the nancial statements repetition, andthat the use ofAlternative Performance Measures had had beenwritten instraightforward language, without unnecessary Group’s performance, business modelandstrategy; and provided the necessary information for shareholders to assess the Company’s position andprospects; was afair, balanced andunderstandable assessment ofthe the year. was inaccordance with the information provided to the Board during included clear signposts to additional information; and simply, using clear language; explained ourbusiness model,strategy andaccounting policies provided clear explanations of KPIs andtheir linkto the strategy; opportunities; was openandhonest, reporting challenges alongside successes and statements; had clearly reported the impact ofCovid-19 onthe nancial
(2019: £16,700). Longmartin joint venture. TheCompany’s 50%share ofthis was £18,000 The auditor was also paid £36,000(2019: £33,400)for its auditofthe 30 September 2021. non-audit fees are expected to exceed the auditfees for the year ending fees for the preceding three years. As aresult ofthe timing ofthe work, the year ended30September 2020 andwere 303% ofthe average audit detail underExternal auditors), non-auditfees were 175% ofaudit fees in As aresult ofEY'swork onthe Group's issuance equity (outlined inmore review), the authority for the executive directors’ falls to £5,000. cumulative amount of£100,000inayear (including the half year assignments to the auditors under£25,000,however, ifthis reaches a Our executive directors have authority to approve non-audit excess of£25,000is subject to the priorapproval ofthe Committee. period. Theaward ofany non-auditassignment to the auditors in exceed 70% ofauditandassurance fees over arolling three-year other than inexceptional circumstances, non-auditfees should not Council’s Revised Ethical Standards. Underournon-auditwork policy, updated during the year to reect changes to the Financial Reporting could becompromised.objectivity Ournon-auditfees policywas to the external auditrm ifthere is arisk that auditindependence and The Committee’s policyis that non-auditassignments are not awarded in note 6to the Financial Statements onpage 135. Fees payable to the auditor for auditandnon-auditservices are set out Audit fees • • • The Committee remains: challenge andreports its ndings inafrank andhonest manner. Committee considers that the auditor provides appropriate professional openness andprofessionalism. From its discussions during the year, the The Committee’s relationship with the external auditor is oneof • • coming year. The Committee anticipates the external reviews to recommence inthe be impractical given social distancing measures andremote working. auditor. During the year, itwas considered that external reviews would further assurance andtheir reports are made available to the external from time-to-time, the Committee appoints third to parties provide arrangements undertaken by management andthe Risk Committee, To supplement reviews ofrisk management andinternal control and the relatively simpleGroup structure. involvement ofthe executive directors inday-to-day decision making, is based onthe focused nature ofthe Group’s business, the close there is noneed to establish aninternal auditfunction. This assessment annually. TheCommittee has advised the Board that itconsiders that The Committee reviews the needfor aninternal auditfunction Internal audit + + oftheir workpart andcomment, where appropriate, to the Committee. Committee. Theexternal auditors review procedures andcontrols as nancial controls undertaken by management are also reviewed by the reporting to the Committee. Formal reviews ofthe eectiveness of formally assesses strategic andemerging risks andthe related controls, day-to-day basis. TheRisk Committee, chaired by ourFinance Director, Risks andinternal controls are monitored by management ona Risk managementandinternalcontrol way impaired by the provision ofnon-auditservices. remains condent that andindependence its are objectivity not inany satised as to the auditor’s qualications, expertise andresources; and between the auditors andthe Committee; satised with the eectiveness ofthe external auditandthe interaction work. September from 2021 apart the half year review andusual assurance services for the year ended30September 2020 orthe year ending 30 it was not anticipated that EYwould perform any other non-audit p.a.; and half year results, with other non-audit services not exceeding £10,000 performed by EYwere principally only inrespect ofthe review ofthe for the previous two years, the nature ofthe non-auditservices
Risk management: pages 71and 72 Principal risks and uncertainties: pages 73 to 77 Page 99
Governance Shaftesbury Annual Report 2020 Governance
Remuneration Directors’ remuneration report Our aim is to align the remuneration both of our executive directors and employees with our purpose and values which support the Group’s strategy and long-term success Remuneration Committee members and attendance Dear shareholder I am pleased to present our 2020 Directors’ remuneration report. Number of meetings attended (5 held) Our aim is to set a fair remuneration structure, which encourages both executive and employee behaviours which reect our culture and Sally Walden (Chair) values, and fosters team continuity through incentives aligned with our Richard Akers strategy and long-term objectives. The annual remuneration report summarises the remuneration Dermot Mathias outcomes in respect of the reporting year and the proposed executive director remuneration for the year ahead. This report will be subject to Jennelle Tilling an advisory shareholder vote at the 2021 AGM.
Key responsibilities 2020 areas of focus • Determine the framework and remuneration policy for • Reviewed the 2019 annual bonus outcomes executive directors, Chairman, and senior management • Considered the 2016 LTIP vesting and approved 2019 LTIP • Review the ongoing appropriateness and relevance of the grants remuneration policy • Reviewed the executive directors' salaries • Ensure that executive directors are remunerated fairly and • Set the 2020 annual bonus and LTIP targets responsibly with the long-term interests of the Company in • Considered executive director pension levels and alignment mind with employees • Keep under review employee remuneration, related polices • Reviewed and approved employee retention proposals and and alignment of incentives and rewards with the Company 2020 employee reward proposals culture • Approved technical adjustments of outstanding executive • Consider the appropriateness of the directors’ director and employee LTIP and bonus share awards in light of remuneration framework compared with arrangements for the November 2020 capital raise other employees • Evaluated the performance of Deloitte as independent • Review and approve the performance targets and remuneration advisors outcomes (using discretion where appropriate) for the annual bonus scheme and LTIP • Updated the Committee terms of reference • Ensure that the remuneration report and disclosures are • Reviewed the Committee’s e£ectiveness easy to read and understandable, accurate and complete
Page 100 vesting ofboth the 2017 LTIP award's absolute andrelative measures. eect onthe valuation ofourportfolio, whichinturn resulted inanil The challenging economic environment has had amaterial adverse outcome from 25%to zero. supported by the executive directors, to reduce the bonus award performance, the Committee exercised discretion, unanimously context ofthe impact ofthe pandemic onoverall business in anoverall bonus outcome of25%maximum. However, inthe projects andenvironmental sustainability objectives, whichresulted performance measures related to specic portfolio andcorporate bonus. We diddeliver anumberofachievements inrespect ofthe meet our2020 nancial oroperational targets for this year’s annual for ourbusiness andnancial performance. Inlight ofthis we didnot commerce, both for ouroccupiers andonthe near-term prospects contain ithave had amaterial impact onnormal patterns oflife and of the year, the growing impact ofthe pandemic andmeasures to Although ourbusiness performed well during the rst sixmonths + month period. pension contributions andnon-executive director fees for afour Board waiving 20% ofboth executive director base salaries and Fund. funding Part for this initiative came from savings made by the In March 2020, the Board decidedto set upaCovid-19 Community forsupport the business. would befurloughed. We also didnot seek any government nancial relationships with ourstakeholders, we decidedthat noneofourteam implementation ofourstrategy, management ofthe business andour With asmall team ofunder40employees, whoare critical inthe + mid-November 2020. asuccessfuland undertook issue equity whichcompleted in decided against the payment ofadividendfor the 2020 nancial year strong stakeholder relationships. Inlight ofthese priorities, your Board occupiers, liquidity, the strength ofourbalance sheet andmaintaining ourselves in.Ourbusiness priorities have beenourfocus onsupporting team’s performance inthe unprecedented circumstances we nd of executive director andemployee reward inlight ofthe Group’s and This year, key to the focus ofouractivities has beenthe appropriateness and performancein2020 Actions inrelationtoCovid-19andpay Shaftesbury AnnualReport2020GovernanceRemuneration
Covid-19 Community Fund: pages 46and 47 Covid-19 impact and response: pages 6to 9
14 December 2020 Chair ofthe Remuneration Committee Sally Walden and external consultants for during their the support year. I would like to thank my fellow Committee members, senior management remuneration andwillvote infavour ofthis atthe report 2021 AGM. We hopethat you willcontinue to ourapproach support to appropriate to obtain andconsider their views. engaging with ourlargest shareholders andgovernance agencies as approval atthe 2022 AGM. Indesigning our2022 Policy, we willbe ofthe regularas part three year cycle ahead ofseeking shareholder During the year ahead, we willbereviewing ourRemuneration Policy, in linewith guidance from shareholder bodies. assessment ofwhether any potential "windfall gains" have arisen, price as aresult ofthe impact ofthe pandemic, this willincludean determining the nal vesting level. Inview ofthe decrease inourshare over the three year performance measurement periodbefore Committee willconsider the Group’s underlying nancial performance targets for this award is set outonpage 107. Inlinewith ourpolicy, the RPI+3%-7% p.a. to 0%-5%p.a. Further detail onthe performance be appropriate to re-calibrate the NAV performance target range from West End andourportfolio,the Committee determined that itwould performance targets inthe context ofthe current outlook for the total accounting return (TAR), andEPRA NAV growth. Inreviewing the our policy, based onrelative total shareholder return (TSR), relative December 2020 andwillvest, at125%ofsalary inaccordance with For ourLTIP, awards willbemade to the executive directors in for using discretion inrespect ofbonus outcomes see page 109. solely inshares) inlinewith ourpolicy. For more details onourrecord foropportunity the 2021 bonus willremain (iftaken at150%ofsalary is appropriate to the overall performance delivered. Themaximum retaining discretion to allow the Committee to ensure the nal outcome normal year, we willset challenging performance targets, whilst also set inthe context ofthe current pandemic environment. As inany our performance measures to ourkey operational goals for the year, Our approach for the 2021 annualbonus has beento andalign simplify environment. ofretainingimportance andmotivating ourteam inthe current below the Board, the average increase was 4.1%,recognising the directors for the year commencing 1October 2020. For employees determined that there increase would benosalary for the executive In the context ofthe current circumstances, the Committee The yearahead shareholder bodies. to 17.5%by nolater than the endof2022, inlinewith guidance from that the pension rate for ourincumbent directors willalso bereduced evolving shareholder views onthis issue, the Committee has determined Following(17.5% ofsalary). afurther review ofourapproach inlight of would bealigned with the rate applicable to allother employees policy ensured that contributions for any newly-appointed directors contributions should bealigned with the widerworkforce. Our2019 The Committee the principlethat supports executive pension Pension alignment
Page 101
Governance Shaftesbury Annual Report 2020 Governance Remuneration
Consideration of remuneration Context for our approach to and related policies below the remuneration We have 39 permanent employees, including four executive Board directors. The combined holdings of the executive directors is One of the Remuneration Committee’s key responsibilities is to 3.5 million shares (market value at 30 September 2020 of circa have oversight of remuneration and related policies below the £17.5 million). This equates to individual holdings of between 2 Board and alignment of those incentives and awards with the and 15 times their annual salary. These substantial holdings have Group’s strategic aims and culture. The Committee considers it been built up over a number of years through a combination of: important that employee engagement and feedback is taken into account. • taking the annual bonus in shares through the Deferred Annual Share Bonus Scheme; This year, recognising the unprecedented uncertainties and challenges caused by the Covid-19 pandemic and feedback for • retaining shares from the LTIP; and our inaugural employee reward survey, we considered our • acquiring shares for cash. employee incentives in relation to retention and motivation in Executive directors and employees have a close involvement and the current environment as well as the long term. direct impact on the continuing development and implementation As part of this review, we: of the Group’s strategy. Consequently, the Committee considers it • considered the appropriateness and level of restricted share appropriate that, in setting objectives and measuring awards for key senior management; performance, a signicant element is attributed to team, rather than individual, performance. • approved the change in job titles of senior individuals to better reect their roles and responsibilities; Average length of service of the executive directors is 27 years and members of the Strategy and Operations Executive • agreed the executive directors recommendation as to the level Committee (excluding executive directors) is 8 years. of base salary increase for employees below the Board; • brought forward the date of salary increases from 1 December to 1 October to align with our nancial year; • approved the introduction of personal objectives as part of the annual bonus scheme for employees below the Board to ensure Alignment with employees better reward of individual’s contributions to the Group’s We o£er remuneration packages to all employees which are performance; market competitive and broadly align with the same structure • supported the introduction of increased transparency into the provided to executive directors. employee remuneration and reward process; and Eligible employees: • supported the creation of a recognition project run by the • participate in the LTIP and the annual bonus scheme; Culture Group and sponsored by Richard Akers, non-executive • have the opportunity to defer their annual bonus into shares; director responsible for employee engagement, to greater recognise the actions of individuals in living our values. • are eligible to participate in Sharesave, and receive health and life insurance; and • receive pension contributions of 17.5% of salary, which is signicantly above typical market levels.
Page 102 1,200 1,500 1,800 2,000 1,200 1,500 1,800 2,000 . Based onshare1. price at30.9.20 of£4.972 as at1.12.2019. andsalary Simon Quayle Value ofshareholdingvs.policy(%salary) Re 5. ects the vesting ofshares inthe LTIP inrespect ofperformance for the relevant nancial year. TheTSR andNAVPayment4. performance for conditions for performance the inrespect three-year of the performance relevant periodto 30September 2020 werenancial year. not met Nobonus was awardedresulted for the nancialPension year3. ending contribution 30.09.2020. andmay is 25%ofsalary betaken orentirely). incash (inpart Thecash equivalent is reduced by any resultant tax borne by liability the Group. 2. Bene 2020 actualts comprise salaries car andpension allowance, entitlements, permanent re health insurance, life insurance, health insurance andSharesaveect the four options month whichhave 20% waiver andpension entitlements. beenvalued ofsalary 1. based onthe monthly savings amount andthe discount onthe option Salary remuneration Breakdown of Simon Quayle,ExecutiveDirector(£'000) Salary remuneration Breakdown of Brian Bickell,ChiefExecutive(£'000) Director Remuneration2020 Remuneration ataglance Shaftesbury AnnualReport2020GovernanceRemuneration Total Total Annual Bonus Pension bene¬t Pension bene¬t Bene¬ts LTIP Bene¬ts LTIP Annual Bonus 300 600 900 300 600 900 Brian Bickell Tom Welton price of20% atgrant. in nilvesting. In2019, the gure received was as aresult ofthe three-year performance periodto 30September 2019 not being metso noawards vested. 0 0 Chris Ward 5 5 1 1 SALARY 2 2 Policy 4 4 1,3 1,3 %20 0%60 0%100 ,0%140 1,600% 1,400% 1,200% 1,000% 900% 600% 400% 200% 0% + + 2019 (actual) 2019 (actual) £’000 £’000 - - Fixed pay BENEFITS 2020 (actual) 2020 (actual) £’000 £’000 - - - - CONTRIBUTION Fixed pay PENSION 2020 (possible 2020 (possible maximum) maximum) Directors % £’000 £’000 1 + + Annual bonus 1,200 1,500 1,800 2,000 1,200 1,500 1,800 2,000 Salary remuneration Breakdown of Tom Welton,ExecutiveDirector(£'000) Chris Ward,FinanceDirector(£'000) Total Annual Bonus Pension bene¬t Bene¬ts LTIP Salary remuneration Breakdown of Pension bene¬t Total Annual Bonus Bene¬ts LTIP new policy. the vesting ofcompany share awards after the eective date ofthis their employment. Therequirement shall applyto shares received from shareholding) for aperiodoftwo years from the date ofcessation of retain this minimumlevel ofshareholding (or, iflower, their actual With eect from 1October 2019, executive directors willbeexpected to toof salary beaccumulated over ve years from appointment. build ashareholding of200% (as atdate ofappointment to the Board), Under the remuneration policy, executive directors are expected to 300 600 900 300 600 900 0 0 ANNUAL BONUS 5 5 1 1 2 2 Performance-related pay 4 4 1,3 1,3 LTIP 2019 (actual) 2019 (actual) £’000 £’000 - - LTIP 2020 (actual) 2020 (actual) £’000 £’000 - - - - = REMUNERATION 2020 (possible 2020 (possible TOTAL maximum) maximum) £’000 £’000 Page 103
Governance Shaftesbury Annual Reportreport 20202020 GovernanceStrategicGovernance ReportRemunerationOur people atand a glance culture
Making a positive contribution +
Page 104104Page Pension plans employee All 1. LTIP bonus Annual Operation /Performance measures Salary Element The full policywas includedinthe 2018 AnnualReportandis reproduced onourwebsite. oftheA summary remuneration policyfor executive directors is set outbelow for information purposes only. shareholders attheAGMon8February2019. Our remunerationpolicywasapprovedby Remuneration policy bene¡ts Other Shaftesbury AnnualReport2020GovernanceRemuneration in linewith shareholder guidance. In 2020, the Committee determined that the pension rate for incumbent directors willalso bereduced to by nolater 17.5%ofsalary than the endof2022, by theGroup Contributions are paidinto apersonal pensionplan ortaken asacash equivalent, reduced for any resultant tax borne liability sharesave and SIP Executive directors are eligibleto participate inother share plans, whichare o¼ered onsimilar terms to allemployees, eg • private medicalcover • acar allowance Malus and clawback provisions apply to theLTIP determines otherwise participants are entitled to receive theirshares. Aholdingperiodwillnormallylast for two years, theCommittee unless theCommitteeUnless determines otherwise, vested awards willthenbesubject to an additionalholdingperiodbefore vest isdetermined At theendof theperformance period, performance against thetargets iscalculated, and thepercentage of awards that will remuneration report Threshold vesting willbenohigherthan 25%of eachperformance measure. Thedetailed targets are set outintheannual • EPRANet Asset Value growth measured onan absolute basis; • TSR measured relative to arelevant index of peers; and • Total accounting return (TAR) measured against amarket capitalisation weighted 350REITs index of FTSE housing allowance and relocation allowance Other bene¬ts may beprovided ifconsidered reasonable and appropriate by theCommittee, including,butnot limited to, • permanent healthinsurance • life insurance The current performance measures are: measures are alignedto strategic objectives and shareholder value The awards willbesubject to performance targets measured over athree-year period.Itisintended that performance these Awards may begranted intheform of nilcost options, conditionalshare awards or, at theCommittee’s discretion, besettled incash Malus and clawback provisions apply to allelements of thebonus performanceNo further conditionsapply. Awards may also, at theCommittee’s discretion, besettled incash option), awards these vest after aminimumof three years from grant undertheGroup’s Deferred AnnualShare Bonusplan. Where directors take allorpart of thebonusasan award of shares (intheform of aconditionalaward of shares oranil-cost Minimum performance required for any part of thebonusto beearned iscalibrated soasto beappropriately stretching and achievable considers appropriate, to ensure alignment of pay withoverall performance and market conditions theparametersWithin of thescheme,Committee hasdiscretion to adjust bonusoutcomes (upwards ordownwards) asit remuneration report following theendof theperformance year based onquantitative KPIs.Further details of themeasures, weightings and targets applicable are provided intheannual Measures willbeweighted inalignment withtheGroup’s strategy for eachyear. Asubstantial part of thetotal bonuswillbe andon theannual of prevailing priorities thebusiness market conditions Performance against isassessed aset of key ¬nancial and non-¬nancial annual measures whichmay eachyear vary depending met at theexpense of long-term goals overall ¬nancial performance and future prospects. TheCommittee alsosatis¬es itself that short-term targets have not been At theendof the¬nancial year, theCommittee evaluates performance against objectives, whilst these alsotaking into account key objectives business Annual performance targets are set by theCommittee at thebeginningof theyear and are linked to theGroup’s strategy and remuneration package The emphasisintheGroup’s remuneration isto policies placegreater weight onperformance-based rewards withintheoverall sector, butwhichare not excessive inrelation to theGroup’s particular strategy and features The Committee recognises theimportance of setting salaries at levels inthecontext of market median levels inthereal estate remuneration advisors asrequired Sector and other relevant market data (eg against constituent 350REITIndex) may companies of berequested theFTSE from (see recruitment policy) and increases thesalary for other there employees, unless isachange of role orresponsibility oranew director isrecruited Salaries are normallyreviewed annually withe¼ect from 1December. Any increases are determined withreference to in®ation Each executive director currently receives:
Maximum potential value appointed after 8February 2019 17.5% of for salary any executive director time to time The limits are asde¬ned by HMRC from been usedto date) executive recruitment (thishasnot exceptional circumstances suchas Maximum value 200% of in salary of grant innormalcircumstances Maximum value 150%of at salary date conditions provided,service cost and market The value may depending on vary appropriate determines isreasonable and are set at alevel whichtheCommittee There isnomaximum value. Bene¬ts in cash Up to 100%of iftaken salary entirely or in shares; Up to 150%of iftaken salary entirely as follows: bonus inshares orcash,infullpart Directors have thechoiceto take a remuneration report increases are provided intheannual Further details levels onsalary and any increase ormaximum salary maximum salary The Committee not a does specify appointed priorto 8February 2019 25% of forsalary any executive director
Page 105 1
1
Governance Shaftesbury Annual Report 2020 Governance Remuneration
Annual remuneration report Set out below is the annual remuneration report on directors’ pay for the year ended 30 September 2020. The report details how we will apply the remuneration policy for the year ahead and how we implemented it during the financial year.
Statement of implementation of remuneration for year ending 30 September 2021 Executive directors’ salaries from 1 October 20201 1.10.2020 1.12.2019 £’000 £’000 Increase Brian Bickell Simon Quayle Tom Welton Chris Ward
1 Executive director salary reviews have been moved to 1 October each year to coincide with the nancial year. For employees below the Board, the average increase was 4.1%, recognising the importance of retaining and motivating our team in the current environment.
2021 annual bonus targets Maximum bonus of up to 150% of salary if taken entirely in shares and Percentage 100% of salary if taken in cash. Measure weighting For 2021, the Committee reviewed the choice and weighting of Cash ²ow from net property income ª performance targets in the context of the key objectives for the Sustainability and corporate projects ª nancial year. It was agreed to simplify and consolidate the nancial and operational metrics into one performance measure (cash ow from net property income), representing the majority of the annual bonus and capturing our near-term focus on maximising income collection, maintaining occupancy levels and controlling property costs during the current period of uncertainty. The remainder will be based on key corporate and sustainability objectives, measured over the year. Disclosure of annual bonus targets for the year ending 30 September 2021 is deemed to be commercially sensitive. The targets will be disclosed retrospectively next year, to the extent they are no longer commercially sensitive.
Page 106 Chris Ward Tom Welton Simon Quayle Brian Bickell Single totalfigureofremunerationforexecutivedirectors(audited) Remuneration foryearended30September2020 non-executive director fees from 1October 2020. Non-executive director fees are reviewed two years. every The last review was undertaken in2019 and,therefore, there are nochanges to Non-executive directors’feesfrom1October2020 1. TAR relative to market cap-weighted 350REITs index of FTSE 5% paormore Between 0%paand 5%pa 0% pa thanLess 0%pa Annualised net asset valuegrowth 5.5% paormore Between 0%paand 5.5% pa 0% pa thanLess 0%pa 350REITIndexannualised TSR of theFTSE Annualised TSR of theCompany’s shares less no changes to the targets for the TSR orTAR measures. The Committee believes the re-calibrated NAV target range remains appropriately stretching inthe context ofthe current outlook. There are recalibration involved removing the reference to RPI, to andalign simplify with common market practice for LTIP performance measurement. appropriate to re-calibrate the NAV performance targets range from RPI+3%-7% p.a. to 0%-5%p.a. as shown inthe table below. This performance targets inthe context ofthe current outlook for the West End andourportfolio, the Committee determined that itwould be The vesting ofthis award willbesubject to three performance measures, equallyweighted, as shown inthe following tables. Inreviewing the have arisen, inaccordance with guidance from shareholder bodies. decrease inour share price as aresult ofthe impact ofthe pandemic, this willincludeanassessment ofwhether any potential "windfall gains" underlying nancial performance over the three year measurement periodbefore determining the nal vesting level. Inthe context ofthe October 2020. Atwo year post-vesting holding periodwillapplyto these awards. Inlinewith the policy, the Committee willconsider the Group’s LTIP awards willbegranted of125%salary inDecember 2020. Performance willbemeasured over athree year periodwhichcommenced on1 LTIP 5. 4. 3. 2. 1. Index +2% perannum orabove Between index and index +2% perannum Equal to index Below index Shaftesbury AnnualReport2020GovernanceRemuneration at the start oftheat the year. start TAR measures growth inEPRA NAV plus any dividends (orother distributions to shareholders whichreduce NAV) paid during the periodexpressed as apercentage ofEPRA NAV period to 30.9.2020 were not met and noneofthe awards vested. Reects the vesting ofshares inthe LTIP inrespect ofperformance for the relevant nancial year. TheTSR andNAV performance conditions for the three-year performance no bonus has beenawarded inrespect of2020, see pages 101and108. For 2020 each executive director could have received abonus of25%the maximum (see table onpage 108).However, following the exercise ofCommittee discretion, shareholder guidance. The Committee has determined that the pension rate for incumbent directors willalso bereduced to by nolater 17.5%ofsalary than the endof2022, inlinewith Pension contribution is andmay 25%ofsalary betaken incash orentirely). (inpart Thecash equivalent is reduced by any resultant tax borne by liability the Group. amount andthe discount onthe option price of20% atgrant. Benets comprise car allowance, permanent health insurance, life insurance, health insurance andSharesave options whichhave beenvalued onthe monthly savings All executive directors waived 20% andpension oftheir contributions salary for four months from 1.4.2020 as aresult ofthe Covid-19 pandemic. £’000 2020 Salary 1 £’000 2019 £’000 2020 Bene¬ts £’000 2 2019 £’000 Pension bene¬t 2020 1 1 £’000 2019 3 £’000 2020 Total Fixed 100% Pro-rata onastraight line basisbetween 25%and 100% 25% 0% Vesting Schedule(for thiscomponent) 100% Pro-rata onastraight line basisbetween 25%and 100% 25% 0% Vesting Schedule(for thiscomponent) 100% Pro-rata onastraight linebasisbetween 25%and 100% 25% 0% Vesting Schedule(for thiscomponent) £’000 2019 £’000 2020 Annual bonus - - - - £’000 2019 4 £’000 2020 ------LTIP 5 £’000 2019 £’000 2020 Total Variable £’000 2019 £’000 2020
Total Page 107
£’000 2019
Governance Shaftesbury Annual Report 2020 Governance Remuneration
Single total figure of remuneration for non-executive directors (audited) Committee chair/ Senior Independent Fee Director fee Total Fixed2 20201 2019 20201 2019 2020 2019 £’000 £’000 £’000 £’000 £’000 £’000 Jonathan Nicholls - - Richard Akers Dermot Mathias Sally Walden Jennelle Tilling - - Jill Little2 -
1. Non-executive directors waived 20% of their fees for four months from 1.4.2020 in response to the Covid-19 pandemic. 2. Non-executive directors do not receive any variable remuneration. 3. Retired from the Board on 31.1.2020. Annual bonus outcome for year ended 30 September 2020 Retrospective disclosure of the targets for the 2020 annual bonus scorecard is provided below.
Percentage Measure Weighting Target range Achievement against target achieved Rental growth (KPI) 17.5% 2% to 6% The Covid-19 pandemic severely disrupted every aspect of the Deliver growth in ERVs Group’s operations from February 2020, and as a consequence, Convert ERVs to contractual income (KPI) 17.5% 3% to 7% none of the 2020 operational metrics have been met. In the Commercial lettings/reviews/renewals at or absence of any comprehensive or relevant annual data, the above valuers’ ERVs: measured as transactions Remuneration Committee considers it is not appropriate to in the ¬rst half year against ERV at 31.3.2019 attribute any operation-related bonus to the four month period and then in the second half of the year prior to the Covid-19 disruption. against ERV at 30.9.2019 Grow net property income (KPI) 5% +1% to -1% Percentage increase in property outgoings compared to percentage increase in rental income Occupancy 5% 2% to 4% Maximise portfolio occupancy measured by average quarterly EPRA vacancy (KPI) Average vacant period across uses (KPI) 5% 1.5 months to 6 months (depending on use) Speci¡c portfolio and internal corporate 30% Due to the impact of Covid-19, a number of projects were unable to ª projects1 progress as envisaged when the 2020 objectives were set. However, the Committee recognised progress achieved in the following areas: • Public realm projects in Seven Dials, Chinatown and Carnaby • Improved tenant data collection • Rationalising arrangements with managing agents • Improved building management cost controls • Setting a new IT strategy and implementing signi¬cant enhancements Further detailed discussion of strategic and operational performance during the year is set out on pages 1 to 69 of this Annual Report Environmental sustainability 20% Targets were set regarding contractors’ site performance, achieving improved environmental performance in refurbishment schemes, implementing changes arising from ESOS audits, progress towards setting of science-based targets and tenant engagement. Despite Covid-19 disruption, good progress was achieved across a majority of these objectives. Total 100% ½½ Impact of exercise of Committee discretion ½½½½() Total bonus due after application of discretion ªª-
All data based on wholly-owned portfolio 1. This component of the bonus measures specic portfolio and internal corporate objectives to be met during the year critical to progressing key long-term projects and larger schemes, to deliver long-term value for shareholders. Some measures relate to projects with a duration of more than one year. It is not always feasible to provide a detailed disclosure of performance for these projects as the identication and achievement of these targets is commercially sensitive. In the opinion of the Committee, public disclosure could compromise ongoing commercial negotiations and ultimately shareholder value.
Page 108 Tom Welton Simon Quayle Chris Ward Brian Bickell Share schemeinterestsawardedduringtheyear(audited) 7% paormore Between 3% paand 7%pa 3% pa thanLess 3% pa growth annualised RPI growth less Annualised NAV 5.5% paormore Performance and 5.5% pa Between 0%pa 0% pa Annualvesting criteria thanLess 0%pa 350REITindex FTSE annualised TSR of the Company’s shares less Annualised TSR of the The detailed performance against targets whichresulted inzero vesting ofthe LTIP in2020 is as follows: LTIP vestingforperformanceperiodto30September2020 2020 2019 2018 2017 2016 2015 Year of discretion by the Committee. The Committee has exercised discretion inthe award ofbonuses for the year ended30September 2020. Thetable below shows historic exercise the Company. marketproperty conditions andexercises discretion, where appropriate, to take account ofoverall nancial performance andfuture prospects of The Committee believes that annualbonus awards should fairly reect overall performance inthe context ofprevailing general economic and Committee’s exerciseofdiscretion 3. 2. 1. Shaftesbury AnnualReport2020GovernanceRemuneration options at£4.71representing a20% discount to the average share price over the ve days priorto the invitation date of19.06.2020. Sharesave: Sharesave options are granted ata20% discount to the market price upto the maximum monthly savings amount permitted by HMRC. Chris Ward was granted Sharesave 11.12.2019, to determine the numberofshares awarded, being £9.1095. There is athree-year performance periodwith atwo-year post-vesting holding period. LTIP: Awards ofnilcost options were made by the Committee at125%ofsalary. Theface value is calculated using the average share price over the ve days prior, upto andincluding calculated using the price paid pershare of£9.1475. Nofurther performance criteria are appliedto share awards underthis scheme. Deferred AnnualShare Bonus Scheme:Directors elected to take their annualbonus for the year ended30.9.2019 inshares whichwere purchased inthe market. Theface value is 100% basis between 20% and 100% Pro-rata onastraight line 20% 0% 25% 57.5% 52.5% 55% 82% 70% according to achievement table Actual bonuspercentage potential 100% basis between 30%and 100% Pro-rata onastraight line 30% 0% wr etn rtraPerformance Award vesting criteria Deferred AnnualShare BonusScheme Deferred AnnualShare BonusScheme Deferred AnnualShare BonusScheme Deferred AnnualShare BonusScheme LTIP LTIP Scheme LTIP Sharesave LTIP half of theaward) iszero Vesting outcome (for this -7.5%) 2020: -48.7% (benchmark: period to 30September Performance inthree-year half of theaward) iszero Vesting outcome (for this growth of 2.3% pa 2020: -7.8% paversus RPI period to 30September Performance inthree year 2 2 2 2 3 04 05 06 0721 2019 2018 2017 2016 2015 2014 Year ofvesting Historic LTIPvestingperformance Vesting % 50 1 1 1 1 63.5 discretion by Remuneration Committee. Bonus percentage after exercise of Reduced to 0% No change at 57.5% No change at 52.5% No change at 55% Reduced to 60% Reduced to 60% 100
100 22.5 NAV TSR 0 date of award Face value at 2020 Page 109 0 £’000 ªª
Governance Shaftesbury Annual Report 2020 Governance Remuneration
Directors’ shareholdings and share scheme interests at 30 September 2020 (audited) Shares under Value of shares option not vested Shares vested and owned outright as and subject to subject to two year Shares owned Shareholding a percentage of performance post-vesting holding outright requirement met salary3 Deferred shares4 criteria4 period Sharesave Executive directors Brian Bickell Yes Simon Quayle Yes Tom Welton Yes Chris Ward Yes Non-executive directors Jonathan Nicholls Richard Akers Dermot Mathias Sally Walden Jennelle Tilling - Jill Little5
1. Includes shares held by persons closely associated. 2. Based on share price at 30.9.2020 of £4.972 and salary as at 1.12.2019. 3. Under the remuneration policy, executive directors are expected to build up a shareholding of 200% of salary (as at the date of appointment to the Board), to be accumulated over ve years from appointment. 4. On exercise or vesting, deferred shares and LTIP nil cost options are subject to income tax and national insurance. The number that will actually be transferred will be reduced if directors sell sucient to meet their income tax and employees’ national insurance liability. 5. Retired from the Board on 31.1.2020 and shareholding stated as at that date. In relation to the equity issue announced on 22 October 2020, the directors and their persons closely associated acquired the following shares, details of which were announced on 20 November 2020: Brian Bickell 12,500, Simon Quayle 12,500, Tom Welton 6,250, Chris Ward 12,500, Jonathan Nicholls 12,500, Richard Akers 2,896, Dermot Mathias 12,500, Sally Walden 1,250 and Jennelle Tilling 12,500. Additional details on the share awards summarised in this table are provided below and on page 111, with further explanation on the operation of the plans set out in the Remuneration policy table.
1 Deferred Annual Share Bonus Scheme Entitlement to ordinary shares Market price on date of Date grant At Awarded At of grant £ 1.10.2019 in year 30.9.2020¹ Brian Bickell 12.12.2017 - 3.12.2018 - 12.12.2019 - Simon Quayle 12.12.2017 - 3.12.2018 - 12.12.2019 - Tom Welton 12.12.2017 - 3.12.2018 - 12.12.2019 - Chris Ward 12.12.2017 - 3.12.2018 - 12.12.2019 -
1. Following the equity issue announced on 22.10.2020, and approved by shareholders on 17.11.2020, the shares awarded under the Deferred Annual Share Bonus Scheme have subsequently been restated to reect the new share capital of the Company. These were technical adjustments and did not increase or decrease the value of the award. The restated gures will be reported in the 2021 Annual Report.
Page 110 1. Chris Ward Tom Welton Simon Quayle Brian Bickell over three orve years. Participants have sixmonths from the date ofvesting to exercise. Options are granted ata20% discount to the market price onthe date ofgrant upto the maximum monthly savings amount permitted by HMRC 3 Sharesave 3. 2. 1. Brian Bickell Nil cost options are granted subject to athree year performance period.Any award that vests is then subject to atwo year post-vesting holding period. 2 LTIP Shaftesbury AnnualReport2020GovernanceRemuneration Chris Ward Tom Welton Simon Quayle be reported inthe 2021 AnnualReport. been restated to reect the new share capital ofthe Company. These were technical adjustments anddidnot increase ordecrease the value ofthe award. The restated gures will Following the issue equity announced on22.10.2020, andapproved by shareholders on17.11.2020, the options granted, andthe option price underthe Sharesave have subsequently The LTIP vesting criteria for the awards granted in2018 and2019 can befound intheir respective Annual Reports, available onourwebsite atwww.shaftesbury.co.uk. As described onpage 101,the TSR andNAV performance conditions over the three years ended30.9.2020 have not beenmet.These awards willtherefore lapse. Annual Report. new share capital ofthe Company. These were technical adjustments anddidnot increase ordecrease the value ofthe award. Therestated gures willbereported inthe 2021 Following the issue equity announced on22.10.2020, andapproved by shareholders on17.11.2020, the shares granted underthe LTIP have subsequently beenrestated to reect the ª of grant Date Date
1.10.2019 At At -
12.12.2017 12.12.2019 4.12.2018 12.12.2019 4.12.2018 12.12.2019 4.12.2018 12.12.2019 4.12.2018 of grant Date 12.12.2017 12.12.2017 12.12.2017 3 3 3 3 during year 2 2 2 2 3 3 3 3 Granted ------
during year price on price on date of Market Market Lapsed () () grant £ ------
30.9.2020 1.10.2019 Number of ordinary shares underoption At At At At - - - - - 1
Granted during during Option price year ------£ 1
30.9.2020 Page 111 Vesting date At At 1
Governance Shaftesbury Annual Report 2020 Governance Remuneration
Percentage change in remuneration of the Board of Directors The table below shows the percentage change in remuneration of each executive and non-executive director against Shaftesbury employees as a whole between the years ended 30 September 2019 and 30 September 2020.
Executive directors (% change) Non-executive directors (% change)5 Average employee Brian Simon Tom Chris Jonathan Richard Dermot Sally Jennelle Element of pay (% change)1 Bickell Quayle Welton Ward Nicholls Akers Mathias Walden Tilling Base salary/fees2 - - - - - - 6 Bene¬ts3 - - - - - N/A N/A N/A N/A N/A Annual bonus4 - - - - - N/A N/A N/A N/A N/A
1. This table shows the change in average salary, taxable benets and bonus for all employees that were employed for the full years ended 30.9.2019 and 30.9.2020. Average employee pay has been calculated using a mean per capita on a full-time equivalent basis. These gures exclude the executive and non-executive directors. 2. Stated taking into account the 20% waivers of salary by all executive directors and of all non-executive fees for four months of the nancial year as a result of the Covid-19 pandemic. 3. The Company's self funded health care costs fell in the year to 30.9.2020 resulting in a larger relative decrease in the cost of benets for employees than directors. 4. The executive directors received no annual bonus for the year ended 30.09.2020. 5. Non-executive directors receive no benets and do not participate in the annual bonus scheme. 6. Jennelle Tilling joined the group on 1.1.2019. The salary included in the table for the year ended 30.9.2019 has been annualised. Note that there is no requirement to disclose a CEO pay ratio as the number of employees (39) falls signicantly below the threshold of 250 employees for disclosure under this provision.
Relative importance of spend on pay (£m)
54.5
8.2 10.0 Employee costs 0 Dividends 2020 2019
Review of past performance The chart below shows the TSR for the Company compared with the FTSE 350 REIT Index, of which the Company is a constituent, over ten years. The Committee uses this index as one measure of performance for awards of shares under the LTIP, as it considers this is an appropriate measure against which the relative performance of the Company should be compared for the purposes of considering executive directors’ remuneration.
Ten-year TSR chart to September 2020 300
250 Shaftesbury FTSE 350 REIT 200
150
100
50
0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: Datastream as at 30 September 2020
Page 112 Long-term incentive award vesting (%maximum) Annual bonuspayout (%maximum) Chief Executive singletotal ¬gure of remuneration (£’000) Ten-year chiefexecutivesingletotalfigureofremuneration 14 December 2020 Chair ofthe Remuneration Committee Sally Walden On behalf ofthe Board page 89. The Committee notes that both ofthese resolutions received signicant votes (dened as above 20%) against. For more information onthis see 2019 Remuneration policy shareholders representing 90.76% and 92.59%ofthe issued share capital, in2019 and2020 respectively, onthe resolutions, was as follows: Shareholders voted onthe Remuneration Policy atthe 2019 AGM, andonthe AnnualRemuneration Reportatthe 2020 AGM. Voting by Shareholder voting 1. 2020 Annualremuneration report Shaftesbury AnnualReport2020GovernanceRemuneration 2011: Jonathan Lane; 2012-2020: Brian Bickell remuneration advice to the Committee donot have connections the Deloitte LLPengagement and team partner that provide remuneration consulting in the UK. TheCommittee is satised that operates underthe CodeofConductin relation to executive a memberofthe Remuneration Consultants Group and voluntarily Deloitte LLPactas independent advisor to the Committee. They are Advisor totheCommittee 0121 0321 0521 0721 2019 2018 2017 2016 2015 2014 2013 2012 2011 For % For Deloitte LLPprovided noother services to the Group during the year. (excluding VAT). advice to the Committee during the nancial year were £36,700 The fees charged by Deloitte LLPfor the provision ofindependent with the Group that may impair their and independence. objectivity 1 gis gis oa oe Withheld Total votes %Against Against Page 113 2020
Governance Shaftesbury Annual Report 2020 Governance
Directors’ report The directors present their report on the affairs of the Group and the audited consolidated financial statements for the year ended 30 September 2020.
are governed by the Articles of Association and prevailing legislation. In UK Corporate Governance Code accordance with the Articles of Association, the Company may impose The Company has applied and complied with the provisions of the 2018 restrictions on, amongst other things, the size of a holding to preserve UK Corporate Governance Code (the Code) throughout the Company’s its REIT status. The directors are not aware of any agreements between nancial year, with the exception of Provision 38. This provision requires holders of shares in the Company that may result in restrictions on the the alignment of executive director pension contributions with the wider transfer of shares or on voting rights. workforce. As explained in the Directors’ remuneration report on pages 101, we have committed to align the contribution levels of the current executive directors with the workforce contribution rate (17.5%) by the Major shareholders Information provided to the Company pursuant to the FCA’s DTRs is end of 2022. Any new executive directors will be aligned on appointment. published on a Regulatory Information Service and on the Company’s For full details of the Code, please refer to the FRC’s website at website. As at 30 September 2020, the following information has been www.frc.org.uk. received in accordance with DTR 5, from holders of notiable interests in the Company’s issued share capital. Disclosures by reference Information that is relevant to this report including information required Noti¡able Ordinary % of capital Nature of by the Companies Act 2006, Disclosure and Transparency Rule 7.2 and interests shares disclosed1 holding Listing Rule 9.8.4R is incorporated by reference into this report. This Capital & Counties Properties PLC2 80,721,003 26.26 Direct information can be found in the annual report as follows: Norges Bank 77,034,285 25.06 Direct
Content Pages 1. As at date of notication. Strategic report 1 to 79 2. As at 14.12.2020, Capital & Counties Properties PLC held 96,971,003 ordinary shares Likely future developments in the business (25.24%). - Q&A with the Chief Executive 5 Employment, human rights and environmental matters Purchase of own shares - Our people and culture 42 to 45 The Company was granted authority at the 2020 AGM to make market - Sustainability 27 and 28 purchases of its own ordinary shares. This authority will expire at the - Environment 29 to 31 conclusion of the 2021 AGM and a resolution will be proposed to seek Section 172 statement 40 and 41 further authority. No ordinary shares were purchased under this authority Viability statement 78 and 79 during the year or in the period from 1 October 2020 to 14 December 2020. Corporate governance 80 to 113 and 118 Directors' waiver of emoluments 101 and 107 Results and dividends Financial instruments 141 to 143 The results for the year ended 30 September 2020 are set out in the Group statement of comprehensive income. Company status + Group statement of comprehensive income: page 128 Shaftesbury PLC is a public limited liability company incorporated In light of Covid-19 operating challenges and uncertainty regarding their under the laws of England and Wales. It is the holding company of the duration, the Board decided not to declare a dividend in respect of the Shaftesbury group of companies and has a premium listing on the year ended 30 September 2020. London Stock Exchange main market. Shaftesbury PLC is Real Estate Investment Trust (REIT) and constituent member of the FTSE 250 Index. Events after the Balance Sheet date On 22 October 2020, the Company announced a proposed Firm Placing, Share capital Placing, Open Oer and Oer for Subscription (the Capital Raise). The During the year, 4,922 ordinary shares were issued at nil cost on the Company raised gross proceeds of £307 million from the Capital Raise, exercise of LTIP options, and £7.74 and £7.54 on the exercise of which was approved at a general meeting of the Company on 17 November sharesave options. At 30 September 2020, the Company’s issued share 2020. 76.75 million new shares were issued and, as a result, at 14 December capital comprised 307,417,537 ordinary shares of 25p each. Since 30 2020, the Company’s issued share capital comprised 384,167,537 September 2020, the Company has undertaken a Firm Placing, Placing and ordinary shares of 25p each. For more information, see page 149. Open Oer and Oer for Subscription which has increased the Company’s issued share capital. Information regarding this capital raise may In respect of the capital raise, Capital & Counties Properties PLC be seen below under the heading “Events after the Balance Sheet date”. (“Capco”) and Norges Bank ("Norges") were related parties of Shaftesbury PLC for the purposes of the Listing Rules and participated in the equity The Company has one class of ordinary shares. All shares rank equally issue in respect of 16,250,000 and 19,245,032 shares respectively, for a and are fully paid. No person holds shares carrying special rights with total consideration of approximately £65 million and £77 million respectively. regard to control of the Company. There are no restrictions on the In respect of Capco, this transaction was disclosed via the Regulatory transfer of shares, on voting rights, or on the size of a holding, which News Service on 22 October 2020, in accordance with LR11.1.10R. Page 114 The Group maintains Directors’ and Ocers’ Insurance. Liability law remains inforce. incurredliability inthe course oftheir oce to the extent permitted by The Company’s agreement to each director indemnify against any o fice s lia ilit ins ance Directors’ indemnitiesanddirectors’ directors’ to ability issue orbuyback shares. set ofAssociation. outinthe Articles These powers includethe The Board manages the business ofthe Company underthe powers during the year. signicance with the Company, orany ofits subsidiaries, atany time No memberofthe Board had amaterial interest inany contract of reference to this andcan report befound atpages 110and 111. set outinthe directors’ remuneration whichis report incorporated by and details ofoptions granted underthe Group’s share schemes are statements, their interests inthe ordinary share capital ofthe Company September 2020 andupto the date ofapproval ofthe nancial Details ofthe directors whoserved during the year ended30 the Codeandthe Company’s ofAssociation. Articles be approved by aspecial resolution ofshareholders whichis inlinewith Association are onlypermitted inaccordance with legislation andmust contained ofAssociation. inthe Articles Changes to of the Articles Rules governing the appointment andreplacement ofdirectors are Directors anddirectors’shareholdings exercising ofoptions inthe event ofachange ofcontrol ofthe Group. Company’s share schemes contain provisions relating to the vesting and of the Group andmay alter orterminate these agreements. The agreements contain clauses whichtake eect uponachange ofcontrol The Longmartin joint venture andanumberofdebt nancing Change ofcontrol + likely have anadverse impact onnear-term rent collection. our hospitality andretail occupiers’ to ability trade andwilltherefore December until further notice. This will have an adverse impact on both Counties would bemoving to Tier3restrictions, beginning from 16 the Government announced that Londonofthe Home andparts On 14December 2020, inresponse to rising Covid-19 infection rates, + duration ofthe waiver. Group placed afurther £4.4millionondeposit with the lenderfor the 2022.April 2021 Inconsideration to January for this extension, the cover covenant waiver inrespect ofits £250.0millionterm loan from On 19November 2020, the Group secured anextension to the interest the lenderfor the duration ofthe waiver. this extension, the Group placed afurther £1.0millionondeposit with of this facility from 2021 to October January 2021. Inconsideration for secured anextension to the interest cover covenant waiver inrespect including the nancial covenants. On20 November 2020, the Group remains compliant with allrequirements inthe loan agreement, facility, whichremains available to bere-drawn, provided the Group repaid £100.0millionofdrawings against its remaining revolving credit credit facility, whichwas undrawn. On27 November 2020, the Group On 27 November 2020, the Group cancelled its £125.0millionrevolving reasonable as far as Shaftesbury PLC’s shareholders were concerned. from its sponsor that the terms ofthe transactions were fair and on 17November 2020. Shaftesbury PLC received written conrmation 2020. This approval was granted atthe Extraordinary General Meeting Rules as announced via the Regulatory on22October News Service size to require shareholder approval underchapter 11ofthe Listing In respect ofNorges, the issue ofshares was atransaction ofsucient Shaftesbury AnnualReport2020GovernanceDirectors'report
Covid-19: impact and response: pages 7and 8 Financing: pages 67 and 68 + day. Netproceeds from the raise equity were £294.4 million. 2020 and76.75 millionshares were admitted for trading the following an Extraordinary General Meeting ofthe Company on17November Oer andanOer for Subscription. issue Theequity was approved by to 76.75 millionshares by means ofaFirm Placing, aPlacing andOpen On 22October 2020, the Board announced its intention to issue up long-term growth as pandemic issues recede. maintains astrong nancial base andis positioned to return to long-term interests ofthe Group to raise to equity ensure the Group medium-term prospects, the Board determined that itwas inthe light ofthe implications ofthe Covid-19 pandemic for and its short- In October 2020, having assessed the Group's nancial position in + nancial statements for the year ended30September 2020. of adopting the going concern basis inpreparing the consolidated the directors have placed focus aparticular onthe appropriateness Covid-19 onthe economic environment inwhichthe Group operates, Given the signicant uncertainties resulting from the impact of Going concern conicts ofinterest as permitted by ofAssociation. the Articles during the year and,accordingly, the Board has not authorised any Board conrms that noconicts have beenidentied ornotied potential conict ofinterest andmake anannualdeclaration. The Directors are required to the notify Company ofany conict or interests tho isation o i ecto s con icts • • has either secured waivers orhas cure rights: of the going concern period.However, onalldrawn debt facilities it Group willnot meetinterest cover covenants throughout the whole As aconsequence, underthe downside scenario, itis likely that the rental values andasset values. throughout the going concern periodas well as declining estimated reduced levels ofrent collection andincreased EPRA vacancy These continued restrictions are expected to lead to continued pre-pandemic levels within the going concern period. trade through to spring 2021 andthat footfall may not recover to measures willcontinue to adversely aect its occupiers' to ability The Group anticipates that Government Covid-19 containment loans andfactored indecreases values inproperty ofupto 40%. It also assumed surplus unsecured is property charged to individual commitments are satised andthere are noacquisitions ordisposals. low levels ofrent collection, increased vacancy, existing capital a severe butplausible downside scenario, whichassumes continued In preparing the assessment ofgoing concern, the Board has considered liquidity, committed expenditure, andlikely ongoing levels ofcosts. 31 March 2022 (the going concern period),andtakes into account its date ofauthorisation ofthese consolidated nancial statements to The Group's going concern assessment covers the period from the sucient contractual income from its poolofunsecured properties. the to ability top-up the charged asset poolwith additional assets with during the going concern period.Shoulditberequired, the Group has covenants at30September 2020 andexpects to remain compliant The Group was compliant with bonds' its interest mortgage cover anticipates sucient available cash to make any necessarydeposits. concern periodnot covered by existing waivers andthe Group The facilities have cash cure rights for alltesting dates in the going lenders for 2022 periods respectively. ending July2021 andJanuary The Group has secured interest cover waivers from its two term loan
Financing: page67 Covid-19: impact and response: pages 6to 9 Page 115
Governance Shaftesbury Annual Report 2020 Governance Directors' report
• Since 30 September 2020, the Group has cancelled its shortest 2019-20 Energy consumption and GHG emissions maturity revolving credit facility (£125 million, maturing May 2022) and Overall, energy consumption has reduced year-on-year reecting has repaid all drawings under its remaining revolving credit facility (£100 uctuations in occupier numbers and occupancy primarily attributed million, maturing February 2023). In its downside scenario, the Group to the eects of Covid-19 and its impacts on the economy in central forecasts that it will have sucient cash throughout the going concern London. A total of 4,361,669 kWh has been consumed in the portfolio in period, such that it does not anticipate being reliant on the undrawn 2020 (2019: 4,477,290 kWh). This includes all landlord controlled areas facility for liquidity and could cancel it if interest cover covenant as well as energy consumed on refurbishment projects. waivers were not available. Due to the increased use of renewable energy in the national grid, There are no debt maturities until February 2023. Scope 1 and 2 GHG in the portfolio decreased by over 9.5% from 1,077 Financing: pages 68 and 69 tonnes in nancial year 2019 to 975 tonnes. With respect to market- + based emissions, all of the wholly owned portfolio within operational At 30 September 2020, the Group's loan-to-value ratio was 31.5%. control has used green tari electricity with resulting zero emissions. A Pro forma for the receipt of the proceeds of the equity raise this falls small amount of electricity was purchased as part of the refurbishment to 22.1%. The Group's individual debt arrangements have specically schemes and at the Longmartin joint venture which is not green tari charged assets as security, although the relative amounts of collateral and is quantied below for 2020. against each arrangement are not uniform. However, as part of the Group's nance strategy, it has a pool of unsecured properties which UK GHG UK GHG can be used to top-up debt security pools, if necessary, to comply with emissions emissions UK Energy UK Energy loan-to-value covenants. The cancellation of the £125 million revolving 2020 2019 consumption consumption (tCO e) (tCO e) 2020 (kWh) 2019 (kWh) credit facility has released additional assets to this pool. Through 2 2 charging these unsecured properties, the Group estimates that it could Scope 11 211 191 withstand a 41% decrease in valuations before reaching the limit of its Natural gas 199 185 1,081,475.7 1,009,666.5 loan-to-value covenants. If it were to cancel the remaining revolving Refrigerant losses 12 6 Scope 2 location-based (electricity) 764 886 credit facility and release its assets to be charged against other loans, 3,280,193.6 3,467,623.9 this tolerance would increase to 48%. Scope 2 market-based (electricity) 160 n/d 2 Total (location-based) 975 1,077 Under the Group's severe but plausible downside scenario, the Group Intensity metric tCO2e/£M tCO2e/£M kWh/£M kWh/£M has sucient liquidity for the going concern period assuming that Total emissions and energy/ 7.8 8.5 35,033 35,282 values do not decline beyond the tolerance levels noted above. The £M revenue Board, therefore, has a reasonable expectation that the Group has 1. Shaftesbury does not have any eet or company cars hence no emissions are adequate resources to continue in operational existence for the going reported from transport fuel or other energy sources in scope 1 as not applicable. concern period. On this basis, the Board has continued to adopt the 2. This gure was not reported in 2019. going concern basis in preparing the consolidated nancial statements. Energy efficiency actions undertaken in the 2019-20 Political donations reporting year The Company did not make any political donations during the year As in previous years, we continue to progressively increase the (2019: nil). coverage of LED lighting in our properties and undertake ongoing improvements and upgrades through the programme of refurbishment. Disclosure of information to auditors We also completed the second phase assessment in accordance with Each director has conrmed that: the Government Energy Savings Opportunities Scheme (ESOS). a) so far as they are aware, there is no relevant audit information of In addition to the continued progress of the above, other actions which the auditors are unaware; and recommended the ESOS assessors include: b) they have taken all reasonable steps to ascertain any relevant audit • reviewing existing energy management practices in specic buildings; information and ensure the auditors are aware of such information. and This conrmation is given in accordance with section 418 of the • further engaging with tenants and sta to increase awareness and Companies Act 2006. identify opportunities for savings. In total, a potential saving of 200 tonnes of GHG is anticipated once all Greenhouse gas emissions the recommendations are implemented. Further details are contained We report our greenhouse gas emissions (GHG) and energy consumption within the Sustainability Data Report on pages 27 and 28. in compliance with the requirements of The Companies (Directors’ We are reporting on two emission intensities: performance against Report) and Limited Liability Partnerships (Energy and Carbon Report) turnover and common parts oor areas. Common parts oor areas Regulations 2018. Our scope 1 and 2 emissions statements cover the includes 126 reported properties. The emissions intensity gure was reporting period 1 October 2019 to 30 September 2020 and are 39.5 kgCO2e/m2 (0.039 tonnes CO2e/m2), a decrease from last year’s detailed in the table below. Scope 1 is dened as direct emissions that 46 kgCO2e/m² (0.046 tonnes CO2e/m2). Against turnover, the intensity include any gas data for landlord-controlled parts and fugitive emissions has reduced from 8.5 tonnes per £million of total revenue to 7.8 tonnes from air conditioning are included where it is our responsibility within per £million of total revenue. the managed portfolio. Scope 2 is dened as indirect energy emissions which include purchased electricity throughout the Group’s operations We have this year increased the extent of coverage of our Scope 3 data within landlord-controlled parts. The gures relate to landlord controlled which is detailed in our Sustainability Data Report. This enables us to common parts such as staircases and the numbers are therefore better understand carbon emissions across our value chain and will minimal. Electricity used in refurbishment projects has been included be increased further over the forthcoming reporting year. where material.
Page 116 corporate andscope 3standards. the internal reporting methodologies andWBCSD &WRI GHG inventory is not materially correct andprepared inaccordance with on ourwebsite, Avieco found noevidence to suggest that ourGHG Based onthe verication procedures detailed inthe full statement annual turnover) compared to nancial year 2019. year-on-year performance change andthe intensity metric (tCO2e/ operational control. Theverication engagement assessed the areas from the properties where the Group has sole ownership and 3standard.part ofthe verication Theboundary includedthe landlord verication inaccordance with the requirements ofthe ISO 14064 – that the reported emissions for scope 1,2and3have received limited GHG emissions statements for the stated period.They have conrmed Avieco (formerly has Carbon Smart) conducted the verication ofour Third PartyDataVerification • • • accordance with the following standards: calculated using anoperational control andin reporting boundary andcarbonThe energy statements disclosed inthis have report been Methodology (BEIS) 2020. from for UKDepartment Business, Energy andIndustrial Strategy We have appliedthe appropriate greenhouse gas conversion factors Shaftesbury AnnualReport2020GovernanceDirectors'report requirements’. guidelines: Including Streamlined Energy andCarbon Reporting Business, Energy &Industrial Strategy (2019): Environmental reporting forDepartment Environment, Food &Rural Aairs for andDepartment market-based reporting; and WRI/WBCSD (2015). Greenhouse Gas Protocol: Scope 2Guidance for and Reporting Standard -Revised Edition; WRI/WBCSD (2004). Greenhouse Gas Protocol: Corporate Accounting
14 December 2020 London W1F7FD Carnaby 22 Ganton Street in England andWales number1999238 Incorporated, registered anddomiciled Shaftesbury PLC Company Secretary Desna Martin By Order ofthe Board advice ofthe Audit Committee, recommends their re-appointment. the Company willbeproposed atthe 2021 AGM. TheBoard, onthe A resolution for the re-appointment ofErnst &Young LLPas auditors to Independent auditors on 25February 2021 at11:00am. operated can befound inthe Notice ofMeeting. TheAGM willbeheld electronically. Full details ofthe manner inwhichthe AGM willbe oered to the opportunity participate remotely, ask questions andvote permitted to attend the AGM inperson. However, shareholders willbe regrets that to ensure shareholders' safety, shareholders willnot be aect the manner inwhichthe AGM can beconducted. TheBoard and restrictions onnon-essential travel andpublicgatherings, which to deal with the pandemic whichincludeguidance onsocial distancing shareholders seriously, very TheGovernment has introduced measures The Board takes the well-being ofthe Company's employees and on the Company’s website. Annual Report.TheNotice ofMeeting andAnnualReportare available Meeting inaseparate circular to shareholders whichaccompanies this less than 14days’ notice. Theresolutions are set outinthe Notice of Company’s own shares andauthority to call ageneral meeting onnot shares, disapplication ofpre-emption rights, authority to purchase the The 2021 AGM willincluderesolutions dealing with authority to issue 2021 annualgeneralmeeting
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Governance Shaftesbury Annual Report 2020 Governance
Directors’ responsibilities The directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable law and regulations.
Company law requires the directors to prepare nancial statements for A copy of the nancial statements of the Group is placed on the each nancial year. Under that law the directors are required to prepare Company’s website. The directors are responsible for the maintenance the Group nancial statements in accordance with International Financial and integrity of the Company’s website. Reporting Standards (IFRSs) as adopted by the European Union (EU) and Information published on the internet is accessible in many countries Article 4 of the IAS Regulation and have also elected to prepare the with dierent legal requirements. Legislation in the United Kingdom Parent Company nancial statements in accordance with IFRSs as governing the preparation and dissemination of nancial statements adopted by the EU. Under company law the directors must not approve may dier from legislation in other jurisdictions. the nancial statements unless they are satised that they give a true and fair view of the state of aairs of the Group and the Company and of the prot or loss of the Group for that period. In preparing these nancial Directors’ responsibility statement under statements, the directors are required to: the Disclosure and Transparency Rules • select suitable accounting policies in accordance with IAS8 ‘Accounting Each of the directors, whose names and functions are listed on pages Policies, Changes in Accounting Estimates and Errors’ and then apply 55 and 56 conrm that, to the best of their knowledge the: them consistently; • Group nancial statements, which have been prepared in accordance • make judgements and accounting estimates that are reasonable and with IFRSs as adopted by the EU give a true and fair view of the assets, prudent; liabilities, nancial position and prot of the Group; • present information, including accounting policies, in a manner that • Company nancial statements, which have been prepared in provides relevant, reliable, comparable and understandable accordance with IFRSs as adopted by the EU give a true and fair view of information; the assets, liabilities, nancial position and prot of the Company; and • provide additional disclosures when compliance with the specic • Strategic Report contained on pages 1 to 79 of the Annual Report requirements of IFRSs as adopted by the EU is insucient to enable includes a fair review of the development and performance of the users to understand the impact of particular transactions, other events business and the position of the Group and Company, together with a and conditions on the Group’s and Company’s nancial position and description of the principal risks and uncertainties that they face. performance; • state that the Group and Company has complied with IFRSs as Directors’ statement under the Code adopted by the EU, subject to any material departures disclosed and Each of the directors conrm that, to the best of their knowledge, the explained in the nancial statements; and Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for • prepare the nancial statements on the going concern basis unless it is inappropriate to do so. shareholders to assess the Group's performance, business model and strategy. The directors are responsible for keeping adequate accounting records that are sucient to show and explain the Group’s and Company’s This directors’ responsibilities statement was approved by the Board transactions and disclose with reasonable accuracy at any time the and signed on its behalf by: nancial position of the Company and the Group and enable them to ensure that the nancial statements and the Directors’ Remuneration Brian Bickell Chris Ward Report comply with the Companies Act 2006 and, as regards the Chief Executive Finance Director Group nancial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the 14 December 2020 14 December 2020 Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Page 118 and appropriate to provide abasis for ouropinion. We believe that the auditevidence we have obtained is sucient other ethical responsibilities inaccordance with these requirements. as appliedto listed publicinterest entities, andwe have fullled our nancial statements in the UK,including the FRC’s Ethical Standard with the ethical requirements that are relevant to ourauditofthe We are independent ofthe Group andParent company inaccordance for the auditofthe nancial statements section below. ofourreport those standards are further described inthe Auditor’s responsibilities Auditing (UK)(ISAs (UK))andapplicable law. Ourresponsibilities under We conducted ourauditinaccordance with International Standards on Basis foropinion the provisions ofthe Companies Act 2006. the Parent company nancial statements, as appliedinaccordance with Standards (IFRSs) as adopted by the European Unionand,as regards preparation is applicable law andInternational Financial Reporting The nancial reporting framework that has beenappliedintheir signi¬cant accounting policies Related notes 1to 28, of includingasummary Statement of changes inequity Cash ®ow statement Statement of Comprehensive Income Balance Sheet 30 September 2020 whichcomprise: ‘Parent andits company’) subsidiaries (the ‘Group’) for the year ended We have audited the nancial statements ofShaftesbury PLC (the What wehaveaudited • • • • In ouropinion: Opinion To themembersofShaftesburyPLC Independent auditor’sreport Shaftesbury AnnualReport2020Governance nancial statements, 4ofthe IASRegulation. Article requirements ofthe Companies Act 2006, and,as regards the Group The nancial statements have beenprepared inaccordance with the in accordance with the provisions ofthe Companies Act 2006; and in accordance with IFRSs as adopted by the European Unionas applied The Parent company nancial statements have been properly prepared as adopted by the European Union; accordance with International Financial Reporting Standards (IFRSs) The Group nancial statements have beenproperly prepared in at 30September 2020 andofthe Group’s loss for the year then ended; view ofthe state ofthe Group’s andofthe Parent company’s aairs as nancial statements (the ‘‘nancial statements’’) give atrue andfair Shaftesbury PLC’s Group nancial statements andParent company
Group 4 4 4 4 4 company
Parent Parent
4 4 4 4
• • you whether we have anything material to addordraw attention to: inrelationannual report, to whichthe ISAs (UK)require us to to report We have nothing to inrespect report ofthe following information inthe going concernandviabilitystatement Conclusions relatingtoprincipalrisks, matters Key audit Overview ofourauditapproach • • • Materiality Audit scope model, future performance, solvency orliquidity; facing the entity, including those that would threaten its business that they have carried outarobust assessment ofthe principal risks the directors’ conrmation set outonpage 73 inthe annualreport mitigated; the principal risks andexplain how they are beingdescribe managed or the disclosures inthe set annualreport outonpages 73 to 77that to any necessary qualications orassumptions. their assessment, including any related disclosures drawing attention operation andmeetits liabilities as they fall dueover the periodof reasonable expectation that the willbeableto entity continue in be appropriate, andtheir statement as to whether they have a what periodthey have doneso andwhy they consider that periodto asreport to how they have assessed the prospects ofthe entity, over the directors’ explanation set outonpages 78 to 79 inthe annual materially inconsistent with ourknowledge obtained inthe audit;or under the Listing Rules inaccordance with Listing Rule 9.8.6R(3)is whether the directors’ statement inrelation to going concern required date ofapproval ofthe nancial statements; continue to doso over aperiodofatleast twelve months from the identication ofany material uncertainties to the entity’s to ability the going concern basis ofaccounting inpreparing them, andtheir statements aboutwhether they considered itappropriate to adopt the directors’ statement set outonpage 132inthe nancial • • • • • • • ¬nance costs. investment property valuation movements and net 5% of theaverage operating pro¬t over 3years before Speci¬c Group Materiality: £3.4m whichrepresents total assets. Overall Group Materiality: £33mwhichrepresents 1%of scope isconsistent withtheprioryear. which are includedwithintheGroup. TheGroup audit direct testing of theLongmartin joint venture balances the scopeof theaudit. TheGroup audit team performed entities. Allof theGroup’s companies were includedin of asinglereporting segment across eleven statutory The Group operates inLondon’s West Endand consists Going concern and leaseincentives Provisions for expected credit onrent losses receivables recognition, and thetreatment of rents and incentives Revenue recognition includingthetimingof revenue The valuation of investment property Page 119
Governance Shaftesbury Annual Report 2020 Governance Independent auditor’s report
Key audit matters Key audit matters are those matters that, in our professional judgement, Fair value of investment were of most signicance in our audit of the nancial statements of properties tested by the current period and include the most signicant assessed risks of detailed analytical material misstatement (whether or not due to fraud) that we identied. procedures 15% These matters included those which had the greatest eect on: the overall audit strategy, the allocation of resources in the audit; and directing the eorts of the engagement team. These matters were addressed in the context of our audit of the nancial statements as a whole, and in our opinion thereon, and we do not provide a separate opinion on these matters. 85% This year we have removed one key audit matter ‘Litigation and claims’ Fair value of investment following the withdrawal of the legal proceedings that were issued by a properties tested by former substantial shareholder. We have identied two new key audit audit team Chartered matters ‘Provisions for expected credit loss on rents receivable and Surveyors lease incentives’ and ‘Going concern’. The impact of the Covid-19 pandemic on the Group and its tenants has meant the audit partner and other senior members of the audit team spent a signicant amount • The Group audit team includes Chartered Surveyors who tested a of time assessing the key assumptions and judgements in these two areas. sample of properties. They challenged the valuation approach and assumptions. The sample size they tested accounted for 85% of the Risk: The valuation of investment property fair value of investment properties, including investment properties £3,137.4m (plus £175.0m being the Group’s share in the Longmartin held in the Longmartin joint venture. joint venture) • Our Chartered Surveyors compared the equivalent yields applied Refer to the Audit Committee Report (page 98); Accounting policies to each property to an expected range of yields taking into account (page 150); and Note 10 of the Consolidated Financial Statements market data and asset specic considerations. They also assessed (pages 135 to 136) the other assumptions applied by the external valuers, such as the estimated rental values and corroborated these to the rental tones The valuation of investment property, which includes properties held in set by relevant open market lettings, rent renewals and market reports. the joint venture, requires signicant judgement and estimates by management and the external valuers. Any input inaccuracies or • Together with our Chartered Surveyors, we obtained the sources of unreasonable assumptions used in these judgements (such as in information used by the external valuers. We searched for available respect of estimated rental value (ERV) and yield prole applied) could market evidence by researching leasing and investment transactional result in a material misstatement of the statement of comprehensive evidence from property transaction databases and market reports, income and balance sheet. looking for contra indicators to challenge the yields and ERVs adopted. There is also a risk that management may unduly inuence the • In respect of the properties not in the sample tested by our Chartered signicant judgements and estimates in respect of property valuations Surveyors (15% of the fair value), we performed detailed analytical in order to achieve performance targets to meet market expectations procedures on a property-by-property basis. This involved forming or bonus targets. an expectation of the fair value of each property in the portfolio by reference to relevant external market data relating to capital growth Our response to the risk rates. We investigated further the valuations of those properties which Our audit procedures around the valuation of investment property were not in line with our initial expectations which included further included: discussions with management and the external valuers and, where • We obtained an understanding of the Group’s controls over data appropriate, involvement of our Chartered Surveyors. used in the valuation of the investment property portfolio, including • We evaluated the competence of the external valuers which included management’s review of the valuations, to ensure the controls were consideration of their qualications and expertise, as well as their designed and implemented correctly. independence. • We met with the external valuers, Cushman & Wakeeld and Knight • We made enquiries of the external valuers and inspected their terms Frank, to understand the methodology used, and the basis for of reference to conrm that they had not been subject to undue assumptions adopted including yields, ERVs, void periods, and tenant inuence or direction from management. incentives. • We utilised our detailed analytical procedures and work of the • We assessed how the valuers have reected the impact of Covid-19 Chartered Surveyors described above in order to assess for evidence in the valuations. We assessed the assumptions around rent of undue management inuence. collection levels in the short term, taking into account potential • For properties under signicant refurbishment, we vouched the costs further government action, trading restrictions and the risk of tenant incurred to date, and agreed the cost to complete estimates to failure. We challenged these assumptions and looked for contra approved budgets and contractual arrangements. We met with indicators in other evidence we obtained during the audit including: property surveyors to discuss the project costs and risk associated - recent rent collection data from tenants and subsequent cash receipts with the signicant projects, including potential additional costs - the level of waivers and concessions granted to tenants by the Group resulting from development delays caused by Covid-19. - management’s assessment of the recoverability of tenant-related • We performed testing over the inputs to the valuations. For a sample balances, and performing a search for known Company Voluntary of properties, we tested the contracted rent and key lease terms Arrangements and tenants with nancial issues used by the valuers back to lease agreements.
Page 120 • • • • • Our response to the risk from Covid-19 whichrelate to the current year. incentives, orthe treatment ofoperating lease modications resulting deferred revenue balance, the IFRS rent adjustment for lease In order to distort rental income, management could manipulate the future targets orexpectations. overstatement ordeferral ofrevenues to assist inmeeting current or management to distort revenue recognition. This may result in Market expectations andprot based targets may place pressure on 134) (page 150);and Note 5ofthe Consolidated Financial Statements (page Refer to the Audit Committee Report (page98);Accounting policies incentives (FY19:£2.3m) £102.5m ofrental income (FY19:£115.0m),£11.9madjustment for lease incentives revenue recognition,andthetreatmentofrents Risk: Revenuerecognition,includingthetimingof fair value ofinvestment properties at30September 2020. and that the external valuations are anappropriate assessment ofthe We concluded that the inputs appliedare andmethodology reasonable undue management inuence orbias. and challenge over the valuations andwe didnot identify evidence of We conclude that management provided anappropriate level ofreview tested by ourChartered Surveyors are within areasonable range. We conclude that the valuation ofeach ofthe assets inthe sample testing for the sample we tested. We didnot identify any exceptions ormaterial errors inthe input evidence. yields, resulting from afall inthe volume ofletting andtransactional valuation inthe current year, inassessing inparticular the ERVs and A higherdegree ofestimation andjudgement has beenappliedinthe around void periods andlease incentives. the risk ofreduced collections ofrental income, the assumptions used by the external valuers. We assessed the impact ofCovid-19 and We audited the inputs, assumptions andreviewed the methodology Key observations communicated to the Audit Committee Shaftesbury AnnualReport2020GovernanceIndependentauditor’sreport - - Covid-19 we: In response to the operating lease modications arising from calculation. testing ofthe tenancy schedule have beenincludedinthe conrming that allleases with lease incentives from ourdetailed We veried the completeness ofthe lease incentives recorded, by accordance with IFRS 16Leases. the treatment oflease incentives, is onastraight-line basis, andin For asample ofleases, we tested that the lease income, including incentives, credit notes andvoids. developed from rents inthe tenancy schedules, allowing for lease companies, was materially consistent with ourexpectations rental income recognised by the Group, andeach ofthe operating We performed substantive procedures analytical andfound that the incentives. identifying rent free periods, turnover rents, break dates andother the annualrent back to the terms ofthe lease agreements, including We performed detailed testing for asample ofleases by agreeing
rental income was correctly straight-lined over the lease term. lease modications were correctly accounted for andthat the notes raised by managing agents. We veried that these operating Obtained, andtested the completeness of, aschedule ofcredits record the operating lease modications. Updated ourunderstanding ofthe controls inplace to identify and
joint venture. to allthe Group’s revenue andthe revenue inthe Longmartin The procedures we carried outover revenue recognition apply revenue has beenrecognised onanappropriate basis inthe year. Based uponthe auditprocedures performed, we conclude that for operating lease modications, inresponse to Covid-19. We assessed the accuracy andcompleteness ofthe accounting and incentives, andassessed the risk ofmanagement override. We audited the timing ofrevenue recognition, treatment ofrents Key observations communicated to the Audit Committee • • • • of the lease term. the lease contract is likely to remain inplace until the planned end credit losses onlease incentives requires anassessment ofwhether to Shaftesbury at30September 2020. Theprovision for expected estimation ofthe likelihood that tenants willsettle unpaid rents owing The provision for expected credit losses onrent receivables is an not accurately reect the credit risk to the Group atthe year end. in the nancial statements is not inaccordance with IFRS 9anddoes of the Group’s tenants. There is arisk that the provision recognised Covid-19 pandemic andgovernment actionrestricting the trading is more complex with rapidly changing events brought onby the available atthe balance sheet date. Inthe current year, this estimation incentives requires estimation using historical andforecast information Provisions for expected credit losses onrent receivables andlease Statements (pages 136,138and 142) (page 151);and Notes 11,14and 18ofthe Consolidated Financial Refer to the Audit Committee Report (page98);Accounting policies £1.5m) and£8.2mfor lease incentives (FY19:£0m) £14.3m provision for expected credit losses onrent receivables (FY19: receivables andleaseincentives Risk: Provisionsforexpectedcreditlossesonrent revenue is consistent with ourexpectations. testing to conrm the processing andtiming ofjournals to record the risk ofmanagement override ofcontrols including journal entry We performed auditprocedures specically designed to address complied with IFRSs as adopted by the European Union. We evaluated whether the revenue recognition policies adopted impact ofCovid-19 onthe revenue recognition ofthe Group. nancial statements andwhether they appropriately reect the We have assessed the adequacyofthe disclosures inthe - - - In respect ofthe deferred income recognised atyear endwe: - -
likelihood for ofcollectability each tenant. For asample ofdeferred income balances, we considered the timing ofrent recognised to invoices orrent agreements. Substantively tested asample ofbalances by agreeing the on the timing ofinvoicing. income balance is materially within our expectations, based Performed procedures analytical to conrm the deferred agreement between landlord andtenant. modications with reference to available evidence ofthe We assessed the ‘eective date’ ofthe operating lease calculations. the accuracy ofmanagement’s operating lease modication evidencesupporting such as invoices orcredit notes to verify On asample basis, we tested rent waivers andconcessions to
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Governance Shaftesbury Annual Report 2020 Governance Independent auditor’s report
Our response to the risk Risk: Going concern We performed procedures to address the heightened risk of non- The Group’s nancial statements are prepared on the going concern payment of rent receivables and the risk of future tenant default in the basis of accounting. This basis is dependent on a number of factors, current environment, including: including the Group’s forecast nancial performance and liquidity • We obtained an understanding of the Group’s controls over the levels, and the Group’s ability to continue to operate within the nancial calculation of the provisions, including management’s assessment of covenants of its debt facilities. the risk of non-payment and risk of future tenant default, to ensure Refer to the Audit Committee Report (page 98) and Note 1 of the the controls were designed and implemented correctly. Consolidated Financial Statements (page 132) • We performed additional procedures to assess the nancial health of the Group’s tenants. These procedures included: obtaining a list of The Covid-19 pandemic has impacted tenants’ ability to trade, and known Company Voluntary Arrangements, performing press searches in turn the Group’s rent collection. As a consequence, the Group for evidence of tenant nancial diculty, holding discussions with the identied that it was likely it would not meet interest cover covenants external valuers and with the Group’s property surveyors and throughout the whole of the going concern period which may adversely reviewing tenancy information and rent collection data to identify impact the Group’s ability to continue to operate as a going concern. those tenants with a higher risk of default. We assessed whether Subsequent to the year end, the Group has raised equity with net those higher risk tenants had been appropriately provided for at the proceeds of £294.4m following approval by shareholders of certain year end, in both the provision for expected credit losses on rent resolutions to execute the transaction on 18 November 2020, and receivables and lease incentives. agreed waiver extensions for covenant on its drawn debt facilities where they had been assessed as being required. • We assessed the signicant assumptions adopted by management in the provision for expected credit losses on rent receivables and lease The debt facilities also have loan-to-value covenants. While the fall incentives. The most signicant of these being the probability of in the value of investment properties has reduced the headroom, default for the tenants, based on their risk prole. We challenged this the Group expects to continue to remain in compliance with these assumption in light of other information we obtained during the audit covenants. including the rent collection assumptions made by external valuers, There is also a risk that management has not adequately disclosed and by management in their going concern assessment. the results of its going concern assessment in the nancial statements. • Given the high degree of estimation uncertainty, we performed Our response to the risk sensitivity analysis on the probability of default in order to derive a • We obtained an understanding of the process followed by range of reasonable outcomes for the provision for expected credit management to prepare the Group’s going concern assessment losses on rent receivables and lease incentives. which we obtained a copy of, including identifying the key • We assessed the credit risk assessment prepared by management. assumptions which inuenced the cash ow forecasts. We validated the tenant deposits in place, obtaining conrmations of balances held by the managing agents. • We obtained the cash ow forecasts prepared by management showing three scenarios including a severe but plausible downside • We tested the completeness of the expected credit loss provision by scenario. We tested the mathematical accuracy of the forecast comparing the tenants included in the provision workings to audited models. tenancy schedules and to the audited lease incentive schedule. • We challenged the appropriateness of the forecasts by assessing We tested the clerical accuracy of the provision workings and veried • historical forecasting accuracy, comparing assumptions to historic that the provision was calculated in accordance with management’s performance and our knowledge of current trading conditions and policy. For any exceptions to this policy, we obtained supporting circumstances. We applied further sensitivities to stress test the evidence to validate the provision amount. liquidity of the Group over the going concern period. • We assessed the adequacy of the disclosures in the nancial • We agreed key terms in the nancing arrangements such as loan statements for the provision for expected credit losses on rent maturity dates, covenants and cure rights to the underlying receivables and lease incentives. agreements. We obtained copies of the waivers received from Key observations communicated to the Audit Committee lenders and assessed whether their terms were consistent with the We audited the provision for expected credit losses on rent receivables assumptions made in management’s going concern assessment. and lease incentives. • We recalculated covenant calculations using the forecasts and We assessed the risk of tenant default and non-collection of rents as evaluated whether the covenants would be met during the going a result of current market conditions. We searched for indicators of concern period. We considered the assessment of our Chartered tenant nancial distress and considered whether the risk of default was Surveyors of the likelihood of future falls in property values which appropriately considered in the provisions. We have also considered would result in future breaches of loan to value covenants. the consistency of management’s estimates about future rent We assessed the eectiveness of mitigating actions available collections with other information we obtained during the audit. to management (in particular the cure rights) to avoid breaching the covenants where a waiver is not already in place. We have tested the key inputs to the provisions including the existence of available rent deposits which reduce the Group’s exposure to • We read board minutes to identify any matters that may impact credit losses. the going concern assessment. We conclude that the provision for expected credit losses on rent • We read the disclosures in the nancial statements in relation to receivables and lease incentives recognised is fairly stated as at going concern with a view to assessing whether they adequately 30 September 2020, and that the disclosures in the nancial disclose the risks, the potential outcomes and the availability of statements are in accordance with IFRS. eective mitigating actions.
Page 122 loans and borrowings. investment properties, balances not related to Applicable for account Overall threshold for reporting auditdierences appliedonouraudit: The table below sets outthe materiality, performance materiality and and informing ourauditopinion. audit, inevaluating the eect ofidentied misstatements onthe audit We applythe concept ofmateriality inplanning andperforming the Our applicationofmateriality opinion onthe Group nancial statements. via videocall to assist inobtaining appropriate evidence to express an were completed remotely. We heldregular meetings with management recommendation to work from home,the year endauditprocedures As aresult of the most recent UKlockdown andthe government’s assessing the level ofwork to beperformed ateach entity. group-wide controls andchanges inthe business environment when size, risk prole, the organisation ofthe Group, eectiveness of opinion onthe consolidated nancial statements. We take into account each within entity the Group. Taken together, this enables us to form an allocation ofperformance materiality determine ourauditscope for Our assessment ofauditrisk, ourevaluation ofmateriality andour An overviewofthescopeouraudit • • • • This includedassessing that: concern. relateduncertainty to the Group’s to ability continue as agoing statements on agoing concern basis andthat there is nomaterial management’s conclusion that itis appropriate to prepare the nancial Based onthe results ofourauditprocedures, we agreed with Key observations communicated to the Audit Committee a result ofourauditprocedures. appropriate andaccurately describe the position we understand as We concluded that the disclosures inrespect ofgoing concern are Shaftesbury AnnualReport2020GovernanceIndependentauditor’sreport Speci¬c compliance with the loan to value covenants onits facilities. the Group has sucient unencumbered assets to remain in breaches through the going concern period;and interest cover waivers, the Group has sucient to liquidity cure these covenants are forecast to bebreached after ofexisting the expiry in the severe butplausible downside scenario where interest cover breaches; the Group has obtained waivers for forecast interest cover covenant the Group has sucient over liquidity the going concern period; and net ¬nance costs valuation movements investment property over 3years before operating pro¬t 5% of theaverage Basis %o oa ses£3 2m£1.7m £25m £33m 1% of total assets Materiality 34 26 £170k £2.6m £3.4m Performance Performance Materiality Dierences Audit Audit
adopted of£3.4m. statements. This has resulted inalower specic materiality being assessment ofwhat auser considers to be material to the nancial The adoption ofanormalised basis insetting materiality reects our valuation movements andnetnance costs for 2018, 2019 and2020. 5% ofthe average operating prot before investment property balances andhave set specic materiality onanormalised basis, being materiality we applyto the income statement andworking capital our specic materiality. For the current year, we reduced the specic in operating prot for the current year, we reconsidered the basis of Considering the impact ofCovid-19 onthe Group andthe reduction movements andnetnance costs. on 5%ofoperating prot before investment valuation property In the prioryear, we adopted aspecic materiality of£4.0mbased a focus ofusers ofthe nancial statements. to use aprot-based measure for specic materiality as prot is also movements andnetnance costs. We believe that itis appropriate be based onoperating prot before investment valuation property We have determined that specic materiality for these areas should nancial statements could inuence the economic decisions ofusers. and borrowings, amisstatement ofless than overall materiality for the properties (either whollyowned orwithin the joint venture), loans We assessed that for account balances not related to investment Specific materiality total assets. audit we adopted anoverall materiality of£40mbased on1%of threshold have remained consistent with planning. Inthe prioryear initial materiality and30September 2020. Ourmateriality basis and the valuation loss oninvestment properties between the timewe set As aresult, there was adecrease inouroverall materiality reecting During the course ofouraudit,we reassessed ourinitial materiality. assets as at31 March 2020. procedures. For planning purposes this was initially based ontotal and determining the nature, timing andextent offurther audit procedures, identifying andassessing the risk ofmaterial misstatement basis for determining the nature, timing andextent ofrisk assessment assets; primarily the investment portfolio. This property provided a statements are primarily focussed onthe valuation ofthe Group’s overall materiality given that key users ofthe Group’s nancial total assets would bethe most appropriate basis for determining material for the nancial statements as awhole.We determined that magnitude ofuncorrected misstatements that we judged would be When establishing ouroverall auditstrategy, we determined a Overall materiality procedures. provides abasis for determining the nature and extent ofour audit economic decisions ofthe users ofthe nancial statements. Materiality the aggregate, could reasonably beexpected to inuence the The magnitude ofan omission ormisstatement that, individually orin Materiality Page 123
Governance Shaftesbury Annual Report 2020 Governance Independent auditor’s report
Performance materiality In this context, we also have nothing to report in regard to our The application of materiality at the individual account or balance responsibility to specically address the following items in the other level. It is set at an amount to reduce to an appropriately low level information and to report as uncorrected material misstatements of the probability that the aggregate of uncorrected and undetected the other information where we conclude that those items meet the misstatements exceeds materiality. following conditions: On the basis of our risk assessments, together with our assessment of • Fair, balanced and understandable set out on page 118 – the the Group's overall control environment, our judgement is that overall statement given by the directors that they consider the annual report performance materiality and specic performance materiality (i.e. our and nancial statements taken as a whole is fair, balanced and tolerance for misstatement in an individual account or balance) for the understandable and provides the information necessary for Group should be 75% (2019: 75%) of the respective materiality. Our shareholders to assess the Group’s performance, business model and objective in adopting this approach is to conrm that total detected strategy, is materially inconsistent with our knowledge obtained in the and undetected audit dierences do not exceed our materiality for audit; or the nancial statements as a whole. • Audit Committee reporting set out on pages 96 to 99 – the section describing the work of the audit committee does not appropriately Reporting threshold address matters communicated by us to the Audit Committee; or An amount below which identied misstatements are considered as • Directors’ statement of compliance with the UK Corporate being clearly trivial. Governance Code set out on page 114 – the parts of the directors’ We agreed with the Audit Committee that we would report to the statement required under the Listing Rules relating to the company’s Committee any uncorrected audit dierences on investment properties, compliance with the UK Corporate Governance Code containing loans and borrowings in excess of £1.7m, as well as uncorrected audit provisions specied for review by the auditor in accordance with dierences in excess of £170k that relate to our specic testing of the Listing Rule 9.8.10R(2) do not properly disclose a departure from a other account balances not related to investment properties, loans and relevant provision of the UK Corporate Governance Code. borrowings. These are set at 5% of their respective planning materiality. We also agreed to report dierences below that threshold that, in our Opinion on other matters prescribed by view, warranted reporting on qualitative grounds. the Companies Act 2006 We evaluate any uncorrected misstatements against both the In our opinion, the part of the directors’ remuneration report to be quantitative measures of materiality discussed above and in light audited has been properly prepared in accordance with the Companies of other relevant qualitative considerations in forming our opinion. Act 2006. In our opinion, based on the work undertaken in the course of the audit: Other information • the information given in the strategic report and the directors’ report The other information comprises the information included in the for the nancial year for which the nancial statements are prepared annual report including the Strategic report, Governance and Other is consistent with the nancial statements; and information set out on pages 1 to 118 and 154 to 165, other than the nancial statements and our auditor’s report thereon. The directors are • the strategic report and the directors’ report have been prepared in responsible for the other information. accordance with applicable legal requirements. Our opinion on the nancial statements does not cover the other information and, except to the extent otherwise explicitly stated in this Matters on which we are required to report report, we do not express any form of assurance conclusion thereon. by exception In connection with our audit of the nancial statements, our In the light of the knowledge and understanding of the Group and the responsibility is to read the other information and, in doing so, consider Parent company and its environment obtained in the course of the whether the other information is materially inconsistent with the nancial audit, we have not identied material misstatements in the strategic statements or our knowledge obtained in the audit or otherwise appears report or the directors’ report. to be materially misstated. If we identify such material inconsistencies We have nothing to report in respect of the following matters in relation or apparent material misstatements, we are required to determine to which the Companies Act 2006 requires us to report to you if, in our whether there is a material misstatement in the nancial statements or opinion: a material misstatement of the other information. If, based on the work • adequate accounting records have not been kept by the Parent we have performed, we conclude that there is a material misstatement company, or returns adequate for our audit have not been received of the other information, we are required to report that fact. from branches not visited by us; or We have nothing to report in this regard. • the Parent company nancial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting records and returns; or • certain disclosures of directors’ remuneration specied by law are not made; or • we have not received all the information and explanations we require for our audit.
Page 124 2. 1. • • • Our approach was as follows: and management. of fraud rests with both those charged with governance ofthe entity However, responsibility the primary for the prevention anddetection appropriately to fraud orsuspected fraud identied during the audit. designing andimplementing appropriate responses; andto respond the assessed risks ofmaterial misstatement dueto fraud, through due to fraud; to obtain sucient appropriate auditevidence regarding assess the risks ofmaterial misstatement of the nancial statements The objectives ofouraudit, inrespect to fraud, are; to identify and irregularities, includingfraud was consideredcapableofdetecting Explanation astowhatextenttheaudit basis ofthese nancial statements. expected to inuence the economic decisions ofusers taken onthe material if, individuallyorinthe aggregate, they could reasonably be Misstatements can arise from fraud orerror andare considered (UK) willalways detect amaterial misstatement whenitexists. but is not aguarantee that anauditconducted inaccordance with ISAs includes ouropinion.Reasonable assurance is ahighlevel ofassurance whether dueto fraud orerror, andto issue anauditor’s that report nancial statements as awholeare free from material misstatement, Our objectives are to obtain reasonable assurance aboutwhether the the financialstatements Auditor’s responsibilitiesfortheauditof operations, orhave norealistic alternative butto doso. intend to liquidate the Group orthe Parent company orto cease using the going concern basis ofaccounting unless the directors either concern, disclosing, as applicable, matters related to going concern and assessing the Group andParent company’s to ability continue as agoing In preparing the nancial statements, the directors are responsible for free from material misstatement, whether dueto fraud orerror. necessary to enable the preparation ofnancial statements that are view, andfor such internal control as the directors determine is nancial statements andfor being satised that they give atrue andfair out onpage 118,the directors are responsible for the preparation ofthe As explained more fully inthe directors’ responsibilities statement set Responsibilities ofdirectors Shaftesbury AnnualReport2020GovernanceIndependentauditor’sreport legislation inother jurisdictions. Legislation inthe United Kingdom governing the preparation anddissemination ofnancial statements may dier from changes that may have occurred to the nancial statements since they were initially presented onthe website. the auditors does not involve consideration ofthese matters and,accordingly, the auditors accept noresponsibility for any The maintenance andintegrity ofthe Shaftesbury PLC website is the responsibility of the directors; the work carried outby Committee during the planning andexecution phases ofouraudit. the Companies risk register, with management enquiry andthe Audit material misstatement, including how fraud might occur by reviewing We assessed the susceptibility ofthe Group’s nancial statements to compliance to those charged with governance. and regulations, and for reporting any known instances ofnon- have responsibility the primary for ensuring compliance with laws regulations. We also identied those members ofmanagement who the policies andprocedures regarding compliance with laws and frameworks through with management, enquiry andby identifying We understood how Shaftesbury PLC is complying with those United Kingdom, including the UKREIT regulations. Governance Code)andthe relevant tax regulations inthe framework (IFRS, the Companies Act 2006 andUKCorporate in the nancial statements are those that relate to the reporting signicant frameworks whichare directly relevant to specic assertions that are applicable to the Group anddetermined that the most We obtained an understanding of the legal and regulatory frameworks
• • Other matterswearerequiredtoaddress • 14 December 2020 London for andonbehalf ofErnst &Young LLP,Statutory Auditor Daniel Saunders (Senior statutory auditor) our auditwork, for this orfor report, the opinions we have formed. other than the Company andthe Company’s members as abody, for permitted by law, we donot accept orassume responsibility to anyone in anauditor’s andfor report noother purpose. To the fullest extent company’s members those matters we are required to state to them Our auditwork has beenundertaken so that we might state to the in accordance with Chapter 16ofthe 3ofPart Companies Act 2006. This is report made solely to the Company’s members, as abody, Use ofourreport • part ofourauditor’spart report. https://www.frc.org.uk/auditorsresponsibilities. This description forms statements is located onthe Financial Reporting Council’s website at A further description ofourresponsibilities for the auditofthe nancial independent. that there are appropriate safeguards inplace andthat we remain which exceeded the 70% non-auditservices fee cap. We conrm respect ofthe non-auditservices provided to the Group in2020, Committee we report, have obtained an exemption from the FRC in conducting the audit.As disclosed inthe Company’s Audit remain independent ofthe Group andthe Parent company in were not provided to the Group orthe Parent company andwe The non-auditservices prohibited by the FRC’s Ethical Standard on 26 May 2020. 30 September 2020. Ourauditengagement letter was refreshed 5 years, covering the years ended30September 2016 to engagement including previous renewals andreappointments is and subsequent nancial periods. Theperiodoftotal uninterrupted the nancial statements for the year ended30September 2016 We were appointed by the Company on15October 2015 to audit - - - procedures involved the following: to identify non-compliance with such laws andregulations. Our Based onthis understanding we designed ourauditprocedures Committee explaining the results ofouraudit. The auditopinionis consistent with the additional to report the Audit
bodies including HMRC. Obtaining andreading correspondence from legal andregulatory Reading minutes ofmeetings ofthose charged with governance. regulations that could aect the nancial statements. non-compliance orpotential non-compliance with laws and those charged with governance regarding their knowledge ofany Inquire ofmembers ofsenior management, andwhenappropriate,
Page 125
Governance Making a positive contribution +
Page 126 Financial statements
Page 127 Shaftesbury Annual Report 2020 Financial statements
Group statement of comprehensive income For the year ended 30 September 2020
2020 2019 Notes £m £m Revenue ª«¬®¯ ¯°±²³ Expected credit losses ( ª°®± ) - Impairment charges ( ²®³ ) - Property charges ( «²®° ) ( °´²³ ) Net property income µ ´¬®° ³´²¶ Administrative expenses ± ( ª¬®¬ ) ( ¯µ²° ) Operating pro¢t before investment property disposals and valuation movements ¯³®³ ´°²´ Prot on disposal of investment properties · ±®° °²´ Net revaluation decit on investment properties ¯¶ ( µ³²®¯ ) ( ¯µ²¸ ) Operating (loss)/pro¢t ( µ°²®° ) ·¶²¸ Finance income ±®´ ¯²¶ Finance costs ´ ( °«®¯ ) ( ¸¯²µ ) Share of post-tax loss from joint venture ¯° ( «³®¬ ) ( ¯¸²´ ) (Loss)/pro¢t before tax ( µ³³®¯ ) °±²¶ Tax charge for the year ³ - - (Loss)/pro¢t and total comprehensive (loss)/income for the year ( µ³³®¯ ) °±²¶
(Loss)/earnings per share: °¹ Basic and diluted (««´®¯)p ´²µp
Page 128 For theyearended30September2020 Group statementofcomprehensiveincome As at30September2020 Balance sheets Total equity Retained earnings Share-based payments reserve Share premium Share capital Equity Net assets Total liabilities Borrowings Trade andother payables Non-current liabilities Trade andother payables Current liabilities Total assets Cash andcash equivalents Trade andother receivables Current assets Investment insubsidiaries Other receivables Property, plant andequipment Investment injoint venture Accrued income Investment properties Non-current assets Chief Executive Brian Bickell On behalf ofthe Board whoapproved andauthorised for issue the nancial statements onpages 128to 151on14December 2020. The Company made aprot of£59.8million(2019: £57.9million)inthe year. Shaftesbury AnnualReport2020Financialstatements Finance Director Chris Ward
Notes °¶ °¶ °¶ ¯³ ¯· ¯± ¯± ¯µ ¯¹ ¯¸ ¯µ ¯° ¯¯ ¯¶ «·«²±®µ ª·²«°®² «·«²±®µ ª·±´±®´ ª·±¯ª®± °·°¯ª®° °·ªª¯®¯ °·«°°®¯ °´²®µ 2020 ´µ®³ ª³®´ ´«®² ¬¯®± ³µ®² ªµ®° ª®° °®´ ª®« £m Group - - ¸º¶¶·²° °ºµµ¶²¹ ¸º¶¶·²° ¹º¶¶¶²´ ¸º·±µ²³ ¸º³¯¯²· ¸·´²± ³³¸²± ³¹³²´ ¯°·²± ·±²³ ¹¸²´ µ¹²¶ ¸µ²¯ ¯¸²¯ 2019 ¯²¸ ¸²· ¯²¹ £m - - ª·¬±´®± ª·¬±´®± ª·¯ª¬®« ª·«³ª®« ª·««µ®² ³¯±®« °´²®µ ª±´®« ªµª®¯ 2020 ´µ®³ ³³®± µª®¯ ¯³®± ª®° ¬®¬ ¯®¬ °®² £m Company - - - Page 129 ¯º¸·¹²¸ ¯º¸·¹²¸ ¯º¸´¸²¹ ¯º°³´²· ¯º°¸´²¸ ³¯·²µ ¸·´²± ·±²³ ¸±²³ ¯¶²¹ ¹·²´ µ³²¶ 2019 ² ) ¯²¸ ( ³²¯ ¯²¸ ¯²¹ £m - - - -
Financial statements Shaftesbury Annual Report 2020 Financial statements
ash o statements For the year ended 30 September 2020
Group Company 2020 2019 2020 2019 Notes £m £m £m £m Operating activities Cash generated from/(used in) operating activities °¸ °°®¯ ·³²´ ( ª´®± ) ( ¯±²¹ ) Interest received ±®¬ ¯²¶ ±®° ¶²³ Interest paid ( °ª®¬ ) ( ¸¶²° ) ( «®µ ) ( ¯²µ ) Net cash from/(used in) operating activities «®¯ µ¶²± ( ª³®° ) ( ¯·²¶ )
Investing activities Investment property acquisitions ( ª°®° ) ( ¹·²° ) - - Investment property disposals · ±®° ¯¹²¸ - - Capital expenditure on investment properties ( °ª®« ) ( °´²° ) - - Purchase of property, plant and equipment ( ±®ª ) ( ¶²µ ) ( ±®ª ) ( ¶²µ ) Increase in cash held in restricted accounts ¯µ ( ²®´ ) - ( ª®° ) - Dividends received from joint venture ª®¬ °²µ ª®¬ °²µ Increase in loans to joint venture ( ¬®° ) ( ¸²¸ ) ( ¬®° ) ( ¸²¸ ) Amounts received from subsidiaries - - ¬±®« ±·²¹ Amounts provided to subsidiaries - - ( µ¬®« ) ( ±¶²¯ ) Net cash (used in)/from investing activities ( ¯¯®³ ) ( ±°²¹ ) ( «²®° ) ±²¶
Financing activities Proceeds from exercise of share options - ¶²° - ¶²° Proceeds from borrowings ¯· ª¯±®± - ª¯±®± - Repayment of borrowings ¯· ( ¯±®± ) - ( ¯±®± ) - Equity dividends paid °° ( «´®² ) ( µ°²³ ) ( «´®² ) ( µ°²³ ) Net cash from/(used in) ¢nancing activities ´«®« ( µ°²· ) ´«®« ( µ°²· )
Net change in cash and cash equivalents ª²®² ( ±¹²µ ) «¬®µ ( ±¸²· ) Cash and cash equivalents at the beginning of the year ¯µ ¯¬®± ¯¯´²µ °µ®³ ¯¶¶²± Cash and cash equivalents at the end of the year ¯µ ´«®² µ¹²¶ µª®¯ ¸±²³
Page 130 The Company’s distributable reserves are disclosed innote 20 to the nancial statements. At 30September 2019 Release onexercise ofshare options Share-based payments Exercise ofshare options Dividends paid Dividends paid year Prot andtotal comprehensive income for the At 1October 2019 Company At 30September 2019 Release onexercise ofshare options Share-based payments Exercise ofshare options Dividends paid Dividends paid Loss andtotal comprehensive loss for the year At 1October 2019 Group For theyearended30September2020 Statements ofchangesinequity year Prot andtotal comprehensive income for the At 1October 2018 At 30September 2020 Release onexercise ofshare options Share-based payments year Prot andtotal comprehensive income for the At 1October 2018 At 30September 2020 Release onexercise ofshare options Share-based payments Shaftesbury AnnualReport2020Financialstatements Notes ¯³ °° °° ¯³ °° °° capital Share Share ±³¸·´²± ·±²³ °´²®µ ´µ®³ ¸·´²± ·±²³ °´²®µ ´µ®³ ±´¸·´²¹ °´²®µ ·±²´ ´µ®³ ¸·´²¹ °´²®µ ·±²´ ´µ®³ ¶²¯ ¶²¯ £m ------
premium Share ¶²° ¶²° £m ------Share-based payments reserve ® ) ±®´ ( ) ±®´ ( ² ) ¶²´ ( ) ¶²´ ( ¶²³ ¶²³ ² ¯² ¯º¸·¹²¸ ³¯·²µ ¯²¸ ª·°´¬®° ³ª´®¯ ¸º¶¶·²° ª®° °ºµµ¶²¹ ¯²¸ °·±±´®« «·¯¯±®¬ ª®° ±®´ ±®´ ² ¯² ¯º¸±´²° ³¯¯²´ ª·¬±´®± ³¯±®« ¯²° ª®° ¸º¶¸¸²¶ °ºµ·±²± «·«²±®µ ¯²° ª·²«°®² ª®° £m ------Retained earnings ³® ³® ) µ³³®¯ ( ) µ³³®¯ ( ´²)(«® ) «´®² ( ) «´®² ( ) «´®² ( ) «´®² ( °³) µ°²³ ( ) µ°²³ ( ¯³®² µ·²³ °±²¶ ² ) ¶²¯ ( ) ¶²¯ ( ¶²´ ¶²´ ±®´ ±®´ £m - - - - Page 131 equity °³) µ°²³ ( ) µ°²³ ( ¯³®² µ·²³ °±²¶ Total Total ¶²³ ¶²³ ¶²° ¶²° ±®´ ±®´ £m - - - -
Financial statements Shaftesbury Annual Report 2020 Financial statements
Notes to the financial statements For the year ended 30 September 2020
1. Basis of preparation anticipates sucient available cash to make any necessary deposits. Shaftesbury PLC (“the Company”) is a public company limited by • The Group was compliant with its mortgage bonds' interest cover shares, incorporated, registered and domiciled in England and Wales. It covenants at 30 September 2020 and expects to remain compliant is listed on the London Stock Exchange. The address of the registered during the going concern period. Should it be required, the Group has oce and its registered number are given on page 117. the ability to top-up the charged asset pool with additional assets with sucient contractual income from its pool of unsecured The nancial statements of the Company, and the consolidated properties. nancial statements of the Company and its subsidiaries (collectively, “the Group”), have been prepared in accordance with IFRS as adopted • Since 30 September 2020, the Group has cancelled its shortest by the European Union, IFRS Interpretations Committee (IFRIC) and maturity revolving credit facility (£125 million, maturing May 2022) and those parts of the Companies Act 2006 applicable to companies has repaid all drawings under its remaining revolving credit facility reporting under IFRS. The nancial statements have been prepared in (£100 million, maturing February 2023). In its downside scenario, the Pounds Sterling and under the historical cost convention as modied Group forecasts that it will have sucient cash throughout the going by the revaluation of investment properties. concern period, such that it does not anticipate being reliant on the undrawn facility for liquidity and could cancel it if interest cover The Company is the ultimate parent company of the Group. The covenant waivers were not available. Company has not presented its own Statement of Comprehensive Income, as permitted by Section 408 of the Companies Act 2006. The There are no debt maturities until February 2023. Company made a prot of £59.8 million (2019: £57.9 million) in the year. + Financing: page 67 Going concern At 30 September 2020, the Group's loan-to-value ratio was 31.5%. Pro Given the signicant uncertainties resulting from the impact of forma for the receipt of the proceeds of the equity raise this falls to Covid-19 on the economic environment in which the Group operates, 22.1%. The Group's individual debt arrangements have specically the directors have placed a particular focus on the appropriateness of charged assets as security, although the relative amounts of collateral adopting the going concern basis in preparing the consolidated against each arrangement are not uniform. However, as part of the nancial statements for the year ended 30 September 2020. Group's nance strategy, it has a pool of unsecured properties which can be used to top-up debt security pools, if necessary, to comply with + Covid-19: impact and response: page 6 loan-to-value covenants. The cancellation of the £125 million revolving In October 2020, having assessed the Group's nancial position in light credit facility has released additional assets to this pool. Through of the implications of the Covid-19 pandemic for its short- and charging these unsecured properties, the Group estimates that it could medium-term prospects, the Board determined that it was in the withstand a 41% decrease in valuations before reaching the limit of its long-term interests of the Group to raise equity to ensure the Group loan-to-value covenants. If it were to cancel the remaining revolving maintains a strong nancial base and is positioned to return to credit facility and release its assets to be charged against other loans, long-term growth as pandemic issues recede. this tolerance would increase to 48%. On 22 October 2020, the Board announced its intention to issue up to Under the Group's severe but plausible downside scenario, the Group 76.75 million shares by means of a Firm Placing, a Placing and Open has sucient liquidity for the going concern period assuming that Oer and an Oer for Subscription. The equity issue was approved by values do not decline beyond the tolerance levels noted above. The an Extraordinary General Meeting of the Company on 17 November Board, therefore, has a reasonable expectation that the Group has 2020 and 76.75 million shares were admitted for trading the following adequate resources to continue in operational existence for the going day. Net proceeds from the equity raise were £294.4 million. concern period. On this basis, the Board has continued to adopt the going concern basis in preparing the consolidated nancial statements. + Financing: page 67 The Group's going concern assessment covers the period from the 2. Changes in accounting policies date of authorisation of these consolidated nancial statements to 31 The Group’s signicant accounting policies are disclosed in note 28. March 2022 (the "going concern period"), and takes into account its The accounting policies and methods of computation used are liquidity, committed expenditure, and likely ongoing levels of costs. consistent with those of the previous nancial year, with the exception In preparing the assessment of going concern, the Board has considered of new standards and amendments to standards, which became a severe but plausible downside scenario, which assumes continued eective in the nancial year. low levels of rent collection, increased vacancy, existing capital commitments are satised and there are no acquisitions or disposals. It New standards adopted during the year also assumed surplus unsecured property is charged to individual loans The following standards and amendments to existing standards were and factored in decreases in property values of up to 40%. relevant to the Group, adopted from 1 October 2019, and did not have a The Group anticipates that Government Covid-19 containment signicant impact on the nancial statements: measures will continue to adversely aect its occupiers' ability to trade IFRS 9 (amendment) – Prepayment features with negative through to spring 2021 and that footfall may not recover to pre- • compensation pandemic levels within the going concern period. IAS 28 (amendment) – Long-term interest in associates and joint ventures These continued restrictions are expected to lead to continued • reduced levels of rent collection and increased EPRA vacancy • Annual Improvements 2015-2017 throughout the going concern period as well as declining estimated rental values and asset values. IFRS 16 – Leases (effective from 1 October 2019) As a consequence, under the downside scenario, it is likely that the The Group and Company adopted IFRS 16 on 1 October 2019, using the Group will not meet interest cover covenants throughout the whole of modied retrospective approach. Comparatives for the 2019 nancial the going concern period. However, on all drawn debt facilities it has year have not been restated. For operating leases in excess of one year, either secured waivers or has cure rights: this standard requires lessees to recognise a right-of-use asset and a related lease liability representing the obligation to make lease The Group has secured interest cover waivers from its two term loan • payments. The right-of-use asset is assessed for impairment annually lenders for periods ending July 2021 and January 2022 respectively. and is amortised on a straight-line basis. The lease liability is amortised The facilities have cash cure rights for all testing dates in the going using the eective interest method. concern period not covered by existing waivers and the Group
Page 132 market practice andnot specic to the Group. By30September 2020, highlighting amaterial valuation uncertainty, whichwas consistent with pandemic, the valuation reports at31 March 2020 includedstatements Given market disruption as aresult ofthe onset ofthe Covid-19 have amaterial eect onthe Group’s nancial position. from their valuation reported inthe nancial statements, whichcould market. This may mean that the value ofthe Group’s properties diers periods ofvolatility orlow transaction ow inthe commercial property basis ofassumptions whichmay not prove to beaccurate, particularly in valuations are subject to adegree andare ofuncertainty made onthe RICS Valuation -Global Standards. Given the inherent subjectivity, the Basis ofValuation onpages 158 to 159andare inaccordance with the those in respect ofmarket yields andERVs, whichare summarised inthe assumptions made by the valuers. Themost signicant assumptions are short-term impact ofrent concessions. These estimates are based on limited to, market yields, ERVs, void periods and, currently, the likely portfoliorequireproperty estimates to bemade, including, butnot rental income. As aresult, the valuations the Group places onits individual nature ofeach property, its location andthe expected future Valuations are inherently subjective dueto, among other factors, the venture. and Knight Frank LLPvalue the properties owned by the Longmartin joint valuers. Cushman &Wakeeld value the properties owned by the Group, The investment is portfolio property valued by independent third party Investment valuation property Significant areasofestimationuncertainty event oractions, actual results may dier from the original estimates. estimates are made using the directors’ best knowledge ofthe amount, of future events, andare reviewed onacontinual basis. Although the historical experience andother relevant factors, including expectations accounting policies. Thejudgements andestimates are based on amountscarrying ofassets andliabilities, inapplying the Group’s requires the directors to make judgements andestimates aboutthe The preparation ofthe nancial statements inaccordance with IFRS and keyestimates i nificant ements ass m tions • • • • not expected to have asignicant impact onthe nancial statements: Group, are not yet eective, andhave not beenadopted early. They are The following amendments to existing standards were relevant to the Standards relevanttotheGroupbutnotyeteffective • the following practical expedient permitted by the standard: In applying IFRS 16for the rst time,the Group andCompany have used earnings at1October 2019. lease liability. As aresult, there was noimpact onopening retained The right-of-use asset was initially measured atanamount equalto the Non-current trade &other payables (lease liability) Current trade &other payables (lease liability) Property, plant &equipment (right-of-use asset) 2019 is shown below: The impact onthe Company Balance Sheetontransition at1October discounted atarate of3.75%, at1October 2019. being the present value ofthe £5.5millionremaining lease payments, and lease liability, whichwere both initially measured at£4.6million, company. As aresult, the Company has recognised aright-of-use asset The Company leases its head oce accommodation from asubsidiary impact onthe Group nancial statements. As the Group is primarily alessor, this standard had nosignicant 2. Changesinaccountingpolicies IFRS 16,these were not considered signicant. Whilst judgement andestimates were required inthe initial adoption of Shaftesbury AnnualReport2020FinancialstatementsNotestothefinancial IFRS 16(amendment) -Covid-19 related rent concessions IFRS 3(amendment) –Denitionofabusiness IAS 1and8(amendments) –Denitionofmaterial IFRS 9,IAS39 andIFRS 7(amendments) –Interest rate benchmark reform asset. Exclusion ofinitial direct costs for the measurement ofthe right-of-use At 1 Oct At 1Oct 2019 2019 (£m) À ÄÀÅ ÃÀ¿ ¿ÀÂ ¿ÀÂ ÃÀ¿ ¿ÀÁ continued
At 30 Sept At 30Sept 2020 2020 (£m) collections have beensignicantly below normal levels. of measures including deferrals andwaivers ofrent obligations. Rent pandemic. TheGroup has supported its occupiers through apackage suering operational andnancial challenges as aresult ofthe During the year, tenant default risk has increased with occupiers impairment oflease incentives and prepaid letting expenses Provisions for expected credit losses onrent receivables, note 10to the nancial statements. the most signicant assumptions impacting the fair values, is set outin portfolio andasensitivity analysis onequivalent yields andERV, whichare Further information onthe approach taken by the valuers invaluing the uncertainty’. valuations at30September 2020 were not subject to ‘material valuation opinions ofvalue. Accordingly, andfor the avoidance ofdoubt, the adequate quantum ofmarket evidence existed uponwhichto base volumes andother relevant evidence had returned to levels where an their reports. Itis their view that, as atthe valuation date, transaction external valuers have highlighted ofthe the valuation importance date in response to changes inthe control, orfuture spread, ofCovid-19, the In recognition ofthe potential for market conditions to move rapidly in valuation reports. the valuers had removed the material clauses uncertainty from their credit losses andimpairment was not material. was not akey estimate inthe prioryear, because the provision for incentives andprepaid letting expenses. Theestimate for provisions credit losses for rent receivables andthe impairment oflease are investment valuation property and the provision for expected The two key estimates made inthe current year nancial statements prior year. preparation ofthese nancial statements, whichis consistent with the The directors didnot make any signicant judgements inthe see note 18. For further information inrespect ofthe estimation ofthese provisions £8.2 million(see note 11)and£0.7millionrespectively. against lease incentives andprepaid letting expenses have increased to million, reecting the increased credit risk (see note 14).Theprovisions The provision for expected credit loss inthe year has increased to £14.3 than the date ofcontractual break orexpiry. information available aboutthe likelihood ofalease terminating earlier making aprovision based onanexpected credit loss model,using impairment provision, the Group reviews leases onanindividualbasis, subject to impairment review ateach periodend.Indetermining the Accrued income from lease incentives andprepaid letting expenses are were charged to the Income Statement inthe year (2019: £nil). the Income Statement. Expected credit losses totalling £13.0million Income Statement, the expected credit loss allowance is recognised in Where the credit loss relates to revenue already recognised inthe order to recognise alifetime expected credit loss allowance. future expectations ofoccupiers’ to ability pay orpossible default in the provision, the Group considers both recent payment history and credit loss modelfor each receivable from anoccupier. Indetermining provisions, whichare estimated using aforward-looking expected The Group assesses the likely recovery ofrent receivables for potential residential). associated with each use (food andbeverage, retail, oce and their leases. Inassessing provisions, the Group identies risk factors likely tenants willserve outthe remainder ofthe contractual terms of respect to lease incentives andprepaid letting expenses, whether itis trading levels, footfall andtenants' to ability pay rental arrears and,with more onforecast information, taking into account expectations about However, inthe current market with greater uncertainty, the focus is draw onhistorical information, such as recent payment history. and prepaid letting expenses. Innormal circumstances, these estimates expected credit losses inrespect ofrent receivables, lease incentives In preparing the nancial statements, estimates are made inassessing + +
Portfolio page59 report: activity Covid-19: impact and response: page6 Page 133
Financial statements Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
4. Segmental information IFRS 8 requires operating segments to be reported in a manner consistent with the internal nancial reporting reviewed by the chief operating decision maker. The chief operating decision maker of the Group is the Board. The Board is responsible for reviewing the Group’s internal reporting in order to assess performance. The information reviewed by the Board is prepared on a basis consistent with these nancial statements. That is, the information is provided at a Group level and includes both the IFRS reported results and EPRA measures (see page 156 for an explanation on the EPRA measures used in these nancial statements). The Group’s properties are all located in London’s West End, and are all of a similar type. The properties are typically mixed-use buildings with restaurants, leisure and retail on the lower oors and small oces and apartments on the upper oors. As the properties share similar economic characteristics we consider them to be one operating segment. As such, no segmental information is presented.
5. Net property income 2020 2019 £m £m Rental income (excluding lease incentives) ¸ª±«®¯¸ ¯¯µ²¶ Adjustment for lease incentives ªª®³ °²¸ Rental income ¸ªª¬®¬ ¯¯·²¸ Service charge income ª±®ª ³²± Revenue ª«¬®¯ ¯°±²³ Expected credit losses ( ª°®± ) - Impairment charges ( ²®³ ) - ª±«®µ ¯°±²³ Service charge expenses ( ª±®ª ) ( ³²± ) Other property charges ( ª²®« ) ( ¯³²¸ ) Property charges ( «²®° ) ( °´²³ ) ´¬®° ³´²¶
Impairment charges of £8.9 million (2019: £nil) include £8.2 million (2019: £nil) for tenant lease incentive balances and £0.7 million (2019: £nil) for prepaid letting expense balances. Property charges include £1.7 million (2019: £2.0 million) in respect of investment properties that were vacant during the year.
6. Administrative expenses 2020 2019 £m £m Employee costs ²®« ¯¶²¶ Depreciation ±®° ¶²¹ Other head oce costs µ®± ¹²³ ª¬®¯ ¯µ²¸ Less: administrative fees received from the joint venture ( ±®ª ) ( ¶²¯ ) ª¬®¬ ¯µ²°
2020 2019 Employee costs (including the directors) £m £m Wages and salaries µ®° ·²° Social security costs ±®° ¶²³ Other pension costs ±®° ¶²¹ Equity-settled remuneration ª®° ¯²µ ²®« ¯¶²¶
Included within equity-settled remuneration is a charge of £1.0 million (2019: £1.2 million) for the LTIP and SAYE schemes. Note 21 includes a summary of the principal assumptions made at the last grant dates for these schemes. Details of the employee costs for the Group’s key management personnel are set out in note 26.
2020 2019 Average monthly number of employees number number Executive directors ¬ ¹ Head oce and property management °° °· Estate management ª ¯ °² ¸°
Page 134 mind whenformulating the price itwould bidand reects the cost andlikelihood ofachieving that use. and nancially viable. Where the highest andbest use diers from the existing use, the valuer considers the use amarket would have participant in valuation date. Whenconsidering aproperty’s highest andbest use, the valuer considers its actual andpotential uses whichare physically, legally which incorporate the International Valuation Standards andthe Valuation UKNational Supplement (the "RICS Red Book")edition current atthe All properties were valued onthe basis offair value andhighest andbest use, inaccordance with IFRS 13andthe RICS Valuation -Global Standards, by Cushman &Wakeeld, members ofthe Royal Institution ofChartered Surveyors (RICS). Investment properties were valued at30September 2020 by professionally qualiedexternal valuers. TheGroup’s wholly-owned portfoliois valued Leasehold properties Freehold properties The investment properties valuation comprises: Book value at30September Lease incentives andcosts includedinreceivables Properties valued by Cushman & Wakeeld Fair value at30September: Book value at30September Net revaluation decitoninvestment properties Refurbishment andother capital expenditure Disposals Acquisitions At 1October 10. Investmentproperties to tax rather than accounting rules) andchargeable gains from the sale ofits investment properties are exempt from corporation tax. 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 9. Taxchargefortheyear Issue cost amortisation Bank andother interest bondinterestMortgage 8. Financecosts Disposal prots in2020 relate to residential long leasehold tenure extensions granted inthe year. Book value atdate ofsale Net sale proceeds ofiton is osalo in estment o e ties which sets outfurther considerations inrespect ofthe auditandnon-auditfees for the year. Total fees for non-auditservices represented 175% (2019: 16%)ofthe total fees for auditservices. Seepage 99ofthe Audit Committee Report relating to the issuance equity are £790,000. Ofthis, £516,000 relates to fees payable atthe endofthe year andare presented inthe table above. Company's raise equity that completed on18November 2020. Total non-auditfees payable to Ernst &Young for permissible non-auditservices The auditor provided notaxation services to the Group in2020 (2019: £nil).Theauditor acted as reporting accountants inconnection with the Total fees Total fees for non-auditservices Other non-auditservices Total assurance services Other assurance services Audit related assurance services -half year review Total fees for auditservices Audit ofthe Group Audit ofthe Company Auditor remuneration 6. Administrativeexpensescontinued Shaftesbury AnnualReport2020FinancialstatementsNotestothefinancial °·ª°´®¬ «·³«³®± °·ªª¯®¯ °·ª°´®¬ °·ªª¯®¯ °·´µ¯®³ ³® ) µ³²®¯ ( «±²®¬ ª³) «ª®³ ( £000 2020 2020 2020 2020 2020 °«®¯ °¬®² ª°®° ª´®¬ ª°®³ ²³³ ¯´« «³° «´³ «°¬ °«´ ««² ª®« ±®° ±®° £m £m £m £m ¬¯ ³³ - - Page 135 ¸º·´¹²° ¸ºµ¸¯²° ¸º·±µ²³ ¸º·´¹²° ¸º·±µ²³ ¸º·¯¹²´ °µ¸²¶ ´¸) ¯´²¸ ( ¯µ) ¯¯²µ ( ) ¯¯²µ ( µ¸) ¯µ²¸ ( £000 ¸¯²µ ¯¹²¸ ¸¶²³ ¹·²¶ ¯±²¹ ¯¸²³ 2019 2019 2019 2019 2019 °¸¶ ¯³³ ¯°´ ¯²° °²´ £m £m £m £m °± ·¯ ¸¯ ¸¯ µ -
Financial statements Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
10. Investment properties continued The fair value of the Group’s investment properties has primarily been determined using a market approach, which provides an indication of value by comparing the subject asset with similar assets for which price information is available. The external valuer uses information provided by the Group, such as tenancy information and capital expenditure expectations. In deriving fair value, the valuer also makes a series of assumptions, using professional judgement and market observations. The key assumptions are the equivalent yields and estimated future rental income (ERVs), as set out in the Basis of Valuation on pages 158 to 159. Equivalent yields are based on current market prices, depending on, inter alia, the location and use of the properties. ERVs are calculated using a number of factors which include current rental income, market comparatives and occupancy levels. Whilst there is market evidence for these inputs, and recent transaction prices for similar properties, there is still a signicant element of estimation and judgement. As a result of adjustments made by the valuers to market observable data, these signicant inputs are deemed unobservable. Since the key inputs to the valuation are unobservable, the Group considers all its investment properties fall within Level 3 of the fair value hierarchy in IFRS 13. The Group’s policy is to recognise transfers between hierarchy levels as at the date of the event or change in circumstances that caused the transfer. There have been no transfers during the year (2019: none). The major inputs to the external valuation are reviewed by the senior management team. In addition, the valuer meets with the external auditor and the Audit Committee. Further details of the Audit Committee’s responsibilities in relation to valuations can be found in the Audit Committee Report on pages 96 to 99. A summary of the Cushman & Wakeeld report can be found on pages 160 to 161. Fees were agreed at xed amounts in advance of the valuations being carried out. During the year, Cushman & Wakeeld acted as letting agents for Shaftesbury Covent Garden Limited and Shaftesbury CL Limited, and provided other advice to Shaftesbury PLC. Non-valuation fees represented 34% of total fees for the valuation of the Group’s investment properties. Fees payable by the Group to Cushman & Wakeeld do not constitute a signicant part of their fee income. Sensitivity analysis As noted in the signicant judgements, assumptions and key estimates section on page 133, the valuation of the Group’s property portfolio is inherently subjective. As a result, the valuations the Group places on its property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions which may not prove to be accurate, particularly in periods of volatility or low transaction ow in the commercial property market. Cushman & Wakeeld included the following statement in their report at 30 September 2020: “The outbreak of Covid-19, declared by the World Health Organisation as a “Global Pandemic” on the 11th March 2020, has and continues to impact many aspects of daily life and the global economy – with some real estate markets having experienced lower levels of transactional activity and liquidity. Travel restrictions have been implemented by many countries and “lockdowns” applied to varying degrees. Local lockdowns are being deployed as necessary, signicant further outbreaks have emerged in parts of the UK and a “second wave” is now widely considered to be taking place in many countries in Europe. “The pandemic and the measures taken to tackle Covid-19 continue to aect economies and real estate markets globally. Nevertheless, as at the valuation date property markets are mostly functioning, with transaction volumes and other relevant evidence returning to levels where an adequate quantum of market evidence exists upon which to base opinions of value. Accordingly, and for the avoidance of doubt, our valuation is not reported as being subject to ‘material valuation uncertainty’ as dened by VPS 3 and VPGA 10 of the RICS Valuation – Global Standards. “For the avoidance of doubt this explanatory note has been included to ensure transparency and to provide further insight as to the market context under which the valuation opinion was prepared. In recognition of the potential for market conditions to move rapidly in response to changes in the control or future spread of Covid-19 we highlight the importance of the valuation date.” The Group’s properties are all located in London’s West End and are virtually all multi-use buildings, usually congured with commercial uses on the lower oors and oce and/or residential uses on the upper oors. Cushman & Wakeeld value properties in their entirety and not by use. Consequently, the sensitivity analysis below has been performed on the Group’s portfolio as a whole. The sensitivity analysis has been expanded this year, widening the movement in ERV’s and yields, given the increased level of estimation uncertainty.
Change in ERV -25% -20% -15% -10% -5% +5% £m £m £m £m £m £m (Decrease)/increase in the fair value ( ±´¯²µ ) ( µ¹´²¸ ) ( ¹¯µ²° ) ( °´°²° ) ( ¯¹´²· ) ¯°±²°
Change in Yield -0.25% +0.25% +0.5% +0.75% +1.0% +1.25% £m £m £m £m £m £m Increase/(decrease) in the fair value °¸±²¶ ( ¯³³²± ) ( ¸·³²¹ ) ( µ¸´²¸ ) ( ±´¶²µ ) ( ´¶´²° )
These key unobservable inputs are inter-dependent. All other factors being equal, a higher equivalent yield would lead to a decrease in the valuation of a property, and an increase in the ERV would increase the capital value, and vice versa. At 30 September 2020, the Group had capital commitments of £31.0 million (2019: £82.4 million). This included £31.0 million relating to future capital expenditure for the enhancement of the Group’s investment properties (2019: £43.4 million). At 30 September 2019, it also included £39.0 million relating to the forward purchase of a long leasehold interest. The vendor failed to meet its obligations to complete the sale and at 30 September 2020, we were no longer contractually committed. See pages 59 to 62 for a discussion of the Group’s property activity during the year. Details of the restrictions on the Group’s investment properties are set out in note 17.
11. Accrued income 2020 2019 £m £m Accrued income in respect of lease incentives «±®µ »¯±²¯ Less: included in trade and other receivables (note 14) ( ¬®° ) ( ¸²¶ ) ªµ®° ¯¸²¯
At 30 September 2020, the Group held impairment provisions totalling £8.2 million (2019: £nil) against lease incentive balances. See note 3 for further information.
Page 136 Net assets attributable to the Group Net assets Total liabilities Other non-current liabilities Secured term loan Non-current liabilities Current liabilities Total assets Other current assets Cash andcash equivalents Other receivables Accrued income Investment properties atbookvalue Non-current assets Balance Sheet Loss attributable to the Group Loss and total comprehensive loss for the year Tax credit for the year Deferred tax Current tax Loss before tax Finance costs Operating loss Net revaluation decitoninvestment properties Operating pro¢t before investment valuation property movements Administrative expenses income Net property Property charges chargeService expenses Other charges property Impairment charges Expected credit losses Revenue chargeService income Rental income Statement ofComprehensive Income The summarised Statement ofComprehensive Income andBalance Sheetused for consolidation purposes are presented below: enhancement ofits investment properties, ofwhich,50%relates to the Group. At 30September 2020, the joint venture had capital commitments of£0.1million(2019: £5.2million)relating to future capital expenditure for the Properties Limited is shared equallywith The Mercers’ Company, whichowns 50% ofits issued share capital. Properties Limited’s principal place ofbusiness andregistered oce is the same as the Group, as set outonpage 117.Control ofLongmartin company is incorporated inGreat Britain andregistered inEngland andWales andis engaged investment inproperty inLondon. Longmartin The Company owns 7,782,100 Bordinary £1shares inLongmartin Properties Limited, representing 50%ofthat company’s issued share capital. The At 1October and 30September Shares atcost Company Book value at30September Dividends received Share oflosses At 1October Group 12. Investmentinjointventure Shaftesbury AnnualReport2020FinancialstatementsNotestothefinancial («® ) «³®¬ ¸( ª³°®µ ª´´®¯ ª«±®± °´ª®ª °µª®ª °¯²®± ¸³µ®² ª«´®µ ³¬) «³®¬ ( ) ¯²®² ( ) µ²®ª ( ) µ±®² ( ) ´ª®´ ( ) ª®¬ ¸( 2020 2020 2020 2020 ªµ®± ³µ®² «´®¯ °±®± ª±®« ª±®³ ªª®« ª´®« ª¯®° ¯³®± ® ) ±®³ ( ) ´®° ( ) ±®° ( ) ¬®² ( ) ª®³ ( ) «®³ ( ) ±®² ( ) ±®¬ ( ¯®´ ¬®° ª®° ª®² ³®° ª®³ £m £m £m £m Page 137 °µµ²° ¯·³²¹ ¯°¶²¶ ¹¸¹²± ¹°³²¸ ¹°±²¸ ¯°·²± ¯¹¸²³ ¯°·²± ¸´) ¯¸²´ ( ) °·²± ( ) ¸°²· ( ) °µ²³ ( ) ¸´²µ ( ¸´) ¯¸²´ ( ¸·²· °¯²· ¯°²± ¯°²´ ¯±²´ ¯µ²¶ µ³²¶ ¯±²´ 2019 2019 2019 2019 ² ) ¯²° ( ) ±²´ ( ) ¶²° ( ) ¹²¶ ( ) ¯²´ ( ) °²° ( ² ) °²µ ( ¹²¯ ¯²° ¯²¸ ¯²· µ²¯ ¯²´ ±²¸ £m £m £m £m - -
Financial statements Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
13. Investment in subsidiaries 2020 2019 £m £m Shares in Group undertakings At 1 October ª·«°²®° ¯º¯±¶²³ Additional share capital issued by subsidiaries - ··²¹ Impairment of shares in subsidiaries ( ªª®¯ ) - At 30 September ª·««µ®² ¯º°¸´²¸
During the year, Helcon Limited and Shaftesbury WE Limited (formerly Shaftesbury West End Limited) distributed £12.5 million to the Company. Following this, the Company impaired its investment in these subsidiaries. The distributions were settled by intercompany indebtedness. In 2019, a number of subsidiaries issued share capital to the Company. All transactions were settled through intercompany indebtedness. The full list of the Company’s subsidiary undertakings is presented below. Except where indicated otherwise, the Company owns, directly, all of the ordinary issued share capital:
Active subsidiaries: Shaftesbury Carnaby PLC Shaftesbury AV Limited1 Shaftesbury Covent Garden Limited Shaftesbury CL Investment Limited Shaftesbury Chinatown PLC Shaftesbury CL Limited1 Shaftesbury Soho Limited Shaftesbury AV Investment Limited Dormant subsidiaries: Carnaby Estate Holdings Limited Helcon Limited2 Carnaby Investments Limited Shaftesbury Investments 2 Limited Carnaby Property Investments Limited1 Shaftesbury Investments 4 Limited Chinatown Estate Holdings Limited Shaftesbury Investments 5 Limited Chinatown Property Investments Limited1 Shaftesbury Investments 6 Limited Covent Garden Estate Holdings Limited Shaftesbury Investments 7 Limited Shaftesbury Covent Garden Property Investments Limited1 Shaftesbury Investments 8 Limited Shaftesbury Charlotte Street Limited Shaftesbury Investments 9 Limited Charlotte Street Estate Holdings Limited Shaftesbury Investments 10 Limited Shaftesbury West End Limited (formerly Shaftesbury Investments 1 Limited) Shaftesbury WE Limited2 (formerly Shaftesbury West End Limited) Chinatown London Limited
1. 100% of the share capital of these subsidiaries is held by other Group companies. 2. This subsidiary is in the process of being voluntarily wound up in order to simplify the Group structure. All of the companies are either engaged in property investment or dormant. They are incorporated in Great Britain and are registered in England and Wales. The registered oce of the subsidiaries is the same as the Group, as set out on page 117.
14. Trade and other receivables Group Company 2020 2019 2020 2019 £m £m £m £m Trade receivables «µ®± ¯´²¸ - - Provision for expected credit losses ( ª¬®° ) ( ¯²µ ) - - ªª®´ ¯±²´ - - Accrued income in respect of lease incentives (note 11) ¬®° ¸²¶ - - Amounts due from subsidiaries - - ª¬¬®µ ¸·²µ Amounts due from joint venture ªª®² ·²° ªª®² ·²° Other taxation «®³ - ª®¬ °²¶ Prepayments ª®³ ·²± ±®¯ ¶²± Other receivables ª«®¬ ¶²µ °®« ¶²µ ¬¯®± ¸µ²¯ ªµª®¯ ¹·²´
Trade receivables represent amounts due from tenants. Within this balance is £3.6 million (2019: £3.4 million) owed for service charges. See note 18 for further information on the provision for expected credit losses. Cash deposits totalling £14.3 million (2019: £20.7 million) were held against tenants’ rent payment obligations. The deposits are held in bank accounts administered by the Group’s managing agents and are not included within the Group Balance Sheet.
Page 138 Net debt at30September 2020 Cash &cash equivalents (note 15) Total Group borrowings Secured term loans Secured bank facilities 1. Loan issue costs Loan issue costs Secured term loans Secured bank facilities bonds Mortgage Non-current borrowings Net debtreconciliation that property. There are currently norestrictions onthe remittance ofincome from investment properties. charge over aproperty, consent is neededfrom the relevant lenderfor the xed charge to beremoved, for example, inthe case ofadisposal of million (2019: £3,088.9million),andby oating charges over the assets ofthe Company and/or subsidiaries. certain To the extent there is axed The Group’s borrowings are secured by xed charges over investment certain properties heldby subsidiaries, with value acarrying of£2,697.9 Details ofthe Group’s current nancial position are discussed onpages 67 to 69. bonds Mortgage Group 17. Borrowings All deferred charge service income ofthe prioryear was recognised as income inthe current year. Total other payables dueafter oneyear Lease liabilities (note 2) Due after oneyear Total trade and other payables duewithin oneyear Lease liabilities (note 2) Other payables andaccruals Other taxation andsocial security Amounts dueto subsidiaries Trade payables andaccruals inrespect ofcapital expenditure Accruals anddeferred charge service income Deferred rental income Due within oneyear 16. Tradeandotherpayables conditions restricting their use. Restricted cash relates to cash heldondeposit as security for secured certain term loans andsecured bank facilities, andwhere there are certain Current other receivables Non-current other receivables Restricted cash (includedinother receivables): Cash atbank 15. Cashandcashequivalents Shaftesbury AnnualReport2020FinancialstatementsNotestothefinancial Loan issue costs are eliminated inthe calculation ofnetdebt. 1 Nominal ª·±¯³®² °²¬®² ª±±®± ¯´¯®± value £m Unamortised issue costs 2020 1.10.2019 ³±¯®² ¬® ª¯±®± ³¬³®² °²¬®² ¯´¯®± ¬±)(ª¯µ)ªµµ®² ) ª²¯®µ ( ) ¯¬®± ( ±±) ª±®± ( ª±®± ® ª·±¯ª®± ) ²®² ( ® °²ª®¬ ) °®¬ ( ) ª®± ( ® ¯´±®µ ) ¬®¬ ( £m £m - In¹ows ª¯±®± ¯µ)ªªµ®² ) °¯®µ ( value Book 2020 2020 ³³®± ª³®´ ª«®¬ ´«®² ³®³ ±®¯ ¬®² ¬®¯ ª®ª °®¬ ²®´ °®´ Cash ¹ows £m £m £m £m Group Group ------Out¹ows Nominal ³µ³²´ ¸´¹²´ µ·µ²¶ ±±) ¯±®± ( ) ¯±®± ( °´²¯ °¸²¶ ¹¸²´ µ¹²¶ value 2019 2019 ³²¸ °²³ ¸²µ µ²¯ ¸²· ¸²· £m £m £m £m ------Non-cash items Unamortised issue costs 2019 ¶¶)³¹³²´ ) ¯¶²¶ ( 2020 2020 µª®¯ ® ) ª®« ( ² ¸´¯²¶ ) ¸²´ ( ² ) ¯²¸ ( ² µ·¶²¯ ) ¹²³ ( ® ª·±¯ª®± ª®« ª®« °®¯ ±®¯ °®² °®² ¬®¬ ±®¬ ª®° ª®° £m £m £m £m Company Company £m ------30.9.2020 Page 139 ³²´®± ª±±®± °²¬®² ¯´¯®± «²) ´«®² ( ¸±²³ ¯¶²¹ value Book ® ) ²®² ( 2019 2019 ² ) ¯²¸ ( ²®² ¸²· ¯²° µ²µ £m £m £m £m ------
Financial statements Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
17. Borrowings continued Cash ows 1.10.2018 Inows Outows Non-cash items 30.9.2019 £m £m £m £m £m Non-current borrowings Mortgage bonds µ·µ²¶ - - - µ·µ²¶ Secured term loans ¸´¹²´ - - - ¸´¹²´ Loan issue costs ( ¯¯²° ) - - ¯²° ( ¯¶²¶ ) ³¹´²± - - ¯²° ³¹³²´
Loan issue costs1 ¯¯²° - - ( ¯²° ) ¯¶²¶ Cash & cash equivalents (note 15) ( ¯¯´²µ ) ( ³·²´ ) ¯±°²¸ - ( µ¹²¶ ) Net debt at 30 September 2019 ´¹¯²¸ ( ³·²´ ) ¯±°²¸ - ³¶µ²´
1. Loan issue costs are eliminated in the calculation of net debt.
Availability and maturity of borrowings 2020 2019 Committed Drawn Undrawn Committed Drawn Undrawn £m £m £m £m £m £m Repayable between 1 and 5 years ««¯®± ª±±®± ª«¯®± °°µ²¶ - °°µ²¶ Repayable between 5 and 10 years ¯¯¬®² ¯¯¬®² - ¹°¹²´ ¹°¹²´ - Repayable after 10 years ¬±¯®± ¬±¯®± - µ¸µ²¶ µ¸µ²¶ - ª·ª²¬®² ª·±¯³®² ª«¯®± ¯º¯´¹²´ ³µ³²´ °°µ²¶
Interest rate profile of interest bearing borrowings 2020 2019 Debt Interest Debt Interest £m rate £m rate Secured bank facilities ª±±®± ª®µµº - - Secured term loans °²¬®² °®²¯º ¸´¹²´ ¸²´µ¼ Mortgage bonds 2027 «³±®± «®°¯º °³¶²¶ °²¸µ¼ Mortgage bonds 2031 «²¯®± «®¬³º °´µ²¶ °²¹³¼ Weighted average cost of drawn borrowings «®²´º °²³³¼
The Group and Company also incur non-utilisation fees on undrawn facilities. At 30 September 2020, the weighted average charge on the undrawn facilities of £125.0 million (2019: £225.0 million) for the Group and Company was 0.68% (2019: 0.66%). The weighted average credit margin on the Group and Company’s secured bank facilities was 1.46% (2019: 1.46%).
Company 2020 2019 Nominal Unamortised Book Nominal Unamortised Book value issue costs value value issue costs value £m £m £m £m £m £m Secured bank facilities ª±±®± ( ª®± ) ³³®± - ( ¯²¸ ) ( ¯²¸ ) Total Company borrowings ª±±®± ( ª®± ) ³³®± - ( ¯²¸ ) ( ¯²¸ )
Net debt reconciliation Cash ¹ows 1.10.2019 In¹ows Out¹ows Non-cash items 30.9.2020 £m £m £m £m £m Non-current borrowings Secured bank facilities - ª¯±®± ( ¯±®± ) - ª±±®± Loan issue costs ( ª®° ) - - ±®° ( ª®± ) ( ª®° ) ª¯±®± ( ¯±®± ) ±®° ³³®±
Loan issue costs1 ª®° - - ( ±®° ) ª®± Cash & cash equivalents (note 15) ( °µ®³ ) ( ª³ª®³ ) ªµ´®° - ( µª®¯ ) Net debt at 30 September 2020 ( °µ®³ ) ( ¬ª®³ ) ªª´®° - °²®¯
1. Loan issue costs are eliminated in the calculation of net debt.
Page 140 Net debt at30September 2019 Cash &cash equivalents (note 15) Net ¢nancial instruments Interest bearing borrowings (note 17) Amounts dueto subsidiaries (note 16) Trade andother payables -duewithin oneyear (note 16) Financial liabilities Current other receivables (note 14) Cash andcash equivalents (note 15) Amounts duefrom joint venture (note 14) 2027 and2035. TheGroup's secured bank facilities mature in2022 and2023. Seenote 27 for renancing transactions completed post year end. the Balance Sheetdate. TheGroup has noobligation to repay bonds its orsecured mortgage term loans inadvance oftheir maturities between The tables below summarise the undiscounted contractual cash ows arising oninterest bearing nancial liabilities based on conditions existing at Contractual cashflows materially dierent from the values atwhichthey are carried inthe nancial statements. receivables, interest bearing borrowings (excluding bonds the andthe mortgage secured term loans), andtrade andother payables are not The fair values ofthe Group’s andCompany’s cash andcash equivalents, andthose nancial instruments includedwithin trade andother The valuation technique falls within Level 2ofthe fair value hierarchy inIFRS 13. year. Thefair values have beencalculated based onadiscounted cash ow modelusing the relevant reference giltandappropriate market spread. is £988.9million(2019: £1,042.9million).Thedierence between the fair value andthe bookvalue is not recognised inthe reported results for the The Group’s bonds andsecured mortgage term loans are cost heldatamortised inthe Balance Sheet.Thefair value ofthese nancial instruments Other financialinstruments Other receivables relate to cash heldondeposit, whichhave conditions restricting certain their use whichare duebetween 2029 and2035. Amounts duefrom subsidiaries (note 14) Financial assets Company Net ¢nancial instruments Interest bearing borrowings (note 17) Trade andother payables -duewithin oneyear (note 16) Financial liabilities Current other receivables (note 14) Cash andcash equivalents (note 15) Other receivables (note 15) Amounts duefrom joint venture (note 14) Trade andother receivables (note 14) Financial assets Group Categories of¢nancial instruments (bookvalue) 18. Financialinstruments Repayable between 1and5years Availability andmaturityofborrowings 1. Loan issue costs Loan issue costs Secured bank facilities Non-current borrowings 17. Borrowingscontinued Shaftesbury AnnualReport2020FinancialstatementsNotestothefinancial Loan issue costs are eliminated inthe calculation ofnetdebt. 1 Committed «® ±® ª«¯®± ª±±®± ««¯®± £m
2020 1.10.2018 ¶² ) ¯¶¶²± ( ) ¯¶¶²± ( Drawn ² ) ¯²´ ( ) ¯²´ ( ¯²´ £m £m - Undrawn Inows ¯¶)¯¸¹²· ¯¸¹²· ) ·¯²¶ ( ) ·¯²¶ ( £m £m - - - - Cash ows Committed Outows °°µ²¶ £m £m - - - - Non-cash items 2019 ·µ® ) ª·±µ¯®´ ( ) ª·±¯ª®± ( ±® ) ª±«®¯ ( ¯® ) ³¯°®° ( ªª²®µ ««ª®ª ª¬¬®µ ªª«®¬ Drawn ³±) ³³®± ( ¬´) ª¬®´ ( 2020 µª®¯ ªª®² ª«®¬ ´«®² ªª®² ªª®´ ® ) °®¯ ( ² ) ¶²µ ( °®« °®´ ¶²µ ¶²µ £m £m £m - - - - - 30.9.2019 Undrawn Page 141 ±² ) ³±°²± ( ) ³¹³²´ ( ´² ) ´´¶²¹ ( °°µ²¶ ±³) ¸±²³ ( ) ¸±²³ ( °´) ¯°²´ ( ·¹²° ´°²¯ ¸±²³ ¸·²µ ´°²° µ¹²¶ ¯±²´ 2019 ² ) ¸²· ( ² ) ·²³ ( ) µ²µ ( ² ) ¯²¸ ( ) ¯²¸ ( ¯²¸ ¶²µ ¯²¸ ·²° ¸²· ¶²µ ·²° £m £m £m -
Financial statements Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
18. Financial instruments continued Group Book Contractual <1 1-2 2-5 5-10 >10 value cash ¹ows year years years years years 30 September 2020 £m £m £m £m £m £m £m Financial liabilities Interest bearing borrowings: Principal (note 17) ª·±¯ª®± ª·±¯³®² - - ª±±®± ¯¯¬®² ¬±¯®± Interest «®³ «²³®¬ °±®¬ °±®¬ ²µ®² ªª«®¬ «³®¬ Total ª·±¯°®³ ª·°¬³®« °±®¬ °±®¬ ª²µ®² µµ´®« ¬°¬®¬
Book Contractual <1 1-2 2-5 5-10 >10 value cash ¹ows year years years years years 30 September 2019 £m £m £m £m £m £m £m Financial liabilities Interest bearing borrowings: Principal (note 17) ³¹³²´ ³µ³²´ - - - ¹°¹²´ µ¸µ²¶ Interest ¸²¶ ¸¯¹²¯ °´²· °´²· ´±²° ¯°·²¹ ¹¸²¯ Total ³µ°²´ ¯º°·¸²³ °´²· °´²· ´±²° µµ°²° µ·´²¯
Company Book Contractual <1 1-2 2-5 5-10 >10 value cash ¹ows year years years years years 30 September 2020 £m £m £m £m £m £m £m Financial liabilities Interest bearing borrowings: Principal (note 17) ³³®± ª±±®± - - ª±±®± - - Interest - ¬®± ª®´ ª®´ ±®µ - - Total ³³®± ª±¬®± ª®´ ª®´ ª±±®µ - -
Book Contractual <1 1-2 2-5 5-10 >10 value cash ¹ows year years years years years 30 September 2019 £m £m £m £m £m £m £m Financial liabilities Interest bearing borrowings: Principal (note 17) ( ¯²¸ ) ------Interest ¶²¯ ¶²¯ ¶²¯ - - - - Total ( ¯²° ) ¶²¯ ¶²¯ - - - -
Management of financial risks (Group and Company) An overview of the Group’s risk management policies and the principal risks and uncertainties is set out on pages 71 to 77. The disclosure below provides further detail regarding nancial risk management.
Credit risk Credit risk refers to the risk that a counterparty will default on their contractual obligations resulting in nancial loss to the Group. The Group denes default as the failure to meet contractual obligations as such obligations fall due. Generally, default risk is managed through a large and diverse tenant base so that tenant credit risk is widely spread. The Group reviews the creditworthiness of potential tenants prior to entering into contractual arrangements. Where appropriate, tenants are required to provide cash deposits to mitigate the potential loss in the event of default. Tenant deposits are referred to in note 14. During the year, tenant default risk, and hence credit risk associated with our tenants, has increased with occupiers suering operational and nancial challenges as a result of the pandemic. The Group has supported its occupiers through a package of measures including deferrals and waivers of rent obligations. Rent collections have been signicantly below normal levels. + Covid-19: impact and response: page 6 + Portfolio activity report: page 59 Tenant default risk has been elevated to a principal risk for the Group. + Principal risks and uncertainties: page 73 In respect of tenant arrears, the Group identied risk factors associated with each use (food and beverage, retail, oce and residential) and calculated provisions taking into account the type of use, rent deposits held and rent collections, on a tenant-by-tenant basis. The Group was able to utilise £2.3 million of the £14.3 million tenant rent deposits held at 30 September 2020 to oset unpaid rent receivables. Absent the assumed use of tenant deposits held at 30 September 2020 as collateral against arrears at that date, the maximum exposure to credit risk for the Group was £9.4 million. Tenant arrears are derecognised when there is no longer a reasonable expectation of collection.
Page 142 The Company’s retained earnings at30September 2020 include amounts distributable of£261.4 million(2019: £228.4million). Retained earnings reserve Share-based payments Share premium Reserve The following describes the nature andpurpose ofeach ofthe reserves within equity: The Statement ofChanges inEquity is set outonpage 131. 20. Reserves See note 27 for information onthe raise equity completed post year end. Group and Company 19. Sharecapital insignicant. Group’s exposure to changes inlong-term interest rates andthe potential impact onthe Group’s results andnancial position is considered to be credit facility. Both facilities bore variable rate interest. Following this, the Group’s drawn debt arrangements were allxed rate. Given this, the were xed rate. Following the issue equity inNovember 2020, the Group cancelled oneofits revolving credit facilities andrepaid its other revolving The Group’s policyis to minimise interest rate risk through long-term xed rate debt. At30September 2020, 91%ofthe Group’s drawn borrowings in light ofexpectations offuture interest rate movements. instruments willuctuate dueto changes ininterest rates andcredit costs. TheBoard keeps the Group’s interest rate risk underreview, particularly Interest rate risk arises from the Group’s use ofinterest bearing nancial instruments, andis the risk that future cash ows from nancial Market risk assessment noted incapital risk management (above). available to meetits existing andplanned commitments. TheGroup’s position liquidity andrequirements were considered ofthe as part The Board keeps underreview the Group’s funding requirements, available facilities andcovenant compliance to ensure ithas sucient funds Liquidity risk Financing risk is set outinfurther detail in“principal risks anduncertainties” onpage 77. The Group’s capital structure andnancing strategy are discussed inthe Strategic Reportonpages 67 to 69. portfolio investment (see note 27). strong nancial base, is positioned to return to long-term growth as pandemic issues recede and,should conditions improve, has capacity for capital. InNovember 2020, the Group issued equity, raising netproceeds of£294.4 issue million.Theequity has ensured the Group maintains a to optimise the Group’s long-term capital structure including disposals, bondissuance, repayment ofexisting debt facilities andoptions for raising extended. TheBoard assessed the Group’s nancial position andliquidity inlight ofthe impact ofthe pandemic andconsidered arange ofoptions Group's debt arrangements andwaivers from lenders were secured, where necessary. Since 30September 2020, these waivers have been During the year, reduced rent collections andlow visibility over near-term income putpressure oninterest cover covenants ofthe incertain appropriate risk reward balance to accommodate changing nancial andoperating market cycles. The Group’s capital management objectives are to continue as agoing concern andto provide enhanced shareholder returns whilst maintaining an The Group regularly reviews its loan covenant compliance. borrowings is set outinnote 17andthe Group’s share capital andreserves are set outinnotes 19and20 andthe Statement ofChanges inEquity. The capital structure ofthe Group consists andnetborrowings, ofequity including cash heldondeposit. andmaturity Thetype ofthe Group’s Capital riskmanagement The Company’s credit risk management, objectives andpolicies are consistent with those ofthe Group. banks ornancial institutions to spread counterparty credit risk. Deposits requirements andliquidity are reviewed onaweekly basis. Where cash is deposited with banks ornancial institutions, the Group considers the counterparty credit rating andplaces amounts with dierent 18. Financialinstrumentscontinued At 30September Exercise ofshare options At 1October Allotted andfully paid (ordinary 25pshares) Shaftesbury AnnualReport2020FinancialstatementsNotestothefinancial equity-settled remuneration. Cumulative gains andlosses recognised inthe Statement ofComprehensive Income, netofdividends andadjustments for Reserve used to recognise the value ofequity-settled remuneration provided to employees. issued, netofexpenses. Amount by whichthe fair value ofthe consideration received for ordinary shares exceeds the nominal value ofshares Description and purpose number million °±´®¬ °±´®¬ 2020 - number ¸¶·²¹ ¸¶·²¸ million 2019 ¶²¯ 2020 ´µ®³ ´µ®³ £m - Page 143 ·±²³ ·±²´ 2019 ¶²¯ £m
Financial statements Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
21. Share-based remuneration The Group operates a long-term incentive plan (LTIP), sharesave scheme (SAYE) and a deferred annual share bonus scheme (DASBS). A summary of the rules of the schemes is set out in the Remuneration Report on page 105.
LTIP and SAYE schemes The following share options granted to executive directors and employees were outstanding at 30 September 2020:
Weighted Option average At At Exercisable exercise price at Exercise Date of grant 1.10.2019 Awarded Exercised Lapsed 30.9.2020 30.9.2020 price exercise period SAYE 03.07.2015 ¹º·µ¹ - - (°º¯±¯) °ºµ³¸ °ºµ³¸ ½±²³¹ - °¶°¶-°¶°¯ 01.07.2016 ¯°º¯¹¹ - - (±º¶·°) ±º¶·° - ½·²¹¯ - °¶°¯-°¶°° 30.06.2017 ¯°º¸³· - (¸¹´) (¸º¸·°) ´º±·· ±º·¹¶ ½·²·¹ ³²°³ °¶°¶-°¶°¸ 29.06.2018 ¯¶º¹µµ - (°³·) (¯¶º¯µ´) - - ½·²µ· ³²°³ - 28.06.2019 °±º³³´ - - (¯´º¸¯¸) ´º±´µ - ½±²±¸ - °¶°°-°¶°µ 09.07.2020 - ¯¯·ºµµ· - - ¯¯·ºµµ· - ½¹²·¯ - °¶°¸-°¶°±
LTIP 02.12.2015 ¹º°·· - (¹º°··) - - - Nil ´²´³ °¶¯³ 08.02.2016 ¹µº±°· - - - ¹µº±°· - Nil - °¶°¶-°¶°¯ 12.12.2016 ¸³¯º±¶¶ - - (¸³¯º±¶¶) - - Nil - - 12.12.20171 ¸·³º¶°± - - (¸°º³±±) ¸¹±º¶±¶ - Nil - - 04.12.2018 ¹¸´º¯³¶ - - (¸³º·µ¶) ¸³´º¹¹¶ - Nil - °¶°¯-°¶°¹ 12.12.2019 - µ¶¶º¯±¶ - (¸´º·¶¶) ¹±¯º¹±¶ - Nil - °¶°°-°¶°µ 24.07.2020 - °µ±º¸µ¶ - - °µ±º¸µ¶ - Nil - °¶°°-°¶°¸ ª·°«¯·¬µ² ²´¬·±µ´ (¬·³««) (¯¬°·±³«) ª·µ¯ª·¯«ª ³º¸¸¸
1. 346,060 share options will lapse at the vesting date in December 2020. 2. Following the equity issue announced on 22 October 2020, and approved by shareholders on 17 November 2020, the shares granted under the schemes above have subsequently been restated to reect the new share capital of the Company. These were technical adjustments and did not increase or decrease the value of the award. The restated gures will be reported in the 2021 Annual Report.
At At 1.10.2019 Awarded Exercised Lapsed 30.9.2020 Weighted average exercise price ¶²¸± ¶²±¸ ¯²¶¶ ¶²µ° ¶²¹µ Weighted average remaining contractual life °²·° °²±±
The fair value of option grants is measured by Lane Clark & Peacock LLP, Actuaries & Consultants. For the grants made during the year, the main inputs and assumptions, and the resulting fair values, are as follows:
SAYE 3 Year SAYE 5 Year LTIP LTIP Grant date ¶³²¶·²°¶ ¶³²¶·²°¶ ¯°²¯°²¯³ °¹²¶·²°¶ Share price at date of grant ½µ²¯µ ½µ²¯µ ½³²¸° ½¹²´¶ Exercise price ½¹²·¯ ½¹²·¯ Nil Nil Expected life of award (years) ¸ µ ¸ »o r »µ ° »o r »¸ Share return volatility (per annum) °³¼ °µ¼ ¯·¼ n/a Risk free discount rate (per annum) -¶²¯¼ -¶²¯¼ ¶²±¼ n/a Index return volatility (FTSE 350 REIT Index) - - ¯´¼ n/a Correlation between the Company’s shares and those in the FTSE 350 REIT Index - - ´¯¼ n/a Dividend yield ¯²·¼ ¯²·¼ - n/a
SAYE 3 SAYE 5 LTIP LTIP LTIP Year Year (TSR) (NAV) (TAR) Fair values: SAYE ½¯²¯¶ ½¯²¶´ - - - No holding period - - ½¸²´° ½³²¸° ½³²¸° Contingent holding period - - ½¸²·¶ ½³²¶¹ ½³²¶¹ Two year holding period - - ½¸²µ³ ½´²·± ½´²·±
The assumed volatility was determined taking into account factors including the historical volatility of the Company share price. Actual future volatility may dier, potentially signicantly, from historic volatility. The vesting conditions relating to options granted in the year under the LTIP are described in the Annual Remuneration Report on page 107.
Page 144 See note 17for the cash ow movement innetdebt. Cash generated from/(used in) operating activities Change intrade andother payables Change intrade andother receivables Changes in working capital: Cash ¹ows from operations before changes in working capital Share ofpost-tax loss from joint venture (note 12) Dividends received from joint venture (note 12) Impairment ofsubsidiaries (note 13) settled through intercompany indebtedness Administrative charges, nance charges, anddividends received from subsidiaries Net nance costs Prot ondisposal ofinvestment properties (note 7) Net revaluation decitoninvestment properties (note 10) Depreciation (note 6) Share-based payments Lease incentives recognised Adjusted for: Prot before tax ash o s omo e atin acti ities The trustee ofthe Company’s Employee BenetTrust waived dividends inrespect of568,144(2019: 616,042) ordinary shares during the year. declaring dividends. Seepage 65ofthe Strategic Reportfor onourdividendpolicy. further commentary long-term. Thepace ofthe post-pandemic income recovery andourREIT PIDobligations, willbekey factors inthe Board's near-term decisions on Board intends to resume dividendpayments as soon as itconsiders prudent, maintaining its policyofsustainable dividendgrowth over the The Board announced on25September 2020 that nonal dividendwould bedeclared inrespect ofthe year ended30September 2020. The Dividends paid in the year Year ended30September 2019 Interim dividendfor: Year ended30September 2018 Year ended30September 2019 Final dividendfor: 22. Dividends At 30September Exercised Awarded At 1October Deferred annualsharebonusscheme 21. Share-basedremunerationcontinued Shaftesbury AnnualReport2020FinancialstatementsNotestothefinancial Operating activities ³® ) µ³³®¯ ( µ³²®¯ µ²°µp Pence pershare ¯«) «¯®« ( 2020 °°®¯ ¯´®« «³®¬ °ª®² ´²·p ® ) ±®° ( ) °®´ ( ª®¯ ±®° ±®´ I Ordinary PID £m Group - - - - ¸²·µp ¯µ²¸ °±²¶ ·³²´ ´¯²´ ¯¸²´ ¸¶²µ ´²µp 2019 ² ) ¹²¯ ( ) °²´ ( ) °²¸ ( ¶²¹ ¶²³ °²¯ £m - - - - («ª«·µµ³) ¯µ²·ª¬¬ ªµ¬·´´ª µªµ·±¬« Shares ´±) ª´®± ( ) ª¬®ª ( ) ²´®° ( 2020 2020 2020 ¯³®² «´®² ªª®¯ «´®² ® ) ±®´ ( ) ª®¬ ( ® ) «®« ( ±®° ±®´ «®° £m £m Company ------(¯´´º¹±±) Page 145 ±¯±º¶¹° °¶µº±¹¶ µ³´º´±´ Shares ±¹) ¯±²¹ ( ) ¯¹²¸ ( ) ·¯²³ ( µ·²³ °±²° µ°²³ °±²· 2019 2019 2019 ² ) °²¸ ( ) °²µ ( ¶²¹ ¶²³ ¶²³ ¶²° £m £m ------
Financial statements Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
24. Performance measures Earnings per share 2020 2019 Loss Number Loss Prot Number Earnings after tax of shares1 per share after tax of shares1 per share £m million pence £m million pence Basic ( µ³³®¯ ) °±´®¬ ( ««´®¯ ) °±²¶ ¸¶·²¹ ´²µ Dilutive eect of share options - - - - ¶²° - Diluted ( µ³³®¯ ) °±´®¬ ( ««´®¯ ) °±²¶ ¸¶·²± ´²µ
1. Weighted average For the year ended 30 September 2020, potential ordinary shares are excluded from the weighted average diluted number of shares when calculating IFRS diluted loss per share because they are not dilutive.
EPRA earnings per share The calculations below are in accordance with the EPRA Best Practice Recommendations.
2020 2019 Pro¢t Number Earnings Prot Number Earnings after tax of shares1 per share after tax of shares1 per share £m million pence £m million pence Basic ( µ³³®¯ ) °±´®¬ ( ««´®¯ ) °±²¶ ¸¶·²¹ ´²µ EPRA adjustments: Net revaluation decit on investment µ³²®¯ ««´®« ¯µ²¸ µ²¶ properties (note 10) Prot on disposal of investment properties ( ±®° ) ( ±®ª ) ( °²´ ) ( ¶²³ ) (note 8) Adjustments in respect of the joint venture: Investment property valuation decit °¯®² ªª®µ ¯³²° ±²° Deferred tax ( ¯®ª ) ( ª®µ ) ( ¸²¯ ) ( ¯²¶ ) EPRA earnings «³®¬ °±´®¬ ³®µ µ¹²± ¸¶·²¹ ¯·²´
1. Weighted average
Like-for-like rental growth 2020 2019 £m £m Rental income in current year ªª¬®¬ ¯¯·²¸ Adjusted for impact of: Impact of acquisitions ( ª®´ ) ( °²µ ) Impact of disposals - - Like-for-like rental income in current year (A) ªª«®´ ¯¯¹²´
Rental income in previous year ªª´®° ¯¯°²´ Adjusted for impact of: Impact of acquisitions ( ±®¯ ) ( ¸²¶ ) Impact of disposals - ( ¶²¹ ) Like-for-like rental income in previous year (B) ªªµ®² ¯¶³²¹
Like-for like (decline)/growth in rental income (A/B-1) ( °®¯º) ¹²³¼
Adjusted EPRA earnings per share 2020 2019 Pro¢t Number Earnings Prot Number Earnings after tax of shares1 per share after tax of shares1 per share £m million pence £m million pence EPRA earnings «³®¬ °±´®¬ ³®µ µ¹²± ¸¶·²¹ ¯·²´ Charge for share options (note 6) ª®± ±®° ¯²° ¶²¹ Adjusted EPRA earnings °±®¬ °±´®¬ ³®³ µµ²´ ¸¶·²¹ ¯´²°
1. Weighted average
Page 146 TAR %(B/A) TAR (B) Dividends paid inthe year Decrease in the year Closing EPRA NAV Opening EPRA NAV (A) Total accountingreturn(TAR) 3. Includes the wholly-owned Group's secured term loans andour50%share ofsecured term loans inthe joint venture. 2. Our50%share ofdeferred tax inthe joint venture. 1. Increase inshareholders' equity, whichwould arise onthe exercise ofshare options. IFRS netassets IFRS netassets with acomparison to the current measures, EPRA NAV andEPRA NNNAV. (NRV), EPRA NetTangible Assets (NTA) andEPRA NetDisposal Value (NDV). These are eective from 1October 2020 buthave beenpresented below In October 2019, EPRA introduced three new measures of netasset value inits Best Practices Recommendations: EPRA NetReinstatement Value Diluted Dilutive eect ofshare options Basic Net assetvaluepershare 24. Performancemeasurescontinued Shaftesbury AnnualReport2020FinancialstatementsNotestothefinancial Dilutive eect ofshare options¹ Dilutive eect ofshare options¹ Deferred tax² Deferred tax² Secured term loans³ Dierence between fair value value andcarrying ofdebt: Secured term loans³ Dierence between fair value value andcarrying ofdebt: Mortgage bonds Mortgage bonds Mortgage Investment purchasers' property costs Investment purchasers' property costs Total Total Number ofdiluted shares (million) Number ofdiluted shares (million) Diluted netassets pershare (£) Diluted netassets pershare (£)
Net assets ·²® °±²®± °±´®¬ «·«²ª®° «·«²±®µ ±®´ £m Number of EPRA NAV EPRA NAV
2020 ordinary º¶² º¶² º¶² º¶² ¸º¶¶·²° ¸º¶¶·²° ¸º¶¶·²° ¸º¶¶·²° ¸º¶¶·²° °º°´¶²± °º°´¶²± °º°´¶²± °º°´¶²± °º°´¶²± º°² º¯² º³² º°² °º³¯¹²¶ ¸º¶°¯²¸ ¸º°³¹²° °º³¯¹²¶ ¸º¶°¯²¸ ·²® ·¬® ·ª® ·²® «·«¬¬®´ «·«²³®² «·¯ª«®° «·«¬¬®´ «·«²³®² Existing measures Existing measures million ¶² ¶² ¶² ¶² ¸¶·²· ¸¶·²· ¸¶·²· ¸¶·²· ¸¶·²· ±® °±²®± °±²®± shares ¯¸²± ³²´° ´®¬° ¶²µ ¶²· ´²µ ±®µ £m £m ------EPRA NNNAV EPRA NNNAV value per Net asset µ´) ·µ²´ ( ) ¹´²¶ ( ·³) ¯·²³ ( share ¯¯²¹ ²·¯¶²·¯ ³²¹· ´®«³ ´®¬ª ´®¬« ¶²µ ¶²· £m £m - - - - £ EPRA NRV EPRA NRV 2020 2019 Net assets º¶² ¸¶·²· ¸¶·²¹ ¸º¶¶·²· ¸º¶¶·²° °·°²³ °°°²µ ¶² ¶² ¸¶´²¶ ¸¶´²¶ ¸¶´²¶ ¯¸²± ²®ªµ ¶²µ ¶²· ´²µ ¶²µ £m £m £m - - - - New measures New measures Number of EPRA NTA EPRA NTA 2019 ordinary ordinary °® ) «°±®± ( ) «°³®± ( pence ´¬°®± ³²«®± million shares °¬)º ) «°®¬ ( ¯¸²± ´®¬° ³²´° 2020 ¶²µ ¶²· ´²µ ¶²¸ ³®± £m £m ------EPRA NDV EPRA NDV Net asset value per Page 147 ³´°²¶ ³³¯²¶ pence µ´) ·µ²´ ( ) ¹´²¶ ( ·³) ¯·²³ ( ¯¯²¹ ´®«³ ³²¹· share ¯·²° ³²·· ³²·´ 2019 ² ) ³²¶ ( ¶²µ ¶²· ´²° ¶²´¼ £m £ - - - - £
Financial statements Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
24. Performance measures continued Financing ratios 2020 2019 £m £m Loan-to-value and gearing Nominal value of debt ª·±¯³®² ³µ³²´ Cash and cash equivalents ( ´«®² ) ( µ¹²¶ ) Net debt (A) ³²´®± ³¶µ²´ Fair value of investment properties (B) °·ª°´®¬ ¸º·´¹²° Loan-to-value (A/B) °ª®¯ º °¸²³ ¼
EPRA net assets (C) «·«²³®² ¸º¶°¯²¸ Gearing (A/C) ¬°®ª º ¸¶²¶ ¼
Interest cover Operating prot before investment property disposals and valuation movements (A) ¯³®³ ´°²´
Finance costs °«®¯ ¸¯²µ Finance income ( ±®´ ) ( ¯²¶ ) Net nance costs (B) °ª®² ¸¶²µ Interest cover (A/B) ª®³x °²·x
Cost of debt Blended cost of drawn borrowings «®³º ¸²¶¼ Commitment fees on undrawn secured bank facilities ±®´º ¶²·¼ Blended cost of debt «®³º ¸²°¼
We are no longer presenting nancing ratios including our joint venture on a proportionally consolidated basis. We now consider that it is appropriate to separately report the joint venture's activity, valuation and capital structure. We believe this presentation provides a clearer analysis and is consistent with the nancial statements. Consequently, gearing and loan-to-value ratios have been restated at 30 September 2019. See page 156 for explanations on why we use these performance measures.
25. Operating leases The Group as a lessor Future aggregate minimum rentals receivable under non-cancellable operating leases based on contracted rental income at the year end:
2020 2019 £m £m Not later than one year ³ª®³ ¯¯¶²° Later than one year but not later than ve years «¯³®ª °·¹²± Later than ve years «µ°®µ ¸°³²´ µª¬®µ ·¯¹²±
The Group has over 1,250 leases granted to its tenants. These vary depending on the individual tenant and the respective property and demise. Typical lease terms are set out in the Strategic Report on pages 14 to 17.
The Company as a lessee Future aggregate minimum payments in respect of a non-cancellable operating lease based on annual amounts payable at the year end:
2020 2019 £m £m Not later than one year ±®µ ¶²± Later than one year but not later than ve years «®° °²¸ Later than ve years «®± °²± ¬®³ µ²µ
The Company leases its head oce accommodation from a wholly-owned subsidiary.
Page 148 See pages 67 and69 inthe Strategic Reportfor further information onPost Balance Sheetevents. and retail occupiers’ to ability trade andwilltherefore likely have anadverse impact onnear-term rent collection. would bemoving to Tier3restrictions, beginning from 16December until further notice. This willhave anadverse impact onboth ourhospitality On 14December 2020, inresponse to rising Covid-19 infection rates, the Government announced that London ofthe HomeCounties andparts waiver. 2022.2021 Inconsideration to January for this extension, the Group placed afurther £4.4millionondeposit with the lenderfor the duration ofthe On 19November 2020, the Group secured anextension to the interest cover covenant waiver inrespect ofits £250.0millionterm loan from April placed afurther £1.0millionondeposit with the lenderfor the duration ofthe waiver. to the interest cover covenant waiver inrespect ofthis facility from 2021 to October January 2021. Inconsideration for this extension, the Group compliant with allrequirements inthe loan agreement, including the nancial covenants. On20 November 2020, the Group secured anextension £100.0 millionofdrawings against its remaining revolving credit facility, whichremains available to bere-drawn, provided the Group remains On 27 November 2020, the Group cancelled its £125.0millionrevolving credit facility, whichwas undrawn. On27 November 2020, the Group repaid of the transactions were fair andreasonable as far as Shaftesbury PLC’s shareholders were concerned. granted atthe Extraordinary General Meeting on 17November 2020. Shaftesbury PLC received written conrmation from its sponsor that the terms shareholder approval underchapter 11ofthe Listing Rules as announced via the Regulatory on22October News Service 2020. This approval was on22OctoberService 2020, inaccordance with LR11.1.10R.Inrespect ofNorges, the issue ofshares was atransaction ofsucient size to require consideration ofapproximately £65millionand£77 respectively. Inrespect ofCapco, this transaction was disclosed via the Regulatory News the purposes ofthe Listing Rules andparticipated inthe issue equity inrespect of16,250,000and19,245,032 shares respectively, for atotal In respect ofthe issue, equity Capital &Counties Properties PLC (“Capco”) andNorges Bank("Norges") were related ofShaftesbury PLC parties for provided for at30September 2020. Following the share issue, the Company’s issued share capital was 384,167,537. issue costs of£12.6million,the netproceeds were £294.4 million.Issue costs whichwere contingent oncompletion ofthe issuance equity were not On 18November 2020, the Company issued 76.75 millionshares, representing approximately 25%ofits issued share capital, at£4pershare. After has capacity for portfolio investment. Group maintains astrong nancial base, is positioned to return to long-term growth as pandemic issues recede and,should conditions improve, of aFirm Placing, Placing andOpenOer, and£10.0millionby way ofanOer for Subscription. Thepurpose ofthe issue equity was to ensure the On 22October 2020, the Company announced details ofanissue with ofequity gross proceeds of£307.0 million,comprising £297.0 millionby way 27. PostBalanceSheetevents Share-based payments Other long-term benets Short-term employee benets Directors’ emoluments remuneration ofindividualdirectors is given inthe AnnualRemuneration Reportonpages 106to 113. The remuneration ofthe directors, whoare the key management personnel ofthe Group, is set outbelow. Further information regarding the Remuneration ofkeymanagementpersonnel on pages 106to 113,andbelow, there were noother transactions with directors. Directors are considered the onlykey management personnel. from Apart the directors’ remuneration set outinthe AnnualRemuneration Report are unsecured, repayable ondemand andbear amarket rate ofinterest. Amounts duefrom subsidiaries andthe joint venture are disclosed innote 14andamounts dueto subsidiaries are disclosed innote 16.Allamounts Interest receivable Dividends receivable Administrative fees receivable Transactions with the joint venture: Interest payable Interest receivable Dividends receivable Administrative fees receivable Transactions with subsidiaries: Transactions during the year between the Company, its subsidiaries andthe joint venture are disclosed below: 26. Relatedpartytransactions Shaftesbury AnnualReport2020FinancialstatementsNotestothefinancial 2020 2020 ´«®µ ªª®ª °®¯ ±®µ «®³ ±®¬ ª®¬ ±®ª ±®« °®« £m £m - Page 149 µ´²¶ ¯¯²´ 2019 2019 2019 ¹²´ ¶²³ ¸²¶ ¶²¸ °²µ ¶²¯ ¶²µ °²¯ ¶²³ £m £m
Financial statements Shaftesbury Annual Report 2020 Financial statements Notes to the financial statements
2 i nificant acco ntin olicies Basis of consolidation The Group nancial statements consolidate the nancial statements of the Company and its subsidiaries. Subsidiaries are those entities controlled by the Company. Control exists when the Company is exposed to variable returns and has the ability to aect those returns through its power over the entity. All intercompany transactions and balances are eliminated on consolidation. The accounting policies of the subsidiaries are consistent with those adopted by the Group. In the Company’s Balance Sheet, investments in subsidiaries are included at cost less any provision in respect of impairment loss.
Net property income Net property income comprises rental income, service charge income, property expenses, service charge expenses, expected credit losses on rent receivables and impairment of lease incentives. Rental income arises from operating leases granted to tenants. It is recognised on a straight-line basis over the term of the lease. Rental income uplifts arising as a result of rent reviews are recognised when agreement of terms is reasonably certain. The cost of lease incentives oered to tenants to enter into a lease, typically initial rent-free periods, is recognised on a straight-line basis over the non-cancellable period of the lease, being the earlier of its expiry date or the date of the rst break option. As lessor, the Group accounts for a modication to an operating lease as a new lease from the eective date of the modication, considering any prepaid or accrued lease payments relating to the original lease as part of the lease payments for the new lease. Payments received from tenants to surrender their lease obligations are recognised immediately in the Group Statement of Comprehensive Income. The Group’s revenue from contracts with customers, as dened in IFRS 15, includes service charge income. Service charge income is recognised as income over time in the year in which the services are rendered. Revenue is recognised over time because the tenants benet from the services as soon as they are rendered by the Group. The actual services provided each reporting period are determined using costs incurred as the input method. As the Group acts as a principal, service charge income is shown gross in the nancial statements. Irrecoverable property costs, including vacant costs and other property expenditure, are expensed to the Statement of Comprehensive Income in the year to which they relate. Initial direct costs incurred in arranging an operating lease are added to the carrying value of investment properties, and are subsequently recognised as an expense over the lease term on the same basis as the lease income.
Employee benefits Share option schemes The Company administers a long-term incentive plan (LTIP) and a sharesave scheme (SAYE). The cost of granting share options to employees under these schemes is recognised in the Statement of Comprehensive Income based on the fair value at the date of grant. The expense is recognised on a straight-line basis over the vesting period based on the number of options that are expected to vest. The fair value of the long-term incentive plan is calculated using the modied binomial pricing model and the Monte Carlo simulation pricing model for the non-market based and market based conditions respectively. At each reporting period, the non-market based condition is reassessed and the impact, if any, of a revision to original estimates is recognised in the Statement of Comprehensive Income. The fair value of the sharesave scheme is calculated using a modied binomial pricing model. Deferred annual share bonus scheme Under the Company’s annual bonus scheme, employees have the option to take their annual bonus in either cash, or shares. Where employees opt to take the bonus in cash, it is expensed to the Statement of Comprehensive Income in the year in which it relates. Where employees opt to take all, or part, of their bonus in shares, the Company oers a matching award of up to 50%, subject to continued employment throughout the performance period. The cost of the matching award is recognised on a straight-line basis over the performance period. The remaining expense is recognised in the year to which it relates. Leaver provisions during the performance period are set out in the Remuneration Policy which is available on the Company’s website. Pension contributions Payments to dened contribution plans are charged as an expense to the Statement of Comprehensive Income as they fall due.
Investment properties Investment properties are initially recognised on acquisition at cost, including related acquisition costs, when the Group assumes control of the property. Investment properties are revalued annually to reect fair value. Fair value is determined either by external professional valuers or by the directors in the case of properties sold shortly after the period end. The fair value, as determined by the valuers, is adjusted for unamortised lease incentive and letting cost balances. Gains or losses arising on the revaluation of investment properties are included in the Statement of Comprehensive Income. Depreciation is not provided in respect of investment properties. Additions to properties include costs of a capital nature only. Expenditure is classied as capital when it results in future economic benets which are expected to accrue to the Group. All other property expenditure is written-o in the Statement of Comprehensive Income as incurred. Premiums payable to tenants in connection with the surrender of their lease obligations are capitalised if they arise in connection with a value- enhancing project, otherwise they are recognised immediately in the Statement of Comprehensive Income. Amounts received by way of compensation for dilapidations from tenants vacating properties are credited against the cost of reinstatement works. Where the Group has no intention of carrying out such works, the amounts received are credited to the Statement of Comprehensive Income. Disposals of investment properties are recognised in the period when control of the property transfers to the buyer. Typically, disposal will either occur on unconditional exchange of contracts or completion. Where completion is expected to occur signicantly after exchange, or where the Group continues to have signicant outstanding obligations after exchange of contracts, control will not usually transfer until completion. Any gain or loss on disposal, being the dierence between the net disposal proceeds and the carrying value of the property, is included in the Statement of Comprehensive Income in the period in which the property is derecognised. All of the Group’s leases to its tenants are operating leases except where the Group grants long leasehold interests to tenants, in which case, as substantially all the risks and rewards of ownership are transferred to the tenant, the property is not recognised as an investment property.
Page 150 premiums are written-o to the Statement ofComprehensive Income using aneective interest rate method. Borrowings are initially recognised atfair value netoftransaction costs incurred andare subsequently cost. heldatamortised Issue costs and Borrowings andcostsofraisingfinance other receivables. Cash heldondeposit whichhas conditions restricting certain its use andis not available ondemand, liquidorreadily is classied convertible, within Cash andcash equivalents comprise cash inhand andon-demand bank deposits. Cash andcashequivalents Trade payables are recognised atfair value andsubsequently cost. heldatamortised note 18for further information. The Group assesses expected credit losses for trade receivables andimpairment onlease incentives onaforward-looking basis. Seenote 3and year ofthe Balance Sheetdate. Amounts whichwillbecharged against rental income inmore than oneyear are includedinnon-current assets. Tenant lease incentives are includedincurrent trade andother receivables whenthe amounts to becharged against rental income fall within one Trade receivables are recognised atfair value andsubsequently cost, heldatamortised less any provision for impairment. Trade receivablesandpayables In the Company’s Balance Sheet,the investment inits joint venture is stated atcost less any provision for impairment loss. unless ithas legal orconstructive obligations to make payments onbehalf ofthe joint venture. If the Group’s share oflosses inthe joint venture equals orexceeds its investment inthe joint venture, the Group does not recognise further losses, value animpairment loss is recognised inthe Statement ofComprehensive Income. investment, being the higherofthe joint venture’s fair value less costs to sell andvalue inuse. Ifthe recoverable amount is lower than the carrying Where there is anindication that the Group’s investment inits joint venture may beimpaired, the Group evaluates the recoverable amount ofits loss for the year is also presented separately inthe Statement ofComprehensive Income. Group’s investment inthe joint venture is presented separately onthe Balance Sheetandthe Group’s share ofthe joint venture’s post-tax prot or amount iscarrying increased ordecreased to recognise the Group’s share ofthe prot orloss of, anddividends from, the joint venture. The the investment inwhichis accounted for using the method. equity Oninitial recognition the investment was recognised atcost. Subsequently, the Joint ventures are those entities over whichthe Group has joint control, established by contractual agreement. TheGroup has onejoint venture, Joint ventures combination. and without abusiness being acquired, the acquisition is treated as anasset acquisition. Inallother cases, the acquisition is treated as abusiness Where properties are acquired through corporate acquisitions andthere are nosignicant assets (other than investment andliabilities, property) Acquisitions i nificantacco ntin oliciescontin e Shaftesbury AnnualReport2020FinancialstatementsNotestothefinancial Page 151
Financial statements Shaftesbury Annual Report 2020 Other information
Making a positive contribution +
Page 152 Shaftesbury AnnualReport2020Otherinformation Other information Page 153
Other information Shaftesbury Annual Report 2020 Other information
Climate risk and opportunity
We have outlined our current approach to identifying and managing our most signicant climate change risks and opportunities. We consider this to be an iterative process and we will continue to improve our understanding of risks and evolve our disclosures in line with the recommendations of the Task Force on Climate-related Financial Disclosures.
Governance - Disclose the organisation’s governance around climate-related risks and opportunities Board oversight of climate-related risks and Annually, the sustainability strategy and associated policies and action plan are considered by the Board for the year opportunities ahead. Progress against the strategy and material changes to climate change risks are considered as an agenda item at Board meetings. Management’s role in assessing and managing climate- We have a Sustainability Committee chaired by our CEO. related risks and opportunities The Committee has oversight of climate-related risks including policy, regulatory and legal risk. It reports directly to the Board and the Risk Committee. The Committee includes members of the Strategy and Operations Committee, our retained sustainability advisor, Company Secretary and Head of Sustainability. Strategy - Disclose the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy and ¡nancial planning where such information is material Climate-related risks and opportunities identi¡ed over As a property company we are exposed to a wide range of climate-related risks. Our portfolio is wholly located in the West the short, medium, and long term End of London which limits the scope of the risks we face. Principal considerations include: Short term (0-1 years): • Challenges of meeting Minimum Energy E¤ciency Standards (MEES) for both domestic and non-domestic buildings, especially for many of the period buildings in our portfolio. • Current and prospective tenants are increasingly concerned about the energy e¤ciency and sustainability credentials of the buildings that they occupy. • Opportunity to demonstrate the carbon bene¬ts of our policy of retaining and refurbishing buildings. Medium term (1-5 years): • The continuing evolution of planning requirements and tenant expectations for sustainable buildings, which will require a continued investment in our portfolio. • Issues relating to achieving the required rate of decarbonisation of our portfolio. This will need to give consideration to the age of our buildings and the signi¬cant proportion of the portfolio not within our operational control as it is occupied by tenants. Long term (5-30 years): • We are committed to the West End of London and therefore consider climate change over longer-term time horizons as critical to the success of our business. • Chronic physical risks are expected to have a greater impact with hotter and drier summers likely. Extreme weather will need to be addressed through the refurbishment of our buildings to ensure that they continue to meet occupier requirements. • We also acknowledge the impact of indirect physical risks such as ®ooding in other areas of London that could limit the capacity of the regional transport system. The impact of climate risks on our supply chain should also be considered in more detail. • Shaftesbury, in common with all organisations, needs to address the UK Government’s objective of achieving net zero carbon by 2050 and local government targets in advance of this date. Impact of climate-related risks and opportunities on • The identi¬ed climate-related risks impact our approach to the procurement and refurbishment of buildings, the the organisation’s business, strategy, and ¡nancial ongoing management of our villages and the development of our sustainability strategy. planning • Our refurbishment programme, which typically covers around 10% of the portfolio each year, addresses many of the key risks that we have identi¬ed. • Targets have been set for the minimum EPC of new refurbishment projects and BREEAM certi¬cation on larger projects to increase e¤ciency. • We have committed to setting a science based target for annual carbon emissions reductions and will set a net zero carbon target. • We monitor energy consumption within our landlord-controlled space, such as common parts of buildings, and identify measures which can reduce energy consumption. • We are committed to procuring green tari¼ electricity across our landlord consumption in the managed portfolio and increasing this to tenant areas and refurbishment projects. • We are also committed to increasing green space which will play an important role in adapting to climate change. Resilience of the organisation’s strategy, taking into • Our strategy is to invest for the long term in the West End, continually improving our portfolio and setting high consideration dierent climate-related scenarios environmental standards for refurbishment projects that deliver e¤cient buildings. including a 2°C or lower scenario • Through this strategy, we increase the resilience of our portfolio to extreme weather events, changes in energy e¤ciency regulation and demand for sustainable buildings. • We are committed to developing science based targets that will be in line with a lower than 2-degree scenario. • Related policies and procedures are set out in our Sustainability Action Plan, available on our website.
Page 154 Shaftesbury AnnualReport2020OtherinformationClimateRiskandOpportunity targets related and and risks performance opportunities against Targets usedby theorganisation to manage climate- gas (GHG) and emissions, therelated risks Scope 1,2,and ifappropriate, Scope3greenhouse and riskmanagement process related inlinewithits strategy and risks opportunities usedbyMetrics theorganisation to climate- assess andMetrics targets and -Disclose themetrics targets usedto and assess manage relevant climate-related where and risks opportunities suchinformation ismaterial organisation’s overall riskmanagement. climate-related are risks integrated into the Processes for identifying, and assessing, managing related risks The organisation’s processes for managing climate- risks Processes for identifying and climate-related assessing ManagementRisk -Disclose how theorganisation identi¡es, and assesses, manages climate-related risks publish details oncethey have beenapproved. We have calculated sciencebased targets and submitted to theScienceBasedTargets Initiative for theirreview. We will summarised inourStreamlined Energy and Carbon onpages 116and Report 117. Our scope1,2and are 3emissions reported inlinewithEPRAand detailed inourSustainability Data and Report Performance against arange of sustainability targets form partof theannual compensation review process. Key metrics usedto helpusunderstand ourcarbon impact and resilience of theportfolio to climate include: risks documents, whichdetail annual targets and performance, can befound onourwebsite. weAlongside ourAnnualReport, publishadetailed Sustainability Data and Report Sustainability Action Plan. These context riskdiscussions. of widerbusiness The Headof Sustainability Committee isamemberof theRisk and isresponsible for highlighting climate inthe risks remuneration. years. Performance against sustainability KPIsisconsidered inthecalculation of executive and management ¬nancial carbon reductions, emissions whichwillbethefoundation of ourcarbon reduction emissions strategy over thenext 10 Our approach to climate change targets isembeddedinourpolicies, and KPIs.We are setting asciencebasedtarget for CDP website. We participate intheCarbon Disclosure Project (CDP) and have retained ourBrating in2020. Details can befound onthe publically available information. Climate have risks beeninitiallyidenti¬ed by reviewing theUKMet O¤ceclimate scenarios for Central London and other the Committee. operational and ¬nancial, includingsustainability-related Climate issues. change isconsidered asigni¬cant emerging riskby meets twiceayear and ischaired Director. by ourFinance TheCommittee reviews key potential to both risks thebusiness, Climate change are risks by theSustainability assessed Committee, Committee theRisk and theBoard. Committee TheRisk • • • • •
Aim for a5%like-for-like reduction inlandlord-controlled energy consumption against theprevious year 3% absolute annual reduction inlandlord-controlled energy consumption Refurbishment over schemes £250,000 to achieve minimumGrade CEPCrating Aim for an EPCGrade Brating onallnew-build projects Achieve Good’for ‘Very BREEAM alldevelopments and/or refurbishment of schemes acapital value above £1 million Page 155
Other information Shaftesbury Annual Report 2020 Other information
Alternative Performance Measures (APMs)
The Group has applied the European Securities and Markets Authority (ESMA) guidelines on alternative performance measures in these annual results. An APM is a nancial measure of historical or future nancial performance, position or cash ows of the Group which is not a measure dened or specied in IFRS. Set out below is a summary of APMs used in this Annual Report. EPRA performance measures are a set of standard disclosures for the property industry, as dened by EPRA in its Best Practices Recommendations.
APM Nearest IFRS measure Explanation and reconciliation EPRA earnings and earnings per share Pro¬t and total comprehensive income for the year Note 24 and Financial results (page 65) Basic earnings per share Adjusted EPRA earnings per share Pro¬t and total comprehensive income for the year Note 24 and Financial results (page 65) Like-for-like growth/decline/decrease in Revenue Note 24 and Financial results (page 64) rental income Net asset value per share Net assets attributable to shareholders Note 24 Diluted net asset value per share Net assets attributable to shareholders Note 24 EPRA net assets and NAV Net assets Note 24 and Financial results (page 65) EPRA NTA Net assets Note 24 and Financial results (page 66) EPRA NDV Net assets Note 24 and Financial results (page 66) EPRA NRV Net assets Note 24 and Financial results (page 66) Total Accounting Return N/A Note 24 and Financial results (page 65) Valuation growth/decline Net surplus/de¬cit on revaluation of investment properties Portfolio valuation report (page 56) Net debt Borrowings less cash and cash equivalents Note 24 and Financial results (page 66) Loan-to-value N/A Note 24 and Financing (page 69) Gearing N/A Note 24 and Financing (page 69) Blended cost of debt N/A Note 24 and Financing (page 69) Interest cover N/A Note 24 and Financing (page 69)
Where this report uses like-for-like comparisons, these are dened within the Glossary. Note that Adjusted EPRA earnings per share had been described as Adjusted earnings per share in previous years. Since it had always been based on EPRA earnings per share, we have changed its description this year to make it more clear.
EPRA measures The following is a summary of the EPRA performance measures included in this Annual Report. The measures are dened in the Glossary.
Measure De¬nition Page 2020 2019 Earnings Earnings from operational activities, excluding fair value movements in respect of properties, ¥ m ´m pro¬ts on disposal of investment properties and deferred tax arising in our joint venture Earnings per share EPRA earnings per weighted average number of ordinary shares p p Net assets Net assets adjusted to remove deferred tax arising in our joint venture ¥ m ´m NAV per share Diluted EPRA net assets per share ¥ ´ Triple net assets EPRA net assets adjusted to include the fair value of debt ¥ m ´m Triple NAV (NNNAV) Diluted triple net assets per share ¥ ´ EPRA NTA per share Diluted net assets per share adjusted to remove deferred tax arising in our joint venture ¥ ´ EPRA NDV per share Diluted net assets per share adjusted to include the excess of fair value of debt over book value ¥ ´ EPRA NRV per share Diluted net assets per share adjusted to remove deferred tax arising in our joint venture ¥ ´ but to add back investment property purchasers’ costs Net Initial Yield (NIY) Current annualised rental income less non-recoverable property costs as a % of property valuation plus assumed purchasers’ costs Topped-up NIY NIY adjusted to re®ect expiry of rent-free periods and stepped rents Vacancy ERV of vacant space as a % of ERV of all properties Cost ratio Total costs as a % of gross rental income - including direct vacancy cost Total costs as a % of gross rental income - excluding direct vacancy cost
As disclosed in note 4 to the nancial statements, the Group’s properties are all located in London’s West End, and are all of a similar type. The properties are typically mixed-use buildings with restaurants, leisure and retail on the lower oors and small oces and apartments on the upper oors. As the properties share similar economic characteristics we consider them to be one operating segment. Like-for-like calculations of growth in values and rents are therefore stated on an aggregated basis.
Page 156 2. 1. set outonpage 64. is set outonpages 57and58.Like-for-like decrease inrental income is Like-for-like growth/(decrease) inannualised current income andERV EPRA vacancy by occupier use is set outonpage 60. by location andoccupier use. analysis onpages 158to 159sets outdetails ofincome andrental values detailed analysis oftenant business sector is useful. However, the base is so granular, we donot believe listing the top ten tenants, nor a represented just 9.7%ofcurrent annualised income. As ourtenant current annualised income. Theten largest commercial tenants leases, with noindividualtenant representing amaterial amount ofour At 30September 2020, we had 782 commercial and440residential leasehold ownership is set out onpage 135. breakdown ofourwholly-owned portfoliobetween freehold andlong Longmartin joint venture, inwhichwe have a50%interest. The We own 100%ofourproperties, except for heldby our property is set outonpages 158to 159. However, ananalysis ofourportfolio,split by location andoccupier use, informationproperty-by-property recommended by EPRA’s BPR. clustered incontiguous blocks. Itis not practical to provide detailed End, itis granular innature, with c.600,generally small buildings, often Whilst ourportfoliois geographically concentrated inLondon’s West Investment properties cost ratioEPRA (excluding vacant property costs) cost ratioEPRA (includingvacant property costs) Total costs excluding vacant property costs Share of joint venture vacant property costs Vacant property costs Total costs Share of joint venture administrative expenses Capitalised property and administrative expenses Administrative expenses Share of joint venture property expenses charge service Less: expenses Property charges Cost Share of joint venture rental income charge service Less: income Revenue Gross rental income EPRA costratio Shaftesbury AnnualReport2020OtherinformationAlternativePerformanceMeasures The above gures exclude expected credit losses andimpairment charges in2020. We do not capitalise noradministrative property expenses. EPRA capitalexpenditure refurbishment is set outonpages 61 to 62. set outonpage 61. Anoverview ofassets heldfor, orundergoing, At 30September 2020, we had onelarger scheme, details ofwhichare scheme is material. Included inthis are numerous small schemes, andgenerally noone low, with anaverage annualspend ofaround 1%ofportfolio value. speculative developments. Ourcapital expenditure commitments are around 20% ofourbuildings are listed. We outmaterial donot carry Our wholly-owned portfolio is mostly within Conservation Areas and Development disclosures pages 61 to 62. Details of acquisitions and capital expenditure in the year are set out on - - Investment property capital expenditure Acquisitions Group Investment property capital expenditure Joint venture (our 50%share) On like-for-like portfolio On acquisitionsduringtheyear Note ) ( ) ( 2020 2020 ) ( ) ( £m £m - -
Page 157 2019 2019 ) ( ) ( ) ( ) ( £m £m - -
Other information Shaftesbury Annual Report 2020 Other information
Portfolio analysis
Wholly Covent owned Longmartin At 30 September 2020 Note Carnaby Garden Chinatown Soho Fitzrovia portfolio joint venture1 Portfolio Fair value (£m) % of total fair value Current income (£m) ERV (£m) Food, beverage Number and leisure Area – sq. ft. % of current income % of ERV Average unexpired lease length – years Shops Number Area – sq. ft. % of current income % of ERV Average unexpired lease length – years Oces Area – sq. ft. % of current income % of ERV Average unexpired lease length – years Residential Number Area – sq. ft. % of current passing rent % of ERV
1 Shaftesbury Group’s 50% share
Basis of valuation
Wholly Covent owned Longmartin At 30 September 2020 Note Carnaby Garden Chinatown Soho Fitzrovia portfolio joint venture Overall initial yield Topped-up initial yield Overall equivalent yield Tone of restaurant equivalent yields ª-ª ª-ª ª-ª ª-ª ª-ª ª-ª Tone of restaurant ERVs - £ per sq. ft. ´ª-ª´ ´ª-ª´ ´ª-ª´ª(ZA) ´ª-ª´ ´ª-ª´ ´ª-ª´ Tone of retail equivalent yields ª-ª ª-ª ª-ª ª-ª ª-ª ª-ª Tone of retail ERVs - ITZA £ per sq. ft. ´ª-ª´ ´ª-ª´ ´ª-ª´ ´ª-ª´ ´ª-ª´ ´ª-ª´ Tone of o¤ce equivalent yields ª-ª ª-ª ª-ª ª-ª ª-ª Tone of o¤ce ERVs - £ per sq. ft. ´ª-ª´ ´ª-ª´ ´ª-ª´ ´ª-ª´ ´ª-ª´ ´ª-ª´ Average residential ERVs - £ per sq. ft. per annum ´ ´ ´ ´ ´ ´
Page 158 Average residential ERVs -£persq.ft.annum Tone of o¤ce ERVs -£persq.ft. Tone of o¤ce equivalent yields Tone of retail ERVs £persq.ft. -ITZA Tone of retail equivalent yields Tone of restaurant ERVs -£persq.ft. Tone of restaurant equivalent yields Overall equivalent yield Topped-up initialyield Overall initialyield At 30September 2020 Basis ofvaluation 1 Shaftesbury Group’s 50%share Residential Oces Shops and leisure Food, beverage Portfolio At 30September 2020
% of ERV % of current rent passing Area –sq.ft. Average unexpired –years leaselength % of ERV % of current income Average unexpired –years leaselength % of ERV % of current income Area –sq.ft. Average unexpired –years leaselength % of ERV % of current income Area –sq.ft. ERV (£m) Current income(£m) % of total fair value Number Area –sq.ft. Number Number Fair value (£m) Note Note ´-´´-´´-´´ª-ª´ ´ª-ª´ ´ª-ª´ ª-ª ª-ª ´ª-ª´ ´ª-ª´ ª-ª ª-ª ª-ª ´ª-ª´ ´ª-ª´ ´ª-ª´ ª-ª ª-ª ª-ª ´ª-ª´ª(ZA) ´ª-ª´ ´ª-ª´ ª-ª ª-ª ´ª-ª´ ª-ª Carnaby Carnaby ´ adnChinatown Garden Chinatown Garden Covent Covent Covent ´ ´ Soho Soho ´ Shaftesbury AnnualReport2020OtherinformationPortfolioanalysis ´ª-ª´ ´ª-ª´ ª-ª ª-ª ª-ª ´ª-ª´ Fitzrovia Fitzrovia ´ portfolio portfolio Wholly Wholly Wholly owned owned ´ª-ª´ ´ª-ª´ joint venture ª-ª ª-ª ª-ª joint venture ´ª-ª´ Longmartin Longmartin Longmartin ´ 1
13. 12. 11. 10. 9. 8. 7. 6. 5. 4. 3. 2. 1. Notes of valuation. refurbishment ordevelopment andis not available for occupation atthe date The analysis includes accommodation whichis awaiting, orundergoing, nearest integer. For presentation purposes some percentages have beenrounded to the internal. All commercial oorareas are netlettable. Allresidential oorareas are gross attributed to the majority ofthe properties. The tone ofrental values andyields is the range of rental values or yields equivalent yieldattributable to each village from this approach. each ofthe dierent interests within each village andrepresents the average has beencalculated by merging together the cash ows andfair values of current as of the valuation date. Theequivalent yieldshown for each village of income so discounted atthis rate equals the capital outlay atvalues needs to beappliedto the expected ow ofincome so that the total amount Equivalent yieldis the internal rate ofreturn, being the discount rate which if any future stepped rental underleases uplifts had occurred. calculated as ifthe contracted rent is payable from the valuation date andas The topped-up initial yield,ignoring contractual rent free periods, has been outgoings atthe valuation date. of any ground rents, head rents and rent charges and estimated irrecoverable percentage ofthe gross valuation. Yields reect netincome after deduction The initial yieldis the netinitial income atthe valuation date expressed as a the majority use by rental value has beenadopted. Where mixed uses occur within single leases, for the purpose ofthis analysis, throughexpiry eÇuxion oftime. relevant, by reference to tenants’ options to determine leases inadvance of in terms ofcurrent rent reserved underthe relevant leases and,where Average unexpired lease length has beencalculated by weighting the leases each village. use sectors are expressed as apercentage oftotal income andtotal ERV for The percentage ofcurrent income andthe percentage ofERV ineach ofthe charges andestimated irrecoverable outgoings. in the valuations. ERV does not reect any ground rents, head rents norrent appropriate, ERV assumes completion ofdevelopments whichare reected the basis ofvacant possession andthe assumed grant ofanew lease. Where the fact that ofthe thereof, properties, certain orparts have beenvalued on thereof,parts reecting the terms ofthe relevant leases or, ifappropriate, ERV is the respective valuers’ opinionofthe rental value ofthe properties, or valuation date where the fair value reects terms for arenewed lease. where appropriate, ERV inrespect oflease renewals outstanding atthe rental values inrespect ofrent reviews outstanding atthe valuation date and, outgoings atthe valuation date. ‘Estimated income’ refers to gross estimated ground rents, head rents norrent charges andestimated irrecoverable free periods atthe valuation date. Current income does not reect any reserved by leases. No rent is attributed to leases which were subject to rent- Current income includes total annualised actual and‘estimated income’ dierent interests within each village were not valued as asingle lot. the purpose ofthis analysis, are combined to create each village. The several dierent interests property located within close proximity which,for of the individualvillages are, ineach case, the aggregate ofthe fair values of The fair values at30September 2020 (the “valuation date”) shown inrespect Page 159
Other information Shaftesbury Annual Report 2020 Other information
Summary report by the valuers To the directors of Shaftesbury PLC
In accordance with your instructions, which were conrmed in our In accordance with the provisions of VPS1 item 3 d) and VPGA 9 of the letter dated 22nd May 2020 (the “Engagement”) we have undertaken a RICS Red Book edition current at the Valuation Date, in undertaking valuation of the various commercial and residential freehold and long our valuations we have lotted together certain individual properties to leasehold property interests as at 30th September 2020 (the “Valuation form a separate property (each referred to as a “Property”, collectively Date”) held by Shaftesbury Carnaby PLC, Shaftesbury Covent Garden as the “Properties”) in the manner we consider to be most likely to be Limited, Shaftesbury Chinatown PLC, Shaftesbury Soho Limited, adopted in the case of an actual sale. We consider that lotting the Shaftesbury AV Limited and Shaftesbury CL Limited, which are properties together on the basis reected in our valuations would allow subsidiary companies (collectively referred to as the “Subsidiary a purchaser to capitalise on the estate management advantages and Companies”) of Shaftesbury PLC (the “Company”), as referred to in our opportunities available from such comprehensive ownership. Valuation Reports dated 29th October 2020 (“our Reports”). Our A high proportion of the total value of the Subsidiary Companies’ Reports were prepared for accounts purposes. properties and Properties is accounted for by properties and All properties have been subject to external inspections between Properties situated in adjacent and/or adjoining locations in four January and March 2020 and a number were subject to internal specic areas of the West End of London: Carnaby Street and its inspections. environs, Chinatown and the adjoining area immediately west of Wardour Street (south of its junction with Shaftesbury Avenue), and the We conrm that the valuations and Reports have been prepared in areas around Seven Dials in the western part of Covent Garden and a accordance with the RICS Valuation – Global Standards which block of properties to the east of the Central Covent Garden Piazza incorporate the international Valuation Standards (“IVS”) and the RICS with its main frontage to Wellington Street. These areas are all Valuation UK National Supplement (the “RICS Red Book”) edition dominated by retail and restaurant uses. In our opinion, at the Valuation current at the Valuation Date. It follows that the valuations are Date, this particular unusual conuence of ownership and use compliant with IVS. We conrm that all valuers who have contributed to characteristics may cause some prospective purchasers to regard parts the valuations have complied with the requirements of PS 1 of the RICS of the portfolio when combined as having a greater value than the Red Book. We conrm that we have sucient current knowledge of the aggregate of the individual values of the combined properties and relevant markets, and the skills and understanding to undertake the Properties which make up those parts. valuations competently. We conrm that Charles Smith has overall responsibility for the valuations and is in a position to provide an As required by the provisions of the RICS Red Book, in undertaking our objective and unbiased valuation and is competent to undertake the valuations, we have valued each property or Property separately, rather valuations. Finally, we conrm that we have undertaken the valuations than valuing the portfolio as a whole or in combinations of parts. The acting as an External Valuer as dened in the RICS Red Book. “total” valuation gure below is the aggregated value of the separate properties or Properties within the various categories of tenure In accordance with PS 2.5 and UK VPS 3, we are required to make referred to below. certain disclosures in connection with this valuation instruction and our relationship with the Company and the Subsidiary Companies. Charles All valuations were on the basis of Fair Value. We have assessed Fair Smith has been the signatory of valuation reports addressed to the Value as referred to in VPS4 item 7 of the RICS Red Book. Under these Company and the Subsidiary Companies since 2013. Cushman & provisions, the term “Fair Value” means the denition adopted by the Wakeeld Debenham Tie Leung Limited (“C&W”) has been carrying out International Accounting Standards Board (“IASB”) in IFRS 13, namely this valuation instruction for the Company, and now the Subsidiary “The price that would be received to sell an asset, or paid to transfer a Companies, for a continuous period since 1996. As well as preparing liability in an orderly transaction between market participants at the our Reports, we also undertake valuations of certain of the properties measurement date”. referred to in our Reports for other purposes, such as secured lending Under IFRS 13, The Fair Value Hierarchy, the properties we have valued and for inclusion in shareholders’ circulars. are designated as Level 3 inputs. Level 3 inputs have been designated On 1st September 2015, DTZ acquired Cushman & Wakeeld and the as unobservable inputs. Unobservable inputs are used to measure fair combined group now trades under the Cushman & Wakeeld brand. value to the extent that relevant observable inputs are not available, Cushman & Wakeeld’s nancial year end is 31st December. The thereby allowing for situations in which there is little, if any, market proportion of fees payable by the Company to the Cushman & activity for the asset or liability at the measurement date. An entity Wakeeld group in the nancial year to 31st December 2019 was less develops unobservable inputs using the best information available in than 5%. We anticipate that the proportion of fees payable by the the circumstances, which might include the entity’s own data, taking Company to the Cushman & Wakeeld group in the nancial year to into account all information about market participant assumptions that 31st December 2020 will remain at less than 5%. is reasonably available. [IFRS 13:87-89]. Prior to 1st September 2015, there had been no fee-earning Our opinion of the Fair Value of each of the properties and Properties instructions between DTZ and the Company or the Subsidiary has been primarily derived using comparable recent market Companies, other than valuation instructions, for in excess of four transactions on arm’s length terms. years. Prior to 1st September 2015, Cushman & Wakeeld were We have not made any allowance for vendor’s sale costs nor for any tax appointed as retail agents by Shaftesbury Soho Limited and liabilities which may arise upon the disposal of any of the properties or Shaftesbury Carnaby PLC; this instruction ceased in 2017. In 2018, Properties. We have made deductions to reect purchasers’ normal Cushman & Wakeeld acted as letting agents on behalf of Shaftesbury acquisition costs. Chinatown PLC in respect of restaurant accommodation in the property known as Central Cross. Cushman & Wakeeld are currently retained by Shaftesbury Covent Garden Limited and Shaftesbury CL Limited to provide retail letting and professional advice.
Page 160 Fair Value ofthe two elements. from the notional donot themselves apportionments represent the the freehold andlong leasehold categories below. Theamounts arising of valueapportionments have been included in the gures representing the relevant Properties. The amounts arising from these notional elements andthe long leasehold elements whichtogether comprise undertaken notional ofvalue between apportionments the freehold between the categories offreehold andlong leasehold, we have held onlong leases. Inorder to divideourvaluation ofthese Properties majority ofsuch properties are heldfreehold ofthem are butcertain Properties whichcomprise anumberofindividual properties, the properties to form anumberofseparate Properties. Inthe case ofve As referred to above, we have lotted together individual certain ofthe valuationimportance date. changes inthe control orfuture spread ofCOVID-19 we highlight the of the potential for market conditions to move rapidly in response to context underwhichthe valuation opinionwas prepared. Inrecognition ensure transparency andto provide further insight as to the market For the avoidance ofdoubt this explanatory note has beenincludedto Global Standards. as denedby VPS 3andVPGA 10ofthe RICSuncertainty’ Valuation – our valuation is not reported as being subject to ‘material valuation base opinions ofvalue. Accordingly, andfor the avoidance ofdoubt, where anadequate quantum ofmarket evidence exists uponwhichto transaction volumes andother relevant evidence returning to levels the valuation date markets property are mostly functioning, with aect economies andreal estate markets globally. Nevertheless, as at The pandemic andthe measures taken to tackle COVID-19 continue to widely considered to betaking place inmany countries inEurope. outbreaks have emerged ofthe UKanda“second inparts wave” is now lockdowns are being deployed as necessary, signicant further many countries and“lockdowns” appliedto degrees. varying Local andliquidity.activity Travel restrictions have beenimplemented by real estate markets having experienced lower levels oftransactional impact many aspects ofdaily life andthe global economy –with some as a“Global Pandemic” onthe 11th March 2020, has andcontinues to The outbreak ofCOVID-19, declared by the World Health Organisation the individualsums are includedinourReports. valuations. Thetotal amount ofsuch costs is £30,809,600 anddetails of recoverable from tenants. We have reected these costs inour costs. Thecosts willbeborne by the Company as they are not instances, the Company advised us ofthe amount ofthe outstanding fees inrespect ofprojects already completed atthat date. Inthese 30th September 2020, orwere subject to outstanding retentions and properties wereCertain subject to works ofrepair or refurbishment at Company, its managing agents orprofessional advisers. leases, we have relied ontenancy information provided by the us inrespect ofthe commercial properties. Where we have not read We have read some ofthe leases andrelated documents provided to properties. provided us with the oorareas ofthe of properties orparts The Company, its managing agents orprofessional advisers have of the sources ofinformation are contained within ourReports. A full explanation ofthe Assumptions made inourvaluations anddetails Shaftesbury AnnualReport2020OtherinformationSummaryreportbythevaluers comments inourReports dated 29th October 2020, were as follows: and theCompanies, Subsidiary subject to the Assumptions and freehold andlong leasehold interests property owned by the Company aggregates ofthe Fair Values, as at30th September 2020, ofthe Having regard to the foregoing, we are ofthe opinionthat the freehold category. long leasehold split below, we have includedsuch properties within the and have not merged the interests. For the purposes ofthe freehold/ basis where they also holdlong leasehold interests within the freehold CompaniesThe Subsidiary own anumberofproperties onafreehold Cushman &Wakeeld Debenham Tie Leung Limited For andonbehalf of RICS Registered Valuer International Partner Charles Smith MRICS Yours faithfully connection with the Purpose ofValuation stated andonlyby you. Our Reports andthis may report summary berelied upononlyin otherwise set outinthe terms ofthe Engagement. Reports orthis by report any summary person orpersons except as We hereby exclude arising allliability from use ofand/or reliance onour breach. claims, costs, losses andexpenses that we may suer as aresult ofsuch Any person whobreaches this provision shall us indemnify against all isreport displayed) orreproduced without ourpriorwritten consent. modied, altered (including altering the context inwhichthe summary Our Reports orthis ofitmay orany report summary part not be does not refer adequately to the terms ofthe Engagement. the terms ofthe Engagement. We willnot approve any disclosure that to the form andcontext ofthe proposed disclosure inaccordance with documents orinformation, without rst obtaining ourwritten approval Reports or this report are summary to be combined with other reports, any way, including where we are not referred to by name orifour You must not disclose the contents ofourReports to athird in party Reports (“Purpose ofValuation”). their sole use onlyandfor the Purpose ofValuation as stated inour Soho Limited, Shaftesbury AV Limited andShaftesbury CLLimited, for Shaftesbury Carnaby PLC, Shaftesbury Chinatown PLC, Shaftesbury condential to Shaftesbury PLC, Shaftesbury Covent Garden Limited, The contents ofourReports, including this are report, summary A long lease is onewith anunexpired term inexcess of50years. Total Properties Long leasehold Freehold Properties
hundred and seventy-¬ve thousand pounds) (Three billion,onehundred and million,three thirty-seven and ¬fty-¬ve thousand pounds) (Two billion,ninehundred and twenty-eight million,ninehundred £3,137,375,000 £208,420,000 £2,928,955,000 thousand pounds) (Two hundred and eight million,four hundred and twenty
Page 161
Other information Shaftesbury Annual Report 2020 Other information
Debt covenants
Set out below is a high-level summary of the nancial covenants in our debt agreements. It does not describe every detail in the agreements.
Interest cover Frequency of testing Summary of measure Min Comments Bonds Half yearly Net property income of speci¬cally secured assets, x Calculation is based on the annualised income accruing at the adjusted to exclude certain costs, to gross interest testing date, or due to accrue within three months. payable under the bonds. Security top-up (or purchase and cancel su¤cient bonds) to 1.25x required if ICR falls below 1.15x. Term loans Quarterly Net property income of speci¬cally secured assets, xª-ªx 3-month backward looking test based on actual receipts. adjusted to exclude certain costs, to gross interest 12-month projected test. Cure rights available. payable under the loans. Waivers until July 2021 (£134.8m term loan) and January 2022 (£250m term loan). Revolving credit facility1 Quarterly Consolidated net rental income plus dividends from x Based on Group half year and full year reported information, and the joint venture to consolidated net interest. management accounts in the interim quarters. Waiver until October 2021.
1. Ignoring our £125m facility which was terminated in November 2020.
Loan-to-value Frequency of testing Summary of measure Max Comments Bonds Half yearly Nominal value of bonds to valuation of speci¬cally Security top-up (or purchase and cancel su¤cient bonds) to secured assets. 60.0% required if LTV exceeds 66.67%. Term loans Quarterly Debt to valuation of speci¬cally secured assets. ª-ª Cure rights available. Cash waterfall applies if LTV > 65%. Revolving credit facility1 Quarterly Amounts drawn to valuation of speci¬cally secured Cure rights available. Draw stop at 50% during term of ICR waiver. assets.
1. Ignoring our £125m facility which was terminated in November 2020. The revolving credit facility also contains a Group gearing covenant, where the ratio of consolidated borrowings to consolidated tangible net worth cannot exceed 1.75x.
Longmartin term loan Frequency of testing Summary of measure Max Comments Interest cover Quarterly Net property income of speci¬cally secured assets, x 3-month backward looking test based on actual receipts. adjusted to exclude certain costs, to gross interest 12-month projected test. Cure rights available. payable under the loan. Waiver to April 2021. Loan-to-value Quarterly Debt to valuation of speci¬cally secured assets. ª Cure rights available.
Page 162 nal dividend. Statement of25September 2020, the Board has not recommended a as dividends from non-REIT companies. As announced inthe Trading Where we pay anordinary dividendthis willbetreated inthe same way be paid gross are available onourwebsite orfrom the registrar. Further information andthe forms for completion to applyfor PIDs to ISAs andChildTrust Funds. charities, local authorities, UKpension schemes andmanagers ofPEPs, Categories whichmay claim this exemption include:UKcompanies, element oftheir dividends gross, without deductionofwithholding tax. categoriesCertain ofshareholder may beableto receive the PID (broadly calculated using the UKtax rules) as aPID. we are required to distribute atleast 90%ofthe qualifying income and chargeable gains relating to rental ourproperty business. However, As aREIT, we donot pay UKcorporation tax inrespect ofrental prots dividends Effect ofREITstatusonpayment can befound at www.shaftesbury.co.uk. by the Company andthe current share price ofthe Company. Thesite other information. Other information includes announcements made of the most recent AnnualReport andnancial statements, as well as The Company has acorporate website, whichmaintains adigital version Company website should besent to [email protected]. 2020, orany that other requires enquiry the attention ofthe Company, All enquiries relating to the capital raise announced on22October below. to the Company’s registrar. Contact details for the registrar are outlined and interest payments, orthe loss ofacerticate, should beaddressed including notication ofchange ofaddress, queries regarding dividends All enquiries relating to holdings ofshares orbonds inShaftesbury PLC, Shareholder enquiries The timing ofthe next dividendpayment is to bedetermined. Bond interest Dividends and bondinterest 2020 halfyear results Annual General Meeting and AGM statement Calendar Financial Corporate timetable Shareholder information Shaftesbury AnnualReport2020Otherinformation 30 September 2021 25 February 2021 31 March and May 2021 London W1F7FD Carnaby 22 Ganton Street Desna FCA Martin, ec eta an e iste e o fice convenient way to buyorsell shares inthe Company. There is also aShareview dealing whichis service asimpleand co.uk. This gives secure access to account information instructions. Shareholder accounts may beaccessed onlinethrough www.shareview. [email protected]. Equiniti can also becontacted by email. Emails should besent to England andWales). 8.30am to 5.30pm,Monday to Friday (excluding publicholidays in Telephone 0371 3842294 (International +441214157047). Lines open West Sussex, BN996DA Lancing Spencer Road Aspect House Equiniti Limited Registrar
Page 163
Other information Shaftesbury Annual Report 2020 Other information
Glossary of terms
2018 Code DTR EPRA NAV The FRC’s UK Corporate Governance Code The Financial Conduct Authority’s Disclosure EPRA net assets per share, including the 2018, which applied to the Company from and Transparency Rules. potentially dilutive eect of outstanding 1 October 2019. Embodied Carbon options granted over ordinary shares. Adjusted EPRA earnings The total greenhouse gas (GHG) emissions EPRA NNNAV EPRA earnings adjusted to add back the generated to build or refurbish an asset. This EPRA NAV amended to include the fair value non-cash accounting charge for equity- includes emissions from extraction, of nancial instruments and debt. settled remuneration. manufacture/processing, transportation and assembly. EPRA sBPR Alternative Performance Measure (APM) EPRA Best Practice Recommendations on A nancial measure of historical or future Energy Performance Certi¢cate (EPC) Sustainability Reporting. nancial performance, position or cash ows An asset rating setting out how energy of the Group which is not a measure dened ecient a building is, rated by its carbon EPRA triple net assets or specied in IFRS. dioxide emission on a scale of A to G, with EPRA net assets amended to include the fair A being the most energy ecient. value of nancial instruments and debt. Annualised current income Total annualised actual and ‘estimated income’ EPRA EPRA vacancy reserved by leases at a valuation date. No rent European Public Real Estate Association. The rental value of vacant property available (excluding property which is held for, or is attributed to leases which were subject to EPRA adjustments rent-free periods at that date. It does not Standard adjustments to calculate EPRA undergoing, refurbishment), expressed as a reect any ground rents, head rents nor rent measures, in accordance with its BPR. percentage of ERV of the total portfolio. charges and estimated irrecoverable outgoings Equivalent yield at the valuation date. ‘Estimated income’ refers EPRA cost ratio Total costs as a percentage of gross rental income. Equivalent yield is the internal rate of return to gross ERVs in respect of rent reviews from an investment property, based on the outstanding at the valuation date and, where EPRA earnings gross outlays for the purchase of a property appropriate, ERV in respect of lease renewals The level of recurring income arising from (including purchase costs), reecting outstanding at the valuation date where the fair core operational activities. It excludes all items reversions to current market rent, and such value reects terms for a renewed lease. which are not relevant to the underlying and items as voids and non-recoverable Like-for-like growth in annualised current recurring portfolio performance. expenditure but disregarding potential income is the change during a period, adjusted EPRA EPS changes in market rents. to remove the impact of acquisitions and EPRA earnings divided by the weighted ESG disposals, expressed as a percentage of average number of shares in issue during a Environment, Social and Governance. annualised current income at the start of the reporting period. period. ESOS EPRA net assets Energy Savings Opportunity Scheme. Best Practices Recommendations (BPR) Net assets adjusted for items that are not Standards set out by EPRA to provide expected to crystallise in normal circumstances, Estimated Rental Value (ERV) comparable reporting between investment such as deferred tax on property valuation The market rental value of properties, property companies. surpluses. It includes additional equity if all estimated by the Group’s Valuers. Like-for-like vested share options were exercised. ERV growth is the change in ERV during a Business Improvement District (BID) period, adjusted to remove the impact of A dened area in which a levy is charged on all EPRA Net Disposal Value (NDV) acquisitions and disposals, expressed as a business rate payers in addition to the business The value of net tangible assets, assuming an percentage of ERV at the start of the period. rates bill. This levy is used to develop projects orderly sale of the business’ assets, achieving Fair value which will benet businesses in the local area. fair values as reported in the Balance Sheet. It The amount at which an asset or liability could includes deductions for liabilities that would Blended cost of debt be exchanged between two knowledgeable, crystallise in this scenario, including deferred Weighted average cost of drawn borrowings, willing and unconnected parties in an arm’s tax and the dierence between the fair value plus non-utilisation fees on undrawn length transaction at the valuation date. borrowings. and carrying value of nancial liabilities. When presented as a per share gure, it takes into FCA Building Research Establishment account the potentially dilutive eect of Financial Conduct Authority. Environmental Assessment Method outstanding options granted over ordinary shares. FRC (BREEAM) Financial Reporting Council. An environmental impact assessment method EPRA Net Reinstatement Value (NRV) for commercial buildings. Performance is The value of net assets on a long-term basis, FTSE4Good measured across a series of ratings: Pass, Very assuming no disposals. Assets and liabilities A series of benchmarks and tradable indexes for Good, Excellent and Outstanding. that are not expected to crystallise in normal ESG investors, which was launched in 2001. circumstances, such as deferred taxes on Carbon emissions property valuation surpluses, are excluded. GHG In the context of this report this is shorthand It is a reection of what would be needed to Greenhouse gas emissions. for greenhouse gas emissions. recreate the company. Purchasers’ costs Global Real Estate Sustainability Benchmark Compound Annual Growth Rate (CAGR) which have been deducted in arriving at the (GRESB) The year-on-year growth rate of an fair value of investment properties are added An organisation which measures and provides investment over a specied period of time. back. When presented as a per share gure, it an Environmental, Social and Governance CPI takes into account the potentially dilutive (ESG) benchmark for real estate and Consumer Price Index. eect of outstanding options granted over infrastructure investments across the world. ordinary shares. Diluted net asset value per share Gross Value Added (GVA) Net asset value per share taking into account Net Tangible Assets (NTA) An economic productivity metric measuring the dilutive eect of potential vesting of share A measure of net assets which recognises that economic contribution to a sector or area. options. companies buy and sell assets and therefore takes into account deferred tax liabilities on Gearing Direct energy consumption sales, unless there is no intention to sell in the Nominal value of Group borrowings expressed Emissions from sources that are owned or long run. When presented as a per share as a percentage of EPRA net assets. controlled by the reporting company. gure, it takes into account the potentially IFRS Dow Jones Sustainability Index dilutive eect of outstanding options granted International Financial Reporting Standards. A family of indices evaluating the sustainability over ordinary shares. performance of publicly listed companies.
Page 164 Shaftesbury Annual Report 2020 Other information Glossary of terms
Initial yield Net initial yield Topped-up net initial yield The net initial income at the valuation date Net initial income at the date of valuation Net initial yield at the valuation date as if the expressed as a percentage of the gross expressed as a percentage of the gross contracted rent in respect of leases which are valuation. Yields reflect net income after valuation. Yields reflect net income after subject to contractual rent free periods is deduction of any ground rents, head rents deduction of any ground rents, head rents, rent payable from the valuation date and as if any and rent charges and estimated irrecoverable charges and estimated irrecoverable outgoings. future stepped rental uplifts under leases had outgoings at the valuation date. Net Zero Carbon occurred. Interest cover When relevant GHG emissions attributable to Total Accounting Return (TAR) Operating profit before investment property operations of the business are minimised and The change in EPRA NAV per ordinary share disposals and valuation movements, divided outstanding emissions are balanced by removing plus dividends paid per ordinary share during by finance costs net of finance income. an equivalent amount from the atmosphere. the period of calculation, expressed as a Internal Rate of Return (IRR) Paris Agreement percentage of the EPRA NAV per share at the The rate of return that if used as a discount An agreement by participating countries to beginning of the period. rate and applied to the projected cash flows combat climate change and adapt to its effects. Underlying EPRA vacancy that would result in a net present value of zero. The central aim is to strengthen the global The rental value of available to let vacant response to the threat of climate change by Key Performance Indicator (KPI) property (excluding property which is held for, Activities aligned to business objectives keeping a global temperature rise this century or undergoing, refurbishment and EPRA against which the performance of the Group well below 2 degrees Celsius above pre- vacancy due to exceptional larger is assessed. industrial levels and to pursue efforts to limit refurbishment schemes) expressed as a the temperature increase even further to percentage of ERV of the Group’s wholly- Leasing activity 1.5 degrees Celsius. owned property portfolio. It is measured at The rental value secured across the the reporting date and, when reported for a wholly-owned property portfolio of the Group Property Income Distribution (PID) A PID is a distribution by a REIT to its reporting period, it is presented as the from lettings, rent reviews and lease renewals quarterly average during that period. during a period. shareholders paid out of qualifying profits. A REIT is required to distribute at least 90% Valuation growth/decline Like-for-like growth in rental income of its qualifying profits as a PID to its The valuation movement and realised surpluses The increase in rental income during an shareholders. or deficits arising from the Group’s investment accounting period, adjusted to remove the Real Estate Investment Trust (REIT) property portfolio expressed as a percentage impact of acquisitions, disposals and changes return on the valuation at the beginning of the as a result of larger refurbishment schemes, A REIT is a tax designation for an entity or group investing in real estate that reduces or period adjusted, on a time weighted basis, for expressed as a percentage of rents receivable in acquisitions, disposals and capital expenditure. the corresponding previous accounting period. eliminates corporation tax on rental profits and chargeable gains relating to the rental When measured on a like-for-like basis, the Listed building business, providing certain criteria obligations calculation excludes those properties A building officially recognised as having set out in tax legislation are met. acquired or sold during the period. special historical or architectural interest and Reversionary potential Weighted average vacant period therefore protected from demolition or The average time that space has been available alteration without prior approval. The amount by which ERV exceeds annualised current income, measured at a valuation date. to let (excluding property which is held for, or Loan-to-value (LTV) undergoing, refurbishment and EPRA vacancy Net debt expressed as a percentage of the RPI due to exceptional larger refurbishment fair value of property assets. Retail Price Index. schemes) across the wholly-owned portfolio Scope 1 emissions from the start of the period to the reporting London Benchmarking Group (LBG) Direct GHG emissions from owned or controlled date, weighted by the ERV of that space. Global standard in measuring and managing sources such as gas used for heating. corporate community investment. Scope 2 emissions London Inter-Bank Offered Rate (LIBOR) Indirect GHG emissions from the generation Average rate of interest used in lending of purchased energy such as electricity. Design: SG Design (sg-design.co.uk) between banks on the London interbank Print: Park Communications on FSC® certified paper market, which is used as a reference for Scope 3 emissions setting interest rates on other loans. All indirect GHG emissions (not included in Park works to the EMAS standard and its Environmental scope 2) that occur in the value chain of the Management System is certified to ISO 14001. London Living Wage reporting company. This publication has been manufactured using 100% An hourly rate of pay, calculated independently offshore wind electricity sourced from UK wind. to reflect the high cost of living in the capital. Science Based Targets 100% of the inks used are vegetable oil based 95% A carbon emissions target that it is in line with Long Term Incentive Plan (LTIP) of press chemicals are recycled for further use and, the scale of reductions determined to be on average 99% of any waste associated with this An arrangement under which an employee is required to prevent the worst effects of production will be recycled and the remaining 1% awarded options in the Company at nil cost, climate change. used to generate energy. subject to a period of continued employment This document is printed on Munken Kristal, a paper and the attainment of performance targets SDG sourced from well managed, responsible, FSC® certified over a three-year vesting period. UN Sustainable Development Goals. forests and other controlled sources. The pulp used in this product is bleached using an elemental chlorine Minimum Energy Efficiency Standards (MEES) Sharesave or SAYE (Save-As-You-Earn) free (ECF) process. A savings-related share option scheme. Applies to private rented residential and This is a certified CarbonNeutral® publication. Emissions non-domestic property to encourage the Employees are granted options to acquire generated during the manufacture and delivery of this improvement of the buildings’ energy efficiency. shares at the end of a three or five-year product have been measured and reduced to net zero vesting period using savings accumulated through a verified carbon offsetting project via The Net asset value (NAV) through salary sacrifice. CarbonNeutral Company. This is in accordance with Equity shareholders’ funds divided by the The CarbonNeutral Protocol, the global leading standard number of ordinary shares at the Balance TCFD for carbon neutrality. Sheet date. Task Force for Climate-related Financial Disclosure. Net debt The nominal value of the Group’s borrowings less cash and cash equivalents.
Page 165 Shaftesbury Annual report 2020 Other Shaftesbury Annual report 2020 Strategic Report Xxxxx Shaftesbury PLC Annual Report 2020
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