SHB.L Regulatory News (SHB)

SHAFTESBURY 2016 HALF YEAR RESULTS

Buoyant demand and asset management activity continues to deliver growth in income, earnings and capital values

Shaftesbury PLC ("Shaftesbury") today announces its results for the six months ended 31 March 2016.

Highlights

Growth in income, earnings, dividend and NAV

Continued rental growth and capital value appreciation2

Strong demand across all villages and for all uses

Further investment in our portfolio

Strong Balance Sheet

Board changes

1. Wholly-owned portfolio.

2. Includes 50% of the Longmartin joint venture.

Brian Bickell, Chief Executive, commented:

"This has been a period of considerable activity across our portfolio. A combination of sustained demand for accommodation in our areas and our asset management initiatives continues to deliver growing current and future potential rental income, underpinning growth in earnings, the value of our portfolio and shareholders' investment in our business.

We are confident that, with the benefit of our proven strategy, together with our experience and forensic knowledge of the West End, our business will continue to deliver growth in income and shareholder value over the long-term."

24 May 2016

For further information:

There will be a presentation to equity analysts at 10.30 am on Wednesday 25 May 2016, at The London Stock Exchange, 10 Paternoster Square, London EC4M 7LS.

There is a live audio webcast of the analyst presentation which you can access via the following link: http://goo.gl/b7zfdR or from our website. If you are unable to access this link, there is a dial in facility: +44(0)20 3427 1905. The PIN code is 8144572#. You should dial in 5-10 minutes before the start of the meeting.

A playback facility of this presentation will be available on the Group's website www.shaftesbury.co.uk by the end of the day. The presentation document is available on the Group's website www.shaftesbury.co.uk

About Shaftesbury

Shaftesbury PLC is a Real Estate Investment Trust, which owns a unique real estate portfolio extending to 14 acres in the heart of London's West End - a highly popular, sought-after and prosperous destination for visitors and businesses. Our holdings are concentrated in Carnaby, Covent Garden, Chinatown, Soho and Charlotte Street.

Our objective is to deliver long-term growth in rental income, capital values and shareholder returns.

We focus on retail, restaurants and leisure in the liveliest parts of the West End. Our portfolio now comprises 589 shops, restaurants, cafés and pubs, extending to 1 million sq. ft., and accounting for 70% of our current income. In our locations these uses have a long record of occupier demand exceeding their availability. The portfolio also includes 406,000 sq. ft. of offices and 539 apartments for rent, which provide 17% and 13%, respectively, of our current income.

In addition, we have a 50% interest in the Longmartin joint venture with The Mercers' Company, which has a long leasehold interest in St Martin's Courtyard in Covent Garden. Extending to 1.9 acres, it includes 21 shops, ten restaurants and cafés, 102,000 sq. ft. of offices and 75 apartments.

Our proven management strategy is to create and foster distinctive, attractive and prosperous locations. Its implementation is supported by an experienced management team with an innovative approach to long-term, sustainable income and value creation, and a focus on shareholder returns. We have a strong balance sheet with modest leverage.

Forward-looking statements

This document may contain certain 'forward-looking' statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-looking statements.

Any forward-looking statements made by, or on behalf of, Shaftesbury PLC speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Shaftesbury PLC does not undertake to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

Information contained in this document relating to Shaftesbury PLC or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance. Ends.

Highlights

1. Including 50% share of the Longmartin joint venture.

2. Adjusted in accordance with EPRA Best Practice Recommendations.

3. Like-for-like, measured against previous year end ERV.

4. Wholly-owned portfolio.

5. Shaftesbury Group data (other than total shareholder return) derived from financial results.

6. Like-for-like.

See Glossary of terms below.

Half-year results

Introduction

This has been a period of considerable activity across our portfolio. A combination of sustained demand for accommodation in our areas and our asset management initiatives continues to deliver growing current and future potential rental income, underpinning growth in earnings, the value of our portfolio and shareholders' investment in our business.

London's West End is a popular destination, attracting huge numbers of international and domestic visitors daily. Its unrivalled concentration of entertainment, cultural and historic buildings, and public spaces are complemented by a world-class variety of shopping. Importantly, these attractions are enhanced by a globally-recognised choice of innovative and accessible dining and leisure concepts. Together, these provide an all-round experience sought by today's visitors, unmatched by any other city destination.

The West End is also a location for a wide range of global, national and local businesses, and a popular place to live. The large local working population and residential community are important to the character and economy of our areas, bringing added life and vibrancy, and providing a substantial customer-base for our shops, restaurants, cafés and leisure businesses.

Our business

Our objective is to deliver long-term growth in rental income, capital values and shareholder returns.

Located in the heart of the West End, our exceptional portfolio extends to 14 acres, together with 1.9 acres in our Longmartin joint venture. Our wholly-owned portfolio, located close to the West End's major visitor attractions, comprises nearly 600 buildings, mainly clustered in villages in Carnaby, Seven Dials and Chinatown, as well as across Covent Garden, Soho and Charlotte Street.

We focus on retail, restaurants, cafés and leisure; uses which, in the West End, have a long history of sustained tenant demand, low vacancy and long-term rental growth. Together, these uses extend to over 1 million sq. ft. across the lower floors of our buildings and provide 70% of current income. Availability of retail, restaurant and leisure space in the West End is constrained. Consequently, there is a structural imbalance between demand for, and supply of, space, which is an important factor in our portfolio's long-term rental prospects and capital value.

Our upper floors generally comprise small offices or rental apartments, or a mix of both. In our locations, demand increasingly exceeds availability of smaller office and residential space. 

In each village, we adopt a comprehensive and long-term management strategy to:

· curate and promote distinctive and lively destinations, which attract footfall and spending;

· ensure we respond to ever-changing tastes and expectations by encouraging new retail, restaurant and leisure formats;

· improve and reconfigure our buildings to provide more efficient accommodation for occupiers and, wherever possible, maximise valuable retail, restaurant and leisure space;

· enhance the public realm to increase pedestrian capacity and raise the quality of local streetscapes.

With the geographic concentration of our holdings, our management activities bring compound and cumulative benefits across our adjacent and nearby ownerships.

Trading conditions

Despite some emerging concerns regarding national economic trends and current political uncertainties, the West End's economy continues to flourish, benefitting from London's growing population and diverse economy. Importantly for us, retail and leisure spending generated by the visitor economy, and a very large local working population, continues to attract strong occupier demand across each of our locations.

The focus of our proven, long-term management strategy is to create and foster distinctive, interesting and lively locations which attract footfall, businesses and spending, underpinned by the long-established strength of the West End's economy. This enables businesses based here to benefit from a growing market, lessening the impact of increasing local and national taxation.

The opening of Crossrail, now only two years away, will increase transport capacity and is expected to change West End footfall patterns significantly over time. With all our holdings within a short walk of the new transport interchanges at Tottenham Court Road and Bond Street, we expect to be a major beneficiary. Currently, we are undertaking three major refurbishment schemes, in Carnaby, Chinatown and Seven Dials, each of which is in close proximity to these new gateways to the West End.

We are confident that, with the benefit of our proven management strategy, together with our experience and forensic knowledge of the West End, our business will continue to deliver growth in income and shareholder value over the long-term.

Leasing activity

During the six months ended 31 March 2016, we concluded lettings, lease renewals and rent reviews in the wholly-owned portfolio with a rental value of £13.6 million (31.3.2015: £11.2 million). Of this, commercial transactions totalled £10.8 million (31.3.2015: £8.9 million) and residential lettings and renewals amounted to £2.8 million (31.3.2015: £2.3 million). Rents for commercial uses were, on average, 6.5% above ERV at 30 September 2015 and 12.3% ahead of ERV twelve months ago. 

Our share of leasing activity in the Longmartin joint venture was £1.4 million. Commercial rents achieved were, on average, 8.1% and 14.0% above ERVs at 30 September 2015 and 31 March 2015, respectively.

Vacancy

EPRA vacancy at 31 March 20161

1. Wholly-owned portfolio.

EPRA vacancy comprised four large shops (ERV: £1.0 million), eight small shops (ERV: £0.6 million), four restaurants, 6,900 sq. ft. of office space, and eight apartments. Over half of this space was under offer at 31 March 2016.

In the Longmartin joint venture, one shop, 3,750 sq. ft. of office space and two apartments were available to let or under offer. The ERV of our 50% share of EPRA vacancy was £0.2 million.

Portfolio review

Lower floors - 70% of current income1

1. Wholly-owned portfolio

2. Shaftesbury has a 50% interest

Retail

Demand remains good, both from domestic and international retailers seeking representation in our locations. Brands from the US, Sweden, France, Spain and Australia have taken space within the portfolio in the period.

We are able to offer a wide range of shop sizes and rental levels across our buildings and streets, enabling us to provide a wide diversity of retail formats. Importantly, in our high-footfall locations, rental levels remain competitive in relation to nearby streets.

During the six months to 31 March 2016, we completed letting transactions with a combined rental value of £4.9 million, equivalent to 11% of retail ERV. This included fourteen new shop lettings, ten lease renewals and twelve rent reviews.

Our share of lettings and rent reviews in the Longmartin joint venture was £0.7 million.

Restaurants, cafés and leisure

Restaurants, cafés and leisure choices are important to the mix of uses in our villages and are a footfall driver in their own right, particularly in the West End. Kingly Court, in Carnaby, is often highlighted in the trade and consumer media as a great example of an innovative food hub, complementing the retail on adjacent streets, drawing visitors from a wider catchment and encouraging longer dwell-times.

We are the largest single provider of dining and leisure space in the West End, where the availability of space is constrained due to local planning policies and the reluctance of operators to relinquish sites other than for significant premiums. Occupier demand in the casual dining market remains exceptionally strong, as businesses are keen to establish in this exceptionally busy area. We receive numerous competitive offers for any available restaurant space and vacancy levels are minimal. With such strong demand, we are identifying further opportunities to secure vacant possession of space where we can make improvements and attract new operators with innovative concepts on more beneficial terms.

During the period, we completed leasing transactions with a rental value of £4.5 million, equivalent to 11% of restaurants, cafés and leisure ERV. This included five lettings and renewals, and seventeen rent reviews.

Our share of leasing transactions in the Longmartin joint venture was £0.2 million.

Upper floors - 30% of current income1

1. Wholly-owned portfolio

2. Shaftesbury has a 50% interest

Offices

We are an important provider of small offices in the core West End, with 406,000 sq. ft. of accommodation in the wholly-owned portfolio, let to 273 tenants. The average letting is c. 1,400 sq. ft. at £48 per sq. ft. (30.9.2015: £46 per sq. ft.), and the average ERV is £60 per sq. ft. (30.9.2015: £56 per sq. ft.). 

Occupier demand remains strong, particularly from SME media, creative, fashion, and IT businesses. Over recent years, office-to-residential conversions and redevelopment of multi-let office buildings to create higher specification space and larger floor plates has reduced the availability of smaller office accommodation across our locations. Consequently, rents have continued to rise, rent-free periods have reduced, and vacancy levels remain extremely low.

During the period, we completed lettings and lease renewals extending to 22,400 sq. ft., with a rental value of £1.4 million, equivalent to 6% of office ERV. 

Our share of lettings in the Longmartin joint venture was £0.1 million.

Residential

With the growing popularity of the West End as a place to live, we continue to see sustained demand to rent our mid-market apartments. We have a rolling refurbishment programme to continue reconfiguring and upgrading our stock to meet rental market expectations. Of our 539 apartments, 45 were under construction, or being upgraded, at 31 March 2016.

During the six months ended 31 March 2016, we completed lettings and renewals totalling £2.8 million, equivalent to 19% of residential ERV.

Our share of residential letting activity in the Longmartin joint venture was £0.4 million.

Investing in our portfolio

High level of refurbishment activity

A high level of refurbishment activity continues across our portfolio, improving our buildings, increasing income and unlocking value. Schemes during the period extended to 150,000 sq. ft. (8% of wholly-owned floor space).

Space held for, or under, refurbishment has increased during the period by 3.6% to 7.9% of ERV, as we commenced two major schemes: Charing Cross Road/Chinatown and Thomas Neal's Warehouse, Seven Dials.

With strong occupier demand across our locations, we continue to identify opportunities to implement further asset management initiatives. We have a pipeline of other projects at various stages from initial ideas, seeking planning consent, awaiting vacant possession or under construction.

Vacant space held for, or undergoing, refurbishment at 31 March 20161

1. Wholly-owned portfolio 

2. Charing Cross Road/Chinatown and Thomas Neal's Warehouse, Seven Dials

Charing Cross Road/Chinatown

In January 2016, we commenced our Charing Cross Road/Chinatown scheme. Located next to Leicester Square Underground station, and within a short walk of the Tottenham Court Road Crossrail hub, it will bring major improvements to this important block on Chinatown's eastern boundary. 

We are making substantial improvements to the configuration of the space to provide: 

· 32,000 sq. ft. of large, double-height retail units along a 330-foot frontage on Charing Cross Road;

· 13,500 sq. ft. of restaurant space, fronting Newport Place and Newport Court; and

· a much-improved gateway into Chinatown.

Having identified enhancements to our scheme, it is now expected to cost £14.6 million and completion is anticipated by mid-2017.

We are supporting Westminster City Council's plans to create a part-pedestrianised public square in Newport Place. This will provide the opportunity for al fresco dining for our newly-created restaurants, and significantly improve the public realm in Chinatown, which will benefit our wider holdings.

Thomas Neal's Warehouse, Seven Dials

In February 2016, we commenced the first phase of our reconfiguration of the Thomas Neal's Warehouse to provide up to 22,000 sq. ft. of flagship retail space, further strengthening this popular and distinctive retail and leisure destination.

The estimated total cost is £2.0 million, in addition to a loss of annual net income during the scheme of £0.8 million. Completion is anticipated in late 2016.

Other schemes

Other schemes underway at 31 March 2016 comprised the reconfiguration and improvement of 10,400 sq. ft. of retail, 7,500 sq. ft. of restaurants and cafés, 25,700 sq. ft. of office space, and 46 apartments either being created or upgraded.

Our share of ERV under refurbishment in Longmartin was £0.1 million.

57 Broadwick Street, Carnaby

In May 2016, we commenced our major mixed-use project at 57 Broadwick Street, Carnaby. Situated within a few minutes' walk of Tottenham Court Road's new western ticket hall on Dean Street, our 30,000 sq. ft. scheme at this eastern gateway to Carnaby will provide:

· flagship retail space and a restaurant, together extending to 8,000 sq. ft., over the lower floors;

· 20,000 sq. ft. of refurbished and extended grade A office accommodation across the upper floors; and

· two apartments totalling 2,000 sq. ft.

Completing in phases from late 2017, at an estimated cost of £14.5 million, the scheme has increased vacancy undergoing refurbishment, on a pro-forma basis, by 1.9% to 9.8%.

Acquisitions

During the six months to 31 March 2016, we acquired eight properties in Soho, Charlotte Street and Covent Garden. At a total cost of £43.2 million, these comprised five shops, four restaurants and cafés, 2,850 sq. ft. of office space and one apartment.

On acquisition, they produced an average net initial yield of 2.1%. However, they offer the potential for good rental and capital growth through short and medium-term asset management initiatives.

We continue to seek opportunities to increase our ownerships, concentrating on buildings in, and around, our villages which have a predominance of, or potential for, retail, restaurant and leisure uses and which offer the potential for future rental growth, either individually or through combination with our existing ownerships. As ever, the availability of buildings which fit these strict investment criteria remains limited, with existing owners reluctant to sell assets in this exceptionally prosperous and resilient area.

Portfolio valuation

Net valuation increase of 2.1%

Our portfolio, including our 50% share of the Longmartin joint venture, has been valued at 31 March 2016 at £3.26 billion. The combined revaluation surplus of £68.6 million represents an ungeared like-for-like capital value return for the six months ended 31 March 2016 of 3.0%, before a reduction of 0.9% as a result of the 1% increase in Stamp Duty Land Tax (SDLT) announced in the March 2016 Budget.

1. Like-for-like

2. Group's 50% share

Valuation increase driven by rental growth

The portfolio valuation increase has been driven by continued growth in both actual and potential rents, which produced like-for-like increases over the period of 4.1% and 3.1% respectively.

The equivalent yields attributed by our valuers are broadly unchanged since September 2015:

· Wholly-owned portfolio: 3.57% (30.9.2015: 3.61%)

· Longmartin joint venture: 3.68% (30.9.2015: 3.75%).

These yields reflect continuing strong investor demand, yet limited availability of properties for sale in our locations, the prospects for sustained rental growth over the long term, and the limited exposure to obsolescence in our portfolio.

Continuing capture of the portfolio reversionary potential

Sustained growth in both actual and prospective income underpins the long-term growth in property values. Over the six months ended 31 March 2016, we have continued our long record of converting the potential reversion in our portfolio into cash flow, whilst further increasing its rental value.

1. Including our 50% share of the Longmartin joint venture.

2. Charing Cross Road/Chinatown, Thomas Neal's Warehouse, Seven Dials, 57 Broadwick Street, Carnaby and Foubert's Place/Kingly Street, Carnaby.

3. Excluding acquisitions and the impact of major schemes.

Current annualised income has increased on a like-for-like basis by 4.1% and 12.0% over 6 months and 12 months, respectively, as we have let vacant space and continued to crystallise the reversionary potential in our portfolio. The large increase over 12 months reflects the high level of rent free periods at 31 March 2015, which have subsequently expired.

Like-for-like ERV growth over 6 months was 3.1%, bringing the total for the past 12 months to 6.7%. This recognises rental evidence arising from leasing transactions in the period.

Total ERV now stands at £134.8 million, 25.7% higher than the annualised current income. The reversionary potential of £27.6 million comprises:

· £3.5 million of contracted income, which will flow as rent-free periods expire.

· Vacant space with an ERV of £2.9 million, of which £1.6 million was under offer at 31 March 2016.

· Refurbishment schemes underway, or shortly due to commence, with a rental value estimated by our valuers totalling £11.3 million. This potential will be realised as schemes complete and become income-producing.

· £9.9 million of income which should be realised through the normal cycle of rent reviews, lease renewals and lettings. With our proven long-term management strategy, and the buoyancy and prospects for the West End economy, we remain confident that we shall not only continue to convert this rental potential into cash flow, but also deliver further long-term sustained rental growth.

DTZ, independent valuer of our wholly-owned portfolio, has again noted that:

our portfolio is unusual in its substantial number of predominantly retail and restaurant properties in adjacent, or adjoining, locations in London's West End; and

· there is a long record of strong occupier demand for these uses in this location. This is demonstrated by current, and historic, low vacancy levels throughout the portfolio.

· Consequently, some prospective purchasers may recognise the compelling and rare opportunity which an acquisition in a single transaction of parts of, or the entire portfolio, would provide them. Such parties may consider a combination of some, or all, parts of the portfolio to have a greater value than currently reflected in the valuation included in these financial statements, which has been prepared in accordance with RICS guidelines.

Results and finance

The results for the first half of this year show further growth in net property income, EPRA earnings, NAV and the interim dividend.

EPRA earnings

Profit after tax for the six months ended 31 March 2016 was £80.1 million (31.3.2015: £180.2 million), and included a valuation surplus of £58.2 million (31.3.2015: £183.2 million). As is usual practice in our sector, we produce an alternative measure for earnings, making adjustments set out by EPRA in its Best Practice and Policy Recommendations. EPRA earnings are a measure of the level of recurring income arising from core operational activities, as set out in the reconciliation below.

EPRA earnings increased by 12.8% to £20.2 million (31.3.2015: £17.9 million) resulting in EPRA EPS of 7.3p, 14.1% above the first half last year (31.3.2015: 6.4p). The increase in earnings was driven by increased net property income, partly offset by higher finance costs.

Net property income

Rents receivable have increased by 9.8% to £49.2 million (31.3.2015: £44.8 million). Like-for-like growth, excluding the impact of acquisitions and major refurbishment schemes, was 8.9%, which reflects the continued conversion of our portfolio's reversionary potential into contracted cash flow. Acquisitions accounted for £0.4 million of the increase. Our scheme at Foubert's Place/Kingly Street, Carnaby, which became income producing in the second half last year, contributed £1.1 million. This was largely offset by vacancy at major schemes which commenced in the first half of this financial year.

Irrecoverable property charges were £7.1 million (31.3.2015: £6.1 million), representing 14.4% of rents receivable (31.3.2015: 13.6%). Excluding the impact of irrecoverable costs at our ownership fronting Charing Cross Road/Newport Court/Newport Place, where, ahead of the redevelopment we had only short-term inclusive leases and licences in place, irrecoverable costs were 13.5% of rents receivable (31.3.2015: 13.0%). The increase compared with last year is mainly due to higher levels of leasing transactions in the period and irrecoverable costs in respect of a number of repairs and external decoration projects.

Net property income was £42.1 million, up 8.8% on the same period last year (31.3.2015: £38.7 million).

Administrative expenses

Administrative expenses, excluding the charge for equity-settled remuneration, totalled £4.9 million (31.3.2015: £5.0 million). This includes a provision for annual bonuses of £0.7 million (31.3.2015: £0.7 million).

The charge for equity-settled remuneration was £1.5 million (31.3.2015: £1.5 million). This included a non-cash accounting provision of £1.2 million (31.3.2015: £1.1 million) and a charge for employer's National Insurance of £0.3 million (31.3.2015: £0.4 million).

Revaluation surplus

The surplus arising on the revaluation of our wholly-owned portfolio amounted to £58.2 million (31.3.2015: £183.2 million), representing a like-for-like increase of 2.8%, before a reduction of 0.9% for increased SDLT. This increase was principally driven by like-for-like ERV growth of 3.1%. Further details are provided below.

Finance costs

With higher net debt as a result of acquisitions and further investment in our portfolio, net finance costs (excluding the change in fair value of our interest rate swaps) increased by £1.4 million to £16.6 million (31.3.2015: £15.2 million).

The fair value deficit on our interest rate swaps increased by £12.1 million to £91.3 million, following a fall in long-dated interest rates, particularly over the first quarter of 2016. The Board regularly reviews the Group's interest hedging strategy and the impact these derivatives have on the long-term financing of the business.

Longmartin results

Our share of post-tax profit from the Longmartin joint venture decreased by £2.6 million to £14.9 million (31.3.2015: £17.5 million). This decrease was largely due to a smaller revaluation surplus of £10.4 million (31.3.2015: £20.7 million), which was partly offset by a deferred tax credit.

Our share of EPRA earnings increased by £0.2 million to £1.2 million (31.3.2015: £1.0 million), principally due to an increase in net property income of 10.3% to £3.2 million (31.3.2015: £2.9 million), following a number of rent reviews over the past twelve months.

Tax

As a REIT, the Group's activities are largely exempt from corporation tax and, as a result, there is no tax charge in the period (31.3.2015: £Nil).

Interim dividend

Your directors are pleased to declare an interim dividend of 7.15p per share, an increase of 4.8% on last year's interim dividend of 6.825p. The interim dividend, to be paid on 1 July 2016, will comprise 4.45p as a PID and 2.7p as an ordinary dividend.

We aim to maintain steady growth in dividends, reflecting the long-term trend in our income and cash earnings. The dividend is covered 1.02 times by EPRA earnings and 1.08 times by cash earnings, after adding back the non-cash accounting charge in the period for equity-settled remuneration of £1.2 million.

The Board monitors the Group's ability to pay dividends out of available resources and distributable reserves.

EPRA net asset value

EPRA NAV per share increased by 24p (2.8%) to £8.93 over the period (30.9.2015: £8.69). The revaluation surpluses in the wholly-owned portfolio and the Longmartin joint venture property added 24p. EPRA earnings of 7.3p per share were offset by the final dividend (6.925p per share).

Cash flows and net debt

Net debt increased by £49.4 million to £687.2 million over the period (30.9.2015: £637.8 million). The major cash flows were:

· Operating cash inflow totalling £22.9 million.

· Dividends paid amounting to £19.5 million.

· Acquisitions and capital expenditure of £54.3 million.

Finance

Our prudent approach to financing the Group is focused on maintaining a conservative loan-to-value ratio, healthy interest cover, a spread of loan maturities, diversity of lenders and limited exposure to interest rate movements.

Debt summary

At 31 March 2016, our loan-to-value ratio1,2 was 23.2% (30.9.2015: 22.5%) and we had £101.4 million of committed undrawn facilities (30.9.2015: £150.3 million), which were available to fund further investment. Of our drawn debt, 90.9% was fixed or hedged1 (30.9.2015: 97.2%), the decrease being due to acquisitions and capital expenditure being funded through drawings against our variable-rate bank facilities.

The blended cost of debt was 4.71%, 21 basis points lower than at 30 September 2015. With the marginal cost in our committed facilities of around 1.5% (30.9.2015: 1.5%), additional drawings will reduce this average cost further. If our facilities had been fully drawn at 31 March 2016, the weighted average cost of debt would have been 4.33%.

The weighted average debt maturity at 31 March 2016 was 9.7 years (30.9.2015: 10.2 years).

Debt maturity profile

1. Including our 50% share of the Longmartin joint venture.

2. Based on nominal value of debt.

3. Shaftesbury Group's 50% share. This loan is without recourse to Shaftesbury.

4. Floating rate facilities.

5. Based on EPRA net assets.

6. Including non-utilisation fees on undrawn bank facilities.

Board changes

As previously reported, in November 2015 Jonathan Lane asked the Board to undertake a process to identify his successor as non-executive Chairman.

After an extensive search process, the Board has decided to appoint Jonathan Nicholls as a non-executive director on 1 September 2016 and he will assume the role of Chairman on 1 October 2016, at which point Jonathan Lane will retire from the Board.

Jonathan Nicholls currently has non-executive roles at Great Portland Estates plc, D S Smith plc, Ibstock plc and SIG plc. He will retire from the board of Great Portland Estates plc, where he is Senior Independent Director and Chair of the Audit Committee, at their annual general meeting in July 2016. His previous executive roles included Group Finance Director at Hanson plc and Old Mutual plc, as well as other senior positions with Abbey National plc.

The Board wishes to record its gratitude to Jonathan Lane for his outstanding contribution to the remarkable development of Shaftesbury since its formation 30 years ago. The qualities and strength of the business today, and its long-term prospects, are a testament to his commitment, determination, wide experience and vision.

Portfolio analysis

1 Shaftesbury Group's 50% share

Basis of valuation 

Notes

1. The fair values at 31 March 2016 (the "valuation date") shown in respect of the individual villages are, in each case, the aggregate of the fair values of several different property interests located within close proximity which, for the purpose of this analysis, are combined to create each village. The different interests within each village were not valued as a single lot.

2. Current income includes total annual actual and 'estimated income' reserved by leases. No rent is attributed to leases which were subject to rent-free periods at the valuation date. Current income does not reflect any ground rents, head rents nor rent charges and estimated irrecoverable outgoings at the valuation date. 'Estimated income' refers to gross estimated rental values in respect of rent reviews outstanding at the valuation date and, where appropriate, ERV in respect of lease renewals outstanding at the valuation date where the fair value reflects terms for a renewed lease.

3. ERV is the respective valuers' opinion of the rental value of the properties, or parts thereof, reflecting the terms of the relevant leases or, if appropriate, reflecting the fact that certain of the properties, or parts thereof, have been valued on the basis of vacant possession and the assumed grant of a new lease. Where appropriate, ERV assumes completion of developments which are reflected in the valuations. ERV does not reflect any ground rents, head rents nor rent charges and estimated irrecoverable outgoings.

4. The percentage of current income and the percentage of ERV in each of the use sectors are expressed as a percentage of total income and total ERV for each village.

5. Average unexpired lease length has been calculated by weighting the leases in terms of current rent reserved under the relevant leases and, where relevant, by reference to tenants' options to determine leases in advance of expiry through effluxion of time.

6. Where mixed uses occur within single leases, for the purpose of this analysis, the majority use by rental value has been adopted.

7. The initial yield is the net initial income at the valuation date expressed as a percentage of the gross valuation. Yields reflect net income after deduction of any ground rents, head rents and rent charges and estimated irrecoverable outgoings at the valuation date.

8. The topped-up initial yield, ignoring contractual rent free periods, has been calculated as if the contracted rent is payable from the valuation date and as if any future stepped rental uplifts under leases had occurred.

9. Equivalent yield is the internal rate of return, being the discount rate which needs to be applied to the expected flow of income so that the total amount of income so discounted at this rate equals the capital outlay at values current as of the valuation date. The equivalent yield shown for each village has been calculated by merging together the cash flows and fair values of each of the different interests within each village and represents the average equivalent yield attributable to each village from this approach.

10. The tone of rental values and yields is the range of rental values or yields attributed to the majority of the properties.

11. All commercial floor areas are net lettable. All residential floor areas are gross internal.

12. For presentation purposes some percentages have been rounded to the nearest integer.

13. The analysis includes accommodation which is awaiting, or undergoing, refurbishment or development and is not available for occupation at the date of valuation.

Principal Risks and Uncertainties

The principal strategic risks and uncertainties are those which might prevent the Group from achieving its goal of long-term sustainable growth in rental income. The risks and uncertainties facing the Group for the remaining six months of the financial year are summarised below. These risks and uncertainties are largely consistent with those set out on pages 61 to 63 in the Annual Report for the year ended 30 September 2015, where we also detail relevant mitigating factors. We no longer consider meeting the requirements of legislation to improve environmental performance of buildings to be a principal risk or uncertainty. This is on the basis that the legislation has become more clear and, through our rolling refurbishment activities, we are able to meet its requirements without significant cost.

Geographic concentration risk

Regulatory risks

Economic risks which may threaten our ability to meet our strategic objectives

Unaudited Group Statement of Comprehensive Income

for the six months ended 31 March 2016

Unaudited Group Balance Sheet

as at 31 March 2016

Unaudited Group Cash Flow Statement

for the six months ended 31 March 2016

Movements in loans to the joint venture have been reclassified from financing to investing activities to better reflect the nature of the transactions. This has no impact on the net assets nor reported results in any of the periods presented.

Unaudited Group Statement of Changes in Equity

for the six months ended 31 March 2016

Notes to the half year results

for the six months ended 31 March 2016

1. GENERAL INFORMATION

The condensed consolidated half year financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information presented for the year ended 30 September 2015 is derived from the statutory accounts for that year. Statutory accounts for the year ended 30 September 2015 were approved by the Board of directors on 24 November 2015 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006.

The condensed half year financial statements have been reviewed, not audited.

Basis of preparation

These half year financial statements have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, Interim Financial Reporting, as adopted by the European Union. They should be read in conjunction with the annual financial statements for the year ended 30 September 2015, which have been prepared in accordance with IFRSs as adopted by the European Union.

Going concern

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to adopt the going concern basis in preparing the condensed half year financial statements.

CRitical judgements, assumptions and estimates

The preparation of these half year financial statements requires the Board to make judgements, assumptions and estimates that affect amounts reported in the Statement of Comprehensive Income and Balance Sheet. Such decisions are made at the time the financial statements are prepared and adopted based on the best information available. Actual outcomes may be different from initial estimates and are reflected in the financial statements as soon as they become apparent.

The directors consider the valuation of investment property to be critical because of the level of complexity, judgement or estimation involved and its impact on the financial statements. The Group uses the valuation performed by its external valuers, DTZ Debenham Tie Leung Limited, as the basis for the fair value of its investment properties. Knight Frank LLP value the investment properties owned by the Longmartin joint venture.

The valuation of the Group's property portfolio is inherently subjective due to, amongst other factors, the individual nature of each property, its location and the expected future rental income. As a result, the valuations the Group places on its property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions which may not prove to be accurate, particularly in periods of volatility or low transaction flow in the commercial property market. DTZ Debenham Tie Leung Limited and Knight Frank LLP make a number of assumptions in forming their opinion on the valuation of our investment properties, which are detailed in the Basis of Valuation above. These assumptions are in accordance with the RICS Valuation Standards. However, if any assumptions made by the external valuers prove to be incorrect, this may mean that the value of the Group's properties differs from their valuation reported in the financial statements, which could have a material effect on the Group's financial position.

Certain statements in this half year report are forward looking. Although the Group believes that the expectations reflected in these forward looking statements are reasonable, it can give no assurance that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward looking statements.

The Group undertakes no obligation to update any forward looking statements whether as a result of new information, future events or otherwise.

2. ACCOUNTING POLICIES

CHANGES IN ACCOUNTING POLICIES

The accounting policies adopted and methods of computation used are consistent with those of the previous financial year.

NEW ACCOUNTING STANDARDS AND INTERPRETATIONS

a) The following amendments to standards and Annual Improvements are mandatory for the first time for the financial year beginning 1 October 2015:

No material changes to accounting policies arose as a result of these amendments.

b) The following amendments to standards and Annual Improvements are relevant to the Group and are not yet effective in the year ending 30 September 2016 and not expected to have a significant impact on the Group's financial statements:

c) There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Group.

3. Revenue and segmental information

Rents receivable include lease incentives recognised of £0.6 million (31.3.2015: £1.0 million; 30.9.2015: £2.4 million).

The chief operating decision maker has been identified as the Board, which is responsible for reviewing the Group's internal reporting in order to assess performance and the allocation of resources.

The Group's properties, which are all located in London's West End, are managed as a single portfolio. Its properties, which are of similar type, are combined into villages. All of the villages are geographically close to each other and have similar economic features and risks.

For the purposes of IFRS 8, each village is considered to be a separate operating segment. However, in view of the similar characteristics of each village, and the reporting of all investment, income and expenditure to the Board at an overall Group level, the aggregation criteria set out in IFRS 8 have been applied to give one reportable segment.

The Board assesses the performance of the reportable segment based on net property income and investment property valuation. All financial information provided to the Board is prepared on a basis consistent with these financial statements and, as the Group has only one reportable segment, the measures used in assessing the business are set out in the Group Statement of Comprehensive Income.

4. Property charges

5. Charge in respect of equity settled remuneration

Included in the charge for share based remuneration is £1.0 million (31.3.2015: £1.1 million; 30.9.2015: £2.2 million) for the fair value of share options.

6. Finance costs

7. Tax charge for the period

The Group's wholly-owned business is subject to taxation as a REIT. Under the REIT regime, income from its rental business (calculated by reference to tax rather than accounting rules) and chargeable gains from the sale of its investment properties are exempt from corporation tax.

8. EARNINGS PER SHARE

The calculations below are in accordance with EPRA's Best Practice Recommendations.

The difference between the weighted average and diluted average number of ordinary shares arises from the potentially dilutive effect of outstanding options granted over ordinary shares.

9. Dividends paid

An interim dividend in respect of the six months ended 31 March 2016 of 7.15p per ordinary share was declared by the Board on 25 May 2016. The interim dividend will be paid on 1 July 2016 to shareholders on the register at 10 June 2016. 4.45p of the dividend will be paid as a PID under the UK REIT regime and 2.7p will be paid as an ordinary dividend. The dividend will be accounted for as an appropriation of revenue reserves in the year ending 30 September 2016.

10. Investment properties