SHB.L Regulatory News (SHB)

SHAFTESBURY 2017 HALF YEAR RESULTS

Growth in earnings, dividend and capital values

Shaftesbury, the Real Estate Investment Trust and owner of an exceptional 14.5 acre property portfolio in the heart of London's West End, today announces its results for the six months ended 31 March 2017.

Highlights

Growth in income, earnings, dividend and NAV

§ Dividend fully covered by EPRA earnings per share4 and adjusted earnings per share4,5

§ Increase in EPRA NAV4 over 12 months to 31.3.2017: 43p (4.8%) before a reduction of 24p as a result of refinancing activity reported in the results for the year ended 30.9.2016.

§ Net asset value return4 for six months ended 31.3.2017: 3.6% (12 months: 6.5% before exceptional refinancing costs noted above).

Continued growth in contracted rents, ERVs and portfolio value6

§ Portfolio valuation4: £3.45 billion. Capital value growth1 over the six months: +2.0% (12 months: +3.9%).

§ ERV increased by £3.5 million to £142.2 million. Growth1 over six months: 1.9% (12 months: +4.3%). CAGR1 over 10 years: 4.8%.  

§ Portfolio reversionary potential has grown by £1.1 million to £30.2 million, 27.0% above current annualised income, of which £14.2 million relates to refurbishment schemes in progress at 31 March 2017.  

§ Equivalent yields unchanged. Wholly-owned portfolio: 3.56% (30.9.2016: 3.57%); Longmartin joint venture: 3.79% (30.9.2016: 3.79%).

Good demand for available space

§ EPRA vacancy2 at 31 March 2017: 3.0% of ERV, including 0.8% in respect of the recently completed Thomas Neal's Warehouse scheme. 1.0% of EPRA vacancy was under offer. 

§ Commercial lettings, lease renewals and rent reviews2 (rental value: £9.3 million) concluded at an average 5.6% above 30 September 2016 ERV and 9.7% above ERV at 31 March 2016.

Further investment in our portfolio

§ Redevelopment and refurbishment schemes during the period across 216,000 sq. ft. (11.9% of floor space1). Capital expenditure2: £20.0 million.

§ Major schemes: Thomas Neal's Warehouse completed and shortlist of proposals from interested parties being evaluated. Central Cross (Charing Cross Road/Chinatown) completing in May; marketing has commenced and initial interest is encouraging. 57 Broadwick Street progressing well with completion in phases from autumn 2017; marketing has recently commenced. 

§ Continuing to identify further asset management initiatives across the portfolio to increase rental potential and unlock value.  

§ Acquisitions, totalling £28.1 million, of properties offering potential for good rental and capital growth.

§ Disposals of non-core assets, totalling £5.4 million, including four apartments sold at 9.2% above book value at 30 September 2016.

Strong Balance Sheet

§ Conservative loan-to-value ratio4,6,7: 26.1% (30.9.2016: 25.8%).

§ Weighted average maturity of debt4,6,7:10.3 years (30.9.2016:10.8 years). 

§ Weighted average cost of debt4,6,7: 3.7% (30.9.2016: 3.9%). 

§ Committed unutilised facilities: £178.4 million. Marginal cost on these facilities: 1.3%.

Brian Bickell, Chief Executive, commented:

"This has been another busy period for Shaftesbury, with the benefit of asset management activity across the portfolio and last year's refinancing initiatives delivering growth in earnings, the interim dividend and portfolio value.

Across our portfolio, the data we collect is showing a clear trend of year-on-year turnover growth for our restaurant, leisure and retail tenants, reflecting the buoyancy of the West End's economy. Occupier demand for these uses, and our office and residential space, is good and vacancy levels remain low.

Looking ahead, the UK faces a period of uncertainty as it negotiates its exit from the EU. Whilst this brings a risk of lower business and consumer confidence, we expect the West End, underpinned by its wide appeal and dynamic economy, will maintain its long record of resilience. Our exceptional portfolio, located in its most popular destinations, continues to flourish. With the benefit of our forensic local knowledge and enterprising management, we are confident it will continue to deliver sustained long-term growth in income, capital values and returns to shareholders."

22 May 2017

For further information:

1. Like-for-like.

2. Wholly-owned portfolio.

3. Calculated in accordance with EPRA Best Practice Recommendations.

4. An alternative performance measure ("APM"). The Group uses a number of APMs to assess and explain its performance, some of which are considered to be APMs as they are not defined under IFRS. Where appropriate, reconciliations to IFRS reported figures are provided within the half year results.

5. After adding back the non-cash accounting charge for share options.

6. Includes 50% of the Longmartin joint venture.

7. Comparative stated pro-forma for refinancing of our Debenture Stock on 7 October 2016 and cancellation of interest rate swaps on notional principal of £55m, in October 2016.

See Glossary of terms below.

This announcement includes inside information.

There will be a presentation to equity analysts at 9.30am on Tuesday 23 May 2017, 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: https://goo.gl/74V1Uh or from our website. A playback facility of this presentation will be available on the Group's website www.shaftesbury.co.uk by the end of the day. The presentation document is available on the Group's website www.shaftesbury.co.uk

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.

Half year results

Introduction

This has been another busy period for Shaftesbury, with the benefit of asset management activity across the portfolio and last year's refinancing initiatives delivering growth in earnings, the interim dividend and portfolio value.

The global appeal of London's West End underpins its broad-based economy and future prospects. For visitors, whether local, domestic or international, the unique mix of world-class historic and cultural attractions, together with an exciting, innovative dining and leisure scene and a world-renowned choice of shopping, combine to offer a city destination experience estimated to attract 300 million visits annually. Forecasts show this exceptional footfall will continue to grow in the years ahead, particularly with the improved connectivity the opening of the Elizabeth Line will bring when services start next year.

Office occupiers, ranging from local SMEs to international businesses, particularly those in the arts, media and technology sectors, continue to seek a base in, or close to, the West End, giving them access to an unmatched pool of creative talent and knowledge in a business-friendly environment.

The performance of the UK economy has been resilient since the EU referendum last June, although there are currently some national indications of slowing domestic consumer spending and confidence. In contrast, the West End continues to benefit from increasing numbers of international visitors, whose spending power has been enhanced by the recent strength of their local currencies against Sterling since the referendum.

Across our portfolio, the data we collect is showing a clear trend of year-on-year turnover growth for our restaurant, leisure and retail tenants, reflecting the buoyancy of the West End's economy. Occupier demand for these uses, and our office and residential space, is good and vacancy levels remain low.

Looking ahead, the UK faces a period of uncertainty as it negotiates its exit from the EU. Whilst this brings a risk of lower business and consumer confidence, we expect the West End, underpinned by its wide appeal and dynamic economy, will maintain its long record of resilience. Our exceptional portfolio, located in its most popular destinations, continues to flourish. With the benefit of our forensic local knowledge and enterprising management, we are confident it will continue to deliver sustained long-term growth in income, capital values and returns to shareholders.

Our business

Accumulated over 30 years, our exceptional portfolio is entirely in the liveliest parts of London's West End. Extending to almost 14.5 acres, together with a 50% share of 1.9 acres held in joint venture, it comprises nearly 600 buildings, mainly clustered in Carnaby, Seven Dials and Chinatown, as well as substantial ownerships in east and west Covent Garden, Soho and Charlotte Street.

We focus on restaurants, leisure and retail. Our 583 restaurants, cafés, pubs and shops extend to 1.1 million sq. ft. and provide 70% of our current income. In the West End, there is a long history of sustained demand for this space but a number of structural factors limit its availability, which has resulted in low vacancy and stable, long-term rental growth. As we provide restaurant, leisure and retail space in shell-form, without capital contribution to tenants' fit-out, our exposure to obsolescence is limited. These are important factors in our portfolio's prospects and shareholder returns.

Generally, the upper floors in our buildings comprise small offices and rental apartments, which provide 30% of our current income. In our locations, the long-term trend is for demand to exceed supply of this space.

Fundamental to the management of our portfolio is a long-term strategy aimed at curating distinctive, lively, and interesting destinations, which attract footfall and spending, offering prosperity for our tenants.

Focused on long-term sustainable income and value creation, elements of the strategy include:

· Selecting new restaurant, leisure and retail formats to respond to ever-changing tastes and expectations;

· Working with our tenants to promote our areas across a wide range of media channels;

· Improving and reconfiguring buildings to provide more efficient accommodation for occupiers, maximising valuable restaurant, leisure and retail space wherever possible; and

· Investing in the public realm to increase pedestrian capacity and raise the quality of streetscapes.

With our clusters of ownerships, the improvements we make to individual buildings or streets bring compound benefits to our adjacent and nearby holdings.

Portfolio review

Lower floors - 70% of current income1

1. Wholly-owned portfolio

2. Shaftesbury has a 50% interest

· Restaurants, cafés and leisure

With increasing numbers of visitors to the West End, and the widely-recognised growth in interest and spending on leisure activities, our 282 restaurants, cafés and pubs are important drivers of footfall and trading in our locations. We are the largest single provider of dining and leisure space in the West End, curating high-profile and busy destinations such as Kingly Court, Neal's Yard, Chinatown and the Opera Quarter. The majority of our restaurants offer casual dining, with a focus on atmosphere, quality and experience, increasingly with an all-day offer.

Operators are attracted to the West End as it provides access to exceptional daily footfall throughout the year and a discerning, affluent customer base of domestic and international visitors and a large working population. The independent sector is particularly active, reflecting the demand from diners to experience high quality, creative and accessible new food concepts, often then sharing their experiences on social media.

Availability of space remains constrained by planning policies, which restrict large-scale development in our locations and discourage conversion of existing space to leisure uses, and the reluctance of operators to relinquish their valuable space other than for significant premiums. Against this backdrop of strong occupier demand and limited supply of space, competition for any of our available space is intense and vacancy rates are low.

During the period, we completed leasing transactions in the wholly-owned portfolio with a rental value of £4.5 million, of which rent reviews accounted for £3.4 million.

Additionally, our share of leasing transactions in the Longmartin joint venture was £0.9 million (31.3.2016: £0.2 million).

· Retail

Providing 77% of our current retail income, Carnaby and Seven Dials make an important contribution to the West End's reputation as a leading global shopping destination. We have a wide range of shop sizes and rental levels across our buildings and streets, allowing us to provide a variety of retail formats, from start-ups to more established operators, whilst offering retailers flexibility to expand or introduce new concepts. Importantly, rental levels in our high-footfall and spending locations are competitive compared with nearby streets.

We continue to have good interest for space, both from domestic and overseas retailers. A key aspect of our strategy to create and maintain distinctive retail locations is tenant selection, focussing on interesting concepts rather than high street brands, and maintaining flexibility in our leasing so we are able to respond to ever-changing tastes in fashion and lifestyle shopping.

We completed leasing transactions in the wholly-owned portfolio with an ERV of £2.9 million in the period. The volume of lettings was lower than for the same period last year, reflecting the lack of space available to let.

Our share of lettings and rent reviews in the Longmartin joint venture was £0.5 million (31.3.2016: £0.7 million).

Upper floors - 30% of current income1

1. Wholly-owned portfolio

2. Shaftesbury has a 50% interest

· Offices

With 405,000 sq. ft. of office space, let to 248 tenants, we are an important provider of small and flexible office accommodation in the core West End. Our average letting is 1,400 sq. ft. at £52 per sq. ft. (30.9.2016: £51 per sq. ft.) and average ERV is £63 per sq. ft. (30.9.2016: £61 per sq. ft.).

Demand for the smaller, flexible space we offer remains good, particularly from the media, creative and tech sectors, which often find their natural home in Soho and Covent Garden. In contrast to large, modern offices, availability of this type of space remains low across our locations and, throughout the period, leasing terms have remained broadly unchanged and occupancy levels have been high.

During the period, wholly-owned office lettings, renewals and rent reviews with a rental value of £1.9 million were completed.

Our share of office lettings and rent reviews in the Longmartin joint venture was £1.4 million (31.3.2016: £0.1 million).

· Residential

Our 570 flats are mainly studios and one or two bedroom apartments, many of which have been created by converting small office space back to its original residential use. Demand for our mid-market apartments remains good, resulting in high occupancy levels and a stable cash flow. During the period, there has been a slight softening in achieved rental levels, owing to increased availability of newly-built buy-to-let flats across central London. We continue our rolling programme to reconfigure and upgrade our apartments, to ensure they offer a specification to match this newer accommodation and maintain our high occupancy rates.

Wholly-owned residential lettings and renewals with a rental value of £4.6 million were completed in the period.

Our share of residential letting activity in the Longmartin joint venture was £0.2 million (31.3.2016: £0.4 million).

Leasing and occupancy

During the six months ended 31 March 2017, we concluded leasing transactions in the wholly-owned portfolio with a rental value of £13.9 million (31.3.2016: £13.6 million). Of this, commercial transactions totalled £9.3 million (31.3.2016: £10.8 million) and residential lettings and renewals amounted to £4.6 million (31.3.2016: £2.8 million). Rents for commercial uses were, on average, 5.6% above ERV at 30 September 2016 and 9.7% ahead of ERV twelve months ago.

Our share of leasing transactions in the Longmartin joint venture was £3.0 million (31.3.2016: £1.4 million), with commercial rents achieved, on average, 0.2% and 2.7% ahead of ERV at 30 September 2016 and 31 March 2016 respectively. Accounting for £2.7 million of the total, rent reviews delivered average increases of 35.8% compared with previous rental levels, an equivalent 5-year CAGR of 6.3%.

EPRA vacancy at 31 March 20171

1. Wholly-owned portfolio

With good demand for space, occupancy levels remained high throughout the period. At 31 March 2017, EPRA vacancy was 3.0% of ERV, an increase of 1.4% compared with 30 September 2016, reflecting a number of scheme completions just before 31 March 2017.

· Thomas Neal's Warehouse

Completing during the period, our Thomas Neal's Warehouse scheme accounted for 0.8% of available-to-let ERV at 31 March 2017.

Our retail-led reconfiguration scheme of this listed Victorian warehouse to provide a unit of 22,700 sq. ft., of which 3,000 sq. ft. is available for restaurant use, completed in October 2016. This project has provided a once-in-a-generation opportunity to add a flagship unit to the Seven Dials district, and introduce an exciting new retail concept, which will greatly enhance the profile and appeal of this already popular destination, five minutes' walk from the Tottenham Court Road transport hub.

The space has attracted considerable interest from both domestic and international businesses. We are currently evaluating a shortlist of proposals for trading formats which could be accommodated in this historic building and which are consistent with our strategic tenant-mix aspirations for the area as a whole.

Public realm improvements to Cambridge Circus are now underway and works to the western section of Earlham Street will begin this summer. We expect these schemes, together with the opening of the Elizabeth Line and the successful letting of Thomas Neal's Warehouse, will over time, materially improve footfall across Seven Dials, bringing benefits particularly to those streets where rental values are currently materially below their long-term potential.

· Other vacancy

Available-to-let vacancy, excluding Thomas Neal's Warehouse, comprised three shops (ERV: £0.4 million), one restaurant (ERV: £0.2 million), 6,300 sq. ft. of office space (ERV: £0.4 million) and 21 apartments (ERV: £0.5 million). This unusually large number of vacant flats reflects scheme completions towards the end of the period, the majority of which were let or went under offer in April 2017.

Space under offer included one restaurant, two cafés, one large shop, two small shops, 6,800 sq. ft. of offices and ten apartments.

In the Longmartin joint venture, two shops and 1,100 sq. ft. of office space were available to let. The ERV of our 50% share of this space was £0.2 million.

Portfolio investment

High levels of refurbishment activity continue across our portfolio, improving our buildings to increase income and unlock value. Capital expenditure during the six months to 31 March 2017 totalled £20.0 million and included schemes extending to 216,000 sq. ft. (11.9% of wholly-owned floor space).

Vacant space held for, or under, refurbishment at 31 March 20171

1. Wholly-owned portfolio

2. Central Cross, Chinatown and 57 Broadwick Street, Carnaby. 30.9.2016 also included Thomas Neal's Warehouse, Seven Dials

Space held for, or under, refurbishment decreased over the period by 0.4% to 10.6% of total ERV. The ERV of schemes completed during the period, including Thomas Neal's Warehouse, totalled £3.3 million. Schemes with an ERV of £3.8 million commenced in the period.

With strong occupier demand across our locations, we continue to identify opportunities to implement further asset management initiatives to improve the rental prospects and value of buildings across our portfolio. This often involves negotiations to secure vacant possession of space to enable us to accelerate the implementation of our ideas. During the period, we secured the early surrender of leases extending to 14,300 sq. ft., including a 6,200 sq. ft. restaurant unit which we are reconfiguring to provide two valuable additions to Carnaby's casual dining offer.

In the Longmartin joint venture, the ERV of our 50% share of space held for refurbishment was £0.1 million.

Progress on major schemes

· Central Cross (Charing Cross Road/Chinatown)

Our Central Cross scheme, at the eastern gateway to Chinatown, will complete at the end of May 2017. The total cost is £14.7 million, of which £13.3 million had been incurred by 31 March 2017.

Located next to Leicester Square Underground station and a few minutes' walk from Tottenham Court Road station, which is set to become the busiest transport hub in the West End when the Elizabeth Line service commences in 2018, it is well-positioned to benefit from high and growing footfall.

We have created exceptional, double-height accommodation with five shops, totalling 35,000 sq. ft., on Charing Cross Road and three large and four smaller restaurants fronting Newport Court and Newport Place, extending to 13,500 sq. ft.. The units vary in size, offering a range of opportunities both for domestic and international operators.

Marketing of the scheme has now commenced in earnest as works have progressed sufficiently to allow potential occupiers to appreciate the exceptional configuration of the internal space. Initial interest has been encouraging. It is likely that letting periods will be longer than the smaller space we traditionally offer, as careful tenant selection will be critical to the long-term success of the scheme and occupiers will be investing considerable sums in fitting out these large, prominent units.

Work on Westminster City Council's public realm scheme for Newport Place and Newport Court will start in early autumn and is scheduled for completion in summer 2018. This new public space will be traffic free each day, other than for servicing between 7am and noon, providing the opportunity, subject to planning and licensing approvals, for al fresco dining outside the new restaurants.

· 57 Broadwick Street, Carnaby

Construction at our mixed-use project at 57 Broadwick Street, at the eastern entrance to Carnaby, is progressing well. Located within a few minutes' walk of the new western entrance to Tottenham Court Road station, on Dean Street, the scheme will provide:

· 8,000 sq. ft. of flagship retail and restaurant space over the lower floors;

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

· two apartments totalling 2,000 sq. ft.

Completing in phases from autumn 2017, the scheme is expected to cost £14.5 million, of which £5.3 million had been incurred by 31 March 2017. Marketing of space has recently commenced.

As a thoroughfare designated as a priority pedestrian route by Westminster City Council, there have already been improvements to the public realm at the eastern end of Broadwick Street and we are now working with the City Council on plans to improve the streetscape around 57 Broadwick Street and the eastern entrance to Carnaby.

Other schemes

We had 50 other schemes underway at 31 March 2017, extending to 101,000 sq. ft. and representing 5.7% of ERV. These included 24,000 sq. ft. of shops (ERV: £2.2 million), 28,000 sq. ft. of restaurants and cafés (ERV: £2.6 million), 26,000 sq. ft. of office space (ERV: £1.6 million), and 39 apartments either being created or up-graded (ERV: £1.2 million).

In our Longmartin joint venture, we shall shortly be commencing the redevelopment of the prominent 13,000 sq. ft. mixed-use building on the corner of Long Acre and Upper St Martin's Lane. Our share of the cost of this scheme is expected to be £4.5 million.

Acquisitions

During the six months to 31 March 2017, we acquired five properties at a total cost of £28.1 million. These comprised two restaurants, two shops, one pub and 3,700 sq. ft. of office space, of which 2,300 sq. ft. has planning consent for residential use. Three of these buildings were acquired with vacant possession. Through short and medium-term asset management initiatives, these additions each offer the potential for good rental and capital growth, either individually or in combination with our existing ownerships.

We continue to identify and investigate opportunities to increase our ownerships, concentrating on buildings in, and around, our villages which have a predominance of, or potential for, restaurant, leisure and retail uses and which offer the opportunity for future rental growth. 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.

Disposals

Disposals of non-core assets in the period totalled £5.4 million. These included four apartments, sold at 9.2% above book value at 30 September 2016, and 1,500 sq. ft. of ancillary commercial basement space, which was sold to an adjoining owner.

Portfolio valuation

1. Including our 50% share of the Longmartin joint venture. See presentation of financial information below

2. Like-for-like (see Glossary below)

Valuation increase driven by rental growth

At 31 March 2017, the valuation of our portfolio, including our 50% share of the Longmartin joint venture was £3.45 billion. Like-for-like capital valuation growth over the period was 2.0% (12 months: 3.9%), driven by growth in contracted income and estimated rental values.

1. Our 50% share

2. Portfolio excluding non-core asset acquired in a portfolio

Like-for-like capital value growth

1. Our 50% share

Continuing growth in contracted rents and ERVs

With sustained demand for space across our portfolio, together with the impact of our ongoing extensive asset management activity, the portfolio's reversionary potential continues to be converted into contracted income, whilst ERVs have grown further.

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

2. Portfolio excluding a non-core asset acquired as part of a portfolio

3. See Glossary below

Annualised current income stood at £112.0 million at 31 March 2017, following like-for-like increases of 2.1% and 3.9% over 6 months and 12 months respectively. The ERV of our portfolio, which is based on current rental tones and largely reflects rental evidence we have established through our leasing transactions, was assessed by our valuers at £142.2 million, £30.2 million or 27.0% above current income. Like-for-like ERV growth over the period was 1.9%, bringing the total for the past 12 months to 4.3%. Over the last ten years, our wholly-owned portfolio has delivered compound like-for-like ERV growth of 4.8% p.a.

Components of the reversionary potential1

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

63% of the uncontracted reversion is accounted for by restaurants, leisure and retail. In our locations, these uses have a long history of sustained demand, which, together with a restricted availability of space, underpins their growth prospects. We remain confident that, with our proven long-term management strategy, we shall not only continue to convert this rental potential into cash flow, but also deliver further long-term growth in rental values.

Strong investor demand yet limited supply of assets to acquire

Equivalent yields attributed by our external valuers were broadly unchanged over the period with the wholly-owned portfolio at 3.56% (30.9.2016: 3.57%) and the Longmartin joint venture at 3.79% (30.9.2016: 3.79%).

The buildings we seek to acquire are typically in long-term private ownership and existing owners remain reluctant to sell. Consequently, it would be virtually impossible, now, to replicate a portfolio such as ours in this vibrant and prosperous location. Against this background of limited availability of properties to buy, investor interest remains strong for properties like ours, which provide investment security, low vacancy, the prospect of growing returns and limited exposure to obsolescence.

Cushman & Wakefield, independent valuer of our wholly-owned portfolio, has continued to note that:

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

· there is a long record of strong occupier demand for these uses in this location and, as a result, high occupancy levels throughout the portfolio.

Consequently, they have reiterated to the Board that some prospective purchasers may recognise the rare and compelling opportunity to acquire, in a single transaction, substantial parts of the portfolio, or the portfolio in its entirety. Such parties may consider a combination of some, or all, parts of the portfolio to have a greater value than currently reflected in the valuation included in these financial statements, which has been prepared in accordance with RICS guidelines.

Financial results

1. vs. 30.9.2016

2. vs. 6 months ended 31.3.2016

3. 6 month period ended 31.3.2017

Presentation of financial information

Our property portfolio is a combination of properties that are wholly owned by the Group and a 50% share of property held in joint venture.

The financial statements, prepared under IFRS, includes the Group's interest in its joint venture as one-line items in the Income Statement and Balance Sheet. The analysis below is based on the IFRS financial statements.

Internally, management review the valuation of properties and our debt position on a proportionally consolidated basis, including our 50% share of the joint venture. Consequently the analysis of the valuation above and the finance review below is presented on this proportional consolidated basis. We consider that this presentation better explains to stakeholders the Group's activities and financial position.

Income statement

Reported earnings

Profit after tax for the six months was £102.4 million (31.3.2016: £80.1 million) and basic earnings per share was 36.7p (31.3.2016: 28.8p). The increase was largely due to the decrease in the fair value deficit of our interest rate swaps which added 5.8p in the period, compared with an increase in this deficit in the corresponding period in 2016 which reduced earnings per share by 4.3p last year. This was partly offset by a decrease in our share of the post-tax profits from our joint venture, largely driven by a lower revaluation surplus.

EPRA earnings

As is usual practice in our sector, we produce an alternative measure for certain indicators, including earnings, making adjustments set out by EPRA in its Best Practice and Policy Recommendations. EPRA earnings are a measure of the level of underlying operating results and an indication of the extent to which current dividend payments are supported by recurring earnings. In our case, EPRA earnings excludes valuation movements in respect of our properties and interest rate swaps, and ignores deferred tax arising in our Longmartin joint venture, as set out in the reconciliation below.

EPRA earnings increased by 12.9% to £22.8 million (31.3.2016: £20.2 million) resulting in EPRA EPS of 8.2p, 12.3% above the first half of last year (31.3.2016: 7.3p). This increase was principally driven by growth in net property income as we continue to crystallise our portfolio's reversionary potential and lower finance costs, following our recent refinancing (see below for details).

Net property income

Rents receivable have increased by 3.5% to £50.9 million (31.3.2016: £49.2 million). Like-for-like growth was 3.9%, which reflects the continued conversion of our portfolio's reversionary potential into contracted cash flow. Acquisitions contributed £0.6 million to the increase, whilst vacancy arising from our major schemes reduced rents receivable by £0.8 million compared with the same period last year.

Irrecoverable property charges were unchanged compared with the first half last year at £7.1 million (31.3.2016: £7.1 million), representing 13.9% of rents receivable (31.3.2016: 14.4%). After these costs, net property income was £43.8 million, up 4.0% on the same period last year (31.3.2016: £42.1 million).

Administrative expenses

Administrative expenses, excluding the charge for share options, totalled £6.0 million (31.3.2016: £4.9 million). This includes a provision for annual bonuses of £1.1 million (31.3.2016: £0.7 million). Reflecting growing activity within our portfolio, administrative costs, excluding the bonus provision, increased by £0.7 million to £4.9 million (31.3.2016: £4.2 million), mainly due to increased employment costs, including additional headcount. We do not capitalise administrative costs.

The share options charge was £0.8 million (31.3.2016: £1.5 million). This comprised a non-cash accounting provision of £0.7 million (31.3.2016: £1.2 million) and a charge for employer's National Insurance of £0.1 million (31.3.2016: £0.3 million).

Profit on disposal of investment properties

Net profit from disposals was £0.3 million. See above for further details.

Revaluation surplus

The surplus arising on the revaluation of our wholly-owned portfolio amounted to £61.6 million (31.3.2016: £58.2 million). This represented a like-for-like increase of 2.1%, principally driven by like-for-like ERV growth of 2.0%. Further details are provided above.

Finance costs

Net finance costs (excluding the change in fair value of our interest rate swaps) decreased by £0.5 million to £16.1 million (31.3.2016: £16.6 million). This reflects the benefits of reduced borrowing costs following the refinancing reported last year, partly offset by higher net debt as a result of acquisitions and further investment in our portfolio.

The movement in the fair value of our interest rate swaps resulted in a credit to the Statement of Comprehensive Income during the period of £16.1 million. This included a reduction in the deficit in respect of those interest rate swaps still in place at 31 March 2017 of £12.2 million, following an increase in long-dated interest rates during the period. Additionally, it reflects a profit of £3.9 million from terminating swaps at better rates than those prevailing at the year end.

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 £11.4 million to £3.5 million (31.3.2016: £14.9 million), largely due to a smaller revaluation surplus of £1.5 million (31.3.2016: £10.4 million). Our share of net property income increased by £0.9 million, following the successful conclusion of a number of rent reviews which contributed to a like-for-like increase in rents receivable, compared with the same period last year, of 27.8%.

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 (31.3.2016: £Nil).

Interim dividend

The Board has declared an interim dividend of 7.9p per share, an increase of 10.5% on last year's interim dividend of 7.15p. This increase reflects growth in net property income and earnings enhancements from the refinancing reported last year. See below for further details.

As a REIT, we are required to distribute a minimum of 90% of net rental income, calculated by reference to tax rather than accounting rules, as a PID. Notwithstanding this, our dividend policy is to maintain steady growth in dividends, reflecting the long-term trend in our income and EPRA earnings, adjusted to add back the non-cash accounting charge for equity-settled remuneration. To the extent that dividends exceed the amount available to distribute as a PID, we pay the balance as ordinary dividends.

Whilst the exceptional charges associated with the refinancing activities in October 2016 were accounted for in the 2016 financial statements, they are charged against our current year qualifying REIT income. Since these charges outweigh qualifying income to date, the interim dividend, to be paid on 7 July 2017, will be paid as an ordinary dividend. It is likely that any further dividend in relation to the year ending 30 September 2017 will be also paid as an ordinary dividend, with PIDs resuming next year.

The dividend is covered 1.04 times by EPRA earnings and 1.07 times by adjusted earnings, after adding back the non-cash accounting charge in the period for equity-settled remuneration of £0.7 million.

Balance Sheet

Net asset value per share

Diluted net asset value per share increased by 29p to £8.83 (30.9.2016: £8.54) largely due to the revaluation surplus on our investment properties, which contributed 22p. The decrease in the fair value deficit attributable to our interest rate swaps added 6p, whilst our share of the Longmartin joint venture contributed 1p.

EPRA net asset value

EPRA NAV is a sector-recognised benchmark, which makes adjustments to reported NAV to provide a measure of the fair value of net assets on a long-term basis. Assets and liabilities that are not expected to crystallise in normal circumstances are excluded. In our case, the calculation excludes the fair value of interest rate swaps, other than those expected to be terminated, and deferred tax related to property valuation surpluses in the Longmartin joint venture.

EPRA NAV per share increased over six months by 24p (2.7%) to £9.12 (30.9.2016: £8.88). EPRA earnings of 8.2p per share were offset by the 2016 final dividend (7.55p per share). The revaluation surpluses from the wholly-owned portfolio and the Longmartin joint venture added 23p. The cancellation of interest rate swaps in October 2016, at more favourable rates than those prevailing at 30 September 2016, contributed 1.4p. Growth over 12 months was 2.1%, after exceptional refinancing costs charged in 2016 (24p per share).

Net asset value return measures shareholder value creation, taking into account the growth in EPRA NAV together with dividends paid in the period. The net asset value return was 3.6% during the period, and 3.8% over twelve months.

Cash flows and net debt

Net debt increased by £79.0 million to £831.1 million over the period (30.9.2016: £752.1 million). The major cash flows were:

· Operating cash inflow totalling £21.6 million.

· Dividends paid amounting to £21.3 million.

· Net capital investment in our portfolio of £44.3 million.

· Termination of interest rate swaps at a cost of £34.1 million.

Finance review

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

Having issued £285 million of bonds at 2.487% in October 2016, we refinanced our legacy £61 million Debenture Stock and terminated interest rate swaps with a notional principal of £55 million. The surplus proceeds of £165.5 million were used to reduce drawings against our revolving credit facilities. This refinancing significantly increased our financial resources, reduced the blended cost of our debt and extended its average maturity.

Since then, we have funded net investment in our portfolio through further drawings against these facilities, which, with a marginal cost of 1.3% has reduced our blended cost of debt to 3.7%. If these facilities were fully drawn, this weighted average cost would fall to 3.3%.

Debt summary

1. Pro-forma for the issue of 2.487% Mortgage Bonds 2031 and redemption of 8.5% Debenture Stock 2024, and for the cancellation of interest rate swaps with a notional principal of £55m in October 2016

2. Based on the nominal value of debt

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

4. Based on EPRA net assets

5. Including non-utilisation fees on undrawn bank facilities

The maturity profile of our debt is set out below. The Board reviews this regularly and plans to refinance facilities ahead of their contractual maturities.

Debt maturity profile

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

Portfolio analysis

1. Shaftesbury Group's 50% share

Basis of valuation 

Notes

1. The fair values at 31 March 2017 (the "valuation date") shown in respect of the individual villages are, in each case, the aggregate of the fair values of several different property interests located within close proximity which, for the purpose of this analysis, are combined to create each village. The different interests within each village were not valued as a single lot.

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

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

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

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

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

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

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

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

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

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

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

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

14. The analysis excludes a non-core asset, acquired as part of a portfolio during the six-month period ended 31 March 2017.

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 66 to 69 in the Annual Report for the year ended 30 September 2016. Details of how we manage risk are set out on pages 63 to 65 of the Annual Report.

Geographic concentration risk

Risk of a sustained fall in visitor numbers and/or spending

Regulatory risk

Economic risk

Unaudited Group Statement of Comprehensive Income

For the six months ended 31 March 2017

Please see below for an explanation of the EPRA measures used in these financial statements. Unaudited Group Balance Sheet

As at 31 March 2017

Unaudited Group Cash Flow Statement

For the six months ended 31 March 2017

Proceeds and repayment of borrowings have been restated at 31 March 2016 to present these movements on a gross basis. This has no impact on the net change in cash and cash equivalents, net assets, or reported results in any of the periods presented.

Statement of Changes in Equity

For the six months ended 31 March 2017

Notes to the half year results

For the six months ended 31 March 2017

1. Accounting policies

Basis of preparation

The Group's condensed consolidated 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 2016, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS), IFRS Interpretations Committee interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial information in these 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 2016 is derived from the statutory accounts for that year. Statutory accounts for the year ended 30 September 2016 were approved by the Board of directors on 29 November 2016 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 consolidated half year financial statements have been reviewed, not audited.

Going concern

The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for at least the next 12 months from the date the financial statements were approved. Therefore, they continue to adopt the going concern basis in preparing the condensed consolidated half year financial statements.

Critical judgements, assumptions and estimates

The preparation of these financial statements requires the Board to make judgements, assumptions and estimates that affect amounts reported in the Statement of Comprehensive Income and Balance Sheet. The directors consider the valuation of investment property to be a critical judgement because of the level of complexity, judgement or estimation involved and its impact on the financial statements. This is consistent with the financial statements for the previous year end. Full disclosure of the critical judgements, assumptions and estimates is included in the 2016 financial statements.

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 Interpretations were mandatory for the first time for the financial year beginning 1 October 2016:

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

b) The following new Standards are relevant to the Group, are not yet effective in the year ending 30 September 2017 and are not expected to have a significant impact on the Group's financial statements:

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

Segmental information

The Group's properties, which are all located in London's West End, are managed as a single portfolio. Its properties, which are of a similar type, are combined into villages. All of the villages are geographically close to each other and have similar economic features and risks. In view of the similar characteristics and the reporting of all investment, income and expenditure to the Board at an overall Group level, the aggregation criteria set out in IFRS 8 have been applied to give one reportable segment.

The Board assesses the performance of the reportable segment based on net property income and investment property valuation. Financial information provided to the Board is prepared on a basis consistent with these financial statements.

2. Revenue

Rents receivable includes a charge of £0.3 million from amortisation of accrued income in respect of lease incentives (31.3.2016: credit of £0.6 million; 30.9.2016: credit of £0.5 million).

3. Property charges

4. Charge in respect of equity-settled remuneration

5. Finance costs

6. 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.

7. Earnings per share

Basic and diluted earnings per share