SHB.L Regulatory News (SHB)

SHAFTESBURY 2016 FULL YEAR RESULTS

Relentless focus on sustainable rental growth continues to deliver resilient growth in earnings, dividend and NAV

Shaftesbury PLC ("Shaftesbury") today announces its results for the year ended 30 September 2016.

Highlights

Growth in income, dividends and NAV

§ Net property income3 up £5.3 million (6.7%) to £84.1 million (2015: £78.8 million). 

§ EPRA earnings increased by 8.0% to £39.0 million (2015: £36.1 million). EPRA earnings per share increased by 7.7% to 14.0p (2015: 13.0p). 

§ IFRS earnings: £99.1 million (2015: £467.3 million). IFRS earnings per share: 35.6 p (2015: 168.0 p), the decrease largely due to a lower revaluation surplus in 2016, compared with 2015.  

§ Total dividend for the year 14.7p (2015: 13.75p), an increase of 6.9%. Final dividend per share of 7.55p (2015: 6.925p).  

§ Increase in reported IFRS NAV of 2.6% to £8.54 per share (2015: £8.32 per share).  

§ EPRA NAV: £8.88 per share, an increase of 19p (2.2%). Portfolio capital value growth added 43p (4.9%) before a reduction of 24p as a result of early termination of debenture debt and interest rate swaps.  

§ Net asset value return before dividends: 3.8% (2015: 23.8%).

Continued growth in contracted rents, ERVs and portfolio value2

§ Portfolio valuation: £3.35 billion. Underlying like-for-like capital value return over the year: +4.9% but reduced to 4.0% as a result of the increase in SDLT announced in the March 2016 Budget.  

§ ERV, based on current, established rental tones, increased by £10.0 million to £138.7 million (2015: £127.8 million). Like-for-like ERV growth: 5.7%. CAGR over 10 years: 4.6%.  

§ Portfolio reversionary potential has grown by £3.9 million to £29.1 million, 26.6% above current annualised income, of which £14.2 million relates to refurbishment schemes in progress at 30 September 2016.  

§ Equivalent yields largely unchanged. Wholly-owned portfolio: 3.57% (2015: 3.61%); Longmartin joint venture: 3.79% (2015: 3.75%).

Strong occupier demand across all locations and for all uses

§ EPRA vacancy3 at 30 September 2016: 1.6% of ERV, of which 1.1% was under offer.  

§ Commercial lettings, lease renewals and rent reviews1 (rental value: £21.6 million) concluded at an average 7.7% above 30 September 2015 ERV.  

Further investment in our portfolio

§ Redevelopment and refurbishment schemes across 249,000 sq. ft. (14% of floor space3). Capital expenditure1: £32.6 million (2015: £24.7 million).  

§ Major schemes: Thomas Neal's Warehouse completed after year end and marketing now underway. Encouraging initial interest. Charing Cross Road/Chinatown and 57 Broadwick Street progressing well. 

§ We continue to identify opportunities to carry out further asset management initiatives to increase rental potential and unlock value.  

§ Acquisitions totalling £62.7 million in Covent Garden, Soho and Charlotte Street.

Important financing initiatives

§ Completed the refinancing of our 8.5% Debenture Stock 2024 with issue of £285m 2.487% Mortgage Bonds maturing in 2031.  

§ In October 2016 cancelled interest rate swaps with notional principal of £55 million. Legacy swaps totalling £235 million terminated since 2013.  

§ Conservative gearing. Loan-to-value ratio2,4: 25.8% (2015: 22.5%).  

§ Weighted average maturity of debt2,4: 10.8 years (2015: 10.2 years). 

§ Weighted average cost of debt2,4: 3.9% (2015: 4.9%). 

§ Committed unutilised facilities2,4: £214.6 million. Marginal cost of drawing on these facilities: 1.2%.

Brian Bickell, Chief Executive, commented:

"We are pleased to report another year of excellent performance. Against a background of growing caution in property markets, which is beginning to affect some property values, our exceptional portfolio has delivered underlying capital value growth of 4.9%.

Whilst London and, at its heart, the West End, cannot be completely immune from the influences of the macro environment, its global city status, exceptionally dynamic and broad-based economy and enduring appeal for domestic and international businesses and visitors, will continue to support its long-term prospects for sustained growth and prosperity. This positive outlook underpins the potential in our portfolio.

The exceptional qualities and resilience of our business have delivered long-term sector out-performance. Despite present uncertainties, we are confident our impossible-to-replicate portfolio and the innovative, long-term management we bring to it, will continue this record of delivering sustained growth in total returns for shareholders."

29 November 2016

For further information:

1. Like-for-like.

2. Includes 50% of the Longmartin joint venture.

3. Wholly-owned portfolio.

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

This announcement includes inside information

There will be a presentation to equity analysts at 9.30 am on Tuesday 29 November 2016, at The London Stock Exchange, 10 Paternoster Square, London EC4M 7LS. There will be a conference call for bondholders at 3:30 pm on Friday 2 December 2016. If you would like to participate, please contact Gill Smith on 020 7333 8118.

There is a live audio webcast of the analyst presentation which you can access via the following link: https://goo.gl/u2KeFW or from our website. A playback facility of this presentation will be available on the Group's website www.shaftesbury.co.uk by the end of the day. The presentation document is available on the Group's website www.shaftesbury.co.uk

About Shaftesbury

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

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

We focus on retail, restaurants and leisure in the liveliest parts of the West End. Our portfolio now comprises 584 shops, restaurants, cafés and pubs, extending to over 1 million sq. ft., and accounting for 70% of our current income. In our locations these uses have a long record of occupier demand exceeding their availability. The portfolio also includes 406,000 sq. ft. of offices and 559 apartments for rent, which provide 16% and 14%, respectively, of our current income.

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

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

Forward-looking statements

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

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

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

Ends.

Highlights

1. Like-for-like

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

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

4. Adjusted in accordance with EPRA Best Practice Recommendations.

5. Wholly-owned portfolio.

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

See Glossary of terms below.

Chief Executive's Statement

We are pleased to report another year of excellent performance. Against a background of growing caution in property markets, which is beginning to affect some property values, our exceptional portfolio has delivered underlying capital value growth1 of 4.9%. 

Progression in current and potential future rental income has been resilient and investment yields attributed by our valuers have remained firm. After adjusting for the increase in SDLT announced in the March 2016 Budget, which has affected the valuation of all UK property assets, capital value growth over the year reduces to 4.0%.

The increase in our net property income of 6.7% to £84.1 million reflects sustained occupier demand and high levels of occupancy across our portfolio and has delivered an 8.0% increase in our EPRA earnings to £39.0 million. This translates into a 7.7% increase in EPRA earnings per share, and supports a 6.9% increase in dividends paid and proposed in respect of the year to 14.7 pence per share.

The growth in the value of our portfolio added 43 pence to the net asset value of £8.69 we reported last year, an increase of 4.9%. This has been offset by the costs of refinancing our debenture stock and terminating certain interest rate swaps, which amounted to 24 pence per share, resulting in a net asset value per share of £8.88, an overall increase of 2.2%. This well-timed refinancing has provided us with new, low-coupon, long-term funding, which increased our financial resources and will improve earnings in the years ahead.

Our focus on London's West End

Over our 30-year history, we have patiently assembled an exceptional portfolio of over 14 acres in the heart of London's West End, a location which is underpinned by an unrivalled variety of attractions for local, domestic and international visitors. Our investment strategy is focused on restaurants, cafés, leisure and retail, where our ownerships extend to over 1 million sq. ft. and provide 70% of our annualised rental income. Our long-term management strategy is aimed at creating lively destinations, which attract both footfall and spending by offering a distinctive variety of retail and leisure choices. As space in the West End for these core uses is constrained by planning policies, the structural imbalance in demand and availability brings great resilience in occupancy and rental levels.

In addition, with over 400,000 sq. ft. of office accommodation, we are the largest single provider of accommodation for SME businesses in Soho and Covent Garden. We have also built up an ownership of 559 apartments which we rent and which appeal to younger people who are studying or working in central London.

The unique features of the West End attract a wide variety of national and international businesses, and provide a large local working population, particularly from the creative, media and tech sectors, whose activity and spending throughout the working week make an important contribution to its economy and character. We benefit from the substantial investment being made by others in improving and extending the stock of office accommodation around our locations and across the West End.

The West End economy

The buoyant conditions we reported last year in our local market have continued throughout the current year. Although there have been growing concerns of an economic slowdown nationally since the beginning of 2016, the West End continues to prosper, with steadily rising domestic and international visitor numbers and spending and demand from a broad-spectrum of businesses seeking space across all uses.

These conditions, and the special appeal of our high-profile and carefully-curated areas, have underwritten the low level of vacancy in our portfolio, and good growth in both current rental income and rental tones, throughout the year. We concluded £27.8 million of leasing transactions, achieving rents for commercial space 7.7% above ERV at the previous year end. This activity converts our portfolio's reversionary potential into contracted income, whilst at the same time providing valuable rental evidence for growing income, over time, from our adjacent and nearby holdings.

Although the outcome of the EU referendum has created uncertainty for business nationally, we have not, so far, seen any adverse impact on occupier demand, footfall or trading in our areas. The recent depreciation in sterling has already added to the spending power of international visitors and, if sustained, may lead to increased visitor numbers above their long-term growth trend. Domestic inflationary pressures, which are expected to increase next year, may impact UK consumer confidence but will be less important for visitors who benefit from a strong local currency. Until future trading and other arrangements with the EU become clearer, there is a risk that business decisions may be deferred, slowing the UK economy, but we expect the West End's wide appeal and economy will maintain its history of resilience.

The recently announced revaluation of business rates across England will increase the levy on business premises in London from next April. Across our portfolio, we anticipate increases in the range 30% to 45%, depending on location. Broadly, we estimate that this will increase tenants' occupancy costs by c. 2-3% of turnover. The average increases across our streets will be less marked than for some nearby locations and other Central London destinations, increasing the competitive advantage of the more-modestly priced accommodation we offer. Whilst the transitional arrangements for larger premises are not as generous as they have been in the past, we estimate that half of our 584 restaurants, cafés and shops, and three quarters of our offices will qualify for the transition to the new levels to be effected over four years.

We support Westminster City Council's initiative to seek to retain more of the £1.8 billion of business rates they collect on behalf of the Treasury. An increase from the 4% they currently keep would support their ambition to further invest in the borough's infrastructure, in partnership with property owners and other stakeholders.

Improving access to the West End

We expect our portfolio will, in the coming years, benefit from a number of transport infrastructure improvements. The opening of the Elizabeth Line in late 2018, improved rail and tube capacity, and initiatives such as weekend night time running on the Underground, are expected to bring more footfall and spending to the West End. Whilst the increased rates burden on tenants, coupled with wider economic uncertainties, are not welcome, these improvements will enhance the West End's connectivity and should, over time, enable restaurant, leisure and retail businesses to absorb increased costs through turnover growth.

Investing in our portfolio

Our strategy is to refurbish, reconfigure and adapt, rather than redevelop, our buildings. Despite our extensive management activity, our focus on uses which limit the exposure to obsolescence in our portfolio continues to result in a relatively low level of capital expenditure, which this year totalled £32.6 million, less than 1% of the valuation of our portfolio.

We are making good progress with our major projects in Seven Dials, Chinatown and Carnaby. Each of these schemes is located on streets which are expected to benefit from greater forecast footfall from the completion of the new Tottenham Court Road transport hub and associated public realm improvements. Our selection of occupiers, and the creativity they bring with their trading formats, will be of particular importance. Inevitably with retail and restaurant accommodation of the sizes we are offering, where occupiers will be investing heavily in their fit-outs, letting periods are likely to be longer than for the smaller space we traditionally have to offer. In total, these three schemes will, on completion and letting, add an estimated £7.4 million to our contracted income. We expect each will bring significant benefits to our neighbouring ownerships as well as producing long-term rental growth.

We continue to identify and negotiate early vacant possession of under-utilised space to implement improvement schemes, introducing new, more valuable uses, where possible. These projects unlock value and enhance the rental potential of our holdings, often producing compound benefits across our extensive adjacent ownerships.

Adding to our ownerships

Over the year, additions to our portfolio totalled £62.7 million.

In our locations, the availability of properties to acquire, which meet our strict investment criteria, continues to be limited. Existing owners, who are mainly private, rather than institutional, are reluctant to sell, recognising the long-term security and growth prospects their ownerships offer. This situation, which has existed for many years, is unlikely to change, even as a result of current economic uncertainties, so assembling a portfolio of 14 acres, like ours, in the heart of the West End, would be impossible.

However, as in the past, our patient approach and forensic knowledge of our local market will lead to a steady flow of purchases which extend and complement our ownership clusters, and provide further opportunities to add value through our intensive management strategies.

Important refinancing initiatives

With a scarcity of the type of properties we seek to acquire, we need to act swiftly when opportunities arise and, therefore access to stable long-term funding and committed financial resources is critical. In October 2016 we completed the early redemption of our historical debenture stock and issued £285 million of 15 year bonds, providing additional net resources of £189.4 million, enabling us to continue to fund additions to, as well as investment in, our already-extensive portfolio. This new debt was secured at an exceptionally low fixed coupon of 2.487%. Coupled with the termination of £55 million of interest rate swaps in October 2016, these transactions have usefully reduced the cost of our debt, benefiting future earnings and dividends.

Looking ahead

2016 will be remembered as a year of unprecedented political turbulence, not just in the UK but in many parts of the world. The impact of the events we have seen this year have not yet become clear, and their longer term ramifications may not become apparent for some considerable time. This will inevitably bring uncertainty to the general business climate, with risks to consumer confidence and economic growth.

Whilst London and, at its heart, the West End, cannot be completely immune from the influences of the macro environment, its global city status, exceptionally dynamic and broad-based economy and enduring appeal for domestic and international businesses and visitors, will continue to support its long-term prospects for sustained growth and prosperity. This positive outlook underpins the potential in our portfolio.

Our management strategy, executed by an experienced and enthusiastic team, with a forensic knowledge of the local market, has a long record of delivering sustained rental growth, which is key to the long-term growth in the value of our portfolio and shareholder returns. Our strategy is deliberately long-term in outlook and is not influenced by short-term market or economic conditions. Its implementation constantly evolves to ensure that our buildings and locations adapt and respond to the challenges of technological developments and environmental sustainability, as well as expectations of both occupiers and the vast, and ever-growing, numbers who visit every day, throughout the year.

The exceptional qualities and resilience of our business have delivered long-term sector out-performance. Despite present uncertainties, we are confident our impossible-to-replicate portfolio and the innovative, long-term management we bring to it, will continue this record of delivering sustained growth in total returns for shareholders.

Brian BickellChief Executive

29 November 2016

1. Like-for-like, before the impact of increased SDLT 

Portfolio valuation

Across our portfolio, strong demand and extensive asset management activity is delivering continued growth in current rents and ERVs, driving capital value growth.

The valuation of our portfolio, including our 50% share of the Longmartin joint venture, increased by £216 million to £3.35 billion over the year. The ungeared, like-for-like valuation growth was 4.0%, after a reduction of 0.9% as a result of an increase in SDLT on commercial property of 1%, imposed in the March 2016 Budget.

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

2. Like-for-like

3. Our 50% share

Valuation increase driven by strong rental growth

Sustained demand for space across our portfolio, together with extensive asset management activity, continue to deliver growth in current income and rental values. Our management strategies have a relentless focus on, and a long record of, converting the potential reversion in our portfolio into cash flow, whilst further increasing rental values.

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

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

3. Excluding acquisitions and the impact of major schemes.

Annualised current income increased on a like-for-like basis by 6.2%, Importantly, the ERV of our portfolio, which is based on currently established rental tones, increased on a like-for-like basis by 5.7% and currently stands at £138.7m, 26.6% above current income.

Components of the reversionary potential

64% of the uncontracted, under-rented reversion is accounted for by shops, restaurants, cafés and pubs. In our locations, these uses have a long history of sustained, non-cyclical demand, which, together with a restricted supply of space, underpins their growth prospects. We remain confident that, with our proven long-term management strategy, we shall not only continue to convert this rental potential into cash flow, but also deliver further long-term growth in rental values.

Investment security, growing returns and low obsolescence

Investor interest remains strong for properties like ours, which provide investment security, low vacancy, growing returns and limited exposure to obsolescence. This is further fuelled by the current availability of finance at historically low levels. Against this backdrop of strong demand, availability of properties to purchase remains limited.

Equivalent yields, attributed by our external valuers, have remained broadly unchanged over the year with the wholly-owned portfolio at 3.57% (2015: 3.61%), and the Longmartin joint venture at 3.79% (2015: 3.75%).

The valuation of our larger schemes does not include expected development profits which will be recognised once they are completed and let.

Potential greater value for some, or all, parts of the portfolio

DTZ, independent valuer of our wholly-owned portfolio, has continued to note that:

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

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

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

Investing in our portfolio

Extensive asset management and refurbishment activity delivering increasing income and unlocking value.

Extensive activity

Schemes during the year extended to 249,000 sq. ft. (circa 14% of wholly-owned floor space), at a cost, during the year, of £32.6 million. Where possible, we seek to negotiate early vacant possession of under-rented space to implement further asset management initiatives to accelerate the capture of, and growth in, our portfolio's reversionary potential. During the year we secured 71 planning consents, a vital part of maintaining a pipeline of projects.

Vacant space held for, or undergoing, refurbishment at 30 September 20161

1. Wholly-owned portfolio

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

Good progress with major schemes

At 30 September 2016, space held for, or under, refurbishment extended to 202,000 sq. ft., and represented 11% of ERV, an increase of 6.7% during the year. This included our three major schemes: Thomas Neal's Warehouse, Seven Dials, Charing Cross Road/Chinatown and 57 Broadwick Street, Carnaby, which totalled 101,200 sq. ft. and represented 5.7% of ERV.

Each of these major schemes is well-positioned to benefit from expected changes in footfall following the opening of the Elizabeth Line in 2018 and will bring significant long-term benefits to our neighbouring ownerships. Our selection of tenants, and how they intend to use this exciting new space, will be particularly important to their success. Inevitably, with space of this size, where occupiers will be investing heavily in their fit-outs, letting periods are likely to be longer than the smaller space we traditionally have to offer.

Once let, these schemes will add £7.4 million to our annual income. Importantly, since the restaurant and retail space on the lower floors, extending to 79,200 sq. ft., will be provided in shell form only, further rental growth will come with little, or no further, capital expenditure.

Thomas Neal's Warehouse, Seven Dials

We completed the reconfiguration of Thomas Neal's Warehouse, Seven Dials, in October 2016.

The scheme provides 22,700 sq. ft. of retail space, including up to 3,000 sq. ft. for restaurant use. Marketing is now underway and the level of initial interest is encouraging.

Located close to the new Tottenham Court Road transport hub, this flagship accommodation, together with major public realm improvements in 2017, will further strengthen Seven Dials as a popular and distinctive retail and leisure destination.

Earlham Street, which is part of an important pedestrian route from Soho towards Thomas Neal's Warehouse, is set to undergo a major upgrade, commencing in spring 2017. Rental tones in this important gateway into Seven Dials from Cambridge Circus have lagged behind nearby streets for some time. However, with an expectation of increased footfall from Tottenham Court Road and the benefit of improvements to Cambridge Circus to relieve pedestrian congestion, planned for early 2017, this should bring material long-term benefits to this street, as well as our other holdings in Seven Dials.

Charing Cross Road/Chinatown

Having commenced this scheme in January 2016, we have now passed the half-way point and are on track to complete our works in spring 2017. Located next to Leicester Square Underground station, and within a short walk of Tottenham Court Road station, it will bring major improvements to this important block on Chinatown's eastern boundary, which we expect to provide material benefits to our other holdings in Chinatown.

The scheme will provide:

§ 35,000 sq. ft. of retail along a 330-foot frontage on Charing Cross Road, a street with high footfall, which is expected to grow materially once the Elizabeth Line opens.

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

§ a much-improved gateway into Chinatown.

We are creating space with exceptional floor-to-ceiling heights, providing an opportunity to increase floor space by adding mezzanine floors in a number of locations within our scheme, if required by tenants.

Formal marketing will commence in early 2017, once works are sufficiently progressed to show the accommodation to prospective occupiers. The expected cost is £14.5 million, of which £8.4 million had been incurred by 30 September 2016.

We continue to support Westminster City Council's plans to create a part-pedestrianised public square in Newport Place, at the eastern end of Gerrard Street. This will provide the opportunity, subject to licensing and planning consents, for al fresco dining for our newly-created restaurants, and significantly improve the public realm in Chinatown. Currently we expect works to begin in late spring 2017.

57 Broadwick Street, Carnaby

Having completed strip-out works, in September construction commenced at our major mixed-use project at 57 Broadwick Street, Carnaby. Situated within a few minutes' walk of Tottenham Court Road's new western ticket hall on Dean Street, this 30,000 sq. ft. scheme at this eastern gateway to Carnaby will provide:

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

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

§ two apartments totalling 2,000 sq. ft.

The project will complete in phases from late 2017, at an estimated cost of £14.5 million, of which £3.1 million had been incurred by 30 September 2016.

With an expectation of increased footfall along Broadwick Street, Westminster City Council have designated this improving thoroughfare as a priority pedestrian route and have now begun a programme to improve the streetscape.

Other schemes

At 30 September 2016, we were progressing other projects, extending to 100,800 sq. ft. and representing 5.3% of ERV. These included the reconfiguration and improvement of 19,000 sq. ft. of restaurants and cafés, 16,800 sq. ft. of retail, 31,000 sq. ft. of office space, and 56 apartments either being created or upgraded. We expect these to complete and become income-producing in the coming year.

Acquisitions with the potential for rental and capital growth

Acquisitions during the year totalled £62.7 million. These additions to our portfolio in Covent Garden, Soho and Charlotte Street comprised nine shops, five restaurants and cafés, 2,850 sq. ft. of office space and four apartments.

On acquisition, they produced an average net initial yield of 2.4%. As we integrate them with our existing ownerships, they offer the potential for good rental and capital growth through short and medium-term asset management initiatives, some of which have already commenced.

We continue to seek out new acquisitions, but remain disciplined, concentrating on buildings:

§ in, and around, our villages;

§ which have a predominance of, or potential for, restaurant, leisure and retail uses; and

§ which offer the potential for future rental growth, either individually or through combination with our existing ownerships.

As ever, the availability of buildings which fit these strict investment criteria remains limited, with existing owners reluctant to sell assets which they will find hard to replace in this exceptionally prosperous and resilient area.

Leasing and occupancy

Demand continues to be strong for all uses and across each location. Space continues to let quickly and vacancy levels remain low.

Leasing

During the year, we concluded lettings, lease renewals and rent reviews in the wholly-owned portfolio with a rental value of £27.8 million (2015: £27.3 million), representing 21.6% of total ERV. Of this, commercial transactions totalled £21.6 million (2015: £21.6 million) and residential lettings and renewals amounted to £6.2 million (2015: £5.7 million). Rents achieved for commercial uses were, on average, 7.7% above ERV at 30 September 2015.

Our share of leasing activity in the Longmartin joint venture was £2.7 million. Commercial rents achieved were, on average, 6.2% above ERV at 30 September 2015.

Vacancy

EPRA vacancy at 30 September 20161

1. Wholly-owned portfolio.

With sustained tenant demand for space, EPRA vacancy has been, on average, 1.9% of total ERV over the year. At 30 September 2016, it stood at 1.6%, of which 1.1% was under offer.

Available-to-let vacancy comprised: one restaurant, five small shops, 3,000 sq. ft. of office space and one apartment. Space under offer at 30 September 2016 included four cafés, 11,000 sq. ft. of office accommodation and ten apartments.

In the Longmartin joint venture, two shops, 4,000 sq. ft. of office space and two apartments were available-to-let or under offer. The ERV of our 50% share of EPRA vacancy was £0.3 million.

Portfolio review

Lower floors - 70% of current income1

1. Wholly-owned portfolio

2. Shaftesbury has a 50% interest

Restaurants, cafés and leisure

Important driver of footfall

We are the largest single provider of dining and leisure space in the West End, owning nearly one in five of the licenced premises. Restaurants, cafés and leisure choices are important to the mix of uses in our villages. Most of our restaurants provide a casual dining experience, often with an all-day offer. The broad variety of concepts and cuisines is a major driver of footfall and social media interest.

High demand, restricted availability of space

The availability of restaurant and leisure space in the West End is constrained by restrictive planning policies, which seek to preserve the balance of commercial uses and amenity of local residents. The barriers to entry are high with existing operators reluctant to relinquish their valuable sites, other than for significant premiums. As a consequence, tenants ensure they preserve their valuable occupation rights and our bad debt history is negligible.

Demand for space in our busy areas is strong, particularly from independent operators, established street-food concepts and start-ups seeking their first site. Usually we receive numerous offers for available units and vacancy levels are minimal.

Longer leases, but terms improving

Tenants invest considerable sums fitting out their space, sometimes spending the equivalent of 3-5 years' rent and, therefore, we grant longer leases than those for shops, to provide an extended period over which to amortise this cost.

Until recently, leases were granted over whole buildings and provided tenants with renewal rights on expiry. We find that upper floors are often now underutilised and, where opportunities arise, we seek to negotiate the surrender of these leases to secure vacant possession. This allows us to improve the configuration of space on the lower floors, attract new operators on more beneficial terms, and often release valuable upper floors for other uses.

Reflecting the strength of demand for our restaurant space, in recent years we have reduced the term of leases we grant and introduced more flexibility at expiry. Also, we include turnover-related rental top-ups, giving us the higher of market rent and a percentage of turnover.

During the year, we completed leasing transactions with a rental value of £8.2 million, equivalent to 19.4% of restaurant, café and leisure ERV. This included nineteen lettings and renewals, and 29 rent reviews. Our share of leasing transactions in the Longmartin joint venture was £0.2 million.

Retail

Our retail areas in Carnaby and Seven Dials make an important contribution to the West End's reputation as a global shopping destination.

Competitive rental levels compared with nearby streets

An important element of the character and mix in our villages is the wide range of shop sizes and rental levels across our streets, from small starter units to larger shops for more-established retailers. This enables us to provide a wide diversity of retail formats and offers great flexibility for retailers to grow, or open new concepts, within our areas.

Importantly, in our high-footfall and spending locations, rental levels are competitive relative to nearby streets.

Sustained demand

The majority of our space is let to fashion and lifestyle retailers. Quality and variety are becoming ever-more important as shoppers' behaviour changes, with a bias towards innovation, experience, fulfilment and the ability to find something different from that commonly offered by high streets and shopping centres. To attract visitors, we seek out new, interesting concepts from across the world, to maintain a fresh retail mix.

With the huge potential customer base offered by the West End, demand for space in our iconic retail destinations remains good, with interest both from domestic and international retailers, often opening new concept stores or flagships.

During the year, we completed letting transactions with a combined rental value of £10.3 million, equivalent to 22.5% of retail ERV. This included 25 new shop lettings, 26 lease renewals and 21 rent reviews. Our share of lettings and rent reviews in the Longmartin joint venture was £1.4 million.

Upper floors - 30% of current income1

1. Wholly-owned portfolio

2. Shaftesbury has a 50% interest

Offices

Large provider of small office space in the core West End

We are an important provider of small, affordable office space in the core West End, with 406,000 sq. ft. of accommodation in the wholly-owned portfolio, let to 246 tenants, of which 87% occupy less than 2,500 sq. ft.

Our average letting is 1,440 sq. ft., often over more than one floor, at £51 per sq. ft. (2015: £46 per sq. ft.). The average ERV is £61 per sq. ft. (2015: £56 per sq. ft.).

Strong demand, with low availability of space

Demand for our smaller office accommodation is good, particularly from the SME media, creative, fashion and tech sectors, which traditionally have been based in Soho and Covent Garden.

Over recent years, office-to-residential conversions and redevelopment of multi-let office buildings, to higher specification, larger floor plate space, has reduced the availability of smaller office accommodation across our locations.

With occupier demand outstripping availability of space, rental levels have grown and vacancy levels remain extremely low.

During the year, we completed lettings and lease renewals with a rental value of £3.1 million, equivalent to 12.8% of office ERV. Our share of lettings in the Longmartin joint venture was £0.6 million.

Residential

Popular area to live

The West End is a popular place to live and we continue to see sustained demand to rent our mid-market apartments. Our flats are mainly studios and one or two-bedroom apartments, many of which have been created from the conversion of small office accommodation back to its original residential use. We have a number of further residential conversion planning consents which we could implement in the future.

Reliable and growing cash flow

Occupancy levels in our apartments are high and, with strong demand, they produce a growing and reliable income stream.

During the year, we completed lettings and renewals totalling £6.2 million, equivalent to 37.6% of residential ERV. Our share of residential letting activity in the Longmartin joint venture was £0.5 million.

Generally, we do not sell our apartments

Most of the value of our buildings is in the commercial uses on the lower floors. We prefer to retain control over whole buildings to avoid compromising the management flexibility needed to realise the long-term potential in those valuable lower floors. Therefore, generally, we choose not to sell our apartments.

Financial results

This has been another good year for Shaftesbury with further growth in income, earnings, dividends and NAV.

Income statement

Reported earnings

Profit after tax for the year was £99.1 million (2015: £467.3 million) and basic earnings per share was 35.6 pence, compared with 168.0 pence in 2015. The decrease was largely due to a lower revaluation surplus from our portfolio, which contributed 43 pence (2015: 167 pence), and the recognition of the fair value of our 8.5% Debenture Stock, which reduced basic earnings per share by 10 pence.

EPRA earnings

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

EPRA earnings increased by 8.0% to £39.0 million (2015: £36.1 million). EPRA EPS was 14.0 pence, 7.7% above last year (2015: 13.0 pence). The increase in earnings was driven principally by increased net property income, partly offset by higher finance costs.

Net property income

Rents receivable increased by 7.2% to £98.4 million (2015: £91.8 million) as we continue to convert our portfolio's reversionary potential into contracted cash flow.

Acquisitions accounted for £1.0 million of this increase. Our scheme at Foubert's Place/Kingly Street, Carnaby, which became income-producing in the second half of last year, contributed £1.6 million. This was offset by vacancy at major schemes which commenced this year, reducing rents receivable by £2.4 million compared with 2015. Like-for-like growth in rental income, excluding the impact of acquisitions and major refurbishment schemes, was 7.3%.

Irrecoverable property charges were £14.3 million (2015: £13.0 million), representing 14.5% of rents receivable (2015: 14.2%). The increase compared with last year is, in part, due to a higher level of asset management activity. Also, it reflects increased marketing and promotion of our villages, a key aspect of our long-term strategy.

Net property income was £84.1 million, an increase of 6.7% on last year (2015: £78.8 million).

Administrative expenses

Administrative expenses, excluding the charge for equity-settled remuneration, totalled £11.6 million (2015: £11.0 million). This includes a charge for annual bonuses of £3.0 million (2015: £2.2 million).

The charge for equity-settled remuneration was £2.5 million (2015: £3.0 million). This included a non-cash accounting provision of £1.9 million (2015: £2.3 million) and a charge for employer's National Insurance of £0.6 million (2015: £0.7 million).

Revaluation surplus

The revaluation surplus from our wholly-owned portfolio was £108.3 million (2015: £432.0 million). This surplus represented a like-for-like increase of 3.9%, principally driven by like-for-like growth in contracted income and ERV of 6.0% and 5.5% respectively. The increase in SDLT for commercial properties reduced values by 0.9%.

Finance costs

With higher net debt as a result of acquisitions and further investment in our portfolio, net finance costs (excluding the change in fair value of our interest rate swaps and the one-off charge from recognising the fair value of our Debenture Stock) increased by £2.9 million to £33.6 million (2015: £30.7 million).

Having modified the terms of our 8.5% Debenture Stock 2024 in September 2016, in anticipation of a new bond issue, we recognised the fair value of the Stock, to reflect the expected net present value of the future cash flows, including an early redemption penalty. This resulted in a one-off, non-cash charge to finance costs of £29.2 million. This deficit was crystallised in October 2016.

The fair value deficit on our interest rate swaps increased by £34.9 million to £114.1 million, following a fall in long-dated interest rates, particularly after the EU referendum in June 2016. The Board regularly reviews the Group's interest hedging strategy and the impact these derivatives have on the long-term financing of the business. In October 2016, we terminated swaps with a notional principal of £55 million, at a cost of £34.1 million. We have now cancelled around 65% of our legacy interest rate swaps over the past three years.

Longmartin results

Our share of post-tax profit from the Longmartin joint venture decreased by £11.2 million to £18.5 million (2015: £29.7 million). This decrease was largely due to a lower revaluation surplus of £11.3 million (2015: £34.6 million), which was partly offset by a deferred tax credit.

Our share of EPRA earnings from the joint venture increased by £0.6 million to £2.6 million (2015: £2.0 million), principally due to an increase in net property income of 14.4% to £6.7 million (2015: £5.9 million), following a number of rent reviews over the past twelve months.

Tax

As a REIT, the Group's activities are largely exempt from corporation tax and, as a result, there is no tax charge in the year (2015: £Nil).

Despite our REIT status, we do collect and pay other taxes eg payroll taxes, VAT, Stamp Duty Land Tax and Business Rates. During the year, the total tax paid in respect of these taxes amounted to £21.0 million. In addition, £1.2 million of tax was withheld from Property Income Distributions and paid to HMRC. In addition, our share of corporation tax incurred by the Longmartin joint venture was £0.6 million.

The group's tax strategy is to account for tax on an accurate and timely basis. Our appetite for tax risk is low and we only structure our affairs based on sound commercial principles. We do not engage in aggressive tax planning. Rather, we maintain an open dialogue with HMRC with a view to identifying and solving issues promptly. HMRC have designated us as a 'low risk' taxpayer, a status we aim to maintain. Our detailed tax strategy is available on our website. 

Dividend

The Board has recommended a final dividend of 7.55 pence per share, an increase of 9.0% on last year's final dividend (6.925 pence). This brings the total dividend for the year to 14.7 pence per share, an increase of 6.9% on 2015 (13.75 pence).

The dividend for the year ended 30 September 2016 is covered by EPRA earnings, after adding back the non-cash accounting charge in the year for equity-settled remuneration of £1.9 million. If approved at the 2017 AGM, the final dividend will be paid on 17 February 2017. It will comprise 5.2 pence as a PID and 2.35 pence as an ordinary dividend.

The Board monitors the Group's ability to pay dividends out of available resources and distributable reserves. Prospective dividend payments are estimated in our forecasts, which also consider future liquidity requirements.

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

The exceptional charges associated with the recent refinancing of our debenture stock and termination of interest rate swaps will be charged against our qualifying REIT income and, consequently, it is likely that any dividend in relation to the year ending 30 September 2017 will be paid as an ordinary dividend, with PID distributions resuming in the following year.

Net asset value

Reported diluted net asset value per share increased by 22.0 pence to £8.54 per share, largely due to diluted earnings per share of 35.5 pence less dividends paid totalling 14.075 pence.

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

EPRA NAV per share increased by 19 pence (2.2%) to £8.88 (2015: £8.69). EPRA earnings of 14 pence per share were offset by dividends paid in the year (14.075 pence per share). The revaluation surpluses from the wholly-owned portfolio and the Longmartin joint venture added 43 pence.

The exceptional charges from refinancing activity reduced EPRA NAV by 24 pence, of which 10 pence arose from recognising the fair value of our Debenture Stock and 14 pence was charged in respect of interest rate swaps, with a notional principal of £55 million and fair value deficit of £38.0 million, which we intended to cancel. These swaps were cancelled in October 2016, at a cost of £34.1 million. The saving, compared with the deficit at 30 September 2016, will increase NAV by 1.4 pence per share in the coming year.

Cash flows and net debt

Net debt increased by £114.3 million to £752.1 million over the year (2015: £637.8 million), and now includes £92.2 million in respect of the 8.5% Debenture Stock (2015: £61.0 million) following the recognition of its fair value.

The major cash flows were:

§ Operating cash inflow totalling £44.3 million

§ Dividends paid amounting to £38.2 million

§ Acquisitions and capital expenditure of £91.2 million

Finance review

Important refinancing of historical debt increased financial resources, extended average debt maturity and reduced blended cost.

Debenture Stock refinancing

In September 2016, we amended our 8.5% First Mortgage Debenture Stock 2024, to set the terms under which we could refinance this Stock, in exchange for a new issue of Guaranteed First Mortgage Bonds. In October 2016, taking advantage of extremely low gilt yields, we issued £285 million of bonds with a coupon of 2.487% and maturity in September 2031.

Part of the proceeds of the issue were used to:

§ redeem our existing £61 million 8.5% First Mortgage Debenture Stock due 2024, including a prepayment cost of £31.1 million.

§ cancel interest rate swaps with a notional principal of £55 million, at a cost of £34.1 million. 

The balance of the proceeds was used to reduce drawings under our revolving credit facilities, which are available to be re-drawn.

Increase in financial resources

The issue significantly increased our financial resources for further investment in our portfolio, whilst extending our weighted average debt maturity and reducing our blended cost of debt.

The table below sets out a summary of our debt, both at 30 September 2016, and on a pro-forma basis for these transactions.

Debt summary

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. Including our 50% share of the Longmartin joint venture

3. Based on nominal value of debt.

4. Based on EPRA net assets.

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

On a pro-forma basis, at 30 September 2016, our loan-to-value ratio was 25.8% (2015: 22.5%) and we had committed undrawn facilities totalling £214.6 million (2015: £150.3 million). Of our drawn debt, 98.8% was fixed or hedged (2015: 97.2%).

The blended cost of debt was 3.9%, 1.0% lower than at 30 September 2015. The marginal cost of our undrawn committed facilities is around 1.2% (2015: 1.5%) and, so, as additional drawings are made, our cost of debt will fall further. If our facilities were fully drawn, the blended cost of debt would be 3.4%.

Debt maturity profile

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

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

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

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

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

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

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

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

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

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

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

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

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

Group Statement of Comprehensive Income

For the year ended 30 September 2016

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

Group Balance Sheet

As at 30 September 2016

On behalf of the Board who approved and authorised for issue the financial statements on 29 November 2016.

Brian Bickell Chris WardChief Executive Finance Director

Group Cash Flow Statement

For the year ended 30 September 2016

Movements in loans to the joint venture of £0.5 million (2015: £0.5 million) have been reclassified from financing to investing activities to better reflect the nature of the transactions. Proceeds and repayment of borrowings have been restated to present these movements on a gross basis. These changes have no impact on the net change in cash and cash equivalents, net assets, or reported results in either of the years presented.

Statement of Changes in Equity

For the year ended 30 September 2016

Notes to the financial statements

For the year ended 30 September 2016

1. Accounting policies

Basis of preparation

The preliminary announcement does not constitute full financial statements.

The results for the year ended 30 September 2016 included in this preliminary announcement are extracted from the audited financial statements for the year ended 30 September 2016 which were approved by the directors on 29 November 2016. The auditor's report on those financial statements was unqualified and did not include a statement under Section 498(2) or 498(3) of the 2006 Companies Act.

The 2016 Annual Report is expected to be posted to shareholders in December 2016 and will be considered at the Annual General Meeting to be held on 10 February 2017. The financial statements for the year ended 30 September 2016 have not yet been delivered to the Registrar of Companies.

The auditor's report on the financial statements for the year ended 30 September 2015 was unqualified and did not include a statement under Section 498(2) or 498(3) of the 2006 Companies Act. The financial statements for the year ended 30 September 2015 have been delivered to the Registrar of Companies.

Going concern

The Group's business activities, together with the factors affecting performance, financial position and future development are set out above. The financial position of the Group including cash flow, liquidity, borrowings, undrawn facilities and debt maturity analysis is set out above. The directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Therefore, they continue to adopt the going concern basis in preparing the financial statements.

Critical judgements, assumptions and estimates

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

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

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

New accounting standards and interpretations

a) The following amendments to Standards and Interpretations were mandatory for the first time for the financial year ended 30 September 2016:

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

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

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 lease incentives recognised of £0.5 million (2015: £2.4 million).

3. Property charges

4. Charge in respect of equity-settled remuneration

5. Finance costs

6. Tax charge for the year

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

7. Earnings per share

Basic and diluted earnings per share

EPRA earnings per share

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

8. Dividends paid

A final dividend of 7.55p per share was recommended by the Board on 29 November 2016. Subject to approval by shareholders at the 2017 AGM, the final dividend will be paid on 17 February 2017 to shareholders on the register at 20 January 2017. 5.2p of the dividend will be paid as a PID under the UK REIT regime and 2.35p will be paid as an ordinary dividend. The dividend totalling £21.0 million will be accounted for as an appropriation of revenue reserves in the year ending 30 September 2017. See above for commentary on dividends.

9. Investment properties

The investment properties valuation comprises:

Investment properties were subject to external valuation as at 30 September 2016 by qualified professional valuers, being members of the Royal Institution of Chartered Surveyors, working for DTZ Debenham Tie Leung Limited, Chartered Surveyors, acting in the capacity of external valuers.

All properties were valued on the basis of fair value and highest and best use in accordance with the RICS Valuation Standards - Professional Standards 2014 and IFRS 13. When considering the highest and best use a valuer considers its actual and potential uses which are physically, legally and financially viable. Where the highest and best use differs from the existing use, the valuer considers the use a market participant would have in mind when formulating the price it would bid and reflects the cost and likelihood of achieving that use.

The external valuers use information provided by the Group, such as tenancy information and capital expenditure expectations. The valuers, in forming their opinion make a series of assumptions. The assumptions are typically market related, such as yields and rental values, and are based on the valuers' professional judgement and market observations. The major inputs to the external valuation are reviewed by the senior management team. In addition, the valuers meet with external auditors and members of the Audit Committee.

The fair value of the Group's investment properties has primarily been determined using a Market Approach, which provides an indication of value by comparing the subject asset with identical or similar assets for which price information is available. There are a number of assumptions that are made in deriving the fair value, including equivalent yields and ERVs. Equivalent yields are based on current market prices, depending on, inter alia, the location and use of the property. ERVs are calculated using a number of factors which include current rental income, market comparatives and occupancy. Whilst there is market evidence for these inputs, and recent transaction prices for similar properties, there is still a significant element of estimation and judgement. As a result of adjustments made to market observable data, these significant inputs are deemed unobservable.

The Group considers all of its investment properties to fall within Level 3 of the hierarchy in IFRS 13, as set out below. The Group's policy is to recognise transfers between fair value hierarchy levels as at the date of the event or change in circumstances that caused the transfer. There have been no transfers during the year.

The key assumptions made by the valuers are set out in the basis of valuation. The Group's acquisition and capital expenditure activity is discussed above.

Sensitivity analysis

As noted in the critical judgements, assumptions and estimates section, the valuation of the Group's property portfolio is inherently subjective. As a result, the valuations the Group places on its property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions which may not prove to be accurate, particularly in periods of volatility or low transaction flow in the commercial property market.

The Group's properties are all located in London's West End and are virtually all multi-use buildings, usually configured with commercial uses on the lower floors and office and/or residential uses on the upper floors. DTZ Debenham Tie Leung Limited value properties in their entirety and not by use, consequently the sensitivity analysis below has been performed on the Group's portfolio as a whole.

These key unobservable inputs are inter-dependent. All other factors being equal, a higher equivalent yield would lead to a decrease in the valuation of a property, and an increase in the ERV would increase the capital value, and vice versa.

At 30 September 2016, the Group had capital commitments of £31.3 million (2015: £16.4 million). 

10. Accrued income

Lease incentives are allocated between amounts to be charged against rental income within one year of the Balance Sheet date and amounts which will be charged against rental income in subsequent years.

11. Investment in joint venture

The summarised Statement of Comprehensive Income and Balance Sheet used for consolidation purposes are presented below: