SHB.L Regulatory News (SHB)

SHAFTESBURY 2017 FULL YEAR RESULTS

Good growth in key financials. Proven strategy delivers strong shareholder returns

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 year ended 30 September 2017.

Highlights

Brian Bickell, Chief Executive, commented:

"It is pleasing to report another year of good progress and strong results, against a backdrop of economic uncertainty.

The broad economic base of the West End, and its enduring global appeal to visitors and businesses, underpin its resilience and long-term prospects, providing a considerable degree of protection against national economic headwinds. This has been evident in the strength of our performance through different business cycles and operating environments in our 31-year history.

Underwritten by the unique features of the West End, we are confident our strategy will continue our long record of growing our exceptional portfolio's income and value, and, in turn, the returns we deliver to our shareholders."

Growth in income, earnings, dividend and NAV

§ Dividend fully covered by EPRA earnings per share3 and adjusted earnings per share3,4

Continued growth in contracted rents, ERVs and portfolio value1

§ Portfolio valuation3: £3.64 billion. Capital value growth3,5: +7.0% (2016: +4.0%).

§ Current annualised income up to £114.1 million (2016: £109.6 million) after like-for-like growth of 3.9% (2016: 6.2%). 10-year CAGR: 4.9%.

§ ERV increased by £5.8 million to £144.5 million (2016: £138.7 million). Like-for-like growth: 3.5% (2016: +5.7%). CAGR5 over 10 years: 4.6%.

§ Portfolio reversionary potential has grown by £1.3 million to £30.4 million, 26.6% above current annualised income, of which £9.6 million relates to refurbishment schemes in progress at 30 September 2017.

§ Equivalent yields:

- Wholly-owned portfolio: 11 basis points compression to 3.46% (2016: 3.57%);

- Longmartin joint venture: broadly unchanged at 3.80% (2016: 3.79%).

Healthy demand for space. Good letting progress at larger schemes

§ Commercial lettings, lease renewals and rent reviews6 (rental value: £23.8 million) concluded at an average 6.7% above 30 September 2016 ERV.

§ At our three larger schemes, 46% of completed space (by ERV) now let or under offer. Marketing of remaining space continues.

§ EPRA vacancy6 at 30 September 2017: 6.0% of ERV, including 3.5% in respect of completed larger schemes. 0.8% of EPRA vacancy was under offer. Vacancy, excluding larger schemes, in line with 10-year average.

Further investment in our portfolio

§ Redevelopment and refurbishment schemes (wholly-owned portfolio) during the period across 249,400 sq. ft. (13.7% of floor space). Capital expenditure6: £40.3 million. Our share of capital expenditure in the Longmartin joint venture: £1.2 million.

§ 57 Broadwick Street progressing well with anticipated completion early next year. Restaurant space has been let, and retail space is under offer (together, 43% of scheme ERV). Office space being marketed.

§ 47 other schemes (95,300 sq. ft.) underway at 30 September 2017, representing 4.9% of ERV6.

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

§ Acquisitions, totalling £37.1 million, of properties offering potential for good rental and capital growth. Forward purchase agreement to acquire 90-104 Berwick Street for £38.5 million. Expected completion: late 2018.

§ Disposals of non-core assets, totalling £13.8 million, at 12.6% above book value at 30 September 2016. Profit on disposal: £1.1 million.

Bond issuance to increase our resources and refinance remaining legacy debt and hedging

§ £575 million of long-dated bonds issued at a blended rate of 2.417%.

§ Remainder of our legacy debt and hedging refinanced.

§ Loan-to-value ratio1,3,7: 26.7% (2016: 24.2%).

§ Weighted average maturity of debt1,3: 10.3 years (2016: 9.2 years).

§ Blended cost of debt1,3: 3.3% (2016: 4.5%). Marginal cost on undrawn facilities: 1.2%.

27 November 2017

For further information:

1. Includes 50% of the Longmartin joint venture.

2. Calculated in accordance with EPRA Best Practice Recommendations.

3. An alternative performance measure ("APM"). The Group uses a number of measures to assess and explain its performance, some of which are considered to be APMs as they are not defined under IFRS. See below

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

5. Like-for-like.

6. Wholly-owned portfolio.

7. Based on net debt.

See Glossary of terms below.

This announcement includes inside information.

There will be a presentation to equity analysts at 10 am on Tuesday 28 November 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/5uRrqM 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.

Bondholders

For bondholders, there will be a conference call at 4:30 pm on 6 December 2017 and a portfolio tour at 1.30 pm on 14 December. If you would like to participate in either of these, please contact Gill Smith on 020 7333 8118.

About Shaftesbury

Shaftesbury PLC is a Real Estate Investment Trust, which invests exclusively in the liveliest parts of London's West End. Our objective is to deliver long-term growth in rental income, capital values and shareholder returns.

Focussed on restaurants, leisure and retail, our exceptional portfolio extends to 14.5 acres, clustered mainly in Carnaby, Seven Dials and Chinatown, with substantial ownerships in east and west Covent Garden, Soho and Fitzrovia. 

In addition, we have a 50% interest in the Longmartin joint venture with The Mercers' Company, which has a long leasehold interest, extending to 1.9 acres, in St Martin's Courtyard in Covent Garden.

Our proven management strategy is to create and foster distinctive, attractive and prosperous locations. It is implemented 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 conservative 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.

Chief Executive's Statement

It is pleasing to report another year of good progress and strong results, against a backdrop of economic uncertainty.

Growing earnings

Continued demand for space in our popular and busy locations, together with our proven management strategy, has resulted in an increase in net property income of 5.0% to £88.3 million. We are now reaping the benefits of the important refinancing initiatives we completed in October last year, which significantly reduced our finance costs. Together, these factors have contributed to an increase in EPRA earnings1 of £6.2 million to £45.2 million, which equates to an increase in EPRA earnings per share1 of 15.7%.

Uplift in NAV

Our exceptional portfolio has delivered underlying capital value growth of 7.0% over the year, adding 83 pence (9.3%) to EPRA net asset value per share. The increase in value reflects the combined impact of growing current income and the prospect of sustained future income growth, particularly in locations which are expected to benefit from Crossrail-related footfall in the coming years. Limited opportunities to buy the type of buildings we own, and continuing strong investor demand, have led to a reduction in investment yields in the West End market, particularly in the second half of the year.

This valuation uplift has been offset partly by the cost of terminating our remaining legacy interest rate swaps, which amounted to 20 pence per share. At 30 September 2017, EPRA NAV per share1 stood at £9.52, an increase of 64 pence, or 7.2%.

A unique portfolio in an exceptional location

Our portfolio extends to some 600 buildings across 14½ acres of London's West End.

Our investment strategy is focussed on restaurants, leisure and retail, uses which, in the West End, have a long record of resilience and growth. Our long-term management strategy of assembling clusters of ownerships enables us to curate and promote distinctive destinations which offer a wide variety of innovative, mid-market choices in dining, leisure and retail.

London is the largest city in western Europe and most visited city in the western world, with an estimated 19.1 million international visitors in 2016. Current forecasts point to a growth in tourist numbers of around 3.5% per annum through to 2025.

Located at its heart is the West End, with its exceptional variety of visitor attractions, from cultural and historic to dining and shopping. The exceptional numbers of domestic and international visitors, together with a large local working population, mean that the West End is busy seven-days-a-week, throughout the year. It offers a prosperous trading environment for our occupiers, attracting demand for space and sustaining growth in our rental values and income.

Within the West End, the availability of space, particularly for restaurant, leisure and retail uses, is constrained by local planning and other policies. This structural imbalance between demand for, and availability of, space is fundamental to our portfolio's rental and capital value prospects.

1 Alternative performance measures (APMs). See below.

The West End economy

In our long experience, the breadth of the West End's economy provides considerable protection from the cyclicality and headwinds experienced by the UK national economy.

Over the year, business and consumer confidence has begun to come under pressure, and growth in the national economy is slowing. However, conditions in the West End have so far largely been unaffected. In particular, weakness in sterling has provided a boost to the spending power of international visitors as well as increasing visitor numbers. Our restaurants, cafés, bars and shops are reporting resilient trading growth, better enabling them to absorb upward pressures on operating costs currently faced by all businesses.

Demand for the smaller accommodation that traditionally we offer is healthy. Lettings, lease renewals and rent reviews are being concluded on terms in line with our expectations, and vacancy levels have remained in line with our long-term trend of 3%, or less, of portfolio ERV.

We are making good progress at our three larger schemes. 46% by ERV of the completed space is now either let or under offer and marketing of the remaining space continues. This larger space we are offering requires occupiers to invest significant sums in fit-out and take on substantial rental commitments and we expect letting periods to be longer than for smaller space. Macro-economic uncertainties are now showing signs of slowing potential occupiers' decision-making processes. We shall be patient in selecting occupiers which match our long-term aspirations.

The widely reported increase in national business rates took effect in April 2017. As we anticipated, average increases for our occupiers were in the range of 30% to 40%, with a large number of our smaller tenants able to benefit from a four-year transition period. Occupiers of large space on streets where rental levels are above our average have seen greater increases, and only limited transition provisions. Despite these unwelcome increases in operating costs for our tenants, we have not seen any direct impact on occupancy levels or interest in leasing space.

During the year, we concluded £31.1 million of leasing transactions, achieving rents for commercial space 6.7% above ERV at the previous year end. This is not only converting an element of our reversionary potential in to contracted income, but it also provides valuable evidence to increase rental tones and grow income from our adjacent and nearby buildings.

West End connectivity and infrastructure

The completion of Crossrail 1 is now a year away, with the first services on the Elizabeth line expected in December 2018. Once fully operational, this important addition to London's transport network will add 10% to its capacity, and materially improve accessibility to the West End. Over the medium term, we expect the new transport hubs at Tottenham Court Road and Bond Street will result in significant changes to traditional footfall patterns throughout the West End. With all our portfolio in close proximity to these hubs, we anticipate being a major beneficiary of these changes, with a number of our streets expected to see much increased footfall and profile, enhancing their long-term rental growth prospects.

Continuing investment across the transport network is improving reliability and increasing capacity, encouraging travel by public transport to the West End. Last year's introduction of 24-hour running at weekends on certain underground lines has been well-received, and initial passenger numbers have exceeded forecasts.

Elsewhere, we are seeing a number of Crossrail-related public realm schemes progressing. Of great importance to the West End is the initiative announced, earlier this year, to pedestrianise much of Oxford Street. This will bring significant benefits, including a much-improved pedestrian environment and a reduction in traffic-generated air pollution. Currently, it is expected that the first stage of pedestrianisation, west of Oxford Circus, will be operational by mid-2018. Planning for the eastern end of Oxford Street is underway.

Investing in our portfolio

Our strategy is to adapt our buildings to meet the expectations of today's occupiers, and improve energy performance, through reconfiguration and refurbishment, rather than redevelopment. We focus on uses where we provide space in shell form only, with tenants taking responsibility for what are often substantial fit-out costs. This significantly reduces our exposure to obsolescence costs across the portfolio. Consequently, despite continuing high levels of activity across our holdings, capital expenditure remains modest. This year, our outlay was £40.3 million, slightly above our long-term average of around 1% of portfolio value. Additionally, our share of capital expenditure in the Longmartin joint venture was £1.2 million.

We continue to identify schemes across our portfolio, and are prepared to intervene to negotiate early vacant possession of space to accelerate our plans. We balance the costs of these initiatives against the valuable long-term benefits to income and capital values, which frequently compound across our extensive adjacent ownerships.

Adding to our portfolio

We have assembled our portfolio over a period of 31 years, through acquiring single buildings, small portfolios, or occasionally large blocks, which were in single ownership. We apply strict investment criteria to every purchase, and focus on the prospects for long-term income growth potential through harnessing our forensic market knowledge, our particular skills in improving older building stock and capturing synergies with our other ownerships.

The buildings we seek to acquire in our chosen locations are frequently in long-term private ownership. Their availability is always limited, as existing owners are reluctant to sell in our sought-after areas. Understandably, competition to purchase is intense, as other investors appreciate the long-term prospects and security they offer.

This year, additions to our portfolio totalled £37.1 million. In addition, in August 2017, we announced the forward purchase of a strategically important block on Berwick Street in Soho, for £38.5 million. Currently, it is undergoing a major redevelopment, which is expected to finish in late 2018, at which point we will complete the acquisition.

Refinancing legacy debt and hedging

Taking advantage of low long-term interest rates, over the year, we have taken important steps to refinance the remainder of our legacy debt and hedging, whilst adding to our financial resources.

We have issued £575 million of long-dated bonds, comprising £285 million for 15 years at 2.487% and £290 million for 10 years at 2.348%. The proceeds were used, in part, to fund the early repayment of our historical debenture stock and a bank facility. In addition, we have terminated our remaining £180 million of interest rate swaps.

Together, these transactions reduced the cost of our debt significantly, benefiting earnings and dividends, as well as adding around £310 million to our financial resources. In a competitive investment market, the ready availability of funding to secure acquisitions gives us a valuable advantage.

Long-term rewards of a long-term strategy

October 2017 marked the 30th anniversary of the listing of Shaftesbury's shares on the London Stock Exchange. In our early years, whilst we owned a block of 26 restaurants in the centre of Chinatown, our assets comprised mainly offices in London and several UK locations. From mid-1993, we refocussed the business, concentrating on restaurant, leisure and retail in London's West End.

Our long-term approach to assembling and managing this exceptional portfolio has delivered sustainable growth in income, which is the ultimate driver of long-term value. The success of this strategy is evident in our performance. Since we floated in 1987, our share price has risen 460%, compared with the FTSE 350 Real Estate Index of 94%, and since our focus switched to the West End, the increase has been 1,431% against 119% for the sector.

Looking ahead

The uncertainties created by last year's EU referendum decision have increased during 2017. It may be some time before the UK's future trading and other arrangements with the EU become clear, and there could be further challenges as their ramifications become apparent. Inevitably, business and consumer confidence is being affected, slowing economic growth and business investment.

The broad economic base of the West End, and its enduring global appeal to visitors and businesses, underpin its resilience and long-term prospects, providing a considerable degree of protection against national economic headwinds. This has been evident in the strength of our performance through different business cycles and operating environments in our 31-year history.

The successful implementation of our distinctive strategy is due to our committed, experienced and enthusiastic team, supported by the wide range of external advisors who are invaluable in delivering our strategy. Together, they bring flair and innovation to the management of our portfolio, ensuring it evolves and adapts to meet the ever-changing tastes and expectations of all those who visit, work or establish businesses in the West End.

Underwritten by the unique features of the West End, we are confident our strategy will continue our long record of growing our exceptional portfolio's income and value, and, in turn, the returns we deliver to our shareholders.

Brian BickellChief Executive

27 November 2017

Portfolio valuation

Strong capital value performance; further increases in contracted and prospective rents, expectation of continued rental growth, and sustained investor demand for secure assets with growth potential in the West End.

Strong valuation performance

At 30 September 2017, the valuation of our portfolio, including our 50% share of the Longmartin joint venture, increased to £3.64 billion, following a revaluation surplus for the year of £233.2 million. Like-for-like valuation growth was 7.0%, bringing the compound annual growth rate over five years to 11.7%.

This year's valuation performance reflects sustained occupier demand, intensive asset management activity across our portfolio, and continued growth in contracted income and rental values. Also, it takes into account expectations of further rental growth, good occupancy levels, and low capital expenditure.

Sustained investor demand yet limited supply of assets to acquire

The equivalent yield attributed by our valuers to our wholly-owned portfolio was 3.46%, an eleven basis points reduction over the year. During the year, we have seen a sharpening of investor appetite, especially for freehold properties in our locations, which offer investment security, growing returns and limited exposure to obsolescence. This heightening of demand is particularly evident for properties close to prime streets, where lower rental levels offer better growth prospects.

The availability of buildings to purchase remains as limited as ever, largely because they are typically in long-term private ownership and existing owners are reluctant to sell. Consequently, when assets do become available, competition is fierce.

In the Longmartin joint venture, ERV reflects the conclusion of the first round of rent reviews, following scheme completion in 2011, where we have seen significant increases in rents. The equivalent yield for this geared long leasehold interest was broadly unchanged at 3.8%.

Potential for greater value

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, leisure 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, which underpins the long-term prospects for rental growth.

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.

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

2. Like-for-like. See Glossary for definition

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

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

2 Like-for-like. See Glossary for definition

3 Our 50% share

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

Continuing growth in contracted rents and ERVs

Demand for space in our carefully-curated locations has been good throughout the year, which, together with extensive asset management across the portfolio, has continued to drive growth in contracted and potential future income.

At 30 September 2017, annualised current income stood at £114.1 million, following a like-for-like increase of 3.9% during the year. 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 £144.5 million, £30.4 million or 26.6% above current income. Like-for-like ERV growth over the year was 3.5%.

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

2 Like-for-like. See Glossary for definition

The components of the portfolio reversionary potential are shown below. Of the total uncontracted reversion, 67% 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 continue to convert this rental potential into cash flow, whilst delivering further long-term growth in rental values.

Components of the reversion1

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

Leasing and occupancy

Sustained demand across our portfolio helped deliver strong leasing results. Our Thomas Neal's Warehouse and Central Cross schemes completed in the year and letting is underway.

Leasing

During the year, we concluded leasing transactions in the wholly-owned portfolio with a rental value of £31.1 million (2016: £27.8 million). Of this, commercial transactions totalled £23.8 million (2016: £21.6 million) and residential lettings and renewals amounted to £7.3 million (2016: £6.2 million). Rents for commercial uses were, on average, 6.7% above ERV at 30 September 2016.

Leasing activity during the year1

1 Wholly-owned portfolio

Our share of lettings, lease renewals and rent reviews in the Longmartin joint venture was £3.9 million (2016: £2.7 million), with commercial rents achieved broadly in line with ERV at 30 September 2016. Accounting for £3.2 million, rent reviews delivered average increases of 36.4% compared with previous rental levels, an equivalent 5-year CAGR of 6.4%. We have now concluded the majority of this first round of rent reviews following scheme completion in 2011.

EPRA vacancy

At 30 September 2017, EPRA vacancy was 6.0% of ERV, an increase of 4.4% over the year. The total includes 3.5% in respect of Thomas Neal's Warehouse and Central Cross. Excluding these larger schemes, EPRA vacancy was 2.5%, in-line with our long-term average.

Completed larger schemes

We have created large, prominent retail and restaurant units at our Thomas Neal's Warehouse and Central Cross schemes, of which 34% by ERV is now let or under offer. Larger space requires occupiers to commit to significant investment in fit-out and substantial rental obligations and we expect letting periods to be longer for these units than for the smaller space typically we have to offer. Current macro-economic uncertainties are showing signs of slowing potential tenants' decision-making processes. We will be patient in selecting occupiers which meet our objective of delivering long-term rental growth.

Thomas Neal's Warehouse

In the heart of Seven Dials, our scheme created a unique 22,800 sq. ft. flagship retail unit. At 30 September 2017, it accounted for 0.7% of available-to-let ERV. The space is now under offer to a single occupier.

Central Cross

Located at the eastern gateway to Chinatown, next to Leicester Square Underground station and a few minutes' walk from Tottenham Court Road station, our scheme is well-positioned to benefit from high and growing footfall.

We have created exceptional, double-height accommodation with five shops, totalling 34,500 sq. ft., on Charing Cross Road and seven restaurants, fronting Newport Place and Newport Court, extending to 13,300 sq. ft.

At 30 September 2017, all four of the smaller restaurants (ERV: £0.4 million) were let or under offer. Subsequently, we have placed one large restaurant under offer (ERV: £0.3 million). We have ongoing discussions with a number of parties for the remaining space.

Other vacancy

Available-to-let vacancy, excluding larger schemes, comprised two cafés (ERV: £0.1 million), six shops (ERV: £1.2 million), 13,100 sq. ft. of office space (ERV: £0.8 million) and one apartment.

Space under offer included two restaurants, five shops, 2,100 sq. ft. of offices and five apartments.

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

EPRA vacancy1 at 30 September 2017

1 Wholly-owned portfolio

2 Thomas Neal's Warehouse and Central Cross

Restaurants, cafés and leisure

1 % of annualised current income

2 Wholly-owned portfolio

Largest provider of dining and leisure space in the West End

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 Chinatown, Kingly Court, Neal's Yard and the Opera Quarter. The majority of our restaurants provide 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, a discerning, affluent customer base of domestic and international visitors and a large working population. The independent sector is particularly active, reflecting the interest from diners to experience high quality, creative and accessible new food concepts, often then sharing their experiences on social media.

Demand outstrips availability of space

Availability of restaurant and leisure accommodation remains constrained by local planning policies, which restrict large-scale increases in these uses, whether by development, extension of existing space, or conversion from other uses. The barriers to entry are high, with existing operators reluctant to relinquish their valuable sites, other than for significant premiums. Generally, tenants ensure they preserve their valuable occupation rights and our bad debt history is negligible.

Demand for the smaller space typically we have to offer is healthy, particularly from independent operators, established street-food concepts and start-ups seeking their first site.

At 30 September 2017, EPRA vacancy for these uses was 3.7%, and included 3.1% in respect of the recently completed Central Cross scheme. Other vacancy was 0.6%, of which 0.4% was under offer. Our ten-year average EPRA vacancy for restaurants, cafés and leisure is 1.6%.

Newer leases provide us with more flexibility

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

Until recently, leases were granted over whole buildings and provided tenants with renewal rights on expiry. We find that upper floors often are now under-utilised 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 annual turnover. This provides a useful contribution to both income and earnings.

Retail

1 % of annualised current income

2 Wholly-owned portfolio

Contribution to the West End as a leading shopping destination

Providing 77% of our current annualised retail income, our large clusters of shops in Carnaby and Seven Dials make an important contribution to the West End's reputation as a leading global retail destination.

Wide range of shop sizes and rents

An important element of the character of our destinations is the wide range of shop sizes and rental levels across our buildings and streets.

Of our 302 shops, 209 are small (ERV < £150,000 p.a.), providing 37% of our current annualised income, and 93 are large (63% of current annualised income). This allows 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.

Responding to ever-changing shopper tastes

The majority of our space is let to fashion and lifestyle retailers.

Tenant selection is a key aspect of our strategy to create and maintain distinctive retail locations. Shoppers' behaviour is changing rapidly with an emphasis on innovation, experience, fulfilment and the ability to find something different from that commonly found in shopping centres and on high streets. To attract visitors, we seek out new, interesting concepts from across the world, to maintain a fresh retail mix. Additionally, we maintain flexibility in our leasing so we are able to respond to shoppers' ever-changing tastes and retailers' requirements.

Interest remains good

With high footfall, we continue to have good demand for space, both from domestic and overseas retailers, often opening new concept stores or flagships.

Despite well-publicised challenges being faced by the retail sector, leasing activity during the year has been good with lettings, renewals and rent reviews being concluded ahead of ERVs assessed by our valuers. Importantly, currently we have a number of tenants renewing leases early or upsizing, demonstrating their confidence in continued profitable trading in our locations.

EPRA vacancy at 30 September 2017 was 11.1% of retail ERV, of which vacant space at Thomas Neal's Warehouse and Central Cross accounted for 7.2%. Of other available space, 1.3% was under offer. Average retail vacancy over the past ten years has been 4.3%.

Offices

1 % of annualised current income

2 Wholly-owned portfolio

Large provider of small, flexible office space

With 403,000 sq. ft. of office space, let to 243 tenants, we are an important provider of small office accommodation in the core West End. Our average letting is 1,380 sq. ft. at £55 per sq. ft. (2016: £51 per sq. ft.) and average ERV is £61 per sq. ft. (2016: £61 per sq. ft.).

Whilst we already provide flexible terms and space, we are working to ensure we remain competitive with other SME space providers.

Limited availability of space

Demand for our office space remains good, particularly from the media, creative and tech sectors, which often find their natural home in Soho and Covent Garden.

Availability of smaller office space remains low across our locations. Whilst we have seen a modest increase in lease incentive packages during the year, occupancy levels have been high. Retention rates have been good, with 30 leases being renewed.

Office vacancy at 30 September 2017 was 4.0% of total office ERV.

Residential

1 % of annualised current income

2 Wholly-owned portfolio

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 planning consents for residential conversion, which we could implement in the future.

High occupancy and reliable cash flow

Demand for our mid-market apartments remains good, resulting in high occupancy levels and a stable cash flow. Normally, we have less than ten apartments available at any one time. At 30 September 2017 we had six apartments available, of which five were under offer.

During the year, we have seen a slight softening in rental levels, owing to increased availability of newly-built buy-to-let flats across central London. We continue our rolling programme to upgrade our apartments, in order to ensure their specification remains competitive and maintain our high occupancy rates.

Preference to lease, not sell, our apartments

Most of the value of our buildings is in the commercial uses on the lower floors. We prefer to lease, rather than sell, our apartments in order to retain control over whole buildings to realise the long-term potential in those valuable lower floors. During the year, we identified, and sold, nine apartments which we considered did not compromise long-term management flexibility.

Portfolio investment

Considerable activity continues, adding to income, increasing rental tones and unlocking value. Important acquisitions secured during the year.

Investing across our portfolio

Continuing the trend over recent years, high levels of asset management and refurbishment activity continue across our portfolio, improving our buildings, increasing income and rental potential, and unlocking value.

Capital expenditure during the year totalled £40.3 million, representing 1.29% of wholly-owned portfolio value, with schemes extending to 249,400 sq. ft. (13.7% of wholly-owned floor space). This included £14.5 million in respect of our three larger schemes: Thomas Neal's Warehouse, Central Cross and 57 Broadwick Street.

During the year, we secured 62 planning consents, an important part of maintaining a pipeline of projects. At year end, we had 22 planning applications awaiting decision.

We continue to identify opportunities to implement further asset management initiatives. This often involves negotiations to secure vacant possession of space to enable us to accelerate the implementation of our ideas.

Projects in hand at year end

At 30 September 2017, we had schemes extending to 124,000 sq. ft. and representing 6.6% of ERV, down from 11.0% a year ago. This decrease was largely due to the completion of our Thomas Neal's Warehouse and Central Cross schemes.

Vacant space1 held for, or under, refurbishment at 30 September 2017

1 Wholly-owned portfolio

2 2017: 57 Broadwick Street. 2016: Central Cross, Thomas Neal's Warehouse and 57 Broadwick Street

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:

· 11,800 sq. ft. of flagship retail and restaurant space over the lower floors;

· 15,000 sq. ft. of new grade A office accommodation across the upper floors; and

· two apartments totalling 1,900 sq. ft.

The scheme is expected to cost £14.9 million, of which £10.2 million had been incurred by 30 September 2017. Construction of the retail and restaurant accommodation (ERV: £1.0 million) has now completed and the space either is let or under offer. Marketing of the office accommodation, which is planned to complete early in 2018, has commenced.

Other schemes

During the year, schemes with an ERV of £4.6 million completed and are largely now income-producing. New schemes, with an ERV of £4.1 million, commenced.

We had 47 schemes underway at 30 September 2017, extending to 95,300 sq. ft. and representing 4.9% of ERV. These included 17,600 sq. ft. of restaurants and cafés (ERV: £1.5 million), 22,500 sq. ft. of shops (ERV: £1.9 million), 32,300 sq. ft. of office space (ERV: £2.1 million), and 38 apartments either being created or up-graded (ERV: £1.1 million). Of this, space with an ERV of £0.9 million was under offer.

In the Longmartin joint venture, our share of capital expenditure during the year was £1.2 million. At 30 September 2017, the ERV of our 50% share of space held for refurbishment was £0.7 million. This includes the redevelopment of the prominent 13,000 sq. ft. mixed-use building on the corner of Long Acre and Upper St Martin's Lane. Expected to complete in late 2018, our share of the cost of this scheme is expected to be £4.6 million.

Improving the public realm

Improving the public realm is a key part of our management strategy.

Public realm improvements both to Cambridge Circus and the western section of Earlham Street are now close to completion. We expect that these schemes, together with the opening of the Elizabeth Line, will, over time, materially improve footfall throughout Seven Dials, bringing benefits particularly to those streets where rental values are currently materially below their long-term potential.

At our Central Cross holding, Westminster City Council's improvement scheme for Newport Place and Newport Court, which we are funding, has commenced recently. It is scheduled for completion in phases from spring 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.

As part of the plans to improve pedestrian capacity, in advance of the opening of the Elizabeth Line, Westminster City Council have designated Broadwick Street as a priority pedestrian route. There have already been improvements to the public realm at the eastern end of the 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.

Acquisitions with good rental growth prospects

During the year, we acquired seven properties at a total cost of £37.1 million. These comprised four 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 acquire assets in, and around, our areas, which offer the opportunity for future rental growth.

90-104 Berwick Street

In August 2017, we entered in to a contract to forward purchase a long-leasehold interest in 90-104 Berwick Street, Soho, at a price of £38.5 million.

Located at the southern end of Berwick Street, the property is currently being redeveloped to provide 12,500 sq. ft. of retail, a 5,500 sq. ft. supermarket, a 2,000 sq. ft. restaurant and a 110-bedroom hotel. Both the hotel and supermarket have been pre-let. The redevelopment is expected to complete in late 2018, which will, subject to satisfying various contractual conditions, trigger the completion of the acquisition.

This strategic acquisition increases our ownership of Berwick Street frontages to 50%. Once completed, it will enable us to accelerate our long-term strategy on this important north-south route in the heart of Soho, which we consider to have good medium to long-term prospects. We expect Berwick Street, which is currently in the final phase of major public realm improvements, to benefit from a significant increase in footfall from the opening of the Elizabeth Line and Tottenham Court Road's new ticket hall on Dean Street in December 2018.

Financial results

1 An alternative performance measure ("APM"). See below

This year's results show further growth in income, earnings and dividends, resulting from continued crystallisation of our portfolio's reversionary potential and the benefit of lower financing costs. Net asset value growth was driven by a strong portfolio valuation performance.

Presentation of financial information

Our property portfolio is a combination of properties which 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 consider 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 are presented on this proportionally consolidated basis.

We consider that this presentation better explains to stakeholders the Group's activities and financial position. Measures presented on a proportional consolidation basis are alternative performance measures as they are not defined under IFRS. Further details are set out below.

1 Profit on disposal and surplus on revaluation of investment properties

2 Change in fair value of interest rate swaps and, in 2016, recognition of fair value of Debenture Stock

Reported earnings

Profit after tax for the year amounted to £301.6 million (2016: £99.1 million). Basic earnings per share increased to 108.1p (2016: 35.6p), largely due to:

· the portfolio revaluation surplus, which contributed 82.7p (2016: 38.9p).

· net property income which added 31.7p (2016: 30.2p).

· the decrease in the fair value deficit of our interest rate swaps added 7.9p, compared with an increase in this deficit, which reduced earnings per share by 12.5p last year.

· net finance costs, excluding fair value movements, reduced earnings per share by 11.7p (2016: 12.1p).

· a decrease in our share of the post-tax profits from our joint venture, which contributed 2.3p (2016: 6.6p), largely driven by a lower revaluation surplus.

Additionally, last year's earnings per share were reduced by 10.5p as a result of a one-off charge to recognise the fair value of our 8.5% Debenture Stock.

EPRA earnings1

As is usual practice in our sector, we produce alternative measures 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 exclude valuation movements in respect of our properties and interest rate swaps, profits on disposal of investment properties and deferred tax arising in our Longmartin joint venture. In 2016, it also excluded the charge for recognising the fair value of our Debenture Stock. EPRA earnings are reconciled below.

1 An alternative performance measure ("APM"). See below

EPRA earnings increased by 15.9% to £45.2 million (2016: £39.0 million) and EPRA EPS grew 15.7% to 16.2p (2016: 14.0p). This increase was principally driven by growth in net property income as we continue to capture our portfolio's reversionary potential, lower finance costs following our refinancing in October 2016 (see below), and increased profits from our Longmartin joint venture, having concluded a number of rent reviews during the year.

1 An alternative performance measure ("APM"). See below

Net property income

Rents receivable increased by £5.0 million to £103.4 million (2016: £98.4 million). Like-for-like growth was 5.0%, as we continue to convert our portfolio's reversionary potential into contracted cash flow. Acquisitions contributed £1.3 million to the increase, whilst vacancy arising from our larger schemes and disposals reduced rents receivable compared with last year by £0.8 million and £0.2 million, respectively.

Irrecoverable property charges were £15.1 million (2016: £14.3 million), representing 14.6% of rents receivable (2016: 14.5%). After these costs, net property income was £88.3 million, up 5.0% (2016: £84.1 million).

Administrative expenses

Administrative expenses totalled £14.1 million (2016: £14.1 million). This included charges for annual bonuses of £2.7 million (2016: £3.0 million) and share options of £1.8 million (2016: £2.5 million). Administrative costs, excluding these charges, increased by £1.0 million to £9.6 million (2016: £8.6 million), reflecting growing activity within our business, increased employment costs and additional headcount. We do not capitalise administrative costs.

Valuation gains and disposal profits

The surplus arising on the revaluation of our wholly-owned portfolio amounted to £230.6 million (2016: £108.3 million). This represented a like-for-like increase of 7.5%, principally driven by like-for-like ERV growth of 3.4%, together with yield compression of 11 basis points. Further details are provided above.

Disposals of non-core assets in the period totalled £13.8 million, 12.6% above book value at 30 September 2016. These included nine apartments, a small mixed-use building in Covent Garden and 1,500 sq. ft. of ancillary commercial basement space, which was sold to an adjoining owner. After costs, these disposals generated a profit in the year of £1.1 million.

Net finance costs

Net finance costs (excluding the change in fair value of interest rate swaps) decreased by £0.9 million to £32.7 million (2016: £33.6 million) largely as a result of the benefits of reduced borrowing costs following our refinancing in October 2016. This was partly offset by:

· higher net debt as a result of acquisitions and further investment in our portfolio; and

· an accelerated write-off of unamortised deferred loan issue costs of £0.3 million, following our refinancing in September 2017.

Debt and interest rate swaps fair value movements

Following increases in long-term interest rates during the year, the fair value deficit in respect of our interest rate swaps decreased, leading to a credit to the Income Statement of £22.0 million. We have now terminated these swap contracts.

Share of Longmartin post-tax results

Our share of post-tax profit from the Longmartin joint venture decreased by £12.1 million to £6.4 million (2016: £18.5 million), largely due to a lower revaluation surplus of £2.6 million (2016: £11.3 million). Our share of net property income increased by £1.3 million, following the successful conclusion of a number of rent reviews which contributed to a like-for-like increase in rents receivable of 17.2%.

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 (2016: £Nil).

In common with most businesses, we do collect and pay other taxes and levies eg payroll taxes, VAT, Stamp Duty Land Tax, Business Rates, and withholding tax on Property Income Distributions. During the year, the total amount paid in respect of these taxes amounted to £18.1 million (2016: £22.2 million). In addition, our share of corporation tax incurred by the Longmartin joint venture was £0.9 million (2016: £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 structure our affairs based on sound commercial principles, rather than engaging in aggressive tax planning. 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.

Dividends

As a REIT, we are required to distribute a minimum of 90% of qualifying REIT income, calculated by reference to tax rather than accounting rules, as a PID. This is treated as income for investors, and is taxed according to their own tax status. PIDs are subject to withholding tax at basic rate income tax, except for certain classes of investors who can register to receive their distributions gross, rather than net.

Notwithstanding this distribution requirement, 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.

The Board has recommended a final dividend of 8.1p per share, up 7.3% on last year's final dividend (7.55p per share). Together with the interim dividend of 7.9p per share, this brings the total for the year to 16.0p per share, an increase of 8.8% on 2016 (14.7p per share).

This increase reflects growth in net property income and earnings enhancements from the refinancing reported last year and is covered 1.01 times by EPRA earnings per share and 1.04 times by adjusted earnings per share1, after adding back the non-cash accounting share option charge of £1.4 million.

If approved at the 2018 AGM, the final dividend will be paid on 16 February 2018. The exceptional charges associated with our refinancing activities during the year are charged against our current year qualifying REIT income. Since these charges outweigh qualifying income in the year, the final dividend will be paid as an ordinary dividend. It is likely that PID distributions will resume in 2018.

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 take into consideration future liquidity requirements.

At 30 September 2017, we had distributable reserves of £218.0 million. It is our policy, where possible, for subsidiary companies to distribute the majority of their distributable profits to PLC annually. Currently, there are no restrictions on subsidiaries' ability to distribute profits.

1 EPRA EPS, adjusted to add back the non-cash accounting charge for equity-settled remuneration. This is an Alternative Performance Measure.

1 An alternative performance measure ("APM"). See below

Net asset value per share1

Net asset value per share increased by 10.7% to £9.49 (2016: £8.57), largely due to the revaluation surplus on our investment properties, which contributed 82p. Operating profit, excluding the revaluation surplus, added 27p. Net finance costs reduced net asset value per share by 4p, after a credit for the decrease in the fair value deficit attributable to our interest rate swaps, prior to their termination in September 2017, of 8p. Our share of the Longmartin joint venture contributed 2p and dividends paid during the year totalled 15.45p.

EPRA NAV1

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 which are not expected to crystallise in normal circumstances are excluded. In our case, the calculation excludes deferred tax related to property valuation surpluses in the Longmartin joint venture and the fair value of interest rate swaps. Having terminated our remaining interest rate swaps during the year, there is now no adjustment to EPRA NAV in respect of these.

EPRA NAV per share increased by 64p (7.2%) to £9.52 (2016: £8.88). EPRA earnings of 16.2p per share were offset largely by dividends paid in the year (15.45p per share). The revaluation surpluses from the wholly-owned portfolio and the Longmartin joint venture added 83p. The cancellation of our remaining interest rate swaps reduced EPRA NAV by 20p. Growth over the year, excluding these exceptional refinancing costs, was 9.5%.

Net asset value return1 measures shareholder value creation, taking into account the growth in EPRA NAV together with dividends paid in the period. Net asset value return in 2017 was 8.9% (2016: 3.8%).

1 An alternative performance measure ("APM"). See below

1 An alternative performance measure ("APM"). See below

Cash flows and net debt

Net debt increased by £162.1 million to £914.2 million (2016: £752.1 million). The major cash flows were:

· Operating cash inflow totalling £44.0 million.

· Dividends paid amounting to £44.5 million.

· Net capital investment in our portfolio of £68.2 million.

· Termination of interest rate swaps at a cost of £92.1 million.

Financial management

Important refinancing activity has increased our financial resources, diversified our sources of finance, and significantly reduced financing costs.

Sources of capital

Under REIT rules, we are required to distribute the majority of our recurring earnings. Furthermore, the importance of our ownership clusters in long-term value creation means that opportunities to recycle capital are limited.

Therefore, investment in our portfolio is funded through a combination of equity and debt, with equity providing the permanent capital to support our long-term strategy. We use debt to enhance, not drive, returns.

Low-risk debt structure

Consistent with the long-term nature of our portfolio and secure income streams, our core debt finance is provided by long-term arrangements with covenant structures which do not restrict the active management of our assets. Medium-term revolving facilities provide us with flexibility in managing our resources and capacity to invest further in our existing portfolio, in particular allowing us to act swiftly when acquiring properties.

Over the long term, we would expect debt to represent around one third of our invested capital, although we consider other metrics, such as interest cover, when considering gearing levels.

Financing activity during the year

We have concluded important initiatives during the year to strengthen further the Group's financing arrangements, taking advantage of the current interest rate environment and lenders' appetite to provide secure long-term finance.

During the year we issued £575 million of secured bonds:

The proceeds of the first issue, in October 2016, were used to redeem our £61 million 8.5% Debenture Stock, including a prepayment cost of £31.1 million, and to terminate interest rate swaps with a notional principal of £55 million, at a cost of £34.1 million. The balance was used to reduce drawings against our revolving credit facilities.

Following the second issue, in September 2017, we repaid bank facilities totalling £75 million, reduced drawings against our revolving credit facilities, with the balance being retained as cash. Subsequently, we cancelled our remaining interest rate swaps at a cost of £57.9 million.

Together, these transactions increased our financial resources, diversified our sources of debt, reduced the blended cost and extended the average maturity.

We are in advanced discussions currently to extend both of our bank facilities from 2018 and 2020 to 2022.

At 30 September, our cash and undrawn revolving credit facilities totalled £321 million and our blended cost of debt had fallen over the year by 1.2% to 3.3%. The marginal cost of our undrawn facilities was just 1.2%. As we continue to fund net investment in our portfolio through further drawings against these facilities, our weighted average cost of debt will fall further.

1 Including our 50% share of Longmartin debt. See presentation of financial information above.

2 Including non-utilisation fees on undrawn bank facilities.

3 Based on EPRA net assets.

4 Based on net debt.

5 An Alternative Performance Measure (APM). See below.

Debt maturity profile

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

Alternative Performance Measures (APMs)

The Group has applied the European Securities and Markets Authority (ESMA) guidelines on alternative performance measures in these annual results. An APM is a financial measure of historical or future financial performance, position or cash flows of the Group which is not a measure defined or specified in IFRS.

Set out below is a summary of APMs used in this preliminary announcement - some of which are EPRA performance measures, which are a set of standard disclosures for the property industry, as defined by EPRA in its Best Practices Recommendations.

Where this report uses like-for-like comparisons, these are defined within the Glossary.

Portfolio analysis

1 Shaftesbury Group's 50% share.

Basis of valuation

Notes

1. The fair values at 30 September 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 year.

Group statement of comprehensive income

For the year ended 30 September 2017

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

Group balance sheet

As at 30 September 2017

On behalf of the Board who approved and authorised for issue the financial statements on 27 November 2017.

Brian Bickell Chris WardChief Executive Finance Director

Group cash flow statement

For the year ended 30 September 2017

The prior year comparatives have been restated to reclassify £2.3 million between cash generated from operating activities and cash used for investment property acquisitions. The directors consider the restatement more fairly presents the cash flows. This change has no impact on the net change in cash and cash equivalents, net assets nor reported results in either of the years presented.

Group statement of changes in equity

For the year ended 30 September 2017

Notes to the financial statements

For the year ended 30 September 2017

1. Accounting policies

Basis of preparation

The preliminary announcement does not constitute full financial statements.

The results for the year ended 30 September 2017 included in this preliminary announcement are extracted from the audited financial statements for the year ended 30 September 2017 which were approved by the directors on 27 November 2017. 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 2017 Annual Report is expected to be posted to shareholders and available on the Group's website in December 2017. It will be considered at the Annual General Meeting to be held on 9 February 2018. The financial statements for the year ended 30 September 2017 have not yet been delivered to the Registrar of Companies.

The auditor's report on the financial statements for the year ended 30 September 2016 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 2016 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 at least 12 months from the date these financial statements were approved. 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 properties 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, Cushman & Wakefield. 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 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. Cushman & Wakefield 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 - Global 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. See note 8 for further information.

New accounting standards and interpretations

a) The following amendments to existing Standards and Interpretations were relevant to the Group and mandatory for the first time for the financial year ended 30 September 2017:

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

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

IFRS 9 - Financial Instruments

This standard deals with, amongst other things, the classification and measurement of financial instruments. Having carried out an assessment of the standard, the Group believes the main impact will be the measurement and presentation of trade receivables in the Group financial statements, and balances due from subsidiaries in the Company financial statements. Having considered expected credit losses and sources of forward-looking data, we do not currently expect any impact will be material.

IFRS 15 - Revenue from contracts with customers

This standard is based on the principle that revenue is recognised when control passes to a customer. In our case, the standard is most applicable to the recognition point for service charge income and disposals of investment properties. As the standard excludes rental income, which falls within the scope of IFRS 16 - Leases, it is not expected that IFRS 15 will have a significant impact on the Group's financial statements. There may be changes to presentation and disclosure.

IFRS 16 - Leases

For operating leases in excess of one year, this standard requires lessees to recognise a right-of-use asset and a related lease liability representing the obligation to make lease payments. The right-of-use asset is assessed for impairment annually and is amortised on a straight-line basis. The lease liability is amortised using the effective interest method. Lessor accounting is substantially unchanged from current accounting. Therefore, since the Group is primarily a lessor, this standard does not significantly impact the Group's financial statements. However, for the Company, it will result in the recognition of a right-to-use asset and corresponding lease liability, which we estimate at approximately £3 million, in the year when the standard becomes effective.

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 £0.5 million from amortisation of accrued income in respect of lease incentives (2016: credit of £0.5 million).

3. Property charges

4. Equity-settled remuneration

5. Profit on disposal of investment properties

6. Finance costs

7. 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.

8. Investment properties

The investment properties valuation comprises:

Investment properties were valued at 30 September 2017 by qualified professional valuers, being members of the Royal Institution of Chartered Surveyors (RICS), working for Cushman & Wakefield, 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 - Global Standards, which incorporate, the International Valuation Standards and the RICS UK Valuation Standards edition current at the valuation date and IFRS 13. When considering a property's highest and best use, the 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 fair value of the Group's investment properties has primarily been determined using a market approach, which provides an indication of value by comparing the subject asset with similar assets for which price information is available. The external valuer uses information provided by the Group, such as tenancy information and capital expenditure expectations. In deriving fair value, the valuer also makes a series of assumptions, using professional judgement and market observations. These assumptions include equivalent yields and rental values (ERVs) applicable to the properties. Equivalent yields are based on current market prices, depending on, inter alia, the location and use of the properties. ERVs are calculated using a number of factors which include current rental income, market comparatives and occupancy levels. Whilst there is market evidence for these inputs, and recent transaction prices for similar properties, there is still a significant element of estimation and judgement.

As a result of adjustments made to market observable data, these significant inputs are deemed unobservable.

Since the key inputs to the valuation are unobservable, the Group considers all its investment properties fall within Level 3 of the fair value hierarchy in IFRS 13. The Group's policy is to recognise transfers between hierarchy levels as at the date of the event or change in circumstances that caused the transfer. There have been no transfers during the year (2016: none).

The key assumptions made by the valuers are set out in the Basis of Valuation above.

The major inputs to the external valuation are reviewed by the senior management team. In addition, the valuer meets with external auditors and the Audit Committee.

Fees were agreed at fixed amounts in advance of the valuations being carried out. It is noted that Cushman & Wakefield acted as letting agents for Shaftesbury Carnaby PLC and Shaftesbury Soho Limited in the year. The fees payable by the Group to Cushman & Wakefield do not constitute a significant part of their fee income.

Sensitivity analysis

As noted in the critical judgements, assumptions and estimates section above, 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. Cushman & Wakefield 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 2017, the Group had capital commitments of £13.6 million (2016: £31.3 million). See above for a discussion of the Group's property activity during the year.

9. 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.

10. Investment in joint venture