SHB.L Regulatory News (SHB)

Chief Executive's Statement

Shaftesbury's performance this year

It has been another year of good progress with growth in income, earnings and the value of our portfolio. Our results continue to demonstrate the appeal and qualities of our carefully-curated and iconic destinations, underwritten by the global attraction and exceptional features of London and the West End. Footfall, spending and the demand for space in our locations continues to be largely unaffected by the widely-reported headwinds affecting the national economy and consumer confidence.

Profit after tax for the year was £175.5 million. EPRA earnings1 this year have risen by £6.5 million to £51.7 million, which equates to an increase in EPRA earnings per share1 of 5.6% to 17.1 pence.

Net property income increased by 6.2% to £93.8 million (2017: £88.3 million) as a result of an increase in rents receivable, reflecting income from acquisitions and like-for like growth of 6.4%, partly offset by an increase in property costs. We have benefited from the first full year of interest savings following debt restructuring in 2016 and 2017, which significantly reduced our blended finance cost.

The valuation of our portfolio1,2 now stands at £3.95 billion, reflecting a like-for-like increase of 3.8%, of which 3.0% arose in the first half of the year. In assessing our portfolio, the valuers take into account growing contracted income, prospects for long-term growth in rental values and continuing high levels of occupancy.

The portfolio revaluation surplus, together with disposal profits, have added 39 pence to EPRA net asset value per share1, which now stands at £9.91, an increase of 4.1%. Net asset value return1 for the year was 5.8%.

London's economic strength and prospects

London is one of the leading global cities. It has the largest economy of any Western European city and contributes almost one quarter of UK GDP. The breadth of its economy encompasses:

· a world-leading financial and commercial centre;

· a major hub for creative industries, from technology to media;

· a globally-recognised location for education and research;

· home to world-class visual and performing arts facilities; and

· a valuable visitor economy, attracting more international tourists than any city in the western hemisphere as well as huge numbers of local and domestic visitors.

This unique combination of features means London is not solely reliant on the fortunes of the wider UK economy. Although the uncertainty surrounding the implications of Brexit for the UK economy are having an adverse impact on business and consumer confidence, London is much less affected. It continues to attract domestic and international businesses and investment, with medium-term growth projections for London out-performing national forecasts.

Focus on the West End

At the heart of the city, the West End draws over 200 million visits annually. Its huge working population provides a regular, daily customer base for its retail, restaurant and leisure businesses. Importantly, throughout the week and particularly around weekends, local, domestic and international visitors arrive in their millions to enjoy its tourist and cultural attractions as well as unrivalled shopping, dining and leisure choices. Together with its residential population, the West End offers a busy, seven-days-a-week trading environment, and a more-affluent customer base, which underpins its prosperity and appeal to businesses.

London's extensive transport infrastructure makes the West End accessible not only to Londoners, but also to the large population in the south east who commute or visit for a day out. The five main Underground stations in the West End currently handle some 225 million passengers annually. The opening of the Elizabeth Line, now expected late next year, will add 10% to London's transport capacity and will improve the West End's transport connectivity materially. All our ownerships are within a short walk of the new Tottenham Court Road and Bond Street interchanges, which are forecast to be handling 200 million passengers annually by the mid-2020s.

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

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

Leasing activity across the portfolio

With robust footfall and trading in our locations, occupier demand has been stable throughout the year. We completed leasing transactions with a rental value of £31.4 million and, excluding our larger schemes, EPRA vacancy1,2 over the year has remained in line with our ten-year average.

The average period taken to let space, measured from the date it becomes available to the completion of a contractual commitment, has increased over the year by 4 weeks to around 2½ months. Potential occupiers have become more cautious, especially where they are contemplating substantial fit-out and rental commitments. This is particularly so where they are exposed to UK-wide consumer spending trends.

At our three completed larger schemes, 84.4% of the income is now contracted or under offer. Our mixed use scheme at 57 Broadwick Street, Carnaby, was fully let during the year and we completed the letting of Thomas Neal's Warehouse, in Seven Dials, in November 2018. At our retail and restaurant scheme at Central Cross, Chinatown, 47% of the income is now contracted and a further 23% is under offer. The ERV of space available or under offer is £1.9 million, representing just 1.3% of total portfolio ERV. Whilst the pace of these lettings has impacted on revenue growth in the year ended 30 September 2018, they will now be making a useful contribution to earnings in the current financial year.

Improving the portfolio

During the year, schemes to improve our buildings extended to 177,200 sq. ft. Capital expenditure totalled £25.3 million. Having completed the development of the three larger schemes we commenced in 2015, and in response to sustained demand for the space we typically have to offer, over recent months we have taken opportunities to accelerate a number of schemes. Whilst these will temper revenue growth until they become income-producing, they will bring long-term benefits to our portfolio. At year end, the ERV of space held for, or under refurbishment totalled £10.9 million (7.6% of ERV2) and extended to 174,700 sq. ft.

In September 2018, we secured vacant possession of 65,300 sq. ft. of space at 72 Broadwick Street, Carnaby. Shortly we will submit a planning application to introduce new uses and reconfigure the building and currently expect to start our works in summer 2019.

Ensuring the appeal of our iconic West End locations evolves

Creating prosperous environments for our tenants is fundamental to sustained growth in rental income and, in turn, the value of our portfolio. Our long-term strategy focuses on curating distinctive, lively destinations in the West End, attracting footfall and spending to support our retail, restaurant and leisure occupiers. We deliberately focus on an innovative mid-market offer, to appeal to the broadest customer base. Promoting our areas to the widest audience of potential visitors and customers is an essential aspect of our strategy. The environments we create are also important in attracting office occupiers and residents for our apartments.

In recent years, we have seen considerable growth in interest and spending on innovative, casual dining and leisure concepts. It is now widely-acknowledged that a varied and interesting food and beverage offer, particularly where there is very high visitor footfall, is a significant attraction in its own right and draws potential customers for retailers. We are the largest single owner of restaurants, cafés and licensed premises in the West End, and their importance as a source of rental income has grown from 28% to 35% of ERV2 over the last 10 years.

Our largest cluster of restaurants is in Chinatown, where we have a rolling programme to introduce new food concepts from mainland China and across the Far East. Carnaby's casual dining and leisure offer, which now accounts for 21% of its income, continues to draw increasing footfall from lunchtime to late evening, throughout the week.

Adapting to the changing retail environment

With consumer spending patterns, tastes and expectations changing at an ever-faster rate, often heavily influenced by social media, we recognise the importance of ensuring our locations respond to these trends through our choice of occupiers and, where appropriate, changing uses. We seek out, trial and support new concepts, both domestic and international, and have always adopted a leasing strategy which provides flexibility for tenants as well as ourselves. Importantly, rental levels in our busy locations are very competitive compared with nearby streets.

Whilst our shops usually have an online presence, we are starting to see internet-based retailers taking physical space in our locations to promote their brand identities.

1 Wholly-owned portfolio.

2 % of total ERV.

Additions to the portfolio

We seek to buy buildings which have a predominance of valuable restaurant or retail uses on lower floors already, or where we see potential to achieve this. We focus on high-footfall West End locations, close to our existing holdings, where we can see prospects for long-term rental growth. Our asset management strategy often brings compound benefits to our existing holdings. Ownerships in our locations are fragmented and buildings we seek are likely to be privately, rather than institutionally, owned.

Growing macroeconomic uncertainties have not had any discernible impact on the West End investment market during the year or on the availability of assets to buy. Existing owners tend to have a long-term outlook, valuing the security these investments provide, and, in the absence of financial or personal pressures, they remain reluctant to sell. For the same reasons, other investors - domestic and international - are keen and competitive buyers of the limited number of buildings which come to the market.

Despite this supply/demand imbalance, we have secured additions to the portfolio totalling £167.8 million. Our largest acquisition was 72 Broadwick Street, in December 2017, for £92.1 million, which has given us control of a 0.5-acre site in the centre of Carnaby.

The forward-purchase of a long-leasehold interest in 90-104 Berwick Street, Soho, which we contracted in August 2017 for £41 million, including costs, has been delayed. The vendor has advised that their redevelopment scheme, which we will acquire once complete, is behind schedule and will not be handed over to us until mid-2019. This strategic acquisition will increase our ownership to around 50% of Berwick Street's frontages.

We do not expect to see an increase in the availability of properties to acquire in the foreseeable future. However, we have a forensic knowledge of the local market and a focus on purchases which meet our strict criteria, based on their potential and benefits they may bring to our extensive holdings over the long term. Together with readily-available finance, this gives us an advantage in a highly-competitive environment.

We are always keen to add to our ownerships. However, our main focus is to crystallise the income potential of the buildings we already own, whilst creating opportunities to grow their income-generating potential further.

Financing

Our financing strategy has always been based on maintaining a mix of equity and external finance, with debt arrangements which we believe are prudent and support our long-term investment and asset management horizons.

We monitor gearing levels, taking into account current financial commitments, as well as the need for funding to grow and invest in our portfolio, which often requires us to act quickly when opportunities arise. In light of recent and prospective investment commitments, in December 2017, the Board resolved that it was the appropriate time to raise additional equity to ensure gearing did not increase to a level which would constrain future portfolio activity or increase financing risk. A well-supported equity placing was carried out, issuing new shares on a non pre-emptive basis equivalent to 9.98% of share capital at £9.52, raising £260.4 million, net of expenses.

In 2016 and 2017, we took important steps to restructure our debt finance, taking advantage of low long-term interest rates to retire expensive legacy finance and hedging. This initiative was completed in early 2018 with the restructure and extension of our two remaining revolving bank facilities. Our earliest debt maturities are now in 2022 and 2023, with a spread of expiries out to 2035.

We are now very well placed to continue our long-term investment strategy, with capacity to raise additional long-term debt finance when appropriate, without the risk of being hampered by adverse equity market conditions. At the year end, gearing2,3,4 stood at 29.5% and our loan-to-value ratio1,2,3 was 22.8%. Cash and available debt resources stood at £343.5 million, of which £92.7 million is already earmarked for investment.

As a result of voting at the 2018 AGM, we currently do not have authority from shareholders to carry out non pre-emptive share issues. Should the need arise, this does not preclude issuing equity on a pre-emptive basis through, for example, a rights issue or open offer.

We are based in the community in which we operate and strive to be a responsible, accessible corporate citizen. Our extensive engagement with the local community provides financial support and advice for a wide range of local community groups and charities as well as arts organisations. We hosted 30 organisations at our community partner's networking breakfast this year, which was addressed by the Leader of Westminster City Council.

We have evaluated our community investment, comprising the value of time we devote to community activities and contributions, both in kind and in cash, at £0.9 million this year.

Our people

The successful delivery of our strategy is supported by an experienced team, who are committed to ensuring its implementation continues to evolve to meet the challenges and opportunities of change across not only our business, but the local and wider environment in which we operate.

We operate our business with a staff of just 30 employees but we are supported by over 200 out-sourced advisors across a wide-range of professional disciplines, as well as contractors and on-site personnel. We have a comprehensive code of standards to which these organisations are required to adhere to, including matters such as sustainability and sourcing of materials, health and safety, London Living Wage commitments, Modern Slavery Act obligations and diversity. Importantly, we benefit not only from the knowledge and experience our external advisors bring, but also their enthusiasm and support for our business and values.

Outlook

Uncertainty surrounding our departure from the EU and future trading and other arrangements with the EU27, together with structural changes in traditional national retailing patterns, continue to affect nationwide business confidence and investment, economic growth and consumer spending. However, the global attractions of London and the West End to businesses and huge numbers of local, domestic and international visitors, together with their broad-based economies, create an operating environment which is insulated from the impact of national headwinds and has good long-term growth prospects.

Although we are seeing longer letting periods for the largest space we have to offer, general demand continues to be firm, buoyed by the trading conditions our tenants are reporting. Importantly, our ownership clusters enable us to curate distinctive locations and we continue to focus on growing their appeal by offering an ever-evolving experience with a variety of affordable, contemporary retail, restaurant and leisure choices. This approach supports the prosperity of our tenants and sustains demand for the competitively-priced commercial and residential accommodation we offer.

Our experienced, enthusiastic team, which brings flair and innovation to the management of our portfolio, coupled with secure finances and underpinned by the dynamism of, and prospects for, London and the West End, have always been, and will continue to be, the foundations of the long-term success of this exceptional business.

Brian BickellChief Executive

26 November 2018

Valuation

Portfolio valuation1

Our portfolio, including our 50% share of the Longmartin joint venture, has been valued at 30 September 2018 at £3.95 billion, an increase of £304.9 million over the year.

After allowing for acquisitions, disposals and capital expenditure, the revaluation surplus1 was £118.1 million.

This surplus reflects:

· strong investor demand for well-located assets with the prospect of high occupancy, growth in rents and cash flows, yet limited exposure to obsolescence;

· the benefits of our asset management activity delivering increased contracted income and improved ERV, with the incremental benefits often having a compound effect across nearby holdings;

· the relative affordability of our rents in our high footfall locations compared with nearby streets; and

· robust occupier demand in our carefully-curated locations and the resilience this provides against the headwinds that are impacting wider UK high street rents and occupancy.

Like-for-like valuation growth was 3.8%, comprising 4.2% in the wholly-owned portfolio, partly offset by a decline of 2.4% in the Longmartin joint venture.

Continued investor demand and limited supply

Our portfolio, in the heart of the West End, has a history of delivering sustained rental growth and sector outperformance over the long term. Unsurprisingly, existing owners of the types of buildings we seek to acquire remain reluctant to sell in this especially prosperous and resilient area, severely limiting the availability of assets to buy.

Macroeconomic uncertainty is continuing to focus institutional and private investors on less cyclical locations and secure income streams. This, together with a limited supply of investment opportunities, means that when assets become available, competition is intense.

The equivalent yield attributed by our valuers to our wholly-owned portfolio reduced by 5 basis points in the six months to 31 March 2018 and remained flat over the following six months at 3.41% (2017: 3.46%).

The valuation of the geared long leasehold interest held by the Longmartin joint venture fell over the year by 2.4%, of which 1.9% was reported in the first half. The equivalent yield has remained broadly flat at 3.82% (2017: 3.80%). However, during the year, our valuers have reduced their estimate of retail ERVs on Long Acre by 8.5%, of which 5% was reported in our interim results. This reflects a lack of recent letting evidence and a potential increase in availability of large shops in this "high street" location, where rental tones have increased significantly over recent years. Additionally, the valuation takes into account the short-term impact of securing vacant possession of space for our planned restaurant scheme in St Martin's Courtyard.

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.

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.

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 Our 50% share.

4 Portfolio excluding non-core asset acquired as part of a portfolio. See note 8 for a reconciliation to the financial statements.

Reversionary potential

Converting our portfolio's reversionary potential into contracted income and cash flow, while further increasing rental values, are key drivers to long-term value creation. Our leasing and active asset management activity during the year has, once again, delivered growth in both annualised current income and ERV.

At 30 September 2018, annualised current income stood at £121.5 million, following a like-for-like increase of 5.1% over the year.

Total ERV, which is based on today's rental tones, and largely reflects rental evidence established through leasing transactions, was estimated by our valuers at £154.0 million. Excluding the impact of acquisitions and disposals, which contributed £6.0 million (net), like-for-like growth was 2.4%.

Asset management activity

Schemes during the year extended to 177,200 sq. ft. (9.7% of wholly-owned floor space). Capital expenditure totalled £25.3 million, representing 0.7% of wholly-owned portfolio value. This included £4.8 million in respect of 57 Broadwick Street, Carnaby.

Vacant space1 held for, or under, refurbishment at 30 September 2018

1 Wholly-owned portfolio.

2 2018: 72 Broadwick Street; 2017: 57 Broadwick Street.

At 30 September 2018, vacant space held for, or under, refurbishment extended to 174,700 sq. ft. and represented 7.6% of ERV. This included 65,300 sq. ft. at 72 Broadwick Street, where we recently secured vacant possession.

During the year, schemes with an ERV of £8.1 million completed, including 57 Broadwick Street, Carnaby. New schemes with an ERV of £10.0 million commenced, of which our larger scheme at 72 Broadwick Street, Carnaby, accounted for £4.0 million. Our current schemes are not expected to make a significant contribution to revenue in the year ending 30 September 2019.

Other schemes

Excluding 72 Broadwick Street, we had 47 other schemes underway at 30 September 2018, extending to 109,400 sq. ft. and representing 4.8% of ERV. These included 39,600 sq. ft. of restaurants and cafés (ERV: £2.9 million), 10,900 sq. ft. of shops (ERV: £0.6 million), 39,500 sq. ft. of office space (ERV: £2.5 million), and 32 apartments either being created or upgraded (ERV: £0.9 million). These included some medium-sized schemes, as set out below.

Longmartin

In the Longmartin joint venture, our share of capital expenditure in the period was £2.4 million. At 30 September 2018, the ERV of our 50% share of space held for refurbishment was £0.9 million. This included:

· Our mixed-use commercial scheme on the corner of Long Acre and Upper St Martin's Lane, currently on track to complete in spring 2019. Our share of the cost is £4.6 million of which £3.1 million has been spent to date.

· A scheme to improve St Martin's Courtyard, including creating two new restaurants whilst reconfiguring a third, which we will commence shortly. Expected to complete in autumn 2019, our share of the cost is £3.7 million.

Public realm improvements

During the year, the scheme to improve the pedestrian environment on the west section of Earlham Street completed. Together with the recently-completed improvements to Cambridge Circus, we are seeing increased footfall already, and expect this to grow further once the Elizabeth Line opens.

Westminster City Council's extensive public realm scheme encompassing Newport Place and Newport Court, which we have funded, is now complete and has transformed the eastern end of Chinatown. The new part-pedestrianised public square in Newport Place will provide a focal point for visitors, and, subject to planning and licensing, will provide the opportunity for al fresco dining for the first time in Chinatown.

Financial results

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

Presentation of financial information

EPRA measures

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 portfolio valuation movements, profits on disposal of investment properties and deferred tax arising in our Longmartin joint venture. In 2017, it also excluded fair value movements in respect of interest rate swaps, until they were cancelled in September 2017.

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.

Net asset value return measures shareholder value creation, taking into account the growth in EPRA NAV together with dividends paid in the year.

Investment properties and debt

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

The financial statements, prepared under IFRS, include the Group's interest in its joint venture as one-line items in the Income Statement and Balance Sheet. The analysis that follows 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 (APMs) as they are not defined under IFRS.

Further details on APMs used in this preliminary announcement, and how they reconcile to IFRS, are set out below.

Income statement

Profit after tax

Profit after tax for the year was £175.5 million (2017: £301.6 million) and basic earnings per share was 58.1p (2017: 108.1p). The decrease in profit after tax was largely due to a lower revaluation surplus in the wholly-owned portfolio this year. Together with disposal profits, this contributed £127.7 million (2017: £231.7 million).

Additionally, earnings were boosted last year by a gain on the fair value of interest rate swaps of £22.0 million. These swaps were cancelled in September 2017.

Higher net property income, lower administrative costs, and reduced net finance costs, together, increased profit after tax by £7.4 million. This was partly offset by a post-tax loss in the Longmartin joint venture, our share of which reduced earnings by £1.1 million in 2018, compared with a profit in 2017 of £6.4 million. The results of the joint venture are set out below.

EPRA earnings1

EPRA earnings increased by 14.4% to £51.7 million (2017: £45.2 million) and EPRA earnings per share grew 5.6% to 17.1p (2017: 16.2p). The smaller relative increase in EPRA earnings per share, compared with that for EPRA earnings, reflects the additional shares in issue following the equity placing in December 2017.

EPRA earnings are reconciled to profit after tax in note 19 to the financial statements.

The increase in EPRA earnings was driven principally by growth in net property income and lower net finance costs, partly offset by lower net property income in the Longmartin joint venture, largely due to scheme vacancy.

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

Net property income

Rents receivable increased by 9.1% to £112.8 million (2017: £103.4 million), reflecting continued conversion of our portfolio's reversionary potential into contracted cash flow, together with the impact of acquisitions. Excluding acquisitions and disposals, the like-for-like increase was 6.4%. Turnover-related rental top-ups made a useful contribution, totalling £1.1 million (2017: £0.7 million). Acquisitions accounted for £3.3 million of the increase, while disposals reduced rents receivable by £0.4 million compared with last year.

Irrecoverable property charges were £19.0 million (2017: £15.1 million). The increase in property operating costs reflects:

· growing our promotional and social media activities, an essential aspect of our strategy to drive footfall and spending;

· a high incidence of repairs and maintenance projects in the year, the cost of which is only partly recoverable through service charges;

· increases in estate management costs; and

· buying in leases to allow us to improve our tenant mix.

Net property income was £93.8 million, up 6.2% (2017: £88.3 million).

Administrative expenses

Administrative expenses amounted to £13.7 million (2017: £14.1 million). Despite increased headcount, employee costs were £1.4 million lower than in 2017, due to decreased charges for variable compensation. Other administrative costs were £1.0 million higher than last year, largely as a result of increased professional fees and irrecoverable VAT.

Valuation gains and disposal profits

Our wholly-owned portfolio's revaluation surplus was £123.1 million (2017: £230.6 million), representing like-for-like valuation growth of 4.2% (2017: 7.5%), principally driven by a like-for-like increase in ERV of 2.6% (2017: 3.4%) and yield compression of five basis points (2017: 11 basis points compression).

Disposals of non-core properties generated net proceeds, after sale costs, of £13.3 million (2017: £13.4 million) and a surplus over 2017 book value of £4.6 million (2017: £1.1 million). These included three shops, 1,875 sq. ft. of office space and three apartments, as well as nine lease extension premiums received from residential long leaseholders.

Net finance costs

Net finance costs decreased by £1.5 million to £31.2 million (2017: £32.7 million). This reflects the benefits of reduced borrowing costs following the refinancing last year, together with lower net debt and higher interest income following the equity placing in December 2017. These savings were partly offset by an accelerated write-off of previously unamortised loan issue costs, totalling £0.3 million, following the refinancing of our bank facilities in February 2018.

Tax

As a REIT, the Group's activities are largely exempt from corporation tax. As a result, there is no tax charge in the year (2017: £Nil).

As with most businesses, we do collect and pay other taxes and levies e.g. 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 £29.2 million (2017: £18.1 million). In addition, our share of taxes, including corporation tax, levied on, or collected by, the Longmartin joint venture was £1.8 million (2017: £0.9 million).

Share of Longmartin post-tax results

Following the reduction in the valuation of Longmartin's investment property (see above), the joint venture delivered a loss after tax for the year, our 50% share of which was £1.1 million (2017: profit of £6.4 million).

Our share of the revaluation deficit was £5.0 million, compared with a surplus last year of £2.6 million. Excluding this revaluation loss and the related deferred tax credit, our share of EPRA earnings1 from the Longmartin joint venture decreased by £0.9 million to £2.8 million (2017: £3.7 million). This reduction was largely due to scheme-related vacancy during the year and the benefit, last year, of back-rents following rent review settlements.

Dividends

The Board has recommended a final dividend of 8.5 pence per share, an increase of 4.9% on last year's final dividend (2017: 8.1 pence). This brings the total dividend for the year to 16.8 pence per share, an increase of 5.0% on 2017 (16.0 pence).

This increase reflects growth in net property income and earnings enhancements from last year's refinancing. Total dividends for the year are covered 1.02 times by EPRA earnings per share1 and 1.03 times by adjusted earnings per share1, after adding back the non-cash accounting share option charge of £0.6 million (2017: £1.4 million).

The total distribution for the year will be £51.6 million, 9.6% higher than last year (2017: £47.1 million). This reflects the increased dividend per share and the greater number of shares now in issue, and is fully covered by adjusted EPRA earnings1 of £52.3 million.

If approved at the 2019 AGM, the final dividend will be paid on 15 February 2019 as an ordinary dividend.

Balance Sheet

Net assets

Net assets increased by £386.1 million, predominantly due to the equity placing in December 2017, which added £260.4 million, and profit after tax of £175.5 million, partly offset by dividends paid which totalled £50.6 million.

EPRA NAV

EPRA NAV per share1 increased by 39p (4.1%) to £9.91 during the year (2017: £9.52). Revaluation surpluses, including disposal profits, added 39p, comprising 41p from the wholly-owned portfolio less our share of the revaluation deficit in the Longmartin joint venture. EPRA earnings of 17.1p per share largely were offset by dividends paid (16.4p per share). EPRA NAV is reconciled to net assets in note 19 to the financial statements.

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

Cash flows and net debt

Net debt decreased by £72.9 million to £841.3 million (2017: £914.2 million). The major cash flows were:

· net proceeds from the share placing of £260.4 million.

· net capital investment in our portfolio of £181.1 million.

· operating cash inflow totalling £46.3 million.

· dividends paid amounting to £50.6 million.

Net cash flows from investing activities in respect of the Longmartin joint venture were nil, following receipt of dividends totalling £3.0 million, offset by an equal amount advanced under the shareholder loan agreement.

Financial management

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 net debt.

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

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. Debt provides capital for investment in our portfolio.

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.

We seek to minimise financing risk and whilst we do not set out loan-to-value targets, over the long term, we would expect debt to represent around one third of our invested capital. Typically, when gearing approaches the upper limit of our tolerance, we look to secure additional equity funding to provide financial capacity for continued investment in our portfolio.

Key aspects of our debt arrangements are:

Share issue

On 6 December 2017, we strengthened our equity base, through a non pre-emptive issue of 27,855,508 million new ordinary shares, representing approximately 9.98% of our issued share capital at the time. The shares were issued at £9.52 per share, which equated to EPRA NAV at 30 September 2017 and represented a discount of 4.9% to the closing price of £10.01 per existing ordinary share on 5 December 2017. After issue costs of £4.8 million, net proceeds were £260.4 million, representing a total discount of approximately 6.59%.

The placing was to finance:

· the acquisition of 72 Broadwick Street, Carnaby, and additional anticipated capital expenditure;

· the forward purchase of a long-leasehold interest in 90-104 Berwick Street; and

· other property acquisitions, totalling £9.0 million, in the preceding six months.

The remainder of the proceeds were raised to provide financial capacity for further acquisitions, as opportunities arise, and to fund value-enhancing schemes.

At 30 September 2018, all of the net proceeds had been spent or earmarked for acquisitions and schemes.

Use of proceeds at 30 September 2018

Related party disclosures relevant to the share issue are set out in note 16 to the financial statements. We had not issued shares for cash on a non pre-emptive basis during the three-year period preceding December 2017.

Refinancing bank facilities

In February 2018, we restructured our revolving bank facilities with arrangements as follows:

· £125 million facility extended from 2020 to 2022.

· new £100 million facility maturing in 2023, replacing a £150 million facility which was due to mature in November 2018.

In line with our approach to financial management, as we invest further in our portfolio, we shall utilise these facilities and raise additional new debt facilities to support our long-term strategy, whilst maintaining a balance between equity and debt which avoids the risks inherent in excessive leverage for this business.

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

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

At 30 September 2018, available resources amounted to £343.5 million, of which £92.7 million will be used to fund capital commitments at that date, the anticipated capital expenditure at 72 Broadwick Street, and our share of scheme costs in the Longmartin joint venture.

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.