SHB.L Regulatory News (SHB)

SHAFTESBURY 2018 HALF YEAR RESULTS

Growth in income, earnings, dividend and NAV

Shaftesbury, the Real Estate Investment Trust and owner of a 14.9 acre property portfolio in the heart of London's West End, today announces its results for the six months ended 31 March 2018.

Highlights

Brian Bickell, Chief Executive, commented:

"Our results for the half year ended 31 March 2018, which show continuing growth in rental income, EPRA earnings, and NAV, demonstrate the successful and innovative approach we bring to the management of our portfolio, and the breadth of appeal and resilience of London's West End.

The West End economy has been largely unaffected by business and consumer uncertainty following the 2016 EU referendum and the structural challenges facing national retail and restaurant chains. Interest in our space is good and occupancy remains high with occupiers recognising that the West End has a broad appeal to domestic and international businesses and visitors, as well as its large local working population, and a generally less price-sensitive customer base.

We are confident that our exceptional portfolio, located in the centre of one of the world's leading global cities, managed by an experienced and enthusiastic team and supported by robust finances, is well-placed to continue to deliver excellent long-term returns for shareholders." 

Growth in income, earnings, dividend and NAV

§ Dividend fully covered by EPRA earnings per share1,2 and adjusted earnings per share2,3.

§ Net asset value return2 for six months ended 31.3.2018: 4.1% (12 months to 31.3.2018: 9.0%).

Occupier demand remains healthy

§ Commercial lettings, lease renewals and rent reviews4 (rental value: £10.9 million) concluded at an average of 4.2% above 30 September 2017 ERV and 7.6% above ERV at 31 March 2017.

§ Excluding larger schemes, EPRA vacancy4 at 31 March 2018: 2.8% of ERV, of which 1.3% was under offer.

Good progress with larger schemes

§ 62% by ERV is now let or under offer at our three larger schemes. 

- Thomas Neal's Warehouse: terms agreed and expect to conclude lease shortly. 

- Central Cross: restaurant space all let or under offer; retail space with an ERV of £0.2m under offer. 

- 57 Broadwick Street: retail and restaurant space fully let. Office and residential elements completed in April 2018. 57% of office space now let.

Growth in portfolio value2,7, contracted rents and ERV

§ Portfolio valuation2,7: £3.86 billion. Like-for-like growth2 over the six months: +3.0% (12 months to 31.3.2018: +8.0%). 

§ Current annualised income7: £121.5 million (30.9.2017: £114.1 million). Like-for-like growth over six months: +3.7% (12 months to 31.3.2018: +5.6%). 10-year CAGR5: 5.3%.

§ ERV7 increased by £6.2 million to £150.7 million. Like-for-like growth over six months: +1.4% (12 months to 31.3.2018: +3.0%). CAGR5 over 10 years: 4.0%. 

§ Portfolio reversionary potential7: £29.2 million, 24.0% above current annualised income. 

§ Equivalent yields:

- Wholly-owned portfolio: 3.41% (30.9.2017: 3.46%);

- Longmartin joint venture: 3.80% (30.9.2017: 3.80%).

Further investment in our portfolio

§ Acquisitions during the first half: £117.4 million, including the freehold of 72 Broadwick Street, Carnaby and six buildings in Neal Street, Seven Dials. 

§ Acquisition of 35 and 36 Great Marlborough Street, Carnaby, for £22.7 million (incl. costs) secured since 31 March 2018. 

§ Forward-purchase of 90-104 Berwick Street, for £41 million (incl. costs) now expected to complete in spring 2019, as a result of delayed completion of the vendor's redevelopment scheme. 

§ Redevelopment and refurbishment schemes4 during the period across 153,000 sq. ft. (8.4% of floor space). Capital expenditure4: £14.9 million. Our share of capital expenditure in the Longmartin joint venture: £1.2 million.

- Projects with an ERV of £5.0 million completed in the period. New schemes (ERV: £2.7 million) commenced. 

- Space extending to 93,300 sq. ft. (representing 4.8% of ERV) being held for, or under, refurbishment at 31 March 2018. 

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

§ Selective disposals of non-core assets: £12.9 million, 48.3% above book value at 30 September 2017.

Financing arrangements to support growth and development of the business over the long term

§ Share placing in December 2017 at £9.52 per share raised £260.4 million (net of expenses). 

§ Revolving credit facilities extended and refinanced. Earliest maturity now 2022.

§ Loan-to-value ratio2,6,7: 21.7% (30.9.2017: 26.7%).

§ Weighted average maturity of debt2,7: 10.7 years (30.9.2017: 10.3 years). 

§ Blended cost of debt2,6,7: 3.2% (30.9.2017: 3.3%). Marginal cost on unutilised facilities: 1.5%.

21 May 2018

For further information:

Shaftesbury PLC LEI: 213800N7LHKFNTDKAT98

1. Calculated in accordance with EPRA Best Practice Recommendations.

2. 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.

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

4. Wholly-owned portfolio.

5. Like-for-like.

6. Based on net debt.

7. Includes 50% of the Longmartin joint venture.

See Glossary of terms below.

This announcement includes inside information.

There will be a presentation to equity analysts at 9.30am on Tuesday 22 May 2018, 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://bit.ly/2I6Oe5X or from our website. A playback facility of this presentation will be available on the Group's website www.shaftesbury.co.uk by the end of the day. The presentation document is available on the Group's website www.shaftesbury.co.uk

About Shaftesbury

Shaftesbury 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 now extends to 14.9 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 and 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.

Half year results

Introduction

Our results for the half year ended 31 March 2018, which show continuing growth in rental income, EPRA earnings, and NAV, demonstrate the successful and innovative approach we bring to the management of our exceptional portfolio, and the breadth of appeal and resilience of London's West End as a destination for domestic and international visitors and business.

Our income and earnings have continued to rise, reflected in an increased interim dividend of 8.3 pence per share, up 5.1% on last year. With a greater number of shares in issue, the total distribution will be £25.5 million, 15.9% higher than last year.

During the period, we have made considerable progress in securing occupiers for our larger schemes in Chinatown, Carnaby and Seven Dials, as well as concluding over £15 million of leasing transactions across our portfolio. We have completed important additions to our ownerships, totalling £117.4 million.

Our recent equity issue, which raised £260.4 million, was well-supported by shareholders and has provided us with the financial resources to continue to grow and invest in our portfolio, whilst ensuring debt is maintained at a level the Board considers appropriate for our long-term, accretive investment strategy, and avoiding the risks associated with excessive leverage. Also, we have refinanced and extended the maturities of our revolving bank facilities, further improving the robustness of our balance sheet.

Our focus

We focus on restaurants, leisure and retail. In the West End, there is a long history of sustained demand for this space but a number of structural factors limit its availability, which has resulted in low vacancy and non-cyclical, long-term rental growth.

Extending to 1.1 million sq. ft., our 283 restaurants, cafés and pubs and 304 shops are mainly of medium or small size and provide 36% and 32% of our current annualised income, respectively. Generally, we choose mid-market, innovative and accessible concepts, rather than luxury or value-led shops and restaurants. This variety of interesting dining, leisure and retail brands gives our destinations a distinctive identity and provides visitors with an experience unmatched by other areas.

Typically, the upper floors in our buildings comprise small offices and rental apartments, which provide 18% and 14% of our current annualised income, respectively. These bring working and residential communities, providing regular customers for our restaurants, cafés, pubs and shops.

Current trading environment

The combination of the unique features of London, the West End and our portfolio have, in our long experience, provided a considerable degree of insulation from the economic impact of national short- and longer-term uncertainties and challenges.

Currently, unsettled sentiment since the EU referendum in June 2016 is continuing to adversely affect business and consumer confidence. In addition, national retail and restaurant chains are also having to address the structural implications of changing spending patterns and developments in technology. Inevitably they are cautious in their investment plans, with some permanently scaling back their operations.

In contrast, the West End economy has been largely unaffected by these current, widely-reported concerns. Whilst we have seen an increase in the time taken to complete lettings, interest in our space is good and occupancy remains high with occupiers recognising that the West End has a broad appeal to domestic and international businesses and visitors, as well as its large local working population, and a generally less price-sensitive customer base. Forecasts indicate continuing growth in inbound visitor numbers, and the expected inauguration of the Elizabeth Line in December will, in the years ahead, greatly improve accessibility to the West End. Together, they are expected to bring a sustained increase in the estimated 200 million visits the West End already receives annually.

Our proven and ever-evolving strategy curates and fosters lively and distinctive destinations, which draw visitors and spending in huge and growing numbers. We create prosperous trading environments for our 587 shops, restaurants, cafés and pubs, which, in turn, supports our ability to deliver long-term rental growth. In our locations, our restaurants, cafés, bars and shops are reporting year-on-year sales growth and we continue to see healthy interest for space from businesses keen to locate with us.

Leasing activity

Leasing activity levels have remained high during the six months ended 31 March 2018. Across the wholly-owned portfolio, we have concluded lettings, renewals and rent reviews with a rental value of £15.3 million (31.3.2017: £13.9 million), equating to 11.4% of ERV at 30 September 2017.

Commercial leasing transactions totalled £10.9 million (31.3.2017: £9.3 million) and residential lettings and renewals amounted to £4.4 million (31.3.2017: £4.6 million). Rents for commercial uses were, on average, 4.2% above ERV at 30 September 2017 and 7.6% ahead of ERV twelve months ago.

At 31 March 2018, space with a rental value of £3.5 million was under offer.

Our share of leasing transactions in the Longmartin joint venture was £0.4 million (31.3.2017: £3.0 million).

Portfolio review

Lower floors - 68% of current income1

1. Wholly-owned portfolio

· Restaurants, cafés and leisure

The exceptional variety of restaurants, cafés and leisure choices in the West End are important to its economy, bringing footfall and spending. With 283 restaurants, cafés and pubs, we are the largest single provider of dining and leisure space in the West End. Our ownerships include high-profile and busy destinations such as Chinatown, Kingly Court, Neal's Yard and the Opera Quarter. The majority of our restaurants offer casual all-day dining, with a focus on experience and quality.

Despite a national slowdown in dining and leisure spending, we continue to see healthy trading across our areas. Availability of restaurant space in the West End is constrained by a restrictive planning environment, and the reluctance of existing occupiers to give up their valuable space other than for significant premiums. Against this backdrop of limited supply, occupier demand is good, with operators attracted by exceptional footfall, seven days a week, and a relatively affluent customer base. Competition for available space continues to be strong, and occupancy levels remain high. At 31 March 2018, all our available-to-let restaurant, café and leisure space (ERV: £1.3 million) was under offer.

The 79 restaurants, cafés and bars we own in Chinatown, close to the West End's major entertainment venues, represent approximately one-third, by floor space, of our total ownership of these valuable uses. In this exceptionally busy location, notable for its long hours of trading, our strategy is to improve the variety of the dining offer, whilst maintaining its authentic Chinese and East Asian character and affordability. We are taking opportunities, as they arise, to secure vacant possession of buildings and improve the layout of space on lower floors whilst introducing new uses on upper floors. Demand for this refurbished space is strong and is enabling us to introduce exciting, new concepts. The new restaurants and cafés, and associated public realm works, at our Central Cross scheme (see below) are important additions to Chinatown's offer and appeal.

During the period, we completed leasing transactions in the wholly-owned portfolio with a rental value of £5.2 million (31.3.2017: £4.5 million).

There were no restaurant or café leasing transactions in the Longmartin joint venture during the six months ended 31 March 2018 (31.3.2017: £0.9 million).

· Retail

Our 304 shops, the majority of which are in Carnaby and Seven Dials, make an important contribution to the West End as a leading shopping destination.

With the wide range of shop sizes and rental levels across our buildings and streets, we can provide space for a diverse range of retail formats including start-ups, new brands and international flagships, focussing on interesting, innovative and experiential concepts. Also, we can offer retailers flexibility to expand, relocate, or introduce new ideas and collaborations. Importantly, in our high-footfall and spending locations, rental levels remain affordable compared with nearby streets.

Despite continued headwinds and challenges across the retail sector, our tenants continue to trade well. We remain innovative and flexible in the terms we offer and are continuing to see good interest for the smaller space we typically have to offer, both from domestic and overseas retailers. During the period, we completed leasing transactions with an ERV of £2.9 million (31.3.2017: £2.9 million).

Our share of lettings and rent reviews in the Longmartin joint venture was £50,000 (31.3.2017: £0.5 million).

Upper floors - 32% of current income1

1. Wholly-owned portfolio

· Offices

We are an important provider of small, flexible office space in the core West End. At 31 March 2018, we owned 452,000 sq. ft. of office space, a net increase of 49,000 sq. ft. since 30 September 2017, due to the purchase of 72 Broadwick Street, Carnaby (see below), partly offset by further conversion of space to other uses. With 238 tenants, the average letting across our portfolio is 1,650 sq. ft. at £56 per sq. ft. (30.9.2017: £55 per sq. ft.). Average ERVs are £64 per sq. ft. (30.9.2017: £61 per sq. ft.).

Occupier demand for our space remains good, particularly from SME media, fashion, creative and tech businesses. Availability of this type of space remains low across our locations and, whilst we have seen a small increase in incentive levels, rental tones for our modestly-priced space have increased marginally and occupancy levels have been high.

During the period, wholly-owned office lettings, renewals and rent reviews with a rental value of £2.8 million were completed (31.3.2017: £1.9 million).

Our share of office lettings and rent reviews in the Longmartin joint venture was £0.2 million (31.3.2017: £1.4 million).

· Residential

Demand to rent our 578 mid-market apartments - mainly studios and one or two bedroom flats - remains good.

Lettings and renewals with a rental value of £4.4 million were completed in the period (31.3.2017: £4.6 million). Whilst rents achieved were 0.5% below previous levels, reflecting a greater availability of flats to rent in Central London, occupancy levels have been as high as ever, delivering an important cash flow for the business. Our rolling programme to upgrade apartments continues.

Our share of residential letting activity in the Longmartin joint venture was £0.2 million (31.3.2017: £0.2 million).

Vacancy

EPRA vacancy decreased by 0.4% to 5.6% of total ERV over the first half of the year, following letting progress at our larger schemes. Excluding these larger schemes, EPRA vacancy was 2.8%, of which 1.3% was under offer.

EPRA vacancy1 at 31 March 2018

1. Wholly-owned portfolio

2. Thomas Neal's Warehouse, Seven Dials and Central Cross, Chinatown - see also below.

Other vacancy

Excluding larger schemes, available-to-let vacancy comprised six shops (ERV: £1.1 million), 16,100 sq. ft. of office space (ERV: £1.0 million) and five apartments (ERV: £0.1 million). Space under offer included three restaurants and cafés, six shops, 2,300 sq. ft. of offices and three apartments.

In the Longmartin joint venture, three shops and three apartments were available to let. The ERV of our 50% share of this space was £0.5 million.

Progress with our larger schemes

We have made further progress in letting our three larger schemes. At 21 May 2018, the combined ERV of these schemes was £7.1 million, of which 62% was let or under offer.

Larger schemes - letting status

· Thomas Neal's Warehouse, Seven Dials

We have agreed terms with an international retailer over the entire space and expect to conclude the lease shortly.

· Central Cross, Chinatown

At 31 March 2018, all of the scheme's restaurant space (ERV: £1.5 million) was let or under offer. The ERV of space under offer was £0.8 million, of which lettings in respect of £0.4 million have subsequently completed.

We are marketing the retail units fronting Charing Cross Road, which extend to 34,500 sq. ft.. At 31 March 2018, all of the space was available to let. Subsequently, we have placed one unit, with an ERV of £0.2 million, under offer and discussions continue in respect of the remaining units.

· 57 Broadwick Street, Carnaby

Construction of the retail and restaurant accommodation completed in autumn 2017 and the space has been let.

The remainder of the scheme, comprising 15,500 sq. ft. of grade A office accommodation and two new apartments (1,900 sq. ft.), was completed in late April 2018. We have already let 9,000 sq. ft. of the office space (£0.8m) and are seeing good interest in the remaining space.

Portfolio investment

Asset management activity

Capital expenditure in the wholly-owned portfolio during the period totalled £14.9 million and included schemes extending to 153,000 sq. ft. (8.4% of wholly-owned floor space).

At 31 March 2018, vacant space held for, or under, refurbishment extended to 93,300 sq. ft. and represented 4.8% of ERV, a decrease of 1.8% over six months. During the period, schemes with an ERV of £5.0 million completed, including the restaurant and retail elements of our 57 Broadwick Street project. New schemes with an ERV of £2.7 million commenced.

We have a number of other potential projects at various stages from initial ideas, seeking planning consent, or awaiting vacant possession, and continue to identify further opportunities to add to this pipeline.

Vacant space1 held for, or under, refurbishment at 31 March 2018

1. Wholly-owned portfolio

Other schemes

We had 39 other schemes underway at 31 March 2018, extending to 75,900 sq. ft. and representing 3.7% of ERV. These included 14,400 sq. ft. of restaurants and cafés (ERV: £1.5 million), 20,400 sq. ft. of shops (ERV: £1.2 million), 23,600 sq. ft. of office space (ERV: £1.6 million), and 30 apartments either being created or up-graded (ERV: £0.9 million).

Longmartin

In the Longmartin joint venture, our share of capital expenditure in the period was £1.2 million. At 31 March 2018, the ERV of our 50% share of space held for refurbishment was £1.0 million. This included a mixed-use commercial scheme on the corner of Long Acre and Upper St Martin's Lane, as well as space where we have recently secured vacant possession ahead of a project to increase the restaurant space in St Martin's Courtyard.

Public realm improvements

In our experience, investing in the public realm is an important catalyst for long-term growth in footfall.

During the period, 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 public realm scheme in Chinatown, which we are funding, will complete in the summer. 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.

Acquisitions

The availability of assets to buy which meet our strict criteria remains limited. However, we continue to identify acquisitions which offer the potential for future rental growth, either individually or through combination with our existing ownerships.

During the six months ended 31 March 2018, we secured acquisitions totalling £117.4 million and since then, we have contracted a further purchase for £22.7 million (including purchase costs).

72 Broadwick Street, Carnaby

In early December 2017, we acquired the freehold of 72 Broadwick Street, situated at the eastern gateway to Carnaby, for £92.2 million.

The Group already owned an ungeared long leasehold interest over 13,900 sq. ft. of retail and a café space in the lower floors of the building. Acquiring the freehold gives the Group control over this important 0.5-acre site, which, in its current configuration, also provides 54,100 sq. ft. of office accommodation, eleven apartments extending to 11,200 sq. ft. and a large basement car park.

Subject to planning and licensing consents, we are looking to create valuable new retail and restaurant space in the lower floors of the building, once the office tenant's lease expires in September 2018. In addition, we will reconfigure and refurbish the remaining office space, and up-grade the residential accommodation. We estimate the scheme will take around two years at a cost of around £20 million.

Neal Street, Seven Dials

In late December 2017, we acquired six shops on Neal Street, Seven Dials, for £24.4 million. Adjacent to existing holdings, these buildings increase our ownership of frontages on the northern section of Neal Street to around 70%.

Situated close to the Tottenham Court Road Crossrail hub, we expect the northern end of Neal Street to see material footfall growth once the Elizabeth Line service starts in December 2018. Current rental tones on this part of the street are significantly lower than at the southern end. However, with the benefit of growing footfall and our careful curation, we expect this differential in rents will narrow significantly over the medium term.

Great Marlborough Street, Carnaby

Since 31 March 2018, we have exchanged contracts to acquire the freehold of 35 and 36 Great Marlborough Street, for £22.7 million (including costs). Located at the busy northern gateway to Carnaby, the buildings comprise two shops (3,000 sq. ft.) and 4,250 sq. ft. of office accommodation on the upper floors.

We are discussing plans with Westminster City Council to improve the streetscape in the vicinity materially. Together with our wider estate management strategy, this will bring sustained growth in medium term rental prospects.

90-104 Berwick Street, Soho (forward purchase)

The forward-purchase of this long leasehold interest in 90-104 Berwick Street, for £41 million (including acquisition costs), is now expected to complete in spring 2019, as a result of delayed completion of the vendor's redevelopment scheme.

Located at the southern end of Berwick Street, the development will 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, representing two thirds of the expected income from the property. Following this acquisition, we will own c. 50% of Berwick Street's frontages.

Portfolio valuation

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

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

Like-for-like valuation increase: 3.0%

At 31 March 2018, the valuation of our portfolio, including our 50% share of the Longmartin joint venture, was £3.86 billion. Like-for-like valuation growth over the period was 3.0%, bringing cumulative growth over the year to 31 March 2018 to 8.0%.

The increase over the first half was driven by:

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

· continued improvements we make to accommodation and rental potential in the portfolio through asset management activity. These incremental benefits often have a compound effect across nearby holdings; and

· sustained occupier demand in our carefully-curated locations exceeding the supply of available space, helping to deliver further growth in contracted rents and rental values.

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

2. Our 50% share.

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

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

Continued strong investment demand and limited supply

With economic and political uncertainty, institutional and private investor demand for the best quality assets in the best locations remains strong. The equivalent yield attributed by our valuers to our wholly-owned portfolio was 3.41% (30.9.2017: 3.46%).

Our portfolio, in the heart of the West End, has a history of delivering sustainable rental growth and sector outperformance over the long term. It is therefore unsurprising that existing owners of the types of buildings we seek to acquire remain reluctant to sell in this exceptionally prosperous and resilient area, severely limiting the supply of assets to buy. Together with the strength of investor demand, this means that when assets become available, competition is intense. Having patiently assembled our ownerships over nearly 32 years, it would be virtually impossible, now, to replicate a portfolio such as ours.

The valuation of the geared long leasehold interest held by the Longmartin joint venture showed a reduction of 1.9% over the six months to 31 March 2018. The equivalent yield was unchanged at 3.80%. However, we saw a small reduction in retail ERVs on Long Acre, reflecting 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 ahead of a 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.

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 interim results, which has been prepared in accordance with RICS guidelines.

Continuing capture of the reversionary potential

With the benefits of our leasing activity and active asset management strategy, we have continued our long record of converting our portfolio's potential reversion into contracted income and cash flow, whilst further increasing rental values. Annualised current income has increased, on a like-for-like basis, by 3.7% and 5.6% over 6 months and 12 months, respectively.

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

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

3. See Glossary for definition.

Total ERV, which is based on current established rental tones, was assessed by our valuers at £150.7 million, 24.0% higher than annualised current income. Like-for-like ERV growth over 6 months was 1.4%, bringing the total for the past 12 months to 3.0%.

Components of the reversionary potential1

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

Financial results

1. vs. 30.9.2017

2. vs. 6 months ended 31.3.2017

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

4. 6 month period ended 31.3.2018

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.

Income statement

Reported earnings

Profit after tax for the six months was £123.7 million (31.3.2017: £102.4 million) and basic earnings per share was 41.7p (31.3.2017: 36.7p). The increase in profit after tax was largely due to:

· the revaluation surplus and disposal profits in the wholly-owned portfolio, which contributed £101.8 million (31.3.2017: £61.9 million); and

· increased net property income, which contributed £46.2 million (31.3.2017: £43.8 million).

This was partly offset by a post-tax loss in the joint venture, our share of which reduced earnings by £1.6 million in the current period, compared with a profit during the comparable period last year of £3.5 million.

Additionally, earnings were boosted in the comparative period last year by a gain on the fair value of interest rate swaps of £16.1 million. These swaps were cancelled in September 2017.

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 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, profits on disposal of investment properties, and deferred tax arising in our Longmartin joint venture. In 2017, it also excluded valuation movements in respect of interest rate swaps, which were terminated in September 2017. EPRA earnings are reconciled below.

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

EPRA earnings increased by 9.6% to £25.0 million (31.3.2017: £22.8 million) and EPRA EPS amounted to 8.4p, 2.4% above the first half last year (31.3.2017: 8.2p). The smaller relative increase in EPRA EPS, compared with that for EPRA earnings, reflects the additional shares in issue following the equity placing in December. We expect to deliver further earnings as the placing proceeds are fully deployed.

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

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

Net property income

Rents receivable have increased by 9.2% to £55.6 million (31.3.2017: £50.9 million). Like-for-like growth, excluding the impact of acquisitions and disposals, was 6.8%, which reflects the continued conversion of our portfolio's reversionary potential into contracted income. Turnover-related rental top-ups made a useful contribution, totalling £0.6 million in the period (31.3.2017: £0.5 million). Acquisitions accounted for £1.4 million of the increase, whilst disposals reduced rents receivable compared with the same period last year by £0.2 million.

Irrecoverable property charges were £9.4 million (31.3.2017: £7.1 million). The increase in property operating costs reflects: 

· Higher levels of management and refurbishment activity across the portfolio, and associated costs which we expense rather than capitalise, in accordance with our accounting policies.

· Additional expenditure to enhance general security arrangements across our high-profile locations.

· Growing our promotional and social media activities, which are an essential aspect of our strategy to drive footfall to our areas. 

Net property income was £46.2 million, up 5.5% on the same period last year (31.3.2017: £43.8 million).

Administrative expenses

Administrative expenses totalled £6.8 million (31.3.2017: £6.8 million) and included a non-cash accounting charge for equity-settled remuneration of £0.4 million (31.3.2017: £0.7 million).

Valuation surplus and disposal profits

Our wholly-owned portfolio's revaluation surplus was £97.6 million (31.3.2017: £61.6 million), following like-for-like valuation growth of 3.3%, principally driven by a like-for-like increase in ERV of 1.5%, and yield compression of 5 basis points. See also above.

During the six months ended 31 March 2018, we sold two non-core properties which comprised two shops, 1,875 sq. ft. of office space and three apartments. Sold at 48.3% over book value at 30 September 2017, the disposals generated net proceeds, after sale costs, of £12.9 million and a surplus of £4.2 million.

Net finance costs

Net finance costs decreased by £0.2 million to £15.9 million (31.3.2017: £16.1 million). This reflects the benefits of reduced borrowing costs following the refinancing reported last year, and interest income following the equity placing. This was partly offset by an accelerated write-off of previously unamortised loan issue costs, totalling £0.3 million, following refinancing activity in February 2018 (see below).

Share of Longmartin post-tax results

Following a small reduction in the valuation of Longmartin's investment property (see above), the joint venture delivered a loss after tax for the period, our 50% share of which was £1.6 million (31.3.2017: profit of £3.5 million).

Our share of the revaluation deficit was £4.1 million, compared with a surplus in the same period last year of £1.5 million. Excluding this revaluation loss and our share of the related deferred tax credit totalling £1.0 million (31.3.2017: £0.1 million), our share of EPRA earnings from the Longmartin joint venture decreased by £0.4 million to £1.5 million (31.3.2017: £1.9 million), largely due to scheme-related vacancy during the period.

Tax

As a REIT, the Group's activities are largely exempt from corporation tax and, as a result, there is no tax charge in the period (31.3.2017: £Nil).

Interim dividend

The Board has declared an interim dividend of 8.3p per share, an increase of 5.1% on last year's interim dividend of 7.9p. The total distribution will be £25.5 million, 15.9% higher than last year (31.3.2017: £22.0 million), reflecting the increased number of shares now in issue. The interim dividend, to be paid on 6 July 2018, will be paid as a PID.

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

The dividend is covered 1.01 times by EPRA earnings and 1.03 times by adjusted earnings, after adding back the non-cash accounting charge in the period for equity-settled remuneration of £0.4 million.

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

Balance Sheet

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

Net assets

Net assets increased by £359.4 million, predominantly due to the equity placing in December, which added £260.4 million, and profit after tax of £123.7 million, partly offset by the final dividend for 2017 which totalled £25.1 million.

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, in the six months ended 31 March 2017, the fair value of interest rate swaps. Having terminated these interest rate swaps in September 2017, there is no adjustment to EPRA NAV in respect of these at 30 September 2017 nor 31 March 2018.

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

2. 31.3.2018 and 31.3.2017: growth/return over six months; 30.9.2017: growth/return over twelve months

EPRA NAV per share increased by 31p (3.3%) to £9.83 over the period (30.9.2017: £9.52), bringing growth over twelve months to 7.8%. During the six months ended 31 March 2018, the revaluation surplus in the wholly-owned portfolio added 32p. EPRA earnings of 8.4p per share were offset by the final dividend for 2017 (8.1p per share). Disposal profits contributed 1p and our share of the revaluation deficit in the Longmartin joint venture reduced NAV per share by 1p.

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

Cash flows and net debt

Net debt decreased by £135.1 million to £779.1 million over the period (30.9.2017: £914.2 million). The major cash flows were:

· net proceeds from the equity raise of £260.4 million.

· net capital investment in our portfolio of £121.1 million.

· operating cash inflow totalling £23.0 million.

· dividends paid amounting to £25.1 million.

Finance review

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.

Share issue

On 6 December 2017, we strengthened our equity base, issuing 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, equivalent to EPRA NAV at 30 September 2017. Net proceeds, after issue costs, of £260.4 million funded the acquisition of 72 Broadwick Street, Carnaby, with the balance available for: 

· the acquisition of a long-leasehold interest in 90-104 Berwick Street, Soho for £41 million;

· anticipated capital expenditure at 72 Broadwick Street, Carnaby, currently estimated at £20 million; and

· further acquisitions and value-enhancing schemes.

By 31 March 2018, approximately 79% of the net proceeds had been spent or earmarked for acquisitions and schemes.

The equity issue has increased the resources available for further investment in our portfolio. Once fully deployed, we shall raise additional new debt facilities to support our long-term investment strategy, whilst maintaining a balance between equity and debt which the Board considers appropriate for this business.

Related party disclosures relevant to the share issue are set out in note 15 to the attached condensed financial statements.

Refinancing bank facilities

In February 2018, we completed the refinancing of our revolving bank facilities with arrangements as follows:

· £125m facility extended from 2020 to 2022.

· new £100m facility maturing in 2023 replacing a £150m facility which was due to mature later this year.

Following this, our weighted average debt maturity has increased to 10.7 years, with no contractual maturities until 2022.

Debt maturity profile

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

At 31 March 2018, our cash and committed undrawn facilities totalled £405.7 million (30.9.2017: £320.6 million). The blended cost of debt was 3.2%, 10 basis points lower than at 30 September 2017.

Net debt summary

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.

Alternative Performance Measures (APMs)

The Group has applied the European Securities and Markets Authority (ESMA) guidelines on alternative performance measures in these interim 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 these interim results. EPRA performance measures 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 31 March 2018 (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, 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.

Principal Risks and Uncertainties

The principal strategic risks and uncertainties are those which might prevent the Group from achieving its goal of long-term sustainable growth in rental income. The risks and uncertainties facing the Group for the remaining six months of the financial year are summarised below. These risks and uncertainties are consistent with those set out on pages 61 to 63 in the Annual Report for the year ended 30 September 2017. Details of how we manage risk are set out on pages 59 to 60 of the Annual Report.

Geographic concentration risk

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

Regulatory risk

Economic risk

Unaudited Group Statement of Comprehensive Income

For the six months ended 31 March 2018

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

Unaudited Group Balance Sheet

As at 31 March 2018

Unaudited Group Cash Flow Statement

For the six months ended 31 March 2018

Statement of Changes in Equity

For the six months ended 31 March 2018