Shaftesbury 2022 Half Year Results

SHAFTESBURY 2022 HALF YEAR RESULTS

Growth in portfolio value, EPRA NTA, income, earnings and dividend

Strong recovery in footfall and spending; sustained occupier demand across all uses

Shaftesbury PLC, the Real Estate Investment Trust that owns a 16-acre portfolio in the heart of London's West End, today announces its results for the six months ended 31 March 2022.

Brian Bickell, Chief Executive, commented:

"The continuing strong rebound in the West End economy since the lifting of pandemic restrictions last summer has continued throughout the period. The patient, long-term stewardship of our high profile, centrally-located ownerships, and the actions we took to support our occupiers and stakeholders through the long period of pandemic challenges, have underpinned the welcome recovery we are now seeing in key operating metrics, EPRA earnings and net tangible assets. 

Although Covid concerns are receding, new challenges are now coming to the fore, both in the UK and in many other economies, exacerbated by macroeconomic and political issues. Whilst London and the West End cannot be completely sheltered from these headwinds, their global status, appeal and broad-based, dynamic economies should provide a considerable degree of protection, which few other locations can match.

With the prospect of an extended period of uninterrupted trading as we enter the important summer season, further enhanced by the improving outlook for international leisure and business travel, the revival in confidence and growth we are now seeing is already providing a firm foundation for the return to long-term prosperity for the West End and our exceptional portfolio."

Offer update

On 7 May 2022, the Company made an announcement under rule 2.4 of the City Code on Takeovers and Mergers confirming that it was in advanced discussions regarding a possible all-share merger of the Company with Capco. These discussions are ongoing and the full terms of a possible merger have not been finalised. There can be no certainty that any offer will be made.

Overview

§ Strong rebound in West End economy.

§ Footfall continues to improve, building during the week, peaking at weekends; growing numbers of international tourists. Central section of the Elizabeth Line scheduled to open to passengers today, with a full service expected by Spring 2023.

§ Occupiers reporting growing turnover; monthly sales now on average 7% ahead of pre-pandemic levels; hospitality and leisure: +9%, retail +4%.

§ Recovery in key operating metrics, EPRA earnings and net tangible assets.

Strong demand across all uses driving growing income and rental values; vacancy trending towards pre-pandemic levels

§ Leasing transactions with a rental value of £18.9m completed during the period:

- Commercial lettings and renewals: £13.3m, concluded on average 6.3% ahead of 30.9.21 ERV.

- Commercial rent reviews (£3.3m) concluded 17.9% above previous rents.

- 81 residential lettings (£2.3m), 6.2% up on previous rents.

§ Leasing momentum maintained since 1 April 2022.

§ EPRA vacancy decreased to 4.7% of portfolio ERV (30.9.21: 6.0%):

- Available to let: 2.6% across 48,000 sq. ft.

- Under offer: 2.1% (40,000 sq. ft.).

- Further decrease to 3.7% since period end.

§ Rent collection continues to improve reflecting sustained recovery in trading conditions and good occupier demand for space:

- 95% of invoiced rents for the period now collected.

- Expect a continued improvement in collection rates and further recoveries against arrears.

Wholly-owned portfolio valuation: £3.26bn; 7.5% increase2 over six months, largely driven by rental growth

§ Valuation increases2: hospitality and leisure +7.8%; retail +7.1%; offices +8.6%; residential +6.4%.

§ Equivalent yield: 3.86% (30.9.21: 3.92%).

§ Over one third of the 26.6% decline in the portfolio valuation during the pandemic recovered over past 12 months. Valuation now 16.9% below September 2019 (like-for-like).

§ Portfolio ERV up 6.4%2 to £140.9m (30.9.21: £131.7m), with increases across all uses, reflecting letting activity and much-improved occupier market sentiment:

- Hospitality: +6.4%

- Retail: +5.9%

- Offices: +4.0%

- Residential: +11.1%

§ Almost half of the 12.5% portfolio ERV decline suffered during the pandemic now recovered; overall, now, 6.9% below valuation at 30.9.2019, with both offices and residential ahead of pre-pandemic levels (like-for-like).

§ Portfolio reversionary potential: £33.7m, 31.4% above annualised current income (30.9.21: £23.9m; 22.2%).

Longmartin joint venture valuation3: £172.8m; + 4.0% over six months2

§ ERV growth: 4.0%; Long Acre retail rental values now stabilised.

§ Equivalent yield stable at 4.0%.

Sustainability

§ Commitment to become net zero carbon business by 2030, in line with our science-based target.

§ Focus on re-use and repurposing buildings, prioritising retention of existing structures rather than demolition and rebuilding.

§ Continuing commitment to support local communities, particularly focusing on young people.

Recovery in operating conditions has materially improved results for the period

§ Net property income up 55.1% to £41.1m (31.3.21: £26.5m) reflecting improved occupancy, removal of occupier rental support and significant reduction in charges for impairments and expected credit losses as trading conditions improve:

- 11.5% like-for-like increase in rental income.

- Charges for expected credit losses and impairments of £2.2m (31.3.21: £10.6m).

- Reduction in irrecoverable property costs and improved service charge recovery.

§ Profit after tax: £247.6m (31.3.21: £338.5m loss). Increase primarily due to £232.9m of revaluation gains (31.3.21: £342.6m revaluation deficits) and improved net property income.

§ EPRA earnings1: £15.6m, up 642.9% (31.3.21: £2.1m). EPRA earnings per share: 4.1p (31.3.21: 0.6p).

§ Covid-adjusted EPRA earnings per share: 4.8p (31.3.21: loss per share, 2.9p).

§ EPRA NTA1: £6.79 per share, up 9.7% over six months (30.9.21: £6.19) predominantly due to revaluation surpluses. NTA growth over 12 months to 31 March 2022: 16.5%.

§ Total Accounting Return over six months: 10.3%, bringing total over 12 months to 31 March 2022 to 17.6%.

§ Interim dividend: 4.8p, up 100% (31.3.21: 2.4p); to be paid as a PID on 1 July 2022. Dividend covered by Covid-adjusted EPRA earnings per share.

Portfolio investment: adapting and improving buildings; strategic acquisitions

§ Now actively securing vacant space where we see opportunities to accelerate schemes, including those put on hold during the pandemic.

§ Redevelopment and refurbishment schemes across 180,000 sq. ft. at 31 March 2022. Capital expenditure in the period: £16.6m.

§ ERV of space under refurbishment: £13.1m, 9.3% of portfolio ERV (30.9.21: 8.9%).

§ 72 Broadwick Street:

- Scheme to complete imminently.

- Letting of 17,500 sq. ft. office space now completed.

- Equinox no longer in a position to complete its lease; once agreement for lease terminated, 32,750 sq. ft. space to be fitted out as offices.

- 15 apartments being furnished before launch in June 2022.

- Targeting BREEAM Excellent; scheme retained most of building's original structure and includes a number of sustainability features.

§ Other schemes extending to 111,000 sq. ft. underway, including two grade A office-led projects in Carnaby.

§ Five buildings acquired during the period in Seven Dials, Coliseum, Fitzrovia and Chinatown for £19.6m.

§ Long leasehold interest at 92-104 Berwick Street acquired in May 2022 for £27.5m (excluding acquisition costs).

§ Two non-core assets disposed in the period for gross proceeds of £11.4m, 9.6% above 30 September 2021 valuation.

Strong financial base, resources to continue to improve and grow our portfolio

§ Available resources £303.9m; capital commitments: £27.8m.

§ LTV1,4: 23.2% (30.9.21: 24.9%); decrease largely due to property valuation gains.

§ Weighted average maturity of debt facilities: 7.5 years; earliest maturity: £100m facility in February 2023; refinancing discussions commenced.

1. 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.

2. Like-for-like

3. Our 50% share

4. Based on net debt

5. The 31.3.2021 comparative per share data has been restated to adjust for the bonus element inherent in the equity issue in November 2020.

See Glossary of terms on below.

There will be a presentation to equity analysts at the London Stock Exchange, 10 Paternoster Square, London, EC4M 7LS at 9.30 am on Tuesday 24 May 2022. The presentation can also be accessed live via webcast or conference call. The live webcast will be available via the following link: https://brrmedia.news/SHB_HY22 or the Group's website www.shaftesbury.co.uk. A recording of the webcast will be available via these links later in the day. To join by phone, please dial in 5-10 minutes before the start time on +44 (0)330 165 4012 or 0800 279 6877 and quote the confirmation code 7682829. The presentation document is available on the Group's website.

The person responsible for arranging the release of this announcement is Desna Martin, Company Secretary.

24 May 2022

For further information:

Shaftesbury PLC LEI: 213800N7LHKFNTDKAT98

Notes for Editors

Shaftesbury is a Real Estate Investment Trust which invests exclusively in the heart of London's West End. Focused on food, beverage, retail and leisure, our portfolio is clustered mainly in Carnaby, Seven Dials and Chinatown, but also includes substantial ownerships in East and West Covent Garden, Soho and Fitzrovia.

Extending to 16 acres, the portfolio comprises over 600 restaurants, cafés, pubs and shops, extending to 1.1 million sq. ft., 0.4 million sq. ft. of offices and 631 apartments. All our properties are close to the main West End Underground stations, and within ten minutes' walk of the two West End transport hubs for the Elizabeth Line, at Tottenham Court Road and Bond Street.

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

Our purpose

Our purpose is to contribute to the success of London's West End by curating lively and thriving villages where people live, work and visit. Our proven management strategy is to create and foster distinctive, attractive and prosperous locations. We have an experienced and innovative management team focused on delivering our long-term strategic objectives.

Our values

We have five core values that are fundamental to our behaviour, decision making and the delivery both of our purpose and strategic objectives: being human in how we operate, original in how we nurture talent and think, community minded in our approach to the West End, being responsible and long term in our approach to everything.

Our approach to sustainability

Our sustainability strategy encompasses our long-established approach of reducing the environmental impact of our operations through refurbishment, change of use and reconfiguration, working with, and supporting our local community, and using our knowledge and experience to influence and motivate, to achieve positive outcomes.

Forward-looking statements

This document, the latest Annual Report and Shaftesbury's website may contain certain "forward-looking statements" with respect to Shaftesbury PLC (the Company) and the Group's financial condition, results of its operations and business, and certain plans, strategy, objectives, goals and expectations with respect to these items and the economies and markets in which the Group operates. Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "anticipates", "aims", "due", "could", "may", "should", "expects", "believes", "intends", "plans", "targets", "goal" or "estimates" or, in each case, their negative or other variations or comparable terminology.

Forward-looking statements are not guarantees of future performance. By their very nature forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. Many of these assumptions, risks and uncertainties relate to factors that are beyond the Group's ability to control or estimate precisely. There are a number of such factors that could cause actual results and developments to differ materially from those expressed or implied by these 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. Except as required by its legal or statutory obligations, 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. Nothing contained in this document, the latest Annual Report or Shaftesbury's website should be construed as a profit forecast or an invitation to deal in the securities of the Company.

Ends.

Half year results

Overview

The continuing strong rebound in the West End economy since the lifting of pandemic restrictions last summer has continued throughout the period, with just a short period of disruption during December and January as some limited Covid restrictions were reintroduced. This robust performance reflects the West End's exceptional and enduring appeal and its inherent resilience. The patient, long-term stewardship of our high profile, centrally-located ownerships, and the actions we took to support our occupiers and stakeholders through the long period of pandemic challenges, have underpinned the welcome recovery we are now seeing in key operating metrics, EPRA earnings and net tangible assets.

In the six months ended 31 March 2022, net property income grew by 55% to £41.1 million (2021: £26.5 million), which contributed to an increase in EPRA earnings to £15.6 million (2021: £2.1 million). EPRA earnings per share rose 3.5p to 4.1p per share. Profit after tax for the period was £247.6 million (2021: loss of £338.5 million), largely due to revaluation surpluses of £232.9 million (2021: revaluation deficits of £342.6 million).

The Board has declared an interim dividend of 4.8 pence per share (31.3.2021: 2.4p), which is fully covered by Covid-adjusted EPRA earnings per share.

The valuation of our wholly-owned portfolio now stands at £3.3 billion, reflecting a like-for-like increase over six months of 7.5%. The return of tension between demand for, and availability of, space in our villages has driven a 6.4% recovery in rental values in the period, which was the main component of the valuation increase. Encouragingly, almost half of the ERV decline during the pandemic has now reversed, with both offices and residential uses now ahead of 2019 levels. Over the last twelve months, we have now recovered over one third of the valuation decline reported in the period from October 2019 to March 2021. 

EPRA NTA increased over the period by 9.7% from £6.19 to £6.79 per share following revaluation surpluses in both the wholly-owned portfolio and Longmartin.

We continue to improve, reconfigure and repurpose our buildings to unlock latent value and enhance our exceptional portfolio's long-term income prospects. With strong occupier demand and limited vacancy, we are beginning to actively secure vacant space to deliver new value- and income-enhancing opportunities. At 31 March 2022, schemes underway extended to 180,000 sq. ft., over 9% of our portfolio's total area. Capital expenditure in the period totalled £16.6 million.

Our Balance Sheet remains robust. At 31 March 2022, available resources amounted to £303.9 million and our loan-to-value ratio was 23.2%. We are compliant with all financial covenants in our debt facilities and deposits linked to interest cover covenant waivers during the pandemic have now been returned.

The central section of the Elizabeth Line is scheduled to open to passengers today, with a full service expected by Spring 2023. Over the longer term, the West End is set to benefit from the material increase in visitor numbers and spending this line should bring. Our portfolio is well-placed to benefit, with all our ownerships a short walk from the new Tottenham Court Road and Bond Street interchanges.

Although Covid concerns are receding, new challenges are now coming to the fore, both in the UK and in many other economies, exacerbated by macroeconomic and political issues, including the war in Ukraine. Inflationary pressures, tax increases, rising cost of finance and supply chain disruption could weigh on the outlook for consumer confidence and spending. Along with continuing staff shortages and the cessation of Government Covid support, businesses are now having to deal with a complex range of operational challenges. Whilst London and the West End cannot be completely sheltered from these headwinds, their global status, appeal and broad-based, dynamic economies should provide a considerable degree of protection, which few other locations can match.

With the prospect of an extended period of uninterrupted trading as we enter the important summer season, further enhanced by the improving outlook for international leisure and business travel, the revival in confidence and growth we are now seeing is already providing a firm foundation for the return to long-term prosperity for the West End and our exceptional portfolio.

Operating environment

The previously reported recovery in confidence, footfall and sales across our villages continues. Whilst the Omicron Covid variant led to the Government reintroducing certain restrictions for seven weeks between December and January, the impact on activity was limited and short-lived, and, from the end of January, we saw a rapid rebound in our popular areas.

Footfall continues to improve, typically building through the working week and peaking at weekends. Whilst it has largely comprised domestic visitors, residents and workers, we are now seeing growing numbers of international tourists, a trend we expect will continue through the summer, further improving trading performance.

Hospitality, retail and leisure occupiers are reporting growing turnover. Where we have comparable data, monthly sales are now 7% ahead of pre-pandemic levels on average. With recovering operational conditions, rent collection continues to improve, with 95% of invoiced rent in respect of the six months to 31 March 2022 now collected.

Occupier demand, leasing and occupancy

With strong interest from potential occupiers across all uses, leasing momentum continues, and vacancy is trending towards pre-pandemic levels. During the period, we completed lettings, renewals and rent reviews with a rental value of £18.9 million, achieving healthy increases over September 2021 ERVs and previous rents.

Leasing transactions concluded in the six months ended 31 March 2022

1. Includes estimated turnover rent where applicable.

Leasing momentum has continued since 1 April 2022 with commercial and residential lettings and renewals with a rental value of £5.7 million concluded (including £1.8 million at our 72 Broadwick Street scheme, see below) and further lettings have been put into solicitors' hands.

Occupancy

During the period, EPRA vacancy fell 1.3 percentage points to 4.7% (ERV: £6.7 million), of which 2.6% was available to let (ERV: £3.6 million) and 2.1% was under offer (ERV: £3.1 million)..

Available-to-let space at 31 March 2022

1. Includes space let on temporary basis with an ERV of £0.8 million, 0.6% of portfolio ERV (30.9.21: £1.0 million; 0.8% of portfolio ERV).

Hospitality and leisure (322 restaurants, cafés, bars and pubs; 0.7 million sq. ft.; 38% of ERV)

Trading levels on average have recovered strongly across our villages and, in April 2022, were 9% above pre-pandemic levels. With a positive outlook in our busy, central locations, occupier demand remains strong. We have limited space to offer, with just seven restaurants and cafés available at 31 March 2022 (7,000 sq. ft.; ERV: £0.5 million).

During the period, we concluded lettings and renewals with a passing rent of £3.6 million, 7.6% above ERV at 30 September 2021. Rent reviews with a rental value of £2.3 million were agreed, 20.0% ahead of previous rents.

Retail (291 shops; 0.4 million sq. ft.; 28% of ERV)

Retail trading continued to improve throughout the period, albeit at a slower pace than we have seen for hospitality and leisure. However, sales data shows trade is now on average 4% ahead of pre-pandemic levels. Occupier demand is showing a similar recovery. We are seeing healthy numbers of enquiries and an improvement in letting terms, with leases now commonly structured based on a contracted rent that rises to ERV over the first two years of the lease, rather than being based on turnover.

Lettings and renewals with a rental value of £6.5 million were completed in the period, with rents achieved 6.8% ahead of September 2021 ERV. Rent reviews totalled £0.5 million, 2.1% ahead of previous rents. At 31 March 2022, 17 shops were available to let (ERV: £1.7 million, 19,000 sq. ft.), including nine units (ERV: £0.8 million) let on a temporary basis.

Offices (312 suites; 0.4 million sq. ft.; 21% of ERV)

Demand for office space in our villages continues to be strong, particularly for high quality suites. Encouragingly, as occupiers implement their post-pandemic workplace strategies, we are receiving an increasing number of enquiries from existing occupiers for additional or higher-specification space. Our "Assemble" fitted product continues to be popular and we are working on plans to improve amenities, such as further shared meeting room availability across our areas and a new cycle hub in Seven Dials, a feature which has proved popular in Carnaby.

During the period, we concluded lettings and renewals with a rental value of £3.2 million, 3.8% up on September 2021 ERV. Rent reviews with rental value of £0.5 million were completed, 26.9% ahead of previous rents. At 31 March 2022, 22 office suites (20,000 sq. ft.) were available to let (ERV: £1.3 million), which included 2,200 sq. ft. of space in recently completed refurbishment schemes.

Residential (631 apartments; 0.4 million sq. ft.; 13% of ERV)

With sustained demand for our apartments, and for residential accommodation generally across the West End, any space we get back typically goes under offer within days, and our rental levels have now recovered to pre-pandemic levels. We have now reinstated RPI-linked uplifts across our residential leases, having paused temporarily during the pandemic.

During the period, we completed 81 lettings. Overall, rents achieved were 6.2% above previous levels, although we have seen an acceleration in this performance during the period, with rents achieved in the second quarter up 11.5%. At 31 March 2022, just three apartments were available to let.

Space under offer

At 31 March 2022, space under offer extended to 40,000 sq. ft. and comprised six restaurants and cafés (ERV: £0.9 million), six shops (ERV: £1.0 million), 14,000 sq. ft. of office accommodation (ERV: £1.0 million) and six apartments (ERV: £0.2 million).

Rent collection

With the operating environment recovering strongly, our pandemic-related rental support ceased at the end of September 2021. Rent collection rates have continued to recover, reflecting the much-improved trading environment and the lifting of the Government's moratorium on landlords' ability to recover commercial rent arrears in late March 2022. We have now collected 95% of invoiced rents for the period and expect both a continued improvement in collection rates and further recoveries of aged arrears.

Wholly-owned portfolio valuation

Valuation analysis at 31 March 2022

1. Including estimated turnover-related income; excluding income realised on expiry of rent-free periods and contractual rent increases.

2. 31 March 2022: 6-month change; 30 September 2021: 12-month change.

3. Like-for-like, taking into account acquisitions, disposals, capital expenditure and adjusting for reclassifications between categories.

4. Residential typically let on three-year assured shorthold tenancies with mutual rolling two-month break options after the first six months.

5. Excluding apartments which are sold off on long leases, covering approximately 0.2 million sq. ft.

At 31 March 2022, the external valuation of the wholly-owned portfolio was £3.26 billion (30.9.21: £3.01 billion). On a like-for-like basis, this represents an increase of 7.5% over the period and brings valuation growth over the past 12 months to 13.1%. Together with the 5.2% like-for-like increase in the second half of our last financial year, our portfolio has now recovered over a third of the 26.6% revaluation decline experienced during the eighteen months to 31 March 2021.

The valuation increase over the period was largely driven by like-for-like ERV growth of 6.4%, with increases across all uses, reflecting sustained occupier demand and low levels of vacancy, as footfall and trading in our locations continues to recover towards pre-pandemic levels.

The strength of our occupational market and improved investor sentiment has led to a tightening of the portfolio's equivalent yield of 6 basis points to 3.86% (30.9.21: 3.92%). This compares with 3.47% at 30 September 2019, prior to the pandemic.

Now that our pandemic rental support has ceased, the valuers have removed the remaining provision for Covid waivers, which totalled £10.6 million at 30 September 2021.

After allowing for acquisitions and capital expenditure, the revaluation surplus for the period was £226.7 million.

Rental growth

Estimated rental values have recovered during the period, reversing almost half the 12.5% decline experienced during the pandemic. At 31 March 2022, portfolio ERV was 6.9% below pre-pandemic levels (at 30 September 2019), with hospitality and leisure now just 6.4% lower and retail down 16.2% overall. Office and residential ERVs are now higher than those at 30 September 2019, with residential reversing all the pandemic decline in the current six-month period, reflecting the strength of occupational demand.

Like-for-like ERV growth/(decline)

Hospitality and leisure

The valuation of our hospitality and leisure space increased by 7.8% (like-for-like) during the period, largely driven by 6.4% ERV growth, reflecting the strength of occupational demand and low vacancy levels. Capitalisation rates have improved by thirteen basis points with positive occupier sentiment fuelled by the improved operational outlook.

The valuers continue to largely exclude the potential value from turnover-related rental top-ups. However, as the likelihood of returning to reliable revenue streams increases, they may then be reflected in the valuation.

Retail

Like-for-like retail valuation growth of 7.1% during the period, was largely due to 5.9% growth in rental values, reflecting leasing activity and a general improvement in retailer sentiment as trading volumes and footfall continue to recover. Growth was particularly strong in Carnaby Street, where rental tones increased 12.5% to £450 per sq. ft. (30.9.21: £400 per sq. ft.), although still 18% below pre-pandemic levels (30.9.19: £550 per sq. ft.). Capitalisation rates were broadly stable over the period.

Offices

The valuation of our offices increased by 8.6% (like-for-like) during the period, with ERVs increasing by 4.0% on the back of lettings and improved occupier demand for West End offices, and particularly for the best space in the best locations. Capitalisation rates have reduced by c. 21 basis points reflecting continued strong investor sentiment.

Residential

Our residential values increased by 6.4% in the period, reflecting the buoyancy of the West End residential investment market. The average capital value of our apartments is £1,500 per sq. ft. (30.9.21: £1,405 per sq. ft.).

Portfolio reversionary potential

At 31 March 2022, portfolio ERV was £140.9 million (30.9.21: £131.7 million), 31.4% ahead of annualised current income. The components of the reversionary potential are set out below:

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

Longmartin valuation

In the narrative below, all figures represent our 50% share.

At 31 March 2022, Longmartin's long leasehold property was valued at £172.8 million (30.9.21: £164.5 million). The like-for-like increase was 4.0%, reflecting ERV growth of 4.0%, with the overall equivalent yield stable at 4.0%. After allowing for capital expenditure and changes in lease incentives, the revaluation surplus was £6.2 million.

Growth/(decline) by use

1. After adjusting for reclassifications of space between uses.

As with the wholly-owned portfolio, all uses have delivered valuation growth in the period. Hospitality and leisure has increased by 4.5% with ERVs flat and yields reducing for the best space. Retail rental values have stabilised and yields are broadly unchanged. However, with letting progress during the period, the valuers' assumed vacancy has decreased, leading to a like-for-like valuation increase of 1.5%.

The value of offices has increased by 4.1%, with rental values up 4.4% during the period and yields stable. Residential rental values have rebounded, up 15.4% over six months and capital values have increased by 5.3% reflecting good investment market conditions.

Asset management

A key aspect of our management strategy is to continually improve and, where appropriate, repurpose buildings to ensure they meet ever-changing occupier requirements and their environmental performance is improved. Our initiatives unlock latent value and enhance our portfolio's long-term income prospects.

Our focus during the pandemic was to protect existing income and new schemes were put on hold, other than by exception. With the return of sustained occupier demand, and limited vacancy across our portfolio, we are now beginning to actively secure vacant possession of space where we see opportunities to accelerate schemes, including those put on hold during the pandemic.

At 31 March 2022, space held for, or under, refurbishment in the wholly-owned portfolio extended to 180,000 sq. ft., and represented 9.3% of total ERV, up 0.4% since 30 September 2021. Capital expenditure during the period totalled £16.6 million.

Space held for or undergoing refurbishment at 31 March 2022

72 Broadwick Street, Carnaby

· Scheme status

Our mixed-use scheme at 72 Broadwick Street will complete imminently. Capital expenditure during the period was £4.7 million and, at 31 March 2022, the remaining cost to complete this project was £3.1 million.

· Letting update

1. Excluding leisure space now to be fitted out as offices.

We have now completed the letting of the 17,500 sq. ft. fourth floor office space, which was under offer at 31 March 2022 (1.3% of portfolio ERV). The first floor office space (9,000 sq. ft.) is being fitted out to enable an occupier to take immediate occupation.

Disappointingly, Equinox, the US gym operator, has now informed us it is no longer able to complete its lease of the second and third floors. Upon termination of the agreement for lease, the 32,750 sq. ft. it would have occupied will be fitted out and marketed for office use, following the successful letting of the fourth floor. Whilst this will result in incremental expenditure, estimated at £4.9 million, we expect increased rental income from the space.

Having taken handover of the residential accommodation in late April 2022, we are now furnishing the fifteen apartments, with a view to launching to the market in early June 2022.

· Sustainability

We are targeting BREEAM Excellent accreditation for this scheme, which has retained most of the building's original structure, in line with our sustainable building re-use strategy. The building incorporates a number of sustainability features including low carbon heat pumps, photovoltaic panels and integrated biodiversity including extensive planters, living walls and a green roof.

Other schemes

At 31 March 2022, other schemes extended to 111,000 sq. ft. (30.9.21: 101,000 sq. ft.) and represented 5.1% of portfolio ERV. Schemes underway included 21,000 sq. ft. of hospitality space, 18,000 sq. ft. of retail, 50,000 sq. ft. of office accommodation and 33 apartments.

During the period, we commenced new schemes with an ERV of £2.7 million, including £0.4 million in respect of recently acquired buildings, and completed projects with an ERV of £2.7 million. New projects include two grade A office-led schemes in Carnaby:

In addition to 72 Broadwick Street, currently, we anticipate schemes with an ERV of £2.7 million will complete in the second half of this financial year, and whilst they will initially increase EPRA vacancy, they will provide opportunities to improve rental tones across our streets and deliver long-term enhancements to earnings. Importantly, we expect to complete the refurbishment of 27 apartments in the second half, which will deliver new stock into the current supply-constrained market.

Longmartin asset management

In the following narrative, all figures (except areas) represent our 50% share.

For the six months to 31 March 2022, 99% of invoiced rent has been collected to date. During the period, lettings, renewals and rent reviews with a rental value of £0.7 million were concluded. At 31 March 2022, our 50% share of the ERV of Longmartin's vacant space was £0.4 million (30.9.21: £0.7 million), of which £0.2 million was under offer. Space with an ERV of £0.9 million was under refurbishment (30.9.21: £0.6 million), the majority of which relates to two office suites (ERV: £0.7 million) which have now completed and of which nearly 60% of the space is now under offer.

Acquisitions and disposals

Acquisitions in the six months to 31 March 2022

During the six months to 31 March 2022, we acquired five buildings in Covent Garden, Chinatown and Fitzrovia for £19.6 million (including acquisition costs). These buildings further consolidate the holdings in our ownership clusters, bringing additional long-term value creation opportunities.

92-104 Berwick Street, Soho

In May 2022, we acquired a 200-year ungeared leasehold interest in the lower floors of 92-104 Berwick Street, Soho, for £27.5 million (excluding purchase costs). Purchased from the administrator of Berwick Street Securities LLP, the interest comprises c. 15,600 sq. ft. of retail accommodation and c. 3,600 sq. ft. which is suitable for restaurant uses. Importantly, this strategic acquisition takes our ownership to over 50% of active frontages on Berwick Street.

Of the total space, 5,400 sq. ft. is let to a supermarket, which is open and trading, and the remainder is vacant. Capital expenditure of £2.6 million is anticipated to put the vacant space in a market-standard lettable condition for occupiers.

Further opportunities

We continue to seek further opportunities to acquire assets which offer the potential for future rental and capital value growth, either individually or through combination with our existing ownerships. Inevitably, with the strong recovery in the West End's prospects firmly established, existing owners of the type of assets we seek to acquire may now be less keen to dispose of buildings, particularly where reinvestment opportunities are limited.

Disposals

During the period, we sold two non-core buildings for £11.4 million (gross), 9.6% above book value at 30 September 2021. Further disposals from a limited pool of buildings no longer core to our long-term strategy are currently being considered.

Sustainability

In November 2021, we launched our refreshed sustainability strategy, following an in-depth review of our most material issues. This refresh includes our commitment to become a net zero carbon business by 2030, in line with our science-based target. It enshrines our long-established strategy of focusing on re-use and repurposing of our buildings, prioritising retaining existing structures wherever possible and ambitious improvements to environmental performance, rather than demolition and re-building.

In addition to continually up-grading our properties, we are now stepping up engagement with our occupiers to reduce the carbon impact of their activities, to enable us to meet, and, where feasible, exceed our own carbon reduction targets and the more stringent energy performance standards being introduced by the Government. 

We also re-iterated our continuing commitment to support local communities, particularly focusing on young people, and to use our practical experience to influence, motivate and collaborate with stakeholders to promote our sustainability agenda.

Financial results

The continued recovery in operating conditions has materially improved our results during the six months ended 31 March 2022, with an increase in net property income and growth in the valuation of investment properties.

Presentation of financial information

As is usual practice in our sector, we produce alternative measures for certain indicators, including earnings, earnings per share and NTA, making adjustments set out by EPRA in its Best Practices Recommendations. These recommendations are designed to make the financial statements of public real estate companies more comparable across Europe, enhancing the transparency and coherence of the sector. These, and other measures, such as Covid-adjusted earnings, are reconciled to IFRS in note 16 to the condensed consolidated half year financial statements ("the financial statements"). Further details on APMs used, and how they reconcile to IFRS, are set out below.

Summary income statement

1. Net of recoverable service charge costs.

2. Alternative performance measure.

3. Earnings/(loss) per share for the period ended 31.3.2021 has been adjusted for the bonus element inherent in the equity raise in November 2020.

Profit after tax for the period of £247.6 million compares with a loss after tax for the six months ended 31 March 2021 of £338.5 million. The difference, amounting to £586.1 million, was predominantly due to investment property revaluation surpluses in both the wholly-owned portfolio and the Longmartin joint venture, which together amounted to £232.9 million, compared with deficits in the corresponding period last year of £342.6 million.

EPRA earnings

EPRA earnings are a measure of the level of underlying operating results and an indication of the extent to which dividends 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 the Longmartin joint venture.

Under IFRS, income was accrued during the pandemic where rent waivers were granted to occupiers, the impact of which was that EPRA earnings were higher than the related cash flows. Over the coming years, this accrued income amortises as a non-cash charge to rental income, and consequently EPRA earnings will be lower than the related cash flows. Covid-adjusted EPRA earnings is an alternative performance measure which eliminates this non-cash impact, reporting EPRA earnings "as if" rent waivers granted to occupiers had been recognised immediately in the Income Statement rather than spread over the remaining terms of the underlying leases. This only applies to waivers where there were no value accretive associated lease modifications e.g. lease extensions. We consider that this provides useful supplementary information to assess earnings on a normalised basis, as well as under IFRS and is one measure the Board uses in considering dividends.

1. Alternative performance measure.

EPRA earnings increased by £13.5 million to £15.6 million (31.3.2021: £2.1 million), largely due to improvements in rental income, with vacancy continuing to decline, together with significant decreases in charges for expected credit losses and impairments reflecting the improved operating environment. EPRA earnings per share amounted to 4.1p, compared with 0.6p for the same period last year, which was materially impacted by the consequences of pandemic restrictions.

Covid-adjusted EPRA earnings were £18.4 million (31.3.2021: £10.6 million loss), 17.9% ahead of EPRA earnings, reflecting non-cash charges to EPRA earnings from the amortisation of Covid waivers in the period. Covid-adjusted EPRA earnings per share amounted to 4.8p, 0.7p above EPRA earnings per share.

Operating profit before investment property disposals and valuation movements

Rental income increased by 11.5% to £54.5 million (31.3.2021: £48.9 million) and includes (non-cash) amortisation from lease incentives of £2.1 million (31.3.2021: £15.9 million accrued income). Like-for-like growth, excluding the impact of acquisitions and disposals, was 11.5%, which reflects improved occupancy across our portfolio and the cessation of rental support for occupiers.

With improving operating conditions for our occupiers, charges for expected credit losses and impairments have reduced by £8.4 million to £2.2 million.

Property charges, excluding recoverable service charge costs, decreased by £0.6 million to £11.2 million (31.3.2021: £11.8 million), predominantly due to lower irrecoverable costs, including a reduction in vacancy-related costs, and improved service charge recoveries. These savings were partly offset by increases in property management fees and marketing costs, with activity reverting to pre-pandemic levels. After irrecoverable costs and charges for expected credit losses and impairments, net property income for the period was £41.1 million, £14.6 million above the same period last year (31.3.2021: £26.5 million).

Administrative expenses totalled £11.2 million (31.3.2021: £9.3 million). The increase was largely due to higher total employee costs which amounted to £7.4 million (31.3.2021: £5.8 million). This reflects higher share option and bonus charges (£0.9 million), together with the impacts of the 2021 pay review and an increase in headcount last year, which added to the skills and resource in our team.

Valuation deficit and disposal profits

Our wholly-owned portfolio's revaluation surplus was £226.7 million (31.3.2021: deficit of £331.4 million). This represented a like-for-like valuation increase of 7.5%, largely due to a 6.4% like-for-like increase in ERV and a reduction in the equivalent yield of six basis points. See above.

During the period, we sold two properties, realising disposal profits, after sales costs, of £0.8 million. See above.

Net finance costs

Net finance costs decreased by £0.4 million to £14.9 million (31.3.2021: £15.3 million), largely reflecting savings in bank interest and loan issue cost amortisation following the equity raise in November 2020.

Share of Longmartin post-tax profit

Our share of Longmartin's post-tax profit was £5.1 million, which compares with a £9.0 million share of post-tax loss in the same period last year. The profit this year included a revaluation surplus, our share of which amounted to £6.2 million (31.3.2021: £11.2 million deficit). Excluding revaluation movements, and the related deferred tax impact, our share of EPRA earnings from Longmartin increased by £0.4 million to £0.6 million (31.3.2021: £0.2 million), largely due to improved net property income.

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 (31.3.2021: £nil).

Dividends

As a REIT, we are required to distribute a minimum of 90% of rental profits, 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 Covid-adjusted EPRA earnings. 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 Board has declared an interim dividend of 4.8p per share, an increase of 100% on last year's interim dividend of 2.4p, which was paid to fulfil the Group's REIT obligations for the year ended 30 September 2020. The distribution, totalling £18.4 million, will be paid as a PID on 1 July 2022. The dividend is covered by Covid-adjusted EPRA earnings.

Balance Sheet

1. Adjustments made to the fair value of the Group's investment properties to arrive at the book value of £3,216.6 million are set out in note 5 to the financial statements.

2. The net asset value of the Group's investment in the Longmartin joint venture of £90.9 million is set out in note 7 of the financial statements. Adjustments made to the fair value of Longmartin's investment properties to arrive at the book value at 31 March 2022 are also set out in note 7 of the financial statements.

3. Adjustments made to net assets of £2,604.8 million to calculate EPRA NTA of £2,615.9 million and EPRA NTA per share of £6.79 are set out in note 16 to the financial statements.

4. Alternative performance measure.

5. Total accounting return has been restated for 31.3.2021 by adjusting the number of shares to include the impact of the bonus element inherent in the equity raise in November 2020.

Net assets increased by £232.1 million in the period, largely due to the profit after tax for the period of £247.6 million, less the payment of the final dividend for 2021, which amounted to £15.4 million.

EPRA NTA

EPRA NTA makes adjustments to reported net assets 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 and deficits in the Longmartin joint venture.

Total accounting return measures shareholder value creation, taking into account the movement in EPRA NTA together with dividends paid.

EPRA NTA per share increased over six months by 60p (9.7%) to £6.79 (30.9.2021: £6.19), bringing growth over twelve months to 16.5%. With EPRA earnings of 4.1p per share being largely offset by the 2021 final dividend (4.0p per share), the growth in EPRA NTA over the six months ended 31 March 2022 was due to revaluation surpluses in the wholly-owned portfolio and Longmartin which added 60p per share. Total Accounting Return was 10.3% (six months) and 17.6% (twelve months).

1. Alternative performance measure.

Liquidity

At 31 March 2022, available liquidity was £303.9 million (30.9.2021: £311.3 million) comprising £203.9 million of cash and our undrawn RCF (£100 million). Capital commitments to be funded from these resources totalled £27.8 million, excluding the acquisition of 92-104 Berwick Street (see above).

Net debt and cash flows

Net debt increased by £7.4 million to £755.9 million over the period:

Net cash inflow from operating activities was £22.0 million, which compares with a £3.2 million net cash outflow in the same period last year, reflecting the improvement in earnings through the pandemic recovery.

Net portfolio investment was £16.0 million (31.3.2021: £20.9 million), comprising capital expenditure of £15.4 million, acquisitions amounting to £11.8 million and disposals which generated £11.2 million.

During the period, a deposit of £2.0 million which had previously been made in respect of an interest cover covenant waiver was returned, now that the waiver period has ended and we are compliant with financial covenants. Since 1 April 2022, all remaining waiver deposits in respect of our wholly-owned group's debt facilities, amounting to £11.8 million, have been returned.

Our loan-to-value ratio decreased to 23.2% (30.9.2021: 24.9%), largely due to the portfolio revaluation gain in the period. At 31 March 2022, the weighted average maturity of debt facilities was 7.5 years with the earliest maturity being our £100 million RCF in February 2023. Initial discussions to refinance this facility have commenced. The blended cost of debt was unchanged over the period at 3.1% and the marginal cost of drawing on our RCF was 1.7% (30.9.2021: 1.1%).

Net debt summary1

1. Data excludes our 50% share of Longmartin's non-recourse debt.

2. Alternative performance measure.

3. Based on net debt.

4. Ratio of operating profit before investment property disposals and valuation movements to net finance costs.

5. Based on EPRA net assets.

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

Debt maturity profile

1. Undrawn at 31 March 2022.

Longmartin finance

The figures below represent our 50% share.

The Longmartin joint venture has a £60 million fixed-rate term loan maturing in 2026, which is non-recourse to Shaftesbury.

At 31 March 2022, Longmartin's net debt was £57.5 million, representing a loan-to-value ratio of 33.3%, down from 34.9% at 30 September 2021, largely due to the property revaluation surplus in the period. Longmartin is compliant with its term loan financial covenants.

Offer update

On 7 May 2022, the Company made an announcement under rule 2.4 of the City Code on Takeovers and Mergers confirming that it was in advanced discussions regarding a possible all-share merger of the Company with Capco. These discussions are ongoing and the full terms of a possible merger have not been finalised. There can be no certainty that any offer will be made.

Principal Risks and Uncertainties

Successful management of risk is critical to the successful delivery of the Group's strategic priorities. Ultimate responsibility for risk rests with the Board but the effective day-to-day management of risk is integral to the way the Group does business and its culture. The Board sets the risk culture, determines the risk appetite and reviews principal and emerging risks. It is supported by the Audit Committee, which reviews the effectiveness of the risk management process and systems of internal controls. The Risk Committee formally reviews the risk landscape and emerging risks bi-annually (or more frequently, as required) and reports to the Audit Committee and the Board. On a day-to-day basis, operational risks are addressed as they arise and, where significant, are discussed more widely with the Strategy and Operations Executive. Issues that have arisen and how risks have changed are key inputs to the Risk Committee. Details of how we manage risk are set out on pages 86 to 87 of the 2021 Annual Report.

The Omicron Covid variant and associated restrictions had only a limited and short-term impact on operating environment and trading conditions have subsequently rebounded strongly. Consequently, our overall risk environment has improved throughout the period. However, the macroeconomic environment has changed, particularly following the start of the Ukraine war, which is exacerbating inflationary pressures and supply chain issues, which were already evident in the UK and other economies. Whilst this is likely to manifest in higher operating and refurbishment costs for us, it will increase operational challenges for our occupiers, who are also dealing with the cessation of Government Covid support, staff shortages and the potential impact on consumer confidence from a squeeze on disposable income, higher taxation and increases in finance rates.

Given the improving operational conditions, balanced against the headwinds noted above, the principal strategic risks and uncertainties facing the Group for the remaining six months of the financial year are unchanged from those set out on pages 88 to 92 in the 2021 Annual Report and fall into four categories: external factors, geographic concentration, market and consumer, and climate risk.

Unaudited Group Statement of Comprehensive Income

For the six months ended 31 March 2022

1. The 31.3.2021 comparative per share data has been restated following the equity raise in November 2020 to adjust for the inherent bonus element. See notes 13 and 16 for further information.

Unaudited Group Balance Sheet

As at 31 March 2022

Unaudited Group Cash Flow Statement

For the six months ended 31 March 2022

Unaudited Group Statement of Changes in Equity

For the six months ended 31 March 2022

Notes to the half year results

For the six months ended 31 March 2022

1.  Accounting policies

Basis of preparation

The Group's condensed consolidated half year financial statements have been prepared in accordance with the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority and in accordance with UK adopted IAS 34 'Interim Financial Reporting'. They should be read in conjunction with the annual financial statements for the year ended 30 September 2021, which were prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The Group's financial statements were prepared in accordance with international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. The Group's annual financial statements for the year ending 30 September 2022 will be prepared in accordance with UK-adopted International Accounting Standards.

The financial information in these condensed consolidated half year financial statements do not comprise statutory accounts within the meaning of section 434 of the Companies Act 2006. The financial information presented for the year ended 30 September 2021 is derived from the statutory accounts for that year. Statutory accounts for the year ended 30 September 2021 were approved by the Board on 29 November 2021 and delivered to the Registrar of Companies. The report of the auditor on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under section 498 (2) or (3) of the Companies Act 2006.

The condensed consolidated half year financial statements have been reviewed, not audited.

Going concern

The economic environment in which the Group operates has continued to improve in the period as the significant uncertainties resulting from the impact of Covid-19 on the economic environment have continued to recede and footfall and occupier confidence have continued to recover in our villages. However, new challenges are now coming to the fore both in the UK and in many other economies. Macro-economic and political issues, including the war in Ukraine, are exacerbating the risks and impact of inflation, tax increases and supply chain disruption, particularly on the outlook for consumer confidence and spending.

In adopting the going concern basis in preparing the condensed consolidated financial statements for the six months ended 31 March 2022, the Board has considered the Group's business activities, and its principal risks and uncertainties in this wider economic context.

The Group's going concern assessment covers the period from the date of authorisation of these condensed consolidated financial statements to 30 June 2023 (the "going concern period").

Key assumptions in forecasts and debt covenant compliance

In preparing the assessment of going concern, the Board has considered forecasts of the Group's available liquidity, committed expenditure, likely ongoing levels of costs, cash flows, income, debt covenants and other performance measures in a severe-but-plausible downside scenario which envisages an economic shock, possibly a re-emergence of a Covid-19 variant and associated government restrictions, or a similar interruption to trade, leading to falling consumer and occupier confidence, impacting rent collection, vacancy levels and rental growth. While there are other risks faced by the Group, an economic shock or interruption to trade of this nature allows us to model the simultaneous confluence of the impact of the Group's principal risks in a single near-term scenario.

Relative to our base forecast, this scenario envisages an immediate decline in the Group's rent collection by 25% of contracted rents for a period of 12 months; increases in our total vacancy of approximately 5% of ERV throughout the going concern period, a reduction in assumed ERV growth of 5-10 percentage points over the going concern period and an additional 3 percentage point increase in general inflation affecting all expenditure. It is also assumed that there would be an immediate increase in property costs as a result of increased vacancy.

Under this severe-but-plausible downside scenario, the Group anticipates that within and immediately following the going concern period, the interest cover covenants on one of its term loans would be breached. The interest cover covenants on its other debt facilities would come under pressure but are not expected to be breached. For the affected term loan, throughout the going concern period and the anticipated subsequent breaches, the Group can make up income shortfalls using cash deposits or additional assets with sufficient contractual income from its pool of unsecured properties. The number of occasions on which cash cure rights may be used is limited but the Board expect to have sufficient use-rights throughout the going concern period. The Group has sufficient reserves of liquidity and uncharged assets to meet either eventuality.

The near-term impact of climate change risks within the going concern period is expected to be immaterial. Interruptions to trade from severe weather events are possible but would be consistent with impacts considered in the severe-but-plausible downside scenario. The Group's forecasts assume an increase in capital expenditure to enable us to meet our net zero carbon targets and evolving minimum energy efficiency standards.

At 31 March 2022, the Group's loan-to-value ratio was 23.2%. It is the Group's expectation that it will remain in compliance with the loan-to-value covenants of its individual debt arrangements even under the severe-but-plausible downside scenario. However, were these covenants to come under pressure they can be managed through the addition of security from the Group's pool of unsecured assets. Through charging these unsecured properties, the Group estimates that it could withstand a circa 45% decrease in valuations before reaching the limit of its loan-to-value covenants. If it were to cancel the undrawn revolving credit facility and release its assets to be charged against other loans, this tolerance would increase to circa 51%. The Board considers the likelihood of a decline of this magnitude to be remote in view of the prime nature of the assets in the portfolio and the 26.6% decline already experienced in the eighteen months ended 31 March 2021, which was largely as a result of the Covid-19 pandemic, and the subsequent 13.1% recovery in values in the twelve months ended 31 March 2022.

The undrawn revolving credit facility expires in February 2023, but the Group does not expect to rely on it for liquidity in its severe-but-plausible downside scenario. There are no other debt maturities until 2027.

Going concern statement

Prior to available mitigations, the severe-but-plausible downside scenario would present significant challenges over the going concern period. However, the Board's assessment is that, in view of the Group's cash reserves, its expected covenant compliance and cure rights, and the reverse stress testing set out above, but before considering the possible all-share merger of the Company and Capital & Counties Properties PLC ("Capco") (the "Possible Merger") set out in note 18, it has a reasonable expectation that the Group has adequate resources to continue in operational existence for the going concern period.

Impact of the Possible Merger on going concern

As set out in note 18, on 7 May 2022 the Company made an announcement under rule 2.4 of the Takeover Code (the "Rule 2.4 Announcement") regarding a possible all-share merger of the Company and Capco. Discussions are ongoing and the full terms of the Possible Merger have not been agreed. Subject to agreement of such terms, it is currently envisaged that the Possible Merger will be structured as an acquisition of the Company by Capco.

There can be no certainty that an offer will be made. Were an offer for the Company to be made and a transaction were to complete before 30 June 2023, this would be within the going concern period, and could trigger the change of control clauses in certain of the Group's debt facilities that may, at the relevant debt providers' discretion, require repayment in part or in full.

It would then be the responsibility of Capco to secure the necessary future financing arrangements of the combined group, including the liquidity requirements to satisfy possible repayments of the Group's debt noted above. As set out in the Rule 2.4 Announcement, following completion of the Possible Merger, the Board will contain strong non-executive representation from both companies, with Jonathan Nicholls as Chairman and Richard Akers as the Senior Independent Director. An executive committee, containing equal representation from the existing Shaftesbury and Capco leadership teams, will be responsible for the day-to-day management and operation of the combined company.

In assessing any firm offer that may be made for the Company, the availability of sufficient liquidity to fund potential debt repayments and the ability of the combined group to remain compliant with its financing arrangements and meet its financial obligations as they fall due over the going concern period will be key considerations for the Board.

Prior to any decision by the Board to support the Possible Merger and as to the nature of any recommendation to shareholders in connection with it, the Board will consider, amongst other things, the above factors, due diligence and the advice it receives, to gain confidence that the combined group is able to meet its financial obligations as they fall due. Based on its proposed structure, the Board would not expect to recommend the Possible Merger to Shaftesbury Shareholders without an appropriate level of confidence that the Possible Merger would not create a material risk to the Company's ability to continue as a going concern. On this basis, the Board has continued to adopt the going concern basis in preparing the condensed consolidated financial statements.

Changes in accounting policies

The accounting policies and methods of computation used are consistent with those of the previous financial year, with the exception of amendments to standards which became effective in the financial period from 1 October 2021, as set out below.

New standards adopted during the period

The following amendments to existing standards were relevant to the Group, adopted from 1 October 2021, and did not have a significant impact on the financial statements:

§ IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (amendments) - Interest rate benchmark reform Phase 2

Standards relevant to the Group but not yet effective

The following amendments to existing standards were relevant to the Group, are not yet effective, and have not been adopted early. They are not expected to have a significant impact on the financial statements:

§ IAS 1 (amendments) - Classification of liabilities as current or non-current; Disclosure of Accounting Policies

§ IAS 8 (amendments) - Definition of Accounting Estimates

§ IAS 12 (amendments)- Deferred taxes related to assets and liabilities arising from a single transaction

§ IAS 16 (amendments) - Proceeds before intended use

§ IAS 37 (amendments) - Onerous contract; Cost of fulfilling a contract

§ IFRS 3 (amendments) - Reference to the Conceptual Framework

Significant judgements, assumptions and key estimates

The preparation of the financial statements in accordance with IFRS requires the directors to make judgements and estimates about the carrying amounts of assets and liabilities, in applying the Group's accounting policies. The judgements and estimates are based on historical experience and other relevant factors, including expectations of future events, and are reviewed on a continual basis. Although the estimates are made using the directors' best knowledge of the amount, event or actions, actual results may differ from the original estimates.

The directors did not make any significant judgements in the preparation of these financial statements, which is consistent with the financial statements for the prior year.

Significant areas of estimation uncertainty

The key estimates made in these financial statements are the valuation of investment property and the provision for expected credit losses for trade receivables and the impairment of lease incentives and deferred letting costs. This is consistent with the prior year.

Investment property valuation

The investment property portfolio is valued by independent third party valuers. Cushman & Wakefield value the properties owned by the Group, and Knight Frank LLP value the properties owned by the Longmartin joint venture.

Valuations are 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 require estimates to be made, including, but not limited to, market yields, ERVs and void periods. These estimates are based on assumptions made by the valuers. The most significant assumptions are those in respect of market yields and ERVs, which are summarised above and are in accordance with the RICS Valuation - Global Standards. Given the inherent subjectivity, the valuations 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. 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.

Further information on the approach taken by the valuers in valuing the portfolio and a sensitivity analysis on equivalent yields and ERV, which are the most significant assumptions impacting the fair values, is set out in note 5 to the financial statements.

Provisions for expected credit losses and impairment of lease incentives and deferred letting costs

In preparing the financial statements, estimates are made in assessing expected credit losses in respect of trade receivables, lease incentives and deferred letting costs. These estimates draw on historical information as well as forecast information, taking into account expectations about trading levels, footfall and tenants' ability to pay arrears, and, with respect to lease incentives and deferred letting costs, whether it is likely tenants will serve out the remainder of the contractual terms of their leases. In assessing provisions, the Group identifies risk factors associated with each use (hospitality and leisure, retail, office and residential).

The Group assesses the likely recovery of trade receivables for potential provisions, which are estimated using a forward-looking expected credit loss model for each receivable from an occupier. In determining the provision, the Group considers both recent payment history and future expectations of occupiers' ability to pay or possible default in order to recognise a lifetime expected credit loss allowance. Expected credit losses totalling £1.9 million (31.3.2021: £8.1 million; 30.9.2021: £16.4 million) were charged to the Income Statement in the period.

At 31 March 2022, the gross trade receivables balance subject to estimation uncertainty was £14.5 million and the provision for expected credit losses totalled £8.5 million. An increase of 5% to the provision percentage applied would increase the provision by £0.3 million. A decrease of 5% to the provision percentage applied would decrease the provision by £0.6 million. Whilst occupiers' trading has improved, the prospect of recovering material amounts of arrears that built up during periods of Government restrictions still remains uncertain, which is reflected in the Group's provisions for expected credit losses.

Accrued income from lease incentives and deferred letting costs are subject to impairment review at each period end. In determining the impairment provision, the Group reviews leases on an individual basis, making a provision based on an expected credit loss model, using information available about the likelihood of a lease terminating earlier than the date of contractual break option or expiry. With trading conditions improving, the risk of tenant default has lessened, which has led to reduced impairment provisions against lease incentive and deferred letting cost balances.

At 31 March 2022, the gross accrued income balance from lease incentives subject to estimation uncertainty was £44.0 million and the provision for expected credit losses totalled £2.6 million. An increase of 1% to the provision percentage applied would increase the provision by £0.3 million. A decrease of 1% to the provision percentage applied would decrease the provision by £0.7 million. The gross deferred letting costs balance which is subject to estimation uncertainty was £3.7 million and the provision for expected credit losses totalled £nil.

The Group has no significant concentrations of credit risk. The trade receivables balance is spread across a large number of different tenants with no single debtor representing more than 4% of the total balance due (30.9.2021: 2%).

See note 2 for further information on expected credit losses and impairment charges.

Segmental information

IFRS 8 requires operating segments to be reported in a manner consistent with the internal financial reporting reviewed by the chief operating decision maker. The chief operating decision maker of the Group is the Board. The Board is responsible for reviewing the Group's internal reporting in order to assess performance.

The information reviewed by the Board is prepared on a basis consistent with these financial statements. That is, it is provided at a Group level and includes both the IFRS reported results and Alternative Performance Measures (APMs), including EPRA measures. See below for an explanation of the APMs used in these financial statements).

The Group's properties are all located in London's West End and are all of a similar type. The properties are typically mixed-use buildings with hospitality, leisure and retail on the lower floors and offices and apartments on the upper floors. As the properties share similar economic characteristics the Board considers them to be one operating segment. As such, no segmental financial information is presented.

2. Net property income

Impairment charges of £0.3 million (31.3.2021: £2.5 million; 30.9.2021: £1.3 million) include £0.3 million for tenant lease incentive balances (31.3.2021: £2.8 million; 30.9.2021: £1.7 million) and £nil (31.3.2021: £0.3 million credit; 30.9.2021: £0.4 million credit) for deferred letting cost balances.

3.  Finance costs

4.  Tax charge for the period

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

5.  Investment properties

The investment properties valuation comprises:

The Group's investment properties (other than its interest in the Longmartin joint venture) were valued at 31 March 2022 by professionally qualified external valuers, Cushman & Wakefield, who are members of the Royal Institution of Chartered Surveyors (RICS). Disclosures relating to the valuation of investment properties owned by the Longmartin joint venture are set out in note 7. 

Adjustments are made to the fair value of the Group's investment properties to arrive at the book value at 31 March 2022, as set out above. The valuation prepared by Cushman & Wakefield at 31 March 2022 is appended to these interim results, in accordance with the requirements of Rule 29 of the Takeover Code.

For the purposes of Rule 29.5 of the Takeover Code, the Directors confirm that Cushman & Wakefield have confirmed to them that the valuation of the Group's investment properties (other than its interest in the Longmartin joint venture) as at the date of these interim statements would not be materially different from the valuation provided by Cushman & Wakefield as at 31 March 2022 and contained in Cushman & Wakefield's valuation report which is appended to these interim statements.

For the purposes of Rule 29.6 of the Takeover Code, the Directors confirm that in the event that the Group's investment properties (other than its interest in the Longmartin joint venture) were sold at an amount represented by the valuation at 31 March 2022, any gains arising from the disposal of investment properties used for the purposes of the Group's property rental business would not be chargeable to tax under UK REIT legislation. Any disposal gains on assets not connected with the Group's rental business would be chargeable to corporation tax but would be fully offset by available brought forward tax losses so no tax liability would arise.

Disclosures in respect of the Group's interest in the Longmartin joint venture, in accordance with Rules 29.5 and 29.6 of the Takeover Code, are set out in note 7.

All properties were valued on the basis of fair value and highest and best use, in accordance with IFRS 13 and the RICS Valuation - Global Standards, which incorporate the International Valuation Standards and the Valuation UK National Supplement (the "RICS Red Book") edition current at the valuation date. 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, but are not limited to, market yields, ERVs and void periods.

The key assumptions are the equivalent yields and estimated future rental income (ERVs), as set out in the valuation analysis above. 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 the key 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 period (31.3.2021: none; 30.9.2021: none).

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

Sensitivity analysis

As noted in the significant judgements, assumptions and key estimates section in note 1, the valuation of the Group's investment property is inherently subjective. As a result, the valuations the Group places on its investment property 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 sensitivity analysis below illustrates the impact on the fair value of the Group's investment properties, from changes in the key assumptions.

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 31 March 2022, the Group had capital commitments of £27.8 million (31.3.2021: £25.2 million; 30.9.2021: £18.8 million). This included £24.1 million relating to future capital expenditure for the enhancement of the Group's investment properties (31.3.2021: £25.2 million; 30.9.2021: £15.1 million) and £3.7 million for an investment property acquisition, conditional on certain requirements being met (31.3.2021: £nil; 30.9.2021: £3.7 million).

See above for a discussion of the valuations at 31 March 2022 and the Group's property activity during the period.

6. Accrued income

At 31 March 2022, the Group held impairment provisions totalling £2.6 million (31.3.2021: £5.1 million; 30.9.2021: £2.6 million) against lease incentive balances. See note 1 for further information.

7.  Investment in joint venture

At 31 March 2022, the joint venture had capital commitments of £1.2 million (31.3.2021: £0.1 million; 30.9.2021: £3.6 million) relating to future capital expenditure for the enhancement of its investment properties, of which, the Group's share is 50%.

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

Investment properties

Investment properties owned by the Longmartin joint venture (in which the Group has a 50% interest) have been valued at 31 March 2022 by professionally qualified external valuers, Knight Frank LLP, who are members of the Royal Institution of Chartered Surveyors (RICS). Adjustments are made to the fair value of Longmartin's investment properties to arrive at the book value at 31 March 2022, as set out above. The valuation prepared by Knight Frank LLP at 31 March 2022 is appended to these interim results, in accordance with the requirements of Rule 29 of the Takeover Code.

For the purposes of Rule 29.5 of the Takeover Code, the Directors confirm that Knight Frank LLP have confirmed to them that the valuation of Longmartin's investment properties as at the date of these interim statements would not be materially different from the valuation provided by Knight Frank LLP as at 31 March 2022 and contained in Knight Frank's valuation report which is appended to these interim statements.

For the purposes of Rule 29.6 of the Takeover Code, the Directors would expect an immaterial tax liability to arise on the sale of the Group's investment in the Longmartin joint venture at the carrying value of that investment in the Group's Balance Sheet. This tax liability would be fully offset by available brought forward tax losses such that no tax liability would arise. In accordance with IFRS, Longmartin's Balance Sheet includes a provision for deferred tax that would crystallise only on a disposal of the Longmartin properties. As a result, the net asset value of the interest in the Longmartin joint venture reported in the Group's financial statements includes a provision for the estimated tax liability should a disposal of the Longmartin properties occur.

8. Trade and other receivables