Shaftesbury AR 2017 LR

STRATEGIC REPORT ANNUAL REVIEW Shaftesbury Annual Report 2017
Viability
statement
The Board has assessed the prospects of
the Group over a five year period. Based
on the assumptions set out below, it has
a reasonable expectation that the Group
will be able to continue in operation and
meet its liabilities as they fall due over
this assessment period.
The Board considered a five-year review of the Group’s prospects, prepared by senior
management. This period reflects lease lengths or rent review patterns across the
majority of our portfolio, and corresponds with the Group’s current forecast period.
Our forecasts are updated half-yearly and reflect the Group’s established strategy of
long-term investment in London’s West End, its existing commitments, available
financial resources, and long-term financing arrangements. They consider profits, cash
flows, funding requirements and other key financial ratios over the period, as well as the
headroom in the financial covenants contained in the Group’s various loan agreements.
KEY FORECAST ASSUMPTIONS
ASSUMPTIONS
The Group had cash and
undrawn committed loan
facilities at 30 September
2017 totalling £320.6 million,
which comfortably exceeds
the Group’s commitments over
the assessment period. This
assumes an ability to refinance
revolving credit facilities totalling
£150 million and £125 million
which mature in 2018 and 2020
respectively.
Crystallisation of the portfolio
reversionary potential over the
period.
COMMENT
The Group maintains a prudent approach
to gearing, with debt facilities which are
largely fixed and long-term in nature. At
30 September, our loan-to-value ratio 1
was 26.7%. The interest on all drawn debt
was fixed at that point and our weighted
average maturity of debt was 10.3 years.
The two facilities which mature during the
period of assessment represent 22.2% of
our total committed debt facilities.
We are currently in advanced negotiations
to refinance both of these facilities and the
Board has reasonable confidence that these
negotiations will conclude successfully.
We have a long record of crystallising
the independently-assessed ERV of our
portfolio over a three-to-five year period.
67% of the total uncontracted portfolio
reversion arises from restaurants, leisure
and shops, the demand for which, in
our locations, is not cyclical and has
demonstrated sustained long-term
growth over many years. ERVs are based
on current, proven rental tones, and do
not assume any further growth.
Principal risks and uncertainties
The most relevant potential impacts on viability, which arise
from our principal risks and uncertainties are set out below:
• A substantial and sustained decrease in visitor numbers to
the West End and our villages which could result in reduced
occupier demand, rental income and/or capital values,
higher vacancy and declining profitability
• Regulatory changes which could reduce profitability and
capital values
• Changing economic conditions which could reduce capital
values, reducing headroom in loan covenants.
Scenario analysis
In carrying out this review, we assumed no further acquisitions
nor capital expenditure, other than that which was committed
or approved by the Board. Similarly, we assume no new debt
facilities are raised and no debt refinancing takes place, other
than refinancing the bank facilities which mature during the
forecast period.
The review overlaid the potential impact of the principal risks
which could affect solvency or liquidity in ‘severe but plausible’
scenarios onto the five-year forecasts and concluded that the
business would remain viable. It included sensitivity analyses
which flexed inputs to the forecasts including reduced income,
profitability and capital values, both individually and in unison, to
reflect these severe but plausible scenarios.
Asset value declines resulting from increasing equivalent yields
to levels similar to those in 2008/09 were modelled. This would
result in a near halving of our portfolio valuation. In unison, we
considered decreases in rental income of up to 40%. These
assumptions would represent a significant contraction in the
size of the business over the five-year period. However, our
assessment is that such a scenario would not threaten the
viability of the Group.
Viability
Based on the assessment outlined above, the directors have a
reasonable expectation that the Group will be able to continue
in operation and meet its liabilities as they fall due over the
five-year period to September 2022.
The Strategic Report on pages 1 to 64 was approved by the
Board on 27 November 2017.
Brian Bickell
Chief Executive
Chris Ward
Finance Director
1 Based on net debt and including our 50% share of the Longmartin joint venture.
64
See Financial management on pages 56 to 57 See principal risks and uncertainties on pages 61 to 63