11th Dec 2006 07:01
Shaftesbury PLC11 December 2006 SHAFTESBURY'S WEST END PORTFOLIO FLOURISHES Shaftesbury PLC ("Shaftesbury") today announces its results for the year ended30th September 2006. Shaftesbury owns and manages a portfolio of property inLondon's West End focused in Carnaby, Covent Garden and Chinatown. Financial Highlights 2006 2005 ChangeNet property income £'000 46,983 43,401 +8.3%Adjusted profit before tax* £'000 13,879 14,250 -2.6%Adjusted diluted earnings per share Pence 7.47 7.65 -2.4%IFRS profit before tax £'000 187,602 140,351 +33.7%IFRS diluted earnings per share Pence 103.32 74.62 +38.5%Dividends per share Pence 5.65 5.00 +13.0%Property assets at book value £'000 1,254,776 987,516Adjusted net assets** £'000 788,704 603,642 +30.7%Adjusted diluted net assets per share** Pence 590 455 +29.7%IFRS net assets £'000 606,881 473,161 +28.3%IFRS diluted net asset value per share Pence 454 357 +27.2% * Adjusted to exclude property and financial derivative valuation movements,gain on sale of investment properties, exceptional costs and loss on purchase ofdebenture stock (see page 3) ** Adjusted to exclude fair valuation of financial derivatives and deferred taxin respect of investment property revaluations and financial instrument fairvalues (see page 3) • Adjusted net asset return for year of 31%• Dividends for year up 13%• Total shareholder return for year of 59%• Significant portfolio activity• Strong tenant demand across all sectors in exceptionally buoyant West End economy• Expect to convert to REIT status on 1st April 2007 John Manser, Chairman, commented: "Our results this year demonstrate again the success of our clearly definedstrategy to invest only in London's West End which, combined with our detailedlocal knowledge, continues to deliver excellent growth in net asset value and asignificant increase in shareholder value. London's many attractions as an international city and its prospects foreconomic growth underpin the value of our portfolio. Although we expect amoderation in yield movements in the coming year, our portfolio has considerablecapacity to continue to deliver rental growth, driven by occupier demand in oursought-after locations, in the heart of this unique city." 11th December 2006 For further information:Shaftesbury PLC cityPROFILEJonathan Lane, Chief Executive Simon CourtenayBrian Bickell, Finance Director William Attwell020 7333 8118 020 7448 3244www.shaftesbury.co.uk Preliminary Announcement of ResultsFor the year ended 30th September 2006 Index Performance Summary Group Balance SheetChairman's Statement Group Cash Flow StatementBusiness Review Statement of changes in Shareholders' EquityPortfolio Analysis Notes to the Preliminary AnnouncementGroup Income Statement Performance SummaryFor the year ended 30th September 2006 Shaftesbury Benchmark Group Portfolio return IPD UK Monthly Index -(the annual valuation uplift and realised surpluses arising on theGroup's investment portfolio expressed as a percentage return on the Capital Valuesvaluation at the beginning of the year adjusted for acquisitions andcapital expenditure) +18.1% +14.7% 2005 +15.6% +10.8% Overall return IPD UK Monthly Index -(a combination of the portfolio return referred to above and the netproperty revenue from the portfolio for the year expressed as a Total Returnpercentage return on the valuation at the beginning of the year +20.7%adjusted for acquisitions and capital expenditure) +22.4% 2005 +20.6% +17.6% Net asset value return (the growth in diluted net asset value per Ordinary share plusdividends declared per Ordinary share expressed as a percentage of thediluted net asset value per share at the beginning of the year) Based on reported net assets +28.9% 2005 +26.4%Based on adjusted net assets +30.8% 2005 +30.5% Total shareholder return FTSE 350 Real Estate Index(the growth in the market price of an Ordinary share plus dividends received during the year expressed as a percentage of the share priceat the beginning of the year) +59.3% +35.3% 2005 +39.2% +27.7% Chairman's Statement Our results this year demonstrate again the success of our clearly definedstrategy to invest only in London's West End which, combined with our detailedlocal knowledge, continues to deliver excellent growth in net asset value and asignificant increase in shareholder value. These are our first annual results reported under International FinancialReporting Standards. These new accounting rules require a number of changes tothe basis of calculating certain items appearing in our results and to thepresentation of those results but have no impact on our business strategy or ourcash flows. In order to give a better indication of the Group's performance, werefer below to our adjusted profits, which exclude property and financialderivative valuation movements, the effects of property disposals andexceptional costs. Deferred tax provisions arising on investment propertyrevaluation surpluses and financial derivatives valuation movements and theirassociated deferred tax have been excluded in arriving at adjusted net assetdisclosures. 2006 2005 £'000 £'000 Net assets reported in the Group Balance Sheet 606,881 473,161Adjusted for:Fair value adjustment in respect of financial derivatives 9,318 11,758Deferred tax provided in respect of:Investment property revaluation gains 175,300 122,250Financial derivatives (2,795) (3,527) Adjusted net assets 788,704 603,642 Shareholders' funds at 30th September 2006, adjusted to exclude deferred tax inrespect of investment property revaluations and the fair value of financialderivatives and associated deferred tax, totalled £788.7 million, equivalent toa diluted net asset value per share of £5.90. This compares with adjustedshareholders' funds of £603.6 million at the previous year end, equivalent to£4.55 per share. This represents an increase of £1.35 per share, an uplift of29.7% over the year and follows a similar increase last year. Shareholders' funds shown in the unadjusted Group Balance Sheet totalled £606.9million, equivalent to a diluted net asset value per share of £4.54 per share(2005 - £473.2 million equivalent to £3.57 per share). 2006 2005 £'000 £'000 Profit before tax reported in the Group Income Statement 187,602 140,351Exceptional administration costs - 297Profit on disposal of investment properties (748) (4,220)Surplus arising on revaluation of investment properties (190,933) (130,004)Movement in fair value of financial derivatives (2,051) 4,171Loss on purchase of debenture stock 20,009 3,655Adjusted profit before tax 13,879 14,250 Profit on ordinary activities before tax, adjusted to exclude exceptional costs,asset disposals and fair value movements in respect of investment properties andfinancial derivatives, amounted to £13.9 million, compared with £14.2 millionlast year. This year's results include a charge of £1.6 million (2005 - £0.2 million) inrespect of the National Insurance liability arising on past grants of shareawards and share options that have vested during the year or are now expected tovest. This liability is calculated by reference to the Company's share price,which has increased from £3.80 to £6.00 over the year, and also reflects theGroup's net asset value performance, which has increased the likelihood ofperformance-related options vesting. The results this year also reflect an exceptional loss of £20.0 million beforetax relief arising on the purchase and cancellation of £52.1 million (nominal)of 8.5% Debenture Stock 2024 in September 2006. Further Debenture Stocktotalling £6.5 million (nominal) was purchased and cancelled in October 2006,realising a loss before taxation relief of £2.5 million which will be reflectedin our results for the year ending 30th September 2007. Overall, therefinancing at current interest rates of this element of our historic fixed ratelong term debt has created a useful economic surplus, enhanced by thecorporation tax relief on the book loss crystallised, and allows us greaterflexibility in future financing. Profit before tax for the year ended 30th September 2006 reported in the GroupIncome Statement amounted to £187.6 million (2005 - £140.4 million). 2006 2005 £'000 £'000 Taxation charge reported in the Income Statement 50,100 41,574Current tax in respect of:Exceptional administration costs - 89Loss on purchase of debenture stock 6,002 1,097Deferred tax in respect of:Property disposals 5,268 (850)Revaluation of investment properties (56,708) (39,000)Movements in fair value of financial derivatives (732) 1,210Adjusted taxation charge on the adjusted profit before tax 3,930 4,120 Provision for current and deferred taxation on the adjusted profit for the yearamounted to £3.9 million (2005 - £4.1 million). The loss realised on thepurchase and cancellation of Debenture Stock has eliminated our corporation taxliability for the year and created tax losses which we expect to utilise in theyear ending 30th September 2007. Sales of properties allowed the release ofdeferred tax of £5.3 million. The adjusted profit after tax for the year amounted to £9.9 million (2005 -£10.1 million). The profit after tax reported in the Group Income Statementamounted to £137.5 million (2005 - £98.8 million). Your Directors are pleased to recommend an increased final dividend of 3.73p pershare (2005 - 3.30p). Together with the interim dividend of 1.92p (2005 -1.70p), this will bring the total distribution for the year to 5.65p (2005 -5.00p), an increase of 13%. Our property portfolio has been valued at 30th September 2006 at £1,254.9million, resulting in a revaluation surplus of £190.9 million, which togetherwith the surplus on disposals, are equivalent to an 18.1% uplift. This compareswith an increase in the IPD UK Monthly Index of Capital Values for all classesof commercial property of 14.7% over the same period. Our portfolio showedan overall return for the year of 22.4% compared with the IPD UK Monthly Indexof Total Returns for all classes of commercial property of 20.7%. Once again, this year a reduction in yields applied to property investments hascontributed substantially to the increase in value of our assets. Equivalentyields have generally moved in our favour by an average of approximately 0.75%over the year (2005 - 0.75%) in our wholly owned portfolio. Rental growth forshops and restaurants has continued throughout the year, reflecting strongoccupier demand in our villages. We believe there is considerable potential forfurther growth through our policy of creating unique shopping destinations andover time we expect the rental gap with adjacent prime high streets willcontinue to narrow. We have also seen growth in office rents for the first timein several years. Our valuers have estimated the rental value of our total portfolio at the yearend to be £66.0 million per annum. This compares with the portfolio's currentpassing income at that date of £53.9 million per annum. Once again DTZ, the valuers of our wholly-owned portfolio, have commented intheir Report on the concentration of a high proportion of our properties inadjacent or adjoining locations within our principal villages and the dominanceof retail and restaurant uses. They advise that, as a consequence of theseunusual factors, our wholly-owned portfolio as a whole or in parts may have agreater value than that currently reflected in their valuation. In a competitive market, we have made acquisitions in our villages totalling£107.7 million. We have made significant investments within Covent Gardenincluding the Opera Quarter and in the formation of the Longmartin joint venturewith The Mercers' Company. At the same time, we have taken advantage of thebuoyant market to sell National Magazine House, a predominantly office buildingin Carnaby. The Company, together with its advisors, is continuing to assess thelegislation, regulations and guidance published by H M Treasury regarding theoperation of Real Estate Investment Trusts ("REITS"). Based on the informationcurrently available, the Board sees a number of benefits in adopting this newtax status and expects that in early 2007 the Group will make an election forREIT status with a view to conversion on 1st April 2007. This likely conversiondate will coincide with the first external interim valuation of the Group'sportfolio at 31st March 2007. Conversion would entail a number of changes to the Company's Articles ofAssociation, which would be proposed at an Extraordinary General Meeting to beheld by 31st March 2007. The Group would pay a charge on conversion based on 2% of the market value ofits property assets at the date it converts. As an indication, a charge at 2% onour property values at 30th September 2006 equates to approximately £25 million,equivalent to 19p per share. After conversion, the Group would be required to meet certain tests includingdistributing at least 90% of its property-derived tax exempt income to maintainits REIT status. Conversion would effectively extinguish the Group's contingentcapital gains tax liability on revaluation surpluses, estimated at 30thSeptember 2006 to be £137.5 million, and the Group would be exempt from anycorporation tax liability on this property-derived income. We expect thatvirtually all of our income would fall into this tax-exempt category. Weestimate the distribution requirement would be likely to lead to an increase inour dividends in a full year as a REIT of some 60% when compared with thisyear's total dividend of 5.65p. A likely consequence of the introduction of REITs is greater liquidity inproperty markets and Shaftesbury is well placed, with substantial committed bankfinance and modest gearing, to acquire further properties in our chosenlocations. London's many attractions as an international city and its prospects foreconomic growth underpin the value of our portfolio. Although we expect amoderation in yield movements in the coming year, our portfolio has considerablecapacity to continue to deliver rental growth, driven by occupier demand in oursought-after locations, in the heart of this unique city. P John ManserChairman11th December 2006 BUSINESS REVIEW Strategy and Overview Shaftesbury continues to advance its well established strategy of investing overthe long term only in the very centre of London's West End, which is renownedfor its unique heritage, places of entertainment and vibrant atmosphere. London is the major centre of economic and financial activity for the UK andEurope and is experiencing substantial growth in both population and employmentlevels. London continues to be the World's most popular city destination foroverseas visitors, which is stimulating an expansion in hotel development withinthe West End. Also, London is a popular and easily accessible destination forday trips for over 20 million people from within the UK. These characteristicscombine to produce a local economy that often differs from the UK nationally. Atthe present time, the West End's visitor numbers and spending levels areexceptionally buoyant. The essence of the West End is its unique combination of shops, restaurants,bars and clubs, 46 theatres as well as cinemas, world class galleries, museums,palaces and historic buildings, all within close proximity. Visitors areattracted to the West End knowing that they will experience something that theyare unlikely to find elsewhere. Through our support to charities and involvementwith the local community we actively support a number of organisations whichpromote the Arts, Theatre and Music. Over 15 years we have assembled clusters of properties to create distinctivevillages such as Carnaby and Chinatown. Within Covent Garden, our investmentsinclude the Seven Dials Village and this year we have added the Opera Quarter (acluster of 30 properties east of the Covent Garden Piazza) and our Longmartinjoint venture. Longmartin's properties form an Island Site of almost two acres,with frontages to Long Acre and Upper St. Martin's Lane, next to St. Martin'sCircus and close to Seven Dials. Our strategy is to identify properties close to streets traditionally regardedas prime, which offer the opportunity to enhance income and values by changes ofuse and reconfiguration. With detailed local knowledge and experience, we setout to create distinctive retail and restaurant destinations. We have foundthat in our villages, these two uses let readily and show little obsolescence.All our villages have excellent access to public transport both day and night.A key element of our strategy is support for community groups, local charitiesand the statutory authorities in their work to address important issuesincluding the maintenance and improvement of the local environment. We continue to convert some of our office space to other uses. In the case ofsmaller office floors, our schemes frequently entail conversion to residentialapartments. We provide reasonably-priced accommodation to rent, usually on oneyear Assured Shorthold Tenancies, which is extremely popular with young people,often from overseas, who work close by and enjoy the many attractions of theWest End. An important element of our strategy is to create a broad range of unit sizesand different levels of rent within each village. This gives us addedflexibility to foster interesting leisure and shopping opportunities in acreative and relaxed atmosphere, such as at Kingly Court in Carnaby, and ThomasNeals and Neal's Yard at Seven Dials. Shaftesbury specialises in restaurants with table service, which is now aseparate planning use. As there is no longer a risk of automatic conversion topubs, bars or takeaways, we expect Westminster City Council's policies willsupport our strategy to improve and extend our restaurant portfolio. This year many of our acquisitions have included established restaurants orother commercial space which has potential for change of use to restaurant orretail uses. Most of these acquisitions are either completely or substantiallyvacant and many are in need of renovation, so already we are preparing severalimportant new projects which will commence in 2007. As most of these schemes entail refurbishment and reconfiguration of existingbuildings, we are, in effect, conserving and extending the useful lives of manyold buildings, some of which are Listed, and almost all of which are inConservation areas. We believe that this strategy helps us to obtain planningconsents as greater emphasis is now being placed on environmentalsustainability. However, the increased complexity of planning requirements isextending the planning process and will increase refurbishment costs. The very nature of our portfolio, with over 400 mixed use buildings, and ourstrategy of active management of our assets, means that we are continuallyidentifying opportunities to reconfigure accommodation and introducehigher-value uses to enhance both income and capital values. We recognise theneed to anticipate changing consumer tastes through constant attention to themix and quality of shops and restaurants in our villages. We are encouraged that both Westminster City Council and the Mayor of London areadvocating further improvements to the West End environment. Transport andinfrastructure initiatives which are necessary to handle the increasing numbersof business and leisure visitors to the West End are always complex and anyimprovements will be slow. However, we are confident that these long termprojects will contribute to the prosperity of our unique villages. Portfolio Activity This has been a particularly active year, with acquisitions totalling £107.7million. Whilst £79 million of investment has been within Covent Garden, wehave also made strategic additions in all our villages. As reported in November 2005, we sold National Magazine House, a freehold officebuilding in Carnaby of 55,000 sq.ft. with 11 flats above, for £45 million,retaining a 999 year lease of the shops below. These transactions have further advanced our long-term strategy of increasingretail, restaurant and leisure uses within our portfolio and reducing exposureto offices, which we consider in the longer term are more prone to obsolescenceand volatility in both rents and capital values. An analysis of our portfolioat 30th September 2006 is set out on page 19. Capital expenditure on our properties during the year totalled £8.9 million,representing 0.7% of our year end portfolio value. We expect capitalexpenditure to increase during the current year once projects now being plannedhave commenced on site. Analysis of Vacant Commercial Space at 30th September 2006 Shops Restaurants and Offices Total leisure Estimated Rental Value £'000 £'000 £'000 £'000Under refurbishment 275 143 55 473Ready to let 487 500 751 1,738Under offer 268 - 181 449Total 1,030 643 987 2,660Area - sq. ft. 18,000 17,000 38,000 73,000 In the year to 30th September 2006 we let £4.1 million of commercial space,comprising £2.1 million of shops, £1.4 million of offices and £0.6 million ofrestaurants and leisure. The rental value of vacant commercial space at theyear end was £2.7 million. This level of retail and office voids reflects ourusual level of refurbishment and letting activity in a portfolio of over 400buildings. We always have a number of projects awaiting planning consent, inthe course of refurbishment as well as completed and available to let. Thevacant restaurant space is represented by three purchases made with vacantpossession within the final month of the financial year. At the year end the total rental value of our un-let residential properties,almost all of which was in course of conversion, was approximately £0.8 millionper annum. This included schemes underway at that date involving the conversionof offices into 30 residential units. Our Portfolio Our wholly owned portfolio at the year end included 290 shops with a total of373,000 sq. ft., which provided 41% of current contracted income with an averageunexpired lease term of seven years. This has been another active year in whichwe have let 38 shops, of which 23 have been in Carnaby. At the year end, we had16 shops vacant and ready to let of which four were under offer. Eight shopswere under reconstruction. We continue to see strong demand for shops of allsizes in each of our villages. Our wholly owned restaurants, bars and clubs extend to 398,000 sq. ft. and forthe first time they have a larger floor area than our shops. Followingacquisitions and changes of use during the year, these now include 151 units, anet increase of 17. They provide 30% of contracted income with an averageunexpired lease term of 15 years. Seven have been let during the year and threeothers, purchased with vacant possession in September 2006, are alreadyattracting strong interest from experienced operators with enterprisingconcepts. Our wholly owned offices extend to 420,000 sq. ft. They account for 23% ofcontracted income and have an average unexpired lease term of four years. Ouroffices are generally small and located above shops and restaurants. Over halfof our offices are in Carnaby. We have 314 office tenancies, with an averagefloor area of 1,350 sq. ft. Letting activity has improved generally over theyear, having shown the greatest improvement in recent months. Whilst we takeevery opportunity, where appropriate, to improve and extend our office space,the number of such schemes expected to be undertaken in 2007 will be muchreduced as we identify opportunities to convert offices to other commercial orresidential uses. Our wholly owned residential accommodation now includes 241 flats andmaisonettes, a net increase of 13 following sales, acquisitions and conversions.They represent 6% of our income. Carnaby Carnaby Statistics Valuation 30th September 2006 £491.7 millionPercentage of portfolio 39%Acquisitions during year £ 14.4 millionCapital expenditure in year £4.5 millionBook value of disposals £44.2 millionValuation surplus £78.2 millionValuation uplift 17.0% Number Area - % of Current Gross Income Sq. ft.Shops 133 185,000 48Restaurants and leisure 36 78,000 12Offices (tenancies) 167 231,000 37Residential 52 41,000 3 Carnaby represents 39% of our assets by value and includes 46% of ourwholly-owned shops and 53% of our wholly-owned offices. As a result of our policies of avoiding high street retail formats andencouraging overseas and independent retailers, Carnaby is now recognised as theleading location in the West End for flagship shops for sports and leisurefashion. Kingly Court is an increasingly popular courtyard both for shopping and leisure.The addition of the removable roof has allowed us greater opportunity to extendthe hours of activity. A large restaurant that fronts Kingly Court and GantonStreet is expected to open by the Summer of 2007. Our recently completed reconstruction project at the corner of Carnaby Streetand Broadwick Street with two large shops and 8,000 sq. ft. of offices is fullylet. We have now started work to extend five adjacent shops in BroadwickStreet, which will be followed by major improvements to the western end of thestreet itself. We have identified several more schemes both for refurbishment andreconstruction as well as for street improvements. We hope to advance theseprojects during the current year. We welcome the improvements and new initiatives being carried out in adjoiningstreets. The comprehensive reconstruction of shopping on Regent Street is welladvanced and many new flagship stores have opened. In effect this enlargedproject now extends from Oxford Circus to Piccadilly Circus. We actively support the combined action of Westminster City Council and the NewWest End Company (responsible for the Business Improvement District whichincludes Oxford Street, Bond Street and Regent Street) to promote the area andto improve the West End over the medium to longer term. Covent GardenCovent Garden Statistics Wholly Owned Longmartin - Shaftesbury Group's 50% share Valuation 30th September 2006 £345.4 million £70.7 millionPercentage of portfolio 28% 6%Acquisitions during the year £55.2 million £23.8 millionCapital expenditure in year £1.6 million £0.7 millionBook value of disposals £3.2 million £0.2 million(excluding transfers to JointVenture)Valuation surplus £55.8 million £7.3 millionValuation uplift 23.8% *11.6% Number Area - % of current Longmartin Total gross income Sq. ft. Area - % of current Number Sq. ft. gross incomeShops 101 133,000 49 7 15,000 24Restaurants and leisure 53 126,000 24 6 35,000 23Offices (tenancies) 72 125,000 18 37 **157,000 *44Residential 100 68,000 9 43 37,000 9 *From valuation of joint venture assets in November 2005 ** Includes 35,000 sq. ft. garaging Our holdings in Covent Garden, including our share of the Longmartin jointventure, now represent 34% of our assets. They include 35% of our wholly ownedshops and restaurants and 41% of our wholly owned residential accommodation. Following significant investment during the year, our holdings now extend overthree distinct areas: Seven Dials Village, The Opera Quarter and the Longmartinjoint venture at St. Martin's Circus. At Seven Dials, we have seen a good increase in demand, in particular for shops,restaurants and flats following completion of street improvements to upgradeMonmouth Street, a project we supported in partnership with the Seven DialsTrust, a local charity. The Opera Quarter and the Longmartin joint venture currently form our largestpotential projects for reconstruction and refurbishment in the Group. Bothdistricts include extensive areas of un-modernised space. In the Opera Quarter, which includes some of Covent Garden's oldest buildings,our main objective is to improve and extend our 17 restaurants and cafes, whichare next to six important theatres. Much of the space at the upper floors isempty and un-refurbished. We have identified seven initial projects and havecommenced works on three of them. Westminster City Council has recentlycompleted improvements to the pavement and street at the northern boundary ofour holdings which will improve pedestrian safety and comfort. Since the formation of the Longmartin joint venture in December 2005, ourpriority has been to crystallise our ideas for the project as a whole. As wellas developing the four frontages of this Island Site, we now propose to open apedestrian access from Long Acre into the site via Slingsby Place, which willconverge on a large new central courtyard where we expect to have new restaurantand retail space. Following preliminary discussions with Westminster CityCouncil, we are now submitting planning applications for the initial phases. Weexpect to commence the first phases of works in 2007. Immediately opposite the joint venture site at Cranbourn Street and St. Martin'sLane, we have two reconstruction projects in hand for conversion of offices toresidential accommodation. Chinatown Chinatown Statistics Valuation 30th September 2006 £319.5 millionPercentage of portfolio 25%Acquisitions during the year £12.1 millionCapital expenditure in year £2.0 millionValuation surplus £44.8 millionValuation uplift 16.3% Number Area - % of Current Gross Income Sq. ft.Shops 53 51,000 27Restaurants and leisure 55 174,000 59Offices (tenancies) 66 49,000 9Residential 71 45,000 5 We own 55 restaurants and 53 shops in Chinatown. Chinatown represents 25%of our assets and includes 36% of our restaurants, bars and leisure units. The small but unusual new courtyard at Horse and Dolphin Yard is progressingwell. Already it is becoming established as a specialist location for FarEastern food shops. Current levels of interest indicate that the new shops willcontinue to let readily as each phase is completed. There is the added advantagewithin this scheme that, as most of the new shops have frontages on eitherShaftesbury Avenue or Gerrard Street, they will provide a new pedestrian routewithin Chinatown through a traffic-free shopping courtyard. As part of the Chinatown Action Plan, where we are working closely withWestminster City Council and local Chinese Community Groups, this year has seenmajor environmental improvements, including the complete resurfacing of GerrardStreet and new street lighting, which are virtually finished. Work has nowcommenced in Macclesfield Street and in 2007 will extend to Lisle Street andHorse and Dolphin Yard. We have introduced further initiatives to raise the quality of Chinatown,including implementing elements of a Design Brief discussed with WestminsterCity Council to create a more Far Eastern atmosphere. This is now becomingevident in bold external treatments to restaurants as they are modernised andrefurbished. Also, we are actively supporting the Chinese Community with itsplans for a new traditional style Chinese Gate across Wardour Street. Risks and uncertainties facing the business Operational and financial risks facing the business are monitored through aprocess of regular assessment by the executive team and reporting and discussionat meetings of the Audit Committee and the Board. The valuation of all property assets involves assumptions regarding incomeexpectations and yields that investors would expect to achieve on those assetsover time. Many external economic and market factors, such as changes ininterest rates, bond yields and the relative attraction of property againstother asset classes, could lead to a reappraisal of the assumptions used toarrive at current valuations. In adverse conditions, this reappraisal could leadto a reduction in property values and a loss in net asset value, amplified bythe effect of gearing. The key risks identified by the Group's assessment processes specific to itsbusiness arise from the concentration of the Group's assets in the centre of theWest End of London. The prosperity of the West End economy and the Group'sretail and restaurant occupiers are heavily dependent on large numbers ofdomestic and overseas visitors to this high profile area. Any external events,such as security and public safety concerns or transport disruption, which mightresult in a sustained and significant reduction in visitor numbers could, overtime, lead to a reduction in occupier demand and the rental potential of theGroup's property assets. All of the Group's properties are located within the jurisdictions ofWestminster City Council and the London Borough of Camden. Although the Groupworks closely in many aspects of day-to-day business with these localauthorities, changes to their policies, particularly those relating to planningand licensing, could have a significant impact on the Group's ability tomaximise the long term potential of its assets. Results Our adjusted profit before taxation for the year (adjusted to excludeexceptional costs, asset disposals and movements in the valuation of investmentproperties and financial derivatives) amounted to £13.9 million, a smalldecrease on the 2005 equivalent figure of £14.2 million. This year'sadministrative expenses include a charge of £1.6 million (2005 - £0.2 million)in respect of the National Insurance liability on share awards and share optionsexpected to vest in the future. The charge reflects the impact of the increasein the Company's share price over the year (from £3.80 to £6.00) and theincreased likelihood of options vesting as a result of the Group's net assetvalue performance. Profit on ordinary activities before taxation reported in the Income Statementamounted to £187.6 million (2005 - £140.4 million). Our rental income has continued to rise, with rents receivable (adjusted forlease incentives) increasing from £48.9 million to £52.2 million.Non-recoverable property outgoings at £5.2 million have declined slightly overthe year (2005 - £5.5 million). Interest payable rose by £2.1 million during the year to £25.8 million and wascovered 1.53 times (2005 - 1.60 times) by operating profits adjusted to excludeexceptional costs, property disposals and property valuation movements. Theincrease in interest costs in part reflects the cost of financing this year'snet cash investment in our portfolio of £55.3 million. We have acquired a numberof properties this year which were either vacant or producing a low initialincome. Our estate management plans may, in the short term reduce income stillfurther but over the long term should lead to much increased income, reversingthe initial funding deficit. In September we announced a major refinancing of half of our long term Debenturedebt, funded out of a new £100 million ten year facility with the NationwideBuilding Society. We completed the purchase and cancellation of £52.1 million ofDebenture Stock prior to the year end at a cost of £74.9 million, realising aloss of £20.0 million before tax relief. Since the year end, a further £6.5million of Debenture Stock has been purchased at a cost of £9.3 millionrealising a loss of £2.5 million, which will be accounted for in the results forthe year to 30th September 2007. The terms of this refinancing, particularly thepost-tax cost of the transaction, show a useful economic benefit to the Group.The Board continues to be alert to opportunities to refinance further stock ifthe terms for both purchase and the cost of alternative finance offer a clearlong term benefit to the Group. The loss realised as a result of the Debenture refinancing has eliminated ourtaxable profit for the current year and should provide sufficient losses tocover our taxable profits for the period up to 31st March 2007, when it islikely we will convert to REIT tax status. This year's property disposals have resulted in a release of deferred taxamounting to £5.3 million. We have sufficient capital losses available toshelter the net taxable capital gains realised in the year. Adjusted diluted post-tax earnings per share for the current year amounted to7.47p compared with 7.65p last year. Unadjusted diluted post-tax earnings pershare shown in the Group Income Statement for the current year amounted to101.68p compared with 74.62p last year. Unadjusted Shareholders' funds at the year end shown in the Group Balance Sheettotalled £606.9 million, equivalent to a diluted net asset value of £4.54 pershare, an increase over the year of £133.7 million or 96p per share. As shown inthe table on page 3, adjusting these amounts to exclude the deferred taxliability arising on the valuation of investment properties and the fair valueof financial derivatives and associated deferred tax, our net asset valuebecomes £788.7 million equivalent to a diluted net asset value per share of£5.90 per share (2005 - £603.6 million - £4.55 per share), an increase of £185.1million or £1.35 per share. Finance The nominal value of bank borrowings at the year end totalled £460.6 million, anincrease of £81.9 million over the previous year end. Cash outflows during theyear on acquisitions less disposals of investment properties amounted to £47.1million and expenditure on refurbishments totalled £8.2 million. Cash generatedfrom revenue operations after interest and taxation produced a net surplus of£11.9 million, compared with £14.5 million in the previous year. The purchase ofDebenture Stock up to the year end resulted in an outflow of funds of £74.9million. Since the year end, further Stock purchases have cost £9.3 million,largely met out of cash balances held at the year end. Gearing at the year end, calculated by reference to our adjusted net assetsreferred to above and the nominal rather than book value of our Debenture andbank debt less cash balances was 57% (2005 - 63%) which gives us considerableborrowing capacity before we reach our self-imposed gearing limit of 100%. Theratio of the nominal value of debenture and net bank debt to the market value ofour property assets was 36% (2005 - 39%). Our strategy is to secure flexible long and medium term finance together withnon-speculative hedging of the interest rate exposure on a substantial portionof our floating rate debt. This finance strategy is intended to match ourfunding with our assets which are held for long term investment, and providecertainty of finance costs whilst protecting the Group against adverse movementsin interest rates. The Board keeps under review the level of current and forecast debt and theGroup's strategies regarding the appropriate levels of debt and equity finance,the maturity profile of loan facilities and interest rate exposure and hedging. During the year we secured additional bank facilities of £200 million including£100 million from a new lender. We now have committed facilities totalling £500million with a weighted average maturity of 8.8 years. Committed unutilisedfacilities at the year end totalled £107 million. At the year end the weighted average cost of our borrowings including margin was5.93% (2005 - 6.49%). Although interest rates have risen over the year, thisreduction reflects the impact of refinancing part of our long term debenturedebt. At the year end, £226.4 million of borrowings, equivalent to 49%, of our bankand debenture debt was either at fixed rate or hedged to limit our exposure toexcessive rate increases. During September and October 2006 we entered intoforward start interest rate hedges for an average term of eight years on afurther £135 million notional principal at an average rate of 4.96%. These newarrangements, which commence between November 2006 and March 2007, bring ourfixed or hedged debt to 78% of year end borrowings. At 30th September 2006, the fair value of the Group's interest rate derivativescontracted at that date represents a liability before tax of £9.3 million (2005- £11.8 million), which has been reflected in the results in accordance with theaccounting requirements of IFRS. This reduction in the liability reflects marketexpectations of rising future interest rates. The deficit before tax arising on the fair value of the Group's long termdebenture debt, which IFRS does not allow to be reflected in the results,amounted to £24.9 million (2005 - £34.5 million). The valuation reflects theterms of the refinancing carried out in September 2006. The Group has no legal obligation to crystallise these fair value deficits byfurther early refinancing of its fixed rate debt or the early termination of itsinterest rate hedges but may consider doing so where there is a clear economicbenefit to the business. Performance and Benchmarking The table on page 2 summarises our performance this year against our chosenbenchmarks. As explained last year, we have been unable to identify a published propertyperformance index which relates specifically to a portfolio of mixed usebuildings such as ours, or includes restaurant uses as a component, an importantaspect of our investment strategy. We have therefore used for comparisonpurposes the IPD UK Monthly Index which tracks movements across all maincommercial property categories on a monthly basis. Shaftesbury is a constituentof the FTSE 350 Real Estate Index. This year our portfolio and overall returns have again out-performed the IPD AllProperty Monthly indices by useful margins. The degree of out-performance inoverall return was less than that for the portfolio return due to the loweryield profile of our assets. Our total shareholder return exceeded the FTSE 350Real Estate Index by a substantial margin even though the index itself reflectedfurther market re-rating of shares in the real estate sector during the year. Key Performance Indicators The key financial objective of the Group is to deliver to shareholders sustainedout-performance in the long term growth in its net asset value. Fundamental tothis objective is the growth in value of the Group's property assets. The Groupmeasures its overall portfolio performance against the IPD UK Monthly Indexwhich, as explained above, tracks movements across all main commercial propertycategories on a monthly basis. The Group's performance against this Index is setout on page 2. The rental growth prospects of the Group's portfolio are the key driver of itslong term performance. The key non-financial performance indicators used withinthe business measure: - the extent to which rental levels are achieved in excess of themarket rental values assessed by the Group's external valuers at their lastvaluation and; - the ability of management to minimise the time that properties arevacant and not producing income. In the case of properties being refurbished,the void period being monitored includes time spent in designing schemes,obtaining planning consents, carrying out physical works and marketing up to thepoint of completing lettings. For vacant properties ready to let, marketingperiods are monitored and assessed. The Board is satisfied that the key performance indicator of rental growth ismeeting its expectations. Void periods are generally at an acceptable levelalthough where delays occur these are often due to problems beyond the Group'scontrol, such as delays in the planning process or the failure of utilitycompanies to meet their service obligations. Jonathan S. Lane - Chief ExecutiveBrian Bickell - Finance Director11th December 2006 Portfolio Analysis at 30th September 2006 Carnaby Covent Chinatown Charlotte Wholly Long-martin Total Garden Street Owned Portfolio Portfolio Market Value (note1) £491.7m £345.4m £319.5m £27.7m £1,184.3m *£70.7m £1,255.0m% of total Market Value 39% 28% 25% 2% 94% 6% 100%Current gross income £20.1m £15.0m £14.4m £1.3m £50.8m *£3.1m £53.9m(note 2) Estimated rental value (ERV) £26.3m £18.1m £16.3m £1.4m £62.1m *£3.9m £66.0m(note 3) Shops -Number 133 101 53 3 290 7 Area - sq ft 185,000 133,000 51,000 4,000 373,000 15,000% of current gross income 48% 49% 27% 9% 41% 24%% of ERV 50% 51% 26% 9% 43% 22%Vacancy rate by % of ERV 8% 4% 2% - 6% -Average unexpired lease length-years (note 4) 6 10 7 12 7 2 Restaurants and leisure -Number 36 53 55 7 151 6 Area - sq ft 78,000 126,000 174,000 20,000 398,000 35,000% of current gross income 12% 24% 59% 46% 30% 23%% of ERV 13% 23% 58% 43% 28% 21%Vacancy rate by % of ERV - 4% 4% - 3% -Average unexpired lease 12 14 15 16 15 6length- years (note 4) Offices -Number of tenancies 167 72 66 9 314 37 Area - sq ft 231,000 125,000 49,000 15,000 420,000 **157,000% of current gross income 37% 18% 9% 28% 23% **44%% of ERV 33% 16% 10% 32% 22% **49%Vacancy rate by % of ERV 7% 8% 10% 6% 8% -Average unexpired lease length- years (note 4) 4 4 4 3 4 3 Residential -Number 52 100 71 18 241 43 Area - sq ft 41,000 68,000 45,000 10,000 164,000 37,000% of estimated rental value 3% 9% 5% 17% 6% 9%% of current passing rent 4% 10% 6% 16% 7% 8%Vacancy rate by % of ERV 34% 19% 26% 10% 25% - *Shaftesbury Group's share ** Includes 35,000 sq.ft. of garaging Basis of Valuation Overall initial yield (note 6) 3.74% 3.86% 4.25% 4.17% 3.92% 4.00%Overall equivalent yield (note 7) 4.72% 4.58% 4.79% 4.66% 4.70% 5.06%Tone of retail equivalent yields 4.35 - 5.60% 4.00 - 4.75 - 4.35 - 5.50% 5.50% 5.00% 4.15 - 4.50%Tone of retail estimated rental £100 -£305 £70 -£350 £150 - £72.50values - ITZA £ per sq.ft. £255 -£80 £317 - £390Tone of restaurant equivalent 5.00-5.250% 4.00 - 4.75 - 4.25 -yields 5.00% 5.50% 4.75% 4.00 - 6.00%Tone of restaurant estimated £57 -£70 £44.25 £125 - £70rental values -£ per sq.ft. -£100 £310 ITZA £40 - £81Tone of office equivalent yields 4.75 - 5.50% 4.75 - 5.50 5.25 - 5.50% -5.60% 6.00% 4.25 - 6.00%Tone of office estimated rental £35 - £47 £22.50 - £30 - £40 £27.50 -values -£ per sq.ft £42.50 £35 £25 - £37.50Tone of residential estimated £9,100 - £10,500 - £7,800 - £8,400 - £13,000rental values-£ per annum £40,600 £40,000 £22,500 £16,000 -£26,000 Notes to the Portfolio Analysis 1. The Market Values shown above in respect of the four Villages are, in eachcase, the aggregate of the market values of several different property interestslocated within close proximity which, for the purpose of this analysis arecombined to create each Village. The different interests in each Village werenot valued as a single lot. 2. Current gross income includes total actual and 'estimated income' reserved byleases. Current gross income does not reflect any ground rents, head rents orrent charges and estimated irrecoverable outgoings as at 30th September 2006(the 'date of valuation'). 'Estimated income' refers to gross estimated rentalvalues in respect of rent reviews outstanding at the date of valuation and,where appropriate estimated rental values in respect of lease renewalsoutstanding at the date of valuation where the Market Value reflects terms for arenewed lease. 3. Estimated rental value is the respective valuers' opinion of the rental valueof the properties, or parts thereof, reflecting the terms of the relevant leasesor, if appropriate, reflecting the fact that certain of the properties, or partsthereof, have been valued on the basis of vacant possession and the assumedgrant of a new lease. Estimated rental value does not reflect any ground rents,head rents or rent charges and estimated irrecoverable outgoings. 4. Average unexpired lease length has been calculated by weighting the leases interms of current rent reserved under the relevant leases and, where relevant, byreference to tenants' options to determine leases in advance of expiry througheffluxion of time. 5. Where mixed uses occur within single leases, for the purpose of this analysisthe majority use by rental value has been adopted. 6. The initial yield is the net initial income at the date of valuationexpressed as a percentage of the gross valuation. 7. Equivalent yield is the internal rate of return, being the discount ratewhich needs to be applied to the flow of income expected during the life of theinvestment so that the total amount of income so discounted at this rate equalsthe capital outlay at values current at the date of valuation. The EquivalentYield shown for each Village has been calculated by merging together the cashflows and Market Values of each of the different interests within each Villageand represents the average Equivalent Yield attributable to each Village fromthis approach. 8. The tone of rental values and yields is the range of rental values or yieldsattributed to the majority of the properties. Group Income StatementFor the year ended 30th September 2006 2006 2005 £'000 £'000Continuing operations Revenue from properties 1 58,792 52,799 Property charges 2 (11,809) (9,398) Net property income 46,983 43,401 Administration expenses (5,320) (4,781) Charges in respect of equity settled 3 (2,101) (726)remuneration Exceptional administration expenses 4 - (297) Total administration expenses (7,421) (5,804) Operating profit before investment property 39,562 37,597disposals and valuation movements Profit on disposal of investment properties 5 748 4,220 Investment property valuation movements 190,933 130,004 Operating profit 231,243 171,821 Interest receivable 130 52 Interest payable 6 (25,813) (23,696) Change in fair value of financial derivatives 2,051 (4,171) Loss on purchase of debenture stock 7 (20,009) (3,655) Profit before tax 187,602 140,351 Current tax 8 (391) (1,700) Deferred tax 8 (49,709) (39,874) Tax charge for the year (50,100) (41,574) Profit for the year 137,502 98,777 Earnings per share: 9 Basic 103.75p 74.75p Diluted 103.32p 74.62p Group Balance Sheet As at 30th September 2006 Note 2006 2005 £'000 £'000Non-current assetsInvestment properties 11 1,254,776 987,516Office assets and vehicles 409 364Deferred tax 7,610 4,849 1,262,795 992,729 Current assetsTrade and other receivables 12 15,058 27,067Cash 9,090 - Total assets 1,286,943 1,019,796 Current liabilitiesTrade and other payables 13 22,633 21,747 Non-current liabilitiesBorrowings 14 468,341 384,432Financial derivatives 15 9,318 11,758Deferred tax 179,770 128,698 Total liabilities 680,062 546,635 Net assets 606,881 473,161 EquityCalled up share capital 33,192 33,046Other reserves 16 123,888 120,913Retained earnings 16 449,801 319,202 Total equity 606,881 473,161 Net assets per share: 17 Basic £4.57 £3.58Diluted £4.54 £3.57 Group Cash Flow StatementFor the year ended 30th September 2006 2006 2005 £'000 £'000Operating activitiesCash generated from operations 18 41,564 39,774Interest received 130 52Interest paid (27,356) (22,282)Tax payments in respect of operating (2,182) (3,064)activities 12,156 14,480Investing activitiesProperty acquisitions (107,389) (37,530)Capital expenditure on properties (8,212) (10,669)Net proceeds from sales of properties 60,262 3,366Net purchase of office assets and vehicles (185) (167)Cash flows from investing activities (55,524) (45,000)Financing activitiesIssue of shares 1,184 145Purchase of debenture stock (74,874) (16,686)Increase in borrowings 134,032 53,348Bank loan arrangement costs (773) (226)Payment of finance lease liabilities (208) -Equity dividends paid (6,903) (6,061)Cash flows from financing activities 52,458 30,520Net change in cash 9,090 - Statement of changes in Shareholders' Equity At 1st October 2005 473,161 379,479Profit for the year 137,502 98,777Dividends paid (6,903) (6,061)Proceeds of shares issued for cash 1,184 145Fair value of share based remuneration 539 485Deferred tax in respect of share based remuneration 1,398 336charged to equityAt 30th September 2006 606,881 473,161 Notes to the Preliminary Announcement 1. Revenue from properties 2006 2005 £'000 £'000 Rents due from tenants 51,535 48,688Recognition of lease incentives 696 173Rents receivable 52,231 48,861 Recoverable property expenses 6,561 3,938 58,792 52,799 2. Property charges Property outgoings 5,248 5,460Recoverable property expenses 6,561 3,938 11,809 9,398 3. Charge in respect of equity settled remuneration Charge for share based remuneration 539 485Employers National Insurance in respect of share awards and 1,562 241share options vested or expected to vest 2,101 726 4. Exceptional administration expenses Costs incurred in Group restructuring to create village - 297subsidiaries 5. Profit on disposal of investment properties Net sale proceeds 48,338 15,290Book value at date of sale (47,590) (11,070) 748 4,2206. Interest payable Debenture stock interest and amortisation 9,868 10,629Bank and other interest 15,737 13,067Amount payable under finance leases 208 - 25,813 23,696 7. Loss on purchase of debenture stock Cost of debenture stock purchased:Nominal amount - £52.101 million 74,874 -Nominal amount - £12.357 million - 16,686Nominal amount of stock purchased (52,101) (12,357) 22,773 4,329Unamortised net premium written off (2,764) (674) 20,009 3,655 Since the year end, a further £6.494 million of Stock has been purchased andcancelled resulting in a loss of £2.474 million. 8. Taxation 2006 2005 £'000 £'000Current taxUK Corporation tax at 30% 754 2,000Adjustments in respect of prior years (363) (300) 391 1,700Deferred tax in respect of:Revaluation of investment properties 56,708 39,000Revaluation of financial instruments 732 (1,210)Provision in respect of capital allowances - 664Properties sold in year (5,268) 850Other temporary differences (2,326) 924Adjustments in respect of prior years (137) (354) 49,709 39,874Tax charge for the year 50,100 41,574 Factors affecting the tax charge:Profit before tax 187,602 140,351UK Corporation tax at 30% 56,280 42,105Difference due to tax treatment of property disposals (5,492) (416)Expenses and provisions not deductible for Corporation tax (188) 539purposesAdjustments in respect of prior years (500) (654) 50,100 41,574 Tax charged directly to reserves:Deferred taxation in respect of share based remuneration 1,398 339 9. Earnings per share 2006 2005 £'000 £'000 Profit after tax used for calculation of basic earnings per 137,502 98,777shareAdjusted for:Exceptional administration expenses - 297Gain on sale of investment properties (748) (4,220)Investment property valuation movements (190,933) (130,004)Movement in fair value of financial instruments (2,051) 4,171Loss on purchase of Debenture Stock 20,009 3,655 Current tax in respect of:Exceptional administration expenses - (89)Loss on purchase of debenture stock (6,002) (1,097)Deferred tax in respect of:Investment property revaluation gains 56,708 39,000Adjustment is respect of property disposals (5,268) 850Movement in the fair value of financial instruments 732 (1,210)Profit after tax used for adjusted earnings per share 9,949 10,130 Weighted average number of shares in issue '000 132,532 132,152Weighted average number of shares in issue for calculation '000 133,084 132,367of diluted earnings per shareEarnings per share:Basic Pence 103.75 74.75Diluted Pence 103.32 74.62 Adjusted basic Pence 7.51 7.67Adjusted diluted Pence 7.47 7.65 The difference between the weighted average and diluted average number ofOrdinary Shares arises from the potentially dilutive effect of outstandingvested options granted over Ordinary Shares. The adjusted earnings per share is considered to give a better indication of theGroup's underlying revenue performance before exceptional costs, propertydisposals, movements in the valuation of investment properties and financialderivatives, and losses on Debenture Stock purchases. 10. Dividends paid 2006 2005 £'000 £'000Final dividend paid in respect of:Year ended 30th September 2005 at 3.30p per share 4,360 -Year ended 30th September 2004 at 2.90p per share - 3,823 Interim dividend paid in respect of:Six months ended 31st March 2006 at 1.92p per share 2,543 -Six months ended 31st March 2005 at 1.70p per share - 2,238 6,903 6,061 A final dividend in respect of the year ended 30th September 2006 of 3.73p perOrdinary share amounting to £4.94 million will be proposed by the Board at the2007 Annual General Meeting. If approved, this dividend will be paid on 16thFebruary 2007 to shareholders on the register at 24th January 2007 (record date26th January 2007). The dividend will be accounted for as an appropriation ofrevenue reserves in the year ending 30th September 2007. 11. Investment properties 2006 2005 £'000 £'000 At 1st October 2005 - book value 987,516 820,431Acquisitions 107,667 37,571Refurbishment and other capital expenditure 8,856 10,580Disposals (45,757) (11,070)Intra group disposals - -Net surplus on revaluation 190,933 130,004 1,249,215 987,516Add: Head lease liabilities grossed up 5,561 -Book value at 30th September 2006 1,254,776 987,516 Market value at 30th September 2006:Properties valued by DTZ Debenham Tie Leung 1,184,255 958,119Properties valued by Knight Frank LLP 70,685 -Properties at Directors' valuation based on disposal values - 36,280achieved after the year end 1,254,940 994,399Add: Head lease liabilities grossed up 5,561 -Less: Lease incentives recognised to date (5,725) (6,883)Book value at 30th September 2006 1,254,776 987,516 Investment properties were subject to external valuation as at 30th September2006 by qualified professional valuers, being members of the Royal Institutionof Chartered Surveyors, either working for DTZ Debenham Tie Leung, CharteredSurveyors (in respect of the Group's wholly owned portfolio) or Knight FrankLLP, Chartered Surveyors (in respect of properties owned by LongmartinProperties Limited), both firms acting in the capacity of External Valuers. Allsuch properties were valued on the basis of Market Value in accordance with theRICS Appraisal and Valuation Standards. Capital CommitmentsAuthorised and contracted 3,220 3,170 Authorised but not contracted 9,555 10,275 12. Trade and other receivables 2006 2005 £'000 £'000 Amounts due from tenants 7,616 7,275Lease incentives recognised in the Income Statement 5,725 6,883Due in respect of property disposal - 12,100Corporation tax recoverable 1,000 -Amounts due from subsidiary undertakings - -Other receivables and prepayments 717 809 15,058 27,067 13. Trade and other payables Rents invoiced in advance 11,061 10,368Corporation tax payable 365 1,156Amount due to joint venture undertaking - -Trade payables in respect of capital expenditure 1,438 989Other trade payables and accruals 9,769 9,234 22,633 21,747 14. Borrowings 2006 2005 Nominal Unamortised Book Nominal Unamortised Book value premium and issue value premium and costs Value issue costs Value £'000 £'000 £'000 £'000 £'000 £'0008.5% First Mortgage 67,542 3,583 71,125 119,643 6,510 126,153Debenture Stock 2024Secured bank loans 393,103 (1,448) 391,655 259,071 (792) 258,279Debenture and bank 460,645 2,135 462,780 378,714 5,718 384,432borrowingsFinance lease obligations 5,561 - 5,561 - - - 466,206 2,135 468,341 378,714 5,718 384,432 The Group's finance lease obligations represent its share of the net presentvalue of amounts payable under leases with unexpired terms of 174 years held byLongmartin Properties Limited. 15. Financing The Group's main financial instruments are its 8.5% First Mortgage DebentureStock, bank loans and cash at bank, and short term debtors and creditors. Thedisclosures below exclude short term debtors and creditors. The Group does not trade financial instruments. Availability and maturity of financial facilities 2006 2005 Book value Nominal value Undrawn Book value Nominal value Undrawn facilities facilities £'000 £'000 £'000 £'000 £'000 £'000Repayable after morethan 15 years:8.5% First Mortgage 71,125 67,542 - 126,153 119,643 -Debenture Stock 2024Repayable between 10 99,484 100,000 - 74,609 75,000 -and 15 yearsRepayable between 5 203,409 204,242 95,758 42,272 42,554 32,446and 10 yearsRepayable between 2 88,762 88,861 11,139 141,398 141,517 33,483and 5 years 462,780 460,645 106,897 384,432 378,714 65,929Finance lease 5,561 5,561 - - - -obligations 468,341 466,206 106,897 384,432 378,714 65,929 Interest rate hedging At the year end the Group had in place the following interest rate hedging: 1. Interest rate collars on £90 million notional principal maturingbetween October 2011 and January 2016 (weighted average maturity 7.3 years). The Group pays floating rate if benchmark LIBOR sets between 3.65% and 6.50% anda maximum of 6.50% if at any calculation date LIBOR sets above the upper limit.If LIBOR sets below 3.65% the Group pays on average 5.28% for that period. Each of these arrangements are extendable at the counterparty's option on expiryfor up to a further 10 years at an average fixed rate of 5.28%. 2. A hedge on £35.25 million notional principal maturing in November2012. The Group pays 6.05% for a three month period if the benchmark LIBOR rate setsoutside the ranges on the relevant calculation date falling: In the period to July 2008 3.00% - 6.00%In the period from August 2008 to August 2012 4.00% - 6.00% If LIBOR sets within these ranges the Group pays 4.80%. The hedge is extendableat the counterparty's option in November 2012 for a further 10 years at 5.15%. 3. An interest rate hedge on £30 million notional principal at afixed rate of 5.74% until March 2010. 4. Interest rate hedges on £60 million notional principal commencingbetween January and March 2007 at an average fixed rate of 4.92% expiring 10years from commencement. Since the year end, hedging has been put in place on a further £75 millionnotional principal at fixed rates of 5%, commencing between November 2006 andJanuary 2007 and expiring 7 years from commencement. Interest rate profile of financial liabilities 2006 2005 Weighted Weighted Average Average Debt Interest Debt Interest £'000 Rate % £'000 Rate % Floating rate borrowingsLIBOR-linked loans - interest rates fixed until January 2007 at latest (including margin) 236,405 5.61 103,029 5.62 Hedged borrowingsInterest rate hedges in operationat year end (including margin) 155,250 5.45 155,250 5.81 Fixed rate borrowing8.5% First Mortgage Debenture Stock-interest rate fixed for 17.5 years until 31st March 2024 71,125 8.07 126,153 8.06 Weighted average cost of borrowings 5.93* 6.49 *As at 30th September 2006, ignoring interest rate hedges which commence after1st October 2006. Fair values of financial derivatives 2006 2005 £'000 £'000Interest rate hedgesAt 1st October 2005 - Deficit (11,758) (7,724)Fair value movement credited/(charged) in the Income Statement 2,051 (4,171)Net amounts paid in respect of interest rate hedges during the year 389 137At 30th September 2006 - Deficit (9,318) (11,758) Changes in the fair value of the Group's financial derivatives, which are notheld for speculative purposes, are reflected in the Income Statement. They havebeen valued by J. C. Rathbone Associates Limited by reference to the mid pointof the yield curve at the balance sheet date. Amounts payable or receivable under the Group's hedging arrangements are dealtwith in the Income Statement on an accruals basis.8.5% Mortgage Debenture Stock 2024Fair value not recognised in the reported results for the year:At 30th September 2006 (nominal value of Stock in issue £67.542 million) (24,921) -At 30th September 2005 - Deficit (nominal value of Stock in issue £119.643 - (34,540)million) The fair value of the outstanding Debenture Stock has been calculated by J.C.Rathbone Associates Limited at 55 basis points above the yield to redemption ofthe 5% Treasury Stock 2025 at the balance sheet date. This reflects the price atwhich the Company redeemed £52.1 million of Stock immediately prior to thatdate. Since the year end the Company has redeemed a further £6.494 million of stock,realising a loss of £2.474 million, which will be accounted for in the yearending 30th September 2007. The Company is not obliged to redeem any furtheramounts of the £61.048 million (nominal) of Stock remaining in issue in advanceof its redemption date of 31st March 2024, when repayment of the stock in issuewill be at par value. 16. ReservesGroup Share premium Share based Retained Total payments earnings £'000 £'000 £'000 £'000At 1st October 2004 119,575 396 226,486 346,457Shares issued on exercise of options 121 - - 121Fair value of share based payments - 485 - 485Deferred tax adjusted in equity - 336 - 336Profit for the year - - 98,777 98,777Dividends paid during the year - - (6,061) (6,061)At 30th September 2005 119,696 1,217 319,202 440,115Shares issued on exercise of options 1,038 - - 1,038Fair value of share based payments - 539 - 539Deferred tax adjusted in equity - 1,398 - 1,398Profit for the year - - 137,502 137,502Dividends paid during the year - - (6,903) (6,903) At 30th September 2006 120,734 3,154 449,801 573,689 17. Net assets per share 2006 2005 £'000 £'000Net assets used for calculation of basic net assets per share 606,881 473,161Adjusted for:Cumulative fair value adjustment in respect of financial derivatives 9,318 11,758Cumulative deferred tax provided in respect of:Investment property revaluation gains 175,300 122,250Financial derivatives (2,795) (3,527) Adjusted net assets 788,704 603,642 132,768 132,185 Ordinary shares in issue '000Diluted Ordinary shares '000 134,425 132,830Net assets per share (pence):Basic £4.57 £3.58Diluted £4.54 £3.57Adjusted basic £5.94 £4.56Adjusted diluted £5.90 £4.55 The calculations of diluted net asset value per share show the potentiallydilutive effect of outstanding vested options granted over Ordinary Shares andinclude the increase in shareholders' equity which would arise on the exerciseof those options. 18. Cash flows from operating activitiesOperating activities 2006 2005 £'000 £'000Operating profit 231,243 171,821Adjustment for non-cash items:Amortisation of lease incentives (696) (173)Share option expense 539 485Depreciation and losses on disposals 140 99Profit on sale of investment properties (748) (4,220)Investment property valuation movements (190,933) (130,004)Cash flows from operations before changes in working capital 39,545 38,008 Change in trade and other receivables (249) (34)Change in trade and other payables 2,268 1,800Cash flows from operating activities 41,564 39,774 19. Investment in Joint Venture The Group's share of the results of Longmartin Properties Limited for the periodfrom 5th December 2005 (being the date of commencement of the joint venture) to30th September 2006, and of its assets and liabilities at 30th September 2006,which have been consolidated in the Group's Income Statement and Balance Sheet,are as follows: 5.12.2005 to 2005 30.9.2006 £'000 £'000Income StatementRents receivable 2,485 -Recoverable property expenses 272 - 2,757 -Property expenses 275 -Recoverable property expenses 272 - 547 -Net property income 2,210 -Administration expenses 82 -Operating profit before investment property disposals and revaluation 2,128 -Profit on disposal of investment property 40 -Investment property revaluation movements 8,479 -Operating profit 10,647 -Interest receivable 794 -Interest payable (208) -Profit before tax 11,233 -Current tax 746 -Deferred tax 2,544 -Tax charge for the year 3,290 -Profit for the period 7,943 - Balance Sheet 2006 2005 £'000 £'000Non-current assetsInvestment properties at market value 70,685 -Head lease liability grossed up 5,561 - 76,246 -Current assetsTrade and other receivables 544 -Amounts due from shareholders 19,875 -Cash 193 -Total assets 96,858 - Current liabilitiesTrade and other payables 1,296 -Non-current liabilitiesDeferred tax 2,544 -Head lease liability 5,561 -Total liabilities 9,401 -Net assets attributable to the Shaftesbury Group 87,457 - 20. Post balance sheet event In October 2006, the Company purchased £6.494 million (nominal) of 8.5%Debenture stock at a cost of £9.3 million, met largely from cash held at theyear end. The loss on purchase of £2.474 million will be charged in the IncomeStatement in the year ending 30th September 2007. 21. Basis of preparation The preliminary announcement does not constitute full financial statements. The results for the year ended 30th September 2006 included in this preliminaryannouncement are extracted from the audited financial statements for the yearended 30th September 2006 which were approved by the Directors on 11th December2006. The auditors' report on those financial statements was unqualified and didnot include a statement under Section 237(2) or 237(3) of the 1985 CompaniesAct. The 2006 Annual Report is expected to be posted to shareholders on 10th January2007 and will be considered at the Annual General Meeting to be held on 8thFebruary 2007. The financial statements for the year ended 30th September 2006have not yet been delivered to the Registrar of Companies. The auditors' report on the financial statements for the year ended 30thSeptember 2005 was unqualified and did not include a statement under Section 237(2) or 237(3) of the 1985 Companies Act. The financial statements for the yearended 30th September 2005 have been delivered to the Registrar of Companies. 22. Annual General Meeting The 2007 Annual General Meeting will be held at Pegasus House, 37/43 SackvilleStreet, London W1S 3DL on 8th February 2007 at 12 noon. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
SHB.L