7th Dec 2005 07:00
Shaftesbury PLC07 December 2005 SHAFTESBURY REPORTS 29% LEAP IN NAV AND ADDITIONAL INVESTMENT IN COVENT GARDEN Shaftesbury PLC ("Shaftesbury") today announces its preliminary results for theyear ended 30th September 2005. Shaftesbury owns and manages a portfolio ofproperty in London's West End focused in Carnaby, Covent Garden and Chinatown. Financial Highlights 2005 2004 ChangeNet property revenue £'000 43,215 40,178 +7.6% Adjusted profit before taxation* £'000 14,544 14,708 -1.1% Profit on ordinary activities before taxation £'000 14,703 15,324 -4.1% Profit on ordinary activities after taxation £'000 11,818 10,804 +9.4% Adjusted diluted earnings per share* Pence 10.99 11.13 -1.3% Diluted earnings per share before taxation Pence 11.11 11.60 -4.2% Diluted earnings per share after taxation Pence 8.93 8.18 +9.2% Dividends per share Pence 5.00 4.413 +13.3% Investment properties at book value £'000 993,079 825,580 Shareholders' funds £'000 600,209 464,645 Net Diluted net asset value per share Pence 453 351 +29.1% Jonathan Lane, Chief Executive commented, " Our results this year re-confirm that our success is linked closely to thefortunes of London, which in spite of the July bombings, remains a World ClassCity with an unrivalled choice of entertainment and leisure activities" " Whilst we expect further growth from our three villages of Carnaby, Chinatownand Seven Dials, Covent Garden, we are pleased to have secured new opportunitiesto expand our distinctive strategy elsewhere within Covent Garden" For further information:Shaftesbury PLC City ProfileJonathan Lane, Chief Executive Simon CourtenayBrian Bickell, Finance Director Jonathan Gillen020 7333 8118 020 7448 3244 Index 2 Performance Summary 17 Group Cash Flow Statement Chairman's Statement5 Business Review Statement of Total Recognised Gains and Losses13 Portfolio Analysis Reconciliation of Movements in Shareholders' Funds15 Group Profit and Loss Account 18 Notes to the Preliminary Announcement16 Group Balance Sheet 25 International Financial Reporting Standards Performance Summary for the year ended 30th September 2005 Shaftesbury Benchmark GroupPortfolio return(the annual valuation and realised surpluses arising on the Group's IPD UK Monthly Indexinvestment portfolio expressed as a percentage return on the valuation -at the beginning of the year adjusted for acquisitions and capital Capital Valuesexpenditure) +15.3% +10.8% Overall return(a combination of the portfolio return referred to above and the net IPD UK Monthly Indexproperty revenue from the portfolio for the year expressed as a -percentage return on the valuation at the beginning of the year Total Returnadjusted for acquisitions and capital expenditure) +20.2% +17.6% Net asset value return(the growth in diluted net asset value per Ordinary share plus dividends declared per Ordinary share expressed as a percentage of thediluted net asset value per share at the beginning of the year) +30.5% Total shareholder return(the growth in the market price of an Ordinary share plus dividends FTSE 350 Real Estatereceived during the year expressed as a percentage of the share price Index at the beginning of the period) +39.2% +27.7% Chairman's Statement Our results this year demonstrate once again the benefits of our clearly definedstrategy of long term investment combined with enterprising estate management. Shareholders' funds at 30th September 2005 totalled £600.2 million, equivalentto a diluted net asset value per share of £4.53. This compares withshareholders' funds of £464.6 million and a diluted net asset value per share of£3.51 at the previous year end. This represents an increase of £1.02 per share,an uplift of 29.1% over the year. Profit on ordinary activities adjusted to exclude exceptional costs and assetdisposals before taxation for the year ended 30th September 2005 amounted to£14.5 million, compared with £14.7 million in 2004. The Central London terrorist attacks in July 2005 led to sharply reduced tradingfor our West End retail and restaurant tenants in the final quarter of ourfinancial year. However, occupier demand for these uses has remained firmthroughout our villages and we are securing lettings both for current vacantproperties and our new schemes. Disposals of non-core investment properties during the year produced a surplusover book value of £4.2 million (2004 - £0.6 million). Exceptional costs in theyear comprised the book loss of £3.8 million on the purchase of £12.4 million ofdebenture stock and £0.3 million incurred in restructuring the Group'sactivities into four village subsidiaries to provide greater flexibility.Including these items, this year's profit on ordinary activities before taxationamounted to £14.7 million compared with £15.3 million last year. Chairman's Statement continued After provision for current and deferred taxation of £2.9 million (2004 - £4.5million), profit on ordinary activities amounted to £11.8 million (2004 - £10.8million). Your Directors are pleased to recommend an increased final dividend of 3.30p pershare (2004 - 2.90p). Together with the interim dividend of 1.70p per share,this will bring the total distribution for the year to 5.00p per share (2004 -4.413p), an increase of 13.3%. The Board's policy is to maintain a level ofdistribution which reflects our expectation of long term growth in fundsgenerated from the Group's operations after making appropriate provision forinvestment to up-grade and enhance its portfolio. Our property portfolio has been valued at 30th September 2005 at £997.6 million,resulting in a revaluation surplus of £130.2 million, equivalent to an overall15.1% uplift. Initial yields applied to commercial uses have again moved in ourfavour by about 0.75% over the year (2004 - 0.5%) reflecting both the strengthof investment demand for property assets, particularly those located in the WestEnd, and a stable outlook for interest rates. Future general trends in yields,which have a major impact on valuations, are influenced by numerous factors andit is impossible to predict whether the favourable movements seen over the lasttwo years will be maintained. It is clear that the value of our portfolio also benefits both from its rentalgrowth potential as well as our approach to estate management. Our valuers haveestimated that the rental value of our portfolio at the year end at £60.6million per annum, compared with current gross income at that date of £49.8million. For those properties held throughout the year, we have seen a 5%increase in total estimated rental value as tenant demand in our villages hasestablished new rental levels and our estate management and refurbishmentschemes have increased the income potential of our assets. We expect thesefactors, particularly tenant demand for our shops and restaurants, will continueto deliver new levels of rental value. Our valuers have again commented in their valuation report on the concentrationof a high proportion of our properties in adjacent or adjoining locations in ourprincipal villages and the dominance of retail and restaurant uses. They advisethat, as a consequence of these unusual factors, our portfolio as a whole or inparts may have a value greater than that currently included in our financialstatements. At the year end our investments included 770 commercial tenants located in threemain districts namely, Carnaby, Covent Garden and Chinatown. Shops andrestaurants account for 71%, offices 23% and residential 6% of the overallvalue. Whilst the supply of suitable new investments are always limited in thesought-after central locations in which we choose to specialise, we have beensuccessful during the year in purchasing properties in Carnaby, Covent Gardenand Charlotte Street totalling £37.6 million. We are continuing to find newinvestment opportunities which complement our current villages and offer thepotential for income and capital growth. Chairman's Statement continued In November 2005 we announced that we had entered into a 50/50 joint venturewith the Mercers' Company. This was approved by shareholders at an ExtraordinaryGeneral meeting on 29th November 2005. Our contribution to the joint venture ofproperty assets of £38.8 million and cash of £42.3 million has further increasedour investment in Covent Garden. Combining our property assets with those of theMercers' Company will allow the phased regeneration of a site of almost twoacres, located at the corner of Long Acre and Upper St. Martin's Lane. We expectto create additional retail and leisure space with new pedestrian routes throughthe site and to improve office and residential accommodation. This projectshould also benefit our neighbouring investments in Seven Dials. We continually review our portfolio to ensure that we retain only thoseproperties which are part of our long term investment strategy. During the yearwe made two disposals of assets in Covent Garden which achieved net proceeds of£15.3 million and surpluses over book value of £4.2 million. In November 2005 wesold for £45.0 million National Magazine House in Carnaby, a predominatelyoffice investment of 55,000 sq. ft. with eleven flats above, whilst retaining along leasehold interest in the seven shops fronting Carnaby Street and BroadwickStreet. Our joint venture and other purchases during the year mark a significantinvestment in Covent Garden, where we see excellent opportunities to enhanceincome and value. The growth in the reversionary potential of our portfolio andthe disposals we have made confirm the benefits of our pro-active management ofthe portfolio and underline our confidence in your Company's future prospects. P John Manser Chairman7th December 2005 Business Review Our strategy Shaftesbury's clearly defined strategy is to invest only in the liveliestdistricts at the centre of London's West End. Shaftesbury's success istherefore closely linked to London's fortunes. Consequently, many of our retailand restaurant tenants in particular were severely affected by the terroristbombings in July. As has been widely reported, visitor numbers and tradingactivity were greatly reduced in the following three months. Tourist activityis now returning to levels seen this time last year. In the absence of furtherdisruption, we expect to see a return in 2006 to the healthy growth in domesticand overseas visitors seen in the first half of 2005. An interesting trend thisyear has been a noticeable increase in the number of visitors from mainlandChina. We are encouraged to see that following the July bombings, both the Mayor ofLondon and Westminster City Council are co-operating in the promotion of Londonto tourists. They are also committing to invest in more infrastructure projectsto further improve the West End. In coming years the award of the 2012 Olympicsto London will inevitably bring greater investment to the Capital and itstransport links. Despite recent setbacks, London remains the world's top City destination foroverseas visitors. In addition, there are also about 20 million people in theSouth East of England who are within easy access for day trips, giving London abroad-based visitor economy. Tourists from home and abroad look foraccessibility, especially by public transport, safety and a wide choice ofleisure and entertainment for which London is unrivalled. An essential element of our investment strategy is that our three principalvillages of Carnaby, Chinatown and Covent Garden are at the very heart ofLondon's West End and are surrounded by the unique cluster of theatres, cinemas,galleries, historic sites, palaces and museums. With our concentration ofownerships we are well placed to work with local authorities and communitygroups to encourage and facilitate improvements to our village environments. With our very detailed knowledge of these areas and through bold initiatives weaim to create mixed use environments with an emphasis on new retail concepts andindependent restaurants. Increasingly, this includes changes of use fromoffices to shops, restaurants and other leisure uses as well as residential. Capital expenditure on our assets totalled £10.8 million during the year,representing 1.1% of our year end portfolio value. Our schemes, whilstfrequently innovative and focussed on creating higher value uses, usuallyinvolve the reconfiguration of existing buildings rather than demolition andredevelopment and are of relatively short timescale. The dominance of non-officeuses within our portfolio means that we are less exposed to the costs ofobsolescence which are more apparent in offices. Business Review continued The short duration of our schemes and the current level of tenant demand forshops and restaurants means that the composition of our vacant propertieschanges constantly. The rental value of vacant commercial space at the year endwas £3.9 million per annum. Analysis of Vacant Commercial Space at 30th September 2005 Shops Restaurants and Offices barsEstimated Rental Value £'000 £'000 £'000 Under refurbishment 350 - 600Ready to let 860 300 660Under offer 430 380 300 Total 1,640 680 1,560Area - sq. ft. 35,000 12,000 49,000 Our portfolio Our portfolio at the year end included 283 shops with a total of 370,000 sq. ft., which provide 40% of current contracted income, with an averageunexpired lease term of eight years. We have seen considerable activity thisyear in lettings at Carnaby and Covent Garden, whilst new retail initiatives arein hand within Chinatown. We are probably the largest investor in West End restaurant property and we aregiving priority to expanding our portfolio of 134 restaurants, which at the yearend extended to 352,000 sq. ft. They provide 27% of contracted income with anaverage unexpired lease term of fifteen years. We welcome the recent changes to the Use Classes Order, which now distinguishesbetween pubs and bars, where the predominant trade is the consumption ofalcoholic drinks, and restaurants, in which alcoholic drinks are ancillary tothe consumption of food. We hope that this change will enable us to makeselective improvements and extensions to our restaurants more easily than hasbeen the case in the past. Our villages included 485,000 sq. ft. of offices at the year end, whichaccounted for 28% of our contracted income and where the average unexpired leaseterm remains at six years. Purchases during the year of investments such asLasenby House in Carnaby have for the time being increased the amount of officeswe own. However, last month's sale of National Magazine House and the transferof offices at Wellington House Covent Garden to our new joint venture with theMercers have reduced our wholly owned offices to 380,000 sq. ft. beingapproximately 25% of current passing rents. Business Review continued We expect this trend of reducing the office content of our wholly-ownedportfolio will continue as we seek further changes of use. As was the case 12months ago, recently we have experienced an encouraging increase in lettings;however, it is too early to say whether this demand will continue into 2006. Residential accommodation continues to grow mainly through conversions fromoffice use. It now represents 6% of our income compared with 4% last year. At30th September 2005 we owned 228 units. Most of our flats have one or twobedrooms for which demand in our locations has always been firm. Our tenantstend to be younger people who work locally, contributing to the vitality of ourvillages. CARNABY Carnaby Statistics Valuation 30th September 2005 £441.1 millionPercentage of portfolio 44%Acquisitions £18.2 millionCapital expenditure in year £6.6 millionValuation surplus £58.0 millionValuation uplift 15.1% Number Area - % of Current Gross Income Sq.ft.Shops 131 185,000 42Restaurants and leisure 33 70,000 10Offices 280,000 44Residential 52 44,000 4 Carnaby represents 44% by value of our portfolio and at the year end included43% of our shops and 57% of our offices (reduced to 52% following the sale ofNational Magazine House since the year end). During the year, more overseasretailers have chosen Carnaby as their preferred location from which to launchtheir brands in the UK. Carnaby is now established as the leading location inthe West End for sports and leisure fashion, which is also the source of manyexciting new concepts and brands. Our current reconstruction projects at the junction of Carnaby Street, BroadwickStreet and Marshall Street are well in hand and the first and largest shopsfronting Carnaby Street are due for completion early in 2006. Current interestsuggests that these units will be let on completion. An important priority forus now is to continue, through active estate management, to provide more goodsized units to let not only for new applicants but for existing tenants who wishto expand their businesses. The benefit of increased rents from rent reviews ofsome of our larger shops will be seen in 2006 and 2007. Business Review continued Our office refurbishments at Carnaby of 25,000 sq. ft. which principally frontKingly Street and Beak Street are now mostly complete. By the very nature ofour portfolio of smaller buildings, where restaurants and shops increasinglydominate the lower floors, these offices tend to be smaller units which let onshort leases. We have seen satisfactory lettings, but little rental growthduring the year. Our continuing development of Carnaby is now being matched by extensiveimprovements to the quality of adjoining shopping areas which are important tothe health of the West End's leisure economy. The Crown Estate's comprehensiveschemes for Regent Street are now very visible and are being extended northtowards Oxford Circus. They are also supported by the initiatives now emergingfrom the New West End Company, a consortium of owners and occupiers whose newBusiness Improvement District extends to Oxford Street, Bond Street and RegentStreet. COVENT GARDEN Covent Garden Statistics Valuation 30th September 2005 £275.2 millionPercentage of portfolio 28%Acquisitions during the year £14.5 millionCapital expenditure in year £2.5 millionBook value of disposals £11.1 millionValuation surplus £29.9 millionValuation uplift 12.2% Number Area - % of Current Gross Income Sq.ft.Shops 95 130,000 49Restaurants and leisure 40 102,000 21Offices 141,000 21Residential 99 70,000 9 With our existing shops and offices substantially let, our principal projectduring the year has been to provide advice and finance for the importantinitiative in Monmouth Street to widen pavements, provide new street lightingand resurface the street to provide better pedestrian access. The northern halfof the street is now complete and works to the remainder will commence inJanuary 2006. In June 2005 we purchased a corner block of freeholds fronting Cranbourn Streetand St. Martin's Lane which included six shops and restaurants with officesabove. With most of the leases expiring in 2006 the properties offer interestingmanagement opportunities which should result in considerably improved incomeover the medium term. Business Review continued Since the year end, we have made a further strategic purchase in the WellingtonHouse block. In November we announced that we had reached agreement to place ourproperty holdings in and around Wellington House into a joint venture with theMercers' Company. Following shareholders approval we have now sold our freeholdsand have taken a 50% interest through the joint venture company in 175 yearleases of the combined site. The combined leasehold interests extend to almosttwo acres and front Long Acre, Upper St. Martin's Lane, Shelton Street andMercer Street. Existing buildings on the site extend to 246,000 sq. ft. and current usesinclude 163,000 sq. ft. of offices and parking, together with seven shops, sixrestaurants and bars and 43 flats. This is a long-term project, which we expectto implement in phases. Whilst it is premature to speculate on the preciselayout of the project at this stage, we are confident that with the benefit ofplanning consents obtained in recent years, we should be able to make a start onthe first phases during 2006. Preliminary indications are for capitalexpenditure of £35 million over a five year period. CHINATOWN Chinatown Statistics Valuation 30th September 2005 £260.6 millionPercentage of portfolio 26%Capital expenditure in year £1.7 millionValuation surplus £39.9 millionValuation uplift 18.1% Number Area - % of Current Gross Income Sq.ft.Shops 54 50,000 26Restaurants and leisure 55 162,000 57Offices 49,000 11Residential 64 43,000 6 We own 55 restaurants and 54 shops in London's Chinatown, located at the heartof the capital's premier entertainment and leisure district. This holdingrepresents 41% of all our restaurants. The high visitor numbers and long hours of trading in Chinatown presentparticular management challenges. Our immediate priority is to raise the qualityof the whole area, which we are doing through investment and improvements bothto buildings and to the external environment. We are working closely withWestminster City Council, which has now formally adopted the Chinatown ActionPlan. We expect the first stage of street resurfacing and lighting improvementsto Gerrard Street will commence in early 2006. Business Review continued Our current restaurant extension and reconstruction at the corner of GerrardStreet and Macclesfield Street has been pre-let in advance of completion due forJanuary 2006. We continue to identify new projects from within our existing portfolio. Thefirst phases of the new shopping courtyard at Horse and Dolphin Yard are nowunder way. In addition to creating new shopping the scheme will enable us toopen access into neighbouring streets which in turn will offer furtheropportunities to improve our adjoining properties in Gerrard Street andShaftesbury Avenue. Results Our underlying profit before taxation for the year (adjusted to excludeexceptional costs and asset disposals) amounted to £14.5 million, a smalldecrease over the 2004 equivalent figure of £14.7 million. Profit on ordinaryactivities after exceptional costs and property disposal surpluses beforetaxation amounted to £14.7 million (2004 - £15.3 million). We have seen a rising level of rental income, with rents invoiced (adjusted forlease incentives recognised in accordance with UITF 28) increasing from £44.4million to £48.2 million. The increase of £3.8 million comprises rents fromadditions to the portfolio of £0.6 million and £3.2 million from propertiesowned throughout the year. Our property outgoings have risen by £0.7 million to £4.9 million reflectingadditional costs incurred in completing lettings and rent reviews (the resultsof which are reflected in our increasing income) and an increase in promotionalactivities to encourage visitors to our villages. In addition we are seeing atrend towards "inclusive" leases for our smaller shorter term office lettingswhich increases the level of non-recoverable service costs. Net interest costs, which rose by £2.6 million during the year to £23.6 million,were covered 1.6 times (2004 - 1.7 times) by underlying operating profits(adjusted to exclude exceptional costs and property disposals). The cost offinancing acquisitions often exceeds their initial income, particularly as inthe short term we often seek to create voids in order to progress our estatemanagement plans. Over the medium term our initiatives to create improved incomewill reverse this differential. During the year we refinanced an element of the Group's long term debenture debtfrom existing bank resources. The purchase and cancellation of £12.4 million ofstock resulted in a loss of £3.8 million before tax relief but will allow us tobenefit from lower interest rates in the future. The Board continues to be alertto further opportunities to refinance further stock if the terms for bothpurchase and the cost of alternative finance offer a clear long term benefit tothe Group. Business Review continued This year's taxation charge of £2.9 million (2004 - £4.5 million) reflects thetax relief available on the loss arising on the debenture stock purchase and thewrite back of £0.7 million of provisions for prior years' corporation anddeferred tax liabilities. We currently have capital losses available to shelterthe gains realised on property disposals this year. We anticipate that theremainder of these losses will be fully utilised in the coming year followingrecent asset disposals. Diluted post-tax earnings per share for the current year amounted to 8.93p(2004 - 8.18p), an increase of 9.2% over the previous year. Shareholders' funds at the year end totalled £600.2 million, equivalent to adiluted net asset value of £4.53 per share, an increase over the year of £135.6million or £1.02 per share. These figures are arrived at after providing fordeferred tax in accordance with FRS 19 totalling £5.4 million or 4p per share.The Directors consider that the likelihood of the liability relating to capitalallowances crystallising in the foreseeable future is remote. Performance and Benchmarking The table on page 2 summarises our performance this year against appropriatebenchmarks. We have been unable to identify a published property performance index whichrelates specifically to a portfolio of mixed use buildings or includesrestaurant uses as a component. These are key features of our own portfolio. Wehave therefore used for comparison purposes the IPD UK Monthly Indices whichtrack movements across all main property categories on a monthly basis.Shaftesbury is a constituent of the FTSE 350 Real Estate Index. This year our portfolio and overall returns have out-performed the IPD AllProperty Monthly indices by useful margins. Our total shareholder returnexceeded the FTSE 350 Real Estate index which itself reflected the substantialmarket re-rating of shares in the real estate sector during the year. Finance The nominal value of borrowings at the year end totalled £378.7 million, anincrease of £41.0 million over the previous year end. Cash outflows during theyear on acquisitions less disposals of investment properties amounted to £34.2million and expenditure on refurbishments totalled £11.1 million. Cash generatedfrom revenue operations after interest, taxation and dividends produced a netsurplus of £8.7 million, compared with £3.4 million in the previous year.Further property disposal proceeds due at the year end of £12.1 million werereceived in October 2005. Gearing at the year end, calculated by reference to the nominal rather than bookvalue of our debt was 63% (2004 - 74%), which gives us even greater borrowingcapacity before we reach our self-imposed gearing limit of 100% of shareholders'funds. The ratio of the nominal value of net debt to market value of propertyassets was 38% (2004 - 42%). Business Review continued 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 £70 million with two ofour existing lenders. We now have committed facilities totalling £325 millionwith a weighted average maturity of 6.7 years. Committed unutilised facilitiesat the year end totalled £70 million. At the year end the weighted average cost of our borrowings including margin was6.51% (2004 - 6.68%). Of our total debt, 73% is either at fixed rate or hedgedto limit our exposure to excessive rate increases. In August 2005, werestructured one of our hedging agreements to give a potentially longer exposureto a fixed rate of 4.80% (excluding margin) and extended the amount of the hedgeby £5.25 million to £35.25 million. At 30th September 2005, the fair value of the Group's debt and interest ratehedges compared with book value gave rise to a deficit of £48.1 million (2004 -£35.3 million) or £33.7 million (2004 - £24.7 million) after tax relief. This isequivalent to a reduction in diluted net assets per share of 36p (2004 - 27p) or25p (2004 - 19p) after tax. The increase in the fair value deficit reflectsfurther moderation in the outlook for long term interest rates, which is one ofthe factors which influences the improvement in investment yields which hasbenefited our annual valuation. The Group has no legal obligation nor presentintention to crystallise the fair value deficit by the further early refinancingof its fixed rate debt or the early termination of its interest rate hedges. Future developments In common with all listed companies in the European Union, we will be requiredto adopt International Financial Reporting Standards for our reporting periodcommencing 1st October 2005. These new Standards will radically alter the basisof reporting financial performance for all companies, not just those in theproperty sector. A summary of the key changes which will affect our futurefinancial reporting and their impact on our results and net assets reportedunder UK GAAP is set out on pages 25 to 28. The Board continues to monitor developments in property ownership structures andproposals for the future taxation of the real estate sector. Any legislativeproposals by the Government will be carefully reviewed with the Group's advisorsto determine their impact both on the business and the interests of itsshareholders. Jonathan S Lane - Chief ExecutiveBrian Bickell - Finance Director7th December 2005Portfolio Analysis at 30th September 2005 Carnaby Covent Garden Chinatown Charlotte Portfolio Street Market Value (note1) £441.1m £275.2m £260.6m £20.7m £997.6m% of total Market Value 44% 28% 26% 2% 100%Current gross income (note 2) £21.0m £14.2m £13.4m £1.2m £49.8m Estimated rental value (ERV) (note 3) £26.9m £17.1m £15.3m £1.3m £60.6m Shops -Number 131 95 54 3 283Area - sq ft 185,000 130,000 50,000 5,000 370,000% of current gross income 42% 49% 26% 5% 39%% of ERV 47% 49% 25% 9% 41% Average unexpired lease length -years (note 4) 6 10 8 15 8 Restaurants and leisure -Number 33 40 55 6 134Area - sq ft 70,000 102,000 162,000 18,000 352,000% of current gross income 10% 20% 57% 44% 27%% of ERV 11% 20% 58% 43% 26%Average unexpired lease length-years (note 4) 12 15 16 19 15 Offices -Area - sq ft 280,000 141,000 49,000 15,000 485,000% of current net income 44% 21% 11% 36% 28%% of ERV 39% 21% 10% 32% 27%Average unexpired lease length -years (note 4) 7 4 3 2 6 Residential -Number 52 99 64 13 228Area - sq ft 44,000 70,000 43,000 10,000 167,000% of current passing rent 4% 9% 6% 15% 6%% of estimated rental value 3% 11% 6% 15% 6% Basis of valuation Carnaby Covent Garden Chinatown Charlotte Portfolio StreetOverall initial yield 4.35% 4.64% 4.80% 5.06% 4.56% Overall equivalent yield 5.40% 5.51% 5.44% 5.44% 5.44% Tone of retail equivalent yields 4.75 - 6.50% 4.50 - 6.75% 5.35 - 6.00% 5.50 - 6.25% Tone of retail estimated rental £100 - £285 £70 - £300 £150 - £252 £70 - £75values - ITZA £ per sq.ft. Tone of restaurant equivalent 6.00 - 6.50% 4.75 - 6.25% 5.35 - 6.00% 5.25 - 5.50%yields Tone of restaurant estimated £40 - £70 £35 - £75 £70 - £80 £69rental values -£ per sq.ft. Tone of office equivalent yields 5.50 - 6.50% 6.00 - 6.50% 6.25 - 7.00% 5.75 - 6.50% Tone of office estimated rental £30 - £42.50 £22.50 - £27.50 - £40 £25 - £32.50values -£ per sq.ft £37.50 Tone of residential estimated £9,300 - £10,000 - £7,800 - £26,000 £13,520 -rental values - £p.a. £40,000 £41,600 £15,5000 See notes below. Portfolio Statistics continued Notes 1. The Market Values shown above in respect of the four Villages are, in each case, the aggregate of the market values of several different property interests located within close proximity which, for the purpose of this analysis are combined to create each Village. The different interests in each Village were not valued as a single lot. 2. Current gross income includes total actual and 'estimated income' reserved by leases. Current gross income does not reflect any ground rents, head rents or rent charges and estimated irrecoverable outgoings as at 30th September 2005 (the 'date of valuation'). 'Estimated income' refers to gross estimated rental values in respect of rent reviews outstanding at the date of valuation and, where appropriate estimated rental values in respect of lease renewals outstanding at the date of valuation where the Market Value reflects terms for a renewed lease. 3. Estimated rental value is DTZ Debenham Tie Leung's opinion of the rental value of the properties, or parts thereof, reflecting the terms of the relevant leases or, if appropriate, reflecting the fact that certain of the properties, or parts thereof, have been valued on the basis of vacant possession and the assumed grant of a new lease. 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 in terms of current rent reserved under the relevant leases and, where relevant, by reference to tenants' options to determine leases in advance of expiry due to effluxion of time. 5. Where mixed uses occur within single leases, for the purpose of this analysis the predominant use by rental value has been adopted. 6. The Equivalent Yield shown for each Village has been calculated by merging together the cash flows and Market Values of each of the different interests within each Village and represents the average Equivalent Yield attributable to each Village from this approach. Group Profit and Loss AccountFor the year ended 30th September 2005 Note 2005 2004 £'000 £'000 Turnover 1 52,126 48,707Rents payable (31) (31)Other property charges 2 (8,880) (8,498)Net Property Revenue 43,215 40,178Administrative expenses (5,022) (4,375)Exceptional administrative expenses 3 (297) -Total administrative expenses (5,319) (4,375)Operating Profit 37,896 35,803Surplus on disposal of investment property 4 4,220 616 Profit Before Interest and Taxation 42,116 36,419Net interest payable 5 (23,649) (21,095)Loss on purchase of debenture stock 6 (3,764) -Profit on Ordinary Activities Before Taxation 14,703 15,324Taxation 7 (2,885) (4,520)Profit on Ordinary Activities After Taxation 11,818 10,804Dividends 8 (6,589) (5,816)Retained Profit for the Financial Year 16 5,229 4,988Earnings Per Ordinary Share: 9Adjusred profit before disposals and taxation*- basic 11.01p 11.15p - diluted 10.99p 11.13p Profit before taxation - basic 11.13p 11.62p - diluted 11.11p 11.60p Profit after taxation - basic 8.94p 8.19p - diluted 8.93p 8.18p *adjusted to exclude exceptional costs and disposals All operations relate to continuing activities. Group Balance SheetAs at 30th September 2005 Note 2005 2004 £'000 £'000Fixed AssetsTangible assetsInvestment properties 10 993,079 825,580Premises, equipment and vehicles 364 296 993,443 825,876Current AssetsDebtors 11 24,674 13,040 Creditors:Falling due within one year 12 (29,268) (26,794)Net Current Liabilities (4,594) (13,754)Total Assets Less Current Liabilities 988,849 812,122 Creditors:Falling due after more than one yearBorrowings 13 (383,260) (343,282)Provisions for liabilities and chargesDeferred taxation 15 (5,380) (4,195) 600,209 464,645Capital and ReservesCalled up share capital 33,046 33,022Share premium account 16 119,696 119,575Revaluation reserve 16 396,018 259,175Profit and loss account 16 51,449 52,873 Shareholders' funds 600,209 464,645 Net asset value per Ordinary Share 17 - Basic £4.54 £3.52 - Diluted £4.53 £3.51 Group Cash Flow StatementFor the year ended 30th September 2005 2005 2004 Note £'000 £'000Net Cash Inflow from Operating Activities 18 40,261 34,135Returns on Investments and Servicing of FinanceInterest received 52 50Interest paid (22,282) (22,016)Bank loan arrangement costs (226) (122)Net cash outflow (22,456) (22,088)TaxationCorporation tax paid (3,064) (3,282)Capital Expenditure and Financial InvestmentAcquisition of investment properties (37,530) (15,823)Expenditure on investment properties (11,156) (11,120)Net proceeds from sales of investment property 3,366 1,387Net purchase of premises, equipment and vehicles (167) (143)Net cash outflow (45,487) (25,699)Equity Dividends Paid (6,061) (5,333)Cash Outflow before use of Financing and Cash Resources (36,807) (22,267)and Cash Resources FinancingNet proceeds of shares issued for cash 145 548Purchase of debenture stock (16,686) -Drawdown of secured bank loans 53,348 21,719Movement in Cash Balances - - Statement of Total Recognised Gains and Losses For the year ended 30th September 2005Profit on ordinary activities after taxation 11,818 10,804Unrealised net surplus on revaluation of investment properties 130,190 72,689Total Recognised Gains Relating to the Year 142,008 83,493 Reconciliation of Movements in Shareholders' Funds For the year ended 30th September 2005Profit on ordinary activities after taxation 11,818 10,804Dividends (6,589) (5,816)Retained profit for the year 5,229 4,988Unrealised surplus on revaluation of investment properties 130,190 72,689 135,419 77,677Net proceeds of shares issued during the year 145 548 Net Addition to Shareholders' Funds in Year 135,564 78,225 Opening Shareholders' funds 464,645 386,420 Closing Shareholders' funds as at 30th September 2005 600,209 464,645 Notes to the Preliminary Announcement 1. Turnover 2005 2004 £'000 £'000Rents invoiced 48,688 42,067Recognition of lease incentives in accordance with UITF 28 (500) 2,361Rents receivable 48,188 44,428Recoverable property expenses 3,938 4,279 52,126 48,707 2. Other Property Charges Property outgoings 4,942 4,219Recoverable property expenses 3,938 4,279 8,880 8,498 3. Exceptional Administrative Charges Costs incurred in Group restructuring to create village subsidiaries 297 - 4. Surpluses on Disposal of Investment Properties Net proceeds of sale of property 15,290 1,387Book value at date of sale (11,070) (771) 4,220 616 5. Net Interest Payable Interest payable:Debenture stock interest and amortisation 10,497 10,902On bank loans wholly repayable after 5 years 9,032 7,273On bank loans wholly repayable within 5 years 4,172 2,970 23,701 21,145Interest receivable (52) (50) 23,649 21,095 6. Loss on Purchase of Debenture Stock Loss arising on the purchase and cancellation of £12.357 million 4,329 -(nominal) of 8.5% First Mortgage Debenture Stock 2024Unamortised net premium written off (565) - 3,764 - Notes to the Preliminary Announcement (continued) 7. Taxation 2005 2004 £'000 £'000Current taxation: UK Corporation tax on revenue profit 2,000 4,150 Deferred taxation: Provision in respect of timing differences 1,539 570 3,539 4,720Over provisions in prior years:Corporation tax (300) -Deferred taxation (354) (200)Charge for the year 2,885 4,520 Factors affecting the current tax charge:Profit on Ordinary Activities 14,703 15,324Tax at standard Corporation tax rate (30%) 4,411 4,597Capital allowances claimed in excess of depreciation (664) (750)Capital losses utilised to offset gains on disposals of investment (1,266) (185)assets assetsTiming differences in deductibility of expenses 170 180Timing difference in recognition of UITF 28 income (1,045) -Expenses and provisions not deductible for tax purposes and 394 other items 308 Current tax charge for the year 2,000 4,150No taxation charge arises on the surplus realised on the disposals ofinvestment property due to the availability of capital losses. 8. Dividends Interim dividend of 1.70p (2004 - 1.513p) paid on24th June 2005 2,238 1,993Proposed final dividend of 3.30p (2004 - 2.90p) 4,351 3,823 6,589 5,816If approved at the 2006 Annual General Meetingthe proposed final dividend will be paid on 7th February 2006 toshareholders on the register at close of business on 6th January2006 (ex-dividend date 4th January 2006). 9. Earnings per Ordinary Share The calculations of earnings per Ordinary Share are basedon the following:Adjusted profit on ordinary activities before taxation* 14,544 14,708Exceptional administrative expenses (297) -Loss on purchase of debenture stock (3,764) -Surpluses on disposals of investment properties 4,220 616Profit on ordinary activities before taxation 14,703 15,324Taxation (2,885) (4,520)Profit on ordinary activities after taxation 11,818 10,804Weighted average number of Ordinary Shares in issue '000 132,152 131,931Dilutive average number of Ordinary Shares '000 132,367 132,146 Notes to the Preliminary Announcement (continued) 9. Earnings per Ordinary share continued \* The adjusted earnings per share is considered to give a better indication ofthe Group's underlying performance before exceptional costs and disposals. The difference between the weighted average and dilutive average number ofOrdinary Shares arises from the potentially dilutive effect of outstandingoptions granted over Ordinary Shares. 10. Investment Properties £'000At 1st October 2004 - book value 825,580Acquisitions 37,571Refurbishment and other expenditure 10,808Disposals (11,070)Net surplus on revaluation 130,190Book Value at 30th September 2005 993,079Add: Rents recognised in advance in accordance with UITF28 4,490 Market value at 30th September 2005 997,569 Comprising: Properties valued by DTZ Debenham Tie Leung 961,289 Properties at Directors' valuation based on disposal values achieved after the year end 36,280 997,569 Investment properties were subject to external valuation as at 30th September2005 by qualified professional valuers, being members of the Royal Institutionof Chartered Surveyors, working for DTZ Debenham Tie Leung, Chartered Surveyors,acting in the capacity of External Valuers. All such properties were valued onthe basis of Market Value in accordance with the RICS Appraisal and ValuationStandards. Capital Commitments: 2005 2004 £'000 £'000Authorised but not contracted 10,275 2,200 Creditors falling due within one year include provisions for outstandingcontracted expenditure in respect of projects in progress or completed at thatdate of £4,159,000 (2004 - £4,359,000). 11. Debtors 2005 2004 £'000 £'000Amounts due from tenants 7,275 7,617 Rents not yet due but recognised in advance in accordancewith UITF 28 Other debtors and prepaymentsRents not yet due but recognised in advance in accordance with UITF 28 4,490 4,990Due in respect of property disposal 12,100 -Other debtors and prepayments 809 433 Notes to the Preliminary Announcement (continued) 12. Creditors falling due within one year 2005 2004 £'000 £'000Rents invoiced in advance 10,368 9,948Dividend proposed 4,351 3,823Corporation tax payable 1,156 2,520Capital expenditure accruals 4,159 4,359Other creditors and accruals 9,234 6,144 29,268 26,794 13. Borrowings 2005 2004 Nominal Unamortised Book Nominal Unamortised premium and premium and Book value issue costs value value issue costs value £'000 £'000 £'000 £'000 £'000 £'0008.5% First Mortgage Debenture Stock 2024 119,643 5,338 124,981 132,000 6,209 138,209Secured bank loans 259,071 (792) 258,279 205,723 (650) 205,073 378,714 4,546 383,260 337,723 5,559 343,282 Borrowings are secured by fixed charges over certain investment properties andby floating charges over the assets of the Company and certain subsidiarycompanies. 14. Financing The Group's main financial instruments are its 8.5% First Mortgage DebentureStock 2024, bank loans and cash at bank and short term debtors and creditors.The disclosures below exclude short term debtors and creditors. Availability and maturity of financial facilities 2005 2004 Book value Nominal Undrawn Book value Nominal value Undrawn value facilities facilities £'000 £'000 £'000 £'000 £'000 £'000Repayable after morethan 15 years: 8.5% First Mortgage Debenture Stock 2024 124,981 119,643 - 138,209 132,000 - Repayable between 10 and 15 years 74,609 75,000 - 74,572 75,000 - Repayable between 5 and 10 years 42,272 42,554 32,446 67,968 68,138 36,863 Repayable between 2 and 5 years 141,398 141,517 33,483 62,533 62,585 12,415 383,260 378,714 65,929 343,282 337,723 49,278 Notes to the Preliminary Announcement (continued) 14. Financing (continued) Interest rate hedging The Group has in place the following interest rate hedging: 1. Interest rate collars on £90 million notional principal maturing between October 2011 and June 2016 (weighted average maturity 8.75 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 November 2012. The Group pays 6.05% for a three month period if the benchmark LIBOR rate setsoutside the ranges in 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 for 5 years at a fixed rate of 5.74%. Interest rate profile of financial liabilities 2005 2004 Weighted Weighted Average Average Debt Interest Rate Debt Interest Rate £'000 % £'000 %Floating rate borrowingsLIBOR-linked loans - interest rates fixed until December 2004 at latest 103,029 5.62 85,073 5.72Hedged borrowingsInterest rate hedges in operation at year end including margin 155,250 5.81 120,000 5.72Fixed rate borrowing8.5% First Mortgage Debenture Stock - interest rate fixed for 18.5 years until 31.3.2024 124,981 8.14 138,209 8.12Weighted average cost of borrowings* 6.51 6.68* *As at 30.9.2004, ignoring contracted interest rate hedge which commenced in2005. Fair values of financial instruments 2005 2004 Book Fair Surplus/ Book Fair Value Value (Deficit) Value Value (Deficit) £'000 £'000 £'000 £'000 £'000 £'000 8.5% First Mortgage Debenture 124,981 160,693 (35,712) 138,209 165,660 (27,451)Stock 2024LIBOR-linked loans 263,688 264,323 (635) 205,073 205,206 (133)Deficit on fair valuation of interest rate hedging agreements - (11,758) (11,758) - (7,724) (7,724) (48,105) (35,308) Notes to the Preliminary Announcement (continued) 15. Deferred Taxation 2005 2004 £'000 £'000 At 1st October 2004 4,195 3,825Provided/(released) in respect of current year 1,539 570Adjustments in respect of prior year (354) (200)At 30th September 2005 5,380 4,195Comprising:Timing differences in respect of capital allowances 4,685 4,375Timing differences arising on recognition of certain items of income and expenditure for taxation purposes 695 (170) 5,380 4,195 No provision has been made in respect of the liability to corporation tax whichwould arise in the event of realisation of properties at the values stated inthe financial statements. At 30th September 2005, after deducting capital lossesof approximately £9,100,000 (2004 - £11,200,000) the estimated contingentcorporation tax liability amounted to £91,000,000 (2004 - £57,500,000). 16. Reserves Share Profit Premium Revaluation and Loss Account Reserve Account TotalGroup £'000 £'000 £'000 £'000 At 1st October 2004 119,575 259,175 52,873 431,623 Retained profit for the year - - 5,229 5,229 Net surplus on revaluation of investment properties - 130,190 - 130,190 Investment property net revaluation deficit realised in year - 471 (471) - Investment property deficit realised after the year end - 6,182 (6,182) - Premium arising on issue of shares during year(net of expenses) 121 - - 121 At 30th September 2005 119,696 396,018 51,449 567,163 17. Net Asset Value The calculations of net asset value per Ordinary Share are based on thefollowing: 2005 2004Shareholders' funds £'000 600,209 464,645Shareholders' funds - diluted £'000 601,577 465,558Ordinary Shares in issue '000 132,185 132,086Diluted Ordinary Shares '000 132,830 132,610 The calculations of diluted net asset value per Ordinary Share show thepotentially dilutive effect of outstanding options granted over Ordinary Shares. Notes to the Preliminary Announcement (continued) 18. Net Cash Inflow from Operating Activities 2005 2004 £'000 £'000Net property revenue 43,215 40,178Administrative expenses (5,319) (4,375)Depreciation adjusted for profits/(losses) on disposals of fixed assets 99 109Decrease/(increase) in debtors 466 (4,366)Increase in creditors 1,800 2,589 40,261 34,135 19. Post Balance Sheet Events In November 2005 the Group sold National Magazine House, a freehold building inCarnaby, at a price of £45,050,000, retaining a long leasehold interest in partof the building. The sale price together with the value of the part retained wasapproximately equal to the valuation of the entire interest at 30th September2005. Following approval by shareholders at an Extraordinary General Meeting held on29th November 2005, the Company concluded the arrangements to establish itsjoint venture with the Mercers' Company. Longmartin Properties Limited, a wholly owned subsidiary of Shaftesbury PLC atthe balance sheet date, has been recapitalised with equity provided jointly byShaftesbury PLC and the Mercers' Company totalling £162.28 million.Shaftesbury's equity has been contributed by way of long leasehold propertyassets totalling £38.82 million and cash of £42.32 million. The Mercers' Companyhas contributed equity by way of long leasehold property assets totalling £81.14million. Further, Shaftesbury has also sold the freehold interest which it ownedat 30th September 2005 in certain of the long leasehold assets transferred toLongmartin to the Mercers' Company for £3.2 million. The values at whichShaftesbury disposed of these assets equate to the valuations of these interestsat 30th September 2005. Following these transactions, surplus cash held byLongmartin Properties has been loaned back to its shareholders. From December2005 Longmartin Properties Limited will be accounted for as a 50% joint venturein the Group's financial statements. The costs associated with thesetransactions will be dealt with in the 2006 financial year. 20. Miscellaneous The preliminary announcement does not constitute full financial statements. The results for the year ended 30th September 2005 included in this preliminaryannouncement are extracted from the audited financial statements for the yearended 30th September 2005 which were approved by the Directors on 7th December2005. 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 2005 Annual Report is expected to be posted to shareholders on 21st December2005 and will be considered at the Annual General Meeting to be held on 1stFebruary 2006. The financial statements for the year ended 30th September 2005have not yet been delivered to the Registrar of Companies. The auditors' report on the financial statements for the year ended 30thSeptember 2004 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 2004 have been delivered to the Registrar of Companies. The Annual General Meeting will be held at Pegasus House, 37/43 SackvilleStreet, London W1S 3DL on 1st February 2006 at 12 noon. International Financial Reporting Standards All groups with capital listed on a regulated stock exchange in the EuropeanUnion are required to adopt International Financial Reporting Standards ("IFRS")for accounting periods commencing on or after 1st January 2005. Shaftesbury'sresults for the year commencing on 1st October 2005 will be its first to beprepared under IFRS rather than UK Financial Reporting Standards (UK GAAP). The significant aspects of financial reporting that will be affected as a resultof adopting IFRS are summarised below together with a table setting outadjustments to reported net assets and profits that would arise if IFRS were tobe applied in respect of the year ended 30th September 2005. The principlesunderlying the changes and detailed calculations have been reviewed by theGroup's advisors. The changes identified below are based on the current interpretation of existingIFRS. It is possible that before the Group first publishes results under IFRSthe standards may be subject to changes or the basis on which they are appliedto the real estate sector could develop differently from current understanding. 1. Revaluation surpluses and deficits reported in the Income Statement IAS 40, Investment Property, requires that the surplus or deficit arising on therevaluation of investment properties is reported in the Income Statement. UnderUK GAAP these surpluses or deficits are reported as a movement in revaluationreserve in the Statement of Recognised Gains and Losses unless any deficit beloworiginal cost is considered to be permanent. This change will have no impact on reported net assets. However the annualrevaluation movement (adjusted for the year-on-year movements in items 4 and 5below) will be reported in the Income Statement as part of the Group's profitfor the year. The cumulative surplus on revaluation will not be distributable. 2. Contingent tax on revaluation surpluses reported as part of the taxation charge IAS 12, Income Taxes, requires a provision to be made for tax based on the revaluation surplus in respect of investment properties. In the situation where there is no present intention to sell the Group'sinvestment properties, the current interpretation of IAS 12 is that theprovision should be calculated at the basic rate of Corporation Tax ignoring anyindexation relief which is available under UK tax legislation or accumulatedcapital losses. Applying this interpretation, the provision required under IAS12 is greater that the contingent liability previously disclosed (but notprovided) under UK GAAP. The provision calculated under IAS 12, based on the investment propertyvaluations at 30th September 2005, would be approximately £122.25 million. Thiscompares with an estimated liability calculated under UK GAAP of £91 millionafter allowing for indexation relief and capital losses. The provision will notaffect distributable reserves. 3. Accrual for costs to complete projects Under IFRS, costs in respect of projects in progress at a period end can beaccrued only to the extent of work actually completed to that date. Thiscontrasts with the Group's policy of accruing costs expected to be incurred inphysically completing projects. The effect of applying this basis of accounting is to reduce accruals toeliminate the provision for the cost of works incurred after the period end upto completion. A similar amount will be deducted from the valuation ofinvestment properties to reflect the costs to be incurred to complete projectsin hand at the valuation date, so that there will be no net effect on theGroup's revaluation surplus or net assets. 4. Lease incentives amortised over period to lease expiry SIC 15, Operating Leases - Incentives, requires lease incentives granted totenants at any time in the past to be spread over the term of the lease or tothe date of the first right to break the lease. Under UK GAAP, incentivesarising after 1st October 1999 are written off to the earlier of the first rentreview or expiry of the lease. The effect of spreading lease incentives over the longer period to the date ofthe first break under the tenant's lease is to increase the amount of incomerecognised in advance at 30th September 2005 by £2.4 million. The sameadjustment is deducted from the book value of investment properties, so there isno net effect on reported net assets. A deferred tax liability of £0.7 million will arise in respect of the additional income recognised. 5. Property marketing and letting costs reported in the Income Statement IAS 40, Investment Property, classifies such costs as start-up costs and doesnot permit them to be capitalised. Currently the Group's accounting policy is tocapitalise such costs where they relate to the first letting of a propertyfollowing a major refurbishment. At 30th September 2005, the cumulative amount of such costs capitalised was £4.6million. Charging these costs in the Income Statement will reduce the historiccost of investment properties and increase the cumulative revaluation surplus byan equivalent amount, with no overall effect on reported net assets. 6. Share option expense IFRS 2, Share-based Payment, requires an expense to be recognised in respect ofshare options granted after 7th November 2002. The charge is based on the fairvalue of the options granted and is spread over their vesting period. As new shares are issued to satisfy option exercises under current arrangements,the expense recognised in calculating reported profit will be credited toreserves in the balance sheet and therefore will have no effect on reported netassets. A deferred tax asset of £0.26 million arises as a result of the basis on whichtax relief will be available in respect of share options where vesting isconsidered reasonably certain. 7. Dividends not declared at the period end IAS 10, Events after the Balance Sheet Date, requires that dividends notdeclared at the balance sheet date are not recognised. Currently, dividendsproposed in respect of a reporting period are recognised as a liability at theend of that period. Eliminating the provision for the 2005 final dividend which has only beenproposed at the year end and is subject to approval by shareholders at the 2006Annual General Meeting increases reported net assets at 30th September 2005 by£4.35 million. 8. Recognition and Measurement of Financial Instruments IAS 39, Financial Instruments: Recognition and Measurement, will require; i) The net premium on the issue of £132 million 8.5% Mortgage Debenture Stock to be amortised on a "yield to maturity" basis. Previously the amortisation was calculated on a straight line basis. ii) The inclusion in the financial statements of the fair value of the Group's financial instruments used to hedge interest rate exposure. The effect of a change in the basis of debenture premium amortisation is toincrease the book value of the outstanding debenture stock by £1.17 million at30th September 2005. A deferred tax liability of £0.35 million will arise as aresult of reducing the amortisation charged to date in the profit and lossaccount. 8. Recognition and Measurement of Financial Instruments continued In accordance with IAS 39, the 8.5% Mortgage Debenture Stock will continue to bereported at amortised historic cost rather than fair value. The current fairvalue will continue to be disclosed by way of note. The nature of the Group's interest rate hedging arrangements is such that theydo not qualify for hedge accounting under IAS 39 and therefore they will berecorded in the Balance Sheet at fair value and changes in fair value will berecorded in the Income Statement. The fair value of financial instruments at 30th September 2005 has been calculated by external advisors at £11.76 million. The provision will give rise to a deferred tax asset amounting to £3.53 million. Summary of effects of IFRS on Reported Net Assets At 1.10.2004 Movement in At 30.9.2005 year £'000 £'000 £'000Reported net assets under UK GAAP 464,645 135,564 600,209Revaluation surpluses and deficits reported in the Income Statement No effect - No effect Contingent tax on revaluation surpluses reported as part of the taxation charge (83,750) (38,500) (122,250) Accrual for costs to complete projects No effect - No effectLease incentives amortised over period to lease expiry No effect - No effectLess: Deferred tax liability (516) (202) (718) Property marketing and letting costs reported in the Income Statement No effect - No effect Deferred tax arising in respect of share options 91 173 264 Dividends not declared at the period end 3,823 528 4,351 Recognition and Measurement of Financial Instruments: Adjustment to debenture stock amortisation (1,149) (23) (1,172) Less: Deferred tax liability 345 7 352Fair value of interest rate hedges (7,724) (4,034) (11,758) Add: Deferred tax asset 2,317 1,210 3,527 Net assets calculated under IFRS 378,082 94,723 472,805Diluted net asset value per share reported under IFRS £2.85 £3.56 Summary of effects of IFRS on Reported Profit for the year ended 30th September 2005 Profit on Taxation Profit after Ordinary taxation Activities £'000 £'000 £'000 Reported Profit under UK GAAP 14,703 (2,885) 11,818 Revaluation surpluses reported in the Income Statement adjusted for the change in basis ofrecognising lease incentives and property letting andmarketing expenses 130,004 - 130,004 Contingent tax on revaluation surpluses reported as part of the taxation charge - (38,500) (38,500) Lease incentives amortised over period to leaseexpiry 673 - 673 Less: Deferred tax liability - (202) (202) Property marketing and letting costs reported in the Income Statement (487) - (487) Recognition and Measurement of Financial Instruments:Adjustment to debenture stock amortisation (23) - (23) Less: Deferred tax liability - 7 7 Fair value of interest rate hedges (4,034) - (4,034)Add: Deferred tax asset - 1,210 1,210 Reported Profit under IFRS 140,836 (40,370) 100,466 Other changes not affecting Shaftesbury Finance leases Under IFRS, leases granted which transfer substantially all the risks andrewards of ownership to tenants cannot be categorised as investment propertiesand should therefore be accounted for as finance leases. Leases in the Group'sportfolio have been reviewed and it has been concluded that none of leasesgranted to date by Shaftesbury fall within the definition of finance leases. Head lease liabilities IAS 17, Leases, requires that the liability to pay rent in respect of investmentleasehold properties is provided in full, based on the present value of minimumrental obligations. The liability calculated on this basis in respect of theGroup's leasehold investment properties at 30th September 2005 is immaterial. Cash flows and distribution policy The adoption of IFRS will have no impact on the underlying cash flows of theGroup although there will be changes in the presentation of the cash flowstatement prepared under IFRS. Changes in accounting under IFRS will not affect the Group's ability to continuewith its current progressive dividend policy. Taxation The Group taxation charge will reflect profits calculated and reported underIFRS. The tax effects arising from the conversion of the Group accounts to anIFRS basis will be recorded principally as deferred tax adjustments and will notsignificantly affect current tax liabilities. At present the parent andsubsidiary companies are expected to continue to prepare their accounts under UKGAAP and their actual tax liabilities will be calculated by reference to thoseaccounts. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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