3rd Dec 2008 07:00
SHAFTESBURY ANNOUNCES FULL YEAR RESULTS
Shaftesbury PLC ("Shaftesbury") today announces its preliminary results for the year ended 30 September 2008. Shaftesbury owns a portfolio of over 400 properties in London's West End (Carnaby and Chinatown) and Covent Garden.
Results
Adjusted diluted net asset value per share £4.82 (2007: £6.46)
Diluted unadjusted net asset value per share £4.71 (2007: £6.41)
Portfolio valued at £1,207.3 million reflecting a reduction of 15.6% over the year (IPD Monthly Index fell by 22.6% over the year)
Portfolio Total Return for the year -12.0% (IPD Monthly Index -18.1%)
Adjusted profit before tax up 20.2% to £15.3 million (2007: £12.7 million)
Final dividend of 6.0p recommended (2007: 5.5p)
Total dividend for the year 11.0p (2007: 7.66p)
Portfolio activity
Tenant demand for shops, restaurants and apartments remains good
Portfolio ERV now £80.2 million (up £7.8 million over the year); invoiced rents up 7.2%
Longmartin Joint Venture progressing well; major lettings progress announced in November
£24 million of acquisitions in year; selective disposals of £4.4 million
Finance
Securely financed with £600 million of bank facilities (includes £75 million raised since 30.9.2008)
Average maturity 8.9 years
John Manser, Chairman commented,
" In a difficult economic climate, the Group's capital value and total returns again significantly out-performed the wider property market. The economy in the West End and our portfolio, with its defensive qualities of prime locations and mixed uses, have proved to be resilient. Our results show further growth in rental income and adjusted profits and over the year our reversionary income potential has increased significantly.
" These are times of almost unprecedented economic turmoil and Shaftesbury cannot expect to be untouched by the prevailing market conditions. Nevertheless, we do believe that the Group's highly specialised portfolio of tightly defined central London villages is better placed than most to continue generating robust income during this difficult period. Currently, demand for the retail and restaurant properties that constitute the majority of our assets remains strong.
" Valuations have, inevitably, fallen as the international banking crisis has led to a repricing of assets. For a securely financed Group such as ours, this represents a fine opportunity to use our deep knowledge of the West End market to add to our portfolio. Although it is impossible to say how long this economic downturn will prevail, we remain confident that, when the gloom lifts, Shaftesbury will emerge strongly positioned to benefit from its concentration of assets in the centre of one of the world's favourite destinations."
There will be a presentation to analysts at 9.30 am on Wednesday 3 December 2008, to be held at the offices of Merrill Lynch, Merrill Lynch Financial Centre, 2 King Edward Street, London, EC1A 1HQ at 9.30 am on Wednesday 3 December 2008.
In addition, Shaftesbury will be hosting a conference call on the day of the results at 9.30 am. Analysts and investors are welcome to participate. You can access the call by dialling +44 (0) 20 8996 3920. The passcode is 422190.
A replay service will be available for seven days after the call. The number is +44 (0) 20 7136 9233. The passcode is 75900767.
Date: 3 December 2008
For further information:
|
Shaftesbury PLC 020 7333 8118 |
City Profile 020 7448 3244 |
|
Jonathan Lane, Chief Executive |
Simon Courtenay |
|
Brian Bickell, Finance Director |
William Attwell |
|
www.shaftesbury.co.uk |
Performance Summary for the year ended
30 September 2008
|
Shaftesbury Group |
Benchmark |
|
|
Capital value return (the annual valuation movement and realised surpluses arising on the Group's investment portfolio expressed as a percentage return on the valuation at the beginning of the year adjusted for acquisitions and capital expenditure) |
-15.6% |
IPD UK Monthly Index: Capital Values* -22.6% |
|
2007 |
+8.2% |
+2.2% |
|
Total return (a combination of the capital value return referred to above and the net property income from the portfolio for the year expressed as a percentage return on the valuation at the beginning of the year adjusted for acquisitions and capital expenditure) |
-12.0% |
IPD UK Monthly Index: Total Return* -18.1% |
|
2007 |
+12.0% |
+7.2% |
|
Net asset value return (the change in diluted net asset value per Ordinary share plus dividends paid per Ordinary share expressed as a percentage of the diluted net asset value per share at the beginning of the year) |
||
|
Based on adjusted net assets |
-25.4% |
|
|
2007 - after REIT conversion charge |
+10.5% |
|
|
Based on reported net assets |
-24.9% |
|
|
2007 |
+42.5% |
|
|
Total shareholder return (the change during the year in the market price of an Ordinary share plus dividends reinvested expressed as a percentage of the share price at the beginning of the year, based on year end share price £4.22 (2007: £4.95) |
-12.8% |
FTSE 350 Real Estate Index: - 27.6% |
|
2007 |
-16.5% |
-14.1% |
*Source: Investment Property Databank Limited
Shaftesbury Group data (other than Total Shareholder Return) derived from financial results.
Chairman's Statement
In a difficult economic climate, the Group's capital value and total returns again significantly out-performed the wider property market. The economy in the West End and our portfolio, with its defensive qualities of prime locations and mixed uses, have proved to be resilient. Our results show further growth in rental income and adjusted profits and over the year and our reversionary income potential has increased significantly.
Our Results
The adjusted results referred to below are calculated in accordance with the guidance issued by the European Public Real Estate Association ("EPRA") in May 2008.
|
2008 |
2007 |
||||
|
Total £'000 |
Diluted net asset value per share £ |
Total £'000 |
Diluted net asset value per share £ |
||
|
Net assets reported in the Group Balance Sheet |
642,291 |
4.71 |
866,786 |
6.41 |
|
|
Adjusted for: |
|||||
|
Fair value adjustment in respect of financial derivatives |
14,547 |
630 |
|||
|
Deferred tax provided in respect of investment property revaluation gains |
- |
5,310 |
|||
|
Adjusted net assets |
656,838 |
4.82 |
872,726 |
6.46 |
|
Net assets at 30 September 2008, adjusted as shown in the table above to exclude the fair value of financial derivatives and deferred tax provided in respect of investment property revaluations, totalled £656.8 million, equivalent to a diluted net asset value per share of £4.82. The decrease in diluted net asset value per share over the year was £1.64, a reduction of 25.4% (2007: increase £0.56 per share or 9.5%).
Shareholders' funds reported in the unadjusted Group Balance Sheet at 30 September 2008 totalled £642.3 million, equivalent to a diluted net asset value per share of £4.71. The decrease in unadjusted shareholders' funds since the last year end amounted to £1.70 per share (diluted), a reduction of 26.5% (2007: increase £1.87 per share or 41%).
|
2008 £'000 |
2007 £'000 |
||
|
(Loss)/profit before tax reported in the Group Income Statement |
(220,901) |
124,176 |
|
|
Profit on disposal of investment properties |
(278) |
(2,215) |
|
|
Deficit/(surplus) arising on revaluation of investment properties |
222,540 |
(103,034) |
|
|
Movement in fair value of financial derivatives |
13,917 |
(8,688) |
|
|
Loss on purchase of debenture stock |
- |
2,474 |
|
|
Adjusted profit before tax |
15,278 |
12,713 |
As shown in the table above, adjusted profit before tax for the year ended 30 September 2008 amounted to £15.3 million, an increase of 20.2%, compared with £12.7 million in the same period last year.
Rental income in the wholly owned group, adjusted for lease incentives, increased by £3.3 million compared with last year, offset by a £1.1 million reduction in income from the Longmartin Joint Venture, where major works are now under way. Property outgoings have risen by £0.4 million to £6.5 million.
Our interest rate hedging strategy has been successful this year in limiting the increase in interest payable, which has risen by only £0.4 million to £30.7 million, despite higher interest rates prevailing during the year and increased borrowings to finance recent acquisitions and capital expenditure. We have moved to fixed rate, long term interest rate swaps, at rates which we believe are attractive. However, the long term nature of these arrangements has increased the volatility of their mark-to-market valuation, which is reflected as a non cash movement in the Income Statement, with an increase this year in the fair value deficit of £13.9 million.
Our purchases are typically of properties with low initial income, which is often further reduced in the short term as a result of our deliberate policy of securing vacant possession in advance of refurbishment and re-letting. We do not capitalise interest incurred in respect of properties or parts of multi-let buildings which are being refurbished.
The loss before tax reported in the Income Statement was £220.9 million (2007: profit £124.2 million) and included investment property revaluation deficits of £222.5 million (2007: surpluses £103.0 million).
|
2007 £'000 |
2007 £'000 |
||
|
Taxation credit reported in the Income Statement |
(4,813) |
(140,632) |
|
|
Current tax in respect of: |
|||
|
REIT conversion charge |
(98) |
(27,512) |
|
|
Loss on purchase of debenture stock |
- |
742 |
|
|
Deferred tax in respect of revaluation of investment properties |
5,310 |
(2,766) |
|
|
Deferred tax released on REIT conversion |
- |
171,378 |
|
|
Adjusted taxation charge on the adjusted profit |
399 |
1,210 |
Provision for current and deferred tax on the adjusted profit for the year amounted to £0.4 million (2007: £1.2 million). The Group's wholly-owned business is now subject to the REIT regime so net rental income and gains included in results for the year are exempt from corporation tax. The wholly owned Group has little other taxable income or gains and consequently has a minimal tax charge.
Our interest in the Longmartin Joint Venture has remained outside our REIT group, so provisions for corporation and deferred tax continue. We expect to complete the process to include our interest within our REIT group during the next financial year so that conversion would take effect from 1 October 2009.
The adjusted profit after tax for the year amounted to £14.9 million (2007: £11.5 million). The loss after tax reported in the Group Income Statement amounted to £216.1 million (2006: profit £264.8 million).
Dividends
Our dividends reflect the distribution obligations contained in REIT legislation, which broadly require distribution of a minimum of 90% of net rental income (calculated by reference to tax rather than accounting rules).
Your Directors are pleased to recommend a final dividend of 6.0p per share (2007: 5.5p). Together with the interim dividend of 5.0p (2007 - prior to conversion to REIT status: 2.16p), this will bring the total distribution for the year to 11.0p per share (2007: 7.66p), an increase of 44%. The final dividend will be paid entirely as a Property Income Distribution ("PID").
We intend to maintain a policy of increasing our distributions to reflect the underlying growth in our income, although adherence to the REIT rules may result in a less even pattern than we have seen previously.
Our Portfolio
Our property portfolio has been valued at 30 September 2008 at £1,207.3 million, resulting in a revaluation deficit of £222.5 million. Allowing for acquisitions and expenditure during the year, together with the surpluses realised on disposals of £0.3 million, this represents a reduction of 15.6% on book value over the year. The IPD UK Monthly Index of Capital Values for all classes of commercial property fell by 22.6% over the same period. Our portfolio showed an overall return for the year of -12.0% compared with the IPD UK Monthly Index of Total Returns for all classes of commercial property of -18.1%.
In their report to us, DTZ, valuers of our wholly owned portfolio, have noted that, in the current property market, there have been few transactions recently and therefore scarce evidence of the prices at which willing buyers and sellers are prepared to transact. Therefore, they have advised us that the element of professional judgement they have used in reaching their valuation has been greater than in normal times when there is an abundance of clear market evidence.
The reduction in value of the wholly owned portfolio amounted to 15.2%. Carnaby declined in value by 17% and Covent Garden by 16%. Both these villages have substantial reversionary income potential. Also, in Carnaby, 35% of current income is from offices, where the average lease length is four years. As a result, in the current climate, valuers apply a greater discount as uncertainty of future income has increased. Chinatown declined in value by 11%. In this village restaurants and leisure uses provided 59% of rental income on leases with an average unexpired term of 16 years and only 8% of income came from offices.
The value of properties owned in the Longmartin Joint Venture at the year end declined by 21%, reflecting the risks and valuation uncertainties in the speculative St Martin's Courtyard scheme, exacerbated by the current economic conditions. The timing and quality of lettings over the next 21 months, when the scheme is due to finish, will have a material impact on future valuations. In November 2008 we announced lettings and negotiations representing almost half of the retail space in the scheme.
The equivalent yield attributed by our valuers to our wholly owned portfolio at 30 September 2008 was 5.65% (2007: 4.66%). An element of the fall in value, particularly in the second half of the year, reflects a slowdown since the summer in evidence of contracted rental growth for our shops and restaurants and the consequent discount applied by valuers to reversions . Whilst demand for our offices is currently stable, we expect the supply of vacant space to increase and rents to fall. Whilst the capital value of our residential apartments has fallen sharply, tenant demand remains healthy.
Past experience has shown us that the value of our portfolio should continue to outperform the market as a whole due to sustained tenant demand for our shops and restaurants as well as our proactive approach to estate management.
Notwithstanding current adverse conditions in property markets, DTZ, the valuers of our wholly-owned portfolio, have commented in their report on the concentration of a high proportion of our properties in adjacent or adjoining locations within our principal villages and the dominance of retail and restaurant uses. They advise that, as a consequence of these unusual factors, some prospective purchasers may consider that parts of the wholly-owned portfolio when combined may have a greater value than that currently reflected in the valuation we have adopted in our results.
Our valuers have estimated the rental value of our portfolio at 30 September 2008 to be £80.2 million (2007: £72.4 million) based on proven rental levels. This is in contrast to the portfolio's current passing income of £60.4 million (2007: £57.9 million). Of this reversion of £19.8 million, £5.9 million (2007: £1.4 million) relates to our interest in the Longmartin Joint Venture, where we are now proceeding with our major scheme.
The table below shows the growth in the reversionary potential of our portfolio. 72% of the reversionary potential at 30 September 2008 in the wholly owned portfolio is attributable to non-office uses.
|
Valuers' estimates |
Attributable to |
||||
|
Current gross income £million |
Estimated rental value £million |
Reversionary potential £million |
Wholly owned Group £million |
Long-martin £million |
|
|
At 30 September 2005 |
49.8 |
60.6 |
10.8 |
10.8 |
- |
|
At 30 September 2006 |
53.9 |
66.0 |
12.1 |
11.3 |
0.8 |
|
At 30 September 2007 |
57.9 |
72.4 |
14.5 |
13.1 |
1.4 |
|
At 30 September 2008 |
60.4 |
80.2 |
19.8 |
13.9 |
5.9 |
We are confident that over time we can realise the reversionary potential of our shops and restaurants as we invest only in locations which have demonstrated resilient tenant demand over many years. As we are rarely involved in substantial redevelopment, we achieve rental growth with relatively little additional risk or capital expenditure.
Finance
Great emphasis is being placed in the current climate on the stability of bank finance of companies in the real estate sector. We believe our finances are robust. Our business has good income/interest cover and our gearing and future expenditure commitments are low relative to the size of our portfolio. We believe the overall security structure we have in place with our lenders will mean they will continue to view us to be a secure customer. This has been evidenced by the willingness since the year end of two of our lenders to increase our facilities by £75 million. We now have facilities totalling £600 million of which approximately £135 million is currently unutilised.
Total Shareholder Return
Both Shaftesbury and the FTSE 350 Real Estate Index recorded negative returns over the year as reductions in share prices across the entire real estate sector continued during the year and have accelerated since the year end.
Current adverse sentiment towards property in equity markets, which reflects concerns over general economic prospects, the availability of finance for real estate investment and the outlook for property values, has resulted in real estate equities, including our shares, trading at substantial discounts to net asset values. It is unlikely these discounts will narrow until stability returns to financial and property markets and the economy generally.
Prospects
These are times of almost unprecedented economic turmoil and Shaftesbury cannot expect to be untouched by the prevailing market conditions. Nevertheless, we do believe that the Group's highly specialised portfolio of tightly defined central London villages is better placed than most to continue generating robust income during this difficult period. Currently, demand for the retail and restaurant properties that constitute the majority of our assets remains strong.
Valuations have, inevitably, fallen as the international banking crisis has led to a repricing of assets. For a securely financed Group such as ours, this represents a fine opportunity to use our deep knowledge of the West End market to add to our portfolio.
Although it is impossible to say how long this economic downturn will prevail, we remain confident that, when the gloom lifts, Shaftesbury will emerge strongly positioned to benefit from its concentration of assets in the centre of one of the world's favourite destinations.
John Manser
Chairman
3 December 2008
Business Review
Our strategy
Our strategy is to focus our investment only in the most central and lively districts of London's West End.
Our determination to confine ourselves to such a specific investment policy located in this tightly defined geographical area originated from our experiences during the recession in the early 1990s. At that time, we found that whilst there was little demand for property investments and capital values fell, tenant demand continued and rents remained stable in the 32 buildings in Chinatown we then owned. With that experience and local knowledge, and the support of our institutional shareholders and banks, we took advantage of market uncertainty from 1993 to buy properties in Chinatown, Carnaby and Seven Dials, acquisitions which today form the nucleus of our unique portfolio of over 400 properties in the West End.
Although the continuing current downturn has already seen values fall even faster than in the recession of the early 1990s, there remains a healthy demand from prospective tenants to rent shops and restaurants in our areas. These uses now represent over 70% of our business. Experience has shown that the unique qualities of London's West End, when combined with our approach to estate management, contribute to the out-performance of our investments, including in periods of downturn.
We expect that current uncertainties will offer us opportunities for further strategic property purchases, which are scarce in more buoyant markets. In anticipation, we have increased our bank facilities by £75 million since the year end, so that we now have committed unutilised facilities in the order of £135 million.
Our strategy is underwritten by London's strong economy and wealth as well as the heritage and unique cluster of leisure and cultural assets within the West End. Over the past 15 years Central London has benefited, in particular, from considerable public and private investment, and continues to do so. With over 40 theatres, the UK's premier cinemas, World class galleries, museums and palaces as well as the best shops and restaurants, many more visitors are attracted to the West End than any other city, knowing that they will have an experience that they are unlikely to find elsewhere. This in turn stimulates further development which is very apparent today, for example in the new hotels currently under construction in the West End and Covent Garden.
This year the number of visitors from overseas, and particularly the Eurozone area, has increased significantly as a result of the relative weakness of the pound against the euro, US dollar and other currencies.
Sustained investment by both the Mayor of London and Westminster City Council in recent years has greatly improved public transport as well as the quality of streets and the public realm in the West End. Completion of current works on Long Acre, St Martin's Cross and on Shaftesbury Avenue are creating important pedestrian-friendly routes between Piccadilly Circus and Covent Garden. Once the Crown Estates' Quadrant scheme at the south end of Regent Street is completed, the pedestrianised routes will extend to Oxford Circus via our Carnaby village. This public/private investment has encompassed many of the streets in our villages.
Since the setbacks of the early 1990s, the Government, the Mayor and local authorities have encouraged large new commercial developments such as Paddington and King's Cross as well as new shopping centres such as Lakeside, Bluewater and Westfield White City. Initially such large schemes with their purpose built space and controlled indoor environments can appear to pose a direct threat to the continued prosperity of the West End. This has not been our experience. Indeed, we have found that these new developments often serve different needs and segments of London's population and when taken together, they enhance what London as a whole has to offer to both residents and visitors.
These major investment projects, as well as the terrorist incidents in July 2005, have brought closer co-operation between public authorities, business and cultural groups with an interest in central London. New organisations such as London First, the New West End Company, the West End Marketing Alliance, the Heart of London Business Alliance and The Cultural Quarter Group now play an important role in promoting London to visitors and commerce in the UK and internationally.
All our investments are located within walking distance of our head office and we are "on-site" every day. We have a detailed understanding of our markets and specialist knowledge of how to get the most value from clusters of older buildings in Conservation Areas. Our approach to estate management, which is evident across all our villages, is well proven:
We seek to acquire un-modernised properties which have potential for predominantly retail and restaurant use. Through clustering our ownerships over time and making physical improvements, we aim to regenerate areas to create distinctive destinations.
We identify locations which are close to streets traditionally regarded as prime and which have good access to public transport. We encourage alternative shops and individual restaurants which when combined with offices and apartments provide lively districts on a traditional pattern with vibrant street life.
We work closely with local authorities and community groups to co-ordinate our plans and combine resources so that the best environments are created. We give high priority to promoting improvements to streets, pavements, lighting and security.
We carry out refurbishments of high quality with an emphasis on mixed and multiple uses to meet changing needs of occupiers. Where possible, we expand shops and restaurants into upper floors and often introduce new residential accommodation in place of offices, as we find there is strong demand in such central locations for living accommodation. This in turn adds life to our villages.
Portfolio activity
In our chosen areas the supply of suitable properties which are of interest to us has been very limited in 2008. In the year as a whole, we bought eleven freeholds at a cost of £24 million. All either adjoin or are close to our existing holdings. We remain very selective in what we buy.
Capital expenditure totalled £11.7 million in the wholly owned group, equivalent to approximately 1% of its capital value. Whilst we are always actively improving our portfolio, this continuing modest level of expenditure reflects our strategy of retention and improvement of existing buildings as opposed to redevelopment. Also our emphasis on shops and restaurants, where we only provide accommodation in shell form, means that both the fit out costs we incur and obsolescence we suffer are low.
In the Longmartin Joint Venture, demolition, construction and refurbishment works for the St Martin's Courtyard scheme commenced during the year. Our share of capital expenditure this year totalled £5.1 million and we expect that our share over the next two financial years will be in the order of £25 million.
During the year we sold £4.4 million of assets, which included two offices and two apartments. As we buy only those properties which are central to our strategy, it is rare that we have assets for disposal. Most of our sales are to special purchasers. In any event, we expect few sales in the coming year whilst the property market remains so inactive and property finance is scarce.
We have been increasingly active in negotiating surrenders of tenants' leases where we have identified opportunities to increase income over the long term through change of use, reconfiguration of the space or new trading concepts.
In the year to 30 September 2008, we let commercial space with a rental value of £3.2 million per annum comprising £1.8 million of shops, £0.8 million of restaurants and £0.6 million offices. These levels of letting activity are very similar to the previous year. Whilst rental growth has slowed since the summer, demand for shops, restaurants and apartments remains good. The more experienced and better financed retailers and restaurateurs continue to take advantage of weaker competitors to secure the best locations through assignment and lease acquisition. We welcome this. In contrast, office vacancies are showing signs of increasing as demand reduces. This is leading to increasing incentives and downward pressure on rental levels. Offices represent only 23% of our estimated rental value.
The rental value of wholly owned vacant commercial space at 30 September 2008 was £3.3 million, which represents 4.6% of the estimated rental value of our wholly owned portfolio. With £1.2 million under refurbishment and £1.0 million under offer, only £1.1 million (1.5% of estimated rental value) was available to let at the year end.
Analysis of Wholly Owned Vacant Commercial Space at 30 September 2008
|
Shops |
Restaurants and leisure |
Offices |
Total |
|
|
Estimated Rental Value |
£'000 |
£'000 |
£'000 |
£'000 |
|
Under refurbishment |
780 |
35 |
394 |
1,209 |
|
Ready to let |
429 |
200 |
477 |
1,106 |
|
Under offer |
573 |
275 |
165 |
1,013 |
|
Total |
1,782 |
510 |
1,035 |
3,328 |
|
Number of units |
22 |
2 |
33 |
|
|
Area - sq. ft. |
31,000 |
12,000 |
28,000 |
71,000 |
In addition, at the year end 29 new apartments with a rental value on completion of £0.7 million were under conversion from space which was formerly offices or derelict. Seventeen of these are in Covent Garden.
At Longmartin, our Joint Venture with The Mercers' Company, our 50% share of the rental value of space now under construction in the St Martin's Courtyard project subject to completion, was approximately £5.9 million at the year end.
Our wholly owned portfolio
Our wholly owned portfolio at 30 September 2008 included 301 shops extending to 375,000 sq. ft. They produce 42% of current income with an average unexpired lease term of seven years. Strong demand for our shops continues across all villages. Of the 22 vacant units, six larger shops represented 61% (£1.1 million) by rental value; three were in builders hands, two under offer and one to let.
We have 163 restaurants, bars and clubs with a total area of 396,000 sq. ft. which produce 28% of current income. 118 of these (over 70%) are located close to theatres and cinemas in Chinatown and Covent Garden. At the year end we had one restaurant to let and one bar under offer. The latter has now been let.
The supply of restaurants and bars in the best West End locations is very limited due to strict planning and licensing regulations. With consistent good demand, vacant units go under offer quickly. As considerable initial investment by our tenants is needed to fit out any good quality venture, we favour experienced operators who see present financial restrictions as an excellent opportunity to secure the best locations on long leases, usually 25 years.
Our office space continues to reduce in area and significance. We now have 404,000 sq. ft. of offices across 333 tenancies, which provide 22% of our income. Average office suites are small (1,200 sq. ft.) and leases are short (average unexpired term four years). As the office market tends to be more cyclical than our other uses we seek to reduce this risk wherever possible by letting our offices to businesses which are associated with the character of our villages; fashion in Carnaby and Far Eastern businesses in Chinatown. Also, we take every opportunity to convert our least valuable offices to other less volatile commercial and residential uses.
Our 279 apartments represent 7% of our income. 126 of these are in Covent Garden. Whilst the capital value of apartments has fallen sharply, demand to rent is good.
Carnaby
|
Carnaby Statistics |
|||
|
Valuation 30 September 2008 |
£477.7 million |
||
|
Percentage of portfolio |
40% |
||
|
Acquisitions during year |
£ 10.1 million |
||
|
Capital expenditure in year |
£6.2 million |
||
|
Valuation deficit |
£98.2 million |
||
|
Valuation reduction |
17.0% |
||
|
Number |
Area - Sq. ft. |
% of Current Gross Income |
|
|
Shops |
139 |
194,000 |
48 |
|
Restaurants and leisure |
37 |
78,000 |
13 |
|
Offices (tenancies) |
193 |
255,000 |
35 |
|
Residential |
64 |
45,000 |
4 |
Carnaby is our largest village; it represents 40% of our property assets and contains 46% of our shops and 62% of our offices by floor area.
With Carnaby now acknowledged to be a retail location of international renown, this year has seen strong demand from experienced retailers such as Levi's, Diesel and VF Corporation to open more concept stores. Also, existing retail tenants are keen to take more trading space as their businesses are prospering in this popular destination.
The opening of Cha Cha Moon, the 6,000 sq. ft restaurant fronting Ganton Street and Kingly Court, has been a great success. It has brought an even livelier atmosphere to the courtyard throughout the day. Since the year end, a 3,000 sq. ft. nightclub underneath the courtyard has been relet following the failure of the previous tenant during the summer.
In August we took a significant step by relocating Boots within Carnaby Street to a 10,000 sq. ft. store. Obtaining vacant possession of their unit at 36/38 Carnaby Street has unlocked the potential to reconfigure and extend this large, under-utilised site, which has frontages to Carnaby Street and Kingly Street. The site has an area of 13,000 sq. ft. but the present buildings comprise only 21,500 sq. ft. of net lettable space. We have sub-divided the unit and are securing short term lettings while we investigate a number of exciting opportunities.
Elsewhere, along Kingly Street, we are creating new shops in anticipation of Westminster City Council's intention to pedestrianise the street in January 2009.
Covent Garden
|
Covent Garden Statistics (Wholly owned) |
|||
|
Valuation 30 September 2008 |
£331.2 million |
||
|
Percentage of portfolio |
27% |
||
|
Acquisitions during the year |
£11.5 million |
||
|
Capital expenditure in year |
£4.2 million |
||
|
Book value of disposals |
£2.2 million |
||
|
Valuation deficit |
£63.4 million |
||
|
Valuation reduction |
16.0% |
||
|
Number |
Area - Sq. ft. |
% of current gross income |
|
|
Shops |
103 |
121,000 |
50 |
|
Restaurants and leisure |
59 |
124,000 |
23 |
|
Offices (tenancies) |
62 |
106,000 |
16 |
|
Residential |
126 |
78,000 |
11 |
When our interest in the Longmartin Joint Venture is included, our total holdings in Covent Garden represent 33% of our property assets.
In Seven Dials, a most distinctive village, all 89 shops, 23 restaurants and offices are fully let with the exception of 4,000 sq. ft. of retail space in the Thomas Neals Centre. Here vacant possession will enable us, subject to planning and listed building consent, to reconfigure parts of the Centre with the object of creating larger units, which are in limited supply in Seven Dials.
The Opera Quarter is now attracting new, high quality restaurants and food shops, which are appropriate for this location, next to seven of London's largest and busiest theatres and close to some famous hotels. Most of the derelict upper floors have been or are in course of refurbishment, with a significant portion going to residential use. During the year we created fifteen new apartments, of which thirteen have been let, with ten more due to be completed in the first half of the current financial year. Current progress indicates that the Opera Quarter will be substantially established by the end of 2009.
Chinatown
|
Chinatown Statistics |
|||
|
Valuation 30 September 2008 |
£306.9 million |
||
|
Percentage of portfolio |
25% |
||
|
Acquisitions during the year |
£2.6 million |
||
|
Capital expenditure in year |
£1.0 million |
||
|
Valuation deficit |
£38.4 million |
||
|
Valuation reduction |
11.0% |
||
|
Number |
Area - Sq. ft. |
% of Current Gross Income |
|
|
Shops |
57 |
57,000 |
27 |
|
Restaurants and leisure |
59 |
177,000 |
60 |
|
Offices (tenancies) |
70 |
48,000 |
7 |
|
Residential |
71 |
45,000 |
6 |
Chinatown comprises 25% of our assets. Unique in its central location, our 59 restaurants and 57 shops provide 86% of our current income from this village.
Our strategy is to assist in emphasising its Far Eastern culture and improving the diversity and quality of what is offered. To this end, we have welcomed the interest of The Prince's Foundation, whose consultants endorse many of our initiatives.
Over the last three years, every street around Chinatown has been subject to major infrastructure works. At present Shaftesbury Avenue is undergoing major improvement works and the up-grading of Wardour Street to the south is due to start in March 2009. Whilst these works cause considerable short term disruption both to access and trading, they are of long term benefit to the whole area.
Longmartin Joint Venture
Our Longmartin Joint Venture with The Mercers' Company, owns an Island Site of 1.9 Acres in Covent Garden, and close to Leicester Square and its important underground station. Its holdings comprise two elements:
- St. Martin's Courtyard, a mixed use project of 191,000 sq. ft. now underway to create 25 shops (64,000 sq. ft.), five restaurants (29,000 sq. ft.), 69,000 sq. ft. of offices and 37 apartments. This is probably the first major mixed use scheme in Covent Garden since the Piazza and Market Buildings were converted over 20 years ago. Completion will take place in phases until Summer 2010.
In November 2008, we confirmed lettings and advanced negotiations extending to half of the 70,000 sq. ft. (60% by rental value) of retail space planned for the scheme. Demand for the five restaurants and remaining retail is encouraging, even though the Courtyard will not be open to the public until Spring 2010.
- A number of buildings adjacent to the Courtyard project, which have a total of 78,000 sq. ft., as detailed below. We have commenced a programme of phased vacancy and refurbishment.
Comprehensive street improvements to Long Acre are close to completion. The creation of new pedestrian crossovers at St. Martin's Cross, scheduled for completion in early in 2009, will greatly enhance pedestrian access from Leicester Square and its important transport links.
Longmartin's Portfolio*
|
Shops |
Restaurants and leisure |
Offices |
Residential |
Total |
||
|
St Martin's Courtyard Scheme |
||||||
|
Estimated rental value £'000 |
4,478 |
1,350 |
4,201 |
1,335 |
11,364 |
|
|
Area - sq. ft. |
64,000 |
29,000 |
69,000 |
29,000 |
191,000 |
|
|
Number of units |
25 |
5 |
- |
37 |
||
|
Adjacent Properties |
||||||
|
Estimated rental value £'000 |
664 |
815 |
828 |
646 |
2,953 |
|
|
Area - sq. ft. |
5,000 |
17,000 |
30,000 |
26,000 |
78,000 |
|
|
Number of units |
2 |
3 |
- |
37 |
||
* Shaftesbury Group has a 50% interest in the figures shown above
Results
Our profit before taxation for the year, adjusted as shown above to eliminate the surplus realised on property disposals and the fair valuation movements in respect of investment properties and financial derivatives, amounted to £15.3 million, an increase of 20.2%, compared with an adjusted profit of £12.7 million in the previous year. The loss on ordinary activities before taxation reported in the Income Statement amounted to £220.9 million (2007: profit £124.2 million).
Our rental income has continued to rise, with rents receivable across the Group (adjusted for lease incentives) increasing from £55.6 million to £57.8 million, a net increase of £2.2 million. For the wholly owned Group, eliminating the impact of property acquisitions and disposals, rents invoiced increased by 7.2% this year compared with the previous year. Our share of rental income in the Longmartin Joint Venture has declined by £1.1 million to £1.8 million this year as vacant possession of a large part of its portfolio was secured in advance of the major works now underway.
Accounting standards require us to recognise lease incentives over the expected term of the lease under which they arise, which means we account for income in advance of its receipt in cash. Where a lease terminates earlier than expected, for example as a result of a surrender or a tenant default, there may be an element of previously recognised income which has to be reversed.
This year, the Income Statement includes a charge for lease incentives of £0.8 million (2007: credit £0.3 million), of which £0.7 million arose as a result of tenant defaults (2007: £0.1 million). The largest default, which gave rise to a write off of £0.5 million, arose when a nightclub tenant's business failed as a result of the suspension of their late night licence following a disturbance in the club, rather than as a consequence of current economic conditions. The lease was terminated in September 2008 and the premises have now been relet to a new operator. As the trading environment for our tenants becomes more challenging, there is a risk that tenant defaults increase, which may result in further accounting charges of this nature.
Property outgoings have increased this year by £0.4 million to £6.4 million (2007: £6.0 million). The Group's share of property outgoings in the Longmartin Joint Venture amounted to £0.5 million (2007: £0.4 million). We do not capitalise property outgoings of a revenue nature incurred in refurbishment schemes.
This year's administration expenses include a charge of £0.1 million (2007: £1.1 million) in respect of equity settled remuneration. The accounting charge in respect of share options has reduced by £0.6 million to £0.4 million, as the likelihood of performance-based options vesting has diminished. As a consequence, and coupled with the decline in our share price, the potential employer's national insurance liability on share awards and share options has reduced, resulting in a credit of £0.2 million (2007: charge £0.1 million).
Interest payable showed a modest increase of £0.4 million to £30.7 million during the year. The move during the year to long term, fixed rate interest swaps has resulted in amounts receivable under these contracts increasing to £2.4 million this year (2007: £0.8 million). This has limited the increase in overall interest charges despite higher interest rates which prevailed throughout the year, and increased borrowings to finance recent investment in our portfolio.
Net interest payable was covered 1.48 times by operating profit before investment property disposals and valuation movements (2007: 1.41 times). Based on the interest cover covenants and definitions contained in our banking agreements, net interest payable was covered 1.69 times by net property income (2007:1.65 times), compared with the minimum ratio of 1.5 times we are required to maintain. REIT legislation requires us to maintain a minimum ratio of net rental income for properties in the REIT group against attributable interest payable of 1.25 times. The ratio this year was approximately 1.8 times.
The tax charge on the adjusted profit for the year was £0.4 million, compared with £1.2 million last year, and arises mainly in our Joint Venture. Longmartin remains outside of the Group's REIT election, so that our share of its profit continues to be subject to corporation tax and deferred tax continues to be recognised in respect of our share of its property revaluation movements.
The taxation credit reported in the Income Statement of £4.8 million includes a release of deferred taxation in respect of property revaluations of £5.3 million in the Joint Venture. Last year's taxation credit of £140.6 million included both the charge incurred in converting to REIT status of £27.5 million and the release of net deferred tax liabilities of £171.4 million as a result of conversion.
Adjusted diluted post-tax earnings per share for the current year amounted to 10.95p compared with 8.55p last year, an increase of 28.1%. The unadjusted diluted post-tax loss per share shown in the Group Income Statement for the current year amounted to 159.00p compared with earnings of 196.92p last year. The decline is largely attributable to property and financial derivative valuation movements.
Unadjusted shareholders' funds at the year end shown in the Group Balance Sheet totalled £642.3 million, equivalent to a diluted net asset value of £4.71 per share, a decrease over the year of £224.5 million, or £1.70 per share. Virtually all of this decline is attributable to falling property values. Adjusting these amounts to exclude the deferred tax liability arising on the valuation of investment properties and the fair value of financial derivatives and its associated deferred tax, our adjusted net asset value becomes £656.8 million equivalent to a diluted net asset value per share of £4.82 per share (2007: £872.7 million - £6.46 per share), a reduction of £215.9 million or £1.64 per share.
Dividends
Following our conversion last year to REIT status, the level of our dividends must now reflect the requirement of REIT legislation to distribute a minimum of 90% of income arising from our rental business (calculated by reference to tax rather than accounting rules).
Our interest in Longmartin is not currently within our REIT election, so that our share of its rental income and the cost of financing our investment in the Joint Venture are excluded from the calculation of taxable rental profits for REIT purposes. During the initial stages of this major scheme, Longmartin's net rental income is reduced and is less than the cost of financing our investment. As the calculation of taxable profits for the REIT group excludes this deficit the amount we are currently required to distribute to meet our REIT obligations is almost equal to our distributable accounting profits for the year. We expect our interest in Longmartin will be included in our REIT group with effect from 1 October 2009.
Finance
Our strategy is to secure flexible long and medium term debt finance together with non-speculative hedging of the interest rate exposure on a substantial portion of our floating rate debt. This finance strategy is intended to match our funding with our assets which are held for long term investment, and provide reasonable certainty of finance costs whilst limiting the Group's exposure to adverse movements in interest rates.
The Board keeps under review the level of current and forecast debt and the Group's strategies regarding the appropriate levels of debt and equity finance, the maturity profile of loan facilities and interest rate exposure and hedging.
The nominal value of debenture and bank borrowings at the year end totalled £517.5 million, an increase of £29.8 million over the previous year end. Cash outflows during the year on acquisitions less disposals of investment properties amounted to £7.4 million and expenditure on refurbishments totalled £15.0 million. Revenue operations after interest and taxation produced a net cash surplus of £6.4 million, compared with £13.5 million in the previous year. The reduction of £7.1 million reflects the first year's instalments of the REIT conversion charge paid in the year, which totalled £9.6 million.
Gearing at the year end, calculated by reference to our adjusted net assets referred to above and the nominal rather than book value of our debenture and net bank debt, was 79% (2007: 56%). The ratio of the nominal value of debenture and net bank debt to the market value of our property assets was 43% (2007: 35%).
We monitor our overall committed facilities at all times to ensure we have sufficient resources to meet our future cash flow commitments with comfortable headroom. Any new prospective commitments, such as property acquisitions, are considered in the light of funding currently available to the Group.
At the year end, committed bank facilities totalled £525 million with a weighted average maturity of 8.9 years (2007: 9.9 years). Committed unutilised facilities at the year end totalled £68 million (2007: £98 million). Our facilities are provided by five lenders, but this will reduce to four once the merger of Lloyds TSB and HBOS goes ahead, as expected, in the coming months.
Since the year end, we have increased two of our facilities, to provide us with an additional £75 million, taking our total committed facilities to £600 million, with around £135 million currently undrawn. In addition, we have agreed terms in principle with a third lender to add a further £25 million to our committed facilities.
Our principal future expenditure commitments at the year end comprised £18 million to settle the balance of our REIT conversion charge, to be paid by January 2011, £25 million to fund our share of Longmartin's capital expenditure by mid 2010, and regular annual capital expenditure on our portfolio, which is usually in the region of £10 million per annum. These commitments total £73 million over the next three years. Our annual dividends are funded principally from our property revenue less interest and administration costs.
The average margin over LIBOR we paid on our facilities at the year end was 0.67%. The scarcity of finance following the upheaval in financial markets is resulting in lenders requiring higher margins on the facilities they are prepared to provide. The margin we will be paying on our additional facilities is higher, so that, the average margin we expect to be paying will rise to 0.80%. The repricing of finance may extend to existing as well as new facilities in the future. In the short term, these additional costs will be offset to a degree by recent falls in LIBOR rates.
At the year end, the weighted average cost of our borrowings including margin was 6.10%, compared with 6.54% at the previous year end. The turbulence in financial markets has resulted in LIBOR rates remaining at levels much higher than base rate throughout the year, and particularly at the end of September 2008. As a result of recent easing in LIBOR markets since the year end, by mid November our average cost of borrowings had fallen to 5.76%
At the year end, £421 million of borrowings, equivalent to 81% of our bank and debenture debt was either at fixed rate or hedged at fixed rates. We have restructured our hedging portfolio during the year to take advantage of attractive long term swap rates. At the year end, the weighted average fixed rate of our interest rate swaps (excluding margin) was 5.06%, with a weighted average maturity of 19.6 years. Further restructuring since the year end has reduced the weighted average rate of our swaps to 4.93% (excluding margin) and increased their weighted average maturity to 23 years.
At 30 September 2008, the fair value of the Group's interest rate derivatives contracted at that date represented a liability of £14.5 million (2007: £0.6 million). Our strategy of taking long term, fixed rate swaps will lead to greater volatility in this non-cash mark-to-market calculation. However, we consider the benefit of fixing our interest costs on a substantial portion of our debt at rates we believe will prove attractive over the long term, outweighs this inevitable volatility.
The deficit arising on the fair value of the Group's long term debenture debt, which is not reflected in the IFRS results, amounted to £11.3 million (2007: £14.5 million). The reduction in the deficit has arisen primarily as a result a widening in credit spreads.
The Group has no legal obligation to crystallise these fair value deficits by further early refinancing of its fixed rate debt or the early termination of its interest rate hedges but may consider doing so where there is a clear economic benefit to the business.
The Board monitors both actual and forecast performance against the financial covenants contained in the Group's bank facilities and Debenture trust deed. Each of our facilities is secured against designated property assets and in addition all the lenders, including the Debenture trustee, have a shared floating charge over the assets of the parent company and its wholly owned subsidiaries.
The outstanding Debenture stock of £61 million is secured by a first charge on property assets, where we must maintain a minimum value of 150% of the stock outstanding, and where the net rental income has to cover the coupon of 8.5% by at least 1.25 times. We are comfortably within these ratios based on assets currently charged.
Our banking covenants are structured on a Group-wide basis and are broadly similar for each of our facilities. The financial covenants, together with their status at 30 September 2008, were as follows:
|
Financial covenants |
Status at 30 September 2008 |
|
Net property income to be at least 150% of net interest payable |
Net property income represents 169% of net interest payable |
|
Actual borrowings not to exceed 67% of value of charged assets |
Actual borrowings represent 43% of gross property assets |
|
Borrowings not to exceed 125% of shareholders' funds |
Gearing 79% at the year end |
Our lenders are well secured by these current arrangements. Based on current income projections and interest rate expectations, net property income could fall by £11 million (equivalent to 21% of this year's Group net property income) before the interest cover covenant is reached. Based on the year end values and our current expectation of future debt levels, property values across the Group would have to decline by around 27% before we reach our loan to value covenant limit. Even at these covenant limits, our lenders would still have the security of 50% more income from our properties than is needed to service their loans, and the value of the security they have would exceed our debt by 50%.
The borrowing covenant which was in place at the year end would have been reached with a further 17% fall in property values in addition to the 15.6% decline already seen, as the impact of gearing amplifies the effect of changes in values. Recognising that this position would be reached far earlier than the loan to value covenant, our lenders have already agreed either to reset the covenant, so that in effect it would be reached in the event that values across the Group fall by a further 27% (i.e. in line with the loan to value covenant), or they have confirmed they expect to do so before the 125% limit is reached. This will mean the gearing covenant is or will be reset to at least 175%.
We believe that, with our good income/interest cover, gearing and future expenditure commitments which are modest relative to the value of our portfolio and the overall security structure, our lenders will continue to view us to be a secure customer. Their support for us has been clearly evident in the last two months, with two of our banks increasing our facilities by a total of £75 million and a third lender offering us an additional £25 million.
Performance and Benchmarking
The table above summarises our performance this year against our chosen benchmarks.
As explained in previous years, we have been unable to identify a published property performance index which relates specifically to a portfolio of mixed use buildings such as ours, or recognises restaurant uses as a component, an important element of our investment strategy. We have therefore used for comparison purposes the IPD UK Monthly Indices which track movements across all main commercial property categories on a monthly basis. Shaftesbury is a constituent of the FTSE 350 Real Estate Index.
As shown in the Performance Summary above, against a background of falling property values, our capital value and total returns declines have been significantly less than those shown by the IPD Monthly indices.
We recorded a negative total shareholder return for the year ended 30 September 2008 of 12.8% compared with the FTSE 350 Real Estate Index which recorded a negative return of 27.6% over the year. It is unlikely that investor sentiment in our sector will improve until there is evidence of stability in financial and property markets and the wider economy.
Principal risks and uncertainties facing the business
Operational and financial risks facing the business are monitored through a process of regular assessment by the executive team and reporting and discussion at meetings of the Audit Committee and the Board.
The valuation of all property assets includes assumptions regarding income expectations and yields that investors would expect to achieve on those assets over time. Many external economic and market factors, such as interest rate expectations, bond yields, the availability and cost of finance and the relative attraction of property against other asset classes, could lead to a reappraisal of the assumptions used to arrive at current valuations. In adverse conditions, this reappraisal can lead to a reduction in property values and a loss in net asset value, amplified by the effect of gearing.
Whilst the economy in the West End has so far been more resilient than other parts of the UK, the current exceptional disruption in financial markets is now affecting the wider business environment. Restricted availability of credit for consumers and businesses is expected to lead to lower levels of spending, a higher level of business failures and difficulties for new ventures in raising start-up capital. The West End cannot be immune from these trends.
The Group has in place procedures to monitor and react to the impact of these deteriorating conditions on its tenants and to ensure it has sufficient committed resources to enable its business to continue.
The Group has some 800 commercial tenants, so that the risks associated with the default of individual tenants are well spread. Our 40 largest tenants by current passing rent provide approximately 29% of current income. No single tenant currently pays a rent in excess of £950,000 per annum.
A commentary on the Group's financial position, including matters relating to its bank financing arrangements, is contained in this Business Review under the heading "Finance".
The Group's assets are concentrated in the centre of the West End of London. The prosperity of the West End economy, and therefore of the Group's retail and restaurant occupiers, which account for 70% of our rental income, is heavily dependent on large numbers of domestic and overseas visitors to this high profile area. In our experience, the diversity of this visitor base means that overall visitor numbers and spending are less influenced by UK economic conditions than in other domestic retail and leisure locations. However, any external events in our high profile locations, such as threats to security, public safety or health or transport disruption, which might result in a sustained and significant reduction in visitor numbers could, over time, lead to a reduction in occupier demand and the rental potential of the Group's property assets. The St Martin's Courtyard scheme in the Longmartin Joint Venture is now underway. Our partner, the Mercer's Company is a long established City livery company, with substantial assets and no borrowings. Both partners have sufficient financial resources to complete the scheme now underway, and intend to hold Longmartin's portfolio as a long term investment. The scheme, which is being developed on a speculative basis, represents approximately 8% of the Group's estimated rental value. As a result of deteriorating economic conditions, there is a risk that letting targets may not be met, particularly those related to the office elements of the scheme. Wherever possible, pre-lettings are being sought and secured to mitigate the Group's risk.
All of the Group's properties are located within the jurisdictions of Westminster City Council and the London Borough of Camden. Although the Group works closely in many aspects of day-to-day business with these local authorities, changes to their policies, particularly those relating to planning and licensing, could have a significant impact on the Group's ability to maximise the long term potential of its assets.
Key Performance Indicators
The key financial objective of the Group is to deliver to shareholders sustained out-performance in the long term growth in its net asset value. Fundamental to this objective is the growth in value of the Group's property assets. The Group measures its overall portfolio performance against the publicly-available IPD UK Monthly Index which, as explained above, tracks movements across all main commercial property categories on a monthly basis. The Group's performance against this Index is set out above.
The rental growth prospects of the Group's portfolio are the key driver of its long term performance. The income-related key performance indicators used within the business measure:
the extent to which rental levels are achieved in excess of the market rental values assessed by the Group's external valuers at their last valuation and;
the ability of management to minimise the time that properties are vacant 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 the point of completing lettings. For vacant properties ready to let, marketing periods are monitored and assessed.
The Board is satisfied that the key performance indicator of rental growth is meeting its expectations. Void periods have generally remained at an acceptable level, largely unchanged from last year. Where delays have occurred, these are often due to problems beyond the Group's control, such as delays in the planning process or the failure of utility companies to meet their service obligations. Although occupier demand in the West End has been good, the widely-predicted economic downturn is likely to lead to more vacancies in the portfolio and longer void periods.
Prospects
At present the West End economy remains buoyant, with good visitor numbers and spending being reported. This is reflected in good occupier demand for retail, restaurant and residential accommodation across each of our villages. The diversity of the visitor base means the local economy is less affected by UK economic conditions than the rest of the country, but it cannot be immune from the effects of the exceptional turbulence we have seen over the last year, and particularly since the summer.
The deterioration in the wider economy is leading to an acceleration in property yield increases and reductions in property values. We believe that, despite the poor near term outlook for property and the economy, our well-located, mixed use portfolio will prove once again to be resilient in the short term and deliver out-performance in rental growth and capital values over the longer term.
Jonathan S. Lane - Chief Executive
Brian Bickell - Finance Director
3 December 2008
Portfolio Analysis at 30 September 2008
|
Note |
Carnaby |
Covent Garden |
Chinatown |
Charlotte Street |
Wholly Owned Portfolio |
Longmartin* |
Total Portfolio |
|
|
Market Value |
1 |
£477.7 m |
£331.2m |
£306.9m |
£23.6m |
£1,139.4m |
**£67.9m |
£1,207.3m |
|
% of total Market Value |
40% |
27% |
25% |
2% |
94% |
**6% |
100% |
|
|
Current gross income |
2 |
£24.9m |
£17.5m |
£15.4m |
£1.3m |
£59.1m |
**£1.3m |
£60.4m |
|
Estimated rental value (ERV) |
3 |
£32.5m |
£21.5m |
£17.6m |
£1.4m |
£73.0m |
**£7.2m |
£80.2m |
|
Shops |
||||||||
|
Number |
139 |
103 |
57 |
2 |
301 |
26 |
||
|
Area - sq. ft. |
194,000 |
121,000 |
57,000 |
3,000 |
375,000 |
69,000 |
||
|
% of current gross income |
4 |
48% |
50% |
27% |
9% |
42% |
26% |
|
|
% of ERV |
4 |
49% |
51% |
27% |
9% |
43% |
36% |
|
|
Vacancy rate by % of ERV |
5 |
9% |
3% |
5% |
- |
6% |
32% |
|
|
Average unexpired lease length - years |
6 |
4 |
9 |
8 |
13 |
7 |
6 |
|
|
Restaurants and leisure |
||||||||
|
Number |
37 |
59 |
59 |
8 |
163 |
8 |
||
|
Area - sq. ft. |
79,000 |
127,000 |
169,000 |
25,000 |
396,000 |
46,000 |
||
|
% of current gross income |
4 |
13% |
23% |
59% |
44% |
29% |
29% |
|
|
% of ERV |
4 |
12% |
21% |
58% |
43% |
26% |
15% |
|
|
Vacancy rate by % of ERV |
5 |
- |
5% |
- |
- |
1% |
9% |
|
|
Average unexpired lease length - years |
6 |
12 |
13 |
16 |
15 |
14 |
8 |
|
|
Offices |
||||||||
|
Number of tenancies |
193 |
62 |
70 |
8 |
333 |
|||
|
Area - sq. ft. |
250,000 |
95,000 |
47,000 |
12,000 |
404,000 |
99,000 |
||
|
% of current gross income |
4 |
35% |
16% |
8% |
27% |
22% |
24% |
|
|
% of ERV |
4 |
34% |
15% |
9% |
30% |
23% |
35% |
|
|
Vacancy rate by % of ERV |
5 |
8% |
1% |
17% |
- |
7% |
29% |
|
|
Average unexpired lease length - years |
6 |
4 |
4 |
4 |
1 |
4 |
7 |
|
|
Residential |
||||||||
|
Number |
64 |
126 |
71 |
18 |
279 |
74 |
||
|
Area - sq. ft. |
45,000 |
90,000 |
45,000 |
8,000 |
188,000 |
55,000 |
||
|
% of current passing rent |
4% |
11% |
6% |
20% |
7% |
21% |
||
|
% of ERV |
4 |
5% |
13% |
6% |
18% |
8% |
14% |
|
|
Vacancy rate by % of ERV |
5 |
29% |
27% |
11% |
- |
23% |
10% |
*Longmartin statistics include space under construction in the St Martin's Courtyard scheme and unmodernised accommodation not part of the current scheme.
** Shaftesbury Group's share.
Basis of Valuation at 30 September 2008
|
Note |
Carnaby |
Covent Garden |
Chinatown |
Charlotte Street |
Wholly Owned Portfolio |
Longmartin* |
|
|
Overall initial yield |
8 |
4.59% |
4.76% |
4.72% |
5.07% |
4.68% |
4.14% |
|
Overall equivalent yield |
9 |
5.84% |
5.63% |
5.38% |
5.42% |
5.65% |
5.25% |
|
Tone of retail equivalent yields |
5.50 - 6.50% |
5.25 - 6.75% |
5.30 - 6.25% |
5.50 - 6.00% |
4.75 - 5.50% |
||
|
Tone of retail estimated rental values - ITZA £ per sq.ft. |
£86 - £365 |
£40 - £450 |
£150 - £260 |
£72-£80 |
£100 - £440 |
||
|
Tone of restaurant equivalent yields |
5.75 - 6.00% |
5.00 - 6.25% |
5.30 - 6.00% |
5.25 - 5.50% |
5.25 - 6.50% |
||
|
Tone of restaurant estimated rental values -£ per sq.ft. |
£65 - £92 |
£35 - £112 |
£135 - £320 ITZA |
£70 |
£39 - £53 |
||
|
Tone of office equivalent yields |
5.50 - 7.00% |
6.00 - 6.75% |
6.00 - 6.50% |
6.50 - 7.00% |
5.75 - 7.25% |
||
|
Tone of office estimated rental values -£ per sq.ft |
£35 - £59 |
£27 - £52 |
£30 - £42 |
£37 - £42 |
£37 - £65 |
||
|
Tone of residential estimated rental values-£ per annum |
£10,400 - £52,000 |
£9,250 - £52,000 |
£7,800 - £27,400 |
£10,400 - £18,200 |
£20,000 - £50,000 |
*Unmodernised accommodation only.
Notes
1. The Market Values at 30 September 2008 (the 'date of valuation') 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. No rent is attributed to leases which were subject to rent free periods at the date of valuation. Current gross income does not reflect any ground rents, head rents or rent charges and estimated irrecoverable outgoings at 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 ("ERV") is the respective valuers' opinion of the rental value of the properties, or parts thereof, reflecting the terms of the relevant leases or, if appropriate, 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. The percentage of current gross income and the percentage of ERV in each of the use sectors are expressed as a percentage of total gross income and total ERV for each village.
5. The vacancy rate by percentage of ERV is the ERV of the vacant accommodation within each use sector, on a village-by-village basis, expressed as a percentage of total ERV of each use sector in each village. The vacancy rate includes accommodation which is awaiting or undergoing refurbishment and not available for occupation at the date of valuation.
6. Average unexpired lease length has been calculated by weighting the leases in terms of current rent reserved under the relevant leases and, where relevant, by reference to tenants' options to determine leases in advance of expiry through effluxion of time.
7. Where mixed uses occur within single leases, for the purpose of this analysis the majority use by rental value has been adopted.
8. The initial yield is the net initial income at the date of valuation expressed as a percentage of the gross valuation. Yields reflect net income after deduction of any ground rents, head rents and rent charges and estimated irrecoverable outgoings at the date of valuation.
9. Equivalent yield is the internal rate of return, being the discount rate which needs to be applied to the expected flow of income so that the total amount of income so discounted at this rate equals the capital outlay at values current at the date of valuation. 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.
10. The tone of rental values and yields is the range of rental values or yields attributed to the majority of the properties.
11. All commercial floor areas are net lettable. All residential floor areas are gross internal.
Group Income Statement
For the year ended 30 September 2008
|
Note |
2008 £'000 |
2007 £'000 |
|
|
Revenue from properties |
1 |
65,359 |
62,423 |
|
Property charges |
2 |
(14,021) |
(12,843) |
|
Net property income |
51,338 |
49,580 |
|
|
Administration expenses |
(5,389) |
(5,628) |
|
|
Charge in respect of equity settled remuneration |
3 |
(153) |
(1,140) |
|
Total administration expenses |
(5,542) |
(6,768) |
|
|
Operating profit before investment property disposals and valuation movements |
45,796 |
42,812 |
|
|
Profit on disposal of investment properties |
4 |
278 |
2,215 |
|
Investment property valuation movements |
10 |
(222,540) |
103,034 |
|
Operating (loss)/profit |
(176,466) |
148,061 |
|
|
Interest receivable |
156 |
214 |
|
|
Interest payable |
5 |
(30,674) |
(30,313) |
|
Change in fair value of financial derivatives |
15 |
(13,917) |
8,688 |
|
Loss on purchase of debenture stock |
6 |
- |
(2,474) |
|
Total finance costs |
(44,435) |
(23,885) |
|
|
(Loss)/profit before tax |
(220,901) |
124,176 |
|
|
Current tax |
7 |
(497) |
(27,980) |
|
Deferred tax |
7 |
5,310 |
168,612 |
|
Tax credit for the year |
4,813 |
140,632 |
|
|
(Loss)/profit for the year |
(216,088) |
264,808 |
|
|
(Loss)/earnings per share: |
8 |
||
|
Basic |
(159.88)p |
197.90p |
|
|
Diluted |
(159.00)p |
196.92p |
Group Balance Sheet
As at 30 September 2008
|
Note |
2008 £'000 |
2007 £'000 |
|
|
Non-current assets |
|||
|
Investment properties |
10 |
1,207,712 |
1,393,662 |
|
Office assets and vehicles |
343 |
387 |
|
|
1,208,055 |
1,394,049 |
||
|
Current assets |
|||
|
Trade and other receivables |
11 |
14,566 |
24,622 |
|
Cash and cash equivalents |
173 |
336 |
|
|
Total assets |
1,222,794 |
1,419,007 |
|
|
Current liabilities |
|||
|
Trade and other payables |
12 |
30,381 |
33,666 |
|
Non-current liabilities |
|||
|
Taxation payable |
13 |
11,054 |
17,901 |
|
Borrowings |
14 |
524,521 |
494,714 |
|
Financial derivatives |
15 |
14,547 |
630 |
|
Deferred tax liabilities |
16 |
- |
5,310 |
|
Total liabilities |
580,503 |
552,221 |
|
|
Net assets |
642,291 |
866,786 |
|
|
Equity |
|||
|
Called up share capital |
33,841 |
33,579 |
|
|
Other reserves |
17 |
131,969 |
126,468 |
|
Retained earnings |
17 |
476,481 |
706,739 |
|
Total equity |
642,291 |
866,786 |
|
|
Net assets per share: |
18 |
||
|
Basic |
£4.75 |
£6.45 |
|
|
Diluted |
£4.71 |
£6.41 |
Group Cash Flow Statement
For the year ended 30 September 2008
|
Note |
2008 £'000 |
2007 £'000 |
|
|
Operating activities |
|||
|
Cash generated from/(consumed by) operations |
18 |
47,551 |
43,032 |
|
Interest received |
156 |
214 |
|
|
Interest paid |
(31,097) |
(30,257) |
|
|
Tax (payments)/receipts in respect of operating activities |
(10,172) |
470 |
|
|
6,438 |
13,459 |
||
|
Investing activities |
|||
|
Property acquisitions |
(19,743) |
(32,133) |
|
|
Capital expenditure on properties |
(14,984) |
(10,038) |
|
|
Net proceeds from sales of properties |
12,383 |
674 |
|
|
Net purchase of office assets and vehicles |
(94) |
(116) |
|
|
Purchase of shares in Carnaby Investments Limited |
- |
- |
|
|
Cash flows from investing activities |
(22,438) |
(41,613) |
|
|
Financing activities |
|||
|
Issue of shares for cash |
498 |
3,693 |
|
|
Purchase of debenture stock |
- |
(9,312) |
|
|
Increase in borrowings |
19 |
29,767 |
33,562 |
|
Bank loan arrangement costs |
- |
(413) |
|
|
Payment of finance lease liabilities |
(258) |
(260) |
|
|
Equity dividends paid |
(14,170) |
(7,870) |
|
|
Net loans to subsidiary undertakings |
- |
- |
|
|
Loan to joint venture |
- |
- |
|
|
Cash flows from financing activities |
15,837 |
19,400 |
|
|
Net change in cash and cash equivalents |
(163) |
(8,754) |
Statement of changes in shareholders' equity
|
At 1 October 2007 |
866,786 |
606,881 |
|
(Loss)/profit for the year |
(216,088) |
264,808 |
|
Dividends paid |
(14,170) |
(7,870) |
|
Proceeds of shares issued |
5,392 |
3,693 |
|
Fair value of share based remuneration |
371 |
1,036 |
|
Deferred tax in respect of share based remuneration released from equity |
- |
(1,762) |
|
At 30 September 2008 |
642,291 |
866,786 |
Notes to the Financial Statements
For the year ended 30 September 2008
1. Revenue from properties
|
2008 £'000 |
2007 £'000 |
|
|
Rents invoiced |
58,616 |
55,348 |
|
Lease incentives (written back)/recognised |
(801) |
278 |
|
Rents receivable |
57,815 |
55,626 |
|
Recoverable property expenses |
7,544 |
6,797 |
|
65,359 |
62,423 |
The Group's revenue is generated entirely from its principal activity of
property investment located in London.
2. Property charges
|
Property outgoings |
6,477 |
6,046 |
|
Recoverable property expenses |
7,544 |
6,797 |
|
14,021 |
12,843 |
3. Charge in respect of equity settled remuneration
|
Charge for share based remuneration |
371 |
1,036 |
|
Employers National Insurance in respect of share awards and share options vested or expected to vest |
(218) |
104 |
|
153 |
1,140 |
4. Profit on disposal of investment properties
|
Net sale proceeds |
4,688 |
8,394 |
|
Book value at date of sale |
(4,410) |
(6,179) |
|
278 |
2,215 |
5. Interest payable
|
Debenture stock interest and amortisation |
5,091 |
5,100 |
|
Bank and other interest |
27,767 |
25,808 |
|
Amounts receivable under financial derivative contracts |
(2,442) |
(854) |
|
Amounts payable under finance leases |
258 |
259 |
|
30,674 |
30,313 |
6. Loss on purchase of debenture stock
|
Cost of debenture stock purchased |
- |
9,312 |
|
Nominal amount of stock purchased |
- |
(6,494) |
|
- |
2,818 |
|
|
Unamortised net premium written off |
- |
(344) |
|
- |
2,474 |
7. Taxation
|
Current tax |
||
|
UK Corporation tax at 29% (2007 - 30%) |
462 |
875 |
|
REIT conversion charge |
98 |
27,512 |
|
Adjustments in respect of prior years |
(63) |
(407) |
|
497 |
27,980 |
|
|
Deferred tax |
||
|
Revaluation of investment properties |
(5,310) |
2,766 |
|
Released on REIT conversion |
- |
(171,378) |
|
(5,310) |
(168,612) |
|
|
Tax (credit)/charge for the year |
(4,813) |
(140,632) |
|
Tax charged directly to reserves: |
||
|
Deferred taxation in respect of share based remuneration released on REIT conversion |
- |
(1,762) |
Factors affecting the tax charge:
|
(Loss)/profit before tax |
(220,901) |
124,176 |
|
UK Corporation tax at 29% (2007: 30%) |
(64,061) |
37,253 |
|
Taxable profit no longer liable to UK Corporation tax following conversion to REIT status |
(3,963) |
(1,929) |
|
Deferred tax not provided in respect of property and financial derivative movements and capital allowances as a result of REIT conversion |
63,483 |
(31,088) |
|
Difference between expenses and deductions for taxation purposes and amounts charged in the financial statements |
(307) |
(595) |
|
Adjustments in respect of prior years |
(63) |
(407) |
|
Effect of REIT conversion: |
||
|
REIT conversion charge |
98 |
27,512 |
|
Deferred tax provided in prior years now released |
- |
(171,378) |
|
Tax credit for the year |
(4,813) |
(140,632) |
8. Earnings per share
|
(Loss)/profit after tax used for calculation of basic earnings per share |
(216,088) |
264,808 |
|
Adjusted for: |
||
|
Gain on sale of investment properties |
(278) |
(2,215) |
|
Investment property valuation movements |
222,540 |
(103,034) |
|
Movement in fair value of financial derivatives |
13,917 |
(8,688) |
|
Loss on purchase of Debenture Stock |
- |
2,474 |
|
Current tax in respect of: |
||
|
REIT conversion charge |
98 |
27,512 |
|
Loss on purchase of debenture stock |
- |
(742) |
|
Deferred tax in respect of: |
||
|
Investment property revaluation gains |
(5,310) |
2,766 |
|
Deferred tax released on REIT conversion |
- |
(171,378) |
|
Profit after tax used for adjusted earnings per share |
14,879 |
11,503 |
|
2008 '000 |
2007 '000 |
|
|
Weighted average number of shares in issue |
135,137 |
133,808 |
|
Weighted average number of shares in issue for calculation of diluted earnings per share |
135,908 |
134,475 |
|
(Loss)/earnings per share: |
Pence |
Pence |
|
Basic |
(159.88) |
197.90 |
|
Diluted |
(159.00) |
196.92 |
|
Adjusted basic |
11.00 |
8.60 |
|
Adjusted diluted |
10.95 |
8.55 |
The difference between the weighted average and diluted average number of Ordinary Shares arises from the potentially dilutive effect of outstanding options granted over Ordinary Shares.
The adjusted earnings per share is considered to give a better indication of the Group's underlying revenue performance before property disposals and movements in the valuation of investment properties and financial derivatives (2007: including losses on Debenture Stock purchases).
9. Dividends paid
|
2008 £'000 |
2007 £'000 |
|
|
Final dividend paid in respect of: |
||
|
Year ended 30 September 2007 at 5.50p per share |
7,418 |
- |
|
Year ended 30 September 2006 at 3.73p per share |
- |
4,974 |
|
Interim dividend paid in respect of: |
||
|
Six months ended 31 March 2008 at 5.00p per share |
6,752 |
- |
|
Six months ended 31 March 2007 at 2.16p per share |
- |
2,896 |
|
14,170 |
7,870 |
A final dividend in respect of the year ended 30 September 2008 of 6.00p per Ordinary Share amounting to £8.12 million will be proposed by the Board at the 2009 Annual General Meeting. If approved, this dividend will be paid on 20 February 2009 to shareholders on the register at 30 January 2009. The dividend will be accounted for as an appropriation of revenue reserves in the year ending 30 September 2009.
10. Investment properties
|
At 1 October 2007 - book value |
1,388,134 |
1,249,215 |
|
Acquisitions |
19,518 |
32,101 |
|
Acquisition on purchase of subsidiary undertaking |
4,890 |
- |
|
Refurbishment and other capital expenditure |
16,623 |
9,846 |
|
Disposals |
(4,410) |
(6,062) |
|
Net (deficit)/surplus on revaluation |
(222,540) |
103,034 |
|
1,202,215 |
1,388,134 |
|
|
Add: Head lease liabilities |
5,497 |
5,528 |
|
Book value at 30 September 2008 |
1,207,712 |
1,393,662 |
|
Market value at 30 September 2008: |
||
|
Properties valued by DTZ Debenham Tie Leung |
1,139,375 |
1,312,295 |
|
Properties valued by Knight Frank LLP |
67,950 |
81,750 |
|
1,207,325 |
1,394,045 |
|
|
Add: Head lease liabilities |
5,497 |
5,528 |
|
Less: Lease incentives recognised to date |
(5,110) |
(5,911) |
|
Book value at 30 September 2008 |
1,207,712 |
1,393,662 |
Investment properties were subject to external valuation as at 30 September 2008 by qualified professional valuers, being members of the Royal Institution of Chartered Surveyors, either working for DTZ Debenham Tie Leung Limited, Chartered Surveyors (in respect of the Group's wholly owned portfolio) or Knight Frank LLP, Chartered Surveyors (in respect of properties owned by Longmartin Properties Limited), both firms acting in the capacity of External Valuers. All such properties were valued on the basis of Market Value in accordance with the RICS Valuation Standards (Sixth Edition).
Investment properties include freehold properties valued at £1,067.0 million (2007: £1,227.4 million), leasehold properties with an unexpired term of over 50 years valued at £73.8 million (2007: £88.9 million) and a notional apportionment of value in respect of part freehold/part leasehold properties, where the apportionment in respect of the leasehold element with over 50 years unexpired is £66.5 million (2007: £77.7 million).
Capital Commitments
|
Wholly owned Group |
Group's share of Longmartin Joint Venture |
|||
|
2008 £'000 |
2007 £'000 |
2008 £'000 |
2007 £'000 |
|
|
Authorised and contracted |
5,690 |
4,151 |
4,021 |
601 |
|
Authorised but not contracted |
4,541 |
5,190 |
17,414 |
2,000 |
The Company had no capital commitments at 30 September 2008 (2007: £Nil)
11. Trade and other receivables
|
2008 £'000 |
2007 £'000 |
|
|
Amounts due from tenants |
7,652 |
9,554 |
|
Provision for doubtful debts (see below) |
(224) |
(208) |
|
7,428 |
9,346 |
|
|
Lease incentives recognised in the Income Statement |
5,110 |
5,911 |
|
Due in respect of property disposals |
- |
7,835 |
|
Corporation tax recoverable |
- |
264 |
|
Dividend receivable from joint venture |
- |
- |
|
Amounts due from subsidiary undertakings |
- |
- |
|
Other receivables and prepayments |
2,028 |
1,266 |
|
14,566 |
24,622 |
Amounts due from tenants at each year end included amounts contractually due and invoiced on 29 September in respect of rents and service charge contributions in advance for the period 29 September to 24 December. At 30 September 2008, amounts due from tenants which were more than 90 days overdue, relating to accommodation and services provided up to 28 September 2008, totalled £0.7 million (2007: £1.2 million) and are considered to be past due. Provisions against these overdue amounts totalled £0.2 million (2007: £0.2 million)
Movement in provision for doubtful debts:
|
At 1 October 2007 |
208 |
179 |
|
Amounts written off during the year |
(546) |
(281) |
|
Charge in the Income Statement |
562 |
310 |
|
At 30 September 2008 |
224 |
208 |
At 30 September 2008, cash deposits totalling £8.1 million were held against tenants' rent payment obligations (2007: £8.4 million).
12. Trade and other payables
|
Rents and service charges invoiced in advance |
14,106 |
*13,823 |
|
Corporation tax and REIT conversion charge payable (note 17) |
7,135 |
10,178 |
|
Amount due to joint venture undertaking |
- |
- |
|
Trade payables in respect of accrued capital expenditure |
2,295 |
1,502 |
|
Other trade payables and accruals** |
6,845 |
*8,162 |
|
30,381 |
33,665 |
|
|
** Includes amounts secured by way of fixed charges on certain investment properties and floating charges over the Group's wholly owned assets |
828 |
1,580 |
*Service charges invoiced in advance totalling £1.94 million reallocated from other trade payables and accruals.
13. Taxation payable
|
REIT conversion charge outstanding at year end |
17,901 |
27,512 |
|
Less: Payable within one year included in trade and other payables (note 16) |
(6,847) |
(9,611) |
|
11,054 |
17,901 |
|
|
The Group has elected to pay the REIT conversion charge in instalments as follows: |
||
|
Year to 30 September 2008 |
- |
9,611 |
|
Year to 30 September 2009 |
6,847 |
6,847 |
|
Year to 30 September 2010 |
7,286 |
7,286 |
|
Year to 30 September 2011 |
3,768 |
3,768 |
|
17,901 |
27,512 |
14. Borrowings
|
2008 |
2007 |
|||||
|
Group |
Nominal value £'000 |
Unamortised premium and issue costs £'000 |
Book Value £'000 |
Nominal value £'000 |
Unamortised premium and issue costs £'000 |
Book Value £'000 |
|
8.5% First Mortgage Debenture Stock 2024 |
61,048 |
3,050 |
64,098 |
61,048 |
3,148 |
64,196 |
|
Secured bank loans |
456,432 |
(1,506) |
454,926 |
426,665 |
(1,675) |
424,990 |
|
Debenture and bank borrowings |
517,480 |
1,544 |
519,024 |
487,713 |
1,473 |
489,186 |
|
Finance lease obligations |
5,497 |
- |
5,497 |
5,528 |
- |
5,528 |
|
522,977 |
1,544 |
524,521 |
493,241 |
1,473 |
494,714 |
|
The Group's finance lease obligations represent its share of the net present value of amounts payable under leases with unexpired terms of 172 years held by Longmartin Properties Limited.
Debenture and bank borrowings are secured by fixed charges over certain wholly owned investment properties and by floating charges over the assets of the Company and certain subsidiary companies.
The Company's bank loan agreements allow for part of the facility commitments to be provided by way of overdrafts to the Company and certain subsidiaries, which are available throughout the term of those facilities. At 30 September 2008, Group and Company bank loans included overdrafts of £2,233,000 (2007: £2,087,000) which have been classified according to the maturity dates of the facilities under which they are made available. Similarly, LIBOR loan tranches, all of which have been drawn for periods of less than one year, have been classified according to the maturity date of the facility under which they are drawn.
Availability and maturity of borrowings
|
Group |
2008 |
2007 |
|||||
|
Book value |
Facilities* |
Book value |
Facilities* |
||||
|
Committed |
Undrawn |
Committed |
Undrawn |
||||
|
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
£'000 |
||
|
Repayable after more than 15 years: |
|||||||
|
8.5% First Mortgage Debenture Stock 2024 |
64,098 |
61,048 |
- |
64,196 |
61,048 |
- |
|
|
Bank facilities: Repayable between 10 and 15 years |
99,555 |
100,000 |
- |
99,520 |
100,000 |
- |
|
|
Repayable between 5 and 10 years |
355,371 |
425,000 |
68,567 |
325,470 |
425,000 |
98,335 |
|
|
519,024 |
586,048 |
68,567 |
489,186 |
586,048 |
98,335 |
||
|
Finance lease obligations - leases expiring in 172 years |
5,497 |
5,496 |
- |
5,528 |
5,528 |
- |
|
|
524,521 |
591,544 |
68,567 |
494,714 |
591,576 |
98,335 |
||
* Nominal value
Since the year end, committed bank facilities have been increased from £525 million to £600 million. The additional facilities of £75 million are repayable between 5 and 10 years from the balance sheet date.
The availability of the Group's bank facilities is subject to granting security over properties of sufficient value to meet the loan to value ratios required under the facility agreements and certain other financial covenants as described in the Business Review.
15. Financial instruments and management of financial risk
|
Categories of financial instruments |
2008 |
2007 |
||
|
Book value £'000 |
Income/ (expense) £'000 |
Book value £'000 |
Income/ (expense) £'000 |
|
|
Financial assets/(liabilities) at fair value through the Income Statement |
||||
|
Interest rate swaps |
(14,547) |
2,442 |
(630) |
854 |
|
Financial assets |
||||
|
Trade and other receivables (note 11) |
7,428 |
- |
9,346 |
- |
|
Cash and cash equivalents |
173 |
156 |
336 |
214 |
|
7,601 |
156 |
9,682 |
214 |
|
|
Financial liabilities |
||||
|
Trade and other payables (due within one year) |
(6,845) |
- |
(8,162) |
- |
|
Interest bearing borrowings (note 14) |
(519,024) |
(32,858) |
(487,713) |
(30,908) |
|
Finance leases (note 14) |
(5,497) |
(258) |
(5,528) |
(258) |
|
Liabilities at amortised cost |
(531,366) |
(33,116) |
(501,403) |
(31,166) |
|
Total financial instruments |
(538,312) |
(30,518) |
(492,351) |
(30,098) |
There were no gains or losses in respect of financial instruments recognised in equity during the year (2007: Nil).
Fair values of financial instruments
|
2008 £'000 |
2007 £'000 |
|
|
Interest rate swaps |
||
|
At 1 October 2007 - Deficit |
(630) |
(9,318) |
|
(Increase)/reduction in fair value deficit in year (charged)/credited in the Income Statement |
(13,917) |
8,688 |
|
At 30 September 2008 - Deficit |
(14,547) |
(630) |
Changes in the fair value of the Group's interest rate swaps, which are not held for speculative purposes, are reflected in the Income Statement as none of the Group's hedging arrangements qualify for hedge accounting under the provisions of IAS 39 (Financial Instruments: Recognition and Measurement"). They have been valued by J. C. Rathbone Associates Limited by reference to the mid point of the yield curve at the balance sheet date. The fair value deficit will crystallise over the life of the swaps, which had a weighted average maturity of 19.6 years at the balance sheet date.
|
8.5% Mortgage Debenture Stock 2024 |
||
|
Fair value deficit not recognised in the reported results for the year: |
||
|
At 30 September 2008 |
(11,272) |
(14,464) |
The fair value of the outstanding Debenture Stock has been calculated by J.C. Rathbone Associates Limited at 142 basis points (2007: 93 basis points) above the yield to redemption of the 5% Treasury Stock 2025 at the balance sheet date.
The Company is not obliged to redeem any further amounts of the £61.048 million (nominal) of Stock remaining in issue in advance of its redemption date of 31 March 2024, when repayment of the stock in issue will be at par value.
The fair values of the Group's cash and cash equivalents, trade and other receivables, interest bearing borrowings and trade and other payables are not materially different from the values at which they are carried in the financial statements.
Management of financial risk
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
The Group reviews the creditworthiness of potential tenants prior to entering into contractual arrangements. Where appropriate, tenants are required to provide cash rental deposits to mitigate the potential loss in the event of default. Deposits held are referred to in note 15.The Group has a large and diverse tenant base so that tenant credit risk is widely spread.
Provision is made in full where recovery of financial assets is, in the opinion of the Directors, uncertain. The carrying amount of financial assets, net of provisions for impairment, represents the Group's maximum exposure to credit risk.
The Group holds minimal cash balances, utilising overdraft and loan facilities for its day to day cash requirements. Where cash deposits are held, they are placed with one of the Group's existing facility providers.
Liquidity risk
The Board keeps under review the Group's funding requirements to ensure it has sufficient bank facilities available to meet its commitments and extend its portfolio through investment and acquisition of additional properties. The Group's policies regarding finance and its current financial position are set out in the Business Review. The availability and maturity of the Group's borrowings is set out in note 14.
Market risk
Interest rate risk arises from the Group's use of interest bearing financial instruments, and is the risk that future cash flows from financial instruments will fluctuate due to changes in interest rates. The Group's policy is to minimise interest rate risk through long term, fixed rate debt and the use of long term interest rate swaps to effectively fix the interest rate on a large portion of its floating rate bank debt. As described in the Business Review, the Board keeps under review the Group's interest rate risk in light of market expectations of future interest rate movements.
At the year end, in addition to its fixed rate debenture debt, the Group had in place fixed rate hedging in respect of £360 million of floating rate bank debt, at a weighted average fixed rate of 5.06% excluding margin. These swaps, which are settled against three month LIBOR, expire between December 2027 and March 2029.
Interest rate profile of interest bearing borrowings
|
2008 |
2007 |
||||
|
Debt £'000 |
Weighted Average Interest Rate % |
Debt £'000 |
Weighted Average Interest Rate % |
||
|
Floating rate borrowings LIBOR-linked loans - interest rates fixed until October 2008 at latest (including margin) |
96,432 |
6.23 |
134,745 |
6.66 |
|
|
Hedged borrowings Interest rate swaps in operation at year end (including margin) |
360,000 |
5.74 |
290,250 |
6.17 |
|
|
Fixed rate borrowing 8.5% First Mortgage Debenture Stock (interest rate fixed for 15.5 years until 31 March 2024) - book value |
64,098 |
7.93 |
64,196 |
7.93 |
|
|
Weighted average cost of borrowings |
6.10 |
6.54* |
|||
*As at the year end, ignoring contracted interest rate hedges which commenced after that date.
Interest rate sensitivity
Based on indebtedness, interest rates and hedging in place at the year end, the impact of a change of 0.5% in market interest rates applicable to its LIBOR-linked borrowings and swaps and a change of 0.5% in the long term interest rates against which the fair value of swaps is calculated, would have the following impacts on the Group's results and equity:
|
Movement in market rates |
||
|
Increase of 0.5% £'000 |
Reduction of 0.5% £'000 |
|
|
(Increase)/decrease in interest payable before fair valuation of interest rate swaps |
(482) |
482 |
|
Change in fair value of interest rate swaps |
22,585 |
(22,585) |
|
Increase/(decrease) in results and shareholders' equity |
22,103 |
(22,103) |
This sensitivity analysis does not take into account of the impact that long term interest rate movements could have on the valuation of the Group's investment properties, which would be reflected in the Income Statement.
16. Deferred tax liabilities
|
Valuation of investment properties £'000 |
|
|
At 1 October 2007 |
5,310 |
|
Recognised in the Income Statement |
(5,310) |
|
At 30 September 2008 |
- |
17. Reserves
|
Share premium £'000 |
Share based payments £'000 |
Retained earnings £'000 |
Total £'000 |
|
|
At 1 October 2006 |
120,734 |
3,154 |
449,801 |
573,689 |
|
Premium on shares issued |
3,306 |
- |
- |
3,306 |
|
Fair value of share based payments |
- |
1,036 |
- |
1,036 |
|
Deferred tax in respect of share based remuneration released on REIT conversion |
- |
(1,762) |
- |
(1,762) |
|
Profit for the year |
- |
- |
264,808 |
264,808 |
|
Dividends paid during the year |
- |
- |
(7,870) |
(7,870) |
|
At 30 September 2007 |
124,040 |
2,428 |
706,739 |
833,207 |
|
Premium on shares issued |
5,130 |
- |
- |
5,130 |
|
Fair value of share based payments |
- |
371 |
- |
371 |
|
Loss for the year |
- |
- |
(216,088) |
(216,088) |
|
Dividends paid during the year |
- |
- |
(14,170) |
(14,170) |
|
At 30 September 2008 |
129,170 |
2,799 |
476,481 |
608,450 |
18. Net assets per share
|
2008 £'000 |
2007 £'000 |
|
|
Net assets used for calculation of basic net assets per share |
642,291 |
866,786 |
|
Adjusted for: |
||
|
Cumulative fair value adjustment in respect of financial derivatives |
14,547 |
630 |
|
Cumulative deferred tax provided in respect of: |
||
|
Investment property revaluation gains |
- |
5,310 |
|
Adjusted net assets |
656,838 |
872,726 |
|
Additional equity if all vested share options exercised |
4,479 |
3,159 |
|
Net assets used for adjusted diluted net asset calculations |
661,317 |
875,885 |
|
Ordinary shares in issue |
135,363 |
134,316 |
|
Diluted Ordinary shares |
137,219 |
135,619 |
|
Net assets per share: |
||
|
Basic |
£4.75 |
£6.45 |
|
Diluted |
£4.71 |
£6.41 |
|
Adjusted basic |
£4.85 |
£6.50 |
|
Adjusted diluted |
£4.82 |
£6.46 |
The calculations of diluted net asset value per share show the potentially dilutive effect of outstanding options granted over Ordinary Shares outstanding at the balance sheet date and include the increase in shareholders' equity which would arise on the exercise of those options.
19. Cash generated from operations
|
Operating activities |
||
|
Operating (loss)/profit |
(176,466) |
148,061 |
|
Adjustment for non-cash items: |
||
|
Lease incentives written back/(recognised) |
801 |
(278) |
|
Share option expense |
371 |
1,036 |
|
Depreciation and losses on disposals |
138 |
138 |
|
Profit on sale of investment properties |
(278) |
(2,215) |
|
Investment property valuation movements |
222,540 |
(103,034) |
|
Cash flows from operations before changes in working capital |
47,106 |
43,708 |
|
Change in trade and other receivables |
1,209 |
(2,279) |
|
Change in trade and other payables |
(764) |
1,603 |
|
Cash flows from operating activities |
47,551 |
43,032 |
20. Movement in borrowings
|
Group |
1.10.2007 £'000 |
Cash Flows £'000 |
Non-cash Items £'000 |
30.9.2008 £'000 |
|
8.5% First Mortgage Debenture Stock 2024 |
(64,196) |
- |
98 |
(64,098) |
|
Secured bank loans |
(424,990) |
(29,767) |
(169) |
(454,926) |
|
Finance lease obligations |
(5,528) |
- |
31 |
(5,497) |
|
(494,714) |
(29,767) |
(40) |
(524,521) |
|
|
Year ended 30 September 2007 |
(468,341) |
(23,837) |
(2,536) |
(494,714) |
21. Investment in Joint Venture
The Group's share of the results of Longmartin Properties Limited for the year ended 30 September 2008, and its assets and liabilities at that date, which have been consolidated in the Group's Income Statement and Balance Sheet, are as follows:
|
2008 |
2007 |
|
|
£'000 |
£'000 |
|
|
Income Statement |
||
|
Rents receivable |
1,719 |
2,841 |
|
Lease incentives recognised |
50 |
- |
|
Recoverable property expenses |
107 |
176 |
|
Revenue from properties |
1,876 |
3,017 |
|
Property outgoings |
(487) |
(361)* |
|
Recoverable property expenses |
(107) |
(176) |
|
Property charges |
(594) |
(537) |
|
Net property income |
1,282 |
2,480 |
|
Administration expenses |
(411) |
(382) |
|
Operating profit before investment property disposals and revaluation |
871 |
2,098 |
|
Investment property revaluation movements |
(18,986) |
9,217 |
|
Operating (loss)/profit |
(18,115) |
11,315 |
|
Interest receivable |
881 |
1,078 |
|
Interest payable |
(262) |
(258)* |
|
Total finance income |
619 |
820 |
|
(Loss)/profit before tax |
(17,496) |
12,135 |
|
Current tax |
434 |
(875) |
|
Deferred tax |
(4,963) |
(2,766) |
|
Tax credit/(charge) for the year |
4,529 |
(3,641) |
|
(Loss)/profit for the year |
(12,967) |
8,494 |
|
Dividends paid |
(1,402) |
(2,050) |
|
(Loss)/profit retained for the year |
(14,369) |
6,444 |
*2007 comparative restated to reallocate head lease rents of £259,000 to interest payable.
|
Balance Sheet |
||
|
Non-current assets |
||
|
Investment properties at market value |
67,950 |
81,750 |
|
Lease incentives recognised |
(50) |
- |
|
Head lease liability grossed up |
5,496 |
5,529 |
|
73,396 |
87,279 |
|
|
Current assets |
||
|
Trade and other receivables |
551 |
715 |
|
Amounts due from shareholders |
13,350 |
18,800 |
|
Cash and cash equivalents |
171 |
335 |
|
Total assets |
87,468 |
107,129 |
|
Current liabilities |
||
|
Trade and other payables |
2,093 |
2,389 |
|
Non-current liabilities |
||
|
Deferred tax |
347 |
5,310 |
|
Head lease liability |
5,496 |
5,529 |
|
Total liabilities |
7,936 |
13,228 |
|
Net assets attributable to the Shaftesbury Group |
79,532 |
93,901 |
22. Basis of preparation
The preliminary announcement does not constitute full financial statements.
The results for the year ended 30 September 2008 included in this preliminary announcement are extracted from the audited financial statements for the year ended 30 September 2008 which were approved by the Directors on 3 December 2008. The auditors' report on those financial statements was unqualified and did not include a statement under Section 237(2) or 237(3) of the 1985 Companies Act.
The 2008 Annual Report is expected to be posted to shareholders on 19 December 2008 and will be considered at the Annual General Meeting to be held on 11 February 2009. The financial statements for the year ended 30 September 2008 have not yet been delivered to the Registrar of Companies.
The auditors' report on the financial statements for the year ended 30 September 2007 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 year ended 30 September 2007 have been delivered to the Registrar of Companies.
23. Annual General Meeting
The 2009 Annual General Meeting will be held at The Committee Room, The Royal Automobile Club, 89 Pall Mall, London SW1Y 5HS on 11 February 2009 at 11.00am.
Related Shares:
SHB.L