Final Results

1st Dec 2009 07:00



SHAFTESBURY ANNOUNCES FULL YEAR RESULTS

Shaftesbury PLC ("Shaftesbury") today announces its preliminary results for the year ended 30 September 2009. Shaftesbury owns a portfolio of over 450 properties in London's West End (Carnaby and Chinatown) and Covent Garden.

Results

*Adjusted for the bonus element inherent in the Rights Issue approved by shareholders on 5 June 2009

Portfolio activity

Finance

John Manser, Chairman commented, 

"The unprecedented turmoil in global financial markets in the first half of our financial year has now subsided, although its impact on the wider economy is still evident. In contrast, throughout the year, the West End economy, on which our prosperity depends, has been resilient, with visitor numbers and spending rising." 

"As a result, demand for our shops, restaurants and residential accommodation has remained healthy and our rental income continues to grow strongly. Also, with confidence returning to investment markets, we have seen a marked recovery in the capital values of our well located properties in the second half of the year."

"Our consistent out-performance over fifteen years gives us confidence that we will continue to prosper and be able to deploy our substantial financial resources to acquire more assets in our chosen areas to complement our portfolio."

Date: 1 December 2009

For further information:

Shaftesbury PLC 020 7333 8118	City Profile 020 7448 3244
Jonathan Lane, Chief Executive	Simon Courtenay
Brian Bickell, Finance Director
www.shaftesbury.co.uk

There will be a presentation to analysts at 9.30 am on Tuesday 1 December 2009, to be held at the offices of Merrill Lynch, Merrill Lynch Financial Centre, 2 King Edward Street, London, EC1A 1HQ.

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 826550. A copy of the presentation will be available on www.shaftesbury.co.uk shortly before the commencement of the call.

A replay service will be available for ten days after the call. The number is +44 (0) 800 032 9687. The passcode is 10789950  Performance Summary for the year ended 

30 September 2009

Shaftesbury  Group		Benchmark
Capital value return (the annual valuation movement and realised surpluses or deficits 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)	-3.8%	IPD UK Monthly Index:  Capital Values* -25.3%
2008	-15.6%	-22.6%
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)	0.5%	IPD UK Monthly Index:  Total Return* -19.2%
2008	-12.0%	-18.1%
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 adjusted for the bonus element inherent in the Rights Issue approved by shareholders on 5 June 2009)
Based on adjusted net assets	-8.1%
2008	-23.7%
Based on reported net assets	-11.3%
2008	-24.9%
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, adjusted for the bonus element inherent in the Rights Issue approved by shareholders on 5 June 2009. Based on year end share price £3.57 (2008: Actual £4.22 or £3.29 adjusted for the Rights Issue))	+13.5%	FTSE 350 Real Estate Index: -27.6%
2008	-12.8%	-27.6%

*Source: Investment Property Databank Limited ©2009 Shaftesbury Group data (other than Total Shareholder Return) derived from financial results.

 Chairman's Statement

The unprecedented turmoil in global financial markets in the first half of our financial year has now subsided, although its impact on the wider economy is still evident. In contrast, throughout the year, the West End economy, on which our prosperity depends, has been resilient, with visitor numbers and spending rising. As a result, demand for our shops, restaurants and residential accommodation has remained healthy and our rental income continues to grow strongly. Also, with confidence returning to investment markets, we have seen a marked recovery in the capital values of our well located properties in the second half of the year.

 

Our Results

The adjusted results referred to below are calculated in accordance with the guidance issued by the European Public Real Estate Association ("EPRA").

	2009		2008
	Total £million	Diluted net asset value per share  £	Total £million	Diluted  net asset value per share*  £
Net assets reported in the Group Balance Sheet	717.3	3.15	642.3	3.67
Adjusted for:
Fair value adjustment in respect of financial derivatives	46.1		14.6
Adjusted net assets	763.4	3.35	656.9	3.76

*Adjusted for the bonus element inherent in the Rights Issue approved by shareholders on 5 June 2009

Net assets at 30 September 2009, adjusted as shown in the table above to exclude the fair value of financial derivatives, totalled £763.4 million, equivalent to a diluted net asset value per share of £3.35. Adjusting the 2008 comparative figures for the bonus element inherent in the Rights Issue approved by shareholders on 5 June 2009, the decrease in adjusted diluted net asset value per share over the year was £0.41, a reduction of 10.9% (2008: reduction of 25.4%). The reduction in adjusted diluted net asset value per share before the payment of dividends amounted to 8.1% (2008: reduction of 23.7%). 

Shareholders' funds reported in the unadjusted Group Balance Sheet at 30 September 2009 totalled £717.3 million, equivalent to a diluted net asset value per share of £3.15. Adjusting the 2008 comparative figures for the bonus element inherent in the Rights Issue approved by shareholders on 5 June 2009, the decrease in unadjusted shareholders' funds since the last year end amounted to £0.52 per share (diluted), a reduction of 14.2% (2008: reduction of 26.5%). The reduction in unadjusted diluted net asset value per share before the payment of dividends amounted to 11.3% (2008: reduction of 24.9%). 

	2009 £million	2008 £million
Loss before tax reported in the Group Income Statement	(58.1)	(220.9)
Adjusted for:
Profit on disposal of investment properties	(0.3)	(0.3)
Deficit arising on revaluation of investment properties	48.1	222.6
Movement in fair value of financial derivatives	31.6	13.9
Adjusted profit before tax	21.3	15.3

As shown in the table above, profit before tax for the year ended 30 September 2009, adjusted to exclude profits on the disposal of investment properties, and the fair valuation movements in respect of investment properties and financial derivatives, amounted to £21.3 million, an increase of 39.2%, compared with £15.3 million in the same period last year. 

Rental income adjusted for lease incentives increased by £3.9 million to £61.7 million compared with last year. Property outgoings rose by £0.7 million to £7.2 million, so that net property revenue increased by £3.2 million to £54.5 million, an uplift of 6.2%.

Interest payable fell by £4.1 million to £26.4 million over the year. Interest rates are at unprecedentedly low levels, which have benefitted the unhedged portion of our floating rate bank debt. However these low rates have had an adverse impact on the fair valuation of our long term interest rate swaps, which has resulted in an increase of £31.6 million in their non-cash accounting deficit. This deficit will reverse as interest rates gradually return to their long term historic averages.

The loss before tax reported in the Income Statement was £58.1 million (2008: loss £220.9 million) and included investment property revaluation deficits of £48.1 million (2008: £222.6 million) and the increase in the fair value deficit of financial derivatives of £31.6 million (2008: £13.9 million) referred to above.

 

	2009 £million	2008 £million
Taxation charge/(credit) reported in the Income Statement	0.3	(4.8)
Adjusted for:
Current tax in respect of REIT conversion charge incurred in connection with a company acquired during the year	(0.1)	(0.1)
Deferred tax in respect of revaluation of investment properties	-	5.3
Adjusted taxation charge on the adjusted profit	0.2	0.4

Provision for current and deferred tax on the adjusted profit for the year amounted to £0.2 million (2008: £0.4 million). The Group's wholly-owned business is 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 are continuing to discuss with our partner the changes to our joint venture arrangements that would be necessary if we were to include our interest in our REIT group. Currently the earliest date this could be effected is 1 October 2010.

The profit after tax for the year, adjusted for the items referred to above, amounted to £21.1 million (2008: £14.9 million). The loss after tax reported in the Group Income Statement amounted to £58.4 million (2008: £216.1 million).

Dividends 

As a Real Estate Investment Trust, we are required to distribute of a minimum of 90% of net rental income of the wholly owned group, calculated by reference to tax rather than accounting rules. For shareholders this means our total distributions relating to this part of our business are increasing in line with the underlying growth in our net rental income and will continue to do so in the future.

Your Directors are pleased to recommend a final dividend of 4.75p per Ordinary share. Based on 226.9 million shares in issue at the year end, this represents a distribution of £10.8 million. This compares with last year's final dividend distribution of £8.1 million, equivalent to 6.0p per Ordinary share. The reduction in the amount per share reflects the increased number of shares in issue since our Rights Issue. 

Together with the interim dividend of 7.5p (2008: 5.0p), this will bring the total distribution in respect of this year to £21.0 million or 12.25p per share (2008: £14.9 million or 11.0p), an increase in the total distribution of 41%. The final dividend will be paid entirely as a Property Income Distribution ("PID").

Our Portfolio

Our property portfolio has been valued at 30 September 2009 at £1,210.0 million resulting in a revaluation deficit for the full year of £48.1 million. Allowing for acquisitions and capital expenditure during the year, this represents a reduction of 3.8% in the book value over the year. The IPD UK Monthly Index: Capital Values for all classes of commercial property fell by 25.3% over the same period. Our portfolio showed a total return for the year of 0.5% compared with the IPD UK Monthly Index: Total Returns for all classes of commercial property, which showed a negative return of 19.2%.

Our values recovered in the second half of the year, producing a revaluation surplus equivalent to 7.1% of book value at the half year, adjusted for acquisitions and expenditure in the second half. This has off-set much of the 10.0% fall in the six months to 31 March 2009. There has been a noticeable increase in the final quarter of the year in investment demand and transactions, particularly for well located investments such as ours, where there is also tangible evidence of healthy tenant demand and growing rents.

Over the year as a whole, the revaluation deficit attributable to our wholly owned portfolio amounted to 2.8% of its adjusted book value. Carnaby's deficit amounted to 3.4% of its adjusted book value. Here there is substantial, but as yet un-contracted, reversionary income from shops and restaurants and 33% of the income in this village still comes from offices where rents have fallen and average lease lengths are only four years. Covent Garden, our most mixed-use village, showed a revaluation deficit of 2.3%. Chinatown's deficit amounted to 1.6%, the least of all of our locations, as was the case last year. In this village, restaurants and leisure uses continue to provide 59% of rental income with leases which have an average unexpired term of 15 years. Only 7% of Chinatown's income now comes from offices.

The revaluation deficit attributable to our Berwick Street properties was 10.8% of adjusted book value. At present many of the properties are in poor condition and offices currently comprise almost half of the income, so this outcome is unsurprising. We are confident that our initiatives in this area will produce good capital growth over the medium term as we advance our strategy.

The properties owned in the Longmartin Joint Venture showed a revaluation deficit of 18.4% of adjusted book value. Once again this year, the fall is much as we would expect, and reflects valuers' cautious view of the risks inherent in a speculative scheme such as St. Martin's Courtyard, where works are in progress and most of the commercial and residential accommodation was unlet at the year end. We are confident that when this project is complete and substantially let, its value should improve materially.

The equivalent yield attributed by our valuers to our wholly owned portfolio at 30 September 2009 was 5.62%, compared with 5.65% at the previous year end and 6.02% at 31 March 2009.

Notwithstanding continuing unsettled conditions in property markets, DTZ, the valuers of our wholly owned portfolio, have once again 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, as a consequence of these unusual factors, that 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 that we have adopted in our results.

Our valuers have estimated the rental value of our portfolio, including our share of the Joint Venture at £78.3 million compared with £80.2 million at 30 September 2008. This contrasts with the portfolio's current passing income of £63.4 million (30 September 2008: £60.4 million). Of the total reversion of £14.9 million, £9.7 million arises in the wholly owned portfolio and £5.2 million relates to our share of Longmartin's potential additional income.

The decrease in the estimated rental value of our portfolio over the year is attributable almost entirely to offices. Retail and restaurant rental values have not suffered and, in several locations, have shown growth over the year. We are confident, that over time and as we have done in past years, we shall continue to crystallise the reversionary potential which is embedded in these two uses, which represent 72% of the estimated rental value of our wholly owned portfolio.

	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
At 30 September 2009	63.4	78.3	14.9	9.7	5.2

 

Finance

Our financial resources are substantial. The Rights Issue approved by shareholders in June 2009 raised £149.1 million, net of expenses, which has strengthened our equity base and provided us with the resources to continue the expansion of our portfolio. At the year end we had committed, unutilised bank facilities of £213.8 million available to finance future acquisitions. We remain comfortably within the covenants contained in our £575 million of committed facilities. The average margin payable on these facilities is 0.81% and our earliest facility maturity is April 2016.

Total Shareholder Return

Over the year as a whole, adjusting for the impact of the Rights Issue, we delivered a positive total shareholder return of 13.5%, compared with a negative return of 27.6% shown by the FTSE 350 Real Estate Index, our chosen benchmark. This material out-performance reflects the equity market's evaluation of the resilience and qualities of our unique portfolio and its continuing prospects for income and capital growth.

Equity market sentiment towards real estate has improved considerably in recent months as financial stability has returned to the sector and the wider economy. However, markets remain volatile and it is impossible to predict how sentiment will react to the considerable challenges faced by the UK economy in 2010.

Board changes

We were greatly saddened by the sudden death of Alastair MacDonald at the end of March. Alastair had been a non-executive Director since December 2001, and his wise counsel and experience will be greatly missed. 

Patience Wheatcroft, who joined as a non-executive Director in March last year, resigned in September as she decided to take a full time position as European editor of the Wall Street Journal, which precluded her from holding any corporate directorships. During her short tenure, Patience made a very valuable contribution to the Board and we are sorry she has been unable to remain with us.

We are pleased to welcome Oliver Marriott to the board as a non-executive Director. Oliver has long and extensive experience in the real estate sector and investment management and his skills and knowledge will be a great benefit to us.

Prospects 

Our highly specialised and uniquely located portfolio of exciting and eclectic West End villages, which would be very difficult to replicate, has shown exceptional stability and prosperity in the face of almost unprecedented economic difficulties over the last year.

Our consistent out-performance over fifteen years gives us confidence that we will continue to prosper and be able to deploy our substantial financial resources to acquire more assets in our chosen areas to complement our portfolio.

John Manser

Chairman

1 December 2009  

Business Review

Our strategy

Our strategy is to invest only in the most central and busy districts within London's West End in an area bounded by Regent Street to the west and Kingsway to the east, with the objective of delivering long-term rental and capital growth. To this end, we seek to accumulate clusters of properties and to introduce a mix of uses appropriate for each area, with an emphasis on shops, restaurants, cafes, bars and clubs.

We initiated this strategy almost 17 years ago in the recession of the early 1990s, when we realised that both tenant demand and rents remained stable throughout that recession in the 32 properties that we then owned in Chinatown. From that nucleus has emerged our unique portfolio which now includes 484 shops, restaurants, cafes and bars in our wholly owned portfolio across five districts: Carnaby, Covent Garden, Chinatown, Berwick Street in Soho and Charlotte Street in Fitzrovia. These wholly owned buildings cover in total about 11 acres and our Longmartin Joint Venture covers another 1.9 acres. We believe that the geographical focus and nature of our portfolio is unique amongst REITs and other quoted property companies in the UK and Europe.

Our choice of locations, together with our active approach to estate management, reduces the cyclical tendencies inherent in property investment. This strategy has, over a long period, produced substantial out-performance in rental and capital values as well as in Total Returns for our shareholders. The past two difficult years have been no exception. In the two years to 30 September 2009, the value of our properties fell by 19.4% in contrast to the 42.2% fall in the IPD UK monthly index.

It is also significant that the estimated rental value of our portfolio as a whole has remained very stable and that the rental values of our shops, restaurants and apartments, which comprise 81% of our portfolio, have continued to grow as demand has remained buoyant across our villages. 

Our success is underwritten by the many attractions of London, one of the World's truly "global cities". With more than 26 million visitors each year and over 30 million people in England living within easy access for making day trips, London is the World's most popular city destination for visitors and, as a result, is not as reliant on the UK economy for its prosperity as other domestic locations. It has been our experience at times of economic downturn such as now, that consumer spending in the West End is even more resilient than elsewhere in London.

London is also exceptionally cosmopolitan. It is one of the most culturally renowned cities and has an extensive heritage. Our properties, which are all in the heart of the West End, are surrounded by a unique concentration of theatres, cinemas, museums, galleries, historic buildings and royal parks. London's 40 theatres offer a huge range of entertainment, from high quality plays and musicals to innovative drama, and attract large numbers of visitors to our areas. 

Over the past two years the decline in the value of sterling against the Euro and most other major currencies has greatly contributed to the number of leisure visitors and spending in the West End. The number of European tourists, which has been rising steadily in recent years, has increased markedly over the past year. The weakness of sterling has also encouraged more domestic visitors to visit London rather than travel to Europe for short break holidays.

The staging of the Olympics in less than three years time has been an important catalyst for the Mayor of London and Westminster City Council to improve the quality of pavements, streets and the public realm in Central London, including most recently Oxford Circus and Piccadilly Circus. Whilst we welcome this investment, which in some cases is long overdue, the proliferation of schemes concurrent with the comprehensive replacement of all the Victorian water mains can, in the short term, be severely disruptive for shops and restaurants affected by these works.

We are akin to "urban farmers" who specialise in city centre regeneration. We know all our tenants and have an in-depth understanding of the markets in which we work. Together with our consultants, we have specialist knowledge and considerable experience of how to make the most out of older and often listed buildings located in crowded conservation areas.

Our proven approach to estate management, which is attracting interest from other cities, is evident across all our villages:

 

We invest in clusters of properties, which have excellent public transport and are close to streets such as Regent Street, Leicester Square and Covent Garden's Piazza, but where rental levels are relatively much lower. We seek to establish distinctive destinations. Many of our acquisitions are of unmodernised properties. Through sympathetic refurbishments and changes of use, we introduce predominately higher value retail, restaurant, leisure and residential uses so as to generate increased, but less cyclical income with lower obsolescence.

We work closely with Local Authorities and community groups to devise and implement regeneration projects both for our buildings and for the public environment, in particular, streets, pavements, lighting and security.

Our regeneration projects are long term. Assembling a critical mass of properties in a location, restoring the buildings and introducing the mix of uses and tenants that we seek, can take up to five years to initiate and establish.

Portfolio activity

We are very selective in what we buy. We are patient but very determined in the pursuit of those assets that we believe will complement and enhance our portfolio. Even under normal market conditions, the number of properties available to purchase at any one time in the West End, and which also meet our investment criteria, is few. The recent extreme dislocation in financial markets and rapid fall in property values have, over the last 18 months, virtually halted investment activity generally. In our market, where income and values have proved to be exceptionally resilient, owners have been particularly reluctant to sell secure assets which are difficult to replace.

Despite challenging conditions during the year to 30 September 2009 we bought, or contracted to buy, properties with a total cost of £29.8 million. They include sixteen shops and three restaurants, some with offices or apartments above. We have substantial resources to make acquisitions as liquidity returns to property markets and we are continuing to investigate a number of interesting opportunities. 

We let our shops and restaurants in shell form, so that the costs that we incur and the obsolescence that we suffer are low. As in previous years, our capital expenditure in the wholly owned portfolio was modest and totalled £10.3 million, representing under 1% of its capital value.

Within the Longmartin Joint Venture, the St. Martin's Courtyard scheme is now well advanced, with all the accommodation due for completion in phases within the current financial year. Our share of Longmartin's total capital expenditure was £10.3 million in the year ended 30 September 2009 and we expect to spend a further £15.0 million in the current year to complete the Courtyard project.

As we anticipated, we made no sales in the year. We only buy properties appropriate to our long term strategy. Any sales that we do make are usually to special purchasers.

In the year to 30 September 2009, the value of commercial lettings has been very stable both in total and for each use and were almost identical to those contracted in 2007 and 2008. We let commercial space with a rental value of £3.1 million per annum comprising £1.6 million of shops, £0.6 million of restaurants and £0.9 million of offices.

Analysis of Wholly Owned Vacant Commercial Space at 30 September 2009

	Shops	Restaurants and leisure	Offices	Total
Estimated Rental Value	£million	£million	£million	£million
Under refurbishment	0.5	-	0.6	1.1
Ready to let	0.5	0.1	0.5	1.1
Under offer	0.6	0.2	0.2	1.0
Total	1.6	0.3	1.3	3.2
Number of units	21	2	38	-
Area - '000 sq. ft.	25	3	42	70

At 30 September 2009 the rental value of wholly owned vacant commercial accommodation, including space subject to planning applications or being refurbished, was £3.2 million, which represents 4.4% of the estimated rental value of our wholly owned portfolio. Of this, £1.1 million (1.5%) was ready to let and not under offer.

At the year end we had fifteen apartments which were ready to let, with a total rental value of £0.3 million per annum.

Within Longmartin, our 50% share of the estimated rental value of vacant units in the St Martin's Courtyard scheme is approximately £5.1 million per annum, of which £1.2 million had been pre-let at the year end. 

Our wholly owned portfolio

Our wholly owned portfolio at 30 September 2009 included 315 shops extending to 375,000 sq. ft. They produce 42% of current income, have an average annual rent of £83,000 and an average unexpired lease term of six years. Of our 21 vacant shops, fifteen are small units. Of the six shops of above average size, which have a combined rental value of £0.9 million (55% of the ERV of vacant shops), two were under offer and one under refurbishment at the year end.

We have 169 restaurants, cafes, bars and clubs, with a total area of 406,000 sq. ft., of which about 120 are located very close to the West End's principal theatres and cinemas. These uses produce 28% of current income. Leases are usually initially for 25 years and the current average of unexpired terms is thirteen years. As the leases and licences are valuable assets for tenants, defaults are rare. Of our two vacant units at the year end, one is under offer and the other is being reconfigured. Strict planning and licensing regulations in the West End restrict the supply of new restaurants. We have excellent demand from experienced operators with new concepts.

Our office space continues to reduce in significance. It extends to 420,000 sq. ft. across 348 tenancies, but now represents only 21% of current rents and 19% of estimated rental value. Our office leases are short with an average unexpired term of three years. Of the 38 offices which were vacant at the year end, many were small, with an average size of 1,000 sq. ft., and an average estimated rental value of £32 per sq. ft. For most of the year demand for offices was weak, but in recent weeks there has been an increase in enquiries for our smaller offices. We had a similar experience this time last year and it will be interesting to see if, on this occasion, demand continues into the New Year.

Our investment in residential accommodation continues to grow, and now represents 9% of our current income. We now have 310 apartments, and at the year end had made planning applications for a further 27 units. Our apartments usually let within a month of becoming available, with tenants staying two to three years on average.

Carnaby

Carnaby Statistics 30 September 2009
Valuation	£442.8 million
Percentage of portfolio	37%
Acquisitions during the year	-
Capital expenditure during the year	£4.2 million
Capital value return	-3.4%
	Number	Area - Sq. ft. '000	% of Current Gross Income
Shops	133	172	51
Restaurants, cafes and leisure	35	77	12
Offices (tenancies)	172	244	33
Residential	58	40	4

Carnaby represents 37% of our property assets. Extending over twelve streets, it is our largest village, with 43% of our shops and 58% of our offices. It contains many of the largest and most valuable shops and offices in our wholly owned portfolio. Thirteen of our 20 largest tenants are located in Carnaby. Many of our Carnaby offices are occupied by fashion retailers who have shops within the village or close by.

This year Carnaby has received considerable attention from the media as a dynamic and internationally renowned retail and leisure destination with informal places to eat and a great night life.

There is a healthy demand throughout Carnaby and we continue to attract interest from national and international retailers. We have recently secured vacant possession of three larger shops, two of which are under offer to existing short term tenants who want more space and longer leases.

As part of our strategy to maintain the appeal of Carnaby, we are always keen to introduce new retailers to refresh the tenant mix. For our smaller shops where appropriate we are able to offer flexible, short term contracts to encourage "pop up" units and new concepts which allow retailers to trial their ideas. If they demonstrate they are able to trade successfully, we endeavour to provide them with long term accommodation to match their requirements.

Our extensive ownership in Carnaby presents us with a number of potentially interesting opportunities for regeneration and improvement over the coming months. Whilst our initial plans to develop 36-39 Carnaby Street have yet to obtain planning consent, we continue to maintain income from these properties until we are in a position to commence our scheme.

Westminster City Council, having made Kingly Street traffic free for part of the day, plans in 2010 to upgrade the street surfaces, and to make the pedestrianisation arrangements permanent. Once this has occurred, it should enable us, over time, to improve the quality of many of our properties along almost the whole of the east side of Kingly Street. A mixed use scheme at 27-28 Kingly Street is already well advanced and due for completion early in 2010. 

Covent Garden

Covent Garden Statistics (Wholly owned) 30 September 2009
Valuation	£327.7 million
Percentage of portfolio	27%
Acquisitions during the year	£1.7 million
Capital expenditure during the year	£2.3 million
Capital value return	-2.3%
	Number	Area - Sq. ft. '000	% of current gross income
Shops	104	126	49
Restaurants, cafes and leisure	61	125	22
Offices (tenancies)	65	91	15
Residential	132	90	14

Our wholly owned investments across Covent Garden represent 27% of our property assets, or 32% including our 50% share in the Longmartin Joint Venture. The area's origins as a market district have given Covent Garden a unique heritage of period buildings, and a very distinctive yet local atmosphere. It houses both of London's Opera Houses together with the Royal Ballet School and half of London's theatres. Covent Garden is a popular residential location and our wholly owned properties now include as much residential as office accommodation. We continue our strategy of converting poorer offices to higher value residential use wherever possible.

Seven Dials, with its unusual seventeenth century street pattern and many period buildings, is often called Covent Garden's "secret village". The area is renowned for alternative fashion and lifestyle and is popular with tourists as well as Londoners. Currently, we have three shops to let, of which two are under offer. We expect Seven Dials will both complement and benefit from the opening in 2010 of the shops and restaurants at St. Martin's Courtyard, where contracted and estimated rents are higher than those in Seven Dials.

The Opera Quarter is now well established as a high quality, yet affordable, restaurant district, underpinned by seven of London's busiest theatres and several well known hotels in the immediate vicinity. Over the last four years we have completed and let eleven important refurbishment schemes and further projects are planned for 2010.

  Chinatown

Chinatown Statistics 30 September 2009
Valuation	£319.5 million
Percentage of portfolio	26%
Acquisitions during the year	£15.3 million
Capital expenditure during the year	£2.5 million
Capital value return	-1.6%
	Number	Area - Sq. ft. '000	% of Current Gross Income
Shops	60	57	27
Restaurants, cafes and leisure	61	178	59
Offices (tenancies)	70	46	7
Residential	85	52	7

Chinatown represents 26% of our property assets, where 61 restaurants and 60 shops provide 86% of its rental income.

Very centrally located, close to the premier cinemas in and around Leicester Square and next to Theatreland, our investments in Chinatown benefit from high visitor numbers and long trading hours and have once again proved most resilient. There is always a healthy demand to rent space of any kind both from within the community and increasingly from new comers from mainland China and other parts of East Asia.

During the second half of the year, we acquired further freeholds, which include two restaurants and four shops, at a total cost of £15.3 million, which offer a number of interesting opportunities to enhance income and capital values.

Our capital expenditure in Chinatown remains modest but we continue to identify opportunities for refurbishment and conversion. We are disappointed that during the year there has been little further progress in upgrading streets and the public environment or improving access to Chinatown. However, improvements to Rupert Court are now underway, with Wardour Street to follow. We are working with Westminster City Council on a proposal to make the Chinatown section of Wardour Street traffic free during the busiest trading periods.

Berwick Street

Berwick Street Statistics 30 September 2009
Valuation	£33.2 million
Percentage of portfolio	3%
Acquisitions during the year	£12.8 million
Capital expenditure during the year	£0.8 million
Capital value return	-10.8%
	Number	Area - Sq. ft. '000	% of Current Gross Income
Shops	16	16	29
Restaurants, cafes and leisure	4	5	3
Offices (tenancies)	33	27	46
Residential	17	14	22

Berwick Street is located in a conservation area at the heart of the West End. Traditionally known as Soho's local high street, it runs north/south from Oxford Street towards Shaftesbury Avenue. In 2007, Westminster City Council designated Berwick Street as a priority in its Action Area Plan as it has suffered from a lack of investment or any strategy for many years.

We expect that assembling ownerships in and around Berwick Street will have potential for us as a long term project. Past experience has shown that progress at this early stage can be slow. Our commitment to date is very much a preliminary investment. We have the financial resources to support our strategy of securing additional purchases over time to establish a significant ownership in the area. Also Westminster City Council's active participation and support, which they have given in the past to our initiatives in our other locations, will be required.

Longmartin Joint Venture

Longmartin's Portfolio*

St Martin's Courtyard		Let	Under offer	Remaining	Total
Shops	Number	4	1	18	23
	Area '000 sq. ft.	19	8	40	67
	Rental value £ million	£2.0	£0.5	£1.7	£4.2
Restaurants and leisure	Number	1	2	2	5
	Area '000 sq. ft.	6	12	12	30
	Rental value £ million	£0.3	£0.6	£0.5	£1.4
Offices	Area '000 sq. ft.	-	-	69	69
	Rental value £ million	-	-	£3.4	£3.4
Residential	Number	4	-	30	34
	Area '000 sq. ft.	3	-	22	25
	Rental value £ million	£0.1	-	£1.1	£1.2
Total rental value £ million		£2.4	£1.1	£6.7	£10.2
Adjacent properties		Let	Under offer	Being refurbished or to let	Total
Shops	Number	1	-	-	1
	Area '000 sq. ft.	2	-	-	2
	Current rental income  £ million	£0.2	-	-	£0.2
Restaurants and leisure	Number	3	-	-	3
	Area '000 sq. ft.	17	-	-	17
	Current rental income  £ million	£0.8	-	-	£0.8
Offices	Area '000 sq. ft.	20	-	10	30
	Current rental income  £ million	£0.3	-	£0.6	£0.9
Residential	Number	37	-	3	40
	Area '000 sq. ft.	26	-	2	28
	Current rental income £ million	£0.6	-	£0.1	£0.7
Total current rental income  £ million		£1.9	-	£0.7	£2.6

* Shaftesbury Group has a 50% interest in the figures shown above

Our Longmartin Joint Venture with The Mercers' Company owns an island site of 1.9 Acres in Covent Garden, close to Leicester Square and its important Underground station.

Through a project of phased regeneration and new development at the centre of our site, we are creating St Martin's Courtyard, a mixed use scheme, which includes 23 shops (67,000 sq. ft), five restaurants (30,000 sq. ft.), 69,000 sq. ft. of offices in four buildings and 34 apartments. This is in addition to the adjacent buildings on the island site.

The next phases of shops and restaurants in the Courtyard scheme are expected to be ready for tenants to fit out in February 2010. To date over 50% by value of the retail and 65% by value of the restaurants have been either pre-let or put under offer. We are confident that the shops and restaurants will all have been let before the Courtyard opens to the public in the summer of 2010.

The office accommodation, spread across four self-contained buildings, will be ready between February and September 2010 and we are now able to offer them to let. With their central location and unique courtyard setting, we expect healthy interest. The 33 apartments within the scheme will become available in phases by summer 2010. 

Our share of the costs to complete the scheme is approximately £15.0 million.

 

Results 

Our profit before taxation for the year, adjusted as shown in the Chairman's Statement to eliminate the surplus realised on property disposals and the fair valuation movements in respect of investment properties and financial derivatives, amounted to £21.3 million, an increase of 39.2%, compared with an adjusted profit of £15.3 million in the previous year. The loss on ordinary activities before taxation reported in the Income Statement amounted to £58.1 million (2008: £220.9 million).

Despite challenging conditions, our rental income has continued to rise, with rents receivable across the Group (adjusted for lease incentives) increasing from £57.8 million to £61.7 million, a net increase of £3.9 million. For the wholly owned Group, after eliminating the impact of property acquisitions and disposals, rents invoiced increased by 3.9% this year compared with the previous year (2008: 7.2% year-on-year increase). 

Our share of the current rental income in the Longmartin Joint Venture, where the St Martin's Courtyard scheme has been under construction throughout the year, has declined by £0.3 million to £1.5 million this year. Its income will improve during the current year as phases of the scheme are completed and let. 

Property outgoings have increased this year by £0.7 million to £7.2 million (2008: £6.5 million). Largely as a result of changes in rating legislation, empty rates costs rose by £0.2 million during the year. We incurred additional village marketing costs of £0.2 million, in order to encourage more visitors to our locations and £0.2 million in obtaining energy performance certificates for a large number of our properties which are now required by legislation. 

The Group's share of property outgoings in the Longmartin Joint Venture amounted to £0.5 million (2008: £0.5 million). We do not capitalise property outgoings incurred while refurbishment schemes are in progress.

Administration expenses include a charge of £0.7 million (2008: £0.2 million) in respect of equity settled remuneration. The accounting charge in respect of share options has increased by £0.1 million to £0.5 million. The charge for employer's national insurance liability on share awards and share options has increased by £0.4 million as a result of the increase in the Company's share price over the year.

Interest rates have fallen to unprecedentedly low levels to tackle the UK economic crisis. As a result, and with lower levels of debt since July 2009 following receipt of the Rights Issue proceeds, interest payable on our floating rate bank debt fell dramatically from £27.7 million in 2008 to £13.6 million in 2009. However, with a substantial portion of our bank debt subject to long term interest rate swaps, this interest saving has been offset by an increase of £10.0 million in settlements under these contracts. Overall, interest payable charged in the Income Statement fell by £4.1 million to £26.6 million this year.

As a consequence of the dramatic and unprecedented fall in interest rates during the year the fair value deficit of our long term interest rate swaps has increased by £31.6 million to £46.1 million at the year end. This non-cash accounting provision, which is excluded in the calculation of our banking covenants, will gradually reverse as interest rates return to their long term historic averages.

Net interest payable was covered 1.8 times by operating profit before investment property disposals and valuation movements (2008: 1.5 times). Based on the interest cover covenants and definitions contained in our banking agreements, net interest payable was covered 2.1 times by net property income (2008: 1.7 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 2.1 times. 

The tax charge on the adjusted profit for the year was £0.2 million, compared with £0.4 million last year, and arises mainly in our Joint Venture. Longmartin remains outside the Group's REIT election, so that our share of its results continues to be subject to provisions for corporation tax and deferred tax liabilities.

Adjusted diluted post-tax earnings per share for the current year amounted to 11.2p compared with 8.5p last year (adjusted for the Rights Issue), an increase of 31.8%. The unadjusted diluted post-tax loss per share shown in the Group Income Statement for the current year amounted to 31.3p compared with 124.6p last year (adjusted for the Rights Issue). 

Unadjusted shareholders' funds at the year end shown in the Group Balance Sheet totalled £717.3 million, an increase over the year of £75.0 million. Adjusting these amounts to exclude the fair value of financial derivatives, our adjusted net asset value becomes £763.4 million, equivalent to a diluted net asset value per share of £3.35 per share (2008: £656.9 million - £3.76 per share, adjusted for the Rights Issue), an increase of £106.5 million. 

Dividends

As a Real Estate Investment Trust the level of our dividends must 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 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 construction phase of the St Martin's Courtyard scheme, Longmartin's net rental income is much 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 continue to discuss with our partner the changes in the joint venture arrangements that would be necessary if we were to include our interest within our REIT group. Currently the earliest date that this could be effected is 1 October 2010.

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 £422.2 million, a reduction of £95.2 million over the year. The Rights Issue approved by shareholders in June 2009, together with shares issued in connection with the exercise of employee share options, produced cash inflows after expenses of £151.2 million. Cash outflows during the year on acquisitions less capital receipts amounted to £24.7 million. Expenditure on the Group's portfolio totalled £21.3 million, of which our share of the Longmartin Joint Venture accounted for £10.0 million. Revenue operations after net interest payments produced a net cash surplus of £20.6 million, compared with £16.6 million in the previous year. Tax payments, which totalled £7.2 million (2008: £10.2 million), were largely related to the settlement of our 2007 REIT conversion charge liability. At the year end £11.1 million of this liability remained to be paid.

 

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 55% (2008: 79%). The ratio of the nominal value of debenture and net bank debt to the market value of our property assets was 35% (2008: 42%). 

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 £575 million, an increase of £50 million over the year, with a weighted average maturity of 7.6 years (2008: 8.9 years). In October and November 2008 we raised additional facilities from two existing lenders totalling £75 million and in April 2009 repaid and cancelled £25 million in connection with a gearing covenant relaxation. Committed unutilised facilities at the year end totalled £213.8 million (2008: £68.6 million) 

The average margin over LIBOR we paid on amounts drawn from our bank facilities at the year end was 0.71%. If we fully drew all of our facilities, the weighted average margin we would pay would be 0.81%. These margins are fixed throughout the terms of the facilities. 

At the year end, taking into account our long term fixed rate debenture debt and interest rate hedging, the weighted average cost of our borrowings including margin was 5.78%, compared with 6.10% at the previous year end. 

The proceeds of the Rights Issue received in early July 2009 effectively repaid our floating rate bank debt so that, at the year end, virtually all of our borrowings were either at fixed rate or hedged at fixed rates. Currently the all-in cost of funds we draw in excess of the £360 million of hedged bank debt is around 1.5%, so that most acquisitions at present are showing an immediate surplus over their cost of finance. 

In November and December 2008 we restructured parts of our hedging portfolio to take advantage of long term swap rates which were exceptionally low at that time. We currently have hedging in place on £360 million of floating rate bank debt with a weighted average rate (excluding margin) at the year end of 4.71%, which rises to 4.87% in December 2009 when certain short term arrangements expire, with a weighted average maturity of 23.4 years. 

At 30 September 2009, the fair value of the Group's interest rate derivatives represented a liability of £46.1 million (2008: £14.5 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 £10.8 million (2008: £11.3 million). The reduction in the deficit has arisen as a result a widening in credit spreads, which has offset the impact of lower market interest rates.

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 match the coupon of 8.5%. We are comfortably in excess of these covenants based on assets currently charged.

Our banking covenants are structured on a Group-wide basis and are broadly similar for each of our facilities. Gearing covenants across all our facilities were increased from 125% to a minimum of 175% during the year. The financial covenants, together with their status at 30 September 2009, were as follows:

Financial covenant	Covenant level	Status at  30 September 2009
Ratio of Group net property income to Group net interest payable	Minimum of 1.5:1	2.06:1
Actual borrowings from each lender as a percentage of property assets charged as security	Not to exceed 66.67%	35% (based on total bank borrowings/available assets across the Group)
Percentage of Group borrowings compared to Group shareholders' funds (excluding any fair value accounting provisions for interest rate derivatives)	Maximum of 175%	55%

Our lenders are well secured by these current arrangements. Based on the results for the year ended 30 September 2009, net property income could fall by £14.7 million (equivalent to 27% of this year's Group net property income) before the interest cover covenant was reached. Based on the year end property valuations and debt levels, property values across the Group would have to decline by around 43% before we reach our loan to value or gearing covenant limits. The actual future headroom on covenants will be affected by a number of factors, including future acquisitions, expenditure commitments and valuation movements. 

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%. We believe that, with our good income/interest cover, modest gearing and future expenditure commitments and overall security structure, our lenders will continue to view us to be a secure customer. We are confident that we will be able to add to our existing facilities when the need arises. 

Performance and Benchmarking

The Performance Summary sets out 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 throughout the UK on a monthly basis. Shaftesbury is a constituent of the FTSE 350 Real Estate Index.

As shown in the Performance Summary, against a background of falling property values, our capital value and total returns have materially out-performed the IPD Monthly indices. 

We recorded a positive total shareholder return for the year ended 30 September 2009 of 13.5% after taking account of the impact of the Rights Issue, compared with the FTSE 350 Real Estate Index which recorded a negative return of 27.6% over the year. 

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 reported and discussed at meetings of the Audit Committee and the Board.

Our principal risks have remained broadly unchanged over the year and relate to the valuation risk inherent in property investment, and the location of the Group's portfolio and certain aspects of its strategy.

Property valuations

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. Such reduction in property values and loss of net asset value may result in the Group being unable to meet the asset-related covenants contained in its Debenture and bank loan arrangements.

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". 

Location of property assets

The Group's property 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. 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, in this high profile location, there is a risk that events beyond the Group's control could result in a reduction in visitor numbers. Such events could include threats to security or public safety, such as terrorism, health concerns such as an influenza pandemic, or disruption to the public transport network on which the area depends. Over time, if the fall in visitors was both sustained and significant, this could lead to a reduction in occupier demand and the rental potential and value of the Group's property assets.

 

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.

Speculative development

The Group does not usually engage in speculative development schemes. However, the St Martin's Courtyard scheme in the Longmartin Joint Venture is being undertaken on a speculative basis. Our share of the scheme's potential income represents approximately 9% of the Group's estimated rental value, and our share of the value of its property assets account for 5% of the Group's portfolio. As a result of current economic conditions, there is a risk that letting expectations 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.

The scheme is now well advanced and works are expected to be completed in summer 2010. Our partner, the Mercer's Company is a long established City livery company, with substantial assets. Both partners have sufficient financial resources to complete the scheme now underway, and intend to hold their investment in the Joint Venture for the long term.

Tenant risk

The economy in the West End has been more resilient than other parts of the UK during the current and previous economic recessions. At present, across the wider economy, restricted availability of credit for consumers and businesses is leading to lower levels of spending, a higher level of business failures and difficulties for new ventures in raising start-up capital. Whilst the West End cannot be completely immune from these trends, our experience is that this unique location is much less affected. 

The Group has some 800 commercial tenants, so that the risks associated with the default of individual tenants are well spread. The 50 largest tenants by current passing rent in the wholly owned portfolio provide approximately 34% of current income. No single tenant currently pays a rent in excess of £1.2 million per annum and the average rent paid by our ten largest tenants is £775,000 per annum. 

The Group has not experienced any material increase in tenant defaults over the year, with a charge in the Income Statement of £0.5 million (208: £0.6 million) in respect of bad and doubtful debts. The level of vacant accommodation has remained stable over the year.

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 throughout the UK on a monthly basis. The Group's performance against this Index is set out in the Performance Summary.

The rental prospects of the Group's portfolio are the key driver of its long term performance. The key non-financial performance indicators related to rental income growth 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 maximise the occupation of its properties and, where vacancies arise, 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 which are ready to let, marketing periods are monitored and assessed.

The Board is satisfied that the Group's performance relating to the achievement of rental levels is meeting its expectations. Retail, restaurant and residential rents have continued to meet or exceed valuers' estimates. In the case of offices, where rents have fallen across the entire market, the Group's performance has been no worse than this general decline.

The level of vacant space across the portfolio has remained steady over the year. The Group has generally been successful in retaining office tenants where leases expire or tenants have the option to exercise lease breaks. Where space has become vacant, void periods have generally remained at acceptable levels although the average period taken to let offices has increased as tenant demand deteriorated over the year. Where delays in schemes or their letting 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. 

Prospects

London's West End has many features which have ensured that, throughout the recent period of extreme financial turbulence in financial markets and the wider economy, it has continued to prosper. Our portfolio of mixed use properties, situated in the heart of this unique location, has proved to be exceptionally resilient.

The Group has both substantial financial resources and forensic local knowledge, which provide an important competitive advantage in securing new investments. With our skills and expertise in identifying and implementing innovative schemes, we are confident our portfolio will continue to deliver out-performance in rental growth and capital values.

Jonathan S. Lane - Chief Executive

Brian Bickell - Finance Director

1 December 2009

Portfolio Analysis at 30 September 2009

	Note	Carnaby	Covent Garden	Chinatown	Berwick Street	Charlotte Street	Wholly Owned Portfolio	Longmartin*	Total Portfolio
Market Value	1	£442.8m	£327.7m	£319.5m	£33.2m	£23.0m	£1,146.2m	**£63.8m	£1,210.0m
% of total Market Value		37%	27%	26%	3%	2%	95%	**5%	100%
Current gross income	2	£23.8m	£18.7m	£16.7m	£1.7m	£1.3m	£62.2m	**£1.2m	£63.4m
Estimated rental value (ERV)	3	£28.8m	£20.9m	£18.6m	£2.2m	£1.4m	£71.9m	**£6.4m	£78.3m
Shops
Number		133	104	60	16	2	315	24
Area - sq. ft.		172,000	126,000	57,000	16,000	4,000	375,000	69,000
% of current gross income	4	51%	49%	27%	29%	10%	42%	28%
% of ERV	4	54%	52%	27%	43%	10%	45%	39%
Vacancy rate by % of ERV	5	5%	3%	5%	29%	-	5%	21%
Average unexpired lease length - years	6	4	8	8	4	11	6	5
Restaurants, cafes and leisure
Number		35	61	61	4	8	169	8
Area - sq. ft.		77,000	125,000	178,000	5,000	21,000	406,000	47,000
% of current gross income	4	12%	22%	59%	3%	43%	28%	33%
% of ERV	4	12%	22%	59%	2%	46%	27%	17%
Vacancy rate by % of ERV	5	-	1%	3%	-	-	2%	8%
Average unexpired lease length - years	6	11	12	15	8	16	13	7
Offices
Number of tenancies		172	65	70	33	8	348
Area - sq. ft.		244,000	91,000	46,000	27,000	12,000	420,000	98,000
% of current gross income	4	33%	15%	7%	46%	28%	21%	11%
% of ERV	4	29%	13%	7%	37%	26%	19%	30%
Vacancy rate by % of ERV	5	12%	2%	7%	3%	-	8%	27%
Average unexpired lease length - years	6	4	3	3	2	1	3	10
Residential
Number		58	132	85	17	18	310	74
Area - sq. ft.		40,000	90,000	52,000	14,000	8,000	204,000	54,000
% of current passing rent		4%	14%	7%	22%	19%	9%	29%
% of ERV	4	5%	13%	7%	18%	18%	9%	14%
Vacancy rate by % of ERV	5	29%	7%	13%	11%	6%	13%	9%

*Longmartin statistics include space under construction in the St Martin's Courtyard scheme and adjacent accommodation not part of the Courtyard scheme.

**  Shaftesbury Group's share.

 

  Basis of Valuation at 30 September 2009

	Note	Carnaby	Covent Garden	Chinatown	Berwick Street	Charlotte Street	Wholly Owned Portfolio	Longmartin*
Overall initial yield	8	4.77%	5.19%	4.90%	4.37%	5.04%	4.92%	4.07%
Initial yield ignoring contractual rent free periods	9	4.92%	5.29%	5.02%	4.68%	5.40%	5.05%
Overall equivalent yield	10	5.73%	5.60%	5.46%	5.94%	5.44%	5.62%	5.70%
Tone of retail equivalent yields		5.25 - 7.00%	5.50 - 7.50%	5.25 - 6.25%	5.75% - 7.00%	5.75 - 6.50%		5.25 - 6.00%
Tone of retail estimated rental values - ITZA £ per sq.ft.		£100 - £370	£40 - £450	£150 - £260	£80 - £124	£75 - £90		£100 - £440
Tone of restaurant equivalent yields		5.75 - 6.00%	5.00 - 6.50%	5.25 - 6.25%	5.75%	5.25 - 5.35%		5.75 - 7.00%
Tone of restaurant estimated rental values -£ per sq.ft.		£67 - £92	£35 - £112	£135 - £330 ITZA	£118	£70 - £74		£35 - £54
Tone of office equivalent yields		6.00 - 7.50%	6.00 - 7.50%	6.75 - 7.00%	6.15 - 7.25%	6.75 - 7.40%		6.00 - 8.00%
Tone of office estimated rental values -£ per sq.ft		£22 - £47	£25 - £42	£27 - £40	£25 - £39	£30 - £35		£23 - £45
Tone of residential estimated rental values-£ per annum		£10,400 - £52,000	£9,250 - £52,000	£8,400 - £30,000	£13,250 - £54,600	£10,400 - £18,200		£14,000 - £73,000

*Unmodernised accommodation only.

Notes 

1. The Market Values at 30 September 2009 (the 'date of valuation') shown above in respect of the five 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.

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.

2. 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.

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.

3. 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.

4. Average unexpired lease length has been calculated by weighting the leases in terms of current rent reserved under the relevant leases and, where relevant, by reference to tenants' options to determine leases in advance of expiry through effluxion of time.

5. Where mixed uses occur within single leases, for the purpose of this analysis the majority use by rental value has been adopted.

6. 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.

7. The initial yield ignoring contractual rent free periods has been calculated as if the contracted rent is payable from the date of valuation.

8. 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.

9. The tone of rental values and yields is the range of rental values or yields attributed to the majority of the properties.

10. All commercial floor areas are net lettable. All residential floor areas are gross internal.

  Group Income Statement

For the year ended 30 September 2009

	Note	2009 £m	2008 £m
Revenue from properties	1	67.8	65.3
Property charges	2	(13.3)	(14.0)
Net property income		54.5	51.3
Administration expenses		(6.1)	(5.3)
Charge in respect of equity settled remuneration	3	(0.7)	(0.2)
Total administration expenses		(6.8)	(5.5)
Operating profit before investment property disposals and valuation movements		47.7	45.8
Profit on disposal of investment properties	4	0.3	0.3
Investment property valuation movements	9	(48.1)	(222.6)
Operating loss		(0.1)	(176.5)
Interest receivable		0.2	0.2
Interest payable	5	(26.6)	(30.7)
Change in fair value of financial derivatives	15	(31.6)	(13.9)
Total finance costs		(58.0)	(44.4)
Loss before tax		(58.1)	(220.9)
Current tax	6	(0.2)	(0.5)
Deferred tax	6	(0.1)	5.3
Tax (charge)/credit for the year		(0.3)	4.8
Loss for the year		(58.4)	(216.1)
Loss per share:	7
Basic		(31.3)p	*(124.6)p
Diluted		(31.3)p	*(124.6)p

*Adjusted for the bonus element inherent in the Rights Issue approved by shareholders on 5 June 2009

  Group Balance Sheet

As at 30 September 2009

	Note	2009 £m	2008 £m
Non-current assets
Investment properties	9	1,209.9	1,207.7
Office assets and vehicles		0.3	0.3
		1,210.2	1,208.0
Current assets
Trade and other receivables	10	17.3	14.6
Cash and cash equivalents	11	2.9	0.2
Total assets		1,230.4	1,222.8
Current liabilities
Trade and other payables	12	35.6	30.4
Non-current liabilities
Taxation payable	13	3.8	11.1
Borrowings	14	427.5	524.5
Financial derivatives	15	46.1	14.5
Deferred tax liabilities	17	0.1	-
Total liabilities		513.1	580.5
Net assets		717.3	642.3
Equity
Called up share capital	18	56.7	33.8
Other reserves	19	124.0	132.0
Retained earnings	19	536.6	476.5
Total equity		717.3	642.3
Net assets per share:	20
Basic		£3.16	*£3.70
Diluted		£3.15	*£3.67

*Adjusted for the bonus element inherent in the Rights Issue approved by shareholders on 5 June 2009

  Group Cash Flow Statement

For the year ended 30 September 2009

	Note	2009 £m	2008 £m
Operating activities
Cash generated from/(consumed by) operating activities	21	44.9	47.5
Interest received		0.2	0.2
Interest paid		(24.5)	(31.1)
Tax payments in respect of operating activities		(7.2)	(10.2)
		13.4	6.4
Investing activities
Property acquisitions		(24.9)	(19.7)
Capital expenditure on properties		(21.3)	(15.0)
Capital receipts from disposal of interests in properties		0.2	-
Net proceeds from sales of properties		-	12.4
Net purchase of office assets and vehicles		(0.1)	(0.1)
Purchase of shares in Carnaby Investments Limited		-	-
Cash flows from investing activities		(46.1)	(22.4)
Financing activities
Issue of shares for cash		151.2	0.5
(Decrease)/increase in borrowings	22	(95.2)	29.8
Facility arrangement costs	22	(2.0)	-
Payment of finance lease liabilities		(0.3)	(0.3)
Equity dividends paid	8	(18.3)	(14.2)
Net loans to subsidiary undertakings		-	-
Repayment of loan from joint venture		-	-
Cash flows from financing activities		35.4	15.8
Net change in cash and cash equivalents		2.7	(0.2)

Statement of changes in shareholders' equity

At 1 October 2008	642.3	866.8
Loss for the year	(58.4)	(216.1)
Dividends paid	(18.3)	(14.2)
Proceeds of share issues (net of expenses)	151.2	5.4
Fair value of share based remuneration	0.5	0.4
At 30 September 2009	717.3	642.3

  Notes to the Financial Statements

for the year ended 30 September 2009

1. Revenue from properties

	2009 £m	2008 £m
Rents receivable (adjusted for lease incentives):
Wholly owned Group	60.2	56.0
Group's share of Longmartin Joint Venture	1.5	1.8
Rents receivable	61.7	57.8
Recoverable property expenses	6.1	7.5
	67.8	65.3

The Group's revenue is generated entirely from its principal activity of property investment located in London.

Rents receivable includes lease incentives recognised of £0.4 million (2008: lease incentives written back £0.8 million).

2. Property charges

Property outgoings	7.2	6.5
Recoverable property expenses	6.1	7.5
	13.3	14.0

3. Charge in respect of equity settled remuneration

Charge for share based remuneration	0.5	0.4
Employer's National Insurance in respect of share awards and share options vested or expected to vest	0.2	(0.2)
	0.7	0.2

4. Profit on disposal of investment properties

Capital receipts from disposal of interests in properties	0.3	-
Net sale proceeds	-	4.7
Book value at date of sale	-	(4.4)
	0.3	0.3

5. Interest payable

Debenture stock interest and amortisation	5.1	5.1
Bank and other interest	13.6	27.7
Amounts payable/(receivable) under financial derivative contracts	7.6	(2.4)
Amounts payable under finance leases	0.3	0.3
	26.6	30.7

  6. Taxation

	2009 £m	2008 £m
Current tax
UK Corporation tax at 28% (2008: 29%)	0.1	0.5
REIT conversion charge in respect of company acquired during the year	0.1	0.1
Adjustments in respect of prior years	-	(0.1)
	0.2	0.5
Deferred tax	0.1	(5.3)
Tax charge/(credit) for the year	0.3	(4.8)

Factors affecting the tax charge:

(Loss)/profit before tax	(58.1)	(220.9)
UK Corporation tax at 28% (2008: 29%)	(16.3)	(64.0)
Taxable profit not liable to UK Corporation tax due to REIT status	(5.7)	(4.0)
Deferred tax not provided in respect of property and financial derivative movements and capital allowances due to REIT status	22.0	63.5
Difference between expenses and deductions for taxation purposes and amounts charged in the financial statements	0.2	(0.3)
Adjustments in respect of prior years	-	(0.1)
REIT conversion charge in respect of company acquired during the year	0.1	0.1
Tax charge/(credit) for the year	0.3	(4.8)

7. (Loss)/earnings per share

Loss after tax used for calculation of basic earnings per share	(58.4)	(216.1)
Adjusted for:
Gain on sale of investment properties	(0.3)	(0.3)
Investment property valuation movements	48.1	222.6
Movement in fair value of financial derivatives	31.6	13.9
Current tax in respect of:
REIT conversion charge	0.1	0.1
Deferred tax in respect of:
Investment property revaluation gains	-	(5.3)
Profit after tax used for adjusted earnings per share	21.1	14.9
Weighted average number of shares in issue - million	186.7	*173.4
Weighted average number of shares in issue for calculation of diluted earnings per share - million	188.2	*174.4
(Loss)/earnings per share:	Pence	Pence
Basic	(31.3)	*(124.6)
Diluted	(31.3)	*(124.6)
Adjusted basic	11.3	*8.6
Adjusted diluted	11.2	*8.5

* Adjusted for the bonus element inherent in the Rights Issue approved by shareholders on 5 June 2009.

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.

  8. Dividends paid

	2009 £m	2008 £m
Final dividend paid in respect of:
Year ended 30 September 2008 at 6.00p per share	8.1	-
Year ended 30 September 2007 at 5.50p per share	-	7.4
Interim dividend paid in respect of:
Six months ended 31 March 2009 at 7.50p per share	10.2	-
Six months ended 31 March 2008 at 5.00p per share	-	6.8
	18.3	14.2

A final dividend in respect of the year ended 30 September 2009 of 4.75p per Ordinary share amounting to £10.8 million will be proposed at the 2010 Annual General Meeting. If approved, this dividend will be paid on 19 February 2010 to shareholders on the register at 29 January 2010. The dividend will be accounted for as an appropriation of revenue reserves in the year ending 30 September 2010.

9. Investment properties

At 1 October 2008 - book value	1,202.2	1,388.2
Acquisitions	24.6	19.5
Acquisition on purchase of subsidiary undertaking	5.2	4.9
Refurbishment and other capital expenditure	20.6	16.6
Disposals	-	(4.4)
Net deficit on revaluation	(48.1)	(222.6)
	1,204.5	1,202.2
Add: Head lease liabilities	5.4	5.5
Book value at 30 September 2009	1,209.9	1,207.7
Market value at 30 September 2009:
Properties valued by DTZ Debenham Tie Leung	1,146.2	1,139.4
Properties valued by Knight Frank LLP	63.8	67.9
	1,210.0	1,207.3
Add: Head lease liabilities	5.4	5.5
Less: Lease incentives recognised to date	(5.5)	(5.1)
Book value at 30 September 2009	1,209.9	1,207.7
Historic cost of properties at valuation	798.0	747.6

Investment properties were subject to external valuation as at 30 September 2009 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 £1,069.0 million (2008: £1,067.0 million), leasehold properties with an unexpired term of over 50 years valued at £74.4 million (2008: £73.8 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 £66.6 million (2008: £66.5 million). 

  Capital Commitments

	Wholly owned Group		Group's share of Longmartin Joint Venture
	2009 £m	2008  £m	2009 £m	2008  £m
Authorised and contracted	1.8	5.7	14.9	4.0
Authorised but not contracted	1.2	4.5	-	17.4

10. Trade and other receivables

	2009 £m	2008 £m
Amounts due from tenants	9.4	7.6
Provision for doubtful debts (see below)	(0.3)	(0.2)
	9.1	7.4
Lease incentives recognised in the Income Statement	5.5	5.1
Amounts due from subsidiary undertakings	-	-
Other receivables and prepayments	2.7	2.1
	17.3	14.6

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 2009, amounts due from tenants which were more than 90 days overdue, relating to accommodation and services provided up to 28 September 2009, totalled £1.2 million (2008: £0.7 million) and are considered to be past due. Provisions against these overdue amounts totalled £0.3 million (2008: £0.2 million).

Movement in provision for doubtful debts:

At 1 October 2008	0.2	0.2
Amounts written off during the year	(0.4)	(0.6)
Charge in the Income Statement	0.5	0.6
At 30 September 2009	0.3	0.2

At 30 September 2009, cash deposits totalling £8.9 million were held against tenants' rent payment obligations (2008: £8.1 million).

11. Cash

Cash balances at 30 September 2009 included an amount of £2.5 million (2008: £Nil), being the Group's share of a deposit made by the Longmartin Joint Venture in respect of payment obligations under a building contract. The deposit will be released in stages after January 2010 and will be released in full on completion of the building contract.

12. Trade and other payables

Rents and service charges invoiced in advance	14.1	14.1
Corporation tax and REIT conversion charge payable (note 13)	7.4	7.1
Amount due to joint venture undertaking	-	-
Amounts due in respect of property acquisitions	4.9	-
Trade payables in respect of accrued capital expenditure	2.4	2.3
Other trade payables and accruals*	6.8	6.9
	35.6	30.4

  13. Taxation payable

	2009 £m	2008 £m
2007 REIT conversion charge outstanding at year end	11.1	17.9
Less: Payable within one year included in trade and other payables (note 12)	(7.3)	(6.8)
	3.8	11.1
The Group has elected to pay its 2007 REIT conversion charge in instalments as follows:
Year to 30 September 2009	-	6.8
Year to 30 September 2010	7.3	7.3
Year to 30 September 2011	3.8	3.8
	11.1	17.9

14. Borrowings

	2009			2008
Group	Nominal value £m	Unamortised premium and issue costs £m	Book Value £m	Nominal value £m	Unamortised premium and issue costs £m	Book Value £m
8.5% First Mortgage Debenture Stock 2024	61.0	3.0	64.0	61.0	3.1	64.1
Secured bank loans	361.2	(3.1)	358.1	456.4	(1.5)	454.9
Debenture and bank borrowings	422.2	(0.1)	422.1	517.4	1.6	519.0
Finance lease obligations	5.4	-	5.4	5.5	-	5.5
	427.6	(0.1)	427.5	522.9	1.6	524.5

The Group's finance lease obligations represent its share of the net present value of amounts payable under leases with unexpired terms of 171 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.

Certain of the Company's bank loan agreements allow for part of the facility commitments to be provided by way of overdrafts to the Company, which are available throughout the term of those facilities. At 30 September 2009 bank loans included overdrafts of £1.7 million (2008: £2.2 million).

  15. Financial instruments 

Categories of financial instruments	2009		2008
	Book value  £m	Income/ (expense)  £m	Book value  £m	Income/ (expense) £m
Financial assets/(liabilities) at fair value through the Income Statement
Interest rate swaps	(46.1)	(7.6)	(14.6)	2.4
Financial assets
Trade and other receivables (note 10)	9.1	-	7.4	-
Cash and cash equivalents	2.9	0.2	0.2	0.2
	12.0	0.2	7.6	0.2
Financial liabilities
Trade and other payables (due within one year) (note 12)	(6.8)	-	(6.9)	-
Interest bearing borrowings (note 14)	(422.1)	(18.7)	(519.0)	(32.8)
Finance leases (note 14)	(5.4)	(0.3)	(5.5)	(0.3)
Liabilities at amortised cost	(434.3)	(19.0)	(531.4)	(33.1)
Total financial instruments	(468.4)	(26.4)	(538.4)	(30.5)

There were no gains or losses in respect of financial instruments recognised in equity during the year (2008: Nil).

 

Fair values of financial instruments

	2009 £m	2008 £m
Interest rate swaps
At 1 October 2008 - Deficit	(14.5)	(0.6)
Increase in fair value deficit in year charged in the Income Statement	(31.6)	(13.9)
At 30 September 2009 - Deficit	(46.1)	(14.5)

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 extent to which the fair value deficit will crystallise will depend on the course of interest rates over the life of the swaps, which had a weighted average maturity of 23.4 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 2009	(10.8)	(11.3)

The fair value of the outstanding Debenture Stock has been calculated by J.C. Rathbone Associates Limited at 217 basis points (2008: 142 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 £61.0 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.

Other financial instruments

The fair values of the Group's cash and cash equivalents, trade and other receivables, interest bearing borrowings (other than the 8.5% Mortgage Debenture Stock 2024) and trade and other payables are not materially different from the values at which they are carried in the financial statements.

  16. 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 10.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 funds 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.

Availability and maturity of Group borrowings 

	2009		2008
	Facilities		Facilities
	Committed	Undrawn	Committed	Undrawn
	£m	£m	£m	£m
Repayable after more than 15 years:
8.5% First Mortgage Debenture Stock 2024	-	-	61.0	-
Repayable between 10 and 15 years:
8.5% First Mortgage Debenture Stock 2024	61.0	-
Bank facilities	75.0	-	100.0	-
Repayable between 5 and 10 years:
Bank facilities	500.0	213.8	425.0	68.6
	636.0	213.8	586.0	68.6
Finance lease obligations - leases expiring in 171 years	5.4	-	5.5	-
	641.4	213.8	591.5	68.6

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.

Market risk

Market 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 and credit costs. The Group's policy is to minimise market risk through long term, fixed rate debt, long term committed bank facilities and the use of long term interest rate swaps on a large portion of its floating rate bank debt. As described in the Business Review, the Board keeps under review the Group's market risk, particularly in light of expectations of future interest rate movements. 

The Group's First Mortgage Debenture Stock carries a rate of interest of 8.5%, which is fixed until maturity in March 2024.

The Group's current bank facilities, which expire between April 2016 and March 2021, are at credit margins which are fixed for the life of the facilities. At 30 September, the actual average credit margin on the amounts drawn under those facilities was 0.71%. If those facilities had been fully drawn at that date, the average credit margin payable would have been 0.81%.

The Group has in place interest rate swaps to hedge £360 million of floating rate bank debt, at a weighted average rate at the year end of 4.71% excluding margin. The weighted average rate rises to 4.87% from December 2009, following the expiry of certain short term settlement arrangements. The swaps, which are settled against three month LIBOR, expire between December 2027 and November 2038 (weighted average maturity 23.4 years). 

Interest rate profile of interest bearing borrowings 

2009

2008

	Debt £m	Weighted Average Interest Rate %		Debt £m	Weighted Average Interest Rate %
Floating rate borrowings LIBOR-linked loans - interest rates fixed  until December 2009 at latest (including margin)	1.2	1.42		96.4	6.23
Hedged borrowings Interest rate swaps in operation at year end (including margin)	360.0	5.42		360.0	5.74
Fixed rate borrowing 8.5% First Mortgage Debenture Stock (interest rate fixed for 14.5 years  until 31 March 2024) - book value	64.0	7.93		64.1	7.93
Weighted average cost of borrowings		5.78			6.10

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% £m	Reduction of 0.5% £m
(Increase)/decrease in finance costs before fair valuation of interest rate swaps	-	-
(Decrease)/increase in fair value deficit of interest rate swaps	(27.2)	27.2
Increase/(decrease) in profit and shareholders' equity	27.2	(27.2)

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.

17. Deferred tax liabilities

Group	2009 £m	2008 £m
At 1 October 2008	-	5.3
Provided/(released) through the Income Statement	0.1	(5.3)
At 30 September 2009	0.1	-
Comprising: Provision in respect of capital allowances	0.1	-

  18. Called Up Share Capital

	2009 Number Million	2008 Number Million	2009 £m	2008 £m
Ordinary Shares of 25p each Authorised	300.0	200.0	75.0	50.0
Issued, called up and fully paid At 1 October 2008	135.4	134.3	33.8	33.6
Issued in connection with the exercise of share options	1.2	0.2	0.3	-
Issued in connection with the Rights Issue	90.3	-	22.6	-
Issued in connection with the acquisition of Carnaby Investments Limited	-	0.9	-	0.2
At 30 September 2009	226.9	135.4	56.7	33.8

The Company's authorised share capital was increased on 5 June 2009 from £50.0 million to £75.0 million by the creation of 100 million Ordinary shares of 25p each. 

The gross proceeds of shares issued in connection with the Rights Issue approved by shareholders on 5 June 2009 amounted to £158.1 million. Expenses incurred in connection with the Rights Issue, which amounted to £9.0 million, have been charged to the Share Premium Account. The proceeds of shares issued during the year in connection with the exercise of share options amounted to £2.1 million.

19. Reserves

	Share premium £m	Merger reserve £m	Share based payments £m	Retained earnings £m	Total £m
At 1 October 2007	124.0	-	2.4	706.8	833.2
Premium on shares issued	5.2	-	-	-	5.2
Fair value of share based payments	-	-	0.4	-	0.4
Loss for the year	-	-	-	(216.1)	(216.1)
Dividends paid during the year	-	-	-	(14.2)	(14.2)
At 30 September 2008	129.2	-	2.8	476.5	608.5
Arising on Rights Issue	-	135.5	-	-	135.5
Transfer to retained earnings	-	(135.5)	-	135.5	-
Expenses incurred in connection with Rights Issue	(9.0)	-	-	-	(9.0)
Premium on shares issued in connection with the exercise of share options	1.8	-	-	-	1.8
Fair value of share based payments	-	-	0.5	-	0.5
Transfer in respect of share options exercised	-	-	(1.3)	1.3	-
Loss for the year	-	-	-	(58.4)	(58.4)
Dividends paid during the year	-	-	-	(18.3)	(18.3)
At 30 September 2009	122.0	-	2.0	536.6	660.6

  20. Net assets per share

	2009 £m	2008 £m
Net assets used for calculation of basic net assets per share	717.3	642.3
Adjusted for:
Cumulative fair value adjustment in respect of financial derivatives	46.1	14.6
Adjusted net assets	763.4	656.9
Additional equity if all vested share options exercised	3.0	4.4
Net assets used for adjusted diluted net asset calculations	766.4	661.3

Ordinary shares in issue - million	226.9	*173.7
Diluted Ordinary shares - million	228.9	*176.1
Net assets per share:
Basic	£3.16	*£3.70
Diluted	£3.15	*£3.67
Adjusted basic	£3.36	*£3.78
Adjusted diluted	£3.35	*£3.76

* Adjusted for the bonus element inherent in the Rights Issue approved by shareholders on 5 June 2009.

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.

21. Cash flows from operating activities

Operating loss	(0.1)	(176.5)
Adjustment for non-cash items:
Lease incentives (recognised)/ written back	(0.4)	0.8
Charge for share based remuneration	0.5	0.4
Depreciation and losses on disposals	0.1	0.1
Profit on sale of investment properties	(0.3)	(0.3)
Investment property valuation movements	48.1	222.6
Cash flows from operations before changes in working capital	47.9	47.1
Change in trade and other receivables	(2.2)	1.2
Change in trade and other payables	(0.8)	(0.8)
Cash flows from operating activities	44.9	47.5

22. Movement in borrowings

Group	1.10.2008 £m	Cash Flows £m	Non-cash Items £m	30.9.2009 £m
8.5% First Mortgage Debenture Stock 2024	(64.1)	-	0.1	(64.0)
Secured bank loans	(456.4)	95.2	-	(361.2)
Facility arrangement costs	1.5	2.0	(0.4)	3.1
Finance lease obligations	(5.5)	-	0.1	(5.4)
	(524.5)	97.2	(0.2)	(427.5)
Year ended 30 September 2008	(494.7)	(29.8)	-	(524.5)

  23. Joint Venture results

The Group's share of the results of Longmartin Properties Limited for the year ended 30 September 2009, and its assets and liabilities at that date, which have been consolidated in the Group's Income Statement and Balance Sheet, are as follows:

	2009	2008
	£m	£m
Income Statement
Rents receivable	1.2	1.7
Lease incentives recognised	0.3	0.1
Recoverable property expenses	0.1	0.1
Revenue from properties	1.6	1.9
Property outgoings	(0.5)	(0.5)
Recoverable property expenses	(0.1)	(0.1)
Property charges	(0.6)	(0.6)
Net property income	1.0	1.3
Administration expenses	(0.4)	(0.4)
Operating profit before investment property disposals and revaluation	0.6	0.9
Investment property revaluation movements	(14.7)	(19.0)
Operating loss	(14.1)	(18.1)
Interest receivable	0.1	0.9
Interest payable	(0.3)	(0.3)
Total finance income	(0.2)	0.6
Loss before tax	(14.3)	(17.5)
Current tax	-	(0.4)
Deferred tax	0.3	4.9
Tax credit for the year	0.3	4.5
Loss for the year	(14.0)	(13.0)
Dividends paid	(0.3)	(1.4)
Loss retained for the year	(14.3)	(14.4)

Balance Sheet
Non-current assets
Investment properties at market value	63.8	67.9
Lease incentives recognised	(0.3)	(0.1)
Head lease liability grossed up	5.4	5.5
	68.9	73.3
Current assets
Trade and other receivables	1.1	0.5
Amounts due from shareholders	-	13.4
Cash and cash equivalents	2.9	0.2
Total assets	72.9	87.4
Current liabilities
Trade and other payables	2.2	2.0
Non-current liabilities
Deferred tax	0.1	0.4
Head lease liability	5.4	5.5
Total liabilities	7.7	7.9
Net assets attributable to the Shaftesbury Group	65.2	79.5

24. Basis of preparation

The preliminary announcement does not constitute full financial statements.

The results for the year ended 30 September 2009 included in this preliminary announcement are extracted from the audited financial statements for the year ended 30 September 2009 which were approved by the Directors on 1 December 2009. The auditors' report on those financial statements was unqualified and did not include a statement under Section 498(2) or 498(3) of the 2006 Companies Act.

The 2009 Annual Report is expected to be posted to shareholders on 21 December 2009 and will be considered at the Annual General Meeting to be held on 12 February 2010. The financial statements for the year ended 30 September 2009 have not yet been delivered to the Registrar of Companies.

The auditors' report on the financial statements for the year ended 30 September 2008 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 2008 have been delivered to the Registrar of Companies.

25. Annual General Meeting

The 2010 Annual General Meeting will be held at The Committee Room, The Royal Automobile Club, 89 Pall Mall, London SW1Y 5HS on 12 February 2010 at 11.00 am.

ENDFR WUGMCGUPBGAU

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