25th May 2006 07:00
Shaftesbury PLC25 May 2006 SHAFTESBURY REPORTS STRONG DEMAND FOR SHOPS AND RESTAURANTS. STRATEGIC ACQUISITIONS IN COVENT GARDEN. Shaftesbury PLC ("Shaftesbury") today announces its half year results for thesix months ended 31 March 2006. Shaftesbury owns and manages a portfolio ofproperty in London's West End focused in Carnaby, Covent Garden and Chinatown. Financial Highlights 31.3.2006 31.3.2005 30.9.2005Net property income £'000 23,459 21,447 43,401Adjusted profit before tax* £'000 7,934 7,901 14,250Adjusted profit after tax* £'000 5,831 5,344 10,130Profit after tax £'000 6,819 5,934 98,777Diluted earnings per share Pence 5.14 4.48 74.62Interim dividend per share Pence 1.92 1.70 1.70Final dividend per share Pence - - 3.30Property assets at book value £'000 1,041,282** 826,389** 987,516Adjusted net assets per share*** £'000 607,414** 468,753** 603,642Adjusted diluted net assets per share Pence 455** 354** 455Shareholders' funds £'000 477,197** 382,059** 473,161Diluted net asset value per share Pence 358** 289** 357 * Adjusted to exclude property and financial instruments fair valuationmovements, gain on sale of investment properties, exceptional costs and loss onpurchase of debenture stock (see note 13) ** Based on Market Value at the previous year end *** Adjusted to exclude fair valuation of financial instruments and deferred taxin respect of investment property revaluations and financial instrument fairvalues (see note 21) Jonathan Lane, Chief Executive commented, "Our results for the six months ended 31 March 2006 reflect further growth inrental income and underlying profits as well as considerable activity within ourportfolio. We have completed important strategic acquisitions in Covent Gardentotalling £76 million, which include our Longmartin joint venture and two blocksclose to the Royal Opera House. The sale of National Magazine House hascontinued our strategy of reducing the office element of our portfolio." "Demand to rent our shops has been strong and consequently we expect rentalgrowth evident in the first half to continue. Improving visitor numbers and theincreasing popularity of eating out in the West End is encouraging experiencedoperators to launch new restaurant ventures with interesting and innovativeconcepts." "The proposed structure of REITs could offer significant long term benefits bothto the Group and its shareholders. The Board is currently discussing thepractical aspects of conversion with its tax and corporate advisors and expectsto reach a decision later this year, once the legislation, regulations andguidance notes have been finalised. "We have made significant progress in securing new investments in Covent Gardenwhich offer exceptional opportunities for reconstruction and refurbishment. Thehigher level of refurbishment activity which will flow from these new projects,together with our existing schemes, will inevitably increase the level ofvacancies. Although this may moderate the growth in our profits in the shortterm, we are confident that our new schemes, together with continuing tenantdemand throughout our villages, will lead to sustained growth in income andcapital values over time." Date: 25 May 2006For further information:Shaftesbury PLC 020 7333 8118 cityPROFILE 0207448 3244Jonathan Lane, Chief Executive Simon CourtenayBrian Bickell, Finance Director Andrew Harriswww.shaftesbury.co.uk Index Page2 Chairman's Statement 10 Unaudited Consolidated Balance Sheet8 Portfolio Analysis at 31.3.2006 11 Unaudited Consolidated Cash Flow Statement9 Unaudited Consolidated Income Statement 12 Notes to the Interim Results Chairman's Statement Our results for the six months ended 31 March 2006 reflect further growth inrental income and underlying profits as well as considerable activity within ourportfolio. We have completed important strategic acquisitions in Covent Garden,including our Longmartin joint venture and, with the sale of National MagazineHouse, continued our strategy of reducing the office element of our portfolio. Results These are our first results reported under International Financial ReportingStandards. These new accounting rules require a number of changes to the formatand presentation of our results but have no impact on our business strategy orits cash flows. In the interests of clarity we refer below to our adjustedresults, which exclude movements in the valuation of property assets andfinancial instruments, gains on disposals of properties and exceptional costs,in order to give a better indication of the underlying profitability of theGroup. A detailed reconciliation of the adjusted figures and the overall effectsof adopting the new accounting standards are provided in the notes to theInterim Results. Six months ended Year ended 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000 Adjusted profit before tax 7,934 7,901 14,250 Exceptional administration costs - (292) (297)Profit on disposal of investment properties 683 93 4,220Surplus arising on revaluation of investment properties - - 136,887Valuation movement in respect of lease incentives recognised (569) (40) (6,883)in the periodMovement in fair value of financial instruments 709 1,590 (4,171)Loss on purchase of debenture stock - (531) (3,655)Profit before tax reported in the Income Statement 8,757 8,721 140,351 The adjusted profit before tax for the six months ended 31 March 2006 amountedto £7.9 million, which compares with an adjusted profit for the same period lastyear of £7.9 million. The results for the first half this year include aprovision for National Insurance of £0.7 million (2005 - £0.1 million) inrespect of the vesting of performance-related share options granted over1,512,000 Ordinary shares and the increase in the Company's share price from£3.80 to £5.27 during the period, and provision in respect of options expectedto vest in the future. Chairman's Statement (continued) Six months ended Year ended 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000 Adjusted taxation charge on the adjusted profit before tax 2,103 2,557 4,093Current tax in respect of:Exceptional administration costs - (88) (89)Loss on purchase of debenture stock - (159) (1,097)Deferred tax in respect of:Property disposals (428) - 850Revaluation of investment properties - - 39,000Movements in fair value of financial instruments 263 477 (1,210)Taxation charge reported in the Income Statement 1,938 2,787 41,574 Provision for current and deferred taxation on the adjusted profit for theperiod amounted to £2.1 million (2005 - £2.6 million). The tax charge for theperiod has benefited from the release of deferred tax following the sale ofNational Magazine House of £0.4 million. Adjusted profit after tax amounted to £5.8 million (2005 - £5.3 million). Theprofit after tax reported in the Income Statement for the period amounted to£6.8 million (2005 - £5.9 million). Your Directors have declared an interim dividend of 1.92 pence per Ordinaryshare (2005 - 1.70 pence), an increase of 12.9%. The interim dividend, whichunder IFRS will be recorded as a distribution in the second half, will be paidon 30 June 2006 to shareholders on the register on 7 June 2006. As in previous years, no interim portfolio valuation has been carried out. Inthe first half we have continued to achieve rents at or in excess of estimatedrental values assumed in the September 2005 external valuation. Marketcommentary suggests that property yields and values have continued to improveover the period although it is impossible to predict their direction in thecoming months. Strategy Shaftesbury's strategy is very focused and geographically specific. We haveconcentrated on those areas at the heart of London's cosmopolitan West End whichcombine centuries of tradition with a contemporary mix of creativity, wealth andvitality. Applying this strategy over the past 15 years we have assembled aunique West End estate. Our estate includes the distinctive village districts of Carnaby, Chinatown, andCovent Garden. Within Covent Garden we have holdings in Seven Dials, our newjoint venture Island Site nearby, as well as two blocks which front WellingtonStreet, close to the Royal Opera House. Our villages are home to a broad rangeof uses with an emphasis on shops and restaurants. We are careful to ensure thateach location maintains its own individual identity. The long term prosperity ofthese districts is underwritten by their close proximity Chairman's Statement (continued) to the unrivalled cluster of theatres, cinemas, museums, galleries and historicsites which is unique to the West End and makes London a World famous capitaland the top city destination for overseas visitors. The concentration of our portfolio enables us to work in close co-operation withWestminster City Council, Camden Council and local community groups tofacilitate much needed environmental improvements through investment in paving,lighting and street initiatives within our estate. Street improvements are nowunderway in each of our villages and other schemes are under discussion. Portfolio activity This has been an active six months during which we have invested £89 million inproperty acquisitions, of which £76.4 million has been within Covent Garden. InNovember 2005 we sold National Magazine House, a single let freehold officebuilding of 55,000 sq. ft. with 11 flats above, for £45 million, retaining a999 year lease of the shops below. These transactions further our long termstrategy of increasing retail, restaurant and leisure uses within our portfolioand reducing exposure to offices, which we consider over time are more prone toobsolence and volatility in rents and capital values. An analysis of ourportfolio at 31 March 2006 is set out on page 8. In the six months to 31 March 2006 we let £2.2 million of commercial space. Atthat date the total estimated rental value of our vacant commercial property was£3.2 million per annum, of which approximately one third was ready to let, onethird under offer and one third under refurbishment. Since October 2005, demand to rent our shops has been strong and consequently weexpect rental growth for our shops, evident in the first half, to continue. At31 March 2006, out of a total of 285 units, we had eighteen shops vacant andready to let, of which eight were under offer. A further eleven are underreconstruction. In our villages, we continue to see a trend both for independentfashion brands to open a first 'stand alone' unit and for major retailers tolaunch new concepts, which are often close to their flagship stores. Forexample, at 31 March 2006, of our 129 shops in Carnaby, 73 were the only storesof their kind or were unique to London. At 31 March 2006, all but two of our 152 restaurants were let. Improving visitornumbers and the increasing popularity of eating out in the West End isencouraging experienced operators to launch new ventures with interesting andinnovative concepts. All of our recently refurbished and vacant offices are small suites (mostlybetween 500 and 1,000 sq. ft.) and are located above our shops and restaurants.Whilst demand for office accommodation of this size is improving, supply remainsplentiful and, with shorter leases, the level of occupancy is more volatile.Most of our vacant offices are in Carnaby but there continues to be a steadydemand from retailers and restaurateurs for administrative space to supporttheir nearby trading operations, as well as demand from media businesses, whichare traditionally located in the area. Chairman's Statement (continued) Our residential accommodation continues to let well and already this year wehave seen a resumption of rental growth. We expect our residential portfolio toincrease each year mainly through the conversion of smaller offices. Carnaby Carnaby represents 40% of our property assets and includes almost 45% of ourshops and 57% of our offices. Our reconstruction project at the corner of Carnaby Street and Broadwick Streetis almost complete. One of the two large shops has been let and we have interestin the other retail unit and in the 8,000 sq. ft. of offices above. In theAutumn we will start the next phase in Broadwick Street which includesextensions to five shops, as well as street improvements. Kingly Court, our galleried shopping courtyard between Carnaby Street and KinglyStreet, is a well established location for small new venture shops andindependent designers. With all existing units let, we are reconfiguring partsof the ground floor to create five additional small shops. We now have aremovable roof for the courtyard which will increase the number of events we areable to hold throughout the year. Covent Garden Our holdings in Covent Garden represent 33% of our assets and include ourLongmartin joint venture with The Mercers' Company, a portfolio aroundWellington Street (our Opera Quarter) as well as Seven Dials. The Longmartin joint venture, concluded in December 2005, has created an islandsite of almost two acres which fronts Long Acre, Upper St. Martin's Lane,Shelton Street, and Mercer Street. Of the 250,000 sq. ft. of existing space, 65%is currently un-modernised offices and garaging on five floors, with only 20%shops and restaurants and 15% residential. We expect to extend frontages and torebalance uses by opening additional access into the site where we will form anew central courtyard. We already have two planning consents but willcrystallise our ideas both as to timing and phasing of our overall scheme beforewe make further planning applications or commence any works. We envisage thatthis project will also benefit neighbouring areas where both we and The Mercers'Company have further substantial property interests. Westminster City Council is advancing plans for environmental improvements tothe adjacent streets, junctions, and public areas. At Seven Dials our tenants have welcomed the enhancement to the localenvironment which includes the upgrading of Monmouth Street, where works arealmost finished. We currently have only four shops to let, of which two areunder offer. All of our restaurants are let. Our freeholds at the corner of Cranbourn Street and St Martin's Lane, purchasedin July 2005, currently include two shops, four restaurants and 18,000 sq. ft.of offices. We expect to start phased works of improvement later this yearincluding conversion of some offices to residential use. Chairman's Statement (continued) In December 2005 we purchased 26 freeholds fronting Wellington, Tavistock,Catherine, and Russell Streets, which together with our existing holdings makeup our Opera Quarter. It is located close to the Royal Opera House and is veryclose to five other theatres. Our holdings extend to 58,000 sq. ft. andpresently include seventeen restaurants and cafes, fourteen shops with 22,000sq. ft. of offices above, of which 15,000 sq. ft. is vacant. Much of this vacantspace is un-modernised. We are securing possession of more areas while we carryout detailed research on each building. This will assist us as we begin a phasedprogramme of reconfiguration and renovation later this year. Chinatown Chinatown represents 25% of our assets and includes 36% of our restaurants, allof which are let. Construction of the new shopping courtyard at Horse andDolphin Yard is progressing well and the first access into the Yard via shops inShaftesbury Avenue is now in place. We have pre-let two of the three retailunits in the first phase. Following completion of infrastructure works, Westminster City Council is nowstarting the resurfacing of Gerrard Street and adjoining streets in Chinatown,as well as providing new street lighting. Completion of works in Gerrard Streetis anticipated by December 2006. Finance As a result of the substantial net additions to our portfolio during the sixmonths ended 31 March 2006, bank borrowings rose from £258.3 million to £289.3million over the period. We have arranged additional facilities of £50 millionduring the first half with existing lenders to give total committed facilitiesof £350 million. In addition we have extended a facility due to expire inOctober 2008 to April 2016, with a reduction in the interest margin we pay. Theweighted average maturity of our bank debt is now 8.1 years and, at 31 March2006, the weighted average cost of our borrowings (including margin) was 6.39%. Real Estate Investment Trusts (REITs) The Government has now published draft legislation to govern the operation ofREITs in the UK although, at the present time, detailed regulations andoperational guidance notes have not yet been made available. If the draftlegislation is enacted in its current form, the proposed structure of REITscould offer significant long term benefits to the Group and its shareholderswere it to convert to REIT tax status. The Board is currently discussing thepractical aspects of conversion with its tax and corporate advisors and expectsto reach a decision later this year once the legislation, regulations andguidance notes have been finalised. Chairman's Statement (continued) Outlook We have made significant progress in securing new investments in Covent Gardenwhich offer exceptional opportunities for reconstruction and refurbishment. The higher level of refurbishment activity which will flow from these newprojects, together with our existing schemes, will inevitably increase the levelof vacancies. Although this may moderate the growth in our profits in the shortterm, we are confident that our new schemes, together with continuing tenantdemand throughout our villages, will lead to sustained growth in income andcapital values over time. P John ManserChairman25 May 2006 Portfolio Analysis at 31 March 2006 Carnaby Covent Chinatown Charlotte Wholly owned Longmartin (50% Garden Street portfolio owned)Book value £408.3m £286.3m £261.1m £22.9m £978.6m *£62.7m% of total book 40% 27% 25% 2% 94% 6%valueShopsNumber 129 101 53 2 285 7Area - sq.ft. 185,000 134,000 49,000 4,000 372,000 13,000Restaurants andleisureNumber 37 52 55 8 152 6Area - sq.ft. 79,000 126,000 162,000 21,000 388,000 35,000OfficesArea - sq.ft. 237,000 116,000 47,000 15,000 415,000 **161,000ResidentialNumber 46 88 64 18 216 43Area - sq.ft. 35,000 62,000 43,000 10,000 150,000 39,000Total area - sq.ft 1,325,000 248,000 * Shaftesbury Group's share ** Includes 35,000 sq.ft. of garaging Wholly owned portfolio - Vacant commercial space at 31 March 2006 and letting activity Estimated rental value Shops Restaurants and Offices £'000 Leisure £'000 £'000Under refurbishment 236 98 649Ready to let 562 42 606Under offer 902 - 112Total 1,700 140 1,367Area - sq.ft. 29,000 4,000 49,000 Rents secured on properties let during the 768 747 724six months ended 31.3.2006 Unaudited Consolidated Income Statementfor the six months ended 31 March 2006 Note Six months ended Year ended 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000Continuing operationsRevenue from properties 3 29,999 26,541 52,799Property charges 4 (6,540) (5,094) (9,398)Net property income 23,459 21,447 43,401Administration expenses 5 (3,111) (2,087) (5,507)Exceptional administration expenses 6 - (292) (297)Total administration expenses (3,111) (2,379) (5,804)Operating profit before investment property 20,348 19,068 37,597disposals and revaluationProfit on disposal of investment properties 7 683 93 4,220Investment property valuation movements 8 (569) (40) 130,004Operating profit 20,462 19,121 171,821 Interest receivable 80 17 52Interest payable 9 (12,494) (11,476) (23,696)Change in fair value of financial instruments 709 1,590 (4,171)Loss on purchase of debenture stock 10 - (531) (3,655)Profit before tax 8,757 8,721 140,351Current tax 11 (2,315) (2,000) (1,700)Deferred tax 11 377 (787) (39,874)Tax charge for the period (1,938) (2,787) (41,574) Profit for the period 6,819 5,934 98,777 Earnings per share: 13Basic 5.15p 4.49p 74.75pDiluted 5.14p 4.48p 74.62p Unaudited Consolidated Balance Sheetas at 31 March 2006 Note 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000Non-current assetsInvestment properties 14 1,041,282 826,389 987,516Office assets and vehicles 463 281 364 1,041,745 826,670 987,880 Current assetsTrade and other receivables 15 12,532 13,740 27,067Cash 680 - -Total assets 1,054,957 840,410 1,014,947 Current liabilitiesTrade and other payables 16 23,403 20,781 21,747Non-current liabilitiesBorrowings 17 420,981 346,524 384,432Financial instruments 18 10,881 6,134 11,758Deferred tax 19 122,495 84,912 123,849 Total liabilities 577,760 458,351 541,786 Net assets 477,197 382,059 473,161 EquityCalled up share capital 20 33,108 33,039 33,046Retained earnings 20 321,670 228,597 319,202Other reserves 20 122,419 120,423 120,913Total equity 477,197 382,059 473,161 Net assets per share: 21Basic £3.61 £2.89 £3.58Diluted £3.58 £2.89 £3.57 Unaudited Consolidated Cash Flow Statementfor the six months ended 31.3.2006 Note Six months ended Year ended 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000Operating activitiesCash generated from operations 22 21,341 20,703 39,774Interest received 80 17 52Interest paid (13,101) (10,606) (22,282)Tax payments in respect of operating activities (695) (2,012) (3,064) 7,625 8,102 14,480Investing activitiesAcquisition of investment properties (89,226) (4,783) (37,530)Capital expenditure on investment properties (4,763) (4,529) (10,669)Net proceeds from sales of investment properties 60,236 3,373 3,366Net purchase of office assets and vehicles (173) (15) (167)Cash flows from investing activities (33,926) (5,954) (45,000)Financing activitiesIssue of shares 419 64 145Purchase of debenture stock - (2,747) (16,686)Increase in borrowings 31,091 4,460 53,348Bank loan arrangement costs (95) (102) (226)Payment of finance lease liabilities (83) - -Equity dividends paid (4,351) (3,823) (6,061)Cash flows from financing activities 26,981 (2,148) 30,520Net change in cash 680 - - Notes to the Interim Resultsfor the six months ended 31 March 2006 1.Basis of preparation The financial information contained in this report is not audited and does notcomply with the meaning of statutory accounts as defined by section 240 of theCompanies Act 1985. The comparative figures for the year ended 30 September 2005are not the Company's statutory accounts for that year. Those statutoryaccounts, which were prepared under UK Generally Accepted Accounting Practice(UK GAAP) have been audited and delivered to the Registrar of Companies. Thereport of the auditors was unqualified and did not contain statements undersection 237(2) or (3) of the Companies Act 1985. EU law requires that the consolidated financial statements for the year ending30 September 2006 and future years be prepared in accordance with InternationalFinancial Reporting Standards (IFRS) as endorsed by the EU. This interimfinancial information has been prepared on the basis of IFRS requirements thatare expected to be effective for the year ending 30 September 2006. Theaccounting policies set out below, which have been used consistently in thepreparation of this Interim Report, are expected to be applied when the firstIFRS annual results are prepared in respect of the current year. As permitted,IAS 34 ('Interim Financial Reporting') has not been adopted. An analysis of the impact of adoption of IFRS was provided with the 2005 AnnualReport published in December 2005. Reconciliations between UK GAAP and IFRS ofequity at 1 October 2004 and of profits and equity reported for the six monthsended 31 March 2005 and the year ended 30 September 2005 are set out in notes 23and 24 below. Although the format of the Cash Flow Statement prepared under IFRSdiffers from that prepared under UK GAAP, there are no material changes topreviously reported cash flows. The preparation of financial statements requires management to make judgements,assumptions and estimates that affect the application of accounting policies andamounts reported in the Income Statement and Balance Sheet. Such decisions aremade at the time the financial statements are prepared and adopted based on thebest information available at the time. Actual outcomes may be different frominitial estimates and are reflected in the financial statements as soon as theybecome apparent. 2. Accounting policies Basis of accounting The financial statements have been prepared on the historical cost basis ofaccounting as modified by the annual revaluation of investment properties andthe periodic valuation of derivative financial instruments. Accounting policieshave been applied consistently. Basis of consolidation The consolidated financial statements incorporate the audited financialstatements of the Company and its subsidiaries made up to the balance sheetdate. Joint ventures Joint ventures are those entities over which the Group has joint control,established by contractual agreement. Interests in joint ventures are accountedfor using the proportional consolidation method permitted under IAS 31 ('Interests in joint ventures'). The Group's Balance Sheet includes its share ofthe assets and liabilities of the joint venture entity and the Income Statementincludes its share of the entity's income and expenditure. The profit or loss arising on transactions with the joint venture entity arerecognised only to the extent of that attributable to the interest of the otherjoint venture party unless any loss represents a permanent impairment loss, inwhich case it is provided in full. Entity set up costs Costs incurred which are directly attributable to the formation of a specificjoint venture entity which has the main purpose of property investment arecapitalised in the Company's Balance Sheet. Investment properties Investment properties are properties owned or leased by the Group which are heldfor long term income and capital appreciation. Investment properties are revalued annually to reflect fair value either byexternal professional valuers on the basis of market value or by the Directorsin the case of properties sold shortly after the year end. The amounts at whichinvestment properties are stated at interim reporting dates are reviewed by theDirectors to ensure that any diminutions in value are provided for. In the case of investment properties which are leasehold interests, such leasesare accounted for as finance leases and recognised as an asset and an obligationto pay future minimum lease payments. The investment property asset is held inthe balance sheet at fair value, gross of the finance lease liability. Leasepayments are allocated between the liability and finance charges so as toachieve a constant financing rate. Gains or losses arising on the revaluation of investment properties are includedin the Income Statement in the accounting period in which they arise.Depreciation is not provided in respect of investment properties or any plant orequipment contained therein. Additions to properties include costs of a capital nature only. All otherproperty expenditure is written off in the Income Statement as incurred. Nofinance costs are capitalised. Where refurbishment projects are in progress at the balance sheet date, thecontractually committed costs to be incurred in completing such projects aretaken account of in the valuation. Amounts received by way of dilapidations from tenants vacating properties arecredited against the cost of reinstatement works. Where the Group has nointention of carrying out such works, the amounts received are credited to theIncome Statement. Purchases and Sales of Investment Properties Purchases and sales of investment properties are recognised in the financialstatements on the date at which there is a legally binding and unconditionalcontract. Depreciation of Other Assets Depreciation is provided on short leasehold office premises, equipment and motorvehicles to write their cost down to their estimated residual values over theirestimated useful lives at the following rates: Short leasehold office premises - over the period of the lease on cost, assuming no residual valueEquipment - 20%/25% per annum on costMotor vehicles - 25% per annum on written down value Revenue Revenue includes rents due from tenants, recognition of lease incentives andrecoverable expenses incurred on behalf of tenants. Value added tax is excludedfrom all amounts. The cost of any incentives given to lessees to enter into leases is spread overthe period from the lease commencement date to its expiry date or to the date ofthe first break on a straight-line basis. Lease incentives are usually in theform of rent free periods. Borrowings and Costs of Raising Finance Borrowings are initially recognised at fair value net of transaction costsincurred. Expenses and discounts relating to the issue of long term debt are deducted fromthe proceeds and written off in the Income Statement over the life of the debtinstrument using an effective yield method. Any premium arising on the issue oflong term debt is added to the proceeds and credited to the Income Statementover the life of the debt instrument using an effective yield method. The costs of arranging long and medium term bank facilities are written off inthe Income Statement at a rate which results in a constant charge over theunexpired term of the facilities. Financial Instruments Financial Instruments are recorded at fair value based on market prices,estimated future cash flows and forward interest rates. Movements in fair value,together with amounts payable or receivable under such arrangements, arerecognised in the Income Statement as a finance cost. Income taxes Income tax on the profit for the year comprises current and deferred tax. Current tax is the corporation tax payable on taxable income for the currentyear adjusted for prior years' under and over provisions. Deferred tax is provided in respect of all temporary timing differences betweenthe values at which assets and liabilities are recorded in the financialstatements and their cost base for corporation tax purposes. Deferred tax isrecognised in the Income Statement unless the items to which it relates havebeen accounted for in equity, in which case the deferred tax is also dealt within equity. In the case of deferred tax in relation to investment property revaluationsurpluses, the base cost used is historical book cost and ignores any allowancesor deductions which may be available to reduce the actual tax liability whichwould crystallise in the event of a disposal of the asset. Deferred tax liabilities are not discounted. Deferred tax assets are recognisedwhen recoverability is considered reasonably certain. Share based payments The cost of granting share options and other share based remuneration toemployees and Directors is recognised in the Income Statement based on the fairvalue at the date of grant. Fair value is calculated using an option pricingmodel and charged in the Income Statement over the relevant vesting period. Aspermitted by IFRS 2 ('Share Based Payments') no provision is made in respect ofoptions granted or which had vested on or before 7 November 2002. Exceptional items Exceptional items are those which derive from events or transactions that fallwithin the ordinary activities of the Group and which individually or, if of asimilar type, in aggregate, need to be disclosed by virtue of their size ornature. 3. Revenue from properties Six months ended Year ended 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000Rents due from tenants 25,303 24,123 48,688Recognition of lease incentives 569 40 173Rents receivable 25,872 24,163 48,861 Recoverable property expenses 4,127 2,378 3,938 29,999 26,541 52,799 4. Property chargesProperty outgoings 2,413 2,716 5,460Recoverable property expenses 4,127 2,378 3,938 6,540 5,094 9,398 5. Administration expenses Administration expenses include the followingamounts respect of share based paymentsto Directors and staff: Six months ended Year ended 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000Charge for share based payments 272 219 485Employers National Insurance in respect of share awards and 698 123 241share options vested or expected to vest 970 342 726 6. Exceptional administration expensesCosts incurred in Group restructuring to create village - 292 297subsidiaries 7. Profit on disposal of investment propertiesNet sale proceeds 48,391 3,373 15,290Book value at date of sale (47,708) (3,280) (11,070) 683 93 4,220 8. Investment property valuation movementsSurplus arising on revaluation of investment properties - - 130,177Valuation movement in respect of lease incentives (569) (40) (173)recognised in the periodNet revaluation movement recognised in the Income Statement (569) (40) 130,004 No revaluation of investment properties was carried out at either 31 March 2005or 31 March 2006. 9. Interest payableDebenture stock interest and amortisation 4,941 5,518 10,629Bank and other interest 7,470 5,958 13,067Amount payable under finance lease 83 - - 12,494 11,476 23,696 10. Loss on purchase of debenture stockLoss arising on the purchase and cancellation of 8.5% FirstMortgage Debenture Stock 2024:Nominal amount - £12.357 million - - 4,329Nominal amount - £2.1 million - 647 -Unamortised net premium written off - (116) (674) - 531 3,655 11. Taxation Six months ended Year ended 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000Current taxUK Corporation tax at 30% 2,315 2,000 2,000Adjustments in respect of prior years - - (300) 2,315 2,000 1,700Deferred taxRevaluation of investment properties - - 39,000Revaluation of financial instruments 263 477 (1,210)Provision in respect of capital allowances 196 275 664Released in respect of properties sold in period (428) - 850Other timing differences (408) 35 924Adjustments in respect of prior years - - (354) (377) 787 39,874Tax charge for the period 1,938 2,787 41,574 Factors affecting the tax charge:Profit before tax 8,757 8,721 140,351UK Corporation tax at 30% 2,627 2,616 42,105Difference due to tax treatment of property disposals (633) (28) (416)Expenses and provisions not deductible for Corporation tax (56) 199 539purposes and other timing differencesAdjustments in respect of prior periods - - (654) 1,938 2,787 41,574 12. Dividends paidFinal dividend paid in respect of:Year ended 30 September 2004 at 2.90p per share - 3,823 3,823Year ended 30 September 2005 at 3.30p per share 4,351 - -Interim dividend paid in respect of:Six months ended 31 March 2005 at 1.70p per share - - 2,238 4,351 3,823 6,061 An interim dividend in respect of the six months ended 31 March 2006 of 1.92pper Ordinary share amounting to £2,543,000 was declared by the Board on 25 May2006. The interim dividend will be paid on 30 June 2006 to shareholders on theregister at 7 June 2006 (record date 9 June 2006). The dividend will beaccounted for as an appropriation of revenue reserves in the six months ending30 September 2006. 13. Earnings per share Six months ended Year ended 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000Profit after tax used for calculation of basic earnings per 6,819 5,934 98,777shareAdjusted for:Exceptional administration expenses - 292 297Gain on sale of investment properties (683) (93) (4,220)Investment property valuation movements 569 40 (130,004)Movement in fair value of financial instruments (709) (1,590) 4,171Loss on purchase of debenture stock - 531 3,655Current tax in respect of:Exceptional administration expenses - (88) (89)Loss on purchase of debenture stock - (159) (1,097)Deferred tax in respect of:Investment property revaluation gains - - 39,000Adjustment is respect of property disposals (428) - 850Movement in the fair value of financial instruments 263 477 (1,210)Profit after tax used for adjusted earnings per share 5,831 5,344 10,130 Weighted average number of shares in issue '000 132,320 132,130 132,152Weighted average number of shares in issue for calculation 132,595 132,332 132,367of diluted earnings per share '000Earnings per share (pence):Basic 5.15 4.49 74.75Diluted 5.14 4.48 74.62 Adjusted basic 4.41 4.05 7.67Adjusted diluted 4.40 4.04 7.65 14. Investment properties Group £'000At 1 October 2005 - book value 987,516Acquisitions 89,307Expenditure 5,302Disposals (47,708) At 31 March 2006 1,034,417Movement in lease incentives recognised in period 1,288Head lease liability grossed up 5,577At 31 March 2006 - book value 1,041,282 Investment properties were not subject to revaluation at 31 March 2006. 15. Trade and other receivables 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000Amounts due from tenants 6,349 6,534 7,275Lease incentives recognised in the Income Statement 5,596 6,750 6,883Due in respect of property disposal - - 12,100Other receivables and prepayments 587 456 809 12,532 13,740 27,067 16. Trade and other payablesRents invoiced in advance 10,252 10,060 10,368Corporation tax payable 2,776 2,508 1,156Trade payables in respect of capital expenditure 477 861 989Other trade creditors and accruals 9,898 7,352 9,234 23,403 20,781 21,747 17. Borrowings Nominal value Unamortised 31.3.2006 31.3.2005 30.9.2005 premium and issue costs £'000 £'000 £'000 £'000 £'000 8.5% First Mortgage 119,643 6,430 126,073 137,052 126,153Debenture Stock 2024Secured bank loans 290,162 (831) 289,331 209,472 258,279Finance lease obligations 5,577 - 5,577 - - 415,382 5,599 420,981 346,524 384,432 18. Financial instrumentsFair value deficit relating to interest rate hedges 10,881 6,134 11,758 There have been no changes in interest rate hedging arrangements during the sixmonths ended 31 March 2006. The Company's 8.5% First Mortgage Debenture Stock is shown at amortisedhistorical cost in the balance sheet. The fair value of this long termliability, based on market value at 31 March 2006, was £167,275,000, giving riseto a fair value deficit of £41,202,000 before any related tax relief that wouldarise if this deficit was crystallised. 19. Deferred tax 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000At beginning of period 123,849 84,311 84,311Recognised in Income Statement (377) 787 39,874Recognised in equity:Share based payments (877) (186) (336)At end of period 122,595 84,912 123,849 Comprising:Revaluation of investment properties 122,600 82,400 122,250Fair value of financial instruments (3,264) (1,840) (3,527)Capital allowances 4,882 4,650 4,685Other timing differences (1,623) (298) 441 122,595 84,912 123,849The deferred tax recognised in respect of gains on the revaluation of investmentproperties is calculated prior to deducting indexation relief and capital losseswhich would be available to reduce the chargeable gain which would arise in theevent of disposals of investment properties at the values reflected in thefinancial statements. At 30 September 2005, the date of the last investmentproperty revaluation, the contingent capital gains liability after allowing forindexation relief and capital losses was estimated at £91 million which compareswith £122.25 million provided at that date in accordance with IFRS. 20. Shareholders' funds Ordinary Share premium Share based Retained Total shares payments earnings £'000 £'000 £'000 £'000 £'000 At 1 October 2005 33,046 119,696 1,217 319,202 473,161Shares issued on exercise of options 62 357 - - 419Fair value of share based payments - - 272 - 272Deferred tax adjusted in equity - - 877 - 877Profit for the period - - - 6,819 6,819Dividend paid during the period - - - (4,351) (4,351) At 31 March 2006 33,108 120,053 2,366 321,670 477,197 Ordinary Share premium Share based Retained Total shares payments earnings £'000 £'000 £'000 £'000 £'000 At 1 October 2004 33,022 119,575 396 226,486 379,479Shares issued on exercise of options 17 47 - - 64Fair value of share based payments - - 219 - 219Deferred tax adjusted in equity - - 186 - 186Profit for the period - - - 5,934 5,934Dividend paid during the period - - - (3,823) (3,823) At 31 March 2005 33,039 119,622 801 228,597 382,059 Ordinary Share premium Share based Retained Total shares payments earnings £'000 £'000 £'000 £'000 £'000 At 1 October 2004 33,022 119,575 396 226,486 379,479Shares issued on exercise of options 24 121 - - 145Fair value of share based payments - - 485 - 485Deferred tax adjusted in equity - - 336 - 336Profit for the period - - - 98,777 98,777Dividends paid during the year - - - (6,061) (6,061)At 30 September 2005 33,046 119,696 1,217 319,202 473,161 21. Net assets per share 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000Net assets used for calculation of basic net assets per 477,197 382,059 473,161shareAdjusted for:Cumulative fair value adjustment is respect of financial 10,881 6,134 11,758instrumentsCumulative deferred tax provided in respect of:Investment property revaluation gains 122,600 82,400 122,250Financial instruments (3,264) (1,840) (3,527) Adjusted net assets 607,414 468,753 603,642 Ordinary shares in issue 132,704 132,155 132,185 Diluted Ordinary shares 134,333 132,610 132,830 Net assets per share (pence):Basic £3.60 £2.89 £3.58Diluted £3.58 £2.89 £3.57 Adjusted basic £4.58 £3.54 £4.56Adjusted diluted £4.55 £3.54 £4.55 22. Cash flows from operating activities Six months ended Year ended 31.3.2006 31.3.2005 30.9.2005 £'000 £'000 £'000Operating activitiesOperating profit 20,462 19,121 171,821Adjustment for non-cash items:Amortisation of lease incentives (569) (40) (173)Share option expense 272 219 485Depreciation 73 48 99Profit on sale of investment properties (683) (93) (4,220)Investment property valuation movements 569 40 (130,004)Cash flows from operations before changes in working capital 20,124 19,295 38,008Change in trade and other receivables 1,151 1,060 (34)Change in trade and other payables 66 348 1,800Cash flows from operating activities 21,341 20,703 39,774 23. Reconciliation of profit reported under UK GAAP to profit under IFRS Six months ended Year ended 31.3.2005 30.9.2005 £'000 £'000Profit after tax for the period under UK GAAP 4,980 11,818Revaluation surpluses reported in the Income Statement (40) 130,004Change in basis of recognition of lease incentives 385 673Property marketing and letting expenses charged in the Income (199) (487)StatementShare option expense (219) (485)Adjustment to debenture stock amortisation (69) (132)Restatement of loss arising on debenture stock purchase 18 109Movement in fair value of financial instruments 1,590 (4,034)Deferred tax adjustments:Contingent tax in respect of revaluation surpluses - (39,850)Change in basis of recognition of lease incentives (116) (202)Fair value of financial instruments (477) 1,210Share option expense 66 146Debenture stock amortisation 15 7Profit for the period under IFRS 5,934 98,777 Detailed explanations of these adjustments were provided in the 2005 AnnualReport. 24. Reconciliation of net assets reported under UK GAAP to net assets under IFRS 31.3.2005 30.9.2005 30.9.2004 £'000 £'000 £'000Net assets reported under UK GAAP 467,794 600,209 464,645Property marketing and letting expenses charged in the (199) - -Income StatementDividend not declared at the balance sheet date 2,240 4,351 3,823Adjustment to debenture stock amortisation (1,200) (1,172) (1,149)Recognition of fair value of financial instruments (6,134) (11,758) (7,724)Deferred tax adjustments arising from:Recognition of contingent tax on investment property (82,400) (122,250) (82,400)revaluation surplusesChange in basis of recognition of lease incentives (632) (718) (516)Fair value of financial instruments 1,840 3,527 2,317Share option expense 390 620 138Debenture stock amortisation 360 352 345Net assets reported under IFRS 382,059 473,161 379,479 25. Interim Report The Interim Report will be posted to shareholders on 9 June 2006. 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