Shaftesbury 2014 Annual Results

SHAFTESBURY 2014 ANNUAL RESULTS

STRONG PERFORMANCE DELIVERS 25.7% NAV GROWTH

Shaftesbury PLC ("Shaftesbury") today announces its results for the year ended 30 September 2014.

Growth in NAV, income, earnings and dividend

§ EPRA NAV increased by 25.7% to £7.13 (2013: £5.67).

§ Net asset value return, before dividends: 28.0% (2013: 16.3%)

§ Net property income up £6.5 million (8.9%) to £79.7 million (2013: £73.2 million).

§ EPRA earnings increased by 7.9% to £32.6 million (2013: £30.2 million). EPRA earnings per share increased by 1.7% to 12.2p (2013: 12.0p).

§ Final dividend per share of 6.6p (2013: 6.25p), an increase of 5.6%. Total dividend for the year 13.1p, 4.8% above 2013 (12.5p), virtually fully covered by recurring cash earnings.

Continued strong demand across all the portfolio

§ Vacant space available to let at 30.9.2014: 0.6% of ERV.

§ Commercial lettings, lease renewals and rent reviews with a rental value of £20.2 million concluded in the year:

o Lettings and renewals at an average 5.5% above 30 September 2013 ERV.

o Rent reviews 26.3% above previous rents.

§ Residential lettings and renewals: £4.9 million.

Strong growth in rental and capital values

§ Portfolio capital value return (like-for-like): +21.0%. 3-year compound annualised growth rate: +11.8%.

§ Annualised current income at 30.9.2014: £93.5 million (2013: £85.9 million). Like-for-like increase: +8.8%.

§ Total portfolio ERV increased by £12.7 million to £118.6 million (2013: £105.9 million). Like-for-like ERV growth: 6.6%, with good rental growth across all uses.

§ Portfolio reversion has grown by £5.1 million to £25.1 million, of which acquisitions added £2.5 million. This is the largest reversion in our history.

§ Equivalent yield compression of 55 basis points to 4.00% in the wholly owned portfolio and 48 basis points to 4.10% in the Longmartin joint venture.

Significant investment to add to and improve our portfolio

§ Acquisitions totalling £107.9 million in the period, including two strategic purchases: Newport Sandringham, Chinatown and 57-59 Broadwick Street, Carnaby.

§ Redevelopment and refurbishment schemes across 154,000 sq. ft. (8.9% of wholly owned floor space). We are unlocking value through an acceleration of capital projects and asset management initiatives across the portfolio.

Financing arrangements to grow and develop the business

§ Share placing in March 2014 at £6.20 per share raised £153.2 million (net of expenses).

§ Completed restructuring of £225 million of facilities which were due to mature in 2016.

§ Weighted average maturity of debt: 7.1 years (2013: 5.8 years).

§ Committed unutilised facilities to fund acquisitions and improvements to our portfolio: £139.4 million.

§ Conservative gearing (loan-to-value ratio: 23.6%).

Brian Bickell, Chief Executive, commented:

"Our portfolio - unique in its concentration in the heart of London's West End and its focus on retail, restaurant and leisure uses - is underpinned by London's reputation as a leading global city and its dynamic economy. Both near-term and longer-range forecasts anticipate continuing growth in London's working and residential population and economic performance.

Our proven, long-term approach to creating and maintaining busy and prosperous environments continues to attract strong demand from operators specifically seeking space in our carefully-curated and lively locations. The current strength of demand across all uses, which shows no sign of slowing, continues to deliver increases in both income and rental values.

We remain confident we shall continue to deliver long-term outperformance in growth in income, capital values and shareholder returns."

27 November 2014

For further information:

There will be a presentation to equity analysts at 9.30 am on Thursday 27 November 2014, at The London Stock Exchange, 10 Paternoster Square, London EC4M 7LS.

There is a dial-in facility for the presentation. Analysts and investors are welcome to participate. The facility can be accessed by calling +44 (0)203 139 4830. The PIN code is 34354032#. The presentation document is available on the Group's website www.shaftesbury.co.uk. A recording of the conference call will be available on the Company's website www.shaftesbury.co.uk following the meeting.

About Shaftesbury

Shaftesbury PLC is a Real Estate Investment Trust, which owns a unique real estate portfolio extending to 14 acres in the heart of London's West End - a highly popular, sought-after and prosperous location, with an exceptional long record of delivering rental growth.

Our objective is to deliver long-term outperformance in growth in rental income, capital values and shareholder returns.

We focus on retail, restaurants and leisure in the liveliest parts of the West End. Our portfolio comprises 582 shops, restaurants, cafes and pubs; these uses account for 72% of our current income. It also comprises 415,000 sq. ft. of offices and 491 apartments, which provide 16% and 12%, respectively, of our current income.

In addition we have a 50% interest in the Longmartin joint venture with The Mercers' Company, which has a long leasehold interest in St Martin's Courtyard in Covent Garden. Extending to 1.9 acres, it includes 22 shops, ten restaurants and cafés, 102,000 sq. ft. of offices and 75 apartments.

Our proven management strategy is to create and foster distinctive, attractive and prosperous locations. Our holdings are concentrated in Carnaby, Covent Garden, Chinatown, Soho and Charlotte Street.

The strategy is supported by an experienced management team with an innovative approach to long-term, sustainable income and value creation and a focus on shareholder returns. We have a strong balance sheet with modest leverage.

Forward-looking statements

This document may contain certain 'forward-looking' statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual outcomes and results may differ materially from any outcomes or results expressed or implied by such forward-looking statements.

Any forward-looking statements made by or on behalf of Shaftesbury PLC speak only as of the date they are made and no representation or warranty is given in relation to them, including as to their completeness or accuracy or the basis on which they were prepared. Shaftesbury PLC does not undertake to update forward-looking statements to reflect any changes in its expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

Information contained in this document relating to Shaftesbury PLC or its share price, or the yield on its shares, should not be relied upon as an indicator of future performance.

Financial Highlights

1 Adjusted in accordance with EPRA Best Practice Recommendations.

Performance

Chairman's statement

I am pleased to report another busy and successful year.

Our proven strategy of creating lively, prosperous and desirable destinations in the West End continues to attract broad-based and growing demand for space across our portfolio. This is reflected in growth in our current and prospective rental income and consequent uplifts in value.

This year we have secured important strategic additions to our portfolio and have added to our financial resources with additional equity and new long-term debt arrangements.

Net asset value and portfolio valuation growth

At 30 September 2014, our portfolio was valued at £2.6 billion. This represents a like-for-like increase in values over the year of 21%, which has increased EPRA net asset value per share by £1.46 from £5.67 to £7.13 at the year end. After adding back dividends received by shareholders, this represents a NAV return of 28% over the year.

The significant uplift in the valuation of our property portfolio this year reflects clear market evidence of the strong and sustained demand for all types of accommodation. Our valuers have reported a noticeable reduction in yields investors pay to acquire assets in Central London, and particularly the West End. This strong investor appetite reflects confidence in the long-term security and growth prospects of assets in locations such as ours, together with expectations that interest rates will remain low for the foreseeable future, and the greater availability of investment finance.

DTZ, independent valuers of our wholly owned portfolio, continue to advise us that in their view some prospective purchasers, recognising the exceptional features, qualities and prospects of this unique portfolio, may consider a combination of some or all parts of the portfolio to have a greater value than currently reflected in their valuation, which has been prepared in accordance with RICS guidelines.

EPRA earnings and dividends

EPRA earnings for the year ended 30 September 2014 amounted to £32.6 million, compared with £30.2 million in the previous year. Growth in rental income has been the main component of this increase, through a combination of acquisitions, like-for-like increase in rents of 6.3%, and the successful completion and letting of a number of schemes, which last year tempered growth in net property income.

The Board is pleased to recommend a final dividend of 6.6p, bringing the total dividends for the year to 13.1p, an increase in the rate per share of 4.8%.

The total distribution in respect of the year ended 30 September 2014 will amount to £36.4 million. The increase over the total amount distributed in respect of the previous year of £31.6 million reflects the higher dividend per share and the increased number of shares now in issue.

Portfolio activity

Activity across the portfolio continues apace. This year we have worked on a wide variety of refurbishment schemes, extending to around 9% of our floor space, which are improving the quality of accommodation we are able to offer. Over £25 million of leasing and rent review transactions were completed during the year, equating to around 20% of ERV.

Each of our many schemes (50 in 2014) and transactions contribute to the growth in our income, as well as frequently delivering benefits compounded across our adjacent ownerships. We continue to identify and advance further asset management opportunities across our portfolio.

Acquisitions this year, which totalled £107.9 million, included two significant strategic purchases - Newport Sandringham in Chinatown and 57-59 Broadwick Street (formerly known as Jaeger House) in Carnaby. Plans are in hand to carry out major refurbishment and reconfiguration schemes to materially improve their current low net income. Subject to the necessary consents, we expect both schemes will commence in 2016.

Finance

In March 2014, we added to our equity base with a share placing of 9.99% of our issued share capital at £6.20, which raised after expenses £153.2 million. This additional capital is being deployed to fund both acquisitions and our accelerating capital expenditure programme. Also this year we have completed the refinancing of £225 million of bank debt which was due to expire in 2016, securing new long-term debt and terminating long-dated interest rate swaps with a notional principal of £110 million. In the year ahead we expect to refinance the remaining £150 million of debt due to expire in September 2016 in a similar manner.

The steps we are taking ensure our business continues to be supported by robust finances, a strong cash flow and modest gearing.

Corporate Governance and Responsibility

We are committed to the principles of good corporate governance and responsibility throughout our business.

In February 2014 Jill Little became our Senior Independent Director, and Dermot Mathias and Sally Walden took over as chairs of the Audit and Remuneration Committees respectively. This year's externally-facilitated review of the Board's performance concluded that it is working well and cohesively, and is playing an important role in supporting the executive team and the evolution of the business.

We are responding to the challenges of improving environmental performance and sustainability throughout our portfolio and we are increasing our commitments to the many initiatives we support across the community in which we invest and work.

Our team

The continual evolution of our strategy and our long and consistent record of creating and delivering value to shareholders, owes much to our experienced, innovative and committed team of just 23 staff. They, in turn, are supported by a range of professional advisors, across a variety of disciplines, who share our long-term commitment and passion for our business.

Looking ahead

Increasingly unsettled political and economic sentiment across many parts of the world is highlighting London's unrivalled advantages, stability and prospects. This exceptional global city continues to attract domestic and international investment, businesses and visitors on an unmatched scale, supporting a buoyant and dynamic economy.

Our portfolio, in the heart of the West End, is uniquely well-placed to benefit from London's continuing success and prospects. Our proven strategy continues to adapt and evolve under our management team. Activity levels across the portfolio are accelerating to capitalise on the strong and sustained demand for accommodation in our locations.

Against this background I am confident we shall continue our long record of delivering rising income, dividends and capital returns for our shareholders.

Jonathan LaneChairman

27 November 2014

Shops

The majority of our shops are let to fashion and lifestyle retailers. Across our wholly owned portfolio, 96 larger shops (rent greater than £100,000 p.a.) generate 65% of current retail income. Our 236 smaller shops, providing 35% of current retail income, are an important element of the character and retail mix in our villages, and offer great flexibility for retailers to grow or open new concepts within our areas. The Longmartin joint venture has 16 large and 6 small shops, principally occupied by fashion retailers.

Demand has remained good throughout the year, particularly for our larger shops. During the year, we completed leasing and rent review transactions with a combined rental value of £8.5 million, equivalent to 25.1% of our current retail income. This included 29 new shop lettings and sixteen lease renewals. Vacancy levels remain low, with EPRA retail vacancy in the wholly owned portfolio of 4.0% at year end, of which 2.3% was under offer.

The strong appetite for larger units is noticeable, not only from overseas retailers looking to open flagships or their first store in the UK, but also from current tenants looking to upsize within our villages. Responding to this demand, we continue to identify opportunities to reconfigure space within our generally older buildings to provide more efficient and larger accommodation for these occupiers.

Examples include:

§ 7,500 sq. ft. of new retail space at our current scheme on Foubert's Place, Carnaby, where we are already seeing good interest ahead of anticipated completion in early 2015.

§ A plan to reconfigure 21,000 sq. ft. of retail space in the Thomas Neal's Warehouse, Seven Dials, to reduce the current sixteen units to fewer larger units, or potentially a single unit. We have secured the necessary planning and Listed Building consents for this project and currently are marketing the space before finalising the plans. Works to prepare the space for occupation are expected to commence in 2016.

Currently, we are also advancing our plans for 57-59 Broadwick Street and Newport Sandringham.

Restaurants, cafés and leisure

The wide variety of restaurants, cafés and pubs across our portfolio is an important part of our overall tenant-mix strategy, drawing footfall to our villages. Where possible, we are bringing in more food and beverage operators to our villages, improving the quality of the offer and seeking further planning consents. We have 124 larger restaurants and bars (rental value over £100,000 p.a.) which provide 85% of our current income from restaurants, cafés and leisure. The remaining 15% comes from 126 smaller units. The Longmartin joint venture has ten restaurant and leisure units, of which seven have rental values greater than £100,000 p.a.

We continue to experience extremely strong demand for our restaurants, cafés and leisure space and, consequently, our vacancy levels remain minimal. We have completed lettings, renewals and rent reviews with a rental value of £7.2 million in the year, representing 23.1% of our current restaurant and leisure income. This included the introduction of eleven new concepts to our villages. EPRA restaurant vacancy in the wholly owned portfolio was 3.1% at 30 September 2014, all of which was under offer.

The improvements we have made to Kingly Street since its pedestrianisation in 2010 have already turned Carnaby into a dining destination. During the year we completed the transformation of Kingly Court, Carnaby, into a lively restaurant and leisure hub, which now boasts eighteen restaurants and cafés offering a diverse variety of cuisines with al-fresco dining, four bars and clubs and a large yoga studio. Extending to 43,000 sq. ft., this new dining destination provides 1,000 covers and complements the restaurants and bars on Kingly Street and Ganton Street. It is already attracting additional footfall, from neighbouring streets, to Carnaby and increasing dwell times.

Our development scheme on Kingly Street, where we are creating a new 6,500 sq. ft. flagship restaurant over the ground floor and basement is due to complete early in 2015. We have commenced marketing and interest is strong. This scheme has also unlocked an opportunity to improve the adjacent 1,800 sq. ft. restaurant. Anchoring the food and beverage offer at the north end of Kingly Street, we expect these restaurants will bring further footfall to the area.

To capitalise on the level of occupier demand for restaurants, cafés and leisure space in the West End, we are identifying opportunities to secure vacant possession of buildings where we can improve the space we offer, accelerate rental growth, and, in some cases, unlock further value by introducing new uses to currently under-utilised upper floors. Since October 2013, we have secured possession of 46,000 sq. ft. of space where we have introduced exciting new concepts or currently are improving the accommodation available.

Offices

Supply of office space in our areas is constrained, yet with the buoyancy of London's economy, confidence is stimulating demand, particularly from SME media, creative, fashion and IT businesses, whose natural home is in our areas, and for whom our range of suite sizes provides an excellent match for their requirements. We are also seeing interest for our larger floor plates from businesses currently based in more expensive locations who like the vibrancy of our villages and see relative value in our rents.

With demand outstripping supply, we have seen good rental growth and a reduction in tenant incentives. During the period, we completed new lettings, lease renewals and rent reviews totalling £4.5 million, equivalent to 28.5% of our current office income. At year end we had just three office suites, totalling 1,400 sq. ft., available to let.

We have a rolling programme to upgrade our office space to improve its rental prospects and environmental performance.

In Ganton Street, we completed an 18,500 sq. ft. refurbishment scheme at one of our largest office buildings during the year. We relocated our office into two floors and the remaining three floors let quickly.

We are already receiving expressions of interest in the 10,500 sq. ft. of new office space being developed in our mixed-use scheme on Kingly Street, expected to be available in early 2015.

Residential

The West End has become more popular as a place to live over recent years, which has led to sustained demand for reasonably-priced apartments to rent. This has allowed us to convert smaller offices, which are no longer able to meet the requirements of modern occupiers, to residential use. Consequently, residential has become an increasing part of our business, now representing 12% of our current income, having been just 4% ten years ago.

Occupancy levels in our apartments, which are generally positioned as mid-market, are high and, with rising demand and rents, they produce a growing and reliable income stream.

During the year, the number of apartments we own has increased by 21 to 491, largely as a result of conversions of smaller, poor-quality offices. We continue to identify opportunities to create further apartments. We are also now reconfiguring and upgrading some of our existing flats to improve their rental prospects.

With good demand throughout the year, we completed lettings and renewals totalling £4.9m, representing 45.8% of our current residential income. At year end we had just two apartments available to let in the wholly owned portfolio and one in the Longmartin joint venture.

Portfolio valuation

This has been another year of strong capital value growth in our portfolio. Rents, both actual and prospective, have continued to increase and investor demand for real estate, particularly in the West End, has remained high.

§ Portfolio valued at £2.6 billion

§ Capital value growth: +21.0% (like-for-like)

§ Like-for-like ERV growth: +6.6%

§ Equivalent yields: 4.0% (wholly owned portfolio), 4.1% (Longmartin)

Strong valuation performance

Our portfolio was valued at £2.6 billion at 30 September 2014, producing a valuation surplus of £426.4 million over the year which equates to an ungeared like-for-like capital return of 21.0%.

The valuation uplift reported by our valuers this year reflects clear market evidence of:

§ The strong and sustained demand for all types of accommodation in our locations, which is delivering growth in current income and rental values across our portfolio, as well as maintaining high levels of occupancy. The ERV of our portfolio, based on currently established rental tones, now stands at £118.6 million, £25.1 million above current income.

§ A reduction in the yields investors are prepared to pay to acquire assets in Central London, and particularly the West End. The equivalent yield attributed by our valuers to our wholly owned portfolio is now 4.0%, a reduction of 0.55% over the year. In the Longmartin joint venture, the reduction was 0.48%, bringing the equivalent yield to 4.1%.

This strong investor appetite reflects confidence in the long-term security and growth prospects of assets in locations such as ours, which is underpinned by a buoyant and dynamic economy. The attraction of investments which offer safety and growing returns is particularly appealing against a background of continuing and historically low interest rates, and the greater availability of investment finance.

In their report to the Board, DTZ, independent valuers of our wholly owned portfolio, note:

§ the unusual concentration of our holdings in sought-after West End locations;

§ the predominance of retail, restaurant, café and leisure uses, for which occupier demand has a long history, and continuing prospect, of exceeding availability in the West End; and

§ the extent to which, under RICS Valuation Professional Standards, they are permitted to combine or "lot" parts of our portfolio.

DTZ continue to advise us that, in their view, with its unusual confluence of ownership and use characteristics, some prospective purchasers may consider a wider combination of some parts of the portfolio, or the entire wholly owned portfolio itself, to have a greater value than currently reflected in their valuation, prepared in accordance with RICS valuation standards.

1 Group's 50% share

Continued rental growth

Our innovative management strategy has delivered sustained growth in both actual and potential income over many years, and this year is no exception. Our annualised current income has grown by £7.6 million over the past twelve months from £85.9 million to £93.5 million. The like-for-like increase was £4.3 million (+5.0%) and acquisitions contributed £3.3 million.

Importantly, the rental value of our portfolio, estimated by our valuers, has increased by £12.7 million to £118.6 million. Excluding the impact of acquisitions, which contributed £5.8 million to the total, the like-for-like increase was 6.6% with good rental growth across all uses.

With their patterns of high and growing footfall and spending, rental levels in our location are competitive in relation to the prime streets in other parts of the West End.

The total reversion now stands at £25.1 million, 26.8% above current income and comprises:

§ £4.7 million which will be added to current income on the expiry of rent free periods and pre-agreed increases in rents.

§ £9.5 million in respect of vacant space, which includes schemes currently in hand.

§ £2.5 million estimated by our valuers to be income from future schemes, principally 57-59 Broadwick Street and Newport Sandringham. This estimate does not fully reflect the additional income which could be generated from the more extensive schemes we are now investigating.

§ £8.4 million which should be realised through the normal cycle of rent reviews, lease renewals and lettings. Where possible, we seek to secure early vacant possession of under-rented accommodation to accelerate the conversion of this potential income.

Shops, restaurants, bars, cafés and residential uses account for 80% of the ERV and 73% of the un-contracted reversion. In our experience, demand for these uses in our locations is not cyclical and has shown sustained growth over many years. This, together with our long-term management skills, gives us confidence that we shall continue to deliver further rental growth.

Capital increases across each village

All villages benefited from rental growth and yield compression during the year. Overall, the portfolio delivered like-for-like capital growth of 21.0% and the like-for-like portfolio cumulative annual growth rate over three and five years has been 11.8% and 11.3% respectively.

Increase in capital values

Acquisitions

§ Acquisitions in the year: £107.9 million

§ Newport Sandringham and 57-59 Broadwick Street: 83% of the total

§ Average initial yield: 2.6% - potential to grow rents and values

§ Further acquisitions since year-end

Two major acquisitions with significant reconfiguration potential

The acquisitions of Newport Sandringham, Chinatown, and 57-59 Broadwick Street, Carnaby, cost £89.4 million and produced an average initial yield of 2.58%. Both have the potential for major reconfiguration schemes.

In March 2014 we acquired a long leasehold interest in 49,700 sq. ft. of shops, restaurants and bars in the Newport Sandringham building at the eastern gateway to Chinatown, fronting Charing Cross Road, Newport Court and Newport Place, with total frontage of c. 550 ft. Costing £57.1 million, this acquisition, alone, increased our retail, restaurant and leisure floor space in Chinatown by around 18%. Currently the space is poorly configured and under-utilised and so provides opportunities to increase the income from, and value of, the building. In addition, we believe the changes we are considering, together with public realm improvements, will materially benefit Chinatown and our existing holdings over the longer term.

We are currently preparing our proposals to be submitted to Westminster City Council. Broadly, these include:

§ Reconfiguring and improving the existing space to create more efficient and valuable accommodation.

§ Moving the restaurant and leisure planning uses to face Chinatown, complementing our existing restaurant holdings.

§ Creating double-height glazed shop fronts along its 330 foot retail frontage on Charing Cross Road, next to Leicester Square Underground station, and just 5 minutes' walk from the new Tottenham Court Road transport hub.

In addition, we plan to support Westminster City Council's public realm improvements in Newport Court and Newport Place, which will considerably improve the eastern end of Chinatown and might provide the potential for al-fresco dining.

Currently there are only short-term occupational leases and licences in place, which provide flexibility for us to take vacant possession of the space at reasonably short notice. The current net income from these flexible arrangements is low and has decreased since acquisition as we have already taken back space for our proposed scheme. The timing of the scheme will depend upon planning and other consents, but we expect works to be underway in mid-2016. The capital cost is not expected to exceed £10 million and the improved space will be let on standard commercial leases, which should substantially eliminate non-recoverable property costs.

Also in March 2014, we acquired 57-59 Broadwick Street, a prominent building on an increasingly important and busy east-west pedestrian route, which links Carnaby and Berwick Street and is close to the Dean Street exit to Tottenham Court Road Crossrail Station. Extending to 24,900 sq. ft. of mainly office space, it cost £32.3 million.

We are currently advancing our plans to create large retail units over the lower floors, whilst extending and reconfiguring the remaining office space and creating new residential units. The scheme timing will depend upon the planning process, but we hope to make our application in the Spring next year, with a view to commencing works in 2016. The current leases expire in June 2015 and we are in discussion with the tenants to extend their occupation. The cost will depend upon the consented scheme, but currently we expect it to be in the region of £12 million.

Other acquisitions with potential to grow rental income

Other acquisitions in the wholly owned portfolio were in Chinatown, Charlotte Street and Soho, and included two shops, four restaurants, one bar, 2,100 sq. ft. of office space and nine apartments. In addition, our Longmartin joint venture bought in a long leasehold interest on 7,500 sq. ft. of office space within its existing ownership. These acquisitions, totalling £18.5 million and with an average initial yield of 2.86%, offer potential for future rental growth, through lettings, rent reviews and refurbishment or reconfiguration schemes.

The West End provides excellent security and long-term prospects for investors, and existing owners remain reluctant to sell assets which they will find difficult to replace. We continue to seek out new acquisitions, but remain disciplined and patient, focussed on buildings which are in and around our villages, have a predominance of, or potential for, retail, restaurant, café and leisure uses, and provide potential for future rental growth, either individually or through combination with our existing ownerships.

Since the year end, we have acquired, or contracted to buy, a restaurant and a pub at a total cost of £6.8 million. Furthermore, in Autumn 2015, we expect to complete the forward-purchase of 6,500 sq. ft. of retail and restaurant space on the ground floor and basement on the site formerly occupied by Trenchard House on Broadwick Street

Redevelopment and refurbishment activity

This has been another year of considerable activity across our holdings. We continue to identify new projects and seek planning consents for schemes which will improve our buildings, add to our income, increase rental tones and further unlock value.

§ Schemes undertaken during the year: 154,000 sq. ft. (8.9% of total floor area in the wholly-owned portfolio)

§ Capital expenditure: £24.2 million

§ Planning applications approved in the year: 132

Good initial returns and compound benefits

Our schemes produce good initial returns - over the past three years, they have delivered an average rental yield on cost of nearly 9%. By virtue of the concentration of our ownerships, our schemes also provide longer-term benefits, such as improved tenant quality and establishing higher rental tones, which are often compounded across our nearby holdings. Generally the costs of our schemes are modest and their duration is short.

Continued high level of activity

We have carried out 50 schemes during the year, extending to 154,000 sq. ft., representing 8.9% of the total floor area in the wholly-owned portfolio. Capital expenditure was £24.2m, equivalent to 1.2% of the portfolio value.

This included £6.1 million in respect of our mixed-use new-build project fronting Foubert's Place and Kingly Street. Completing in phases from early 2015, the scheme is increasing the lettable area on the site from 14,500 sq. ft. to 32,500 sq. ft. and will comprise 7,500 sq. ft. of retail space, a 6,500 sq. ft. restaurant, 10,500 sq. ft. of office accommodation and twelve apartments. The ERV of the new accommodation is £2.1 million, £1.7 million above pre-scheme levels. The estimated scheme cost is £13.5 million, of which £9.0 million has been incurred to date.

Other larger projects during the year included:

§ The transformation of Kingly Court, Carnaby, into a dining and leisure hub.

§ A scheme over 18,400 sq. ft. to improve two restaurants whilst converting and reconfiguring upper floors to create ten new apartments and upgrading five existing flats in Wardour Street and Rupert Street, Chinatown.

§ The refurbishment of 18,500 sq. ft. of office space in Ganton Street, Carnaby.

§ Numerous residential conversions across our villages.

Schemes currently on-site include the reconfiguration of 18,000 sq. ft. of shops, restaurants and cafés, and the refurbishment of 23,000 sq. ft. of offices. In addition, we are creating 27 new residential units as well as upgrading 26 apartments.

Adding further to the pipeline of opportunities

At any one time we have a number of schemes at various stages from initial ideas, seeking planning approval, awaiting vacant possession or under construction. As part of this continuing activity, during the year we submitted 132 planning applications which were approved, allowing us to progress a number of our plans. Larger schemes currently in the pipeline include a retail conversion and office extension/refurbishment at 57-59 Broadwick Street, Carnaby, extension and reconfiguration of retail and restaurant space at Newport Sandringham, Chinatown and the rearrangement of space in the Thomas Neal's Warehouse, Seven Dials. Currently we envisage capital expenditure in the region of £70 million to £75 million overthe next three years, which includes these larger schemes.

Improving the public realm

A key element of our management strategy and skill is to encourage investment in the public realm in our villages - an important catalyst for improving footfall. Examples include:

§ Extension of the pedestrianisation in Kingly Street, which now applies up to the junction with Great Marlborough Street and operates from 11 am to 7 am, significantly increasing the opportunity for al-fresco dining.

§ Relaying the surface along the length of Carnaby Street, now being planned, in conjunction with Westminster City Council, for 2015.

§ Improvements to the streetscape along Upper St Martin's Lane, outside St Martin's Courtyard and at the entrance to Seven Dials, now agreed with Westminster City Council and planned for 2015.

§ Following our purchase of Newport Sandringham, we are in discussion with Westminster City Council and other stakeholders over proposals to pedestrianise and improve Newport Place.

Whilst some progress has been made in the year, our ideas for improvements in Earlham Street, Seven Dials and Rupert Street, Chinatown, have not advanced as quickly as we would have liked. Now that the Earlham Street traffic management scheme has been made permanent, we are now working on designs for further improvements with the London Borough of Camden. We are also in discussion with Westminster City Council to advance improvements to Rupert Street. In both streets, we are already introducing interesting new operators which, together with street and pavement improvements, should further improve footfall.

Looking forward, as part of the infrastructure improvements connected with Crossrail, we expect other publicly-funded projects to be undertaken close to our locations. This includes improvements to Cambridge Circus, planned for 2015, which will considerably improve access to Seven Dials, from Soho, at this busy junction.

Demand and occupancy

Demand continues to be strong for all uses and across each location. Space is letting quickly and vacancy levels remain low.

§ £25.1 million leasing and rent review transactions in the year

§ Commercial lettings and renewals up 5.5% vs September 2013 ERV

§ Rent reviews up 26.3% vs previous rent (approximately 5% pa compound)

§ Ready to let vacancy: 0.6%

High level of leasing activity

Excluding temporary lettings, we concluded transactions with a rental value of £25.1 million during the year, equivalent to 27.1% of our current annualised income, including:

§ Commercial lettings, lease renewals and rent reviews: £20.2 million.

§ Residential lettings and lease renewals: £4.9 million.

Commercial lettings and renewals were concluded on average at 5.5% above ERV at 30 September 2013. Rent reviews resulted in uplifts of, on average, 26.3% above previous rents, equivalent to circa 5% annual compound growth over a five year period.

Low vacancy levels

EPRA vacancy totalled £3.0 million, representing 2.5% of ERV at 30 September 2014, of which £2.2 million (1.9% of ERV) was under offer, leaving just £0.8 million (0.6% of ERV) available. Reflecting our high redevelopment and refurbishment activity, the ERV of schemes underway was £6.5 million (5.5% of ERV).

VACANCY AT 30 SEPTEMBER 2014

Assets held for, or under, refurbishment included:

§ Our large mixed-use redevelopment scheme fronting the south side of Foubert's Place and Kingly Street, which accounted for £2.1 million (1.8% of total ERV).

§ Eight shops, including six small shops (ERV < £100,000 p.a.) with a total ERV of £0.4 million and two large shops (ERV > £100,000 p.a.) with a total ERV of £0.6 million.

§ Five restaurants, cafés and bars (ERV: £0.6 million), one of which (ERV: £0.2 million) is now under offer.

§ 22,000 sq. ft. of office space (ERV £1.3 million).

§ 27 new apartments under construction (ERV: £0.8 million) and a further 26 being upgraded (ERV: £0.6 million).

The majority of our EPRA vacancy was under offer at the end of the year and included ten shops, five restaurants, office space totalling 2,200 sq. ft. and five apartments. The remaining ready to let vacancy comprised:

§ Three large shops (ERV: £0.4 million) and nine small shops (ERV: £0.3 million). Since year end we have let, or agreed terms on four of these shops (ERV: £0.3 million).

§ Office space totalling 1,400 sq. ft. with an ERV of £0.1 million.

§ Two apartments in the wholly owned portfolio and one in the Longmartin joint venture.

Finance review

It has been an excellent year for Shaftesbury with further growth in net asset value, rents, earnings and dividends. We raised £153.2 million through an equity placing to fund investment in our portfolio in the year ahead. We also refinanced a large proportion of our earliest debt maturities, considerably lengthening the weighted average maturity profile and diversifying our sources of finance.

Income statement

This year we delivered a profit after tax of £440.4 million, up £201.1 million on 2013 (84.0%) largely driven by a valuation surplus of £426.4 million (2013: £174.3 million).

EPRA earnings increased by 7.9% to £32.6 million (2013: £30.2 million) and EPRA EPS was 12.2p (2013: 12.0p).

Our rental income has continued to rise, increasing by £8.1 million (9.7%) to £91.6 million (2013: £83.5 million). The wholly-owned portfolio delivered a like-for-like increase of 6.3%, driven by the high level of lettings, renewals and rent reviews, and the completion and letting of schemes which had tempered growth in rental income in 2013. Acquisitions contributed £2.5 million to the increase in rents receivable.

Property charges, excluding recoverable property costs, increased by 15.5% to £11.9 million (2013: £10.3 million), representing 13.0% of rents receivable (2013: 12.3%). The increase in costs is largely attributable to:

§ The large volume of lettings, lease renewals and rent reviews.

§ A high level of irrecoverable costs, particularly rates, incurred at Newport Sandringham, where there are only short-term occupational leases and licences in place. On a like-for-like basis, excluding this acquisition, property operating costs were £4.5 million, £0.3 million lower than in 2013.

§ Increased marketing and promotion of our villages, a key aspect of our long-term management strategy.

Net property income increased by 8.9% to £79.7 million (2013: £73.2 million).

Administrative expenses, excluding the charges for annual bonuses and equity-settled remuneration, were £8.2 million (2013: £7.5 million). This increase was largely due to higher staff costs and an increase in occupation outgoings following our relocation to Carnaby in February 2014. The charge for annual bonuses was £2.6 million (2013: £1.4 million).

As a consequence of the continued strong valuation growth delivered by our portfolio, the forecast vesting of the NAV element of share options has increased, resulting in the charge for these options rising by £0.5 million to £3.2 million (2013: £2.7 million). This charge included a non-cash accounting provision of £2.7 million (2013: £2.2 million) and a charge for employer's national insurance of £0.5 million (2013: £0.5 million).

The valuation surplus delivered by our portfolio was £426.4 million (2013: £174.3 million). This was driven by like-for-like ERV growth of 6.6% and yield compression of 55 basis points across the wholly-owned portfolio and 48 basis points in the Longmartin joint venture.

Net finance costs (excluding the change in fair value of our interest rate swaps) increased by £1.6 million to £32.8 million (2013: £31.2 million) largely as a result of:

§ Higher average debt levels in 2014 resulting from acquisitions and capital expenditure.

§ The higher margins we are paying following the refinancing of historic debt arrangements during the year, along with a related accelerated write-off of unamortised deferred loan issue costs totalling £0.3 million.

These increases have been partially offset by interest savings resulting from the proceeds of the share placing in March 2014, to the extent not yet deployed, being used to reduce drawings under our revolving credit facilities.

On a like-for-like basis, excluding interest rate swaps which were terminated during the year at a cost of £29.0 million, the fair value deficit attributable to our interest rate swaps increased following a fall in long-dated sterling swap rates, particularly in the final quarter. This resulted in a charge for the year of £12.0 million (2013: credit £37.0 million). The Board keeps the Group's interest rate hedging strategy, and the impact our derivatives have on the long-term financing of the business, under review.

As a REIT, the Group's activities are largely exempt from corporation tax. However, the Longmartin joint venture is outside our REIT group and, as such, is subject to corporation tax. Our share of its tax charge in the year was £6.9 million (2013: £2.4 million), of which £6.6 million (2013: £2.2 million) was a charge for deferred tax, largely as a result of the revaluation of Longmartin's portfolio.

Dividends

The Board has recommended a final dividend of 6.6p per share, an increase of 5.6% on the 2013 final dividend (6.25p). This brings the total dividend for the year to 13.1p per share, an increase of 4.8% on 2013 (12.5p).

The total distribution in respect of the financial year will be £36.4 million, 15.2% higher than in the previous year (2013: £31.6 million), taking into account the 9.9% increase in shares in issue following the share placing in March 2014. This compares with EPRA earnings of £32.6 million (2013: £30.2 million) which are stated after non-cash accounting charges in respect of equity-settled remuneration totalling £2.7 million (2013: £2.2 million) and from writing-off remaining unamortised loan issue costs (£0.3 million) following our refinancing transactions.

Our policy is to maintain steady growth in dividends to reflect the long-term trend in the Group's recurring earnings before non-cash accounting charges. On this basis, the current year dividend is virtually fully covered. Future distributions will continue to reflect the growth in the Group's net rental income and recurring cash earnings.

The final dividend will comprise 1.8p paid as a PID and 4.8p as an ordinary dividend.

EPRA net asset value

EPRA NAV per share rose by £1.46 to £7.13 (2013: £5.67), representing an increase of 25.7%. The revaluation surplus contributed £1.56 to the increase. This was offset by the cost of terminating interest rate swaps in April, as part of restructuring our facilities with Lloyds Banking Group, equivalent to 10p per share. Earnings added 12p, which was offset by dividends paid. The share placing in March 2014, accounting for £153.2 million of the increase in net assets in the year, was NAV per share-neutral.

Cash flows and net debt

Net debt increased by £9.2 million during the year to £614.1 million (2013: £604.9 million). The main cash flows were:

§ Cash inflows from operating activities, net of interest and tax payments, of £40.8 million.

§ Dividend payments totalling £33.8 million.

§ Investment in acquisitions and capital expenditure totalling £134.3 million.

§ Net proceeds from our share placing of £153.2 million.

§ Interest rate swap termination costs of £29.0 million.

§ Facility arrangement costs totalling £4.2 million.

The surplus funds raised by our debt restructuring during the year partly funded the swap termination costs with the balance being used to pay down bank facilities, which were available to be re-drawn.

Finance

During the year we strengthened our financial base, adding to our resources, improving our debt maturity profile and diversifying our sources of finance.

In March 2014, we raised £153.2 million through a share placing, issuing 25.25 million shares at £6.20 per share. 70% of the proceeds have been spent in 2014 on acquisitions, principally Newport Sandringham and 57-59 Broadwick Street, and value-adding reconfiguration schemes. The remainder is allocated to purchase commitments in 2015, potential schemes on the two recent major acquisitions and to advance our existing pipeline of refurbishment and reconfiguration schemes over the coming year.

We restructured £225 million of facilities with Lloyds Banking Group, which were due to mature in 2016, as follows:

§ A £125 million bank facility was refinanced with a new £150 million five-year revolving credit facility.

§ We arranged a new £134.75 million fixed-interest fifteen-year term loan with Canada Life Investments at 4.47%, which was partially used to refinance the remaining £100 million of facilities.

§ We cancelled interest rate swaps on a notional principal of £110 million at a cost of £29.0 million.

These transactions increased our committed debt facilities by £59.75 million to £755.75 million and reduced the level of debt maturing in 2016 from £375 million to £150 million. The weighted average debt maturity is now 7.1 years (2013: 5.8 years).

1 Based on nominal value of debt

2 Measured against EPRA net assets

We are now addressing the remaining £150 million of bank facilities which are due to mature in 2016, with a view to increasing our debt resources and further extending the weighted average maturity of our debt. The cost of the longer-term funding we are contemplating will be higher than that for the short-term facilities it is replacing and we are considering terminating further interest rate swaps which, subject to market conditions and agreeing suitable terms, could cost between £25 million and £30 million, equivalent to around 10p against EPRA NAV.

At 30 September 2014, our loan-to-value ratio was 23.6% (2013: 29.5%) and we had undrawn committed facilities available to fund acquisitions and investment in our portfolio totalling £139.4 million. The weighted average cost of debt was 5.11%, four basis points higher than the prior year. However, the marginal cost of drawing our remaining available facilities is around 1.55% (2013: 1.80%), and therefore, as we make further drawings, this weighted average cost of debt will decrease. The average margin on our drawn variable rate bank facilities is now 1.11% (2013: 0.91%) and this would rise to 1.24% if all facilities were fully drawn (2013: 1.04%).

Looking ahead

Our portfolio - unique in its concentration in the heart of London's West End and its focus on retail, restaurant and leisure uses - is underpinned by London's reputation as a leading global city and its dynamic economy. Both near-term and longer-range forecasts anticipate continuing growth in London's working and residential population and economic performance.

Continually refreshing the appeal of our locations

The West End's established profile and trading patterns are attracting well-resourced retailers, and restaurant and leisure operators with exciting new ideas and concepts from across the world. Our strategy is to maintain the appeal and reputation of our areas through constantly refreshing the mix and variety of operators and formats, so that we continue to provide lively and interesting destinations.

Our proven, long-term approach to creating and maintaining busy and prosperous environments continues to attract strong demand from operators specifically seeking space in our carefully-curated and lively locations. The current strength of demand across all uses, which shows no sign of slowing, continues to deliver increases in both income and rental values.

Improving the quality and configuration of accommodation we provide

We continue to identify and implement schemes to enhance income and capital values throughout the portfolio, by improving and increasing lettable space, and, where appropriate, reorganising or introducing new uses.

In particular, the acquisitions this year of Newport Sandringham, Chinatown and 57-59 Broadwick Street, Carnaby have the potential, subject to planning, for material improvement through implementing changes of this nature. Plans for these projects are in hand and we shall be submitting planning applications by mid-2015, with a view to commencing works in 2016. As with many of our schemes, the benefits from these projects will provide compound benefits across our extensive adjacent ownerships.

Adding to the portfolio

Properties in the locations, and of the type and we seek to acquire, offer their owners excellent long-term security and growth prospects, so it is unsurprising that they are reluctant to sell. Although we expect the availability of suitable properties will continue to be restricted, we have demonstrated through our acquisitions this year that our patient approach and exceptional knowledge of the local market does lead, over time, to strategic additions to our portfolio, as well as a steady flow of smaller purchases which, cumulatively, are equally as important.

Resources to support a growing business

In order to act swiftly when opportunities arise to add to our holdings, and to ensure we are able to progress improvements to our properties, it is essential we have in place stable long-term financing arrangements. This year we have both added to our equity base and put in place new loan facilities to replace a substantial portion of our 2016 facility maturities. In the year ahead we will be addressing the remaining £150 million of debt due to mature in September 2016.Confidence in long-term prospects

The expectation of sustained and increasing international and domestic interest in London and the West End - whether for investment, establishing or expanding businesses, or as a place to visit, work or live - underpins our prospects.

Our highly-motivated and experienced management team has an innovative and proven approach to managing our unique and growing portfolio. We remain confident we shall continue to deliver long-term outperformance in growth in income, capital values and shareholder returns.

PORTFOLIO ANALYSIS

* Shaftesbury Group's 50% share

BASIS OF VALUATION

Notes

1. The fair values at 30 September 2014 (the "valuation date") shown in respect of the individual villages are, in each case, the aggregate of the fair 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 within each village were not valued as a single lot.

2. Current income includes total annual actual and 'estimated income' reserved by leases. No rent is attributed to leases which were subject to rent-free periods at the valuation date. Current income does not reflect any ground rents, head rents nor rent charges and estimated irrecoverable outgoings at the valuation date. 'Estimated income' refers to gross estimated rental values in respect of rent reviews outstanding at the valuation date and, where appropriate, ERV in respect of lease renewals outstanding at the valuation date where the fair value reflects terms for a renewed lease.

3. 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. Where appropriate, ERV assumes completion of developments which are reflected in the valuations. ERV does not reflect any ground rents, head rents nor rent charges and estimated irrecoverable outgoings.

4. The percentage of current income and the percentage of ERV in each of the use sectors are expressed as a percentage of total income and total ERV for each village.

5. 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.

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

7. The initial yield is the net initial income at the valuation date 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 valuation date.

8. The initial yield ignoring contractual rent free periods has been calculated as if the contracted rent is payable from the valuation date and as if any future stepped rental uplifts under leases had occurred.

9. Equivalent yield is the internal rate of return, being the discount rate which needs to be applied to the expected flow of income so that the total amount of income so discounted at this rate equals the capital outlay at values current at the valuation date. The equivalent yield shown for each village has been calculated by merging together the cash flows and fair values of each of the different interests within each village and represents the average equivalent yield attributable to each village from this approach.

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

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

12. For presentation purposes some percentages have been rounded to the nearest integer.

13.The analysis includes accommodation which is awaiting or undergoing refurbishment or development and is not available for occupation at the date of valuation.

Group Statement of Comprehensive Income

For the year ended 30 September 2014

Group Balance Sheet

As at 30 September 2014

On behalf of the Board who approved and authorised for issue these financial statements on 27 November 2014.

Brian Bickell Chief Executive

Christopher Ward Finance Director

Group Cash Flow Statement

For the year ended 30 September 2014

Group Statement of Changes in Equity

For the year ended 30 September 2014

Notes to the financial statements

For the year ended 30 September 2014

1. BASIS OF PREPERATION

The preliminary announcement does not constitute full financial statements.

The results for the year ended 30 September 2014 included in this preliminary announcement are extracted from the audited financial statements for the year ended 30 September 2014 which were approved by the directors on 27 November 2014. 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 2014 Annual Report is expected to be posted to shareholders on 18 December 2014 and will be considered at the Annual General Meeting to be held on 6 February 2015. The financial statements for the year ended 30 September 2014 have not yet been delivered to the Registrar of Companies.

The auditors' report on the financial statements for the year ended 30 September 2013 was unqualified and did not include a statement under Section 498(2) or 498(3) of the 2006 Companies Act. The financial statements for the year ended 30 September 2013 have been delivered to the Registrar of Companies.

2. SEGMENTAL INFORMATION

The chief operating decision maker has been identified as the Board, which is responsible for reviewing the Group's internal reporting in order to assess performance and the allocation of resources.

The Group's properties, which are all located in London's West End, are managed as a single portfolio. Its properties, which are of similar type, are combined into villages. All of the villages are geographically close to each other and have similar economic features and risks.

For the purposes of IFRS 8, each village is considered to be a separate operating segment. However, in view of the similar characteristics of each village, and the reporting of all investment, income and expenditure to the Board at an overall Group level, the aggregation criteria set out in IFRS 8 have been applied to give one reportable segment.

The Board assesses the performance of the reportable segment based on net property income and investment property valuation. All financial information provided to the Board is prepared on a basis consistent with these financial statements and, as the Group has only one reportable segment, the measures used in assessing the business are set out in the Group Statement of Comprehensive Income.

3. REVENUE

Rents receivable includes lease incentives recognised of £1.3 million (2013: £1.3 million).

4. PROPERTY CHARGES

5. NET PROPERTY INCOME

6. CHARGE IN RESPECT OF EQUITY SETTLED REMUNERATION

7. FINANCE COSTS

8. TAXATION

The Group's wholly owned business is subject to taxation as a REIT. Under the REIT regime, income from its rental business (calculated by reference to tax rather than accounting rules) and chargeable gains from the sale of its investment properties are exempt from corporation tax.

The Longmartin joint venture is outside the REIT group and is subject to corporation tax.

9. EARNINGS PER SHARE

The calculations below are in accordance with the EPRA Best Practice Recommendations.

The difference between the weighted average and diluted weighted average number of ordinary shares arises from the potentially dilutive effect of outstanding options granted over ordinary shares.

10. DIVIDENDS PAID

A final dividend of 6.6p per share was recommended by the Board on 27 November 2014. Subject to approval by shareholders at the 2015 AGM, the final dividend will be paid on 13 February 2015 to shareholders on the register at 23 January 2015. 1.8p of the dividend will be paid as a PID under the UK REIT regime and 4.8p will be paid as an ordinary dividend. The dividend totalling £18.4 million will be accounted for as an appropriation of revenue reserves in the year ending 30 September 2015.

11. INVESTMENT PROPERTIES

PROPERTY RECONCILIATION

EXTERNAL VALUERS

Investment properties were subject to external valuation as at 30 September 2014 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 properties were valued on the basis of fair value and highest and best use in accordance with the RICS Valuation - Professional Standards 2014 and IFRS 13. When considering the highest and best use a valuer considers its actual and potential uses which are legally and financially viable. Where the highest and best use differs from the existing use, the valuer considers the use a market participant would have in mind when formulating the price it would bid and reflects the cost and likelihood of achieving that use.  

The external valuations use information provided by the group, such as tenancy information and capital expenditure expectations. The valuers, in forming their opinion, make a series of assumptions. The assumptions are typically market related, such as yields and rental values, and are based on the valuers' professional judgement and market observations. The major inputs to the external valuation are reviewed by the senior management team. In addition, the valuers meet with external auditors and members of the Audit Committee.

FAIR VALUE MEASUREMENTS USING UNOBSERVABLE INPUTS (LEVEL 3)

The Group's investment properties are reported under IFRS 13 'Fair value measurement' which uses the following hierarchy to determine the valuation basis of assets or liabilities:

The fair value of the Group's investment properties has primarily been determined using a Market Approach, which provides an indication of value by comparing the subject asset with identical or similar assets for which price information is available. There are a number of assumptions that are made in deriving the fair value, including equivalent yields and ERVs. Equivalent yields are based on current market prices, depending on, inter alia, the location and use of the property. ERVs are calculated using a number of factors which include market comparatives in terms of the buildings' configuration, condition, size, location and the timing of evidence such as rent reviews. Whilst the is market evidence for these inputs, and recent transaction prices for similar properties, the valuer still uses a significant element of estimation and judgement. As a result of adjustments made to market observable data, these significant inputs are deemed unobservable.

The Group considers all of its investment properties to fall within Level 3. The Group's policy is to recognise transfers between fair value hierarchy levels as at the date of the event or change in circumstances that caused the transfer. There have been no transfers during the year.

The key assumptions made by the valuers are set out in the Basis of Valuation above.

SENSITIVITY ANALYSIS

The valuation of the Group's property portfolio is inherently subjective; as a result, the valuations the Group places on its property portfolio are subject to a degree of uncertainty and are made on the basis of assumptions which may not prove to be accurate, particularly in periods of volatility or low transaction flow in the commercial property market.

The Group's properties are all located in the West End of London and are virtually all multi-use buildings, usually configured with commercial uses on the lower floors and office and/or residential uses on the upper floors. DTZ Debenham Tie Leung Limited and Knight Frank LLP value properties in their entirety and not by use, consequently the sensitivity analysis below has been performed on the Group's portfolio as a whole.

These key unobservable inputs are inter-dependent. All other factors being equal, a higher equivalent yield would lead to a decrease in the valuation of a property, and an increase in the ERV would increase the capital value, and vice versa.

CAPITAL COMMITMENTS

*Group's share.

12. ACCRUED INCOME

The unamortised amount of lease incentives is allocated between amounts to be charged against rental income within one year of the Balance Sheet date and amounts which will be charged against rental income in subsequent periods.

13. TRADE AND OTHER RECEIVABLES

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. As of 30 September 2014, amounts due from tenants which were more than 90 days overdue, relating to accommodation and services provided up to 28 September 2014, totalled £1.0 million (2013: £1.2 million) and are considered to be past due. Provisions against these overdue amounts totalled £0.3 million (2013: £0.4 million). The remaining balance is not considered to be impaired.

At 30 September 2014, cash deposits totalling £15.9 million (2013: £13.7 million) were held against tenants' rent payment obligations. The deposits are held in bank accounts administered by the Group's managing agents.

14. CASH AND CASH EQUIVALENTS

Cash balances at 30 September 2014 included £2.2 million (2013: £4.2 million) held in accounts or on deposit that have certain conditions restricting their use. Holding cash in restricted accounts does not prevent the Group from earning returns by placing these monies in interest bearing accounts or on deposit.

15. TRADE AND OTHER PAYABLES

16. BORROWINGS

Net debt

The Group's head lease obligations represent its share of the net present value of amounts payable under leases with unexpired terms of 166 years held by Longmartin Properties Limited.

AVAILABILITY AND MATURITY OF BORROWINGS

INTEREST RATE PROFILE OF INTEREST BEARING BORROWINGS

The Group also incurs non-utilisation fees on undrawn facilities. At 30 September 2014, the weighted average charge on the undrawn facilities of £139.4 million (2013: £90.8 million) was 0.46% (2013: 0.52%).

At 30 September 2014, the weighted average credit margin on the Group's current bank facilities was:

The Group has in place interest rate swaps to hedge £250.0 million of floating rate bank debt, at fixed rates in the range 4.64% to 5.20%, with a weighted average rate at 30 September 2014 of 4.95%. The swaps, which are settled against three month LIBOR, expire between December 2027 and November 2038. If mutual break or counterparty early termination options are exercised the weighted average term is 4.9 years (2013: 4.2 years).

17. FINancial instruments

FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS

Changes in the fair value of the Group's interest rate swaps, which are not held for speculative purposes, are reflected in the Statement of Comprehensive Income as the Group has chosen not to adopt hedge accounting under the provisions of IAS 39 (Financial Instruments: Recognition and Measurement).

The extent to which the fair value deficit will crystallise will depend on the course of interest rates over the life of the swaps. The weighted average maturity of the swaps at the Balance Sheet date is set out in note 16. During the year the Group terminated interest rate swaps with a notional principal of £110.0 million at a cost of £29.0 million.

The 8.5% Mortgage Debenture Stock 2024 and the Group's secured term loans are held at amortised cost in the Balance Sheet. The fair value of liability in excess of book value which is not recognised in the reported results for the year is £27.4 million (2013: £14.0 million). The fair values have been calculated based on a discounted cash flow model using the relevant reference gilt and appropriate market spread.

The Group is not obliged to redeem the £61.0 million (nominal) of Debenture Stock in issue in advance of its redemption date of 31 March 2024, when repayment will be at par value. The Group also has no obligation to repay its secured term loans in advance of their maturities on 21 December 2026 and 2 May 2029.

The fair value of the Group's interest rate swaps has been estimated using the mid-point of the relevant yield curve prevailing at the reporting date, and represents the net present value of the difference between the contractual rate and the valuation rate through to the contracted expiry date of the swap contract. The valuation technique falls within Level 2 of the fair value hierarchy (see note 11 for definition). The swaps are valued by J.C Rathbone Associates Limited.

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 its secured term loans), head leases and trade and other payables are not materially different from the values at which they are carried in the financial statements.

18. DEFERRED TAX LIABILITIES

19. NET ASSET VALUE PER SHARE

The calculations below are in accordance with the EPRA Best Practice Recommendations.