Results

enlarge

The EPRA adjusted profit before tax for the year ended 30 September 2011, amounted to £29.2 million compared with £22.3 million last year, an increase of £6.9 million or 30.9%.

Group rental income (adjusted for lease incentives) increased to £75.4 million (2010: £65.7 million), a rise of £9.7 million of which £7.6 million was in the wholly owned portfolio. Here, the continuing crystallisation of reversionary rental potential, with sustained high levels of occupancy and demand, accounted for £6.3 million and acquisitions contributed £1.3 million.

Following the completion and letting of St Martin’s Courtyard our share of rental income from the Longmartin joint venture has increased by £2.1 million to £4.3 million this year.

Property outgoings, which totalled £8.8 million (2010: £8.1 million), included our share of the day-to-day non-recoverable costs associated with St Martin’s Courtyard, which opened to the public in November 2010.

Overall, net property income increased by £9.0 million to £66.6 million, compared with £57.6 million last year, a rise of 15.6%.

Total administration expenses amounted to £9.6 million compared with £8.2 million last year, an increase of £1.4 million. Of this increase, additional provision for employee annual bonuses accounted for £0.8 million, reflecting the Group’s good performance this year.

Interest payable totalled £27.8 million, an increase of £0.6 million compared with last year. Interest rates on the portion of our bank debt in excess of the £360 million which is subject to fixed rate hedging have continued at low levels throughout the year. The level of our bank debt fell over the year as a whole by £21.4 million as expenditure on acquisitions and capital projects for the year of £79.3 million was offset by the net Share Placing proceeds of £99.8 million.

The market expectation that low interest rates will continue for an even longer period than was originally thought has resulted in an increase of £24.1 million in the non-cash mark-to-market valuation deficit on our long term interest rate swaps. The valuation of long term hedging arrangements continues to be volatile, reflecting global financial uncertainties and the future direction of interest rates. The deficit attributable to our swaps fell by £37.4 million to £43.1 million in the six months to 31 March 2011, followed by a rise in the second half of £61.5 million to £104.6 million, as market sentiment changed dramatically.

The profit before tax reported in the Group Statement of Comprehensive Income of £115.7 million (2010: £171.9 million) included investment property revaluation surpluses of £110.6 million (2010: £183.6 million) and an increase in the fair value deficit of financial derivatives of £24.1 million referred to above (2010: £34.4 million).

enlarge

Provision for current and deferred tax on EPRA adjusted profit for the year amounted to £0.4 million (2010: £0.1 million). The Group’s wholly-owned business is subject to the REIT regime so its net rental income and gains included in the results for the year are exempt from corporation tax. The wholly owned Group has little other taxable income or gains and consequently has a minimal tax charge.

Our interest in the Longmartin joint venture is outside our REIT group, so our share of its profit is subject to corporation tax and deferred tax is provided in respect of property revaluation surpluses and accelerated capital allowances. The tax charge of £1.9 million (2010: £4.8 million) on the unadjusted profit included deferred tax of £1.5 million (2010: £4.1 million) arising in Longmartin. As this deferred tax is not expected to crystallise, it is added back to arrive at the EPRA adjusted tax charge.

The EPRA adjusted profit after tax for the year, adjusted for the items referred to above, amounted to £28.8 million (2010: £22.2 million). The profit after tax reported in the Group Statement of Comprehensive Income amounted to £113.8 million (2010: £167.1 million).

enlarge

EPRA adjusted net assets at 30 September 2011, totalled £1,164.0 million, equivalent to a diluted net asset value per share of £4.63. The increase in EPRA adjusted diluted net asset value per share over the year, after the payment of dividends of 10.75p per share, was 49p, an uplift of 11.8% (2010: 23.6%). The increase in EPRA adjusted diluted net asset value per share before the payment of dividends amounted to 59.75p or 14.4% (2010: 26.5%).

Shareholders’ funds shown in the unadjusted Group Balance Sheet at 30 September 2011 totalled £1,053.7 million, equivalent to a diluted net asset value per share of £4.19. The increase in unadjusted net assets per share since the last year end after payment of dividends amounted to 41p, an uplift of 10.8% (2010: 20.0%). The increase before payment of dividends amounted to 13.7% (2010: 23.1%).

Dividends

Your Directors are pleased to recommend a final dividend of 5.75p per share, representing a distribution of £14.4 million. This compares with last year’s final dividend of 5.25p per share. The final dividend will be paid entirely as a Property Income Distribution.

Together with the interim dividend of 5.5p (2010: 5.0p), this will bring the total payable in respect of this financial year to 11.25p per share (2010: 10.25p), an increase of 9.8%.

Our total distribution for the financial year will amount to £28.2 million, an increase of 21.0% compared with the 2010 total of £23.3 million. This increase reflects the additional shares in issue as a result of our Share Placing in March 2011, equivalent to approximately 9.9% of the number of shares in issue at the time, as well as the higher distribution per share referred to above.

We expect to maintain steady growth in our dividends in future years in line with the rise in our net rental income and profits.

Our portfolio

Our property portfolio has been valued at £1,678.5 million resulting in a revaluation surplus for the year of £110.6 million. Allowing for acquisitions and capital expenditure during the year, this represents a capital value return of 7.2%. The return for the six months ended 31 March 2011 amounted to 3.2%.

Our portfolio out-performed the IPD UK Monthly Index of capital growth for all classes of commercial property, which rose by 1.7% over the year. Our portfolio showed a total return for the year of 11.3%, out-performing the all-property IPD UK Monthly Index of total returns, which rose by 8.7%.

We have always held the view that sustained income growth is fundamental to long term growth in property values. Our consistent and long established strategies to deliver a steadily growing stream of income are explained in detail in the Business Review. This year, the principal driver of the improvement in our values has been the generation of actual and prospective rental income from within our portfolio.

The portfolio’s current gross income at 30 September 2011, which excludes pre-lettings and contracted rent free periods, amounted to £77.5 million, compared with £68.3 million at 30 September 2010. In the wholly owned portfolio current gross income has increased from £66.5 million to £73.6 million, arising from average like-for-like growth in rental income of around 7.5% as well as from acquisitions. This like-for-like growth rate, which is above our average in recent years, reflects good tenant demand and low levels of vacancies throughout the year.

Our valuers have estimated the rental value of our portfolio at 30 September 2011, including our share of the Longmartin joint venture, at £92.2 million compared with £83.9 million at 30 September 2010. The reversionary potential across the wholly owned portfolio now stands at £11.6 million, an increase of £1.1 million or 10.5% since 30 September 2010. Our share of Longmartin’s potential additional income amounted to £3.1 million of which 80% was contracted at the year end.

Shops and restaurants account for 72% of the current estimated rental value and 78% of the reversionary potential within our wholly owned portfolio. Our experience is that demand for these uses in our locations has not been cyclical. In the centre of London’s West End shops and restaurants have been underpinned by sustained and growing demand over many years. We therefore expect that over time we will realise the current reversionary potential and, through our management strategies, continue to deliver further growth in rental values.

The equivalent yield attributed by our valuers to our wholly owned portfolio at 30 September 2011 was 4.93%, compared with 5.10% at 30 September 2010 and 5.07% at 31 March 2011.

The demand for secure investments, particularly in prime locations in London’s West End, remains strong. However, despite current low interest rates and the expectation that this environment will continue for some time, the already generally limited availability of finance is restricting this demand.

DTZ, the valuers of our wholly owned portfolio, have once again commented in their report on the concentration of a high proportion of our properties in adjacent or adjoining locations within our principal villages and the dominance of retail and restaurant uses. They advise that, as a consequence of these unusual factors, some prospective purchasers may consider that parts of the wholly owned portfolio, when combined, may have a greater value than that currently reflected in the valuation that we have adopted in our results.

Our experience has been that, over a five year period – our usual rent review cycle – the values of our villages generally perform in a similar manner. This year Carnaby, 34% by value of our portfolio, has produced a capital value return of 9.7%, driven by higher rental income and ERVs, particularly for larger shops and offices. Improved contracted rents as well as ERVs for restaurant uses were the principal drivers of value increases of 7.1% in Covent Garden (29% of our portfolio) and 8.3% in Charlotte Street (2% of our portfolio). Although Chinatown, 24% of our portfolio, has our greatest concentration of restaurants, an absence of new open market rental evidence this year in Gerrard Street has tempered its growth to 4.7%. Our holdings in Soho, where we are in the early stages of a long term investment strategy, rose by 3.8%. Across our villages the capital values of apartments have risen generally by around 10%, reflecting strong demand both to rent and buy apartments in Central London.

The properties in our Longmartin joint venture showed a capital value return of 5.9% over the year. The equivalent yield attributed to Longmartin’s portfolio at 30 September 2011 was 4.80% compared with 4.98% at 30 September 2010 and 4.86% at 31 March 2011.

Finance

The Board keeps under review the Group’s financial resources to ensure we maintain appropriate levels of equity and debt finance to support our long term business objectives.

In early March 2011 we issued 22.7 million Ordinary shares, equivalent to approximately 9.9% of our issued share capital at that time, by way of a Share Placing. The shares were issued at a price of £4.50 each, representing a small premium to our adjusted net asset value at the date of issue, realising net proceeds after expenses of £99.8 million. This share issue has further strengthened our equity base and will allow us to continue to add to our portfolio.

At the year end we had committed bank facilities of £575 million, of which £141 million was undrawn and available to finance future investment. We have strong revenue cash flow, supported by rising rents and good levels of occupancy. In our portfolio, where obsolescence is limited, capital expenditure commitments are modest in relation to its size. Our gearing levels are conservative which we consider is appropriate for a REIT focussed on delivering rising income to shareholders.

Although we have no facility maturities before April 2016, we are monitoring opportunities to refinance existing facilities and raise additional long term finance to fund the expansion of our portfolio.

Total shareholder return

Over the year we delivered a total shareholder return of 10.0%, compared with a decline of 0.4% shown by the FTSE 350 Super Sector Real Estate Index, our chosen benchmark. We believe our continuing out-performance in part reflects the equity market’s evaluation of the resilience and qualities of our unique portfolio and its record of and future prospects for income and capital growth.

Board changes

As previously announced Jonathan Lane, who has been Chief Executive of Shaftesbury from the Company’s inception in 1986, retired from that role on 30 September 2011. He has been succeeded by Brian Bickell, our Finance Director since 1987.

Jonathan’s contribution to the progress of our business over the last 25 years has been outstanding. Under his stewardship Shaftesbury has become one of the most successful and innovative companies in the real estate sector. We are pleased that Jonathan will continue with us in the role of part-time Deputy Chairman.

On 3 October 2011 we announced the appointment of Christopher Ward to the position of Finance Director. He will join us in January 2012.

John Emly, a non-executive Director since 2000 and until 2009 our Senior Independent Director, will retire from the Board at the 2012 Annual General Meeting. We have greatly appreciated John’s wide experience and sound advice throughout this period.

Prospects

Sentiment is currently dominated by the well-publicised problems associated with rising debt levels in Western economies, and the uncertainties and ramifications of measures that may be necessary to restore economic stability. Whilst London and the West End cannot be completely immune from these global concerns, our portfolio continues to flourish, underwritten as it is by London’s unique features and attractions.

London’s special status as a “global city” will be further enhanced with the hosting of events in 2012 including the Queen’s Diamond Jubilee, World Pride and the Olympics. Although the popularity of these events will attract unprecedented numbers of visitors, in the short term they may well disrupt the usual patterns of life and activity during the summer months, particularly within Central London and the West End. Longer term however, they will further enhance London’s reputation across the world as the city to visit.

Our portfolio continues to benefit from strong demand and virtually full occupancy across all of our locations and for all uses. We have a forensic local knowledge which, together with substantial resources, will enable us to add to our portfolio when suitable new investments become available as well as advance schemes within our existing holdings.

We remain confident that, despite the current general climate of great uncertainty, we will maintain our record of delivering rising income, dividends and capital growth in the years ahead.

John Manser Chairman

30 November 2011