Interim Results

Capital & Regional PLC 12 September 2000 2000 INTERIM RESULTS Capital & Regional plc, the specialist retail and leisure property company, today announces its interim results for the six months ended 24 June 2000. Financial highlights Pre-tax profit up 52% to £10.0m (June 1999: £6.6m) Net rental income up 27% to £27.6m (June 1999: £21.8m) Fully diluted net assets per share up to 378p (December 1999: 376p) Profit on revenue activities up to £5.8m (June 1999: £5.7m) Earnings per share increased to 9.8p (June 1999: 6.3p) Dividend per share increased to 2.25p (June 1999: 2.0p) Operating highlights New Board structure: Tom Chandos, Non-Executive Director appointed Chairman and Martin Barber becomes Chief Executive. Total property and investment disposals of £39m. A further £200m of sales planned, including the industrial portfolio. 1.3 million sq ft let or agreed on retail parks. Six 'Big Box' formats of over 100,000 sq ft now contracted. These complete in the second half and in 2001 when outstanding matters including planning revisions are concluded. During the first half, the in-town covered centre portfolio demonstrated an increase of 3% average weekly footfall. Retailers participating in the Capital & Regional Trade Index across seven centres showed a 5% rise in sales. The majority of retail and leisure operators are open at Xscape in Milton Keynes with tenants reporting excellent trade. Healthlands Snozone, the 'real snow' ski slope expected to open by October. At proposed Xscape in Castleford, Yorkshire, agreements reached with anchor tenants, Cine-UK for a 16 screen multiplex cinema and Healthlands Snozone and health and fitness club. Signed conditional contract to purchase land. Terms agreed in principle with Healthlands, for its Snozone and health and fitness club and Path, the French cinema operator for Xscape in Castrop-Rauxelin the Ruhr, Germany. Options to purchase 35 acre development site signed. Commenting on the results, Martin Barber, Chief Executive of Capital & Regional said: 'Capital & Regional's approach to managing its portfolio and our strong tenant relationships has stood us in good stead. The retail environment, as ever, is highly competitive with some of the established brands struggling against the dynamic newcomers. It is our role as the property owner and manager to facilitate this change to the advantage of our properties. There are numerous examples in our portfolio where this has taken place. We are also encouraged by the high level of letting activity in the first half, which looks set to continue.' For further information please contact: Tom Chandos, Chairman, Capital & Regional 020 7932 8000 Martin Barber, Chief Executive, Capital & Regional 020 7932 8000 Lynda Coral, Financial Director, Capital & Regional 020 7932 8000 Sarah Carrell, Head of Corporate Communications Capital & Regional 02079328000 CHAIRMAN'S STATEMENT BOARD CHANGES Following the successful move to our new headquarters at the end of last year,the Board feels that it is the right time to refine the related earlier organisational changes with some further definition of Directors' roles and responsibilities. After seven years as a Non-Executive Director, I am very pleased and proud to have been appointed Chairman. I look forward to leading the Board of Directors in overseeing the next phase of the Company's strategic development, building on the current excellent base for the benefit of our shareholders. Martin Barber, previously Chairman, has assumed the title of Chief Executive and remains responsible for the overall running of the business, leading its strategic direction and ensuring its effective implementation. Xavier Pullen has become Deputy Chief Executive and will focus primarily on the supervision and co-ordination of all property matters. The role of the other Executive Directors remain essentially unchanged, with, in some cases, new titles to clarify externally their particular responsibilities: Lynda Coral Financial Director Roger Boyland Corporate Finance Director Andrew Lewis-Pratt Managing Director, Retail Parks and Xscape Kenneth Ford Managing Director, In-town Covered Centres RESULTS AND FINANCIAL POSITION In the six months to 24 June 1999, pre-tax profit increased by 52% to £10.0m (June 1999: £6.6m). Fully diluted net assets per share rose to 378p from 376p in December 1999. Profit on revenue activities for the six months were up to £5.8m (June 1999:£5.7m) and net rental income has increased by 27% to £27.6m (June 1999: £21.8m). Earnings per share on revenue activities were up to 5.8p (June 1999: 5.4p). Earnings per share increased to 9.8p (June 1999: 6.3p). This includes an accounting profit of £3.9m on the disposal of CenterPoint Properties Trust shares. The realisation of £25m from this investment sale has produced a profit of £22m on a historical cost basis. The Directors have resolved to pay an interim dividend of 2.25p (1999: 2.0p pershare). This will be paid on 20 October 2000 to shareholders on the register at the close of business on 22 September 2000. The level of the final dividend will be considered at the time of our year end results and will take account of,amongst other things, planned property disposals in the second half and the possible share buy-back programme. Our facility for dividend reinvestment by shareholders continues. The Company's borrowings at 24 June 2000 were £595.2m against £603.0m at December 1999. Net cash balances were £0.7m (December 1999: £7.4m) and the Company had approximately £48.0m (December 1999: £21.5m) of undrawn secured facilities. Fully diluted gearing at 134% is unchanged from December 1999. The weighted average interest rate cost at 24 June 2000 is 7.4% compared to 7.3% at the end of 1999. Rental income as a ratio to net interest payable including capitalisedinterest was 1.4 times. As shown in note 12, adjusting the book value of the Company's debt to its fair value as at 24 June 2000 would have had a positive effect on net asset value of £0.5m compared to £1.5m at December 1999 and a negative effect of £2.4m at 24 June 1999. STRATEGY AND OUTLOOK Capital & Regional will continue to focus its business in three areas, in-town covered centres, retail parks and the Xscape concept, in all of which we see outstanding long term opportunities. In the first half of the year, short term factors have held back valuation growth in some areas of our portfolio. Although we have been very encouraged by the level of tenant demand for our in-town covered centres, the competitive and changing nature of the retail market has caused an upward movement in yields, reflecting investor nervousness. This has been exacerbated by a further increase in Stamp Duty during the period. However, Capital & Regional believes that going forward it will continue to improve rental income and rental values by playing to the strengths of our retail and leisure operators, and actively promoting our properties in an imaginative way. Additional concerns about the possible impact of e-commerce on shopping habits appear to have been overplayed and it is our belief that developments in the internet will work in our favour over time, particularly as retailers use e-tail to their advantage. Capital & Regional is actively working to develop ways to capture these benefits for our tenants, shoppers and ourselves. Adverse investor sentiment also worked against us earlier this year, in our plans to establish a limited partnership fund, to invest in in-town covered centres. Nonetheless, we are convinced that joint ownership is attractive for investors to participate in this dynamic and management-intensive sector of the property investment market. We believe there is a strong rationale for a specialist UK in-town covered centre operator of scale, working closely with the new breed ofsuccessful retailers to create exciting and lively places to visit, shop and be entertained. In our retail park portfolio, tenant demand remains strong and numerous initiatives are in place to create large retail warehouse units for quality anchor tenants. This effort resulted in some deliberate vacancies and delays before units are income producing from new tenants. While this has temporarily held back valuation increases in the first half, we regard this as an investment to generate significant future value growth. We are extremely proud of our Xscape concept in Milton Keynes, which offers a unique and entirely new retail, leisure and entertainment complex. The majority of operators are open and it is already receiving an excellent response from the public and retailers. Therefore, we are pleased to be able to report that development land purchases and agreements in principle with major anchor tenants at our proposed Xscape schemes in Castleford, Yorkshire and Castrop-Rauxel in the Ruhr, Germany have been signed. We are actively pursuing discussions for the sale of our industrial property investment portfolio and other non-core assets totalling approximately £200m, to enable us to concentrate our resources on our core business of retail and leisure properties. The authority granted us at the last Annual General Meeting will also enable us to purchase our own shares in the market for cancellation. Taking all these matters together, the Board has confidence in producing a good performance for the second half and maintaining our above average growth for the future. Viscount Chandos Chairman CHIEF EXECUTIVE'S STATEMENT OPERATING REVIEW At 24 June 2000, the Company's investment portfolio had a value of £976m, compared to £933m at December 1999, primarily comprising ten in-town covered centres, twelve retail parks and Xscape in Milton Keynes, representing 4.7 million sq ft with 2.9 million sq ft of future developments. There was an underlying valuation decrease in the first half of 0.4% overall. A fall in the value of the in-town covered centres of 1.7% was partially offset by small percentage increases in the value of the industrial portfolio and other properties. The retail parks and Xscape showed no valuation movement in the first half;however, substantial capital growth is expected by the year end, as the effect of high letting activity to date is reflected. It is worth noting that our portfolio is highly reversionary, with the estimated rental value being approximately £18m higher than the £62m rents passing as at 24 June 2000. Furthermore, capital expenditure on extensions and refurbishment of the retail park investment portfolio of approximately £45m to satisfy pre-lets would add additional rental value of £8m to passing rent. Total property and investment disposals were £39m, with a further £200m ofplanned sales, including the industrial portfolio. In-town centres Our focus in the in-town covered centre sector continues to be the aggressivemanagement and promotion of our properties and developing a partnership approach with tenants and local authorities, aimed at establishing our properties as a focus for the community. These efforts are geared towards increasing relevant footfall through the malls and hence turnover, which should underpin tenants'profitability and rental growth. Despite what is generally regarded as a tough retail climate, the trading performance in our value orientated community mall portfolio has been good. Our centres are growing in popularity with estimated average weekly footfalls increasing by 3%. Over six months, retailers participating in the Capital & Regional Trade Index across seven centres showed a 5% rise in trade. Our vacancy level has reduced from 4.2% at the year end to 2.8%. We continue to invest with our retail partners in the physical environment, marketing and promotion of our centres, to increase catchment awareness of the retail and leisure offer presented. During the period, capital expenditure was approximately £11m. Net rents increased by 2.9% and estimated rental value rose by 2.7%. The increase in footfall, level of trade and both current and reversionary income coupled with low vacancy, is evidence of the success of the Capital & Regional management approach. At The Pallasades, Birmingham, conceptual scheme design and negotiations continue with Railtrack on the comprehensive refurbishment and extension of both the centre and New Street Station. Six lettings totalling 12,000 sq ft were concluded in the first half of the year. New retailers Vodafone, Thomas Cook and Estilo Clothing were introduced to the centre. There is an increasing awarenessof the pivotal 'gateway' status of The Pallasades and New Street Station to central Birmingham. The refurbishment work at Shopping City, Wood Green, London, continued during the first half of the year with the new Wilkinson's store, the refurbished MarketHall and the reconfigured Boots stores all opening for trade. In addition, four lettings totalling 37,000 sq ft were concluded, introducing TK Maxx and HMV to the scheme. Both will be trading for Christmas 2000. The 2,000 seat CineWorld multiplex cinema opened in August and the complementary family orientated restaurant offer should be trading by November. The completion of the final phase of the refurbishment programme is planned for Easter 2001. The re-branding and signage package is being progressively introduced and Shopping City has become a significant retail destination in North London. At The Ashley Centre, Epsom, a planning application has been lodged to re-brand and re-sign the Centre which we hope will coincide with the introduction of a branded catering facility at West Square and also the introduction of Sunday trading in November. The Centre is substantially fully let and negotiations are underway with a multiple occupier to replace their fascias with new occupiers. The new Gap unit opened in February and trade is above expectations. At The Howgate Centre in Falkirk, revitalisation of the Marks & Spencer's atrium was completed at Christmas and has resulted in increased footfall. MVC, First Sport, Cardwarehouse and the Bank of Scotland have been attracted to this area of the mall on improved rental terms. Agreements have been exchanged at Selborne Walk, Walthamstow to introduce Boots to the Centre in a 8,000 sq ft unit, with further lettings to HMV and Thomas Cook in solicitors' hands. Poundland has opened a 10,000 sq ft store following the relocation of Mark One to a newly refitted unit. We continue to appraise the development options for the additional 45,000 sq ft leisure development for which we have achieved planning consent. At The Trinity Centre, Aberdeen, the centre is fully let and we continue to demonstrate increased footfall, driving rental growth. We have negotiated surrender of one of the two sport shops in the Centre and simultaneously let the unit to Holland & Barrett at an improved rent. The new frontage canopy and branding has now been completed and we are investigating ways to extend the Centre to accommodate demand. A planning application at The Sauchiehall Centre in Glasgow has been lodged for its refurbishment to create large Sauchiehall Street units for two pre-let occupiers. Vacant possession discussions continue and we hope to start work on site early next year. We successfully concluded the purchase of the Co-op Living Department Store at The Alhambra Centre, Barnsley and simultaneously let the majority of the 64,500 sq ft unit to Primark and TK Maxx, both popular fashion retailers and new to Barnsley. They will be trading for Christmas 2000. At Liberty 2 in Romford, the surrender of a substantial reverse premium was negotiated with Kwik Save, with a re-letting of the space to Peacocks, a value fashion retailer relevant to our tenancy mix. The relocation of the atrium escalators was complete, with Caf BB successfully introduced and trading from the created space. Negotiations continue with the Local Authorities and potential tenants for the redevelopment of the adjacent Dolphin Site. Retail Parks Our retail park strategy is to focus on significant retail parks of over 150,000 sq ft in order to create value utilising our specialist and entrepreneurial skills. Plans are in progress to maximise opportunities arising from owning branded retail parks and initiatives will be announced prior to the year end. Our close working relationship and knowledge of retailers in this sector is reaping rewards. During the first half we have seen excellent tenant demand with 1.3 million sq ft of units let or agreed on retail parks. Six 'Big Box' formats of over 100,000 sq ft are now contracted. These complete in the second half and 2001 when outstanding matters including planning revisions are resolved. Our expertise in the sector has enabled us to secure some exciting development opportunities representing 1.4 million sq ft. In addition to the existing portfolio of 1.5 million sq ft, there are proposed extensions of 0.5 million sq ft, which will be achieved despite the Government's stringent planning guidance against out-of-town developments. We have disposed of, or propose to, all of our smaller retail parks and believe the core, portfolio will produce excellent results. During the first half, we have made acquisitions of approximately £17m. The full effect of letting activity and capital expenditure of approximately £4m will not be reflected in rents until the second half of the year. Investment portfolio At St Andrew's Quay, we have submitted a planning application to Hull City Council to develop the first two phases, including modernising existing retail units and constructing a new 100,000 sq ft B&Q depot. This programme of development is a key step in our plans to regenerate this 75 acre site. We are pleased to announce that the latest letting to Comet has achieved double the rent per sq ft compared to those on acquisition. Further to lettings at Beckton Retail Park to Woolworth's Big W, Matalan and JJB Sports, upon obtaining further planning consent, we will commence refurbishment and redevelopment in early 2001. This 189,000 sq ft open A1 development will become one of the few larger, quality parks in London. Planning consent has been obtained for the first phase of The Enterprise Retail Park in Swansea where we intend to develop a 165,000 sq ft open A1 retail park. Tenants include Woolworths 'Big W', Comet and Brantano, which has been let at £18 per sq ft compared to £6 per sq ft on purchase. It is anticipated that we will start on site in early 2001. We are pleased to report that Westway Shopping Park is now 95% let, including new tenants Sport Soccer, Brantano. Boots has taken an additional 34,000 sq ft unit to open one of its first Body 360o health clubs. At Renfrew Retail Park, Glasgow, our latest letting to Land of Leather at nearly 18 per sq ft sets a new market rent for the park. Development portfolio Since the year end, we have progressed our 600,000 sq ft retail and leisure development in Oldbury. Planning consent has already been achieved for approximately 280,000 sq ft of retail, leisure and restaurants for Phase I. We have enlarged the site by acquisitions to approximately 40 acres and anticipate obtaining planning consent for the second phase of 320,000 sq ft in the second half. Pre-lettings have already been exchanged for 230,000 sq ft to AMC, for a multiplex cinema, and Homebase, together with a further 160,000 sq ft in solicitors' hands. At Auchinlea, Glasgow (Junction 10), planning consent has been obtained for an open A1 retail and leisure development of 500,000 sq ft subject to confirmation from the Scottish Executive. This will allow us to develop one of the most significant retail and leisure schemes of its kind in the UK. Xscape Xscape is an entirely new concept in total 'brand' development for leisure and retail complexes. It offers the consumer the variety and excitement of a theme park with the convenience of a shopping centre. Capital & Regional plans initially to develop this concept within the UK and Europe. At Xscape in Milton Keynes, our £64m joint venture with PRICOA Property Investment Management, the majority of retail and leisure operators have opened and are reporting excellent trade. The ultimate in entertainment, Xscape will feature Healthland Snozone, Europe's largest indoor 'real snow' ski slope which will open by October, a 16 screen CINEWORLD multiplex cinema, 'City Limits'Entertainment Centre, which includes 24 ten-pin bowling lanes, a Healthands Fitness Centre, a number of bars, restaurants and cafes, indoor rock climbing a range of unique urban and lifestyle retailers. The current committed income is £4m, with a further £650,000 in solicitors' hands, and is estimated to increase to £5.8m when fully let. A new and growing feature of the retail market are these lifestyle brands: we have maximised their potential in this development. Based on the already excellent footfall since opening, we estimate that over six million people will visit Xscape in the first year alone. In February, we announced our plans to develop two further Xscape centres in Castleford, in the Borough of Wakefield, Yorkshire and Castrop-Rauxel in the Ruhr, Germany. At Castleford, we have entered into an agreement to develop this 400,000 sq ft scheme with a similar format to Milton Keynes. We are pleased to announce that conditional contracts to purchase the land have been signed. Terms have also been agreed with Cine-UK for a 16 screen mulitplex cinema and Healthlands has confirmed that they will operate the Snozone and the health and fitness club. A number of tenants from Milton Keynes have also confirmed interest in representation in Castleford. The scheme will be situated alongside Freeport plc's factory outlet village on the M62 and plans are to open in late 2002. At Castrop-Rauxel, the Xscape development will extend the Milton Keynes concept to include a hotel and further entertainment facilities up to a maximum potential development area of 900,000 sq ft. Options to purchase the 35 acre development site have been signed. A first phase of 600,000 sq ft is proposed and French cinema operator Path has entered into an, in principle agreement, to occupy the 5,000 seat cinema. Heathlands has again confirmed interest to operate the Snozone and fitness club. A planning application has been submitted with a decision anticipated mid 2001. Martin Barber Chief Executive CONSOLIDATED PROFIT AND LOSS ACCOUNT (Unaudited)(Unaudited)(Audited) 6 months 6 months Year to to to 25 Notes 24 June 24 June December 2000 1999 1999 £000 £000 £000 Turnover: group rental income and shareof joint ventures' turnover 34,357 27,190 60,211 Less share of joint ventures' turnover (1,866) (1,662) (6,614) Group rental income 32,491 25,528 53,597 Net property costs (4,877) (3,716) (8,085) Net rental income 27,614 21,812 45,512 Profit on the sale of trading and 4 development properties 1,006 910 1,646 28,620 22,722 47,158 Administrative expenses (3,520) (3,097) (7,163) 25,100 19,625 39,995 Other operating income 577 468 955 Group operating profit 25,677 20,093 40,950 Share of operating (loss) / profit in joint ventures and associates (396) 18 694 25,281 20,111 41,644 Income from listed investments 659 649 1,337 Interest receivable and similar income 453 308 719 Interest payable and similar 5 charges (20,577) (15,366) (33,005) Profit on revenue activities 5,816 5,702 10,695 Profit on sale of investment 4 properties 274 893 1,284 Profit on sale of investment 6 3,922 - 859 Profit on ordinary activities before taxation 10,012 6,595 12,838 Taxation 7 (273) (149) (409) Profit on ordinary activities after taxation 9,739 6,446 12,429 Equity minority interests (115) (222) (426) Profit attributable to the shareholders of the Company 9,624 6,224 12,003 Equity dividends paid and payable (2,211) (1,965) (4,913) Profit retained in the period 7,413 4,259 7,090 Earnings per share 8 9.8p 6.3p 12.2p Earnings per share - diluted 8 9.5p 6.3p 12.2p Earnings per share on revenue 8 activities 5.8p 5.4p 10.2p CONSOLIDATED BALANCE SHEET (Unaudited)(Unaudited)(Audited) As at As at As at 24 June 24 June 25 Notes 2000 1999 December £000 £000 1999 £000 Fixed assets Property assets 9 976,477 756,549 933,140 Other fixed assets 14,139 779 14,073 990,616 757,328 947,213 Other investments - 23,877 21,120 Investment in joint ventures Share of gross assets 9,168 6,090 8,650 Share of gross liabilities (7,373) (4,356) (6,428) 1,795 1,734 2,222 Investment in associates - 5 5 992,411 782,944 970,560 Current assets Property assets 9 30,191 38,420 34,660 Debtors: amounts falling due after more than one year - 3,804 4,840 amounts falling due within one year 35,848 17,716 40,389 Cash at bank and in hand 744 6,404 7,388 66,783 66,344 87,277 Creditors: amounts falling due within one year (65,570) (38,935) (58,178) Net current assets 1,213 27,409 29,099 Total assets less current liabilities 993,624 810,353 999,659 Creditors: amounts falling due after more than one year (including convertible unsecured loan stock) (590,920) (443,559) (598,752) Net assets 402,704 366,794 400,907 Capital and reserves Called up share capital 9,827 9,826 9,827 Share premium account 161,876 161,863 161,876 Revaluation reserve 162,462 154,197 184,836 Other reserves 591 591 591 Profit and loss account 58,922 33,227 35,436 Equity shareholders' funds 393,678 359,704 392,566 Equity minority interests 5,026 3,090 4,341 Non-equity funding by joint arrangement partners 4,000 4,000 4,000 Capital employed 402,704 366,794 400,907 Net assets per share adjusted for 10 minority interests and non-equity funding 400.6p 366.1p 399.5p Net assets per share adjusted for 10 minority interests and non-equity funding - diluted 377.5p 346.7p 376.4p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (Unaudited)(Unaudited)(Audited) 6 months 6 months Year to to to 24 June 24 June 25 Dec 2000 1999 1999 £000 £000 £000 Share of unrealised (deficit) / surplus on valuation of investment properties (4,247) 22,752 54,520 Share of unrealised surplus / (deficit) on valuation of other fixed assets 73 - (596) Share of unrealised surplus on valuation of properties in joint ventures - - 46 Revaluation surplus on other investments - 1,877 675 Tax on revaluation surpluses realised in period (2,130) - - Exchange differences 3 - 1 (6,301) 24,629 54,646 Profit attributable to the shareholders of the Company 9,624 6,224 12,003 Total recognised gains and losses relating to the period 3,323 30,853 66,649 RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (Unaudited)(Unaudited)(Audited) 6 months 6 months Year to to to 25 24 June 24 June December 2000 1999 1999 £000 £000 £000 Profit attributable to shareholders of the Company 9,624 6,224 12,003 Equity dividends paid and payable (2,211) (1,965) (4,913) Profit retained in the period 7,413 4,259 7,090 Share capital and share premium issued in period (net of expenses) - - 14 Other recognised gains and losses relating to the period (see above) (6,301) 24,629 54,646 Net addition to shareholders' funds 1,112 28,888 61,750 Opening shareholders' funds 392,566 330,816 330,816 Closing shareholders' funds 393,678 359,704 392,566 SUMMARY CASH FLOW STATEMENT (Unaudited)(Unaudited)(Audited) 6 months 6 months Year to to to 25 24 June 24 June December Notes 2000 1999 1999 £000 £000 £000 Net cash inflow from operating 1 activities 1 29,857 25,536 42,269 Dividends received from joint ventures - 300 300 Dividends received from associates 5 714 714 Returns on investments and servicing of finance (20,563) (14,393) (30,928) 9,299 12,157 12,355 Taxation - (2) 112 Net operating cash flow 9,299 12,155 12,467 Capital expenditure and financial investment (5,252) (85,371) (241,352) 4,047 (73,216) (228,885) Equity dividends paid (2,948) (4,176) (6,141) Cash in / (out) flow before financing 1,099 (77,392) (235,026) Financing (7,858) 78,319 236,938 (Decrease) / increase in cash in the period (6,759) 927 1,912 Reconciliation of net cash flow to movement in net debt (Unaudited)(Unaudited)(Audited) 6 months 6 months Year to to to 25 24 June 24 June December 2000 1999 1999 £000 £000 £000 (Decrease) / increase in cash in the period (6,759) 927 1,912 Cash out / (in) flow from debt financing 7,858 (78,319) (236,924) Change in net debt resulting from cash flows 1,099 (77,392) (235,012) Net debt at beginning of period (595,603) (360,591) (360,591) Net debt at end of period (594,504) (437,983) (595,603) Analysis of net debt (Unaudited)(Unaudited)(Audited) 6 months 6 months Year to to to 25 24 June 24 June December 2000 1999 1999 £000 £000 £000 Cash in hand and at bank 744 6,404 7,388 Bank overdrafts (115) - - 629 6,404 7,388 Debt due within one year (3,340) - (3,521) Debt due after one year (591,793) (444,387) (599,470) (594,504) (437,983) (595,603) NOTES TO THE FINANCIAL STATEMENTS 1. Accounting policies The financial information included in the Interim Report comprises consolidated rofit and loss account and balance sheet, statement of total recognised gains nd losses, reconciliation of movement in shareholders' funds and summary cash low statement. These have been prepared in accordance with the normal accounting policies of the Group, and do not constitute statutory accounts. 2. Financial information and presentation The financial information for the year to 25 December 1999 does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985. It is extracted from the statutory accounts for that year, on which the auditors Deloitte & Touche gave an unqualified report under Section 236 of the Companies Act 1985 which did not contain a statement under Section 237(2) or Section 237(4) of the Companies Act 1985. Statutory accounts for the year ended 25 December 1999 have been delivered to the Registrar of Companies. The financial information for the six months to 24 June 2000 is unaudited and has not been reviewed by the Group's auditors. 3. Segmental analysis Turnover, profit on ordinary activities before taxation and net assets are attributable to property investment, development and management. Turnover, profit on ordinary activities before taxation and operations arise in the UK except £659,000 (1999: £587,000) of income from listed investments which originates from the US. Net assets adjusted for minority interests originating from the US are nil (1999: £22,029,000). 4. Property sales Fixed property Current property assets assets (Unauditee)(Unaudited) (Unaudited) (Unaudited) 6 months 6 month 6 months 6 months ended ended ended ended 24 June 24 June 24 June 24 June 2000 1999 2000 1999 £000 £000 £000 £000 Net sale proceeds 1,246 15,523 12,178 12,347 Cost of sales (983) (12,644) (11,172) (11,437) Historical cost profit 263 2,879 1,006 910 Revaluation surplus (78) (1,986) - - Profit recognised on sale of properties 185 893 1,006 910 Share of joint ventures 89 - - - Profit recognised on sale of properties 274 893 1,006 910 5. Interest payable and similar charges (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Year to 24 June 24 June 25 2000 1999 December £000 £000 1999 £000 Bank loans and overdrafts wholly repayable within five years 21,540 15,092 32,998 Other loans 868 876 1,757 22,408 15,968 34,755 Capitalised in period (1,947) (732) (2,033) 20,461 15,236 32,722 Share of joint ventures interest payable 116 98 251 Share of associates interest payable - 32 32 20,577 15,366 33,005 6. Profit on sale of investment The investment in the shares held in CenterPoint Properties Trust were sold during the period: (Unaudited) 6 months to 24 June 2000 £000 Net sale proceeds 25,042 Historical cost (3,021) Historical cost profit 22,021 Revaluation surplus (18,099) Profit recognised on sale of investment 3,922 7. Taxation The taxation charge for the period has been estimated from the expected taxable profits of the Group after taking account of losses brought forward and capital allowances available. 8. Earnings per share Earnings per share have been calculated on a weighted average of 98,265,697 Ordinary shares of 10p each in issue during the period (six months to 24 June 1999: 98,255,271, year to 25 December 1999: 98,258,784) and have been based on profit on ordinary activities after taxation and minority interests of £9,624,000 (six months to 24 June 1999: £6,224,000, year to 25 December 1999: £12,003,000). Diluted earnings per share have been calculated after allowing for the exercise of share options which have met the required exercise conditions and the full conversion of the Convertible Unsecured Loan Stock, if the effect on earnings per share is dilutive. The weighted average number of Ordinary shares of 10p each is 110,943,812 (six months to 24 June 1999: 98,546,290, year to 25 December 1999: 98,611,343) and the relevant earnings are £10,492,000 (six months to 24 June 1999: £6,224,000, year to 25 December 1999: £12,003,000). Earnings per share on revenue activities exclude the profit on the sale of investment properties and investments, and associated tax charge and minority interests thereon, of £3,924,000 (six months to 24 June 1999: £890,000, year to 25 December 1999: £1,973,000). 9. Property assets Properties Total fixed Current Investment under property property properties construction assets assets £000 £000 £000 £000 Cost or valuation As at 25 December 1999 903,617 29,523 933,140 34,660 Acquisitions 22,227 - 22,227 1,475 Refurbishment and development 10,009 15,689 25,698 5,756 Disposals (951) - (951) (11,700) Revaluation (3,873) 236 (3,637) - As at 24 June 931,029 45,448 976,477 30,191 2000 The fixed property assets were valued at 24 June 2000, as follows: Valuer Basis of Valuation £000 DTZ Debenham Tie Leung Open Market Value 810,710 Open Market Value - properties under construction * 37,528 Insignia Richard Ellis Open Market Value Limited 118,695 Open Market Value - properties under construction 1,530 Directors Open Market Value 220 Directors Net sale proceeds of properties sold after 24 June 2000 260 Directors Cost 1,144 Directors Cost - properties under construction 6,390 976,477 Valuations are at open market value as defined in the Appraisal and Valuation Manual of The Royal Institution of Chartered Surveyors. *The figure stated reflects the Group's effective interest in properties under construction. 10. Net assets per share Net assets per share have been calculated on 98,265,697 Ordinary shares of 10p each (24 June 1999: 98,255,271, 25 December 1999: 98,265,697) in issue at 24 June 2000 and have been based on net assets attributable to shareholders of £393,678,000 (24 June 1999: £359,704,000, 25 December 1999: £392,566,000). Diluted net assets per share assumes that all of the Convertible Unsecured Loan Stock ('CULS') had been converted at the balance sheet date. Diluted net assets per share have been calculated on 110,667,868 Ordinary shares of 10p each and have been based on adjusted net assets attributable to shareholders of £417,764,000 (24 June 1999: £383,699,000, 25 December 1999: £416,607,000) by adding the £24,086,000 (24 June 1999: £23,995,000, 25 December 1999; £24,041,000) balance sheet value of the CULS. 11. Reconciliation of net cash inflow from operating activities (Unaudited)(Unaudited) (Audited) 6 months 6 months Year to to to 25 24 June 24 June December 2000 1999 1999 £000 £000 £000 Group operating profit 25,677 20,093 40,950 Profit on sale of trading and development properties (1,006) (910) (1,646) 24,671 19,183 39,304 Depreciation 334 222 479 (Profit) / loss on disposal of fixed assets (14) 3 92 Decrease / (increase) in trade debtors, other debtors and prepayments 1,487 97 (6,183) Increase in trade creditors, other creditors, taxation and social security and accruals 3,379 6,031 8,577 Net cash flow from operating activities 29,857 25,536 42,269 12. Debt valuation The table below show the market value of fixed rate debt instruments, and reflects the difference between the interest yield curve as at 24 June 2000 and the rates historically committed; namely the fair value adjustment. (Unaudited)(Unaudited) (Audited) As at As at As at 25 24 June 24 June December 2000 1999 1999 £000 £000 £000 Book value and notional principal 261,891 294,853 272,391 Fair value 261,390 297,365 270,921 Fair value adjustment 501 (2,512) 1,470 Minority interests 41 94 19 Fair value adjustment attributable to the Group 542 (2,418) 1,489 Net of tax at 30% 379 (1,693) 1,042 Effect on fully diluted net asset per share adjusted for minority interests and non-equity funding 0.3p (1.5)p 0.9p 13. Copies of the Interim Report Copies of the Interim Report are available from the Company's registered office at 10 Lower Grosvenor Place, London, SW1W 0EN.

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