Final Results

Capital & Regional plc 15 March 2005 15 March 2005 CAPITAL & REGIONAL PLC 2004 PRELIMINARY RESULTS Capital & Regional plc, the co-investing property asset manager, today announces its unaudited preliminary results for the period ended 30 December 2004. Highlights • Return on equity before exceptionals 39.0% (2003: 37.6%); • The company now has £4.0bn of property assets under management (31 December 2003: £2.9bn); • Adjusted fully diluted net asset value per share up to 710p (31 December 2003: 521p) • Profit before tax and exceptionals £36.2m (2003: £26.3m); • Total return after exceptionals and tax £136.0m (2003: £101.6m); • 56% increase in dividend to 14p for the full year; • All funds outperforming benchmarks on a geared and ungeared basis. Total returns to fund investors, after performance fees, on a geared basis were: • The Mall Fund: 26.0% • The Junction Fund: 35.6% • X-Leisure Fund: 18.0% (9 months only) Commenting on the results, Martin Barber, Chief Executive said: "2004 has been another great year where we have seen further significant growth for the Group. We are now seeing the benefits of our new business model and remain confident that this will help us deliver sustainable outperformance in the future". For further information please contact Capital & Regional on 020 7932 8000: Martin Barber, Chief Executive Tel: 020 7932 8101 William Sunnucks, Group Finance Director Tel: 020 7932 8125 Michael Sandler / James Benjamin, gcg hudson sandler Tel: 020 7796 4133 Chairman's statement 2004 was another extremely successful year for the Company, with strong returns, property acquisitions and new institutional investment all contributing to the increase in property assets under management from £2.9 billion to £4.0 billion. We generated a return on our equity of 39%, the second consecutive year at this sort of level; the adjusted fully diluted net asset value per share was 710p at the year end. Our three principal funds, investing in shopping centres, retail parks and urban entertainment complexes, are run by specialist teams who share an intense focus on attracting visitors to their centres, with a view to enhancing the trading of their tenants and, hence, increasing rental values. This proactive approach, combined with the generally favourable conditions in our chosen sectors of the property market, has demonstrably delivered excellent results. Our intensive operational approach, allied to our acquisition, development and financing expertise, should enable the group to show continued outperformance against market benchmarks, leading to superior returns to our shareholders. Dividends In the light of the substantial increase in recurring management fee income achieved during 2004, as well as the good prospects for continuing performance fees becoming payable in future years, the Board believes that it is now appropriate to rebase the level of the dividend, by recommending a final dividend of 9p (2003: 5p), to make 14p for the full year (2003: 9p), a 56% increase over the previous year. Board The Board was further strengthened during the year through the appointment of Alan Coppin as an independent non-executive director. He brings extensive experience in the management of major visitor destinations and a strong interest in management and governance best practice. Employees A company rich in physical assets is no less dependent on its human ones than a so-called "people business". As the property assets for which the Company is responsible have increased fourfold in the past three years, the Capital & Regional team now comprising 128 employees centrally and 497 at individual centres has worked with huge commitment and imagination. The exceptional results that I have been able to report are directly attributable to our employees' great efforts, for which, on behalf of the shareholders, I give them commensurate thanks. Tom Chandos Chairman Chief Executive's Review Financial results I am pleased to be able to report another set of strong financial results for 2004, the second full year of operating our new business model. Highlights include: • Return on equity before exceptionals for the year 39.0% (2003: 37.6%) • Adjusted fully diluted net asset value per share up to 710p (31 December 2003: 521p) • Profit before tax and exceptional items of £36.2m (2003: £26.3m); • 56% increase in the full year dividend to 14p (2003: 9p). Background to the financial results We are now seeing the benefits of the decision taken to change the strategic direction of the Group and specialise in specific sectors. The sectors we have chosen - in town shopping centres, retail warehouses and leisure - are deliberately chosen as ones which respond well to active management. They benefit from being run as businesses, in partnership with occupiers. The needs of the traders are at the heart of our business, whether the sector is retail or leisure. Our centre managers mainly have a retail background rather than one in property, and are expected to understand the operating dynamics of the occupiers. Happy tenants means they are trading successfully which means the centre is thriving. Specialisation has allowed us to invest in management teams intended to be "best in class" for their own sectors. Their skills can be spread over bigger portfolios, and they can exploit scale economies for the benefit of occupiers, fund investors and C&R. We believe we have some of the most experienced and effective management teams in the industry. We are proud of their strength and depth. The interests of the management teams, the funds and C&R are well aligned by our business model. We believe that this is at the root of our success. Business Building 2004 was again a year of business building, with the Group's market position strengthened in a number of significant ways: • property under management increased from £2.9bn to £4.0bn. In particular we have increased the number of shopping centres we manage from 15 to 21, at 30 December 2004 and to 22 now. • the X-Leisure Fund was established from the tail end of the three funds acquired from MWB. We now have a vibrant leisure division, with sufficient scale and significant opportunities for future expansion • we have restructured our principal investments via Jersey in order to increase liquidity in the market for units. Convertible Unsecured Loan Stock (CULS) In 2004 we started to buy back our CULS. The conversion price of £1.9448 is well below the current share price so we have had to pay a premium to redeem them. It is worth noting that the premium paid is written off through the Company's profit and loss account and reduces its taxable profit. This tax saving makes it beneficial to buy back CULS rather than shares. We have continued the repurchase programme after the year end, and have now bought approximately half the CULS issued. . Market overview Current market conditions remain good despite the reported slowdown in consumer demand. There continues to be strong demand from investors looking for ways of finding suitable property exposure and we believe that there is room for further reductions in investment yields, particularly in the leisure sector. Future prospects The current year has started well. We have experienced and well incentivised management teams and the infrastructure in place for continued organic growth. This will allow us to produce attractive returns for both fund investors and C& R. The longer term outlook is more difficult to predict, but I remain confident that our business model will help us outperform. Finance Director's review Return on equity Return on equity is still the key measure for our financial performance. Calculated directly from the unaudited accounts the 2004 figure is 37.0%. After adding back exceptional items it is 39.0%. Total return 2004 2003 £m £m Profit before tax and exceptionals 36.2 26.3 Exceptional items (10.2) - Gains taken to reserves 122.0 85.9 Pre-tax return 148.0 112.2 Tax (12.0) (10.6) Total return for the year 136.0 101.6 Return on equity 37.0% 37.6% Adjusted return on equity, before exceptionals 39.0% 37.6% Drivers of return 39% is clearly a high return and shareholders will want to understand the economic drivers behind it. 1. Earnings businesses: the Group is now a hybrid, with two significant earnings businesses which should be analysed differently from our property investments. Since they generate substantial profit from very little equity they significantly enhance our return on equity. Both businesses have been built up from small beginnings three years ago. Our property management business is operated by Capital & Regional Property Management Limited (CRPM), and our ski slope operating business by Snozone Limited: the corporate structure can be simplified as follows Capital & Regional plc !---------------------------!--------------------------------! ! ! Earnings businesses Property investments (wholly (Property management business and owned properties, joint ventures ski slope business) and fund co-investment) 2. Outperformance by the funds: all three funds are actively managed and outperformed their benchmarks on both a geared and ungeared basis. Strong performance from the funds benefits the Group in two ways: first through its co-investment, and secondly through the performance fees which entitle CRPM to an extra share of the outperformance over and above the benchmarks. Fund performance in 2004 Geared return Ungeared return IPD % % % Mall 26.0 19.6 17.1 Junction 35.6 24.0 23.5 X-Leisure (9 months only) 18.0 11.4 - 3. Strong Markets: Investor demand for retail property drove up property values during the year, and investment yields fell. We have estimated that our total return can be split up as follows: Effect of yield shift 21.5% Active management and other factors 17.5% Total return before exceptionals 39.0% 4. Non-fund property activity: our retail park and leisure teams still have significant non-fund activities, and these have made a major contribution to our return on equity: Key Non-Fund Investment 2004 Return on equity % Glasgow Fort - 50% JV 38.8 Swansea Retail Park - wholly owned 92.8 Xscape Milton Keynes - 50% JV 43.1 Xscape Castleford - 66.7% JV 24.3 Great Northern - 50% JV 9.4 Profit and loss detail The table below breaks down our turnover and profit into its main components: Profit and loss account 2004 2003 £m £m Management fees 19.3 15.7 Performance fees 31.2 13.3 Ski slope income 9.0 5.5 Rental income 2.9 4.9 Group turnover 62.4 39.4 Property costs 0.4 (1.3) Income from associates & JVs 30.6 35.9 Net interest payable (34.5) (29.5) Ski slope expenses (7.5) (5.1) Amortisation of goodwill (1.2) (1.2) Fixed management expense (13.7) (11.8) Variable management expense (13.0) (7.7) Profit on disposals/investments net 12.8 7.6 Exceptional item re Jersey restructuring (2.0) - Exceptional item re CULS (8.2) - Profit before tax 26.0 26.3 Management fees: most of our management fee income is stable. The core fee income is paid by the funds, the service charge fees by the tenants. Only 8% of the total is related to work on property procurement which will fluctuate with the level of activity within the funds. Management fees 2004 2003 £m £m Core fee income 11.6 10.7 Service charge fees 3.2 2.4 Other regular income 3.0 1.4 Procurement fees 1.5 1.2 Total 19.3 15.7 Performance fees: our property management company, CRPM, is entitled to performance fees, which are calculated as a share of the excess return over pre-agreed benchmarks. There are significant lags in the formula to ensure that only consistent performance is rewarded. • Fees are calculated on a rolling three year basis, so our 2004 performance will contribute to the 2006 performance fee • If the calculation produces a negative figure in either 2005 or 2006, the 2004 fee can be clawed back Thus our strong performances in 2004 gives us a good start towards earning performance fees in 2005 and 2006. We only include in the 2004 profit and loss account the fees that are legally attributable to the year, as shown in the table below. Performance fees 2004 2003 2002 £000 £000 £000 Mall 22.8 11.1 2.8 Junction 7.3 2.2 - X-Leisure 1.1 - - Total 31.2 13.3 2.8 Ski slope income and expense: Snozone produced higher than expected profits in 2004. Castleford enjoyed its first full year of trading; cost controls were operating strongly at both Castleford and Milton Keynes; and some costs could be shared between locations. The ski slope income comes mainly from ski slope ticket sales. Its expenses are staff costs and building occupation costs including rent. Share of associates and joint ventures: a breakdown of income from this source is shown in notes 6 and 7. All three funds have enjoyed strong capital growth, and paid significant performance fees to CRPM. These fees are currently charged against the operating profit of associates, although they are driven by capital growth. The move to Jersey may allow the funds to offset performance fees against capital and in due course we hope that cash distributions will be increased. Amortisation of goodwill: goodwill arising on the acquisition of the MWB leisure funds is amortised over 12.5 years. The cost of the goodwill was reduced by £1.2m due to a carried interest earned and credited to C&R as extra units in the new leisure fund. Management expense: over the last three years our fixed management expense has grown from £10.5m to £13.7m while the portfolio has grown from £900m to £4bn. We have tried to moderate the increase in our fixed cost base. The variable management expense includes all payments which vary with the performance - letting fees paid to members of staff, bonuses, and the cost of the Long Term Incentive Plan (LTIP) and the Capital Appreciation Plan (CAP). The cost of the LTIP awards is spread over the three year performance period. The cost of the CAP is borne in the year in which the performance fees are earned, although payouts are delayed for a further two years. Exceptional items: our accounts have borne the cost of writing off £8.2m of premium paid for the repurchase of the Convertible Unsecured Loan Stock (CULS). This reduces profit and total return, but it also reduces the number of shares after conversion. So on a fully diluted basis NAV per share will be enhanced. The Profit and Loss account also shows a £1.994m exceptional charge for the cost of transferring the Group's fund holdings into Jersey holding companies. Financing and corporate structure Value of property management business: we have been asked to provide more information to help investors understand the value of our property management business. Note 2 therefore includes for the first time an allocation of management expenses between our property management and property investment businesses based on an allocation of staff costs. The cash flows from the asset management business can be classified as follows: Property management business (CRPM) 2004 2003 £m £m Asset management fees 19.3 15.8 Fixed overhead (10.6) (9.1) Ongoing cash flow 8.7 6.7 Performance fees 31.2 13.3 Variable overhead (11.8) (6.5) Performance related cash flow 19.4 6.8 Dividend policy: our decision to increase the dividend is driven by an analysis of our recurring income. Recurring income includes rent, management fees, interest and fixed management expense. It excludes performance fees and variable overhead. It also excludes the share of the cost of performance fees which we bear as an investor in the funds. We calculate that our recurring pre-tax profit for 2004 was £18.4m. This translates into recurring post tax earnings per share of 19.6p, which covers our 14p proposed total dividend for 2004 1.4 times. Bank debt: the Group has bank debt of £118m against adjusted shareholders' funds of £515m including CULS of £20.4m. This debt is secured on our wholly owned properties, principally our investment in the Morfa site Swansea, and also on our units in the Mall and Junction funds. The Group is also exposed to £531m of bank debt through its interests in the three funds and its various joint ventures. The Mall and Junction portfolios are geared roughly 50/50 debt to equity, the X-Leisure fund is slightly higher at 65/35. This £531m includes our share of fund debt for which there is no recourse whatsoever to Group assets. In some cases there is recourse to the Group for debt incurred by Joint Ventures. These figures are prepared on a see through basis, in other words if we hold 27.86% of the fund, we include 27.86% of the fund debt. On this see through basis we have debt of £649m against adjusted shareholders' funds (including the CULS) of £515m, representing gearing of 126%. Hedging: the floating rate interest on this bank debt must be paid from a fixed flow of rental income, and it is therefore prudent to enter into interest rate swaps to hedge the interest rate exposure. At the year end we had swaps on 72% of the £649m with an average duration of 29 months. Since the year end further swaps have increased this to 76% and an average duration of 53 months. Convertible Unsecured Loan Stock (CULS): At 30 December our balance sheet included £20.4m of CULS each of which can be converted into shares at an effective conversion price of £1.9448. This is significantly below the current share price and we therefore treat the CULS as equity for gearing purposes. We started to repurchase the CULS during 2004. The effects on our financial statements are as follows: • We paid £12.4m cash for the repurchase • £4.2m of this reduces the book liability, the £8.2m balance is taken as a loss through the profit and loss account as an exceptional item within interest payable • Net asset value is reduced by £8.2m • Fully diluted NAV per share is enhanced on a post tax basis. We have continued to buy back CULS in 2005. Total buybacks to date can be summarised as follows: Nominal value Expenditure Premium £000 £000 £000 2004 buybacks 4,216 12,431 8,217 2005 buybacks 7,935 29,379 21,444 Total buybacks to date 12,151 41,810 29,661 International Accounting Standards We will continue using UK GAAP for the year ended 30 December 2005. But we are preparing to adopt IFRS for 2006, and we will be providing supplementary information to shareholders later this year to ensure that they are fully informed. The extra year of UK GAAP is clearly in the economic interests of shareholders because there is certainty under UK GAAP about the accounting and tax treatment of the write-off of the premium paid on repurchase of the CULS under IAS and FRS26. The financial information contained in this Finance Director's review is extracted or calculated from the attached profit and loss account, balance sheet, cash flow statement, notes and glossary. Data for 2004 is to 30 December. Data for 2003 is to 31 December. Operating Review: Shopping Centres The Shopping Centre Market 2004 was a record year for investment transactions with over £5bn worth of centres traded. Average lot size also increased to circa £75M with nominal equivalent yields hardening in Mall type centres to 6.25%, on par with The Mall's portfolio yield of 6.3%. It's hard to see a softening of pricing in the short term. Indeed the weight of money for retail investment in particular suggests further yield compression during 2005 albeit at a lesser rate than the last two years. As to rental growth, there is general concern in the market about the fundamentals of cooling consumer demand and general retail price deflation pressurising the retailers' capacity to support increased occupational overheads. Investors appear to be prepared to take at least a medium term view on this. The Mall's Market Position The Mall is seeing continuing strong tenant demand across all format sizes, however, particularly so in the 10,000 sq ft plus range. This is reflected in a low void rate of 2.8% which in itself includes strategic vacations for refiguration and reletting. The Mall model is intended to be robust in a more challenging consumer climate. It offers: • UK wide geographical diversity • No reliance on any single occupier : top 20 retailers liable for only 32% of rent roll • Competitive costs of occupation : average unit rent , £70K pa • Mass market tenancy roster • Convenient & accessible local locations • Emerging Mall Brand loyalty The Malls We now have a portfolio of 22 centres across the UK, one of the largest in the sector: Centre Size (sq ft) The Mall, Aberdeen 200,000 The Mall, Barnsley 170,000 The Mall, Bexleyheath 400,000 The Mall, Birmingham 400,000 The Mall, Blackburn 535,000 The Mall, Bristol 320,000 The Mall, Camberley* 360,000 The Mall, Chester 232,000 The Mall, Edgware 199,000 The Mall, Epsom 400,000 The Mall, Falkirk 190,000 The Mall, Gloucester 250,000 The Mall, Ilford 300,000 The Mall, Maidstone 542,000 The Mall, Middlesbrough 430,000 The Mall, Norwich 400,000 The Mall, Preston 270,000 The Mall, Romford 320,000 The Mall, Southampton 200,000 The Mall, Sutton Coldfield 500,000 The Mall, Walthamstow 280,000 The Mall, Wood Green 570,000 TOTAL 7,468,000 * acquired in January 2005 Performance Mall Fund performance 2004 2003 Property Level Returns 19.6% 20.1% Fund Level Returns 25.8% 33.5% IPD Benchmark 17.1% 15.2% Performance Fee £22.8M £11.1M The Mall fund has significantly outperformed its IPD shopping centres benchmark on both a geared and ungeared basis. We believe that this has been driven by the scale of the portfolio, the benefits of branding and most of all by the strong teams which we have actively managing each centre in partnership with retailers. Operating review: Retail Parks Retail Park Market Over the last 12 months the retail parks market has been the strongest performing sector within the UK property investment market. It is attractive to investors because there is strong tenant demand combined with tight planning controls. There are good prospects for rental growth, and this has been encouraging investors to drive down yields. Tenant demand from open A1 retailers remains strong as is rental growth for quality locations. Demand from bulky goods retailers is becoming more focused on prime destination parks, where we expect to see continued rental growth albeit at a slower rate. Demand for secondary parks in poor locations seems unlikely to improve. We would expect to see some further favourable yield in the short term, due to the weight of money the sector has attracted. However, the yield differential between prime and secondary has narrowed to a level which we believe is unsustainable. Retail Park Activities The C&R Retail Park team's main activity is the management of the Junction Fund, but it is also involved in a number of other projects as described below: Investment Description Recent Activity Sq ft Junction Fund 17 Retail Parks 4 other (Retail & Portfolio management 3,460,000 Industrial) Glasgow Fort Shopping park. Sold to Hercules Fund Now trading. C&R still 350,000 in June 2004 entitled to certain overage payments (Phase 1) Morfa Retail Wholly owned retail park development Development completed in 260,000 Park, Swansea October 2004. Leckwith Retail Potential large retail park development Pre-letting in progress. 400,000 Park, Cardiff The Junction Retail Parks Since inception we have assembled through a mixture of acquisitions, sales, development, extensions and refurbishment a prime portfolio which would be extremely difficult to replicate. Strict investment criteria have ensured that the fund concentrates it activities only on prime open A1 and bulky goods parks which are dominant and/or have the ability to become dominant in their catchment area. Junction Retail Parks Size (sq ft) Aberdeen 140,000 Aylesbury 200,000 (1) Beckton 190,000 Bristol 320,000 Glasgow 190,000 Hull 330,000 (1) Ipswich 210,000 Leeds 140,000 Leicester 170,000 Maidstone 170,000 Oxford 140,000 Paisley 190,000 Portsmouth 160,000 Renfrew 240,000 Junction Thurrock Joint Venture ( 2 ) 320,000 Wembley 260,000 Worcester 90,000 Total 3,460,000 (1.) Park size following completion of development works, currently under construction (2.) The Junction owns 65% of the Junction Thurrock joint venture Performance In both 2004 and 2003 the Junction has outperformed its benchmark. As a result Capital & Regional has earned significant performance fees. 2004 2003 Property level returns 24.0% 17.70% Fund level return 35.6% 28.20% Benchmark 23.5% 16.60% IPD Performance Fee £7.3m £2.2m The 24% property level return in 2004 can be attributed to: • Income 5.3% • Asset Management & ERV growth 5.5% • Planning and Development 2.7% • Yield Shift 10.5% Planning Permission & Development Central Government policies and planning legislation with regard to out of town retail developments has been increasingly restrictive and now borders on draconian. Despite this, the Junction has achieved considerable success in obtaining planning consents for new developments, existing park refurbishments and extensions, and change of use totalling 880,000 sq ft. This will assist the Junction in delivering out performance in future years, and has helped to create the development pipeline summarised below: Development Description Status Existing Area Further (sq ft) Development Area (sq ft) Aylesbury Development of old On site 30,000 108,000 existing retail park Hull - Ph II New space extension On site 240,000 130,000 Bristol - Ph IV New space extension Phase V completed 320,000 156,000 Wembley Redevelopment & Commence work April 260,000 N/A refurbishment of old 2005 existing retail park Oldbury New development Planning Consent n/a 430,000 achieved Thurrock Redevelopment & On site March 2005 490,000 N/A refurbishment Paisley New space extension Planning permission 190,000 85,000 awaited in June 2005 Leicester New space extension Planning Consent 170,000 17,500 achieved Phase 1 of our 200,000sq ft development at Aylesbury has been completed and trading commenced in November 2004 with the balance scheduled for completion in August 2005. The 130,000sq ft extension to Hull started on site in September 2004 with completion scheduled for August 2005. A further 100,000sq ft was added at Bristol during the year, and consent was achieved for 430,000sq ft at Oldbury following the planning inquiry in May 2004. Permission was also granted in October 2004 for the comprehensive redevelopment of 200,000sq ft at Wembley. Prior to commencement the developments will be substantially pre-let, with fixed priced building contracts signed in order to reduce the risk borne by the Fund. Glasgow Fort Phase I of this project was completed and opened for trade in October 2004. Notable lettings during this year include Zara, New Look and an extended Boots store. The overall un-let space by area is now only 4%. The investment was sold during the year by the partnership in which C&R is a 50% partner for £195m to Hercules Unit Trust, with the partnership retaining a right to receive further capital receipts in respect of the project and subsequent phases. These are subject to certain conditions and no value is included in Capital & Regional's balance sheet. Morfa Shopping Park, Swansea In October 2004 Capital & Regional completed the Morfa Shopping Park in Swansea. This investment comprises 105,000sq ft of Open A1 retail and 132,000sq ft of bulky goods retail, in addition to some A3 restaurant units. Existing tenants include B&Q, Next, TK Maxx, Boots and Asda George. Of the remaining 30,000sq ft available to let, 10,000sq ft is under offer and strong demand in the remaining space is being shown at significantly higher rent levels. This investment has significantly exceeded our expectations and we anticipate further capital growth in 2005. Extracts from Operating Review: Leisure The market for Leisure Properties Increasingly the leisure sector is attracting interest from a wider audience of investors. This is not surprising when one looks at the initial yield across leisure investments compared to other asset classes. The leisure sector is looking good value and the weight of money currently in the market is beginning to harden these yields as investor demand seeks out value. However other special benefits that leisure property offers to the investor are now being recognized. Unexpired lease lengths in excess of 20 years, good covenants and guaranteed rental uplifts at future reviews guaranteeing future reversionary income stream and the equivalent yields. C&R Leisure division's activities Capital & Regional's leisure team has four major responsibilities: Asset Description X-Leisure Fund A portfolio of 17 urban entertainment complexes Xscape Partnerships Xscapes in Milton Keynes and Castleford (near Leeds). A third is being built in Braehead (near Glasgow) Snozone Snow slope operator. Pays rent to Xscape partnerships Great Northern partnership Large retail and leisure property in central Manchester X-Leisure Fund The X-Leisure Fund was formally launched on 15 March 2004 with a gross asset value at inception of £502m and nine investors with C&R holding 10.77% of the equity. At the year end the Fund's gross asset value £597m with one additional investor - Royal Mail Pension Fund. The X-Leisure Fund is the largest leisure fund in the UK and the scale of ownership provides the opportunity to carry out cross-portfolio deals allowing expansion and restructuring with our occupiers. Acquisitions/disposals The major acquisition in 2004 was the Brighton Marina retail and leisure destination at £65m. There are capital gains to be made from both short term asset management initiatives as well as longer term and more ambitious development plans across the scheme. The scheme also offers branding and destination marketing opportunities and will therefore benefit from X-Leisure's specialist marketing approach and expertise. The asset is now a key holding within the fund. The fund also acquired the 25% holding of the "02" London long leasehold interest from JV partner Burford. This resulted in a significant capital value gain from the merging of the two interests and the benefits from 100% ownership and initiatives. Other Major Activity The combination of the three funds into one and the extension of the fund life has freed the fund to start a number of significant projects. For example: • Tower Park, Poole - Planning permission was received for a 16,000sq ft (4 unit) extension. Work has commenced with completion due in Summer 2005. • Star City, Birmingham - the turnaround of this regional destination has commenced with the start on site of the construction of a mini snow slope, skate park, air park and climbing walls. • At Great North, North Finchley, planning was granted and pre-lets were agreed for the reconfiguration of accommodation. • Successful rent review settlements above estimated rental values were achieved at the 02 Centre, London and Lockmeadow in Maidstone. Performance Over the nine months since inception, the fund level return was 18%. Annualised this is an equivalent of 23.3%. The fund's annual hurdle rate of return is 12% and we are pleased to have earned a £1.1m performance fee. Xscape Xscape Milton Keynes The property is fully let although various asset management initiatives have moved the value forward over the year increasing rental values and rental incomes by sub-divisions/reconfigurations. Xscape Milton Keynes remains the flagship entertainment leisure destination within the UK and welcomed 6.1m visitors in 2004. Xscape Castleford, Leeds 2004 saw its first full year of operation. Over the year £550,000 of new rental income was exchanged. At the year end the property was 90% let by floor area. The scheme is now trading successfully and year on year growth being experienced. The surrounding area has seen substantial development with the opening of a 100,000sq ft B&Q, reconfiguration/expansion commencing on the adjoining factory outlet and the completion of a 120 bedroom hotel. Xscape Braehead Laing O'Rourke's started construction on site in June 2004 and the 310,000sq ft building is currently on target to open in Spring 2006. A tremendous level of tenant interest has been experienced with 70% by floor area already pre-let. This Xscape is being developed in a joint venture with the owners of the very successful Braehead Shopping Centre on the adjoining site. It will offer additional attractions ensuring that the Xscape brand continues to be innovative and exciting. Snozone Ltd Snozone operates the indoor snow slopes at the Xscapes and has grown at both Xscape Milton Keynes and Xscape Castleford, exceeding profit forecasts year on year with an excellent expansion strategy. Year on year growth has been seen in both destinations and as awareness of the all year round ability to ski within the destinations increases the seasonal factor of the business, particularly in Milton Keynes, is becoming less acute. Great Northern Warehouse, Manchester This refurbished former railway warehouse is 50% owned in a JV company, Morrison Merlin Ltd, with Anglia Water Group. In 2004 an agreement for lease was exchanged with London Clubs International for a 40,000sq ft casino. Final licensing and planning approvals are expected in the first half of 2005 enabling the casino to open in early 2006. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the period ended 30 December 2004 Unaudited (Unaduited) (Audited) Period to 30 Year to 31 Notes December December 2004 2003 £000 £000 Turnover: group income and share of joint ventures' turnover 69,030 44,010 Less: share of joint ventures' turnover (6,658) (4,554) Group turnover 2 62,372 39,456 Cost of sales (7,008) (6,445) Gross profit 55,364 33,011 Profit on sale of trading and development properties 327 25 Exceptional Group restructuring costs 5 (1,994) - Other administrative expenses (27,923) (20,650) Total administrative expenses (29,917) (20,650) Group operating profit 25,774 12,386 Share of operating profit in joint ventures and associates 30,574 35,863 Total operating profit 56,348 48,249 Income from other fixed asset investments 445 - (Loss)/profit on sale of investment properties and investments (1,771) 5,242 Profit on sale of investment properties in associates and joint 13,779 2,385 ventures Profit on ordinary activities before interest 68,801 55,876 Interest receivable and similar income 1,872 1,142 Interest payable and similar charges - Group (7,389) (7,287) - Share of associates (21,533) (19,789) - Share of joint ventures (7,493) (3,595) - Exceptional premium paid on buyback of Convertible 5 (8,217) - Unsecured Loan Stock (44,632) (30,671) Profit on ordinary activities before taxation 2 26,041 26,347 Taxation on profit on ordinary activities 3 (5,852) (6,966) Profit on ordinary activities after taxation and attributable to the 20,189 19,381 shareholders of the Company Equity dividends paid and payable (9,016) (5,602) Profit retained in the period/year 11,173 13,779 Earnings per share - basic 4 32.2p 31.4p Earnings per share - diluted 4 28.4p 27.3p The results of the Group for the period/year relate to continuing operations. CONSOLIDATED BALANCE SHEET As at 30 December 2004 Unaudited (Unaudited) (Audited) Notes 30 December 31 December 2004 2003 £000 £000 Fixed assets Intangible assets 12,179 14,540 Property assets 82,938 51,457 Other fixed assets 12,500 12,282 107,617 78,279 Investment in joint ventures: share of gross assets 150,644 183,769 share of gross liabilities (103,902) (127,277) 7 46,742 56,492 Investment in associates 6 477,092 372,676 631,451 507,447 Current assets Property assets 8,314 7,941 Debtors: amounts falling due after more than one year 3,904 274 amounts falling due within one year 46,350 24,202 Cash at bank and in hand 4,427 4,475 62,995 36,892 Creditors: amounts falling due within one year (50,404) (37,232) Net current assets/(liabilities) 12,591 (340) Total assets less current liabilities 644,042 507,107 Creditors: amounts falling due after more than one year 8 (147,674) (137,780) (including convertible debt) Provisions for liabilities and charges (1,831) (2,201) Net assets 494,537 367,126 Capital and reserves Called up share capital 10 6,404 6,311 Share premium account 10 167,351 165,574 Revaluation reserve 10 247,197 145,245 Other reserves 10 1,145 2,468 Profit and loss account 10 72,440 47,528 Equity shareholders' funds 494,537 367,126 Net assets per share 11 793p 591p Adjusted fully diluted net assets per share 11 710p 521p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the period ended 30 December 2004 Unaudited (Unaudited) (Audited) Period to 30 Year to 31 Notes December December 2004 2003 £000 £000 Profit before exceptionals 5 36,252 26,347 Exceptional items (10,211) - Profit before tax 26,041 26,347 Movements in revaluation reserve - on investment properties 16,371 1,111 - on other fixed assets 280 (620) - on joint ventures and associates 105,358 80,870 Gains on deemed disposals - 4,498 Total gains before tax 148,050 112,206 Tax shown in profit and loss account (5,852) (6,966) Tax on revaluation surplus realised (6,185) (3,651) Total tax charge (12,037) (10,617) Total recognised gains and losses for the period/year 136,013 101,589 Return on equity for the period/year 12 37.0% 37.6% Return on equity before exceptional items 12 39.0% 37.6% RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS For the period ended 30 December 2004 Unaudited (Unaudited) (Audited) Period to 30 Year to 31 December December 2004 2003 £000 £000 Profit for the period attributable to shareholders of the Company 20,189 19,381 Equity dividends paid and payable (9,016) (5,602) Profit retained in the period/year 11,173 13,779 Other recognised gains and losses relating to period/year 115,824 82,208 Share capital and share premium issued in period/year (net of expenses) 1,870 2,958 Purchase of own shares (3,285) (3,341) LTIP credit in respect of profit and loss charge 1,829 1,184 Net increase in equity shareholders' funds 127,411 96,788 Opening equity shareholders' funds 367,126 270,338 Closing equity shareholders' funds 494,537 367,126 CONSOLIDATED CASH FLOW STATEMENT For the period ended 30 December 2004 Unaudited Notes (Unaudited) (Audited) Period to Year to 30 December 31 December 2004 2003 £000 £000 Net cash inflow from operating activities (i) 10,950 28,947 Dividends received from associates and joint ventures 32,989 14,694 Returns on investments and servicing of finance (7,779) (7,920) Taxation (9,614) (5,496) Capital expenditure and financial investment 6,191 8,442 Acquisitions and disposals and exceptional item (20,278) (48,208) Equity dividends paid (6,226) (4,985) Cash inflow/(outflow) before financing 6,233 (14,526) Financing (6,281) 14,842 (Decrease)/increase in cash (48) 316 Notes to the cash flow statement (i) Net cash inflow from operating activities (Unaudited) (Audited) Period to 30 Year to 31 December December 2004 2003 £000 £000 Group operating profit 25,774 12,386 Profit on the sale of the trading and development properties (327) (25) 25,447 12,361 Depreciation of other fixed assets 383 425 Amortisation of short leasehold properties 268 203 Amortisation of tenant incentives (764) (144) Amortisation of goodwill 1,151 1,162 Loss/(profit) on disposal of fixed assets 1 (6) (Increase)/decrease in debtors (29,538) 3,144 Increase in creditors 12,173 10,616 Non-cash movement relating to LTIP 1,829 1,184 Net cash inflow from operating activities 10,950 28,947 (ii) Analysis of net debt At 31 December At 30 December 2003 Cash flows 2004 £000 £000 £000 Cash in hand and at bank 4,475 (48) 4,427 Debt due within one year (200) - (200) Debt due after one year (110,472) (7,567) (118,039) Convertible Unsecured Loan Stock (24,642) 4,216 (20,426) (135,314) (3,351) (138,665) Total (130,839) (3,399) (134,238) 1. Status of financial information The financial information contained in this announcement does not constitute statutory financial statements within the meaning of Section 240 Companies Act 1985. The comparative figures have been extracted from the audited financial statements for the year ended 31 December 2003 which have been filed at Companies House. The auditors have reported on those accounts; their report was unqualified and did not contain statements under S237(2) or (3) of the Companies Act 1985. The statutory accounts for the period ended 30 December 2004 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting. The preliminary announcement has been prepared in accordance with applicable UK accounting standards. The accounting policies have all been applied consistently throughout the current period and the preceding year. 2. Segmental analysis (Unaudited) (Audited) Period ended Year ended 30 December 31 December Property Property Ski slope Exceptional 2004 2003 Management investment business items Total Total £000 £000 £000 £000 £000 £000 Asset management fees 19,312 - - - 19,312 15,757 Performance fees 31,220 - - - 31,220 13,292 Ski slope income - - 8,958 - 8,958 5,546 Rental & other income - 2,882 - - 2,882 4,861 Group turnover 50,532 2,882 8,958 62,372 39,456 Share of joint ventures' - 30,574 - - 30,574 35,863 and associates' operating profit Direct expenses - 526 (7,534) - (7,008) (6,445) Net interest payable - (27,516) - - (27,516) (22,545) - non recourse - own borrowings (net) - (7,027) - (8,217) (15,244) (6,984) Amortisation of goodwill (1,151) - - - (1,151) (1,162) Fixed management expense (10,607) (2,868) (247) - (13,722) (11,779) Variable management (11,821) (1,126) (103) (1,994) (15,044) (7,709) expense Profit on disposals/ - 12,780 - - 12,780 7,652 investments (net) Profit before taxation 26,953 8,225 1,074 (10,211) 26,041 26,347 Revaluation surplus - 122,009 - - 122,009 85,859 Taxation (8,086) (6,692) (322) 3,063 (12,037) (10,617) Total return 18,867 123,542 752 (7,148) 136,013 101,589 Net assets at 30 December 38,778 453,572 2,187 - 494,537 367,126 2004 2003 Group turnover 29,049 4,861 5,546 - 39,456 Profit before taxation 12,276 13,932 139 - 26,347 Total return 8,503 92,989 97 - 101,589 Net assets at 31 December 25,216 341,212 698 - 367,126 2003 Turnover, profit on ordinary activities before taxation and net assets all arise in the UK. 3. Taxation (Unaudited) (Audited) Period to 30 Year to 31 December December 2004 2003 £000 £000 Current tax UK corporation tax (at 30%) 7,369 6,330 Prior year (1,147) 832 Total current tax 6,222 7,162 Deferred tax Origination and reversal of timing differences (370) (196) Total taxation 5,852 6,966 Tax reconciliation Group profit on ordinary activities 26,041 26,347 Tax on profit on ordinary activities at UK corporation tax rate of 7,812 7,904 30% Effects of: - timing differences 3,682 - - capital allowances (1,403) (984) - utilisation of tax losses (3,342) 605 - tax on revaluation gains (725) (937) - expenses not deductible for tax purposes 1,345 (258) - adjustment in respect of prior years (1,147) 832 Total current tax 6,222 7,162 Deferred taxation The amounts of deferred taxation provided and unprovided in the accounts are as follows: (Unaudited) (Audited) (Unaudited) (Audited) Provided Provided Not provided Not provided 2004 2003 2004 2003 £000 £000 £000 £000 Tax on capital gains if investment assets were sold at their current valuation - - 4,200 31,804 Accelerated capital allowances and other timing 1,831 2,201 - - differences 1,831 2,201 4,200 31,804 During the period, a significant part of the Group's property interests were transferred offshore. In addition, the Auchinlea partnership has sold its interest in Glasgow Fort. The Group has been advised that no capital gains tax liability arises on these transactions, although the relevant computations have yet to be submitted or agreed. The amount disclosed as an unprovided deferred tax liability in the accounts at 31 December 2003 in relation to these assets was £32.3m. If a provision was made for deferred taxation that has not been provided it would have an adverse effect on net assets per share of 7p (2003: 51p) and on fully diluted net assets per share of 6p (2003: 41p). 4. Earnings per share Period to 30 December 2004 (Unaudited) Earnings Number of Earnings £000 shares per share Basic 20,189 62,727,988 32.2p Exercise of share options - 625,543 Conversion of Convertible Unsecured Loan Stock 1,250 12,183,118 Diluted 21,439 75,536,649 28.4p Year to 31 December 2003 (Audited) Earnings Number of Earnings £000 shares per share Basic 19,381 61,758,939 31.4p Exercise of share options - 1,062,488 Conversion of Convertible Unsecured Loan Stock 1,218 12,670,912 Diluted 20,599 75,492,339 27.3p The calculation includes the full conversion of the Convertible Subordinated Unsecured Loan Stock where the effect on earnings per share is dilutive. Own shares held are excluded from the weighted average number of shares. 5. Exceptional Items (Unaudited) (Audited) Period to 30 Year to 31 December 2004 December 2003 £000 £000 Exceptional Group restructuring costs 1,994 - Exceptional premium paid on buyback of Convertible Unsecured Loan Stock 8,217 - Total exceptional items 10,211 - Profit on ordinary activities before taxation 26,041 26,347 Profit on ordinary activities before taxation and exceptional items 36,252 26,347 6. Associates (Unaudited) (Audited) The Mall The X-Leisure* Total to Total to 31 LP Junction LP LPs 30 December December £000 £000 £000 2004 2003 £000 £000 Profit and loss account (100%) Turnover 120,852 33,498 38,994 193,344 155,620 Property expenses (19,335) (1,458) (3,890) (24,683) (17,545) Net rental income 101,517 32,040 35,104 168,661 138,075 Fund and property management expenses (9,454) (5,395) (3,603) (18,452) (13,291) Performance fee (31,507) (10,236) (1,372) (43,115) (17,931) Administrative expenses (3,311) (1,838) (169) (5,318) (4,974) Share of joint ventures' operating profit - 3,222 - 3,222 3,105 Operating profit 57,245 17,793 29,960 104,998 104,984 Sale of investment properties - - - - 8,158 Net interest payable (39,563) (19,972) (22,371) (81,906) (67,388) Profit/(loss) before and after tax 17,682 (2,179) 7,589 23,092 45,754 Balance sheet (100%) Investment properties and joint ventures 2,094,942 999,082 596,630 3,690,654 2,485,006 Current assets 103,115 64,585 28,696 196,396 151,687 Current liabilities (106,611) (26,400) (358,586) (491,597) (147,218) Borrowing due in more than one year (1,022,025) (462,479) (58,811) (1,543,315) (1,202,086) Net assets (100%) 1,069,421 574,788 207,929 1,852,138 1,287,389 C&R interest at end of period 27.86% 27.32% 10.77% C&R interest at start of period 34.77% 28.37% 13.29% 5.72% 7.09% Group share of Turnover 37,412 9,473 4,200 51,085 50,438 Operating profit 17,721 5,233 3,227 26,181 32,256 Sale of investment properties - - - - 2,278 Net interest payable (12,247) (5,530) (2,409) (20,186) (19,007) Profit/(loss) before and after tax 5,474 (297) 818 5,995 15,527 Revaluation surplus for the period/year 53,040 41,754 2,564 97,358 62,752 Investment properties and joint ventures 583,651 272,949 64,257 920,857 683,135 Current assets 28,728 17,645 3,415 49,788 41,938 Current liabilities (29,701) (7,213) (38,944) (75,858) (35,186) Borrowing due in more than one year (284,736) (126,349) (6,334) (417,419) (316,917) Associate net assets 297,942 157,032 22,394 477,368 372,970 Unrealised profit on sale of property to (276) - - (276) (294) associate Group share of associate net assets 297,666 157,032 22,394 477,092 372,676 * On 17 March 2004, the three X-Leisure funds were consolidated into one umbrella fund. Capital & Regional's share of the new umbrella fund was 10.77%. 7. Joint ventures Xscape (Unaudited) (Audited) Milton Xscape* Total to Total to Keynes Castleford Auchinlea MorrisonMerlin 30 31 Partnership Partnership Partnership Others December December 2004 2003 £000 £000 £000 £000 £000 £000 £000 Profit and loss account (100%) Turnover 4,046 2,016 910 5,696 - 12,709 8,788 Property expenses (548) (1,169) (675) (910) (661) (3,963) (1,446) Net rental income 3,498 847 235 4,786 (661) 8,746 7,342 Fund and property management (100) (100) - - - (200) (125) expenses Administrative expenses (31) (17) (15) (109) - (172) (241) Operating profit/(loss) 3,367 730 220 4,677 (661) 8,374 6,976 Sale of investment properties - - 27,539 - 16 27,555 214 Net interest (payable)/ (3,212) (3,115) (3,773) (3,618) 103 (13,615) (6,848) receivable Profit/(loss) before tax 155 (2,385) 23,986 1,059 (542) 22,314 342 Tax - - - - (1,400) (1,400) - Profit after tax 155 (2,385) 23,986 1,059 (1,942) 20,914 342 Balance sheet (100%) Investment properties 84,061 65,389 - - 11,630 161,080 253,870 Current assets 3,444 5,083 29,146 77,243 1,754 116,670 91,394 Current liabilities (3,161) (3,570) (20,043) (3,294) (4,199) (34,267) (65,665) Borrowing due in more than (46,800) (47,915) - (62,500) - (157,215) (160,090) one year - Net assets (100%) 37,544 18,987 9,103 11,449 9,185 86,268 119,509 C&R interest at start and end 50% 66.7% 50% 50% 50% of period Group share of Turnover 2,023 1,349 455 2,848 - 6,675 4,554 Operating profit/(loss) 1,683 487 110 2,338 (225) 4,393 3,607 Sale of investment properties - - 13,770 - 8 13,778 107 Net interest (payable)/ (1,606) (2,077) (1,886) (1,809) 50 (7,328) (3,538) receivable Profit/(loss) before tax 77 (1,590) 11,994 529 (167) 10,843 176 Tax - - - - (700) (700) - Profit/(loss) after tax 77 (1,590) 11,994 529 (867) 10,143 176 Revaluation surplus for the 4,021 3,979 - - - 8,000 18,118 period/year Investment properties 42,031 43,614 - - 5,815 91,460 136,910 Current assets 1,722 3,390 14,573 38,622 877 59,184 46,891 Current liabilities (1,581) (2,388) (10,022) (1,469) (1,833) (17,293) (39,517) Borrowing due in more than (23,400) (31,959) - (31,250) - (86,609) (87,792) one year Group share of joint venture 18,772 12,657 4,551 5,903 4,859 46,742 56,492 net assets * Capital & Regional plc has a 66.7% share in the Xscape Castleford partnership. The investment is accounted for as a joint venture, rather than a subsidiary, as a result of joint control and the deadlock agreements that are in place. 8. Creditors: Amounts falling due after more than one year (Unaudited) (Audited) 2004 2003 £000 £000 Bank loans (secured) (see note 26) 118,039 110,472 Unamortised issue costs (195) (385) 117,844 110,087 Convertible loan stock (unsecured) (see note 25) 20,426 24,642 Unamortised issue costs (54) (145) 20,372 24,497 Other creditors 9,458 3,196 147,674 137,780 9. Convertible Subordinated Unsecured Loan Stock 2004 2003 £000 £000 At beginning of the period/year 24,642 24,642 CULS purchased and cancelled in the period/year (4,216) - 20,426 24,642 The Convertible Subordinated Unsecured Loan Stock ("CULS") may be converted by the holders of the stock into 51.42 (2003: 51.42) ordinary shares per £100 nominal value CULS in any of the years 1997 to 2015 inclusive, representing a conversion price of 194p (2003: 194p) per ordinary share. The Company has the right to redeem at par the CULS in any year from 2006 to 2016. The CULS are unsecured and are subordinated to all other forms of unsecured debt but rank in priority to the holders of the ordinary shares in the Company. The CULS carry interest at an annual rate of 6.75%, payable in arrears on 30 June and 30 December in each year. In accordance with FRS 4 "Financial Instruments" the CULS are shown net of its unamortised loan issue costs. 10. Reserves Other Reserves Share Property Capital Profit and Share premium revaluation redemption Own Loss capital account reserve reserve shares Account Total £000 £000 £000 £000 £000 £000 £000 Group As at 1 January 2004 6,311 165,574 145,245 4,289 (1,821) 47,528 367,126 Issue of share capital 93 1,777 - - - - 1,870 Revaluation of investment - - 16,651 - - - 16,651 properties and other fixed assets Share of revaluation surplus of - - 105,358 - - - 105,358 joint ventures & associates Realisation of surplus on - - (20,998) - - 20,998 - disposal of investment properties and dilution of interest in associates Permanent dimunition of - - 941 - - (941) - investment properties Tax on realisation surpluses - - - - - (6,185) (6,185) realised in the year Purchase of own shares - - - - (3,285) - (3,285) Credit in respect of LTIP charge - - - - - 1,829 1,829 Amortisation of cost of own - - - - 1,962 (1,962) - shares Profit retained in the period - - - - - 11,173 11,173 As at 30 December 2004 6,404 167,351 247,197 4,289 (3,144) 72,440 494,537 11. Net assets per share As at 30 December 2004 (Unaudited) Net assets Number Net assets £000 of shares per share As per the balance sheet 494,537 64,039,578 Own shares held (1,688,411) Net assets per share 494,537 62,351,167 793p Conversion of CULS (net of unamortised issue 20,281 10,503,109 costs) Exercise of share options 1,897 782,071 Capital allowances deferred tax provision 5,807 - Adjusted fully diluted 522,522 73,636,347 710p As at 31 December 2003 (Audited) Net assets Number of shares Net assets per £000 share As per the balance sheet 367,126 63,112,003 Own shares held (1,024,000) Net assets per share 367,126 62,088,003 591p Conversion of CULS (net of unamortised issue 24,404 12,670,912 costs) Exercise of share options 3,767 1,709,646 Capital allowances deferred tax provision 3,449 - Adjusted fully diluted 398,746 76,468,561 521p Net assets per share are shareholders' funds divided by the number of shares held by shareholders at the period end. The shares held by the Group's employee benefit trust (own shares held) are excluded from both net assets and the number of shares. Adjusted fully diluted net assets per share includes the affect of those shares potentially issuable under the CULS or employee share options schemes. It excludes the capital allowances deferred tax provision. 12. Return on Equity (Unaudited) (Audited) Period to Year to 30 December 31 December 2004 2003 £000 £000 Total recognised gains and losses 136,013 101,589 Equity shareholders' funds 367,126 270,338 Return on equity 37.0% 37.6% Exceptional items (net of tax at 30%) 7,148 - Total recognised gains and losses before exceptional items 143,161 101,589 Return on equity before exceptional items 39.0% 37.6% Return on equity is calculated as total recognised gains and losses divided by opening equity shareholders' funds, which is net of own shares held, plus time-weighted additions to share capital (excluding share options) less reductions in share capital. Additional information Property under management 30 December 31 December 2004 2003 £m £m Investment properties 83 52 Trading properties 8 8 Mall fund 2,099 1,243 Junction fund 1,010 757 X-Leisure fund 597 501 Joint ventures 226 332 Total 4,023 2,893 Fund Portfolio information Mall Junction X-Leisure At 30 December 2004 Fund Fund Funds Number of core properties 21 17 18 Number of tenants 1,991 202 267 Square feet (000) 7,001 3,460 2,867 Properties at market value (note 1) £2,099m £1,010m £597m Initial yield % 5.77% 3.85% 6.15% Equivalent yield % 6.27% 5.56% 6.89% Vacancy rate 3.50% 7.60% 1.40% Net rental income (£m per annum) £125.3m £42.0m £38.3m Estimated rental value (£m pa) £147.2m £57.3m £43.7m Rental increase (ERV) 2.55% 11.40% 2.00% Reversionary % 7.57% 17.11% 6.80% Loan to value ratio 47.96% 46.00% 61.4% Underlying valuation change since 31 December 2003 11.98% 18.60% 4.60% Property level return 19.61% 24.00% 11.20% Geared return 25.99% 35.64% 18.00% Unit price (£1.00 at inception) £1.7604 £1.8661 £1.1333 C&R share 27.86% 27.32% 10.77% Notes: 1. Properties at market value include tenant incentives which are transferred to current assets for accounting purposes. 2. This is the position of the new X-Leisure Fund based on values at 30 December 2004. Glossary of terms Adjusted Fully diluted NAV per share includes the Passing rent is the gross rent, less any ground rent effect of those shares potentially issuable under the payable under head leases. CULS or employee share options. It excludes the capital allowances deferred tax provision. Return on equity is the total return, including revaluation surplus, divided by opening equity plus Capital allowances deferred tax provision In accordance time weighted additions to share capital, excluding with FRS19, full provision has been made for deferred share options exercised, less reductions in share tax arising on the benefit of capital allowances capital. claimed to date. In the Group's experience liabilities in respect of capital allowances provided are unlikely to crystallise in practice and are therefore excluded when arriving at adjusted fully diluted NAV per share. Reversion is the estimated increase in rent at review where the gross rent is below the estimated rental value. Contingent tax liability is the unprovided further taxation which might become payable if the Group's investments and properties were sold at their balance Reversionary yield is the anticipated yield, which the sheet values net of any tax losses which have not been initial yield will rise to once the rent reaches the recognised in the balance sheet. estimated rental value. CULS is the Convertible Subordinated Unsecured Loan Total return is the group's total recognised gains and Stock. losses for the year as set out in the Statement of Total Recognised Gains and Losses (STRGL). Earnings per share (EPS) is the profit on ordinary activities after taxation divided by the weighted Total shareholder return is the growth in price per average number of shares in issue during the period share plus dividends per share. excluding own shares held. UITF 28 "Operating lease incentives" debtors Under Estimated rental value (ERV) is the Group's external accounting rules the balance sheet value of lease valuers' opinion as to the open market rent which, on incentives given to tenants is deducted from property the date of valuation, could reasonably be expected to valuation and shown as a debtor. The incentive is be obtained on a new letting or rent review of a amortised through the profit and loss account. property. Vacancy rate is the estimated rental value of vacant Equivalent yield is a weighted average of the initial properties expressed as a percentage of the total yield and reversionary yield and represents the return estimated rental value of the portfolio, excluding a property will produce based upon the timing of the development properties. income received. In accordance with usual practice, the equivalent yields (as determined by the Group's external valuers) assume rent received annually in arrears and on gross values including prospective purchasers' cost. Gearing is the Group's net debt as a percentage of net assets, adjusted for the conversion of the CULS into equity. See through gearing includes our share of non recourse net debt in the associates and joint ventures. Initial yield is the annualised net rents generated by the portfolio expressed as a percentage of the portfolio valuation, excluding development properties. IPD is Investment Property Databank Ltd, a company that produces an independent benchmark of property returns. Market value is an opinion of the best price at which the sale of an interest in the property would complete unconditionally for cash consideration on the date of valuation (as determined by the Group's external valuers). In accordance with usual practice, the Group's external valuers report valuations net, after the deduction of the prospective purchaser's costs, including stamp duty, agent and legal fees. Net assets per share (NAV) are shareholders' funds divided by the number of shares held by shareholders at the period end, excluding own shares held. This information is provided by RNS The company news service from the London Stock Exchange

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