| Wed 2 Mar 2011, 9:00 | | CCO - Capital & Counties Properties PLC - Audited preliminary results for the |
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CCO
CCO - Capital & Counties Properties PLC - Audited preliminary results for the
year ended 31 December 2010
Capital & Counties Properties PLC
(Incorporated and registered in the United Kingdom and Wales with registration
Number 07145041 and registered in South Africa as an external company with
Registration Number 2010/003387/10)
JSE code: CCO
ISIN: GB00B62G9D36
CAPITAL & COUNTIES PROPERTIES PLC
("Capco") or ("Company") or ("Group")
AUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2010
Highlights
EPRA adjusted, diluted NAV up 17 per cent to 148 pence per share
Successful demerger from Liberty International PLC
Excellent progress at Covent Garden with ERV of GBP37.5 million, up 12% on a
like-for-like basis
Apple flagship store and new high-profile signings in Covent Garden
Planning consent obtained for development of Olympia`s West Hall
Planning for the Earls Court & West Kensington Opportunity Area (ECOA) on
target
Terry Farrell & Partners appointed as masterplanner for the ECOA
Total property value GBP1.4 billion, up 10.8 per cent on a like-for-like basis
Property LTV 35 per cent
Occupancy levels at 97.4 per cent across the Group (EPRA adjusted)
Final dividend of 1 pence per share proposed, making 1.5 pence for the year
Ian Durant, Chairman of Capital & Counties Properties PLC, commented:
"This has been a year in which Capco has successfully established itself as a
publicly listed company with a clear central London strategy and assets with the
potential to unlock value. Independence has refreshed and re-energised Capco`s
activities, allowing management to act flexibly and decisively. It has affirmed
clear goals to generate superior and long-term returns for shareholders. London
offers excellent opportunities for medium and long-term sustainable growth in
capital and rental values and Capco has a management team capable of realising
that potential."
Ian Hawksworth, Chief Executive of Capital & Counties Properties PLC, added:
"Capco continues to see the benefits of its strategy of concentrating its
investments in prime locations in central London with strong NAV growth this
year and positive momentum across the business. Covent Garden is well on the way
to becoming a world-class retail, leisure and residential district with a series
of key lettings driving exceptional growth in the rental values of the estate.
The EC&O business has the opportunity to redefine the area around Earls Court
through its planning activities, whilst maximising the profitability of the
Olympia exhibition facilities. The prospects for 2011 and into 2012 remain
positive as Capco continues to target superior valuation and NAV growth."
Enquiries:
Capital & Counties Properties PLC:
Ian Hawksworth Chief Executive +44 (0)20 3214 9188
Soumen Das Finance Director +44 (0)20 3214 9183
Public relations:
UK: Michael Sandler/Wendy Baker,
Hudson Sandler +44 (0)20 7796 4133
SA: Nicholas Williams, College Hill +27 (0)11 447 3030
Sponsor:
Merrill Lynch South Africa (Pty) Limited
A presentation to analysts and investors will take place today at 8.30am GMT at
Bank of America Merrill Lynch Financial Centre, 2 King Edward Street, London,
EC1A 1HQ. The presentation will also be available to international analysts and
investors through a live audio call and webcast and after the event on the
Group`s website www.capitalandcounties.com.
A copy of this press release is available for download from our website at
www.capitalandcounties.com and hard copies can be requested via the website or
by contacting the company (email feedback@capitalandcounties.com or telephone
+44 (0)20 3214 9153).
This press release includes statements that are forward-looking in nature.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
Capital & Counties Properties PLC to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Any information contained in this press release on the price
at which shares or other securities in Capital & Counties Properties PLC have
been bought or sold in the past, or on the yield on such shares or other
securities, should not be relied upon as a guide to future performance.
COMPANY OVERVIEW
Capital & Counties Properties PLC (Capco) became an independent property
investment company following its demerger from Liberty International PLC in May
2010. It has since developed within a well defined strategy as one of the
largest listed investment and development companies in central London. The
Group`s landmark estates, held directly or through joint ventures, are valued at
GBP1.4 billion, and offer the potential for significant value to be unlocked
through entrepreneurial asset management to deliver superior and long-term
returns to its shareholders.
Capco`s three estates are located in West London and the West End:
Covent Garden
This historic location is globally recognised as a retail and leisure
destination. It is valued at GBP640 million.
Earls Court & Olympia (EC&O)
One of London`s leading exhibition businesses, EC&O has property assets
totalling GBP481 million, including Capco`s share of the Empress State Building.
Great Capital Partnership
A 50/50 joint venture with Great Portland Estates plc which includes properties
in prime locations around Regent Street and Piccadilly with Capco`s share valued
at GBP260 million.
FINANCIAL SUMMARY AND HIGHLIGHTS
2010 2009(2)
GBPm GBPm
Net rental income 69.0 78.1
Underlying earnings after tax excluding valuation items(1) 9.2 15.2
Gain/(deficit) on revaluation of investment and development
property 133.3 (105.6)
Profit/(loss) before tax 132.5 (150.0)
Total investment and trading properties 1,378 1,241
Net debt3 476 463
Net assets (EPRA adjusted NAV)(3) 926 791
Underlying earnings per share 1.5p 2.4p
EPRA adjusted, diluted NAV per share(3) 148p 127p
Property LTV(3) 35% 37%
1) Appendix 3 provides an analysis of underlying earnings
2) See note 1 Basis of preparation
3) On a pro forma basis
CHAIRMAN`S STATEMENT
These are Capco`s first annual results as a stand-alone listed company since its
demerger from Liberty International PLC in May 2010. The aim of the demerger was
to allow investors and management to focus on the distinct strategic, capital
and economic characteristics of a specialist London non-REIT property investment
company. Independence has refreshed and re-energised Capco`s activities,
allowing management to act flexibly and decisively. It has affirmed clear goals
to generate superior and long- term returns for shareholders, both by enhancing
the rental values of holdings through innovative asset management and by
identifying and realising new development opportunities through alert and
imaginative initiatives.
This strategy is centred on three prime estates located in London. The Covent
Garden estate is world-famous as a centre for shopping, dining and entertainment
in a historic location. The Great Capital Partnership, a joint venture with
Great Portland Estates, includes properties in prime West End locations. In West
London, EC&O Venues is one of the country`s leading exhibition businesses with
the potential for a major redevelopment of its land holdings at Earls Court.
Good progress has been made in all three estates. There have been a number of
important store openings and new tenant agreements in Covent Garden, a visible
affirmation of the repositioning strategy. The aim is to continue extending and
upgrading the choice of Covent Garden`s retail and all day dining, thereby
enhancing its reputation as a truly world-class city centre destination. There
has also been a refocusing of The Great Capital Partnership, with the disposal
of properties outside the core area of Piccadilly and Regent Street.
At EC&O, the Seagrave Road car park has the potential to be a valuable
residential development opportunity and a planning application will be submitted
by June. At Olympia, following receipt of planning consent, Capco is making a
substantial investment to enhance the exhibition facilities.
Planning for the development of Earls Court as part of the Earls Court & West
Kensington Opportunity Area (ECOA) has moved on apace with preparations for
planning submissions progressing well. The team led by Sir Terry Farrell is
creating a masterplan for a major new residential led, mixed-use district of
London. Central to this is the development of a sense of place suitable for
future generations which Sir Terry refers to as `London Plus`. The imminent
launch of this plan marks a new phase of regeneration in London. This is a
unique opportunity to transform a London district and Capco is pleased to be
working with Transport for London and the London Borough of Hammersmith &
Fulham, and to be engaged with the Greater London Authority and the Royal
Borough of Kensington & Chelsea.
Results and dividend
The Group`s total return in 2010 was 18 per cent, driven by the valuation of its
properties which increased by 10.8 per cent on a like-for-like basis in the
year, outperforming the IPD index of capital values for 2010 which rose 6.9 per
cent. Rising rental values in Covent Garden were a significant contributor to
this growth. The increase in values has generated an EPRA adjusted, diluted NAV
per share at 31 December of 148 pence. The Group has a prudent balance sheet and
significant cash reserves to support its stated asset plans. The Directors are
proposing a final dividend of 1 pence per share bringing the amount paid and
payable for 2010 to 1.5 pence.
People
It is testament to the efforts and commitment of the Group`s people that the
business has continued to perform well during a period when the demerger and the
establishment of independent operations has required significant internal
restructuring. In November 2010 the Company established an independent corporate
office in Grosvenor Street, London as part of its transition.
The Company has an entrepreneurial and experienced management team and has been
developing a culture to support its strategic aims. This includes fostering and
encouraging individual qualities of openness, clarity of purpose, team
orientation, personal contribution, creativity and rigorous execution.
The Board
Henry Staunton was appointed an independent Non-executive Director in June 2010
and became Chairman of the Audit Committee shortly afterwards. Henry was
previously Finance Director at Granada and ITV. His experience as a Non-
executive Director is reflected in his other current appointments, which include
Legal & General Group, WH Smith and Merchants Trust.
David Fischel stepped down from his position as a Non-executive Director in
February 2011, following the completion of a transitional period since the
demerger. On behalf of the Board, I would like to thank him for his contribution
ahead of, and since, the Company`s listing.
A clear governance structure has been established with independent Directors
active in appropriate committees and a modus operandi for board engagement which
encourages regular and informal briefings, transparency and an open culture of
supportive challenge by Non-executive Directors. An independent Board
effectiveness review has been completed and has provided useful insights and
advice on optimising the effectiveness of the Board.
Shareholders
The Company`s shares are traded on the London and Johannesburg Stock Exchanges.
One of the aims of the demerger was to give existing Liberty International
shareholders a choice of investment strategy, whilst offering Capco an
opportunity to develop a shareholder base to support its central London focused
strategy. In this regard, it is pleasing to see a number of new shareholders on
the register, which has evolved considerably since listing.
The Outlook
This has been a year in which Capco has successfully established itself as a
publicly listed company with a clear central London strategy and assets with the
potential to unlock value. London offers many business and consumer attractions
as a global city.
The London economy, and in particular the property market, has proved to be
highly resilient in the general downturn.
Nevertheless, the UK macroeconomic situation is delicately poised and so the
requirement to be conservative with cash and debt continues. Capco is well
positioned financially and will remain prudent in its approach.
The Company has made good progress this year. We are now turning our attention
to developing the longer term strategic blueprint for Capco as a London `place
maker` - the property investment company that brings new life to London
districts, commercially, creatively and responsibly. London offers excellent
opportunities for medium and long-term sustainable growth in capital and rental
values and Capco has a management team capable of realising that potential.
I.C. Durant
2 March 2011
BUSINESS REVIEW
Capco is a property investment company focusing on opportunities in prime
locations within central London. The Group`s goal is to transform existing areas
into more attractive and useful places to live, work and enjoy, benefiting
Londoners and visitors as well as the Group`s customers and shareholders.
Capco is a total return focused company. It unlocks value through its
entrepreneurial approach to generating substantial changes and improvements in
rental and capital values.
The year has been one of recovery and relative stability as property values
reclaimed some of the losses incurred in 2008 and 2009. The central London
investment market performed well as the capital city continued not only to
remain largely independent of the market in the rest of the United Kingdom, but
also to lead the world for investment in commercial property.
Successful execution of the Group`s strategy resulted in strong growth in EPRA
adjusted, diluted NAV per share of 17 per cent in 2010. Valuation uplifts of the
Group`s central London properties, as well as the value of its investments in
China, were the key drivers of this NAV growth.
Underlying earnings are lower than in 2009 as anticipated, with earnings per
share of 1.5 pence (2009 - 2.4 pence). The active management of Covent Garden
resulted in a number of temporary voids in order to secure vacant possession of
key units, reducing net rental income. EBITDA of the exhibition business fell
significantly, although it performed ahead of expectation. Administration
expenses rose during 2010 as predicted, reflecting Capco`s status as an
independent public company post demerger.
Covent Garden
The Covent Garden estate is well on the way to being redefined as a world-class
retail, leisure and residential district. Comprising 45 buildings and over 300
tenancies, the estate is now valued at GBP640 million. Apple has opened its
25,000 square foot flagship store, leading retailers such as Burberry and Ralph
Lauren have signed new leases, whilst the arrival of Laduree and Balthazar will
improve and extend the food and dining choice. Progress to date is reflected in
the significant step up in ERV to GBP37.5 million during 2010, a rise of 12 per
cent on a like-for-like basis, placing the December 2012 ERV target of GBP40
million within reach.
Great Capital Partnership
The Great Capital Partnership joint venture continues to benefit from its focus
on London`s West End. Occupier demand for office and retail accommodation
remains robust, providing strong recurrent income and allowing high levels of
occupancy to be maintained. The Partnership refocused its portfolio during the
year and is now well positioned around its Regent Street and Piccadilly core.
Capco has taken the lead on residential and retail strategy for the partnership.
Earls Court & Olympia
The opportunity to transform the Earls Court site continues to gather momentum.
Sir Terry Farrell`s masterplan for ECOA - on behalf of the landowners, Earls
Court & Olympia, Transport for London and the London Borough of Hammersmith &
Fulham - is to be launched in March 2011. His vision of `London Plus` has
produced a masterplan to extend and enhance, with a modern interpretation, the
traditional urban village streetscape of London across the ECOA site. Planning
applications for more than 10 million square feet are due for submission by June
2011. EC&O Venues performed above expectation in difficult market conditions,
producing EBITDA of GBP18.9 million in 2010, in line with its historic ten year
trading range, but below the exceptionally good result in 2009 of GBP21.3
million.
China
Our investment in China, via two investment funds managed by Harvest Capital
Partners, has performed strongly in 2010 as the focus moves toward realisations.
One asset, Caiyun Lake, was sold in late 2010, with a distribution of GBP4.8
million received in February 2011. Two major assets have been contracted for
sale at a significant premium to previous book values and are expected to
complete during 2011. These activities have increased the value of our
investment to GBP66 million, an increase of 44.1 per cent during 2010.
Property Valuations
Capco`s focus on the central London market has been reflected in a strong
performance in 2010. Values have increased 10.8 per cent on a like-for-like
basis, driven by yield compression in the first half of the year, and rental
growth in the second half. Over the last three years, Capco`s London properties
have outperformed the IPD Monthly All Property Index by 3.7 per cent per annum.
Market Market
Value Value Value
Dec 2010 Dec 2009 Change %(2,3)
GBPm GBPm
Covent Garden 640 549 14.1%
Great Capital Partnership(1) 260 247 13.7%
Empress State(1) 103 94 8.6%
Other 9 -
Total non-exhibition
properties 1,003 899 13.4%
Earls Court & Olympia 378 340 4.5%
Total investment properties 1,381 1,239 10.8%
EPRA
ERV(2) Initial Equivalent
Change % Yield % Yield %
Covent Garden 12.0% 3.7% 4 5.1%
Great Capital Partnership(1) 4.2% 5.0% 5.1%
Empress State(1) - 6.4% 6.2%
Other
Total non-exhibition
properties 8.6%
Earls Court & Olympia
Total investment properties 8.6%
1) Represents Capco`s 50 per cent share
2) On like-for-like basis
3) Valuation change takes account of amortisation of lease incentives,
capital expenditure and fixed head leases
4) Initial yield as at 1 March 2011 3.9%
Outlook
The prospects for 2011 and into 2012 remain positive, as momentum across Capco`s
business translates into superior valuation and NAV growth through continued
unlocking of the potential for increases in rental and capital value.
Whilst the outlook for the UK economy remains uncertain, Capco is confident
about the prospects for its estates. Prime investment yields in central London
continue to be supported by the availability of capital from a diverse range of
investors, both domestic and in particular from overseas.
Demand for space continues to be robust. Retailers are continuing to search for
flagship trading locations in prime districts in the West End, with London
firmly established as a global capital city. West End office space remains in
short supply, with levels of take-up above trend during 2010.
Further ERV growth across the portfolio is targeted, particularly in Covent
Garden. The churn in the tenant mix caused by this proactive management is
expected to drive up the estate`s net rental income and passing rent but have a
negative impact in the short-term from the temporary voids created. Covent
Garden will see investment in further acquisitions and quality tenant lettings
as well as the introduction of residential development through the launch of 34
Henrietta Street. As these activities turn the GBP40 million ERV target into
reality, Capco`s focus is moving towards the next phase of the evolution of the
estate.
In The Great Capital Partnership, the continued strength in the property
investment market may permit the disposal of other non-core properties to
further focus on core locations. These asset sales will allow Capco to pursue
its policy of disciplined capital recycling across its estates but will reduce
earnings until the capital is reinvested.
In EC&O, consolidation of the ECOA masterplan into planning applications will
take place by June 2011. Submission of a detailed planning application for
Seagrave Road will also be made by mid-year. 2011 will also see completion of
the enhancements to Olympia, including the new West Hall. The exhibition venues
may show a further limited decline in earnings as market conditions stabilise.
The successful execution of Capco`s asset plans will likely result in capital
growth before improved rental levels are fully captured in underlying earnings.
The stabilised level of administration costs that have risen during 2010 due to
the costs of running a standalone public company will continue to impact
earnings negatively in 2011.
Capco will continue to adopt a conservative financing strategy, and maintain a
prudent balance sheet to ensure that it has the liquidity and resources to
execute its asset plans across the portfolio.
Covent Garden Estate
The Covent Garden estate is one of the most distinctive, well-known and well-
loved in the capital, situated in the very heart of the West End. As a world-
famous shopping, dining and entertainment district it attracts approximately 46
million visitors a year. The estate represents 46 per cent of Capco`s property
assets.
The vision is to maximise the estate`s potential, creating an inspirational
world-class retail, leisure and residential district both for Londoners and
visitors to the capital. Capco has already transformed the estate, with leases
agreed with 36 high-quality new tenants since its first involvement in the area
in 2006. The immediate objective is to increase the ERV to GBP40 million by
December 2012, capturing as much of this as possible within passing rent.
During 2010, 74 rent reviews and lettings were negotiated totalling GBP11.2
million of rental value, approximately 9 per cent over the December 2009 ERV.
This has driven a 12 per cent like-for-like increase in ERV over the year to
GBP37.5 million, bringing the December 2012 target within reach. A significant
portion of the rental value uplift has been captured through the intense letting
activity in 2010, although not yet fully reflected in gross income. As at 31
December 2010, gross income was GBP26.8 million; this is expected to rise to
GBP31.9 million primarily due to rent free periods ending and new leases under
contract or under offer.
At near-full occupancy within the estate and with high tenant demand, this
repositioning of the district requires a proactive approach from the on-site
management team to secure vacant possession of high profile and strategic units,
enabling the introduction of new tenants. The occupancy rate at 31 December 2010
was 97.1 per cent (December 2009 - 99.0 per cent) adjusted for units under offer
and held for development. This increased level of vacancy, representing GBP1.1
million of ERV, comes as a result of interventions to secure control of key
units. A capital sum of GBP75 million was allocated on demerger to invest in a
series of projects until 2012 as part of the plan to re-energise the estate,
with GBP8 million invested to date and a further GBP25 million of expenditure
committed.
The opening in August of the Apple store in Bedford Chambers demonstrates
success in rejuvenating the tenant mix and, as an anchor brand, is serving as a
catalyst in attracting other occupiers of comparable quality to the estate.
Substantial progress has been made in increasing the diversity and range of
retail outlets. On King Street, new lettings have been agreed with the Burberry
Group and Ralph Lauren. Their stores are due to open in 2011 representing
further steps in the implementation of the luxury re-zoning strategy for this
part of the estate and demonstrating the continuing appeal of Covent Garden to
international retailers. King Street also benefited from the opening of Lucy in
Disguise, a `pop-up` store by Lily Allen and her sister Sarah Orwell. The recent
acquisition of 37 King Street, for which a planning application will be
submitted for convert to retail use, increases our ownership on this street.
Other openings by leading brands include Kurt Geiger on James Street and Jack
Wolfskin, Whistles and Pandora on Long Acre. Sunglass Hut has taken a unit on
James Street at a record rent for the street. New introductions into the Market
Building of smaller niche retailers include L`Artisan Parfumeur and Erno Laszlo.
The diversity and choice of Covent Garden`s Food & Beverage (F&B) offering is
also being expanded and improved. The opening of the iconic Parisian patisserie
Laduree in the spring of 2011 on the north-west corner of the Market Building
opposite King Street is in line with the re-zoning strategy of that part of the
estate, extending the choice of casual all day dining and independent speciality
retail. Agreement with Ponti`s was reached post year end to terminate its lease
in the north-east of the Market Building, allowing the introduction of two units
of retail space as well as a new F&B concept. A new agreement to lease has just
been signed with Links of London to take one of these units, replacing 46 per
cent of the passing rent.
In late February 2011, Capco swapped its ownership of 1-3 Long Acre for 1a
Henrietta Street for nil consideration, further consolidating the Group`s
ownership on the Piazza. This will allow Capco to improve the ground floor offer
in line with its retail and F&B strategy across the estate, as well as providing
the opportunity of residential conversion of the upper floors.
With Westminster City Council having resolved to grant planning and listed
building consents on the Flower Cellars building, which has been empty for over
three years, this will begin its transformation into the London home of
internationally acclaimed restaurant Balthazar. This will be run by Caprice
Holdings, owner of such top London restaurants as The Ivy and Scott`s, and will
be the only Balthazar outside of Manhattan. The remainder of the building is
currently under offer to the London Film Museum. The space will be dedicated to
a new cultural concept, a behind-the-scenes look at cinema, television and
theatre, also providing educational and production facilities. Work is due to
begin shortly on the site.
Capco has also identified the potential for conversion of over 75,000 square
feet of existing office space into residential space. Work has begun on-site at
34 Henrietta Street, which overlooks the piazza and the gardens of St Paul`s
Church, adding two new floors and creating four large apartments designed to
target the premium market when they are delivered in late 2011.
Key Figures
% Change
2010 2009 Like-for-Like
Market Value (GBPm) 640 549 +14%
Gross Income (GBPm)(1) 26.8 29.0 -7.6%
ERV (GBPm) 37.5 33.2 +12%
Equivalent Yield 5.1% 5.4%
Footfall (rolling 12 month average (m)) 46 45
Weighted average lease length (years) 8.8 7.8
1 See Glossary for definition of gross income
Gross
Sq Ft (k) % Value Income
Retail 241 60% 50%
Food & Beverage 120 23% 28%
Cultural & Leisure 152 5% 5%
Offices 147 10% 16%
Residential 88 2% 1%
Other 6 - -
754 100% 100%
Top Tenants by Gross Income
Ranking(1) Tenant Name
1. Apple Retail UK Limited
2. Channel 5 Broadcasting
3. Maxwells Restaurant
4. Monsoon Holdings
5. Fred Perry Limited
1) As of 2 March 2011
The Great Capital Partnership
The Great Capital Partnership is a 50/50 joint venture between Capco and Great
Portland Estates plc. Its properties are situated in central London locations,
with the largest concentration in the West End around Piccadilly, Regent Street
and Park Crescent.
The Partnership offers a number of asset management, refurbishment and
development opportunities within its West End focus, while delivering strong
recurrent income and capital recycling opportunities in support of the Group`s
core strategy.
With all major decisions relating to the properties taken by The Great Capital
Partnership Board, Capco shares in the strategic control of the estate,
including policy on new lettings, investments, sales and financings.
In November, the Partnership announced a refocusing of the joint venture. This
entailed the sale to Great Portland Estates of 24/25 Britton Street EC1, 12/14
New Fetter Lane/43 Fetter Lane EC4, Tasman House in Wells Street W 1 and 183/190
Tottenham Court Road W1 for a combined price of GBP45 million (our share GBP22.5
million), which was broadly in line with September 2010 book values. These sales
represent a continuation of the joint venture`s strategy to focus on its core
West End holdings on Piccadilly, Regent Street and Park Crescent. Other non-core
Partnership properties may be sold to focus further on this core area.
In addition, Capco took on a residential and retail strategy advisory role
allowing the joint venture to draw on its extensive skills alongside those of
Great Portland Estates in working up various potential development opportunities
across the business.
Capco has capital commitments of GBP1.2m in regard to the Partnership. This
represents Capco`s share of funding required to work up detailed development
proposals for W almar House. The Partnership will review the proposals before a
decision is taken to proceed with any development.
Key figures
% Change
2010 2009 Like-for-Like
Market Value (GBPm) 260 247 +14%
Passing Rent (GBPm) 13.8 14.9 +2%
ERV (GBPm) 14.8 16.2 +4%
Equivalent Yield 5.1% 6.0%
Weighted average lease length (years) 7.0 5.6
Sq Ft (k) % Value % Passing
Rent
Retail 193 35% 33%
Offices 594 59% 64%
Residential 56 6% 2%
Other 6 - 1%
849 100% 100%
Top Tenants by Passing Rent
Ranking(1) Tenant Name
1. VNU Business Publications Limited
2. Aquascutum Limited
3. Standard Chartered Bank
4. Live Nation (Music) UK Ltd
5. Secretary of State for the Environment
1) As of 2 March 2011
Earls Court & Olympia
Earls Court & Olympia (EC&O) comprises three international exhibition venues,
two at Earls Court (Earls Court 1 and Earls Court 2) and one at Olympia. Earls
Court continues to be a leading exhibition and events venue for London, and in
the longer term could become the gateway to a site designated in the Mayor of
London`s draft Replacement London Plan as `The Earls Court & West Kensington
Opportunity Area` (ECOA). The adjacent Empress State Building is also 50 per
cent owned by the Group.
The Group is seeking to develop its exhibitions business by investing in the
enhancement of the facilities at Olympia, and then maximising its utilisation by
transitioning shows currently held at Earls Court. The land management strategy
at Earls Court and Seagrave Road aims to unlock value through securing planning
consent for a residential-led, mixed-use scheme.
Capco is considering its options for the site should planning consent be
granted. A number of expressions of interest relating to the full site as well
as discrete parts have been received to work in partnership with Capco, either
with funding or development- based partners. Capco`s options in this regard will
be reviewed whilst the planning process is ongoing to determine how best to
realise value for its shareholders. However the focus is currently on the
planning process, in particular the submission of planning applications by June
2011.
EC&O Venues
EC&O Venues is the Group`s conference, exhibition and events business currently
based at both Earls Court and Olympia. The business also operates the Brewery, a
conference and events venue in the City of London. Together they represent a
combined total of 1.7 million square feet of conference, events and banqueting
space in central London.
EC&O Venues earns the majority of its revenues from renting space to exhibition
and conference organisers. Lettings are for six days on average, which includes
set-up and take-down time as well as the event itself. A small proportion of the
overall revenues (approximately ten per cent on average over the past three
years) is earned during the show itself, for example from car parking, catering
concessions and eForce (IT services).
A highlight of the Earls Court calendar is the Ideal Home Show, which this year
was revitalised under new ownership and included the Earls Court 1 facade `going
green`, covered in recyclable AstroTurf for a month. The show attracted more
than 250,000 visitors. In addition, the British Military Tournament returned in
December, a successful charity fundraiser for the Army Benevolent Fund which
includes the famous and perilous `Gun Run`. Earls Court hosted over 90 events in
2010, achieving a total utilisation of 40 per cent.
Olympia currently hosts more than 160 shows a year. Notable additions to the
calendar in 2010 were The Toy Fair and the redesigned London International Fine
Art & Antiques show. Successful new launches such as Cruise, Baby and
Datacentre, together with popular concerts such as Primal Scream, all helped
increase utilisation rates to more than 41 per cent, with the ground floor
utilisation of the Olympia Grand Hall reaching 60 per cent.
EC&O Venues` business is seasonal, with 70 per cent of 2010 EBITDA earned in the
first half of the year. Despite its resilience, it was impacted by the economic
downturn which affected the industry globally. Turnover was GBP50.7 million
(down 9.3 per cent) and EBITDA was GBP18.9 million (down 11 per cent) for the
year (comprising net rental income of GBP22.6 million less related
administration expenses of GBP3.7 million). As at 2 March 2011, 79 per cent of
2011 budgeted licence fees are contracted.
Olympia redevelopment
The Olympia venue is particularly competitive in the market for mid-sized space
close to the West End of London. The average size of show in this sector is
falling, with an estimated 80 per cent now requiring less than 100,000 square
feet. Building on this strength, the Group is developing Olympia`s potential to
become the prime venue for both consumer and trade exhibitions and shows in
central London.
The EC&O Venues team has closely engaged with its core clients to discuss their
future business requirements and how this fits with the future of the Earls
Court and Olympia venues. A detailed mapping exercise has been undertaken to
determine the transition of the business from both venues to an enhanced Olympia
facility. This analysis indicates that a 70 per cent utilisation rate at the new
Olympia building format could be achieved, sustaining 65-75 per cent of the
existing EBITDA of the business.
In October 2010, the London Borough of Hammersmith & Fulham (LBHF) resolved to
grant planning and listed building consent to the redevelopment proposals at
Olympia. The plans include reconfiguration of the West Hall, within the existing
footprint, into a two-storey 90,000 square feet exhibition facility. This will
be achieved by adding a floor and creating links to the Grand Hall and Olympia
Two buildings. In addition, Olympia Two will be reconfigured to provide more
efficient servicing arrangements and improved connectivity with the rest of the
facility.
The proposals will improve the flexibility of the space at Olympia, which as a
consequence will be capable of hosting a number of events simultaneously while
enhancing one of the UK`s best known venues. Construction of the West Hall
started in February 2011, and the cost of these works is GBP18 million. Once
completed, the goal will be to maximise the intensity of utilisation at Olympia,
with the focus on the transition from Earls Court, as well as attracting new
shows.
The Earls Court & West Kensington Opportunity Area
The Earls Court venue is perhaps the site with the greatest immediate potential
in London for large-scale urban regeneration. Its central location surrounded by
prime residential districts, together with its well-developed road, rail and
Underground transport infrastructure, make it one of the leading sites in London
where the opportunity for major development can be turned into a reality.
EC&O has been working closely with all respective public bodies associated with
the project since Capco`s initial acquisition in July 2007 in order to gain
acceptance of the potential of the site as a major development opportunity area.
The current strategy is to take forward a planning application for the Earls
Court & West Kensington Opportunity Area (ECOA) in summer 2011 based on a
residential-led, mixed-use redevelopment. Should consent be granted, Capco would
benefit from the change of use from the existing exhibition facilities, and the
option to participate in the future of the scheme.
The ECOA occupies 80 acres and is made up of EC&O`s Earls Court 1 and Earls
Court 2 and adjacent land holdings covering 23 acres and the 7.5 acre Seagrave
Road car park. It also includes the Empress State building, the Lillie Road
Depot owned by Transport for London (TfL) that borders the A4 Cromwell Road, and
the LBHF owned areas of the West Kensington and Gibbs Green housing estates. The
Royal Borough of Kensington & Chelsea (RBKC) is closely involved in the area as
the local planning authority, since Earls Court 1 falls within its boundaries.
It is anticipated that the site`s designation as an Opportunity Area in the 2008
draft Replacement London Plan will be ratified on adoption of the Replacement
London Plan later this year. Much has already been achieved at a local level
supporting this policy framework with the adoption of the RBKC core strategy and
the publication of the LBHF draft core strategy currently in consultation. The
submission of a statement of common ground signed by both local authorities and
Capco to the draft Replacement London Plan has provided further support for the
designation.
Discussions with TfL regarding a regear of the Group`s long leasehold interests
on Earls Court 1 (expiring December 2041) and Earls Court 2 (expiring September
2115) continue, and agreement is expected during 2011. Discussions also continue
with both landowners regarding the future development rights over the ECOA. A
new Certificate of Immunity from Listing was secured in January 2011, valid for
five years until 2016. This ensures that there is no risk of Earls Court being
listed during this period.
The masterplan
In recognising that a comprehensive scheme covering all land ownerships involved
within the ECOA would be better than taking the sites forward individually,
EC&O, TfL and LBHF renewed their collaboration agreement as landowners in May
2010. To explore fully the opportunities afforded by the area, the landowners
appointed Terry Farrell & Partners, led by Sir Terry Farrell, as the ECOA`s
masterplanner in May 2010. Their preliminary proposals were published in
November 2010.
Sir Terry`s vision is centred on a new high street which would become the spine
connecting four urban villages. These villages would blend in with existing
communities and act as natural `centres of gravity` in the area. The idea
supports the traditional urban complexion of London, creating developments that
integrate with existing urban settings and become thriving, vibrant
neighbourhoods in their own right. The plan currently envisages that 80 per cent
of the site will be for residential use, set out in a modern interpretation of
the London fabric of garden squares, residential streets and mansion blocks. By
taking what they believe to be the best examples of London living, Sir Terry`s
team has achieved an exciting vision for the future of the area which is very
much `London Plus`.
The Farrell masterplan translates into more than 10 million square feet of
development over the principal ECOA (excluding Seagrave Road and Empress State).
This represents up to 7,500 homes, and over 2 million square feet of commercial
and retail space, including a variety of leisure and cultural uses. The
masterplan will form the basis for two outline parameter based applications: one
relates to the ECOA land (excluding Seagrave Road) that lies within LBHF; the
other relates to the land within RBKC, which is all owned by the Group. These
applications will be submitted to the relevant planning authorities by June
2011.
The masterplan vision will need to accommodate a wide variety of aspirations and
concerns if it is to reflect truly the way this part of London is to develop in
the future, but Sir Terry`s inclusive style and the way in which he has
articulated his desire to recreate a series of urban London villages has already
seen him win awards for the way he approaches such complex yet exciting
opportunities.
Consultation
As one of the largest and most important developments in London, the plans for
ECOA must carry with them the support of the local community. Numerous community
exhibitions and meetings have been held during the consultation process.
Among the positive reactions to ECOA masterplan proposals, there have been
concerns voiced by some residents of the West Kensington and Gibbs Green
Estates. Capco is committed to working with all local residents and
stakeholders, and with LBHF, to make the area work for everybody. The
consultation website, myearlscourt.com, demonstrates this commitment to the
widest public consultation so that all stakeholders can contribute to the
project team`s thinking and so influence Sir Terry`s masterplan.
It is possible that LBHF or TfL may choose not to participate in the future of
the masterplan, for example should Section 34A of the Housing Act 1985 result in
LBHF being unable to secure vacant possession of its land interests. The
masterplan has been designed such that each landowner`s interest is individually
implementable, although we believe that Sir Terry`s vision for the full ECOA
would bring substantial benefits to the entire area.
Seagrave Road
Seagrave Road is a 7.5 acre freehold site to the south of Earls Court. It is
currently used for car parking and vehicle marshalling for events held at Earls
Court. It has potential to be redeveloped into one of the largest residential
schemes in West London in its own right.
Capco`s ability to manage this site was restricted by a conditional sales
contract inherited on the initial purchase of EC&O in 2007. In October 2010,
Capco rescinded this contract and took back control of the site, as well as
acquiring some adjacent properties on Roxby Place. A detailed planning
application for 850,000 square feet of residential space will be submitted by
the end of June 2011.
The site`s potential for residential redevelopment has been recognised in the
year-end valuation, with a significant rise of 39 per cent on a like-for-like
basis to GBP104 million, representing GBP14 million per acre.
EC&O key figures
2010 2009 % Change
GBPm GBPm Like-for- Like
Earls Court 138 134 Valued on an existing use
basis reflecting their use
Olympia 97 99 as exhibitions venues.
Accordingly no upside from
any future development or
planning permission is
recognised
Seagrave Road 104 70 Currently a car park
supporting Earls Court,
valued as a site with the
potential for residential
consent
Other peripheral A mixture of small assets
assets 39 37 and sites
Market Value 378 340 +4.2%
EBITDA 18.9 21.3 -11.3%
Top Exhibitions by Turnover
Ranking(1) Exhibition
1. Ideal Home Show
2. The London Book Fair
3. ICE Totally Gaming
4. Future Build, Ecobuild
5. BETT
1) As of 2 March 2011
Empress State Building
Capco has a 50 per cent stake in this landmark office complex adjacent to Earls
Court 2, comprising a main tower building arranged over 31 floors, a three-
storey building fronting Lillie Road and a two-storey L-shaped building.
Extensively renovated and redeveloped in 2003, the entire building is let to the
Metropolitan Police Authority on a 15 year lease expiring in June 2019. The
lease is subject to annual RPI increases subject to a collar, with 3% being
applied at the 2010 review. Capco`s share of NRI for 2010 was GBP6.5m.
In the medium-term, opportunities to extend or review the existing lease will be
considered or alternatively the property may be suitable for a residential
conversion in line with the plans for the ECOA.
Empress State key figures
2010 2009 % Change
Like-for-Like
Market Value (GBPm) 103 94 +9%
Passing Rent (GBPm) 6.9 6.6 +5%
ERV (GBPm) 5.9 5.9 -
Equivalent Yield 6.2% 6.7%
FINANCIAL REVIEW
Central London investment property continued to perform strongly during 2010.
Like-for-like capital values of the Group`s investment properties increased 10.8
per cent on the prior year due to ERV growth (particularly in the Covent Garden
estate) and contraction of investment yields. Underlying net rental income from
the investment properties remained robust. Given the Group`s stated strategy
this was broadly in line with expectations. The performance of Earls Court &
Olympia proved resilient; even though EBITDA fell, this was a good performance
in a weak macroeconomic environment.
Demerger
The Capital & Counties Properties PLC group ("the Group") demerged from its
parent company, Liberty International PLC (subsequently renamed Capital Shopping
Centres Group PLC), with effect from 7 May 2010. Capital & Counties Properties
PLC has a primary listing on the Official List of the UKLA, and a secondary
inward listing on the JSE Limited, with South African institutional shareholders
given two years until May 2012 to realign their portfolios. Since demerger, the
proportion of shares held on the UK register has risen from 54 per cent to circa
70 per cent.
Shares in Capital & Counties Properties PLC were admitted to dealings on the
London and Johannesburg Stock Exchanges in May 2010.
Historic financial information & capital structure
Included within Appendix 4 and 5 are details setting out the basis of
preparation of comparative information for 2009 presented within these
consolidated financial statements, together with a reconciliation of the amounts
reported with those which appeared within the Group`s demerger documents.
Where it is more meaningful to do so, comparison has been made to 2009 pro forma
financial information as disclosed in the demerger documents throughout this
financial review.
Also contained within Appendix 4 are details outlining the Group`s capital
structure and demerger transactions.
Underlying profit after tax and earnings per share
As recommended by EPRA, the Group has presented an underlying calculation of
profit after tax and earnings per share figures in addition to the amounts
reported under IFRS. These amounts exclude the effects of gains and losses
associated with investment property valuations, fair value movements on
financial derivatives and certain exceptional items. The Directors regard the
presentation of underlying figures as providing useful information on the
underlying performance of the business.
Actual Actual
Summary consolidated income statement 31 December 2010 31 December 2009
GBPm GBPm
Net rental income 69.0 78.1
Other income 0.8 1.5
Gain/(deficit) on revaluation and sale
of investment and development property 134.6 (128.8)
Administration expenses (23.9) (14.5)
Net finance costs (46.3) (77.8)
Other items (1.7) (8.5)
Taxation (0.9) (1.1)
Loss attributable to non-controlling interests - 19.6
IFRS profit/(loss) for the year
attributable to owners of the Parent 131.6 (131.5)
Adjustments:
(Gain)/deficit on revaluation and sale
of investment and development property (134.6) 128.8
Change in fair value of derivative
financial instruments 0.3 (16.9)
Exceptional finance costs (see note 8) 7.1 47.2
Demerger costs 5.3 -
Other adjustments (1.4) (12.4)
Taxation on non-underlying items 3.2 1.0
Underlying profit before tax after
non-controlling interests 11.5 16.2
Underlying profit after tax and
non-controlling interests 9.2 15.2
Underlying earnings per share (pence) 1.5 2.4
Underlying profit after tax and non-controlling interests fell by 39 per cent
from GBP15.2 million to GBP9.2 million and underlying earnings per share fell to
1.5 pence.
(GRAPHICS REMOVED - Please refer to the full announcement which can be found at
www.cappitalandcounties.com)
Net rental income
The Group`s net rental income reduced to GBP69.0 million, a fall of 6.1 per cent
on a like-for-like basis as explained below.
Net rental income for Covent Garden totalled GBP25.7 million, a fall of 3.4 per
cent or GBP0.9 million on the prior year. This was due primarily to our
proactive tenant management strategy which resulted in a higher level of
temporary voids as well as the absence of surrender premiums received during
2009.
The Great Capital Partnership generated net rental income of GBP13.6 million
(Capco share), an increase of 2.4 per cent on a like- for-like basis. In
November 2010 we announced our intention to refocus the partnership which
resulted in the disposal of four non-core properties. This together with
disposals during 2009 decreased net rental income for the year by GBP0.6
million. This was partly offset by new lettings and lower service charge voids,
resulting in net rental income from the partnership falling by GBP0.2 million
(1.4 per cent overall).
Earls Court & Olympia, which includes the Group`s interest in the Empress State
Building, fell by 11.6 per cent on a like-for-like basis to GBP29.1 million.
Although this reflects the anticipated slowdown in exhibition income, the
performance illustrated a degree of resilience against both budget and forecast
income. Of the overall reduction in net rental income of GBP7.7 million, GBP3.9
million can be attributed to the deconsolidation of Empress State (as explained
below within non-controlling interests).
The Group`s net rental income for the year included GBP2.3 million relating to
lease incentives.
The reduction in other net rental income is primarily due to the sale of
Victoria House, Cambridge which completed in August 2010.
Property valuation
Property valuation gains of GBP134.6 million (2009 - loss of GBP128.8 million)
include unrealised gains of GBP133.3 million and realised gains of GBP1.3
million.
Although the yield compression that started in the second half of 2009 continued
to be a feature during 2010, increased ERV became a more prominent factor in the
second half of the year, reflecting the Group`s strategy of targeting rental
growth from its asset plans.
The Group`s trading properties were impaired by GBP0.1 million (2009 - GBP0.1
million) where the fair value was determined to be less than original cost. In
aggregate however the Group`s trading property portfolio has an unrealised
valuation surplus of GBP1.1 million at 31 December 2010 which has not been
recognised in the financial statements.
Administration expenses
Underlying administration expenses increased by GBP4.1 million to GBP18.6
million mostly due to increased headcount and establishment costs as a result of
becoming a standalone business. This was partially offset by a GBP1.4 million
reduction at Earls Court & Olympia, the result of headcount reductions made
during 2009; and a reduction in management fees payable in respect of the
Group`s investments in China with the focus shifting towards profit taking and
divestment. Transitional services provided by the Capital Shopping Centres Group
have been recharged on an arms-length basis since demerger and are expected to
be terminated during the first half of 2011.
Exceptional costs directly attributable to the demerger total GBP5.3 million and
have been excluded from the calculation of underlying earnings.
Net finance costs
Excluding the change in fair value of derivatives and one-off costs incurred on
the termination of interest rate swaps, underlying net finance costs totalled
GBP38.9 million, a decrease of GBP8.6 million on the prior year. This reduction
reflects decreased average debt following a number of prepayments made in both
the second half of 2009 and during the first half of 2010.
Taxation
Pre-demerger the Group benefited from the tax savings provided by Liberty
International`s REIT status. Following demerger, the Directors believed that the
business would have greater operating flexibility as a listed non-REIT property
company, hence since 7 May 2010, the Group is subject to UK corporation tax and
will pay ordinary dividends with no requirement to withhold tax at source when
paying a dividend. As at 31 December 2010, the outstanding REIT liability due in
respect of subsidiaries formerly within Liberty International`s REIT business
was GBP0.1 million, which was paid in January 2011.
The net tax charge for the year ended 31 December 2010 was GBP0.9 million, lower
than would be expected because of capital allowances and certain exceptional
items. The effective rate of tax on underlying recurring profit is expected to
be approximately 25 per cent.
Non-controlling interests
As outlined in Note 16, the accounting treatment for the Group`s 50 per cent
interest in The Empress State Limited Partnership changed from full to
proportional consolidation in August 2009. This resulted in a deemed disposal of
GBP94 million of investment property, reduced the Group`s gross debt by GBP78
million and accounts for a GBP3.9 million reduction in net rental income for the
year.
Derivative valuation
The majority of the Group`s banking facilities have been arranged on a floating-
rate basis, but swapped to fixed-rate using interest rate swap contracts with
the same term as the relevant debt facility, in line with the Group`s policy to
eliminate the short and medium-term risk arising on interest rate volatility. At
31 December 2010, the proportion of gross debt with interest rate protection
stood at 95 per cent.
During 2010 short-term rates marginally increased whilst longer-term rates
reduced. This led to an income statement charge of GBP0.3 million for the year
in addition to termination payments referred to below.
Exceptional items
Within net financing costs, exceptional finance charges of GBP7.1 million were
recorded in relation to the termination of interest rate swaps arising
principally from debt prepayment on demerger. Demerger-related administration
costs of GBP5.3 million are treated as exceptional as are other items totalling
GBP0.9 million.
Financial position
As detailed in the table below, EPRA adjusted net assets have increased, on a
pro forma basis, by GBP135 million or 21 pence per share to GBP925.9 million
since 31 December 2009.
Summary consolidated balance sheet
Actual Actual Pro forma
31 December 31 December 31 December
2010 2009 2009
GBPm GBPm GBPm
Investment and development property 1,377.6 1,240.5 1,240.5
Investments 66.3 46.0 46.0
Net debt (476.1) (707.1) (463.1)
Other assets and liabilities (84.4) (486.7) (92.5)
Net assets 883.4 92.7 730.9
Fair value of derivative financial
instruments (net of recognised 41.4 53.3 53.3
deferred tax)
Other adjustments (see note 14) 1.1 7.0 7.0
EPRA adjusted net assets 925.9 153.0 791.2
EPRA adjusted, diluted net assets
per share (pence) 148 25 127
EPRA adjusted, diluted net assets per share
EPRA adjusted, diluted NAV per share at 31 December 2010 was 148 pence, compared
to 127 pence as calculated on a pro forma basis at 31 December 2009. The
increase from 31 December 2009 is largely the result of property valuation
movements as illustrated below:
(GRAPHICS REMOVED - Please refer to the full announcement which can be found at
www.cappitalandcounties.com)
Capital expenditure and divestment
The demerger has allowed the Group to focus attention on achieving its strategic
plans with over GBP30 million being invested in capital expenditure in 2010,
GBP25 million of which was spent in the second half of the year.
Capital expenditure on investment and development property
31 December 31 December
2010 2009
GBPm GBPm
Acquisitions 10 6
Redevelopment expenditure 21 32
Total capital expenditure 31 38
Less: Sale proceeds (27) (150)
Net capital expenditure / (divestment) 4 (112)
As announced in November 2010, the Group, together with its joint venture
partner, refocused The Great Capital Partnership. This resulted in the disposal
of four non-core properties and accords with the Group`s strategy of targeting
West End and West London investment.
Future commitments in respect of investment and development property amount to
GBP45 million (2009 - GBP18 million). These commitments will be funded by the
Group`s cash and available facilities.
Illustrated below, capital expenditure primarily relates to improving the tenant
quality of the Group`s Covent Garden estate together with redevelopment of the
Olympia Exhibition Centre and the planning process for the ECOA.
Spend to date Committed
Year ended As at
31 December 2010 31 December 2010
GBPm GBPm
Covent Garden 8 25
Earls Court 19 -
Olympia 3 18
GCP 1 1
Other - 1
31 45
China
Our investment in China (held as `available for sale investments`), via two
investment funds managed by Harvest Capital Partners, has performed strongly in
2010 as the focus moves toward realisations. One asset, Caiyun Lake, was sold in
late 2010, with a distribution of GBP4.8 million received in February 2011. Two
major assets were contracted for sale in 2010 at a significant premium to
previous book values and are expected to complete during 2011. These activities
have increased the value of our investment to GBP66 million (2009 - GBP46.0
million), an increase of 44.1 per cent.
Borrowings
The Group`s total borrowings of GBP665 million are arranged on an asset-specific
basis, with limited or no recourse to the Group. This structure permits the
Group a greater degree of financial flexibility in dealing with individual
property issues compared to a financing structure based on a single Group-wide
borrowing facility.
During the year ended 31 December 2010, the Group made partial asset-specific
loan prepayments of GBP56 million, of which GBP36 million was prepaid on
facilities secured against Covent Garden and GBP20 million on facilities secured
over Earls Court & Olympia as well as the repayment on maturity of a smaller
facility. The associated swap termination costs totalled GBP7.1 million.
Net debt reduced from GBP707 million at 31 December 2009 to GBP476 million at 31
December 2010, a decrease of GBP231 million, with the cash allocation received
from Liberty International prior to demerger largely explaining this reduction.
A loan-to-value ratio of 35 per cent is slightly lower than the 37 per cent at
31 December 2009 (calculated on a pro forma basis), with the marginally higher
debt level being compensated by the revaluation surplus on the value of the
Group`s property assets. The ratio is comfortably within the Group`s LTV target
of less than 45 per cent.
At 31 December 2010 the Group had cash and available facilities of GBP193
million and is in compliance with all of its asset specific loan covenants.
Group debt ratios were as follows:
Actual Actual Pro forma
31 December 31 December 31 December
2010 2009 2009
Loan-to-value 35% 57% 37%
Interest cover 130% 137% 126%
Weighted average debt maturity 3 years 4 years 4 years
Weighted average cost of debt 5.9% 5.8% 5.8%
Proportion of gross debt with
interest rate protection 95% 95% 95%
At 31 December 2010, the Group`s average debt maturity was three years. The
first significant maturity of secured debt is the Earls Court & Olympia facility
which was due to mature in February 2012. In February 2011 the Group agreed a 12
month extension to this facility. As part of this agreement, prepayment of GBP20
million was made, reducing the Group`s gross debt.
A detailed breakdown of the Group`s debt maturity is shown in note 18 of the
consolidated financial statements.
Financial covenants apply to GBP653 million of asset specific debt. The two main
covenants are Loan-to-value ("LTV") and Interest Cover ("IC"). The actual
requirements vary and are specific to each loan. At 31 December 2010 GBP129
million of non-recourse loans had no LTV requirement.
Compliance with financial covenants is and will continue to be closely
monitored.
Full details of the loan financial covenants are shown within Appendix 2.
Derivatives
The fair value provision for financial derivatives (interest rate swaps)
increased during the year on a like-for-like basis due to the fall in longer-
term rates during the year. The resulting balance sheet provision, net of
deferred taxes, of GBP41 million is added back to arrive at adjusted net assets.
Cash flow
The cash flow summary below shows a net cash inflow of GBP163 million for the
year to 31 December 2010. W hen adjusted for the cash allocation from Liberty
International of GBP244 million, an outflow of GBP81 million can be attributed
to financing cashflows, principally debt prepaid and repaid during the period of
GBP68 million.
31 December 31 December
Summary consolidated cash flow summary 2010 2009
GBPm GBPm
Underlying operating cash generated 51.8 65.9
Net finance charges paid (40.1) (69.1)
Net movements in working capital (9.2) 15.5
Recurring underlying cashflow from operations 2.5 12.3
Property development / investments (26.8) (32.2)
Sale proceeds of property / investments 28.6 130.2
Demerger costs (4.0) -
Purchase of non-controlling interests - (25.0)
Other - (4.6)
REIT entry charge and other tax (2.6) (2.7)
Cash flow before financing (2.3) 78.0
Financing 172.9 (69.7)
Termination of interest rate swaps (7.4) (5.5)
Net cash flow 163.2 2.8
The adverse movement in recurring underlying cash flows is the result of falling
net rental income together with higher recurring administration expenses, both
of which have been discussed above. Net finance charges paid have fallen due to
the significant debt prepayments during the year. A reduction in creditor
balances (net of accruals) and increased tenant incentives reflecting higher
levels of activity have driven the movement in working capital. Recurring
underlying cashflows are expected to continue to be sufficient to meet
operational cash requirements.
Cash applied to the development of property and investments during the year can
principally be attributed to ongoing planning activity at Earls Court & Olympia
of GBP16 million and completed property acquisitions of GBP6 million. REIT entry
charges of GBP3.6 million were paid.
Proceeds generated from the sale of five properties totalled GBP28 million,
principally from the sale of non-core properties from The Great Capital
Partnership.
Financial strategy
The Group`s policy is to optimise the weighted average cost of capital by using
an appropriate mix of debt and equity. The Group`s financial structure is
monitored with reference to guidelines approved by the Board.
The Group operates a formal treasury policy covering all aspects of treasury
activity including funding, counterparty exposure limits, management of interest
rate risk, currency and liquidity risks. The Board receives regular reports on
compliance with these policies, which are reviewed by the Board on an annual
basis.
Dividend policy
It remains the Company`s intention to grow the dividend as the success of our
asset plans is reflected in underlying profitability, taking into account the
level of any future commitments.
The Board has proposed a final dividend of 1 pence per share to be paid on
Thursday 19 May 2011 to shareholders on the register on Friday 15 April 2011.The
total dividend for the year amounts to 1.5 pence per share.
PRINCIPAL RISKS AND UNCERTAINTIES
Effective risk management is integral to delivering Capco`s strategic
priorities.
The Board has overall responsibility for Group risk management. It reviews
principal risks and uncertainties regularly, together with actions taken to
mitigate them. The Board has delegated responsibility for assurance of the risk
management process and the review of mitigating controls to the Audit Committee.
The review begins with an assessment of over 90 risk factors raised by each
business unit and each corporate function. Risks are considered in terms of
their impact and likelihood from both a financial and reputational perspective.
Risks are assessed both gross and net of mitigating controls.
This allows the Audit Committee to monitor the most important controls and
prioritise risk management and internal audit activities accordingly.
Detailed risk registers are reviewed twice a year and upon any material change
to the business with a full risk review undertaken annually. The register is
reviewed in detail by the Audit Committee annually, with new or emerging risks
considered by the Committee as appropriate.
The principal risks and uncertainties facing the Group are set out below:
1. Development Risks
Impact: Inability to deliver against development plans, particularly regarding
ECOA
Risk Mitigation factors Further information
Unable to secure planning Pre application consultation Business review
consent due to political, and involvement with key
legislative or other risks stakeholders and landowners.
inherent in the planning
environment. Engagement with relevant
authorities at a local and
Inability to gain the national level to ensure development
support of influential proposals are in accordance
stakeholders. with current and emerging policy.
Project team of internal staff
and external consultants with
capabilities across all relevant
areas.
Technical studies with regular
review.
Responsive consultation with
evidence based information and
focus on agreed statements
of common ground.
Inability to attract
appropriate resource or Flexibility in planning and
skills to execute plan. ensuring correct resource
availability in place.
Failure to demonstrate
viable development due to Extensive design and
environmental, technical work Business review
transportation and undertaken along with informed
affordable housing impact market valuation.
or other technical factors. Use of maximum price
Punitive cost, design or contracts to manage contractor
other implications. costs.
Inability to reach agreement
with adjacent landowners ECOA masterplan design allows
(including risk of Section the development of each landowner`s site
34A of the Housing Act 1985 individually.
in relation to LBHF land in
ECOA).
2. Economic Risks
Impact: Economic factors may threaten the Group`s ability to meet its strategic
objectives
Risk Mitigation factors Further information
Rents decline as a result of lower Focus on quality tenants Financial Review
demand from occupiers due to with initial assessment
deteriorating profitability and of credit risk
confidence during a period of and active credit control.
economic uncertainty.
Diversity of occupier mix
with limited exposure to any
single tenant.
Decline in UK commercial or Focus on prime assets. Appendix 1
residential real estate market.
Regular assessment of
investment market Financial Review
conditions including
bi-annual external
valuations.
Restricted availability of credit Regular monitoring of
and higher tax rates may lead to covenants with headroom Appendix 2
reduced consumer spending and maintained.
higher levels of business failure.
3. Concentration of Investments
Impact: Heightened exposure to events that threaten Central London
Risk Mitigation factors Further information
Events which damage or diminish Terrorist insurance
London`s status as a global in place. Corporate
financial, business and tourist responsibility
centre could affect the Group`s Security and health &
ability to let vacant space, reduce safety policies and
the value of the Group`s procedures in offices.
properties and potentially disrupt Close liaison with police
access or operations at the & NATSCO. Disaster recovery
Group`s head office. and business continuity
planning.
Active involvement in organisations and
industry bodies promoting London.
4. Corporate Risks
Impact: The Group`s ability to maintain its reputation, revenue and value could
be damaged by corporate risks
Risk Mitigation factors Further information
Responding to regulatory, Appointment of Corporate governance
reputation, legislative and experienced individuals
corporate governance challenges with clear responsibility
as an independent company post and accountability. Sound
demerger. governance and internal
policies with appropriately
skilled executive and Non-
executive Directors.
Non-REIT status brings Appropriate due diligence Financial review
heightened tax exposure and a and consultation.
potential competitive
disadvantage when bidding for
new assets.
Risk associated with attracting Succession planning, performance
and retaining staff. evaluations, training & development,
long term incentive rewards.
Failure to comply with health Comprehensive health and Corporate
and safety procedures responsibility
safety or other statutory in place across the Group and monitored
regulations or notices. regularly. External consultants undertake
annual audits in all locations. Safe working
practices well established, including staff
communication and training.
5. Financing Risks
Impact: Reduced or limited availability of debt or equity finance may threaten
the Group`s ability to meet its financial commitments or objectives and
potentially to operate as a going concern
Risk Mitigation factors Further information
Decline in market conditions or a Maintain appropriate Financial review
general rise in interest rates could liquidity to cover
impact the availability and cost of commitments.
debt financing. Target longer and staggered debt
maturities to avoid refinancing
concentration and
consideration of early refinancing.
Derivative contracts to provide
interest rate protection.
Covenants breached. Regular monitoring of covenants with
Financial review
headroom maintained
Appendix 2
Reduced availability of equity Maintain appropriate liquidity to cover
Financial review
capital. commitments.
Target conservative overall leverage
levels.
DIRECTORS` RESPONSIBILITIES
Statement of Directors` responsibilities
The statement of Directors` responsibilities has been prepared in relation to
the Group`s full Annual Report for the year ended 31 December 2010. Certain
parts of the Annual Report are not included within this announcement.
We confirm to the best of our knowledge:
the Group financial statements, which have been prepared in accordance with
IFRSs as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and
the Business and Financial Review includes a fair review of the development and
performance of the business and the position of the Group, together with a
description of the principal risks and uncertainties that it faces.
Signed on behalf of the Board on 2 March 2011
I. D. Hawksworth
Chief Executive
S. Das
Finance Director
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2010
2010 2009
Notes GBPm GBPm
Revenue 2 113.7 127.7
Rental income 113.6 126.4
Rental expenses (44.6) (48.3)
Net rental income 2 69.0 78.1
Other income 3 0.8 1.5
Gain/(deficit) on revaluation and sale of
investment and development property 4 134.6 (128.8)
Profit on sale of available for sale investments 5 - 3.6
Write down of trading property (0.1) (0.1)
Impairment of other receivables 6 (1.6) (12.0)
Administration expenses 202.7 (57.7)
Ongoing expenses (18.6) (14.5)
Demerger costs 7 (5.3) -
Operating profit/(loss) 178.8 (72.2)
Finance costs 8 (40.3) (50.1)
Finance income 1.4 2.6
Other finance costs 8 (7.1) (47.2)
Change in fair value of derivative financial (0.3) 16.9
instruments
Net finance costs (46.3) (77.8)
Profit/(loss) before tax 132.5 (150.0)
Current tax (1.2) (1.3)
Deferred tax 0.4 (0.1)
REIT entry charge (0.1) 0.3
Taxation 9 (0.9) (1.1)
Profit/(loss) for the year 131.6 (151.1)
Profit/(loss) attributable to:
Owners of the Parent 131.6 (131.5)
Non-controlling interests - (19.6)
Earnings/(loss) per share from continuing
operations
Basic earnings/(loss) per share 11 21.2p (21.1)p
Diluted earnings/(loss) per share 11 21.2p (21.1)p
Weighted average number of shares 621 .9m 621.9m
Adjusted earnings per share are shown in Note 11.
The above consolidated income statement should be read in conjunction with the
accompanying notes.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 December 2010
2010 2009
Notes GBPm GBPm
Profit/(loss) for the year 131.6 (151.1)
Other comprehensive income/(expense)
Actuarial gain/(loss) on defined benefit pension 1.4 (0.3)
schemes attributable to owners
Profit/(loss) on revaluation of available for sale 21.5 (5.2)
investments and other movements
Tax on items taken directly to equity 20 (0.4) 0.1
Net loss recognised in equity due to - (0.2)
non-controlling interests
Other comprehensive income/(expense) for the year, 22.5 (5.6)
net of tax
Total comprehensive income/(expense) for the year 154.1 (156.7)
Attributable to:
Owners of the Parent 154.1 (136.9)
Non-controlling interests - (19.8)
Total comprehensive income/(expense) for the year 154.1 (156.7)
The above consolidated statement of comprehensive income should be read in
conjunction with the accompanying notes.
CONSOLIDATED BALANCE SHEET
As at 31 December 2010
2010 2009
Notes GBPm GBPm
Non-current assets
Investment and development property 12 1,377.6 1,240.5
Plant and equipment 1.0 1.0
Available for sale investments 66.3 46.0
Trade and other receivables 13 12.4 14.5
Current assets 1,457.3 1,302.0
Trading property 14 0.3 0.3
Tax assets - 1.3
Trade and other receivables 13 26.8 20.8
Cash and cash equivalents 15 188.5 19.3
215.6 41.7
Total assets 1,672.9 1,343.7
Non-current liabilities
Borrowings, including finance leases 18 (651.5) (655.4)
Derivative financial instruments 19 (53.9) (56.2)
Pension deficit (2.0) (3.4)
Deferred tax provision - -
Other provisions 21 (3.3) (4.0)
Other payables - (0.9)
Current liabilities (710.7) (719.9)
Borrowings, including finance leases 18 (13.1) (71.0)
Trade and other payables 17 (65.0) (460.1)
Tax liabilities (0.7) -
(78.8) (531.1)
Total liabilities (789.5) (1,251.0)
Net assets 883.4 92.7
Equity
Share capital 22 155.4 497.5
Other components of equity 728.0 (404.8)
Capital and reserves attributable to owners of 883.4 92.7
the Parent
Non-controlling interests - -
Total equity 883.4 92.7
The above consolidated balance sheet should be read in conjunction with the
accompanying notes.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2010\
2010
Attributable to owners of the Parent
Share Share Merger Revaluation
capital premium reserve reserve
GBPm GBPm GBPm GBPm
Balance at 1 January 2010 497.5 89.1 87.6 15.7
Profit for the year - - - -
Other comprehensive income:
Fair value gains on available
for sale investments - - - 21.5
Actuarial gains on defined
benefit pension schemes - - - -
Tax on items taken to equity - - - -
Total comprehensive income
for the year ended
31 December 2010 - - - 21.5
Transactions with owners
Capital reduction (342.0) - - -
Capital reorganisation and
pro forma restatement(1) - - 53.8 (4.2)
Capital contribution realised - - - -
Share redemption (0.1) - - -
Fair value of share-based
payments - - - -
Dividends paid - - - -
Total transactions with owners (342.1) - 53.8 (4.2)
Balance at 31 December 2010 155.4 89.1 141.4 33.0
Capital Other Retained Total
contribution reserves Earnings Equity
GBPm GBPm GBPm GBPm
Balance at 1 January 2010 - - (597.2) 92.7
Profit for the year - - 131.6 131.6
Other comprehensive income:
Fair value gains on available
for sale investments - - - 21.5
Actuarial gains on defined
benefit pension schemes - - 1.4 1.4
Tax on items taken to equity - - (0.4) (0.4)
Total comprehensive income
for the year ended
31 December 2010 - - 132.6 154.1
Transactions with owners
Capital reduction - - 342.0 -
Capital reorganisation and
pro forma restatement(1) 696.7 - (107.0) 639.3
Capital contribution realised (696.7) - 696.7 -
Share redemption - - - (0.1)
Fair value of share-based payments - 0.5 - 0.5
Dividends paid - - (3.1) (3.1)
Total transactions with owners - 0.5 928.6 636.6
Balance at 31 December 2010 - 0.5 464.0 883.4
The above consolidated statements of changes in equity should be read in
conjunction with the accompanying notes.
1 On demerger from Liberty International a number of reserves were realised and
pro forma adjustments (made in the comparative periods to reflect the
application of merger accounting principles) reversed. Debt waivers granted to
the Group by Liberty International were reflected as a capital contribution
reserve prior to being realised in retained earnings.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2010
2009
Attributable to owners of the Parent
Non-
Share Share Merger Revaluation
capital premium reserve reserve
GBPm GBPm GBPm GBPm
Balance at 1 January 2009 497.5 89.1 87.6 20.9
Loss for the year - - - -
Other comprehensive income:
Fair value losses on available
for sale investments and
other movements - - - (5.2)
Actuarial loss on defined
benefit pension schemes - - - -
Tax on items taken directly to
equity - - - -
Total comprehensive expense
for the year ended
31 December 2009 - - - (5.2)
Changes in ownership interest
Loss of deemed control of
former subsidiary - - - -
Purchase of non-controlling
interests - - - -
Total transactions with owners - - - -
Balance at 31 December 2009 497.5 89.1 87.6 15.7
Retained controlling Total
earnings Total interests equity
GBPm GBPm GBPm GBPm
Balance at 1 January 2009 (431.2) 263.9 27.8 291.7
Loss for the year (131.5) (131.5) (19.6) (151.1)
Other comprehensive income:
Fair value losses on available
for sale investments and
other movements - (5.2) - (5.2)
Actuarial loss on defined
benefit pension schemes (0.3) (0.3) (0.3) (0.6)
Tax on items taken directly to
equity 0.1 0.1 0.1 0.2
Total comprehensive expense
for the year ended
31 December 2009 (131.7) (136.9) (19.8) (156.7)
Changes in ownership interest
Loss of deemed control of
former subsidiary - - (8.0) (8.0)
Purchase of non-controlling
interests (34.3) (34.3) - (34.3)
Total transactions with owners (34.3) (34.3) (8.0) (42.3)
Balance at 31 December 2009 (597.2) 92.7 - 92.7
The above consolidated statement of changes in equity should be read in
conjunction with the accompanying notes.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 31 December 2010
2010 2009
Note GBPm GBPm
Cash generated from operations 25 38.6 81.4
Interest paid (41.4) (71.0)
Interest received 1.3 1.9
Taxation 1.0 -
Cash flows from operating activities (0.5) 12.3
Cash flows from investing activities
Purchase and development of property (26.8) (32.2)
Sale of property 28.1 118.8
REIT entry charge paid (3.6) (2.7)
Purchase of non-current asset investments - (0.9)
Sale of available for sale investments 0.5 11.4
Loss of deemed control of former subsidiary - (3.7)
Purchase of non-controlling interests - (25.0)
Cash flows from investing activities (1.8) 65.7
Cash flows from financing activities
Issue of redeemable shares 0.1 -
Redemption of redeemable shares (0.1) -
Cash transferred to restricted accounts (6.0) -
Borrowings drawn 6.0 -
Borrowings repaid (68.0) (69.7)
Funding from Liberty International 244.0 -
Termination of swaps (7.4) (5.5)
Equity dividends paid (3.1) -
Cash flows from financing activities 165.5 (75.2)
Net increase in unrestricted cash 163.2 2.8
Unrestricted cash at 1 January 19.3 16.5
Unrestricted cash at 31 December 182.5 19.3
The above consolidated statement of cash flows should be read in conjunction
with the accompanying notes.
NOTES
1. Principal accounting policies
General information
The Capital & Counties Properties PLC Group demerged from its parent company,
Liberty International PLC (subsequently renamed Capital Shopping Centres Group
PLC), with effect from 7 May 2010. Shares in Capital & Counties Properties PLC
were admitted to dealings on the London and Johannesburg Stock Exchanges in May
2010. The Group`s assets principally comprise investment properties at Covent
Garden; Earls Court & Olympia; a 50 per cent interest in the Empress State
building; and a 50 per cent interest in The Great Capital Partnership, a joint
venture focused predominantly on London`s West End.
Basis of preparation
The financial information does not constitute the Group`s statutory accounts for
either the year ended 31 December 2010 or the year ended 31 December 2009, but
is derived from those accounts. The Group`s statutory accounts for 2010 will be
delivered to the Registrar of Companies following the Company`s annual general
meeting. The auditors` report on the 2010 accounts was not qualified or
modified; did not draw attention to any matters by way of an emphasis of matter;
and did not contain any statement under Section 498 of the Companies Act 2006
The Group`s consolidated financial statements are prepared in accordance with
International Financial Reporting Standards ("IFRS"), as adopted by the European
Union, International Financial Reporting Interpretations Committee ("IFRIC")
interpretations and with those parts of the Companies Act 2006 applicable to
companies reporting under IFRS.
The consolidated financial statements have been prepared under the historical
cost convention as modified for the revaluation of properties, available for
sale investments and financial assets held for trading.
Standards and guidelines relevant to the Group that were in issue and endorsed
at the date of approval of the consolidated financial statements but not yet
effective and have not been adopted early:
IAS 24 `Related Party Disclosures` (revised)
IAS 32 `Financial Instruments: Presentation` (amendment)
IFRS 1 `First-time Adoption of International Financial Reporting Standards`
(amendment)
IFRIC 14 `Prepayments of a Minimum Funding Requirement` (amendment)
IFRIC 19 `Extinguishing Financial Liabilities with Equity Instruments`
The assessment of new standards, amendments and interpretations issued but not
effective, are not anticipated to have a material impact on the financial
statements.
During 2010, the following accounting standards and guidance were adopted by
the Group:
IAS 1 `Presentation of Financial Statements` (amendment)
IAS 27 `Consolidated and Separate Financial Statements` (revised)
IAS 39 `Financial Instruments: Recognition and Measurement; Eligible Hedged
Items`
IFRS 1 `First-time Adoption of International Financial Reporting Standards`
(revised)
IFRS 2 `Share-based Payment` (revised)
IFRS 3 `Business Combinations` (revised)
IFRIC 12 `Service Concession Arrangements`
IFRIC 15 `Agreements for Construction of Real Estates`
IFRIC 16 `Hedges of a Net Investment in a Foreign Operation`
IFRIC 17 `Distribution of Non-cash Assets to Owners`
IFRIC 18 `Transfer of Assets from Customers`
Collectively, together with the International Accounting Standards Board`s
annual improvements, these pronouncements either had no impact on the
consolidated financial statements or resulted in changes to presentation and
disclosure only.
Group reorganisation
All Capital & Counties Properties PLC group companies which were owned and
controlled by Liberty International PLC prior to the demerger were transferred
under the new ultimate Parent Company, Capital & Counties Properties PLC, prior
to 7 May 2010. The introduction of this new ultimate holding company constitutes
a group reconstruction.
The transaction falls outside the scope of IFRS 3 `Business Combinations`.
Accordingly, following the guidance regarding the selection of an appropriate
accounting policy provided in IAS 8 `Accounting Policies, Changes in Accounting
Estimates and Errors`, the transaction has been accounted for in these financial
statements using the principles of merger accounting with reference to UK
Generally Accepted Accounting Practice (UK GAAP). This policy, which does not
conflict with IFRS, reflects the economic substance of the transaction.
Therefore, although the Group reconstruction did not become unconditional until
7 May 2010, these financial statements are presented as if the Group structure
has always been in place. For further details on the demerger refer to Appendix
4.
Going concern basis
The Directors are satisfied that the Group has the resources to continue in
operational existence for the foreseeable future, for this reason the
consolidated financial statements are prepared on a going concern basis.
Basis of consolidation
The consolidated financial statements are prepared in British pounds sterling
which is determined to be the functional currency of the Parent.
Subsidiaries
Subsidiary undertakings are fully consolidated from the date on which the Group
is deemed to govern the financial and operating policies of an entity, whether
through a majority of the voting rights or otherwise. They cease to be
consolidated from the date this control is lost.
All intra Group balances resulting from intra Group transactions are eliminated
in full.
Any proportion of a subsidiary`s income statement and net assets not held by the
Group are presented separately as non-controlling interests within these
consolidated financial statements.
Joint ventures
The Group`s interest in jointly controlled entities is accounted for using
proportional consolidation. The Group`s share of the assets, liabilities, income
and expenses are combined with the equivalent items in the consolidated
financial statements on a line-by-line basis.
Investments in subsidiaries and joint ventures are reviewed at least annually
for impairment. Where there exists an indication of impairment an assessment of
the recoverable amount is performed. The recoverable amount is based on the
higher of the investment`s continued value in use or its fair value less cost to
sell; fair value is derived from the entities` net asset value at the balance
sheet date.
Estimation & uncertainty
The preparation of consolidated financial statements in conformity with IFRS
requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities and the reported amounts of revenues and expenses.
Although these estimates are based on management`s best knowledge of the amount,
event or actions, actual results ultimately may differ from those estimates. The
most significant area of estimation and uncertainty in the consolidated set of
financial statements is in respect of the valuation of the property portfolio
and investments, where external valuations are obtained. Other areas of
estimation and uncertainty are included within the accounting policies below,
the more significant being:
Revenue recognition
Share-based payments
Provisions
Pensions
Contingent liabilities and capital commitments
Income tax
Trade and other receivables
Derivative financial instruments
Operating segments
Management has determined the operating segments with reference to reports on
divisional financial performance and position which are regularly reviewed by
the Chief Executive, who is deemed to be the chief operating decision maker.
Foreign currencies
Transactions in currencies other than the Company`s functional currency are
recorded at the exchange rate prevailing at the transaction date. Foreign
exchange gains and losses resulting from settlement of these transactions and
from retranslation of monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement except for differences arising
on the retranslation of available for sale investments which are recognised in
other comprehensive income.
Revenue recognition
Property rental income and exhibition income consists of gross income calculated
on an accruals basis, together with services where the Group acts as principal
in the ordinary course of business, excluding sales of investment properties.
Rental income receivable is spread evenly over the period from lease
commencement to lease expiry.
Lease incentive payments, including surrender premiums paid which enhance rental
income, are amortised on a straight-line basis over the lease term. Upon receipt
of a surrender premium for the early termination of a lease, the profit and non-
recoverable outgoings relating to the lease concerned are immediately reflected
in income.
Contingent rents, being those lease payments that are not fixed at the inception
of a lease, for example increases arising on rent reviews, are recorded as
income in the periods in which they are earned.
Rent reviews are recognised as income, based on management`s estimates, when it
is reasonable to assume they will be received. Estimates are derived from
knowledge of market rents for comparable properties determined on an individual
property basis and updated for progress of negotiations.
Where revenue is obtained by the sale of properties, it is recognised when the
significant risks and returns have been transferred to the buyer. This will
normally take place on exchange of contracts unless there are conditions
attached. For conditional exchanges, sales are recognised when these conditions
are satisfied.
Interest income is accrued on a time basis, by reference to the principal
outstanding and the effective interest rate.
Dividend income is recognised when the relevant Group company`s right to receive
payment has been established.
Exceptional items
Exceptional items are those items that in the Directors` view are required to be
separately disclosed by virtue of their size or incidence to enable a full
understanding of the Group`s financial performance. These are excluded from the
calculation of underlying earnings.
Income taxes
Current tax is the amount payable on the taxable income for the year and any
adjustment in respect of prior years. It is calculated using rates that have
been enacted or substantively enacted by the balance sheet date.
Deferred tax is provided using the balance sheet liability method in respect of
temporary differences between the carrying amounts of assets and liabilities in
the financial statements and the amounts used in computation of taxable profit,
with the exception of deferred tax on revaluation surpluses where the tax basis
used is the accounts` historic cost.
Temporary differences are not provided on the initial recognition of assets or
liabilities that affect neither accounting nor taxable profit, and differences
relating to investments in subsidiaries to the extent that they will not reverse
in the foreseeable future.
Deferred tax is determined using tax rates that have been enacted or
substantially enacted by the balance sheet date and are expected to apply when
the related deferred tax asset is realised or the deferred tax liability is
settled.
Deferred tax assets are recognised only to the extent that management believe it
is probable that future taxable profit will be available against which the
temporary differences can be utilised. Deferred tax assets and liabilities are
offset only when they relate to taxes levied by the same authority and the Group
intends to settle them on a net basis.
Tax is included in the income statement except when it relates to items
recognised in other comprehensive income or directly in equity, in which case
the related tax is also recognised in other comprehensive income or directly in
equity.
Share-based payments
The cost of granting share options and other share-based remuneration to
employees and Directors is recognised through the income statement with
reference to the fair value of the instruments at the date of grant. The income
statement is charged over the vesting period of the options.
An option pricing model is used applying assumptions around expected yields,
forfeiture rates, exercise price and volatility.
Own shares held in connection with employee share plans and other share-based
payment arrangements are treated as treasury shares and deducted from equity.
Impairment of financial assets
An annual review is conducted for financial assets to determine whether there is
any evidence of a loss event as described by IAS 39. Where there is objective
evidence of impairment the amount of any loss is calculated by estimating future
cash flows or by using fair value where this is available through observable
market prices.
Investment and development property
Investment and development properties are owned or leased by the Group and held
for long term rental income and capital appreciation and exclude properties
occupied by the Group.
The Group has chosen to use the fair value model. Properties are initially
recognised at cost and subsequently revalued at the balance sheet date to fair
value as determined by professionally qualified external valuers on the basis of
market value. The valuation is based upon assumptions including market rent or
business profitability, future growth, anticipated maintenance costs,
development costs and an appropriate discount rate where possible applying
yields based on known transactions for similar properties and likely incentives
offered to tenants. These assumptions conform with Royal Institution of
Chartered Surveyors ("RICS") valuation standards.
Incentive assets are adjusted for against the fair value of properties to which
they are directly attributable.
Properties held under leases are stated gross of the recognised finance lease
liability.
The cost of development properties includes capitalised interest and other
directly attributable outgoings, except in the case of properties and land where
no development is imminent, in which case no interest is included. Interest is
capitalised (before tax relief) on the basis of the average rate of interest
paid on the relevant debt outstanding, until the date of practical completion.
When the Group redevelops an existing investment property for continued future
use as an investment property, the property remains an investment property
measured at fair value.
Gains or losses arising from changes in the fair value of investment and
development property are recognised in the income statement of the period in
which they arise. Depreciation is not provided in respect of investment
properties including plant and equipment integral to such investment properties.
When the use of a property changes from that of trading property to investment
property, such property is transferred at fair value, with any resulting gain
being recognised as property trading profit.
Investment properties cease recognition as investment property either when they
have been disposed of or when they are permanently withdrawn from use and no
future economic benefit is expected from their disposal. Where the Group
disposes of a property at fair value in an arm`s length transaction the carrying
value immediately prior to the sale is adjusted to the transaction price, offset
by any directly attributable costs, and the adjustment is recorded in the income
statement.
Leases
Leases are classified according to the substance of the transaction. A lease
that transfers substantially all the risks and rewards of ownership to the
lessee is classified as a finance lease. All other leases are normally
classified as operating leases.
Group as a lessee:
In accordance with IAS 40, finance and operating leases of investment property
are accounted for as finance leases and recognised as an asset and an obligation
to pay future minimum lease payments. The investment property asset is included
in the balance sheet at fair value, gross of the recognised finance lease
liability. Lease payments are allocated between the liability and finance
charges so as to achieve a constant financing rate.
Other finance leased assets are capitalised at the lower of the fair value of
the leased asset or the present value of the minimum lease payments and
depreciated over the shorter of the lease term and the useful life of the asset.
Rentals payable under operating leases are charged to the income statement on a
straight-line basis over the lease term.
Group as lessor:
Assets leased out under finance leases are recognised as receivables at the
amount of the Group`s net investment in the leases. Finance lease income is
allocated to accounting periods so as to reflect a constant rate of return on
the net investment.
Assets leased out under operating leases are included in investment property,
with rental income recognised on a straight-line basis over the lease term.
Trading property
Trading property comprise those properties that in the Directors` view are
expected to be disposed of within one year of the balance sheet date. Such
properties are transferred from investment property at fair value which forms
its deemed cost. Subsequently it is carried at the lower of cost and net
realisable value.
Plant and equipment
Plant and equipment consists of fixtures, fittings and other office equipment.
Plant and equipment is stated at cost less accumulated depreciation and any
accumulated impairment losses. Cost includes the original purchase price of the
asset plus any attributable cost in bringing the asset to its working condition
for its intended use. Depreciation is charged to the income statement on a
straight-line basis over an asset`s estimated useful life to a maximum of five
years.
Investments
Available for sale investments, being investments intended to be held for an
indefinite period, are initially recognised and subsequently measured at fair
value.
Gains or losses arising from changes in the fair value of available for sale
investments are included in other comprehensive income, except to the extent
that losses are determined to be attributable to impairment, in which case they
are recognised in the income statement.
Disposals are recorded upon distribution, at which time accumulated fair value
adjustments are recycled from reserves to the income statement.
Trade and other receivables
Trade and other receivables are initially recognised at fair value and
subsequently measured at amortised cost. The Directors exercise judgement as to
the collectability of the Group`s trade and other receivables and determine when
it is appropriate to impair these assets.
Factors such as days past due, credit status of the counterparty and historical
evidence of collection are considered.
Cash and cash equivalents
Cash and cash equivalents are recognised at fair value. Cash and cash
equivalents comprise cash on hand, deposits with banks and other short-term
highly liquid investments with original maturities of three months or less.
Derivatives financial instruments
The Group uses non-trading derivative financial instruments to manage exposure
to interest rate risk. These instruments have not been designated as qualifying
for hedge accounting. They are initially recognised on the trade date at fair
value and subsequently remeasured at fair value based on market price. Changes
in fair value are recognised directly in the income statement.
Trade payables
Trade payables are obligations for goods or services acquired in the ordinary
course of business. Trade payables are recognised at fair value and subsequently
measured at amortised cost until settled.
Dividend distribution
Dividend distributions to shareholders are recognised as a liability once
approved by shareholders.
Provisions
Provisions are recognised when the Group has a current obligation arising from a
past event and it is probable that the Group will be required to settle that
obligation. Provisions are measured at the Directors` best estimate of the
expenditure required to settle that obligation at the balance sheet date.
Borrowings
Borrowings are recognised initially at their net proceeds on issue and
subsequently carried at amortised cost. Any transaction costs, premiums or
discounts are capitalised and recognised over the contractual life using the
effective interest method. In the event of early repayment all unamortised
transaction costs are recognised immediately in the income statement.
Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares are recognised as a deduction from
equity, net of any tax effects.
Pensions
The costs of the defined contribution scheme and the Group`s personal pension
plans are charged against profits in the year in which they fall due.
Past service costs and current service costs of the defined benefit scheme are
recognised immediately in income. Actuarial gains and losses arising from
experience adjustments and changes in actuarial assumptions are charged or
credited to equity in other comprehensive income for the period in which they
arise. The defined benefit obligation is calculated annually by independent
actuaries using the projected unit credit method and applying assumptions which
are agreed between the Group and its actuaries.
Contingent liabilities and capital commitments
Contingent liabilities are not recognised due to lack of certainty with respect
to measurement of the potential future liability. A description of the nature
and, where possible, an estimate of the financial effect of contingent
liabilities is disclosed.
Capital commitments are disclosed when the Group has a contractual future
obligation which has not been provided for at the balance sheet date.
2 Segmental reporting
For management and reporting purposes the Group is organised into four operating
divisions being Great Capital Partnership, Earls Court & Olympia, Covent Garden
and Other. The Other segment primarily constitutes the Group`s investments in
China, the business unit historically known as Opportunities and head office
companies. This segment included a number of smaller assets located primarily in
the south east of England which were sold during 2009. The Earls Court & Olympia
segment also includes the Group`s interest in The Empress State Limited
Partnership which holds the Empress State building adjacent to the Group`s
property at Earls Court.
The Group`s operating segments derive their revenue primarily from rental income
from lessees, with the exception of Earls Court & Olympia whose revenue
primarily represents exhibition income.
Unallocated expenses are costs incurred centrally which are neither directly nor
reasonably attributable to individual segments.
2010
Great Capital Earls Court
Partnership & Olympia 1
GBPm GBPm
Revenue 16.1 57.7
Rent receivable and exhibition income 14.9 57.7
Service charge income 1.2 -
Rental income 16.1 57.7
Rental payable - -
Service charge and other non-recoverable costs (2.5) (28.6)
Net rental income 13.6 29.1
Other income - 0.7
Gain on revaluation and sale of investment and
development property 33.5 23.3
Write down of trading property - -
Impairment of other receivables - -
Segment result 47.1 53.1
Unallocated costs
Administration expenses
Operating profit
Net finance costs(2)
Profit before tax
Taxation
Profit for the year
Summary balance sheet
Total segment assets(3) 273.1 503.2
Total segment liabilities(3) (128.6) (273.4)
144.5 229.8
Unallocated net assets(2 )
Net assets
Other segment items
Capital expenditure (1.1) (22.7)
Depreciation - -
Covent Group
Garden Other total
GBPm GBPm GBPm
Revenue 38.9 1.0 113.7
Rent receivable and exhibition income 36.2 0.6 109.4
Service charge income 2.7 0.3 4.2
Rental income 38.9 0.9 113.6
Rental payable (1.0) - (1.0)
Service charge and other non-recoverable costs (12.2) (0.3) (43.6)
Net rental income 25.7 0.6 69.0
Other income - 0.1 0.8
Gain on revaluation and sale of investment and
development property 77.8 - 134.6
Write down of trading property - (0.1) (0.1)
Impairment of other receivables - (1.6) (1.6)
Segment result 103.5 (1.0) 202.7
Unallocated costs
Administration expenses (23.9)
Operating profit 178.8
Net finance costs(2) (46.3)
Profit before tax 132.5
Taxation (0.9)
Profit for the year 131.6
Summary balance sheet
Total segment assets(3) 659.0 64.7 1,500.0
Total segment liabilities(3) (382.0) (5.5) (789.5)
277.0 59.2 710.5
Unallocated net assets(2) 172.9
Net assets 883.4
Other segment items
Capital expenditure (7.5) - (31.3)
Depreciation (0.1) - (0.1)
1) Empress State represented GBP6.5 million of the GBP29.1 million net rental
income for Earls Court & Olympia.
2) The Group operates a central treasury function which manages and monitors the
Group`s finance income/(costs) on a net basis.
3) Total assets and liabilities exclude loans between and investments in Group
companies.
2009
Great Capital Earls Court Covent
Partnership & Olympia 1 Garden
GBPm GBPm GBPm
Revenue 16.9 66.2 41.1
Rent receivable and exhibition income 15.3 66.2 37.5
Service charge income 1.6 - 3.6
Rental income 16.9 66.2 41.1
Service charge and other
non-recoverable costs (3.1) (29.4) (14.5)
Net rental income 13.8 36.8 26.6
Other (expense)/income (0.1) - 1.2
Deficit on revaluation and sale of
investment and
development property (21.3) (47.7) (35.8)
Profit on sale of available for sale
investments - - -
Write down of trading property - - -
Impairment of other receivables - - -
Segment result (7.6) (10.9) (8.0)
Unallocated costs
Administration expenses
Operating loss
Net finance costs 2
Loss before tax
Taxation
Loss for the year
Summary balance sheet
Total segment assets(3) 262.9 453.6 557.2
Total segment liabilities(3) (130.8) (294.2) (417.6)
132.1 159.4 139.6
Unallocated net liabilities(2)
Net assets
Other segment items
Capital expenditure (18.1) (8.0) (6.7)
Depreciation - - (0.2)
Group
Other Total
GBPm GBPm
Revenue 3.5 127.7
Rent receivable and exhibition income 2.2 121.2
Service charge income - 5.2
Rental income 2.2 126.4
Service charge and other non-recoverable costs (1.3) (48.3)
Net rental income 0.9 78.1
Other (expense)/income 0.4 1.5
Deficit on revaluation and sale of investment and
development property (24.0) (128.8)
Profit on sale of available for sale investments 3.6 3.6
Write down of trading property (0.1) (0.1)
Impairment of other receivables (12.0) (12.0)
Segment result (31.2) (57.7)
Unallocated costs
Administration expenses (14.5)
Operating loss (72.2)
Net finance costs(2) (77.8)
Loss before tax (150.0)
Taxation (1.1)
Loss for the year (151.1)
Summary balance sheet
Total segment assets(3) 70.0 1,343.7
Total segment liabilities(3) (7.2) (849.8)
62.8 493.9
Unallocated net liabilities(2) (401.2)
Net assets 92.7
Other segment items
Capital expenditure (5.6) (38.4)
Depreciation - (0.2)
1 Empress State represented GBP10.3 million of the GBP36.8 million net rental
income for Earls Court & Olympia.
2 The Group operates a central treasury function which manages and monitors the
Group`s finance income/(costs) on a net basis.
3 Total assets and liabilities exclude loans between and investments in Group
companies.
The Group`s geographical segments are set out below. This represents where the
Group`s assets and revenues are predominantly domiciled.
Revenue represents income from tenants and total assets primarily constitute
investment property.
Revenue Total assets
2010 2009 2010 2009
GBPm GBPm GBPm GBPm
Central London 112.7 124.2 1,606.3 1,292.2
Other 1.0 3.5 66.6 51.5
113.7 127.7 1,672.9 1,343.7
Capital expenditure
2010 2009
GBPm GBPm
Central London 31.3 32.8
Other - 5.6
31.3 38.4
3 Other income
2010 2009
GBPm GBPm
Sale of trading property - 4.0
Cost of sales - (3.8)
Profit on sale of trading property - 0.2
Dividend income 0.1 1.3
Other income 0.7 -
Total other income 0.8 1.5
4 Gain/(deficit) on revaluation and sale of investment and
development property
2010 2009
GBPm GBPm
Gain/(deficit) on revaluation of investment and development
property 133.3 (105.6)
Gain/(deficit) on sale of investment and development property 1.3 (23.2)
Gain/(deficit) on revaluation and sale of investment and
development property 134.6 (128.8)
5 Profit on sale of available for sale investments
2010 2009
GBPm GBPm
Profit on sale of available for sale investments - 3.6
Profit on sale of available for sale investments in 2009 represents a part
divestment from Harvest China Real Estate Fund I following property disposals
made by the fund.
6 Impairment of other receivables
Impairment of other receivables of GBP1.6 million (2009 - GBP12.0 million) has
arisen following an impairment review of loan notes receivable by the Group. The
impairment charge has been calculated with reference to the market value of
certain property assets that the Group would have priority over in the event of
default.
7 Demerger costs
Demerger costs included within administration expenses are those costs and fees
that are directly related to the Group`s demerger from Liberty International.
These include inter alia legal and professional fees, listing fees and costs
associated with the establishment of the Company`s head office. These are
treated as exceptional items and are not included in the calculation of
underlying earnings.
8 Finance costs
2010 2009
GBPm GBPm
Finance costs:
On bank overdrafts and loans 40.7 51.4
Amortisation of issue costs 0.1 0.1
On obligations under finance leases 0.3 0.5
Gross finance costs 41.1 52.0
Interest capitalised on developments (0.8) (1.9)
Finance costs 40.3 50.1
Costs of termination of derivative financial instruments 1 7.1 5.4
Interest due to Capital Shopping Centres Group 2 - 41.8
Other finance costs 7.1 47.2
1 Treated as exceptional and therefore excluded from the calculation of
underlying earnings for the year ended 31 December 2010.
2 Intercompany interest due under the former Liberty International PLC group
structure, which previously eliminated on consolidation. As a result of the
demerger, the amounts are now treated as external finance costs for comparative
purposes. It is treated as exceptional and therefore excluded from the
calculation of underlying earnings for the year ended 31 December 2009.
Interest is capitalised, before tax relief, on the basis of the average rate of
interest paid of 5.9 per cent (2009 - 6.5 per cent) on the relevant debt,
applied to the cost of developments during the year.
9 Taxation
2010 2009
GBPm GBPm
Current UK corporation tax at 28% on profits 2.2 -
Prior year items - UK corporation tax 0.1 1.3
Current tax on profits excluding exceptional items and
property disposals 2.3 1.3
Deferred tax:
On investment and development property 6.7 -
On derivative financial instruments (9.6) 0.5
On other temporary differences - (0.4)
On exceptional items 2.5 -
Deferred tax on profits excluding exceptional items and
property disposals (0.4) 0.1
Tax charge excluding exceptional items and property disposals 1.9 1.4
REIT entry charge/(credit) 0.1 (0.3)
Tax credit on exceptional items and property disposals (1.1) -
Total tax charge 0.9 1.1
Factors affecting the tax charge for the year
The tax charge for the year is lower (2009 - higher) than the standard rate of
corporation tax in the United Kingdom. The differences are explained below:
2010 2009
GBPm GBPm
Profit/(loss) before tax 132.5 (150.0)
Profit /(loss) on ordinary activities multiplied by the
standard rate in the UK of 28% 37.1 (42.0)
UK capital allowances not reversing on sale (1.5) (1.6)
Properties and investments fair value movements (37.7) (5.6)
Prior year corporation tax items 0.1 1.3
Prior year deferred tax items - (1.8)
Expenses disallowed, net of capitalised interest 1.5 (0.2)
Interest disallowed under transfer pricing - 6.7
Group relief - (1.0)
REIT exemption - corporation tax (0.5) 19.7
REIT exemption - deferred tax 19.4 -
REIT exemption - entry charge 0.1 (0.3)
Utilisation of losses carried forward 1.9 7.9
Unprovided deferred tax (19.1) 18.0
Reduction in deferred tax following cut in corporate tax
rate (0.4) -
Total tax charge 0.9 1.1
Tax items that are taken directly to equity are shown in the statement of
comprehensive income.
A number of changes to the UK Corporation tax system were announced in the June
2010 Budget Statement. The Finance (No 2) Act 2010 is expected to include
legislation to reduce the main rate of corporation tax from 28 per cent to 27
per cent from 1 April 2011. Further reductions to the main rate are proposed to
reduce the rate by 1 per cent per annum to 24 per cent by 1 April 2014. The
effect of the reduction in the corporation tax rate from 28 per cent to 27 per
cent was substantively enacted at the balance sheet date and, therefore, has
been reflected in these financial statements.
10 Dividends
2010 2009
GBPm GBPm
Ordinary shares
Interim dividend paid of 0.5p per share (2009 - nil) 3.1 -
Dividends paid 3.1 -
Proposed final dividend of 1.0p per share (2009 - nil) 6.2 -
11 Earnings per share and net assets per share
(a) Earnings/(loss) per share
2010
Earnings Shares 1 Pence per
GBPm million share
Basic earnings/(loss) per share 131.6 621.9 21.2
Dilutive effect of share option awards 0.5 1.2
Diluted earnings/(loss) per share 132.1 623.1 21.2
Basis earnings/(loss) 131.6
Adjustments:
Revaluation and sale of investment and
development property (134.6)
Write down of trading property 0.1
Fair value movement on derivative financial
instruments 0.3
Costs of termination of derivative
financial instruments 7.1
Current tax adjustments (0.3)
Deferred tax adjustments (2.9)
Non-controlling interests in respect of
the above -
EPRA adjusted earnings/(loss) per share 1.3 621.9 0.2
Exceptional other income (0.7)
Profit on sale of available for sale
investments -
Write down of trading property (0.1)
Impairment of other receivables 1.6
Demerger costs 5.3
Interest due to Capital Shopping Centres
Group -
Current tax adjustments (0.8)
Deferred tax adjustments 2.5
REIT entry charge 0.1
Non-controlling interests in respect of
the above -
Underlying earnings per share 9.2 621.9 1.5
2009
Earnings Shares 1 Pence per
GBPm million share
Basic earnings/(loss) per share (131.5) 621.9 (21.1)
Dilutive effect of share option awards - -
Diluted earnings/(loss) per share (131.5) 621.9 (21.1)
Basis earnings/(loss) (131.5)
Adjustments:
Revaluation and sale of investment and
development property 128.8
Write down of trading property 0.1
Fair value movement on derivative financial
instruments (16.9)
Costs of termination of derivative
financial instruments 5.4
Current tax adjustments -
Deferred tax adjustments 0.4
Non-controlling interests in respect of
the above (18.1)
EPRA adjusted earnings/(loss) per share (31.8) 621.9 (5.1)
Exceptional other income -
Profit on sale of available for sale
investments (3.6)
Write down of trading property (0.1)
Impairment of other receivables 12.0
Demerger costs -
Interest due to Capital Shopping Centres
Group 41.8
Current tax adjustments -
Deferred tax adjustments -
REIT entry charge (0.3)
Non-controlling interests in respect of
the above (2.8)
Underlying earnings per share 15.2 621.9 2.4
Headline earnings per share is calculated in accordance with Circular 8/2007
issued by the South African Institute of Chartered Accountants (SAICA), a
requirement in terms of the JSE Listings Requirements. This measure is not a
requirement of IFRS. 2010
Earnings Shares 1 Pence per
GBPm million share
Basic earnings/(loss) per share 131.6 621.9 21.2
Adjustments:
(Gain)/deficit on revaluation and sale of
investment and development property (134.6)
Profit on sale of investment -
Impairment of other receivables 1.6
Demerger costs 5.3
Deferred tax adjustments 9.2
Current tax adjustments (0.7)
Non-controlling interests in respect of
the above -
Headline earnings per share 12.4 621.9 2.0
Dilutive effect of share options awards 0.5 1.2
Diluted headline earnings per share 12.9 623.1 2.1
2009
Earnings Shares 1 Pence per
GBPm million share
Basic earnings/(loss) per share (131.5) 621.9 (21.1)
Adjustments:
(Gain)/deficit on revaluation and sale of
investment and development property 128.8
Profit on sale of investment (3.6)
Impairment of other receivables 12.0
Demerger costs -
Deferred tax adjustments (0.1)
Current tax adjustments -
Non-controlling interests in respect of
the above (22.1)
Headline earnings per share (16.5) 621.9 (2.7)
Dilutive effect of share options awards - - -
Diluted headline earnings per share (16.5) 621.9 (2.7)
1 Weighted average number of shares in issue during the year.
(b) Net assets per share
2010
Net NAV per
assets Shares 1 share
GBPm million (pence)
Net assets attributable to owners
of the Group 883.4 621.8 142.1
Adjustments:
Effect of dilution on exercise of options - 2.2
Diluted NAV 883.4 624.0 141.6
Fair value of derivative financial
instruments (net of tax) 41.4
Unrecognised surplus on trading
properties (net of tax) 1.1
Deferred tax adjustments -
EPRA adjusted, diluted NAV 925.9 624.0 148.4
Fair value of derivative financial
instruments (net of tax) (41.4)
Deferred tax adjustments -
EPRA adjusted, diluted NNNAV 884.5 624.0 141.7
2009
Net NAV per
assets Shares 1 share
GBPm million (pence)
Net assets attributable to owners
of the Group 92.7 621.9 14.9
Adjustments:
Effect of dilution on exercise of options - -
Diluted NAV 92.7 621.9 14.9
Fair value of derivative financial
instruments (net of tax) 53.3
Unrecognised surplus on trading
properties (net of tax) 0.9
Deferred tax adjustments 6.1
EPRA adjusted, diluted NAV 153.0 621.9 24.6
Fair value of derivative financial
instruments (net of tax) (53.3)
Deferred tax adjustments (6.1)
EPRA adjusted, diluted NNNAV 93.6 621.9 15.1
1 Number of shares in issue at the year end.
12 Investment and development property
Freehold Leasehold Total
GBPm GBPm GBPm
At 1 January 2009 864.4 688.1 1,552.5
Additions from acquisitions 1.5 5.0 6.5
Additions from subsequent expenditure 7.2 24.7 31.9
Loss of deemed control of former subsidiary (94.4) - (94.4)
Other disposals (101.2) (49.2) (150.4)
Deficit on valuation (53.8) (51.8) (105.6)
At 1 January 2010 623.7 616.8 1,240.5
Additions from acquisitions 10.3 - 10.3
Additions from subsequent expenditure 6.9 14.1 21.0
Disposals (16.0) (11.5) (27.5)
Gain on valuation 72.4 60.9 133.3
At 31 December 2010 697.3 680.3 1,377.6
2010 2009
GBPm GBPm
Balance sheet carrying value of investment and development
property 1,377.6 1,240.5
Adjustment in respect of tenant incentives 9.6 6.0
Adjustment in respect of head leases (6.8) (7.0)
Market value of investment and development property 1,380.4 1,239.5
Included within investment and development properties is GBP0.8 million (2009 -
GBP1.9 million) of interest capitalised on developments and redevelopments in
progress.
The fair value of the Group`s investment and development properties as at 31
December 2010 was determined by independent external valuers, King Sturge for
Earls Court & Olympia (excluding Empress State) and CB Richard Ellis for the
remainder of the Group`s investment and development property. The valuation
conforms with the Royal Institution of Chartered Surveyors ("RICS") Valuation
Standards, and was arrived at by reference to market transactions for similar
properties. Fees paid to valuers are based on fixed price contracts. The main
assumptions underlying the valuations are in relation to market rent or business
profitability, taking into account forecast growth rates and yields based on
known transactions for similar properties and likely incentives offered to
tenants Valuations are based on what is determined to be the highest and best
use. The Group`s investment in Seagrave Road, a car park supporting Earls Court,
has been valued as a site with development potential. The exhibition halls at
Earls Court & Olympia are fair valued, as fully equipped operational entities,
having regard to trading potential.
There are certain restrictions on the realisability of investment property when
a credit facility is in place.
13 Trade and other receivables
2010 2009
GBPm GBPm
Amounts falling due after more than one year
Loan notes receivables 1 3.4 8.2
Other receivables - 0.4
Prepayments and accrued income 9.0 5.9
Trade and other receivables 12.4 14.5
Amounts falling due within one year
Rents receivable 10.2 7.8
Loan note receivables 2.9 -
Other receivables 2 5.2 7.1
Prepayments and accrued income 8.5 5.9
Trade and other receivables 26.8 20.8
1 GBP3.4 million (2009 - GBP5.0 million) of loan notes receivable had an
original maturity in 2011 which has now been extended to 2017.
2 Includes exhibition trade receivables.
Included within prepayments and accrued income are tenant lease incentives of
GBP9.6 million (2009 - GBP6.0 million).
14 Trading property
2010 2009
GBPm GBPm
Undeveloped sites 3.3 0.3
Trading property 0.3 0.3
The estimated replacement cost of trading properties based on market value
amounted to GBP1.4 million (2009 - GBP1.1million). During the year impairment
charges of GBP0.1 million (2009 - GBP0.1 million) were recorded against trading
property.
15 Cash and cash equivalents
2010 2009
GBPm GBPm
Cash at hand 12.7 19.3
Cash on short term deposit 169.8 -
Unrestricted cash 182.5 19.3
Restricted cash 6.0 -
Cash and cash equivalents 188.5 19.3
Restricted cash relates to amounts placed on deposit in accounts which are
subject to withdrawal conditions.
16 Business combinations
The Empress State Limited Partnership On 18 August 2009 a call option the Group
held against the residual 50 per cent of Empress State Limited Partnership
expired. This call option was deemed to give the Group control and therefore, up
to the date of expiry, The Empress State Limited Partnership was consolidated as
a subsidiary.
No consideration was received relating to the loss of control and no gain or
loss was recognised. The consolidated assets and liabilities of The Empress
State Limited Partnership were derecognised and the remaining interest in The
Empress State Limited Partnership was accounted for as a joint venture in
accordance with the Group`s published accounting policy.
17 Trade and other payables
2010 2009
GBPm GBPm
Amounts falling due within one year
Rents received in advance 22.0 21.9
Accruals and deferred income 26.5 22.2
Other payables 1 14.2 11.0
Other taxes and social security 2.3 3.8
Amounts payable to Capital Shopping Centres Group 2 - 401.2
Trade and other payables 65.0 460.1
1 Includes sundry creditors and amounts due from joint venture partners.
2 Intercompany balances due to the former Liberty International PLC group, which
previously eliminated on consolidation. As a result of the demerger, the amounts
are now treated as external payables for comparative purposes.
18 Borrowings, including finance leases
2010
Carrying
value Secured Unsecured
GBPm GBPm GBPm
Amounts falling due within one year
Bank loans and overdrafts 12.2 12.2 -
Borrowings, excluding finance leases 12.2 12.2 -
Finance lease obligations 0.9 0.9 -
Amounts falling due within one year 13.1 13.1 -
Amounts falling due after more than one year
Bank loan 2012 124.3 124.3 -
Bank loans 2013 409.7 409.7 -
Bank loan 2017 111.6 111.6 -
Borrowings excluding finance leases 645.6 645.6 -
Finance lease obligations 5.9 5.9 -
Amounts falling due after more than one year 651.5 651.5 -
Total borrowings 664.6 664.6 -
Cash and cash equivalents (188.5)
Net debt 476.1
Fixed Floating Fair
rate rate value
GBPm GBPm GBPm
Amounts falling due within one year
Bank loans and overdrafts - 12.2 12.2
Borrowings, excluding finance leases - 12.2 12.2
Finance lease obligations 0.9 - 0.9
Amounts falling due within one year 0.9 12.2 13.1
Amounts falling due after more than one year
Bank loan 2012 - 124.3 124.3
Bank loans 2013 - 409.7 409.7
Bank loan 2017 - 111.6 111.6
Borrowings excluding finance leases - 645.6 645.6
Finance lease obligations 5.9 - 5.9
Amounts falling due after more than one year 5.9 645.6 651.5
Total borrowings 6.8 657.8 664.6
Cash and cash equivalents
Net debt
2009
Carrying
value Secured Unsecured
GBPm GBPm GBPm
Amounts falling due within one year
Bank loans and overdrafts 70.2 70.2 -
Borrowings, excluding finance leases 70.2 70.2 -
Finance lease obligations 0.8 0.8 -
Amounts falling due within one year 71.0 71.0 -
Amounts falling due after more than one year
Bank loan 2012 127.0 127.0 -
Bank loans 2013 410.7 410.7 -
Bank loan 2017 111.5 111.5 -
Borrowings excluding finance leases 649.2 649.2 -
Finance lease obligations 6.2 6.2 -
Amounts falling due after more than one year 655.4 655.4 -
Total borrowings 726.4 726.4 -
Cash and cash equivalents (19.3)
Net debt 707.1
Fixed Floating Fair
rate rate value
GBPm GBPm GBPm
Amounts falling due within one year
Bank loans and overdrafts - 70.2 70.2
Borrowings, excluding finance leases - 70.2 70.2
Finance lease obligations 0.8 - 0.8
Amounts falling due within one year 0.8 70.2 71.0
Amounts falling due after more than one year
Bank loan 2012 - 127.0 127.0
Bank loans 2013 - 410.7 410.7
Bank loan 2017 - 111.5 111.5
Borrowings excluding finance leases - 649.2 649.2
Finance lease obligations 6.2 - 6.2
Amounts falling due after more than one year 6.2 649.2 655.4
Total borrowings 7.0 719.4 726.4
Cash and cash equivalents
Net debt
19 Classification of financial assets and liabilities
The table below sets out the Group`s accounting classification of each class of
financial assets and liabilities, and their fair values at 31 December 2010 and
31 December 2009.
The fair values of quoted borrowings are based on the bid price. The fair values
of derivative financial instruments are determined from observable market prices
or estimated using appropriate yield curves at 31 December each year by
discounting the future contractual cash flows to the net present values.
Carrying
value Fair value
GBPm GBPm
2010
cash equivalents 188.5 188.5
Other financial assets 39.2 39.2
Total cash and receivables 227.7 227.7
Available for sale investments 66.3 66.3
Total available for sale investments 66.3 66.3
Derivative financial instrument liabilities (53.9) (53.9)
Total held for trading liabilities (53.9) (53.9)
Borrowings (664.6) (664.6)
Other financial liabilities (71.0) (71.0)
Total loans and payables (735.6) (735.6)
Loss to Gain to other
income comprehensive
statement income
GBPm GBPm
2010
Cash and cash equivalents - -
Other financial assets - -
Total cash and receivables - -
Available for sale investments - 21.5
Total available for sale investments - 21.5
Derivative financial instrument liabilities (0.3) -
Total held for trading liabilities (0.3) -
Borrowings - -
Other financial liabilities
Total loans and payables - -
Carrying
value Fair value
GBPm GBPm
2009
Cash and cash equivalents 19.3 19.3
Other financial assets 36.6 36.6
Total cash and receivables 55.9 55.9
Available for sale investments 46.0 46.0
Total available for sale investments 46.0 46.0
Derivative financial instrument liabilities (56.2) (56.2)
Total held for trading liabilities (56.2) (56.2)
Borrowings (726.4) (726.4)
Other financial liabilities (468.4) (468.4)
Total loans and payables (1,194.8) (1,194.8)
Gain to Loss to other
Income comprehensive
statement income
GBPm GBPm
2009
Cash and cash equivalents - -
Other financial assets - -
Total cash and receivables - -
Available for sale investments - (4.7)
Total available for sale investments - (4.7)
Derivative financial instrument liabilities 16.9 -
Total held for trading liabilities 16.9 -
Borrowings - -
Other financial liabilities
Total loans and payables - -
20 Deferred tax provision
Under IAS 12 "Income Taxes", provision is made for the deferred tax assets and
liabilities associated with the revaluation of investment properties at the
corporate tax rate expected to apply to the Group at the time of use. For those
United Kingdom properties qualifying as REIT properties before the demerger the
relevant tax rate will be 27 per cent (2009 - 0 per cent), for other United
Kingdom properties the relevant tax rate will be 27 per cent (2009 - 28 per
cent).
The unrecognised deferred tax asset on investment properties calculated under
IAS 12 is GBP43.3 million at 31 December 2010 (2009 - GBP12.6 million). This IAS
12 calculation does not reflect the expected amount of tax that would be payable
if the assets were sold.
The Group estimates that calculated on a disposal basis the maximum tax
liability would be GBP10.4 million at 31 December 2010 (2009 - GBP2.0 million).
Fair value of Fair value of
Accelerated investment and derivative
capital development financial
allowances properties instruments
GBPm GBPm GBPm
Provided deferred tax
provision:
At 1 January 2009 14.5 (8.4) (3.4)
Recognised in income - - 0.5
Recognised in equity - - -
At 31 December 2009 14.5 (8.4) (2.9)
Recognised in income (1.7) 8.4 (9.6)
Recognised in equity - - -
At 31 December 2010 12.8 - (12.5)
Unrecognised deferred tax
asset:
At 1 January 2010 - (12.6) -
Income statement items - (30.7) (2.2)
At 31 December 2010 - (43.3) (2.2)
Other
temporary
differences Total
GBPm GBPm
Provided deferred tax provision:
At 1 January 2009 (2.7) -
Recognised in income (0.4) 0.1
Recognised in equity (0.1) (0.1)
At 31 December 2009 (3.2) -
Recognised in income 2.5 (0.4)
Recognised in equity 0.4 0.4
At 31 December 2010 (0.3) -
Unrecognised deferred tax asset:
At 1 January 2010 (5.4) (18.0)
Income statement items (5.7) (38.6)
At 31 December 2010 (11.1) (56.6)
In accordance with the requirements of IAS 12 "Income Taxes", the deferred tax
asset has not been recognised in the Group financial statements due to
uncertainty on the level of profits that will be available in future periods.
21 Other provisions
Deferred
consideration Other Total
GBPm GBPm GBPm
At 1 January 2009 - - -
Charged to the income statement
- other provisions - 0.2 0.2
Deferred consideration on purchase of
non-controlling interests 3.8 - 3.8
At 31 December 2009 3.8 0.2 4.0
Credited to the income statement
- remeasurement of deferred consideration (0.7) - (0.7)
At 31 December 2010 3.1 0.2 3.3
Deferred consideration is the amount payable on the acquisition of the non-
controlling interests` share in Earls Court & Olympia. The provision has been
discounted, at the Group`s average cost of debt. The amount of deferred
consideration payable is based on a number of factors including a potential re-
development of the Earls Court & Olympia site, with the final details of such a
re- development dependent on discussions with the owners of the adjacent land
and the outcome of the planning permission process. The maximum potential
payment is GBP20.0 million.
22 Share capital and share premium
The Companies Act 2006 removed the concept of authorised share capital from 1
October 2009.
Share Share
capital premium
GBPm GBPm
Issued and fully paid
At 31 December 2009
- 621,828,502 ordinary shares of 80p each 497.4 89.1
- 50,000 redeemable ordinary shares of GBP1 each 0.1 -
Capital reduction of 55p per ordinary share (342.0) -
Redemption of 50,000 redeemable ordinary shares of GBP1
each (0.1) -
At 31 December 2010 - 621,828,502 ordinary shares of 25p
each 155.4 89.1
23 Capital commitments
At 31 December 2010, the Group was contractually committed to GBP45 million
(2009 - GBP18.3 million) of future expenditure for the purchase, construction,
development and enhancement of investment property. Of the GBP45 million
committed, GBP40 million is committed 2011 expenditure.
The Group`s share of joint venture commitments included within this amount was
GBP1.2 million (2009 - GBPnil).
24 Contingent liabilities
As at 31 December 2010, the Group has no contingent liabilities (2009 - GBP39.0
million).
25 Cash generated from operations
2010 2009
Notes GBPm GBPm
Profit/(loss) before tax 132.5 (150.0)
Adjustments for:
Other income (non-cash) (0.7) -
(Gain)/deficit on revaluation of investment and
development property 4 (133.3) 105.6
(Gain)/deficit on sale of investment property 4 (1.3) 23.2
Profit on sale of available for sale investments - (3.6)
Write down of trading property 0.1 0.1
Impairment of other receivables 1.6 12.0
Depreciation 0.1 0.2
Profit on sale of trading properties - (0.2)
Amortisation of lease incentives and other
direct costs 2.5 0.8
Finance costs 8 40.3 50.1
Finance income (1.4) (2.6)
Other finance costs 8 7.1 47.2
Change in fair value of derivative financial
instruments 0.3 (16.9)
Changes in working capital:
Change in trading properties (0.1) 4.0
Change in trade and other receivables (3.9) 3.1
Change in trade and other payables (5.2) 8.4
Cash generated from operations 38.6 81.4
26 Related party transactions
Key management compensation
2010 2009
GBPm GBPm
Salaries and short-term employee benefits 4.2 1.6
Pensions and other post-employment benefits 0.3 0.2
Share-based payments 0.5 -
5.0 1.8
Key management comprises the Directors of Capital & Counties Properties PLC and
those group employees who have been designated as Persons Discharging Managerial
Responsibilities ("PDMR").
Full-year remuneration is included in the table for Key management employed by
C&C Management Services Limited, a subsidiary of the Company which is the
employing company for head office employees, prior to demerger. For Key
Management who joined Capco from Liberty International on demerger, only post
demerger remuneration is included. Gains on exercises of Capital Shopping
Centres Group PLC share options (which were re-invested in Capco shares) are not
included.
27 Events after the reporting period
On 21 February 2011 the Group agreed a 12 month extension to the facility
secured over Earls Court & Olympia. On the same date the Group made a prepayment
of GBP20 million against the facility and settled swap termination charges of
GBP0.9 million.
On 28 February 2011 the Group sold its Investment Property at 1-3 Long Acre,
Covent Garden for GBP18 million. No gain or loss on disposal was recorded. On
the same day, the Group acquired the freehold interest in 1a Henrietta Street /
20-25 Southampton Street, Covent Garden for GBP18 million.
APPENDIX 1
INVESTMENT AND DEVELOPMENT PROPERTIES (unaudited)
1. Property data as at 31 December 2010
Market Initial Nominal
value Yield1,3 equivalent
GBPm Ownership (EPRA) Yield 1,4
Covent Garden 639.8 100% 3.67% 5.11%
Earls Court & Olympia 2 480.8 100%
Great Capital Partnership 259.8 50% 5.05% 5.06%
Total investment and
development properties 1,380.4
Passing
Rent 1 ERV 1
GBPm GBPm Occupancy 1
Covent Garden 37.5 97.1%
Earls Court & Olympia 2 5.9
Great Capital Partnership 14.8 97.3%
Total investment and
development properties 46.1 58.2
Weighted
average Gross
unexpired Area5
Lease 1 million
years sq ft
Covent Garden 8.8 0.8
Earls Court & Olympia 2 1.7
Great Capital Partnership 7.0 0.8
Total investment and
development properties 3.3
1 As defined in glossary.
2 Includes the Group`s 50 per cent economic interest in the Empress State
building (GBP102.5 million). Earls Court & Olympia do not report a passing rent,
ERV occupancy, or lease maturit y due to the nature of its exhibition business.
3 Initial yield (EPRA) at 31 December 2009 for Covent Garden was 4.60% and for
GCP 5.41%. 4 Nominal equivalent yield at 31 December 2009 for Covent Garden was
5.53% and for GCP 5.92%. 5 Area shown is gross area of the portfolio, this is
not adjusted for proportional ownership.
2. Analysis of property by use
31 December 2010 Market Value
Retail Office Exhibition
GBPm GBPm GBPm
Covent Garden 561.9 61.6 -
Earls Court & Olympia - 102.5 378.3
Great Capital
Partnership 90.8 153.1 -
652.7 317.2 378.3
Residential Total
GBPm GBPm
Covent Garden 16.3 639.8
Earls Court & Olympia - 480.8
Great Capital
Partnership 15.9 259.8
32.2 1,380.4
31 December 2010 ERV
Retail Office Exhibition
GBPm GBPm GBPm
Covent Garden 31.3 5.4 -
Earls Court & Olympia - 5.9 -
Great Capital
Partnership 5.0 9.4 -
36.3 20.7 -
Residential Total
GBPm GBPm
Covent Garden 0.8 37.5
Earls Court & Olympia - 5.9
Great Capital
Partnership 0.4 14.8
1.2 58.2
3. Analysis of capital return in the period
Like-for-like properties
Market value
31 December 31 December
2010 2009
GBPm GBPm
Covent Garden 635.6 548.4
Earls Court & Olympia 475.4 434.8
Great Capital Partnership 259.8 226.9
Other - -
Total like-for-like properties 1,370.8 1,210.1
Acquisitions 9.6 -
Disposals - 29.4
Total investment properties 1,380.4 1,239.5
All properties
Covent Garden 639.8 548.4
Earls Court & Olympia 480.8 434.8
Great Capital Partnership 259.8 247.3
Other - 9.0
Total investment properties 1,380.4 1,239.5
Revaluation surplus 1
31 December
2010
GBPm Increase
Covent Garden 77.7 14.1%
Earls Court & Olympia 24.2 5.3% 2
Great Capital Partnership 32.1 13.7%
Other - -
Total like-for-like properties 134.0 10.8%
Acquisitions (0.7) -
Disposals - -
Total investment properties 133.3 10.7%
All properties
Covent Garden 77.8 14.0%
Earls Court & Olympia 23.4 5.1%
Great Capital Partnership 32.1 13.8%
Other - -
Total investment properties 133.3 10.7%
1 Revaluation surplus includes amortisation of lease incentives and fixed
head leases.
2 Revaluation increase comprises Earls Court & Olympia (up 4.5%) and Empress
State (up 8.6%).
4. Analysis of income in the period
Like-for-like properties
31 December 31 December
2010 2009 Change
GBPm GBPm %
Covent Garden 25.7 26.6 (3.4)%
Earls Court & Olympia 29.1 32.9 (11.6)%
Great Capital Partnership 12.8 12.5 2.4%
Like-for-like properties 1 67.6 72.0 (6.1)%
Disposals 1.2 6.1
Like-for-like capital 0.2 -
Total investment properties 69.0 78.1 (11.7)%
All properties
Covent Garden 25.7 26.6 (3.4)%
Earls Court & Olympia 29.1 36.8 (20.9)%
Great Capital Partnership 13.6 13.8 (1.4)%
Other 0.6 0.9 (33.3)%
Total investment properties 69.0 78.1 (11.7)%
1 Includes loss of deemed control of former subsidiary and conversion to
proportional consolidation of the Empress State building of GBP3.9 million in
2009
APPENDIX 2
FINANCIAL COVENANTS
Financial covenants on non-recourse debt excluding joint ventures
Loan
outstanding at
31 January
2011 1 LTV
Maturity GBPm covenant
Earls Court & Olympia 7 2012 129.3 N/A
Covent Garden 5,8 2013 222.5 75%
Covent Garden 5,9 2017 112.0 70%
Total 463.8
Loan to
31 December Interest Interest
2010 cover cover
Market Value 2 covenant reported 3
Earls Court & Olympia 7 N/A 125% 176%
Covent Garden 5,8 53% 120% 168%
Covent Garden 5,9 52% 120% 151%
Total
Financial covenants on joint venture non-recourse debt
Loan
outstanding at
31 January
2011 1 LTV
Maturity GBPm covenant
Empress State Partnership 10 2013 76.2 4 75% 6
Great Capital Partnership 11 2013 112.5 4 70%
Total 188.7
Loan to
31 December Interest Interest
2010 cover cover
Market Value 2 covenant reported 3
Empress State Partnership 10 74% 6 115% 137%
Great Capital Partnership 11 46% 120% 191%
Total
Notes:
1. The loan values are the actual principal balances outstanding at 31 January
2011, which take into account any principal repa yments made in January 2011.
The accounting/balance sheet value of the loans includes any unamortised fees.
2. The loan to 31 December 2010 Market Value provides an indication of the
impact the 31 December 2010 property valuations undertaken for inclusion in the
financial statements could have on the LTV covenants. The actual timing and
manner of testing LTV covenants varies and is loan specific.
3. Based on the latest certified figures, calculated in accordance with loan
agreements, which have been submitted between 31 December 2010 and 31 January
2011.
4. The calculations are loan specific and include a variet y of historic,
forecast and in certain instances a combined historic and forecast basis. 50 per
cent of the debt is shown which is consistent with accounting treatment and the
Group`s economic interest.
5. There are two separate loans on the Covent Garden properties.
6. LTV applicable from 18 August 2010.
7. Loan facility provided by Anglo Irish Bank Corporation PLC.
8. Loan facility provided by a consortium of six banks with Lloyds TSB Bank PLC
acting as agent.
9. Loan facility provided by NyKredit RealKredit A/s.
10. Loan facility provided by a consortium of three banks with Eurohypo AG
acting as agent.
11. Loan facility provided by a consortium of four banks with Eurohypo AG acting
as agent.
APPENDIX 3
CONSOLIDATED UNDERLYING PROFIT STATEMENT (unaudited)
For the year ended 31 December 2010
2010 2009
GBPm GBPm
Net rental income 69.0 78.1
Other income 0.1 1.5
69.1 79.6
Administration expenses (18.6) (14.5)
Operating profit 50.5 65.1
Finance costs (40.3) (50.1)
Finance income 1.4 2.6
Net finance costs (38.9) (47.5)
Write down of trading properties (0.1) (0.1)
Profit before tax 11.5 17.5
Tax on adjusted profit (2.3) (1.0)
Non-controlling interest - (1.3)
Underlying earnings (used for calculation of underlying
earnings per share) 9.2 15.2
Underlying earnings per share (pence) 1.5 2.4
APPENDIX 4
THE DEMERGER
Introduction
The Capital & Counties Properties PLC group ("the Group") demerged from its
former parent company, Liberty International PLC (subsequently renamed Capital
Shopping Centres Group PLC), with effect from 7 May 2010. Capital & Counties
Properties PLC has a premium listing on the official list of the UKLA, and a
secondary inward listing on the JSE Limited, with South African institutional
shareholders given two years until May 2012 to realign their portfolios. Shares
in Capital & Counties Properties PLC were admitted to dealings on the London and
Johannesburg Stock Exchanges in May 2010.
2009 historic financial information
The demerger documents and pro forma information were prepared (as is required
in such situations) to illustrate the Group`s financial performance and its
position as if the demerged group and capital structure had existed at 31
December 2009. On such pro forma basis, taking into account a cash transfer from
Liberty International of GBP244 million, the Group`s net assets as at 31
December 2009 were GBP731 million. This represented an adjusted pro forma net
asset value per share of 127 pence.
Therefore, for the purposes of preparing pro forma financial statements, net
finance costs were adjusted to exclude those charges arising on intra group debt
due to Liberty International and included a pro forma allocation of
administration costs. These costs were likely to be incurred by the Group once
operating on a stand alone basis. Likewise, inter group balances due to Liberty
International were disclosed as a component of invested capital rather than
third party debt.
These adjustments were made for comparability in the demerger documents. However
they lead to certain differences when applying the principles of merger
accounting as outlined in Note 1 Basis of preparation, and after taking into
account the change in the Group`s capital structure on demerger as discussed
below.
A reconciliation at 31 December 2009 between the balance sheet and income
statement reported within the Group`s demerger documents with that reported
within these consolidated financial statements prepared under International
Financial Reporting Standards follows in Appendix 4.
Capital structure
On demerger the Group`s parent company Capital & Counties Properties PLC issued
621.8 million 80 pence ordinary shares to the former Liberty International
shareholders, on a one for one basis, who were registered holders of ordinary
shares at close on 7 May 2010.
As consideration, stock transfer certificates pertaining to the Group`s now
subsidiary undertakings were registered in the name of Capital & Counties
Properties PLC. Shares issued in consideration for investments in subsidiary
undertakings represent a share for share exchange under S.612 of the Companies
Act 2006. Qualifying for relief under S.612 sheltered the group from recognising
share premium on the difference between the nominal value of the shares issued
and the fair value of the assets received with this premium instead being taken
to a Merger Reserve. In addition, the Group assumed all intra group debt owed by
its now subsidiary undertakings to Liberty International. Shares attributed to
these assets did not qualify for relief therefore the difference between the
nominal value of shares issued and the fair value of the assets received was
credited to the Company`s Share Premium Reserve.
Upon demerger a number of reserves were realised and pro forma adjustments,
which had been made for comparability as discussed above, were then reversed.
Finally, on 18 May 2010 a capital reduction became effective. The reduction in
capital was effected by reducing the nominal value of each ordinary share on
issue from 80 pence per share to 25 pence per share, creating distributable
reserves for the Company and reducing its capital account by GBP342 million.
2010 demerger share values
Base cost of post-demerger shares for UK capital gains tax purposes UK tax
resident shareholders should read Part (A) of Part VI of the Liberty
International PLC Circular dated 12 March 2010 (pages 55 to 56 inclusive) in
full. Shareholders who are in any doubt about their tax position or how to use
the share values in this circular should consult their own professional tax
advisers.
Following the demerger, UK shareholders will need to apportion the base cost for
UK capital gains tax purposes of their pre- demerger Liberty International PLC
shares between their post-demerger. Capital & Counties Properties PLC shares and
their post- demerger Capital Shopping Centres Group PLC shares. The
apportionment is made by reference to the value of Capital & Counties Properties
PLC and Capital Shopping Centres Group PLC shares on 10 May 2010 (in accordance
with the provisions of Section 272 of the Taxation and Chargeable Gains Act
1992), and so the base cost will be split: Capital & Counties Properties PLC
25.7198% and Capital Shopping Centres Group PLC 74.2802%. The share prices on
the London Stock Exchange on 10 May 2010 being the relevant date were: Capital &
Counties Properties PLC 119.25 pence; and Capital Shopping Centres Group PLC
344.40 pence.
South African capital gains tax on demerger
South African tax resident shareholders should read Part (B) of Part VI of the
Liberty International PLC Circular dated 12 March 2010 (pages 57 to 58
inclusive) in full. Shareholders who are in any doubt about their tax position
or how to use the share values noted here should consult their own professional
tax advisors.
For shareholders who hold their shares on capital account, on 10 May 2010 there
was a part disposal for South African capital gains tax purposes of the South
African shareholders` pre-demerger Liberty International PLC shares.
A South African shareholder`s capital gain or loss on this part disposal is
calculated as proceeds from the issue of shares by Capital & Counties Properties
PLC, less a proportion of the capital gains tax base cost of the Liberty
International PLC ordinary shares held by them. Proceeds for the part disposal
are calculated as the opening share price of Capital & Counties Properties PLC
on 10 May 2010 multiplied by the number of shares issued (in accordance with the
provisions of paragraph 76A of the Eighth Schedule to the Income Tax Act, Act 58
of 1962, as amended). The amount of the capital gains tax base cost of the
Liberty International PLC shares which is apportioned to the part disposal is
calculated by taking account of the opening share price of Capital & Counties
Properties PLC on 10 May 2010 as a proportion of the value of the closing share
price of Liberty International PLC shares on 7 May 2010.
The relevant prices on the Johannesburg Stock Exchange were:
Liberty International PLC Rand 51.50 on 7 May 2010; and Capital & Counties
Properties PLC Rand 14.35 on 10 May 2010.
The information contained above is correct to the best knowledge and belief of
Capital & Counties Properties PLC but does not constitute tax advice. Capital &
Counties Properties PLC does not accept any liability which may arise from use
of the information contained above. Each shareholder is solely responsible for
the information he or she provides to tax authorities and other official bodies.
If uncertain, shareholders (including shareholders outside the United Kingdom
and South Africa) should consult their own appropriate professional adviser.
APPENDIX 5
RECONCILIATION OF PRO FORMA TO STATUTORY FINANCIAL INFORMATION
Presented below is a reconciliation at 31 December 2009 between the balance
sheet and income statement reported within the Group`s demerger documents with
that reported within these consolidated financial statements prepared under
International Financial Reporting Standards.
Balance Sheet As at 31 December 2009
Prospectus Cash
Pro forma allocation 1
Assets
Investment and development property 1,240.5 -
Cash and cash equivalents 263.3 (244.0)
Trade and other receivables 36.6 -
Investments 46.0 -
Other assets 1.3 -
Total assets 1,587.7 (244.0)
Liabilities
Borrowings (726.4) -
Trade and other payables (66.8) -
Derivative financial instruments (56.2) -
Other liabilities (7.4) -
Total liabilities (856.8) -
Net assets 730.9 (244.0)
EPRA adjusted, diluted NAV per share 127 (39)
(pence per share)
Demerger
Costs(2) Prospectus
Assets
Investment and development property - 1,240.5
Cash and cash equivalents - 19.3
Trade and other receivables - 36.6
Investments - 46.0
Other assets - 1.3
Total assets - 1,343.7
Liabilities
Borrowings - (726.4)
Trade and other payables 2.8 (64.0)
Derivative financial instruments - (56.2)
Other liabilities - (7.4)
Total liabilities 2.8 (854.0)
Net assets 2.8 489.7
EPRA adjusted, diluted NAV per share - 88
(pence per share)
As at 31 December 2009
Remove Reclassify
non- amounts
demerged due to CSC
Prospectus entities 3 Group 4
Assets
Investment and development property 1,240.5 - -
Cash and cash equivalents 19.3 - -
Trade and other
receivables 36.6 - -
Investments 46.0 - -
Other assets 1.3 - -
Total assets 1,343.7 - -
Liabilities
Borrowings (726.4) - -
Trade and other payables (64.0) (185.5) (953.5)
Derivative financial instruments (56.2) - -
Other liabilities (7.4) - -
Total liabilities (854.0) (185.5) (953.5)
Net assets 489.7 (185.5) (953.5)
EPRA adjusted,
diluted NAV per
share (pence per
share) 88 (30) (152)
Remove
proforma Demerger Financial
recharges 5 capital 6 comparatives
Assets
Investment and
development - - 1,240.5
property
Cash and cash
equivalents - - 19.3
Trade and other
receivables - - 36.6
Investments - - 46.0
Other assets - - 1.3
Total assets - - 1,343.7
Liabilities
Borrowings - - (726.4)
Trade and other
payables 14.0 728.0 (461.0)
Derivative financial
instruments - - (56.2)
Other liabilities - - (7.4)
Total liabilities 14.0 728.0 (1,251.0)
Net assets 14.0 728.0 92.7
EPRA adjusted,
diluted NAV per
share (pence per share) 2 117 25
Income Statement
Year ended 31 December 2009
Prospectus Cash
Pro forma allocation 1
Net rental income 79.2 -
Deficit on revaluation and sale of investment
and development property (140.7) -
Impairment of investment in associate company (3.9) -
Administration expenses (21.3) -
Other income, expense and charges (7.0) -
Operating (loss)/profit (93.7) -
Net finance costs (36.1) -
Taxation (1.4) -
Attributable to non-controlling interest 19.6 -
Loss for the year (111.6) -
Demerger
costs 2 Prospectus
Net rental income - 79.2
Deficit on revaluation and sale of investment
and development property - (140.7)
Impairment of investment in associate company - (3.9)
Administration expenses 2.8 (18.5)
Other income, expense and charges - (7.0)
Operating (loss)/profit 2.8 (90.9)
Net finance costs - (36.1)
Taxation - (1.4)
Attributable to non-controlling interest - 19.6
Loss for the year 2.8 (108.8)
Year ended 31 December 2009
Remove Reclassify
non- amounts
demerged due to CSC
Prospectus entities 3 Group 4
Net rental income 79.2 (1.1) -
Deficit on revaluation
and sale of investment and
development property (140.7) 11.9 -
Impairment of investment in
associate company (3.9) 3.9 -
Administration expenses (18.5) - -
Other income, expense and charges (7.0) - -
Operating
(loss)/profit (90.9) 14.7 -
Net finance costs (36.1) - (41.7)
Taxation (1.4) 0.3 -
Attributable to non-
controlling interest 19.6 - -
Loss for the year (108.8) 15.0 (41.7)
Remove
proforma Demerger Financial
recharges 5 capital 6 comparatives
78.1
Net rental income - -
Deficit on revaluation
and sale of
investment and
development property - - (128.8)
Impairment of
investment in
associate company - - -
Administration
expenses 4.0 - (14.5)
Other income,
expense and charges - - (7.0)
Operating
(loss)/profit 4.0 - (72.2)
Net finance costs - - (77.8)
Taxation - - (1.1)
Attributable to non-
controlling interest - - 19.6
Loss for the year 4.0 - (131.5)
1 Cash which was transferred from Capital Shopping Centres Group to the Group
prior to completion of the demerger.
2 Represents demerger and related costs which were allocated to the Group by
Capital Shopping Centres Group.
3 Information in the prospectus was prepared using conventions commonly adopted
for preparation of financial information for inclusion in investment circulars.
This resulted in certain departures from IFRS; the most significant being IAS
27. The prospectus included assets under `control` of Capco management whereas
the comparatives only include assets demerged from Capital Shopping Centres
Group. This was outlined on page 80 of the prospectus.
4 Debt due to Capital Shopping Centres Group was classified as Equity in the
prospectus as these assets were to be demerged and form part of Capco equity. On
a comparative basis however these legally took the form of debt and are
disclosed as such for the comparative period. This was highlighted on page 80 of
the prospectus.
5 Included in the prospectus was a pro forma allocation of overhead costs which
had not historically been recharged by Capital Shopping Centres Group. For the
comparatives this pro forma allocation falls away. This was highlighted on page
81 of the prospectus.
6 The objective of merger accounting is to report the consolidated financial
position of the Group as if it had always been combined. Consequently, the share
capital issued for the purposes of the transaction is shown as if it has always
been in issue.
DIVIDENDS
The Directors of Capital & Counties Properties PLC have proposed a final
dividend per ordinary share (ISIN GB00B62G9D36) of 1 pence payable on 19 May
2011. Dates
The following are the salient dates for the payment of the proposed final
dividend:
Thursday 31 March 2011 Sterling/Rand exchange rate struck
Friday 1 April 2011 Sterling/Rand exchange rate and dividend amount
in Rand announced
Monday 11 April 2011 Ordinary shares listed ex-dividend on the JSE,
Johannesburg
Wednesday 13 April 2011 Ordinary shares listed ex-dividend on the London
Stock Exchange
Friday 15 April 2011 Record date for final dividend in London and
Johannesburg
Thursday 19 May 2011 Dividend payment date for shareholders
South African shareholders should note that, in accordance with the requirements
of Strate, the last day to trade cum-dividend will be 8 April 2011 and that no
dematerialisation or rematerialisation of shares will be possible from Monday 11
April 2011 to Friday 15 April 2011 inclusive. No transfers between the UK and
South African registers may take place from Thursday 31 March 2011 to Sunday 17
April 2011 inclusive.
The above dates are proposed and subject to change.
GLOSSARY
Capco
Capco represents Capital & Counties Properties PLC (also referred to as "the
Company") and all its subsidiary companies, together referred to as "the Group."
Capital Shopping Centres Group
Capital Shopping Centres Group represents Capital Shopping Centres Group PLC
(formerly Liberty International PLC) and all its subsidiary companies.
Diluted figures
Reported amounts adjusted to include the effects of potential shares issuable
under employee incentive arrangements.
ECOA
The Earls Court & West Kensington Opportunity Area.
EPRA
European Public Real Estate Association, the publisher of Best Practice
Recommendations intended to make financial statements of public real estate
companies in Europe clearer, more transparent and comparable.
EPRA adjusted earnings per share
Profit for the year excluding gains or losses on the revaluation and sale of
investment and development property, write down on trading property, changes in
fair value of financial instruments and associated close-out costs and the
related taxation on these items divided by the weighted average number of shares
in issue during the period.
EPRA adjusted, diluted NAV
The net assets as at the end of the year including the excess of the fair value
of trading property over its cost and excluding the fair value of financial
instruments, deferred taxation on revaluations and diluting for the effect of
those shares potentially issuable under employee share schemes divided by the
diluted number of shares at year end.
EPRA adjusted, diluted NNNAV
EPRA diluted NAV adjusted to reflect the fair value of derivatives and to
include deferred taxation on revaluations.
ERV (estimated rental value)
The external valuers` estimate of the Group`s share of the current annual market
rent of all lettable space net of any non-recoverable charges, before bad debt
provision and adjustments required by International Financial Reporting
Standards regarding tenant lease incentives.
Gross Income
The Group`s share of passing rent plus sundry non-leased income.
Interest cover ratio (ICR)
Net rental income less administration costs divided by the net finance cost
excluding the change in fair value of derivatives and any exceptional finance
costs.
IPD
Investment Property Databank Ltd, producer of an independent benchmark of
property returns.
Interest rate swap
A derivative financial instrument enabling parties to exchange interest rate
obligations for a predetermined period. These are used by the Group to convert
floating rate debt to fixed rates.
Initial yield (EPRA)
Annualised net rent (after deduction of revenue costs such as head rent, running
void, service charge after shortfalls and empty rates) on investment properties
expressed as a percentage of the gross market value before deduction of
theoretical acquisition costs, consistent with EPRA`s net initial yield.
Liberty International
Liberty International represents Liberty International PLC (subsequently renamed
Capital Shopping Centres Group PLC) and all its subsidiary companies.
Like-for-like properties
Investment properties which have been owned throughout both periods without
significant capital expenditure in either period, so income can be compared on a
like-for-like basis. For the purposes of comparison of capital values, this will
also include assets owned at the previous balance sheet date but not necessarily
throughout the prior period.
Loan-to-value (LTV)
LTV is the ratio of attributable debt to the market value of an investment
property.
Net rental income
The Group`s share of gross rental income less ground rents payable, service
charge expenses and other non-recoverable charges, having taken due account of
bad debt provisions and adjustments to comply with International Financial
Reporting Standards regarding tenant lease incentives.
Nominal equivalent yield
Effective annual yield to a purchaser from the assets individually at market
value after taking account of notional acquisition costs, assuming rent is
receivable annually in arrears, and that the property becomes fully occupied and
that all rents revert to the current market level (ERV) at the next review date
or lease expiry.
Occupancy rate (EPRA)
The ERV of let and under offer units expressed as a percentage of the ERV of let
and under offer units plus ERV of un-let units, excluding units under
development.
Pro forma
The pro forma basis as outlined on page 140 of the Group`s prospectus dated 12
March 2010.
Passing rent
The Group`s share of contracted annual rents receivable at the balance sheet
date. This takes no account of accounting adjustments made in respect of rent
free periods or tenant incentives, the reclassification of certain lease
payments as finance charges or any irrecoverable costs and expenses, and does
not include excess turnover rent, additional rent in respect of unsettled rent
reviews or sundry income. Contracted annual rents in respect of tenants in
administration are excluded.
Section 34A of the Housing Act 1985
An amendment to the 1985 Housing Act to enable tenants to take control of the
management of their properties. The amendment establishes a procedure enabling
an organised group of tenants to require a local authority to transfer their
homes to a housing association or similar body registered with the Tenant
Services Authority (the social housing regulator). Tenants may form such a body
and seek the transfer of the property to that body. The legislation only applies
to social rented tenants of local authorities. It does not apply to tenants of
housing associations even where the ultimate owner may be a local authority.
Section 34A requires implementation by regulations yet to come into effect.
These regulations will be enacted by the Department of Communities and Local
Government.
No regulations have yet been made, although it is anticipated that draft
regulations will be issued in spring 2011 in the form of a consultation
document.
Underlying profit
Profit for the year excluding impairment charges, net valuation gains/losses
(including profits/losses on disposals), net refinancing charges and swap
termination costs.
Tenant (or lease) incentives
Any incentives offered to occupiers to enter into a lease. Typically
incentives are in the form of an initial rent free period and/or a cash
contribution to fit-out the premises. Under International Financial Reporting
Standards the value of incentives granted to tenants is amortised through the
income statement on a straight-line basis over the lease term.
Weighted average unexpired lease
The unexpired lease term to lease expiry weighted by ERV for each lease.
Date: 02/03/2011 09:00:01 Produced by the JSE SENS Department.
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