Final Results - Year Ended 25 Dec 1999, Part 2

Capital & Regional Properties PLC 22 February 2000 PART TWO NOTES TO THE FINANCIAL STATEMENTS For the year ended 25 December 1999 Unaudited 1. Accounting policies The financial statements have been prepared in accordance with applicable UK accounting standards and, except for the non-depreciation of investment properties and the treatment of grants referred to below, with the Companies Act 1985. The financial statements have been prepared under the historical cost convention, as modified by the revaluation of properties and investments, using the following principal accounting policies, which have been applied consistently: Basis of consolidation The consolidated financial statements incorporate the financial statements of Capital and Regional Properties plc and its consolidated entities and associated companies and joint ventures for the year ended 25 December 1999. Where necessary, the financial statements of subsidiaries are adjusted to conform with the Group's accounting policies. Subsidiaries have been consolidated under the acquisition method of accounting and the results of companies acquired during the year are included from the date of acquisition. Goodwill on consolidation represents the difference between the purchase consideration and the fair value of net assets acquired and is capitalised in the year in which it arises and is amortised over its useful economic life. Joint ventures, associates and joint arrangements In accordance with Financial Reporting Standard No.9, joint ventures are included in the accounts under the gross equity method of accounting, and associates under the net equity method. Where the Group has entered into a joint arrangement with a third party where no separate entity exists, the Group includes its proportion of assets, liabilities, income and expenditure within the Group figures. Where necessary the financial statements of associates and joint ventures are adjusted to conform with the Group's accounting policies. Foreign currency Balances in foreign undertakings and the results for the year are translated into sterling at the rate of exchange ruling at the balance sheet date of US $1.62 to the £ (1998: US $1.67 to the £). Exchange differences, which arise from the translation of the share capital and reserves of foreign subsidiaries, are taken to reserves. Foreign currency transactions of UK companies are translated at the rates ruling when they occurred. Their foreign currency monetary assets and liabilities are translated at the rate ruling at the balance sheet date. Any differences are taken to the profit and loss account. Depreciation Depreciation is provided on all tangible fixed assets, other than investment properties, over their expected useful lives: Land and buildings - over fifty years, on a straight line basis. Fixtures and fittings - over three to five years, on a straight line basis. Motor vehicles - over four years, on a straight line basis. Investment properties Investment properties are included in the financial statements at valuation. The aggregate surplus or temporary deficit below cost arising from such valuations is transferred to a revaluation reserve. Deficits that are expected to be permanent are charged to the profit and loss account. The Group's policy is to value investment properties twice a year. On realisation any gain or loss is calculated by reference to the carrying value at the last financial year end balance sheet date and is included in the profit and loss account. Any balance in the revaluation reserve is transferred to the profit and loss account reserve. This represents a change of accounting policy from the previous year when the Group's policy was to calculate any gain or loss by reference to the carrying value at the last valuation. No amendment to the comparative figures is required as a result of the above change in policy. In accordance with SSAP19 (Revised) 'Accounting for investment properties' no depreciation or amortisation is provided in respect of freehold investment properties and leasehold investment properties with over 20 years unexpired. The Companies Act 1985 requires all properties to be depreciated, but that requirement conflicts with the generally accepted principle set out in SSAP19 (Revised). Depreciation is only one of many factors reflected in the annual valuation of properties and the amount of depreciation or amortisation, which might otherwise have been charged, cannot be separately identified or quantified. Properties under development Interest and directly attributable internal and external costs incurred during the period of development are capitalised. Interest is capitalised gross before deduction of related tax relief. A property ceases to be treated as being under development when substantially all activities that are necessary to get the property ready for use are complete. Refurbishment expenditure Refurbishment expenditure in respect of major works is capitalised. Renovation and refurbishment expenditure of a revenue nature is written off as incurred. Property transactions Acquisitions and disposals are accounted for at the date of legal completion. Properties are transferred between categories at the estimated market value on the transfer date. Current property assets Properties held with the intention of disposal and properties held for development are valued at the lower of cost and net realisable value. Investments The investment in shares held in CenterPoint Properties Trust is included in the financial statements at market value at the balance sheet date translated at the exchange rate ruling at that date. Investments in other quoted securities are also stated at market value. The aggregate surplus or temporary deficit arising from such valuations is transferred to a revaluation reserve. Deficits that are expected to be permanent are charged to the profit and loss account. Loan arrangement costs Costs relating to the raising of general corporate loan facilities and loan stock are amortised over the estimated life of the loan and charged to the profit and loss account as part of the interest expense. The bank loans and loan stock are disclosed net of unamortised loan issue costs. Operating leases Annual rentals under operating leases are charged to the profit and loss account as incurred. Deferred taxation Provision is made for timing differences between the treatment of certain items for taxation and accounting purposes to the extent that it is probable that a liability or asset will crystallise. Pension costs Pension liabilities, all of which relate to defined contribution schemes, are charged to the profit and loss account in the year in which they accrue. Grants Grants received relating to the construction or redevelopment of investment properties have been deducted from the cost of the property. The Companies Act 1985 requires assets to be shown at their purchase price or construction cost and hence grants to be presented as deferred income. The departure from the requirements of the Act is, in the opinion of the directors, not material to the financial statements. 2. Segmental analysis Turnover, profit on ordinary activities before taxation and net assets are attributable to property investment, development and management. Turnover, profit on ordinary activities before taxation and operations arise in the UK except £1,184,000 (1998: £1,070,000) of income from listed investments which originates from the US. Net assets adjusted for minority interests originating from the US are £21,120,000 (1998: £20,445,000). 3. Property sales Fixed property Current Total assets property assets 1999 1998 1999 1998 1999 1998 £000 £000 £000 £000 £000 £000 Net sale proceeds 16,225 40,371 31,874 7,126 48,099 47,497 Cost of sales (12,805) (39,141) (30,228) (6,609) (43,033) (45,750) Historical cost profit 3,420 1,230 1,646 517 5,066 1,747 Revaluation surplus (2,136) (1,313) - - (2,136) (1,313) 1,284 (83) 1,646 517 2,930 434 Share of joint ventures - 45 - - - 45 Profit/(loss) recognised on sale of properties 1,284 (38) 1,646 517 2,930 479 4. Interest receivable and similar income 1999 1998 £000 £000 Bank interest 237 233 Interest from joint ventures and associates 348 375 Other interest 119 119 704 727 Share of joint ventures' (see note 12) 12 76 Share of associates' (see note 13) 3 4 719 807 5. Interest payable and similar charges 1999 1998 £000 £000 Bank loans and overdrafts wholly repayable 32,998 23,888 within five years Other loans 1,757 1,752 34,755 25,640 Capitalised during year (2,033) (856) 32,722 24,784 Share of joint ventures' (see note 12) 251 237 Share of associates' (see note 13) 32 269 33,005 25,290 The interest relating to bank loans, overdrafts and other loans wholly repayable within five years included £nil (1998: £2,796,000) in respect of loans repayable by instalments. The interest charge includes £463,000 (1998: £285,000) of loan arrangement costs amortised during the year. 6. Taxation 1999 1998 £000 £000 UK corporation tax: Current period 139 351 Prior periods (19) (130) Advance corporation tax 188 1 Share of tax of joint ventures (see note 12) 101 125 409 347 The tax liability for the year has been reduced due to the benefit of capital allowances and the utilisation of losses brought forward. 7. Equity dividends paid and payable 1999 1998 £000 £000 Interim of 2.0p per share paid on 23 August 1999 1,965 1,474 (1998: 1.5p per share) 2,948 2,702 Proposed final of 3.0p per share payable on 12 May 2000 (1998: 2.75p per share) 4,913 4,176 8. Earnings per share Earnings per share have been calculated on the weighted average number of Ordinary shares of 10p each in issue during the year 98,258,784 (1998: 91,712,962) and have been based on profit on ordinary activities after taxation and minority interests of £ 12,003,000 (1998: £11,092,000). Diluted earnings per share have been calculated after allowing for the exercise of share options which have met the required exercise conditions and the full conversion of the Convertible Unsecured Loan Stock, if the effect on earnings per share is dilutive. The weighted average number of Ordinary Shares of 10p each is 98,611,343 (1998: 92,048,812) and the relevant earnings are £12,003,000 (1998: £11,092,000). Earnings per share on revenue activities exclude the profit on the sale of investment properties and investments, and associated tax charge and minority interest thereon, of £1,973,000 (1998 loss: £132,000). 9. Property assets Investment properties Properties Freehold Leasehold under properties Properties construction Total Group £000 £000 £000 £000 Cost or valuation: At beginning of year 451,595 195,337 7,674 654,606 Additions 94,514 124,928 17,567 237,009 Disposals (14,941) - - (14,941) Revaluation 26,706 25,478 4,282 56,466 At end of year 557,874 345,743 29,523 933,140 The year end balance is analysed as follows: Historical cost 429,667 307,316 22,963 759,946 Revaluation surplus 128,207 38,427 6,560 173,194 A list of the valuers, and the basis of the valuations, are summarised in note 26. 10. Other fixed assets Long leasehold Fixtures Motor land and and vehicles Total buildings fittings £000 £000 £000 £000 Group Cost or valuation At beginning of year - 1,349 558 1,907 Additions 13,746 648 79 14,473 Disposals - (776) (67) (843) Revaluation (596) - (596) - At end of year 13,150 1,221 570 14,941 Depreciation At beginning of year - 820 243 1,063 Provided for year - 340 139 479 Disposals - (628) (46) (674) At end of year - 532 336 868 Net book values: At 25 December 1999 13,150 689 234 14,073 At 25 December 1998 - 529 315 844 The long leasehold land and buildings represents the Group's head office, which was independently valued on 25 December 1999. The long leasehold land and buildings was purchased on the 17 December 1999, consequently no provision for depreciation was provided. A list of the valuers, and the basis of the valuations, are summarised in note 26. 11. Other investments Investment in CenterPoint Other listed Total Properties Investments £000 Trust £000 £000 Valuation At beginning of year 20,445 1,555 22,000 Disposals - (1,555) (1,555) Surplus on revaluation (see note 21) 675 675 - At end of year 21,120 21,120 - At 25 December 1999, the Group owned 4.9% of the common stock (4.6% on a fully diluted basis) of CenterPoint Properties Trust, a Maryland real estate investment trust operating in Chicago, Illinois, USA. The stock is listed on the New York Stock Exchange. 12. Investment in joint ventures 1999 1998 £000 £000 At beginning of year 2,267 4,457 Subscription for share capital - 725 Amortisation of goodwill arising on - (5) additions Disposals - 26 Dividends and capital distributions received (300) (3,526) Share of results (see below) 310 628 Share of taxation (see below) (101) (125) Share of property revaluation surplus 46 87 2,222 2,267 12. Investment in joint ventures (continued) Exchange Easter Court Holdings Properties Others Total Ltd Ltd £000 £000 £000 £000 Group share of results: Turnover 6,289 325 - 6,614 Operating profit 582 5 7 594 Interest receivable and 7 - 5 12 similar income Interest payable and (162) (89) - (251) similar charges Equity minority (45) - - (45) interests Profit before tax 382 (84) 12 310 Taxation (99) - (2) (101) Profit after tax 283 (84) 10 209 Group share of: Investment properties 1,325 - 80 1,405 Development properties 2,389 1,764 70 4,223 at cost Other current assets 2,765 10 247 3,022 Gross assets 6,479 1,774 397 8,650 Current liabilities 3,562 106 105 3,773 Loans 1,805 850 - 2,655 Gross liabilities 5,367 956 105 6,428 Share of net assets 1,112 818 292 2,222 Effective Group share 50% 50% 37.5% to 50% Potential recourse to Nil Nil Nil the Group Actual recourse at end Nil Nil Nil of year A list of valuers and the basis of the valuation are summarised in note 26. The joint ventures all operate in the UK. 13. Investment in associates 1999 1998 £000 £000 At beginning of year 3,446 3,304 Share of results (see below) 71 419 Share of profit on disposal of investment properties eliminated on consolidation 31 - Dividends received (714) (660) Capital distributions received (2,829) - Investment in associates - 270 Share of property revaluation surplus - 113 At end of year 5 3,446 13. Investment in associates (continued) Easter Easter Industrial Runcorn Partnership Total Partnership £000 £000 £000 Group share of results: Turnover 63 47 110 Operating profit 55 45 100 Interest receivable and similar 2 1 3 income Interest payable and similar (19) (13) (32) charges Profit before tax 38 33 71 Taxation - - - Profit after tax 38 33 71 Group share of: Other current assets 5 - 5 Gross and net assets 5 - 5 Effective Group share 25% - The associates both operated in the UK. The Easter Runcorn Partnership was dissolved during the year. 14. Current property assets 1999 1998 £000 £000 Properties held for disposal 31,178 18,860 Properties under development 3,482 5,552 34,660 24,412 The net book value of current property assets includes £68,000 (1998: £10,000) in respect of capitalised interest. 15. Debtors 1999 1998 £000 £000 Amounts falling due after more than one year Amounts owed by joint ventures 4,840 3,914 4,840 3,914 Amounts falling due within one year Trade debtors 14,988 12,095 Other debtors 6,042 2,712 Tax recoverable 325 461 Prepayments and accrued income 19,034 3,534 40,389 18,802 16. Creditors: amounts falling due within one year 1999 1998 £000 £000 Bank loans (secured) 3,180 396 Trade creditors 5,929 1,397 Other creditors 1,281 2,858 Taxation and social security 1,443 1,271 Corporation tax 475 511 Accruals and deferred income 42,922 24,511 Proposed dividends 2,948 4,176 58,178 35,120 17. Creditors: amounts falling due after more than one year 1999 1998 £000 £000 Bank loans (secured) (see note 18) 574,620 340,439 Convertible loan stock (unsecured) (see note 24,132 24,041 19) 598,752 364,480 18. Bank loans 1999 1998 £000 £000 Aggregate amount repayable: Between one and two years 65,529 33,838 Between two and five years 487,319 306,601 Greater than five years 21,772 - Loans due after more than one year 574,620 340,439 Loans due in one year or less or on demand 3,271 487 Total loans 577,891 340,926 Bank loans are secured on properties valued at £944,467,000. Bank loans are stated net of unamortised issue expenses totalling £458,000 (1998: £499,000). 19. Convertible subordinated unsecured loan stock 1999 1998 £000 £000 Convertible loan stock 24,642 24,642 Unamortised loan issue costs due after one (510) (601) year 24,132 24,041 Unamortised loan issue costs due within one (91) (91) year 24,041 23,950 The Convertible Subordinated Unsecured Loan Stock ('CULS') may be converted by the holders of the stock into 50.37 Ordinary shares per £100 nominal value CULS in any of the years 1997 to 2015 inclusive, representing a conversion price of 199p per Ordinary share. The Company has the right to redeem at par the CULS in any year from 2006 to 2016. The CULS are unsecured and are subordinated to all other forms of unsecured debt but rank in priority to the holders of the Ordinary shares in the Company. The CULS carry interest at an annual rate of 6.75%, payable in arrears on 30 June and 31 December in each year. In accordance with Financial Reporting Standard No. 4 ' Capital Instruments ', the CULS are shown net of its unamortised loan issue costs. 20. Called up share capital Number of shares Nominal value of issued and fully shares paid issued and fully paid 1999 1998 1999 1998 Number Number £000 £000 Ordinary shares of 10p each 98,255,271 76,399,235 9,826 7,640 At beginning of year Issued in respect of - 21,828,352 - 2,183 rights issue Issued on exercise of share options 10,426 - 1 - Issued in respect of profit sharing scheme - 27,684 - 3 At end of year 98,265,697 98,255,271 9,827 9,826 Authorised 1999 1998 Ordinary shares of 10p 150,000,000 150,000,000 each There have been no changes to the number of shares in issue since the year end. From note 20 to be attached and sent separately CAPITAL AND REGIONAL PROPERTIES PLC - PRELIMINARY RESULTS - 22ND FEBRUARY 2000 20. Called up share capital Number of shares Nominal value of issued and fully shares paid issued and fully paid 1999 1998 1999 1998 Number Number £000 £000 Ordinary shares of 10p each 98,255,271 76,399,235 9,826 7,640 At beginning of year Issued in respect of - 21,828,352 - 2,183 rights issue Issued on exercise of 10,426 - 1 - share options Issued in respect of 3 profit sharing scheme - 27,684 - At end of year 98,265,697 98,255,271 9,827 9,826 Authorised 1999 1998 Ordinary shares of 10p 150,000,000 150,000,000 each There have been no changes to the number of shares in issue since the year end. 21. Reserves Revaluation Other reserves reserves Share Property Investm Capital Profit premiu ent redemptio and m revalua revalua n loss accoun tion tion reserve account t reserve reserve £000 £000 £000 £000 £000 Group At beginning of year 161,863 114,903 16,650 591 26,983 Issue of share capital 13 - - - - Group share of revaluation of - 54,520 - - - investment properties Group share of revaluation deficit of - (596) - - - other fixed assets Realisation of surplus on disposal of - (2,136) - - 2,136 investment properties Share of unrealised revaluation surplus in - 46 - - - joint ventures Revaluation surplus on other investments - - 675 - - Realisation of deficit on disposal of other - - 774 - (774) investments Profit for the year - - - - 7,090 Exchange differences - - - - 1 At end of year 161,876 166,737 18,099 591 35,436 22. Equity minority interests Profit Balance Profit Balance and loss sheet and loss sheet 1999 1999 1998 1998 £000 £000 £000 £000 Share of net assets attributable to minority shareholders: At beginning of year - 2,101 - 933 Share of results 381 381 (3) (3) Share of joint ventures' 45 - 45 - (see note 12) Share of movements in - 1,946 - 1,171 revaluation reserve Dividends paid to minority - (87) - - interests At end of year 426 4,341 42 2,101 Minority interests relate to participation in the net equity of subsidiary companies. 23. Non-equity funding by joint arrangement partners This represents the additional non-equity funding in the 50:50 joint arrangement, named Xscape Milton Keynes Partnership, by funds managed by PRICOA Property Investment Management Limited. 24. Net assets per share Net assets per share have been calculated on Ordinary shares of 10p each 98,265,697 (1998: 98,255,271) in issue at the year end and have been based on net assets attributable to shareholders of £392,566,000 (1998: £330,816,000). Diluted net assets per share assume that all the CULS had converted at the balance sheet date. Diluted net assets per share have been calculated on 110,677,868 (1998:110,667,442) Ordinary shares of 10p each and have been based on adjusted net assets attributable to shareholders of £416,607,000 (1998:£354,766,000) by adding the £24,041,000 (1998:£23,950,000) balance sheet value of CULS (see note 19). 25. Deferred taxation No provision has been made for the tax liability that would arise if assets were sold at their balance sheet valuation, on the basis that no liability is expected to crystallise in the foreseeable future. The potential Group liability is as follows: 1999 1998 £000 £000 Tax on capital gains if investment assets were 45,347 31,985 sold at their current valuation Accelerated capital allowances 6,818 5,182 Management expenses carried forward (871) - 52,165 36,296 If deferred tax were provided for it would have an adverse effect on net assets per share of 53.1p (1998: 36.9p) and on fully diluted net assets per share of 47.1p (1998: 32.8p). 26. Valuations The properties were valued at 25 December 1999, as follows: Valuer Basis of valuation £000 Group properties DTZ Debenham Tie Open market value 784,910 Leung Properties under 26,362 construction* 116,960 Richard Ellis St Open market value 475 Quintin Open market value Directors Cost 4,433 Directors Total fixed 933,140 property assets Other fixed DTZ Debenham Tie Open market value 13,150 assets Leung Total property 946,290 assets Valuer Basis of valuation £000 Properties held by joint ventures The Capital Properties Directors Open market value 160 Partnership Easter Holdings Easter Holdings Open market value 2,650 Limited Limited 2,810 Valuations are at open market value as defined in the Appraisal and Valuation Manual of The Royal Institution of Chartered Surveyors. * The sum reflects the Group's effective interest in properties under construction. 27. Notes to the cash flow statement (a) Net cash inflow from operating activities 1999 1998 £000 £000 Group operating profit 40,950 33,434 Profit on the sale of the trading and (1,646) (517) development properties 39,304 32,917 Depreciation 479 569 Loss on disposal of fixed assets 92 113 Amortisation of goodwill arising on - 5 acquisition of joint venture Increase in trade debtors, other debtors and (6,183) (5,305) prepayments Increase in trade creditors, other creditors, taxation and social security and accruals 8,577 3,004 Net cash inflow from operating activities 42,269 31,303 (b) Reconciliation of net cash flow movement in net debt 1999 1998 £000 £000 Increase/(decrease) in cash in year 1,912 (3,753) Cash inflow from increase in debt financing (236,924) (104,203) Change in net debt resulting from cash flows (235,012) (107,956) Net debt at beginning of year (360,591) (252,635) Net debt at end of year (595,603) (360,591) (c) Analysis of net debt At At 25 25 December Cash December 1998 flows 1999 £000 £000 £000 Cash in hand and at bank 5,476 1,912 7,388 Debt due within one year (760) (2,761) (3,521) Debt due after one year (365,307) (234,163) (599,470) Total (360,591) (235,012) (595,603) 28. Status of financial information The financial information contained in this announcement does not constitute statutory financial statements within the meaning of Section 240 Companies Act 1985. The comparative figures have been extracted from the audited financial statements for the year ended 25 December 1998 which have been filed at Companies House. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under S237(2) or (3) Companies Act 1985. Financial statements for the year ended 25 December 1999 will be filed at Companies House.

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