Final Results

Capital & Regional plc 23 March 2006 23 March 2006 CAPITAL & REGIONAL PLC: 2005 PRELIMINARY RESULTS Capital & Regional plc, the co-investing property asset manager, today announces its unaudited preliminary results for the year ended 30 December 2005. Highlights1 • Return on equity before exceptional items 36.6% (2004: 39.0%); • £5.6bn2 of property assets under management (30 December 2005: £5.1bn) (30 December 2004: £4.0bn); • Adjusted fully diluted net asset value per share up to 975p (30 December 2004: 710p); • Profit before tax and exceptionals £43.5m (2004: £36.2m); • Recurring profit before tax £20.2m (2004: £16.6m); • 29% increase in dividend to18p for the full year; • All funds outperformed their benchmarks. Total returns to fund investors, after performance fees, on a geared basis were: The Mall Fund: 22.8% The Junction Fund: 34.1% X-Leisure Fund: 28.3% Commenting on the results, Martin Barber, Chief Executive said: "2005 has been a truly great year where we have seen significant developments in the business and excellent returns to shareholders. We remain confident that we will deliver continued outperformance in the future". For further information please contact Capital & Regional on 020 7932 8000: Martin Barber, Chief Executive Tel: 020 7932 8101 William Sunnucks, Group Finance Director Tel: 020 7932 8125 James Benjamin/Michael Sandler, Hudson Sandler Tel: 020 7796 4133 1 For definition of terms, refer to "Glossary of terms" on page 34 2 Estimate as at 28 February 2006. Chairman's statement 2005 saw the Company achieve a 36.6% return on equity before exceptional items, the third consecutive year in which returns have exceeded 30%. While this period has undoubtedly seen highly favourable conditions in the UK property investment market, the Company has delivered enhanced returns to shareholders through its property management skills and intelligent use of the capital markets to create advantageous financing structures. Total property assets under management have since the year end reached £5.6 bn, principally held through our three established funds investing in shopping centres, retail parks and urban entertainment complexes. The economies of scale arising from our fund based business model (on the financing as well as the asset management side) benefit both the fund investors and our own shareholders. The performance fees payable to the Company by the three funds in respect of 2005 exceeded £50m for the first time. We have further strengthened the specialised management teams responsible for each of our funds and they now have greater depth than ever before. While our established operations have continued to grow, we have taken two carefully considered new initiatives, in the area of trade parks in the UK and retail parks in Germany. The first signs for these two new businesses are encouraging and, combined with the further growth in scale, quality and value which we anticipate in our existing areas of specialisation, they should enable us to deliver continued strong returns. Dividends The board is recommending a final dividend of 11p (2004: 9p), bringing the total for the year to 18p (2004: 14p), a 29% increase over the previous year. The total dividends for the year are covered 2.5 times by the total after tax profit before exceptional items and 1.6 times by recurring pre-tax profit. Board David Cherry, who has been a non-executive director for nine years, is retiring following this year's AGM. His lifetime of experience in the property market has been of great value to the Company, at every stage of its development, but particularly in recent years as the property management operations conducted through CRPM adapted, with his advice and guidance, to the rapid growth in the property assets under management. We should all be grateful for his contribution during this exceptional period in the Company's development. Employees Our success derives from the skills, energy and commitment of our employees, of whom there are now 147 in our London and Glasgow offices and 522 in our individual centres and Snozone operations. Strong financial markets do not by any means make for an easy life and our employees, old and new, have achieved extraordinary results for the Company, not just in 2005, but over many years. On behalf of the shareholders, the board and I give them our warm thanks and appreciation. Chief Executive's Review Financial results I am pleased to be able to report a strong set of financial results for 2005. Highlights include: • Return on equity before exceptional items 36.6% (2004: 39.0%); • Adjusted fully diluted net asset value per share up to 975p, a 37.3% increase; • 28.6% increase in the full year dividend to 18p (2004: 14p). Background to the financial results Our 36.6% return on equity is high, significantly above our long term average. It arises from a strong underlying business model, significantly boosted by the general growth in retail property values caused by yield shift. Yield shift benefits our shareholders in two ways - through the increase in the value of its investment portfolio, and through increased performance fees. Details of how we have estimated the components of total return are given on page 6. Breakdown of total return 2005 2004 % % Underlying return 18.4 17.5 Yield shift 22.2 21.5 Changes in stamp duty rules -4.0 - Total return before exceptional items 36.6 39.0 The underlying return of 18.4% is above our target range of "mid to high teens" which we aim to deliver to our shareholders over the long term. It excludes the 4.0% extra provision for stamp duty made when the Chancellor removed relief for disadvantaged areas. This had a bigger impact on the Mall and Junction funds than the average in the relevant IPD index. Fund performance Each fund has outperformed its benchmark on both a geared and ungeared basis in each of the last three years: Fund performance over last three years Geared return Ungeared return IPD IRR % % % Mall 2003 33.5 21.7 15.2 Mall 2004 26.0 19.6 17.1 Mall 2005 22.8 16.5 16.3 Junction 2003 28.2 17.7 16.6 Junction 2004 35.6 24.0 23.5 Junction 2005 34.1 23.3 22.1 C&R hurdle X-Leisure 2004 (9 months) 18.0 11.4 8.9 X-Leisure 2005 28.3 15.3 12.0 The Mall fund is measured against the IPD Shopping Centres index, and the Junction fund against the IPD Retail Parks index. The X-Leisure fund is measured against an absolute return of 12%. Our strategic approach The directors believe that success in the property business requires the right assets, the right money and most significantly the right people. The right assets: we buy property in sectors where active management can add value, and where there is long term strategic strength. We like sectors where there is reason to expect long term rental and value growth caused, for example, by tight planning restrictions or clear market trends. The right money: this encapsulates not just the choice of bank, but also finding the right equity investors and channelling their money into property through the right corporate and tax structures. Our current structure enables us to address two different equity markets - institutional property investors wanting specific types of property exposure, and equity market investors interested in property as a business. Capital markets may well change over the next few years, driven by changes in tax legislation, the possible introduction of a UK REIT and the emergence of tax efficient offshore investment vehicles. We would expect to adapt to new market conditions as they arise. The right people: one of C&R's distinguishing features is its willingness to build up strong specialist management teams. We currently have three sector specific divisions, each with a track record in its sector, and each with its own finance and accounting resource, marketing, leasing and in some cases HR. The corporate team at the centre works mainly on business development, IT, reporting and tax. Cross divisional committees on HR, marketing, construction and banking encourage information sharing and cordial relationships. Business development Our two recent initiatives - in Germany and in trade parks - are consistent with the strategic approach outlined above. In Germany we spent nearly two years developing our relationship with the Hahn Group before we invested. We believe they are the right people to manage our German retail warehouse portfolio. Although we own 87.4% of the total equity in the portfolio and have legal control, they are treated as partners and we benefit from their knowledge in the local market. Our trade parks portfolio offers a significant opportunity for our retail parks team to add value. They will use their experience of developing the retail park sector, to build a new niche business primarily serving trade rather than the ultimate consumer. We believe that they have the tenant contacts, planning expertise and ability to assemble a larger portfolio built upon the £68m portfolio acquired from the T3 fund. Changing capital markets The equity markets available for property are changing. • Offshore investment companies have already raised large sums through Guernsey and the Isle of Man to invest in high yielding property. • Onshore there is the prospect of a tax efficient investment vehicle in the form of a REIT which would be easier to run than an offshore structure. C&R, in its present form, is unlikely to convert into a REIT, but we are monitoring developments closely, and will react to opportunities as they arise. In the meantime our current business model is working well. Market conditions During early 2005 there was much talk of a retailing slump. However there were no major problems for our business, except in some small sub sectors, and trading improved later in the year. We benefit from the dynamism of the market, and so far we have been able to treat occupier failures as opportunities to improve the tenant mix. Future prospects We have enjoyed three years of positive yield shift, rental growth and close to full occupancy. There is good reason to suppose that these trends have further to go, but if they do not our businesses should still prosper. Yield shift: there is a huge weight of money seeking exposure to good quality retail property which may well drive further yield shift. Equivalent yields of 5-6% still make sense against an index linked gilt rate of under 1%. Rental growth: there is a dynamic occupier market in our sectors underpinning future occupancy and rental growth. We have seen a small number of failures, but very few long term vacancies. We enjoy working closely with our tenant partners and we think that our active management approach will work well in bad times as well as good. Overall I can report that the company is in good shape and we look forward to continued success in the future. Finance Director's review This section of the annual report is intended to give further detailed information to help investors and others to evaluate the business. Measuring performance We follow two corporate performance measures closely - total return on equity and recurring pre-tax profit. Our total profit figure is less meaningful, as it is heavily influenced by non-recurring items such as property disposal profits. Return on equity: our 36.6% total return for the year is shown in the table below: Total accounting return before exceptionals (TAR) 2005 2004 £m £m Profit before tax and exceptional items 43.5 36.2 Revaluation gains 164.5 122.0 Total return before tax and exceptionals 208.0 158.2 Tax (13.7) (15.1) Total return for the year 194.3 143.1 Adjusted return on equity, before exceptional items 36.6% 39.0% The high return is achieved partly by yield shift, but even if there had been no yield shift we estimate that our return would still have been 18.4% (see page 3). Recurring pre-tax profit: our profit and loss account includes several one off items which make it difficult to evaluate ongoing profitability. This problem will increase under the new international financial reporting standards (IFRS) when revaluation surpluses and debt mark to market will be included. We therefore measure "recurring pre-tax profit", the recurring earnings of the business before performance fees, variable overhead, property disposal profits or losses and other non-recurring items. The measure is useful for: • Monitoring performance; • Assessing our interest cover and gearing position; • Guiding dividend policy. 2005 recurring pre-tax profit was £20.2m and full details are given in note 2. We have seen a substantial increase from 2004 due to increases in rental income and management fee income, and due to the inclusion of the high yielding German portfolio and a bigger share of Great Northern. Analysing yield shift Yield shift improves our total return by (i) increasing our revaluation surplus, and (ii) increasing the performance fees we earn. Our revaluation surplus has increased by £109m due to yield shift estimated as follows: • For shopping centres and retail parks we use the shift in the equivalent yield for the IPD benchmark indices; • For leisure we use yield shift on our own portfolio adjusted to a like for like basis as a proxy for market yield shift; • We apply the yield shift to the portfolios at the beginning of the year. Our profit after tax was increased by £9m due to yield shift, via the performance fee. We estimate this by assuming that there were no yield shift movements over the three year performance period, and putting corresponding adjustments through the fund returns, the variable management costs and the tax charge. Earnings businesses Our two earnings businesses use very little capital and their value is not fully reflected in our balance sheet. Our balance sheet includes £35m for the two businesses which this year generated pre-tax profits of £43m. Capital & Regional plc Earnings businesses Property investments Snozone Property Management Co-investments Partnerships Wholly owned -------- Mall Fund ------------ ----- Junction Fund --------- ----- X-Leisure Fund -------- Property Management: Capital & Regional Property Management (CRPM) employs 147 staff in our London and Glasgow offices and manages property valued at £5.6bn. It has management contracts with the three funds, ranging from 5-15 years in length and also receives small amounts of income from C&R's non-fund interests. CRPM's property management profit can be divided between recurring and non-recurring profit streams. Recurring profits include all fee income except performance fees. Approximately 80% of all overhead except for bonuses and management incentive schemes is allocated to this business. The remaining 20% is allocated to our asset management business (see note 2). CRPM Property Management business Profit and loss account 2005 2004 £m £m Fixed fees 15.3 12.4 Service charge fees 3.9 3.3 Other fees 3.6 3.6 Fixed management expense -12.6 -10.6 Goodwill amortisation -1.1 -1.2 9.1 7.5 Mall performance fee 29.6 22.8 Junction performance fee 17.3 7.3 X-Leisure performance fee 4.1 1.1 Variable overhead - bonuses, CAP, LTIP -18.9 -11.8 32.1 19.4 CRPM profit before tax 41.2 26.9 Snozone Limited operates the ski slopes at the three Xscapes. It requires very little capital investment, pays a full arms length rent to the Xscape partnerships and made a profit of £1.8m in 2005. It is one of the very few profitable indoor ski slope operators, and has opportunities for expansion. It is of particular value to C&R as its operating skills give us credibility in starting new Xscapes. Snozone profits 2005 2004 £m £m Income 9.3 8.9 Expenses (7.5) (7.8) Profit before tax 1.8 1.1 Staff numbers: the principal assets of Snozone and CRPM are people. Staff numbers for the whole C&R operation, including people employed at the centres and paid directly through the service charge budgets, are shown below: Numbers of employees Dec 2005 Dec 2004 Shopping centres 58 48 Retail parks 24 21 Leisure 27 26 Corporate 38 33 Total CRPM employees 147 128 Employed at the Malls 288 278 Employed at the Leisure centres 17 23 Snozone employees 217 196 Total 669 625 Assets business Our property ownership business is fairly valued in the balance sheet. All properties are carried at market value, except Great Northern which is a trading property and the accounting is complex because it was acquired in two halves. Net of "negative goodwill" the carrying value is £83m, the cost to the group, which is some £10m below market value. The balance sheet is best understood on a "see through" basis - this calculates our total exposure to different types of property irrespective of the legal structure: Three Balance Sheet presentations Enterprise See through Statutory £m £m £m Mall 2,334 610 350 Junction 1,441 394 208 X-Leisure 701 75 32 Xscapes 219 121 46 Germany 136 119 136 Wholly owned 263 263 263 Total property 5,093 1,581 1,035 Working capital etc 117 5 20 Debt (2,662) *(892) *(360) Net assets 2,548 694 694 C&R shareholders 694 694 694 Fund investors 1,854 Total equity 2,548 694 694 * Debt net of cash held. This shows that we are exposed to £1,581m of property, financed by £694m equity and £892m debt. Our debt to equity ratio is 129% using this method, whereas our statutory balance sheet only shows 52%. Financing 2005 was a good year for borrowers. Increasing competition among banks has driven down margins, and the bond market has given borrowers direct access to investors at even lower margins. Our weighted average interest margin fell from 1.11% to 0.74%. The biggest change was the securitisation of 20 shopping centres in the Mall fund, which resulted in the replacement of £1.06bn of bank debt at a 0.90% margin with bonds at a 0.18% margin. After amortisation of the significant fees involved, the saving for the fund was £6m per annum. See Through Debt Net Debt Interest Interest cost % hedged Duration of (our share) margin % fixings % (months) £m On balance sheet * £ sterling 237 0.96% 5.38% 44.8% 20 * Euros - sterling equiv 108 1.11% 3.81% 66.1% 55 Fund Debt 475 0.52% 5.11% 94.5% 60 Partnership debt 72 0.95% 6.07% 61.5% 41 Total 2005 892 0.74% 5.10% 75.1% 52 Total 2004 649 1.11% 5.69% 72.0% 29 The increase in duration was also driven by the Mall securitisation where the old swaps were replaced by a new seven year swap. Share Capital and CULS Since June 2004 our fully diluted share capital has fallen from 75.8m shares to 72.5m shares. The company has bought 77% of its Convertible Unsecured Loan Stock (CULS) back in the market at a cost of £75.2m, and holders of a further 7% have exercised their conversion rights, leaving only 16% of the original issue outstanding. Our buy back made sense because: • The buy back of CULS in the market was at a discount to underlying NAV, a value enhancing transaction; • The premium paid on the buyback is tax deductible. The owners of the remaining CULS can convert them into shares in July each year. We expect a large number to convert this July, because the dividend stream from the shares now clearly exceeds the 6.75% coupon on the CULS. During the same period we have also raised £50m from two issues totalling 6.56m new ordinary shares. Operating review - shopping centres Market conditions The shopping centre investment market enjoyed another record year in 2005. 95 centres changed hands at over £7bn3, up 36% from 2004, itself a record year. Investor appetite for centres has showed no sign of abatement, encouraged by the income and multi let risk characteristics of this class of asset. This strong investor demand has pushed yields down by 0.5% over the year. In the occupier market the paradox continues: consumer demand has clearly weakened, and operational cost increases have put pressure on some retailers' profitability. But demand for quality space continues to fuel rental growth. The emerging consensus is that this situation is likely to prevail for most of 2006, but could change in 2007. In this scenario, we believe the Mall's direct, income focused management model will continue to differentiate it from the competition, both for the shoppers' pound and investors' capital. 3 Source: DTZ. The Mall fund Established in March 2002 by Capital & Regional and Morley Fund Management, the Mall has grown to become the largest UK shopping centre indirect investment vehicle, owning and operating some 9% of the UK market. Gross assets are now approximately £2.8bn in 23 Malls with common investment criteria: • Town centre locations • Dominant in localised town catchment or strong metropolitan catchment • Minimum 150,000 sq ft lettable area • Car park or public transport facilities • Covered, or able to be • Tenant profile "mass market" or "value" retail • Revenue and capital growth potential • Value adding management opportunities Acquisitions and disposals The Mall has been extremely active in the investment market. It has bought centres for a total of £675m in Camberley, Luton, Uxbridge, Redhill and Bradford, all acquired off market. It has sold Redhill and Bradford shortly after purchase as it was judged these centres would not contribute positively to investor returns. In addition, during autumn 2005 The Pallasades Birmingham was sold with the proceeds recycled into the return additive acquisitions above. Fund investors During 2005 the investor base grew from 30 to 36 with £72m new equity invested. Together with revaluation surplus the total equity invested in the fund has now reached £1.3bn. Fund debt One of the major strategic events for The Mall in 2005 was the restructuring of the Fund's debt through the issue of £1.06bn of Mall Bonds in May secured on 20 out of 22 Malls at 52% loan to value. The bonds were rated triple A by all three rating agencies, reflecting the strength of the property locations, the diversity of the tenant base and the quality of the management structure. As a result the interest margin fell from 0.90% to 0.18% reducing our financing costs by £6m a year. At the same time we were able to retain the operational flexibility essential to the success of the Mall business through a £300m capital expenditure and acquisition facility entered into with the Royal Bank of Scotland. The Mall's market position We continue to see healthy, but selective retailer demand for the right space. This is reflected in an average void rate for the year of 4.3% (2004: 3.5%). This includes strategic vacations for reconfiguration and re-letting. Across the entire portfolio there are current and future opportunities to create the right quality of space to attract retailer demand. This in turn should encourage more shopping visits and fuel sustainable rental growth and revenues. When these opportunities are set alongside our Mall branded retailer and community marketing activities and our value for money direct management approach, we believe The Mall is well placed to compete in the more challenging consumer and retail climate. Performance The Mall has outperformed its benchmark index at geared and ungeared level in each of the last three years (see page 3). In 2005 we suffered from the removal of SDLT relief in disadvantaged areas. This affected 45% of our portfolio but only 12% of the index. An adjustment for this would increase the small outperformance shown at property level to a much more significant 1.15%. At geared level the outperformance is even more marked being 22.8% after all fund level costs and performance fees against the 16.3% index. Operating review: retail parks and trade parks This team currently has three main activities: • Managing the Junction Fund, a £1.5 bn retail park fund in which C&R has a 27.3% interest; • Pursuing other retail park opportunities which do not fit with Junction fund criteria; • Building a new trade park portfolio,100% owned by C&R. Retail park market The out of town retail park sector has seen phenomenal growth since the early 1980s with its market share now reaching 30%. It is able to offer consumers convenient shopping, avoiding the congestion of town centres. Planning permissions for further development is constrained - so those planning permissions which exist are valuable. The market is becoming more discriminating. Opportunities for rental growth are seen to be stronger in locations with planning consent for any sort of retailing (open A1) than in those restricted to bulky goods retailers. However, the reality is more complex and although planning status is important, a dominant location matters more. Some open A1 parks may struggle, while prime bulky goods locations will continue to perform strongly. The Junction retail park portfolio The Junction's retail park portfolio would be difficult to replicate in the current market. It has been assembled using the following investment criteria: • At least 80,000 sq ft multilet retail park, freehold or long leasehold • Open A1 bulky goods or a mix thereof • Value enhancement opportunities • Either the dominant scheme in local catchment, or ability to become so Approximately 40% of the portfolio now has open A1 consent. The portfolio has reached a size where scale economies are achievable, both in financing and in dealing with retail chains. Junction fund performance In 2005 the Junction was the top performer out of 27 specialist vehicle funds included in the HSBC/APUT Pooled Property Fund Index. This was achieved despite a setback when stamp duty relief for disadvantaged areas was withdrawn as 49% of our portfolio was affected compared to 21% in the index. Junction fund developments,reconfigurations and refurbishments Development activity, reconfigurations and refurbishment contributed significantly to the high returns generated in 2005. This is relatively low risk, as pre-lets are normally in place before building work starts, and most of the construction risk is borne by the contractors. Value is created through refurbishments,for example, glazed frontages, reconfigurations of existing space and construction of mezzanines to anticipate tenant requirements as well as by adding new floor space. Non fund retail parks Glasgow Fort: although this shopping park was sold to the Hercules Fund in 2004, we are still receiving deferred consideration payments as further lettings and planning permissions are achieved. Morfa Retail Park, Swansea: this investment was completed in October 2004 and has traded strongly since opening. This together with yield shift and development of further restaurant units has contributed to a significant growth in value. Capital Retail Park Cardiff: we continued during 2005 to progress an opportunity to create a new retail park investment in Cardiff, including entering into a joint venture with a Welsh partner, PMG Estates Limited . Pre-lets to Costco and a forward land sale of part of the site to Asda now anchor the scheme and we expect to commence development in quarter 4, 2006. Trade Parks This portfolio of 32 properties was acquired in December 2005 from a partnership between Axa and Warner Estates for £96m at a 5.56% initial yield. We sold 10 industrial estates at the same yield retaining a core portfolio of trade parks or properties capable of becoming trade parks. These locations are attractive to firms supplying local tradesmen such as Topps Tiles, Howden Joinery, and plumbing and electrical suppliers. The rents are low, and if the locations are right there is cross fertilisation between the trades. We plan to build the portfolio and work closely with tenants to improve the mix of trades at each location. Operating review - leisure Our leisure team now operates a £1bn portfolio of leisure destinations in the UK. In addition to the Xscapes it manages the £701m X-Leisure Fund and the Great Northern Retail Warehouse in Manchester. It is also manages Snozone, the ski slope operator. The leisure market 2005 saw a further stage in the development of the leisure property sector. Occupiers, developers and investors are becoming more sophisticated in their thinking and no longer seek to cluster all sub-sectors together without too much attention to tenant mix. Town centre circuits are evolving with operators seeking to be complementary and slightly differentiate their offer. Restaurant clusters are becoming much more customer focused. A number of restaurant operators such as Nandos, La Tasca and Pizza Express, who previously would not consider out of town locations are now aggressively pursuing such opportunities. As for cinema groups, they are looking to both fill in gaps in the market and create super cinemas such as Showcase Deluxe, and are no longer taking a one size fits all approach. The outcome of the 2005 Gambling Act, which effectively limited the anticipated level of "de-regulation" of the gambling industry has had little impact on the market. Investors are increasingly appreciating the benefits of owning well managed leisure destinations and we have seen the initial yields on our portfolio, adjusted for acquisitions and disposals, fall from 6.10% to 5.73%. Yields are still significantly higher than for retail property, and given the quality of the covenants, growing leisure spending and the structure of our leases, we believe there is room for the differential to close. The X-Leisure approach As C&R's leisure arm, the X-Leisure team has applied its successful business model throughout its business units, capitalising on a very strong industry knowledge and expertise. We have always passionately believed in the destination/ experience business model achieving differentiation and a unique selling proposal. That is why as a team we concentrate on the consumer experience, as well as our tenants'/partners' success, and not just bricks and mortar. It is evident that today's consumer has become more sophisticated; therefore, product differentiation is paramount. Differentiation comes from range, price and location but increasingly the total consumer experience is vital. Consumer experience and success comes from leisure destinations delivering unique and integrated experiences. No longer can owners within these sectors sit back and collect rent and expect to outperform educated/specialist owners. X-Leisure fund The X-Leisure fund has continued to enjoy the benefits of an increasingly strong leisure market. It has seen a 7% rise in footfall across its destinations. This, coupled with a 4% increase in leisure spend in the UK, has created good trading conditions for operators which, in due course, should feed through to stronger rental growth. The X-Leisure fund in 2005 has sought to recycle capital released from disposals into acquisitions that offer attractive returns. Two acquisitions, opportunities with strong growth potential were identified in 2005 - Cambridge Leisure Park (acquired March 2005 for £39m) and Queen's Links Leisure Park, Aberdeen (acquired August 2005 for £22.1m). Since the end of the year the X-Leisure fund has acquired the UGC cinema at Sixfields, Northampton for £9.2m. There are opportunities to increase this holding with adjacent schemes and development opportunities. In term of sales, in January and February 2005 the X-Leisure fund disposed of the three health and fitness clubs for £24.6m. There has been very strong asset management activity in the portfolio during 2005 with new lettings, rent reviews and re-gears which have added significant additional value. In addition, two major capital projects were completed: the refurbishment of Tower Park, Poole and the installation of a new leisure attraction in Star City, Birmingham. During 2005 the X-Leisure fund did not suffer any significant losses due to operator failure. The total loss for operators in default and subsequent void was below 1% of rental income. The X-Leisure fund had a very strong performance in 2005 of 28.3% (12% hurdle rate objective, achieving 18% return over 9 months in its first year, 2004). The X-Leisure fund has proved itself, as a credible market leader with a strong base of 17 institutional investors, and continues to prove the case for leisure as a long term sustainable investment, thanks to its successful growth, track record and financial performance. Xscape Xscape Milton Keynes (MK) has delivered a very strong return to C&R in 2005 of 38.9%. It has proved itself as an excellent investment for C&R, an excellent operating business for all its operators and also a huge success as one of the largest visitor attractions in the UK (6m visitors in 2005). Xscape Castleford/Leeds has benefited from an excellent increase in footfall in 2005 (3.2m visitors). Although the retail was a challenge for the UK market, food and beverage and leisure outlets performed very well in 2005. Xscape Braehead is scheduled to open on 6 April and is 90% pre let (March 2006). There is huge enthusiasm in Scotland, for what promises to be the best Xscape to date. Snozone Holdings 2005 has been another record profit year for the C&R operating snowslope business. Despite increasing utility costs (gas, electricity), Snozone Holdings, through its two operating units in Milton Keynes and Castleford/Leeds delivered £1.85m net profit. With an experienced and dedicated management team and a solid business strategy, our operating business should continue to grow organically in the UK through future Xscapes, starting with the Braehead/Glasgow opening. We have also had a number of approaches from overseas property owners interested in working with us to leverage our operating expertise in other countries. This snow market is still not price sensitive. The average ticket price remains higher than the market reference with an outstanding spend per head. Snozone is managing to maintain high levels of Quality of Service within a more demanding environment due to a high return visit ratio and better educated customers who do not hesitate to compare MK and Castleford. Cost control remains a key focus. We have suffered from instability in the utility market which caused an average increase of 22% in electricity year on year and a 43% increase in gas. Marketing and sales is the core element of the business and revenue has increased year on year with a better targeted strategy to develop and attract new potentials. Great Northern Warehouse C&R bought the 50% stake owned by AWG plc in September 2005, and now owns 100% of the property. Thanks to asset management initiatives, numerous lettings, and the completion of the lease with London Clubs International, the building achieved a significant uplift from £72.5m to £93.7m in 2005. Hemel Hempstead This property was acquired by C&R in 2005 for £17m and is currently under review for a transformation into a mixed use scheme. Operating review - German portfolio C&R now owns a portfolio of 14 big box retail properties in Germany valued at €232m, of which 13 were bought in 2005. Our expansion strategy has been management led. We started working with the Hahn group (see below) in 2004, and built up a strong understanding with them before we invested. Hahn has a long and successful specialist track record in investing in big box retail throughout Germany for their substantial closed end fund business. It is investing in the portfolio and has a 10% equity interest in all acquisitions to date. Seven of the properties were bought from existing Hahn managed closed end funds, the remainder being bought in the open market. We were attracted by a property type with which we are familiar, and a management team specialising in a sector which offers attractive income yields and good asset management opportunities. Results to date We have been building up the portfolio over the last 6 months of the year. Our net rental income was running at an annualised rate of 6.9% and debt at 4%. In addition, the portfolio, when revalued at the year end showed a 3.6% uplift. The total return, after setup costs of €8.1m, has already made a useful contribution to the company's results. German retail warehouse market The German retail warehouse market is a specialist sector driven by a number of substantial tenants and complicated by a generally illiquid and non-transparent market. Leases are generally very long and indexed giving few opportunities to test the open market rental value, which by most yardsticks appear very affordable and sustainable. Over recent years the German retail warehouse market has seen little fluctuation in yields and rents but at the same time the sector maintains a close to 0% vacancy rate. The sector also benefits from long lease terms to excellent covenants such as Metro and REWE who are among Europe's largest retailers. At the same time, this sector benefits from low management costs and low non-recoverable costs. Locations of the big box retail units are becoming more protected as German town planners are increasingly unwilling to grant planning permission for large retail units. However, recent interest from foreign investors especially from the UK and other European countries has filled a gap left by the traditional German investors. Strategy Fortunately, we identified the opportunity to establish an operating platform early. It gives us sufficient scale to justify and implement a drive into expanding a very interesting opportunity. We are continuing to develop a relationship with Hahn and have also recruited a chartered surveyor who is a German national based in London, to implement this strategy together with Hahn. We are continuing to see interesting opportunities with an emphasis on off market transactions where we can capitalise on Hahn's local skills and at the same time bringing in C&R's expertise in the out of town big box retail market, where there are very interesting parallels. We are concentrating on acquisitions with the following criteria: • Strong locations; • Tight local planning policies; • Tenant led investments; • Asset management opportunities. The Hahn group: The Hahn group is an experienced real estate manager specialising in the retail warehouse sector. Based in Bergisch Gladbach, near Cologne, the Hahn group has been active in this sector for over 20 years. Traditionally, the Hahn group initiated closed end funds for private investors. Having grown considerably in size in recent years, the Hahn group today employs over 60 professional staff and has over 130 retail properties under management with an annual rent roll exceeding €120 million. As a result, the Hahn group has significant experience in this sector and has built up a strong management team over the years which uses its existing relationships with contractors, tenants and the owners of real estate to provide a cost effective management service to maximise investment returns. Our portfolio Our German investments differ significantly from the typical UK retail park that we have specialised in the UK as in Germany, we have acquired stand alone retail units with emphasis on mainly food stores and some DIY stores which do not necessarily have the set up as a retail park. However, in a number of instances our tenants have sub-underlet to other specialist retailers and this gives us a potential management opportunity some time in the future. Principal Tenants % total Metro and subsidiaries (Real, Extra) 25.8% AVA & Edeka (Linked Co-operatives) 4.6% Rewe and Subsidiaries 10.5% Wal*Mart 15.2% Plaza (Coop Schleswig Holstein) 17.5% Others (24 other retailers) 26.4% 100.0% Financial structure This portfolio is readily financeable. We have borrowed 75% of our total acquisition cost from three banks, namely HBOS, Eurohypo and Landesbank Rheinsfeld-Platz, and fixed our interest at an all in rate of 3.94% for five years. Our share of the portfolio is 87.43%. The Hahn group holds 10%, and in some cases the vendors of the properties have retained a 5.1% share which reduces transfer tax payable. CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 December 2005 Unaudited (Unaudited) (Audited) Year to 30 Period to 30 Notes December December 2005 2004 £000 £000 Turnover: group income and share of joint ventures' turnover 100,571 69,030 Less: share of joint ventures' turnover 7 (6,710) (6,658) Group turnover 93,861 62,372 - Existing operations 89,131 62,372 - Acquisitions 4,730 - 93,861 62,372 Cost of sales (10,604) (7,008) Gross profit 83,257 55,364 Profit on sale of trading and development properties 2,381 327 Exceptional Group restructuring costs 5 - (1,994) Other administrative expenses (35,891) (27,923) Total administrative expenses (35,891) (29,917) Group operating profit 49,747 25,774 - Existing operations 46,496 25,774 - Acquisitions 3,251 - 49,747 25,774 Share of operating profit in associates 6 24,532 26,181 Share of operating profit in joint ventures 7 4,764 4,393 Total operating profit 79,043 56,348 Income from other fixed asset investments 114 445 Profit/(loss) on sale of investment properties and investments 4,292 (1,771) Profit on sale of investment properties in associates and joint ventures 2,705 13,779 Profit on ordinary activities before interest 86,154 68,801 Interest receivable and similar income 2,179 1,872 Interest payable and similar charges - Group (13,030) (7,389) - Share of associates (26,517) (21,533) - Share of joint ventures (5,263) (7,493) - Exceptional premium paid on buyback of Convertible Unsecured Loan Stock 5 (46,918) (8,217) (91,728) (44,632) (Loss)/profit on ordinary activities before taxation 2 (3,395) 26,041 Taxation on (loss)/profit on ordinary activities 3 443 (5,852) (Loss)/profit on ordinary activities after taxation (2,952) 20,189 Minority interest (281) - (Loss)/profit on ordinary activities after taxation and attributable to (3,233) 20,189 the shareholders of the Company Equity dividends paid and payable (12,553) (9,016) (Loss)/profit retained in the year/period (15,786) 11,173 (Loss)/earnings per share - basic 4 (4.7p) 32.2p (Loss)/earnings per share - diluted 4 (4.7p) 28.4p CONSOLIDATED BALANCE SHEET As at 30 December 2005 Unaudited (Unaudited) (Audited) Notes 30 December 30 December 2005 2004 £000 £000 Fixed assets Property assets 316,959 82,938 Other fixed assets 14,443 12,500 331,402 95,438 Goodwill 11,028 12,179 Negative goodwill (10,634) - 394 12,179 Total fixed assets 331,796 107,617 Investment in joint ventures: share of gross assets 135,842 150,644 share of gross liabilities (86,179) (103,902) 7 49,663 46,742 Investments in associates 6 589,836 477,092 971,295 631,451 Current assets Property assets 93,695 8,314 Debtors: amounts falling due after more than one year 3,261 3,904 amounts falling due within one year 73,810 46,350 Cash at bank and in hand 40,076 4,427 210,842 62,995 Creditors: amounts falling due within one year (64,103) (50,404) Net current assets 146,739 12,591 Total assets less current liabilities 1,118,034 644,042 Creditors: amounts falling due after more than one year 8 (419,451) (147,674) (including convertible debt) Provisions for liabilities and charges - (1,831) Net assets 698,583 494,537 Capital and reserves Called up share capital 10 7,100 6,404 Share premium account 10 216,826 167,351 Revaluation reserve 10 389,518 247,197 Other reserves 10 12,473 1,145 Profit and loss account 10 68,570 72,440 Equity shareholders' funds 694,487 494,537 Equity minority interests 4,096 - 698,583 494,537 Net assets per share 11 996p 793p Adjusted fully diluted net assets per share 11 975p 710p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES For the year ended 30 December 2005 Unaudited (Unaudited) (Audited) Year to 30 Period to 30 Notes December December 2005 2004 £000 £000 (Loss)/profit before tax (3,395) 26,041 Exceptional items 5 46,918 10,211 Profit before tax and exceptional items 43,523 36,252 Movements in revaluation reserve - on investment properties 19,232 16,371 - on other fixed assets 2,051 280 - on joint ventures and associates 133,591 105,358 Reserve arising on the acquisition of the remaining 50% interest in 9,599 - Morrison Merlin Total gains before tax and exceptional items 207,996 158,261 Tax charge before exceptional items (12,587) (8,915) Tax on revaluation surplus realised (1,110) (6,185) 194,299 143,161 Exceptional items (46,918) (10,211) Tax on exceptional items 13,030 3,063 Exceptional item net of tax (33,888) (7,148) 12 Total recognised gains and losses for the year/period 12 160,411 136,013 Return on equity for the year/ period 12 30.2% 37.0% Return on equity before exceptional items 12 36.6% 39.0% RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS For the year ended 30 December 2005 Unaudited (Unaudited) (Audited) Year to 30 Period to 30 December December 2005 2004 £000 £000 (Loss)/profit for the year/period after taxation attributable to (3,233) 20,189 shareholders of the Company Equity dividends paid and payable (12,553) (9,016) (Loss)/profit retained in the year/period (15,786) 11,173 Other recognised gains and losses relating to year/period 163,363 115,824 Share capital and share premium issued in year/period (net of expenses) 50,171 1,870 Purchase of own shares - (3,285) LTIP credit in respect of profit and loss charge 2,202 1,829 Net increase in equity shareholders' funds 199,950 127,411 Opening equity shareholders' funds 494,537 367,126 Closing equity shareholders' funds 694,487 494,537 CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 December 2005 Unaudited Notes (Unaudited) (Audited) Year to Period to 30 December 2005 30 December 2004 £000 £000 Net cash inflow from operating activities (i) 46,699 10,950 Dividends received from associates and joint ventures 6,655 32,989 Returns on investments and servicing of finance (15,955) (9,346) Taxation (446) (9,613) Capital expenditure and financial investment (83,548) 7,757 Acquisitions and disposals (17,795) (20,278) Equity dividends paid (10,780) (6,226) Cash (outflow)/inflow before financing (75,170) 6,233 Financing 110,819 (6,281) Increase/(decrease) in cash 35,649 (48) Notes to the cash flow statement (i) Net cash inflow from operating activities (Unaudited) (Audited) Year to 30 Period to 30 December December 2005 2004 £000 £000 Group operating profit 49,747 25,774 Profit on the sale of the trading and development properties (2,381) (327) 47,366 25,447 Depreciation of other fixed assets 337 383 Amortisation of short leasehold properties 165 268 Amortisation of tenant incentives 1,485 (764) Amortisation of goodwill 1,151 1,151 Loss on disposal of fixed assets 12 1 (Increase) in debtors (23,792) (29,538) Increase in creditors 17,773 12,173 Non-cash movement relating to LTIP 2,202 1,829 Net cash inflow from operating activities 46,699 10,950 (ii) Analysis of net debt At 30 December Acquisitions Non cash At 30 December and 2004 Cash flows Movements 2005 disposals* £000 £000 £000 £000 £000 Cash in hand and at bank 4,427 35,649 - - 40,076 Debt due within one year (200) - - - (200) Debt due after one year (118,039) (123,932) (154,498) - (396,469) Convertible Unsecured Loan Stock (20,426) 15,837 - 529 (4,060) (138,665) (108,095) (154,498) 529 (400,729) Total (134,238) (72,446) (154,498) 529 (360,653) * excluding cash and overdrafts. 1. Status of financial information The financial information contained in this announcement does not constitute statutory financial statements within the meaning of Section 240 Companies Act 1985. The comparative figures have been extracted from the audited financial statements for the period ended 30 December 2004 which have been filed at Companies House. The auditors have reported on those accounts; their report was unqualified and did not contain statements under S237(2) or (3) of the Companies Act 1985. The statutory accounts for the year ended 30 December 2005 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies following the company's annual general meeting. The preliminary announcement has been prepared in accordance with applicable UK accounting standards. The accounting policies have all been applied consistently throughout the current year and the preceding period. 2. Segmental analysis (Unaudited) (Audited)/ Year ended Period ended 30 December 30 December Property Property 2005 2004 Property investment investment Exceptional Total Total management UK Germany Snozone items £000 £000 £000 £000 £000 £000 £000 Management fees 22,774 - - - - 22,774 19,312 Net rents - 52,156 3,251 - - 55,407 45,267 Snozone income - - - 9,323 - 9,323 8,958 Management cost (12,576) (3,318) - (7,477) - (23,371) (21,256) Net interest - (40,584) (2,162) - - (42,746) (34,543) payable Goodwill (1,151) - - - - (1,151) (1,151) amortisation Recurring pre-tax 9,047 8,254 1,846 - 20,236 16,587 profit 1,089 Performance fees 50,956 - - - 50,956 31,220 earned by CRPM - Performance fee - (17,134) - - - (17,134) (11,285) backcharge Exceptional items - - - - (46,918) (46,918) (10,211) Variable (18,845) - - - - (18,845) (13,050) management expense Share of other - (1,067) - - - (1,067) - non-recurring items Profit on - 9,377 - - - 9,377 12,780 disposals/ investments (net) Profit before 41,158 (570) 1,089 1,846 (46,918) (3,395) 26,041 taxation Revaluation - 150,132 4,742 - - 154,874 122,009 surplus Reserve arising on - 9,599 - - - 9,599 - the acquisition of Morrison Merlin Taxation (12,347) 641 (327) (554) 13,030 443 (12,037) Total return 28,811 159,802 5,504 1,292 (33,888) 161,521 136,013 Equity 34,714 631,856 28,033 (116) - 694,487 494,537 shareholders' funds at 30 December 2005 2004 Recurring pre-tax 7,554 7,856 1,177 - 16,587 profit - Profit/(loss) before 26,953 8,225 1,074 (10,211) 26,041 taxation - Total return 18,867 123,542 752 (7,148) 136,013 - Net assets at 30 38,778 453,572 2,187 - 494,537 December 2004 - 3. Taxation (Unaudited) (Audited) Year to 30 Period to 30 December December 2005 2004 £000 £000 Current tax UK corporation tax (at 30%) 939 7,369 Prior year 458 (1,147) Total current tax 1,397 6,222 Deferred tax Origination and reversal of timing differences (1,840) (370) Total taxation (credit)/charge (443) 5,852 Tax reconciliation Group (loss)/profit on ordinary activities (3,395) 26,041 Tax on (loss)/profit on ordinary activities at UK corporation tax rate of (1,019) 7,812 30% Effects of: - timing differences 3,694 3,682 - capital allowances (856) (1,403) - utilisation of tax losses - (3,342) - tax on revaluation gains (799) (725) - expenses not deductible for tax purposes (81) 1,345 - adjustment in respect of prior years 458 (1,147) Total current tax 1,397 6,222 Tax recognised in the Statement of total recognised gains and losses The tax on revaluation surplus recognised of £1,110,000 (2004:£6,185,000) is in relation to gains arising in respect of prior year revaluations realised on disposals. Deferred taxation The amounts of deferred taxation provided and unprovided in the accounts are as follows: (Unaudited) (Audited) (Unaudited) (Audited) Provided Provided Not provided Not provided 2005 2004 2005 2004 £000 £000 £000 £000 Tax on capital gains if investment assets were sold - - 2,715 4,200 at their current valuation Accelerated capital allowances and other timing (9) 1,831 - - differences (9) 1,831 2,715 4,200 The amount of deferred tax un-provided is net of an un-provided deferred tax asset of £1,045,000 in respect of tax losses carried forward. A significant part of the Group's property interests has been transferred offshore. In addition, the Auchinlea partnership has sold its interest in Glasgow Fort and the Swansea Retail Park investment has been restructured. The Group has been advised that no capital gains tax liability arises on these transactions, although the relevant computations have yet to be agreed. If a provision was made for deferred taxation that has not been provided it would have an adverse effect on net assets per share of 4p (2004: 7p) and on fully diluted net assets per share of 4p (2004: 6p). 4. (Loss)/earnings per share Year to 30 December 2005 (Unaudited) (Loss) Number of (Loss) £000 shares per share Basic and diluted (3,233) 69,065,355 (4.7p) Period to 30 December 2004 (Audited) Earnings Number of Earnings £000 shares per share Basic 20,189 62,727,988 32.2p Exercise of share options - 625,543 Conversion of Convertible Unsecured Loan Stock 1,250 12,183,118 Diluted 21,439 75,536,649 28.4p The calculation includes the full conversion of the Convertible Subordinated Unsecured Loan Stock where the effect on earnings per share is dilutive. Own shares held are excluded from the weighted average number of shares. 5. Exceptional Items (Unaudited) (Audited) Year to 30 Period to 30 December 2005 December 2004 £000 £000 Exceptional Group restructuring costs - 1,994 Exceptional premium paid on buyback of Convertible Unsecured Loan Stock 46,918 8,217 Total exceptional items 46,918 10,211 6. Associates (Unaudited) (Audited) The Mall The Junction X-Leisure* Total to Total to 30 LP LP LPs 30 December 2005 December 2004 £000 £000 £000 £000 £000 Profit and loss account (100%) Turnover 154,338 46,517 42,858 243,713 193,344 Property expenses (27,941) (2,080) (4,253) (34,274) (24,683) Net rental income 126,397 44,437 38,605 209,439 168,661 Fund and property management expenses (10,088) (6,820) (3,809) (20,717) (18,452) Performance fee (41,381) (23,040) (5,185) (69,606) (43,115) Administrative expenses (7,733) (1,670) (440) (9,843) (5,318) Share of joint ventures' operating profit 3,222 Operating profit 67,195 12,907 29,171 109,273 104,998 Sale of investment properties 1,740 409 89 2,238 - Net interest payable (54,621) (29,197) (24,517) (108,335) (81,906) Profit/(loss) before and after tax 14,314 (15,881) 4,743 3,176 23,092 Balance sheet (100%) Investment properties and joint ventures 2,333,697 1,440,660 700,633 4,474,990 3,690,654 Current assets 162,255 50,685 26,174 239,114 196,396 Current liabilities (100,338) (46,623) (35,304) (182,265) (491,597) Borrowing due in more than one year (1,055,301) (684,121) (390,893) (2,130,315) (1,543,315) Net assets (100%) 1,340,313 760,601 300,610 2,401,524 1,852,138 C&R interest at end of year 26.12 27.32 10.72 C&R interest at start of year 27.86 27.32 10.77 Group share of Turnover 40,948 12,709 4,666 58,323 51,085 Operating profit 17,828 3,526 3,178 24,532 26,181 Sale of investment properties 462 111 10 583 - Net interest payable (14,493) (7,977) (2,670) (25,140) (20,186) Profit/(loss) before and after tax 3,797 (4,340) 518 (25) 5,995 Revaluation surplus for the year/period 58,947 57,702 5,653 122,302 97,358 Investment properties and joint ventures 609,562 393,589 75,108 1,078,259 920,857 Current assets 42,381 13,846 2,806 59,033 49,788 Current liabilities (26,208) (12,737) (3,784) (42,729) (75,858) Borrowing due in more than one year (275,645) (186,902) (41,904) (504,451) (417,419) Associate net assets 350,090 207,796 32,226 590,112 477,368 Unrealised profit on sale of property to (276) - - (276) (276) associate Group share of associate net assets 349,814 207,796 32,226 589,836 477,092 * On 17 March 2004, the three X-Leisure funds were consolidated into one umbrella fund. Capital & Regional's share of the new umbrella fund was 10.77%. 7. Joint ventures Xscape (Unaudited) (Audited) Milton Xscape* Xscape Total to 30 Total to 30 Keynes Castleford Braehead December December Partnership Partnership Partnershp Others 2005 2004 £000 £000 £000 £000 £000 £000 Profit and loss account (100%) Turnover 4,841 2,755 - 4,907 12,503 12,641 Property expenses (353) (1,117) - (1,702) (3,172) (3,936) Net rental income 4,488 1,638 - 3,205 9,331 8,705 Fund and property management (100) - - - (100) (200) expenses Administrative expenses (140) (14) (4) (84) (242) (172) Operating profit/(loss) 4,248 1,624 (4) 3,121 8,989 8,333 Sale of investment properties - - - 4,244 4,244 27,555 Net interest payable (3,013) (3,144) - (3,017) (9,174) (13,615) Profit/(loss) before tax 1,235 (1,520) (4) 4,348 4,059 22,273 Tax - - - (44) (44) (1,400) Profit/(loss) after tax 1,235 (1,520) (4) 4,304 4,015 20,873 Balance sheet (100%) Investment properties 97,397 70,981 50,764 - 219,142 161,080 Current assets 3,655 4,398 6,099 13,201 27,353 116,670 Current liabilities (3,092) (7,562) (5,743) (6,218) (22,615) (34,267) Borrowing due in more than one (46,800) (45,616) (39,620) - (132,036) (157,215) year Net assets (100%) 51,160 22,201 11,500 6,983 91,844 86,268 C&R interest at start and end 50% 66.7% 50% of year Group share of Turnover 2,420 1,837 - 2,453 6,710 6,658 Operating profit/(loss) 2,124 1,083 (2) 1,559 4,764 4,393 Sale of investment properties - - - 2,122 2,122 13,779 Net interest payable (1,506) (2,095) - (1,509) (5,110) (7,329) Profit/(loss) before tax 618 (1,012) (2) 2,172 1,776 10,843 Tax - - - (22) (22) (700) Profit/(loss) after tax 618 (1,012) (2) 2,150 1,754 10,143 Revaluation surplus for the 6,614 3,172 1,503 - 11,289 8,000 year/period Investment properties 48,699 47,344 25,382 - 121,425 91,460 Current assets 1,827 2,941 3,050 6,599 14,417 59,184 Current liabilities (1,546) (5,059) (2,872) (3,066) (12,543) (17,293) Borrowing due in more than one (23,400) (30,426) (19,810) - (73,636) (86,609) year Group share of joint venture 25,580 14,800 5,750 3,533 49,663 46,742 net assets * Capital & Regional plc has a 66.7% share in the Xscape Castleford partnership. The investment is accounted for as a joint venture, rather than a subsidiary, as a result of joint control and the deadlock agreements that are in place. 8. Creditors: Amounts falling due after more than one year (Unaudited) (Audited) 2005 2004 £000 £000 Bank loans (secured) 396,469 118,039 Unamortised issue costs (826) (195) 395,643 117,844 Convertible subordinated unsecured loan stock (see note 9) 4,060 20,426 Unamortised issue costs - (54) 4,060 20,372 Other creditors 19,748 9,458 419,451 147,674 9. Convertible Subordinated Unsecured Loan Stock 2005 2004 £000 £000 At beginning of the year/period 20,426 24,642 CULS purchased, cancelled and converted in the year/period (16,366) (4,216) 4,060 20,426 The Convertible Subordinated Unsecured Loan Stock ("CULS") may be converted by the holders of the stock into 51.42 (2004: 51.42) ordinary shares per £100 nominal value CULS in any of the years 1997 to 2015 inclusive, representing a conversion price of 194p (2004: 194p) per ordinary share. The Company has the right to redeem at par the CULS in any year from 2006 to 2016. The CULS are unsecured and are subordinated to all other forms of unsecured debt but rank in priority to the holders of the ordinary shares in the Company. The CULS carry interest at an annual rate of 6.75%, payable in arrears on 30 June and 31 December in each year. In accordance with FRS 4 "Financial Instruments" the CULS are shown net of unamortised loan issue costs. 10. Reserves Other Reserves Share Property Capital Profit and Share premium revaluation redemption Other Loss capital account reserve reserve Reserves Account Total £000 £000 £000 £000 £000 £000 £000 Group As at 30 December 2004 6,404 167,351 247,197 4,289 (3,144) 72,440 494,537 Issue of share capital 696 49,475 - - - - 50,171 Revaluation of investment - - 21,283 - - - 21,283 properties and other fixed assets Share of revaluation surplus - - 133,591 - - - 133,591 of joint ventures & associates Realisation of surplus on - - (12,553) - - 12,553 - disposal of investment properties and dilution of interest in associates Gain arising on the - - - - 9,599 - 9,599 acquisition of the remaining 50% interest in Morrison Merlin Tax on revaluation surpluses - - - - - (1,110) (1,110) realised in the year Credit in respect of LTIP - - - - - 2,202 2,202 charge Amortisation of cost of own - - - - 1,729 (1,729) - shares Loss for the year - - - - - (15,786) (15,786) As at 30 December 2005 7,100 216,826 389,518 4,289 8,184 68,570 694,487 11. Net assets per share As at 30 December 2005 (Unaudited) Net assets Number Net assets £000 of shares per share Equity shareholders' funds as per balance sheet 694,487 71,000,465 Own shares held (1,244,771) Net assets per share 694,487 69,755,694 996p Conversion of CULS (net of unamortised issue costs) 4,006 2,087,784 Exercise of share options 1,595 653,121 Capital allowances deferred tax provision 6,802 - Adjusted fully diluted 706,890 72,496,599 975p As at 30 December 2004 (Audited) Net assets Number of shares Net assets per share £000 As per the balance sheet 494,537 64,039,578 Own shares held (1,688,411) Net assets per share 494,537 62,351,167 793p Conversion of CULS (net of unamortised issue 20,281 10,503,109 costs) Exercise of share options 1,897 782,071 Capital allowances deferred tax provision 5,807 - Adjusted fully diluted 522,522 73,636,347 710p Net assets per share are shareholders' funds divided by the number of shares held by shareholders at the period end. The shares held by the Group's employee benefit trust (own shares held) are excluded from both net assets and the number of shares. Adjusted fully diluted net assets per share includes the effect of those shares potentially issuable under the CULS or employee share options schemes. The capital allowances deferred tax provision is added back. 12. Return on Equity (Unaudited) (Audited) Year to Period to 30 December 30 December 2005 2004 £000 £000 Total recognised gains and losses 160,411 136,013 Equity shareholders' funds 530,857 367,126 Return on equity 30.2% 37.0% Exceptional items (net of tax) 33,888 7,148 Total recognised gains and losses before exceptional items 194,299 143,161 Return on equity before exceptional items 36.6% 39.0% Return on equity is calculated as total recognised gains and losses divided by opening equity shareholders' funds, which is net of own shares held, plus time-weighted additions to share capital (excluding share options) less reductions in share capital. Additional information - Unaudited Property under management 28 February 2006 30 December 2005 30 December 2004 £m £m £m Investment properties 320 320 83 Trading properties 94 94 8 Mall fund 2,790 2,338 2,099 Junction fund 1,467 1,459 1,010 X-Leisure fund 717 702 597 Other joint ventures 226 226 226 Total 5,614 5,139 4,023 Fund Portfolio information At 30 December 2005 Mall Fund Junction Fund X-Leisure Fund Number of core properties 21 19 17 Number of lettable units 2,118 258 291 Square feet (000) 6,822 3,920 3,009 Properties at market value (note 1) £2,338m £1,459m £702m Initial yield % 5.09% *3.47% 5.68% Equivalent yield % 5.73% 4.86% 6.32% Vacancy rate 2.80% 4.90% 1.40% Net rental income (£m per annum) £125.8m £55.2m £42.1m Estimated rental value (£m pa) £152.6m £75.2m £47.3m Rental increase (ERV) 4.86% **14.38% 1.84% Reversionary % 11.48% 18.98% 7.96% Loan to value ratio 45.5% 47.00% 56.24% Underlying valuation change since 30 December 2004 9.80% 18.30% 9.30% Property level return 16.52% 23.30% 15.30% Geared return 22.80% 34.08% 28.30% Unit price (£1.00 at inception) £2.0464 £2.4904 £1.4050 C&R share 26.12% 27.32% 10.72% * 3.71% excluding development land ** 6.00% like for like rental growth Notes 1. Properties at market value include tenant incentives which are transferred to current assets for accounting purposes. Shareholder information Final dividend 2005 Ex div date Wednesday 19 April 2006 Dividend payment date Friday 16 June 2006 Glossary of terms Adjusted Fully diluted NAV per share includes the Loan to value (LTV) is the ratio of debt to the value effect of those shares potentially issuable under the of the associated property. CULS or employee share options. The capital allowances deferred tax provision is added back. Market value is an opinion of the best price at which the sale of an interest in the property would complete Capital allowances deferred tax provision. Full unconditionally for cash consideration on the date of provision has been made for deferred tax arising on the valuation (as determined by the Group's external benefit of capital allowances claimed to date. In the valuers). In accordance with usual practice, the Group's experience liabilities in respect of capital Group's external valuers report valuations net, after allowances provided are unlikely to crystallise in the deduction of the prospective purchaser's costs, practice and are therefore excluded when arriving at including stamp duty, agent and legal fees. adjusted fully diluted NAV per share. Passing rent is the gross rent, less any ground rent CULS is the Convertible Subordinated Unsecured Loan payable under head leases. Stock. Return on equity is the total return, including Earnings per share (EPS) is the profit on ordinary revaluation surplus, divided by opening equity plus activities after taxation and minority interest divided time weighted additions to share capital, excluding by the weighted average number of shares in issue share options exercised, less reductions in share during the period excluding own shares held. capital. Estimated rental value (ERV) is the Group's external Reversion is the estimated increase in rent at review valuers' opinion as to the open market rent which, on where the gross rent is below the estimated rental the date of valuation, could reasonably be expected to value. be obtained on a new letting or rent review of a property. Reversionary yield is the anticipated yield, which the initial yield will rise to once the rent reaches the Equivalent yield is a weighted average of the initial estimated rental value. yield and reversionary yield and represents the return a property will produce based upon the timing of the income received. In accordance with usual practice, the equivalent yields (as determined by the Group's See through balance sheet is the pro forma external valuers) assume rent received annually in proportionately consolidated balance sheet of the arrears and on gross values including prospective Group, its associates and joint ventures. purchasers' cost. Total return is the group's total recognised gains and ERV growth is the total growth in ERV on properties losses for the period as set out in the Statement of owned throughout the year including growth due to Total Recognised Gains and Losses (STRGL). development. Total shareholder return is the growth in price per Gearing is the Group's net debt as a percentage of net share plus dividends per share. assets. See through gearing includes our share of non recourse net debt in the associates and joint ventures. UITF 28 "Operating lease incentives" debtors Under accounting rules the balance sheet value of lease incentives given to tenants is deducted from property Initial yield is the annualised net rents generated by valuation and shown as a debtor. The incentive is the portfolio expressed as a percentage of the amortised through the profit and loss account. portfolio valuation, excluding development properties. Vacancy rate is the estimated rental value of vacant IPD is Investment Property Databank Ltd, a company that properties expressed as a percentage of the total produces an independent benchmark of property returns. estimated rental value of the portfolio, excluding development properties. This information is provided by RNS The company news service from the London Stock Exchange

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