Caleres
Annual Report 1999

Plain-text annual report

7632 C&R Cover 1999 5/10/00 12:46 pm Page 1 C a p i t a l a n d R e g o n a i l P r o p e r t i e s p c A n n u a l l R e p o r t 1 9 9 9 Capital and Regional Properties plc Annual Report 1999 7632 C&R Cover 1999 5/10/00 12:42 pm Page 2 Capital & Regional invests in and manages properties, which are dynamic in their retail and leisure opportunities. Properties which the consumer visits, enjoys and where they spend money. We have built a skilled and specialised team of people, focused on providing a ‘Leading Edge’ approach to the management and marketing of our properties. Capital & Regional works in partnership with tenants and local communities to increase footfall, help to build occupiers’ profits and so add value to our business. This strategy will secure long term sustainable growth and provide investor returns at the forefront of the sector. Contents 1 1999 Highlights 2 Chairman’s Statement 16 Operating Review 24 Principal Properties 26 Our People 28 Board of Directors 30 Financial Review 34 Five Year Record 35 Report on Directors’ Remuneration and Interests 39 Corporate Governance Statement 41 Auditors’ Report 42 Consolidated Profit and Loss Account 43 Note of Historical Cost Profits and Losses 43 Statement of Total Recognised Gains and Losses 43 Reconciliation of Movements in Shareholders’ Funds 44 Consolidated Balance Sheet 45 Consolidated Cash Flow Statement 46 Company Balance Sheet 47 Notes to the Financial Statements 61 Directors’ Report 63 All-Employee Share Ownership Plan 66 Notice of the Annual General Meeting 67 Advisers and Corporate Information 68 2000 Financial Calendar/ Final Dividend Timetable Designed and produced by Radley Yelda 7632 C&R Front 1999 4/10/00 11:38 AM Page 1 1 Capital and Regional Properties plc 1999 Highlights Fully diluted net assets per share increased by 17% to 376p (1998: 18% to 321p) Net rental income up 18% to £45.5m (1998: £38.5m) Profit on revenue activities at £10.4m, up 49% (1998: £7.0m), excluding surrender premiums £0.3m (1998: £4.5m) Earnings per share up 1% to 12.2p (1998: 12.1p) Dividends per share up 18% to 5.0p (1998: 4.25p) On a same store basis, that is property owned at the end of 1998 and retained during the whole of 1999, achieved capital growth of 6.5% Acquisitions of £214m during the year, including The Ashley Centre, Epsom for £73m, Westway Shopping Park for £33m and St Andrew’s Quay Retail and Leisure Park, Hull for £24m Disposals of £48m including Eureka Leisure Park, Ashford, Kent for £17m Conditional contracts have been entered into to develop: – a 33 acre site in Oldbury, West Midlands for a 475,000 sq ft retail and leisure park – a 6.35 acre town centre site in Yeovil for a 90,000 sq ft leisure scheme Xscape, Milton Keynes, the integrated retail and leisure entertainment destination, with ‘real snow’ ski slope completes in May 2000. Agreements reached to develop concept in Castleford, UK and in Ruhr, Germany Eight 100,000 to 130,000 sq ft retail warehouse ‘Big Box’ units have been let or agreed on our existing parks and future developments Capital & Regional and PRICOA Property Investment Management Limited in discussion with a number of institutional investors regarding the establishment of a fund to invest in UK in-town covered centres. The initial response from investors is favourable Current portfolio of over 80% retail and leisure, consists of 10 in-town covered centres and 12 retail and leisure parks, including Xscape, Milton Keynes. Portfolio value over £900m providing over 5m sq ft, with future developments of over 2m sq ft 7632 C&R Front 1999 4/10/00 11:38 AM Page 2 2&3 Capital and Regional Properties plc Chairman’s Statement Results 1999 was another excellent year for Capital & Regional. Every year since its flotation in 1986, the Company has produced returns, which place it at the forefront of the UK quoted property companies sector. This year was no exception and we intend to continue our out-performance. Our fully diluted net assets per share of 376p have increased 17% from 321p. Profit on revenue activities at £10.4m has increased 49% (1998: £7.0m), excluding surrender premiums £0.3m (1998: £4.5m). Earnings per share up 1% to 12.2p (1998: 12.1p). A final dividend of 3.0p is proposed, making a total for the year of 5.0p per share (1998: 4.25p), an increase of 18%. Our facility for dividend reinvestment by shareholders established last year continues. When one adds the increase in the balance sheet reserves to the dividend, the Company has delivered a return of £66.7m (1998: £58.6m), representing a return of 20% on opening shareholders’ funds. Operating Strategy Capital & Regional’s success is based on a distinctive business style, a ‘Leading Edge’ management approach. We invest in and manage in-town covered centres and out-of-town retail and leisure parks, which have the potential to provide consumers with an enjoyable, rewarding and stress free shopping and leisure opportunity. Through our approach, we aim to increase the profitability of the retailers and leisure operators who are our tenants, and so add value to their businesses. Many of our management team have been recruited from retailing, leisure and other commercial backgrounds, enabling them to communicate effectively with the operators and understand their needs. We operate as proactive business managers rather than traditional property asset managers, and we approach our properties very much as department store owners. While the restructuring of leases, renovation of properties, development of greenfield sites and the expansion of existing properties continue to play a part in our strategy, we have also developed significant operational capabilities including facilities management and marketing and promotion. As a result we can apply, from our own resources, an integrated management approach focused on adding value to tenants’ businesses by increasing their ability to make sales. This in turn raises the rental and capital values of our centres. Our tenants understand our management culture and value our creative and innovative approach. They consider themselves to be in partnership with us in our efforts to enhance profitability for tenant and landlord alike. Most of the property we own is orientated towards ‘value retailing’ and UK consumers are increasingly value conscious. Feedback from our tenants demonstrates that they are trading well in our properties. By increasing relevant footfall, the primary driver of retail profitability, we provide our tenants with more opportunities to sell. At the same time our in-house facilities management team, works to reduce the costs to tenants of security, cleaning, 1999 was another excellent year for Capital & Regional. Every year since its flotation in 1986, the Company has produced returns which place it at the forefront of the UK quoted property companies sector. This year was no exception. Martin Barber Chairman 7632 C&R Front 1999 4/10/00 11:38 AM Page 3 Chairman’s Statement utilities and all the other services which keep a centre alive. This year, for example, a partnership agreement with PowerGen has enabled us to provide direct savings for tenants in the form of guaranteed lower prices for electricity. As to the future, much has been said and written about the effects of low inflation and the internet on retail property values. Capital & Regional has proved its ability to increase both rental and capital values in an environment of low inflation. Similarly, whilst the internet and e-shopping will undoubtedly have an impact on the UK retail property industry, we believe that Capital & Regional is well placed to exploit the opportunities that arise through changes in consumer preferences. Using our ‘Leading Edge’ management approach and working in partnership with the tenants, we facilitate a successful and controlled environment that will continue to suit the needs of the shopper, and enable our properties to prosper at the expense of competing properties in the surrounding area. We are developing our internet strategy, which will embrace branded community mall web sites and possibly a convenient retail portal. Strategic Initiatives In-town Centre Partnership Fund In October we announced that, together with PRICOA Property Investment Management Limited, Capital & Regional was in discussion with a number of institutional investors regarding the establishment of a fund to invest in UK in-town covered centres, using Capital & Regional’s proven ability to enhance values in the retail and leisure sectors. The initial response from institutional investors to this proposal has been favourable. Consideration is being given to including within the initial portfolio a number of in-town centres currently owned by Capital & Regional and then enlarging the fund’s portfolio through the injection of properties from investors and by open-market acquisitions. If successfully launched, it is anticipated that Capital & Regional will be incentivised by management fees and a participation in the fund’s performance over an agreed hurdle. The scale of the fund combined with Capital & Regional’s own operations, will serve to amplify the effectiveness of Capital & Regional’s ‘Leading Edge’ management approach. Industrial In order to concentrate even further our resources into our core business of retail and leisure properties, we are giving consideration to the sale of our industrial property investment portfolio. We hope to report further to shareholders in due course. Purchase of Own Securities We have noted the disconnection between the valuation placed on listed property company shares and the market value of their underlying assets. If the current substantial discount to our assets remains, Capital & Regional will give active consideration to re-deploying capital into acquiring a significant proportion of shares for cancellation. A resolution is proposed to this effect in the Notice of the Annual General Meeting as set out on page 66. Dividend per share pence Net assets per share (diluted) pence Figures after 1996 assume conversion of the loan stock 5 4 3 2 1 0 400 300 200 100 0 95 96 97 98 99 95 96 97 98 99 7632 C&R Front 1999 4/10/00 11:38 AM Page 4 4&5 Capital and Regional Properties plc Chairman’s Statement The Team Capital & Regional has grown into a people business, focused on creating value for our tenants and shareholders through the energetic and dynamic management of our properties. Our culture and philosophy is about working in ‘partnership’, whether it be with investors, retailers, colleagues or local communities. To make this happen, you require a skilled and enthusiastic team of people and these results reflect the strength of this team. On behalf of the Board and all our shareholders, I would like to thank everyone for their contribution to our success. Over the past year, we have also examined and restructured our whole management team into focused departments, providing a specific function, for example, asset and facilities management. These are primarily ‘service providers’ to the leasing and acquisitions team, ‘the dealmakers’ within the Company. The six Executive Directors now form the Executive Directors Committee whose function collectively, is the overall decision making process. In addition, they have specific responsibilities and areas of expertise. This new structure has enabled us to fully integrate our in-town and out-of-town property teams into one single operating unit, which has benefited enormously from cross portfolio tenant synergies. The Company has moved to new offices at 10 Lower Grosvenor Place, London, that provide us with significant operating efficiencies. We have unveiled a new corporate identity for Capital & Regional and the design represents our strategy of ‘partnership’ to build something stronger. The Company will be proposing a resolution at the Annual General Meeting, to remove ‘Properties’ from its statutory name, as the business is rapidly becoming an ‘operating’ rather than a ‘property’ company and will be known as Capital & Regional. Capital & Regional is also progressing an action plan to achieve the Investors in People accreditation over this year. These initiatives provide us with a strong platform for future growth. All-Employee Share Ownership Plan Capital & Regional operates an Inland Revenue approved profit sharing scheme that will be replaced by a new All-Employee Share Ownership Plan once legislation is introduced later this year. Outlook The continued success of Capital & Regional’s ‘Leading Edge’ management approach to retail property investment and management, makes us highly confident of maintaining satisfactory and sustainable returns to shareholders over the years to come. 7632 C&R Front 1999 4/10/00 11:38 AM Page 5 Capital & Regional’s success is based on a distinctive business style, a ‘Leading Edge’ management approach. Over the next few pages, we highlight the key elements of this operating strategy. 7632 C&R Front 1999 4/10/00 11:38 AM Page 6 Jonathan Cheetham, Centre Manager, The Pallasades Shopping Centre, Birmingham Energetic and creative property management Our centre management teams, assisted by our in-house facilities management company (CRFM) work hard to provide our consumers with an enjoyable, rewarding and stress free shopping and leisure experience. At the same time, reducing the costs to tenants of security, cleaning, utilities and all the other services which keep a centre alive. This year, for example, a partnership agreement with PowerGen has enabled us to provide direct savings for tenants in the form of lower electricity prices. 7632 C&R Front 1999 4/10/00 11:38 AM Page 7 7632 C&R Front 1999 4/10/00 11:38 AM Page 8 New video wall – Shopping City, Wood Green, London Creative and effective marketing Marketing shopping centres is not simply about mall promotions. Capital & Regional is committed to effective and creative marketing as an essential part of our ‘Leading Edge’ management approach. Through on-going evaluation of our marketing plans, the aim is to increase relevant footfall and sales for our retailers and exceed the expected shopping experience of our customers. This year’s group wide campaign fulfills the asset management philosophy of Capital & Regional – the ‘stress free and convenient shopping campaign’. This covers all media and produced positive sales and footfall results across the in-town centre portfolio. The success of this marketing has encouraged us to apply the management/marketing formula to specific out-of-town retail and leisure properties. 7632 C&R Front 1999 4/10/00 11:38 AM Page 9 7632 C&R Front 1999 4/10/00 11:38 AM Page 10 Boots at Westway Shopping Park, Greenford, London Strong relationships with retail partners Capital & Regional knows that to succeed, we must satisfy our clients: the retail and leisure operators, in an industry as dynamic and fast moving as retailing. Our tenants understand our management culture and value our creative and innovative approach. They consider themselves to be in partnership with us in our efforts to enhance profitability for tenant and landlord alike. Many of our management team have been recruited from retailing, leisure and other commercial backgrounds enabling them to communicate effectively with the operators and understand their needs. As a result of these strong relationships with retail partners, we are being offered development and investment opportunities directly by the operators, who are confident that we can fulfill their requirements. 7632 C&R Front 1999 4/10/00 11:38 AM Page 11 7632 C&R Front 1999 4/10/00 11:38 AM Page 12 Lawrence Boya, Security Officer, Shopping City, Wood Green, London Building a local identity Capital & Regional works closely with agencies representing the local community. Shoppers naturally want our properties to be a clean and secure environment. To meet that expectation, we work closely with police, local authorities and town centre management. Our ‘Leading Edge’ management influence extends beyond our properties into the surrounding communities. At Shopping City, Wood Green, London, for example, Capital & Regional partnered the local authority in a ‘Zero Tolerance’ crime prevention initiative. As a result, the Centre won a Secure Car Park Award from the Metropolitan Police and the Automobile Association. The Home Office and British Retail Consortium also chose to launch their ‘Community Crime Reduction Partnership Guide’ at Shopping City. 7632 C&R Front 1999 4/10/00 11:38 AM Page 13 7632 C&R Front 1999 4/10/00 11:38 AM Page 14 Xscape, Milton Keynes Bringing retail and leisure together Shopping is increasingly a leisure activity and we believe that the most successful retail centres of the future will offer a leisure element. By integrating leisure activities such as multiplex cinemas, restaurants and health and fitness clubs into our centres at Shopping City, Wood Green; the Howgate Centre, Falkirk; Eldon Garden, Newcastle and Liberty 2, Romford, we have not only significantly increased footfall and dwell times, we have also converted surplus or low value space to high value leisure accommodation. One of our latest and most exciting developments is Xscape, ‘the ultimate entertainment destination’ in Milton Keynes, which features a ‘real snow’ ski slope, a health and fitness club, family entertainment centre, numerous bars and restaurants and lifestyle retailing. 7632 C&R Front 1999 4/10/00 11:38 AM Page 15 7632 C&R Front 1999 4/10/00 11:38 AM Page 16 16&17 Capital and Regional Properties plc Operating Review 1999 was again a very active year, with acquisitions totalling almost £214m and sales of £48m. Our portfolio has performed extremely well. On a same store basis, that is property owned at the end of 1998 and retained during the whole of 1999, capital growth of 6.5% was achieved. Our portfolio now comprises 83% retail and leisure, 14% industrial and 3% other. It is worth noting that our portfolio is highly reversionary. The estimated rental value being about £18.8m higher than the £62.3m rents passing at the end of the year. This does not take into account the significant expansion and development opportunities within the portfolio, some of which are noted in this statement. The rental income from the investment portfolio is high quality, with 67% of passing rent derived from leases expiring after more than ten years. Investment and Development Market 1999 was a year of improving sentiment as fears of international economic instability failed to materialise and sentiment changed rapidly to a much more optimistic stance. There is a general shortage of in-town and out-of-town retail and leisure investments and developments with the characteristics for growth and intense competition for these investments when generally available. However, Capital & Regional is finding that, with the benefit of our knowledge of the marketplace and contacts with the retail and leisure operators, development opportunities are being directed to us by these operators, who understand our management and how we can mutually benefit from our involvement in the proposed project. Recent examples include Eureka Leisure Park, Ashford, Yeovil and St Andrew’s Quay, Hull, all referrals from tenant contacts. We continue to find value in opportunities presented to us that other investors are not placed to exploit without these valuable contacts. The current year continues to be competitive and we are already demonstrating the abilities of our team to source exciting opportunities. Analysis of investment property rental income by lease expiry as at December 1999* 1 19% more than 20 years 2 22% 15-20 years 3 26% 10-15 years 4 20% 5-10 years 5 13% Less than 5 years 2 1 5 4 3 *Assumes all tenant breaks clauses are exercised, no leases are renewed at expiry and no rental growth. Portfolio value by sector as at 25th December 1999 – £933m 1 55% In-town Centres 2 28% Retail and Leisure Parks 3 14% Industrial 4 13% Other 4 1 3 2 1999 was again a very active year, with acquisitions totalling almost £214m and sales of £48m. Our portfolio has performed extremely well. Xavier Pullen Executive Director 7632 C&R Front 1999 4/10/00 11:38 AM Page 17 Operating Review In-town Centres The in-town centre portfolio has performed well during 1999. Our consumer driven ‘value retail’ philosophy focused on affordable, accessible, well-managed community malls has proved to be resilient in the retail climate. Capital & Regional’s ‘Leading Edge’ management approach is entirely at home in this consumer driven market. Knowing what shoppers want and giving it to them is the key to success, for retailers and ourselves. Our approach to delivering quality services to our retailers at competitive costs of occupation, whilst aggressively marketing and promoting our centres to the shopping public continues to deliver positive results across the portfolio. The Pallasades, Birmingham The Pallasades continues to perform well and attract major new retailers at progressively improving rental levels such as HMV, which has taken a unit at £220 per sq ft in Zone A. Negotiations are continuing with Railtrack on the possible extension of the retail area coupled with a greater integration of the station environs and retail elements. All with a view to improving station environs and retail opportunities, reinforcing the centre’s hub status as the principal entry point to Central Birmingham. Shopping City, Wood Green The major refurbishment and extension programme continued throughout the year with Phase I completing prior to Christmas. This provided a newly refurbished single level fully let market hall, a new 30,000 sq ft unit for Wilkinsons, who are currently fitting out, a re-fitted ground floor Boots and a new mall environment. Phase 2, including the multiplex cinema and associated restaurants, will complete in the Summer. The retail element remains strong with Next and Ottakar’s being introduced during the year. The Centre as extended will comprise over 600,000 sq ft of contemporary retail and leisure, and Shopping City will be a major community focus in this strong catchment area. The Ashley Centre, Epsom In September, we purchased The Ashley Centre, Epsom from Standard Life for £73m. The Centre comprises 263,000 sq ft of retail with an 800 space car park, and includes approximately 70,000 sq ft of office space. Anchor tenants include Dickens & Jones, Marks & Spencer and Waitrose with fashion retailers such as Gap, Next and Hennes. We plan to re-brand and reconfigure the Centre to satisfy tenant demand together with an extensive marketing programme aimed at re-establishing it within a wealthy catchment. Below The Ashley Centre, Epsom The in-town centre portfolio has performed well during 1999. Our consumer driven ‘value retail’ philosophy focused on affordable, accessible, well-managed community malls has proved to be resilient in the retail climate. Kenneth Ford Executive Director 7632 C&R Front 1999 4/10/00 11:38 AM Page 18 18&19 Capital and Regional Properties plc The Howgate Centre, Falkirk The six month programme of major works to the Marks & Spencer atrium was completed at Christmas. This included rationalisation of escalators and the relocation of the catering offer to the main mall level. Early indications are that this initiative is producing the desired results of greater footfall and longer dwell times in the Centre as a whole, with the prospect of increased rental growth in the units immediately surrounding the atrium. The modernisation of the integrated centre management car park has commenced and is due to complete in the first half of this year. Selborne Walk, Walthamstow Selborne Walk is now substantially fully let and continues to dominate its catchment area. Current tenancy led initiatives being pursued will both satisfy current retailer demand and establish continuing rental growth patterns. Planning consent has been obtained to provide an additional retail area of 45,000 sq ft and a further 45,000 sq ft leisure component, which will be developed to tenant demand. The Trinity Centre, Aberdeen Since its purchase by Capital & Regional in 1993, the Centre has been transformed through considerable investment in the malls and car park. It is now fully let and anchors include Ottakar’s bookshop, HMV and Debenhams. The centre continues to demonstrate an annual increase in footfall of 11.7%, driving rental growth of over 10% in the year. Work is underway to install the frontage canopy and branding will be complete in the first quarter of this year. Sauchiehall Centre, Glasgow The successful introduction in December of a Healthland Fitness Centre at the Centre’s upper levels is consistent with the Company’s strategy of mixing retail and leisure to broaden our property’s appeal over a longer trading day. We continue to appraise redevelopment options for the Centre to focus value on the improving Sauchiehall Street frontage. Alhambra Centre, Barnsley With the closure of the adjacent Co-op Living department store in July, the Alhambra Centre has had a challenging year. However, the on-site management team have worked hard and increased footfall by 18.7% and as a consequence a majority of the retailers’ turnover has been retained. We have agreed to purchase the Co-op store and plan to introduce new retailers to the Centre from the reconfigured space. Left Selborne Walk, Walthamstow, London Below The Ashley Centre, Epsom 7632 C&R Front 1999 4/10/00 11:38 AM Page 19 Operating Review Liberty 2, Romford Liberty 2 is the ‘value retail’ centre within a strong value- orientated catchment. Substantially fully let, terms have been agreed to acquire from the Local Authority the former ‘wet leisure’ centre, the Dolphin Centre, which we plan to re-develop to provide inter alia 60,000 sq ft retail, all of which is under pre- let discussion. This extension will reinforce the Centre’s attraction by increasing its critical mass by approximately 70%. It is anticipated that construction will start on site during the current year. Eldon Garden, Newcastle Eldon Garden has become a significant, quality destination retail centre for Newcastle. Highlights during the year were a major letting to The Pier, taking approximately 20% of the retail area and an award by the British Council of Shopping Centres for Community Marketing. We are currently exploring extension opportunities for the centre. Left Liberty 2, Romford Above The Trinity Centre, Aberdeen 7632 C&R Front 1999 4/10/00 11:38 AM Page 20 20&21 Capital and Regional Properties plc Retail and Leisure Parks During the year, we acquired a number of strategic investments and secured some exciting development opportunities, which we believe will produce excellent future results. We believe 2000 will be the ‘Year of the Big Box’. An improving housing market and the impact of interior and garden design television programmes has boosted consumer spending in this area and led B&Q, Homebase and Focus to seek units of between 100,000 and 130,000 sq ft. Woolworth’s new Big W operation, effectively a small out-of- town department store, is seeking units of similar size and we understand Asda/Wal-Mart are also requiring non-food ‘Big Box’ units which will further intensify competition. Overall, Capital & Regional is extremely well placed to take advantage of ‘Y2K Big Box’; we are currently actively involved in eight such deals. Matalan, Comet and Currys are actively seeking units of 30,000 sq ft and upwards. Demand for smaller sized units will probably be more selective. More retailers will adopt pilot stores out-of-town, and latest reports suggest that out-of-town rents will continue to rise steeply. In terms of the leisure sector, the consolidation in cinemas seen in 1999 is expected to continue in 2000. Lifestyle changes have led to mass market demand for health clubs; the strong rate of openings in 1999 will continue in 2000. A strong economy has intensified demand for eating out, and cafés, bars and restaurants will continue to grow steadily. As consumers seek to make better use of their valuable time, bringing retail and leisure together to provide greater choice is proving successful within our retail parks and in-town centres. Renfrew Retail Park, Glasgow (formerly Blythswood Retail Park) Re-branding of the retail park to Renfrew Retail Park, including new signage has been completed. Further retail floor space of up to 50,000 sq ft is proposed, replacing existing industrial units where vacant possession has already been substantially obtained. Upon completion, this 270,000 sq ft retail park will be one of the largest in Scotland dominating its immediate catchment area. Westway Shopping Park, Greenford The latest letting to Sports Soccer for 10,000 sq ft and the opening of the Next store has encouraged other fashion retailers to make proposals for the remaining three units. Re-branding and physical improvements will be carried out this year. Westway is one of the few fashion orientated parks in London and we are confident of significant further rental increases in the medium term. During the year, we acquired a number of strategic investments and secured some exciting development opportunities, which we believe will produce excellent future results. Andrew Lewis-Pratt Executive Director 7632 C&R Front 1999 4/10/00 11:38 AM Page 21 Operating Review Wembley Retail Park, London Further improvements have been put on hold pending discussions with adjacent landowners, English Partnership (Wembley Task Force) and the Local Authority, regarding a major comprehensive development programme, predominantly for retail and leisure uses, to proceed alongside the imminent redevelopment of Wembley Stadium. St Andrew’s Quay, Hull In December, we acquired St Andrew’s Quay Retail and Leisure Park from Associated British Ports and Grosvenor Waterside Group for £24m. The site is 75 acres, part of which comprises a 180,000 sq ft retail and leisure park, with tenants including Focus DIY, Comet and UCI Cinemas. The undeveloped land comprises 38.7 acres of which 5.9 acres has planning consent for 75,000 sq ft of additional retail space and 15.3 acres has consent for 150,000 sq ft of leisure. Construction of the additional retail space will commence this year and agreements for lease have already been exchanged with DFS for a new 20,000 sq ft unit, together with a 100,000 sq ft ‘Big Box’ let to B&Q. We believe that St Andrew’s Quay will become the premier retail and leisure park for the City. Beckton Retail Park, London The latest letting of 100,000 sq ft to Woolworth’s Big W and 30,000 sq ft to Matalan will initiate a major refurbishment of the park. With the addition of these tenants and its Open A1 planning consent, this 173,000 sq ft development is set to become one of the few sizeable, quality parks in London. Junction 10 Retail Park, Glasgow A planning application has been submitted for a 500,000 sq ft open A1 retail and leisure development on a site of approximately 90 acres, adjacent to our existing 100,000 sq ft park. Planning consent, subject to a referral to the Scottish Executive, is anticipated in the Spring, allowing us the opportunity to develop one of the most significant retail and leisure schemes of its kind in the UK. Wyrley Brook Retail Park, Cannock Construction of the new B&Q store and the refurbishment of the park is now complete, transforming Wyrley Brook into a modern retail park. Significant additional floor space is proposed. Lancaster Retail Park At Lancaster Retail Park, two new lettings to JJB Sports and Matalan, subject to consent, will significantly enhance the profile of the park and its prospects for future rental growth. Opposite page Westway Shopping Park, Greenford Left Renfrew Retail Park, Glasgow Above St Andrew’s Quay, Hull 7632 C&R Front 1999 4/10/00 11:38 AM Page 22 22&23 Capital and Regional Properties plc Bognor Regis Retail Park Letting of the final unit to Dreams in this reconfigured and refurbished retail park is now agreed. Further extensions and lease restructuring are proposed. of State, for 100,000 sq ft of open non food retail use in Phase I. Pre-lets to AMC Cinema and Pizza Hut have been exchanged and a further 230,000 sq ft of retail space is in solicitors’ hands. Channons Hill Retail Park, Bristol At Channons Hill Retail Park, a tired, old retail cluster has been rejuvenated by refurbishing and extending two units which have been let to Currys and LIDL who are now open and trading. A planning application has been submitted to extend the remaining unit from 7,000 sq ft to 12,000 sq ft. International Sports Village, Cardiff Progress has been made to further our position as developer of this 75-acre site, with a sale agreed for 19 acres of residential use and a letting agreed for a 110,000 sq ft retail warehouse. Negotiations continue with Cardiff County Council regarding the provision of the sporting elements of the scheme. The Enterprise Retail Park, Swansea Since the year end, we have acquired a 50,000 sq ft retail investment, let to MFI, adjacent to our existing investment which is let to B&Q. B&Q have surrendered their lease and Comet entered into a new agreement to lease for a 30,000 sq ft store. Our plans are to redevelop the scheme as a 150,000 sq ft open A1 retail park. An anchor “Big Box” unit of 100,000 sq ft has been let to Woolworth’s Big W. Yeovil Conditional agreements have been entered into to develop a 6.35 acre town centre site in Yeovil, currently owned by South Somerset District Council. The site currently has outline planning permission for a 90,000 sq ft leisure scheme. Pre-lettings have already been entered into with Cine UK for a ten screen cinema and with Wessex Bowl. Discussions are underway with tenants for the remaining restaurant/retail space and the development should commence in the Spring. New Developments Retail and Leisure Park, Oldbury Since the year end, contracts have been conditionally exchanged to develop a major 33 acre retail and leisure park of up to 475,000 sq ft, proposed in two phases. Planning permission has been obtained for approximately 270,000 sq ft of leisure and restaurants for Phase I. Change of use planning consent has been obtained, subject to referral to the Secretary Larkswood Leisure Park, Chingford Following our selection by Waltham Forest Borough Council to develop this 70,000 sq ft leisure park, pre-lets have been agreed with a Greenalls healthclub, Jigsaw nursery and Bass for a public house. Terms have also been agreed to forward fund the development, which should commence during the first half of the year. Below Channons Hill Retail Park, Bristol Right Wyrley Brook Retail Park, Cannock 7632 C&R Front 1999 4/10/00 11:38 AM Page 23 Operating Review Xscape Fuelled by the ongoing success of Milton Keynes, a dedicated team has completed the generic designs to commence the roll out programme of the Xscape concept, to selective European locations within the United Kingdom, Germany and Benelux. Xscape, Milton Keynes The construction is progressing both on time and on budget, ready to open at the end of May 2000. Many of the proposed occupiers are creating new and diverse concepts for Xscape and we are encouraged by the level of tenant interest. The scheme is anticipated to open approximately 95% pre-let. Xscape, Castleford Xscape has entered into an exclusivity agreement for the development of a further Xscape for the UK. The scheme is approximately 500,000 sq ft gross, broadly similar to the successful format of the Milton Keynes Xscape. The Castleford Xscape is located alongside the Freeport Leisure factory outlet village and is adjacent to Junction 32 of the M62 motorway. The development already benefits from outline planning permission and plans are to open in late 2002. Xscape, Ruhr An agreement has been reached with the Town of Castrop- Rauxel to exclusively support the first Xscape in Continental Europe. Castrop-Rauxel is located 12km from Dortmund and as part of the “Ruhrgebeit” benefits from approximately 3.2 million people within a 20 minute drive time. The development will extend the Milton Keynes concept to include a hotel, Imax theatre and other attractions up to a maximum potential development area of 900,000 sq ft. Above and right Proposed interiors of Xscape, Milton Keynes 7632 C&R Front 1999 4/10/00 11:38 AM Page 24 24&25 Capital and Regional Properties plc Principal Properties Value Sector Tenure sq ft (sq m) Principal tenants In excess of £30m Pallasades Shopping Centre Birmingham Shopping City, Wood Green London Xscape Milton Keynes Ashley Centre Epsom Howgate Shopping Centre Falkirk Renfrew Retail Park Glasgow Selborne Walk, Walthamstow Trinity Centre, Aberdeen Westway Shopping Park Greenford Wembley Retail Park Wembley Sauchiehall Centre Glasgow £20m-£30m St Andrew’s Quay Hull Liberty 2 Romford Alhambra Shopping Centre Barnsley Beckton Retail Park London In-town Centre In-town Centre Leisure and Retail In-town Centre In-town Centre Retail Park In-town Centre In-town Centre Retail Park Retail Park In-town Centre Retail Park In-town Centre In-town Centre Retail Park Leasehold Freehold Leasehold Freehold Freehold Leasehold Feuhold Freehold Freehold Feuhold Freehold Leasehold Leasehold Freehold 300,000 (27,881) 570,000 (52,973) 410,000 (38,104) 350,189 (32,545) 170,000 (15,799) 220,000 (20,446) 266,000 (24,721) 200,000 (18,587) 120,000 (11,152) 260,000 (24,163) 180,000 (16,729) 179,000 (16,636) 320,000 (29,740) 170,000 (15,799) 140,000 (13,011) Argos, Austin Reed, Boots, HMV, JJB Sports, New Look, Woolworths Argos, Boots, C&A, Cine-World, Ottakars, Pearsons Dept Store, Wilkinsons, W H Smith Real snow indoor ski-centre, Healthland Fitness Centre, 16-screen Cine-World, ‘City Limits’ Scottish and Newcastle Family Entertainment Centre, TMS Quiksilver Dickens & Jones, Gap, Hennes, Marks & Spencer, Next, Superdrug, Waitrose, W H Smith Argos, Boots, Dorothy Perkins, Marks & Spencer, MVC, New Look, River Island, Superdrug, Wallis, Woolworths B&Q, Carpetright, Comet, Harveys, JJB Sports, Matalan Bhs, Dixons, Etam, Our Price, Poundland, River Island, Somerfield, Superdrug Argos, Debenhams, HMV, Ottakars, Superdrug Boots, Holiday Hypermarket, McDonalds, Next, Outfit, SportsSoccer Allied Carpets, Carpetright, Comet, Furnitureland, Harveys, MFI Argos, Clinton Cards, Healthland, JJB Sports, Superdrug, TK Maxx, W H Smith Comet, DFS, Allied Leisure Bowl, Focus, Halfords, UCI Cinemas Allsports, Jeffrey Rogers, McDonalds, Mecca Bingo, Odeon Cinema, Peacocks Sainsbury’s Superstore, Toni & Guy Allsports, Mothercare, MVC, Next, Peacocks, Wilkinsons, Woolworths Homebase, JJB Sports, Landmark, Matalan, Poundstretcher 7632 C&R Front 1999 4/10/00 11:38 AM Page 25 Principal Properties Value Sector Tenure sq ft (sq m) Principal tenants £10-20m St Andrew House Glasgow Junction 10 Retail Park Glasgow Wrexham Industrial Estate Wrexham Wyrley Brook Retail Park Cannock Lancaster Retail Park Lancaster Manor Park Estate Runcorn 10 Lower Grosvenor Place Eldon Garden Shopping Centre Newcastle Springvale Industrial Estate Cwmbran Astmoor Industrial Estate, Runcorn Deeside Industrial Estate Deeside £4m-£10m Bognor Regis Retail Park Channons Hill Retail Park Bristol Twelve Quays Birkenhead Europa Trading Estate Kearsley Retail Office Retail Park Industrial Retail Park Retail Park Industrial Freehold Leasehold Freehold Freehold Freehold Freehold Office Leasehold In-town Centre Industrial Leasehold Freehold Industrial Freehold Industrial Freehold Retail Park Retail Park Industrial Freehold Freehold Freehold Industrial Freehold 92,500 (8,597) 97,000 (9,015) 503,000 (46,747) 105,000 (9,758) 103,000 (9,572) 336,610 (31,283) 21,000 (1,952) 45,000 (4,182) 309,000 (28,717) 385,839 (35,859) 247,500 (23,002) 62,000 (5,762) 59,000 (5,483) 87,252 (8,109) 125,908 (11,708) Atlantic Telecom, Burger King, Pret à Manger, Thomas Cook, TSB Carpetright, Landmark, Mecca Bingo, MFI Barlow Handling, Cookson, Duracell, Gillette UK, Porvair Technology Allied Carpets, B&Q, Kingsway Carpetright, Fads, Harveys, JJB Sports, MFI, Wickes Churchills Stairlifts, Fresenius, Paxar Europe, Pourshins, Warburtons, Whitford Plastics Capital and Regional Properties plc Austin Reed, Sony Centre, The Pen Shop, The Pier, Wolford ABB Power Construction, Cyril Luff, Initial Services, Karavale Enterprises, McKecknie, Rentokil Alma Products, Norton Healthcare, P&W Printers, Shandon Scientific, Steripak Hydro Coatings, Kimberly Clark Halfords, Harveys, Landmark, LIDL Currys, Great Mills, LIDL Burall Carwood, CML Group, LJMU Foseco (GB), Health & Diet Food Company, Lansing Linde, The Co-operative Bank 7632 C&R Front 1999 4/10/00 11:38 AM Page 26 26&27 Capital and Regional Properties plc Our People 01 04 05 02 03 7632 C&R Front 1999 4/10/00 11:38 AM Page 27 Our People 06 07 08 09 10 Some of our people . . . 01 Jonathan Cheetham Centre Manager (left) and Mark Bourgeois Head of Asset Management 02 Sarah Powell Property Accounts Manager 03 Anton Manuelpillai Management Accountant 04 Jean Thomson Accounts Manager 05 (from left): Simon Berry Director, Xscape; Andrew Lewis-Pratt Executive Director; David Sterland General Manager, Xscape; Graham Inglis Finance Manager; Charlotte MacLeod Leisure Leasing; Peter Popper Head of Construction Management 06 Jim Adams Group Leasing 07 Sarah Carrell Head of Corporate Communications 08 Sarah-Jane Berry Head of Marketing 09 Tracey Grevett Receptionist 10 Ian Webb Senior Project Manager (centre); Karen Jenkin Secretary (foreground); Adrienne Shaw Secretary. 7632 C&R Front 1999 4/10/00 11:38 AM Page 28 28&29 Capital and Regional Properties plc Board of Directors The Board has delegated authority within specified limits to the six executive directors as the Executive Directors Committee whose function, collectively, is the overall decision making process within the Company. As outlined below in the individual biographies, each executive director also has specific responsibilities. Executive Directors Martin Barber Chairman, age 55 Martin Barber has been involved in commercial property as a developer and investor for over 30 years. He was a founder director of the Company in 1979. He is chairman of CenterPoint Properties Trust, a real estate investment trust, listed on the New York Stock Exchange and formerly a subsidiary of Capital & Regional. He is non-executive chairman of PRICOA Property Investment Management Ltd, a wholly owned subsidiary of The Prudential Insurance Company of America. Roger Boyland FCA Executive Director, age 55 Roger Boyland is a chartered accountant and has been involved in commercial property for 25 years. He was a founder director of the Company in 1979. He has responsibility for the Company’s financing, including banking arrangements and corporate finance, risk management and portfolio performance analysis. Lynda Coral BSc FCA Financial Director and Company Secretary, age 38 Lynda Coral has been a chartered accountant for 15 years and a director of the Company since 1990. Lynda has overall responsibility for accounting and corporate support, including financial reporting, taxation, company secretarial, personnel, IT and office management. Kenneth Ford BSc FRICS Executive Director, age 46 Ken Ford has been involved in commercial property for 26 years. Ken has worked with Capital & Regional since he founded the Easter Management Group Scotland in 1991. He was appointed a director of the Company in 1997 and is responsible for the in-town centre portfolio. Andrew Lewis-Pratt BSc ARICS Executive Director, age 42 Andrew Lewis-Pratt has over 17 years experience within the retail and leisure sector. Andrew was previously chief executive of Lanham plc, prior to its acquisition by Capital & Regional in 1997. He was appointed as a director of the Company in 1997 and is responsible for the retail and leisure park portfolio, including Xscape™. Xavier Pullen Executive Director, age 48 Xavier Pullen has been active in the property industry for over 30 years and was a founder director of the Company in 1979. He has responsibility for the Company’s property portfolio strategy, including investment and development opportunities. Martin Barber Roger Boyland Lynda Coral Kenneth Ford Andrew Lewis-Pratt Xavier Pullen 7632 C&R Front 1999 4/10/00 11:38 AM Page 29 Board of Directors Non-Executive Directors Viscount Chandos#, age 47 Tom Chandos is an investment banker and venture capitalist; he is chairman of MediaKey plc and a non-executive director of a number of private companies, including Cine-UK Limited. David Cherry BSc FRICS†#, age 62 David Cherry is the former senior partner of Donaldsons, a national firm of commercial Chartered Surveyors with a significant reputation in retail property. He has wide experience in both the UK property market and was head of the organisation for eight years. Peter Duffy†, age 63 Peter Duffy was previously managing director of TR Property Investment Trust PLC. He is also chairman of European City Estates N.V. Martin Gruselle FCA†#, age 62 Martin Gruselle is a chartered accountant with wide experience in corporate finance. He acts as chairman of the Remuneration and Audit Committees. He is also a non-executive director of Scarborough Property Company plc. †Member of Audit Committee #Member of Remuneration Committee Viscount Chandos David Cherry Peter Duffy Martin Gruselle 7632 C&R Front 1999 4/10/00 11:38 AM Page 30 30&31 Capital and Regional Properties plc Financial Review Financial Statements Accounting Developments Financial Reporting Standard (“FRS”) No.15 (Tangible Fixed Assets) is not effective for accounting periods ending before March 2000, but its impact on the Group’s financial statements and policies has been reviewed. The FRS excludes investment properties but applies strict criteria to the capitalisation of development costs including interest. The Group’s method to estimate the period of development as disclosed in accounting policies has been restated from prior years with no impact on profit or net assets. The Group’s policy on calculation of gain or loss on sale of investment properties by reference to valuation has been changed to refer to the last financial year-end rather than a half-year valuation. There is no effect on the results of the prior year as a result of the change in policy. Consideration is being given to the potential effect of the proposals issued by the Accounting Standards Board, namely the Discussion Paper on Reporting Financial Performance, Leases: Implementation of a New Approach, and the Exposure Draft on Deferred Tax (FRED 19). Profit before tax has increased to £12.8m (1998: £11.5m) which includes gains of £2.1m (1998: loss £38,000) on investment portfolio sales. Profit in the second half of the year is £6.2m compared to £6.6m reported for the first half. Lynda Coral Financial Director Profit and Loss Account Results for the Year Profit before tax has increased to £12.8m (1998: £11.5m) which includes gains of £2.1m (1998: loss £38,000) on investment portfolio sales. Profit in the second half of the year is £6.2m compared to £6.6m reported for the first half. Rental Income Group rental income increased by 19% to £53.6m as shown in Table 1. Also shown is the effect of the changes during 1999 on gross passing rent to arrive at £62.3m at the year end. The gross passing rent at the end of 1999 does not include additional rent of £5.4m (1998: £2.2m) committed under agreements for lease executed to date. Net Property Costs The increase of £1.7m compared to the previous year is due mainly to the effect of acquisitions in 1999 and the full year effect of acquisitions made in 1998. Administrative Expenses The increase in general administrative costs reflects the growth in the total property portfolio during the last two years. Underlying administrative costs represent 0.7% (1998: 0.9%) of the total property portfolio. Performance related bonus payments to employees and executive directors, including an allocation for the profit sharing scheme, totalled £1.7m (1998: £1.4m). Table 1 Group Rental Income Year ended 25th December 1998 Full year effect of acquisitions and disposals in 1998 Properties acquired in 1999 Properties sold in 1999 Net new lettings Leases surrendered Surrender premiums Rent increases including reviews Year ended 25th December 1999 1999 1999 Rental Gross Income passing rent £m 46.3 – 12.9 (0.4) 5.1 (3.1) – 1.5 62.3 £m 44.9 5.0 5.7 (0.3) 3.0 (1.1) (4.2) 0.6 53.6 7632 C&R Front 1999 4/10/00 11:39 AM Page 31 Financial Review Net Interest Payable Net interest costs have increased by £7.8m during the year reflecting the financing of acquisitions by additional bank debt. Approximately £2m (1998: £856,000) of interest has been capitalised during the year, principally in relation to Shopping City, Wood Green; Eureka Leisure Park, Ashford; Xscape, Milton Keynes; and the industrial portfolio. Taxation The taxation charge is 3% of profit before tax due to the utilisation of capital allowances, capital losses and excess management expenses brought forward. At the end of 1999 there is approximately £365,000 (1998: £200,000) of advance corporation tax which has been written off. The tax written down value of assets subject to capital allowance claims is estimated at approximately £38m (1998: £28m) and unutilised losses carried forward have been reduced to £228,000 (1998: £4.3m). Earnings and Dividends per Share Earnings per share on revenue activities have fallen to 10.2p from 12.2p but would show an increase to 9.9p from 7.3p if surrender premiums were excluded. Profit attributable to shareholders increased from £11.1m in 1998 to £12.0m this year and earnings per share rose from 12.1p to 12.2p. The total dividend of 5.0p per share is more than twice covered by profit on revenue activities. Balance Sheet Property Assets Table 2 summaries the movement in the Company’s total property portfolio during the year. Joint Ventures and Associates Table 3 shows the movement during 1999 in the Group’s total investment in joint ventures and associates. As a result of buying in the industrial properties formerly owned in partnership with Phillips & Drew Fund Management Limited the investment in associates has been realised. In accordance with FRS 9, the Xscape Milton Keynes Partnership is treated as a joint arrangement that is not an entity and the Group’s financial statements include its share of assets, liabilities and cash flows. Minority Interests Minority interests at the end of 1999 represents the participation by Peter Taylor and his associates in Easter Capital Investment Holdings. Table 3 Joint ventures and associates Associates Joint ventures Debtors after 1 year £m – 4.8 4.8 Investment £m – 2.2 2.2 1999 Total £m – 7.0 7.0 1998 Total £m 3.4 6.2 9.6 Table 1 Property portfolio At 25th December 1998 Acquisitions Refurbishments and development Disposals Revaluation surplus/(deficit) At 25th December 1999 Properties Investment under properties construction £m 7.7 2.3 15.3 – 4.2 29.5 £m 646.9 174.2 45.2 (14.9) 52.2 903.6 Head office £m – 13.1 0.6 – (0.6) 13.1 Current property assets £m 24.4 24.8 15.7 (30.2) – 34.7 Total £m 679.0 214.4 76.8 (45.1) 55.8 980.9 7632 C&R Front 1999 4/10/00 11:39 AM Page 32 32&33 Capital and Regional Properties plc Financial Review Finance Summary The Group’s borrowings at 25th December 1999 were £603.0m (1998: £366.1m) including £24.6m (1998: £24.6m) of Convertible Subordinated Unsecured Loan Stock (CULS). Borrowings by associates and joint ventures were an additional £5.3m (1998: £16.9m). Net cash balances were £7.4m (1998: £5.5m) and the Group had approximately £21.5m (1998: £59.8m) of undrawn secured facilities. The increase in borrowing during 1999 reflects the financing of acquisitions and the refurbishment of and improvements to properties during the year net of property disposals. The increase in the fully diluted level of gearing to 134% (1998: 93%) and the reduction to 45% (1998: 79%) in the percentage of debt on which interest rates have been hedged reflect the strategic initiatives under consideration as set out in the Chairman’s Statement. Financing Strategy The Group has a financing strategy with banks which, in the opinion of the Directors, have experienced property teams and long-term commitment to the UK property market. The Group’s strategy is to enter into extendable secured revolving credit facilities with broadly similar terms and covenants. These facilities provide the Group with the flexibility to draw down and repay borrowings within the covenant parameters, and provide a cost efficient structure which allows for the addition and disposal of properties as security. Project loan finance is separately arranged as required for specific developments and joint ventures. Interest Rate Hedging Strategy The Group’s strategy is to enter into mainly five year interest rate swaps on a rolling basis, which provides both protection against any sudden rise in interest rates and scope to take advantage of fluctuating rates on expiring swaps and unhedged borrowings. The balance between borrowing on floating and hedged interest rates is continually reviewed in the light of capital market conditions and business requirements. Fixed and swapped interest rates at 25th December 1999 applied to borrowings of £272.4m (1998: £287.8m) with the balance of £330.6m (1998: £78.3m) being at variable interest rates based on three month LIBOR. The weighted average interest rate cost for fixed and swapped borrowings at 25th December 1999, was 7.8% (1998: 7.9%) and for variable rates 6.9% (1998: 7.5%). The weighted average interest rate cost of total borrowings at the year end has reduced to 7.3% compared to 7.8% at the end of 1998. The weighted average period for which interest rates are fixed on Group bank borrowings is 2.64 years (1998: 3.39) and 3.89 years including CULS (1998: 4.58). Debt Valuation A valuation was carried out by J C Rathbone Associates Limited as at 25th December 1999 and 25th December 1998, to calculate the market value of fixed rate debt instruments on a replacement basis and the expiry profile of the resulting fair value adjustment. The increase in borrowing during 1999 reflects the financing of acquisitions and the refurbishment of and improvements to properties during the year. Rental income as a ratio to net interest payable is unchanged at 1.6 times. Roger Boyland Executive Director 7632 C&R Front 1999 4/10/00 11:39 AM Page 33 Finance Review Fixed Rate Debt Instrument Table 1 shows the market value of fixed rate debt instruments, and reflects the difference between the interest rate yield curve as at 25th December 1999 and the rates historically committed; namely the fair value adjustment. The fair value adjustment at 25th December 1999 would have had a positive effect on net asset value of £1.5m compared to a negative effect of £11.1m at 25th December 1998. This reflects the rise in term interest rates during the year. On the 18th November 1998, Xscape Milton Keynes Partnership, in which the Group has a 50% interest, entered into a five year interest rate swap for £25m, with a forward start date of 24th July 2000. The Group’s share of this financial instrument is not included in Table 1, but if it had been, the fair value adjustment would be more positive by £607,000 (1998: negative £143,000). The fair value adjustment represents approximately 0.25% (1998: 3%) of Group borrowings and has a notional beneficial effect on net asset value per share of 1.0p at 25th December 1999 (1998: adverse 7p). Debt Maturity Table 2 shows the maturity profile of Group borrowings and undrawn secured facilities at 25th December 1999. Over 93% (1998: 97%) of bank borrowings had the benefit of “evergreen” arrangements which we expect will extend maturity dates beyond the earliest repayment date shown. The evergreen arrangements provide a minimum of two years’ notice of repayment. Gearing Net debt to capital employed has risen to 149% at the year end (1998: 107%) and reduces to 134% (1998: 93%) assuming the conversion of the loan stock to equity. Rental income as a ratio to net interest payable including capitalised interest for 1999 is unchanged at 1.6 times when calculated excluding surrender premiums. The margin by which rental income exceeds total net interest payable has remained at approximately £20m for the year ended 25th December 1999. Table 1 Fixed rate debt instrument Table 2 Repayment CULS Bank borrowings Interest rate swaps Minority Interests Fair value adjustment attributable to Group Net of tax at 30% (1998: 31%) Book value £m 24.6 15.3 n/a 39.9 Notional principal £m n/a n/a 232.5 232.5 Market value £m 24.6 15.3 231.0 270.9 Fair value adjustment 1998 £m 0.7 0.8 9.8 11.3 (0.2) 1999 £m – – (1.5) (1.5) – (1.5) (1.1) 11.1 7.7 2000 2001 2002 2003 2004 2006 2009 Bank borrowings 2006/16 convertible loan stock The expiry profile of the fair value adjustment is as follows: 1999 2000 2001 2002 2003 2004-2016 Total 1999 Fair value adjustment £m – (1.4) (2.2) 1.2 0.9 – (1.5) 1998 Fair value adjustment £m 3.7 3.1 2.1 1.4 0.5 0.5 11.3 Earliest £m 3.52 65.71 Drawn “Evergreen” £m – 52.50 396.95 396.75 33.00 57.00 – – 578.35 539.25 – 602.99 539.25 33.20 57.20 12.77 9.00 24.64 Earliest £m 12.59 5.85 3.05 – – – – 21.49 – 21.49 Undrawn “Evergreen” £m – 5.85 3.05 – – – – 8.90 – 8.90 7632 C&R Mid 1999 4/10/00 11:55 AM Page 34 34&35 Capital and Regional Properties plc Five Year Record for the years ended 25th December 1995 to 25th December 1999 No. of shares in issue (million) Diluted no. of shares in issue (million) Net assets per share‡ 1999 1998 1997 1996 1995 98.266 98.255 76.399 45.595 45.595 110.678 376.4p 110.667 320.6p 88.668 272.0p 58.181 223.1p 45.595 186.2p Net assets per share growth 17.4% 17.9% †27.6% 19.8% 1.5% Equity shareholders’ funds Minority interests Non-equity funding by joint arrangement partners Capital employed Borrowings Cash at bank Net bank debt Convertible loan stock Net debt Net debt/capital employed‡ Rental income Net rental income Net interest payable*** Profit on ordinary activities before taxation** Earnings per share* Dividend per share £000 392,566 4,341 4,000 400,907 577,891 7,388 570,503 24,041 £000 330,816 2,101 3,250 336,167 340,926 5,476 335,450 23,950 £000 217,299 933 – 218,232 237,036 9,229 227,807 23,840 £000 104,701 2,458 – 107,159 143,872 6,261 137,611 25,108 £000 84,882 1,431 – 86,313 76,674 2,431 74,243 – 594,544 359,400 251,647 162,719 74,243 134.4% 93.3% 94.1% 104.3% 86.0% £000 53,597 45,512 32,018 £000 44,910 38,507 24,057 £000 28,857 23,728 16,788 £000 17,834 14,158 9,153 £000 10,129 8,040 4,552 12,838 11,481 11,083 6,051 4,743 12.2p 5.0p 12.1p 4.25p 15.4p 3.5p 11.9p 3.0p 8.7p 2.5p †A Placing and Offer in May 1997 of 28,159,526 new Ordinary shares at 215p resulted in a dilution of 1997 diluted net assets per share to 213.1p. The growth in net assets per share for 1997 is calculated after adjusting for the effect of this dilution on 1997. ‡Assuming conversion of the convertible loan stock to equity. *Earnings per share for prior years have been adjusted to reflect the two for seven rights issue in April 1998. **As adjusted for Financial Reporting Standard No. 9. ***Excludes share of net interest payable of Joint Ventures and Associates. 7632 C&R Mid 1999 4/10/00 11:55 AM Page 35 Report on Directors’ Remuneration and Interests Remuneration Committee The Remuneration Committee (“the Committee”) has been constituted by the Board of the Company and consists of not less than three non-executive directors nominated by the full Board. The Committee meets at least twice a year, the quorum for a meeting being at least two members. The present members are Tom Chandos, David Cherry and Martin Gruselle (Chairman). The Committee is responsible for setting the remuneration policy for the executive directors and senior employees and ensuring compliance with best practice provisions. The Committee determines the terms of the service agreements, salaries and discretionary bonus payments, as well as deciding on the grant of share options for the executive directors. The recommendations made by the Executive Directors Committee for the grant of share options to other employees require the approval of the Committee. In preparing this annual report to shareholders on behalf of the Board, the Committee has complied with relevant provisions of the Combined Code including those set out in Schedule B. Remuneration policy In setting the remuneration policies for the executive directors, the Committee has given full consideration to the requirements of the Combined Code appended to the Listing Rules of the London Stock Exchange including the provisions in Schedule A relating to the design of performance-related remuneration. The Committee, using published data and market research, seeks to ensure that the total remuneration received by the executive directors under their contracts is competitive within the property industry and will motivate them to perform at the highest level. Basic salaries and benefits are reviewed annually by the Committee. The basic salaries of the executive directors were increased from 1st January 1999 and the Company’s contribution to the personal pension scheme of Lynda Coral was increased to 15%; pension contribution rates for the other executive directors remain unchanged. Guidelines for determining the level of discretionary bonus payable to the executive directors have been in place for a number of years. Outperformance of growth in net asset value per share is linked to predetermined percentages of pre-tax profits or to predetermined percentages of the increase in net shareholders’ funds generated in the year. The Committee uses the Monthly Index of All Properties Capital Value published by the Investment Property Databank as a benchmark against which to compare growth in net asset value per share. If the maximum level of outperformance in either case is achieved, the higher of 10% of pre-tax, pre-bonus profits or 2.2% of the increase in net shareholders’ funds may be allocated as discretionary bonus. The Committee will not necessarily allocate the whole of the amount determined under the criteria in any year. In 1999, net asset value per share has increased by 17.4% (year on year) compared with an increase of 6.2% in the benchmark index; this level of performance generates a discretionary bonus of 1.2% of the increase in net shareholders’ funds in the year. The Committee has decided to allocate all of the discretionary bonus for 1999 together with £81,000 from the prior year’s unallocated bonus pool, a total of £790,000. The allocation of the total amount of discretionary bonus between the executive directors has been made by the Committee. Each of the executive directors has a service agreement which can be terminated on one year’s notice by either party; the terms of these agreements do not allow the executive directors to engage in any other business outside the Company except where prior written consent from the Committee is obtained. The fees of the non-executive directors are determined annually by the Board acting on the recommendations of the Executive Directors Committee within the limits set by the Company’s Memorandum and Articles of Association and using external market research for guidance. The formal appointment of Peter Duffy was renewed on 26th May 1998 while those of Tom Chandos and Martin Gruselle were renewed on 1st January 2000 in each case for a further three year period. The appointment of David Cherry expires on 4th April 2000 and will be renewed for a further three year term from that date. Martin Gruselle and David Cherry offer themselves for re-election at the Annual General Meeting. The non-executive directors do not receive share options or any other forms of remuneration from the Company. 7632 C&R Mid 1999 4/10/00 11:55 AM Page 36 36&37 Capital and Regional Properties plc Report on Directors’ Remuneration and Interests Remuneration The remuneration of the directors is analysed below: Salary and fees Discretionary bonus Pension contributions Other benefits† M. Barber X. Pullen K. Ford A. Lewis-Pratt R. Boyland L. Coral M. Gruselle D. Cherry T. Chandos* P. Duffy Total 1999 £000 198 180 175 175 155 115 998 32 22 37 22 113 1,111 1999 £000 140 140 140 140 125 105 790 1998 £000 170 140 135 135 140 100 820 1999 £000 40 36 26 26 31 17 176 1998 £000 38 30 22 22 30 10 152 1999 £000 20 22 17 22 23 14 118 1998 £000 20 16 10 20 20 14 100 1998 £000 190 150 145 145 150 110 890 30 20 27 20 97 987 790 820 176 152 118 100 1999 £000 398 378 358 363 334 251 Total 1998 £000 418 336 312 322 340 234 2,082 1,962 32 22 37 22 113 2,195 30 20 27 20 97 2,059 *Including fees of £15,000 received from Easter Holdings Limited and Easter Capital Investment Holdings Limited for services as a non-executive director. †Other benefits include the taxable value of private medical insurance and company car, or if a director has opted out of the Company car scheme, a salary supplement in lieu of a company car. Directors’ interests The directors and, where relevant, their connected persons (within the meaning of Section 346 of the Companies Act 1985) are beneficially interested in the Ordinary share capital of the Company as follows: Ordinary shares of 10p each at 25th December 6.75% convertible subordinated unsecured loan stock 2006/16 at 25th December M. Barber X. Pullen R. M. Boyland L. S. Coral K. C. Ford A. Lewis-Pratt* M. H. Gruselle Viscount Chandos P. J. Duffy D. N. Cherry 1999 Shares 2,675,820 1,003,179 506,119 3,463 377,639 112,787 50,653 27,926 – 4,138 1998 Shares 2,343,701 981,060 504,000 1,335 368,998 286,634 50,653 7,926 – 3,363 Total at 25th December 1999 4,761,724 4,547,670 1999 £ 35,394 23,693 13,000 25 – – 943 3,313 – – 76,368 1998 £ 35,394 23,693 13,000 25 – – 943 3,313 – – 76,368 *A. Lewis-Pratt’s shareholding in 1998 included a non-beneficial holding which does not require disclosure under the Companies Act 1985. There have been no changes to the directors’ interests since 25th December 1999, except K. Ford who purchased an additional 4,800 Ordinary shares of 10p each on 22nd February 2000 and M. Barber who purchased 50,000 Ordinary shares of 10p each on 24th February 2000. 7632 C&R Mid 1999 4/10/00 11:55 AM Page 37 Report on Directors’ Remuneration and Interests Share incentives From time to time the Committee has recommended to the Board that options should be granted to executive directors and other employees under the Company’s Executive Share Option Schemes. In 1999 options were granted over a total of 672,900 Ordinary shares under the 1998 Discretionary Share Option Schemes, as follows: Date 23rd February 1999 Exercise price 191.5p Directors 175,000 Executives 497,900 Total 672,900 The table below gives details of the outstanding options granted to the executive directors: Director M. Barber R. Boyland X. Pullen L. Coral K. Ford A. Lewis-Pratt Date granted 22nd December 1993 28th October 1994 18th June 1997 22nd December 1993 28th October 1994 18th June 1997 15th May 1998 22nd December 1993 28th October 1994 18th June 1997 15th May 1998 22nd December 1993 28th October 1994 21st October 1996 18th June 1997 15th May 1998 23rd February 1999 18th June 1997 15th May 1998 23rd February 1999 18th June 1997 15th May 1998 23rd February 1999 Exercise conditions met Yes Yes Yes Yes Yes Yes Not yet Yes Yes Yes Not yet Yes Yes Yes Yes Not yet Not yet Yes Not yet Not yet Yes Not yet Not yet Exercise price 168.9p* 131.4p* 226.4p* 168.9p* 131.4p* 226.4p* 279.5p 168.9p* 131.4p* 226.4p* 279.5p 168.9p* 131.4p* 193.2p* 226.4p* 279.5p 191.5p 226.4p* 279.5p 191.5p 226.4p* 279.5p 191.5p Options over Ordinary shares of 10p each At beginning of year 136,878 104,263 50,582 Issued in year – – – At end of year 136,878 104,263 50,582 291,723 136,878 104,263 50,582 100,000 391,723 136,878 104,263 50,582 100,000 391,723 50,180 26,066 78,197 50,582 100,000 – 305,025 151,747 175,000 – 326,747 151,747 175,000 – 326,747 – – – – – – – – – – – – – – – – 25,000 25,000 – – 75,000 75,000 – – 75,000 75,000 291,723 136,878 104,263 50,582 100,000 391,723 136,878 104,263 50,582 100,000 391,723 50,180 26,066 78,197 50,582 100,000 25,000 330,025 151,747 175,000 75,000 401,747 151,747 175,000 75,000 401,747 *Exercise price and number of options have been adjusted since being granted for subsequent share capital reorganisations, the Rights Issue in April 1994, the Placing and Open Offer in May 1997 and the Rights Issue in April 1998. 7632 C&R Mid 1999 4/10/00 11:55 AM Page 38 38&39 Capital and Regional Properties plc Report on Directors’ Remuneration and Interests Share incentives continued The table below gives details of potential gains on the options granted to the executive directors: Options outstanding at the year end: Total subscription price Potential profit on exercise of options:* Options where exercise condition has been met Options where exercise condition has yet to be met Total at year end * Using a share price of 207.5p as at 29th February 2000. M. Barber £000 R. Boyland £000 X. Pullen £000 L. Coral £000 K. Ford £000 A. Lewis-Pratt £000 483 132 – 132 762 132 – 132 762 132 – 132 712 976 976 50 4 54 – 12 12 – 12 12 The Company’s share price was 229p on 25th December 1999. During the year the share price ranged from 167.5p to 296.5p. There has been no change in directors’ interests in options since 25th December 1999. Options granted prior to 1997, 13,000 options granted to each of K. Ford and A. Lewis-Pratt in June 1997 and those granted in 1998 and 1999 can only be exercised within the seven year period commencing three years after the date of grant. All other options granted in 1997 can only be exercised within a four year period commencing three years after the date of grant. All the options granted require the achievement of growth in net assets per share above predefined targets. Options can only be exercised if growth in fully diluted net asset value per share during any three year period prior to the expiry date of the option exceeds the growth in the Monthly Index of Capital Values for All Properties published by the Investment Property Databank for the same period. An additional exercise criteria for options granted in 1998 and subsequent years requires the total return for shareholders over any three year period to exceed the increase over the same period in the Index of Total Returns for the Property Sector as shown in the FT-SE Actuaries Indices published in the Financial Times. A total of 62,159 shares with a value of £146,695 were issued to eligible employees in April 1999 under the Capital and Regional Properties plc approved profit sharing scheme including 2,119 shares issued to each executive director. The Committee has set aside the sum of £180,000 out of the profits of the current year to be allocated under this scheme or any other proposed replacement scheme. Martin Gruselle Chairman Remuneration Committee 2nd March 2000 7632 C&R Mid 1999 4/10/00 11:55 AM Page 39 Corporate Governance Statement Introduction The Company is required to comply, for the accounting period ended 25th December 1999, with “The Combined Code – Principles of Good Governance and Code of Best Practice” (“the Combined Code”). for each executive director. A proportion of all executive directors’ remuneration consists of cash bonuses and share options (each linked to corporate and individual performance achievements) the levels of which are determined by the Remuneration Committee. Governance: principles and procedures Details of how the Company has applied the Code are as follows for each of the Code’s four distinct areas: Directors The Company is controlled through the Board of Directors which is chaired by Martin Barber and consists of six executive and four non-executive directors, thus providing an appropriate balance of power and authority. The non-executive directors are all independent of the Group. During the year the internal management and reporting structure was formalised. The Board reviews the schedule of matters reserved to it for decision at least once a year. Board approval is required for all significant or strategic decisions including major acquisitions, disposals and financing transactions. A procedure for directors to take independent professional advice if necessary has been agreed by the Board and formally confirmed to all directors. Details of all the non-executive directors are set out on page 29. Martin Gruselle has been nominated as the senior independent director as required by the Code. The Board meets at least quarterly and each member receives up-to-date financial and commercial information prior to each meeting, in particular quarterly management accounts and schedules of property income and outgoings (each with comparisons against budget), schedules of acquisitions and disposal and relevant appraisals (prior Board approval being required for large transactions) and cash flow forecasts and details of funding availability. All members of the Board are subject to the re-election provisions of the Articles which requires them to offer themselves for re-election at least once every three years. Any proposal to appoint new directors to the Board is discussed at a full Board meeting and all Board members are given an opportunity to meet the individual concerned prior to any formal decision being taken. It is currently considered inappropriate to establish a nomination committee. The directors have delegated certain of their responsibilities to committees that operate within specified terms of reference and authority limits that are reviewed annually or in response to changed circumstances. An Executive Directors Committee, whose members include the six executive directors, meets on a monthly basis and deals with all major decisions of the Group not requiring full Board approval or authorisation by other Board Committees. The Executive Directors Committee is quorate with four directors in attendance; if decisions are not unanimous the matter is referred to the Board for approval. Notes and action points from Executive Directors Committee meetings are circulated to the Board. The Executive Directors Committee includes the Chairman of the Board. The Audit and Remuneration Committees, which consist solely of non-executive directors, meet at least twice a year. Directors’ remuneration The Remuneration Committee makes recommendations to the Board, within existing terms of reference, on remuneration policy and determines, on behalf of the Board, specific remuneration packages The fees of the non-executive directors are reviewed by the Board at regular intervals. The statement of remuneration policy and details of each director’s remuneration is set out in the report on Directors’ Remuneration and Interests on pages 35 to 38. Shareholder relations The Company has always encouraged regular dialogue with its institutional shareholders and private investors at the Annual General Meeting, through corporate functions and property visits. Update meetings are held with institutional shareholders following announcement of preliminary and interim results and as requested throughout the year. Directors are accessible to all shareholders and queries received verbally or in writing are immediately addressed. Directors are introduced to shareholders at the Annual General Meeting including the identification of non-executives and Committee Chairmen. Accountability and audit The Company’s annual report and accounts includes detailed reviews of the activity at each of the principal properties within the portfolio each year, together with a detailed review of its financial results and financing position. In this way the Board seeks to present a balanced and understandable assessment of the Company’s position and prospects. Internal control The Group has adopted the transitional approach for the internal control aspects of the Combined Code as set out in the letter from the London Stock Exchange to listed companies dated 27th September 1999. The Board confirms that it has established the procedures necessary to implement the guidance “Internal Control: Guidance for Directors on the Combined Code”. The Group operates a system of internal financial control which is designed to provide reasonable but not absolute assurance against misstatement or loss. There is a comprehensive system of procedures in place for financial reporting to the executive directors and the Board. These procedures include the preparation of budgets and forecasts, cash management, variance analysis, property, taxation and treasury reports and a report on financing. Authority limits are clearly defined throughout the organisation including the schedule of matters reserved for the approval of the Board or a specified Committee of the Board or individual directors. The Board has overall responsibility for the system of internal financial control. The directors carried out their review of the current system and updated the documentation of key risk, operational controls and procedures relating to different areas of the business. In this review, that is repeated at least once a year, the directors have considered the effectiveness of the internal financial control framework. The Group does not currently have an internal audit function but the need for one is reconsidered by the Audit Committee from time to time. Going concern In compliance with the Listing Rules of the London Stock Exchange the directors can report that based on the Group’s budgets and financial projections, they have satisfied themselves that the business is a going concern. The Board has a reasonable expectation that the Company 7632 C&R Mid 1999 4/10/00 11:55 AM Page 40 40&41 Capital and Regional Properties plc Corporate Governance Statement and Group have adequate resources and facilities to continue in operational existence for the foreseeable future and therefore the accounts are prepared on a going concern basis. Audit Committee The Company’s Audit Committee, consisting of not less than three non-executive directors, has written terms of reference under which it is responsible for the relationship with the Group’s auditors and for reviewing in depth the Company’s financial report, circulars to shareholders and internal controls. The terms of reference were reviewed and updated in 1999 to ensure the Audit Committee’s duties adequately cover all areas identified by the Code, including review of cost effectiveness and the amount of non-audit services provided to the Group. The Audit Committee meets prior to Board meetings to consider the Interim and Annual results and on an ad hoc basis at other times during the year. In 1999 the Committee met three times. Directors’ responsibilities statement The directors are required by UK company law to prepare financial statements for each financial year that give a true and fair view of the state of affairs of the Company and Group as at the end of the financial year and of the profit and loss of the Group for that period. note 1 to the financial statements and that the financial statements have been prepared on the going concern basis. The directors are responsible for keeping proper accounting records, for taking reasonable steps to safeguard the assets of the Company and the Group and prevent and detect fraud and other irregularities. Compliance statement The Company is committed to high standards of corporate governance. During 1999, the terms of reference of the Audit Committee were reviewed and updated to comply with Code provision D3.2. As permitted by the London Stock Exchange, the Company has complied with Code provision D.2.1 by adopting the transitional approach as set out in the letter from the London Stock Exchange to listed companies dated 27th September 1999. Other than disclosed above, throughout the year ended 25th December 1999, the Company has been in compliance with the Code Provisions set out in Section 1 of the Combined Code on Corporate Governance issued by the London Stock Exchange. By Order of the Board The directors confirm that suitable accounting policies have been used and applied consistently and reasonably and prudent judgements and estimates have been made in the preparation of the financial statements for the year ended 25th December 1999. The directors also confirm that applicable accounting standards and the Companies Act 1985 have been followed with the exception of the departures disclosed and explained in L. Coral Secretary 2nd March 2000 7632 C&R Mid 1999 4/10/00 11:55 AM Page 41 Auditors’ Report to the members of Capital and Regional Properties plc We have audited the financial statements on pages 42 to 60 which have been prepared under the accounting policies set out on pages 47 and 48. Respective responsibilities of directors and auditors The directors are responsible for preparing the Annual Report, including as described on page 40 the financial statements. Our responsibilities, as independent auditors, are established by statute, the Auditing Practices Board, the Listing Rules of the London Stock Exchange, and by our profession’s ethical guidance. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law or the Listing Rules regarding directors’ remuneration and transactions with the Company and other members of the Group is not disclosed. We review whether the corporate governance statement on page 40 reflects the Group’s compliance with those provisions of the Combined Code specified for our review by the Stock Exchange, and we report if it does not. We are not required to consider whether the Board’s statements on internal control cover all risks and controls or form an opinion on the effectiveness of the Group’s corporate governance procedures or its risk and control procedures. We read the other information contained in the Annual Report, including the corporate governance statement, and consider whether it is consistent with the audited financial statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Basis of audit opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the circumstances of the company and the group, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of affairs of the Company and the group as at 25th December 1999 and of the profit of the Group for the year then ended and have been properly prepared in accordance with the Companies Act 1985. Deloitte & Touche Chartered Accountants and Registered Auditors Hill House, 1 Little New Street, London EC4A 3TR 2nd March 2000 7632 C&R Mid 1999 4/10/00 11:55 AM Page 42 42&43 Capital and Regional Properties plc Consolidated Profit and Loss Account for the year ended 25th December 1999 Turnover: group rental income and share of joint ventures’ turnover Less: share of joint ventures’ turnover Group rental income Net property costs Net rental income Profit on the sale of trading and development properties Administrative expenses Other operating income Group operating profit Share of operating profit in joint ventures Share of operating profit in associates Income from listed investments Interest receivable and similar income Interest payable and similar charges Profit on revenue activities Profit/(loss) on sale of investment properties Profit on sale of investment Profit on ordinary activities before taxation Taxation Profit on ordinary activities after taxation Equity minority interests Profit attributable to the shareholders of the Company Equity dividends paid and payable Profit retained in the year Earnings per share Earnings per share – diluted Earnings per share on revenue activities Notes 2 18 3 4 5 18 19 6 7 3 8 11 29 12 13 28 14 14 14 1999 £000 60,211 (6,614) 53,597 (8,085) 45,512 1,646 47,158 (7,163) 39,995 955 40,950 594 100 41,644 1,337 719 (33,005) 10,695 1,284 859 12,838 (409) 12,429 (426) 12,003 (4,913) 7,090 1998 £000 52,732 (7,822) 44,910 (6,403) 38,507 517 39,024 (6,259) 32,765 669 33,434 789 684 34,907 1,095 807 (25,290) 11,519 (38) – 11,481 (347) 11,134 (42) 11,092 (4,176) 6,916 12.2p 12.2p 10.2p 12.1p 12.1p 12.2p The results of the Group for the year related entirely to continuing operations within the meaning of Financial Reporting Standard No. 3. The notes on pages 47 to 60 form part of these financial statements. 7632 C&R Mid 1999 4/10/00 11:55 AM Page 43 Note of Historical Cost Profits and Losses for the year ended 25th December 1999 Reported profit on ordinary activities before taxation Realisation of property revaluation surplus of previous years Realisation of other investment revaluation deficit of previous years Realisation of property revaluation deficit of previous years in joint ventures Historical cost profit on ordinary activities before taxation Historical cost profit for year retained after taxation, minority interests and dividends 1999 £000 12,838 2,136 (774) – 14,200 8,452 1998 £000 11,481 1,313 – (54) 12,740 8,010 Statement of Total Recognised Gains and Losses for the year ended 25th December 1999 Share of unrealised surplus on valuation of investment properties Share of unrealised deficit on valuation of other fixed assets Share of unrealised surplus on valuation of properties in joint ventures Share of unrealised surplus on valuation of properties in associates Revaluation surplus/(deficit) on other investments Tax on revaluation surpluses realised in year Exchange differences Profit attributable to shareholders Total recognised gains and losses relating to the year Notes 28 28 18 19 17 1999 £000 54,520 (596) 46 – 675 – 1 54,646 12,003 66,649 1998 £000 48,694 – 87 113 (979) (165) – 47,750 11,092 58,842 Reconciliation of Movements in Shareholders’ Funds for the year ended 25th December 1999 Profit for the year attributable to shareholders of the Company Equity dividends paid and payable Profit retained in the year Share capital and share premium issued in year (net of expenses) Goodwill written off Other recognised gains and losses relating to year (see above) Net addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds Notes 13 1999 £000 12,003 (4,913) 7,090 14 – 54,646 61,750 330,816 392,566 1998 £000 11,092 (4,176) 6,916 59,128 (277) 47,750 113,517 217,299 330,816 The notes on pages 47 to 60 form part of these financial statements. 7632 C&R Mid 1999 4/10/00 11:55 AM Page 44 44&45 Capital and Regional Properties plc Consolidated Balance Sheet as at 25th December 1999 Fixed assets Property assets Other fixed assets Other investments Investment in joint ventures share of gross assets share of gross liabilities Investment in associates Current assets Property assets Debtors: amounts falling due after more than one year amounts falling due within one year Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year (including convertible unsecured loan stock) Net assets Capital and reserves Called up share capital Share premium account Revaluation reserve Other reserves Profit and loss account Equity shareholders’ funds Equity minority interests Non-equity funding by joint arrangement partners Capital employed Net assets per share adjusted for minority interests and non-equity funding Net assets per share adjusted for minority interests and non-equity funding – diluted Notes £000 34,660 4,840 40,389 7,388 87,277 (58,178) 15 16 17 18 19 20 21 21 22 23 24 27 28 28 28 28 29 30 31 31 1999 £000 933,140 14,073 947,213 21,120 8,650 (6,428) 2,222 5 970,560 29,099 999,659 (598,752) 400,907 9,827 161,876 184,836 591 35,436 392,566 4,341 4,000 400,907 399.5p 376.4p £000 24,412 3,914 18,802 5,476 52,604 (35,120) 1998 £000 654,606 844 655,450 22,000 7,715 (5,448) 2,267 3,446 683,163 17,484 700,647 (364,480) 336,167 9,826 161,863 131,553 591 26,983 330,816 2,101 3,250 336,167 336.7p 320.6p The financial statements were approved by the board of directors and signed on their behalf on 2nd March 2000 by: M. Barber L. Coral The notes on pages 47 to 60 form part of these financial statements. 7632 C&R Mid 1999 4/10/00 11:55 AM Page 45 Consolidated Cash Flow Statement for the year ended 25th December 1999 Net cash inflow from operating activities Dividends received from joint ventures Dividends received from associates Returns on investments and servicing of finance Dividends received from listed investments Interest received Interest paid Dividend paid to minority interest Loan arrangement costs Taxation UK corporation tax paid UK advance corporation tax paid UK income tax deducted at source UK income tax recovered USA tax paid USA withholding tax recovered Net operating cash flow Capital expenditure and financial investment Payments for: Additions to investment properties Additions to properties held as current assets Additions to other tangible assets Additions to listed investments Investment in associate Loans to joint ventures Receipts from: Sale of investment properties Sale of properties held as current assets Sale of other tangible assets Sale of investments Repayment of capital and loans from associates Repayment of loan by joint venture Acquisitions and disposals Additions to joint ventures Equity dividends paid Cash outflow before financing Financing Issue of ordinary share capital Expenses of share issue Bank loans received Bank loans repaid Notes 36(a) £000 1999 £000 42,269 300 714 1998 £000 31,303 3,526 660 £000 935 811 (24,065) – (535) (30,928) 12,355 (22,854) 12,635 (315) (606) (90) 166 (35) – 112 12,467 (880) 11,755 (202,465) (27,759) (738) (2,328) (270) (5,109) 40,371 17,671 173 – – 4,250 1,095 686 (32,291) (87) (331) – – (66) 161 – 17 (230,024) (34,205) (13,794) – – (4,884) 16,225 16,027 37 2,414 2,829 4,023 (241,352) (228,885) – (228,885) (6,141) (235,026) (176,204) (164,449) (725) (165,174) (1,910) (167,084) 14 – 349,170 (112,246) 61,198 (2,070) 200,934 (96,731) 236,938 1,912 163,331 (3,753) Increase/(decrease) in cash 36(b) The notes on pages 47 to 60 form part of these financial statements. 7632 C&R Mid 1999 4/10/00 11:55 AM Page 46 46&47 Capital and Regional Properties plc Company Balance Sheet as at 25th December 1999 Fixed assets Other investments Current assets Debtors: amounts falling due after more than one year amounts falling due within one year Cash at bank and in hand Creditors: amounts falling due within one year Net current assets Total assets less current liabilities Creditors: amounts falling due after more than one year (including convertible unsecured loan stock) Net assets Capital and reserves Called up share capital Share premium account Other reserves Profit and loss account Equity shareholders’ funds Notes £000 1999 £000 183,049 £000 1998 £000 39,018 17 21 21 23 24 27 28 28 28 95,716 781,434 4,529 881,679 (173,755) 59,617 463,385 408 523,410 (21,592) 707,924 890,973 (572,973) 318,000 9,827 161,936 591 145,646 318,000 501,818 540,836 (329,044) 211,792 9,826 161,923 591 39,452 211,792 The financial statements were approved by the board of directors and signed on their behalf on 2nd March 2000 by: M. Barber L. Coral The notes on pages 47 to 60 form part of these financial statements. 7632 C&R Back 1999 4/10/00 11:56 AM Page 47 Notes to the Financial Statements for the year ended 25th December 1999 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 25th 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 50 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. Long leasehold land and buildings Long leasehold land and buildings, not classified as 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. 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. 7632 C&R Back 1999 4/10/00 11:56 AM Page 48 48&49 Capital and Regional Properties plc Notes to the Financial Statements 1. Accounting policies continued 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 Cost 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 Net sale proceeds Historical cost of sales Historical cost profit Revaluation surplus Share of joint ventures Profit/(loss) recognised on sale of properties 4. Administrative expenses General administrative costs Corporate and public company expenses 5. Other operating income Fee income from joint ventures and associates Other income Fixed property assets Current property assets 1999 £000 16,225 (12,805) 3,420 (2,136) 1,284 – 1,284 1998 £000 40,371 (39,141) 1,230 (1,313) (83) 45 (38) 1999 £000 31,874 (30,228) 1,646 – 1,646 – 1,646 1998 £000 7,126 (6,609) 517 – 517 – 517 1999 £000 48,099 (43,033) 5,066 (2,136) 2,930 – 2,930 1999 £000 5,779 1,384 7,163 1999 £000 – 955 955 Total 1998 £000 47,497 (45,750) 1,747 (1,313) 434 45 479 1998 £000 5,249 1,010 6,259 1998 £000 282 387 669 7632 C&R Back 1999 4/10/00 11:56 AM Page 49 Notes to the Financial Statements 6. Interest receivable and similar income Bank interest Interest from joint ventures and associates Other interest Share of joint ventures (see note 18) Share of associates (see note 19) 7. Interest payable and similar charges Bank loans and overdrafts wholly repayable within five years Other loans Capitalised during the year Share of joint ventures (see note 18) Share of associates (see note 19) 1999 £000 237 348 119 704 12 3 719 1999 £000 32,998 1,757 34,755 (2,033) 32,722 251 32 33,005 1998 £000 233 375 119 727 76 4 807 1998 £000 23,888 1,752 25,640 (856) 24,784 237 269 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. 8. Profit on ordinary activities before taxation This is arrived at after charging/(crediting) Loss on disposal of other fixed assets Depreciation Amortisation of goodwill Auditors’ remuneration (see below) Directors’ emoluments (see note 10) Operating lease rentals for land and buildings Surrender premiums received The Group’s auditors also charged the following amounts for the provision of non-audit services during the year: General taxation advice Fees in relation to share issues Other The auditors’ remuneration for the Group includes £7,000 (1998: £6,000) in respect of the parent company. 1999 £000 92 479 – 120 2,195 859 (280) 108 – 6 114 1998 £000 113 569 5 89 2,059 918 (4,535) 85 92 18 195 7632 C&R Back 1999 4/10/00 11:56 AM Page 50 50&51 Capital and Regional Properties plc Notes to the Financial Statements 9. Employee information The staff engaged directly in property management are employed by subsidiaries, which recharge their employment costs to the tenants of the shopping centres and properties owned by those companies. The aggregate payroll costs, excluding shopping centre and property specific employees, were as follows: Staff costs (including directors) consist of: Salaries Discretionary bonuses Total salaries Social security costs Other pension costs The average number of persons employed by the Group during the year was 82 (1998: 74). Direct property services Central management 10. Directors’ emoluments Emoluments of the highest paid director are as follows: Aggregate emoluments Pension contributions to defined contribution scheme Total emoluments of all directors are as follows: Aggregate emoluments Pension contributions to defined contribution schemes 1999 £000 3,107 1,379 4,486 508 199 5,193 1998 £000 2,564 1,107 3,671 380 166 4,217 Average number of employees During 1999 19 63 During 1998 20 54 82 74 1999 £000 358 40 398 2,019 176 2,195 1998 £000 380 38 418 1,907 152 2,059 Company pension contributions to defined contribution schemes are being made in respect of six directors (1998: six directors). Details of directors’ remuneration by director and details of their interests in the share capital of the Company are set out in the Report on Directors’ Remuneration and Interests on pages 35 to 38. 11. Taxation UK corporation tax: Current period Prior periods Advance corporation tax Share of tax of joint ventures (see note 18) 1999 £000 139 (19) 188 101 409 1998 £000 351 (130) 1 125 347 The tax liability for the year has been reduced due to the benefit of capital allowances and the utilisation of losses brought forward. 7632 C&R Back 1999 4/10/00 11:56 AM Page 51 Notes to the Financial Statements 12. Profit of the holding company Of the profit for the year attributable to shareholders, a profit of £111,107,000 (1998: £16,808,000) has been dealt with in the accounts of the holding company and is made up as follows: Dividends from subsidiaries Net operating costs including interest and tax 1999 £000 121,632 (10,525) 111,107 1998 £000 36,550 (19,742) 16,808 The Company has taken advantage of the exemption provided by Section 230 of the Companies Act 1985 from presenting its own profit and loss account. 13. Equity dividends paid and payable Interim of 2.0p per share paid on 23rd August 1999 (1998: 1.5p per share) Proposed final of 3.0p per share payable on 12th May 2000 (1998: 2.75p per share) 1999 £000 1,965 2,948 4,913 1998 £000 1,474 2,702 4,176 14. 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). 15. Property assets Group Cost or valuation: At beginning of year Additions Disposals Revaluation At end of year The year end balance is analysed as follows: Historical cost Revaluation surplus A list of the valuers, and the basis of the valuations, are summarised in note 33. The year end balance for leasehold properties is analysed as follows: Leasehold with more than 50 years to run Leasehold with less than 50 years to run Investment properties Freehold properties £000 Leasehold properties £000 Properties under construction £000 451,595 94,514 (14,941) 26,706 557,874 195,337 124,928 – 25,478 345,743 429,667 128,207 307,316 38,427 7,674 17,567 – 4,282 29,523 22,963 6,560 Total £000 654,606 237,009 (14,941) 56,466 933,140 759,946 173,194 1999 £000 340,493 5,250 345,743 The net book value of property assets includes £2,256,000 (1998: £623,000) in respect of capitalised interest. 7632 C&R Back 1999 4/10/00 11:56 AM Page 52 52&53 Capital and Regional Properties plc Notes to the Financial Statements 16. Other fixed assets Group Cost or valuation At beginning of year Additions Disposals Revaluation (see note 28) At end of year Depreciation At beginning of year Provided for year Disposals At end of year Net book values: At 25th December 1999 At 25th December 1998 Long leasehold land and buildings £000 Fixtures and fittings £000 Motor vehicles £000 – 13,746 – (596) 13,150 – – – – 13,150 – 1,349 648 (776) – 1,221 820 340 (628) 532 689 529 558 79 (67) – 570 243 139 (46) 336 234 315 Total £000 1,907 14,473 (843) (596) 14,941 1,063 479 (674) 868 14,073 844 The long leasehold land and buildings is the Group’s head office, which was independently valued on 25th December 1999. It was purchased on 17th December 1999, consequently no charge for depreciation was made in the year. The valuer, and the basis of the valuation, is summarised in note 33. 17. Other investments Cost or valuation At beginning of year Disposals Transfers from Group companies Write down in value of investments Surplus on revaluation (see note 28) At end of year The year end balance is analysed as follows: Historical cost Revaluation surplus Investment in CenterPoint Properties Trust £000 Other listed investments £000 20,445 – – – 675 21,120 3,021 18,099 1,555 (1,555) – – – – – – Group Company Shares in subsidiary and joint venture undertakings £000 39,018 – 171,807 (27,776) – 183,049 Total £000 22,000 (1,555) – – 675 21,120 3,021 18,099 183,049 – At 25th 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. A list of subsidiaries, joint venture and associated undertakings is given in note 39. 18. Investment in joint ventures At beginning of year Subscription for share capital Amortisation of goodwill arising on additions Disposals Dividends and capital distributions received Share of results (see below) Share of taxation (see below) Share of property revaluation surplus At end of year 1999 £000 2,267 – – – (300) 310 (101) 46 2,222 1998 £000 4,457 725 (5) 26 (3,526) 628 (125) 87 2,267 7632 C&R Back 1999 4/10/00 11:56 AM Page 53 Notes to the Financial Statements 18. Investment in joint ventures continued Group share of results: Turnover Operating profit Interest receivable and similar income Interest payable and similar charges Equity minority interests Profit before tax Taxation Profit after tax Group share of: Investment properties Development properties at cost Other current assets Gross assets Current liabilities Loans Gross liabilities Share of net assets Effective Group share Potential recourse to the Group Actual recourse at end of year A list of valuers and the basis of the valuation are summarised in note 33. The joint ventures all operate in the UK. 19. Investment in associates At beginning of year Share of results (see below) Share of profit on disposal of investment properties eliminated on consolidation Dividends received Capital distributions received Investment in associates Share of property revaluation surplus At end of year Group share of results: Turnover Operating profit Interest receivable and similar income Interest payable and similar charges Profit before tax Taxation Profit after tax Group share of: Other current assets Gross and net assets Effective Group share The associates both operate in the UK. The Easter Runcorn Partnership was dissolved during the year. Easter Holdings Ltd £000 Exchange Court Properties Ltd £000 Others £000 6,289 582 7 (162) (45) 382 (99) 283 1,325 2,389 2,765 6,479 3,562 1,805 5,367 1,112 50% Nil Nil 325 5 – (89) – (84) – (84) – 1,764 10 1,774 106 850 956 818 – 7 5 – – 12 (2) 10 80 70 247 397 105 – 105 292 50% 37.5% to 50% Nil Nil Nil Nil 1999 £000 3,446 71 31 (714) (2,829) – – 5 Easter Industrial Partnership £000 Easter Runcorn Partnership £000 63 55 2 (19) 38 – 38 5 5 25% 47 45 1 (13) 33 – 33 – – – Total £000 6,614 594 12 (251) (45) 310 (101) 209 1,405 4,223 3,022 8,650 3,773 2,655 6,428 2,222 1998 £000 3,304 419 – (660) – 270 113 3,446 Total £000 110 100 3 (32) 71 – 71 5 5 7632 C&R Back 1999 4/10/00 11:56 AM Page 54 54&55 Capital and Regional Properties plc Notes to the Financial Statements 20. Current property assets Properties held for disposal Properties under development 1999 £000 31,178 3,482 34,660 1998 £000 18,860 5,552 24,412 The net book value of current property assets includes £68,000 (1998: £10,000) in respect of capitalised interest. 21. Debtors Amounts falling due after more than one year Amounts owed by subsidiaries Amounts owed by joint ventures Amounts falling due within one year Trade debtors Amounts owed by subsidiaries Other debtors Tax recoverable Prepayments and accrued income 1999 £000 – 4,840 4,840 14,988 – 6,042 325 19,034 40,389 Group 1998 £000 – 3,914 3,914 12,095 – 2,712 461 3,534 18,802 1999 £000 90,876 4,840 95,716 34 658,569 14 419 122,398 781,434 Company 1998 £000 55,703 3,914 59,617 53 423,255 358 703 39,016 463,385 22. Cash at bank and in hand Cash at bank includes £127,000 (1998: £36,000) specifically held as security deposits and retained in rent accounts and not freely available to the Group for day to day commercial purposes. 23. Creditors: amounts falling due within one year Bank loans (secured) Amounts owed to subsidiaries Trade creditors Other creditors Taxation and social security Corporation tax Accruals and deferred income Proposed dividends 24. Creditors: amounts falling due after more than one year Bank loans (secured) (see note 25) Convertible loan stock (unsecured) (see note 26) 1999 £000 3,180 – 5,929 1,281 1,443 475 42,922 2,948 58,178 1999 £000 574,620 24,132 598,752 Group 1998 £000 396 – 1,397 2,858 1,271 511 24,511 4,176 35,120 Group 1998 £000 340,439 24,041 364,480 1999 £000 (141) 164,272 35 114 – – 6,527 2,948 173,755 1999 £000 548,841 24,132 572,973 Company 1998 £000 (322) 13,262 7 – – – 4,469 4,176 21,592 Company 1998 £000 305,003 24,041 329,044 7632 C&R Back 1999 4/10/00 11:56 AM Page 55 Notes to the Financial Statements 25. Bank loans Aggregate amount repayable: Between one and two years Between two and five years Greater than five years Loans due after more than one year Loans due in one year or less or on demand Total loans 1999 £000 65,529 487,319 21,772 574,620 3,271 577,891 Group 1998 £000 33,838 306,601 – 340,439 487 340,926 1999 £000 52,522 487,319 9,000 548,841 (50) Company 1998 £000 (147) 305,150 – 305,003 (231) 548,791 304,772 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). The following information has been produced in order to comply with Financial Reporting Standard No.13. A more detailed analysis is given in the Finance Review on pages 32 and 33. The Group’s interest rate profile is after taking account of the effect of swaps, as follows: Fixed and swapped loans Variable rate loans Weighted average interest rate 7.8% 6.9% Weighted average period-years 2.64 n/a Total £000 272,391 330,600 602,991 Variable rate loan interest rates are based on three month LIBOR. The table below shows the market value of fixed rate debt instruments, and reflects the difference between the interest rate yield curve as at 25th December 1999 and the rates historically committed; namely the fair value adjustment. Convertible unsecured loan stock Bank borrowings Interest rate swaps Book value £000 24,642 15,249 n/a Notional value £000 n/a n/a 232,500 39,891 232,500 Fair value £000 24,642 15,325 230,954 270,921 Fair value adjustment 1999 £000 – (76) 1,546 Fair value adjustment 1998 £000 (707) (838) (9,828) 1,470 (11,373) Interest rate swaps and bank fixed rates have been valued on a replacement basis. They have been valued against the offered side of the zero coupon yield curve commencing on 25th December 1999 and ending on the contracted expiry dates. Undrawn loan facilities as at 25th December 1999 are as follows: Loans due to be repaid in: Less than one year Between one and two years Between two and five years Financial assets The fair value adjustment to financial assets and liabilities is, in the opinion of the directors, not material to the balance sheet. Currency profile All monetary assets and liabilities are denominated in sterling. £000 12,594 5,850 3,050 21,494 7632 C&R Back 1999 4/10/00 11:56 AM Page 56 56&57 Capital and Regional Properties plc Notes to the Financial Statements 26. Convertible subordinated unsecured loan stock Convertible loan stock Unamortised loan issue costs due after one year Unamortised loan issue costs due within one year 1999 £000 24,642 (510) 24,132 (91) 24,041 Group 1998 £000 24,642 (601) 24,041 (91) 23,950 1999 £000 24,642 (510) 24,132 (91) 24,041 Company 1998 £000 24,642 (601) 24,041 (91) 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. 27. Called up share capital Ordinary shares of 10p each At beginning of year Issued in respect of rights issue Issued on exercise of share options Issued in respect of profit sharing scheme At end of year Ordinary shares of 10p each There have been no changes to the number of shares in issue since the year end. Number of shares issued and fully paid Nominal value of shares issued and fully paid 1999 Number 1998 Number 98,255,271 – 10,426 – 76,399,235 21,828,352 – 27,684 98,265,697 98,255,271 1999 £000 9,826 – 1 – 9,827 1998 £000 7,640 2,183 – 3 9,826 Authorised 1999 1998 150,000,000 150,000,000 The options to subscribe for new Ordinary shares of 10p each under the share option schemes that were outstanding at 25th December 1999 are as follows: Period within which options are exercisable: 22nd December 1996 to 22nd December 2003 28th October 1997 to 28th October 2004 13th April 1998 to 13th April 2005 21st October 1999 to 21st October 2006 18th June 2000 to 18th June 2004 18th June 2000 to 18th June 2007 15th May 2001 to 15th May 2008* 22nd May 2001 to 22nd May 2008* 28th September 2001 to 28th September 2008* 23rd February 2002 to 23rd February 2009* *Only exercisable if conditions relating to growth in net asset per share and total return for shareholders are met. 25th December 1999 Number of shares Subscription price 460,814 349,281 10,426 182,458 709,869 109,558 1,152,000 72,820 25,000 672,900 3,745,126 168.9p 131.4p 132.4p 193.2p 226.4p 226.4p 279.5p 286.5p 196.5p 191.5p 7632 C&R Back 1999 4/10/00 11:56 AM Page 57 Notes to the Financial Statements 28. Reserves Revaluation reserves Other reserves Group At beginning of year Issue of share capital Group share of revaluation of investment properties Group share of revaluation deficit of other fixed assets Realisation of surplus on disposal of investment properties Share of unrealised revaluation surplus in joint ventures Revaluation surplus on other investments Realisation of deficit on disposal of other investments Profit for the year Exchange differences At end of year Group’s share of post acquisition reserves of joint ventures and associates: At beginning of year Movement during the year At end of year Company At beginning of year Movement during the year At end of year Property revaluation reserve £000 114,903 – 54,520 (596) (2,136) 46 – – – – 166,737 729 (532) 197 Share premium account £000 161,863 13 – – – – – – – – 161,876 161,923 13 161,936 Investment revaluation reserve £000 Capital redemption reserve £000 Profit and loss account £000 16,650 – – – – – 675 774 – – 18,099 591 – – – – – – – – – 591 26,983 – – – 2,136 – – (774) 7,090 1 35,436 349 502 851 591 – 591 39,452 106,194 145,646 The accumulated goodwill written off to reserves at end of year is £4,105,000 (1998: £4,105,000). 29. Equity minority interests Share of net assets attributable to minority shareholders: At beginning of year Share of results Share of joint ventures (see note 18) Share of movements in revaluation reserve Dividends paid to minority interests At end of year Profit and loss Balance sheet 1999 £000 1999 £000 Profit and loss 1998 £000 Balance sheet 1998 £000 – 381 45 – – 426 2,101 381 – 1,946 (87) 4,341 – (3) 45 – – 42 933 (3) – 1,171 – 2,101 Minority interests relate to participation in the net equity of subsidiary companies. 30. 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. 31. 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 26). 7632 C&R Back 1999 4/10/00 11:56 AM Page 58 58&59 Capital and Regional Properties plc Notes to the Financial Statements 32. 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: Tax on capital gains if investment assets were sold at their current valuation Accelerated capital allowances Management expenses carried forward 1999 £000 45,347 6,818 – 52,165 1998 £000 31,985 5,182 (871) 36,296 If the above 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). 33. Valuations The properties were valued at 25th December 1999, as follows: Group properties: Total fixed property assets Other fixed assets Total property assets Valuer DTZ Debenham Tie Leung Insignia Richard Ellis Limited Directors Directors Basis of valuation Open market value Properties under construction* Open market value Open market value Cost DTZ Debenham Tie Leung Open market value Properties held by joint ventures: The Capital Properties Partnership Easter Holdings Limited Valuer Directors Easter Holdings Limited Basis of valuation Open market value Open market value £000 784,910 26,362 116,960 475 4,433 933,140 13,150 946,290 £000 160 2,650 2,810 Valuations are at open market value as defined in the Appraisal and Valuation Manual of The Royal Institution of Chartered Surveyors. *The figure stated reflects the Group’s effective interest in properties under construction. 34. Contingent liabilities and guarantees At 25th December 1999, the Company or the Group had given guarantees in respect of: – rental and grant repayment obligations of certain joint ventures; – non-equity funding by joint arrangement partners. No security has been provided against any of these guarantees. As set out in notes 18 and 19 there was nothing recourse to the Group in respect of guarantees of the bank loans of joint ventures and associates not included in the consolidated balance sheet. 35. Future commitments Capital expenditure commitments: Contracted, but not provided for Revenue expenditure commitments: Commitments for 2000 in respect of operating leases for land and buildings which expire: Between two and five years In five years or more 1999 £000 1998 £000 14,839 23,900 – 1,272 1,272 – 779 779 7632 C&R Back 1999 4/10/00 11:56 AM Page 59 Notes to the Financial Statements 36. Notes to the cash flow statement (a) Net cash inflow from operating activities Group operating profit Profit on the sale of trading and development properties Depreciation Loss on disposal of fixed assets Amortisation of goodwill arising on acquisition of joint venture Increase in trade debtors, other debtors and prepayments Increase in trade creditors, other creditors, taxation and social security and accruals Net cash inflow from operating activities (b) Reconciliation of net cash flow movement in net debt Increase/(decrease) in cash in year Cash inflow from increase in debt financing Change in net debt resulting from cash flows Net debt at beginning of year Net debt at end of year (c) Analysis of net debt Cash in hand and at bank Debt due within one year Debt due after one year Total 37. Related party transactions 1999 £000 40,950 (1,646) 39,304 479 92 – (6,183) 8,577 42,269 1998 £000 33,434 (517) 32,917 569 113 5 (5,305) 3,004 31,303 1999 £000 1,912 (236,924) (235,012) (360,591) 1998 £000 (3,753) (104,203) (107,956) (252,635) (595,603) (360,591) At 25th December 1998 £000 5,476 (760) (365,307) At 25th December 1999 £000 7,388 (3,521) (599,470) Cash flows £000 1,912 (2,761) (234,163) (360,591) (235,012) (595,603) The Group’s principal transactions with related parties, as defined by Financial Reporting Standard No. 8, are summarised below: Joint ventures and associates Details of the Group’s principal joint ventures and associates, including recourse to the Group in respect of external borrowings, are set out in notes 18 and 19. The Group has provided a £5,000,000 loan facility to Easter Holdings Ltd which is repayable on or before 1st January 2001. At 25th December 1999 the loan outstanding was £4,840,000 (1998: £3,914,000). Interest was charged on this facility at rates ranging between 8.0% and 9.25% during the year. The interest receivable for the year is £348,000 (1998: £364,000). The Group was charged £509,000 by a subsidiary of Easter Holdings Ltd in respect of property acquisition and management fees during the year, and £248,000 in respect of project management fees. During 1999 the Group purchased the property assets held by The Easter Industrial Partnership and The Easter Runcorn Partnership on normal commercial terms for £15,175,000 and £13,000,000 respectively. The Group had a 25% interest in both of the partnerships at the date of acquisition and its interests at the year-end are disclosed in note 19. During 1999 the Group was in a partnership arrangement with funds managed by PRICOA Property Investment Management Limited of which Martin Barber is non-executive chairman. During 1999 a subsidiary company, The Easter Management Group (Scotland) Limited, paid a dividend of £86,900 to Kenneth Ford who has a 25% interest therein. During 1999 Cine UK Limited leased one of the Group’s properties and had entered into agreements for lease at two other Group properties on normal commercial terms. Viscount Chandos is a director and shareholder of Cine UK Limited. David Cherry is a former Senior Partner and currently a consultant to the firm Donaldsons, which has continued to act during 1999 as one of the Group’s property advisers and as such has received fees for its services on normal professional terms. 38. Post balance sheet events On the 4th February 2000 the Group sold Royal London Estate, Acton for a total consideration of £3,450,000. 7632 C&R Back 1999 4/10/00 11:56 AM Page 60 60&61 Capital and Regional Properties plc Notes to the Financial Statements 39. Subsidiary, joint arrangement entities, associated and joint venture undertakings at 25th December 1999 Principal subsidiaries, joint arrangement entities, joint ventures and associated companies Capital & Regional Investments Limited ** Capital & Regional Shopping Centres Limited ** Capital & Lanham Retail Parks Limited ** The Howgate Shopping Centre Limited * Ashley Centre GP Limited Ashley Centre Limited Partnership Capital & Regional Retail (Northern) Limited ** Exchange Court Properties Limited * Capital & Regional Estates Limited ** Lancaster Shelf Eleven Limited * Capital & Regional (Milton Keynes) Limited Xscape Milton Keynes Partnership St. Andrew House (Glasgow) Limited * Capital & Regional Property Management Limited Capital & Regional (Out-of-town) Ashford Limited Capital & Regional (Victoria) Limited Cosmorole Limited R Green (Brighton) Limited Capital & Regional (Sunderland) Limited Jearon Properties Limited Capital & Regional Limited Capital & Lanham Construction (Coventry) Limited Capital & Lanham Developments (Cannock) Limited Capital & Regional USA Holdings Limited R Green Properties (Holdings) Realcap Management Limited Realcap Investments Limited Capital Properties Partnership Applied Solutions (Projects) Limited Capital and Lanham Retail Parks (Wolverhampton) Limited Easter Capital Investment Holdings Limited Easter Capital Investments Limited Easter Properties (North East) Limited Twelve Quays Limited Twelve Quays One Limited Easter Capital Investments (Nottingham) Limited Netherton Developments Limited Easter Holdings Limited Easter Management Limited Easter Projects Limited Easter Development Group Limited Easter Properties Limited Easter Properties (Sunderland) Limited Easter Properties (Bredbury) Limited Easter Properties (Milton Keynes) Limited Easter Properties (Basingstoke) Limited Easter Properties (Trafford Park) Limited Easter Properties (Warrington) Limited Easter Properties (Fareham) Limited Easter Investments Limited Easter Investments One Limited Easter Investments Two Limited Easter Investments (Grosvenor Place) Limited Easter and Northern Properties Limited Easter and Northern (Team Valley) Limited Easter and Cairn Property Developments (Aylesbury) Limited Easter & Arun Limited Easter & Arun (Oldbury) Limited Easter & Arun (Shoreham) Limited Nature of property business Investment and management Investment and management Investment and management Investment and management Investment and management Investment and management Investment and management Development and trading Development and trading Development and trading Investment and management Investment and management Investment and management Management Development and trading Investment and management Investment and management Investment and management Investment and management Investment and management Investment and management Development and trading Development and trading Investment and holding Investment and holding Investment and management Investment and management Investment and management Project Management Development Investment and holding Investment and management Investment and management Investment and management Investment and management Investment and management Development Investment and holding Management Project management Investment Development Development Development Development Development Development Development Development Investment Investment Investment Development Investment and management Development Development Development Development Development Group effective share of business 100% 100% 100% 100% 100% 100% 100% 50% 100% 100% 100% 50% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 50% 50% 81.2% 75% 75% 75% 75% 75% 75% 37.5% 50% 50% 25% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 50% 37.5% 37.5% 27.5% 25% 25% 25% The subsidiary and joint ventures and associated companies are registered in England and Wales, and Scotland. Except as identified these operate in England and Wales. Investment in joint ventures and associates are dealt with in notes 18 and 19. The company has taken advantage of S231(5) Companies Act 1985 in not listing all of its subsidiary, associated and joint venture undertakings. All of the above principal subsidiaries, joint arrangement entities, associates and joint ventures have been consolidated in the Group Financial Statements. All voting rights are in line with effective share of business. *Operates in Scotland. **Operates in England and Wales, and Scotland. 7632 C&R Back 1999 4/10/00 11:56 AM Page 61 Directors’ Report for the year ended 25th December 1999 The directors present their report together with the audited financial statements for the year ended 25th December 1999. Results and proposed dividends The consolidated profit and loss account is set out on page 42 and shows a profit on ordinary activities after taxation of £12.429m. The directors recommend the payment of a final dividend of 3.0p per Ordinary share on 12th May 2000, to members on the register at the close of business on 3rd March 2000, which together with an interim dividend of 2.0p per Ordinary share, paid in 1999, makes a total of 5.0p for the year. Principal activities, trading review and future developments The principal activity of the Group is that of property investment, development and management. A review of the activities and prospects of the Group is given in the Chairman’s Statement and reviews on pages 2 to 33. Directors The directors of the Company at 25th December 1999, all of whom have been directors for the whole of the year, are as follows: M. Barber, R. Boyland, Viscount Chandos, D. Cherry, L. Coral, P. Duffy, K. Ford, M. Gruselle, A. Lewis-Pratt and X. Pullen. In accordance with the Articles of Association, D. Cherry (who is a member of the Remuneration and Audit Committees), L. Coral, M. Gruselle (who is the senior non-executive director and chairman of the Remuneration and Audit Committees), and X. Pullen retire by rotation and, being eligible, offer themselves for reappointment. L. Coral and X. Pullen have service contracts which require notice of one year. M. Gruselle has served as a non-executive director since 1989 and the Board have renewed his letter of appointment for a further three years with effect from 1st January 2000. Under the terms of the letter he is required to vacate office without compensation if not reappointed by shareholders on retirement by rotation. D. Cherry has served as a non-executive director since 1997 and has a letter of appointment for a period of three years expiring on 4th April 2000, which the Board will renew from that date. Under the terms of the letter he is required to vacate office without compensation if not reappointed by shareholders on retirement by rotation. Biographies of the directors of the Company are set out on pages 28 and 29. Directors’ interests The directors and, where relevant, their connected persons (within the meaning of Section 346 of the Companies Act 1985) are interested in 4,761,724 issued shares representing 5% of the issued Ordinary share capital of the Company as detailed in the Report on Directors’ Remuneration and Interests on pages 35 to 38. Save as set out in note 37 to the accounts there were no contracts of significance subsisting during or at the end of the year in which a director of the Company was materially interested. Share options Details of options to subscribe for new Ordinary shares of 10p each under the Executive Share Option Schemes and the Discretionary Share Option Schemes 1998 are set out in note 27 to the accounts. Details of options granted to the directors, under the same Schemes, are contained in the Report on Directors’ Remuneration and Interests on pages 35 to 38. Substantial shareholdings In addition to the interests of the directors, the Company has been notified pursuant to Sections 198 to 202 of the Companies Act 1985, as amended, of the following notifiable interests in its issued share capital as at 28th February 2000: Phillips & Drew Fund Management Limited Legal & General Norwich Union Investment Management Royal & Sun Alliance Clerical Medical Investment Management SLC Asset Management United Nations Pension Fund Total Shares 15,379,040 7,604,657 6,403,323 4,580,622 4,273,665 4,136,967 3,963,120 46,341,394 Shares % 15.65 7.74 6.52 4.66 4.35 4.21 4.03 47.16 Charitable donations During the year the Group contributed £7,812 (1998: £7,746) to UK charities. Payment of suppliers The policy of the Group is to settle supplier invoices within the terms of trade agreed with individual suppliers. Where no specific terms have been agreed payment is usually made within one month of receipt of the goods or service. At the year end the Group had an average of 20 days’ purchases outstanding. Compliance with Combined Code A statement on Corporate Governance is set out on pages 39 to 40. Employee involvement The Group places considerable value upon the involvement of its employees, at all levels, in its affairs and has continued its practice of keeping them regularly and systematically informed on matters of concern affecting them as employees and on the financial and economic factors affecting the Group’s performance. Consultations with them or their representatives take place on a regular basis so that their views can be taken into account when decisions are made which are likely to affect their interests. This is achieved by regular meetings between management and employees at all levels. Disabled employees The Group gives full consideration to applications for employment from disabled persons where the requirements of the job can be adequately fulfilled by a handicapped or disabled person. Investors in People During 1999 the Company committed to a plan to achieve the Investor in People accreditation. The initiatives that will be implemented during the course of this year include the implementation of training and development plans, procedures and annual evaluation; internal communication by senior management of its commitment to Investors in People through newsletters, team meetings and conferences; and the introduction of formal documentation to brief all current and new employees on the Company’s philosophy, strategy and internal procedures. Euro The Group is continuing to review the potential effect of the introduction of the single European currency on the administration of its business. 7632 C&R Back 1999 4/10/00 11:56 AM Page 62 62&63 Capital and Regional Properties plc Directors’ Report Dividend Reinvestment Plan The Company introduced, for the 1999 Interim Dividend, and for subsequent dividends, a service whereby shareholders can use their cash dividends to buy more shares in the Company. The Plan was introduced for those shareholders preferring capital appreciation rather than income from their shareholding. The timetable for the 2000 Final Dividend is set out on page 68. A copy of the circular setting out terms and conditions of the Dividend Reinvestment Plan (published in July 1999) can be obtained by contacting the Company Secretary’s department at the registered office. Year 2000 Following their initial review the directors continue to be alert to the potential risks and uncertainties surrounding the Year 2000 issue. As at the date of this report, the directors are not aware of any significant factors which have arisen or that may arise which will affect the activities of the business; however, the situation is still being monitored. Any future costs associated with this issue cannot be quantified but are not expected to be significant. Auditors Deloitte & Touche have expressed their willingness to continue in office and a resolution to reappoint them will be proposed at the Annual General Meeting. Special business of the Annual General Meeting Authority to purchase own shares At the 1999 Annual General Meeting, the Company was granted authority to make purchases in the market of its own shares subject to specified limits. This authority expires at the conclusion of the Company’s Annual General Meeting for this year and under resolution 8, which is proposed as a special resolution, the Company is seeking to renew such authority and the directors recommend that the authority be increased from 5% to 14.9% of the issued share capital in order to give the directors greater flexibility should they consider it appropriate to make such purchases. The authority is sought until the conclusion of the 2001 Annual General Meeting, or for 15 months after the date on which the resolution is passed, whichever is the earlier. Details of the current issued share capital are set out in note 27 to the accounts. The directors will only exercise this authority if they consider that it will result in an increase in asset value per share for the remaining shareholders and that it will be in the best interests of the Company to do so. Pre-emption rights Shares allotted for cash must normally first be offered to shareholders in proportion to their existing shareholdings. Under resolution 9, which is proposed as a special resolution, the directors seek to renew their annual authority to allot shares for cash as if the pre-emption rights contained in Section 89(1) of the Companies Act 1985 did not apply up to a maximum of 5% of the Company’s issued share capital. Adoption of new All-Employee Share Ownership Plan The Company welcomes the announcement by the Government of the introduction of a new All-Employee Share Ownership Plan. Although the Company will not be able to complete the introduction of the plan until later this year when the legislation is introduced, the Company wishes to ensure that it is in a position to proceed with the new scheme at the earliest opportunity. A summary of the contents of the Plan as proposed by the Government are set out on page 63 to page 65. It is therefore proposed under resolution 10, which is proposed as an ordinary resolution, that the directors seek the authority to adopt the All-Employee Share Ownership Plan in such form as will be approved by the Inland Revenue. Change of name to “Capital & Regional plc” In December 1999 the directors agreed to modernise the Company logo, as the business has changed significantly since flotation in 1986. The new corporate identity reflects the strategy and philosophy for the Company’s future as an operating company. The directors believe that the communication of its new image would be assisted by a simplification of the Company name to Capital & Regional. It is therefore proposed under resolution 11, which is proposed as a special resolution, that the name of the Company be changed to Capital & Regional plc. By Order of the Board L. Coral Secretary 2nd March 2000 7632 C&R Back 1999 4/10/00 11:56 AM Page 63 All-Employee Share Ownership Plan Capital and Regional Properties Plc (‘the Company’) All-Employee Share Ownership Plan (“the Plan”) General The Plan consists of three Sub Plans known as the Free Share Sub Plan, the Partnership Share Sub Plan and the Matching Share Sub Plan (‘the Sub Plans’) together with a trust known as the All Employee Share Ownership Trust (‘the Trust’). The Free Share Sub-Plan In any tax year, the Company may invite all Eligible Employees to accept an appropriation of shares in the Company for no payment (“free shares”). The value of free shares appropriated to each employee shall not exceed £3,000. The Company shall treat each employee equally in relation to any appropriation of free shares but this shall not prevent an appropriation of the shares by reference to the employees’: By the various Sub Plans and the Trust those employees of the Company and its subsidiaries who are eligible may be offered shares in the Company subject to certain terms and conditions. These terms and conditions of the Sub Plans and the Trust are described in further detail below. (a) Remuneration; or (b) Length of service; or (c) Hours worked, Eligible employees Every person who in any tax year and as at the date on which he is invited to participate in the Plan or any of the Sub Plans: 1 Is an employee of the Company or a subsidiary of the Company; 2 Has been such an employee for a period of twelve months (or any lesser period determined by the Company from time to time); 3 Does not have and has not had in the previous twelve months a material interest in a close company whose shares may be appropriated under the Plan or a company which controls such a company; 4 Is not participating in: • • an approved profit sharing scheme under schedule 9 of the Income and Corporation Taxes Act 1988 or an Inland Revenue approved employee share ownership plan which provides for free shares to be appropriated to employees without payment or for shares to be acquired on behalf of employees out of sums deducted from their salary, established by the Company or a connected company more than to an extent which by any relevant legislation would render him ineligible to participate in the Plan; 5 Is chargeable to tax under Case I of schedule E to the Income and Corporation Taxes Act 1988, Shall be an eligible employee (“Eligible Employee”) for the purposes of the Plan. Provided that each of these factors shall give rise to an entitlement proportional to an amount of remuneration, length of service or hours worked. If the Company shall elect to make an appropriation of free shares by reference to these factors the basis of the appropriation shall be first approved by the Inland Revenue. In any tax year, and at the discretion of the Company, the appropriation of free shares may be conditional upon the satisfaction of performance targets. These performance targets shall be based on business results or other objective criteria, may vary between units of the Company and its subsidiaries but will, in any event, be broadly comparable in terms of the likelihood of achieving the performance targets in question. Any performance target or targets to be adopted must have prior approval of the Inland Revenue. Those Eligible Employees who accept the invitation (“a free share participant”) shall agree with the Company that free shares to be appropriated to them shall be held by the Trustees of the Trust for a period of not less than three years nor more than five years (“the holding period”). These free share participants shall also further agree with the Company that during the holding period they shall not assign, charge or otherwise dispose of the initial interest in the shares. The holding period of between three and five years shall be determined by the Company for invitations to the Eligible Employees in each tax year. However, all those Eligible Employees who accept an invitation in any one tax year must be subject to the same holding period. 7632 C&R Back 1999 4/10/00 11:56 AM Page 64 64&65 Capital and Regional Properties plc All Employees Share Ownership Plan The Partnership Share Sub-Plan In any tax year the Company may invite Eligible Employees to enter an agreement (“the partnership share agreement”) with the Company by which the employee agrees to allocate part of his salary for the purchase of ordinary shares in the Company (“partnership shares”). Under the partnership share agreement the Company agrees to arrange for partnership shares to be acquired in accordance with the terms of the partnership share sub-plan. The partnership share agreement shall specify the amount, which shall be deducted from the employee’s salary. This amount shall not exceed £1,500 in any year or £125 in any month or 10% of the employee’s salary. In addition, the amount shall not be less than £10 in any month. The period over which such deduction shall be made shall not in any circumstances exceed one year. The money deducted from the employee’s salary (“partnership share money”) shall be held by the Trustees of the Trust and applied in purchasing partnership shares. Neither the Company or the Trustees shall be obliged to account to any employee for any interest earned on partnership share money. At the election of the Company the partnership share agreement may provide that either: (a) The Trustees of the Trust shall apply partnership share money in acquiring partnership shares on behalf of the employees concerned within 30 days of a deduction being made; or (b) The Trustees shall apply partnership share money in acquiring shares at the end of a period (“the accumulation period”) not exceeding one year. Whichever alternative the Company shall elect to apply the same alternative shall apply to all employees who enter a partnership share agreement in any tax year. If after the partnership share money is applied in acquiring partnership shares there is any balance remaining the Trustees of the Trust may, with the agreement of the employee concerned, pay the money to the employee or carry forward the amount in question to the next share acquisition under the terms of the partnership share agreement. The employee may stop deductions or withdraw from the partnership share agreement at any time. The trustee shall hold the partnership shares until the employee directs otherwise. The Matching Shares Sub-Plan The partnership share agreement may, at the Company’s election also provide that the employees shall be appropriated additional shares (“matching shares”) for every share purchased at a ratio not exceeding two matching shares for every one share purchased. If the Company shall make such an election the employee is required to agree as a term of the partnership share agreement that the matching shares shall be held by the Trustees of the Trust for a period of not less than three years or more than five years. This period may vary from tax year to tax year but shall in any one such year be the same for all employees who enter a partnership share agreement during that year. Reinvestment of cash dividends When any cash dividend is paid on shares held by the Trustees of the Trust in accordance with the rules of the Plan, the dividend shall be applied by the Trustee in acquiring further shares in the Company of the same class as the shares held on behalf of the employee in question. The shares shall be held by the Trustee for the employee on whose shares the dividend was paid provided that the amount applied in acquiring shares for any employee shall not exceed £500 in the first year, £1,000 in the second year, £1,500 in the third or any later year of the employee’s participation in the Plan. If the cash dividend exceeds this limit then the balance shall be paid to the employee concerned. If there is any amount remaining after shares have been acquired and the limit is not exceeded then this sum may be retained by the trustee and added to the next cash dividend to be applied when purchasing shares. The employee shall agree that the Trustees of the Trust shall hold any shares acquired with this cash dividend for a period of not less than three years. Termination of employment Where an employee ceases to be employed by the Company or any of the subsidiaries (for any reason whatsoever) any free, partnership or matching shares shall be transferred by the Trustees of the Trust to the former employee in question. The Company may, at its election, include as a term of any appropriation of free or matching shares that if the employee ceases to employed by the Company or any subsidiary three years from the date of appropriation then he shall cease to be beneficially entitled to such shares. If the Company elects to include such a term then this term shall apply to all and any appropriation of shares in any one tax year. The inclusion of such a term in one tax year shall not however bind the Company to include such a term in any subsequent tax year. 7632 C&R Back 1999 4/10/00 11:56 AM Page 65 All Employees Share Ownership Plan The Trustees of the All Employee Share Ownership Trust By a trust instrument the Company shall appoint trustees (referred to as “the Trustees”) who are required: (a) To acquire any free and matching shares and appropriate those shares to Eligible Employees in accordance with the Plan; and (b) Apply partnership share money in acquiring partnership shares on behalf of those Eligible Employees who enter a partnership share agreement in accordance with the Plan. The Trustees are empowered to borrow money to acquire shares for the purposes of the plan or such other purposes as may be specified by the trust instrument. The Trustees are prohibited from disposing of any free or matching shares or shares purchased by means of any cash dividend during the holding period (whether by transfer to the employee or otherwise). This obligation is subject to certain qualifications which relate to the employees’ power to give certain directions to the Trustees, the Trustees power to dispose of shares for certain express purposes and the Trustees duty to transfer shares to a former employee when the employment has determined. Association of British Insurers’ Guidelines The Plan requires that any appropriation of free, matching or partnership shares shall comply with all the relevant Guidelines issued by the Association from time to time. This shall include, without limitation, a requirement that the number of shares in the Company issued or issuable pursuant to the terms and conditions of the Plan over any ten year period shall not exceed such number as may be equal to ten per cent of the issued share capital of the Company. Amendment of the Plan The Company may amend the terms and conditions of the Plan from time to time provided that: • where any amendment is such that the approval of the members of the Company is required by the Listing Rules of the London Stock Exchange or any Association of British Insurer guidelines then such approval shall first be obtained; • • any amendment to the Rules of the Plan shall be subject to the prior approval of the Inland Revenue; no amendment shall be to the prejudice of any existing right or entitlement of an Eligible Employee under the Rules of the Plan unless the said employee shall agree. 7632 C&R Back 1999 4/10/00 11:56 AM Page 66 66&67 Capital and Regional Properties plc Notice of the Annual General Meeting Notice is hereby given that the twenty-first Annual General Meeting of the Company will be held at 10 Lower Grosvenor Place, London SW1W 0EN, on 5th May 2000 at 10.30 am for the following purposes. Ordinary business 1. To consider and, if thought fit, adopt the accounts for the year ended 25th December 1999, and the reports of the directors and auditors thereon. 2. To declare a final dividend of 3.0p per Ordinary share. 3. To reappoint D. Cherry as a director of the Company. 4. To reappoint L. Coral as a director of the Company. 5. To reappoint M. Gruselle as a director of the Company. 6. To reappoint X. Pullen as a director of the Company. 7. To appoint Deloitte & Touche as auditors for the period prescribed by Section 385(2) of the Companies Act 1985 and to authorise the directors to determine their remuneration for the ensuing year. Special business 8. To consider and, if thought fit, pass the following resolution which will be proposed as a special resolution: In compliance with Section 166 of the Companies Act 1985, the Company is hereby generally and unconditionally authorised to make market purchases of its own shares provided always that: (a) this authority is limited to a maximum number of 14,641,588 Ordinary shares of 10p in the Company; (b) the maximum price which may be paid for the shares shall not exceed 105% of the average of the prices at which business was done in the Ordinary shares of 10p each in the Company during the period of five business days immediately preceding the day on which the shares are contracted to be purchased, or, if no such business was done during that period, 105% of the price at which business was last done in the Ordinary shares of 10p in the company prior to the day on which the shares are contracted to be purchased, in either case as derived from the London Stock Exchange Daily Official List and exclusive of expenses; and (c) the minimum price which may be paid for the shares shall not be less than 10p. (i) the allotment of equity securities in connection with a rights issue in favour of holders of Ordinary shares of 10p each in the Company (notwithstanding that, by reason of such exclusion as the directors may deem necessary having regard to legal or procedural requirements in any overseas territory, or in connection with fractional entitlements or otherwise howsoever, the equity securities to be issued are not offered to all of such holders in proportion to the number of shares held by each of them) and (ii) the allotment (otherwise than pursuant to sub-paragraph (i) of this resolution) of equity securities up to an aggregate amount in nominal value equal to 5% of the issued Ordinary share capital of the Company immediately prior to the passing of this resolution; and (b) this power, unless renewed, shall expire at the Company’s Annual General Meeting in 2001 save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted in accordance with paragraph (a) of this resolution after such expiry and the directors may allot equity securities in pursuance of such an offer or agreement as if the power conferred hereby had not expired. 10. To consider and, if thought fit, pass the following resolution which will be proposed as an ordinary resolution: That the directors of the Company be and are hereby authorised to adopt an All-Employee Share Ownership Plan in such form as will be approved by the Inland Revenue as an “employee share ownership plan” within the meaning of the draft legislation published for consultation in November 1999. 11. To consider and, if thought fit, pass the following resolution which will be proposed as a special resolution: That the name of the Company be changed to “Capital & Regional plc”. By Order of the Board This authority shall expire at the Company’s Annual General Meeting in 2001 or 15 months after the date on which this resolution is passed (whichever is the earlier). L. Coral Secretary 2nd March 2000 9. To consider and, if thought fit, pass the following resolution which will be proposed as a special resolution: That: (a) the directors be and are hereby empowered pursuant to Section 95 of the Companies Act 1985 to allot equity securities (within the meaning of Section 94 of the said Act) for cash, in accordance with any authority conferred on them by any previous meeting of the members of the Company as if Section 89(1) of that Act did not apply to the allotment; and reference in this resolution to the allotment of equity securities includes reference to the grant of a right to subscribe for, or to convert any securities into, relevant shares (as so defined) in the Company; provided that the power conferred by the resolution shall be limited to: Notes: 1. A member of the Company entitled to attend and vote at the Annual General Meeting may appoint one or more proxies to attend and, upon a poll, vote on his/her behalf. A proxy need not be a member of the Company. The Form of Proxy for use by shareholders is enclosed. 2. To be valid, the Form of Proxy, duly executed, together with the power of attorney or other authority (if any) under which it is signed (or a notarially certified copy of such power or authority) must be received at the offices of the Company’s Registrars, Lloyds TSB Registrars, 117 Dundas Street, Edinburgh, EH3 5ED not later than 10.30 am on 3rd May 2000. 7632 C&R Back 1999 4/10/00 11:56 AM Page 67 Advisers and Corporate Information Auditors Deloitte & Touche Hill House 1 Little New Street London EC4A 3TR Investment bankers Credit Suisse First Boston 1 Cabot Square Canary Wharf London E14 4QJ Warburg Dillon Read 2 Finsbury Avenue London EC2M 2PA Principal legal advisers D J Freeman 43 Fetter Lane London EC4A 1JU Olswang 90 Long Acre London WC2E 9TT Fladgate Fielder 25 North Row London W1R 1DJ Cole & Co. St Andrew House 141 West Nile Street Glasgow G1 2RN Lending banks Bank of Scotland P.O. Box No.5 The Mound Edinburgh EH1 1YZ Barclays Bank PLC P.O. Box No.729 Luton Corporate Banking Centre Eagle Point 1 Capability Green Luton LU1 3US Halifax PLC 33 Old Broad Street London EC2N 1HZ HSBC Property Finance HSBC Bank plc Poultry London EC2P 2BX HypoVereinsbank Property Finance 110 Cannon Street London EC4N 6EW Société Générale SG House 41 Tower Hill London EC2N 4SG The Royal Bank of Scotland plc Waterhouse Square 138-142 Holborn London EC1N 2TH BHF – Bank BHF – Bank House 61 Queen Street London EC4R 1AE Principal valuers DTZ Debenham Tie Leung One Curzon Street London W1A 5PZ Insignia Richard Ellis Limited Berkeley Square House London W1X 6AX Registrars and transfer office Lloyds TSB Registrars 117 Dundas Street Edinburgh EH3 5ED Registered office 10 Lower Grosvenor Place London SW1W 0EN Telephone: 020 7932 8000 Facsimile: 020 7802 5600 Email: info@capreg.com Registered number 1399411 7632 C&R Back 1999 4/10/00 11:56 AM Page 68 68 Capital and Regional Properties plc 2000 Financial Calendar 2000 Financial calendar Annual General Meeting – 5th May Final dividend record date – 3rd March Final dividend payment – 12th May Interim results – 11th July 2000 Interim dividend – July/August 2000 Preliminary results announcement – February/March 2001 2000 Final dividend timetable Record date – 3rd March Last day to receive DRIP mandates – 3rd May Dividend Warrants posted – 11th May Payment date/shares purchased – 12th May Certificates/purchase statements despatched – 25th May CREST accounts credited – 26th May 7632 C&R Cover 1999 5/10/00 12:46 pm Page 2 Designed and produced by Radley Yeldar (London) 7632 C&R Cover 1999 5/10/00 12:42 pm Page 1 C a p i t a l a n d R e g o n a i l P r o p e r t i e s p c A n n u a l l R e p o r t 1 9 9 9 Capital and Regional Properties plc 10 Lower Grosvenor Place London SW1W 0EN Telephone: 0207 932 8000 Facsimile: 0207 802 5600 Email: info@capreg.com Capital and Region Annual Report 199 

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