Caleres
Annual Report 2000

Plain-text annual report

Capital & Regional plc 10 Lower Grosvenor Place, London SW1W 0EN T: 020 7932 8000 F: 020 7802 5600 www.capreg.com C a p i t a l & R e g o n a i l l p c A n n u a l R e p o r t 2 0 0 0 Capital & Regional plc Annual Report 2000 Creating places that live Our retail and leis expertise is focus Centres, Retail Pa Capital & Regional is a specialist property company, owning and developing some of the most exciting and distinctive retail and leisure properties throughout the UK. The current portfolio value is over £800m of which 90% is retail and leisure, totalling over seven million sq ft. Capital & Regional’s objective is to use its in-house expertise to create value for tenants and shareholders through the innovative and dynamic management of property assets. Contents 01 Highlights 02 Chairman and Chief Executive’s Review 06 Operating Review 08 Shopping Centres 14 Retail Parks 20 Xscape 26 Principal Properties 28 Board of Directors 30 Financial Review 34 Five Year Record 35 Report on Directors’ Remuneration 67 and Interests 38 Corporate Governance Statement 39 Auditors’ Report 40 Consolidated Profit and Loss Account 41 Note of Historical Cost Profits and Losses 41 Statement of Total Recognised Gains and Losses 41 Reconciliation of Movements in Shareholders’ Funds 42 Consolidated Balance Sheet 43 Consolidated Cash Flow Statement 44 Company Balance Sheet 45 Notes to the Financial Statements 58 Directors’ Report 60 Notice of the Annual General Meeting 67 Advisers and Corporate Information 68 2001 Financial Calendar 01 Capital & Regional plc ure property ed on Shopping rks and Xscape Highlights Pre-tax profit up 5% to £13.4m (1999: £12.8m) Net rental income up 25% to £57m (1999: £45.5m) Earnings per share increased by 10% to 13.4p (1999: 12.2p) Fully diluted net assets per share decreased by 4% to 360p (1999: 376p) Dividends per share up 10% to 5.5p (1999: 5.0p) Disposals to date of £246m – £62m of trading and investment assets during year. This includes CenterPoint shares (£25m). – £184m since year end. This includes the industrial portfolio (£89.6m), Westway Shopping Park (£43.1m), St Andrew House (£19.6m) and Sauchiehall Centre (£31m). Capital & Regional’s management approach led to its shopping centre portfolio achieving 13.3% income and 5.2% rental value growth during year. Retail park portfolio in transitional phase focused on creating significant ‘destination’ schemes of over 150,000 sq ft, which attract Big Box anchor tenants requiring major units of up to 130,000 sq ft. Lettings of 750,000 sq ft, including 10 destination stores were agreed at year end. 02&03 Capital & Regional plc Chairman and Chief Executive’s Review We are confident satisfactory and returns to shareh years to come Viscount Chandos Chairman Martin Barber Chief Executive Dividends per share pence Net assets per share (diluted) pence Figures after 1996 assume conversion of the loan stock 6 5 4 3 2 1 0 400 300 200 100 96 97 98 99 00 0 96 97 98 99 00 of maintaining sustainable olders over the Results and dividend Profit before tax increased by 5% to £13.4m (1999: £12.8m). Fully diluted net assets per share decreased by 4% to 360p from 376p. Fully diluted net assets per share, after adjustments for deferred tax and debt valuation, are 323p against 330p last year. Capital & Regional owns properties, which attract consumer visits and spending. We are in the process of creating ‘destinations’, to become recognised brands and offer more than just shopping, but also leisure and entertainment; an ‘experience’ for the consumer. Earnings per share increased by 10% to 13.4p (1999: 12.2p). A final dividend of 3.25p is proposed, making a total for the year of 5.5p per share (1999: 5.0p), an increase of 10%. Over the past five years, Capital & Regional has achieved compound net asset value growth of 14% per annum. Overview Over the past 15 months, we have completed the disposal of £246m of non-core assets. During the year, £62m of trading and investment assets were sold, including CenterPoint Trust shares and a further £184m of properties have been disposed of since the year end. This has almost completed our strategy to transform Capital & Regional from a generalist property company, to one which is entirely focused on the retail and leisure sectors, namely shopping centres, retail parks and Xscape. Our focus on the retail and leisure sectors capitalises on our specialist skills and strong relationships with our tenants. We understand their requirements and are working with them to maximise opportunities and profitability. Shopping centres Within our shopping centre portfolio, we have achieved a 13.3% income growth and 5.2% growth in estimated rental value. The centres are benefiting from our management approach, which is to work in partnership with our retailers to generate increased footfall and sales. Our properties are of a substantial size and are covered to provide a controlled environment. They are either dominant in a good catchment, or a good second centre in a major metropolitan area. We are able to increase market share for our retailers through creative and innovative marketing and promotion. At our centres, vacancies are at an all time low. We are achieving good income and rental value growth and tenant demand is strong. It is therefore disappointing that valuation yields have moved up and adversely affected capital values this year. However, Capital & Regional strongly believes that the long-term benefits of investing in this sector outweigh the short- term fluctuations in the investment market. Retail parks We have assembled a substantial portfolio of retail parks, originally developed when a more relaxed planning environment existed. Now, with strong tenant demand and a planning regime that restricts further out-of-town development, we are exploiting our parks’ planning consents to provide the latest store formats required by retailers. The portfolio of approximately 1.4m sq ft is generating many opportunities for redevelopment to include Big Box formats, thereby creating significant destination parks. This redevelopment includes complex planning consents or amendments to planning, lease surrenders and land acquisition. 04&05 Capital & Regional plc Chairman and Chief Executive’s Review Our concentration repositioning our attract consumers building significa This held back financial performance and adversely influenced values last year. On completion of this transitional phase, we envisage significant value creation over the next two years. Our experienced out-of-town management team is also proving successful, not only in achieving planning consent on our existing parks, but also identifying and obtaining control of sites where planning can be gained. Examples of these are at Oldbury and Auchinlea in Glasgow, where major development schemes are being progressed. Xscape The opening of Xscape at Milton Keynes was one of the highlights of the Company’s year. Around an exciting ‘real snow’ ski slope, a vibrant retail and leisure offer has been built, including a 16 screen multiplex cinema, family entertainment centre, ten-pin bowling, climbing walls and a mix of restaurants and bars. Initial trading from our tenants has been most encouraging and we are pursuing three further projects in the UK and Continental Europe. Capital strategy The disposal programme already outlined has also allowed us to reduce our level of gearing on a fully diluted basis from 134% at 25th December 1999 (159% at December 2000) to 110%, even after purchasing 10% of the Company’s issued share capital, representing 9,541,500 Ordinary shares. We continue to note the disparity between the valuation on our shares and the market value of the underlying assets. Therefore, at an Extraordinary General Meeting on 15th March 2001, shareholder approval was granted to purchase, for cancellation, a further 13,221,458 Ordinary shares, representing 14.9% of the outstanding share capital. The Board will continue to review the Company’s share purchases in light of the share price and level of gearing for the long-term interests of shareholders. We are convinced that joint ownership is attractive for investors and Capital & Regional. Investor partners can harness our skills in these management-intensive sectors of the property investment and development market. Using this approach, on properties to and operators is nt value Capital & Regional leverages its equity and management to produce higher returns for shareholders. Over the years, Capital & Regional has had highly successful partnerships. We still believe there is a strong rationale for a specialist UK shopping centre operator of scale, working closely with occupiers to create exciting and lively places to visit, shop and be entertained. The Company will continue to explore opportunities to establish partnerships in this area. Our Xscape scheme in Milton Keynes is a joint venture project and we are pursuing partnership opportunities for the further schemes anticipated. Three joint venture partnerships for single properties have been entered into recently. We have acquired, in equal partnership with Hermes Property Unit Trust, the Maybird Centre Retail Park and adjoining Regal Road Industrial Estate in Stratford-upon-Avon. The Company has also entered into a 50:50 joint venture with Stannifer, the investment and development group, to re-develop the Sauchiehall Centre in Glasgow. In addition, we have entered into an exclusivity agreement to form a 50:50 joint partnership with Capital Shopping Centres, the leading regional shopping centre business, to fund and develop the Xscape concept at Braehead, Glasgow, subject to the fulfilment of a number of conditions, including planning. Management Capital & Regional has created strength and depth within its operating teams. Our people come from asset management, construction, development, marketing and retail backgrounds. They are using their expertise to drive the long term value of our properties forward in a dynamic and innovative way, treating the constant changes in the market as opportunities to enhance the quality and rental income from our assets. On behalf of the Board and all our shareholders, we would like to express our sincere thanks to all our management and staff for their excellent contribution to the Company during this year. Outlook Capital & Regional is confident that our concentration on reshaping and repositioning our properties, and following that process with intensive business management to attract consumers and operators, is building significant value. With both private buyers and institutional investors beginning to show interest again in shopping centre investments, we would not expect yields this coming year to move out any further. We anticipate further rental growth within our portfolio with positive value increases. As far as our retail park portfolio is concerned, the temporary reduction in values is largely of a transitional nature and we expect significant value creation over the next two years. 06&07 Capital & Regional plc Operating Review places that liveCrea Capital & Regional owns properties, which attract consumer visits and spending. In our three business areas, shopping centres, retail parks, and Xscape, we are in the process of creating ‘destinations’, to become recognised brands which offer more than just shopping, but also leisure and entertainment – an ‘experience’ for the consumer. Our focus on the retail and leisure sectors capitalises on our specialist skills and strong relationships with our tenants. We understand their requirements and are working with them to maximise opportunities and profitability. Operating Review Our Market The year 2000 has been one of mixed fortunes. During the first half of the year, the market experienced virtual hysteria about internet retail and its impact on the traditional retail environment. By the year end, sentiment had reversed due to the well publicised e-tailer failures. Simultaneously during the period, many established retail groups had difficulties. The combination of these factors caused nervousness amongst investors resulting in an adverse yield shift across the High Street and shopping centre investment market. Within our shopping centre portfolio, revenues rose significantly, with underlying rental values increasing by over 5%. This demonstrates Capital & Regional’s ability to drive forward growth for the retailers in our well- managed centres, through taking market share from the High Street ting and surrounding properties. On the retail parks, values have polarised between the smaller parks and the larger destination parks where there is greater potential for rental growth. benefit. We have identified other locations in the UK and Continental Europe, where we believe there is a substantial market for this concept. Many of our existing properties have the potential to fulfil tenant requirements for larger stores. These parks should not be judged on one year’s financial performance, as they are in a transitional phase of achieving possession, planning and land assembly. We have contracts and options on sites where we are actively progressing town planning, with significant success already achieved. These have not been re-valued for balance sheet purposes and have considerable latent value. Our Xscape scheme in Milton Keynes is proving a tremendous success with the public and leisure and specialist lifestyle retailers. This unique and exciting destination can be replicated to our mutual Our Portfolio At 20th March 2001, Capital & Regional’s wholly owned investment portfolio of £738m, plus its half share of properties in joint ventures of £74m totalled approximately £812m. This comprises ten shopping centres (60%), twelve retail parks (27%), Xscape, Milton Keynes (5%), industrial and other (8%), totalling over four million sq ft, with approximately three million sq ft of future developments. Summary The opportunities that exist in our portfolio and in the market as a whole offer us tremendous scope for the future. We will continue to work with our tenancy base to explore opportunities for them to trade profitably in our shopping centres, retail parks and Xscapes. Looking at the current year, we are optimistic that good tenant demand will remain for our properties. In addition, investor sentiment should have steadied as a consequence of improved retailer performance, a more reasoned approach to e-commerce, reduced medium to long-term interest rates and alternative investment markets looking fragile. At re-adjusted yield levels, retail and leisure properties are attractive investments. Private buyers and institutional investors are showing an increasing interest, attracted by the strong cash flows and the ability to drive income upwards. The following reviews for shopping centres, retail parks and Xscape outline in detail the progress in our three business areas. Xavier Pullen Deputy Chief Executive 08&09 Capital & Regional plc Operating Review Shopping Centres Shopping Centres We have demonstrated a strong income performance within our shopping centre portfolio. This has been driven forward by our business management approach and ability to generate market share for our retailers. 10&11 Capital & Regional plc Operating Review Shopping Centres Overview The year 2000 saw further positive results from our revenue growth strategies applied across our shopping centre portfolio. Net income increased by 13.3% over the year by £4.6m to £39.2m, producing a net income return of 6.3%. Capital expenditure for the year was £17.5m. Estimated rental value increased by a further 5.2% to almost £47m. Adverse market sentiment to retail property portfolios resulted in a shift in valuation yields producing a negative capital return of 3.4%. The year was very active, with Capital & Regional’s management team working closely with retailers to provide solutions to their requirements in the ever changing retail environment, to maximise mutual profitability. Excluding rent reviews, there were 176 transactions, representing £8.77m of annual income across the portfolio of 497 units. Of this, approximately £4.27m were new lettings or renewals, £2.88m vacations, and £1.62m reconfigurations. The void level fell by 1.4% to 3.8% of estimated rental value. This level of activity is bringing us ever closer to our retailer base, assisting us in the understanding of both their problems and opportunities. We intend to build on this mutual understanding to further develop both the effectiveness of our management franchise and revenue streams. Ancillary income grew by 20.7% in 2000, representing approximately 4% of net rent level. Our average weekly footfalls increased by 2%, (up by 50,000 visits) to 2.4 million visits per week, despite major redevelopment at Shopping City, Wood Green, London and the demolition of the Bull Ring adjacent to our Pallasades Shopping Centre in Birmingham, which has temporarily depressed footfall. We are committed to a ‘fully serviced’ offer for both retailers and shoppers. We are able to produce clean, secure, lively shopping environments at competitive costs. Our average budgeted 2001 service charge per square foot is 20% less than the relevant JLL Oscar benchmark, excluding marketing where we plan to spend some 19% more than this peer group. In this way, we hope to continue to grow relevant footfall within our malls, giving our retailers increasing profit opportunity at cost-effective, value for money, occupational costs. Our five year Environmental Statement for the centres, targets energy consumption savings of 15% over the period to 2004. During 2000, consumption reductions of 8% and 21% were made on electricity and gas respectively. Our average Zone A rents across the portfolio remain at discounts to the principal competition. This combined with our business management and partnership approach to our assets augers well for continued revenue growth. Last year saw our Community Mall concept taking shape, both locally and nationally. Portfolio-wide initiatives like supporting Breast Cancer Awareness Month, raised £20,000 in the malls and The Giving Tree at Christmas providing 4,950 toys for local needy children. These were complemented by scores of projects to benefit local community groups such as schools and charitable organisations. These efforts are enthusiastically supported by both our retailers and shoppers alike, and when aligned to an attractive, accessible and vibrant retail experience, place our malls at the heart of their local communities. Our recently announced agreement with NTL to enable unhindered mobile telephone use within the centres and our planned mall based website programme are designed to reinforce this position. 12&13 Capital & Regional plc Operating Review Shopping Centres Portfolio Review The Pallasades, Birmingham The Pallasades continues to perform well, given its increasing position as a pivotal ‘gateway’ to New Street Station and central Birmingham. Negotiations with Railtrack for the major refurbishment and integration of the retail and station facilities have not yet progressed to conclusion. We are therefore continuing to both actively manage the existing centre, whilst redesigning our proposals to accommodate a first-phase retail development. Shopping City, Wood Green The opening of the 12 screen CineWorld multiplex cinema with associated restaurants and mall improvements have confirmed Shopping City as a major shopping and leisure destination in its catchment. Next, HMV, TK Maxx, Peacocks, Woolworths and MFI, together with several local independent retailers, have all been attracted during 2000. Works are scheduled to complete in Easter 2001, with further restaurants opening by the Summer. The Ashley Centre, Epsom At The Ashley Centre, Epsom, a number of strategic surrenders have been negotiated. In the main, the units have been re-let to Starbucks, Body Shop, Phones 4 U and the dominant local photographic retailer, Epsom Photographic. Works have also started on a pre-let, two-level catering area introducing McDonald’s to the scheme together with an expansion of local coffee shop operator, Café la Mocha. Pre-let discussions continue with both existing and new retailers for a refurbishment and extension to West Square. Sunday trading has continued post Christmas and is increasing in popularity. The Howgate Centre, Falkirk The improvements completed in late 1999 to revitalise the Marks & Spencer atrium, resulted in the desired letting activity to MVC, First Sport, Cardwarehouse and the Bank of Scotland. We have increased both dwell time and rent by approximately 40%, in what was previously a quieter area of the Centre. Initial curiosity visits to the newly opened competition at Stirling and Livingstone appear to be stabilising and we continue to work to satisfy demand from major retail groups. Net car park income increased by 14.5%, as a result of the installation of a pay-on-foot management system. Selborne Walk, Walthamstow At Selborne Walk, new lettings to Boots, Timpson’s and Blue Inc have been concluded, with Thomas Cook in solicitors’ hands. Occupier pre-let discussions continue for a planned retail and leisure extension. The Trinity Centre, Aberdeen The Trinity Centre remained fully let throughout 2000, which has held back performance. We are in negotiations with adjacent owners to expand the Centre. Sauchiehall Centre, Glasgow Capital & Regional has entered into a 50:50 joint venture with Stannifer to redevelop the Sauchiehall Centre and increase the retail space by 10% to 200,000 sq ft, in large unit format. The majority of the newly created space will be taken by Primark and will be the fashion retailer’s first store in Glasgow City centre. Existing tenants, TK Maxx, Superdrug and WH Smith will be extending their units. Liberty 2, Romford The town’s retail attraction is to be boosted by the imminent opening of the Brewery retail and leisure scheme and Hammerson’s refurbishment proposals for the adjacent Liberty 1. Our contribution to this renaissance is the acquisition of the adjacent ‘Dolphin’ site and the associated planning application for a mixed-use scheme comprising residential, hotel and 60,000 sq ft of retail. The Alhambra Centre, Barnsley The acquisition of the former Co-op ‘Living’ Department store and its subsequent conversion for major occupiers Primark and TK Maxx, materially boosted the Centre’s local popularity and has proved the catalyst for further letting interest. Government funding was secured to contribute to the cost of car park refurbishment. Kenneth Ford Managing Director Shopping Centres 14&15 Capital & Regional plc Operating Review Retail Parks Retail Parks Our retail park operations are transforming secondary schemes into prime destination parks anchored by Big Box retailers. 16&17 Capital & Regional plc Operating Review Retail Parks Strategic Objectives Our strategic objectives should be considered against the background of the current structural changes taking place in the evolving retail warehouse market. The Evolution of Retail Parks Since the origins of the retail warehouse market in the early 1980s, we have seen a number of changes. The converted warehouse on an industrial estate, the purpose built retail warehouse unit and eventually the retail park. The boom of the late 1980s led to a considerable number of retail parks being developed in an ad-hoc fashion all over the country. This was largely as a result of the government’s laissez-faire planning attitude and the consumers’ positive response to car-borne shopping. The last two years have seen a period of intense consolidation amongst the retail warehouse operators. The advent of Big Box destination stores, has led to a small number of retailers dominating sub-sectors of the market. B&Q and Homebase dominate the DIY market, with units of between 80,000 and 130,000 sq ft. B&Q alone requires a further one hundred stores in this size range. Comet and Dixons, through their Currys and PC World brands, dominate the electrical market in units of between 20,000 and 45,000 sq ft. Comet requires a further 20 units per annum in this size range over the next five to ten years. The above retailers spend considerable amounts on advertising and publicity, either through TV and press campaigns and/or through catalogues. Smaller complementary retailers in each of the subsections are attracted to the destination retailer and are prepared to pay significant rents to be represented alongside them. The above factors have led to the advent of the destination retail park. The furniture market is dominated by Ikea, MFI and DFS. Ikea has recently announced an aggressive expansion campaign, and DFS remains as expansive as ever. The discount clothing market is dominated by Matalan. They are actively seeking units from between 30,000 and 45,000 sq ft. A new general merchandise category has emerged with the entry of Woolworths through their Big W format and anticipated Asda Wal-Mart, retailing from units of between 90,000 and 100,000 sq ft. Big W has stated that they require at least 60 stores within the next five years. Sports retail is dominated by JJB Sports and Sports Soccer in units of between 10,000 and 15,000 sq ft. The Destination Retail Park A destination park can be defined as a retail park of over 150,000 sq ft, located in a town with a population of in excess of 50,000. It is our belief that where a town currently has two, three or more retail parks of between 70,000 and 120,000 sq ft, these will be replaced by one or two parks of between 150,000 and 250,000 sq ft. These will accommodate destination Big Box retailers with complementary retailers being “forced” to relocate alongside. Our future success will be derived from fulfilling the requirements of these destination Big Box retailers, either by transforming our existing portfolio or through new development to create retail parks in excess of 150,000 sq ft. According to Verdict Research, “where the Big Box retailers come together, they will create ‘power nodes’ on the retail landscape that act as a regional draw for consumers. The impact of these ‘power nodes’ will be as significant on existing retail parks out-of-town, as it has been in the high street.” Existing Portfolio Our existing retail park portfolio currently comprises 1.4 million sq ft. During the year and to date, we sold two retail parks, which did not fulfil our destination park criteria and we will continue to review our portfolio to ensure it meets our criteria. To date, agreements to lease have been concluded for 620,000 sq ft of retail floor space, including nine destination stores. £7.0m per annum of rent has been committed, of which £3.3m has been committed unconditionally. Planning consents have been obtained for 200,000 sq ft of the 405,000 sq ft required. We are close to completing the successful transition of three of our existing larger retail parks into destination parks at Beckton, Hull and Swansea, with the dominant anchors being B&Q or Big W and will shortly commence the transition of Wembley with a new 100,000 sq ft Homebase. Portfolio Review Existing portfolio Aylesbury Beckton Hull Renfrew Stratford Swansea Wembley Other (smaller parks) Existing Sq ft 95,000 140,000 180,000 230,000 155,000 80,000 230,000 330,000 Proposed Sq ft 200,000 190,000 255,000 250,000 230,000 160,000 230,000 330,000 Total 1,440,000 1,845,000 Aylesbury We have now entered into conditional contracts to acquire the majority of the land required to undertake this 200,000 sq ft redevelopment. We are currently negotiating for our anchor DIY pre-lets, and intend submitting a planning application during the second quarter. The site has already been allocated and adopted by the local planning authority for retail warehouse use. Beckton This 190,000 sq ft scheme is now completely pre-let to retailers including Big W and Matalan and the necessary vacant possession has been achieved. A technical amendment to a planning consent is required, before development can commence, which we envisage being in the second quarter of the year. Hull Construction of a 130,000 sq ft B&Q and garden centre has commenced. Further pre-lets to destination furniture and electrical stores, DFS and Comet have also been achieved. A small revision to the existing planning consent is anticipated during the second quarter, and the refurbishment of the balance of the existing retail park should then commence. Further phases of retail and leisure on this 50 acre site are proposed. Renfrew, Glasgow We anticipate submitting a planning application during the first half of the year for an extension to our existing 224,000 sq ft retail park of a further 26,000 sq ft of retail and leisure space. We also intend to refurbish a further 45,000 sq ft. 18&19 Capital & Regional plc Operating Review Retail Parks Stratford-upon-Avon Our joint ownership of this 155,000 sq ft park with Hermes Property Unit Trust has commenced well. This scheme is capable of an extension of up to 230,000 sq ft. Terms have been agreed with Matalan to extend their existing 30,000 sq ft store to 42,000 sq ft and further lettings are under negotiation. Auchinlea/Junction 10, Glasgow Our aim is to create Scotland’s premier destination retail and leisure park. Initial response from occupiers to our proposed scheme involving 300,000 sq ft of A1 non-food, 130,000 sq ft food store, 170,000 sq ft of leisure including bars, a restaurant and hotel, has been encouraging. Swansea Pre-lets for 137,000 sq ft of our proposed 160,000 sq ft scheme have been achieved with our destination retailer being Big W. Planning consent has also been achieved. Upon completion of further legal agreements, redevelopment is planned to commence during the second quarter. New Developments Despite the Government’s clampdown on out-of-town retail schemes, over the last two years, we have successfully assembled a development portfolio comprising approximately one million sq ft, which we believe to be unequalled in this sector in the UK. The availability of an undeveloped large site with planning consents for a destination retail park is extremely difficult to achieve. In order to be in a position to carry out the development at Oldbury, we have been involved in a complicated procedure of land assembly, involving 22 separate legal interests. We have obtained planning consent for 250,000 sq ft of retail and leisure space, with proposals for a further 140,000 sq ft. At Auchinlea, Glasgow, we have worked closely with both the Glasgow City Council and the Scottish Executive in devising an urban regeneration scheme, which has helped us successfully to obtain the planning consent for 600,000 sq ft of retail and leisure floor space. Oldbury A detailed planning consent has been obtained for 250,000 sq ft of retail and leisure. A pre-let has been exchanged with Homebase for 130,000 sq ft. We now propose to develop this site in two phases, and remain hopeful of obtaining the balance of the planning consent during the second half of the year. Overview Our retail park investments are currently in the process of transition from a diverse secondary portfolio into a focused, prime destination park. Whilst in this transitional phase, during December 2000, the capital value of our retail park investment properties decreased by 5.5%. A number of factors led to what we believe to be this temporary fall in value. Strategic vacancies of £2.7m per annum have significantly contributed to our high level of voids, currently 23% of estimated rental value. The equivalent yield on our existing portfolio at the year end was 7.1%, with an adverse yield shift on our smaller parks of 0.6%. There have been delays in obtaining new or revised planning consents at Swansea and Beckton. Since the year end, we have obtained an open non-food planning consent at Swansea, and anticipate obtaining consent at Beckton during the second quarter of 2001. Our aim is to create destination parks where retailers ‘have to be there’. This will lead to significant future rental growth. Also, the ever increasing restriction in obtaining further planning consents will improve the value of the major parks. Upon completion of our programme of extensive refurbishment, extensions and new development, we estimate receiving additional income in the region of £23m per annum, following anticipated capital expenditure of approximately £239m. Capital & Regional believes that there are in excess of a hundred towns and/or cities in the UK which satisfy the criteria for a destination retail park, and it is our aim to obtain as many opportunities as possible. We are of the opinion that the acquisition and funding of further investments and developments capable of being transformed into a destination park, can also be achieved through joint ownership. Many pension funds and institutions, who already own the properties could benefit from our specialised management capabilities. We announced our first joint ownership, with Hermes Property Unit Trust for a park at Stratford- upon-Avon. We also believe that additional non-property income value can be obtained through the branding of destination parks. We have been researching this for some 18 months, and will shortly announce our proposals in respect of our destination parks. Capital & Regional has the specialist expertise and entrepreneurial management skills at the forefront of this sector and are well placed to maximise on the structural changes taking place. Andrew Lewis-Pratt Managing Director Retail Parks 20&21 Capital & Regional plc Operating Review Xscape Xscape The year 2000 saw the successful opening of our first Xscape at Milton Keynes. It has proven very popular with the consumer, with over three million visitors already enjoying this unique mix of snow centre, multi-screen cinema, family entertainment centre, indoor rock climbing, numerous restaurants, bars and urban lifestyle retailing. 22&23 Capital & Regional plc Operating Review Xscape Development Programme Castleford At Castleford, on the M62 adjacent to the Freeport factory outlet centre, we have the benefit of an option to acquire 22 acres of land with planning consent for a 330,000 net sq ft Xscape. Cine-UK has already exchanged Agreements to Lease for the anchor multiplex cinema and terms agreed with occupiers for a further 30% of the floor space. We hope to commence construction of this second Xscape during the second half of 2001. Overview The year 2000 saw the successful opening of our first Xscape at Milton Keynes. This unique entertainment centre was developed jointly with funds by PRICOA Property Investment Management. The scheme is now 97% let. Xscape has proven very popular with the consumer, with over three million visitors already enjoying this unique mix of snow centre, multi-screen cinema, family entertainment centre, indoor rock climbing, numerous restaurants, bars and urban lifestyle retailing. The committed income at December 2000 was £3.8m with £5.5m expected by December 2001. The estimated income value is £6.6m. As a result of the success of Milton Keynes, we are actively seeking to selectively roll-out the concept both in the UK and Continental Europe. Significant progress has already been made on the development programme. 24&25 Capital & Regional plc Operating Review Xscape Braehead Since the year end, Capital & Regional has announced that it has entered into an exclusivity agreement with Capital Shopping Centres, to form a 50:50 joint partnership to fund and develop the Xscape concept at Braehead, Glasgow, subject to the fulfilment of a number of conditions, including planning. The scheme will comprise of approximately 400,000 net sq ft and is situated adjacent to their existing and successful regional shopping centre. A number of operators at Milton Keynes have confirmed their intention to locate with us in Braehead. We are excited at the prospect of working with Capital Shopping Centres, in order to create what will be our third Xscape project in the UK. Castrop-Rauxel (the Ruhr), Germany At our first Continental Europe scheme at Castrop-Rauxel, significant progress has been made in our endeavours to obtain planning consent for a scheme comprising of up to 1,000,000 net sq ft on a site of 35 acres. We anticipate receiving planning zoning approval during the Summer, with a view to detailed planning consent being granted during early 2002. Although we have yet to market the scheme, preliminary interest from a number of anchor tenants to operate the snow, family entertainment centre and major sports facilities, has been strong. Pathè has formally agreed to lease a 120,000 sq ft, 5,000 seat multiplex cinema which will be the largest in Germany. Andrew Lewis-Pratt Managing Director Xscape 26&27 Capital & Regional plc Principal Properties over £30m Pallasades Shopping Centre, Birmingham Sector: Shopping Centre Tenure: Leasehold 300,000 sq ft (27,881 sq m) Principal tenants: Argos, Austin Reed, Boots, HMV, JJB Sports, New Look, Woolworths Shopping City, Wood Green, London Sector: Shopping Centre Tenure: Freehold 670,000 sq ft (62,268 sq m) Principal tenants: Argos, Boots, CineWorld, Ottakars, Pearsons, Wilkinsons, W H Smith, TK Maxx, Next, HMV, Peacocks, Woolworths, MFI Ashley Centre, Epsom Sector: Shopping Centre Tenure: Leasehold 358,259 sq ft (33,295 sq m) Principal tenants: Dickens & Jones, Gap, Hennes, Marks & Spencer, Next, Body Shop, Superdrug, Waitrose, W H Smith, McDonalds Xscape, Milton Keynes 50:50 Joint Venture with PRICOA Property Investment Management Sector: Leisure & Retail Tenure: Leasehold 424,000 sq ft (39,405 sq m) Principal tenants: Snozone, Esporta, CineWorld, Scottish & Newcastle, TMS Quiksilver, O’Neill Howgate Shopping Centre, Falkirk Sector: Shopping Centre Tenure: Freehold 170,000 sq ft (15,799 sq m) Principal tenants: Argos, Boots, Dorothy Perkins, Marks & Spencer, MVC, New Look, River Island, First Sport, Bank of Scotland, Superdrug, Woolworths Renfrew, Glasgow Sector: Retail Park Tenure: Freehold 230,000 sq ft (21,375 sq m) Principal tenants: B&Q, Carpetright, Comet, JJB Sports, Matalan Selborne Walk, Walthamstow Sector: Shopping Centre Tenure: Leasehold 280,500 sq ft (26,069 sq m) Principal tenants: BHS, Dixons, Etam, Poundland, Superdrug, Kwik Save, Boots, Timpson’s Trinity Centre, Aberdeen Sector: Shopping Centre Tenure: Freehold 200,000 sq ft (18,587 sq m) Principal tenants: Argos, Debenhams, HMV, Ottakars, Superdrug Hull Sector: Retail Park Tenure: Freehold 180,000 sq ft (16,729 sq m) Principal tenants: B&Q, Comet, Brantano, UCI Stratford-upon-Avon 50:50 Joint Venture with Hermes Property Unit Trust Sector: Retail Park Tenure: Freehold 155,000 sq ft(14,405 sq m) Principal tenants: B&Q, Boots, Matalan, JJB Sports Wembley Sector: Retail Park Tenure: Freehold 230,000 sq ft (21,375 sq m) Principal tenants: Comet, MFI, Carpetright Sauchiehall Centre, Glasgow 50:50 Joint Venture with Stannifer Sector: Shopping Centre Tenure: Freehold 180,000 sq ft (16,729 sq m) Principal tenants: Clinton Cards, Healthland, JJB Sports, Superdrug, TK Maxx, WH Smith, Primark £20m to £30m Liberty 2, Romford Sector: Shopping Centre Tenure: Leasehold 320,000 sq ft (29,740 sq m) Principal tenants: Allsports, McDonalds, Mecca Bingo, Odeon Cinema, Peacocks, Sainsbury's Superstore, Toni & Guy, Tchibo, BB Café & Muffins Alhambra Shopping Centre, Barnsley Sector: Shopping Centre Tenure: Leasehold 170,000 sq ft (15,799 sq m) Principal tenants: TK Maxx, Primark, Allsports, Mothercare, MVC, Next, Peacocks, Wilkinsons, Woolworths Beckton, London Sector: Retail Park Tenure: Freehold 140,000 sq ft (13,011 sq m) Principal tenants: JJB Sports, Matalan, Poundstretcher £10m to £20m Auchinlea/Junction 10, Glasgow Sector: Retail Park Tenure: Leasehold 95,000 sq ft (8,829 sq m) Principal tenants: Carpetright, Mecca, MFI Lancaster Sector: Retail Park Tenure: Freehold 107,880 sq ft (10,026 sq m) Principal tenants: JJB Sports, MFI, Wickes, Matalan 10 Lower Grosvenor Place Sector: Offices Tenure: Leasehold 21,000 sq ft (1,952 sq m) Principal tenants: Capital & Regional plc, iobox, the biw.com Wyrley Brook Retail Park, Cannock Sector: Retail Park Tenure: Freehold 107,293 sq ft (9,971 sq m) Principal tenants: B&Q Allied Carpets, Fitness First Aylesbury Sector: Retail Park Tenure: Freehold 95,000 sq ft (8,829 sq m) Principal tenants: Wickes, Argos, Roseby under £10m Bognor Regis Sector: Retail Park Tenure: Freehold 62,000 sq ft (5,762 sq m) Principal tenants: Halfords, Harveys, LIDL Channons Hill Retail Park, Bristol Sector: Retail Park Tenure: Freehold 59,000 sq ft (5,483 sq m) Principal tenants: Currys, Great Mills, LIDL Eldon Garden Shopping Centre, Newcastle Sector: Shopping Centre Tenure: Leasehold 45,000 sq ft (4,182 sq m) Principal tenants: Austin Reed, Sony Centre, The Pen Shop, The Pier, Wolford, R Sinton Jewellers 28&29 Capital & Regional plc Board of Directors 1 4 2 5 3 6 Executive Directors Martin Barber, age 56 Chief Executive* 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 plc. Roger Boyland FCA, age 56 Corporate Finance Director Roger Boyland is a chartered accountant and has been involved in commercial property for 26 years. He was a founder Director of the Company and has responsibility for the Company’s financing, including banking arrangements and corporate finance, risk management and portfolio performance analysis. Lynda Coral BSC FCA, age 39 Financial Director Lynda Coral has been a chartered accountant for 16 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, age 47 Managing Director of Shopping Centres Ken Ford has been involved in commercial property for 27 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 shopping centre portfolio. Andrew Lewis-Pratt BSC ARICS, age 43 Managing Director of Retail Parks & Xscape Andrew Lewis-Pratt has nearly 20 years experience within the retail and leisure sectors. 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 parks and Xscape. Xavier Pullen, age 49 Deputy Chief Executive Xavier Pullen has been active in the property industry for over 30 years and was a founder Director of the Company in 1979. He focuses primarily on the supervision and coordination of all property matters. 1 Martin Barber 2 Roger Boyland 3 Lynda Coral 4 Kenneth Ford 5 Andrew Lewis-Pratt 6 Xavier Pullen 7 Viscount Chandos 8 David Cherry 9 Peter Duffy 10 Martin Gruselle 7 9 8 10 Non-Executive Directors Viscount Chandos#*, age 48 Chairman Tom Chandos is managing director of Northbridge Ventures Limited, a London-based venture capital business backed by the South African group FirstRand Limited. He is also vice-chairman of the UK holding company of Havas Advertising SA; non-executive director of Middlesex Holdings plc; and a director of a number of private companies, including Cine-UK Limited. He is a Labour life peer. He was appointed as a Director of the Company in 1993 and as Chairman in 2000. Peter Duffy†*, age 64 Peter Duffy was previously Managing Director of TR Property Investment Trust plc and Chairman of European City Estates N.V. He is a Director of Nightingale Square Properties plc. He was appointed as a Director of the Company in 1995. David Cherry BSC†# FRICS, age 63 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. He was appointed as a Director of the Company in 1997. Martin Gruselle FCA†#, age 63 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 Teesland plc. He was appointed as a Director of the Company in 1989. †Member of Audit Committee #Member of Remuneration Committee *Member of Nomination Committee 30&31 Capital & Regional plc Financial Review Profit attributable increased from and earnings per 12.2p to 13.4p Profit and loss account Results for the year Profit before tax has increased to £13.4m (1999: £12.8m) which includes gains of £4.1m (1999: £2.1m) on investment sales. Profit in the second half of the year is £3.4m compared to £10.0m in the first half, which included all of the investment gains and trading property profits of £1.0m. In addition, following the sale of the Group’s shareholding in CenterPoint in the first half, income from listed investments of £0.7m did not arise in the last six months. Rental income Group rental income increased by 24% to £66.7m as shown in table 1. Also shown is the effect of the changes during 2000 on gross passing rent to arrive at £53.4m after disposals since the year end. The gross passing rent at the end of 2000 does not include £6.5m (1999: £5.4m) of rent under agreements for lease executed on the investment portfolio. Including the effect of disposals since the year end, the current level of rents net of property costs is approximately £50m. Costs and expenses Net property costs have increased by £1.6m compared to the previous year primarily due to the full year effect of acquisitions made in 1999 and bad debts of £0.8m that have offset the reduction in void costs. Performance related bonus payments to employees totalled £0.8m (1999: £1.7m). There are no bonuses for executive directors this year. Profits on sale of assets An accounting profit of £4.4m is recognised in the profit and loss account on disposals whereas, including further sales since the year end, realisations in the last 15 months have produced profits on a historical cost basis of over £47m as shown in table 2. Net interest payable Net interest costs have increased by £9.5m during the year reflecting the financing of acquisitions, refurbishment and development expenditure by additional bank debt. Approximately £2.7m (1999: £2.0m) of interest has been capitalised during the year, principally in relation to Shopping City, Wood Green and Xscape, Milton Keynes. Taxation There is no taxation charge on profit due to the utilisation of capital allowances. Tax of £6.5m on realisation of gains on sales of investments and investment properties is recognised in reserves. The establishment of new claims on refurbishment and development expenditure has replaced allowances utilised of over £14m in the year. As a result the tax written down value of assets subject to capital allowance claims is unchanged at approximately £38m. Unutilised losses carried forward are £2.4m (1999: £228,000), providing additional tax shelter for the future. Earnings and dividends per share Profit attributable to shareholders increased from £12.0m in 1999 to £13.0m this year and earnings per share rose to 13.4p from 12.2p. The total dividend of 5.5p per share is more than twice covered by profit attributable to shareholders. Balance sheet Net asset value Table 3 analyses the movement in fully diluted shareholders’ funds and net asset value per share during the year. As the significant level of disposals has crystallised tax on revaluation surpluses it is useful to review the movement in net asset value per share after contingent liabilities. The calculation of net asset value per share after contingent deferred tax on accumulated revaluation surpluses and fair value adjustment of fixed rate debt instruments to market value is set out in table 4. Property assets Table 5 summarises the movement in the Company’s total property portfolio during the year. Joint ventures Following the reclassification of Xscape Milton Keynes Partnership the Group’s total investment in joint ventures is shown in table 6. Investment in joint ventures includes £5.9m of revaluation surpluses. to shareholders £12m to £13m share rose from Table 1 Rental income Table 4 Net asset value per share Year ended 25th December 1999 Full year effect of acquisitions and disposals in 1999 Properties acquired in 2000 Properties sold in 2000 Net new lettings Leases surrendered Surrender premiums Rent increases including reviews Year ended 25th December 2000 Disposals since the year end 2000 Group 2000 Gross rental income passing rent £m £m 53.6 6.5 0.6 (0.8) 3.1 (0.2) 2.4 1.5 66.7 62.3 – 1.1 (1.9) 7.4 (3.5) – 2.4 67.8 (14.4) 53.4 Net sale proceeds 35.4 1.6 25.0 62.0 Book value 35.1 1.4 21.1 57.6 183.9 245.9 183.9 241.5 Profit on Revaluation surplus sale Historical cost profit 0.3 0.2 3.9 4.4 – 4.4 – 0.1 18.1 18.2 24.6 42.8 0.3 0.3 22.0 22.6 24.6 47.2 Table 2 Profits on sale of assets Trading properties Investment properties CenterPoint Year ended 25th December 2000 Post year end sales Table 3 Net asset value analysis At 25th December 1999 Revaluation Tax on disposals Retained profit Share repurchases At 25th December 2000 Diluted net assets per share Deferred tax Fair value adjustment on fixed rate debt Table 5 Property assets At 25th December 1999 Acquisitions Refurbishment and development Disposals Amortisation Reclassification Revaluation At 25th December 2000 Disposals since year end Proforma Table 6 Joint ventures 2000 Pence 1999 Pence 359.6 (34.4) 325.2 (2.4) 322.8 376.4 (47.1) 329.3 0.9 330.2 Properties Investment under properties construction £m £m 903.6 20.9 25.0 (2.0) (0.2) 8.5 (34.1) 921.7 (183.9) 737.8 29.5 – 17.3 – – (47.0) 0.2 – – – Head office £m 13.1 – 0.1 – – – 0.5 13.7 – Current property assets £m 34.7 4.7 14.0 (34.0) – – – Total £m 980.9 25.6 56.4 (36.0) (0.2) (38.5) (33.4) 19.4 954.8 – (183.9) 13.7 19.4 770.9 Investment £m Debtors £m 10.0 17.6 1.1 1.0 29.7 – – 4.5 0.4 4.9 2000 Total £m 10.0 17.6 5.6 1.4 34.6 1999 Total £m – – 5.9 1.1 7.0 Pence per share £m 416.6 (33.7) (6.5) 8.0 (20.7) 376.4 (33.4) (6.5) 8.0 15.1 363.7 359.6 Xscape Milton Keynes Partnership Capital Hill Partnership Easter Holdings Limited Other Total 32&33 Capital & Regional plc Financial Review Disposals since reduced gearing diluted basis Table 7 Debt valuation Table 8 Fair value adjustment expiry profile CULS Bank borrowings Interest rate swaps Minority Interests Fair value adjustment attributable to Group Net of tax at 30% (1999: 30%) Book value £m 24.6 15.3 n/a 39.9 Notional principal £m n/a n/a 204.5 204.5 Market value £m 24.6 15.6 207.7 247.9 Fair value adjustment 2000 £m – (0.3) (3.2) (3.5) 0.1 (3.4) (2.4) 2000 2001 2002 2003 Total 1999 £m – – 1.5 1.5 – 1.5 1.1 2000 Fair value 1999 Fair value adjustment adjustment – (1.7) (1.5) (0.3) (3.5) 1.4 2.2 (1.2) (0.9) 1.5 Minority interests Minority interests at the end of 2000 and the prior year represents the participation by Peter Taylor and his associates in Easter Capital Investment Holdings Limited. Accounting developments A number of proposals issued or in the pipeline will have an impact on the Group’s future financial results. Financial Reporting Standard (“FRS”) No.19 (Deferred Tax) requires full provision for contingent tax excluding revaluation adjustments and is effective from 2002. Abstract 28 (operating lease incentives) recently issued by the Urgent Issues Task Force is effective from 2001 and requires tenant incentives to be treated as a reduction of rental income by allocation of the cost in the profit and loss account over the period of the market rent. New projects on Financial Instruments, Leases and Reporting Financial Performance will result in significant changes to the content and presentation of financial statements and will be closely monitored for the effect on the Group. Xscape Milton Keynes Partnership has been reclassified as a joint venture. The gross equity method of accounting is therefore adopted at the year end rather than including the Group’s proportion of assets, liabilities, income and expenditure. Joint venture accounting is also applicable to partnerships newly formed, namely Capital Hill Partnership and Sauchiehall Centre Limited. Finance Summary The Group’s borrowings at 25th December 2000 were £615.6m (1999: £603.0m) including £24.6m (1999: £24.6m) of Convertible Subordinated Unsecured Loan Stock (CULS). Total borrowings by joint ventures were an additional £50.4m (1999: £5.3m). Net cash balances were £6.1m (1999: £7.4m) and the Group had approximately £10.3m (1999: £21.5m) of undrawn secured facilities that has increased to £51.5m as a result of sales since the year end. During the year borrowings increased by £35.2m to finance acquisitions, refurbishment and development net of funds raised from disposals. As a result of the reclassification of Xscape Milton Keynes Partnership as a joint venture, the Group’s £22.6m share of related bank debt is no longer included in Group borrowings. As shown in the proforma balance sheet in Note 37, disposals completed since the year end have reduced net debt to £427.7m. The fully diluted level of gearing at 159% (1999: 134%) has been reduced substantially by disposals since the year end to 110%. The anticipated capital expenditure of £239m in respect of retail parks, which is projected to produce additional income of approximately £23m, will be financed through both existing banking relationships and project finance for the larger schemes. The value creation as a result of this expenditure should not have an adverse effect on the gearing of the Group. Financing strategy The Group has a financing strategy with banks that, 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. the year end have to110% on a fully Table 9 Debt maturity 2001 2002 2003 2004 2006 2009 Bank borrowings 2006/16 Convertible loan stock Drawn Undrawn Earliest “Evergreen” £m £m Earliest “Evergreen” £m £m 58.35 0.20 – – 420.45 420.25 90.00 102.95 – 0.20 – 8.80 590.95 510.25 – 24.64 615.59 510.25 – – 3.75 6.50 – – 10.25 – 10.25 – – 3.75 6.50 – – 10.25 – 10.25 Interest rate hedging strategy The Group’s strategy is to enter into mainly five year interest rate swaps on a rolling basis, which provides for 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 market conditions and business requirements. Fixed and swapped interest rates at 25th December 2000 applied to borrowings of £244.4m (1999: £272.4m) with the balance of £371.2m (1999: £330.6m) being at variable interest rates based on three month LIBOR. The weighted average interest rate cost for fixed and swapped borrowings at 25th December 2000, was 7.6% (1999: 7.8%) and for variable rates 6.9% (1999: 6.9%). The weighted average interest rate cost of total borrowings at the year end has reduced to 7.2% compared to 7.3% at the end of 1999. The weighted average period for which interest rates are fixed on Group bank borrowings is 1.88 years (1999: 2.64) and 3.22 years including CULS (1999: 3.89). Debt valuation A valuation was carried out by J C Rathbone Associates Limited as at 25th December 2000 and 25th December 1999, to calculate the market value of fixed rate debt instruments on a replacement basis and the expiry profile of the resulting fair value adjustment. Table 7 shows the market value of fixed rate debt instruments, and reflects the difference between the interest rate yield curve as at 25th December 2000 and the rates historically committed; namely the fair value adjustment. The fair value adjustment at 25th December 2000 would have a negative effect on net asset value of £3.4m compared to a positive effect of £1.5m at 25th December 1999. The fair value adjustment for financial instruments in joint ventures total £195,000 (1999: £607,000 positive). The Group’s share is not included in the table above. The expiry profile of the fair value adjustment is in table 8. The fair value adjustment represents approximately 0.57% (1999: 0.25%) of Group borrowings and has a notional adverse effect on net asset value per share of 2.4p at 25th December 2000 (1999: beneficial 1.0p). Debt maturity Table 9 shows the maturity profile of Group borrowings and undrawn secured facilities at 25th December 2000. Over 86% (1999: 93%) 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 178% at the year end (1999: 149%) and reduces to 159% (1999: 134%) assuming the conversion of the loan stock to equity. Disposals since the year end have reduced gearing to 125% or 110% on a fully diluted basis. Rental income as a ratio to net interest payable including capitalised interest is 1.5 times for 2000 (1999: 1.6 times) when calculated excluding non-recurring income. The margin by which rental income exceeds total net interest payable has increased to £23m (1999: £20m) for the year ended 25th December 2000. Following the disposals since the year end, the margin by which net rental income exceeds interest is approximately £19m. Lynda Coral Financial Director Roger Boyland Corporate Finance Director 34&35 Capital & Regional plc Five Year Record for the years ended 25th December 1996 to 25th December 2000 No. of shares in issue (million) Diluted no. of shares in issue (million) Net assets per share‡ Net assets per share growth 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 2000 1999 1998 1997 1996 88.735 98.266 98.255 76.399 45.595 101.147 359.6p (4.5%) 110.678 376.4p 17.4% 110.667 320.6p 17.9% 88.668 272.0p †27.6% 58.181 223.1p 19.8% £000 £000 £000 £000 £000 339,558 3,674 – 343,232 590,449 6,091 584,358 24,132 608,490 159.2% £000 66,704 57,017 41,027 13,359 13.4p 5.5p 392,566 4,341 4,000 400,907 577,891 7,388 570,503 24,041 594,544 134.4% £000 53,597 45,512 32,018 12,838 12.2p 5.0p 330,816 2,101 3,250 336,167 340,926 5,476 335,450 23,950 217,299 933 – 218,232 237,036 9,229 227,807 23,840 359,400 251,647 93.3% 94.1% £000 44,910 38,507 24,057 11,481 12.1p 4.25p £000 28,857 23,728 16,788 11,083 15.4p 3.5p 104,701 2,458 – 107,159 143,872 6,261 137,611 25,108 162,719 104.3% £000 17,834 14,158 9,153 6,051 11.9p 3.0p † 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. Report on Directors’ Remuneration and Interests Remuneration Committee The Remuneration Committee (“the Committee”) 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. 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 UK Listing Authority including the provisions in Schedule B 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 2000. No discretionary bonuses have become payable to the executive directors in respect of the year 2000 under the existing guidelines as net asset value per share has declined. The Committee has, with independent advisers, reviewed all aspects of the existing remuneration packages of the Executive Directors. It has concluded that, although basic salaries are in line with those paid by comparative companies in the industry, the level of other aspects of their compensation packages are not. In particular, the levels of long-term incentive rewards are low. The Committee is therefore in the process of devising new guidelines for such remuneration (including annual cash bonuses) full details of which will be set out in a circular to shareholders when approval of the new guidelines is sought. 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. Peter Duffy retires by rotation under the Company’s Articles of Association, and will offer himself for re-election at the Annual General meeting to be held on 25th May 2001. If re-elected, his appointment, which expires on 26th May 2001, will be renewed for a further three year term. The non-executive directors do not receive share options or any other form of remuneration from the Company. 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 2000 £000 205 205 200 200 160 160 1,130 32 22 48 22 124 1,254 1999 £000 198 180 175 175 155 115 998 32 22 37 22 113 1,111 2000 £000 – – – – – – – – 1999 £000 140 140 140 140 125 105 790 2000 £000 41 41 30 30 32 24 1999 £000 40 36 26 26 31 17 2000 £000 22 19 21 21 20 16 1999 £000 20 22 17 22 23 14 198 176 119 118 790 198 176 119 118 2000 £000 268 265 251 251 212 200 1,447 32 22 48 22 124 1,571 Total 1999 £000 398 378 358 363 334 251 2,082 32 22 37 22 113 2,195 *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. 36&37 Capital & Regional plc Report on Directors’ Remuneration and Interests 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: M. Barber X. Pullen R. Boyland L. Coral K. Ford A. Lewis-Pratt M. Gruselle Viscount Chandos P. Duffy D. Cherry Total at 25th December 2000 Ordinary shares of 10p each at 25th December 6.75% convertible subordinated unsecured loan stock 2006/16 at 25th December 2000 Shares 2,727,186 1,004,545 557,485 4,861 383,805 114,153 50,653 45,000 – 4,138 4,891,826 1999 Shares 2,675,820 1,003,179 506,119 3,463 377,639 112,787 50,653 27,926 – 4,138 4,761,724 2000 £ 35,394 23,693 13,000 25 – – 943 15,000 – – 88,055 1999 £ 35,394 23,693 13,000 25 – – 943 3,313 – – 76,368 There have been no changes to the directors’ interests since 25th December 2000, except A. Lewis-Pratt who sold 100,000 Ordinary shares of 10p each on 19th January 2001. 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 Executive Share Option Schemes. In 2000, options were granted over a total of 545,000 Ordinary shares under the 1998 Discretionary Share Option Schemes, as follows: Date 22nd February 2000 13th September 2000 The table below gives details of the 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 13th September 2000 22nd December 1993 28th October 1994 18th June 1997 15th May 1998 13th September 2000 22nd December 1993 28th October 1994 18th June 1997 15th May 1998 13th September 2000 22nd December 1993 28th October 1994 21st October 1996 18th June 1997 15th May 1998 23rd February 1999 13th September 2000 18th June 1997 15th May 1998 23rd February 1999 13th September 2000 18th June 1997 15th May 1998 23rd February 1999 13th September 2000 Exercise price Directors Executives 201.5p 211.5p – 300,000 190,000 55,000 Total 190,000 355,000 Exercise conditions met Exercise price At beginning of year Issued in year At end of year Options over Ordinary shares of 10p each Yes Yes Yes Not yet Yes Yes Yes Not yet Not yet Yes Yes Yes Not yet Not yet Yes Yes Yes Yes Not yet Not yet Not yet Yes Not yet Not yet Not yet Yes Not yet Not yet Not yet 168.9p* 131.4p* 226.4p* 211.5p 168.9p* 131.4p* 226.4p* 279.5p 211.5p 168.9p* 131.4p* 226.4p* 279.5p 211.5p 168.9p* 131.4p* 193.2p* 226.4p* 279.5p 191.5p 211.5p 226.4p* 279.5p 191.5p 211.5p 226.4p* 279.5p 191.5p 211.5p 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 25,000 330,025 151,747 175,000 75,000 401,747 151,747 175,000 75,000 401,747 136,878 104,263 50,582 50,000 341,723 136,878 104,263 50,582 100,000 50,000 441,723 136,878 104,263 50,582 100,000 50,000 441,723 50,180 26,066 78,197 50,582 100,000 25,000 50,000 380,025 151,747 175,000 75,000 50,000 451,747 151,747 175,000 75,000 50,000 451,747 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 50,000 *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. Share incentives continued The table below gives details of potential gains on the options granted to the executive directors: 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 212.5p as at 27th March 2001. M. Barber £000 R. Boyland £000 X. Pullen £000 589 144 1 145 868 144 1 145 868 144 1 145 L. Coral £000 818 58 6 64 K. Ford £000 1,082 A. Lewis-Pratt £000 1,082 – 16 16 – 16 16 The Company’s share price was 227.5p on 25th December 2000. During the year the share price ranged from 195.5p to 246p. There has been no change in directors’ interests in options since 25th December 2000. 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, 1999 and 2000 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 83,326 shares with a value of £183,000 were issued to eligible employees in December 2000 under the Capital & Regional All Employee Share Ownership Plan including 1,366 shares to each executive director. Martin Gruselle, Chairman Remuneration Committee 30th March 2001 38&39 Capital & Regional plc Corporate Governance Statement Introduction The Company is required to comply, for the accounting period ended 25th December 2000, with “The Combined Code – Principles of Good Governance and Code of Best Practice” (“the Combined Code”). 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 Viscount Chandos 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. The Chairman is one of the non-executive directors, and there is a clear division of responsibility between the Chairman and the Chief Executive. 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 directors are set out on pages 28 to 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 disposals 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 initially by the Nomination Committee and thereafter at a full Board meeting. The Board is given an opportunity to meet the individual concerned prior to any formal decision being taken. The Nomination Committee, which consists of the Chairman, the Chief Executive, and one non-executive director meets when necessary. 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 weekly 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 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 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. 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 37. 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 Directors are responsible for the Company’s system of internal control and for reviewing its effectiveness. Such a system is designed to manage, rather than eliminate, the risk of failure to achieve business objectives and can only provide reasonable, and not absolute, assurance against material misstatement or loss. There are ongoing processes and procedures for identifying, evaluating and managing the significant risks faced by the Company, which have been in place during 2000 and up to the date of approval of the Annual Report and Accounts. The processes are regularly reviewed by the Board and accord with the Turnbull Committee guidance on internal control issued in September 1999. The procedures in place for financial reporting to the executive directors and the Board 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 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. These included: environmental surveys; disaster recovery plans for all centres; review of strategy and changes in the economic environment; computer back-up (off-site) and recovery procedures; investment portfolio review and marketing. In this review, that is repeated at least once a year, the directors have considered the effectiveness of the internal 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 UK Listing Authority 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 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 volume 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 2000 the Committee met twice. 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. 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 2000. 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 note 1 to the financial statements. 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 and throughout the year ended 25th December 2000, 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 UK Listing Authority. By Order of the Board F. Desai, Secretary 30th March 2001 Auditors’ Report to the members of Capital & Regional plc We have audited the financial statements on pages 40 to 57 which have been prepared under the accounting policies set out on pages 45 and 46. Respective responsibilities of directors and auditors The directors are responsible for preparing the Annual Report, including as described on page 39 preparation of the financial statements, which are required to be prepared in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as independent auditors, are established by statute, the Auditing Practices Board, the UK Listing Authority 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 39 reflects the Group’s compliance with the seven provisions of the Combined Code specified for our review by the UK Listing Authority, 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 United Kingdom 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 2000 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 30th March 2001 40&41 Capital & Regional plc Consolidated Profit and Loss Account for the year ended 25th December 2000 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 and associates Profit on sale of investment properties and investments Profit on ordinary activities before interest Income from listed investments Interest receivable and similar income Interest payable and similar charges 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 Notes 2 17 3 4 17 3 5 6 7 10 28 11 12 27 13 13 2000 £000 78,686 (11,982) 66,704 (9,687) 57,017 306 57,323 (7,955) 49,368 502 49,870 581 50,451 4,092 54,543 659 824 (42,667) 13,359 59 13,418 (391) 13,027 (5,070) 7,957 13.4p 13.4p 1999 £000 60,211 (6,614) 53,597 (8,085) 45,512 1,646 47,158 (7,163) 39,995 955 40,950 694 41,644 2,143 43,787 1,337 719 (33,005) 12,838 (409) 12,429 (426) 12,003 (4,913) 7,090 12.2p 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 45 to 57 form part of these financial statements. Note of Historical Cost Profits and Losses for the year ended 25th December 2000 Reported profit on ordinary activities before taxation Realisation of property revaluation surplus of previous years Realisation of other investment revaluation surplus/(deficit) of previous years Realisation of property revaluation surplus 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 Statement of Total Recognised Gains and Losses for the year ended 25th December 2000 Share of unrealised (deficit)/surplus on valuation of investment properties Share of unrealised surplus/(deficit) on valuation of other fixed assets Share of unrealised (deficit)/surplus on valuation of properties in joint ventures Revaluation surplus on other investments Share of tax on revaluation surpluses realised in year Deferred tax provided on unrealised revaluation surpluses Exchange differences Profit for the year attributable to shareholders of the Company Total recognised gains and losses relating to the year 2000 £000 13,359 74 18,099 40 31,572 22,556 1999 £000 12,838 2,136 (774) – 14,200 8,452 Notes 27 27 17 27 31 2000 £000 (33,361) 512 (814) – (3,614) (2,952) 3 (40,226) 13,027 (27,199) 1999 £000 54,520 (596) 46 675 – – 1 54,646 12,003 66,649 Reconciliation of Movements in Shareholders’ Funds for the year ended 25th December 2000 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 Share capital purchased and cancelled in year (including expenses) Other recognised gains and losses relating to year (see above) Net (reduction)/addition to shareholders’ funds Opening shareholders’ funds Closing shareholders’ funds The notes on pages 45 to 57 form part of these financial statements. Notes 12 27 2000 £000 13,027 (5,070) 7,957 20 (20,759) (40,226) (53,008) 392,566 339,558 1999 £000 12,003 (4,913) 7,090 14 – 54,646 61,750 330,816 392,566 42&43 Capital & Regional plc Consolidated Balance Sheet as at 25th December 2000 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 (liabilities)/assets Total assets less current liabilities Creditors: amounts falling due after more than one year (including convertible unsecured loan stock) Provisions for liabilities and charges 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 2000 £000 £000 1999 £000 14 15 16 17 18 19 20 20 21 22 23 31 26 27 27 27 27 28 29 30 30 18,846 – 40,700 6,091 65,637 (128,739) 921,681 14,521 936,202 – 67,930 (38,264) 29,666 – 965,868 (63,102) 902,766 (556,582) (2,952) 343,232 8,874 161,895 130,008 1,545 37,236 339,558 3,674 – 343,232 382.7p 359.6p 34,660 4,840 40,389 7,388 87,277 (58,178) 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 The financial statements were approved by the board of directors and signed on their behalf on 30th March 2001 by: M. Barber L. Coral The notes on pages 45 to 57 form part of these financial statements. Consolidated Cash Flow Statement for the year ended 25th December 2000 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 interests Loan arrangement costs Taxation UK corporation tax paid UK income tax deducted at source UK income tax recovered 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 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 loans by joint ventures Acquisitions and disposals Additions to joint ventures Reclassification of cash in joint arrangement Acquisition of minority interests in subsidiary Equity dividends paid Cash outflow before financing Financing Issue of ordinary share capital Share capital purchased and cancelled in year Bank loans received Bank loans repaid Notes 35(a) £000 625 795 (44,063) – (317) (622) – – – (61,586) (20,746) (1,239) (2,433) 1,632 43,562 108 25,042 – 2,337 (18,025) (591) (100) 20 (10,593) 108,765 (73,596) 1999 £000 42,269 300 714 (30,928) 12,355 112 12,467 (241,352) (228,885) – (228,885) (6,141) (235,026) 2000 £000 54,677 180 5 (42,960) 11,902 (622) 11,280 (13,323) (2,043) (18,716) (20,759) (5,134) (25,893) £000 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 – – – 14 – 349,170 (112,246) (Decrease)/increase in cash 35(b) 24,596 (1,297) 236,938 1,912 The notes on pages 45 to 57 form part of these financial statements. 44&45 Capital & Regional plc Company Balance Sheet as at 25th December 2000 Fixed assets Other investments 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 Other reserves Profit and loss account Equity shareholders’ funds Notes £000 2000 £000 £000 1999 £000 16 19 20 20 22 23 26 27 27 27 153,017 183,049 1,594 239,550 543,497 3,089 787,730 (117,197) – 95,716 781,434 4,529 881,679 (173,755) 670,533 823,550 (543,958) 279,592 8,874 161,955 1,545 107,218 279,592 707,924 890,973 (572,973) 318,000 9,827 161,936 591 145,646 318,000 The financial statements were approved by the board of directors and signed on their behalf on 30th March 2001 by: M. Barber L. Coral The notes on pages 45 to 57 form part of these financial statements. Notes to the Financial Statements for the year ended 25th December 2000 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 & Regional plc and its consolidated entities and associated companies and joint ventures for the year ended 25th December 2000. 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$1.48 to the £ (1999: US$1.62 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 and land, over their expected useful lives: Buildings Fixtures and fittings Motor vehicles – over 50 years, on a straight line basis. – over three to five years, on a straight line basis. – 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. In accordance with SSAP19 (Revised) “Accounting for investment properties” no depreciation or amortisation is provided in respect of freehold investment properties and leasehold investment properties with over 20 years unexpired. The Companies Act 1985 requires all properties to be depreciated, but that requirement conflicts with the generally accepted principle set out in SSAP19 (Revised). Depreciation is only one of many factors reflected in the annual valuation of properties and the amount of depreciation or amortisation, which might otherwise have been charged, cannot be separately identified or quantified. Properties under development Interest and directly attributable internal and external costs incurred during the period of development are capitalised. Interest is capitalised gross before deduction of related tax relief. A property ceases to be treated as being under development when substantially all activities that are necessary to get the property ready for use are complete. Refurbishment expenditure Refurbishment expenditure in respect of major works is capitalised. Renovation and refurbishment expenditure of a revenue nature is written off as incurred. Property transactions Acquisitions and disposals are accounted for at the date of legal completion. Properties are transferred between categories at the estimated market value on the transfer date. Current property assets Properties held with the intention of disposal and properties held for development are valued at the lower of cost and net realisable value. Investments The investment in shares held in CenterPoint Properties Trust was included in the financial statements at market value at the balance sheet date translated at the exchange rate ruling at that date. Investments in other quoted securities are also stated at market value. The aggregate surplus or temporary deficit arising from such valuations is transferred to a revaluation reserve. Deficits that are expected to be permanent are charged to the profit and loss account. Loan arrangement costs Costs relating to the raising of general corporate loan facilities and loan stock are amortised over the estimated life of the loan and charged to the profit and loss account as part of the interest expense. The bank loans and loan stock are disclosed net of unamortised loan issue costs. Operating leases Annual rentals under operating leases are charged to the profit and loss account as incurred. 46&47 Capital & Regional plc Notes to the Financial Statements 1. Accounting policies continued 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 £659,000 (1999: £1,184,000) of income from listed investments which originates from the US. Net assets adjusted for minority interests originating from the US are £nil (1999: £21,120,000). 3. Asset sales Net sale proceeds Cost of sales Historical cost profit Revaluation surplus Permanent diminution in value of fixed property assets Share of joint ventures (see note 17) Profit recognised on sale of assets 4. Administrative expenses General administrative costs Corporate and public company expenses 5. Interest receivable and similar income Bank interest Interest from joint ventures and associates Other interest Share of joint ventures (see note 17) Share of associates 6. Interest payable and similar charges Bank loans and overdrafts wholly repayable within five years Other loans Capitalised during year Share of joint ventures (see note 17) Share of associates Fixed assets Current assets 2000 £000 26,674 (4,273) 22,401 (18,173) 4,228 (225) 89 4,092 1999 £000 18,640 (15,135) 3,505 (1,362) 2,143 – – 2,143 2000 £000 35,353 (35,047) 306 – 306 – – 306 1999 £000 31,874 (30,228) 1,646 – 1,646 – – 1,646 2000 £000 62,027 (39,320) 22,707 (18,173) 4,534 (225) 89 4,398 2000 £000 6,429 1,526 7,955 2000 £000 167 390 224 781 43 – 824 2000 £000 42,823 1,663 44,486 (2,678) 41,808 859 – 42,667 Total 1999 £000 50,514 (45,363) 5,151 (1,362) 3,789 – – 3,789 1999 £000 5,779 1,384 7,163 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 The interest relating to bank loans, overdrafts and other loans wholly repayable within five years included £nil (1999: £nil) in respect of loans repayable by instalments. The interest charge includes £365,000 (1999: £463,000) of loan arrangement costs amortised during the year. 7. Profit on ordinary activities before taxation This is arrived at after charging: (Proftit)/loss on disposal of other fixed assets Depreciation Amortisation of short leasehold properties Amortisation of goodwill Auditors’ remuneration (see below) Directors’ emoluments (see note 9) 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 Other 2000 £000 (52) 567 173 72 128 1,593 1,383 (2,270) 98 20 118 1999 £000 92 479 – – 120 2,195 859 (280) 108 6 114 The auditors’ remuneration for the Group includes £7,500 (1999: £7,000) in respect of the parent company. 8. 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 as follows: Direct property services Central management 9. 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 Company pension contributions to defined contribution schemes are being made in respect of six (1999: 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 37. 10. Taxation UK corporation tax: Current period Prior periods Advance corporation tax Share of tax of joint ventures (see note 17) 2000 £000 (123) 30 – 34 (59) The tax liability for the year has been reduced due to the benefit of capital allowances and the utilisation of losses brought forward. 2000 £000 4,322 796 5,118 580 245 5,943 1999 £000 3,107 1,379 4,486 508 199 5,193 Average number of employees During 2000 During 1999 33 79 112 2000 £000 227 41 268 1,373 198 1,571 19 63 82 1999 £000 358 40 398 2,019 176 2,195 1999 £000 139 (19) 188 101 409 48&49 Capital & Regional plc Notes to the Financial Statements 11. Profit of the holding company Of the profit for the year attributable to shareholders, a loss of £12,599,000 (1999: profit £111,107,000) 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 2000 £000 22,074 (34,673) (12,599) 1999 £000 121,632 (10,525) 111,107 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. 12. Equity dividends paid and payable Interim of 2.25p per share paid on 20th October 2000 (1999: 2.0p per share) Proposed final of 3.25p per share payable on 6th June 2001 (1999: 3.0p per share) 2000 £000 2,186 2,884 5,070 1999 £000 1,965 2,948 4,913 13. 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 97,042,630 (1999: 98,258,784) and have been based on profit on ordinary activities after taxation and minority interests of £13,027,000 (1999: £12,003,000). 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 97,256,996 (1999: 98,611,343) and the relevant earnings are £13,027,000 (1999: £12,003,000). 14. Property assets Group Cost or valuation: At beginning of year Additions Reclassified once construction completed Reclassified as a joint venture Reclassified as a current property asset Amortisation of short leasehold properties Permanent diminution in value of fixed property assets 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 32. The year end balance for leasehold properties is analysed as follows: Leasehold with more than 50 years to run Leasehold with between 20 and 50 years to run Leasehold with less than 20 years to run Investment properties Freehold properties £000 Leasehold properties £000 Properties under construction £000 557,874 36,625 8,000 – (650) – (225) (1,123) (21,633) 578,868 345,743 9,321 500 – – (173) – (127) (12,451) 342,813 476,724 102,144 315,159 27,654 29,523 17,275 (8,500) (38,534) – – – – 236 – – – Total £000 933,140 63,221 – (38,534) (650) (173) (225) (1,250) (33,848) 921,681 791,883 129,798 2000 £000 336,753 2,210 3,850 342,813 The net book value of property assets includes £3,445,000 (1999: £2,256,000) in respect of capitalised interest. 15. Other fixed assets Group Cost or valuation At beginning of year Additions Disposals Revaluation At end of year Depreciation At beginning of year Provided for year Disposals At end of year Net book values: At 25th December 2000 At 25th December 1999 Long leasehold land and buildings £000 Fixtures and fittings £000 Motor vehicles £000 13,150 118 – 512 13,780 – 80 – 80 13,700 13,150 1,221 416 (61) – 1,576 532 358 (55) 835 741 689 570 25 (229) – 366 336 129 (179) 286 80 234 Total £000 14,941 559 (290) 512 15,722 868 567 (234) 1,201 14,521 14,073 The long leasehold land and buildings represents the Group’s head office, which was independently valued on 25th December 2000. A list of the valuers, and the basis of the valuations, are summarised in note 32. 16. Other investments Valuation At beginning of year Additions Disposals Write down in value of investments At end of year Group Company Investment in CenterPoint Properties Trust £000 Shares in subsidiary and joint venture undertakings £000 21,120 – (21,120) – – 183,049 359 – (30,391) 153,017 During the year the Group sold its investment in CenterPoint Properties Trust. At 25th December 1999 the Group owned 4.9% of the common stock 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 principal subsidiaries and joint venture undertakings is given in note 38. 17. Investment in joint ventures At beginning of year Subscription for partnership capital and advances Reclassification of net investment in joint arrangement Dividends and capital distributions received Share of results (see below) Share of taxation (see below) Share of property revaluation surplus At end of year 2000 £000 2,222 18,050 10,600 (180) (178) (34) (814) 29,666 1999 £000 2,267 – – (300) 310 (101) 46 2,222 50&51 Capital & Regional plc Notes to the Financial Statements 17. Investment in joint ventures (continued) Group share of results: Turnover Operating profit Interest receivable and similar income Interest payable and similar charges Profit on disposal of investment properties Equity minority interests Profit/(loss) before tax Taxation Profit/(loss) 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 Xscape Milton Keynes Partnership £000 Capital Hill Partnership £000 Easter Holdings Ltd £000 Exchange Court Properties Ltd £000 Others £000 704 346 22 (665) – – (297) – (297) 39,250 - 2,076 41,326 8,776 22,569 31,345 9,981 50% Nil Nil 6 6 – – – – 6 – 6 17,500 - 285 17,785 222 – 222 17,563 50% Nil Nil 11,231 192 13 (111) - (32) 62 (32) 30 2,085 2,645 2,035 6,765 1,366 4,257 5,623 1,142 50% Nil Nil 41 29 – (83) – – (54) – (54) – 1,721 100 1,821 68 989 1,057 764 – 8 8 – 89 – 105 (2) 103 – 86 147 233 17 – 17 216 50% 37.5% to 50% Nil Nil Nil Nil A list of valuers and the basis of the valuation are summarised in note 32. The joint ventures all operate in the UK. 18. Investment in associates At beginning of year Share of results Share of profit on disposal of investment properties eliminated on consolidation Dividends received Capital distributions received At end of year The associate, The Easter Industrial Partnership, operated in the UK and was dissolved during the year. 19. Current property assets Properties held for disposal Properties under development 2000 £000 7,625 11,221 18,846 Group 1999 £000 31,178 3,482 34,660 The net book value of current property assets includes £nil (1999: £68,000) in respect of capitalised interest. 2000 £000 5 – – (5) – – 2000 £000 – 1,594 1,594 Total £000 11,982 581 43 (859) 89 (32) (178) (34) (212) 58,835 4,452 4,643 67,930 10,449 27,815 38,264 29,666 1999 £000 3,446 71 31 (714) (2,829) 5 Company 1999 £000 – – – 20. 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 Amounts owed by joint ventures Other debtors Tax recoverable Prepayments and accrued income 2000 £000 – – – 16,645 – 4,873 2,989 255 15,938 40,700 Group 1999 £000 – 4,840 4,840 14,988 – – 6,042 325 19,034 40,389 2000 £000 239,550 – 239,550 32 518,039 4,873 540 – 20,013 543,497 Company 1999 £000 90,876 4,840 95,716 34 658,569 – 14 419 122,398 781,434 21. Cash at bank and in hand Cash at bank includes £122,000 (1999: £127,000) specifically held as security deposits and retained in rent accounts and not freely available to the Group for day to day commercial purposes. 22. Creditors: amounts falling due within one year Bank loans (secured) Amounts owed by subsidiaries Trade creditors Other creditors Taxation and social security Corporation tax Accruals and deferred income Proposed dividends 23. Creditors: amounts falling due after more than one year Bank loans (secured) (see note 24) Convertible loan stock (unsecured) (see note 25) 2000 £000 57,999 – 7,802 11,746 2,903 3,715 41,690 2,884 128,739 2000 £000 532,359 24,223 556,582 Group 1999 £000 3,180 – 5,929 1,281 1,443 475 42,922 2,948 58,178 Group 1999 £000 574,620 24,132 598,752 2000 £000 44,889 51,982 172 10,166 – – 7,104 2,884 117,197 2000 £000 519,735 24,223 543,958 Company 1999 £000 (141) 164,272 35 114 – – 6,527 2,948 173,755 Company 1999 £000 548,841 24,132 572,973 52&53 Capital & Regional plc Notes to the Financial Statements 24. 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 2000 £000 86 523,473 8,800 532,359 58,090 590,449 Group 1999 £000 65,529 487,319 21,772 574,620 3,271 577,891 2000 £000 128 510,807 8,800 519,735 44,980 564,715 Company 1999 £000 52,522 487,319 9,000 548,841 (50) 548,791 Bank loans are secured on properties valued at £910,341,000. Bank loans are stated net of unamortised issue expenses totalling £501,000 (1999: £458,000). 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 Total £000 244,392 371,200 615,592 Weighted average interest rate Weighted average period-years 7.6% 6.9% 7.2% 1.88 n/a 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 2000 and the rate historically committed; namely the fair value adjustment. Convertible unsecured loan stock Bank borrowings Interest rate swaps Book value £000 Notional value £000 24,642 15,250 n/a 39,892 n/a n/a 204,500 204,500 Fair value £000 24,642 15,574 207,664 247,880 Fair value adjustment 2000 £000 Fair value adjustment 1999 £000 – (324) (3,164) (3,488) – (76) 1,546 1,470 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 2000 and ending on the contracted expiry dates. Undrawn loan facilities as at 25th December 2000 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 – 3,750 6,500 10,250 25. Convertible subordinated unsecured loan stock Convertible loan stock Unamortised loan issue costs due after one year Unamortised loan issue costs due within one year Group and Company 2000 £000 24,642 (419) 24,223 (91) 24,132 1999 £000 24,642 (510) 24,132 (91) 24,041 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 30th June and 31st 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. 26. Called up share capital Ordinary shares of 10p each At beginning of year Issued on exercise of share options Shares purchased and cancelled 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 2000 Number 1999 Number 98,265,697 10,426 (9,541,500) 98,255,271 10,426 – 88,734,623 98,265,697 2000 £000 9,827 1 (954) 8,874 1999 £000 9,826 1 – 9,827 Authorised 2000 1999 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 2000 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* 22nd February 2003 to 22nd February 2010* 13th September 2003 to 13th September 2010* * Only exercisable if conditions relating to growth in net asset per share and total return for shareholders are met. 25th December 2000 Number of shares Subscription price 460,814 349,281 10,426 161,606 706,632 105,208 1,122,500 62,350 25,000 612,900 190,000 355,000 4,161,717 168.9p 131.4p 132.4p 193.2p 226.4p 226.4p 279.5p 286.5p 196.5p 191.5p 201.5p 211.5p 54&55 Capital & Regional plc Notes to the Financial Statements 27. Reserves Group At beginning of year Issue of share capital Shares purchased and cancelled Group share of revaluation deficit of investment properties Group share of revaluation surplus of other fixed assets Share of unrealised revaluation deficit in joint ventures Realisation of surplus on disposal of investment properties Realisation of surplus on disposal of investment properties in joint ventures Realisation of surplus on disposal of other investment Share of tax on revaluation surpluses crystallised in year Deferred tax provided on revaluation surpluses Retained profit for the year Exchange differences At end of year Group’s share of post acquisition reserves of joint ventures At beginning of year Reclassification of joint arrangement balance Realisation of surplus on disposal of investment properties in joint ventures Movement in year At end of year Company At beginning of year Loss for year attributable to shareholders Equity dividends paid and payable Issue of share capital Shares purchased and cancelled At end of year 28. Equity minority interests Share of net assets attributable to minority shareholders: At beginning of year Share of results Share of joint ventures (see note 17) Share of tax on revaluation surpluses crystallised in year Share of movements in revaluation reserve Purchase of minority interests in subsidiary Dividends paid to minority interests At end of year Revaluation reserves Other reserves Share premium account £000 Property revaluation reserve £000 Investment revaluation reserve £000 Capital redemption reserve £000 Profit and loss account £000 166,737 – – (33,361) 512 (814) (74) (40) – (2,952) – – 130,008 197 6,512 (40) (814) 5,855 161,876 19 – – – – – – – – – – – 161,895 161,936 – – 19 – 161,955 18,099 – – – – – – – (18,099) – – – – 591 – 954 – – – – – – – – – – – 1,545 591 – – – 954 1,545 35,436 – (20,759) – – – 74 40 18,099 (3,614) – 7,957 3 37,236 851 (10) 40 (392) 489 145,646 (12,599) (5,070) – (20,759) 107,218 Profit and loss 2000 £000 Balance sheet 2000 £000 Profit and loss 1999 £000 Balance sheet 1999 £000 – 359 32 – – – – 391 4,341 359 – (511) (487) (28) – 3,674 – 381 45 – – – – 426 2,101 381 – – 1,946 – (87) 4,341 Minority interests relate to participation in the net equity of subsidiary companies. 29. Non-equity funding by joint arrangement partners Represented 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. During the year the Xscape Milton Keynes Partnership was reclassified as a joint venture. 30. Net assets per share Net assets per share have been calculated on Ordinary shares of 10p each 88,734,623 (1999: 98,265,697) in issue at the year end and have been based on net assets attributable to shareholders of £339,558,000 (1999: £392,566,000). 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 101,146,794 (1999: 110,677,868) Ordinary shares of 10p each and have been based on adjusted net assets attributable to shareholders of £363,690,000 (1999: £416,607,000) by adding the £24,132,000 (1999: £24,041,000) balance sheet value of CULS (see note 25). 31. Provision for liabilities and charges Deferred taxation The amounts of deferred taxation provided and unprovided in the accounts are as follows: Tax on capital gains if investment assets were sold at their current valuation Accelerated capital allowances Provided 2000 £000 2,952 – 2,952 Provided 1999 £000 Not provided 2000 £000 Not provided 1999 £000 – – – 24,356 10,442 34,798 45,347 6,818 52,165 If a provision was made for deferred taxation that has not been provided it would have an adverse effect on net assets per share of 39.2p (1999: 53.1p) and on fully diluted net assets per share of 34.4p (1999: 47.1p). 32. Valuations The properties were valued at 25th December 2000, as follows: Group properties: Total fixed property assets Other fixed assets Total property assets Properties held by joint ventures: Xscape Milton Keynes Partnership The Capital Hill Partnership Easter Holdings Limited Valuer Basis of valuation DTZ Debenham Tie Leung Insignia Richard Ellis Limited Directors Directors Open market value Open market value Net sale proceeds of properties sold after 25th December 2000 Open market value DTZ Debenham Tie Leung Open market value Valuer Basis of valuation DTZ Debenham Tie Leung DTZ Debenham Tie Leung Easter Holdings Limited Open market value Open market value Open market value £000 702,730 34,790 183,941 220 921,681 13,700 935,381 £000 78,500 35,000 4,170 117,670 Valuations are at open market value as defined in the Appraisal and Valuation Manual of The Royal Institution of Chartered Surveyors. 33. Contingent liabilities and guarantees At 25th December 2000, the Company or the Group had given guarantees in respect of: – the performance of certain subsidiaries in respect of their involvement in joint ventures; – rental and grant repayment obligations of certain joint ventures. No security has been provided against any of these guarantees. Recourse to the Group in respect of guarantees of the bank loans of joint ventures and associates not included in the consolidated balance sheet is set out in notes 17 and 18. 34. Future commitments Capital expenditure commitments: Contracted, but not provided for Revenue expenditure commitments: Commitments for 2001 in respect of operating leases for land and buildings which expire: In five years or more 2000 £000 1999 £000 17,589 14,839 1,333 1,272 56&57 Capital & Regional plc Notes to the Financial Statements 35. Notes to the cash flow statement (a) Net cash inflow from operating activities Group operating profit Profit on the sale of the trading and development properties Depreciation of other fixed assets Amortisation of short leasehold properties Amortisation of goodwill arising on acquisition of minority interests (Profit)/loss on disposal of fixed assets 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 (Decrease)/increase in cash in year Cash inflow from increase in debt financing Change in net debt resulting from cash flows Reclassification of debt in joint arrangement 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 At 25th December 1999 £000 7,388 (3,521) (599,470) (595,603) Cash flows £000 (1,297) – (35,169) (36,466) 2000 £000 49,870 (306) 49,564 567 173 72 (52) (5,717) 10,070 54,677 2000 £000 (1,297) (35,169) (36,466) 22,568 (595,603) (609,501) 1999 £000 40,950 (1,646) 39,304 479 – – 92 (6,183) 8,577 42,269 1999 £000 1,912 (236,924) (235,012) – (360,591) (595,603) Other At non- cash 25th December 2000 £000 changes £000 – (54,830) 77,398 22,568 6,091 (58,351) (557,241) (609,501) 36. Related party transactions 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 17 and 18. The Group has provided a £5,000,000 loan facility to Easter Holdings Ltd which was repayable on or before 1st January 2001. At 25th December 2000 the loan outstanding was £4,496,000 (1999: £4,840,000). Interest was charged on this facility at rates ranging between 8.5% and 9.0% during the year. The interest receivable for the year is £373,000 (1999: £348,000). The Group was charged £865,000 (1999: £509,000) by a subsidiary of Easter Holdings Ltd in respect of property acquisition and management fees during the year, and £96,000 (1999: £248,000) in respect of project management fees. The Group has provided a £377,000 loan facility to Exchange Court Properties Ltd, which is repayable on demand. At 25th December 2000 the loan outstanding was £377,000 (1999: £nil). Interest was charged on this facility at rates ranging between 8.5% and 9.0% during the year. The interest receivable for the year is £17,000 (1999: £nil). Other related party transactions During 2000 the Group purchased Andrew Lewis-Pratt’s minority shareholding in Capital and Lanham Retail Parks (Wolverhampton) Limited for a total consideration of £67,000. The net asset value of the shares at the date of acquisition was £18,000. Andrew Lewis-Pratt was only beneficially interested in £28,000 of the £67,000 total consideration. During 2000 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 2000 Cine UK Limited leased two 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. Martin Barber is a shareholder of Cine UK. David Cherry is a former Senior Partner and currently a consultant to the firm Donaldsons, which has continued to act during 2000 as one of the Group’s property advisers and as such has received fees for its services on normal professional terms. 37. Post balance sheet events On 9th February 2001 the Group sold St Andrew House, Glasgow for a total consideration of £19,950,000 On 12th February 2001 the Group sold a portfolio of industrial properties for a total consideration of £91,076,000 On 12th February 2001 the Group sold Westway Cross Shopping Park, Greenford for a total consideration of £43,750,000 On 29th February 2001 the Group sold Unit E, Hylton Riverside for a total consideration of £650,000 On 14th March 2001 the Group transferred the Sauchiehall Shopping Centre into a joint venture with Stannifer for a total consideration of £31,000,000 The effect of the above transactions on the Group balance sheet as at 25th December 2000 is as follows: 25th December 2000 £000 Effect of above transactions £000 Fixed assets Property assets Other fixed assets Investment in joint ventures Current assets Creditors: amounts falling due within one year Net current liabilities Total assets less current liabilities Creditors: amounts falling due after one year Provision for liabilities and charges Net assets Net debt Gearing ratios: – including convertible unsecured loan stock – excluding convertible unsecured loan stock – assuming conversion of convertible unsecured loan stock 38. Subsidiary, joint arrangement entities, joint venture and associated undertakings at 25th December 2000 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 * Capital & Regional (Pallasades Two) Limited Capital & Regional (Sauchiehall) Limited Capital & Regional (Westway Cross) 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. Andrews 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 (Holm Street) Limited Capital & Lanham Construction (Coventry) Limited Capital & Lanham Developments (Cannock) Limited * Capital & Regional (Oldbury) Limited Capital & Regional (Yeovil) Limited Xscape Limited Xscape Snozone Limited Capital & Regional (Stratford) Limited Capital Hill Partnership Realcap Management Limited Realcap Investments Limited Capital Properties Partnership Applied Solutions (Projects) Limited Capital and Lanham Retail Parks (Wolverhampton) Ltd Easter Capital Investment Holdings Limited Easter Capital Limited Easter Properties (North East) Limited Twelve Quays Limited Twelve Quays One Limited Easter Capital Investments (Nottingham) Limited Netherton Developments Limited Easter Holdings Limited (183,941) – 2,100 (181,841) – 35,000 35,000 (146,841) 146,841 – – (181,841) 921,681 14,521 29,666 965,868 65,637 (128,739) (63,102) 902,766 (556,582) (2,952) 343,232 609,501 177.6% 170.4% 159.2% 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 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 Development and trading Development and trading Investment and holding Trading Investment and holding Investment and management 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 Development and trading Pro forma £000 737,740 14,521 31,766 784,027 65,637 (93,739) (28,102) 755,925 (409,741) (2,952) 343,232 427,660 124.6% 117.4% 109.7% Group effective share of business 100% 100% 100% 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% 100% 50% 100% 100% 50% 50% 100% 75% 75% 75% 75% 75% 75% 37.5% 50% The subsidiary and joint ventures 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 17 and 18. The company has taken advantage of S231(5) and (6) Companies Act 1985 in not listing all of its subsidiary and joint venture undertakings. All of the above principal subsidiaries 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 58&59 Capital & Regional plc Directors’ Report for the year ended 25th December 2000 The directors present their report together with the audited financial statements for the year ended 25th December 2000. Results and proposed dividends The consolidated profit and loss account is set out on page 40 and shows a profit on ordinary activities after taxation of £13.4m. The directors recommend the payment of a final dividend of 3.25p per Ordinary share on 6th June 2001, to members on the register at the close of business on 30th March 2001, which together with an interim dividend of 2.25p per Ordinary share, paid in 2000, makes a total of 5.50p 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 and Chief Executive’s Statement and operating reviews on pages 2 to 25. Directors The directors of the Company at 25th December 2000, 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, M. Barber (who is the chief executive and a member of the Nomination Committee), R. Boyland, T. Chandos (who is the chairman and a member of the Remuneration and Nomination Committees) and P. Duffy (who is a member of the Audit and Nomination Committees) retire by rotation and, being eligible, offer themselves for re-appointment. M. Barber and R. Boyland have service contracts, which require notice of one year. T. Chandos has served as a non-executive director since 1993 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 re-appointed by shareholders on retirement by rotation. P. Duffy has served as a non-executive director since 1995 and has a letter of appointment for a period of three years expiring on 26th May 2001, which the Board will renew from that date. Under the terms of the letter he is required to vacate office without compensation if not re-appointed by shareholders on retirement by rotation. Biographies of the directors of the Company are set out on pages 28 and 29. The Company maintains insurance for the directors in respect of liabilities arising from the performance of their duties. Directors’ interests The directors and, where relevant, their connected persons (within the meaning of Section 346 of the Companies Act 1985) are interested in 4,891,826 issued shares representing 5.51% of the issued Ordinary share capital of the Company as detailed in the Report on Directors’ Remuneration and Interests on pages 35 to 37. Save as set out in note 36 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 26 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 37. 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 March 2001: UBS Asset Management Legal & General Trefick Limited Morley Fund Management Royal & Sun Alliance United Nations Pension Fund Barclays Global Investors Total Shares 10,265,834 6,648,601 6,560,403 5,162,163 5,024,622 3,963,120 2,924,287 40,549,030 % 11.57 7.49 7.39 5.82 5.66 4.47 3.30 45.70 Change of company name On 10th May 2000, the Company changed its name from “Capital and Regional Properties plc” to “Capital & Regional plc” following the special resolution passed at the Annual General Meeting on 5th May 2000. Charitable donations During the year the Group contributed £2,250 (1999: £7,812) to UK charities. Payment of suppliers The policy of the Company 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 Company had an average of 29 days (1999: 20 days) purchases outstanding. Compliance with combined code A statement on Corporate Governance is set out on pages 38 to 39. 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. Stakeholder pensions As a result of the Government’s introduction of Stakeholder Pensions which are available from April 2001, employers must provide their employees with access to a Stakeholder Pension scheme. The Company has appointed consultants who have put such a scheme in place and the Company has also nominated a Stakeholder Pension provider. Employees will have access to join this scheme from May 2001. Euro The Group is continuing to review the potential effect of the introduction of the single European currency on the administration of its business. Environmental policy The Company is committed to delivering the highest standards of environmental policy implementation in the management of its retail and leisure property portfolio. The Company consults employees, shareholders, suppliers and customers alike in order to maintain high standards. The Company strives to achieve compliance with current legislation, particularly in the areas of energy and its efficient use and impact on the environment, and water including water management and minimisation of use. The Company also endeavours to include environmental considerations in the design and refurbishment of properties, applying and installing wherever practicable current best practice technology. The Company is committed to continuous monitoring and feedback in order to adopt a responsible and positive approach to environmental issues. 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 2001 Final Dividend is set out on the inside back cover. 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 at the registered office. Post balance sheet events Post balance sheet events are set out in note 37 to the accounts. Auditors Deloitte & Touche have expressed their willingness to continue in office and a resolution to re-appoint them will be proposed at the Annual General Meeting. Special business of the Annual General Meeting Pre-emption rights Shares allotted for cash must normally first be offered to shareholders in proportion to their existing shareholdings. Under resolution 8, 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. By Order of the Board F. Desai, Secretary 30th March 2001 60 Capital & Regional plc Notice of the Annual General Meeting Notice is hereby given that the twenty-second Annual General Meeting of the Company will be held at The Goring Hotel, 15 Beeston Place, Grosvenor Gardens, London SW1W 0JW on 25th May 2001 at 10:00 am for the following purposes. Ordinary business 1. To consider and, if thought fit, adopt the accounts for the year ended 25th December 2000, and the reports of the directors and auditors thereon. 2. To declare a final dividend of 3.25p per Ordinary share. 3. To re-appoint M. Barber as a director of the Company. 4. To re-appoint R. Boyland as a director of the Company. 5. To re-appoint T. Chandos as a director of the Company. 6. To re-appoint P. Duffy 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: 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: (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 2002 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. By Order of the Board F. Desai, Secretary 30th March 2001 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 10:00 am on 23rd May 2001. 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 UBS Warburg 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 Berwin Leighton Adelaide House London Bridge London EC4R 9HA Principal valuers DTZ Debenham Tie Leung One Curzon Street London W1A 5PZ 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 www.capreg.com Registered number 1399411 Lending banks Bank of Scotland The Mound Edinburgh EH1 1YZ Barclays Bank PLC Luton Corporate Banking Centre Eagle Point 1 Capability Green Luton LU1 3US BHF–Bank 61 Queen Street London EC4R 1AF Fortis Bank SA/NV Camomile Court 23 Camomile Street London EC3A 7PP Halifax PLC 33 Old Broad Street London EC2N 1HZ HSBC Bank plc Poultry London EC2P 2BX HypoVereinsbank 110 Cannon Street London EC4N 6EW Royal Bank of Scotland plc 135 Bishopsgate London EC2N 3UR 2001 Financial Calendar 2001 Financial Calendar Annual General Meeting – 25th May Final dividend record date – 30th March Final dividend payment – 6th June Interim results – 11th September Interim dividend – October/November 2001 Preliminary results announcement – February/March 2002 2001 Final Dividend timetable Record date – 30th March Last day to receive DRIP mandates – 15th May Dividend warrants posted – 5th June Payment date/shares purchased – 6th June Certifcates/purchase statements despatched – 19th June CREST accounts credited – 20th June Designed and produced by Radley Yeldar (London) Photography by George Brooks, photograph on page 8 by Mark Bourgeois, Head of Asset Management, Capital & Regional plc. Capital & Regional plc 10 Lower Grosvenor Place, London SW1W 0EN T: 020 7932 8000 F: 020 7802 5600 www.capreg.com C a p i t a l & R e g o n a i l l p c A n n u a l R e p o r t 2 0 0 0 Capital & Regional plc Annual Report 2000 Creating places that live 

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