Wrap Text
CCO - Capital & Counties Properties PLC - Audited preliminary results for the
year ended 31 December 2011
Capital & Counties Properties PLC
(Incorporated and registered in the United Kingdom and Wales with registration
Number 07145041 and registered in South Africa as an external company with
Registration Number 2010/003387/10)
JSE code: CCO
ISIN: GB00B62G9D36
CAPITAL & COUNTIES PROPERTIES PLC ("CAPCO")
29 February 2012
CAPITAL & COUNTIES PROPERTIES PLC ("CAPCO")
AUDITED PRELIMINARY RESULTS FOR THE YEAR ENDED 31 DECEMBER 2011
Highlights:
- EPRA adjusted, diluted NAV per share up 11.7% to 166 pence per share
- Total property value GBP1.6 billion, up 9.2% on a like-for-like basis
- Loan-to-value of 29%
- Resolution to grant planning consent for Seagrave Road development in
February 2012
- GBP131 million Seagrave Road conditional JV agreement signed in December
- GBP100 million placing in May
- GBP300 million refinancing in Covent Garden
- Covent Garden ERV target raised to GBP50 million by December 2013
- Planning applications submitted for 10 million square feet Earls Court
Masterplan
- GBP103 million of disposals from GCP and China; GBP113 million of key
property acquisitions at Covent Garden
- Contracts exchanged to sell GBP75 million (Capco share) of properties from
GCP to GPE
- Olympia West Hall redevelopment completed
- Proposed final dividend:1.0 pence per share (total 2011 dividend 1.5 pence
per share)
Ian Durant, Chairman of Capital & Counties Properties PLC, commented:
"Capco is well positioned to maintain its momentum following a year of
progress and value creation in 2011. Strong total returns were generated by
energetic and profitable activity in line with the strategy articulated at the
time of establishing Capco as an independent company in 2010. Carefully
targeted acquisitions and the drive towards creative regeneration have
established a solid platform from which to continue to create value from
Capco`s assets."
Ian Hawksworth, Chief Executive of Capital & Counties Properties PLC, said:
"The transformation of Covent Garden into one of the most vibrant retail and
leisure destinations in London continues to create value and attract new
brands, whilst the recent resolution to grant planning consent for our
Seagrave Road development is an important milestone in our progress with the
Earls Court Masterplan following the submission of our planning applications
in June. I am confident that Capco`s place-making vision, creative teams and
central London-focused assets will provide considerable opportunities in both
the retail and residential markets during 2012."
ENQUIRIES
Capital & Counties Properties PLC:
Ian Hawksworth Chief Executive +44 (0)20 3214 9188
Soumen Das Finance Director +44 (0)20 3214 9183
Public relations:
UK: Michael Sandler/Wendy Baker,
Hudson Sandler +44 (0)20 7796 4133
SA: Nicholas Williams/Morne Reinders,
College Hill +27 (0)11 447 3030
Sponsor:
Merrill Lynch SA (Pty) Limited
A presentation to analysts and investors will take place today at 9:00 GMT at
UBS, Room 29, 7th Floor, 1 Finsbury Avenue, London EC2M 2PP. The presentation
will also be available to international analysts and investors through a live
audio call and webcast and after the event on the Group`s website
www.capitalandcounties.com.
A copy of this press release is available for download from the website at
www.capitalandcounties.com and hard copies can be requested via the website or
by contacting the company (email feedback@capitalandcounties.com or telephone
+44 (0)20 3214 9153).
This press release includes statements that are forward-looking in nature.
Forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements
of Capital & Counties Properties PLC to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Any information contained in this press release on
the price at which shares or other securities in Capital & Counties Properties
PLC have been bought or sold in the past, or on the yield on such shares or
other securities, should not be relied upon as a guide to future performance.
COMPANY OVERVIEW
Capco is one of the largest listed investment and development companies in
central London. Our landmark estates held directly or through joint ventures,
are valued at GBP1.6 billion. We aim to unlock the potential for significant
value through entrepreneurial asset management and to deliver market-leading
total returns to our shareholders.
Our assets are concentrated around three main estates in central London:
Covent Garden London
This vibrant and historic location is globally recognised as a retail and
leisure destination. It is valued at GBP808 million.
Earls Court and Olympia
Including one of London`s most important opportunity areas and a leading
exhibition business, the EC&O estate has property assets totalling GBP574
million, including Capco`s share of the Empress State Building.
The Great Capital Partnership
A 50:50 joint venture with Great Portland Estates which includes properties in
prime locations around Regent Street and Piccadilly worth GBP241 million
(Capco share).
FINANCIAL SUMMARY AND HIGHLIGHTS
2011 2010
GBPm GBPm
Net rental income 69.0 69.0
Underlying earnings after tax excluding valuation items 9.5 9.2
Gain on revaluation of investment and development property 119.4 133.3
Profit before tax 161.9 132.5
Total investment and trading properties 1,617 1,378
Net debt 464 476
Net assets (EPRA adjusted NAV) 1,145 926
Underlying earnings per share 1.4p 1.5p
EPRA adjusted, diluted NAV per share 166p 148p
Property LTV 29% 35%
CHAIRMAN`S STATEMENT
A YEAR OF PROGRESS
The Board is committed to delivering market-leading total returns to
shareholders. We aim to achieve this by combining value creation through
capital value and income growth and adopting an innovative and entrepreneurial
approach to managing the Group`s assets. The portfolio of high potential,
central London estates and a prudent balance sheet provide the platform to
deliver this commitment.
Covent Garden
In 2011 we enhanced Covent Garden through a series of tenancy changes and
acquisitions in the latest phase of its repositioning, which resulted in a
strong increase in the valuation of the estate. This expansion was supported
by the successful equity issue in May last year which raised GBP100 million,
together with a GBP300 million refinancing in November.
Earls Court and Olympia
The exhibition business performed in line with expectations in 2011. The
development of Olympia`s West Hall, already open for business, has increased
the venue`s ability to host simultaneous shows.
The proposals for Earls Court reached several milestones, in particular the
launch of Sir Terry Farrell`s Masterplan and the submission of planning
applications for Seagrave Road and the wider scheme. These illustrate Capco`s
vision for Earls Court which has been formally identified in the Mayor`s
London Plan as an Opportunity Area with the capacity for large-scale
development.
In February 2012 a resolution to grant planning consent for Seagrave Road was
received, which followed the agreement of a conditional joint venture in
relation to the site with the Kwok Family Interests in December. These
successes will allow the Group to pursue, in partnership, the development of
more than 800 homes at Seagrave Road.
The Great Capital Partnership and China
The Great Capital Partnership and the Group`s investments in China have
continued to perform well, allowing us to take the opportunity to realise
capital to be recycled into the Group`s core activities.
RESULTS AND DIVIDENDS
Capco delivered another year of strong performance in 2011, with a total
return of 12.7 per cent underpinned by a rise in EPRA adjusted, diluted NAV
per share from 148 pence to 166 pence. This was largely driven by the positive
revaluation of the investment properties, which increased 9.2 per cent on a
like-for-like basis, outperforming IPD capital values which rose 1.2 per cent.
The share price increased 23 per cent in 2011 which compares favourably to the
11 per cent fall in the FTSE Real Estate Index.
The Directors are proposing a final dividend of 1.0 pence per share, bringing
the total dividend paid and payable for 2011 to 1.5 pence per share.
FUTURE OPPORTUNITIES
Following considerable progress in 2011, the Covent Garden team continues to
implement asset management opportunities whilst considering ways in which to
expand the estate`s footprint that will enhance long-term value.
Our immediate priorities for the Earls Court Masterplan are to secure planning
consents across the wider area and to conclude the commercial transactions
with London Borough of Hammersmith & Fulham (LBHF) and Transport for London
(TfL). We look forward to working closely with the Kwok Family Interests to
take forward the Seagrave Road project.
COMMITMENT TO CORPORATE RESPONSIBILITY (CR)
Capco employs people with a diverse range of experience and expertise. Our
entrepreneurial culture encourages a creative and holistic approach to place-
making, which takes into consideration our impact on the environment and on
the local communities where our estates are based. CR has become embedded into
the fabric of our day-to-day work.
GOVERNANCE
The Board has taken particular care to establish an open culture in which
debate and management accountability are emphasised. We encourage our people
to be passionate about the estates in their stewardship but to maintain a high
degree of objectivity about the use of, and the risk-adjusted returns
available from, the Group`s capital. A strong corporate governance structure
underpins this culture.
During the year the Board has increasingly focused on considering the Group`s
options for evolving its strategy beyond the goals set out at the time of
establishing Capco as an independent entity in 2010; and reviewing planning
and commercial decisions and critical timelines - all within the context of
effective risk management.
Following an external board effectiveness evaluation in 2010, an internal
review was undertaken this year. The Board recognises the benefits that
increased gender diversity would bring and accordingly a search for an
additional non-executive Director is underway.
I am pleased to report that in December, Capco shares were classified as
`domestic` for trading purposes on the Johannesburg Stock Exchange, where the
Company has a secondary listing. This means that investors in South Africa are
now able to trade shares in Capco on the Johannesburg Stock Exchange without
the previous restrictions on foreign holdings under South African exchange
control limits.
Regarding shareholder engagement, I remain committed to meeting our
shareholders and the executive team has a comprehensive programme of investor
briefings.
OUTLOOK
Capco`s success in 2011 is the result of our strategy of focusing on specific
central London prime assets where the Group has a dominant position. This has
allowed the Group to benefit from the distinct, strategic capital and economic
characteristics of a specialist central London non-REIT property company.
I am in no doubt that London will benefit enormously from the Queen`s Diamond
Jubilee celebrations and as the host city for the Olympics this year, and am
proud that Earls Court will be an integral part of the Olympics experience
having been chosen as an official venue.
I believe the future for Capco is positive, and look ahead to 2012 with
optimism tempered by caution regarding the macroeconomic climate. We look
forward to making further progress on realising London`s most significant
urban place- making initiatives for many years at Earls Court and Seagrave
Road. We are also confident of seeing further value creation at Covent Garden.
Finally, I would like to thank the Executive Directors and all staff for their
hard work and commitment during the past year. I am confident that they are
committed to meeting the challenges of the year ahead.
I.C. Durant
Chairman
29 February 2012
CHIEF EXECUTIVE`S REVIEW
Driven by our ambitions to be a creative place-maker, our focused strategy has
allowed us to make great progress against our objectives both at Group level
and in our estates.
Capco has had an active and successful 2011. We undertook a GBP100 million
equity placing, raised GBP300 million of new debt facilities to extend the
Group`s debt maturity profile, acquired GBP113 million of properties to expand
Covent Garden, released GBP103 million from The Great Capital Partnership and
China, submitted planning applications covering over 11 million square feet
for the Earls Court Masterplan and Seagrave Road, and agreed a strategic joint
venture for Seagrave Road with the shareholders of one of Hong Kong`s largest
and most reputable real estate companies. Our activities have led to strong
value creation for our shareholders, with net asset value per share rising
11.7 per cent and the share price increasing 23 per cent.
This performance reflects the strategic positioning of Capco in dominant
estates with particular exposure to the central London retail and residential
markets. Central London continues to attract a deep pool of occupiers and
investors from around the world, and our strategy is focused on transforming
districts to meet this demand.
OPERATING AND FINANCIAL PERFORMANCE
The value of our properties increased strongly over 2011, with a rise of 9.2
per cent in capital values on a like-for-like basis, compared to the UK IPD
capital value index which rose 1.2 per cent.
Market Value Market Value
Dec-11 Dec-10 Market Value
GBPm GBPm Change(2,3)
Covent Garden 808 640 9.2%
The Great Capital Partnership (1) 241 260 9.8%
Empress State (1) 103 103 -
Total non-exhibition properties 1,152 1,003 8.4%
Earls Court & Olympia 471 378 10.9%
Total investment properties 1,623 1,381 9.2%
Equivalent
ERV Change(2) Initial Yield Yield
Covent Garden 8.8% 3.77% 5.25%
The Great Capital Partnership (1) 11.4% 3.93% 5.05%
Empress State (1) - 6.69% 6.18%
Total non-exhibition properties 8.4%
Earls Court & Olympia
Total investment properties
1 Represents Capco`s 50 per cent share
2 Like-for-like
3 Valuation change takes account of amortisation of lease incentives, capital
expenditure and fixed head leases
Covent Garden
Capco has transformed Covent Garden into one of the most exciting retail,
leisure and residential districts in London. The estate is now valued at
GBP808 million, with an increase in like-for-like property values of 9.2 per
cent during 2011 driven by like-for-like ERV growth of 8.8 per cent.
We delivered the 2012 ERV target of GBP40 million 18 months ahead of schedule.
On the back of this, we have set a challenging but achievable target of GBP50
million for 2013, as we aim to close the gap in rental values between Covent
Garden and other parts of prime central London.
In May we raised GBP100 million through an equity issue. The proceeds allowed
the Group to extend its footprint in the estate from 750,000 square feet to
over 830,000 square feet, with several important new acquisitions.
Alongside the continued focus on the retail and food and beverage mix, Capco
is seeking to return the estate to its roots as London`s original luxury
address. The four high-specification apartments at The Henrietta, located on
the corner of Henrietta Street and the Piazza, were recently brought to market
and are of a quality consistent with the best high-end residential
developments in London.
Earls Court and Olympia
Earls Court and Olympia, excluding Empress State, increased in value by 10.9
per cent during 2011, reflecting the investment in all parts of the estate.
The Group has made significant progress in the past 12 months in respect of
its holdings in Earls Court. Sir Terry Farrell`s Masterplan, launched in
March, based around his vision of "Four Urban Villages and a 21st Century High
Street", provides a blueprint for a multi-billion pound investment in both the
local community and London as a whole. In June the Group submitted outline
planning applications for the whole scheme, and a detailed application for a
residential scheme at Seagrave Road - a total of 11 million square feet of new
space across 77 acres. The Seagrave Road project received a resolution to
grant consent in February 2012.
The Group`s interests at Earls Court have been revalued from GBP138 million to
GBP195 million, implying a valuation of GBP8.6 million per acre across the
Group`s 23 acres at Earls Court. The independent valuer has changed the basis
of valuation to a land valuation having regard for redevelopment potential in
light of the progress through the planning process, and this marks a change
from the previous existing use basis. Seagrave Road increased in value during
2011 by GBP11 million to GBP116 million and in December a 50:50 conditional
joint venture for the site was agreed with Kwok Family Interests at GBP131
million. Our events business at Earls Court and Olympia performed well in a
challenging market, with EBITDA falling only 2 per cent to GBP18.5 million. We
invested GBP20 million in the West Hall redevelopment at Olympia. Earls Court
is an official Olympic venue, hosting the volleyball tournament this summer.
The Great Capital Partnership
The refocusing of The Great Capital Partnership (GCP) into a core of Regent
Street and Piccadilly holdings has resulted in strong ERV and valuation
growth. The disposal of properties in Kensington and midtown realised GBP48
million, which the Group has recycled into its core activities at Covent
Garden and Earls Court. The sale of further properties this year, together
with the transaction announced today, will allow this capital recycling to
continue in 2012.
China
The strong domestic economy and continued appreciation of Chinese RMB against
the US dollar benefited the Group`s investments in China. The fund manager,
Harvest Capital Partners, has completed the sale of a number of the funds`
underlying investments. A total of GBP55 million has been realised for the
Group from these disposals reflecting a substantial profit.
OPPORTUNITIES AND OUTLOOK
The Queen`s Diamond Jubilee celebrations and the Olympics will place a
spotlight on London in 2012, allowing it to demonstrate its attractions to a
global audience. This should benefit the Group which is focused on landmark
locations across the capital, although the operational challenges of these
events for a central London business should not be underestimated.
Covent Garden is now a destination of choice for flagship retail brands. The
team is focused on capitalising upon this to deliver the GBP50 million ERV
target for the end of 2013. Further conversions of office space to high-
quality apartments will unlock additional value.
The immediate focus for the Earls Court Masterplan remains on obtaining
planning consents, together with concluding land transactions with TfL and
LBHF. The relationship with the Kwok Family Interests will develop during the
course of the year as Seagrave Road becomes a development project.
At EC&O Venues, there is likely to be some short-term impact at Earls Court,
due to the uncertainty caused by the Masterplan.
Following the successful disposal of properties from GCP and in China, further
opportunities for reinvestment and capital recycling back into the core
business will be pursued.
Capco is well positioned to maintain its momentum as the strong performance of
London real estate is expected to continue.
The macroeconomic headwinds demonstrate some of the more visible risks we
face, and hence we remain focused on executing our strategy across the
business as we believe this will best deliver market-leading total returns to
our shareholders. I am confident that our place-making vision, creative teams
and central London-focused assets will provide considerable opportunity in
both the retail and residential markets during 2012.
I. D. Hawksworth
Chief Executive
29 February 2012
OPERATING REVIEW - COVENT GARDEN
- Capital value GBP808 million as at 31 December 2011, up 9.2 per cent on a
like-for-like basis
- Net rental income GBP27.8 million, up 5.3 per cent on a like-for-like basis
- ERV GBP45.8 million, up 8.8 per cent on a like-for-like basis
Covent Garden is one of the most vibrant, well-loved and well-known districts
of London. Located in the heart of the West End, it attracts over 44 million
customer visits a year who come for a unique shopping experience, al fresco
dining and a wide range of entertainment in a historic, traffic-free setting.
The Covent Garden estate represents 50 per cent of Capco`s gross assets and
showcases its creative place-making strategy, which is realised through
focused asset management, investment and development.
Since it acquired the Covent Garden estate in 2006, Capco has transformed the
area by introducing 45 new, high-quality retailers and occupiers.
The completion and marketing of four residential apartments at The Henrietta
marks the launch of the Covent Garden Living brand and offers the estate the
potential to reconnect with its 17th century residential roots.
The opening of Europe`s largest Apple store in August 2010 signalled a
milestone in the transformation of Covent Garden into a more high-end retail,
leisure and residential destination. 2011 has seen a series of acquisitions, a
significant shift in consumer demographics and a raft of new innovative brands
taking space in and around the Grade-II listed Market Building.
OPERATING PERFORMANCE
In May, the Group raised GBP100 million through a capital raise which funded
the acquisition of Kings Court, a 71,900 square feet portfolio which includes
five properties bridging King Street and Floral Street. The estate was further
expanded during 2011 through the acquisitions of 35 King Street, 11 James
Street and, through an GBP18 million property swap, 1a Henrietta Street.
Overall, Capco now owns 52 buildings, comprising 334 lettable units and over
830,000 square feet of lettable space in Covent Garden. The overall estate was
valued at GBP808 million as at 31 December 2011, an increase of 9.2 per cent
on a like-for-like basis since 31 December 2010.
In 2011, 78 rent reviews and lettings were negotiated which secured GBP8
million of passing rent, an 8.8 per cent increase above December 2010 ERV.
This has driven an 8.8 per cent like-for-like increase in ERV over the year to
GBP45.8 million.
The estate is operating at near-full occupancy - the EPRA occupancy rate at 31
December 2011 was 97.5 per cent (up from 97.1 per cent in December 2010)
adjusted for units under offer and held for development. Tenant demand is
strong despite a challenging year for retailers and consumers throughout the
UK. The Group`s proactive, on-site team continues to secure vacant possession
of high-profile and strategic units to further reposition Covent Garden as
London`s most shoppable area. During 2011, 13 retailers opened new stores
across the estate, including Rugby Ralph Lauren, Burberry Brit, Vilebrequin,
Oliver Sweeney, Links of London and Brora.
The area`s food and beverage offering was enhanced by `restaurant in
residence` Canteen which introduced contemporary British cuisine and design
during its temporary tenure from September 2011 until February 2012. Upmarket
Parisian patisserie Laduree transformed the high-profile corner unit on the
North Piazza facing King Street into its first ever stand- alone tea salon in
May.
Footfall on a rolling 12 month basis as at December 2011 was 44 million.
Capco`s active asset management and leasing strategy to establish a higher end
mix of occupiers in the Market Building and surrounding streets has resulted
in a shift in consumer demographics, attracting higher spending visitors. In
2011, 89 per cent of domestic visitors to Covent Garden were classified as
ABC1, and internal measures of average spend are indicating increases for both
domestic and international consumers.
The Henrietta`s four residential apartments offer a total of 8,000 square feet
of newly converted space for sale. Work has commenced on the second scheme,
The Russell, which will create 14,300 square feet of residential space.
Planning consent has been granted for a further six apartments, The Beecham,
and a flagship unit on the south west corner of the Piazza. A planning
application has been submitted for a further seven apartments at 30-32
Southampton Street. It is anticipated that the Covent Garden Living brand will
provide over 50 high-end and luxury apartments for sale and rent in the coming
years.
Capco, through its Covent Garden team, has actively engaged with, and become
part of, the local community since the initial acquisition in 2006. With
offices now based in Floral Street, the team has built strong relationships
with the Covent Garden Area Trust (CGAT), residents` associations, Westminster
City Council and the wider business community, supporting key district
initiatives and garnering support for new innovative developments.
FUTURE PRIORITIES
Capco`s priority for Covent Garden is to achieve its ERV target of GBP50m by
December 2013 through investment, development and proactive and creative asset
management capturing as much of this as soon as possible within passing rent.
This will be delivered through expansion of the contemporary luxury retail
offer and a transformation of the food and dining mix. The team will focus on
securing new lettings across the estate, especially on King Street. Russell
Street is set to be transformed by the iconic Balthazar restaurant and bakery
from Manhattan.
Looking ahead the aim is to extend the residential portfolio, grow the estate
through tactical acquisitions and continue to enhance the Covent Garden
environment by investing in improvements to its buildings and the public
realm.
OPERATING REVIEW - EC&O VENUES
- West Hall completed creating 97,000 sq ft of modern exhibition space
- EBITDA GBP18.5 million
- Olympia valuation up 4 per cent to GBP121 million
EC&O Venues is Capco`s world-class conference, exhibitions and events business
now comprising Olympia and the two exhibition halls at Earls Court. Following
the recent sale of The Brewery, this now represents 1.3 million square feet of
prime conference and events space.
OPERATING PERFORMANCE
The EC&O Venues business demonstrated resilience during 2011, particularly in
light of the uncertainty caused by the planning process at Earls Court. EBITDA
was GBP18.5 million, down 2 per cent from 2010. 37 new exhibitions were
contracted to the venues in 2011 which helped to offset the loss of other
shows, and 15 new shows have already been confirmed for 2012. New exhibitions
contracted in 2011 included Landscape, the London Pet Show and the Ideal Home
Show At Christmas which welcomed more than 80,000 visitors - making it the
biggest new UK exhibition in 20 years.
The valuation of Olympia increased 4 per cent during the year to GBP121
million. This partly reflects the completion of the West Hall in Olympia which
provides 97,000 square feet of modern, flexible space to complement the
existing Grand and National Halls and the Olympia Two Building. The closure of
the weekday District Line service at Olympia has been managed through the
retention of services supporting certain exhibitions as well as improvements
to the West London Line, now running more frequently. The Brewery, which was
operated by EC&O Venues, was sold on 9 February 2012.
A number of shows across both venues have secured substantial increases in
visitor figures year-on-year. At Olympia, Top Drawer, the biannual retail
trade event, increased its retailer attendance at the autumn 2011 show by 12
per cent year-on- year. Similarly the Speciality & Fine Food Fair attracted
over 8,000 visitors, the highest number in its 12-year history and 42 per cent
of exhibitors were showcasing their brands for the first time. At Earls Court,
the Ideal Home Show continued to impress by attracting 270,000 visitors, more
than its award-winning relaunch event in 2010.
Particular highlights from the venues` diverse live events calendar included
BT`s British Olympic Ball which welcomed Olympians and sporting celebrities to
a celebration of Team GB.
In 2011, Earls Court was highly commended at the Event Awards as Exhibition
Venue of the Year.
FUTURE PRIORITIES
The priorities for 2012 are to target and attract more new shows, integrate
the new West Hall to maximise Olympia`s potential, and to showcase the
professionalism of the EC&O Venues team to a global audience as Earls Court
hosts the Olympic volleyball competition.
In the short term we expect performance across the venues to continue to be
impacted due to the uncertainty surrounding the future of the Earls Court
venue. However, the Group`s investment into Olympia including a further GBP10
million in 2012, provides opportunities to develop the venues business over
the medium term.
OPERATING REVIEW - EARLS COURT MASTERPLAN
- Outline and detailed planning applications submitted in June 2011 for the
Earls Court & West Kensington Opportunity Area and Seagrave Road
- GBP131 million joint venture agreed for Seagrave Road with Kwok Family
Interests
- Resolution to grant planning consent for Seagrave Road development in
February 2012
- Adoption of London Plan and Core Strategies for LBHF and RBKC identifying
Earls Court as an Opportunity Area
Earls Court is a rare opportunity in London: the potential for significant
regeneration in a central London location. The site is bordered by
established, high-value residential addresses, including Chelsea, Kensington,
Holland Park and Fulham.
Established transport infrastructure including three tube stations, a London
Overground station and access to the A4 provide unrivalled connectivity. The
residential developments that benefit most from the regeneration effect are
those that create a strong sense of place by investing in areas such as
community facilities and the quality of their public realm. Capco`s strong
focus on place-making, in support of Sir Terry Farrell`s Masterplan, offers
the potential for substantial long-term value creation in Earls Court.
The valuation of Capco`s interests in Earls Court as at December 2011 reflects
the progress made towards realising this potential, with the valuation basis
now a land valuation having regard for redevelopment potential, a change from
the previous basis of existing use as operational assets. As at December 2011,
the valuation has increased to GBP195 million, a rise of 39 per cent,
reflecting a value of GBP8.6 million per acre versus GBP6.1 million per acre
at December 2010.
In June 2011, outline planning applications were submitted for the
redevelopment of a 70 acre site, the Earls Court and West Kensington
Opportunity Area (ECOA), alongside a detailed application in respect of the
7.5 acre Seagrave Road site. The applications set out the proposals for
transforming this huge tract of land into a new London district based on Sir
Terry Farrell`s Masterplan to create "Four Urban Villages and a 21st Century
High Street". Changes to the applications were made earlier this year
reflecting comments received from the public consultations and reviews by
statutory bodies including the Greater London Authority (GLA). The amendments
further embed the development into the existing area and increase sensitivity
to the local environment, covering an area of 10.1 million square feet, a
reduction of approximately 0.3 million square feet of space from the overall
Masterplan.
As the ECOA straddles the boundary between two local authorities, planning
applications were submitted to both the Royal Borough of Kensington & Chelsea
(RBKC) and the London Borough of Hammersmith & Fulham (LBHF). These outline
planning applications are typically used for large-scale, strategic sites, and
seek consent for the amount of development, the uses of the development (for
example residential, office space, cultural, retail) and guidelines for future
architecture and landscaping.
In July, the ECOA was recognised by the Mayor of London`s Replacement London
Plan as an Opportunity Area with great potential for large-scale urban
regeneration, and in February 2012 the Seagrave Road scheme, which will
deliver the major residential component of West Brompton Village, was given a
resolution to grant consent by LBHF.
Negotiations continue with Transport for London (TfL) in respect of the
extension of Capco`s existing long leasehold interests at Earls Court, as well
as commercial agreements covering TfL and LBHF`s land in the ECOA. Capco
entered into an exclusivity agreement with LBHF in July, giving the parties 12
months to agree the commercial transaction. A payment of GBP15 million was
made to LBHF, GBP10 million of which is refundable should a transaction not be
concluded.
As an interested party, Capco was notified that LBHF received an application
for judicial review of the exclusivity agreement and the Court will hear this
application in June. The request for judicial review has no bearing on the
planning applications for the Earls Court Masterplan or for Seagrave Road, and
should not delay the discussions with LBHF or TfL.
CONSULTATION
The proposals for the ECOA are a result of close collaboration with the other
landowners, TfL and LBHF, informed by a collection of world-class architects
led by Sir Terry Farrell.
As this is one of the largest and most important developments in London, the
local community has been consulted about the proposals for two and a half
years through a comprehensive community engagement programme. Over 1,000
people who live in the area attended seven public exhibitions at the Earls
Court Exhibition Centre in March and June 2011. Comments and feedback from
these exhibitions and from the forum on Capco`s innovative, award-winning,
community website www.myearlscourt.com have helped shape the evolution of Sir
Terry Farrell`s Masterplan. The engagement programme and updates to
myearlscourt.com will continue through the planning and development process
and into the future during construction and through to eventual occupation.
The extensive consultation exercise has led to the ECOA being established
across planning policy at regional, local and site- specific levels. As well
as the Mayor of London`s Replacement London Plan covering regional strategy,
both RBKC and LBHF include the area within their Core Strategy plans for
development within their boroughs. The Greater London Authority (GLA) and both
councils have further considered proposals for comprehensive development
within a joint document specific to the ECOA, the Supplementary Planning
Document (SPD), for which second round consultation concluded in December.
LBHF is undertaking a consultation regarding the inclusion of the estates,
which is currently ongoing.
Among the positive reactions to the ECOA Masterplan proposals, there have been
concerns voiced by some residents of the West Kensington and Gibbs Green
estates. Capco is committed to working with all local residents and
stakeholders, and with LBHF, making the area work for everybody.
SEAGRAVE ROAD
The Seagrave Road site is located to the south of the Earls Court exhibition
halls and will deliver the major residential component of Sir Terry Farrell`s
West Brompton Village. In line with aspirations for the wider Earls Court
development, the project will be integrated into the surrounding area,
revitalising Seagrave Road, Lillie Road and West Brompton station. The scheme,
providing 1 million square feet (gross external area) will replace the
existing car park, delivers a high-quality, mixed- tenure residential
neighbourhood comprising a total of 808 new homes and a range of amenities.
The gross development costs (excluding land) for the scheme of approximately
GBP300 million will be spread over three phases, limiting the peak capital
requirement (excluding land) to approximately GBP100 million.
In December 2011 a 50:50 conditional joint venture with the Kwok Family
Interests was agreed, signalling an important milestone in Capco`s proposals
to create new homes and jobs for the area. Completion of the joint venture is
primarily conditional upon receipt of an unfettered planning consent following
the resolution to grant consent received in February 2012. The site would be
acquired by the joint venture at a price of GBP131 million, which compares to
the valuation as at 31 December 2011 of GBP116 million, unchanged from June
2011, but an increase of 6 per cent from December 2010.
EMPRESS STATE
Capco has a 50 per cent stake in this landmark office which is adjacent to the
ECOA. The 31 storey tower is the highest building in LBHF. Fully renovated in
2003, the entire building is let to the Metropolitan Police Authority on a
long lease which expires in June 2019. The lease is subject to annual RPI
increases subject to a collar, with 5 per cent being applied at the 2011
review. Capco`s share of NRI for 2011 was GBP7.1 million.
In the medium term, opportunities to extend or review the existing lease will
be considered or alternatively the property may be suitable for a residential
conversion in line with the plans for the ECOA.
FUTURE PRIORITIES
Although the EC&O estate has benefitted from a year of great momentum, the
Board remains mindful of the risks surrounding planning processes of this
scale, including applications for judicial review. In mitigation, the planning
process has been followed scrupulously and an extensive level of consultation
with the local community, local authorities and the GLA has been undertaken
throughout the process. In terms of Section 34A, no details have at present
been brought forward by the Government, however these proposals will continue
to be monitored.
During 2012 the key focus remains to secure planning consents for the Earls
Court Masterplan. The Group will seek to conclude land transactions with LBHF
and TfL consolidating future development rights and take forward the Seagrave
Road project in partnership with the Kwok Family Interests.
OPERATING REVIEW - THE GREAT CAPITAL PARTNERSHIP AND CHINA
- GBP103 million released from sales within GCP and China, capitalising on the
demand for prime real estate assets
Capco`s other investments principally consist of the Group`s share in The
Great Capital Partnership (GCP), a 50:50 joint venture with Great Portland
Estates plc, and two property investment funds in China. Both portfolios focus
on delivering superior, total returns to shareholders and have generated
substantial capital for reinvestment back into Capco`s core business.
GCP comprises a number of strategically-located properties in London`s West
End. These provide asset management, refurbishment and development
opportunities which deliver strong recurrent income and capital recycling
potential.
The Group`s Chinese investments, managed by Harvest Capital Partners, have
been focused on several mixed use, residential and retail developments in
central China.
OPERATING PERFORMANCE
The Great Capital Partnership
Overall, GCP properties have continued to perform well. Compared to the UK as
a whole, occupier demand for office and retail accommodation in central London
remains robust. For this reason ERV growth has been maintained, increasing by
11.4 per cent like-for-like to GBP14.0 million. Values also rose, by 9.8 per
cent on a like-for-like basis for the same period to GBP241 million. However,
net rental income on a like-for-like basis was down 7.3 per cent to GBP10.1
million following the disposals.
In line with Capco`s strategy to recycle capital from mature property assets
back into the Group`s core businesses, GCP has continued to dispose of
properties, a process that began in 2010. GBP48 million (Capco`s share) has
been realised in 2011, with a further GBP27 million in 2012 to date. All are
part of the Group`s successful programme of disciplined capital recycling that
has taken advantage of continuing investor appetite for central London
property assets.
As announced today, contracts have been exchanged to sell a portfolio of
properties located on and around Regent Street to Great Portland Estates for a
price of GBP150 million (Capco`s share GBP75 million). This represented a
premium of 5.4 per cent to the December 2011 valuation. The sale is subject to
consent from the freeholder (The Crown Estate) and the banking syndicate. It
will trigger the prepayment of some of the outstanding debt so net proceeds to
the Group are expected to be in the range of GBP30 - GBP35 million.
China
The Group`s investments in China, managed by Harvest Capital Partners, have
been highly profitable returning capital to the Group of GBP55 million during
the year. The balance is due to be returned over the next two years. The sale
of the China II fund produced a return on capital in excess of 60 per cent.
FUTURE PRIORITIES
Having realised over GBP100 million from these two portfolios in 2011, the
focus will remain on continuing to realise capital profitably to recycle into
the core business. The immediate focus will be on closing the GCP transaction
announced today.
FINANCIAL REVIEW
The results for the year reflect the Group`s asset management strategy
supported by the continued strength of the central London property market. As
a result, the Group has generated strong returns with a pre-tax profit of
GBP161.9 million, compared to GBP132.5 million for the previous year.
Like-for-like capital values increased 9.2 per cent. With little movement in
yield across the year, this can be attributed to ERV growth and a step change
in value achieved in the second half of the year on the Group`s investments at
Earls Court.
Net rental income remained consistent with that of the prior year at GBP69
million, although this masks a number of significant acquisitions and
disposals.
In May, the Group completed a placing of 62.1 million new ordinary shares at a
price of 162 pence per share to fund acquisition opportunities at Covent
Garden. This placing generated gross proceeds of GBP100.6 million, and
increased the number of ordinary shares in issue to 683.9 million. As the
capital raise was structured as a placing at market value, no adjustment to
prior year comparatives has been made.
In November, the Group concluded a refinancing at Covent Garden, securing a
GBP300 million debt facility to refinance an existing loan of GBP223 million
due to mature in 2013. This extended maturity of the debt to October 2016,
with a further two year extension available at the Group`s option subject to
meeting certain financial covenants.
FINANCIAL POSITION
EPRA net assets (adjusted, diluted) increased by GBP220 million or 18 pence
per share since 31 December 2010, a rise of 11.7 per cent. The significant
factors were the capital raising completed in May, generating GBP97 million
net of expenses, and the continued revaluation gains recorded on the Group`s
property portfolio in 2011, most notably at Earls Court which excluding the
Empress State building (also reported within this segment) gave rise to a like-
for-like return of 10.9 per cent. Covent Garden`s like-for-like performance
was also strong with property values up 9.2 per cent.
Summary consolidated balance sheet:
2011 2010
GBPm GBPm
Investment and development property 1,616.8 1,377.6
Investments 19.5 66.3
Net debt (463.7) (476.1)
Other assets and liabilities (69.5) (84.4)
IFRS Net assets 1,103.1 883.4
Fair value of derivative financial instruments 36.4 53.9
Deferred tax on exceptional items 4.9 (12.5)
Unrecognised surplus on trading properties 1.0 1.1
EPRA adjusted net assets 1,145.4 925.9
EPRA adjusted, diluted net assets per share (pence) 166 148
Capital expenditure and divestment
2011 has been an active year. The Group has moved forward on a number of its
strategic plans driving significant levels of capital expenditure. This has
been funded by the capital raising in May as well as capital recycling from
non-core assets.
2011 2010
GBPm GBPm
Acquisitions 115 10
Redevelopment expenditure 65 21
Less: Divestment (118) (27)
Net capital expenditure 62 4
Sales of non-core assets from within The Great Capital Partnership and the
divestment of China funds have contributed GBP118 million towards supporting
the Group to expand its footprint at Covent Garden, continue the redevelopment
of the Olympia Exhibition Centre and further the planning process for the
Earls Court regeneration area.
Of the GBP180 million invested, GBP130 million relates to investments at
Covent Garden: GBP113 million on acquisitions and GBP17 million on
redevelopments.
In December the Group entered into a conditional agreement with the Kwok
Family Interests. The agreement, conditional on obtaining planning consent
immune from challenge, is to acquire a 50 per cent stake in the Group`s
interests at Seagrave Road for GBP66 million, a 13 per cent uplift on the
December 2011 valuation. As the agreement remained conditional at the balance
sheet date, the divestment is not reflected in the table above.
Future capital commitments at 31 December 2011 amount to GBP14 million (31
December 2010: GBP45 million).
China
The Group`s investments in China, through two Limited Partnerships managed by
Harvest Capital Partners, were substantially realised in 2011. Profits of
GBP30.5 million were realised during the year releasing cash for use elsewhere
in the Group of GBP55 million.
The divestment of Harvest China Real Estate Fund II has completed. Over the
three year investment period the fund generated a return in excess of 60 per
cent on capital employed, an exceptional performance during a period of
economic uncertainty.
The remaining fund, Harvest China Real Estate Fund I, controls two residual
assets of meaningful size. One, carried at GBP15 million, is currently
contracted for sale, the proceeds from which are expected in 2012. The last
remaining asset is being actively marketed for sale.
Borrowings
Gross debt has reduced by GBP111 million during 2011. GBP73 million of this
was the result of refinancing at Covent Garden, net of draw down and
repayment, and GBP30 million related to prepayments against the Earls Court &
Olympia facility. The associated swap termination costs totalled GBP14.5
million.
Since year end the Group has prepaid an additional GBP5 million (our share) on
the facility secured over the Empress State Building, a building adjacent to
the Group`s interest at Earls Court which is held through a joint venture with
Land Securities. The LTV covenant on this facility has been waived until
maturity.
As part of the November refinancing at Covent Garden, the Group secured a
GBP300 million debt facility to refinance an existing loan of GBP223 million
due to mature in 2013. The Group took the opportunity to utilise its cash
reserves more efficiently and reduce the cash drag on earnings, drawing the
facility initially to GBP150 million. A further GBP90 million is immediately
available for use around the Group with the residual GBP60 million available
to finance existing Covent Garden assets not currently secured, or to finance
new acquisitions in the Covent Garden area.
As a result there has been little movement in net debt during the period, a
reduction of GBP12 million to GBP464 million at 31 December 2011.
The Group`s debt continues to be arranged on an asset specific basis, with
limited or no recourse to the Group.
Group debt ratios were as follows:
2011 2010
Loan-to-value 29% 35%
Interest cover 136% 130%
Weighted average debt maturity 3.6 years 3.0 years
Weighted average cost of debt 5.8% 5.9%
Proportion of gross debt with interest rate protection 95% 95%
The capital raising and debt repayments have strengthened the Group`s
financial position with a loan-to-value ratio of 29 per cent providing a
reasonable degree of financial flexibility.
As a result of refinancing, average debt maturity has been extended to 3.6
years with the first significant maturity due in February 2013. The weighted
average cost of debt was 5.8 per cent as at 31 December 2011, but has fallen
to 5.2 per cent as at the date of this report.
A detailed breakdown of the Group`s debt maturity is shown in note 17 of the
consolidated financial statements.
Financial covenants apply to GBP543 million of asset specific debt. The two
main covenants are Loan-to-Value ("LTV") and Interest Cover ("IC"). The actual
requirements vary and are specific to each loan. Currently GBP169 million of
non-recourse loans have no LTV requirement.
The Group has cash and available facilities of GBP245 million and is in
compliance with all of its asset specific loan covenants.
Derivatives
The Group`s policy is to substantially eliminate the short and medium-term
risk arising from interest rate volatility. The Group`s banking facilities are
arranged on a floating-rate basis, but swapped to fixed-rate or capped using
derivative contracts coterminous with the relevant debt facility. At 31
December 2011 the proportion of gross debt with interest rate protection was
95 per cent.
During the year, to take advantage of the low interest rate environment, the
Group entered into derivative contracts providing interest rate protection on
debt with a nominal value of GBP150 million. The protection starts after the
Group`s first significant debt maturity in 2013 and extends through until
2016.
The fair value provision for financial derivatives has fallen from GBP54
million to GBP36 million during the year, in part due to termination payments
made during the year of GBP14.5 million.
CASH FLOW
As set out in the summary consolidated cash flow below, during the year the
Group`s unrestricted cash fell by GBP98.9 million.
2011 2010
GBPm GBPm
Underlying operating cash generated 49.6 51.8
Net finance charges paid (36.7) (40.1)
Net movement in working capital (10.3) (9.2)
Recurring cash flow from operations 2.6 2.5
Property development/investments (161.1) (26.8)
Sale proceeds of property/investments 103.2 28.6
Demerger costs (1.3) (4.0)
Exclusivity Agreement with LBHF (15.0) -
VAT received on internal restructure 22.2 -
Pension funding (3.6) -
Taxes paid (1.4) (2.6)
Cash flow before financing (54.4) (2.3)
Financing (30.0) 172.9
Termination of interest rate swaps (14.5) (7.4)
Net cash flow (98.9) 163.2
Recurring cash flow from operations has remained consistent year-on-year with
the reduction in operating cash flow being offset by a fall in finance charges
paid. Surrender premiums linked to the Group`s repositioning strategy at
Covent Garden have principally driven the movement in working capital.
Proceeds generated from the sale of non-core properties within The Great
Capital Partnership generated GBP48 million while the divestment of China
funds returned GBP55 million to the Group during the year.
Cash applied to the development of property and investments during the period
is due principally to the acquisition of investment properties at Covent
Garden (GBP94 million); and development activity at both Earls Court and
Olympia (GBP45 million). Smaller acquisitions and redevelopment activity
across the Group`s other assets account for the balance.
In July the Group entered into an Exclusivity Agreement with LBHF, the
consideration for which resulted in a cash payment of GBP15 million. The
agreement gives both parties one year of exclusivity in relation to
discussions around LBHF`s land and its inclusion within Sir Terry Farrell`s
Masterplan.
The Group seeks to optimise its corporate structure to align with its
strategy. Due to an internal reorganisation in November to segregate the
operating business at Earls Court and Olympia from the development
opportunity, an internal sale and purchase was determined to constitute a VAT
supply between two internal VAT groups. At the year end input VAT of GBP22.2
million had been received from HMRC but, due to the timing of returns, the
equal and offsetting output VAT was not settled until January 2012.
As part of the reorganisation of the EC&O Venues business, the workforces of
Earls Court Limited and Olympia Limited were amalgamated into Olympia Limited.
As a result, Earls Court Limited ceased to be a participating employer of the
EC&O final salary pension scheme which necessitated a payment of GBP3.6
million to the scheme. On 31 December 2011 the final salary scheme was closed
to future benefit accrual. The actuarial valuation of the scheme at 31
December 2011 reflected a surplus of GBP1 million. As the Group has an
unconditional right to refund upon the scheme`s closure, the asset has been
carried on the Group`s balance sheet.
Financing cash flows included the capital raising in May 2011 which generated
GBP97 million, net of expenses. This was offset by the refinancing at Covent
Garden, resulting in a cash outflow of GBP77 million, and Earls Court &
Olympia debt prepayments of GBP30 million.
Dividends paid of GBP9.6 million reflect the final dividend payment made in
respect of 2010 financial year and the interim dividend in respect of 2011. A
total of 1.5 pence per share was paid during the year.
FINANCIAL PERFORMANCE
Underlying earnings
The Group has presented an underlying calculation of profit before tax and
adjusted earnings per share figures in addition to the amounts reported under
IFRS. Like the EPRA adjusted earnings measure, these amounts exclude the
effects of gains and losses associated with investment property valuations,
fair value movements on financial derivatives, but also exclude certain
exceptional items. The Directors regard this presentation to provide useful
information on the underlying performance of the business.
Summary consolidated income statement:
2011 2010
GBPm GBPm
Net rental income 69.0 69.0
Other income 0.8 0.1
Gain on revaluation and sale of investment and development
property 123.3 134.6
Profit on sale of available for sale investments 30.5 -
Administration expenses (22.2) (23.9)
Net finance costs (35.2) (46.3)
Other items (4.3) (1.0)
Taxation (8.2) (0.9)
IFRS profit for the year 153.7 131.6
Adjustments:
Gain on revaluation and sale of investment and development
property (123.3) (134.6)
Profit on sale of available for sale investments (30.5) -
Change in fair value of derivative financial instruments (14.1) 0.3
Exceptional finance costs 14.5 7.1
Demerger costs - 5.3
Remeasurement of deferred consideration 4.2 (0.7)
Other adjustments (0.8) 0.6
Taxation on non-underlying items 5.8 (0.4)
Underlying profit after tax 9.5 9.2
Underlying earnings per share (pence) 1.4 1.5
Underlying profit after tax increased from GBP9.2 million to GBP9.5 million
and underlying earnings per share decreased from 1.5 pence to 1.4 pence.
Net rental income
Like-for-like net rental income was GBP65.9 million, an increase of 2.2 per
cent. At the headline level the Group`s net rental income remained consistent
with the prior year at GBP69.0 million. This masks the impact of acquisitions
at Covent Garden, an increase of GBP1.4 million, and disposals within The
Great Capital Partnership, a reduction of GBP1.8 million.
The annualised impact of acquisitions at Covent Garden in 2011 is expected to
be GBP3 million. The annualised impact on net rental income attributable to
disposals within The Great Capital Partnership in 2011 is expected to be
GBP2.1 million. The properties contracted for sale from The Great Capital
Partnership so far in 2012 represent a further GBP3.9 million.
At Covent Garden, net rental income increased by GBP2.1 million to GBP27.8
million an increase of 5.3 per cent on a like- for-like basis. This increase
was largely the result of acquisitions, GBP1.4 million, and new lettings which
achieved an increase of GBP0.9 million. A property swap completed in February,
which comprised the disposal of a property on the periphery of the estate for
a strategic piazza facing freehold interest, had an adverse impact of GBP0.5
million.
The Great Capital Partnership generated net rental income of GBP11.0 million
(our share), a decrease of GBP2.6 million, 7.3 per cent on a like-for-like
basis due to the continued strategy of disposing of non-core mature properties
in support of the Group`s core investments. Void costs increased by GBP0.5
million during the year, the result of exercising break clauses to facilitate
redevelopment and sale. Disposals achieved in 2010 and 2011 reduced recurring
net rental income by GBP1.8 million.
Earls Court & Olympia, which includes the Group`s interest in the Empress
State Building, increased by GBP1.1 million, 3.1 per cent on a like-for-like
basis to GBP30.2 million. This increase is attributable to new shows and
increased take-up at Olympia. The index-linked lease on the Empress State
Building continues to deliver annual increases linked to RPI which, excluding
a one-off adjustment of GBP0.3 million in 2011, resulted in an increase of
five per cent for the year. Subsequent to the balance sheet date, the Group
has disposed of its interests in The Brewery, an operating business based in
the City of London, which contributed GBP0.8 million to net rental income in
2011.
Historically the Venues business has controlled a number of properties that
were reported within its EBITDA which contributed GBP1.2 million to net rental
income in 2011. As a result of the internal reorganisation and the closure of
the Earls Court & Olympia defined benefit pension scheme referred to above,
GBP0.9 million was included within the EC&O segmental result but not the
Venues EBITDA. Therefore EBITDA of the Venues business fell by GBP0.4 million
to GBP18.5 million in the year to 31 December 2011.
Lease incentives of GBP1.1 million were included within net rental income for
the year.
Property valuation
Property valuation gains of GBP123.3 million (2010: GBP134.6 million) include
unrealised gains of GBP119.4 million and realised gains of GBP3.9 million.
With little movement in yields, valuation gains in 2011 have been
predominantly income driven. Covent Garden experienced like-for-like ERV
growth of 8.8 per cent, while ERV within The Great Capital Partnership
increased by 11.4 per cent on a like- for-like basis reflecting the positive
sentiment in the central London property market.
Fees and other costs relating to acquisitions account for the majority of the
revaluation losses of GBP7.2 million recorded on acquisitions during the year.
A step change in the valuation basis of the Group`s interests at Earls Court
was achieved in the second half of the year. Under International Financial
Reporting Standards the Group`s valuers are required to consider the highest
and best use when valuing investment and development properties carried at
fair value. The highest and best use valuation of the Earls Court exhibition
halls at 31 December 2011 was considered to be a land value having regard for
redevelopment potential. This contributed to a like-for-like revaluation
surplus of 10.9 per cent recorded on investment properties held at Earls Court
& Olympia which attributed a land value of GBP8.6 million per acre to the
site. This reflects the Group`s efforts toward achieving planning consents on
the ECOA which are discussed further in the Operating Review.
The Group`s trading properties were impaired by GBP0.1 million (2010: GBP0.1
million) where the fair value was determined to be less than original cost. In
aggregate the Group`s trading properties have an unrealised valuation surplus
of GBP1 million at 31 December 2011 which has not been recognised in the
financial statements.
Administration expenses
Underlying administration expenses increased by GBP3.6 million to GBP22.2
million. This was in line with expectation and is attributed to increased head
count and establishment costs, the result of becoming a standalone business in
May 2010.
Net finance costs
Excluding gains and losses on the change in fair value of derivatives and one-
off costs incurred on the termination of interest rate swaps, underlying net
finance costs for the year of GBP34.8 million have decreased by GBP4.1
million. This reduction reflects the full year impact of prepayments in 2010
together with prepayments of GBP30 million made during 2011. The November
refinancing at Covent Garden further reduced average debt levels during the
latter part of the year.
Taxation
The net tax charge for the year ended 31 December 2011 was GBP8.2 million.
The tax charge on underlying profits is GBP2.4 million reflecting an
underlying tax rate of 20 per cent. The underlying tax rate is lower than the
standard rate of UK corporation tax of 26 per cent (28 per cent in 2010) due
to capital allowances.
The tax rate on underlying profit is expected to trend toward the UK
corporation tax rate in the medium term. The standard rate of corporation tax
will be 23 per cent from 2014.
Contingent tax, the amount of tax that would become payable on a theoretical
disposal of all investment properties held by the Group, is nil (2010: GBP10.4
million). The contingent tax position is arrived at after allowing for Group
loss relief.
Derivative valuation
Due to the macroeconomic factors during the year, longer term interest rates
have fallen in excess of 1 per cent. Shorter term rates however remain
reasonably stable year-on-year although LIBOR has risen. With an average debt
maturity of 3.6 years the contraction in long term rates has had little
overall impact at a Group level.
The valuation movement of GBP14.1 million arose in part from the termination
payments made during the year of GBP14.5 million.
Exceptional items
In addition to revaluation surpluses on investment and development property
and fair value movements on derivative financial instruments, exceptional
items which have been removed from the calculation of underlying profit
include:
- Finance charges totalling GBP14.5 million which were recorded on the
termination of interest rate swaps arising on debt repayments and prepayments
of GBP252 million, GBP222 million in relation to the Group`s refinancing at
Covent Garden in November and GBP30 million in relation to the facility
secured over Earls Court & Olympia;
- As part of the Group`s 2009 acquisition of the non-controlling interest`s
share in Earls Court & Olympia, a deferred consideration payment becomes due
based on a number of factors including a potential redevelopment of the site
and the outcome of the planning process. With the Group having submitted its
planning application in June relating to the full Earls Court regeneration
area, the provision has been re-measured resulting in an exceptional charge of
GBP4.2 million;
- Following divestment of the Group`s interests in China, profits of GBP30.5
million have been realised. These have been treated as exceptional given their
non-recurring nature;
- Other income comprises exceptional credits of GBP0.8 million. These relate
to a non-recurring VAT claim settled with HM Revenue & Customs and a non-
refundable deposit received by the Group, taken to income as a result of an
incompleted transaction.
Financial strategy
Our policy is to optimise the Group`s weighted average cost of capital by
using an appropriate mix of debt and equity. The Group follows a secured debt
strategy as it believes this gives better access to borrowings and at lower
overall costs.
The Group`s borrowings are secured against large pools of assets. Importantly,
the recent refinancing at Covent Garden provides flexibility to fund
expenditure elsewhere in the Group.
The Group`s financial structure is monitored with reference to guidelines
approved by the Board.
Group Treasury operates a formal treasury policy covering all aspects of
treasury activity including funding, counterparty exposure limits, management
of interest rate risk, currency and liquidity risks. The Board receives
regular reports on compliance with these policies, which are reviewed on an
annual basis.
South African listing
The Group maintains a secondary listing on the JSE Limited which is classified
as an "inward" listing.
Institutional investors who received Capco shares upon demerger were initially
given a two year exemption to allow time to realign their portfolios. The
exemption was due to expire in May 2012. During 2011 the Group applied to the
South African authorities for an extension which was granted for a further 12
month period.
However, in a major new policy on exchange control introduced by the South
African National Treasury, as of December 2011 all inward shares have been
reclassified as "domestic" shares for trading purposes. This reclassification
means that the previous limits on holding Capco shares under exchange control
regulations have been removed for South African institutional investors in the
Group, if those shares were acquired on the JSE. In addition Capco is now
eligible for certain JSE indices.
At 31 December 2011, 21 per cent of the Group`s shares were held on the South
African register.
Headline earnings per share, a JSE measure, stood at 2 pence per share for the
year to 31 December 2011.
Going concern
Economic conditions remain challenging, however the Group has a prudent
balance sheet and sufficient cash and available facilities to meet both its
ongoing and foreseeable future commitments. The Group recently refinanced a
significant amount of its debt secured over Covent Garden, extending its
weighted average debt maturity. With sufficient headroom against financial
covenants and a significant pool of unsecured assets there continues to be a
reasonable expectation that the Company and the Group have adequate resources
to continue in operational existence for the foreseeable future.
Accordingly, the Directors continue to adopt the going concern basis in
preparing the 2011 annual report and accounts.
Dividends
The Company intends to grow its dividend as the success of its asset plans is
reflected in underlying profit, whilst taking into account future commitments
and providing for the financial flexibility required to maximise long term
shareholder value.
The Board has recommended a final dividend of 1.0 pence per share taking the
total dividend for the year to 1.5 pence per share. Subject to approval at the
Company`s Annual General Meeting the dividend will be paid on 21 June 2012 to
shareholders on the register at 18 May 2012.
Subject to approval at the Company`s Annual General Meeting, the Board intends
to offer an optional scrip dividend scheme which will apply to the 2011 final
dividend. The scrip dividend scheme will give shareholders the right to elect
to receive new ordinary shares in the Company instead of future cash
dividends. At the Directors` discretion, the scrip dividend scheme may also be
offered in respect of any future final or interim dividends.
PRINCIPAL RISKS AND UNCERTAINTIES
The Board has overall responsibility for Group risk management. It reviews
principal risks and uncertainties regularly, together with the actions taken
to mitigate them.
The Board has delegated responsibility for assurance for the risk management
process and the review of mitigating controls to the Audit Committee.
Executive Directors together with Senior Management from every division and
corporate function of the business complete a Group risk register. Risks are
considered in terms of their impact and likelihood from both a financial and
reputational perspective. Risks are assessed both gross and net of mitigating
controls. Review meetings are held to ensure consistency of response and
adequacy of grading. Detailed risk registers are reviewed twice yearly and
upon any material change in the business with a full risk review undertaken
annually, at which point it is also reviewed in detail by the Audit Committee
with new or emerging risk considered by the committee as appropriate. This
allows the Audit Committee to monitor the most important controls and
prioritise risk management and internal audit activities accordingly.
On the following pages are the principal risks and uncertainties from across
the business. These are not exhaustive, the Group monitors a number of
additional risks and adjusts those considered `principal` as the risk profile
across the business changes.
1. Corporate Risks
Impact: The Group`s ability to maintain its reputation, revenue and value
could be damaged by corporate risks.
Risk Impact potential Mitigation factors
Responding to regulatory and Reduced flexibility and Sound governance
and internal policies
with appropriately
legislative challenges. increased cost base. skilled resource and
support from external
advisers as
appropriate.
Responding to reputational, Reputational damage Appointment of
experienced
individuals with
clear
and increased costs.
communication and responsibility and
accountability.
Clear statements
governance challenges. of corporate and
social
responsibility,
skilled Executive and
Non-executive
Directors, with
support from external
advisers as
appropriate.
Inability to implement strategy Constraints on growth Regular strategic
reviews and
monitoring of
performance
or correctly allocate capital. and reduced
profitability. indicators.
Corporate level
oversight of capital
allocation.
Detailed capital
planning and
financial modelling.
Maintain adequate
cash and available
facilities together
with conservative
leverage.
Adequacy of partner Reduced profitability and Appropriate due
diligence and
consultation.
reputational damage
evaluation and management
of key suppliers.
Non-REIT status brings Competitive Focus on assets and
estates where skills
can be applied to
heightened tax exposure and create enhanced
value.
disadvantage. a potential
competitive disadvantage
when bidding for new assets.
Risk associated with
attracting Inability to execute Succession planning,
performance
evaluations, training
&
and retaining staff. business plan. development, long
term incentive
rewards. Sound
systems and processes
to effectively
capture and manage
information.
Failure to comply with health Loss or injury to Comprehensive health
and safety procedures
in place across
and safety or other statutory employees, tenants or the Group and
monitored regularly.
External consultants
regulations or notices. contractors and resultant undertake annual
audits in all
locations. Safe
working
reputational damage. practices well
established,
including staff
communication and
training.
2. Financing Risks
Impact: Reduced or limited availability of debt or equity finance may threaten
the Group`s ability to meet its financial commitments or objectives and
potentially to operate as a going concern.
Risk Impact potential Mitigation
factors
Decline in market conditions or a Reduced financial and Maintain
appropriate
liquidity to
cover
commitments.
operational flexibility.
general rise in interest rates could Target longer
and staggered
debt maturities
to
impact the availability and cost of avoid
refinancing
concentration
and
consideration
debt financing. of early
refinancing.
Derivative
contracts to
provide
interest rate
protection.
Covenants breached. Cash reserves required to Regular monitoring
of covenants with
headroom
prepay debt facilities. maintained.
Reduced availability of equity
capital. Constrained growth, lost Maintain
appropriate
liquidity to cover
commitments.
opportunities, higher Target
conservative
overall leverage
levels.
finance costs.
3. Economic Risks
Impact: Economic factors may threaten the Group`s ability to meet its
strategic objectives.
Risk Impact potential Mitigation
factors
Declining profitability. Focus on
quality
tenants with
initial
assessment of
Rents decline as a result of
credit risk
and active
credit
control.
lower demand from occupiers due to
increased competition, changes in Diversity of occupier mix
with limited exposure to
social behaviour or deteriorating any single tenant.
profitability and confidence during a Strategic focus on creating
retail destinations and
period of economic uncertainty. residential districts with
unique attributes.
Decline in UK commercial or residential
Declining valuations. Focus on prime assets.
real estate market. Regular assessment of
investment market conditions
including bi-annual external
valuations.
Restricted availability of credit and Decline in demand
for the Regular monitoring
of covenants with
headroom
maintained.
higher tax rates may lead to reduced Group`s rental properties,
reduced profitability.
consumer spending and higher levels
of business failure.
4. Concentration of Investments
Impact: Heightened exposure to events that threaten or disrupt central London.
Risk Impact potential Mitigation
factors
Significant business Terrorist
insurance in
place.
Events which damage or diminish
disruption.
London`s status as a global financial, Security and
health &
safety
policies and
business and tourist centre could affect procedures in
offices. Close
liaison with
police &
the Group`s ability to let vacant space, National
Counter
Terrorism
Security
Office
reduce the value of the Group`s (NaCTSO).
properties and potentially disrupt Disaster recovery and business
continuity planning.
access or operations at the Group`s Active involvement in organisations
and industry
head office. Changes to existing bodies promoting London.
or planned infrastructure (including
transport). Concentration of higher
profile events in central London
(e.g. Olympics, Queen`s Diamond
Jubilee).
5. Development Risks
Impact: Inability to deliver against development plans, particularly regarding
ECOA.
Risk Impact potential Mitigation factors
Unable to secure planning
consent due Delayed
implementation. Pre-application
consultation and
involvement with
key stakeholders
and landowners.
to political, legislative or other risks
inherent in the planning environment. Engagement with
relevant
authorities at a
local and
Risk of delay due to Secretary of State national level to
ensure development
proposals are in
call-in or judicial review. Inability to accordance with
current and
emerging policy.
gain the support of influential Project team of
internal staff and
external
consultants
stakeholders. with capabilities
across all
relevant areas.
Technical studies
with regular
review.
Responsive
consultation with
evidence based
information and
focus on agreed
statements of
common ground.
Failure to demonstrate or implement High volatility in Extensive design
valuations and and technical
Group`s work undertaken
returns. along with
informed market
valuation.
viable development due to
environmental, transportation and Properly tendered processes to
select contractors and
affordable housing impact or other manage cost.
technical factors. Punitive cost, design ECOA Masterplan design allows
the development of
or other implications. Inability to reach each landowner`s site
individually.
agreement with adjacent landowners
(including risk of Section 34A of the
Housing Act 1985 in relation to LBHF
land in ECOA).
DIRECTORS` RESPONSIBILITIES
Statement of Directors` responsibilities
The statement of Directors` responsibilities has been prepared in relation to
the Group`s full Annual Report for the year ended 31 December 2011. Certain
parts of the Annual Report are not included within this announcement.
We confirm to the best of our knowledge:
- the Group financial statements, which have been prepared in accordance with
IFRSs as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit of the Group; and
- the Business and Financial Review includes a fair review of the development
and performance of the business and the position of the Group, together with a
description of the principal risks and uncertainties that it faces.
Signed on behalf of the Board on 29 February 2012.
I.D. Hawksworth
Chief Executive
S. Das
Finance Director
CONSOLIDATED INCOME STATEMENT
For the year ended 31 December 2011
2011 2010
Notes GBPm GBPm
Revenue 2 108.4 113.7
Rental income 108.4 113.6
Rental expenses (39.4) (44.6)
Net rental income 2 69.0 69.0
Other income 3 0.8 0.1
Gain on revaluation and sale of investment and
development property 4 123.3 134.6
Profit on sale of available for sale investments 5 30.5 -
Remeasurement of deferred consideration 20 (4.2) 0.7
Write down of trading property (0.1) (0.1)
Impairment of other receivables 6 - (1.6)
219.3 202.7
Administration expenses
Ongoing expenses (22.2) (18.6)
Demerger costs 7 - (5.3)
Operating profit 197.1 178.8
Finance costs 8 (36.5) (40.3)
Finance income 1.7 1.4
Other finance costs 8 (14.5) (7.1)
Change in fair value of derivative financial
instruments 14.1 (0.3)
Net finance costs (35.2) (46.3)
Profit before tax 161.9 132.5
Current tax (2.5) (1.2)
Deferred tax (5.7) 0.4
REIT entry charge - (0.1)
Taxation 9 (8.2) (0.9)
Profit for the year 153.7 131.6
Earnings per share from continuing operations
Basic earnings per share 11 23.2p 21.2p
Diluted earnings per share 11 23.3p 21.2p
Weighted average number of shares 11 661.8m 621.9m
Adjusted earnings per share are shown in note 11.
The accompanying notes form part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2011
2011 2010
Notes GBPm GBPm
Profit for the year 153.7 131.6
Other comprehensive income
Actuarial (losses)/gains on defined benefit pension
schemes (1.4) 1.4
Fair value gains on available for sale investments
and other movements 6.3 21.5
Tax on items taken directly to equity 19 0.9 (0.4)
Other comprehensive income for the year 5.8 22.5
Total comprehensive income for the year 159.5 154.1
The accompanying notes form part of these consolidated financial statements.
CONSOLIDATED BALANCE SHEET
as at 31 December 2011
2011 2010
Notes GBPm GBPm
Non-current assets
Investment and development property 12 1,616.8 1,377.6
Plant and equipment 1.2 1.0
Available for sale investments 19.5 66.3
Derivative financial instruments 0.4 -
Pension asset 1.0 -
Trade and other receivables 13 34.2 12.4
1,673.1 1,457.3
Current assets
Trading property 14 0.2 0.3
Derivative financial instruments 0.6 -
Trade and other receivables 13 26.7 26.8
Cash and cash equivalents 15 89.6 188.5
117.1 215.6
Total assets 1,790.2 1,672.9
Non-current liabilities
Borrowings, including finance leases 17 (534.6) (651.5)
Derivative financial instruments (36.9) (53.9)
Pension deficit - (2.0)
Deferred tax provision 19 (4.8) -
Other provisions 20 - (3.3)
(576.3) (710.7)
Current liabilities
Borrowings, including finance leases 17 (18.7) (13.1)
Derivative financial instruments (0.5) -
Other provisions 20 (7.3) -
Trade and other payables 16 (82.4) (65.0)
Tax liabilities (1.9) (0.7)
(110.8) (78.8)
Total liabilities (687.1) (789.5)
Net assets 1,103.1 883.4
Equity
Share capital 21 170.9 155.4
Other components of equity 932.2 728.0
Capital and reserves 1,103.1 883.4
The accompanying notes form part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2011
Share Share Merger
capital premium reserve
Notes GBPm GBPm GBPm
Balance at 1 January 2011 155.4 89.1 141.4
Profit for the year - - -
Other comprehensive income:
Fair value gains on available for
sale investments - - -
Actuarial losses on defined benefit
pension schemes - - -
Tax on items taken directly to equity 19 - - -
Total comprehensive income for the year
ended 31 December 2011 - - -
Transactions with owners
Ordinary shares issued 15.5 6.0 75.1
Merger reserve realised (1) - - (20.3)
Realise revaluation reserves on
available for
sale investments - - -
Fair value of share-based payments - - -
Dividends paid 10 - - -
Total transactions with owners 15.5 6.0 54.8
Balance at 31 December 2011 170.9 95.1 196.2
2011
Revaluation Other Retained Total
reserve reserves earnings equity
GBPm GBPm GBPm GBPm
Balance at 1 January 2011 33.0 0.5 464.0 883.4
Profit for the year - - 153.7 153.7
Other comprehensive income:
Fair value gains on
available for sale investments 6.3 - - 6.3
Actuarial losses on defined
benefit pension schemes - - (1.4) (1.4)
Tax on items taken directly
to equity - - 0.9 0.9
Total comprehensive income
for the year
ended 31 December 2011 6.3 - 153.2 159.5
Transactions with owners
Ordinary shares issued - - - 96.6
Merger reserve realised (1) - - 20.3 -
Realise revaluation reserves
on available for
sale investments (28.5) - - (28.5)
Fair value of share-based
payments - 1.7 - 1.7
Dividends paid - - (9.6) (9.6)
Total transactions with
owners (28.5) 1.7 10.7 60.2
Balance at 31 December 2011 10.8 2.2 627.9 1,103.1
The accompanying notes form part of these consolidated financial statements.
(1) Represents qualifying consideration received by the company following
capital raising in May 2011. The residual balance taken to the merger reserve
does not currently meet the criteria for qualifying consideration as it forms
part of a linked transaction.
Share Share
capital premium
Notes GBPm GBPm
Balance at 1 January 2010 497.5 89.1
Profit for the year - -
Other comprehensive income:
Fair value gains on available for
sale investments and other movements - -
Actuarial gains on defined benefit
pension schemes - -
Tax on items taken directly to equity 19 - -
Total comprehensive income for the year
ended 31 December 2010 - -
Transactions with owners
Capital reduction (342.0) -
Capital reorganisation and pro forma restatement (1) - -
Capital contribution realised - -
Share redemption (0.1) -
Fair value of share-based payments - -
Dividends paid 10 - -
Total transactions with owners (342.1) -
Balance at 31 December 2010 155.4 89.1
2010
Merger Revaluation Capital
reserve reserve contribution
GBPm GBPm GBPm
Balance at 1 January 2010 87.6 15.7 -
Profit for the year - - -
Other comprehensive income:
Fair value gains on available for
sale investments and other movements - 21.5 -
Actuarial gains on defined benefit
pension schemes - - -
Tax on items taken directly to equity - - -
Total comprehensive income for the year
ended 31 December 2010 - 21.5 -
Transactions with owners
Capital reduction - - -
Capital reorganisation and pro forma
restatement (1) 53.8 (4.2) 696.7
Capital contribution realised - - (696.7)
Share redemption - - -
Fair value of share-based payments - - -
Dividends paid - - -
Total transactions with owners 53.8 (4.2) -
Balance at 31 December 2010 141.4 33.0 -
Retained
Other (losses)/ Total
reserves earnings equity
GBPm GBPm GBPm
Balance at 1 January 2010 - (597.2) 92.7
Profit for the year - 131.6 131.6
Other comprehensive income:
Fair value gains on available for
sale investments and other movements - - 21.5
Actuarial gains on defined benefit
pension schemes - 1.4 1.4
Tax on items taken directly to equity - (0.4) (0.4)
Total comprehensive income for the year
ended 31 December 2010 - 132.6 154.1
Transactions with owners
Capital reduction - 342.0 -
Capital reorganisation and pro forma
restatement (1) - (107.0) 639.3
Capital contribution realised - 696.7 -
Share redemption - - (0.1)
Fair value of share-based payments 0.5 - 0.5
Dividends paid - (3.1) (3.1)
Total transactions with owners 0.5 928.6 636.6
Balance at 31 December 2010 0.5 464.0 883.4
The accompanying notes form part of these consolidated financial statements.
(1) On demerger from Liberty International a number of reserves were realised
and pro forma adjustments (made in comparative periods to reflect the
application of merger accounting principles) reversed. Debt waivers granted to
the Group by Liberty International were reflected as a capital contribution
reserve prior to being realised in retained earnings.
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2011
2011 2010
Notes GBPm GBPm
Cash generated from operations 24 38.0 38.6
Interest paid (38.4) (41.4)
Interest received 1.7 1.3
Taxation (1.3) 1.0
Cash flows from operating activities - (0.5)
Cash flows from investing activities
Purchase and development of property (161.1) (26.8)
Sale of property 48.2 28.1
REIT entry charge paid (0.1) (3.6)
Sale of available for sale investments 55.0 0.5
Pension funding (3.6) -
Exclusivity agreement with LBHF (15.0) -
VAT received on internal restructure (1) 22.2 -
Cash flows from investing activities (54.4) (1.8)
Cash flows from financing activities
Issue of shares 96.6 -
Issue of redeemable shares - 0.1
Redemption of redeemable shares - (0.1)
Cash transferred to restricted accounts 15 - (6.0)
Borrowings drawn 145.8 6.0
Borrowings repaid (259.4) (68.0)
Funding from Capital Shopping Centres Group - 244.0
Purchase of derivatives (3.4) -
Termination of swaps (14.5) (7.4)
Equity dividends paid 10 (9.6) (3.1)
Cash flows from financing activities (44.5) 165.5
Net (decrease)/increase in unrestricted cash and
cash equivalents (98.9) 163.2
Unrestricted cash and cash equivalents at 1 January 182.5 19.3
Unrestricted cash and cash equivalents at 31
December 15 83.6 182.5
(1) VAT received on an internal property transfer was deemed to be a VAT
supply. Input VAT was received prior to the balance sheet date whilst output
VAT was not settled until January 2012.
The accompanying notes form part of these consolidated financial statements.
NOTES TO THE ACCOUNTS
1. PRINCIPAL ACCOUNTING POLICIES
General information
The Capital & Counties Properties PLC Group demerged from its former parent
company, Liberty International PLC (subsequently renamed Capital Shopping
Centres Group PLC), with effect from 7 May 2010. Shares in Capital & Counties
Properties PLC were admitted to dealings on the London and Johannesburg Stock
Exchanges in May 2010. The Group`s assets principally comprise investment
properties at Covent Garden; Earls Court & Olympia; a 50 per cent interest in
the Empress State building; and a 50 per cent interest in The Great Capital
Partnership, a joint venture focused predominantly on London`s West End.
Basis of preparation
The financial information does not constitute the Group`s statutory accounts
for either the year ended 31 December 2011 or the year ended 31 December 2010,
but is derived from those accounts. The Group`s statutory accounts for 2011
will be delivered to the Registrar of Companies following the Company`s Annual
General Meeting. The auditors` report on the 2011 and 2010 accounts were not
qualified or modified; did not draw attention to any matters by way of an
emphasis of matter; and did not contain any statements under Section 498 of
the Companies Act 2006.
The Group`s consolidated financial statements are prepared in accordance with
International Financial Reporting Standards ("IFRS"), as adopted by the
European Union, International Financial Reporting Interpretations Committee
("IFRIC") interpretations and with those parts of the Companies Act 2006
applicable to companies reporting under IFRS.
The consolidated financial statements have been prepared under the historical
cost convention as modified for the revaluation of properties, available for
sale investments and financial assets held for trading.
Standards and guidelines relevant to the Group that were in issue and endorsed
at the date of approval of the consolidated financial statements but not yet
effective and have not been adopted early:
IFRS 7 `Financial Instruments: Disclosures` (amendment)
IAS 32 `Financial Instruments: Presentation` (amendment)
The assessment of amendments issued but not effective are not anticipated to
have a material impact on the financial statements.
During 2011, the following accounting standards and guidance were adopted by
the Group:
IAS 24 `Related Party Disclosures` (revised)
IAS 32 `Financial Instruments: Presentation` (amendment)
IFRS 1 `First-time Adoption of International Financial Reporting Standards`
(amendment)
IFRIC 14 `Prepayments of a Minimum Funding Requirement` (amendment)
IFRIC 19 `Extinguishing Financial Liabilities with Equity Instruments`
Collectively, together with the International Accounting Standards Board`s
annual improvements, these pronouncements either had no impact on the
consolidated financial statements or resulted in changes to presentation and
disclosure only.
2010 Group reconstruction
All Capital & Counties Properties PLC Group companies which were owned and
controlled by Liberty International PLC prior to the demerger were transferred
under the new ultimate parent company, Capital & Counties Properties PLC,
prior to 7 May 2010. The introduction of this new ultimate holding company
constituted a group reconstruction.
The transaction fell outside the scope of IFRS 3 `Business Combinations`.
Accordingly, following the guidance regarding the selection of an appropriate
accounting policy provided in IAS 8 `Accounting Policies, Changes in
Accounting Estimates and Errors`, the transaction has been accounted for in
these financial statements using the principles of merger accounting with
reference to UK Generally Accepted Accounting Practice (UK GAAP). This policy,
which does not conflict with IFRS, reflects the economic substance of the
transaction.
Amounts due to former subsidiary undertakings of Liberty International PLC
which were not demerged, were waived prior to demerger. In order to achieve
uniformity, debt waivers received were treated as a capital contribution
rather than an extinguishment of debt.
Therefore, although the Group reconstruction did not become unconditional
until 7 May 2010, the comparative financial statements have been presented as
if the Group structure had always been in place.
Going concern basis
The Directors are satisfied that the Group has the resources to continue in
operational existence for the foreseeable future, for this reason the
consolidated financial statements are prepared on a going concern basis.
Basis of consolidation
The consolidated financial statements are prepared in British pounds sterling
which is determined to be the functional currency of the Parent.
Subsidiaries
Subsidiary undertakings are fully consolidated from the date on which the
Group is deemed to govern the financial and operating policies of an entity,
whether through a majority of the voting rights or otherwise. They cease to be
consolidated from the date this control is lost.
All intragroup balances resulting from intragroup transactions are eliminated
in full.
Any proportion of a subsidiary`s income statement and net assets not held by
the Group are presented separately as non-controlling interests within these
consolidated financial statements.
Joint ventures
The Group`s interest in jointly controlled entities is accounted for using
proportional consolidation. The Group`s share of the assets, liabilities,
income and expenses is combined with the equivalent items in the consolidated
financial statements on a line-by-line basis.
Investments in subsidiaries and joint ventures are reviewed at least annually
for impairment. Where there exists an indication of impairment an assessment
of the recoverable amount is performed. The recoverable amount is based on the
higher of the investment`s continued value in use or its fair value less cost
to sell; fair value is derived from the entities` net asset value at the
balance sheet date.
Estimation and uncertainty
The preparation of consolidated financial statements in conformity with IFRS
requires the use of estimates and assumptions that affect the reported amounts
of assets and liabilities and the reported amounts of revenues and expenses.
Although these estimates are based on management`s best knowledge of the
amount, event or actions, actual results ultimately may differ from those
estimates. The most significant area of estimation and uncertainty in the
consolidated set of financial statements is in respect of the valuation of the
property portfolio and investments, where external valuations are obtained.
Other areas of estimation and uncertainty are included within the accounting
policies below, the more significant being:
Revenue recognition
Share-based payments
Provisions
Pensions
Contingent liabilities and capital commitments
Income tax
Trade and other receivables
Derivative financial instruments
Operating segments
Management has determined the operating segments with reference to reports on
divisional financial performance and position which are regularly reviewed by
the Chief Executive, who is deemed to be the chief operating decision maker.
Foreign currencies
Transactions in currencies other than the Company`s functional currency are
recorded at the exchange rate prevailing at the transaction date. Foreign
exchange gains and losses resulting from settlement of these transactions and
from retranslation of monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement except for differences
arising on the retranslation of available for sale investments which are
recognised in other comprehensive income.
Revenue recognition
Property rental income and exhibition income consists of gross income
calculated on an accruals basis, together with services where the Group acts
as principal in the ordinary course of business, excluding sales of investment
properties.
Rental income receivable is spread evenly over the period from lease
commencement to lease expiry.
Lease incentive payments, including surrender premiums paid which can be
directly linked to enhanced rental income, are amortised on a straight-line
basis over the lease term. Upon receipt of a surrender premium for the early
termination of a lease, the profit and non-recoverable outgoings relating to
the lease concerned are immediately reflected in income.
Contingent rents, being those lease payments that are not fixed at the
inception of a lease, for example increases arising on rent reviews, are
recorded as income in the periods in which they are earned.
Rent reviews are recognised as income, based on management`s estimates, when
it is reasonable to assume they will be received. Estimates are derived from
knowledge of market rents for comparable properties determined on an
individual property basis and updated for progress of negotiations.
Where revenue is obtained by the sale of properties, it is recognised when the
significant risks and returns have been transferred to the buyer. This will
normally take place on exchange of contracts unless there are conditions
attached. For conditional exchanges, sales are recognised when these
conditions are satisfied.
Interest income is accrued on a time basis, by reference to the principal
outstanding and the effective interest rate.
Dividend income is recognised when the relevant Group company`s right to
receive payment has been established.
Exceptional items
Exceptional items are those items that in the Directors` view are required to
be separately disclosed by virtue of their size or incidence to enable a full
understanding of the Group`s financial performance. These are excluded from
the calculation of underlying earnings.
Income taxes
Current tax is the amount payable on the taxable income for the year and any
adjustment in respect of prior years. It is calculated using rates that have
been enacted or substantively enacted by the balance sheet date.
In accordance with IAS 12, deferred tax is provided using the balance sheet
liability method on temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the tax bases of
those assets and liabilities. However temporary differences are not recognised
to the extent that they arise from the initial recognition of assets and
liabilities (other than on a business combination) that at the time of the
transaction affect neither accounting nor taxable profit and loss.
Deferred tax is determined using tax rates that have been enacted or
substantially enacted by the balance sheet date and are expected to apply when
the related deferred tax asset is realised or the deferred tax liability is
settled.
Deferred tax assets are recognised only to the extent that management believes
it is probable that future taxable profit will be available against which the
temporary differences can be utilised. Deferred tax assets and liabilities are
offset only when they relate to taxes levied by the same authority and the
Group intends to settle them on a net basis.
Tax is included in the income statement except when it relates to items
recognised in other comprehensive income, or directly in equity, in which case
the related tax is also recognised in other comprehensive income or directly
in equity.
Share-based payments
The cost of granting share options and other share-based remuneration to
employees and Directors is recognised through the income statement with
reference to the fair value of the instrument at the date of grant. The income
statement is charged over the vesting period of the options.
An option pricing model is used applying assumptions around expected yields,
forfeiture rates, exercise price and volatility.
Own shares held in connection with employee share plans and other share-based
payment arrangements are treated as treasury shares and deducted from equity.
Impairment of financial assets
An annual review is conducted for financial assets to determine whether there
is any evidence of a loss event as described by IAS 39. Where there is
objective evidence of impairment the amount of any loss is calculated by
estimating future cash flows or by using fair value where this is available
through observable market prices.
Investment and development property
Investment and development properties are owned or leased by the Group and
held for long-term rental income and capital appreciation and exclude
properties occupied by the Group.
The Group has chosen to use the fair value model. Properties are initially
recognised at cost and subsequently revalued at the balance sheet date to fair
value as determined by professionally qualified external valuers on the basis
of market value after allowing for future transaction costs. The valuation is
based upon assumptions including market rent or business profitability, future
growth, anticipated maintenance costs, development costs and an appropriate
discount rate where possible applying yields based on known transactions for
similar properties and likely incentives offered to tenants. These assumptions
conform with Royal Institution of Chartered Surveyors ("RICS") valuation
standards.
The fair value of properties is arrived at by adjusting the market value as
above for directly attributable lease incentive assets and fixed head leases.
Properties held under leases are stated gross of the recognised finance lease
liability.
The cost of development properties includes capitalised interest and other
directly attributable outgoings, except in the case of properties and land
where no development is imminent, in which case no interest is included.
Interest is capitalised (before tax relief) on the basis of the average rate
of interest paid on the relevant debt outstanding, until the date of practical
completion.
When the Group redevelops an existing investment property for continued future
use as an investment property, the property remains an investment property
measured at fair value.
Gains or losses arising from changes in the fair value of investment and
development property are recognised in the income statement of the period in
which they arise. Depreciation is not provided in respect of investment
properties including plant and equipment integral to such investment
properties.
When the use of a property changes from that of trading property to investment
property, such property is transferred at fair value, with any resulting gain
being recognised as property trading profit.
Investment properties cease recognition as investment property either when
they have been disposed of or when they cease to be held for the purpose of
generating rental income or for capital appreciation. Where the Group disposes
of a property at fair value in an arm`s length transaction the carrying value
immediately prior to the sale is adjusted to the transaction price, offset by
any directly attributable costs, and the adjustment is recorded in the income
statement.
Leases
Leases are classified according to the substance of the transaction. A lease
that transfers substantially all the risks and rewards of ownership to the
lessee is classified as a finance lease. All other leases are normally
classified as operating leases.
Group as a lessee:
In accordance with IAS 40, finance and operating leases of investment property
are accounted for as finance leases and recognised as an asset and an
obligation to pay future minimum lease payments. The investment property asset
is included in the balance sheet at the lower of fair value and the present
value of minimum lease payments, gross of the recognised finance lease
liability. Lease payments are allocated between the liability and finance
charges so as to achieve a constant financing rate.
Other finance leased assets are capitalised at the lower of the fair value of
the leased asset or the present value of the minimum lease payments and
depreciated over the shorter of the lease term and the useful life of the
asset.
Rental expense under operating leases is charged to the income statement on a
straight-line basis over the lease term.
Group as lessor:
Assets leased out under finance leases are recognised as receivables at the
amount of the Group`s net investment in the leases. Finance lease income is
allocated to accounting periods so as to reflect a constant rate of return on
the net investment.
Assets leased out under operating leases are included in investment property,
with rental income recognised on a straight- line basis over the lease term.
Trading property
Trading property comprises those properties that in the Directors` view are
expected to be disposed of within one year of the balance sheet date. Such
properties are transferred from investment property at fair value which forms
its deemed cost.
Subsequently it is carried at the lower of cost and net realisable value.
Plant and equipment
Plant and equipment consists of fixtures, fittings and other office equipment.
Plant and equipment is stated at cost less accumulated depreciation and any
accumulated impairment losses. Cost includes the original purchase price of
the asset plus any attributable cost in bringing the asset to its working
condition for its intended use. Depreciation is charged to the income
statement on a straight-line basis over an asset`s estimated useful life to a
maximum of five years.
Investments
Available for sale investments, being investments intended to be held for an
indefinite period, are initially recognised and subsequently measured at fair
value.
Gains or losses arising from changes in the fair value of available for sale
investments are included in other comprehensive income, except to the extent
that losses are determined to be attributable to impairment, in which case
they are recognised in the income statement
Disposals are recorded upon distribution, at which time accumulated fair value
adjustments are recycled from reserves to the income statement.
Trade and other receivables
Trade and other receivables are initially recognised at fair value and
subsequently measured at amortised cost. The Directors exercise judgement as
to the collectability of the Group`s trade and other receivables and determine
when it is appropriate to impair these assets. Factors such as days past due,
credit status of the counterparty, historical evidence of collection and
probability of deriving future economic benefit are considered.
Cash and cash equivalents
Cash and cash equivalents are recognised at fair value. Cash and cash
equivalents comprise cash on hand, deposits with banks and other short-term
highly liquid investments with original maturities of three months or less.
Derivatives financial instruments
The Group uses non-trading derivative financial instruments to manage exposure
to interest rate risk. These instruments have not been designated as
qualifying for hedge accounting. They are initially recognised on the trade
date at fair value and subsequently remeasured at fair value based on market
price. Changes in fair value are recognised directly in the income statement.
Trade payables
Trade payables are obligations for goods or services acquired in the ordinary
course of business. Trade payables are recognised at fair value and
subsequently measured at amortised cost until settled.
Dividend distribution
Dividend distributions to shareholders are recognised as a liability once
approved by shareholders.
Provisions
Provisions are recognised when the Group has a current obligation arising from
a past event and it is probable that the Group will be required to settle that
obligation. Provisions are measured at the Directors` best estimate of the
expenditure required to settle that obligation at the balance sheet date.
Borrowings
Borrowings are recognised initially at their net proceeds on issue and
subsequently carried at amortised cost. Any transaction costs, premiums or
discounts are capitalised and recognised over the contractual life using the
effective interest method. In the event of early repayment all unamortised
transaction costs are recognised immediately in the income statement.
Share capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of ordinary shares are recognised as a deduction
from equity, net of any tax effects.
Pensions
The costs of the defined contribution scheme and the Group`s personal pension
plans are charged against profits in the year in which they fall due.
Past service costs, current service costs and curtailment gains of the defined
benefit scheme are recognised immediately in income. Actuarial gains and
losses arising from experience adjustments and changes in actuarial
assumptions are charged or credited to equity in other comprehensive income
for the period in which they arise. The defined benefit obligation is
calculated annually by independent actuaries using the projected unit credit
method and applying assumptions which are agreed between the Group and its
actuaries.
Contingent liabilities and capital commitments
Contingent liabilities are not recognised due to lack of certainty with
respect to measurement of the potential future liability. A description of the
nature and, where possible, an estimate of the financial effect of contingent
liabilities is disclosed.
Capital commitments are disclosed when the Group has a contractual future
obligation which has not been provided for at the balance sheet date.
2. SEGMENTAL REPORTING
Management has determined the operating segments based on reports reviewed by
the Chief Executive, who is deemed to be the chief operating decision maker.
The principal performance measures have been identified as net rental income
and net asset value.
For management and reporting purposes the Group is organised into five
operating divisions being The Great Capital Partnership, Earls Court &
Olympia, Covent Garden, China and Other. The Other segment primarily
constitutes the business unit historically known as Opportunities and other
head office companies. Due to actions taken by the fund manager who controls
the divestment decisions pertaining to the Group`s interests in China, this
segment has been presented separately as the segment`s results exceeds the
quantitive threshold requiring separate disclosure. The Earls Court & Olympia
segment also includes the Group`s interest in The Empress State Limited
Partnership which holds the Empress State building adjacent to the Group`s
property at Earls Court.
The Group`s operating segments derive their revenue primarily from rental
income from lessees, with the exception of Earls Court & Olympia whose revenue
primarily represents exhibition income.
Unallocated expenses are costs incurred centrally which are neither directly
nor reasonably attributable to individual segments.
Reportable segments
2011
The Great
Capital Earls Court Covent
Partnership & Olympia(1) Garden
GBPm GBPm GBPm
Revenue 13.3 59.2 35.9
Rent receivable and exhibition income 12.5 59.2 32.8
Service charge income 0.8 - 3.1
Rental income 13.3 59.2 35.9
Service charge and other
non-recoverable costs (2.3) (29.0) (8.1)
Net rental income 11.0 30.2 27.8
Other income - 0.4 -
Gain on revaluation and sale of
investment and development property 25.3 46.3 51.2
Profit on sale of available for sale
investments - - -
Remeasurement of deferred consideration - (4.2) -
Write down of trading property - - -
Segment result 36.3 72.7 79.0
Unallocated costs
Administration expenses
Operating profit
Net finance costs (2)
Profit before tax
Taxation
Profit for the year
Summary balance sheet
Total segment assets(3) 253.5 616.4 827.6
Total segment liabilities(3) (130.2) (248.8) (302.2)
Unallocated net assets (2) 123.3 367.6 525.4
Net assets
Other segment items:
Capital expenditure (1.4) (46.4) (131.7)
Depreciation - - (0.2)
Group
China Other total
GBPm GBPm GBPm
Revenue - - 108.4
Rent receivable and exhibition income - - 104.5
Service charge income - - 3.9
Rental income - - 108.4
Service charge and other non-recoverable costs - - (39.4)
Net rental income - - 69.0
Other income - 0.4 0.8
Gain on revaluation and sale of investment and
development property - 0.5 123.3
Profit on sale of available for sale investments 30.5 - 30.5
Remeasurement of deferred consideration - - (4.2)
Write down of trading property - (0.1) (0.1)
Segment result 30.5 0.8 219.3
Unallocated costs
Administration expenses (22.2)
Operating profit 197.1
Net finance costs (2) (35.2)
Profit before tax 161.9
Taxation (8.2)
Profit for the year 153.7
Summary balance sheet
Total segment assets(3) 19.6 5.7 1,722.8
Total segment liabilities(3) - (5.9) (687.1)
19.6 (0.2) 1,035.7
Unallocated net assets (2) 67.4
Net assets 1,103.1
Other segment items:
Capital expenditure - - (179.5)
Depreciation - - (0.2)
(1) Empress State represents GBP7.1 million of the GBP30.2 million net rental
income for Earls Court & Olympia.
(2) The Group operates a central treasury function which manages and monitors
the Group`s finance income and costs on a net basis and a majority of the
Group`s cash balances.
(3) Total assets and total liabilities exclude loans between and investments
in Group companies.
2010
The Great
Capital Earls Court Covent
Partnership & Olympia(1) Garden
GBPm GBPm GBPm
Revenue 16.1 57.7 38.9
Rent receivable and exhibition income 14.9 57.7 36.2
Service charge income 1.2 - 2.7
Rental income 16.1 57.7 38.9
Rent payable - - (1.0)
Service charge and other
non-recoverable costs (2.5) (28.6) (12.2)
Net rental income 13.6 29.1 25.7
Other income - - -
Gain on revaluation and sale of
investment and
development property 33.5 23.3 77.8
Remeasurement of deferred
consideration - 0.7 -
Write down of trading property - - -
Impairment of other receivables - - -
Segment result 47.1 53.1 103.5
Unallocated costs
Administration expenses
Operating profit
Net finance costs (2)
Profit before tax
Taxation
Profit for the year
Summary balance sheet
Total segment assets(3) 273.1 503.2 659.0
Total segment liabilities (3) (128.6) (273.4) (382.0)
144.5 229.8 277.0
Unallocated net assets (2)
Net assets
Other segment items:
Capital expenditure (1.1) (22.7) (7.5)
Depreciation - - (0.1)
Group
China Other total
GBPm GBPm GBPm
Revenue - 1.0 113.7
Rent receivable and exhibition income - 0.6 109.4
Service charge income - 0.3 4.2
Rental income - 0.9 113.6
Rent payable - - (1.0)
Service charge and other non-recoverable costs - (0.3) (43.6)
Net rental income - 0.6 69.0
Other income - 0.1 0.1
Gain on revaluation and sale of investment and
development property - - 134.6
Remeasurement of deferred consideration - - 0.7
Write down of trading property - (0.1) (0.1)
Impairment of other receivables - (1.6) (1.6)
Segment result - (1.0) 202.7
Unallocated costs
Administration expenses (23.9)
Operating profit 178.8
Net finance costs (2) (46.3)
Profit before tax 132.5
Taxation (0.9)
Profit for the year 131.6
Summary balance sheet
Total segment assets(3) 66.3 - 1,501.6
Total segment liabilities (3) - (7.1) (791.1)
66.3 (7.1) 710.5
Unallocated net assets (2) 172.9
Net assets 883.4
Other segment items:
Capital expenditure - - (31.3)
Depreciation - - (0.1)
(1) Empress State represents GBP6.5 million of the GBP29.1 million net rental
income for Earls Court & Olympia.
(2) The Group operates a central treasury function which manages and monitors
the Group`s finance income and costs on a net basis and a majority of the
Group`s cash balances.
(3) Total assets and total liabilities exclude loans between and investments
in Group companies.
The Group`s geographical segments are set out below. This represents where the
Group`s assets and revenues are predominantly domiciled.
Revenue represents income from tenants and total assets primarily constitute
investment property.
Revenue
2011 2010
GBPm GBPm
Central London 108.4 112.7
Other - 1.0
108.4 113.7
Total assets
2011 2010
GBPm GBPm
Central London 1,770.4 1,606.3
Other 19.8 66.6
1,790.2 1,672.9
Capital expenditure
2011 2010
GBPm GBPm
Central London 179.5 31.3
Other - -
179.5 31.3
3. OTHER INCOME
2011 2010
GBPm GBPm
Dividend income - 0.1
Non-recurring income 0.8 -
Other income 0.8 0.1
4. GAIN ON REVALUATION AND SALE OF INVESTMENT AND DEVELOPMENT
PROPERTY
2011 2010
GBPm GBPm
Gain on revaluation of investment and development property 119.4 133.3
Gain on sale of investment property 3.9 1.3
Gain on revaluation and sale of investment and development
property 123.3 134.6
5. PROFIT ON SALE OF AVAILABLE FOR SALE INVESTMENTS
2011 2010
GBPm GBPm
Profit on sale of available for sale investments 30.5 -
Profit on sale of available for sale investments represents part divestment
from Harvest China Real Estate Fund I and divestment in full from Harvest
China Real Estate Fund II following property disposals made by the fund.
6. IMPAIRMENT OF OTHER RECEIVABLES
Impairment of other receivables of GBP1.6 million arose in 2010 following an
impairment review of loan notes receivable by the Group. The impairment charge
was calculated with reference to the market value of certain property assets
that the Group would have priority over in the event of default. There was no
impairment in 2011.
7. DEMERGER COSTS
Demerger costs included within administration expenses in 2010 were those
costs and fees that were directly related to the Group`s demerger from Liberty
International. These included inter alia legal and professional fees, listing
fees and costs associated with the establishment of the Company`s head office.
These were treated as exceptional items and were not included in the
calculation of underlying earnings.
8. FINANCE COSTS
2011 2010
GBPm GBPm
Finance costs:
On bank overdrafts and loans 36.6 40.7
Amortisation of issue costs 0.8 0.1
On obligations under finance leases 0.8 0.3
Gross finance costs 38.2 41.1
Interest capitalised on developments (1.7) (0.8)
Finance costs 36.5 40.3
Costs of termination of derivative financial instruments(1) 14.5 7.1
Other finance costs 14.5 7.1
(1) Treated as exceptional and therefore excluded from the calculation of
underlying earnings.
Interest is capitalised, before tax relief, on the basis of the average rate
of interest paid of 5.9 per cent (2010 - 5.9 per cent) on the relevant debt,
applied to the cost of developments during the year.
9. Taxation
2011 2010
GBPm GBPm
Current income tax:
Current income tax charge 2.5 2.2
Adjustments in respect of previous years - 0.1
Current income tax on profits excluding exceptional items 2.5 2.3
Deferred income tax:
On investment and development property 14.1 8.4
On accelerated capital allowances 0.4 (1.7)
On exceptional losses (11.6) -
On derivative financial instruments 3.3 (9.6)
On non-exceptional items (0.5) -
On exceptional items - 2.5
Deferred income tax on profits 5.7 (0.4)
REIT entry charge - 0.1
Current tax credit on exceptional items - (1.1)
Total tax expense reported in the income statement 8.2 0.9
Factors affecting the tax charge for the year
The tax assessed for the period is GBP8.2 million which is lower than the
standard rate of corporation tax in the United Kingdom.
The differences are explained below:
2011 2010
GBPm GBPm
Profit before tax 161.9 132.5
Profit on ordinary activities multiplied by the standard
rate in the UK of 26.5% (2010 - 28%) 42.9 37.1
UK capital allowances not reversing on sale (0.6) (1.5)
Revaluation surplus not recognised in deferred tax (15.8) (37.7)
Prior year corporation tax items - 0.1
Expenses disallowed, net of capitalised interest 0.5 1.5
REIT - corporation tax exemption on qualifying properties
pre exit from REIT Regime - (0.5)
REIT - deferred tax movement in year post exit from REIT Regime - 19.4
REIT - entry charge - 0.1
Utilisation of losses (brought)/carried forward (11.0) 1.9
Non-taxable items (8.1) -
Deferred tax arising on exit from REIT Regime - (19.1)
Reduction in deferred tax following cut in corporate tax rate 0.3 (0.4)
Total tax expense reported in the income statement 8.2 0.9
As a result of exiting the UK REIT Regime, a deferred tax charge of GBP19.4
million was recognised in 2010 on investment properties and is disclosed in
the tax reconciliation above as `REIT - deferred tax movement in year post
exit from REIT Regime`. This charge was offset by a corresponding credit
disclosed above under `Deferred tax arising on exit from REIT Regime`.
Further amendments to the UK Corporation Tax system were announced in the
March 2011 Budget which included changes to the main rates of UK Corporation
Tax. The main rate of corporation tax decreased from 28 per cent to 26 per
cent from 1 April 2011. The Budget will reduce the main rate of corporation
tax from 26 per cent to 25 per cent from 1 April 2012. It proposes to make
further reductions to the main rate of 1 per cent per annum to 23 per cent by
1 April 2014. The decrease in tax rate to 25 per cent has been substantively
enacted for the purposes of the IAS 12 and therefore has been reflected in
these financial statements.
10. DIVIDENDS
2011 2010
GBPm GBPm
Ordinary shares
Prior year final dividend paid of 1.0p per share (2010 - GBPnil) 6.2 -
Interim dividend paid of 0.5p per share (2010 - 0.5p) 3.4 3.1
Dividends paid 9.6 3.1
Proposed final dividend of 1.0p per share (2010 - 1.0p) 6.8 6.2
11. EARNINGS PER SHARE AND NET ASSETS PER SHARE
2011
Earnings Shares (1) Pence per
(a) Earnings per share GBPm million share
Basic earnings 153.7 661.8 23.2
Dilutive effect of share option awards 1.7 4.0
Dilutive effect of contingently issuable
shares - 0.6
Dilutive effect of matching nil cost options - 1.9
Diluted earnings 155.4 668.3 23.3
Basic earnings 153.7
Adjustments:
Gain on revaluation and sale of
investment and development property (123.3)
Write down of trading property 0.1
Fair value movement on derivative
financial instruments (14.1)
Costs of termination of derivative
financial instruments 14.5
Current tax adjustments (0.3)
Deferred tax adjustments 17.4
EPRA adjusted earnings 48.0 661.8 7.3
Exceptional other income (0.8)
Profit on sale of available for sale
investments (30.5)
Remeasurement of deferred consideration 4.2
Write down of trading property (0.1)
Impairment of other receivables -
Demerger costs -
Current tax adjustments 0.3
Deferred tax adjustments (11.6)
REIT entry charge -
Underlying earnings 9.5 661.8 1.4
2010
Earnings Shares(1) Pence per
(a) Earnings per share GBPm million share
Basic earnings 131.6 621.9 21.2
Dilutive effect of share option awards 0.5 1.2
Dilutive effect of contingently issuable
shares - -
Dilutive effect of matching nil cost options - -
Diluted earnings 132.1 623.1 21.2
Basic earnings 131.6
Adjustments:
Gain on revaluation and sale of investment
and development property (134.6)
Write down of trading property 0.1
Fair value movement on derivative
financial instruments 0.3
Costs of termination of derivative
financial instruments 7.1
Current tax adjustments (0.3)
Deferred tax adjustments (2.9)
EPRA adjusted earnings 1.3 621.9 0.2
Exceptional other income -
Profit on sale of available for sale
investments -
Remeasurement of deferred consideration (0.7)
Write down of trading property (0.1)
Impairment of other receivables 1.6
Demerger costs 5.3
Current tax adjustments (0.8)
Deferred tax adjustments 2.5
REIT entry charge 0.1
Underlying earnings 9.2 621.9 1.5
(1) Weighted average number of shares in issue during the period.
Headline earnings per share is calculated in accordance with Circular 3/2009
issued by the South African Institute of Chartered Accountants (SAICA), a
requirement of the Group`s JSE listing. This measure is not a requirement of
IFRS.
2011
Earnings Shares(1) Pence per
GBPm million share
Basic earnings per share 153.7 661.8 23.2
Adjustments:
Gain on revaluation and sale of investment
and development property (123.3)
Profit on sale of available for sale
investments (30.5)
Impairment of other receivables -
Demerger costs -
Current tax adjustments -
Deferred tax adjustments 13.1
Headline earnings 13.0 661.8 2.0
Dilutive effect of share options awards 1.7 4.0
Dilutive effect of contingently issuable
shares - 0.6
Dilutive effect of matching nil cost options - 1.9
Diluted headline earnings 14.7 668.3 2.2
2010
Earnings Shares(1) Pence per
GBPm million share
Basic earnings per share 131.6 621.9 21.2
Adjustments:
Gain on revaluation and sale of investment
and development property (134.6)
Profit on sale of available for sale
investments -
Impairment of other receivables 1.6
Demerger costs 5.3
Current tax adjustments (0.7)
Deferred tax adjustments 9.2
Headline earnings 12.4 621.9 2.0
Dilutive effect of share options awards 0.5 1.2
Dilutive effect of contingently issuable
shares - -
Dilutive effect of matching nil cost options - -
Diluted headline earnings 12.9 623.1 2.1
(1) Weighted average number of shares in issue during the period.
2011
Net NAV per
assets Shares(1) share
b) Net assets per share GBPm million (pence)
Net assets attributable to owners of the
Group 1,103.1 683.9 161.3
Adjustments:
Effect of dilution on exercise of options - 4.4
Effect of dilution on issue of contingently
issuable shares - 0.6
Effect of dilution on issue of matching nil
cost options - 1.9
Diluted NAV 1,103.1 690.8 159.7
Fair value of derivative financial
instruments 36.4
Unrecognised surplus on trading properties 1.0
Deferred tax adjustments 4.9
EPRA adjusted, diluted NAV 1,145.4 690.8 165.8
Fair value of derivative financial
instruments (36.4)
Deferred tax adjustments (9.2)
EPRA adjusted, diluted NNNAV 1,118.2 690.8 161.9
2010
Net NAV per
assets Shares(1) share
b) Net assets per share GBPm million (pence)
Net assets attributable to owners of the Group 883.4 621.8 142.1
Adjustments:
Effect of dilution on exercise of options - 2.2
Effect of dilution on issue of contingently
issuable shares - -
Effect of dilution on issue of matching nil
cost options - -
Diluted NAV 883.4 624.0 141.6
Fair value of derivative financial instruments 53.9
Unrecognised surplus on trading properties 1.1
Deferred tax adjustments (12.5)
EPRA adjusted, diluted NAV 925.9 624.0 148.4
Fair value of derivative financial instruments(53.9)
Deferred tax adjustments 12.5
EPRA adjusted, diluted NNNAV 884.5 624.0 141.7
(1) Number of shares in issue at the year end.
12. INVESTMENT AND DEVELOPMENT PROPERTY
Freehold Leasehold Total
GBPm GBPm GBPm
At 1 January 2010 623.7 616.8 1,240.5
Additions from acquisitions 10.3 - 10.3
Additions from subsequent expenditure 6.9 14.1 21.0
Disposals (16.0) (11.5) (27.5)
Gain on valuation 72.4 60.9 133.3
At 1 January 2011 697.3 680.3 1,377.6
Reclassification (15.0) 15.0 -
Additions from acquisitions 114.5 - 114.5
Additions from subsequent expenditure 28.2 36.8 65.0
Disposals (59.7) - (59.7)
Gain on valuation 29.4 90.0 119.4
At 31 December 2011 794.7 822.1 1,616.8
2011 2010
GBPm GBPm
Balance sheet carrying value of investment
and development property 1,616.8 1,377.6
Adjustment in respect of tenant incentives 14.9 9.6
Adjustment in respect of head leases (8.9) (6.8)
Market value of investment and development property 1,622.8 1,380.4
Included within investment and development properties is GBP1.7 million (2010
- GBP0.8 million) of interest capitalised on developments and redevelopments
in progress.
The fair value of the Group`s investment and development properties as at 31
December 2011 was determined by independent external valuers Jones Lang
LaSalle for Earls Court & Olympia (excluding Empress State), and CB Richard
Ellis for the remainder of the Group`s investment and development property.
The valuation conforms with the Royal Institution of Chartered Surveyors
("RICS") Valuation Standards, and was arrived at by reference to market
transactions for similar properties. Fees paid to valuers are based on fixed
price contracts.
The main assumptions underlying the valuations are in relation to market rent
or business profitability, taking into account forecast growth rates and
yields based on known transactions for similar properties and likely
incentives offered to tenants.
Valuations are based on what is determined to be the highest and best use. The
Group`s investment at Earls Court, and Seagrave Road, a car park supporting
Earls Court, have been valued as a site with development potential.
There are certain restrictions on the realisability of investment property
when a credit facility is in place.
13. TRADE AND OTHER RECEIVABLES
2011 2010
GBPm GBPm
Amounts falling due after more than one year
Loan notes receivable 3.4 3.4
Other receivables (1) 15.4 -
Prepayments and accrued income 15.4 9.0
Trade and other receivables 34.2 12.4
Amounts falling due within one year
Rents receivable 15.2 10.2
Loan notes receivable - 2.9
Other receivables(2) 2.9 5.2
Prepayments and accrued income 8.6 8.5
Trade and other receivables 26.7 26.8
(1) Includes GBP15 million exclusivity payment with LBHF.
(2) Includes exhibition trade receivables.
Included within prepayments and accrued income are tenant lease incentives of
GBP14.9 million (2010 - GBP9.6 million).
14. TRADING PROPERTY
2011 2010
GBPm GBPm
Undeveloped sites 0.2 0.3
Trading property 0.2 0.3
The estimated replacement cost of trading properties based on market value
amounted to GBP1.2 million (2010 - GBP1.4million). During the year impairment
charges of GBP0.1 million (2010 - GBP0.1 million) were recorded against
trading property.
15. CASH AND CASH EQUIVALENTS
2011 2010
GBPm GBPm
Cash at hand 20.6 12.7
Cash on short-term deposit 63.0 169.8
Unrestricted cash and cash equivalents 83.6 182.5
Restricted cash 6.0 6.0
Cash and cash equivalents 89.6 188.5
Restricted cash relates to amounts placed on deposit in accounts which are
subject to withdrawal conditions.
16. TRADE AND OTHER PAYABLES
2011 2010
GBPm GBPm
Amounts falling due within one year
Rents received in advance 21.9 22.0
Accruals and deferred income 28.0 26.5
Trade payables 0.4 -
Other payables (1) 9.3 14.2
Other taxes and social security 22.8 2.3
Trade and other payables 82.4 65.0
(1) Includes sundry payables and amounts due to joint venture partners.
17. BORROWINGS, INCLUDING FINANCE LEASES
2011
Carrying
value Secured Unsecured
GBPm GBPm GBPm
Amounts falling due within one year
Bank loans and overdrafts 11.5 11.5 -
Loan notes 2017 6.0 6.0 -
Borrowings, excluding finance leases 17.5 17.5 -
Finance lease obligations 1.2 1.2 -
Amounts falling due within one year 18.7 18.7 -
Amounts falling due after more than one year
Bank loans 2013 270.0 270.0 -
Bank loan 2016 145.3 145.3 -
Bank loan 2017 111.6 111.6 -
Borrowings excluding finance leases 526.9 526.9 -
Finance lease obligations 7.7 7.7 -
Amounts falling due after more than one year 534.6 534.6 -
Total borrowings 553.3 553.3 -
Cash and cash equivalents (89.6)
Net debt 463.7
Fixed Floating Fair
rate rate value
GBPm GBPm GBPm
Amounts falling due within one year
Bank loans and overdrafts - 11.5 11.5
Loan notes 2017 - 6.0 6.0
Borrowings, excluding finance leases - 17.5 17.5
Finance lease obligations 1.2 - 1.2
Amounts falling due within one year 1.2 17.5 18.7
Amounts falling due after more than one year
Bank loans 2013 - 270.0 270.0
Bank loan 2016 - 145.3 145.3
Bank loan 2017 - 111.6 111.6
Borrowings excluding finance leases - 526.9 526.9
Finance lease obligations 7.7 - 7.7
Amounts falling due after more than one year 7.7 526.9 534.6
Total borrowings 8.9 544.4 553.3
Cash and cash equivalents
Net debt
2010
Carrying
value Secured Unsecured
GBPm GBPm GBPm
Amounts falling due within one year
Bank loans and overdrafts 6.2 6.2 -
Loan notes 2017 6.0 6.0 -
Borrowings, excluding finance leases 12.2 12.2 -
Finance lease obligations 0.9 0.9 -
Amounts falling due within one year 13.1 13.1 -
Amounts falling due after more than one year
Bank loan 2012 124.3 124.3 -
Bank loans 2013 409.7 409.7 -
Bank loan 2017 111.6 111.6 -
Borrowings excluding finance leases 645.6 645.6 -
Finance lease obligations 5.9 5.9 -
Amounts falling due after more than one year 651.5 651.5 -
Total borrowings 664.6 664.6 -
Cash and cash equivalents (188.5)
Net debt 476.1
Fixed Floating Fair
rate rate value
GBPm GBPm GBPm
Amounts falling due within one year
Bank loans and overdrafts - 6.2 6.2
Loan notes 2017 - 6.0 6.0
Borrowings, excluding finance leases - 12.2 12.2
Finance lease obligations 0.9 - 0.9
Amounts falling due within one year 0.9 12.2 13.1
Amounts falling due after more than one year
Bank loan 2012 - 124.3 124.3
Bank loans 2013 - 409.7 409.7
Bank loan 2017 - 111.6 111.6
Borrowings excluding finance leases - 645.6 645.6
Finance lease obligations 5.9 - 5.9
Amounts falling due after more than one year 5.9 645.6 651.5
Total borrowings 6.8 657.8 664.6
Cash and cash equivalents
Net debt
18. CLASSICATION OF FINANCIAL ASSETS AND LIABILITIES
The tables below set out the Group`s accounting classification of each class
of financial assets and liabilities, and their fair values at 31 December 2011
and 31 December 2010.
The fair values of quoted borrowings are based on the bid price. The fair
values of derivative financial instruments are determined from observable
market prices or estimated using appropriate yield curves at 31 December each
year by discounting the future contractual cash flows to the net present
values.
Gain
(Loss)/gain to other
Carrying to income comprehensive
value Fair value statement income
2011 GBPm GBPm GBPm GBPm
Derivative financial
instrument asset 1.0 1.0 (2.4) -
Total held for
trading assets 1.0 1.0 (2.4) -
Cash and cash
equivalents 89.6 89.6 - -
Other financial assets 61.9 61.9 - -
Total cash and
receivables 151.5 151.5 - -
Available for sale
investments 19.5 19.5 - 6.3
Total available for
sale investments 19.5 19.5 - 6.3
Derivative financial
instrument
liabilities (37.4) (37.4) 16.5 -
Total held for
trading liabilities (37.4) (37.4) 16.5 -
Borrowings (553.3) (553.3) - -
Other financial
liabilities (96.4) (96.4) - -
Total loans and
payables (649.7) (649.7) - -
Gain
Loss to other
Carrying to income comprehensive
value Fair value statement income
2010 GBPm GBPm GBPm GBPm
Cash and cash
equivalents 188.5 188.5 - -
Other financial assets 39.2 39.2 - -
Total cash and
receivables 227.7 227.7 - -
Available for sale
investments 66.3 66.3 - 21.5
Total available for
sale investments 66.3 66.3 - 21.5
Derivative financial
instrument liabilities (53.9) (53.9) (0.3) -
Total held for
trading liabilities (53.9) (53.9) (0.3) -
Borrowings (664.6) (664.6) - -
Other financial
liabilities (71.0) (71.0) - -
Total loans and
payables (735.6) (735.6) - -
19. DEFERRED TAX PROVISION
Under IAS 12 "Income Taxes", provision is made for the deferred tax assets and
liabilities associated with the revaluation of investment properties at the
corporate tax rate expected to apply to the Group at the time of use. For
United Kingdom properties the relevant tax rate will be 25 per cent (2010 - 27
per cent).
The movements in the year in deferred tax (both recognised and unrecognised)
mainly reflect the tax effect of property revaluation gains arising in the
year as well as availability of group losses previously not recognised. The
recognised deferred tax liability on investment properties calculated under
IAS 12 was GBP14.1m at 31 December 2011 (2010 - nil). The IAS 12 calculation
does not necessarily reflect the expected amount of tax that would be payable
if the assets were sold. The Group estimates that calculated on a disposal
basis, by reference to the properties` original historic tax base costs, the
tax liability on a sale at 31 December 2011 would be nil (2010 - GBP10.4
million). This is due to a number of factors including the availability of
losses and indexation relief, the Group holding structure for certain
properties and the application of the REIT provisions to disposals within 2
years of the demerger date (May 2010).
The tax basis of properties formerly within the REIT regime will be revised in
May 2012 (the second anniversary of the demerger) from their original historic
tax base cost to the value at the time of exit. If this latter tax basis had
applied at 31 December 2011, the tax liability on a disposal basis would again
have been nil.
Fair value of
Accelerated investment & Derivative
capital development financial
allowances properties instruments
GBPm GBPm GBPm
Provided deferred tax provision:
At 1 January 2010 14.5 (8.4) (2.9)
Recognised in income (1.7) 8.4 (9.6)
Recognised in other
comprehensive income - - -
At 31 December 2010 12.8 - (12.5)
Recognised in income 0.4 14.1 3.3
Recognised in other
comprehensive income - - -
At 31 December 2011 13.2 14.1 (9.2)
Unrecognised deferred tax asset:
At 1 January 2011 - (43.3) (2.2)
Movement in the year - 43.3 2.2
At 31 December 2011 - - -
Other
temporary Group
differences losses Total
GBPm GBPm GBPm
Provided deferred tax provision:
At 1 January 2010 (3.2) - -
Recognised in income 2.5 - (0.4)
Recognised in other comprehensive income 0.4 - 0.4
At 31 December 2010 (0.3) - -
Recognised in income (0.5) (11.6) 5.7
Recognised in other comprehensive income (0.9) - (0.9)
At 31 December 2011 (1.7) (11.6) 4.8
Unrecognised deferred tax asset:
At 1 January 2011 (0.1) (11.0) (56.6)
Movement in the year 0.1 11.0 56.6
At 31 December 2011 - - -
20. OTHER PROVISIONS
Deferred
consideration Other Total
GBPm GBPm GBPm
Amounts falling due after more than one year
At 1 January 2010 3.8 0.2 4.0
Credited to the income statement
- remeasurement of deferred consideration (0.7) - (0.7)
At 31 December 2010 3.1 0.2 3.3
Extinguished during the year - (0.2) (0.2)
Reclassified to current liabilities (3.1) - (3.1)
At 31 December 2011 - - -
Amounts falling due within one year
At 1 January 2010 - - -
At 31 December 2010 - - -
Reclassified from non-current liabilities 3.1 - 3.1
Charged to income statement
- remeasurement of deferred consideration 4.2 - 4.2
At 31 December 2011 7.3 - 7.3
Deferred consideration is the amount payable on the 2009 acquisition of the
non-controlling interests` share in Earls Court & Olympia. The amount of
deferred consideration payable is based on a number of factors including a
potential re-development of the Earls Court & Olympia site, with the final
details of such a redevelopment dependent on discussions with the owners of
the adjacent land and the outcome of the planning permission process which is
anticipated to conclude in 2012. The maximum potential payment is GBP20.0
million
21. SHARE CAPITAL AND SHARE PREMIUM
Share Share
capital premium
GBPm GBPm
Issued and fully paid:
At 31 December 2010 - 621,828,502 ordinary shares of 25p
each 155.4 89.1
Shares issued: 62,100,000 ordinary shares of 25p each 15.5 6.0
At 31 December 2011 - 683,928,502 ordinary shares of 25p
each 170.9 95.1
22. CAPITAL COMMITMENTS
At 31 December 2011, the Group was contractually committed to GBP14 million
(2010 - GBP45 million) of future expenditure for the purchase, construction,
development and enhancement of investment property. Of the GBP14 million
committed, GBP13.3 million is committed 2012 expenditure. The Group`s share of
joint venture commitments included within this amount was GBP0.4 million (2010
- GBP1.2 million).
23. CONTINGENT LIABILITIES
As at 31 December 2011, the Group has no contingent liabilities (2010 - nil).
24. CASH GENERATED FROM OPERATIONS
Notes 2011 2010
GBPm GBPm
Profit before tax 161.9 132.5
Adjustments for:
Gain on revaluation of investment and development
property 4 (119.4) (133.3)
Gain on sale of investment property 4 (3.9) (1.3)
Profit on sale of available for sale investments 5 (30.5) -
Remeasurement of deferred consideration 4.2 (0.7)
Write down of trading property 0.1 0.1
Impairment of other receivables - 1.6
Depreciation 0.2 0.1
Amortisation of lease incentives and other direct
costs 0.5 2.5
Finance costs 8 36.5 40.3
Finance income (1.7) (1.4)
Other finance costs 8 14.5 7.1
Change in fair value of derivative financial
instruments (14.1) 0.3
Change in working capital:
Change in trading properties - (0.1)
Change in trade and other receivables (7.2) (3.9)
Change in trade and other payables (3.1) (5.2)
Cash generated from operations 38.0 38.6
25. RELATED PARTY TRANSACTIONS
2011 2010
Key management compensation(1) GBPm GBPm
Salaries and short-term employee benefits 2.8 2.2
Pensions and other post-employment benefits 0.1 0.2
Share-based payments 1.4 0.5
4.3 2.9
(1) The Directors of Capital & Counties Properties PLC have been determined to
be the only individuals with authority and responsibility for planning,
directing and controlling the activities of the Company.
26 EVENTS AFTER THE REPORTING PERIOD
On January 5 2012, the Group prepaid GBP5 million (our share) on the debt
facility secured over the Empress State Building, incurring swap termination
charges of GBP0.3 million.
On 9 February 2012, the Group disposed of its investment in The Brewery by
EC&O Limited. Consideration of GBP2 million was deferred for a period not
exceeding 10 years with minimum payments of GBP0.2 million per year. The net
asset value of The Brewery by EC&O Limited at the date of disposal was GBP0.4
million.
On 17 February 2012 the Council for the London Borough of Hammersmith & Fulham
resolved to grant detailed planning permission for the Group`s plans to
redevelop the Seagrave Road car park in Earls Court, West London. Completion
of the conditional joint venture with the Kwok Family Interests is expected to
conclude upon expiry of the three month statutory period which follows
finalisation of the Section 106 agreement.
Since 31 December 2011 The Great Capital Partnership has sold further non-core
properties, raising total proceeds of GBP54 million (GBP27 million Capco`s
share). The market value of these properties at 31 December 2011 was GBP42.5
million.
On 29 February 2012, The Great Capital Partnership announced it had exchanged
contracts to sell GBP150 million (GBP75 million Capco`s share) of properties
to Great Portland Estates plc subject to Crown and banking consent. The market
value of these properties as at 31 December 2011 was GBP142.4 million.
INVESTMENT AND DEVELOPMENT PROPERTIES (UNAUDITED)
1. PROPERTY DATA AS AT 31 DECEMBER 2011
Market Initial Nominal Passing
value yield equivalent rent(1)
GBPm Ownership (EPRA)(1) yield(1) GBPm
Covent Garden 808.0 100% 3.77% 5.25%
Earls Court &
Olympia (2) 573.5 100%
The Great
Capital
Partnership 241.3 50% 3.93% 5.05%
Total investment
and development
properties 1,622.8 50.2
Weighted
average
unexpired Gross area
ERV(1) Occupancy lease(1) million(3)
GBPm rate (EPRA)(1) years sq ft
Covent Garden 45.8 97.5% 8.2 0.8
Earls Court & Olympia (2) 5.9 1.8
The Great Capital
Partnership 14.0 81.9% 7.6 0.7
Total investment and
development properties 65.7 3.3
(1) As defined in Glossary.
(2) Includes the Group`s 50 per cent economic interest in the Empress State
building (GBP102.5 million). Earls Court & Olympia does not report a passing
rent, ERV, occupancy, or lease maturity due to the nature of its exhibition
business.
(3) Area shown is gross area of the portfolio, not adjusted for proportional
ownership.
2. ANALYSIS OF PROPERTY BY USE
31 December 2011 Market Value
Retail Office Exhibition Residentia Total
GBPm GBPm GBPm l GBPm GBPm
Covent Garden 683.0 92.8 - 32.2 808.0
Earls Court &
Olympia - 102.5 471.0 - 573.5
The Great Capital
Partnership 59.5 148.0 - 33.8 241.3
742.5 343.3 471.0 66.0 1,622.8
31 December 2011 ERV
Retail Office Exhibition Residentia Total
GBPm GBPm GBPm l GBPm GBPm
Covent Garden 36.9 7.8 - 1.1 45.8
Earls Court & Olympia - 5.9 - - 5.9
The Great Capital
Partnership 3.5 10.0 - 0.5 14.0
40.4 23.7 - 1.6 65.7
3. ANALYSIS OF CAPITAL RETURN IN THE PERIOD
Like-for-like properties
Revaluation
surplus/
Market Value Market Value (deficit)(1)
2011 2010 2011
GBPm GBPm GBPm Increase
Covent Garden 704.1 621.8 58.4 9.2%
Earls Court &
Olympia 572.3 480.8 46.2 8.8% (2)
The Great Capital
Partnership 241.3 218.1 22.0 9.8%
Total like-for-like
properties 1,517.7 1,320.7 126.6 9.2%
Acquisitions 105.1 - (7.2) -
Disposals - 59.7 - -
Total investment
properties 1,622.8 1,380.4 119.4 8.0%
All properties
Covent Garden 808.0 639.8 51.2 6.9%
Earls Court & Olympia 573.5 480.8 46.2 8.8%
The Great Capital
Partnership 241.3 259.8 22.0 9.8%
Total investment
properties 1,622.8 1,380.4 119.4 8.0%
(1) Revaluation surplus/ (deficit) includes amortisation of lease incentives
and fixed head leases.
(2) Revaluation increase comprises Earls Court & Olympia (up 10.9%) and
Empress State (no movement).
4. ANALYSIS OF INCOME IN THE PERIOD
Like-for-like properties
2011 2010
GBPm GBPm Change
Covent Garden 25.7 24.4 5.3%
Earls Court & Olympia 30.1 29.2 3.1%
The Great Capital Partnership 10.1 10.9 (7.3)%
Like-for-like properties 65.9 64.5 2.2%
Acquisitions 2.0 - -
Disposals 0.9 4.5 -
Like-for-like capital 0.2 - -
Total investment properties 69.0 69.0 -
All properties
Covent Garden 27.8 25.7 8.2%
Earls Court & Olympia 30.2 29.1 3.8%
The Great Capital Partnership 11.0 13.6 (19.1)%
Other - 0.6 -
Total investment properties 69.0 69.0 -
CONSOLIDATED UNDERLYING PROFIT STATEMENT (UNAUDITED)
For the year ended 31 December 2011
2011 2010
GBPm GBPm
Net rental income 69.0 69.0
Other income - 0.1
69.0 69.1
Administration expenses (22.2) (18.6)
Operating profit 46.8 50.5
Finance costs (36.5) (40.3)
Finance income 1.7 1.4
Net finance costs (34.8) (38.9)
Write down of trading property (0.1) (0.1)
Profit before tax 11.9 11.5
Tax on adjusted profit (2.4) (2.3)
Underlying earnings (used for calculation of underlying
earnings per share) 9.5 9.2
Underlying earnings per share (pence) 1.4 1.5
FINANCIAL COVENANTS
Financial covenants on non-recourse debt excluding joint ventures
Loan
outstanding at
31 January
2012(1) LTV
Maturity GBPm Covenant
EC&O Venues (6) 2013 94.3 N/A
Covent Garden London (5),(7) 2016 150.0 70%
Covent Garden London (5),(8) 2017 112.0 70%
Total 356.3
Loan to
31 December Interest Interest
2011 cover cover(3)
Market Value(2) covenant reported
EC&O Venues (6) N/A 150% 214%
Covent Garden London (5),(7) 36% 130% 212%
Covent Garden London (5),(8) 45% 120% 165%
Total
Financial covenants on joint venture non-recourse debt
Loan
outstanding at
31 January
2012(1), (4) LTV
Maturity GBPm Covenant
The Empress State Partnership (9) 2013 69.2 N/A
The Great Capital Partnership (10) 2013 112.5 70%
Total 181.7
Loan to
31 December Interest Interest
2011 cover cover(3)
Market Value(2) covenant reported
The Empress State Partnership (9) N/A 120% 148%
The Great Capital Partnership (10) 47% 120% 132%
Total
(1) The loan values are the actual principal balances outstanding at 31
January 2012, which take into account any principal repayments made in January
2012. The balance sheet value of the loans includes any unamortised fees.
(2) The loan to 31 December 2011 Market Value provides an indication of the
impact of the 31 December 2011 property valuations on the LTV covenants. The
actual timing and manner of testing LTV covenants varies and is loan specific.
(3) Based on latest certified figures, calculated in accordance with loan
agreements, which have been submitted between 31 December 2011 and 31 January
2012. The calculations are loan specific and include a variety of historic,
forecast and in certain instances a combined historic and forecast basis.
(4) 50 per cent of the debt is shown which is consistent with accounting
treatment and the Group`s economic interest.
(5) There are two separate loans on the Covent Garden properties.
(6) Loan facility provided by Irish Bank Resolution Corporation Limited.
(7) Loan facility provided by a consortium of six banks with BNP Paribas
acting as agent.
(8) Loan facility provided by NyKredit Realkredit A/s.
(9) Loan facility provided by a consortium of three banks with Eurohypo AG
acting as agent. LTV covenant removed until maturity.
(10) Loan facility provided by a consortium of four banks with Eurohypo AG
acting as agent.
DIVIDENDS
The Directors of Capital & Counties Properties PLC have proposed a final
dividend per ordinary share (ISIN GB00B62G9D36) of 1.0 pence payable on 21
June 2012.
Dates
The following are the salient dates for payment of the proposed final
dividend:
Sterling/Rand exchange rate struck: 2 May 2012
Sterling/Rand exchange rate and dividend amount in Rand announced: 3 May 2012
Ordinary shares listed ex-dividend on the JSE, Johannesburg: 14 May 2012
Ordinary shares listed ex-dividend on the London Stock Exchange: 16 May 2012
Record date for final dividend in UK and South Africa: 18 May 2012
Dividend payment date for shareholders: 21 June 2012
South African shareholders should note that, in accordance with the
requirements of Strate, the last day to trade cum- dividend will be 11 May
2012 and that no dematerialisation of shares will be possible from 14 May to
18 May 2012 inclusive. No transfers between the UK and South Africa registers
may take place from 2 May to 22 May 2012 inclusive.
Subject to approval at the Company`s Annual General Meeting, the Board intends
to offer an optional scrip dividend scheme which will apply to the 2011 final
dividend.
The above dates are proposed and subject to change.
GLOSSARY
Capco
Capco represents Capital & Counties Properties PLC (also referred to as "the
Company") and all its subsidiary companies, together referred to as "the
Group".
Capital Shopping Centres Group or CSC
Capital Shopping Centres Group represents Capital Shopping Centres Group PLC
(formerly Liberty International PLC) and all its subsidiary companies.
Diluted figures
Reported amounts adjusted to include the effects of potential shares issuable
under employee incentive arrangements.
ECOA
The Earls Court and West Kensington Opportunity Area.
EPRA
European Public Real Estate Association, the publisher of Best Practice
Recommendations intended to make financial statements of public real estate
companies in Europe clearer, more transparent and comparable.
EPRA adjusted, diluted NAV
The net assets as at the end of the year including the excess of the fair
value of trading property over its cost and excluding the fair value of
financial instruments, deferred taxation on revaluations and diluting for the
effect of those shares potentially issuable under employee share schemes
divided by the diluted number of shares at year end.
EPRA adjusted, diluted NNNAV
EPRA diluted NAV adjusted to reflect the fair value of derivatives and to
include deferred taxation on revaluations.
EPRA adjusted earnings per share
Profit for the year excluding gains or losses on the revaluation and sale of
investment and development property, write down on trading property, changes
in fair value of financial instruments and associated close-out costs and the
related taxation on these items divided by the weighted average number of
shares in issue during the period.
ERV (estimated rental value)
The external valuers` estimate of the Group`s share of the current annual
market rent of all lettable space net of any non- recoverable charges, before
bad debt provision and adjustments required by International Financial
Reporting Standards regarding tenant lease incentives.
GPE
Great Portland Estates plc. The Group`s joint venture partner in The Great
Capital Partnership.
Gross income
The Group`s share of passing rent plus sundry non-leased income.
Interest cover ratio (ICR)
Net rental income less administration costs divided by the net finance cost
excluding the change in fair value of derivatives and any exceptional finance
costs.
Interest rate swap
A derivative financial instrument enabling parties to exchange interest rate
obligations for a predetermined period. These are used by the Group to convert
floating rate debt to fixed rates.
Initial yield (EPRA)
Annualised net rent (after deduction of revenue costs such as head rent,
running void, service charge after shortfalls and empty rates) on investment
properties expressed as a percentage of the gross market value before
deduction of theoretical acquisition costs, consistent with EPRA`s net initial
yield.
IPD
Investment Property Databank Ltd, producer of an independent benchmark of
property returns.
ITZA
In Terms of Zone A. ITZA is a method of calculating the floor area of a retail
unit with relation to the frontage and first 20 feet/6.1 metres of depth and
the value relating to that floor area.
Kwok Family Interests
Conditional joint venture partner and major shareholder in a large listed Hong
Kong real estate developer.
LBHF
The London Borough of Hammersmith & Fulham.
Liberty International
Liberty International represents Liberty International PLC (subsequently
renamed Capital Shopping Centres Group PLC) and all its subsidiary companies.
LIBOR
London Interbank Offer Rate
Like-for-like properties
Investment properties which have been owned throughout both periods without
significant capital expenditure in either period, so income can be compared on
a like-for-like basis. For the purposes of comparison of capital values, this
will also include assets owned at the previous balance sheet date but not
necessarily throughout the prior period.
Loan-to-value (LTV)
LTV is the ratio of attributable debt to the market value of an investment
property.
Net rental income
The Group`s share of gross rental income less ground rents, payable service
charge expenses and other non-recoverable charges, having taken due account of
bad debt provisions and adjustments to comply with International Financial
Reporting Standards regarding tenant lease incentives.
Nominal equivalent yield
Effective annual yield to a purchaser on the gross market value assuming rent
is receivable annually in arrears, and that the property becomes fully
occupied and that all rents revert to the current market level (ERV) at the
next review date or lease expiry.
Occupancy rate (EPRA)
The ERV of let and under offer units expressed as a percentage of the ERV of
let and under offer units plus ERV of un-let units, excluding units under
development.
Passing rent
The Group`s share of contracted annual rents receivable at the balance sheet
date. This takes no account of accounting adjustments made in respect of rent-
free periods or tenant incentives, the reclassification of certain lease
payments as finance charges or any irrecoverable costs and expenses, and does
not include excess turnover rent, additional rent in respect of unsettled rent
reviews or sundry income such as from car parks etc. Contracted annual rents
in respect of tenants in administration are excluded.
Pro forma
The pro forma basis as outlined on page 140 of the Group`s prospectus dated 12
March 2010.
REIT
Real Estate Investment Trust.
Section 34A Housing Act 1985
An amendment to the 1985 Act to enable tenants to take control of the
management of their properties. The amendment establishes a procedure enabling
an organised group of tenants to require a local authority to transfer their
homes to a housing association or similar body registered with the Tenant
Services Authority (the social housing regulator). Tenants may form such a
body and seek the transfer of the property to that body. The legislation only
applies to social rented tenants of local authorities. It does not apply to
tenants of housing associations even where the ultimate owner may be a local
authority.
Section 34A requires implementation by regulations yet to come into effect.
These regulations will be enacted by the Department of Communities and Local
Government. No regulations have yet been made.
Tenant (or lease) incentives
Any incentives offered to occupiers to enter into a lease. Typically
incentives are in the form of an initial rent-free period and/or a cash
contribution to fit-out the premises. Under International Financial Reporting
Standards the value of incentives granted to tenants is amortised through the
income statement on a straight-line basis over the lease term.
Total property return
Capital growth including gains and losses on disposals plus rent received less
associated costs, including ground rent.
Total return
The growth in EPRA adjusted, diluted NAV per share plus dividends per share
during the period.
Total shareholder return
The increase in the price of an ordinary share plus dividends during the
period assuming re-investment in ordinary shares.
Underlying profit
Profit for the year excluding impairment charges, net valuation gains/losses
(including profits/losses on disposals), net refinancing charges and swap
termination costs.
Weighted average unexpired lease term
The unexpired lease term to lease expiry weighted by ERV for each lease.
Date: 29/02/2012 09:00:09 Supplied by www.sharenet.co.za
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