Capital & Regional Regulatory News (CAL)

21 Sep 2005 07:01

Capital & Regional plc21 September 2005 21 September 2005 CAPITAL & REGIONAL PLC INTERIM RESULTS FOR THE SIX MONTHS TO 30 JUNE 2005 Capital & Regional plc, the co-investing property asset manager, today announcesits unaudited interim results for the six months ended 30 June 2005. Highlights • Property under management increased from £4.0bn to £4.6bn over the six month period (June 2004: £3.2bn) • Total return on equity before exceptional items was 12.0%, despite removal of SDLT relief in disadvantaged areas, for the six month period (June 2004: 15.6%*) • Adjusted fully diluted Net Asset Value per share increased by 12.5% to 799p over the six month period (December 2004: 710p) • Recurring pre-tax profit £9.8m** (June 2004: £7.8m) • Interim dividend increased by 40% to 7p (June 2004: 5p) • Loss before tax of £27.1m after exceptional items of £46.9m (June 2004: £17.4m profit). Commenting on the results, Martin Barber, Chief Executive said: "There is no doubt that some parts of the retail sector have been finding thelast six months tough. However, where there have been failures we have quicklyfound replacement tenants. We know that our occupiers benefit from ourmanagement approach. The investment market remains strong, our business modelis working well, and I am confident that 2005 will prove to be another very goodyear." For further information:Martin Barber, Chief Executive Tel: 020 7932 8000William Sunnucks, Group Finance Director Tel: 020 7932 8000Michael Sandler / James Benjamin, Hudson Sandler Tel: 020 7796 4133 * Note 12** Note 2 Chief Executive's statement Our business has continued to perform strongly during the first six months. Thefunds have continued to grow, property by property business plans are beingimplemented and the returns have been highly satisfactory. Return on equity, before exceptional items, was 12.0% for the six month period(see note 12) and our adjusted fully diluted NAV per share grew from 710p to799p. Drivers of total return %Underlying return 8.2Yield shift 8.1No SDLT relief in disadvantaged areas -4.3Total return before exceptional items 12.0 Our return on equity, before exceptional items, would have been 16.2% had it notbeen for the Government's decision to remove Stamp Duty Land Tax ("SDLT") relieffrom disadvantaged areas. Our valuers immediately deducted 4% or £21m from thevalue of all our property interests in disadvantaged areas reflecting the needfor the purchaser to pay the SDLT. Our recurring pre-tax profit has increased from £7.8m to £9.8m or 13.8p pershare. This measure, which excludes the impact of performance fees andassociated variable costs, gives us confidence to increase our interim dividendfrom 5p to 7p. Our profit before tax and exceptional items is £20m, before an exceptionalcharge of £47m. This is because we have been buying back our ConvertibleUnsecured Loan Stock at a higher price than the original issue price, andwriting off the premium. The transaction is beneficial to shareholders becausethe number of CULS which can be converted into ordinary shares falls, and thepremium paid is tax deductible. The Funds Fund performance in period to 30 June 2005 (6 months) Geared return Ungeared return % % Mall 6.70 6.00Junction 8.13 6.60X-Leisure 8.20 6.30 Mall Fund: whilst there is no doubt that growth in retail sales both in volumeand value are weaker than 2004, we have been generally pleased with theperformance of our shopping centres. Interestingly, quality space that hasbecome available either through increasing corporate activity or retailerfailure has been readily taken up. While some high profile tenants havesuffered, the occupier market is selective and dynamic. Our vacancies havegrown from 3.5% to 5.0%, of which almost 40% are deliberate and are aconsequence of developments and reconfigurations associated with our active Mallbusiness plans. The Fund has recently welcomed 3 new institutional investors, making a total of32 investors. We continue to see clear evidence of the benefits of scale. Thiswas particularly evident in the first half of the year when the quality, scaleand diversity of the Mall's tenant base enabled £1,066,000,000 of its debt to besecuritised as Mall Bonds at a much reduced interest margin of 18bps. Theresulting saving of £6m per annum will flow through directly to investors asincreased distributions. The entire issue was rated triple A by all threerating agencies, which re-affirms the quality of both the portfolio and the Mallbusiness. During the half year the Fund grew from £2.1billion to £2.3billion, due to theacquisition of a shopping centre at Main Square Camberley and valuation upliftstotalling £70m (+3.3%). This surplus was partly caused by yield shift of around23bps. As with all our funds the surplus was reduced by the removal of SDLTrelief for disadvantaged areas which reduced the valuations of eight of ourcentres by £36.4m; 41% of the portfolio by value, compared to 12% of theBenchmark. Junction Fund: during the half year the Junction Fund acquired two furtherretail parks in Telford and Slough, and has continued its active management anddevelopment programme. As a result of new lettings, vacancy rates have fallenby (50%). In particular work has started on site at Wembley and Thurrock and wecontinue with site assembly and pre-letting work at Oldbury. The main retailterrace at Hull is expected to be complete in September as is phase 2 of theAylesbury development. The Fund's performance was disproportionately affected by the removal of SDLTexemption for properties in disadvantaged areas. 49% of its properties weredisadvantaged compared to 21% of the IPD index. The resultant impact on valueamounted to £20.3m. The high calibre of the portfolio should enable us tooutperform the market in the tougher market conditions that we are anticipating. X-Leisure Fund: the Fund has been growing strongly this year. It has welcomedfour new investors and acquired new leisure parks in Aberdeen and Cambridge.Value has been added as business plans have been implemented, in particular atStar City in Birmingham and Tower Park in Poole. The ability to work closelywith tenants and invest relatively small amounts of new capital at the parks isbeginning to show good returns. Fund investors have also benefited from increased market recognition of leisureproperty as an attractive asset class. This has driven the favourable yieldshift during the half year which has continued into the second half. Furtherevidence of the strength of the investment market is provided by the 8.2% totalreturn achieved in the first half, despite the £7.2m adverse impact of theremoval of SDLT relief for properties in disadvantaged areas. The portfolio is becoming increasingly focused on assets which allow the C&Rmanagement team to add real value. Three health clubs, which are good but "dry"investments, have been sold. Other UK property ownership activities Xscapes: we now have three Xscape projects. • Xscape Milton Keynes is five years old and the first rent reviews arein the process of settlement. Initial indications are that a substantial risein rental income will be achieved. • Castleford has now been operating for 18 months, and is trading well.Footfall during the first half was 27% up on the same period last year. • Our third Xscape at Braehead is under construction, and is scheduledfor completion in Spring 2006. Pre-lets have been very encouraging, with 68% ofthe rental income now legally committed. Swansea Retail Park: this wholly owned retail park development is now open andtrading strongly. The capital value is now £89m compared to total build costsof £65m and we believe that there are opportunities for further increases invalue. Glasgow Fort: we have received a further £2m from our share of this jointventure development outside Glasgow which has been sold to the Hercules Fund.The sale agreement entitles us to various further sums as certain milestones areachieved. Hemel Hempstead: this leisure facility has been acquired from Luminar Leisurefor £17m with a lease in place which can be terminated as developmentopportunities arise. The purchase was completed on 7 September 2005 and we arecurrently exploring the possibility of a mixed retail park and leisure schemewith the local authority. Great Northern: this large listed former warehouse development is expected tocome to life when London Clubs International opens its casino operation there inearly 2006. All regulatory approvals have now been received, and building workto accommodate them has now started. The remainder of the vacant space is underoffer to a large nightclub operator. German portfolio: On 20 July 2005 we announced the formation of a joint venture with the HahnGroup and the acquisition of a portfolio of 8 out of town retail centres inGermany for €110m, of which €33m had been acquired before 30 June. Since thenwe have completed the purchase of one other similar property and the totalportfolio now stands at €124m. These properties have strong positions in their local markets due to tightplanning restrictions on further out of town retail development. They typicallyyield around 7% after providing for landlord costs, and are financed with 70% to80% bank debt on which the interest rate on the portfolio to date can be fixedat under 4%. They are anchored by major German retailers such as Metro, Reweand Edeka. We believe that property is a local business, and that management is key. Forthis reason we have invested considerable time and effort into building a strongworking relationship with the Hahn Group, which will handle the local propertymanagement and will also have a 10% stake in the portfolio. The Hahn Group manages 120 single asset closed ended funds with a value of€1.7billion, and there is potential for C&R to make further purchases as thefunds reach the end of their planned lives. The earnings businesses Property Management: our property management business produced £15.6m profitbefore tax during the first half year. All three funds are earning performancefees, which are included at the half year on an estimated basis. Ourperformance related overhead is set against the performance fees, while thefixed overhead is set against our very stable management fee income (see note2). Performance fees 30 June 30 June 30 Dec 2005 2004 2004 £m £m £m Mall 12.11 9.20 22.8Junction 4.84 2.00 7.3X-Leisure 0.46 - 1.1 Total 17.41 11.20 31.20 Snozone: this business is building up a reputation for operating profitable skislopes. It uses little capital, and has continued to generate a useful earningsstream in the first half. Financials Gearing: we measure gearing on a see through basis, including our share of fundand JV debt although it is not shown on the balance sheet. On this basis ourdebt was 125% of our equity, slightly up since December 2004 due to the CULSrepurchase programme as well as acquisitions in the Junction fund and Germany. Changes to debt structure: the Mall securitisation has reduced the weightedaverage cost of our debt from 5.82% to 5.41%. At the same time substantial newinterest rate swaps were entered into, and 82% of our see through debt is noweffectively fixed for 56 months, up from 29 months in December 2004. Our £1mshare of the unamortised setup costs for the previous bank facility were writtenoff in the second quarter. Share issues: we raised £49.6 million through the issue of new share capitalduring the first half, which was used to pay off debt incurred in buying backthe CULS. CULS repurchases: we spent £62.8 million on repurchasing CULS during the firsthalf year. The financial impact has been explained above. IFRS: the Group's results for the period commencing 31 December 2005 will bethe first reported under International Financial Reporting Standards. Outlook Market conditions are undoubtedly tough for retailers, many of whom haveannounced reductions in year on year sales. Our management approach is toprovide very strong marketing and promotional support at the property levelwhich increases footfall and dwell time and takes an increased proportion of thespend within the catchment. Our shopping centres have fared well as a result of this and we have found thatvacancies created by tenant failures have generally been quickly taken up, oftenat higher rental levels. We have not experienced any significant problems in our leisure properties andoverall are seeing increased rental values across our portfolio. When one addsto this the regeneration efforts of our teams in reconfiguring our properties toaccommodate current market needs, our outlook is positive. The investment market remains strong for the right retail property, and we haveseen investment yields fall by a further 0.2% over the last six months. We arewell aware that investment yields cannot continue falling indefinitely, and weare also focusing on the size and quality of our recurring cashflows, which willstand the business in good stead in a tougher economic climate. Our business model is working well and we are looking forward to further growthduring the remainder of 2005. INDEPENDENT REVIEW REPORT TO CAPITAL & REGIONAL PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2005 which comprises the consolidated profit andloss account, the consolidated statement of total recognised gains and losses,the reconciliation of movements in equity shareholders' funds, the consolidatedbalance sheet, the summary cash flow statement and related notes 1 to 19. Wehave read the other information contained in the interim report and consideredwhether it contains any apparent misstatements or material inconsistencies withthe financial information. This report is made solely to the company in accordance with Bulletin 1999/4issued by the Auditing Practices Board. Our work has been undertaken so that wemight state to the company those matters we are required to state to them in anindependent review report and for no other purpose. To the fullest extentpermitted by law, we do not accept or assume responsibility to anyone other thanthe company, for our review work, for this report, or for the conclusions wehave formed. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures are consistent withthose applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin1999/4 issued by the Auditing Practices Board for use in the United Kingdom. Areview consists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Standards on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2005. Deloitte & Touche LLPChartered AccountantsLondon 20 September 2005 Consolidated profit and loss account (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Period to 30 June 30 June 30 December 2005 2004 2004 Notes £000 £000 £000 Turnover: Group income and share of joint ventures' turnover 38,836 28,494 69,030Less: Share of joint ventures' turnover (4,054) (3,328) (6,658)Group turnover 34,782 25,166 62,372 Cost of sales (3,722) (3,935) (7,008)Gross profit 31,060 21,231 55,364 Profit on sale of trading and development properties 3 3,119 40 327 Exceptional Group restructuring costs - - (1,994) Other administrative costs (14,171) (13,749) (27,923) Group operating profit 20,008 7,522 25,774 Share of operating profit in joint ventures and associates 9a 17,282 15,364 30,574 Total operating profit 37,290 22,886 56,348 Income from other fixed asset investments - - 445 Profit/(loss) on sale of investment properties and 233 185 (1,771)investments 1,971 9,688 13,779Profit on sale of investment properties in associates andjoint ventures Profit on ordinary activities before interest 39,494 32,759 68,801 Interest receivable and similar income 1,176 709 1,872Interest payable and similar charges 4- Group (4,569) (3,278) (7,389) - Share of associates (13,279) (9,664) (21,533) - Share of joint ventures (2,979) (3,089) (7,493) - Exceptional premium paid on buy back of Convertible (46,918) - (8,217)Unsecured Loan Stock (67,745) (16,031) (44,632) (Loss)/profit on ordinary activities before taxation 2 (27,075) 17,437 26,041 Taxation credit/(charge) on ordinary activities 5 9,387 (4,495) (5,852) (Loss)/profit on ordinary activities after taxation (17,688) 12,942 20,189 Equity dividends paid and payable (4,880) (3,117) (9,016)(Loss)/profit retained in the period 13 (22,568) 9,825 11,173 (Loss)/earnings per share 6 (26.3p) 20.9p 32.2p (Loss)/earnings per share - diluted 6 (26.3p) 18.1p 28.4p Consolidated statement of total recognised gains and losses (Unaudited) (Unaudited) (Audited) 6 months to Restated Period to 30 June 6 months to 30 December 2005 30 June 2004 2004 Note £000 £000 £000 Profit before tax and exceptional items 19,843 17,437 36,252Exceptional items (46,918) - (10,211) _______ ______ _______ (Loss)/profit before tax (27,075) 17,437 26,041Movements in revaluation reserve:Revaluation of investment properties 7,427 7,142 16,371Revaluation of other fixed assets 390 240 280Revaluation of properties held in joint venturesand associates 36,115 42,502 105,358Gain on deemed disposals 114 - - Total gains and losses before tax 16,971 67,321 148,050 Tax shown in profit and loss account 9,387 (4,495) (5,852)Tax on revaluation surplus realised - (5,677) (6,185)Total tax charge 9,387 (10,172) (12,037) Total recognised gains and losses for the period 26,358 57,149 136,013 Return on equity for the period 12 5.3% 15.6% 37.0%Return on equity before exceptional items for the period 12 12.0% 15.6% 39.0% Reconciliation of movements in equity shareholders' funds (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Year to 30 June 30 June 31 December 2005 2004 2004 £000 £000 £000 (Loss)/profit on ordinary activities after taxation (17,688) 12,942 20,189Equity dividends paid and payable (4,880) (3,117) (9,016)(Loss)/profit retained in the period (22,568) 9,825 11,173Share capital and share premium issued in period (net of 49,548 1,437 1,870expenses)Other recognised gains and losses relating to the period 44,046 44,207 115,824Purchase of own shares - (3,285) (3,285)LTIP credit in respect of profit and loss charge 1,100 988 1,829Net increase in equity shareholders' funds 72,126 53,172 127,411Opening equity shareholders' funds 494,537 367,126 367,126Closing equity shareholders' funds 566,663 420,298 494,537 Consolidated balance sheet (Unaudited) (Unaudited) (Audited) As at As at As at 30 June 30 June 30 December 2005 2004 2004 Notes £000 £000 £000 Fixed assetsIntangible assets 7 11,603 12,754 12,179Investment property assets 8 112,523 60,547 82,938Other fixed assets 13,018 12,533 12,500 137,144 85,834 107,617Investment in joint ventures: share of gross assets 155,672 152,631 150,644 share of gross liabilities (106,511) (112,752) (103,902) 9c 49,161 39,879 46,742 Investment in associates 9b 506,543 418,311 477,092 692,848 544,024 631,451 Current assetsProperty assets 8 15 8,184 8,314Debtors - amounts falling due after more than one year 21,205 11,155 3,904Debtors - amounts falling due within one year 56,636 23,896 46,350Cash at bank and in hand 5,570 4,390 4,427 83,426 47,625 62,995 Creditors: amounts falling due within one year (44,463) (35,555) (50,404) Net current assets 38,963 12,070 12,591 Total assets less current liabilities 731,811 556,094 644,042 Creditors: amounts falling due after more than one year (159,579) (108,819) (127,302)Convertible Subordinated Unsecured Loan Stock (4,580) (24,543) (20,372)Provision for liabilities and charges - (2,434) (1,831) Net assets 2 567,652 420,298 494,537 Capital and reservesCalled up share capital 13 7,068 6,381 6,404Share premium account 13 216,235 166,941 167,351Revaluation reserve 13 289,549 175,042 247,197Other reserves 13 1,849 164 1,145Profit and loss account 13 51,962 71,770 72,440 Equity shareholders' funds 566,663 420,298 494,537 Equity minority interests 14 989 - - Capital Employed 567,652 420,298 494,537 Net assets per share 11 816p 677p 793p Net assets per share - adjusted fully diluted 11 799p 596p 710p Summary cash flow statement (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Period to 30 June 30 June 30 December 2005 2004 2004 Notes £000 £000 £000 Net cash inflow/(outflow) from operating activities 15 5,829 (8,085) 10,950Distributions received from joint ventures 2,760 23,596 23,852Distributions received from associates 3,150 6,295 9,137Returns on investments and servicing of finance (4,478) (4,080) (9,346)Taxation 7 (6,349) (9,613)Capital expenditure and financial investment (13,398) 14,626 7,757Acquisitions, disposals and exceptional items (3,665) (15,603) (20,278)Equity dividends paid (5,900) (3,113) (6,226)Cash (outflow)/inflow before financing (15,695) 7,287 6,233Financing:Issue of ordinary share capital 49,548 1,437 1,870Purchase of own shares - (3,473) (3,285) Purchase of Convertible Unsecured Loan Stock (62,755) - (12,433)Cash inflow/(outflow) from debt financing 30,045 (5,336) 7,567Increase/(decrease) in cash in the period 1,143 (85) (48) Reconciliation of net cash flow to movement in net debt (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Period to 30 June 30 June 30 December 2005 2004 2004 £000 £000 £000 Increase/(decrease) in cash in the period 1,143 (85) (48)Cash (outflow)/inflow from debt financing (14,208) 5,336 (3,351)Change in net debt resulting from cash flows (13,065) 5,251 (3,399)Net debt at beginning of period (134,238) (130,839) (130,839)Net debt at end of period (147,303) (125,588) (134,238) Analysis of net debt (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Period to 30 June 30 June 30 December 2005 2004 2004 £000 £000 £000 Cash at bank 5,570 4,390 4,427Debt due within one year (200) (1,700) (200)Debt due after one year (152,673) (128,278) (138,465)Net debt (147,303) (125,588) (134,238) At 31 December 2004 Cash flows At 30 June 2005 £000 £000 £000Cash at bank and in hand 4,427 1,143 5,570Debt due within one year (200) - (200)Debt due after one year (118,039) (30,045) (148,084)Convertible Unsecured Loan Stock (20,426) 15,837 (4,589)Total (134,238) 13,065 (147,303) Notes to the interim results 1. Accounting policies The interim financial information has been prepared on the basis of theaccounting policies set out in the annual report for the period ended 30December 2004. The comparative figures represent the Group's results and cash flows for theperiod from 1 January 2004 to 30 June 2004 and for the period from 1 January2004 to 30 December 2004. The comparative figures for the period ended 30 December 2004 do not constitutestatutory accounts but have been extracted from the statutory accounts for thatyear, which have been filed with the Registrar of Companies. The auditors'report in respect of the period ended 30 December 2004 is unqualified and didnot contain a statement under Companies Act 1985 sections 237 (2) or (3). 2. Segmental analysis 6 months to Property Property Exceptional 30 June 2005 6 months to Management Investment Snozone and Other Total 30 June 2004 £000 £000 £000 £000 £000 £000 Management fees 10,929 10,929 8,739Net rents 25,056 25,056 20,360Snozone income 4,741 4,741 4,444Management cost (5,539) (1,464) (3,701) (10,704) (9,822)Net interest expense (19,651) (19,651) (15,323)Goodwill amortisation (576) (576) (575)Recurring pre-tax profit 4,814 3,941 1,040 9,795 7,823 Performance fees 17,410 17,410 11,155Cost of Performance fees (6,073) (6,073) (4,408)Variable management expense (6,591) (6,591) (5,836)Profit on disposals 5,302 5,302 9,913Exceptional items (46,918) (46,918) (1,210) Profit/(loss) before tax 15,633 3,170 1,040 (46,918) (27,075) 17,437Revaluation surplus 44,046 44,046 49,884Taxation (2,361) (1,993) (335) 14,076 9,387 (10,172) Total return 13,272 45,223 705 (32,842) 26,358 57,149 Net assets/(liabilities) at 47,040 520,642 (30) - 567,652 420,29830 June 2005 CRPM earns performance fees on the outperformance of the Funds. The performancefees earned in the period to 30 June 2005, are £17.4m (30 June 2004: £11.2m).Capital & Regional's property investment business bears a share of the cost ofthe performance fees being £6.1m (30 June 2004: £4.4m). Performance feesrecognised in the period to 30 June 2005, are receivable by CRPM on 1 December2006. Included within property investment is £6.8m of net assets and £0.1m of profitbefore tax arising from operations in Germany. The remainder of the Group'soperations are in the UK. The performance fee income reflected is consistent with the cost of performancefees in the Mall LP, Junction LP and X-Leisure LP accounting shown in note 9b. The indirect expenses are not split between operations because the directorsbelieve it is not practical. 3. Profit on sale of trading and development properties (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Period to 30 June 30 June 30 December 2005 2004 2004 £000 £000 £000 Net sale proceeds 11,819 - -Cost of sales (8,700) 40 327Profit on sale 3,119 40 327 4. Interest payable and similar charges (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Period to 30 June 30 June 30 December 2005 2004 2004 £000 £000 £000 Bank loans and overdrafts 4,138 3,462 7,342Other loans 431 877 1,612 4,569 4,339 8,954Capitalised in period - (1,061) (1,565) 4,569 3,278 7,389Exceptional premium paid on buyback of CULS 46,918 - 8,217 Share of associates 13,279 9,664 21,533Share of joint ventures 2,979 3,089 7,493 67,745 16,031 44,632 5. Taxation The taxation charge for the period is based on an estimate of the likelyeffective tax rate for the current year. (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Period to 30 June 30 June 30 December 2005 2004 2004 £000 £000 £000 Current taxUK corporation tax 648 4,780 7,369Adjustment in respect of prior years 424 (518) (1,147)Share of joint ventures tax - - -Total current tax 1,072 4,262 6,222Deferred tax Origination and reversal of timing differences (10,459) 233 (370)Total taxation (credit)/charge (9,387) 4,495 5,852Unprovided deferred tax 7,505 2,952 4,200 The loss for the period to 30 June 2005 arises from the exceptional costsincurred in the repurchase of the CULS. We have recognised a deferred tax assetof £7.7m relating to the exceptional loss, which is expected to be utilised overthe next two years. During 2004, a significant part of the Group's property interests wastransferred offshore and the Auchinlea Partnership sold its interest in GlasgowFort. The Group has been advised that no capital gains tax liability arises onthese transactions, although the relevant computations have yet to be submittedor agreed. The amount disclosed as an unprovided deferred tax liability in theaccounts at 31 December 2003 in relation to these assets was £32.2 million. 6. (Loss)/earnings per share Six months to 30 June 2005 (Unaudited) (Loss) Number of (Loss) £000 Shares per shareBasic and diluted (17,688) 67,214,633 (26.3p) Six months to 30 June 2004 (Unaudited) Earnings Number of Earnings £000 shares per shareBasic 12,942 61,830,522 20.9pExercise of share options - 694,139Conversion of Convertible Unsecured Loan Stock 669 12,670,912Diluted 13,611 75,195,573 18.1p Period to 30 December 2004 (Audited) Earnings Number of Earnings £000 shares per shareBasic 20,189 62,727,988 32.2pExercise of share options - 625,543Conversion of Convertible Unsecured Loan Stock 1,250 12,183,118Diluted 21,439 75,536,649 28.4p The calculation includes the full conversion of the Convertible Unsecured LoanStock where the effect on earnings per share is dilutive. Own shares held areexcluded from the weighted average number of shares. The Convertible Unsecured Loan Stock charge added back to give the dilutedearnings figures is net of tax at the effective tax rate for the year. 7. Intangible assets GoodwillCost £000 At 31 December 2004 and 30 June 2005 14,492 AmortisationAt 31 December 2004 2,313Charge for the period 576At 30 June 2005 2,889 Net book valueAt 30 June 2005 11,603At 31 December 2004 12,179 8. Wholly owned property assets Investment Other fixed Trading Total property property property property assets assets assets assets £000 £000 £000 £000Cost or valuationAs at 31 December 2004 82,938 12,000 8,314 103,252Refurbishment and development expenditure (964) - 12 (952) Amortisation of short leasehold properties (134) (40) - (174)Acquisitions 23,256 - - 23,256Disposals - - (8,311) (8,311) Revaluation 7,427 390 - 7,817As at 30 June 2005 112,523 12,350 15 124,888 The property assets were valued at 30 June 2005, as follows: Valuer Basis of valuation £000 Group properties DTZ Debenham Tie Leung Market value 4,406 CB Richard Ellis Limited Market value 990 Directors' valuations Market value 22,801 King Sturge Market value 89,120 117,317Less: unamortised tenant incentives (4,794)Total fixed property assets (as per balance 112,523sheet)Other fixed assets DTZ Debenham Tie Leung Market value 12,350Total property assets 124,873 Properties held by joint venturesXscape Milton Keynes Partnership DTZ Debenham Tie Leung Market value 91,300Xscape Castleford Partnership DTZ Debenham Tie Leung Market value 70,500 Properties held by associatesThe Mall Limited Partnership DTZ Debenham Tie Leung Market value 2,316,000The Junction Limited Partnership King Sturge Market value 1,264,000X-Leisure Limited Partnership Jones Lang LaSalle Market value 634,000 The independent property valuations as at 30 June 2005, were performed byqualified professional valuers working for DTZ Debenham Tie Leung, CharteredSurveyors and CBRE Limited, Chartered Surveyors and King Sturge, CharteredSurveyors. The properties were valued on the basis of market value, with the exception of10 Lower Grosvenor Place, London SW1, which was appraised on the basis ofexisting use value. All valuations were carried out in accordance with the RICSAppraisal and Valuation standards. Included within directors' valuations is an amount of £22,581,000 being thevalue of the Hahn portfolio, which was acquired shortly before 30 June 2005. 9. Associates and joint ventures 9a. Share of operating profit (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Period to 30 June 30 June 30 December 2005 2004 2004 £000 £000 £000 Associates 14,617 13,182 26,181Joint ventures 2,665 2,182 4,393 17,282 15,364 30,574 9b. Associates (Unaudited) (Unaudited) The Mall The Junction X-Leisure Total to 30 Total to 30 LP LP LP June 2005 June 2004 £000 £000 £000 £000 £000 Profit and loss account (100%)Turnover 72,353 18,494 20,348 111,195 84,533 Property expenses (12,960) (608) (1,924) (15,492) (10,282)Net rental income 59,393 17,886 18,424 95,703 74,251 Fund and property management expenses (25,258) (9,031) (2,265) (36,554) (24,467) Administrative expenses (600) (584) (248) (1,432) (1,344) Share of joint venture's operating profit 4,327 1,488 - 5,815 1,798Operating profit 37,862 9,759 15,911 63,532 50,238 (Loss)/profit on disposal of investment (51) 383 89 421 57propertiesNet interest payable (28,718) (12,372) (12,735) (53,825) (35,495)Profit/(loss) before and after tax (100%) 9,093 (2,230) 3,265 10,128 14,800 Balance sheet (100%)Investment properties and joint ventures 2,313,894 1,254,854 632,961 4,201,709 2,917,657Current assets 98,392 35,176 42,619 176,187 138,732Current liabilities (107,158) (38,743) (32,433) (178,334) (220,643)Borrowing due in more than one year (1,125,729) (633,998) (385,278) (2,145,005) (1,292,551)Net assets (100%) 1,179,399 617,289 257,869 2,054,557 1,543,195 C&R interest at period end 26.31% 27.32% 10.81%Group share ofOperating profit 10,195 2,666 1,756 14,617 13,182 (Loss)/profit on disposal of investment (14) 105 10 101 16propertiesNet interest payable (7,736) (3,380) (1,406) (12,522) (9,173)Profit/(loss) for the period 2,445 (609) 360 2,196 4,025Revaluation for the period 16,399 13,984 1,237 31,620 40,164 Investment properties and joint ventures 608,786 342,826 68,423 1,020,035 763,838 Current assets 25,887 9,610 4,607 40,104 35,972 Current liabilities (28,194) (10,584) (3,506) (42,284) (41,381)Borrowing due in more than one year (296,179) (173,208) (41,649) (511,036) (339,824)Associate net assets 310,300 168,644 27,875 506,819 418,605 Unrealised profit on sale of property to (276) - - (276) (294)associateGroup share of associate net assets 310,024 168,644 27,875 506,543 418,311 9c. Joint ventures Xscape Xscape Xscape Milton Keynes Castleford Braehead Auchinlea Partnership Partnership Partnership Partnership £000 £000 £000 £000Profit and loss account (100%)Turnover 2,323 1,701 - 689 Property expenses (429) (881) - (43)Net rental income 1,894 820 - 646 Fund and property management expenses (100) (100) - - Administrative expenses (84) (66) - (19)Operating profit 1,710 654 - 627 Profit on disposal of investment properties - - - 3,742Net interest payable (1,579) (1,572) - (334)Profit/(loss) before tax 131 (918) - 4,035 Taxation and minority interests 105 - - -Profit/(loss) after tax (100%) 236 (918) - 4,035Balance sheet (100%)Investment properties 91,048 67,058 27,647 -Current property assets - - - -Current assets 3,604 5,398 1,061 12,994Current liabilities (3,165) (4,063) (5,554) (6,677)Borrowing due in more than one year (46,800) (48,793) (14,658) -Net assets (100%) 44,687 19,600 8,496 6,317 C&R interest at period end 50% 66.7% 50% 50%Group share ofTurnover 1,161 1,134 - 345Operating profit 855 436 - 314 Profit on disposal of investment properties - - - 1,871Net interest payable (789) (1,048) - (167)Profit/(loss) before tax 66 (612) - 2,018 Taxation and minority interests 52 - - -Profit/(loss) after tax 118 (612) - 2,018Revaluation for the period 3,456 1,039 - - Investment properties 45,524 44,728 13,824 - Current property assets - - - - Current assets 1,802 3,600 530 6,497 Current liabilities (1,582) (2,717) (2,777) (3,338) Borrowing due in more than one year (23,400) (32,544) (7,329) -Group share of joint venture net assets 22,344 13,067 4,248 3,159 (Unaudited) (Unaudited) Total Total Morrison Merlin Others to 30 June 2005 to 30 June 2004 £000 £000 £000 £000Profit and loss account (100%)Turnover 2,827 - 7,540 6,288 Property expenses (665) - (2,018) (1,685)Net rental income 2,162 - 5,522 4,603 Fund and property management expenses - - (200) (100) Administrative expenses (51) 12 (208) (291)Operating profit 2,111 12 5,114 4,212 Profit on disposal of investment properties - - 3,742 19,343Net interest (payable)/receivable (1,815) 10 (5,290) (5,545)Profit before tax 296 22 3,566 18,010 Taxation and minority interests - - 105 (1,400)Profit after tax (100%) 296 22 3,671 16,610 Balance sheet (100%)Investment properties - - 185,753 140,263Current property assets 72,500 193 72,693 72,500Current assets 4,832 511 28,400 69,913Current liabilities (3,088) (654) (23,201) (51,806)Borrowing due in more than one year (62,500) - (172,751) (156,615)Net assets (100%) 11,744 50 90,894 74,255 C&R Interest at period end 50%Group share ofTurnover 1,414 - 4,054 3,311Operating profit 1,055 5 2,665 2,182 Profit on disposal of investment properties - - 1,871 9,672Net interest (payable)/receivable (907) 13 (2,898) (3,026)Profit before tax 148 18 1,638 8,828 Taxation and minority interests - - 52 (700)Profit after tax 148 18 1,690 8,128Revaluation for the period - - 4,495 2,338 Investment properties - - 104,076 80,382 Current property assets 36,250 97 36,347 36,250 Current assets 2,416 404 15,249 35,999 Current liabilities (1,365) (209) (11,988) (26,543) Borrowing due in more than one year (31,250) - (94,523) (86,209)Group share of joint venture net assets 6,051 292 49,161 39,879 10. Convertible Subordinated Unsecured Loan Stock (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Period to 30 June 30 June 30 December 2005 2004 2004 £000 £000 £000 At beginning of the period 20,426 24,642 24,642CULS purchased and cancelled in the period (15,837) - (4,216) 4,589 24,642 20,426Unamortised loan issue costs due after one year (9) (99) (54) 4,580 24,543 20,372Unamortised loan issue costs due within one year (91) (91) (91) 4,489 24,452 20,281 The Group has made the following CULS repurchases (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Period to 30 June 30 June 30 December 2005 2004 2004 £000 £000 £000 Total repurchase cost 62,755 - 12,433Nominal value repurchased (15,837) - (4,216)Exceptional loss 46,918 - 8,217 The Convertible Subordinated Unsecured Loan Stock ("CULS") may be converted bythe holders of the stock into 51.42 (2004: 51.42) ordinary shares per £100nominal value CULS in any of the years 1997 to 2015 inclusive, representing aconversion price of 194p (2004: 194p) per ordinary share. The Company has theright to redeem at par the CULS in any year from 2006 to 2016. The CULS areunsecured and are subordinated to all other forms of unsecured debt but rank inpriority to the holders of the ordinary shares in the Company. The CULS carryinterest at an annual rate of 6.75%, payable in arrears on 30 June and 30December in each year. In accordance with FRS 4 "Financial instruments" the CULS are shown net of itsunamortised loan issue costs. In accordance with FRS 4 "Financial instruments" the CULS are shown net of itsunamortised loan issue costs. 11. Net assets per share As at 30 June 2005 (Unaudited) Net assets Number of Net assets £000 shares per share As per the balance sheet 566,663 70,679,578Own shares held (1,244,771) Net assets per share 566,663 69,434,807 816pConversion of CULS (net of unamortised issue costs) 4,489 2,359,755Exercise of share options 1,691 702,071Capital allowances deferred tax provision 6,416 - Adjusted fully diluted 579,259 72,496,633 799p As at 30 June 2004 (Unaudited) Net assets Number of Net assets £000 shares per share As per the balance sheet 420,298 63,810,345Own shares held - (1,688,411) Net assets per share 420,298 62,121,934 677pConversion of CULS (net of unamortised issue costs) 24,449 12,670,912Exercise of share options 2,329 1,011,304Capital allowances deferred tax provision 4,910 - Adjusted fully diluted 451,986 75,804,150 596p As at 30 December 2004 (Audited) Net assets Number of Net assets £000 shares per share As per the balance sheet 494,537 64,039,578Own shares held - (1,688,411) Net assets per share 494,537 62,351,167 793pConversion of CULS (net of unamortised issue costs) 20,281 10,503,109Exercise of share options 1,897 782,071Capital allowances deferred tax provision 5,807 - Adjusted fully diluted 522,522 73,636,347 710p 12. Return on equity (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Period to 30 June 30 June 30 December 2005 2004 2004 £000 £000 £000 Total recognised gains and losses 26,358 57,149 136,013Opening equity shareholders' funds 494,537 367,126 367,126Return on equity 5.3% 15.6% 37.0%Exceptional items (net of tax) 32,842 - 7,148Total recognised gains and losses before exceptional 59,200 57,149 143,161itemsReturn on equity before exceptional items 12.0% 15.6% 39.0% 13. Reserves Share Capital Share premium Revaluation redemption Own Profit and capital account reserve reserve shares loss account Total £000 £000 £000 £000 £000 £000 £000 As at 31 December 2004 6,404 167,351 247,197 4,289 (3,144) 72,440 494,537Issue of share capital 664 48,884 - - - - 49,548Revaluation of investment properties & - - 7,817 - - - 7,817other fixed assetsShare of revaluation of JVs & - - 36,229 - - - 36,229associatesRealised on disposal of investmentproperties and on - - (1,694) - - 1,694 -dilution of interest in associatesCredit in respect of LTIP charge - - - - - 1,100 1,100Amortisation of cost of own shares - - - - 704 (704) -(Loss)/profit for the period - - - - - (22,568) (22,568)As at 30 June 2005 7,068 216,235 289,549 4,289 (2,440) 51,962 566,663 14. Minority Interest The minority interest arises as a result of Hahn's investment in the Germanportfolio and represents 14.6% of the interest in the portfolio. 15. Reconciliation of net cash (outflow)/inflow from operating activities (Unaudited) (Unaudited) (Audited) 6 months to 6 months to Period to 30 June 30 June 30 December 2005 2004 2004 £000 £000 £000 Group operating profit 20,008 7,522 25,774Profit on sale of trading and development properties (3,119) (40) (327) 16,889 7,482 25,447Depreciation of other fixed assets 150 160 384Amortisation of short leasehold properties 134 134 268Amortisation of tenant incentives 486 (11) (763) Amortisation of goodwill 576 575 1,151Profit on disposal of fixed assets (1) - 1(Increase) in trade debtors, other debtors and prepayments (16,240) (13,002) (29,538)Increase/(decrease) in trade creditors, other creditors,taxation and social security and accruals 2,735 (4,537) 12,169Non cash movement relating to the LTIP 1,100 1,114 1,831Net cash inflow/(outflow) from operating activities 5,829 (8,085) 10,950 16. Debt valuation The table below reflects the adjustment to the interim results, after the impactof corporation tax, required to adjust the carrying value of fixed rate debt andswaps to market value. (Unaudited) (Unaudited) (Audited) As at As at As at 30 June 30 June 30 December 2005 2004 2004 £000 £000 £000 Fixed and swapped loans - on balance sheet 85 2,477 1,242 Group share of associates (9,271) 3,129 (810) Group share of joint ventures (302) 1,139 (110) Total (9,488) 6,745 322 (Decrease)/increase in net assets net of tax at 30% (2004: (6,642) 4,722 22530%) The change from £4.7m surplus to £6.6m deficit arises because the value ofmedium term interest rate swaps have fallen during the period. 17. International Financial Reporting Standards The Group's accounts for the year ended 30 December 2006 will be prepared underIFRS. The interim results for the half year ended 30 June 2006 will thereforebe the first set of results published under IFRS. The IFRS conversion projectis progressing and we will update shareholders at the year end. 18. Copies of the Interim Report Copies of the Interim Report will be available from the Company's registeredoffice at 10 Lower Grosvenor Place, London, SW1W 0EN when they have beenprinted. This interim report was approved by the Board of Directors on 20 September 2005. 19. Interim Dividend The ex-dividend date is 28 September 2005 and the dividend payment date is 14October 2005. Additional information (Neither audited nor reviewed) Property under management 30 June 2005 30 December 2004 £m £m Investment properties 117 83Trading properties - 8Mall Fund 2,316 2,099Junction Fund 1,264 1,010Leisure Funds 634 597Other joint ventures 262 226Total 4,593 4,023 Fund Portfolio information at Junction30 June 2005 Mall Fund Fund X-Leisure Fund Number of core properties 22 19 16Number of tenants 2,179 237 285Square feet (000) 7,179 3,810 2,869Properties at market value £2,316m £1,264m £634mInitial yield 5.45% 3.70% 5.99%Equivalent yield 6.04% 5.34% 6.71%Vacancy rate 5.0% 3.90% 1.70%Net rental income (per annum) £131.4m £51.9m £40.2mEstimated rental income (per annum) £160.2m £70.1m £45.2mRental increase (ERV) 2.46% 5.00% 0.69%Reversionary percentage 10.88% 5.29% 6.66%Loan to value ratio 51.40% 50.30% 61.33%Underlying valuation change since 30 December 2004 3.67% 4.70% 2.60%Property level return 6.00% 6.60% 6.30%Geared return 6.70% 8.13% 8.20%Unit price (£1.00 at inception) £1.8473 £2.0136 £1.2204C&R share 26.31% 27.32% 10.81% Note: 1. Properties under management include tenant incentives which are transferredto current assets for accounting purposes. Glossary of terms Adjusted fully diluted NAV per share includes the Market value is an opinion of the best price at whicheffect of those shares potentially issuable under the the sale of an interest in the property would completeCULS or employee share options. It excludes the unconditionally for cash consideration on the date ofcapital allowances deferred tax provision. valuation (as determined by the Group's external valuers). In accordance with usual practice, the Group's external valuers report valuations net, after the deduction of the prospective purchaser's costs,Capital allowances deferred tax provision In accordance including stamp duty, agent and legal fees.with FRS19, full provision has been made for deferredtax arising on the benefit of capital allowancesclaimed to date. In the Group's experience liabilitiesin respect of capital allowances provided are unlikely Net assets per share (NAV) are shareholders' fundsto crystallise in practice and are therefore excluded divided by the number of shares held by shareholders atwhen arriving at adjusted fully diluted NAV per share. the period end, excluding own shares held. Contingent tax liability is the unprovided further Passing rent is the gross rent, less any ground renttaxation which might become payable if the Group's payable under head leases.investments and properties were sold at their balancesheet values net of any tax losses which have not beenrecognised in the balance sheet. Return on equity is the total return, including revaluation surplus, divided by opening equity plus time weighted additions to share capital, excludingCRPM Capital & Regional Property Management Limited is share options exercised, less reductions in sharea subsidiary company of Capital & Regional plc and capital.earns the management and performance fees arising fromCapital & Regional's interests in the Funds. Reversion is the estimated increase in rent at review where the gross rent is below the estimated rentalCULS is the Convertible Subordinated Unsecured Loan value.Stock. Reversionery percentage is the percentage by which theEarnings per share (EPS) is the profit on ordinary ERV exceeds the passing rent.activities after taxation divided by the weightedaverage number of shares in issue during the periodexcluding own shares held. Reversionary yield is the anticipated yield, which the initial yield will rise to once the rent reaches the estimated rental value.Estimated rental value (ERV) is the Group's externalvaluers' opinion as to the open market rent which, onthe date of valuation, could reasonably be expected tobe obtained on a new letting or rent review of a Total return is the group's total recognised gains andproperty. losses for the period as set out in the Statement of Total Recognised Gains and Losses (STRGL). Equivalent yield is a weighted average of the initialyield and reversionary yield and represents the return Total shareholder return is the growth in price pera property will produce based upon the timing of the share plus dividends per share.income received. In accordance with usual practice,the equivalent yields (as determined by the Group'sexternal valuers) assume rent received annually inarrears and on gross values including prospective UITF 28 "Operating lease incentives" debtors Underpurchasers' cost. accounting rules the balance sheet value of lease incentives given to tenants is deducted from property valuation and shown as a debtor. The incentive is amortised through the profit and loss account.Gearing is the Group's net debt as a percentage of netassets, adjusted for the conversion of the CULS intoequity. See through gearing includes our share of nonrecourse net debt in the associates and joint ventures. Vacancy rate is the estimated rental value of vacant properties expressed as a percentage of the total estimated rental value of the portfolio, excluding development properties. Initial yield is the annualised net rents generated bythe portfolio expressed as a percentage of theportfolio valuation, excluding development properties. IPD is Investment Property Databank Ltd, a company thatproduces an independent benchmark of property returns. This information is provided by RNS The company news service from the London Stock Exchange