CSO CSO CSO - Capital Shopping Centres Group Plc - Capital Shopping Centres Group plc audited results for the year ended 31 December 2011 CAPITAL SHOPPING CENTRES GROUP PLC (Registration number UK3685527) ISIN Code: GB0006834344 JSE Code: CSO Issuer Code: CSCSCG Capital Shopping Centres Group PLC 23 February 2012 Capital Shopping Centres Group plc audited results for the year ended 31 December 2011 RESULTS DEMONSTRATE CSC`S CONSIDERABLE PROGRESS IN 2011 - Transformational acquisition of The Trafford Centre - Growth in net rental income and earnings per share - Strong key operational metrics - Growing the pipeline of projects David Fischel, Chief Executive of Capital Shopping Centres Group PLC, commented "The results demonstrate CSC`s considerable progress in 2011. The transformational Trafford Centre acquisition has driven our strong performance and has exceeded our expectations. While the UK economic environment is challenging, CSC is well positioned for growth with assets of uniquely high quality, a considerable capital base, a committed management team and a pipeline of future projects." Enquiries: Capital Shopping Centres Group PLC David Fischel Chief Executive +44 (0)20 7960 1207 Matthew Roberts Finance Director +44 (0)20 7960 1353 Kate Bowyer Investor Relations Manager +44 (0)20 7960 1250 Public relations UK: Michael Sandler/Wendy Baker, Hudson Sandler +44 (0)20 7796 4133 SA: Morne Reinders, College Hill +27 (0)11 447 3030 A presentation to analysts and investors will take place at UBS, 1 Finsbury Avenue, London EC2 at 09.30GMT on 23 February 2012. The presentation will also be available to international analysts and investors through a live audio call and webcast. The presentation will be available on the Group`s website www.capital-shopping- centres.co.uk. A copy of this announcement is available for download from our website www.capital-shopping-centres.co.uk. Contents: Highlights Chairman`s Statement Operating Review Financial Review Top properties Directors` Responsibility Statement Financial Information Investment and Development Property Other Information Glossary Dividends NOTES TO EDITORS Capital Shopping Centres is the leading specialist UK regional shopping centre REIT We own and operate 14 of the very best shopping centres, in the strongest locations right across the country - that`s more than any other operator. With over 16 million sq ft of retail space and a valuation of GBP7 billion, our shopping centres attract 320 million customer visits a year. Every single one of the UK`s top 20 retailers are in our shopping centres, alongside some of the world`s most iconic global brands. Our five major out-of-town centres and nine in-town destinations include ten of the UK`s top 25 shopping centres. Our out-of-town centres include The Trafford Centre, Lakeside, Metrocentre, Braehead, and The Mall at Cribbs Causeway, and our in-town prime destinations include Cardiff, Manchester, Newcastle, Norwich, Nottingham, Bromley, Uxbridge, Watford and Stoke-on-Trent. This means that two thirds of the UK`s population are within a 45 minute drive from one of our centres. In November 2011, we acquired Broadmarsh shopping centre in Nottingham bringing our portfolio to 15 centres. We are a responsible and environmentally conscious participant in the communities where we invest. For further information see www.capital-shopping-centres.co.uk This press release contains "forward-looking statements" regarding the belief or current expectations of Capital Shopping Centres Group PLC, its Directors and other members of its senior management about Capital Shopping Centres Group PLC`s businesses, financial performance and results of operations. These forward-looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside the control of Capital Shopping Centres Group PLC and are difficult to predict, that may cause actual results, performance or developments to differ materially from any future results, performance or developments expressed or implied by the forward-looking statements. These forward-looking statements speak only as at the date of this press release. Except as required by applicable law, Capital Shopping Centres Group PLC makes no representation or warranty in relation to them and expressly disclaims any obligation to update or revise any forward- looking statements contained herein to reflect any change in Capital Shopping Centres Group PLC`s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Any information contained in this press release on the price at which shares or other securities in Capital Shopping Centres Group 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. 2011 HIGHLIGHTS Operational highlights Transformational acquisition of The Trafford Centre - High quality income stream - Valuation increased by GBP50 million to GBP1,700 million - Integration and management changes Strong key operational metrics - Like-for-like net rental income has grown 3.6 per cent - Occupancy remains strong at 97 per cent - 198 new long-term lettings have added GBP9 million additional annual rent for the Group - Footfall is up a further 2 per cent following two years of growth. After a flat autumn, December was up 7 per cent on 2010 - Positive impact on earnings and valuations with underlying earnings per share up 7 per cent to 16.5 pence and property values stable Growing the pipeline of projects - Asset management initiatives underway, notably at Lakeside and Metrocentre - Acquisition of Broadmarsh, Nottingham - Planned capital expenditure of around GBP120 million, covering most centres, plus progress on potential major extensions at Lakeside and Nottingham - Acquisitions of land with potential for future development Robust financial position - New GBP375 million revolving credit facility evidence of access to funding - Wholly owned assets, mostly freehold, make up 75 per cent of investment properties by value Financial highlights (1) Twelve months ended 31 December 2011 (2) 2010 Change Net rental income from continuing operations GBP364m GBP277m up 31% Underlying earnings GBP139m GBP97m up 43% Property revaluation surplus GBP63m GBP501m n/a Profit for the year GBP34m GBP529m n/a Basic EPS continuing operations 2.9p 68.3p n/a Underlying EPS 16.5p 15.4p up 7% Dividend per share (including proposed 10p final dividend) 15.0p 15.0p unchanged 31 December 31 December 2011 2010 Change Market value of investment properties GBP6,960m GBP5,099m up 36% Net external debt GBP3,374m GBP2,437m up 38% Equity attributable to shareholders GBP2,922m GBP2,273m up 29% NAV per share (diluted, adjusted) 391p 390p up 1p Debt to assets ratio 48% 48% unchanged (1) Please refer to glossary for definition of terms (2) 31 December 2011 income data includes Trafford Centre results for the 11 months since acquisition CHAIRMAN`S STATEMENT Introduction Capital Shopping Centres Group PLC is well placed to deal with the challenges and opportunities arising from the current weak economic climate in the UK which is further hampered by wider uncertainties. Adverse conditions do not last forever and represent precisely the time when those who can, should be laying the foundations for future growth - and we are among them. CSC has assets of uniquely high quality overall, a considerable capital base and a committed and resilient management team. We aim to use the creative energy of the organisation to improve CSC`s competitive position in the shopping centre industry over the next few years. Strengths of CSC Let me enlarge on these strengths of CSC. We have in 2011 been building a pipeline of active management projects and growth options, detailed in the Operating Review which follows. This includes planning applications and acquisitions, such as the Broadmarsh Centre, Nottingham, a transaction which should unlock the opportunity for CSC to upgrade the retail offer of Nottingham city centre after a long period of stalemate. We have benefitted from the transformational acquisition of The Trafford Centre at the beginning of 2011, not only because of the high quality income stream but also from the successful integration into CSC of its management and ideas. By any measure, we are robust operationally, with 97 per cent occupancy and three consecutive years of overall footfall increases at our centres. 75 percent of our investment properties are wholly-owned and mostly freehold, underpinning our GBP3.5 billion of shareholders` funds*, with our top quality properties providing a two-fold assurance. First, the leading retailers want to occupy, and shoppers to visit them; secondly, as a result, the performance of the assets comes under less pressure in adverse conditions. The successful completion in late 2011 of a new GBP375 million revolving credit facility with five banks is testimony to the solidity of our financial position and capacity for growth. So is the evident attractiveness of CSC as a potential partner for long-term investors looking to participate in individual assets. While banks may be withdrawing for regulatory reasons from UK property lending, we see an encouraging range of other providers of debt and equity stepping forward to take their place for quality assets. All of this means that we are confident about the company`s ability to manage the key operational risks confronting CSC, as addressed in the Operating Review, of tenant failure and lease expiries. We are positioning the business to emerge powerfully from the next two years during which the UK and Eurozone economies may be expected to be at best subdued. * - adjusted, diluted Results for the year We are pleased to have recorded in 2011 a creditable 3.6 percent increase in like-for-like net rental income and a 7 percent increase in underlying earnings per share. While capital values have been in effect stable, the Trafford Centre acquisition and related capital raising have substantially strengthened the Group`s balance sheet, and interest cover has notably improved in the year. People Everywhere, people are of the utmost importance to CSC: the customers who visit our shopping centres, our tenants, the retailers, and their staff, the teams who run the centres and CSC`s head office employees. We provide an uplifting experience for those who visit our centres and for those who work in the Group a stimulating context for all they do. I want to thank all our employees for the contribution they have made to the attractiveness of our centres and the success of our activities. Our thanks are also due to our executive team who have engineered the smooth absorption of The Trafford Centre into our operations and, in particular, we welcome Mike Butterworth as Chief Operating Officer. I am also grateful to all my fellow Directors whose contributions to our strategy and approach have been very valuable. We have greatly appreciated the important contribution across our entire business with stimulating ideas for many of our centres from John Whittaker in the role of Deputy Chairman since January last year. In September, we were delighted to welcome Lady Patten to the Board as a Non- Executive Director and a member of the Remuneration Committee. Kay Chaldecott stood down as an Executive Director of CSC, on 30 September 2011, after 27 years with the Group. Kay played an instrumental part in the development and success of the Group`s shopping centre business. I would like to thank Kay very warmly on behalf of us all for her years of dedication and role as a member of the executive team. I also want to express particular thanks to Ian Henderson who is standing down from the Board, at our forthcoming Annual General Meeting, after seven years as a Non-Executive Director including a period as Chairman of the Remuneration Committee. Ian also played an important role in the demerger from CSC of Capital & Counties, taking on the role of Deputy Chairman of that business in May 2010. Over the next two years, it is our intention to comply with Lord Davies` recommendations as to the composition of Boards. Remuneration CSC has always been a cost conscious organisation in all facets of its activities. In the case of executives, the Remuneration Committee aims for a balance with base salary set below median and a greater emphasis on performance related pay, commensurate with CSC`s business objectives and risk profile, to provide an appropriately positioned overall level of remuneration. Economic contribution and corporate responsibility We have in 2011 commissioned a third party exercise to assess the economic contribution of CSC`s regional shopping centres. For example, we now estimate some 80,000 people are directly employed in our shopping centres with around a further 25,000 indirect jobs also supported in the local economies. Corporate responsibility is woven into the fabric of our business. We are active in all the communities in which we are located and address with them many local concerns, particularly focussing on youth, education and health issues. These local engagements extend to a national level in terms of our efforts to meet a number of environmental targets - efforts that have been recognised in a number of important national awards. Over the last five years, we have reduced our energy use on a like-for-like basis by a significant 18 per cent while we have increased recycling as a percentage of all waste from 33 per cent to an impressive 75 per cent. Dividends The Directors are recommending a final dividend of 10.0 pence per share bringing the amount paid and payable in respect of 2011 to 15.0 pence, the same as 2010 and covered by the underlying earnings per share for 2011 of 16.5 pence. 2.5 pence of the final dividend (2010 - 5.0 pence) will be paid as a Property Income Distribution (PID), subject to withholding tax as appropriate. As previously highlighted, the rules governing UK REITs were recently amended and scrip dividends are now eligible to be classified as a PID. To give the company the additional flexibility this would provide, a resolution will be proposed to shareholders at the forthcoming AGM in April 2012 to establish a scrip dividend scheme. If approved by the AGM, and dependent on the stock market conditions at the time, the Board could choose to offer a scrip alternative for an individual dividend, including for the 2011 final dividend. In particular, the level of the share price relative to the net asset value per share would be taken into consideration. Prospects CSC has made very considerable progress in 2011, the first full year since the demerger of Capital & Counties in May 2010, and we are well placed to continue to develop the overall business. As the retail market evolves, the scarcity value of CSC`s high quality assets is increasing, together with the value of CSC`s operating skills. Our large scale in the industry continues to be a benefit as we strengthen our key relationships with retailers and improve our operating performance. CSC is a single minded organisation, focused on one industry, in which a long- term approach is crucial to be a successful participant. Our challenge for 2012 and beyond is to continue to optimise the performance of existing assets while seizing opportunities to enhance returns further by creating new income streams whether organically or by acquisition. Patrick Burgess Chairman 23 February 2012 OPERATING REVIEW Introduction CSC`s focus is on providing compelling retail and leisure destinations for shoppers, with broad national coverage including 10 of the UK`s top 25 shopping centres. Two thirds of the UK`s population live within a 45 minute drive of a CSC shopping centre. This scale and specialist approach gives CSC strong relationships with retailers, providing opportunities for both CSC and the retailers` businesses to develop. CSC`s objective is to create long-term and sustainable income growth to drive capital appreciation and hence attractive shareholder returns. We made significant progress on the three key objectives for 2011, namely: - continued enhancement of our centres - growth in like-for-like net rental income - integration of the Trafford Centre team and operations We start 2012 with robust operating indicators. Value creation through continued enhancement of CSC`s destinations CSC aims to provide great retail and leisure experiences so that shoppers prefer to spend their time at one of our centres than on one of the many other activities competing for their attention. By providing entertainment, a sense of theatre and catering outlets, as well as the full range of major brands, our centres have recorded some 320 million customer visits in 2011, almost a million a day. Combined with the efficient delivery of facilities and operational services to retailers, CSC aims to create an environment in which the retailers` brands can flourish. This drives rental levels over the long term and reduces the risk associated with tenant failures and lease expiries. Four main aspects are central to CSC`s business proposition: - Tenant mix Retailers are highly aware of how their brand performs relative to competitors and complementary offers. The right neighbouring stores guarantee a flow of potential customers and cut down risk when investing in a new location. CSC has been successful in attracting the brands customers most want to see - for example 6 centres now have both Apple and Hollister. 33 new brands have been introduced to CSC centres during 2011 and 14 new names brought to Wales at St. Davids, Cardiff. - Top quality centres As several retailers have publicly commented, not all stores contribute equally to their business. In focusing their investment on the stronger centres that attract the highest footfall, retailers get the most cost effective and reliable access to potential customers. CSC`s footfall has continued rising over the last 3 years by contrast to UK retail footfall statistics published by Experian which have shown falls. - Minimal new supply With minimal new supply of retail space at UK regional shopping centres, retailers requiring larger spaces for flagship stores in the best locations are driving rental levels forward. Recent lettings of larger space at The Trafford Centre have created new higher levels of evidence for certain 2013 rent reviews. The competitive challenge for established shopping centres is to reinforce the superiority of their tenant mix, experience and service over other formats available to retailers and shoppers such as the traditional high street, retail parks, outlet centres, superstores and online shopping. - New initiatives Retail is a dynamic sector, with shoppers and retailers attracted to locations where something fresh is happening. A continuing trend in 2011 has been improved catering, with a 25 per cent increase in CSC`s passing rent from catering operators and almost 400 catering outlets now among CSC`s 2,500 units. Other projects are outlined below in Plans for major centres. Capital expenditure and active management In positioning CSC for the future, 4 planning consents have been obtained during 2011 and a further 4 have been submitted and are awaiting determination. Capital expenditure of GBP77 million is committed or accrued and there are a variety of active management projects totalling around GBP120 million over the next three years. In aggregate we anticipate creating a stabilised initial yield on cost of around 10 per cent on these projects. We have also acquired assets where they increase our strategic flexibility: - In November we bought Broadmarsh, the second shopping centre in Nottingham, for GBP73 million - In two transactions since the year end which arose from our closer relationship with the Peel Group, we purchased for GBP4.7 million a 31 acre site adjacent to Braehead and obtained for 2.5 million an option over an approximately 60 acre site in Southern Spain with planning consent for a major regional shopping centre Net rental income Net rental income (NRI) of GBP364 million is 31 per cent above that of 2010 including eleven months of The Trafford Centre. On a like-for-like basis, it has grown by 3.6 per cent for the year, with the majority of the relative increase being recorded in the first half (up 6.1 per cent like-for-like) as the effect of leases signed in 2010 flowed through. Growth in like-for-like net rental income (GRAPHIC REMOVED - PLEASE SEE PAGE 7 OF FULL ANNOUNCEMENT WHICH CAN BE FOUND AT WWW.CAPITAL-SHOPPING-CENTRES.CO.UK) Individual centres showing strong recovery include Lakeside, up 5 per cent, and Chapelfield, Norwich, up 10 per cent, due to improved occupancy levels and tenant mix. The extension to St David`s, now 95 per cent committed, contributed an extra GBP4 million. Conversely, flexible deals in preparation for the planned extension at Victoria Centre, Nottingham, brought its NRI down by 9 per cent. Year ended Year ended 31 December 31 December 2011 2010 GBPm GBPm Gross rental income 432 350 Head rent payable (26) (24) 406 326 Net service charge expense and void rates (9) (10) Bad debt and lease incentive write-offs (6) (5) Property operating expense (27) (34) Net rental income 364 277 The Group`s net rental income margin increased significantly in the year as operating costs reduced while income grew following the Trafford Centre acquisition and leasing activity at the existing centres. Property operating expense in 2011 includes GBP10 million of direct costs in respect of the Group`s car park operations and a GBP7 million contribution towards shopping centre marketing. Occupancy Occupancy remains high at 96.7 per cent (31 December 2010 - 97.7 per cent). The bulk of the decrease can be attributed to tenants representing around 1 per cent of rent entering administration in the fourth quarter, compared to none in the same period of 2010. This brought the total of tenant failures for 2011 to 3 per cent of rent. The first few weeks of 2012 have seen failures amounting to a further 2 per cent of rent, the majority of which are still trading. Lettings Notwithstanding the deterioration in the UK macro environment in the second half of 2011, steady progress has been made in securing new lettings. 198 long- term lettings have been completed in the year increasing the annual re