CSO - Capital Shopping Centres Group Plc - Capital Shopping Centres Group plc
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
